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                                                                    EXHIBIT 10.6

                      FIRST FEDERAL SAVINGS BANK OF IRONTON

                            INDEMNIFICATION AGREEMENT

         This Indemnification Agreement ("Agreement") is made as of this 12th
day of September, 2002, by and between First Federal Savings Bank of Ironton
(the "Bank"), and Thomas D. Phillips ("Indemnitee").

         WHEREAS, the Bank and Indemnitee recognize the increasing difficulty in
obtaining directors' and officers' liability insurance, the significant
increases in the cost of such insurance and the general reductions in the
coverage of such insurance;

         WHEREAS, the Bank and Indemnitee further recognize the substantial
increase in corporate litigation in general, subjecting officers and directors
to expensive litigation risks at the same time as the availability and coverage
of liability insurance has been severely limited;

         WHEREAS, Indemnitee does not regard the current protection available as
adequate under the present circumstances, and Indemnitee and other officers and
directors of the Bank may not be willing to continue to serve as officers and
directors without additional protection; and

         WHEREAS, the Bank desires to attract and retain the services of highly
qualified individuals, such as Indemnitee, to serve as officers and directors of
the Bank and to indemnify its officers and directors so as to provide them with
the maximum protection permitted by law.

         NOW, THEREFORE, the Bank and Indemnitee hereby agree as follows:

         1.     Indemnification.

                (a) GENERAL. The Bank shall indemnify Indemnitee if Indemnitee
is or was a party or is threatened to be made a party to any threatened, pending
or completed action, suit or proceeding, whether civil, criminal, administrative
or investigative by reason of the fact that Indemnitee is or was a director,
officer, employee or agent of the Bank, or any subsidiary of the Bank, by reason
of any action or inaction on the part of Indemnitee while an officer or director
or by reason of the fact that Indemnitee is or was serving at the request of the
Bank as a director, officer, employee or agent of another corporation,
partnership, joint venture, trust or other enterprise, with respect to any
amount for which Indemnitee becomes liable under a judgment in connection with
such action, suit or proceeding, and reasonable expenses, including reasonable
attorneys' fees, actually paid or incurred by Indemnitee in defending or
settling such action, suit or proceeding, or in enforcing Indemnitee's rights to
indemnification if Indemnitee obtains a favorable judgment in such action, suit
or proceeding, provided that indemnification shall be made to Indemnitee only if
Indemnitee obtains a final judgment on the merits in his or her favor or, in
case of settlement, final judgment against Indemnitee, or final judgment in
Indemnitee's favor, other than on the merits, if such indemnification is
approved by a majority of disinterested

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directors of the Bank who conclude that Indemnitee acted in good faith within
the scope of his or her employment or authority as Indemnitee could reasonably
have perceived and for a purpose that Indemnitee could reasonably have believed,
under the circumstances, to be in the best interests of the Bank.

                 (b) No indemnification shall be provided by the Bank pursuant
to Subsection 1(a) unless the Bank gives the Office of Thrift Supervision, or
any successor thereto (the "OTS"), at least 60 days notice of its intention to
make such indemnification, and the OTS does not advise the Bank in writing
within such 60 day period, of its objection to such indemnification.

         2. Expenses; Indemnification Procedure.

                 (a) ADVANCEMENT OF EXPENSES. If a majority of the directors of
the Bank concludes that, in connection with an action, suit or proceeding
referenced in Subsection 1(a), Indemnitee ultimately may become entitled to
indemnification pursuant to Section 1, the directors may authorize the payment
of reasonable costs and expenses, including reasonable attorneys' fees, arising
from the defense or settlement of such action, suit or proceeding. Indemnitee
hereby undertakes to repay such amounts advanced only if, and to the extent
that, it shall ultimately be determined that the Indemnitee is not entitled to
be indemnified by the Bank as authorized hereby. The advances to be made
hereunder shall be paid by the Bank to Indemnitee within ten (10) days following
authorization thereof by the directors of the Bank, at a special or regular
meeting of the directors of the Bank, which meeting shall be held as promptly as
possible, pursuant to the Bank' Bylaws, after delivery of a written request for
the advancement of expenses by Indemnitee to the Bank.

                 (b) NOTICE/COOPERATION BY INDEMNITEE. Indemnitee shall, as a
condition precedent to his right to be indemnified under this Agreement, give
the Bank notice in writing as soon as practicable of any claim made against
Indemnitee for which indemnification will or could be sought under this
Agreement. Notice to the Bank shall be directed to the Secretary of the Bank at
the address shown on the signature page of this Agreement (or such other address
as the Bank shall designate in writing to Indemnitee). Notice shall be deemed
received five (5) days after the date postmarked, if sent by domestic certified
or registered mail, properly addressed; otherwise when such notice shall
actually be received by the Bank. In addition, Indemnitee shall (i) give the
Bank such information and cooperation as it may reasonably require and as shall
be within Indemnitee's power and (ii) upon request of the Bank testify at, or be
deposed in connection with, any proceeding to adjudicate or consider a claim
against Indemnitee for which indemnification will or could be sought under this
Agreement.

                 (c) PROCEDURE. Any indemnification and advancement of expenses
provided for in Section 1 and this Section 2 shall be made as promptly after the
expiration of OTS' sixty (60) day notice period as possible. Upon receipt of the
written request of Indemnitee, if the Bank can provide such indemnification and
advancement of expenses without approval of its directors, notice thereof shall
be sent to the OTS within five (5) days of receipt of the written request of
Indemnitee by the Bank, copying Indemnitee on such notice. In the event that
director approval is required, then the Bank shall notify its directors and hold
a special or regular meeting as promptly as possible pursuant to its Bylaws, and
upon action by its directors, if a majority of the

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directors approve such indemnification and advancement of expenses, notice
thereof shall be sent the same day to the OTS with a copy of such notice also
being sent to Indemnitee. If the OTS objects to such indemnification and/or
advancement of expenses written notice thereof shall be sent to the Indemnitee
promptly following the Bank's receipt of such notice from the OTS. If a claim
under this Agreement, under any statute, or under any provision of the Bank's
Charter or Bylaws providing for indemnification, is not paid in full by the Bank
within fifteen (15) days after the expiration of the OTS' sixty (60) day notice
period, if no objection to such indemnification was made by the OTS, Indemnitee
may, but need not, at any time thereafter bring an action against the Bank to
recover the unpaid amount of the claim and, if successful in whole or in part,
Indemnitee shall also be entitled to be paid for the expenses (including
attorneys' fees) of bringing such action. It shall be a defense to any such
action (other than an action brought to enforce a claim for expenses incurred in
connection with any action, suit or proceeding in advance of its final
disposition) that Indemnitee has not met the standards of conduct which make it
permissible under applicable law for the Bank to indemnify Indemnitee for the
amount claimed, but the burden of proving such defense shall be on the Bank, and
Indemnitee shall be entitled to receive interim payments of expenses pursuant to
Subsection 2(a) unless and until such defense may be finally adjudicated by
court order or judgment from which no further right of appeal exists. It is the
parties' intention that, if the Bank contests Indemnitee's right to
indemnification, the question of Indemnitee's right to indemnification shall be
for the court to decide, and neither the failure of the Bank (including its
Board of Directors, independent legal counsel, or its shareholders) to have made
a determination that indemnification of Indemnitee is proper in the
circumstances because Indemnitee has met the applicable standard of conduct
required by applicable law, nor an actual determination by the Bank (including
its Board of Directors, any committee or subgroup of the Board of Directors,
independent legal counsel, or its shareholders) that Indemnitee has not met such
applicable standard of conduct, shall create a presumption that Indemnitee has
or has not met the applicable standard of conduct.

                 (d) NOTICE TO INSURERS. If, at the time of the receipt of a
notice of a claim pursuant to Subsection 2(b) hereof, the Bank has director and
officer liability insurance in effect, the Bank shall give prompt notice of the
commencement of such proceeding to the insurers in accordance with the
procedures set forth in the respective policies. The Bank shall thereafter take
all necessary or desirable action to cause such insurers to pay, on behalf of
the Indemnitee, all amounts payable as a result of such proceeding in accordance
with the terms of such policies.

                 (e) SELECTION OF COUNSEL. In the event a majority of the
directors of the Bank shall determine under Subsection 2(a) hereof to pay the
expenses of any proceeding against the Indemnitee, the Bank, if appropriate,
shall be entitled to assume the defense of such proceeding, with counsel
approved by the Indemnitee, which counsel may be counsel for the Bank, upon the
delivery to the Indemnitee of written notice of its election so to do. After
delivery of such notice, approval of such counsel by the Indemnitee and the
retention of such counsel by the Bank, the Bank will not be liable to the
Indemnitee under this Agreement for any fees of counsel subsequently incurred by
the Indemnitee with respect to the same proceeding, provided that (i) the
Indemnitee shall have the right to employ his counsel in any such proceeding, at
the Indemnitee's sole expense; and (ii) if (A) the employment of counsel by the
Indemnitee has been previously authorized by the Bank, (B) the Indemnitee shall
have reasonably concluded that there may be a conflict of interest between the
Bank and the Indemnitee in the conduct of any such defense or (C) the Bank shall
not, in fact, have employed counsel to assume the defense of

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such proceeding, the fees and expenses of Indemnitee's counsel shall be at the
expense of the Bank.

         3. Additional Indemnification Rights; Nonexclusivity.

                 (a) SCOPE. Notwithstanding any other provision of this
Agreement, the Bank hereby agrees to indemnify the Indemnitee to the fullest
extent permitted by law, notwithstanding that such indemnification is not
specifically authorized by the other provisions of this Agreement, the Bank's
Charter, the Bank's Bylaws or by statute. In the event of any change, after the
date of this Agreement, in any applicable law, statute, or rule which expands
the right of a federal savings institution to indemnify a member of its board of
directors or an officer, such changes shall be, ipso facto, within the purview
of Indemnitee's rights and Bank's obligations, under this Agreement. In the
event of any change in any applicable law, statute or rule which narrows the
right of a federal savings institution to indemnify a member of its board of
directors or an officer, such changes, to the extent not otherwise required by
such law, statute or rule to be applied to this Agreement shall have no effect
on this Agreement or the parties' rights and obligations hereunder.

                 (b) NONEXCLUSIVITY. The indemnification provided by this
Agreement shall not be deemed exclusive of any rights to which an Indemnitee may
be entitled under the Bank's Charter, its Bylaws, any agreement, any vote of
stockholders or disinterested Directors, the Home Owners' Loan Act of 1933, as
amended, and the regulations promulgated thereunder, the Federal Deposit
Insurance Act, and the regulations promulgated thereunder, each as may be
amended from time to time, or otherwise, both as to action in Indemnitee's
official capacity and as to action in another capacity while holding such office
(each an "Indemnified Capacity"). The indemnification provided under this
Agreement shall continue as to Indemnitee for any action taken or not taken
while serving in an Indemnified Capacity even though he may have ceased to serve
in an Indemnified Capacity at the time of any action, suit or other covered
proceeding.

         4. PARTIAL INDEMNIFICATION. If Indemnitee is entitled under any
provision of this Agreement to indemnification by the Bank for some or a portion
of the expenses, judgments, fines or penalties actually and reasonably incurred
by him in the investigation, defense, appeal or settlement of any action, suit
or proceeding, but not, however, for the total amount thereof, the Bank shall
nevertheless indemnify Indemnitee for the portion of such expenses, judgments,
fines or penalties to which Indemnitee is entitled.

         5. MUTUAL ACKNOWLEDGMENT. Both the Bank and Indemnitee acknowledge that
in certain instances, Federal law or public policy may prohibit the Bank from
indemnifying its directors and officers under this Agreement or otherwise. For
example, the Company and Indemnitee acknowledge that the Bank, a federal savings
institution, is subject to the prohibitions and limitations on indemnification
set forth in the federal banking laws including, without limitation, Sections
8(k) and 18(k) of the Federal Deposit Insurance Act and the regulations
promulgated thereunder.

         6. OFFICER AND DIRECTOR LIABILITY INSURANCE. The Bank shall, from time
to time, make the good faith determination whether or not it is practicable for
the Bank to obtain and maintain a

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policy or policies of insurance with reputable insurance companies providing the
officers and directors of the Bank with coverage for losses from wrongful acts,
or to ensure the Bank's performance of its indemnification obligations under
this Agreement. Among other considerations, the Bank will weigh the costs of
obtaining such insurance coverage against the protection afforded by such
coverage. Notwithstanding the foregoing, the Bank shall have no obligation to
obtain or maintain such insurance if the Bank determines in good faith that such
insurance is not reasonably available, the premium costs for such insurance are
disproportionate to the amount of coverage provided, the coverage provided by
such insurance is limited by exclusions so as to provide an insufficient
benefit, or the Indemnitee is covered by similar insurance maintained by a
subsidiary or parent company of the Bank

         7. SEVERABILITY. Nothing in this Agreement is intended to require or
shall be construed as requiring the Bank to do or fail to do any act in
violation of applicable law. The Bank's inability, pursuant to court order, to
perform its obligations under this Agreement shall not constitute a breach of
this Agreement. The provisions of this Agreement shall be severable as provided
in this Section 6. If this Agreement or any portion hereof shall be invalidated
on any ground by any court of competent jurisdiction, then the Bank shall
nevertheless indemnify Indemnitee to the full extent permitted by any applicable
portion of this Agreement that shall not have been invalidated, and the balance
of this Agreement not so invalidated shall be enforceable in accordance with its
terms.

         8. EXCEPTIONS. Any other provision herein to the contrary
notwithstanding, the Bank shall not be obligated pursuant to the terms of this
Agreement:

                 (a) CLAIMS INITIATED BY INDEMNITEE. To indemnify or advance
expenses to Indemnitee with respect to proceedings or claims initiated or
brought voluntarily by Indemnitee and not by way of defense, except with respect
to proceedings brought to establish or enforce a right to indemnification under
this Agreement or any other statute or law or otherwise as required under
applicable federal law, but such indemnification or advancement of expenses may
be provided by the Bank in specific cases if the Board of Directors finds it to
be appropriate; or

                 (b) LACK OF GOOD FAITH. To indemnify Indemnitee for any
expenses incurred by the Indemnitee with respect to any proceeding instituted by
Indemnitee to enforce or interpret this Agreement, if a court of competent
jurisdiction determines that each of the material assertions made by the
Indemnitee in such proceeding was not made in good faith or was frivolous; or

                 (c) Notwithstanding the foregoing, the Bank shall not be
obligated to indemnify Indemnitee for expenses or liabilities of any type
whatsoever (including, but not limited to, judgments, fines, ERISA excise taxes
or penalties, and amounts paid in settlement) which have been paid directly to
Indemnitee by an insurance carrier under a policy of officers' and directors'
liability insurance maintained by the Bank.

         9. CONSTRUCTION OF CERTAIN PHRASES.

                 (a) For purposes of this Agreement, references to the "Bank"
shall include, in addition to the resulting corporation, any constituent
corporation (including any constituent of a

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constituent) absorbed in a consolidation or merger which, if its separate
existence had continued, would have had power and authority to indemnify its
directors, officers, and employees or agents, so that if Indemnitee is or was a
director, officer, employee or agent of such constituent corporation, or is or
was serving at the request of such constituent corporation as a director,
officer, employee or agent of another corporation, partnership, joint venture,
trust or other enterprise, Indemnitee shall stand in the same position under the
provisions of this Agreement with respect to the resulting or surviving
corporation as Indemnitee would have with respect to such constituent
corporation if its separate existence had continued.

                 (b) For purposes of this Agreement, references to "other
enterprises" shall include employee benefit plans; references to "fines" shall
include any excise taxes assessed on Indemnitee with respect to an employee
benefit plan; and references to "serving at the request of the Bank" shall
include any service as a director, officer, employee or agent of the Bank which
imposes duties on, or involves services by, such director, officer, employee or
agent with respect to an employee benefit plan, its participants, or
beneficiaries; and if Indemnitee acted in good faith and in a manner Indemnitee
reasonably believed to be in the interest of the participants and beneficiaries
of an employee benefit plan Indemnitee shall be deemed to have acted in a manner
"not opposed to the best interests of the Bank" as referred to in this
Agreement.

         10. COUNTERPARTS. This Agreement may be executed in one or more
counterparts, each of which shall constitute an original.

         11. SUCCESSORS AND ASSIGNS. This Agreement shall be binding upon the
Bank and its successors and assigns, and shall inure to the benefit of
Indemnitee and Indemnitee's estate, heirs, legal representatives and assigns.

         12. ATTORNEYS' FEES. In the event that any action is instituted by
Indemnitee under this Agreement to enforce or interpret any of the terms hereof,
Indemnitee shall be entitled to be paid all court costs and expenses, including
reasonable attorneys' fees, actually and reasonably incurred by Indemnitee with
respect to such action, unless as a part of such action, the court of competent
jurisdiction determines that each of the material assertions made by Indemnitee
as a basis for such action were not made in good faith or were frivolous. In the
event of an action instituted by or in the name of the Bank under this Agreement
or to enforce or interpret any of the terms of this Agreement, Indemnitee shall
be entitled to be paid all court costs and expenses, including attorneys' fees,
incurred by Indemnitee in defense of such action (including with respect to
Indemnitee's counterclaims and cross-claims made in such action), unless as a
part of such action the court determines that each of Indemnitee's material
defenses to such action were made in bad faith or were frivolous.

         13. NOTICE. All notices, requests, demands and other communications
under this Agreement shall be in writing and shall be deemed duly given (i) if
delivered by hand and receipted for by the party addressee or (ii) if mailed by
certified or registered mail with postage prepaid, on the third business day
after the mailing date. Addresses for notice to either party are as shown on the
signature page of this Agreement, or as subsequently modified by written notice.

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         14. CHOICE OF LAW. This Agreement shall be governed by and its
provisions construed in accordance with the laws of the United States where
applicable and otherwise by the substantive laws of the State of Delaware.

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

                                      FIRST FEDERAL SAVINGS BANK OF IRONTON

                                      By:  /s/ I. Vincent Rice
                                           ------------------------
                                           Name:
                                           Title: President/CEO

                                           Address:  415 Center Street
                                                     Ironton, Ohio 45638

AGREED TO AND ACCEPTED:

INDEMNITEE:

/s/ Thomas D. Phillips
----------------------
Name: Thomas D. Phillips

Address: 1005 S 6th St.
         Ironton, OH 45638

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                                                        EXHIBIT 10.1

                      100% QUOTA SHARE REINSURANCE CONTRACT
                                (the "AGREEMENT")

                                     between

                  PENN TREATY NETWORK AMERICA INSURANCE COMPANY
                                   ("PTNAIC")

                                       and

                       AMERICAN NETWORK INSURANCE COMPANY
                                    ("ANIC")
                                 on the one hand
      (hereinafter, each a "REINSURED", and collectively, the "REINSUREDS")

                                       and

                       CENTRE SOLUTIONS (BERMUDA) LIMITED
                                  ("REINSURER")
                                on the other hand

         (hereinafter, each a "PARTY", and collectively, the "PARTIES")

                          ARTICLE 1 - BUSINESS COVERED

In consideration of the premiums to be paid by the Reinsureds, and subject to
the terms, conditions, limits, limitations and exclusions of this Agreement, the
Reinsurer shall indemnify each of the Reinsureds severally and not jointly, for
all Ultimate Net Loss actually paid on or after Effective Date (hereinafter
defined) by the respective Reinsured on any loss or losses occurring under any
and all policies of individual Long Term Care insurance issued by or on behalf
of either Reinsured in force at the Effective Date and identified in the
attached Appendix A (each a "POLICY", collectively, the "POLICIES"). In no event
shall the Reinsurer be liable for more than the Reinsurer's Aggregate Limit of
Liability (as defined Article 14 herein).

                                ARTICLE 2 - TERM

This Agreement shall become effective at 12:01 a.m., E.S.T., on December 31,
2001 (the "EFFECTIVE DATE") and shall remain in full force and effect until
cancelled or commuted in accordance with the provisions of Article 25 or Article
26 of this Agreement.

                               ARTICLE 3 - NOTICES

Any communication required or permitted to be given or delivered under this
Agreement shall be in writing and shall be personally delivered (delivery is
effective upon receipt), sent by a reputable international courier service
(delivery is effective on the business day following delivery) or sent by
certified mail, return receipt requested, postage prepaid (delivery is effective
upon receipt), addressed to the respective Party intended at the respective
address set forth below, or at such other address as may be designated by notice
given to the other Party in the manner provided in this Article 3.

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                  If to the Reinsureds, or either of them, to:

                            American Network Insurance Company
                            Penn Treaty Network America Insurance Company
                            3440 Lehigh Street
                            Allentown, PA 18103-7001
                            Attention: William W. Hunt, President and C.O.O.

                  If to the Reinsurer, to:

                            Centre Solutions (Bermuda) Limited
                            90 Pitts Bay Road
                            Pembroke HM 08
                            Bermuda
                            Attention: Michael Crow, Vice President

                  with a copy to:

                            Centre Group, LLC
                            One Chase Manhattan Plaza
                            New York, NY 10005
                            Attention: General Counsel

                              ARTICLE 4 - TERRITORY

The territorial limits of this Agreement shall be identical with those of the
Reinsureds' Policies and shall apply to losses wheresoever occurring.

                             ARTICLE 5 - EXCLUSIONS

The following shall be excluded from Ultimate Net Loss and the Reinsurer shall
have no liability under this Agreement for any loss, damage, claim, liability,
cost or expense of any nature (including without limitation any bodily injury,
property damage, business interruption, lost profit, consequential or indirect
losses, damages, claims, liabilities, costs or expenses) and wherever occurring
resulting from, arising out of or related to any of the following:

         (a) ECO Loss. As defined in Article 15 of this Agreement.

         (b) Insolvency Fund. Any or all liability arising, by contract,
         operation of law, or otherwise, from either Reinsured's respective
         participation or membership, whether voluntary or involuntary, in any
         insolvency fund. "INSOLVENCY FUND" includes any guaranty, insolvency
         fund, "plan pool", association, fund or other arrangement, howsoever
         denominated, established or governed, which provides for any assessment
         of or payment or assumption by the Reinsured of part or all of any
         claim, debt, charge, fee, or other obligation of an insurer, or its
         successors or assigns, which has been declared by any competent
         authority to be insolvent, or which is otherwise deemed unable to meet
         any claim, debt, charge, fee or other obligation in whole or in part.

         (c) Nuclear Hazard. All as more particularly set forth and defined in
         Appendix E of this Agreement.

         (d) Terrorism. All as more particularly set forth and defined in
         Appendix F of this Agreement.

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         (e) War and Military Action. (1) War, including undeclared or civil
         war; (2) Warlike action by a military force, including action in
         hindering or defending against an actual or expected attack, by any
         government, sovereign or other authority using military personnel or
         other agents; or (3) Insurrection, rebellion, revolution, usurped
         power, or action taken by governmental authority in hindering or
         defending against any of these.

                 ARTICLE 6 - REINSURANCE PREMIUM; FUNDS WITHHELD

1. INITIAL PREMIUM. The Reinsureds shall pay to the Reinsurer on the Payment
Date, an initial premium of $619,529,327 ("INITIAL PREMIUM"); such amount
represents $601,578,667 consisting of Qualified Securities (as defined in
Article 15 herein) valued at amortized cost, and the balance in cash.

2. INTEREST. In addition to the payment of Initial Premium, interest shall be
paid on the Payment Date by the Reinsureds to the Reinsurer in the amount of
$6,630,940.03 (the "INTEREST"); such payment represents interest on the Initial
Premium from the Effective Date on the total sum of the Initial Premium payable,
less that amount retained in the Funds Withheld Account as of the Effective
Date.

3.   FUNDS WITHHELD.

         (a) PTNAIC shall retain as security on a "Funds Withheld" basis from
         the Initial Premium payable to the Reinsurer the total sum of
         $56,000,000 of the Initial Premium. Such retained Initial Premium shall
         be held in a notional funds withheld account ("FWA") on a fiduciary
         basis as security in accordance with the provisions of Article 41 -
         Security, and in satisfaction of Reinsurer's obligations thereunder,
         subject further to the right to set off in accordance with Article 37 -
         Offset. The FWA shall accrue interest calculated in the manner provided
         for in paragraph (d) below. PTNAIC must reduce the amount retained in
         such FWA by remitting to the Reinsurer, in cash, within fifteen (15)
         business days of the dates indicated below, the following portions of
         the balance in the respective FWA at each date:

                      December 31, 2003     1/6
                      December 31, 2004     1/5
                      December 31, 2005     1/4
                      December 31, 2006     1/3
                      December 31, 2007     1/2
                      December 31, 2008     100%

         Upon providing notification to Reinsurer of the Reinsureds' election to
         commute this Agreement, pursuant to Article 25 - Commutation, PTNAIC
         shall pay the balance of the FWA to the Reinsurer.

         (b) PTNAIC is entitled to make earlier payments than scheduled in the
         preceding paragraph (a) at its sole discretion without penalty.

         (c) Notwithstanding any other provision of this Agreement, the
         Reinsurer reserves the right at any time and for any reason (or for no
         reason) to terminate the FWA security arrangement and to demand that
         PTNAIC remit the then outstanding balance (inclusive of applicable
         interest calculated as provided for in paragraph (d) below) in the FWA
         by giving PTNAIC at least fifteen (15) business days prior written
         notice. In such event, PTNAIC shall immediately release such security
         and transfer the amount in the FWA to the Reinsurer as directed by the
         Reinsurer on the fifteenth (15th) business day following delivery of
         such demand from the Reinsurer.

         (d) For so long as the FWA is maintained, PTNAIC, upon written request
         of the Reinsurer, shall offset Ultimate Net Loss and Reinsurance
         Allowance due and payable by

                                       3
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         the Reinsurer under this Agreement from the positive balance of funds
         maintained in the FWA. The Reinsurer shall be under no obligation to
         reimburse either Reinsured, any successor in interest or statutory
         receiver, liquidator, rehabilitator (or the like) for any Ultimate Net
         Loss or Reinsurance Allowance as long as there is a positive amount in
         the FWA.

         (e) The FWA shall accrue interest at a rate calculated as follows:

                           (i) At all times when the FWA is less than or equal
                  to the amount of PTNAIC COLI Investments (hereinafter defined
                  in Article 15), the rate of interest shall be equal to the
                  greater of (x) the actual total rate of return on the PTNAIC
                  COLI Investments or (y) a rate equal to the Experience Account
                  Investment Return.

                           (ii) At all times when the FWA is greater than the
                  amount of PTNAIC COLI Investments, the rate of interest on the
                  amount of FWA equal to the PTNAIC COLI Investment amount shall
                  be as calculated in the immediately preceding paragraph (i),
                  and the rate of interest on the excess of the FWA over the
                  amount of PTNAIC/COLI Investment amount shall be equal to the
                  Experience Account Investment Return.

4. REINSURANCE PREMIUMS. The Reinsureds shall pay to the Reinsurer after the
Effective Date, all Net Premiums received on and after the Effective Date (or
deemed received in the case of waived premiums) by the Reinsureds in connection
with the Policies, to be paid as and when received (or deemed received in the
case of waived premiums) by the Reinsureds, except that the Net Premiums
received prior to the Payment Date shall be paid on the Payment Date.

                        ARTICLE 7 - REINSURANCE ALLOWANCE

1. The Reinsurer shall pay to the Reinsureds collectively, a Reinsurance
Allowance each calendar year equal to the sum of:

         (a) 17.15% of Net Premiums received by the Reinsurer during that
         calendar year (provided however, should either Reinsured file and
         implement any premium rate increases on the Policies after the
         Effective Date the amount of Net Premiums for each Policy for the
         purpose of this clause (a) only, shall be equal to the Net Premiums had
         no premium rate increase taken effect), plus

         (b) 2.5% of Net Premiums received by the Reinsurer during that calendar
         year, plus

         (c) 3.5% of:

                           (i)  Ultimate Net Loss paid in the calendar year,
                  plus

                           (ii) The statutory claim reserve (excluding Loss
                  Adjustment Expense reserves) as indicated by the Annual
                  Statement filed by each Reinsured in its state of domicile as
                  of the end of that calendar year, but in no event less than
                  the statutory claim reserve as indicated by the Annual
                  Statement filed by each Reinsured in its state of domicile as
                  of the Effective Date (excluding Loss Adjustment Expense
                  reserves),minus

                           (iii) The statutory claim reserve (excluding Loss
                  Adjustment Expense reserves) as indicated by the Annual
                  Statement of each Reinsured in its state of domicile for the
                  immediately preceding calendar year, but in no event less than
                  the statutory claim reserve as indicated by the Annual
                  Statement filed by each Reinsured in its state of domicile as
                  of the Effective Date (excluding Loss Adjustment Expense
                  reserves).

                                       4
<PAGE>

         For avoidance of doubt, that part of the Reinsurance Allowance set
         forth in this Article 7, paragraph (1)(c) represents payment in
         satisfaction of the Loss Adjustment Expenses incurred by or on behalf
         of the Reinsureds under this Agreement relating to the Policies. No
         additional amount of Loss Adjustment Expense shall otherwise be due to
         the Reinsureds. However, the Reinsurer and the Reinsureds agree that
         all Loss Adjustment Expense reserves immediately prior to the Effective
         Date were transferred to the Reinsurer as part of the Initial Premium.

Subject to the annual limit of the Reinsurance Allowance set forth in paragraph
(4) below, the Reinsurer, in its sole discretion, shall calculate and determine
such Reinsurance Allowance on a monthly basis in arrears ("MONTHLY PAYMENT").
The Reinsurer shall include in any such monthly calculation of the Monthly
Payment, a proportionate amount equal to the amounts to be added or deducted
from the Reinsurance Allowance as set forth in paragraphs (2) and (5) below. On
the monthly calculation statement occurring on the 5th business day of March,
the Reinsurer shall recalculate the Reinsurance Allowance for the prior calendar
year on an annualized basis relating to such prior calendar year and make such
adjustments to the calculated Reinsurance Allowance as are necessary to satisfy
the Reinsurer's obligations under this Article 7 relating to the prior calendar
year. In the event payment is due as a result of the annual adjustment, such
payment shall be made at the time of the statement including the adjustment. In
the Reinsurer's sole discretion, each month, the Reinsureds may retain an amount
equal to the Monthly Payment from the Net Premiums due and owing the Reinsurer
for that month. At any time and for any reason, the Reinsurer may direct the
Reinsureds in writing to cease retaining the Monthly Payment from the Net
Premiums each month, in which case, the Reinsurer shall make the Monthly Payment
to the Reinsureds as set forth in Article 20.

2. In addition, and under the terms set forth in paragraph (1) above, in each of
calendar years 2002 and 2003 a fixed amount of $2,000,000 per year, shall be
added to the total Reinsurance Allowance payable to the Reinsureds, and in each
of calendar years 2004, 2005, 2006, and 2007, a fixed amount of $1,200,000 per
year shall be deducted from the total Reinsurance Allowance payable to the
Reinsureds.

3. The amount calculated for the calendar year 2002 under (1)(a) above shall be
increased by an amount equal to the excess of the actual commission paid by the
Reinsureds in the aggregate to its producers on Policies in 2002 over 12.4% of
Net Premiums for 2002.

4. For the avoidance of doubt, the Reinsurance Allowance is estimated to
reimburse the Reinsureds' for expenses related to commissions and expenses
incurred for renewing policies. However, in no event shall the Reinsurance
Allowance calculated by the above formula for any calendar year after 2002
exceed 25% of Net Premiums received by the Reinsurer during such calendar year.
For the avoidance of any doubt, there shall be no carryforward or carryback of
any Reinsurance Allowance capped as a result of the foregoing limitation.

5. To the extent that the Reinsurer exercises any of its rights under Article 22
-Claims Handling and incurs any fees, costs and expenses in connection
therewith, such fees, costs or expenses shall be deducted from the Reinsurance
Allowance as set forth in paragraph (1) above.

                         ARTICLE 8 - EXPERIENCE ACCOUNT

1. A notional "EXPERIENCE ACCOUNT" shall be created by the Reinsurer as at the
Effective Date of this Agreement and shall be maintained by the Reinsurer until
all obligations of the Reinsurer hereunder have been satisfied or discharged in
full.

2. The balance of the Experience Account shall be calculated by the Reinsurer
and as of any date shall be equal to:

                                       5
<PAGE>

         (a) $567,737,965.34 credited as of February 20, 2002 and $2,422,302
         credited as of March 7, 2002, such amounts representing 100% of the
         Initial Premium actually transferred to and received by the Reinsurer
         on the Payment Date plus the Interest, plus

         (b) 100% of funds withheld payments made to Reinsurer (not including
         amounts deemed received due to set off of Ultimate Net Loss against the
         FWA by the Reinsurer) pursuant to Article 6, paragraph 3(a) or (b),
         plus

         (c) 100% of Net Subject Premiums received by the Reinsurer on or after
         the Effective Date, less

         (d) 100% of Ultimate Net Loss paid by the Reinsurer (not including
         amounts deemed received due to set off of Ultimate Net Loss against the
         FWA by the Reinsurer) ), less

         (e) 100% of the Reinsurer's Charge as set forth in Article 9 herein,
         less

         (f) 100% of any brokerage payments made by the Reinsurer, not to exceed
         $50,000 per annum for the first six years of this Agreement, plus

         (g) The cumulative Experience Account Investment Return applied to
         (a)-(f) above.

                         ARTICLE 9 - REINSURER'S CHARGE

1. The Reinsurer shall calculate an annual Reinsurer's Charge and deduct same
from the Experience Account in quarterly installments, on each January 1st,
April 1st, July 1st, and October 1st, in respect of each calendar year until the
Reinsurer's obligations hereunder have been extinguished. The Reinsurer's
Charge, for any calendar year shall be calculated as the sum of the following:

         (a) A BASE FEE according to the following schedule:

                           (i) $2,800,000, payable in each of the first seven
                  (7) calendar years, then

                           (ii) $3,360,000, payable in each of the next two (2)
                  calendar years, then

                           (iii) $4,032,000, payable in each of the next two (2)
                  calendar years, then

                           (iv) $5,376,000, payable in each calendar year
                  thereafter; plus

         (b) A RESERVE CHARGE, being a percentage of total statutory reserves
         ceded to the Reinsurer hereunder, as defined and included in the Annual
         Statements appropriately prepared and filed by the Reinsureds in their
         state of domicile at the end of the immediately preceding calendar
         year, according to the following schedule:

                           (i) 0.400%, payable in each of the first seven (7)
                  calendar years, then

                           (ii) 0.480%, payable in each of the next two (2)
                  calendar years, then

                           (iii) 0.600%, payable in each of the next two (2)
                  calendar years, then

                           (iv) 0.800%, payable in each calendar year
                  thereafter; plus

         The Reserve Charge shall be calculated on a provisional basis on
         January 1 of each year for the prior year. On March 1 of each year, the
         provisional calculation of the Reserve Charge shall be

                                       6
<PAGE>

         adjusted to reflect the actual reserve figures.

         (c) A CAPITAL CHARGE, being a percentage of the Notional Capital Amount
         at the end of the immediately preceding calendar year, according to the
         following schedule:

                           (i) 2.400%, payable in each of the first seven (7)
                  calendar years, then

                           (ii) 2.800%, payable in each of the next two (2)
                  calendar years, then

                           (iii) 3.200%, payable in each of the next two (2)
                  calendar years, then

                           (iv) 4.000%, payable in each calendar year
                  thereafter; plus

         (d) An annual Contract Maintenance Fee of $375,000; plus

         (e) Actual costs incurred by the Reinsurer in respect of the Security
         as set forth in Article 41 of this Agreement.

2. Calendar year 2001 shall be deemed to be the "first" year hereunder and the
Reinsurer's Charge for the "first" and "second" calendar years shall be deducted
quarterly in 2002 (except that the January 1, 2002 deduction shall be deducted
on February 20, 2002). For the "first" year only, the Base Fee, Reserve Charge,
Capital Charge, and Contract Maintenance Fee shall be 50% of the amounts
specified (1)(a) through (d) above, and shall be based upon the statutory
reserves ceded to the Reinsurer hereunder and the Notional Capital Amount as of
December 31, 2001.

                      ARTICLE 10 - NOTIONAL CAPITAL AMOUNT

1. The "Notional Capital Amount" shall be calculated on a provisional basis on
January 1 of each year as of December 31st of the prior year. On March 1 of each
year, the provisional calculation of the Notional Capital Amount shall be
adjusted to reflect the actual reserve and Net Premiums figures.

2. The Notional Capital Amount as of any date shall be calculated as 200% of the
sum of:

         (a) 2.0% of the total statutory reserves ceded to the Reinsurer
         hereunder, included in the most recent Annual Statements appropriately
         prepared and filed by the Reinsureds in their states of domicile as of
         the date of calculation, plus

         (b) 5.0% of the statutory claim reserves ceded to the Reinsurer
         hereunder, included in the most recent Annual Statements appropriately
         prepared and filed by the Reinsureds in their states of domicile as of
         the date of calculation, plus

         (c) 25.0% of the first $50 million of Net Premiums in the calendar year
         preceding such date, plus

         (d) 15.0% of the excess, if any, over $50 million of Net Premiums in
         the calendar year preceding such date.

                           ARTICLE 11 - LIMIT ACCOUNT

1. A notional "LIMIT ACCOUNT," shall be calculated by the Reinsurer as of the
Effective Date of this Agreement and maintained until all obligations of the
Reinsurer hereunder have been satisfied or discharged in full as follows:

                                       7
<PAGE>

2.   The Limit  Account  balance  shall be  calculated  by the  Reinsurer and
as of any date shall be equal to the following:

         Part I:   1) ILA (which is defined in Article 12 and which is
                   credited to the Limit Account on the Effective Date), plus

                   2) The Initial Premium, plus

                   3) 100% of the Net Subject Premiums actually received and
                      retained by the Reinsurer on or after the Effective Date,
                      plus

                   4) The cumulative Annual Limit Account Investment Credits on
                      and after the Effective Date;

                                    LESS

         Part II: 100% of Ultimate Net Loss, including any amounts set off
                  by Reinsurer against the FWA, the Experience Account, or any
                  other amounts owed the Reinsurer.

3. All premiums are deemed to be credited to and all Ultimate Net Losses are
deemed to be debited from the Limit Account at the exact time when such premiums
and Ultimate Net Losses are credited to and debited from, respectively, the
Experience Account, provided however that the Initial Premium shall be deemed
credited to the Limit Account on the Effective Date. The Annual Limit Account
Investment Credit, if any, shall be credited to the Limit Account on December 31
of the year for which the credit was calculated.

                      ARTICLE 12 - INCREMENTAL LIMIT AMOUNT

The Incremental Limit Amount ("ILA") shall be equal to $200 million, subject
however, to any reduction pursuant to Articles 17 and 18 herein.

               ARTICLE 13 - ANNUAL LIMIT ACCOUNT INVESTMENT CREDIT

The "ANNUAL LIMIT ACCOUNT INVESTMENT CREDIT" shall be calculated by multiplying
the average daily balance (excluding the Annual Limit Account Investment Credit
for that year) of the Limit Account for that year, or portion thereof, by 4.5%
per annum.

              ARTICLE 14 - REINSURER'S AGGREGATE LIMIT OF LIABILITY

Notwithstanding any other provision of this Agreement, in no event shall the
Reinsurer's Aggregate Limit of Liability at any time under or related to this
Agreement be greater than the amount in Part I of the Limit Account, as set
forth in paragraph (2) of Article 11 herein.

                            ARTICLE 15 - DEFINITIONS

Some of the capitalized terms used in this Agreement are defined in this Article
15.

1. "ANNUAL LIMIT ACCOUNT INVESTMENT CREDIT" shall mean that amount determined
pursuant to Article 13, herein.

2. "ANNUAL STATEMENT" means the Annual Statement prepared in accordance with the
rules of the National Association of Insurance Commissioners and filed with the
appropriate insurance regulatory

                                       8
<PAGE>

authorities or departments of insurance. If the Annual Statement blank is
changed or modified, such that any item described herein does not appear on the
pages, exhibits, columns and lines referred to herein, or if it should be
eliminated or combined with other amounts or if the basis set out in the Annual
Statement blank for calculation of any item herein should be modified so that
the calculation is not consistent with the calculation of such item described
herein, then such item will be determined in accordance with a method proposed
by the Reinsureds with the consent of the Reinsurer, which consent shall not be
unreasonably withheld.

3. "BENCHMARK HEDGES" shall mean any commonly used investment instrument or
derivative instrument used specifically to extend or reduce the duration of, or
manage the credit risk of, the Benchmark Investment Portfolio in order to more
closely match the anticipated future Net Subject Premium less Ultimate Net Loss
hereunder.

4. "BENCHMARK INVESTMENT PORTFOLIO" shall mean the notional investment portfolio
consisting of publicly available indices, which will, in the aggregate:

         (a) Approximately cash match the future Net Subject Premium less
         Ultimate Net Loss hereunder; and

         (b) Have an average credit quality of AA/Aa2 by Standard and
         Poor's/Moody's.

The Benchmark Investment Portfolio and Benchmark Hedges shall be evaluated, and
adjusted as necessary, at least once annually, more often if deemed necessary by
the Reinsurer, such that conditions (a) and (b) above are met. To the extent
that public indices are not available (including at the durations of the Net
Liability), the Reinsurer may use alternatives which, in its sole discretion,
would replicate a reasonable asset-liability matching investment strategy for
the Policies.

5. "EXPERIENCE ACCOUNT INVESTMENT RETURN" for any period shall be equal to the
total return for that period (calculated from the dates of deposit into or
withdrawal from the Experience Account or more frequently as may otherwise be
mutually agreed) on the Benchmark Investment Portfolio, as described above, plus
or minus (as the case may be) any gains or losses on Benchmark Hedges used by
the Reinsurer in its reasonable discretion, less 20 basis points per annum.

For the avoidance of doubt, the Experience Account is a notional account,
reflecting the accumulated cash flows and charges as described in Article 8. At
all times, the Experience Account Investment Return will contain a market value
adjustment component and a yield to maturity component, reflecting the most
currently available market rates and values of the Benchmark Investment
Portfolio.

6. "ECO LOSS" shall mean all actual, potential, or threatened damage, loss,
cost, expense or liability of either Reinsured, of any form or nature
whatsoever, whether in contract, tort, or otherwise, that arises out of or in
any way relates to any act, error, omission, conduct, misconduct or inaction of
the Reinsured or anyone acting on behalf of the Reinsured (whether by actual or
apparent authority of the Reinsured) under or relating to the Policies
(including, loss or liability arising because of the failure by the Reinsured to
settle within the limit of any Policy, or by reason of alleged or actual
negligence, fraud or bad faith in rejecting an offer of settlement, or in the
preparation of the defense or, as the case may be, declaratory claim or in the
trial of any action in respect of a policyholder or in the preparation or
prosecution of an appeal consequent upon such action), other than (a) Loss
Adjustment Expenses and (b) benefits or liability under the Policies in
accordance with their strict terms. For the avoidance of doubt, ECO Loss
includes (x) amounts paid in settlement of claims that seek or purport to assert
liability of the Reinsured for amounts that, if such claim were proved, would be
ECO Loss, (y) all costs, charges, and expenses, including without limitation
attorneys' fees, of the Reinsured in defending any such claim (including

                                       9
<PAGE>

expenses that might otherwise be categorized as Loss Adjustment Expenses but for
the fact that they were incurred in connection with an ECO Loss), and (z) excess
judgements of any kind.

7.   "INSOLVENCY EVENT" shall mean with respect to either Reinsured,

         (a) A winding up petition is presented against such Reinsured, a
         provisional liquidator is appointed in respect of such Reinsured, such
         Reinsured is placed into administration, administrative receivership,
         rehabilitation, liquidation, conservatorship, receivership (or the
         like), in relation to all or any part of its affairs or any other
         similar or equivalent event under the law of any competent jurisdiction
         in the United States; or

         (b) Such Reinsured becomes subject to any other similar insolvency
         process (whether under the laws of any competent jurisdiction in the
         United States or elsewhere); or

         (c) Such Reinsured is unable to pay its debts as and when they fall due
         in accordance with the terms of the debt obligations; or

         (d) A department of insurance or commissioner thereof having
         jurisdiction over such Reinsured determines that the Reinsured is
         statutorily insolvent, financially impaired, has failed to cure a
         deficiency within the time prescribed, has failed to comply with an
         order of such department of insurance or commissioner thereof, or
         otherwise determines that grounds exist for conservation,
         rehabilitation or liquidation of such Reinsured under applicable
         insurance statutes.

8. "LIMIT AMOUNT DEDUCTION" for any calendar year (or any part thereof) shall be
equal to 50% of the difference between the Rate Adjusted Net Premiums for that
year (or part thereof) and the Net Premiums for that year (or part thereof),
discounted from the middle of that year (if a full calendar year, or the middle
of such shorter period of time, if less than a full calendar year) back to
December 31, 2001 at an effective annual interest rate of 4.5%. The sum of all
Limit Amount Deductions shall not exceed the ILA. A Limit Amount Deduction shall
only occur as a result of a Regulatory Risk Event or Material Breach Event.

9. "LOSS ADJUSTMENT EXPENSES" shall mean all costs and expenses incurred by
either Reinsured (or on its behalf) in connection with the investigation,
appraisal, adjustment, settlement, litigation, defense or appeal of any claim or
loss which arises under the Policies or incurred in connection with declaratory
judgment actions with respect to the Policies, including court costs and costs
of supersedeas and appeal bonds and shall include (a) pre-judgment interest,
unless included as part of the award or judgment; and (b) post-judgment
interest. As used herein, "SUPERSEDEAS BOND" shall mean a bond required of one
who petitions to set aside a judgment or execution and from which the other
party may be made whole if the action is unsuccessful. The terms Loss Adjustment
Expense shall include all such claim or loss expenses, except the salaries of
the Reinsureds' employees (including, but not limited to, in house counsel,
medical bill reviewers and claims investigators), office expenses, overhead and
other expenses of the Reinsured generally treated as unallocated loss adjustment
expenses (collectively, the "OVERHEAD EXPENSES"); provided, however, that to the
extent that all or any portion of such Overhead Expenses are allocated by the
Reinsured on its books and records to any specific claims or losses arising
under the Policies, such Overhead Expenses shall be treated as Loss Adjustment
Expenses. Loss Adjustment Expenses shall also include any payments made under
the Policies, which exceed the benefit provisions of the Policies as a result of
deviation from the Claims Guidelines (as defined in Article 22).

10. "MATERIAL BREACH EVENT" shall have the meaning given to it in paragraph (4)
of Article 18 -Required Premium Rate Increases.

11.  "NET LIABILITY" shall mean the Net Subject Premiums less Ultimate Net Loss.

                                       10
<PAGE>

12. "NET PREMIUMS" shall mean gross premiums written (including waived premiums)
collected under the Policies after the Effective Date, less return premiums,
less premiums for reinsurance which would inure to the benefit of the Reinsurer
under this Agreement (whether or not such reinsurance is collectible), plus
expense allowances received under any such reinsurance. For the avoidance of any
doubt, Net Premiums do not include the Initial Premium.

13. "NET SUBJECT PREMIUMS" shall mean Net Premiums less the Reinsurance
Allowance less Federal Excise Taxes paid with respect to the Net Premiums.

14.  "PAYMENT DATE" shall mean February 20, 2002.

15. "PTNAIC/COLI INVESTMENTS" shall mean the life insurance policies issued by
American General Insurance Company and held by PTNAIC as listed in Appendix C.

16.  "PTAC" shall mean Penn Treaty American Corporation.

17. "QUALIFIED SECURITIES" shall mean securities that are acceptable to the
Reinsurer in its sole discretion as part of the Initial Premium

18. "QUALIFIED UNITED STATES FINANCIAL INSTITUTION" shall mean an institution
that meets the following qualifications:

         (a) Is organized or, in the case of a United States office of a foreign
         banking organization, licensed, under the laws of the United States or
         any state thereof;

         (b) Is regulated, supervised and examined by the United States Federal
         or state authorities having regulatory authority over banks and trust
         companies;

         (c) Has been determined by either the appropriate insurance regulatory
         authorities or the NAIC Securities Valuation Office or a successor
         thereto to meet the standards of condition and standing as are
         considered necessary and appropriate to regulate the quality of
         financial institutions whose Letters of Credit will be acceptable to
         the appropriate insurance regulatory authorities.

19. "RATE ADJUSTED NET PREMIUMS" shall mean the Net Premiums that would have
been charged to the Reinsured's policyholders had the Reinsured filed for and
been granted Obligatory Premium Rate Increases in accordance with Article 18
herein (whether or not such filing is made or such increase is granted). The
Parties agree that for the purposes of determining the Rate Adjusted Net
Premiums, the Reinsured shall be deemed to have been granted rate increases in
respect of any Obligatory Premium Rate Increase filing on the earlier of (i) the
date such filing was actually granted or (ii) 180th day subsequent to the
Mandatory Filing Date (hereinafter defined in Article 18).

20. "REGULATORY RISK EVENT" shall have the meaning given to it in paragraph (2)
of Article 17 - Regulatory Risk.

21. "ULTIMATE NET LOSS" shall mean on a cumulative basis, the actual benefit or
loss (including waived premiums incurred on or after the Effective Date, but
excluding all Loss Adjustment Expenses) actually paid (or deemed to be paid in
the case of waived premiums) by or on behalf of the Reinsureds on Policies on or
after the Effective Date, after making deductions for all recoveries,
subrogations, salvage, and all Other Reinsurance, as hereinafter defined,
whether or not collectible. Ultimate Net Loss shall not include any amount paid
or settled by or on behalf of the Reinsureds and specifically excluded by
Article 5 of this Agreement.

                                       11
<PAGE>

                            ARTICLE 16 - POLICY FORMS

Each of the Reinsureds covenants and agrees that it shall not effect any
material amendment, modification or other change in the terms, coverages,
conditions, limitations or exclusions in any of the Policies or in any Policy
form issued in connection with the Policies, without the prior written consent
of the Reinsurer, which consent can be granted or withheld in Reinsurer's sole
discretion, for any reason or no reason, except, however, for any such change
that is explicitly provided for and required by applicable law or insurance
regulation. If the Reinsured has effected any prohibited material amendment,
modification or other change to any of the Policies without first securing the
Reinsurer's prior written consent, the reinsurance provided under this
Agreement, and the Reinsurer's liability with respect thereto, will cover
Ultimate Net Loss arising from such Policies determined as if such amendment,
modification or change had not been made, and the Ultimate Net Loss will be
limited to covering the amount that the Reinsured would have been required to
pay under the Policy or Policy form as originally filed prior to such material
amendment, modification or other change. In no event shall the Reinsurer be
liable for any increased amount of Ultimate Net Loss arising out of or relating
to the Reinsured's liability under the Policy effected with such material
amendment, modification or other change made without the Reinsurer's prior
written consent ("INCREASED ULTIMATE NET LOSS"). If, after reasonable
investigation and examination, the Parties are unable to determine the Increased
Ultimate Net Loss, then the Reinsurer shall make a good faith determination of
Increased Ultimate Net Loss arising out of or relating to such Policies, which
shall be used by the parties in their calculations hereunder.

                          ARTICLE 17 - REGULATORY RISK

1.   Each of the Reinsureds represents and warrants that:

         (a) At the Effective Date, each of their long-term care Policy forms is
         a guaranteed renewable accident and health policy form, and as such are
         eligible for actuarially supported premium rate increases (which may
         arise, among other reasons, from adverse deviation in actual claims
         experience or from changes in future expected claims experience) under
         statutory practices and procedures in all jurisdictions in which the
         Reinsureds are licensed to conduct business; and

         (b) They have been successful in obtaining premium rate increases
         historically, and have not been subjected to significant risk arising
         from (i) regulatory action that is inconsistent with established
         statutory practices and procedures or (ii) insurance legislation that
         has prevented their ability to obtain all or the majority of their
         requested premium rate increases.

2. "REGULATORY RISK EVENT" shall mean the failure to obtain an Obligatory
Premium Rate Increase as a result of any matter beyond the reasonable control of
the Reinsureds, including any changes in applicable statute, law, rule,
regulation, governmental practice, policy and procedure, NAIC-adopted model law,
or regulatory action or inaction, affecting the Reinsureds' Policies, products
or rates.

3. Whenever a Regulatory Risk Event occurs, a reduction shall be made to the
Reinsurer's Aggregate Limit of Liability under Article 14 of this Agreement, as
measured at the Effective Date or any date thereafter, and will be calculated as
a reduction to the ILA, in that the ILA shall be reduced by the sum of all Limit
Amount Deductions, notwithstanding the initial value of the ILA as defined in
Article 12 herein.

4. The Reinsureds and the Reinsurer consider the provisions of this Agreement
relating to Regulatory Risk Event to be in full compliance with the guidelines
of Financial Accounting Standards Board Statement No. 61 and Statutory
Accounting Practices and Procedures Manual -- Appendix A-791.

                                       12
<PAGE>

                       ARTICLE 18 - PREMIUM RATE INCREASES

1.   Rate Increase Review:

         (a) In order to assure the Reinsureds' regular review of the
         performance of the Policies, each Reinsured covenants and agrees that
         it shall conduct an analysis of the Policies to ascertain their actual
         to expected loss experience no less often than once every six (6)
         months (the "SEMI-ANNUAL Review"), which analysis shall be conducted
         over the course of no more than thirty (30) days and subject to audit
         by the Reinsurer in accordance with Article 32 - Audit and Access to
         Records.

         (b) Each Reinsured further covenants and agrees that it shall conduct
         an analysis of the underlying actuarial assumptions of the Policies to
         ascertain the future morbidity experience no less than once annually
         (the "ANNUAL REVIEW"). The Annual Review shall be conducted prior to
         March 31 of each year for the calendar year ending on the immediately
         preceding December 31, which analysis shall be conducted over the
         course of no more than thirty (30) days and subject to audit by the
         Reinsurer in accordance with Article 32 - Audit And Access To Records.

         (c) Failure to conduct either the Semi-Annual Review or the Annual
         Review (collectively, the "Reviews") shall be considered a material
         breach of this Agreement.

2.   Obligatory Premium Rate Increases:

         (a) The Reinsureds shall use best efforts in good faith to file and
         obtain approval for increases in premium rates on the Policies to
         maintain, from the Effective Date, the lifetime and prospective loss
         ratios (based upon revised actual and expected experience) for the
         Policies at the level approved by the relevant regulatory authorities
         in the most recent filing of the relevant Policy form prior to the
         Effective Date.

         (b) In the event that, and as a result of the Reviews, either Reinsured
         would reasonably be required to file and obtain approval for premium
         rate increases for the Policies, the Reinsureds shall submit any such
         premium rate increase filing no later than thirty (30) days following
         such determination (to wit, no more than sixty (60) days following the
         commencement of any such review) (the "MANDATORY FILING DATE"). If no
         such review is conducted or commenced (whether or not in violation of
         this Agreement), the Mandatory Filing Date shall be deemed to be the
         sixtieth (60th) day following the end of such a review required
         pursuant to this Agreement.

         (c) In furtherance and not in limitation of the foregoing paragraphs
         (a) and (b), the Reinsureds shall be obligated to file for increases in
         premium rates on the Policies in each jurisdiction, if at any time,
         either Reinsured or the Reinsurer has reason to believe that future
         experience is likely to be worse than projected at the Effective Date,
         or upon the date of the most recent rate increase approval if later,
         and that such deterioration in expected experience would justify an
         increase in premium rates of 5% or more on any individual policy form
         if filed by the Reinsured (an "OBLIGATORY PREMIUM RATE INCREASE").

         (d) As a matter of determination and example only, the Parties agree
         that they shall be deemed to have a "reason to believe" that future
         morbidity experience is likely to be worse than projected if, at the
         end of any calendar year, the ratio of (i) divided by (ii) is greater
         than 105%, given:

                           (i) the actual paid claims on new claims incurred
                  since the Effective Date or since the end of the calendar year
                  of the most recent premium rate increase, if later, plus the
                  claim reserve at the end of that calendar year in respect of
                  claims since the Effective

                                       13
<PAGE>

                  Date or since the end of the calendar year of the most recent
                  premium rate increase, if later, calculated in accordance with
                  the financial information contained in PTAC's forms 10Q and
                  10K, and

                           (ii) the expected paid claims on new claims expected
                  to be incurred since the Effective Date or since the end of
                  the calendar year of the most recent premium rate increase, if
                  later, plus the claim reserve at the end of that calendar year
                  in respect of claims incurred since the Effective Date or
                  since the end of the calendar year of the most recent premium
                  rate increase, if later, calculated in accordance with the
                  financial information contained in PTAC's forms 10Q and 10K.

         (e) The amount of the Obligatory Premium Rate Increase as set forth in
         this paragraph (2), shall not be less than the rate increase which
         would, if approved, project the prospective loss ratio of the Policies
         to be the prospective loss ratio shown in the most recent premium rate
         increase filings, or in the original filing of the relevant policy form
         if no previous rate increase has taken place, as measured from the
         Mandatory Filing Date.

         (f) All determinations affecting whether to seek increases in premium
         rates, or the amount of such increases, shall be based on actuarial
         assumptions ultimately agreed upon by the Reinsurer and the Reinsureds,
         including consideration of input from state regulatory agencies and
         actuaries as may occur. Any dispute regarding actuarial assumptions or
         determinations shall be resolved in accordance with Article 33 -
         Arbitration. For the avoidance of any doubt, any resolution of such
         Arbitration in favor of the Reinsurer with regard to actuarial
         assumptions underlying any filing pursuant to this Article 18, shall
         obligate the Reinsureds to file for premium rate increases, no later
         than thirty (30) days following such resolution, in accordance with
         this Article 18.

         (g) Failure by either Reinsured to comply with their obligations under
         this paragraph (2) shall be considered a material breach of this
         Agreement.

         (h) In the event that either of the Reviews, or any other analysis that
         may be performed, indicates that a premium rate increase of less than
         5% would be justifiable, the Reinsured may file for such a rate
         increase at its own discretion, but failure to file for such an
         increase or failure to obtain such an increase will not be considered a
         breach of this Agreement.

3. A "MATERIAL BREACH EVENT" shall mean the failure to file and obtain an
Obligatory Premium Rate Increase for any reason, including but not limited to a
breach by either Reinsured of its obligation under the immediately preceding
paragraphs (1) and (2) of this Article; provided however, that a Material Breach
Event shall not include the failure to obtain an Obligatory Rate Increase as a
result of a Regulatory Risk Event, or as a result of and during the pendency of
(and for a reasonable period after termination of) any BONA FIDE dispute being
arbitrated pursuant to the terms of this Article 18 or Article 33.

4. Whenever a Material Breach Event occurs, in addition to any other remedy
available to the Reinsurer in law or in equity, a reduction shall be made to the
Reinsurer's Aggregate Limit of Liability under Article 14 of this Agreement and
will be calculated as a reduction to the ILA, in that the ILA shall be reduced
by the sum of all Limit Amount Deductions, notwithstanding the initial value of
the ILA as defined in Article 12 herein. The Reinsureds and the Reinsurer
consider the provisions in this Agreement regarding protection from a Material
Breach Event to be in full compliance with the guidelines of Financial
Accounting Standards Board Statement No. 61 and Statutory Accounting Practices
and Procedures Manual -- Appendix A-791.

                                       14
<PAGE>

                         ARTICLE 19 - OTHER REINSURANCE

1. As of the Effective Date, the Reinsureds have in force, with respect to the
Policies, certain reinsurance coverage ("IN-FORCE REINSURANCE") that it has
represented to the Reinsurer will continue in force under reinsurance agreements
that are listed in Appendix D.

2. The Reinsureds shall not procure, place or cede any reinsurance without
specific prior written permission from the Reinsurer.

3. With respect to In-force Reinsurance or reinsurance that is negotiated
thereafter with respect to the Policies (together "OTHER REINSURANCE"), the
Reinsureds shall ensure that:

         (a) The Reinsureds assign all reinsurance proceeds under the Other
         Reinsurance to the Reinsurer;

         (b) The Reinsureds shall maintain such Other Reinsurance, and shall not
         commute, terminate or otherwise permit same to expire or lapse without
         the express prior written consent of the Reinsurer (which consent shall
         be granted or denied in the Reinsurer's sole discretion), and shall
         comply in all respects with such agreements to ensure that they remain
         in full force and effect;

         (c) Such Other Reinsurance shall inure to the Reinsurer's benefit and
         allowed as an offset to Reinsurer's obligations under this Agreement,
         whether or not it is collectible;

         (d) Any such Other Reinsurance must comply with applicable laws and
         regulations, including all regulatory approval requirements.

                      ARTICLE 20 - REPORTS AND REMITTANCES

1. During the term of this Agreement, each Reinsured shall render a report to
the Reinsurer on or before the 5th business day of each month (the "Monthly
Report") on forms reasonably acceptable to the Reinsurer, setting forth the
following information with respect to the prior month or as of the end of the
prior month (as the case may be):

         (a) Net Premiums during the calendar month;

         (b) Ultimate Net Loss and Loss Adjustment Expenses in connection with
         the Policies paid by or on behalf of the Reinsureds during the calendar
         month;

         (c) Reinsurance Allowance, calculated pursuant to Reinsurer's
         instructions;

         (d) Unearned premium and outstanding loss reserves on the Policies as
         of the end of the calendar month, if any;

         (e) amount of the FWA as of the end of the calendar month, if any; and

         (f) along with the reports described above in items (1)(a) - (d), the
         Reinsureds shall provide Policy year to date, as well as calendar
         month, totals in connection with the Policies for items (1)(a) - (d).

2. Within thirty (30) days of the commencement of the Rate Increase Reviews
conducted pursuant to Article 18, the Reinsureds shall render a report to the
Reinsurer, containing the results of such review, including the projected
morbidity and other experience and any warranted premium rate increases.

                                       15
<PAGE>

2. Except as otherwise provided in this Agreement, if the Reinsurer has any
liability to the Reinsureds under this Agreement, the Reinsurer shall remit
monies currently due the Reinsureds within five (5) business days after receipt
of the Monthly Report.

3. If the Reinsureds have any liability to the Reinsurer under this Agreement,
the Reinsureds shall remit monies currently due the Reinsurer on the same day as
the Monthly Report is provided.

4. The Reinsureds shall each furnish to the Reinsurer all information that the
Reinsurer reasonably requires in order for the Reinsurer to prepare its
financial reports in accordance with the accounting reporting requirements of
the Reinsurer, including but not limited to that information necessary to
complete an actuarial opinion in the form and substance similar to that required
were the Reinsurer domiciled in the United States.

5. The Reinsureds covenant and agree that each shall notify the Reinsurer within
twenty-four (24) hours after such Reinsured receives notice of any regulatory
action, order, proceeding, or planned or threatened regulatory intervention or
oversight by any regulatory agency having jurisdiction over such Reinsured in
connection with its financial condition or market conduct, including, but not
limited to, any notice of impairment, corrective order, risk based capital
deficiency, or other similar threatened regulatory action. Each Reinsured
further covenants and agrees to send written notice of any regulatory action to
the Reinsurer within five (5) business days of giving the twenty-four (24) hour
notice if such notice was not in writing, and to the extent allowed by
applicable law, also to send copies of any documentation received from the
applicable regulatory agency in connection with the regulatory action
intervention or oversight.

6. Failure to comply with the covenants set forth in this Article 20, if
remaining uncorrected 30 days following written notification by the Reinsurer,
shall constitute a material breach of this Agreement. The Reinsureds shall not
willingly or willfully delay immediate correction of any known breach. Failure
to comply with the covenants set forth in Article 20, paragraph 6 shall
constitute a material breach of this Agreement in the event that the facts
giving rise to the regulatory action remain uncorrected for 30 days or, in the
event that the notice of regulatory action received by the Reinsured reflects a
material change to the ability of the Reinsured to administer the Policies in a
particular state, reflects regulatory action order, proceeding, or planned or
threatened regulatory intervention or oversight by any regulatory agency
relating to this Agreement, such failure to comply with Article 20, paragraph 6
shall constitute a material breach if uncorrected within 3 business days, with
or without notification by the Reinsurer.

7. The Reinsureds shall provide additional reporting as reasonably requested by
Reinsurer on an ad hoc basis. Such ad hoc reports shall be provided within five
(5) business days of the reporting request, unless it is impracticable to do so
and the Reinsureds have communicated the impracticability and an alternate
delivery schedule has been agreed to by the parties.

                          ARTICLE 21 - LOSS SETTLEMENTS

1. Subject to the limitations and conditions in this Agreement, including but
not limited to Articles 5, 16, 18, and 22:

         (a) the liability of the Reinsurer shall follow that of the Reinsureds;

         (b) any settlement made by or on behalf of the Reinsureds of any claim
         or loss which is alleged to arise under the Policies shall be binding
         upon the Reinsurer, whether under the strict Policy conditions
         (including, but not limited to, the general and specific stipulations,
         clauses, waivers, extensions, modifications and endorsements of any of
         the Reinsureds' Policies), or by way of compromise in the ordinary
         course (excluding, EX GRATIA payments).

                                       16
<PAGE>

2. For the avoidance of any doubt, nothing in this Article 21 shall obligate the
Reinsurer to indemnify the Reinsureds for any ECO Loss.

3. The Reinsureds shall notify and advise the Reinsurer promptly of all losses
which, in either Reinsured's opinion, may result in a claim hereunder and of all
subsequent developments thereto which, in either Reinsured's opinion, may
materially affect the Reinsurer's position. The Reinsurer shall have the right
of association as set forth in Article 24 - Right of Association.

                          ARTICLE 22 - CLAIMS HANDLING

1. Except as otherwise provided in this Agreement, the Reinsureds will continue
to assume responsibility for the investigation, adjustment, defense and
settlement obligations under the Policies, and shall provide all servicing of
the Policies in the ordinary course of their business and in a manner consistent
with this Article 22.

2. Each Reinsured covenants and agrees that its claims administration practices
and procedures shall not materially deviate from and shall substantially conform
to those claims administration practices and procedures adopted by the
Reinsureds (as may be modified to reflect changes required by the Reinsurer
pursuant to paragraph 3 of this Article 22), and approved by the Reinsurer
("CLAIMS GUIDELINES").

3. The Reinsureds agree that the claims guidelines adopted by the Reinsureds
prior to the Effective Date shall be audited by the Reinsurer at the Reinsurer's
cost and expense within twelve (12) months of the Effective Date. The Reinsurer
may require changes to such claims guidelines within this twelve (12) month
period, which shall be promptly implemented and adopted by the Reinsureds.

4. Each Reinsured shall maintain, at a minimum, no lesser level of performance
in claims handling than was in place on the Effective Date.

5. Each Reinsured further covenants and agrees to use best efforts to provide
prompt, accurate and quality claims administration services in accordance with
its obligations under this Agreement generally, and more specifically, the
Claims Guidelines. Each Reinsured shall commit and devote sufficient time and
effort, and shall utilize and allocate sufficient, competent management,
personnel and other resources as may be necessary or advisable to perform its
obligations under this Agreement.

6. Failure to comply with the covenants set forth in this Article 22 shall
constitute a material breach of this Agreement. Remedies available to the
Reinsurer for such breach include, but are not limited to those contained in
Article 25, and in paragraphs (8), (9) and (11) of this Article 22.

7. The Reinsurer or its designee shall have the right at its cost and expense to
audit and inspect the Reinsureds' claims administration practices and procedures
from time to time as the Reinsurer may deem desirable and Reinsureds shall at
such time provide regular and open access to the Reinsureds' books, records,
systems and personnel, whether or not such books, records, systems and personnel
are in the custody and control of the Reinsured.

8. The Reinsurer shall have the right to: (i) take control of claims
administration and/or (ii) replace either or both of the Reinsureds as claims
administrator with a substitute claims administrator, which is duly licensed to
administrate claims in each of the Reinsureds' licensed jurisdictions, of the
Reinsurer's choosing (including Reinsurer or any affiliate as may be allowed by
individual state regulation), and/or (iii) institute an oversight process of the
Reinsureds as claims administrator, if:

         (a) either Reinsured's NAIC Risk-Based Capital Level falls to the
         Company Action Level and is not corrected within 30 days, or
         immediately if the NAIC Risk-Based Capital Level falls to or below the
         Regulatory Action Level;

                                       17
<PAGE>

         (b) either Reinsured materially breaches any covenant set forth in this
         Article 22;

         (c) for whatever reason, either Reinsured does not commence fulfillment
         of its duties and obligations provided in this Article 22 or once
         having commenced such duties and obligations, engages in neglect of its
         duties and obligations hereunder, or fails or refuses to carry out such
         duties and obligations hereunder;

         (d) either Reinsured or PTAC experiences any material change, direct or
         indirect, in its capital stock participation or control, or any
         material change in its management, directors, officers or key
         personnel, or if either Reinsured or PTAC or any part of its business
         is sold, transferred or merged, and the Reinsurer reasonably determines
         in its sole discretion that such material change has or is likely to
         have a materially adverse impact on the Reinsurer's interests;

         (e) either Reinsured has taken any action or failed to comply with any
         applicable law or regulation, the ultimate result of which the
         Reinsured knew or should have known would cause any governmental or
         regulatory agency or authority to revoke or suspend the authority of,
         such Reinsured or place such Reinsured under any supervision or cease
         and desist order, and the Reinsurer reasonably determines in its sole
         discretion that such action, noncompliance, supervision or cease and
         desist order has had, or is reasonably likely to have, a materially
         adverse impact on the Reinsurer's interests; or

         (f) any Reinsured's directors, officers, principals or key personnel
         are convicted of a crime involving financial dishonesty or fraud.

Each of the events described in paragraphs (8)(a) through (f) shall be referred
to as a "CLAIMS CONTROL EVENT". The ability for the Reinsurer to take control of
claims handling and/or replace the Reinsureds in this capacity is a fundamental,
bargained-for right under this Agreement. Nothing elsewhere in this Agreement
shall conflict with or otherwise limit the Reinsurer's right to control claims
administration pursuant to this paragraph (8).

9. In the event of a Claims Control Event, and if the Reinsurer elects its
remedy to take control of claims administration, an automatic adjustment shall
be made to the Reinsurance Allowance provided under Article 7 of this Agreement
such that the Reinsurer shall no longer be obligated to pay that part of the
Reinsurance Allowance set forth in Article 7, paragraph (1)(c). The Reinsureds
shall be obligated to reimburse the Reinsurer for that amount of expense
reasonably incurred in taking control of and handling claims that exceed the sum
that would otherwise be payable to the Reinsureds pursuant to Article 7,
paragraph (1)(c). Furthermore, the Reinsurer's liability under this Agreement
shall be adjusted such that this Agreement will cover Ultimate Net Loss arising
from such Policies, determined as if such deviation did not occur and such level
of performance had been maintained.

10. The remedies available to the Reinsurer in the event of a Claims Control
Event include all such remedies as are available under this Agreement, including
but not limited to, those contained in paragraphs (8), (9) and (11) hereof, and
any remedies available under law.

11. The Reinsureds shall cooperate fully with the Reinsurer in all reasonable
respects in furtherance of the covenants and commitments outlined in this
Article 22. The Parties acknowledge that a breach or threatened breach of the
covenants, terms and conditions contained in this Agreement would cause
irreparable harm to the Reinsurer and that money damages would not provide an
adequate remedy therefor. As such, the Reinsurer shall be entitled to seek and
obtain injunctive relief, without the posting of any bond or security, and any
other equitable remedies, in addition to any other remedies available by law to
enforce any of the foregoing obligations of the Reinsureds and all Reinsurer's
remedies with respect thereto.

                                       18
<PAGE>

                      ARTICLE 23 - LOSS ADJUSTMENT EXPENSES

Loss Adjustment Expenses incurred by the Reinsureds pursuant to this Agreement
shall be paid by the Reinsureds. Loss Adjustment Expenses are excluded in
calculating the Ultimate Net Loss as defined in Article 15, as set forth in
Article 7, paragraph (1)(c).

                  ARTICLE 24 - REINSURER'S RIGHT OF ASSOCIATION

As a condition precedent to the payment by the Reinsurer of any Ultimate Net
Loss arising under this Agreement:

         (a) at any time, and from time to time, at the Reinsurer's own expense,
         the Reinsurer may investigate any claim or claims arising under any
         Policy and may interpose Reinsurer in any claim adjudication, suit or
         proceeding, including but not limited to any proceeding where the claim
         is to be adjudicated, any defenses that it may deem available to the
         Reinsureds or their respective statutory receiver, conservator,
         liquidator, rehabilitator (or the like); and

         (b) the Reinsureds or their respective statutory receiver, conservator,
         liquidator, rehabilitator (or the like), will afford the Reinsurer the
         opportunity to be associated with the Reinsureds in the manner set
         forth in the immediately preceding paragraph (a), at the Reinsurer's
         own expense, and shall cooperate with the Reinsurer in all respects in
         the investigation and defense of such claim or claims.

                            ARTICLE 25 - COMMUTATION

1. The Reinsureds shall have the right to elect to commute this Agreement only
under the following circumstances (each a "Commutation Trigger Event"):

         (a) within the sixty (60) day period following one of the following
         events:

                           (i) a change of control of either Reinsured,
                  including but not limited to an acquisition, amalgamation,
                  merger or consolidation with any other entity or the sale of
                  all or substantially all of the assets of either Reinsured; or

                           (ii) an Insolvency Event with respect to either
                  Reinsured; or

                           (iii) a material breach of this Agreement by either
                  Reinsured, including without limitation (y) breach of this
                  Agreement's covenants, representations and/or warranties (for
                  the avoidance of any doubt, including but not limited to,
                  failure to comply with Article 18 - Required Premium Rate
                  Increases) and (z) breach of any provision of Article 24 -
                  Reinsurer's Right of Association; and

         (b) so long as no Commutation Trigger Event enumerated in any of
         (1)(a)(i-iii) above has occurred, then, with ninety (90) days prior
         written notice to the Reinsurer, any December 31 or the next business
         day, beginning December 31, 2007.

2. The date within the sixty (60) day period following a Commutation Trigger
Event designated by the Reinsureds in their notice to commute, or on any
December 31 beginning December 31, 2007 on which the Reinsureds have elected to
commute, shall be known as the "COMMUTATION DATE".

3. The Reinsureds' right, at their sole option, to commute this Agreement, shall
be effective only upon the occurrence of the Commutation Trigger Events and at
no other time. For the avoidance of any doubt, should at any time a Commutation
Trigger Event enumerated in any of (1)(a)(i-iii) above have occurred,

                                       19
<PAGE>

and the Reinsureds have not elected to commute this Agreement within the sixty
(60) day period provided above, neither Reinsured shall thereafter have any
right under this Agreement to elect commutation on account of such event.

4. Further, under no circumstance shall there be any right to commute this
Agreement in respect of one Reinsured without concurrently commuting this
Agreement in respect of both PTNAIC and ANIC.

5. Upon an election to commute this Agreement as provided above, the Parties
shall negotiate and execute comprehensive, definitive documentation reasonably
satisfactory to the Parties to effect the commutation, settlement and release of
their respective obligations and liabilities and upon the execution of such
documentation, the Reinsurer shall pay to the Reinsureds the "COMMUTATION
PAYMENT" (hereinafter defined). Commutation by the Reinsureds in accordance with
this Article 25, and payment by the Reinsurer of the Commutation Payment, if
any, shall constitute a complete and final settlement and release of all parties
in respect of any and all known and unknown obligations or liability of any
nature to the Reinsureds under or related to this Agreement, all as more
specifically described in such negotiated definitive documentation.

6. In the event that this Agreement is commuted on or after December 31, 2007,
the Commutation Payment shall be equal to the greater of a) $0 (zero) or b) the
amount in the Experience Account as of the Commutation Date, plus interest at a
rate equal to the then current yield on the 30 day US treasury bill from the
effective date of commutation to the payment date.

7. In the event that this Agreement is commuted prior to December 31, 2007, the
Commutation Payment shall be equal to the greater of a) $0 (zero) or b) the
amount in the Experience Account as of the Commutation Date, plus interest at a
rate equal to the then current yield on the 30 day US treasury bill from the
effective date of commutation to the payment date, minus $2.5 million per full
calendar quarter for the period from the Commutation Date up to December 31,
2007 in lieu of any Reinsurer's Charge that would have otherwise been due and
payable during such time period.

8. Upon the occurrence of an Insolvency Event, the Reinsurer shall be deemed to
have reserved, and hereby does not waive, any and all rights, remedies and
defenses available to the Reinsurer notwithstanding this Article 25.

9. For purposes of determining the composition of premium refund made as
Commutation Payment, in determining the components of the notional Experience
Account amount, Ultimate Net Losses and the Reinsurer's Charges shall be
considered to first offset the Experience Account Investment Income, followed
next by the Initial Premium, and finally by the Net Premiums received by the
Reinsurer on or after the Effective Date (from earliest to latest year order).

10. Nothing in this Article 25 shall be construed to limit the remedies of the
Reinsurer resulting from a breach of this Agreement by either Reinsured or
otherwise.

                            ARTICLE 26 - CANCELLATION

1. If any Reinsurance Premium remains unpaid fifteen (15) days after notice of
non-payment is first provided by the Reinsurer, the Reinsurer, at its sole
option, may cancel this Agreement by providing the Reinsureds written notice of
cancellation ("NOTICE OF CANCELLATION"). For the purposes of this Agreement, the
Cancellation Date shall be the date that the overdue premium was originally due.

2. Following the delivery of such Notice of Cancellation by the Reinsurer, this
Agreement shall automatically be commuted on the sixtieth (60th) day following
the Cancellation Date, which date of commutation shall be the "CANCELLATION
DATE". On the Cancellation Date, the Reinsurer shall pay to the Reinsureds a
"CANCELLATION PAYMENT" equal to the greater of a) $0 (zero) or b) the amount in
the

                                       20
<PAGE>

Experience Account as of the Cancellation Date, plus interest at a rate equal to
the then current yield on the 30 day US treasury bill for the period from the
Cancellation Date to the payment date, minus $2.5 million per full calendar
quarter for the period from the Cancellation Date up to December 31, 2007 in
lieu of any Reinsurer's Charge that would have otherwise been due and payable
during such time period. For the avoidance of any doubt, the Reinsurer shall not
be liable for any Commutation Payment in the event of a Cancellation pursuant to
this Article 26.

3. Commutation of this Agreement in accordance with this Article 26, and payment
by the Reinsurer of the Cancellation Payment, if any, shall constitute a
complete and final settlement and release of all parties in respect of any and
all known and unknown obligations or liability of any nature to the Reinsureds
under or related to this Agreement. In furtherance of the foregoing, the Parties
shall negotiate and execute comprehensive and definitive documentation
reasonably satisfactory to the Parties to effect the commutation, settlement and
release of their respective obligations and liabilities and upon the execution
of such documentation, the Reinsurer shall pay to the Reinsureds the
Cancellation Payment.

                        ARTICLE 27 - COMMON UNDERSTANDING

The Reinsureds and the Reinsurer hereby acknowledge and agree that this
Agreement has been negotiated and entered into in good faith and at arms length.
The Reinsureds and the Reinsurer hereby acknowledge and agree that the terms and
conditions of this Agreement are fair and reasonable under the circumstances.

                         ARTICLE 28 - UTMOST GOOD FAITH

The performance of obligations by each of the Reinsureds on the one hand, and
the Reinsurer on the other hand, arising under or related to this Agreement
shall be in accordance with utmost good faith and fair dealing.

               ARTICLE 29 - ADDITIONAL COVENANTS, REPRESENTATIONS
                          AND WARRANTIES OF REINSUREDS

1. Without in any way limiting the application of Article 28 - Utmost Good
Faith, each of the Reinsureds further represents and warrants as follows:

         (a) All of the policy forms and riders issued as the Policies are in
         material compliance with all applicable regulations and laws;

         (b) Each of the Policies was written on a Policy form that currently
         complies with regulatory requirements in the state of issue;

         (c) The Reinsureds have provided a listing prior to the Effective Date
         of all market conduct examinations conducted within the last ten (10)
         years by any regulatory authority having jurisdiction over each
         Reinsured, and copies of the reports thereon. No material limitation or
         restriction has been imposed upon either Reinsureds' operations arising
         out of or related to any policy administration or claims handling
         practices;

         (d) Neither Reinsured is currently subject to any regulatory action,
         order or proceeding, and its senior management, officers and directors
         are not aware of any threatened regulatory action, order or proceeding
         relating to either Reinsured's financial condition, except as expressly
         set forth and described in Appendix B;

         (e) This Agreement constitutes the legal, valid and binding obligation
         of the Reinsureds, enforceable in all respects in accordance with its
         terms; and

                                       21
<PAGE>

         (f) The regulatory agencies of the Reinsureds' state of domicile,
         having authority over the Reinsureds and the subject matter of this
         Agreement, have reviewed and approved this Agreement in accordance with
         applicable law.

         (g) The Reinsureds have initiated the filing and approval of this
         Agreement by the regulators in each of the states that have
         jurisdiction thereover, and are in the process of seeking all required
         approvals and authorizations thereon. Reinsureds will continue to
         diligently pursue these approvals until the approval process is
         completed in the states that require it.

2. Each Reinsured covenants and agrees that neither a Reinsured, nor its
affiliates, successors agents or assigns, will initiate or engage in a Program
of Internal Replacement that includes any of the Policies reinsured hereunder,
unless and until such Reinsured obtains the Reinsurer's prior written consent to
initiate or engage in a Program of Internal Replacement. The Reinsurer, in its
sole discretion, may determine whether the Reinsureds may initiate or engage in
a Program of Internal Replacement. For purposes of this Agreement, the term
"PROGRAM OF INTERNAL REPLACEMENT" means any effort by or on behalf of a
Reinsured, its affiliates, successors or assigns generally to solicit
replacements of the Policies by which a Policy or any portion of the cash value
of a Policy is exchanged for another policy or contract that is not reinsured
under this Agreement; provided, however, that providing unsolicited replacements
at the request of a Policy owner shall not be considered a Program of Internal
Replacement.

                          ARTICLE 30 - INDEMNIFICATION

The Reinsureds and their direct and indirect parent, PTAC, agree to indemnify
and hold harmless, jointly and severally to the fullest extent permitted by law,
the Reinsurer, its affiliates, and its and their subsidiaries, agents,
sub-agents, brokers and representatives, as well as their respective employees,
officers, and directors from and against any and all loss, cost and expense
(including reasonable attorneys' fees) resulting from each and every material
breach of the covenants, representations, warranties made by Reinsureds in this
Agreement. STILL NEED PARENTAL GUARANTEE

                      ARTICLE 31 - SALVAGE AND SUBROGATION

1. The Reinsureds shall pay to or credit the Reinsurer with any recovery
connected with an Ultimate Net Loss which is obtained from salvage, subrogation,
or other insurance or any other recovery, after charging the Reinsurer with the
expenses incurred by the Reinsureds in obtaining any such recovery.

2. Any such recoveries received subsequent to any loss or claim settlement
hereunder shall be applied as if received prior to the aforesaid loss or claim
settlement and all necessary adjustments in such regard shall be made
accordingly.

                    ARTICLE 32 - AUDIT AND ACCESS TO RECORDS

1. Upon five (5) business days advance written notice, the Reinsurer and its
duly appointed representatives, may, at the offices of the Reinsureds or such
other reasonable and appropriate location or locations to be designated by
agreement of the Reinsureds and Reinsurer, audit any and all books, records,
statements, correspondence, reports and other documentation that relate to the
Policies, this Agreement or the subject matter hereof. The Reinsureds shall
provide a reasonable access to all appropriate senior personnel and workspace
during normal business hours for such audit and shall cooperate with and
disclose and produce any and all documentation reasonably requested by the
auditors. The Reinsurer shall keep all information disclosed or produced for
audit, including all audit reports and analyses, confidential.

                                       22
<PAGE>

2. The Reinsurer shall have the right to audit, during the term of this
Agreement, until the natural expiration of the Policies or until all claims,
losses or disputes arising out of the Policies have been finally resolved,
whichever is later.

                            ARTICLE 33 - ARBITRATION

1. All disputes and differences arising under or in connection with this
Agreement shall be referred to arbitration. Procedure for arbitration shall
follow the ARIAS Arbitration Guidelines.

2. The "Tribunal" shall consist of three arbitrators, one to be appointed by the
Reinsurer, one to be appointed by the Reinsureds and the third to be appointed
by the two appointed arbitrators.

3. The third member of the Tribunal shall be appointed as soon as practicable
(and no later than 28 days) after the appointment of the two Party-appointed
arbitrators. The third member of the Tribunal shall disclose all interests in
and relationships to the Parties, and such disclosure must be made prior to the
appointment. The Tribunal shall be constituted upon the appointment of the third
arbitrator.

4. The Arbitrators shall be persons (including those who have retired) with not
less than ten years' experience in insurance or reinsurance, either within the
industry or as lawyers or other professional advisers serving the insurance and
reinsurance industry.

5. Where a Party fails to appoint an arbitrator within 14 days of being called
upon to do so or where the two Party-appointed arbitrators fail to appoint a
third within 28 days of their appointment, then upon application by any Party,
ARIAS (US) will appoint an arbitrator to fill the vacancy. At any time prior to
the appointment by ARIAS (US) the Party or arbitrators in default may make such
appointment.

6. The Tribunal may in its sole discretion make such orders and directions as it
considers to be necessary for the final determination of the matters in dispute,
except that the Parties may require the Tribunal to hear disputes relating to
any actuarial assumptions or determination contemplated hereunder. Any hearing
involving disputes specifically relating to actuarial assumptions or
determinations must take into consideration the opinion of a nationally
recognized actuarial firm acceptable to both the Reinsurer on the one hand, and
the Reinsureds on the other hand. The Tribunal shall have the widest discretion
permitted under the law governing the arbitral procedure when making such orders
or directions.

7. The seat of arbitration shall be New York, New York.

                        ARTICLE 34 - ERRORS AND OMISSIONS

Inadvertent errors and omission on either Party's part shall not invalidate the
reinsurance under this Agreement, provided notice is promptly provided to the
other Party of the discovery thereof and such inadvertent errors or omissions
are corrected promptly after discovery thereof. Under no circumstances shall the
Reinsurer's liability under this Agreement exceed the limits and limitations
specified herein, nor be extended to cover any risks, perils or classes of
insurance or reinsurance generally or specifically excluded herein.

                               ARTICLE 35 - TAXES

The Reinsureds shall be liable to the appropriate governmental authorities for
all taxes, including the Federal Excise Tax, on the Reinsurance Premium paid to
the Reinsurer under this Agreement, except income or profit taxes of the
Reinsurer. The Reinsureds shall be liable to the appropriate governmental
authorities for the Federal Excise Tax on the Initial Premium paid to the
Reinsurer under this Agreement, but shall be entitled to withhold for the
Federal Excise Tax on subsequent Reinsurance Premiums.

                                       23
<PAGE>

                             ARTICLE 36 - INSOLVENCY

1. The reinsurance provided by this Agreement and each and every reinsurance
agreement hereafter entered into by and between the Parties shall be payable by
the Reinsurer directly to the respective Reinsured or to their respective
liquidator, receiver or statutory successor on the basis of liability of such
Reinsured under the contract or contracts reinsured without diminution or
increase because of the insolvency of such Reinsured.

2. Upon the occurrence of an Insolvency Event in respect of a Reinsured, the
liquidator, receiver or statutory successor of such Reinsured shall give written
notice of the pendency of each claim against the Reinsured on a policy or bond
reinsured within a reasonable time after such claim is filed in the insolvency
proceeding; and during the pendency of such claim, the Reinsurer may investigate
such claim and interpose, at its own expense, in the proceeding where such claim
is to be adjudicated any defense or defenses which it may deem available to the
Reinsureds, their respective liquidator, receiver or statutory successor. The
expense thus incurred by the Reinsurer shall be chargeable, subject to court
approval, against the Reinsureds as part of the expense of liquidation to the
extent of such proportionate share of the benefit as shall accrue to the
Reinsureds solely as a result of the defenses undertaken by the Reinsurer.

3. The reinsurance shall be payable as provided herein, except as otherwise
provided in law, or except (a) where the contract specifically provides another
payee of such reinsurance upon the occurrence of an Insolvency Event in respect
of a Reinsured or (b) where the Reinsurer with the consent of the direct insured
or insureds has assumed such policy obligations of the Reinsureds as direct
obligations of the Reinsurer to the payees under such policies and in
substitution for the obligations of the Reinsureds to such payees.

                               ARTICLE 37 - OFFSET

To the fullest extent allowable by applicable laws, the Reinsurer on the one
hand, and the Reinsureds on the other hand, shall have, and may exercise at any
time and from time to time, the right to set off any balance(s), whether on
account of premiums or on account of losses or otherwise, due from the Reinsurer
on the one hand to either of the Reinsureds on the other hand, or from either
Reinsured on the one hand to the Reinsurer on the other hand, under this
Agreement or under any other agreement entered into by the Parties, and may set
off the same against any balance(s) due or to become due to the former from the
latter under the same or any other agreements between the Parties. Any debits or
credits, matured or unmatured, liquidated or unliquidated, contingent or
non-contingent, regardless of when they arose or were incurred, in favor of or
against either the Reinsureds on the one hand, or the Reinsurer on the other
hand, with respect to this Agreement or any other agreement between the Parties,
regardless of whether such balances to be offset arise from premiums, losses or
otherwise, and regardless of the capacity of the Party, whether as assuming
reinsurer and/or cedant, whether as parent, subsidiary, or affiliated Party, are
deemed mutual debits or credits, as the case may be, and shall be set off, and
only the net balance shall be allowed or paid. This provision shall not be
affected by the insolvency of any Party to this Agreement.

                              ARTICLE 38 - CURRENCY

Whenever the word "DOLLARS" or the "$" sign appear in this Agreement, they shall
be construed to mean United States Dollars, and all transactions under this
Agreement shall be in United States Dollars.

            ARTICLE 39 - NO ASSIGNMENT; NO THIRD PARTY BENEFICIARIES

This Agreement shall be binding upon and inure to the benefit of the Parties and
their respective successors, assigns and legal representatives. Neither this
Agreement, nor any right or privilege hereunder, may be assigned by any Party
without the written consent of the other Party; provided however, that Reinsurer
shall be permitted to assign this Agreement to any affiliate of the Reinsurer
with

                                       24
<PAGE>

the same A.M. Best rating as the Reinsurer, without the consent of the
Reinsured. This Agreement is not intended to, and shall not be construed to,
confer rights on any persons other than the signatories to this Agreement and
their respective successors and permitted assigns.

                             ARTICLE 40 - AMENDMENTS

This Agreement shall not be amended, nor any provisions hereof waived, in whole
or in part except by written agreement executed by the Reinsureds and the
Reinsurer.

                              ARTICLE 41 - SECURITY

1. The Reinsurer agrees to provide the Reinsureds security in an amount equal
to, at all times, the total statutory reserves related to the Policies reported
by the respective Reinsureds in their most current quarterly financial statutory
reports and/or as reported in the most recently filed Annual Statements, by
providing for the benefit of the respective Reinsured, any of the following
forms of security: (i) a clean, irrevocable and unconditional letter of credit
("LETTER OF CREDIT") issued by a mutually agreed Qualified United States
Financial Institution (as defined in Article 15 herein) and containing such
provisions required by the applicable insurance regulatory authorities, plus
(ii) securities held in a qualifying trust account for the benefit of the
Reinsureds (the "TRUST FUND"), less, subject to the conditions of Article 6
paragraph (3), (iii) cash and assets retained by the respective Reinsured on a
funds withheld basis (the "FUNDS WITHHELD"), the combination of which the
respective Reinsured shall be the beneficiary, which shall secure in full all
current liabilities of the Reinsurer to such Reinsured under this Agreement,
including all policy, premium and incurred claims reserves, with respect to this
Agreement as shown on the reports required under Article 20 - Reports and
Remittances. The relative amounts of the security posted by the Reinsurer in the
form of either a Trust Fund and/or a Letter of Credit and/or on a Funds Withheld
basis, shall be at the Reinsurer's absolute and sole discretion. While the use
of any Letter of Credit to satisfy the Reinsurer's obligation under this Article
41 shall be at the sole discretion of the Reinsurer, the cost of any Letter of
Credit shall not be unreasonably assessed to the Reinsureds in the event that
the Reinsurer determines not to fund the Trust Fund with Net Subject Premium
payments made by the Reinsureds.

2. Subject to paragraph (1) above, the Reinsurer shall establish and maintain a
Trust Fund in a Qualified United States Financial Institution for the payment of
valid claims of the Reinsureds, and the Parties have entered into a valid trust
agreement in connection therewith.

         (a) Any and all settlements of the Trust Fund between the Reinsurer and
         the Reinsureds shall be made in cash or cash equivalents.

         (b) Prior to depositing assets with the trustee, the Reinsurer shall
         execute assignments or endorsements in blank or transfer legal title to
         the trustee of all shares, obligations or other assets requiring
         assignments so that the Reinsureds or the trustee upon Reinsured's
         direction may negotiate the assets without the consent or signature of
         the Reinsurer or any other entity.

3. When providing security by a Letter of Credit, such Letter of Credit shall be
issued for a period of not less than one year, and shall be automatically
extended for one year from its date of expiration or any future expiration date
unless thirty (30) days (sixty (60) days where required by any insurance
regulatory authorities) prior to any expiration date, the issuing Qualified
United States Financial Institution shall notify the Reinsured, by a nationally
recognized courier services or certified mail in accordance with Article 3
herein, that the issuing Qualified United States Financial Institution elects
not to extend or renew the Letter of Credit for any additional period.

4. Subject to paragraph 1. above, any Letters of Credit provided by the
Reinsurer, pursuant to this Article 41, may be drawn upon at any time,
notwithstanding any other provision of this Agreement, and

                                       25
<PAGE>

be utilized by the Reinsureds or any successors, by operation of law, of the
Reinsureds including, without limitation, any liquidator, rehabilitator,
receiver or conservator of the Reinsureds solely for the following purposes:

         (a) to reimburse the Reinsureds an amount equal to the Ultimate Net
         Loss actually paid for which the Reinsurer has not theretofore
         reimbursed the Reinsureds in accordance with this Agreement; or

         (b) to pay the Reinsurer's share of any other amounts that are due to
         the Reinsureds under this Agreement and which remain unpaid in
         violation of this Agreement; or

         (c) in the event that such Letter of Credit provided by the Reinsurer
         pursuant to this Article 41 is due to expire, and has not been replaced
         by the Reinsurer, to draw against such Letter of Credit, no sooner than
         five (5) business days prior to the expiration date of such Letter of
         Credit, in an amount equal to that amount of reserves related to the
         Policies not otherwise secured by any of the other forms of security
         permitted under this Article 41. Any amounts drawn by a Reinsured
         pursuant to the terms of this paragraph (4)(c) shall be promptly
         deposited into the Trust Fund.

5. In the event the amount drawn by the Reinsureds under paragraphs (4)(a) and
(4)(b) on any Letter of Credit is in excess of the actual amount required for
the reasons set forth is such paragraphs, the Reinsureds shall promptly return
to the Reinsurer the excess amount so drawn. All of the foregoing shall be
applied without diminution or increase because of insolvency on the part of
either Reinsured or the Reinsurer.

6. The issuing Qualified United States Financial Institution shall have no
responsibility whatsoever in connection with the propriety of withdrawals made
by the Reinsureds or the disposition of funds withdrawn, except to ensure that
withdrawals are made only upon the order of properly authorized representatives
of the Reinsureds.

                           ARTICLE 42 - GOVERNING LAW

This Agreement shall be governed by the laws of the State of New York, without
giving effect to the conflict of laws principles thereof, and of the United
States, including the United States Arbitration Act, 9 U.S.C. ss.1 ET SEQ.

                         ARTICLE 43 - SERVICE OF PROCESS

1. Centre Group, LLC is hereby appointed as Agent for Service of Process by the
Reinsurer, for the purposes of this Agreement, at the address specified in
Article 3 - Notices.

2. Subject to the arbitration provisions in Article 33, in the event of the
Reinsurer's failure to pay any amount claimed to be due under this Agreement,
the Reinsurer, at the Reinsureds' request, will submit to the jurisdiction of
any court of competent jurisdiction within the United States of America and will
comply with all requirements necessary to give such court jurisdiction. Nothing
in this Agreement constitutes or should be construed to constitute a waiver of
the Reinsurer's rights to commence an action in any court of competent
jurisdiction in the United States, to remove an action to a United States
District Court, or to seek a transfer of a case to another court as permitted by
the laws of the United States or of any state in the United States.

3. Service of Process in such suit shall be made by a nationally recognized
courier service or certified mail upon the Agent for Service of Process in
accordance with Article 3 herein, and in any suit instituted against the
Reinsurer upon this Agreement, the Reinsurer will abide by the final decision of
such court or of any appellate court in the event of appeal.

                                       26
<PAGE>

4. To the extent permitted by law, each Reinsured hereby waives any requirements
under the unauthorized insurance or similar laws of any jurisdiction or
otherwise that the Reinsurer post funds, bonds, securities or other security as
a condition to its appearance or filing of pleadings in any proceeding involving
or arising in connection with this Agreement.

5. Further, pursuant to any statute of any state, territory, or district of the
United States of America which makes provision therefor, the Reinsurer hereby
designates the Superintendent, Commissioner, or Director of Insurance or other
officer specified for that purpose in the statute, or his successor or
successors in office, as their true and lawful attorney upon whom may be served
any lawful process in any action, suit, or proceeding instituted by or on behalf
of the Reinsureds arising out of this Agreement and hereby designates the Agent
for Service of Process as the agent to whom said officer is authorized to mail
such process or a true copy thereof.

                             ARTICLE 44 - NO WAIVER

Forbearance, neglect or failure of any Party to this Agreement to enforce any of
the provisions herein shall not be construed to be a waiver of any rights or
privileges hereunder. No prior transactions or dealings between the Parties
shall be deemed to establish any custom or usage waiving or modifying any
provision hereof. The failure of either Party to enforce any part of this
Agreement shall not constitute a waiver by such Party of its right to do so, nor
shall it be deemed to be an act of ratification or consent.

                       ARTICLE 45 - RULES OF CONSTRUCTION

Each Party acknowledges that, in the negotiation and drafting of this Agreement,
it has been represented by and has relied upon the advice of counsel of its
choice; that its counsel has had a substantial role in the drafting and
negotiation of this Agreement; and, therefore, that the rules of construction
that any ambiguities are to be resolved against the drafting Party shall not be
applied in the interpretation of this Agreement.

                              ARTICLE 46 - SURVIVAL

All of the provisions of this Agreement, to the extent necessary to carry out
the purposes of this Agreement or to ascertain and enforce the Parties' rights
hereunder, shall survive the termination or cancellation of this Agreement.

         [The remainder of this page has been intentionally left blank]

                                       27
<PAGE>

                            ARTICLE 47 - SEVERABILITY

To the extent that any term or provisions of this Agreement is held to be
unenforceable then such term and all of the other terms and provisions of the
Agreement shall be construed so as to create or provide for, to the fullest
extent permitted by law, the same rights and obligations as this Agreement would
have created or provided for had such term or provision been enforceable.

IN WITNESS WHEREOF, the Parties have hereunto set their hand as of the 4th day
of September, 2002, and effective as of the Effective Date.

CENTRE SOLUTIONS (BERMUDA) LIMITED

By: ________________________________________
Name:  Michael Crow
Title: Vice President

PENN TREATY NETWORK AMERICA INSURANCE COMPANY

By: ________________________________________
Name:  William W. Hunt
Title: President and Chief Operating Officer

AMERICAN NETWORK INSURANCE COMPANY

By: ________________________________________
Name:  William W. Hunt
Title: President and Chief Operating Officer

                                       28
<PAGE>

Appendix A - List of Policies

All Policies of individual Long Term Care insurance listed in the CD-ROM
delivered to the Reinsurer and the Reinsureds by Tillinghast Towers Perrin under
cover of their letter dated February 14, 2002.

                                       29
<PAGE>

Appendix B - Details of Regulatory Action against the Reinsureds currently
underway

1.       The Reinsureds have been required to file a Corrective Action Plan in
         Pennsylvania.

2.       A letter from the Reinsureds has been filed in the following states
         committing to the suspension of new business writing in the relevant
         state. Insurance Commissioner approval from the relevant state is
         required to resume sales of new policies.

         Arizona                     Kentucky                Minnesota
         California                  Maryland                Tennessee
         Colorado - PTNAIC           Michigan                Virginia
         New Jersey                  Vermont                 Nebraska
         Ohio                        Wisconsin

3.       A suspension order has been issued by the Insurance Commissioner in the
         following states:

         Arkansas                    Idaho                  North Carolina
         Illinois                    Missouri               District of Columbia
         New Hampshire               Texas                  Georgia
         New Mexico

                                       30
<PAGE>

Appendix C - PTNAIC COLI Investments

All 335 policies issued to the Reinsureds by American General Life Insurance
Company under Group Flexible Premium Variable Life Insurance Policy Number
CML0000015, with an agreed value of $54,478,424 as of December 31, 2001.

                                       31
<PAGE>

Appendix D - Existing Reinsurance

In May 1991, Penn Treaty Network acquired a block of long-term care business
under an assumption reinsurance agreement with Provident Mutual Life and Annuity
Company of America (formerly known as Washington Square Life Insurance Company).
Penn Treaty Network assumed the obligations as insurer for all policies in-force
as of that date. Under this agreement, Penn Treaty Network assumed a reinsurance
treaty under which 66% of the premiums assumed are, in turn, ceded by Penn
Treaty Network to Cologne Life Reinsurance Company. The total reserve credits
ceded under this treaty amounted to approximately $5,275,000 in 2001.

Effective in October 1994, Penn Treaty Network entered into reinsurance
agreements with Cologne Life Reinsurance Company (A.M. Best rating A+) with
respect to their home health care policies with benefit periods exceeding 36
months. Under these reinsurance agreements, Penn Treaty Network is responsible
for payment of claims during the first 36 months of the benefit period, and the
reinsurer will reimburse Penn Treaty Network is for 100% of all claims paid
after such 36 month period. Total reserve credits taken related to this
agreement as of December 31, 2001 were approximately $5,091,000. Effective
January 1998, no new policies were reinsured under this treaty.

                                       32
<PAGE>

Appendix E - Nuclear Exclusion

Notwithstanding any provision in this Agreement to the contrary, the Reinsurer
will not pay for or have any liability with respect to any loss, damage, claim,
liability, cost or expense of any nature (including without limitation any
bodily injury, property damage, business interruption, lost profit,
consequential or indirect losses, damages, claims, liabilities, costs or
expenses) and wherever occurring ("Damage") directly or indirectly caused or
occasioned by or resulting from an actual or threatened nuclear or radioactive
accident or incident (regardless of when such Damage becomes manifest or known),
and/or the controlling, suppressing, hindering, responding to, remediating or
defending against an actual, threatened or expected nuclear or radioactive
accident or incident or from any instructions, recommendations, warnings or
advice given or preventative action taken with respect to any actual or expected
nuclear or radioactive accident or incident. Such Damage is excluded regardless
of any other cause or event that contributes concurrently or in any sequence or
in any chain of events to the Damage and regardless of whether the Damage is
accidental, foreseeable or intentional, and including any such liability as a
result of an Act of Terrorism (as defined in Appendix F).

                                       33

<PAGE>

Appendix F - Terrorism Exclusion

Notwithstanding any provision in this Agreement to the contrary, the Reinsurer
will not pay for or have any liability with respect to any loss, damage, claim,
liability, cost or expense of any nature (including without limitation any
bodily injury, property damage, business interruption, lost profit,
consequential or indirect losses, damages, claims, liabilities, costs or
expenses) and wherever occurring ("Damage") directly or indirectly caused or
occasioned by or resulting from an actual or threatened Act of Terrorism
(regardless of when such Damage becomes manifest or known) and/or the
controlling, suppressing, hindering, responding to, remediating or defending
against an actual, threatened or expected Act of Terrorism or from any
instructions, recommendations, warnings or advice given or preventative action
taken with respect to any actual or expected Act of Terrorism. Such Damage is
excluded regardless of any other cause or event that contributes concurrently or
in any sequence or in any chain of events to the Damage and regardless of
whether the Damage is accidental, foreseeable or intentional.

"ACT OF TERRORISM" means any terrorist act, occurrence or threat, wherever and
whenever occurring, whether or not any law, or governmental authority or other
person or entity determines such act, occurrence or threat to be an act of
terrorism. Acts of Terrorism shall include without limitation actions,
occurrences or threats:

         (i)      That are or involve one or both of the following:

                  (a) any act, use, attempted use or threat of use of force or
                  violence, or any act causing or threatening of damage or harm
                  of any nature, whether or not the person or persons involved
                  are acting along or in conjunction with or on behalf of a
                  sovereign power or terrorist organization; or

                  (b) the commission, attempted commission or threat of an act
                  that interferes with or disrupts (or could reasonably be
                  expected to interfere with or disrupt) any electronic,
                  communication, information or mechanical system;

                  including without limitation, in the case of each of clauses
                  (a) or (b) of this paragraph (i), any use, attempted use, or
                  threatened use of, or act involving, biological, chemical,
                  radioactive or other toxic or contaminating materials, or
                  weapons devices;

AND
         (ii)     If one or both of the following applies:

                  (a) the effect or intent is to intimidate, place in fear,
                  coerce, or influence the policies of, or disrupt, damage,
                  punish or interfere with or hinder the business or commerce
                  of, any government or political subdivision thereof, or any
                  civilian population or sector thereof, any organization,
                  company or other entity, or any industries, services or
                  systems (including any gas, power, communications, water,
                  sewer, construction, energy, technology, financial industries
                  or transportation systems and services); or

                  (b) one of the motives, or one of the apparent or claimed
                  motives, of the person(s) or entities committing such act,
                  use, attempted use, commission, attempted commission or threat
                  is to further or express (or express opposition to or support
                  of) any political, philosophical, ideological, religious,
                  social, terrorist or economic objectives or any similar
                  objectives.

If it is alleged by the Reinsurer that any claim is not covered by reason of
this exclusion, the burden of proving the contrary shall be on the Reinsured.

                                       34

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