ex99-2.htm

CONFIDENTIAL

Penn Treaty Network America Insurance Company
(In Rehabilitation)

&

American Network Insurance Company
(In Rehabilitation)

Rehabilitation Plan Recommendation

April 6, 2009

CONFIDENTIAL

1. Executive Summary	TAB 1
2. Overview of PTNA & ANIC	TAB 2
3. Description of Signal Hill Engagement/Assignment	TAB 3
4. Summary of Projections and Values of PTNA & ANIC	TAB 4
5. Background Considerations for the Rehabilitation Alternatives	TAB 5
6. Overview of the Life & Health Guaranty Associations	TAB 6
7. Review of Rehabilitation Alternatives	TAB 7
8. Summary of the Recent Strategic and Financing Alternatives Process	TAB 8
9. Potential Additional Interested Parties	TAB 9
10. Rehabilitation Plan Recommendation for PTNA & ANIC	TAB 10
Appendices:
A. Surplus Projections Related to Rehabilitation of: Penn Treaty Network America Insurance Company & American Network Insurance Company as of December 31, 2008	TAB A
B. Pennsylvania Insurer Receivership Statute	TAB B
C. PTNA Audited and Unaudited Statutory Financial Statements	TAB C
D. ANIC Audited and Unaudited Statutory Financial Statements	TAB D

Table of contents

CONFIDENTIAL

Disclaimer

In preparing this report, Signal Hill Capital Group LLC (“Signal Hill”, “us” or “we”) has reasonably relied
upon information provided to us by Penn Treaty Network America Insurance Company (“PTNA”) and
American Network Insurance Company (“ANIC”), their subsidiaries, (collectively, “PT Group”), Cozen
O’Connor (“Cozen”), counsel to the Rehabilitator (as hereinafter defined), Milliman, Inc. (“Milliman”),
actuarial advisor to the Rehabilitator, and such other advisors who have been engaged as a legal,
actuarial, accounting, investment banking, or tax consultant or advisor (a “Consultant”) to PT Group or
the Rehabilitator regarding the rehabilitation.

PT Group has represented that to its knowledge all information furnished by it or on its behalf to Signal
Hill, at all times during Signal Hill’s engagement: (i) is accurate and complete in all material respects, and
(ii) does not contain any untrue statement of a material fact or omit to state a material fact necessary in
order to make the statements therein not misleading in light of the circumstances under which such
statements are made. We have assumed that this information has been reasonably prepared and
reflects the best currently available information. We have relied upon information and analyses provided
to us for a portion of the analysis contained herein including Surplus Projections Related to Rehabilitation
of: Penn Treaty Network America Insurance Company & American Network Insurance Company as of
December 31, 2008, prepared by Milliman and delivered on April 2, 2009, (the “Projections”) as well as
additional actuarial analyses (“the additional analyses”) under various scenarios prepared at the request
and instruction of the Rehabilitation Implementation Committee (the “Committee”) or management of PT
Group. Certain assumptions used in the additional analyses were provided to Milliman by the Committee
and Signal Hill. We do not assume any responsibility with respect to this information and analysis. We
make no representations, either express or implied, as to its accuracy or completeness.

CONFIDENTIAL

Disclaimer (continued)

This report is prepared as of the date set forth on the front cover and reflects information made
available to us prior to such date and which we have reviewed and discussed with PT Group, the
Committee, the Rehabilitator, the Pennsylvania Insurance Department (“PID”), Cozen, Milliman and/or
any Consultant. Any material revisions or modifications to information previously supplied to us may
change the conclusions set forth in this report.

Cozen and PT Group recognize and confirm that in completing this engagement, Signal Hill has used
and relied upon publicly available information. It is understood that Signal Hill may reasonably assume
and rely upon the accuracy and completeness of such publicly available information and the other
information so furnished without independent verification, and is not assuming any responsibility for
independent verification of such information.

This report is a summary and does not purport to include all of the analyses and assessments made
by us in arriving at the conclusions and recommendations contained herein. Further, this report does
not purport to constitute a complete and final analysis of all facts and information with regard to any
proposed alternatives for the rehabilitation of PTNA and ANIC. We have assumed that PTNA and
ANIC will obtain all permits and governmental, judicial, regulatory and other approvals required in the
future and take all actions required relevant to subsequent consummation of the alternative or
transaction contemplated or permitted.

CONFIDENTIAL

Disclaimer (continued)

Signal Hill is acting only as a consultant to Cozen and this report will be used by Cozen only in fulfilling
its responsibilities to the statutory Rehabilitator (the “Rehabilitator” or “Commissioner”) and in
preparing for judicial proceedings concerning the rehabilitation of PTNA and ANIC. This report may be
relied upon only by Cozen and the Rehabilitator. Unless expressly agreed to in writing by Signal Hill,
no person other than Cozen and the Rehabilitator may rely on this report. No report, opinion or advice
of Signal Hill shall be used for any purpose other than as set forth in the engagement letter, nor shall
any such reports, opinions or advice be reproduced, disseminated, quoted or referred to at any time, in
any manner, for any other purpose, nor shall any other public or other references to Signal Hill or its
opinions or advice be made without the express prior written consent of Signal Hill. The terms of our
engagement provide the scope of work represented by this report and we make no representation and
assume no responsibility as to any findings that the Rehabilitator may be required to make, or actually
makes, in carrying out his responsibilities, under statute or otherwise.

Signal Hill has entered into a confidentiality agreement with PT Group to protect proprietary and
confidential information furnished to us by Cozen or PT Group, either directly or through Milliman or
other Consultants. PT Group, either directly or through Milliman or other Consultants, has furnished
certain confidential or proprietary information to Signal Hill to enable Signal Hill to advise Cozen with
respect to alternatives for judicial rehabilitation of PTNA and ANIC. All of the information provided and
to be provided by PT Group constitutes confidential and proprietary information of PT Group, except
that confidential and proprietary information does not include any information which was publicly
available prior to Signal Hill's receipt of such information or thereafter becomes publicly available.

CONFIDENTIAL

Disclaimer (continued)

Any further distribution of this report or its contents must be implemented in a manner consistent with
the confidentiality agreement and any other such agreements that may exist with Cozen or PT Group.
We agree, however, that this report may be filed with the Commonwealth Court of Pennsylvania and
that such filing will be publicly available.

The conclusions and recommendations stated herein are matters of our professional judgment based
on our experience and the information provided to us in the course of our engagement. These
conclusions and recommendations do not constitute a formal opinion as to fairness, and it is possible
that other persons could reach different conclusions and recommendations from the same information.

CONFIDENTIAL

1. Executive Summary

CONFIDENTIAL

• Signal Hill Capital Group LLC (“Signal Hill”, “us”, or “we”) has been retained by Cozen
O’Connor (“Cozen”) to advise Cozen in its capacity as counsel to the statutory Rehabilitator
of Penn Treaty Network America Insurance Company (“PTNA”) and American Network
Insurance Company (“ANIC”) (collectively the “Company”). The Rehabilitator is the
Insurance Commissioner of the Commonwealth of Pennsylvania (the “Rehabilitator” or
“Commissioner”).

• The Company primarily writes individual, defined benefit, accident & health insurance
policies covering long term care benefits (“LTC”). In addition, the Company also writes a
small amount of Medicare supplement and certain other life, and accident & health
insurance products.

• Because PTNA and ANIC are in the same business, the two companies have been
managed jointly for efficiency and economy as to all aspects of the business including
marketing, underwriting, claims administration, and regulatory aspects of the business.

• Penn Treaty American Corporation (“PTAC”) owns PTNA, which wholly owns ANIC, as well
as one insurance agency primarily focused on LTC. ANIC owns American Independent
Network Insurance Company of New York (“AINIC”) a New York domiciled accident & health
insurance company.

• LTC is a level premium, guaranteed renewable coverage in which the insurance company
has the ability to adjust premium rates to meet benefit costs over the life of the policy.

Penn Treaty

American Corporation

(Pennsylvania Holding Company)

(“PTAC”)

Penn Treaty Network

America Insurance Company

(Pennsylvania Domiciled Stock Life &

Health Insurance Company)

(“PTNA”)

American Network

Insurance Company

(Pennsylvania Domiciled Stock

Insurance Company)

(“ANIC”)

American Independent Network

Insurance Company of New York

(New York Domiciled Stock

Insurance Company)

(“AINIC”)

Organizational Chart

Executive Summary

CONFIDENTIAL

• Due to fast LTC premium growth in the 1990’s through 2001 and rapidly increasing claims
through 2008, the Company experienced significant financial losses between 2000 and 2008.

• Following the recapture of certain reinsurance treaties by PTNA and ANIC effective January
1, 2009, which materially reduced PTNA’s and ANIC’s statutory surplus to -$224.0 million and
$4.8 million, respectively, the Boards of both PTNA and ANIC consented to the filing of a
petition with the Commonwealth Court of Pennsylvania (the “Court”) to place PTNA and ANIC
into voluntary rehabilitation on January 6, 2009.

Executive Summary (continued)

CONFIDENTIAL

Business Description	Historical Operating Performance
§ Penn Treaty Network America Insurance Company (“PTNA”) is a Pennsylvania domiciled stock insurance company. § The company was incorporated in 1954 to write life and health insurance policies. § PTNA has developed a focus in underwriting long term care policies and is currently licensed in 39 states and DC. § For the year end 2008, PTNA had $245 million in in-force active LTC premiums and had a negative surplus of $224.0 million due primarily to the recapture of reinsurance treaties in the fourth quarter of 2008(1). § PTNA’s risk based capital (“RBC”) was -861% of ACL at year end 2008(2).
OldCo / NewCo Split of Gross Annualized In-Force LTC Premium(1)	Major States - Top 10

Source: Company Filings and Company

Source: Company

Source: Company Filings and Company

(1) The in-force premiums represent
the active LTC premiums in-force at
year end 2008 excluding any waivers
of premium, assumed LTC business
from Independence Blue Cross, and
the LTC premiums of ANIC and AINIC.

(2) The RBC percentage represents
the RBC of PTNA after the full effects
of the recapture of the Imagine treaties
as if they had occurred on December
31, 2008.

(3) Unaudited

(4) Because the letters of credit related
to the Imagine treaties were released
before the end of 2008, the Total
Surplus dollar amounts are what would
have been stated on the statutory
financial statements had the Imagine
treaties remained in effect with full
collateral. The Surplus Before Impact
of Relief Reinsurance dollar amounts
are the figures that were stated on the
balance sheet reflecting the effects of
the unauthorized reinsurance carried
on the companies’ balance sheets at
year end.

Source: Company and Milliman

Penn Treaty Network America Insurance Company

CONFIDENTIAL

Business Description	Historical Operating Performance
§ American Network Insurance Company (“ANIC”) is a Pennsylvania domiciled stock insurance company. § The company was incorporated in 1961 to write accident and health insurance policies. § ANIC has also developed a focus in underwriting long term care policies and is currently licensed in 41 states and DC. § For the year end 2008, ANIC had $21 million in in-force premiums and had a surplus of $4.8 million(1). § ANIC is the parent company of American Independent Network Insurance Company of New York (“AINIC”). § ANIC’s RBC was 147% of ACL at year end 2008(2).
	Major States - Top 10

Source: Company Filings and Company

Source: Company

Source: Company Filings and Company

(1) The in-force premiums represent
the active LTC premiums in-force at
year end 2008, excluding any waivers
of premium, assumed LTC business,
and the LTC premiums of AINIC.

(2) The RBC percentage represents
the RBC of ANIC after the full effects
of the recapture of the Imagine treaties
as if they had occurred on December
31, 2008.

(3) Unaudited

Source: Company and Milliman

American Network Insurance Company

CONFIDENTIAL

Business Description	Historical Operating Performance
§ Together, PTNA and ANIC are wholly owned subsidiaries of Penn Treaty American Corporation (“PTAC”), a Pennsylvania insurance holding company. § Despite being separate entities, the two companies have been managed jointly for efficiency. § Combined, PTNA and ANIC have nearly 130,000 active LTC policyholders, many of whom are considered impaired risk(1). § In 2008, Penn Treaty ranked 10th in new LTC business underwriting.
OldCo / NewCo Split of Gross Annualized In-Force LTC Premium(1)	Major States - Top 10

Source: Company

Source: Company Filings and Company

Source: Company

Source: Company and Milliman

(1) The in-force premiums represent
the active LTC premiums in-force at
year end 2008 for PTNA and ANIC,
excluding any waivers of premium, and
assumed LTC business.

(2) Unaudited

PTNA and ANIC Combined Results

CONFIDENTIAL

Summary of History Leading to Rehabilitation:

• The Company began writing nursing home coverage in 1972 and added home health care
coverage in 1985.

• As a result of rapid premium growth in the 1990’s and a sharp increase in claims in the late
1990’s and early 2000’s, the Company experienced unprofitable results and significant
financial losses through 2001. As a result, the Company ceased underwriting new LTC
business until it agreed to a Corrective Action Plan (“CAP”) with the Pennsylvania Insurance
Department (“PID”) in February 2002 wherein the Company committed to a number of
restrictions and requirements, including:

– Restrict investments to investment grade securities (rated NAIC 1 or 2),

– Increase statutory reserves by $125 million over a three year period,

– Enter into a reinsurance treaty that would place substantially all of the pre-2002 LTC
business in-force with a third party reinsurer, and

– Not make distributions out of the company and not enter into any new agreement or
amend any existing agreements with affiliates involving amounts greater than $100,000
without PID approval.

• The Company, as a part of the CAP, entered into a reinsurance agreement with Centre
Solutions (Bermuda) Ltd. (“Centre Solutions”), to reinsure substantially all of the pre-2002 LTC
policies.

Executive Summary (continued)

CONFIDENTIAL

• In addition, the Company entered into a second treaty with Centre Solutions covering 50% of
the 2002 and subsequent new business. These treaties provided approximately $125 million of
surplus relief for the Company by transferring all LTC reserve liabilities to Centre Solutions.

• The CAP was accepted by the PID and other states and, in February 2002, PTNA and ANIC re
-commenced the sale of new business.

• PTAC was also able to raise $90 million of new capital between 2002 and 2005.

• From 2002 forward, because of the adverse claims experience arising out of the existing, pre-
2002 business and the resumption of new business sales, PTAC separated its business into
“OldCo” business (written before 2002) and “NewCo” business (written in 2002 and later) to
improve the monitoring and management of the LTC business.

• Effective July 2005, Imagine International Reinsurance Limited (“Imagine”) stepped into the
place of Centre Solutions, which had elected to exit the accident & health business in 2004,
picking up 100% of the OldCo in-force business and 70% of the NewCo business written
beginning as of October 2005.

• From 2001 to 2008, the Company and Milliman, Inc., (“Milliman”), have had to recalibrate the
assumptions for expected future claims in the OldCo business numerous times primarily due to
deteriorating claims experience arising out of, among other things, changes in care facilities
(primarily the development of assisted living facilities) and changes in their utilization by
policyholders, increasing policyholder persistency, lengthened claim duration, and heightened
claims severity.

• Due to changing benefit utilization patterns, the OldCo business claims experience after 2002
continued to develop unfavorably.

Executive Summary (continued)

CONFIDENTIAL

• OldCo claim experience continued to erode and required reserves to be increased markedly as
well as increases in premium rate filings. In addition, under the terms of the treaties, Imagine
was required to post additional collateral. As a result of the delays by some insurance
departments in approving premium rate increases, a dispute as to the OldCo treaty arose
between the Company and Imagine in August 2008 relating to Imagine’s obligation to provide
the Company with additional collateral. This led to discussions of recapture of the Imagine
treaties and the surplus deficit that would result at PTNA.

• In August 2008, PTAC launched a strategic and financing alternatives sale process in an
attempt to identify alternatives that might result in strategic partnerships, business
combinations or sales of certain assets.

• PTNA provided notice to Imagine of a breach of contract due to Imagine’s failure to post
requisite collateral.

• In October 2008, the Company provided notice to Imagine of its intent to recapture both
reinsurance treaties effective January 1, 2009. The announced effect of this recapture was a
significant surplus reduction on the effective date of the recapture for both PTNA and ANIC,
with PTNA ending up in a negative surplus position. At this time, PTAC announced that it
would continue to seek strategic and/or financing alternatives through December 31, 2008,
suspend writing new business, and that PTNA and ANIC would voluntarily enter rehabilitation
on January 1, 2009 unless a viable strategic or financing alternative was found.

Executive Summary (continued)

CONFIDENTIAL

• On December 15, 2008, because of time constraints relating to the pending reinsurance
recapture and rehabilitation, PTAC entered into a letter of intent (“LOI”) relating to the first
formal transaction proposal received from a potential purchaser (the “Potential Purchaser”). It
contained a two month exclusivity provision through February 13, 2009. As a result, the
strategic and financing alternatives process was effectively halted at a time when there were
some parties who had not completed their reviews and continued to have an interest in some
or all of the Company, even if a preliminary interest.

• The Company recaptured the Imagine treaties on January 1, 2009. The results of which were,
as of January 1, 2009, that PTNA ended up with a -$224.0 million surplus balance. ANIC had
$4.8 million in surplus ($8.6 million of which was its equity stake in AINIC). The Boards of both
PTNA and ANIC consented to the filing of a petition with the Court to place PTNA and ANIC
into voluntary rehabilitation.

• PTNA and ANIC were placed in rehabilitation effective January 6, 2009, pursuant to Article V
of the Insurance Department Act of 1921, as amended, Title 40 P.S. § 221.1-221.63, (the
“Insurer Receivership Statute”).

• With PTNA and ANIC in rehabilitation, the PID formed the Rehabilitation Implementation
Committee (the “Committee”) to discuss and make recommendations to the Deputy
Commissioner of the PID and the Rehabilitator concerning a number of issues related to the
operation of the business and development of the rehabilitation plan.

Executive Summary (continued)

CONFIDENTIAL

Company

– Cam Waite - Strategic Operations

– Steve La Pierre - Insurance Operations

– Mark Cloutier - Financial Affairs

– Jane Bagley - General Counsel

– Ram Veeramani - Information Systems

Actuarial Consultants - Milliman, Inc.

– Ed Mohoric

– Larry Pfannerstill

Legal Consultants - Cozen O’Connor

– Hon. James G. Colins

– James Potts

• The Committee is comprised of:

Pennsylvania Insurance Department

– Joseph DiMemmo, Deputy Commissioner

– Frank Martin

– Preston Buckman

– Bob Robinson (Chief Rehabilitation Officer)

Executive Summary (continued)

CONFIDENTIAL

• The Potential Purchaser and PTAC extended the exclusivity until February 28, 2009 with the
Rehabilitator’s approval. The Potential Purchaser presented a revised proposal to the
Committee on February 27, 2009. For a number of reasons, that proposal was not acceptable
and was rejected, thereby ending the strategic and financing alternatives process.

• In addition to those parties interested in a potential transaction with the Company at the time of
the execution of the LOI, there are another dozen parties who have contacted either
management or the Rehabilitator since the exclusivity lapsed expressing interest in owning or
managing some facet of the Company’s business.

Executive Summary (continued)

CONFIDENTIAL

Distinctions between PTNA and ANIC in Rehabilitation:

• PTNA, with its significant negative surplus position belongs in rehabilitation.

• ANIC, on the other hand, did have positive surplus at the time it was placed into rehabilitation,
which might argue for its exit from rehabilitation.

• However, for the following reasons, it is prudent for ANIC to be in rehabilitation today:

– ANIC has $4.8 million of surplus due to the value of its equity investment in AINIC,
which is carried on ANIC’s balance sheet at $8.6 million.

– ANIC’s risk based capital ratio (“RBC”) is 147% of Authorized Control Level (“ACL”)
surplus after the full effects of the recapture of the Imagine treaties as if they had
occurred on December 31, 2008, well below the 200% threshold of surplus at which
insurance regulators would begin to closely monitor the company and ask for a
corrective action plan to improve operating results and restore surplus.

– New business sales and production has been halted.

– Actuarial projection scenarios of ANIC prepared by Milliman, using certain reasonable
run-off assumptions, would project ANIC losing money in 2009 resulting in an RBC
below 100% of ACL, approaching the 70% ACL threshold wherein the domiciliary
regulator must take control of the company and put it into rehabilitation.

– Because PTNA has provided all administrative functions for ANIC on a cost advantaged
basis, ANIC is not likely to be profitable as a stand alone company without the ability to
build its book of new business, thereby potentially further endangering the solvency of
the Company and the contractual commitments to policyholders.

Executive Summary (continued)

CONFIDENTIAL

– Many of the operating, agency, creditor, reinsurance, and premium issues that need to
be addressed in rehabilitation to improve operating results are common to ANIC and
PTNA as the businesses have been managed as one and are more readily addressed
together rather than separately.

– The administration and management of both companies’ businesses in rehabilitation is
more economical if done together, as the business has been historically managed by
the Company.

– Significant rate increases are needed in certain states to restore ANIC’s OldCo
business to profitability. If those rate increases are delayed or declined, then the
solvency of ANIC may be in question.

• While it makes good sense to have both ANIC and PTNA in rehabilitation today, it is possible
that, once ANIC benefits from some of the steps taken in rehabilitation, it could exit
rehabilitation considerably sooner than PTNA.

Executive Summary (continued)

CONFIDENTIAL

Summary of Signal Hill Mandate:

• Signal Hill’s current mandate is to examine the Company and determine the following:

– If efforts to rehabilitate PTNA and ANIC are to be continued, what alternatives might
exist to reduce the policies and policyholders of the Company in rehabilitation or
successfully complete and conclude the Company’s rehabilitation,

– Are the rehabilitation alternatives realistic and feasible,

– How might policyholders be impacted during and after the rehabilitation and what
alternatives would be in their best interests,

– Prepare a recommendation for the Rehabilitator as to how to proceed in this matter that
is in the best interests of the policyholders and considers the claims of other creditors.

• Signal Hill first considered whether continued rehabilitation would optimize the policyholders’
interests in contrast to a liquidation.

• In a liquidation, coverage of policyholders’ claims by state guaranty funds is likely to be capped
in most states at $100,000 to $300,000 in benefit payments per policy, which may be less than
what many policyholders are eligible to receive in benefit payments in a rehabilitation.

• After review and discussions with the Committee, it was Signal Hill’s conclusion that, under
certain operating assumptions (not all of which have been completely determined yet), a
properly managed rehabilitation may result in most policyholders receiving potentially better
claims benefit coverage than in a liquidation, and PTNA and ANIC may exit rehabilitation within
a reasonable amount of time.

Executive Summary (continued)

CONFIDENTIAL

(1) The scenarios depict different levels of
premium rate increases to offset the
claims related to the OldCo business. In
all scenarios, significant reductions in
operating expenses including overhead
and commission reductions are assumed.

Source: Milliman - Surplus Projections
Related to Rehabilitation of: Penn Treaty
Network America Insurance Company &
American Network Insurance Company
as of December 31, 2008. For a full copy
of Milliman’s report, see Appendix A.

Executive Summary (continued)

CONFIDENTIAL

• The Scenarios modeled are:

Routine Method

• This scenario represents the normal process of filing for future premium rate increases. It
assumes that PTNA and ANIC continue to pursue rate increases along traditional channels,
i.e., filings on a state-by-state basis. Because of state imposed limitations this is expected to
result in a slow approval process. Cumulative future rate increases of 38.8% will be filed for
and are expected to be achieved between 2010 and 2020 on Penn Treaty’s OldCo business.
This is in addition to 2009 rate increases which are estimated to be 11.8%, some of which
have already been approved.

Immediate Implementation

• In this scenario, Milliman has assumed that rate increases, in aggregate of 42.3% are
implemented nationally on Penn Treaty’s OldCo business on January 1, 2010. This is in
addition to 11.8% expected during 2009, some of which are already approved. Some level of
rate increases would be applied to all of the OldCo business. The amount of increase would
vary by company, plan, state, benefits or other characteristics. This scenario illustrates the
impact of implementing rate increases quickly.

Executive Summary (continued)

CONFIDENTIAL

3 Year Implementation

• This scenario is similar to the Immediate Implementation scenario, except Milliman has
assumed that 33.3% of rate increases necessary to reach the immediate level are
implemented over each of years 2010-2012. That is, the rate increases are 12.5% in each of
2010, 2011, and 2012. This scenario illustrates the impact of implementing rate increases
more quickly than is routinely expected, while imposing some limits on the annual levels.

• The second and third scenarios were developed to illustrate shorter time periods in which the
surplus position would improve and the companies could emerge from rehabilitation.

• Milliman notes that all but the first scenario would require that premium rate increases are
implemented in an expedited fashion. It is expected that coordination and collaboration among
all of the jurisdictions would be necessary to recognize the need for and to implement the rate
increases to allow the Company to emerge from rehabilitation.

• Details of assumed rate increases - by projection year and policy form - are provided in
Section III of the Projections. The timing for the Routine Method and the detailed increase
percentages by policy form are still preliminary.

Executive Summary (continued)

CONFIDENTIAL

• Rehabilitation also offers the Company continued flexibility in the options it may offer
policyholders as to how their policies might be treated in rehabilitation versus a liquidation,
including:

– Accepting higher premium rates at current benefit levels,

– Maintaining current premium rates but at reduced benefit levels, and

– A non-forfeiture option that might enable policyholders to discontinue premium
payments but maintain a fund to pay future benefits for LTC claims.

• The preceding options are not likely to be available to policyholders in liquidation.

• Given (a) the Company’s recent financial performance, (b) a review of certain operating
measures that might be taken while in rehabilitation, and (c) the recent process to seek
strategic and financing alternatives for all or a portion of the Company’s business, Signal Hill
considered not only whether a rehabilitation is feasible, but also what alternatives might exist
to:

– Maximize the future operating results of the business and under what conditions,

– Maximize the number of realistic outcomes as it relates to shrinking the estate or ending
the rehabilitation successfully through the disposition or sale of portions or all of the
business out of the rehabilitation, or ending the rehabilitation successfully,

– Maximize the potential to attract as many interested bidders as possible for some or all
of the Company in the future, and

– Optimize the policyholders’ contractual interests in the rehabilitation by improving the
likelihood of 100% payment of covered benefits.

Executive Summary (continued)

CONFIDENTIAL

• The primary reasons to consider continued rehabilitation of the Company are:

– PTNA policyholders, and possibly ANIC policyholders, in the aggregate, are more likely
to have their full benefits paid, which may be unlikely in a liquidation,

– Management changes and operating adjustments can be made to the business to
enhance its operating performance and the prospect that the business may, under
certain assumptions, exit rehabilitation,

– The previously mentioned flexibility available to policyholders’ regarding the handling of
their policies, and

– While in rehabilitation, the Rehabilitator will have the ability to explore opportunities to
divest portions of the business and operating infrastructure for value thereby benefiting
the estate and any remaining policyholders.

Executive Summary (continued)

CONFIDENTIAL

Potential Rehabilitation Alternatives:

• Under the direction of Cozen, Signal Hill has evaluated rehabilitation alternatives previously
identified by the Committee.

• In completing our initial review, we have concluded that there are some alternatives which,
taken in conjunction with improved operating conditions, may be feasible and could enhance
the results of the rehabilitation thereby leading to potentially better outcomes for the
policyholders.

• Common objectives in all of the alternatives considered are (i) an aggressive expense
reduction effort including the reduction of the Company’s operating expenses by additional
headcount reductions or by retaining an outsourced third party administrator (“TPA”) to
manage the run-off of the business on a fee for service basis as well as the reduction or
elimination of agents’ commissions and (ii) the implementation of equitable higher premium
rates on the OldCo business that are the result of a consensus achieved by the Rehabilitator
with other affected constituencies. Versions of these objectives are embodied in the first two
alternatives below and are the underpinning for all of the other alternatives.

Executive Summary (continued)

CONFIDENTIAL

• We also believe that it is possible to create a plan of rehabilitation that has points of
assessment whereby the progress of the rehabilitation can be measured, and should the
Company not achieve a targeted level of progress by a specific date or dates, then the
Rehabilitator can assess the status of the business and consider, with the Court’s approval,
alternative courses of action for the Company. These check points can be annual, biennial or
triennial and should be based on performance metrics relevant to the planned recovery of the
business such as:

– Targeted premium rate increases being approved and implemented,

– Targeted expense reductions,

– Earnings, and

– Cumulated surplus.

• Although a number of possible transaction outcomes or structures may not be feasible today,
there appears to be a range of rehabilitation alternatives that may become feasible given the
benefits of rehabilitation. These alternatives should be thoroughly vetted for feasibility and
fairness to the policyholders during the months leading up to the formal filing of a Plan of
Rehabilitation.

Executive Summary (continued)

CONFIDENTIAL

• The primary alternatives currently under consideration include:

– The Company continues in run-off with the Rehabilitator seeking rate increases on a
state by state basis, as needed, while reducing expenses as aggressively as possible.
This is the Routine Scenario modeled by Milliman.

– The Company continues in run-off with the Rehabilitator seeking and achieving
consensus as to a nationwide solution regarding equitable rate increases and then
implementing these rate increases while reducing expenses as aggressively as
possible. This is modeled in two scenarios by Milliman, Immediate Implementation and
3 Year Implementation.

– PTNA sells ANIC, which is removed from rehabilitation, for a fair value, including AINIC,
to PTAC or another third party. ANIC re-commences the sale of new LTC policies.
PTNA remains in rehabilitation and in run-off. The operating infrastructure could remain
with PTNA or be sold along with ANIC including a third party administration (“TPA”) fee
for service relationship established between PTNA and ANIC.

– Sell the NewCo business, ANIC (with AINIC), and possibly the infrastructure to a third
party; PTNA remains in rehabilitation under the continuing supervision of the
Rehabilitator and is administered by its employed staff or by the new owner or by a third
party under a TPA arrangement on a fee for service basis.

Executive Summary (continued)

CONFIDENTIAL

– Sell only OldCo policies to a third party in an assumption reinsurance transaction, most
likely to a run-off specialist; ANIC, AINIC and operating infrastructure remain with the
NewCo business and can emerge from rehabilitation. OldCo may or may not be
managed by ANIC on a TPA basis. Once all third party non-policyholder liabilities have
been paid/settled at PTNA and ANIC, the NewCo business and operating infrastructure
can then be returned to the control of management.

– Sell either legal entity, PTNA or ANIC, with its existing OldCo and NewCo business to a
third party. The operating infrastructure can remain with the entity in rehabilitation or go
with the sold company. A TPA arrangement will be needed to manage the entity
without the infrastructure.

– Establish a liquidating trust (after Senior Health Insurance Company of Pennsylvania) to
run-off some or all of the business. The infrastructure may be retained to run-off the
Company or TPA services could be purchased from a third party vendor.

Executive Summary (continued)

CONFIDENTIAL

Review of the Strategic and Financial Alternatives Process

• In another part of our work, we reviewed the recently concluded strategic and financing
alternatives process that was conducted by the Company’s parent, PTAC.

• While the recently concluded, unsuccessful strategic and financing alternatives process was
extremely broad and thorough, it was a truncated process due to the announcement in
October 2008 that the Company would enter rehabilitation on January 1, 2009. Because of
time constraints, PTAC entered into a LOI relating to the first formal transaction proposal
received from a Potential Purchaser on December 15, 2008. It contained a two month
exclusivity provision through February 13, 2009; therefore, the strategic and financing
alternatives process was effectively halted at a time when there were some parties who had
not completed their reviews and continued to have an interest in some or all of the Company,
even if preliminary.

• In addition, there are approximately another dozen parties who contacted either management
or the Rehabilitator around the time of the expiration of the exclusivity in the LOI in the second
half of February 2009. They have expressed an interest in owning or managing some facet of
the Company’s business.

• Although a number of parties were interested in providing merely administrative services to the
Company, given the interest of some other parties, it may be possible that they might propose
an acceptable offer in the future to purchase some portion of the business once the Company
has benefitted from the rehabilitation process.

Executive Summary (continued)

CONFIDENTIAL

Rehabilitation Recommendation

• After initial review of the Company, especially (a) actuarial analyses of the business, (b) the
Company’s recent strategic and financing alternatives process (including potential interested
parties), and (c) initial consideration of the attributes of certain identified alternatives for the
Company in rehabilitation, Signal Hill recommends that:

– The Company remain in rehabilitation rather than be placed into liquidation,

– The Rehabilitator develop a plan of rehabilitation that contains a range of operating
benefits to improve the profitability of the business including consideration of a plan for
possible premium rate increases and significant expense reductions (even though the
dimension and scope of the rate increases and expense reductions have not been
completely determined), and

– Upon achieving profitability, engage in a strategic process or processes to divest all or
portions of the business and thereby remove the business and possibly PTNA and/or
ANIC from rehabilitation at the earliest possible date.

• Signal Hill believes this to be a better alternative than liquidation and, therefore, in the best
interests of the policyholders because it appears, under certain premium, benefit, expense,
investment and other assumptions, that the business can be restored to profitability.
Therefore, the Company should be able to continue to pay full claim benefits and return the
business to a going concern status through the retention of future earnings.

Executive Summary (continued)

CONFIDENTIAL

• At the point at which the business returns to profitability, then it would be prudent for the
Rehabilitator to consider seeking buyers for the business, in whole or in part, thereby returning
the policyholders to a private company which would be contractually obligated to pay policy
and third party claims, reducing the number of policies under rehabilitation and/or potentially
ending the rehabilitation.

• Although a number of possible transaction outcomes or structures may not be feasible today,
there appears to be a range of rehabilitation alternatives that may become feasible given the
benefits of rehabilitation. These alternatives, as well as liquidation, should be thoroughly
vetted for feasibility and fairness to the policyholders as well as the potential impact on other
creditors during the months leading up to the formal filing of a Plan of Rehabilitation.

Executive Summary (continued)

CONFIDENTIAL

2. Overview of Penn Treaty Network America Insurance
Company & American Network Insurance Company

CONFIDENTIAL

History of PTNA and ANIC Prior to Rehabilitation

• PTNA was incorporated in 1954 as a life and health insurance company and ANIC was
incorporated in 1961 as an accident and health insurance company.

• PTNA and ANIC are domiciled in Pennsylvania and regulated by the PID.

• PTAC was incorporated in 1965 as a holding company and is publicly traded with its shares
currently traded on the NASDAQ OTC Bulletin Board.

• PTAC acquired PTNA and ANIC, in addition to founding AINIC, for the purposes of writing
individual, defined benefit accident and health insurance policies covering LTC.

• The Company began underwriting LTC policies in 1972 for nursing home coverage and added
home health care coverage in 1985.

• The Company grew rapidly in the 1990’s by offering a competitive, comprehensive LTC
product, reaching a peak size of approximately 250,000 policyholders generating $363 million
of annual in-force premium in 2000.

• These policies proved to be unprofitable because benefit claims greatly exceeded the
expectations used in pricing the policies. In 2001, the Company ceased underwriting new LTC
business until it agreed to a CAP with the PID, under which the Company committed to
increase statutory reserves by $125 million over a three year period.

• As financial performance faltered, PTNA and ANIC’s ratings were reduced to “C” by A.M. Best
and Standard & Poor’s in 2001.

Overview of PTNA and ANIC

CONFIDENTIAL

• In 2001, PTAC made some senior management changes and developed a CAP which was
submitted to the PID.

• The CAP included steps to improve the capital position of PTNA and ANIC including:

– Restrict investments to investment grade securities (rated NAIC 1 or 2),

– Increase statutory reserves by $125 million over a three year period,

– Enter into a reinsurance treaty that would place substantially all of the pre-2002 LTC
business in-force with a third party reinsurer, and

– Not make distributions out of the insurance companies and not enter into any new
agreement or amend any existing agreements with affiliates involving amounts greater
than $100,000 without PID approval.

• The Company, as a part of the CAP, entered into a reinsurance agreement with Centre
Solutions (Bermuda) Ltd. (“Centre Solutions”), to reinsure substantially all of the pre-2002 LTC
policies.

• The CAP was accepted by the PID and other states and, in February 2002, PTNA and ANIC re
-commenced the sale of new business.

• As a result of the reinsurance treaties and the CAP, Standard & Poor’s increased PTNA’s and
ANIC’s ratings to “B-” in 2002.

History of PTNA & ANIC Prior to Rehabilitation (continued)

CONFIDENTIAL

• PTAC was also able to raise $90 million of new capital between 2002 and 2005.

• From 2002 forward, because of the adverse claims experience arising out of the OldCo
business and the resumption of new business sales, PTAC separated its business into OldCo
business and NewCo to improve the monitoring and management of the LTC business.

• In addition, PTAC had developed an underwriting specialty in and marketing focus on LTC for
the “impaired risk” market, notably applicants who have chronic or congenital, but not
cognitive, health conditions.

• Since 2001, the Company has worked to monitor the experience of the OldCo business very
closely with Milliman’s assistance.

• From 2001 to 2008, the Company and Milliman have had to recalibrate the assumptions for
expected future claims in the OldCo business numerous times primarily due to deteriorating
claims experience arising out of, among other things, changes in care facilities (primarily the
development of assisted living facilities) and changes in their utilization by policyholders,
increased policyholder persistency, lengthened claim duration, and heightened claims severity.

• Due to changing benefit utilization patterns, the OldCo business continued to develop
unfavorably.

• In order to offset the deteriorating claims experience, the Company filed for additional rate
increases four times (2001, 2003, 2005, 2006) and increased claim reserves by a total of $165
million by year end 2008.

History of PTNA & ANIC Prior to Rehabilitation (continued)

CONFIDENTIAL

• Not all of these rate increases have been approved and the approval of others have been
delayed. The Company continues to press for filed rate increases in those states in which the
rate increases have not yet been approved, either in whole or in part.

• The Company has also implemented enhanced claim adjudication procedures in an effort to
reduce benefit expenses and dampen benefit payment increases, and it has implemented
wellness initiatives for the benefit of policyholders.

• In 2004, Centre Solutions notified the Company it was exiting the accident & health
reinsurance business and notified the Company of its desire to terminate the treaty for NewCo
policies issued thereafter.

• Effective July 2005, Imagine International Reinsurance Limited (“Imagine”) stepped into the
place of Centre Solutions, picking up 100% of the OldCo in-force business and 75% of the
NewCo business written beginning as of October 2005.

• During the 2004-2008 time period, due to a number of issues related to the reserves of the
Company’s LTC business, PTAC was unable to file its GAAP financials with the United States
Securities and Exchange Commission (the “SEC”) on a timely basis on several occasions.
The last GAAP 10-K filed by PTAC is for the year end December 31, 2006 and was filed mid
2008.

• In 2007, the Company ceased offering policies with a lifetime benefit feature, limiting the
product offering to 1, 2, 3, 5, and 7 year terms.

History of PTNA & ANIC Prior to Rehabilitation (continued)

CONFIDENTIAL

• OldCo claim experience continued to erode and required reserves to be increased markedly
as well as increases in premium rate filings. In addition, under the terms of the treaties,
Imagine was required to post additional collateral. As a result of the delays by some insurance
departments in approving premium rate increases, a dispute as to the OldCo treaty arose
between the Company and Imagine in August 2008 relating to Imagine’s obligation to provide
the Company with additional collateral. This led to discussions of recapture of the Imagine
treaties and the surplus deficit that would result PTNA.

History of PTNA & ANIC Prior to Rehabilitation (continued)

CONFIDENTIAL

• Following the recapture of certain reinsurance treaties by PTNA and ANIC effective January 1,
2009, which materially reduced PTNA’s and ANIC’s statutory surplus to -$224.0 million and
$4.8 million, respectively, the Boards of both PTNA and ANIC consented to the filing of a
petition with the Commonwealth Court of Pennsylvania (the “Court”) to place PTNA and ANIC
into voluntary rehabilitation on January 6, 2009, pursuant to the Insurer Receivership Statute.

• As a result of rehabilitation, PTNA and ANIC’s ratings are now D and D, respectively.

• With PTNA and ANIC in rehabilitation, the PID formed the Committee to discuss and make
recommendations to the Deputy Commissioner of the PID and the Rehabilitator concerning a
number of issues related to the operation of the business and development of the
Rehabilitation plan.

History of PTNA & ANIC Prior to Rehabilitation (continued)

CONFIDENTIAL

• Through PTNA and ANIC, the Company has offered and sold and has in-force LTC policies
with a range of underwriting classes: Preferred, Premier, Select, Standard and Secured Risk,
the last three currently being impaired risk underwriting classes.

• PTNA and ANIC offer a range of policy coverages to meet their clients’ needs including:

– Secured Risk™ - limited benefit nursing home facility coverage for impaired risk applicants

– Personal Freedom™ - comprehensive coverage for both facility and home health care

– Assisted Living Plus™ - facility only coverage including assisted living

– Independent Living™ - home health care only coverage

– Simple LTC Solutions™ - facility and home health care coverage but with less robust benefits than
Personal Freedom and including a copayment feature

• All policy forms have benefit options that can be used to tailor the product to the needs of the
client including daily benefit maximums, coverage duration and eligibility standards.

• The Company had $328.6 million of annualized in-force LTC premiums in 2002. By year-end
2008, the active LTC book was $266.7 million of annualized in-force premiums.

• In addition, the Company had $6.6 million of Medicare supplement insurance and $0.3 million
of other accident and health coverages in-force at year-end 2008.

• PTNA also assumed by way of reinsurance $3.6 million of LTC premiums from other
companies in 2008.

Description of PTNA & ANIC Today

CONFIDENTIAL

• The table below shows the current status of PTNA’s and ANIC’s insurance licenses:

Description of PTNA & ANIC Today (continued)

CONFIDENTIAL

• As of January 1, 2009, the Company employed 264 all of whom work at the company’s offices
in Allentown, PA. The headcount by department was as follows:

Description of PTNA & ANIC Today (continued)

CONFIDENTIAL

• If the Company were to operate in rehabilitation and continue to administer claims and the in-
force policies internally, management estimates that it would initially require a staff of
approximately 212 which is expected to be reduced further over time as cost efficiencies are
identified in the future.

• Until recently, the Company’s operations included insurance agencies established to sell new
LTC business. Currently, only Senior Financial Consultants Company, a Pennsylvania based
agency, which is a subsidiary of PTAC, remains in operation. One of the other two agencies
which was a direct subsidiary of PTAC was sold in the fourth quarter of 2008. Substantially all
of the assets of the third agency, owned by PTNA, were sold on January 2, 2009.

Description of PTNA & ANIC Today (continued)

CONFIDENTIAL

• PTNA, with its significant negative surplus position belongs in rehabilitation.

• ANIC, on the other hand, did have positive surplus at the time it was placed into rehabilitation,
which might argue for its exit from rehabilitation.

• However, for the following reasons, it is prudent for ANIC to be in rehabilitation today:

– ANIC has $4.8 million of surplus due to the value of its equity investment in AINIC,
which is carried on ANIC’s balance sheet at $8.6 million.

– ANIC’s risk based capital ratio (“RBC”) is 147% of Authorized Control Level (“ACL”)
surplus after the effects of the recapture of the reinsurance, well below the 200%
threshold of surplus at which insurance regulators would begin to closely monitor the
company and ask for a corrective action plan to improve operating results and restore
surplus.

– New business sales and production has been halted.

– Actuarial projection scenarios of ANIC prepared by Milliman, using certain reasonable
run-off assumptions, would project ANIC losing money in 2009 resulting in an RBC
below 100% of ACL, approaching the 70% ACL threshold at which the domiciliary
regulator must take control of the company and put it into rehabilitation.

– Because PTNA has provided all administrative functions for ANIC on a cost advantaged
basis, ANIC is not likely to be profitable as a stand alone company without the ability to
build its book of new business, thereby potentially further endangering the solvency of
the company and the contractual commitments to policyholders.

Distinctions between PTNA and ANIC in Rehabilitation

CONFIDENTIAL

– The administration and management of both companies’ businesses in rehabilitation is
more economical if done together, as the business has been historically managed by
PTNA.

• While it makes good sense to have both ANIC and PTNA in rehabilitation today, it is possible
that, once ANIC benefits from some of the steps taken in in rehabilitation, it could exit
rehabilitation considerably sooner than PTNA.

Distinctions between PTNA and ANIC in Rehabilitation (continued)

CONFIDENTIAL

(1) Unaudited

(2) Because the letters of credit related to the Imagine treaties were released before the end
of 2008, the Total Surplus dollar amounts are what would have been stated on the statutory
financial statements had the Imagine treaties remained in effect with full collateral. The
Surplus Before Impact of Relief Reinsurance dollar amounts are the figures that were stated
on the balance sheet reflecting the effects of the unauthorized reinsurance carried on the
companies’ balance sheets at year end.

Source: Company Filings and Company

Summary Statutory Financial Data

CONFIDENTIAL

PTNA’s largest
states are Florida,
California, and
Pennsylvania.

ANIC’s largest
states are New
Jersey, Virginia,
and Connecticut.

Source: Company Filings

2008 LTC Direct Premium Distribution by Major Premium States

CONFIDENTIAL

Source: Company and Milliman

(1) The in-force premiums and policies represent the active LTC premiums
and policies in-force at year end 2008, excluding any waivers of premium,
assumed LTC business, and the LTC premiums of any subsidiaries.

Total OldCo vs NewCo In-Force Business

CONFIDENTIAL

Source: Company and Milliman

PTNA OldCo vs NewCo In-Force Business

CONFIDENTIAL

Source: Company and Milliman

ANIC OldCo vs NewCo In-Force Business

CONFIDENTIAL

Net Annualized Premium
is after the impact of the
Centre or Imagine treaty
as the case may be.

Source: Company and Milliman

(1) The in-force premiums and policies represent the active LTC premiums and policies in-force at year end 2008,
excluding any waivers of premium, assumed LTC business, and the LTC premiums of any subsidiaries.

As of December 31,

In-Force Business(1)

CONFIDENTIAL

Source: Company and Milliman

Net of reinsurance is after
the impact of the Centre
or Imagine treaty as the
case may be.

Paid Benefits

CONFIDENTIAL

Source: Company and Milliman

Statutory Active Life and Claim Reserves

CONFIDENTIAL

(1) Unaudited

Source: Company Filings and Company

Summary Statutory Financial Data

CONFIDENTIAL

(1) Unaudited; (2) Pro Forma for Imagine Recapture

Source: Company Filings

PTNA Statutory Income Statement

CONFIDENTIAL

(1) Reflects the replacement of
Centre Solutions treaty with Imagine
treaty during 2005

(2) Unaudited

(3) Pro Forma for Imagine
Recapture

Source: Company Filings and
Company

PTNA Statutory Balance Sheet

CONFIDENTIAL

(1) Unaudited; (2) Pro Forma for Imagine Recapture

Source: Company Filings

ANIC Statutory Income Statement

CONFIDENTIAL

(1) Reflects the replacement of
Centre Solutions treaty with Imagine
treaty during 2005

(2) Unaudited

(3) Pro Forma for Imagine
Recapture

Source: Company Filings and
Company

ANIC Statutory Balance Sheet

CONFIDENTIAL

3. Description of Signal Hill Engagement/Assignment

CONFIDENTIAL

• Signal Hill has been retained by Cozen to advise Cozen in its capacity as counsel to the
Rehabilitator while PTNA and ANIC are in rehabilitation.

• Signal Hill’s current mandate is to examine the Company and determine the following:

– Are the rehabilitation alternatives realistic and feasible,

– How might policyholders be impacted during and after the rehabilitation and what
alternatives would be in their best interests, and

– A recommendation for the Rehabilitator as to how to proceed in this matter that is in the
best interests of the policyholders and considers the claims of other creditors.

Description of Signal Hill Engagement/Assignment

CONFIDENTIAL

– Maximize the future operating results of the business and under what conditions,

– Maximize the number of realistic outcomes as it relates to shrinking the estate or
ending the rehabilitation successfully through the disposition or sale of portions or all of
the business out of the rehabilitation, or ending the rehabilitation successfully,

– Maximize the potential to attract as many interested bidders as possible for some or all
of the Company in the future, and

– Optimize the policyholders’ contractual interests in the rehabilitation by improving the
likelihood of 100% payment of covered benefits.

• Signal Hill first considered whether continued rehabilitation would optimize the policyholders’
interests in contrast to a liquidation.

Description of Signal Hill Engagement/Assignment (continued)

CONFIDENTIAL

• The primary reasons to consider continued rehabilitation of the Company are:

– PTNA policyholders, and possibly ANIC policyholders, in the aggregate, are more likely to
have their full benefits paid, which may be unlikely in a liquidation,

– The previously mentioned flexibility available to policyholders’ regarding the handling of
their policies, and

Description of Signal Hill Engagement/Assignment (continued)

CONFIDENTIAL

• In considering whether to continue the Company’s rehabilitation, we reviewed with the
Committee and Milliman certain adjustments that might be made to the management and
operations of the Company’s business while in rehabilitation. Certain of those adjustments
include:

– Operating cost and expense reductions whether by

§ Continued management of the run-off of the business using a reduced in-house staff,
or

§ Contracting with a third party administrator (“TPA”) to outsource the management of
the business with significant headcount reductions (still under review).

– Reduction in other expenses in an effort to achieve operating efficiency and expense
savings.

– A review of whether any savings can be garnered from the reduction or elimination of
commission expenses.

Description of Signal Hill Engagement/Assignment (continued)

CONFIDENTIAL

– Development of a plan to achieve and expeditiously implement needed rate increases
in all jurisdictions that:

§ Is designed in consultation and collaboration with the other jurisdictions that have
significant numbers of consumers affected by the rate increase proposal,

§ Is sensitive to the impact of any such rate increases on the policyholders,

§ Strives to be equitable to all policyholders

§ Seeks to achieves premium rate parity for all policyholders for equivalent policy
benefits,

§ Tested and validated so as to be actuarially justified,

§ Provides a path to achieve a successful rehabilitation where 100% of
policyholders’ claims are paid and the surplus deficit is erased.

• At present, the dimension and scope of any expense reductions and/or premium rate
increases have not yet been fully developed. We recognize that the above objectives may not
all be achievable so any plan that is developed would strive to reach an appropriate consensus
weighting of the objectives.

• Policyholders, should they not receive full payment of their claims from state guaranty funds,
would become creditors of the estate along side the state guaranty funds for the unpaid portion
of their claims.

Description of Signal Hill Engagement/Assignment (continued)

CONFIDENTIAL

• Signal Hill evaluated on a preliminary basis alternatives for the rehabilitation of the Company
identified by the Committee, including but not limited to:

– The continued run-off of the existing business of the Company under different assumed
operating conditions,

– ANIC’s ability to exit rehabilitation early and resume selling new LTC insurance in the
market today or in the future,

– The sale or transfer of the Company’s business, in whole or in part, to a third party
entity using a number of transaction alternatives or structures,

– The ability to raise financing from a third party to restore the Company’s surplus to
appropriate levels and allow the Company to re-commence selling new policies, and

• Signal Hill’s present engagement is limited to providing the Rehabilitation Plan
Recommendation Report and potentially further review of the rehabilitation alternatives in
preparation for the filing of a formal plan of rehabilitation.

Description of Signal Hill Engagement/Assignment (continued)

CONFIDENTIAL

Procedures completed to date

• In connection with Signal Hill’s role as advisor to Cozen, and in evaluating rehabilitation
alternatives, Signal Hill has reviewed certain financial, actuarial, operating, and other
information concerning the Company and its affiliates, as well as certain internal analyses and
other information furnished to Signal Hill by the Company and its advisors.

• On February 2, 2009, Signal Hill initiated its review of documents related to the Company.

• Signal Hill has requested and reviewed selected documents, including but not limited to,
historical GAAP (to the extent available) and Statutory financial statements (2001-2008),
selected data relating to the strategic and financing alternatives process conducted in 2008,
the FBR Confidential Information Memorandum regarding the Company prepared by Friedman
Billings Ramsey & Co., Inc. (“FBR”), FBR reports to PTAC’s Board relating to updates on the
alternatives process, as well as the Projections related to the Company prepared by Milliman,
additional actuarial analyses, certain documents and internal analyses related to the
Company, and documents in the Company’s data room established for interested parties in the
strategic and financing alternatives process.

Description of Signal Hill Engagement/Assignment (continued)

CONFIDENTIAL

• In addition to the Company’s management, with the consent of Cozen, Signal Hill has had
discussions with, as deemed necessary, the following:

– Selected members of the Rehabilitator’s staff,

– The Committee, including Company management,

– Milliman, and

– PTAC’s financial advisor/investment banker

• Since February 6, 2009, Signal Hill has attended weekly Committee meetings to discuss a
number of topics relating to PTNA and ANIC, including but not limited to, accounting, finance,
investment, actuarial analyses, tax, legal, operations, customer service, human resources and
information technology.

• Signal Hill, along with the Committee, met on February 27, 2009, with representatives of the
Potential Purchaser to review their revised proposal.

• Signal Hill will continue to attend Committee meetings and perform additional due diligence
and review additional documents as deemed necessary and as requested by Cozen and/or the
Rehabilitator.

Description of Signal Hill Engagement/Assignment (continued)

CONFIDENTIAL

4. Summary Financial Projections and Surplus Breakeven

CONFIDENTIAL

• At this time, PTAC and the Company do not prepare GAAP financials and Milliman prepares
statutory projections on behalf of the Company.

• In order to depict what the Company’s results might be in run-off under a rehabilitation
scenario, the Projections prepared by Milliman provide illustrations of the Company’s projected
performance under varying assumptions.

• The final dimensions and scope of any expense reductions and/or premium rate increases
have not been fully developed, nor have any plans regarding potential rate increases been
aired with any jurisdiction with significant numbers of possibly affected consumers; but,
Milliman has considered certain reductions in expenses, including general expenses and
agents’ commissions, and certain premium rate increases in its projections.

• The results of these projections have also not been fully tested for the impacts of various
uncontrollable events, such as changes in lapse or termination rates, accelerated claims
incidence rates, etc.

• While PTNA and ANIC are both starting out in rehabilitation because of the common
management of the business and the common issues that need to be addressed while in
rehabilitation, it is entirely possible that ANIC will be in a position to exit rehabilitation sooner
than PTNA based on the composition of its book of business and its current positive surplus
position.

Summary Financial Projections

CONFIDENTIAL

Summary Financial Projections (continued)

CONFIDENTIAL

• The Scenarios modeled are:

Routine Method

Immediate Implementation

Summary Financial Projections (continued)

CONFIDENTIAL

3 Year Implementation

• The second and third scenarios were developed to illustrate shorter time periods in which the
surplus position would improve and the companies could emerge from rehabilitation.

Summary Financial Projections (continued)

CONFIDENTIAL

Under this scenario:

Earnings turn positive in
2011

Surplus turns positive in
2020

The RBC ratio exceeds
200% in 2022

Source: Milliman - Surplus
Projections Related to
Rehabilitation of: Penn Treaty
Network America Insurance
Company & American Network
Insurance Company as of
December 31, 2008

PTNA Summary Financial Projections - Routine Scenario

CONFIDENTIAL

Source: Milliman - Surplus
Projections Related to
Rehabilitation of: Penn Treaty
Network America Insurance
Company & American Network
Insurance Company as of
December 31, 2008

Under this scenario:

Earnings turn positive in
2010

Surplus turns positive in
2013

The RBC ratio exceeds
200% in 2015

PTNA Summary Financial Projections - Immediate Implementation

CONFIDENTIAL

Under this scenario:

Earnings turn positive in
2010

Surplus turns positive in
2015

The RBC ratio exceeds
200% in 2016

Source: Milliman - Surplus
Projections Related to
Rehabilitation of: Penn Treaty
Network America Insurance
Company & American Network
Insurance Company as of
December 31, 2008

PTNA Summary Financial Projections - 3 Year Implementation

CONFIDENTIAL

Under this scenario:

Earnings remain positive

Surplus is always
positive

The RBC ratio exceeds
200% in 2010

Source: Milliman - Surplus
Projections Related to
Rehabilitation of: Penn Treaty
Network America Insurance
Company & American Network
Insurance Company as of
December 31, 2008

ANIC Summary Financial Projections - Routine Scenario

CONFIDENTIAL

Under this scenario:

Earnings remain positive

Surplus is always
positive

The RBC ratio exceeds
200% in 2010

Source: Milliman - Surplus
Projections Related to
Rehabilitation of: Penn Treaty
Network America Insurance
Company & American Network
Insurance Company as of
December 31, 2008

ANIC Summary Financial Projections - Immediate Implementation

CONFIDENTIAL

Under this scenario:

Earnings remain positive

Surplus is always
positive

The RBC ratio exceeds
200% in 2010

Source: Milliman - Surplus
Projections Related to
Rehabilitation of: Penn Treaty
Network America Insurance
Company & American Network
Insurance Company as of
December 31, 2008

ANIC Summary Financial Projections - 3 Year Implementation

CONFIDENTIAL

5. Background Considerations for Rehabilitation
Alternatives

CONFIDENTIAL

Mandate

• Signal Hill’s mandate is to examine PTNA and ANIC, to determine if rehabilitation is feasible
for each company and prepare a recommendation for the Rehabilitator as to how to proceed,
based on the potential rehabilitation alternatives, in a manner that is in the best interests of the
policyholders of PTNA and ANIC.

Background for Review

– Maximize the future operating results of the business and under what conditions,

– Maximize the number of realistic outcomes as it relates to the disposition or sale of
portions or all of the business out of the rehabilitation, or ending the rehabilitation
completely,

– Maximize the potential to attract as many interested bidders as possible for some or all
of the Company in the future, and

– Optimize the policyholders’ contractual interests in the rehabilitation by improving the
likelihood of 100% payment of covered benefits.

Background Considerations for the Rehabilitation Alternatives

CONFIDENTIAL

• Signal Hill was asked to consider a comprehensive list of rehabilitation plan alternatives that
was developed by the Committee prior to Signal Hill’s engagement.

• In conducting our review, there were a number of considerations that emerged during the
course of our work that impacted our deliberations. These considerations shaped the review
and analyses of alternatives. These considerations also assisted in determining which
alternatives might result in a successful rehabilitation, including how, in rehabilitation, to
restore the operating performance and surplus of the business, the likelihood of success, the
time period in which surplus would be restored while at the same time optimizing policyholders’
contract interests through full payment of benefits. Some of these considerations include:

Background Considerations (continued)

CONFIDENTIAL

Pennsylvania Insurer Receivership Statute: the Pennsylvania Insurer Receivership Statute
governs the selection and implementation of the plan of rehabilitation for the Company.

• The Insurer Receivership Statute conveys broad powers and discretion on the Commissioner,
as Rehabilitator, to “prepare a plan for the reorganization, consolidation, conversion,
reinsurance, merger or other transformation of the insurer.” (§ 221.16) Signal Hill also noted a
number of precedent decisions in the Court that supported the Rehabilitator's powers and
discretion exercised in formulating a plan of rehabilitation.

• The Insurer Receivership Statute also provides for notice of and a hearing when the
Rehabilitator’s selected plan is submitted to the Court for approval. Creditors and
policyholders may object and argue for changes or modifications to the plan. Following the
hearing, the Court may “approve or disapprove the plan proposed, or may modify it and
approve it as modified.” (§ 221.16) This provides checks and balances on the Rehabilitator
and encourages the Rehabilitator to propose a workable, reasonable, and “fair” plan.

Background Considerations (continued)

CONFIDENTIAL

• Contrary to the Insurer Receivership Statute, outside of rehabilitation, any transaction involving
a fundamental corporate change requires shareholder approval as well as the approval of the
PID through a Form A filing. Fundamental corporate change transactions could include, but
not be limited to, the sale of substantially all of the assets of a company, a merger, or voluntary
dissolution.

• For the purposes of this report, Cozen and the PID have authorized Signal Hill to assume that
while in rehabilitation, the approval of PTAC’s shareholders is not required for fundamental
corporate changes that may be proposed, approved and implemented through a plan of
rehabilitation under the Insurer Receivership Statute. If a shareholder vote were required,
Signal Hill’s recommendations could change.

Background Considerations (continued)

CONFIDENTIAL

PTAC’s 2008 Strategic and Financing Alternatives Process

• Signal Hill has reviewed the experience and outcomes of PTAC’s strategic and financing
alternatives process in 2008 initiated prior to entering rehabilitation.

• From that process, we draw several conclusions:

– Because of the shortened time line of the process due to the Company’s
announcement that it would enter rehabilitation if it was unable to obtain financial relief
by January 1, 2009, and PTAC’s entering into a letter of intent on December 15, 2008 -

§ Few parties were willing to bid for NewCo without close examination of the
business,

§ No party was willing to bid on the OldCo business,

§ No party was willing to bid on the entire company,

§ No party was willing to bid on PTNA or ANIC if either included OldCo business,
and

§ An acceptable transaction was unlikely to surface because potential parties were
not going to make a reasonable bid due to:

• Needed premium rate increases on OldCo versus the then approved rate
increases,

• Projected versus actual expenses,

• The need to reduce actual expenses,

• The bidders’ cost of capital being significantly higher than the business while
in rehabilitation, and

• The deteriorating state of financial markets, generally.

Background Considerations (continued)

CONFIDENTIAL

– The sale of NewCo along with only ANIC reduces the number of policyholders in
rehabilitation by 24.8% but removes the primary profit engine of the business to restore
surplus.

– Potential parties remain interested and perhaps may eventually be more interested due
to the possible benefits of rehabilitation to the profitability of the business.

– Therefore, after some period of operating the business in rehabilitation and achieving
some or all of the benefits of rehabilitation, the Company’s LTC business should have
greater appeal to some buyers than it does today.

Review of the Projections

• Signal Hill has conducted a preliminary review of the Projections prepared by Milliman and
held discussions with management and Milliman about the underlying assumptions and
analytical results.

• As of today, it appears that neither PTNA nor ANIC would operate successfully so long as
OldCo is on the books and expenses are running at current levels.

• It is not clear yet that NewCo will be profitable in the long run, although early signs are positive
in the form of lower claims incidence rates relative to the OldCo business. NewCo lacks
sufficient claims experience to attach a high degree of certainty to the profitability of that
business.

Background Considerations (continued)

CONFIDENTIAL

• Material changes are needed to the business to restore it to profitability

– Rate increases on OldCo business, especially in major states:

– Significant operating expense reductions in all areas

– Continued progress on claims adjudication improvement

Rehabilitator’s Perspective

• Signal Hill has assumed that it is the Rehabilitator’s and the PID’s intent to do what is in the
best interests of the policyholders and to devise a plan of rehabilitation that would result in a
restoration of the business’ operating results and statutory surplus and lead to a sale or a
disposition of the business to accelerate or bring an end to the rehabilitation. Therefore, any
plan or potential alternative that does not demonstrate a high likelihood of ending rehabilitation
for the Company, in whole or in part, is not going to be deemed credible and, therefore, is not
likely to receive much consideration.

PTNA

Florida

Pennsylvania

Virginia

Texas

ANIC

New Jersey

Virginia

Connecticut

Kansas

Background Considerations (continued)

CONFIDENTIAL

6. Overview of the Life & Health Guaranty Associations

CONFIDENTIAL

• Life and health insurance guaranty associations are organized under state law to provide
certain protections to state residents who own or are beneficiaries of policies issued by a life or
health insurance company that has been ordered liquidated by a court. All 50 states, the
District of Columbia, and Puerto Rico have life and health insurance guaranty associations. All
insurance companies (with limited exceptions) licensed to write life and health insurance or
annuities in a state are, by law, members of the state’s guaranty association.

• Insurance companies that experience severe financial difficulties are taken over by the
insurance department of the state in which they are based, and that state’s commissioner
becomes the “receiver.” If the company is determined to be insolvent, it may be liquidated.
When a liquidation is ordered by a court, state guaranty associations work with the receiver to
pay covered claims directly or transfer the policies to a financially sound insurance company.

• If an insurance company goes into liquidation, policyholders will be notified by the insurance
department that has taken control of the company and/or by the policyholder’s respective state
guaranty association.

• Guaranty associations then work together to coordinate a comprehensive plan that provides
protection for the failed insurer’s policyholders that may include identifying another insurer to
take over the policies or, alternatively, the guaranty associations may continue the insurer’s
policies or issue replacement policies.

Source: National Organization of Life & Health Insurance Guaranty Associations

Overview of the Life & Health Guaranty Associations

CONFIDENTIAL

• Guaranty associations, in conjunction with the receiver, may be able to negotiate a transfer of
a company’s policies, including some or all of the portions above guaranty association benefit
limits to a financially sound insurer.

• State guaranty associations have maximum benefit limits that are established by state law and
can vary from state to state, as detailed on the next page.

• If a guaranty association administers the claim and reaches its benefit limit, the value in
excess of that limit may be submitted as a policyholder-level claim against the estate of the
failed insurance company, and the contract holder may receive distributions as the company’s
assets are liquidated by the receiver.

Source: National Organization of Life & Health Insurance Guaranty Associations

Overview of the Life & Health Guaranty Associations (continued)

CONFIDENTIAL

• The table below depicts the NOLHGA benefit limits for LTC policies:

Source: National Organization of Life & Health Insurance Guaranty Associations

(1) Includes a CPI inflator dating from 1991; Limited to 80% of contract

(2) $390,000 limit adjusted for inflation

Overview of NOLHGA

CONFIDENTIAL

• These states represent $698.2M of $1,183.8M of reserves, or 59%, for PTNA and $110.8M of
$116.1M of reserves, or 95.4%, for ANIC. That is 62.2% of overall reserves in these states.

Source: National Organization of Life & Health Insurance Guaranty Associations

(1) Includes a CPI inflator dating from 1991; Limited to 80% of contract

Overview of NOLHGA (continued)

CONFIDENTIAL

Source: National Organization of Life &
Health Insurance Guaranty
Associations

(1) Includes a CPI inflator dating from
1991; Limited to 80% of contract

(2) $390,000 limit adjusted for inflation

Overview of NOLHGA (continued)

CONFIDENTIAL

Source: National Organization of Life &
Health Insurance Guaranty
Associations

Overview of NOLHGA (continued)

CONFIDENTIAL

7. Review of Rehabilitation Plan Alternatives

CONFIDENTIAL

• In early Committee meetings, the Committee developed a list of possible alternatives for the
business, in whole or in part, while the Company is in rehabilitation. Some alternatives call for
a run-off of the business, others for the potential future resumption of new business, (though
that is now likely to be very difficult with the termination of the marketing and underwriting
staff), while others result in a divestiture of some or all of the business.

Review of Rehabilitation Plan Alternatives

CONFIDENTIAL

– Targeted premium rate increases being approved and implemented,

– Targeted expense reductions,

– Earnings, and

– Cumulated surplus.

• Not all of possible alternatives are likely or even desirable. Some are not feasible, while others
may present viable alternatives in the future depending on the Company’s recovery.

Review of Rehabilitation Plan Alternatives (continued)

CONFIDENTIAL

• The potential rehabilitation alternatives considered are:

– Sale of the entire company, either PTAC or PTNA, including ANIC and AINIC as
subsidiaries, to a third party.

– The Company continues in run-off but the Rehabilitator places reinsurance for the
business with a third party and this allows the Company to emerge from rehabilitation
and possibly re-commences the sale of new business.

Review of Rehabilitation Plan Alternatives (continued)

CONFIDENTIAL

– Raise third party capital - debt or equity to recapitalize the business and possibly
resume selling new LTC policies.

– Sell the operating infrastructure to a third party which would operate a TPA to manage
the Company on a TPA basis. The new owner may write new business for others.

Review of Rehabilitation Plan Alternatives (continued)

100

CONFIDENTIAL

– Form a strategic alliance where PTNA’s or ANIC’s NewCo product is sold on another
insurance company’s paper with the Company performing all of the underwriting, claims
and policy administration as a TPA for alliance partners. PTNA or ANIC might reinsure
the business to provide capacity to the third party insurer. The Company’s business
remains in run-off.

– Establish a liquidating trust (after Senior Health Insurance Company of Pennsylvania)
to run-off some or all of the business. The infrastructure may be retained to run-off the
Company or TPA services could be purchased from a third party vendor.

– Any combination of the above alternatives.

Review of Rehabilitation Plan Alternatives (continued)

101

CONFIDENTIAL

Additional Commentary:

• This is one of the primary alternatives under consideration. It reflects the “Routine Method” of
seeking rate increases on the OldCo business. It has been modeled by Milliman based on
assumptions provided by the Company management.

• While the current method of seeking rate increases has had past success, there have been
delays in approvals decreasing the profitability of the business. Milliman’s projections suggest
that securing the required rate increases over the next 10 years would make this alternative
successful.

• In this scenario, PTNA’s business turn profitable in 2011, and the business achieves a zero or
better surplus position in 2020 and exceeds 200% of RBC in 2022.

• The major advantages of this alternative are:

– The Rehabilitator retains control over all the parts of the business,

– The Rehabilitator can make decisions regarding the operation of the business and the
future disposition of parts of the business as operating results develop,

The Company continues in run-off with the Rehabilitator seeking rate increases on a
state by state basis, as needed, while reducing expenses as aggressively as possible.
This is the Routine Scenario modeled by Milliman.

Review of Rehabilitation Plan Alternatives (continued)

102

CONFIDENTIAL

– The Rehabilitator can put in place measurement points whereby, should the Company
not achieve certain targeted levels of earnings or increase in surplus, then alternative
courses of action can be considered for the Company with the Court’s approval, and

– There are certain flexibilities the Company can offer policyholders as alternatives to
premium rate increases such as reduced benefit levels in exchange for rejecting rate
increases or non-forfeiture benefits should a policyholder wish to cease paying
premiums.

• The major concerns with the implementation of this alternative are:

– Achieving the required rate increases, especially in selected states that have not
granted sufficient or any rate increases historically, and

– Achieving the required level of expense reductions to operate the run-off effectively and
profitably.

Review of Rehabilitation Plan Alternatives (continued)

103

CONFIDENTIAL

Additional Commentary:

• This is another primary alternative under consideration. It reflects two different scenarios that
have been modeled by Milliman, the first being an Immediate Implementation for OldCo rate
increases with immediate implementation of all rate increases in all jurisdictions and for all
policy types where needed and the second being a 3 Year Implementation for OldCo rate
increases with a staged, three year implementation of the rate increases.

• This alternative contains some major differences relative to the “Routine Scenario” of seeking
rate increases:

– Any rate increase plan developed would be designed in consultation and collaboration
with the other jurisdictions that have a significant number of consumers affected by the
proposed increases,

– Sensitive to the impact of any such rate increase on policyholders,

– Equitable treatment for all policyholders, and

– Achieves premium rate parity for all policyholders for equivalent policy benefits.

• These scenarios have a somewhat higher initial rate increases but allow the Company to
rebuild surplus faster and exit rehabilitation sooner.

The Company continues in run-off with the Rehabilitator seeking and achieving
consensus as to a nationwide solution regarding equitable rate increases and then
implementing these rate increases while reducing expenses as aggressively as possible.
This is modeled in two scenarios by Milliman, Immediate Implementation and 3 Year
Implementation.

Review of Rehabilitation Plan Alternatives (continued)

104

CONFIDENTIAL

• Under these two scenarios, PTNA is profitable, assuming attendant expense savings in the
year in which the rates go into effect:

– Immediate Implementation achieves a zero or better surplus level in 2013 and exceeds
200% RBC in 2015.

– Three Year implementation achieves a zero or better surplus position in 2015 and
exceeds 200% RBC in 2016.

• In addition to benefits of the Routine Method, Immediate and 3 Year Implementation scenarios
illustrate greater certainty as to achieving the required rate increases, presuming any comity
among states, thereby making a successful end to rehabilitation more likely.

• The major concern of this alternative is whether the other states and the District of Columbia
where rate increases will be requested will agree to this initiative.

Review of Rehabilitation Plan Alternatives (continued)

105

CONFIDENTIAL

Additional Comments:

• This alternative allows for the removal from rehabilitation of the Company entities that have
positive surplus today.

• It also allows for the re-commencement of the sale of new business, though that opportunity is
now limited with the termination of the marketing and underwriting department staffs.

• The benefits of this alternative include:

– The early removal of policyholders, approximately 9.5% of all LTC policyholders, from
rehabilitation,

– The sale for fair value of ANIC and AINIC, which value could then be contributed to the
estate for the rehabilitation of PTNA, and

– The creation of an opportunity for the Company to sell new LTC policies again.

PTNA sells ANIC, which is removed from rehabilitation, for a fair value, with AINIC as its
wholly-owned subsidiary, to PTAC or another third party. ANIC re-commences the sale
of new LTC policies. PTNA remains in rehabilitation and in run-off. The operating
infrastructure could remain with PTNA or be sold along with ANIC including a TPA fee for
service relationship established between PTNA and ANIC.

Review of Rehabilitation Plan Alternatives (continued)

106

CONFIDENTIAL

• The concerns of this alternative include:

– The fair value for ANIC and AINIC will not be a large amount relative to the assets and
surplus shortfall of PTNA

– The sale of ANIC would include its OldCo business which needs significant rate
increases. If those rate increases are not received then ANIC may not be interesting to
acquirers and may experience operating difficulty in the future.

– No bidder in the previous process had any interest in ANIC including its OldCo
business. The only bid received was for ANIC with only the NewCo business.

Review of Rehabilitation Plan Alternatives (continued)

107

CONFIDENTIAL

Sale of the entire company, either PTAC or PTNA, including ANIC and AINIC as
subsidiaries, to a third party.

Additional Comments:

• This transaction alternative was one sought by PTAC during the recently concluded strategic
and financing alternatives process. There were no bidders for the entire Company that came
forward.

• There may be several parties that might entertain the idea of purchasing all of the business,
but that is likely to be only after the business benefited from rehabilitation.

• Any interest in the entire business is likely to take the form of a reinsurance transaction or the
purchase of PTNA.

• The probabilities for this type of transaction happening appear low due to the magnitude of the
issues with the OldCo business. It is an alternative to be considered depending on how the
performance of the business progresses in rehabilitation.

Review of Rehabilitation Plan Alternatives (continued)

108

CONFIDENTIAL

The Company continues in run-off but the Rehabilitator places reinsurance for the
business with a third party and this allows the Company to emerge from rehabilitation
and possibly re-commences the sale of new business.

Additional Comments:

• With the recent recapture of the Imagine treaties, the Company retained Besso Risk Solutions
Limited (“Besso”), a London based reinsurance broker, to see if the Imagine treaties could be
replaced with reinsurers, specifically for the OldCo business.

• It is the position of Besso as of February 2009, that based on the recent performance of the
business,

– No risk reinsurance is available on the OldCo business,

– Surplus relief type reinsurance is not available, except on an exceptionally expensive
basis due to the current dislocation in the financial markets and lower interest rates,
and

– There would not be sufficient assets available to support financial reinsurance and any
reinsurer would require that the Company’s assets be transferred to the reinsurer.

• In order to qualify for reinsurance in the future, Besso concluded, “[potential reinsurers] must
be convinced the Company will become a viable company at some point in the future...”
Additionally, “[the Company] must seek and achieve sustained rate increases...”

• It is Besso’s view that this alternative is not a viable alternative at this time.

Review of Rehabilitation Plan Alternatives (continued)

109

CONFIDENTIAL

Sell the NewCo business, ANIC (with AINIC), and possibly the infrastructure to a third
party; PTNA remains in rehabilitation under the continuing supervision of the
Rehabilitator and is administered by its employed staff or by the new owner or by a third
party under a TPA arrangement on a fee for service basis.

Additional Comments:

• This alternative is essentially similar to the LOI received in December 2008 and revised in
February 2009, although this proposal involved a new business element.

• Since that proposed transaction was not deemed acceptable, this alternative has a low
probability of success today.

• This alternative should be revisited, however, as the rehabilitation progresses to see if it might
generate sufficient value for what is viewed as the more profitable portion of the business.

• The advantages of this alternative include:

– A significant decrease of policies in rehabilitation, approximately 24.8%,

– Provide some cash value for the present value of NewCo’s future profits to be
reinvested in the PTNA estate, and

– Expenses for managing the PTNA run-off would benefit from any economies of scale
achieved by the new owner’s ability to sell new business or manage other LTC blocks.

Review of Rehabilitation Plan Alternatives (continued)

110

CONFIDENTIAL

• The challenges to this alternative include:

– The NewCo business lacks sufficient experience and its future profitability is not
assured,

– The sales of new business may not reach a sufficient scale as to achieve a suitable
scale of operations for efficiency, and

– The TPA arrangement may not be on terms acceptable to the Rehabilitator.

Review of Rehabilitation Plan Alternatives (continued)

111

CONFIDENTIAL

Sell only OldCo policies to a third party in an assumption reinsurance transaction, most
likely to a run-off specialist; ANIC, AINIC and operating infrastructure remain with the
NewCo business and can emerge from rehabilitation. OldCo may or may not be managed
by ANIC on a TPA basis. Once all third party non-policyholder liabilities have been
paid/settled at PTNA and ANIC, the NewCo business and operating infrastructure can
then be returned to the control of management.

Additional Comments:

• Given the recent strategic and financing alternatives process, there were three potential run-off
specialists that may not have had the opportunity to complete their respective reviews of the
OldCo business.

• With the benefits of rate increases and reduced expenses, the OldCo business, after some
time in rehabilitation, may have more appeal to a run-off specialist.

• The advantages of this alternative include:

– A sale of OldCo to a run-off specialist would effectively remove the most troubled
business from the rehabilitation and allow the Rehabilitator to sell the NewCo business
to a third party for some value and conclude the rehabilitation,

– All of the policyholders would be removed from the rehabilitation and the receivership
would be concluded.

• The challenges of this alternative include:

– Bids could come in for negative value, which, if greater than the value that might be
received for NewCo and the infrastructure, would not be acceptable as the estate would
end up in a deficit position,

– Given the recent claims benefit experience, this alternative may not be viable.

Review of Rehabilitation Plan Alternatives (continued)

112

CONFIDENTIAL

Sell either legal entity, PTNA or ANIC, with its existing OldCo and NewCo business to a
third party. The operating infrastructure can remain with the entity in rehabilitation or go
with the sold company. A TPA arrangement will be needed to manage the entity without
the infrastructure.

Additional Comments:

• This alternative would have been an acceptable outcome, price and terms depending, in the
recent strategic and financial alternatives process, but no party wanted to bid for either
company so long as either contained its OldCo business.

• While this may not be a viable alternative today, it may be once the business benefits from the
rehabilitation.

Review of Rehabilitation Plan Alternatives (continued)

113

CONFIDENTIAL

Raise third party capital, debt or equity, to recapitalize the business and possibly re-
commence selling new LTC policies.

Additional Comments:

• Given that PTAC is not current with its SEC filings, this was not an option in the recent
strategic and financing alternatives process.

• This is not an option today due to:

– Financial market conditions,

– The lack of growth in the business,

– The poor performance of the in-force business over the last five years,

– The Company is not in a financing position while in rehabilitation,

– PTAC is not current with its SEC filings and has no plans to update its filings.

Review of Rehabilitation Plan Alternatives (continued)

114

CONFIDENTIAL

Sell the operating infrastructure to a third party which would operate a TPA to manage
the Company on a TPA basis. The new owner may write new business for others.

Additional Comments:

• This alternative is not likely to generate much in the way of proceeds to put toward the estate,
although there was some interest expressed including the letter of intent.

• The only payment for infrastructure included in the letter of intent was for depreciated book
value of acquired hard assets.

• Interest in this alternative is likely to be reduced today because of the recent termination of the
marketing and underwriting departments.

• While a TPA arrangement is not unacceptable to the Rehabilitator, generally, if the
infrastructure is to be sold, it has to be for some value.

• Although it should not be dismissed completely, this is not likely to be a viable opportunity to
raise significant proceeds to benefit the estate.

Review of Rehabilitation Plan Alternatives (continued)

115

CONFIDENTIAL

Form a strategic alliance where PTNA’s or ANIC’s NewCo product is sold on another
insurance company’s paper with the Company performing all of the underwriting, claims
and policy administration as a TPA for alliance partners. PTNA or ANIC might reinsure
the business to provide capacity to the third party insurer. The Company’s business
remains in run-off.

Additional Comments:

• Underwriting new LTC business is the only reason a third party would enter into a strategic
alliance with the Company.

• A strategic alliance alternative is not a likely alternative at this time given the recent termination
of the marketing and underwriting departments.

• While in rehabilitation, PTNA and ANIC are not in a position to assume new premium.

Review of Rehabilitation Plan Alternatives (continued)

116

CONFIDENTIAL

Establish a liquidating trust (after Senior Health Insurance Company of Pennsylvania) to
run-off some or all of the business. The infrastructure may be retained to run-off the
Company or TPA services could be purchased from a third party vendor.

Additional Comments:

• Given the projected performance of the Company, it does not appear that a liquidating trust
would be a viable alternative today. There would not be sufficient assets to fund a trust for the
run-off of all of the business, OldCo in particular.

• If, however, rehabilitation successfully reduces expenses and achieves needed rate increases,
then, in a few years, once surplus is restored to 200% of RBC and there are sufficient assets
to fund a trust, perhaps a liquidating trust may make sense.

• At that time, however, if the business is profitable and has restored surplus to a positive
balance, then there would be other alternatives with third parties that might be a more
acceptable conclusion to the rehabilitation.

Review of Rehabilitation Plan Alternatives (continued)

117

CONFIDENTIAL

Any combination of the above alternatives.

Additional Comments:

• In all likelihood, presuming a successful rehabilitation under certain assumptions and operating
conditions, including securing needed rate increases and reducing operating expenses, it is
likely that the Rehabilitator could have alternatives to conclude the rehabilitation or decrease
the number of policies in rehabilitation that combine some of the above alternative structures
or are hybrids of the above alternatives.

• The key element will be a successful rehabilitation which will then allow a number of interested
parties to come forward in the future and purchase or assume the Company’s business.

Review of Rehabilitation Plan Alternatives (continued)

118

CONFIDENTIAL

8. Summary of Recent Strategic and Financing
Alternatives Process

119

CONFIDENTIAL

• FBR was retained by PTAC in the spring of 2007 to explore strategic and financing
alternatives.

• Given that PTAC was not current with its GAAP financial filings at the time, pursuing financing
alternatives through PTAC was not a viable option.

• Commencing a strategic alternatives process was delayed until 2008 while PTAC and the
Company resolved reserve issues and the Company, and Milliman performed additional
analyses on the profitability of the OldCo business based on its recent experience and
proposed projections for the business.

• On December 31, 2007, PTAC executed a new engagement letter with FBR and issued a
press release announcing its hiring of FBR to explore strategic alternatives.

• In April 2008, PTAC filed its 2006 Form 10-K with the SEC but still was not (and is not today)
current with regards to SEC filings.

• In May 2008, a large, US based life insurer contacted the Company and FBR about interest in
a possible transaction. FBR provided preliminary information about the Company, initiated
discussions with this company, and arranged meetings between the management teams.
Discussions took place well into the fall of 2008. There were no other significant discussions
with other potential parties at that time.

• In July 2008, FBR reported to the PTAC Board on the deterioration of the financial markets,
the slow down of the merger and acquisition markets, and the erosion of valuations for
financial services companies. Additionally, FBR reported that PTAC’s financial reporting
issues and completion of additional actuarial analyses were delaying the strategic alternatives
process.

Summary of Recent Strategic and Financing Alternatives Process

120

CONFIDENTIAL

• In the July 2008 PTAC Board Meeting, FBR detailed a broad-based solicitation effort to
contact as many parties as possible involving insurance companies, other financial services
companies, and financial sponsors.

• While no particular transaction structure was emphasized, it was viewed that the transaction
process was more likely to yield a “sale of the parts” range of outcomes.

• The most likely results discussed were a sale of the NewCo business and possibly the
infrastructure of the Company, including the new business underwriting capabilities, to a third
party. This may have involved the sale of one of the insurance companies, probably ANIC.

• PTAC’s three agency operations were viewed as saleable separately.

• OldCo claim experience continued to erode and required reserves to be increased markedly
as well as increases in premium rate filings. In addition, under the terms of the treaties,
Imagine was required to post additional collateral. As a result of the delays in approval of
premium rate increases, a dispute as to the OldCo treaty arose between the Company and
Imagine in August 2008 relating to Imagine’s obligation to provide the Company with additional
collateral. This led to discussions of recapture of the Imagine treaties and the surplus deficit
that would result.

• In late August 2008, the marketing process to find strategic alternatives commenced.

• The announcement of the reinsurance dispute, along with continued poor operating
performance, caused the price of PTAC stock to collapse further and raised concerns with
potential buyers as to the assumptions in the actuarial projections and the accuracy of
valuations of the business.

Summary of Recent Strategic and Financing Alternatives Process (cont’d)

121

CONFIDENTIAL

• In September 2008, PTAC announced the signing of a letter of intent to sell United Insurance
Group Agency, Inc. (“UIG”)

• On October 3, 2008, PTNA announced its intent to recapture the Imagine treaties effective
January 1, 2009, that the Company was suspending writing new business and that PTAC and
ANIC would enter voluntary rehabilitation in January if a buyer or financing was not identified.

• At the time of the announcement of the recapture, over 250 potential parties had been
contacted, 24 of which had signed a confidentiality agreement to review data, and 5 of which
were still interested in some form of a transaction.

• Discussions about potential transaction structures had centered on:

(a) selling the NewCo book of business including the Company infrastructure (5 parties), and

(b) whether the OldCo business could be sold to run-off specialists (3 parties) for any value -
most indications were for negative bids (i.e. the Company would have to give bidders
money to take the business) which would likely be unacceptable to the PTAC Board of
Directors.

• In November 2008 PTAC announced that it had closed the sale of UIG for $14.25 million
primarily in the form of senior notes, commission agreements and installments.

• In addition, in November 2008, PTAC announced that it had entered into a letter of intent
relating to the sale of the operating assets of Network Insurance Services Health Division
(“NISHD”).

Summary of Recent Strategic and Financing Alternatives Process (cont’d)

122

CONFIDENTIAL

• On December 8, 2008, the Potential Purchaser presented to PTAC its first letter of intent to
partner with PTAC/PTNA to extract all of the Company’s NewCo business, ANIC (without its
OldCo business), and the operating infrastructure from the Company, and infuse sufficient
capital into ANIC (an amount believed to be approximately $20 million) to support the business
including a new LTC policy sales initiative. The OldCo business would be placed into
rehabilitation in PTNA and managed on a TPA basis for a fee.

• On December 15, 2008, the Potential Purchaser and PTAC executed the letter of intent which
included an exclusivity agreement through February 13, 2009.

• PTAC entered into the LOI because it was believed that policyholders of PTNA and ANIC
would be better served by the proposed structure in which the OldCo business and the NewCo
business were separated and an effort was made to salvage an ongoing business out of the
NewCo business under new ownership and capitalization. The OldCo business would be
placed in rehabilitation with a possible future benefit coming to its estate from the successful
operation of NewCo. In addition, the 50 jobs related to new business initiatives would be
retained.

• PTAC also wanted the opportunity to see if the Potential Purchaser’s offer might be improved
after additional due diligence.

• Entering into the letter of intent effectively stopped the strategic alternatives process other than
for the Potential Purchaser. The LOI allowed for the Potential Purchaser to perform due
diligence and for discussion of the terms of the Potential Purchaser’s proposal to occur
between the parties.

Summary of Recent Strategic and Financing Alternatives Process (cont’d)

123

CONFIDENTIAL

• At the time of the execution of the letter of intent, the strategic process had involved the
following:

– Contacted Parties 258

Strategic Parties 182

Financial Buyers 76

– Confidentiality Agreements Executed 31

Strategic Parties 18

Financial Buyers 13

– Offers for NewCo 1

– Offers for OldCo 0

• Due to the exclusivity of the LOI, FBR reported approximately twelve (12) parties that may still
have had an interest in pursuing a transaction with PTAC or the Company at the date the LOI
and exclusivity was signed.

• On January 1, 2009, the Company recaptured the Imagine treaties and PTNA and ANIC were
placed into voluntary rehabilitation on January 6, 2009.

• On January 2, 2009, PTNA closed a sale of substantially all of the assets of NISHD for
approximately $3.3 million.

• The initial exclusivity period was subsequently extended from February 13, 2009, to February
28, 2009 to allow for the Potential Purchaser to perform additional due diligence and possibly
amend its LOI.

Summary of Recent Strategic and Financing Alternatives Process (cont’d)

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• On February 27, 2009, representatives of the Potential Purchaser met with management of the
Company and the Committee to present a revised proposal. In addition, the Potential
Purchaser requested yet another extension of the exclusivity period to allow for details of a
transaction to be worked out.

• Given the similarities of the revised proposal to the Potential Purchaser’s initial proposal, and
the issues that remained regarding that transaction structure, the Potential Purchaser’s
request for an additional extension of the exclusivity was denied, and the proposal was
deemed unacceptable by the PID rejected. This terminated the strategic and financing
alternatives process as there were no other parties in a position to offer a proposal two and a
half months after the exclusivity provision became effective.

Summary of Recent Strategic and Financing Alternatives Process (cont’d)

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• At that time, the Potential Purchaser’s proposal was viewed as:

– Providing insufficient proceeds from the transaction to satisfy fully PTNA’s immediate
capital needs,

– Providing little or no immediate cash to PTNA as no value was assigned to the NewCo
business and only depreciated book value would be paid for operating assets,

– Providing potential upside value to PTNA by realizing the value of the NewCo business in
the future, but that value was difficult to quantify,

– Dilutive to PTNA’s interest in the profitable NewCo in-force business,

– The Potential Purchaser had a first priority to the returns from the NewCo business,

– Involved splitting the NewCo business and operating infrastructure from the OldCo
business, leaving the OldCo business on its own, raising significant policyholder fairness
issues.

Summary of Recent Strategic and Financing Alternatives Process (cont’d)

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9. Potential Additional Interested Parties

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• The strategic and financing alternatives process conducted in the Fall of 2008 was extremely
broad having reached over 250 parties.

• The announcement of the dispute with Imagine, the future recapture of the Imagine treaties,
and impending rehabilitation for the Company forced that process to be shortened in an
attempt to identify a transaction that might be agreed to in time to avoid rehabilitation.

• There were approximately twelve parties, some of whom may be affiliated with each other, that
have been identified as possibly having a continued interest in some or all of the Company’s
operations.

• In addition, there are approximately another dozen parties who have contacted either
management or the Rehabilitator around the time of the expiration of the exclusivity that have
expressed an interest in some facet of the Company.

• Finally, given the work performed, the Potential Purchaser may still have an interest in the
Company.

• The potential interest can be generally categorized as follows:

– Run-off of the OldCo and NewCo business as a closed block (may or may not include
the operating infrastructure)

– Acquire the operating infrastructure (management and operating platforms) and convert
it into a TPA to manage the run-off of the Company for a fee as well as the business of
others. It may involve starting to sell new business and/or buying a new insurance
company.

Potential Interested Parties

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– Acquire ANIC, its NewCo reserves (or all of the NewCo reserves) as well as the
operating infrastructure and start a new LTC enterprise; manage the OldCo run-off for a
fee in a TPA arrangement.

– Acquire only AINIC, the New York Company.

– Fee for service TPAs or advisors are interested in managing a portion of the
Company’s operations - claims, policy administration, finance, investments, etc.

• Given the number of potential parties and the range of interest expressed, it may be possible
that these parties could be in a position to propose an acceptable offer to purchase some
portion of the business once the Company has benefitted from the rehabilitation.

• It would be logical that if these parties were interested in the Company before the benefits of
rehabilitation, then they are likely to be even more interested once operations have been made
more profitable through the rehabilitation.

Potential Interested Parties (continued)

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10. Rehabilitation Plan Recommendation for PTNA and
ANIC

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Summary of Current Company Status

• The Company is currently in rehabilitation, PTNA having reported a January 1, 2009 surplus
position after the effects of recapturing the Imagine treaties, of -$224.0 million. ANIC’s year
end January 1, 2009, surplus position was $4.8 million, $8.6 million of which was the value of
AINIC.

• The surplus deficit at PTNA is primarily due to claim benefits paid and projected to be paid on
the OldCo business.

• The NewCo business is looking promising due to lower claims incidence rates reported in
comparison to the OldCo business, but the NewCo business may lack enough experience to
give the results significant credibility at this time.

• Through bankers, PTAC conducted an unsuccessful process in the Fall of 2008 to raise capital
or find acquirers or partners for the business, or parts thereof.

• Due to the concerns about the business resulting from the results of the operations, the
announcement of the recapture of the Imagine treaties, and the pending rehabilitation, this
strategic process was terminated when exclusivity was granted to the Potential Purchaser.

Rehabilitation Plan Recommendation

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• The transaction contained in the LOI provided insufficient proceeds to satisfy fully PTNA’s
capital needs and was for little or no upfront cash to be paid to PTNA, however, it did offer
PTNA the option to make an investment in the Potential Purchaser’s new enterprise. It did not,
however, relieve the Rehabilitator of managing the primary risk, the run-off of OldCo.

• As a result, that proposal was deemed unacceptable.

• Due to the truncated strategic and financing alternatives process, there may still be potential
parties to purchase, whether by acquisition or reinsurance, some or all of the business,
especially after any beneficial effects of the rehabilitation.

Rehabilitation Plan Recommendation (continued)

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Benefits of Rehabilitation

• Rehabilitation affords some potentially significant operating benefits, such as cost reductions
and potentially better success in achieving rate increases in states where these increases are
most needed, that could dramatically improve the operating results and surplus of the
Company.

• Should these operating changes be made, then the Company’s business may be positioned to
return to profitability over the next few years, rebuild sufficient surplus, and emerge from
rehabilitation in 5-12 years.

• Actuarial projections suggest that this business as a whole, with the benefits of rehabilitation,
can be profitable.

• For the near term, OldCo and NewCo are better managed together to address common issues
related to the business and to accelerate the point at which the business returns to profitability
(estimated to be between 2010 and 2011, based on certain assumptions including whether all
benefits of rehabilitation are realized) and the estate reaches a break even surplus position
(estimated to be 2015).

Rehabilitation Plan Recommendation (continued)

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Signal Hill Recommendation

– The Company remain in rehabilitation rather than be placed into liquidation,

Rehabilitation Plan Recommendation (continued)

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• At the point at which the business returns to profitability, then it would be prudent for the
Rehabilitator to consider seeking buyers for the business, in whole or in part, thereby returning
the policyholders to a private company which would be contractually obligated to pay policy
claims, reducing the number of policies under rehabilitation and/or potentially ending the
rehabilitation.

• Although a number of possible transaction outcomes or structures may not be feasible today,
there appears to be a range of rehabilitation alternatives that may become feasible given the
benefits of rehabilitation. These alternatives, as well as liquidation, should be thoroughly
vetted for feasibility and fairness to the policyholders as well as the potential impact on other
creditors during the months leading up to the formal filing of a Plan of Rehabilitation.

Rehabilitation Plan Recommendation (continued)

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Appendices

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A. Surplus Projections Related to Rehabilitation of: Penn
Treaty Network America Insurance Company &
American Network Insurance Company as of December
31, 2008

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B. Pennsylvania Insurer Receivership Statute

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Pennsylvania Insurance Insurer Receivership Statute - Title 40., Ch.
1, Article V.

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Pennsylvania Insurance Insurer Receivership Statute - Title 40., Ch.
1, Article V.

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Pennsylvania Insurance Insurer Receivership Statute - Title 40., Ch.
1, Article V.

A. General Provisions (cont’d)

"DOMICILIARY STATE“ means the state in which an insurer is incorporated or organized, or, in the case of an
alien insurer, its state of entry.

"FAIR CONSIDERATION“ is given for property or obligation:

(1) when in exchange for such property or obligation, as a fair equivalent therefore, and in good faith, property
is conveyed or services are rendered or an obligation is incurred or an antecedent debt is satisfied; or

(2) when such property or obligation is received in good faith to secure a present advance or antecedent debt in
amount not disproportionately small as compared to the value of the property or obligation obtained.

"FOREIGN COUNTRY“ means any other jurisdiction not in any state.

"GENERAL ASSETS“ means all property, real, personal, or otherwise, not specifically mortgaged, pledged,
deposited, or otherwise encumbered for the security or benefit of specified persons or classes of persons. As to specifically
encumbered property, "general assets" includes all such property or its proceeds in excess of the amount necessary to
discharge the sum or sums secured thereby. Assets held in trust and on deposit for the security or benefit of all policyholders
and creditors shall be treated as general assets.

"GUARANTY ASSOCIATION." The Pennsylvania Insurance Guaranty Association provided for by the act of
November 25, 1970 (P.L. 716, No. 232), known as "The Pennsylvania Insurance Guaranty Association Act," and the Workmen's
Compensation Security Fund provided for by the act of July 1, 1937 (P.L. 2532, No. 470), known as the "Workmen's
Compensation Security Fund Act," as amended, and any other similar entity now or hereafter created by the Legislature of this
or any other state for the payment of claims of insolvent insurers.

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1, Article V.

A. General Provisions (cont’d)

"INSOLVENCY" means:

(1) For an insurer issuing only assessable fire insurance policies; (i) the inability to pay any obligation within
thirty days after it becomes payable, or (ii) if an assessment be made within thirty days after such date, the inability to pay such
obligation thirty days following the date specified in the first assessment notice issued after the date of loss pursuant to section
808 of the act of May 17, 1921 (P.L. 682, No. 284), known as "The Insurance Company Law of 1921."

(2) For any other insurer the inability to pay its obligations when they are due, or whose admitted assets do not
exceed its liabilities plus the greater of (i) any capital and surplus required by law for its organization, or (ii) its authorized and
issued capital stock. For any insurer licensed to do business in the Commonwealth as of the effective date of this act which
does not meet this standard, the term "insolvency" shall mean for a period not to exceed three years from the effective date of
this act that it is unable to pay its obligations when they are due or that its admitted assets do not exceed its liabilities plus any
required capital contribution ordered by the commissioner under provisions of the insurance law.

In determining the financial condition of an insurer, the Insurance Commissioner shall consider assets to be
admitted or nonadmitted as provided in section 320.1 of the act of May 17, 1921 (P.L. 682, No. 284), known as "The Insurance
Company Law of 1921."

For purposes of this article "liabilities" shall include but not be limited to reserves required by statute or by
insurance department general regulations or specific requirements imposed by the commissioner upon a subject company at
the time of admission or subsequent thereto, and any other capital and surplus requirements.

"INSURER“ means any person who is doing, has done, purports to do, or is licensed to do an insurance business, and is or has
been subject to the authority of, or to liquidation, rehabilitation, reorganization or conservation by any insurance commissioner.
For purposes of this article, any other persons included under section 221.02 shall be deemed to be insurers.

"PREFERRED CLAIM“ means any claim with respect to which the terms of this act accord priority of payment from the general
assets of the insurer.

"RECEIVER“ means receiver, liquidator, rehabilitator, or conservator as the context requires.

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1, Article V.

A. General Provisions (cont’d)

"RECIPROCAL STATE“ means any state other than this Commonwealth in which in substance and effect
sections 221.20(a), 221.55, 221.56 and 221.58 through 221.60 are in force, and in which provisions are in force requiring that
the commissioner or equivalent official be the receiver of a delinquent insurer, and in which some provision exists for the
avoidance of fraudulent conveyances and preferential transfers.

“SECURED CLAIM“ means any claim secured by mortgage, trust deed, pledge, deposit as security, escrow or otherwise, but
not including special deposit claims or claims against general assets. The term also includes claims which have become liens
upon specific assets by reason of judicial process.

"SPECIAL DEPOSIT CLAIM“ means any claim secured by a deposit made pursuant to statute for the security or benefit of a
limited class or classes of persons, but not including any claim secured by general assets.

"STATE“ means any state, district or territory of the United States and the Panama Canal Zone.

"TRANSFER“ shall include the sale and every other and different mode, direct or indirect, of disposing of or of parting with
property or with an interest therein, or with the possession thereof or of fixing a lien upon property or upon an interest therein,
absolutely or conditionally, voluntarily, by or without judicial proceedings. The retention of a security title to property delivered to
a debtor shall be deemed a transfer suffered by the debtor.

221.4. Jurisdiction and venue

(a) No court of this Commonwealth shall have jurisdiction to entertain, hear or determine any delinquency
proceeding other than as provided in this article.

(b) In addition to other grounds for jurisdiction provided by the law of this Commonwealth, a court of this
Commonwealth having jurisdiction of the subject matter has jurisdiction over a person served pursuant to the Pennsylvania
Rules of Civil Procedure or other applicable provisions of law in an action brought by the receiver of a domestic insurer or an
alien insurer domiciled in this Commonwealth (i) if the person served is obligated to the insurer in any way as an incident to any
agency or brokerage arrangement that may exist or has existed between the insurer and the agent or broker, in any action on or
incident to the obligation; or

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1, Article V.

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Pennsylvania Insurance Insurer Receivership Statute - Title 40., Ch.
1, Article V.

A. General Provisions (cont’d)

221.6. Cooperation of officers and employees

(a) Any employee, officer, manager, trustee, or general agent of any insurer, and any other person with
executive authority over or in charge of any segment of the insurer's affairs shall cooperate with the commissioner in any
proceeding under this article or any investigation preliminary or incidental to the proceeding. The term "person" as used in this
section, shall include any person who exercises control directly or indirectly over activities of an insurer through any holding
company or other affiliate of the insurer. "To cooperate" shall include, but shall not be limited to the following:

(1) to reply promptly in writing to any inquiry from the commissioner requesting such a reply; and

(2) to make available and deliver to the commissioner any books, accounts, documents, or other records, or
information or property of or pertaining to the insurer and in his possession, custody or control.

(b) No person shall obstruct or interfere with the commissioner in the conduct of any delinquency proceeding or
any investigation preliminary or incidental thereto.

(c) This section shall not be construed to abridge otherwise legal rights to resist a petition for liquidation or other
delinquency proceedings.

(i) An insurer shall have the right to engage legal counsel for defense of and appeal with respect to a
delinquency proceeding. Reasonable costs and fees therefore may be paid from the general assets of the insurer, subject to the
approval of the administrative or judicial body to which appeal was made.

In the event that such proceedings result in a declaration of insolvency or are subsequent thereto, the approved
costs thereof shall be administrative costs or expenses as provided under section 221.44(b).

(ii) If a stay of proceedings or order is specifically requested in a petition filed by an insurer, the administrative
agency or court to which such petition is made may, in its discretion, grant such stay.

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1, Article V.

A. General Provisions (cont’d)

(d) Any person included within subsection (a) who fails to cooperate with the commissioner, or any person who
obstructs or interferes with the commissioner in the conduct of any delinquency proceeding or any investigation preliminary or
incidental thereto, or who violates any valid order the commissioner issued under this article may be sentenced to pay a fine not
exceeding ten thousand dollars ($ 10,000) or to undergo imprisonment for a term of not more than one year, or both, or any
person shall, after a hearing, be subject to the imposition by the commissioner, of a civil penalty not to exceed ten thousand
dollars ($ 10,000) and shall be subject further to the revocation or suspension of any insurance license issued by the
commissioner.

221.7. Bonds

In any proceeding under this article, the commissioner and his deputies shall be responsible on their official
bonds for the faithful performance of their duties. If the court deems it desirable for the protection of the assets, it may at any
time require an additional bond from the commissioner or his deputies. Such additional bond shall be paid for out of the assets
of the insurer as a cost of administration.

221.8. Commissioner's reports

The commissioner shall as receiver make such reports to the court at such times and in such manner as the
court shall require.

221.9. Continuation of delinquency

Every proceeding heretofore commenced under the laws in effect before the enactment of the amendment of
this article effective .........., 1977, shall be deemed to have commenced under this article so amended for the purpose of
conducting the proceeding henceforth, except that in the discretion of the commissioner the proceeding may be continued, in
whole or in part, as it would have been continued had this article not been so amended.

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1, Article V.

B. Summary Proceedings

221.10. Commissioner's summary orders

(a) Whenever the commissioner has reasonable cause to believe, and determines, after a hearing held as prescribed in
subsection (c), that any insurer has committed or engaged in any act, practice or transaction that would subject it to formal
delinquency proceedings under this article, he may make and serve upon the insurer and any other persons involved, such
orders, including an order suspending the business of an insurer, as are reasonably necessary to correct, eliminate or remedy
such conduct, condition or ground.

(b) If the conditions of subsection (a), other than notice and hearing, are satisfied, and if the commissioner has reasonable
grounds to believe that irreparable harm to the property or business of the insurer or to the interests of its policy or certificate
holders, creditors or the public may occur unless he issues with immediate effect the orders described in subsection (a), he may
make and serve such orders without notice and before hearing, simultaneously serving upon the insurer notice of hearing under
subsection (c).

(c) The notice of hearing under subsections (a) or (b) and the summary order issued under subsections (a) or (b) shall be
served pursuant to the applicable rules of civil or administrative procedure. The notice of hearing under subsection (a) shall
state the time and place of hearing, and the conduct, condition or ground upon which the commissioner would base his order;
the notice of hearing under subsection (b) shall state the time and place of hearing. Unless mutually agreed between the
commissioner and the insurer, the hearing shall occur not more than fifteen days after notice is served and shall be either in
Dauphin County or in some other place convenient to the parties to be designated by the commissioner. The commissioner
shall not publicize such hearings and shall hold all hearings in summary proceedings privately unless the insurer requests a
public hearing, in which case the hearing shall be public.

(d) Any suspension order made by the commissioner under the provisions of subsection (a) shall prohibit issuance of policies,
transfers of property, and payments of moneys, without prior written approval of the commissioner. Notice of such suspension
shall be given, by first class mail within fifteen days thereof, by the suspended organization to those who were creditors,
policyholders, members and certificate holders at the date of suspension. Notice of such suspension shall be given, within
fifteen days thereof, by the commissioner to creditors, policyholders, members and certificate holders by advertising the same
by one publication in a newspaper of general circulation in the county where the suspended organization has its principal office.

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1, Article V.

B. Summary Proceedings (cont’d)

From the date of such suspension on the ground that the insurer is insolvent, or is in such condition that its
further transaction of business will be hazardous financially to its policyholders, creditors, or the public, no action at law or equity
shall be commenced or prosecuted nor shall any judgment be entered against nor shall any execution or attachment be issued
or prosecuted against the suspended insurer, or against its property, in any court of this Commonwealth: Provided, That if such
suspension order be vacated by the Commonwealth Court for the reason that the suspended insurer is no longer insolvent, or in
such condition that its further transaction of business will be hazardous to its policyholders or to its creditors or to the public,
these restraints upon legal process regarding the insurer shall thereafter cease to be operative.

(e) If the commissioner issues a summary order before hearing under this section, the insurer may at any time waive the
commissioner's hearing and apply for immediate judicial relief by means of any remedy afforded by law without first exhausting
administrative remedies.

(f) If any person has violated any order issued under this section which as to him was then still in effect, he shall be liable to pay
a civil penalty imposed by the Commonwealth Court not to exceed ten thousand dollars ($ 10,000).

(g) The commissioner may apply for and any court of general jurisdiction may grant, such restraining orders, preliminary and
permanent injunctions, and other orders as may be deemed necessary and proper to enforce a summary order.

221.11. Commissioner's supervision

(a) If upon examination or at any other time the commissioner has reasonable cause to believe, and determines, that an insurer
has committed, engaged, or is about to engage in any act, practice, or transaction that would subject it to formal delinquency
proceedings under this article, or if such insurance company gives its consent, then the commissioner shall upon his
determination notify the insurer of his determination and furnish to the insurer an order or orders containing a written list of the
commissioner's requirements to abate his determination. If the commissioner after a hearing held as provided in subsection
221.10(c) makes a further determination to supervise he shall issue an order to the insurer notifying it that it is under the
supervision of the commissioner and that the commissioner is applying and effecting the provisions of this section. The
commissioner may issue an order under this section without a hearing under the conditions provided under section 221.10(b),
and shall simultaneously serve upon the insurer notice of a hearing to be held in accordance with the provisions of section
221.10(c), and in such event, the insurer may file an appeal in accordance with the provisions of section 221.10(e).

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1, Article V.

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1, Article V.

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Pennsylvania Insurance Insurer Receivership Statute - Title 40., Ch.
1, Article V.

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Pennsylvania Insurance Insurer Receivership Statute - Title 40., Ch.
1, Article V.

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Pennsylvania Insurance Insurer Receivership Statute - Title 40., Ch.
1, Article V.

C. Formal Proceedings (cont’d)

(b) An order of the Commonwealth Court to rehabilitate the business of an insurer shall be issued only after a
hearing before the court or pursuant to a written consent of the insurer.

(c) An order to rehabilitate the business of a domestic insurer, or an alien insurer domiciled in this
Commonwealth, shall appoint the commissioner and his successors in office the rehabilitator, and shall direct the rehabilitator
forthwith to take possession of the assets of the insurer including any deposits held by the commissioner, and to administer
them under the orders of the court. The filing or recording of the order with the clerk of the Commonwealth Court or recorder of
deeds of the county in which the principal business of the company is conducted, or the county in which its principal office or
place of business is located, shall impart the same notice as a deed, bill of sale or other evidence of title duly filed or recorded
with that recorder of deeds would have imparted.

(d) Entry of an order of rehabilitation shall not constitute an anticipatory breach of any contracts of the insurer.

221.16. Powers and duties of the rehabilitator

(a) The commissioner as rehabilitator may appoint a special deputy who shall have all the powers of the
rehabilitator granted under this section. The commissioner shall make such arrangements for compensation as are necessary to
obtain a special deputy of proven ability. The special deputy shall serve at the pleasure of the commissioner.

(b) The rehabilitator may take such action as he deems necessary or expedient to correct the condition or
conditions which constituted the grounds for the order of the court to rehabilitate the insurer. He shall have all the powers of the
directors, officers and managers, whose authority shall be suspended, except as they are redelegated by the rehabilitator. He
shall have full power to direct and manage, to hire and discharge employees subject to any contract rights they may have, and
to deal with the property and business of the insurer.

(c) If it appears to the rehabilitator that there has been criminal or tortious conduct, or breach of any contractual
or fiduciary obligation detrimental to the insurer by any officer, manager, agent, broker, employee, or other person, he may
pursue all appropriate legal remedies on behalf of the insurer.

(d) The rehabilitator may prepare a plan for the reorganization, consolidation, conversion, reinsurance, merger
or other transformation of the insurer.

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C. Formal Proceedings (cont’d)

Upon application of the rehabilitator for approval of the plan, and after such notice and hearing as the court may
prescribe, the court may either approve or disapprove the plan proposed, or may modify it and approve it as modified. If it is
approved, the rehabilitator shall carry out the plan. In the case of a life insurer, the plan proposed may include the imposition of
liens upon the equities of policyholders of the company, provided that all rights of shareholders are first relinquished. A plan for
a life insurer may also propose imposition of a moratorium upon loan and cash surrender rights under policies, for such period
and to such an extent as may be necessary.

(e) The rehabilitator shall have the power to avoid fraudulent transfers under sections 221.28 and 221.29.

221.17. Actions by and against rehabilitator

(a) On request of the rehabilitator, any court in this State before which any action or proceeding by or against
an insurer is pending when a rehabilitation order against the insurer is entered shall stay the action or proceeding for such time
as is necessary for the rehabilitator to obtain proper representation and prepare for further proceedings. The Commonwealth
Court shall order the rehabilitator to take such action respecting the pending litigation as the court deems necessary in the
interests of justice and for the protection of creditors, policyholders, and the public. The rehabilitator shall immediately consider
all litigation pending outside this Commonwealth and shall petition the courts having jurisdiction over that litigation for stays
whenever necessary to protect the estate of the insurer.

(b) The time between the filing of a petition for rehabilitation against an insurer and denial of the petition or an
order of rehabilitation shall not be considered to be a part of the time within which any action may be commenced by or against
the insurer. Any action by or against the insurer that might have been commenced when the petition was filed may be
commenced for at least sixty days after the order of rehabilitation is entered.

221.18. Termination of rehabilitation

(a) Whenever he has reasonable cause to believe that further attempts to rehabilitate an insurer would
substantially increase the risk of loss to creditors, policy and certificate holders, or the public, or would be futile, the rehabilitator
may petition the Commonwealth Court for an order of liquidation.

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1, Article V.

C. Formal Proceedings (cont’d)

A petition under this subsection shall have the same effect as a petition under section 221.20. The
Commonwealth Court shall permit the directors to take such actions as are reasonably necessary to defend against the petition
and may order payment from the estate of the insurer of such costs and other expenses of defense as justice may require.

(b) The rehabilitator may at any time petition the Commonwealth Court for an order terminating rehabilitation of
an insurer. If the Commonwealth Court finds that rehabilitation has been accomplished and that grounds for rehabilitation under
section 221.14 no longer exists, it shall order that the insurer be restored to possession of its property and the control of its
business. The Commonwealth Court may also make that finding and issue that order at any time upon its own motion.

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C. PTNA Audited and Unaudited Statutory Financial
Statements

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D. ANIC Audited and Unaudited Statutory Financial
Statements