OPTION AGREEMENT

This Option Agreement (this Agreement), dated as of May 10, 2007 (the Effective Date), is made by and between Penn Treaty American Corporation, a Pennsylvania corporation (the Company), and Patpatia & Associates, Inc., a California corporation (the Consultant).

RECITALS

A.       The Company, through its insurance company subsidiaries, is a leading provider of long-term care insurance (LTC Insurance) in the United States.

B.           The Consultant has extensive experience in assisting companies with the design and implementation of growth strategies in the insurance marketplace.

C.           Subject to the terms and conditions set forth in a separate consulting agreement by and between the Company and the Consultant (the Consulting Agreement), the Consultant provides consulting services to the Company (the Services) with the objective of increasing the distribution of the Companys LTC Insurance and other complimentary offerings to current and potential customers.

D.           The Company has agreed to pay the Consultant, as additional compensation for the Services and for other good and valuable consideration described herein, options to purchase shares of the Companys common stock and other consideration on the terms and conditions set forth herein.

NOW, THEREFORE, in consideration of the mutual promises set forth in this Agreement and other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the parties hereto, intending to be legally bound, hereby agree as follows:

(a)          Subject to the limitations set forth in Section 1(b) below, as additional consideration for the Consultant performing the Services, the Company hereby grants to the Consultant an option to purchase 600,000 shares of the Companys common stock, par value $.10 per share (the Common Stock). The options granted hereunder (each an Option and together, the Options) shall vest according to the schedule set forth in Exhibit A attached hereto, subject to the achievement by the Consultant of the performance objectives set forth in Exhibit A attached hereto. The initial Option vesting date shall be referred to herein as the Option Grant Date and shall be the date of Company shareholder approval of the Options granted under this Agreement. The first vesting date after the Option Grant Date shall be July 1, 2008 (the Year 1 Vesting Date). The second vesting date after the Option Grant Date shall be April 1, 2009 (Year 2 Vesting Date). Each subsequent vesting date will be the anniversary of the Year 2 Vesting Date (collectively, the vesting dates shall be referred to as the Vesting Dates and each as a Vesting Date).

(b)          Notwithstanding the provisions of Section 1(a) above, the Option grants hereunder are subject to the approval by the Companys shareholders as required by the rules and regulations of the New York Stock Exchange (NYSE). The Company shall give the Consultant prompt written notice of such approval by the Companys shareholders not later than two business days following such approval.

2.            Option Price. With respect to all Options granted under this Agreement, the purchase price to be paid, if such Options are exercised, shall be the closing price of the Common Stock on the NYSE at the close of trading on the Option Grant Date (the Option Price).

3.            Exercise of Option. The following provisions shall apply to exercise of Options:

(a)          The Consultant shall exercise an Option by sending a notice of election (the Notice of Election) to the Company substantially in the form attached hereto and incorporated herein by reference. The Notice of Election shall be in writing and shall be sent to the Company at the address and in the manner set forth in Section 21 hereof (or to such other address of the Company that is otherwise specified by the Company in the manner set forth in such Section).

(b)          If exercised, an Option may be exercised as to some or all of the Common Stock permitted under the Option (Shares). The Consultant shall not have any right as a stockholder with respect to any Shares until the Consultant is issued Shares pursuant to an exercise of the Options.

(c)          The Options may be exercised in whole or in part immediately upon becoming vested for a period of 10 years from the Option Grant Date; provided, however, that the date and time of the exercise of the Option shall be that day and time when the Notice of Election is received by the Company in the manner set forth in Section 21 hereof (the Option Exercise Date).

(d)          Payment for Shares shall be made in cash, by certified check payable to the order of the Company, transfer of shares of common stock of the Company or by such other mode of payment as the Company may approve. In furtherance and not in limitation of the foregoing, the Consultant may exercise an Option to purchase Common Stock on a net or cashless basis, such that, without the exchange of any funds, the Consultant, upon exercise of an Option in whole or in part, purchases that number of shares of Common Stock otherwise issuable (or purchasable) upon exercise of the Option less that number of shares of Common Stock having a Current Market Price (as defined in Exhibit B hereto) at the time of exercise equal to the aggregate exercise price that would otherwise have been paid by the Consultant upon the exercise of the Option.

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