UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of earliest event reported): JULY 28, 2005
PENN TREATY AMERICAN CORPORATION
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(Exact name of registrant as specified in charter)
PENNSYLVANIA 001-14681 23-1664166
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(State or other jurisdiction (Commission (IRS Employer
of incorporation) File Number) Identification No.)
3440 LEHIGH STREET, ALLENTOWN, PENNSYLVANIA 18103
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(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number, including area code: (610) 965-2222
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NOT APPLICABLE
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(Former name or former address, if changed since last report)
Check the appropriate box below if the Form 8-K filing is intended to
simultaneously satisfy the filing obligation of the registrant under any of the
following provisions:
[ ] Written communications pursuant to Rule 425 under the Securities Act
(17 CFR 230.425)
[ ] Soliciting material pursuant to Rule 14a-12 under the Exchange Act
(17 CFR 240.14a-12)
[ ] Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange
Act (17 CFR 240.14d-2(b))
[ ] Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange
Act (17 CFR 240.13e-4(c))
ITEM 1.01 ENTRY INTO A MATERIAL DEFINITIVE AGREEMENT.
On July 28, 2005, Penn Treaty Network America Insurance Company ("PTNA") and
American Network Insurance Company ("ANIC"), subsidiaries of Penn Treaty
American Corporation (the "Company"), entered into a Coinsurance Agreement with
Imagine International Reinsurance Limited ("Imagine"), retroactively effective
on June 30, 2005. On the same date, PTNA and ANIC also entered into separate
Funds Withheld Trust Agreements and Reinsurer Trust Agreements with Imagine and
an Investment Management Agreement with Perspective (Barbados) Limited. In
addition, the Company, PTNA and ANIC entered into a Commutation and Settlement
Agreement with Centre Solutions (Bermuda) Limited ("Centre").
The Coinsurance Agreement provides for the reinsurance, on a 100% quota share
basis, by Imagine of long-term care insurance policies issued by PTNA and ANIC
prior to 2002 and the Commutation and Settlement Agreement provides for the
commutation of the reinsurance agreement with Centre covering such policies.
The agreement with Imagine provides for all net funds to be withheld by PTNA and
ANIC, but to be retained in trust for the benefit of Imagine under the
respective Funds Withheld Trust Agreements. The Reinsurer Trust Agreements
provide for securities deposited by Imagine to be held in trust for the benefit
of PTNA and ANIC to allow PTNA and ANIC to receive full statutory reserve credit
for the ceded business.
The Investment Management Agreement provides for the management of the amounts
held in trust under the Funds Withheld Trust Agreements in accordance with
certain investment guidelines.
On July 29, 2005, the Company issued a press release describing the
transactions, which is filed as an exhibit hereto and incorporated by reference
herein.
The key terms of the Coinsurance Agreement include, but are not limited to:
o The acceptance of all policy risks by Imagine, subject to an
incremental limit of liability of $100 million.
o The payment by PTNA and ANIC to Imagine of an initial reinsurer
allowance of approximately $2,200,000.
o The payment by PTNA and ANIC to Imagine of a quarterly reinsurer
allowance based upon .0025% of ceded reserves and .005% of
security held in the Reinsurer Trust. Reinsurance allowances
will escalate after 2008 if the agreement is not commuted.
o The remittance, to be held in the Funds Withheld Trust, of net
premiums, less ceded claims, less an expense allowance payable
by Imagine.
o The ability of PTNA and ANIC to commute the Reinsurance
Agreement on or after January 1, 2008 in exchange for the return
by Imagine of an experience refund amount.
The key terms of the Commutation and Settlement Agreement include, but are not
limited to:
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o Centre's release from all liability under the previously
reinsured policies.
o The termination of all warrants issued to Centre that, if
exercised, would represent 35 percent of the fully diluted
ownership of the Company.
o Centre's payment to PTNA and ANIC of an experience account
refund, net of negotiated termination fees, of approximately
$953 million.
ITEM 1.02 TERMINATION OF A MATERIAL DEFINITIVE AGREEMENT.
On July 29, 2005, the Company, PTNA and ANIC entered into a Commutation and
Settlement Agreement with Centre, retroactively effective on May 24, 2005. As a
result, the 100% Quota Share Reinsurance Contract between PTNA, ANIC and Centre
effective December 31, 2001 and the Quota Share Reinsurance Contract between the
Company, PTNA, and ANIC and Centre effective January 1, 2002 were terminated.
The key terms of the terminated Reinsurance Contracts included, but were not
limited to:
o The acceptance of all policy risks by Centre, subject to an
incremental limit of liability of $200 million, which served to
support PTNA's and ANIC's agreement with the Pennsylvania
Insurance Department to increase statutory reserves by $125
million prior to December 31, 2004.
o An expense and risk charge payable to Centre only upon
commutation of the agreement, which was accrued on the Company's
historic financial statements. Expense and risk charges would
escalate after 2007 if the agreement was not commuted.
o The remittance, in cash, of net premiums, less ceded claims,
less an expense allowance payable by Centre.
o The ability of PTNA and ANIC to commute the 100% Quota Share
Reinsurance Contract on or after December 31, 2007 in exchange
for the return by Centre of an experience refund amount. The
experience refund amount was subject to the total market return
of a series of benchmark indices and hedges.
o The issuance of warrants to Centre that, if exercised, would
represent 35 percent of the fully diluted ownership of the
Company.
o The reinsurance of policies issued between January 1, 2002 and
July 31, 2004 on a 50% quota share basis.
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ITEM 9.01 FINANCIAL STATEMENTS AND EXHIBITS.
(c) Exhibits.
Exhibit Description
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10.1 Coinsurance Agreement dated as of July 28, 2005
among Penn Treaty Network America Insurance
Company, American Network Insurance Company and
Imagine International Reinsurance Limited.
10.2 Funds Withheld Trust Agreement dated as of July
28, 2005 among Penn Treaty Network America
Insurance Company as Grantor, Imagine
International Reinsurance Limited as Beneficiary
and The Bank of New York as Trustee.
10.3 Funds Withheld Trust Agreement dated as of July
28, 2005 among American Network Insurance Company
as Grantor, Imagine International Reinsurance
Limited as Beneficiary and The Bank of New York as
Trustee.
10.4 Reinsurer Trust Agreement dated as of July 28,
2005 among Imagine International Reinsurance
Limited as Grantor, Penn Treaty Network America
Insurance Company as Beneficiary and The Bank of
New York as Trustee.
10.5 Reinsurer Trust Agreement dated as of July 28,
2005 among Imagine International Reinsurance
Limited as Grantor, American Network Insurance
Company as Beneficiary and The Bank of New York as
Trustee.
10.6 Investment Management Agreement dated as of July
28, 2005 between Perspective (Barbados) Limited,
formerly Brascan Strategic Asset Management
Limited (Barbados), and Penn Treaty Network
America Insurance Company and American Network
Insurance Company.
10.7 Commutation and Settlement Agreement dated as of
July 28, 2005 by and between Centre Solutions
(Bermuda) Limited and Penn Treaty American
Corporation, Penn Treaty Network America Insurance
Company and American Network Insurance Company.
99.1 Press release issued by Penn Treaty American
Corporation on July 29, 2005.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
PENN TREATY AMERICAN CORPORATION
August 2, 2005 By: /s/ Mark Cloutier
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Name: Mark Cloutier
Title: Senior Vice President,
Chief Financial Officer and Treasurer
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EXHIBIT INDEX
Exhibit Description
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10.1 Coinsurance Agreement dated as of July 28, 2005 among Penn Treaty
Network America Insurance Company, American Network Insurance
Company and Imagine International Reinsurance Limited.
10.2 Funds Withheld Trust Agreement dated as of July 28, 2005 among Penn
Treaty Network America Insurance Company as Grantor, Imagine
International Reinsurance Limited as Beneficiary and The Bank of New
York as Trustee.
10.3 Funds Withheld Trust Agreement dated as of July 28, 2005 among
American Network Insurance Company as Grantor, Imagine International
Reinsurance Limited as Beneficiary and The Bank of New York as
Trustee.
10.4 Reinsurer Trust Agreement dated as of July 28, 2005 among Imagine
International Reinsurance Limited as Grantor, Penn Treaty Network
America Insurance Company as Beneficiary and The Bank of New York as
Trustee.
10.5 Reinsurer Trust Agreement dated as of July 28, 2005 among Imagine
International Reinsurance Limited as Grantor, American Network
Insurance Company as Beneficiary and The Bank of New York as
Trustee.
10.6 Investment Management Agreement dated as of July 28, 2005 between
Perspective (Barbados) Limited, formerly Brascan Strategic Asset
Management Limited (Barbados), and Penn Treaty Network America
Insurance Company and American Network Insurance Company.
10.7 Commutation and Settlement Agreement dated as of July 28, 2005 by
and between Centre Solutions (Bermuda) Limited and Penn Treaty
American Corporation, Penn Treaty Network America Insurance Company
and American Network Insurance Company.
99.1 Press release issued by Penn Treaty American Corporation on July 29,
2005.
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