Fitch Affirms Zenith National’s IFS & Debt Ratings; Stable Outlook

Fitch Ratings has affirmed the ‘A-‘ insurer financial strength ratings of Zenith National Insurance Corp.’s (Zenith National) three insurance subsidiaries, Zenith Insurance Company (Zenith Insurance), ZNAT Insurance Company and Zenith Star Insurance Company. Fitch has also affirmed Zenith National’s long-term issuer rating of ‘BBB-‘, convertible senior note rating of ‘BBB-‘ and the ‘BB+’ rating of Zenith National Insurance Capital Trust I securities. The Rating Outlook has been revised to Stable from Negative.

The revised Outlook reflects improved profitability driven by more favorable underwriting results, due to better market conditions in workers’ compensation and lower claims frequency trends, partially offset by higher claims severity trends. Zenith’s overall profitability has improved considerably the past several years in the hard market environment with the company reporting GAAP net income of $67.0 million in 2003, improved from net income of $10.2 million in 2002 and a net loss of $25.9 million in 2001. Zenith posted an underwriting profit in 2003, with a GAAP combined ratio of 95.0 percent, improved from 106.5 percent in 2002, 118.9 percent in 2001, and 130.2 percent in 2000.

The ratings continue to reflect Zenith’s disciplined underwriting focus, strong capitalization, and overall conservative and liquid investment portfolio. Partially offsetting these positives are business line and geographical concentration risks, challenges in the competitive workers’ comp market, and underwriting losses prior to the most recent period.

Zenith’s competitive strategy is not one that relies on continual premium growth as a means for success. The focus is on profitability through maintaining underwriting discipline and pricing risks accordingly, with a key operating goal of achieving a combined ratio of 100 percent or lower. The company has demonstrated its underwriting discipline by reducing market share during unprofitable markets and increasing market share during favorable periods.

Zenith National’s capital mix at Dec. 31, 2003 consisted of 21 percent convertible senior notes, 12 percent hybrid trust preferred and 67 percent common equity. During the first quarter of 2004, the senior notes are convertible into common stocks.

Zenith is a specialty insurer licensed in 46 states with current operations consisting principally of workers’ comp insurance, with a heavy concentration in California and Florida where approximately 64 percent and 18 percent, respectively, of the company’s workers’ comp premium was earned in 2003. The company also has reinsurance operations that selectively underwrite world-wide assumed treaty reinsurance of property losses from catastrophes and large property risks.