Zenith Announces Second Quarter Results

Woodland Hills, Calif.-based Zenith National Insurance Corp. reported net income of $24.8 million for the second quarter of 2004 compared to net income of $18.4 million for the second quarter of 2003. Net income for the six months ended June 30, 2004 was $49.9 million compared to net income for the six months ended June 30, 2003 of $30.1 million. Net income includes realized gains on investments after tax of $1.2 million and $7.3 million in the second quarter of 2004 and 2003, respectively, and $3.7 million and $7.7 million in the six months ended June 30, 2004 and 2003, respectively.

Diluted net income per share was $1.06 and $2.15 for the second quarter of 2004 and six months ended June 30, 2004, respectively. Diluted net income per share for the second quarter of 2004 and for the six months ended June 30, 2004 reflect the impact of additional shares issuable as a result of the convertibility of Zenith’s 5.75 percent Convertible Senior Notes (the “Convertible Notes”). Diluted net income per share was $0.97 and $1.60 for the second quarter of 2003 and six months ended June 30, 2003, respectively. If the Convertible Notes would have been convertible in the second quarter of 2003 and in the six months ended June 30, 2003, diluted net income per share for the periods would have been $0.82 and $1.32, respectively. Net income includes realized gains on investments after tax of $0.05 and $0.39 per diluted share in the second quarter of 2004 and 2003, respectively, and $0.15 and $0.41 per diluted share in the six months ended June 30, 2004 and 2003, respectively.

Income from workers’ compensation operations before tax for the three and six months ended June 30, 2004 was $22.1 million and $41.9 million, respectively, compared to $4.2 million and $8.0 million, respectively, for the three and six months ended June 30, 2003. Income from reinsurance operations before tax for the three and six months ended June 30, 2004 was $2.5 million and $4.5 million, respectively, compared to $2.0 million and $4.4 million, respectively, for the three and six months ended June 30, 2003. Income from workers’ compensation and reinsurance operations does not include any investment income, as described in the supplemental financial information contained in this press release.

Workers’ compensation net premiums earned increased approximately 29 percent and 33 percent in the three and six months ended June 30, 2004, respectively, compared to the corresponding periods of 2003. In California, workers’ compensation net premiums earned increased approximately 44 percent and 48 percent in the three and six months ended June 30, 2004, respectively, compared to the corresponding periods of 2003.

The combined ratio for the workers’ compensation operations for the six months ended June 30, 2004 was 90.3 percent compared to 97.5 percent for the six months ended June 30, 2003 and 95.9 percent for the year ended Dec. 31, 2003. The combined ratio for the reinsurance operations for the six months ended June 30, 2004 was 79.8% compared to 86.3 percent for the six months ended June 30, 2003 and 84.3 percent for the year ended Dec. 31, 2003.

Consolidated net cash flow from operating activities was $165.8 million for the six months ended June 30, 2004 compared to $101.4 million for the six months ended June 30, 2003. Consolidated stockholders’ equity per share at June 30, 2004, March 31, 2004 and Dec. 31, 2003 was $21.81, $22.05 and $20.27, respectively. Return on average equity in the six months ended June 30, 2004 was 24.4 percent compared to 18.0 percent in the corresponding period of 2003.

Commenting on the results, Stanley R. Zax, chairman & president, said: “We are pleased that the results of operations continue to reflect favorable combined ratios in both our workers’ compensation and reinsurance businesses.

“In view of the uncertainty of the outlook for interest rates, we are continuing to take a cautious approach in our investment portfolio. As of June 30, 2004, we had available about $400 million of cash and short-term investments which represents about 24 percent of the portfolio.”