ZENITH NATIONAL INSURANCE CORP - 10-K Annual Report

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THE ZENITH
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K

FOR ANNUAL AND TRANSITION REPORTS
PURSUANT TO SECTIONS 13 OR 15(d) OF THE
SECURITIES AND EXCHANGE ACT OF 1934

[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934

FOR THE FISCAL YEAR ENDED DECEMBER 31, 1999

OR

[ ] TRANSITION REPORTS PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES AND EXCHANGE ACT OF 1934

FOR THE TRANSITION PERIOD FROM .............. TO ..............

COMMISSION FILE NUMBER 1-9627

ZENITH NATIONAL INSURANCE CORP.

(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)

DELAWARE 95-2702776
(STATE OR OTHER JURISDICTION OF INCORPORATION (I.R.S. EMPLOYER IDENTIFICATION NO.)
OR ORGANIZATION)

21255 CALIFA STREET, WOODLAND HILLS, CALIFORNIA 91367-5021
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)

REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (818) 713-1000

SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:

NAME OF EACH EXCHANGE ON
TITLE OF EACH CLASS WHICH REGISTERED
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Common Stock, $1.00 Par Value New York Stock Exchange

SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT: None

Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes __X__ No ______

Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]

The aggregate market value of the voting stock of the registrant held by
non-affiliates of Zenith on March 17, 2000 was approximately $189,927,000 (based
on the closing sale price of such stock on such date).

At March 17, 2000, there were 17,148,000 shares of Zenith National Insurance
Corp. common stock outstanding, net of 8,009,000 shares of treasury stock.

DOCUMENTS INCORPORATED BY REFERENCE

(1) Portions of the Annual Report to Stockholders for fiscal year ended
December 31, 1999 -- Part I and Part II.

(2) Portions of the Proxy Statement in connection with the 2000 Annual
Meeting of Stockholders -- Part III.

Total number of pages __37__

Exhibit index located on pages __19-25__

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PART I

ITEM 1. BUSINESS.
GENERAL

Zenith National Insurance Corp. ("Zenith National"), a Delaware corporation
incorporated in 1971, is a holding company engaged through its wholly-owned
insurance subsidiaries, Zenith Insurance Company ("Zenith Insurance") CalFarm
Insurance Company ("CalFarm") (through March 31, 1999, the date of its sale),
ZNAT Insurance Company ("ZNAT Insurance") and Zenith Star Insurance Company
("Zenith Star") (collectively, the "P&C Operations"), in the property-casualty
insurance business. Zenith National and its subsidiaries (collectively,
"Zenith") also conducts Real Estate Operations through wholly-owned subsidiaries
which develop land and construct private residences for sale in Las Vegas,
Nevada.

On April 1, 1998, Zenith Insurance acquired substantially all of the assets
and certain liabilities of RISCORP, Inc. and certain of its subsidiaries
(collectively, "RISCORP") related to RISCORP's workers' compensation business
(the "RISCORP Acquisition"). Effective March 31, 1999, Zenith Insurance
completed the sale of all of the issued and outstanding capital stock of
CalFarm, for $273.0 million in cash to Nationwide Mutual Insurance Company.

The 1999 edition of Best's Key Rating Guide ("Best's") assigns the P&C
Operations ratings of A+ (superior). Moody's Investors Service ("Moody's") has
assigned insurance financial strength ratings of Baa1 (adequate) to the P&C
Operations. Standard & Poor's Corporation ("S&P") has assigned an insurer
financial strength rating to the P&C Operations of A (strong). These Best's,
Moody's and S&P ratings are based upon factors of concern to policyholders and
insurance agents and are not directed toward the protection of investors.

At December 31, 1999, Zenith had approximately 1,200 full-time employees.

The principal executive offices of Zenith are located at 21255 Califa
Street, Woodland Hills, California 91367-5021, telephone (818) 713-1000.

GLOSSARY OF SELECTED INSURANCE TERMS

The following terms when used herein have the following meanings:

Assume To receive from a ceding company all or a portion of a risk
in consideration of receipt of a premium.

Cede To transfer to a reinsurer all or a portion of a risk in
consideration of payment of a premium.

Combined ratio The sum of underwriting expenses, net incurred losses, loss
adjustment expenses and policyholders' dividends, expressed
as a percentage of net premiums earned. The combined ratio
is the key measure of underwriting profitability used in
the property-casualty insurance business.

Development The amount by which losses, measured subsequently by
reference to payments and additional estimates, differ from
those originally reported for a period. Development is
favorable when losses ultimately settle for less than
levels at which they were reserved or subsequent estimates
indicate a basis for reserve decreases on open claims.
Development is unfavorable when losses ultimately settle
for more than levels at which they were reserved or
subsequent estimates indicate a basis for reserve increases
on open claims.

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Excess of loss reinsurance A form of reinsurance in which the reinsurer pays all or a
specified percentage of a loss caused by a particular
occurrence or event in excess of a fixed amount and up to a
stipulated limit.

Incurred but not reported claims Claims relating to insured events that have occurred but
have not yet been reported to the insurer or reinsurer.

Loss adjustment expenses The expenses of investigating and settling claims,
including legal and other fees, and general expenses of
administering the claims adjustment process.

Loss ratio Net losses incurred expressed as a percentage of net
premiums earned.

Net premiums earned The portion of net premiums written applicable to the
expired period of policies.

Participating policy A policy upon which dividends may be paid after expiration.

Policyholders' surplus The amount remaining after all liabilities are subtracted
from all admitted assets, as determined in accordance with
statutory accounting practices. This amount is regarded as
financial protection to policyholders in the event an
insurance company suffers unexpected or catastrophic
losses.

Reinsurance A transaction in which an original insurer, or cedant,
remits a portion of the premium to a reinsurer, or assuming
company, as payment for the reinsurer's assumption of a
portion of the risk.

Reserves or loss reserves The balance sheet liability representing estimates of
amounts needed to pay reported and unreported claims and
related loss adjustment expenses.

Retrocession A reinsurance of reinsurance assumed.

Retrospectively-rated policy A policy containing a provision for determining the
insurance premium for a specified policy period on the
basis of the loss experience for the same period.

Statutory accounting practices Accounting practices prescribed or permitted by the states'
departments of insurance. In general, statutory accounting
practices address policyholder protection and solvency and
are more conservative in presentation of earnings, surplus
and assets than generally accepted accounting principles.

Treaty A contract of reinsurance.

Underwriting The process whereby an insurer reviews applications
submitted for insurance coverage and determines whether it
will accept all or part, and at what premium, of the
coverage being requested.

Underwriting expenses The aggregate of policy acquisition costs and the portion
of administrative, general and other expenses attributable
to the underwriting process as they are accrued and
expensed.

DESCRIPTION OF THE BUSINESS

Zenith classifies its business into six segments: Workers' Compensation,
Other Property-Casualty (through March 31, 1999, the date of sale of CalFarm),
Reinsurance, Real Estate Operations, Investment and Parent. Segments are
designated based on the types of products and

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services provided and based on the risks associated with the products and
services. Workers' Compensation represents insurance coverage for the
statutorily prescribed benefits that employers are required to pay to their
employees injured in the course of employment. Prior to its sale, CalFarm
operated Zenith's Other Property-Casualty business, which represented multiple
product line direct insurance other than workers' compensation. Reinsurance
represents the book of assumed reinsurance of principally property losses from
catastrophes and the reinsurance of large property risks. Results of such
operations for the three years ended December 31, 1999 are set forth in the
tables in the section Management's Discussion and Analysis of Consolidated
Financial Condition and Results of Operations--"Overview" on page 26 of Zenith's
1999 Annual Report to Stockholders, which table is hereby incorporated by
reference. The Investment segment represents investment income and realized
gains on investments, primarily from debt securities. Real Estate Operations are
conducted through wholly-owned subsidiaries that develop land and construct
private residences for sale in Las Vegas, Nevada. Parent represents the holding
company operations of Zenith National which owns, directly or indirectly, all of
the capital stock of the property-casualty insurance and non-insurance
companies. Zenith's business segments are described in Notes to Consolidated
Financial Statements -- Note 18 -- "Segment Information" on pages 63-64 of
Zenith's 1999 Annual Report to Stockholders, which note is hereby incorporated
by reference.

WORKERS' COMPENSATION

Workers' Compensation insurance provides coverage for the statutorily
prescribed benefits that employers are required to pay to their employees
injured in the course of employment. The standard workers' compensation policy
issued by the P&C Operations provides payments for, among other things,
temporary or permanent disability benefits, death benefits, medical and hospital
expenses and expenses of vocational rehabilitation. The benefits payable and the
duration of such benefits are set by statute, and vary by state and with the
nature and severity of the injury or disease and the wages, occupation and age
of the employee. In 1998, Zenith expanded its presence in Florida and other
states through the RISCORP Acquisition (see page 5 for a discussion of the
RISCORP Acquisition). During 1999, the P&C Operations wrote workers'
compensation insurance in 40 states.

Net premiums earned in 1999 by state are set forth in the table below:

(DOLLARS IN THOUSANDS) 1999 %
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California................................................ $107,929 38.7%
Florida................................................... 92,562 33.2
Texas..................................................... 17,560 6.3
North Carolina............................................ 16,301 5.8
Alabama................................................... 7,687 2.8
Arkansas.................................................. 6,731 2.4
Pennsylvania.............................................. 5,639 2.0
Other..................................................... 24,445 8.8
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$278,854 100.0%
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Excluding the impact of the RISCORP-Related Adjustment (see page 5),
Zenith's low, five-year Workers' Compensation loss ratio was 59.8% through 1999,
which was attributed to Zenith's pricing and underwriting strategies managed
care efforts, return-to-work strategies, and safety and health, anti-fraud and
litigation efforts. During the past 10 years, Zenith's Workers' Compensation
combined ratio was 107.2% excluding the RISCORP-Related Adjustment.

Results of operations of Zenith's Workers' Compensation Operations are being
adversely impacted by severe competition and inadequate pricing. Industry
results in California are at historic

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unprofitable levels and national results are deteriorating. Except in its
Southeast Operations, which principally consists of the former operations of
RISCORP, Workers' Compensation premium revenues are declining as Zenith
endeavors to maintain rate adequacy.

In Florida, minimum premium rates for workers' compensation insurance are
established by the Florida Insurance Commissioner. Minimum rates increased by
1.6% in 1999 and decreased 3.2% and 11.3% in 1998 and 1997, respectively. Since
rates were deregulated in California in 1995, insurance companies file and use
their own, actuarially determined rates for workers' compensation insurance in
California. Companies must file such rates with the California Department of
Insurance, but the use of scheduled rating credits allows companies considerable
flexibility in determining the amount of premium to be charged to a policyholder
or potential policyholder, resulting in intense competition. Results of January
2000 renewals and new business applications in California were favorable with
Zenith renewing a substantial percentage of its maturing policies at higher
rates and writing some new business. In November of 1999, the California
Insurance Commissioner adopted an average 18.4% increase in the pure premium
advisory rates recommended by the Workers' Compensation Insurance Rating Bureau
of California -- a preliminary indication of possible changes in the California
workers' compensation market. In any event, in 2000 Zenith has raised its rates
by an appropriate amount, together with other actions, with a goal to improve
its profitability.

Generally, premiums for workers' compensation insurance policies are a
function of the applicable premium rate, which includes the insured employer's
experience modification factor (where applicable) and the amount of the insured
employer's payroll. Payrolls may be affected significantly by changes in
employment and wage levels. A deposit premium is paid at the beginning of the
policy period, periodic installments are paid during the policy period and the
final amount of the premium is generally determined as of the end of the policy
period after the policyholder's payroll records are audited. As part of the
RISCORP Acquisition, Zenith Insurance assumed approximately $32.0 million of
premium in-force on retrospectively-rated policies. Retrospective rating also
allows the policyholder to share in the benefits of favorable loss experience
although a certain amount of less-than-favorable experience will result in
additional premiums being billed to the policyholder.

On April 1, 1998, Zenith Insurance completed the RISCORP Acquisition. The
total purchase price for such acquired assets and liabilities was determined by
a three-step process in which RISCORP and its external accounting and actuarial
consultants and Zenith Insurance and its external accounting and actuarial
consultants made and presented their estimates of the generally accepted
accounting principles ("GAAP") basis values of the assets and liabilities
acquired by Zenith Insurance to an independent third-party, acting as a Neutral
Auditor and Neutral Actuary. Such estimates varied considerably, particularly
with respect to the value of premiums receivable and the liability for unpaid
losses and loss adjustment expenses. On March 19, 1999, the Neutral Auditor and
Neutral Actuary issued its report determining the disputes between the parties.
That report indicated that the value of the assets transferred to Zenith
Insurance exceeded the value of the liabilities assumed by Zenith Insurance by
$92.3 million.

In October of 1999, Zenith Insurance completed a review of the liabilities
for unpaid losses and loss adjustment expenses in its Southeast Operations,
which principally consists of the operations acquired from RISCORP. The review
was conducted with assistance from independent actuarial consultants. As a
result of the review, Zenith Insurance recorded, in the third quarter of 1999,
an increase of $46.0 million before tax in the estimated net liabilities for
unpaid losses and loss adjustment expenses acquired from RISCORP. The increase
results primarily from the adjustments to reserves for the years 1994 through
1997. Certain related receivables, principally contingent commissions receivable
under reinsurance contracts assumed from RISCORP, were reduced by $19.0 million
as a result of such increase in net liabilities. Such adjustments to the values
of the net assets acquired and liabilities assumed were offset by (a) the net
benefit of $34.0 million associated

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with reinsurance protection for adverse loss development and (b) $6.0 million
recovered from RISCORP to settle certain litigation (see Item 3. Legal
Proceedings on page 14).

The adjustments associated with the increase in the liabilities for unpaid
loss and loss adjustment expenses acquired from RISCORP, net of the benefit of
reinsurance protection and the effect of the Settlement Agreement, in the
aggregate (collectively, the "RISCORP-Related Adjustment"), reduced income by
$32.5 million after tax, or $1.89 per share in the third quarter of 1999.
Deferred reinsurance benefits will be recognized over approximately the next
four years and net income is expected to increase by $15.0 million.

OTHER PROPERTY-CASUALTY

Zenith, through CalFarm, offered a comprehensive line of property-casualty
insurance for individual and commercial customers, including automobile,
farmowners, commercial coverages, group health and homeowners coverage,
primarily in the rural and suburban areas of California, through March 31, 1999,
the effective date of the sale of CalFarm to Nationwide Mutual Insurance
Company. Automobile insurance included coverage for automobile bodily injury,
property damage and physical damage. Automobile bodily injury and property
damage insurance provided coverage for third party liability, bodily injury and
property damage arising from the ownership, maintenance or use of an automobile.
Automobile physical damage coverage insured against physical loss of the
insured's own vehicle. Farmowners and homeowners insurance included coverage for
direct physical damage to real and personal property, loss of personal property
by theft and legal liability for injury to others and damage to property of
others. Commercial multiple peril provided coverage for businesses against
property damage and general liability. Health insurance premiums were written
under a program sponsored by the California Farm Bureau Federation which
included a preferred provider organization plan and a Medicare supplement
product. For the 14 years since CalFarm was acquired by Zenith, the average
combined ratio of the Other Property-Casualty Operations was 100.1%.

Effective March 31, 1999, Zenith Insurance completed the sale of all of the
issued and outstanding capital stock of CalFarm for $273.0 million in cash to
Nationwide Mutual Insurance Company. The gain on the sale after tax was
$104.3 million. After accounting for applicable taxes, expenses and certain
intercompany transactions, the net proceeds from the sale that were available to
Zenith Insurance for investment were $211.0 million, compared to cash and
investments of $226.4 million that were excluded from Zenith's Consolidated
Balance Sheet upon the sale of CalFarm. As a result of the sale of CalFarm, the
capitalization of the P&C Operations improved significantly and Zenith Insurance
paid a dividend of $100.0 million to Zenith National which added considerably to
the invested assets of Zenith National.

REINSURANCE

Zenith Insurance selectively underwrites a book of assumed reinsurance.
Treaties come in a variety of forms, but the principal arrangements are either
proportional in nature, in which the assuming company shares pro-rata in the
premiums and losses of the cedant, or arrangements under which the assuming
company pays losses in excess of a certain limit in return for a premium,
usually determined as a percentage of the cedant's primary insurance premiums.
Zenith operates its Reinsurance Operations as a participant in treaties in
which, typically, the reinsurance coverage is syndicated to a number of assuming
companies. Depending upon market conditions and other factors, the volume of
premiums written fluctuates from year to year. Zenith's current participation in
the reinsurance market emphasizes the reinsurance of world-wide property losses
from catastrophes and large property risks. By diversifying its geographical
spread, Zenith's assumed reinsurance business is written so as to limit exposure
to losses from any one event in a worst-case scenario to a maximum of
approximately 5% of consolidated stockholders' equity. Since the

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inception of this operation in 1985, the average combined ratio of Zenith's
Reinsurance Operations was 94.3%.

REAL ESTATE OPERATIONS

Zenith's Real Estate Operations develop, build and sell single-family
residences in Las Vegas, Nevada. In 1999, these Operations closed and delivered
366 homes at an average selling price of $158,000, compared to 275 homes at an
average selling price of $137,000 the prior year. Sales in 1999 were
$58.7 million and pre-tax income was $3.6 million, compared to sales of
$37.7 million and pre-tax income of $1.4 million the previous year. Construction
in progress, including undeveloped land, was $87.9 million and $69.4 million at
December 31, 1999 and 1998, respectively. In addition to continuing home
construction, Zenith may use some land presently owned for commercial and
multi-family dwelling construction. Changes in interest rates or other factors
could affect future home sales (we have not seen any impact so far), but Zenith
believes the land it has acquired is strategically located and will have
long-term value.

INVESTMENTS

Zenith's Investment Operation provides investment income and realized gains
on investments, primarily from investments in debt securities. Investment
policies of Zenith are established by the Boards of Directors, taking into
consideration state regulatory restrictions with respect to investments in
connection with reserve obligations, as well as the nature and amount of various
kinds of investments. Zenith's principal investment goals are to maintain safety
and liquidity, enhance principal values and achieve increased rates of return
consistent with regulatory constraints. The allocation among various types of
securities is adjusted from time to time based on market conditions, credit
conditions, tax policy, fluctuations in interest rates and other factors. See
Management's Discussion and Analysis of Consolidated Financial Condition and
Results of Operations -- "Investments" on pages 31-33 of Zenith's 1999 Annual
Report to Stockholders, which discussion is hereby incorporated by reference. At
December 31, 1999, the consolidated investment portfolio consisted primarily of
taxable bonds and short-term investments supplemented by smaller portfolios of
redeemable and other preferred and common stocks. The average life of the
consolidated portfolio was 5.7 years at December 31, 1999.

Stockholders' equity will fluctuate as interest rates fluctuate due to the
classification of the changes in fair value of certain "available-for-sale"
securities in stockholders' equity. Zenith has identified certain securities,
amounting to 96% of the investments in debt securities at December 31, 1999, as
available-for-sale. In 1999, stockholders' equity decreased by $25.7 million,
net of deferred tax, as a result of changes in the fair values of such
investments.

PARENT

Zenith is a holding company which owns directly or indirectly all of the
capital stock of certain property-casualty insurance and non-insurance
companies.

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YEAR 2000

The Year 2000 Problem refers to the inability of information technology
("IT") systems and non-information technology ("non-IT") systems to accurately
process dates during and after 1999. IT systems include computer hardware and
software. Non-IT systems include equipment, such as elevators, security systems
and HVAC systems that incorporate embedded micro controllers. If not corrected,
the processes of IT and non-IT systems that are date sensitive could fail or
miscalculate data resulting in disruptions of operations, such as a temporary
inability to process transactions, send and receive electronic data with third
parties or otherwise engage in normal business activities. There could also be a
negative impact on the economic and social infrastructure on which Zenith
depends.

At the end of 1999, Zenith was prepared for the date change from 1999 to
2000. Zenith systematically replaced and modified its internal non-IT and IT
systems to function correctly with dates from 1999 forward, thereby rendering
them "Year 2000 Compliant." Zenith also had in place contingency plans to
substantially reduce material business disruptions from failures of Zenith's
internal systems, a failure of one or more critical third parties upon which
Zenith relies in its business operations ("Key External Dependencies") and/or
the contamination of Zenith's IT systems due to receipt of corrupted data.

Zenith did not suffer any disruption of its business due to any impact of
the date change from 1999 to 2000 on its internal non-IT systems, its internal
IT systems or its Key External Dependencies. However, at the end of 1999, Zenith
was cautious about the state of readiness of its Key External Dependencies and
also recognized that despite its Year 2000-related efforts negative impact on
its operations from Year 2000-related failures was possible. Accordingly, as a
precaution, Zenith did implement elements of its contingency plans prior to the
end of 1999. Those elements are no longer in effect.

Although the date change from 1999 to 2000 occurred without disruption to
Zenith's business, Zenith remains alert both as to potential issues in its
internal systems and the state of readiness of its Key External Dependencies.
All companies were, and to a lesser extent are still, faced with unknown risks
arising from Year 2000 issues that may impact them negatively. Zenith believes,
at this time, that the most reasonably-likely, worst-case, Year 2000 scenarios
could include a failure of a part of Zenith's internal IT systems, the isolated
inability of one or more of its critical Key External Dependencies, such as
financial institutions, agents/brokers or reinsurers, to respond to Zenith's
needs, and/or the contamination of Zenith's IT systems due to receipt of
corrupted data. Such a scenario could result in a disruption of Zenith's normal
business activities and could have a material adverse effect on its financial
condition and results of operations. However, nothing has come to Zenith's
attention leading it to conclude that there would be future Year 2000-related
failures having a material adverse impact on Zenith. Further, because of the
general nature of the Year 2000 Problem and how it may manifest itself, Zenith
will continue to monitor its internal systems and its Key External Dependencies
for Year 2000-related anomalies. Monitoring of some situations will extend into
2001, so as to cover twelve months of Year 2000 processes. However, it is
expected that substantially all monitoring will decrease over the next few
months and end by the second quarter of 2000. Contingency plans remain in place,
ready to be implemented.

The majority of Zenith's Year 2000 compliance efforts were staffed
internally, although Zenith engaged technical consultants to assist its internal
staff, as well as to assist Zenith in reviewing its progress. All Year
2000-related costs were funded from internal sources. The costs associated with
non-IT systems and contingency planning were not significant. The costs
associated with IT systems (namely, core information technology systems;
computer network and communications infrastructure; and personal and laptop
computers, including applications) was $11.1 million, of which $5.9 million,
$2.7 million and $2.5 million were expended in 1999, 1998 and 1997,

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respectively. The following table shows the portions of the $11.1 million that
were expended for repairing Zenith's IT systems ("IT Repair Costs") and
replacing them ("IT Replacement Costs").

(DOLLARS IN THOUSANDS) TOTAL IT EXPENDITURE
- ---------------------- --------------------

IT Repair Costs............................................. $ 7,562
IT Replacement Costs:
Software.................................................. 881
Hardware.................................................. 2,234
Related Expenditures...................................... 417
-------
Total................................................... $11,094
=======

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The above table includes $1.8 million incurred for the Other Property--Casualty
Operations through March 31, 1999, the date on which such operations were
disposed of through the sale of the capital stock of CalFarm.

IT Repair Costs and IT Replacement Costs include external costs and the cost
of dedicated information technology personnel. IT Repair Costs are expensed as
they are incurred; IT Replacement Costs are capitalized in accordance with
Statement of Position 98-1 "Accounting for the Costs of Computer Software
Developed or Obtained for Internal Use." The internal cost of user participation
in acceptance testing was not measured and is not included. In addition to the
amounts shown in the table, Zenith will be expending funds in the first quarter
of 2000 to close out and refine its Year 2000 efforts. This amount is not
expected to be material. Zenith had been planning to upgrade its computer
network and communications infrastructure, as well as its personal and laptop
computers (including applications), for some time; however, because of the Year
2000 Problem, certain components of those plans were accelerated and completed
by mid-1999. No planned information technology projects were deferred because of
Year 2000-related efforts.

LOSS AND LOSS EXPENSE RESERVES AND CLAIMS, AND LOSS DEVELOPMENTS

The P&C Operations maintain reserves for the payment of losses and for the
expenses of settling both reported and unreported claims that have been incurred
under their insurance policies and reinsurance contracts. The amount of such
reserves, as related to reported claims, is based upon periodic case-by-case
evaluation and judgment by the P&C Operations' claims departments, with
actuarial review. The estimate of unreported claims arising from accidents which
have not yet been reported to the P&C Operations, commonly known in the industry
as "incurred but not reported," is based upon the experience of the P&C
Operations and statistical information with respect to the probable number and
nature of such claims. The P&C Operations monitor these factors and revise their
reserves as they deem appropriate. Reserves are based on estimates, and no
assurance can be given that the ultimate liability will not be more or less than
such estimates.

Reference is made to Property-Casualty Loss Development on pages 40-41 of
Zenith's 1999 Annual Report to Stockholders, which is hereby incorporated by
reference, and the table setting forth the reconciliation of changes in the
liabilities for loss and loss adjustment expenses included in Notes to
Consolidated Financial Statements -- Note 16 -- "Loss and Loss Adjustment
Expense Reserves" on page 62 of Zenith's 1999 Annual Report to Stockholders,
both of which are hereby incorporated by reference. These tables show the
development of loss and loss adjustment expense liabilities as originally
estimated under GAAP at December 31 of each year presented. The accounting
methods used to estimate these liabilities are described in Notes to
Consolidated Financial Statements -- Note 1 -- "Summary of Accounting Policies,
Operations and Principles of Consolidation" on pages 48-51 of Zenith's 1999
Annual Report to Stockholders, which note is hereby incorporated by reference.
The one year loss and loss adjustment expense reserve development for Zenith's
three segments of property-casualty business is set forth in the table in the
Management's Discussion and Analysis of Consolidated Financial Condition and
Results of

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Operations on page 27 of Zenith's 1999 Annual Report to Stockholders, which
table is hereby incorporated by reference.

WORKERS' COMPENSATION

Zenith's Workers' Compensation reserves, on the average, are paid within
3 years. Zenith regards the timely settlement of its Workers' Compensation
claims as important to its profitability and makes use of compromises and
releases for claim settlements to expedite this process.

Zenith Insurance maintains three regional offices in California and offices
outside of California in Florida, Texas, Arkansas, Pennsylvania, Utah, Illinois,
North Carolina and Alabama, each of which is fully staffed to conduct all
workers' compensation claims operations, including review of initial reports of
work injury, assignment of appropriate field investigation and determination of
whether subrogation should be pursued. Workers' Compensation claims operations
are supported by computer systems that provide immediate access to policy
coverage verification and claims records and enable Zenith Insurance to detail
claims payment histories and policy loss experience reports.

In 1999, loss and loss adjustment expense reserves in the former RISCORP
operations were strengthened by $46.0 million as part of the RISCORP-Related
Adjustment. The 1998 underwriting results include $2.0 million before tax of
catastrophic workers' compensation losses. In 1997, loss and loss adjustment
expense reserves were strengthened by $11.8 million for accident years 1995 and
1996.

In Florida, the Special Disability Trust Fund (the "Fund") assesses workers'
compensation insurers to pay for what are commonly referred to as "Second
Injuries". Historic assessments have been inadequate to completely fund
obligations of the Fund. In late 1997, the Florida statute was amended so that
the Fund will not be liable for and will not reimburse employers or carriers for
Second Injuries occurring on or after January 1, 1998. Zenith has recorded its
receivable from the Fund for Second Injuries based on specific claims and
historical experience prior to January 1, 1998. At December 31, 1999 and 1998,
the receivable from the Fund was $37.0 million and $39.1 million, respectively,
related to the pre-January 1, 1998 claims, of which $5.6 million was collected
in 1999.

OTHER PROPERTY-CASUALTY

Zenith's Other Property-Casualty business was operated primarily by CalFarm,
which was sold effective March 31, 1999. Zenith retained no liabilities with
respect to the unpaid loss and loss adjustment expenses of CalFarm. In 1998 and
1997, CalFarm sustained losses before tax of $5.0 million and $1.5 million,
respectively, in conjunction with California wind and storm damage.

REINSURANCE

Zenith expects that, on the average, its Reinsurance reserves related to
casualty business will be paid in 4 years and reserves related to its property
business will be paid within 1 year. In addition to information supplied by
ceding companies, Zenith makes use of industry experience in arriving at
estimates of ultimate losses for certain reinsurance assumed arrangements. The
1999 and 1998 Reinsurance underwriting results include catastrophe losses before
tax of $18.9 million and $4.5 million, respectively. The major events of 1999
and 1998 were hurricane "Georges" and other Caribbean storms, earthquakes in
Turkey and Taiwan and French storms in December of 1999. There were no
catastrophes reported in Reinsurance in 1997.

ENVIRONMENTAL AND ASBESTOS LOSSES

The process of evaluating an insurance company's exposure to the cost of
environmental and asbestos damage is subject to significant uncertainties. Among
the complications are lack of historical data, long reporting delays,
uncertainty as to the number and identity of insureds with potential exposure
and unresolved legal issues regarding policy coverage. The legal issues

9

concerning the interpretations of various insurance policy provisions and
whether environmental and asbestos losses are, or were ever intended to be,
covered are complex. Courts have reached different and sometimes inconsistent
conclusions regarding such issues as: when the loss occurred and which policies
provide coverage, how policy limits are applied and determined, how policy
exclusions are applied and interpreted, whether clean-up costs are covered as
insured property damage and whether site assessment costs are either indemnity
payments or adjusting costs.

Zenith has exposure to asbestos losses in its Workers' Compensation
Operations for medical, indemnity and loss adjustment expenses associated with
covered workers' long-term exposure to asbestos or asbestos-contained materials.
Most of these claims date back to the 1970's and early 1980's and Zenith's
exposure is generally limited to a pro rata share of the loss for the period of
time coverage was provided. Zenith also has potential exposure to environmental
and asbestos losses and loss adjustment expenses beginning in 1985 through its
Reinsurance Operation and through CalFarm (through March 31, 1999), which wrote
liability coverage under farmowners' and small commercial policies, however such
losses are substantially excluded from all such coverage. Any such liabilities
associated with CalFarm were retained by CalFarm when it was sold in 1999 and
Zenith retains no exposure to any such liabilities. The business reinsured by
Zenith contains exclusion clauses for environmental and asbestos losses, and in
1988 an absolute pollution exclusion was incorporated into CalFarm's policy
forms. All claims for damages resulting from environmental or asbestos losses
are identified and handled by Zenith's most experienced claims/ legal
professionals. Environmental and asbestos losses have not been material and
Zenith believes that its reserves for environmental and asbestos losses are
appropriately established based on currently available facts, technology, laws
and regulations. However, due to the long-term nature of these claims, the
inconsistencies of court coverage decisions, plaintiff's expanded theories of
liability, the risks inherent in major litigation and other uncertainties, the
ultimate exposure from these claims may vary from the amounts currently
reserved.

REINSURANCE CEDED

In accordance with general industry practices, the P&C Operations annually
purchase excess of loss reinsurance. Reinsurance makes the assuming reinsurer
liable to the ceding company to the extent of the reinsurance. It does not,
however, discharge the ceding company from its primary liability to its
policyholders in the event the reinsurer is unable to meet its obligations under
such reinsurance treaty. Historically, no material costs have been incurred by
the P&C Operations from uncollected reinsurance. The purpose of such reinsurance
is to protect Zenith from the impact of large, irregularly occuring losses. Such
reinsurance reduces the magnitude of sudden and unpredictable changes in net
income and the capitalization of the P&C Operations. Zenith monitors the
financial condition of its reinsurers and does not believe that it is exposed to
any material credit risk through its ceded reinsurance arrangements.

Insurance premiums ceded by the P&C Operations amounted to $16.3 million,
$54.5 million and $26.2 million in 1999, 1998 and 1997, respectively, or 4.2%,
9.3% and 5.3% of gross earned premiums in 1999, 1998 and 1997, respectively.
Recoverable from reinsurers on unpaid losses amounted to $233.1 million and
$245.6 million at December 31, 1999 and 1998, respectively, or 26.5% and 24.6%
of gross reserves for unpaid losses and loss adjustment expenses in 1999 and
1998, respectively. The P&C Operations maintained reinsurance arrangements as
follows during 1999:

Workers' Compensation -- Reinsurance covered all claims between $550,000 and
$100,000,000 per occurrence. The coverage from $550,000 to $5,000,000 is placed
with General Reinsurance Corporation, the coverage from $5,000,000 to
$10,000,000 with Employers Reinsurance Corporation and the remaining three
layers from $10,000,000 to $60,000,000 primarily with NAC Reinsurance
Corporation, Transatlantic Reinsurance Company, Zurich Reinsurance and the
London reinsurance market (primarily Lloyd's syndicates and certain United
Kingdom reinsurance companies). Catastrophe reinsurance covered an additional
$40,000,000 in excess of $60,000,000 and was placed with UNUM Life Insurance
Company, ReliaStar Life Insurance Company and Connecticut General Life.

10

In connection with the RISCORP Acquisition, Zenith Insurance entered into an
aggregate excess of loss reinsurance agreement with Inter-Ocean Reinsurance
Company, Ltd. which provides ceded reinsurance for unpaid loss and allocated
loss adjustment expenses assumed by Zenith from RISCORP at April 1, 1998 up to
$50,000,000 in excess of $182,000,000. Reinsurance recoverable from Inter-Ocean
Reinsurance Company is secured by a trust account and an irrevocable letter of
credit.

Also, in connection with the RISCORP Acquisition, Zenith Insurance acquired
approximately $244.3 million of reinsurance recoverables from principally quota
share arrangements entered into by RISCORP. The principal reinsurers from which
such amounts are recoverable are: American Re-Insurance Company, Chartwell
Reinsurance Company, Continental Casualty Co., Swiss Re-Insurance Company,
Trenwick Reinsurance Company and TIG Reinsurance Company.

Reinsurance -- Catastrophe reinsurance covered losses of approximately
$20,000,000 in excess of approximately $4,000,000 arising out of certain assumed
reinsurance treaties for non-United States catastrophes. All of such catastrophe
reinsurance is placed with Renaissance Reinsurance Company Limited. Zenith's
exposure to losses from assumed reinsurance is limited by the terms upon which
it is written to a maximum probable loss from any one event of approximately 5%
of Zenith's consolidated stockholders' equity.

Pooling Agreement -- The P&C Operations are parties to a pooling agreement.
Under such agreement, the results of underwriting operations are ceded (the
risks are transferred) to Zenith Insurance and are then reapportioned, or
retro-ceded (the risks are transferred back), to the companies. At December 31,
1999, the proportions of the pooling were as follows: Zenith Insurance, 97.5%;
ZNAT Insurance, 2.0%; and Zenith Star, 0.5%. Transactions pursuant to the
pooling agreement are eliminated on consolidation and have no impact on Zenith's
consolidated financial statements.

MARKETING AND STAFF

The business in the Workers' Compensation Operations is produced by
approximately 2,600 independent licensed insurance agents and brokers throughout
California, Florida, Texas and other states in which Zenith conducts its
Workers' Compensation Operations. Zenith Insurance's assumed reinsurance
premiums are generated nationally by brokers and reinsurance intermediaries.

Applications for insurance submitted by all agents and brokers are evaluated
by professional underwriters based upon numerous factors, including underwriting
criteria and standards, geographic areas of underwriting concentration,
actuarial judgments of rate adequacy, economic considerations, and review of
known data on the particular risk. The P&C Operations, as opposed to their
agents and brokers, retain authority over underwriting, claims processing,
safety engineering and auditing.

COMPETITION

Competition in the insurance business is based upon price, product design
and quality of service. The insurance industry is highly competitive, and
competition is particularly intense in the California workers' compensation
market which was deregulated with respect to prices in 1995. The P&C Operations
compete not only with other stock companies, but with mutual companies and other
underwriting organizations such as the State Compensation Insurance Fund in
California. Competition also exists with self-insurance and captive insurers.
Many companies in competition with the P&C Operations have been in business for
a much longer time, have a larger volume of business, are more widely known,
and/or possess substantially greater financial resources.

11

REGULATION

STATE DEPARTMENTS OF INSURANCE

Insurance companies are primarily subject to regulation and supervision by
the department of insurance in the state in which they are domiciled and, to a
lesser extent, other states in which they conduct business. The P&C Operations
are primarily subject to regulation and supervision by the California Department
of Insurance, except for Zenith Star, which is primarily subject to regulation
and supervision by the Texas Department of Insurance. These states have broad
regulatory, supervisory and administrative powers. Such powers relate to, among
other things, the grant and revocation of licenses to transact business; the
licensing of agents; the standards of solvency to be met and maintained; the
nature of and limitations on investments; approval of policy forms and rates;
periodic examination of the affairs of insurance companies; and the form and
content of required financial statements.

In California, Zenith Insurance and ZNAT Insurance are required to maintain
on deposit investments meeting specified standards that have an aggregate market
value equal to the companies' loss reserves. For this purpose, loss reserves are
defined as the current estimate of reported and unreported claims net of
reinsurance, plus a statutory formula reserve based on a minimum of 65% of
earned premiums for the latest three years. Zenith Insurance and ZNAT Insurance
are subject to similar deposit requirements in certain other states based on
those states' retaliatory statutes.

Detailed annual and quarterly reports are required to be filed by the P&C
Operations with the Departments of Insurance in which they are licensed to
transact business, and their businesses and accounts are subject to periodic
examination by such agencies, usually at three year intervals. Zenith Insurance,
CalFarm and ZNAT Insurance were examined by the California Department of
Insurance as of December 31, 1996, and the Report of Examination contained no
material findings. Zenith Star was examined by the Texas Department of Insurance
as of December 31, 1996, and the Report of Examination contained no material
findings.

THE NATIONAL ASSOCIATION OF INSURANCE COMMISSIONERS

The National Association of Insurance Commissioners ("NAIC") is a group
formed by state Insurance Commissioners to discuss issues and formulate policy
with respect to regulation, reporting and accounting of insurance companies.
Although the NAIC has no legislative authority and insurance companies are at
all times subject to the laws of their respective domiciliary states and, to a
lesser extent, other states in which they conduct business, the NAIC is
influential in determining the form in which such laws are enacted. In
particular, Model Insurance Laws, Regulations and Guidelines (the "Model Laws")
have been promulgated by the NAIC as a minimum standard by which state
regulatory systems and regulations are measured. Adoption of state laws which
provide for substantially similar regulations to those described in the Model
Laws is a requirement for accreditation by the NAIC.

In 1998, the NAIC adopted the Codification of Statutory Accounting
Principles guidance (the "Codification"), which will replace the current
Accounting Practices and Procedures manual as the NAIC's primary guidance on
statutory accounting. (Statutory accounting is a comprehensive basis of
accounting based on prescribed accounting practices, which include state laws,
regulations and general administrative rules, as well as a variety of
publications of the NAIC.) The Codification provides guidance for the areas
where statutory accounting has been silent and changes current statutory
accounting in some areas. The NAIC is now considering amendments to the
Codification that would also be effective upon implementation. The NAIC has
established January 1, 2001 as the effective date of the Codification. The
California Department of Insurance has adopted the Codification. Implementation
of the Codification may affect the surplus level and the capitalization
requirements of the P&C Operations on a statutory basis. Zenith has not
determined the impact of the Codification.

12

Under NAIC model regulations, insurers are required to maintain minimum
levels of capital based on their investments and operations, known as "risk
based capital" ("RBC") requirements. At December 31, 1999, adjusted capital
under the RBC regulations for the Zenith Insurance Group (consisting of the P&C
Operations) was 250%, significantly above the RBC control, or required, level of
capital under the regulations.

The NAIC Insurance Regulatory Information System ("IRIS") key financial
ratios (11 ratios for property-casualty companies), developed to assist
insurance departments in overseeing the financial condition of insurance
companies, are reviewed by experienced financial examiners of the NAIC to select
those companies that merit highest priority in the allocation of the regulators'
resources. The 1999 IRIS results for the P&C Operations showed three results
outside the "normal" range for such ratios, as such range is determined by the
NAIC. These results were mainly due to decreased premium volume due to the sale
of CalFarm, operating losses in the Workers' Compensation Operations and the
impact of the RISCORP-Related Adjustment.

INSURANCE HOLDING COMPANY SYSTEM REGULATORY ACT

The P&C Operations are subject to the California and Texas Insurance Holding
Company System Regulatory Acts ("Holding Company Acts"), which contain certain
reporting requirements, including the requirement that such subsidiaries file
information relating to capital structure, ownership, financial condition and
general business operation. The Holding Company Acts also limit dividend
payments and material transactions by the P&C Operations. See Item 5. for a
discussion of dividend restrictions related to the Holding Company Acts.

ITEM 2. PROPERTIES.

Zenith Insurance owns a 120,000 square foot office facility in Woodland
Hills, California which is the corporate home office of Zenith National, Zenith
Insurance and ZNAT Insurance. Zenith Insurance also owns a 176,000 square foot
branch office facility in Sarasota, Florida.

In the regular conduct of business, Zenith Insurance, leases offices in
various cities. See Notes to Consolidated Financial Statements -- Note 11 --
"Commitments and Contingent Liabilities" on pages 57-58 of Zenith's 1999 Annual
Report to Stockholders, which note is hereby incorporated by reference.

Zenith considers its owned and leased facilities to be adequate for the
needs of the organization.

ITEM 3. LEGAL PROCEEDINGS.

Zenith Insurance and RISCORP entered into a settlement agreement, dated
July 7, 1999 (the "Settlement Agreement"), providing for the resolution of
certain claims arising out of the RISCORP Acquisition. Pursuant to the
Settlement Agreement, Zenith Insurance and RISCORP (i) dismissed litigation
pending between them in the United States District Courts for the Middle
District of Florida, Tampa Division, and the Southern District of New York;
(ii) agreed that RISCORP may request that the Neutral Auditor and Neutral
Actuary (a) review an alleged error concerning the proper treatment of certain
reinsurance treaties in its determinations with respect to the purchase price
for the RISCORP Acquisition, without waiving whatever rights RISCORP may have to
litigation of such issue, (b) determine whether the issue was properly in
dispute before the Neutral Auditor and Neutral Actuary and (c), if so, determine
the merits of the issue and whether a correction is appropriate; (iii) agreed
that any other disputes arising under the Asset Purchase Agreement or the
Settlement Agreement, including any future claims for indemnification by either
Zenith Insurance or RISCORP, are to be resolved by binding arbitration;
(iv) agreed that Zenith Insurance receives $6.0 million from an escrow account
established pursuant to the Asset Purchase Agreement, and RISCORP receives the
balance of the escrow account; and (v) agreed to an allocation between them of
any recovery received as a result of refund claims that RISCORP has made to the
Florida

13

Department of Labor and Employment Security, Division of Workers' Compensation.
In a submission made to the Neutral Auditor and Neutral Actuary, RISCORP claimed
that the purchase price for the RISCORP Acquisition should be adjusted by either
$5.9 million or $23.4 million as a result of alleged errors in the original
determination of the Neutral Auditor and Neutral Actuary with respect to the
purchase price. On October 7, 1999, the Neutral Auditor and Neutral Actuary
advised Zenith and RISCORP that they would not consider the additional issue
raised by RISCORP because the issue had not previously been raised as a dispute
pursuant to the procedures set forth in their engagement letter. On January 13,
2000, RISCORP filed a complaint against Zenith Insurance and the Neutral Auditor
and Neutral Actuary in the Superior Court of Fulton County in the State of
Georgia. The complaint alleges breach of contract against both Zenith Insurance
and the Neutral Auditor and Neutral Actuary and seeks recovery of the amounts
previously described to have resulted from the alleged errors by the Neutral
Auditor and Neutral Actuary. Zenith is unable to predict the outcome of this
litigation.

Zenith National and its subsidiaries are defendants in various other
litigation. In the opinion of management, after consultation with legal counsel,
such litigation is either without merit or the ultimate liability, if any, will
not have a material adverse effect on the consolidated financial condition or
results of operations of Zenith.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.

Not applicable.

14

PART II

ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.

Zenith National's common stock, par value $1.00 per share, is traded on the
New York Stock Exchange under the symbol ZNT. The table below sets forth the
high and low sales prices of the common stock for each quarterly period during
the last two fiscal years.

QUARTER 1999 1998
- ------- ---------- ----------

First
High...................................................... $26 $29 1/16
Low....................................................... 20 5/16 24 1/2
Second
High...................................................... 26 11/16 30 1/2
Low....................................................... 22 1/4 28
Third
High...................................................... 26 28 1/2
Low....................................................... 21 1/8 23 9/16
Fourth
High...................................................... 22 13/16 25 7/8
Low....................................................... 19 1/4 22 7/8

As of March 17, 2000, there were 292 registered holders of record of Zenith
National common stock.

The table below sets forth information with respect to the amount and
frequency of dividends declared on Zenith National common stock. Based upon
Zenith's financial condition, it is currently expected that cash dividends will
continue to be paid in the future.

DATE OF DECLARATION TYPE AND AMOUNT OF RECORD DATE FOR
BY ZENITH BOARD DIVIDEND PAYMENT PAYMENT DATE
------------------- ------------------ --------------- ------------

February 24, 2000............ $.25 cash per share April 28, 2000 May 12, 2000
December 2, 1999............. $.25 cash per share January 31, 2000 February 15, 2000
September 2, 1999............ $.25 cash per share October 29, 1999 November 15, 1999
May 20, 1999................. $.25 cash per share July 30, 1999 August 13, 1999
February 25, 1999............ $.25 cash per share April 30, 1999 May 14, 1999
December 8, 1998............. $.25 cash per share January 29, 1999 February 12, 1999
September 28, 1998........... $.25 cash per share October 30, 1998 November 13, 1998
May 20, 1998................. $.25 cash per share July 31, 1998 August 15, 1998

The Holding Company Acts limit the ability of Zenith Insurance to pay
dividends to Zenith National, and of ZNAT Insurance and Zenith Star to pay
dividends to Zenith Insurance, by providing that the appropriate insurance
regulatory authorities in the states of California and Texas must approve any
dividend that, together with all other such dividends paid during the preceding
twelve months, exceeds the greater of: (a) 10% of the paying company's statutory
surplus as regards policyholders at the preceding December 31; or (b) 100% of
the net income for the preceding year. In addition, any such dividend must be
paid from policyholders' surplus attributable to accumulated earnings. During
1999, Zenith Insurance paid $130.0 million of dividends to Zenith National,
including a $100.0 million dividend from the proceeds of the sale of CalFarm for
which it received prior approval from the California Department of Insurance.
During 2000, Zenith Insurance will be able to pay $29.8 million in dividends to
Zenith National without prior approval. In 2000, ZNAT

15

Insurance and Zenith Star, together, will be able to pay $1.0 million in
dividends to Zenith Insurance without prior approval.

ITEM 6. SELECTED FINANCIAL DATA.

The 5-Year Summary of Selected Financial Information, included in Zenith's
1999 Annual Report to Stockholders on pages 38-39, is hereby incorporated by
reference.

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF CONSOLIDATED FINANCIAL CONDITION
AND RESULTS OF OPERATIONS.

Management's Discussion and Analysis of Consolidated Financial Condition and
Results of Operations, included in Zenith's 1999 Annual Report to Stockholders
on pages 24-37 is hereby incorporated by reference.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

The "Market Risk of Financial Instruments" section of the Management's
Discussion and Analysis of Consolidated Financial Condition and Results of
Operations included in Zenith's 1999 Annual Report to Stockholders on page 33 is
hereby incorporated by reference.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.

Reference is made to the Property-Casualty Loss Development data on
pages 40-41 of Zenith's 1999 Annual Report to Stockholders for information
setting forth the loss and loss adjustment expense liability development for
1989 through 1999 and to the consolidated financial statements and notes thereto
on pages 42-65 of Zenith's 1999 Annual Report to Stockholders, which are hereby
incorporated by reference.

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.

None.

16

PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.

The information set forth under the captions "Section 16(a) Beneficial
Ownership Reporting Compliance" and "Election of Directors" in the Proxy
Statement distributed to stockholders in connection with Zenith's 2000 Annual
Meeting of Stockholders (the "Proxy Statement") which is to be filed by Zenith
after the date this Report on Form 10-K is filed is hereby incorporated by
reference.

EXECUTIVE OFFICERS OF THE REGISTRANT

OFFICER
NAME AGE POSITION TERM SINCE
- ---- --- -------- ---- -------

Stanley R. Zax 62 Chairman of the Board and President(1) Annual 1977
Fredricka Taubitz 56 Executive Vice President and Annual 1985
Chief Financial Officer (1)(6)
Jack D. Miller 54 Executive Vice President (2) Annual 1997
Robert E. Meyer 51 Senior Vice President and Annual 1997
Actuary (2)(4)
William J. Owen 42 Senior Vice President, Chief Financial Annual 1997
Officer, Treasurer and Assistant
Secretary (1)(5)
James P. Ross 53 Senior Vice President (1)(3) Annual 1978
John J. Tickner 61 Senior Vice President and Secretary (1) Annual 1985

- ------------------------

(1) Officer of Zenith National and its subsidiaries.

(2) Officer of Zenith National's subsidiaries only.

(3) Ceased being an executive officer on July 9, 1999.

(4) Designated as an executive officer on February 24, 2000.

(5) Designated as an executive officer on February 24, 2000, effective March 1,
2000.

(6) Ceased being an executive officer on March 1, 2000.

Each of the executive officers has occupied an executive position with
Zenith National or a subsidiary of Zenith National for more than five years,
except for:

Jack D. Miller - Served as the President and Chief Executive Officer of
Industrial Indemnity Company, a property-casualty insurance company, from 1995
to 1997; as acting President and Chief Executive Officer from 1994 to 1995; and
in various other positions from 1987 to 1994 culminating in Executive Vice
President and Chief Executive Officer

Robert E. Meyer - Served as Senior Vice President and Actuary of Industrial
Indemnity Company, a property-casualty insurance company, from 1992 to 1997,
prior to that served as Senior Vice President and Actuary of the Workers'
Compensation Insurance Rating Bureau of California.

William J. Owen - Served as Vice President of Finance for Zenith Insurance
from 1997 to 1999, previously served as Vice President of Finance from 1996 to
1997 with Blue Cross of California, a subsidiary of WellPoint Health Networks,
Inc., and prior to that held various positions in Zenith Insurance culminating
in Vice President of Finance.

There are no family relationships between any of the executive officers, and
there are no arrangements or understandings pursuant to which any of them were
selected as officers.

ITEM 11. EXECUTIVE COMPENSATION.

The information set forth under the headings "Directors' Compensation,"
"Executive Compensation," "Summary Compensation Table," "Option/SAR Grants in
Last Fiscal Year," "Aggregated Option/SAR Exercises in Last Fiscal Year and
Fiscal Year-End Option/SAR Values,"

17

"Employment Agreements and Termination of Employment and Change in Control
Arrangements," "Compensation Committee Interlocks and Insider Participation" and
"Board of Directors' Report on Executive Compensation; Performance Bonus
Committee Report on Performance Based Compensation Plans for Executive Officers"
in the Proxy Statement is hereby incorporated by reference.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.

The information set forth under the caption "Security Ownership of Certain
Beneficial Owners and Management" in the Proxy Statement is hereby incorporated
by reference.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.

The information set forth in footnote 1 to the table set forth under the
caption "Election of Directors" in the Proxy Statement is hereby incorporated by
reference.

18

PART IV

ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.

(a) Documents filed as part of the report:

1. FINANCIAL STATEMENTS:

Report of Independent Accountants

Financial Statements and notes thereto incorporated by reference from
Zenith's 1999
Annual Report to Stockholders in Item 8 of Part II above:

Consolidated Financial Statements of Zenith National Insurance Corp.
and
Subsidiaries:

Consolidated Balance Sheet as of December 31, 1999 and 1998

Consolidated Statement of Operations for the year ended
December 31, 1999,
1998 and 1997

Consolidated Statement of Cash Flows for the year ended
December 31, 1999,
1998 and 1997

Consolidated Statement of Stockholders' Equity for the three
years ended
December 31, 1999

Notes to Consolidated Financial Statements

2. FINANCIAL STATEMENT SCHEDULES:

Report of Independent Accountants on Financial Statement Schedules

Zenith National Insurance Corp. and Subsidiaries:

As of December 31, 1999:

I -- Summary of Investments -- Other Than Investments in
Related Parties

For the years ended December 31, 1999, 1998 and 1997:

III -- Supplementary Insurance Information

IV -- Reinsurance

Zenith National Insurance Corp.:

As of December 31, 1999 and 1998 and for the years ended
December 31, 1999,
1998 and 1997:

II -- Condensed Financial Information of Registrant

The information on Property-Casualty Loss Development is on pages 40-41
of Zenith's 1999 Annual Report to Stockholders.

Schedules other than those listed above are omitted since they are not
applicable, not required or the information required to be set forth
therein is included in the consolidated financial statements or in the
notes thereto.

19

3. EXHIBITS

The Exhibits listed below are filed in a separate Exhibit Volume to
this Report.

2.1 Amended and Restated Agreement and Plan of Merger by and
among Zenith AGC Acquisition Insurance Company, Zenith
Insurance Company, Zenith National Insurance Corp.,
Associated General Commerce Self-Insurers' Trust Fund and
AGC Risk Management Group Inc. dated as of October 7, 1996.
(Incorporated herein by reference to Exhibit 2.1 to Zenith's
Annual Report on Form 10-K for the year ended December 31,
1996.)

2.2 Stock Acquisition Agreement, dated as of September 19, 1995,
between Anchor National Life Insurance Company and Zenith
National Insurance Corp. (Incorporated herein by reference
to Exhibit 2.1 to Zenith's Report on Form 8-K dated
October 6, 1995.)

2.3 Amendment No. 1 to Stock Acquisition Agreement dated as of
December 27, 1995, by and among Anchor National Life
Insurance Company, SunAmerica Life Insurance Company and
Zenith National Insurance Corp. (Incorporated herein by
reference to Exhibit 2.1 to Zenith's Report on Form 8-K
dated January 9, 1996.)

3.1 Certificate of Incorporation of Zenith as in effect
immediately prior to November 22, 1985. (Incorporated
herein by reference to Exhibit 3 to Zenith's Amendment on
Form 8, date of amendment October 10, 1985, to Zenith's
Current Report on Form 8-K, dated July 26, 1985.)

3.2 Certificate of Amendment to Certificate of Incorporation of
Zenith, effective November 22, 1985. (Incorporated herein by
reference to Zenith's Current Report on Form 8-K, dated
November 22, 1985.)

3.3 By-Laws of Zenith National Insurance Corp., as currently in
effect.

4.1 Indenture, dated as of May 1, 1992, between Zenith National
Insurance Corp. and Norwest Bank Minnesota, National
Association, as trustee, pursuant to which Zenith issued its
9% Senior Notes due May 1, 2002. (Incorporated herein by
reference to Exhibit 4 to Zenith's Quarterly Report on
Form 10-Q for the quarter ended March 31, 1992.)

4.2 Indenture, dated July 30, 1998, between Zenith National
Insurance Corp. and Norwest Bank Minnesota, National
Association as trustee, pursuant to which Zenith issued its
8.55% Subordinated Deferrable Interest Debentures.
(Incorporated herein by reference to Exhibit 10.6 to
Zenith's Quarterly Report on Form 10-Q for the quarter ended
September 30, 1998.)

4.3 Amended and Restated Declaration of Trust of Zenith National
Insurance Capital Trust I, dated July 30, 1998, between
Zenith National Insurance Corp., the trustees and the
holders. (Incorporated herein by reference to Exhibit 10.8
to Zenith's Quarterly Report on Form 10-Q for the quarter
ended September 30, 1998.)

10.1 Purchase Agreement, dated February 4, 1981, among Reliance
Insurance Company, Zenith National Insurance Corp., the
Selling Stockholders referred to therein, and Eugene V.
Klein, Daniel Schwartz and Harvey L. Silbert as agents for
the Selling Stockholders. (Incorporated herein by reference
to the exhibit to the Schedule 13D filed by Reliance
Financial Services Corporation on March 9, 1981 with respect
to the common stock of Zenith National Insurance Corp.)

20

10.2 Asset Purchase Agreement, dated June 17, 1997, by and among
Zenith Insurance Company and RISCORP, Inc., RISCORP
Management Services, Inc., RISCORP of Illinois, Inc.,
Independent Association Administrators Incorporated, RISCORP
Insurance Services, Inc., RISCORP Managed Care
Services, Inc., CompSource, Inc., RISCORP Real Estate
Holdings, Inc., RISCORP Acquisition, Inc., RISCORP
West, Inc., RISCORP of Florida, Inc., RISCORP Insurance
Company, RISCORP Property & Casualty Insurance Company,
RISCORP National Insurance Company, RISCORP Services, Inc.,
RISCORP Staffing Solutions Holding, Inc., RISCORP Staffing
Solutions, Inc. I and RISCORP Staffing Solutions, Inc. II.
(Incorporated herein by reference to Exhibit 10.1 to
Zenith's Current Report on Form 8-K/A, dated June 17, 1997.)

10.3 First Amendment, entered into June 26, 1997, to the Asset
Purchase Agreement, dated June 17, 1997, by and among Zenith
Insurance Company and RISCORP, Inc., RISCORP Management
Services, Inc., RISCORP of Illinois, Inc., Independent
Association Administrators Incorporated, RiSCORP Insurance
Services, Inc., RISCORP Managed Care Services, Inc.,
CompSource, Inc., RISCORP Real Estate Holdings, Inc.,
RISCORP Acquisition, Inc., RISCORP West, Inc., RISCORP of
Florida, Inc., RISCORP Insurance Company, RISCORP Property &
Casualty Insurance Company, RISCORP National Insurance
Company, RISCORP Services, Inc., RISCORP Staffing Solutions
Holding, Inc., RISCORP Staffing Solutions, Inc. I and
RISCORP Staffing Solutions, Inc. II. (Incorporated herein by
reference to Exhibit 10.2 to Zenith's Current Report on
Form 8-K, dated April 1, 1998.)

10.4 Second Amendment, entered into July 11, 1997, to the Asset
Purchase Agreement dated June 17, 1997, by and among Zenith
Insurance Company and RISCORP, Inc., RISCORP Management
Services, Inc., RISCORP of Illinois, Inc., Independent
Association Administrators Incorporated, RISCORP Insurance
Services, Inc., RISCORP Managed Care Services, Inc.,
CompSource, Inc., RISCORP Real Estate Holdings, Inc.,
RISCORP Acquisition, Inc., RISCORP West, Inc., RISCORP of
Florida, Inc., RISCORP Insurance Company, RISCORP
Property & Casualty Insurance Company, RISCORP National
Insurance Company, RISCORP Services, Inc., RISCORP Staffing
Solutions Holding, Inc., RISCORP Staffing
Solutions, Inc. I and RISCORP Staffing Solutions, Inc. II.
(Incorporated herein by reference to Exhibit 10.3 to
Zenith's Current Report on Form 8-K, dated April 1, 1998.)

10.5 Amendment No. 3 entered into March 30, 1998, to the Asset
Purchase Agreement dated June 17, 1997, by and among Zenith
Insurance Company and RISCORP, Inc., RISCORP Management
Services, Inc., 1390 Main Street Services, Inc., RISCORP of
Illinois, Inc., Independent Association Administrators
Incorporated, RISCORP Insurance Services, Inc., RISCORP
Managed Care Services, Inc., CompSource, Inc., RISCORP Real
Estate Holdings, Inc., RISCORP Acquisition, Inc., RISCORP
West, Inc., RISCORP of Florida, Inc., RISCORP Insurance
Company, RISCORP Property & Casualty Insurance Company,
RISCORP National Insurance Company, RISCORP Services, Inc.,
RISCORP Staffing Solutions Holding Company, RISCORP Staffing
Solutions, Inc. I and RISCORP Staffing Solutions, Inc. II.
(Incorporated herein by reference to Exhibit 10.4 to
Zenith's Current Report on Form 8-K, dated April 1, 1998.)

21

10.6 Settlement Agreement, dated July 7, 1999, between Zenith
Insurance Company, RISCORP, Inc., RISCORP Management
Services, Inc., 1390 Main Street Services, Inc., RISCORP of
Illinois, Inc., Independent Association Administrators
Incorporated, RISCORP Insurance Services, Inc., RISCORP
Managed Care Services, Inc., CompSource, Inc., RISCORP Real
Estate Holdings, Inc., RISCORP Acquisition, Inc., RISCORP
West, Inc., RISCORP of Florida, Inc., RISCORP Insurance
Company, RISCORP Property & Casualty Insurance Company,
RISCORP National Insurance Company, RISCORP Services, Inc.,
RISCORP Staffing Solutions Holding Company, RISCORP Staffing
Solutions, Inc., I and RISCORP Staffing Solutions, Inc., II.
(Incorporated by reference to Exhibit 10.4 to Zenith's
Quarterly Report on Form 10-Q for the quarter ended June 30,
1999).

10.7 Assumption and Indemnity Reinsurance Agreement, dated
April 1, 1998, by and between Zenith Insurance Company and
RISCORP National Insurance Company. (Incorporated herein by
reference to Exhibit 10.5 to Zenith's Current Report on
Form 8-K, date of report April 1, 1998.)

10.8 Assumption and Indemnity Reinsurance Agreement, dated
April 1, 1998, by and between Zenith Insurance Company and
RISCORP Insurance Company. (Incorporated herein by reference
to Exhibit 10.6 to Zenith's Current Report on Form 8-K,
dated April 1, 1998.)

10.9 Assumption and Indemnity Reinsurance Agreement, dated
April 1, 1998, by and between Zenith Insurance Company and
RISCORP Property & Casualty Insurance Company. (Incorporated
herein by reference to Exhibit 10.7 to Zenith's Current
Report on Form 8-K, dated April 1, 1998.)

10.10 Stock Purchase Agreement, dated February 22, 1999, between
Zenith Insurance Company and Nationwide Mutual Insurance
Company. (Incorporated herein by reference to Zenith's
Current Report on Form 8-K, dated March 9, 1999.)

*10.11 Zenith National Insurance Corp.'s Amended and Restated
Non-Qualified Stock Option Plan, adopted by Zenith's Board
of Directors on December 6, 1985. (Incorporated herein by
reference to Zenith's Registration Statement on Form S-8
(SEC File No. 33-8948).)

*10.12 Amendment No. 2 to the Zenith National Insurance Corp.
Amended and Restated Non-Qualified Stock Option Plan, dated
April 9, 1996. (Incorporated herein by reference to
Exhibit 10.4 to Zenith's Quarterly Report on Form 10-Q for
the quarter ended June 30, 1996.)

*10.13 Zenith National Insurance Corp. 1996 Employee Stock Option
Plan, approved by the Stockholders on May 22, 1996.
(Incorporated herein by reference to Exhibit 10.5 to
Zenith's Quarterly Report on Form 10-Q for the quarter ended
June 30, 1996.)

*10.14 Amendment No. 1, dated December 8, 1998, to Zenith National
Insurance Corp. 1996 Employee Stock Option Plan.
(Incorporated herein by reference to Exhibit 10.1 to
Zenith's Quarterly Report on Form 10-Q for the quarter ended
June 30, 1999).

*10.15 Employment Agreement, dated December 11, 1997, between
Zenith National Insurance Corp. and Fredricka Taubitz.
(Incorporated herein by reference to Exhibit 10.8 to
Zenith's Annual Report on Form 10-K for the year ended
December 31, 1997.)

*10.16 Employment Agreement, dated January 5, 1998, between Zenith
National Insurance Corp. and John J. Tickner. (Incorporated
herein by reference to Exhibit 10.9 to Zenith's Annual
Report on Form 10-K for the year ended December 31, 1997.)

22

*10.17 Amendment to Employment Agreement, dated March 1, 2000,
between Zenith National Insurance Corp. and John J. Tickner.

*10.18 Employment Agreement, dated December 11, 1997, between
Zenith National Insurance Corp. and Stanley R. Zax.
(Incorporated herein by reference to Exhibit 10.10 to
Zenith's Annual Report on Form 10-K for the year ended
December 31, 1997.)

*10.19 Employment Agreement, dated October 20, 1997, between Zenith
Insurance Company and Jack D. Miller. (Incorporated herein
by reference to Exhibit 10.1 to Zenith Quarterly Report on
Form 10-Q for the quarter ended June 30, 1998.)

*10.20 Amendment to Employment Agreement, dated March 1, 2000,
between Zenith Insurance Company and Jack D. Miller.

*10.21 Employment Agreement, dated October 20, 1997, between Zenith
Insurance Company and Robert E. Meyer.

*10.22 Amendment to Employment Agreement, dated March 1, 2000,
between Zenith Insurance Company and Robert E. Meyer.

*10.23 Stock Option Agreement, dated March 15, 1996, between Zenith
and Stanley R. Zax. (Incorporated herein by reference to
Exhibit 10.3 to Zenith's Quarterly Report on Form 10-Q for
the quarter ended June 30, 1996.)

*10.24 Zenith National Insurance Corp. Executive Officer Bonus
Plan, dated March 21, 1994. (Incorporated herein by
reference to Exhibit 10.12 to Zenith's Annual Report on
Form 10-K for the year ended December 31, 1996.)

10.25 Aggregate Excess of Loss Reinsurance Agreement between
Associated General Contractors Self Insurers Trust Fund (now
part of Zenith Insurance Company) and Reliance Insurance
Company effective December 31, 1991. (Incorporated herein by
reference to Exhibit 10.24 to Zenith's Annual Report on
Form 10-K for the year ended December 31, 1996.)

10.26 Specific Excess Workers' Compensation and Employers'
Liability Policy between Planet Insurance Company (now
Reliance National Indemnity Company) and Associated General
Contractors of Florida Self Insurance Fund (now part of
Zenith Insurance Company) effective January 1, 1993.
(Incorporated herein by reference to Exhibit 10.25 to
Zenith's Annual Report on Form 10-K for the year ended
December 31, 1996.)

10.27 Aggregate Excess of Loss Reinsurance Agreement, dated
August 1, 1998, between Zenith National Insurance Group and
Inter-Ocean Reinsurance Company LTD. (Incorporated herein by
reference to Exhibit 10.32 to Zenith's Annual Report on
Form 10-K for the year ended December 31, 1998.)

10.28 Special Endorsement to Retrocessional Agreement, dated
August 1, 1998, between American Re-Insurance Company,
Inter-Ocean Reinsurance Company LTD., and Zenith Insurance
Company, CalFarm Insurance Company, ZNAT Insurance Company
and Zenith Star Insurance Company.

10.29 Termination Endorsement Number 1 to Retrocessional
Agreement, dated December 22, 1999, between American
Re-Insurance Company, Inter-Ocean Reinsurance Company, LTD,
and Zenith Insurance Company, CalFarm Insurance Company,
ZNAT Insurance Company and Zenith Star Insurance Company.

10.30 Endorsement Number 1 to Aggregate Excess of Loss Reinsurance
Agreement, dated December 22, 1999, between Zenith National
Insurance Group, CalFarm Insurance Company, ZNAT Insurance
Company and Zenith Star Insurance Company and Inter-Ocean
Reinsurance Company LTD.

23

10.31 Trust Agreement, dated December 18, 1998, between
Inter-Ocean Reinsurance Company, LTD and Zenith Insurance
Company, CalFarm Insurance Company, ZNAT Insurance Company
and Zenith Star Insurance Company. (Incorporated herein by
reference to Exhibit 10.34 to Zenith's Annual Report on
Form 10-K for the year ended December 31, 1998.)

10.32 Agreement of Reinsurance #8051 between General Reinsurance
Corporation and Zenith Insurance Company, ZNAT Insurance
Company, Zenith Star Insurance Company and CalFarm Insurance
Company, dated May 22, 1995. (Incorporated herein by
reference to Exhibit 10.13 to Zenith's Annual Report on
Form 10-K for the year ended December 31, 1995.)

10.33 Workers' Compensation and Employers' Liability Reinsurance
Agreement between Zenith Insurance Company and Employers
Reinsurance Corporation, effective January 1, 1986.
(Incorporated herein by reference to Exhibit 10.14 to
Zenith's Annual Report on Form 10-K for the year ended
December 31, 1991.)

10.34 Revolving Note, dated July 1, 1997, from Zenith National
Insurance Corp. to City National Bank. (Incorporated herein
by reference to Exhibit 10.2 to Zenith's Quarterly Report on
Form 10-Q for the quarter ended June 30, 1997.)

10.35 Modification of Note, dated October 10, 1997, modifying the
original Revolving Note dated July 1, 1997 between Zenith
National Insurance Corp. and City National Bank.
(Incorporated herein by reference to Exhibit 10.5 to
Zenith's Quarterly Report on Form 10-Q for the quarter ended
September 30, 1997.)

10.36 Loan Revision Agreement, dated June 30, 1999, to the
promissory note, dated July 1, 1997, between Zenith National
Insurance Corp. and City National Bank. (Incorporated herein
by reference to Exhibit 10.2 to Zenith's Quarterly Report on
Form 10-Q for the quarter ended June 30, 1999).

10.37 Credit Agreement, dated July 24, 1997, between Zenith
National Insurance Corp. and Bank of America National Trust
and Savings Association, together with Tranche A and
Tranche B Promissory Notes referenced therein. (Incorporated
herein by reference to Exhibit 10.3 to Zenith's Quarterly
Report on Form 10-Q for the quarter ended June 30, 1997.)

10.38 Restated Tranche A Note, dated July 22, 1999 between Zenith
National Insurance Corp. and Bank of America National Trust
and Savings Association. (Incorporated herein by reference
to Exhibit 10.3 to Zenith's Quarterly Report on Form 10-Q
for the quarter ended September 30, 1999.)

10.39 Amendment No. 1, dated January 21, 1998, to the Credit
Agreement, dated July 24, 1997, between Zenith National
Insurance Corp. and Bank of America National Trust and
Savings Association. (Incorporated herein by reference to
Exhibit 10.31 to Zenith's Annual Report on Form 10-K for the
year ended December 31, 1997).

10.40 Second Amendment, dated July 23, 1998, to the Credit
Agreement, dated July 24, 1997, between Zenith National
Insurance Corp. and Bank of America National Trust and
Savings Association. (Incorporated herein by reference to
Exhibit 10.2 to Zenith's Quarterly Report on Form 10-Q for
the quarter ended September 30, 1998.)

10.41 Third Amendment, dated August 21, 1998, to the Credit
Agreement, dated July 24, 1997, between Zenith National
Insurance Corp. and Bank of America National Trust and
Savings Association. (Incorporated herein by reference to
Exhibit 10.4 to Zenith's Quarterly Report on Form 10-Q for
the quarter ended September 30, 1998.)

24

10.42 Fourth Amendment to Credit Agreement, dated July 22, 1999,
between Zenith National Insurance Corp. and Bank of America
National Trust and Savings Association. (Incorporated herein
by reference to Exhibit 10.1 to Zenith's Quarterly Report on
Form 10-Q for the quarter ended September 30, 1999).

10.43 Fifth Amendment to Credit Agreement, dated August 9, 1999,
between Zenith National Insurance Corp. and Bank of America
National Trust and Savings Association. (Incorporated herein
by reference to Exhibit 10.2 to Zenith's Quarterly Report on
Form 10-Q for the quarter ended September 30, 1999.)

10.44 Capital Securities Guarantee Agreement, dated July 30, 1998,
between Zenith National Insurance Corp. and Norwest Bank
Minnesota, National Association. (Incorporated herein by
reference to Exhibit 10.7 to Zenith's Quarterly Report on
Form 10-Q for the quarter ended September 30, 1998.)

10.45 Purchase Agreement between Zenith National Insurance Corp.,
Zenith National Insurance Capital Trust I, Credit Suisse
First Boston Corporation, BancAmerica Robertson Stephens and
Donaldson, Lufkin & Jenrette Securities Corporation, dated
July 27, 1998, for $75,000,000 Zenith National Insurance
Capital Trust I 8.55% Capital Securities. (Incorporated
herein by reference to Exhibit 10.9 to Zenith's Quarterly
Report on Form 10-Q for the quarter ended September 30,
1998.)

10.46 Standstill Agreement, dated June 30, 1999, between Zenith
National Corp. and Fairfax Financial Holdings Limited.
(Incorporated herein by reference to Exhibit 10.3 to
Zenith's Quarterly Report on Form 10-Q for the quarter ended
June 30, 1999.)

11 Statements re computation of per share earnings.
(Incorporated herein by reference to Notes to Consolidated
Financial Statements -- Note 17 -- "Earnings and Dividends
Per Share" on page 63 of Zenith's 1999 Annual Report to
Stockholders.)

13 Zenith's Annual Report to Stockholders for the year ended
December 31, 1999, but only to the extent such report is
expressly incorporated by reference herein, and such report
is not otherwise to be deemed "filed" as a part of this
Annual Report on Form 10-K.

23 Consent of PricewaterhouseCoopers LLP, dated March 27, 2000.
(Incorporated herein by reference to page F-1 of this Annual
Report on Form 10-K.)

27 Financial Data Schedule for year ended December 31, 1999.

- --------------------------

*Management contract or compensatory plan or arrangement

(b) Reports on Form 8-K
Zenith filed a Current Report on Form 8-K, dated February 25, 2000, in
connection with the repurchase of $12.5 million aggregate principal
amount of its 9% Senior Notes due 2002 and $8.0 million aggregate
liquidation amount of 8.55% Capital Securities due 2028.

25

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized, on March 27, 2000.

ZENITH NATIONAL INSURANCE CORP.

By: /s/ STANLEY R. ZAX
-----------------------------------------
Stanley R. Zax
Chairman of the Board and President

Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities indicated, on March 27, 2000.

/s/ STANLEY R. ZAX
--------------------------------------------- Chairman of the Board, President and
Stanley R. Zax Director (Principal Executive Officer)

/s/ MAX M. KAMPELMAN
--------------------------------------------- Director
Max M. Kampelman

/s/ MICHAEL WM. ZAVIS
--------------------------------------------- Director
Michael Wm. Zavis

/s/ WILLIAM S. SESSIONS
--------------------------------------------- Director
William S. Sessions

--------------------------------------------- Director
Harvey L. Silbert

/s/ GERALD TSAI, JR.
--------------------------------------------- Director
Gerald Tsai, Jr.

/s/ ROBERT J. MILLER
--------------------------------------------- Director
Robert J. Miller

/s/ WILLIAM J. OWEN Senior Vice President and Chief Financial
--------------------------------------------- Officer (Principal Financial and Accounting
William J. Owen Officer)

26

CONSENT OF INDEPENDENT ACCOUNTANTS

We consent to the incorporation by reference in the Registration Statements on
Form S-8 (File Nos. 33-8948, 33-22219, 333-04399 and 333-42751) of our report
dated February 10, 2000 on our audits of the consolidated financial statements
and financial statement schedules of Zenith National Insurance Corp. and
subsidiaries as of December 31, 1999 and 1998, and for each of the three years
in the period ended December 31, 1999, which is included in this Annual Report
on Form 10-K.

PricewaterhouseCoopers LLP

Los Angeles, California

March 27, 2000

F-1

REPORT OF INDEPENDENT ACCOUNTANTS ON
FINANCIAL STATEMENT SCHEDULES

To the Board of Directors of
Zenith National Insurance Corp.:

Our audits of the consolidated financial statements referred to in our report
dated February 10, 2000 appearing on page 66 of the 1999 Annual Report to
Stockholders of Zenith National Insurance Corp. (which report and consolidated
financial statements are incorporated by reference in this Annual Report on
Form 10-K) also included an audit of the financial statement schedules listed in
Item 14(a)(2) of this Form 10-K. In our opinion, these financial statement
schedules present fairly, in all material respects, the information set forth
therein when read in conjunction with the related consolidated financial
statements.

PricewaterhouseCoopers LLP

Los Angeles, California

February 10, 2000

F-2

SCHEDULE I -- SUMMARY OF INVESTMENTS --

OTHER THAN INVESTMENTS IN RELATED PARTIES

ZENITH NATIONAL INSURANCE CORP. AND SUBSIDIARIES

DECEMBER 31, 1999

COLUMN A COLUMN B COLUMN C COLUMN D
-------- -------- -------- --------
AMOUNT AT WHICH
FAIR SHOWN IN THE
TYPE OF INVESTMENT COST(1) VALUE BALANCE SHEET(2)
------------------ ---------- ---------- ----------------
(DOLLARS IN THOUSANDS)

Fixed maturities:
Bonds:
United States Government and government agencies
and authorities............................... $ 213,149 $ 210,942 $ 211,155
Public utilities................................ 35,062 34,623 34,623
Industrial and miscellaneous.................... 422,565 396,594 396,721
Redeemable preferred stocks....................... 13,879 12,402 12,402
---------- ---------- ----------
Total fixed maturities...................... 684,655 654,561 654,901
Equity securities:
Floating rate preferred stocks.................... 6,799 6,420 6,420
Convertible and nonredeemable preferred stocks.... 4,300 3,405 3,405
Common stocks, industrial......................... 25,428 25,634 25,634
---------- ---------- ----------
Total equity securities..................... 36,527 35,459 35,459
Short-term investments.............................. 179,748 179,748 179,748
Other investments................................... 31,626 31,626 31,626
---------- ---------- ----------
Total investments........................... $ 932,556 $ 901,394 $ 901,734
========== ========== ==========

- ------------------------

(1) Original cost for equity securities. Original cost reduced by repayments and
adjusted for amortization of premiums or accrual of discounts for fixed
maturities.

(2) Amount at which shown in the balance sheet may differ from Cost or Fair
Value for fixed maturities depending on the classification of the underlying
securities in accordance with Statement of Financial Accounting Standards
No. 115 -- "Accounting for Investments in Certain Debt and Equity
Securities."

F-3

SCHEDULE II -- CONDENSED FINANCIAL INFORMATION OF REGISTRANT
ZENITH NATIONAL INSURANCE CORP.
BALANCE SHEET
ASSETS

DECEMBER 31,
---------------------
1999 1998
(DOLLARS AND SHARES IN THOUSANDS) --------- ---------

Investments:
Common stocks, at fair value (cost $1,430 in 1999 and $606
in 1998)................................................ $ 1,464 $ 968
Short-term investments (at cost, which approximates fair
value).................................................. 96,033 5,543
Other investments......................................... 4,736
--------- ---------
Total investments........................................... 97,497 11,247
Cash........................................................ 148
Investment in subsidiaries (Note A)......................... 347,372 447,311
Receivable from subsidiaries (Note A)....................... 56,747 43,919
Other assets................................................ 16,560 12,115
--------- ---------
Total assets........................................ $ 518,176 $ 514,740
========= =========

LIABILITIES
Payable to banks............................................ $ 5,000
Senior notes payable, less unamortized issue cost of $283 in
1999 and $404 in 1998 (Note B)............................ $ 74,717 74,596
8.55% Subordinated Deferrable Interest Debentures, less
unamortized issue cost of $269 in 1999 and $278 in 1998
(Note C).................................................. 77,051 77,042
Cash dividends payable to stockholders...................... 4,287 4,338
Federal income tax payable (Note A)......................... 1,192 583
Other liabilities........................................... 6,370 6,229
--------- ---------
Total liabilities................................... 163,617 167,788
--------- ---------

STOCKHOLDERS' EQUITY
Preferred stock, $1 par--shares authorized 1,000; issued and
outstanding, none in 1999 and 1998........................
Common stock, $1 par--shares authorized 50,000; issued
25,157, outstanding 17,150 in 1999; issued 24,970,
outstanding 17,148 in 1998................................ 25,157 24,970
Additional paid-in capital.................................. 274,897 270,679
Retained earnings........................................... 225,229 188,243
Accumulated other comprehensive (loss) income--net
unrealized (depreciation) appreciation on investments, net
of deferred tax (benefit) expense of $(10,768) in 1999 and
$5,167 in 1998............................................ (19,998) 9,596
--------- ---------
505,285 493,488
Less treasury stock at cost (8,007 shares in 1999 and 7,822
shares in 1998)........................................... (150,726) (146,536)
--------- ---------
Total stockholders' equity.......................... 354,559 346,952
--------- ---------
Total liabilities and stockholders' equity.......... $ 518,176 $ 514,740
========= =========

See notes to condensed financial information.

F-4

SCHEDULE II--CONDENSED FINANCIAL INFORMATION OF REGISTRANT
ZENITH NATIONAL INSURANCE CORP.
STATEMENT OF OPERATIONS

FOR THE YEAR ENDED DECEMBER 31,
----------------------------------
1999 1998 1997
(DOLLARS IN THOUSANDS) ---------- --------- ---------

Net investment income (expense)............................. $ 2,520 $ (801) $ 1,196
Realized gains (losses) on investments...................... 828 22 (446)
-------- -------- -------
Total revenue............................................... 3,348 (779) 750
-------- -------- -------
Operating expense........................................... 4,155 3,835 3,557
Interest expense............................................ 8,416 6,011 3,980
-------- -------- -------
Total expenses.............................................. 12,571 9,846 7,537
Loss before federal income tax benefit and equity in income
of subsidiaries........................................... (9,223) (10,625) (6,787)
Federal income tax benefit.................................. 3,175 3,496 2,097
-------- -------- -------
Loss before equity in income of subsidiaries................ (6,048) (7,129) (4,690)
Equity in income of subsidiaries (Note A)................... 60,148 26,229 32,790
-------- -------- -------
Net income.................................................. $ 54,100 $ 19,100 $28,100
======== ======== =======

See notes to condensed financial information.

F-5

SCHEDULE II--CONDENSED FINANCIAL INFORMATION OF REGISTRANT
ZENITH NATIONAL INSURANCE CORP.
STATEMENT OF CASH FLOWS

FOR THE YEAR ENDED DECEMBER 31,
----------------------------------
1999 1998 1997
(DOLLARS IN THOUSANDS) ---------- --------- ---------

CASH FLOWS FROM OPERATING ACTIVITIES:
Investment income received................................ $ 1,372 $ 445 $ 903
Operating expenses paid................................... (3,808) (4,587) (1,465)
Interest paid............................................. (10,017) (5,468) (3,648)
Income tax recovered...................................... 3,974 4,563 2,505
--------- -------- --------
Net cash used in operating activities................... (8,479) (5,047) (1,705)
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of investments:
Equity securities available-for-sale.................... (10,315) (4,652) (19)
Other debt and equity securities and other
investments........................................... 4,793
Proceeds from sales of investments:
Equity securities available-for-sale.................... 9,412 11,631
Other investments....................................... 5,675 5,423
Net change in short-term investments...................... (89,146) 33,457 (8,274)
Capital expenditures and other, net....................... (5,271) (1,408) (10,545)
--------- -------- --------
Net cash (used in) provided by investing activities..... (89,645) 32,190 (1,784)
CASH FLOWS FROM FINANCING ACTIVITIES:
Cash advanced from bank line of credit.................... 7,400 7,000
Cash repaid on bank line of credit........................ (12,400) (2,000)
Cash dividends paid to common stockholders................ (17,165) (17,010) (17,695)
Net proceeds from issuance of subordinated debt (Note
C)...................................................... 77,038
Proceeds from exercise of stock options................... 4,322 6,527 4,940
Purchase of treasury shares............................... (4,190) (24,023) (482)
Dividends received from subsidiaries (Note A)............. 130,000 22,750
Capital contribution to Zenith Insurance (Note C)......... (65,000)
Net cash to subsidiary (Note A)........................... (9,991) (10,257) (6,757)
--------- -------- --------
Net cash provided by (used in) financing activities..... 97,976 (27,725) 2,756
Net decrease in cash........................................ (148) (582) (733)
Cash at beginning of year................................... 148 730 1,463
--------- -------- --------
Cash at end of year......................................... $ $ 148 $ 730
========= ======== ========
RECONCILIATION OF NET INCOME TO NET CASH FLOWS FROM
OPERATING ACTIVITIES:
Net income................................................ $ 54,100 $ 19,100 $ 28,100
Income from subsidiaries (Note A)......................... (60,148) (26,229) (32,790)
Other..................................................... (2,431) 2,082 2,985
--------- -------- --------
Net cash used in operating activities................... $ (8,479) $ (5,047) $ (1,705)
========= ======== ========

See notes to condensed financial information.

F-6

SCHEDULE II -- CONDENSED FINANCIAL INFORMATION OF REGISTRANT
ZENITH NATIONAL INSURANCE CORP.
NOTES TO CONDENSED FINANCIAL INFORMATION

The accompanying condensed financial statements and the related notes should
be read in conjunction with the consolidated financial statements and notes
thereto of Zenith National Insurance Corp. ("Zenith National") and subsidiaries.
Certain 1998 amounts have been restated to conform to the 1999 presentation.

A. Investment In Subsidiaries

Zenith National owns, directly or indirectly, 100% of the outstanding
stock of Zenith Insurance Company ("Zenith Insurance"); CalFarm Insurance
Company (through March 31, 1999, the date of its sale to Nationwide Mutual
Insurance Company); ZNAT Insurance Company; Zenith Star Insurance Company;
Perma-Bilt, A Nevada Corporation ("Perma-Bilt"); Zenith Development Corp.
("ZDC"); and Zenith National Insurance Capital Trust I (the "Trust"). These
investments are included in the financial statements on the equity basis of
accounting. Temporary advances in the ordinary course of business are
included in other assets. Included in investment in subsidiaries is $2.0
million of the unamortized excess of cost over underlying net tangible
assets of companies acquired prior to 1970, which is considered to have
continuing value.

Zenith National partially funds the cash flow requirements of its Real
Estate Operations. Intercompany interest charges to such subsidiaries reduce
Zenith National's interest expense. The receivable from subsidiaries mainly
comprises principal and capitalized interest on loans to Perma-Bilt and ZDC
of $56.8 million and $45.0 million in 1999 and 1998, respectively.

Zenith National files a consolidated federal income tax return. The
equity in the income of subsidiaries is net of a provision for federal
income tax expense of $32.2 million in 1999, $13.2 million in 1998 and
$17.5 million in 1997. Zenith has formulated tax allocation procedures with
its subsidiaries and the 1999, 1998 and 1997 condensed financial information
reflect Zenith's portion of the consolidated tax.

Zenith Insurance paid $130.0 million of dividends to Zenith National in
1999 including a dividend of $100.0 million for which prior approval was
obtained from the California Department of Insurance. Zenith Insurance paid
no dividends to Zenith National in 1998 and paid dividends to Zenith
National of $22.8 million in 1997.

B. Senior Notes Payable

Zenith National had $75.0 million of its 9% Senior Notes due 2002 (the
"9% Notes") issued and outstanding as of December 31, 1999 and 1998.
Interest on the 9% Notes is payable semi-annually. The 9% Notes are general
unsecured obligations of Zenith National. Issue costs of $1.2 million are
being amortized over the term of the 9% Notes. In each of the three years
ended December 31, 1999, 1998 and 1997, $6.9 million of interest and issue
costs were expended.

C. Subordinated Debentures

On July 30, 1998, Zenith National sold $77.3 million of 8.55%
Subordinated Deferrable Interest Debentures due 2028 (the "Subordinated
Debentures") to the Zenith National Insurance Capital Trust 1 (the "Trust").
The semi-annual interest payments on the Subordinated Debentures may be
deferred by Zenith National for up to ten consecutive semi-annual periods.
The Subordinated Debentures are redeemable at any time by Zenith at the then
present value of the remaining scheduled payments of principal and interest.
In 1998 Zenith used $65.0 million from the net proceeds to make a capital
contribution to Zenith Insurance and used $2.3 million to acquire all of the
issued voting stock of the Trust. The remaining net proceeds were used for
general corporate purposes. The issue cost on the Subordinated Debentures of
$0.3 million is being amortized over the term of the Subordinated
Debentures. During 1999 and 1998, $6.7 million and $2.7 million,
respectively, of interest and issue cost were expensed.

F-7

Zenith National's guarantee of the Subordinated Debentures is
subordinated to all other indebtedness of Zenith National.

D. Subsequent Event (unaudited)

On February 25, 2000, Zenith National paid $18.8 million to repurchase
$12.5 million aggregate principal amount of the outstanding 9% Notes and
$8.0 million aggregate liquidation amount of the outstanding 8.55% Capital
Securities of the Zenith National Insurance Capital Trust I, a Delaware
statutory business trust, all of the voting securities of which are owned by
Zenith National. Zenith National used its available cash balances to fund
these purchases.

F-8

SCHEDULE III -- SUPPLEMENTARY INSURANCE INFORMATION
ZENITH NATIONAL INSURANCE CORP. AND SUBSIDIARIES

COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E COLUMN F COLUMN G COLUMN H
-------- ----------- -------------- --------- ------------ --------- ---------- ----------
FUTURE POLICY BENEFITS,
DEFERRED BENEFITS, OTHER POLICY CLAIMS,
POLICY LOSSES, CLAIMS CLAIMS AND NET LOSSES AND
ACQUISITION AND LOSS UNEARNED BENEFITS PREMIUM INVESTMENT SETTLEMENT
SEGMENT COSTS EXPENSES PREMIUMS PAYABLE REVENUE INCOME EXPENSES
------- ----------- -------------- --------- ------------ --------- ---------- ----------

(DOLLARS IN THOUSANDS)
1999
- ----
Property and Casualty
Workers' Compensation......... $ 6,633 $516,941 $ 42,630 $278,854 $285,864
Other Property-Casualty....... 54,108 36,029
Reinsurance................... 1,259 88,309 7,496 36,441 38,279
------- -------- -------- ------- -------- ------- --------
7,892 605,250 50,126 369,403 360,172
Reinsurance ceded............... 275,679 780
Investment...................... $53,662
Parent..........................
------- -------- -------- ------- -------- ------- --------
Total......................... $ 7,892 $880,929 $ 50,906 $ $369,403 $53,662 $360,172
======= ======== ======== ======= ======== ======= ========
1998
- ----
Property and Casualty
Workers' Compensation......... $ 6,157 $524,183 $ 48,363 $278,660 $220,983
Other Property-Casualty....... 16,432 110,855 89,202 222,045 148,712
Reinsurance................... 1,352 73,646 8,005 29,150 13,195
------- -------- -------- ------- -------- ------- --------
23,941 708,684 145,570 529,855 382,890
Reinsurance ceded............... 288,963 12,395
Investment...................... $53,593
Parent..........................
------- -------- -------- ------- -------- ------- --------
Total......................... $23,941 $997,647 $157,965 $ $529,855 $53,593 $382,890
======= ======== ======== ======= ======== ======= ========
1997
- ----
Property and Casualty
Workers' Compensation......... $ 4,034 $339,215 $ 25,230 $242,064 $197,450
Other Property-Casualty....... 15,575 109,003 89,093 214,406 139,832
Reinsurance................... 1,231 77,383 7,299 32,251 10,883
------- -------- -------- ------- -------- ------- --------
20,840 525,601 121,622 488,721 348,165
Reinsurance ceded............... 87,665 6,847
Investment...................... $52,332
Parent..........................
------- -------- -------- ------- -------- ------- --------
Total......................... $20,840 $613,266 $128,469 $ $488,721 $52,332 $348,165
======= ======== ======== ======= ======== ======= ========

COLUMN A COLUMN I COLUMN J COLUMN K
-------- ------------ --------- ---------

AMORTIZATION
OF POLICY OTHER
ACQUISITION OPERATING PREMIUMS
SEGMENT COSTS EXPENSES WRITTEN
------- ------------ --------- ---------

(DOLLARS IN THOUSANDS)
1999
- ----
Property and Casualty
Workers' Compensation......... $47,502 $68,031 $272,326
Other Property-Casualty....... 12,764 5,337 49,976
Reinsurance................... 5,000 486 35,930
------- ------- --------
65,266 73,854 358,232
Reinsurance ceded...............
Investment......................
Parent.......................... 6,236
------- ------- --------
Total......................... $65,266 $80,090 $358,232
======= ======= ========
1998
- ----
Property and Casualty
Workers' Compensation......... $43,182 $60,608 $277,191
Other Property-Casualty....... 49,028 19,896 215,452
Reinsurance................... 4,727 960 29,856
------- ------- --------
96,937 81,464 522,499
Reinsurance ceded...............
Investment......................
Parent.......................... 3,835
------- ------- --------
Total......................... $96,937 $85,299 $522,499
======= ======= ========
1997
- ----
Property and Casualty
Workers' Compensation......... $41,225 $40,188 $238,963
Other Property-Casualty....... 44,514 23,551 218,370
Reinsurance................... 6,474 707 29,780
------- ------- --------
92,213 64,446 487,113
Reinsurance ceded...............
Investment......................
Parent.......................... 3,557
------- ------- --------
Total......................... $92,213 $68,003 $487,113
======= ======= ========

F-9

SCHEDULE IV -- REINSURANCE
ZENITH NATIONAL INSURANCE CORP. AND SUBSIDIARIES

COLUMN F
COLUMN C COLUMN D --------
COLUMN B -------- -------- COLUMN E PERCENTAGE
-------- CEDED TO ASSUMED -------- OF AMOUNT
COLUMN A GROSS OTHER FROM OTHER NET ASSUMED
- -------- AMOUNT COMPANIES COMPANIES AMOUNT TO NET
(DOLLARS IN THOUSANDS) -------- --------- ---------- -------- ----------

DECEMBER 31, 1999
Premiums earned............................................. $345,085 $16,349 $40,667 $369,403 11.0%

DECEMBER 31, 1998
Premiums earned............................................. $545,573 $54,487 $38,769 $529,855 7.3%

DECEMBER 31, 1997
Premiums earned............................................. $477,527 $26,191 $37,385 $488,721 7.6%

F-10