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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, 2000
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 National Insurance Corp. on March 22, 2001 was
$230,040,000 (based on the closing sale price of such stock on such date).
At March 22, 2001, there were 17,492,000 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, 2000 -- Part I and Part II.
(2) Portions of the Proxy Statement in connection with the 2001 Annual
Meeting of Stockholders -- Part III.
Total number of pages 37
Exhibit index located on pages 17-24
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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"), 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
conduct 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 its
wholly-owned subsidiary, CalFarm Insurance Company ("CalFarm"), for
$273.0 million in cash to Nationwide Mutual Insurance Company.
The 2000 edition of Best's Key Rating Guide ("Best's") assigns the P&C
Operations ratings of A (Excellent). Moody's Investors Service ("Moody's") has
assigned insurance financial strength ratings of Baa1 (Adequate) to the P&C
Operations. Standard & Poor's ("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, 2000, Zenith had approximately 1,100 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 net incurred losses, loss adjustment
expenses, underwriting 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 estimated 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.
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DESCRIPTION OF THE BUSINESS
Zenith classifies its business into the following segments: Workers'
Compensation, Reinsurance, Other Property-Casualty (through March 31, 1999, the
date of the sale of CalFarm) Real Estate, Investment and Parent. Segments are
designated based on the types of products and services provided. The P&C
Operations comprise the Workers' Compensation, Reinsurance and Other
Property-Casualty (through March 31, 1999) Operations. Zenith's business
segments are also described in Notes to Consolidated Financial Statements --
Note 20 --"Segment Information" on pages 63-64 of Zenith's 2000 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 policy issued by the Workers'
Compensation 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.
Generally, premiums for workers' compensation insurance policies are a
function of: the applicable premium rate, which varies with the nature of the
employees duties and the business of the employer; 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. Except in Florida,
where minimum rates for workers' compensation insurance are set by the
Department of Insurance, Zenith's rates for workers' compensation are
actuarially determined in each state in which it does business. Rates are
continually reviewed for adequacy using actuarial analysis of current and
anticipated trends in costs. Competition, based on price, in the national
workers' compensation insurance industry is intense, even in Florida where
dividend plans and retrospectively rated policies form the basis for
competition.
In addition to seeking adequate pricing, Zenith's long-term strategy in the
national workers' compensation industry is to provide value-added services that,
over the long run, reduce its policyholders' net workers compensation costs.
Loss prevention services focus on work place safety and accident and illness
prevention. Claims management services include return to work programs, nurse
case management for serious injuries and management of medical provider services
and billings. Investigation and legal services help policyholders to prevent
fraud and assist them to favorably resolve litigated claims.
During 2000, the P&C Operations wrote workers' compensation insurance in
43 states. Prior to 1992, Zenith's Workers' Compensation Operations were
concentrated principally in California. Such Workers' Compensation Operations
expanded to Texas in 1992 with other states following shortly thereafter.
Florida operations commenced with the acquisition of the Associated General
Contractors' Self-Insurance Fund on December 31, 1996. On April 1, 1998, the
RISCORP Acquisition added additional business in Florida and other states in the
Southeast, principally in
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North Carolina and Alabama. Net premiums earned for the year ended December 31,
2000 by state are set forth in the table below:
(DOLLARS IN THOUSANDS) 2000 %
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California.................................................. $137,497 45.7%
Florida..................................................... 84,696 28.2
Texas....................................................... 16,990 5.6
North Carolina.............................................. 16,762 5.6
Pennsylvania................................................ 6,348 2.1
Illinois.................................................... 6,211 2.1
Arkansas.................................................... 5,066 1.7
Alabama..................................................... 4,229 1.4
Other....................................................... 23,034 7.6
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Net Premiums Earned......................................... $300,833 100.0%
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In the three years ended December 31, 2000, intense competition and
inadequate premium rates adversely affected the national workers' compensation
industry. Industry data indicates a national trend of increasing claims
severity, and premium rates have not kept pace with the trend of increasing
severity. Industry organizations such as the National Council on Compensation
Insurance, Inc. and the California Workers' Compensation Insurance Rating Bureau
have reported that their analyses of the data show that the liabilities for
unpaid loss and loss adjustment expenses as estimated and reported by the
industry are significantly inadequate. The estimated accident year combined
ratio in 1999 was about 135% for the national workers' compensation industry and
about 156% for the California workers' compensation industry, including a 1999
accident year loss ratio of about 118%.
Zenith's inforce Workers' Compensation premiums decreased consistently in
the several years ended December 31, 1999 as a result of Zenith's endeavors
during that period to maintain rate adequacy in the face of intense competition
in the national workers' compensation insurance industry. In the year ended
December 31, 2000, competitive pricing conditions improved somewhat in
California and Zenith increased its inforce premiums in California by about 50%
at December 31, 2000 compared to December 31, 1999. Outside of California, where
competition and pricing are improving only moderately and only in certain
states, Zenith's inforce premiums increased by about 11% at December 31, 2000
compared to December 31, 1999. In January 2001, Zenith continued to increase its
inforce premiums in California and other selected states.
Zenith continually monitors loss development trends and data to establish
adequate premium rates and loss reserves. Zenith increased its Workers'
Compensation premium rates in California by about 8% effective January 1, 2000
and by about 9% effective September 1, 2000. Rates were increased again in
California by about 8% effective January 1, 2001 and Zenith implemented other
rate increases in most of the states in which it does business. Minimum rates in
Florida, which are set by the Department of Insurance, were unchanged at
January 1, 2001.
Zenith expects that the profitability of its Workers' Compensation
Operations will be dependent upon general levels of competition, industry
pricing and management's ability to estimate the impact of claim frequency and
severity trends on the adequacy of loss reserves and premium rates. Zenith is
unable to predict when its Workers' Compensation Operations will return to
underwriting profitability, although it anticipates improvement in the short run
with increases in volume and prices.
REINSURANCE
The Reinsurance Operations principally consist of world-wide, assumed
reinsurance of property losses from catastrophes and large property risks.
Treaties come in a variety of forms, but the
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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. The Reinsurance Operations participate 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. 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.
Results of the Reinsurance Operations may be adversely impacted in years
when large catastrophes occur. However, since its inception in 1985, the
combined ratio of the Reinsurance Operations through December 31, 2000 was
97.4%. In the three years ended December 31, 2000, the Reinsurance Operations
were adversely impacted by catastrophe losses. Catastrophe losses were $22.6
million, $18.9 million and $11.5 million before tax in 2000, 1999 and 1998,
respectively. Catastrophe losses in 2000 were attributable to additional
estimates of the impact of the events in 1999, but there do not appear to have
been any major catastrophes in 2000. There were frequent catastrophes of a
moderate size culminating in severe storms in Europe at the end of 1999.
Catastrophes in 1998 were attributable principally to a single large event --
Hurricane Georges. Estimates of the impact of catastrophes on the Reinsurance
Operations are based on the information that is currently available and such
estimates could change based on new information that becomes available or based
upon reinterpretation of existing information.
OTHER PROPERTY-CASUALTY
The Other Property-Casualty Operations offered automobile, farmowners,
commercial coverages, group health and homeowners coverage, primarily in
California, and were operated by CalFarm through March 31, 1999, the effective
date of its sale. For the 14 years that Zenith owned CalFarm, the average
combined ratio of the Other Property-Casualty Operations was 100.1%. The gain on
the sale of CalFarm after tax was $104.3 million.
REAL ESTATE OPERATIONS
The Real Estate Operations develop land and primarily construct
single-family residences in Las Vegas, Nevada. Total revenues recognized in the
Real Estate Operations in 2000 were $84.5 million and pre-tax income was $5.5
million. Land presently owned at a cost of $34.0 million will support the
construction of an estimated 1,300 homes over the next several years. Changes in
interest rates and 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
The Investment operations provide 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.
At December 31, 2000, Zenith's consolidated investment portfolio emphasized
high quality, taxable bonds and short-term investments, supplemented by smaller
portfolios of redeemable and
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other preferred and common stocks. Bonds constituted 68% and short-term
investments constituted 19% of the carrying value of Zenith's consolidated
investment portfolio at December 31, 2000. Bonds with an investment grade rating
represented 94% of the consolidated carrying values of bonds at December 31,
2000. The average life of the consolidated portfolio was 5.1 years at
December 31, 2000.
Zenith has identified certain securities, amounting to 96% of the
investments in debt securities at December 31, 2000, as "available-for-sale."
Stockholders' equity increased by $9.6 million after deferred tax from
December 31, 1999 to December 31, 2000 as a result of changes in the fair values
of such investments. Stockholders' equity will fluctuate with any changes in the
fair values of "available-for-sale" securities.
PARENT
The Parent operations represent Zenith National, a holding company which
owns, directly or indirectly, all of the capital stock of the P&C Operations,
non-insurance companies and securities. Parent expenses in 2000 include
$1.8 million before tax of severance costs associated with the termination
provisions of an employment contract of a company officer.
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 Zenith's 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. Zenith continually monitors loss development trends and data to
establish adequate premium rates and loss reserves. 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 2000 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 6 -- "Loss and Loss Adjustment Expense
Reserves" on page 55 of Zenith's 2000 Annual Report to Stockholders, which is
hereby incorporated by reference. These tables show the development of loss and
loss adjustment expense liabilities as originally estimated under generally
accepted accounting principles ("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 49-50 of Zenith's
2000 Annual Report to Stockholders, which note is hereby incorporated by
reference. The one year loss and loss adjustment expense reserve development for
the P&C Operations is set forth in the table in the Management's Discussion and
Analysis of Consolidated Financial Condition and Results of Operations on page
28 of Zenith's 2000 Annual Report to Stockholders, which table is hereby
incorporated by reference.
WORKERS' COMPENSATION
Zenith expects that, on the average, its Workers' Compensation reserves will
be paid within approximately 2 years. Zenith regards the timely settlement of
its Workers' Compensation claims as important to its profitability and makes use
of compromises and releases, where possible, for claim settlements to expedite
this process. Zenith maintains four regional offices in California and offices
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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 to detail claims payment
histories and policy loss experience reports.
In 2000, as part of its ongoing monitoring of loss development trends and
data, Zenith increased its estimate of losses for the 1999 accident year by
about $8.0 million. In October of 1999, Zenith completed a review of the
liabilities for unpaid losses and loss adjustment expenses 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 approximately $46.0 million before tax in the
estimated net liabilities for unpaid losses and loss adjustment expenses
acquired from RISCORP. For a full description of the "RISCORP Purchase
Adjustment" in 1999, see Notes to Consolidated Financial Statements -- Note 14
- --"RISCORP Acquisition and the RISCORP Purchase Adjustment" on pages 58-59 of
Zenith's 2000 Annual Report to Stockholders, which note is hereby incorporated
by reference.
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 Insurance 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, 2000,
the receivable from the Fund was $31.1 million related to pre-January 1, 1998
claims.
REINSURANCE
Zenith expects that, on the average, its Reinsurance reserves related to its
casualty business will be paid in approximately 4 years and reserves related to
its property business will be paid within approximately 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 Reinsurance Operations were adversely impacted by
$22.6 million, $18.9 million and $4.5 million of catastrophe losses before tax
in 2000, 1999 and 1998. Catastrophe losses in 2000 were attributable to
additional estimates of the impact of the events in 1999, but there do not
appear to have been any major catastrophes in 2000. There were frequent
catastrophes of a moderate size culminating in severe storms in Europe at the
end of 1999. Catastrophes in 1998 were attributable principally to a single
large event -- Hurricane Georges. Estimates of the impact of catastrophes on the
Reinsurance Operations are based on the information that is currently available
and such estimates could change based on new information that becomes available
or based upon reinterpretation of existing information.
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,
CalFarm sustained catastrophe losses before tax of $5.0 million in conjunction
with California wind and storm damage.
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
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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 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 and exclusions are applied and determined, 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 workers' compensation-
related 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 Operations but the business
reinsured by Zenith in its Reinsurance Operations contains exclusion clauses for
environmental and asbestos losses. CalFarm (through March 31, 1999) wrote
liability coverage under farmowners' and small commercial policies, however, 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. All claims
for damages resulting from 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, principally from large United States reinsurance companies, excess of
loss reinsurance to protect Zenith against the impact of large, irregularly
occurring losses. Such reinsurance reduces the magnitude of sudden and
unpredictable changes in net income and the capitalization of the P&C
Operations. 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.
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. Historically, no material amounts due from reinsurers have been
written off as uncollectible. At December 31, 2000, Reliance Insurance Company
("Reliance") owed Zenith Insurance approximately $6.3 million in reinsurance
recoverables for paid and unpaid losses in connection with reinsurance
arrangements assumed by Zenith Insurance in the 1996 acquisition of the
Associated General Contractors Self-Insurance Fund. On January 29, 2001,
Reliance entered into an Order of Supervision with the Pennsylvania Insurance
Department under which its business and operations will be monitored and
reviewed by the Department. Zenith Insurance considered its receivables from
Reliance in the normal course of assessing the collectability of reinsurance
recoverables. Zenith Insurance believes this matter will not have a material
adverse effect on its financial condition or results of operations.
The P&C Operations maintained reinsurance arrangements as follows during
2000:
Workers' Compensation -- Reinsurance covered all claims between
$0.6 million and $100.0 million per occurrence. The coverage from $0.6 million
to $5.0 million is placed with General
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Reinsurance Corporation, the coverage from $5.0 million to $10.0 million with
Employers Reinsurance Corporation and the remaining three layers from
$10.0 million to $60.0 million primarily with NAC Reinsurance Corporation,
Transatlantic Reinsurance Company, GE Reinsurance Corporation and the London
reinsurance market (primarily Lloyd's syndicates and certain United Kingdom
reinsurance companies). Catastrophe reinsurance covered an additional
$40.0 million in excess of $60.0 million and was placed with Life Insurance
Company of North America, American United Life Insurance Company and ReliaStar
Life Insurance Company.
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
$50.0 million in excess of $182.0 million. Reinsurance recoverable from
Inter-Ocean Reinsurance Company is secured by a trust account and an irrevocable
letter of credit.
Insurance premiums ceded by the P&C Operations amounted to $10.6 million,
$16.3 million and $54.5 million in 2000, 1999 and 1998, respectively, or 3.0%,
4.2% and 9.3% of gross earned premiums in the years ended December 31, 2000,
1999 and 1998, respectively. Receivable from reinsurers on unpaid losses
amounted to $264.6 million and $292.8 million at December 31, 2000 and 1999,
respectively, of which approximately $185.4 million and $216.2 million,
respectively, were reinsurance recoverables relating to reinsurance arrangements
entered into by RISCORP. The principal reinsurers from which such
RISCORP-related 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 -- 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 companies in the P&C Operations are parties to an
intercompany 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, 2000, 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 2,300 independent licensed insurance agents and brokers throughout
California, Florida, Texas and other states in which Zenith conducts its
business. Zenith Insurance's assumed reinsurance premiums are generated
nationally by brokers and reinsurance intermediaries.
Applications for insurance and reinsurance 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, not their
agents and brokers, retain authority over underwriting, claims processing,
safety engineering and auditing.
9
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 national workers' compensation
industry. 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.
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' workers' compensation 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 workers' compensation 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 California Department of Insurance has informed Zenith that it
intends to conduct an examination of Zenith Insurance and ZNAT Insurance as of
December 31, 2000, commencing in the first quarter of 2001.
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. 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
10
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 for insurance companies 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 established January 1, 2001 as the
effective date of the Codification and the California and Texas Departments of
Insurance have adopted the Codification. Zenith believes that the Codification,
as currently constituted, will not have a material impact on the statutory
capital and surplus of the P&C Operations.
Under NAIC Model Laws, 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, 2000, adjusted capital under the RBC
regulations for Zenith Insurance was 242% of the required level of capital under
the regulations.
The NAIC Insurance Regulatory Information System ("IRIS") key financial
ratios, 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 2000 IRIS results for Zenith
Insurance showed three results outside the "normal" range for such ratios, as
such range is determined by the NAIC. These three results were impacted by
intercompany reinsurance transactions associated with the sale of CalFarm in
1999, the RISCORP Purchase Adjustment in 1999, catastrophe losses in the
Reinsurance Operations in 2000 and 1999 and operating losses in the Workers'
Compensation Operations in 2000 and 1999.
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 15 -- "Commitments and Contingent Liabilities" on
pages 59-60 of Zenith's 2000 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.
On April 1, 1998, pursuant to an Asset Purchase Agreement dated June 17,
1997 (as amended from time to time, the "Asset Purchase Agreement"), between
Zenith Insurance and RISCORP, 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
11
accounting and actuarial consultants and Zenith Insurance and its external
accounting and actuarial consultants made and presented their estimates of the
GAAP 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.
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 agreed, among other things,
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. Zenith
Insurance and RISCORP also agreed that Zenith Insurance would receive
$6.0 million from an escrow account established pursuant to the Asset Purchase
Agreement, and RISCORP would receive the balance of the escrow account. 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 Insurance and RISCORP that they would not consider the issue
raised by RISCORP because the issue had not previously been raised as a dispute
pursuant to the procedures set forth in the 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. On October 9, 2000, RISCORP filed a First Amended Complaint in the
Superior Court of Fulton County. RISCORP's First Amended Complaint alleges
causes of action for breach of contract against the Neutral Auditor and Neutral
Actuary and, in conjunction, seeks a declaration that could have the effect of
requiring Zenith to pay either $18.1 million (and related charges) or
$5.9 million. RISCORP also has asserted causes of action for professional
negligence solely against the Neutral Auditor and Neutral Actuary in which it
seeks damages of either $18.1 million (and related charges) or $5.9 million.
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.
12
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 2000 1999
- ------- ------------ ------------
First:
High...................................................... $22 3/16 $26
Low....................................................... 18 3/4 20 5/16
Second:
High...................................................... 24 15/16 26 11/16
Low....................................................... 20 1/2 22 1/4
Third:
High...................................................... 23 7/8 26
Low....................................................... 20 13/16 21 1/8
Fourth:
High...................................................... 29 3/4 22 13/16
Low....................................................... 20 19 1/4
As of March 22, 2001, there were 268 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 13, 2001........... $0.25 cash per share April 30, 2001 May 15, 2001
December 11, 2000........... $0.25 cash per share January 31, 2001 February 14, 2001
September 7, 2000........... $0.25 cash per share October 31, 2000 November 14, 2000
May 18, 2000................ $0.25 cash per share July 31, 2000 August 14, 2000
February 24, 2000........... $0.25 cash per share April 28, 2000 May 12, 2000
December 2, 1999............ $0.25 cash per share January 31, 2000 February 15, 2000
September 2, 1999........... $0.25 cash per share October 29, 1999 November 15, 1999
May 20, 1999................ $0.25 cash per share July 30, 1999 August 13, 1999
February 25, 1999........... $0.25 cash per share April 30, 1999 May 14, 1999
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
2000, Zenith Insurance paid $10.0 million of dividends to Zenith National.
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 2001, Zenith Insurance will be able to
13
pay $26.2 million in dividends to Zenith National without prior approval. In
2001, ZNAT Insurance and Zenith Star, together, will be able to pay
$0.5 million in dividends to Zenith Insurance without prior approval. Zenith
National made a contribution of $25.0 million in 2000 to the capital and surplus
of Zenith Insurance.
ITEM 6. SELECTED FINANCIAL DATA.
The 5-Year Summary of Selected Financial Information, included in Zenith's
2000 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 2000 Annual Report to Stockholders
on pages 25-36, 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 2000 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 2000 Annual Report to Stockholders for information
setting forth the loss and loss adjustment expense liability development for
1990 through 2000 and to the Consolidated Financial Statements and Notes thereto
on pages 42-65 of Zenith's 2000 Annual Report to Stockholders, which are hereby
incorporated by reference.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
None.
14
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 2001 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
EXECUTIVE
OFFICER
NAME AGE POSITION TERM SINCE
- ---- --- -------- ---- ---------
Stanley R. Zax 63 Chairman of the Board and Annual 1977
President
Jack D. Miller 55 Executive Vice President Annual 1998
Robert E. Meyer.. 52 Senior Vice President and Actuary Annual 2000
William J. Owen.. 43 Senior Vice President, Chief Financial Annual 2000
Officer, Treasurer and Assistant
Secretary
John J. Tickner 62 Senior Vice President and Secretary Annual 1985
Each of the executive officers is an officer of Zenith National and certain
of its subsidiaries and each 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," "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.
15
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 footnotes 1 and 2 to the table set forth under
the caption "Election of Directors" in the Proxy Statement is hereby
incorporated by reference.
16
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 incorporated herein by reference
from Zenith's 2000 Annual Report to Stockholders
Consolidated Financial Statements and notes thereto incorporated
herein by reference from Zenith's 2000 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, 2000 and 1999
Consolidated Statement of Operations for the years ended
December 31, 2000, 1999 and 1998
Consolidated Statement of Cash Flows for the years ended
December 31, 2000, 1999 and 1998
Consolidated Statement of Stockholders' Equity for the three
years ended December 31, 2000
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, 2000:
I -- Summary of Investments -- Other Than Investments in
Related Parties
For the years ended December 31, 2000, 1999 and 1998:
III -- Supplementary Insurance Information
IV -- Reinsurance
Zenith National Insurance Corp.:
As of December 31, 2000 and 1999 and for the years ended
December 31, 2000, 1999 and 1998:
II -- Condensed Financial Information of Registrant
The information on Property-Casualty Loss Development is on
pages 40-41 of Zenith's 2000 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.
17
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 National Insurance
Corp., dated May 28, 1971. (Incorporated herein by reference
to Exhibit 3.1 to Zenith's Quarterly Report on Form 10-Q for
the quarter ended June 30, 2000.)
3.2 Certificate of Amendment of Certificate of Incorporation of
Zenith National Insurance Corp., dated September 12, 1977.
(Incorporated herein by reference to Exhibit 3.2 to Zenith's
Quarterly Report on Form 10-Q for the quarter ended June 30,
2000.)
3.3 Certificate of Amendment of Certificate of Incorporation of
Zenith National Insurance Corp., dated May 31, 1979.
(Incorporated herein by reference to Exhibit 3.3 to Zenith's
Quarterly Report on Form 10-Q for the quarter ended June 30,
2000.)
3.4 Certificate of Amendment of Certificate of Incorporation of
Zenith National Insurance Corp., dated September 6, 1983.
(Incorporated herein by reference to Exhibit 3.4 to Zenith's
Quarterly Report on Form 10-Q for the quarter ended
June 30, 2000.)
3.5 Certificate of Designation of Zenith National Insurance
Corp., dated September 10, 1985. (Incorporated herein by
reference to Exhibit 3.5 to Zenith's Quarterly Report on
Form 10-Q for the quarter ended June 30, 2000.)
3.6 Certificate of Amendment of Certificate of Incorporation of
Zenith National Insurance Corp., dated November 22, 1985.
(Incorporated herein by reference to Exhibit 3.6 to Zenith's
Quarterly Report on Form 10-Q for the quarter ended
June 30, 2000.)
3.7 Certificate of Amendment of Certificate of Incorporation of
Zenith National Insurance Corp., dated May 19, 1987.
(Incorporated herein by reference to Exhibit 3.7 to Zenith's
Quarterly Report on Form 10-Q for the quarter ended June 30,
2000.)
3.8 Certificate of Change of Address of Registered Office and of
Registered Agent of Zenith National Insurance Corp., dated
October 10, 1989. (Incorporated herein by reference to
Exhibit 3.8 to Zenith's Quarterly Report on Form 10-Q for
the quarter ended June 30, 2000.)
18
3.9 By-laws of Zenith National Insurance Corp., as currently in
effect (Incorporated herein by reference to Exhibit 3.3 to
Zenith National Insurance Corp.'s Annual Report on Form 10-K
for the year ended December 31, 1999.)
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.)
4.4 Certificate of Amendment to Certificate of Trust of Zenith
National Insurance Capital Trust I, dated March 1, 2000.
(Incorporated herein by reference to Exhibit 10.1 to
Zenith's Quarterly Report on Form 10-Q for the quarter ended
June 30, 2000).
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.)
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.)
19
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.)
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 herein 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.)
20
*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.)
*10.17 Amendment to Employment Agreement, dated March 1, 2000,
between Zenith National Insurance Corp. and John J. Tickner.
(Incorporated herein by reference to Exhibit 10.17 to
Zenith's Annual Report on Form 10-K for the year ended
December 31, 1999.)
*10.18 Restated and Amended Employment Agreement, executed
March 13, 2001, between Zenith National Insurance Corp. and
Stanley R. Zax.
*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.
(Incorporated herein by reference to Exhibit 10.20 to
Zenith's Annual Report on Form 10-K for the year ended
December 31, 1999.)
*10.21 Employment Agreement, dated October 20, 1997, between Zenith
Insurance Company and Robert E. Meyer. (Incorporated herein
by reference to Exhibit 10.21 to Zenith's Annual Report on
Form 10-K for the year ended December 31, 1999.)
*10.22 Amendment to Employment Agreement, dated March 1, 2000,
between Zenith Insurance Company and Robert E. Meyer.
(Incorporated herein by reference to Exhibit 10.22 to
Zenith's Annual Report on Form 10-K for the year ended
December 31, 1999.)
*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.)
21
*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. (Incorporated herein by
reference to Exhibit 10.28 to Zenith's Annual Report on Form
10-K for the year ended December 31, 1999.)
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.
(Incorporated herein by reference to Exhibit 10.29 to
Zenith's Annual Report on Form 10-K for the year ended
December 31, 1999.)
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. (Incorporated herein by reference
to Exhibit 10.30 to Zenith's Annual Report on Form 10-K for
the year ended December 31, 1999.)
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.)
22
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 Qua rterly 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 Promissory Note, dated July 3, 2000, 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, 2000.)
10.38 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.)
10.39 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.)
10.40 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.)
10.41 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.)
10.42 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.)
10.43 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.)
10.44 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.)
10.45 Sixth Amendment to Credit Agreement, dated as of July 18,
2000, between Zenith National Insurance Corp. and Bank of
America, N. A. (Incorporated herein by reference to Exhibit
10.3 to Zenith's Quarterly Report on Form 10-Q for the
quarter ended June 30, 2000.)
23
10.46 Seventh Amendment to Credit Agreement, dated September 19,
2000, between Zenith National Insurance Corp. and Bank of
America, N. A. (Incorporated herein by reference to Exhibit
10.1 to Zenith's Quarterly Report on Form 10-Q for the
quarter ended September 30, 2000.)
10.47 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.)
10.48 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.)
10.49 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 19 --"Earnings and Dividends
Per Share" on page 62 of Zenith's 2000 Annual Report to
Stockholders.)
13 Zenith's Annual Report to Stockholders for the year ended
December 31, 2000, 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, 2001.
(Incorporated herein by reference to page F-1 of this Annual
Report on Form 10-K.)
- --------------------------
*Management contract or compensatory plan or arrangement
(b) Reports on Form 8-K
Zenith filed no Current Reports on Form 8-K during the quarter ended
December 31, 2000.
24
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, 2001.
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, 2001.
/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/ ROBERT J. MILLER
--------------------------------------------- Director
Robert J. Miller
/s/ LEON E. PANETTA
--------------------------------------------- Director
Leon E. Panetta
/s/ WILLIAM S. SESSIONS
--------------------------------------------- Director
William S. Sessions
/s/ HARVEY L. SILBERT
--------------------------------------------- Director
Harvey L. Silbert
/s/ GERALD TSAI, JR.
--------------------------------------------- Director
Gerald Tsai, Jr.
/s/ MICHAEL WM. ZAVIS
--------------------------------------------- Director
Michael Wm. Zavis
/s/ WILLIAM J. OWEN Senior Vice President and Chief Financial
--------------------------------------------- Officer (Principal Financial and Accounting
William J. Owen Officer)
25
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Registration
Statements on Form S-8 (File Nos. 33-8948, 33-22219, 333-04399 and 333-79199) of
our report dated February 7, 2001 relating to the consolidated financial
statements as of December 31, 2000 and 1999, and for each of the three years in
the period ended December 31, 2000, which appears in the 2000 Annual Report to
Stockholders of Zenith National Insurance Corp. (the "Company"), which is
included in the Company's Annual Report on Form 10-K for the year ended
December 31, 2000. We also consent to the incorporation by reference of our
report dated February 7, 2001 relating to the financial statement schedules,
which appears in such Annual Report on Form 10-K.
PricewaterhouseCoopers LLP
Los Angeles, California
March 27, 2001
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 7, 2001 appearing in the 2000 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 7, 2001
F-2
SCHEDULE I -- SUMMARY OF INVESTMENTS --
OTHER THAN INVESTMENTS IN RELATED PARTIES
ZENITH NATIONAL INSURANCE CORP. AND SUBSIDIARIES
DECEMBER 31, 2000
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............................... $ 142,593 $ 142,786 $ 142,786
Public utilities................................ 25,560 25,600 25,600
Industrial and miscellaneous.................... 428,077 414,204 413,836
Redeemable preferred stocks....................... 13,644 12,752 12,752
---------- ---------- ----------
Total fixed maturities...................... 609,874 595,342 594,974
Equity securities:
Floating rate preferred stocks.................... 6,799 5,699 5,699
Convertible and nonredeemable preferred stocks.... 3,733 3,391 3,391
Common stocks, industrial......................... 23,630 27,301 27,301
---------- ---------- ----------
Total equity securities..................... 34,162 36,391 36,391
Short-term investments.............................. 158,438 158,438 158,438
Other investments................................... 62,931 62,931 62,931
---------- ---------- ----------
Total investments........................... $ 865,405 $ 853,102 $ 852,734
========== ========== ==========
- ------------------------
(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,
---------------------
2000 1999
(DOLLARS AND SHARES IN THOUSANDS) --------- ---------
Investments:
Fixed maturities, at fair value (cost $480 in 2000)....... $ 444
Common stocks, at fair value (cost $1,214 in 2000 and
$1,430 in 1999)......................................... 1,390 $ 1,464
Short-term investments (at cost, which approximates fair
value).................................................. 58,145 96,033
--------- ---------
Total investments........................................... 59,979 97,497
Cash........................................................ 1,076
Investment in subsidiaries (Note A)......................... 331,056 347,372
Receivable from subsidiaries (Note A)....................... 54,879 56,747
Other assets................................................ 18,261 16,560
--------- ---------
Total assets........................................ $ 465,251 $ 518,176
========= =========
LIABILITIES
Senior notes payable, less unamortized issue cost of $126 in
2000 and $283 in 1999 (Notes B and D)..................... $ 58,374 $ 74,717
8.55% Subordinated Deferrable Interest Debentures, less
unamortized issue cost of $259 in 2000 and $269 in 1999
(Note C).................................................. 77,061 77,051
Dividend payable to stockholders............................ 4,361 4,287
Federal income tax (Note A)................................. 9,534 1,192
Other liabilities........................................... 6,145 6,370
--------- ---------
Total liabilities................................... 155,475 163,617
--------- ---------
STOCKHOLDERS' EQUITY
Preferred stock, $1 par--shares authorized 1,000; issued and
outstanding, none in 2000 and 1999........................
Common stock, $1 par--shares authorized 50,000; issued
25,452, outstanding 17,443 in 2000; issued 25,157,
outstanding 17,150 in 1999................................ 25,452 25,157
Additional paid-in capital.................................. 282,120 274,897
Retained earnings........................................... 161,174 225,229
Accumulated other comprehensive loss--net unrealized
depreciation on investments, net of deferred tax benefit
of $4,419 in 2000 and $10,768 in 1999..................... (8,206) (19,998)
--------- ---------
460,540 505,285
Treasury stock, at cost (8,009 shares in 2000 and 8,007
shares in 1999)........................................... (150,764) (150,726)
--------- ---------
Total stockholders' equity.......................... 309,776 354,559
--------- ---------
Total liabilities and stockholders' equity.......... $ 465,251 $ 518,176
========= =========
See notes to condensed financial information.
F-4
SCHEDULE II -- CONDENSED FINANCIAL INFORMATION OF REGISTRANT
ZENITH NATIONAL INSURANCE CORP.
STATEMENT OF OPERATIONS
YEARS ENDED DECEMBER 31,
-------------------------------
2000 1999 1998
(DOLLARS IN THOUSANDS) --------- -------- --------
Net investment income (expense)............................. $ 4,258 $ 2,520 $ (801)
Realized (losses) gains on investments...................... (869) 828 22
-------- -------- -------
Total revenues.............................................. 3,389 3,348 (779)
Operating expenses.......................................... 6,042 4,155 3,835
Interest expense............................................ 5,839 8,416 6,011
-------- -------- -------
Total expenses.............................................. 11,881 12,571 9,846
Loss before federal income tax benefit and equity in (loss)
income of subsidiaries and extraordinary item............. (8,492) (9,223) (10,625)
Federal income tax benefit.................................. 2,631 3,175 3,496
-------- -------- -------
Loss before equity in income of subsidiaries and
extraordinary item........................................ (5,861) (6,048) (7,129)
Equity in (loss) income of subsidiaries (Note A)............ (41,932) 60,148 26,229
-------- -------- -------
(Loss) income before extraordinary item..................... (47,793) 54,100 19,100
Extraordinary item--gain on extinguishment of debt, net of
federal income tax expense of $534 (Note D)............... 993
-------- -------- -------
Net (loss) income........................................... $(46,800) $ 54,100 $19,100
======== ======== =======
See notes to condensed financial information.
F-5
SCHEDULE II -- CONDENSED FINANCIAL INFORMATION OF REGISTRANT
ZENITH NATIONAL INSURANCE CORP.
STATEMENT OF CASH FLOWS
YEARS ENDED DECEMBER 31,
-------------------------------
2000 1999 1998
(DOLLARS IN THOUSANDS) --------- -------- --------
CASH FLOWS FROM OPERATING ACTIVITIES:
Investment income received................................ $ 721 $ 1,372 $ 445
Operating expenses paid................................... (4,694) (3,808) (4,587)
Interest paid............................................. (8,963) (10,017) (5,468)
Income tax recovered...................................... 10,675 3,974 4,563
--------- -------- --------
Net cash used in operating activities................... (2,261) (8,479) (5,047)
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of investments:
Equity securities available-for-sale.................... (888) (10,315) (4,652)
Other debt and equity securities and other
investments........................................... 4,793
Proceeds from sales of investments:
Equity securities available-for-sale.................... 9,412
Other investments....................................... 5,675
Net change in short-term investments...................... 41,485 (89,146) 33,457
Other, net................................................ 6,367 (5,271) (1,408)
--------- -------- --------
Net cash provided by (used in) investing activities..... 46,964 (89,645) 32,190
CASH FLOWS FROM FINANCING ACTIVITIES:
Repurchase of redeemable securities (Notes B and D) (6,164)
Repurchase of 9% Notes (Notes B and D).................... (16,585)
Cash advanced from bank lines of credit................... 7,400 7,000
Cash repaid on bank lines of credit....................... (12,400) (2,000)
Cash dividends paid to common stockholders................ (17,183) (17,165) (17,010)
Net proceeds from issuance of subordinated debt (Note
C)...................................................... 77,038
Proceeds from exercise of stock options................... 7,246 4,322 6,527
Purchase of treasury shares............................... (38) (4,190) (24,023)
Dividends received from subsidiaries (Note A)............. 10,000 130,000
Capital contribution to Zenith Insurance (Notes A and
C)...................................................... (25,000) (65,000)
Net cash from (to) subsidiary (Note A).................... 4,097 (9,991) (10,257)
--------- -------- --------
Net cash (used in) provided by financing activities..... (43,627) 97,976 (27,725)
Net increase (decrease) in cash............................. 1,076 (148) (582)
Cash at beginning of year................................... 148 730
--------- -------- --------
Cash at end of year......................................... $ 1,076 $ $ 148
========= ======== ========
RECONCILIATION OF NET (LOSS) INCOME TO NET CASH FLOWS FROM
OPERATING ACTIVITIES:
Net (loss) income......................................... $ (46,800) $ 54,100 $ 19,100
Gain on extinguishment of debt (Notes B and D)............ (1,527)
Loss (income) from subsidiaries (Note A).................. 41,932 (60,148) (26,229)
Other..................................................... 4,134 (2,431) 2,082
--------- -------- --------
Net cash used in operating activities................... $ (2,261) $ (8,479) $ (5,047)
========= ======== ========
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.
A. Investment In Subsidiaries
Zenith National owns, directly or indirectly, 100% of the outstanding
stock of Zenith Insurance Company ("Zenith Insurance"); 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. Included in
investment in subsidiaries at December 31, 2000 and 1999 was $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 funds the land acquisitions of its Real Estate
Operations through intercompany loans. The receivable from subsidiaries
mainly comprises principal and capitalized interest on loans to Perma-Bilt
and ZDC of $55.4 million and $56.8 million at December 31, 2000 and 1999,
respectively, for which interest is charged at the rate of prime plus 2%
(11.5% at December 31, 2000 and 10.5% at December 31, 1999).
Zenith National files a consolidated federal income tax return. The
equity in (loss) income of subsidiaries is net of a provision for federal
income tax benefit of $21.9 million in 2000 and a federal income tax expense
of $32.2 million in 1999 and $13.2 million in 1998. Zenith has tax
allocation procedures with its subsidiaries and the 2000, 1999 and 1998
condensed financial information reflect Zenith's portion of the consolidated
tax.
Zenith Insurance paid dividends to Zenith National of $10.0 million in
2000 and $130.0 million in 1999 including a dividend of $100.0 million for
which prior approval was obtained from the California Department of
Insurance in 1999. Zenith Insurance paid no dividends to Zenith National in
1998. Zenith National made contributions of $25.0 million in 2000 and
$65.0 million in 1998 to the capital and surplus of Zenith Insurance.
B. Senior Notes Payable
Zenith National had $58.5 million and $75.0 million of the
$75.0 million issued of its 9% Senior Notes due 2002 (the "9% Notes") at
December 31, 2000 and 1999, respectively. 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 the years ended December 31, 2000, 1999 and 1998,
$5.8 million, $6.9 million and $6.9 million, respectively, 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 Trust, a Delaware statutory business trust, all of the
voting securities of which are owned by Zenith National. 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
F-7
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 2000, 1999 and 1998, $6.7 million, $6.7 million and
$2.7 million, respectively, of interest and issue cost were expensed.
Zenith National's guarantee of the Subordinated Debentures is
subordinated to all other indebtedness of Zenith National.
D. Extraordinary Item--Gain on Extinguishment of Debt
In 2000, Zenith National paid $22.8 million to repurchase $16.5 million
aggregate principal amount of the outstanding 9% Notes and $8.0 million
aggregate liquidation amount of the outstanding 8.55% Capital Securities
issued through the Trust. The repurchases resulted in an extraordinary gain
before tax of $1.5 million.
E. Commitments and Contingent Liabilities
On April 1, 1998, pursuant to an Asset Purchase Agreement dated June 17,
1997 (as amended from time to time, the "Asset Purchase Agreement"), between
Zenith Insurance and RISCORP, Inc. and certain of its subsidiaries
(collectively, "RISCORP"), Zenith Insurance acquired substantially all of
the assets and certain liabilities of RISCORP related to RISCORP's workers'
compensation business (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 GAAP 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.
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 agreed, among other
things, 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. Zenith Insurance and RISCORP also agreed that Zenith
Insurance would receive $6.0 million from an escrow account established
pursuant to the Asset Purchase Agreement, and RISCORP would receive the
balance of the escrow account. 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 Insurance
and RISCORP that they would not consider the issue raised by RISCORP because
the issue had not previously been raised as a dispute pursuant to the
procedures set forth in the 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. On October 9, 2000, RISCORP filed a First Amended Complaint in the
Superior
F-8
Court of Fulton County. RISCORP's First Amended Complaint alleges causes of
action for breach of contract against the Neutral Auditor and Neutral
Actuary and, in conjunction, seeks a declaration that could have the effect
of requiring Zenith to pay either $18.1 million (and related charges) or
$5.9 million. RISCORP also has asserted causes of action for professional
negligence solely against the Neutral Auditor and Neutral Actuary in which
it seeks damages of either $18.1 million (and related charges) or $5.9
million. 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.
F-9
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
- -------- ----------- -------------- --------- ------------ --------- ----------
FUTURE POLICY
DEFERRED BENEFITS, OTHER POLICY
POLICY LOSSES, CLAIMS CLAIMS AND NET
ACQUISITION AND LOSS UNEARNED BENEFITS PREMIUM INVESTMENT
SEGMENT COSTS EXPENSES PREMIUMS PAYABLE REVENUE INCOME
- ------- ----------- -------------- --------- ------------ --------- ----------
(DOLLARS IN THOUSANDS)
Years Ended December 31,
2000
- ----
Property and Casualty
Workers' Compensation................... $ 8,610 $542,173 $ 49,928 $300,833
Reinsurance............................. 1,700 97,514 8,896 37,919
------- -------- -------- ------- -------- -------
10,310 639,687 58,824 338,752
Reinsurance ceded......................... 238,196 83
Investment................................ $51,766
Parent....................................
------- -------- -------- ------- -------- -------
Total................................... $10,310 $877,883 $ 58,907 $338,752 $51,766
======= ======== ======== ======= ======== =======
1999
- ----
Property and Casualty
Workers' Compensation................... $ 6,633 $516,941 $ 42,630 $278,854
Reinsurance............................. 1,259 88,309 7,496 36,441
Other Property-Casualty................. 54,108
------- -------- -------- ------- -------- -------
7,892 605,250 50,126 369,403
Reinsurance ceded......................... 275,679 780
Investment................................ $53,662
Parent....................................
------- -------- -------- ------- -------- -------
Total................................... $ 7,892 $880,929 $ 50,906 $369,403 $53,662
======= ======== ======== ======= ======== =======
1998
- ----
Property and Casualty
Workers' Compensation................... $ 6,157 $524,183 $ 48,363 $278,660
Reinsurance............................. 1,352 73,646 8,005 29,150
Other Property-Casualty................. 16,432 110,855 89,202 222,045
------- -------- -------- ------- -------- -------
23,941 708,684 145,570 529,855
Reinsurance ceded......................... 288,963 12,395
Investment................................ $53,593
Parent....................................
------- -------- -------- ------- -------- -------
Total................................... $23,941 $997,647 $157,965 $529,855 $53,593
======= ======== ======== ======= ======== =======
COLUMN A COLUMN H COLUMN I COLUMN J COLUMN K
- -------- ---------- ------------ --------- ---------
BENEFITS,
CLAIMS, AMORTIZATION
LOSSES AND OF POLICY OTHER
SETTLEMENT ACQUISITION OPERATING PREMIUMS
SEGMENT EXPENSES COSTS EXPENSES WRITTEN
- ------- ---------- ------------ --------- ---------
(DOLLARS IN THOUSANDS)
Years Ended December 31,
2000
- ----
Property and Casualty
Workers' Compensation................... $289,923 $57,979 $39,241 $308,131
Reinsurance............................. 47,039 4,912 504 39,320
-------- ------- ------- --------
336,962 62,891 39,745 347,451
Reinsurance ceded.........................
Investment................................
Parent.................................... 6,042
-------- ------- ------- --------
Total................................... $336,962 $62,891 $45,787 $347,451
======== ======= ======= ========
1999
- ----
Property and Casualty
Workers' Compensation................... $285,864 $47,502 $70,112 $272,326
Reinsurance............................. 38,279 5,000 486 35,930
Other Property-Casualty................. 36,029 12,764 5,337 49,976
-------- ------- ------- --------
360,172 65,266 75,935 358,232
Reinsurance ceded.........................
Investment................................
Parent.................................... 4,155
-------- ------- ------- --------
Total................................... $360,172 $65,266 $80,090 $358,232
======== ======= ======= ========
1998
- ----
Property and Casualty
Workers' Compensation................... $220,983 $43,182 $60,609 $277,191
Reinsurance............................. 13,195 4,727 960 29,856
Other Property-Casualty................. 148,712 49,028 19,895 215,452
-------- ------- ------- --------
382,890 96,937 81,464 522,499
Reinsurance ceded.........................
Investment................................
Parent.................................... 3,835
-------- ------- ------- --------
Total................................... $382,890 $96,937 $85,299 $522,499
======== ======= ======= ========
F-10
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) -------- --------- ---------- -------- ----------
YEARS ENDED DECEMBER 31,
2000
Premiums earned....................... $307,514 $10,610 $41,848 $338,752 12.4%
1999
Premiums earned....................... 345,085 16,349 40,667 369,403 11.0%
1998
Premiums earned....................... 545,573 54,487 38,769 529,855 7.3%
F-11