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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

FORM 10-Q

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the Quarterly Period Ended June 30, 2002

Commission File Number 1-9627

ZENITH NATIONAL INSURANCE CORP.
[Exact name of registrant as specified in its charter]

(818) 713-1000
[Registrant's telephone number, including area code]

        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 ý        No o

        At August 9, 2002, there were 18,751,000 shares of Zenith National common stock outstanding, net of 7,018,000 shares of treasury stock.

PART l
FINANCIAL INFORMATION

Item 1. Financial Statements.

ZENITH NATIONAL INSURANCE CORP. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET

The accompanying notes are an integral part of this consolidated financial statement.

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ZENITH NATIONAL INSURANCE CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF OPERATIONS
(UNAUDITED)

The accompanying notes are an integral part of this consolidated financial statement.

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ZENITH NATIONAL INSURANCE CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
(UNAUDITED)

The accompanying notes are an integral part of this consolidated financial statement.

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ZENITH NATIONAL INSURANCE CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)

Note 1. Basis of Presentation

        The accompanying unaudited, consolidated financial statements of Zenith National Insurance Corp. ("Zenith National") and subsidiaries (collectively, "Zenith") have been prepared in accordance with generally accepted accounting principles ("GAAP") for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X of the Securities Exchange Act of 1934, as amended. Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements. In the opinion of management, all adjustments (consisting of normal, recurring adjustments) necessary for a fair presentation of the financial position and results of operations of Zenith for the periods presented have been included. The results of operations for an interim period are not necessarily indicative of the results for an entire year. For further information, refer to the financial statements and notes thereto included in the Zenith National Insurance Corp. Annual Report on Form 10-K for the year ended December 31, 2001. Certain prior year balances have been reclassified to conform to the current year presentation. Zenith has elected to round to the nearest thousand dollars, except for per share data, in reporting amounts in this statement.

Note 2. Earnings and Dividends Per Share

        The following table sets forth the computation of basic and diluted net income per share:

Note 3. Contingent Liabilities

RISCORP Litigation

        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 Company ("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

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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 could 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 would be 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 informed Zenith Insurance and RISCORP that it 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 would 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. On May 1, 2001, the Superior Court granted in their entirety motions for judgment on the pleadings filed by Zenith Insurance and the Neutral Auditor and Neutral Actuary. The Georgia Court of Appeals rejected RISCORP's petition for expedited review of the Superior Court's decision pending a determination of counterclaims filed by Zenith Insurance and the Neutral Auditor and Neutral Actuary before the Superior Court.

        The parties to the RISCORP Litigation have filed motions that will resolve the remaining issues in the case, but have deferred resolution of the issues set out in those motions in light of a settlement in principle that, if finally consummated, will result in dismissal of the action with no liability to Zenith. Until such consummation, Zenith is unable to predict the outcome of this litigation.

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Contingencies Surrounding Reinsurance Receivable from Reliance Insurance Company

        On October 3, 2001, the Commonwealth Court of Pennsylvania issued an Order of Liquidation for Reliance Insurance Company ("Reliance") in response to a petition from the Pennsylvania Department of Insurance. At June 30, 2002 and December 31, 2001, Reliance owed Zenith Insurance $6.0 million of reinsurance recoverable on paid and unpaid losses in connection with reinsurance arrangements assumed by Zenith Insurance in its 1996 acquisition of the Associated General Commerce Self-Insurers' Trust Fund. Zenith Insurance has recorded a provision for impairment of its reinsurance recoverable from Reliance; the provision was $3.0 million at June 30, 2002 and at December 31, 2001. Zenith Insurance cannot currently predict the ultimate outcome of this matter; but it is possible that if the Pennsylvania Department of Insurance increases its estimates of Reliance's unpaid liabilities or uncollectible reinsurance recoverables without considering any additional investment income, Zenith Insurance may not recover any of its reinsurance recoverable from Reliance.

Contingencies Surrounding State Guarantee Fund Assessments

        State Guarantee Funds ("Guarantee Funds") exist to ensure that policyholders (holders of direct insurance polices but not of reinsurance policies) receive payment of their claims if insurance companies become insolvent. The Guarantee Funds are funded primarily by statutorily prescribed assessments they bill to other insurance companies doing business in their states. Various mechanisms exist in these states for assessed insurance companies to recover these assessments. Upon the insolvency of an insurance company, the Guarantee Funds become primarily liable for the payment of its policyholder liabilities. The declaration of an insolvency establishes the presumption that assessments by the Guarantee Funds are probable. Zenith writes workers' compensation insurance in many states where unpaid workers' compensation liabilities are the responsibility of the Guarantee Funds and has received and expects to continue to receive Guarantee Fund assessments, some of which may be based on certain of the premiums it has already earned at June 30, 2002. At June 30, 2002, Zenith recorded an estimate of $3.9 million (net of expected recoveries of $2.0 million recoverable before the end of 2003) for its expected liability at June 30, 2002 for Guarantee Fund assessments. This estimate is based on currently available information and could change based on additional information or reinterpretation of existing information concerning the actions of the Guarantee Funds. Zenith expects that it will continue to accrue and receive Guarantee Fund assessments; and the ultimate impact of such assessments will depend upon the amount and timing of the assessments and of any recoveries to which Zenith is entitled.

Contingencies Surrounding Recoverability of Special Disability Trust Fund Receivable

        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 June 30, 2002 and December 31, 2001, the receivable from the Fund was $16.0 million and $18.1 million, respectively, related to the pre-January 1, 1998 claims.

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Other Litigation

        Other than the RISCORP litigation described above, 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, is not expected to have a material adverse effect on the consolidated financial condition, results of operations or cash flows of Zenith.

Note 4. Senior Notes Payable

        On May 1, 2002, Zenith National used $57.2 million of its available short-term investments to pay the principal of its 9% Senior Notes due May 1, 2002.

Note 5. Segment Information

        Segment information is set forth below:

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Note 6. Goodwill—Adoption of Financial Accounting Standards Board Statement of Financial Accounting Standards No. 142

      Effective January 1, 2002, Zenith adopted the provisions of Financial Accounting Standards Board Statement of Financial Accounting Standards No. 142, "Goodwill and Other Intangible Assets" ("SFAS No. 142"), which addresses the accounting for goodwill and other intangible assets. Under SFAS No. 142, goodwill and intangible assets with indefinite lives are no longer amortized and other intangible assets are amortized over their useful lives (which may exceed forty years). The new standard also requires that goodwill and intangible assets with indefinite lives be tested for impairment at least annually and sets forth criteria for recognition and measurement of impairment.

        As of January 1, 2002, Zenith had recognized goodwill from previous acquisitions. Other than goodwill, Zenith had no intangible assets at January 1, 2002. Prior to January 1, 2002, goodwill attributable to assets acquired since 1970 was being amortized over 25 years using the straight line method. As of January 1, 2002, Zenith ceased the amortization of such goodwill. Goodwill was $21.5 million at June 30, 2002 and December 31, 2001. Zenith evaluated this goodwill for impairment at January 1, 2002 in accordance with SFAS No. 142 and determined that such goodwill was not impaired.

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        The following table presents Zenith's pro-forma net income and per share amounts excluding goodwill amortization expense in the three and six months ended June 30, 2001 compared to reported net income and per share amounts in the three and six months ended June 30, 2002:

Note 7. Reinsurance Ceded

        In accordance with general industry practices, Zenith annually purchases, 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 insurance operations. For a further discussion of Zenith's ceded reinsurance arrangements see "Reinsurance Ceded" in Part I, Item I of Zenith's Annual Report on Form 10K for the year ended December 31, 2001. Effective July 1, 2002, Zenith entered into an excess of loss reinsurance treaty with Employers Reinsurance Corporation ("Employers Re") which provides reinsurance protection for workers' compensation losses up to $4.0 million per occurrence and in excess of $1.0 million and applies to loss occurrences on or after July 1, 2002. The Employers Re treaty replaces the previous excess of loss reinsurance contract which provided for reinsurance protection for up to $4.2 million per occurrence and in excess of $0.8 million during the first six months of 2002 and for up to $4.4 million per occurrence and in excess of $0.6 million in 2001. In 2002, Zenith has also purchased protection covering up to $9.0 million, per occurrence or in the aggregate and in excess of $1.0 million, of losses arising out of terrorist acts. Effective July 1, 2002, all of such terrorism reinsurance is with Employers Re. There were no other changes to Zenith's ceded reinsurance arrangements at July 1, 2002. Ceded reinsurance premiums for all of Zenith's workers' compensation reinsurance were approximately 3.7% of workers' compensation earned premiums in the first 6 months of 2002 and will be approximately 3.5% of earned premiums in the last 6 months of 2002 after the change discussed above. Ceded reinsurance premiums for all of Zenith's workers' compensation reinsurance were approximately 2.9% of workers' compensation earned premiums in the first 6 months of 2001 and were approximately 3.3% of earned premiums in the last 6 months of 2001.

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Note 8. Subsequent Events

        Zenith Insurance has agreed to purchase approximately 19.2 million Ordinary Shares of Advent Capital (Holdings) PLC, a UK company ("Advent Capital"), for approximately $15.0 million in an open offer and placing of shares made in July 2002. Consummation of the purchase is subject to the approvals of Lloyd's and the UK Financial Services Authority. After the purchase, Zenith will own approximately 20% of the outstanding shares of Advent Capital. Advent Capital and its subsidiaries operate in the property and casualty insurance business in the United Kingdom by providing corporate capital to support underwriting of various Lloyd's syndicates and by managing those syndicates. Fairfax Financial Holdings Limited ("Fairfax") also participated in the open offer and placing of shares by Advent Capital and the consummation of its purchase is subject to the same approvals as Zenith. Upon consummation of its purchase, Fairfax will own directly approximately 47% of Advent Capital. Fairfax owns approximately 42% of the outstanding common stock of Zenith National. Zenith Insurance will use available funds from its short-term investments to fund the purchase, if consummated, of the Advent Capital shares.

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ZENITH NATIONAL INSURANCE CORP. AND SUBSIDIARIES

Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations

Forward-Looking Information

        The Private Securities Litigation Reform Act of 1995 provides a safe harbor for forward-looking statements if accompanied by meaningful cautionary statements identifying important factors that could cause actual results to differ materially from those discussed. Forward-looking statements include those related to the plans and objectives of management for future operations, future economic performance, or projections of revenues, income, earnings per share, capital expenditures, dividends, capital structure, or other financial items. Statements containing words such as expect, anticipate, believe, or similar words that are used in Management's Discussion and Analysis of Financial Condition and Results of Operations, in other parts of this report or in other written or oral information conveyed by or on behalf of Zenith National Insurance Corp. ("Zenith National") and subsidiaries (collectively, "Zenith") are intended to identify forward-looking statements. Zenith undertakes no obligation to update such forward-looking statements, which are subject to a number of risks and uncertainties that could cause actual results to differ materially from those projected. These risks and uncertainties include but are not limited to the following: (1) heightened competition, particularly intense price competition; (2) adverse state and federal legislation and regulation; (3) changes in interest rates causing fluctuations of investment income and fair values of investments; (4) changes in the frequency and severity of claims and catastrophes; (5) adequacy of loss reserves; (6) changing environment for controlling medical, legal and rehabilitation costs, as well as fraud and abuse; (7) the terrorist attacks of September 11, 2001, any future terrorist attacks and their aftermath; and (8) other risks detailed herein and from time to time in Zenith's other reports and filings with the Securities and Exchange Commission.

Overview

        The comparative components of net income after tax are set forth in the following table:

        Results of operations improved in the three and six months ended June 30, 2002 compared to the corresponding periods in 2001 principally as a result of reduced underwriting losses in the property-casualty operations (the "P&C Operations").

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        The comparative results of the P&C Operations before tax and combined ratios are set forth in the table below: