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Form 10-K
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1994
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF
THE SECURITIES 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
(TITLE OF CLASS)
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:
None
(TITLE OF CLASS)
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 the registrant on March 23, 1995 was approximately
$210,941,000 (based on the closing sale price of such stock on such date).
At March 23, 1995, 18,860,869 shares of Common Stock were outstanding, net
of 5,190,175 shares of treasury stock.
DOCUMENTS INCORPORATED BY REFERENCE
(1) Portions of the Annual Report to Stockholders for fiscal year ended
December 31, 1994 -- Part I and Part II.
(2) Portions of the Proxy Statement in connection with the 1995 Annual
Meeting of Stockholders -- Part III.
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PART I
ITEM 1. BUSINESS
GENERAL
Zenith National Insurance Corp. ("Zenith"), a Delaware corporation
incorporated in 1971, is a holding company. Zenith is engaged through its
directly and indirectly wholly-owned insurance subsidiaries, Zenith Insurance
Company ("Zenith Insurance"), CalFarm Insurance Company ("CalFarm Insurance"),
ZNAT Insurance Company ("ZNAT Insurance"), Zenith Star Insurance Company
("Zenith Star") and CalFarm Life Insurance Company ("CalFarm Life"), in the
business of writing workers' compensation insurance primarily in California and
Texas; reinsurance; annuities; health and life insurance coverages; and auto,
homeowners, farmowners and other coverages primarily in the rural areas of
California. In 1993, Zenith commenced real estate operations, developing private
residences for sale in Las Vegas, Nevada, through its wholly owned subsidiary,
Perma-Bilt, a Nevada Corporation ("Perma-Bilt").
The 1994 edition of Best's Key Rating Guide ("Best's") gives Zenith
Insurance, CalFarm Insurance, ZNAT Insurance and Zenith Star, collectively,
ratings of A+ (superior). CalFarm Life is rated A (excellent) by Best's.
Standard & Poor's Corporation ("S&P") has rated the claims-paying ability of
Zenith Insurance, CalFarm Insurance, ZNAT Insurance and Zenith Star AA-
(excellent) and the solvency of CalFarm Life BBBq (above average). Best's
ratings and S&P's ratings of claims-paying ability and solvency are based upon
factors of concern to policyholders and insurance agents and are not directed
toward the protection of investors.
At December 31, 1994, Zenith and its subsidiaries had approximately 1,500
employees.
The principal executive offices of Zenith are located at 21255 Califa
Street, Woodland Hills, California 91367-5021, telephone (818) 713-1000.
GLOSSARY OF SELECTED INSURANCE TERMS
The following terms when used herein have the following meanings:
Assume To receive from a ceding company all or a portion of a risk
in consideration of receipt of a premium.
Cede To transfer to a reinsurer all or a portion of a risk in
consideration of payment of a premium.
Combined ratio The sum of underwriting expenses, net incurred losses, loss
adjustment expenses and policyholders' dividends, expressed
as a percentage of net premiums earned.
Development The amount by which losses, measured subsequently by
reference to payments and additional estimates, differ from
those originally reported for a period. Development is
favorable when losses ultimately settle for less than
levels at which they were reserved or subsequent estimates
indicate a basis for reserve decreases on open claims.
Development is unfavorable when losses ultimately settle
for more than levels at which they were reserved or
subsequent estimates indicate a basis for reserve increases
on open claims.
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 relating to insured events that have occurred but
claims have not yet been reported to the insurer or reinsurer.
1
Loss adjustment expenses The expenses of investigating and settling claims,
including legal and other fees, and general expenses of
administering the claims adjustment process.
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 or The amount remaining after all liabilities are subtracted
statutory capital 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 (stated without reduction
for reinsurance ceded after 1992).
Retrocession A reinsurance of reinsurance assumed.
Statutory accounting Accounting principles prescribed or permitted by the
practices California Department of Insurance. In general, statutory
accounting practices address policyholder protection and
solvency and are more conservative in presentation of
earnings, surplus and assets than generally accepted
accounting principles.
Treaty A contract of reinsurance.
Underwriting The process whereby an insurer reviews applications
submitted for insurance coverage and determines whether it
will accept all or part, and at what premium, of the
coverage being requested.
Underwriting expenses The aggregate of policy acquisition costs and the portion
of administrative, general and other expenses attributable
to the underwriting process as they are accrued and
expensed.
DESCRIPTION OF BUSINESS SEGMENTS
Zenith and its subsidiaries conduct business through a property and casualty
segment, health and life segment and a parent or holding company segment as
described in Note 15 -- "Segment Information" on pages 52 and 53 of the 1994
Annual Report to Stockholders, which note is hereby incorporated by reference.
The earnings of Zenith's property and casualty operations and its health and
life business are supplemented by the generation of investment income discussed
under "Investments."
PROPERTY AND CASUALTY -- WORKERS' COMPENSATION INSURANCE
Workers' compensation insurance provides coverage for the statutorily
prescribed benefits that employers are required to pay to their employees
injured in the course of employment. The standard workers' compensation policy
issued by Zenith Insurance 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 with the nature and severity of
the injury or disease and the wages, occupation and age of the employee. Zenith
Insurance writes workers' compensation insurance which represents 53% of
consolidated property and casualty premium earned for 1994 and is the largest
line of Zenith's property and casualty business. Historically, Zenith's workers'
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compensation business was produced exclusively in California with minor
incidental coverages out of state for its larger policyholders. Commencing in
1992, Zenith began operations in the Texas workers' compensation market and in
1994 approximately 13% of its total premium writings were produced in Texas
compared to 87% in California. Zenith is currently examining the feasibility of
developing workers' compensation operations in other states. Specifically,
licenses have been obtained in Florida and Illinois.
Regulation, rate adequacy and the feasibility of containing the elements of
the cost of claims are among the key factors in determining the favorability of
a given workers' compensation market. Regulation is principally a matter for
state legislatures. In California, workers' compensation legislation was enacted
in 1993 which, together with private initiatives undertaken by Zenith and other
insurers, produced significant improvements in a theretofore runaway claims cost
environment. However, the California Insurance Commissioner reduced minimum
rates on three separate occasions in 1993 and 1994 in response. Rates were
de-regulated effective January 1, 1995 and insurance companies may now file and
use their own, actuarially determined, rates in California for workers'
compensation insurance. The rates filed and which are in use by Zenith in 1995
were determined to provide, in conjunction with other policy features, a margin
for underwriting profits. However, future profitability of Zenith's workers'
compensation operation will be dependent upon its ability to compete in an open
rating environment in California, the outlook for economic growth in California
and Zenith's continuing efforts to control medical and indemnity costs. At
present, competition is intense and Zenith is quoting on large numbers of
policies in accordance with its pricing models and is endeavoring to achieve the
goal of a combined ratio of 100%.
In Texas, significant workers' compensation reform legislation was enacted
in 1989 which created a more favorable environment for workers' compensation
insurers. The constitutionality of such legislation was upheld by the Texas
Supreme Court in February 1995. The Texas workers' compensation environment
remains favorable with flexible rating and a reasonable claims environment,
although increased competition among insurers may result.
Generally, premiums for workers' compensation insurance policies are a
function of the applicable premium rate, which includes the insured employer's
experience modification factor (where applicable) and the amount of the insured
employer's payroll. Payrolls may be affected significantly by changes in
employment and wage levels. A deposit premium is paid at the beginning of the
policy period, periodic installments are paid during the 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. Additional policy features
may be added to enhance the outcome for the policyholder in the event of
favorable claims experience. Predominant among such features has been,
historically, the participating policy in which a dividend has been paid after
policy expiration. With open rating and an emphasis on, among other things,
overall pricing at inception, dividends are likely to become relatively
insignificant in the future as an element in workers' compensation insurance.
Conversely, de-regulation may serve to enhance other policy features such as
deductible thresholds retained by the insured.
In 1994, Zenith developed plans to selectively combine the sale of its
workers' compensation insurance with other insurance products purchased by
employers for the benefit of their employees. The idea is to combine workers'
compensation insurance with disability insurance and group health insurance in a
plan that is generically known as "24 hour coverage". In 1995, Zenith expects to
commence sales of such coverage on a limited basis in San Diego, with a view to
future expansion in the rest of California. This activity is being undertaken in
concert with UNUM Corporation, a leading disability insurance carrier.
PROPERTY AND CASUALTY -- OTHER, PRINCIPALLY AUTOMOBILE
Zenith, through CalFarm Insurance, offers a comprehensive line of property
and casualty insurance, including automobile, farmowners, commercial multiple
peril packages and homeowners coverage. Automobile insurance includes coverage
for automobile bodily injury, property damage and physical damage. Automobile
bodily injury and property damage insurance provide coverage for third party
liability, bodily injury and property damage arising from the ownership,
maintenance
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or use of an automobile. Automobile physical damage coverage insures against
physical loss of the insured's own vehicle. Farmowners and homeowners insurance
includes coverage for direct physical damage to real and personal property, loss
of personal property by theft and legal liability for injury to others and
damage to property of others. Commercial multiple peril insures businesses
against property damage and general liability.
Automobile insurance (both commercial and private passenger) is the largest
line of CalFarm Insurance's business, representing 16% of Zenith's property and
casualty premiums earned in 1994. CalFarm Insurance insured approximately 22,000
private passenger automobiles and 71,000 commercial and farm vehicles in 1994.
Farmowners business is the second largest line of CalFarm Insurance's business,
representing approximately 10% of Zenith's property and casualty premiums earned
in 1994.
Zenith's Automobile and Other Property and Casualty operations are subject
to the regulatory provisions of California Initiative Proposition 103
("Proposition 103"). The principal effects of Proposition 103 on Zenith's
Automobile and Other Property and Casualty business are as follows: rates must
be approved by the Insurance Commissioner prior to use; rates on auto policies
must be offered to "good drivers" (as defined) at a discount of at least 20%
from rates otherwise charged and an insurer cannot refuse to sell a "good
driver" policy to a qualified applicant; automobile insurance policies on the
books as of November 9, 1988 and new and renewal policies written thereafter
cannot be cancelled or non-renewed except for non-payment of premium, fraud or
material misrepresentation, or a substantial increase in hazard; and automobile
insurance rates must be based on the following factors in decreasing order of
importance: driving record, number of miles driven, number of years of driving
experience, and other factors which may be adopted by the Insurance
Commissioner.
In January 1993, Zenith announced that it had reached an agreement with the
California Department of Insurance (the "Department") to resolve its Proposition
103 rollback refund contingency (see "Resolution of Contingencies Surrounding
Proposition 103" in Note 9 on page 50 of Zenith's 1994 Annual Report to
Stockholders, which note is hereby incorporated by reference). Under the
agreement, Zenith's subsidiaries refunded to each holder of an affected policy
issued or renewed between November 1988 and November 1989 an amount equal to
approximately
9.5 percent of the premium paid plus interest. The net cost of the refund, after
reinsurance, reduced income before taxes in 1992 by $16,078,000. As part of the
agreement, the Department gave final approval to all of Zenith's pending rate
applications on affected lines of business subsequent to the rollback period.
Rate increases of 8.0% and 15.4%, respectively, on farmowners and homeowners
policies were implemented effective July 1, 1993. During 1994, the Department
approved a rate increase for commercial auto of 7.5% and a rate decrease for
personal auto of 6.3%, both effective September 1, 1994. The Department has also
approved rate increases for homeowners (8.0%), farmowners (8.5%), earthquake
(15.1%) and commercial property and liability coverages (5.6%). These rates will
be effective in early 1995.
PROPERTY AND CASUALTY -- REINSURANCE ASSUMED
Zenith Insurance is selectively underwriting a book of assumed reinsurance.
Reinsurance contracts, or treaties, come in a variety of forms, but the
principal arrangements are either proportional in nature, in which the assuming
company shares pro-rata in the premiums and losses of the cedant, or
arrangements under which the assuming company pays losses in excess of a certain
limit in return for a premium, usually determined as a percentage of the
cedant's primary insurance premiums. Zenith operates its reinsurance activity as
a participant in treaties in which, typically, the reinsurance coverage is
syndicated to a number of assuming companies. Depending upon market conditions
and other factors, the volume of premiums written fluctuates from year to year.
Zenith's current participation in the reinsurance market is limited principally
to participation in the reinsurance of large individual property risks and
property catastrophe reinsurance. Major property losses and catastrophes in
recent years have served to increase the premiums paid for such reinsurance and
to increase the amount of risk retained by insurers and reinsurers. These
developments have created a market which management believes presents
reasonable, acceptable
4
opportunities to produce favorable underwriting results. Zenith's assumed
reinsurance business is written with a view to limiting the company's exposure
to losses from any one event to a maximum of approximately 5% of stockholders'
equity.
Because reinsurance pricing is unregulated, an important element in such
pricing is the supply of reinsurance capacity (i.e. capital) relative to demand.
As reinsurance rates have increased in recent years new capital has been made
available to provide world-wide reinsurance capacity. Most notably, such capital
has been contributed by new companies in Bermuda and by contributions to Lloyd's
syndicates by corporations with limited liability. As a result, reinsurance
rates in 1995 do not appear to have increased over 1994.
In November 1994, Zenith Insurance became a corporate underwriting member of
Lloyd's through the formation of a 100% wholly owned subsidiary, ZIC Lloyd's
Underwriting Limited ("ZIC Lloyd's"). ZIC Lloyd's has committed funds of $5
million to support the 1995 underwriting year of a certain syndicate. Such funds
were made available by a deposit of $2.5 million and a $2.5 million letter of
credit in favor of Lloyd's expiring January 31, 2000. All of the funds committed
by ZIC Lloyd's are available to satisfy claims in the event of underwriting
losses for 1995 by the syndicate. However, such commitment is limited to $5
million.
HEALTH AND LIFE
CalFarm Life offers a varied portfolio of life, health and annuity products.
The portfolio includes a competitive line of Term Life, Universal Life and
Interest Sensitive Life Insurance, Group Health Insurance, and Single and
Flexible Premium Annuity products for both qualified and non-qualified markets.
Less than 8% of CalFarm Life's life insurance is written on substandard risks.
CalFarm Life's interest sensitive life insurance products and annuity products
contain features to minimize the effect of inflation and interest rate
fluctuations. As a result, management does not believe the impact of inflation
on these products will be material.
In 1994, CalFarm Life continued its sales of tax sheltered annuity products,
specifically, those designed for school teachers and administrators. Total
annuity deposits of $41,924,000, $56,764,000 and $83,600,000 were collected for
1994, 1993 and 1992, respectively. Zenith's ability to profit from its annuity
business depends upon its ability to manage the spread between the interest it
earns on its investment portfolio and the interest credited to the annuity
deposits; policy and premium persistency; the efficiency of operations; and the
limiting of its risk of defaults on its investment portfolio. During 1994, the
Company experienced higher than expected policy surrenders on its annuity
business. Increased personal federal income tax rates may increase the desire to
accumulate retirement income on a tax deferred basis, however the profitability
of future operations could be adversely affected if tax laws are changed with
respect to income accumulation within life insurance and annuity products.
Health insurance is the largest line of insurance written by CalFarm Life,
accounting for $36,904,000 or approximately 60% of its total premium income in
1994. Health premiums are written under a program sponsored by the California
Farm Bureau Federation (the "Farm Bureau").
CalFarm Life's deposits for Universal Life contracts were $13 million, $19
million, and $13 million in 1994, 1993, and 1992, respectively. Significant
terms of CalFarm's life insurance products include minimum guaranteed credited
interest rates ranging from 3% to 6%, mortality charges and surrender
(termination) charges which generally diminish over 15 years. Life insurance
premium rates are based on pricing assumptions as to future mortality,
investment yields, expenses, and persistency. Although a margin for profit is
included, the actual profitability of the products can be significantly affected
by the deviation of actual experience from the assumptions. The actual
experience in recent years on investment yields has been more favorable than
anticipated, while the experience on premium persistency on new business has
been less favorable than anticipated; experience with respect to expenses and
mortality rates have been in line with pricing assumptions.
5
Life insurance in force is a measure of the total commitment of CalFarm Life
to pay benefits under the policies it has written that are currently in effect
or, "in force." Changes in life insurance in force are summarized in the
following table for all classes of insurance.
FOR THE YEARS ENDED DECEMBER 31
--------------------------------------
1994 1993 1992
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(DOLLARS IN THOUSANDS)
In force -- beginning of year..................... $2,976,178 $2,951,649 $2,686,030
Issued for new policies........................... 192,889 605,201 500,084
Reinstated policies............................... 2,288 1,514 2,066
Net additions (reductions) to policies............ (1,789) (316,477) 32,921
Additions by dividend............................. 1,421 2,223 2,265
Reduction due to:
Death claims.................................... 7,427 6,159 6,974
Expirations and maturities...................... 2,338 2,665 2,770
Surrenders and lapses........................... 279,535 237,307 231,100
Conversions..................................... 17,592 21,801 30,873
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In force -- end of year........................... 2,864,095 2,976,178 2,951,649
Less reinsurance ceded.......................... 438,775 453,025 287,980
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Net retained in force -- end of year.............. $2,425,320 $2,523,153 $2,663,669
---------- ---------- ----------
---------- ---------- ----------
The results of operations of CalFarm Life reflect the effect of purchase
accounting adjustments including policy liabilities and accruals and the value
of life insurance in force based on actuarial estimates. These actuarial
estimates were based on then current assumptions applied in calculating policy
reserves, policyholder dividend amounts and related policy acquisition costs to
be incurred, discounted to provide an appropriate rate of return.
PARENT
Zenith is a holding company owning directly or indirectly all of the capital
stock of certain California insurance and insurance-related companies. In 1993,
Zenith commenced a real estate operation through a newly-formed subsidiary,
Perma-Bilt, for the purpose of building private residences in Las Vegas, Nevada.
In 1994, sales revenues of $30,220,000 were recognized on 228 completed sales
contracts. Income before taxes attributable to real estate operations was
$2,189,000 in 1994. At December 31, 1994, Perma-Bilt owned land at a cost of
approximately $10 million with a capacity to develop a further 1,100 units.
LOSS AND LOSS EXPENSE RESERVES AND CLAIMS, AND LOSS DEVELOPMENTS
Zenith's property and casualty subsidiaries (the "P&C Companies") 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. The amount of such reserves, as related to reported claims, is based
upon periodic case-by-case evaluation and judgment by the P&C Companies' claims
departments, with actuarial review. The estimate of unreported claims arising
from accidents which have not yet been reported to the P&C Companies, commonly
known in the industry as "incurred but not reported," is based upon the P&C
Companies' experience and statistical information with respect to the probable
number and nature of such claims. The P&C Companies monitor these factors and
revise their reserves as they deem appropriate. Reserves are based on estimates
and no assurance can be given that the ultimate liability will not be more or
less than such estimates.
Reference is made to "Property -- Casualty Loss Development" on pages 36 and
37, the table setting forth statutory loss and loss adjustment expense
development by accident year on page 8 and the table setting forth the
reconciliation of changes in the liabilities for losses and loss adjustment
expenses included in Note 14 -- "Loss and Loss Adjustment Expense Reserves" on
page 52 of the 1994 Annual Report to Stockholders, all of which are hereby
incorporated by reference. These tables show the development of loss and loss
adjustment expense liabilities as
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originally estimated under generally accepted accounting principles at December
31 of each year presented, as well as the development of statutory incurred loss
and loss adjustment expense by accident year. The accounting methods used to
estimate these liabilities are described in Note 1 of the Notes to Consolidated
Financial Statements of Zenith as set forth on pages 44 through 46 of the 1994
Annual Report to Stockholders which note is hereby incorporated by reference.
WORKERS' COMPENSATION
Zenith's Workers' Compensation reserves, on the average, are paid within
approximately 2 1/2-3 years. Zenith regards the timely settlement of its
Workers' Compensation claims as important to its profitability and makes
extensive use of compromises and releases for claim settlements to expedite this
process.
Workers' compensation loss and loss development trends in California were
unfavorable in 1992, a year which saw the culmination of an increasing amount of
fraud and abuse in the California workers' compensation system. Legislative
reform of the California workers' compensation system was enacted in 1993. In
addition, Zenith undertook significant additional expenditures on the loss
adjustment process in recent years with a view to mitigating the effect of
adverse claim trends, particularly the effect of fraud and abuse.
In 1994, the one year loss development on reserves showed favorable
development of $12,944,000. The one year development on reserves for unpaid
losses and loss adjustment expenses in 1993 and 1992 showed unfavorable
development of $4,704,000 and $13,502,000, due principally to development of
prior year reserves for unpaid loss adjustment expenses caused by increased
expenditures on the loss adjustment process.
Zenith Insurance maintains five regional offices in California and an office
in Texas, 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 a computer system that provides immediate access to policy coverage
verification and claims records and enables Zenith Insurance to detail claims
payment histories and policy loss experience reports.
AUTOMOBILE AND OTHER PROPERTY AND CASUALTY
Automobile and Other Property and Casualty loss reserves are paid, on the
average, within approximately 1 1/2-2 years.
In addition to inflated medical and hospital costs, an increase in the
incidence of fraudulent and questionable claims in recent years has given rise
to a steady increase in the cost of adjusting claims. The one year development
of Automobile and Other Property and Casualty reserves for unpaid losses and
loss adjustment expenses showed unfavorable development of $4,051,000,
$4,657,000 and $5,177,000 in 1994, 1993 and 1992, respectively. Such unfavorable
development was attributable to development of prior year reserves for unpaid
loss adjustment expenses caused by an increase in expenditures on the loss
adjustment process, particularly for legal expenses of claims servicing.
Losses attributable to the Northridge earthquake in 1994 were $3,200,000, of
which $800,000 was assessed by the California Fair Plan. Property losses in 1993
and 1992 were impacted by an adverse frequency of weather and fire related
losses. Losses in 1993 included $1,600,000, of which $1,000,000 was assessed by
the California Fair Plan, attributable to the Southern California brush fires in
the fall.
Commercial General Liability policies written by CalFarm Insurance contain
exclusion clauses for damages resulting from pollution, and such losses are
thereby substantially excluded from coverage. Although such claims have been
received by CalFarm Insurance, management believes that such claims will not
have a material adverse effect on Zenith's consolidated financial condition
either individually or in the aggregate.
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CalFarm Insurance maintains three claims and legal offices in California to
conduct all claims operations of the other property and casualty business. All
claims operations of
CalFarm Insurance are supervised by its home office claims department.
REINSURANCE ASSUMED
Zenith expects that, on the average, its Reinsurance reserves will be paid
in approximately 6-7 years.
Zenith's Reinsurance reserves constitute approximately 21% of its total
reserves, net of reinsurance, for property and casualty unpaid losses and loss
adjustment expenses at December 31, 1994, reflecting the longer average life of
such reserves relative to Zenith's other principal lines of business. 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 one year development of Reinsurance
reserves showed favorable development of $827,000 in 1994 and $290,000 in 1993
and adverse development of $1,255,000 in 1992.
Losses attributable to the Northridge earthquake in 1994 were $9,300,000. In
1992, Zenith Insurance incurred losses of approximately $9,800,000 associated
with hurricanes "Andrew" and "Iniki."
Zenith Insurance has participated, to a limited extent, in the reinsurance
arrangements of ceding companies that have written both directors' and officers'
liability coverage ("D & O") policies and professional indemnity policies,
including such coverage written for practicing certified public accountants.
Actions alleging negligence against directors, officers or accountants by
parties suffering financial losses in savings and loan failures give rise to
claims under D & O policies or professional indemnity policies which, in turn,
give rise to claims against Zenith Insurance. Such claims have not had, and are
not expected to have in the future, a material adverse effect on Zenith's
consolidated financial condition.
INVESTMENTS
Investment policies of Zenith and its insurance subsidiaries are established
by their respective Boards of Directors, taking into consideration California
legal restrictions with respect to investments in connection with reserve
obligations as well as the nature and amount of various kinds of investments.
(See "Business -- Regulation.") Zenith adjusts its investment strategy to
reflect the needs of Zenith's different businesses, changes in the economic
environment and tax laws and its objective of maximizing the rate of return with
consideration for maintaining principal values (see "Investments" under
Management's Discussion and Analysis of Consolidated Financial Condition and
Results of Operations on pages 29 and 30 of Zenith's 1994 Annual Report to
Stockholders which is hereby incorporated by reference). At December 31, 1994
the investment portfolios of Zenith and the P&C Companies consisted primarily of
taxable bonds and short-term investments supplemented by smaller portfolios of
redeemable and other preferred stocks and common stocks. At December 31, 1994
CalFarm Life's investment portfolio consisted primarily of taxable long-term,
intermediate-term and short-term securities. The average life of the
consolidated portfolio was 8.0 years; the portfolio of all companies excluding
CalFarm Life had an average life of 2.5 years; and the portfolio of CalFarm Life
had an average life of 12.8 years. Investment income by segment is set forth in
Note 15 -- "Segment Information" on pages 52 and 53 of the 1994 Annual Report to
Stockholders which note is hereby incorporated by reference.
Stockholders' equity will fluctuate as interest rates fluctuate due to the
implementation of Statement of Financial Accounting Standards No. 115 --
Accounting for Investments in Certain Debt and Equity Securities. In accordance
with its provisions, Zenith has identified certain securities, amounting to
approximately 66% of the investments in debt securities at December 31, 1994, as
available-for-sale. In 1994 stockholders' equity decreased by $58.5 million, net
of limited deferred tax benefits, as a result of changes in the fair values of
such investments.
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REINSURANCE CEDED
In accordance with general industry practices, Zenith's insurance
subsidiaries annually purchase excess of loss reinsurance.
Reinsurance makes the assuming reinsurer liable to the ceding company to the
extent of the reinsurance. It does not, however, discharge the ceding company
from its primary liability to its policyholders in the event that the reinsurer
is unable to meet its obligations under such reinsurance treaty. Historically,
no material costs have been incurred by Zenith or its subsidiaries from
uncollected reinsurance.
Reinsurance premiums ceded by Zenith's insurance subsidiaries amounted to
$21,801,000, $22,457,000 and $22,231,000 in 1994, 1993 and 1992, respectively or
4.6%, 4.6% and 4.8% of earned premiums in 1994, 1993 and 1992, respectively.
Reinsurance reserves amounted to $47,332,000, $44,552,000 and $32,701,000 in
1994, 1993 and 1992, respectively, or 9.4%, 8.7% and 6.6% of gross reserves for
unpaid losses and loss adjustment expenses in 1994, 1993 and 1992, respectively.
The purpose of such reinsurance is to protect Zenith from the impact of large,
unforseen losses and such reinsurance reduces the magnitude of sudden and
unpredictable changes in net income and the capitalization of insurance
operations. Zenith monitors the financial condition of its reinsurers and does
not believe that it is exposed to any material risk of loss through its ceded
reinsurance arrangements. Zenith believes that its ceded reinsurance
arrangements are adequate and consistent with industry practice. Each insurance
subsidiary maintains separate reinsurance arrangements, which during 1994 were
as follows:
Zenith Insurance -- Workers' Compensation reinsurance covered all claims
between $550,000 and $100,000,000 per occurrence. The coverage from $550,000 to
$5,000,000 is placed with General Reinsurance Corporation, the coverage from
$5,000,000 to $10,000,000 with Employers Reinsurance Corporation and the
remaining three layers from $10,000,000 to $60,000,000 primarily with Prudential
Reinsurance Company, NAC Reinsurance Corporation, Transatlantic Reinsurance
Company, The St. Paul Companies and the London reinsurance market (primarily
Lloyds' syndicates and certain United Kingdom reinsurance companies).
Catastrophe reinsurance covers an additional $40,000,000 in excess of
$60,000,000 and is placed with Northwestern National Life Insurance Company,
Cigna Reinsurance Company and Pinehurst Accident Reinsurance Group. Zenith's
Reinsurance division did not purchase any reinsurance protection on its assumed
business in the three years ended December 31, 1994. However, 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.
CalFarm Insurance -- For personal and commercial property lines of business,
reinsurance is maintained for claims in excess of $200,000 up to $4,000,000 per
occurrence. On liability coverages for both personal and commercial lines,
reinsurance covers losses up to $5,000,000 per occurrence, subject to a
retention of $500,000. This reinsurance coverage is all placed with General
Reinsurance Corporation. CalFarm Insurance has property catastrophe reinsurance
that provides for recovery of losses of 95% of $20,000,000, excess of a
retention of $5,000,000, for which the lead reinsurer is General Reinsurance
Corporation. In addition, CalFarm Insurance has property catastrophe reinsurance
for the recovery of fire related losses of 95% of $5,000,000, excess of a
retention of $25,000,000 and for earthquake and fire following earthquake
related losses of 95% of $10,000,000 in excess of a retention of $30,000,000.
CalFarm Insurance participates in a quota share contract whereby it retains
20% of the first $1,000,000 on most umbrella risks (comprehensive coverage in
excess of primary policy limits) underwritten, with the remainder of up to
$10,000,000 for commercial lines and up to $5,000,000 for personal lines ceded
to General Reinsurance Corporation. Facultative reinsurance is placed on
property coverage in excess of $4,000,000 on all property lines, and on umbrella
limits in excess of $10,000,000 for commercial lines and $5,000,000 for personal
lines. Facultative reinsurance is used
9
on fewer than 5% of CalFarm Insurance's policies. Facultative coverage is placed
primarily with General Reinsurance Corporation. Other companies used are
Employers Reinsurance Corporation, Munich American Reinsurance Company and other
reinsurers rated A+ by A.M. Best Company.
CalFarm Life -- Yearly renewable term insurance treaties are maintained with
seven life insurers, through which CalFarm Life ceded 16% of its ordinary life
insurance in force as of year end 1994 and 1993. Its principal reinsurers are
American United Life Insurance Company, Indiana; Frankona America Life
Reassurance Company, Missouri; Munich American Reassurance Company, Georgia;
North American Reassurance Company, New York; Gerling Global Life Insurance
Company, Canada; and Transamerica Occidental Life Insurance Company, California.
Maximum net retention on any one life is $250,000. CalFarm Life also maintains
reinsurance agreements with Employers Reinsurance Corporation for excess risks
on its accident and health contracts. This excess risk reinsurance provides
coverage for aggregate losses in excess of $2,400,000 on those claims that
exceed $120,000 for each insured in each calendar year.
Pooling Agreement -- Zenith Insurance, CalFarm Insurance, ZNAT Insurance and
Zenith Star are parties to a pooling agreement. Under the 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 those three companies in the following proportions: Zenith Insurance,
79.5%; CalFarm Insurance, 18%; ZNAT Insurance, 2%; 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
Zenith Insurance's workers' compensation business is produced by
approximately 500 independent licensed insurance agents and brokers throughout
California and Texas along with the CalFarm agents referred to below. Zenith
Insurance's assumed reinsurance premiums are generated nationally by brokers and
reinsurance intermediaries.
CalFarm Insurance and CalFarm Life, through their affiliate CalFarm
Insurance Agency, maintain a sales force of approximately 206 agents who sell
insurance products exclusively for CalFarm Insurance and CalFarm Life, primarily
in rural and suburban areas. These agents operate out of 118 offices throughout
the State of California, including 32 offices shared with the Farm Bureau. In
addition, in certain areas, independent agents market CalFarm Insurance
products. CalFarm Life also markets a tax sheltered annuity product through a
general agent and approximately 670 appointed sub-agents.
Applications for insurance submitted by all agents and brokers are evaluated
by professional underwriters based upon numerous factors, including underwriting
criteria and standards, geographic areas of underwriting concentration,
actuarial judgments of rate adequacy, economic considerations, and review of
known data on the particular risk. Zenith's insurance subsidiaries, as opposed
to their agents and brokers, retain authority over underwriting, claims
processing, safety engineering and auditing.
CALIFORNIA FARM BUREAU FEDERATION
The Farm Bureau was formed to provide its members with a variety of
agriculture-related services, including property and casualty, health and life
insurance. The Farm Bureau is California's largest general farm organization,
and represents more than 68,000 member families in 56 counties. The Farm Bureau
continues to work actively to encourage its membership to place their insurance
with CalFarm Life and CalFarm Insurance. Farm Bureau membership is a
prerequisite to the purchase of farmowners, automobile and health insurance from
CalFarm Life and CalFarm Insurance. Of the estimated 68,000 member families,
approximately 64% are insured by CalFarm Insurance or CalFarm Life. The
businesses of CalFarm Life and CalFarm Insurance are closely tied to the
California farm economy, however over 41% of Farm Bureau members (and CalFarm
Insurance and CalFarm Life insureds) are non-farmers and over 62% of CalFarm
Insurance and CalFarm Life premium volume is generated by non-farm business.
Total revenues in CalFarm
10
Insurance and CalFarm Life attributable to sales that were sponsored by the Farm
Bureau constituted approximately 25%, 26% and 27% of Zenith's total consolidated
revenues for the years 1994, 1993 and 1992, respectively. The agreement of
CalFarm Insurance and CalFarm Life with the Farm Bureau, which is subject to
cancellation by either party on six months' notice, requires annual payments to
the Farm Bureau of $240,000 plus 2% of the gross written premium under the Farm
Bureau group health insurance program. Pursuant to such provisions, total
payments to the Farm Bureau were approximately $1 million in each of 1994, 1993
and 1992.
Zenith believes that its relationship with the Farm Bureau is mutually
beneficial. CalFarm Insurance and CalFarm Life benefit from the use of the
CalFarm name and the Farm Bureau membership lists, and their ability to sell
their products to Farm Bureau members is enhanced by the Farm Bureau
relationship. The Farm Bureau benefits since Farm Bureau membership is required
to obtain automobile, farmowners and health insurance policies (but not life
insurance) from CalFarm Insurance and CalFarm Life, which generates membership
and revenues for the Farm Bureau. If the relationship between CalFarm Insurance
and CalFarm Life and the Farm Bureau were terminated, Zenith believes that it
could retain a significant amount of the business it currently has with Farm
Bureau members because of the quality and tailored features of the products it
offers in what it regards as its "niche market" and the long-term relationships
established between its agents and these policyholders. In the event of such
termination, however, Zenith expects that there would be an increased risk of
nonrenewal of existing insurance coverage as well as a possible adverse effect
on new policy revenues, but it cannot estimate the financial impact of any such
termination. Zenith anticipates the continuation of a close working relationship
with the Farm Bureau and the promotion among its membership of the purchase of
insurance products from CalFarm Insurance and CalFarm Life as an attractive
feature of Farm Bureau membership.
COMPETITION
Competition in the insurance business is based upon price, product design
and quality of service. After December 31, 1994, the repeal of minimum rate laws
in California will introduce price as a basis of competition for California
workers' compensation policies. The insurance industry is highly competitive and
Zenith's subsidiaries compete not only with other stock companies, but with
mutual companies, other underwriting organizations and the State Compensation
Insurance Fund. Competition also exists from self-insurance and captive
insurers. Over the years there has been increased competition from
direct-writing companies and, in the property and casualty field, from
affiliates of large life insurance companies. Many companies in competition with
Zenith's subsidiaries 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
STATES' 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. Zenith's
insurance subsidiaries 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 in the State of Texas. These
states have broad regulatory, supervisory and administrative powers. Such powers
relate, among other things, to the granting 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, CalFarm Insurance and ZNAT Insurance are
required, with respect to their workers' compensation line of business, to
maintain on deposit investments meeting specified standards that have an
aggregate market value equal to the companies' loss
11
reserves. For this purpose, loss reserves are defined as the current estimate of
reported and unreported claims plus a statutory formula reserve based on a
minimum of 65% of earned premiums for the latest three years.
CalFarm Life is required to establish, as liabilities, actuarial reserves on
life insurance policies and annuities as prescribed by regulatory authorities.
Statutory reserves are calculated at amounts that are, together with premiums or
annuity considerations to be received on outstanding policies or annuity
contracts, and with interest on such reserves compounded annually at certain
assumed rates, deemed sufficient to meet the policy obligations at death or
maturity or to meet the annuity obligations pursuant to the contract, each in
accordance with mortality tables used when the policy or contract was issued.
Detailed annual and quarterly reports must be filed by Zenith's insurance
subsidiaries with the California and Texas Departments of Insurance, and with
other states 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 Insurance, ZNAT
Insurance and CalFarm Life Insurance, were examined by the California Department
of Insurance as of December 31, 1990, and the report on such examination
contained no material findings. The triennial examination of these companies as
of December 31, 1993 is not yet complete. Zenith Star was examined by the Texas
Department of Insurance as of June 30, 1994 and the results of such examination
contained no material findings.
THE NATIONAL ASSOCIATION OF INSURANCE COMMISSIONERS
The National Association of Insurance Commissioners ("NAIC") is a group
formed by state Insurance Commissioners to discuss issues and formulate policy
with respect to regulation, reporting and accounting of insurance companies.
Although the NAIC has no legislative authority and insurance companies are at
all times subject to the laws of their respective domiciliary states, and to a
lesser extent other states in which they conduct business, the NAIC is
influential in determining the form in which such laws are enacted. In
particular, the Model Insurance Laws, Regulations and Guidelines of the NAIC
(the "Model Laws") have been promulgated by the NAIC as a minimum standard by
which state regulatory systems and regulations are measured. Adoption of state
laws which provide for substantially similar regulations to those described in
the Model Laws is a requirement for the accreditation by the NAIC.
The NAIC has adopted model regulations to require insurers to maintain
minimum levels of capital based on their investments and operations, known as
"risk based capital" ("RBC") requirements. Such requirements were adopted by
California for life insurance companies in 1993 and for property and casualty
insurers in 1994. Zenith does not anticipate any adverse effects of such
requirements because of the strong capitalization of its insurance operations.
At December 31, 1994, adjusted capital under the RBC regulations was 450% and
427% of the RBC control, or required, level of capital under the regulations for
the Zenith Insurance Group (consisting of Zenith Insurance, CalFarm Insurance,
ZNAT Insurance and Zenith Star) and CalFarm Life, respectively.
The NAIC Insurance Regulatory Information System ("IRIS") was developed to
assist insurance departments in overseeing the financial condition of insurance
companies. Annually, IRIS key financial ratios (11 ratios for property and
casualty companies and 12 ratios for life companies) are calculated from data
supplied in annual statutory statements of insurance companies. These ratios 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 1994 IRIS results for the Zenith Insurance Group showed no
results outside the "normal range" for such ratios, as such range is determined
by the NAIC. At December 31, 1994 two such ratios for CalFarm Life were
considered outside the "normal range", "change in premium" and "change in
reserving ratio", primarily because of the decrease in universal life and
annuity deposits in 1994 as compared to 1993.
In 1995, the NAIC approved an actuarial guideline for determining minimum
statutory reserves for annuity policies for life insurance companies. This
guideline is effective in 1995 and requires an increase to statutory reserves
which will defer the recognition of statutory profits to future periods. The
guideline allows CalFarm Life to seek approval from the California Department of
Insurance to
12
increase current reserves over a three year phase-in period. Management is
currently evaluating alternatives to minimize the impact of this guideline on
CalFarm Life. Under a three year phase-in period, preliminary estimates indicate
the maximum increase to statutory reserves will not exceed $10 million each year
and implementation is not expected to adversely affect CalFarm Life's capital
ratios or operations.
INSURANCE HOLDING COMPANY SYSTEM REGULATORY ACT
Zenith's insurance subsidiaries are also 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, and limit dividend payments
and material transactions by Zenith's insurance subsidiaries. See "Liquidity and
Inflation" under "Management's Discussion and Analysis of Consolidated Financial
Condition and Result of Operations" on pages 32 and 33 of Zenith's 1994 Annual
Report to Stockholders, which is hereby incorporated by reference.
HEALTH CARE REFORM
The federal and state executive branches and legislatures and the health
insurance industry continue to debate the level of responsibility of private
carriers to provide universal insurance for all American citizens, including the
uninsured and the uninsurable. It is not possible to predict the impact of this
debate on CalFarm Life's business until definitive legislation, if any, emerges.
OTHER REGULATION
Property and casualty insurance coverage is subject to certain regulation as
described herein under "Property and Casualty -- Other, Principally Automobile"
under which Zenith's other property and casualty rates are subject to prior
approval by the California Department of Insurance. The provisions of
Proposition 103 do not apply to Workers' Compensation insurance or Reinsurance,
which combined to account for 63% of Zenith's property and casualty earned
premiums in 1994.
ITEM 2. PROPERTIES
Zenith Insurance owns a 120,000 square foot office facility in Woodland
Hills, California which, since November of 1987, has been the corporate home
office of Zenith, Zenith Insurance, and ZNAT Insurance.
In addition, Zenith Insurance, CalFarm Insurance and CalFarm Life, in the
regular conduct of their business, lease offices in various cities. See Note 9
of the Notes to Consolidated Financial Statements of Zenith on page 50 of the
1994 Annual Report to Stockholders, which note is hereby incorporated by
reference.
CalFarm Life owns 25% and CalFarm Insurance owns 75% of the home office
building (and surrounding property of approximately 4 acres) occupied by those
companies in Sacramento, California, consisting of 133,000 square feet.
Approximately 20% of the building is leased to the Farm Bureau and affiliates.
In addition, CalFarm Life leases and occupies, in a nearby building in
Sacramento, California, approximately 30,000 square feet under a lease expiring
January 31, 1997.
ITEM 3. LEGAL PROCEEDINGS
Zenith and its subsidiaries are involved in certain litigation. In the
opinion of management, after consultation with legal counsel, such litigation in
which Zenith is a defendant is either without merit or the ultimate liability,
if any, will not have a material adverse effect on the consolidated financial
condition of Zenith.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
13
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
Zenith's Common Stock, par value $1.00 per share, is traded on the New York
Stock Exchange. 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 1994 1993
- ------------------------------------------------------------ ------- -------
First
High...................................................... 24 1/4 29 1/4
Low....................................................... 20 3/4 19 5/8
Second
High...................................................... 25 1/2 27 1/4
Low....................................................... 20 5/8 23 1/4
Third
High...................................................... 27 3/8 29 1/8
Low....................................................... 22 23 1/2
Fourth
High...................................................... 24 1/2 28 3/4
Low....................................................... 20 3/4 21 1/4
As of March 23, 1995, there were 456 holders of record of Zenith Common
Stock.
The table below sets forth information with respect to the amount and
frequency of dividends declared on Zenith 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
- ------------------------------------ ----------------------- --------------------- ------------------------
December 10, 1992................... $.25 cash per share January 29, 1993 February 12, 1993
March 11, 1993...................... $.25 cash per share April 30, 1993 May 14, 1993
May 26, 1993........................ $.25 cash per share July 30, 1993 August 13, 1993
September 8, 1993................... $.25 cash per share October 29, 1993 November 12, 1993
December 9, 1993.................... $.25 cash per share January 31, 1994 February 14, 1994
March 17, 1994...................... $.25 cash per share April 29, 1994 May 13, 1994
May 25, 1994........................ $.25 cash per share July 29, 1994 August 12, 1994
September 7, 1994................... $.25 cash per share October 31, 1994 November 14, 1994
December 6, 1994.................... $.25 cash per share January 31, 1995 February 15, 1995
The Holding Company Acts limit the ability of Zenith Insurance and CalFarm
Life to pay dividends to Zenith, and of CalFarm Insurance, ZNAT Insurance and
Zenith Star to pay dividends to Zenith Insurance, by providing that the
California or Texas Department of Insurance 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 (or net investment income in the case of Zenith Star, and in the case of
CalFarm Life, net gain from operations) for the preceding year. In addition, any
such dividend must be paid from policyholders' surplus attributable to
accumulated earnings. During 1994, Zenith Insurance paid dividends of
$15,000,000 to Zenith. During 1995, Zenith Insurance and CalFarm Life will be
able to pay $25,643,000 and $9,512,000, respectively, in dividends to Zenith
without prior approval. In addition, in 1995, CalFarm Insurance, ZNAT Insurance
and Zenith Star, together, can pay $7,328,000 to Zenith Insurance which would be
available to Zenith in 1996.
ITEM 6. SELECTED FINANCIAL DATA.
The five-year summary of selected financial information and accompanying
notes, included in Zenith's 1994 Annual Report to Stockholders on pages 34 and
35, is hereby incorporated by reference.
14
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 1994 Annual Report to
Stockholders on pages 25 to 33 is hereby incorporated by reference.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
Reference is made to pages 36 and 37 of Zenith's 1994 Annual Report to
Stockholders for information setting forth the loss and loss adjustment expense
liability development for 1984 through 1994 and page 8 of Zenith's 1994 Annual
Report to Stockholders for incurred loss and loss adjustment expense development
for 1989 through 1994, and to the consolidated financial statements and notes
thereto on pages 38 to 54 of Zenith's 1994 Annual Report to Stockholders, all of
which are hereby incorporated by reference.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
None.
15
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
The information set forth under the captions "Compliance with Section 16(a)
of the Exchange Act" and "Election of Directors" in the Proxy Statement in
connection with Zenith's 1995 Annual Meeting of Stockholders (the "Proxy
Statement") is hereby incorporated by reference.
EXECUTIVE OFFICERS OF THE REGISTRANT
OFFICER
NAME AGE POSITION TERM SINCE
- ----------------- --- ---------------------------------------- ------ -------
Stanley R. Zax 57 Chairman of the Board, President (1) Annual 1977
Fredricka Taubitz 51 Executive Vice President and Annual 1985
Chief Financial Officer (1)
James P. Ross 48 Senior Vice President and Actuary (1) Annual 1978
John J. Tickner 56 Senior Vice President and Secretary (1) Annual 1985
Keith E. Trotman 58 Senior Vice President (2) Annual 1988
Philip R. Hunt 52 Senior Vice President (2) Annual 1988
- ------------------------
(1) Officer of Zenith and subsidiaries.
(2) Officer of subsidiaries only.
Each of the executive officers has, for more than five years, occupied an
executive position with Zenith or a subsidiary of Zenith.
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,"
"Summary Compensation Table," "Option/SAR Grants in Last Fiscal Year," and
"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," and "Compensation Committee Interlocks and
Insider Participation" in the Proxy Statement is hereby incorporated by
reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The information set forth under the caption "Security Ownership of Certain
Beneficial Owners and Management" in the Proxy Statement is hereby incorporated
by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
The information set forth in footnote 3 to the table set forth under the
caption "Election of Directors" and under the heading, "Investment in Delta
Life" 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
Independent Accountant's Report
Financial Statements and notes thereto incorporated by reference
from the 1994 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, 1994 and 1993
Consolidated Statement of Operations for the years ended
December 31, 1994, 1993 and 1992
Consolidated Statement of Cash Flows for the years ended
December 31, 1994, 1993 and 1992
Consolidated Statement of Stockholders' Equity for the
years ended December 31, 1994, 1993 and 1992
Notes to Consolidated Financial Statements
Table setting forth incurred loss and loss adjustment expense
development on a statutory basis on page 8 of the 1994 Annual
Report to Stockholders
2.FINANCIAL STATEMENT SCHEDULES
Zenith National Insurance Corp. and Subsidiaries
As of December 31, 1994.
I -- Summary of Investments -- Other Than Investments in Related
Parties
For the years ended December 31, 1994, 1993 and 1992.
III -- Supplementary Insurance Information
IV -- Reinsurance
Zenith National Insurance Corp.
As of December 31, 1994 and 1993 and for the years ended December
31, 1994, 1993 and 1992.
II -- Condensed Financial Information of Registrant
Property and Casualty Loss Developments on pages 36 and 37 and on page 8
of the 1994 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
notes thereto.
17
3. EXHIBITS
The Exhibits listed below are filed in a separate Exhibit Volume to this
Report.
3.1 Certificate of Incorporation of Zenith as in effect immediately prior to November 22,
1985. (Incorporated herein by reference to Exhibit 3 to Zenith's Amendment on Form 8,
date of amendment October 10, 1985, to Zenith's Current Report on Form 8-K, date of
report July 26, 1985). Certificate of Amendment to Certificate of Incorporation of
Zenith, effective November 22, 1985. (Incorporated herein by reference to Zenith's
Current Report on Form 8-K, date of report November 22, 1985).
3.2 By-Laws of Zenith, as currently in effect. (Incorporated herein by reference to Exhibit
3.2 to Zenith's Annual Report on Form 10-K for the year ended December 31, 1988.)
4.1 Indenture dated as of May 1, 1992 entered into between Zenith 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.)
10.1 Purchase Agreement, dated as of February 4, 1981, among Reliance Insurance Company,
Zenith, 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).
10.2 Asset and Liability Assumption Agreement, dated as of June 4, 1985, between Zenith
Insurance and the Insurance Commissioner of the State of California (the
"Commissioner"). (Incorporated herein by reference to Exhibit 1 to Zenith's Current
Report on Form 8-K, date of report July 26, 1985).
10.3 Memorandum and Agreement of Closing dated as of July 26, 1985, among Zenith Insurance,
Zenith and the Commissioner (Incorporated herein by reference to Exhibit 10.6 to
Zenith's Annual Report on Form 10-K for the year ended December 31, 1985), together with
the following exhibits:
(a) Exhibit A -- Grant Deed, dated July 25, 1985, by the Commissioner in favor of Zenith
Insurance. (Incorporated herein by reference to Exhibit 10.6 to Zenith's Annual
Report on Form 10-K for the year ended December 31, 1985).
(b) Exhibit B -- Bill of Sale, dated as of July 26, 1985, by the Commissioner in favor
of Zenith Insurance. (Incorporated herein by reference to Exhibit 10.6 to Zenith's
Annual Report on Form 10-K for the year ended December 31, 1985).
(c) Exhibit C -- Assignment of Assets and Assumption of Liabilities, dated as of July
26, 1985, between the Commissioner and Zenith Insurance. (Incorporated herein by
reference to Exhibit 10.6 to Zenith's Annual Report on Form 10-K for the year ended
December 31, 1985).
(d) Exhibit D -- Noncompetition Agreement, dated as of July 26, 1985, between the
Commissioner and Zenith Insurance. (Incorporated herein by reference to Exhibit 28.3
to Zenith's Current Report on Form 8-K, date of report July 26, 1985).
18
(e) Exhibit E -- First Assignment Separate from Certificate, dated July 26, 1985, by the
Commissioner in favor of Zenith. (Incorporated herein by reference to Exhibit 10.6
to Zenith's Annual Report on Form 10-K for the year ended December 31, 1985).
(f) Exhibit F -- Engagement and Reimbursement Agreement, dated as of July 26, 1985,
between Zenith Insurance and the Commissioner. (Incorporated herein by reference to
Exhibit 28.2 to Zenith's Current Report on Form 8-K, date of report July 26, 1985).
*10.4 Zenith's Non-Qualified Stock Option Plan, as in effect immediately prior to December 6,
1985. (Incorporated herein by reference to Zenith's Registration Statement on Form S-8
(SEC File No. 2-97962)).
*10.5 Zenith'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)).
*10.6 Employment Agreement, dated February 8, 1995, between Zenith and Fredricka Taubitz.
*10.7 Employment Agreement, dated February 16, 1995, between Zenith and John J. Tickner.
*10.8 Employment Agreement, dated February 2, 1995, between Zenith and Stanley R. Zax.
*10.9 Stock Option Agreement, dated as of May 19, 1987, between Zenith and Stanley R. Zax.
(Incorporated herein by reference to Exhibit 10.15 to Zenith's Annual Report on Form
10-K for the year ended December 31, 1987).
10.11 Credit Agreement, dated as of December 15, 1994 between Zenith and Sanwa Bank of
California.
10.12 Revolving Note Agreement, dated September 30, 1994, between Zenith and City National
Bank.
10.13 Agreement of Reinsurance #6966 between Zenith Insurance Company and General Reinsurance
Corporation, dated as of December 21, 1984. (Incorporated herein by reference to Exhibit
10.13 to Zenith's Annual Report on Form 10K for the year ended December 31, 1991.)
10.14 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 10K
for the year ended December 31, 1991.)
10.15 Agreement of Reinsurance No. 7276 between CalFarm Insurance Company and General
Reinsurance Corporation, dated as of February 5, 1988. (Incorporated herein by reference
to Exhibit 10.15 to Zenith's Annual Report on Form 10K for the year ended December 31,
1991.)
10.16 Agreement of Reinsurance No. B226 between CalFarm Insurance Company and General
Reinsurance Corporation, dated as of January 13, 1988. (Incorporated herein by reference
to Exhibit 10.16 to Zenith's Annual Report on Form 10K for the year ended December 31,
1991.)
10.17 Agreement of Reinsurance No. B197-A between CalFarm Insurance Company and General
Reinsurance Corporation, dated as of January 13, 1988. (Incorporated herein by reference
to Exhibit 10.17 to Zenith's Annual Report on Form 10K for the year ended December 31,
1991.)
19
10.18 Agreement of Reinsurance No. B196-A between CalFarm Insurance Company and General
Reinsurance Corporation, dated as of January 13, 1988. (Incorporated herein by reference
to Exhibit 10.18 to Zenith's Annual Report on Form 10K for the year ended December 31,
1991.)
10.19 Agreement of Reinsurance No. 7832 between General Reinsurance Corporation and CalFarm
Insurance, Zenith Insurance and ZNAT Insurance, effective September 1, 1993.
(Incorporated herein by reference to Exhibit 10.21 to Zenith's Annual Report on Form 10K
for the year ended December 31, 1993.)
10.20 Agreement of Reinsurance No. 623-0005 between American Re-Insurance Company and CalFarm
Insurance, Zenith Insurance and ZNAT Insurance, effective September 1, 1993.
(Incorporated herein by reference to Exhibit 10.22 to Zenith's Annual Report on Form 10K
for the year ended December 31, 1993.)
10.21 Agreement of Reinsurance No. 0079460 between Employers Reinsurance Corporation and
CalFarm Insurance, Zenith Insurance and ZNAT Insurance, effective September 1, 1993.
(Incorporated herein by reference to Exhibit 10.23 to Zenith's Annual Report on Form 10K
for the year ended December 31, 1993.)
10.22 Life, Disability and Accidental Death Automatic Reinsurance Agreement between CalFarm
Life Insurance Company and Transamerica Occidental Life Insurance Company, effective
June 1, 1983. (Incorporated herein by reference to Exhibit 10.20 to Zenith's Annual
Report on Form 10K for the year ended December 31, 1991.)
10.23 Life, Disability and Accidental Death Facultive Reinsurance Agreement between CalFarm
Insurance Company and Occidental Life Insurance Company of California, effective April
1, 1971. (Incorporated herein by reference to Exhibit 10.21 to Zenith's Annual Report on
Form 10K for the year ended December 31, 1991.)
10.24 Reinsurance Agreement between CalFarm Life Insurance Company and American United Life
Insurance Company, effective August 1, 1983. (Incorporated herein by reference to
Exhibit 10.22 to Zenith's Annual Report on Form 10K for the year ended December 31,
1991.)
10.25 Excess Major Medical Reinsurance Agreement (No. 0076820/Specific and Aggregate
Retentions) between CalFarm Life Insurance Company and Employers Reinsurance
Corporation, effective January 1, 1993. (Incorporated herein by reference to Exhibit
10.27 to Zenith's Annual Report on Form 10K for the year ended December 31, 1993.)
10.26 Automatic Reinsurance Agreement between CalFarm Life Insurance Company and North
American Reassurance Company, effective June 1, 1991. (Incorporated herein by reference
to Exhibit 10.24 to Zenith's Annual Report on Form 10-K for the year ended December 31,
1992.)
10.27 Automatic Reinsurance Agreement between CalFarm Life Insurance Company and North
American Reassurance Company, effective February 21, 1991. (Incorporated herein by
reference to Exhibit 10.25 to Zenith's Annual Report on Form 10-K for the year ended
December 31, 1992.)
10.28 Yearly Renewable Term Reinsurance Agreement between CalFarm Life Insurance Company and
Gerling Global Life Insurance Company, effective March 1, 1992. (Incorporated herein by
reference to Exhibit 10.26 to Zenith's Annual Report on Form 10-K for the year ended
December 31, 1992.)
20
11 Computation of Earnings Per Share for the three (3) years ended
December 31, 1994
13 Zenith's Annual Report to Stockholders for the year ended
December 31, 1994, 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.
21 Subsidiaries of Zenith.
23 Consent of Coopers & Lybrand L.L.P., dated March 24, 1995. (Incorporated herein by
reference to page F-1 of this Annual Report on Form 10-K).
27 Financial Data Schedule
28 Property and Casualty Loss Statistics.
99.1 Information required by rule 15d-21 under the Securities Exchange Act of 1934 for the
year ended December 31, 1994 for the Zenith Investment Partnership 401(k) Plan (to be
filed by amendment on Form 10-K/A within 180 days of December 31, 1994).
- ------------------------
*Management contract or compensatory plan or arrangement
(b) REPORTS ON FORM 8-K
None
21
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 24, 1995.
ZENITH NATIONAL INSURANCE CORP.
By 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 24, 1995.
STANLEY R. ZAX Chairman of the Board, President and
- --------------------------------------------- Director (Principal Executive Officer)
Stanley R. Zax
GEORGE E. BELLO Director
- ---------------------------------------------
George E. Bello
MAX M. KAMPELMAN Director
- ---------------------------------------------
Max M. Kampelman
JACK M. OSTROW Director
- ---------------------------------------------
Jack M. Ostrow
WILLIAM S. SESSIONS Director
- ---------------------------------------------
William S. Sessions
HARVEY L. SILBERT Director
- ---------------------------------------------
Harvey L. Silbert
ROBERT M. STEINBERG Director
- ---------------------------------------------
Robert M. Steinberg
SAUL P. STEINBERG Director
- ---------------------------------------------
Saul P. Steinberg
GERALD TSAI, JR. Director
- ---------------------------------------------
Gerald Tsai, Jr.
FREDRICKA TAUBITZ Executive Vice President and Chief Financial
- --------------------------------------------- Officer (Principal Financial and Accounting
Fredricka Taubitz Officer)
22
CONSENT OF INDEPENDENT ACCOUNTANT
We consent to the incorporation by reference in the Registration Statements on
Form S-8 (File Nos. 33-8948 and 33-22219) of our report dated February 1, 1995
on our audits of the consolidated financial statements and financial statement
schedules of Zenith National Insurance Corp. and subsidiaries as of December 31,
1994 and 1993, and for each of the three years in the period ended December 31,
1994, which is included in this Annual Report on Form 10-K.
COOPERS & LYBRAND L.L.P.
Los Angeles, California
March 24, 1995
F-1
INDEPENDENT ACCOUNTANT'S REPORT
To the Stockholders and Board of Directors
of Zenith National Insurance Corp.
We have audited the consolidated financial statements of Zenith National
Insurance Corp. and subsidiaries as of December 31, 1994 and 1993, and for each
of the three years in the period ended December 31, 1994, which financial
statements are included on pages 38 through 53 of the Company's 1994 Annual
Report to Stockholders and incorporated by reference herein. We have also
audited the financial statement schedules listed in the index on page 17 of this
Form 10-K. These financial statements and financial statement schedules are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements and financial statement schedules based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Zenith National
Insurance Corp. and subsidiaries as of December 31, 1994 and 1993, and the
consolidated results of their operations and their cash flows for each of the
three years in the period ended December 31, 1994, in conformity with generally
accepted accounting principles. In addition, in our opinion, the financial
statement schedules referred to above, when considered in relation to the basic
financial statements taken as a whole, present fairly, in all material respects,
the information required to be included therein.
As discussed in Note 1 to the consolidated financial statements, the Company
changed its method of accounting for investments as of December 31, 1993 and its
method of accounting for income taxes in 1992.
COOPERS & LYBRAND L.L.P.
Los Angeles, California
February 1, 1995
F-2
SCHEDULE I -- SUMMARY OF INVESTMENTS --
OTHER THAN INVESTMENTS IN RELATED PARTIES
ZENITH NATIONAL INSURANCE CORP. AND SUBSIDIARIES
DECEMBER 31, 1994
COLUMN D
COLUMN C ---------------
COLUMN A COLUMN B ---------- AMOUNT AT WHICH
- -------------------------------------------------- ---------- FAIR SHOWN IN THE
TYPE OF INVESTMENT COST VALUE BALANCE SHEET
- -------------------------------------------------- ---------- ---------- ---------------
(DOLLARS IN THOUSANDS)
Fixed maturities
Bonds:
United States Government and government
agencies and authorities.................... $ 569,519 $ 534,075 $ 537,283
Public utilities.............................. 93,473 88,962 91,531
Industrial and miscellaneous.................. 593,212 573,162 577,410
Redeemable preferred stocks..................... 18,918 18,405 18,405
---------- ---------- ---------------
Total fixed maturities.................... 1,275,122 1,214,604 1,224,629
---------- ---------- ---------------
Equity securities
Floating rate preferred stocks.................. 19,618 18,506 18,506
Convertible and nonredeemable preferred
stocks........................................ 8,684 8,153 8,153
Common stocks, industrial....................... 19,628 19,355 19,355
---------- ---------- ---------------
Total equity securities................... 47,930 46,014 46,014
---------- ---------- ---------------
Mortgage loans on real estate..................... 3,503 3,503 3,503
Policy loans...................................... 41,753 41,753 41,753
Short-term investments............................ 127,594 127,594 127,594
Other investments................................. 19,496 19,496 19,496
---------- ---------- ---------------
Total investments......................... $1,515,398 $1,452,964 $ 1,462,989
---------- ---------- ---------------
---------- ---------- ---------------
F-3
SCHEDULE II -- CONDENSED FINANCIAL INFORMATION OF REGISTRANT
ZENITH NATIONAL INSURANCE CORP.
BALANCE SHEET
ASSETS
DECEMBER 31,
----------------------------
1994 1993
------------ ------------
Investments
Common stocks, at market (cost $606,000, 1994 and $607,000, 1993)....................... $ 424,000 $ 637,000
Short-term investments (at cost which approximates market).............................. 2,129,000 14,996,000
Cash...................................................................................... 2,334,000 1,869,000
Investment in subsidiaries (Note A)....................................................... 373,323,000 405,982,000
Federal income taxes receivable (Note A).................................................. 764,000
Other assets.............................................................................. 14,974,000 13,716,000
------------ ------------
Total assets...................................................................... $393,948,000 $437,200,000
------------ ------------
------------ ------------
LIABILITIES
Senior notes payable, less unamortized discount of $889,000, 1994 and $1,011,000, 1993.... $ 74,111,000 $ 73,989,000
Cash dividends payable to stockholders.................................................... 4,736,000 4,711,000
Federal income taxes payable.............................................................. 3,925,000
Other liabilities......................................................................... 5,241,000 5,110,000
------------ ------------
Total liabilities................................................................. 84,088,000 87,735,000
------------ ------------
STOCKHOLDERS' EQUITY
Preferred stock, $1 par--shares authorized 1,000,000; issued and outstanding, none in 1994
and 1993................................................................................
Common stock, $1 par--shares authorized 50,000,000; issued 24,034,000, outstanding
18,950,000, 1994; issued 23,910,000, outstanding 18,841,000, 1993....................... 24,034,000 23,910,000
Additional paid-in capital................................................................ 251,363,000 249,092,000
Retained earnings......................................................................... 167,025,000 148,043,000
Net unrealized appreciation (depreciation) on investments net of $3,969,000 deferred tax
benefit in 1994 and $7,093,000 deferred tax expense in 1993............................. (47,460,000) 13,176,000
------------ ------------
394,962,000 434,221,000
Less treasury stock at cost (5,084,000 shares, 1994 and 5,069,000 shares, 1993)........... (85,102,000) (84,756,000)
------------ ------------
Total stockholders' equity........................................................ 309,860,000 349,465,000
------------ ------------
Total liabilities and stockholders' equity........................................ $393,948,000 $437,200,000
------------ ------------
------------ ------------
See notes to condensed financial information.
F-4
SCHEDULE II -- CONDENSED FINANCIAL INFORMATION OF REGISTRANT
ZENITH NATIONAL INSURANCE CORP.
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31,
----------------------------------------------
1994 1993 1992
------------ ------------- -------------
Investment income, net of expenses of $7,000, 1994, $51,000, 1993 and $51,000,
1992........................................................................... $ 457,000 $ 492,000 $ 852,000
Realized gains (losses) on investments.......................................... 11,000 895,000 (1,447,000)
Lawsuit settlement.............................................................. 1,910,000 7,561,000
------------ ------------- -------------
Total revenue................................................................... 2,378,000 8,948,000 (595,000)
Operating expense............................................................... 4,059,000 3,478,000 3,222,000
Interest expense................................................................ 5,937,000 6,658,000 6,472,000
------------ ------------- -------------
Loss from operations before federal income tax benefit, equity in net income of
subsidiaries, extraordinary item and cumulative effect of accounting change... (7,618,000) (1,188,000) (10,289,000)
Federal income tax benefit...................................................... 2,678,000 516,000 3,128,000
------------ ------------- -------------
Loss from operations before equity in net income of subsidiaries, extraordinary
item and cumulative effect of accounting change............................... (4,940,000) (672,000) (7,161,000)
Extraordinary item -- debt retirement cost, net of tax benefit of $698,000...... (1,355,000)
Cumulative effect of change in accounting for income taxes...................... (187,000)
Equity in net income of subsidiaries (Note A)................................... 42,840,000 53,872,000 37,403,000
------------ ------------- -------------
Net income...................................................................... $ 37,900,000 $ 53,200,000 $ 28,700,000
------------ ------------- -------------
------------ ------------- -------------
See notes to condensed financial information.
F-5
SCHEDULE II -- CONDENSED FINANCIAL INFORMATION OF REGISTRANT
ZENITH NATIONAL INSURANCE CORP.
STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED DECEMBER 31,
-----------------------------------------------
1994 1993 1992
------------- ------------- -------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Investment income received.................................................... $ 477,000 $ 485,000 $ 846,000
Recovery from lawsuit settlement.............................................. 6,036,000 4,094,000
Operating expenses paid....................................................... (4,099,000) (3,309,000) (3,674,000)
Interest paid................................................................. (5,842,000) (6,552,000) (6,073,000)
Income taxes (paid) refunded.................................................. (1,471,000) 8,524,000 1,206,000
------------- ------------- -------------
Net cash flows from operating activities.................................... (4,899,000) 3,242,000 (7,695,000)
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of investments:
Other debt and equity securities and other investments...................... (2,597,000)
Proceeds from sales of investments:
Other debt and equity securities and other investments...................... 4,243,000 1,219,000
Net change in short-term investments.......................................... 12,867,000 (7,264,000) (7,716,000)
Cash received from note receivable............................................ 2,300,000 500,000
------------- ------------- -------------
Net cash flows from investing activities.................................... 12,867,000 (721,000) (8,594,000)
CASH FLOWS FROM FINANCING ACTIVITIES:
Cash received from bank line of credit........................................ 2,100,000 1,000,000 6,350,000
Cash paid on bank line of credit.............................................. (2,100,000) (1,000,000) (40,150,000)
Cash dividends paid to common stockholders.................................... (18,894,000) (19,018,000) (18,927,000)
Retirement of Senior Notes payable............................................ (17,740,000)
Net proceeds from issuance of Senior Notes payable 2002....................... 73,787,000
Proceeds from exercise of stock options....................................... 2,093,000 6,261,000 4,526,000
Purchase of treasury shares................................................... (346,000) (7,367,000) (5,686,000)
Dividends received from subsidiaries.......................................... 15,000,000 25,000,000 15,000,000
Capital contribution to subsidiary............................................ (250,000)
Loan to subsidiary............................................................ (5,356,000) (7,538,000)
------------- ------------- -------------
Net cash flows from financing activities.................................... (7,503,000) (2,912,000) 17,160,000
Net increase (decrease) in cash................................................. 465,000 (391,000) 871,000
Cash at beginning of year....................................................... 1,869,000 2,260,000 1,389,000
------------- ------------- -------------
Cash at end of year............................................................. $ 2,334,000 $ 1,869,000 $ 2,260,000
------------- ------------- -------------
------------- ------------- -------------
RECONCILIATION OF NET INCOME TO NET CASH FLOWS FROM OPERATING ACTIVITIES:
Net income.................................................................... $ 37,900,000 $ 53,200,000 $ 28,700,000
Net income of subsidiaries.................................................... (42,840,000) (53,872,000) (37,403,000)
Realized (gains)/losses on investments........................................ (11,000) (895,000) 1,447,000
Amortization of discount and issue costs on senior notes...................... 122,000 121,000 1,822,000
Federal income taxes.......................................................... (4,149,000) 8,007,000 (2,433,000)
Decrease (increase) in receivable from lawsuit settlement..................... 3,467,000 (3,467,000)
Other......................................................................... 612,000 148,000 172,000
------------- ------------- -------------
Net cash flow from operating activities..................................... $ (4,899,000) $ 3,242,000 $ (7,695,000)
------------- ------------- -------------
------------- ------------- -------------
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 should be read in
conjunction with the consolidated financial statements and notes thereto of
Zenith National Insurance Corp. (Zenith) and subsidiaries.
A. Investment In Subsidiaries:
Zenith owns, directly or indirectly, 100% of the outstanding stock of
Zenith Insurance Company, CalFarm Insurance Company, ZNAT Insurance Company,
Zenith Star Insurance Company, CalFarm Life Insurance Company and
Perma-Bilt, a Nevada Corporation. These investments are included in the
financial statements on the equity basis of accounting. Temporary advances
in the ordinary course of business are included in other assets. The excess
of cost over net assets acquired of $2,009,000 represents the unamortized
excess of cost over underlying net tangible assets of companies acquired
prior to 1970, which is considered to have continuing value.
Zenith files a consolidated federal income tax return. The equity in the
income of subsidiaries of $42,840,000 in 1994, $53,872,000 in 1993 and
$37,403,000 in 1992 is net of a provision for federal income tax expense of
$22,349,000 in 1994, $20,795,000 in 1993 and $3,498,000 in 1992. Zenith has
formulated tax allocation procedures with its subsidiaries and the 1994,
1993 and 1992 condensed financial information reflect Zenith's portion of
the consolidated taxes.
Zenith Insurance Company paid dividends to Zenith of $15,000,000 in
1994, $25,000,000 in 1993 and $15,000,000 in 1992. CalFarm Insurance Company
paid a dividend of $5,000,000 to Zenith Insurance Company in 1992.
F-7
SCHEDULE III -- SUPPLEMENTARY INSURANCE INFORMATION
ZENITH NATIONAL INSURANCE CORP. AND SUBSIDIARIES
COLUMN C
-------------
COLUMN B FUTURE POLICY COLUMN E
------------ BENEFITS, ------------ COLUMN G
DEFERRED LOSSES, COLUMN D OTHER POLICY COLUMN F -----------
COLUMN A POLICY CLAIMS ------------ CLAIMS AND ------------ NET
- ------------------------------ ACQUISITION AND LOSS UNEARNED BENEFITS PREMIUM INVESTMENT
SEGMENT COSTS EXPENSES PREMIUMS PAYABLE REVENUE INCOME
- ------------------------------ ------------ ------------- ------------ ------------ ------------ -----------
1994
- ------------------------------
Property and Casualty
Workers' compensation....... $ 4,430,000 $264,665,000 $34,123,000 $216,030,000
Automobile and other
property/casualty......... 12,598,000 95,951,000 72,645,000 149,757,000
Reinsurance................. 1,478,000 96,430,000 10,491,000 36,138,000
------------ ------------- ------------ ------------ ------------ -----------
18,506,000 457,046,000 117,259,000 401,925,000 $37,573,000
Health and Life............... 90,553,000 159,252,000 4,608,000 $ 6,054,000 61,270,000 60,012,000
Reinsurance ceded............. 47,923,000
Registrant.................... 457,000
------------ ------------- ------------ ------------ ------------ -----------
Total....................... $109,059,000 $664,221,000 $121,867,000 $ 6,054,000 $463,195,000 $98,042,000
------------ ------------- ------------ ------------ ------------ -----------
------------ ------------- ------------ ------------ ------------ -----------
1993
- ------------------------------
Property and Casualty
Workers' compensation....... $ 4,264,000 $286,452,000 $32,109,000 $244,661,000
Automobile and other
property/casualty......... 11,704,000 87,418,000 68,182,000 137,945,000
Reinsurance................. 1,048,000 94,848,000 6,889,000 23,295,000
------------ ------------- ------------ ------------ ------------ -----------
17,016,000 468,718,000 107,180,000 405,901,000 $36,643,000
Health and Life............... 91,400,000 153,771,000 4,716,000 $ 5,934,000 63,921,000 55,339,000
Reinsurance ceded............. 45,282,000
Registrant.................... 492,000
------------ ------------- ------------ ------------ ------------ -----------
Total....................... $108,416,000 $667,771,000 $111,896,000 $ 5,934,000 $469,822,000 $92,474,000
------------ ------------- ------------ ------------ ------------ -----------
------------ ------------- ------------ ------------ ------------ -----------
1992
- ------------------------------
Property and Casualty
Workers' compensation....... $ 4,647,000 $266,092,000 $30,853,000 $221,652,000
Automobile and other
property/casualty......... 10,460,000 90,262,000 56,663,000 137,392,000
Reinsurance................. 620,000 107,795,000 3,378,000 18,382,000
------------ ------------- ------------ ------------ ------------ -----------
15,727,000 464,149,000 90,894,000 377,426,000 $42,276,000
Health and Life............... 75,292,000 138,000,000 5,502,000 $ 7,041,000 64,448,000 53,486,000
Reinsurance ceded............. 33,387,000 5,403,000
Registrant.................... 852,000
------------ ------------- ------------ ------------ ------------ -----------
Total....................... $ 91,019,000 $635,536,000 $101,799,000 $ 7,041,000 $441,874,000 $96,614,000
------------ ------------- ------------ ------------ ------------ -----------
------------ ------------- ------------ ------------ ------------ -----------
COLUMN H COLUMN I
------------- ------------
BENEFITS, AMORTIZATION COLUMN J
CLAIMS, OF DEFERRED ----------- COLUMN K
COLUMN A LOSSES AND POLICY OTHER ------------
- ------------------------------ SETTLEMENT ACQUISITION OPERATING PREMIUMS
SEGMENT EXPENSES COSTS EXPENSES WRITTEN
- ------------------------------ ------------- ------------ ----------- ------------
1994
- ------------------------------
Property and Casualty
Workers' compensation....... $129,352,000 $ 32,336,000 $24,779,000 $218,044,000
Automobile and other
property/casualty......... 108,534,000 28,727,000 19,436,000 154,187,000
Reinsurance................. 25,571,000 6,135,000 110,000 39,674,000
------------- ------------ ----------- ------------
263,457,000 67,198,000 44,325,000 411,905,000
Health and Life............... 80,104,000 7,917,000 18,402,000
Reinsurance ceded.............
Registrant.................... 4,059,000
------------- ------------ ----------- ------------
Total....................... $343,561,000 $ 75,115,000 $66,786,000 $411,905,000
------------- ------------ ----------- ------------
------------- ------------ ----------- ------------
1993
- ------------------------------
Property and Casualty
Workers' compensation....... $164,815,000 $ 33,317,000 $19,736,000 $245,917,000
Automobile and other
property/casualty......... 96,715,000 26,598,000 20,336,000 143,223,000
Reinsurance................. 13,678,000 3,384,000 896,000 26,807,000
------------- ------------ ----------- ------------
275,208,000 63,299,000 40,968,000 415,947,000
Health and Life............... 84,448,000 2,202,000 24,267,000
Reinsurance ceded.............
Registrant.................... 3,478,000
------------- ------------ ----------- ------------
Total....................... $359,656,000 $ 65,501,000 $68,713,000 $415,947,000
------------- ------------ ----------- ------------
------------- ------------ ----------- ------------
1992
- ------------------------------
Property and Casualty
Workers' compensation....... $166,065,000 $ 33,868,000 $20,260,000 $228,209,000
Automobile and other
property/casualty......... 96,224,000 26,231,000 20,061,000 136,077,000
Reinsurance................. 27,443,000 3,674,000 1,267,000 13,892,000
------------- ------------ ----------- ------------
289,732,000 63,773,000 41,588,000 378,178,000
Health and Life............... 85,493,000 (494,000) 18,898,000
Reinsurance ceded.............
Registrant.................... 3,222,000
------------- ------------ ----------- ------------
Total....................... $375,225,000 $ 63,279,000 $63,708,000 $378,178,000
------------- ------------ ----------- ------------
------------- ------------ ----------- ------------
F-8
SCHEDULE IV -- REINSURANCE
ZENITH NATIONAL INSURANCE CORP. AND SUBSIDIARIES
COLUMN F
COLUMN C COLUMN D ----------
COLUMN B ------------ ----------- PERCENTAGE
-------------- CEDED TO ASSUMED COLUMN E OF AMOUNT
GROSS OTHER FROM OTHER -------------- ASSUMED
COLUMN A AMOUNT COMPANIES COMPANIES NET AMOUNT TO NET
- ------------------------------------------------------- -------------- ------------ ----------- -------------- ----------
DECEMBER 31, 1994
Life insurance in force................................ $2,864,095,000 $438,775,000 $2,425,320,000
-------------- ------------ --------------
-------------- ------------ --------------
Premiums earned
Life insurance....................................... $ 24,647,000 $ 280,000 $ 24,367,000
Accident and health insurance........................ 37,393,000 490,000 36,903,000
Property and casualty insurance...................... 385,169,000 21,031,000 37,787,000 401,925,000 9.4%
-------------- ------------ ----------- -------------- ----------
Total premiums earned............................ $ 447,209,000 $ 21,801,000 $37,787,000 $ 463,195,000 8.2%
-------------- ------------ ----------- -------------- ----------
-------------- ------------ ----------- -------------- ----------
DECEMBER 31, 1993
Life insurance in force................................ $2,976,178,000 $453,025,000 $2,523,153,000
-------------- ------------ --------------
-------------- ------------ --------------
Premiums earned
Life insurance....................................... $ 22,707,000 $ 156,000 $ 22,551,000
Accident and health insurance........................ 42,667,000 1,297,000 41,370,000
Property and casualty insurance...................... 400,811,000 21,004,000 $26,094,000 405,901,000 6.4%
-------------- ------------ ----------- -------------- ----------
Total premiums earned............................ $ 466,185,000 $ 22,457,000 $26,094,000 $ 469,822,000 5.6%
-------------- ------------ ----------- -------------- ----------
-------------- ------------ ----------- -------------- ----------
DECEMBER 31, 1992
Life insurance in force................................ $2,951,649,000 $287,980,000 $2,663,669,000
-------------- ------------ --------------
-------------- ------------ --------------
Premiums earned
Life insurance....................................... $ 20,891,000 $ 574,000 $ 20,317,000
Accident and health insurance........................ 44,935,000 804,000 44,131,000
Property and casualty insurance...................... 378,922,000 20,853,000 $19,357,000 377,426,000 5.1%
-------------- ------------ ----------- -------------- ----------
Total premiums earned............................ $ 444,748,000 $ 22,231,000 $19,357,000 $ 441,874,000 4.4%
-------------- ------------ ----------- -------------- ----------
-------------- ------------ ----------- -------------- ----------
F-9
[LOGO]
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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EXHIBITS
TO
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1994
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ZENITH NATIONAL INSURANCE CORP.
(Exact name of registrant as specified in its charter)
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EXHIBIT LIST
EXHIBIT
NUMBER DESCRIPTION
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3.1 Certificate of Incorporation of Zenith as in effect immediately prior to November 22,
1985. (Incorporated herein by reference to Exhibit 3 to Zenith's Amendment on Form 8,
date of amendment October 10, 1985, to Zenith's Current Report on Form 8-K, date of
report July 26, 1985). Certificate of Amendment to Certificate of Incorporation of
Zenith, effective November 22, 1985. (Incorporated herein by reference to Zenith's
Current Report on Form 8-K, date of report November 22, 1985).
3.2 By-Laws of Zenith, as currently in effect. (Incorporated herein by reference to
Exhibit 3.2 to Zenith's Annual Report on Form 10-K for the year ended December 31,
1988.)
4.1 Indenture dated as of May 1, 1992 entered into between Zenith 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.)
10.1 Purchase Agreement, dated as of February 4, 1981, among Reliance Insurance Company,
Zenith, 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).
10.2 Asset and Liability Assumption Agreement, dated as of June 4, 1985, between Zenith
Insurance and the Insurance Commissioner of the State of California (the
"Commissioner"). (Incorporated herein by reference to Exhibit 1 to Zenith's Current
Report on Form 8-K, date of report July 26, 1985).
10.3 Memorandum and Agreement of Closing dated as of July 26, 1985, among Zenith Insurance,
Zenith and the Commissioner (Incorporated herein by reference to Exhibit 10.6 to
Zenith's Annual Report on Form 10-K for the year ended December 31, 1985), together
with the following exhibits:
(a) Exhibit A -- Grant Deed, dated July 25, 1985, by the Commissioner in favor of
Zenith Insurance. (Incorporated herein by reference to
Exhibit 10.6 to Zenith's Annual Report on Form 10-K for the year ended December 31,
1985).
(b) Exhibit B -- Bill of Sale, dated as of July 26, 1985, by the Commissioner in favor
of Zenith Insurance. (Incorporated herein by reference to Exhibit 10.6 to Zenith's
Annual Report on Form 10-K for the year ended December 31, 1985).
(c) Exhibit C -- Assignment of Assets and Assumption of Liabilities, dated as of July
26, 1985, between the Commissioner and Zenith Insurance. (Incorporated herein by
reference to Exhibit 10.6 to Zenith's Annual Report on Form 10-K for the year
ended December 31, 1985).
(d) Exhibit D -- Noncompetition Agreement, dated as of July 26, 1985, between the
Commissioner and Zenith Insurance. (Incorporated herein by reference to Exhibit
28.3 to Zenith's Current Report on Form 8-K, date of report July 26, 1985).
(e) Exhibit E -- First Assignment Separate from Certificate, dated July 26, 1985, by
the Commissioner in favor of Zenith. (Incorporated herein by reference to Exhibit
10.6 to Zenith's Annual Report on Form 10-K for the year ended December 31, 1985).
EXHIBIT
NUMBER DESCRIPTION
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(f) Exhibit F -- Engagement and Reimbursement Agreement, dated as of July 26, 1985,
between Zenith Insurance and the Commissioner. (Incorporated herein by reference
to Exhibit 28.2 to Zenith's Current Report on Form 8-K, date of report July 26,
1985).
*10.4 Zenith's Non-Qualified Stock Option Plan, as in effect immediately prior to December
6, 1985. (Incorporated herein by reference to Zenith's Registration Statement on Form
S-8 (SEC File No. 2-97962)).
*10.5 Zenith'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)).
*10.6 Employment Agreement, dated February 8, 1995, between Zenith and Fredricka Taubitz.
*10.7 Employment Agreement, dated February 16, 1995, between Zenith and John J. Tickner.
*10.8 Employment Agreement, dated February 2, 1995, between Zenith and Stanley R. Zax.
*10.9 Stock Option Agreement, dated as of May 19, 1987, between Zenith and Stanley R. Zax.
(Incorporated herein by reference to Exhibit 10.15 to Zenith's Annual Report on Form
10-K for the year ended December 31, 1987).
10.10 Credit Agreement, dated as of December 15, 1994 between Zenith and Sanwa Bank of
California.
10.11 Revolving Note Agreement, dated September 30, 1994, between Zenith and City National
Bank.
10.12 Agreement of Reinsurance #6966 between Zenith Insurance Company and General
Reinsurance Corporation, dated as of December 21, 1984. (Incorporated herein by
reference to Exhibit 10.13 to Zenith's Annual Report on Form 10K for the year ended
December 31, 1991.)
10.13 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
10K for the year ended December 31, 1991.)
10.14 Agreement of Reinsurance No. 7276 between CalFarm Insurance Company and General
Reinsurance Corporation, dated as of February 5, 1988. (Incorporated herein by
reference to Exhibit 10.15 to Zenith's Annual Report on Form 10K for the year ended
December 31, 1991.)
10.15 Agreement of Reinsurance No. B226 between CalFarm Insurance Company and General
Reinsurance Corporation, dated as of January 13, 1988. (Incorporated herein by
reference to Exhibit 10.16 to Zenith's Annual Report on Form 10K for the year ended
December 31, 1991.)
10.16 Agreement of Reinsurance No. B197-A between CalFarm Insurance Company and General
Reinsurance Corporation, dated as of January 13, 1988. (Incorporated herein by
reference to Exhibit 10.17 to Zenith's Annual Report on Form 10K for the year ended
December 31, 1991.)
10.17 Agreement of Reinsurance No. B196-A between CalFarm Insurance Company and General
Reinsurance Corporation, dated as of January 13, 1988. (Incorporated herein by
reference to Exhibit 10.18 to Zenith's Annual Report on Form 10K for the year ended
December 31, 1991.)
EXHIBIT
NUMBER DESCRIPTION
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10.18 Agreement of Reinsurance No. 7832 between General Reinsurance Corporation and CalFarm
Insurance, Zenith Insurance and ZNAT Insurance, effective September 1, 1993.
(Incorporated herein by reference to Exhibit 10.21 to Zenith's Annual Report on Form
10K for the year ended December 31, 1993.)
10.19 Agreement of Reinsurance No. 623-0005 between American Re-Insurance Company and
CalFarm Insurance, Zenith Insurance and ZNAT Insurance, effective September 1, 1993.
(Incorporated herein by reference to Exhibit 10.22 to Zenith's Annual Report on Form
10K for the year ended December 31, 1993.)
10.20 Agreement of Reinsurance No. 0079460 between Employers Reinsurance Corporation and
CalFarm Insurance, Zenith Insurance and ZNAT Insurance, effective September 1, 1993.
(Incorporated herein by reference to Exhibit 10.23 to Zenith's Annual Report on Form
10K for the year ended December 31, 1993.)
10.21 Life, Disability and Accidental Death Automatic Reinsurance Agreement between CalFarm
Life Insurance Company and Transamerica Occidental Life Insurance Company, effective
June 1, 1983. (Incorporated herein by reference to Exhibit 10.20 to Zenith's Annual
Report on Form 10K for the year ended December 31, 1991.)
10.22 Life, Disability and Accidental Death Facultive Reinsurance Agreement between CalFarm
Insurance Company and Occidental Life Insurance Company of California, effective April
1, 1971. (Incorporated herein by reference to Exhibit 10.21 to Zenith's Annual Report
on Form 10K for the year ended December 31, 1991.)
10.23 Reinsurance Agreement between CalFarm Life Insurance Company and American United Life
Insurance Company, effective August 1, 1983. (Incorporated herein by reference to
Exhibit 10.22 to Zenith's Annual Report on Form 10K for the year ended December 31,
1991.)
10.24 Excess Major Medical Reinsurance Agreement (No. 0076820/Specific and Aggregate
Retentions) between CalFarm Life Insurance Company and Employers Reinsurance
Corporation, effective January 1, 1993. (Incorporated herein by reference to Exhibit
10.27 to Zenith's Annual Report on Form 10K for the year ended December 31, 1993.)
10.25 Automatic Reinsurance Agreement between CalFarm Life Insurance Company and North
American Reassurance Company, effective June 1, 1991. (Incorporated herein by
reference to Exhibit 10.24 to Zenith's Annual Report on Form 10-K for the year ended
December 31, 1992.)
10.26 Automatic Reinsurance Agreement between CalFarm Life Insurance Company and North
American Reassurance Company, effective February 21, 1991. (Incorporated herein by
reference to Exhibit 10.25 to Zenith's Annual Report on Form 10-K for the year ended
December 31, 1992.)
10.27 Yearly Renewable Term Reinsurance Agreement between CalFarm Life Insurance Company and
Gerling Global Life Insurance Company, effective March 1, 1992. (Incorporated herein
by reference to Exhibit 10.26 to Zenith's Annual Report on Form 10-K for the year
ended December 31, 1992.)
11 Computation of Earnings Per Share for the three (3) years ended
December 31, 1994.
13 Zenith's Annual Report to Stockholders for the year ended December 31, 1994, 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.
21 Subsidiaries of Zenith.
EXHIBIT
NUMBER DESCRIPTION
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23 Consent of Coopers & Lybrand L.L.P., dated March 24, 1995. (Incorporated herein by
reference to page F-1 of this Annual Report on Form 10-K).
27 Financial Data Schedule.
28 Property and Casualty Loss Statistics.
99.1 Information required by rule 15d-21 under the Securities Exchange Act of 1934 for the
year ended December 31, 1994 for the Zenith Investment Partnership 401(k) Plan (to be
filed by amendment on Form 10-K/A within 180 days of December 31, 1994).
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*Management contract or compensatory plan or arrangement