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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-K
FOR ANNUAL AND TRANSITION REPORTS
PURSUANT TO SECTIONS 13 OR 15(d) OF THE
SECURITIES AND EXCHANGE ACT OF 1934

OR

ZENITH NATIONAL INSURANCE CORP.

(Exact Name of Registrant as Specified in Its Charter)

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

Securities registered pursuant to Section 12(b) of the Act:

Securities registered pursuant to Section 12(g) of the Act: None

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

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

        Indicate by checkmark whether the registrant is an accelerated filer (as defined in Exchange Act Rule 12b-2)          Yes      X      No             

        The aggregate market value of the voting stock of the registrant held by non-affiliates of Zenith National Insurance Corp. on June 30, 2003 was $303,924,000 (based on the closing sale price of such stock on such date).

        At March 3, 2004, there were 18,986,000 shares of Zenith National Insurance Corp. common stock outstanding, net of 7,018,000 shares of treasury stock.

DOCUMENTS INCORPORATED BY REFERENCE

        (1)  Portions of the Annual Report to Stockholders for fiscal year ended December 31, 2003 — Part I and Part II.

        (2)  Portions of the Proxy Statement in connection with the 2004 Annual Meeting of Stockholders — Part III.

Total number of pages 54

Exhibit index located on pages 30-37

PART I

Item 1. Business.
General

        Zenith National Insurance Corp. ("Zenith National"), a Delaware corporation incorporated in 1971, is a holding company engaged through its wholly-owned insurance subsidiaries, Zenith Insurance Company ("Zenith Insurance"), ZNAT Insurance Company ("ZNAT Insurance") and Zenith Star Insurance Company ("Zenith Star"), in the property-casualty insurance business. Unless otherwise indicated, all references to "Zenith," "we," "us," "our," the "Company" or similar terms refer to Zenith National together with its subsidiaries.

        Zenith's insurance subsidiaries have been assigned a financial strength rating of A- (Excellent) by A.M. Best Company ("A.M. Best"); Baa1 (Adequate) by Moody's Investors Service ("Moody's"); BBB+ (Good) by Standard & Poor's ("S&P"); and A- (Strong) by Fitch Ratings ("Fitch"). These A.M. Best, Moody's, S&P and Fitch ratings are based upon factors of concern to policyholders and insurance agents and are not directed toward the protection of investors.

        At December 31, 2003, Zenith had approximately 1,400 full-time employees. The principal executive offices of Zenith are located at 21255 Califa Street, Woodland Hills, California 91367-5021, telephone (818) 713-1000.

        Zenith's Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and all amendments to those reports, Proxy Statement for its Annual Meeting of Stockholders and Annual Report to Stockholders are made available free of charge on its website at www.thezenith.com as soon as reasonably practicable after such reports have been electronically filed with or furnished to the Securities and Exchange Commission. Also available at our website are the following corporate governance materials: Code of Business Conduct and Ethics; Code of Ethics for Senior Financial Officers; Corporate Governance Guidelines; and Charters of the Audit Committee, Compensation Committee and Nominating and Corporate Governance Committee. In addition, amendments to, or waivers of, the Code of Ethics for Senior Financial Officers will be posted to our website or contained in a Form 8-K filed within five calendar days after any such amendment or waiver. Any of the foregoing material may also be obtained, free of charge by written request to: Corporate Secretary, Zenith National Insurance Corp., 21255 Califa Street, Woodland Hills, CA 91367-5021.

Glossary of Selected Insurance Terms

        The following terms when used herein have the following meanings:

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Description of the Business

        Zenith is in the business of managing insurance risk and investment risk. Our main business activity is workers' compensation insurance and we also operate a small assumed reinsurance business. In addition, Zenith maintains a portfolio of investments, principally in fixed maturity securities, funded by the cash flows from our insurance operations and capital. Investment income from the portfolio is impacted by current and historical interest rates and the amount of funds generated annually from (or used by) the insurance operations. Results of insurance operations, excluding investment income, may fluctuate due to, among other things, the possibility of material and unpredictable catastrophe losses in our reinsurance business. We measure our performance by our ability to build increased stockholders' equity over the long-term.

        Our business is classified into the following segments: workers' compensation, reinsurance, investment and parent. We sold our home-building business and related real estate assets in 2002. Results and descriptions of Zenith's business segments are contained in the Notes to Consolidated Financial Statements — Note 22 — "Segment Information" in Zenith's 2003 Annual Report to Stockholders, and is hereby incorporated by reference.

Workers' Compensation

        In the workers' compensation business, we provide insurance coverage for the statutorily prescribed benefits that employers are required to provide to their employees who may be injured in the course of employment. Zenith's workers' compensation policies are issued to employers who also pay the premiums. The policies provide payments to covered, injured employees of the policyholder for, among other things, temporary or permanent disability benefits, death benefits and medical and hospital expenses. The benefits payable and the duration of such benefits are set by statute, and vary by state and with the nature and severity of the injury or disease and the wages, occupation and age of the employee.

        Generally, premiums for workers' compensation insurance policies are a function of: the applicable premium rate, which varies with the nature of the employees' duties and the business of the employer; a factor reflecting the insured employer's historical loss experience (the "experience modification factor"); and the amount of the insured employer's payroll. Payrolls may be affected significantly by

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changes in employment and wage levels. A deposit premium is paid at the beginning of the policy period, periodic installments are paid during the policy period and the final amount of the premium is generally determined as of the end of the policy period after the policyholder's payroll records are audited. Except in Florida, where rates for workers' compensation insurance are set by the Department of Insurance, Zenith's rates for workers' compensation are determined by our actuaries for each state in which we do business. In California, our largest state, insurance companies are required by law to set adequate workers' compensation rates for their own use. Although the California Insurance Commissioner does not set workers' compensation rates, the California Insurance Commissioner adopts and publishes advisory pure premium rates (pure premium rates are rates that would cover expected loss costs but do not contain an element to cover operating expenses or profit). We are not required to use these California advisory rates. Our rates are continually reviewed for adequacy using actuarial analysis of current and anticipated trends in costs. Overall effective rate increases are about 35% for 2003 compared to 19% in 2002, including 46% increases in California for 2003 compared to 27% in the prior year.

        In certain circumstances, a policyholder may be eligible for a return of a portion of the premium based on the loss experience during the policy term, by way of a dividend, calculated after the policy has expired. Alternatively, the policyholder's premium may be adjusted after expiration using a retrospective-rating formula which may also involve additional premium being billed to the policyholder if loss experience is worse than expected. Although we have offered these types of policies at times and have written a small number of them, we prefer to offer our customers a policy with a guaranteed cost based on rates, payroll and experience modification factors. We see significant competition in the national workers' compensation insurance industry, even in Florida where dividend plans and retrospectively-rated policies form the basis for price competition.

        Zenith's long-term strategy in the national workers' compensation industry is to write policies that deliver quality services based on adequate rates. During periods of intense competition or other adverse industry conditions, our premium revenue is reduced as employers buy elsewhere. Our value proposition is that our services, over the long-run, provide employers the opportunity to reduce their experience modification factor and their long-term, net workers' compensation costs. Our loss prevention services focus on workplace safety, accident and illness prevention and safety awareness training. Claims management services include return-to-work programs, case management by nurses for serious injuries and management of medical provider services and billings. Investigation and legal services help policyholders to prevent fraud and assist them to favorably resolve litigated claims. Our premium auditors provide appropriate payroll classifications to assure equitable premium billing.

        During 2003, Zenith wrote workers' compensation insurance in 45 states. Prior to 1992, Zenith's workers' compensation operations were concentrated principally in California. We expanded our operations into Texas in 1992 with other states following shortly thereafter. Florida operations commenced with the acquisition of the Associated General Commerce Self-Insurers' Trust Fund on December 31, 1996. On April 1, 1998, Zenith Insurance acquired substantially all of the assets and certain liabilities of RISCORP, Inc. and certain of its subsidiaries (collectively, "RISCORP") related to RISCORP's workers' compensation business (the "RISCORP Acquisition"). The RISCORP Acquisition added workers' compensation business in Florida and other states in the Southeast, principally in North Carolina and Alabama. In recent years, California has offered us the best opportunity to profitably expand our business and has become the state in which a majority of our net premiums are derived.

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Net premiums earned for the years ended December 31, 2003, 2002 and 2001 by state are set forth in the table below:

        Zenith maintains four regional offices in California and offices in Florida, Texas, Pennsylvania, Illinois and North Carolina, each of which is fully staffed to conduct all workers' compensation underwriting and claims operations.

        A commonly used industry measurement of property-casualty insurance underwriting results is the combined ratio. It is the sum of net incurred losses, loss adjustment expenses, underwriting and other operating expenses and policyholders' dividends, expressed as a percentage of net premiums earned. Earned premiums and the combined ratios of our workers' compensation and reinsurance businesses and results of our other business segments for the each of the three years ended December 31, 2003 are set forth in the Results of Operations section of the Management's Discussion and Analysis of Consolidated Financial Condition and Results of Operations of Zenith's 2003 Annual Report to Stockholders and are hereby incorporated by reference.

        Our workers' compensation operations are subject to legislative and regulatory actions, particularly in California and Florida where we have our largest concentrations of business. In California, significant workers' compensation legislation was enacted twice in recent years. Effective January 1, 2003, legislation became effective which provides for increases in indemnity benefits to injured workers. Benefits were increased by an average of approximately 6% in 2003, followed by further increases of approximately 7% in 2004 and will be increased by a further 2% in 2005. In September of 2003, workers' compensation legislation was enacted in California with the principal objective of reducing costs. The legislation contains provisions which primarily seek to reduce medical costs and does not directly impact indemnity payments to injured workers. The principal changes in the legislation that impact medical costs are as follows: 1) a reduction in the reimbursable amount for certain physician fees, outpatient surgeries, pharmaceutical products and certain durable medical equipment; 2) a limitation on the number of chiropractor or physical therapy office visits; 3) the introduction of medical utilization guidelines; 4) a requirement for second opinions on certain spinal surgeries; and 5) a repeal of the presumption of correctness afforded to the treating physician, except where the employee has pre-designated a treating physician.

        In Florida, legislation was enacted effective October 1, 2003 which provides changes to the workers' compensation system. Such changes are designed to expedite the dispute resolution process, provide greater compliance and enforcement authority to combat fraud, revise certain indemnity benefits and increase medical reimbursement fees for physicians and surgical procedures. One of the intended outcomes of the proposed legislation is a reduction in the overall costs associated with delivering workers' compensation benefits in the state of Florida. The rates that we and other insurance companies use for workers' compensation are set by the Florida Department of Insurance. The Florida

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Department of Insurance decreased rates by 14%, effective October 1, 2003, which offsets a 13.7% increase in rates as of April 1, 2003.

        In both California, and Florida, the major risk factor associated with these recent legislative changes is whether the current rates we are using for our workers' compensation policies are justified by the estimated savings in the legislation. We are monitoring the data closely to see how the experience develops relative to this risk.

        The improvement trend in our net income and combined ratios from 2001 to 2003 exhibits the current favorable trend of increased workers' compensation rates and premium revenues and the growth of our investment portfolio through favorable cash flow from insurance operations. These trends are continuing in the first quarter of 2004, as we have further added to our premium revenues and investment portfolio. However, revenue growth is not an independent objective; we will continue to focus on rate adequacy, attractive returns to our stockholders and the delivery of quality services to our policyholders. The principal risks to the future profitability of our business are related to 1) the adequacy of our loss reserve estimates; 2) competition and industry pricing; 3) general levels of interest rates; 4) the frequency and severity of claims and catastrophes; 5) the impact of enacted reform legislation in California and Florida and any future legislative changes; and 6) the incidence and magnitude of any terrorist attacks that affect our workers' compensation business in excess of our reinsurance protection.

Reinsurance

        Reinsurance is a transaction between insurance companies in which an original insurer, or ceding company, remits a portion of its premiums to a reinsurer, or assuming company, as payment for the reinsurer's assumption of a portion of the risk. Our reinsurance operation participates in assumed reinsurance transactions in which, typically, the reinsurance coverage being purchased by the ceding company is shared among a number of assuming companies. We currently focus primarily on assumed reinsurance of worldwide property losses from catastrophes and large property risks. In the insurance industry, catastrophes are events such as tornadoes, hurricanes and earthquakes that cause widespread damage. Insurance companies purchase catastrophe reinsurance to protect themselves from the aggregation of losses caused by a large number of claims from policies written in the impacted geographical area. Contract language in catastrophe reinsurance contracts defines which perils will or will not be covered by the reinsurer and certain events such as acts of terrorism or flooding may not be covered, depending upon the terms of the contract.

        We participate in reinsurance contracts that are either proportional in nature, in which the assuming company shares pro rata in the premiums and losses of the ceding company (quota share reinsurance), 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 ceding company's primary insurance premiums (known as excess of loss reinsurance). Depending upon market conditions and other factors, the volume of premiums written fluctuates from year to year. By diversifying the geographical spread of risk and limiting the number of contracts that we write, Zenith's assumed reinsurance business is written so as to limit expected losses, after the benefit of the applicable premium and reinstatement premium income and income taxes, from any one catastrophe event in a worst-case scenario to a maximum probable loss of approximately 5% of consolidated stockholders' equity (or currently about $19 million).

        As a reinsurer of catastrophe losses, we expect to receive claims with a high severity and low frequency and underwriting income or loss and the combined ratio of the reinsurance operation fluctuate significantly depending upon the incidence or absence of large catastrophe losses. Results of our reinsurance business should be evaluated over the long-term. Since its inception in 1985, the combined ratio of our reinsurance operation through December 31, 2003 was 100.3% on $709.8 million

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of net premiums earned. Loss reserves, net of reinsurance, at December 31, 2003 in our reinsurance operation were $134.6 million, or 14% of consolidated net loss reserves. In 2002, estimated catastrophe losses were $0.4 million attributable to European floods; otherwise, there were no major catastrophe losses that impacted the reinsurance treaties we wrote in the years ended December 31, 2003 and 2002 and our combined ratios for reinsurance were comparable between these two years. In 2001, the reinsurance operations were adversely impacted by $41.7 million of catastrophe losses before tax, including $37.6 million for the World Trade Center loss, net of additional premium income earned in the year attributable to original and reinstatement premiums. The ultimate impact of the World Trade Center loss of 2001 after deducting original and reinstatement premium income on Zenith's assumed reinsurance contracts for 2001 is estimated to be $20.0 million before tax, or $13.0 million after tax, which is within the maximum loss we expect from a worst-case scenario.

        Estimating catastrophe losses in the reinsurance business is highly dependent upon the nature and timing of the event and our ability to obtain timely and accurate information with which to estimate our liability to pay losses. Estimates of the impact of catastrophes on the reinsurance operations are based on the information that is currently available and such estimates could change based on new information that becomes available or based upon reinterpretation of existing information.

        In addition to property reinsurance we have, historically, written reinsurance for liability insurance, such as general business liability coverage, directors' and officers' liability and excess or umbrella coverage. Although we wrote more of this type of business at the beginning of our involvement in the reinsurance business in 1985, liability reinsurance constituted about 22% of our earned reinsurance premiums in the ten years ended December 31, 2003.

Equity Investee—Advent Capital

        We also participate in the worldwide reinsurance business through an investment in a company that operates in the property and casualty insurance business in the United Kingdom. On August 23, 2002, Zenith Insurance acquired 19.2 million Ordinary Shares of Advent Capital (Holdings) PLC ("Advent Capital") for $14.6 million in an open offer and placing of shares made in July 2002. As a result of the purchase, Zenith Insurance owns approximately 20.9% of the outstanding shares of Advent Capital. Advent Capital and its subsidiaries provide corporate capital to support the underwriting of certain Lloyd's of London syndicates and manage those syndicates. The syndicates operate in the global insurance and reinsurance business with an emphasis on property catastrophe reinsurance. Results of operations and our share of Advent Capital's net income is subject to fluctuations caused by catastrophe losses. We account for our share of Advent Capital's net income using the equity method of accounting on a one quarter lag to allow sufficient time for Advent Capital to prepare its financial statements.

Investments

        Our Investments department invests the funds made available by our capital and the cash flows from our insurance operations. The objective of our investment operations is to provide income and realized gains on investments, primarily from investments in debt securities, consistent with policy guidelines and taking into consideration state regulatory restrictions. Because the exact timing of the payment of claims and benefits cannot be predicted with certainty, the insurance subsidiaries maintain portfolios of invested assets with varying maturities and a substantial amount of short-term investments to provide adequate cash for the payment of claims. The allocation of the portfolio among various types of securities is adjusted from time to time based on market conditions, credit conditions, tax policy, fluctuations in interest rates and other factors. At December 31, 2003, Zenith's consolidated investment portfolio emphasized high-quality, taxable bonds and short-term investments, supplemented by smaller portfolios of municipal bonds, redeemable preferred stocks and other preferred and common stocks. The portfolio of taxable bonds primarily includes U.S. Government securities, mortgage-backed

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securities issued by the Government National Mortgage Association and corporate bonds diversified to produce a reasonable balance of risk and investment income. Of the fixed maturity portfolio, including short-term investments, 97% of the investments were rated investment-grade at December 31, 2003 compared to 94% at December 31, 2002.

        Investment yields for each of the three years ended December 31, 2003 and a discussion of the composition of the investment portfolio at December 31, 2003 and 2002 are set forth under the Investments section of the Management's Discussion and Analysis of Consolidated Financial Condition and Results of Operations of Zenith's 2003 Annual Report to Stockholders and are hereby incorporated by reference. This information shows the trend of an increasing investment portfolio as a result of increased cash flows and the impact of declining interest rates.

        Zenith has identified certain securities, amounting to 91% of the investments in fixed maturity securities and short-term investments at December 31, 2003, as available-for-sale. Stockholders' equity decreased by $2.7 million after deferred tax from December 31, 2002 to December 31, 2003 as a result of changes in the fair values of such investments. Stockholders' equity will fluctuate with changes in the fair values of available-for-sale securities.

Parent

        The parent operations represent the holding company activities of Zenith National, which owns, directly or indirectly, all of the capital stock of its insurance and non-insurance subsidiaries. Results of the parent reflect the operating expenses that it incurs in the course of its holding company activities, such as directors fees; stock exchange listing and other licensing fees; insurance costs; and legal, auditing and other administrative fees. Interest expense incurred on outstanding debt pursuant to financing and refinancing activities is also a part of the parent operating results.

Discontinued Real Estate Operations

        On October 8, 2002, Zenith closed the sale of its home-building business and related real estate assets in Las Vegas, Nevada to Meritage Corporation ("Meritage"). The business had been operated by Zenith National's indirect wholly-owned subsidiary, Zenith of Nevada, Inc. (formerly, Perma-Bilt, a Nevada Corporation ("Perma-Bilt")). In the transaction, Meritage, through its wholly-owned subsidiary, MTH-Homes Nevada, Inc. ("MTH Nevada"), acquired substantially all of Perma-Bilt's assets, subject to the related liabilities, pursuant to a Master Transaction Agreement, dated as of October 7, 2002, and related asset and real property acquisition agreements (the "Agreement"). Zenith received gross proceeds of $65.0 million in connection with the sale, including $28.4 million in repayment of intercompany loans to Zenith National from Perma-Bilt, and recorded a gain on the sale in the fourth quarter of 2002 of $6.3 million after tax.

        In addition to the consideration received in October 2002, the Agreement entitles Zenith to receive 10% of MTH Nevada's pre-tax net income, subject to certain adjustments, for each of the twelve-month periods ending September 30, 2003, September 30, 2004 and September 30, 2005. In the fourth quarter of 2003, we received a payment of $1.8 million before tax ($1.2 million after tax) for the twelve months ended September 30, 2003 under the earn-out provision, which is recorded as gain on sale of real estate operations. We are currently unable to estimate the amount, if any, of payments we might receive under this earn-out provision for the remaining two years, although in 2004 we expect a lower payment than in 2003 due to a shortage of available land inventory for part of the year.

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        For the years ended December 31, 2002 and 2001, the results of operations and cash flows for Zenith's real estate business are presented as discontinued operations. The following table summarizes the revenues and income from discontinued real estate operations:

Loss and Loss Expense Reserves and Claims and Loss Developments

        Accounting for property and casualty insurance operations requires us to estimate the liability for the expected ultimate cost of unpaid losses and loss adjustment expenses ("loss reserves") as of the balance sheet date. The adequacy of loss reserves is inherently uncertain and represents a significant risk to the business which we attempt to mitigate by continually reviewing loss cost trends, attempting to set our rates to adequately cover anticipated costs and by professionally managing our claims servicing organization. We endeavor to minimize the estimation risk by employing actuarial techniques on a quarterly basis. Judgment is required in actuarial estimation to ascertain the relevance of historical payment and claim settlement patterns under current facts and circumstances. No assurance can be given whether the ultimate liability for unpaid losses will be more or less than our current estimates.

        The amount by which estimated losses, measured subsequently by reference to payments and additional estimates, differ from those originally reported for a period is known as "development." Development is unfavorable when losses ultimately settle for more than the levels at which they were reserved or subsequent estimates indicate a basis for reserve increases on open claims. Development is favorable when losses ultimately settle for less than the amount reserved or subsequent estimates indicate a basis for reducing loss reserves on open claims. Favorable or unfavorable development of loss reserves is reflected currently in earnings.

        Additional information regarding loss reserve estimates and loss reserve development is set forth under "Loss Reserves" in the Management's Discussion and Analysis of Consolidated Financial Condition and Results of Operations in Zenith's 2003 Annual Report and is hereby incorporated by reference.

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Loss reserves of Zenith and its consolidated subsidiaries

        The table that follows shows development of loss and loss adjustment expense liabilities as originally estimated in accordance with GAAP at December 31 of each year presented.

        The accounting policies used to estimate the liabilities in the preceding table are described in Note 2 to the Consolidated Financial Statements in Zenith's 2003 Annual Report to Stockholders which note is hereby incorporated by reference.

        The analysis in the preceding table presents the development of our balance sheet liabilities for unpaid loss and loss adjustment expenses. The first line in the table shows the liability for unpaid loss and loss adjustment expenses, net of reinsurance, as estimated at the end of each calendar year. The first section below that line shows the cumulative actual payments of loss and loss adjustment expenses, net of reinsurance, that relate to each year-end liability as they were paid at the end of subsequent annual periods. The second section shows revised estimates of the original unpaid amounts, net of reinsurance, that are based on the subsequent payments and re-estimates of the remaining unpaid liabilities. The next line shows the favorable or deficient developments of the original estimates, net of reinsurance. Loss reserve development in this table is cumulative; i.e., the estimated favorable or deficient development for a particular year represents the cumulative amount by which all previous liabilities are currently estimated to have been over or under stated. For example, at December 31,

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2003, we currently estimate that all of our previous estimates were collectively underestimated by about $14.2 million, or 1.7% of the December 31, 2002 balance sheet estimate for net loss reserves.

        Adverse development of our balance sheet liabilities for 1999-2002 is attributable to increases in estimates for our workers' compensation loss reserves and additional estimates for catastrophe losses in our reinsurance business. A complete description of loss reserve estimates and loss reserve development is set forth under "Loss Reserves" and "Inflation" in the Management's Discussion and Analysis of Consolidated Financial Condition and Results of Operations in Zenith's 2003 Annual Report and is hereby incorporated by reference.

        Starting with the liability at the end of 1998, our loss reserve estimates include amounts for the loss reserves we assumed from RISCORP in the RISCORP Acquisition. The purchase price of RISCORP was determined in a three-step process, which culminated in the determination by a neutral auditor and neutral actuary of the GAAP values of the assets and liabilities being acquired from RISCORP. In 1999, we determined that it was necessary to increase the estimate of the loss reserves assumed from RISCORP by about $46.0 million, net of reinsurance. This adjustment to the RISCORP purchase price is reflected in the preceding table as adverse development of the 1998 loss reserve liability.

        In 1999, we sold CalFarm Insurance Company ("CalFarm"), a wholly-owned subsidiary of Zenith Insurance, which we had owned since 1985. CalFarm wrote insurance coverage for automobile, homeowners, group health, farmowners and other businesses, principally in California. We retained no liabilities for any of CalFarm's unpaid losses or loss adjustment expenses after the sale. In the preceding table, CalFarm's loss reserves are included in the first line through December 31, 1998. Subsequent payments for CalFarm's loss reserve estimates include payments through March 31, 1999, the date of the sale. Subsequent re-estimates of CalFarm's loss reserves are also included in the preceding table. After the date of sale, the re-estimated liability for CalFarm's loss reserves reflects the last re-estimate of CalFarm's liabilities that we made prior to the sale.

        Since conditions and trends that have affected loss and loss adjustment expense development in the past may not occur in the future in exactly the same manner, if at all, future results may not be reliably predicted by extrapolation of the data presented.

        Reference is made to the table setting forth the reconciliation of changes in the liabilities for loss and loss adjustment expenses included in Notes to Consolidated Financial Statements — Note 9 — "Liability for Unpaid Loss and Loss Adjustment Expenses" in Zenith's 2003 Annual Report to Stockholders, which is hereby incorporated by reference.

Loss reserves of Advent Capital

        Advent Capital operates in the insurance and reinsurance business by providing capital to syndicates of Lloyd's of London and by managing those syndicates. Advent Capital records its proportionate share of the insurance assets and liabilities of the syndicates to which it provides capital, based on the relative share of capital provided by it to the syndicates. Zenith is accounting for its investment in Advent Capital on the equity method of accounting lagged by one quarter to allow sufficient time for Advent Capital to prepare its financial information. The table that follows represents

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a reconciliation of changes in the liability for unpaid loss and loss adjustment expenses in Advent Capital's financial statements:

        The preceding reconciliation of changes in the liability for unpaid loss and loss adjustment expenses are presented as of and for the following periods:

(1)

Paid and incurred claims for the twelve months ended September 30, 2003 and the balance sheet liabilites for loss reserves at September 30, 2002 and September 30, 2003.



(2)

Paid and incurred claims for the nine months ended September 30, 2002 and the balance sheet liabilities for loss reserves at December 31, 2001 and September 30, 2002.



(3)

Paid and incurred claims for the twelve months ended December 31, 2001 and the balance sheet liabilities for loss reserves at December 31, 2000 and December 31, 2001.



(4)

Adjustment to reflect Advent Capital's current participation level in the underlying Lloyd's syndicates.

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        The table that follows shows development of loss and loss adjustment expense liabilities as originally estimated at December 31 of each year presented for Advent Capital. Advent Capital became a corporate underwriting member of Lloyd's in 1995.

(1)

Adjustment to reflect Advent Capital's current participation level in the underlying Lloyd's syndicates.



(2)

For the liabilities established at December 31, 1995 through December 31, 2000, cumulative paid losses and the re-estimated liability are shown at the end of each subsequent twelve month period through December 31, 2001. The cumulative paid losses and re-estimated liability are then shown through the nine month period and as of September 30, 2002 for these liabilities and for the liability originally established at December 31, 2001. Thereafter, the cumulative paid losses and the re-estimated liability are shown through the twelve months ending and as of September 30, 2003 for all of the original balance sheet loss reserve liabilities from 1995 to 2002.

        Results of operations for Advent Capital may be adversely impacted in periods that sustain large catastrophe losses. Advent Capital's net loss in 2001 of $53.2 million was attributable, principally, to its estimated net pre-tax loss of $66.0 million due to the terrorist attack on the World Trade Center. Adverse development of the reserves established at September 30, 2002 and December 31, 2001 was attributable, principally, to increased estimates for losses sustained by Advent Capital in connection with the World Trade Center loss.

Reinsurance Ceded

Excess of loss reinsurance

        Excess of loss reinsurance is 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. In accordance with general industry practices, we purchase excess of loss reinsurance to protect Zenith against the impact of large, irregularly-occurring losses in the workers' compensation

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business. Such reinsurance reduces the magnitude of sudden and unpredictable changes in net income and the capitalization of Zenith's insurance operations. In summary, Zenith has reinsurance protection for large catastrophe losses up to $150.0 million in excess of a retention of $1.0 million, except that Zenith remains liable for one third of any loss between $75.0 million and $150.0 million. Details are as follows:

        An excess of loss reinsurance treaty with Employers Reinsurance Corporation ("Employers Re") provides $9.0 million of reinsurance protection, per occurrence, for workers' compensation losses in excess of a $1.0 million retention. In the year ended December 31, 2003 and in 2004, reinsurance provides protection for losses in excess of $10.0 million up to $150.0 million. In 2003, we retained 50% of any losses between $60.0 million and $100.0 million (of which there were none) and in 2004 we will retain one third of any losses between $75.0 million and $150.0 million. The principal companies providing the coverage are Arch Re, Everest Re, Folksamerica Re, Odyssey America, Swiss Re, Transatlantic Re, XL America, Axis Specialty, ACE Tempest Re, Endurance Specialty and Hanover Re.

        This reinsurance includes protection for domestic acts of terrorism (coverage for nuclear, biological and chemical events is excluded above $10.0 million); otherwise, we purchase reinsurance for foreign acts of terrorism separately, as discussed below.

Terrorism Exposure and the Terrorism Risk Insurance Act of 2002

        Under our workers' compensation policies, we are required to provide workers' compensation benefits for losses arising from acts of terrorism. The impact of any terrorist act is unpredictable, and the ultimate impact on us will depend upon the nature, extent, location and timing of such an act. We attempt to mitigate the risk of loss from terrorism as follows:

        As discussed above, our general excess of loss treaties provide certain coverage for domestic acts of terrorism. We have purchased additional reinsurance for foreign acts of terrorism in the amount of $9.0 million in excess of a retention of $1.0 million in 2004. In addition for 2004, we have purchased reinsurance for foreign acts of terrorism, excluding nuclear, biological and chemical attacks, up to losses of $68.0 million in excess of $10.0 million, except that we have retained $10.0 million, or 50%, of any aggregate losses between $20.0 million and $40.0 million. The cost of such terrorism reinsurance in 2004 is approximately $6.0 million including the reinsurance from $1.0 million to $10.0 million. This cost will be offset by approximately $1.7 million of terrorism surcharge premiums. Terrorism reinsurance constituted approximately $2.5 million, or 0.3% of ceded earned reinsurance premiums, and $0.3 million, or 0.01% of ceded earned reinsurance premiums, in 2003 and 2002, respectively.

        In November 2002, the Terrorism Risk Insurance Act of 2002 (the "Act") became effective and is effective for the period from November 26, 2002 until December 31, 2005. The Act may also provide us with reinsurance protection under certain circumstances and subject to certain limitations. The Secretary of the Treasury must certify an act for it to constitute an act of terrorism. The definition of terrorism excludes domestic acts of terrorism or acts of terrorism committed in the course of a war declared by Congress. Losses arising from an act of terrorism must exceed $5.0 million to qualify for reimbursement. If an event is certified, the Federal Government will reimburse losses not to exceed $100.0 billion in any year. Each insurance company is responsible for a deductible based on a percentage of direct earned premiums in the previous calendar year. For losses in excess of the deductible, the Federal Government will reimburse 90% of the insurer's loss, up to the insurer's proportionate share of the $100.0 billion.

        The Act contemplates that affiliated insurers will be treated collectively as one entity by the U.S. Treasury Department for purposes of calculating direct earned premiums and, therefore, an insurer's deductible. As of December 31, 2003, companies controlled by Fairfax Financial Holdings Limited ("Fairfax") owned approximately 41% of our outstanding common stock. Fairfax has disclaimed any control of Zenith and has granted to a trustee a proxy to vote all of the shares of our common stock

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held by Fairfax and its subsidiaries in proportion to the voting of all other Zenith National stockholders. In January 2004, we received a final determination from the Treasury Department in which it determined that the direct earned premiums for U.S. exposures of the insurers controlled by Fairfax (the "Fairfax direct earned premiums") are required to be combined with our direct earned premiums for purposes of calculating our deductible under the Act. Including the Fairfax direct earned premiums with ours, our deductible for 2004 is approximately $251 million.

        Notwithstanding the protection provided by the reinsurance we have purchased and any protection provided by the Act, the risk of severe losses to Zenith from acts of terrorism has not been eliminated because events may not be covered by, or may exceed the capacity of, our reinsurance protection. In our workers' compensation business, we monitor the geographical concentrations of insured employees to help mitigate the risk of loss from terrorist acts. Also, small businesses constitute a large proportion of our policies, and we seek to avoid risks in high profile locations. In our reinsurance business, any terrorism exposure we have assumed is subject to our underwriting guidelines not to write business that could expose us to losses from a single event of greater than approximately $19 million after deducting applicable premium and reinstatement premium and income tax.

Quota share reinsurance

        Quota share reinsurance is a form of reinsurance in which the assuming company accepts a pro rata share of the ceding company's losses and an equal share of the applicable premiums. In addition, the assuming company pays the ceding company a fee, known as a ceding commission, which is usually a percentage of the premiums ceded. Quota share reinsurance allows the ceding company to increase the amount of business it could otherwise write by sharing the risks with the assuming company. The effect on the ceding company is similar to increasing its capital, the principal constraint on the amount of business an insurance company can prudently write. Zenith and a subsidiary of Odyssey Re Holdings Corp. ("Odyssey Re"), a subsidiary of Fairfax, entered into a 10% quota share ceded reinsurance agreement with respect to all new and renewal workers' compensation business written by Zenith in the three years commencing January 1, 2002. Ceded earned premiums under the quota share contract were $78.5 million and $36.8 million, respectively, in 2003 and 2002.

Other reinsurance ceded

        Other than our excess of loss reinsurance protection and the quota share agreement, we are involved in collecting reinsurance recoverable under reinsurance contracts that were entered into by companies that we acquired and whose reinsurance arrangements we terminated. Our reinsurance recoverable includes $31.6 million relating to reinsurance arrangements entered into by RISCORP and assumed by Zenith in the acquisition of RISCORP in 1998. The principal reinsurers from which such RISCORP-related amounts are recoverable are American Re-Insurance Company, Continental Casualty Co., Swiss Reinsurance Company and Trenwick America Reinsurance Company. Also, in connection with the RISCORP Acquisition, Zenith Insurance entered into an aggregate excess of loss reinsurance agreement with Inter-Ocean Reinsurance Company, Ltd., which provides ceded reinsurance for unpaid loss and allocated loss adjustment expenses assumed by Zenith from RISCORP at April 1, 1998 up to $50.0 million in excess of $182.0 million. Reinsurance recoverable from Inter-Ocean Reinsurance Company is fully secured by a trust account.

Recoverability of ceded reinsurance

        Reinsurance makes the assuming reinsurer liable to the ceding company to the extent of the reinsurance. It does not, however, discharge the ceding company from its primary liability to its policyholders in the event the reinsurer is unable to meet its obligations under such reinsurance treaty. We monitor the financial condition of our reinsurers and do not believe that Zenith is currently exposed to any material credit risk through its ceded reinsurance arrangements other than in

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connection with Reliance Insurance Company ("Reliance"). Historically, no material amounts due from reinsurers have been written-off as uncollectible because most of our reinsurance is recoverable from large, well-capitalized reinsurance companies. However, on October 3, 2001, the Commonwealth Court of Pennsylvania approved an Order of Liquidation for Reliance in response to a petition from the Pennsylvania Department of Insurance. At December 31, 2003 and 2002, Reliance owed Zenith Insurance $6.0 million of reinsurance recoverable on paid and unpaid losses in connection with reinsurance arrangements assumed by Zenith Insurance in its 1996 acquisition of the Associated General Commerce Self-Insurers' Trust Fund. Zenith Insurance has recorded a provision for impairment of its reinsurance recoverable from Reliance of $3.0 million at December 31, 2003 and 2002. The eventual outcome of this matter will be determined by the ultimate amount of Reliance's liabilities and whether or not Reliance has sufficient assets or can obtain recoveries and investment income in an amount sufficient to pay its liabilities.

        Amounts recoverable (including amounts for paid and unpaid losses, prepaid reinsurance premiums and reinsurance commissions) at December 31, 2003 were as follows:

(1)

A.M. Best, in assigning ratings, is primarily concerned with the ability of insurance and reinsurance companies to pay the claims of policyholders. In the A.M. Best ratings scheme, ratings of B+ to A++ are considered "Secure" and ratings of B and below are considered "Vulnerable."

(2)

Reinsurance recoverable from Inter-Ocean Reinsurance Company is fully secured by a trust account.

(3)

Amount shown is gross of the impairment provision. See discussion above regarding Reliance.

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(4)

At December 31, 2002, Trenwick America Reinsurance Corporation ("Trenwick") had total assets of $1.1 billion and policyholders' surplus of $125.9 million. A trust account with a balance of $2.4 million at December 31, 2003 provides security for amounts recoverable for unpaid losses from Trenwick.

(5)

At December 31, 2002, Seaton Insurance Company ("Seaton") had assets of $63.5 million and policyholders' surplus of $53.0 million. All of Seaton's liabilities associated with its discontinued assumed reinsurance operations are reinsured by other companies, including Syndicates of Lloyd's of London (A-), Unigard Insurance Company (A), Allstate Insurance Company (A+), Philadelphia Re (not rated) and National Indemnity Company (A++).

(6)

National Reinsurance Corporation is a subsidiary of General Re. Corporation (a wholly-owned subsidiary of Berkshire Hathaway, Inc.). At December 31, 2002, total assets of National Reinsurance Corporation were $1.1 billion and policyholders' surplus was $655.8 million.

Intercompany reinsurance pooling agreement

        Zenith's insurance subsidiaries are parties to an intercompany pooling agreement. Under such agreement, the results of underwriting operations are ceded (the risks are transferred) to Zenith Insurance and are then reapportioned, or retro-ceded (the risks are transferred back), to the companies party to the agreement. At December 31, 2003, the proportions of the pooling agreement were as follows: Zenith Insurance — 97.5%; ZNAT Insurance — 2.0%; and Zenith Star — 0.5%. Transactions pursuant to the pooling agreement are eliminated on consolidation and have no impact on Zenith's consolidated financial statements.

Marketing and Staff

        The business in the workers' compensation operations is produced by approximately 1,600 independent licensed insurance agents and brokers throughout California, Florida, Texas, North Carolina and other states in which Zenith conducts its business. Zenith's assumed reinsurance premiums are generated nationally by brokers and reinsurance intermediaries.

        Applications for insurance and reinsurance submitted by all agents and brokers are evaluated by professional underwriters based upon numerous factors, including underwriting criteria and standards, geographic areas of underwriting concentration, actuarial judgments of rate adequacy, economic considerations and review of known data on the particular risk. We retain all authority over underwriting, claims processing, safety engineering and auditing and do not delegate any such authority to our agents or brokers.

Competition

        Competition in the insurance business is based upon price, product design and quality of service. The insurance industry is highly competitive and there is significant competition in the national workers' compensation industry which, at times, is intense. Zenith competes not only with other stock companies, but with mutual companies and other underwriting organizations such as the State Compensation Insurance Fund in California. Recent regulatory action has mitigated the competitive behavior of the State Compensation Insurance Fund in California. Competition also exists with self-insurers and captive insurers. Many companies in competition with us 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.

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Regulation

        The insurance business is subject to state-by-state regulation and legislation focused on solvency, pricing, market conduct, claims practices, underwriting, accounting, investment criteria and other areas. Such regulation and legislation is subject to continual change and compliance is an inherent risk of the business.

State Departments of Insurance

        Insurance companies are subject to regulation and supervision by the department of insurance in the state in which they are domiciled and, to a lesser extent, other states in which they conduct business. Our 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 by the Texas Department of Insurance. These state agencies have broad regulatory, supervisory and administrative powers, including, among other things, the power to: grant and revoke licenses to transact business; license agents; set the standards of solvency to be met and maintained; determine the nature of, and limitations on, investments and dividends; approve policy forms and rates in some states; periodically examine financial statements; determine the form and content of required financial statements; and periodically examine market conduct.

        Detailed annual and quarterly financial statements and other reports are required to be filed with the departments of insurance of the states in which we are licensed to transact business. The financial statements of our insurance subsidiaries are subject to periodic examination by the California and Texas Departments of Insurance. In 2003, the California Department of Insurance completed an examination of Zenith Insurance and ZNAT Insurance as of December 31, 2001 and the Report of Examination contained no material findings. In 2003, the Texas Department of Insurance completed an examination of Zenith Star as of December 31, 2001, and the Report of Examination contained no material findings.

The National Association of Insurance Commissioners

        The National Association of Insurance Commissioners (the "NAIC") is a group formed by state Insurance Commissioners to discuss issues and formulate policy with respect to regulation, reporting and accounting of insurance companies. Although the NAIC has no legislative authority and insurance companies are at all times subject to the laws of their respective domiciliary states and, to a lesser extent, other states in which they conduct business, the NAIC is influential in determining the form in which such laws are enacted. Model Insurance Laws, Regulations and Guidelines (the "Model Laws") have been promulgated by the NAIC as a minimum standard by which state regulatory systems and regulations are measured. Adoption of state laws which provide for substantially similar regulations to those described in the Model Laws is a requirement for accreditation by the NAIC. The NAIC provides authoritative guidance to insurance regulators on current statutory accounting issues by promulgating and updating a codified set of statutory accounting principles in its Accounting Practices and Procedures Manual. The California and Texas Departments of Insurance have adopted these codified statutory accounting principles.

        Under NAIC Model Laws, insurers are required to maintain minimum levels of capital based on their investments and operations. These "risk-based capital" ("RBC") requirements provide a standard by which regulators can assess the adequacy of an insurance company's capital and surplus relative to its operations. An insurance company must maintain capital and surplus of at least 200% of the RBC computed by the NAIC's RBC model (known as the "Authorized Control Level" of RBC). At December 31, 2003, the capital and surplus of Zenith Insurance was 330% of the Authorized Control Level of RBC.

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        The NAIC Insurance Regulatory Information System ("IRIS") key financial ratios, developed to assist insurance departments in overseeing the financial condition of insurance companies, are reviewed by experienced financial examiners of the NAIC and state insurance departments to select those companies that merit highest priority in the allocation of the regulators' resources. The 2003 IRIS results for Zenith Insurance showed four results outside the "normal" range for such ratios, as such range is determined by the NAIC. These results were attributable to the growth in workers' compensation premiums in 2003 compared to 2002, historically low yields of fixed maturity securities in 2003 and adverse development recorded in our workers' compensation loss reserve estimates in the last two years.

Insurance Holding Company System Regulatory Act

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

Ratio of Earnings to Fixed Charges

        Our ratio of earnings to fixed charges for each of the periods indicated is as follows:

        For purposes of calculating the ratio, earnings consist of income from continuing operations (excluding equity in investee earnings or losses) before provision for income taxes and fixed charges (except capitalized interest in discontinued operations). Fixed charges include interest expense, interest expense capitalized in discontinued operations and approximately 30% of rental expense, which is what we believe to be a reasonable approximation of the interest portion of rental expense. In 2002, 2001 and 2000, our earnings were insufficient to cover our fixed charges by $4.6 million, $46.5 million and $84.6 million, respectively.

Risks Relating to Our Business

        Our business is subject to numerous risks and uncertainties, the outcome of which may impact future results of operations and financial condition. Some of these risks and uncertainties are described below. These and other risks are also described elsewhere as follows: 1) under this Item 1 — Description of the Business; 2) under Item 7 — Management's Discussion and Analysis of Consolidated Financial Condition and Results of Operations; and 3) under Item 8 — Notes to Consolidated Financial Statements in Zenith's 2003 Annual Report to Stockholders.

Our loss reserves are based on estimates and may be inadequate to cover our actual losses.

        If we fail to accurately assess the risks associated with the businesses that we insure or reinsure, our reserves may be inadequate to cover our actual losses and we may fail to establish appropriate premium rates. We establish loss reserves in our financial statements that represent an estimate of amounts needed to pay and administer claims with respect to insured and reinsured events that have occurred, including events that have not yet been reported to us. Reserves are estimates and are inherently uncertain; they do not and cannot represent an exact measure of liability. Accordingly, our reserves may prove to be inadequate to cover our actual losses. Any changes in these estimates are

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reflected in our results of operations during the period in which the changes are made, with increases in our reserves resulting in a charge to our earnings.

        Our loss reserve estimates are based on estimates of the ultimate cost of individual claims and on actuarial estimation techniques. Several factors contribute to the uncertainty in establishing these estimates. Judgment is required in actuarial estimation to ascertain the relevance of historical payment and claim settlement patterns under current facts and circumstances. Key assumptions in the estimation process for workers' compensation reserves are the severity trends, including the increasing costs of health care on the medical component of claim costs. If there were unfavorable changes in severity trends, our reserves may need to be increased, as described above. Our reserve estimates for catastrophe losses in the assumed reinsurance business are heavily dependent upon obtaining information timely from ceding companies. Estimates of catastrophe losses can be negatively impacted by lags in reporting from ceding companies. In addition, we are subject to the risk that the ceding company may not have adequately estimated the amount of the reinsured loss.

If we are unable to obtain or collect on ceded reinsurance, our ability to write new policies could be materially adversely affected.

        We buy reinsurance protection in our workers' compensation business to protect us from the impact of large losses over $1.0 million and from the accumulation of losses up to $150.0 million, except that, in 2004, we will retain one third of any losses between $75.0 million and $150.0 million. The availability, amount and cost of reinsurance depend on market conditions and may vary significantly. As a result of catastrophic events, such as the events of September 11, 2001, we may incur significantly higher reinsurance costs, more restrictive terms and conditions, and decreased availability. Any decrease in the amount of our reinsurance will increase our risk of loss and could materially adversely affect our business and financial condition.

        In addition, we are subject to credit risk with respect to our reinsurers. Ceded reinsurance does not discharge our direct obligations under the policies we write. We remain liable to our policyholders, even if we are unable to make recoveries to which we believe we are entitled under our reinsurance contracts. Losses may not be recovered from our reinsurers until claims are paid and, in the case of long-term workers' compensation cases, the creditworthiness of our reinsurers may change before we can recover amounts to which we are entitled.

Catastrophe losses in our assumed reinsurance business will cause fluctuations in net income.

        We participate in the assumed reinsurance of property catastrophe losses. The loss experience of property catastrophe reinsurers has generally been characterized as low frequency but high severity in nature and claims from catastrophes could cause substantial volatility in our financial results for any fiscal quarter or year. Accordingly, our net income typically decreases in periods when there are large catastrophe losses and typically increases in the absence of catastrophe losses. These fluctuations could have a material adverse effect on our results of operations and financial condition.

        Various events are classified as catastrophes, including hurricanes, windstorms, earthquakes, hail, explosions, severe winter weather and fires as well as man-made events, such as acts of war, acts of terrorism and political instability. The frequency and severity of these catastrophes are inherently unpredictable. The extent of losses from a catastrophe is a function of both the total amount of insured exposures in the area affected and the severity of the event. The amount of catastrophe reinsurance we write in any one year is limited to produce an expected estimated maximum loss from a single, worst-case scenario of approximately $19 million, net of all applicable premium and reinstatement premium and income taxes. However, we participate in several global catastrophe reinsurance treaties, and catastrophe losses could be sizable enough to impact our annual earnings significantly, as they have in recent years.

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The risks associated with property and casualty reinsurance underwriting could adversely affect us.

        Because we participate in property and casualty reinsurance markets, the success of our underwriting efforts depends, in part, upon the policies, procedures and expertise of the ceding companies making the original underwriting decisions. We face the risk that these ceding companies may fail to accurately assess the risks that they assume initially which in turn, may lead us to inaccurately assess the risks we assume. If we fail to establish and receive appropriate premium rates, we could face significant losses on these contracts.

Acts of terrorism could negatively impact our business and our financial condition.

        Under our workers' compensation policies, we are required to provide workers' compensation benefits for losses arising from acts of terrorism. The impact of any terrorist act is unpredictable, and the ultimate impact on us will depend upon the nature, extent, location and timing of such an act. Any such impact on us could be material.

        Our excess of loss reinsurance provides protection for domestic acts of terrorism (excluding nuclear, biological and chemical attacks for losses in excess of $10.0 million). We have purchased additional reinsurance for foreign acts of terrorism in the amount of $9.0 million in excess of a retention of $1.0 million for 2004. In addition for 2004, we have purchased reinsurance for foreign acts of terrorism, excluding nuclear, biological and chemical attacks, up to losses of $68.0 million in excess of $10.0 million, except that we have retained $10.0 million, or 50%, of any aggregate losses between $20.0 million and $40.0 million. The cost of such terrorism reinsurance for 2004 is approximately $6.0 million, including the reinsurance from $1.0 million to $10.0 million. This cost is offset by approximately $1.7 million of terrorism surchange permiums.

        In November 2002, the Terrorism Risk Insurance Act of 2002 (the "Act") became effective and is effective for the period from November 26, 2002 until December 31, 2005. The Act may also provide us with reinsurance protection under certain circumstances and subject to certain limitations. The Secretary of the Treasury must certify an act for it to constitute an act of terrorism. The definition of terrorism excludes domestic acts of terrorism or acts of terrorism committed in the course of a war declared by Congress. Losses arising from an act of terrorism must exceed $5.0 million to qualify for reimbursement. If an event is certified, the Federal Government will reimburse losses not to exceed $100.0 billion in any year. Each insurance company is responsible for a deductible based on a percentage of direct earned premiums in the previous calendar year. For losses in excess of the deductible, the Federal Government will reimburse 90% of the insurer's loss, up to the insurer's proportionate share of the $100.0 billion.

        The Act contemplates that affiliated insurers will be treated collectively as one entity by the U.S. Treasury Department for purposes of calculating direct earned premiums and, therefore, an insurer's deductible. As of December 31, 2003, companies controlled by Fairfax owned approximately 41% of our outstanding common stock. Fairfax has disclaimed any control of Zenith and has granted to a trustee a proxy to vote all of the shares of our common stock held by Fairfax and its subsidiaries in proportion to the voting of all other Zenith National stockholders. In January 2004, we received a final determination from the Treasury Department in which it determined that the direct earned premiums for U.S. exposures of the insurers controlled by Fairfax (the "Fairfax direct earned premiums") are required to be combined with our direct earned premiums for purposes of calculating our deductible under the Act. Including the Fairfax direct earned premiums with ours, our deductible for 2004 is approximately $251 million.

        Notwithstanding the protection provided by the reinsurance we have purchased and any protection provided by the Act, the risk of severe losses to Zenith from acts of terrorism has not been eliminated because events may not be covered by, or may exceed the capacity of, our reinsurance protection. Accordingly, any acts of terrorism could materially adversely affect our business and financial condition.

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The insurance business is subject to extensive regulation and legislative changes, which impact the manner in which we operate our business.

        Our insurance business is subject to extensive regulation by the applicable state agencies in the jurisdictions in which we operate, perhaps most significantly by the departments of insurance in California and Texas. These state agencies have broad regulatory powers designed to protect policyholders, not stockholders or other investors. These powers include, among other things, the ability to:

•

influence how we conduct our business;



•

place limitations on our investments and dividends;



•

place limitations on our ability to transact business with our affiliates;



•

set standards of solvency to be met and maintained; and



•

prescribe the form and content of, and to examine, our financial statements.

        In addition, workers' compensation insurance is statutorily provided for in all of the states in which we do business. State laws and regulations provide for the form and content of policy coverage and the rights and benefits that are available to injured workers, their representatives and medical providers. For example, in California, on January 1, 2003, workers' compensation legislation became effective that provides for increases in the benefits payable to injured workers. Also, in California, workers' compensation legislation intended to reduce certain medical costs became effective. In Florida, the rates at which we provide coverage are determined by regulation. Legislation and regulation also impact our ability to investigate fraud and other abuses of the workers' compensation system in the states in which we do business. Our relationships with medical providers are also impacted by legislation and regulation, including penalties for failure to make timely payments.

        Federal legislation typically does not directly impact our workers' compensation business, but our business can be indirectly affected by changes in health care and occupational safety and health regulations. In addition, we were impacted by the Terrorism Risk Insurance Act of 2002, as discussed above, and by the Gramm Leach Bliley Act of 2002 related to disclosure of personal information. Moreover, changes in federal tax laws could also impact our business.

        This extensive regulation of our business may affect the cost or demand for our products and may limit our ability to obtain rate increases or to take other actions that we might desire to increase our profitability. In addition, we may be unable to maintain all required approvals or comply fully with the wide variety of applicable laws and regulations, which are continually undergoing revision, or the relevant authority's interpretation of such laws and regulations.

A downgrade in the financial strength rating of our insurance subsidiaries could reduce the amount of business we are able to write.

        Rating agencies rate insurance companies based on financial strength as an indication of an ability to pay claims. Our insurance subsidiaries currently have a financial strength rating of A- (Excellent) from A.M. Best, which we believe has the most influence on our business. The financial strength ratings of A.M. Best and other rating agencies are subject to periodic review using, among other things, proprietary capital adequacy models, and are subject to revision or withdrawal at any time. Insurance financial strength ratings are directed toward the concerns of policyholders and insurance agents and are not intended for the protection of investors. Our competitive position relative to other companies is determined in part by our financial strength rating. Any reduction in our A.M. Best rating below A-, or a downgrading by one of the other rating agencies, could cause a reduction in the number of policies we write in both our workers' compensation and our assumed reinsurance business and could have a material adverse effect on our results of operations and our financial position.

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Intense competition could adversely affect our ability to sell policies at rates we deem adequate.

        In most of the states in which we operate, we face significant competition which, at times, is intense. If we are unable to compete effectively, our business and financial condition could be materially adversely affected. Competition in our businesses is based on many factors, including premiums charged, services provided, financial strength ratings assigned by independent rating agencies, speed of claims payments, reputation, perceived financial strength and general experience. In the workers' compensation area, we compete with regional and national insurance companies and state-sponsored insurance funds, as well as potential insureds that have decided to self-insure. Some of our competitors have greater financial, marketing and management resources than us. Intensive competitive pressure on prices can result from the actions of even a single large competitor, such as the State Compensation Insurance Fund in California. Except in Florida, where rates for workers' compensation insurance are determined by regulation, we use our own rates, based on the work of our actuaries, to determine the price for our workers' compensation policies. Historically, when competition has been intense, the amount of business we are able to write has decreased because we have not reduced our prices to maintain market share or other revenue targets. As a result, our profitability during those times has decreased.

        In the assumed reinsurance business, our premium volume fluctuates as competitive conditions cause fluctuations in prevailing rates for reinsurance. In the reinsurance business, new capital can rapidly enter the market when prevailing prices are perceived to be favorable to reinsurers. The new capital is used to form new companies or increase the capacity of existing companies or other underwriting entities, such as syndicates of Lloyd's of London.

If we are unable to realize our investment objectives, our financial condition may be adversely affected.

        Investment income is an important component of our revenues and net income. The ability to achieve our investment objectives is affected by factors that are beyond our control. For example, United States participation in hostilities with other countries and large-scale acts of terrorism may adversely affect the economy generally, and our investment income could decrease. Interest rates are highly sensitive to many factors, including governmental monetary policies and domestic and international economic and political conditions. These and other factors also affect the equities markets, and, consequently, the value of the equity securities we own. Any significant decline in our investment income as a result of falling interest rates, decreased dividend payment rates or general market conditions would have an adverse effect on our net income and, as a result, on our stockholders' equity and our policyholders' surplus.

        Interest rates have declined steadily in the past several years. The outlook for our investment income is dependent on the future direction of interest rates and the amount of cash flows from operations that are available for investment. The fair values of fixed maturity investments that are "available-for-sale" fluctuate with changes in interest rates and cause fluctuations in our stockholders' equity.

        We invest a small portion of our portfolio in below investment-grade securities. The risk of default by borrowers that issue below investment-grade securities is significantly greater than other borrowers because these borrowers are often highly leveraged and more sensitive to adverse economic conditions, including a recession. In addition, these securities are generally unsecured and often subordinated to other debt. The risk that we may not be able to recover our investments in below investment-grade securities is higher than with investment-grade securities.

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Our geographic concentration ties our performance to the business, economic and regulatory conditions in California and Florida.

        Our business is concentrated in California (64% of 2003 workers' compensation earned premiums) and in Florida (18% of 2003 workers' compensation earned premiums). Accordingly, unfavorable business, economic or regulatory conditions in these states could negatively impact our business. For example, regulatory changes in California in the early 1990's created intense price competition in our workers' compensation business from about 1995 to 1999, during which time our overall profitability experienced significant declines as a result. In addition, California and Florida are states that are exposed to severe natural perils, such as earthquakes and hurricanes, along with the possibility of terrorist acts. Accordingly, we could suffer losses as a result of catastrophic events in these states. Because our business is concentrated in this manner, we may be exposed to economic and regulatory risks or risk from natural perils that are greater than the risks associated with greater geographic diversification.

We rely on independent insurance agents and brokers.

        The failure or inability of independent insurance agencies and brokers to market our insurance programs successfully could have a material adverse effect on our business, financial condition and results of operations. The business in our workers' compensation operations is produced by approximately 1,600 licensed insurance agents and brokers. Our assumed reinsurance premiums are generated nationally by brokers and reinsurance intermediaries. Agencies and brokers are not obligated to promote our insurance programs and may sell competitors' insurance programs. As a result, our business depends in part on the marketing efforts of these agencies and brokers and on our ability to offer insurance programs and services that meet the requirements of the clients and customers of the these agencies and brokers.

Assessments and other surcharges for guaranty funds and second injury funds and other mandatory pooling arrangements may reduce our profitability.

        Virtually all states require insurers licensed to do business in their state to bear a portion of the loss suffered by some insureds as the result of impaired or insolvent insurance companies. These obligations are funded by assessments that are expected to continue in the future as a result of insolvencies. Many states also have laws that established second injury funds to provide compensation to injured employees for aggravation of a prior condition or injury, which are funded by either assessments based on paid losses or premium surcharge mechanisms. In addition, as a condition to the ability to conduct business in some states, insurance companies are required to participate in mandatory workers' compensation shared market mechanisms or pooling arrangements, which provide workers' compensation insurance coverage from private insurers. The effect of these assessments and mandatory shared market mechanisms or changes in them could reduce our profitability in any given period or limit our ability to grow our business.

The effects of the increasing amount of litigation against insurers on our business are uncertain.

        Like other members of the insurance industry, we are the target of an increasing number of class action lawsuits and other types of litigation, some of which involve claims for substantial and/or indeterminate amounts and the outcomes of which are unpredictable. This litigation is based on a variety of issues including insurance and claim settlement practices.

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Our status as an insurance holding company with no direct operations could adversely affect our ability to meet our debt obligations and pay dividends.

        Zenith National is a holding company which transacts substantially all of its business through its subsidiaries. Our primary assets are the stock of our operating subsidiaries. Our ability to meet our obligations on our outstanding debt, and to pay expenses and dividends, depends, in the long run, upon the surplus and earnings of our subsidiaries and the ability of our subsidiaries to pay dividends to us. Payments of dividends by our insurance company subsidiaries are restricted by state insurance laws, including laws establishing minimum solvency and liquidity thresholds, and could be subject to contractual restrictions in the future. As a result, at times, we may not be able to receive dividends from these subsidiaries and we may not receive dividends in amounts necessary to meet our debt obligations or to pay dividends on our capital stock. In addition, the payment of dividends by us is within the discretion of our Board of Directors and will depend on numerous factors, including our financial condition, our capital requirements and other factors that our Board of Directors considers relevant.

Fairfax has granted a voting proxy with respect to the shares of our common stock owned by companies controlled by it which may impede attempts to replace or remove our Board or management.

        As of December 31, 2003, companies controlled by Fairfax owned 41% of our outstanding common stock. Fairfax has disclaimed any control of Zenith National and has granted to a trustee a proxy to vote all of the shares of common stock held by Fairfax and its subsidiaries. The proxy provides that the trustee must vote all such shares in proportion to the voting of all other Zenith National stockholders, except in the event of a proxy contest that is not supported by management and that occurs prior to the earlier of December 31, 2006 and the date on which Stanley R. Zax is no longer our full-time Chairman and President. If such a hostile proxy contest were to occur, the shares must be voted as recommended by management. This arrangement could prevent or delay a change in our Board of Directors or management, and could cause the value of our securities to decline.

Item 2. Properties.

        Zenith Insurance owns a 130,000 square foot office facility in Woodland Hills, California which is the corporate home office of Zenith National and its subsidiaries. Zenith Insurance also owns a 120,000 square foot branch office facility in Sarasota, Florida. In the regular conduct of business, Zenith Insurance leases offices in various cities. See Notes to Consolidated Financial Statements — Note 16 — "Commitments and Contingent Liabilities" in Zenith's 2003 Annual Report to Stockholders, which note is hereby incorporated by reference. Zenith considers its owned and leased facilities to be adequate for the needs of the organization.

Item 3. Legal Proceedings.

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

Item 4. Submission of Matters to a Vote of Security Holders.

        Not applicable.

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PART II

Item 5. Market for Registrant's Common Equity and Related Stockholder Matters.

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

        As of March 3, 2004, there were 229 registered holders of record of Zenith National common stock.

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

        The Holding Company Acts limit the ability of Zenith Insurance to pay dividends to Zenith National, and of ZNAT Insurance and Zenith Star to pay dividends to Zenith Insurance, by providing that the appropriate insurance regulatory authorities in the states of California and Texas must approve any dividend that, together with all other such dividends paid during the preceding twelve months, exceeds the greater of: (a) 10% of the paying company's statutory surplus as regards policyholders at the preceding December 31; or (b) 100% of the net income for the preceding year. In addition, any such dividend must be paid from policyholders' surplus attributable to accumulated earnings. Such restrictions on dividends are not cumulative. Zenith Insurance paid $10.0 million in dividends to Zenith National in each of 2003 and 2001. No dividends were paid in 2002. In 2004, Zenith Insurance will be able to pay up to $70.9 million of dividends to Zenith National without prior approval of the California Department of Insurance. The restrictions on the payment of dividends have not had, and under current regulations are not expected to have, a material adverse impact on the ability of Zenith

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Insurance to pay dividends. In a recent court ruling, a California statute that allowed a deduction for the dividends received from wholly-owned insurance companies in the determination of taxable income for the California Franchise Tax was held unconstitutional in certain circumstances. The consequences of the decision are unclear, but the California Franchise Tax Board ("FTB") has taken the position that the decision has caused the statute to be invalid for all purposes and will disallow in its entirety the deduction for dividends received from insurance subsidiaries. If sustained, such action by the FTB would have the effect of imposing a tax of approximately 6% (after the benefit of a federal tax deduction) on any dividends paid from Zenith Insurance to Zenith National. We are unable to predict the ultimate outcome of this matter, which depends upon the actions of the FTB, the prospects for appropriate legislative relief and various tax strategies that may be available to Zenith to alleviate the consequences of any actions by the FTB.

Item 6. Selected Financial Data.

        The 5-Year Summary of Selected Financial Information, included in Zenith's 2003 Annual Report to Stockholders, is hereby incorporated by reference.

Item 7. Management's Discussion and Analysis of Consolidated Financial Condition and Results of Operations.

        Management's Discussion and Analysis of Consolidated Financial Condition and Results of Operations, included in Zenith's 2003 Annual Report to Stockholders, is hereby incorporated by reference.

Item 7a. Quantitative and Qualitative Disclosures about Market Risk.

        The "Market Risk of Financial Instruments" section of the Management's Discussion and Analysis of Consolidated Financial Condition and Results of Operations included in Zenith's 2003 Annual Report to Stockholders, is hereby incorporated by reference.

Item 8. Financial Statements and Supplementary Data.

        The Consolidated Financial Statements and Notes thereto included in Zenith's 2003 Annual Report to Stockholders are hereby incorporated by reference.

Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.

        None.

Item 9A. Controls and Procedures.

(a)

Disclosure Controls and Procedures.

        Zenith's management, with the participation of Zenith's Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of Zenith's disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the "Exchange Act")) as of the end of the period covered by this report. Based on such evaluation, Zenith's Chief Executive Officer and Chief Financial Officer have concluded that, as of the end of such period, Zenith's disclosure controls and procedures are effective in recording, processing, summarizing and reporting, on a timely basis, information required to be disclosed by Zenith in the reports that it files or submits under the Exchange Act.

(b)

Internal Control Over Financial Reporting.

        There have not been any changes in Zenith's internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the last fiscal quarter of the year to which this report relates that have materially affected, or are reasonably likely to materially affect, Zenith's internal control over financial reporting.

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PART III

Item 10. Directors and Executive Officers of the Registrant.

        The information set forth under the captions "Election of Directors," "Section 16(a) Beneficial Ownership Reporting Compliance," "Audit Committee," and "Code of Ethics for Senior Financial Officers" in the Proxy Statement distributed to stockholders in connection with Zenith's 2004 Annual Meeting of Stockholders (the "Proxy Statement"), which is to be filed by Zenith after the date this Annual Report on Form 10-K is filed, is hereby incorporated by reference.

Executive Officers of the Registrant

        Each of the executive officers is an officer of Zenith National and certain of its subsidiaries and each has occupied an executive position with Zenith National or a subsidiary of Zenith National for more than five years.

        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 captions "Directors' Compensation," "Executive Compensation," "Summary Compensation Table," "Option/SAR Grants in Last Fiscal Year," "Aggregated Option/SAR Exercises in Last Fiscal Year and Fiscal Year-End Option/SAR Values," "Employment Agreements and Termination of Employment and Change in Control Arrangements" 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 and Related Stockholder Matters.

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

Item 13. Certain Relationships and Related Transactions.

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

Item 14. Principal Accountant Fees and Services.

        The information set forth under the captions, "Audit Fees," "Audit-Related Fees," "Tax Fees," "All Other Fees" and "Pre-Approval of Independent Auditors' Services" in the Proxy Statement is hereby incorporated by reference.

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PART IV

Item 15. Exhibits, Financial Statement Schedules and Reports on Form 8-K.

        (a)   Documents filed as part of the report:

1.

Financial Statements:

Report of Independent Auditors incorporated herein by reference from Zenith's 2003 Annual Report to Stockholders

Consolidated Financial Statements and notes thereto incorporated herein by reference from Zenith's 2003 Annual Report to Stockholders in Item 8 of Part II:

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

Consolidated Balance Sheet as of December 31, 2003 and 2002

Consolidated Statement of Operations for the years ended December 31, 2003, 2002 and 2001

Consolidated Statement of Cash Flows for the years ended December 31, 2003, 2002 and 2001

Consolidated Statement of Stockholders' Equity for the three years ended December 31, 2003

Consolidated Statement of Comprehensive Income for the three years ended December 31, 2003

Notes to Consolidated Financial Statements

2.

Financial Statement Schedules:

Report of Independent Auditors on Financial Statement Schedules

Zenith National Insurance Corp. and Subsidiaries:

As of December 31, 2003:

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

As of December 31, 2003 and 2002 and for the years ended December 31, 2003, 2002 and 2001:

III — Supplementary Insurance Information

IV — Reinsurance

V — Valuation and Qualifying Accounts

VI — Supplementary Information Concerning Property — Casualty Insurance Operations

Zenith National Insurance Corp.:

As of December 31, 2003 and 2002 and for the years ended December 31, 2003, 2002 and 2001:

II — Condensed Financial Information of Registrant

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

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3.

Exhibits

  The Exhibits listed below are included in this Report.

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31

32

33

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