<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON D.C. 20549
FORM 10-Q
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1996
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from _____________ to ________________
Commission file number 1-9627
ZENITH NATIONAL INSURANCE CORP.
[Exact name of registrant as specified in its charter]
DELAWARE 95-2702776
[State or other jurisdiction of [I.R.S. Employer
incorporation or organization] identification No.]
21255 Califa Street, Woodland Hills, California 91367-5021
[Address of principal executive offices] [Zip Code]
[818] 713-1000
[Registrant's telephone number, including area code]
Not Applicable
[Former name, former address and former fiscal year, if changed
since last report.]
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
--- ---
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date. At October 31, 1996,
17,581,000 shares of common stock were outstanding, net of 6,835,000 shares
of treasury stock.
<PAGE>
PART I FINANCIAL INFORMATION
ZENITH NATIONAL INSURANCE CORP. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET (UNAUDITED)
<TABLE>
<CAPTION>
ITEM 1:
Dollars and Shares in Thousands
ASSETS SEPT. 30, 1996 DEC. 31, 1995
<S> <C> <C>
Investments
Fixed maturities:
At amortized cost (fair value $53,489 & $57,816) $ 54,390 $ 56,674
At fair value (cost $476,415 & $555,922) 467,377 566,826
Non redeemable preferred stocks, at fair value (cost $15,364 & $14,864) 14,603 13,869
Common stocks, at fair value (cost $20,997 & $18,937) 24,049 22,656
Short-term investments (at cost, which approximates fair value) 200,210 137,083
Other investments 38,484 38,106
---------- ----------
TOTAL INVESTMENTS 799,113 835,214
Cash 8,001 6,919
Accrued investment income 9,033 8,810
Premiums receivable 77,957 70,155
Receivable from reinsurers and prepaid reinsurance premiums 64,255 64,781
Federal income tax 25,546 14,609
Deferred policy acquisition costs 21,870 20,339
Properties and equipment, less accumulated depreciation 47,772 48,702
Excess of cost over net assets acquired and purchased intangibles and other assets 5,559 7,983
Other assets 59,623 37,921
---------- ----------
TOTAL ASSETS $1,118,729 $1,115,433
========== ==========
LIABILITIES
Policy liabilities and accruals
Unpaid losses and loss expenses $ 502,683 $ 517,552
Unearned premiums 134,810 119,591
Policyholders' dividends accrued and accumulated 9,215 12,100
Other policyholder funds 11,486 15,491
Reserves on loss portfolio transfers 8,233 9,073
Senior notes payable, less unamortized issue costs of $677 & $768 74,323 74,232
Payable to banks 12,274 8,903
Other liabilities 34,640 28,059
---------- ----------
TOTAL LIABILITIES 787,664 785,001
---------- ----------
STOCKHOLDERS' EQUITY
Preferred stock, $1 par-shares authorized 1,000; issued and outstanding,
none in 1996 and 1995
Common stock, $1 par-shares authorized 50,000; issued 24,415,
outstanding 17,580, 1996; issued 24,310, outstanding 17,784, 1995 24,415 24,310
Additional paid-in capital 258,238 256,083
Retained earnings 174,695 155,634
Net unrealized appreciation (depreciation) on investments, net of deferred
tax expense (benefit) of $(2,401) & $4,752 (4,459) 8,825
---------- ----------
452,889 444,852
Less treasury stock at cost (6,835 shares 1996 & 6,526 shares 1995) (121,824) (114,420)
---------- ----------
TOTAL STOCKHOLDERS EQUITY 331,065 330,432
---------- ----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $1,118,729 $1,115,433
========== ==========
</TABLE>
The accompanying notes are an integral part of this statement.
<PAGE>
ZENITH NATIONAL INSURANCE CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF OPERATIONS (UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
Dollars in thousands, except per share data 1996 1995 1996 1995
<S> <C> <C> <C> <C>
CONSOLIDATED REVENUES:
Premium earned $112,492 $108,401 $332,984 $321,899
Net investment income 12,574 11,510 37,464 34,750
Realized gains on investments 178 1,548 8,228 2,727
Real estate sales 11,822 8,859 26,617 28,952
-------- -------- -------- --------
Total revenues 137,066 130,318 405,293 388,328
EXPENSES:
Property and casualty losses and loss expenses incurred 77,928 78,711 225,772 233,936
Policy acquisition costs 20,441 20,536 62,692 57,559
Other underwriting and operating expenses 11,985 10,805 37,358 34,064
Policyholders' dividends 1,007 1,489 1,882 4,166
Real estate construction costs 11,071 8,406 25,054 27,170
Interest expense 888 1,897 3,724 4,984
-------- -------- -------- --------
Total expenses 123,320 121,844 356,482 361,879
Income from continuing operations before federal income tax 13,746 8,474 48,811 26,449
Federal income tax expense 4,646 2,474 16,611 8,580
-------- -------- -------- --------
Income from continuing operations 9,100 6,000 32,200 17,869
DISCONTINUED OPERATIONS:
Loss from discontinued operations (17,800) (12,569)
-------- -------- -------- --------
NET INCOME (LOSS) $ 9,100 $(11,800) $ 32,200 $ 5,300
======== ======== ======== ========
EARNINGS PER SHARE:
Income from continuing operations $ 0.51 $ 0.34 $ 1.81 $ 0.97
Loss from discontinued operations (1.00) (0.68)
-------- -------- -------- --------
Net income (loss) per share $ 0.51 $ (0.66) $ 1.81 $ 0.29
======== ======== ======== ========
</TABLE>
The accompanying notes are an integral part of this statement.
<PAGE>
ZENITH NATIONAL INSURANCE CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS (UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS
Dollars in thousands ENDED SEPTEMBER 30,
1996 1995
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Premiums collected $ 354,233 $ 339,075
Investment income received 35,031 34,767
Proceeds from sales of real estate 26,617 28,953
Losses & loss adjustment expenses paid (240,167) (240,382)
Underwriting & other operating expenses paid (95,031) (93,223)
Real estate construction costs paid (41,395) (27,490)
Reinsurance premiums paid (17,847) (16,274)
Dividends paid to policyholders (2,869) (9,683)
Interest paid (4,121) (3,523)
Income taxes paid (18,009) (2,143)
--------- ---------
Net cash flows from continuing operating activities, excluding cash from
trading portfolio (3,558) 10,077
Net cash from sales of trading portfolio investments 7,050 2,138
--------- ---------
Net cash flows from operating activities, including cash from trading portfolio 3,492 12,215
Net cash flows from discontinued operating activities 10,046
--------- ---------
Net cash flows from operating activities 3,492 22,261
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of investments:
Debt securities Held-to-Maturity (5,342) (131,785)
Debt and equity securities Available-for-Sale (301,647) (99,297)
Other investments (2,482) (12,663)
Proceeds from maturities and exchanges of investments:
Debt securities Held-to-Maturity 7,440 2,089
Debt and equity securities Available-for-Sale 116,624 13,567
Other investments 2,021
Proceeds from sales of investments:
Debt and equity securities Available-for-Sale 261,045 195,074
Other investments 3,065 5,042
Capital and other expenditures (6,101) (5,230)
Net change in short-term investments (59,762) 30,691
Net cash used in investing activities of discontinued operations (19,277)
--------- ---------
Net cash flows from investing activities 12,840 (19,768)
CASH FLOWS FROM FINANCING ACTIVITIES:
Cash advanced from bank line of credit 34,500
Cash repaid on bank line of credit (6,750)
Cash advanced from bank construction loans 18,043 23,232
Cash repaid on bank construction loans (14,672) (21,058)
Cash dividends paid to common stockholders (13,207) (13,830)
Proceeds from exercise of stock options 1,990 2,507
Purchase of treasury shares (7,404) (26,973)
Net cash provided by financing activities of discontinued operations 8,591
--------- ---------
Net cash flows from financing activities (15,250) 219
--------- ---------
Net increase in cash 1,082 2,712
Cash at beginning of period 6,919 5,358
--------- ---------
Cash at September 30 $ 8,001 $ 8,070
========= =========
(continued)
</TABLE>
<PAGE>
ZENITH NATIONAL INSURANCE CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS (UNAUDITED)
(continued)
<TABLE>
<CAPTION>
NINE MONTHS
ENDED SEPTEMBER 30,
1996 1995
(Dollars in Thousands)
<S> <C> <C>
RECONCILIATION OF INCOME FROM CONTINUING OPERATIONS TO
NET CASH FLOWS FROM OPERATING ACTIVITIES:
Income From Continuing Operations $ 32,200 $ 17,869
Adjustments to reconcile income from continuing operations to
net cash flows from operating activities:
Depreciation and amortization 2,256 3,259
Realized gains on investments (8,228) (2,727)
Net cash from trading portfolio 7,050 2,138
Decrease (increase) in:
Accrued investment income (223) 681
Premiums receivable (7,802) (16,406)
Receivable from reinsurers 526 (110)
Deferred policy acquisition costs (1,531) (3,653)
Federal income taxes (1,399) 6,437
Real estate construction in progress (19,378) 480
Increase (decrease) in:
Unpaid losses and loss expenses (14,869) (4,459)
Unearned premiums 15,219 17,566
Policyholders' dividends accrued (2,885) (6,380)
Other policyholder funds (4,005) (2,580)
Other 6,561 100
Net cash from discontinued operating activities 10,046
-------- --------
Net cash flows from operating activities $ 3,492 $ 22,261
======== ========
</TABLE>
The accompanying notes are an integral part of this statement.
<PAGE>
ZENITH NATIONAL INSURANCE CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
Note 1. Computation of earnings per share:
Dollars and shares in thousands, except per share data
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
1996 1995 1996 1995
<S> <C> <C> <C> <C>
(A) Net income (loss) $ 9,100 $(11,800) $32,200 $ 5,300
======= ======== ======= =======
(B) Number of shares used in calculating
primary earnings per share:
Weighted average outstanding shares
during the period 17,555 17,733 17,595 18,433
Additional common shares issuable under
employee stock options using the
treasury stock method (1) 341 119 224 102
------- -------- ------- -------
17,896 17,852 17,819 18,535
======= ======== ======= =======
Net income (loss) per share (A)(B) $ 0.51 $ (0.66) $ 1.81 $ 0.29
======= ======== ======= =======
(C) Number of fully diluted shares:
Weighted average outstanding shares
during the period 17,555 17,733 17,595 18,433
Additional common shares issuable under
employee stock options using the
treasury stock method (2) 341 172 263 122
------- -------- ------- -------
17,896 17,905 17,858 18,555
======= ======== ======= =======
Net income (loss) per share (A)(C) $ 0.51 $ (0.66) $ 1.80 $ 0.29
======= ======== ======= =======
</TABLE>
(1) Based on the average market price during the period.
(2) Based on the higher of the average market price or price at the end of
each period.
Note 2. New Accounting Standard
In October 1995, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation" ("SFAS No. 123"). The provisions of SFAS No. 123 must be
applied to fiscal years beginning after December 15, 1995. SFAS No. 123
encourages a fair value-based method of accounting for an employee stock
option or similar equity instrument, but allows continued use of the
intrinsic value-method of accounting prescribed by Accounting Principles
Board No. 25 "Accounting for Stock Issued to Employees" ("APB No. 25").
Companies electing to continue to use APB No. 25 must make pro forma
disclosures of net income and earnings per share as if the fair value-based
method of accounting were applied. The company has elected to follow the
provision of APB No. 25 and, accordingly, will make the pro forma disclosures
required by SFAS No. 123 in its financial statements for the year ending
December 31, 1996.
Note 3. Proposed Acquisition
On October 7, 1996, Zenith's wholly-owned subsidiary, Zenith Insurance
Company ("ZIC"), entered into an Agreement to acquire Associated General
Commerce Self-Insurers' Fund, formerly known as Associated General
Contractors Self-Insurers' Fund ("AGC-SIF"), a Florida workers' compensation
self-insurers' fund. Under the terms of the Agreement, ZIC will acquire
AGC-SIF's assets and assume its liabilities, including the liabilities of the
insured members of AGC-SIF for future assessments. Over a three-year period,
ZIC will distribute to AGC-SIF's Members a minimum amount of $1.14 million to
a maximum amount equal to AGC-SIF's Adjusted GAAP Net Worth, as defined in
the Agreement, plus $1.6 million, based on a formula and audited by an
independent certified public accounting firm. AGC-SIF had 1995 premium
written of approximately $40 million. The transaction is expected to close
and be effective on December 31, 1996, subject to certain pre-closing
conditions.
<PAGE>
ZENITH NATIONAL INSURANCE CORP. AND SUBSIDIARIES
PART I FINANCIAL INFORMATION
In the opinion of management, all adjustments necessary for a fair
presentation of the results of operations for the periods presented
(consisting only of normal recurring adjustments) have been included. The
results of operations for an interim period are not necessarily indicative of
the results for an entire year.
On September 5, 1996, the Board of Directors declared a regular quarterly
cash dividend of $.25 per share on the outstanding shares, payable November
15, 1996 to stockholders of record at the close of business on October 31,
1996.
ITEM 2:
MANAGEMENT'S DISCUSSION AND ANALYSIS OF CONSOLIDATED
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Zenith's principal source of consolidated earnings is the income, including
investment income, from operations of its property and casualty insurance
business. The comparative results of operations are set forth in the table
below, followed by a discussion of the significant changes.
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------------
Three months ended Nine months ended
September 30, September 30,
Dollars in thousands 1996 1995 1996 1995
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Investment income, after tax $8,400 $ 7,691 $24,952 $ 23,220
Realized gains on investments, after tax 115 1,007 5,348 1,773
- -------------------------------------------------------------------------------------------------------------------------------
Sub-total 8,515 8,698 30,300 24,993
- -------------------------------------------------------------------------------------------------------------------------------
Property and Casualty, after tax:
Underwriting income (loss) 1,176 (1,084) 4,640 341
Catastrophe losses (325) (4,160)
- -------------------------------------------------------------------------------------------------------------------------------
Property and casualty underwriting income (loss) 1,176 (1,409) 4,640 (3,819)
- -------------------------------------------------------------------------------------------------------------------------------
Income from real estate operations, after tax 488 295 1,026 1,158
Interest expense, after tax (578) (1,234) (2,421) (3,240)
Parent expenses, after tax (501) (350) (1,345) (1,223)
Loss from discontinued operations (17,800) (12,569)
- -------------------------------------------------------------------------------------------------------------------------------
Total $9,100 $(11,800) $32,200 $ 5,300
- -------------------------------------------------------------------------------------------------------------------------------
</TABLE>
In December 1995, Zenith sold its wholly-owned life insurance subsidiary,
retaining the health insurance business previously written by such
subsidiary. In 1995, the results of life and annuity operations have been
included as discontinued operations and the results of health insurance
operations have been reclassified and included in Other Property and Casualty
operations.
<PAGE>
ZENITH NATIONAL INSURANCE CORP. AND SUBSIDIARIES
PART I FINANCIAL INFORMATION
Management's Discussion and Analysis of Consolidated
Financial Condition and Results of Operations (continued)
Property and Casualty Operations:
Premiums earned, underwriting results and combined ratios for the three and
nine months ended September 30, 1996 and 1995 were as follows:
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------------
Three Months Ended Sept. 30, Nine Months Ended Sept. 30,
Dollars in Thousands 1996 1995 Change 1996 1995 Change
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Premiums Earned
Workers' Compensation
California $ 35,451 $ 37,837 (6%) $109,137 $117,682 (7%)
Outside California 15,879 10,947 45% 43,092 29,731 45%
-------- -------- -------- --------
Total Workers' Compensation 51,330 48,784 5% 152,229 147,413 3%
Other Property & Casualty 51,751 48,137 8% 151,740 143,187 6%
Reinsurance 9,411 11,480 (18%) 29,015 31,299 (7%)
-------- -------- -------- --------
Total $112,492 $108,401 4% $332,984 $321,899 3%
Underwriting Income (Loss) Before Taxes
Workers' Compensation (3,830) (4,999) (9,462) (10,332)
Other Property & Casualty 2,806 (845) 7,508 (6,451)
Reinsurance 2,925 3,244 9,303 10,839
-------- -------- -------- --------
Total $ 1,901 ($2,600) $ 7,349 ($5,944)
Combined Loss and Loss Expense Ratios
Workers' Compensation
Losses 54.3% 53.4% 51.5% 48.3%
Loss Expenses 18.7% 23.9% 20.6% 27.6%
Underwriting Expenses 32.5% 29.8% 32.9% 28.3%
Policyholder Dividends 2.0% 3.1% 1.2% 2.8%
-------- -------- -------- --------
Combined Ratio 107.5% 110.2% 106.2% 107.0%
Other Property & Casualty
Losses & Loss Expenses 68.5% 74.7% 66.5% 76.1%
Underwriting Expenses 26.1% 27.1% 28.6% 28.4%
-------- -------- -------- --------
Combined Ratio 94.6% 101.8% 95.1% 104.5%
Reinsurance
Losses & Loss Expenses 53.2% 53.7% 52.6% 50.1%
Underwriting Expenses 15.7% 18.0% 15.3% 15.3%
-------- -------- -------- --------
Combined Ratio 68.9% 71.7% 67.9% 65.4%
Total Property & Casualty
Losses & Loss Expenses 69.3% 73.7% 67.8% 73.4%
Underwriting Expenses 28.1% 27.3% 29.4% 27.1%
Policyholder Dividends 0.9% 1.4% 0.6% 1.3%
-------- -------- -------- --------
Combined Ratio 98.3% 102.4% 97.8% 101.8%
- -------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
ZENITH NATIONAL INSURANCE CORP. AND SUBSIDIARIES
PART I FINANCIAL INFORMATION
Management's Discussion and Analysis of Consolidated
Financial Condition and Results of Operations (continued)
Overall underwriting results improved in the nine months ended September 30,
1996 compared to the corresponding period in 1995 principally due to
improvement in the Other Property and Casualty operation. There were no
catastrophe losses in the first three quarters of 1996, compared to losses of
$6.4 million, before tax, in the first three quarters of 1995, $5.7 million of
which related to the Other Property and Casualty operation. In addition, the
underwriting result of the Other Property and Casualty operation improved in
the first three quarters of 1996 compared to the corresponding period in 1995
principally because of rate increases and an overall lower frequency of losses
in 1996.
The Other Property and Casualty operation may be affected by legislation passed
in September 1996 that created the California Earthquake Authority (CEA). The
CEA is a privately financed, publicly managed state agency, which is intended
to provide limited earthquake coverage throughout California. Participating
insurers are required to write their residential earthquake coverages through
the CEA, must make an initial contribution proportional to their market share
and may be liable for additional assessments. Participation in the CEA is
voluntary and Zenith has elected not to participate. Zenith can elect to
participate in the CEA at a later date subject to meeting the participation
requirements at that time.
Competition in the workers' compensation insurance business continues to be
intense. Zenith continues to expand geographically outside of California on a
profitable basis, but since January 1, 1995 and the commencement of open rating
in California, Zenith's California operations have been unfavorable and not in
line with Zenith's historical experience. Zenith is unable to predict when the
California Workers' Compensation operations will return to underwriting
profitability.
Expenses in Zenith's Workers' Compensation claims adjustment process
decreased in the quarter and nine months ended September 30, 1996 compared to
the corresponding periods in 1995 due to progress in bringing recurring
operating costs into line with reduced premium income. These reductions were
partially offset by increased underwriting expenses in the quarter and nine
months ended September 30, 1996 compared to the corresponding periods in
1995. Such increases were primarily attributable to the re-evaluation of the
allocation of corporate and administrative costs relative to re-focusing
Zenith's business towards property and casualty insurance operations,
including investing activities, following the sale of Zenith's life insurance
subsidiary.
Premiums earned in the Reinsurance operation have decreased in the three and
nine months ended September 30, 1996, resulting from selected non-renewal of
certain reinsurance policies and generally softening rates in the industry.
If rates do not improve, premiums may continue to decrease in future periods.
INVESTMENTS:
Fluctuations in interest rates continue to impact stockholders' equity due to
changes in the market value of fixed maturity securities. At September 30,
1996, the unrealized loss on fixed maturities identified as
Available-for-Sale was $8.9 million, before deferred taxes, compared to a
gain of $11.0 million, before deferred taxes, at December 31, 1995. This
change resulted in a decrease in stockholders' equity of $12.9 million, after
deferred taxes, between December 31, 1995 and September 30, 1996.
Stockholders' equity will continue to be affected by future volatility, if
any, in the fixed maturity securities markets.
<PAGE>
ZENITH NATIONAL INSURANCE CORP. AND SUBSIDIARIES
PART I FINANCIAL INFORMATION
Management's Discussion and Analysis of Consolidated
Financial Condition and Results of Operations (continued)
Investment income increased in the three and nine months ended September 30,
1996 compared to the corresponding periods in 1995 principally due to an
increase in invested assets of the Parent.
The yields on invested assets, which vary with the general level of interest
rates, were as follows:
- --------------------------------------------------------------------
Three Months Nine Months
Investment Yields Ended Sept. 30, Ended Sept. 30,
1996 1995 1996 1995
- --------------------------------------------------------------------
Pre-tax 6.1% 6.1% 6.0% 6.1%
Post-tax 4.1% 4.1% 4.0% 4.1%
- --------------------------------------------------------------------
Bonds with investment grade ratings represented approximately 96% of the
consolidated carrying values of investments in bonds at both September 30,
1996 and December 31, 1995. At September 30, 1996, the average maturity of
the investment portfolio was 5.1 years, compared to 3.9 years at December 31,
1995.
The change in the carrying value of Zenith's consolidated investment
portfolio during 1996 was as follows:
<TABLE>
<CAPTION>
Dollars in thousands
- -------------------------------------------------------------------------------------------------
<S> <C> <C>
Carrying Value at December 31, 1995 $835,214
Purchases at cost 312,371
Maturities and redemptions of investments (131,114)
Proceeds from sales of investments:
Available-for-sale (261,045)
Other investments (6,255)
--------
Total proceeds from disposals of investments (267,300)
Realized gains from maturities and exchanges of investments:
Available-for-sale 57
Realized gains from sales of investments:
Available-for-sale 6,691
Trading portfolio 62
Other investments 1,418
--------
Total realized gains on investments 8,228
Unrealized losses on investments (20,437)
Increase in short-term investments 59,754
Net accretion of fixed maturities and other changes 2,397
- -------------------------------------------------------------------------------------------------
Carrying Value at September 30, 1996 $799,113
- -------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
ZENITH NATIONAL INSURANCE CORP. AND SUBSIDIARIES
PART I FINANCIAL INFORMATION
Management's Discussion and Analysis of Consolidated
Financial Condition and Results of Operations (continued)
LIQUIDITY:
Zenith is principally dependent upon its portfolio of marketable securities
and the investment yields thereon; dividends from its insurance subsidiaries,
whose operations are supported by their own cash flows, and available lines
of credit ($50,000,000 at September 30, 1996) to pay its expenses, service
debt and pay any cash dividends which may be declared to its stockholders.
After adjusting for the effects of the cash flows from the trading portfolio
in both periods, net cash flow from continuing operating activities declined
in the nine months ended September 30, 1996 compared to the corresponding
period in 1995. The net outflow was primarily due to land acquisitions in
the first nine months of 1996 in Perma-Bilt, Zenith's real estate
construction subsidiary.
<PAGE>
ZENITH NATIONAL INSURANCE CORP. AND SUBSIDIARIES
PART II OTHER INFORMATION
ITEM 6: Exhibits and Reports on Form 8-K
[a] Exhibits
[3.1] Certificate of Incorporation of Zenith as in effect immediately
prior to November 22, 1985. (Filed as Exhibit 3 to Zenith's
Amendment on Form 8, dated October 10, 1985, to Zenith's Current
Report on Form 8-K, dated July 26, 1985 and incorporated herein
by reference). Certificate of Amendment to Certificate of
Incorporation of Zenith, effective November 22, 1985. (Filed
as Zenith's Current Report on Form 8-K, dated November 22, 1985
and incorporated herein by reference).
[3.2] By-Laws of Zenith, as currently in effect. (Filed as Exhibit 3.2 to
Zenith's Annual Report on Form 10-K for the year ended December 31,
1988 and incorporated herein by reference).
[11] Statement re: computation of per share earnings Part I, Item 1,
Note 1 of the consolidated financial statements is incorporated
herein by reference
[27] Financial Data Schedule
[b] Reports on Form 8-K
None
<PAGE>
ZENITH NATIONAL INSURANCE CORP. AND SUBSIDIARIES
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
ZENITH NATIONAL INSURANCE CORP.
Registrant
Date: November 14, 1996 /s/ Stanley R. Zax
-----------------------------------------
Stanley R. Zax, Chairman of the Board
& President (Principal Executive Officer)
Date: November 14, 1996 /s/ Fredricka Taubitz
-------------------------------------------
Fredricka Taubitz, Executive Vice President
& Chief Financial Officer
(Principal Accounting Officer)
<PAGE>
ZENITH NATIONAL INSURANCE CORP. AND SUBSIDIARIES
EXHIBIT INDEX
EXHIBIT NO. DESCRIPTION PAGE
[3.1] Certificate of Incorporation of Zenith as in effect
immediately prior to November 22, 1985. (Filed as Exhibit 3
to Zenith's Amendment on Form 8, dated October 10, 1985,
to Zenith's Current Report on Form 8-K, dated July 26, 1985
and incorporated herein by reference).
Certificate of Amendment to Certificate of Incorporation of
Zenith, effective November 22, 1985. (Filed as Zenith's
Current Report on Form 8-K, dated November 22, 1985 and
incorporated herein by reference).
[3.2] By-Laws of Zenith, as currently in effect. (Filed as
Exhibit 3.2 to Zenith's Annual Report on Form 10-K for the
year ended December 31, 1988 and incorporated herein by
reference).
[11] Statement re: computation of per share earnings 6
herein by reference to Part I, Item 1, Note 1 of the
consolidated financial statements
[27] Financial Data Schedule
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 7
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> SEP-30-1996
<DEBT-HELD-FOR-SALE> 667,587
<DEBT-CARRYING-VALUE> 54,390
<DEBT-MARKET-VALUE> 53,489
<EQUITIES> 38,652
<MORTGAGE> 0
<REAL-ESTATE> 0
<TOTAL-INVEST> 799,113
<CASH> 8,001
<RECOVER-REINSURE> 64,255
<DEFERRED-ACQUISITION> 21,870
<TOTAL-ASSETS> 1,118,729
<POLICY-LOSSES> 502,683
<UNEARNED-PREMIUMS> 134,810
<POLICY-OTHER> 9,215
<POLICY-HOLDER-FUNDS> 11,486
<NOTES-PAYABLE> 86,597
0
0
<COMMON> 24,415
<OTHER-SE> 306,650
<TOTAL-LIABILITY-AND-EQUITY> 1,118,729
332,984
<INVESTMENT-INCOME> 37,464
<INVESTMENT-GAINS> 8,228
<OTHER-INCOME> 26,617
<BENEFITS> 225,772
<UNDERWRITING-AMORTIZATION> 62,692
<UNDERWRITING-OTHER> 37,358
<INCOME-PRETAX> 48,811
<INCOME-TAX> 16,611
<INCOME-CONTINUING> 32,200
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 32,200
<EPS-PRIMARY> 1.81
<EPS-DILUTED> 0
<RESERVE-OPEN> 0
<PROVISION-CURRENT> 0
<PROVISION-PRIOR> 0
<PAYMENTS-CURRENT> 0
<PAYMENTS-PRIOR> 0
<RESERVE-CLOSE> 0
<CUMULATIVE-DEFICIENCY> 0
</TABLE>
