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THE ZENITH
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Form 10-K
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1995
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM .............. TO ..............
COMMISSION FILE NUMBER 1-9627
ZENITH NATIONAL INSURANCE CORP.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
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DELAWARE 95-2702776
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER IDENTIFICATION NO.)
INCORPORATION
OR ORGANIZATION)
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21255 CALIFA STREET, WOODLAND HILLS, 91367-5021
CALIFORNIA (ZIP CODE)
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
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REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (818) 713-1000
SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
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NAME OF EACH EXCHANGE ON
TITLE OF EACH CLASS WHICH REGISTERED
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Common Stock, $1.00 Par Value New York Stock Exchange
(TITLE OF CLASS)
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SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:
None
(TITLE OF CLASS)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes __X__ No ______
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
The aggregate market value of the voting stock of the registrant held by
non-affiliates of the registrant on March 27, 1996 was approximately
$227,866,000 (based on the closing sale price of such stock on such date).
At March 27, 1996, 17,657,004 shares of Common Stock were outstanding, net
of 6,671,190 shares of treasury stock.
DOCUMENTS INCORPORATED BY REFERENCE
(1) Portions of the Annual Report to Stockholders for fiscal year ended
December 31, 1995 -- Part I and Part II.
(2) Portions of the Proxy Statement in connection with the 1996 Annual
Meeting of Stockholders -- Part III.
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PART I
ITEM 1. BUSINESS
GENERAL
Zenith National Insurance Corp. ("Zenith"), a Delaware corporation
incorporated in 1971, is a holding company. Zenith is engaged through its
wholly-owned insurance subsidiaries, Zenith Insurance Company ("Zenith
Insurance"), CalFarm Insurance Company ("CalFarm Insurance"), ZNAT Insurance
Company ("ZNAT Insurance") and Zenith Star Insurance Company ("Zenith Star"), in
the property-casualty insurance business. The average combined ratio for the 10
years ended December 31, 1995 of Zenith's property-casualty operations was
100.4%. In 1993, Zenith commenced real estate operations, developing private
residences for sale in Las Vegas, Nevada, through its wholly-owned subsidiary,
Perma-Bilt, a Nevada Corporation ("Perma-Bilt"). In 1995, Zenith sold its
wholly-owned subsidiary, CalFarm Life Insurance Company ("CalFarm Life"), to a
subsidiary of SunAmerica Inc. for approximately $120 million in cash, with
Zenith retaining the group health insurance business previously written by
CalFarm Life. The results of operations and net assets of CalFarm Life's life
and annuity business are included in Zenith's consolidated financial statements
as discontinued operations and results of the health insurance operation are
included in Other Property-Casualty results which have been restated. Net income
in 1995 includes a loss of $19.5 million associated with the sale of CalFarm
Life.
The 1995 edition of Best's Key Rating Guide ("Best's") gives Zenith
Insurance, CalFarm Insurance, ZNAT Insurance and Zenith Star, collectively,
ratings of A+ (superior). Standard & Poor's Corporation ("S&P") has rated the
claims-paying ability of Zenith Insurance, CalFarm Insurance, ZNAT Insurance and
Zenith Star AA- (excellent). Best's ratings and S&P's ratings of claims-paying
ability are based upon factors of concern to policyholders and insurance agents
and are not directed toward the protection of investors.
At December 31, 1995, Zenith and its subsidiaries had approximately 1,400
employees.
The principal executive offices of Zenith are located at 21255 Califa
Street, Woodland Hills, California 91367-5021, telephone (818) 713-1000.
GLOSSARY OF SELECTED INSURANCE TERMS
The following terms when used herein have the following meanings:
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Assume To receive from a ceding company all or a portion
of a risk in consideration of receipt of a
premium.
Cede To transfer to a reinsurer all or a portion of a
risk in consideration of payment of a premium.
Combined ratio The sum of underwriting expenses, net incurred
losses, loss adjustment expenses and
policyholders' dividends, expressed as a
percentage of net premiums earned. The combined
ratio is the key measure of underwriting
profitability used in the property and casualty
insurance business.
Development The amount by which losses, measured subsequently
by reference to payments and additional estimates,
differ from those originally reported for a
period. Development is favorable when losses
ultimately settle for less than levels at which
they were reserved or subsequent estimates
indicate a basis for reserve decreases on open
claims. Development is unfavorable when losses
ultimately settle for more than levels at which
they were reserved or subsequent estimates
indicate a basis for reserve increases on open
claims.
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Excess of loss reinsurance A form of reinsurance in which the reinsurer pays
all or a specified percentage of a loss caused by
a particular occurrence or event in excess of a
fixed amount and up to a stipulated limit.
Incurred but not reported Claims relating to insured events that have
claims occurred but have not yet been reported to the
insurer or reinsurer.
Loss adjustment expenses The expenses of investigating and settling claims,
including legal and other fees, and general
expenses of administering the claims adjustment
process.
Net premiums earned The portion of net premiums written applicable to
the expired period of policies.
Participating policy A policy upon which dividends may be paid after
expiration.
Policyholders' surplus or The amount remaining after all liabilities are
statutory capital subtracted from all admitted assets, as determined
in accordance with statutory accounting practices.
This amount is regarded as financial protection to
policyholders in the event an insurance company
suffers unexpected or catastrophic losses.
Reinsurance A transaction in which an original insurer, or
cedant, remits a portion of the premium to a
reinsurer, or assuming company, as payment for the
reinsurer's assumption of a portion of the risk.
Reserves or loss reserves The balance sheet liability representing estimates
of amounts needed to pay reported and unreported
claims and related loss adjustment expenses
(stated without reduction for reinsurance ceded
after 1992).
Retrocession A reinsurance of reinsurance assumed.
Statutory accounting Accounting principles prescribed or permitted by
practices the states' departments of insurance. In general,
statutory accounting practices address
policyholder protection and solvency and are more
conservative in presentation of earnings, surplus
and assets than generally accepted accounting
principles.
Treaty A contract of reinsurance.
Underwriting The process whereby an insurer reviews
applications submitted for insurance coverage and
determines whether it will accept all or part, and
at what premium, of the coverage being requested.
Underwriting expenses The aggregate of policy acquisition costs and the
portion of administrative, general and other
expenses attributable to the underwriting process
as they are accrued and expensed.
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DESCRIPTION OF THE BUSINESS
Zenith and its subsidiaries conduct business principally in the property and
casualty insurance industry. Property-casualty operations are comprised of:
Workers' Compensation (46% of 1995 consolidated net premiums earned); other
property-casualty principally automobile, homeowners, farmowners, commercial
coverages and health insurance (44% of 1995 consolidated net premiums earned);
and reinsurance (10% of 1995 consolidated net premiums earned). Results of such
operations for the three years ended December 31, 1995 are set forth in the
table on page 29 of the 1995 Annual Report to Stockholders, which table is
hereby incorporated by reference. The earnings of Zenith's property and casualty
operations are supplemented by the generation of investment income discussed
under "Investments."
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Zenith also conducts real estate operations through a wholly-owned
subsidiary that develops land and constructs private residences for sale in Las
Vegas, Nevada. Zenith's business segments are described in Note 15 -- "Segment
Information" on page 54 of the 1995 Annual Report to Stockholders, which note is
hereby incorporated by reference.
PROPERTY AND CASUALTY -- WORKERS' COMPENSATION INSURANCE
Workers' compensation insurance provides coverage for the statutorily
prescribed benefits that employers are required to pay to their employees
injured in the course of employment. The standard workers' compensation policy
issued by Zenith Insurance provides payments for, among other things, temporary
or permanent disability benefits, death benefits, medical and hospital expenses
and expenses of vocational rehabilitation. The benefits payable and the duration
of such benefits are set by statute, and vary with the nature and severity of
the injury or disease and the wages, occupation and age of the employee.
Historically, Zenith's workers' compensation business was produced exclusively
in California with minor incidental coverages out of state for its larger
policyholders. In 1992, Zenith began workers' compensation operations in the
Texas workers' compensation market. Since then, Zenith has further expanded its
national workers' compensation operations. Net premiums earned in 1995 by state
are set forth in the table below:
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1995 PREMIUMS EARNED %
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California.................... $ 159,356,000 78.4%
Texas......................... 32,298,000 15.9
Arkansas...................... 8,584,000 4.2
Other......................... 3,014,000 1.5
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$ 203,252,000 100.0%
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Zenith's managed care efforts, return to work strategies, safety and health,
fraud and litigation efforts resulted in the lowest workers' compensation loss
ratio in the United States. According to A.M. Best, Zenith's 5 year loss ratio
of 45.9% through 1994 (latest available statistics) was the lowest loss ratio of
the top 50 insurers. During the past 10 years, the Zenith's workers compensation
combined ratio was 99.2%.
Zenith Insurance is licensed to conduct business in 30 states and the
District of Columbia and has applications pending throughout most of the nation.
Zenith's goal is to be a specialist risk-oriented national workers' compensation
insurer. National results for workers' compensation insurers in recent years
have been favorable by recent historic standards and Zenith's non-California
underwriting results in 1995 were more favorable than its California results.
However, increased competition, nationally, is expected to follow from these
favorable trends and management intends to progress cautiously with its national
expansion.
Competition, regulation, rate adequacy and the feasibility of containing the
elements of the cost of claims are among the key factors in determining the
favorability of a given workers' compensation market. Regulation is principally
a matter for state legislatures. In California, workers' compensation
legislation was enacted in 1993 which, together with private initiatives
undertaken by Zenith and other insurers, produced significant improvements in a
theretofore runaway claims cost environment. However, the California Insurance
Commissioner reduced minimum rates on three separate occasions in 1993 and 1994
in response. Rates were deregulated effective January 1, 1995 and thereafter
insurance companies file and use their own, actuarially determined, rates in
California for workers' compensation insurance. The rates filed and used by
Zenith in California are determined to provide a margin for underwriting
profits. Zenith increased its California rates by 8% effective January 1, 1996.
Future profitability of Zenith's workers' compensation operation will be
dependent upon its ability to compete in an open rating environment in
California, the outlook for economic growth in California and Zenith's
continuing efforts to control medical and indemnity costs through return to work
and managed care strategies. At present, competition is intense and Zenith is
quoting on large numbers of policies focused on achieving the goal of a combined
ratio of 100%.
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Generally, premiums for workers' compensation insurance policies are a
function of the applicable premium rate, which includes the insured employer's
experience modification factor (where applicable) and the amount of the insured
employer's payroll. Payrolls may be affected significantly by changes in
employment and wage levels. A deposit premium is paid at the beginning of the
policy period, periodic installments are paid during the period and the final
amount of the premium is generally determined as of the end of the policy period
after the policyholder's payroll records are audited. Additional policy features
may be added to enhance the outcome for the policyholder in the event of
favorable claims experience. Predominant among such features has been,
historically, the participating policy in which a dividend has been paid after
policy expiration. With the advent of open rating in California and an emphasis
on, among other things, overall pricing at inception, dividends decreased
significantly in 1995 and are likely to become relatively insignificant in the
future as an element in workers' compensation insurance.
Zenith is continuing to market integrated workers' compensation, health and
disability insurance products ("24-Hour Coverage") in alliances with selected
health insurers, health maintenance organizations and UNUM Corporation, the
nation's largest disability insurance company. The policies are sold on an
integrated basis in California under the name "SinglePoint." At this time, it is
too early for management to predict the likely outcome of 24-Hour Coverage on
the future results of its operations.
PROPERTY AND CASUALTY -- OTHER
Zenith, through CalFarm Insurance, offers a comprehensive line of property
and casualty insurance, including automobile, farmowners, commercial multiple
peril packages and homeowners coverage. Additionally, CalFarm Insurance has
assumed the group health insurance business that was previously written by
CalFarm Life. Automobile insurance includes coverage for automobile bodily
injury, property damage and physical damage. Automobile bodily injury and
property damage insurance provide coverage for third party liability, bodily
injury and property damage arising from the ownership, maintenance or use of an
automobile. Automobile physical damage coverage insures against physical loss of
the insured's own vehicle. Farmowners and homeowners insurance includes coverage
for direct physical damage to real and personal property, loss of personal
property by theft and legal liability for injury to others and damage to
property of others. Commercial multiple peril insures businesses against
property damage and general liability. Health insurance premiums are written
under a program sponsored by the California Farm Bureau Federation (the "Farm
Bureau"). During the past 10 years, the combined ratio of Zenith's Other
Property-Casualty operation was 101.9%.
Automobile insurance (both commercial and personal) is the largest line of
CalFarm Insurance's business, representing 15% of Zenith's property and casualty
premiums earned in 1995. CalFarm Insurance insured approximately 21,000 personal
automobiles and 68,000 commercial and farm vehicles in 1995. Farmowners business
is the second largest line of CalFarm Insurance's business, representing
approximately 11% of Zenith's property and casualty premiums earned in 1995.
Zenith's Other Property and Casualty operations are subject to the
regulatory provisions of California Initiative Proposition 103 ("Proposition
103"). The principal effects of Proposition 103 on Zenith's Automobile and Other
Property and Casualty business are as follows: rates must be approved by the
Insurance Commissioner prior to use; rates on personal automobile policies must
be offered to "good drivers" (as defined) at a discount of at least 20% from
rates otherwise charged and an insurer cannot refuse to sell a "good driver"
policy to a qualified applicant; personal automobile insurance policies cannot
be cancelled or non-renewed except for non-payment of premium, fraud or material
misrepresentation, or a substantial increase in hazard; and personal automobile
insurance rates must be based on the following factors in decreasing order of
importance: driving record, number of miles driven, number of years of driving
experience, and other factors which may be adopted by the Insurance
Commissioner.
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PROPERTY AND CASUALTY -- REINSURANCE ASSUMED
Zenith Insurance is selectively underwriting a book of assumed reinsurance.
Reinsurance contracts, or treaties, come in a variety of forms, but the
principal arrangements are either proportional in nature, in which the assuming
company shares pro-rata in the premiums and losses of the cedant, or
arrangements under which the assuming company pays losses in excess of a certain
limit in return for a premium, usually determined as a percentage of the
cedant's primary insurance premiums. Zenith operates its reinsurance activity as
a participant in treaties in which, typically, the reinsurance coverage is
syndicated to a number of assuming companies. Depending upon market conditions
and other factors, the volume of premiums written fluctuates from year to year.
Zenith's current participation in the reinsurance market emphasizes the
reinsurance of large individual property risks and property catastrophe
reinsurance. By diversifying its geographical spread, Zenith's assumed
reinsurance business is written so as to limit the company's exposure to losses
from any one event in a worst-case scenario to a maximum of approximately 5% of
consolidated stockholders' equity.
An important element in the pricing of reinsurance is the supply of
reinsurance capacity (i.e. capital) relative to demand. In recent years, new
capital has been made available to provide world-wide reinsurance capacity. Most
notably, such capital has been contributed by new companies in Bermuda and by
contributions to Lloyd's syndicates by corporations with limited liability.
Zenith has observed decreases in catastrophe reinsurance rates for 1996 and
premium income in 1996 may be reduced compared to 1995.
During the past 10 years, the combined ratio of Zenith's Reinsurance
operation was 100.3%
Commencing January 1, 1995 Zenith Insurance became a corporate underwriting
member of Lloyd's through a 100% wholly-owned subsidiary, ZIC Lloyd's
Underwriting Limited ("ZIC Lloyd's"). ZIC Lloyd's has committed funds of $5
million to support the underwriting of a certain syndicate. All of the funds
committed by ZIC Lloyd's are available to satisfy claims in the event of
underwriting losses by the syndicate.
PARENT
Zenith is a holding company owning directly or indirectly all of the capital
stock of certain property and casualty insurance and insurance-related
companies. In 1993, Zenith commenced a real estate operation through a
newly-formed subsidiary, Perma-Bilt, for the purpose of building private
residences in Las Vegas, Nevada. In 1995, Perma-Bilt closed and delivered 240
homes at an average selling price of $132,000, compared to 228 homes the prior
year. Revenues in 1995 were $31,736,000 and pre-tax income was $2,075,000
compared to $30,220,000 of sales and $2,189,000 of pre-tax income, respectively,
the previous year. Land presently owned at a cost of about $10,142,000 will
support the construction and sale of an estimated 926 homes over the next
several years. Increased interest rates may impact the rate of home sales, but
Zenith is confident that the land it has acquired is strategically located and
will have long-term value. Perma-Bilt continues to search for additional land
for development or resale.
In 1995, Zenith sold CalFarm Life for approximately $120,000,000 in cash,
with Zenith retaining the health insurance business previously written by
CalFarm Life. After repaying outstanding bank lines of credit, Zenith had cash
and short-term investments of approximately $80,000,000 at December 31, 1995.
Zenith is continuing its stock repurchase plan and searching for suitable
investments.
LOSS AND LOSS EXPENSE RESERVES AND CLAIMS, AND LOSS DEVELOPMENTS
Zenith's property and casualty insurance subsidiaries (the "P&C Companies")
maintain reserves for the payment of losses and for the expenses of settling
both reported and unreported claims that have been incurred under their
insurance policies and reinsurance contracts. The amount of such reserves, as
related to reported claims, is based upon periodic case-by-case evaluation and
judgment by the P&C Companies' claims departments, with actuarial review. The
estimate of unreported claims arising from accidents which have not yet been
reported to the P&C Companies, commonly known in the industry as "incurred but
not reported," is based upon the
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P&C Companies' experience and statistical information with respect to the
probable number and nature of such claims. The P&C Companies monitor these
factors and revise their reserves as they deem appropriate. Reserves are based
on estimates and no assurance can be given that the ultimate liability will not
be more or less than such estimates.
Reference is made to "Property -- Casualty Loss Development" on pages 38 and
39, the table setting forth statutory loss and loss adjustment expense
development by accident year on page 9 and the table setting forth the
reconciliation of changes in the liabilities for losses and loss adjustment
expenses included in Note 13 -- "Loss and Loss Adjustment Expense Reserves" on
page 53 of the 1995 Annual Report to Stockholders, all of which are hereby
incorporated by reference. These tables show the development of loss and loss
adjustment expense liabilities as originally estimated under generally accepted
accounting principles at December 31 of each year presented, as well as the
development of statutory incurred loss and loss adjustment expense by accident
year. The accounting methods used to estimate these liabilities are described in
Note 1 of the Notes to Consolidated Financial Statements of Zenith as set forth
on pages 46 through 48 of the 1995 Annual Report to Stockholders which note is
hereby incorporated by reference. The one year loss and loss adjustment expense
reserve development for Zenith's three main lines of business is set forth in
the table on page 30 of the 1995 Annual Report to Stockholders which table is
hereby incorporated by reference.
WORKERS' COMPENSATION
Zenith's Workers' Compensation reserves, on the average, are paid within
approximately 2.5 years. Zenith regards the timely settlement of its Workers'
Compensation claims as important to its profitability and makes use of
compromises and releases for claim settlements to expedite this process.
Zenith Insurance maintains five regional offices in California and offices
outside of California in Texas, Arkansas and Illinois, each of which is fully
staffed to conduct all workers' compensation claims operations, including review
of initial reports of work injury, assignment of appropriate field investigation
and determination of whether subrogation should be pursued. Workers'
Compensation claims operations are supported by computer systems that provide
immediate access to policy coverage verification and claims records and enables
Zenith Insurance to detail claims payment histories and policy loss experience
reports.
Legislative reform of the California workers' compensation system was
enacted in 1993. In addition, Zenith undertook significant additional
expenditures on the loss adjustment process in recent years with a view to
mitigating the effect of adverse claim trends, particularly the effect of fraud
and abuse.
On July 5, 1995, Zenith's new client-server based computer system became
operational, replacing its previous mainframe computer for workers' compensation
operations. In addition to enhancing data processing, the new system is
designed, among other things, to improve work flow in the workers' compensation
claims handling process and to support expansion outside of California.
Management observed certain unusual claim reserving trends and patterns in 1995,
possibly related to disruption of normal work flows due to implementation of the
new system. Work flows in the future may continue to be impacted as training and
optimization of the new system continues. Management believes that its estimate
for liabilities for unpaid workers' compensation losses and loss adjustment
expenses (amounting to $297,354,000 of total reserves for unpaid losses and loss
adjustment expenses of $517,552,000) at December 31, 1995 included in these
consolidated financial statements is adequate. However, subsequent
re-interpretation of currently available data or any new information that
becomes available may change the estimate of such liabilities in future periods
and such changes, if any, will be reflected in the financial statements of the
period in which they occur.
OTHER PROPERTY AND CASUALTY
Automobile and Other Property and Casualty loss reserves are paid, on the
average, within approximately 3.5 years.
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Property insurance coverages and CalFarm's concentration of business in
California expose Zenith to catastrophe losses from events in California.
Reinsurance ceded by CalFarm Insurance protects against losses in excess of
$5,000,000 from any one event -- see "Reinsurance Ceded" on page 8. In 1995,
CalFarm sustained losses of $10,700,000 in conjunction with three major
California storms. Losses attributable to the Northridge earthquake in 1994 were
$3,200,000, of which $800,000 was assessed by the California Fair Plan. Losses
in 1993 included $1,600,000, of which $1,000,000 was assessed by the California
Fair Plan, attributable to the Southern California brush fires.
Liability policies written by CalFarm Insurance contain exclusion clauses
for damages resulting from pollution, and such losses are thereby substantially
excluded from coverage. Although such claims have been received by CalFarm
Insurance, management believes that such claims will not have a material adverse
effect on Zenith's consolidated financial condition either individually or in
the aggregate.
CalFarm Insurance maintains four claims and legal offices in California to
conduct all claims operations of the other property and casualty business. All
claims operations of CalFarm Insurance are supervised by its home office claims
department. Health claims is a separate operation located in the home office.
REINSURANCE ASSUMED
Zenith expects that, on the average, its Reinsurance reserves will be paid
in approximately 4.0 years.
Zenith's Reinsurance reserves constitute approximately 20% of its total
reserves, net of ceded reinsurance, for property and casualty unpaid losses and
loss adjustment expenses at December 31, 1995, reflecting the longer average
life of such reserves relative to Zenith's other principal lines of business. In
addition to information supplied by ceding companies, Zenith makes use of
industry experience in arriving at estimates of ultimate losses for certain
reinsurance assumed arrangements.
Losses attributable to catastrophes were $2,500,000 in 1995, principally
from Hurricane "Marilyn" and $9,300,000 in 1994 from the Northridge Earthquake.
Zenith Insurance has participated, to a limited extent, in the reinsurance
arrangements of ceding companies that have written both directors' and officers'
liability coverage ("D & O") policies and professional indemnity policies,
including such coverage written for practicing certified public accountants.
Actions alleging negligence against directors, officers or accountants by
parties suffering financial losses in savings and loan failures give rise to
claims under D & O policies or professional indemnity policies which, in turn,
give rise to claims against Zenith Insurance. Such claims have not had, and are
not expected to have in the future, a material adverse effect on Zenith's
consolidated financial condition.
INVESTMENTS
Investment policies of Zenith and its insurance subsidiaries are established
by their respective Boards of Directors, taking into consideration state
regulatory restrictions with respect to investments in connection with reserve
obligations as well as the nature and amount of various kinds of investments.
(See "Business -- Regulation.") Zenith's principal investment goal is to
maintain safety and liquidity, enhance principal values and achieve increased
rates of return consistent with regulatory constraints. The allocation amongst
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 (see "Investments" under Management's Discussion and Analysis of
Consolidated Financial Condition and Results of Operations on pages 32 and 33 of
Zenith's 1995 Annual Report to Stockholders which is hereby incorporated by
reference). At December 31, 1995 the investment portfolios of Zenith and the P&C
Companies consisted primarily of taxable bonds and short-term investments
supplemented by smaller portfolios of redeemable and other preferred stocks and
common stocks. The average life of the consolidated portfolio was 3.9 years at
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December 31, 1995. Investment income by segment is set forth in Note 15 --
"Segment Information" on page 54 of the 1995 Annual Report to Stockholders which
note is hereby incorporated by reference.
Stockholders' equity will fluctuate as interest rates fluctuate due to the
implementation of Statement of Financial Accounting Standards No. 115 --
Accounting for Investments in Certain Debt and Equity Securities. In accordance
with its provisions, Zenith has identified certain securities, amounting to
approximately 90% of the investments in debt securities at December 31, 1995, as
available-for-sale. In 1995 stockholders' equity increased by $53.4 million, net
of deferred tax expense, as a result of changes in the fair values of such
investments.
REINSURANCE CEDED
In accordance with general industry practices, Zenith's insurance
subsidiaries annually purchase excess of loss reinsurance. Reinsurance makes the
assuming reinsurer liable to the ceding company to the extent of the
reinsurance. It does not, however, discharge the ceding company from its primary
liability to its policyholders in the event that the reinsurer is unable to meet
its obligations under such reinsurance treaty. Historically, no material costs
have been incurred by Zenith or its subsidiaries from uncollected reinsurance.
The purpose of such reinsurance is to protect Zenith from the impact of large,
unforseen losses and such reinsurance reduces the magnitude of sudden and
unpredictable changes in net income and the capitalization of insurance
operations. Zenith monitors the financial condition of its reinsurers and does
not believe that it is exposed to any material credit risk through its ceded
reinsurance arrangements. Zenith believes that its ceded reinsurance
arrangements are adequate and consistent with industry practice.
Reinsurance premiums ceded by Zenith's insurance subsidiaries amounted to
$21,112,000, $21,521,000 and $22,301,000 in 1995, 1994 and 1993, respectively or
4.9%, 4.9%, and 4.8% of earned premiums in 1995, 1994 and 1993, respectively.
Reinsurance reserves amounted to $54,429,000, $47,696,000 and $44,919,000 in
1995, 1994 and 1993, respectively, or 10.5%, 9.3% and 8.6% of gross reserves for
unpaid losses and loss adjustment expenses in 1995, 1994 and 1993, respectively.
Each insurance subsidiary maintains separate reinsurance arrangements, which
during 1995 were as follows:
Zenith Insurance -- Workers' Compensation reinsurance covered all claims
between $550,000 and $100,000,000 per occurrence. The coverage from $550,000 to
$5,000,000 is placed with General Reinsurance Corporation, the coverage from
$5,000,000 to $10,000,000 with Employers Reinsurance Corporation and the
remaining three layers from $10,000,000 to $60,000,000 primarily with Prudential
Reinsurance Company, NAC Reinsurance Corporation, Transatlantic Reinsurance
Company, The St. Paul Companies and the London reinsurance market (primarily
Lloyds' syndicates and certain United Kingdom reinsurance companies).
Catastrophe reinsurance covers an additional $40,000,000 in excess of
$60,000,000 and is placed with Northwestern National Life Insurance Company,
Cigna Reinsurance Company and Pinehurst Accident Reinsurance Group. Zenith's
Reinsurance division did not purchase any reinsurance protection on its assumed
business in the three years ended December 31, 1995. However, Zenith's exposure
to losses from assumed reinsurance is limited by the terms upon which it is
written to a maximum probable loss from any one event of approximately 5% of
Zenith's consolidated stockholders' equity.
CalFarm Insurance -- For personal and commercial property lines of business,
reinsurance is maintained for claims in excess of $350,000 up to $4,000,000 per
occurrence. On liability coverages for both personal and commercial lines,
reinsurance covers losses up to $5,000,000 per occurrence, subject to a
retention of $500,000. This reinsurance coverage is all placed with General
Reinsurance Corporation. CalFarm Insurance has property catastrophe reinsurance
that provides for recovery of 95% of $35,000,000, excess of a retention of
$5,000,000, for which the principal reinsurers are General Reinsurance
Corporation and Centre Cat. Ltd. CalFarm also maintains reinsurance agreements
with Employers Reinsurance Corporation and Duncanson & Holt for excess risks on
its accident and health contracts. Employers Reinsurance Corporation provides
coverage
8
<PAGE>
for aggregate losses in excess of $2,000,000 on those individual health policy
claims that exceed $120,000 for each insured in each calendar year. Duncanson &
Holt provides coverage on group health policy claims that exceed $100,000 in
each calendar year subject to a lifetime maximum of $3 million for any
individual.
CalFarm Insurance participates in a quota share contract whereby it retains
20% of the first $1,000,000 on most umbrella risks (comprehensive coverage in
excess of primary policy limits) underwritten, with the remainder of up to
$10,000,000 for commercial lines and up to $5,000,000 for personal lines ceded
to General Reinsurance Corporation. Facultative reinsurance is placed on
property coverage in excess of $4,000,000 on all property lines, and on umbrella
limits in excess of $10,000,000 for commercial lines and $5,000,000 for personal
lines. Facultative reinsurance is used on fewer than 5% of CalFarm Insurance's
policies. Facultative coverage is placed primarily with General Reinsurance
Corporation. Other companies used are Employers Reinsurance Corporation, Munich
American Reinsurance Company and other reinsurers rated A+ by A.M. Best Company.
Pooling Agreement -- Zenith Insurance, CalFarm Insurance, ZNAT Insurance and
Zenith Star are parties to a pooling agreement. Under the agreement, the results
of underwriting operations are ceded (the risks are transferred) to Zenith
Insurance and are then reapportioned, or retro-ceded (the risks are transferred
back), to those three companies in the following proportions: Zenith Insurance,
79.5%; CalFarm Insurance, 18%; ZNAT Insurance, 2%; and Zenith Star, 0.5%.
Transactions pursuant to the pooling agreement are eliminated on consolidation
and have no impact on Zenith's Consolidated Financial Statements.
MARKETING AND STAFF
Zenith Insurance's workers' compensation business is produced by
approximately 700 independent licensed insurance agents and brokers throughout
California, Texas and other areas in which Zenith conducts workers' compensation
operations. The CalFarm agents referred to below also sell workers'
compensation. Zenith Insurance's assumed reinsurance premiums are generated
nationally by brokers and reinsurance intermediaries.
CalFarm Insurance, through its affiliate CalFarm Insurance Agency, maintains
a sales force of approximately 190 agents who sell insurance products
exclusively for CalFarm Insurance, primarily in rural and suburban areas. These
agents operate out of 116 offices throughout the State of California, including
31 offices shared with the Farm Bureau. In addition, in certain areas,
independent agents market CalFarm Insurance products.
Applications for insurance submitted by all agents and brokers are evaluated
by professional underwriters based upon numerous factors, including underwriting
criteria and standards, geographic areas of underwriting concentration,
actuarial judgments of rate adequacy, economic considerations, and review of
known data on the particular risk. Zenith's insurance subsidiaries, as opposed
to their agents and brokers, retain authority over underwriting, claims
processing, safety engineering and auditing.
CALIFORNIA FARM BUREAU FEDERATION
The Farm Bureau was formed to provide its members with a variety of
agriculture-related services, including property and casualty insurance. The
Farm Bureau is California's largest general farm organization, and represents
more than 69,000 member families in 58 counties. The Farm Bureau continues to
work actively to encourage its membership to place their insurance with CalFarm
Insurance. Farm Bureau membership is a prerequisite to the purchase of
farmowners, automobile and health insurance from CalFarm Insurance. Of the
estimated 69,000 member families, approximately 63% are insured by CalFarm
Insurance. The business of CalFarm Insurance is closely tied to the California
farm economy, however over 41% of Farm Bureau members (and CalFarm Insurance
insureds) are non-farmers and over 59% of CalFarm Insurance premium volume is
generated by non-farm business. Total revenues in CalFarm Insurance attributable
to sales that were sponsored by the Farm Bureau constituted approximately 27%,
25% and 26% of Zenith's total consolidated revenues for the years 1995, 1994 and
1993, respectively. The agreement of CalFarm
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Insurance with the Farm Bureau, which is subject to cancellation by either party
on six months' notice, requires annual payments to the Farm Bureau of $240,000
plus 2% of the gross written premium under the Farm Bureau group health
insurance program. Pursuant to such provisions, total payments to the Farm
Bureau were approximately $1 million in each of 1995, 1994 and 1993.
Zenith believes that its relationship with the Farm Bureau is mutually
beneficial. CalFarm Insurance benefits from the use of the CalFarm name and the
Farm Bureau membership lists, and its ability to sell products to Farm Bureau
members is enhanced by the Farm Bureau relationship. The Farm Bureau benefits
since Farm Bureau membership is required to obtain automobile, farmowners and
health insurance policies from CalFarm Insurance, which generates membership and
revenues for the Farm Bureau. If the relationship between CalFarm Insurance and
the Farm Bureau were terminated, Zenith believes that it could retain a
significant amount of the business it currently has with Farm Bureau members
because of the quality and tailored features of the products it offers in what
it regards as its "niche market" and the long-term relationships established
between its agents and these policyholders. In the event of such termination,
however, Zenith expects that there would be an increased risk of nonrenewal of
existing insurance coverage as well as a possible adverse effect on new policy
revenues, but it cannot estimate the financial impact of any such termination.
Zenith anticipates the continuation of a close working relationship with the
Farm Bureau and the promotion among its membership of the purchase of insurance
products from CalFarm Insurance as an attractive feature of Farm Bureau
membership.
COMPETITION
Competition in the insurance business is based upon price, product design
and quality of service. The insurance industry is highly competitive and
competition is particularly intense in the California workers' compensation
market which was deregulated with respect to prices in 1995. Zenith's
subsidiaries compete not only with other stock companies, but with mutual
companies, and other underwriting organizations such as the State Compensation
Insurance Fund. Competition also exists from self-insurance and captive
insurers. Over the years there has been increased competition from
direct-writing companies and, in the property and casualty field, from
affiliates of large life insurance companies. Many companies in competition with
Zenith's subsidiaries have been in business for a much longer time, have a
larger volume of business, are more widely known, and/or possess substantially
greater financial resources.
REGULATION
STATES' DEPARTMENTS OF INSURANCE
Insurance companies are primarily subject to regulation and supervision by
the Department of Insurance in the state in which they are domiciled and, to a
lesser extent, other states in which they conduct business. Zenith's insurance
subsidiaries are primarily subject to regulation and supervision by the
California Department of Insurance, except for Zenith Star which is primarily
subject to regulation and supervision in the State of Texas. These states have
broad regulatory, supervisory and administrative powers. Such powers relate,
among other things, to the granting and revocation of licenses to transact
business; the licensing of agents; the standards of solvency to be met and
maintained; the nature of and limitations on investments; approval of policy
forms and rates; periodic examination of the affairs of insurance companies; and
the form and content of required financial statements.
In California, Zenith Insurance, CalFarm Insurance and ZNAT Insurance are
required, with respect to their workers' compensation line of business, to
maintain on deposit investments meeting specified standards that have an
aggregate market value equal to the companies' loss reserves. For this purpose,
loss reserves are defined as the current estimate of reported and unreported
claims plus a statutory formula reserve based on a minimum of 65% of earned
premiums for the latest three years.
Detailed annual and quarterly reports must be filed by Zenith's insurance
subsidiaries with the California and Texas Departments of Insurance, and with
other states in which they are licensed to
10
<PAGE>
transact business, and their businesses and accounts are subject to periodic
examination by such agencies, usually at three year intervals. Zenith Insurance,
CalFarm Insurance and ZNAT Insurance, were examined by the California Department
of Insurance as of December 31, 1993, and the report on such examination
contained no material findings. Zenith Star was examined by the Texas Department
of Insurance as of June 30, 1995 and the results of such examination contained
no material findings.
THE NATIONAL ASSOCIATION OF INSURANCE COMMISSIONERS
The National Association of Insurance Commissioners ("NAIC") is a group
formed by state Insurance Commissioners to discuss issues and formulate policy
with respect to regulation, reporting and accounting of insurance companies.
Although the NAIC has no legislative authority and insurance companies are at
all times subject to the laws of their respective domiciliary states, and to a
lesser extent other states in which they conduct business, the NAIC is
influential in determining the form in which such laws are enacted. In
particular, the Model Insurance Laws, Regulations and Guidelines of the NAIC
(the "Model Laws") have been promulgated by the NAIC as a minimum standard by
which state regulatory systems and regulations are measured. Adoption of state
laws which provide for substantially similar regulations to those described in
the Model Laws is a requirement for the accreditation by the NAIC.
The NAIC has adopted model regulations to require insurers to maintain
minimum levels of capital based on their investments and operations, known as
"risk based capital" ("RBC") requirements. Such requirements were adopted by
California for property and casualty insurers in 1994. Zenith has not
experienced any adverse effects of such requirements because of the strong
capitalization of its insurance operations. At December 31, 1995, adjusted
capital under the RBC regulations was 377% of the RBC control, or required,
level of capital under the regulations for the Zenith Insurance Group
(consisting of Zenith Insurance, CalFarm Insurance, ZNAT Insurance and Zenith
Star).
The NAIC Insurance Regulatory Information System ("IRIS") was developed to
assist insurance departments in overseeing the financial condition of insurance
companies. Annually, IRIS key financial ratios (11 ratios for property and
casualty companies) are calculated from data supplied in annual statutory
statements of insurance companies. These ratios are reviewed by experienced
financial examiners of the NAIC to select those companies that merit highest
priority in the allocation of the regulators' resources. The 1995 IRIS results
for the Zenith Insurance Group showed no results outside the "normal range" for
such ratios, as such range is determined by the NAIC.
INSURANCE HOLDING COMPANY SYSTEM REGULATORY ACT
Zenith's insurance subsidiaries are also subject to the California and Texas
Insurance Holding Company System Regulatory Acts ("Holding Company Acts"), which
contain certain reporting requirements, including the requirement that such
subsidiaries file information relating to capital structure, ownership,
financial condition and general business operation, and limit dividend payments
and material transactions by Zenith's insurance subsidiaries. See "Liquidity and
Inflation" under "Management's Discussion and Analysis of Consolidated Financial
Condition and Result of Operations" on pages 33 and 34 of Zenith's 1995 Annual
Report to Stockholders, which is hereby incorporated by reference.
OTHER REGULATION
Property and casualty insurance coverage is subject to certain regulation as
described herein under "Property and Casualty -- Other" under which Zenith's
other property and casualty rates are subject to prior approval by the
California Department of Insurance. The provisions of Proposition 103 do not
apply to Workers' Compensation, Health insurance or Reinsurance, which combined
to account for 64% of Zenith's property and casualty earned premiums in 1995.
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ITEM 2. PROPERTIES
Zenith Insurance owns a 120,000 square foot office facility in Woodland
Hills, California which, since November of 1987, has been the corporate home
office of Zenith, Zenith Insurance, and ZNAT Insurance.
In addition, Zenith Insurance and CalFarm Insurance, in the regular conduct
of their business, lease offices in various cities. See Note 8 of the Notes to
Consolidated Financial Statements of Zenith on pages 51 and 52 of the 1995
Annual Report to Stockholders, which note is hereby incorporated by reference.
CalFarm Insurance owns its home office building (and surrounding property of
approximately 4 acres) in Sacramento, California, consisting of 133,000 square
feet. Approximately 20% of the building is leased to the Farm Bureau and its
affiliates.
ITEM 3. LEGAL PROCEEDINGS
Zenith and its subsidiaries are involved in certain litigation. In the
opinion of management, after consultation with legal counsel, such litigation in
which Zenith is a defendant is either without merit or the ultimate liability,
if any, will not have a material adverse effect on the consolidated financial
condition of Zenith.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
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PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
Zenith's Common Stock, par value $1.00 per share, is traded on the New York
Stock Exchange. The table below sets forth the high and low sales prices of the
Common Stock for each quarterly period during the last two fiscal years.
<TABLE>
<CAPTION>
QUARTER 1995 1994
- ------------------------------------------------------------ ------- -------
<S> <C> <C>
First
High...................................................... 22 3/4 24 1/4
Low....................................................... 19 3/8 20 3/4
Second
High...................................................... 22 25 1/2
Low....................................................... 20 20 5/8
Third
High...................................................... 24 1/4 27 3/8
Low....................................................... 20 22
Fourth
High...................................................... 24 5/8 24 1/2
Low....................................................... 20 20 3/4
</TABLE>
As of March 27, 1996, there were 420 holders of record of Zenith Common
Stock.
The table below sets forth information with respect to the amount and
frequency of dividends declared on Zenith Common Stock. Based upon Zenith's
financial condition, it is currently expected that cash dividends will continue
to be paid in the future.
<TABLE>
<CAPTION>
DATE OF DECLARATION TYPE AND AMOUNT OF RECORD DATE FOR
BY ZENITH BOARD DIVIDEND PAYMENT PAYMENT DATE
- ------------------------------------ ----------------------- --------------------- ------------------------
<S> <C> <C> <C>
December 9, 1993.................... $.25 cash per share January 31, 1994 February 14, 1994
March 17, 1994...................... $.25 cash per share April 29, 1994 May 13, 1994
May 25, 1994........................ $.25 cash per share July 29, 1994 August 12, 1994
September 7, 1994................... $.25 cash per share October 31, 1994 November 14, 1994
December 6, 1994.................... $.25 cash per share January 31, 1995 February 15, 1995
March 1, 1995....................... $.25 cash per share April 28, 1995 May 12, 1995
May 24, 1995........................ $.25 cash per share July 31, 1995 August 16, 1995
September 14, 1995.................. $.25 cash per share October 31, 1995 November 15, 1995
November 30, 1995................... $.25 cash per share January 31, 1996 February 15, 1996
</TABLE>
The Holding Company Acts limit the ability of Zenith Insurance to pay
dividends to Zenith, and of CalFarm Insurance, ZNAT Insurance and Zenith Star to
pay dividends to Zenith Insurance, by providing that the California or Texas
Department of Insurance must approve any dividend that, together with all other
such dividends paid during the preceding twelve months, exceeds the greater of:
(a) 10% of the paying company's statutory surplus as regards policyholders at
the preceding December 31; or (b) 100% of the net income for the preceding year.
In addition, any such dividend must be paid from policyholders' surplus
attributable to accumulated earnings. During 1995, Zenith Insurance paid
dividends of $10,000,000 to Zenith. During 1996, Zenith Insurance will be able
to pay $22,301,000 in dividends to Zenith without prior approval. In addition,
in 1996, CalFarm Insurance, ZNAT Insurance and Zenith Star, together, can pay
$6,459,000 to Zenith Insurance which would be available to Zenith in 1997.
ITEM 6. SELECTED FINANCIAL DATA.
The five-year summary of selected financial information and accompanying
notes, included in Zenith's 1995 Annual Report to Stockholders on pages 36 and
37, is hereby incorporated by reference.
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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 1995 Annual Report to
Stockholders on pages 28 to 34 is hereby incorporated by reference.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
Reference is made to pages 38 and 39 of Zenith's 1995 Annual Report to
Stockholders for information setting forth the loss and loss adjustment expense
liability development for 1985 through 1995 and page 9 of Zenith's 1995 Annual
Report to Stockholders for incurred loss and loss adjustment expense development
for 1990 through 1995, and to the consolidated financial statements and notes
thereto on pages 40 to 54 of Zenith's 1995 Annual Report to Stockholders, all of
which are hereby incorporated by reference.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
None.
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PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
The information set forth under the captions "Compliance with Section 16(a)
of the Securities Exchange Act of 1934" and "Election of Directors" in the Proxy
Statement in connection with Zenith's 1996 Annual Meeting of Stockholders (the
"Proxy Statement") is hereby incorporated by reference.
EXECUTIVE OFFICERS OF THE REGISTRANT
<TABLE>
<CAPTION>
OFFICER
NAME AGE POSITION TERM SINCE
- ----------------- --- ---------------------------------------- ------ -------
<S> <C> <C> <C> <C>
Stanley R. Zax 58 Chairman of the Board, President (1) Annual 1977
Fredricka Taubitz 52 Executive Vice President and Annual 1985
Chief Financial Officer (1)
James P. Ross 49 Senior Vice President and Actuary (1) Annual 1978
John J. Tickner 57 Senior Vice President and Secretary (1) Annual 1985
Keith E. Trotman 59 Senior Vice President (2) Annual 1988
Philip R. Hunt 53 Senior Vice President (2) Annual 1988
</TABLE>
- ------------------------
(1) Officer of Zenith and subsidiaries.
(2) Officer of subsidiaries only.
Each of the executive officers has, for more than five years, occupied an
executive position with Zenith or a subsidiary of Zenith.
There are no family relationships between any of the executive officers and
there are no arrangements or understandings pursuant to which any of them were
selected as officers.
ITEM 11. EXECUTIVE COMPENSATION.
The information set forth under the headings "Directors' Compensation,"
"Summary Compensation Table," "Option/SAR Grants in Last Fiscal Year," and
"Aggregated Option/SAR Exercises in Last Fiscal Year And Fiscal Year End
Option/SAR Values," "Employment Agreements and Termination of Employment and
Change in Control Arrangements," and "Compensation Committee Interlocks and
Insider Participation" in the Proxy Statement is hereby incorporated by
reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The information set forth under the caption "Security Ownership of Certain
Beneficial Owners and Management" in the Proxy Statement is hereby incorporated
by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
The information set forth in footnote 3 to the table set forth under the
caption "Election of Directors" and under the heading, "Investment in Delta Life
Corporation" in the Proxy Statement is hereby incorporated by reference.
15
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K.
(a) Documents filed as part of the report:
1. FINANCIAL STATEMENTS
Independent Accountant's Report
Financial Statements and notes thereto incorporated by reference
from the 1995 Annual Report to Stockholders in Item 8 of Part II
above:
Consolidated Financial Statements of Zenith National Insurance
Corp. and Subsidiaries:
Consolidated Balance Sheet as of December 31, 1995 and 1994
Consolidated Statement of Operations for the years ended
December 31, 1995, 1994 and 1993
Consolidated Statement of Cash Flows for the years ended
December 31, 1995, 1994 and 1993
Consolidated Statement of Stockholders' Equity for the
years ended December 31, 1995, 1994 and 1993
Notes to Consolidated Financial Statements
Table setting forth incurred loss and loss adjustment expense
development on a statutory basis on page 9 of the 1995 Annual
Report to Stockholders
2.FINANCIAL STATEMENT SCHEDULES
Zenith National Insurance Corp. and Subsidiaries
As of December 31, 1995.
I -- Summary of Investments -- Other Than Investments in Related
Parties
For the years ended December 31, 1995, 1994 and 1993.
III -- Supplementary Insurance Information
IV -- Reinsurance
Zenith National Insurance Corp.
As of December 31, 1995 and 1994 and for the years ended December
31, 1995, 1994 and 1993.
II -- Condensed Financial Information of Registrant
Property and Casualty Loss Developments on pages 38 and 39 and on page 9
of the 1995 Annual Report to Stockholders.
Schedules other than those listed above are omitted since they are not
applicable, not required, or the information required to be set forth
therein is included in the consolidated financial statements, or in
notes thereto.
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<PAGE>
3. EXHIBITS
The Exhibits listed below are filed in a separate Exhibit Volume to this
Report.
<TABLE>
<S> <C> <C>
2.1 Stock Acquisition Agreement, dated as of September 19, 1995, between Anchor National
Life Insurance Company and Zenith National Insurance Corp. (Incorporated herein by
reference to Exhibit 2.1 to Zenith's Report on Form 8-K dated October 6, 1995.)
2.2 Amendment No. 1 to Stock Acquisition Agreement dated as of December 27, 1995, by and
among Anchor National Life Insurance Company, SunAmerica Life Insurance Company and
Zenith National Insurance Corp. (Incorporated herein by reference to Exhibit 2.1 to
Zenith's Report on Form 8-K dated January 9, 1996.)
3.1 Certificate of Incorporation of Zenith as in effect immediately prior to November 22,
1985. (Incorporated herein by reference to Exhibit 3 to Zenith's Amendment on Form 8,
date of amendment October 10, 1985, to Zenith's Current Report on Form 8-K, date of
report July 26, 1985). Certificate of Amendment to Certificate of Incorporation of
Zenith, effective November 22, 1985. (Incorporated herein by reference to Zenith's
Current Report on Form 8-K, date of report November 22, 1985).
3.2 By-Laws of Zenith, as currently in effect. (Incorporated herein by reference to Exhibit
3.2 to Zenith's Annual Report on Form 10-K for the year ended December 31, 1988.)
4.1 Indenture dated as of May 1, 1992 entered into between Zenith and Norwest Bank
Minnesota, National Association, as trustee, pursuant to which Zenith issued its 9%
Senior Notes due May 1, 2002. (Incorporated herein by reference to Exhibit 4 to Zenith's
Quarterly Report on Form 10-Q for the quarter ended March 31, 1992.)
10.1 Purchase Agreement, dated as of February 4, 1981, among Reliance Insurance Company,
Zenith, the Selling Stockholders referred to therein, and Eugene V. Klein, Daniel
Schwartz and Harvey L. Silbert as agents for the Selling Stockholders. (Incorporated
herein by reference to the exhibit to the Schedule 13D filed by Reliance Financial
Services Corporation on March 9, 1981 with respect to the common stock of Zenith).
10.2 Asset and Liability Assumption Agreement, dated as of June 4, 1985, between Zenith
Insurance and the Insurance Commissioner of the State of California (the
"Commissioner"). (Incorporated herein by reference to Exhibit 1 to Zenith's Current
Report on Form 8-K, date of report July 26, 1985).
10.3 Memorandum and Agreement of Closing dated as of July 26, 1985, among Zenith Insurance,
Zenith and the Commissioner (Incorporated herein by reference to Exhibit 10.6 to
Zenith's Annual Report on Form 10-K for the year ended December 31, 1985), together with
the following exhibits:
(a) Exhibit A -- Grant Deed, dated July 25, 1985, by the Commissioner in favor of Zenith
Insurance. (Incorporated herein by reference to Exhibit 10.6 to Zenith's Annual
Report on Form 10-K for the year ended December 31, 1985).
(b) Exhibit B -- Bill of Sale, dated as of July 26, 1985, by the Commissioner in favor
of Zenith Insurance. (Incorporated herein by reference to Exhibit 10.6 to Zenith's
Annual Report on Form 10-K for the year ended December 31, 1985).
(c) Exhibit C -- Assignment of Assets and Assumption of Liabilities, dated as of July
26, 1985, between the Commissioner and Zenith Insurance. (Incorporated herein by
reference to Exhibit 10.6 to Zenith's Annual Report on Form 10-K for the year ended
December 31, 1985).
</TABLE>
17
<PAGE>
<TABLE>
<S> <C> <C>
(d) Exhibit D -- Noncompetition Agreement, dated as of July 26, 1985, between the
Commissioner and Zenith Insurance. (Incorporated herein by reference to Exhibit 28.3
to Zenith's Current Report on Form 8-K, date of report July 26, 1985).
(e) Exhibit E -- First Assignment Separate from Certificate, dated July 26, 1985, by the
Commissioner in favor of Zenith. (Incorporated herein by reference to Exhibit 10.6
to Zenith's Annual Report on Form 10-K for the year ended December 31, 1985).
(f) Exhibit F -- Engagement and Reimbursement Agreement, dated as of July 26, 1985,
between Zenith Insurance and the Commissioner. (Incorporated herein by reference to
Exhibit 28.2 to Zenith's Current Report on Form 8-K, date of report July 26, 1985).
*10.4 Zenith's Non-Qualified Stock Option Plan, as in effect immediately prior to December 6,
1985. (Incorporated herein by reference to Zenith's Registration Statement on Form S-8
(SEC File No. 2-97962)).
*10.5 Zenith's Amended and Restated Non-Qualified Stock Option Plan, adopted by Zenith's Board
of Directors on December 6, 1985. (Incorporated herein by reference to Zenith's
Registration Statement on Form S-8
(SEC File No. 33-8948)).
*10.6 Employment Agreement, dated February 8, 1995, between Zenith and Fredricka Taubitz.
(Incorporated herein by reference to Exhibit 10.6 to Zenith's Annual Report on Form 10-K
for the year ended December 31, 1994).
*10.7 Employment Agreement, dated February 16, 1995, between Zenith and John J. Tickner.
(Incorporated herein by reference to Exhibit 10.7 to Zenith's Annual Report on Form 10-K
for the year ended December 31, 1994).
*10.8 Employment Agreement, dated February 2, 1995, between Zenith and Stanley R. Zax.
(Incorporated herein by reference to Exhibit 10.8 to Zenith's Annual Report on Form 10-K
for the year ended December 31, 1994).
*10.9 Stock Option Agreement, dated as of May 19, 1987, between Zenith and Stanley R. Zax.
(Incorporated herein by reference to Exhibit 10.15 to Zenith's Annual Report on Form
10-K for the year ended December 31, 1987).
10.10 Credit Agreement, dated as of December 14, 1994, between Zenith and Sanwa Bank of
California. (Incorporated herein by reference to Exhibit 10.10 to Zenith's Annual Report
on Form 10K for the year ended December 31, 1994.)
10.11 Amendment dated as of December 28, 1995 to Credit Agreement, dated as of December 14,
1994, between Zenith and Sanwa Bank of California.
10.12 Revolving Note Agreement, dated July 1, 1995, between Zenith and City National Bank.
(Incorporated herein by reference to Exhibit 10 to Zenith's Quarterly Report on Form 10Q
for the quarter ended June 30, 1995.)
10.13 Agreement of Reinsurance #8051 between General Reinsurance Corporation and Zenith
Insurance Company, ZNAT Insurance Company, Zenith Star Insurance Company and CalFarm
Insurance Company, dated as of May 22, 1995.
10.14 Workers' Compensation and Employers' Liability Reinsurance Agreement between Zenith
Insurance Company and Employers Reinsurance Corporation, effective January 1, 1986.
(Incorporated herein by reference to Exhibit 10.14 to Zenith's Annual Report on Form 10K
for the year ended December 31, 1991.)
10.15 Agreement of Reinsurance No. 7276 between CalFarm Insurance Company and General
Reinsurance Corporation, dated as of February 5, 1988. (Incorporated herein by reference
to Exhibit 10.15 to Zenith's Annual Report on Form 10K for the year ended December 31,
1991.)
</TABLE>
18
<PAGE>
<TABLE>
<S> <C> <C>
10.16 Agreement of Reinsurance No. B226 between CalFarm Insurance Company and General
Reinsurance Corporation, dated as of January 13, 1988. (Incorporated herein by reference
to Exhibit 10.16 to Zenith's Annual Report on Form 10K for the year ended December 31,
1991.)
10.17 Agreement of Reinsurance No. B197-A between CalFarm Insurance Company and General
Reinsurance Corporation, dated as of January 13, 1988. (Incorporated herein by reference
to Exhibit 10.17 to Zenith's Annual Report on Form 10K for the year ended December 31,
1991.)
10.18 Agreement of Reinsurance No. B196-A between CalFarm Insurance Company and General
Reinsurance Corporation, dated as of January 13, 1988. (Incorporated herein by reference
to Exhibit 10.18 to Zenith's Annual Report on Form 10K for the year ended December 31,
1991.)
10.19 Agreement of Reinsurance No. 7832 between General Reinsurance Corporation and CalFarm
Insurance, Zenith Insurance and ZNAT Insurance, effective September 1, 1993.
(Incorporated herein by reference to Exhibit 10.21 to Zenith's Annual Report on Form 10K
for the year ended December 31, 1993.)
10.20 Agreement of Reinsurance No. 623-0005 between American Re-Insurance Company and CalFarm
Insurance, Zenith Insurance and ZNAT Insurance, effective September 1, 1993.
(Incorporated herein by reference to Exhibit 10.22 to Zenith's Annual Report on Form 10K
for the year ended December 31, 1993.)
10.21 Agreement of Reinsurance No. 0079460 between Employers Reinsurance Corporation and
CalFarm Insurance, Zenith Insurance and ZNAT Insurance, effective September 1, 1993.
(Incorporated herein by reference to Exhibit 10.23 to Zenith's Annual Report on Form 10K
for the year ended December 31, 1993.)
10.22 Life, Disability and Accidental Death Facultive Reinsurance Agreement between CalFarm
Insurance Company and Occidental Life Insurance Company of California, effective April
1, 1971. (Incorporated herein by reference to Exhibit 10.21 to Zenith's Annual Report on
Form 10K for the year ended December 31, 1991.)
11 Computation of Earnings Per Share for the three (3) years ended
December 31, 1995
13 Zenith's Annual Report to Stockholders for the year ended
December 31, 1995, but only to the extent such report is expressly incorporated by
reference herein, and such report is not otherwise to be deemed "filed" as a part of
this Annual Report on Form 10-K.
21 Subsidiaries of Zenith.
23 Consent of Coopers & Lybrand L.L.P., dated March 29, 1996. (Incorporated herein by
reference to page F-1 of this Annual Report on Form 10-K).
27 Financial Data Schedule
28 Property and Casualty Loss Statistics.
99.1 Information required by rule 15d-21 under the Securities Exchange Act of 1934 for the
year ended December 31, 1995 for the Zenith Investment Partnership 401(k) Plan (to be
filed by amendment on Form 10-K/A within 180 days of December 31, 1995).
</TABLE>
- ------------------------
*Management contract or compensatory plan or arrangement
(b) REPORTS ON FORM 8-K
The registrant filed a Form 8K Current Report dated on October 6, 1995 in
connection with the sale of CalFarm Life Insurance Company.
19
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized, on March 29, 1996.
ZENITH NATIONAL INSURANCE CORP.
By STANLEY R. ZAX
------------------------------------
Stanley R. Zax
Chairman of the Board and President
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities indicated, on March 29, 1996.
<TABLE>
<C> <S>
STANLEY R. ZAX Chairman of the Board, President and
- --------------------------------------------- Director (Principal Executive Officer)
Stanley R. Zax
GEORGE E. BELLO Director
- ---------------------------------------------
George E. Bello
MAX M. KAMPELMAN Director
- ---------------------------------------------
Max M. Kampelman
JACK M. OSTROW Director
- ---------------------------------------------
Jack M. Ostrow
WILLIAM S. SESSIONS Director
- ---------------------------------------------
William S. Sessions
HARVEY L. SILBERT Director
- ---------------------------------------------
Harvey L. Silbert
ROBERT M. STEINBERG Director
- ---------------------------------------------
Robert M. Steinberg
SAUL P. STEINBERG Director
- ---------------------------------------------
Saul P. Steinberg
GERALD TSAI, JR. Director
- ---------------------------------------------
Gerald Tsai, Jr.
FREDRICKA TAUBITZ Executive Vice President and Chief Financial
- --------------------------------------------- Officer (Principal Financial and Accounting
Fredricka Taubitz Officer)
</TABLE>
20
<PAGE>
CONSENT OF INDEPENDENT ACCOUNTANT
We consent to the incorporation by reference in the Registration Statements on
Form S-8 (File Nos. 33-8948 and 33-22219) of our report dated February 14, 1996
on our audits of the consolidated financial statements and financial statement
schedules of Zenith National Insurance Corp. and subsidiaries as of December 31,
1995 and 1994, and for each of the three years in the period ended December 31,
1995, which is included in this Annual Report on Form 10-K.
COOPERS & LYBRAND L.L.P.
Los Angeles, California
March 29, 1996
F-1
<PAGE>
INDEPENDENT ACCOUNTANT'S REPORT
To the Stockholders and Board of Directors
of Zenith National Insurance Corp.
We have audited the consolidated financial statements of Zenith National
Insurance Corp. and subsidiaries as of December 31, 1995 and 1994, and for each
of the three years in the period ended December 31, 1995, which financial
statements are included on pages 40 through 54 of the Company's 1995 Annual
Report to Stockholders and incorporated by reference herein. We have also
audited the financial statement schedules listed in the index on page 16 of this
Form 10-K. These financial statements and financial statement schedules are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements and financial statement schedules based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Zenith National
Insurance Corp. and subsidiaries as of December 31, 1995 and 1994, and the
consolidated results of their operations and their cash flows for each of the
three years in the period ended December 31, 1995, in conformity with generally
accepted accounting principles. In addition, in our opinion, the financial
statement schedules referred to above, when considered in relation to the basic
financial statements taken as a whole, present fairly, in all material respects,
the information required to be included therein.
As discussed in Note 1 to the consolidated financial statements, the Company
changed its method of accounting for investments as of December 31, 1993.
COOPERS & LYBRAND L.L.P.
Los Angeles, California
February 14, 1996
F-2
<PAGE>
SCHEDULE I -- SUMMARY OF INVESTMENTS --
OTHER THAN INVESTMENTS IN RELATED PARTIES
ZENITH NATIONAL INSURANCE CORP. AND SUBSIDIARIES
DECEMBER 31, 1995
<TABLE>
<CAPTION>
COLUMN D
COLUMN C ---------------
COLUMN A COLUMN B ---------- AMOUNT AT WHICH
- -------------------------------------------------- ---------- FAIR SHOWN IN THE
TYPE OF INVESTMENT COST VALUE BALANCE SHEET
- -------------------------------------------------- ---------- ---------- ---------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Fixed maturities
Bonds:
United States Government and government
agencies and authorities.................... $ 358,590 $ 359,669 $ 358,527
Public utilities.............................. 4,931 4,869 4,869
Industrial and miscellaneous.................. 229,226 239,612 239,612
Redeemable preferred stocks..................... 19,849 20,492 20,492
---------- ---------- ---------------
Total fixed maturities.................... 612,596 624,642 623,500
---------- ---------- ---------------
Equity securities
Floating rate preferred stocks.................. 14,614 13,588 13,588
Convertible and nonredeemable preferred
stocks........................................ 250 281 281
Common stocks, industrial....................... 18,937 22,656 22,656
---------- ---------- ---------------
Total equity securities................... 33,801 36,525 36,525
---------- ---------- ---------------
Short-term investments............................ 137,083 137,083 137,083
Other investments................................. 38,106 38,106 38,106
---------- ---------- ---------------
Total investments......................... $ 821,586 $ 836,356 $ 835,214
---------- ---------- ---------------
---------- ---------- ---------------
</TABLE>
F-3
<PAGE>
SCHEDULE II -- CONDENSED FINANCIAL INFORMATION OF REGISTRANT
ZENITH NATIONAL INSURANCE CORP.
BALANCE SHEET
ASSETS
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
(DOLLARS AND SHARES IN THOUSANDS) 1995 1994
-------- --------
<S> <C> <C>
Investments
Common stocks, at market (cost $668, 1995 and $606, 1994)............................... $ 709 $ 424
Short-term investments (at cost which approximates market).............................. 84,678 2,129
Cash...................................................................................... 996 2,334
Investment in subsidiaries (Note A)....................................................... 318,620 268,951
Investment in discontinued operations (Note B)............................................ 104,372
Federal income taxes receivable (Note A).................................................. 764
Other assets.............................................................................. 12,116 14,974
-------- --------
Total assets...................................................................... $417,119 $393,948
-------- --------
-------- --------
LIABILITIES
Senior notes payable, less unamortized discount of $768, 1995 and $889, 1994.............. $ 74,232 $ 74,111
Cash dividends payable to stockholders.................................................... 4,455 4,736
Federal income taxes payable (Note A)..................................................... 4,676
Other liabilities......................................................................... 3,324 5,241
-------- --------
Total liabilities................................................................. 86,687 84,088
-------- --------
STOCKHOLDERS' EQUITY
Preferred stock, $1 par--shares authorized 1,000; issued and outstanding, none in 1995 and
1994....................................................................................
Common stock, $1 par--shares authorized 50,000; issued 24,310, outstanding 17,784, 1995;
issued 24,034, outstanding 18,950, 1994................................................. 24,310 24,034
Additional paid-in capital................................................................ 256,083 251,363
Retained earnings......................................................................... 155,634 167,025
Net unrealized appreciation (depreciation) on investments, net of $4,752 deferred tax
expense in 1995 and $3,969 deferred tax benefit in 1994................................. 8,825 (47,460)
-------- --------
444,852 394,962
Less treasury stock at cost (6,526 shares, 1995 and 5,084 shares, 1994)................... (114,420) (85,102)
-------- --------
Total stockholders' equity........................................................ 330,432 309,860
-------- --------
Total liabilities and stockholders' equity........................................ $417,119 $393,948
-------- --------
-------- --------
</TABLE>
See notes to condensed financial information.
F-4
<PAGE>
SCHEDULE II -- CONDENSED FINANCIAL INFORMATION OF REGISTRANT
ZENITH NATIONAL INSURANCE CORP.
STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31,
----------------------------------------------
(DOLLARS IN THOUSANDS) 1995 1994 1993
------------ ------------- -------------
<S> <C> <C> <C>
Investment income............................................................... $ 219 $ 457 $ 492
Realized gains on investments................................................... 43 11 895
Income from legal settlement.................................................... 1,910 7,561
------------ ------------- -------------
Total revenue................................................................... 262 2,378 8,948
Operating expense............................................................... 1,863 4,059 3,478
Interest expense................................................................ 6,960 5,937 6,658
------------ ------------- -------------
Loss from continuing operations before federal income tax benefit and equity in
net income of subsidiaries.................................................... (8,561) (7,618) (1,188)
Federal income tax benefit...................................................... 3,123 2,678 516
------------ ------------- -------------
Loss from continuing operations before equity in income from continuing
operations of subsidiaries.................................................... (5,438) (4,940) (672)
Equity in income from continuing operations of subsidiaries (Note A)............ 25,160 34,738 42,849
------------ ------------- -------------
Income from continuing operations............................................... 19,722 29,798 42,177
Income (loss) from discontinued operations (Note B)............................. (13,122) 8,102 11,023
------------ ------------- -------------
Net income...................................................................... $ 6,600 $ 37,900 $ 53,200
------------ ------------- -------------
------------ ------------- -------------
</TABLE>
See notes to condensed financial information.
F-5
<PAGE>
SCHEDULE II -- CONDENSED FINANCIAL INFORMATION OF REGISTRANT
ZENITH NATIONAL INSURANCE CORP.
STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31,
-----------------------------------------------
(AMOUNTS IN THOUSANDS) 1995 1994 1993
------------- ------------- -------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Investment income received.................................................... $ 193 $ 477 $ 485
Recovery from lawsuit settlement.............................................. 6,036 4,094
Operating expenses paid....................................................... (1,455) (4,099) (3,309)
Interest paid................................................................. (6,596) (5,842) (6,552)
Income taxes (paid) refunded.................................................. 3,571 (1,471) 8,524
------------- ------------- -------------
Net cash flows from continuing operating activities......................... (4,287) (4,899) 3,242
Net cash flow from expenses of discontinued operations........................ (2,274)
------------- ------------- -------------
Net cash flows from operating activities.................................... (6,561) (4,899) 3,242
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sales of investments:
Other debt and equity securities and other investments...................... 4,243
Net change in short-term investments.......................................... (82,549) 12,867 (7,264)
Cash received from note receivable............................................ 2,300
Proceeds from the sale of CalFarm Life........................................ 120,000
------------- ------------- -------------
Net cash flows from investing activities.................................... 37,451 12,867 (721)
CASH FLOWS FROM FINANCING ACTIVITIES:
Cash received from bank line of credit........................................ 43,400 2,100 1,000
Cash paid on bank line of credit.............................................. (43,400) (2,100) (1,000)
Cash dividends paid to common stockholders.................................... (18,273) (18,894) (19,018)
Proceeds from exercise of stock options....................................... 4,405 2,093 6,261
Purchase of treasury shares................................................... (29,318) (346) (7,367)
Dividends received from subsidiaries.......................................... 10,500 15,000 25,000
Capital contribution to subsidiary............................................ (250)
Net cash from (to) subsidiary................................................. 458 (5,356) (7,538)
------------- ------------- -------------
Net cash flows from financing activities.................................... (32,228) (7,503) (2,912)
Net increase (decrease) in cash................................................. (1,338) 465 (391)
Cash at beginning of year....................................................... 2,334 1,869 2,260
------------- ------------- -------------
Cash at end of year............................................................. $ 996 $ 2,334 $ 1,869
------------- ------------- -------------
------------- ------------- -------------
RECONCILIATION OF INCOME FROM CONTINUING OPERATIONS TO NET CASH FLOWS FROM
OPERATING ACTIVITIES:
Income from continuing operations............................................. $ 19,722 $ 29,798 $ 42,177
Income from continuing operations of subsidiaries............................. (25,160) (34,738) (42,849)
Cash flow from expenses of discontinued operations............................ (2,274)
Federal income taxes.......................................................... 511 (4,149) 8,007
Decrease (increase) in receivable from lawsuit settlement..................... 3,467 (3,467)
Other......................................................................... 640 723 (626)
------------- ------------- -------------
Net cash flow from operating activities..................................... $ (6,561) $ (4,899) $ 3,242
------------- ------------- -------------
------------- ------------- -------------
</TABLE>
See notes to condensed financial information.
F-6
<PAGE>
SCHEDULE II -- CONDENSED FINANCIAL INFORMATION OF REGISTRANT
ZENITH NATIONAL INSURANCE CORP.
NOTES TO CONDENSED FINANCIAL INFORMATION
The accompanying condensed financial statements should be read in
conjunction with the consolidated financial statements and notes thereto of
Zenith National Insurance Corp. (Zenith) and subsidiaries.
A. Investment In Subsidiaries:
Zenith owns, directly or indirectly, 100% of the outstanding stock of
Zenith Insurance Company, CalFarm Insurance Company, ZNAT Insurance Company,
Zenith Star Insurance Company and Perma-Bilt, a Nevada Corporation. These
investments are included in the financial statements on the equity basis of
accounting. Temporary advances in the ordinary course of business are
included in other assets. The excess of cost over net assets acquired of
$2,009,000 represents the unamortized excess of cost over underlying net
tangible assets of companies acquired prior to 1970, which is considered to
have continuing value.
Zenith files a consolidated federal income tax return. The equity in the
income from continuing operations of subsidiaries of $25,160,000 in 1995,
$34,738,000 in 1994 and $42,849,000 in 1993 is net of a provision for
federal income tax expense of $12,823,000 in 1995, $17,986,000 in 1994 and
$20,825,000 in 1993. Zenith has formulated tax allocation procedures with
its subsidiaries and the 1995, 1994 and 1993 condensed financial information
reflect Zenith's portion of the consolidated taxes.
Zenith Insurance Company paid dividends to Zenith of $10,000,000 in
1995, $15,000,000 in 1994 and $25,000,000 in 1993. CalFarm Life Insurance
paid a dividend to Zenith of $500,000 prior to its sale in the fourth
quarter of 1995.
B. Discontinued Operations:
During the fourth quarter of 1995, Zenith completed the sale of its
wholly-owned subsidiary, CalFarm Life Insurance Company ("CalFarm Life"), to
a subsidiary of SunAmerica Inc. for approximately $120 million in cash. The
group health insurance business of CalFarm Life was retained by Zenith. The
sale resulted in a loss of approximately $19.5 million, after tax, which was
recognized by Zenith principally in the third quarter of 1995. The life and
annuity operations of CalFarm Life are presented as discontinued operations
and prior-year financial statements have been restated. Zenith's investment
attributable to discontinued operations at December 31, 1994 has been
presented separately from its investment in continuing operating activities.
The unrealized loss associated with investments classified as
available-for-sale in the life and annuity operation at December 31, 1994
was $22,539,000 net of deferred taxes. After tax income for the discontinued
operation from the measurement date to the disposal date was $3,960,000.
F-7
<PAGE>
SCHEDULE III -- SUPPLEMENTARY INSURANCE INFORMATION
ZENITH NATIONAL INSURANCE CORP. AND SUBSIDIARIES
<TABLE>
<CAPTION>
COLUMN C
-----------
FUTURE COLUMN E
COLUMN B POLICY -----------
----------- BENEFITS, OTHER COLUMN G
DEFERRED LOSSES, COLUMN D POLICY COLUMN F -----------
COLUMN A POLICY CLAIMS ----------- CLAIMS AND ----------- NET
- ------------------------------ ACQUISITION AND LOSS UNEARNED BENEFITS PREMIUM INVESTMENT
SEGMENT COSTS EXPENSES PREMIUMS PAYABLE REVENUE INCOME
- ------------------------------ ----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
(AMOUNTS IN THOUSANDS)
1995
- ------------------------------
Property and Casualty
Workers' compensation....... $ 5,001 $ 262,738 $ 28,644 $ 203,252
Other property/casualty..... 13,802 107,995 78,760 192,276
Reinsurance................. 1,536 92,390 12,187 41,985
----------- ----------- ----------- ----------- ----------- -----------
20,339 463,123 119,591 437,513 $ 45,931
Reinsurance ceded............. 54,429
Registrant.................... 219
----------- ----------- ----------- ----------- ----------- -----------
Total....................... $ 20,339 $ 517,552 $ 119,591 $ -- $ 437,513 $ 46,150
----------- ----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- ----------- -----------
1994
- ------------------------------
Property and Casualty
Workers' compensation....... $ 4,430 $ 264,665 $ 34,123 $ 216,030
Other property/casualty..... 12,598 101,615 77,211 186,661
Reinsurance................. 1,478 96,430 10,491 36,138
----------- ----------- ----------- ----------- ----------- -----------
18,506 462,710 121,825 438,829 $ 39,611
Reinsurance ceded............. 47,696
Registrant.................... 457
----------- ----------- ----------- ----------- ----------- -----------
Total....................... $ 18,506 $ 510,406 $ 121,825 $ -- $ 438,829 $ 40,068
----------- ----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- ----------- -----------
1993
- ------------------------------
Property and Casualty
Workers' compensation....... $ 4,264 $ 286,452 $ 32,109 $ 244,661
Other property/casualty..... 11,704 93,199 72,855 179,314
Reinsurance................. 1,048 94,848 6,889 23,295
----------- ----------- ----------- ----------- ----------- -----------
17,016 474,499 111,853 447,270 $ 38,817
Reinsurance ceded............. 44,919 10
Registrant.................... 492
----------- ----------- ----------- ----------- ----------- -----------
Total....................... $ 17,016 $ 519,418 $ 111,863 $ -- $ 447,270 $ 39,309
----------- ----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- ----------- -----------
<CAPTION>
COLUMN H COLUMN I
----------- -----------
BENEFITS, AMORTIZATION COLUMN J
CLAIMS, OF DEFERRED ----------- COLUMN K
COLUMN A LOSSES AND POLICY OTHER -----------
- ------------------------------ SETTLEMENT ACQUISITION OPERATING PREMIUMS
SEGMENT EXPENSES COSTS EXPENSES WRITTEN
- ------------------------------ ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
(AMOUNTS IN THOUSANDS)
1995
- ------------------------------
Property and Casualty
Workers' compensation....... $ 153,692 $ 36,358 $ 22,090 $ 197,773
Other property/casualty..... 149,797 39,621 14,865 198,676
Reinsurance................. 22,100 5,867 1,063 43,433
----------- ----------- ----------- -----------
325,589 81,846 38,018 439,882
Reinsurance ceded.............
Registrant.................... 1,863
----------- ----------- ----------- -----------
Total....................... $ 325,589 $ 81,846 $ 39,881 $ 439,882
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
1994
- ------------------------------
Property and Casualty
Workers' compensation....... $ 129,352 $ 32,336 $ 24,779 $ 218,044
Other property/casualty..... 138,925 38,782 15,920 190,922
Reinsurance................. 25,571 6,135 110 39,674
----------- ----------- ----------- -----------
293,848 77,253 40,809 448,640
Reinsurance ceded.............
Registrant.................... 4,059
----------- ----------- ----------- -----------
Total....................... $ 293,848 $ 77,253 $ 44,868 $ 448,640
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
1993
- ------------------------------
Property and Casualty
Workers' compensation....... $ 164,815 $ 33,317 $ 19,736 $ 245,917
Other property/casualty..... 128,051 36,345 20,393 183,876
Reinsurance................. 13,678 3,384 896 26,807
----------- ----------- ----------- -----------
306,544 73,046 41,025 456,600
Reinsurance ceded.............
Registrant.................... 3,478
----------- ----------- ----------- -----------
Total....................... $ 306,544 $ 73,046 $ 44,503 $ 456,600
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
</TABLE>
F-8
<PAGE>
SCHEDULE IV -- REINSURANCE
ZENITH NATIONAL INSURANCE CORP. AND SUBSIDIARIES
<TABLE>
<CAPTION>
COLUMN F
COLUMN C COLUMN D ----------
COLUMN B ------------ ----------- PERCENTAGE
COLUMN A -------------- CEDED TO ASSUMED COLUMN E OF AMOUNT
- ------------------------------------------------------- GROSS OTHER FROM OTHER -------------- ASSUMED
(AMOUNTS IN THOUSANDS) AMOUNT COMPANIES COMPANIES NET AMOUNT TO NET
-------------- ------------ ----------- -------------- ----------
<S> <C> <C> <C> <C> <C>
DECEMBER 31, 1995
Premiums earned........................................ $ 413,258 $ 21,112 $ 45,367 $ 437,513 10.4%
-------------- ------------ ----------- -------------- ----------
-------------- ------------ ----------- -------------- ----------
DECEMBER 31, 1994
Premiums earned........................................ $ 422,563 $ 21,521 $ 37,787 $ 438,829 8.6%
-------------- ------------ ----------- -------------- ----------
-------------- ------------ ----------- -------------- ----------
DECEMBER 31, 1993
Premiums earned........................................ $ 443,477 $ 22,301 $ 26,094 $ 447,270 5.8%
-------------- ------------ ----------- -------------- ----------
-------------- ------------ ----------- -------------- ----------
</TABLE>
F-9
<PAGE>
THE ZENITH
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
EXHIBITS
TO
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1995
------------------------
ZENITH NATIONAL INSURANCE CORP.
(Exact name of registrant as specified in its charter)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
EXHIBIT LIST
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- --------- --------------------------------------------------------------------------------------
<S> <C> <C>
2.1 Stock Acquisition Agreement, dated as of September 19, 1995, between Anchor National
Life Insurance Company and Zenith National Insurance Corp. (Incorporated herein by
reference to Exhibit 2.1 to Zenith's Report on Form 8-K dated October 6, 1995.)
2.2 Amendment No. 1 to Stock Acquisition Agreement dated as of December 27, 1995, by and
among Anchor National Life Insurance Company, SunAmerica Life Insurance Company and
Zenith National Insurance Corp. (Incorporated herein by reference to Exhibit 2.1 to
Zenith's Report on Form 8-K dated January 9, 1996.)
3.1 Certificate of Incorporation of Zenith as in effect immediately prior to November 22,
1985. (Incorporated herein by reference to Exhibit 3 to Zenith's Amendment on Form 8,
date of amendment October 10, 1985, to Zenith's Current Report on Form 8-K, date of
report July 26, 1985). Certificate of Amendment to Certificate of Incorporation of
Zenith, effective November 22, 1985. (Incorporated herein by reference to Zenith's
Current Report on Form 8-K, date of report November 22, 1985).
3.2 By-Laws of Zenith, as currently in effect. (Incorporated herein by reference to
Exhibit 3.2 to Zenith's Annual Report on Form 10-K for the year ended December 31,
1988.)
4.1 Indenture dated as of May 1, 1992 entered into between Zenith and Norwest Bank
Minnesota, National Association, as trustee, pursuant to which Zenith issued its 9%
Senior Notes due May 1, 2002. (Incorporated herein by reference to Exhibit 4 to
Zenith's Quarterly Report on Form 10-Q for the quarter ended March 31, 1992.)
10.1 Purchase Agreement, dated as of February 4, 1981, among Reliance Insurance Company,
Zenith, the Selling Stockholders referred to therein, and Eugene V. Klein, Daniel
Schwartz and Harvey L. Silbert as agents for the Selling Stockholders. (Incorporated
herein by reference to the exhibit to the Schedule 13D filed by Reliance Financial
Services Corporation on March 9, 1981 with respect to the common stock of Zenith).
10.2 Asset and Liability Assumption Agreement, dated as of June 4, 1985, between Zenith
Insurance and the Insurance Commissioner of the State of California (the
"Commissioner"). (Incorporated herein by reference to Exhibit 1 to Zenith's Current
Report on Form 8-K, date of report July 26, 1985).
10.3 Memorandum and Agreement of Closing dated as of July 26, 1985, among Zenith Insurance,
Zenith and the Commissioner (Incorporated herein by reference to Exhibit 10.6 to
Zenith's Annual Report on Form 10-K for the year ended December 31, 1985), together
with the following exhibits:
(a) Exhibit A -- Grant Deed, dated July 25, 1985, by the Commissioner in favor of
Zenith Insurance. (Incorporated herein by reference to
Exhibit 10.6 to Zenith's Annual Report on Form 10-K for the year ended December 31,
1985).
(b) Exhibit B -- Bill of Sale, dated as of July 26, 1985, by the Commissioner in favor
of Zenith Insurance. (Incorporated herein by reference to Exhibit 10.6 to Zenith's
Annual Report on Form 10-K for the year ended December 31, 1985).
(c) Exhibit C -- Assignment of Assets and Assumption of Liabilities, dated as of July
26, 1985, between the Commissioner and Zenith Insurance. (Incorporated herein by
reference to Exhibit 10.6 to Zenith's Annual Report on Form 10-K for the year
ended December 31, 1985).
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- --------- --------------------------------------------------------------------------------------
<S> <C> <C>
(d) Exhibit D -- Noncompetition Agreement, dated as of July 26, 1985, between the
Commissioner and Zenith Insurance. (Incorporated herein by reference to Exhibit
28.3 to Zenith's Current Report on Form 8-K, date of report July 26, 1985).
(e) Exhibit E -- First Assignment Separate from Certificate, dated July 26, 1985, by
the Commissioner in favor of Zenith. (Incorporated herein by reference to Exhibit
10.6 to Zenith's Annual Report on Form 10-K for the year ended December 31, 1985).
(f) Exhibit F -- Engagement and Reimbursement Agreement, dated as of July 26, 1985,
between Zenith Insurance and the Commissioner. (Incorporated herein by reference
to Exhibit 28.2 to Zenith's Current Report on Form 8-K, date of report July 26,
1985).
*10.4 Zenith's Non-Qualified Stock Option Plan, as in effect immediately prior to December
6, 1985. (Incorporated herein by reference to Zenith's Registration Statement on Form
S-8 (SEC File No. 2-97962)).
*10.5 Zenith's Amended and Restated Non-Qualified Stock Option Plan, adopted by Zenith's
Board of Directors on December 6, 1985. (Incorporated herein by reference to Zenith's
Registration Statement on Form S-8
(SEC File No. 33-8948)).
*10.6 Employment Agreement, dated February 8, 1995, between Zenith and Fredricka Taubitz.
(Incorporated herein by reference to Exhibit 10.6 to Zenith's Annual Report on Form
10-K for the year ended December 31, 1994).
*10.7 Employment Agreement, dated February 16, 1995, between Zenith and John J. Tickner.
(Incorporated herein by reference to Exhibit 10.7 to Zenith's Annual Report on Form
10-K for the year ended December 31, 1994).
*10.8 Employment Agreement, dated February 2, 1995, between Zenith and Stanley R. Zax.
(Incorporated herein by reference to Exhibit 10.8 to Zenith's Annual Report on Form
10-K for the year ended December 31, 1994).
*10.9 Stock Option Agreement, dated as of May 19, 1987, between Zenith and Stanley R. Zax.
(Incorporated herein by reference to Exhibit 10.15 to Zenith's Annual Report on Form
10-K for the year ended December 31, 1987).
10.10 Credit Agreement dated as of December 14, 1994, between Zenith and Sanwa Bank of
California. (Incorporated herein by reference to Exhibit 10.10 to Zenith's Annual
Report on Form 10K for the year ended December 31, 1994.)
10.11 Amendment dated as of December 28, 1995 to Credit Agreement, dated as of December 14,
1994, between Zenith and Sanwa Bank of California.
10.12 Revolving Note Agreement, dated July 1, 1995, between Zenith and City National Bank.
(Incorporated herein by reference to Exhibit 10 to Zenith's Quarterly Report on Form
10Q for the quarter ended June 30, 1995.)
10.13 Agreement of Reinsurance #8051 between General Reinsurance Corporation and Zenith
Insurance Company, ZNAT Insurance Company, Zenith Star Insurance Company and CalFarm
Insurance Company, dated as of May 22, 1995.
10.14 Workers' Compensation and Employers' Liability Reinsurance Agreement between Zenith
Insurance Company and Employers Reinsurance Corporation, effective January 1, 1986.
(Incorporated herein by reference to Exhibit 10.14 to Zenith's Annual Report on Form
10K for the year ended December 31, 1991.)
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- --------- --------------------------------------------------------------------------------------
<S> <C> <C>
10.15 Agreement of Reinsurance No. 7276 between CalFarm Insurance Company and General
Reinsurance Corporation, dated as of February 5, 1988. (Incorporated herein by
reference to Exhibit 10.15 to Zenith's Annual Report on Form 10K for the year ended
December 31, 1991.)
10.16 Agreement of Reinsurance No. B226 between CalFarm Insurance Company and General
Reinsurance Corporation, dated as of January 13, 1988. (Incorporated herein by
reference to Exhibit 10.16 to Zenith's Annual Report on Form 10K for the year ended
December 31, 1991.)
10.17 Agreement of Reinsurance No. B197-A between CalFarm Insurance Company and General
Reinsurance Corporation, dated as of January 13, 1988. (Incorporated herein by
reference to Exhibit 10.17 to Zenith's Annual Report on Form 10K for the year ended
December 31, 1991.)
10.18 Agreement of Reinsurance No. B196-A between CalFarm Insurance Company and General
Reinsurance Corporation, dated as of January 13, 1988. (Incorporated herein by
reference to Exhibit 10.18 to Zenith's Annual Report on Form 10K for the year ended
December 31, 1991.)
10.19 Agreement of Reinsurance No. 7832 between General Reinsurance Corporation and CalFarm
Insurance, Zenith Insurance and ZNAT Insurance, effective September 1, 1993.
(Incorporated herein by reference to Exhibit 10.21 to Zenith's Annual Report on Form
10K for the year ended December 31, 1993.)
10.20 Agreement of Reinsurance No. 623-0005 between American Re-Insurance Company and
CalFarm Insurance, Zenith Insurance and ZNAT Insurance, effective September 1, 1993.
(Incorporated herein by reference to Exhibit 10.22 to Zenith's Annual Report on Form
10K for the year ended December 31, 1993.)
10.21 Agreement of Reinsurance No. 0079460 between Employers Reinsurance Corporation and
CalFarm Insurance, Zenith Insurance and ZNAT Insurance, effective September 1, 1993.
(Incorporated herein by reference to Exhibit 10.23 to Zenith's Annual Report on Form
10K for the year ended December 31, 1993.)
10.22 Life, Disability and Accidental Death Facultive Reinsurance Agreement between CalFarm
Insurance Company and Occidental Life Insurance Company of California, effective April
1, 1971. (Incorporated herein by reference to Exhibit 10.21 to Zenith's Annual Report
on Form 10K for the year ended December 31, 1991.)
11 Computation of Earnings Per Share for the three (3) years ended
December 31, 1995.
13 Zenith's Annual Report to Stockholders for the year ended December 31, 1995, but only
to the extent such report is expressly incorporated by reference herein, and such
report is not otherwise to be deemed "filed" as a part of this Annual Report on Form
10-K.
21 Subsidiaries of Zenith.
23 Consent of Coopers & Lybrand L.L.P., dated March 29, 1996. (Incorporated herein by
reference to page F-1 of this Annual Report on Form 10-K).
27 Financial Data Schedule.
28 Property and Casualty Loss Statistics.
99.1 Information required by rule 15d-21 under the Securities Exchange Act of 1934 for the
year ended December 31, 1995 for the Zenith Investment Partnership 401(k) Plan (to be
filed by amendment on Form 10-K/A within 180 days of December 31, 1995).
</TABLE>
- ------------------------
*Management contract or compensatory plan or arrangement
<PAGE>
Exhibit 99.1
__________________________________
Financial Statements
Required by Form 11-K in accordance with
Rule 15d-21 under the Securities
Exchange Act of 1934
____________________________________
For the Fiscal Year Ended December 31, 1995
of
The Zenith Investment Partnership
401(k) Plan
ZENITH NATIONAL INSURANCE CORP.
The principal executive offices of Zenith National
Insurance Corp. are located at 21255 Califa Street,
Woodland Hills, California 91367-5021.
<PAGE>
ITEM 1. NOT APPLICABLE
ITEM 2. NOT APPLICABLE
ITEM 3. NOT APPLICABLE
ITEM 4. FINANCIAL STATEMENTS AND SCHEDULES
PREPARTED IN ACCORDANCE WITH THE FINANCIAL
REPORTING REQUIREMENTS OF ERISA
Page
----
Report of Independent Accountants 2
Statements of Net Assets Available for
Benefits As Of December 31, 1995
and 1994 3
Statements Of Changes In Net Assets
Available For Benefits For The Years
Ended December 31, 1995 and 1994 4
Notes To Financial Statements 5
Supplemental Schedules:
Item 27a- Schedule of Assets Held For
Investment Purposes As Of December 31, 1995 13
Item 27d- Schedule of Reportable
Transactions For The Year
Ended December 31, 1995 14
<PAGE>
Pursuant to the requirement of the Securities Exchange Act of 1934, the
registrant has duly caused this amendment to be signed on its behalf by the
undersigned, thereunto duly authorized.
Zenith National Insurance Corp.
-------------------------------
(Registrant)
Date: June 28, 1996 By: Fredricka Taubitz
--------------- ---------------------------
(Signature)
Fredricka Taubitz
Executive Vice President
& Chief Financial Officer
<PAGE>
THE ZENITH INVESTMENT PARTNERSHIP 401(k) PLAN
___________________
REPORT ON AUDITED FINANCIAL STATEMENTS
AND SUPPLEMENTAL SCHEDULES
FOR THE YEARS ENDED DECEMBER 31, 1995 AND 1994
___________________
<PAGE>
THE ZENITH INVESTMENT PARTNERSHIP 401(k) PLAN
INDEX OF FINANCIAL STATEMENTS
AND SUPPLEMENTAL SCHEDULES
_____________
Page
----
Report of Independent Accountants 2
Financial Statements:
Statements of Net Assets Available for Benefits
as of December 31, 1995 and 1994 3
Statements of Changes in Net Assets Available for
Benefits for the years ended December 31, 1995
and 1994 4
Notes to Financial Statements 5
Supplemental Schedules:
Item 27a - Schedule of Assets Held for Investment
Purposes as of December 31, 1995 13
Item 27d - Schedule of Reportable Transactions
for the year ended December 31, 1995 14
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
______________
To the Administrative Committee of
The Zenith Investment Partnership
401(k) Plan
We have audited the accompanying statements of net assets available for
benefits of The Zenith Investment Partnership 401(k) Plan (the "Plan") as of
December 31, 1995 and 1994 and the related statements of changes in net
assets available for benefits for the years then ended. These financial
statements are the responsibility of the Plan's management. Our
responsibility is to express an opinion on these financial statements based
on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the net assets available for benefits of The Zenith
Investment Partnership 401(k) Plan as of December 31, 1995 and 1994 and the
changes in net assets available for benefits for the years then ended in
conformity with generally accepted accounting principles.
Our audits were conducted for the purpose of forming an opinion on the basic
financial statements taken as a whole. The supplemental schedules of the
Plan, listed in the index on page 1, are presented for purposes of additional
analysis and are not a required part of the basic financial statements, but
are supplementary information required by the Department of Labor's Rules and
Regulations for Reporting and Disclosure under the Employee Retirement Income
Security Act of 1974. The supplemental schedules have been subjected to the
auditing procedures applied in the audit of the basic financial statements
and, in our opinion are fairly stated in all material respects, in relation
to the basic financial statements taken as a whole.
Los Angeles, California
June 12, 1996
2
<PAGE>
THE ZENITH INVESTMENT PARTNERSHIP 401(k) PLAN
STATEMENTS OF NET ASSETS AVAILABLE FOR BENEFITS
AS OF DECEMBER 31, 1995 AND 1994
____________________
Assets: 1995 1994
---- ----
Investments:
Zenith National Insurance Corp.
Common stock at fair value (339,644
shares, $6,762,363 cost for 1995
and 330,908 shares, $6,609,792 cost
for 1994.) $ 7,259,891 $ 7,528,157
Short-Term Investment Fund 10,593,944 7,816,842
Invested cash 274,039 55,997
---------- -----------
Total investments 18,127,874 15,400,996
Accrued investment income 51,087 34,976
---------- -----------
Net assets available for benefits $18,178,961 $15,435,972
---------- -----------
---------- -----------
The accompanying notes are an integral part of these financial statements.
3
<PAGE>
THE ZENITH INVESTMENT PARTNERSHIP 401(k) PLAN
STATEMENTS OF CHANGES IN NET ASSETS AVAILABLE FOR BENEFITS
FOR THE YEARS ENDED DECEMBER 31, 1995 AND 1994
__________________
Additions: 1995 1994
---- ----
Contributions:
Employer $ 782,497 $ 707,921
Participants 3,134,376 2,689,340
----------- -----------
Total contributions 3,916,873 3,397,261
----------- -----------
Rollovers from other plans 328,849 137,394
----------- -----------
Investment income:
Dividends
Zenith National Insurance
Corp. Common Stock 334,621 322,909
Short Term Investment Fund 543,851 274,056
Net (depreciation) appreciation
in fair value of investment in Zenith
National Insurance Corp. Common Stock (137,086) 22,100
---------- ----------
Total investment income 741,386 619,065
---------- ----------
Total additions 4,987,108 4,153,720
---------- ----------
Deductions:
Withdrawals by participants 2,244,119 1,211,149
---------- ----------
Net increase 2,742,989 2,942,571
Net assets available for benefits:
Beginning of year 15,435,972 12,493,401
---------- -----------
End of year $18,178,961 $15,435,972
----------- -----------
----------- -----------
The accompanying notes are an integral part of these financial statements.
4
<PAGE>
THE ZENITH INVESTMENT PARTNERSHIP 401(k) PLAN
NOTES TO FINANCIAL STATEMENTS
____________
1. THE PLAN:
The following is a general description of The Zenith Investment Partnership
401(k)Plan (the "Plan").
GENERAL
The Plan is a qualified stock bonus plan offered to all eligible employees
of Zenith National Insurance Corp. ("ZNIC") and its affiliates ("the
Company"), who are age twenty-one or older as of the enrollment dates. The
Plan is subject to the provisions of the Employee Retirement Income
Security Act of 1974 ("ERISA") and Section 401(a) and Section 401(k) of the
Internal Revenue Code of 1986, as amended ("CODE"). All assets of the Plan
are held by a trustee ("Trustee") in a trust ("Trust") created by a trust
agreement dated as of August 1, 1988 ("Trust Agreement"). At
December 31, 1995 and December 31, 1994 there were, respectively, 944 and
925 participants in the Plan.
CONTRIBUTIONS
Participants may elect to contribute between 1% to 12% of their basic
compensation up to a maximum of $9,240 for 1995 and 1994 (Salary Reduction
Contributions). The maximum is adjusted each year for increases in the
cost of living as provided in applicable regulations. This annual amount
is an aggregate limitation that applies to all of an individual's Salary
Reduction Contributions and similar contributions under other plans. The
Company contributes 33-1/3% of the participant's "matched" contribution
amount (matched contributions are defined as the first 6% of each
participant's monthly contributions). The Company's contribution is
invested exclusively in the common stock of ZNIC ("Company Stock").
The Salary Reduction Contributions and Company Contributions, made on
behalf of each participant, are paid to the Trustee on or immediately after
the last day of each month.
5
<PAGE>
THE ZENITH INVESTMENT PARTNERSHIP 401(k) PLAN
NOTES TO FINANCIAL STATEMENTS, Continued
________________
1. THE PLAN, CONTINUED:
PARTICIPANT ACCOUNTS
Each participant's account is credited with: (1) the participant's
contributions, (2) participant rollover contributions from non-Company
plans, (3) the related Company matching contributions, and (4) fund
earnings. Allocations of earnings are based on account balance as defined
in the Plan Agreement. These accounts are summarized in the accompanying
financial statements as net assets available for benefits.
VESTING
Each participant has an immediate, fully vested right to receive all Salary
Reduction Contributions, all Company matching contributions made prior to
January 1, 1991, and earnings thereon, upon termination from the Company,
or upon separation caused by death of the participant. All Company
matching contributions made after January 1, 1991 are subject to a five
year graduated vesting schedule with respect to participants who became
employed by the Company on or after April 1, 1988.
However, irrespective of the vesting schedule, a participant is fully
vested upon his death, disability or attainment of age 65.
FORFEITURES
Upon termination of service, a participant forfeits any
non-vested Company contributions. Such forfeitures are used first to
reinstate participant account balances previously forfeited which are
subject to reinstatement under the terms of the Plan. Any remaining unused
forfeitures are used to reduce current or future years contributions to the
Plan by the Company.
At December 31, 1995, forfeited non-vested accounts totalled $26,316.
These accounts will be used to reduce future employer contributions. Also,
in 1995, employer contributions were reduced by $34,252 from forfeited
non-vested accounts.
6
<PAGE>
THE ZENITH INVESTMENT PARTNERSHIP 401(k) PLAN
NOTES TO FINANCIAL STATEMENTS, CONTINUED
__________________
1. THE PLAN, CONTINUED:
WITHDRAWALS PRIOR TO TERMINATION OF EMPLOYMENT
Except in limited circumstances, withdrawals may not be
made by a participant while employed by the Company. Hardship withdrawals
of a participant's Salary Reduction Contributions are permitted where a
participant has an immediate and heavy financial need (as determined under
Section 401(k)(2)(B)(IV) of the CODE) and that need cannot be satisfied
from other resources of the participant. In addition, participants who are
59-1/2 years old may withdraw their Salary Reduction Contributions and
Rollover balances plus applicable earnings under certain restrictions.
INVESTMENTS
The Short-Term Investment Fund invests in a no-load diversified open-end
management investment company whose objective is maximum current income
consistent with liquidity and the maintenance of a portfolio of high
quality, short-term "money-market" instruments. All Salary Reduction
Contributions and any earnings thereon are invested in the Short-Term
Investment Fund.
The Company's contributions and any earnings thereon are invested in the
Company Stock Fund, which invests solely in Company Stock, and are not
subject to participant direction until such participant reaches age fifty-
five (55).
PAYMENT OF BENEFITS
Upon termination of employment, if a distribution is made, a participant
(1) receives cash with respect to the Short-Term Investment Fund and (2)
may elect to receive cash or shares of Company Stock plus cash in lieu of
any fractional shares, with respect to the Company Stock Fund. Payments
are made after each calendar quarter-end allocation is performed.
7
<PAGE>
THE ZENITH INVESTMENT PARTNERSHIP 401(k) PLAN
NOTES TO FINANCIAL STATEMENTS, CONTINUED
__________________
1. THE PLAN, CONTINUED:
EXPENSES
Expenses in connection with the purchase or sale of Company Stock or other
securities are charged to the fund for which such purchase or sale is made.
The Trust Agreement stipulates that expenses incurred by the Trustee in the
performance of its duties shall be paid from the funds held in the Trust
unless paid by the Company at its sole discretion. During 1995 and 1994,
the Company elected to pay the Trustee's expenses in excess of the interest
earned during the year on temporarily invested cash. The total Trustee
expenses for 1995 and 1994 were $26,165 and $25,951, of which $3,055 and
$4,944 respectively, were offset by income on unallocated cash temporarily
invested. The balances of $23,110 and $21,007 were paid by the Company.
In addition, certain administrative expenses such as accounting, legal and
recordkeeping fees, were paid by the Company during 1995 and 1994.
TERMINATION
While the Company has not expressed an intent to terminate the Plan, it may
do so at any time. Upon such termination, each participant shall be fully
(100%) vested in his account balances, determined as of the date of such
termination.
ADMINISTRATION
The Plan is administered by an Administrative Committee appointed by the
Board of Directors of ZNIC.
The Administrative Committee has responsibility for administration of the
Plan, including supervision of the collection of contributions, delivery of
such contributions to the Trustee, and maintenance of necessary records.
The Trustee is City National Bank, Beverly Hills, California. The
Trustee's responsibilities include receipt of Plan contributions,
investment and maintenance of trust assets in the available funds, and
distributions under the Plan of such amounts as the Committee shall direct
from time to time.
8
<PAGE>
THE ZENITH INVESTMENT PARTNERSHIP 401(k) PLAN
NOTES TO FINANCIAL STATEMENTS, CONTINUED
__________________
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
INVESTMENTS
Investments are stated at fair value.
The value ("net asset value") of a share of the no-load diversified open-
end management investment company ("Management Company") in which the
Short-Term Investment Fund invests is determined by adding the value of all
securities and other assets in the Management Company's portfolio,
deducting the Management Company's liabilities and dividing by the number
of shares outstanding. The Management Company intends to use its best
efforts to maintain a constant net asset value of $1 per share.
The value of the Company Stock is determined using the December 31, 1995
and 1994 closing price on the New York Stock Exchange.
Purchases and sales of securities are reflected on a trade date basis (the
date when the order to buy or sell is executed). Gains or losses on sales
of securities are computed on an average cost basis.
Dividend income is accrued on the ex-dividend date.
The net appreciation (depreciation) in the fair value of the Plan's
investments disclosed in the Statement of Changes in Net Assets Available
For Benefits consists of realized gains or losses and unrealized
appreciation (depreciation) on investments.
CONTRIBUTIONS
Company and participant contributions are recorded in the period that a
participant's payroll deduction is made.
9
<PAGE>
THE ZENITH INVESTMENT PARTNERSHIP 401(k) PLAN
NOTES TO FINANCIAL STATEMENTS, CONTINUED
_________________
3. TAX STATUS:
The Plan was designed to qualify under Sections 401(a) and 401(k) of the
Code and for the Trust to be exempt from federal income taxes under Section
501(a) of the Code. The Plan initially received a favorable determination
in 1989 from the Internal Revenue Service as to the above. In 1995 the
Plan applied for, and received, an updated Determination Letter that the
Plan, as amended, continues to be qualified under Sections 401(a) and
401(k) of the Code and that the Trust continues to be exempt from federal
income tax under Sections 501(a) of the Code.
4. RECONCILIATION OF FINANCIAL STATEMENTS TO FORM 5500:
Amounts allocated to withdrawing participants for benefit claims that have
been processed and approved for payment prior to December 31, but not yet
paid are included in net assets available for plan benefits. For reporting
to the Department of Labor, these amounts are reported as a liability on
the Form 5500.
The following is a reconciliation of net assets available for plan benefits
as shown in the accompanying financial statements to those shown in the
Form 5500 at:
December 31,
1995 1994
---- ----
Net assets available for plan
benefits per the accompanying
financial statements $18,178,961 $15,435,972
Amounts allocated to
withdrawing participants 1,002,055 342,160
----------- -----------
Net assets available for plan
benefits per the Form 5500 $17,176,906 $15,093,812
----------- -----------
----------- -----------
10
<PAGE>
THE ZENITH INVESTMENT PARTNERSHIP 401(k) PLAN
NOTES TO FINANCIAL STATEMENTS, CONTINUED
_________________
4. RECONCILIATION OF FINANCIAL STATEMENTS TO FORM 5500, CONTINUED:
The following is a reconciliation of benefits paid to participants as shown
in the accompanying financial statements to those shown in the Form 5500
for the years ended:
December 31,
1995 1994
---- ----
Benefits paid to participants
per the accompanying financial
statements $2,244,119 $1,211,149
Add: Amounts allocated to
withdrawing participants
at end of year 1,002,055 342,160
Less: Amounts allocated to
withdrawing participants
at beginning of year 342,160 -
----------- -----------
Benefits paid to participants
per the Form 5500 $2,904,014 $1,553,309
----------- -----------
----------- -----------
5. FEDERAL INCOME TAXES APPLICABLE TO PARTICIPANTS:
The income tax rules affecting Plan participation are complex, subject to
interpretation by the Secretary of the Treasury and subject to change. A
general summary of the federal tax consequences of participation in the
Plan follows. An expanded discussion of tax consequences is available in
the prospectus dated June 26, 1988, as amended March 18, 1994 related to
the Plan.
In general, 401(k) Company and Salary Reduction Contributions are not
subject to tax when made. In addition, earnings and gains on a
participant's account are not subject to tax when credited.
Generally, distributions from the Plan are subject to tax in the year
received from the Plan. However, under certain circumstances, a
distribution, or part thereof, may not be taxed if rolled over to an
Individual Retirement Account or other qualified plan. If taxable, a
distribution may be eligible for special tax treatment under the CODE.
11
<PAGE>
THE ZENITH INVESTMENT PARTNERSHIP 401(k) PLAN
NOTES TO FINANCIAL STATEMENTS, CONTINUED
_________________
5. FEDERAL INCOME TAXES APPLICABLE TO PARTICIPANTS, CONTINUED:
In addition to regular taxes, most distributions received before a
participant is age 59-1/2 will be subject to a 10% additional tax. Under
limited circumstances, distributions in excess of CODE determined limits
will be subject to a 15% excise tax.
6. RISK AND UNCERTAINTY:
Approximately 40% of the Plan's net assets available for benefits are held
in the Company's stock. Due to the inherent risk associated securities
traded in public markets, it is reasonably possible that fluctuations in
the Company's stock could have a significant impact on the net assets of
the Plan in the near term.
12
<PAGE>
THE ZENITH INVESTMENT PARTNERSHIP 401(k) PLAN
ITEM 27a SCHEDULE OF ASSETS HELD FOR INVESTMENT PURPOSES
AS OF DECEMBER 31, 1995
___________
Current
Description Cost Value
- ----------- ---- -------
Zenith National Insurance Corp.
Common Stock, 339,644 shares,
$1 par value per share * $6,762,363 $7,259,891
Merrill Lynch Institutional Fund
10,593,944 shares,
$1 par value per share 10,593,944 10,593,944
City National Bank Money Market
Investment Account*
274,039 shares,
$1 par value per share 274,039 274,039
*Indicates party in interest for which a statutory exemption exists.
13
<PAGE>
THE ZENITH INVESTMENT PARTNERSHIP 401(k) PLAN
ITEM 27d SCHEDULE OF REPORTABLE TRANSACTIONS
FOR THE YEAR ENDED DECEMBER 31, 1995
___________________________________________
<TABLE>
<CAPTION>
Current value of Asset Net Gain
Description Purchase Price Selling Price Cost on Transaction Date or (Loss)
- ----------- -------------- ------------- ---- ----------------------- ---------
<S> <C> <C> <C> <C> <C>
Purchases:
Zenith National
Insurance Corp.
common stock * $1,132,984 $1,132,984
(22 purchases)
Merrill Lynch
Institutional Fund * 3,739,171 3,739,171
(26 purchases)
City National Bank
Money Market
Investment Account * 5,173,395 5,173,395
(118 purchases)
Sales:
Zenith National
Insurance Corp.
common stock * $1,264,164 $980,413 1,264,164 $283,751
(18 sales)
Merrill Lynch
Institutional Fund * 962,069 962,069 962,069 -0-
(23 sales)
City National Bank
Money Market
Investment Account * 4,955,353 4,955,353 4,955,353 -0-
(126 sales)
</TABLE>
* Party in interest for which a statutory exemption exists.
14
