<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 11-K
ANNUAL REPORT
PURSUANT TO SECTION 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
(X) ANNUAL REPORT PURSUANT TO SECTION 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
For the fiscal year ended December 31, 1998
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the transition period from _________________ to ________________________
Commission file number: 1-9627
A. Full title of the plan and the address of the plan, if different from that
of the issuer named below:
The Zenith 401 (k) Plan
B. Name of issuer of the securities held pursuant to the plan and the address
of its principal executive offices:
Zenith National Insurance Corp.
21255 Califa Street
Woodland Hills, CA 91367-5021
<PAGE>
On behalf of The Zenith 401(k) Plan, the following financial statements and
schedules have been prepared in accordance with the financial reporting
requirements of ERISA and are filed herewith:
1. Statements of Net Assets Available
for Benefits (With Fund
Information) as of December 31,
1998 and 1997
2. Statement of Changes In Net Assets
Available for Benefits (With Fund
Information) for the Year Ended
December 31, 1998
3. Line 27(a) - Schedule of Assets
Held For Investment Purposes As of
December 31, 1998
4. Line 27(d) - Schedule of Reportable
Transactions For the Year Ended
December 31, 1998
The written consent of PricewaterhouseCoopers LLP with respect to the annual
financial statements of the Zenith 401(k) Plan is filed as Exhibit 23 to this
annual report.
<PAGE>
Signatures
The Plan. Pursuant to the requirements of the Securities Exchange Act of 1934,
the trustees (or other persons who administer the employee benefit plan) have
duly caused this annual report to be signed on its behalf by the undersigned,
hereunto duly authorized.
The Zenith 401(k) Plan
Date: JUNE 28, 1999 /S/ MICHAEL W. JACOBSON
------------- -----------------------
Michael W. Jacobson
Chairman
Administrative Committee
<PAGE>
THE ZENITH 401(k) PLAN
FINANCIAL STATEMENTS
AND SUPPLEMENTAL SCHEDULES
----------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
Report of Independent Accountants 1
Financial Statements:
Statements of Net Assets Available for Benefits
(With Fund Information) as of December 31, 1998 and 1997 2
Statement of Changes in Net Assets Available for Benefits
(With Fund Information) for the Year Ended December 31, 1998 3
Notes to Financial Statements 4
Supplemental Schedules:
Line 27(a) - Schedule of Assets Held for Investment Purposes
as of December 31, 1998 15
Line 27(d) - Schedule of Reportable Transactions
for the Year Ended December 31, 1998 16
</TABLE>
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
----------
To the Participants and Administrative Committee of
The Zenith 401(k) Plan
In our opinion, the accompanying statements of net assets available for benefits
and the related statement of changes in net assets available for benefits
present fairly, in all material respects, the net assets available for benefits
of The Zenith 401(k) Plan (the "Plan") at December 31, 1998 and 1997, and the
changes in net assets available for benefits for the year ended December 31,
1998 in conformity with generally accepted accounting principles. 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 of these statements in accordance with
generally accepted auditing standards which 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,
assessing the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for the opinion expressed
above.
Our audits were conducted for the purpose of forming an opinion on the basic
financial statements taken as a whole. The supplemental schedules of assets held
for investment purposes and reportable transactions are presented for the
purpose 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 fund information in the
statements of net assets available for benefits and the statement of changes in
net assets available for benefits is presented for purposes of additional
analysis rather than to present the net assets available for plan benefits and
changes in net assets available for benefits of each fund. These supplemental
schedules and fund information are the responsibility of the Plan's management.
The supplemental schedules and fund information have been subjected to the
auditing procedures applied in the audits 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.
PricewaterhouseCoopers LLP
June 4, 1999
<PAGE>
THE ZENITH 401(k) PLAN
STATEMENTS OF NET ASSETS AVAILABLE FOR BENEFITS
(WITH FUND INFORMATION)
As Of December 31, 1998 And 1997
----------
<TABLE>
<CAPTION>
Non-Participant
And Participant-
Directed
State Street
Zenith PBHG Research
Company Growth ARGO
Stock Fund Fund Fund
---------- ----- ---- -----
<S> <C> <C> <C>
Investments:
At fair value:
Shares of Zenith Common Stock (cost of $6,475,972
for 1998 and $6,436,645 for 1997) $7,071,024
Shares of Registered Investment Companies:
PBHG Growth Fund (cost of $1,745,411 for 1998
and $1,319,575 for 1997) $1,807,872
State Street Research ARGO Fund (cost
of $1,424,538 for 1998 and $831,281 for 1997) $1,390,562
Founders Balanced Fund (cost of $1,127,834 for
1998 and $748,868 for 1997)
Janus Worldwide Fund (cost of $3,615,218 for
1998 and $2,392,027 for 1997)
Scudder Growth & Income Fund (cost of
$3,103,772 for 1998 and $2,065,516 for 1997)
Warburg Pincus Emerging Growth Fund (cost of
$1,147,968 for 1998 and $852,239 for 1997)
Short-Term Investment Fund 275,110
At contract value:
MetLife Guaranteed Fixed Income Contracts
Participants loans receivable
----------- ---------------- ----------------
Total investments 7,346,134 1,807,872 1,390,562
Receivables 96,213
----------- ---------------- ----------------
Net assets available for benefits $7,442,347 $1,807,872 $1,390,562
----------- ---------------- ----------------
----------- ---------------- ----------------
</TABLE>
<TABLE>
<CAPTION>
Participant-Directed
Founders Janus Scudder
Balanced Worldwide Growth &
Fund Fund Income Fund
-------- -------- -----------
<S> <C> <C> <C>
Investments:
At fair value:
Shares of Zenith Common Stock (cost of $6,475,972
for 1998 and $6,436,645 for 1997)
Shares of Registered Investment Companies:
PBHG Growth Fund (cost of $1,745,411 for 1998
and $1,319,575 for 1997)
State Street Research ARGO Fund (cost
of $1,424,538 for 1998 and $831,281 for 1997)
Founders Balanced Fund (cost of $1,127,834 for
1998 and $748,868 for 1997) $1,158,560
Janus Worldwide Fund (cost of $3,615,218 for
1998 and $2,392,027 for 1997) $4,107,910
Scudder Growth & Income Fund (cost of
$3,103,772 for 1998 and $2,065,516 for 1997) $2,951,759
Warburg Pincus Emerging Growth Fund (cost of
$1,147,968 for 1998 and $852,239 for 1997)
Short-Term Investment Fund
At contract value:
MetLife Guaranteed Fixed Income Contracts
Participants loans receivable
------------ ---------------- ----------------
Total investments 1,158,560 4,107,910 2,951,759
Receivables
------------ ---------------- ----------------
Net assets available for benefits $1,158,560 $4,107,910 $2,951,759
------------ ---------------- ----------------
------------ ---------------- ----------------
</TABLE>
<TABLE>
<CAPTION>
Warburg
Pincus MetLife
Emerging Guaranteed Participant
Growth Fixed Income Loans 1998
Fund Fund Receivable Total 1997
-------- ------------ ------------ ----- -----
<S> <C> <C> <C> <C> <C>
Investments:
At fair value:
Shares of Zenith Common Stock (cost of $6,475,972
for 1998 and $6,436,645 for 1997) $7,071,024 $7,851,870
Shares of Registered Investment Companies:
PBHG Growth Fund (cost of $1,745,411 for 1998
and $1,319,575 for 1997) 1,807,872 1,327,859
State Street Research ARGO Fund (cost
of $1,424,538 for 1998 and $831,281 for 1997) 1,390,562 779,899
Founders Balanced Fund (cost of $1,127,834 for
1998 and $748,868 for 1997) 1,158,560 727,868
Janus Worldwide Fund (cost of $3,615,218 for
1998 and $2,392,027 for 1997) 4,107,910 2,258,472
Scudder Growth & Income Fund (cost of
$3,103,772 for 1998 and $2,065,516 for 1997) 2,951,759 2,062,520
Warburg Pincus Emerging Growth Fund (cost of
$1,147,968 for 1998 and $852,239 for 1997) $1,225,082 1,225,082 855,677
Short-Term Investment Fund 275,110 166,718
At contract value:
MetLife Guaranteed Fixed Income Contracts $9,440,429 9,440,429 9,459,412
Participants loans receivable $581,615 581,615 349,589
----------- ------------ ------- ----------- ------------
Total investments 1,225,082 9,440,429 581,615 30,009,923 25,839,884
Receivables 96,213 178,315
----------- ------------ -------- ----------- ------------
Net assets available for benefits $1,225,082 $9,440,429 $581,615 $30,106,136 $26,018,199
----------- ------------ -------- ----------- ------------
----------- ------------ -------- ----------- ------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
2
<PAGE>
THE ZENITH 401(k) PLAN
STATEMENT OF CHANGES IN NET ASSETS AVAILABLE FOR BENEFITS
(WITH FUND INFORMATION)
For The Year Ended December 31, 1998
----------
<TABLE>
<CAPTION>
Non-Participant
And Participant-
Directed
State Street
Zenith PBHG Research Founders
Company Growth ARGO Balanced
Stock Fund Fund Fund Fund
---------- ---- ---- ----
<S> <C> <C> <C> <C>
Additions:
Contributions:
Employer $ 1,132,714 $ 54 $ 68
Participant 161,420 645,245 423,971 $ 369,577
Rollovers 23,249 74,385 37,877 25,726
------------ ------------ ------------
Total contributions 1,317,383 719,684 461,916 395,303
Investment income:
Dividends 304,980 133,892 60,916
Interest 10,924
Net (depreciation) appreciation in fair value of investments (844,273) 45,745 16,474 54,564
------------ ------------ ------------ ------------
Total investment income (528,369) 45,745 150,366 115,480
------------ ------------ ------------ ------------
Total additions 789,014 765,429 612,282 510,783
Deductions:
Benefits paid to participants (848,561) (159,262) (124,138) (109,543)
Fees (276) (425) (272) (213)
------------ ------------ ------------ ------------
Total deductions (848,837) (159,687) (124,410) (109,756)
------------ ------------ ------------ ------------
Net increase (decrease) prior to
interfund transfers (59,823) 605,742 487,872 401,027
Interfund transfers (557,623) (148,698) 110,728 17,194
------------ ------------ ------------ ------------
Net increase (decrease) (617,446) 457,044 598,600 418,221
Net assets available for benefits:
Beginning of year 8,059,793 1,350,828 791,962 740,339
------------ ------------ ------------ ------------
End of year $ 7,442,347 $ 1,807,872 $ 1,390,562 $ 1,158,560
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------
</TABLE>
<TABLE>
<CAPTION>
Participant-Directed
Warburg MetLife
Janus Scudder Pincus Guaranteed
Worldwide Growth & Emerging Fixed Income
Fund Income Fund Growth Fund Fund
---- ----------- ----------- ----
<S> <C> <C> <C> <C>
Additions:
Contributions:
Employer $ 100 $ 75 $ 32 $ 14
Participant 1,106,063 967,559 421,257 519,235
Rollovers 62,309 95,898 58,878 18,784
------------ ------------ ------------ ------------
Total contributions 1,168,472 1,063,532 480,167 538,033
Investment income:
Dividends 16,323 268,251
Interest 560,048
Net (depreciation) appreciation in fair value of investments 662,189 (136,688) 75,515
------------ ------------ ------------ ------------
Total investment income 678,512 131,563 75,515 560,048
------------ ------------ ------------ ------------
Total additions 1,846,984 1,195,095 555,682 1,098,081
Deductions:
Benefits paid to participants (391,916) (346,806) (137,440) (1,183,331)
Fees (487) (443) (257) (1,877)
------------ ------------ ------------ ------------
Total deductions (392,403) (347,249) (137,697) (1,185,208)
------------ ------------ ------------ ------------
Net increase (decrease) prior to
interfund transfers 1,454,581 847,846 417,985 (87,127)
Interfund transfers 360,425 13,285 (59,543) 52,040
------------ ------------ ------------ ------------
Net increase (decrease) 1,815,006 861,131 358,442 (35,087)
Net assets available for benefits:
Beginning of year 2,292,904 2,090,628 866,640 9,475,516
------------ ------------ ------------ ------------
End of year $ 4,107,910 $ 2,951,759 $ 1,225,082 $ 9,440,429
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------
</TABLE>
<TABLE>
<CAPTION>
Participant
Loans
Receivable Total
---------- -----
<S> <C> <C>
Additions:
Contributions:
Employer $1,133,057
Participant 4,614,327
Rollovers 397,106
------------ ------------
Total contributions 6,144,490
Investment income:
Dividends 784,362
Interest $36,657 607,629
Net (depreciation) appreciation in fair value of investments (126,474)
------------ ------------
Total investment income 36,657 1,265,517
------------ ------------
Total additions 36,657 7,410,007
Deductions:
Benefits paid to participants (16,823) (3,317,820)
Fees (4,250)
------------ ------------
Total deductions (16,823) (3,322,070)
------------ ------------
Net increase (decrease) prior to
interfund transfers 19,834 4,087,937
Interfund transfers 212,192 --
------------ ------------
Net increase (decrease) 232,026 4,087,937
Net assets available for benefits:
Beginning of year 349,589 26,018,199
------------ ------------
End of year $ 581,615 $ 30,106,136
------------ ------------
------------ ------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
3
<PAGE>
THE ZENITH 401(k) PLAN
NOTES TO FINANCIAL STATEMENTS
----------
1. The Plan:
The following is a general description of The Zenith 401(k) Plan (the
"Plan").
GENERAL
The Plan is a self-directed account plan in compliance with the
Employee Retirement Income Security Act of 1974 ("ERISA") Section
404(c) originally adopted by Zenith National Insurance Corp.'s ("ZNIC")
Board of Directors, effective August 1, 1988. The Plan is offered to
all eligible employees of ZNIC and those of its subsidiaries that elect
to become "participating employers" (the "Company"). The Plan is
subject to the provisions of ERISA and Section 401(a) and Section
401(k) of the Internal Revenue Code of 1986, as amended (the "Code").
At December 31, 1998 and 1997, there were 1,536 and 1,335 participants,
respectively, in the Plan.
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 Administrative Committee has contracted with
Metropolitan Life Insurance Company ("MetLife") to provide record
keeping services for the Plan.
All assets of the Plan are held by a trustee (the "Trustee") in a trust
(the "Trust") created by a trust agreement dated as of December 30,
1996 (the "Trust Agreement"). The Trustee is Chase Manhattan Bank, N.A.
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 Administrative
Committee shall direct from time to time.
ELIGIBILITY
A person hired by the Company, is eligible to enroll in the Plan on the
next quarterly entry date, after completion of one full year of service
with the Company. There are no age restrictions.
Continued
4
<PAGE>
THE ZENITH 401(k) PLAN
NOTES TO FINANCIAL STATEMENTS, Continued
----------
1. The Plan, Continued:
CONTRIBUTIONS
Participants may elect to contribute between 1% to 12% of their
compensation up to a maximum of $10,000 for 1998 and $9,500 for 1997
("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 participant's compensation). The Company's
contribution shall not exceed 2% of a participant's annual
compensation. Compensation includes wages, bonuses, commissions,
overtime and elective deferrals. The Company's contribution is invested
exclusively in the Zenith Company Stock Fund except as defined in the
Plan document.
The Salary Reduction Contributions and Company contributions, made on
behalf of each participant, are paid to the Trustee semi-monthly.
Participants may allocate each contribution from their compensation
among investment options in such percentages as they determine, so long
as the amount directed to the Zenith Company Stock Fund does not exceed
twenty percent of that contribution. The value of each fund is
determined daily and participants are able to transfer amounts between
funds on any business day, except that amounts may only be transferred
out of, but not into, the Zenith Company Stock Fund.
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 balances, as
defined in the Plan Document. 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.
Continued
5
<PAGE>
THE ZENITH 401(k) PLAN
NOTES TO FINANCIAL STATEMENTS, Continued
----------
1. The Plan, Continued:
VESTING, Continued
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 nonvested
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.
In 1998, the Company's contributions were reduced by $169,477 from
forfeited nonvested accounts. At December 31, 1998 and 1997, forfeited
nonvested accounts totaled $72,404 and $43,255, respectively, which
remained available to reduce future Company contributions.
WITHDRAWALS PRIOR TO TERMINATION OF EMPLOYMENT
Except in limited circumstances, a participant may not make withdrawals
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 reach
59-1/2 years old may take an in-service withdrawal of the vested
portion of their individual account.
INVESTMENTS
Subject to certain limitations detailed in the Plan Document,
participants may allocate their past and future account balances
attributable to Salary Reduction Contributions and rollovers in any
combination of investment options set out below.
The Company's contributions and any earnings thereon are invested in
the Zenith Company Stock Fund, and are not subject to participant
direction until such participant reaches age fifty-five (55). As of
December 31, 1998 and 1997, $2,972,673, and $4,419,002, respectively,
of the investment in the Zenith Company Stock Fund is
participant-directed.
Continued
6
<PAGE>
THE ZENITH 401(k) PLAN
NOTES TO FINANCIAL STATEMENTS, Continued
----------
1. The Plan, Continued:
INVESTMENTS, Continued
INVESTMENT OPTIONS:
Condensed descriptions (which, except for the Zenith Company Stock
Fund, were supplied by MetLife) of investment options are as follows:
ZENITH COMPANY STOCK FUND invests in the common stock of Zenith
National Insurance Corp., par value, $1.00 per share ("Zenith Common
Stock").
PBHG GROWTH FUND seeks capital appreciation. This fund normally invests
at least 65% of its total assets in common stocks and convertible
securities of small- and medium-sized growth companies (market
capitalization or annual revenues up to $2 billion) believed to have an
outlook for strong earnings growth and potential for significant
capital appreciation.
STATE STREET RESEARCH ARGO FUND, formerly known as the State Street
Research Equity Investment Fund, seeks to achieve long-term growth of
capital and, secondarily, long-term growth of income. The fund invests
primarily in the common stocks of established companies with
above-average prospects for growth. Although the fund's investments are
not limited to companies of any particular size, it is anticipated that
a majority of the securities in which the fund invests will be listed
on a national securities exchange.
FOUNDERS BALANCED FUND seeks current income and capital appreciation.
The fund normally invests in a balanced portfolio of dividend-paying
common stocks, U.S. and foreign government obligations and a variety of
corporate fixed-income securities. The equity portion of the fund
emphasizes common stocks with the potential for capital appreciation.
While these stocks generally pay regular dividends, the fund also may
invest in nondividend-paying companies. The fund maintains a minimum of
25% of its assets in investment-grade, fixed-income securities.
JANUS WORLDWIDE FUND seeks long-term growth of capital in a manner
consistent with the preservation of capital by investing primarily in
common stocks of foreign and domestic issuers. The fund normally
invests in issuers from at least five different countries, including
the United States; but may at times invest in fewer than five countries
or even a single country.
Continued
7
<PAGE>
THE ZENITH 401(k) PLAN
NOTES TO FINANCIAL STATEMENTS, Continued
----------
1. The Plan, Continued:
INVESTMENTS, Continued
INVESTMENT OPTIONS, Continued:
SCUDDER GROWTH & INCOME FUND seeks long-term growth of capital, current
income and growth of income. The fund invests primarily in common
stocks, preferred stocks, and securities convertible into common stocks
of companies which offer the prospect for growth of earnings while
paying current dividends. The fund allocates investments among
different industries and companies and adjusts its portfolio securities
for investment considerations, not for trading purposes.
WARBURG PINCUS EMERGING GROWTH FUND is a mutual fund with the objective
of maximum capital appreciation. The fund invests primarily in a
portfolio of equity securities of small- to medium-sized companies that
show positive earnings and prospects of achieving significant profit
and gain in a relatively short period of time.
METLIFE GUARANTEED FIXED INCOME FUND provides a guarantee by MetLife of
both principal and a rate of interest (6.3% and 6.2% for the years
ended December 31, 1998 and 1997, respectively) for a specified period
of time. This account consists of one or more MetLife guaranteed
interest contracts, which offer intermediate-term interest rates and
protection from potential market fluctuation in interest rates during
the guarantee period.
PARTICIPANT LOANS RECEIVABLE
Participants may borrow from their Salary Reduction Contributions
accounts and rollover accounts a minimum amount of $1,000 up to a
maximum amount equal to the lesser of (a) 50% of the combined balances
of their Salary Reduction Contributions accounts and rollover accounts,
or (b) $50,000, reduced by the highest outstanding loan balance during
the last 12 months. Participants may not obtain a loan of their
matching contributions accounts. Loan transactions are treated as a
transfer to (from) the investment fund from (to) the participant loans
receivable. Loan terms range from one to five years or up to thirty
years for the purchase of a principal residence. The loans are secured
by the balance in the participant's account and bear interest at the
prime rate charged by Chase Manhattan Bank, N.A. as of the close of the
last business day of the month preceding the calendar quarter in which
the loan is made. Principal and interest are paid ratably through
payroll deductions. Upon termination of employment, participants are
required to pay the outstanding loan amount in full.
Continued
8
<PAGE>
THE ZENITH 401(k) PLAN
NOTES TO FINANCIAL STATEMENTS, Continued
----------
1. The Plan, Continued:
PAYMENT OF BENEFITS
Upon termination of employment, retirement, permanent disability or
death, if a distribution is made, a participant receives (1) cash with
respect to the portion of the individual account not invested in the
Zenith Company Stock Fund and (2) at the participant's election, cash
or shares of Zenith Common Stock, plus cash in lieu of any fractional
shares with respect to the Zenith Company Stock Fund. Payments are
generally processed twice a month.
EXPENSES
The Plan provides that all expenses of the Plan (i.e., legal,
accounting, administration, and brokerage fees) will be paid by the
Company, with the exception of expenses related to the administration
of the mutual funds offered as investment alternatives. Expenses
related to the administration of the mutual funds will be paid by the
respective mutual funds, and will be reflected in the overall
investment return of such funds. Plan expenses excluding expenses
related to the administration of the mutual funds for 1998 totaled
$84,676.
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
100% vested in their Salary Reduction Contribution account, rollover
contribution account and matching contribution account.
2. Summary Of Significant Accounting Policies:
BASIS OF ACCOUNTING
The financial statements of the Plan are prepared on the accrual basis
of accounting in conformity with generally accepted accounting
principles.
Continued
9
<PAGE>
THE ZENITH 401(k) PLAN
NOTES TO FINANCIAL STATEMENTS, Continued
----------
2. Summary Of Significant Accounting Policies, Continued:
USE OF ESTIMATES
The preparation of the financial statements in conformity with
generally accepted accounting principles requires the Plan's management
to make estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the reported
amounts of additions to and deductions from net assets during the
reporting period. Actual results could differ from those estimates.
INVESTMENT VALUATION AND INCOME RECOGNITION
The Plan's investment in the Zenith Company Stock Fund is accounted for
using the unit valuation method. The total value of the fund fluctuates
depending upon the amount of interest earned on cash held in the fund,
dividends paid on Zenith Common Stock, expenses, realized gains and
losses on its sale of Zenith Common Stock, and unrealized appreciation
or depreciation in the value of Zenith Common Stock. The value of the
Zenith Company Stock Fund is determined using the year-end closing
price of Zenith Common Stock on the New York Stock Exchange.
The Plan's investments in shares of registered investment companies
(mutual funds) are valued at quoted market prices, which represent the
net asset value of shares held by the Plan at year-end.
Dividends and capital gains distributions declared by a mutual fund are
allocated to each individual participant holding units in the mutual
fund. Each participant's shares as of a record date are multiplied by
the dividend rate declared by the mutual fund. Certain funds declare a
daily dividend rate and each day is a record date for those funds. At
the end of the month, each participant's account balance for each day
of the month is credited with each day's dividend based on the rates
declared.
Generally, interest, dividends and capital gain distributions are
allocated to a participant's account in a mutual fund based on the
number of units the participant holds in that mutual fund compared to
total units outstanding for that mutual fund.
Purchases and sales of securities are reflected on a trade-date basis.
Each gain or loss on sales of securities is computed on an average-cost
basis.
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.
Continued
10
<PAGE>
THE ZENITH 401(k) PLAN
NOTES TO FINANCIAL STATEMENTS, Continued
----------
2. Summary Of Significant Accounting Policies, Continued:
INVESTMENT VALUATION AND INCOME RECOGNITION, Continued
The Plan's investment in the MetLife Guaranteed Fixed Income Fund is
valued at contract value which represents contributions plus interest
earned, less benefits paid and transfers to/from other funds. As of
December 31, 1998 and 1997, the contract value approximated fair value.
Participant loans are valued at cost, which approximates fair value.
CONTRIBUTIONS
Company and participant contributions are recorded in the period that a
participant's payroll deduction is made.
3. Investments:
The following are the individual investments, at fair value, that
represent 5 percent or more of the Plan's net assets:
<TABLE>
<CAPTION>
December 31
1998 1997
<S> <C> <C>
Zenith Company Stock Fund $7,346,134 $8,018,588
PBHG Growth Fund 1,807,872 1,327,859
Janus Worldwide Fund 4,107,910 2,258,472
Scudder Growth & Income Fund 2,951,759 2,062,520
MetLife Guaranteed Fixed Income Fund 9,440,429 9,459,412
</TABLE>
4. 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. The Plan was amended, effective January 1, 1997. The amendment
had no impact on the net assets available for benefits. In 1998, the
Plan received a determination letter from the IRS 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
taxes under Section 501(a) of the Code.
Continued
11
<PAGE>
THE ZENITH 401(k) PLAN
NOTES TO FINANCIAL STATEMENTS, Continued
----------
5. Reconciliation Of Financial Statements To The 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 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 benefits
as shown in the accompanying financial statements to those shown in the
Form 5500 at:
<TABLE>
<CAPTION>
December 31,
1998 1997
<S> <C> <C>
Net assets available for benefits per the accompanying
financial statements $30,106,136 $26,018,199
Less: Amounts allocated to withdrawing participants (601,430) (196,333)
------------ ------------
Net assets available for benefits per the Form 5500
$29,504,706 $25,821,866
------------ ------------
------------ ------------
</TABLE>
The following is a reconciliation of benefits paid to participants as
shown in the accompanying financial statements for the year ended
December 31, 1998 to those shown in the Form 5500:
<TABLE>
<S> <C>
Benefits paid to participants per the accompanying financial statements $3,317,820
Add: Amounts allocated to withdrawing participants at end of year 601,430
Less: Amounts allocated to withdrawing participants at beginning of year (196,333)
----------
Benefits paid to participants per the Form 5500 $3,722,917
----------
----------
</TABLE>
Continued
12
<PAGE>
THE ZENITH 401(k) PLAN
NOTES TO FINANCIAL STATEMENTS, Continued
----------
6. 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 Summary Plan Description/Prospectus
dated April 1, 1997, for 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.
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.
7. Concentration Of Credit Risk:
At December 31, 1998 and 1997, approximately 25% and 30%, respectively,
of the Plan's net assets available for benefits are held in the Zenith
Company Stock Fund which primarily consists of Zenith Common Stock. Due
to the inherent risk associated with securities traded in public
markets, it is reasonably possible that fluctuations in the Zenith
Company Stock Fund could have a significant impact on the net assets of
the Plan in the near term.
At December 31, 1998 and 1997, approximately 31% and 36%, respectively,
of the Plan's net assets available for benefits are held in the MetLife
Guaranteed Fixed Income Fund. This fund provides a guarantee by MetLife
of both principal and a fixed rate of interest during the guarantee
period.
At December 31, 1998, approximately 14% of the Plan's net assets
available for benefits are held in the Janus Worldwide Fund. This fund
invests in common stocks of foreign and domestic issuers. Due to the
inherent risk associated with securities traded in public markets, it
is reasonably possible that fluctuations in the Janus Worldwide Fund
could have a significant impact on the net assets of the Plan in the
near term.
No other fund accounts for 10% or more of net assets available for
benefits.
13
<PAGE>
THE ZENITH 401(k) PLAN
LINE 27(a) - SCHEDULE OF ASSETS HELD FOR INVESTMENT PURPOSES
As Of December 31, 1998
(See Report Of Independent Accountants)
-----------
<TABLE>
<CAPTION>
(c)
(b) Description Of Investments, Including Maturity Date,
Identity Of Issue, Borrower, Lessor, Rate Of Interest, Collateral, (d) (e)
(a) Or Similar Party Par Or Maturity Value Cost Current Value
------------------------------------ ---------------------------------------------------- ---- -------------
<S> <C> <C> <C> <C>
** Zenith National Insurance Corp. Common Stock - 305,774 Shares $6,475,972 $7,071,024
* Short-Term Investment Funds Short-Term Investment Fund - 275,110 Units 275,110 275,110
* PBHG Funds Growth Fund - Mutual Fund - 70,786 Units 1,745,411 1,807,872
* State Street Research Funds ARGO Fund - Mutual Fund - 72,804 Units 1,424,538 1,390,562
* Founders Funds Balanced Fund - Mutual Fund - 95,042 Units 1,127,834 1,158,560
* Janus Funds Worldwide Fund - Mutual Fund - 86,738 Units 3,615,218 4,107,910
* Scudder Funds Growth & Income Fund - Mutual Fund - 112,192 Units 3,103,772 2,951,759
* Warburg Pincus Funds Emerging Growth Fund - Mutual Fund - 30,650 Units 1,147,968 1,225,082
* MetLife Insurance Company Guaranteed Fixed Income Fund at 6.3% 9,440,429 9,440,429
Participant Loans Various Maturity Dates - Interest Rate ranges
from 8.25% - 8.50% - 581,615
----------- -----------
Total investments $28,356,252 $30,009,923
----------- -----------
----------- -----------
</TABLE>
* Indicates a party-in-interest for which a statutory exemption exists.
** Sponsor and employer and, therefore, a party-in-interest for which a
statutory exemption exists.
14
<PAGE>
THE ZENITH 401(k) PLAN
LINE 27(d) - SCHEDULE OF REPORTABLE TRANSACTIONS(1)
For The Year Ended December 31, 1998
(See Report Of Independent Accountants)
-----------
<TABLE>
<CAPTION>
(b) Description Of Assets
(Including Interest Rate And (c) Purchase (d) Selling (e) Lease
(a) Identity Of Party Involved Maturity In Case Of A Loan) Price Price Rental
- ------------------------------ ---------------------------- -------- ------- ------
<S> <C> <C> <C> <C>
Zenith National Insurance Corp.(2) Zenith Common Stock $1,380,659
(65 transactions)
Zenith National Insurance Corp.(2) Zenith Common Stock $1,523,353
(151 transactions)
PBHG Funds(3) Growth Fund 879,648
(97 transactions)
PBHG Funds(3) Growth Fund 445,381
(141 transactions)
State Street Research Funds(3) ARGO Fund 900,236
(124 transactions)
State Street Research Funds(3) ARGO Fund 306,047
(92 transactions)
Founders Fund(3) Balanced Fund 643,026
(99 transactions)
Founders Fund(3) Balanced Fund 266,899
(93 transactions)
Janus Funds(3) Worldwide Fund 1,955,366
(158 transactions)
Janus Funds(3) Worldwide Fund 768,117
(120 transactions)
Scudder Funds(3) Growth & Income Fund 1,781,858
(148 transactions)
Scudder Funds(3) Growth & Income Fund 755,931
(121 transactions)
Warburg Pincus Funds(3) Emerging Growth Fund 641,939
(103 transactions)
Warburg Pincus Funds(3) Emerging Growth Fund 348,048
(93 transactions)
MetLife Insurance Company(3) Guaranteed Fixed Income Fund 1,735,753
(143 transactions)
MetLife Insurance Company(3) Guaranteed Fixed Income Fund 2,242,379
(147 transactions)
<CAPTION>
(f) Expense (h) Current Value
Incurred With Of Asset On (i) Net Gain
(a) Identity Of Party Involved Transaction (g) Cost Of Asset Transaction Date Or (Loss)
- ------------------------------ ------------- ------------- ---------------- ---------
<S> <C> <C> <C> <C>
Zenith National Insurance Corp.(2) $1,380,659
Zenith National Insurance Corp.(2) 1,488,060 $35,293
PBHG Funds(3) 879,648
PBHG Funds(3) 453,813 (8,432)
State Street Research Funds(3) 900,236
State Street Research Funds(3) 306,979 (932)
Founders Fund(3) 643,026
Founders Fund(3) 264,060 2,839
Janus Funds(3) 1,955,366
Janus Funds(3) 732,176 35,941
Scudder Funds(3) 1,781,858
Scudder Funds(3) 743,603 12,328
Warburg Pincus Funds(3) 641,939
Warburg Pincus Funds(3) 346,210 1,838
MetLife Insurance Company(3) 1,735,753
MetLife Insurance Company(3) 2,242,379 -
</TABLE>
(1) Under ERISA, a reportable transaction is a transaction or a series of
transactions during the Plan year that involves more than 5 percent of the
fair value of the Plan assets at the beginning of the Plan year, with
certain exceptions.
(2) Sponsor and employer and, therefore, a party-in-interest for which a
statutory exemption exists.
(3) Indicates a party-in-interest for which a statutory exemption exists.
15
<PAGE>
Exhibit 23
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Registration
Statement on Form S-8 (File Nos. 33-8948, 33-22219, 333-04399 and 333-79199) of
Zenith National Insurance Corp. of our report dated June 4, 1999 relating to the
financial statements and supplemental schedules of The Zenith 401(k) Plan as of
December 31, 1998 and 1997, and for the year ended December 31, 1998, which
appears in this Form 11-K.
PricewaterhouseCoopers LLP
Los Angeles, California
June 24, 1999
