<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the Quarterly Period Ended June 30, 2000
Commission File Number 1-9627
ZENITH NATIONAL INSURANCE CORP.
[Exact name of registrant as specified in its charter]
Delaware 95-2702776
[State or other jurisdiction of [I.R.S. Employer Identification No.]
incorporation or organization]
21255 Califa Street, Woodland Hills, California 91367-5021
[Address of principal executive offices] [Zip Code]
(818) 713-1000
[Registrant's telephone number, including area code]
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 [ ]
At August 1, 2000, there were 17,203,000 shares of Zenith National common stock
outstanding, net of 8,009,000 shares of treasury stock.
1
<PAGE>
PART L
FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
ZENITH NATIONAL INSURANCE CORP. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------------------------------
June 30, December 31,
(In thousands) 2000 1999
-----------------------------------------------------------------------------------------------------------------------
(Unaudited)
<S> <C> <C>
ASSETS:
Investments:
Fixed maturities:
At amortized cost (fair value $25,720 in 2000 and $27,186 in 1999) $ 26,143 $ 27,526
At fair value (cost $621,035 in 2000 and $657,129 in 1999) 583,245 627,375
Floating rate preferred stocks, at fair value (cost $6,799 in 2000 and
1999) 5,946 6,420
Convertible and non-redeemable preferred stocks, at fair value (cost
$3,733 in 2000 and $4,300 in 1999) 3,372 3,405
Common stocks, at fair value (cost $34,606 in 2000 and $25,428 in 1999) 29,943 25,634
Short-term investments (at cost, which approximates fair value) 119,171 179,748
Other investments 32,637 31,626
------------- ------------
Total investments 800,457 901,734
Cash 15,097 15,714
Accrued investment income 11,660 11,832
Premiums receivable, less allowance for doubtful accounts of $9,970 in
2000 and $10,172 in 1999 73,287 74,586
Receivable from reinsurers and state trust funds on paid and unpaid losses 307,217 343,671
Deferred policy acquisition costs 8,461 7,892
Deferred tax asset 46,773 34,601
Current federal income tax receivable 12,552
Properties and equipment, less accumulated depreciation 52,061 54,981
Intangible assets 22,873 23,207
Other assets 112,625 105,568
------------- ------------
TOTAL ASSETS $ 1,463,063 $ 1,573,786
============= ============
</TABLE>
(continued)
2
<PAGE>
ZENITH NATIONAL INSURANCE CORP. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET (CONTINUED)
<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------------------------------------------------
June 30, December 31,
(In thousands) 2000 1999
----------------------------------------------------------------------------------------------------------------------------------
(Unaudited)
<S> <C> <C>
LIABILITIES:
Policy liabilities and accruals:
Unpaid loss and loss adjustment expenses $ 866,082 $ 880,929
Unearned premiums 55,608 50,906
Policyholders' dividends accrued 4,625 3,375
Reserves on loss portfolio transfers 15,533 17,658
Payable to banks and other notes payable 20,369 20,238
Senior notes payable, less unamortized issue costs of $185 in 2000
and $283 in 1999 (Note 5) 62,315 74,717
Federal income tax payable 23,793
Other liabilities 58,099 74,214
---------------- -----------------
TOTAL LIABILITIES 1,082,631 1,145,830
---------------- -----------------
REDEEMABLE SECURITIES:
Company-obligated, mandatorily redeemable 8.55% Capital Securities of Zenith
National Insurance Capital Trust I, holding solely 8.55% Subordinated
Deferrable Interest Debentures due 2028 of Zenith National Insurance Corp.,
less unamortized issue cost and discount of $1,406 in 2000 and $1,603 in 1999 (Note 5) 65,594 73,397
---------------- -----------------
Commitments and contingent liabilities (Note 3)
STOCKHOLDERS' EQUITY:
Preferred stock, $1 par - shares authorized 1,000; issued and outstanding, none
in 2000 and 1999
Common stock, $1 par - shares authorized 50,000; issued 25,212,
outstanding 17,203 in 2000; issued 25,157, outstanding 17,150 in 1999 25,212 25,157
Additional paid-in capital 276,091 274,897
Retained earnings 192,636 225,229
Accumulated other comprehensive loss - net unrealized depreciation on
investments, net of deferred tax benefit of $15,258 in 2000 and $10,768 in 1999 (28,337) (19,998)
---------------- -----------------
465,602 505,285
Treasury stock at cost (8,009 shares in 2000 and 8,007 shares in 1999) (150,764) (150,726)
---------------- -----------------
TOTAL STOCKHOLDERS' EQUITY 314,838 354,559
---------------- -----------------
TOTAL LIABILITIES, REDEEMABLE SECURITIES AND STOCKHOLDERS' EQUITY $ 1,463,063 $ 1,573,786
================ =================
</TABLE>
The accompanying notes are an integral part of this financial statement.
3
<PAGE>
ZENITH NATIONAL INSURANCE CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------------------------------------------
Three Months Ended Six Months Ended
June 30, June 30,
(In thousands, except per share data) 2000 1999 2000 1999
-------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
REVENUES:
Premiums earned $ 78,306 $ 75,977 $ 155,445 $ 211,554
Net investment income 13,000 12,946 26,561 26,271
Realized (losses) gains on investments (2,589) 2,531 666 4,065
Real estate sales 22,099 14,438 38,533 25,206
Service fee income 585 1,544
------------- ------------- ----------- -------------
Total revenues 110,816 106,477 221,205 268,640
EXPENSES:
Loss and loss adjustment expenses incurred 93,124 65,983 167,591 171,473
Policy acquisition costs 14,768 13,604 28,271 40,834
Other underwriting and operating expenses (Note 4) 10,478 15,816 23,542 33,015
Policyholders' dividends and participation 291 507 1,024 942
Real estate construction and operating costs 20,595 13,628 35,638 23,389
Interest expense 1,336 2,116 3,097 4,136
------------- ------------- ----------- -------------
Total expenses 140,592 111,654 259,163 273,789
Gain on sale of CalFarm Insurance Company 160,335
------------- ------------- ----------- -------------
(Loss) income before federal income tax (benefit)
expense and extraordinary item (29,776) (5,177) (37,958) 155,186
Federal income tax (benefit) expense, including expense of
$56,000 related to the sale of CalFarm Insurance
Company in the six months ended June 30, 1999 (10,176) (1,777) (12,985) 54,186
------------- ------------- ----------- -------------
Net (loss) income before extraordinary item (19,600) (3,400) (24,973) 101,000
Extraordinary item - gain on extinguishment of debt,
net of federal income tax expense of $524 (Note 5) 973
------------- ------------- ----------- -------------
NET (LOSS) INCOME $ (19,600) $ (3,400) $ (24,000) $ 101,000
============= ============= =========== =============
NET (LOSS) INCOME PER COMMON SHARE (NOTE 2) -
Basic:
Net (loss) income before extraordinary item $ (1.14) $ (0.20) $ (1.45) $ 5.89
Extraordinary item - gain on extinguishment of debt,
net of federal income tax expense 0.05
------------- ------------- ----------- -------------
Net (loss) income $ (1.14) $ (0.20) $ (1.40) $ 5.89
============= ============= =========== =============
Diluted:
Net (loss) income before extraordinary item $ (1.14) $ (0.20) $ (1.45) $ 5.89
Extraordinary item - gain on extinguishment of debt,
net of federal income tax expense 0.06
------------- ------------- ----------- -------------
Net (loss) income $ (1.14) $ (0.20) $ (1.39) $ 5.89
============= ============= =========== =============
Disclosure regarding comprehensive (loss) income:
Net (loss) income $ (19,600) $ (3,400) $ (24,000) $ 101,000
Change in unrealized depreciation on investments (5,391) (7,073) (8,339) (14,317)
------------- ------------- ----------- -------------
Comprehensive (loss) income $ (24,991) $ (10,473) $ (32,339) $ 86,683
============= ============= =========== =============
</TABLE>
The accompanying notes are an integral part of this financial statement.
4
<PAGE>
ZENITH NATIONAL INSURANCE CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------------------------
Six Months Ended
June 30,
(In thousands) 2000 1999
------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Premiums and service fee income collected $ 166,156 $ 222,787
Investment income received 25,437 27,477
Proceeds from sales of real estate 38,533 25,206
Loss and loss adjustment expenses paid (147,387) (195,619)
Underwriting and other operating expenses paid (58,183) (54,872)
Real estate construction costs paid (38,404) (25,633)
Reinsurance premiums paid (7,507) (26,547)
Interest paid (7,081) (9,642)
Income taxes paid (31,519) (2,814)
--------------- ---------------
Net cash used in operating activities (59,955) (39,657)
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of investments:
Investment securities available-for-sale (126,111) (192,565)
Other investments (3,282) (6,303)
Proceeds from maturities and redemptions of investments:
Fixed maturities held-to-maturity 1,363 5,114
Investment securities available-for-sale 25,383 68,451
Proceeds from sales of investments:
Investment securities available-for-sale 128,601 47,152
Other investments 2,197 5,515
Net change in short-term investments 62,401 (21,658)
Cash payment to RISCORP (54,308)
Net proceeds from sale of CalFarm Insurance Company 211,068
Capital expenditures and other, net (5,053) (7,563)
--------------- ---------------
Net cash provided by investing activities 85,499 54,903
CASH FLOWS FROM FINANCING ACTIVITIES:
Repurchase of redeemable securities (Note 5) (6,164)
Repurchase of senior notes payable (Note 5) (12,625)
Cash advanced from bank construction loans 32,987 24,412
Cash repaid on bank construction loans (32,941) (21,926)
Cash advanced from bank lines of credit 7,400
Cash repaid on bank lines of credit (12,400)
Cash dividends paid to common stockholders (8,580) (8,564)
Proceeds from exercise of stock options 1,200 3,512
Purchase of treasury shares (38) (2,127)
--------------- ---------------
Net cash used in financing activities (26,161) (9,693)
--------------- ---------------
Net (decrease) increase in cash (617) 5,553
Cash at beginning of period 15,714 1,998
--------------- ---------------
CASH AT END OF PERIOD $ 15,097 $ 7,551
=============== ===============
</TABLE>
(continued)
5
<PAGE>
ZENITH NATIONAL INSURANCE CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS (CONTINUED)
(UNAUDITED)
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------------------------
Six Months Ended
June 30,
(In thousands) 2000 1999
-------------------------------------------------------------------------------------------------------------
<S> <C> <C>
RECONCILIATION OF NET (LOSS) INCOME TO NET CASH FLOWS FROM
OPERATING ACTIVITIES:
Net (loss) income $ (24,000) $ 101,000
Adjustments to reconcile net (loss) income to net cash
used in operating activities:
Depreciation and amortization 2,951 4,292
Realized gain on sale of CalFarm Insurance Company (160,335)
Realized gains on investments (666) (4,065)
Extraordinary gain (Note 5) (1,497)
Amortization of deferred gain on retroactive reinsurance contract (4,170)
Decrease (increase) in:
Premiums receivable 1,299 1,779
Receivable from reinsurers and state trust funds on paid and
unpaid losses 36,454 5,715
Real estate construction in progress and land held for development (7,141) (3,732)
Increase (decrease) in:
Unpaid loss and loss adjustment expenses (14,847) (31,582)
Unearned premiums 4,702 (6,019)
Policyholders' dividends accrued 1,250 (581)
Federal income tax (43,979) 51,386
Other (10,311) 2,485
------------ -------------
NET CASH USED IN OPERATING ACTIVITIES $ (59,955) $ (39,657)
============ =============
</TABLE>
The accompanying notes are an integral part of this financial statement.
6
<PAGE>
ZENITH NATIONAL INSURANCE CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 1. BASIS OF PRESENTATION
The accompanying unaudited, consolidated financial statements of Zenith National
Insurance Corp. ("Zenith National") and subsidiaries (collectively, "Zenith")
have been prepared in accordance with generally accepted accounting principles
("GAAP") for interim financial information and with the instructions to Form
10-Q and Article 10 of Regulation S-X of the Securities Exchange Act of 1934, as
amended. Accordingly, they do not include all of the information and footnotes
required by GAAP for complete financial statements. In the opinion of
management, all adjustments (consisting of normal, recurring adjustments)
necessary for a fair presentation of the financial position and results of
operations of Zenith for the periods presented have been included. The results
of operations for an interim period are not necessarily indicative of the
results for an entire year. For further information, refer to the financial
statements and notes thereto included in the Zenith Annual Report on Form 10-K
for the year ended December 31, 1999. Certain prior year balances have been
reclassified to conform to the current year presentation. Zenith has elected to
round to the nearest thousand dollars, except for per share data, in reporting
amounts in this statement.
The comparability of the six months ended June 30, 2000 compared to the
corresponding period in 1999 is affected by the sale of CalFarm Insurance
Company ("CalFarm"), a wholly-owned subsidiary of Zenith Insurance Company
("Zenith Insurance"), a wholly-owned subsidiary of Zenith National, to
Nationwide Mutual Insurance Company effective March 31, 1999. CalFarm
operated Zenith's Other Property-Casualty Operations.
NOTE 2. EARNINGS AND DIVIDENDS PER SHARE
<TABLE>
<CAPTION>
---------------------------------------------------------------- ---------------------------- ----------------------------
Three Months Ended Six Months Ended
June 30, June 30,
(In thousands, except per share data) 2000 1999 2000 1999
---------------------------------------------------------------- -------------- ------------- -------------- -------------
<S> <C> <C> <C> <C> <C>
(A) Net (loss) income $(19,600) $ (3,400) $(24,000) $101,000
--------------- ------------------------------------------------ -------------- ------------- -------------- -------------
(B) Weighted average outstanding
shares during the period 17,191 17,140 17,171 17,138
Additional common shares issuable
under employee stock option plans
using the treasury stock method 54 17 34 16
--------------- ------------------------------------------------ -------------- ------------- -------------- -------------
(C) Weighted average number of common
shares outstanding assuming
exercise of stock options 17,245 17,157 17,205 17,154
--------------- ------------------------------------------------ -------------- ------------- -------------- -------------
--------------- ------------------------------------------------ -------------- ------------- -------------- -------------
Net (loss) income per common share -
(A)/(B) Basic $ (1.14) $ (0.20) $ (1.40) $ 5.89
(A)/(C) Diluted (1.14) (0.20) (1.39) 5.89
--------------- ------------------------------------------------ -------------- ------------- -------------- -------------
--------------- ------------------------------------------------ -------------- ------------- -------------- -------------
Dividends per common share 0.25 0.25 0.50 0.50
--------------- ------------------------------------------------ -------------- ------------- -------------- -------------
</TABLE>
7
<PAGE>
ZENITH NATIONAL INSURANCE CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
NOTE 3. CONTINGENT LIABILITIES
RISCORP LITIGATION
On April 1, 1998, pursuant to an Asset Purchase Agreement, dated June 17, 1997
(as amended from time to time, the "Asset Purchase Agreement"), between Zenith
Insurance and RISCORP, Inc. and certain of its subsidiaries (collectively,
"RISCORP"), Zenith Insurance acquired substantially all of the assets and
certain liabilities of RISCORP related to RISCORP's workers' compensation
business (the "RISCORP Acquisition"). The total purchase price for such acquired
assets and liabilities was determined by a process in which RISCORP and its
external accounting and actuarial consultants and Zenith Insurance and its
external accounting and actuarial consultants made and presented their estimates
of the GAAP values of the assets and liabilities acquired by Zenith Insurance to
an independent third party, acting as a Neutral Auditor and Neutral Actuary.
Such estimates varied considerably, particularly with respect to the value of
premiums receivable and the liability for unpaid losses and loss adjustment
expenses. On March 19, 1999, the Neutral Auditor and Neutral Actuary issued its
report determining the disputes between the parties. That report indicated that
the value of the assets transferred to Zenith Insurance exceeded the value of
the liabilities assumed by Zenith Insurance by $92.3 million.
Zenith Insurance and RISCORP entered into a settlement agreement, dated July 7,
1999 (the "Settlement Agreement"), providing for the resolution of certain
claims arising out of the RISCORP Acquisition. Pursuant to the Settlement
Agreement, Zenith Insurance and RISCORP agreed, among other things, that RISCORP
may request that the Neutral Auditor and Neutral Actuary (a) review an alleged
error concerning the proper treatment of certain reinsurance treaties in its
determinations with respect to the purchase price for the RISCORP Acquisition,
without waiving whatever rights RISCORP may have to litigation of such issue,
(b) determine whether the issue was properly in dispute before the Neutral
Auditor and Neutral Actuary and (c), if so, determine the merits of the issue
and whether a correction is appropriate. In a submission made to the Neutral
Auditor and Neutral Actuary, RISCORP claimed that the purchase price for the
RISCORP Acquisition should be adjusted by either $5.9 million or $23.4 million
as a result of alleged errors in the original determination of the Neutral
Auditor and Neutral Actuary with respect to the purchase price. On October 7,
1999, the Neutral Auditor and Neutral Actuary informed Zenith Insurance and
RISCORP that it would not consider the issue raised by RISCORP because the issue
had not previously been raised as a dispute pursuant to the procedures set forth
in the engagement letter. On January 13, 2000, RISCORP filed a complaint against
Zenith Insurance and the Neutral Auditor and Neutral Actuary in the Superior
Court of Fulton County in the State of Georgia. The complaint alleges breach of
contract against both Zenith Insurance and the Neutral Auditor and Neutral
Actuary and seeks recovery of the amounts previously described to have resulted
from the alleged errors by the Neutral Auditor and Neutral Actuary. Zenith is
unable to predict the outcome of this litigation.
8
<PAGE>
ZENITH NATIONAL INSURANCE CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
CONTINGENCIES SURROUNDING RECOVERABILITY OF STATE DISABILITY TRUST FUND
RECEIVABLES
In Florida, the Special Disability Trust Fund (the "Fund") assesses workers'
compensation insurers to pay for what are commonly referred to as "Second
Injuries". Historic assessments have been inadequate to completely fund
obligations of the Fund. In late 1997, the Florida statute was amended so that
the Fund will not be liable for and will not reimburse employers or carriers for
Second Injuries occurring on or after January 1, 1998. Zenith Insurance has
recorded its receivable from the Fund for Second Injuries based on specific
claims and historical experience prior to January 1, 1998. At June 30, 2000 and
December 31, 1999, the receivable from the Fund was $33.3 million and $37.0
million, respectively.
OTHER LITIGATION
Other than the RISCORP litigation described above, Zenith National and its
subsidiaries are defendants in various other litigation. In the opinion of
management, after consultation with legal counsel, such litigation is either
without merit or the ultimate liability, if any, will not have a material
adverse effect on the consolidated financial condition or results of operations
of Zenith.
NOTE 4. TERMINATION COSTS
The six months ended June 30, 2000 include $1.8 million of severance costs
incurred in the first quarter associated with the termination provisions of an
employment contract of a company officer.
NOTE 5. EXTRAORDINARY ITEM - GAIN ON EXTINGUISHMENT OF DEBT
On February 25, 2000, Zenith National paid $18.8 million to repurchase $12.5
million aggregate principal amount of the outstanding 9% Senior Notes due 2002
(the "9% Notes") and $8.0 million aggregate liquidation amount of the
outstanding 8.55% Capital Securities (the "Redeemable Securities") of the Zenith
National Insurance Capital Trust I, a Delaware statutory business trust, all of
the voting securities of which are owned by Zenith National. The repurchases
resulted in an extraordinary gain before tax of $1.5 million. Zenith National
used its available cash balances to fund these purchases.
9
<PAGE>
ZENITH NATIONAL INSURANCE CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
NOTE 6. SEGMENT INFORMATION
Segment information is set forth below:
<TABLE>
<CAPTION>
---------------------------------- -------------- ------------- ------------ ------------ ------------- ---------- -------------
Other Real
Workers' Property- Estate
(Dollars in thousands) Compensation Casualty Reinsurance Operations Investments Parent Total
---------------------------------- -------------- ------------- ------------ ------------ ------------- ---------- -------------
For the Six Months Ended June 30, 2000
--------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Revenues:
Premiums earned $138,586 $16,859 $ 155,445
Net investment income $26,561 26,561
Realized gains on investments 666 666
Real estate sales $38,533 38,533
---------------------------------- -------------- ------------- ------------ ------------ ------------- ---------- -------------
Total revenues 138,586 16,859 38,533 27,227 221,205
---------------------------------- -------------- ------------- ------------ ------------ ------------- ---------- -------------
Interest expense $(3,097) (3,097)
---------------------------------- -------------- ------------- ------------ ------------ ------------- ---------- -------------
(Loss) income before tax
and extraordinary item (47,073) (14,066) 2,894 27,227 (6,940) (37,958)
Federal income tax (benefit)
expense (16,040) (4,793) 1,013 9,264 (2,429) (12,985)
---------------------------------- -------------- ------------- ------------ ------------ ------------- ---------- -------------
Net (loss) income before
extraordinary item (31,033) (9,273) 1,881 17,963 (4,511) (24,973)
Extraordinary item - gain on
extinguishment of debt (net
of income tax of $524) 973 973
---------------------------------- -------------- ------------- ------------ ------------ ------------- ---------- -------------
Net (loss) income (31,033) (9,273) 1,881 17,963 (3,538) (24,000)
---------------------------------- -------------- ------------- ------------ ------------ ------------- ---------- -------------
Combined ratios 134.0% 183.4% 139.3%
---------------------------------- -------------- ------------- ------------ ------------ ------------- ---------- -------------
Total assets $504,264 $30,658 94,581 827,214 6,346 $1,463,063
---------------------------------- -------------- ------------- ------------ ------------ ------------- ---------- -------------
--------------------------------------------------------------------------------------------------------------------------------
For the Six Months Ended June 30, 1999
--------------------------------------------------------------------------------------------------------------------------------
Revenues:
Premiums earned $139,767 $54,108 $17,679 $ 211,554
Net investment income $26,271 26,271
Realized gains on investments 4,065 4,065
Real estate sales $25,206 25,206
Service fee income 1,544 1,544
---------------------------------- -------------- ------------- ------------ ------------ ------------- ---------- -------------
Total revenues 141,311 54,108 17,679 25,206 30,336 268,640
---------------------------------- -------------- ------------- ------------ ------------ ------------- ---------- -------------
Interest expense $(4,136) (4,136)
---------------------------------- -------------- ------------- ------------ ------------ ------------- ---------- -------------
(Loss) income before tax and
gain on sale of CalFarm (29,868) (22) (1,366) 1,817 30,336 (6,046) (5,149)
Gain on sale of CalFarm
before tax 160,335 160,335
Federal income tax (benefit)
expense (10,014) 55,993 (458) 636 10,145 (2,116) 54,186
---------------------------------- -------------- ------------- ------------ ------------ ------------- ---------- -------------
Net (loss) income (19,854) 104,320 (908) 1,181 20,191 (3,930) 101,000
---------------------------------- -------------- ------------- ------------ ------------ ------------- ---------- -------------
Combined ratios 121.4% 100.0% 107.7% 114.8%
---------------------------------- -------------- ------------- ------------ ------------ ------------- ---------- -------------
Total assets $531,310 $33,454 74,582 975,719 10,583 $1,625,648
---------------------------------- -------------- ------------- ------------ ------------ ------------- ---------- -------------
</TABLE>
10
<PAGE>
ZENITH NATIONAL INSURANCE CORP. AND SUBSIDIARIES
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
FORWARD-LOOKING INFORMATION
The Private Securities Litigation Reform Act of 1995 provides a safe harbor for
forward-looking statements if accompanied by meaningful cautionary statements
identifying important factors that could cause actual results to differ
materially from those discussed. Forward-looking statements include those
related to the plans and objectives of management for future operations, future
economic performance, or projections of revenues, income, earnings per share,
capital expenditures, dividends, capital structure, or other financial items.
Statements containing words such as EXPECT, ANTICIPATE, BELIEVE, or similar
words that are used in Management's Discussion and Analysis of Financial
Condition and Results of Operations, in other parts of this report or in other
written or oral information conveyed by or on behalf of Zenith National
Insurance Corp. ("Zenith National") and subsidiaries (collectively, "Zenith")
are intended to identify forward-looking statements. Zenith undertakes no
obligation to update such forward-looking statements, which are subject to a
number of risks and uncertainties that could cause actual results to differ
materially from those projected. These risks and uncertainties include but are
not limited to the following: 1) heightened competition, particularly intense
price competition; (2) adverse state and federal legislation and regulation; (3)
changes in interest rates causing fluctuations of investment income and fair
values of investments; (4) changes in the frequency and severity of claims and
catastrophes; (5) adequacy of loss reserves; (6) changing environment for
controlling medical, legal and rehabilitation costs, as well as fraud and abuse;
and (7) other risks detailed herein and from time to time in Zenith's other
reports and filings with the Securities and Exchange Commission.
OVERVIEW
The comparative components of net (loss) income after tax are set forth in the
following table:
<TABLE>
<CAPTION>
----------------------------------------------------------------- ------------------------------ ------------------------------
Three Months Ended Six Months Ended
June 30, June 30,
(Dollars in thousands) 2000 1999 2000 1999
----------------------------------------------------------------- -------------- -------------- --------------- ---------------
<S> <C> <C> <C> <C>
Net investment income $ 8,459 $ 8,661 $ 17,530 $ 17,549
Realized (losses) gains on investments (1,683) 1,645 433 2,642
----------------------------------------------------------------- -------------- -------------- --------------- ---------------
Sub-total 6,776 10,306 17,963 20,191
----------------------------------------------------------------- -------------- -------------- --------------- ---------------
Property-casualty underwriting results:
Loss excluding catastrophes (17,521) (9,420) (28,281) (16,812)
Catastrophe losses (8,450) (2,730) (12,025) (3,965)
----------------------------------------------------------------- -------------- -------------- --------------- ---------------
Property-casualty underwriting loss (25,971) (12,150) (40,306) (20,777)
----------------------------------------------------------------- -------------- -------------- --------------- ---------------
Income from Real Estate Operations 977 526 1,881 1,181
Interest expense (868) (1,375) (2,013) (2,688)
Parent expenses (514) (707) (2,498) (1,242)
----------------------------------------------------------------- -------------- -------------- --------------- ---------------
Net loss before gain on sale of CalFarm Insurance
Company and extraordinary item (19,600) (3,400) (24,973) (3,335)
Gain on sale of CalFarm Insurance Company 104,335
Extraordinary item - gain on extinguishment of debt 973
----------------------------------------------------------------- -------------- -------------- --------------- ---------------
Net (loss) income $(19,600) $ (3,400) $(24,000) $101,000
----------------------------------------------------------------- -------------- -------------- --------------- ---------------
</TABLE>
Results of the property-casualty operations (the "P&C Operations") are being
adversely impacted by increasing average claim costs, or severity of losses, in
the Workers' Compensation Operations and by adverse development of estimates of
the impact of catastrophe losses in the Reinsurance Operations. Stockholders'
equity is also being reduced by unrealized losses on fixed maturity
11
<PAGE>
ZENITH NATIONAL INSURANCE CORP. AND SUBSIDIARIES
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (CONTINUED)
investments classified as "Available-for-Sale" under the provisions of Statement
of Financial Accounting Standards No. 115.
The comparability of the six months ended June 30, 2000 compared to the
corresponding period in 1999 is affected by the sale of CalFarm Insurance
Company ("CalFarm"), a wholly-owned subsidiary of Zenith Insurance Company
("Zenith Insurance"), a wholly-owned subsidiary of Zenith National, to
Nationwide Mutual Insurance Company effective March 31, 1999. CalFarm operated
Zenith's Other Property-Casualty Operations.
The comparative results of the P&C Operations before tax were as follows:
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------------------------
Three Months Ended Six Months Ended
June 30, June 30,
(Dollars in thousands) 2000 1999 2000 1999
------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Premiums earned:
Workers' Compensation:
California $ 33,022 $ 27,593 $ 60,925 $ 56,143
Outside California 37,083 40,417 77,661 83,624
---------------- ---------------- -------------- ---------------
Total Workers' Compensation 70,105 68,010 138,586 139,767
Other Property-Casualty 54,108
Reinsurance 8,201 7,967 16,859 17,679
---------------- ---------------- -------------- ---------------
Total $ 78,306 $ 75,977 $ 155,445 $ 211,554
================ ================ ============== ===============
Underwriting loss before tax:
Workers' Compensation: $ (28,574) $ (16,699) $ (47,073) $ (29,868)
Other Property-Casualty (22)
Reinsurance (10,990) (1,560) (14,066) (1,366)
---------------- ---------------- -------------- ---------------
Total $ (39,564) $ (18,259) $ (61,139) $ (31,256)
================ ================ ============== ===============
Combined loss and expense ratios:
Workers' Compensation:
Loss and loss adjustment expenses 107.1% 84.6% 100.1% 85.1%
Underwriting expenses 33.7% 40.0% 33.9% 36.3%
---------------- ---------------- -------------- ---------------
Combined ratio 140.8% 124.6% 134.0% 121.4%
Other Property-Casualty:
Loss and loss adjustment expenses 66.5%
Underwriting expenses 33.5%
---------------
Combined ratio 100.0%
Reinsurance:
Loss and loss adjustment expenses 220.1% 106.7% 171.8% 93.6%
Underwriting expenses 13.9% 12.9% 11.6% 14.1%
---------------- ---------------- -------------- ---------------
Combined ratio 234.0% 119.6% 183.4% 107.7%
Total:
Loss and loss adjustment expenses 118.9% 86.9% 107.7% 81.1%
Underwriting expenses 31.6% 37.1% 31.6% 33.7%
---------------- ---------------- -------------- ---------------
Combined ratio 150.5% 124.0% 139.3% 114.8%
================ ================ ============== ===============
</TABLE>
12
<PAGE>
ZENITH NATIONAL INSURANCE CORP. AND SUBSIDIARIES
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (CONTINUED)
WORKERS' COMPENSATION
Intense competition and inadequate premium rates are adversely affecting the
national workers' compensation industry. Industry data indicates a national
trend of increasing claims severity. To date, premium rates have not kept
pace with the trend of increasing severity. Industry organizations such as
the National Council on Compensation Insurance, Inc. ("NCCI") and the
California Workers' Compensation Insurance Rating Bureau ("WCIRB") have
reported that their analyses of the data show that the liabilities for unpaid
loss and loss adjustment expenses as estimated and reported by the industry
are significantly inadequate. The estimated accident year combined ratio in
1999 was about 135% for the national workers' compensation industry and about
150% for the California workers' compensation industry, including a 1999
accident year loss ratio of about 110%.
Zenith's inforce workers' compensation premiums decreased consistently in the
several years ended December 31, 1999 as a result of Zenith's endeavors during
that period to maintain rate adequacy in the face of intense competition in the
national workers' compensation insurance industry. In the first six months of
2000, competitive pricing conditions improved in California and Zenith has
steadily increased its inforce premiums in California by about 30% during this
period. Outside of California, where competition and pricing are improving only
moderately and only in certain geographical areas, Zenith's inforce premiums
remain approximately unchanged in the first six months of 2000. As a result,
premiums earned in the Workers' Compensation Operations increased in the three
months ended June 30, 2000 compared to the corresponding period in 1999 and were
relatively unchanged in the six months ended June 30, 2000 compared to the
corresponding period in 1999.
Underwriting losses in the workers' compensation operations increased in the
three and six months ended June 30, 2000 compared to the corresponding
periods in 1999 principally as a result of higher loss ratios in 2000. The
severity of claims in Zenith's Workers' Compensation Operations has been
increasing over the past two years, offset partially by a decrease in
frequency of claims and such trends have been recognized in the estimation of
Zenith's reserves for unpaid losses and in its premium rates. However, in the
second quarter of 2000, Zenith increased its estimate of the impact of
increasing claim severity. As a result, Zenith increased its estimate of
California losses for prior years, principally for 1999, by about $4.5
million in the second quarter of 2000. Also in the second quarter, Zenith
increased its estimate of its national workers' compensation loss ratio for
2000 by about five percentage points from about 65% to 70%. Recent analyses
of industry data by the NCCI and WCIRB also indicate deterioration of
previous estimates of losses incurred for the 1999 year, but industry data
indicates greater deterioration than Zenith's.
In California, Zenith has filed for workers' compensation rate increases of
approximately 10% effective September 1, 2000. Elsewhere, Zenith is continuing
to monitor trends in loss costs and will take appropriate action on rates when
necessary. Zenith expects that the profitability of its Workers' Compensation
Operations will be dependent upon general levels of competition, industry
pricing and management's ability to estimate the impact of any continuing
adverse claim severity trends on the adequacy of loss reserves and premium
rates.
13
<PAGE>
ZENITH NATIONAL INSURANCE CORP. AND SUBSIDIARIES
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (CONTINUED)
OTHER PROPERTY-CASUALTY
The Other Property-Casualty Operations were operated primarily by CalFarm, which
was sold effective March 31, 1999. In the first quarter of 1999, the Other
Property-Casualty underwriting results were adversely impacted by losses in the
Health line of business, increased severity and frequency of weather related
property losses and increased expenses attributable to improvements in
information systems.
REINSURANCE
The underwriting results in the Reinsurance Operations for the three and six
months ended June 30, 2000 were adversely impacted by $13.0 million and $18.5
million of catastrophe losses before tax, respectively, as compared to
catastrophe losses of $4.2 million and $6.1 million for the corresponding
periods in 1999, respectively. Catastrophe losses in 2000 were attributable to
increased estimates of losses that occurred in 1999, in particular the storms at
the end of December 1999 in France. In addition to the French storms, 1999 was
characterized by frequent, global catastrophes of a moderate size, compared to
1998 in which Hurricane Georges, a large individual event, contributed a
significant portion of Zenith's catastrophe losses in 1998 and 1999. Estimates
of the impact of the 1999 catastrophes on Zenith's Reinsurance Operations are
based on the information that is currently available and such estimates could
change based on new information that becomes available or based upon
reinterpretation of existing information.
REAL ESTATE OPERATIONS
The Real Estate Operations recognized total revenues for the three and six
months ended June 30, 2000 of $22.1 million and $38.5 million, respectively,
as compared to total revenues of $14.4 million and $25.2 million,
respectively, for the corresponding periods in 1999. Revenues for the three
and six months ended June 30, 2000 benefited from an increase in the number
of home sales and a higher average selling price compared to the
corresponding periods in 1999 (number of sales were 127 and 245 for the three
and six months ended June 30, 2000, respectively, compared to 109 and 222,
respectively, for the corresponding periods in 1999). Construction in
progress, including undeveloped land, was $94.8 million and $87.9 million at
June 30, 2000 and December 31, 1999, respectively.
14
<PAGE>
ZENITH NATIONAL INSURANCE CORP. AND SUBSIDIARIES
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (CONTINUED)
INVESTMENTS
The change in the carrying value of Zenith's investment portfolio in 2000 was as
follows:
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------- -------------- --------------------
(In thousands)
--------------------------------------------------------------------------------- -------------- --------------------
<S> <C>
Carrying value at the beginning of the year $ 901,734
Purchases at cost 129,393
Maturities and redemptions (26,746)
Proceeds from sales of investments (130,798)
Net realized gains 666
Change in unrealized gains and losses, net (12,829)
Net change in short-term investments (62,401)
Net accretion of bonds and preferred stocks and other changes 1,438
--------------------------------------------------------------------------------- -------------- --------------------
Carrying value at June 30, 2000 $ 800,457
--------------------------------------------------------------------------------- -------------- --------------------
</TABLE>
Zenith's investment portfolio decreased in the six months ended June 30, 2000
principally to fund the use of cash in operations and the repurchases of
outstanding debt described below.
On February 25, 2000, Zenith National paid $18.8 million to repurchase $12.5
million aggregate principal amount of the outstanding 9% Senior Notes due 2002
(the "9% Notes") and $8.0 million aggregate liquidation amount of the
outstanding 8.55% Capital Securities (the "Redeemable Securities") of the Zenith
National Insurance Capital Trust I, a Delaware statutory business trust, all of
the voting securities of which are owned by Zenith National. The repurchases
resulted in an extraordinary gain before tax of $1.5 million.
Bonds with an investment grade rating represented 93% and 95% of the carrying
values of bonds at June 30, 2000 and December 31, 1999, respectively. The
average maturity of the investment portfolio was 5.9 years at June 30, 2000 and
5.7 years at December 31, 1999.
The yields on invested assets, which vary with the general level of interest
rates, the average life of invested assets and the amount of funds available for
investment, were as follows:
<TABLE>
<CAPTION>
--------------------------------------------- ----------------------------------- ----------------------------------
Three Months Ended Six Months Ended
June 30, June 30,
2000 1999 2000 1999
--------------------------------------------- ----------------- ----------------- ----------------- ----------------
<S> <C> <C> <C> <C>
Investment yield before tax 6.0% 5.4% 6.0% 5.4%
Investment yield after tax 3.9% 3.6% 3.9% 3.6%
--------------------------------------------- ----------------- ----------------- ---------------- -----------------
</TABLE>
15
<PAGE>
ZENITH NATIONAL INSURANCE CORP. AND SUBSIDIARIES
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (CONTINUED)
At June 30, 2000 and December 31, 1999, 96% of Zenith's portfolio of fixed
maturity investments, including short-term investments, was classified as
available-for-sale with the unrealized appreciation or depreciation recorded as
a separate component of stockholders' equity. The change in fair value of fixed
maturity investments classified as available-for-sale resulted in a decrease in
stockholders' equity of $5.2 million after deferred tax from December 31, 1999
to June 30, 2000. The unrealized loss on held-to-maturity and available-for-sale
fixed maturity investments were as follows:
<TABLE>
<CAPTION>
--------------------------------- --------------------- -------------------------------
HELD-TO-MATURITY AVAILABLE-FOR-SALE
(In thousands) Before Tax Before Tax After Tax
--------------------------------- --------------------- --------------- ---------------
<S> <C> <C> <C>
At June 30, 2000 $(423) $(37,721) $(24,519)
At December 31, 1999 (340) (29,698) (19,304)
--------------------------------- --------------------- --------------- ---------------
</TABLE>
When, in the opinion of management, a decline in the fair value of an investment
is considered to be "other than temporary", such investment is written down to
its net realizable value. The determination of "other than temporary" includes,
in addition to other relevant factors, a presumption that if the market value is
below cost by a significant amount for a period of time, a write down is
necessary. During the three and six months ended June 30, 2000, there were $3.4
million and $4.1 million, respectively, of such write-downs.
PARENT
The six months ended June 30, 2000 include $1.8 million of severance costs
incurred in the first quarter associated with the termination provisions of an
employment contract of a company officer.
LIQUIDITY AND CAPITAL RESOURCES
The P&C Operations generally create liquidity because insurance premiums are
collected prior to disbursements for claims and other policy benefits. Collected
premiums may be invested, principally in fixed maturity securities, prior to
their use in such disbursements and investment income provides additional cash
receipts. Claim payments may take place many years after the collection of
premiums and in certain periods in which disbursements for claims and benefits,
current acquisition costs and current operating and other expenses exceed
operating cash receipts, cash flow is negative. Such negative cash flow is
offset by cash flow from investments, principally from short-term investments
and maturities of longer-term investments. The exact timing of the payment of
claims and benefits cannot be predicted with certainty and the P&C Operations
maintain portfolios of invested assets with varying maturities and a substantial
amount of short term investments to provide adequate cash for the payment of
claims. At June 30, 2000 and December 31, 1999, cash and short term investments
in the P&C Operations amounted to $64.1 million and $92.1 million, respectively.
16
<PAGE>
ZENITH NATIONAL INSURANCE CORP. AND SUBSIDIARIES
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (CONTINUED)
In the six months ended June 30, 2000, payment of income taxes for 1999,
including $56.0 million associated with the gain on sale of CalFarm, reduced
cash flow from operations. In the corresponding period in 1999, $53.7 million of
cash was used to pay the balance of the purchase price for the RISCORP
Acquisition and net proceeds of approximately $211.0 million were received from
Nationwide Mutual Insurance Company in connection with the sale of CalFarm.
Zenith National requires cash to pay any dividends declared to its
stockholders, pay interest and principal on its outstanding debt obligations
and pay its operating expenses. Such cash requirements are generally funded
in the long run by dividends paid to Zenith National from Zenith Insurance
and financing or refinancing activities by Zenith National. In 1999, Zenith
National received $130.0 million of such dividend payments, including a
dividend of $100.0 million paid from the gain on the sale of CalFarm and with
the prior approval of the California Department of Insurance. As a result of
such dividend payments in 1999, Zenith National has available cash and
short-term investments, which currently significantly exceed its short-term
cash requirements. Zenith National's cash and short-term investments amounted
to $70.2 million and $103.4 million at June 30, 2000 and December 31, 1999,
respectively. Investment income from such investment portfolio also provides
a current source of cash to Zenith National.
The level of capital in the P&C Operations is maintained relative to
standardized capital adequacy measures such as risk based capital where
ratios such as net premiums written to statutory surplus measure capital
adequacy. Risk based capital is used by regulators for regulatory financial
surveillance purposes and by rating agencies to assign financial strength
ratings to the P&C Operations and ratings for the debt issued by Zenith
National. From time to time, the level of capitalization of the P&C
Operations may be increased by contributions from Zenith National, for
example to support an acquired business such as the RISCORP Acquisition in
1998, or reduced through an approved dividend payment such as the dividend in
1999 that followed the sale of CalFarm. In the first quarter of 2000,
Zenith's financial strength and debt ratings were reduced by Moody's and
Standard & Poor's ("S&P"), principally over concerns about continuing
operating losses in the P&C Operations. In August 2000, S&P affirmed its
ratings of Zenith, but changed its outlook for Zenith to "negative" and
Moody's also changed its outlook for Zenith to "negative" at the same time
making no changes to Zenith's ratings. Both rating agencies cited continuing
concerns about Zenith's operating performance. In the second quarter of 2000,
A. M. Best Company reduced the rating of the P&C Operations from A+
(Superior) to A (Excellent). The actions of such rating agencies have had no
material impact on Zenith's operations. Because of the available cash and
short-term investments and available lines of credit in Zenith National,
Zenith National has the flexibility, if necessary, to contribute capital to
the P&C Operations.
17
<PAGE>
ZENITH NATIONAL INSURANCE CORP. AND SUBSIDIARIES
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (CONTINUED)
From time to time, Zenith may make repurchases of its outstanding common shares
or outstanding debt. At June 30, 2000, Zenith National was authorized to
repurchase up to 938,000 shares of its common stock pursuant to a share purchase
program authorized by its Board of Directors. These purchases are discretionary
and can be adequately funded from Zenith National's existing sources of
liquidity. On February 25, 2000, Zenith National paid $18.8 million to
repurchase $12.5 million aggregate principal amount of the outstanding 9% Notes
and $8.0 million aggregate liquidation amount of the outstanding Redeemable
Securities. Zenith National used its available cash balances to fund these
purchases.
At June 30, 2000, Zenith National had two revolving, unsecured lines of credit
in an aggregate amount of $70.0 million, all of which was available at June 30,
2000. Under these agreements, certain restrictive covenants apply, including the
maintenance of certain financial ratios.
The Real Estate Operations maintain certain bank credit facilities to provide
financing for development and construction of single-family residences for sale.
At June 30, 2000 and December 31, 1999, $17.8 million and $17.7 million,
respectively, was outstanding with respect to the borrowing. The Real Estate
Operations are obligated under various loans and notes payable arising from the
purchase of several parcels of property. The balance outstanding with respect to
these loans and notes was $2.6 million and $2.5 million at June 30, 2000 and
December 31, 1999, respectively. Zenith National also finances the land
acquisitions of its Real Estate Operations through inter-company loans.
CODIFICATION OF STATUTORY ACCOUNTING PRINCIPLES
In 1998, the National Association of Insurance Commissioners ("NAIC") adopted
the Codification of Statutory Accounting Principles guidance (the
"Codification"), which will replace the current Accounting Practices and
Procedures manual as the NAIC's primary guidance on statutory accounting.
(Statutory accounting is a comprehensive basis of accounting based on prescribed
accounting practices, which include state laws, regulations and general
administrative rules, as well as a variety of publications of the NAIC.) The
Codification provides guidance for the areas where statutory accounting has been
silent and changes current statutory accounting in some areas. The NAIC
established January 1, 2001 as the effective date of the Codification.
The California Department of Insurance has adopted the Codification. Zenith
believes that the Codification, as currently constituted, will not have a
material impact on the statutory capital and surplus of the P&C Operations.
18
<PAGE>
ZENITH NATIONAL INSURANCE CORP. AND SUBSIDIARIES
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The table below provides information about financial instruments as of June 30,
2000 for which fair values are subject to changes in interest rates. For fixed
maturity investments, the table presents fair value of investments held and
weighted average interest rates on such investments by expected maturity dates.
Such investments include redeemable preferred stock, corporate bonds, municipal
bonds, government bonds and mortgage backed securities. For debt obligations,
the table presents principal cash flows by expected maturity dates and interest.
<TABLE>
<CAPTION>
------------------------------------- -----------------------------------------------------------------------------------------
Expected Maturity Date
-----------------------------------------------------------------------------------------
(In thousands) 2000 2001 2002 2003 2004 Thereafter Total
------------------------------------- ------------ ------------ ------------ ------------ ------------ ----------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Fixed maturity investments:
Held-to-maturity and
available-for-sale securities:
Fixed rate $ 16,429 $117,363 $77,264 $43,924 $34,614 $316,450 $606,044
Weighted average interest rate 6.6% 6.6% 6.9% 10.1% 8.1% 8.7% 8.1%
Trading securities:
Fixed rate $ 2,921 $ 2,921
Weighted average interest rate 7.7% 7.7%
Short-term investments $119,171 $119,171
Debt and interest obligations:
Payable to banks and other
notes payable 13,752 $ 6,000 $ 1,647 $ 34 $ 406 21,839
Senior notes payable 2,812 5,625 65,313 73,750
Redeemable securities 2,865 5,729 5,729 5,729 5,729 $204,496 230,277
------------------------------------- ------------ ------------ ------------ ------------ ------------ ----------- ------------
</TABLE>
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Annual Stockholders' Meeting of Zenith National was held on May 18, 2000.
The election of Directors was presented to a vote of the Stockholders. The
tabulation of votes for the nominees, all of whom were elected, follows:
<TABLE>
<CAPTION>
---------------------------------------------------------------------------------------------------
DIRECTOR VOTES FOR VOTES WITHHELD
---------------------------------------------------------------------------------------------------
<S> <C> <C>
Max M. Kampelman 14,681,026 13,053
Robert J. Miller 14,678,218 15,861
Leon E. Panetta 14,674,565 19,514
William S. Sessions 14,681,246 12,833
Harvey J. Silbert 14,505,155 188,924
Gerald Tsai, Jr. 14,681,746 12,333
Michael Wm. Zavis 14,677,137 16,942
Stanley R. Zax 14,680,665 13,414
---------------------------------------------------------------------------------------------------
</TABLE>
With respect to the election of Directors, there were no votes cast against any
Directors, no abstentions and no broker non-votes.
19
<PAGE>
ZENITH NATIONAL INSURANCE CORP. AND SUBSIDIARIES
PART II, OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
<TABLE>
<S> <C>
3.1 Certificate of Incorporation of Zenith National Insurance Corp., dated
May 28, 1971.
3.2 Certificate of Amendment of Certificate of Incorporation of Zenith
National Insurance Corp., dated September 12, 1977.
3.3 Certificate of Amendment of Certificate of Incorporation of Zenith
National Insurance Corp., dated May 31, 1979.
3.4 Certificate of Amendment of Certificate of Incorporation of Zenith
National Insurance Corp., dated June 6, 1983.
3.5 Certificate of Designation of Zenith National Insurance Corp., dated
September 10, 1985.
3.6 Certificate of Amendment of Certificate of Incorporation of Zenith
National Insurance Corp., dated November 22, 1985.
3.7 Certificate of Amendment of Certificate of Incorporation of Zenith
National Insurance Corp., dated May 19, 1987.
3.8 Certificate of Change of Address of Registered Office and of Registered
Agent of Zenith National Insurance Corp., dated October 10, 1989.
3.9 By-laws of Zenith National Insurance Corp., as currently in effect
(incorporated by reference to Exhibit 3.3 to Zenith National Insurance
Corp.'s Annual Report on Form 10-K for the year ended December 31,
1999).
10.1 Certificate of Amendment to Certificate of Trust of Zenith National
Insurance Capital Trust I, dated March 1, 2000.
10.2 Promissory Note, dated July 3, 2000, from Zenith National Insurance
Corp. to City National Bank.
10.3 Sixth Amendment to Credit Agreement, dated as of July 18, 2000,
between Zenith National Insurance Corp. and Bank of America, N. A.
11 Statement re computation of per share earnings. (Note 2 to Consolidated
Financial Statements (Unaudited) included in Item 1 of Part I of this
Quarterly Report on Form 10-Q is incorporated herein by reference.)
27 Financial data schedule
</TABLE>
(b) Reports on Form 8-K
Zenith filed no Current Reports on Form 8-K during the quarter ended
June 30, 2000.
20
<PAGE>
ZENITH NATIONAL INSURANCE CORP. AND SUBSIDIARIES
Signatures
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
ZENITH NATIONAL INSURANCE CORP.
Registrant
Date: August 11, 2000 /s/ STANLEY R. ZAX
------------------------------------
Stanley R. Zax
Chairman of the Board and President
(Principal Executive Officer)
Date: August 11, 2000 /s/ WILLIAM J. OWEN
------------------------------------
William J. Owen
Senior Vice President
& Chief Financial Officer
(Principal Accounting Officer)
21
