<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 March 31, 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
incorporation or organization] Identification No.]
21255 Califa Street, Woodland Hills, California 91367-5021
[Address of principal executive offices] [Zip Code]
(818) 713-1000
[Registrant's telephone number, including area code]
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 April 28,2000, there were 17,171,000 shares of Zenith National common stock
outstanding, net of 8,009,000 shares of treasury stock.
1
<PAGE>
PART I
FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
ZENITH NATIONAL INSURANCE CORP. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------------
March 31, December 31,
(In thousands) 2000 1999
- ----------------------------------------------------------------------------------------------------------------------------------
(Unaudited)
<S> <C> <C>
ASSETS:
Investments:
Fixed maturities:
At amortized cost (fair value $26,702 in 2000 and $27,186 in 1999) $ 26,965 $ 27,526
At fair value (cost $637,270 in 2000 and $657,129 in 1999) 604,429 627,375
Floating rate preferred stocks, at fair value (cost $6,799 in 2000 and 1999) 6,137 6,420
Convertible and non-redeemable preferred stocks, at fair value (cost
$4,300 in 2000 and 1999) 3,069 3,405
Common stocks, at fair value (cost $32,284 in 2000 and $25,428 in 1999) 31,652 25,634
Short-term investments (at cost, which approximates fair value) 128,820 179,748
Other investments 33,070 31,626
---------------- -----------------
Total investments 834,142 901,734
Cash 11,846 15,714
Accrued investment income 11,641 11,832
Premiums receivable, less allowance for doubtful accounts of $9,587 in 2000
and $10,172 in 1999 73,367 74,586
Receivable from reinsurers and state trust funds on paid and unpaid losses
and prepaid reinsurance premiums 332,520 343,671
Deferred policy acquisition costs 7,986 7,892
Deferred tax asset 43,136 34,601
Current federal income tax receivable 3,062
Properties and equipment, less accumulated depreciation 53,629 54,981
Intangible assets 23,104 23,207
Other assets 111,735 105,568
---------------- -----------------
TOTAL ASSETS $1,506,168 $1,573,786
================ =================
</TABLE>
(continued)
2
<PAGE>
ZENITH NATIONAL INSURANCE CORP. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET (CONTINUED)
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------------
March 31, December 31,
(In thousands) 2000 1999
- ----------------------------------------------------------------------------------------------------------------------------------
(Unaudited)
<S> <C> <C>
LIABILITIES:
Policy liabilities and accruals:
Unpaid loss and loss adjustment expenses $ 871,994 $ 880,929
Unearned premiums 52,375 50,906
Policyholders' dividends accrued 3,947 3,375
Reserves on loss portfolio transfers 16,547 17,658
Payable to banks and other notes payable 21,270 20,238
Senior notes payable, less unamortized issue costs of $211 in 2000
and $283 in 1999 (Note 5) 62,289 74,717
Federal income tax payable 23,793
Other liabilities 69,215 74,214
---------------- -----------------
TOTAL LIABILITIES 1,097,637 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 $1,419 in 2000 and $1,603 in 1999 (Note 5) 65,581 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 25,160,
outstanding 17,151 in 2000; issued 25,157, outstanding 17,150 in 1999 25,160 25,157
Additional paid-in capital 274,958 274,897
Retained earnings 216,542 225,229
Accumulated other comprehensive loss - net unrealized depreciation on
investments, net of deferred tax benefit of $12,356 in 2000 and $10,768 in 1999 (22,946) (19,998)
---------------- -----------------
493,714 505,285
Treasury stock at cost (8,009 shares in 2000 and 8,007 shares in 1999) (150,764) (150,726)
---------------- -----------------
TOTAL STOCKHOLDERS' EQUITY 342,950 354,559
---------------- -----------------
TOTAL LIABILITIES, REDEEMABLE SECURITIES AND STOCKHOLDERS' EQUITY $1,506,168 $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
March 31,
(In thousands, except per share data) 2000 1999
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
REVENUES:
Premiums earned $ 77,139 $135,577
Net investment income 13,561 13,325
Realized gains on investments 3,255 1,534
Real estate sales 16,434 10,768
Service fee income 959
------------- -------------
Total revenues 110,389 162,163
EXPENSES:
Loss and loss adjustment expenses incurred 74,467 105,490
Policy acquisition costs 13,503 27,230
Other underwriting and operating expenses (Note 4) 13,064 17,199
Policyholders' dividends and participation 733 435
Real estate construction and operating costs 15,043 9,761
Interest expense 1,761 2,020
------------- -------------
Total expenses 118,571 162,135
Gain on sale of CalFarm Insurance Company 160,335
------------- -------------
(Loss) income before federal income tax (benefit) expense and extraordinary item (8,182) 160,363
Federal income tax (benefit) expense, including expense of $56,000 related to the sale
of CalFarm Insurance Company in 1999 (2,809) 55,963
------------- -------------
Net (loss) income before extraordinary item (5,373) 104,400
Extraordinary item - gain on extinguishment of debt, net of federal income tax expense
of $524 (Note 5) 973
------------- -------------
NET (LOSS) INCOME $ (4,400) $104,400
============= =============
NET (LOSS) INCOME PER COMMON SHARE (NOTE 2) -
Basic:
Net (loss) income before extraordinary item $ (0.31) $ 6.09
Extraordinary item - gain on extinguishment of debt, net of federal income tax expense 0.05
============= =============
Net (loss) income $ (0.26) $ 6.09
============= =============
Diluted:
Net (loss) income before extraordinary item $ (0.31) $ 6.09
Extraordinary item - gain on extinguishment of debt, net of federal income tax expense 0.05
============= =============
Net (loss) income $ (0.26) $ 6.09
============= =============
Disclosure regarding comprehensive (loss) income:
Net (loss) income $ (4,400) $104,400
Change in unrealized depreciation on investments (2,948) (7,244)
------------- -------------
Comprehensive (loss) income $ (7,348) $ 97,156
============= =============
</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>
- -----------------------------------------------------------------------------------------------------------------------------
Three Months Ended
March 31,
(In thousands) 2000 1999
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Premiums and service fee income collected $ 83,382 $ 152,441
Investment income received 13,914 15,373
Proceeds from sales of real estate 16,434 10,768
Loss and loss adjustment expenses paid (77,877) (119,660)
Underwriting and other operating expenses paid (21,956) (43,596)
Real estate construction costs paid (20,497) (14,580)
Reinsurance premiums paid (2,783) (23,321)
Interest paid (3,907) (3,294)
Income taxes paid (31,519) (950)
--------------- --------------
Net cash used in operating activities $ (44,809) $ (26,819)
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of investments:
Investment securities available-for-sale (95,023) (37,940)
Other investments (1,802) (5,233)
Proceeds from maturities and redemptions of investments:
Fixed maturities held-to-maturity 553 2,841
Investment securities available-for-sale 11,605 49,249
Proceeds from sales of investments:
Investment securities available-for-sale 99,558 22,330
Other investments 169 570
Net change in short-term investments 51,915 65,875
Cash payment to RISCORP (53,689)
Capital expenditures and other, net (3,930) (2,862)
--------------- --------------
Net cash provided by investing activities 63,045 41,141
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 14,794 2,666
Cash repaid on bank construction loans (13,849) (734)
Cash advanced from bank lines of credit 7,400
Cash repaid on bank lines of credit (12,400)
Cash dividends paid to common stockholders (4,287) (4,286)
Proceeds from exercise of stock options 65 31
Purchase of treasury shares (38) (811)
--------------- --------------
Net cash used in financing activities (22,104) (8,134)
--------------- --------------
Net (decrease) increase in cash (3,868) 6,188
Cash at beginning of period 15,714 1,998
--------------- --------------
CASH AT END OF PERIOD $ 11,846 $ 8,186
=============== ==============
(continued)
</TABLE>
5
<PAGE>
ZENITH NATIONAL INSURANCE CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS (CONTINUED)
(UNAUDITED)
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------
Three Months Ended
March 31,
(In thousands) 2000 1999
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C>
RECONCILIATION OF NET (LOSS) INCOME TO NET CASH FLOWS FROM OPERATING ACTIVITIES:
Net (loss) income $ (4,400) $ 104,400
Adjustments to reconcile net (loss) income to net cash used in operating
activities:
Depreciation and amortization 2,101 2,640
Realized gain on sale of CalFarm Insurance Company (160,335)
Realized gains on investments (3,255) (1,534)
Extraordinary gain (Note 5) (1,497)
Amortization of deferred gain on retroactive reinsurance contract (2,085)
Decrease (increase) in:
Premiums receivable 1,219 8,105
Receivable from reinsurers and state trust funds on paid and unpaid
losses and prepaid reinsurance premiums 11,151 (8,994)
Real estate construction in progress and land held for development (7,592) (2,978)
Increase (decrease) in:
Unpaid loss and loss adjustment expenses (8,935) (4,181)
Unearned premiums 1,469 (4,886)
Policyholders' dividends accrued 572 (250)
Federal income tax (33,804) 55,025
Other 247 (13,831)
============ =============
NET CASH USED IN OPERATING ACTIVITIES $(44,809) $ (26,819)
============ =============
</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 three months ended March 31, 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.
NOTE 2. EARNINGS AND DIVIDENDS PER SHARE
<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------------------
Three Months Ended
March 31,
(In thousands, except per share data) 2000 1999
----------------------------------------------------------------------------------------------------
<S> <C> <C>
(A) Net (loss) income $ (4,400) $104,400
----------------------------------------------------------------------------------------------------
(B) Weighted average outstanding
shares during the period 17,151 17,137
Additional common shares issuable under employee
stock option plans using the treasury stock 14 15
method
----------------------------------------------------------------------------------------------------
(C) Weighted average number of common shares
outstanding assuming exercise of stock options 17,165 17,152
----------------------------------------------------------------------------------------------------
----------------------------------------------------------------------------------------------------
Net (loss) income per common share -
(A)/(B) Basic $ (0.26) $ 6.09
(A)/(C) Diluted (0.26) 6.09
----------------------------------------------------------------------------------------------------
----------------------------------------------------------------------------------------------------
Dividends per common share 0.25 0.25
----------------------------------------------------------------------------------------------------
</TABLE>
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
7
<PAGE>
ZENITH NATIONAL INSURANCE CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
NOTE 3. CONTINGENT LIABILITIES (CONTINUED)
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 advised Zenith Insurance and
RISCORP that they 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 their 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.
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 March 31, 2000 and
December 31, 1999, the receivable from the Fund was $34.0 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.
8
<PAGE>
ZENITH NATIONAL INSURANCE CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
NOTE 4. TERMINATION COSTS
In the first quarter of 2000, Zenith National recorded $1.8 million of severance
costs 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 Three Months Ended March 31, 2000
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Revenues:
Premiums earned $ 68,481 $ 8,658 $ 77,139
Net investment income $ 13,561 13,561
Realized gains on investments 3,255 3,255
Real estate sales $16,434 16,434
- --------------------------------------------------------------------------------------------------------------------------------
Total revenues 68,481 8,658 16,434 16,816 110,389
- --------------------------------------------------------------------------------------------------------------------------------
Interest expense $(1,761) (1,761)
- --------------------------------------------------------------------------------------------------------------------------------
(Loss) income before tax
and extraordinary item (18,499) (3,076) 1,391 16,816 (4,814) (8,182)
Federal income tax (benefit)
Expense (6,208) (1,032) 487 5,629 (1,685) (2,809)
- --------------------------------------------------------------------------------------------------------------------------------
Net (loss) income before
Extraordinary item (12,291) (2,044) 904 11,187 (3,129) (5,373)
Extraordinary item - gain on
Extinguishment of debt (net
of income tax of $574) 973 973
- --------------------------------------------------------------------------------------------------------------------------------
Net (loss) income (12,291) (2,044) 904 11,187 (2,156) (4,400)
- --------------------------------------------------------------------------------------------------------------------------------
Combined ratios 127.0% 135.5% 128.0%
- --------------------------------------------------------------------------------------------------------------------------------
Total assets $516,043 $30,813 94,914 857,629 6,769 $1,506,168
- --------------------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------------------
For the Three Months Ended March 31, 1999
- --------------------------------------------------------------------------------------------------------------------------------
Revenues:
Premiums earned $ 71,757 $54,108 $ 9,712 $ 135,577
Net investment income $ 13,325 13,325
Realized gains on investments 1,534 1,534
Real estate sales $10,768 10,768
Service fee income 959 959
- --------------------------------------------------------------------------------------------------------------------------------
Total revenues 72,716 54,108 9,712 10,768 14,859 162,163
- --------------------------------------------------------------------------------------------------------------------------------
Interest expense $(2,020) (2,020)
- --------------------------------------------------------------------------------------------------------------------------------
(Loss) income before tax and
gain on sale of CalFarm (13,169) (22) 194 1,008 14,859 (2,842) 28
Gain on sale of CalFarm
Before tax 160,335 160,335
Federal income tax (benefit)
Expense (4,428) 55,993 65 353 4,974 (994) 55,963
- --------------------------------------------------------------------------------------------------------------------------------
Net (loss) income (8,741) 104,320 129 655 9,885 (1,848) 104,400
- --------------------------------------------------------------------------------------------------------------------------------
Combined ratios 118.4% 100.0% 98.0% 109.6%
- --------------------------------------------------------------------------------------------------------------------------------
Total assets $545,660 $19,913 73,476 1,004,316 12,422 $1,655,787
- --------------------------------------------------------------------------------------------------------------------------------
</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 are set forth in the following
table (after tax):
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------
Three Months Ended
March 31,
(In thousands) 2000 1999
-----------------------------------------------------------------------------------------------
<S> <C> <C>
Net investment income $ 9,071 $ 8,888
Realized gains on investments 2,116 997
-----------------------------------------------------------------------------------------------
Sub-total 11,187 9,885
Property-casualty underwriting results:
Loss excluding catastrophes (10,760) (7,392)
Catastrophe losses (3,575) (1,235)
-----------------------------------------------------------------------------------------------
Property-casualty underwriting loss (14,335) (8,627)
Income from Real Estate Operations 904 655
Interest expense (1,145) (1,313)
Parent expenses (1,984) (535)
-----------------------------------------------------------------------------------------------
Net (loss) income before gain on sale of CalFarm Insurance
Company and extraordinary item (5,373) 65
Gain on sale of CalFarm Insurance Company 104,335
Extraordinary item - gain on extinguishment of debt 973
-----------------------------------------------------------------------------------------------
Net (loss) income $ (4,400) $104,400
-----------------------------------------------------------------------------------------------
</TABLE>
Results of the property-casualty operations (the "P&C Operations") are being
adversely impacted by losses in the workers' compensation business and by the
frequency of catastrophe losses in the Reinsurance Operations. Stockholders'
equity is also being reduced by unrealized losses on fixed maturity investments
classified as "Available-for-Sale" under the provisions of Statement of
Financial Accounting Standards No. 115.
11
<PAGE>
ZENITH NATIONAL INSURANCE CORP. AND SUBSIDIARIES
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (CONTINUED)
The comparability of the three months ended March 31, 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 of Zenith before tax were as
follows:
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------------
Three Months Ended
March 31,
- ---------------------------------------------------------------------------------------------------------------------------------
(Dollars in thousands) 2000 1999
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Premiums earned:
Workers' Compensation
California $ 27,903 $ 28,550
Outside California 40,578 43,207
------------ ------------
Total Workers' Compensation 68,481 71,757
Other Property-Casualty 54,108
Reinsurance 8,658 9,712
------------ ------------
Total $ 77,139 $135,577
============ ============
Underwriting (loss) income before tax:
Workers' Compensation $(18,499) $(13,169)
Other Property-Casualty (22)
Reinsurance (3,076) 194
------------ ------------
Total $(21,575) $(12,997)
============ ============
Combined loss and expense ratios:
Workers' Compensation
Loss and loss adjustment expenses 92.8% 85.6%
Underwriting expenses 34.2% 32.8%
------------ ------------
Combined ratio 127.0% 118.4%
Other Property-Casualty
Loss and loss adjustment expenses 66.5%
Underwriting expenses 33.5%
------------
Combined ratio 100.0%
Reinsurance
Loss and loss adjustment expenses 126.2% 82.9%
Underwriting expenses 9.3% 15.1%
------------ ------------
Combined ratio 135.5% 98.0%
Total
Loss and loss adjustment expenses 96.5% 77.8%
Underwriting expenses 31.5% 31.8%
------------ ------------
Combined ratio 128.0% 109.6%
============ ============
</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
Zenith's Workers Compensation business is faced with a challenging operating
environment. The national workers' compensation industry is being adversely
affected by intense competition and inadequate premium rates. The aggregate
amount of capital available in the industry to write workers' compensation
insurance greatly exceeds the economically optimal amount, reducing
profitability and exacerbating competition. Nationally, average claim costs,
or severity, are increasing by approximately 5% annually and in California,
severity is increasing by about 10% annually. These adverse severity trends
have, so far, been partially offset by a decrease in frequency, nationally
and in California. Industry organizations such as the National Council on
Compensation Insurance, Inc. and the California Workers' Compensation
Insurance Rating Bureau have reported that their analyses of the data show
that the liabilities for unpaid losses and loss adjustment expenses as
estimated and reported by the industry are significantly inadequate. The
estimated accident year combined ratio in 1999 was 130% for the national
workers' compensation industry and 143% for the California workers'
compensation industry.
Premiums earned in Zenith's Workers' Compensation Operations decreased in the
first quarter of 2000 compared to the corresponding period in 1999,
principally as a result of Zenith's endeavors during 1999 to maintain rate
adequacy in the face of intense competition in the national workers'
compensation insurance industry. The severity of claims in Zenith's Workers'
Compensation Operations has been increasing over the last two years, offset
partially by a decrease in frequency. Increased estimates of the impact of
such trends resulted in Zenith increasing its estimate of the 1999 Workers'
Compensation loss ratio throughout 1999. Underwriting losses in Zenith's
Workers' Compensation Operations increased in the three months ended March
31, 2000 compared to the corresponding period in 1999 principally because of
a higher estimated loss ratio in the first quarter of 2000 compared to the
estimate for the corresponding period in 1999. Also, underwriting losses
increased in the three months ended March 31, 2000 compared to the
corresponding period in 1999 because of operating expenses that have not been
reduced commensurately with premium revenues. 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.
In the first quarter of 2000 compared to the end of the fourth quarter of 1999,
Zenith increased its in force premiums in California by 12% in reaction to more
favorable pricing conditions in the California workers compensation market, but
outside of California, where competition continues to be intense, Zenith's in
force premiums decreased by 2%. Overall, in force premiums increased by 4% in
the first quarter of 2000 compared to the end of the fourth quarter of 1999.
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.
13
<PAGE>
ZENITH NATIONAL INSURANCE CORP. AND SUBSIDIARIES
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (CONTINUED)
REINSURANCE
The underwriting results in the Reinsurance Operations for the three months
ended March 31, 2000 and 1999 were adversely impacted by $5.5 million and
$1.9 million of catastrophe losses before tax, respectively. Catastrophe
losses in the first quarter of 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 of $16.4 million and
$10.8 million for the three months ended March 31, 2000 and 1999,
respectively. The results of operations for the three months ended March 31,
2000 benefited from an increase in home sales compared to the corresponding
period in 1999 (number of sales were 88 for the three months ended March 31,
2000 compared to 70 for the comparative period in 1999). Construction in
progress, including undeveloped land, was $95.4 million and $87.9 million at
March 31, 2000 and December 31, 1999, respectively.
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 96,825
Maturities and redemptions (12,158)
Proceeds from sales of investments (99,727)
Net realized gains 3,255
Change in unrealized gains and losses, net (4,536)
Net change in short-term investments (51,915)
Net accretion of bonds and preferred stocks and other changes 664
- ----------------------------------------------------------------------------------------------------------------------
Carrying value at March 31, 2000 $834,142
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>
The decrease in the investment portfolio was mainly attributable to 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.
14
<PAGE>
ZENITH NATIONAL INSURANCE CORP. AND SUBSIDIARIES
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (CONTINUED)
Bonds with an investment grade rating represented 94% and 95% of the carrying
values of bonds at March 31, 2000 and December 31, 1999, respectively. The
average maturity of the investment portfolio was 6.0 years at March 31, 2000 and
5.7 years at December 31, 1999.
Investment income was as follows:
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------
Three Months Ended
March 31,
(In thousands) 2000 1999
--------------------------------------------------------------------------------
<S> <C> <C>
Before tax $13,561 $13,325
After tax 9,071 8,888
--------------------------------------------------------------------------------
</TABLE>
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
March 31,
2000 1999
--------------------------------------------------------------------------------
<S> <C> <C>
Investment yield before tax 5.9% 5.5%
Investment yield after tax 4.0% 3.7%
--------------------------------------------------------------------------------
</TABLE>
The total fair value of fixed maturity investments, including short-term
investments, was $760.0 million and $834.3 million at March 31, 2000 and
December 31, 1999, respectively. At March 31, 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 $2.0 million after deferred tax from December 31, 1999 to March 31,
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 March 31, 2000 $(263) $(32,768) $(21,299)
At December 31, 1999 (340) (29,698) (19,304)
---------------------------------------------------------------------------------------
</TABLE>
PARENT
In the first quarter of 2000, Zenith National recorded $1.8 million of severance
costs associated with the termination provisions of an employment contract of a
company officer.
15
<PAGE>
ZENITH NATIONAL INSURANCE CORP. AND SUBSIDIARIES
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (CONTINUED)
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 from operations 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 March 31, 2000 and December 31, 1999 cash and short term
investments in the P&C Operations amounted to $67.4 million and $92.1 million,
respectively.
In the first quarter of 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 first quarter of 1999, $53.7 million of cash was used to pay
the balance of the purchase price for the RISCORP Acquisition.
Zenith National requires cash to pay any dividends declared to its
stockholders, pay interest and principal on its outstanding debt obligations
and to 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 million of such dividend payments,
including a dividend of $100 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 $73.1 million and $103.4 million at March
31, 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. On May 9, 2000 S&P announced that
that it had placed on credit watch the ratings of several insurance
companies, including Zenith, with significant California workers'
compensation exposure. S&P cited concerns about loss reserve adequacy in such
companies following a study by the California Workers' Compensation Insurance
Rating Bureau that indicates a significant loss reserve deficiency in the
California workers' compensation industry. On May 11, 2000,
16
<PAGE>
ZENITH NATIONAL INSURANCE CORP. AND SUBSIDIARIES
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (CONTINUED)
A.M. Best Company informed Zenith that the rating of its P&C Operations had
been reduced from A+ (Superior) to A (Excellent). The actions of such rating
agencies have had no material impact on Zenith's operations. However, because
of the available cash and short-term investments and available lines of
credit in Zenith National, Zenith has the flexibility, if necessary, to
contribute capital to the P&C Operations.
From time to time, Zenith may make repurchases of its outstanding common shares
or outstanding debt. At March 31, 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 March 31, 2000, Zenith National had two revolving, unsecured lines of credit
in an aggregate amount of $70.0 million, all of which was available at March 31,
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 March 31, 2000 and December 31, 1999, $18.7 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 at March
31, 2000 and $2.4 million December 31, 1999. 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 is now
considering amendments to the Codification that would also be effective upon
implementation. The NAIC has established January 1, 2001 as the effective date
of the Codification.
The California Department of Insurance has adopted the Codification.
Implementation of the Codification may affect the surplus level and the
capitalization requirements of the P&C Operations on a statutory basis. Zenith
has not determined the impact of the Codification.
17
<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 March
31, 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 $ 30,867 $117,203 $57,459 $46,558 $54,572 $321,558 $628,217
Weighted average interest rate 7.0% 6.6% 7.0% 9.3% 7.3% 8.6% 7.9%
Trading securities:
Fixed rate $ 2,914 $2,914
Weighted average interest rate 7.6% 7.6%
Short-term investments $128,820 $128,820
Debt and interest obligations:
Payable to banks and other
notes payable 13,923 $ 7,343 $ 1,721 $ 34 $ 406 23,427
Senior notes payable 5,625 5,625 65,313 76,563
Redeemable securities 2,865 5,729 5,729 5,729 5,729 $204,496 230,277
- -------------------------------------------------------------------------------------------------------------------------------
</TABLE>
18
<PAGE>
ZENITH NATIONAL INSURANCE CORP. AND SUBSIDIARIES
PART II, OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
3.1 Certificate of Incorporation of Zenith as in effect immediately prior
to November 22, 1985. (Incorporated herein by reference to Exhibit 3 to
Zenith's amendment on Form 8, date of amendment October 10, 1985, to
Zenith's Current Report on Form 8-K, date of report July 26, 1985.)
3.2 Certificate of Amendment to Certificate of Incorporation of Zenith,
effective November 22, 1985. (Incorporated herein by reference to
Zenith's Current Report on Form 8-K, date of report November 22, 1985.)
3.3 By-laws of Zenith, as currently in effect. (Incorporated herein by
reference to Exhibit 3.3 to Zenith's Annual Report on Form 10-K for
the year ended December 31, 1999).
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
(b) Reports on Form 8-K
Zenith filed a Current Report on Form 8-K, dated February 25, 2000, in
connection with the repurchase of the outstanding 9% Senior Notes and
the outstanding 8.55% Capital Securities.
19
<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: May 15, 2000 /s/ STANLEY R. ZAX
-----------------------------------
Stanley R. Zax
Chairman of the Board and President
(Principal Executive Officer)
Date: May 15, 2000 /s/ WILLIAM J. OWEN
-----------------------------------
William J. Owen
Senior Vice President
& Chief Financial Officer
(Principal Accounting Officer)
20
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 7
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-2000
<PERIOD-START> JAN-01-2000
<PERIOD-END> MAR-31-2000
<DEBT-HELD-FOR-SALE> 604,429
<DEBT-CARRYING-VALUE> 631,394
<DEBT-MARKET-VALUE> 631,131
<EQUITIES> 40,858
<MORTGAGE> 0
<REAL-ESTATE> 0
<TOTAL-INVEST> 833,879
<CASH> 11,846
<RECOVER-REINSURE> 332,520
<DEFERRED-ACQUISITION> 7,986
<TOTAL-ASSETS> 1,506,168
<POLICY-LOSSES> 871,994
<UNEARNED-PREMIUMS> 52,375
<POLICY-OTHER> 0
<POLICY-HOLDER-FUNDS> 0
<NOTES-PAYABLE> 83,559
0
0
<COMMON> 25,160
<OTHER-SE> 317,790
<TOTAL-LIABILITY-AND-EQUITY> 1,506,168
77,139
<INVESTMENT-INCOME> 13,561
<INVESTMENT-GAINS> 3,255
<OTHER-INCOME> 16,434
<BENEFITS> 74,467
<UNDERWRITING-AMORTIZATION> 13,503
<UNDERWRITING-OTHER> 13,797
<INCOME-PRETAX> (8,182)
<INCOME-TAX> (2,809)
<INCOME-CONTINUING> (5,373)
<DISCONTINUED> 0
<EXTRAORDINARY> 973
<CHANGES> 0
<NET-INCOME> (4,400)
<EPS-BASIC> (0.26)
<EPS-DILUTED> (0.26)
<RESERVE-OPEN> 0
<PROVISION-CURRENT> 0
<PROVISION-PRIOR> 0
<PAYMENTS-CURRENT> 0
<PAYMENTS-PRIOR> 0
<RESERVE-CLOSE> 0
<CUMULATIVE-DEFICIENCY> 0
</TABLE>
