Zenith National Affirmed

Standard & Poor’s Ratings Services affirmed its “BB+” counterparty credit rating and “B+”‘ preferred stock rating on Zenith National Insurance Corp. S&P also affirmed its “BBB+” counterparty credit and financial strength ratings on Zenith’s rated operating companies Zenith Insurance Co. and ZNAT Insurance Co. At the same time, S&P revised its outlook on all the ratings to positive from stable.

The positive outlook is driven by two recent favorable developments and the company’s exceeding expectations for earnings and capitalization, according to S&P. The main development is the emerging benefits from California workers’ compensation reforms. The second development is the conversion of $80 million of debt into equity in the second quarter of 2005, driving debt-to-capital down from 26 percent at year-end 2004 to 14 percent as of June 30, 2005.

Zenith’s strengths include its very strong earnings, favorable conditions in its core markets, strong and improved capitalization, decreased financial leverage, strong competitive position in California workers’ comp, and record of outperforming the California workers’ comp industry throughout the cycle.

Partially offsetting weaknesses are the company’s geographic and line of business concentrations, and its exposure to property/catastrophe volatility from the smaller assumed reinsurance segment. S&P expects underwriting results to remain very strong with a combined ratio of about 85-86 percent for the remainder of 2005. Workers’ comp results should be very strong in Zenith’s largest markets–California and Florida.

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