S&P Downgrades Zenith National Co. to “BB”

May 22, 2002

Standard & Poor’s said it lowered its counterparty credit rating on Zenith National Insurance Corp. (ZNT) to double-‘B’-plus from triple-‘B’-minus and its ratings on ZNT’s affiliates, Zenith Insurance Co. and ZNAT Insurance Co. (Zenith), to triple-‘B’-plus from single-‘A’-minus due to poor but improving operating results in workers’ compensation and large losses in 2000 and 2001 in assumed reinsurance. It also said the outlook is stable.

“The Zenith organization has a long history of successful operations,” observed credit analyst Charles Titterton, “but has suffered in recent years because of bad conditions in its primary workers’ compensation markets. Assumed reinsurance, a secondary line also written for many years, has generally been profitable but has suffered heavy losses from weather-related events and from the terrorist attacks on the World Trade Center.”

By consistently adhering to its strategy, Zenith has positioned itself to take advantage of good conditions in the California market for the next year or two, despite the activities of the State Fund. Results in California should be good enough to outweigh lackluster results in Florida. If profitability in assumed reinsurance is at roughly the average of what Zenith has produced in this line over the years, ZNT and Zenith should record satisfactory earnings through at least 2002. Capitalization should remain satisfactory and perhaps continue to be a marginal strength for the rating.

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