Standard & Poor’s Ratings Services said that it revised its outlook on Zenith National Insurance Corp. and its subsidiaries to negative from stable after Zenith’s announcement on Jan. 20, 2003, that it has increased its workers’ compensation reserves by 4.5 percent ($30 million; $19.5 million after taxes) and its Feb. 4, 2003, announcement that, as a result, it has posted a net after-tax loss of $7.8 million for the fourth quarter of 2002.
Zenith posted a net after-tax profit of $10.2 million for 2002, and it has benefited from rates that, overall, were 18 percent higher in 2002 than in 2001 (27 percent higher in California). Moreover, the company estimates that in 2003, rates will be 21 percent higher overall (30 percent in California). S&P’s considers Zenith to be a disciplined writer of workers’ compensation insurance that has strengthened reserves in the past but generally has a history of posting conservative reserves. The holding company has drawn on its bank lines to contribute $45 million of additional capital to the operating companies to fund the reserve increase and the additional capital needed to support a higher level of operation. After taking into account these transactions, operating and holding company capitalization appear to meet S&P’s criteria for the current ratings at this time.
“There is concern that despite the strong premium increases Zenith has achieved and expects to achieve, loss costs in California could keep rising rapidly,” said S&P’s credit analyst Charles Titterton. “In addition, the organization, which has a market share of less than 3 percent in California, must contend with a tough competitive situation in the state.” S&P’s expects to meet with the company for its full annual review on March 6, 2003.
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