Zenith Merger Will Make Fairfax 7th Largest Workers’ Comp Writer in Calif.

February 19, 2010

Following Zenith National Insurance Corp.’s sell the company to Fairfax Financial Holdings Ltd., Toronto-based Fairfax will be the seventh-largest workers’ compensation insurer in the state, on a pro forma basis, based on analysis of SNL’s 2008 statutory market share data. SNL’s rankings include the State Compensation Insurance Fund (SCIF), the largest provider of workers’ comp insurance in California. Fairfax ranked 24th in the state in 2008.

Under the terms of the transaction announced yesterday, Zenith shareholders will receive $38 in cash for each Zenith share of common stock they own for a total transaction value of approximately $1.4 billion.

The deal puts the combined entity’s 5.24 percent market share in the state in front of The Hartford Financial Services Group Inc., which holds 3.51 percent of the state’s workers’ comp market share, and behind Berkshire Hathaway Inc.’s 5.74 percent market share in California, SNL said. Even after the deal, SCIF will still hold the greatest share of business in the state, with 22.58 percent of the market.

Zenith, which is licensed to write policies in more than 40 states and generated a total of $605.6 million of workers’ comp direct premiums written in 2008, has its highest concentration of business in California and Florida. It wrote more than half of its business in California in 2008, with $325.5 million in direct premiums written. In Florida, Zenith wrote $151.8 million in workers’ comp direct premiums in 2008.

Fairfax Financial, through its operating subsidiaries, wrote a total of $75 million in California workers’ comp direct premiums in 2008

Zenith Chairman and CEO Stanley Zax, said in a statement, “We believe the transaction will benefit our key constituents and enable our shareholders to realize compelling value for their investment in Zenith.”

Following completing of the merger, which is still subject to regulatory approval, there will be no changes in Zenith’s strategic or operating philosophy, said Prem Watsa, Fairfax chairman and CEO. “Zenith will continue to operate its business as it always has been run under Stanley’s excellent leadership, with investment management centralized at Fairfax. All other Fairfax group companies will continue to operate independently on a decentralized basis.”

Source: SNL. Additional reporting by Patricia-Anne Tom

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