Fitch Rates Zenith's Debt Issue 'BBB-'; Outlook to Negative

Business Wire, March 19, 2003

Business Editors

CHICAGO--(BUSINESS WIRE)--March 19, 2003

Fitch Ratings has assigned a 'BBB-' rating to Zenith National Insurance Corp.'s (Zenith National) $110 million private offering of convertible senior notes. Fitch has also affirmed Zenith National's long-term issuer rating of 'BBB-' and the 'BB ' rating of Zenith National Insurance Capital Trust I securities. In addition, Fitch has affirmed the 'A-' insurer financial strength ratings of Zenith National's three insurance subsidiaries, Zenith Insurance Company (Zenith Insurance), ZNAT Insurance Company and Zenith Star Insurance Company. The Rating Outlook has been revised to Negative from Stable.

The Negative Rating Outlook reflects the challenges still present in the competitive workers' compensation line of business, particularly in California, where approximately 55% of the company's workers' compensation premium was earned in 2002. While Fitch believes that Zenith is well positioned relative to peers to take advantage of the current window of opportunity in the hardening workers' compensation market, Fitch is concerned with increasing claims severity trends, driven mainly by higher medical inflation rates, that have resulted in unfavorable prior year reserve development for accident years 2000 and 2001. For Zenith to maintain the current rating level, Fitch expects any additional adverse prior year reserve development to be minimal and a continued improvement in the combined ratio to approximately 100% in 2003.

The net proceeds from the convertible debt offering will be utilized to repay $45 million of outstanding indebtedness borrowed in January 2003 under its existing bank lines and for general corporate purposes. The debt carries an interest rate of 5.75% and matures in 2023. The conversion rate is 40 shares per $1,000 principal, which is equivalent to $25.00 per share. Also, holders of the notes have an option to require Zenith to convert the notes upon the occurrence of certain events, including a reduction in the notes credit rating by a peer rating agency below a specified level.

Zenith National's capital mix at December 31, 2002 consisted of 17.2% hybrid trust preferred and 82.8% common equity. Subsequent to this debt issuance, Fitch estimates Zenith National's pro-forma equity credit adjusted debt to total capitalization at 27.5%. Fitch's expectation is that financial leverage will not increase above this level.

Zenith National's ratings continue to reflect a disciplined underwriting focus, improved operating results in 2002, strong capitalization, and overall conservative and liquid investment portfolio. Partially offsetting these positives are business line and geographical concentration risks, poor operating performance in recent years (1999-2001), increased financial leverage and a somewhat higher exposure to below investment grade bonds than industry averages.

Zenith is a specialty insurer licensed in 46 states with current operations consisting principally of workers' compensation insurance, with a heavy concentration in California and Florida where almost 75% of the company's workers compensation premium was earned in 2002. The company also has reinsurance operations that selectively underwrite world-wide assumed treaty reinsurance of property losses from catastrophes and large property risks.

Entity/Issue/Type Action Rating/Outlook

Zenith National Insurance Corp.

-- Convertible senior notes Assigned 'BBB-'/Negative;

-- Long-term issuer Affirmed 'BBB-'/Negative.

Zenith National Insurance Capital Trust I

-- Trust preferred securities Affirmed 'BB '/Negative.

Zenith Insurance Company

-- Insurer financial strength Affirmed 'A-'/Negative.

ZNAT Insurance Company

-- Insurer financial strength Affirmed 'A-'/Negative.

Zenith Star Insurance Company

-- Insurer financial strength Affirmed 'A-'/Negative.