Fitch Upgrades Zenith's IFS and Debt Ratings

Business Wire, March 21, 2006

CHICAGO -- Fitch Ratings has upgraded to 'A' from 'A-' the insurer financial strength (IFS) ratings of Zenith National Insurance Corp.'s (Zenith National) insurance subsidiaries, Zenith Insurance Company (Zenith Insurance) and ZNAT Insurance Company, referred to collectively as Zenith. Fitch has also upgraded Zenith National's Issuer Default Rating (IDR) to 'BBB ' from 'BBB', convertible senior note rating to 'BBB' from 'BBB-', and the rating of Zenith National Insurance Capital Trust I securities to 'BBB-' from 'BB '. The Rating Outlook is Stable.

Fitch's rating actions reflect Zenith's improved profitability profile, as evidenced by better than expected workers' compensation underwriting results over the last several years. The upgrades also reflect the company's improved operating profile as a result of its recent exit from the reinsurance business. Fitch views this decision favorably given the inherent volatility of reinsurance and the recent poor underwriting performance due to sizable hurricane losses in the last two years.

The ratings also reflect Zenith's disciplined underwriting focus and strong capitalization. Partially offsetting these positives are business line and geographical concentration risks, with a heavy concentration in the competitive California and Florida workers' compensation markets, and significant underwriting losses over the 1997-2002 period.

Fitch anticipated that 2004 might be the peak operating performance year for Zenith. However, operating results continued to improve in 2005 and still may not have peaked as Zenith's quarterly combined ratios for workers' compensation have continued to trend downward in 2005. Zenith posted a GAAP combined ratio of 80.9% for workers' compensation in 2005, improved from a favorable 88.5% in 2004 and 95.9% in 2003.

This overall improvement has been driven by better market pricing conditions in workers' compensation, and a significant drop in the loss ratio due to lower long-term claims-frequency trends and, more recently, favorable short-term trends in loss costs, particularly permanent disability medical costs, as a result of the recent legislative reforms in California.

In addition, Zenith has continued to set its reserves conservatively, such that if favorable workers' compensation inflation trends in California do not reverse, reserves for the more recent 2003-2005 accident years could prove to be redundant.

Zenith's competitive strategy focuses on profitability through maintaining underwriting discipline and pricing risks accordingly. The company does not set growth targets and is not a low-cost provider, allowing premium volume to fluctuate based on market conditions. Zenith has demonstrated its underwriting discipline and expertise in the volatile period since open rating began in California in 1995, consistently generating workers' compensation accident-year and calendar-year loss ratios that are appreciably better than industry averages, both in California and nationwide.

Insurance company statutory surplus grew 170% over the most recent four-year period, from $254 million at year-end 2001 to $686 million at Dec. 31, 2005, driven by the improved operating results and increased investment gains in addition to capital contributions from Zenith National. Zenith National's capital mix is very prudent, consisting of less than 1% debt, 8% hybrid trust preferred, and 92% common equity.

Fitch upgrades the following ratings with a Stable Rating Outlook:

Zenith National Insurance Corp

-- IDR to 'BBB ' from 'BBB'

-- $1.2 million 5.75% convertible senior notes due March 30, 2023 to 'BBB' from 'BBB-'.

Zenith National Insurance Capital Trust I

-- $59 million 8.55% trust preferred securities due Aug. 1, 2028 to 'BBB-' from 'BB '.

Zenith Insurance Company

ZNAT Insurance Company

-- IFS to 'A' from 'A-'.

The following rating was withdrawn by Fitch:

Zenith Star Insurance Company

-- IFS rating of 'A-'.

Fitch's rating definitions and the terms of use of such ratings are available on the agency's public site, www.fitchratings.com. Published ratings, criteria and methodologies are available from this site, at all times. Fitch's code of conduct, confidentiality, conflicts of interest, affiliate firewall, compliance and other relevant policies and procedures are also available from the 'Code of Conduct' section of this site.