Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act: Yes X No

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Act: Yes No X

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days. Yes X No

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a small reporting company. See definitions of "large accelerated filer," "accelerated filer," and "smaller reporting company" in Rule 12b-2 of the Exchange Act. (Check one):

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act): Yes No X

The aggregate market value of the voting and non-voting common equity of the registrant held by non-affiliates was $1,279,629,000 (based on the closing price for such common equity reported by the New York Stock Exchange for June 30, 2008, the last business day of the registrant's most recently completed second quarter).

At January 31, 2009, there were 37,324,000 shares of Zenith National Insurance Corp. common stock outstanding, net of 7,695,000 shares of treasury stock.

(1) Portions of the Annual Report to Stockholders for fiscal year ended December 31, 2008 — Part I and Part II.

(2) Portions of the Proxy Statement in connection with the 2009 Annual Meeting of Stockholders — Part III.

Zenith National Insurance Corp. ("Zenith National"), a Delaware corporation incorporated in 1971, is a holding company engaged, through its wholly-owned subsidiaries, Zenith Insurance Company ("Zenith Insurance") and ZNAT Insurance Company ("ZNAT Insurance") (collectively, "Zenith"), in the workers' compensation insurance business, nationally. Unless otherwise indicated, all references to "Zenith," "we," "us," "our," "Company" or similar terms refer to Zenith National together with its subsidiaries.

Zenith's insurance subsidiaries have been assigned a financial strength rating of A (Excellent) by A.M. Best Company ("A.M. Best"), A3 (Good) by Moody's Investors Service ("Moody's"), A- (Strong) by Standard & Poor's Rating Services ("S&P"), and A (Strong) by Fitch Ratings ("Fitch").

At December 31, 2008, Zenith had approximately 1,600 full-time employees. The principal executive offices of Zenith are located at 21255 Califa Street, Woodland Hills, California 91367-5021, telephone (818) 713-1000.

Zenith's Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, and all amendments to those reports, Proxy Statement for its Annual Meeting of Stockholders and Annual Report to Stockholders (which is filed as an exhibit to this report) are made available free of charge on our website at www.thezenith.com as soon as reasonably practicable after such reports have been electronically filed with or furnished to the Securities and Exchange Commission. Also available on our website are the following corporate governance materials: Code of Business Conduct; Code of Ethics for Senior Financial Officers (which applies to Zenith's Chief Executive Officer, Chief Financial Officer, Vice President of Accounting and Controller); Corporate Governance Guidelines; and Charters of the Audit Committee, Compensation Committee, Nominating and Corporate Governance Committee and Healthcare Committee. In addition, amendments to, or waivers of, the Code of Ethics for Senior Financial Officers will be posted to our website or contained in a Form 8-K filed within four business days after any such amendment or waiver. Any of the foregoing material may also be obtained, free of charge by written request to: Corporate Secretary, Zenith National Insurance Corp., 21255 Califa Street, Woodland Hills, CA 91367-5021.


Combined ratio		Expressed as a percentage, is a key measurement of profitability traditionally used in the property-casualty insurance business. The combined ratio, also referred to as the "calendar year combined ratio," is the sum of the losses and loss adjustment expense ratio and the underwriting and other operating expense ratio. The losses and loss adjustment expense ratio is the percentage of the net losses and loss adjustment expenses incurred to net premiums earned. The underwriting and other operating expense ratio is the percentage of underwriting and other operating expenses to net premiums earned. When the calendar year combined ratio is adjusted to exclude prior period items, such as loss reserve development and policyholders' dividends, it becomes the "accident year combined ratio," a non-GAAP financial measure.
Development		The amount by which estimated losses, measured subsequently by reference to payments and additional estimates, differ from those originally reported for a period. Development is favorable when losses ultimately settle for less than the amount reserved or subsequent estimates indicate a basis for reducing loss reserves on open claims. Development is unfavorable when losses ultimately settle for more than the levels at which they were reserved or subsequent estimates indicate a basis for reserve increases on open claims. Favorable or unfavorable development of loss reserves is reflected in our Consolidated Statements of Operations in the period the change is made.
Experience modification factor		A policy premium factor reflecting the insured employer's historical loss experience.
Excess of loss reinsurance		A form of reinsurance in which the reinsurer pays all or a specified percentage of a loss caused by a particular occurrence or event in excess of a fixed amount and up to a stipulated limit.
GAAP		Accounting principles generally accepted in the United States of America.
Incurred but not reported claims		Claims relating to insured events that have occurred but have not yet been reported to the insurer or reinsurer.
Loss adjustment expenses		The expenses of investigating, administering and settling claims, including legal expenses.
Loss ratio		Net losses incurred expressed as a percentage of net premiums earned.
Losses and loss adjustment expense ratio		The sum of net losses and loss adjustment expenses incurred, expressed as a percentage of net premiums earned.
Loss reserves		The balance sheet liability representing estimates of amounts needed to pay reported and unreported claims and related loss adjustment expenses.


Net premiums earned		The portion of net premiums written applicable to the expired period of policies.
Policyholders' dividends		Payments to policyholders on a type of policy upon which a portion of the premium may be repaid to the policyholder after expiration depending upon the loss experience.
Policyholders' surplus		The amount remaining after all liabilities are subtracted from all admitted assets, as determined in accordance with statutory accounting practices. This amount is regarded as financial protection to policyholders in the event an insurance company suffers unexpected or catastrophic losses.
Premiums in-force		Premiums billed or to be billed on all unexpired policies.
Reinstatement premium		An additional premium paid after a claim on a catastrophe reinsurance contract to renew the contract for the unexpired term.
Reinsurance		A transaction between insurance companies in which an original insurer, or ceding company, remits a portion of the premium to a reinsurer, or assuming company, as payment for the reinsurer's assumption of a portion of the risk.
Retention		The amount of loss(es) from a single occurrence or event which is paid by the company issuing the insurance policy prior to the attachment of excess of loss reinsurance.
Retrospectively-rated policy		A policy containing a provision for determining the insurance premium for a specified policy period on the basis of the loss experience for the same period.
Statutory accounting practices		Accounting practices promulgated by the National Association of Insurance Commissioners and prescribed or permitted by the states' departments of insurance. In general, statutory accounting practices address policyholders' protection and solvency and are more conservative than GAAP in presentation of earnings, surplus and assets.
Treaty		A contract of reinsurance.
Underwriting		The process whereby an insurer reviews applications submitted for insurance coverage and determines whether to accept all or part, and at what premium, of the coverage being requested.
Underwriting income (loss)		The income (loss) before tax from the workers' compensation and reinsurance segments determined by deducting losses and loss adjustment expenses incurred and underwriting and other operating expenses from net premiums earned.
Underwriting expenses		The aggregate of policy acquisition costs and the portion of administrative, general and other expenses attributable to the underwriting process as they are accrued and expensed.
Underwriting and other operating expense ratio		Underwriting and other operating expenses expressed as a percentage of net premiums earned.

We are in the business of managing insurance and investment risk. Our main business activity is the workers' compensation insurance business. In addition, we invest the net cash flow from our operations and our capital principally in fixed maturity securities. These investments provide a stable source of income over the long-run, although in the short-term, changes in interest rates impact the amount of investment income we earn. We measure our performance over the long-term by our ability to increase stockholders' equity, including dividends.

Our business is comprised of the following segments: workers' compensation, reinsurance and investments. In September 2005, we exited the assumed reinsurance business. The key operating goal for our workers' compensation segment is to achieve underwriting profits and significantly outperform the national workers' compensation industry. Net earned premiums, segment results and the combined ratios of our workers' compensation and reinsurance segments and results of our investments segment, as well as the losses from the parent for each of the three years ended December 31, 2008, are set forth in Note 15 — "Segment Information" of our Consolidated Financial Statements in our 2008 Annual Report to Stockholders and are hereby incorporated by reference.

In the workers' compensation segment, we provide insurance coverage for the statutorily prescribed benefits that employers are required to provide to their employees who may be injured in the course of employment. Our workers' compensation policies are issued to employers who also pay the premiums. The policies provide payments for covered, injured employees of the policyholder for, among other things, temporary or permanent disability benefits, death benefits and medical and hospital expenses. The benefits payable and the duration of such benefits are set by statute, and vary by state and with the nature and severity of the injury or disease and the wages, occupation and age of the employee.

Our long-term underwriting and pricing strategy in the national workers' compensation industry is to deliver quality services based on adequate premium rates for the exposure. During periods of intense competition or other adverse industry conditions, our exposure base as measured by insured payroll may decrease as employers buy coverage elsewhere because we adhere to a long-standing operating principle that we will not compromise the adequacy of our premium rates in order to achieve revenue or market share objectives. Our value proposition is that our services, over the long-run, provide employers the opportunity to reduce their experience modification factor and their long-term workers' compensation costs. We write workers' compensation insurance in 45 states and have nine office locations in California, three in Florida, two in Illinois, and offices in each of Texas, Pennsylvania, North Carolina and Alabama. Our primary office locations consist of teams of Zenith employees providing the following services to our insureds:

Our specialist strategy is focused on providing quality services to our insureds and claimants, generating underwriting profits and delivering an above average return to our stockholders over time. This strategy has resulted in a long-term record of significantly outperforming the industry, as shown in the following table which compares our California workers' compensation accident year loss ratios to the accident year loss ratios estimated by the Workers' Compensation Insurance Rating Bureau ("WCIRB") for the California workers' compensation industry over 30 years:

We have a shorter history in writing business outside of California, but our specialist strategy has delivered similar results as shown in the following table which compares our non-California workers' compensation accident year loss ratios to the accident year loss ratios estimated by the National

Council on Compensation Insurance, Inc. ("NCCI") for the workers' compensation industry over seven years:

Our business is concentrated in California and Florida, which makes the results of our operations dependent on trends that are characteristic of these states as compared to national trends. For example, state legislation, local competition, economic and employment trends, and workers' compensation medical inflation trends in such states can be material to our results.

In California, workers' compensation reform legislation was enacted in October 2003 and April 2004 with the principal objectives of lowering the trend of increasing costs and improving fairness in the system. In Florida, legislation was enacted effective October 1, 2003, which provided changes to the workers' compensation system. Additional information regarding the legislative reforms is set forth under "Workers' Compensation Reform Legislation" in the Management's Discussion and Analysis of Consolidated Financial Condition and Results of Operations in our 2008 Annual Report to Stockholders and is hereby incorporated by reference.

Generally, premiums for all of our workers' compensation insurance policies are a function of: 1) the applicable premium rate; 2) the amount of the insured employer's payroll; and 3) if applicable, a factor reflecting the insured employer's historical loss experience (the "experience modification factor"). Premium rates vary according to the nature of the employee's duties and the business of the employer; for example, in California there are currently approximately 500 different classes into which employees are grouped for rating purposes. The policy premium is computed by applying the applicable premium rate to the payroll in each class of the employer's business. Total policy premium is determined after applying the experience modification factor and a further adjustment, known as a schedule rating adjustment, may be made, in certain circumstances, to increase (debit) or decrease (credit) the policy premium. Schedule rating adjustments are made at the discretion of the underwriter based on the individual risk characteristics of the employer and subject to maximum amounts as established in our rate filings. A deposit premium is paid at the beginning of the policy period, periodic installments are paid during the policy period and the final amount of the premium is generally determined at the end of the policy period after the policyholder's payroll records are audited.

Our workers' compensation premium revenues will fluctuate depending upon the general level of our premium rates and the number and size of the businesses we insure. Additional factors impacting our revenues include the general level of employment and wages in the businesses we insure, changes in our insured's experience modification factors and the amount of schedule rating credits or debits applied by our underwriters, as well as our pricing and underwriting strategy compared to our competition.

Except in those states, primarily Florida, where premium rates for workers' compensation insurance are set by state regulations, our premium rates for workers' compensation are determined by our actuaries for each state in which we do business. In California, the state in which the largest amount of our workers' compensation premiums are earned, we set our own rates based upon actuarial

analysis of current and anticipated loss cost trends. Although the California Insurance Commissioner does not set workers' compensation premium rates, the California Insurance Commissioner adopts and publishes Claims Cost Benchmarks (previously called advisory pure premium rates). The benchmark rates cover expected loss costs but generally do not contain an element to cover operating expenses or profit. We are not required to use these California benchmark rates. We therefore set our own rates, which are continually reviewed for adequacy using actuarial analysis of current and anticipated trends in costs. As a result of favorable loss cost trends originating from the 2003 and 2004 legislative reforms in California, discussed above, we reduced our California premium rates in a manner that we believe dealt prudently with the uncertainty about the long-term outcome of loss cost trends for the accident years most affected by the reforms. Effective January 1, 2009, we increased our California rates 4% due to increasing medical costs. Our future California premium rate decisions will continue to be based on data about loss cost trends and upon modifications to the workers' compensation system while maintaining our goal of achieving underwriting profits and outperforming the national workers' compensation industry.

Net premiums earned for each of the three years ended December 31, 2008 for California, Florida and other states, are set forth in the table below:

In certain circumstances, a policyholder may be eligible for a return of a portion of the premium based on the loss experience during the policy term, by way of a dividend, calculated and paid after the policy has expired. Alternatively, the policyholder's premium may be adjusted after expiration using a retrospective-rating formula based on losses sustained under the policy. Such retrospective adjustments can result in additional premium due from the policyholder if loss experience is worse than expected or a premium refund if loss experience is better than expected. Although we offer these types of loss-sensitive policies and have written a small number of them, we generally have written policies with a guaranteed cost based on premium rates, insured employer's payrolls and experience modification factors. In addition, Florida statutes require payment of additional policyholder dividends to Florida policyholders pursuant to a formula based on underwriting results.

In 2005, we exited the assumed reinsurance business and ceased writing and renewing assumed reinsurance contracts. As of December 31, 2006, all of these assumed reinsurance contracts had fully expired, although we will be paying our assumed reinsurance claims for several years. The results of the reinsurance segment will continue to be included in the results of continuing operations, primarily consisting of any changes to loss reserve estimates.

Our assumed reinsurance business was primarily focused on assuming worldwide property losses from catastrophes and large property risks. In addition, we also wrote liability reinsurance from 1985 through approximately 2001 including general business liability, directors' and officers' liability and excess or umbrella coverage.

Estimating catastrophe losses in the reinsurance business is highly dependent upon the nature and timing of the event and our ability to obtain timely and accurate information with which to estimate our liability to pay losses. Estimates of the impact of catastrophes on the reinsurance segment are based on the information that is currently available and such estimates could change based on new

information that becomes available or based upon the reinterpretation of existing information. There were no catastrophe losses recognized in 2008. In both 2007 and 2006, we recognized additional estimated losses attributable to the 2005 hurricanes of $3.0 million ($2.0 million after tax) and $19.9 million ($12.9 million after tax), respectively.

Zenith's investment portfolio is recorded in the financial statements primarily at fair value and was approximately $2.0 billion at December 31, 2008 as set forth on page F-3 of this Annual Report on Form 10-K. Average maturity of the fixed maturity portfolio was approximately 5 and 4 years at December 31, 2008 and 2007, respectively. The portfolio quality is high, with approximately 93% of fixed maturity securities, including short-term investments, rated investment grade at December 31, 2008 and 2007.

Our investments department invests the funds made available by our capital and the net cash flow from operations. The objective of our investments segment is to provide a stable source of investment income over the long-term and net realized gains on investments, primarily from investments in fixed maturity securities, consistent with policy guidelines and taking into consideration state regulatory restrictions on investments in our insurance subsidiaries. We manage our investment portfolio ourselves and do not rely on external investment managers. We invest a small percentage of our portfolio in equity securities. The allocation of the portfolio among various types of securities is adjusted from time to time based on market conditions, credit conditions, tax policy, fluctuations in interest rates and other factors. As of December 31, 2008, we did not have any sub-prime mortgages, derivative securities or other credit-enhancement exposures. We only invest in mortgage-backed securities that carry the full faith and credit guaranty of the U.S. Government (GNMAs). We do not engage in securities lending. From time to time, we also make investments in limited partnerships, limited liability companies and real estate joint ventures. The limited partnerships and limited liability companies make long-term strategic investments in corporations, many of which are not publicly traded, with a view toward ultimately exiting the investment position, sometimes after many years. We are not currently active in any real estate joint ventures.

Net investment income before tax was $94.0 million in 2008 compared to $114.9 million and $106.3 million in 2007 and 2006, respectively. Net realized losses on investments were $18.5 million in 2008 compared to net realized gains of $20.4 million and $13.4 million in 2007 and 2006, respectively.

Additional information regarding our investment portfolio, including our approach to managing investment risk, is set forth under "Investments" and "Market Risk of Financial Instruments" in the Management's Discussion and Analysis of Consolidated Financial Condition and Results of Operations ("MD&A") and Note 3 and 4 of our Consolidated Financial Statements in our 2008 Annual Report to Stockholders, which is incorporated by reference.

The parent represents the holding company activities of Zenith National, which owns, directly or indirectly, all of the capital stock of its insurance and non-insurance subsidiaries. The parent loss reflects the operating expenses incurred in the holding company activities, such as stock exchange listing and other licensing fees; directors' fees; and legal, auditing and other administrative fees. Interest expense incurred on outstanding debt pursuant to financing and refinancing activities is also a part of the parent loss.

Accounting for the workers' compensation and reinsurance segments requires us to estimate the liability for the expected ultimate cost of unpaid losses and loss adjustment expenses ("loss reserves") as of the balance sheet date. Loss reserves are estimates and are inherently uncertain; they do not and cannot represent an exact measure of ultimate liability. Loss reserve estimates represent a significant risk to the business which we attempt to mitigate by continually reviewing loss cost trends, attempting to set our premium rates to adequately cover anticipated costs and by disciplined management of our claims servicing organization. We endeavor to minimize the estimation risk by performing a comprehensive review of our loss reserves every quarter. Estimating loss reserves is an uncertain and complex process which involves a combination of actuarial techniques and management judgment to establish the most reasonably accurate estimate of loss reserves based on the most recent relevant data. Because we have a long history in the workers' compensation business, particularly in California, we give weight to our own data as well as external information in determining our loss reserve estimates. No assurance can be given whether the ultimate liability for unpaid losses will be more or less than our current estimates.

The amount by which estimated losses, measured subsequently by reference to payments and additional estimates, differ from those originally reported for a period is known as "development." Development is favorable when losses ultimately settle for less than the amount reserved or subsequent estimates indicate a basis for reducing loss reserves on open claims. Development is unfavorable when losses ultimately settle for more than the levels at which they were reserved or subsequent estimates indicate a basis for reserve increases on open claims. Favorable or unfavorable development of loss reserves is reflected in our results of operations in the period in which the change is made.

Additional information regarding loss reserve estimates and loss reserve development is set forth under "Loss Reserves" in the MD&A in our 2008 Annual Report to Stockholders and is hereby incorporated by reference.

Reference is made to the table setting forth the reconciliation of changes in the liabilities for losses and loss adjustment expenses included in Note 7 — "Unpaid Losses and Loss Adjustment Expenses" of our Consolidated Financial Statements in our 2008 Annual Report to Stockholders, which is hereby incorporated by reference.

The following table shows the subsequent development of our liability for unpaid losses and loss adjustment expenses based on the original estimate in accordance with GAAP at December 31 of each year presented.



(Dollars in thousands)		2008		2007		2006		2005		2004		2003			2002			2001			2000			1999			1998

Liability for unpaid losses and loss adjustment expenses, net			$1,005,590		$1,126,808		$1,301,076		$1,459,797		$1,212,032		$990,877			$825,869			$742,678			$634,172			$605,250			$708,684

Paid, net (cumulative) as of:
	One year later				298,843		310,470		349,910		308,179		298,664			281,043			239,098			243,506			235,968			271,019
	Two years later						499,280		554,330		479,465		484,077			470,663			431,015			370,100			384,011			414,432
	Three years later								680,808		591,279		593,334			590,107			543,067			452,727			457,717			500,672
	Four years later										673,296		670,789			661,999			617,567			517,173			509,915			546,076
	Five years later												729,998			717,472			664,244			563,998			550,698			582,092
	Six years later															762,837			702,550			595,706			582,425			609,369
	Seven years later																		736,912			621,362			604,446			630,263
	Eight years later																					644,633			622,387			645,272
	Nine years later																								639,924			659,091
	Ten years later																											673,110

Liability, net re-estimated as of:
	One year later				1,048,700		1,191,275		1,318,475		1,185,132		1,004,243			840,084			771,846			638,519			636,130			753,508
	Two years later						1,079,827		1,253,674		1,149,288		1,053,834			905,542			802,822			651,266			635,750			753,511
	Three years later								1,125,997		1,116,111		1,066,366			983,004			845,662			670,797			638,920			740,559
	Four years later										1,003,509		1,068,342			999,090			907,177			703,470			650,849			751,546
	Five years later												1,000,303			1,017,732			917,474			758,129			673,928			752,039
	Six years later															985,915			934,390			765,019			723,829			778,543
	Seven years later																		919,555			776,861			731,454			818,529
	Eight years later																					770,032			737,403			825,020
	Nine years later																								735,328			828,560
	Ten years later																											828,285

Favorable (unfavorable) development, net					78,108		221,249		333,800		208,523		(9,426	)		(160,046	)		(176,877	)		(135,860	)		(130,078	)		(119,601	)
Net liability — December 31,			1,005,590		1,126,808		1,301,076		1,459,797		1,212,032		990,877			825,869			742,678			634,172			605,250			708,684
Receivable from reinsurers and state trust funds for unpaid losses			268,996		326,562		221,204		243,648		270,287		229,872			215,663			204,144			243,711			275,679			288,963

Gross liability — December 31,			1,274,586		1,453,370		1,522,280		1,703,445		1,482,319		1,220,749			1,041,532			946,822			877,883			880,929			997,647
Re-estimated liability, net					1,048,700		1,079,827		1,125,997		1,003,509		1,000,303			985,915			919,555			770,032			735,328			828,285
Re-estimated receivable from reinsurers and state trust funds for unpaid losses					280,689		273,016		271,629		275,707		269,256			245,231			229,822			246,981			279,399			333,625

Re-estimated liability, gross					1,329,389		1,352,843		1,397,626		1,279,216		1,269,559			1,231,146			1,149,377			1,017,013			1,014,727			1,161,910
Favorable (unfavorable) development, gross					123,981		169,437		305,819		203,103		(48,810	)		(189,614	)		(202,555	)		(139,130	)		(133,798	)		(164,263	)

The accounting policies used to estimate the liabilities in the preceding table are described in Note 2 — "Summary of Accounting Policies" of our Consolidated Financial Statements in our 2008 Annual Report to Stockholders, and are hereby incorporated by reference.

The first line in the table shows the liability for unpaid losses and loss adjustment expenses, net of reinsurance, as estimated at the end of each calendar year and recorded as of the balance sheet date for each of the indicated years.

The first section of the table following the first line shows the cumulative actual payments of losses and loss adjustment expenses, net of reinsurance, that relate to each year-end liability as they were paid as of the end of subsequent annual periods.

The second section of the table shows revised estimates as of each subsequent calendar year of the original unpaid amounts, net of reinsurance, that are based on the subsequent payments plus re-estimates of the remaining unpaid liabilities.

The line labeled "Favorable (unfavorable) development, net" represents the aggregate change in the initial estimates from the original balance sheet date indicated through December 31, 2008. These amounts have been reported in earnings over time as a component of losses and loss adjustment expenses incurred. The favorable or adverse net development shown in each column should be viewed independently of the other columns because components of the development shown in recent years are also included as components of development in older years.

The last line in the table on the previous page titled "Favorable (unfavorable) development, gross" includes $97.3 million of adverse development of the December 31, 2006 gross liability as of December 31, 2007 because in 2007 we incorporated industry-wide loss development factors in addition to using our own historical claims data to estimate our workers' compensation ceded loss reserves. This increase was fully offset by the increase in receivable from reinsurers as reflected in the line titled "Re-estimated receivable from reinsurers and state trust funds for unpaid losses" as of December 31, 2007. This adverse development on ceded losses is also included as a component of development in older years, as well as in the re-estimated receivable from reinsurers.

The information in the table provides our historical track record of reserving accuracy for unpaid losses and loss adjustment expenses as of each calendar year-end presented. However, since conditions and trends that have affected losses and loss adjustment expense development in the past may not occur in the future in exactly the same manner, if at all, future results may not be reliably predicted by extrapolation of the data presented. We believe our loss reserve estimates are adequate as of the end of 2008. However, due to the inherent uncertainties underlying our loss reserve estimates, and as we receive new information and update our assumptions over time regarding the ultimate liability, our loss reserves may prove to be inadequate to cover our actual losses, or they may prove to exceed the ultimate amount of our actual losses.

Net development of loss reserves shown in the table above includes the following:

In addition, the following significant transactions occurred during the period covered by the unpaid losses and loss adjustment table:

In accordance with general insurance industry practices, we purchase excess of loss reinsurance to protect us against the impact of large, irregularly-occurring losses in the workers' compensation segment. Such reinsurance reduces the magnitude of the impact of such losses on net income and the capital of Zenith Insurance. We maintain excess of loss and catastrophe reinsurance which provides protection up to $150 million for workers compensation losses and up to $200 million for catastrophe losses arising out of California earthquakes. We retain the first $5 million of each loss. In the layer of $5 million in excess of $5 million we retain any losses that exceed our annual aggregate limit of $25 million. In the layer of $10 million excess of $10 million we retain 50%.

Swiss Reinsurance America Corporation ("Swiss Re") provides the reinsurance protection of $5 million in excess of the $5 million retention. The principal companies providing the current coverage between $10 million and $200 million are Arch Reinsurance Company, Odyssey America Reinsurance Corporation, Swiss Re, Transatlantic Reinsurance Company, Axis Specialty Limited, ACE Tempest Reinsurance Limited, ACE Property and Casualty Insurance Company, Hannover Reinsurance LTD, Hannover Ruckversicherung AG, Munich Reinsurance America, Incorporated, Aspen Insurance UK LTD, Platinum Underwriters Bermuda, LTD, Allied World Assurance Company LTD, Houston Casualty Company and various Lloyd's syndicates.

We maintain excess of loss and catastrophe reinsurance which provides protection up to $20 million for acts of terrorism including nuclear, biological and chemical attacks. We retain the first $5 million of each loss. We retain any losses in the $5 million excess $5 million layer which exceed our annual aggregate of $5 million. We also retain 50% of any loss other than nuclear, biological or chemical in the $10 million excess $10 million layer. We retain none of the loss in the $10 million excess $10 million layer in events of nuclear, biological or chemical attacks.

We are involved in collecting reinsurance recoverable under reinsurance contracts that were entered into by companies that we acquired and whose reinsurance arrangements we terminated. Our reinsurance recoverable at December 31, 2008 includes $28.4 million for paid and unpaid losses relating to reinsurance arrangements we assumed from RISCORP, Inc. The principal reinsurers from which such reinsurance is recoverable are American Re-Insurance Company, Continental Casualty Co. and

Swiss Re. We also entered into an aggregate excess of loss reinsurance agreement with Inter-Ocean Reinsurance Company, Ltd., which provides ceded reinsurance for unpaid losses and allocated loss adjustment expenses we assumed from RISCORP, Inc. at April 1, 1998 up to $50 million in excess of $182 million. Reinsurance recoverable from Inter-Ocean Reinsurance Company is fully secured by assets in a trust account.

Reinsurance makes the assuming reinsurer liable to the ceding company to the extent of the reinsurance. It does not, however, discharge the ceding company from its primary liability to its policyholders in the event the reinsurer is unable to meet its obligations under such reinsurance treaty. We monitor the financial condition of our reinsurers. The unprecedented events in the financial markets are affecting the financial condition of many reinsurers; however, we do not believe that we are currently exposed to any material credit risk because most of our reinsurance is recoverable from large, well-capitalized reinsurance companies.

Amounts recoverable (including amounts for paid and unpaid losses and reinsurance commissions) and A.M. Best ratings at December 31, 2008 were as follows:



(Dollars in thousands) Name of Reinsurer	Amount Recoverable (3)		A.M. Best Rating (1)

Swiss Reinsurance America Corporation	$	137,173	A+
General Reinsurance Corporation		80,820	A++
Continental Casualty Company		19,715	A
Odyssey America Reinsurance Corporation		13,908	A
Inter-Ocean Reinsurance Company (2)		13,684	NR
Munich Reinsurance America		3,663	A+
National Union Fire Insurance Company of Pittsburgh		1,650	A
Allstate Insurance Company		1,546	A+
All Others (78 Reinsurers, none individually in excess of $1.5 million)		8,876

Total	$	281,035

Our insurance subsidiaries are parties to an intercompany pooling agreement for statutory reporting purposes. Under such agreement, the results of underwriting operations are ceded (the risks are transferred) to Zenith Insurance and the aggregate results are then reapportioned, or retro-ceded (the risks are transferred back), to the companies party to the agreement. At December 31, 2008, the proportions of the pooling agreement were as follows: Zenith Insurance — 98% and ZNAT Insurance — 2.0%. Transactions pursuant to the pooling agreement are eliminated in consolidation and have no impact on our consolidated financial statements.

The business in the workers' compensation segment is produced by approximately 1,600 independent licensed insurance agents throughout all states in which we conduct business.

Applications for insurance submitted by all agents are evaluated by our underwriters based upon numerous factors, including underwriting criteria and standards, geographic areas of underwriting concentration, actuarial judgments of premium rate adequacy, economic considerations and review of known data on the particular risk. We retain all authority over underwriting, claims processing, safety engineering and auditing and do not delegate any such authority to our agents.

Competition in the workers' compensation insurance business is based upon price and quality of services. The insurance industry is highly competitive, and there is significant competition in the national workers' compensation industry which, at times, is intense. We compete not only with other stock companies, but with mutual companies and other underwriting organizations such as the State Compensation Insurance Fund in California. Competition also exists with self-insurers and captive insurers. Many companies in competition with us have been in business for a much longer time, have a larger volume of business, are more widely known, and/or possess substantially greater financial resources.

The insurance business is subject to state-by-state regulation and legislation that focuses on solvency, pricing, market conduct, claims practices, underwriting, accounting, investment criteria and other areas. Such regulation and legislation is subject to continual change, and compliance is an inherent risk of the business.

Insurance companies are subject to regulation and supervision by the departments of insurance in the states in which they are domiciled and, to a lesser extent, other states in which they conduct business. Our insurance subsidiaries are domiciled in California and are primarily subject to regulation and supervision by the California Department of Insurance ("California DOI"). These state agencies have broad regulatory, supervisory and administrative powers, including, among other things, the ability to: grant and revoke licenses to transact business; license agents; set the standards of solvency to be met and maintained; determine the nature of, and limitations on, investments and dividends; approve policy forms and, in some states, establish premium rates; set tax rates on premiums; periodically examine financial statements; determine the form and content of required financial statements; and periodically examine market conduct.

Workers' compensation insurance is statutorily provided for in all of the states in which we do business. State laws and regulations provide for the form and content of policy coverage and the rights and benefits that are available to injured workers, their representatives and medical providers. In Florida, the rates at which we provide coverage are determined by regulation. Legislation and regulation also impact our ability to investigate fraud and other abuses of the workers' compensation system in the states in which we do business. Our relationships with medical providers are also impacted by legislation and regulation, including penalties for failure to make timely payments.

Detailed annual and quarterly financial statements, prepared in accordance with statutory accounting practices, and other reports are required to be filed with the departments of insurance of the states in which we are licensed to transact business. The statutory financial statements of our insurance subsidiaries are subject to periodic examination by the California DOI. The California DOI

completed an examination of the statutory financial statements of Zenith Insurance and ZNAT Insurance as of December 31, 2005 and the Report of Examination contained no findings.

The National Association of Insurance Commissioners ("NAIC") is a group formed by state Insurance Commissioners to discuss issues and formulate policy with respect to regulation, reporting and accounting of insurance companies. Although the NAIC has no legislative authority and insurance companies are at all times subject to the laws of their respective domiciliary states and, to a lesser extent, other states in which they conduct business, the NAIC is influential in determining the form in which such laws are enacted. Model Insurance Laws, Regulations and Guidelines ("Model Laws") have been promulgated by the NAIC as a minimum standard by which state regulatory systems and regulations are measured. Adoption of state laws which provide for substantially similar regulations to those described in the Model Laws is a requirement for accreditation by the NAIC. The NAIC provides authoritative guidance to insurance regulators on current statutory accounting practices by promulgating and updating a codified set of statutory accounting practices in its Accounting Practices and Procedures Manual. The California DOI requires us to follow such statutory accounting practices.

Under NAIC Model Laws, insurers are required to maintain minimum levels of capital based on their investments and operations. These "risk-based capital" ("RBC") requirements provide a standard by which regulators can assess the adequacy of an insurance company's capital and surplus relative to its operations. An insurance company must maintain capital and surplus of at least 200% of the RBC computed by the NAIC's RBC model (known as the "Authorized Control Level" of RBC). At December 31, 2008, our statutory capital of $1.0 billion was 1,365% of Authorized Control Level.

The NAIC Insurance Regulatory Information System ("IRIS") key financial ratios, developed to assist insurance departments in overseeing the financial condition of insurance companies, are reviewed by examiners of the NAIC and state insurance departments to select those companies that merit highest priority in the allocation of the regulators' resources. The 2008 IRIS results for Zenith Insurance showed two ratios outside the "normal" range as determined by the NAIC. The results were attributable to the 2008 increase in the statutory policyholders' surplus caused by the excess statutory reserve, which was eliminated effective January 1, 2008.

Our subsidiaries are subject to the California Insurance Holding Company System Regulatory Act ("Holding Company Act") which contains certain reporting requirements, including the requirement that such subsidiaries file information relating to capital structure, ownership, financial condition and general business operation. The Holding Company Act also limits dividend payments and material transactions by our insurance subsidiaries. See Part II — ITEM 5. "Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities" for a discussion of dividend restrictions related to the Holding Company Act.

Our business is subject to numerous risks and uncertainties, the outcome of which may impact future results of operations and financial condition. The more significant risks and uncertainties are described below.

The continuing volatility in the financial markets and the current recession could have a material adverse effect on our results of operations and financial condition.

The significant financial market volatility experienced worldwide during the third and fourth quarters of 2008 has continued in 2009 and the impact on the U.S. and foreign economies appears to

be worsening. Although the U.S. and other foreign governments have taken various actions to try to stabilize the financial markets, it is unclear whether those actions will be effective. Therefore, the financial market volatility and the resulting negative economic impact could continue and it is possible that it may be prolonged.

Although we continue to monitor market conditions, we cannot predict future market conditions or their impact on our stock price or investment portfolio. Depending on market conditions, we could incur future additional realized and unrealized losses, which could have a material adverse effect on our results of operations and financial condition.

In addition, the continuing financial market volatility and economic downturn could have a material adverse affect on our insureds, agents, claimants, reinsurers, vendors and competitors. Certain of the actions the U.S. Government has taken or may take in response to the financial market crisis have impacted certain property and casualty insurance carriers. The government is actively taking steps to implement additional measures to stabilize the financial markets and stimulate the economy, and it is possible that these measures could further affect the property and casualty insurance industry and its competitive landscape.

Our loss reserves are based on estimates and may be inadequate to cover our losses.

We establish loss reserves in our financial statements that represent an estimate of amounts needed to pay and administer claims with respect to insured and reinsured events that have occurred, including events that have not yet been reported to us. Loss reserves are estimates and are inherently uncertain; they do not and cannot represent an exact measure of liability. Accordingly, as we receive new information and update our assumptions over time regarding the ultimate liability, our loss reserves may prove to be inadequate to cover our actual losses. Any changes in these estimates could be material and could have a material adverse effect on our results of operations and financial condition during the period the changes are made.

Our loss reserve estimates are based on estimates of the ultimate cost of claims. Judgment is required to ascertain the relevance of historical payment and claim settlement patterns under current facts and circumstances. Several factors contribute to the uncertainty in establishing workers' compensation loss reserve estimates including the ultimate number of expensive cases and the length of time required to settle long-term, expensive cases, combined with the effects of medical inflation. Expensive claims are those involving permanent disability of an injured worker and are paid over several years. The ultimate costs of expensive claims are difficult to estimate because of such factors as the on-going and possibly increasing need for medical care, length of disability, life expectancy and benefits for dependents.

In determining our workers' compensation loss reserve estimates, our actuaries consider medical inflation by evaluating longer term trends. During the accident years just prior to the legislative reforms (1998 - 2002), we experienced double digit medical inflation. During 2003 and 2004, reforms enacted in Florida and California provided both immediate medical cost reductions and more control over future medical costs. Our loss estimates for these two years reflect an average 6% per year deflation in medical costs. For the accident years following the reforms, we are experiencing a return to inflation and our loss reserve estimates reflect an average 7% per year medical inflation rate for 2005 through 2008. Medical expenses currently constitute approximately 60% of total workers' compensation benefits, accordingly we assume that medical inflation trends will continue and will impact our long-term claims costs and loss reserves. Our premium rates are established based on our forecast of future medical inflation. During the reform years, we reduced our California premium rates based on the expected decrease in medical costs, combined with the other benefits of the reforms. Because we are expecting future medical inflation to be greater than that of recent years, we increased premium rates in California by 4% effective January 1, 2009. Future healthcare reforms proposed by Federal or state governments, if any, may impact the medical inflation trends.

Although the current recession is a risk to the workers' compensation claims operations, we do not have any data that suggest that it may have a material impact on our business.

Our loss reserve estimates for catastrophe losses in the assumed reinsurance business, which we exited in 2005, are dependent upon obtaining information timely from ceding companies. Estimates of catastrophe losses can be negatively impacted by lags in reporting from ceding companies. In addition, we are subject to the risk that the ceding company may not have adequately estimated the amount of the reinsured loss.

If we are unable to obtain or collect on ceded reinsurance, our ability to write new policies, as well as our financial condition, could be materially adversely affected.

We buy reinsurance protection in our workers' compensation business to protect us from the impact of losses over our retention amount, which is currently $5 million, and from the accumulation of losses up to $150 million and, in the event of California earthquakes, up to $200 million. The availability, amount and cost of reinsurance depend on market conditions and may vary significantly. Any decrease in the amount of our reinsurance will increase our risk of loss and could materially, adversely affect our business and financial condition.

In addition, we are subject to credit risk with respect to our reinsurers. Ceded reinsurance does not discharge our direct obligations under the policies we write. We remain liable to our policyholders even if we are unable to make recoveries to which we believe we are entitled under our reinsurance contracts. Losses may not be recovered from our reinsurers until claims are paid and, in the case of long-term workers' compensation cases, the creditworthiness of our reinsurers may change before we can recover amounts to which we are entitled.

Acts of terrorism could negatively impact our business and our financial condition.

Under our workers' compensation policies, we are required to provide workers' compensation benefits for losses arising from acts of terrorism. The impact of any terrorist act is unpredictable, and the ultimate impact on us will depend upon the nature, extent, location and timing of such an act. Any such impact on us could have a material adverse effect on our business and financial condition.

In 2007, the Terrorism Risk Insurance Act of 2002 ("TRIA"), was extended through December 31, 2014. TRIA, as modified in 2007, may provide us with reinsurance protection for losses arising out of terrorist acts under certain circumstances and subject to certain limitations. The U.S. Treasury Secretary must certify an act for it to constitute an act of terrorism. Effective January 1, 2008, the definition of terrorism includes domestic acts of terrorism and continues to exclude acts of terrorism committed in the course of a war declared by the U.S. Congress. The losses arising from an act of terrorism must exceed $100 million to qualify for reimbursement under TRIA. If an event is certified, the U.S. Federal Government will reimburse losses not to exceed $100 billion in any year. Each insurance company is responsible for a deductible based on 20% of its direct premiums earned in the previous calendar year. Our deductible is $124.4 million for a covered loss occurring in 2009. For losses in excess of the deductible, the U.S. Federal Government will reimburse 85% of the insurer's loss, up to the insurer's proportionate share of the $100 billion aggregate limit.

Notwithstanding the protection provided by the reinsurance we have purchased and any protection provided by TRIA, the risk of severe losses to us from acts of terrorism has not been eliminated because events may not be covered by, or may exceed the capacity of, our reinsurance protection. Also, an act of terrorism may impact the business community at large, impacting our ability to conduct

business, even if any insurance losses we sustain are covered by our reinsurance or any protection provided by TRIA. Accordingly, any acts of terrorism could materially adversely affect our business and financial condition.

The insurance business is subject to extensive regulation and legislative changes, which impact the manner in which we operate our business.

Our insurance business is subject to extensive regulation by the applicable state agencies in the jurisdictions in which we operate, perhaps most significantly by the California DOI. These state agencies have broad regulatory powers designed to protect policyholders, not stockholders or other investors. These powers include, among other things, the ability to: grant and revoke licenses to transact business; license agents; set the standards of solvency to be met and maintained; determine the nature of, and limitations on, investments and dividends; approve policy forms and, in some states, establish premium rates; set tax rates on premiums; periodically examine financial statements; determine the form and content of required financial statements; and periodically examine market conduct.

In addition, workers' compensation insurance is statutorily provided for in all of the states in which we do business. State laws and regulations provide for the form and content of policy coverage and the rights and benefits that are available to injured workers, their representatives and medical providers. In Florida, the rates at which we provide coverage are determined by regulation. Legislation and regulation also impact our ability to investigate fraud and other abuses of the workers' compensation system in the states in which we do business. Our relationships with medical providers are also impacted by legislation and regulation, including penalties for failure to make timely payments.

Federal legislation typically does not directly impact our workers' compensation business, but our business can be indirectly affected by changes in health care, occupational safety and health and tax regulations. President Obama has made re-vamping the nation's healthcare system one of his high priorities. Since healthcare costs are the largest component of our loss costs, we may be impacted by any change in legislation. Also, regulatory change could result to address the unprecedented events in the financial markets, including the possibility of federal regulation of insurance.

This extensive regulation of our business may affect the cost or demand for our products and may limit our ability to obtain rate increases or to take other actions that we might desire to maintain our profitability. In addition, we may be unable to maintain all required approvals or comply fully with applicable laws and regulations, or the relevant governmental authority's interpretation of such laws and regulations.

A downgrade in the financial strength rating of our insurance subsidiaries could reduce the amount of business we are able to write.

Rating agencies rate insurance companies based on financial strength as an indication of an ability to pay claims. Our insurance subsidiaries currently have a financial strength rating of A (Excellent) from A.M. Best, which we believe has the most influence on our business. The financial strength ratings of A.M. Best and other rating agencies are subject to periodic review using, among other things, proprietary capital adequacy models, and are subject to revision or withdrawal at any time. Insurance financial strength ratings are directed toward the concerns of policyholders and insurance agents and are not intended for the protection of investors. Our competitive position relative to other companies is determined in part by our financial strength rating. A reduction in our A.M. Best rating, or a downgrading by one of the other rating agencies, could impact the amount of business we could write in our workers' compensation segment.

Intense competition could adversely affect our ability to sell policies at premium rates we deem adequate.

In most of the states in which we operate, we face significant competition which, at times, is intense and prolonged. If we are unable to compete effectively, our business and financial condition could be materially adversely affected. Competition in our businesses is based on many factors, including premiums charged, services provided, financial strength ratings assigned by independent rating agencies, speed and quality of claims payments, reputation, perceived financial strength and general experience. In the workers' compensation business, we compete with regional and national insurance companies and state-sponsored insurance funds as well as potential insureds that have decided to self-insure. Some of our competitors have greater financial, marketing and management resources than we have. Intense competitive pressure on prices can result from the actions of even a single large competitor, such as the State Compensation Insurance Fund in California. Except in states such as Florida, where premium rates for workers' compensation insurance are determined by regulation, we establish our prices for our workers' compensation policies based on the work of our actuaries, using our own data and our best judgment about loss cost trends. Historically, when competition has been intense, the amount of business we are able to write has decreased because we have not reduced our prices below levels we deem to be adequate to maintain our goal of achieving underwriting profits and outperforming the industry. As a result, our profitability during those times has decreased.

If we are unable to realize our investment objectives, our financial condition may be adversely affected.

Investment income is an important component of our revenues and net income. The ability to achieve our investment objectives is affected by factors that are beyond our control. Our fixed income portfolio is affected by changes in interest rates. Interest rates are highly sensitive to many factors, including governmental monetary policies and domestic and international economic and political conditions. These and other factors also affect the equity markets and, consequently, the value of the equity securities we own. Any significant decline in our investment income or the value of our investments as a result of falling interest rates, deterioration in the credit or liquidity of companies in which we have invested, decreased dividend payment rates, general market conditions, or events that have an adverse impact on any particular industry or geographic region in which we hold significant investments could have an adverse effect on our net income and, as a result, on our stockholders' equity and our policyholders' surplus.

The outlook for our investment income is dependent on the future direction of interest rates and the amount of cash flows from operations that are available for investment. The fair values of fixed maturity investments that are "available-for-sale" fluctuate with changes in interest rates and cause fluctuations in our stockholders' equity.

Our investment strategy attempts to manage interest rate and credit risk. We primarily invest in a broadly diversified portfolio of high quality debt securities and we have large holdings in cash and short-term U. S. Government securities. We only invest in mortgage-backed securities that carry the full faith and credit guaranty of the U.S. Government (GNMAs). We do not currently have any sub-prime mortgages, derivative securities or other credit-enhancement exposures. We do not engage in securities lending. We invest a small portion of our portfolio in below investment grade securities. The risk of default by borrowers that issue below investment grade securities is significantly greater than other borrowers because these borrowers are often highly leveraged and more sensitive to adverse economic conditions, including a recession. In addition, these securities are generally unsecured and often subordinated to other debt. The risk that we may not be able to recover our investments in below investment grade securities is higher than with investment grade securities.

Our geographic concentration ties our performance to the business, economic, natural perils and regulatory conditions in California and Florida.

Our business is concentrated in California (54.8% of 2008 workers' compensation net earned premiums) and in Florida (25.1% of 2008 workers' compensation net earned premiums). Accordingly, unfavorable business, economic or regulatory conditions in these states could negatively impact our business. For example, regulatory changes in California in the early 1990's created intense price competition in our workers' compensation business from about 1995 to 1999, during which time our overall profitability experienced significant declines. In addition, California and Florida are states that are exposed to severe natural perils, such as earthquakes and hurricanes, along with the possibility of pandemics or terrorist acts. Accordingly, we could suffer losses as a result of catastrophic events in these states. The California and Florida economies are affected by the sub-prime and real estate issues; and California is experiencing budget deficits; all of which are affecting the general economy and employment levels in these states and could affect the total payroll levels of our customers. Because our business is concentrated in this manner, we may be exposed to economic and regulatory risks or risk from natural perils that are greater than the risks associated with greater geographic diversification.

We maintain excess of loss and catastrophe reinsurance which provides protection up to $150 million for workers compensation losses and up to $200 million for catastrophe losses arising out of California earthquakes. We retain the first $5 million of each loss. In the layer of $5 million in excess of $5 million we retain any losses that exceed our annual aggregate limit of $25 million. In the layer of $10 million excess of $10 million we retain 50%. The risk of loss from catastrophes has not been eliminated because events may exceed the capacity of our reinsurance protection.

The failure or inability of independent insurance agencies to market our insurance programs successfully could have a material adverse effect on our business, financial condition and results of operations. The business in our workers' compensation segment is produced by approximately 1,600 independent licensed insurance agents. Agents are not obligated to promote our insurance programs and may sell competitors' insurance programs. As a result, our business depends in part on the marketing efforts of these agents and on our ability to offer insurance programs and services that meet the requirements of their clients and customers.

Assessments and other surcharges for guaranty funds and second injury funds and other mandatory pooling arrangements may reduce our profitability.

Virtually all states require insurers licensed to do business in their state to bear a portion of the loss suffered by some insureds as the result of impaired or insolvent insurance companies. These obligations are funded by assessments that are expected to continue in the future as a result of insolvencies. Many states also have laws that established second injury funds to provide compensation to injured employees for aggravation of a prior condition or injury, which are funded by either assessments based on paid losses or premium surcharge mechanisms. In addition, as a condition to the ability to conduct business in some states, insurance companies are required to participate in mandatory workers' compensation shared market mechanisms or pooling arrangements, which provide workers' compensation insurance coverage from private insurers. The effect of these assessments and mandatory shared market mechanisms or changes in them could reduce our profitability in any given period or limit our ability to grow our business.

Our ability to write business, service our customers and meet certain regulatory requirements could be adversely affected if our information systems are rendered inoperable.

Our business operations are increasingly dependent on technology-enabled systems and processes. In addition, the capture, storage and use of customer and proprietary company data and information are essential to our ongoing operations. Our information systems interface with various third-party systems for the purpose of exchanging information and complying with an ever increasing number of electronic regulatory requirements.

We have implemented business continuity plans that include redundant systems at an alternate location, which we test on a periodic basis. However, there are certain events outside of our control that could render our systems inoperable such that we would be unable to service our agents, insureds and injured workers, or meet certain regulatory requirements, or could cause a breach of security that could jeopardize the privacy, confidentiality and integrity of our data or our customers' data. If such an event were to occur and our systems were unable to be restored or secured within a reasonable timeframe, our results of operations and financial condition could be adversely affected.

Examples of these events include, but are not limited to, catastrophic and wide-spread outages, "cyber or terrorist attacks" that destroy our information or systems and the loss of a number of our key information technology personnel or vendors.

We are involved in various litigation proceedings that arise in the ordinary course of our business. Disputes adjudicated in the workers' compensation administrative systems may be appealed to review boards or civil courts, depending on the issues and local jurisdictions involved. From time to time plaintiffs also sue us on theories falling outside of the exclusive jurisdiction and remedies of the workers' compensation claims adjudication systems. Certain of these legal proceedings seek injunctive relief or substantial monetary damages, including claims for punitive damages, that may not be covered by our third party reinsurance agreements. Historically the Company has not experienced any material exposure or damages from any of these legal proceedings. In addition, in the opinion of management, after consultation with legal counsel, all of our currently outstanding litigation is either without merit or the ultimate liability, if any, is not expected to have a material adverse effect on our consolidated financial condition, results of operations or cash flows.

Our status as an insurance holding company with no direct operations could adversely affect our ability to meet our debt obligations and pay dividends.

Zenith National is a holding company which transacts substantially all of its business through its subsidiaries. Our primary assets are the stock of our operating subsidiaries. Our ability to meet our obligations on our outstanding debt, and to pay Zenith National's expenses and dividends, depends, in the long-run, upon the surplus and earnings of our subsidiaries and the ability of our subsidiaries to pay dividends to us. Payments of dividends by our insurance company subsidiaries are restricted by state insurance laws, including laws establishing minimum solvency and liquidity thresholds, and could be subject to revised restrictions in the future. As a result, at times, we may not be able to receive dividends from these subsidiaries and we may not receive dividends in amounts necessary to meet our debt obligations or to pay dividends on our capital stock. In addition, the payment of dividends by us is within the discretion of our Board of Directors and depends on numerous factors, including our results of operations, financial condition, capital requirements and other factors that our Board of Directors considers relevant.

State insurance laws may discourage takeover attempts that could be beneficial to us and our stockholders.

We are subject to state statutes governing insurance holding companies, which generally require that any person or entity desiring to acquire direct or indirect control of any of our insurance company subsidiaries obtain prior regulatory approval. Control would be presumed to exist under most state insurance laws with the acquisition of 10% or more of our outstanding voting securities. Applicable state insurance company laws and regulations could delay or impede a change of control of our company, which could prevent our stockholders from receiving a control premium.

We own a 130,000 square foot office facility in Woodland Hills, California which is the corporate home office of Zenith National and its subsidiaries. We also own a 120,000 square foot branch office facility in Sarasota, Florida. In the regular conduct of business, we lease offices in various cities. See Note 10 — "Commitments and Contingencies — Leases" of our Consolidated Financial Statements in our 2008 Annual Report to Stockholders, which is hereby incorporated by reference. We consider our owned and leased facilities to be adequate for the needs of our organization.

No matters were submitted to a vote of stockholders during the fourth quarter of the fiscal year covered by this report.

ITEM 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.

Our common stock, $1.00 par value per share ("Common Stock"), is traded on the New York Stock Exchange ("NYSE") under the symbol ZNT. The table below sets forth the high and low sale prices of our Common Stock for each quarterly period as reported by the NYSE during the last two fiscal years.

As of January 31, 2009, there were 250 registered holders of record of our Common Stock.

The table below sets forth information with respect to the amount and frequency of dividends declared on our Common Stock. It is currently expected that cash dividends will continue to be paid in the future.

Date of Declaration by Zenith Board		Amount of Cash Per Share			Payment Date

February 6, 2009	Regular	$	0.50	April 30, 2009	May 14, 2009
December 4, 2008	Regular		0.50	January 30, 2009	February 13, 2009
December 4, 2008	Extra		0.40	December 15, 2008	December 29, 2008
September 18, 2008	Regular		0.50	October 31, 2008	November 14, 2008
May 13, 2008	Regular		0.50	July 31, 2008	August 14, 2008
February 21, 2008	Regular		0.50	April 30, 2008	May 14, 2008
December 6, 2007	Regular		0.50	January 31, 2008	February 14, 2008
December 6, 2007	Extra		1.00	December 17, 2007	December 21, 2007
September 12, 2007	Regular		0.50	October 31, 2007	November 15, 2007
May 24, 2007	Regular		0.42	July 31, 2007	August 14, 2007
February 16, 2007	Regular		0.42	April 27, 2007	May 11, 2007

The Holding Company Act limits the ability of Zenith Insurance to pay dividends to Zenith National, and of ZNAT Insurance to pay dividends to Zenith Insurance, by providing that the California DOI must approve any dividend that, together with all other such dividends paid during the preceding twelve months, exceeds the greater of: (a) 10% of the paying company's statutory surplus as regards policyholders at the preceding December 31; or (b) 100% of the net income for the preceding year. In addition, any such dividend must be paid from policyholders' surplus attributable to accumulated earnings. Such restrictions on dividends are not cumulative. Zenith Insurance paid $95.0 million, $115.0 million, and $50.0 million in dividends to Zenith National in 2008, 2007, and 2006, respectively. In 2009, Zenith Insurance will be able to pay up to $111.5 million of dividends to Zenith National without prior approval of the California DOI. The restrictions on the payment of dividends

have not had, and under current regulations are not expected to have, a material adverse impact on the ability of Zenith Insurance to pay dividends.

"5-Year Summary of Selected Financial Information" in Zenith's 2008 Annual Report to Stockholders is hereby incorporated by reference.

ITEM 7. Management's Discussion and Analysis of Consolidated Financial Condition and Results of Operations.

"Management's Discussion and Analysis of Consolidated Financial Condition and Results of Operations" in Zenith's 2008 Annual Report to Stockholders is hereby incorporated by reference.

"Management's Discussion and Analysis of Consolidated Financial Condition and Results of Operations — Market Risk of Financial Instruments" in Zenith's 2008 Annual Report to Stockholders is hereby incorporated by reference.

The Consolidated Financial Statements and Notes thereto included in Zenith's 2008 Annual Report to Stockholders are hereby incorporated by reference.

ITEM 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.

Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of our disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended ("Exchange Act")) as of the end of the period covered by this report. Based on such evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that, as of the end of such period, our disclosure controls and procedures are effective in recording, processing, summarizing and reporting, on a timely basis, information required to be disclosed in the reports that we file or submit under the Exchange Act and are effective in ensuring that information required to be disclosed in the reports that we file or submit under the Exchange Act is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.

Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Exchange Act Rules 13a-15(f) and 15d-15(f). Under the supervision and with the participation of our management, including our principal executive officer and principal financial officer, we conducted an evaluation of the effectiveness of our internal control over financial reporting based on the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission in Internal Control — Integrated Framework. Based on our evaluation, our management concluded that our internal control over financial reporting was effective as of December 31, 2008.

There have not been any changes in our internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

The following disclosure is made in lieu of filing a Current Report on Form 8-K, Item 2.05, Costs Associated with Exit or Disposal Activities:

On February 10, 2009, Zenith announced that it was streamlining its administrative cost structure in its workers' compensation operations, including the elimination of approximately 100 positions, or approximately 6% of its workforce, in response to the ongoing economic downturn as it continues to manage its business for long-term success. It is anticipated that the workforce reduction will be completed by the end of April 2009.

Employees affected by the layoff will receive a one-time support package including severance payments for eligible employees, professional outplacement assistance, and a special COBRA benefit. The special COBRA benefit is unique in that it provides for Zenith to pay the full COBRA premiums of terminated employees for up to 18 months. Zenith feels it is important that the affected employees be financially able to maintain current benefit coverages for themselves and eligible family members while they seek alternative employment during these trying economic times.

As a result of these workforce and other operating cost reductions, Zenith anticipates a one-time charge of approximately $5 million ($3.3 million after tax) in the first quarter of 2009. This charge includes termination benefits of approximately $4.3 million, lease termination costs of approximately $0.3 million and other associated costs of approximately $0.4 million. Zenith anticipates that these actions will result in over $10 million ($6.5 million after tax) of annualized expense savings.

The information set forth under the captions "Election of Directors," "Section 16(a) Beneficial Ownership Reporting Compliance," "Audit Committee," "Executive Officers," and "Code of Ethics for Senior Financial Officers" in the Proxy Statement distributed to stockholders in connection with Zenith's 2009 Annual Meeting of Stockholders ("Proxy Statement"), which we will file after the date this Annual Report on Form 10-K is filed, is hereby incorporated by reference.

The information under the captions: "Executive Compensation," "Compensation Discussion and Analysis for 2008," "Compensation Committee Report," "Compensation Committee Interlocks and Insider Participation," "Summary Compensation Table," "Grants of Plan-Based Awards in 2008," "Outstanding Equity Awards at 2008 Year-End," "Option Exercises and Stock Vested in 2008," "Early Termination of Employment and Change in Control Arrangements," "Director Compensation," and "2008 Director Compensation Table" in the Proxy Statement is hereby incorporated by reference.

ITEM 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.

The information set forth under the captions "Equity Compensation Plan Information" and "Security Ownership of Certain Beneficial Owners and Management" in the Proxy Statement is hereby incorporated by reference.

ITEM 13. Certain Relationships and Related Transactions, and Director Independence.

The information under the captions "Independence of Directors" and "Related Person Transactions Approval Policy And Procedures" in the Proxy Statement is hereby incorporated by reference.

The information set forth under the caption "Information Relating to Independent Auditors and Their Fees" in the Proxy Statement is hereby incorporated by reference.


		3.1		Amended and Restated Certificate of Incorporation of Zenith National Insurance Corp. filed with the Delaware Secretary of State on May 30, 2006. (Incorporated herein by reference to Exhibit 3.1 to Zenith's Quarterly Report on Form 10-Q for the quarter ended June 30, 2006.)
		3.2		Bylaws of Zenith National Insurance Corp., as currently in effect. (Incorporated herein by reference to Exhibit 3.9 to Zenith's Quarterly Report on Form 10-Q for the quarter ended March 31, 2006.)
		4.1		Indenture, dated July 30, 1998, between Zenith National Insurance Corp. and Norwest Bank Minnesota, National Association, as trustee, pursuant to which Zenith issued its 8.55% Subordinated Deferrable Interest Debentures. (Incorporated herein by reference to Exhibit 10.6 to Zenith's Quarterly Report on Form 10-Q for the quarter ended September 30, 1998.)
		4.2		Amended and Restated Declaration of Trust of Zenith National Insurance Capital Trust I, dated July 30, 1998, between Zenith National Insurance Corp., the trustees and the holders. (Incorporated herein by reference to Exhibit 10.8 to Zenith's Quarterly Report on Form 10-Q for the quarter ended September 30, 1998.)


		4.3		Certificate of Amendment to Certificate of Trust of Zenith National Insurance Capital Trust I, dated August 1, 2006. (Incorporated by reference to Exhibit 4.3 to Zenith's Annual Report on Form 10-K for the year ended December 31, 2006.)
		*10.1		Zenith National Insurance Corp. 2004 Restricted Stock Plan (as amended and restated May 24, 2006). (Incorporated herein by reference to Exhibit 10.2 to Zenith's Current Report on Form 8-K filed on May 26, 2006.)
		*10.2		Zenith National Insurance Corp. 2004 Restricted Stock Plan, Form of Award Agreement for Non-Employee Directors. (Incorporated herein by reference to Exhibit 10.5 to Zenith's Quarterly Report on Form 10-Q for the quarter ended March 31, 2006.)
		*10.3		Zenith National Insurance Corp. 2004 Restricted Stock Plan, Form of Award Agreement for Employees. (Incorporated herein by reference to Exhibit 10.6 to Zenith's Quarterly Report on Form 10-Q for the quarter ended March 31, 2006.)
		*10.4		Employment Agreement dated January 23, 2006 between Zenith National Insurance Corp. and Michael E. Jansen. (Incorporated herein by reference to Exhibit 10.1 to Zenith's Current Report on Form 8-K filed on January 24, 2006.)
		‡*10.5		Amendment No. 1 dated December 31, 2008 to Employment Agreement dated January 23, 2006 between Zenith National Insurance Corp. and Michael E. Jansen, a copy of which is filed herewith.
		*10.6		Employment Agreement, dated October 12, 2004, between Zenith National Insurance Corp. and Robert E. Meyer. (Incorporated herein by reference to Exhibit 10.3 to Zenith's Report on Form 8-K dated October 12, 2004.)
		‡*10.7		Amendment No. 1 dated December 31, 2008 to Employment Agreement dated October 12, 2004 between Zenith National Insurance Corp. and Robert E. Meyer, a copy of which is filed herewith.
		*10.8		Employment Agreement, dated October 12, 2004, between Zenith National Insurance Corp. and Jack D. Miller. (Incorporated herein by reference to Exhibit 10.2 to Zenith's Report on Form 8-K dated October 12, 2004.)
		‡*10.9		Amendment No. 1 dated December 31, 2008 to Employment Agreement dated October 12, 2004 between Zenith National Insurance Corp. and Jack D. Miller, a copy of which is filed herewith.
		*10.10		Employment Agreement dated September 12, 2005 between Zenith National Insurance Corp. and Davidson Pattiz. (Incorporated herein by reference to Exhibit 10.1 to Zenith's Current Report on Form 8-K filed on February 9, 2006.)
		*10.11		Amendment No. 1 dated February 9, 2006 to Employment Agreement dated September 12, 2005 between Zenith National Insurance Corp. and Davidson Pattiz. (Incorporated herein by reference to Exhibit 10.2 to Zenith's Current Report on Form 8-K filed on February 9, 2006.)
		‡*10.12		Amendment No. 2 dated December 31, 2008 to Employment Agreement dated September 12, 2005 between Zenith National Insurance Corp. and Davidson Pattiz, a copy of which is filed herewith.
		*10.13		Employment Agreement dated May 24, 2006 between Zenith National Insurance Corp. and Kari L. Van Gundy. (Incorporated herein by reference to Exhibit 10.1 to Zenith's Current Report on Form 8-K filed on May 26, 2006.)


		‡*10.14		Amendment No. 1 dated December 31, 2008 to Employment Agreement dated May 24, 2006 between Zenith National Insurance Corp. and Kari L. Van Gundy, a copy of which is filed herewith.
		*10.15		Amended and Restated Employment Agreement between Zenith National Insurance Corp. and Stanley R. Zax effective September 22, 2008, (Incorporated herein by reference to Exhibit 10.1 to Zenith's Current Report on Form 8-K filed on September 22, 2008.)
		*10.16		Amended and Restated Zenith National Insurance Corp. Executive Officer Bonus Plan dated February 12, 2003. (Incorporated herein by reference to Exhibit 10.5 to Zenith's Quarterly Report on Form 10-Q for the quarter ended March 31, 2003.)
		‡*10.17		First Amendment effective December 1, 2008 to Amended and Restated Zenith National Insurance Corp. Executive Officer Bonus Plan dated February 12, 2003, a copy of which is filed herewith.
		*10.18		Zenith National Insurance Corp.'s revised policy on non-business use of the company-owned aircraft by executive officers and imputation of income therefore. (The information under the caption "Company-Owned Aircraft Usage Policy" in Item 1.01 of Zenith's Current Report on Form 8-K filed on May 26, 2006 is incorporated herein by reference.)
		‡*10.19		Amended and Restated Zenith National Insurance Corp. 2003 Non-Employee Director Deferred Compensation Plan effective December 1, 2008, a copy of which is filed herewith.
		‡*10.20		Amended and Restated Zenith National Insurance Corp. 2003 Non-Employee Director Deferred Compensation Plan effective December 1, 2008, Form of Deferred Compensation Agreement, a copy of which is filed herewith.
		10.21		Amendment No. 9 executed July 24, 2008 (effective as of May 1, 2008) to Workers' Compensation and Employers' Liability Excess of Loss Reinsurance Agreement between Employers Reinsurance Corporation, Zenith Insurance Company, ZNAT Insurance Company and Zenith Star Insurance Company. (Note: a copy of the underlying agreement effective July 1, 2002 and all amendments are included with the copy of Amendment No. 9 as filed. Employers Reinsurance Corporation is now named Westport Insurance Corporation, Zenith Star Insurance Company has been merged into Zenith Insurance Company and Swiss Reinsurance America Corporation was substituted for Westport Insurance Corporation as respects occurrences taking place on or after May 1, 2008.) (Incorporated hereby by reference to Exhibit 10.1 to Zenith's Quarterly Report on Form 10-Q for the quarter ended September 30, 2008.)
		10.22		Workers' Compensation Quota Share Reinsurance Agreement between Zenith Insurance Company, ZNAT Insurance Company, Zenith Star Insurance Company (collectively, as cedant) and Odyssey America Reinsurance Corporation (as Reinsurer) dated December 28, 2001. (Incorporated herein by reference to Exhibit 10.36 to Zenith's Annual Report on Form 10-K for the year ended December 31, 2001.)


		10.23		Credit Agreement, dated as of February 16, 2007, between Zenith National Insurance Corp., and Bank of America, N.A.. (Incorporated by reference to Exhibit 10.39 to Zenith's Annual Report on Form 10-K for the year ended December 31, 2006.)
		10.24		Capital Securities Guarantee Agreement, dated July 30, 1998, between Zenith National Insurance Corp. and Norwest Bank Minnesota, National Association. (Incorporated herein by reference to Exhibit 10.7 to Zenith's Quarterly Report on Form 10-Q for the quarter ended September 30, 1998.)
		11		Statement recomputation of per share earnings. (Incorporated herein by reference to Notes to Consolidated Financial Statements — Note 13 — "Earnings and Dividends Per Share" in Zenith's 2008 Annual Report to Stockholders.)
		‡13		Zenith's Annual Report to Stockholders for the year ended December 31, 2008, but only to the extent such report is expressly incorporated by reference herein, and such report is not otherwise to be deemed "filed" as a part of this Annual Report on Form 10-K.
		‡21		Subsidiaries of the Registrant, a copy of which is filed herewith as Exhibit 21.
		‡23.1		Consent of PricewaterhouseCoopers LLP, dated February 13, 2009. (Incorporated herein by reference to page F-1 of this Annual Report on Form 10-K.)
		‡31.1		Certification of the Chief Executive Officer pursuant to Exchange Rule 13a-14(a) or Rule 15d-14(a), a copy of which is filed herewith as Exhibit 31.1.
		‡31.2		Certification of the Chief Financial Officer pursuant to Exchange Rule 13a-14(a) or Rule 15d-14(a), a copy of which is filed herewith as Exhibit 31.2.
		‡32		Certification of the Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. section 1350, a copy of which is furnished herewith as Exhibit 32.

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized, on February 13, 2009.

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities indicated, on February 13, 2009.

Zenith National Insurance Corp. and Subsidiaries
Index to Financial Statements and Schedules

We hereby consent to the incorporation by reference in the Registration Statements on Form S-8 (File Nos. 33-22219, 333-115902, 333-134531, 333-143511 and 333-150908) of Zenith National Insurance Corp. of our report dated February 13, 2009 relating to the consolidated financial statements and the effectiveness of internal control over financial reporting, which appears in the 2008 Annual Report to Stockholders, which is incorporated in this Annual Report on Form 10-K. We also consent to the incorporation by reference of our report dated February 13, 2009 relating to the financial statement schedules, which appears in this Form 10-K.

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
ON FINANCIAL STATEMENT SCHEDULES

Our audits of the consolidated financial statements and of the effectiveness of internal control over financial reporting referred to in our report dated February 13, 2009 appearing in the 2008 Annual Report to Stockholders of Zenith National Insurance Corp. (which report and consolidated financial statements are incorporated by reference in this Annual Report on Form 10-K) also included an audit of the financial statement schedules listed in Item 15(a)(2) of this Form 10-K. In our opinion, these financial statement schedules present fairly, in all material respects, the information set forth therein when read in conjunction with the related consolidated financial statements.

SCHEDULE I — SUMMARY OF INVESTMENTS —

OTHER THAN INVESTMENTS IN RELATED PARTIES

ZENITH NATIONAL INSURANCE CORP. AND SUBSIDIARIES

December 31, 2008

Column A			Column B		Column C		Column D

Type of investment			Cost (1)		Fair Value		Amount at Which Shown in the Balance Sheet (2)
			(Dollars in thousands)
Fixed maturity investments:
	Bonds:
		United States Government and government agencies and authorities (3)	$	194,657	$	202,616	$	195,331
		States, municipalities and political subdivisions		198,128		198,842		198,364
		Public utilities		72,990		72,586		72,586
		Foreign governments		5,000		5,016		5,000
		All other corporate bonds		1,207,364		1,135,346		1,135,346
	Redeemable preferred stocks			4,505		3,613		3,613

		Total fixed maturity investments		1,682,644		1,618,019		1,610,240
Equity investments:
	Common stocks:
		Public utilities		5,545		4,411		4,411
		Banks, trust and insurance companies		523		522		522
		Industrial, misc. and all other		46,570		42,559		42,559
	Nonredeemable preferred stocks			250		250		250

		Total equity investments		52,888		47,742		47,742
Short-term investments (4)				241,452		241,715		241,715
Other investments				58,297		58,297		58,297

		Total investments	$	2,035,281	$	1,965,773	$	1,957,994

SCHEDULE II — CONDENSED FINANCIAL INFORMATION OF REGISTRANT (PARENT COMPANY)

ZENITH NATIONAL INSURANCE CORP.

BALANCE SHEETS

		December 31,

(Dollars and shares in thousands)		2008			2007
Assets:
Short-term investments, at fair value (cost $81,507 in 2008 and $83,532 in 2007)		$	81,497		$	83,532
Cash			913			104
Investment in subsidiaries			1,026,152			1,075,319
Other assets			17,640			17,121

	Total assets	$	1,126,202		$	1,176,076

Liabilities:
Subordinated debentures		$	77,136		$	77,127
Dividends payable to stockholders			18,898			18,780
Convertible senior notes payable						1,135
Other liabilities			6,731			5,677

	Total liabilities		102,765			102,719

Commitments and contingencies (see Note 3)
Stockholders' equity:
Preferred stock, $1 par value, 1,000 shares authorized; none issued or outstanding in 2008 and 2007
Common stock, $1 par value, 100,000 shares authorized; issued 45,019 in 2008 and 44,802 in 2007; outstanding 37,324 in 2008 and 37,107 in 2007			45,019			44,802
Additional paid-in capital			472,312			464,932
Retained earnings			722,996			718,175
Accumulated other comprehensive (loss) income			(50,238	)		12,100
Treasury stock, at cost (7,695 shares in 2008 and 2007)			(166,652	)		(166,652	)

	Total stockholders' equity		1,023,437			1,073,357

	Total liabilities and stockholders' equity	$	1,126,202		$	1,176,076

SCHEDULE II — CONDENSED FINANCIAL INFORMATION OF REGISTRANT (PARENT COMPANY)

ZENITH NATIONAL INSURANCE CORP.

STATEMENTS OF OPERATIONS

		Year Ended December 31,

(Dollars in thousands)		2008			2007			2006
Revenues:
Net investment income		$	1,183		$	3,445		$	3,028
Net realized gains on investments			6			259			117

	Total revenues		1,189			3,704			3,145

Expenses:
Operating expenses			7,636			7,261			6,652
Interest expense			5,353			5,444			5,474

	Total expenses		12,989			12,705			12,126

Loss from operations before income tax benefit and equity in earnings of subsidiaries			(11,800	)		(9,001	)		(8,981	)
Income tax benefit			(4,156	)		(3,201	)		(3,191	)

Loss from operations after income tax benefit and before equity in earnings of subsidiaries			(7,644	)		(5,800	)		(5,790	)
Equity in earnings of subsidiaries			102,944			239,700			264,490

Net income		$	95,300		$	233,900		$	258,700

SCHEDULE II — CONDENSED FINANCIAL INFORMATION OF REGISTRANT (PARENT COMPANY)

ZENITH NATIONAL INSURANCE CORP.

STATEMENTS OF CASH FLOWS

			Year Ended December 31,

(Dollars in thousands)			2008			2007			2006
Cash flows from operating activities:
	Investment income received		$	393		$	1,720		$	3,384
	Operating expenses paid			(6,201	)		(1,831	)		(403	)
	Interest paid			(5,325	)		(5,392	)		(5,432	)
	Income tax recovered (paid)			3,989			2,410			(267	)

	Net cash used in operating activities			(7,144	)		(3,093	)		(2,718	)

Cash flows from investing activities:
	Proceeds from sales of investments:
		Fixed maturity securities available-for-sale					4,987			38,918
	Net decrease (increase) in short-term investments			2,938			(17,281	)		(43,091	)
	Dividends received from Zenith Insurance			95,000			115,000			50,000
	Other, net						8			6

	Net cash provided by investing activities			97,938			102,714			45,833

Cash flows from financing activities:
	Cash dividends paid to common stockholders			(90,361	)		(100,174	)		(43,241	)
	Excess tax benefit on stock-based compensation			376			341			273
	Net proceeds from exercise of stock options						196			227
	Repurchase of redeemable securities									(500	)

	Net cash used in financing activities			(89,985	)		(99,637	)		(43,241	)

Net increase (decrease) in cash				809			(16	)		(126	)
Cash at beginning of year				104			120			246

Cash at end of year			$	913		$	104		$	120

Reconciliation of net income to net cash used in operating activities:
	Net income		$	95,300		$	233,900		$	258,700
	Equity in income of subsidiaries			(102,944	)		(239,700	)		(264,490	)
	Decrease in income tax payable			(167	)		(791	)		(3,458	)
	Other			667			3,498			6,530

	Net cash used in operating activities		$	(7,144	)	$	(3,093	)	$	(2,718	)

SCHEDULE II — CONDENSED FINANCIAL INFORMATION OF REGISTRANT (PARENT COMPANY)

ZENITH NATIONAL INSURANCE CORP.

NOTES TO CONDENSED FINANCIAL INFORMATION OF REGISTRANT

The accompanying condensed financial statements and the related notes should be read in conjunction with the consolidated financial statements and notes thereto of Zenith National Insurance Corp. ("Zenith National") and subsidiaries (collectively, "Zenith").

Zenith National directly owns 100% of the outstanding stock of Zenith Insurance Company and Zenith National Insurance Capital Trust I ("Trust"). These investments are included in the accompanying condensed financial statements on the equity basis of accounting. Included in investment in subsidiaries at December 31, 2008 and 2007 was $2.0 million of the unamortized excess of cost over underlying net tangible assets of companies acquired prior to 1970, which is considered to have continuing value.

Zenith National also owns $16.5 million of the Trust's 8.55% Capital Securities, which are included in other assets and interest earned thereon is recorded as an offset to interest expense.

We file a consolidated income tax return. Our equity in the income of our subsidiaries is net of a provision for income tax expense of $56.1 million, $132.2 million, and $145.3 million for the years ended December 31, 2008, 2007, and 2006, respectively. We have a tax allocation agreement with our subsidiaries and the 2008, 2007, and 2006 condensed financial information of the parent company reflects Zenith National's portion of the consolidated tax.

Convertible Senior Notes Payable. On March 21, 2003, we issued $125.0 million aggregate principal amount of 5.75% Convertible Senior Notes due March 30, 2023 ("Convertible Notes") in a private placement, from which we received net proceeds of approximately $120.0 million.

In March, 2008, the remaining $1.1 million aggregate principal amount was converted into 68,986 shares of our common stock.

Subordinated Debentures. At December 31, 2008 and 2007, we had $77.3 million aggregate principal amount of the 8.55% Subordinated Deferrable Interest Debentures due 2028 ("Subordinated Debentures") outstanding, all of which were held by the Trust. The semi-annual interest payments on the Subordinated Debentures may be deferred by us for up to ten consecutive semi-annual periods. The Subordinated Debentures are redeemable at any time by us at 100% of the principal amount of the Subordinated Debentures plus a "make-whole premium," if any, together with accrued and unpaid interest. The make-whole premium is the excess of the then present value of the remaining scheduled payments of principal and interest over 100% of the principal amount. The issue cost and discount on the Subordinated Debentures of $1.7 million are being amortized over the term of the Subordinated Debentures. During each of the years ended December 31, 2008, 2007 and 2006, $6.7 million of interest and issue costs were expensed. The Subordinated Debentures are subordinated to all other indebtedness of Zenith National. The fair value of the Subordinated Debentures was $63.1 million and $73.9 million at December 31, 2008 and 2007, respectively.

Bank Line of Credit. At December 31, 2008, we had a $30.0 million revolving credit agreement with Bank of America, N.A. expiring February 16, 2010. Interest is payable on any outstanding loans at either the bank's prime rate or a rate based on Eurodollar deposit rates plus a specified margin depending on our credit rating. This credit agreement contains covenants that require, among other things, that we maintain certain financial ratios, including a minimum amount of capital in our

insurance subsidiaries, a maximum debt-to-total capitalization ratio and a minimum interest coverage ratio. We were in compliance with all of these covenants at December 31, 2008.

There were no outstanding borrowings under the bank line of credit in 2008 and 2007. We currently do not anticipate the need to draw on our available line of credit because our current liquidity is sufficient for any foreseeable requirements.

Litigation. We are involved in various litigation proceedings that arise in the ordinary course of our business. Disputes adjudicated in the workers' compensation administrative systems may be appealed to review boards or civil courts, depending on the issues and local jurisdictions involved. From time to time plaintiffs also sue us on theories falling outside of the exclusive jurisdiction and remedies of the workers' compensation claims adjudication systems. Certain of these legal proceedings seek injunctive relief or substantial monetary damages, including claims for punitive damages, which may not be covered by our third party reinsurance agreements. Historically, the Company has not experienced any material exposure or damages from any of these legal proceedings. In addition, in the opinion of management, after consultation with legal counsel, all of our currently outstanding litigation is either without merit or the ultimate liability, if any, is not expected to have a material adverse effect on our consolidated financial condition, results of operations or cash flows.

Other comprehensive (loss) income is comprised of changes in unrealized (losses) gains on investments classified as available-for-sale. The following table summarizes the components of accumulated other comprehensive (loss) income:

Column A		Column B		Column C		Column D		Column E	Column F		Column G		Column H		Column I		Column J		Column K

Segment		Deferred Policy Acquisition Costs		Future Policy Benefits, Losses, Claims and Loss Expenses		Unearned Premiums		Other Policy Claims and Benefits Payable	Premium Revenue		Net Investment Income		Benefits, Claims, Losses and Settlement Expenses		Amortization of Deferred Policy Acquisition Costs		Other Operating Expenses		Premiums Written
(Dollars in thousands)
As of and for Year Ended December 31, 2008
Property and Casualty:
	Workers' compensation	$	7,274	$	1,229,561	$	45,226		$	606,284			$	279,121	$	110,996	$	119,379	$	589,397
	Reinsurance				45,025					1,043				787		110		338		1,043

			7,274		1,274,586		45,226			607,327				279,908		111,106		119,717		590,440
Investment											$	94,027
Parent																		7,636

	Total	$	7,274	$	1,274,586	$	45,226		$	607,327	$	94,027	$	279,908	$	111,106	$	127,353	$	590,440

2007
Property and Casualty:
	Workers' compensation	$	9,538	$	1,390,643	$	61,950		$	738,196			$	249,290	$	123,073	$	123,091	$	717,154
	Reinsurance				62,727					336				3,554		19		424		336

			9,538		1,453,370		61,950			738,532				252,844		123,092		123,515		717,490
Investment											$	114,863
Parent																		7,261

	Total	$	9,538	$	1,453,370	$	61,950		$	738,532	$	114,863	$	252,844	$	123,092	$	130,776	$	717,490

2006
Property and Casualty:
	Workers' compensation								$	931,739			$	292,160	$	145,833	$	128,770	$	901,108
	Reinsurance									12,478				30,624		1,320		1,042		2,661

										944,217				322,784		147,153		129,812		903,769
Investment											$	106,294
Parent																		6,652

	Total								$	944,217	$	106,294	$	322,784	$	147,153	$	136,464	$	903,769

SCHEDULE V — VALUATION AND QUALIFYING ACCOUNTS
ZENITH NATIONAL INSURANCE CORP. AND SUBSIDIARIES

Column A	Column B		Column C			Column D		Column E

			Additions
(Dollars in thousands)	Balance at Beginning of Year		Charged to Costs and Expenses		Charged to Other Accounts	Deductions (1)		Balance at End of Year
Year Ended December 31,
2008
Allowance for uncollectible premiums	$	150	$	1,851		$	1,451	$	550
Provision for uncollectible reinsurance recoverable
2007
Allowance for uncollectible premiums				585			435		150
Provision for uncollectible reinsurance recoverable
2006
Allowance for uncollectible premiums		77		731			808
Provision for uncollectible reinsurance recoverable

Number		Exhibit

10.5		Amendment No. 1 dated December 31, 2008 to Employment Agreement dated January 23, 2006 between Zenith National Insurance Corp. and Michael E. Jansen.
10.7		Amendment No. 1 dated December 31, 2008 to Employment Agreement dated October 12, 2004 between Zenith National Insurance Corp. and Robert E. Meyer.
10.9		Amendment No. 1 dated December 31, 2008 to Employment Agreement dated October 12, 2004 between Zenith National Insurance Corp. and Jack D. Miller.
10.12		Amendment No. 2 dated December 31, 2008 to Employment Agreement dated September 12, 2005 between Zenith National Insurance Corp. and Davidson M. Pattiz.
10.14		Amendment No. 1 dated December 31, 2008 to Employment Agreement dated May 24, 2006 between Zenith National Insurance Corp. and Kari L. Van Gundy.
10.17		First Amendment effective December 1, 2008 to Amended and Restated Zenith National Insurance Corp. Executive Officer Bonus Plan dated February 12, 2003.
10.19		Amended and Restated Zenith National Insurance Corp. 2003 Non-Employee Director Deferred Compensation Plan effective December 1, 2008.
10.20		Amended and Restated Zenith National Insurance Corp. 2003 Non-Employee Director Deferred Compensation Plan effective December 1, 2008, Form of Deferred Compensation Agreement.
13		Zenith's Annual Report to Stockholders for the year ended December 31, 2008, but only to the extent such report is expressly incorporated by reference herein, and such report is not otherwise to be deemed "filed" as a part of this Annual Report on Form 10-K.
21		Subsidiaries of the Registrant
31.1		Certification of Chief Executive Officer pursuant to Exchange Rule 13a-14(a) or Rule 15d-14(a).
31.2		Certification of Chief Financial Officer pursuant to Exchange Rule 13a-14(a) or Rule 15d-14(a).
32		Certification of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350.


ý	ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2008		Commission file number 1-9627
OR
o	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to

Title of Each Class		Name of Each Exchange on Which Registered

Common Stock, $1.00 Par Value		New York Stock Exchange


Large accelerated filer X	Accelerated filer	Non-accelerated filer	Smaller reporting company
		(Do not check if a smaller reporting company)


Accident year losses		Loss data grouped by the year in which the accident occurred, regardless of when the accident was reported or when the loss amount was recognized in our Consolidated Statements of Operations.
Assume		To receive from a ceding company all or a portion of a risk in consideration of receipt of a premium.
Cede		To transfer to an assuming company, or reinsurer, all or a portion of a risk in consideration of payment of a premium.

(Dollars in thousands)	2008				2007				2006

California	$	332,196	54.8	%	$	407,105	55.1	%	$	582,282	62.5	%
Florida		152,321	25.1			192,889	26.1			207,200	22.2
Other		121,767	20.1			138,202	18.8			142,257	15.3

Net Premiums Earned	$	606,284	100.0	%	$	738,196	100.0	%	$	931,739	100.0	%


Incorporated in Delaware 21255 Califa Street, Woodland Hills, California 91367-5021 (818) 713-1000		I.R.S. Employer Identification No. 95-2702776

ITEM	Description

*Part I*
ITEM 1	Business	1
	General	1
	Glossary of Selected Insurance Terms	1
	Description of the Business	4
	Losses and Loss Adjustment Expense Reserves, Claims and Loss Developments	9
	Reinsurance Ceded	12
	Marketing and Staff	14
	Competition	14
	Regulation	14
ITEM 1A	Risk Factors	15
ITEM 1B	Unresolved Staff Comments	22
ITEM 2	Properties	22
ITEM 3	Legal Proceedings	22
ITEM 4	Submission of Matters to a Vote of Security Holders	22
*Part II*
ITEM 5	Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities	23
ITEM 6	Selected Financial Data	24
ITEM 7	Management's Discussion and Analysis of Consolidated Financial Condition and Results of Operations	24
ITEM 7A	Quantitative and Qualitative Disclosures about Market Risk	24
ITEM 8	Financial Statements and Supplementary Data	24
ITEM 9	Changes in and Disagreements with Accountants on Accounting and Financial Disclosure	24
ITEM 9A	Controls and Procedures	24
ITEM 9B	Other Information	25
*Part III*
ITEM 10	Directors, Executive Officers and Corporate Governance	26
ITEM 11	Executive Compensation	26
ITEM 12	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters	26
ITEM 13	Certain Relationships and Related Transactions, and Director Independence	26
ITEM 14	Principal Accountant Fees and Services	26
*Part IV*
ITEM 15	Exhibits and Financial Statement Schedules	27
Signatures		31
Index to Financial Statements and Schedules		32

California Accident Year Loss Ratios — Estimated as of December 31, 2008

Accident Year		Zenith			WCIRB
	1978		44	%		55	%
	1979		43			58
	1980		45			57
	1981		52			60
	1982		54			66
	1983		57			75
	1984		63			83
	1985		60			84
	1986		52			76
	1987		48			69
	1988		44			67
	1989		49			70
	1990		58			81
	1991		58			85
	1992		49			70
	1993		39			56
	1994		49			64
	1995		70			91
	1996		69			101
	1997		77			116
	1998		85			131
	1999		96			142
	2000		88			127
	2001		77			107
	2002		59			83
	2003		37			52
	2004		23			33
	2005		24			29
	2006		31			38
	2007		38			52
	2008		46

Non-California Accident Year Loss Ratios — Estimated as of December 31, 2008

Accident Year		Zenith			NCCI
	2002		49	%		70	%
	2003		39			64
	2004		36			61
	2005		33			58
	2006		34			58
	2007		38			60
	2008		39

Effective Dates	Retention Amount

Through December 31, 2001	$	550,000
January 1, 2002 – June 30, 2002		750,000
July 1, 2002 – April 30, 2007		1,000,000
May 1, 2007		5,000,000

Quarter		2008		2007

First:
	High	$	45.69	$	50.94
	Low		33.18		45.02
Second:
	High		41.16		51.44
	Low		35.16		45.89
Third:
	High		48.00		49.56
	Low		33.03		38.80
Fourth:
	High		37.23		46.98
	Low		26.00		37.90



		ZENITH NATIONAL INSURANCE CORP.
		By:		/s/ STANLEY R. ZAX Stanley R. Zax Chairman of the Board and President


/s/ STANLEY R. ZAX Stanley R. Zax		Chairman of the Board and President (Principal Executive Officer)
/s/ JEROME L. COBEN Jerome L. Coben		Director
/s/ MAX M. KAMPELMAN Max M. Kampelman		Director
/s/ ROBERT J. MILLER Robert J. Miller		Director
/s/ FABIAN NUÑEZ Fabian Nuñez		Director
/s/ CATHERINE B. REYNOLDS Catherine B. Reynolds		Director
/s/ ALAN I. ROTHENBERG Alan I. Rothenberg		Director
/s/ WILLIAM S. SESSIONS William S. Sessions		Director
/s/ MICHAEL WM. ZAVIS Michael Wm. Zavis		Director
/s/ KARI L. VAN GUNDY Kari L. Van Gundy		Senior Vice President and Chief Financial Officer (Principal Financial and Accounting Officer)



Consent of Independent Registered Public Accounting Firm		F-1
Report of Independent Registered Public Accounting Firm on Financial Statement Schedules		F-2
Financial Statement Schedules
I	Summary of Investments — Other Than Investments in Related Parties	F-3
II	Condensed Financial Information of Registrant (Parent Company)	F-4
	Balance Sheets	F-4
	Statements of Operations	F-5
	Statements of Cash Flows	F-6
	Notes to Condensed Financial Information of Registrant	F-7
III	Supplementary Insurance Information	F-9
IV	Reinsurance	F-10
V	Valuation and Qualifying Accounts	F-10