0001104659-06-026271.txt : 20060420 0001104659-06-026271.hdr.sgml : 20060420 20060420152613 ACCESSION NUMBER: 0001104659-06-026271 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 8 CONFORMED PERIOD OF REPORT: 20060331 FILED AS OF DATE: 20060420 DATE AS OF CHANGE: 20060420 FILER: COMPANY DATA: COMPANY CONFORMED NAME: ZENITH NATIONAL INSURANCE CORP CENTRAL INDEX KEY: 0000109261 STANDARD INDUSTRIAL CLASSIFICATION: FIRE, MARINE & CASUALTY INSURANCE [6331] IRS NUMBER: 952702776 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-09627 FILM NUMBER: 06769908 BUSINESS ADDRESS: STREET 1: 21255 CALIFA ST CITY: WOODLAND HILLS STATE: CA ZIP: 91367 BUSINESS PHONE: 8187131000 10-Q 1 a06-8565_110q.htm QUARTERLY REPORT PURSUANT TO SECTIONS 13 OR 15(D)

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2006

o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES AND EXCHANGE ACT OF 1934

For the transition period from to

Commission file number 1-9627

ZENITH NATIONAL INSURANCE CORP.

[Exact name of registrant as specified in its charter]

Delaware		95-2702776
[State or other jurisdiction of		[I.R.S. Employer
incorporation or organization]		Identification No.]
21255 Califa Street, Woodland Hills, California		91367-5021
[Address of principal executive offices]		[Zip Code]

(818) 713-1000

[Registrant’s telephone number, including area code]

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 o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act (check one):

Large accelerated filer x

Accelerated filer o

Non-accelerated filer o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes o

No x

At April 18, 2006, there were 36,932,000 shares of Zenith National Insurance Corp. common stock outstanding, net of 7,695,000 shares of treasury stock.

Zenith National Insurance Corp. and Subsidiaries
Form 10-Q
For the Quarter Ended March 31, 2006

Table of Contents

			Page
Part I—Financial Information
	Item 1.	Financial Statements:
		Consolidated Balance Sheets as of March 31, 2006 and December 31, 2005	3
		Consolidated Statements of Operations for the Three Months Ended March 31, 2006 and 2005	4
		Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2006 and 2005	5
		Consolidated Statements of Stockholders’ Equity for the Three Months Ended March 31, 2006 and 2005	6
		Notes to Consolidated Financial Statements	7
	Item 2.	Management’s Discussion and Analysis of Consolidated Financial Condition and Results of Operations	17
	Item 3.	Quantitative and Qualitative Disclosures About Market Risk	33
	Item 4.	Controls and Procedures	34
Part II—Other Information
	Item 6.	Exhibits	35
Signatures			37

PART l

FINANCIAL INFORMATION

Item 1. Financial Statements

ZENITH NATIONAL INSURANCE CORP. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)

	March 31,			December 31,
(Dollars and shares in thousands)	2006			2005
Assets:
Investments:
Fixed maturity investments:
At amortized cost (fair value $155,508 in 2006 and $137,237 in 2005)	$	158,186			$	137,535
At fair value (amortized cost $1,130,880 in 2006 and $1,048,089 in 2005)	1,106,481				1,044,666
Equity securities, at fair value (cost $69,305 in 2006 and $68,048 in 2005)	84,742				73,304
Short-term investments (at cost or amortized cost, which approximates fair value)	882,770				904,093
Other investments	6,737				7,402
Total investments	2,238,916				2,167,000
Cash	6,718				7,469
Accrued investment income	16,672				14,165
Premiums receivable, less bad debt allowance of $554 in 2006 and $77 in 2005	57,488				64,749
Receivable from reinsurers and state trust funds for paid and unpaid losses	255,074				259,076
Deferred policy acquisition costs	18,004				16,674
Deferred tax asset	72,133				67,674
Goodwill	20,985				20,985
Other assets	95,405				99,664
Total assets	$	2,781,395			$	2,717,456
Liabilities:
Policy liabilities:
Unpaid losses and loss adjustment expenses	$	1,691,762			$	1,703,445
Unearned premiums	123,317				123,473
Policyholders’ dividends accrued	33,494				30,576
Convertible senior notes payable, less unamortized discount of $25 in 2006 and $26 in 2005	1,125				1,124
Redeemable securities, less unamortized discount of $164 in 2006 and $167 in 2005	58,336				58,833
Current income tax payable	31,365				2,543
Other liabilities	87,745				84,667
Total liabilities	2,027,144				2,004,661
Commitments and contingencies (Note 7)
Stockholders’ equity:
Preferred stock, $1 par, 1,000 shares authorized; none issued or outstanding in 2006 and 2005
Common stock, $1 par, 50,000 shares authorized; issued 44,627 in 2006 and 44,944 in 2005; outstanding 36,932 in 2006 and 37,249 in 2005	44,627				44,944
Additional paid-in-capital	455,925				454,281
Retained earnings	426,176				379,031
Accumulated other comprehensive (loss) income	(5,825		)		1,191
	920,903				879,447
Treasury stock, at cost (7,695 shares in 2006 and 2005)	(166,652		)		(166,652		)
Total stockholders’ equity	754,251				712,795
Total liabilities and stockholders’ equity	$	2,781,395			$	2,717,456

The accompanying notes are an integral part of these financial statements.

ZENITH NATIONAL INSURANCE CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)

	Three Months Ended
	March 31,
(Dollars in thousands, except per share data)	2006			2005
Revenues:
Premiums earned	$	254,426		$	285,717
Net investment income	24,732			17,131
Realized gains on investments	1,610			2,870
Total revenues	280,768			305,718
Expenses:
Loss and loss adjustment expenses incurred	114,451			170,669
Policy acquisition costs	39,774			42,222
Underwriting and other operating expenses	32,974			30,032
Policyholders’ dividends	3,875			1,250
Interest expense	1,335			3,292
Total expenses	192,409			247,465
Income before tax and equity in earnings of investee	88,359			58,253
Income tax expense	30,859			20,123
Income after tax and before equity in earnings of investee	57,500			38,130
Equity in earnings of investee, net of income tax expense of $630 in 2005 (Note 5)				1,170
Net income	$	57,500		$	39,300
Net income per common share (2005 restated for a 3-for-2 stock split, see Notes 1 and 3):
Basic	$	1.56		$	1.35
Diluted	1.55			1.10
Disclosure regarding comprehensive income:
Net income	$	57,500		$	39,300
Other comprehensive income (loss), net of tax:
Net change in net unrealized (depreciation) appreciation on investments	(7,016		)	(13,834		)
Net change in foreign currency translation adjustment				(282		)
Comprehensive income	$	50,484		$	25,184

The accompanying notes are an integral part of these financial statements.

ZENITH NATIONAL INSURANCE CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)

	Three Months Ended March 31,
(Dollars in thousands)	2006			2005
Cash flows from operating activities:
Premiums collected	$	269,466		$	317,895
Investment income received	15,004			15,370
Loss and loss adjustment expenses paid	(117,166		)	(107,554		)
Underwriting and other operating expenses paid	(75,452		)	(76,694		)
Interest paid	(2,596		)	(6,177		)
Income taxes paid	(2,683		)	(7,618		)
Net cash provided by operating activities	86,573			135,222
Cash flows from investing activities:
Purchases of investments:
Fixed maturity securities held-to-maturity	(25,008		)	(6,323		)
Fixed maturity securities available-for-sale	(339,733		)	(452,855		)
Equity securities available-for-sale	(14,024		)	(26,402		)
Other investments	(234		)	(364		)
Proceeds from maturities and redemptions of investments:
Fixed maturity securities held-to-maturity	4,263			7,816
Fixed maturity securities available-for-sale	10,611			13,946
Other investments	2,023			13,818
Proceeds from sales of investments:
Fixed maturity securities available-for-sale	233,966			260,072
Equity securities available-for-sale	13,258			34,892
Net decrease in short-term investments	41,013			29,763
Capital expenditures and other, net	(3,806		)	(2,518		)
Net cash used in investing activities	(77,671		)	(128,155		)
Cash flows from financing activities:
Cash dividends paid to common stockholders	(9,226		)	(5,392		)
Repurchase of redeemable securities	(500		)
Proceeds from exercise of stock options	73			2,144
Purchase of treasury shares				(7,545		)
Net cash used in financing activities	(9,653		)	(10,793		)
Net decrease in cash	(751		)	(3,726		)
Cash at beginning of period	7,469			10,322
Cash at end of period	$	6,718		$	6,596
Reconciliation of net income to net cash flows provided by operating activities:
Net income	$	57,500		$	39,300
Adjustments to reconcile net income to net cash flows provided by operating activities:
Net depreciation, amortization and (accretion)	(4,743		)	1,456
Realized gains on investments	(1,610		)	(2,870		)
Equity in earnings of investee				(1,170		)
(Increase) decrease in:
Accrued investment income	(2,507		)	(950		)
Premiums receivable	4,741			(4,458		)
Receivable from reinsurers and state trust funds for paid and unpaid losses	3,990			21,843
Deferred policy acquisition costs	(1,330		)	(3,541		)
Increase (decrease) in:
Unpaid losses and loss adjustment expenses	(11,683		)	37,306
Unearned premiums	(156		)	25,263
Net income taxes payable	28,176			12,505
Accrued expenses	7,563			14,775
Other	6,632			(4,237		)
Net cash provided by operating activities	$	86,573		$	135,222

The accompanying notes are an integral part of these financial statements.

ZENITH NATIONAL INSURANCE CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(UNAUDITED)

	Three Months Ended March 31,
(Dollars in thousands, except per share data)	2006			2005
Preferred stock, $1 par:
Beginning of period	None			None
End of period	None			None
Common stock, $1 par:
Beginning of period	$	44,944		$	26,510
Exercise of stock options	3			714
Restricted stock awards granted				7
Restricted stock awards not yet vested	(320		)
End of period	44,627			27,231
Additional paid-in-captial:
Beginning of period	454,281			314,262
Recognition of stock-based compensation expense	1,538			539
Exercise of stock options	70			16,082
Tax benefit on options exercised	36			6,694
End of period	455,925			337,577
Retained earnings:
Beginning of period	379,031			254,682
Net income	57,500			39,300
Cash dividends declared to common stockholders	(10,355		)	(7,299		)
End of period	426,176			286,683
Accumulated other comprehensive income (loss):
Beginning of period	1,191			43,583
Net change in unrealized appreciation on investments, net of deferred tax (benefit) expense and reclassification adjustment	(7,016		)	(13,834		)
Change in foreign currency translation adjustment, net of deferred tax benefit				(282		)
End of period	(5,825		)	29,467
Treasury stock, at cost:
Beginning of period	(166,652		)	(136,890		)
Acquisition of treasury shares				(22,202		)
End of period	(166,652		)	(159,092		)
Total stockholders’ equity	$	754,251		$	521,866
Cash dividends declared per common share (2005 restated for a 3-for-2 stock split, see Note 1)	$	0.28		$	0.22

The accompanying notes are an integral part of these financial statements.

ZENITH NATIONAL INSURANCE CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)

Note 1. Basis of Presentation

Zenith National Insurance Corp. (“Zenith National”) is a holding company engaged, through its wholly-owned subsidiaries (primarily Zenith Insurance Company (“Zenith Insurance”)), in the workers’ compensation insurance business, nationally, and the assumed reinsurance business. In September 2005, we announced that we will exit the assumed reinsurance business. Unless otherwise indicated, all references to “Zenith,” “we,” “us,” “our,” “the Company” or similar terms refer to Zenith National together with its subsidiaries. The accompanying unaudited, consolidated financial statements of Zenith National and subsidiaries have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X of the Securities Exchange Act of 1934, as amended. Accordingly, they do not include all of the information and notes required by GAAP for complete financial statements. In the opinion of management, all adjustments (consisting of normal, recurring adjustments) necessary for a fair presentation of the financial position and results of operations of Zenith for the periods presented have been included. The results of operations for an interim period are not necessarily indicative of the results for an entire year. For further information, refer to the financial statements and notes thereto included in the Zenith National Insurance Corp. Annual Report on Form 10-K for the year ended December 31, 2005.

3-for-2 Stock Split. On September 7, 2005, Zenith National’s Board of Directors declared a 3-for-2 stock split which was paid in the form of a 50% stock dividend. The additional shares of Zenith National’s common stock were distributed on October 11, 2005 to shareholders of record as of September 19, 2005. The 3-for-2 stock split was recorded in the third quarter of 2005 as an increase to common stock and a decrease to additional paid-in-capital. Dividends, earnings per share amounts and common stock shares and prices in the current and prior periods reflect the 3-for-2 stock split.

Reclassifications. Certain prior year amounts in stockholders’ equity have been reclassified to conform to the current year presentation.

Note 2. Stock-Based Compensation

Effective January 1, 2006, we adopted Statement of Financial Accounting Standards (“SFAS”) No. 123(R), Share-Based Payment (“SFAS No. 123R”), using the modified prospective application transition method. SFAS No. 123R revises SFAS No. 123, Accounting for Stock-Based Compensation (“SFAS No. 123”). We previously adopted the fair value based method of recording stock options consistent with SFAS 123 and accounted for the change in accounting principle using the prospective method in accordance with SFAS No. 148, Accounting for Stock-Based Compensation—Transition and Disclosure. Under the prospective method, all employee stock options granted since January 2002 are being expensed over the stock option vesting period based on the fair value at the date the options were granted. Because the fair value recognition provisions of SFAS No. 123 and SFAS No. 123R were materially consistent under our stock-based compensation plans, the adoption of SFAS No. 123R did not have a material impact on our consolidated statements of financial condition, results of operations, or cash flows.

SFAS No. 123R requires us to estimate forfeitures in calculating the expense relating to stock-based compensation as opposed to recognizing these forfeitures and the corresponding reduction in expense as they occur. In addition, SFAS No. 123R requires the Company to reflect the tax savings resulting from tax

ZENITH NATIONAL INSURANCE CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(UNAUDITED)

Note 2. Stock-Based Compensation (Continued)

deductions in excess of compensation expense reflected in its financial statements as a cash inflow from financing activities in its statement of cash flows rather than as an operating cash flow as in prior periods.

The total compensation cost recognized for stock-based awards was $0.8 million (net of $0.5 million tax benefit) and $0.4 million (net of $0.2 million tax benefit) in the three months ended March 31, 2006 and 2005, respectively.

Restricted Stock. Under a restricted stock plan approved by our stockholders in May 2004, as amended in May 2005 (the “Restricted Stock Plan”), non-employee Directors and key employees are awarded shares of Zenith National’s common stock, par value $1.00 per share (“Zenith National’s common stock”) with restricted ownership rights. Of the shares of stock granted to employees, 50% vest two years after the grant date and the remaining 50% of the shares vest four years after the grant date. Shares granted to non-employee Directors vest in equal amounts of one third of the amount granted over three years. The fair value of restricted stock awards is measured based on the closing prices of Zenith National’s common stock on the grant date and is recognized as compensation expense over the vesting period of the awards.

The following table provides certain information regarding the shares authorized and outstanding under the Restricted Stock Plan at March 31, 2006:

Number of shares authorized for grants		375,000
Number of shares outstanding		333,000
Number of shares available for future grants		42,000
Weighted-average grant price of outstanding shares		$ 37.85

Changes in restricted stock for the three months ended March 31, 2006 were as follows:

	Number of Shares	Weighted Average Grant Price
Outstanding at December 31, 2005	320,000		$ 37.37
Granted	13,000		50.00
Outstanding at March 31, 2006	333,000		37.85

At March 31, 2006, there were no shares vested under the Restricted Stock Plan. Compensation expense recognized in the three months ended March 31, 2006 and 2005 was $0.8 million and $0.4 million after tax, respectively. Unrecognized compensation expense under the Restricted Stock Plan was $7.7 million and $8.3 million at March 31, 2006 and December 31, 2005, respectively. Common stock prices and number of shares in the two preceding tables describing shares under the Restricted Stock Plan have been adjusted to reflect the 3-for-2 stock split in 2005.

Unearned compensation expense associated with restricted shares in the prior periods has been reclassified to additional paid-in-capital.

ZENITH NATIONAL INSURANCE CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(UNAUDITED)

Note 2. Stock-Based Compensation (Continued)

Employee Stock Options. Under an employee non-qualified stock option plan adopted by the Board of Directors and stockholders of Zenith National in 1996 (the “Stock Option Plan”), options were granted to certain officers and key employees for the purchase of Zenith National’s common stock at 100% of the market price at the date of grant. All of the options outstanding at March 31, 2006 expire five years after the date of the grant or three months after termination of employment and vest one-fourth per year after the grant date. No options were granted in 2006, 2005, 2004 or 2003. Compensation expense recognized in the three months ended March 31, 2006 and 2005 was $9,000 and $10,000 after tax, respectively. At March 31, 2006, there was $9,000 of total unrecognized compensation expense related to non-vested stock options granted under the Stock Option Plan. That cost is expected to be recognized in the second quarter of 2006.

The following table provides certain information regarding the shares authorized and outstanding under the Stock Option Plan at March 31, 2006:

Number of shares to be issued upon exercise of outstanding options		17,000
Number of shares authorized for option grants		4,014,000
Number of shares remaining available for future issuance		714,000
Weighted-average exercise price of outstanding options		$ 20.71

Changes in stock options for the three months ended March 31, 2006 were as follows:

	Number of Shares		Weighted Average Exercise Price
Outstanding at December 31, 2005		21,000		$ 20.51
Exercised		4,000		19.60
Outstanding at March 31, 2006		17,000		20.71

Certain information on outstanding options at March 31, 2006 was as follows:

			Weighted Average
Range of Exercise Price	Number Outstanding		Remaining Life in Years	Outstanding Options Exercise Price
$20.11–20.88		17,000	Less than 1		$ 20.71

There were 4,000 options exercisable at March 31, 2006 and December 31, 2005. Certain information on exercisable options at March 31, 2006 was as follows:

Exercise Price	Number Exercisable		Exercisable Options Weighted Average Exercise Price
$20.11		4,000		$ 20.11

ZENITH NATIONAL INSURANCE CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(UNAUDITED)

Note 2. Stock-Based Compensation (Continued)

Common stock prices and number of shares in the four preceding tables describing stock options have been adjusted to reflect the 3-for-2 stock split in 2005.

Note 3. Earnings and Dividends Per Share

The following table sets forth the computation of basic and diluted net income per common share:

		Three Months Ended March 31,
(Dollars and shares in thousands, except per share data)		2006	2005
(A)	Net income	$ 57,500	$ 39,300
(B)	Interest expense on the Convertible Notes, net of tax	$ 12	$ 1,272
(C)	Weighted average shares outstanding	36,932	29,147
	Common shares issuable under Stock Option Plan (treasury stock method)	7	249
	Common shares issuable under Restricted Stock Plan (treasury stock method)	134	48
	Common shares issuable upon conversion of the Convertible Notes	69	7,500
(D)	Weighted average shares outstanding—diluted	37,142	36,944
	Net income per common share:
(A)/(C)	Basic	$ 1.56	$ 1.35
((A)+(B))/(D)	Diluted	1.55	1.10
	Cash dividends declared per common share	$ 0.28	$ 0.22

Basic weighted average shares outstanding for the three months ended March 31, 2006 includes shares issued in 2005 in connection with the conversions of $123.8 million aggregate principal amount of our 5.75% Convertible Senior Notes due March 30, 2023 (the “Convertible Notes”).

Diluted weighted average shares outstanding for the three months ended March 31, 2006 and 2005 include an additional 69,000 and 7.5 million shares, respectively, that could be issued in connection with our Convertible Notes. After tax interest expense of $12,000 and $1.3 million associated with the Convertible Notes for each of the three months ended March 31, 2006 and 2005, respectively, is added back to net income in computing net income per diluted share.

Weighted average shares outstanding and shares issuable under the Stock Option Plan, Restricted Stock Plan and upon conversion of the Convertible Notes in 2005 have been adjusted to reflect the 3-for-2 stock split in 2005.

ZENITH NATIONAL INSURANCE CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(UNAUDITED)

Note 4. Outstanding Debt

At March 31, 2006, the aggregate maturities for all of Zenith’s long-term borrowings for each of the five years after December 31, 2005 and thereafter are as follows:

(Dollars in thousands)	Convertible Notes		Redeemable Securities		Total
Maturing in:
2006		$ 1,150			$ 1,150
2007
2008
2009
2010
Thereafter				$ 58,500	58,500
Total		$ 1,150		$ 58,500	$ 59,650

The maturity of the outstanding Convertible Notes is presented as being due in 2006 because the holders of our Convertible Notes have the right to convert their notes into our common stock during the second quarter of 2006 since the contingent conversion condition relative to our stock price was met as of March 31, 2006. If any holder requires Zenith National to repurchase its Convertible Notes, Zenith National may choose to pay the repurchase price in cash or shares of its common stock or a combination thereof. Whether the notes will be convertible after June 30, 2006 will depend upon the occurrence of events specified in the Indenture governing the Convertible Notes, including the sale price of Zenith National’s common stock. If the Convertible Notes are not converted or redeemed, their scheduled maturity is March 2023. The maximum number of shares that could be required to be issued upon conversion of all outstanding Convertible Notes at March 31, 2006 was approximately 69,000.

In the first quarter of 2006, we paid $0.5 million to repurchase $0.5 million aggregate principal amount of the outstanding 8.55% Capital Securities of Zenith National Insurance Capital Trust I, all of voting securities of which are owned by Zenith National (“Redeemable Securities”).

Note 5. Investment in Advent Capital (Holdings) PLC (“Advent Capital”)

Our investment in Advent Capital is no longer accounted for under the equity method since our ownership was reduced to 10% in 2005 and we no longer have representation on Advent Capital’s board of directors.

ZENITH NATIONAL INSURANCE CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(UNAUDITED)

Note 6. Segment Information

Our business is comprised of the following segments: workers’ compensation; reinsurance; investments; and parent. Segments are designated based on the types of products and services provided. Workers’ compensation represents insurance coverage for the statutorily prescribed benefits that employers are required to provide to their employees injured in the course of employment. Reinsurance principally consists of assumed reinsurance of property losses from worldwide catastrophes and large property risks. Income from operations of the investments segment includes investment income and realized gains and losses on investments and we do not allocate investment income to the results of our workers’ compensation and reinsurance segments. Income from the workers’ compensation and reinsurance segments is determined solely by deducting net loss and loss adjustment expenses incurred and underwriting and other operating expenses incurred from net premiums earned. Loss from operations of the parent segment includes interest expense and the general operating expenses of Zenith National, a holding company which owns, directly or indirectly, all of the capital stock of its insurance subsidiaries and other investment securities.

In September 2005, we announced that we will exit the reinsurance business. Zenith will not renew existing assumed reinsurance contracts and has ceased writing any new contracts. We will service our obligations under our existing assumed reinsurance contracts and will receive earned premiums and be subject to continuing exposure to losses until our in-force assumed reinsurance contracts expire. The results of the reinsurance segment will continue to be included in the results of continuing operations.

The combined ratio, expressed as a percentage, is a key measurement of profitability traditionally used in the property-casualty insurance industry. The combined ratio is the sum of the loss and loss adjustment expense ratio and the underwriting and other operating expense ratio. The loss and loss adjustment expense ratio is the percentage of net incurred loss and loss adjustment expenses to net premiums earned. The underwriting and other operating expense ratio is the percentage of underwriting and other operating expenses to net premiums earned. The key operating goal for our insurance businesses is to achieve a combined ratio of 100% or lower and to achieve a workers’ compensation combined ratio that is at least three percentage points lower than the combined ratio of the national workers’ compensation industry.

ZENITH NATIONAL INSURANCE CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(UNAUDITED)

Note 6. Segment Information (Continued)

Segment information is set forth below:

(Dollars in thousands)	Workers’ Compensation				Reinsurance				Investments		Parent			Total
Three Months Ended March 31, 2006
Revenues:
Premiums earned		$	247,622			$	6,804							$	254,426
Net investment income									$	24,732				24,732
Realized gains on investments									1,610					1,610
Total revenues		247,622				6,804			26,342					280,768
Interest expense											$	(1,335	)	(1,335		)
Income (loss) before tax		65,298				6			26,342		(3,287		)	88,359
Income tax expense (benefit)		23,239				2			8,768		(1,150		)	30,859
Net income (loss)		$	42,059			$	4		$	17,574	$	(2,137	)	$	57,500
Combined ratios		73.6		%		99.9		%
As of March 31, 2006
Total assets		$	462,477			$	47,609		$	2,265,443	$	5,866		$	2,781,395
Three Months Ended March 31, 2005
Revenues:
Premiums earned		$	273,495			$	12,222							$	285,717
Net investment income									$	17,131				17,131
Realized gains on investments									2,870					2,870
Total revenues		273,495				12,222			20,001					305,718
Interest expense											$	(3,292	)	(3,292		)
Income (loss) before tax and equity in earnings of investee		41,161				2,407			20,001		(5,316		)	58,253
Income tax expense (benefit)		14,580				842			6,561		(1,860		)	20,123
Income (loss) after tax and before equity in earnings of investee		26,581				1,565			13,440		(3,456		)	38,130
Equity in earnings of investee, net of tax expense of $630									1,170					1,170
Net income (loss)		$	26,581			$	1,565		$	14,610	$	(3,456	)	$	39,300
Combined ratios		84.9		%		80.3		%
As of March 31, 2005
Investment in Advent Capital									$	29,433				$	29,433
Total assets		$	459,031			$	37,297		$	2,016,416	$	6,171		$	2,518,915

ZENITH NATIONAL INSURANCE CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(UNAUDITED)

Note 6. Segment Information (Continued)

The following table is a reconciliation of our segment results to the accompanying Consolidated Statements of Operations:

	Three Months Ended March 31,
(Dollars in thousands)	2006			2005
Income before tax from investment segment:
Net investment income	$	24,732		$	17,131
Realized gains on investments	1,610			2,870
Income before tax from investments segment	26,342			20,001
Income (loss) before tax from:
Workers’ compensation segment	65,298			41,161
Reinsurance segment	6			2,407
Parent segment	(3,287		)	(5,316		)
Income before tax and before equity in earnings of investee	88,359			58,253
Income tax expense	30,859			20,123
Income after tax and before equity in earnings of investee	57,500			38,130
Equity in earnings of investee after tax				1,170
Net income	$	57,500		$	39,300

Note 7. Commitments and Contingencies

Contingencies Surrounding State Guarantee Fund Assessments

State guarantee funds (“Guarantee Funds”) exist to ensure that policyholders (holders of direct insurance policies but not of reinsurance policies) receive payment of their claims if insurance companies become insolvent. The Guarantee Funds are funded primarily by statutorily prescribed assessments they bill to other insurance companies doing business in their states. Various mechanisms exist in some of these states for assessed insurance companies to recover these assessments. Upon the insolvency of an insurance company, the Guarantee Funds become primarily liable for the payment of the insolvent company’s liabilities to policyholders. The declaration of an insolvency establishes the presumption that assessments by the Guarantee Funds are probable. Zenith Insurance writes workers’ compensation insurance in many states in which unpaid workers’ compensation liabilities are the responsibility of the Guarantee Funds and has received, and expects to continue to receive, Guarantee Fund assessments, some of which may be based on certain of the premiums it has already earned at March 31, 2006.

Zenith recorded an estimate of $7.5 million (net of expected recoveries of $1.9 million recoverable before the end of 2007) for its expected liability at March 31, 2006 for Guarantee Fund assessments. Recoveries are attributable to premium tax credits in various states. The amount of the recovery we have recorded is limited to credits applicable to, and recoverable from, premiums earned at March 31, 2006. The estimated expense for Guarantee Fund assessments was $1.2 million and $1.6 million in the three months ended March 31, 2006 and 2005, respectively. Our estimated liability is based on currently available information and could change based on additional information or reinterpretation of existing information concerning the actions of the Guarantee Funds. Zenith expects that it will continue to accrue and receive

ZENITH NATIONAL INSURANCE CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(UNAUDITED)

Note 7. Commitments and Contingencies (Continued)

Guarantee Fund assessments; and the ultimate impact of such assessments will depend upon the amount and timing of the assessments and of any recoveries to which Zenith is entitled.

Contingencies Surrounding Recoverability of Special Disability Trust Fund Receivable

The Florida Special Disability Trust Fund (“SDTF”) was established to reimburse insurance companies and employers for the cost of certain workers’ compensation claims. The SDTF promotes the re-hiring of injured workers by providing a reimbursement for certain qualifying claims made by a previously injured worker subsequent to their re-hiring. These claims are sometimes referred to as “second injuries.” We are able to submit such second injury claims to the SDTF and, if the claims are accepted, we are reimbursed for part of the cost of the claim. The SDTF stopped accepting new second injury claims dated after January 1, 1998. At March 31, 2006, approximately 550 of our Florida claims have been accepted, for which we have recorded a recoverable of $4.8 million, net of amounts due to reinsurers. We bill the SDTF and receive reimbursements as we make payments on accepted claims. The SDTF is funded by currently assessing a fee of 4.52% of workers’ compensation premiums written in Florida, and we accrue the assessment as a liability when we write Florida business. If the legislature in Florida were to decide to cease or suspend the assessment, and thereby the funding of the SDTF, any recoverable that we may have at that time which is related to un-reimbursed claims might be at risk. However, we have no current information to indicate that the SDTF assessment in Florida will not continue. We continue to collect recoveries for second injury claims from the SDTF and although the SDTF is currently about 42 months behind schedule in reimbursing claims, we expect to fully recover the remaining amount receivable.

Litigation

Zenith National and its subsidiaries are defendants in various litigation. In the opinion of management, after consultation with legal counsel, such litigation is either without merit or the ultimate liability, if any, is not expected to have a material adverse effect on the consolidated financial condition, results of operations or cash flows of Zenith.

Note 8. Exercise of Stock Options Using Previously Acquired Shares

In February 2005, a Zenith employee exercised his option to purchase from Zenith National 930,543 shares of Zenith National’s common stock at the exercise price of $15.75 per share, resulting in an aggregate exercise price of $14.7 million. In lieu of cash payment, 432,417 shares of Zenith National’s common stock valued at $14.7 million previously acquired by the employee were tendered to, and accepted by, Zenith in payment of the aggregate exercise price. The exercise of the stock options had no net effect on stockholders’ equity in the first quarter of 2005 because the increase in treasury stock of $14.7 million for the shares tendered was offset by an increase in common stock of $0.6 million and an increase in additional paid-in capital of $14.1 million for the 930,543 shares issued.

Also, in lieu of cash payment for the employee’s income tax withholding related to the income from the exercise of the stock options, 225,411 shares of Zenith National’s common stock valued at $7.5 million were withheld by Zenith National. The effect of withholding shares to pay the income tax was an increase in treasury stock of $7.5 million and a decrease in cash of $7.5 million in the first quarter of 2005.

ZENITH NATIONAL INSURANCE CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(UNAUDITED)

Note 9. Recently Issued Accounting Pronouncements

In February 2006, the Financial Accounting Standards Board (“FASB”) issued statement No. 155, “Accounting for Certain Hybrid Financial Instruments” (“SFAS No. 155”). Under current generally accepted accounting principles an entity that holds a financial instrument with an embedded derivative must bifurcate the financial instrument, resulting in the host and the embedded derivative being accounted for separately. SFAS No. 155 permits, but does not require, entities to account for financial instruments with an embedded derivative at fair value thus negating the need to bifurcate the instrument between its host and the embedded derivative. SFAS No. 155 is effective as of the beginning of the first annual reporting period that begins after September 15, 2006. We expect that SFAS No. 155 will not have a material effect on our consolidated financial condition or results of operations.

In March 2006, the FASB issued statement No. 156, “Accounting for Servicing of Financial Assets” (“SFAS No. 156”). SFAS No. 156 amends FASB Statement No. 140, Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities, to require that all separately recognized servicing assets and servicing liabilities be initially measured at fair value, if practicable. SFAS No. 156 permits, but does not require, the subsequent measurement of separately recognized servicing assets and servicing liabilities at fair value. An entity that uses derivative instruments to mitigate the risks inherent in servicing assets and servicing liabilities is required to account for those derivative instruments at fair value. SFAS No. 156 is effective as of the beginning of the first annual reporting period that begins after September 15, 2006. We expect that SFAS No. 156 will not have a material effect on our financial condition or results of operations.

ZENITH NATIONAL INSURANCE CORP. AND SUBSIDIARIES

Item 2. Management’s Discussion and Analysis of Consolidated Financial Condition and Results of Operations

The Private Securities Litigation Reform Act of 1995 provides a safe harbor for forward-looking statements if accompanied by meaningful cautionary statements identifying important factors that could cause actual results to differ materially from those discussed. Forward-looking statements include those related to the plans and objectives of management for future operations, future economic performance, or projections of revenues, income, earnings per share, capital expenditures, dividends, capital structure, or other financial items. Statements containing words such as expect, anticipate, believe, estimate, or similar words that are used in this Management’s Discussion and Analysis of Consolidated Financial Condition and Results of Operations, in other parts of this report or in other written or oral information conveyed by or on behalf of Zenith, are intended to identify forward-looking statements. The Company undertakes no obligation to update such forward-looking statements, which are subject to a number of risks and uncertainties that could cause actual results to differ materially from those projected. These risks and uncertainties include, but are not limited to, the following: (1) competition; (2) adverse state and federal legislation and regulation; (3) changes in interest rates causing fluctuations of investment income and fair values of investments; (4) changes in the frequency and severity of claims and catastrophes; (5) adequacy of loss reserves; (6) changing environment for controlling medical, legal and rehabilitation costs, as well as fraud and abuse; (7) losses associated with any terrorist attacks that impact our workers’ compensation business in excess of our reinsurance protection; (8) losses caused by nuclear, biological, chemical or radiological events whether or not there is any applicable reinsurance protection; and (9) other risks detailed herein and from time to time in Zenith’s reports and filings with the Securities and Exchange Commission.

Overview

1) Revenues. Our revenues are comprised of the net premiums earned from our workers’ compensation and reinsurance segments and the net investment income and realized gains from our investments segment. Total revenues decreased in the first quarter of 2006 compared to the first quarter of 2005 because of decreased workers’ compensation and reinsurance premium revenues offset by an increase in investment income. Workers’ compensation premiums declined primarily due to rate decreases in California and reinsurance premiums declined due to our withdrawal from the business.

2) Income from workers’ compensation and reinsurance segments. The results of our workers’ compensation segment may fluctuate from time to time.

a) Workers’ compensation. Income from our workers’ compensation segment in the three months ended March 31, 2006 increased to $65.3 million from $41.2 million in the corresponding period in 2005.

b) Reinsurance. Results of the reinsurance segment in the first quarter of 2006 reflect our exit of this business.

ZENITH NATIONAL INSURANCE CORP. AND SUBSIDIARIES

Item 2. Management’s Discussion and Analysis of Consolidated Financial Condition and Results of Operations (Continued)

3) Loss reserves. In the first quarter of 2006, we recognized $32.3 million of favorable development on prior year workers’ compensation loss reserve estimates to reflect a continuation of deflation trends in the paid loss data for recent accident years during the first quarter of 2006.

4) Investments segment. We increased our investment portfolio by $71.9 million in the three months ended March 31, 2006, principally as a result of favorable net cash flow from operations. Investment income increased in the first quarter of 2006 compared to the first quarter of 2005 because of the increase in the investment portfolio and higher short-term interest rates in 2006. At March 31, 2006, $1.1 billion of the investment portfolio was in fixed maturities of 2 years or less compared to $1.2 billion at December 31, 2005.

5) Stockholders’ equity. Our stockholders’ equity increased from $712.8 million ($19.14 per share) at December 31, 2005 to $754.3 million ($20.42 per share) at March 31, 2006.

Results of Operations

Summary Results by Segment

The comparative components of net income for the three months ended March 31, 2006 and 2005 are set forth in the following table. These components of net income are consistent with the results of our business segments set forth in Note 6 to the Consolidated Financial Statements.

	Three Months Ended March 31,
(Dollars in thousands)	2006			2005
Income before tax from investment segment:
Net investment income	$	24,732		$	17,131
Realized gains on investments	1,610			2,870
Income before tax from investments segment	26,342			20,001
Income (loss) before tax from:
Workers’ compensation segment	65,298			41,161
Reinsurance segment	6			2,407
Parent segment	(3,287		)	(5,316		)
Income before tax and before equity in earnings of investee	88,359			58,253
Income tax expense	30,859			20,123
Income after tax and before equity in earnings of investee	57,500			38,130
Equity in earnings of investee after tax				1,170
Net income	$	57,500		$	39,300

The combined ratio, expressed as a percentage, is a key measurement of profitability traditionally used in the property-casualty insurance industry. The combined ratio is the sum of the loss and loss adjustment expense ratio and the underwriting and other operating expense ratio. The loss and loss adjustment expense ratio is the percentage of net incurred loss and loss adjustment expenses to net premiums earned. The underwriting and other operating expense ratio is the percentage of underwriting and other operating expenses to net premiums earned. The key operating goal for our insurance segments is to achieve a combined ratio of 100% or lower and to achieve a workers’ compensation combined ratio

ZENITH NATIONAL INSURANCE CORP. AND SUBSIDIARIES

Item 2. Management’s Discussion and Analysis of Consolidated Financial Condition and Results of Operations (Continued)

that is at least three percentage points lower than the combined ratio of the national workers’ compensation industry.

The combined ratios of the workers’ compensation and reinsurance segments for the three months ended March 31, 2006 and 2005 are set forth in the following table:

	Three Months Ended March 31,
	2006			2005
Workers’ compensation:
Loss and loss adjustment expenses:
Current accident year		56.9	%		60.4	%
Prior accident year		(13.0	)%		(0.8	)%
Loss and loss adjustment expenses		43.9	%		59.6	%
Underwriting and other operating expenses		29.7	%		25.3	%
Combined ratio		73.6	%		84.9	%
Reinsurance:
Loss and loss adjustment expenses		84.0	%		63.5	%
Underwriting and other operating expenses		15.9	%		16.8	%
Combined ratio		99.9	%		80.3	%

Net premiums earned of the workers’ compensation and reinsurance segments for the three months ended March 31, 2006 and 2005 are set forth in the following table:

	Three Months Ended March 31,
(Dollars in thousands)	2006		2005
Workers’ compensation:
California	$	160,347	$	186,491
Outside California	87,275		87,004
Total workers’ compensation	247,622		273,495
Reinsurance	6,804		12,222
Net premiums earned	$	254,426	$	285,717

Workers’ Compensation Segment

The combined ratio of our workers’ compensation segment improved in the first quarter of 2006 compared to the corresponding period in 2005, principally because of a lower estimated loss and loss adjustment expense ratio in the first quarter of 2006 compared to the estimated loss and loss adjustment expense ratio in the corresponding period in 2005. Our estimate of the 2006 accident year loss and loss adjustment expense ratio is lower than the estimate we made at the end of the first quarter of 2005 for the 2005 accident year because short-term claim cost deflation continues favorable and is in excess of rate decreases. Also, 13.0% points of favorable development of prior year loss reserves is attributable to re-estimation of loss reserves based on the aforementioned deflationary cost trends. We believe our current estimate of the 2006 accident year loss and loss adjustment expense ratio and accident year combined ratio is conservatively stated because of the assumptions we have made about the inflation trend for our loss

ZENITH NATIONAL INSURANCE CORP. AND SUBSIDIARIES

Item 2. Management’s Discussion and Analysis of Consolidated Financial Condition and Results of Operations (Continued)

costs in recent accident years which are subject to considerable uncertainty and which we discuss further under Loss Reserves on pages 22 to 25.

Workers’ compensation net premiums earned decreased in the first quarter of 2006 compared to the corresponding period of the prior year principally because of decreases in rates charged to our policyholders in 2005 and 2006. In California, the state in which the largest amount of our workers’ compensation premium is earned, we set our own rates based upon actuarial analysis of current and anticipated cost trends. These manual rates do not necessarily indicate the rates charged to our policyholders because employers’ experience modification factors are subject to revision, annually; and underwriters are given authority to increase (debit) or decrease (credit) rates based upon individual risk characteristics. In addition to changes in manual premium rates, changes in the amount of credit or debit allowed by our underwriters and changes in experience modification factors will impact our workers’ compensation premium revenues. The following table sets forth the percentage changes in California manual rates and average rates charged in California based on changes in manual rates and, on renewal business, the changes in experience modification factors and net credits or debits applied by our underwriters (decreases are shown in parentheses):

Effective date of change	Manual Rate Change			Average Charged Rate Change
January 1, 2004		0.0	%		(4.0	)%
July 1, 2004		(10.0	)		(12.0	)
January 1, 2005		(2.0	)		0.0
July 1, 2005		(12.0	)		(19.0	)
January 1, 2006		(13.0	)		(13.0	)

In Florida, the state in which the second largest amount of our workers’ compensation premiums is earned, rates for workers’ compensation insurance are set by the Florida Department of Insurance (“Florida DOI”). The Florida DOI reduced the rates for Florida workers’ compensation policies effective January 1, 2006 by an average of 13.4% and by an average of 4.0% effective January 1, 2005.

Premiums in-force and number of policies in-force in California and outside of California were as follows (premiums in-force is a measure of the amount of premiums billed or to be billed on all un-expired policies at the date shown):

	California				Outside of California
(Dollars in millions)	Premiums in-force			Policies in-force	Premiums in-force			Policies in-force
March 31, 2006		$	646.2	27,200		$	325.7	16,800
December 31, 2005		722.9		27,500		326.9		16,900
March 31, 2005		775.9		27,800		328.7		16,700
December 31, 2004		731.3		27,200		311.0		16,200

ZENITH NATIONAL INSURANCE CORP. AND SUBSIDIARIES

Item 2. Management’s Discussion and Analysis of Consolidated Financial Condition and Results of Operations (Continued)

We believe that the insureds’ payroll is our best indicator of exposure. We estimate that the underlying payroll associated with our policies in-force increased (decreased) during the same periods as follows:

	Annual Increase (Decrease) in Insureds’ Payroll
Policies in-force at March 31,	California Only			Total Company
2006		(2	)%		2	%
2005		27			22

In California, the Workers’ Compensation Insurance Rating Bureau (“WCIRB”) recommends advisory pure premium rates for California workers’ compensation insurance and the California Department of Insurance (“California DOI”) adopts and publishes advisory pure premium rates. Pure premium rates are rates that would cover expected loss costs but do not contain an element to cover operating expenses or profit. On March 24, 2006, the WCIRB submitted a rate filing to the California DOI recommending an average 16.4% decrease in advisory pure premium rates to be effective on policies incepting on or after July 1, 2006. The recommended decrease was based on an analysis of loss and loss adjustment expense data as of December 31, 2005. Notwithstanding this process, our California rates continue to be based upon our actuarial analysis of current and anticipated cost trends, and we have not yet made a determination as to rates for July 1, 2006.

Reinsurance Segment

Investments Segment

Investment income is discussed in the “Investments” section following.

Parent Segment

The parent segment loss reflects the holding company activities of Zenith National. Parent segment loss before tax for the three months ended March 31, 2006 and 2005 was as follows:

	Three Months Ended March 31,
(Dollars in thousands)	2006			2005
Interest expense	$	(1,335	)	$	(3,292	)
Parent expenses	(1,952		)	(2,024		)
Parent segment loss	$	(3,287	)	$	(5,316	)

ZENITH NATIONAL INSURANCE CORP. AND SUBSIDIARIES

Item 2. Management’s Discussion and Analysis of Consolidated Financial Condition and Results of Operations (Continued)

Interest expense was lower in the first quarter of 2006 compared to the corresponding period of the prior year because $123.8 million of our 5.75% Convertible Senior Notes due March 30, 2023 (“Convertible Notes”) were converted into our common stock during 2005.

Loss Reserves

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 as of the balance sheet date (“loss reserves”). Our loss reserves were as follows:

(Dollars in millions)	March 31, 2006			December 31, 2005
Workers’ compensation segment:
Unpaid losses and loss adjustment expenses		$	1,534		$	1,523
Less: Receivable from reinsurers and state trust funds for unpaid losses		240			243
Unpaid losses and loss adjustment expenses, net of reinsurance		$	1,294		$	1,280
Reinsurance segment:
Unpaid losses and loss adjustment expenses gross and net of reinsurance receivable		$	158		$	180
Total:
Unpaid losses and loss adjustment expenses		$	1,692		$	1,703
Less: Receivable from reinsurers and state trust funds for unpaid losses		240			243
Unpaid losses and loss adjustment expenses, net of reinsurance		$	1,452		$	1,460

Loss reserves are estimates and are inherently uncertain; they do not and cannot represent an exact measure of liability. Accordingly, 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. We perform a comprehensive review of our loss reserves at the end of every quarter and, in conjunction with actuarial techniques and methods, we employ judgment to establish the most reasonably accurate estimate of loss reserves based on the most recent claim cost inflation data.

The amount by which estimated losses, measured subsequently by the reference to payments and additional estimates, differ from those originally reported for a period is known as “development.” 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. 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. Favorable or unfavorable developments of loss reserves are reflected in our Consolidated Statements of Operations in the period the changes are made.

When losses are reported to us, we establish, individually, estimates of the ultimate cost of the claims, known as “case reserves.” These case reserves are continually monitored and revised in response to new information and for amounts paid. Our actuaries use this information about reported claims in some of their estimation techniques. In estimating our total loss reserves, we have to make provision for two types of loss development. At the end of any calendar period, there are a number of claims that have not yet

ZENITH NATIONAL INSURANCE CORP. AND SUBSIDIARIES

Item 2. Management’s Discussion and Analysis of Consolidated Financial Condition and Results of Operations (Continued)

been reported but will arise out of accidents that have already occurred. These are referred to in the insurance industry as “incurred but not reported” (“IBNR”) claims. In addition to this provision for later reported claims, we also have to estimate the extent to which the case reserves on known claims may also develop. These types of reserves are referred to in the insurance industry as bulk reserves. Our actuarial estimation techniques for estimating our loss reserves make provision for both IBNR and bulk reserves in total, but not separately. We are required to file exhibits with state insurance departments which state the amount which is the sum of our IBNR and bulk reserves.

At March 31, 2006 and December 31, 2005, IBNR and bulk reserves included in loss reserves, net of reinsurance, were as follows:

(Dollars in millions)	March 31, 2006			December 31, 2005
Workers’ compensation		$	439		$	408
Reinsurance		24			54
Total IBNR & bulk reserves		$	463		$	462

The principal uncertainty in our workers’ compensation loss reserve estimates at this time is caused by the trend of increasing severity in the years prior to 2002 compared to the deflationary trend in more recent years. Severity is the average cost of a claim. The increasing severity trend, or inflation rate, is attributable to changes in medical costs (payments to providers to treat injured workers) and indemnity payments (payments to injured workers for lost wages) per claim. We have observed a favorable change in the inflationary trend in the amounts we have paid for claims in recent accident years compared to payments for 2001 and prior, but there is uncertainty as to whether the recent deflationary data will be sustained over the long-term.

Our actuaries produce a point estimate of loss reserves using the results of various methods of estimation. However, these various methods do not produce separate point estimates. The point estimate is prepared as follows: our actuaries prepare reserve estimates based upon paid loss patterns, incurred loss patterns and claim count methods for all accident years. The actuarial point estimate is based on a selection of the results of these various methods depending upon both the age of the accident year and the geographic state of the injury. For more mature accident years, all of the methods produce very similar loss estimates and our actuarial point selections are based upon incurred methods. For the more recent accident years, with respect to a substantial portion of our actuarial estimate, the estimate is based on a weighted average of the observed and assumed rates of claim inflation.

Since the number of claims is relatively certain, the inflation (or deflation) assumption is the key assumption in establishing loss reserve estimates for recent accident years. Management establishes loss reserve estimates in the financial statements that provide for fluctuating rates of inflation depending on the most current data. The estimates of loss reserves, net of reinsurance ceded, recorded in the financial statements were higher than the actuarial point estimates of loss reserves by $130 million and $104 million at March 31, 2006 and December 31, 2005, respectively. These differences are attributable to the uncertainty surrounding the ultimate outcome of the workers’ compensation claim inflation trends for recent accident years. Management’s estimates of loss reserves make provision for the emergence of medical cost inflation in excess of the deflation in the short term paid loss data as we settle our more expensive, long term claims. Our assumptions and the associated uncertainties are discussed below.

ZENITH NATIONAL INSURANCE CORP. AND SUBSIDIARIES

Item 2. Management’s Discussion and Analysis of Consolidated Financial Condition and Results of Operations (Continued)

When we estimate our loss reserves, we do so in the aggregate for all years, and then allocate them to each accident year. This allows us to look at the year-over-year change in claim severity, or inflation - our most important concept for understanding adequate loss reserve estimates. By allocating loss reserves to individual accident years, we produce an implied rate of inflation for each year. Any changes in our assumptions about inflation rates will cause a change in our loss reserve estimates, although our view of the adequacy of the total loss reserve estimate may be unchanged if the effect of the change in the inflation assumptions has the effect of reallocating the loss reserve estimate among accident years.

At March 31, 2006, the accident year paid loss inflation rates (negative inflation or deflation rates are shown in parentheses) in our paid loss data and the assumptions of accident year inflation rates in our estimates of ultimate losses were as follows:

(Dollars in Thousands)	Estimated Ultimate Losses(A)		Average Paid Loss per Claim Annual Inflation Evaluated After (number of months)																Assumed Inflation in Estimated Ultimate Losses
Accident Year			15		27		39		51		63		75		87		99		March 31, 2006			December 31, 2005
1998	$	220,567	7	%	10	%	9	%	9	%	10	%	11	%	13	%	13	%		14	%		14	%
1999	220,167		12		14		15		15		15		15		15					16			16
2000	240,585		9		10		12		13		14		13							14			14
2001	313,324		15		16		15		15		15									17			17
2002	330,592		1		2		4		4											8			8
2003	352,991		5		2		(3	)												6			6
2004	383,020		(7	)	(12	)														2			5
2005	483,900		0																	3			6
2006	115,301																			0

(A) Estimated ultimate losses for an accident year represent the estimated aggregate amount we expect to pay for all claims that will be reported for that year for losses and allocated loss adjustment expenses. Loss reserves are the liability for the unpaid portion of ultimate losses, computed by subtracting the amount paid from the ultimate loss estimate as of the balance sheet date.

In the first quarter of 2006, we paid and closed additional claims for recent accident years and the deflationary paid loss trends continued. We reduced our inflation assumptions for estimated losses in the 2005 and 2004 accident years at March 31, 2006 compared to December 31, 2005. This resulted in net favorable development of $32.3 million in the first quarter of 2006, principally related to a reduction of estimated losses for the 2005 and 2004 accident years.

The $32.3 million decrease in reserves during the three months ended March 31, 2006 for accident years 2005 and prior was 2.5% of our estimated workers’ compensation net loss reserves at December 31, 2005. As a percentage of workers’ compensation net premiums earned in the three months ended March 31, 2006, the favorable development of our workers’ compensation loss reserves was 13.0%.

Different assumptions about the inflation or deflation rates would change our workers’ compensation loss reserve estimates. A change in the assumed inflation rate for any particular accident year would change our estimate of ultimate losses for that accident year by an amount equal to the change in the inflation rate multiplied by the estimated ultimate loss for that year. Such a change in the inflation rate for a particular accident year would also change the estimated ultimate loss for each subsequent accident year.

ZENITH NATIONAL INSURANCE CORP. AND SUBSIDIARIES

Item 2. Management’s Discussion and Analysis of Consolidated Financial Condition and Results of Operations (Continued)

For example, if the average annual inflation rate for each of the accident years 2001 through 2006 were decreased by one percentage point in each year, our loss reserve estimates at March 31, 2006 would decrease by about $61.9 million as illustrated in the table that follows:

(Dollars in thousands)	Assumption Currently Used							Revised Assumption
				(a)		(b)					(c)	[(c)/(a)]x(b)
Accident Year	Assumed Inflation Rate			Cumulative Inflation Factor		Estimated Ultimate Losses		Assumed Inflation Rate			Cumulative Inflation Factor	Estimated Ultimate Losses
2001		17	%		1.170	$	313,324		16	%	1.160	$	310,646
2002		8			1.264	330,592			7		1.241	324,576
2003		6			1.340	352,991			5		1.303	343,244
2004		2			1.367	383,020			1		1.316	368,730
2005		3			1.408	483,900			2		1.342	461,217
2006		0			1.408	115,301			(1	)	1.329	108,832
						$	1,979,128					$	1,917,245
											Decrease	$	(61,883	)

Workers’ compensation reform legislation enacted in 2003 and 2004 in Florida and California has resulted in short-term cost savings and may reduce or eliminate the long-term trend of increasing costs of claims and the ultimate inflation rate.

Based on their estimates of loss costs as of December 31, 2005, the WCIRB published favorable accident year loss ratio (loss ratio does not include loss adjustment expenses) estimates for the California workers’ compensation industry of 33.5% and 32.9% for accident years 2005 and 2004, respectively. Their analysis contained some specific anticipated savings from the reforms and also relies significantly on the most current paid loss trends. As of September 30, 2005, the WCIRB estimated that an indemnity claim in 2004 will cost 15% less than in the pre-reform year of 2002.

We believe our loss reserve estimates are adequate. However, the actual ultimate inflation (deflation) rate will not be known with any certainty for several years. We assume that general health care inflation trends will continue and will impact our long-term claim costs and reserves. We will evaluate our best estimate of inflation (deflation) rates and reserves every quarter to reflect the most current data.

Claims involving permanent disability comprise 18% of the number of claims in California but contribute nearly 90% of our total California costs. As of March 31, 2006, we have settled only 41% of our 2003 permanent disability cases and 18% of our 2004 permanent disability cases. This sample is too small for us to conclude at this time that the recent decline in the short-term inflation rate will offset the long-term inflation in workers’ compensation health care costs which have historically exceeded general health care costs. As a result, we have established current loss reserves and net income based on our best estimate that inflation rates will be higher than predicted by the WCIRB and higher than observed thus far for 2002 - 2005, but lower than the actual inflation rates observed during 1998 - 2001 and lower at March 31, 2006 compared to December 31, 2005.

Investments

The investment portfolio increased during the first quarter of 2006 principally as a result of favorable net cash flow from operations.

ZENITH NATIONAL INSURANCE CORP. AND SUBSIDIARIES

Item 2. Management’s Discussion and Analysis of Consolidated Financial Condition and Results of Operations (Continued)

The increase in investment income in the three months ended March 31, 2006 compared to the corresponding period in 2005 was the result of the increase in our investment portfolio and higher short-term interest rates. The average annual yields on the investment portfolio in the three months ended March 31, 2006 and 2005 were as follows:

	Three Months Ended March 31,
	2006			2005
Before tax(1)		4.6	%		3.7	%
After tax		3.0	%		2.4	%

(1) Reflects the pre-tax equivalent yield on tax-exempt securities.

At March 31, 2006, our investment portfolio was comprised of 56% fixed maturity securities, 39% short-term investments, 4% equity securities and 1% other investments. Fixed maturity securities include primarily corporate bonds, U.S. Government bonds, municipal bonds and mortgage-backed securities issued by the Government National Mortgage Association. Of the fixed maturity portfolio, including short-term investments, 95% were rated investment grade at March 31, 2006 and December 31, 2005. The average maturity of the fixed maturity portfolio, including short-term investments, was 3.9 years and 3.8 years at March 31, 2006 and December 31, 2005, respectively.

At March 31, 2006 and December 31, 2005, 93% of the investments in fixed maturity securities and short-term investments were classified as available-for-sale securities. Stockholders’ equity will fluctuate with changes in the fair values of available-for-sale securities. Stockholders’ equity decreased by $13.6 million after deferred tax from December 31, 2005 to March 31, 2006 as a result of changes in the fair values of fixed maturity investments classified as available-for-sale.

The unrealized net loss on held-to-maturity and available-for-sale fixed maturity investments were as follows:

	Held-to-Maturity				Available-for-Sale
(Dollars in thousands)	Before Tax				Before Tax				After Tax
March 31, 2006		$	(2,678	)		$	(24,399	)	$	(15,859	)
December 31, 2005		(298		)		(3,423		)	(2,225		)

We monitor our portfolio continuously and actively manage our investments to preserve principal values whenever possible. When, in the opinion of management, a decline in the fair value of an investment is considered to be other-than-temporary, such investment is written-down to its fair value. The amount written-down is recorded in earnings as a realized loss on investments. The determination of other-than-temporary includes, in addition to other relevant factors, a presumption that if the market value is below cost by a significant amount for a period of time, a write-down is necessary. There were no such write-downs in the first quarters of 2006 or 2005.

We continuously assess the prospects for individual securities as part of ongoing portfolio management, including the identification of other-than-temporary declines in fair values. This process includes reviewing the amount and length of time of unrealized losses on investments, historical and projected company financial performance, company-specific news and other developments, the outlook for industry sectors, credit ratings and macro-economic changes, including government policy initiatives. We

ZENITH NATIONAL INSURANCE CORP. AND SUBSIDIARIES

Item 2. Management’s Discussion and Analysis of Consolidated Financial Condition and Results of Operations (Continued)

believe that we have appropriately identified other-than-temporary declines in fair value in the three months ended March 31, 2006 and 2005, and that our remaining unrealized losses at March 31, 2006 are not other-than-temporary. We base this conclusion on our current understanding of the issuers of these securities, as described above, and because we have established a presumption that an unrealized loss of a significant amount for a specific period of time is other-than-temporary. We have consistently applied this presumption for fourteen years. We also have the ability and intent to hold securities with unrealized losses for a sufficient amount of time for them to recover their values or reach maturity.

ZENITH NATIONAL INSURANCE CORP. AND SUBSIDIARIES

Item 2. Management’s Discussion and Analysis of Consolidated Financial Condition and Results of Operations (Continued)

Investments that we currently own could be subject to default by the issuer or could suffer declines in value that become other-than-temporary. Unrealized losses on fixed maturity securities at March 31, 2006 are principally attributable to recent increases in interest rates.

Set forth below is information about unrealized gains and losses in our investment portfolio at March 31, 2006:

	Securities with Unrealized
(Dollars in thousands)	Losses			Gains
Fixed maturity securities:
Fair value	$	1,037,152		$	224,837
Amortized cost	1,068,225			220,841
Unrealized (loss) gain	(31,073		)	3,996
Fair value as a percentage of amortized cost	97.1		%	101.8		%
Number of security positions held	214			73
Concentration of unrealized (losses) or gains by type or industry:
Insurance companies	$	(3,647	)	$	1,989
U.S. Treasury notes	(3,464		)
Municipal bonds	(3,308		)	3
Machinery and equipment	(2,819		)	79
Financial institutions	(1,934		)	29
Hotels	(1,606		)
Pharmaceuticals	(1,569		)
Food and beverage	(1,551		)	91
Petroleum	(1,366		)	27
Utilities	(1,330		)	230
Consumer goods	(1,290		)	181
GNMA’s	(1,226		)	233
Other	(5,963		)	1,134
Total	$	(31,073	)	$	3,996
Fixed maturity securities:
Investment grade:
Fair value	$	954,320		$	196,874
Amortized cost	981,356			194,462
Fair value as a percentage of amortized cost	97.2		%	101.2		%
Non-investment grade:
Fair value	$	82,832		$	27,963
Amortized cost	86,869			26,379
Fair value as a percentage of amortized cost	95.4		%	106.0		%
Equity securities:
Fair value	$	19,348		$	65,394
Cost	22,221			47,084
Unrealized (loss) gain	(2,873		)	18,310
Fair value as a percentage of cost	87.1		%	138.9		%
Number of security positions held	8			18

ZENITH NATIONAL INSURANCE CORP. AND SUBSIDIARIES

Item 2. Management’s Discussion and Analysis of Consolidated Financial Condition and Results of Operations (Continued)

The table below sets forth the fair value of fixed maturity securities at March 31, 2006, based on their expected maturities:

	Securities with Unrealized
(Dollars in thousands)	Losses		Gains
1 year or less	$	37,003	$	19,501
After 1 year through 5 years	322,349		94,446
After 5 years through 10 years	600,264		100,141
After 10 years	77,536		10,749
Total	$	1,037,152	$	224,837

The table below sets forth information about fixed maturity and equity securities with unrealized losses at March 31, 2006:

(Dollars in thousands)	Fair value		Unrealized loss				Fair value as a percentage of cost basis
Fixed maturity securities with unrealized losses:
Individually exceeding $0.1 million at March 31, 2006 and for:
Less than 3 months (23 issues)	$	165,467		$	(4,018	)		97.6	%
3-6 months (16 issues)	126,248			(5,365		)		95.9	%
6-12 months (41 issues)	353,318			(13,507		)		96.3	%
Greater than 12 months (18 issues)	93,510			(3,725		)		96.2	%
Less than $0.1 million at March 31, 2006 (116 issues)	298,609			(4,458		)		98.5	%
Total	$	1,037,152		$	(31,073	)		97.1	%
Equity securities with unrealized losses:
Individually exceeding $0.1 million at March 31, 2006 and for:
3-6 months (1 issue)	$	577		$	(158	)		78.5	%
6-12 months (2 issues)	12,762			(2,562		)		83.3	%
Less than $0.1 million at March 31, 2006 (5 issues)	6,009			(153		)		97.5	%
Total	$	19,348		$	(2,873	)		87.1	%

ZENITH NATIONAL INSURANCE CORP. AND SUBSIDIARIES

Item 2. Management’s Discussion and Analysis of Consolidated Financial Condition and Results of Operations (Continued)

The following is a summary of securities sold at a loss in the three months ended March 31, 2006 and 2005:

	Three Months Ended March 31,
(Dollars in thousands)	2006			2005
Fixed maturity securities:
Realized losses on sales	$	(425	)	$	(3,105	)
Fair value at the date of sale	808,995			584,608
Number of securities sold	5			13
Losses realized on securities with an unrealized loss preceding the sale for:
Less than 3 months	$	(425	)	$	(595	)
3-6 months				(1,879		)
6-12 months				(631		)
Equity securities:
Realized losses on sales	$	(407	)	$	(109	)
Fair value at the date of sale	3,466			3,938
Number of securities sold	2			4
Losses realized on securities with an unrealized loss preceding the sale for:
Less than 3 months	$	(407	)	$	(89	)
6-12 months				(20		)

Liquidity and Capital Resources

Zenith’s insurance subsidiaries generally create liquidity because insurance premiums are collected prior to disbursements for claims which may take place many years after the collection of premiums. Collected premiums may be invested, prior to their use in such disbursements, and investment income provides additional cash receipts. In periods in which disbursements for claims and benefits, current policy acquisition costs and current operating and other expenses exceed operating cash receipts, cash flow is negative. Such negative cash flow is offset by cash flow from investments, principally from short-term investments and maturities of longer-term investments. The exact timing of the payment of claims cannot be predicted with certainty. The insurance subsidiaries maintain portfolios of invested assets with varying maturities and a substantial amount of short-term investments to provide adequate cash for the payment of claims. At March 31, 2006 and December 31, 2005, short-term investments and fixed maturity investments maturing within two years in the insurance subsidiaries amounted to $1.1 billion. These securities, in conjunction with our positive net cash flow from operations, provide adequate sources of liquidity for the expected payment of our loss reserves in the near future. We do not expect to sell securities or use our credit facilities to pay our policy liabilities as they come due.

ZENITH NATIONAL INSURANCE CORP. AND SUBSIDIARIES

Item 2. Management’s Discussion and Analysis of Consolidated Financial Condition and Results of Operations (Continued)

Net cash flow from operating activities was favorable in the first quarter of 2006 but lower than net cash flow from operating activities in the first quarter of March 31, 2005 due to lower workers’ compensation premiums and our exit from the reinsurance business as shown in the table below:

	Three Months Ended March 31,
(Dollars in thousands)	2006			2005
Net cash flow from workers’ compensation segment	$	92,680		$	134,929
Net cash (used in) provided by reinsurance segment	(15,450		)	163
Investment income received	15,004			15,370
Interest and other expenses paid by parent	(2,978		)	(7,622		)
Income taxes paid	(2,683		)	(7,618		)
Net cash provided from operating activities	$	86,573		$	135,222

Zenith National requires cash to pay any dividends declared to its stockholders, make interest and principal payments on its outstanding debt obligations, fund its operating expenses, and, from time to time, to make capital contributions to Zenith Insurance. Such cash requirements are generally funded in the long-run by dividends received from Zenith Insurance and financing or refinancing activities by Zenith National. Cash, short-term investments and other investments in Zenith National were $48.9 million and $65.1 million at March 31, 2006 and December 31, 2005, respectively. The decrease is principally due to the payment of dividends to stockholders and interest payments on outstanding debt. Zenith National’s available invested assets and other sources of liquidity are currently expected to be sufficient to meet its requirements for liquidity in the short and long-term.

Contractual Obligations and Contingent Liabilities

All of Zenith’s outstanding financing obligations are included in the Consolidated Financial Statements and the accompanying Notes. There are no liquidity or financing arrangements with unconsolidated entities or any off-balance sheet arrangements. Zenith National’s available invested assets and other sources of liquidity are currently expected to be sufficient to meet its requirements for liquidity in the short and long-term.

The table below sets forth the amounts of Zenith’s contractual obligations, including interest payable, at March 31, 2006:

	Payments due by period
(Dollars in thousands)	Less than 1 year		1-3 years		3-5 years		More than 5 years		Total
Loss reserves	$	371,663	$	395,711	$	194,956	$	729,432	$	1,691,762
Redeemable securities	2,501		10,004		10,004		148,529		171,038
Convertible notes	1,150								1,150
Operating lease commitments	8,237		12,653		5,355		259		26,504
Total	$	383,551	$	418,368	$	210,315	$	878,220	$	1,890,454

Our loss reserves do not have contractual maturity dates and the exact timing of the payment of claims cannot be predicted with certainty. However, based upon historical payment patterns, we have included in the preceding table an estimate of when we expect our loss reserves (without the benefit of any reinsurance

ZENITH NATIONAL INSURANCE CORP. AND SUBSIDIARIES

Item 2. Management’s Discussion and Analysis of Consolidated Financial Condition and Results of Operations (Continued)

recoveries) to be paid. We maintain a portfolio of investments with varying maturities and a substantial amount of short-term investments to provide adequate cash for the payment of claims. We do not expect to have to sell securities or use our credit facilities to pay claims.

Our contractual obligations under the outstanding Redeemable Securities are comprised of $112.5 million of interest payments over the next 23 years and $58.5 million of principal payable in 2028. Our contractual obligations under the outstanding Convertible Notes are comprised of $1.2 million of principal that may be due in 2006 as a result of conversion because the holders of the Convertible Notes currently have the right to convert their notes into our common stock during the second quarter of 2006 as a result of the triggering of the contingent conversion condition relative to Zenith National’s common stock price at the end of the first quarter of 2006. Whether the notes will be convertible after June 30, 2006 will depend upon the occurrence of events specified in the Indenture governing the Convertible Notes, including the sale price of our common stock.

If the Convertible Notes are not converted or redeemed prior to the scheduled maturity in 2023, the total interest obligation over the remaining term would be $1.2 million. In addition, Zenith may be required to pay contingent interest during any six-month period commencing with the six-month period beginning September 30, 2008 if the average market price of a Convertible Note for the five trading days ending on the second trading day immediately preceding the relevant six-month period equals 120% or more of the principal amount of the Convertible Notes.

Zenith’s commitments and contingencies are discussed in Note 7 to the Consolidated Financial Statements. Accrued guarantee fund assessments would be payable within approximately one year, if they are ultimately assessed. We cannot currently predict the timing or the outcome of the contingencies surrounding recoveries from the Florida Special Disability Trust Fund.

Critical Accounting Policies and Estimates

The preparation of financial statements in accordance with accounting principles generally accepted in the United States of America requires both the use of estimates and judgment relative to the application of appropriate accounting policies. Zenith’s accounting policies are described in the Notes to Consolidated Financial Statements in Zenith’s Annual Report on Form 10-K for the year ended December 31, 2005 (“2005 Form 10-K”). We believe that certain matters related to accounting policies and estimates in the areas of loss reserve estimation, investment write-downs, and deferred income taxes are particularly important to an understanding of Zenith’s Consolidated Financial Statements. These matters are discussed under “Critical Accounting Policies and Estimates” in the Management’s Discussion and Analysis of Consolidated Financial Condition and Results of Operations in Zenith’s 2005 Form 10-K.

ZENITH NATIONAL INSURANCE CORP. AND SUBSIDIARIES

Item 3. Quantitative and Qualitative Disclosures about Market Risk

The fair value of the fixed maturity investment portfolio is exposed to interest rate risk—the risk of loss in fair value resulting from changes in prevailing market rates of interest for similar financial instruments. However, Zenith has the ability to hold fixed maturity investments to maturity. Zenith relies on the experience and judgment of senior management to monitor and mitigate the effects of market risk. Zenith does not utilize financial instrument hedges or derivative financial instruments to manage risks, nor does it enter into any swap, forward or option contracts, but will attempt to mitigate its exposure through active portfolio management. The allocation 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. In addition, Zenith places the majority of its investments in high-quality, liquid securities and limits the amount of credit exposure to any one issuer.

The table below provides information about Zenith’s financial instruments for which fair values are subject to changes in interest rates. For fixed maturity investments, the table presents fair values of investments held and weighted average interest rates on such investments by expected maturity dates. Such investments include corporate bonds, municipal bonds, government bonds, redeemable preferred stock, and mortgage-backed securities. For Zenith’s debt obligations, the table presents principal cash flows by expected maturity dates (including interest):

	Expected Maturity Date
(Dollars in thousands)	2006			2007			2008			2009			2010			Thereafter				Total
As of March 31, 2006
Investments:
Held-to-maturity and available-for-sale securities:
Fixed rate	$	36,614		$	191,802		$	73,909		$	81,490		$	60,031			$	818,143		$	1,261,989
Weighted average interest rate	5.1		%	5.1		%	5.4		%	5.2		%	5.4		%		5.8		%	5.6		%
Short-term investments	$	882,770																		$	882,770
Debt and interest obligations of Zenith:
Convertible notes payable(1)	1,150																			1,150
Redeemable securities	2,501			$	5,002		$	5,002		$	5,002		$	5,002			$	148,529		171,038
As of December 31, 2005
Investments:
Held-to-maturity and available-for-sale securities:
Fixed rate	$	59,111		$	190,319		$	70,724		$	74,823		$	62,436			$	724,490		$	1,181,903
Weighted average interest rate	4.8		%	4.7		%	5.2		%	4.7		%	5.0		%		5.4		%	5.2		%
Short-term investments	$	904,093																		$	904,093
Debt and interest obligations of Zenith:
Convertible notes payable(1)	1,216																			1,216
Redeemable securities	5,045			$	5,045		$	5,045		$	5,045		$	5,045			$	149,799		175,024

(1) The Convertible Notes are shown with an expected maturity date in 2006 because the holders have the right to convert their notes into our common stock during the second quarter of 2006 and had the same right in the first quarter of 2006 (see discussion of the Convertible Notes under “Contractual Obligations and Contingencies” in “Item 2. Management’s Discussion and Analysis of Consolidated Financial Condition and Results of Operations.”)

ZENITH NATIONAL INSURANCE CORP. AND SUBSIDIARIES

Item 4. Controls and Procedures

Evaluation of Disclosure Controls and Procedures.

Zenith’s management, with the participation of Zenith’s Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of Zenith’s 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 (the “Exchange Act”)) as of the end of the period covered by this report. Based on such evaluation, Zenith’s Chief Executive Officer and Chief Financial Officer have concluded that, as of the end of such period, Zenith’s disclosure controls and procedures are effective in recording, processing, summarizing and reporting, on a timely basis, information required to be disclosed by Zenith in the reports that it files or submits under the Exchange Act and are effective in ensuring that information required to be disclosed by Zenith in the reports that it files or submits under the Exchange Act is accumulated and communicated to Zenith’s management, including Zenith’s Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.

Changes in Internal Control Over Financial Reporting.

There have not been any changes in Zenith’s 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 to which this report relates that have materially affected, or are reasonably likely to materially affect, Zenith’s internal control over financial reporting.

ZENITH NATIONAL INSURANCE CORP. AND SUBSIDIARIES

Part II. OTHER INFORMATION

Item 6. Exhibits

3.1		Certificate of Incorporation of Zenith National Insurance Corp., dated May 28, 1971. (Incorporated herein by reference to Exhibit 3.1 to Zenith’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2000.)
3.2		Certificate of Amendment of Certificate of Incorporation of Zenith National Insurance Corp., dated September 12, 1977. (Incorporated herein by reference to Exhibit 3.2 to Zenith’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2000.)
3.3		Certificate of Amendment of Certificate of Incorporation of Zenith National Insurance Corp., dated May 31, 1979. (Incorporated herein by reference to Exhibit 3.3 to Zenith’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2000.)
3.4		Certificate of Amendment of Certificate of Incorporation of Zenith National Insurance Corp., dated September 6, 1983. (Incorporated herein by reference to Exhibit 3.4 to Zenith’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2000.)
3.5		Certificate of Designation of Zenith National Insurance Corp., dated September 10, 1985. (Incorporated herein by reference to Exhibit 3.5 to Zenith’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2000.)
3.6		Certificate of Amendment of Certificate of Incorporation of Zenith National Insurance Corp., dated November 22, 1985. (Incorporated herein by reference to Exhibit 3.6 to Zenith’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2000.)
3.7		Certificate of Amendment of Certificate of Incorporation of Zenith National Insurance Corp., dated May 19, 1987. (Incorporated herein by reference to Exhibit 3.7 to Zenith’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2000.)
3.8		Certificate of Change of Address of Registered Office and of Registered Agent of Zenith National Insurance Corp., dated October 10, 1989. (Incorporated herein by reference to Exhibit 3.8 to Zenith’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2000.)
3.9		Bylaws of Zenith National Insurance Corp., as currently in effect, a copy of which is attached hereto as Exhibit 3.9.
10.1		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.)
10.2		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.)
10.3		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.)
10.4		Description of Compensation of Non-employee Directors (updated February 2006), a copy of which is attached hereto as Exhibit 10.4.
10.5		Form of Zenith National Insurance Corp. Restricted Stock Award Agreement for Non-employee Directors, a copy of which is attached hereto as Exhibit 10.5.

ZENITH NATIONAL INSURANCE CORP. AND SUBSIDIARIES

10.6		Form of Zenith National Insurance Corp. Restricted Stock Award Agreement for Employees, a copy of which is attached hereto as Exhibit 10.6.
11		Statement re: computation of per share earnings. (Note 3 to Consolidated Financial Statements (Unaudited) included in Item 1 of Part I of this Quarterly Report on Form 10-Q is incorporated herein by reference.)
31.1		Certification of the Chief Executive Officer pursuant to Exchange Rule 13a-14(a) or Rule 15d-14(a).
31.2		Certification of the Chief Financial Officer pursuant to Exchange Rule 13a-14(a) or Rule 15d-14(a).
32		Certification of the Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. section 1350.

SIGNATURES

Pursuant to the requirements 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 April 20, 2006.

	ZENITH NATIONAL INSURANCE CORP.
	By:	/s/ STANLEY R. ZAX
		Stanley R. Zax
		Chairman of the Board and President (Principal Executive Officer)
	By:	/s/ WILLIAM J. OWEN
		William J. Owen
		Senior Vice President & Chief Financial Officer (Principal Financial and Accounting Officer)

EX-3.9 2 a06-8565_1ex3d9.htm EX-3

Exhibit 3.9

Amended and Restated as of February 7, 2006

BYLAWS

ZENITH NATIONAL INSURANCE CORP.

(A Delaware Corporation)

ARTICLE I. OFFICES

Section 1. Registered Office. The registered office shall be established and maintained at the office of the UNITED STATES CORPORATION COMPANY, located at 306 South State Street, City of Dover, County of Kent, State of Delaware 19901, and said UNITED STATES CORPORATION COMPANY shall be the registered agent of this Corporation in charge thereof.

Section 2. Other Offices. The Corporation may establish other offices, within or without the State of Delaware, at such place or places as the Board of Directors from time to time may designate or the business of the Corporation may require.

ARTICLE II. STOCKHOLDERS

Section 1. Annual Meetings. Annual meetings of stockholders shall be held at Los Angeles, California, on the last Wednesday in May of each year, commencing with 1972, at the hour stated in the notice, or said meetings may be held at such time and place, within or without the State of Delaware, as the Board of Directors by resolution shall determine, and as set forth in the notice of the meeting.

If the date of the annual meeting shall fall on a legal holiday of the state in which the meeting is to be held, the meeting shall be held on the next succeeding business day.

At each annual meeting, the stockholders entitled to vote shall elect a Board of Directors, and they may transact such other corporate business as shall be stated in the notice of the meeting.

Section 2. Special Meetings. Special meetings of the stockholders, for any purpose or purposes, may be called by the President or the Secretary, or by resolution of the Board of Directors, and may be held at such time and place as shall be stated in the notice of the meeting.

Section 3. Notice of Meetings. Written notice, stating the place, date and time of the meeting, and the general nature of the business to be considered, shall be given to each stockholder entitled to vote thereat, at his address as it appears on the records of the Corporation, not less than ten (10) nor more than sixty (60) days prior to the date of the meeting. No business other than that stated in the notice shall be transacted at any meeting without the unanimous consent of all of the stockholders entitled to vote thereat.

Section 4. Voting. Each stockholder entitled to vote in accordance with the terms of the Certificate of Incorporation, the provisions of these Bylaws, and the laws of the State of Delaware, shall be entitled to one vote, in person or by proxy, for each share of stock entitled to vote held by such stockholder, but no proxy shall be voted after three (3) years from its date unless such proxy provides for a longer period. Upon the demand of any stockholder, the vote for Directors and the vote upon any question before the meeting shall be by written ballot. All elections for Directors shall be decided by plurality vote; all other questions shall be decided by majority vote, except as otherwise provided by the Certificate of Incorporation or the laws of the State of Delaware.

A complete list of the stockholders entitled to vote at a meeting, arranged in alphabetical order, with the address of each, and the number of shares held by each, shall be open to the examination of any stockholder, for any purpose germane to the meeting, during ordinary business hours for a period of at least ten (10) days prior to the meeting, either at a place within the city where the meeting is to be held, which place shall be specified in the notice of the meeting, or, if not so specified, at the registered office of the Corporation in the State of Delaware. The list shall also be produced and kept available at the time and place of the meeting, during the entire time thereof, and may be inspected by any stockholder or his proxy who may be present.

Section 5. Quorum. Except as otherwise required by law, by the Certificate of Incorporation, or by these Bylaws, the presence, in person or by proxy, of stockholders holding a majority of the stock of the Corporation issued and outstanding and entitled to vote, shall constitute a quorum at all meetings of stockholders. In case a quorum shall not be present at any meeting, a majority in interest of the stockholders entitled to vote thereat, present either in person or by proxy, shall have power to adjourn the meeting, from time to time, without notice other than an announcement at the meeting, until the requisite amount of stock entitled to vote shall be present. At any such adjourned meeting at which the requisite amount of stock entitled to vote shall be represented, any business may be transacted which might have been transacted at the meeting as originally noticed; but only those stockholders entitled to vote at

the meeting as originally noticed shall be entitled to vote at any adjournment or adjournments thereof.

Section 6. Action Without Meeting. Any action to be taken by the stockholders may be taken without a meeting if, prior to such action, all stockholders entitled to vote thereon shall consent to the action by a writing filed with the records of the meetings of stockholders, and such consent shall be treated for all purposes as a vote at a meeting treated for all purposes as vote at a meeting.

ARTICLE III. DIRECTORS

Section 1. Number and Term. The number of directors shall be not less than five (5) nor more than ten (10), the exact number of which shall be fixed from time to time by the Board of Directors.

Except as provided in Article VI hereof directors shall be elected at the annual meeting of stockholders, and each Director shall hold office until the next annual meeting of stockholders and until his successor is duly elected and qualified, or until his earlier resignation or removal.

Section 2. Quorum. A majority of the Directors shall constitute a quorum, for the transaction of business. If, at any meeting of the Board, there shall be less than a quorum present, a majority of those present may adjourn the meeting from time to time until a quorum is obtained, and no further notice thereof need be given other than by announcement at the meeting which shall be so adjourned.

Section 3. First Meeting. The newly elected Directors may hold their first meeting for the purpose of organization and the transaction of business, if a quorum be present, immediately after the annual meeting of the stockholders; or the time and place of such meeting may fixed by consent in writing of all the Directors.

Section 4. Election of Officers. At the first meeting, or at any subsequent meeting called for that purpose, the Directors shall elect the officers of the Corporation, as more specifically set forth in Article V of these Bylaws. Such officers shall hold office until the next annual election of officers, or until their successors are elected and shall have qualified.

Section 5. Regular Meetings. Regular meetings of the Directors may be held, without notice, at such places and times as from time to time shall be determined by resolution of the Board of Directors.

Section 6. Special Meetings. Special meetings of the Board of Directors may be called by the President, or by the Secretary on the written request of any two Directors on at least two (2) days’ notice to each Director.

Section 7. Place of Meeting. The Directors may hold their meetings, and have one or more offices outside the State of Delaware, at such places as from time to time may be determined by resolution of the Board.

Section 8. Action Without Meeting. Any action required or permitted to be taken at any meeting of the Board of Directors, or any committees thereof, may be taken without a meeting if, prior to such action, a written consent thereto is signed by all members of the Board or of such committee, as the case may be, and such written consent is filed with the minutes of proceedings of the Board of committee.

Section 9. Powers. The Board of Directors shall exercise all of the powers of the Corporation, except such as are by law, by the Certificate of Incorporation, or by these Bylaws conferred upon or reserved to the stockholders.

Section 10. Compensation. The Board of Directors shall have authority to fix the compensation of Directors for services to the Corporation in any capacity. Such compensation may be in any form designated by the Board, including (without limitation) an annual payment or a fixed sum for attendance at meetings of the Board and committees thereof, or both, and reimbursement of expenses for attendance at such meetings. Nothing herein contained shall be construed to preclude any Director from serving the Corporation, its subsidiaries or affiliates in any capacity as an officer, agent or otherwise, and receiving compensation therefor.

Section 11. Chairman of the Board. The Board of Directors shall elect a Chairman of the Board who shall preside at all Board of Directors and Shareholders meetings. The Chairman of the Board shall not be deemed to be an officer of the Corporation, notwithstanding anything contained in Article V hereof to the contrary, unless designated as an officer by resolution of the Board of Directors.

Section 12. Indemnification of Directors, Officers and Employees. Every person who is or was a director, officer or employee of the Corporation, or any other corporation which he served as such at the request of the Corporation shall be indemnified by the Corporation against any and all liability and reasonable expense that may be incurred by him in connection with or resulting from any claim, action, suit or proceeding (whether brought by or in the right of the Corporation or such other corporation or otherwise), civil or criminal, or in connection with an appeal relating thereto, in which he may be involved, as a party or otherwise, by reason of his being or having been a director, officer or employee of the Corporation or such other

corporation, or by reason of any action taken or not taken in his capacity as such director, officer or employee, whether or not he continues to be such at the time such liability or expense shall have been incurred, provided such person acted, in good faith, in a manner he reasonably believed to be in or not opposed to the best interests of the Corporation, or such other corporation, as the case may be, and in addition, in any criminal action or proceeding, had no reasonable cause to believe that his conduct was unlawful. As used in this Section 12, the terms “liability” and “expense” shall include, but shall not be limited to, counsel fees and disbursements and amounts of judgments, fines or penalties against, and amounts paid in settlement by, a director, officer, or employee. The termination of any claim, action, suit or proceeding, civil or criminal, by judgment, settlement (whether with or without court approval), conviction or upon a plea of guilty or nolo contendere, or its equivalent, shall not create a presumption that a director, officer or employee did not meet the standards of conduct set forth in this Section 12.

Expenses incurred with respect to any claim, action, suit or proceeding of the character described in this Section 12 may be advanced by the Corporation prior to the final disposition thereof upon receipt of an undertaking by or on behalf of the recipient to repay such amount unless it shall ultimately be determined that he is entitled to indemnification hereunder.

The rights of indemnification provided in this Section 12 shall be in addition to any other rights to which any such director, officer or employee may otherwise be entitled by contract or as a matter of law; and in the event of any such person’s death, such rights shall extend to his heirs and legal representatives. The provisions of this Section 12 are separable, and if any provision be held invalid, all other provisions are fully in effect and such invalid provision shall only be curtailed to the extent necessary to make such provision enforceable, it being the intent of this Section that the Corporation indemnify each of the directors, officers and employees of the Corporation to the maximum extent permitted by law.

Notwithstanding the foregoing provision of this Section, the Corporation shall not indemnify persons seeking indemnity in connection with any threatened, pending or completed action, suit or proceeding voluntarily brought or threatened by such person unless such action, suit or proceeding was authorized by a majority of the entire Board of Directors.

ARTICLE IV. COMMITTEES

Section 1. The Board of Directors may, by resolution or resolutions passed by a majority of the whole Board, designate one or more committees, each committee to consist of

one or more Directors of the Corporation. Each such committee, to the extent provided in said resolution or resolutions, or in these Bylaws, shall have and may exercise the powers of the Board in the management of the business and affairs of the Corporation, and may authorize the seal of the Corporation to be affixed to any an all papers that may require it. Unless the Board of Directors shall provide otherwise, a majority of the members of any such committee may fix the time and place of its meetings. The Board of Directors shall have the power at any time to fill vacancies in, change the membership of, or dissolve any such committee. Nothing herein shall be deemed to prevent to the Board of Directors from appointing committees consisting in whole or in part of persons who are not directors of the Corporation, provided, however, that no such committee shall have or exercise any authority of the Board of Directors.

Section 2. Committees shall keep regular minutes of their proceedings, and report the same to the Board of Directors when required.

ARTICLE V. OFFICERS

Section 1. Officers. The officers shall be elected at the first meeting of the Board of Directors after each annual meeting of stockholders. The Directors shall elect a President, a Secretary and a Treasurer; they may also elect a Chairman of the Board, one or more Vice Presidents, and such Assistant Secretaries and Assistant Treasurers, as they may deem proper. None of the officers of the Corporation, with the exception of the Chairman of the Board and the President, need be a Director. Any one person may hold two or more offices, except those of President and Secretary. However, any person holding two or more offices shall not sign any instrument in the capacity of more than one office.

The Board of Directors may appoint such other officers and agents as it may deem advisable, who shall hold office for such terms and shall exercise such powers an perform such duties as from time to time shall be determined by the Board of Directors.

Section 2. Chairman of the Board. The Chairman of the Board of Directors, if one be elected, shall preside at all meetings of the Board of Directors, and he shall have and perform such other duties as from time to time may be assigned to him by the Board of Directors.

Section 3. President. The President shall be the chief executive officer of the Corporation, and shall have the general powers and duties of supervision and management usually vested in the office of President of a corporation. He shall preside at all meetings of the stockholders, if present thereat, and, in the absence or non-election of the Chairman of the

Board, at all meetings of the Board of Directors. He shall have general supervision, direction and control of the business of the Corporation. Except as the Board of Directors shall authorize the execution thereof in some other manner, he shall execute bond, mortgages and other contracts on behalf of the Corporation, and he shall cause the corporate seal to be affixed to any instrument requiring it, and when so affixed, the seal shall be attested by the Secretary or the Treasurer, or an Assistant Secretary or an Assistant Treasurer.

Section 4. Vice Presidents. Each Vice President shall have such powers and shall perform such duties as shall be assigned to him by the Directors, and, in the absence of the President, or in the event of his inability to act, the Vice Presidents, in the order of their seniority, shall perform the functions of President.

Section 5. Secretary. The Secretary shall give, or cause to be given, notice of all meetings of stockholders and Directors, and all other notices required by law or by these Bylaws, and, in case of his absence or refusal or neglect so to do, any such notice may be given by any person thereunto directed by the President, the Board of Directors, or the stockholders, upon whose requisition the meeting is called as provided in these Bylaws. He shall record all the proceedings of the meetings of the stockholders and of the Board of Directors in a book to be kept for that purpose, and shall perform such other duties as may be assigned to him by the Directors or the President. He shall have custody of the corporate seal, and shall affix the same to all instruments requiring it, when authorized by the President or the Board of Directors, and shall attest the same.

Section 6. Treasurer. The Treasurer shall have the custody of the Corporate funds and securities, and shall keep full and accurate accounts of receipts and disbursements in books belonging to the Corporation. He shall deposit all moneys and other valuables in the name and to the credit of the Corporation in such depositories as may be designated by the Board of Directors.

The Treasurer shall disburse the funds of the Corporation as may be ordered by the Board of Directors or the President, taking proper vouchers for such disbursements. He shall render to the President and the Board of Directors, at the regular meetings of the Board, or whenever they may request it, an accounting of all his transactions as Treasurer, and of the financial condition of the Corporation.

If required by the Board of Directors, the Treasurer shall give the Corporation a bond for the faithful discharge of his duties, in such amount and with such surety as the Board shall prescribe.

Section 7. Assistant Secretaries and Assistant Treasurers. Assistant Secretaries and Assistant Treasurers, if any, shall be elected and shall have such powers and shall perform such duties as shall be assigned to them, respectively, by the Board of Directors.

ARTICLE VI. RESIGNATIONS; FILLING

OF VACANCIES; INCREASE IN NUMBER

OF DIRECTORS; REMOVAL FROM OFFICE

Section 1. Resignations. Any Director, member of a committee, or other officer may resign at any time. Such resignation shall be made in writing, and shall take effect at the time specified therein, and, if no time be specified, at the time of its receipt by the President or the Secretary. The acceptance of a resignation shall not be necessary to make it effective.

Section 2. Filling of Vacancies. If the office of any officer, Director or member of a committee becomes vacant, the remaining Directors in office, although less than a quorum, may appoint, by a majority vote, any qualified person to fill such vacancy, who shall hold office for the unexpired term of his predecessor, or until his successor shall be duly chosen and shall have qualified.

Any vacancy occurring by reason of an increase in the number of Directors may be filled by action of a majority of the entire Board, for the term of office continuing only until the next election of Directors by the stockholders, or it may be filled by the affirmative vote of the holders of a majority of the shares then entitled to vote at an election of Directors.

Section 3. Increase in Number of Directors. The number of Directors may be increased at any time by the affirmative vote of a majority of the entire Board, or by the affirmative vote of a majority in interest of the stockholders, at a special meeting called for that purpose, and, by like vote, pursuant to Section 2 above, the additional Directors may be chosen at such meeting to hold office until the next annual election or until their successors are elected and shall have qualified.

Section 4. Removal. At a meeting of stockholders expressly called for such purpose, any or all of the members of the Board of Directors may be removed, with or without cause, by vote of the holders of a majority of the shares then entitled to vote at an election of Directors, and said stockholders may elect, at the meeting called for the purpose of removal, a successor or successors to fill any resulting vacancies for the unexpired terms of the removed Directors.

Any officer, agent or member of a committee, elected or appointed by the Board of Directors, may be removed by a majority vote of the entire Board whenever, in its judgment, the best interests of the Corporation will be served thereby.

Article VII. Capital Stock

Section 1. Certificates. The shares of the Corporation shall be evidenced by certificates in such form as the appropriate officers of the Corporation may from time to time prescribe; provided that the Board may provide by resolution or resolutions that some or all of any or all classes or series of stock of the Corporation shall be uncertificated shares. Notwithstanding the foregoing, each holder of uncertificated shares shall be entitled, upon request, to a certificate representing such shares. Shares represented by certificates shall be numbered and registered in a share register as they are issued. Share certificates shall exhibit the name of the registered holder and the number and class of shares and the series, if any, represented thereby and the par value of each share or a statement that such shares are without par value as the case may be. Except as otherwise provided by law, the rights and obligations of the holders of uncertificated shares and the rights and obligations of the holders of certificated shares of the same class and series shall be identical.

Section 2. Signatures on Certificates. Every share certificate shall be signed by the Chairman of the Board, the President or a Vice President; and by the Secretary or an Assistant Secretary or the Treasurer or an Assistant Treasurer and shall be sealed with the Corporation’s seal. Such seal and any or all of the signatures on the certificate may be by facsimile.

Section 3. Transfer Agents and Registrars; Facsimile Signatures. The Board may appoint one or more transfer agents or transfer clerks and one or more registrars and may require all certificates for shares to bear the signature or signatures of any of them. Where a certificate is signed (a) by a transfer agent or an assistant or co-transfer agent, or (b) by a transfer clerk or (c) by a registrar or co-registrar, the signature of any officer thereon may be facsimile. Where a certificate is signed by a registrar or co-registrar the certificate of any transfer agent or co-transfer agent thereon may be by facsimile signature of the authorized signatory of such transfer agent or co-transfer agent. In case any officer or officers of the Corporation who have signed, or whose facsimile signature or signatures have been used on, any such certificate or certificates shall cease to be such officer or officers, whether because of death, resignation or otherwise, before such certificate or certificates have been delivered by the

Corporation, such certificate or certificates may, nevertheless, be issued and delivered as though the person or persons who signed such certificate or certificates or whose facsimile signature or signatures have been used thereon had not ceased to be such officer or officers of the Corporation.

Section 4. Lost Certificates. In case of loss or destruction of any certificate of stock or other security of the Corporation, another may be issued in its place upon satisfactory proof of such loss or destruction and upon the giving of a satisfactory bond of indemnity to the Corporation and to the transfer agents and registrars, if any, of such stock or other security, in such sum as the Board may provide. The Board may delegate to any officer or officers of the Corporation the authorization of the issue of such new certificate or certificates and the approval of the form and amount of such indemnity bond and the surety thereon.

Section 5. Transfer of Shares. Upon surrender to the Corporation, or a transfer agent of the Corporation, of a certificate for shares duly endorsed or accompanied by proper evidence of succession, assignment or authority to transfer, the Corporation may issue a new certificate, or, upon request, evidence of the equivalent uncertificated shares, to the person entitled thereto, cancel the old certificate and record the transaction upon its books. Upon receipt of proper transfer instructions from the holder of uncertificated shares, the Corporation shall cancel such uncertificated shares and issue new equivalent uncertificated shares, or, upon such holder’s request, certificated shares, to the person entitled thereto, and record the transaction upon its books.

Section 6. Registered Stockholders. The Corporation and its transfer agents shall be entitled to treat the holder of record of any share or shares as the holder in fact thereof and shall not be bound to recognize any equitable or other claims to, or interest in, such shares on the part of any other person and shall not be liable for any registration or transfer of shares which are registered, or to be registered, in the name of a fiduciary or the nominee of a fiduciary unless made with actual knowledge that a fiduciary, or nominee of a fiduciary, is committing a breach of trust in requesting such registration or transfer, or with knowledge of such facts that its participation therein amounts to bad faith.

Section 7. Determination of Stockholders of Record. In order that the Corporation may determine the stockholders entitled to notice of or to vote at any meeting of stockholders or any adjournment thereof, or to express consent to corporate action in writing without a meeting, or entitled to receive payment of any dividend or other distribution or allotment of any rights, or

entitled to exercise any rights in respect to any change, conversion or exchange of stock or for the purpose of any other lawful action, the Board of Directors may fix, in advance, a record date, which shall be not more than sixty (60) nor less than ten (10) days prior to the date of such meeting, nor more than sixty (60) days prior to any other action. A determination of stockholders of record entitled to notice of or to vote at a meeting of stockholders shall apply to any adjournment of the meeting; provided, however, that the Board of Directors may fix a new record date for the adjourned meeting.

Section 8. Dividends. Subject to the provisions of the Certificate of Incorporation and the laws of the State of Delaware, the Board of Directors, at any regular or special meeting, may declare dividends upon the capital stock of the Corporation, as and when it may deem expedient.

ARTICLE VIII. MISCELLANEOUS PROVISIONS

Section 1. Corporate Seal. The Board of Directors shall adopt and may alter a common seal of the Corporation. Said seal shall be circular in form and shall contain the name of the Corporation, the year of its creation, and the words: “CORPORATE SEAL DELAWARE”. It may be used by causing it or a facsimile thereof to be impressed, affixed or otherwise reproduced.

Section 2. Fiscal Year. The fiscal year of the Corporation shall be the calendar year.

Section 3. Checks, Drafts, Notes. All checks, drafts, or other orders for the payment of money, notes or other evidences of indebtedness issued in the name of the Corporation, shall be signed by such officer or officers, agent or agents of the Corporation, and in such manner as shall from time to time be determined by resolution of the Board of Directors.

Section 4. Corporate Records. The Corporation shall keep correct and complete books of account and minutes of the proceedings of its stockholders and Directors, as well as an original stock ledger or list of stockholders, containing the names and addresses of the stockholders, the number of shares held by them, and the date of issuance of said certificates of stock.

Any stockholder of record, in person or by attorney or other agent, upon written demand under oath stating the purpose thereof, shall have the right, during the usual hours for business, to inspect for any proper purpose the books and records of the Corporation, as well as its stock ledger and/or list of stockholders, and to make copies or extracts therefrom. Such demand

under oath shall be directed to the Corporation at its registered office in the State of Delaware or at its principal place of business.

Section 5. Notice and Waiver of Notice. Whenever, pursuant to the laws of the State of Delaware or these Bylaws, any notice is required to be given, personal notice is not meant unless expressly so stated, and any notice so required shall be deemed to be sufficient if given by depositing the same in the United States mail, postage prepaid, addressed to the person entitled thereto at his address as it appears on the records of the Corporation, and such notice shall be deemed to have been given on the day of such mailing. Stockholders not entitled to vote shall not be entitled to receive notice of any meetings except as otherwise provided by stature.

Any notice required to be given may be waived, in writing, by the person or persons entitled to such notice, whether before or after the time stated therein.

ARTICLE IX. AMENDMENTS

Section 1. Amendments of Bylaws. These Bylaws may be altered or repealed, and Bylaws may be made at any annual meeting of stockholders, or at any special meeting thereof, if notice of the proposed alteration or repeal, or Bylaw or Bylaws to be made, be contained in the notice of such special meeting, by the affirmative vote of a majority of the stock issued and outstanding and entitled to vote thereat; or by the affirmative vote of a majority of the entire Board of Directors, at any regular meeting of the Board, or at any special meeting thereof if notice of the proposed alteration or repeal, or Bylaw or Bylaws to be made, be contained in the notice of such special meeting.

ARTICLE X

Section 1. This Corporation shall not be governed by the provisions of Section 203 of the General Corporation Law of the State of Delaware concerning “Business Combinations with Interested Stockholders.”

EX-10.4 3 a06-8565_1ex10d4.htm EX-10

Exhibit 10.4

DESCRIPTION OF COMPENSATION OF NON-EMPLOYEE DIRECTORS
(updated February 2006)

The following is a description of the compensation payable to non-employee Directors of Zenith National Insurance Corp. (the “Company”). It is provided pursuant to Paragraph 10(iii) to Item 601 of Regulation S-K, which requires a written description of a compensatory arrangement when no formal document contains the compensation information.

Directors of the Company are elected annually.

Employee Directors receive no additional compensation for serving on the Board of Directors. Non-employee Directors are compensated as follows:

For service as a Director:

An annual cash fee of $75,000 plus an annual award of 2,250 shares of restricted Company Common Stock to be granted after each annual election (or a prorated number of shares if a Director is appointed other than at the annual meeting). Each such award would vest 750 shares per year for three years, so long as the recipient remains a Director.

In addition to the above compensation, the following fees are paid for committee service:

Committees, other than the Audit Committee:		An annual cash fee of $31,250

Audit Committee, other than Chairman:		An annual cash fee of $33,750

Audit Committee Chairman:		An annual cash fee of $41,250

Directors are also reimbursed all out of pocket expenses incurred by them in connection with their service.

EX-10.5 4 a06-8565_1ex10d5.htm EX-10

Exhibit 10.5

FORM OF

ZENITH NATIONAL INSURANCE CORP.

RESTRICTED STOCK AWARD AGREEMENT

FOR NON-EMPLOYEE DIRECTORS

THIS RESTRICTED STOCK AWARD AGREEMENT (the “Award Agreement”) is made and entered into as of [ ] (the “Date of Grant”), by and between Zenith National Insurance Corp., a Delaware corporation (the “Company”), and [ ] (the “Grantee”). Capitalized terms not defined herein shall have the meaning ascribed to them in the Zenith National Insurance Corp. 2004 Restricted Stock Plan, as may be amended and restated from time to time and in effect at the time of this Award Agreement (the “Plan”). Where the context permits, references to the Company or any of its Subsidiaries shall include the successors to the foregoing.

Pursuant to the Plan, the Administrator has determined that the Grantee is to be granted Restricted Stock, subject to the terms, conditions and restrictions set forth in the Plan and herein, and hereby grants such Restricted Stock.

1. Grant of Restricted Stock. The Company hereby grants to the Grantee [ ] shares of Restricted Stock (the “Award”) on the terms, conditions and restrictions set forth in this Award Agreement and as otherwise provided in the Plan.

2. Purchase Price; Method of Payment. The purchase price per share of Restricted Stock shall be $1.00. The purchase price may be paid (i) in cash or its equivalent, (ii) shares of unrestricted Stock owned by the Grantee for greater than six (6) months, the Fair Market Value of which on the purchase date is equal to the purchase price of the Restricted Stock, (iii) to the extent permitted by law, cancellation of indebtedness, (iv) services rendered or (v) any combination of the foregoing. In the absence of any other form of payment tendered by the Grantee, the purchase price shall be paid by services rendered.

3. Restrictions with Respect to Restricted Stock.

(a) Restrictions. The Restricted Stock granted hereunder and any interest therein, may not be sold, transferred, pledged, hypothecated, assigned or otherwise disposed of, except by will or the laws of descent and distribution, prior to the lapsing of restrictions set forth in the Plan and this Award Agreement. Any attempt to dispose of any Restricted Stock in contravention of any such restrictions shall be null and void and without effect.

(b) Restricted Period; Lapse of Restrictions. Except as otherwise provided in the Plan or this Award Agreement, the restrictions set forth in Paragraph 3(a) shall lapse on (A) the first (1^st) anniversary of the Date of Grant with respect to one-third (1/3) of the shares of Restricted Stock subject to such Award, (B) the second (2^nd) anniversary of the Date of Grant with respect to an additional one-third (1/3) of the shares of Restricted Stock subject to such Award, and (C) the third (3^rd) anniversary of the Date of Grant with respect to the remaining one-third (1/3) of the shares of Restricted Stock subject to such Award, so long as the Grantee is serving on the Board of Directors of the Company as of each such anniversary, except where termination of service arises from Grantee’s Disability.

4. Form of Restricted Stock. The Company may, in its discretion, reflect ownership of Restricted Stock through the issuance of stock certificates, in book-entry form or any combination thereof, in accordance with Section 5(e) of the Plan.

5. Unrestricted Shares. Promptly after each lapse of restrictions relating to the Restricted Stock without forfeiture, and provided that the Grantee shall have complied with his or her obligations under Paragraph 9 hereof, the Company shall, with respect to such Unrestricted Shares:

(a) If such Unrestricted Shares were initially issued in certificated form, issue to the Grantee or the Grantee’s personal representative a stock certificate representing a number of shares of Stock, free of the restrictive legend described in Paragraph 7, equal to the number of shares of Restricted Stock with respect to which such restrictions have lapsed. If certificates representing such Restricted Stock shall have theretofore been delivered to the Grantee, such certificates shall be returned to the Company, complete with any necessary signatures or instruments of transfer prior to the issuance by the Company of such unlegended shares of Stock; or

(b) If such Unrestricted Shares were initially issued in book-entry form, transfer such Unrestricted Shares to the Grantee in the form and registration as indicated by the Grantee.

6. Rights as a Stockholder. Subject to the restrictions set forth in the Plan and this Award Agreement, the Grantee shall possess all incidents of ownership with respect to the Restricted Stock granted hereunder, including the right to vote such Restricted Stock and the right to receive dividends with respect to such Restricted Stock; provided however, that extraordinary or non-cash dividends shall be subject to the same restrictions that apply to the underlying Restricted Stock.

7. Certificate; Restrictive Legend. Any certificate issued for Restricted Stock prior to the lapse of any outstanding restrictions relating thereto shall be inscribed with the following legend, or such other legend as determined by the Administrator:

THIS CERTIFICATE AND THE SHARES OF STOCK REPRESENTED HEREBY ARE SUBJECT TO THE TERMS AND CONDITIONS, INCLUDING FORFEITURE PROVISIONS AND RESTRICTIONS AGAINST TRANSFER (THE “RESTRICTIONS”), CONTAINED IN THE ZENITH NATIONAL INSURANCE CORP. AMENDED AND RESTATED 2004 RESTRICTED STOCK PLAN AND THE RESTRICTED STOCK AWARD AGREEMENT ENTERED INTO BETWEEN THE REGISTERED OWNER AND THE COMPANY. ANY ATTEMPT TO DISPOSE OF THESE SHARES IN CONTRAVENTION OF THE RESTRICTIONS, INCLUDING BY WAY OF SALE, ASSIGNMENT, TRANSFER, PLEDGE, HYPOTHECATION OR OTHERWISE, SHALL BE NULL AND VOID AND WITHOUT EFFECT.

8. Termination of Service.

(a) Upon the Grantee’s death or termination of service due to Disability, the restrictions set forth in Paragraph 3(a) shall lapse.

(b) Upon termination of the Grantee’s service with the Company or any Subsidiary thereof for any reason (other than death or Disability) prior to the lapsing of restrictions with respect to any portion of the Restricted Stock granted hereunder, the Grantee shall forfeit any rights to the shares of Restricted Stock with respect to which the restrictions have not lapsed and shall have no further rights thereto.

(c) Upon forfeiture of any shares of Restricted Stock, to the extent the Grantee paid the purchase price of such forfeited shares in a manner other than services rendered, the Company shall repurchase such shares from the Grantee at a price per share equal to the lesser of (i) the Fair Market Value of such shares at the time of forfeiture or (ii) the price Grantee paid for such shares initially.

9. Taxes. Pursuant to Section 9(d) of the Plan, the Company (or Subsidiary, as the case may be) may require the Grantee to remit to the Company (or Subsidiary, as the case may be) in cash an amount sufficient to satisfy any federal, state and local tax withholding requirements related to the Award. With the approval of the Administrator, the Grantee may satisfy the foregoing requirement by electing to have the Company withhold from delivery shares of Stock or by delivering shares of Stock already owned by the Grantee for at least 6 months, in each case, having a value equal to the minimum amount of tax required to be withheld. Such shares shall be valued at their Fair Market Value on the date on which the amount of tax to be withheld is determined, and fractional share amounts shall be settled in cash. Such an election may be made with respect to all or any portion of the shares of Stock to be delivered pursuant to the Award.

If no federal, state or local tax withholding is required, the foregoing paragraph of this Section 9 shall not apply and the Grantee shall be responsible for the payment of all tax liability.

The Grantee shall promptly notify the Company of any election made pursuant to Section 83(b) of the Internal Revenue Code of 1986, as amended.

10. Adjustments. The Award and all rights and obligations under this Award Agreement are subject to Section 3 of the Plan.

11. Notices. Whenever any notice is required or permitted hereunder, such notice shall be in writing and shall be given by personal delivery or first class, certified or registered mail with return receipt requested. Any notice required or permitted to be delivered hereunder shall be deemed to have been duly given on the date which it is personally delivered or, whether actually received or not, on the third business day after mailing to the respective parties named below.

If to the Company: Zenith National Insurance Corp.
21255 Califa St
Woodland Hills, CA 91367
Attn.: William J. Owen, Sr. Vice President
and Chief Financial Officer
Facsimile: 818-592-0480

If to the Grantee: [Name of Grantee]
[Address]

Either party may change such party’s address for notices by duly giving notice pursuant hereto.

12. Compliance with Laws.

(a) Shares of Stock shall not be issued pursuant to the Award granted hereunder unless the issuance or delivery of such shares pursuant thereto shall comply with all relevant provisions of law, including, without limitation, the Securities Act of 1933 (the “Securities Act”) and the Exchange Act, shall be subject to the requirements of any stock exchange upon which the Stock may then be listed, and shall be further subject to the approval of counsel for the Company with respect to such compliance. The Company shall be under no obligation to effect the registration pursuant to the Securities Act, of any interests in the Plan or any shares of Stock to be issued hereunder or to effect similar compliance under any state laws.

(b) All certificates for shares of Stock delivered under the Plan shall be subject to such stop-transfer orders and other restrictions as the Administrator may deem advisable under the rules, regulations, and other requirements of the Securities and Exchange Commission, any stock exchange upon which the Stock may then be listed, and any applicable federal or state securities law, and the Administrator may cause a legend or legends to be placed on any such certificates to make appropriate reference to such restrictions. The Administrator may require, as a condition of the issuance or delivery of certificates evidencing shares of Stock pursuant to the terms hereof, that the recipient of such shares make such agreements and representations as the Administrator, in its sole discretion, deems necessary or desirable.

13. Protections Against Violations of Agreement. No purported sale, assignment, mortgage, hypothecation, transfer, pledge, encumbrance, gift, transfer in trust (voting or other) or other disposition of, or creation of a security interest in or lien on, any of the shares of Stock underlying the Award by any holder thereof in violation of the provisions of this Award Agreement, the Plan or the certificate of incorporation or the bylaws of the Company, will be valid, and the Company will not transfer any such shares on its books nor will any such shares be entitled to vote, nor will any dividends be paid thereon, unless and until there has been full compliance with such provisions to the satisfaction of the Company. The foregoing restrictions are in addition to and not in lieu of any other remedies, legal or equitable, available to enforce said provisions.

14. Failure to Enforce Not a Waiver. The failure of the Company to enforce at any time any provision of the Award Agreement shall in no way be construed to be a waiver of such provision or of any other provision hereof.

15. Governing Law. The Award Agreement shall be governed by and construed according to the laws of the State of Delaware without regard to its principles of conflict of laws.

16. Incorporation of the Plan. The Plan, as it exists on the date of the Award Agreement and as amended from time to time, is hereby incorporated by reference and made a

part hereof, and the Award and this Award Agreement shall be subject to all terms and conditions of the Plan. In the event of any conflict between the provisions of the Award Agreement and the provisions of the Plan, the terms of the Plan shall control, except as expressly stated otherwise. The term “Section” generally refers to provisions within the Plan (except where denoted otherwise); provided, however, the term “Paragraph” shall refer to a provision of this Award Agreement.

17. Amendments. This Award Agreement may be amended or modified at any time, but only by an instrument in writing signed by each of the parties hereto.

18. Counterparts. This Award Agreement may be executed in counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument.

19. Invalid Provision. The invalidity or unenforceability of any particular provision hereof shall not affect the other provisions hereof, and this Award Agreement shall be construed in all respects as if such invalid or unenforceable provision had been omitted.

20. Entire Agreement. This Award Agreement and the Plan, as it exists on the date of this Award Agreement and as amended from time to time, contain the entire agreement and understanding of the parties hereto with respect to the subject matter contained herein and therein and supersede all prior communications, representations and negotiations in respect thereto.

21. Captions and Headings. The captions and headings of the paragraphs and subparagraphs of this Award Agreement are provided for convenience only and are not to serve as a basis for interpreting or construing this Award Agreement.

22. Agreement Not a Contract of Employment. Neither the Plan, the granting of the Award, the Award Agreement nor any other action taken pursuant to the Plan shall constitute or be evidence of any agreement or understanding, express or implied, that the Grantee has a right to be employed by, or to provide services as a director, consultant or advisor to, the Company, any Subsidiary or affiliate thereof for any period of time or at any specific rate of compensation.

23. Authority of the Administrator. The Administrator shall have full authority to interpret and construe the terms of the Plan and the Award Agreement. The determination of the Administrator as to any such matter of interpretation or construction shall be final, binding and conclusive.

24. Binding Effect. The Award Agreement shall apply to and bind the Grantee and the Company and their respective permitted assignees or transferees, heirs, legatees, executors, administrators and legal successors.

25. Tax Representation. The Grantee has reviewed with his or her own tax advisors the federal, state, local and foreign tax consequences of the transactions contemplated by this Award Agreement. The Grantee is relying solely on such advisors and not on any statement or representations of the Company or any of its agents. The Grantee understands that he or she (and not the Company) shall be responsible for any tax liability that may arise as a result of the transactions contemplated by the Award Agreement.

26. Acceptance. The Grantee hereby acknowledges receipt of a copy of the Plan, the prospectus and this Award Agreement. Grantee has read and understands the terms and provisions thereof, and accepts the Award subject to all the terms and conditions of the Plan and the Award Agreement.

IN WITNESS WHEREOF, the parties hereto have executed and delivered the Award Agreement as of the day and year first above written.

ZENITH NATIONAL INSURANCE CORP.

By:

Name:

Title:

GRANTEE

Signature:

Name:

Address:

Social Security No.:

Date:

EX-10.6 5 a06-8565_1ex10d6.htm EX-10

Exhibit 10.6

This is the form of Award Agreement entered into with employees under the Zenith National Insurance Corp. 2004 Restricted Stock Plan (as may be amended and restated from time to time and in effect at the time of execution of an Award Agreement). Existing Award Agreements may be modified in to conform to this form of Award Agreement.

FORM OF
ZENITH NATIONAL INSURANCE CORP.
RESTRICTED STOCK AWARD AGREEMENT
FOR EMPLOYEES

3. Restrictions with Respect to Restricted Stock.

(b) Restricted Period; Lapse of Restrictions. Except as otherwise provided in the Plan or this Award Agreement, the restrictions set forth in Paragraph 3(a) shall lapse with

respect to fifty percent (50%) of the shares of Restricted Stock granted hereunder on the second (2nd) anniversary of the Date of Grant, and with respect to the remaining fifty percent (50%) of such shares on of the fourth (4th) anniversary of the Date of Grant, so long as the Grantee is employed by the Company or any Subsidiary as of each such anniversary.

(b) If such Unrestricted Shares were initially issued in book-entry form, transfer such Unrestricted Shares to the Grantee in the form and registration as indicated by the Grantee.

Termination of Employment.

Except as may otherwise be set forth in a written agreement between Grantee and the Company, whether executed on, before or after the date of the Award Agreement, the following provisions shall apply upon the termination of Grantee’s employment:

(a) Upon the Grantee’s death or termination of employment due to Disability, the restrictions set forth in Paragraph 3(a) shall lapse.

(b) Upon termination of the Grantee’s employment with the Company or any Subsidiary thereof for any reason (other than death or Disability) prior to the lapsing of restrictions with respect to any portion of the Restricted Stock granted hereunder, the Grantee shall forfeit any rights to the shares of Restricted Stock with respect to which the restrictions have not lapsed and shall have no further rights thereto.

8. Taxes. Pursuant to Section 9(d) of the Plan, the Company (or Subsidiary, as the case may be) may require the Grantee to remit to the Company (or Subsidiary, as the case may be) in cash an amount sufficient to satisfy any federal, state and local tax withholding requirements related to the Award. With the approval of the Administrator, the Grantee may satisfy the foregoing requirement by electing to have the Company withhold from delivery shares of Stock or by delivering shares of Stock already owned by the Grantee for at least 6 months, in each case, having a value equal to the minimum amount of tax required to be withheld. Such shares shall be valued at their Fair Market Value on the date on which the amount of tax to be withheld is determined, and fractional share amounts shall be settled in cash. Such an election may be made with respect to all or any portion of the shares of Stock to be delivered pursuant to the Award.

The Grantee shall promptly notify the Company of any election made pursuant to Section 83(b) of the Internal Revenue Code of 1986, as amended.

9. Adjustments. The Award and all rights and obligations under this Award Agreement are subject to Section 3 of the Plan.

10. Notices. Whenever any notice is required or permitted hereunder, such notice shall be in writing and shall be given by personal delivery or first class, certified or registered mail with return receipt requested. Any notice required or permitted to be delivered hereunder shall be deemed to have been duly given on the date which it is personally delivered or, whether actually received or not, on the third business day after mailing to the respective parties named below.

If to the Company: Zenith National Insurance Corp.
21255 Califa St
Woodland Hills, CA 91367
Attn.: William J. Owen, Sr. Vice President
and Chief Financial Officer
Facsimile: 818-592-0480

If to the Grantee: [Name of Grantee]
[Address]

Either party may change such party’s address for notices by duly giving notice pursuant hereto.

11. Compliance with Laws.

12. Protections Against Violations of Agreement. No purported sale, assignment, mortgage, hypothecation, transfer, pledge, encumbrance, gift, transfer in trust (voting or other) or other disposition of, or creation of a security interest in or lien on, any of the shares of Stock underlying the Award by any holder thereof in violation of the provisions of this Award Agreement, the Plan or the certificate of incorporation or the bylaws of the Company, will be valid, and the Company will not transfer any such shares on its books nor will any such shares be entitled to vote, nor will any dividends be paid thereon, unless and until there has been full compliance with such provisions to the satisfaction of the Company. The foregoing restrictions are in addition to and not in lieu of any other remedies, legal or equitable, available to enforce said provisions.

13. Failure to Enforce Not a Waiver. The failure of the Company to enforce at any time any provision of the Award Agreement shall in no way be construed to be a waiver of such provision or of any other provision hereof.

14. Governing Law. The Award Agreement shall be governed by and construed according to the laws of the State of Delaware without regard to its principles of conflict of laws.

15. Incorporation of the Plan. The Plan, as it exists on the date of the Award Agreement and as amended from time to time, is hereby incorporated by reference and made a part hereof, and the Award and this Award Agreement shall be subject to all terms and conditions of the Plan. In the event of any conflict between the provisions of the Award Agreement and the provisions of the Plan, the terms of the Plan shall control, except as expressly stated otherwise. The term “Section” generally refers to provisions within the Plan (except where denoted otherwise); provided, however, the term “Paragraph” shall refer to a provision of this Award Agreement.

16. Amendments. This Award Agreement may be amended or modified at any time, but only by an instrument in writing signed by each of the parties hereto.

17. Counterparts. This Award Agreement may be executed in counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument.

18. Invalid Provision. The invalidity or unenforceability of any particular provision hereof shall not affect the other provisions hereof, and this Award Agreement shall be construed in all respects as if such invalid or unenforceable provision had been omitted.

19. Entire Agreement. This Award Agreement and the Plan, as it exists on the date of this Award Agreement and as amended from time to time, contain the entire agreement and understanding of the parties hereto with respect to the subject matter contained herein and therein and supersede all prior communications, representations and negotiations in respect thereto.

20. Captions and Headings. The captions and headings of the paragraphs and subparagraphs of this Award Agreement are provided for convenience only and are not to serve as a basis for interpreting or construing this Award Agreement.

21. Agreement Not a Contract of Employment. Neither the Plan, the granting of the Award, the Award Agreement nor any other action taken pursuant to the Plan shall constitute or be evidence of any agreement or understanding, express or implied, that the Grantee has a right to continue to be employed by, or to provide services as a director, consultant or advisor to, the Company, any Subsidiary or affiliate thereof for any period of time or at any specific rate of compensation.

22. Authority of the Administrator. The Administrator shall have full authority to interpret and construe the terms of the Plan and the Award Agreement. The determination of the Administrator as to any such matter of interpretation or construction shall be final, binding and conclusive.

23. Binding Effect. The Award Agreement shall apply to and bind the Grantee and the Company and their respective permitted assignees or transferees, heirs, legatees, executors, administrators and legal successors.

24. Tax Representation. The Grantee has reviewed with his or her own tax advisors the federal, state, local and foreign tax consequences of the transactions contemplated by this Award Agreement. The Grantee is relying solely on such advisors and not on any statement or representations of the Company or any of its agents. The Grantee understands that he or she (and not the Company) shall be responsible for any tax liability that may arise as a result of the transactions contemplated by the Award Agreement.

25. Acceptance. The Grantee hereby acknowledges receipt of a copy of the Plan, the prospectus and this Award Agreement. Grantee has read and understands the terms and provisions thereof, and accepts the Award subject to all the terms and conditions of the Plan and the Award Agreement.

IN WITNESS WHEREOF, the parties hereto have executed and delivered the Award Agreement as of the day and year first above written.

	ZENITH NATIONAL INSURANCE CORP.


	By:
	Name:
	Title:


	GRANTEE


	Signature:
	Name:
	Address:

	Social Security No.:
	Date:

EX-31.1 6 a06-8565_1ex31d1.htm EX-31

Exhibit 31.1

CERTIFICATION OF CHIEF EXECUTIVE OFFICER
PURSUANT TO
EXCHANGE ACT RULE 13a-14(a) OR RULE 15d-14(a)

I, Stanley R. Zax, certify that:

1. I have reviewed this Quarterly Report on Form 10-Q of Zenith National Insurance Corp.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: April 20, 2006

/s/ STANLEY R. ZAX

Stanley R. Zax

Chairman of the Board and President
(Chief Executive Officer)

Zenith National Insurance Corp.

EX-31.2 7 a06-8565_1ex31d2.htm EX-31

Exhibit 31.2

CERTIFICATION OF CHIEF FINANCIAL OFFICER PURSUANT TO
EXCHANGE ACT RULE 13a-14(a) OR RULE 15d-14(a)

I, William J. Owen, certify that:

1. I have reviewed this Quarterly Report on Form 10-Q of Zenith National Insurance Corp.;

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: April 20, 2006	/s/ WILLIAM J. OWEN
	William J. Owen
	Senior Vice President & Chief Financial Officer
	Zenith National Insurance Corp.

EX-32 8 a06-8565_1ex32.htm EX-32

Exhibit 32

Certification of Chief Executive Officer and Chief Financial Officer
Pursuant to
18 U.S.C. Section 1350,
as Adopted Pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002

In connection with the Quarterly Report on Form 10-Q of Zenith National Insurance Corp. (the “Company”) for the quarterly period ended March 31, 2006 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), Stanley R. Zax, as Chief Executive Officer of the Company, and William J. Owen, as Chief Financial Officer of the Company, each hereby certifies, pursuant to 18 U.S.C. §1350, as adopted pursuant to §906 of the Sarbanes-Oxley Act of 2002, that, to the best of his knowledge:

(1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Date: April 20, 2006
/s/ STANLEY R. ZAX
Stanley R. Zax
Chairman of the Board and President (Chief Executive Officer)
/s/ WILLIAM J. OWEN
William J. Owen
Senior Vice President and Chief Financial Officer