Zenith National Insurance 8K Zenith Announces Third Quarter Results | ZNT 25 Oct 04

Exhibit 99.1

TheZenith

PRESS RELEASE

BUSINESS & FINANCIAL EDITORS	STANLEY R. ZAX
FOR IMMEDIATE RELEASE	Chairman and President

ZENITH ANNOUNCES THIRD QUARTER RESULTS

WOODLAND HILLS, CA, October 25, 2004 . . .. . . .. . . .. . . . . .. . . .

Zenith National Insurance Corp. (NYSE: ZNT) reported net income of $25.4 million for the third quarter of 2004 compared to net income of $16.1 million for the third quarter of 2003. Net income for the nine months ended September 30, 2004 was $75.3 million compared to net income for the nine months ended September 30, 2003 of $46.2 million. Catastrophe losses after tax of $12.0 million, or $0.49 per diluted share, reduced net income in the third quarter and nine months ended September 30, 2004.

Diluted net income per share was $1.09 and $3.24 for the third quarter of 2004 and nine months ended September 30, 2004, respectively. Diluted net income per share for the third quarter of 2004 and the nine months ended September 30, 2004 reflect the impact of additional shares issuable as a result of the convertibility of Zenith’s 5.75% Convertible Senior Notes due 2023 (the “Convertible Notes”). Diluted net income per share was $0.85 and $2.45 for the third quarter of 2003 and nine months ended September 30, 2003, respectively. If the Convertible Notes had been convertible in the third quarter of 2003 and in the nine months ended September 30, 2003, diluted net income per share for the periods would have been $0.72 and $2.05, respectively.

Income from the workers’ compensation segment before tax for the three and nine months ended September 30, 2004 was $29.5 million and $71.4 million, respectively, compared to $8.4 million and $16.4 million, respectively, for the three and nine months ended September 30, 2003. Loss before tax from the reinsurance segment for the three and nine months ended September 30, 2004 was $15.8 million and $11.3 million, respectively, compared to income before tax of $2.5 million and $6.9 million, respectively, for the three and nine months ended September 30, 2003. The loss from the reinsurance segment in 2004 includes estimated catastrophe losses from Hurricanes Charley, Frances, Ivan and Jeanne of $18.5 million ($12.0 million after tax, or $0.49 per diluted share). Income or loss from the workers’ compensation and reinsurance segments do not include any investment income, as described in the supplemental financial information contained in this press release.

Workers’ compensation net premiums earned increased approximately 23% and 29% in the three and nine months ended September 30, 2004, respectively, compared to the corresponding periods of 2003. In California, workers’ compensation net premiums earned increased approximately

31% and 41% in the three and nine months ended September 30, 2004, respectively, compared to the corresponding periods of 2003.

The combined ratio for the workers’ compensation segment for the nine months ended September 30, 2004 was 89.2% compared to 96.8% for the nine months ended September 30, 2003 and 95.9% for the year ended December 31, 2003. The combined ratio for the reinsurance segment for the nine months ended September 30, 2004 was 133.0% compared to 85.4% for the nine months ended September 30, 2003 and 84.3% for the year ended December 31, 2003.

Consolidated net cash flow from operating activities was $252.2 million for the nine months ended September 30, 2004 compared to $179.4 million for the nine months ended September 30, 2003. Consolidated stockholders’ equity per share at September 30, 2004, June 30, 2004, March 31, 2004 and December 31, 2003 was $23.82, $21.81, $22.05 and $20.27, respectively. Return on average equity in the nine months ended September 30, 2004 was 23.8% compared to 18.1% in the corresponding period of 2003.

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 release or in other written or oral information conveyed by or on behalf of Zenith are intended to identify forward-looking statements. Zenith 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; and (8) other risks detailed herein and from time to time in Zenith’s other reports and filings with the Securities and Exchange Commission.

(Selected financial data attached)

ZENITH NATIONAL INSURANCE CORP.

Selected Financial Data (Unaudited)

	Three Months Ended September 30,				Nine Months Ended September 30,
	2004		2003		2004			2003
(In thousands, except per share)

TOTAL REVENUES	$	261,315	$	218,399	$		752,533	$		616,116

SELECTED INCOME DATA:
Net Investment Income after Tax	$	10,201	$	10,109	$		30,020	$		28,297
Realized Gains on Investments after Tax	4,348		1,764		8,035			9,513
Income from Investment Segment after Tax	$	14,549	$	11,873	$		38,055	$		37,810

Income from Continuing Operations after Tax (1)	$	24,114	$	16,100	$		74,014	$		46,200
Gain on Sale of Discontinued Real Estate Segment after Tax (2)	1,286				1,286
Net Income	$	25,400	$	16,100	$		75,300	$		46,200

INCOME FROM CONTINUING OPERATIONS
PER COMMON SHARE (1):
Basic	$	1.25	$	0.86	$		3.87	$		2.46
Diluted (3)	1.04		0.85		3.19			2.45
Diluted - Pro Forma (3)	1.04		0.72		3.19			2.05

NET INCOME PER COMMON SHARE (1) (2):
Basic	$	1.32	$	0.86	$		3.94	$		2.46
Diluted (3)	1.09		0.85		3.24			2.45
Diluted - Pro Forma (3)	1.09		0.72		3.24			2.05

STOCKHOLDERS’ EQUITY:

Stockholders’ Equity					$	459,316		$	361,481

Stockholders’ Equity per Share					23.82			19.21

Number of Common Shares:

Outstanding					19,286			18,813
Weighted Average for the Period - Basic	19,207		18,798		19,133			18,781
Weighted Average for the Period - Diluted (3)	24,530		18,959		24,436			18,881

(1) 2004 includes estimated catastrophe losses after tax of $12.0 million ($0.49 per diluted share) in the third quarter from Hurricanes Charley, Frances, Ivan and Jeanne.

(2) In 2002, we sold our home-building business and related real estate assets. In the third quarter of 2004, we recorded a gain of $2.0 million before tax ($1.3 million after tax) from additional sales proceeds under the earn-out provision of the sale.

(3) Diluted average outstanding shares for the three and nine months ended September 30, 2004 include an additional 5.0 million shares that would be issuable in connection with our 5.75% Convertible Senior Notes due 2023 (the “Convertible Notes”). After tax interest expense of $1.3 million and $3.8 million for the three and nine months ended September 30, 2004, respectively, related to the Convertible Notes is added back to net income in computing diluted net income per common share. Diluted net income per common share in the three and nine months ended September 30, 2003 is not comparable because the average shares outstanding for the periods do not include such additional shares and interest expense is not added back. If the Convertible Notes had been convertible in the three and nine months ended September 30, 2003, and an additional 5.0 million shares would have been included in the computation of diluted shares outstanding for each period, diluted net income per common share would have been $0.72 and $2.05, respectively. After tax interest expense of $1.3 million and $2.7 million would have been added back to net income in the three and nine months ended September 30, 2003, respectively, to compute pro forma diluted net income per share.

ZENITH NATIONAL INSURANCE CORP.

Selected Financial Data (Unaudited)

	Nine Months Ended September 30,
	2004			2003
(In thousands)

REVENUES:

Net Premiums Earned (1)	$	696,346		$	559,573
Net Investment Income	43,825			41,908
Realized Gains on Investments	12,362			14,635
Total Revenues	$	752,533		$	616,116

RESULTS OF OPERATIONS BY SEGMENT (2):

Net Investment Income	$	43,825		$	41,908
Realized Gains on Investments	12,362			14,635
Income from Investment Segment	56,187			56,543
Workers’ Compensation Segment	71,442			16,386
Reinsurance Segment (3)	(11,284		)	6,934
Parent Segment (4)	(14,100		)	(12,944		)
Income from Continuing Operations before Tax and Equity in
Earnings of Investee	102,245			66,919
Income Tax Expense (5)	32,231			23,194
Income from Continuing Operations after Tax and before Equity in
Earnings of Investee	70,014			43,725
Equity in Earnings of Investee after Tax	4,000			2,475
Income from Continuing Operations after Tax	74,014			46,200
Gain on Sale of Discontinued Real Estate Segment after Tax (6)	1,286
NET INCOME	$	75,300		$	46,200

(1) Net premiums earned in the nine months ended September 30, 2004 and 2003 are net of $72.8 million and $56.4 million, respectively, of ceded premiums earned in connection with a 10% ceded quota share reinsurance agreement for policies effective on or after January 1, 2002 through December 31, 2004.

(2) See Supplemental Financial Information for a description of segment results.

(3) 2004 includes estimated catastrophe losses of $18.5 million before tax from Hurricanes C Ivan and Jeanne.

(4) Included in Loss before Tax of Parent Segment is interest expense before tax of $9.8 million and $8.9 million for the nine months ended September 30, 2004 and 2003, respectively.

(5) Income tax expense in the nine months ended September 30, 2004 was reduced by $2.6 million for a reduction of an estimated tax liability for prior years as a result of recently enacted California legislation.

(6) In 2002, we sold our home-building business and related real estate assets. In the third quarter of 2004, we recorded a gain of $2.0 million before tax ($1.3 million after tax) from additional sales proceeds under the earn-out provision of the sale.

ZENITH NATIONAL INSURANCE CORP.

Selected Financial Data (Unaudited)

	Nine Months Ended September 30,
(In thousands)	2004					2003
PROPERTY-CASUALTY INSURANCE OPERATIONS:
Gross Premiums Written (1):
Workers’ Compensation:
California	$	569,810		66.3	%	$	399,077	59.7	%
Outside California	250,699			29.2	%	223,243		33.4	%
Total Workers’ Compensation	820,509			95.5	%	622,320		93.1	%
Reinsurance	38,392			4.5	%	46,312		6.9	%
	858,901			100.0	%	668,632		100.0	%
Net Premiums Written (1):
Workers’ Compensation:
California	492,017			65.8	%	346,070		59.1	%
Outside California	217,295			29.1	%	192,832		33.0	%
Total Workers’ Compensation (2)	709,312			94.9	%	538,902		92.1	%
Reinsurance	38,189			5.1	%	46,342		7.9	%
	747,501			100.0	%	585,244		100.0	%
Net Premiums Earned:
Workers’ Compensation:
California	456,172			65.5	%	322,614		57.7	%
Outside California	205,988			29.6	%	189,475		33.8	%
Total Workers’ Compensation (2)	662,160			95.1	%	512,089		91.5	%
Reinsurance	34,186			4.9	%	47,484		8.5	%
	696,346			100.0	%	559,573		100.0	%

Income (Loss) before Tax/Combined Ratio of:
Workers’ Compensation Segment (1)	71,442			89.2	%	16,386		96.8	%
Reinsurance Segment (1) (3)	(11,284		)	133.0	%	6,934		85.4	%

COMBINED LOSS AND EXPENSE RATIOS:
Workers’ Compensation:
Loss and Loss Adjustment Expense				65.8	%			70.6	%
Underwriting and Other Operating Expense				23.4	%			26.2	%
Combined Ratio				89.2	%			96.8	%

Reinsurance (3):
Loss and Loss Adjustment Expense				107.9	%			66.9	%
Underwriting and Other Operating Expense				25.1	%			18.5	%
Combined Ratio				133.0	%			85.4	%

(1) See Supplemental Financial Information for a description of segment results, “Combined Ratio” and “Premiums Written.”

(2) Premiums in 2004 and 2003 are net of $78.0 million and $59.4 million, respectively, of ceded premiums written and $72.8 million and $56.4 million, respectively, of ceded premiums earned in connection with a 10% ceded quota share reinsurance agreement for policies effective on or after January 1, 2002 through December 31, 2004.

(3) 2004 includes estimated catastrophe losses of $18.5 million before tax from Hurricanes Charley, Frances, Ivan and Jeanne.

ZENITH NATIONAL INSURANCE CORP.

Selected Financial Data (Unaudited)

	Three Months Ended September 30,
	2004			2003
(In thousands)

REVENUES:

Net Premiums Earned (1)	$	239,716		$	200,712
Net Investment Income	14,909			14,975
Realized Gains on Investments	6,690			2,712
Total Revenues	$	261,315		$	218,399

RESULTS OF OPERATIONS BY SEGMENT (2):

Net Investment Income	$	14,909		$	14,975
Realized Gains on Investments	6,690			2,712
Income from Investment Segment	21,599			17,687
Workers’ Compensation Segment	29,504			8,350
Reinsurance Segment (3)	(15,776		)	2,546
Parent Segment (4)	(4,710		)	(4,559		)
Income from Continuing Operations before Tax and Equity in
Earnings of Investee	30,617			24,024
Income Tax Expense (5)	7,737			8,253
Income from Continuing Operations after Tax and before Equity in
Earnings of Investee	22,880			15,771
Equity in Earnings of Investee after Tax	1,234			329
Income from Continuing Operations after Tax	24,114			16,100
Gain on Sale of Discontinued Real Estate Segment after Tax (6)	1,286
NET INCOME	$	25,400		$	16,100

(1) Net premiums earned in the three months ended September 30, 2004 and 2003 are net of $25.1 million and $20.4 million, respectively, of ceded premiums earned in connection with a 10% ceded quota share reinsurance agreement for policies effective on or after January 1, 2002 through December 31, 2004.

(2) See Supplemental Financial Information for a description of segment results.

(3) 2004 includes estimated catastrophe losses of $18.5 million before tax from Hurricanes Charley, Frances, Ivan and Jeanne.

(4) Included in Loss before Tax of Parent Segment is interest expense before tax of $3.3 million and $3.5 million for the three months ended September 30, 2004 and 2003, respectively.

(5) Income tax expense in the three months ended September 30, 2004 was reduced by $2.6 million for a reduction of an estimated tax liability for prior years as a result of recently enacted California legislation.

ZENITH NATIONAL INSURANCE CORP.

Selected Financial Data (Unaudited)

	Three Months Ended September 30,
(In thousands)	2004					2003
PROPERTY-CASUALTY INSURANCE OPERATIONS:
Gross Premiums Written (1):
Workers’ Compensation:
California	$	192,147		66.2	%	$	151,969	63.2	%
Outside California	84,683			29.2	%	77,025		32.0	%
Total Workers’ Compensation	276,830			95.4	%	228,994		95.2	%
Reinsurance	13,279			4.6	%	11,480		4.8	%
	290,109			100.0	%	240,474		100.0	%
Net Premiums Written (1):
Workers’ Compensation:
California	165,863			65.7	%	131,604		62.8	%
Outside California	73,370			29.1	%	66,442		31.7	%
Total Workers’ Compensation (2)	239,233			94.8	%	198,046		94.5	%
Reinsurance	13,210			5.2	%	11,492		5.5	%
	252,443			100.0	%	209,538		100.0	%
Net Premiums Earned:
Workers’ Compensation:
California	157,181			65.6	%	120,272		59.9	%
Outside California	70,547			29.4	%	64,931		32.4	%
Total Workers’ Compensation (2)	227,728			95.0	%	185,203		92.3	%
Reinsurance	11,988			5.0	%	15,509		7.7	%
	239,716			100.0	%	200,712		100.0	%

Income (Loss) before Tax/Combined Ratio of:
Workers’ Compensation Segment (1)	29,504			87.0	%	8,350		95.5	%
Reinsurance Segment (1) (3)	(15,776		)	231.6	%	2,546		83.6	%

COMBINED LOSS AND EXPENSE RATIOS:
Workers’ Compensation:
Loss and Loss Adjustment Expense				63.9	%			70.1	%
Underwriting and Other Operating Expense				23.1	%			25.4	%
Combined Ratio				87.0	%			95.5	%

Reinsurance (3):
Loss and Loss Adjustment Expense				214.1	%			63.3	%
Underwriting and Other Operating Expense				17.5	%			20.3	%
Combined Ratio				231.6	%			83.6	%

(1) See Supplemental Financial Information for a description of segment results, “Combined Ratio” and “Premiums Written.”

(2) Premiums in 2004 and 2003 are net of $26.3 million and $21.9 million, respectively, of ceded premiums written and $25.1 million and $20.4 million, respectively, of ceded premiums earned in connection with a 10% ceded quota share reinsurance agreement for policies effective on or after January 1, 2002 through December 31, 2004.

(3) 2004 includes estimated catastrophe losses of $18.5 million before tax from Hurricanes Charley, Frances, Ivan and Jeanne.

ZENITH NATIONAL INSURANCE CORP.

Supplemental Financial Information (Unaudited)

HOW WE REPORT ON OUR RESULTS

Our business is comprised of the following segments: investments; workers’ compensation; reinsurance; and parent. Our real estate segment was discontinued in 2002. Results of the investments segment include investment income and realized gains and losses on investments and we do not allocate investment income to our workers’ compensation and reinsurance segments. Income (loss) before tax from operations of the workers’ compensation and reinsurance segments is determined solely by deducting losses and loss adjustment expenses incurred and underwriting and other operating expenses incurred from net premiums earned. Loss from operations of the parent segment include interest expense and the general operating expenses of Zenith National Insurance Corp.

Combined Ratios

The combined ratios, expressed as a percentage, are key measurements of underwriting profitability traditionally used in the property-casualty insurance business. The ratios discussed in this press release are calculated using GAAP financial results (defined as accounting principles generally accepted in the United States of America) and include the loss and loss adjustment expense ratio (“loss ratio”) as well as the underwriting and other operating expense ratio (“expense ratio”) which together equal the combined ratio. The loss ratio is the percentage of net incurred loss and loss adjustment expenses to net premiums earned. The expense ratio is the percentage of underwriting and other operating expenses to net premiums earned.

NON-GAAP MEASURES

In addition to financial measures presented in the consolidated financial statements prepared in accordance with GAAP, we also use certain non-GAAP financial measures to analyze and report our financial results. Management believes that these non-GAAP measures, when used in conjunction with the consolidated financial statements, can aid in understanding our financial condition and results of operations. These non-GAAP measures are not a substitute for GAAP measures, and where these measures are described we provide information that reconciles the non-GAAP measures to the GAAP measures reported in our consolidated financial statements.

Premiums Written

Gross premiums written is a non-GAAP financial measure representing the amount of premiums we have billed to our policyholders in the applicable period. It is indicative of the amount of cash premium before commission expense that we expect to receive from our policies for the applicable period. Net premiums written represent the amount of premiums we have billed to our policyholder in the applicable period less the cost of any reinsurance ceded. Net premiums earned, the most comparable GAAP measure, represents the portion of premiums written that is recognized as earned in the financial statements for the periods presented. Premiums are earned on a pro-rata basis over the term of the policies or reinsurance contracts. The following table provides a reconciliation of gross premiums written and net premiums written to net premiums earned:

	Three Months Ended September 30,							Nine Months Ended September 30,
(In thousands)	2004				2003			2004			2003
Workers’ Compensation:
Gross Premiums Written	$	276,830			$	228,994		$	820,509		$		622,320
Ceded Premiums	(37,597			)	(30,948		)	(111,197		)	(83,418			)
Net Premiums Written	239,233				198,046			709,312			538,902
Change in Unearned Premiums, Net of Reinsurance	(11,505			)	(12,843		)	(47,152		)	(26,813			)
Net Premiums Earned	$	227,728			$	185,203		$	662,160		$	512,089

Reinsurance:
Gross Premiums Written	$		13,279		$	11,480		$	38,392		$	46,312
Ceded Premiums	(69			)	12			(203		)	30
Net Premiums Written	13,210				11,492			38,189			46,342
Change in Unearned Premiums, Net of Reinsurance	(1,222			)	4,017			(4,003		)	1,142
Net Premiums Earned	$		11,988		$	15,509		$	34,186		$	47,484

Zenith National Insurance (ZNT) Inactive 8-KZenith Announces Third Quarter Results