SCHEDULE 14A INFORMATION Proxy Statement Pursuant to Section 14(a) of the Securities Exchange Act of 1934 (Amendment No. ) Filed by the Registrant /X/ Filed by a Party other than the Registrant / / Check the appropriate box: / / Preliminary Proxy Statement / / Confidential, for Use of the Commission Only (as permitted by Rule 14a-6(e)(2)) /X/ Definitive Proxy Statement / / Definitive Additional Materials / / Soliciting Material Pursuant to Rule 14a-11(c) or Rule 240.14a-12 ZENITH NATIONAL INSURANCE CORP. - -------------------------------------------------------------------------------- (Name of Registrant as Specified In Its Charter) ZENITH NATIONAL INSURANCE CORP. - -------------------------------------------------------------------------------- (Name of Person(s) Filing Proxy Statement, if other than the Registrant) Payment of Filing Fee (Check the appropriate box): /X/ No fee required. / / Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11. 1) Title of each class of securities to which transaction applies: ------------------------------------------------------------------------ 2) Aggregate number of securities to which transaction applies: ------------------------------------------------------------------------ 3) Per unit price or other underlying value of transaction computed pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the filing fee is calculated and state how it was determined): ------------------------------------------------------------------------ 4) Proposed maximum aggregate value of transaction: ------------------------------------------------------------------------ 5) Total fee paid: ------------------------------------------------------------------------ / / Fee paid previously with preliminary materials: --------------------------------------------------------------------------- / / Check box if any part of the fee is offset as provided by Exchange Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid previously. Identify the previous filing by registration statement number, or the Form or Schedule and the date of its filing. 1) Amount Previously Paid: ------------------------------------------------------------------------ 2) Form, Schedule or Registration Statement No.: ------------------------------------------------------------------------ 3) Filing Party: ------------------------------------------------------------------------ 4) Date Filed: ------------------------------------------------------------------------ [LOGO] Zenith National Insurance Corp. 21255 Califa Street Woodland Hills, California 91367 Telephone (818) 713-1000 NOTICE OF ANNUAL MEETING - -------------------------------------------------------------------------------- The Annual Meeting of Stockholders of Zenith National Insurance Corp. ("Zenith") will be held at the offices of Zenith, 21255 Califa Street, Woodland Hills, California, on Wednesday, May 20, 1998, at 9:00 a.m., for the following purposes: 1. To elect a Board of nine (9) Directors. 2. To transact such other business as may properly come before the meeting and any adjournments thereof. Stockholders of record at the close of business on March 23, 1998, the record date fixed by the Board of Directors for the Annual Meeting, are entitled to notice of, and to vote at, such meeting. By Order of the Board of Directors John J. Tickner SECRETARY Woodland Hills, California Dated: March 24, 1998 STOCKHOLDERS, WHETHER OR NOT THEY EXPECT TO ATTEND THE MEETING IN PERSON, ARE REQUESTED TO COMPLETE, DATE, SIGN AND RETURN THE ENCLOSED FORM OF PROXY IN THE ACCOMPANYING POSTPAID AND PRE-ADDRESSED ENVELOPE. THE PROXY IS REVOCABLE AT ANY TIME PRIOR TO THE EXERCISE THEREOF BY WRITTEN NOTICE TO ZENITH, AND STOCKHOLDERS WHO ARE PRESENT AT THE MEETING MAY WITHDRAW THEIR PROXIES AND VOTE IN PERSON IF THEY SO DESIRE. ZENITH NATIONAL INSURANCE CORP. 21255 Califa Street, Woodland Hills, California 91367 ------------------------ PROXY STATEMENT ------------------------ VOTING This Proxy Statement is furnished in connection with the solicitation by the Board of Directors of Zenith National Insurance Corp. ("Zenith") of proxies to be voted at the Annual Meeting of Stockholders of Zenith to be held on Wednesday, May 20, 1998, at 9:00 a.m., and at any adjournments thereof (the "Annual Meeting"). Any proxy given pursuant to this solicitation may be revoked at any time prior to its exercise by written notice to Zenith, and the persons executing the same, if in attendance at the Annual Meeting, may vote in person instead of by proxy. Unless authority therefor is withheld, all proxies will be voted as provided therein. In addition to solicitation of proxies by mail, officers and regular employees of Zenith and its subsidiaries, who will receive no additional compensation therefor, may solicit proxies by telephone, telegram or personal interview. The subsidiaries of Zenith are Zenith Insurance Company ("Zenith Insurance"), CalFarm Insurance Company ("CalFarm"), Cal-Ag Insurance Services, Inc., CalFarm Annuity Service Company, CalFarm Insurance Agency, CalRehab Services, Inc., Perma-Bilt, a Nevada Corporation, Zenith Insurance Company of Florida, Zenith Insurance Management Services, Inc., Zenith Star Insurance Company, Zenith Risk Management, Inc., and ZNAT Insurance Company. The cost of this solicitation will be borne by Zenith. In addition, Zenith will reimburse brokerage houses and other custodians, nominees and fiduciaries for expenses incurred in forwarding solicitation materials to stockholders. The approximate date on which this Proxy Statement and accompanying form of proxy are first being sent to stockholders is March 30, 1998. Only stockholders of record at the close of business on March 23, 1998, the record date for the Annual Meeting (the "Record Date"), are entitled to notice of and to vote at such meeting. On such date, Zenith had outstanding 17,002,864 shares of common stock, $1.00 par value per share (the "Common Stock"). Each share of Common Stock entitles the record holder to one vote on all matters. With respect to the election of Directors only, however, every stockholder may cumulate his votes with respect to candidates whose names have been placed in nomination prior to the vote if, but only if, any stockholder has given notice at the Annual Meeting prior to voting of his intention to cumulate his votes. In the event there is cumulative voting for Directors, each stockholder will be entitled to give one candidate the number of votes equal to the number of Directors to be elected multiplied by the number of votes to which the stockholder's shares are entitled, or to distribute his votes on the same principle among as many candidates as such stockholder thinks fit. In the event the election of Directors is to proceed with cumulative voting, the holder of any proxy given pursuant to this solicitation will have the authority to cumulate the votes to which shares covered by the proxy are entitled and to distribute the votes among the candidates for election as the holder of the proxy sees fit. The presence, in person or by proxy, of stockholders holding a 1 majority of the issued and outstanding shares of Common Stock entitled to vote shall constitute a quorom. Election of Directors shall be decided by plurality vote. The Board of Directors knows of no matters to come before the Annual Meeting other than the matters referred to in this Proxy Statement. If, however, any matters properly come before the meeting, it is the intention of each of the persons named in the accompanying proxy to vote such proxies in accordance with his best judgment thereon. Any such matter submitted for stockholder approval requires the affirmative vote of the majority of shares present in person or represented by proxy at the meeting and entitled to vote on the subject matter. Abstentions and broker non-votes (except on matters for which brokers lack discretionary authority to vote under New York Stock Exchange rules) will be counted and will have the same effect as "no" votes. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT The following table contains certain information at the Record Date as to: (1) all persons who, to the knowledge of Zenith, were the beneficial owners of more than 5% of the outstanding shares of Common Stock, (2) each of the Executive Officers named in the Summary Compensation Table, (3) each of the Directors of Zenith and (4) all Executive Officers and Directors as a group. The persons named hold sole voting and investment power with respect to the shares shown opposite their respective names, unless otherwise indicated. The information with respect to each person specified is as supplied or confirmed by such person. AMOUNT AND NATURE OF PERCENT NAME AND ADDRESS OF BENEFICIAL OWNER BENEFICIAL OWNERSHIP (1) OF CLASS - -------------------------------------------------- ------------------------ -------- Reliance Insurance Company(2)(3).................. 6,574,445 38.7% 3 Parkway Philadelphia, PA 19102 Royce Group(4).................................... 1,093,600 6.4% 1414 Avenue of the Americas New York, New York 10019 Harvey L. Silbert(3)(5)(6)........................ 1,053,640 6.2% 10100 Santa Monica Blvd. Suite 2200 Los Angeles, CA 90067 Stanley R. Zax(3)(5)(7)........................... 648,564 3.7% 21255 Califa Street Woodland Hills, CA 91367 Jack M. Ostrow(3)(5)(8)........................... 65,000 * 9601 Wilshire Blvd. Beverly Hills, CA 90210 James P. Ross(9).................................. 52,094 * 21255 Califa Street Woodland Hills, CA 91367 Fredricka Taubitz(10)............................. 46,840 * 21255 Califa Street Woodland Hills, CA 91367 Keith E. Trotman(11).............................. 41,866 * 21255 Califa Street Woodland Hills, CA 91367 2 AMOUNT AND NATURE OF PERCENT NAME AND ADDRESS OF BENEFICIAL OWNER BENEFICIAL OWNERSHIP (1) OF CLASS - -------------------------------------------------- ------------------------ -------- John J. Tickner(12)............................... 21,587 * 21255 Califa Street Woodland Hills, CA 91367 Gerald Tsai, Jr.(5)............................... 5,000 * 200 Park Ave. New York, New York 10166 Max M. Kampelman(5)............................... 4,992 * 1001 Pennsylvania Avenue N.W. Washington D.C. 20004 William Steele Sessions(5)(13).................... 1,461 * Weston Centre 112 East Pecan St. San Antonio, TX 78205 George E. Bello(5)(14)............................ 0 0 Park Avenue Plaza 55 East 52nd Street New York, NY 10055 Robert M. Steinberg(5)(14)........................ 0 0 Park Avenue Plaza 55 East 52nd Street New York, NY 10055 Saul P. Steinberg(5)(14)(15)...................... 6,574,445 38.7% Park Avenue Plaza 55 East 52nd Street New York, NY 10055 All Executive Officers and Directors as a group (14 persons)(16).................................. 8,517,719 48.5% - ------------------------ * Less than 1% (1) Subject to applicable community property and similar statutes. (2) Number of shares shown includes 39,110 shares held by Reliance National Insurance Company of New York and 39,110 shares held by United Pacific Insurance Company of New York, both wholly owned subsidiaries of Reliance Insurance Company. Reliance Insurance Company is a wholly-owned subsidiary of Reliance Financial Services Corporation, which is a wholly-owned subsidiary of Reliance Group Holdings, Inc. Saul P. Steinberg, members of his family and four separate trusts own approximately 44.4% of the common stock of Reliance Group Holdings, Inc. and, as a result of such stock holdings, Saul P. Steinberg may be deemed to control Reliance Group Holdings, Inc. Pursuant to an Amended Exemption issued to Reliance Insurance Company by the Insurance Commissioner of the State of California, Reliance Insurance Company has agreed that it will not vote shares in excess of 28.7% of the outstanding Common Stock unless it obtains the Insurance Commissioner's consent or qualifies for an exemption from such consent. (3) Reliance Insurance Company and each of Jack M. Ostrow, Harvey L. Silbert (individually and as trustee of a family trust) and Stanley R. Zax were granted certain rights to require Zenith to register for sale, under the Securities Act of 1933, shares of Common Stock beneficially owned by each of them. Zenith granted these rights in connection with the sale in February 1981 of an aggregate of 1,387,375 shares of Common Stock (20.5% of the then outstanding shares) to Reliance Insurance Company by certain selling stockholders, including Messrs. Ostrow, Silbert and Zax. 3 (4) On February 19, 1998, Zenith received a copy of an information statement on Schedule 13G filed with the United States Securities and Exchange Commission on February 5, 1998 by a group consisting of Royce & Associates, Inc. ("Royce"), Royce Management Company ("RMC"), and Charles M. Royce. The information in the table is based on such filing. The filing indicates that Royce beneficially owns 1,042,900 shares, as to which it holds sole voting and dispositive power; that RMC beneficially owns 50,700 shares, as to which it holds sole voting and dispositive power; and that Charles M. Royce may be deemed to be a controlling person of Royce and RMC, and as such may be deemed to beneficially own the shares owned by Royce and RMC. Charles M. Royce holds no shares outside of Royce and RMC and disclaims beneficial ownership of the shares held by Royce and RMC. (5) Director of Zenith. (6) Number of shares shown includes 173,551 shares held by Mr. Silbert as trustee of certain family trusts, as to which shares Mr. Silbert disclaims beneficial ownership. Number of shares shown also includes 880,089 shares held by The Harvey L. and Lillian Silbert Family Trust, a revocable trust, of which Mr. Silbert is a trustee. (7) Chief Executive Officer of Zenith. Number of shares shown includes 1,030 shares owned by Mr. Zax as custodian for his adult children, as to which shares Mr. Zax disclaims beneficial ownership, and 400,000 shares, as to which options are or will become exercisable within sixty days after the Record Date. (8) Number of shares shown consists of 65,000 shares held by The Ostrow Family Trust, a revocable trust, of which Mr. Ostrow is a trustee. (9) Executive Officer of Zenith. Number of shares shown includes 50,000 shares, as to which options are or will become exercisable within sixty days after the Record Date. (10) Executive Officer of Zenith. Number of shares shown includes 5,340 shares allocated to such Executive Officer's account in The Zenith 401(k) Plan and 35,000 shares, as to which options are or will become exercisable within sixty days after the Record Date. (11) Executive Officer of Zenith. Number of shares shown consists of 4,366 shares allocated to such Executive Officer's account in The Zenith 401(k) Plan and 37,500 shares, as to which options are or will become exercisable within sixty days after the Record Date. (12) Executive Officer of Zenith. Number of shares shown consists of 1,587 shares allocated to such Executive Officer's account in The Zenith 401(k) Plan and 20,000 shares, as to which options are or will become exercisable within sixty days after the Record Date. (13) Shares shown are held in Mr. Sessions' Simplified Employee Pension -- Individual Retirement Account. (14) Director of Reliance Insurance Company. (15) Shares shown are those owned by Reliance Insurance Company and certain of its subsidiaries. See notes (2) and (3) above. (16) Number of shares shown includes 544,500 shares, as to which options are or will become exercisable within sixty days after the Record Date. Number of shares shown also includes 6,574,445 shares owned by Reliance Insurance Company and certain of its subsidiaries. See notes (2), (3) and (15) above. 4 SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE Section 16(a) of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and the regulations of the Securities and Exchange Commission (the "Commission") thereunder require Zenith's Executive Officers and Directors, and persons who own more than ten percent of a registered class of Zenith's equity securities, to file reports of ownership and changes in ownership with the Commission and the New York Stock Exchange and to furnish Zenith with copies of all such forms they file. Based solely on its review of the copies of such forms received by it and written representations from certain reporting persons, Zenith believes that, during the year ended December 31, 1997, all filing requirements applicable to its Executive Officers, Directors, and 10% stockholders were complied with, except that due to inadvertent error, an Executive Officer, James P. Ross, did not file a Form 4 reporting a cashless exercise of employee stock options to acquire 5,000 shares of Common Stock, consisting of the exercise of the option and an immediate sale of such shares through a broker. Mr. Ross has subsequently filed a Form 5 reporting the cashless exercise. ELECTION OF DIRECTORS It is the intention of the persons named in the enclosed proxy, unless otherwise specifically instructed, to vote the proxies received by them for the election of the nominees listed in the table below as Directors of Zenith. In the event that there should be cumulative voting in the election of Directors, as set forth in this Proxy Statement under "Voting" above, it is the intention of such persons to distribute the votes represented by each proxy among such nominees in such proportion as they see fit, unless otherwise specifically instructed. All nominees have consented to being named herein and have indicated their intention to serve if elected. In the unanticipated event that any of the nominees becomes unable to serve as a Director, the proxies will be voted for a substitute nominee in accordance with the best judgment of the person or persons voting them. A Director of Zenith serves until the next Annual Meeting of Stockholders and until his successor is elected and qualified. The nominees for Director listed below were designated by the Board of Directors of Zenith. The information with respect to each nominee is as supplied or confirmed by such nominee. SERVED AS POSITIONS AND PRINCIPAL OCCUPATIONS AND OTHER PUBLICLY HELD DIRECTOR OFFICES HELD WITH EMPLOYMENT DURING PAST CORPORATIONS IN WHICH NAME AGE SINCE ZENITH FIVE YEARS DIRECTORSHIPS HELD - ---------------------------- --- --------- -------------------- ------------------------------ ------------------------------ George E. Bello 62 May Director of Zenith Executive Vice President Reliance Group Holdings, Inc.; (1) 1984 and Zenith Insurance and Controller of Reliance Horizon Health Corporation; Group Holdings, Inc. for more LandAmerica Financial Group, than the past five years (2) Inc.; United Dental Care, Inc. 5 SERVED AS POSITIONS AND PRINCIPAL OCCUPATIONS AND OTHER PUBLICLY HELD DIRECTOR OFFICES HELD WITH EMPLOYMENT DURING PAST CORPORATIONS IN WHICH NAME AGE SINCE ZENITH FIVE YEARS DIRECTORSHIPS HELD - ---------------------------- --- --------- -------------------- ------------------------------ ------------------------------ Max M. Kampelman 77 February Director of Zenith Attorney, Of Counsel, since None 1989 and Zenith Insurance March 1991, and Partner, January 1989 to March 1991, Fried, Frank, Harris, Shriver & Jacobson; Counselor of the Department of State and Head of the U.S. Delegation to Negotiations on Nuclear and Space Arms with the Soviet Union from January 1985 to January 1989 Jack M. Ostrow 76 September Director of Zenith Attorney and Certified Public None (1) 1977 and Zenith Accountant for more than the Insurance, Chairman past five years of Audit Committee, Member of Performance Bonus Committee William Steele Sessions 67 September Director of Zenith Attorney, Sessions & Sessions, The Kroll-O'Gara Company 1993 and Zenith Insurance L.C. since March 1995; Security Consultant since July 1993; Director, Federal Bureau of Investigation from 1987 to 1993 Harvey L. Silbert 85 January Director of Zenith Attorney, Of Counsel, Loeb & None (1)(3) 1978 and Zenith Loeb LLP since March 1991; Of Insurance, Member of Counsel, Wyman, Bautzer, Performance Bonus Kuchel & Silbert for more than Committee five years prior to March 1991; management of personal investments for more than the past five years Robert M. Steinberg 55 February Director of Zenith President and Chief Operating Reliance Group Holdings, Inc.; (1)(4) 1981 and Zenith Insurance Officer of Reliance Group LandAmerica Financial Group, Holdings, Inc. and Chairman of Inc. the Board and Chief Executive Officer of Reliance Insurance Company for more than the past five years (2) 6 SERVED AS POSITIONS AND PRINCIPAL OCCUPATIONS AND OTHER PUBLICLY HELD DIRECTOR OFFICES HELD WITH EMPLOYMENT DURING PAST CORPORATIONS IN WHICH NAME AGE SINCE ZENITH FIVE YEARS DIRECTORSHIPS HELD - ---------------------------- --- --------- -------------------- ------------------------------ ------------------------------ Saul P. Steinberg 58 February Director of Zenith Chairman of the Board and Reliance Group Holdings, Inc.; (1)(4)(5) 1981 and Zenith Insurance Chief Executive Officer of Symbol Technologies, Inc. Reliance Group Holdings, Inc. for more than the past five years (2) Gerald Tsai, Jr. 69 December Director of Zenith Management of private The Meditrust Companies; 1991 and Zenith investments since January Proffitt's, Inc.; Rite Aid Insurance, Chairman 1989; Chairman, President, and Corporation; Sequa of Performance Bonus Chief Executive Officer of Corporation; Triarc Companies, Committee Delta Life Corporation, Inc.; United Rentals, Inc. February 1993 to October 1997; Chairman and CEO, Primerica Corp., February 1987 to December 1988 Stanley R. Zax 60 July Chairman of the Board and President of Zenith and None (1) 1977 Zenith Insurance for more than the past five years; Chairman of the Board of CalFarm Life Insurance Company for more than five years prior to December 1995; Chairman of the Board and President of CalFarm for more than five years prior to January 1995; and Chairman of the Executive Committee of the Board of Directors of CalFarm since January 1995 (6) - ------------------------------ (1) In connection with the sale in February 1981 of an aggregate of 1,387,375 shares of Common Stock (20.5% of the then outstanding shares) to Reliance Insurance Company by certain selling stockholders, including Messrs. Ostrow, Silbert and Zax, the selling stockholders agreed to use their best efforts to expand the Boards of Directors of Zenith and Zenith Insurance and to cause (so long as Reliance Insurance Company owns at least 10% of Zenith's outstanding Common Stock) the election thereto of three qualified persons designated by Reliance Insurance Company. George E. Bello, Robert M. Steinberg and Saul P. Steinberg have been so designated. (2) Reliance Insurance Company, Reliance Group Holdings, Inc. and Reliance Financial Services Corporation are insurance and insurance holding companies. Based on Reliance Insurance Company's and certain of its subsidiaries' holdings of Common Stock, Reliance Insurance Company, Reliance Group Holdings, Inc., and Reliance Financial Services Corporation may be deemed to be affiliates of Zenith. (3) Mr. Silbert is of counsel to the law firm of Loeb & Loeb LLP, which performed certain legal services for Zenith in 1997. (4) Robert M. Steinberg and Saul P. Steinberg are brothers. (5) On July 30, 1993, Telemundo Group, Inc. ("Telemundo") consented to the entry of an order for relief under Chapter 11 of the United States Bankruptcy Code. On December 30, 1994, Telemundo's Plan of Reorganization was consummated. Saul P. Steinberg previously served as President (February 1990 through February 1991) and Chief Executive Officer (February 1990 through May 1992) of Telemundo. (6) Zenith Insurance and CalFarm are wholly-owned subsidiaries of Zenith, as was CalFarm Life Insurance Company until its sale by Zenith in December 1995. 7 The Board of Directors communicated frequently during the year ended December 31, 1997, held five formal meetings, and also took action by unanimous written consent. Zenith's Board of Directors has a standing Audit Committee and a Performance Bonus Committee but has no nominating committee or any committee performing similar functions. The sole member and Chairman of the Audit Committee is currently Mr. Ostrow. The functions of the Audit Committee are to recommend to the Board of Directors retention or change of Zenith's independent auditors; to consider the range of audit and non-audit fees; to review the independence of the auditors; to meet with them and Zenith's internal audit personnel to discuss and review the results of their respective examinations and audit plans for the ensuing year; to review the adequacy of Zenith's system of internal accounting controls and like matters. The Audit Committee is also authorized to review and discuss other matters as it deems appropriate. During 1997, the Audit Committee communicated frequently with Zenith's financial and accounting and internal audit department personnel and independent auditors, including at five formal meetings. The Performance Bonus Committee, consisting of Messrs. Ostrow, Silbert, and Tsai (Chairman), is responsible for performance-based compensation plans for Executive Officers, namely, the Executive Officer Bonus Plan and the 1996 Employee Stock Option Plan as it relates to grants thereunder to Executive Officers. The Board of Directors retains responsibility for all other compensation matters. The Performance Bonus Committee held two formal meetings in 1997, but communicated frequently. Each Director, except Robert M. Steinberg, attended at least 75% of the aggregate of all meetings of the Board of Directors and of any committees thereof on which such Director served. DIRECTORS' COMPENSATION Zenith pays each Director (other than Mr. Zax, who receives no additional compensation therefor) a fee of $50,000 per annum for serving as a member of the Board of Directors. Mr. Ostrow also receives a fee of $25,000 per annum for serving as the Chairman and sole member of Zenith's Audit Committee. EXECUTIVE COMPENSATION The following table sets forth information regarding the compensation paid during the 1995, 1996, and 1997 fiscal years to Zenith's Chief Executive Officer and its four other most highly compensated Executive Officers serving as of December 31, 1997 (the "Named Executive Officers"). 8 SUMMARY COMPENSATION TABLE LONG TERM COMPENSATION -------------- AWARDS ANNUAL COMPENSATION -------------- --------------------------------------------- SECURITIES OTHER ANNUAL UNDERLYING ALL OTHER COMPENSATION OPTIONS/ COMPENSATION NAME AND PRINCIPAL POSITION YEAR SALARY ($) BONUS ($)(1) ($) SARS (#) ($)(4) - ---------------------------------------- ---- ---------- ------------ ---------------- -------------- ------------ STANLEY R. ZAX 1997 $1,025,248 $ 0 $ 0 0 $36,966 Chairman of the Board and 1996 1,027,320 1,000,000 (2) 0 1,000,000 31,926 President of Zenith and 1995 1,027,320 1,000,000 0 0 31,926 Zenith Insurance, Chairman of the Executive Committee of the Board of Directors of CalFarm FREDRICKA TAUBITZ 1997 $ 391,600 $ 0 $ 0 25,000 $ 8,926 Executive Vice President and 1996 391,600 200,000 0 0 8,926 Chief Financial Officer of Zenith 1995 380,000 125,000 0 20,000 8,840 and Zenith Insurance, Senior Vice President of CalFarm KEITH E. TROTMAN 1997 $ 340,100 $ 200,000 $ 0 0 $10,366 Senior Vice President of Zenith 1996 340,100 200,000 0 10,000 7,846 Insurance and CalFarm 1995 330,600 200,000 0 20,000 7,777 JAMES P. ROSS 1997 $ 283,717 $ 0 $ 15,588(3) 0 $10,343 Senior Vice President of 1996 283,717 100,000 0 0 7,971 Zenith, Zenith Insurance and 1995 263,717 250,000 8,400(3) 50,000 8,597 CalFarm JOHN J. TICKNER 1997 $ 252,939 $ 0 $ 0 25,000 $20,991 Senior Vice President and 1996 253,704 100,000 0 10,000 20,991 Secretary of Zenith, Senior Vice 1995 245,371 75,000 0 15,000 20,905 President, General Counsel and Secretary of Zenith Insurance and CalFarm - ------------------------------ (1) All amounts shown were determined and paid under Zenith's Executive Officer Bonus Plan except for Mr. Trotman's 1997 bonus, which was discretionary. (2) Although Mr. Zax was paid a bonus of $1,000,000 for his services in Fiscal Year 1996, this amount did not appear in the Summary Compensation Table contained in the Proxy Statement for Zenith's 1997 Annual Stockholders' Meeting held May 15, 1997 because this bonus was not determined and paid under the Executive Officer Bonus Plan until late in 1997. See "Board of Directors' Report on Executive Compensation; Performance Bonus Committee Report on Performance Based Compensation Plans for Executive Officers." (3) Amount shown for 1997 represents reimbursement of certain income tax liabilities; amount shown for 1995 reflects Zenith's matching contribution under its Employee Stock Purchase Plan. (4) The following amounts are included in the above table: (a) Zenith's matching contributions made in Fiscal Year 1997 to The Zenith 401(k) Plan, as follows: Stanley R. Zax, none; Fredricka Taubitz, $3,166; Keith E. Trotman, $3,166; James P. Ross, none; and John J. Tickner, $3,166; (b) the dollar value of insurance premiums paid in Fiscal Year 1997 by, or on behalf of, Zenith with respect to term life insurance for the benefit of the Named Executive Officer, as follows: Stanley R. Zax, $14,040; Fredricka Taubitz, $5,760; Keith E. Trotman, $7,200; James P. Ross, $2,940; and John J. Tickner, $4,500; and (c) the dollar value of the benefit to the Named Executive Officer of premiums paid by, or on behalf of, Zenith during Fiscal Year 1997, with respect to certain split dollar life insurance policies, as follows: Stanley R. Zax, $22,926; Fredricka Taubitz, none; Keith E. Trotman, none; James P. Ross, $7,403; and John J. Tickner, $13,325. 9 OPTION/SAR GRANTS IN LAST FISCAL YEAR INDIVIDUAL GRANTS POTENTIAL REALIZABLE --------------------------------------------------------- VALUE AT ASSUMED NUMBER OF % OF TOTAL ANNUAL RATES OF SECURITIES OPTIONS/SARS STOCK PRICE APPRECIATION UNDERLYING GRANTED TO EXERCISE OR FOR OPTION TERM (4) OPTIONS/SARS EMPLOYEES IN BASE PRICE EXPIRATION ------------------------ NAME GRANTED (#) (1) FISCAL YEAR ($/SH) (2) DATE (3) 5% ($) 10% ($) - ------------------------- --------------- ------------ ----------- ---------- ----------- ----------- Stanley R. Zax -- -- -- -- -- -- Fredricka Taubitz 25,000 4.2% $ 26.34375 12/10/02 $ 181,957 $ 402,078 Keith E. Trotman -- -- -- -- -- -- James P. Ross -- -- -- -- -- -- John J. Tickner 25,000 4.2% $ 26.34375 12/10/02 $ 181,957 $ 402,078 - ------------------------ (1) Options granted in 1997 are not exercisable during the first year following the date of grant. Each option becomes exercisable as to 25% of the total number of underlying shares in the second year following the date of grant and as to an additional 25% in each of the next three years. (2) All options were granted with an option price equal to the market price of the Common Stock on the date of grant (based on the average of the high and low prices on the New York Stock Exchange for such date). (3) The options granted in 1997 expire on the earlier to occur of (a) five years from the date of grant, (b) in the event of termination of the optionee's employment, three months from the date of such termination, or (c) in the event of the optionee's death, one year from the date thereof and, following termination of employment or death, may be exercised only to the extent they were exercisable on the date of the optionee's termination of employment or death. (4) The potential gains shown are net of the option exercise price and do not include the effect of any taxes associated with exercise. The amounts shown are for the assumed rates of appreciation only, do not constitute projections of future stock price performance, and may not necessarily be realized. Actual gains, if any, on stock option exercises depend on the future performance of the Common Stock, continued employment of the optionee through the term of the option, and other factors. AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR END OPTION/SAR VALUES VALUE OF UNEXERCISED NUMBER OF SECURITIES IN-THE-MONEY UNDERLYING UNEXERCISED OPTIONS/SARS AT FY-END SHARES OPTIONS/SARS AT FY-END (#) ($)(1) ACQUIRED ON VALUE --------------------------- --------------------------- NAME EXERCISE (#) REALIZED ($) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE - ------------------------------ ------------ ------------ ----------- ------------- ----------- ------------- Stanley R. Zax -- -- 200,000 800,000 $425,000 $1,700,000 Fredricka Taubitz 20,000 $197,807 35,000 35,000 $121,562 $ 41,875 Keith E. Trotman -- -- 37,500 17,500 $121,562 $ 41,875 James P. Ross 5,000 $ 52,737 50,000 25,000 $184,374 $ 104,687 John J. Tickner -- -- 20,000 40,000 $ 63,281 $ 31,406 - ------------------------ (1) Based on the $25.75 closing price of the Common Stock on the New York Stock Exchange on December 31, 1997. 10 EMPLOYMENT AGREEMENTS AND TERMINATION OF EMPLOYMENT AND CHANGE IN CONTROL ARRANGEMENTS Effective December 11, 1997, Zenith entered into an amended and restated employment agreement with Mr. Zax, which extends the expiration date of his employment agreement from December 31, 1998 to December 31, 2002. The amended and restated employment agreement provides for an annual base compensation plus an annual bonus to be determined under Zenith's Executive Officer Bonus Plan. Under the agreement, Mr. Zax's base compensation is continued at $1,000,000, subject to such increases as the Board of Directors may determine from time to time. Upon Mr. Zax's death, Zenith will continue to pay either his wife, children or estate his base compensation and annual bonus for a period of twelve months. If Mr. Zax's employment is terminated for disability, he will receive his base compensation and annual bonus for a period of six months. If Mr. Zax's employment is terminated for breach by him of his employment agreement, he will receive his base compensation through the end of the month in which the termination occurs. If his employment is terminated for any reason other than for breach of his employment agreement, death, or disability, Zenith will pay Mr. Zax his base compensation and annual bonus through the term of his employment agreement. Upon a Change in Control (as defined in the employment agreement) of Zenith, all stock options and stock appreciation rights granted to Mr. Zax, to the extent not exercisable at such time, become immediately exercisable. In addition, if Mr. Zax's employment is terminated subsequent to any Change in Control either by Mr. Zax within 180 days of the Change in Control or by Zenith for any reason other than disability or breach of his employment agreement, Mr. Zax is entitled to receive Severance Payments (as defined below). Effective December 11, 1997, Zenith entered into an amended and restated employment agreement with Ms. Taubitz, which extends the expiration date of her employment agreement from October 1, 1998 to December 31, 2002. The amended and restated employment agreement provides for an annual base compensation plus an annual bonus to be determined under Zenith's Executive Officer Bonus Plan and certain additional benefits. The base compensation is currently $391,000, subject to such increases as the Board of Directors may determine from time to time. Effective January 5, 1998, Zenith entered into an amended and restated employment agreement with Mr. Tickner, which extends the expiration date of his employment agreement from October 1, 1998 to March 1, 2001. The amended and restated employment agreement provides for an annual base compensation plus an annual bonus to be determined under Zenith's Executive Officer Bonus Plan and certain additional benefits. The base compensation is currently $265,000, subject to such increases as the Board of Directors may determine from time to time. Zenith's employment agreements with Ms. Taubitz and Mr. Tickner provide that if her or his employment is terminated by Zenith other than for cause or disability, the executive is entitled to Severance Payments. In addition, each of Ms. Taubitz and Mr. Tickner may terminate her or his employment with Zenith and receive Severance Payments should (a) Mr. Zax cease, for any reason other than death or disability, to be the full-time Chairman of the Board and President of Zenith, (b) she or he be prohibited or restricted in the performance of her or his duties, (c) any payment due her or him under her or his agreement remain unpaid for more than 60 days, or (d) she or he give written notice to Zenith of termination of her or his employment agreement within 180 days following a Change in Control (as defined in the employment agreements) of Zenith. 11 For purposes of the foregoing, "Severance Payments" include the following benefits: (1) in the case of Mr. Tickner, all salary payments that would have been payable to him for the greater of (a) the remaining term of the employment agreement or (b) one year, plus a pro rata portion of any bonus that would have been payable to him with respect to the year of termination; (2) in the case of Mr. Zax and Ms. Taubitz, a cash lump sum payment equal to the greater of (a) twice the sum of the executive's then current base compensation and the highest annual bonus paid or payable during the three consecutive years immediately preceding termination of employment or (b) the actuarial equivalent of the base compensation and annual bonuses that would have been payable to the executive under the remaining term of the employment agreement; (3) continuation of life, disability, dental, accident and group health insurance benefits, plus an additional amount necessary to reimburse the executive for any taxes attributable solely to the executive's receipt of such benefits; (4) in the case of Ms. Taubitz and Mr. Tickner, vesting of all stock option and similar rights; and (5) an additional payment, if necessary, to assure that none of the above benefits are subject to net reduction due to the imposition of excise taxes under section 4999 of the Internal Revenue Code of 1986, as amended. COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION In 1997, all decisions on Executive Officer compensation, other than decisions related to performance-based compensation plans, were made by the Board of Directors. Mr. Zax, Chairman of the Board and President, is a member of the Board of Directors, and except with respect to his own compensation, participated in the Board of Directors' deliberations concerning Executive Officer compensation. The Performance Bonus Committee, consisting of Messrs. Ostrow, Silbert, and Tsai, determines matters relating to performance-based compensation plans for Executive Officers. Mr. Silbert is of counsel to the law firm of Loeb & Loeb LLP, which performed certain legal services for Zenith in 1997. BOARD OF DIRECTORS' REPORT ON EXECUTIVE COMPENSATION; PERFORMANCE BONUS COMMITTEE REPORT ON PERFORMANCE BASED COMPENSATION PLANS FOR EXECUTIVE OFFICERS Zenith's entire Board of Directors made determinations with respect to compensation of Executive Officers in 1997, except with respect to Mr. Zax's compensation, which is established in Board of Directors' actions from which Mr. Zax excuses himself and in which he does not participate, and except with respect to matters related to performance-based compensation plans for Executive Officers. The Performance Bonus Committee made determinations under performance-based compensation plans for Executive Officers. The Board of Directors' report on Executive Compensation and the Performance Bonus Committee's report on its determinations shall not be deemed to be incorporated by reference through any general statement incorporating by reference this proxy statement into any filings under the Securities Act of 1933 or under the Securities Exchange Act of 1934 and shall not otherwise be deemed to be filed under such Acts. The Board of Directors' report on Executive Compensation follows: EXECUTIVE OFFICERS The level of compensation for Executive Officers of Zenith is intended to be competitive (that is, "attractive") and to provide appropriate incentives. Executive Officers of Zenith are generally compensated through salary, grants of stock options, and bonuses under the Executive Officer Bonus Plan. 12 The Executive Officer Bonus Plan, approved by the stockholders of Zenith at the 1994 Annual Meeting, is administered by the Performance Bonus Committee. The Performance Bonus Committee also grants stock options to Executive Officers under Zenith's 1996 Employee Stock Option Plan. The report of the Performance Bonus Committee follows this report. The level of an Executive Officer's base compensation is generally based on a combination of (1) the performance of Zenith, (2) the performance of the insurance subsidiary, if any, to which the Executive Officer is principally assigned, and (3) a subjective and qualitative evaluation of the personal contribution made by the Executive Officer to Zenith. Success in these areas does not translate mechanically into compensation levels; the manner in which these factors are taken into account is discretionary with the Board of Directors and is not based on any formulaic weighting. The performance of Zenith is generally measured by the combined ratio of its property and casualty insurance operations and by its overall profitability. Zenith strives for and has achieved long term average combined ratios that are about 100%. Zenith also strives for combined ratios that compare favorably in both the short- and long-term with insurers primarily engaged in writing workers' compensation insurance. In addition, Zenith endeavors to have loss ratios that are among the lowest for the industry in any rolling previous five year period. The performance of the Zenith insurance subsidiaries is generally measured by their combined ratios and profitability, as applicable. With respect to the subjective and qualitative evaluation of an Executive Officer's personal contribution to the business of Zenith, a variety of factors are taken into account. These factors vary and include, but are not limited to, the manner in which the Executive Officer favorably affects Zenith's combined ratio and profitability. Equally, if not more, important is the manner in which the Executive Officer performs in Zenith's environment, which fosters an entrepreneurial spirit, teamwork, and a commitment to education. Zenith believes an entrepreneurial spirit maximizes profits, promotes sound execution of good business fundamentals, and maintains a pool of executive talent. Teamwork is crucial to the effective and efficient implementation of Zenith's goals. A commitment to education means a dedication to lifelong learning and training for oneself and creating conditions so that the workforce is similarly dedicated. Such dedication is critical to Zenith's ability to address changes in market conditions and use such changes to its competitive advantage. In such an environment, proactive and innovative approaches are strongly encouraged and rewarded. On the operational side, activities that demonstrate an opportunistic outlook, anticipation of changing business conditions and the development of postures to take advantage of opportunities to increase short-and long-term profits are rewarded. On the administrative side, efficiency, competence, strong compliance efforts, anticipation and avoidance of problems, as well as innovation, are rewarded. Certain of the Executive Officers are employed under employment agreements that provide for minimum base compensation and annual bonuses. Determinations as to salary increases for these Executive Officers, as well as those without employment agreements, are discretionary and are not made on the basis of a formulaic weighting of the factors described above. Bonuses are generally determined for Executive Officers in accordance with the Executive Officer Bonus Plan. However, the Board of Directors determined that a discretionary bonus should be paid to Mr. Trotman for Fiscal Year 1997 outside of the Executive Officer Bonus Plan because of the performance of Zenith's investment portfolio. Mr. Trotman's primary responsibility is to oversee Zenith's investment portfolio. 13 In 1997, the combined ratio of Zenith's property and casualty operations was above the combined ratio for the industry as a whole. Given this performance and taking into account the subjective and qualitative evaluations of individual Executive Officers, the level of each Executive Officer's base compensation was set accordingly. Please see the separate report of the Performance Bonus Committee for a discussion regarding the determination of annual bonuses for Executive Officers for 1997 and for a discussion of stock options granted to Executive Officers in 1997. STANLEY R. ZAX, CHIEF EXECUTIVE OFFICER Mr. Zax is never present when the Board of Directors deliberates with respect to his compensation and, accordingly, does not participate in Board of Directors' decisions on his own compensation. Mr. Zax's base salary for 1997 was specified in his four year amended and restated employment agreement executed in 1994. Under the employment agreement, increases in base compensation are at the discretion of the Board of Directors and are not based on a formulaic weighting of factors. In determining whether to grant any salary increase, the same performance criteria that are applied to Executive Officers in general are applied to Mr. Zax. In 1997, the Board of Directors extended Mr. Zax's employment agreement under the same terms and conditions to December 31, 2002. Also, as with Executive Officers generally, bonuses to Mr. Zax are determined in accordance with the Executive Officer Bonus Plan. Taking the objective and subjective criteria described above into account, the Board of Directors was generally satisfied with Mr. Zax's initiative and leadership during 1997. However, the Board of Directors is concerned, as is Mr. Zax, with certain aspects of Zenith's operations that have led to unsatisfactory results. The Board of Directors concurs in Mr. Zax's appraisal of steps that must be taken to address these issues and believes Mr. Zax's base compensation should continue at its present level, with incentives and rewards to be earned under the Executive Officer Bonus Plan. SECTION 162(m) POLICY Section 162(m) of the Internal Revenue Code of 1986, as amended, generally limits the Federal income tax deduction that a public corporation may claim for annual compensation paid to certain executive officers. The limitation with respect to each affected Executive Officer is $1,000,000 per year. However, the limitation does not apply to compensation which is performance-based, earned under a plan approved by the corporation's stockholders and which satisfies certain other conditions set forth in Section 162(m) and the regulations thereunder. Stock option grants awarded to Executive Officers under Zenith's 1996 Employee Stock Option Plan and bonuses payable under the Executive Officer Bonus Plan are intended to comply with Section 162(m). Accordingly, neither income accruing to Executive Officers upon exercise of stock options nor the amount of any bonus payment made to Executive Officers under the Executive Officer Bonus Plan should be subject to the $1,000,000 limit on deductibility. The Board of Directors has determined that it will pay Mr. Zax's annual salary even though any portion in excess of $1,000,000 would not be deductible by Zenith. Stanley R. Zax, Chairman of the Board George E. Bello Harvey L. Silbert Max M. Kampelman Robert M. Steinberg Jack M. Ostrow Saul P. Steinberg William Steele Sessions Gerald Tsai, Jr. 14 The Performance Bonus Committee's report of its determinations of performance-based compensation for Executive Officers follows: The Performance Bonus Committee is responsible for administering the Executive Officer Bonus Plan and for granting stock options to Executive Officers under the 1996 Employee Stock Option Plan. In so doing, the Performance Bonus Committee implements and reinforces the compensation philosophy of the Board of Directors, as set out in the Board of Directors' Report on Executive Compensation. EXECUTIVE OFFICER BONUS PLAN The Executive Officer Bonus Plan was approved by the stockholders at the 1994 Annual Meeting as a performance-based compensation plan. It provides for bonuses to Executive Officers based upon attainment by Zenith in any fiscal year of an objectively measured performance goal, namely a combined ratio that is below the industry's combined ratio. The Executive Officer Bonus Plan provides for bonuses to Executive Officers up to an amount equal to: 100% of his or her salary at the beginning of the fiscal year if the Company Combined Ratio for such fiscal year is at least three percentage points, but less than five percentage points, below the Industry Combined Ratio or 150% of his or her salary at the beginning of the fiscal year if the Company Combined Ratio for such fiscal year is at least five percentage points below the Industry Combined Ratio; provided, however, in either instance, the Performance Bonus Committee may, in its sole discretion, on a case by case basis, reduce such bonus by any amount. In 1997, Zenith's combined ratio was 103.4%; the industry's 1997 combined ratio, as estimated and reported by A.M. Best Company, was 101.8%. Accordingly, the objective performance goal under the Executive Officer Bonus Plan was not met and no bonuses thereunder are payable to Executive Officers with respect to Fiscal Year 1997. STANLEY R. ZAX, CHIEF EXECUTIVE OFFICER PAYMENT OF FISCAL YEAR 1996 BONUS As previously reported in the Performance Bonus Committee's report for Fiscal Year 1996, the objective performance goal under the Executive Officer Bonus Plan had been met for Fiscal Year 1996 and each Executive Officer could have received a maximum bonus equal to 150% of his or her salary in effect as of January 1, 1996. Based on subjective and qualitative evaluations, bonuses for Fiscal Year 1996 were paid to all Executive Officers, with the exception of Mr. Zax. With respect to Mr. Zax, the Performance Bonus Committee had arrived at an amount to be awarded him. However, Mr. Zax informed the Performance Bonus Committee that he would not accept any bonus. The Performance Bonus Committee took Mr. Zax's position into account, reconsidered its determination and decided he would receive no bonus at that time. However, the Performance Bonus Committee did retain the discretion to pay, at a future date, all or any portion of the maximum bonus Mr. Zax could have received with respect to Fiscal Year 1996, based on his performance. In December 1997, the Performance Bonus Committee conducted a subjective and qualitative evaluation of the personal contributions of Mr. Zax, focusing on the same factors as had been set out in the Board of Directors' report on Executive Compensation for Fiscal Year 1996. The Performance Bonus Committee took particular note of Mr. Zax's efforts in managing the performance of the investment portfolio; actively seeking new opportunities, through acquisitions or otherwise, to meet or anticipate 15 changing business conditions; reorganizing Zenith's California workers' compensation operations for greater efficiency; and assembling and organizing a team of senior executives to effect cultural and operational changes. Based on such evaluation, the Performance Bonus Committee exercised its discretion and determined that Mr. Zax would receive with respect to Fiscal Year 1996 a bonus equal to 100% of his annual salary in effect as of the beginning of such year ($1,000,000). STOCK OPTION GRANTS EXECUTIVE OFFICERS From time to time the Performance Bonus Committee grants options to Executive Officers to purchase Common Stock. Options are considered a part of compensation to recognize an Executive Officer's contribution and to reinforce that Executive Officer's long term commitment to the success of Zenith. The Performance Bonus Committee's determination to grant options to an Executive Officer is based on the recommendation of the Chairman of the Board, subjective measures and prior grants to that Executive Officer. Beyond these general considerations, there is no particular formula governing the number of shares awarded. In 1997, the following Named Executive Officers were granted options to purchase Common Stock under the 1996 Employee Stock Option Plan, in the amounts set forth below: Fredricka Taubitz.................................... 25,000 shares John J. Tickner...................................... 25,000 shares Gerald Tsai, Jr., Chairman Jack M. Ostrow Harvey L. Silbert 16 STOCK PRICE PERFORMANCE GRAPH The Stock Price Performance Graph below compares the cumulative total returns of the Common Stock, the Standard and Poor's 500 Stock Index ("S&P 500") and the Standard and Poor's 500 Property-Casualty Insurance Index ("S&P PC") for a five year period. Stock price performance is based on historical results and is not necessarily indicative of future stock price performance. The following graph assumes $100 was invested at the close of trading on the last trading day preceding the first day of the fifth preceding fiscal year in the Common Stock, the S&P 500, and the S&P PC. The calculation of cumulative total return assumes reinvestment of dividends. The graph was prepared by Standard and Poor's Compustat, which obtained factual materials from sources believed by it to be reliable, but which disclaims responsibility for any errors or omissions contained in such data. The Stock Price Performance Graph shall not be deemed incorporated by reference through any general statement incorporating by reference this proxy statement into any filings under the Securities Act of 1933 or under the Securities Exchange Act of 1934 and shall not otherwise be deemed to be filed under such Acts. COMPARATIVE FIVE-YEAR TOTAL RETURNS ZENITH, S&P 500 AND S&P PC (PERFORMANCE RESULTS THROUGH 12/31/97) EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC ZNT S&P 500 S&P PC 1992 $100.00 $100.00 $100.00 1993 $117.81 $110.08 $98.23 1994 $125.04 $111.53 $103.04 1995 $122.98 $153.45 $139.51 1996 $163.69 $188.68 $169.52 1997 $159.79 $251.63 $246.60 17 INFORMATION RELATING TO INDEPENDENT AUDITORS Zenith's independent auditor for fiscal year 1997 was Coopers & Lybrand L.L.P. and, upon the recommendation of the Audit Committee, the Board of Directors of Zenith has selected Coopers & Lybrand L.L.P. as Zenith's independent auditor for fiscal year 1998. Representatives of Coopers & Lybrand L.L.P. are expected to be present at the Annual Meeting and will have an opportunity to respond to appropriate questions and to make a statement if they desire to do so. For information concerning Zenith's Audit Committee, see "Election of Directors" above. STOCKHOLDER PROPOSALS AT THE NEXT ANNUAL MEETING OF STOCKHOLDERS Stockholders of Zenith who intend to submit proposals to Zenith's stockholders at the next Annual Meeting of Stockholders to be held in 1999 must submit such proposals to Zenith no later than December 1, 1998 in order for them to be included in Zenith's proxy materials for such meeting. Stockholder proposals should be submitted to Zenith National Insurance Corp., 21255 Califa Street, Woodland Hills, California 91367, Attention: Secretary. By Order of the Board of Directors JOHN J. TICKNER SECRETARY Dated: March 24, 1998 18 d [LOGO] PROXY This Proxy is Solicited by the Board of Directors of Zenith National Insurance Corp. for the Annual Meeting of Stockholders, May 20, 1998 The undersigned stockholder hereby appoints Jack M. Ostrow, Harvey L. Silbert, and Stanley R. Zax and each or any of them (each with full power of substitution), proxies for the undersigned to vote all shares of Common Stock of Zenith National Insurance Corp. ("Zenith") owned by the undersigned at the Annual Meeting of Stockholders to be held on Wednesday, May 20, 1998, at 9:00 a.m., at the offices of Zenith, 21255 Califa Street, Woodland Hills, California, and at any adjournments thereof, in connection with the matters set forth in the Notice of Annual Meeting and Proxy Statement dated March 24, 1998 ("the Statement"), copies of which have been received by the undersigned. THIS PROXY WHEN PROPERLY EXECUTED WILL BE VOTED IN ACCORDANCE WITH THE INSTRUCTIONS OF THE STOCKHOLDER, BUT IF NO INSTRUCTIONS ARE GIVEN THIS PROXY WILL BE VOTED FOR ELECTION OF DIRECTORS AS PROVIDED BY ZENITH'S PROXY STATEMENT AND IN ACCORDANCE WITH THE DISCRETION OF THE PROXIES ON SUCH OTHER MATTERS AS MAY PROPERLY COME BEFORE THE MEETING. IN THE EVENT OF CUMULATIVE VOTING IN THE ELECTION OF DIRECTORS, THE PROXIES MAY DISTRIBUTE THE VOTES REPRESENTED BY THIS PROXY AMONG THE NOMINEES IN SUCH PROPORTION AS THEY SEE FIT. (Continued and to be marked, signed and dated on other side) - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - FOLD AND DETACH HERE Please mark /X/ your votes as indicated in this example FOR all nominees listed WITHHOLD AUTHORITY to vote below (except as marked for all nominees listed below to the contrary below) 1. Election of Directors: / / / / George E. Bello, Max M. Kampelman, Jack M. Ostrow, William Steele Sessions, Harvey L. Silbert, Robert M. Steinberg, Saul P. Steinberg, Gerald Tsai, Jr. and Stanley R. Zax. (INSTRUCTION: To withhold authority for any individual nominee write that nominee's name in the space provided below.) - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - 2. In their discretion, upon such other matters as may properly come before the meeting. Dated: ________________________,1998 Signature _________________________________ Signature _________________________________ Note Please sign EXACTLY as your name appears herein. When signing as attorney, executor, administrator, trustee or guardian, please give your full title as such. If executed by a corporation, an authorized officer should sign, and the corporate seal should be affixed. A proxy for shares held in joint ownership should be signed by each joint owner. Please mark, sign and date this Proxy and return it promptly in the accompanying envelope, which requires no postage if mailed in the United States. - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - FOLD AND DETACH HERE