Zenith Announces Second Quarter Results

WOODLAND HILLS, Calif.--(Business Wire)--
Zenith National Insurance Corp. (NYSE: ZNT) reported net income
for the second quarter 2008 of $28.4 million, or $0.76 per share,
compared to net income for the second quarter 2007 of $65.3 million,
or $1.75 per share. Net income for the six months ended June 30, 2008
was $70.3 million, or $1.88 per share, compared to net income for the
six months ended June 30, 2007 of $129.8 million, or $3.48 per share.

Net income in the three months ended June 30, 2008 includes net
realized losses on investments after tax of $1.5 million, or $0.04 per
share, compared to net realized gains on investments after tax of
$3.4 million, or $0.09 per share, in the corresponding period of 2007.
Net income in the six months ended June 30, 2008 includes net realized
gains on investments after tax of $1.4 million, or $0.04 per share,
compared to $7.3 million, or $0.19 per share, in the corresponding
period of 2007.

Underwriting income before tax from the workers' compensation
segment was $26.5 million and $66.5 million in the three and six
months ended June 30, 2008, respectively, compared to $71.5 million
and $132.8 million in the corresponding periods of 2007.

Workers' compensation calendar year combined ratios, along with a
reconciliation to the accident year combined ratios, were as follows:

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Three Months Ended Six Months Ended
June 30, June 30,
------------------ ----------------
2008 2007 2008 2007
------------------ ----------------
Calendar Year Combined Ratio (1) 82.8% 61.7% 78.7% 65.1%
Prior Accident Year Items:
Favorable loss reserve
development 9.7 23.6 12.2 20.6
Increase in policyholders'
dividends (1.6) (1.6)
------------------ ----------------
Accident Year Combined Ratio (1) 90.9% 85.3% 89.3% 85.7%
----------------------------------------------------------------------
(1) See Supplemental Financial Information for a description of
"Combined Ratio."

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For 2008, pre-tax favorable workers' compensation loss reserve
development on prior accident years was $15.0 million in the second
quarter compared to $23.2 million in the first quarter. For 2007,
pre-tax favorable workers' compensation loss reserve development on
prior accident years was $34.2 million, $44.0 million, $24.9 million
and $10.3 million in the first, second, third and fourth quarters,
respectively.

Total workers' compensation net premiums earned decreased 17.8% in
the six months ended June 30, 2008 compared to the corresponding
period of 2007, with California workers' compensation net premiums
earned decreasing 20.4% for the comparable period. These decreases
reflect both the reduction in premium rates due to favorable loss cost
trends from the California and Florida legislative reforms, as well as
the impact of competition. Insured payroll, our best indicator of
exposure, decreased 3.0% for California as of June 30, 2008 compared
to December 31, 2007 and decreased 2.1% outside California. For the
twelve months ended December 31, 2007, insured payroll decreased 14.5%
in California and increased 1.1% outside California.

Consolidated stockholders' equity per share was $29.22, $29.58 and
$28.93 at June 30, 2008, March 31, 2008 and December 31, 2007,
respectively. Return on average equity in the six months ended June
30, 2008 was 13.4% compared to 25.9% in the corresponding period of
2007 and 22.9% in the year ended December 31, 2007.

Commenting on the results, Stanley R. Zax, Chairman and President,
said: "Our underwriting income for the second quarter declined
compared to the second quarter last year due to lower premiums and
lower favorable loss reserve development as the loss trends for prior
accident years continue to be stable. The combined ratio of 78.7% for
the six months is higher by 13.6 percentage points from the comparable
period of 2007, but is at excellent levels in historical context. New
benefit schedules in California, which are expected to be effective
for injuries occurring after January 1, 2009, will most likely require
rate increases of about 5%."

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, likely 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) payroll levels of our
customers; (3) weakening economy; (4) adverse state and federal
legislation and regulation; (5) changes in interest rates causing
fluctuations of investment income and fair values of investments;
(6) changes in the frequency and severity of claims and catastrophes;
(7) adequacy of loss reserves; (8) changing environment for
controlling medical, legal and rehabilitation costs, as well as fraud
and abuse; (9) losses associated with any terrorist attacks that
impact our workers' compensation business in excess of our reinsurance
protection; (10) losses caused by nuclear, biological, chemical or
radiological events whether or not there is any applicable reinsurance
protection; and (11) other risks detailed herein and from time to time
in Zenith's reports and filings with the Securities and Exchange
Commission.

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ZENITH NATIONAL INSURANCE CORP.
Selected Financial Data (Unaudited)

Three Months Ended Six Months Ended
June 30, June 30,
-------------------- ---------------------
(In thousands, except per
share data) 2008 2007 2008 2007
-------- --------- --------- ---------

TOTAL REVENUES $174,367 $ 219,097 $ 361,120 $ 454,623

SELECTED INCOME DATA:
Net Investment Income after
Tax (1) $ 15,208 $ 18,246 $ 30,840 $ 41,896
Net Realized (Losses) Gains
on Investments after Tax
(2) (1,494) 3,380 1,422 7,253
-------- --------- --------- ---------
Income from Investments
Segment after Tax 13,714 21,626 32,262 49,149

Net Income $ 28,400 $ 65,300 $ 70,300 $ 129,800

NET INCOME PER COMMON SHARE
(1) (2):
Basic $ 0.76 $ 1.76 $ 1.89 $ 3.50
Diluted 0.76 1.75 1.88 3.48

CASH DIVIDENDS DECLARED PER
COMMON SHARE $ 0.50 $ 0.42 $ 1.00 $ 0.84

STOCKHOLDERS' EQUITY (as of
June 30, 2008 and 2007):
Stockholders' Equity $1,088,215 $1,024,490
Stockholders' Equity per
Common Share (3) 29.22 27.65

NUMBER OF COMMON SHARES:
Outstanding (as of June
30, 2008 and 2007) 37,239 37,056
Weighted Average for the
Period - Basic 37,211 37,050 37,161 37,042
Weighted Average for the
Period - Diluted 37,397 37,278 37,369 37,260

(1) Net investment income after tax for the six months ended June 30,
2007 includes a $4.9 million, or $0.13 per share, cash dividend
received from a common stock investment.

(2) Net realized losses on investments after tax were $0.04 per share
in the three months ended June 30, 2008 compared to net realized
gains on investments after tax of $0.09 per share in the
corresponding period of 2007. Net realized gains on investments after
tax were $0.04 per share in the six months ended June 30, 2008
compared to $0.19 per share in the corresponding period of 2007. Net
realized (losses) gains on investments after tax in both the three
and six months ended June 30, 2008 include write-downs after tax of
$5.6 million, or $0.15 per share, on two securities because we
determined that the decline in fair values were other-than-temporary
in the second quarter 2008 due to the amount and length of time for
which the fair values were below cost. There were no write-downs in
2007.

(3) Stockholders' equity at June 30, 2008 includes unrealized losses
in our investment portfolio, net of deferred tax (SFAS 115), of $0.28
per share compared to unrealized gains of $0.34 per share and $0.33
per share at March 31, 2008 and December 31, 2007, respectively.

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ZENITH NATIONAL INSURANCE CORP.
Selected Financial Data (Unaudited)

Three Months Ended Six Months Ended
June 30, June 30,
------------------- -------------------
(In thousands) 2008 2007 2008 2007
-------- -------- -------- --------

TOTAL REVENUES:
Net Premiums Earned $154,368 $186,345 $313,400 $380,427
Net Investment Income (1) 22,297 27,551 45,532 63,037
Net Realized (Losses) Gains on
Investments (2) (2,298) 5,201 2,188 11,159
-------- -------- -------- --------
$174,367 $219,097 $361,120 $454,623
======== ======== ======== ========
RESULTS OF OPERATIONS BY
SEGMENT (3):
Investments Segment:
Net Investment Income (1) $ 22,297 $ 27,551 $ 45,532 $ 63,037
Net Realized (Losses) Gains
on Investments (2) (2,298) 5,201 2,188 11,159
-------- -------- -------- --------
19,999 32,752 47,720 74,196
Workers' Compensation Segment
(4) 26,491 71,456 66,499 132,839
Reinsurance Segment (4) (6) (210) (13) (360)
Parent (5) (2,864) (2,586) (6,059) (5,641)
-------- -------- -------- --------

Income before Tax 43,620 101,412 108,147 201,034
Income Tax Expense 15,220 36,112 37,847 71,234
-------- -------- -------- --------

NET INCOME $ 28,400 $ 65,300 $ 70,300 $129,800
======== ======== ======== ========

(1) Net investment income before tax for the six months ended June 30,
2007 includes a $7.3 million cash dividend received from a common
stock investment.

(2) Net realized (losses) gains on investments in both the three and
six months ended June 30, 2008 include write-downs of $8.5 million
before tax ($5.6 million after tax, or $0.15 per share) on two
securities because we determined that the decline in fair values were
other-than-temporary in the second quarter 2008 due to the amount and
length of time for which the fair values were below cost. There were
no write-downs in 2007.

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

(4) See Property-Casualty Insurance Operations in the following
tables.

(5) Includes interest expense before tax of $1.3 million in both the
three months ended June 30, 2008 and 2007 and $2.6 million in both
the six months ended June 30, 2008 and 2007.

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ZENITH NATIONAL INSURANCE CORP.
Selected Financial Data (Unaudited)

Three Months Ended June 30,
---------------------------------
(Dollars in thousands) 2008 2007
---------------- ----------------

PROPERTY-CASUALTY INSURANCE
OPERATIONS:
Gross Premiums Written (1):
Workers' Compensation:
California $ 85,137 54.1% $101,810 54.2%
Outside California 71,775 45.6 85,967 45.8
-------- ------ -------- ------
Total Workers' Compensation 156,912 99.7 187,777 100.0
Reinsurance (2) 512 0.3 15
-------- ------ -------- ------
$157,424 100.0% $187,792 100.0%
Net Premiums Written (1):
Workers' Compensation:
California $ 82,621 54.2% $ 98,779 54.2%
Outside California 69,246 45.5 83,587 45.8
-------- ------ -------- ------
Total Workers' Compensation 151,867 99.7 182,366 100.0
Reinsurance (2) 512 0.3 4
-------- ------ -------- ------
$152,379 100.0% $182,370 100.0%
Net Premiums Earned:
Workers' Compensation:
California $ 82,784 53.6% $101,851 54.7%
Outside California 71,072 46.1 84,490 45.3
-------- ------ -------- ------
Total Workers' Compensation 153,856 99.7 186,341 100.0
Reinsurance (2) 512 0.3 4
-------- ------ -------- ------
$154,368 100.0% $186,345 100.0%
Underwriting Income (Loss) before
Tax/Combined Ratio of (1):
Workers' Compensation $ 26,491 82.8% $ 71,456 61.7%
Reinsurance (2) (6) NM (210) NM

Workers' Compensation Combined
Ratio (1):
Underwriting and Other Operating
Expenses (3) 40.4% 35.4%
Current Accident Year Losses and
Loss Adjustment Expenses 52.1 49.9
Prior Accident Year Favorable
Loss Reserve Development (9.7) (23.6)
------ ------
Combined Ratio 82.8% 61.7%

(1) See Supplemental Financial Information for a description of
segment results, "Premiums Written," "Underwriting Income (Loss)" and
"Combined Ratio."

(2) In September 2005, we exited the assumed reinsurance business and
ceased writing and renewing assumed reinsurance contracts, with all
contracts fully expired at the end of 2006.

(3) Includes an increase in estimated policyholders' dividends for
prior accident years of $2.5 million (1.6% of workers' compensation
net premiums earned) for the three months ended June 30, 2008.

NM = Not Meaningful

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ZENITH NATIONAL INSURANCE CORP.
Selected Financial Data (Unaudited)

Six Months Ended June 30,
------------------------------------
(Dollars in thousands) 2008 2007
------------------ -----------------

PROPERTY-CASUALTY INSURANCE
OPERATIONS:
Gross Premiums Written (1):
Workers' Compensation:
California $174,239 53.7% $216,440 54.7%
Outside California 149,291 46.0 178,579 45.2
-------- -------- -------- -------
Total Workers' Compensation 323,530 99.7 395,019 99.9
Reinsurance (2) 805 0.3 326 0.1
-------- -------- -------- -------
$324,335 100.0% $395,345 100.0%
Net Premiums Written (1):
Workers' Compensation:
California $169,205 53.8% $208,548 54.7%
Outside California 144,637 46.0 172,554 45.2
-------- -------- -------- -------
Total Workers' Compensation 313,842 99.8 381,102 99.9
Reinsurance (2) 807 0.2 337 0.1
-------- -------- -------- -------
$314,649 100.0% $381,439 100.0%
Net Premiums Earned:
Workers' Compensation:
California $168,518 53.8% $211,816 55.7%
Outside California 144,075 46.0 168,274 44.2
-------- -------- -------- -------
Total Workers' Compensation 312,593 99.8 380,090 99.9
Reinsurance (2) 807 0.2 337 0.1
-------- -------- -------- -------
$313,400 100.0% $380,427 100.0%
Underwriting Income (Loss) before
Tax/Combined Ratio of (1):
Workers' Compensation $ 66,499 78.7% $132,839 65.1%
Reinsurance (2) (13) NM (360) NM

Workers' Compensation Combined
Ratio (1):
Underwriting and Other
Operating Expenses (3) 40.4% 35.1%
Current Accident Year Losses
and Loss Adjustment Expenses 50.5 50.6
Prior Accident Year Favorable
Loss Reserve Development (12.2) (20.6)
-------- -------
Combined Ratio 78.7% 65.1%

(1) See Supplemental Financial Information for a description of
segment results, "Premiums Written," "Underwriting Income (Loss)" and
"Combined Ratio."

(2) In September 2005, we exited the assumed reinsurance business and
ceased writing and renewing assumed reinsurance contracts, with all
contracts fully expired at the end of 2006.

(3) Includes an increase in estimated policyholders' dividends for
prior accident years of $5.0 million (1.6% of workers' compensation
net premiums earned) for the six months ended June 30, 2008.

NM = Not Meaningful

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ZENITH NATIONAL INSURANCE CORP.
Supplemental Financial Information (Unaudited)
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HOW WE REPORT OUR RESULTS

Our business is comprised of the following segments: investments,
workers' compensation and reinsurance. In September 2005, we exited
the reinsurance business. Results of the investments segment include
net investment income and net realized gains (losses) on investments
and we do not allocate investment income to our workers' compensation
and reinsurance segments. Income (loss) before tax from the workers'
compensation and reinsurance segments is determined by deducting
losses and loss adjustment expenses incurred and underwriting and
other operating expenses from net premiums earned (this result is also
known as underwriting income or loss). The parent loss includes
interest expense and the general operating expenses of the holding
company, Zenith National Insurance Corp.

NON-GAAP MEASURES

In addition to the financial measures presented in the
consolidated financial statements prepared in accordance with
accounting principles generally accepted in the United States of
America ("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.

Combined Ratio

The combined ratio, expressed as a percentage, is a key
measurement of profitability traditionally used in the
property-casualty insurance business. The combined ratio, also
referred to as the "calendar year combined ratio," is the sum of the
losses and loss adjustment expense ratio and the underwriting and
other operating expense ratio. The losses and loss adjustment expense
ratio is the percentage of net losses and loss adjustment expenses
incurred to net premiums earned. The underwriting and other operating
expense ratio is the percentage of underwriting and other operating
expenses to net premiums earned. When the calendar year combined ratio
is adjusted to exclude prior period items, such as loss reserve
development and policyholders' dividends, it becomes the "accident
year combined ratio," a non-GAAP financial measure.

Net Cash Flow From the Workers' Compensation Business

Net cash flow from our workers' compensation business is a
non-GAAP financial measure that represents the net cash flow generated
by deducting from workers' compensation premiums collected during the
period the amount of workers' compensation losses and loss adjustment
expenses paid and workers' compensation underwriting and other
operating expenses paid during the applicable period. We provide this
measure to assist in understanding the change in the net cash (used
in) provided by operating activities in the periods presented, given
that we exited the reinsurance business in 2005. Net cash flow from
the workers' compensation business does not include the following:
premiums collected, losses paid and underwriting and other operating
expenses paid in the reinsurance business; investment income received;
interest and other expenses paid by our parent company; and income
taxes paid, all of which are included in net cash (used in) provided
by operating activities, the most comparable GAAP financial measure of
net cash flow. The following table provides a reconciliation of the
net cash flow from our workers' compensation business to the net cash
(used in) provided by operating activities:

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Three Months Ended Six Months Ended
June 30, June 30,
------------------- -------------------
(In thousands) 2008 2007 2008 2007
--------- -------- -------- ---------

Net Cash Flow From Workers'
Compensation Business $ 10,598 $ 35,215 $ 17,017 $ 72,222
Net Cash Used in Reinsurance
Business (3,666) (7,079) (8,971) (18,594)
Investment Income Received 18,535 22,653 41,680 51,030
Interest and Other Expenses
Paid by Parent (2,044) (218) (6,383) (4,281)
Income Taxes Paid (42,398) (65,687) (42,735) (80,071)
-------- -------- -------- --------
Net Cash (Used in) Provided
by Operating Activities $(18,975) $(15,116) $ 608 $ 20,306
======== ======== ======== ========

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NON-GAAP MEASURES (continued)

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 policyholders
in the applicable period less the cost of any reinsurance ceded. Net
premiums earned, the most comparable GAAP measure, represent 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 workers'
compensation gross and net premiums written to net premiums earned:

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Three Months Ended Six Months Ended
June 30, June 30,
------------------- -------------------
(In thousands) 2008 2007 2008 2007
--------- -------- -------- --------

Workers' Compensation:
Gross Premiums Written $156,912 $187,777 $323,530 $395,019
Ceded Premiums (5,045) (5,411) (9,688) (13,917)
-------- -------- -------- --------

Net Premiums Written 151,867 182,366 313,842 381,102
Change in Unearned Premiums,
Net of Reinsurance 1,989 3,975 (1,249) (1,012)
-------- -------- -------- --------

Net Premiums Earned $153,856 $186,341 $312,593 $380,090
======== ======== ======== ========

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Zenith National Insurance Corp.
William J. Owen
Senior Vice President, Investor Relations
818-676-3936

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