UPDATE 1-Zenith National sees Q3 charge on Lehman, AIG exposure

(Recasts; adds details)

Sept 25 (Reuters) - Zenith National Insurance Corp (ZNT.N) said it will incur third-quarter impairment charges from its investment in now bankrupt Lehman Brothers (LEHMQ.PK) and dilution of stake in American International Group (AIG.N) after its bailout.

The workers' compensation insurer also said fair value of its total investment portfolio fell by about 3 percent to $2.1 billion, from June 30 to Sept. 19, 2008 due to turbulent credit markets.

Zenith said its investments in AIG, Citigroup (C.N), Goldman Sachs (GS.N), Lehman, Merrill Lynch MER.N, Morgan Stanley (MS.N) and Wachovia WB.N represented about 5 percent of the fair value of its total investment portfolio as of Sept. 19.

The company said decrease in fair value from June 30, net of deferred tax was $24.3 million, or 65 cents per share.

"The unrealized losses on fixed income investments are not material to our operations due to our strong capital and liquidity," the company said. "We have the ability and intent to hold these investments for the long term."

Zenith will continue to assess individual securities for impairments, it said in a news release.

Shares of the company closed at $38.74 Thursday on the New York Stock Exchange. (Reporting by Ratul Ray Chaudhuri in Bangalore; Editing by Dinesh Nair )