Zenith National Insurance Corp. (NYSE: ZNT) reported net income for the third quarter 2009 of $19.2 million, or $0.51 per share, compared to net income for the third quarter 2008 of $16.6 million, or $0.44 per share. Net income for the nine months ended September 30, 2009 was $23.6 million, or $0.62 per share, compared to net income for the nine months ended September 30, 2008 of $86.9 million, or $2.32 per share.

Net income includes net realized gains on investments after tax of $13.4 million and $17.0 million ($0.35 per share and $0.45 per share) for the three and nine months ended September 30, 2009, respectively, compared to net realized losses on investments after tax of $5.8 million and $4.4 million ($0.15 per share and $0.12 per share) for the corresponding periods of 2008.

Net investment income before tax was $20.5 million and $68.1 million for the three and nine months ended September 30, 2009, respectively, compared to $22.9 million and $68.4 million for the corresponding periods of 2008. The annualized pre-tax yield on our investment portfolio for the three and nine months ended September 30, 2009 was 4.3% and 4.8%, respectively, compared to approximately 4.5% for both the corresponding periods of 2008.

The market value of our available-for-sale investment portfolio improved 2% during the third quarter 2009 to an unrealized gain before tax of $55.6 million at September 30, 2009, compared to an unrealized gain of $10.2 million at June 30, 2009 and an unrealized loss before tax of $77.3 million at December 31, 2008.

Workers’ compensation underwriting loss before tax was $8.5 million and $49.4 million for the three and nine months ended September 30, 2009, respectively, compared to underwriting income before tax of $15.3 million and $81.8 million for the corresponding periods of 2008. The workers’ compensation combined ratio improved to 107.4% in the third quarter 2009 compared to 115.1% in the second quarter 2009, primarily as a result of a net reduction in policyholders’ dividends for prior years.

Stockholders’ equity per share at September 30, 2009, June 30, 2009, March 31, 2009 and December 31, 2008 was $28.93, $28.11, $26.82 and $27.42, respectively. Stockholders’ equity per share before stockholder dividends increased by 11% from December 31, 2008 to September 30, 2009. The reduction in our stockholders’ equity per share from its all time high of $29.58 as of March 31, 2008 to $28.93 at September 30, 2009 is less than the $3.40 dividends paid to stockholders during this period.

Commenting on the results, Stanley R. Zax, Chairman and President, said: “Book value per share plus stockholder dividends increased approximately 5% in the third quarter 2009 primarily because of the improvement in the market value of our investments. When the economy improves, we are optimistic that our excellent financial condition will provide the basis upon which we can find opportunities to grow our business.”

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) volatility in the financial markets, including the duration of the recent crisis and the effectiveness of governmental solutions; 2) economic recession; 3) competition; 4) decreased payroll levels of our customers; 5) medical cost trends; 6) regulatory restrictions on investments; 7) changes in state and federal legislation and regulation; 8) changes in interest rates causing fluctuations of investment income and fair values of investments; 9) changes in the frequency and severity of claims and catastrophes; 10) adequacy of loss reserves; 11) changing environment for controlling medical, legal and rehabilitation costs, as well as fraud and abuse; 12) losses associated with any terrorist attacks that impact our workers’ compensation business for amounts not covered by our reinsurance protection; 13) losses caused by nuclear, biological, chemical or radiological events whether or not there is any applicable reinsurance protection; and 14) other risks detailed herein and from time to time in Zenith’s reports and filings with the Securities and Exchange Commission.

(Selected financial data attached)

Workers’ compensation calendar year combined ratios, along with a reconciliation to the accident year combined ratios, were as follows (1):

Workers’ compensation calendar year combined ratios, along with a reconciliation to the accident year combined ratios, were as follows (1):

ZENITH NATIONAL INSURANCE CORP.
Supplemental Financial Information (Unaudited)

HOW WE REPORT OUR RESULTS
Our business is comprised of the following segments: investments, workers’ compensation and reinsurance. In September 2005, we exited the assumed reinsurance business. Results of the investments segment include net investment income and net realized gains or losses on investments. We do not allocate investment income to other segments. Income or 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 our parent 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 most comparable 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 Insurance Operations
Net cash flow from our workers’ compensation and assumed reinsurance operations are non-GAAP financial measures that represent the following on a pre-tax basis: premiums collected less losses, loss adjustment expenses, underwriting and other operating expenses paid. The net cash flows from the insurance operations, in addition to investment income received, interest and other expenses paid by our parent company, and income taxes refunded (paid) are included in net cash provided by operating activities, the most comparable GAAP financial measure. The following table provides a reconciliation of the net cash flow from our workers’ compensation and assumed reinsurance operations to the net cash provided by operating activities shown in the consolidated financial statements:

In periods in which net cash flow from operating activities is negative, such cash flow is offset by cash flow from investing activities, principally from short-term investments and maturities of longer-term investments. We maintain a portfolio of invested assets with varying maturities and a substantial amount of short-term investments to provide adequate liquidity.

ZENITH NATIONAL INSURANCE CORP.
Supplemental Financial Information (Unaudited)

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. Net premiums written are premiums we have billed to our policyholders less any reinsurance premiums ceded. Net premiums earned, a GAAP measure, represent the portion of premiums written that is recognized as earned in the consolidated financial statements for the periods presented. Premiums are earned on a pro-rata basis over the term of the policies. The following table provides a reconciliation of workers’ compensation gross and net premiums written to net premiums earned:

Contacts:

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