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Form 10-K
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1993
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM .............. TO ..............
COMMISSION FILE NUMBER 1-9627
ZENITH NATIONAL INSURANCE CORP.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 95-2702776
(STATE OR OTHER JURISDICTION OF INCORPORATION (I.R.S. EMPLOYER IDENTIFICATION NO.)
OR ORGANIZATION)
21255 CALIFA STREET, WOODLAND HILLS, CALIFORNIA 91367-5021
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (818) 713-1000
SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
NAME OF EACH EXCHANGE ON
TITLE OF EACH CLASS WHICH REGISTERED
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Common Stock, $1.00 Par Value New York Stock Exchange
(TITLE OF CLASS)
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:
None
(TITLE OF CLASS)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ X ]
The aggregate market value of the voting stock of the registrant held by
non-affiliates of the registrant on March 25, 1994 was approximately
$238,222,000 (based on the closing sale price of such stock on such date).
At March 25, 1994, 18,866,000 shares of Common Stock were outstanding, net
of 5,069,000 shares of treasury stock.
DOCUMENTS INCORPORATED BY REFERENCE
(1) Portions of the Annual Report to Stockholders for fiscal year ended
December 31, 1993 -- Part I and Part II.
(2) Portions of the Proxy Statement in connection with the 1994 Annual
Meeting of Stockholders -- Part III.
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PART I
ITEM 1. BUSINESS
GENERAL
Zenith National Insurance Corp. ("Zenith"), a Delaware corporation
incorporated in 1971, is a holding company. Zenith is engaged through its
directly and indirectly wholly-owned insurance subsidiaries, Zenith Insurance
Company ("Zenith Insurance"), CalFarm Insurance Company ("CalFarm Insurance"),
ZNAT Insurance Company ("ZNAT Insurance"), Zenith Star Insurance Company
("Zenith Star") and CalFarm Life Insurance Company ("CalFarm Life"), in the
business of writing workers' compensation insurance primarily in California;
reinsurance; annuities; health and life insurance coverages; and auto,
homeowners, farmowners and other coverages primarily in the rural areas of
California. In 1993, Zenith commenced real estate operations, developing private
residences for sale in Las Vegas, Nevada, through its wholly owned subsidiary,
Perma-Bilt, a Nevada Corporation ("Perma-Bilt").
The 1993 edition of Best's Key Rating Guide ("Best's") gives Zenith
Insurance, CalFarm Insurance and ZNAT Insurance, collectively, and CalFarm Life
ratings of A+ (superior). Standard & Poor's Corporation ("S&P") has rated the
claims-paying ability of Zenith Insurance, CalFarm Insurance and ZNAT Insurance
AA-(excellent) and the solvency of CalFarm Life BBBq (above average). Best's
ratings and S&P's ratings of claims-paying ability and solvency are based upon
factors of concern to policyholders and insurance agents and are not directed
toward the protection of investors.
At December 31, 1993, Zenith and its subsidiaries had approximately 1,600
employees.
The principal executive offices of Zenith are located at 21255 Califa
Street, Woodland Hills, California 91367-5021, telephone (818) 713-1000.
GLOSSARY OF SELECTED INSURANCE TERMS
The following terms when used herein have the following meanings:
Assume To receive from a ceding company all or a portion of a risk
in consideration of receipt of a premium.
Cede To transfer to a reinsurer all or a portion of a risk in
consideration of payment of a premium.
Combined ratio The sum of underwriting expenses, net incurred losses, loss
adjustment expenses and policyholders' dividends, expressed
as a percentage of net premiums earned.
Development The amount by which losses, measured subsequently by
reference to payments and additional estimates, differ from
those originally reported for a period. Development is
favorable when losses ultimately settle for less than
levels at which they were reserved or subsequent estimates
indicate a basis for reserve decreases on open claims.
Development is unfavorable when losses ultimately settle
for more than levels at which they were reserved or
subsequent estimates indicate a basis for reserve increases
on open claims.
Excess of loss reinsurance A form of reinsurance in which the reinsurer pays all or a
specified percentage of a loss caused by a particular
occurrence or event in excess of a fixed amount and up to a
stipulated limit.
Incurred but not reported Claims relating to insured events that have occurred but
claims have not yet been reported to the insurer or reinsurer.
1
Loss adjustment expenses The expenses of investigating and settling claims,
including legal and other fees, and general expenses of
administering the claims adjustment process.
Net premiums earned The portion of net premiums written applicable to the
expired period of policies.
Participating policy A policy upon which dividends may be paid after expiration.
Policyholders' surplus or The amount remaining after all liabilities are subtracted
statutory capital from all admitted assets, as determined in accordance with
statutory accounting practices. This amount is regarded as
financial protection to policyholders in the event an
insurance company suffers unexpected or catastrophic
losses.
Reinsurance A transaction in which an original insurer, or cedant,
remits a portion of the premium to a reinsurer, or assuming
company, as payment for the reinsurer's assumption of a
portion of the risk.
Reserves or loss reserves The balance sheet liability representing estimates of
amounts needed to pay reported and unreported claims and
related loss adjustment expenses (stated without reduction
for reinsurance ceded after 1992).
Retrocession A reinsurance of reinsurance assumed.
Statutory accounting Accounting principles prescribed or permitted by the
practices California Department of Insurance. In general, statutory
accounting practices address policyholder protection and
solvency and are more conservative in presentation of
earnings, surplus and assets than generally accepted
accounting principles.
Treaty A contract of reinsurance.
Underwriting The process whereby an insurer reviews applications
submitted for insurance coverage and determines whether it
will accept all or part, and at what premium, of the
coverage being requested.
Underwriting expenses The aggregate of policy acquisition costs and the portion
of administrative, general and other expenses attributable
to the underwriting process as they are accrued and
expensed.
DESCRIPTION OF BUSINESS SEGMENTS
Zenith and its subsidiaries conduct business through a property and casualty
segment, health and life segment and a parent or holding company segment as
described in Note 15 -- "Segment Information" on pages 67 and 68 of the 1993
Annual Report to Stockholders, which note is hereby incorporated by reference.
The earnings of Zenith's property and casualty operations and its health and
life business are supplemented by the generation of investment income discussed
under "Investments."
PROPERTY AND CASUALTY -- WORKERS' COMPENSATION INSURANCE
Workers' compensation insurance provides coverage for the statutorily
prescribed benefits that employers are required to pay to their employees
injured in the course of employment. The standard workers' compensation policy
issued by Zenith Insurance provides payments for, among other things, temporary
or permanent disability benefits, death benefits, medical and hospital expenses
and expenses of vocational rehabilitation. The benefits payable and the duration
of such benefits are set by statute, and vary with the nature and severity of
the injury or disease and the wages, occupation and age of the employee. Zenith
Insurance writes workers' compensation insurance which represents 60% of
consolidated property and casualty premium earned for 1993
2
and is the largest line of Zenith's property and casualty business. In 1993,
96.6% of Zenith's workers' compensation written premium was written in
California, Zenith's principal
workers' compensation insurance market.
Premiums for workers' compensation insurance are a function of the
applicable minimum premium rate, which includes the insured employer's
experience modification factor (where applicable), surcharges (where
applicable), and the amount of the insured employer's payroll. Payrolls may be
affected significantly by changes in employment and wage levels. A deposit
premium is paid at the beginning of the policy period, periodic installments are
paid during the period and the final amount of the premium is generally
determined as of the end of the policy period after the policyholder's payroll
records are audited.
In California, minimum premium rates for workers' compensation insurance are
established by the California Insurance Commissioner (the "Commissioner") and
through December 31, 1994, competition on the basis of rates lower than the
approved minimum is not permitted. Such rates vary with the approximately 450
categories of employment and among different employers, depending upon actual
loss experience, within any one employment category. Adverse loss experience,
which persisted until the latter part of 1992, in conjunction with minimum rates
that were inadequate, particularly in the Los Angeles area, served to create a
market for policies written at rates in excess of minimum rates. Zenith wrote
$54,945,000, $42,971,000 and $15,048,000 of surcharged business in 1993, 1992
and 1991, respectively. Favorable loss experience trends in 1993 have increased
the competition for such business.
Zenith Insurance issues participating policies to qualifying policyholders.
Policyholder dividends serve a twofold purpose: an economic incentive to
employers for safe operations, and an important step in ensuring equitable
pricing. Dividends may not legally be guaranteed and are paid after policy
expiration. The payment of participating dividends to policyholders is limited
by law to accumulated earned surplus from California workers' compensation
premiums. Zenith Insurance and its subsidiaries have approximately $185,000,000
of such accumulated earned surplus as of December 31, 1993.
In July, 1993, certain significant workers' compensation legislation was
signed into law in California. Among other things, the new laws affect the
California workers' compensation industry as follows:
Rating -- Effective January 1, 1995, the minimum rate law will be abolished
and companies will charge their own, actuarially determined rates. Minimum rates
were reduced by 7% from those in effect on July 16, 1993.
Benefits -- Maximum weekly benefits for temporary disability will be
increased on July 1, 1994, July 1, 1995 and July 1, 1996, from the current level
of $336 to $490 on July 1, 1996. Maximum weekly benefits for permanent
disability will be subject to increases on these same dates. Permanent partial
disability weekly benefits will increase from a maximum of $148 to $230 with the
greatest increases in cases where disability ratings exceed 70%. Death benefits
will be increased on July 1, 1994 and again on July 1, 1996. At July 1, 1996,
death benefits will amount to $125,000, $145,000 and $160,000 for a worker with
one, two and three total dependents, respectively.
Cost containment -- Major changes will provide a tougher standard for
compensability of stress claims, limit the number of medical-legal evaluations,
limit post termination claims, provide certain managed care flexibility, limit
medical self-referrals where there is a financial interest and provide limits on
vocational rehabilitation costs.
Management is unable to predict the impact that the above legislative changes
will have on its business. Historically, analysis and estimates of the impact of
legislative changes have been difficult to predict with any reasonable degree of
accuracy.
3
In 1992, Zenith opened an office in Austin, Texas and commenced writing
workers' compensation business in the state of Texas. Premiums written in Texas
were $10,174,000 and $3,925,000 in 1993 and 1992, respectively. Certain aspects
of workers' compensation reform legislation enacted in Texas in 1992 have been
challenged with respect to their constitutionality. The matter is currently
before the Texas Supreme Court and the ultimate outcome is uncertain.
PROPERTY AND CASUALTY -- REINSURANCE
Zenith Insurance is selectively underwriting a book of assumed reinsurance.
Reinsurance transactions, or contracts, come in a variety of forms, but the
principal arrangements are either proportional in nature, in which the assuming
company shares pro-rata in the premiums and losses of the cedant, or
arrangements under which the assuming company pays losses in excess of a certain
limit in return for a premium, usually determined as a percentage of the
cedant's primary insurance premiums. Zenith operates its reinsurance activity as
a participant in contracts or treaties in which, typically, the reinsurance
coverage is syndicated to a number of assuming companies. Depending upon market
conditions and other factors, the volume of premiums written fluctuates widely
from year to year. Zenith's current participation in the reinsurance market is
limited principally to participation in the reinsurance of large individual
property risks and property catastrophe reinsurance. Events in recent years have
served to increase the premiums paid for such reinsurance and to increase the
amount of such risk retained by insurers and reinsurers. These developments have
created a market which management believes presents reasonable, acceptable
opportunities to produce favorable underwriting results. However, Zenith's
assumed reinsurance business is written with a view to limiting the company's
exposure to losses from any one event to a maximum of approximately 5% of
stockholders' equity. In the early years of Zenith Insurance's Reinsurance
operations, property business accounted for approximately 20% of reinsurance
premiums earned and, in 1993, property business accounted for approximately 79%
of reinsurance premiums earned.
PROPERTY AND CASUALTY -- OTHER, PRINCIPALLY AUTOMOBILE
Zenith, through CalFarm Insurance, offers a comprehensive line of property
and casualty insurance, including automobile, farmowners, commercial multiple
peril packages and homeowners coverage. Automobile insurance includes coverage
for automobile bodily injury, property damage and physical damage. Automobile
bodily injury and property damage insurance provide coverage for third party
liability, bodily injury and property damage arising from the ownership,
maintenance or use of an automobile. Automobile physical damage coverage insures
against physical loss of the insured's own vehicle. Farmowners and homeowners
insurance includes coverage for direct physical damage to real and personal
property, loss of personal property by theft and legal liability for injury to
others and damage to property of others. Commercial multiple peril insures
businesses against property damage and general liability.
Automobile insurance (both commercial and private passenger) is the largest
line of CalFarm Insurance's business, representing 16% of Zenith's property and
casualty premiums earned in 1993. CalFarm Insurance insured approximately 25,000
private passenger automobiles and 69,000 commercial and farm vehicles in 1993.
Farmowners business is the second largest line of CalFarm Insurance's business,
representing approximately 9% of Zenith's property and casualty premiums earned
in 1993.
Zenith's Automobile and Other Property and Casualty operations are subject
to the regulatory provisions of California Initiative Proposition 103
("Proposition 103") which was approved by California voters in 1988. The
principal effects of Proposition 103 on Zenith's Automobile and Other Property
and Casualty business are as follows: rates must be approved by the Insurance
Commissioner prior to use; rates on auto policies must be offered to "good
drivers" (as defined) at a discount of at least 20% from rates otherwise charged
and an insurer cannot refuse to sell a "good driver" policy to a qualified
applicant; automobile insurance policies on the books as of November 9, 1988 and
new and renewal policies written thereafter cannot be cancelled or non-renewed
except for non-payment, fraud or material misrepresentation, or a substantial
increase in
4
hazard; and automobile insurance rates must be based on the following factors in
decreasing order of importance: driving record, number of miles driven, number
of years of driving experience, and other factors which may be adopted by the
Insurance Commissioner.
In January 1993, Zenith announced that it had reached an agreement with the
California Department of Insurance (the "Department") to resolve its Proposition
103 rollback refund contingency (see "Resolution of Contingencies Surrounding
Proposition 103" in Note 9 on page 66 of Zenith's 1993 Annual Report to
Stockholders, which note is hereby incorporated by reference). Under the
agreement, Zenith's subsidiaries refunded to each holder of an affected policy
issued or renewed between November 1988 and November 1989 an amount equal to
approximately
9.5 percent of the premium paid plus interest. The net cost of the refund, after
reinsurance, reduced income before taxes in 1992 by $16,078,000. As part of the
agreement, the Department gave final approval to all of Zenith's rate
applications on affected lines of business subsequent to the rollback period.
Rate increases of 8.0% and 15.0%, respectively, on farmowners and homeowners
policies were implemented effective July 1, 1993.
HEALTH AND LIFE
CalFarm Life offers a varied portfolio of life, health and annuity products,
and is not directly impacted by Proposition 103. The portfolio includes a
competitive line of Term Life, Universal Life and Interest Sensitive Life
insurance, Group Health insurance, and Single and Flexible Premium Annuity
products for both qualified and non-qualified markets. Less than 8% of CalFarm
Life's life insurance is written on substandard risks. The significant terms of
the life insurance products include credited interest rates (which are
guaranteed for 12 months from the date of issue and have minimum guarantees
ranging from 3% to 6%), mortality charges, and surrender (termination) charges
which generally diminish over 15 years. CalFarm Life's interest sensitive life
insurance products and annuity products contain features to minimize the effect
of inflation and interest rate fluctuations. As a result, management does not
believe the impact of inflation on these products will be material.
In 1993, CalFarm Life continued its sales of tax sheltered annuity products,
specifically, those designed for school teachers and administrators. Total
annuity deposits of $56,764,000, $83,600,000, and $80,203,000 were collected for
1993, 1992 and 1991, respectively. Zenith's ability to profit from its annuity
business depends upon its ability to manage the spread between the interest it
earns on its investment portfolio and the interest credited to the annuity
deposits; policy and premium persistency; the efficiency of operations; and the
limiting of its risk of defaults on its investment portfolio. CalFarm Life's
annuity products are primarily sold to school teachers in California and recent
(and future) budgetary actions with respect to education, in addition to the
weak California economy, may reduce annuity sales in the future. However,
increased personal federal income tax rates may increase the desire to
accumulate retirement income on a tax deferred basis.
Health insurance is the largest line of insurance written by CalFarm Life,
accounting for $41,370,000 or approximately 81% of its total premium income in
1993. Prior to July 1, 1993 health premiums were written under two group health
insurance programs sponsored by the California Farm Bureau Federation (the "Farm
Bureau"). Effective July 1, 1993, one of the Farm Bureau plans was discontinued
by CalFarm Life. Insureds under this plan were offered membership in the
remaining Farm Bureau-sponsored plan.
Life insurance premium rates are based on pricing assumptions as to future
mortality, investment yields, expenses, and persistency. Although a margin for
profit is included, the actual profitability of the products can be
significantly affected by the deviation of actual experience from the
assumptions. The actual experience in recent years on investment yields has been
more favorable than anticipated, while the experience on premium persistency on
new business has been less favorable than anticipated; experience with respect
to expenses and mortality rates have been in line with pricing assumptions.
5
Life insurance in force is a measure of the total commitment of CalFarm Life
to pay benefits under the policies it has written that are currently in effect
or, "in force." Changes in life insurance in force are summarized in the
following table for all classes of insurance.
FOR THE YEARS ENDED DECEMBER 31
--------------------------------------
1993 1992 1991
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(DOLLARS IN THOUSANDS)
In force -- beginning of year..................... $2,951,649 $2,686,030 $2,447,958
Issued for new policies........................... 605,201 500,084 374,691
Reinstated policies............................... 1,514 2,066 915
Net additions (reductions) to policies............ (316,477) 32,921 90,869
Additions by dividend............................. 2,223 2,265 2,409
Reduction due to:
Death claims.................................... 6,159 6,974 6,128
Expirations and maturities...................... 2,665 2,770 2,679
Surrenders and lapses........................... 237,307 231,100 204,820
Conversions..................................... 21,801 30,873 17,185
---------- ---------- ----------
In force -- end of year........................... 2,976,178 2,951,649 2,686,030
Less reinsurance ceded.......................... 453,025 287,980 247,994
---------- ---------- ----------
Net retained in force -- end of year.............. $2,523,153 $2,663,669 $2,438,036
---------- ---------- ----------
---------- ---------- ----------
The results of operations of CalFarm Life reflect the effect of purchase
accounting adjustments including policy liabilities and accruals and the value
of life insurance in force based on actuarial estimates. These actuarial
estimates were based on then current assumptions applied in calculating policy
reserves, policyholder dividend amounts and related policy acquisition costs to
be incurred, discounted to provide an appropriate rate of return.
PARENT
Zenith is a holding company owning directly or indirectly all of the capital
stock of certain California insurance and insurance related-companies. In 1993,
Zenith commenced a real estate operation through a newly formed subsidiary,
Perma-Bilt. Perma-Bilt has expended approximately $7.2 million through December
31, 1993 to acquire land in Las Vegas, Nevada and develop private residences for
sale in 1994.
LOSS AND LOSS EXPENSE RESERVES AND CLAIMS, AND LOSS DEVELOPMENTS
Zenith's property and casualty subsidiaries (the "P&C Companies") maintain
reserves for the payment of losses and for the expenses of settling both
reported and unreported claims that have been incurred under their insurance
policies. The amount of such reserves, as related to reported claims, is based
upon periodic case-by-case evaluation and judgment by the P&C Companies' claims
departments, with actuarial review. The estimate of unreported claims arising
from accidents which have not yet been reported to the P&C Companies, commonly
known in the industry as "incurred but not reported," is based upon the P&C
Companies' experience and statistical information with respect to the probable
number and nature of such claims. The P&C Companies monitor these factors and
revise their reserves as they deem appropriate. Reserves are based on estimates
and no assurance can be given that the ultimate liability will not be more or
less than such estimates.
Reference is made to "Property and Casualty Loss Development" on pages 50
and 51, the table setting forth statutory loss and loss adjustment expense
development by accident year on page 10 and the table setting forth the
reconciliation of changes in the liabilities for losses and loss adjustment
expenses on page 9 of the 1993 Annual Report to Stockholders, all of which are
hereby incorporated by reference. These tables and the reconciliation show
analysis of development of loss and loss adjustment expense liabilities as
originally estimated under generally accepted accounting principles at December
31 of each year presented, as well as analysis of development of statutory
6
incurred loss and loss adjustment expense by accident year. The accounting
methods used to estimate these liabilities are described in Note 1 of the Notes
to Consolidated Financial Statements of Zenith as set forth on pages 58 through
61 of the 1993 Annual Report to Stockholders which note is hereby incorporated
by reference.
WORKERS' COMPENSATION
Zenith's Workers' Compensation reserves, on the average, are paid within
approximately 2 1/2-3 years. Zenith regards the timely settlement of its
Workers' Compensation claims as important to its profitability and makes
extensive use of compromise and releases for claim settlements to expedite this
process.
In recent years, the California workers' compensation industry has
experienced a relative increase in fraud and abuse including fraudulent claims
for psychological and continuous trauma types of injuries, often alleged after
the claimant has terminated his or her employment, and abusive billing practices
by medical-legal providers. Zenith Insurance has invested additional resources
in recent years to try to mitigate the effect of these adverse claims trends.
Loss adjustment expenses as a percentage of earned premium, increased to 28.5%
in 1993 from 21.4% and 13.2% for 1992 and 1991, respectively. Zenith believes
that the significant increase in expenditures on the loss adjustment process,
including measures to combat fraudulent claims and abuses of the workers'
compensation system, ultimately may cause the total loss and loss adjustment
expenses to be lower than would otherwise be the case although there can be no
assurance that total loss and loss adjustment expenses will be lower.
In 1993 the one year loss development on reserves showed unfavorable
development of $4,704,000, due principally to development of prior year reserves
for unpaid loss adjustment expenses caused by increased expenditures on the loss
adjustment process. The one year development on reserves for unpaid losses and
loss adjustment expenses in 1992 showed unfavorable development of $13,502,000
and favorable development of $464,000, in 1991.
Zenith Insurance maintains five regional offices in California and an office
in Texas, each of which is fully staffed to conduct all workers' compensation
claims operations, including review of initial reports of work injury,
assignment of appropriate field investigation and determination of whether
subrogation should be pursued. Workers' Compensation claims operations are
supported by a computer system that provides immediate access to policy coverage
verification and claims records and enables Zenith Insurance to detail claims
payment histories and policy loss experience reports.
AUTOMOBILE AND OTHER PROPERTY AND CASUALTY
Automobile and Other Property and Casualty loss reserves are paid, on the
average, within approximately 1 1/2-2 years.
In addition to inflated medical and hospital costs, an increase in the
incidence of fraudulent and questionable claims in recent years has given rise
to a steady increase in the cost of adjusting claims. The one year development
of Automobile and Other Property and Casualty reserves for unpaid losses and
loss adjustment expenses showed unfavorable development of $4,657,000 in 1993
and $5,177,000 in 1992 but showed favorable development of $1,741,000 for 1991.
Unfavorable development in 1993 was attributable to development of prior year
reserves for unpaid loss adjustment expenses caused by an increase in
expenditures on the loss adjustment process, particularly for legal expenses of
claims servicing.
Property losses in 1993 and 1992 were impacted by an adverse frequency of
weather and fire related losses. Losses in 1993 included $1,600,000, of which
$1,000,000 was assessed by the California Fair Plan, attributable to the
Southern California brush fires in the fall.
Commercial General Liability ("C.G.L.") policies written by CalFarm
Insurance contain exclusion clauses for damages resulting from pollution, and
such losses are thereby substantially excluded
7
from coverage. Although such claims have been received by CalFarm Insurance,
management believes that such claims will not have a material adverse effect on
Zenith's consolidated financial condition either individually or in the
aggregate.
CalFarm Insurance maintains three claims offices and four legal offices in
California to conduct all claims operations of the other property and casualty
business. All claims operations of
CalFarm Insurance are supervised by its home office claims department.
REINSURANCE
Zenith expects that, on the average, its Reinsurance reserves will be paid
in approximately 6-7 years.
Zenith's Reinsurance reserves constitute approximately 20% of its total
reserves, net of reinsurance, for property and casualty unpaid losses and loss
adjustment expenses at December 31, 1993, reflecting the longer average life of
such reserves relative to its other principal lines of business. In addition to
information supplied by ceding companies, Zenith makes use of industry
experience in arriving at estimates of ultimate losses for certain reinsurance
assumed arrangements. Reserve adequacy in 1992 and prior years was adversely
affected by development on property losses associated with catastrophes and
other large, worldwide property losses. The one year development of Reinsurance
reserves showed favorable development of $290,000 in 1993 and adverse
development of $1,255,000 and $5,290,000 in 1992 and 1991, respectively.
In 1992, Zenith Insurance incurred losses of approximately $9.8 million
associated with Hurricanes "Andrew" and "Iniki."
Zenith Insurance has participated, to a limited extent, in the reinsurance
arrangements of ceding companies that have written both directors' and officers'
liability coverage ("D & O") policies and professional indemnity policies,
including such coverage written for practicing certified public accountants.
Actions alleging negligence against directors, officers or accountants by
parties suffering financial losses in savings and loan failures give rise to
claims under D & O policies or professional indemnity policies which, in turn,
give rise to claims against Zenith Insurance. Such claims have not had, and are
not expected to have in the future, a material adverse effect on Zenith's
consolidated financial condition.
INVESTMENTS
Investment policies of Zenith and its insurance subsidiaries are established
by their respective Boards of Directors, taking into consideration California
legal restrictions with respect to investments in connection with reserve
obligations as well as the nature and amount of various kinds of investments.
(See "Business -- Regulation.") Zenith adjusts its investment strategy to
reflect the needs of Zenith's different businesses, changes in the economic
environment and tax laws and its objective of maximizing the rate of return with
consideration for maintaining principal values (see "Investments" under
Management's Discussion and Analysis of Consolidated Financial Condition and
Results of Operations on pages 41 through 44 of Zenith's 1993 Annual Report to
Stockholders which is hereby incorporated by reference). Historic declines in
interest rates during the three years ended December 31, 1993 have reduced
investment income while increasing the fair values of certain investments.
Partly as a result of concern over the volatility of interest rates, Zenith has
elected to maintain a relatively short average life and substantial liquidity in
its investment portfolio. At December 31, 1993 the investment portfolios of
Zenith, Zenith Insurance and CalFarm Insurance consisted primarily of
intermediate-term, taxable bonds, redeemable preferred stocks and short-term
investments. At December 31, 1993 CalFarm Life's investment portfolio consisted
primarily of taxable long-term, intermediate-term and short-term securities. The
average life of the consolidated portfolio was 6.8 years; the portfolio of all
companies excluding CalFarm Life had an average life of 2.4 years; and the
portfolio of CalFarm Life had an average life of 11.1 years. Investment income
by segment is set forth in Note 15 -- "Segment Information" on pages 67 and 68
of the 1993 Annual Report to Stockholders which note is hereby incorporated by
reference.
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REINSURANCE CEDED
In accordance with general industry practices, Zenith's insurance
subsidiaries annually purchase excess of loss reinsurance.
Reinsurance makes the assuming reinsurer liable to the ceding company to the
extent of the reinsurance. It does not, however, discharge the ceding company
from its primary liability to insureds in the event that the reinsurer is unable
to meet its obligations under such reinsurance treaty. Historically, no material
costs have been incurred by Zenith or its subsidiaries from uncollected
reinsurance.
Reinsurance premiums ceded by Zenith's insurance subsidiaries amounted to
$22,457,000, $22,231,000 and $21,498,000 in 1993, 1992 and 1991, respectively or
4.6%, 4.8% and 4.7% of earned premiums in 1993, 1992 and 1991, respectively.
Reinsurance reserves amounted to $44,552,000, $32,701,000 and $27,956,000 in
1993, 1992 and 1991, respectively, or 8.7%, 6.6% and 5.9% of gross reserves for
unpaid losses and loss adjustment expenses in 1993, 1992 and 1991, respectively.
The purpose of such reinsurance is to protect Zenith from the impact of large,
unforseen losses and such reinsurance reduces the magnitude of sudden and
unpredictable changes in net income and the capitalization of insurance
operations. Zenith monitors the financial condition of its reinsurers and does
not believe that it is exposed to any material risk of loss through its ceded
reinsurance arrangements. Zenith believes that its ceded reinsurance
arrangements are adequate and consistent with industry practice. Each insurance
subsidiary maintains separate reinsurance arrangements, which during 1993 were
as follows:
Zenith Insurance -- Workers' Compensation reinsurance covered all claims
between $500,000 and $100,000,000 per occurrence. The coverage from $500,000 to
$5,000,000 is placed with General Reinsurance Corporation, the coverage from
$5,000,000 to $10,000,000 with Employers Reinsurance Corporation and the
remaining three layers from $10,000,000 to $60,000,000 primarily with Cigna
Reinsurance Company, NAC Reinsurance Corporation, Prudential Reinsurance Company
and the London reinsurance market (primarily Lloyds' syndicates and certain
United Kingdom reinsurance companies). Catastrophe reinsurance covers an
additional $40,000,000 in excess of $60,000,000 and is placed with Northwestern
National Life Insurance Company, Cigna Reinsurance Company and Pinehurst
Accident Reinsurance Group. Zenith Insurance has never experienced a loss in
excess of $6,900,000. Zenith's Reinsurance division did not purchase any
reinsurance protection on its assumed business for 1991, 1992 or 1993. However,
Zenith's exposure to losses from assumed reinsurance is limited by the terms
upon which it is written to a maximum probable loss from any one event of
approximately 5% of Zenith's consolidated stockholders' equity.
CalFarm Insurance -- For personal property lines of business, reinsurance is
maintained for claims in excess of $200,000 up to $2,000,000 per occurrence. For
commercial property lines, reinsurance is maintained for claims in excess of
$200,000, up to $4,000,000 per occurrence. On liability coverages for both
personal and commercial lines, reinsurance covers losses up to $2,500,000 per
occurrence, subject to a retention of $500,000. This reinsurance coverage is all
placed with General Reinsurance Corporation. CalFarm Insurance also has property
catastrophe reinsurance, for which the lead reinsurer is General Reinsurance
Corporation, that provides for recovery of losses of 95% of $20,000,000, excess
of a retention of $5,000,000.
In addition, there is a quota share contract whereby CalFarm Insurance
retains 20% of the first $1,000,000 on most umbrella risks (comprehensive
coverage in excess of primary policy limits) underwritten, with the remainder of
up to $10,000,000 ceded to General Reinsurance Corporation. Facultative
reinsurance is placed on property coverage in excess of $2,000,000 on personal
lines and $4,000,000 on all other property lines, and on umbrella limits in
excess of $10,000,000. Facultative reinsurance is used on fewer than 5% of
CalFarm Insurance's policies. Facultative coverage is placed primarily with
General Reinsurance Corporation. Other companies used are Employers Reinsurance
Corporation, Munich American Reinsurance Company and other reinsurers rated A+
by A.M. Best Company.
9
CalFarm Life -- Yearly renewable term insurance treaties are maintained with
eight life insurers, through which CalFarm Life ceded 16% and 11% of its
ordinary life insurance in force as of year end 1993 and 1992, respectively. Its
principal reinsurers are American United Life Insurance Company, Indiana;
Frankona America Life Reassurance Company, Missouri; Munich American Reassurance
Company, Georgia; North American Reassurance Company, New York; Gerling Global
Life Insurance Company, Canada; and Transamerica Occidental Life Insurance
Company, California. Maximum net retention on any one life is $250,000. CalFarm
Life also maintains reinsurance agreements with Employers Reinsurance
Corporation for excess risks on its accident and health contracts. This excess
risk reinsurance provides coverage for aggregate losses in excess of $2,400,000
on those claims that exceed $120,000 for each insured in each calendar year.
Pooling Agreement -- Zenith Insurance, CalFarm Insurance, ZNAT Insurance and
Zenith Star are parties to a pooling agreement. Under the agreement, the results
of underwriting operations are ceded (the risks are transferred) to Zenith
Insurance and are then reapportioned, or retro-ceded (the risks are transferred
back), to those three companies in the following proportions: Zenith Insurance,
79.5%; CalFarm Insurance, 18%; ZNAT Insurance, 2%; and Zenith Star, 0.5%.
Transactions pursuant to the pooling agreement are eliminated on consolidation
and have no impact on Zenith's Consolidated Financial Statements. As of December
31, 1993 no direct premiums have been written by Zenith Star.
MARKETING AND STAFF
Zenith Insurance's workers' compensation business is produced by
approximately 500 independent licensed insurance agents and brokers throughout
California and Texas along with the CalFarm agents referred to below. Zenith
Insurance's assumed reinsurance premiums are generated nationally by brokers and
reinsurance intermediaries.
CalFarm Insurance and CalFarm Life, through their affiliate CalFarm
Insurance Agency, maintain a sales force of approximately 240 agents who sell
insurance products exclusively for CalFarm Insurance and CalFarm Life, primarily
in rural and suburban areas. These agents operate out of 106 offices throughout
the State of California, including 37 offices shared with the Farm Bureau. In
addition, in certain areas, independent agents market CalFarm Insurance
products. CalFarm Life also markets a tax sheltered annuity product through a
managing general agent and approximately 750 appointed sub-agents.
Applications for insurance submitted by all agents and brokers are evaluated
by professional underwriters based upon numerous factors, including underwriting
criteria and standards, geographic areas of underwriting concentration,
actuarial judgments of rate adequacy, economic considerations, and review of
known data on the particular risk. Zenith's insurance subsidiaries, as opposed
to their agents and brokers, retain authority over underwriting, claims
processing, safety engineering and auditing.
CALIFORNIA FARM BUREAU FEDERATION
Prior to the acquisition by Zenith Insurance of its property and casualty
business, C-F Insurance Company (and its wholly-owned subsidiary CalFarm Life)
was owned by the Farm Bureau, a federation of each county farm bureau in the
State of California. The Farm Bureau was formed to provide its members with a
variety of agriculture-related services, including property and casualty, health
and life insurance. The Farm Bureau is California's largest general farm
organization, and represents more than 70,000 member families in 53 counties.
The Farm Bureau continues to work actively to encourage its membership to place
their insurance with CalFarm Life and CalFarm Insurance. Farm Bureau membership
is a prerequisite to the purchase of farmowners, automobile and health insurance
from CalFarm Life and CalFarm Insurance. Of the estimated 70,000 member
families, approximately 63% are insured by CalFarm Insurance or CalFarm Life.
The businesses of CalFarm Life and CalFarm Insurance are closely tied to the
California farm economy, however over 42% of Farm Bureau members (and CalFarm
Insurance and CalFarm Life insureds) are non-farmers and over 64% of CalFarm
Insurance and CalFarm Life premium volume is
10
generated by non-farm business. Total revenues in CalFarm Insurance and CalFarm
Life attributable to sales that were sponsored by the Farm Bureau constituted
approximately 26%, 27% and 28% of Zenith's total consolidated revenues for the
years 1993, 1992 and 1991, respectively. The agreement of CalFarm Insurance and
CalFarm Life with the Farm Bureau, which is subject to cancellation by either
party on six months' notice, requires annual payments to the Farm Bureau of
$240,000 plus 2% of the gross written premium under the Farm Bureau group health
insurance program. Pursuant to such provisions, total payments to the Farm
Bureau were approximately $1 million in each of 1993, 1992 and 1991.
Zenith believes that its relationship with the Farm Bureau is mutually
beneficial. CalFarm Insurance and CalFarm Life benefit from the use of the
CalFarm name and the Farm Bureau membership lists, and their ability to sell
their products to Farm Bureau members is enhanced by the Farm Bureau
relationship. The Farm Bureau benefits since Farm Bureau membership is required
to obtain automobile, farmowners and health insurance policies (but not life
insurance) from CalFarm Insurance and CalFarm Life, which generates membership
and revenues for the Farm Bureau. If the relationship between CalFarm Insurance
and CalFarm Life and the Farm Bureau were terminated, Zenith believes that it
could retain a significant amount of the business it currently has with Farm
Bureau members because of the quality and tailored features of the products it
offers in what it regards as its "niche market" and the long-term relationships
established between its agents and these policyholders. In the event of such
termination, however, Zenith expects that there would be an increased risk of
nonrenewal of existing insurance coverage as well as a possible adverse effect
on new policy revenues, but it cannot estimate the financial impact of any such
termination. Zenith anticipates the continuation of a close working relationship
with the Farm Bureau and the promotion among its membership of the purchase of
insurance products from CalFarm Insurance and CalFarm Life as an attractive
feature of Farm Bureau membership.
COMPETITION
Competition in the insurance business is based upon price, product design
and quality of service. After December 31, 1994, the repeal of minimum rate laws
in California will introduce price as a basis of competition for California
workers' compensation policies. The insurance industry is highly competitive and
Zenith's subsidiaries compete not only with other stock companies, but with
mutual companies, other underwriting organizations and the State Compensation
Insurance Fund. Competition also exists from self-insurance and captive
insurers. Over the years there has been increased competition from
direct-writing companies and, in the property and casualty field, from
affiliates of large life insurance companies. Many companies in competition with
Zenith's subsidiaries have been in business for a much longer time, have a
larger volume of business, are more widely known, and/or possess substantially
greater financial resources.
REGULATION
CALIFORNIA DEPARTMENT OF INSURANCE
Zenith's insurance subsidiaries are subject to regulation and supervision by
the California Department of Insurance, which has broad regulatory, supervisory
and administrative powers. These powers relate, among other things, to the
granting and revocation of licenses to transact business; the licensing of
agents; the standards of solvency to be met and maintained; the nature of and
limitations on investments; approval of policy forms and rates; periodic
examination of the affairs of insurance companies; and the form and content of
required financial statements.
Zenith Insurance, CalFarm Insurance, ZNAT Insurance and Zenith Star are
required, with respect to their workers' compensation line of business, to
maintain on deposit investments meeting specified standards that have an
aggregate market value equal to the companies' loss reserves. For this purpose,
loss reserves are defined as the current estimate of reported and unreported
claims plus a statutory formula reserve based on a minimum of 65% of earned
premiums for the latest three years.
11
CalFarm Life is required to establish, as liabilities, actuarial reserves on
life insurance policies and annuities as prescribed by regulatory authorities.
Statutory reserves are calculated at amounts that are, together with premiums or
annuity considerations to be received on outstanding policies or annuity
contracts, and with interest on such reserves compounded annually at certain
assumed rates, deemed sufficient to meet the policy obligations at death or
maturity or to meet the annuity obligations pursuant to the contract, each in
accordance with mortality tables used when the policy or contract was issued.
Detailed annual and quarterly reports must be filed by Zenith's insurance
subsidiaries with the California Department of Insurance, and their businesses
and accounts are subject to periodic examination by such agency, usually at
three year intervals. Zenith Insurance, CalFarm Insurance, ZNAT Insurance and
CalFarm Life Insurance, were examined as of December 31, 1990, and the report on
such examination contained no material findings.
THE NATIONAL ASSOCIATION OF INSURANCE COMMISSIONERS
The National Association of Insurance Commissioners ("NAIC") is a group
formed by state Insurance Commissioners to discuss issues and formulate policy
with respect to regulation, reporting and accounting of insurance companies.
Although the NAIC has no legislative authority and insurance companies are at
all times subject to the laws of their respective domiciliary states, and to a
lesser extent other states in which they conduct business, the NAIC is
influential in determining the form in which such laws are enacted. In
particular, the Model Insurance Laws, Regulations and Guidelines of the NAIC
(the "Model Laws") have been promulgated by the NAIC as a minimum standard by
which state regulatory systems and regulations are measured. Adoption of state
laws which provide for substantially similar regulations to those described in
the Model Laws is a requirement for the accreditation by the NAIC of a state's
insurance regulations.
The NAIC has adopted model regulations to require insurers to maintain
minimum levels of capital based on their investments and operations, known as
"risk based capital" ("RBC") requirements. Such requirements were adopted by
California for Life Insurance companies in 1993. Such regulations are expected
to be adopted for property and casualty insurers in 1994. Zenith does not
anticipate any adverse effects of such requirements because of the strong
capitalization of its insurance operations. At December 31, 1993, CalFarm Life's
adjusted capital under the RBC regulations was 375% of the RBC control, or
required, level of capital under the regulations.
The NAIC Insurance Regulatory Information System ("IRIS") was developed to
assist insurance departments in overseeing the financial condition of insurance
companies. Annually, IRIS key financial ratios (11 ratios for property and
casualty companies and 12 ratios for life companies) are calculated from data
supplied in annual statutory statements of insurance companies. These ratios are
reviewed by experienced financial examiners of the NAIC to select those
companies that merit highest priority in the allocation of the regulators'
resources. The 1993 IRIS results for the Zenith Insurance Group (consisting of
Zenith Insurance, CalFarm Insurance, ZNAT Insurance and Zenith Star) showed no
results outside the "normal range" for such ratios, as such range is determined
by the NAIC. At December 31, 1993, one such ratio for CalFarm Life, "change in
premium", was outside such "normal range" because of a decrease in the volume of
annuity receipts in 1993 compared to 1992. CalFarm Life's annuity receipts
decreased from $83 million in 1992 to $56 million in 1993, partly because of
economic and tax uncertainties and because of competition for such products.
INSURANCE HOLDING COMPANY SYSTEM REGULATORY ACT
Zenith's insurance subsidiaries are also subject to the California Insurance
Holding Company System Regulatory Act ("Holding Company Act"), which contains
certain reporting requirements, including the requirement that such subsidiaries
file information relating to capital structure, ownership, financial condition
and general business operation, and limits dividend payments by
12
Zenith's insurance subsidiaries. See "Liquidity and Inflation" under
"Management's Discussion and Analysis of Consolidated Financial Condition and
Result of Operations" on pages 46 through 47 of Zenith's 1993 Annual Report to
Stockholders, which is hereby incorporated by reference.
HEALTH CARE REFORM
The federal and state executive branches and legislatures and the health
insurance industry continue to debate the level of responsibility of private
carriers to provide universal insurance for all American citizens, including the
uninsured and the uninsurable. Health care reform legislation was introduced
into the U.S. Congess in 1993. It is not possible to predict the impact of this
debate on CalFarm Life's business until definitive legislation, if any, emerges.
OTHER REGULATION
Property and casualty insurance coverage is subject to certain regulation as
described herein under "Property and Casualty -- Other, Principally Automobile"
under which Zenith's other property and casualty rates are subject to prior
approval by the California Department of Insurance. The provisions of
Proposition 103 do not apply to Workers' Compensation insurance or Reinsurance,
which combined to account for 66% of Zenith's property and casualty earned
premiums in 1993.
ITEM 2. PROPERTIES
Zenith Insurance owns a 120,000 square foot office facility in the Warner
Center area of Los Angeles which, since November of 1987, has been the corporate
home office of Zenith, Zenith Insurance, and ZNAT Insurance.
In addition, Zenith Insurance, CalFarm Insurance and CalFarm Life, in the
regular conduct of their business, are lessees of offices in various cities. See
Note 9 of the Notes to Consolidated Financial Statements of Zenith on pages 65
and 66 of the 1993 Annual Report to Stockholders, which note is hereby
incorporated by reference.
CalFarm Life owns 25% and CalFarm Insurance owns 75% of the home office
building (and surrounding property of approximately 4 acres) occupied by those
companies in Sacramento, California, consisting of 133,000 square feet.
Approximately 20% of the building is leased to the Farm Bureau and affiliates.
In addition, CalFarm Life and CalFarm Insurance Agency lease and occupy, in a
nearby building in Sacramento, California, approximately 30,000 square feet
under a lease expiring January 31, 1997.
ITEM 3. LEGAL PROCEEDINGS
Zenith and its subsidiaries are involved in certain litigation. In the
opinion of management, after consultation with legal counsel, such litigation in
which Zenith is a defendant is either without merit or the ultimate liability,
if any, will not have a material adverse effect on the consolidated financial
condition of Zenith.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
13
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
Zenith's Common Stock, par value $1.00 per share, is traded on the New York
Stock Exchange. The table below sets forth the high and low sales prices of the
Common Stock for each quarterly period during the last two fiscal years.
QUARTER 1993 1992
- ------------------------------------------------------------ ------- -------
First
High...................................................... 29 1/4 17 1/4
Low....................................................... 19 5/8 14 1/2
Second
High...................................................... 27 1/4 19 1/4
Low....................................................... 23 1/4 15 1/2
Third
High...................................................... 29 1/8 19 1/2
Low....................................................... 23 1/2 16 1/2
Fourth
High...................................................... 28 3/4 20
Low....................................................... 21 1/4 16 3/8
As of March 25, 1994, there were 476 holders of record of Zenith Common
Stock.
The table below sets forth information with respect to the amount and
frequency of dividends declared on Zenith Common Stock. Based upon Zenith's
financial condition, it is currently expected that cash dividends will continue
to be paid in the future.
DATE OF DECLARATION TYPE AND AMOUNT OF RECORD DATE FOR
BY ZENITH BOARD DIVIDEND PAYMENT PAYMENT DATE
- ------------------------------------ ----------------------- --------------------- ------------------------
December 5, 1991.................... $.25 cash per share January 31, 1992 February 14, 1992
March 5, 1992....................... $.25 cash per share April 30, 1992 May 15, 1992
May 21, 1992........................ $.25 cash per share July 31, 1992 August 14, 1992
September 10, 1992.................. $.25 cash per share October 30, 1992 November 13, 1992
December 10, 1992................... $.25 cash per share January 29, 1993 February 12, 1993
March 11, 1993...................... $.25 cash per share April 30, 1993 May 14, 1993
May 26, 1993........................ $.25 cash per share July 30, 1993 August 13, 1993
September 8, 1993................... $.25 cash per share October 29, 1993 November 12, 1993
December 9, 1993.................... $.25 cash per share January 31, 1994 February 14, 1994
The Holding Company Act limits the ability of Zenith Insurance and CalFarm
Life to pay dividends to Zenith, and of CalFarm Insurance, ZNAT Insurance and
Zenith Star to pay dividends to Zenith Insurance, by providing that the
California Department of Insurance must approve any dividend that, together with
all other such dividends paid during the preceding twelve months, exceeds the
greater of: (a) 10% of the paying company's statutory surplus as regards
policyholders at the preceding December 31; or (b) 100% of the net income (or in
the case of CalFarm Life, net gain from operations) for the preceding year. In
addition, any such dividend must be paid from policyholders' surplus
attributable to accumulated earnings. During 1993, Zenith Insurance paid
dividends of $25,000,000 to Zenith. During 1994, Zenith Insurance and CalFarm
Life will be able to pay $40,969,000 and $5,924,000, respectively, in dividends
to Zenith without prior approval. In addition, in 1994, $1,117,000 can be paid
by ZNAT Insurance and Zenith Star to Zenith Insurance which would be available
to Zenith in 1995.
ITEM 6. SELECTED FINANCIAL DATA.
The five-year record of operations and accompanying notes, included in
Zenith's 1993 Annual Report to Stockholders on pages 48 and 49, is hereby
incorporated by reference.
14
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF CONSOLIDATED FINANCIAL CONDITION
AND RESULTS OF OPERATIONS.
"Management's Discussion and Analysis of Consolidated Financial Condition
and Results of Operations," included in Zenith's 1993 Annual Report to
Stockholders on pages 36 to 47 is hereby incorporated by reference.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
Reference is made to pages 50 and 51 of Zenith's 1993 Annual Report to
Stockholders for information setting forth the loss and loss adjustment expense
liability development for 1983 through 1993 and page 10 for incurred loss and
loss adjustment expense development for 1988 through 1993, and to the
consolidated financial statements and notes thereto on pages 52 to 69 of
Zenith's 1993 Annual Report to Stockholders, all of which are hereby
incorporated by reference.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
None.
15
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
The information set forth under the captions "Election of Directors" and
"Compliance with Section 16(a) of the Exchange Act" in the Proxy Statement in
connection with Zenith's 1994 Annual Meeting of Stockholders (the "Proxy
Statement") is hereby incorporated by reference.
EXECUTIVE OFFICERS OF THE REGISTRANT
OFFICER
NAME AGE POSITION TERM SINCE
- ----------------- --- ---------------------------------------- ------ -------
Stanley R. Zax 56 Chairman of the Board, President(1) Annual 1977
Fredricka Taubitz 50 Executive Vice President and Annual 1985
Chief Financial Officer(1)
William L. Gentz 53 Senior Vice President(1) Annual 1989
James P. Ross 47 Senior Vice President and Actuary(1) Annual 1978
John J. Tickner 55 Senior Vice President and Secretary(1) Annual 1985
Keith E. Trotman 57 Senior Vice President(2) Annual 1988
Philip R. Hunt 51 Vice President, Finance(2) Annual 1988
Philip M. Joffe 39 President, CalFarm Life(2) Annual 1986
- ------------------------
(1) Officer of Zenith and subsidiaries.
(2) Officer of subsidiaries only.
Each of the executive officers has, for more than five years, occupied an
executive position with Zenith or a subsidiary of Zenith.
There are no family relationships between any of the executive officers and
there are no arrangements or understandings pursuant to which any of them were
selected as officers.
ITEM 11. EXECUTIVE COMPENSATION.
The information set forth under the headings "Summary Compensation Table,"
"Option/SAR Grants in Last Fiscal Year," and "Aggregated Option/SAR Exercises in
Last Fiscal Year And Fiscal Year End Option/SAR Values," "Employment Agreements
and Termination of Employment and Change in Control Arrangements," "Compensation
Committee Interlocks and Insider Participation," and the last paragraph under
the heading "Election of Directors" in the Proxy Statement is hereby
incorporated by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The information set forth under the caption "Security Ownership of Certain
Beneficial Owners and Management" in the Proxy Statement is hereby incorporated
by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
The information set forth in footnote 3 to the table set forth under the
caption "Election of Directors" and under the heading, "Loan to Executive
Officer" in the Proxy Statement is hereby incorporated by reference.
16
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K.
(a) Documents filed as part of the report:
1. FINANCIAL STATEMENTS
Independent Accountant's Report
Financial Statements and notes thereto incorporated by reference
from the 1993 Annual Report to Stockholders in Item 8 of Part II
above:
Consolidated Financial Statements of Zenith National Insurance
Corp. and Subsidiaries:
Consolidated Balance Sheet as of December 31, 1993 and 1992
Consolidated Statement of Operations for the years ended
December 31, 1993, 1992 and 1991
Consolidated Statement of Cash Flows for the years ended
December 31, 1993, 1992 and 1991
Consolidated Statement of Stockholders' Equity for the
years ended December 31, 1993, 1992 and 1991
Notes to Consolidated Financial Statements
Table setting forth the reconciliation of changes in the
liabilities for losses and loss adjustment expenses on page 9 of
the 1993 Annual Report to Stockholders
Table setting forth incurred loss and loss adjustment expense
development on a statutory basis on page 10 of the 1993 Annual
Report to Stockholders
2.FINANCIAL STATEMENT SCHEDULES
Zenith National Insurance Corp. and Subsidiaries
As of December 31, 1993.
I -- Summary of Investments -- Other Than Investments in Related
Parties
As of December 31, 1993 and 1992
II -- Amounts Receivable From Related Parties and Underwriters,
Promoters and Employees Other Than Related Parties
For the years ended December 31, 1993, 1992 and 1991.
V -- Supplementary Insurance Information
VI -- Reinsurance
IX -- Short-term Borrowings
Zenith National Insurance Corp.
As of December 31, 1993 and 1992 and for the years ended December
31, 1993, 1992 and 1991.
III -- Condensed Financial Information of Registrant
Property and Casualty Loss Developments on pages 50 and 51 and on page
10 of the 1993 Annual Report to Stockholders.
Schedules other than those listed above are omitted since they are not
applicable, not required, or the information required to be set forth
therein is included in the consolidated financial statements, or in
notes thereto.
17
3. EXHIBITS
The Exhibits listed below are filed in a separate Exhibit Volume to this
Report.
3.1 Certificate of Incorporation of Zenith as in effect immediately prior to November 22,
1985. (Incorporated herein by reference to Exhibit 3 to Zenith's Amendment on Form 8,
date of amendment October 10, 1985, to Zenith's Current Report on Form 8-K, date of
report July 26, 1985). Certificate of Amendment to Certificate of Incorporation of
Zenith, effective November 22, 1985. (Incorporated herein by reference to Zenith's
Current Report on Form 8-K, date of report November 22, 1985).
3.2 By-Laws of Zenith, as currently in effect. (Incorporated herein by reference to Exhibit
3.2 to Zenith's Annual Report on Form 10-K for the year ended December 31, 1988.)
4.1 Indenture dated as of May 1, 1992 entered into between Zenith and Norwest Bank
Minnesota, National Association, as trustee, pursuant to which Zenith issued its 9%
Senior Notes due May 1, 2002. (Incorporated herein by reference to Exhibit 4 to Zenith's
Quarterly Report on Form 10-Q for the quarter ended March 31, 1992.)
10.1 Purchase Agreement, dated as of February 4, 1981, among Reliance Insurance Company,
Zenith, the Selling Stockholders referred to therein, and Eugene V. Klein, Daniel
Schwartz and Harvey L. Silbert as agents for the Selling Stockholders. (Incorporated
herein by reference to the exhibit to the Schedule 13D filed by Reliance Financial
Services Corporation on March 9, 1981 with respect to the common stock of Zenith).
10.2 Asset and Liability Assumption Agreement, dated as of June 4, 1985, between Zenith
Insurance and the Insurance Commissioner of the State of California (the
"Commissioner"). (Incorporated herein by reference to Exhibit 1 to Zenith's Current
Report on Form 8-K, date of report July 26, 1985).
10.3 Memorandum and Agreement of Closing dated as of July 26, 1985, among Zenith Insurance,
Zenith and the Commissioner (Incorporated herein by reference to Exhibit 10.6 to
Zenith's Annual Report on Form 10-K for the year ended December 31, 1985), together with
the following exhibits:
(a) Exhibit A -- Grant Deed, dated July 25, 1985, by the Commissioner in favor of Zenith
Insurance. (Incorporated herein by reference to Exhibit 10.6 to Zenith's Annual
Report on Form 10-K for the year ended December 31, 1985).
(b) Exhibit B -- Bill of Sale, dated as of July 26, 1985, by the Commissioner in favor
of Zenith Insurance. (Incorporated herein by reference to Exhibit 10.6 to Zenith's
Annual Report on Form 10-K for the year ended December 31, 1985).
(c) Exhibit C -- Assignment of Assets and Assumption of Liabilities, dated as of July
26, 1985, between the Commissioner and Zenith Insurance. (Incorporated herein by
reference to Exhibit 10.6 to Zenith's Annual Report on Form 10-K for the year ended
December 31, 1985).
(d) Exhibit D -- Noncompetition Agreement, dated as of July 26, 1985, between the
Commissioner and Zenith Insurance. (Incorporated herein by reference to Exhibit 28.3
to Zenith's Current Report on Form 8-K, date of report July 26, 1985).
18
(e) Exhibit E -- First Assignment Separate from Certificate, dated July 26, 1985, by the
Commissioner in favor of Zenith. (Incorporated herein by reference to Exhibit 10.6
to Zenith's Annual Report on Form 10-K for the year ended December 31, 1985).
(f) Exhibit F -- Engagement and Reimbursement Agreement, dated as of July 26, 1985,
between Zenith Insurance and the Commissioner. (Incorporated herein by reference to
Exhibit 28.2 to Zenith's Current Report on Form 8-K, date of report July 26, 1985).
*10.4 Zenith's Non-Qualified Stock Option Plan, as in effect immediately prior to December 6,
1985. (Incorporated herein by reference to Zenith's Registration Statement on Form S-8
(SEC File No. 2-97962)).
*10.5 Zenith's Amended and Restated Non-Qualified Stock Option Plan, adopted by Zenith's Board
of Directors on December 6, 1985. (Incorporated herein by reference to Zenith's
Registration Statement on Form S-8
(SEC File No. 33-8948)).
*10.6 Employment Agreement, dated May 24, 1990, between Zenith and Fredricka Taubitz.
(Incorporated herein by reference to Exhibit 10.6 to Zenith's Annual Report on Form 10K
for the year ended December 31, 1990).
*10.7 Employment Agreement, dated October 1, 1990, between Zenith and John J. Tickner.
(Incorporated herein by reference to Exhibit 10.7 to Zenith's Annual Report on Form 10K
for the year ended December 31, 1990).
*10.8 Employment Agreement, dated as of February 28, 1990, between Zenith and Stanley R. Zax.
(Incorporated herein by reference to Exhibit 10.8 to Zenith's Annual Report on Form 10K
for the year ended December 31, 1990).
*10.9 Stock Option Agreement, dated as of May 19, 1987, between Zenith and Stanley R. Zax.
(Incorporated herein by reference to Exhibit 10.15 to Zenith's Annual Report on Form
10-K for the year ended December 31, 1987).
10.10 Promissory Note, dated January 9, 1991, in an original principal amount of $3,000,000,
by Stanley R. Zax in favor of Zenith. (Incorporated herein by reference to Exhibit 10.10
to Zenith's Annual Report on Form 10K for the year ended December 31, 1990).
10.11 Credit Agreement, as amended, dated as of November 30, 1988 between Zenith and Sanwa
Bank of California. (Incorporated herein by reference to Exhibit 10.11 to Zenith's
Annual Report on Form 10-K for the year ended December 31, 1992).
10.12 Revolving Note Agreement, dated July 1, 1993, between Zenith and City National Bank.
10.13 Revolving Note Agreement, dated August 15, 1993 between Zenith and City National Bank.
10.14 Letter of Credit Facility Agreement, dated December 1, 1993, between Sanwa Bank of
California and Zenith Insurance.
10.15 Agreement of Reinsurance #6966 between Zenith Insurance Company and General Reinsurance
Corporation, dated as of December 21, 1984. (Incorporated herein by reference to Exhibit
10.13 to Zenith's Annual Report on Form 10K for the year ended December 31, 1991.)
10.16 Workers' Compensation and Employers' Liability Reinsurance Agreement between Zenith
Insurance Company and Employers Reinsurance Corporation, effective January 1, 1986.
(Incorporated herein by reference to Exhibit 10.14 to Zenith's Annual Report on Form 10K
for the year ended December 31, 1991.)
19
10.17 Agreement of Reinsurance No. 7276 between CalFarm Insurance Company and General
Reinsurance Corporation, dated as of February 5, 1988. (Incorporated herein by reference
to Exhibit 10.15 to Zenith's Annual Report on Form 10K for the year ended December 31,
1991.)
10.18 Agreement of Reinsurance No. B226 between CalFarm Insurance Company and General
Reinsurance Corporation, dated as of January 13, 1988. (Incorporated herein by reference
to Exhibit 10.16 to Zenith's Annual Report on Form 10K for the year ended December 31,
1991.)
10.19 Agreement of Reinsurance No. B197-A between CalFarm Insurance Company and General
Reinsurance Corporation, dated as of January 13, 1988. (Incorporated herein by reference
to Exhibit 10.17 to Zenith's Annual Report on Form 10K for the year ended December 31,
1991.)
10.20 Agreement of Reinsurance No. B196-A between CalFarm Insurance Company and General
Reinsurance Corporation, dated as of January 13, 1988. (Incorporated herein by reference
to Exhibit 10.18 to Zenith's Annual Report on Form 10K for the year ended December 31,
1991.)
10.21 Agreement of Reinsurance No. 7832 between General Reinsurance Corporation and CalFarm
Insurance, Zenith Insurance and ZNAT Insurance, effective September 1, 1993.
10.22 Agreement of Reinsurance No. 623-0005 between American Re-Insurance Company and CalFarm
Insurance, Zenith Insurance and ZNAT Insurance, effective September 1, 1993.
10.23 Agreement of Reinsurance No. 0079460 between Employers Reinsurance Corporation and
CalFarm Insurance, Zenith Insurance and ZNAT Insurance, effective September 1, 1993.
10.24 Life, Disability and Accidental Death Automatic Reinsurance Agreement between CalFarm
Life Insurance Company and Transamerica Occidental Life Insurance Company, effective
June 1, 1983. (Incorporated herein by reference to Exhibit 10.20 to Zenith's Annual
Report on Form 10K for the year ended December 31, 1991.)
10.25 Life, Disability and Accidental Death Facultive Reinsurance Agreement between CalFarm
Insurance Company and Occidental Life Insurance Company of California, effective April
1, 1971. (Incorporated herein by reference to Exhibit 10.21 to Zenith's Annual Report on
Form 10K for the year ended December 31, 1991.)
10.26 Reinsurance Agreement between CalFarm Life Insurance Company and American United Life
Insurance Company, effective August 1, 1983. (Incorporated herein by reference to
Exhibit 10.22 to Zenith's Annual Report on Form 10K for the year ended December 31,
1991.)
10.27 Excess Major Medical Reinsurance Agreement (No. 0076820/Specific and Aggregate
Retentions) between CalFarm Life Insurance Company and Employers Reinsurance
Corporation, effective January 1, 1993.
10.28 Automatic Reinsurance Agreement between CalFarm Life Insurance Company and North
American Reassurance Company, effective June 1, 1991. (Incorporated herein by reference
to Exhibit 10.24 to Zenith's Annual Report on Form 10-K for the year ended December 31,
1992.)
10.29 Automatic Reinsurance Agreement between CalFarm Life Insurance Company and North
American Reassurance Company, effective February 21, 1991. (Incorporated herein by
reference to Exhibit 10.25 to Zenith's Annual Report on Form 10-K for the year ended
December 31, 1992.)
20
10.30 Yearly Renewable Term Reinsurance Agreement between CalFarm Life Insurance Company and
Gerling Global Life Insurance Company, effective March 1, 1992. (Incorporated herein by
reference to Exhibit 10.26 to Zenith's Annual Report on Form 10-K for the year ended
December 31, 1992.)
11 Computation of Earnings Per Share for the three (3) years ended
December 31, 1993
13 Zenith's Annual Report to Stockholders for the year ended
December 31, 1993, but only to the extent such report is expressly incorporated by
reference herein, and such report is not otherwise to be deemed "filed" as a part of
this Annual Report on Form 10-K.
21 Subsidiaries of Zenith.
23 Consent of Coopers & Lybrand, dated March 29, 1994. (Incorporated herein by reference to
page F-1 of this Annual Report on Form 10-K).
28 Property and Casualty Loss Statistics.
99.1 Information required by rule 15d-21 under the Securities Exchange Act of 1934 for the
year ended December 31, 1993 for the Zenith Investment Partnership 401(k) Plan (to be
filed by amendment on Form 10-K/A within 180 days of December 31, 1993).
- ------------------------
*Management contract or compensatory plan or arrangement
(b) REPORTS ON FORM 8-K
None
21
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized, on March 29, 1994.
ZENITH NATIONAL INSURANCE CORP.
By STANLEY R. ZAX
------------------------------------
Stanley R. Zax
Chairman of the Board and President
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities indicated, on March 29, 1994.
STANLEY R. ZAX Chairman of the Board, President and
- --------------------------------------------- Director (Principal Executive Officer)
Stanley R. Zax
GEORGE E. BELLO Director
- ---------------------------------------------
George E. Bello
MAX M. KAMPELMAN Director
- ---------------------------------------------
Max M. Kampelman
JACK M. OSTROW Director
- ---------------------------------------------
Jack M. Ostrow
WILLIAM S. SESSIONS Director
- ---------------------------------------------
William S. Sessions
HARVEY L. SILBERT Director
- ---------------------------------------------
Harvey L. Silbert
ROBERT M. STEINBERG Director
- ---------------------------------------------
Robert M. Steinberg
SAUL P. STEINBERG Director
- ---------------------------------------------
Saul P. Steinberg
GERALD TSAI, JR. Director
- ---------------------------------------------
Gerald Tsai, Jr.
FREDRICKA TAUBITZ Executive Vice President and Chief Financial
- --------------------------------------------- Officer (Principal Financial and Accounting
Fredricka Taubitz Officer)
22
CONSENT OF INDEPENDENT ACCOUNTANT
We consent to the incorporation by reference in the Registration Statements on
Form S-8 (File Nos. 33-8948 and 33-22219) of our report dated February 17, 1994
on our audits of the consolidated financial statements and financial statement
schedules of Zenith National Insurance Corp. and subsidiaries as of December 31,
1993 and 1992, and for each of the three years in the period ended December 31,
1993, which is included in this Annual Report on Form 10-K.
COOPERS & LYBRAND
Los Angeles, California
March 29, 1994
F-1
- --------------------------------------------------------------------------------
INDEPENDENT ACCOUNTANT'S REPORT
To the Stockholders and Board of Directors
of Zenith National Insurance Corp.
We have audited the consolidated financial statements of Zenith National
Insurance Corp. and subsidiaries as of December 31, 1993 and 1992, and for each
of the three years in the period ended December 31, 1993, which financial
statements are included on pages 52 through 68 of the Company's 1993 Annual
Report to Stockholders and incorporated by reference herein. We have also
audited the financial statement schedules listed in the index on page 17 of this
Form 10-K. These financial statements and financial statement schedules are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements and financial statement schedules based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Zenith National
Insurance Corp. and subsidiaries as of December 31, 1993 and 1992, and the
consolidated results of its operations and its cash flows for each of the three
years in the period ended December 31, 1993, in conformity with generally
accepted accounting principles. In addition, in our opinion, the financial
statement schedules referred to above, when considered in relation to the basic
financial statements taken as a whole, present fairly, in all material respects,
the information required to be included therein.
As discussed in Note 1 to the consolidated financial statements, the Company
changed its method of accounting for investments as of December 31, 1993.
COOPERS & LYBRAND
Los Angeles, California
February 17, 1994
F-2
SCHEDULE I -- SUMMARY OF INVESTMENTS --
OTHER THAN INVESTMENTS IN RELATED PARTIES
ZENITH NATIONAL INSURANCE CORP. AND SUBSIDIARIES
DECEMBER 31, 1993
COLUMN D
COLUMN C ---------------
COLUMN A COLUMN B ---------- AMOUNT AT WHICH
- -------------------------------------------------- ---------- FAIR SHOWN IN THE
TYPE OF INVESTMENT COST VALUE BALANCE SHEET
- -------------------------------------------------- ---------- ---------- ---------------
(DOLLARS IN THOUSANDS)
Fixed maturities
Bonds:
United States Government and government
agencies and authorities.................... $ 441,946 $ 443,551 $ 442,369
Public utilities.............................. 71,438 75,849 73,178
Industrial and miscellaneous.................. 541,811 592,012 558,497
Redeemable preferred stocks..................... 33,217 32,975 32,975
---------- ---------- ---------------
Total fixed maturities.................... 1,088,412 1,144,387 1,107,019
---------- ---------- ---------------
Equity securities
Floating rate preferred stocks.................. 30,582 31,495 31,495
Convertible and nonredeemable preferred
stocks........................................ 11,545 11,246 11,246
Common stocks, industrial....................... 14,485 15,575 15,575
---------- ---------- ---------------
Total equity securities................... 56,612 58,316 58,316
---------- ---------- ---------------
Mortgage loans on real estate..................... 4,515 4,515 4,515
Policy loans...................................... 39,609 39,609 39,609
Short-term investments............................ 276,841 276,841 276,841
Other investments................................. 14,097 14,097 14,097
---------- ---------- ---------------
Total investments......................... $1,480,086 $1,537,765 $ 1,500,397
---------- ---------- ---------------
---------- ---------- ---------------
F-3
SCHEDULE II -- AMOUNTS RECEIVABLE FROM RELATED PARTIES AND
UNDERWRITERS, PROMOTERS AND EMPLOYEES OTHER THAN RELATED PARTIES
ZENITH NATIONAL INSURANCE CORP. AND SUBSIDIARIES
COLUMN D
------------------------- COLUMN E
--------------------------
COLUMN B DEDUCTIONS
---------- ------------------------- BALANCE AT END OF PERIOD
COLUMN A BALANCE AT COLUMN C (1) (2) --------------------------
- ------------------------------ BEGINNING ---------- AMOUNTS AMOUNTS (1) (2)
NAME OF DEBTOR OF PERIOD ADDITIONS COLLECTED WRITTEN OFF CURRENT NOT CURRENT
- ------------------------------ ---------- ---------- ---------- ----------- ---------- ------------
1993
Stanley R. Zax $2,300,000 -0- $2,300,000 -0- -0- -0-
1992
Stanley R. Zax $2,800,000 -0- $ 500,000 -0- $2,300,000 -0-
1991
Stanley R. Zax -0- $3,000,000 $ 200,000 -0- $2,800,000 -0-
In January 1991, Zenith loaned the sum of $3,000,000 to Mr. Zax. The loan
was evidenced by a promissory note which was payable on January 9, 1994, with
interest, payable each quarter until maturity, at a rate equal to the Prime
Rate. The loan was unsecured.
Under the terms of the loan, Mr. Zax was able to prepay, without penalty,
all or any portion of the principal indebtedness, together with accrued and
unpaid interest. The note was repaid in full on September 23, 1993.
F-4
SCHEDULE III -- CONDENSED FINANCIAL INFORMATION OF REGISTRANT
ZENITH NATIONAL INSURANCE CORP.
BALANCE SHEET
ASSETS
DECEMBER 31,
----------------------------
1993 1992
------------ ------------
Investments
Common stocks, at market (cost $607,000, 1993 and $3,955,000, 1992)..................... $ 637,000 $ 4,015,000
Short-term investments (at cost which approximates market).............................. 14,996,000 9,192,000
Cash...................................................................................... 1,869,000 2,260,000
Investment in subsidiaries (Note A)....................................................... 405,982,000 362,975,000
Federal income taxes receivable from subsidiaries (Note A)................................ 3,139,000
Other assets.............................................................................. 13,716,000 5,084,000
------------ ------------
Total assets...................................................................... $437,200,000 $386,665,000
------------ ------------
------------ ------------
LIABILITIES
Senior notes payable, less unamortized discount of $1,011,000, 1993 and $1,132,000,
1992.................................................................................... $ 73,989,000 $ 73,868,000
Cash dividends payable to stockholders.................................................... 4,711,000 4,704,000
Federal income taxes payable.............................................................. 3,925,000
Other liabilities......................................................................... 5,110,000 6,495,000
------------ ------------
Total liabilities................................................................. 87,735,000 85,067,000
------------ ------------
STOCKHOLDERS' EQUITY
Preferred stock, $1 par--shares authorized 1,000,000; issued and outstanding, none in 1993
and 1992................................................................................
Common stock, $1 par--shares authorized 50,000,000; issued 23,910,000, outstanding
18,841,000, 1993; issued 23,562,000, outstanding 18,813,000, 1992....................... 23,910,000 23,562,000
Additional paid-in capital................................................................ 249,092,000 242,226,000
Retained earnings......................................................................... 148,043,000 113,867,000
Net unrealized appreciation (depreciation) on investments net of $7,093,000 deferred taxes
in 1993................................................................................. 13,176,000 (668,000)
------------ ------------
434,221,000 378,987,000
Less treasury stock at cost (5,069,000 shares, 1993 and 4,749,000 shares, 1992)........... (84,756,000) (77,389,000)
------------ ------------
Total stockholders' equity........................................................ 349,465,000 301,598,000
------------ ------------
Total liabilities and stockholders' equity........................................ $437,200,000 $386,665,000
------------ ------------
------------ ------------
See notes to condensed financial information.
F-5
SCHEDULE III -- CONDENSED FINANCIAL INFORMATION OF REGISTRANT
ZENITH NATIONAL INSURANCE CORP.
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31,
----------------------------------------------
1993 1992 1991
------------ ------------- -------------
Investment income, net of expenses of $51,000, 1993, $51,000, 1992 and $35,000,
1991........................................................................... $ 492,000 $ 852,000 $ 400,000
Realized gains (losses) on investments.......................................... 895,000 (1,447,000) (1,754,000)
Lawsuit settlement.............................................................. 7,561,000
------------ ------------- -------------
Total revenue................................................................... 8,948,000 (595,000) (1,354,000)
Operating expense............................................................... 3,478,000 3,222,000 3,236,000
Interest expense................................................................ 6,658,000 6,472,000 5,430,000
------------ ------------- -------------
Loss from operations before federal income tax benefit, equity in net income of
insurance subsidiaries, extraordinary item and cumulative effect of accounting
change........................................................................ (1,188,000) (10,289,000) (10,020,000)
Federal income tax benefit...................................................... 516,000 3,128,000 2,857,000
------------ ------------- -------------
Loss from operations before equity in net income of insurance subsidiaries,
extraordinary item and cumulative effect of accounting change................. (672,000) (7,161,000) (7,163,000)
Extraordinary item -- debt retirement cost, net of tax benefit of $698,000...... (1,355,000)
Cumulative effect of change in accounting for income taxes...................... (187,000)
Equity in net income of insurance subsidiaries
(Note A)...................................................................... 53,872,000 37,403,000 53,064,000
------------ ------------- -------------
Net income...................................................................... $ 53,200,000 $ 28,700,000 $ 45,901,000
------------ ------------- -------------
------------ ------------- -------------
See notes to condensed financial information.
F-6
SCHEDULE III -- CONDENSED FINANCIAL INFORMATION OF REGISTRANT
ZENITH NATIONAL INSURANCE CORP.
STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED DECEMBER 31,
-----------------------------------------------
1993 1992 1991
------------- ------------- -------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Investment income received.................................................... $ 485,000 $ 846,000 $ 400,000
Recovery from lawsuit settlement.............................................. 4,094,000
Operating expenses paid....................................................... (3,309,000) (3,674,000) (2,616,000)
Interest paid................................................................. (6,552,000) (6,073,000) (5,128,000)
Income taxes refunded......................................................... 8,524,000 1,206,000 5,104,000
------------- ------------- -------------
Net cash flows from operating activities.................................... 3,242,000 (7,695,000) (2,240,000)
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of invested assets................................................... (2,597,000)
Proceeds from sales of invested assets........................................ 4,243,000 1,219,000
Net change in short-term investments.......................................... (7,264,000) (7,716,000) (145,000)
Cash received (advanced) received from note receivable........................ 2,300,000 500,000 (2,800,000)
------------- ------------- -------------
Net cash flows from investing activities.................................... (721,000) (8,594,000) (2,945,000)
CASH FLOWS FROM FINANCING ACTIVITIES:
Cash received from bank line of credit........................................ 1,000,000 6,350,000 32,300,000
Cash paid on bank line of credit.............................................. (1,000,000) (40,150,000) (36,600,000)
Cash dividends paid to common stockholders.................................... (19,018,000) (18,927,000) (19,012,000)
Retirement of Senior Notes payable 1994....................................... (17,740,000)
Net proceeds from issuance of Senior Notes payable 2002....................... 73,787,000
Proceeds from exercise of stock options....................................... 6,261,000 4,526,000 599,000
Purchase of treasury shares................................................... (7,367,000) (5,686,000) (4,954,000)
Dividends received from subsidiaries.......................................... 25,000,000 15,000,000 33,000,000
Capital contribution to subsidiary............................................ (250,000)
Loan to subsidiary............................................................ (7,538,000)
------------- ------------- -------------
Net cash flows from financing activities.................................... (2,912,000) 17,160,000 5,333,000
Net increase (decrease) in cash................................................. (391,000) 871,000 148,000
Cash at beginning of year....................................................... 2,260,000 1,389,000 1,241,000
------------- ------------- -------------
Cash at end of year............................................................. $ 1,869,000 $ 2,260,000 $ 1,389,000
------------- ------------- -------------
------------- ------------- -------------
RECONCILIATION OF NET INCOME TO NET CASH FLOWS FROM OPERATING ACTIVITIES:
Net income.................................................................... $ 53,200,000 $ 28,700,000 $ 45,901,000
Net income of insurance subsidiaries.......................................... (53,872,000) (37,403,000) (53,064,000)
Realized (gains)/losses on investments........................................ (895,000) 1,447,000 1,754,000
Amortization of discount and issue costs on senior notes...................... 121,000 1,822,000 457,000
Federal income taxes.......................................................... 8,007,000 (2,433,000) 2,247,000
Increase in receivable from lawsuit settlement................................ (3,467,000)
Other......................................................................... 148,000 172,000 465,000
------------- ------------- -------------
Net cash flow from operating activities..................................... $ 3,242,000 $ (7,695,000) $ (2,240,000)
------------- ------------- -------------
------------- ------------- -------------
See notes to condensed financial information.
F-7
SCHEDULE III -- CONDENSED FINANCIAL INFORMATION OF REGISTRANT
ZENITH NATIONAL INSURANCE CORP.
NOTES TO CONDENSED FINANCIAL INFORMATION
The accompanying condensed financial statements should be read in
conjunction with the consolidated financial statements and notes thereto of
Zenith National Insurance Corp. (Zenith) and subsidiaries.
A. Investment In Subsidiaries:
Zenith owns, directly or indirectly, 100% of the outstanding stock of
Zenith Insurance Company, CalFarm Insurance Company, ZNAT Insurance Company,
Zenith Star Insurance Company, CalFarm Life Insurance Company and
Perma-Bilt, a Nevada Corporation. These investments are included in the
financial statements on the equity basis of accounting. Temporary advances
in the ordinary course of business are included in other assets. The excess
of cost over net assets acquired of $2,009,000 represents the unamortized
excess of cost over underlying net tangible assets of companies acquired
prior to 1970, which is considered to have continuing value.
Zenith files a consolidated federal income tax return. The equity in the
income of insurance subsidiaries of $53,872,000 in 1993, $37,403,000 in 1992
and $53,064,000 in 1991 is net of a provision for federal income tax expense
of $20,795,000 in 1993, $3,498,000 in 1992 and $9,476,000 in 1991.
Zenith has formulated tax allocation procedures with its subsidiaries
and the 1993, 1992 and 1991 condensed financial information reflect Zenith's
portion of the consolidated taxes.
Zenith Insurance Company paid dividends to Zenith of $25,000,000 in
1993, $15,000,000 in 1992 and $33,000,000 in 1991. CalFarm Insurance Company
paid a dividend of $5,000,000 to Zenith Insurance Company in 1992.
F-8
SCHEDULE V -- SUPPLEMENTARY INSURANCE INFORMATION
ZENITH NATIONAL INSURANCE CORP. AND SUBSIDIARIES
COLUMN C
-------------
COLUMN B FUTURE POLICY COLUMN E
------------ BENEFITS, ------------ COLUMN G
DEFERRED LOSSES, COLUMN D OTHER POLICY COLUMN F -----------
COLUMN A POLICY CLAIMS ------------ CLAIMS AND ------------ NET
- ------------------------------ ACQUISITION AND LOSS UNEARNED BENEFITS PREMIUM INVESTMENT
SEGMENT COSTS EXPENSES PREMIUMS PAYABLE REVENUE INCOME
- ------------------------------ ------------ ------------- ------------ ------------ ------------ -----------
1993
- ------------------------------
Property and Casualty
Workers' compensation....... $ 4,264,000 $286,452,000 $32,109,000 $244,661,000
Automobile and other
property/casualty......... 11,704,000 87,418,000 68,182,000 137,945,000
Reinsurance................. 1,048,000 94,848,000 6,889,000 23,295,000
------------ ------------- ------------ ------------ ------------ -----------
17,016,000 468,718,000 107,180,000 405,901,000 $36,643,000
Health and Life............... 91,400,000 153,771,000 4,716,000 $ 5,934,000 63,921,000 55,339,000
Reinsurance ceded............. 45,282,000
Registrant.................... 492,000
------------ ------------- ------------ ------------ ------------ -----------
Total....................... $108,416,000 $667,771,000 $111,896,000 $ 5,934,000 $469,822,000 $92,474,000
------------ ------------- ------------ ------------ ------------ -----------
------------ ------------- ------------ ------------ ------------ -----------
1992
- ------------------------------
Property and Casualty
Workers' compensation....... $ 4,647,000 $266,092,000 $30,853,000 $221,652,000
Automobile and other
property/casualty......... 10,460,000 90,262,000 56,663,000 137,392,000
Reinsurance................. 620,000 107,795,000 3,378,000 18,382,000
------------ ------------- ------------ ------------ ------------ -----------
15,727,000 464,149,000 90,894,000 377,426,000 $42,276,000
Health and Life............... 75,292,000 138,000,000 5,502,000 $ 7,041,000 64,448,000 53,486,000
Reinsurance ceded............. 33,387,000 5,403,000
Registrant.................... 852,000
------------ ------------- ------------ ------------ ------------ -----------
Total....................... $ 91,019,000 $635,536,000 $101,799,000 $ 7,041,000 $441,874,000 $96,614,000
------------ ------------- ------------ ------------ ------------ -----------
------------ ------------- ------------ ------------ ------------ -----------
1991
- ------------------------------
Property and Casualty
Workers' compensation....... $ 3,726,000 $241,439,000 $24,295,000 $208,989,000
Automobile and other
property/casualty......... 11,220,000 90,848,000 58,010,000 140,732,000
Reinsurance................. 1,637,000 107,893,000 7,868,000 26,347,000
------------ ------------- ------------ ------------ ------------ -----------
16,583,000 440,180,000 90,173,000 376,068,000 $45,727,000
Health and Life............... 60,027,000 134,308,000 5,406,000 $ 7,209,000 61,556,000 49,558,000
Registrant.................... 400,000
------------ ------------- ------------ ------------ ------------ -----------
Total....................... $ 76,610,000 $574,488,000 $95,579,000 $ 7,209,000 $437,624,000 $95,685,000
------------ ------------- ------------ ------------ ------------ -----------
------------ ------------- ------------ ------------ ------------ -----------
COLUMN H COLUMN I
------------- ------------
BENEFITS, AMORTIZATION COLUMN J
CLAIMS, OF DEFERRED ----------- COLUMN K
COLUMN A LOSSES AND POLICY OTHER ------------
- ------------------------------ SETTLEMENT ACQUISITION OPERATING PREMIUMS
SEGMENT EXPENSES COSTS EXPENSES WRITTEN
- ------------------------------ ------------- ------------ ----------- ------------
1993
- ------------------------------
Property and Casualty
Workers' compensation....... $164,815,000 $ 33,317,000 $19,736,000 $245,917,000
Automobile and other
property/casualty......... 96,715,000 26,598,000 20,336,000 143,223,000
Reinsurance................. 13,678,000 3,384,000 896,000 26,807,000
------------- ------------ ----------- ------------
275,208,000 63,299,000 40,968,000 415,947,000
Health and Life............... 84,448,000 2,202,000 24,267,000
Reinsurance ceded.............
Registrant.................... 3,478,000
------------- ------------ ----------- ------------
Total....................... $359,656,000 $ 65,501,000 $68,713,000 $415,947,000
------------- ------------ ----------- ------------
------------- ------------ ----------- ------------
1992
- ------------------------------
Property and Casualty
Workers' compensation....... $166,065,000 $ 33,868,000 $20,260,000 $228,209,000
Automobile and other
property/casualty......... 96,224,000 26,231,000 20,061,000 136,077,000
Reinsurance................. 27,443,000 3,674,000 1,267,000 13,892,000
------------- ------------ ----------- ------------
289,732,000 63,773,000 41,588,000 378,178,000
Health and Life............... 85,493,000 (494,000) 18,898,000
Reinsurance ceded.............
Registrant.................... 3,222,000
------------- ------------ ----------- ------------
Total....................... $375,225,000 $ 63,279,000 $63,708,000 $378,178,000
------------- ------------ ----------- ------------
------------- ------------ ----------- ------------
1991
- ------------------------------
Property and Casualty
Workers' compensation....... $145,961,000 $ 33,856,000 $22,491,000 $213,956,000
Automobile and other
property/casualty......... 92,599,000 27,278,000 20,163,000 143,257,000
Reinsurance................. 26,291,000 7,033,000 691,000 23,195,000
------------- ------------ ----------- ------------
264,851,000 68,167,000 43,345,000 380,408,000
Health and Life............... 79,924,000 88,000 18,634,000
Registrant.................... 3,236,000
------------- ------------ ----------- ------------
Total....................... $344,775,000 $ 68,255,000 $65,215,000 $380,408,000
------------- ------------ ----------- ------------
------------- ------------ ----------- ------------
F-9
SCHEDULE VI -- REINSURANCE
ZENITH NATIONAL INSURANCE CORP. AND SUBSIDIARIES
COLUMN F
COLUMN C COLUMN D ----------
COLUMN B ------------ ----------- PERCENTAGE
-------------- CEDED TO ASSUMED COLUMN E OF AMOUNT
GROSS OTHER FROM OTHER -------------- ASSUMED
COLUMN A AMOUNT COMPANIES COMPANIES NET AMOUNT TO NET
- ------------------------------------------------------- -------------- ------------ ----------- -------------- ----------
DECEMBER 31, 1993
Life insurance in force................................ $2,976,178,000 $453,025,000 $2,523,153,000
-------------- ------------ --------------
-------------- ------------ --------------
Premiums earned
Life insurance....................................... $ 22,707,000 $ 156,000 $ 22,551,000
Accident and health insurance........................ 42,667,000 1,297,000 41,370,000
Property and casualty insurance...................... 400,811,000 21,004,000 $26,094,000 405,901,000 6.4%
-------------- ------------ ----------- -------------- ----------
Total premiums earned............................ $ 466,185,000 $ 22,457,000 $26,094,000 $ 469,822,000 5.6%
-------------- ------------ ----------- -------------- ----------
-------------- ------------ ----------- -------------- ----------
DECEMBER 31, 1992
Life insurance in force................................ $2,951,649,000 $287,980,000 $2,663,669,000
-------------- ------------ --------------
-------------- ------------ --------------
Premiums earned
Life insurance....................................... $ 20,891,000 $ 574,000 $ 20,317,000
Accident and health insurance........................ 44,935,000 804,000 44,131,000
Property and casualty insurance...................... 378,922,000 20,853,000 $19,357,000 377,426,000 5.1%
-------------- ------------ ----------- -------------- ----------
Total premiums earned............................ $ 444,748,000 $ 22,231,000 $19,357,000 $ 441,874,000 4.4%
-------------- ------------ ----------- -------------- ----------
-------------- ------------ ----------- -------------- ----------
DECEMBER 31, 1991
Life insurance in force................................ $2,686,030,000 $247,994,000 $2,438,036,000
-------------- ------------ --------------
-------------- ------------ --------------
Premiums earned
Life insurance....................................... $ 18,850,000 $ 428,000 $ 18,422,000
Accident and health insurance........................ 43,770,000 636,000 43,134,000
Property and casualty insurance...................... 368,971,000 20,434,000 $27,531,000 376,068,000 7.3%
-------------- ------------ ----------- -------------- ----------
Total premiums earned............................ $ 431,591,000 $ 21,498,000 $27,531,000 $ 437,624,000 6.3%
-------------- ------------ ----------- -------------- ----------
-------------- ------------ ----------- -------------- ----------
F-10
SCHEDULE IX -- SHORT-TERM BORROWINGS
ZENITH NATIONAL INSURANCE CORP. AND SUBSIDIARIES
COLUMN A COLUMN D COLUMN E COLUMN F
- ---------------------------------------- ----------- ----------- -------------
CATEGORY COLUMN B COLUMN C MAXIMUM AVERAGE WEIGHTED
OF ----------- -------------- AMOUNT AMOUNT AVERAGE
AGGREGATE BALANCE WEIGHTED OUTSTANDING OUTSTANDING INTEREST RATE
SHORT-TERM AT END OF AVERAGE DURING THE DURING THE DURING THE
BORROWINGS PERIOD INTEREST RATE PERIOD PERIOD (1) PERIOD (2)
- ---------------------------------------- ----------- -------------- ----------- ----------- -------------
Amounts payable to banks (3)
1993.................................. -0- -0- $ 1,000,000 $ 83,000 5.45%
1992.................................. -0- -0- $20,000,000 $ 5,883,000 5.95%
1991.................................. $16,900,000 5.95% $26,350,000 $18,133,000 7.9%
- ------------------------
(1) Computed on the average of month-end balances.
(2) Computed using actual daily amount charged when line was drawn, divided by
the number of days outstanding.
(3) Amounts payable to banks are borrowed under a line of credit borrowing
arrangement which is subject to renewal, annually, on July 1.
F-11
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
EXHIBITS
TO
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1993
------------------------
ZENITH NATIONAL INSURANCE CORP.
(Exact name of registrant as specified in its charter)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
EXHIBIT LIST
SEQUENTIALLY
EXHIBIT NUMBERED
NUMBER DESCRIPTION PAGE
- --------- -------------------------------------------------------------------------------------- -----------------
3.1 Certificate of Incorporation of Zenith as in effect immediately prior to November 22,
1985. (Incorporated herein by reference to Exhibit 3 to Zenith's Amendment on Form 8,
date of amendment October 10, 1985, to Zenith's Current Report on Form 8-K, date of
report July 26, 1985). Certificate of Amendment to Certificate of Incorporation of
Zenith, effective November 22, 1985. (Incorporated herein by reference to Zenith's
Current Report on Form 8-K, date of report November 22, 1985).
3.2 By-Laws of Zenith, as currently in effect. (Incorporated herein by reference to
Exhibit 3.2 to Zenith's Annual Report on Form 10-K for the year ended December 31,
1988.)
4.1 Indenture dated as of May 1, 1992 entered into between Zenith and Norwest Bank
Minnesota, National Association, as trustee, pursuant to which Zenith issued its 9%
Senior Notes due May 1, 2002. (Incorporated herein by reference to Exhibit 4 to
Zenith's Quarterly Report on Form 10-Q for the quarter ended March 31, 1992.)
10.1 Purchase Agreement, dated as of February 4, 1981, among Reliance Insurance Company,
Zenith, the Selling Stockholders referred to therein, and Eugene V. Klein, Daniel
Schwartz and Harvey L. Silbert as agents for the Selling Stockholders. (Incorporated
herein by reference to the exhibit to the Schedule 13D filed by Reliance Financial
Services Corporation on March 9, 1981 with respect to the common stock of Zenith).
10.2 Asset and Liability Assumption Agreement, dated as of June 4, 1985, between Zenith
Insurance and the Insurance Commissioner of the State of California (the
"Commissioner"). (Incorporated herein by reference to Exhibit 1 to Zenith's Current
Report on Form 8-K, date of report July 26, 1985).
10.3 Memorandum and Agreement of Closing dated as of July 26, 1985, among Zenith Insurance,
Zenith and the Commissioner (Incorporated herein by reference to Exhibit 10.6 to
Zenith's Annual Report on Form 10-K for the year ended December 31, 1985), together
with the following exhibits:
(a) Exhibit A -- Grant Deed, dated July 25, 1985, by the Commissioner in favor of
Zenith Insurance. (Incorporated herein by reference to
Exhibit 10.6 to Zenith's Annual Report on Form 10-K for the year ended December 31,
1985).
(b) Exhibit B -- Bill of Sale, dated as of July 26, 1985, by the Commissioner in favor
of Zenith Insurance. (Incorporated herein by reference to Exhibit 10.6 to Zenith's
Annual Report on Form 10-K for the year ended December 31, 1985).
(c) Exhibit C -- Assignment of Assets and Assumption of Liabilities, dated as of July
26, 1985, between the Commissioner and Zenith Insurance. (Incorporated herein by
reference to Exhibit 10.6 to Zenith's Annual Report on Form 10-K for the year
ended December 31, 1985).
(d) Exhibit D -- Noncompetition Agreement, dated as of July 26, 1985, between the
Commissioner and Zenith Insurance. (Incorporated herein by reference to Exhibit
28.3 to Zenith's Current Report on Form 8-K, date of report July 26, 1985).
(e) Exhibit E -- First Assignment Separate from Certificate, dated July 26, 1985, by
the Commissioner in favor of Zenith. (Incorporated herein by reference to Exhibit
10.6 to Zenith's Annual Report on Form 10-K for the year ended December 31, 1985).
SEQUENTIALLY
EXHIBIT NUMBERED
NUMBER DESCRIPTION PAGE
- --------- -------------------------------------------------------------------------------------- -----------------
(f) Exhibit F -- Engagement and Reimbursement Agreement, dated as of July 26, 1985,
between Zenith Insurance and the Commissioner. (Incorporated herein by reference
to Exhibit 28.2 to Zenith's Current Report on Form 8-K, date of report July 26,
1985).
*10.4 Zenith's Non-Qualified Stock Option Plan, as in effect immediately prior to December
6, 1985. (Incorporated herein by reference to Zenith's Registration Statement on Form
S-8 (SEC File No. 2-97962)).
*10.5 Zenith's Amended and Restated Non-Qualified Stock Option Plan, adopted by Zenith's
Board of Directors on December 6, 1985. (Incorporated herein by reference to Zenith's
Registration Statement on Form S-8
(SEC File No. 33-8948)).
*10.6 Employment Agreement, dated May 24, 1990, between Zenith and Fredricka Taubitz.
(Incorporated herein by reference to Exhibit 10.6 to Zenith's Annual Report on Form
10K for the year ended December 31, 1990).
*10.7 Employment Agreement, dated October 1, 1990, between Zenith and John J. Tickner.
(Incorporated herein by reference to Exhibit 10.7 to Zenith's Annual Report on Form
10K for the year ended December 31, 1990).
*10.8 Employment Agreement, dated as of February 28, 1990, between Zenith and Stanley R.
Zax. (Incorporated herein by reference to Exhibit 10.8 to Zenith's Annual Report on
Form 10K for the year ended December 31, 1990).
*10.9 Stock Option Agreement, dated as of May 19, 1987, between Zenith and Stanley R. Zax.
(Incorporated herein by reference to Exhibit 10.15 to Zenith's Annual Report on Form
10-K for the year ended December 31, 1987).
10.10 Promissory Note, dated January 9, 1991, in an original principal amount of $3,000,000,
by Stanley R. Zax in favor of Zenith. (Incorporated herein by reference to Exhibit
10.10 to Zenith's Annual Report on Form 10K for the year ended December 31, 1990).
10.11 Credit Agreement, as amended, dated as of November 30, 1988 between Zenith and Sanwa
Bank of California. (Incorporated herein by reference to Exhibit 10.11 to Zenith's
Annual Report on Form 10-K for the year ended December 31, 1992).
10.12 Revolving Note Agreement, dated July 1, 1993, between Zenith and City National Bank.
10.13 Revolving Note Agreement, dated August 15, 1993 between Zenith and City National Bank.
10.14 Letter of Credit Facility Agreement, dated December 1, 1993, between Sanwa Bank of
California and Zenith Insurance.
10.15 Agreement of Reinsurance #6966 between Zenith Insurance Company and General
Reinsurance Corporation, dated as of December 21, 1984. (Incorporated herein by
reference to Exhibit 10.13 to Zenith's Annual Report on Form 10K for the year ended
December 31, 1991.)
10.16 Workers' Compensation and Employers' Liability Reinsurance Agreement between Zenith
Insurance Company and Employers Reinsurance Corporation, effective January 1, 1986.
(Incorporated herein by reference to Exhibit 10.14 to Zenith's Annual Report on Form
10K for the year ended December 31, 1991.)
10.17 Agreement of Reinsurance No. 7276 between CalFarm Insurance Company and General
Reinsurance Corporation, dated as of February 5, 1988. (Incorporated herein by
reference to Exhibit 10.15 to Zenith's Annual Report on Form 10K for the year ended
December 31, 1991.)
SEQUENTIALLY
EXHIBIT NUMBERED
NUMBER DESCRIPTION PAGE
- --------- -------------------------------------------------------------------------------------- -----------------
10.18 Agreement of Reinsurance No. B226 between CalFarm Insurance Company and General
Reinsurance Corporation, dated as of January 13, 1988. (Incorporated herein by
reference to Exhibit 10.16 to Zenith's Annual Report on Form 10K for the year ended
December 31, 1991.)
10.19 Agreement of Reinsurance No. B197-A between CalFarm Insurance Company and General
Reinsurance Corporation, dated as of January 13, 1988. (Incorporated herein by
reference to Exhibit 10.17 to Zenith's Annual Report on Form 10K for the year ended
December 31, 1991.)
10.20 Agreement of Reinsurance No. B196-A between CalFarm Insurance Company and General
Reinsurance Corporation, dated as of January 13, 1988. (Incorporated herein by
reference to Exhibit 10.18 to Zenith's Annual Report on Form 10K for the year ended
December 31, 1991.)
10.21 Agreement of Reinsurance No. 7832 between General Reinsurance Corporation and CalFarm
Insurance, Zenith Insurance and ZNAT Insurance, effective September 1, 1993.
10.22 Agreement of Reinsurance No. 623-0005 between American Re-Insurance Company and
CalFarm Insurance, Zenith Insurance and ZNAT Insurance, effective September 1, 1993.
10.23 Agreement of Reinsurance No. 0079460 between Employers Reinsurance Corporation and
CalFarm Insurance, Zenith Insurance and ZNAT Insurance, effective September 1, 1993.
10.24 Life, Disability and Accidental Death Automatic Reinsurance Agreement between CalFarm
Life Insurance Company and Transamerica Occidental Life Insurance Company, effective
June 1, 1983. (Incorporated herein by reference to Exhibit 10.20 to Zenith's Annual
Report on Form 10K for the year ended December 31, 1991.)
10.25 Life, Disability and Accidental Death Facultive Reinsurance Agreement between CalFarm
Insurance Company and Occidental Life Insurance Company of California, effective April
1, 1971. (Incorporated herein by reference to Exhibit 10.21 to Zenith's Annual Report
on Form 10K for the year ended December 31, 1991.)
10.26 Reinsurance Agreement between CalFarm Life Insurance Company and American United Life
Insurance Company, effective August 1, 1983. (Incorporated herein by reference to
Exhibit 10.22 to Zenith's Annual Report on Form 10K for the year ended December 31,
1991.)
10.27 Excess Major Medical Reinsurance Agreement (No. 0076820/Specific and Aggregate
Retentions) between CalFarm Life Insurance Company and Employers Reinsurance
Corporation, effective January 1, 1993.
10.28 Automatic Reinsurance Agreement between CalFarm Life Insurance Company and North
American Reassurance Company, effective June 1, 1991. (Incorporated herein by
reference to Exhibit 10.24 to Zenith's Annual Report on Form 10-K for the year ended
December 31, 1992.)
10.29 Automatic Reinsurance Agreement between CalFarm Life Insurance Company and North
American Reassurance Company, effective February 21, 1991. (Incorporated herein by
reference to Exhibit 10.25 to Zenith's Annual Report on Form 10-K for the year ended
December 31, 1992.)
SEQUENTIALLY
EXHIBIT NUMBERED
NUMBER DESCRIPTION PAGE
- --------- -------------------------------------------------------------------------------------- -----------------
10.30 Yearly Renewable Term Reinsurance Agreement between CalFarm Life Insurance Company and
Gerling Global Life Insurance Company, effective March 1, 1992. (Incorporated herein
by reference to Exhibit 10.26 to Zenith's Annual Report on Form 10-K for the year
ended December 31, 1992.)
11 Computation of Earnings Per Share for the three (3) years ended
December 31, 1993.
13 Zenith's Annual Report to Stockholders for the year ended December 31, 1993, but only
to the extent such report is expressly incorporated by reference herein, and such
report is not otherwise to be deemed "filed" as a part of this Annual Report on Form
10-K.
21 Subsidiaries of Zenith
23 Consent of Coopers & Lybrand, dated March 29, 1994. (Incorporated herein by reference
to page F-1 of this Annual Report on Form 10-K).
28 Property and Casualty Loss Statistics.
99.1 Information required by rule 15d-21 under the Securities Exchange Act of 1934 for the
year ended December 31, 1993 for the Zenith Investment Partnership 401(k) Plan (to be
filed by amendment on Form 10-K/A within 180 days of December 31, 1993).
- ------------------------
*Management contract or compensatory plan or arrangement