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TABLE OF CONTENTS
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Item 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES

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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-K

ZENITH NATIONAL INSURANCE CORP.

Securities registered pursuant to Section 12(b) of the Act:

Securities registered pursuant to Section 12(g) of the Act: None.

        Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act:     Yes   X     No         

        Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Act:     Yes          No    X   

        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 checkmark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).     Yes          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.    ý

        Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a small reporting company. See definitions of "large accelerated filer," "accelerated filer," and "smaller reporting company" in Rule 12b-2 of the Exchange Act.

        Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act):     Yes         No    X   

        The aggregate market value of the voting and non-voting common equity of the registrant held by non-affiliates was $794,234,000 (based on the closing price for such common equity reported by the New York Stock Exchange for June 30, 2009, the last business day of the registrant's most recently completed second quarter).

        At January 31, 2010, there were 37,880,463 shares of Zenith National Insurance Corp. common stock outstanding.

DOCUMENTS INCORPORATED BY REFERENCE

        (1)  Portions of the Proxy Statement in connection with the 2010 Annual Meeting of Stockholders — Part III.

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Zenith National Insurance Corp. and Subsidiaries

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PART I

Item 1. BUSINESS

General

       Zenith National Insurance Corp. ("Zenith National"), a Delaware corporation incorporated in 1971, is a holding company engaged, through its wholly-owned subsidiaries, Zenith Insurance Company ("Zenith Insurance") and ZNAT Insurance Company ("ZNAT Insurance"), in the workers' compensation insurance business, nationally. Unless otherwise indicated, all references to "Zenith," "we," "us," "our," "Company" or similar terms refer to Zenith National together with its subsidiaries.

       Our insurance subsidiaries have been assigned a financial strength rating of A (Excellent) by A.M. Best Company ("A.M. Best"), A- (Strong) by Standard & Poor's Rating Services, A3 (Good) by Moody's Investors Service and A (Strong) by Fitch Ratings.

       At December 31, 2009, Zenith had approximately 1,400 full-time employees. Our principal executive offices are located at 21255 Califa Street, Woodland Hills, California 91367-5021, telephone (818) 713-1000.

       Our Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, and all amendments to those reports, Proxy Statement for our Annual Meeting of Stockholders and Annual Report to Stockholders are made available free of charge on our website at www.thezenith.com as soon as reasonably practicable after such reports have been electronically filed with or furnished to the Securities and Exchange Commission. Also available on our website are the following corporate governance materials: Code of Business Conduct; Code of Ethics for Senior Financial Officers (which applies to Zenith's Chief Executive Officer, Chief Financial Officer and Senior Vice President of Finance); Corporate Governance Guidelines; and Charters of the Audit Committee, Compensation Committee, Nominating and Corporate Governance Committee and Healthcare Committee. In addition, amendments to, or waivers of, the Code of Ethics for Senior Financial Officers will be posted to our website or contained in a Form 8-K filed within four business days after any such amendment or waiver. Any of the foregoing material may also be obtained free of charge by written request to: Corporate Secretary, Zenith National Insurance Corp., 21255 Califa Street, Woodland Hills, CA 91367-5021.

Glossary of Selected Insurance Terms

The following terms when used herein have the following meanings:

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Description of the Business

       We are in the business of managing insurance and investment risk. Our main business activity is the workers' compensation insurance business. The key operating goal for our workers' compensation segment is to achieve underwriting profitability and significantly outperform the national workers' compensation insurance industry. In addition, we invest the net cash flow from our operations and our capital principally in fixed maturity securities. These investments provide a stable source of income over the long run, although in the short term, changes in interest rates and our current investment strategies impact the amount of investment income we earn and the market value of our portfolio. We measure our performance by our ability to increase stockholders' equity, plus dividends to stockholders, over the long term.

       Our business is comprised of the following segments: workers' compensation, reinsurance and investments. In September 2005, we exited the assumed reinsurance business; however, we will be paying our assumed reinsurance claims for several years. The results of the reinsurance segment will continue to be included in the results of continuing operations. Net earned premiums, segment results and the combined ratios of our workers' compensation and reinsurance segments and results of our investments segment, as well as the losses from the parent for each of the three years ended December 31, 2009, are set forth in Note 15 — "Segment Information" of our Consolidated Financial Statements.

Workers' Compensation Segment

       In the workers' compensation segment, we provide insurance coverage for the statutorily prescribed benefits that employers are required to provide to their employees who may be injured in the course of employment. Our workers' compensation policies are issued to employers who also pay the premiums. The policies provide payments for, among other things, temporary or permanent disability benefits, death benefits and medical and hospital expenses for covered employees with work-related injuries or illnesses. The benefits payable and the duration of such benefits are set by statute, and vary by state and with the nature and severity of the injury or disease and the wages, occupation and age of the employee.

       Our long-term underwriting and pricing strategy in the national workers' compensation industry is to deliver quality services based on adequate premium rates for the exposure. We continually analyze data and use our best judgment about loss cost trends, particularly medical costs, to set adequate premium rates and loss reserves. During periods of intense competition or other adverse industry conditions, our exposure base as measured by insured payroll may decrease as employers buy coverage elsewhere because we adhere to a long-standing operating principle that we will not compromise the adequacy of our premium rates in order to achieve revenue or market share objectives. Our value proposition is that our services, over the long run, provide employers the opportunity to reduce their experience modification factor and their long-term workers' compensation costs.

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       We write workers' compensation insurance in 45 states and have eight office locations in California, three in Florida, two in Illinois, and offices in each of Texas, Pennsylvania, North Carolina and Alabama. Our primary office locations consist of teams of Zenith employees providing the following services to our insureds:

•

Safety and health professionals with specialized industry knowledge, including specialists in ergonomics as well as industrial hygiene. These professionals focus on workplace safety, accident and illness prevention and safety awareness training.

•

Claims professionals who work closely with skilled occupational nurses, physicians who are recognized experts in occupational medicine, and in-house workers' compensation lawyers. These teams of claims and medical professionals are focused on obtaining quality medical care for the injured worker and enabling the injured worker to return-to-work as quickly as possible. They also pursue resolution of disputed claims.

•

Trained and experienced fraud professionals who review claims for potential fraud and pursue the investigation of suspected or known fraud.

•

In-house bill review staff who process medical provider bills to ensure that payments are properly reduced to statutorily determined fee schedules or other negotiated or contracted discounts.

•

Premium auditors who verify appropriate payroll classifications to assure equitable premium billing.

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       Our specialist strategy is focused on providing quality services to our insureds and claimants, generating underwriting profits and delivering an above average return to our stockholders over time. This strategy has resulted in a long-term record of significantly outperforming the industry. The following table compares our California workers' compensation accident year loss ratios to the accident year loss ratios estimated by the Workers' Compensation Insurance Rating Bureau ("WCIRB") for the California workers' compensation industry for more than 30 years:

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       We have a shorter history in writing business outside of California, but our specialist strategy has delivered similar results. The following table compares our non-California workers' compensation accident year loss ratios to the accident year loss ratios estimated by the National Council on Compensation Insurance, Inc. ("NCCI"), for the workers' compensation industry for the past eight years:

       We believe there are three key reasons that we have historically produced lower than average loss ratios than the workers' compensation industry:

1.

Our key operating goal is to achieve underwriting profits.



2.

We specialize in workers' compensation and service all material aspects of our policy obligations with our own employees. We have our own underwriters, actuaries, safety engineers, payroll auditors, claims managers, physician medical directors, case management nurses, and claims lawyers. Many of our competitors outsource some or all of these functions.



3.

We manage our business with a focus on risk versus reward and we use actuarial data to determine adequate premium rates, except in Florida where the regulators set the rates. Our field offices have no premium or growth targets. We receive business from a limited number of agents who understand our risk management practices.

       Our business is concentrated in California and Florida, which makes the results of our operations dependent on trends that are characteristic to these states as compared to national trends. For example, state legislation, local competition, economic and employment trends, climate and environmental changes and workers' compensation medical costs trends in such states can be material to our results.

       In California, workers' compensation reform legislation was enacted in 2003 and 2004 with the principal objectives of lowering the trend of increasing costs and improving fairness in the system. In Florida, legislation was enacted effective in 2003, which provided changes to the workers' compensation system. See "Workers' Compensation Reform Legislation" on page 10.

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       Net premiums earned for California, Florida and other states, were as follows:

       Generally, premiums for all of our workers' compensation insurance policies are a function of: 1) the applicable premium rate; 2) the amount of the insured employer's payroll; and 3) if applicable, a factor reflecting the insured employer's historical loss experience (the "experience modification factor"). Premium rates vary according to the nature of the employee's duties and the business of the employer; for example, in California there are approximately 500 different classes into which employees are grouped for rating purposes. The policy premium is computed by applying the applicable premium rate to each class of the employer's payroll after it has been appropriately classified. Total policy premium is determined after applying the experience modification factor and a further adjustment, known as a schedule rating adjustment, which may be made, in certain circumstances, to increase (debit) or decrease (credit) the policy premium. Schedule rating adjustments are made at the discretion of the underwriter based on the individual risk characteristics of the employer and subject to maximum amounts as established in our premium rate filings. A deposit premium is paid at the beginning of the policy period, periodic installments are paid during the policy period and the final amount of the premium is generally determined at the end of the policy period after the policyholder's payroll records are audited.

       Our workers' compensation premium revenues will fluctuate depending upon the general level of our premium rates and the number and size of the businesses we insure. Additional factors impacting our revenues include the general level of employment and wages in the businesses we insure, changes in our insured's experience modification factors and the amount of schedule rating credits or debits applied by our underwriters, as well as our pricing and underwriting strategy compared to our competition.

       Our premium rates for workers' compensation are determined by our actuaries for each state in which we do business, except in those states where premium rates for workers' compensation insurance are set by state regulators, primarily Florida. In California, the state in which the largest amount of our workers' compensation premiums are earned, the WCIRB recommends claims cost benchmarks to be used by companies in determining their premium rates. The California Department of Insurance ("California DOI") also adopts and publishes its own claims cost benchmark. The benchmark rates cover expected loss costs, but do not contain an element to cover operating expenses or profit. The WCIRB recommended a 22.8% increase in the January 1, 2010 claims cost benchmark; however, the California DOI did not change its cost benchmark for January 1, 2010. Notwithstanding the foregoing, we are not required to use these California benchmark rates. We set our own California premium rates based upon actuarial analysis of current and anticipated cost trends including any modifications to the workers' compensation system, while maintaining our goal of achieving underwriting profits and outperforming the industry.

       We reduced our premium rates from 2004 through 2007 as a result of favorable loss cost trends originating from the 2003 and 2004 legislative reforms in a manner that we believe dealt prudently with the uncertainty about the long-term outcome of loss cost trends for the accident years most affected by the reforms. Due to increasing medical costs in California, we increased our premium rates 4% effective January 1, 2009, 4% effective July 1, 2009 and an additional 2.7% effective January 1, 2010. Due to the weak economy, we have moderated the increase in premium for our California customers.

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In some cases, experience modifications for renewing customers may increase which, in combination with an increase in premium rates, causes a substantial premium increase, even with no change in payroll. In 2009, we instituted limits on the overall premium increases in such cases, which saved our California policyholders $11.4 million. Effective January 1, 2010, we are limiting premium increases for renewal customers to 25%, except due to a growth in payrolls.

       These premium rates do not necessarily indicate the rates charged to our policyholders because employers' experience modification factors are subject to revision annually and our underwriters are given authority to increase (debit) or decrease (credit) rates based upon individual risk characteristics. The following table sets forth the premium rate change percentages in California, as well as the changes in the average rate charged on renewal business for each period. The change in the average renewal rate takes into consideration changes in premium rates, as well as the changes in experience modification factors and net credits or debits applied by our underwriters (decreases are shown in parentheses):

       In Florida, the state in which the second largest amount of our workers' compensation premiums is earned, premium rates for workers' compensation insurance are set by the Florida Department of Insurance. Premium rate change percentages in Florida were as follows:

       In certain circumstances, a policyholder may be eligible for a return of a portion of the premium based on favorable loss experience during the policy term, by way of a dividend, calculated and paid after the policy has expired. In addition, Florida statutes require payment of dividends to policyholders pursuant to a formula based on underwriting results. An estimated provision for workers' compensation policyholders' dividends is accrued as the related premiums are earned. Alternatively, the policyholder's premium may be adjusted after expiration using a retrospective-rating formula based on losses sustained under the policy. Such retrospective adjustments can result in additional premium due from the policyholder if loss experience is worse than expected or a premium refund if loss experience is

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better than expected. Although we offer these types of loss-sensitive policies and have written a small number of them, we generally have written policies with a guaranteed cost based on premium rates, insured employer's payrolls and experience modification factors.

Workers' Compensation Reform Legislation

       In California, workers' compensation reform legislation was enacted in 2003 and 2004 with the principal objectives of lowering the trend of increasing costs and improving fairness in the system. The principal changes in the legislation of 2003 included: 1) a reduction in the reimbursable amount for certain physician fees, outpatient surgeries, pharmaceutical products and certain durable medical equipment; 2) a limitation on the number of chiropractor or physical therapy office visits; 3) the introduction of medical utilization guidelines; 4) a requirement for second opinions on certain spinal surgeries; 5) a repeal of the presumption of correctness afforded to the treating physician, except where the employee has pre-designated a treating physician; and 6) a presumption of correctness is to be afforded to the evidence-based medical utilization guidelines developed by the American College of Occupational and Environmental Medicine.

       The principal changes in the legislation of 2004 included: 1) employers and insurers were authorized, beginning in 2005, to establish networks of medical providers within which injured workers are required to be treated; 2) within one working day of filing a claim form, a claimant must be afforded necessary treatment for up to $10,000 in medical fees (however, employers and insurers still have up to 90 days to investigate the compensability of a claim); 3) a methodology for apportioning disabilities between covered, work-related and prior causes was created such that employers are only liable for the portion of permanent disability that accrues from a covered, work-related injury; 4) Temporary Disability ("TD") benefits are not to exceed 104 weeks within 2 years of the first TD payment, but cases with certain specified injuries will be allowed up to 240 weeks of TD benefits within 5 years of the date of injury; 5) Permanent Disability ("PD") ratings are based on a new, objective disability rating schedule effective January 1, 2005 (and for some injuries prior to January 1, 2005) as well as upon the injured workers' diminished future earnings capacity ("DFEC"), rather than their ability to compete in the open labor market (PD benefits were revised to make available higher benefits to more severely injured workers and lower benefits to less severely injured workers); 6) incentives were created to encourage employers to offer return-to-work programs; and 7) new medical-legal processes for resolving disputed medical issues were created.

       During 2007, the California Legislature extended the time period for which the 104 weeks of temporary disability payments may be taken. This change did not materially impact our workers' compensation business.

       In September 2009, the California Workers' Compensation Appeals Board ("WCAB") issued two significant en banc decisions, revising its earlier decisions, relating to use of the American Medical Association Guide ("AMA Guide") to determine permanent disability and the method for determining an injured worker's DFEC. The original WCAB decision in Almaraz v. Environmental Recovery Services/Guzman v. Milpitas Unified School District ("Almaraz/Guzman") rendered the AMA Guide portion of the 2005 permanent disability ("PD") rating schedule rebuttable if the permanent disability award could be shown to be inequitable and not commensurate with the injured worker's disability, and would have allowed workers' compensation judges to make an impairment determination taking into account medical opinions that are not based on, or are only partially based on, the AMA Guide. The revised decision in Almaraz/Guzman limits the physician from deviating from the AMA Guide in determining a PD rating. A physician can deviate from the scheduled rating only if his opinion for the deviation constitutes "substantial evidence," and the rating must be derived based solely within the four corners of the AMA Guide. The WCAB's original decision in Ogilvie v. City and County of San Francisco ("Ogilvie") rendered the DFEC portion of the 2005 permanent disability rating schedule rebuttable. The revised Ogilvie decision does not substantially change the initial decision, but provides some examples of how this decision could be applied. These decisions could affect both the number and

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amount of PD payments, including those on open claims. We do not know how these decisions will affect our loss costs trends or our reserves, if at all, and we expect legal challenges to continue. We will continue to monitor these decisions and their impact on our results.

       In Florida, legislation was enacted effective in 2003 which provided changes to the workers' compensation system. Such changes were designed to expedite the dispute resolution process, provide greater compliance and enforcement authority to combat fraud, revise certain indemnity benefits and increase medical reimbursement fees for physicians and surgical procedures. In addition, the reforms limited attorney awards to a maximum percentage of the injured worker award, and precluded attorneys from earning an hourly fee on litigated benefit issues.

       During the fourth quarter 2008, the Florida Supreme Court reached a decision in the Emma Murray vs. Mariner Health case which reversed an element of the 2003 reforms limiting attorney awards and precluding attorneys from earning an hourly fee on litigated benefit issues. During 2009, the Florida Legislature restored the limits on claimants' attorneys' fees going forward.

Reinsurance Segment

       In 2005, we exited the assumed reinsurance business, although we will be paying our assumed reinsurance claims for several years. The results of the reinsurance segment will continue to be included in the results of continuing operations, primarily consisting of changes to loss reserve estimates, if any, and direct expenses. Loss reserves applicable to our reinsurance segment were $38.5 million, or 3% of consolidated loss reserves at December 31, 2009. There were no material adjustments to our reinsurance loss reserves in the three years ended December 31, 2009.

       Our assumed reinsurance business was primarily focused on assuming worldwide property losses from catastrophes and large property risks. In addition, we also wrote liability reinsurance from 1985 through 2001 including general business liability, directors' and officers' liability and excess or umbrella coverage.

Investments Segment

       Our investment portfolio is recorded in the financial statements primarily at fair value and was approximately $2.0 billion at December 31, 2009 and 2008. The average maturity of the fixed maturity portfolio, including short-term investments, was approximately 3.0 and 4.5 years at December 31, 2009 and 2008, respectively. The portfolio quality is high, with approximately 90% and 93% of our fixed maturity securities, including short-term investments, rated investment grade at December 31, 2009 and 2008, respectively.

       We invest the net cash flow from operations and from our capital primarily in fixed maturity securities. These investments provide a stable source of income over the long run and net realized gains on investments, consistent with our policy guidelines and taking into consideration state regulatory restrictions on investments in our insurance subsidiaries. We manage our investment portfolio ourselves and for the most part do not rely on external portfolio managers. We invest a small percentage of our portfolio in equity securities. The allocation of the portfolio among various types of securities is adjusted from time to time based on market conditions, credit conditions, tax policy, fluctuations in interest rates and other factors. We do not utilize hedges or derivative financial instruments to manage risk, nor do we enter in any swap or forward contracts, but attempt to mitigate our exposure through active portfolio management. As of December 31, 2009 and 2008, we did not have any sub-prime mortgages, derivative strategies, credit default swaps or other credit-enhancement exposures. We do not engage in securities lending. We also make certain long-term strategic investments in limited partnerships and limited liability companies which are not publicly traded with a view toward ultimately exiting the investment position sometimes after many years. We may invest in real estate ventures from time to time.

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       Additional information regarding our investment portfolio, including our approach to managing investment risk, is set forth under "Investments" in Item 7. "Management's Discussion and Analysis of Consolidated Financial Condition and Results of Operations" ("MD&A"), Item 7A. "Quantitative and Qualitative Disclosures about Market Risk" and Notes 2, 3 and 4 of our Consolidated Financial Statements.

Parent

       The parent represents the holding company activities of Zenith National, which owns, directly or indirectly, all of the capital stock of its insurance and non-insurance subsidiaries. The parent loss reflects the operating expenses incurred in the holding company activities, such as stock exchange listing and other licensing fees; directors' fees; and legal, auditing and other administrative costs. Interest expense incurred on outstanding debt pursuant to financing activities is also a part of the parent loss.

Losses and Loss Adjustment Expense Reserves, Claims and Loss Developments

       Accounting for the workers' compensation and reinsurance segments requires us to estimate the liability for the expected ultimate cost of unpaid losses and loss adjustment expenses ("loss reserves") as of the balance sheet date. Loss reserves are estimates and are inherently uncertain; they do not and cannot represent an exact measure of ultimate liability. Loss reserve estimates represent a significant risk to the business which we attempt to mitigate by continually reviewing loss cost trends, attempting to set our premium rates to adequately cover anticipated costs and by investing in our claims servicing organization. We endeavor to minimize the estimation risk by performing a comprehensive review of our loss reserves every quarter. Estimating loss reserves is an uncertain and complex process which involves a combination of actuarial techniques and management judgment to establish the most reasonable estimate of loss reserves based on the most recent relevant data. Because we have a long history in the workers' compensation business, particularly in California, we give weight to our own data as well as external information in determining our loss reserve estimates. No assurance can be given whether the ultimate liability for unpaid losses will be more or less than our current estimates.

       The amount by which estimated losses, measured subsequently by reference to payments and additional estimates, differ from those originally reported for a period is known as "development." Development is favorable when losses ultimately settle for less than the amount reserved or subsequent estimates indicate a basis for reducing loss reserves on open claims. Development is unfavorable when losses ultimately settle for more than the levels at which they were reserved or subsequent estimates indicate a basis for reserve increases on open claims. Favorable or unfavorable development of loss reserves is reflected in our Consolidated Statements of Operations in the period in which the change is made.

       Additional information regarding loss reserve estimates and loss reserve development is set forth under "Loss Reserves" in Item 7. MD&A and Note 7 "Unpaid Losses and Loss Adjustment Expenses" of our Consolidated Financial Statements.

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       The following table shows the subsequent development of our liability for unpaid losses and loss adjustment expenses based on the original estimate recorded in our financial statements at December 31 for the ten years prior to 2009.

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       The accounting policies used to estimate the liabilities in the preceding table are described in Note 2 "Summary of Accounting Policies" of our Consolidated Financial Statements.

       The first line in the table shows the liability for unpaid losses and loss adjustment expenses, net of reinsurance, as estimated at the end of each calendar year and recorded as of the balance sheet date for each of the indicated years.

       The first section of the table following the first line shows the cumulative actual payments of losses and loss adjustment expenses, net of reinsurance, that relate to each year-end liability as they were paid as of the end of subsequent annual periods.

       The second section of the table shows revised estimates as of each subsequent calendar year of the original unpaid amounts, net of reinsurance, that are based on the subsequent payments plus re-estimates of the remaining unpaid liabilities.

       The line labeled "Favorable (unfavorable) development, net" represents the aggregate change in the initial estimates from the original balance sheet date indicated through December 31, 2009. As shown in the table, our reserves have developed favorably for 2004 - 2008 and developed unfavorably for 1999 - 2003. These amounts have been reported in earnings over time as a component of losses and loss adjustment expenses incurred. The favorable or unfavorable net development shown in each column should be viewed independently of the other columns because components of the development shown in recent years are also included as components of development in earlier years.

       The information in the table provides our historical track record of reserving accuracy for unpaid losses and loss adjustment expenses as of each calendar year-end presented. However, since conditions and trends that have affected losses and loss adjustment expense development in the past may not occur in the future in exactly the same manner, if at all, future results may not be reliably predicted by extrapolation of the data presented. We believe our loss reserve estimates are adequate as of the end of 2009. However, due to the inherent uncertainties underlying our loss reserve estimates, and as we receive new information and update our assumptions over time regarding the ultimate liability, our loss reserves may prove to be inadequate to cover our actual losses, or they may prove to exceed the ultimate amount of our actual losses.

       Net development of loss reserves shown in the table includes the following:

•

Favorable development of our loss reserves recorded as of December 31, 2004 through 2008 resulted from re-estimation of loss reserves following the 2003 and 2004 legislative reforms in California and the 2003 legislative reforms in Florida, because with the passage of time and as more claims for these years have been paid, our reserve estimates for these years have proven to be redundant. Such favorable development was offset, in part, by $19.9 million and $3.6 million of unfavorable development of assumed reinsurance reserves related to the 2005 hurricanes in 2006 and 2007, respectively.

•

Unfavorable development of our loss reserves recorded as of December 31, 1999 through 2003 is principally attributable to a reallocation of our workers' compensation loss reserves to earlier accident years in 2005 and 2004 to better reflect the paid claim cost trends of these earlier accident years.

•

Unfavorable development of our loss reserves at December 31, 2000 and 2001 also includes additional estimates of $24.1 million on the 1998 and 1999 catastrophe losses in our reinsurance business.

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Reinsurance Ceded

Excess of loss reinsurance

       In accordance with general insurance industry practices, we purchase excess of loss reinsurance to protect us against the impact of large, irregularly-occurring losses in the workers' compensation segment. Such reinsurance reduces the magnitude of the impact of such losses on net income and the capital of Zenith Insurance. We maintain excess of loss and catastrophe reinsurance which provides protection up to $150 million for workers' compensation losses including catastrophe losses arising out of California earthquakes. We retain the first $5 million of each loss. In the layer of $5 million in excess of $5 million we retain any losses that exceed our annual aggregate limit of $15 million. In the layer of $10 million excess of $10 million we retain 50%.

       We have changed our retention amounts over time as follows:

       The following table shows the number and amount of incurred loss for claims in excess of $1 million in each of the last five accident years:

       The amount and timing of any such large claim is unpredictable, due to the circumstances that give rise to such claim. The causes from which we receive catastrophic claims will vary and are often fortuitous. Although some of these types of accidents occur more frequently, the $1 million threshold is usually reached when the injuries involve brain damage, paralysis, traumatic amputation or multiple back surgeries. Notwithstanding any short-term volatility of our loss ratio, we believe our financial strength justifies a retention of $5 million per claim and is cost efficient in the long run.

Terrorism Exposure and the Terrorism Risk Insurance Act of 2002

       Under our workers' compensation policies, we are required to provide workers' compensation benefits for losses arising from acts of terrorism. The impact of any terrorist act is unpredictable, and the ultimate impact on us will depend upon the nature, extent, location, and timing of such an act. Any such impact on us could have a material adverse affect on our business and financial condition.

       We maintain excess of loss and catastrophe reinsurance which provides protection up to $20 million for acts of terrorism including nuclear, biological and chemical attacks. We retain the first $5 million of each loss. We retain any losses in the $5 million excess $5 million layer which exceed our annual

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aggregate of $5 million. We also retain 50% of any loss other than nuclear, biological or chemical in the $10 million excess $10 million layer. We retain none of the loss in the $10 million excess $10 million layer in events of nuclear, biological or chemical attacks.

       In 2007, the Terrorism Risk Insurance Act of 2002 ("TRIA"), was extended through December 31, 2014. TRIA may provide us with reinsurance protection for losses arising out of terrorist acts under certain circumstances and subject to certain limitations. The U.S. Treasury Secretary must certify an act for it to constitute an act of terrorism. The definition of terrorism includes domestic acts of terrorism and excludes acts of terrorism committed in the course of a war declared by the U.S. Congress. The losses arising from an act of terrorism must exceed $100 million to qualify for reimbursement under TRIA. If an event is certified, the U.S. Government will reimburse losses not to exceed $100 billion in any year. Each insurance company is responsible for a deductible based on 20% of its direct premiums earned in the previous calendar year. Our deductible is $95.2 million for a covered loss incurring in 2010. For losses in excess of the deductible, the U.S. Government will reimburse 85% of the insurer's loss, up to the insurer's proportionate share of the $100 billion aggregate limit.

       Notwithstanding the protection provided by the reinsurance we have purchased and any protection provided by TRIA, the risk of severe losses to us from acts of terrorism has not been eliminated because events may not be covered by, or may exceed the capacity of, our reinsurance protection. Also, an act of terrorism may impact the business community at large, impacting our ability to conduct business, even if any losses we sustain are covered by our reinsurance or any protection provided by TRIA. Accordingly, any acts of terrorism could adversely affect our business and financial condition.

       In our workers' compensation business, we monitor the geographic concentrations of insured employees to help mitigate the risk of loss from terrorist acts and other catastrophes. Also, small businesses constitute a large proportion of our policies, and we avoid risks in high profile locations.

Other reinsurance ceded

       We are involved in collecting reinsurance recoverables under reinsurance contracts that were entered into by companies that we acquired and whose reinsurance arrangements we terminated. In 1998, Zenith Insurance acquired substantially all of the assets and certain liabilities of RISCORP, Inc. and certain of its subsidiaries (collectively "RISCORP") related to its workers' compensation business. Our reinsurance recoverable at December 31, 2009 includes $27.1 million for paid and unpaid losses relating to reinsurance arrangements we assumed from RISCORP. The principal reinsurers from which such reinsurance is recoverable are Continental Casualty Co. and Munich Re America Corporation. We also entered into an aggregate excess of loss reinsurance agreement with Inter-Ocean Reinsurance Company, Ltd., which provides ceded reinsurance for unpaid losses and allocated loss adjustment expenses we assumed from RISCORP up to $50 million in excess of $182 million. Reinsurance recoverable from Inter-Ocean Reinsurance Company is fully secured by an investment grade security held in a trust account.

Recoverability of ceded 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 its policyholders in the event the reinsurer is unable to meet its obligations under such reinsurance treaty. We monitor the financial condition of our reinsurers and do not believe that we are currently exposed to any material credit risk through our ceded reinsurance arrangements because most of our reinsurance is recoverable from large, well-capitalized reinsurance companies.

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       Amounts recoverable (including amounts for paid and unpaid losses and reinsurance commissions) and A.M. Best ratings at December 31, 2009 were as follows:

Intercompany reinsurance pooling agreement

       Our insurance subsidiaries are parties to an intercompany pooling agreement for statutory reporting purposes. Under such agreement, the results of underwriting operations are ceded (the risks are transferred) to Zenith Insurance and the aggregate results are then reapportioned, or retro-ceded (the risks are transferred back), to the companies party to the agreement. At December 31, 2009, the proportions of the pooling agreement were as follows: Zenith Insurance — 98.0% and ZNAT Insurance — 2.0%. Transactions pursuant to the pooling agreement are eliminated in consolidation and have no impact on our consolidated financial statements.

Marketing and Staff

       The business in the workers' compensation segment is produced by approximately 1,600 independent licensed insurance agents throughout all states in which we conduct business.

       Applications for insurance submitted by all agents are evaluated by our underwriters based upon numerous factors, including underwriting criteria and standards, geographic areas of underwriting concentration, actuarial judgments of premium rate adequacy, economic considerations and review of known data on the particular risk. We retain all authority over underwriting, claims processing, safety engineering and auditing and do not delegate any such authority to our agents.

Competition

       Competition in the workers' compensation insurance business is based upon price and quality of services. The insurance industry is highly competitive, and there is significant competition in the national workers' compensation industry which, at times, is intense. We compete not only with other stock companies, but with mutual companies and other underwriting organizations such as the State Compensation Insurance Fund in California. Competition also exists with self-insurers and captive

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insurers. Many companies in competition with us have a larger volume of business, are more widely known, and/or possess substantially greater financial resources.

Regulation

       The insurance business is subject to state-by-state regulation and legislation that focuses on solvency, pricing, market conduct, claims practices, underwriting, accounting, investment criteria and other areas. Such regulation and legislation is subject to continual change, and compliance is an inherent risk of the business.

State Departments of Insurance

       Insurance companies are subject to regulation and supervision by the departments of insurance in the states in which they are domiciled and, to a lesser extent, other states in which they conduct business. Our insurance subsidiaries are domiciled in California and are primarily subject to regulation and supervision by the California DOI. State agencies have broad regulatory, supervisory and administrative powers, including, among other things, the ability to: grant and revoke licenses to transact business; license agents and brokers; set the standards of solvency to be met and maintained; determine the nature of, and limitations on, investments and dividends; approve policy forms and, in some states, establish premium rates; set tax rates on premiums; periodically examine financial statements; determine the form and content of required financial statements; and periodically examine market conduct.

       Workers' compensation insurance is statutorily provided for in all of the states in which we do business. State laws and regulations specify the form and content of policy coverage and the rights and benefits that are available to injured workers, their representatives and medical providers. In Florida, premium rates for workers' compensation are determined by regulators. Legislation and regulation also impact our ability to investigate fraud and other abuses of the workers' compensation system in the states in which we do business. Our relationships with medical providers are also impacted by legislation and regulation, including penalties for failure to make timely payments.

       Detailed annual and quarterly financial statements, prepared in accordance with statutory accounting practices, and other reports are required to be filed with the departments of insurance of the states in which we are licensed to transact business. The statutory financial statements of our insurance subsidiaries are subject to periodic examination by the California DOI. Currently, the California DOI is conducting an examination of the statutory financial statements of our insurance subsidiaries for the three years ended December 31, 2008. The previous examination of the statutory financial statements of our insurance subsidiaries by the California DOI was for the three years ended December 31, 2005 and contained no findings.

The National Association of Insurance Commissioners

       The 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. Model Insurance Laws, Regulations and Guidelines ("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 accreditation by the NAIC. The NAIC provides authoritative guidance to insurance regulators on current statutory accounting practices by promulgating and updating a codified set of statutory

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accounting practices in its Accounting Practices and Procedures Manual. The California DOI requires us to follow such statutory accounting practices.

       Under NAIC Model Laws, insurers are required to maintain minimum levels of capital based on their investments and operations. These risk-based capital ("RBC") requirements provide a standard by which regulators can assess the adequacy of an insurance company's capital and surplus relative to its operations. An insurance company must maintain capital and surplus of at least 200% of the RBC computed by the NAIC's RBC model (known as the "Authorized Control Level" of RBC). At December 31, 2009, our statutory capital of $979.2 million was approximately 1,500% of Authorized Control Level, which was substantially above the required minimum.

       The NAIC Insurance Regulatory Information System ("IRIS") key financial ratios, developed to assist insurance departments in overseeing the financial condition of insurance companies, are reviewed by examiners of the NAIC and state insurance departments to select those companies that merit highest priority in the allocation of the regulators' resources. The 2009 IRIS results for Zenith Insurance showed all ratios within the "normal" range as determined by the NAIC.

Insurance Holding Company System Regulatory Act

       Our subsidiaries are 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. The Holding Company Act also limits dividend payments and material transactions by our insurance subsidiaries. See Part II — Item 5. "Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities" for a discussion of dividend restrictions related to the Holding Company Act.

Item 1A. RISK FACTORS

       Our business is subject to numerous risks and uncertainties, the outcome of which may impact future results of operations and financial condition. The more significant risks and uncertainties are described below.

The continuing volatility in the financial markets and the current economic recession could have a material adverse effect on our results of operations and financial condition.

       The significant financial market volatility experienced worldwide during the third and fourth quarters of 2008 continued into 2009. Although the U.S. and other foreign governments have taken various actions to stabilize the financial markets, it is uncertain whether those actions will be effective over the long term. Therefore, the financial market volatility could continue and it is possible that it could result in a prolonged negative economic impact.

       We cannot predict future market conditions or their impact on our stock price, investment portfolio, or our workers' compensation business. In addition, continuing financial market volatility and economic downturn could have a material adverse affect on our insureds, agents, claimants, reinsurers, vendors and competitors. Depending on financial market conditions, we could incur additional realized and unrealized losses in the future in our investment portfolio, which could have an adverse effect on our results of operations and financial condition. Reduced employment and payrolls have contributed to the decline in our premium. Selection of customers is more complex as certain businesses are facing unprecedented challenges in sustaining their operations. Over time we expect that recovery from the recession will improve hiring and payroll trends, but we cannot predict when this will occur.

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       Certain of the actions the U.S. Government has taken or may take in response to the financial market crisis have impacted certain property and casualty insurance carriers. The government continues to implement measures to stabilize the financial markets and stimulate the economy, and it is possible that these measures could further affect the property and casualty insurance industry and its competitive environment.

Our loss reserves are based on estimates and may be inadequate to cover our losses.

       We establish loss reserves in our financial statements that represent an estimate of amounts needed to pay and administer claims with respect to insured and reinsured events that have occurred, including events that have not yet been reported to us. We believe our loss reserves as of December 31, 2009 are adequate, however loss reserves are estimates and are inherently uncertain; they do not and cannot represent an exact measure of liability. Accordingly, as we receive new information and update our assumptions over time regarding the ultimate liability, our loss reserves may prove to be inadequate to cover our actual losses. Any changes in these estimates could be material and could have an adverse effect on our results of operations and financial condition during the period the changes are made.

       As can be seen on page 13 under the line titled "Favorable (unfavorable) development, net" the reserves reported for 1999 to 2003 developed unfavorably while the reserves reported for 2004 to 2008 developed favorably. The net effect over these 10 years was net favorable development; however we cannot predict the amount or timing of future loss reserve development, whether favorable or unfavorable.

       Our loss reserve estimates for the assumed reinsurance business, which we exited in 2005, are dependent upon obtaining information timely from ceding companies. Estimates of losses can be negatively impacted by lags in reporting from ceding companies. In addition, we are subject to the risk that the ceding company may not have adequately estimated the amount of the reinsured losses.

If we are unable to obtain or collect on ceded reinsurance, our ability to write new policies, as well as our financial condition, could be adversely affected.

       We buy reinsurance protection in our workers' compensation business to protect us from the impact of losses over our retention amount, which is currently $5 million, and from the accumulation of losses up to $150 million including catastrophe losses arising out of California earthquakes. The availability, amount and cost of reinsurance depend on market conditions and may vary significantly. Any decrease in the amount of our reinsurance will increase our risk of loss and could adversely affect our business and financial condition.

       In addition, we are subject to credit risk with respect to our reinsurers. Ceded reinsurance does not discharge our direct obligations under the policies we write. We remain liable to our policyholders even if we are unable to make recoveries to which we believe we are entitled under our reinsurance contracts. Losses may not be recovered from our reinsurers until claims are paid and, in the case of long-term workers' compensation cases, the creditworthiness of our reinsurers may change before we can recover amounts to which we are entitled.

Acts of terrorism could negatively impact our business and our financial condition.

       Under our workers' compensation policies, we are required to provide workers' compensation benefits for covered losses arising from acts of terrorism. The impact of any terrorist act is unpredictable, and the ultimate impact on us will depend upon the nature, extent, location and timing of such an act. Any such impact on us could have a material adverse effect on our business and financial condition.

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       We maintain excess of loss and catastrophe reinsurance which provides protection up to $20 million for acts of terrorism including nuclear, biological and chemical attacks. We retain the first $5 million of each loss. We retain any losses in the $5 million excess $5 million layer which exceed our annual aggregate of $5 million. We also retain 50% of any loss other than nuclear, biological or chemical in the $10 million excess $10 million layer. We retain none of the loss in the $10 million excess $10 million layer in events of nuclear, biological or chemical attacks.

       In 2007, the Terrorism Risk Insurance Act of 2002 ("TRIA"), was extended through December 31, 2014. TRIA may provide us with reinsurance protection for losses arising out of terrorist acts under certain circumstances and subject to certain limitations as described on page 15. Our deductible is $95.2 million for a covered loss occurring in 2010. For losses in excess of the deductible, the U.S. Federal Government will reimburse 85% of the insurer's loss, up to the insurer's proportionate share of the $100 billion aggregate limit.

       Notwithstanding the protection provided by the reinsurance we have purchased and any protection provided by TRIA, the risk of severe losses to us from acts of terrorism has not been eliminated because events may not be covered by, or may exceed the capacity of, our reinsurance protection. Also, an act of terrorism may impact the business community at large, impacting our ability to conduct business, even if any insurance losses we sustain are covered by our reinsurance or any protection provided by TRIA. Accordingly, any acts of terrorism could adversely affect our business and financial condition.

The insurance business is subject to extensive regulation and legislative changes, which impact the manner in which we operate our business.

       Our insurance business is subject to extensive regulation by the applicable state agencies in the jurisdictions in which we operate, perhaps most significantly by the California DOI. State agencies have broad regulatory powers designed to protect policyholders, not stockholders or other investors. These powers include, among other things, the ability to: grant and revoke licenses to transact business; license agents and brokers; set the standards of solvency to be met and maintained; determine the nature of, and limitations on, investments and dividends; approve policy forms and, in some states, establish premium rates; set tax rates on premiums; periodically examine financial statements; determine the form and content of required financial statements; and periodically examine market conduct.

       In addition, workers' compensation insurance is statutorily provided for in all of the states in which we do business. State laws and regulations specify the form and content of policy coverage and the rights and benefits that are available to injured workers, their representatives and medical providers. In Florida, premium rates for workers' compensation are determined by regulators. Legislation and regulation also impact our ability to investigate fraud and other abuses of the workers' compensation system in the states in which we do business. Our relationships with medical providers are also impacted by legislation and regulation, including penalties for failure to make timely payments.

       Federal legislation typically does not directly impact our workers' compensation business, but our business can be indirectly affected by changes in healthcare, occupational safety and health and tax regulations. Since healthcare costs are the largest component of our loss costs, we may be impacted by change in healthcare legislation, if any. Also, the unprecedented events in the financial markets have re-opened discussions regarding the possibility of federal regulation of insurance.

       This extensive regulation of our business may affect the cost or demand for our products and may limit our ability to obtain rate increases or to take other actions that we might desire to maintain our profitability. In addition, we may be unable to maintain all required approvals or comply fully with applicable laws and regulations, or the relevant governmental authority's interpretation of such laws and regulations.

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A downgrade in the financial strength rating of our insurance subsidiaries could reduce the amount of business we are able to write.

       Rating agencies rate insurance companies based on financial strength as an indication of an ability to pay claims. Our insurance subsidiaries currently have a financial strength rating of A (Excellent) from A.M. Best, which we believe has the most influence on our business. The financial strength ratings of A.M. Best and other rating agencies are subject to periodic review using, among other things, proprietary capital adequacy models, and are subject to revision or withdrawal at any time. Insurance financial strength ratings are directed toward the concerns of policyholders and insurance agents and are not intended for the protection of investors. Our competitive position relative to other companies is determined in part by our financial strength rating. A reduction in our A.M. Best rating, or a downgrading by one of the other rating agencies, could impact the amount of business we could write in our workers' compensation segment.

Intense competition could adversely affect our ability to sell policies at premium rates we deem adequate.

       In most of the states in which we operate, we face significant competition which, at times, is intense and prolonged. If we are unable to compete effectively, our business and financial condition could be adversely affected. Competition in our businesses is based on many factors, including premiums charged, services provided, financial strength ratings assigned by independent rating agencies, speed and quality of claims payments, reputation, perceived financial strength and general experience. In the workers' compensation business, we compete with regional and national insurance companies and state-sponsored insurance funds as well as potential insureds that have decided to self-insure. Some of our competitors have greater financial, marketing and management resources than we have. Intense competitive pressure on prices can result from the actions of even a single large competitor, such as the State Compensation Insurance Fund in California. Except in states such as Florida, where premium rates for workers' compensation insurance are determined by regulators, we establish our prices for our workers' compensation policies based on the work of our actuaries, using our own data and our best judgment about loss cost trends. Historically, when competition has been intense, the amount of business we are able to write has decreased because we have not reduced our prices below levels we deem to be adequate to maintain our goal of achieving underwriting profits and outperforming the industry. As a result, our profitability during those times has decreased.

If we are unable to realize our investment objectives, our financial condition may be adversely affected.

       Investment income is an important component of our revenues and net income. The ability to achieve our investment objectives is affected by certain factors that are beyond our control. Our fixed income portfolio is affected by changes in interest rates. Interest rates are highly sensitive to many factors, including governmental monetary policies and domestic and international economic and political conditions. These and other factors also affect the equity markets and, consequently, the value of the equity securities we own. Any significant decline in our investment income or the value of our investments as a result of falling interest rates, deterioration in the credit or liquidity of companies in which we have invested, decreased dividend payment rates, general market conditions, or events that have an adverse impact on any particular industry or geographic region in which we hold significant investments could have an adverse effect on our net income and, as a result, on our stockholders' equity and our policyholders' surplus.

       The outlook for our investment income is dependent on the future direction of interest rates and the amount of cash flows from operations that are available for investment. The fair values of fixed maturity investments that are "available-for-sale" fluctuate with changes in interest rates and cause fluctuations in our stockholders' equity.

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       Our investment strategy attempts to manage interest rate and credit risk. We primarily invest in a broadly diversified portfolio of high quality fixed maturity securities and we have large holdings in cash and short-term U.S. Government securities. We do not currently have any sub-prime mortgages, derivative strategies or other credit-enhancement exposures. We do not engage in securities lending. We invest a small portion of our portfolio in below investment grade securities. The risk of default by borrowers that issue below investment grade securities is significantly greater than other borrowers because these borrowers are often highly leveraged and more sensitive to adverse economic conditions, including a recession. In addition, these securities are generally unsecured and often subordinated to other debt. The risk that we may not be able to recover our investments in below investment grade securities is higher than with investment grade securities.

Our geographic concentration ties our performance to the business, economic, natural perils and regulatory conditions in California and Florida.

       Our business is concentrated in California (58.1% of 2009 workers' compensation net earned premiums) and in Florida (20.9% of 2009 workers' compensation net earned premiums). Accordingly, unfavorable business, economic or regulatory conditions in these states could negatively impact our business. For example, regulatory changes in California in the early 1990's created intense price competition in our workers' compensation business from about 1995 to 1999, during which time our overall profitability experienced significant declines. In addition, California and Florida are states that are exposed to climate and environmental changes, natural perils such as earthquakes, hurricanes and water supplies, along with the possibility of pandemics or terrorist acts. Accordingly, we could suffer losses as a result of catastrophic events in these states. The California and Florida economies have been affected by the sub-prime and real estate issues; and California is experiencing budget deficits; all of which are affecting the general economy and employment levels in these states and affecting the total payroll levels of our customers. Because our business is concentrated in this manner, we may be exposed to economic and regulatory risks or risk from natural perils that are greater than the risks associated with greater geographic diversification.

       We maintain excess of loss and catastrophe reinsurance which provides protection up to $150 million for workers' compensation losses including catastrophe losses arising out of California earthquakes. We retain the first $5 million of each loss. In the layer of $5 million in excess of $5 million we retain any losses that exceed our annual aggregate limit of $15 million. In the layer of $10 million excess of $10 million we retain 50%. The risk of loss from catastrophes has not been eliminated because events may exceed the capacity of our reinsurance protection.

We rely on independent insurance agents.

       The failure or inability of independent insurance agencies to market our insurance programs successfully could have a material adverse effect on our business, financial condition and results of operations. The business in our workers' compensation segment is produced by approximately 1,600 independent licensed insurance agents. Agents are not obligated to promote our insurance programs and may sell competitors' insurance programs. As a result, our business depends in part on the marketing efforts of these agents and on our ability to offer insurance programs and services that meet the requirements of their customers.

Assessments and other surcharges for guaranty funds and second injury funds and other mandatory pooling arrangements may reduce our profitability.

       Virtually all states require insurers licensed to do business in their state to bear a portion of the loss suffered by some insureds as the result of impaired or insolvent insurance companies. These obligations are funded by assessments that are expected to continue in the future as a result of insolvencies. Many states also have laws that established second injury funds to provide compensation

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to injured employees for aggravation of a prior condition or injury, which are funded by either assessments based on paid losses or premium surcharge mechanisms. In addition, as a condition to the ability to conduct business in some states, insurance companies are required to participate in mandatory workers' compensation shared market mechanisms or pooling arrangements, which provide workers' compensation insurance coverage from private insurers. The effect of these assessments and mandatory shared market mechanisms or changes in them could reduce our profitability in any given period or limit our ability to grow our business.

Our ability to write business, service our customers and meet certain regulatory requirements could be adversely affected if our information systems are rendered inoperable.

       Our business operations are increasingly dependent on technology-enabled systems and processes. In addition, the capture, storage and use of customer and proprietary company data and information are essential to our ongoing operations. Our information systems interface with various third-party systems for the purpose of exchanging information and complying with an ever increasing number of electronic regulatory requirements.

       We have implemented business continuity plans that include redundant systems at an alternate location, which we periodically test. However, there are certain events outside of our control that could render our systems inoperable such that we would be unable to service our agents, insureds and injured workers, or meet certain regulatory requirements, or could cause a breach of security that could jeopardize the privacy, confidentiality and integrity of our data or our customers' data. If such an event were to occur and our systems were unable to be restored or secured within a reasonable timeframe, our results of operations and financial condition could be adversely affected.

       Examples of these events include, but are not limited to, catastrophic and wide-spread outages, "cyber or terrorist attacks" that destroy our information or systems and the loss of a number of our key information technology personnel or vendors.

Litigation may have an adverse effect on our business.

       We are involved in various litigation proceedings that arise in the ordinary course of our business. Disputes adjudicated in the workers' compensation administrative systems may be appealed to review boards or civil courts, depending on the issues and local jurisdictions involved. From time to time plaintiffs also sue us on theories falling outside of the exclusive jurisdiction and remedies of the workers' compensation claims adjudication systems. Certain of these legal proceedings seek injunctive relief or substantial monetary damages, including claims for punitive damages, that may not be covered by our third-party reinsurance agreements. Historically the Company has not experienced any material exposure or damages from any of these legal proceedings. In addition, in the opinion of management, after consultation with legal counsel, all of our currently outstanding litigation is either without merit or the ultimate liability, if any, is not expected to have a material adverse effect on our consolidated financial condition, results of operations or cash flows.

Our status as an insurance holding company with no direct operations could adversely affect our ability to meet our debt obligations and pay dividends.

       Zenith National is a holding company which transacts substantially all of its business through its subsidiaries. Our primary assets are the stock of our operating subsidiaries. Our ability to meet our obligations on our outstanding debt, and to pay Zenith National's expenses and dividends, depends, in the long run, upon the surplus and earnings of our subsidiaries and the ability of our subsidiaries to pay dividends to us. Payments of dividends by our insurance company subsidiaries are restricted by state insurance laws, including laws establishing minimum solvency and liquidity thresholds, and could be subject to revised restrictions in the future. As a result, at times, we may not be able to receive

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dividends from these subsidiaries and we may not receive dividends in amounts necessary to meet our debt obligations or to pay dividends on our capital stock. In addition, the payment of dividends by us is within the discretion of our Board of Directors and depends on numerous factors, including our results of operations, financial condition, capital requirements and other factors that our Board of Directors considers relevant.

State insurance laws may discourage takeover attempts that could be beneficial to us and our stockholders.

       We are subject to state statutes governing insurance holding companies, which generally require that any person or entity desiring to acquire direct or indirect control of any of our insurance company subsidiaries obtain prior regulatory approval. Control would be presumed to exist under most state insurance laws with the acquisition of 10% or more of our outstanding voting securities. Applicable state insurance company laws and regulations could delay or impede a change of control of our company, which could prevent our stockholders from receiving a control premium.

Item 1B. UNRESOLVED STAFF COMMENTS

       None.

Item 2. PROPERTIES

       We own a 130,000 square foot office facility in Woodland Hills, California which is the corporate home office of Zenith National and its subsidiaries. We also own a 120,000 square foot branch office facility in Sarasota, Florida. In the regular conduct of business, we lease offices in various cities, which also serve as branch offices and include such services as marketing, underwriting, safety and health, claims, medical management and claims adjudication, as well as premium audit. We have eight office locations in California, three in Florida, two in Illinois and offices in each of Texas, Pennsylvania, North Carolina and Alabama. We consider our owned and leased facilities to be adequate for the needs of our organization.

Item 3. LEGAL PROCEEDINGS

       We are involved in various litigation proceedings that arise in the ordinary course of our business. Disputes adjudicated in the workers' compensation administrative systems may be appealed to review boards or civil courts, depending on the issues and local jurisdictions involved. From time to time plaintiffs also sue us on theories falling outside of the exclusive jurisdiction and remedies of the workers' compensation claims adjudication systems. Certain of these legal proceedings seek injunctive relief or substantial monetary damages, including claims for punitive damages, that may not be covered by our third-party reinsurance agreements. Historically the Company has not experienced any material exposure or damages from any of these legal proceedings. In addition, in the opinion of management, after consultation with legal counsel, all of our currently outstanding litigation is either without merit or the ultimate liability, if any, is not expected to have a material adverse effect on our consolidated financial condition, results of operations or cash flows.

Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

       No matters were submitted to a vote of stockholders during the fourth quarter of the fiscal year covered by this report.

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PART II

Item 5. MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

Price Range of Common Stock

       Our common stock, $1.00 par value per share ("Common Stock"), is traded on the New York Stock Exchange ("NYSE") under the symbol ZNT. The table below sets forth the high and low sale prices of our Common Stock for each quarterly period as reported by the NYSE during the last two fiscal years.

Dividends

       The table below sets forth information with respect to the amount and frequency of dividends declared on our Common Stock. It is currently expected that cash dividends will continue to be paid in the future.

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       The Holding Company Act limits the ability of Zenith Insurance to pay dividends to Zenith National, and of ZNAT Insurance to pay dividends to Zenith Insurance, by providing that the California DOI 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 for the preceding year. In addition, any such dividend must be paid from policyholders' surplus attributable to accumulated earnings. Such restrictions on dividends are not cumulative. Zenith Insurance paid $110.0 million, $95.0 million, and $115.0 million in dividends to Zenith National in 2009, 2008, and 2007, respectively. In 2010, Zenith Insurance will be able to pay up to $97.9 million of dividends to Zenith National without prior approval of the California DOI. Dividend payments from Zenith Insurance to Zenith National must also be in compliance with the California Corporations Code that permit dividends to be paid only out of retained earnings and only if specified ratios between assets and liabilities and between current assets and current liabilities exist after payment. The restrictions on the payment of dividends have not had, and under current regulations are not expected to have, a material adverse impact on the ability of Zenith Insurance to pay dividends.

Stockholders of Record

       As of January 31, 2010, there were 353 registered holders of record of our Common Stock.

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Item 6. SELECTED FINANCIAL DATA