Fitch Ratings has affirmed the 'A' insurer financial strength (IFS) ratings of Zenith National Insurance Corp.'s (Zenith National) insurance subsidiaries, Zenith Insurance Company (Zenith Insurance) and ZNAT Insurance Company. Fitch has also affirmed Zenith National's issuer default rating (IDR) of 'BBB ', convertible senior note rating of 'BBB' and the 'BBB-' rating of Zenith National Insurance Capital Trust I securities. The Rating Outlook is Stable.

The ratings reflect Zenith's disciplined underwriting focus, favorable underwriting results and strong capitalization. Partially offsetting these positives are business line and geographical concentration risks, with a heavy concentration in the competitive California and Florida workers' compensation markets, and significant underwriting losses over the 1997-2002 period.

Zenith posted very favorable workers' compensation underwriting results in 2005 and through the first nine months of 2006, with GAAP combined ratios of 80.9% and 67.5%, respectively. These results have been driven by a significant drop in the loss ratio with Zenith posting $150.1 million of favorable prior year workers' compensation reserve development over this almost two year period. This development has been driven by lower long-term claims frequency trends and favorable short-term deflationary trends in paid losses for the more recent 2003-2005 accident years, particularly permanent disability medical costs, as a result of the recent legislative reforms in California. This follows unfavorable workers' compensation loss reserve development in each of the previous six years (1999-2004) totaling $110.8 million due to higher than previously estimated health care and indemnity cost inflation trends for the 2002 and prior accident years.

Zenith's competitive strategy focuses on profitability through maintaining underwriting discipline and pricing risks accordingly. The company does not set growth targets and is not a low-cost provider, allowing premium volume to fluctuate based on market conditions. Zenith has demonstrated its underwriting discipline and expertise in the volatile period since open rating began in California in 1995, consistently generating workers' compensation accident year and calendar year loss ratios that are appreciably better than industry averages, both in California and nationwide.

Zenith National's capital structure is prudent, with almost no debt (0.1%), 6% hybrid trust preferred and 94% common equity at Sept. 30, 2006.

Fitch affirms the following ratings with a Stable Rating Outlook:

Zenith National Insurance Corp.

--Issuer default rating at 'BBB ';

--$1.2 million 5.75% convertible senior notes due March 30, 2023 at 'BBB'.

Zenith National Insurance Capital Trust I

--$58.5 million 8.55% trust preferred securities due Aug. 1, 2028 at 'BBB-'.

Zenith Insurance Company

ZNAT Insurance Company

--Insurer financial strength at 'A'.

Fitch's rating definitions and the terms of use of such ratings are available on the agency's public site, www.fitchratings.com. Published ratings, criteria and methodologies are available from this site, at all times. Fitch's code of conduct, confidentiality, conflicts of interest, affiliate firewall, compliance and other relevant policies and procedures are also available from the 'Code of Conduct' section of this site.

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