Exhibit
99.1
Slide Presentation
[
LOG
O]
November
17, 2004
Cau
tionary
Statement
Private Securities Litigation Reform Act Safe Harbor Statement
The Private Securities
Litigation Reform Act of 1995 provides a safe harbor for forward-looking
statements if accompanied by meaningful cautionary statements identifying
important factors that could cause actual results to differ materially from
those discussed. Forward-looking statements include those related to the plans
and objectives of management for future operations, future economic
performance, or projections of revenues, income, earnings per share, capital
expenditures, dividends, capital structure, or other financial items.
Statements containing
words such as
expect, anticipate, believe, estimate
,
or similar words that are used in the accompanying materials or oral
information conveyed by or on behalf of Zenith are intended to identify
forward-looking statements. Such forward-looking statements are subject to a
number of risks and uncertainties that could cause actual results to differ
materially from those projected. These risks and uncertainties include, but are
not limited to, the following:
(1)
competition;
(2)
adverse state and
federal legislation and regulation;
(3)
changes in interest
rates causing fluctuations of investment income and fair values of investments;
(4)
changes in the frequency
and severity of claims and catastrophes;
(5)
adequacy of loss
reserves;
(6)
changing environment for
controlling medical, legal and rehabilitation costs, as well as fraud and
abuse;
(7)
losses associated with
any terrorist attacks that impact our workers’ compensation business in excess
of our reinsurance protection; and
(8)
other risks detailed in
Zenith’s Annual Report on Form 10-K/A for the year ended December 31, 2003 and other
reports and filings with the Securities and Exchange Commission.
Zenith disclaims any
obligation or intention to publicly update or revise any of the forward-looking
statements contained
in
these materials.
[LOGO]
2
Man
agement Team
|
Executive
|
|
Title
|
|
Industry
Experience
|
|
|
|
|
|
|
|
|
|
Stanley Zax
|
|
Chairman, President and CEO
|
|
32 years
|
|
|
|
|
|
|
|
|
|
Jack Miller
|
|
Executive Vice President and President and COO of
Zenith Insurance Company
|
|
32 years
|
|
|
|
|
|
|
|
|
|
Robert Meyer
|
|
Senior Vice President and Actuary
|
|
31 years
|
|
|
|
|
|
|
|
|
|
William Owen
|
|
Senior Vice President and CFO
|
|
18 years
|
|
[LOGO]
3
Hig
hlights
•
Workers’ compensation
specialist – focused strategy
•
Attractive workers’
compensation operating environment
•
benefiting both premiums and loss costs
•
positive impact of recent California workers’
compensation reform
•
Consistent underwriting
outperformance over the long term
•
underwriting discipline in all market
environments
•
Spread of risk – 42,600
policies in 45 states
•
Loss reserve adequacy and
transparency
•
High quality and liquid
investment portfolio
•
Stable and experienced
management team
[LOGO]
4
Who
We Are ...
•
A specialty insurer focused
on the workers’ compensation market
•
92% of 2003 net premiums earned; 95% of the
first 9 months of 2004 net premiums earned
•
key states are California and Florida (69%
and 17% of net workers’ compensation premiums earned in 2004, respectively)
•
Workers’ compensation
coverage includes:
•
medical and hospital expenses
•
temporary or permanent disability benefits
•
death benefits
•
Diversification through
small reinsurance business established in 1985
•
8% of 2003 net premiums earned; 5% of the
first 9 months of 2004 net premiums earned
•
investment in Advent, Lloyd’s vehicle, with
equity accounting
[LOGO]
5
Key
Strengths
•
Specialized knowledge of
California and Florida markets
•
provides underwriting and claims-management
advantage
•
Positioned for attractive
returns from favorable market conditions
•
Current loss reserve
estimates are conservative
•
Long-standing service
strategy attracts agents and quality-oriented customers
•
Profit culture, focused on
underwriting results and not premium growth
•
structured to grow in favorable operating
environments
•
willing to shrink in poor underwriting environments
•
Aggressive in fighting fraud
and challenging improper medical practices and costs
•
Under current management
since 1977
[LOGO]
6
Ove
rview of Business Mix
Net Premiums Earned
[CHART]
Geographic Profile of Workers’
Compensation (2003 Net Premiums
Earned)
[CHART]
[LOGO]
7
Zen
ith Outperforms California Industry for 25 Years
California accident-year loss ratios
[CHART]
Outperformance
(average)
Last 5 years = 31%
Last 26 years =
29%
Note: All figures exclude
loss adjustment expenses.
(1) Industry data from
the Workers’ Compensation Insurance Rating Bureau of California (“WCIRB”).
[LOGO]
8
Cal
ifornia Workers’ Compensation Reform
Recent legislative changes
continue to support an attractive
operating environment
•
Ambitious overhaul of
California workers’ compensation system
•
Major legislative reforms
enacted in September 2003 and April 2004
•
aimed at reducing costs and improving
fairness in the system
•
expected to improve trend of cost increases
over time
•
certain provisions do not become effective
until January 2005, the most important of which is medical networks
•
full impact expected to occur over several
years
•
California continues as a non-regulated
environment for pricing
[LOGO]
9
Imp
act of California Workers’ Compensation Reform
Zenith is taking a gradual and measured response to
estimating
the impact of legislative reforms
|
Reform
|
|
WCIRB Estimated
Reduction in Total Cost
of Benefits
|
|
|
Elimination of
Vocational Rehabilitation
|
|
(5
|
)%
|
|
Outpatient
Surgery Center Fees
|
|
(4
|
)%
|
|
Limits on
Chiropractors and Physical Therapists
|
|
(4
|
)%
|
|
Limits on
Temporary Disability
|
|
(2
|
)%
|
|
Apportionment of
Permanent disability
|
|
(3
|
)%
|
|
Medical
Treatment Guidelines, Elimination of Treating Physician Presumption
|
|
(10
|
)%
|
|
Total
Estimated Savings
|
|
(28
|
)%
|
•
In contrast, Zenith filed
for a 10% reduction in premium rates, effective 7/1/04
•
California Insurance
Commissioner publicly criticized Zenith rate reduction as too cautious
[LOGO]
10
Dri
vers of Improved Profitability
California Workers’ Compensation
•
Price increases are
outpacing increases in exposure
|
|
|
Zenith Annual Percent Change
|
|
|
|
|
Earned
Premiums
|
-
|
Covered
Payroll
|
=
|
Net
Increase
|
|
Claim
Counts
|
|
|
2000
|
|
29
|
%
|
13
|
%
|
16
|
%
|
8
|
%
|
|
2001
|
|
50
|
%
|
19
|
%
|
31
|
%
|
13
|
%
|
|
2002
|
|
45
|
%
|
12
|
%
|
33
|
%
|
7
|
%
|
|
2003
|
|
70
|
%
|
15
|
%
|
55
|
%
|
11
|
%
|
|
Average
|
|
48
|
%
|
15
|
%
|
33
|
%
|
10
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
2004 (9 months)
|
|
42
|
%
|
21
|
%
|
21
|
%
|
7
|
%
|
[LOGO]
11
Cla
ims are Paid Over Time
•
There is time available for
reform legislation to have a favorable impact
[CHART]
[LOGO]
12
Ass
umptions Used In Loss Reserve Estimate
•
Conservative posture taken
in setting pricing and establishing reserves
•
Anticipates loss cost
inflation through duration of claims
|
|
|
Assumed Inflation
|
|
|
Annual Inflation (Increase In Average Paid Loss
(1)
Per
Claim) Evaluated After:
|
|
in ZNT Loss
|
|
|
Accident
|
|
9
|
|
21
|
|
33
|
|
45
|
|
57
|
|
69
|
|
81
|
|
Reserve Estimate
|
|
|
Year
|
|
months
|
|
months
|
|
months
|
|
months
|
|
months
|
|
months
|
|
months
|
|
at 9/30/04
|
|
|
1998
|
|
18
|
%
|
8
|
%
|
10
|
%
|
9
|
%
|
9
|
%
|
11
|
%
|
12
|
%
|
13
|
%
|
|
1999
|
|
13
|
%
|
16
|
%
|
14
|
%
|
14
|
%
|
15
|
%
|
15
|
%
|
|
|
16
|
%
|
|
2000
|
|
(4
|
)%
|
9
|
%
|
11
|
%
|
13
|
%
|
13
|
%
|
|
|
|
|
15
|
%
|
|
2001
|
|
19
|
%
|
16
|
%
|
16
|
%
|
15
|
%
|
|
|
|
|
|
|
18
|
%
|
|
2002
|
|
2
|
%
|
2
|
%
|
3
|
%
|
|
|
|
|
|
|
|
|
6
|
%
|
|
2003
|
|
12
|
%
|
3
|
%
|
|
|
|
|
|
|
|
|
|
|
17
|
%
|
|
2004
|
|
(8
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
13
|
%
|
(1) Paid loss data as of
9/30/04
[LOGO]
13
Man
aging Catastrophic Risk
•
Workers’ Compensation:
•
Aided by focus on middle-market clients who
are spread over a diversity of low-profile industries
•
Losses in excess of $1.0 million are
reinsured up to $150.0 million, except that we retain 1/3 of any loss between
$75.0 million and $150.0 million
•
Assumed Reinsurance:
•
“Worst-case” net losses (from any single
catastrophic event) are limited to a maximum probable loss of 5% of
shareholders’ equity(1)
(1)
After the
effect of applicable premiums, reinstatement premium and taxes.
[LOGO]
14
GAA
P Financial Summary
($ in millions, except per share data)
|
|
|
2002
|
|
2003
|
|
change
|
|
|
Net
Premiums Earned:
|
|
|
|
|
|
|
|
|
Workers’
Compensation
|
|
$
|
503.9
|
|
$
|
712.8
|
|
41.5
|
%
|
|
Reinsurance
|
|
53.2
|
|
61.0
|
|
14.7
|
%
|
|
|
|
|
|
|
|
|
|
|
Combined
Ratios:
|
|
|
|
|
|
|
|
|
Workers’
Compensation
|
|
108.7
|
%
|
95.9
|
%
|
(12.8
|
)pts
|
|
Reinsurance
|
|
85.6
|
|
84.3
|
|
(1.3
|
)pts
|
|
|
|
|
|
|
|
|
|
|
Net Investment
Income
|
|
$
|
48.8
|
|
$
|
56.1
|
|
15.0
|
%
|
|
|
|
|
|
|
|
|
|
|
Net Income
|
|
$
|
10.2
|
|
$
|
67.0
|
|
NM
|
|
|
|
|
|
|
|
|
|
|
|
Diluted Net
Income per Share(1)
|
|
$
|
0.54
|
|
$
|
3.38
|
|
NM
|
|
(1) Diluted shares in 2003 include an additional
1.25 million for the inclusion of 5.0 million shares during the fourth quarter
that would be issuable in connection with our convertible notes.
[LOGO]
15
|
|
|
9
mon
ths
|
|
|
|
|
9/30/03
|
|
9/30/04
|
|
Change
|
|
|
Net
Premiums Earned:
|
|
|
|
|
|
|
|
|
Workers’
Compensation
|
|
$
|
512.1
|
|
$
|
662.2
|
|
29.3
|
%
|
|
Reinsurance
|
|
47.5
|
|
34.2
|
|
(28.0
|
)%
|
|
|
|
|
|
|
|
|
|
|
Combined
Ratios:
|
|
|
|
|
|
|
|
|
Workers’
Compensation
|
|
96.8
|
%
|
89.2
|
%
|
(7.6
|
)pts
|
|
Reinsurance
|
|
85.4
|
|
133.0
|
|
47.6
|
pts
|
|
|
|
|
|
|
|
|
|
|
Net Investment
Income
|
|
$
|
41.9
|
|
$
|
43.8
|
|
4.5
|
%
|
|
|
|
|
|
|
|
|
|
|
Net Income
|
|
$
|
46.2
|
|
$
|
75.3
|
|
63.0
|
%
|
|
|
|
|
|
|
|
|
|
|
Diluted Net
Income Per Share(1)
|
|
$
|
2.45
|
|
$
|
3.24
|
|
NM
|
|
(1) Diluted shares in 2004 include 5.0 million
shares that would be issuable in connection with our convertible notes.
[LOGO]
16
Bal
ance Sheet Highlights
($ in millions, except per share data)
•
Financial position supports
market opportunities
|
|
|
December 31,
|
|
September 30,
|
|
|
|
|
2002
|
|
2003
|
|
2004
|
|
|
Investments and
Cash
|
|
$
|
1,115.7
|
|
$
|
1,538.5
|
|
$
|
1,794.0
|
|
|
Total Assets
|
|
1,615.1
|
|
2,023.7
|
|
2,327.8
|
|
|
Unpaid Losses
& LAE
|
|
1,041.5
|
|
1,220.7
|
|
1,424.9
|
|
|
Unearned
Premiums
|
|
97.4
|
|
111.3
|
|
167.6
|
|
|
Debt / Trust
Preferred
|
|
65.7
|
|
186.2
|
|
178.8
|
|
|
Stockholders’
Equity
|
|
317.0
|
|
383.2
|
|
459.3
|
|
|
|
|
|
|
|
|
|
|
|
Stockholders’
Equity per Share
|
|
$
|
16.89
|
|
$
|
20.27
|
|
$
|
23.82
|
|
[LOGO]
17
Hig
h Quality Investment Portfolio
At September 30, 2004
[CHART]
•
Conservative investment
posture
•
Average maturity of 6.5
years (excluding short-term investments)
•
Net Unrealized gains of
$60.0 million (pre-tax)
•
97% of fixed maturities,
including short-term investments, are rated investment grade
•
No derivatives
•
All assets managed
internally
[LOGO]
18
Hig
hlights
•
Workers’ compensation
specialist – focused strategy
•
Attractive workers’
compensation operating environment
•
Consistent underwriting
outperformance over the long term
•
Spread of risk – 42,600
policies in 45 states
•
Loss reserve adequacy and
transparency
•
High quality and liquid
investment portfolio
•
Stable and experienced
management team
[LOGO]
19
How
We Report Our Results
Our
business is comprised of the following segments: investments; workers’
compensation; reinsurance; and parent.
Our real estate segment was discontinued in 2002. Results of the investments segment include
investment income and realized gains and losses on investments and we do not
allocate investment income to our workers’ compensation and reinsurance
segments. Income (loss) before tax from
operations of the workers’ compensation and reinsurance segments is determined
solely by deducting losses and loss adjustment expenses incurred and
underwriting and other operating expenses incurred from net premiums
earned. Loss from operations of the
parent segment include interest expense and the general operating expenses of
Zenith National Insurance Corp.
Combined Ratios
The
combined ratios, expressed as a percentage, are key measurements of
underwriting profitability traditionally used in the property-casualty
insurance business. The ratios discussed in this document are calculated using
GAAP financial results (defined as accounting principles generally accepted in
the United States of America) and include the loss and loss adjustment expense
ratio as well as the underwriting and other operating expense ratio (“expense ratio”)
which together equal the combined ratio. The loss and loss adjustment expense ratio
is the percentage of net incurred loss and loss adjustment expenses to net
premiums earned. The expense ratio is the percentage of underwriting and other
operating expenses to net premiums earned.
[LOGO]
20
Previous Section
