A.M. Best Co. has affirmed the financial strength rating (FSR) of A (Excellent) and issuer credit rating of “a” of Zenith National Insurance Group (Zenith Group) and its two property/casualty insurance company members, Zenith Insurance Company and ZNAT Insurance Company, which operate under an inter-company pooling agreement. Both companies are domiciled in Woodland Hills, CA.

Concurrently, A.M. Best has affirmed the ICR of “bbb” of Zenith National Insurance Corp. (ZNIC), an insurance holding company wholly owned by Fairfax Financial Holdings Limited (Fairfax) [TSX: FFH], a Canadian property/casualty holding company. The outlook for all ratings is stable.

The ratings of the Zenith Group reflect its supportive level of risk-adjusted capitalization, historically strong operating performance and management’s commitment to maintaining underwriting discipline through market cycles. The ratings also recognize the financial flexibility afforded the group through Fairfax.

Somewhat offsetting these positive factors is the recent decline in Zenith Group’s underwriting and operating performance, which have been driven by competitive market conditions and state mandated rate reductions in the group’s largest states, along with weak macroeconomic conditions that have contributed to a reduction in the premium base. The concentration of Zenith Group’s business in two states, California and Florida, exposes it to a heightened level of regulatory and legislative changes.

The outlook reflects A.M. Best’s expectation that the group will continue to outperform the workers’ compensation peer group over the long term, as well as the support of Fairfax.

In addition, A.M. Best has withdrawn the debt rating of “bb+” on the capital securities issued by Zenith National Insurance Capital Trust I (the trust) due to the capital securities being no longer outstanding. A.M. Best also has assigned a debt rating of “bbb-” to the $38.4 million of 8.55% subordinated debentures of ZNIC, due 2028. The assigned outlook is stable.

The subordinated debentures were issued by ZNIC in 1998 and had previously been owned by the trust. The assignment of a rating to ZNIC’s subordinated debentures follows the trust’s December 2010 exchange of those securities for capital securities the trust issued in 1998. The capital securities were cancelled and the trust was dissolved subsequent to the 2010 exchange.

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