Fairfax-Zenith Acquisition Gets Regulatory Nod

The companies had to get past an injunction request to stop a stockholder vote but regulatory approval has been granted for the $1.4 billion acquisition of Zenith National Insurance Corp. by Fairfax Financial Holdings Ltd.

Zenith National Insurance Group, led by Zenith Insurance Co., primarily underwrites workers' compensation accounts for small to medium-size businesses, with California and Florida representing approximately 80% of direct business. Zenith's accounts are written in 45 states and are generated through approximately 1,500 independent agents and brokers, according to BestLink, which provides online access to A.M. Best's Global Insurance & Banking Database.

Fairfax (TSX: FFH) owned about 8% of Zenith shares and will buy the remaining shares for $38 per share in cash -- putting the transaction value at about $1.4 billion (C$1.485 billion). Zenith was delisted from the New York Stock Exchange on May 21.

A.M. Best said in February it expects risk-adjusted capital of the operating insurance subsidiaries of Fairfax to remain supportive of their current ratings following the acquisition. No change is expected to the strategic or day-to-day control of Zenith's operations, with the exception of investment management, which will be centralized at Fairfax. A.M. Best noted Fairfax has integrated previous acquisitions into its structure in a similar manner (BestWire, Feb. 18, 2010).

Woodland Hills Calif.-based Zenith in April said a Delaware Court of Chancery judge denied a preliminary injunction filed to prevent the stockholder vote on its merger with Fairfax. Zenith reported a net loss for the first quarter of $800,000, compared with a net gain of $2.6 million during the same time last year. Workers' compensation net premiums decreased 15% during the first quarter, compared with the first quarter in 2009 (BestWire, April 23, 2010).

Best's Financial Strength Rating for subsidiaries of Fairfax Financial currently range from A (Excellent) to B++ (Good). Zenith National Insurance Group currently has a Best's Financial Strength Rating of A (Excellent).

(By Chad Hemenway, associate editor, BestWeek: [email protected])