Zenith’s Charges Total $39 Million


Zenith National Insurance Corp., a Woodland Hills insurer that made major investments in junk bonds, said it will take $39 million in charges against its fourth-quarter results to reflect the bonds’ recent losses.

But the company also moved to assure Wall Street of its financial health by raising its quarterly dividend to 25 cents a share from 22 cents. The new payout will be made Feb. 15 to shareholders of record Jan. 31.

Zenith also said it plans to keep repurchasing its stock, and noted that it is authorized to buy back up to 600,000 shares. The stock climbed as high as $19.375 a share earlier this year, but has since tumbled. It closed Monday at $11.625 a share on the New York Stock Exchange.

The fourth-quarter charges include a reserve of $25 million for unrealized losses on junk bonds--the high-yield, high-risk securities that were made famous by Michael Milken and now-defunct Drexel Burnham Lambert. The charge will also include $14 million from Zenith’s losses from actual sales of junk bonds.


Milken, the ex-junk bond king who pleaded guilty to a variety of securities violations, is a cousin of Zenith National Chairman Stanley R. Zax.

Zenith’s charges might lead to a loss for the company in 1990 because Zenith said full-year earnings from its insurance operations should only be equal to last year’s operating results. In 1989, Zenith’s operating earnings were $44.6 million, and its net profit was $41.1 million on revenue of $483.9 million.

In the first nine months of this year, Zenith’s net profit was $24.5 million on revenue of $381.1 million.

In a statement, Zax said the junk-bond reserves were needed because of “the unprecedented decline” in the junk-bond market, especially following Iraq’s Aug. 2 invasion of Kuwait. He also cited an increase in the default rate of junk bonds and the sluggish economy.

In an interview with The Times in April, Zax said Zenith is one of the most conservatively managed insurers in the nation, and noted that its junk bonds equaled less than 15% of its total assets.

He did acknowledge that if Zenith were required to sell or write down its junk bonds at a loss, “it would wipe out our earnings for a year,” which is what might happen in 1990. At the time, Zax said he did not think that that would happen and that the scenario was “a ridiculous hypothetical.”