Another Los Angeles insurer is being taken over by an out-of-state company.

Zenith National Insurance Corp., a Woodland Hills workers’ compensation insurer, will be acquired by Toronto-based Fairfax Financial Holdings Ltd. in a deal valued at $1.4 billion, the two companies announced last week.

Fairfax, an insurance holding company with subsidiaries providing property and casualty insurance and reinsurance, is Zenith’s second largest shareholder and had an 8 percent stake as of Jan 25. It said it plans to acquire the remaining outstanding shares for $38 per share in cash, a 31 percent premium over the stock’s Feb. 17 closing price. The deal sent the stock price soaring

“We believe the transaction will benefit our key constituents and enable our shareholders to realize compelling value for their investment,” said Zenith Chief Executive Stanley Zax.

Zenith will join 21st Century Insurance Co. and Farmers Insurance Co., among others, that have been acquired by out-of-state companies.

The merger comes as California workers’ compensation insurers have struggled as medical costs continue to rise and clients hit hard by the recession trim payrolls. However, Zenith, the state’s second largest worker’s compensation provider, has been one of the more successful companies. Its loss ratio, an indicator how much of a premium dollar was paid in claims, has been lower than the industry average for several years.

“Zenith is very well-managed,” said J. Dale Debber, publisher of the Workers’ Comp Executive, an industry newsletter based in the Sacramento area.

The deal will give Zenith access to Fairfax Financial’s greater capital reserves, while Fairfax gains greater access to the U.S. market. “Fairfax will bring with it a large amount of capital availability to allow Zenith to grow in California or whatever other markets it wants to grow in,” he said.

Debber said Zax told him that he would remain chief executive of Zenith, a post he has held since 1978. Fairfax Chief Executive Prem Watsa also said there would be little change in Zenith’s operations as a result of the deal.

“Zenith will continue to operate its business as it has always been run under Stanley’s excellent leadership, with investment management centralized at Fairfax,” said Watsa in a statement.

Fairfax said it plans to finance the acquisition with a combination of cash and dividends. It also will raise $200 million through a stock issue. Assuming regulatory approvals are granted, the transaction is expected to close in the second quarter.

Because neither company has a huge share of the state’s workers’ compensation market, Debber said he expects state regulators will sign off on the deal. Zenith had about 4 percent of the market in 2008, according to a state Department of Insurance report. Fairfax and its subsidiaries had a 1 percent share.

Staff reporter Deborah Crowe contributed to this report.