CNA FINANCIAL CORPORATION

                               1999 ANNUAL REPORT
                             FOCUSED ON PERFORMANCE

TABLE OF CONTENTS

FINANCIAL HIGHLIGHTS..........................................  1

CHAIRMAN'S LETTER.............................................  2

FINANCIAL POSITION............................................  5

MANAGEMENT ROUNDTABLE.........................................  6

MANAGEMENT'S DISCUSSION AND ANALYSIS.......................... 13

CONSOLIDATED BALANCE SHEETS................................... 42

CONSOLIDATED STATEMENTS OF OPERATIONS......................... 44

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY............... 45

CONSOLIDATED STATEMENTS OF CASH FLOWS.......................... 46

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.................... 48

INDEPENDENT AUDITORS' REPORT.................................. 74

DIRECTORS..................................................... 75

OFFICERS...................................................... 75

COMPANY INFORMATION........................................... 76

CNA FINANCIAL CORPORATION
COMPANY PROFILE

CNA  Financial  Corporation  is a holding  company  whose  primary  subsidiaries
consist of property/casualty and life insurance companies.  Collectively,  these
subsidiaries  comprise CNA, one of the largest  insurance  organizations  in the
United States.

CNA serves  businesses and individuals with a broad range of insurance and other
risk management  products and services.  Insurance products include property and
casualty coverages;  life,  accident and health insurance;  and pension products
and  annuities.  CNA services  include risk  management,  information  services,
health care management and claims administration.  CNA products and services are
marketed through agents, brokers, managing general agents and direct sales.

CNA Financial Corporation,  with 1999 revenues of $16.4 billion, assets of $61.2
billion and  stockholders'  equity of $8.9  billion,  is the holding  company of
Continental  Casualty  Company,  incorporated  in  1897,  Continental  Assurance
Company, incorporated in 1911, and The Continental Corporation,  incorporated in
1853.

CNA  Financial  Corporation  stock is  traded  primarily  on the New York  Stock
Exchange, and is approximately 86 percent owned by Loews Corporation.

                                                            1999 ANNUAL REPORT
<PAGE>
FINANCIAL HIGHLIGHTS
RESULTS OF OPERATIONS & FINANCIAL CONDITION
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------------------------
As of and for the Year Ended December 31                    1999       1998       1997      1996       1995*
(In millions of dollars, except per share data and ratios)
-----------------------------------------------------------------------------------------------------------------
<S>                                                         <C>        <C>        <C>        <C>        <C>
RESULTS OF OPERATIONS
Revenues                                                    $16,403    $17,162    $17,199    $16,988    $14,700
Net operating income (loss)                                    (145)      (152)       488        578        463
Net realized investment gains                                   192        434        478        387        294
Cumulative effect of a change
   in accounting principle, net of tax                         (177)         -          -          -          -
------------------------------------------------------------------------------------------------------------------
       NET INCOME (LOSS)                                    $  (130)    $  282    $   966    $   965    $   757
=================================================================================================================

EARNINGS PER SHARE
Net operating income(loss)                                  $ (0.85)    $(0.86)   $  2.59    $  3.08    $  2.46
Net realized investment gains, net of tax
   and minority interest                                       1.04       2.35       2.58       2.09       1.59
Cumulative effect of a change
   in accounting principle, net of tax
   and minority interest                                      (0.96)         -          -          -          -
-----------------------------------------------------------------------------------------------------------------
       NET INCOME (LOSS)                                    $ (0.77)    $  1.49   $  5.17    $  5.17    $  4.05
==================================================================================================================

FINANCIAL CONDITION
Invested assets                                             $35,560    $37,177    $36,203    $35,412    $35,886
Total assets                                                 61,219     62,432     61,675     60,455     60,360
Reserves                                                     39,165     40,400     39,829     39,981     40,803
Debt                                                          2,881      3,160      2,897      2,765      3,026
Stockholders' equity                                          8,938      9,157      8,309      7,060      6,739
Book value per common share                                   47.66      47.89      44.01      37.27      35.52
Return on average stockholders' equity                         -1.4%       3.2%      12.6%      14.0%      13.4%

STATUTORY SURPLUS
------------------------------------------------------------------------------------------------------------------
Property/casualty companies**                               $ 8,679    $ 7,593    $ 7,123    $ 6,349    $ 5,696
Life insurance companies                                      1,222      1,109      1,224      1,163      1,056
==================================================================================================================
* RESULTS OF OPERATIONS  DATA  INCLUDES THE  CONTINENTAL  CORPORATION  SINCE ITS
ACQUISITION ON MAY 10, 1995.

** SURPLUS  INCLUDES  EQUITY OF  PROPERTY/CASUALTY  COMPANIES  OWNERSHIP IN LIFE
INSURANCE SUBSIDIARIES.
</TABLE>

CNA FINANCIAL CORPORATION                                                    1
<PAGE>
FOCUSED ON PERFORMANCE
CHAIRMAN'S LETTER
Dear Shareholder:

According to conventional wisdom, we are in a "mature" industry. Certainly, when
you look at the recent  financial and stock market  performance of our company -
and of most of our competitors - that perception seems true.

But we beg to differ.

There is nothing  conventional about the accelerating impact of technology in an
economy  that is more  global  every  day,  or the fact that  risks  facing  our
customers are becoming more varied and complex.

As an organization  focused on helping  businesses manage such risks, we believe
this time of change  presents the greatest  opportunity in our working lives. We
believe our industry is on the  threshold of a new era of growth -  particularly
for companies like CNA that have the vision and financial strength to adapt.

But before expanding on our vision, you and I know that there is still much work
to be done right now to improve  CNA's  operating  performance  and  shareholder
value.

2                                                           1999 ANNUAL REPORT
<PAGE>
Important progress

In the  year  since I  became  chief  executive  officer  of the  CNA  Insurance
Companies,  I believe we have made  tremendous  progress in sharpening our focus
and  building  a  solid  financial  foundation  to  help us  pursue  our  vision
successfully. Our multi-year turnaround plan is firmly in place and the momentum
from 1999 is carrying over into 2000.

That said,  this  management  team is not satisfied  with our  progress,  as the
bottom line has not yet improved commensurate with our actions.

This became  especially true when some of the worst storms Europe had ever seen,
together  with  reserve  strengthening,  combined  to wipe  out  three  straight
quarters of progress we had made in increasing our net operating income.

But we remain focused on performance.

Our drive to improve the quality of our  underwriting  across the board  remains
central  to our  strategy,  today and  tomorrow.  We are  shedding  under-priced
business in troubled lines -almost $1.2 billion of property/casualty premiums on
a base of $6.8 billion - and making  significant  progress in achieving adequate
rates on the remaining risks.

We have taken more than $380 million out of our run-rate cost of operations as a
down payment on our relentless determination to be a low cost competitor.

These steps are putting us on the right track.

And while there are  challenges  to meet,  they should not obscure  three truths
about CNA:

o    We continue to have one of the strongest  balance  sheets in the industry -
     despite  a  $363  million  after-tax  reserve  strengthening  in  loss  and
     allocated loss adjustment expense for prior periods. This strength gives us
     the  financial  flexibility  to  invest  in our  vision  and  to  fix  weak
     businesses.

o    We have many lines of business delivering outstanding underwriting results,
     including insurance to protect officers and directors,  liability insurance
     for professionals, warranty and our majority-owned CNA Surety operation.

o    We have one of the most effective  partnerships  with agents and brokers in
     the sector.  Much of our  progress,  especially  in the  troubled  standard
     commercial lines market, is due to the strength of these relationships.

Getting focused on business

The stage is now set for us to reach our vision:  to be the premier  underwriter
of the risks facing businesses.

This  required  some very  difficult  decisions.  In the end, we decided to exit
long-time CNA businesses  that,  however  successful in their own right, did not
fit with our core strategy. So, last year, we transferred our personal insurance
business to Allstate  and sold the  majority  of our  interest in AMS  Services,
Inc., an insurance technology provider, to a private management partnership.  In
the first quarter of 2000,  we also  announced a decision to explore the sale of
our life and life reinsurance businesses.

In total,  CNA will  re-deploy  substantial  assets to concentrate on businesses
where we hold strategic  advantages - such as specialized  products and services
targeted to businesses.

A new opportunity

With the rise of e-commerce,  service- and technology-based enterprises, and the
globalization of businesses of virtually any size, the needs for risk management
products and services are evolving rapidly. This creates an enormous opportunity
that will require real focus and talent to capture.

The opportunity comes in two forms:

o    Existing  clients need new products and services to address their  evolving
     risks.  The markets our customers  serve are changing,  their exposures are
     changing,  and the ways they choose to communicate and interact with us are
     changing.

CNA FINANCIAL CORPORATION                                                     3
<PAGE>
o    Entirely  new types of  businesses  are being  created with a unique set of
     risks and insurance needs.  They, too, will look to us for new products and
     services.

Our objective is to make the most of this  opportunity  by refocusing CNA on its
core strength as the  underwriter  of choice in the business  insurance  market.
Completing our turnaround  plan lays the essential  underwriting  and management
foundation for making our vision a bottom-line success.

Thanks for the hard work

Before  closing,  I want to thank  the  people of CNA for  their  commitment  to
building a stronger  company.  I also want to thank our entire senior leadership
team, which was made even stronger with the addition of Bob Deutsch as our chief
financial officer late in 1999.  Finally, I want to recognize Ron Gallatin,  who
joined our board of directors in February 2000. We welcome the  perspective  and
experience he brings to our organization.

The work we have  undertaken  in 1999 has not been easy.  But I am confident our
ongoing actions to improve operational and financial performance, in combination
with the company's strong and stable balance sheet, will enable CNA to take full
advantage of the changes sweeping through our industry.  In this way, we will be
able to deliver enhanced value to our shareholders in the years ahead.

Thank you for your continued support.

Sincerely,

Bernard L. Hengesbaugh
Chairman and Chief Executive Officer
CNA Insurance Companies

March 15, 2000

4                                                           1999 ANNUAL REPORT
<PAGE>
FINANCIAL HIGHLIGHTS
FINANCIAL POSITION (1989-1999)

FINANCIAL POSITION
This page of CNA Financial Corporation's annual report has four bar graphs which
illustrate the trend in revenues, assets, stockholders' equity and book value
per common share from 1989 through 1999.

($ IN BILLIONS EXCEPT PER SHARE DATA)
|-----------------------|----------|---------|---------------|---------------|
|Measurement Period     |          |         |  Stockholders'| Book Value Per|
| (Fiscal Year Covered) | Revenues | Assets  |   Equity      | Common Share* |
|-----------------------|----------|---------|---------------|---------------|
|FYE 12/31/89...........|   9.1    |  30.9   |      4.2      |     21.58     |
|FYE 12/31/90...........|   9.9    |  34.7   |      4.5      |     23.41     |
|FYE 12/31/91...........|  11.1    |  39.2   |      5.1      |     26.75     |
|FYE 12/31/92...........|  10.8    |  39.7   |      4.8      |     25.02     |
|FYE 12/31/93...........|  11.0    |  41.9   |      5.4      |     28.22     |
|FYE 12/31/94...........|  11.0    |  44.3   |      4.5      |     23.71     |
|FYE 12/31/95...........|  14.7    |  60.4   |      6.7      |     35.52     |
|FYE 12/31/96...........|  17.0    |  60.5   |      7.1      |     37.27     |
|FYE 12/31/97...........|  17.2    |  61.7   |      8.3      |     44.01     |
|FYE 12/31/98...........|  17.2    |  62.4   |      9.2      |     47.89     |
|FYE 12/31/99...........|  16.4    |  61.2   |      8.9      |     47.66     |
|-----------------------|----------|---------|---------------|---------------|
*Previous years have been restated for 3 for 1 stock split that occurred on
5/98.

CNA FINANCIAL CORPORATION                                                    5
<PAGE>
MANAGEMENT ROUNDTABLE
QUESTIONS & ANSWERS

In the 1998 CNA Financial  Corporation  annual report,  CNA Insurance  Companies
Chairman  and  Chief  Executive  Officer  Bernard  L.  Hengesbaugh  stated  that
conditions in the insurance  industry had never been more  competitive  and that
CNA's operating performance was unacceptable to CNA's management and board.

Given these critical  factors,  1999 was a year in which  management  focused on
operating  performance.  To help shareholders measure CNA's progress to date and
understand its strategy for handling  challenges  still facing the company,  the
following  section  features  a  roundtable  discussion  with  several  key  CNA
officers.  In it, they answer the tough  questions most often asked by investors
and financial analysts.

Featured are Bernie  Hengesbaugh;  Bob Deutsch,  senior vice president and chief
financial  officer;  Mike  McGavick,  president and chief  operating  officer of
Agency Market Operations; and Tom Taylor, executive vice president.

6                                                           1999 ANNUAL REPORT
<PAGE>
Where does CNA stand today versus a year ago?

HENGESBAUGH:  In short,  we  continue to work our  turnaround  plan to bring our
operating performance back up to the level of the top companies in the business.
We improved  underwriting  discipline,  reduced  expenses and  strengthened  our
management team. As a result, CNA is in a fundamentally  stronger position today
than we were a year ago.

Even so, you  reported a  significant  operating  loss for the year.  How do you
account for this performance?

DEUTSCH:  Well, for the year, we strengthened loss and allocated loss adjustment
expense reserves for prior periods by $363 million after taxes,  $235 million of
which was taken in the fourth  quarter based upon  recently-completed  actuarial
studies.  It became clear that losses on our existing  business - primarily  our
1997  and  1998  accident  years  - were  developing  higher  than  our  earlier
estimates,  so we adjusted our reserves  accordingly.  We also  strengthened our
1999 accident year by $103 million after-tax in the fourth quarter.

With this reserve  action behind us, we are well  positioned  to deliver  strong
operating  results in 2000. And by that  statement,  I do not in any way mean to
suggest that we will let our overall  reserve  adequacy slip in order to deliver
earnings.

We also had  catastrophe  losses  for the full  year of $253  million  after-tax
versus  $218  million for the full year 1998.  The  principal  drivers  were the
French and Danish  windstorms in the fourth  quarter and Hurricane  Floyd in the
third quarter.

After two years of disappointing  performance,  your stock is selling below book
value. Why should anyone be an investor in CNA?

DEUTSCH:  To begin with, we have a goal of being a top quartile performer in our
industry,  which,  given current interest rates,  would be in the range of 10-12
percent. And of course, we're not performing anywhere near that level right now.
We believe the key is improvement in our net operating income.  That's why we're
so focused on underwriting discipline and expense reduction. As we improve those
areas, we believe our shareholders will be rewarded.

The best insurance  companies  produce  operating  returns on equity north of 10
percent.  We're on a program of getting ourselves positioned to compete at those
levels.  When we get there,  I believe the market will  recognize  the  inherent
value of CNA.

The market  values  financial  strength in  insurance  companies.  How would you
characterize the strength of CNA's balance sheet?

DEUTSCH: In a word,  excellent.  The strength of our balance sheet really arises
from our investments, reserve position and capital structure.

Our investments in Global Crossing and Canary Wharf Group plc continue to have a
favorable  impact on our equity  position.  Global  Crossing  is a  provider  of
Internet and long distance  services with an undersea digital  fiber-optic cable
network.  Canary Wharf is a  publicly-traded  holding  company that operates the
Canary Wharf Real Estate development in the London docklands.

Since  year-end  1998,  the  market  value  of  these  two  holdings   increased
approximately $1.5 billion to $2.4 billion at the end of 1999. The market values
of Global  Crossing  and Canary  Wharf at December 31 were $1.8 billion and $600
million, respectively, virtually all of which is unrealized gains.

Offsetting the equity gains were unrealized  losses in our bond portfolio.  Bond
interest rates generally  increased across the yield curve by approximately  175
basis points during 1999. This shift  contributed to a $1.3 billion  unfavorable
change in unrealized  bond market  values for CNA,  from an  unrealized  gain at
year-end  1998 of $600  million to an  unrealized  loss at  December  31 of $700
million.

As for reserves, we emphasize a conservative  philosophy.  The paid and incurred
loss activity during the year indicated that market conditions had led to higher
loss ratios than we expected,  and we stepped up to those indications.  While no
one can

CNA FINANCIAL CORPORATION                                                     7
<PAGE>
guarantee  that our  actuarial  estimates  will not change over time, we believe
that the reserves are in a strong  position to withstand  further  changes.  The
pricing and  underwriting  actions  taken over the last  several  quarters  will
strengthen our financial position.

We also  have a solid  capital  structure.  Our  stockholders'  equity  was $8.9
billion at the end of 1999. Assets were $61.2 billion,  and overall debt levels,
including  preferred  stock,  decreased by  approximately  $479  million,  or 14
percent.  This capital  structure  provides a strong base to build on as we move
into the future.

In 1999, we made important  progress in getting the deep financial  resources of
this company moving in the right direction. As this momentum builds, we continue
to believe that the value of the CNA franchise will be fully  recognized and the
commitment of our shareholders will be well rewarded.

What will it take for CNA to become a top performer?

HENGESBAUGH:  The first thing we have to do is produce  strong  returns from our
insurance  operations and our investment  portfolio.  On the investment side, we
are already there. So the real question for the CNA leadership team is this -How
do we get the  financial  muscle  in this  company  working  to help us  produce
superior operating returns?

As we thought about that question,  there was a clear recognition of what needed
to be done, especially for our property/casualty  businesses.  We are in a tough
part of the cycle  right  now.  And we knew if CNA was going to get any  benefit
from future improvement in the market,  however slight, then some very important
changes had to take place within CNA very quickly.

So in 1999, we started on what in fact is a turnaround plan for CNA.

It is not  business as usual,  and it has involved a lot of  rethinking  of what
we're doing and how we're doing it.  While the plan  involves a whole  series of
strategic   activities,   the  real  day-to-day   priorities  are   underwriting
discipline, expense reduction and overall improvement of the operating results.

OK, let's start with underwriting discipline. Can you give us an update?

HENGESBAUGH:  A key  priority of our  turnaround  plan is improved  underwriting
discipline.  Taking  the lead in this  process  is our new  Underwriting  Policy
Group, headed by Tom Taylor, that we formed in 1999. This small group of experts
in underwriting, claims and pricing is working closely with our business leaders
to enhance  underwriting  proficiency across all our operations.  We are totally
focused on  rebuilding  the  disciplines  required  to serve our  customers  and
produce superior underwriting results.

TAYLOR:  Adding to what Bernie  said,  there really is a broader  context  here.
Several of our specialty businesses -- directors and officers, warranty, surety,
credit,  fidelity and  non-medical  professional  liability -- are already solid
performers.  These are strong  businesses we are looking to grow. The businesses
that  need  the  most  work are  middle  markets,  large  accounts  and  medical
malpractice.

We are  getting off  underpriced  business  and working  with our key agents and
brokers to achieve  necessary  price  increases.  For the year, we did not renew
$1.2  billion  in  property/casualty  business  on a base of $6.8  billion as we
worked to achieve adequate pricing and implemented key re-underwriting  actions.
Average price increases were between 5 and 6 percent,  with retention holding in
the 70 to 80 percent range throughout the year.

How are your agents and brokers handling this?

HENGESBAUGH:  We have tremendous support from our brokers and independent agents
in middle-market  commercial business, which is one of the toughest segments for
price  competition.  Their cooperation and support really validates our position
on the fundamental need for adequate pricing in middle-market  commercial lines.
Our agents know we are  committed to working  with them over the long term,  and
they are giving us every indication that they want to work with us.

After four consecutive quarters of essential price increases,  we are encouraged
by our progress.  We also  recognize that our work to achieve  adequate  pricing
doesn't stop here. We'll need continued underwriting  discipline - and more than
one renewal cycle of price increases - to get our entire  property/casualty book
up to an appropriate level of profitability.

How about a specific example. Could you tell us about your efforts in commercial
middle markets?

MCGAVICK:  First of all, we are aggressively getting off accounts that have been
unprofitable.  Where we can't find a solution  that is  acceptable  to us, we're
getting off the risk.

Secondly,  and a much more difficult task, is getting adequate price on business
that we want to retain. Usually, this is business that many companies would like
to have. We have steadfast  resolve in getting

8                                                  1999 ANNUAL REPORT
<PAGE>
an adequate price, even in this business.  In 1999, we did not renew nearly $750
million of  commercial  premiums on a base of $3.4 billion as we worked  through
critical underwriting and pricing initiatives.

It is also important to look at the  quarter-to-quarter  trend. In middle-market
business,  as we work to attain rate  adequacy,  average price  increases were 2
percent in the first quarter,  6 percent in the second quarter, 8 percent in the
third  quarter and 9 percent in the fourth  quarter.  Retention has been holding
steady in the 70 to 75 percent range throughout the year.

You  increased  prices  in  commercial  middle  markets  and still  produced  an
underwriting loss. Has anything really changed?

MCGAVICK: When you look at the fundamentals of our book of business, we are in a
much  better  position  now than at the start of 1999.  At that  point,  we were
coming off two quarters of price decreases - 0.5 percent in the third quarter of
1998 and 1 percent in the fourth  quarter - and these  rolled over into our 1999
operating results.  Now we are sitting on four consecutive quarters of necessary
price  increases  that  reached 9 percent in the fourth  quarter,  and we expect
these actions will work their way into our results for 2000.

At the end of 1998, we were looking back on a year when new business relative to
total  business  was at an  all-time  high.  Loss  ratios  on new  business  are
generally higher than on renewal business,  and that's what was rolling into our
operating  results in 1999. By contrast,  we were much more  disciplined  on new
business in 1999. As a result,  a larger  proportion of more  adequately  priced
business will be rolling into our 2000 results.

Another key fundamental  relates to our cost  structure.  At the end of 1998, we
were in the early stages of transforming a 20-year-old operating platform. Going
into 2000, the  transformation is virtually  complete.  Centralized  processing,
restructured claims functions and greater focus on territorial  underwriting are
expected to take $100 million out of our annual  operating  costs and to improve
our service to agents and customers.

Finally, at the end of 1998, our incentives for agents and underwriters rewarded
volume. Today, we have much stronger incentives for agents and employees tied to
the bottom line. When you consider all these factors,  we are in a fundamentally
stronger position going forward.

What about progress on your large account business?

TAYLOR:  In this  business,  we  continue  to see some  signs of  firming in the
market.  For the year,  we did not renew $75  million  in  premium  on a base of
nearly $500  million.  In the  process,  however,  we achieved an average  price
increase of 8 percent with the retention percentage running in the upper 70s. So
we think we're going in the right direction here.

How are you doing in your medical malpractice business?

TAYLOR: It's still a very competitive market, and we are sticking by our resolve
to achieve  adequate rates. For the year, we did not renew about $105 million in
business on a base of $470  million.  For the  business we renewed,  we achieved
price  increases  that  averaged  7  percent  for the year  with  the  retention
percentage in the low 80s.

The  biggest  pricing  issues in medical  malpractice  have been with  corporate
accounts,  that is, large  physician  groups and  hospitals.  Here,  we achieved
average price  increases of almost 12 percent on renewal  business for the year,
with retention around 70 percent.

We are also  encouraged  by the firming in our nursing home  business,  where we
renewed more than 83 percent of our accounts for the year, and achieved  average
price increases of 10 percent.

Business we did not renew  includes  accounts we chose to offer no renewal terms
as well as  accounts  we offered  terms with  increases  in price  significantly
larger than the amounts mentioned earlier.

Do you think you're on the right track now?

TAYLOR:  The pricing and retention  indicators in these three  property/casualty
businesses  tell us that we're on the right track.  We are also achieving  other
improvements in terms, such as deductibles, coinsurance and insurance to value.

As we work our plan, we recognize that there is a tier of players out there that
seems intent on growing their market share.  But we strongly feel we need to get
the price  necessary to make this business  stable over a longer period of time,
and so we're sticking with our plan.

How long can you sustain your pricing initiatives?

TAYLOR:  With our retention  rates holding up, we think there is still more room
for achieving fair prices in our book of property/casualty business. We are also
encouraged by a number of signs we are seeing in the market, including trends in
reinsurance,  the pricing initiatives of our competitors and the combined ratios
of key business lines.

CNA FINANCIAL CORPORATION                                                     9
<PAGE>
This gives us breathing room to focus on the other  fundamentals of underwriting
- loss control,  risk  selection,  claims  handling and so on. That's  critical,
because sustained  profitability really goes back to achieving excellence across
the entire underwriting process.

MCGAVICK: CNA's scale in middle markets turns into a major advantage in the kind
of transition  market Tom just described.  Such a market plays to our advantages
of scale and agency  relationships.  Agents  want to maintain  their  volume and
relationships with CNA and so choose to continue to do business with us. We both
win, and that's what we see starting to happen.

Turning to new business, what are your plans?

MCGAVICK: We're focusing on those markets where we know we have the underwriting
expertise and customer knowledge that differentiate us from the competition.

Although  we're  cautious in writing new  business,  we are going to stay in the
game,  particularly  with our top agents. We will work together with them on new
business  when we think we can get an adequate  rate,  and the  business is in a
class where we have some distinct knowledge.

HENGESBAUGH:  I'd also add that there are some  pockets in the  overall  company
that are showing growth.  CNA Re is reporting a good flow of new business in its
facultative  and  Canadian  operations.  The  international  group in  Europe is
expanding as a result of the 1998 acquisition of Maritime Insurance.  Surety net
written premium is up 11 percent. Guarantee & Credit grew 13 percent.

What progress have you made on expense reduction?

HENGESBAUGH:  As we've said,  expense reduction is another major priority in our
turnaround  plan. It goes back to 1998, when we launched an initiative to ensure
that each of our  businesses is working with an operating  platform that is on a
par  with  its most  cost-efficient  competitors.  Each  business  committed  to
quarterly  expense reduction  targets,  with an aggregate goal of reducing CNA's
annualized running rate expense by $300-350 million by the end of 1999.

We completed the effort in the fourth  quarter and exceeded this very  important
goal. It was tough,  but we got it done by thinking much more  creatively  about
how to work certain parts of our operating  platform.  One important  example is
the investment we have made in our commercial insurance processing center.

Of course,  the expense  reduction effort doesn't stop here. It's now hard-wired
into our management process, and our intent is to keep it going year after year.
What we've learned is that this whole process is really all about simplification
and getting focused on what really matters to our customers, agents and brokers.
That is going to serve us well across all our businesses going forward.

Why  aren't  the  expense  reductions  made in 1998 and 1999 going to show up in
financial results until 2000?

DEUTSCH:  From a  consolidated  level,  it's very hard to see the  impact on our
expense ratios of what we're doing. It's clouded by two factors.

First, we are measuring these expense reductions on a run-rate basis. This means
that, as we're making these  reductions  during the year,  we're still left with
the  transition  costs in the  expense  ratio  for the  current  year.  In 2000,
however, we should begin to see the effect of these efforts.

Second,  our net written  premiums  were off by $1.5  billion as a result of the
actions we've taken in re-underwriting  our book, walking away from unprofitable
business  and  completing  the  personal  insurance  business  transaction  with
Allstate.  These  factors  cause the expense  ratio to increase  given the fixed
nature of some expenses.

To follow up, what impact has expense  reduction  had on employee  morale?  What
about service to your agents, brokers and customers?

HENGESBAUGH:  There's  no  question  that  1999 was a  challenging  year for CNA
employees, agents and brokers, and we have been watching that very carefully. My
sense from meeting with  employees is that  achieving our  running-rate  expense
reduction and operating  income goals in many businesses and moving ahead on our
turnaround plan are helping build confidence.  It's confidence in our ability to
accomplish  what  looked  like very  difficult  goals.  And that  confidence  is
absolutely necessary to make this turnaround work all the way through.

MCGAVICK:  I'd add that when we said that we had to radically change our expense
structure, we also said the job had to be done while making our underwriting and
service better. That was the twin mission. So we radically redesigned the way we
handle  business.  We  consolidated  all  premium  processing  and policy  issue
functions from 24 branches to a central facility in Florida.

This frees our  underwriters,  who remain local,  from backroom  headaches,  and
lower costs.  Service hasn't been where it needs to be, but our agents have hung
in there with us, because I think they see the value of the model as well.

10                                                          1999 ANNUAL REPORT
<PAGE>
That's important because if you want to be a preferred agency company,  you have
to have a preferred service capability,  and we think we have an operating model
that can get us there.

There are still  pockets  of  service  problems,  as you would  expect  with any
massive conversion.  But when fully operational,  we think our processing center
will get us to one of the best  expense  ratios among our  competitors  and to a
world-class level of service to agents and insureds.

Let's focus now on operating income.

HENGESBAUGH:  Consistent  improvement  in  net  operating  income  is key to our
turnaround  plan.  In  1999,  we had  three  consecutive  quarters  of  improved
operating  income.  In the fourth  quarter,  there were some unique  events that
interrupted  the  momentum  temporarily  - the  reserve  strengthening  and  the
catastrophe losses.

But it is the momentum that is really  important to us.  Hitting our targets for
three  quarters is an early sign of a  management  team that is committed to and
capable of meeting the targets we have set out. The fourth-quarter  results only
make us more focused on improving  the  fundamentals  and getting  right back on
track.

You  announced  in the first  quarter  that you are  exploring  the sale of your
individual life and life  reinsurance  operations.  Can you explain the strategy
behind this?

HENGESBAUGH:  Our strategy going forward is to concentrate on insurance products
and services for  businesses.  We believe that  sharpening our focus in this way
will make CNA a more valued provider to our customers,  a better partner for our
distributors and a stronger performer for our shareholders.  As an employer,  we
will be able to provide better  opportunities  for people who are excited by the
challenge  of applying  our core  underwriting  expertise to the issues faced by
small,  medium  and large  businesses.  In 1999,  we took an  important  step in
sharpening  our focus with the  transfer of our personal  insurance  business to
Allstate.  We  also  sold  most  of our  stake  in AMS  Services,  an  insurance
technology company.

So,  to sum  up,  by  dedicating  our  substantial  resources  to the  needs  of
businesses,  we are very well equipped for a leadership position in this rapidly
expanding marketplace.

What are your plans for the $1 billion in capital freed up by the personal lines
insurance business transaction with Allstate?

DEUTSCH:  The Allstate transaction closed on October 1, 1999. Over time, it will
free up a good  portion  of  capital,  and we will be faced  with  the  issue of
capital  deployment.  That  issue  is  being  addressed  as part of the  overall
turnaround plan.

We have begun a complete  capital  allocation  review for all of our businesses.
All options will be open, including dividends or other alternatives,  to get the
capital base in line with our business opportunities.

For each business, we are evaluating the value we add to our customers,  the fit
with the rest of CNA's  operations,  the  risk/return  equation and our relative
expertise.  This is a long-term  analysis,  but in the  meantime,  no one gets a
pass.  Each of our  businesses is required to earn a competitive  rate of return
over a reasonable period of time.

HENGESBAUGH:  I'd also say that our capital allocation  strategy is not simply a
one-sided matter of exiting businesses.  Rather, if we see good opportunities to
re-deploy  capital  that fit with our overall  approach,  we will seize those as
well.

CNA FINANCIAL CORPORATION                                                    11
<PAGE>
Is share buy back an option you're considering? What about acquisitions?

DEUTSCH:  We have had a stock buy-back  program in place since November 1998. To
the extent we have excess capital for it, and under the right market conditions,
we would consider buying back stock under our existing program.

But  there  are a lot of issues in these  decisions.  A simple  measure  such as
premiums to surplus might show us as overcapitalized. Outside constituencies, on
the other hand, are looking at a completely different set of measures of capital
adequacy.

As for  acquisitions,  we  certainly  don't  want  to say  never.  If we make an
acquisition,  it has to be at a very  attractive  price.  And then  there's  the
question of how we would pay for it. With our stock as  undervalued as it is, we
would not want to use our stock as acquisition currency.

A lot of companies are doing what you're doing - cutting  expenses and repricing
the business. Wouldn't it make sense for more of these companies to consolidate?

HENGESBAUGH:  On the property/casualty side, gaining expense reduction through a
consolidation is extremely challenging.  Having gone through this ourselves with
the Continental merger, we did in fact extract cost from the system. But I think
there also are some diseconomies of size and scale.

For instance, if you increase the span of control of your underwriting managers,
that can be a great  economy of scale.  But,  if not done the right way, it also
could be disastrous to your loss ratio.

Another problem relates to shared distributors. They don't like to put all their
eggs into one basket. So a combined company may not be able to hold onto all the
business of the two separate companies.

The final item is that  technology  is moving so quickly that it doesn't  always
require size to get some of the economies.  For example, the Internet already is
altering  the cost and the  speed  with  which we can get  things  done with our
clients and brokers.

Can you tell us where you are with e-commerce?

MCGAVICK: We see electronic commerce and the Internet as another way to leverage
the value of our  relationships  with  partners  and  customers.  In  commercial
insurance,  our agent-centered  strategy provides value-added tools and services
to the  independent  agent,  who we believe  will  continue  to be the  dominant
distribution channel in middle markets.

For example, our electronic  capabilities enable agents to underwrite,  rate and
submit policies for small business  customers at the point of sale. The Internet
also gives  them  access to  real-time  claim  status and all of our  commercial
policy forms,  and makes it easy to process  commercial auto  endorsements.  Our
product  guides and sales kits are  available  via the  Internet,  and it allows
agents and staff to provide immediate feedback on CNA service.

We're using our  experience  in these  areas to develop  broader and more robust
e-commerce capabilities in all of our businesses.

Are the days of the large insurance  organization numbered? Why should a company
as big as CNA exist?

HENGESBAUGH:  While scale may not always produce the economies people expect, it
does have some major advantages.  Foremost is the fact that a large, financially
sound  company  such  as CNA can  leverage  both  capital  resources  and  brand
recognition in ways that smaller companies can't.

TAYLOR: In addition, there is the matter of underwriting knowledge. For example,
in our professional  liability  business for architects and engineers,  scale is
critical  because it has allowed us over time to understand more about the risks
architects  and engineers  face - and the problems we can help them solve - than
just about anybody in the business.  If we didn't have the cross-section that we
do of business,  we couldn't get to those  understandings;  and in fact that's a
major competitive advantage.

Finally,  what makes you think that CNA can create  superior  shareholder  value
over the long term in an industry as mature as insurance?

HENGESBAUGH:  It's certainly true that the traditional  insurance  products like
workers'  compensation and property are mature.  But that doesn't mean insurance
is not a growth  industry.  It's  just not  going  to grow  through  traditional
products alone.  Over the last 10 years or so, the economy has been growing much
faster than insurance  premiums.  That means there is a lot of wealth that needs
protection  but it's not  being  addressed  by  traditional  insurance  industry
products.

The  insurance  organizations  that can develop the new  products and respond to
these  changing  exposures  are going to be the winners.  For example,  CNA is a
leading  provider of commercial  equipment  maintenance  programs that cover the
computers,  copiers,  fax machines  and other  equipment  that a business  owner
relies on. Instead of separate service agreements,  the customer saves money and
enjoys the convenience of having one number to call for repairs. That's just one
of many  opportunities  for  non-traditional  products  that respond to changing
needs.

So we believe that insurance in fact is a growth industry. It's an industry that
needs to grow  with the rest of the  global  economy,  and we intend to be a big
part of it.

12                                                          1999 ANNUAL REPORT
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS

The  following  discussion   highlights   significant  factors  influencing  the
consolidated  results of  operations  and  financial  condition of CNA Financial
Corporation and  subsidiaries  (CNA or the Company).  This discussion  should be
read in conjunction with the Consolidated  Financial  Statements and the related
notes,  appearing on pages 42 through 73, and the five-year summary of selected
financial highlights appearing on page 1.

The  discussion  also  includes  an  overview  of  each of the  Company's  seven
operating segments, the products offered, the customers served, the distribution
channels used and an analysis of operating results.  Because distinct investment
portfolios  are not maintained  for each  insurance  segment,  the discussion of
investment results,  including  investment income and realized investment gains,
is on a consolidated  basis and begins on page 32. The 1999 and 1998 provisions
for restructuring and other related charges are also discussed on a consolidated
basis beginning on page 31.

CNA FINANCIAL CORPORATION                                                    13
<PAGE>
------------------------------------------------------------------------------

CONSOLIDATED OPERATIONS

BUSINESS OVERVIEW

CNA is one of the  largest  insurance  organizations  in the United  States and,
based  on 1998 net  written  premium,  is the  fifth  largest  property/casualty
company and the thirty-fifth largest life insurance company.

CNA's  overall  goal  is  to  create  long-term  enterprise  value  by  pursuing
disciplined underwriting as well as operating efficiencies.

CNA conducts its operations through the seven segments listed below. In addition
to the seven  segments,  certain  other  activities  are reported in a Corporate
segment.

         AGENCY MARKET OPERATIONS
         SPECIALTY OPERATIONS
         CNA RE
         GLOBAL OPERATIONS
         RISK MANAGEMENT
         GROUP OPERATIONS
         LIFE OPERATIONS

These  segments  reflect the way in which CNA  distributes  its  products to the
marketplace  and the way in which  it  manages  operations  and  makes  business
decisions. A more detailed description of each segment is included later in this
discussion.

OPERATING RESULTS

The following chart  summarizes the consolidated  operating  results for each of
the last three years.
<TABLE>
<CAPTION>
CONSOLIDATED OPERATIONS
------------------------------------------------------------------------------------------
Year Ended December 31                                              1999   1998    1997
------------------------------------------------------------------------------------------
(In millions of dollars, except per share data)
<S>                                                              <C>      <C>     <C>
Operating revenues:
  Premiums                                                       $13,282  $13,536 $13,624
  Net investment income                                            2,101    2,146   2,209
  Other                                                              705      799     628
------------------------------------------------------------------------------------------
    Total operating revenues                                      16,088   16,481  16,461
Benefits and other expenses                                       16,331   16,567  15,831
Restructuring and other related charges                               83      246       -
------------------------------------------------------------------------------------------
Operating income (loss) before income tax and minority interest     (326)    (332)    630
Income tax benefit (expense)                                         211      200    (132)
Minority interest                                                    (30)     (20)    (10)
------------------------------------------------------------------------------------------
Net operating income (loss)                                         (145)    (152)    488
Net realized investment gains, net of tax and minority interest      192      434     478
Cumulative effect of a change in accounting principle, net of tax and
  minority interest                                                 (177)       -       -
------------------------------------------------------------------------------------------
  NET INCOME (LOSS)                                              $  (130) $   282 $   966
==========================================================================================
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
CONSOLIDATED OPERATIONS
------------------------------------------------------------------------------------------
Year Ended December 31                                              1999   1998    1997
------------------------------------------------------------------------------------------
(In millions of dollars, except per share data)
<S>                                                              <C>      <C>     <C>
BASIC AND DILUTED EARNINGS PER SHARE
Net operating income (loss)                                      $(0.85)  $(0.86) $ 2.59
Net realized investment gains, net of tax and minority interest    1.04     2.35    2.58
Cumulative effect of a change in accounting principle, net of tax
  and minority interest                                           (0.96)      -       -
------------------------------------------------------------------------------------------
  NET INCOME (LOSS)                                              $(0.77)  $ 1.49  $ 5.17
==========================================================================================
</TABLE>

14                                                          1999 ANNUAL REPORT
<PAGE>
Total  operating  revenues  were $16.1 billion in 1999 and $16.5 billion in 1998
and  1997.   Premiums   declined  $253  million  in  1999   principally  in  the
property/casualty  product  lines,  due to  price  competition  in the  industry
combined with the Company's focus on underwriting discipline,  and the increased
use of  reinsurance.  Premiums for the Company's Life and Group  Operations were
down $49 million,  principally due to the exit from selected  medical markets in
late 1998.  Premiums for 1998  declined by $107  million when  compared to 1997.
This  decrease  was  primarily  due to  intense  price  competition  facing  the
commercial lines insurance market.

The Company had a net  operating  loss for the year ended  December  31, 1999 of
$145  million,  or $0.85 per share,  compared  to a net  operating  loss of $152
million, or $0.86 per share, for the year ended December 31, 1998.

The 1999  operating  loss includes $363 million  after-tax in loss and allocated
loss adjustment  expense reserve  strengthening  for prior periods.  Included in
this  amount  is  $33  million   after-tax  for  excess  workers'   compensation
reinsurance.  After-tax catastrophe losses were approximately $35 million higher
in 1999.  The operating loss also includes $54 million,  or $0.29 per share,  in
after-tax  restructuring  and  other  related  charges.  This  compares  to $169
million,  or $0.91 per  share,  in  after-tax  restructuring  and other  related
charges in 1998. The 1999  operating loss also reflects an after-tax  benefit of
$51 million, or $0.28 per share,  resulting from regulatory changes in the basis
on which certain insurance-related assessments are calculated.

Discussions of the results of operations from the Company's segments follow:

CNA FINANCIAL CORPORATION                                                    15
<PAGE>
AGENCY MARKET OPERATIONS

BUSINESS OVERVIEW

Agency  Market   Operations   builds  on  the  Company's   long  and  successful
relationship with the independent agency  distribution  system to market a broad
range of  property/casualty  insurance  products and services to both businesses
and individuals.  Business  products include workers'  compensation,  commercial
packages,  general  liability  and  commercial  auto,  as well as a  variety  of
creative  risk  management  services.  Products for  individuals were  primarily
personal auto and  homeowners  insurance.  In addition,  in 1997,  Agency Market
Operations launched a professional employer organization,  CNA UniSource,  which
provides various employer-related services.

Agency Market Operations is comprised of the following four groups.


COMMERCIAL INSURANCE

Commercial  Insurance  (CI)  provides  traditional  property/casualty  insurance
products such as workers' compensation, general and product liability, property,
commercial auto and umbrella coverage to businesses with less than $1 million in
annual  premiums.  The  majority  of CI  customers  are small  and  medium-sized
businesses.  CI is among the market  leaders in applying  industry  segmentation
techniques to design products and services tailored to the needs of its targeted
customer groups.

During 1998,  CI completed an extensive  review of its business and  developed a
new, more effective  operating model, that management  believes will position CI
as a world class competitor for the new century. The basis for this model was to
move decision-making authority and resources closer to CI's customers.

CI's focus during 1999 was the  transition to this  operating  model.  The model
includes branches, located throughout the U.S., that provide customer support in
the areas of  underwriting,  loss control,  sales and claims,  and a centralized
processing  center in  Maitland,  Florida  that houses  premium  processing  and
accounting for all branches,  and includes a call center for increased  customer
service.  Eight claim service  centers,  located  throughout  the U.S.,  provide
customers and claimants with improved  service  through more  specialized  claim
handling and easier claim reporting.

The efficiencies  resulting from these changes are expected to decrease expenses
in underwriting and claims through the implementation of new technology, process
redesign and centralization.  In addition, CI recognizes that an even lower cost
platform is  necessary to be  successful  in the small  commercial  marketplace.
During 2000, CI will be  consolidating  its  underwriting  for small  commercial
products with the existing centralized processing.  Management expects that this
centralization,  along  with the  implementation  of new  technology,  tools and
processes,  will allow CI to improve  underwriting  and  further  lower the cost
model related to its small commercial business.

PERSONAL INSURANCE

On October 1, 1999,  certain CNA subsidiaries  completed a previously  announced
transaction with The Allstate  Corporation  (Allstate) involving the transfer of
substantially all of CNA's personal lines insurance business.  See Note O to the
Consolidated Financial Statements.

Personal  Insurance (PI) sold primarily  personal auto and homeowners  coverages
and also offered excess liability, separate scheduled property,  boat-owners and
other recreational  vehicle insurance.  These coverages were primarily sold in a
package product.


CNA E&S

CNA E&S (E&S) provides specialized  insurance and other financial products for a
wide array of commercial customers. Risks covered by E&S are generally viewed as
high risk and less  predictable  in  exposure  than  those  covered  by the more
traditional  insurers.  By combining superior insurance and financial  expertise
with a detailed  understanding of customer operations and future direction,  E&S
is able to create and implement innovative business solutions that are valued by
the  customer.  In  addition,  E&S  actively  seeks  business  partners  who can
supplement CNA resources and enhance value for the customer.


CNA UNISOURCE

CNA UniSource  offers  outsourcing  services and other  financial  products that
relieve  businesses  of many  administrative  tasks,  allowing them more time to
focus on their core  objectives.  CNA UniSource  provides  human  resources (HR)
information  technology,   payroll  and  benefits  processing  and  Professional
Employer  Organization  (PEO)  services.   CNA  UniSource  is  also  engaged  in
delivering Internet-based HR and payroll administrative services and is a leader
in the implementation of HR information outsourcing for large-scale businesses.

When  it  functions  as  a  PEO,  CNA  UniSource   establishes  a  co-employment
relationship with its clients and  contractually  assumes  substantial  employer
administrative  responsibilities  such as  regulatory  compliance  and  benefits
administration.  At December 31, 1999, CNA  Unisource  had 768 clients with over
30,000  co-employees  and  conducts  business  in 45 states and the  District of
Columbia via 30 geographically  dispersed service offices and a state-of-the-art
customer  service  call  center.  The number of  co-employees  grew 150  percent
compared  with  1998.  The  primary  sales  force is  comprised  of  independent
insurance  agencies.  Management  expects  significant  growth in the  number of
clients and co-employees over the next several years.

16                                                           1999 ANNUAL REPORT
<PAGE>
OPERATING RESULTS
---------------------------------------------------------------------
Year Ended December 31                        1999     1998    1997
(In millions of dollars)
---------------------------------------------------------------------
Net earned premiums                           $4,799  $5,247  $5,092
Benefits and expenses                          5,791   6,050   5,491
Restructuring and other related charges           60      96       -
---------------------------------------------------------------------
Underwriting loss                             (1,052)   (899)   (399)
Net investment income                            686     744     787
Other revenues                                    80      48      50
Other expenses                                    77      52       6
---------------------------------------------------------------------
Pre-tax operating income (loss)                 (363)   (159)    432
Income tax benefit (expense)                     162     105    (106)
---------------------------------------------------------------------
  NET OPERATING INCOME (LOSS)                  $(201)   $(54)   $326
=====================================================================

RATIOS
Loss and loss adjustment expenses               90.4%   83.1%   74.9%
Expenses                                        31.0    32.6    31.8
Dividends                                        0.5     1.4     1.1
---------------------------------------------------------------------
  COMBINED                                     121.9%  117.1%  107.8%
=====================================================================

SUMMARY

Agency Market  Operations  consists  primarily of  commercial  property/casualty
insurance.  For the first nine months of 1999,  Agency  Market  Operations  also
includes results of PI, which was transferred to Allstate  effective  October 1,
1999.  Net written  premium for the combined CI and E&S business  units was $3.3
billion in 1999,  down from $3.8  billion in 1998.  This  decrease  reflects the
impact of the  increased  use of  reinsurance  and  efforts to achieve  adequate
pricing and the shedding of unprofitable business.  Agency Market Operations had
a net operating loss of $201 million,  compared with a $54 million loss in 1998.
The larger loss was due  primarily to  strengthening  of prior year reserves and
the loss ratio for the 1999 accident  year.  Partially  offsetting the effect of
the reserve  strengthening  was the  positive  impact of  reinsurance,  rate and
underwriting  actions  and  regulatory  changes  in the  basis on which  certain
insurance-related assessments are calculated.


PREMIUMS

Earned  premiums  decreased  by $448  million in 1999 from the prior year.  This
decrease  was  mainly  attributable  to the  transfer  of  essentially  all  the
Company's  PI business to Allstate in the fourth  quarter,  which  resulted in a
decrease in net earned  premiums of $297  million.  Net earned  premiums for the
combined CI and E&S business units decreased $153 million during 1999, primarily
due to rate and underwriting  actions taken to improve the core book of business
and the impacts of reinsurance agreements executed in 1999.

Earned premiums for 1998 increased by $155 million, or approximately 3.0%, which
was primarily  attributable to premiums from involuntary  risks. The increase in
involuntary  risk  premiums in 1998 as compared with 1997 was largely a function
of the 1997  involuntary  risk  premiums  being  reduced by a revision  of prior
years'  estimated  premiums.  Earned  premiums  for PI grew $61 million in 1998.
Contributing  to the growth  was the strong  product  identity  of the  Personal
Package policy, a personal insurance product providing a wide range of available
coverage  options and the  convenience  of single  policy  delivery and combined
billing.

UNDERWRITING RESULTS

Underwriting  losses for 1999 were $1.1  billion as compared to $899  million in
1998 due to  deterioration  in the combined ratio partially offset by reductions
in volume.  The combined  ratio for 1999 increased 4.8 points due to an increase
in the loss ratio of 7.3 points partially offset by decreases in the expense and
dividend ratios of 1.6 points and 0.9 points, respectively.  The increase in the
loss ratio is principally due to increased  adverse loss reserve  development in
1999  partially  offset by the  beneficial  effects  of  reinsurance  agreements
executed in 1999. The 1999 adverse loss reserve development included development
related to automobile,  workers'  compensation  and packaged  general  liability
exposures.   The  decrease  in  the  expense  ratio  is  attributable  to  lower
restructuring  and other  related  charges in 1999 as compared to 1998.  See the
discussion of  restructuring  and other related charges on page 31 and Note N to
the Consolidated Financial Statements.  Additionally,  Agency Market Operations'
1999 expense ratio benefited 0.9 points from regulatory  changes in the basis on
which certain insurance-related assessments are calculated.

Underwriting results for 1998 declined by $500 million as compared with 1997 due
to a combination  of increases in volume and an increase in the combined  ratio.
The combined ratio for 1998 increased 9.3 points  primarily  attributable  to an
8.2 point  increase in the loss ratio.  Contributing  to this  increase were net
changes in reserve development and catastrophe  losses.  Restructuring and other
related  charges also  contributed  to the increase in the combined  ratio.  Net
adverse  reserve  development  in 1998 was $168  million  as  compared  with net
favorable reserve development of $276 million in 1997.  Management  strengthened
reserves in 1998  primarily in response to  deteriorating  claim  experience for
asbestos  and other  mass tort  exposures.  Reserves  were  also  increased  for
construction  defect claims.  Beginning in 1997,  actions were taken to mitigate
further   exposure  to  construction   defect   liabilities  that  arose  almost
exclusively  out of exposures  underwritten  in  California.  The favorable loss
development  in  involuntary  risks  in 1997 was  attributable  to  better  than
expected results in workers' compensation and private passenger automobile lines
stemming  from  improved  frequency  and  severity  in  these  lines.  In  1998,
catastrophe losses were $131 million higher than the 1997 losses of $68 million.

CNA FINANCIAL CORPORATION                                                    17
<PAGE>

SPECIALTY OPERATIONS

BUSINESS OVERVIEW

Specialty  Operations  provides a broad  array of  professional,  financial  and
specialty  property/casualty products and services through a network of brokers,
managing  general  agencies  and  independent  agencies.   Specialty  Operations
provides  creative  solutions  for managing the risks of its clients,  including
architects,    engineers,    lawyers,   healthcare   professionals,    financial
intermediaries and corporate directors and officers.

    Specialty Operations is composed of three principal groups.

CNA PRO

CNA Pro is one of the largest  providers of non-medical  professional  liability
insurance and risk management  services in the U.S. CNA Pro's customers  include
architects  and  engineers,  lawyers,  accountants  and real  estate  agents and
brokers,  along  with a broad  range of large and small  corporate  clients  and
not-for-profit  organizations.  CNA Pro's products include errors and omissions,
directors and officers, and employment practices liability coverages and a broad
range of fidelity products. Products are distributed on a national basis through
a variety of channels including brokers, agents and managing general agents.


CNA HEALTHPRO

CNA HealthPro offers a comprehensive set of specialized  insurance  products and
clinical  risk  management  consulting  services  designed to assist health care
providers in managing the quality-of-care  risks associated with the delivery of
healthcare. Key customer  segments  include  individual,  small group and large
corporate purchasers of malpractice  insurance.  Caronia  Corporation,  acquired
during 1997, provides third-party claims administration for medical professional
liability insureds.


CNA GUARANTY AND CREDIT

CNA  Guaranty  and  Credit  provides  credit   insurance  on  short-term   trade
receivables  for  domestic  and  international  clients  and credit  enhancement
products that focus on asset backed transactions.  Credit insurance is primarily
distributed through captive agents with additional  distribution through brokers
and financial institutions.  Credit enhancement products are distributed through
specialty brokers and directly to customers.


OTHER OPERATIONS

Other  operations  consisted  principally  of Hedge  Financial  Products,  which
focused on  securitization  of  insurance  risk and the  embedding  of financial
protections  within  traditional   insurance  programs,   and  agricultural  and
entertainment  insurance  business.  During 1999 and 1998 the Company decided to
exit Hedge  Financial  Products,  and argiculture  and  entertainment  insurance
businesses, respectively.

OPERATING RESULTS
-------------------------------------------------------------------
Year Ended December 31                      1999     1998     1997
(In millions of dollars)
-------------------------------------------------------------------
Net earned premiums                         $1,001   $1,092  $1,251
Benefits and expenses                        1,166    1,251   1,397
Restructuring and other related charges          -        5       -
--------------------------------------------------------------------
Underwriting loss                             (165)    (164)   (146)
Net investment income                          235      245     268
Other revenues                                  19       27      14
Other expenses                                  30       44      10
--------------------------------------------------------------------
Pre-tax operating income                        59       64     126
Income tax expense                             (10)      (6)    (31)
--------------------------------------------------------------------
   NET OPERATING INCOME                         $49       58      95
====================================================================

RATIOS
Loss and loss adjustment expenses              90.6%   87.0%   80.8%
Expenses                                       25.9    28.1    30.9
--------------------------------------------------------------------
   COMBINED                                   116.5%  115.1%  111.7%
====================================================================

SUMMARY

Specialty  Operations' operating income for 1999 declined principally because of
unfavorable  loss reserve  development in CNA HealthPro  related to prior policy
years. Modest premium growth in non-medical professional liability and financial
insurance  was  offset by  declines  in  medical  malpractice  due to efforts to
achieve needed price increases and eliminate  unprofitable  business.  Specialty
Operations  remains  committed to  conservative  underwriting  practices in this
difficult environment.


PREMIUMS

Earned  premiums  for 1999  declined  $91  million,  or 8.3%,  from 1998 levels,
primarily due to declines in CNA HealthPro and businesses  exited.  Premiums for
CNA  HealthPro  declined  $40 million,  due mainly to two new ceded  reinsurance
agreements covering 1999 risks and business lost due to efforts to achieve price
increases  and  eliminate   unprofitable   business.   Hedge,   agriculture  and
entertainment  premiums  decreased a combined  $46 million  from 1998 due to the
decision to exit from these lines of business.

Premiums in 1998 decreased by $159 million,  or  approximately  12.7%,  compared
with 1997. The decrease was largely  attributable to an approximate $100 million
reduction in premiums caused by management's  decision to exit the  agricultural
insurance market. The remaining decline in premiums in 1998 was due to increased
price  competition and management's  resolve not to accept  inadequately  priced
business.

18                                                          1999 ANNUAL REPORT
<PAGE>

Specialty Operations' commitment to prudent underwriting and responsible pricing
is expected to continue to limit premium growth until general market pricing
improves.

UNDERWRITING RESULTS

The  underwriting  loss for 1999 was $165 million,  essentially  unchanged  from
1998, due to the offsetting  impacts of a higher combined ratio and lower earned
premiums.  The combined ratio for 1999 increased 1.4 points due principally to a
3.6 point increase in the loss ratio,  which was negatively  impacted by adverse
claim  experience  in  the  medical  malpractice  and  non-medical  professional
liability  lines of business.  The impact of adverse  claim  experience in these
lines to business was to increase the 1999 loss ratio for  Specialty  Operations
by 6.6 points over its 1998 level.  The 1999 loss ratio was favorably  impacted
by 4.1 points due to the exit from the agricultural  insurance line of business.
The expense declined 2.2 points in 1999 due principally to businesses exited.

The  underwriting  loss  for  1998  worsened  by $18  million  over  1997 due to
deterioration in the loss ratio, partially offset by a decrease in volume. While
the exit of the agricultural  and  entertainment  lines of business,  as well as
decisions not to write inadequately priced business,  had a favorable impact, an
unfavorable change in medical malpractice  reserve  development  resulted in the
net increase in the loss ratio of 6.2 points.

CNA FINANCIAL CORPORATION                                                    19
<PAGE>
CNA RE

BUSINESS OVERVIEW

CNA Re operates  globally as a reinsurer  in the broker  market,  offering  both
treaty and facultative products through major offices in London and Chicago. CNA
Re's operations include the business of CNA Reinsurance  Company Limited (CNA Re
U.K.), a U.K.  company,  and U.S.  operations  based in Chicago.  While CNA Re's
primary  product  is  traditional  treaty  reinsurance,  it is  also  developing
positions in facultative and financial reinsurance.  CNA Re also participates in
Lloyd's of London through CNA Corporate  Capital Ltd., which provides capital to
Lloyd's Syndicate 1229.

CNA Re U.K. writes in both the London market and other European  markets through
its  headquarters  in London and  offices in  Amsterdam,  Milan,  Singapore  and
Zurich. As one of the largest reinsurers in this market, CNA Re U.K. has ratings
of A (Strong) from Standard & Poor's, A (Excellent) from A.M. Best and A3 (Good)
from Moody's.  CNA Re U.K. writes U.S. and international treaty and professional
liability business,  including medical  malpractice,  errors and omissions,  and
directors and officers coverages.

The U.S.  operations of CNA Re provide  products to the North American  markets.
Treaty products include working layer property, working layer casualty, property
catastrophe,  workers'  compensation,  products  liability,  general  liability,
professional  liability,  specialty and excess and surplus  lines.  In addition,
financial  reinsurance  products  are offered as well as property  and  casualty
facultative reinsurance.

OPERATING RESULTS
-------------------------------------------------------------------
Year Ended December 31                   1999     1998       1997
(In millions of dollars)
-------------------------------------------------------------------
Net earned premiums                     $1,176    $944       $898
Benefits and expenses                    1,369   1,005        991
Restructuring and other related charges      -       1          -
-------------------------------------------------------------------
Underwriting loss                         (193)    (62)       (93)
Net investment income                      161     163        153
Other revenues                               4       5          7
Other expenses                               -      11          5
-------------------------------------------------------------------
Pre-tax operating income (loss)            (28)     95         62
Income tax benefit (expense)                15     (27)       (11)
-------------------------------------------------------------------
   NET OPERATING INCOME (LOSS)            $(13)    $68        $51
===================================================================
RATIOS
Loss and loss adjustment expenses         84.9%   74.9%      74.6%
Expenses                                  31.5    31.7       35.8
-------------------------------------------------------------------
   COMBINED                              116.4%  106.6%     110.4%
===================================================================

SUMMARY

Net operating income in 1999 was adversely affected by $122 million in after-tax
catastrophe losses, compared with $50 million in after-tax catastrophe losses in
1998.   The  1999  results  also  include  $23  million  in  after-tax   reserve
strengthening  related  to excess  workers'  compensation  reinsurance.  Premium
growth for the year was the result of new business and  expansion of  profitable
treaty relationships.

PREMIUMS

Earned  premiums  increased  $232 million,  or 24.6%,  versus 1998.  This growth
occurred in both foreign and domestic  markets in the  professional and standard
lines of business.  Growth was experienced via expansion of treaty relationships
with existing clients, the continued development of new product lines and growth
in global facultative operations and the Canadian branch.

Earned premiums in 1998 increased by $46 million,  or 5.1%,  compared with 1997.
The  increase in 1998  premiums  was  primarily  a function  of adverse  premium
development of prior year estimates recorded in 1997.

UNDERWRITING RESULTS

CNA Re's 1999 combined ratio increased by 9.8 points compared to 1998, primarily
as a result of a 10.0 point increase in the loss ratio. As previously noted, the
underwriting  results  for 1999  were  dramatically  impacted  by the  series of
European windstorms, Hurricane Floyd and other international catastrophes, which
contributed  to an aggregate 9.4 point increase in 1999's loss ratio relative to
1998.

The improvement in underwriting results of $31 million in 1998, as compared with
1997,  was driven by a 4.1 point decline in the expense  ratio.  The decrease in
underwriting  expenses in 1998 as compared with 1997 was  principally due to the
start-up costs  associated with expansion into  facultative  reinsurance and the
establishment of branch offices abroad during 1997.

20                                                          1999 ANNUAL REPORT
<PAGE>
GLOBAL OPERATIONS

BUSINESS OVERVIEW

Global  Operations  provides  products  and  services to  U.S.-based  customers,
customers  expanding  overseas and foreign  customers.  Product  distribution is
primarily  through  brokers and  independent  agents.  The major  product  lines
include marine, commercial and contract surety, warranty and specialty products,
as well as commercial property and casualty.

Global Operations is composed of five principal groups.

MARINE

On July 1, 1998, CNA completed the  acquisition of Maritime  Insurance Co., Ltd.
(Maritime Ltd.), based in the U.K., and its Canadian subsidiary,  Eastern Marine
Underwriters (EMU),  strengthening CNA's position as a global marine insurer. In
1999,  CNA  launched  the  marketing  brand,  CNA  Maritime,  which unites three
industry  leaders to serve global ocean marine  needs.  Marine Office of America
Corp.  (MOAC), a leading provider of ocean marine insurance in the U.S.,  offers
hull, cargo, primary and excess marine liability, offshore energy, marine claims
and recovery  products and services.  Business is sold through national brokers,
regional marine specialty brokers and independent  agencies,  which work closely
with MOAC's ten branch offices  located  throughout the U.S.  Maritime Ltd. is a
leading  marine  cargo and related  marine  insurance  specialist  with  markets
extending  across  Europe  and  throughout  the world.  EMU serves the  Canadian
market.  As foreign  subsidiaries,  Maritime  Ltd.  and EMU are included in the
results of, and are  managed  by, the  International  business  unit.  Growth is
expected  to result  from  leveraging  the  relationships  with  CNA's  domestic
producers,  implementing  e-commerce,  and providing customers with services and
products throughout the world.

SURETY

On October 1,  1997,  Global  Operations  completed  the merger of CNA's  surety
operations with Capsure  Holdings Corp.'s  subsidiaries,  Western Surety Company
and Universal Surety of America to form CNA Surety Corporation (CNA Surety). CNA
owns approximately 63% of CNA Surety.

CNA Surety, which is traded on the New York Stock Exchange (SUR), is the largest
publicly traded provider of surety bonds, with  approximately 9% of that market.
Among its U.S.  competitors,  CNA  Surety  has the most  extensive  distribution
system and one of the most diverse surety product lines,  offering small, medium
and large contract and commercial  surety bonds.  CNA Surety provides surety and
fidelity  bonds in all 50 states  through a combined  network  of  approximately
37,000 independent agencies.  Growth is expected to come from CNA Surety's broad
product and distribution resources and international expansion.


WARRANTY

CNA's warranty operation  (Warranty) is the fourth largest warranty  underwriter
in the U.S.,  providing  extended  service  contracts,  warranties  and  related
insurance  products  that  protect the consumer or business  from the  financial
burden  associated  with the  breakdown,  under-performance  or maintenance of a
product.  Warranty's  key market  segments  consist of  vehicle,  retail,  home,
commercial and original equipment manufacturer.  Each market segment distributes
its  product  via a  sales  force  employed  or  contracted  through  a  program
administrator.

CNA National  Warranty  Corporation  sells vehicle warranty services in the U.S.
and Canada. In July 1998,  Warranty expanded into the home warranty segment with
the acquisition of a 90% interest in Home Security of America,  Inc., one of the
largest  home  warranty  administrators  in the U.S.  Also,  in January 1998 the
Company acquired a joint venture interest in Specialty Underwriters,  a provider
of innovative equipment maintenance  management services to companies worldwide.
As these entities are not licensed insurance companies,  they purchase coverages
from various CNA affiliates to back the warranty products they sell.

Warranty expects growth from cross marketing  efforts with other CNA businesses,
increasing  product  distribution  via  the CNA  independent  agency  force  and
introducing several warranty products in the international marketplace.


INTERNATIONAL

International  is responsible for  coordinating and managing the direct business
of the foreign property/casualty operations of CNA. This business identifies and
capitalizes on strategic indigenous opportunities outside the U.S. by continuing
to  build  its  own  capabilities  and  by  initiating  acquisitions,  strategic
alliances  and  start-up  operations  that  allow for  expansion  into  targeted
markets.  In addition,  International  provides  U.S.-based  customers  that are
expanding their  operations  overseas with a single source for their  commercial
insurance needs. To this end,  International has placed  underwriters  within CI
branches.

International currently oversees operations in Europe, Latin America, Canada and
Asia. In Europe,  CNA formed CNA  Insurance  Company  (Europe)  Limited (CIE) in
1996, which is based in London. CIE has since opened offices in France,  Germany
and the  Netherlands  and has  purchased  a managing  general  agent in Denmark.
Through its network of offices,  International intends to build on the successes
of several CNA specialty products  (including travel and accident,  warranty and
financial   lines   insurance)  and  introduce  those  products  across  Europe.
International also includes the results of U.K. based Maritime Ltd.

In Latin America, the Company acquired a 70% interest in Omega A.R.T. in 1997, a
workers' compensation company domiciled in Argentina.  Omega ranks as the fourth
largest workers' compensation company in Argentina based on premium volume.

CNA FINANCIAL CORPORATION                                                    21
<PAGE>
CNA  Canada,  formed  in  1998,  sells a broad  array of  property/casualty  and
specialty  insurance  products through brokers and managing general agents.  The
results of EMU are also included in International.

The short to mid-term growth  opportunities  for  International  are in the more
mature foreign insurance  markets,  such as Europe and Canada,  and in specialty
insurance  products.  In the  longer  term,  emphasis  will  be on the  emerging
insurance markets in Latin America and Asia.


FIRST INSURANCE COMPANY OF HAWAII

First Insurance  Company of Hawaii,  Ltd. (FICOH) is the oldest domestic insurer
in the  state  of  Hawaii,  dating  back to  1911.  FICOH  is also  the  largest
commercial insurance company and the second largest property/casualty  insurance
company in the state.  FICOH offers  commercial and personal lines solely in the
state of Hawaii.  Distributed through independent agencies, the business mix has
historically been approximately 65% commercial and 35% personal lines.

On November 1, 1999,  Tokio  Marine & Fire  Insurance  Co. Ltd.  (Tokio) and CNA
executed an  agreement  to  increase  Tokio's  ownership  share from 40% to 50%,
resulting  in equal  ownership  by CNA and Tokio.  Additionally,  on November 1,
1999, Tokio merged their Hawaii-based operations into FICOH. CNA retains control
over FICOH's daily operations.  CNA views this transaction as a positive step in
the ongoing strategic relationship between CNA and Tokio.

CNA's  partnership with Tokio is expected to generate growth  opportunities  and
facilitate   international   expansion.   Additionally,   CNA  foresees   growth
opportunities  through  collaborative  partnerships  between FICOH and other CNA
businesses.


OPERATING RESULTS
-----------------------------------------------------------------
Year Ended December 31                   1999     1998     1997
(In millions of dollars)
-----------------------------------------------------------------
Net earned premiums                      $1,010   $941      $854
Benefits and expenses                     1,037    991       858
Restructuring and other related charges       -      1         -
-----------------------------------------------------------------
Underwriting loss                           (27)   (51)       (4)
Net investment income                       132    110       117
Other revenues                              120     82        29
Other expenses                              100     80        26
-----------------------------------------------------------------
Pre-tax operating income                    125     61       116
Income tax expense                          (33)   (18)      (35)
Minority interest                           (28)   (25)      (29)
-----------------------------------------------------------------
   NET OPERATING INCOME                     $64    $18       $52
=================================================================

Ratios
Loss and loss adjustment expenses          56.9%  62.2%     57.4%
Expenses                                   45.5   42.8      43.0
Dividends                                   0.3    0.4       0.1
-----------------------------------------------------------------
   COMBINED                               102.7% 105.4%    100.5%
=================================================================

SUMMARY

Global  Operations'  1999 net operating  income  increased $46 million over 1998
levels.  Underwriting loss improved primarily due to improved loss experience in
Surety,  International  and MOAC. MOAC and  International  have benefited from a
change in the mix of business  that has reduced  exposure  to  catastrophes  and
large property  losses.  Increased net investment  income for 1999 was primarily
due to the inclusion of a full year's  results for Maritime Ltd. The increase in
other  revenues  predominantly  reflects  growth  in  non-insurance  operations,
discussed further below.


PREMIUMS

Earned premiums increased $69 million, or 7.3%, from 1998 levels.  International
contributed $56 million of the increase,  the majority of which was attributable
to a full year's  premiums  from  Maritime  Ltd.  Surety  contributed  increased
premium of $29 million,  due to generally favorable domestic economic conditions
for  public  construction  and  expansion  internationally.   Warranty  premiums
increased $24 million over 1998,  mainly due to robust sales of new automobiles.
Partially  offsetting  this  growth was a decrease  in  premiums  in MOAC of $49
million due to competitive marine market conditions.

Earned  premiums in 1998  increased  by $87  million,  or  approximately  10.2%,
compared with 1997.  This increase was primarily  attributable to the effects of
acquisitions and mergers,  including Omega,  Maritime Ltd. and CNA Surety, which
added approximately $165 million.  Offsetting this growth was the sale of a book
of business and MOAC's strategic decision to exit unprofitable non-core lines of
business.


UNDERWRITING RESULTS

Underwriting  results  improved  $24 million  from 1998 due to a decrease in the
combined ratio of 2.7 points.  This was primarily due to improved loss ratios in
MOAC, Surety and CNA International  partially offset by an increase in the loss
ratio in Warranty. The improvement in the MOAC and International loss ratios was
due to a change in the mix of business that reduced exposure to catastrophes and
large property losses.  The decrease in Surety's loss ratio was due to favorable
loss  development  of $13 million in 1999  compared  to $4 million in 1998.  The
increase in the loss ratio in Warranty was due to unfavorable loss experience in
its automotive business.

Global  Operations'  underwriting  results  declined  in 1998 by $47  million as
compared  with 1997 due to  deterioration  in the loss ratio of 4.8 points.  The
deterioration  was due to a net  unfavorable  change in loss  development of $64
million  and  higher  catastrophe  losses  of $21  million.  The  change  in net
unfavorable  development  of $64 million was  comprised  of  approximately  $111
million   unfavorable   year-over-year   change  related  to  Surety,  MOAC  and
discontinued  pools,  offset  in  part by  favorable  year-over-year  change  of
approximately $47 million related  principally to the International and Warranty
businesses.

22                                                          1999 ANNUAL REPORT
<PAGE>
OTHER REVENUES AND EXPENSES

Other  revenues  were $120 million in 1999, an increase of $38 million over 1998
results.  The  growth  was  primarily  attributable  to  non-insurance  warranty
revenues of $98 million,  which compares  favorably to 1998 and 1997 revenues of
$77  million  and $28  million,  respectively.  Non-insurance  results  included
warranty sales associated with CNA National Warranty Corporation,  Home Security
of America, and Specialty  Underwriters.  Revenues related to this business grew
approximately 27% over 1998.

CNA FINANCIAL CORPORATION                                                   23
<PAGE>
RISK MANAGEMENT

BUSINESS OVERVIEW

Risk Management (RM) markets and sells insurance  products and services to large
U.S.-based  companies.  These  customers have a minimum of $1 million or more in
casualty  claims each year. It is estimated that there are  approximately  8,500
targeted  companies  within this  market  segment.  RM is one of 11  significant
competitors  and has a very strong  reputation and presence,  particularly  as a
writer of casualty insurance lines.

RM includes two groups.


RISK TRANSFER Risk Transfer  writes  property/casualty  lines of insurance.  The
casualty  insurance business focuses on workers'  compensation,  commercial auto
liability,  general liability through traditional and innovative  financial risk
products,  and excess coverage  needs.  The excess  products  provide  umbrella,
excess workers' compensation and high excess coverages.

Over the last two years,  domestic and global  property  capabilities  have been
increased,  providing  primary,  inland marine and excess  property  facilities.
Global property includes a strategic  alliance with Protection Mutual to address
the needs of the highly  protected risk customer.  Global property also includes
Northrock  Insurance  Company  Limited,  a wholly owned  subsidiary  in Bermuda,
offering property excess of loss insurance coverages.


RSKCoSM  Formed  in  1998,  RSKCoSM  provides  total  risk  management  services
(integrated  and  single  component)  related  to  claims,  loss  control,  cost
management and information services to the commercial insurance marketplace.

RSKCo'sSM capabilities include:

CLAIM SERVICES: Services that allow customers to select from a single source the
desired  level of  service-from  an integrated  claims  package to any component
service.

LOSS  CONTROL:   Pre-loss   prevention   services  include  industrial  hygiene,
laboratory,  ergonomics, field consulting and training, property,  environmental
and  transportation  loss  control.  Driver  training is provided  through Smith
System Driver Improvement Institute, Inc., a wholly owned subsidiary.

COST  MANAGEMENT:  Post-loss  cost control  services  through  case  management,
medical  bill  review,   preferred  provider   organizations  and  other  unique
partnerships to reduce lost work days through rapid  response,  quality care and
effective coordination.

INFORMATION  SERVICES:  These  services  include data access,  reporting  tools,
information and benchmarking analysis, consulting and custom reporting services.

OPERATING RESULTS
----------------------------------------------------------------------
Year Ended December 31                           1999    1998    1997
(In millions of dollars)
----------------------------------------------------------------------
Net earned premiums                              $801    $823    $776
Benefits and expenses                             936   1,018     974
----------------------------------------------------------------------
Underwriting loss                                (135)   (195)   (198)
Net investment income                             154     144     158
Risk management services revenues                 316     230     194
Risk management services expenses                 307     227     216
Non-insurance restructuring and other
related charges                                    10      88       -
----------------------------------------------------------------------
Pre-tax operating income (loss)                    18    (136)    (62)
Income tax benefit                                  1      48      25
----------------------------------------------------------------------
   NET OPERATING INCOME (LOSS)                    $19    $(88)   $(37)
======================================================================

Ratios
Loss and loss adjustment expenses                  94.3%  89.1% 101.8%
Expenses                                           22.6   30.7   24.3
Dividends                                           -      3.9   -0.6
----------------------------------------------------------------------
    COMBINED                                      116.9% 123.7% 125.5%
======================================================================

SUMMARY

Despite  reserve  strengthening,  overall  results  rebounded  to net  operating
income.  Positively  influencing  results  were  underwriting  expense  savings,
reinsurance programs, the impact of favorable regulatory changes in the basis on
which  certain  insurance-related   assessments  are  calculated,   and  reduced
restructuring-related  charges  compared  to  those  recorded  in  1998.  Earned
premiums decreased primarily due to greater use of reinsurance, program redesign
and disciplined underwriting of new and renewal business.


PREMIUMS

Earned  premiums for Risk  Management  declined $22 million or 2.7% in 1999,  as
compared with 1998. This decrease  resulted from Risk  Management's  decision to
take  advantage of a favorable  reinsurance  market and cede a larger portion of
its direct premiums,  the redesign of existing risk management programs and lost
business as a result of pricing actions taken in a difficult market.

Earned  premiums in 1998  increased by $47 million,  or 6.1%,  as compared  with
1997.  The  increase  is due to growth of $30 million in the  property  facility
business which was introduced in the latter part of 1997, underlying momentum in
Risk Management's core primary casualty business, and new business growth.

24                                                          1999 ANNUAL REPORT
<PAGE>
UNDERWRITING RESULTS

Risk  Management's  underwriting  loss  decreased  $60  million  in  1999 as the
combined ratio for 1999 decreased 6.8 points due to decreases in the expense and
dividend ratios of 8.1 points and 3.9 points, respectively,  partially offset by
an increase in the loss ratio of 5.2 points.  The increase in the loss ratio was
principally the result of adverse loss development in prior year reserves, which
was primarily  related to asbestos  exposures,  offset in part by the beneficial
effects of reinsurance  agreements  executed in 1999. Risk Management's  expense
ratio benefited 4.9 points from regulatory changes in the basis on which certain
insurance-related assessments are calculated. The decrease in the dividend ratio
is due to favorable development in dividend reserves.

Underwriting  losses in 1998 remained consistent with 1997 as the aforementioned
increase in premiums of $47 million was offset by a like increase in benefits
and expenses as customers moved to guaranteed cost insurance.

Restructuring  and other related  charges in 1999 and 1998, as discussed on page
31 and Note N to the Consolidated Financial Statements, were $10 million and $88
million, respectively.

Risk  management  services  revenues and  expenses in 1999 include  revenues for
services  provided by RSKCoSM to other units within the Risk Management  segment
that are eliminated at the consolidated  level.  Such  intrasegment  revenue and
expenses  eliminated  at the  consolidated  level were $176 million for the year
ended December 31, 1999.

CNA FINANCIAL CORPORATION                                                    25
<PAGE>
GROUP OPERATIONS

BUSINESS OVERVIEW

Group  Operations  provides a broad  array of group  life and  health  insurance
products and services to  employers,  affinity  groups and other  entities  that
purchase  insurance  as  a  group.  Its  products  and  services  are  primarily
distributed  through  brokers.  In addition,  Group  Operations  provides health
insurance to federal  employees,  retirees and their families;  managed care and
self-funded  medical excess insurance;  medical provider network  management and
administration services; and reinsurance for life and health insurers.
     Group Operations includes five principal groups.


SPECIAL BENEFITS Special Benefits provides group term life insurance,  short and
long  term  disability,  statutory  disability,  long  term  care  and  accident
products.  Products  are  marketed  through a  nationwide  operation of 31 sales
offices,  third party  administrators,  managing  general  agents and  insurance
consultants.


PROVIDER  MARKETS  Provider  Markets is comprised of two major  businesses.  CNA
Health  Partners  provides  comprehensive  managed  care  services to  employers
offering   self-funded  medical  plans  and  to  healthcare  provider  networks,
including provider  organizations that manage capitated risks.  Services offered
include network development and management,  medical management,  medical claims
administration,  consulting services and management services.  Group Reinsurance
writes assumed reinsurance on health, life and other related products written on
a group basis, as well as excess risk coverages related to health care.


LIFE REINSURANCE Life Reinsurance  reinsures individual life and health products
marketed by  unaffiliated  life insurance  companies  throughout  North America.
Sales are through an internal sales force. See page 39 for further discussion.


FEDERAL  MARKETS  Federal  Markets  is the  second  largest  provider  of health
insurance benefits to federal employees,  and operates through the Mail Handlers
Benefit  Plan under the  Federal  Employees  Health  Benefit  Plan  (FEHBP).  In
addition  to insuring  approximately  one million  members,  Federal  Markets is
responsible for all claim  management  activities  under the plan, such as large
case  management,  hospital  and provider  bill  negotiations,  fraud  detection
activities and vendor contracts.


HEALTH BENEFITS Health Benefits  markets direct mail specialty  products such as
accidental  death and  dismemberment,  term life and  dental  insurance  to bank
customers and federal employees.

OPERATING RESULTS
-----------------------------------------------------------------
Year Ended December 31                   1999    1998       1997
(In millions of dollars)
-----------------------------------------------------------------
Net earned premiums                    $3,571    $3,733   $3,936
Net investment income                     130       133      117
Other revenues                             40        24       17
-----------------------------------------------------------------
Total operating revenues                3,741     3,890    4,070
Benefits                                3,053     3,171    3,408
Expenses                                  699       763      680
Restructuring and other related charges     5        39        -
-----------------------------------------------------------------
Pre-tax operating loss                    (16)      (83)     (18)
Income tax benefit                         10        35       10
-----------------------------------------------------------------
   NET OPERATING LOSS                     $(6)     $(48)     $(8)
=================================================================

SUMMARY

Group Operations  experienced $42 million of improved  operating results in 1999
over 1998. Key components of the improvement include better underwriting results
in Special  Benefits'  life and disability  product lines,  the exit of selected
medical markets and lower  restructuring  and other related  charges,  partially
offset by adverse  losses  and  reserve  development  in the  personal  accident
business.


PREMIUMS

Earned premiums  declined in 1999 by $162 million,  or 4.3%,  from 1998.  Health
Benefits  premiums  declined  $344 million,  almost  entirely due to the exit of
selected medical markets in late 1998. Approximately half of the Health Benefits
decline  was  offset  by  premium  growth  in  Federal  Markets  of $70  million
reflecting  medical claim  trends,  and growth in Life  Reinsurance  and Special
Benefits of $60 million and $53 million, respectively.

During  1998,  premiums  decreased  by  approximately  5.2% or $203  million  as
compared with 1997.  The decrease was  attributable,  in part, to a $166 million
decrease in the medical lines of coverage in Health Benefits, resulting from the
decision  to exit  certain  markets.  Additionally,  due to changes in  coverage
terms, FEHBP premiums decreased by $90 million.  These decreases were offset, in
part,  by  premium  growth of $65  million  across  almost  all  other  lines of
business.

OPERATING RESULTS

Pre-tax  operating loss in 1999 improved by $67 million compared to 1998. Health
Benefits pre-tax operating income improved $81 million, due to the exit from the
employer  health  and  affinity  lines  of  business  in  1998  and  due  to the
restructuring  and other  related  charges  recorded in 1998.  Offsetting  these
improvements was a decline in Special  Benefits' pre-tax operating income of $19
million due to adverse  losses and  reserve  development  in  personal  accident
business,  partially  offset  by  improved  underwriting  results  on  life  and
disability products.

26                                                          1999 ANNUAL REPORT
<PAGE>

Pre-tax  operating  loss in 1998 increased by $65 million as compared with 1997.
The increase was primarily due to restructuring and other related charges of $39
million  related  to the  decision  to exit the  insured  comprehensive  medical
portion of the  employer  and  affinity  markets.  The  majority  of the inforce
business was sold effective  January 1, 1999. Earned premiums for these lines of
business was approximately  $400 million in 1998. In addition,  Special Benefits
1998 accident coverages  experienced $30 million in increased losses,  both from
adverse claim  developments and unusually high claim activity in the traditional
accident insurance line.

CNA FINANCIAL CORPORATION                                                   27
<PAGE>
LIFE OPERATIONS

BUSINESS OVERVIEW

Life  Operations  provides  financial  protection to individuals  through a full
product line of term life insurance,  universal life  insurance,  long term care
insurance,   annuities  and  other  products.   Life  Operations  also  provides
retirement  services products to institutions in the form of various  investment
products and administration  services.  Life Operations has several distribution
relationships  and  partnerships  including  managing  general  agencies,  other
independent  agencies working with CNA life sales offices,  a network of brokers
and dealers and various other independent insurance consultants.

Life Operations is composed of four principal groups.


INDIVIDUAL  LIFE  Individual  Life  offers  primarily  level  premium  term life
insurance, universal life insurance and related products. New sales of term life
have  placed  CNA as first or close to first in the  market  in each of the last
three years.


RETIREMENT   SERVICES  Retirement  Services  markets  annuities  and  investment
products and services to both retail and institutional customers.


LONG TERM CARE Long Term Care products provide reimbursement for covered nursing
home  and  home  health  care  expenses  incurred  due  to  physical  or  mental
disability.


OTHER OPERATIONS Other Life Operations  businesses include viatical  settlements
and developing  operations in certain  international  markets.

See page 39 for further discussion.

OPERATING RESULTS
----------------------------------------------------------------
Year Ended December 31                    1999     1998    1997
(In millions of dollars)
----------------------------------------------------------------
SALES VOLUME
Individual Life                           $  873   $761    $645
Retirement Services                        1,824    986   1,035
Long Term Care                               343    299     251
International                                 78     50      41
Other                                        105     91      45
----------------------------------------------------------------
   TOTAL                                  $3,223 $2,187  $2,017
================================================================
Net earned premiums                         $936   $823    $797
Net investment income                        556    525     501
Other revenues                               123    115     105
----------------------------------------------------------------
Total operating revenues                   1,615  1,463   1,403
Benefits                                   1,122    998     950
Expenses                                     277    295     266
Restructuring and other related charges        -      7       -
----------------------------------------------------------------
Pre-tax operating income                     216    163     187
Income tax expense                           (71)   (58)    (66)
----------------------------------------------------------------
   NET OPERATING INCOME                      $145   $105    $121
================================================================

SUMMARY

Life Operations experienced strong growth in revenues and profitability in 1999.
Premium growth was primarily due to strong sales in retirement-related  and long
term care products,  as well as an increasing  base of direct  premiums for life
products.  Net  operating  income  growth was achieved  primarily in  Retirement
Services, Individual Life and in the viatical settlements business.


SALES

Sales volume increased to $3.2 billion in 1999, up 47.4% from 1998,  principally
due to increased sales of Retirement Services products. Sales volume in 1998 was
8.4% higher than 1997.  Sales  volume is a  cash-based  measure  which  includes
premium and annuity considerations, investment deposits and other sales activity
that  are  not  reported  as  premiums  under  generally   accepted   accounting
principles. The 1999 increase represents strong sales in Retirement Services and
a growing base of premiums for Life and Long Term Care. Despite an increased use
of reinsurance,  net premium revenues have also shown strong growth,  increasing
13.7% in 1999 and 3.3% in 1998.

Individual  Life sales volume of $873 million  represents a 14.7%  increase over
1998's $761 million.  Individual Life earned premiums were $306 million in 1999,
down 4.7% from $321 million in 1998.  The primary reason for this decrease was a
reinsurance  treaty that was  completed in late 1998 that lowered the  Company's
life insurance retention levels. Individual Life premiums in 1998 decreased from
$373 million in 1997, driven primarily by increased use of reinsurance.

28                                                          1999 ANNUAL REPORT
<PAGE>
Sales volume for Retirement Services increased to $1.8 billion in 1999 from $1.0
billion  in  1998,   primarily  related  to  increased  sales  of  institutional
investment  products.  Variable  annuity  sales  increased  87% to $110 million.
Retirement  Services  earned  premiums  were $216 million in 1999, up 22.2% from
1998 premium of $177 million.  1998 earned premiums were  essentially  unchanged
from 1997 levels. The decreased sales volume from 1997 to 1998 was primarily due
to the  discontinuance  of fixed  individual  annuities  and the lower volume of
guaranteed  investment  contracts  sold  in  institutional  markets  due  to the
interest rate and stock market environments in 1998.

Long Term Care sales volume of $343 million in 1999  represents a 14.7% increase
over the 1998 level of $299 million.  Long Term Care premiums increased 16.6% in
1998 and 22.2% or $61 million in 1999 to reach $336 million.

International  sales  climbed to $78 million in 1999,  for a second  consecutive
year of growth,  fueled primarily by retirement annuity sales in Chile. Viatical
sales volume has also continued to experience year-to-year growth, to reach $105
million in 1999.  Viatical sales volume is measured as amounts paid to insureds,
along with other related costs, in return for assignment of their life insurance
policies.


OPERATING RESULTS

Life  Operations  continues to show strong  performance in the  individual  life
market,  where net operating income increased $7 million in 1999 to $83 million,
because of expense savings and improved mortality  experience.  Also,  effective
use of  reinsurance  has reduced Life  Operations  exposure to volatility in its
results.  Net operating  income for Retirement  Services for 1999 of $37 million
increased $16 million,  or 76%,  from 1998.  This was primarily due to favorable
investment  performance in the portfolio  supporting  Retirement Services' Index
500 product,  and improved sales and economies of scale in the trust and banking
services operation.  Net operating income from the viatical settlements business
improved by $12 million due primarily to expense reductions and the recent entry
into the profitable high net worth market.

CNA FINANCIAL CORPORATION                                                    29
<PAGE>
CORPORATE

Corporate results consist of interest expense on corporate  borrowings,  certain
run-off insurance operations, asbestos claims related to Fibreboard Corporation
(Fibreboard), financial guarantee insurance contracts, and certain non-insurance
operations, including the operations of AMS Services, Inc. (AMS), an information
technology and agency software development subsidiary.  See Notes F and O to the
Consolidated Financial Statements.

The operating loss for 1999 was $202 million,  approximately  $10 million better
than 1998. The improvement was primarily  attributable to decreased  losses from
AMS of $20 million (each on an after-tax  basis),  partially offset by increased
losses from run-off  insurance  operations.  In the fourth  quarter of 1999, the
Company sold most of its interest in AMS.

Operating  losses for 1998  increased by $99 million  compared  with 1997.  This
increase  was  primarily   attributed  to  a  net  unfavorable  change  in  loss
development  on asbestos  claims  related to  Fibreboard  of  approximately  $46
million  after-tax,  an  increase in  operating  losses  attributable  to AMS, a
decrease in investment income and an increase in interest expense.

30                                                          1999 ANNUAL REPORT
<PAGE>
RESTRUCTURING AND OTHER RELATED CHARGES

On August 5, 1998, CNA announced estimates of the financial  implications of its
initiatives to achieve world-class  performance.  "World-class  performance," as
defined by the Company,  refers to the  Company's  intention to position each of
its strategic business units (SBU) as a market leader by sharpening its focus on
customers and employing new technology to work smarter and faster.  In the third
quarter of 1998, the Company  finalized and approved a plan to  restructure  its
operations.  The  restructuring  plan  focused  on  a  gross  reduction  in  the
then-current  workforce  of  approximately  4,500  employees  resulting in a net
reduction  of  approximately  2,400  employees,  the  consolidation  of  certain
processing  centers,  the  closing of  various  facilities,  and the  exiting of
certain  businesses.  The details of the restructuring and other related charges
recognized  in  1998  and  1999  are  discussed  in  Note N to the  Consolidated
Financial  Statements.  The initial  expectation  from  management  was that the
Company's  initiatives  would result in a reduction of approximately 2 points in
the Company's expense ratio due to savings of approximately $300 to $350 million
on an annualized basis.

As of December 31, 1999,  the Company had completed  essentially  all aspects of
its restructuring plan. Management estimates the Company has achieved annualized
run-rate expense savings of $381 million. "Annualized run-rate expense savings,"
as defined by the  Company,  refers to the  difference  between  the  normalized
current  expense  ratio and a  base-line  expense  ratio  applied to a base-line
measure of revenue, generally written premiums. Approximately $70 million of the
annualized  run-rate  savings  relate  to  the  Personal   Insurance   business
transferred to Allstate. See Note O to the Consolidated Financial Statements for
a discussion of the Personal  Insurance  transaction.  The  normalization of the
current  expense  ratio  involves  adjusting  the expense  ratio,  exclusive  of
restructuring  and  other  related  charges,  for  other  expenses  that are not
expected to recur or persist in the  restructured  operating  platform.  Because
many of the  expenses  to which  these  adjustments  relate are  included in the
results  of  operations   determined  in  accordance  with  generally   accepted
accounting  principles,  the  annualized  run-rate  expense  savings  cannot  be
interpreted  as the  difference  in expenses  incurred in 1999 compared to 1998.
Management expects that the effects of the restructured  operating platform will
be reflected in the 2000 results.

The table below presents the remaining  accrued  restructuring and other related
charges as of December 31, 1999 and  management's  estimate of the timing of its
payout.

ACCRUED RESTRUCTURING AND OTHER RELATED CHARGES
-------------------------------------------------------------------------------
                                       EMPLOYEE
                                     TERMINATION
                                     AND RELATED     LEASE      BUSINESS
                                       BENEFIT    TERMINATION     EXIT
(In millions of dollars)                COSTS        COSTS       COSTS   TOTAL
-------------------------------------------------------------------------------
Accrued costs at December 31, 1999     $4           $27         $15      $46
===============================================================================

2000                                   $4           $12         $13      $29
2001                                    -             6           2        8
2002                                    -             4           -        4
2003                                    -             2           -        2
2004                                    -             1           -        1
Thereafter                              -             2           -        2
-------------------------------------------------------------------------------

Total future payments                  $4           $27         $15      $46
===============================================================================

CNA FINANCIAL CORPORATION                                                    31
<PAGE>
INVESTMENTS

The components of net  investment  income for the years ended December 31, 1999,
1998 and 1997 are presented in the following table

NET INVESTMENT INCOME
Year Ended December 31
(In millions of dollars)                1999       1998        1997
---------------------------------------------------------------------

Fixed maturity securities:
   Bonds:
     Taxable                            $1,509     $1,490     $1,522
     Tax-exempt                            267        340        288
   Redeemable preferred stocks               -          2          7
Equity securities                           36         33         37
Mortgage loans and real estate               4          5         10
Policy loans                                11         11          6
Short-term investments                     188        241        321
Securities lending transactions, net        26         10          9
Other invested assets                      101         67         56
---------------------------------------------------------------------
                                         2,142      2,199      2,256
Investment expenses                        (41)       (53)       (47)
---------------------------------------------------------------------
   NET INVESTMENT INCOME                $2,101     $2,146     $2,209
=====================================================================

Lower net investment  income in 1999 compared to 1998 is due to lower investment
bases in the fixed maturity  securities and short-term  investments  segments of
the  portfolio,  which  collectively  declined $3.5  billion.  Portions of these
portfolios were liquidated in connection with the Personal Insurance transaction
with Allstate and to fund payments from the Fibreboard escrow. See Notes F and O
to the Consolidated  Financial Statements.  Additionally,  the yield realized on
fixed  maturity  securities  was lower in 1999 than in 1998. The bond segment of
the investment portfolio yielded 6.1% in 1999 compared to 6.4% in 1998 and 1997.
Partially  offsetting  these  declines  in 1999 were  increases  in income  from
expansion of the securities lending program and other invested assets. Lower net
investment  income in 1998 compared to 1997 is  attributable  to a lower average
level of assets invested in interest bearing securities.

The components of net realized investment gains for the years ended December 31,
1999,  1998 and 1997 are  presented  in the  following  table:

NET REALIZED INVESTMENT GAINS
Year Ended December 31
(In  millions  of dollars)                1999      1998       1997
---------------------------------------------------------------------
Realized investment gains (losses):
   Fixed maturity securities:
     U.S. Government bonds              $ (177)   $   265    $   249
     Corporate and other taxable bonds     (78)        67        142
     Tax-exempt bonds                      (44)        90         49
     Asset-backed bonds                    (13)        39         36
     Other                                   1          6        (24)
---------------------------------------------------------------------
   Total fixed maturity securities        (311)       467        452
   Equity securities                       366         38        103
   Derivative securities                    39         12         (7)
   Other invested assets                   214        178        205
---------------------------------------------------------------------
Total net realized investment gains        308        695        753
Allocated to participating policyholders     7        (14)       (15)
Income tax expense                        (123)      (247)      (260)
---------------------------------------------------------------------
   NET REALIZED INVESTMENT GAINS        $  192    $   434    $   478
=====================================================================

Significant  investment gains were realized in 1999 on the Company's investments
in Global  Crossing,  Ltd.,  and  Canary  Wharf  Group plc;  aggregate  realized
investment gains on these positions were approximately  $342 million.  Partially
offsetting these gains in 1999 were realized losses in the tax-exempt portion of
the  fixed  maturity  securities  segment  of the  portfolio.  The  value of the
Company's  investments  declined in 1999 due to increases in interest rates and,
as previously  mentioned,  there were portfolio  liquidations in connection with
the Personal Insurance  transaction with Allstate and payments to the Fibreboard
escrow. Other realized investment gains in 1999 include gains from the Company's
investments in limited partnerships and the AMS transaction, partially offset by
the loss on the Personal Insurance  transaction.  See Note O to the Consolidated
Financial Statements.

Other  realized  gains for the year  ended  December  31,  1997,  includes a $95
million  gain  related  to  the  CNA  Surety  transaction.  See  Note  O to  the
Consolidated Financial Statements.

32                                                          1999 ANNUAL REPORT
<PAGE>
The  following  table  details the carrying  value of CNA's general and separate
account investments as of the end of each of the last two years:

GENERAL AND SEPARATE ACCOUNT INVESTMENTS
------------------------------------------------------------------------
December 31
(In millions of dollars)                     1999      %    1998     %
------------------------------------------------------------------------
GENERAL ACCOUNT INVESTMENTS
   Fixed maturity securities:
     Bonds:
       Taxable                              $22,722   64%  $23,658  64%
       Tax-exempt                             4,396   12     6,321  17
     Redeemable preferred stocks                130    -        94   -
   Equity securities:
     Common stocks                            3,344    9     1,665   5
     Non-redeemable preferred stocks            266    1       305   1
   Mortgage loans and real estate                47    -        62   -
   Policy loans                                 192    1       177   -
   Other invested assets                      1,108    3       858   2
   Short-term investments                     3,355   10     4,037  11
------------------------------------------------------------------------
     TOTAL GENERAL ACCOUNT INVESTMENTS      $35,560  100%  $37,177  100%
========================================================================

SEPARATE ACCOUNT INVESTMENTS
   Fixed maturity securities:
     Taxable bonds                          $ 3,260   72%  $ 4,155   81%
   Equity securities:
     Common stocks                              240    5       264    5
     Non-redeemable preferred stocks             21    1        33    1
   Other invested assets                        493   11       218    4
   Short-term investments                       489   11       473    9
------------------------------------------------------------------------
     TOTAL SEPARATE ACCOUNT INVESTMENTS     $ 4,503   100% $ 5,143  100%
========================================================================

The  Company's  general  and  separate  account  investment  portfolios  consist
primarily  of  publicly  traded  government  bonds,   asset-backed   securities,
mortgage-backed securities, municipal bonds, and corporate bonds.

Total separate account investments at fair value were approximately $4.5 billion
and $5.1 billion at December 31, 1999 and 1998, respectively, with taxable fixed
maturity  securities  representing  approximately 72.4% and 80.8% of the totals,
respectively.  Approximately  52.8% and 64.3% of separate account investments at
December 31, 1999 and 1998, respectively, are used to fund guaranteed investment
contracts for which  Continental  Assurance Company  guarantees  principal and a
specified  return  to  the  contractholders.  The  duration  of  fixed  maturity
securities  included in the guaranteed  investment contract portfolio is matched
approximately  with the  corresponding  payout pattern of the liabilities of the
guaranteed investment contracts.

A primary  objective in the  management  of the fixed  maturity  portfolio is to
maximize total return relative to underlying  liabilities and appropriate market
benchmarks.  In  achieving  this goal,  assets may be sold to take  advantage of
market   conditions,   other  investment   opportunities   and  credit  and  tax
considerations.  This activity will produce  realized gains and losses depending
on then-current interest rates.

The  Company's  investment  policies for both the general and separate  accounts
emphasize high credit quality and diversification by industry, issuer and issue.
Assets supporting  interest rate sensitive  liabilities are segmented within the
general account to facilitate asset/liability duration management.

The general account portfolio  consists  primarily of high quality (rated BBB or
higher)  bonds,  94.2%  and  93.3% of which  are  rated as  investment  grade at
December 31, 1999 and 1998,  respectively.  The following  table  summarizes the
ratings of CNA's general account bond portfolio at carrying value:

GENERAL ACCOUNT BOND RATINGS

------------------------------------------------------------------------
December 31
(In millions of dollars)                      1999     %    1998       %
------------------------------------------------------------------------
U.S. government and affiliated securities  $  8,781   32%  $ 9,443   31%
Other AAA rated                               9,692   36    11,595   39
AA and A rated                                4,465   16     4,884   16
BBB rated                                     2,598   10     2,061    7
Below investment grade                        1,582    6     1,996    7
------------------------------------------------------------------------
  TOTAL                                    $ 27,118  100%  $29,979 100%
========================================================================

The following table summarizes ratings of CNA's guaranteed investment contract
portion of the separate account bond portfolio at carrying value:

GUARANTEED SEPARATE ACCOUNT BOND RATINGS
------------------------------------------------------------------------
December 31
(In millions of dollars)                     1999    %      1998      %
------------------------------------------------------------------------
U.S. government and affiliated securities  $    52     2%  $   167    5%
Other AAA rated                              1,514    65     1,977   61
AA and A rated                                 356    15       476   15
BBB rated                                      335    14       339   11
Below investment grade                          85     4       269    8
------------------------------------------------------------------------
   TOTAL                                   $ 2,342   100%  $ 3,228  100%
========================================================================

In the above tables  approximately  95.4% and 91.5% of the general  account bond
portfolio  and  96.9%  and  95.7% of the  guaranteed  investment  contract  bond
portfolio  were U.S.  government  agencies or were rated by Standard & Poor's or
Moody's  Investors  Service at  December  31, 1999 and 1998,  respectively.  The
remaining bonds were rated by other rating agencies,  outside brokers or Company
management.

High yield  securities are bonds rated as below  investment grade (below BBB) by
bond rating  agencies  and other  unrated  securities  which,  in the opinion of
management,  are below investment grade. High yield securities generally involve
a greater degree of risk than

CNA FINANCIAL CORPORATION                                                    33
<PAGE>
investment grade securities. However, expected returns should compensate for the
added risk. This risk is also considered in the interest rate assumptions in the
underlying  insurance  products.   CNA's  concentration  in  high  yield  bonds,
including  guaranteed  separate  account  business,  was  4.7% and 6.1% of total
investments as of December 31, 1999 and 1998, respectively.

Included in CNA's fixed  maturity  securities  at December 31, 1999 (general and
guaranteed  investment  contract  portfolios)  are $8.6 billion of  asset-backed
securities,  at fair value, consisting of approximately 12.8% in U.S. government
agency  issued  pass-through  certificates,  56.7%  in  collateralized  mortgage
obligations  (CMOs),  20.5% in corporate  asset-backed  obligations and 10.0% in
corporate mortgage-backed  pass-through certificates.  The majority of CMOs held
are actively traded in liquid markets and are priced by broker-dealers.

CMOs are subject to prepayment  risks that tend to vary with changes in interest
rates.  During periods of declining interest rates, CMOs generally prepay faster
as the underlying mortgages are prepaid and refinanced by the borrowers in order
to take  advantage  of the lower  rates.  Conversely,  during  periods of rising
interest rates,  prepayments  generally slow,  which may result in a decrease in
yield or a loss as a result of the  slower  prepayments.  CNA  limits  the risks
associated with interest rate  fluctuations and prepayments by concentrating its
CMO investments in planned  amortization classes with relatively short principal
repayment  windows.  CNA  avoids  investments  in complex  mortgage  derivatives
without  readily  ascertainable  market  prices.  At December 31, 1999, the fair
value of asset-backed  securities was approximately  $249 million lower than the
amortized cost compared with net unrealized gains of approximately  $163 million
at December 31, 1998.

Short-term  investments  at December  31, 1999 and 1998  primarily  consisted of
commercial  paper and money market funds.  The components of the general account
short-term investments portfolio are presented in the following table:

SHORT-TERM INVESTMENTS
-------------------------------------------------------
December 31
(In millions of dollars)           1999          1998
-------------------------------------------------------

Commercial paper                 $ 1,988       $ 2,405
U.S. Treasury securities              41           506
Money market funds                   904           401
Other                                422           725
-------------------------------------------------------
   TOTAL SHORT-TERM INVESTMENTS  $ 3,355       $ 4,037
=======================================================

CNA invests in certain derivative financial  instruments primarily to reduce its
exposure to market risk  (principally  interest  rate,  equity price and foreign
currency risk).

CNA considers  the  derivatives  in its general  account to be held for purposes
other  than  trading.  Derivative  securities,  except for  interest  rate swaps
associated with certain corporate borrowings,  are recorded at fair value at the
reporting  date,  and changes in fair value are reported in realized  investment
gains and losses. The interest rate swaps on corporate  borrowings are accounted
for using accrual  accounting with the related income or expense  recorded as an
adjustment to interest  expense;  adjustments to fair value are not  recognized.
Certain  derivatives  in the separate  accounts  are held for trading  purposes.
These derivatives  relate to an indexed group annuity contract for institutional
investors,  which  guarantees  the Standard & Poor's 500  Composite  Stock Price
Index  (S&P 500) rate of return  plus 25 basis  points  annually.  Deposits  are
received from the customer and held for a three-year period with no payout until
the end of the period.  CNA  mitigates  the risk  associated  with the  contract
liability by a combination of purchasing S&P 500 futures contracts in a notional
amount equal  initially  to the  original  customer  deposit and  investing  the
remaining  cash  primarily  in high quality  investments.  The number of futures
contracts  is  adjusted   regularly  to   approximate   the   liability  to  the
contractholder.  Changes in fair value of separate account  derivatives held for
trading purposes are reported as a component of net investment income.

The Company's largest equity holding in a single issue is Global Crossing, Ltd.
(Global  Crossing) common stock. As of December 31, 1999, the Company owned 36.4
million shares of Global Crossing valued at $1,822  million,  which  represented
4.6% of Global Crossing's outstanding common stock.  Unrealized gains associated
with this security were approximately $1,764 million at December 31, 1999.

In May 1999,  Global  Crossing  entered  into a  transaction  to merge  Frontier
Corporation  (Frontier)  into a subsidiary  of Global  Crossing.  As part of the
Frontier merger agreement,  certain  shareholders of Global Crossing,  including
the  Company,  entered  into a voting  agreement  to limit their sales of Global
Crossing  common  stock to ensure that 51% of the  outstanding  shares of Global
Crossing  would  vote in  favor  of the  merger.  A large  proportion  of  those
shareholders, including the Company, also agreed to suspend their rights under a
shareholders' agreement and a registration rights agreement until the closing of
the Frontier transaction.  The voting agreement was amended on September 2, 1999
to continue  the  limitation  on sales and to delay the exercise of those rights
described in the previous  sentence until the earlier of the  termination of the
Frontier   transaction   or  six  months  after  the  closing  of  the  Frontier
transaction.  The Frontier  merger  closed on September  28, 1999.  Beginning on
March 28, 2000, the Company has the right to require Global Crossing to register
up to 25% of the Company's  holdings under the Securities Act of 1933 (the Act),
and beginning on August 13, 2000, to require  Global  Crossing to register up to
an additional 25% of the Company's  holdings.  The Company's  holdings of Global
Crossing  were not  acquired  in a public  offering,  and may not be sold to the
public  unless  the  sale  is   registered  or  exempt  from  the   registration
requirements of the Act. Such exemptions will include sales pursuant to Rule 144
under the Act if such sales meet the  requirements  of the Rule.  Subsequent  to
December  31,  1999,  CNA  entered  into option  agreements  intended to hedge a
substantial portion of the market risk associated with approximately half of its
holdings of Global Crossing.

The Company also has a significant  equity investment in Canary Wharf Group plc.
The carrying value of this  investment was $622 million as of December 31, 1999.
Unrealized gains on this investment were $621 million as of December 31, 1999.

34                                                          1999 ANNUAL REPORT
<PAGE>
MARKET RISK

Market risk is a broad term related to economic losses due to adverse changes in
the fair  value of a  financial  instrument.  According  to the  Securities  and
Exchange  Commission (SEC) disclosure rules,  discussions  regarding market risk
focus on only one  element of market  risk:  price risk.  Price risk  relates to
changes in the level of prices due to changes in interest rates,  equity prices,
foreign exchange rates or other factors that relate to market  volatility of the
rate, index or price underlying the financial instrument.  The Company's primary
market risk exposures are due to changes in interest rates, although the Company
has certain  exposures to changes in equity prices and foreign currency exchange
rates.

Active  management of market risk is integral to the Company's  operations.  The
Company may manage its exposure to market risk,  within defined tolerance ranges
by: 1) changing the character of future investments  purchased or sold, 2) using
derivatives to offset the market behavior of existing assets and liabilities, or
assets expected to be purchased and liabilities expected to be incurred, or 3)
rebalancing its existing asset and liability portfolios.

For purposes of this  disclosure,  market risk sensitive  instruments  are to be
divided into two categories:  instruments  entered into for trading purposes and
instruments entered into for purposes other than trading.  With the exception of
financial instruments supporting the Company's S&P 500 separate account product,
the Company does not generally hold or issue  financial  instruments for trading
purposes.


INTEREST  RATE RISK The Company has exposure to economic  losses due to interest
rate risk arising from changes in the level or volatility of interest rates. The
Company  attempts to mitigate its exposure to interest rate risk through  active
portfolio  management.  The  Company  may also  reduce  this  risk by  utilizing
instruments  such as interest  rate swaps,  interest rate caps,  commitments  to
purchase  securities,  options,  futures  and  forwards.  This  exposure is also
mitigated by the Company's asset/liability matching strategy.


EQUITY PRICE RISK The Company is exposed to equity price risk as a result of its
investment  in equity  securities  and  equity  derivatives.  Equity  price risk
results from changes in the level or  volatility  of equity  prices which affect
the value of equity securities or instruments which derive their value from such
securities  or indexes.  CNA  attempts to mitigate its exposure to such risks by
limiting its investment in any one security or index.


FOREIGN   EXCHANGE  RATE  RISK  Foreign  exchange  rate  risk  arises  from  the
possibility  that  changes in foreign  currency  exchange  rates will impact the
value of financial  instruments.  The Company has foreign exchange rate exposure
when it buys or sells foreign currencies or financial instruments denominated in
a foreign currency. The Company's foreign transactions are primarily denominated
in Canadian  Dollars,  British Pounds,  German  Deutsche  Marks,  Chilean Pesos,
Argentinean  Pesos and Japanese Yen. This exposure is mitigated by the Company's
asset/liability  matching  strategy and through the use of forward contracts for
those instruments that are not matched.


SENSITIVITY  ANALYSIS  CNA  monitors its  sensitivity  to interest  rate risk by
evaluating  the change in its  financial  assets  and  liabilities  relative  to
fluctuations  in interest rates.  The evaluation is made using an  instantaneous
change in interest  rates of varying  magnitudes  on a static  balance  sheet to
determine  the effect such a change in rates would have on the  recorded  market
value of the Company's  investments  and the resulting  effect on  stockholders'
equity. The range of changes chosen reflects the Company's view of changes which
are reasonably  possible over a one-year  period.  The selection of the range of
values chosen to represent  changes in interest rates should not be construed as
the Company's  prediction of future market events, but rather an illustration of
the impact of such events.

The  sensitivity  analysis  estimates  the  change  in the  market  value of the
Company's  interest-sensitive  assets and liabilities that were held on December
31, 1999 and 1998 due to  instantaneous  parallel  shifts in the year-end  yield
curve of 100 and 150 basis points with all other  variables held  constant.  The
interest  rates on certain  types of assets and  liabilities  may  fluctuate  in
advance of changes in market interest rates, while interest rates on other types
may lag behind  changes in market  rates.  Accordingly,  the analysis may not be
indicative  of,  is not  intended  to  provide,  and does not  provide a precise
forecast  of the  effect of changes of market  interest  rates on the  Company's
income or stockholders' equity. Further, the computations do not contemplate any
actions CNA would undertake in response to changes in interest rates.

A 100 and 150 basis point  increase in market  interest  rates would result in a
pre-tax decrease in the financial  instrument  position of $1.4 billion and $2.1
billion,  respectively,  at December 31, 1999, compared to $1.7 billion and $2.6
billion,  respectively,  at December  31, 1998.  Similarly,  a 100 and 150 basis
point decrease in market  interest  rates would result in a pre-tax  increase in
the  net  financial  instrument  position  of $1.5  billion  and  $2.2  billion,
respectively,  at December 31, 1999 compared to $1.6 billion and $2.4 billion at
December 31, 1998.

The Company's debt, including certain related interest rate swap agreements,  as
of December 31, 1999 and 1998, is denominated in U.S.  dollars.  At December 31,
1999 and 1998, approximately 93% of the Company's long-term debt has been issued
at or effectively  converted to fixed rates, and as such, interest expense would
not be impacted by interest rate shifts. The impact of a 100 and 150 basis point
increase in interest  rates on the fixed rate debt would result in a decrease in
the market value of the debt by $132 million and $193 million,  respectively, at
December 31, 1999, compared to $157 million and $229 million,  respectively,  at
December 31, 1998. The impact of

CNA FINANCIAL CORPORATION                                                    35
<PAGE>
a 100 and 150 basis point  decrease  in the  interest  rates would  result in an
increase  in the  market  value  of fixed  rate  debt by $147  million  and $225
million,  respectively,  at December 31, 1999, compared to $174 million and $268
million,  respectively,  at December 31, 1998. The impact of a 100 and 150 basis
point  increase in interest rates on the variable rate debt at December 31, 1999
and 1998 would result in an additional $2 million and $3 million,  respectively,
in interest expense per year.  Similarly,  a 100 and 150 basis point decrease in
interest rates would result in like decreases in interest expense per year.

Equity price risk was measured  assuming an instantaneous  10% and 25% change in
the S&P 500 from its level as of  December  31,  1999 and  1998,  with all other
variables  held  constant.  The  Company's  equity  holdings  were assumed to be
positively  correlated  with the S&P 500. At December  31,  1999,  a 10% and 25%
decrease  in the S&P  500  would  result  in a $505  million  and  $1.3  billion
decrease,  respectively,  compared to $320  million and $795  million  decrease,
respectively,  at December 31, 1998, in the market value of the Company's equity
investments. Of these amounts, $105 million and $261 million,  respectively,  in
the current year, and $92 million and $229 million,  respectively,  in the prior
year would be offset by decreases in  liabilities  to customers  under  variable
annuity  contracts.  Similarly,  increases  in the S&P 500 would  result in like
increases in the market value of the Company's equity  investments and increases
in liabilities to customers under variable annuity contracts.

The sensitivity analysis also assumes an instantaneous 10% and 20% change in the
foreign  currency  exchange  rates  versus the U.S.  dollar from their levels at
December 31, 1999 and 1998, with all other variables held constant.  At December
31, 1999, a 10% and 20% strengthening of the U.S. dollar versus other currencies
would result in decreases of $337 million and $673 million, respectively, in the
market value of certain  financial  instruments  that are denominated in foreign
currencies, compared to $220 million and $441 million, respectively, at December
31, 1998.  Weakening of the U.S. dollar versus all other currencies would result
in like increases in the market value of certain financial  instruments that are
denominated in foreign currencies.

The following  tables  present the estimated  effects on the market value of the
Company's  financial  instruments  at  December  31,  1999 and  1998,  due to an
increase in interest  rates of 100 basis points,  a 10% decline in the S&P 500 ,
and a decline of 10% in foreign currency exchange rates.
<TABLE>
<CAPTION>
                                  MARKET RISK SCENARIO 1
----------------------------------------------------------------------------------------
DECEMBER 31, 1999                        MARKET     INTEREST      CURRENCY    EQUITY
(In millions of dollars)                 VALUE      RATE RISK       RISK       RISK
<S>                                     <C>         <C>          <C>          <C>
HELD FOR OTHER THAN TRADING PURPOSES
General account:
   Fixed maturity securities            $  27,248   $  (1,268)   $    (149)   $     (14)
   Equity securities                        3,610           -          (84)        (361)
   Short term investments                   3,355          (2)         (26)           -
   Interest rate caps                           4           5            -            -
   Equity index futures                         -          19            -            -
   Other derivative securities                 12          (8)         (59)           3
----------------------------------------------------------------------------------------
     TOTAL GENERAL ACCOUNT                 34,229      (1,254)        (318)        (372)
----------------------------------------------------------------------------------------
Separate accounts:
   Fixed maturity securities                2,927        (115)         (16)          (2)
   Equity securities                          240           -            -          (24)
   Short term investments                      59           -            -            -
   Other derivative securities                 (1)         (7)           -            -
----------------------------------------------------------------------------------------
     TOTAL SEPARATE ACCOUNTS                3,225        (122)         (16)         (26)
----------------------------------------------------------------------------------------
       TOTAL ALL SECURITIES HELD FOR
         OTHER THAN TRADING PURPOSES       37,454      (1,376)        (334)        (398)
----------------------------------------------------------------------------------------

HELD FOR TRADING PURPOSES
----------------------------------------------------------------------------------------
Separate accounts:
   Fixed maturity securities                  333         (12)          (1)           -
   Equity securities                           19           -            -           (2)
   Short term investments                     430           -           (2)           -
   Equity index futures                         -           2            -         (105)
   Other derivative securities                  -          (1)           -            -
----------------------------------------------------------------------------------------
        TOTAL ALL SECURITIES HELD FOR
          TRADING  PURPOSES                   782         (11)          (3)        (107)
----------------------------------------------------------------------------------------
          TOTAL ALL SECURITIES          $  38,236   $  (1,387)   $    (337)   $    (505)
========================================================================================
          DEBT                          $  (2,881)  $     132    $       -    $       -
========================================================================================
</TABLE>

36                                                          1999 ANNUAL REPORT
<PAGE>
<TABLE>
<CAPTION>
                                  MARKET RISK SCENARIO 1 (continued)
----------------------------------------------------------------------------------------
DECEMBER 31, 1998                        MARKET     INTEREST     CURRENCY     EQUITY
(In millions of dollars)                 VALUE      RATE RISK      RISK        RISK
----------------------------------------------------------------------------------------
<S>                                     <C>         <C>          <C>          <C>
HELD FOR OTHER THAN TRADING PURPOSES
General account                         $  36,066   $  (1,551)   $    (199)   $    (195)
Separate accounts                           4,231        (163)         (18)         (31)
HELD FOR TRADING PURPOSES
separate accounts                             698         (10)          (3)         (94)
----------------------------------------------------------------------------------------
  TOTAL ALL SECURITIES                  $  40,995   $  (1,724)   $    (220)   $    (320)
========================================================================================
  DEBT                                  $  (3,160)  $     157    $       -    $       -
========================================================================================
</TABLE>
The following  tables present the estimated  effects on the market value of the
Company's  financial  instruments  at  December  31,  1999 and  1998,  due to an
increase in  interest  rates of 150 basis  points,  a 25% decline in the S&P 500
index, and a decline of 20% in foreign currency exchange rates.
<TABLE>
<CAPTION>
                                  MARKET RISK SCENARIO 2
----------------------------------------------------------------------------------------
DECEMBER 31, 1999                        MARKET     INTEREST     CURRENCY     EQUITY
(In millions of dollars)                 VALUE      RATE RISK      RISK        RISK
----------------------------------------------------------------------------------------
(In millions of dollars)
<S>                                     <C>         <C>          <C>          <C>
HELD FOR OTHER THAN TRADING PURPOSES
General account:
   Fixed maturity securities            $  27,248   $  (1,878)   $    (298)   $     (35)
   Equity securities                        3,610           -         (168)        (902)
   Short term investments                   3,355          (3)         (51)           -
   Interest rate caps                           4          11            -            -
   Equity index futures                         -          29            -            -
   Other derivative securities                 12         (13)        (118)           9
----------------------------------------------------------------------------------------
     TOTAL GENERAL ACCOUNT                 34,229      (1,854)        (635)        (928)
----------------------------------------------------------------------------------------
Separate accounts:
   Fixed maturity securities                2,927        (170)         (32)          (4)
   Equity securities                          240           -            -          (60)
   Short term investments                      59           -           (1)           -
   Other derivative securities                 (1)        (11)           -            -
----------------------------------------------------------------------------------------
     TOTAL SEPARATE ACCOUNTS                 3,225        (181)         (33)         (64)
----------------------------------------------------------------------------------------
       TOTAL ALL SECURITIES HELD FOR
         OTHER THAN TRADING PURPOSES        37,454      (2,035)        (668)        (992)
----------------------------------------------------------------------------------------
HELD FOR TRADING PURPOSES
Separate accounts:
   Fixed maturity securities                  333         (18)          (1)          (1)
   Equity securities                           19           -            -           (5)
   Short term investments                     430           -           (4)           -
   Equity index futures                         -           3            -         (261)
   Other derivative securities                  -          (2)           -            -
----------------------------------------------------------------------------------------
       TOTAL ALL SECURITIES HELD FOR
         TRADING PURPOSES               $     782   $     (17)   $      (5)   $    (267)
========================================================================================
           TOTAL ALL SECURITIES         $  38,236   $  (2,052)   $    (673)   $  (1,259)
========================================================================================
           DEBT                         $  (2,881)  $     193    $       -    $       -
========================================================================================

HELD FOR OTHER THAN TRADING PURPOSES
General account                         $  36,066      (2,349)        (398)        (483)
Separate accounts                           4,231        (254)         (36)         (78)
HELD FOR TRADING PURPOSES
Separate accounts                             698         (14)          (7)        (234)
----------------------------------------------------------------------------------------
           TOTAL ALL SECURITIES         $  40,995   $  (2,617)   $    (441)   $    (795)
========================================================================================
           DEBT                         $  (3,160)  $     229    $       -    $       -
========================================================================================
</TABLE>

CNA FINANCIAL CORPORATION                                                   37
<PAGE>

LIQUIDITY AND CAPITAL RESOURCES

The principal  operating cash flow sources of CNA's  property/casualty  and life
insurance subsidiaries are premiums and investment income. The primary operating
cash flow uses are payments for claims, policy benefits and operating expenses.

For the year ended December 31, 1999, net cash used in operating  activities was
$2.6  billion,  compared  with net cash used of $949 million and $193 million in
1998 and 1997, respectively.

The  significant  increase in net cash used in operating  activities  in 1999 is
principally  attributable  to (a) the net  transfer  of $1.1  billion in cash to
Allstate in connection  with the  transaction  involving the Company's  Personal
Insurance business and (b) a payment of $1.1 billion from escrow pursuant to the
settlement  between the Company,  Pacific  Indemnity and Fibreboard known as the
Trilateral Agreement. See Notes O and F to the Consolidated Financial Statements
regarding  these  transactions.   Excluding  these  significant,   non-recurring
transactions,  the  Company  would  have  reported  net cash  used in  operating
activities in 1999 of approximately  $400 million,  significantly  improved from
1998.  Improvement in net cash used in operating  activities is primarily due to
lower  levels  of paid  operating  expenses,  which  declined  by more that 30%,
relative to the lower levels of net premiums  collected,  which declined by less
than 15%. Benefits paid, adjusted for the Allstate and Fibreboard payments, were
slightly higher in 1999 than 1998.  Notwithstanding the improvement in 1999, the
Personal  Insurance  transaction  had an  adverse  impact  on net  cash  used in
operations because the Personal Insurance business has historically  contributed
an inflow of operating  cash.  The transfer of this  business on October 1, 1999
resulted in a reduction in net cash inflow of approximately  $128 million in the
fourth quarter of 1999.

The  Company  had  substantially  lower  operating  cash flows in 1998 and 1997,
primarily due to increases in insurance receivables.

The  Company  is  separated  into  three  intercompany  reinsurance  pools:  the
Continental Casualty Company Pool (CCC Pool), The Continental  Insurance Company
Pool (CIC Pool) and the Continental  Assurance  Company Pool (CAC Pool). The CCC
Pool,  CIC  Pool  and CAC  Pool  are  comprised  of 9, 15 and 2 legal  insurance
entities, respectively,  domiciled in a total of 13 states and doing business in
the 50 U.S.  states  territories,  and in Canada  (the Pool  Companies).  To the
extent a Pool Company's  currently due claim  liabilities may exceed its readily
available liquid assets, the Company may be called upon to contribute capital to
that company.  Furthermore, such capital would likely be obtained in the form of
a dividend from another Pool Company, possibly in a different pool, which may or
may not require the approval of insurance  regulators in the jurisdiction of the
dividend-paying company.  Accordingly,  management must continuously monitor the
capital  allocation  among the pools and the liquidity and capital  resources of
the individual Pool Companies.

The National Association of Insurance Commissioners has completed the process of
codifying   Statutory   Accounting    Practices    (Codification)   to   promote
standardization of methods,  and is encouraging each state to adopt Codification
as soon as  possible,  with a proposed  implementation  date of January 1, 2001.
Related statutory  accounting  changes are not expected to significantly  impact
the  Company's  statutory  capital  requirements.

On April 19, 1999, a Registration Statement on Form S-3 filed with the SEC which
became  effective,  relating to $600  million in senior and  subordinated  debt,
junior debt, common stock, preferred stock and warrants. No securities have been
issued under this Registration Statement.

CNA has a $795 million  revolving credit facility (the Facility) that expires in
May 2001.  The amount  available  under the Facility is reduced by the amount of
CNA's  outstanding  commercial  paper  borrowings.  As  of  December  31,  1999,
outstanding loans under the Facility were $77 million and outstanding commercial
paper was $675 million, compared to $235 million and $500 million, respectively,
as of December  31,  1998.  As of December  31,  1999,  there was $43 million of
unused borrowing capacity under the Facility.  The interest rate on the Facility
was equal to the London  Interbank  Offered Rate  (LIBOR) plus 16 basis  points.
Additionally,  there was an annual  facility fee of 9 basis points on the entire
facility.  The  average  interest  rate on the  borrowings  under the  Facility,
excluding  facility  fees,  at December 31, 1999 and 1998,  was 6.66% and 5.49%,
respectively.  The weighted-average  interest rate on commercial paper was 6.50%
and 5.89% at December 31, 1999 and 1998, respectively.

To offset the  variable  rate  characteristics  of the Facility and the interest
rate risk associated with periodically  reissuing commercial paper, CNA is party
to interest rate swap  agreements  with several  banks,  which have an aggregate
notional principal amount of $650 million at both December 31, 1999 and 1998.

The combined  weighted-average  cost of borrowings,  including facility fees, on
the Facility, commercial paper borrowings and interest rate swaps, was 6.47% and
6.36% at December 31, 1999 and 1998, respectively.

On February 15, 2000, Standard & Poor's lowered the Company's senior debt rating
from A- to BBB and lowered the Company's preferred stock rating from BBB to BB+.
As a result of these actions the facility fee payable on the aggregate amount of
the  Facility  was  increased  to 12 1/2 basis points per annum and the interest
rate  on  the  Facility  was  increased  to  LIBOR  plus  27 1/2  basis  points.
Additionally,  as a result of these actions,  the Company  purchased and retired
approximately  $30 million of its  outstanding  money market  preferred stock in
February  2000,  and announced its intention to purchase or redeem the remaining
outstanding shares.

On April 15, 1999, CNA retired $100 million of 8.25% senior notes.

38                                                          1999 ANNUAL REPORT
<PAGE>
On August 2, 1999,  the Company  repaid its $157 million,  11% Secured  Mortgage
Notes,  due  June  30,  2013.  The  gain  realized  on the  transaction  was not
significant.

On December 23, 1998,  CNA sold $200 million of preferred  stock to its majority
shareholder,  Loews  Corporation.  On June 30, 1999,  CNA redeemed the preferred
stock at par plus accrued dividends.

In 1998,  CNA issued $1 billion of senior notes under a $1 billion  Registration
Statement  on Form S-3  filed  with  the SEC on  August  18,  1997.  This  shelf
registration  incorporated  $250 million of securities  remaining  available for
issuance from a prior shelf registration.  Since filing this shelf registration,
CNA has  issued  in four  separate  offerings  senior  notes  with an  aggregate
principal  amount of $1  billion.  Proceeds  from these debt issues were used to
repay or refinance existing debt,  provide funds for acquisitions,  and increase
the capital of Continental Casualty Company.

As previously  mentioned,  on February 15, 2000,  Standard & Poor's  lowered its
ratings on the Company's senior debt and preferred stock. At the same time, they
lowered the rating of the CCC Pool and affirmed all other ratings. Additionally,
Standard & Poor's  changed the outlook for all the rated  entities from negative
to stable.

On February  24, 2000 A.M.  Best  affirmed  all ratings but  assigned a negative
outlook.  Also on February 24, 2000,  Duff & Phelps  reaffirmed  all ratings but
moved the outlook on the CCC Pool rating to negative  from stable.  The CAC Pool
outlook remained at stable.

On March 8, 2000,  the Company  announced  that it is exploring  the sale of its
individual  life  insurance  and life  reinsurance  businesses.  The Company has
engaged  the  services  of an  investment  banking  firm  to  assist  with  this
transaction.  As  expected,  several of the major rating  agencies  placed their
ratings  of the CAC Pool  under  review as a result of this  announcement.  Each
rating agency has slightly different terms for this special review:  Standard &
Poor's placed the rating on CreditWatch with developing implications;  A.M. Best
placed the rating  under  review  with  developing  implications;  Duff & Phelps
placed the rating on Rating Watch - Uncertain,  implying it could be upgraded or
downgraded in the future.  When an insurance  company  experiences a significant
event which might be pertinent to its financial strength rating or claims-paying
ability rating, the major rating agencies generally place that company's rating
under special review.  Such events may include merger,  sale,  recapitalization,
regulatory action, or other significant event.

On March 14, 2000,  Moody's lowered all of the Company's  ratings except for the
Company's  commercial  paper rating.  Continental  Assurance  Company and Valley
Forge  Life  Insurance  Company  remain  under  review by  Moody's  -  direction
uncertain. The outlook on all other rated entities remained at stable.


The table below  represents  ratings  issued by A.M. Best,  Moody's,  Standard &
Poor's,  and Duff & Phelps for the CCC Pool, the CIC Pool and the CAC Pool as of
March  14,  2000.  Also  rated as of March  14,  2000 were  CNA's  senior  debt,
commercial   paper  and  preferred  stock  and  The  Continental   Corporation's
(Continental) senior debt.

<TABLE>
<CAPTION>
<S>                <C>       <C>     <C>   <C>          <C>         <C>       <C>          <C>
|------------------|---------------------|-------------------------------------------------|
|                  |  INSURANCE RATINGS  |        DEBT AND PREFERRED STOCK RATINGS          |
|                  |---------------------|------------------------------------|------------|
|                  | CCC     CAC     CIC |              CNA                   |Continental |
|                  |---------------------|------------------------------------|------------|
|                  |                     |              Commercial  Preferred |            |
|                  |Financial Strength   |Senior Debt     Paper       Stock   | Senior Debt|
|                  |---------------------|------------|------------|----------|------------|
|A.M. Best         | A        A      A-  |    -       |      -     |    -     |     -      |
|Moody's           | A2      A2*     A2  |   Baa1     |      P2    |   baa1   |    Baa2    |
|Standard & Poor's | A       AA-     A-  |   BBB      |      A2    |    BB+   |    BBB-    |
|                  |                     |            |            |          |            |
|                  |---------------------|            |            |          |            |
|                  |CLAIMS PAYING ABILITY|            |            |          |            |
|                  |---------------------|            |            |          |            |
|Duff & Phelps     | AA-        AA   -   |    A-      |       -    |    BBB+  |     -      |
|------------------|---------------------|------------|------------|----------|------------|
</TABLE>
*Continental Assurance Company and Valley Forge Life Insurance Co. are rated
separately by Moody's and both have an A2 rating.

CNA FINANCIAL CORPORATION                                                     39
<PAGE>
YEAR 2000

CNA estimates that the total amount spent on Year 2000 readiness matters was $66
million.  Prior to 1997, the Company did not  specifically  separate  technology
charges for Year 2000 from other information  technology  charges.  In addition,
while some  hardware  charges are included in the above  figure,  the  Company's
hardware costs typically are included as part of ongoing  technology updates and
not  specifically  as part of the Year 2000  project.  All funds spent have been
financed from current operating funds.

The Company believes that it has successfully resolved the Year 2000 issue. Over
the year-end  transition  weekend,  there were no problems  observed  that would
affect the normal  processing of CNA business.  Since that time, no  significant
processing or other computer problems related to Year 2000 have arisen. CNA does
not  expect  any CNA  systems  processing  problems  related  to Year 2000 going
forward  that would have a material  impact on the results of  operations,  cash
flows or equity of CNA.

Property/casualty  insurance companies may have an underwriting exposure related
to the  Year  2000  issue.  Coverage,  if any,  will  depend  on the  facts  and
circumstances  of the claim and the  provisions  of the policy.  The Company has
received  notices of a limited number of Year  2000-related  policy claims.  The
Company does not believe that the adverse  impact,  if any, in  connection  with
claims  related to the Year 2000 will be material on the results of  operations,
cash flows or equity of CNA.

40                                                           1999 ANNUAL REPORT
<PAGE>
ACCOUNTING STANDARDS

In June 1998,  the  Financial  Accounting  Standards  Board issued  Statement of
Financial  Accounting Standard 133,  "Accounting for Derivative  Instruments and
Hedging  Activities."  This  statement  requires  that an entity  recognize  all
derivative  investments as either assets or liabilities in the balance sheet and
measure  those  instruments  at fair  value.  If certain  conditions  are met, a
derivative  may be  specifically  designated  as (a) a hedge of the  exposure to
changes in the fair value of a recognized  asset or liability or an unrecognized
firm  commitment,  (b) a hedge  of the  exposure  to  variable  cash  flows of a
forecasted transaction, or (c) a hedge of the foreign currency exposure of a net
investment  in  a  foreign  operation,  an  unrecognized  firm  commitment,   an
available-for-sale  security,  or  a   foreign-currency-denominated   forecasted
transaction.  The  accounting  for  changes  in the fair  value of a  derivative
depends on the intended use of the  derivative  and the  resulting  designation.
This Statement is effective for fiscal years  beginning after June 15, 2000. CNA
is currently  evaluating  the effects of this  Statement on its  accounting  and
reporting of derivative securities and hedging activities.

In October  1998,  the  American  Institute  of  Certified  Public  Accountant's
Accounting  Standards  Executive  Committee  issued  Statement of Position 98-7,
"Accounting  for  Insurance  and  Reinsurance  Contracts  That  Do Not  Transfer
Insurance Risk." This guidance excludes  long-duration life and health insurance
contracts from its scope.  This Statement of Position is effective for financial
statements in the year 2000, with early adoption encouraged. CNA does not expect
the adoption to have a significant impact on the results of operations or equity
of the Company.

FORWARD-LOOKING STATEMENTS

The statements  contained in this  management  discussion and analysis which are
not  historical  facts are  forward-looking  statements.  When  included in this
management  discussion and analysis,  the words "believe," "expects," "intends,"
"anticipates,"  "estimates," and analogous  expressions are intended to identify
forward-looking  statements. Such statements inherently are subject to a variety
of risks and uncertainties  that could cause actual results to differ materially
from those projected.  Such risks and uncertainties  include,  among others, the
impact of competitive products,  policies and pricing; product and policy demand
and market responses; development of claims and the effect on loss reserves; the
performance  of  reinsurance  companies  under  reinsurance  contracts  with the
Company; general economic and business conditions;  changes in financial markets
(interest rate, credit,  currency,  commodities and stocks); changes in foreign,
political, social and economic conditions; regulatory initiatives and compliance
with governmental regulations; judicial decisions and rulings; the effect on the
Company of changes in rating  agency  policies  and  practices;  the  results of
financing efforts;  changes in the Company's  composition of operating segments;
the actual closing of contemplated transactions and agreements and various other
matters and risks (many of which are beyond the Company's  control)  detailed in
the Company's Securities and Exchange Commission filings.  These forward-looking
statements speak only as of the date of this management discussion and analysis.
The  Company  expressly  disclaims  any  obligation  or  undertaking  to release
publicly  any updates or revisions to any  forward-looking  statement  contained
herein to reflect any change in the Company's  expectations  with regard thereto
or any change in events,  conditions or  circumstances on which any statement is
based.

CNA FINANCIAL CORPORATION                                                   41
<PAGE>
CONSOLIDATED BALANCE SHEETS
BALANCE SHEETS
<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------------------------

                                                                              December 31,  December 31,
(In millions of dollars, except share data)                                      1999          1998
----------------------------------------------------------------------------------------------------------
<S>                                                                             <C>          <C>
ASSETS
  Investments:
    Fixed maturity securities available-for-sale (amortized cost: $27,948 and
    $29,511)....................................................................$27,248      $30,073
    Equity securities available-for-sale (cost: $1,150 and $1,055)..............  3,610        1,970
    Mortgage loans and real estate (less accumulated depreciation: $1 and $1)...     47           62
    Policy loans................................................................    192          177
    Other invested assets.......................................................  1,108          858
    Short-term investments .....................................................  3,355        4,037
                                                                                --------     --------
      TOTAL INVESTMENTS......................................................... 35,560       37,177
  Cash..........................................................................    153          217
  Receivables:
    Reinsurance.................................................................  8,023        6,894
    Insurance ..................................................................  4,483        5,198
    Less allowance for doubtful accounts........................................   (310)        (328)
  Deferred acquisition costs....................................................  2,436        2,422
  Prepaid reinsurance premiums..................................................  1,468          323
  Accrued investment income.....................................................    387          392
  Receivables for securities sold...............................................    284          255
  Federal income taxes recoverable (includes: $241 and $234 due from Loews).....    269          251
  Deferred income taxes.........................................................    852          995
  Property and equipment at cost (less accumulated depreciation: $701 and $695).    746          824
  Intangibles...................................................................    328          368
  Other.........................................................................  1,937        2,241
  Separate account business.....................................................  4,603        5,203
-----------------------------------------------------------------------------------------------------
      TOTAL ASSETS                                                              $61,219      $62,432
=====================================================================================================
</TABLE>
See accompanying Notes to Consolidated Financial Statements.

42                                                          1999 ANNUAL REPORT
<PAGE>
CONSOLIDATED BALANCE SHEETS
BALANCE SHEETS
<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------------------------

                                                                              December 31,  December 31,
(In millions of dollars, except share data)                                      1999          1998
----------------------------------------------------------------------------------------------------------
<S>                                                                             <C>          <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
  Insurance reserves:
     Claim and claim adjustment expense ........................................$27,356      $29,154
     Unearned premiums..........................................................  5,103        5,039
     Future policy benefits.....................................................  5,996        5,352
     Policyholders' funds.......................................................    710          855
  Collateral on loaned securities...............................................  1,300          130
  Payables for securities purchased.............................................    135          316
  Participating policyholders' equity...........................................    121          140
  Debt..........................................................................  2,881        3,160
  Other.........................................................................  3,881        3,722
  Separate account business.....................................................  4,603        5,203
                                                                                --------     --------
      TOTAL LIABILITIES......................................................... 52,086       53,071
                                                                                --------     --------
Commitments and contingencies

Minority interest...............................................................    195          204

Stockholders' equity:
  Common stock ($2.50 par value;
    Authorized as of December 31, 1999 - 500,000,000 shares;
    Authorized as of December 31, 1998 - 200,000,000 shares;
    Issued - 185,525,907 shares;
    Outstanding as of December 31, 1999 - 184,406,931 shares,
    Outstanding as of December 31, 1998 - 183,889,569 shares)...................    464          464
  Preferred stock...............................................................    150          350
  Additional paid-in capital....................................................    126          126
  Retained earnings.............................................................  7,114        7,258
  Accumulated other comprehensive income........................................  1,188        1,064
  Treasury stock, at cost.......................................................    (41)         (61)
                                                                                ---------    --------
                                                                                  9,001        9,201
  Notes receivable for the issue of stock.......................................    (63)         (44)
                                                                                ---------    --------
      TOTAL STOCKHOLDERS' EQUITY................................................  8,938        9,157
-----------------------------------------------------------------------------------------------------
      TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY                                $61,219      $62,432
=====================================================================================================
</TABLE>

CNA FINANCIAL CORPORATION                                                   43
<PAGE>
CONSOLIDATED FINANCIAL STATEMENTS
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31,
(In millions of dollars, except per share data)                              1999       1998      1997
----------------------------------------------------------------------------------------------------------
<S>                                                                          <C>        <C>       <C>
Revenues:
 Premiums....................................................................$13,282    $13,536   $13,624
 Net investment income.......................................................  2,101      2,146     2,209
 Realized investment gains, net of participating
 policyholders' and minority interests.......................................    315        681       738
 Other  .....................................................................    705        799       628
                                                                             --------   --------  --------
  Total revenues                                                              16,403     17,162    17,199
                                                                             --------   --------  --------
Claims, benefits and expenses:
  Insurance claims and policyholders' benefits............................... 11,900     11,847    11,395
  Amortization of deferred acquisition costs.................................  2,143      2,180     2,138
  Other operating expenses...................................................  2,086      2,321     2,100
  Restructuring and other related charges ...................................     83        246        -
  Interest...................................................................    202        219       198
                                                                             --------   --------  --------
  Total claims, benefits and expenses                                         16,414     16,813    15,831
                                                                             --------   --------  --------
  Income (loss) before income tax and cumulative
  effect of a change in accounting principle.................................    (11)       349     1,368
Income tax benefit (expense).................................................     88        (47)     (392)
Minority interest expense....................................................    (30)       (20)      (10)
                                                                             --------   --------  --------
Income before cumulative effect of a change in accounting principle..........     47        282       966
Cumulative effect of a change in accounting principle, net of tax of $95.....   (177)         -         -
                                                                             --------   --------  --------
     NET INCOME (LOSS).......................................................$  (130)   $   282   $   966
==========================================================================================================
BASIC AND DILUTED EARNINGS PER SHARE
Income before cumulative effect of a change in accounting principle..........$  0.19    $  1.49   $  5.17
Cumulative effect of a change in accounting principle, net of tax............  (0.96)         -         -
                                                                             --------   --------  --------
Income (loss)................................................................$ (0.77)   $  1.49   $  5.17
                                                                             ========   ========  ========
Weighted average outstanding common shares and
   common stock equivalents (in millions of shares)...  .....................  184.2      184.9     185.4
==========================================================================================================
</TABLE>
See accompanying Notes to Consolidated Financial Statements.

44                                                          1999 ANNUAL REPORT
<PAGE>
CONSOLIDATED FINANCIAL STATEMENTS
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
                                                                                             Notes
                                                                  Accumulated              Receivable
                                             Additional              Other                    for         Total
                          Common  Preferred   Paid-in   Retained  Comprehensive  Treasury   the Issue  Stockholders'
(In millions of dollars)  Stock   Stock      Capital    Earnings    Income         Stock     of Stock     Equity
--------------------------------------------------------------------------------------------------------------------
<S>                         <C>     <C>      <C>        <C>        <C>             <C>     <C>            <C>
BALANCE, JANUARY 1, 1997    $464    $150     $126       $6,024     $  299          $ (3)   $   -          $7,060
Comprehensive income:
  Net income............       -       -        -          966          -             -        -             966
  Other comprehensive
    income..............       -       -        -            -        290             -        -             290
                                                                                                          -------
Total comprehensive
   income...............                                                                                   1,256

Preferred dividends.....       -       -        -           (7)         -             -        -              (7)
--------------------------------------------------------------------------------------------------------------------
BALANCE, DECEMBER 31, 1997   464     150      126        6,983        589            (3)       -           8,309
Comprehensive income:
  Net income............       -       -        -          282          -             -        -             282
  Other comprehensive
    income..............       -       -        -            -        475             -        -             475
                                                                                                          -------
Total comprehensive
   income...............                                                                                     757

Issuance of preferred stock    -     200        -            -          -             -        -             200
Purchase of treasury stock     -       -        -            -          -          (102)       -            (102)
Issue of stock for notes
     receivable.........       -       -        -            -          -            44      (44)              -
Preferred dividends.....       -       -        -           (7)         -             -        -              (7)
--------------------------------------------------------------------------------------------------------------------
BALANCE, DECEMBER 31, 1998   464     350      126        7,258      1,064           (61)     (44)          9,157
Comprehensive income:
  Net loss..............       -       -        -         (130)         -             -        -            (130)
  Other comprehensive
    income..............       -       -        -            -        124             -        -             124
                                                                                                          --------
Total comprehensive
   loss.................                                                                                      (6)

Redemption of preferred
  stock.................      -     (200)       -            -          -             -        -            (200)
Issue of stock for
notes receivable........      -        -        -           (1)         -            20      (19)              -
Preferred dividends.....      -        -        -          (13)         -             -        -             (13)
--------------------------------------------------------------------------------------------------------------------
BALANCE, DECEMBER 31, 1999 $464     $150     $126       $7,114     $1,188          $(41)    $(63)         $8,938
====================================================================================================================
</TABLE>
See accompanying Notes to Consolidated Financial Statements.

CNA FINANCIAL CORPORATION                                                    45
<PAGE>
CONSOLIDATED FINANCIAL STATEMENTS
CONSOLIDATED STATEMENTS OF CASH FLOWS
---------------------------------------------------------------------------
Year Ended December 31
(In millions of dollars)                      1999        1998       1997
---------------------------------------------------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES:
-------------------------------------
Net income (loss)........................  $   (130)   $   282    $    966
Adjustments  to  reconcile  net  income
  (loss) to  net  cash  flows  from
  operating activities:
  Minority interest .....................        30         20          10
  Deferred income tax provision..........        43         47         144
  Net realized investment gains..........      (315)      (681)       (738)
  Amortization of intangibles............        23         93          30
  Amortization of bond discount..........       (39)      (208)       (100)
  Depreciation...........................       185        166         158
  Changes in:
    Receivables, net.....................      (472)       718         147
    Deferred acquisition costs...........         1       (280)       (288)
    Accrued investment income............         6         (3)        119
    Federal income taxes recoverable.....       (17)      (233)        116
    Prepaid reinsurance premiums.........    (1,145)      (121)         93
    Insurance reserves...................    (1,190)       586        (133)
    Other................................       376        101        (717)
---------------------------------------------------------------------------
      Total adjustments ..................   (2,514)    (1,231)     (1,159)
---------------------------------------------------------------------------
   NET CASH FLOWS FROM
        OPERATING ACTIVITIES .............   (2,644)      (949)   $   (193)
---------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
-------------------------------------
Purchases of fixed maturity securities...  $(45,515)  $(39,039)   $(42,492)
Proceeds from fixed maturity securities:
  Sales..................................    43,587     35,480      38,429
  Maturities, calls and redemptions......     2,996      3,564       2,997
Purchases of equity securities...........    (1,575)    (1,071)     (1,323)
Proceeds from sale of equity securities..     1,803        848       1,406
Change in short-term investments.........       703        823       1,112
Change in collateral on loaned
securities...............................     1,170        (23)         53
Change in other investments..............       151         62         421
Purchases of property and equipment,
  net....................................      (250)      (261)       (280)
Acquisitions, net of cash acquired.......       (19)      (120)       (104)
Other, net...............................        86        180          (7)
---------------------------------------------------------------------------

   NET CASH FLOWS FROM INVESTING ACTIVITIES   3,137        443         212
---------------------------------------------------------------------------


46                                                          1999 ANNUAL REPORT
<PAGE>
CONSOLIDATED FINANCIAL STATEMENTS
CONSOLIDATED STATEMENTS OF CASH FLOWS
(CONTINUED)
---------------------------------------------------------------------------
                                              1999        1998       1997
---------------------------------------------------------------------------

CASH FLOWS FROM FINANCING ACTIVITIES:
-------------------------------------
Dividends paid to preferred stockholders..   $  (13)    $   (7)   $     (6)
Purchase of treasury stock................        -       (102)          -
Receipts from investment
  contracts credited to policyholder
  account balances........................        7          6           7
Return of policyholder account
  balances on investment contracts..........    (78)       (20)        (26)
Principal payments on long-term debt........   (450)      (730)         (5)
Proceeds from issuance of long-term debt....    177        993         137
Issuance (redemption) of preferred stock....   (200)       200           -
Net cash flows from financing activities....   (557)       340         107
Net change in cash..........................    (64)      (166)        126
---------------------------------------------------------------------------
   CASH AT BEGINNING OF PERIOD..............    217        383         257
---------------------------------------------------------------------------
   CASH AT END OF PERIOD                     $  153     $  217    $    383
===========================================================================
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
--------------------------------------------------
Cash paid:
  Interest expense......................... $   201     $  210    $    201
  Federal income taxes.....................     279        143          95
Non-cash transactions:
  Notes receivable for the issue of stock..      19         44           -
  Exchange of Canary Wharf Limited
    Partnership interest into common stock.     539          -           -
===========================================================================
See accompanying Notes to Consolidated Financial Statements.

CNA FINANCIAL CORPORATION                                                    47
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
----------------------------------------------------


BASIS OF PRESENTATION

The consolidated  financial statements include CNA Financial Corporation and its
subsidiaries,  which include property/casualty  insurance companies (principally
Continental  Casualty  Company and The Continental  Insurance  Company) and life
insurance companies (principally  Continental Assurance Company and Valley Forge
Life Insurance  Company),  collectively  CNA or the Company.  Loews Corporation
(Loews) owns approximately 86% of the outstanding common stock of the Company.

The  accompanying  consolidated  financial  statements  have  been  prepared  in
conformity with generally accepted accounting principles (GAAP). Certain amounts
applicable  to prior  years  have been  reclassified  to  conform  with the 1999
presentation. All material intercompany amounts have been eliminated.

The  preparation of  consolidated  financial  statements in conformity with GAAP
requires  management to make estimates and assumptions  that affect the reported
amounts  of assets and  liabilities  and  disclosure  of  contingent  assets and
liabilities  at the  date  of the  consolidated  financial  statements  and  the
reported  amounts of revenues and expenses during the reporting  period.  Actual
results could differ from those estimates.


BUSINESS

CNA serves a wide  spectrum  of  customers,  including  small,  medium and large
businesses; associations; professionals; and groups and individuals with a broad
range of insurance and risk management products and services.

Insurance products include property and casualty  coverages;  life, accident and
health insurance;  and pension products and annuities. CNA services include risk
management,  information services, healthcare management, claims administration
and employee leasing/payroll  processing. CNA products and services are marketed
through agents, brokers, managing general agents and direct sales.


INSURANCE

PREMIUM REVENUES

Insurance  premiums  on  property/casualty  and  accident  and health  insurance
contracts are earned ratably over the terms of the policies after  provision for
estimated adjustments on retrospectively rated policies and deductions for ceded
insurance.  Revenues on universal  life-type contracts are comprised of contract
charges and fees,  which are  recognized  over the coverage  period.  Other life
insurance  premiums  and  annuities  are  recognized  as revenue  when due after
deductions for ceded insurance premiums.

CLAIM AND CLAIM ADJUSTMENT EXPENSE RESERVES

Claim and claim  adjustment  expense  reserves,  except  reserves for structured
settlements,  workers'  compensation  lifetime  claims and  accident  and health
disability  claims, are not discounted and are based on (a) case basis estimates
for losses reported on direct  business,  adjusted in the aggregate for ultimate
loss  expectations,  (b) estimates of unreported losses, (c) estimates of losses
on assumed  insurance,  (d)  estimates  of future  expenses  to be  incurred  in
settlement  of  claims  and (e)  estimates  of claim  recoveries,  exclusive  of
reinsurance  recoveries  which are  reported as an asset.  Management  considers
current conditions and trends as well as past Company and industry experience in
establishing   these  estimates.   The  effects  of  inflation,   which  can  be
significant,  are implicitly considered in the reserving process and are part of
the recorded reserve balance.

Claim and claim adjustment expense reserves represent  management's estimates of
ultimate  liabilities  based on currently  available  facts and case law and the
ultimate  liability may vary  significantly  from such estimates.  CNA regularly
reviews its reserves, and any adjustments to the previously established reserves
are recognized in operating  income in the period the need for such  adjustments
becomes apparent.

Structured   settlements   have  been   negotiated   for   claims   on   certain
property/casualty  insurance policies.  Structured settlements are agreements to
provide fixed periodic payments to claimants. Certain structured settlements are
funded by annuities  purchased from Continental  Assurance Company for which the
related annuity  obligations  are reported in future policy  benefits  reserves.
Obligations  for structured  settlements not funded by annuities are included in
claim and claim  adjustment  expense  reserves  and  carried at  present  values
determined  using interest rates ranging from 6.0% to 7.5%. At December 31, 1999
and 1998 the discounted reserves for unfunded  structured  settlements were $883
million and $893 million,  respectively  (net of discounts of $1,483 million and
$1,511 million, respectively).

Workers' compensation lifetime claim reserves and accident and health disability
claim reserves are calculated using mortality and morbidity assumptions based on
the  Company's and industry  experience,  and are  discounted at interest  rates
allowed by insurance  regulators  that range from 3.5% to 6.0%.  At December 31,
1999 and 1998,  such  discounted  reserves  totaled  $2,174  million  and $2,277
million,  respectively  (net of  discounts  of $893  million  and $869  million,
respectively).

FUTURE POLICY BENEFITS RESERVES

Reserves for traditional life insurance  products (whole and term life products)
are computed using the net level premium method,  which  incorporates  actuarial
assumptions  as  to  interest  rates,  mortality,  morbidity,   withdrawals  and
expenses.  Actuarial assumptions generally vary by plan, age at issue and policy
duration, and include a margin for adverse

48                                                          1999 ANNUAL REPORT
<PAGE>
deviation.  Interest  rates  range from 3% to 9% and  mortality,  morbidity  and
withdrawal  assumptions are based on CNA and industry  experience  prevailing at
the  time of  issue.  Expense  assumptions  include  the  estimated  effects  of
inflation and expenses to be incurred beyond the premium paying period. Reserves
for universal  life-type contracts are equal to the account balances that accrue
to the benefit of the policyholders.  Interest crediting rates ranged from 4.45%
to 7.25% for the three years ended December 31, 1999.

INVOLUNTARY RISKS

CNA's  participation  in  involuntary  risk pools is mandatory  and  generally a
function  of its  proportionate  share  of the  voluntary  market,  by  line  of
insurance,  in each  state in which it does  business.  In the first  quarter of
1999, CNA adopted  Statement of Position 97-3 "Accounting by Insurance and Other
Enterprises for Insurance-Related Assessments"(SOP 97-3). SOP 97-3 requires that
insurance companies recognize liabilities for insurance-related assessments when
an  assessment  is  probable  and  will be  imposed,  when it can be  reasonably
estimated,  and when the  event  obligating  the  entity  to pay an  imposed  or
probable  assessment  has  occurred  on or  before  the  date  of the  financial
statements. Adoption of SOP 97-3 resulted in an after-tax charge of $177 million
as a cumulative effect of a change in accounting principle. The pro forma effect
of adoption on reported results for prior periods is not significant.

REINSURANCE

Amounts  recoverable  from reinsurers are estimated in a manner  consistent with
claim and claim adjustment  expense reserves or future policy benefits  reserves
and reported as a recoverable in the consolidated balance sheets.

DEFERRED ACQUISITION COSTS

Costs of acquiring  property/casualty  insurance business that vary with and are
primarily  related to the production of such business are deferred and amortized
ratably over the period the related premiums are recognized.  Such costs include
commissions,  premium taxes and certain  underwriting and policy issuance costs.
Anticipated  investment  income  is  considered  in  the  determination  of  the
recoverability of deferred acquisition costs.

Life  acquisition  costs are  capitalized  and  amortized  based on  assumptions
consistent  with those  used for  computing  future  policy  benefits  reserves.
Acquisition  costs on  traditional  life business are amortized over the assumed
premium  paying  periods.  Universal  life and  annuity  acquisition  costs  are
amortized in proportion to the present value of estimated gross profits over the
products'  assumed  duration.  To the extent that unrealized  gains or losses on
available-for-sale  securities  would result in an adjustment of deferred policy
acquisition  costs,  had  those  gains or  losses  actually  been  realized,  an
adjustment  to  deferred  acquisition  costs is  recorded  as an  adjustment  to
unrealized  investment  gains or losses which are included in accumulated  other
comprehensive income and reported as a component of stockholders' equity.


INVESTMENTS

VALUATION OF INVESTMENTS

CNA  classifies its fixed maturity  securities  (bonds and redeemable  preferred
stocks) and its equity securities as  available-for-sale,  and as such, they are
carried at fair  value.  The  amortized  cost of fixed  maturity  securities  is
adjusted for  amortization  of premiums and  accretion of discounts to maturity,
and  amortization  and accretion are included in investment  income.  Changes in
fair  value  are  reported  as  a  component  of  other  comprehensive   income.
Investments are written down to estimated fair values, and losses are recognized
in income, when a decline in value is determined to be other than temporary.

Mortgage loans are carried at unpaid principal balances,  including  unamortized
premium or discount.  Real estate is carried at depreciated  cost.  Policy loans
are carried at unpaid balances.  Short-term investments are carried at amortized
cost, which approximates fair value.

Other invested  assets include joint  ventures,  limited  partnerships,  certain
derivative  securities  and other  investments.  The joint  ventures and limited
partnerships  are carried at CNA's  equity in the  investees'  net  assets.  CNA
accounts for its  derivative  securities at fair value.  Under this method,  the
derivative  securities are recorded in the  consolidated  balance sheets at fair
value at the reporting date and changes in fair value are recognized in realized
investment  gains and losses.  For interest rate swaps  associated  with certain
corporate  borrowings,  amounts due or payable under these swaps are recorded as
an adjustment to interest expense and changes in the fair value of the swaps are
not recognized in the Company's consolidated financial statements.

INVESTMENT GAINS AND LOSSES

All securities  transactions are recorded on the trade date. Realized investment
gains  and  losses  are  determined  on the basis of the  amortized  cost of the
specific securities sold.

EQUITY IN AFFILIATES

CNA uses the equity method of accounting  for  investments in companies in which
its ownership  interest of the voting shares is at least twenty  percent but not
greater than fifty percent.  Equity in operating  income of these  affiliates is
reported in other income.  Equity in  investment  gains or losses is included in
realized  investment  gains  or  losses,  or  other  comprehensive   income,  as
appropriate.

SECURITIES LENDING ACTIVITIES

CNA lends  securities to unrelated  parties,  primarily major  brokerage  firms.
Borrowers of these securities must deposit  collateral with CNA equal to 100% of
the fair value of the  securities  if the  collateral  is cash,  or 102% if the
collateral is securities.  Cash deposits from these transactions are invested in
short-term   investments   (primarily  commercial  paper)  and  a  liability  is
recognized for the obligation to return the collateral. CNA continues to receive
the interest on loaned debt  securities as beneficial  owner,  and  accordingly,
loaned debt securities are included in fixed maturity securities.

CNA FINANCIAL CORPORATION                                                   49
<PAGE>
SEPARATE ACCOUNT BUSINESS

Continental  Assurance  Company and Valley Forge Life  Insurance  Company  write
investment  and annuity  contracts.  The  supporting  assets and  liabilities of
certain of these  contracts  are legally  segregated  and reported as assets and
liabilities  of  separate  account  business.   Continental   Assurance  Company
guarantees   principal  and  a  specified  return  to  the   contractholders  on
approximately  53% and 64% of the separate account business at December 31, 1999
and  1998,  respectively.  Substantially  all  assets  of the  separate  account
business are carried at fair value.  Separate account liabilities are carried at
contract values.

INCOME TAXES

The Company  accounts for income  taxes under the  liability  method.  Under the
liability method deferred income taxes are recognized for temporary  differences
between the financial  statement and tax return bases of assets and liabilities.
Temporary  differences  primarily  relate  to  insurance  reserves  (principally
discounting of claim and claim  adjustment  expense  reserves and differences in
the calculation of unearned premium  reserves),  deferred  acquisition costs and
net unrealized investment gains or losses.


PROPERTY AND EQUIPMENT

Property  and  equipment  are  carried  at cost less  accumulated  depreciation.
Depreciation  is based on the estimated  useful lives of the various  classes of
property and equipment and determined principally on accelerated methods.

EARNINGS PER SHARE

Earnings  per share  applicable  to common  stock are based on  weighted-average
outstanding shares, retroactively adjusted for all stock splits. The computation
of earnings per share for the years ended  December 31, 1999,  1998 and 1997 was
as follows:

EARNINGS PER SHARE
-----------------------------------------------------------------------------
Year ended December 31
(In millions of dollars)                          1999       1998      1997
-----------------------------------------------------------------------------

Net income (loss)                               $  (130)    $  282   $  966
Less: Preferred dividends                           (13)        (7)      (7)
-----------------------------------------------------------------------------
Net income (loss) applicable to common stock    $  (143)    $  275   $  959

Weighted average outstanding common shares
  and common stock equivalents (in millions
  of shares)                                      184.2      184.9    185.4
-----------------------------------------------------------------------------
BASIC AND DILUTED EARNINGS (LOSS) PER SHARE     $ (0.77)    $ 1.49   $ 5.17
=============================================================================

NOTE B - INVESTMENTS:
---------------------

The  significant  components  of net  investment  income  are  presented  in the
following table:


NET INVESTMENT INCOME
------------------------------------------------------------------
Year ended December 31
(In millions of dollars)         1999         1998         1997
------------------------------------------------------------------

Fixed maturity securities    $   1,776    $   1,832    $   1,817
Short-term investments             188          241          321
Other                              178          126          118
------------------------------------------------------------------
                                 2,142        2,199        2,256
Investment expenses                (41)         (53)         (47)
------------------------------------------------------------------
   NET INVESTMENT INCOME     $   2,101    $   2,146    $   2,209
==================================================================

Net  realized   investment  gains  (losses)  and  net  unrealized   appreciation
(depreciation) in investments are set forth in the following table:

NET INVESTMENT APPRECIATION
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------
Year ended December 31
(In millions of dollars)                                          1999      1998     1997
-------------------------------------------------------------------------------------------
<S>                                                             <C>      <C>       <C>
Net realized investment gains (losses):
  Fixed maturity securities:
       Gross realized gains                                     $   269  $    621  $   651
       Gross realized losses                                       (580)     (154)    (199)
-------------------------------------------------------------------------------------------
   Net realized gains (losses) on fixed maturity securities        (311)      467      452

   Equity securities:
       Gross realized gains                                         481       119      137
       Gross realized losses                                       (115)      (81)     (34)
-------------------------------------------------------------------------------------------
   Net realized gains on equity securities                          366        38      103
   Other realized investment gains                                  253       190      198
-------------------------------------------------------------------------------------------
Total net realized investment gains                                 308       695      753
Allocation to participating policyholders and minority interest       7       (14)     (15)
Income tax expense                                                 (123)     (247)    (260)
-------------------------------------------------------------------------------------------
Net realized investment gains                                       192       434      478
-------------------------------------------------------------------------------------------

Net unrealized appreciation (depreciation) in investments:
   Fixed maturity securities                                     (1,262)       34      347
   Equity securities                                              1,545       796      (38)
   Other                                                             33      (112)      72
-------------------------------------------------------------------------------------------
Total net unrealized appreciation in investments                    316       718      381
Net change in unrealized appreciation (depreciation) on separate
  accounts and other                                                (74)        5        -
Allocation to participating policyholders and minority interest      24        (6)      (9)
Deferred income tax expense                                        (100)     (249)    (101)
-------------------------------------------------------------------------------------------
Net unrealized appreciation in investments                          166       468      271
-------------------------------------------------------------------------------------------
   NET APPRECIATION IN INVESTMENTS                             $    358  $    902  $   749
===========================================================================================
</TABLE>

50                                                           1999 ANNUAL REPORT
<PAGE>
Other realized  investment gains for the years ended December 31, 1999 and 1997,
include  gains  and  losses  related  to  the  sale  of  certain  operations  or
affiliates. See Note O.

The  following  table  provides  a  summary  of  investments  in fixed  maturity
securities and equity securities available-for-sale:

SUMMARY OF FIXED MATURITY AND EQUITY SECURITIES
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------------
                                                   COST OR      GROSS        GROSS
                                                  AMORTIZED  UNREALIZED   UNREALIZED  FAIR
(In millions of dollars)                            COST        GAINS       LOSSES    VALUE
--------------------------------------------------------------------------------------------
<S>                                                <C>        <C>        <C>        <C>
DECEMBER 31, 1999

United States Treasury securities and
  obligations of government agencies               $ 8,431    $    14    $   127    $ 8,318
Asset-backed securities                              7,253         14        228      7,039
States, municipalities and political
  subdivisions -- tax-exempt                         4,514         16        134      4,396
Corporate securities                                 5,502         34        303      5,233
Other debt securities                                2,185         36         89      2,132
Redeemable preferred stocks                             63         72          5        130
--------------------------------------------------------------------------------------------
Total fixed maturity securities                     27,948        186        886     27,248
Equity securities                                    1,150      2,635        175      3,610
--------------------------------------------------------------------------------------------
   TOTAL                                           $29,098    $ 2,821    $ 1,061    $30,858
============================================================================================

DECEMBER 31, 1998

United States Treasury securities and
  obligations of government agencies               $ 7,568    $   183    $    17    $ 7,734
Asset-backed securities                              8,096        130         12      8,214
States, municipalities and political
  subdivisions -- tax-exempt                         6,127        206         12      6,321
Corporate securities                                 5,074        135        143      5,066
Other debt securities                                2,610        104         70      2,644
Redeemable preferred stocks                             36         60          2         94
--------------------------------------------------------------------------------------------
Total fixed maturity securities                     29,511        818        256     30,073
Equity securities                                    1,055      1,051        136      1,970
--------------------------------------------------------------------------------------------
   TOTAL                                           $30,566    $ 1,869    $   392    $32,043
============================================================================================
</TABLE>

The following table summarizes fixed maturity securities by contractual maturity
at December 31, 1999:

CONTRACTUAL MATURITY
------------------------------------------------------------------------
                                                COST OR
                                               AMORTIZED        FAIR
(In millions of dollars)                          COST         VALUE
------------------------------------------------------------------------

Due in one year or less                       $     1,554   $     1,541
Due after one year through five years               6,513         6,388
Due after five years through ten years              7,040         6,557
Due after ten years                                 5,588         5,723
Asset-backed securities                             7,253         7,039
------------------------------------------------------------------------
   TOTAL                                      $    27,948   $    27,248
========================================================================


Actual maturities may differ from contractual maturities because some securities
may be called or prepaid with or without call or prepayment penalties.

The carrying value of investments  (other than equity  securities)  that did not
produce income during 1999 was $54 million. At December 31, 1999, the fair value
of the  Company's  investments  in the  common  stock of Global  Crossing,  Ltd.
(Global  Crossing) and the Vista Fund (a money market fund) were $1,822  million
and $903 million,  respectively. No other investments, other than investments in
U.S. government securities, exceeded 10% of stockholders' equity.

RESTRICTED INVESTMENTS

On December 30, 1993, CNA deposited  $987 million in an escrow account  pursuant
to the Fibreboard  Global  Settlement  Agreement.  The majority of the funds are
included in short-term  investments and are invested  primarily in U.S. Treasury
securities.  The escrow  account  amounted to $36 million and $1,130  million at
December  31,  1999 and  1998,  respectively.  During  1999,  the  Company  paid
approximately  $1.1  billion  from  escrow to the  Fibreboard  Trust,  which was
established to administer claims pursuant to the Trilateral Agreement.  See Note
F.

The  Company  may from  time to time  invest in  securities  that have a limited
market or the sale of which may be  restricted in whole or in part. In May 1999,
Global  Crossing  entered  into a  transaction  to  merge  Frontier  Corporation
(Frontier) into a subsidiary of Global Crossing.  As part of the Frontier merger
agreement,  certain  shareholders  of Global  Crossing,  including  the Company,
entered into a voting  agreement to limit their sales of Global  Crossing common
stock to ensure that 51% of the outstanding shares of Global Crossing would vote
in favor of the merger. A large proportion of those shareholders,  including the
Company, also agreed to suspend their rights under a shareholders' agreement and
a registration  rights agreement until the closing of the Frontier  transaction.
The voting agreement was amended on September 2, 1999 to continue the limitation
on sales and to delay the  exercise of those  rights  described  in the previous
sentence until the earlier of the termination of the Frontier transaction or

CNA FINANCIAL CORPORATION                                                   51
<PAGE>
six months after the closing of the Frontier  transaction.  The Frontier  merger
closed on September 28, 1999.  Beginning on March 28, 2000,  the Company has the
right to require Global Crossing to register up to 25% of the Company's holdings
under the Securities Act of 1933 (the Act), and beginning on August 13, 2000, to
require  Global  Crossing to register up to an  additional  25% of the Company's
holdings.  The  Company's  holdings of Global  Crossing  were not  acquired in a
public offering, and may not be sold to the public unless the sale is registered
or exempt from the  registration  requirements  of the Act. Such exemptions will
include  sales  pursuant  to Rule  144  under  the Act if such  sales  meet  the
requirements  of the Rule.  Subsequent  to December 31,  1999,  CNA entered into
option  agreements  intended to hedge a  substantial  portion of the market risk
associated with approximately half of its holdings of Global Crossing.


Cash and securities  with carrying  values of $1.8 billion and $1.7 billion were
deposited  by  the  Company's  insurance   subsidiaries  under  requirements  of
regulatory authorities as of December 31, 1999 and 1998, respectively.

NOTE C - FINANCIAL INSTRUMENTS:
-------------------------------

In the normal  course of  business,  CNA  invests in various  financial  assets,
incurs  various  financial  liabilities,  and enters into  agreements  involving
derivative securities, including off-balance sheet financial instruments.

Fair values are required to be disclosed for all financial instruments for which
it is  practicable  to  estimate  fair  value,  whether  or not such  values are
recognized in the  consolidated  balance sheets.  Management  attempts to obtain
quoted market prices for the purposes of these disclosures.  Where quoted market
prices are not available, fair values are estimated using present value or other
valuation   techniques.   These   techniques  are   significantly   affected  by
management's assumptions,  including discount rates and estimates of future cash
flows.  Potential taxes and other  transaction costs have not been considered in
estimating  fair values.  The  estimates  presented  herein are not  necessarily
indicative of the amounts that CNA would realize in a current market exchange.

Non-financial  instruments--such  as real estate,  deferred  acquisition  costs,
property  and  equipment,  deferred  income taxes and  intangibles--and  certain
financial instruments specifically identified in the accounting literature--such
as insurance reserves and leases--are  excluded from the fair value disclosures.
Thus,  the fair value amounts  cannot be aggregated to determine the  underlying
economic value of the Company.

The  carrying  amounts  reported in the  consolidated  balance  sheets for cash,
short-term  investments,  accrued investment income,  receivables for securities
sold,  federal  income  taxes  recoverable,  securities  sold  under  repurchase
agreements, payables for securities purchased and certain other assets and other
liabilities  approximate  fair value because of the  short-term  nature of these
items. These assets and liabilities are not listed in the following tables.

The  carrying  amounts  and  estimated  fair  values  of CNA's  other  financial
instrument assets and liabilities are listed in the following tables. Derivative
financial instruments are shown in a separate table.

FINANCIAL ASSETS
------------------------------------------------------------------------------
                                          1999                  1998
                                   -------------------- ----------------------
December 31                        CARRYING  ESTIMATED   Carrying  Estimated
(In millions of dollars)            AMOUNT   FAIR VALUE   Amount   Fair Value
------------------------------------------------------------------------------

Investments:
   Fixed maturity securities          $27,248   $27,248    $30,073   $30,073
   Equity securities                    3,610     3,610      1,970     1,970
   Mortgage loans                          44        42         57        61
   Policy loans                           192       179        177       173
   Other invested assets                1,108     1,108        858       858
Separate account business:
   Fixed maturity securities            3,260     3,260      4,155     4,155
   Equity securities                      260       260        297       297
   Other                                  493       493        216       216
Notes receivable for the issue
of stock                                   63        56         44        39
------------------------------------------------------------------------------

The following  methods and  assumptions  were used by CNA in estimating the fair
value for the above financial assets.

The fair values of fixed maturity securities and equity securities were based on
quoted market prices, where available.  For securities not actively traded, fair
values were estimated using values obtained from independent pricing services or
quoted market prices of comparable instruments.

The fair  values for  mortgage  loans and  policy  loans  were  estimated  using
discounted  cash flow analyses at interest rates  currently  offered for similar
loans  to  borrowers  of   comparable   credit   quality.   Loans  with  similar
characteristics were aggregated for purposes of these calculations.

Valuation  techniques to determine fair value of other invested assets and other
separate  account  business  assets  consisted  of  discounting  cash  flows and
obtaining quoted market prices of the investments, comparable instruments or the
underlying assets of the investments.

52                                                       1999 ANNUAL REPORT
<PAGE>
FINANCIAL LIABILITIES
------------------------------------------------------------------------------
                                           1999                   1998
                                   -------------------   ---------------------
December 31                        CARRYING  ESTIMATED    Carrying Estimated
(In millions of dollars)            AMOUNT   FAIR VALUE    Amount  Fair Value
------------------------------------------------------------------------------

Premium deposits and annuity
contracts                             $ 1,293   $ 1,240    $ 1,259   $ 1,205
Debt                                    2,881     2,775      3,160     3,179
Financial guarantee contracts             111       100        240       231
Separate account business:
   Guaranteed investment contracts      1,516     1,518      2,423     2,478
   Variable separate accounts           1,505     1,505      1,268     1,268
   Deferred annuities                     117       125         85       102
   Other                                  571       571        600       600
------------------------------------------------------------------------------

Premium  deposits  and annuity  contracts  were valued  based on cash  surrender
values and the outstanding fund balances.

CNA's senior notes and debentures were valued based on quoted market prices. The
fair value for other  long-term debt was estimated  using  discounted  cash flow
analyses  based on current  incremental  borrowing  rates for similar  borrowing
arrangements.

The fair value of the liability for financial  guarantee  contracts was based on
discounted  cash flows utilizing  interest rates  currently  offered for similar
contracts.

The fair values of guaranteed investment contracts and deferred annuities of the
separate account business were estimated using discounted cash flow calculations
based on interest  rates  currently  offered for similar  contracts with similar
maturities.  The fair values of the  liabilities for variable  separate  account
business were based on the quoted market values of the underlying assets of each
variable separate account.  The fair value of other separate account liabilities
approximate their carrying value because of their short-term nature.


DERIVATIVE FINANCIAL INSTRUMENTS

CNA invests in derivative financial instruments in the normal course of business
primarily  to reduce its  exposure to market risk  (principally  interest  rate,
equity stock price and foreign  currency risk).  Financial  instruments used for
such  purposes  include  interest rate swaps,  interest rate caps,  put and call
options,  commitments to purchase securities,  futures and forwards.  Other than
derivatives held in certain separate  accounts,  the Company  generally does not
hold or issue these instruments for trading purposes.  CNA also uses derivatives
to mitigate the risk  associated  with its indexed  group  annuity  contracts by
purchasing S&P 500 futures  contracts in a notional  amount equal to the portion
of the customer liability related to S&P 500 exposure.

The gross  notional  principal or  contractual  amounts of derivative  financial
instruments  in the general  account at  December  31, 1999 and 1998 were $2,062
million  and $1,667  million,  respectively.  The gross  notional  principal  or
contractual amounts of derivative financial instruments in the separate accounts
were  $1,627  million  and  $1,193  million  at  December  31,  1999  and  1998,
respectively.  The  contractual  or notional  amounts are used to calculate  the
exchange of contractual payments under the agreements and are not representative
of the potential for gain or loss on these instruments.

The fair values associated with derivative  financial  instruments are generally
affected by interest rates,  equity prices and foreign currency  exchange rates.
The credit exposure  associated with  non-performance  by the  counterparties to
these  instruments is generally limited to the gross fair value asset related to
the  instruments  recognized in the  consolidated  balance  sheets.  The Company
continuously  monitors the credit worthiness of its counterparties.  The Company
generally  does  not  require   collateral   from  its   derivative   investment
counterparties.

The fair value of derivatives generally represent the estimated amounts that CNA
would  expect  to  receive  or pay  upon  termination  of the  contracts  at the
reporting  date.  Dealer  quotes are available  for  substantially  all of CNA's
derivatives.  For derivative  instruments not actively  traded,  fair values are
estimated  using values obtained from  independent  pricing  services,  costs to
settle or quoted market prices of comparable instruments.

A summary of the  aggregate  contractual  or notional  amounts,  estimated  fair
values and gains or losses related to derivative financial instruments as of and
for the year ended December 31, 1999 and 1998 are presented on the following
page.

CNA FINANCIAL CORPORATION                                                    53
<PAGE>
SUMMARY OF DERIVATIVE FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------------
                                                              FAIR VALUE
                                                        ------------------------
DECEMBER 31, 1999                        CONTRACTUAL                              RECOGNIZED
(In millions of dollars)                NOTIONAL AMOUNT  ASSET      (LIABILITY)   GAIN (LOSS)
----------------------------------------------------------------------------------------------
<S>                                      <C>              <C>            <C>        <C>
GENERAL ACCOUNT
---------------
   Interest rate swaps on corporate      $  650           $   --         $   --     $   --
     borrowings
   Total return swaps                         7               --             --         11
   Interest rate caps                       500                4             --          4
   Commitments to purchase government
    and municipal securities               127                --             (1)        (1)
   Futures sold, not yet purchased          153               --             --          9
   Forwards                                 591                9             --         21
   Options purchased                         25                4             --         (5)
   Options written                            9               --             --         --
----------------------------------------------------------------------------------------------
   TOTAL                                 $2,062           $   17         $   (1)    $   39
==============================================================================================
SEPARATE ACCOUNTS
-----------------
   Futures purchased                     $1,113           $   --         $   --     $  131
   Futures sold, not yet purchased           79               --             --          2
   Forwards                                  --               --             --         --
   Commitments to purchase government
     and municipal securities               228               --             (2)        (4)
   Options purchased                        108                1             --         (1)
   Options written                           99               --             --          4
----------------------------------------------------------------------------------------------
   TOTAL                                 $1,627           $    1         $   (2)    $  132
==============================================================================================
</TABLE>
SUMMARY OF DERIVATIVE FINANCIAL STATEMENTS (CONTINUED)
<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------------
                                                              FAIR VALUE
                                                        ------------------------
DECEMBER 31, 1998                         CONTRACTUAL/                             RECOGNIZED
(In millions of dollars)                 NOTIONAL AMOUNT  ASSET      (LIABILITY)   GAIN (LOSS)
----------------------------------------------------------------------------------------------
<S>                                      <C>              <C>            <C>        <C>
GENERAL ACCOUNT
---------------
   Interest rate swaps on corporate      $  650           $   --         $  (10)    $   --
   borrowings
   Total return swaps                        78               --            (10)       (30)
   Interest rate caps                       500                1             --         (2)
   Futures sold, not yet purchased          158               --             --         (3)
   Forwards                                 211               --             (1)        (6)
   Options purchased                         70                3             --         51
   Options written                           --               --             --          2
----------------------------------------------------------------------------------------------
   TOTAL                                 $1,667           $    4         $  (21)    $   12
==============================================================================================
SEPARATE ACCOUNTS
-----------------
   Futures purchased                     $  928           $    2         $   --     $  156
   Futures sold, not yet purchased           51               --             --         (1)
   Forwards                                   2               --             --         --
   Commitments to purchase government
    and municipal securities                 69                1             --          4
   Options purchased                         77                1             --         (1)
   Options written                           66               --             --          2
----------------------------------------------------------------------------------------------
   TOTAL                                 $1,193           $    4         $   --     $  160
==============================================================================================
</TABLE>

The  Company has  entered  into  interest  rate swap  agreements  to convert the
variable  rate of its  borrowings  under a  revolving  credit  facility  and its
commercial paper program to a fixed rate. The Company was party to interest rate
swap agreements with several banks with an aggregate  notional  principal amount
of $650  million,  at  December  31,  1999 and  1998.  Those  agreements,  which
terminate from May 2000 to December 2000, effectively fix the Company's interest
cost on $650  million of variable  rate debt for the years  ending  December 31,
1999 and 1998.

CNA also has  outstanding  total  return  swaps  which  primarily  represent  an
exchange of the 90-day  treasury  bill rate for the change in the Goldman  Sachs
Commodities Index.

Futures  are  contracts  to buy or sell a  standard  quantity  and  quality of a
commodity, financial instrument or index at a specified future date and price.

Forwards  are  contracts  between two  parties to  purchase  and sell a specific
quantity  of a  commodity,  government  security,  foreign  currency,  or  other
financial  instrument at a price specified at contract inception,  with delivery
and settlement at a specified future date.

Commitments to purchase  government  and municipal  securities are agreements to
purchase securities in the future at a predetermined price.

Options are  contracts  that grant the  purchaser,  for a premium  payment,  the
right, but not the obligation, to either purchase or sell a financial instrument
at a specified price within a specified period of time.

An  interest  rate  cap  consists  of a  guarantee  given by the  issuer

54                                                           1999 ANNUAL REPORT
<PAGE>
to the purchaser in exchange for the payment of a premium. This guarantee states
that if interest  rates rise above a  specified  rate the issuer will pay to the
purchaser the difference  between the then current market rate and the specified
rate on the notional principal amount.

NOTE D - INCOME TAXES:
----------------------

CNA  and  its  eligible  subsidiaries  (CNA  Tax  Group)  are  included  in  the
consolidated  Federal income tax return of Loews and its eligible  subsidiaries.
Loews and CNA have agreed that for each  taxable  year,  CNA will (i) be paid by
Loews the amount,  if any, by which the Loews  consolidated  Federal  income tax
liability  is  reduced  by virtue of the  inclusion  of the CNA Tax Group in the
Loews consolidated Federal income tax return, or (ii) pay to Loews an amount, if
any,  equal to the Federal  income tax which would have been  payable by the CNA
Tax Group  filing a separate  consolidated  tax return.  In the event that Loews
should have a net operating loss in the future computed on the basis of filing a
separate  consolidated tax return without the CNA Tax Group, CNA may be required
to repay tax recoveries  previously  received from Loews. This agreement between
Loews and CNA may be canceled by either party upon thirty days written notice.

For  1999 and  1998,  the  inclusion  of the CNA Tax  Group in the  consolidated
Federal  income tax return of Loews has resulted in a decreased  Federal  income
tax  liability  for  Loews.  Accordingly,  Loews  has  paid or  will  pay to CNA
approximately  $288  million  for 1999 and $83 million  for 1998.  In 1997,  the
inclusion of the CNA Tax Group into the  consolidated  Federal income tax return
of Loews increased the Loews Federal income tax liability.  Accordingly, CNA has
paid Loews approximately $210 million for 1997.

At December 31, 1999, the CNA Tax Group had accumulated net operating  losses of
approximately  $390 million from 1999 and 1998,  available to be carried back or
forward. These net operating losses expire beginning in 2018.

A  reconciliation  between the Federal  income tax at statutory  rates and CNA's
effective  income taxes,  after giving effect to minority  interest,  but before
giving effect to the cumulative effect of a 1999 change in accounting  principle
for SOP 97-3 is as follows:

TAX RATE RECONCILIATION
----------------------------------------------------------------------------
YEAR ENDED DECEMBER 31
(In millions of dollars)                           1999     1998       1997
----------------------------------------------------------------------------

  Income tax (benefit) expense at statutory rates  $(14)     $115      $475
  Tax benefit from tax exempt income                (84)     (103)      (91)
  Other expense, including state income taxes        10        35         8
----------------------------------------------------------------------------
  EFFECTIVE INCOME TAX (BENEFIT) EXPENSE           $(88)     $ 47      $392
============================================================================

The composition of CNA's total income tax (benefit)  expense  allocated  between
operating  income  and  realized  investment  gains and  losses,  excluding  the
cumulative effect of the 1999 change in accounting  principle for SOP 97-3 is as
follows:

COMPONENTS OF TAX PROVISION
----------------------------------------------------------------------------
YEAR ENDED DECEMBER 31
(In millions of dollars)                             1999     1998     1997
----------------------------------------------------------------------------

   Income tax (benefit) expense on operating income $(211)   $(200)    $132
   Income tax expense on realized investment gains    123      247      260
----------------------------------------------------------------------------
   TOTAL INCOME TAX (BENEFIT) EXPENSE               $ (88)   $  47     $392
============================================================================

The current and  deferred  components  of CNA's  income tax  (benefit)  expense,
excluding the cumulative  effect of the 1999 change in accounting  principle for
SOP 97-3, are as follows:

CURRENT AND DEFERRED TAXES
----------------------------------------------------------------------------
YEAR ENDED DECEMBER 31
(In millions of dollars)                             1999     1998     1997
----------------------------------------------------------------------------

Current tax (benefit) expense                       $(226)   $   -     $248
Deferred tax expense                                  138       47      144
----------------------------------------------------------------------------
   TOTAL INCOME TAX (BENEFIT) EXPENSE               $ (88)   $  47     $392
============================================================================

CNA FINANCIAL CORPORATION                                                   55
<PAGE>
On January 1, 1999, CNA adopted SOP 97-3, and as a result,  an accrued liability
was  established  for  financial  reporting  purposes,  but not for  income  tax
purposes.  Consequently  on  January  1,  1999,  as  part  of the  $177  million
cumulative after-tax effect of SOP 97-3, a deferred tax asset of $95 million was
established.  During  1999,  changes  in this  assessment  accrual  reduced  the
associated  deferred tax asset by $23  million.  The deferred tax effect of this
assessment accrual and other significant components of CNA's deferred tax assets
and liabilities as of December 31, 1999 and 1998, respectively, are set forth in
the table below.

COMPONENTS OF NET DEFERRED TAX ASSETS
------------------------------------------------------------------------
DECEMBER 31
(In millions of dollars)                            1999         1998
------------------------------------------------------------------------
Gross deferred tax assets:
   Insurance reserves:
     Property/casualty claim reserves              $ 1,058      $ 1,183
     Unearned premium reserves                         335          372
     Life reserves                                     213          195
     Other insurance reserves                           26           27
   Postretirement benefits other than pensions         149          142
    Net operating losses                               137            -
    Accrued assessments and guarantees                  72            -
   Restructuring costs                                  10           56
   Other                                               257          295
------------------------------------------------------------------------
     TOTAL GROSS DEFERRED TAX ASSETS                 2,257        2,270
------------------------------------------------------------------------
Gross deferred tax liabilities:
   Deferred acquisition costs                         (778)        (748)
   Net unrealized gains                               (627)        (527)
------------------------------------------------------------------------
     TOTAL GROSS DEFERRED TAX LIABILITIES           (1,405)      (1,275)
------------------------------------------------------------------------
NET DEFERRED TAX ASSETS                            $   852      $   995
========================================================================

CNA has a history of profitability and as such, CNA's management  believes it is
more likely than not that the deferred tax assets will be realized.

NOTE E - CLAIM AND CLAIM ADJUSTMENT EXPENSE RESERVES:
-----------------------------------------------------

CNA's  property/casualty  insurance claim and claim adjustment expense reserves
represent  the estimated  amounts  necessary to settle all  outstanding  claims,
including claims which are incurred but not reported,  as of the reporting date.
The Company's  reserve  projections are based primarily on detailed  analysis of
the  facts in each  case,  CNA's  experience  with  similar  cases  and  various
historical  development  patterns.  Consideration  is given  to such  historical
patterns as field  reserving  trends,  loss  payments,  pending levels of unpaid
claims and product  mix, as well as court  decisions,  economic  conditions  and
public attitudes. All of these factors can affect the estimation of reserves.

Establishing loss reserves is an estimation process. Many factors can ultimately
affect the final  settlement  of a claim and,  therefore,  the  reserve  that is
needed.  Changes in the law,  results of litigation,  medical costs, the cost of
repair  materials  and labor  rates can all  impact  ultimate  claim  costs.  In
addition,  time can be a critical  part of  reserving  determinations  since the
longer the span between the incidence of a loss and the payment or settlement of
the claim, the more variable the ultimate settlement amount can be. Accordingly,
short-tail  claims,  such as property damage claims,  tend to be more reasonably
estimable  than long-tail  claims,  such as general  liability and  professional
liability claims.

The table below provides a reconciliation between beginning and ending claim and
claim adjustment expense reserves for 1999, 1998 and 1997.

56                                                          1999 ANNUAL REPORT
<PAGE>
RECONCILIATION OF CLAIM AND CLAIM ADJUSTMENT EXPENSE RESERVES
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------------
Year Ended December 31
(In millions of dollars)                                               1999       1998     1997
-------------------------------------------------------------------------------------------------
<S>                                                                   <C>       <C>      <C>
Reserves at beginning of year:
   Gross                                                              $28,317   $28,533  $29,357
   Ceded                                                                5,424     5,326    5,660
-------------------------------------------------------------------------------------------------
Net reserves at beginning of year                                      22,893    23,207   23,697

Net reserves transferred under retroactive reinsurance agreements      (1,024)       --       --
Net reserves of acquired insurance companies at date of acquisition        --       122       57
-------------------------------------------------------------------------------------------------
Total net adjustments                                                  (1,024)      122       57
-------------------------------------------------------------------------------------------------

Net incurred claims and claim adjustment expenses:
   Provision for insured events of current year                         7,287     7,903    7,942
   Increase (decrease) in provision for insured events of prior years   1,027       263     (256)
   Amortization of discount                                               139       143      143
-------------------------------------------------------------------------------------------------
Total net incurred                                                      8,453     8,309    7,829
-------------------------------------------------------------------------------------------------

Net payments attributable to:
   Current year events                                                  2,744     2,791    2,514
   Prior year events                                                    7,460     5,954    5,862
   Reinsurance recoverable against net reserves transferred under
     retroactive reinsurance agreements                                  (240)       --       --
-------------------------------------------------------------------------------------------------
Total net payments                                                      9,964     8,745    8,376
-------------------------------------------------------------------------------------------------
Net reserves at end of year                                            20,358    22,893   23,207
Ceded reserves at end of year                                           6,273     5,424    5,326
-------------------------------------------------------------------------------------------------
GROSS RESERVES AT END OF YEAR*                                        $26,631   $28,317  $28,533
=================================================================================================
</TABLE>

* Excludes  life  claim  and  claim   adjustment   expense  reserves  and
  intercompany  eliminations  of $725  million,  $837  million  and  $987
  million as of December 31, 1999, 1998 and 1997, respectively,  included in the
  consolidated balance sheets.

The increase  (decrease) in provision for insured events of prior years (reserve
development) is comprised of the following components:

RESERVE DEVELOPMENT
-----------------------------------------------------------------------
Year Ended December 31
(In millions of dollars)                         1999     1998    1997
-----------------------------------------------------------------------

Asbestos                                       $  560    $ 243   $ 105
Environmental pollution and other mass tort       (84)     227      --
Other                                             551     (207)   (361)
-----------------------------------------------------------------------
   TOTAL                                       $1,027    $ 263   $(256)
=======================================================================

ENVIRONMENTAL POLLUTION, OTHER MASS TORT AND ASBESTOS RESERVES

Environmental  pollution  clean-up  is the  subject  of both  federal  and state
regulation.  By some  estimates,  there are  thousands of potential  waste sites
subject to clean-up.  The insurance industry is involved in extensive litigation
regarding coverage issues. Judicial  interpretations in many cases have expanded
the scope of coverage and liability beyond the original intent of the policies.

The Comprehensive  Environmental Response Compensation and Liability Act of 1980
(Superfund) and comparable state statutes  (mini-Superfund)  govern the clean-up
and  restoration  of abandoned  toxic waste sites and  formalize  the concept of
legal liability for clean-up and restoration by Potentially  Responsible Parties
(PRPs).  Superfund  and  the  mini-Superfunds  establish  mechanisms  to pay for
clean-up of waste sites if PRPs fail to do so, and to assign  liability to PRPs.
The extent of  liability  to be  allocated to a PRP is dependent on a variety of
factors.  Further,  the number of waste sites subject to clean-up is unknown. To
date,   approximately   1,300  clean-up  sites  have  been   identified  by  the
Environmental  Protection  Agency on its  National  Priorities  List (NPL).  The
addition of new clean-up sites to the NPL has slowed in recent years.
Many clean-up sites have been designated by state authorities as well.

Many policyholders  have made claims against various CNA insurance  subsidiaries
for defense costs and indemnification in connection with environmental pollution
matters.  These claims relate to accident years 1989 and prior,  which coincides
with CNA's adoption of the Simplified Commercial General Liability coverage that
includes an absolute  pollution  exclusion.  CNA and the insurance  industry are
disputing  coverage for many such claims.  Key coverage  issues include  whether
clean-up costs are considered  damages under the policies,  trigger of coverage,
allocation of liability among  triggered  policies,  applicability  of pollution
exclusions  and owned property  exclusions,  the potential for joint and several
liability  and  definition  of  an  occurrence.   To  date,   courts  have  been
inconsistent in their rulings on these issues.

A number of proposals  to reform  Superfund  have been made by various  parties.
However,  no reforms  were  enacted by  Congress in 1999 and it is unclear as to
what  positions  the Congress or the

CNA FINANCIAL CORPORATION                                                   57
<PAGE>
Administration  will take in 2000 and what legislation,  if any, will result. If
there is legislation, and in some circumstances even if there is no legislation,
the federal role in environmental clean-up may be significantly reduced in favor
of state action.  Substantial  changes in the federal statute or the activity of
the EPA may cause states to reconsider their environmental clean-up statutes and
regulations.  There can be no meaningful prediction of the pattern of regulation
that would result.

Due to the inherent  uncertainties  described above, including the inconsistency
of court  decisions,  the number of waste  sites  subject to  clean-up,  and the
standards  for  clean-up  and  liability,  the  ultimate  liability  of CNA  for
environmental  pollution claims may vary substantially from the amount currently
recorded.

As of December  31, 1999 and 1998,  CNA carried  approximately  $463 million and
$787 million,  respectively, of claim and claim adjustment expense reserves, net
of reinsurance recoverables, for reported and unreported environmental pollution
and other mass tort  claims.  In 1999,  CNA  recorded  $84 million of  favorable
development compared to $227 million of adverse development in 1998. The changes
were based upon the Company's continuous review of these types of exposures,  as
well as its internal study and annual  analysis of  environmental  pollution and
other mass tort claims.  The 1999 analysis  indicated  favorable  results in the
number of new  claims  being  reported  in the other  mass tort  area.  The 1998
analysis indicated deterioration in claim experience related mainly to pollution
claims.

CNA's insurance  subsidiaries  also have exposure to asbestos claims,  including
those attributable to CNA's litigation with Fibreboard  Corporation.  A detailed
discussion  of  CNA's   litigation   with   Fibreboard   Corporation   regarding
asbestos-related  bodily  injury  claims can be found in Note F.  Estimation  of
asbestos  claim  reserves   involves  many  of  the  same   limitations  as  for
environmental  pollution claims discussed above,  such as inconsistency of court
decisions,  specific policy provisions,  allocation of liability among insurers,
missing  policies and proof of coverage.  As of December 31, 1999 and 1998,  CNA
carried  approximately $684 million and $1,456 million,  respectively,  of claim
and claim adjustment  expense  reserves,  net of reinsurance  recoverables,  for
reported and  unreported  asbestos-related  claims.  In 1999,  CNA recorded $560
million of adverse  development  compared to $243 million of adverse development
in 1998. The reserve  strengthening in 1999 for asbestos  related claims,  was a
result of management's  continuous  review of development  with respect to these
exposures,  as well as a review of the results of the Company's  annual analysis
of  these  claims  which  was  completed  in  conjunction   with  the  study  of
environmental  pollution  and other mass tort claims.  This  analysis  indicated
continued deterioration in claim counts for asbestos related claims.

The results of operations in future years may continue to be adversely  affected
by  environmental  pollution and other mass tort, and asbestos claim mass claims
and claim  adjustment  expenses.  Management  will  continue  to  monitor  these
liabilities and make further adjustments as warranted.

The following  table  provides  additional  data related to CNA's  environmental
pollution, other mass tort and asbestos-related claim and claim adjustment
expense reserves.

ENVIRONMENTAL POLLUTION, OTHER MASS TORT AND ASBESTOS RESERVES
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------------
                                       1999                              1998
                             --------------------------------  -----------------------------
                              ENVIRONMENTAL                      Environmental
 December 31                  POLLUTION AND                      Pollution and
(In millions of dollars)     OTHER MASS TORT   ASBESTOS         Other Mass Tort    Asbestos
--------------------------------------------------------------------------------------------
<S>                          <C>               <C>              <C>                 <C>
Gross reserves               $ 618             $ 946            $ 828                $1,547
Less ceded reserves           (155)             (262)             (41)                  (91)
--------------------------------------------------------------------------------------------
   NET RESERVES              $ 463             $ 684            $ 787                $1,456
============================================================================================
</TABLE>

OTHER PROPERTY AND CASUALTY RESERVES

Other lines unfavorable claim and claim adjustment  expense reserve  development
for  1999  of  $551  million  was  due  to  unfavorable   loss   development  of
approximately  $540 million for standard  commercial  lines,  approximately  $60
million for medical malpractice,  and approximately $70 million for accident and
health. These unfavorable changes were partially offset by favorable development
of approximately $120 million in non-medical  professional liability and assumed
reinsurance on older accident  years.  The  unfavorable  development in standard
commercial  lines  was  due  to  commercial  automobile  liability  and  workers
compensation  losses being higher than  expected in recent  accident  years.  In
addition, the number of claims reported for commercial  multiple-peril liability
claims from older  accident  years has not  decreased as much as  expected.  The
unfavorable  development  for medical  malpractice  was also due to losses being
higher  than  expected  for  recent  accident  years.  The  accident  and health
unfavorable  development  is due to higher  than  expected  claim  reporting  on
assumed personal accident coverage in recent accident years.

Other lines favorable claim and claim adjustment expense reserve development for
1998 of $207 million was due to favorable loss development of approximately $100
million in commercial lines business and approximately $105 million of favorable
loss  development in personal lines business.  The favorable  development in the
commercial lines business was primarily  attributable to improved  frequency and
severity in the commercial  auto lines for older accident years, as well as some
continued  improvement in workers'  compensation  for older years. The favorable
development in the personal lines business was  attributable to improved trends,
particularly in personal auto liability.

FINANCIAL GUARANTEE RESERVES

Through  August 1, 1989,  CNA's  property/casualty  operations  wrote  financial
guarantee  insurance  in the  form of  surety  bonds,  and also  insured  equity
policies.   These  bonds  primarily  represented   industrial  development  bond
guarantees and, in the case of insured equity  policies,  typically  extended in
initial terms from ten to thirteen years.  For these guarantees and policies CNA
received an advance premium,  which is non-refundable and is recognized over the
exposure period and in proportion to the underlying risk insured.

58                                                          1999 ANNUAL REPORT
<PAGE>
At December  31, 1999 and 1998,  gross  exposure of financial  guarantee  surety
bonds  and  insured   equity   policies  was  $352  million  and  $507  million,
respectively.   The  degree  of  risk  to  CNA  related  to  this   exposure  is
substantially  reduced  through  reinsurance,  diversification  of exposures and
collateral requirements. In addition, security interests in improved real estate
are also commonly obtained on the financial  guarantee risks.  Approximately 37%
and 36% of the risks were ceded to  reinsurers  at  December  31, 1999 and 1998,
respectively.  Total exposure, net of reinsurance,  amounted to $222 million and
$323 million at December 31, 1999 and 1998,  respectively.  At December 31, 1999
and 1998,  collateral  consisting  of letters of credit,  cash reserves and debt
service reserves amounted to $62 million and $38 million, respectively.

Gross  unearned  premium  reserves for financial  guarantee  contracts  were $11
million and $8 million at December 31, 1999 and 1998, respectively.  Gross claim
and claim  adjustment  expense reserves totaled $100 million and $232 million at
December  31,  1999  and  1998,  respectively.

NOTE F - LEGAL  PROCEEDINGS  AND CONTINGENT LIABILITIES:
--------------------------------------------------------

FIBREBOARD CORPORATION LITIGATION

An  agreement  between  Continental  Casualty  Corporation  (Casualty),  Pacific
Indemnity and Fibreboard Corporation (Fibreboard) (the Trilateral Agreement) has
obtained final court approval and its implementation has substantially  resolved
Casualty's  exposure with respect to asbestos claims involving  Fibreboard.  The
Trilateral  Agreement calls for payment by Casualty and Pacific  Indemnity of an
aggregate  $2.0 billion,  of which  Casualty's  portion is  approximately  $1.46
billion,  to  Fibreboard  to resolve (a) all claims by  Fibreboard  and (b) all
filed but  unsettled  asbestos  claims as of August  23,  1993,  and all  future
asbestos claims against Fibreboard. Casualty has paid all amounts required under
this obligation of the Trilateral  Agreement.  Casualty is also obligated to pay
asbestos claims settled as of August 23, 1993.

Through  December 31, 1999,  Casualty,  Fibreboard  and plaintiff  attorneys had
reached  settlements  with  respect  to  approximately  133,000  claims,  for an
estimated  settlement amount of approximately  $1.63 billion plus any applicable
interest.  Approximately  $1.72 billion (including interest of $184 million) was
paid by Casualty  through  December 31, 1999.  Such payments have been partially
recovered from Pacific Indemnity.

While there does exist the  possibility  of further  adverse  developments  with
respect to Fibreboard claims,  management does not anticipate subsequent reserve
adjustments,  if any, to materially  affect the equity of CNA.  Management  will
continue  to monitor  the  potential  liabilities  with  respect  to  Fibreboard
asbestos claims and will make adjustments to claim reserves if warranted. During
1999, the Company paid  approximately $1.1 billion from escrow to the Fibreboard
Trust,  which was  established to administer  claims  pursuant to the Trilateral
Agreement.

TOBACCO LITIGATION

Three insurance  subsidiaries of the Company are defendants in a lawsuit arising
out of policies allegedly issued to Liggett Group, Inc.  (Liggett).  Although it
did not  issue  policies  to  Liggett,  the  Company  also has  been  named as a
defendant in this  lawsuit, which was filed by Liggett and Brooke Group Holding
Inc. in Delaware  Superior  Court,  New Castle  County on January 26, 2000.  The
lawsuit, which involves numerous insurers,  concerns coverage issues relating to
hundreds of tobacco-related claims asserted against Liggett over the past twenty
years.  However,  Liggett only began  submitting  claims for coverage  under the
policies in January  2000.  All of the policies  issued by  subsidiaries  of the
Company that have been located to date contain  exclusions  for  tobacco-related
claims.  Based on facts and circumstances  currently known,  management believes
that the ultimate outcome of the pending litigation should not materially affect
the financial condition of CNA.

IGI CONTINGENCY

In  1997,  CNA  Reinsurance  Company  Limited  (CNA  Re  Ltd.)  entered  into an
arrangement with IOA Global,  Ltd. (IOA), an independent  managing general agent
based in  Philadelphia,  Pennsylvania,  to develop and manage a book of accident
and health coverages.  Pursuant to this arrangement,  IGI Underwriting Agencies,
Ltd. (IGI), a personal accident reinsurance  managing general  underwriter,  was
appointed to underwrite  and market the book under the  supervision of IOA. Over
the  past  three  years,  IGI  bound  CNA Re Ltd.  on a  number  of  reinsurance
arrangements  with respect to personal  accident  insurance  worldwide  (the IGI
Program).  Under  various  arrangements  CNA Re Ltd.  both  assumed  risks  as a
reinsurer  and  also  ceded a  substantial  portion  of  those  risks  to  other
companies,  including other CNA Insurance subsidiaries and ultimately a group of
reinsurers  participating in a reinsurance pool known as the Associated Accident
and  Health  Reinsurance  Underwriters  (AAHRU)  Facility.  CNA's  Group  Health
business  unit  participated  as a pool member in the AAHRU  Facility in varying
percentages over the past three years.

CNA has  undertaken a review of the IGI Program  and,  among other  things,  has
determined that  approximately $20 million of premium was assumed by CNA Re Ltd.
with respect to United States workers' compensation  "carve-out" insurance.  CNA
is aware that a number of reinsurers  with respect to such  carve-out  insurance
have disavowed their  obligations  under various legal theories.  If one or more
such companies are successful in avoiding or reducing their liabilities, then it
is  likely  that  CNA's  liability  will  also be  reduced.  Moreover,  based on
information  known at this time, CNA  reasonably  believes it has strong grounds
for avoiding  altogether a substantial portion of its carve-out exposure through
legal action.

As  noted,  CNA  arranged  substantial  reinsurance  protection  to  manage  its
exposures  under  the IGI  Program.  Although  CNA  believes  it

CNA FINANCIAL CORPORATION                                                   59
<PAGE>
has valid and  enforceable  reinsurance  contracts  with the AAHRU  Facility and
other reinsurers with respect to United States workers'  compensation  carve-out
business,  it is unable to predict to what extent such reinsurers  would dispute
their liabilities to CNA. Legal actions could result,  and the resolution of any
such actions could take years.

CNA has a reserve of $50  million as of December  31,  1999 with  respect to the
United States workers'  compensation  carve-out exposure it incurred through the
IGI Program.  These reserves were  established net of estimated  recoveries from
retrocessionaires   and  the   estimate  of   ultimate   losses  is  subject  to
considerable  uncertainty.  As a result of these uncertainties,  the results of
operations in future years may be adversely affected by potentially  significant
reserve  additions.  Management  does not believe  that any such future  reserve
additions will be material to equity.

OTHER LITIGATION


CNA and its  subsidiaries  are also parties to other  litigation  arising in the
ordinary course of business.  The outcome of this other  litigation will not, in
the opinion of management, materially affect the results of operations or equity
of CNA.

NOTE G - REINSURANCE:
---------------------

CNA assumes and cedes  insurance  with other insurers and reinsurers and members
of  various  reinsurance  pools  and  associations.   CNA  utilizes  reinsurance
arrangements to limit its maximum loss, provide greater  diversification of risk
and minimize  exposures on larger risks. The reinsurance  coverages are tailored
to the specific  risk  characteristics  of each product line and CNA's  retained
amount varies by type of coverage. Generally, property risks are reinsured on an
excess of loss, per risk basis. Liability coverages are generally reinsured on a
quota  share  basis in excess of CNA's  retained  risk.  CNA's life  reinsurance
includes coinsurance, yearly renewable term and facultative programs.

The ceding of insurance does not discharge the primary liability of the Company.
CNA places  reinsurance with carriers only after careful review of the nature of
the contract and a thorough  assessment of the  reinsurers'  credit  quality and
claims  settlement  practices.   Further,  CNA  generally  requires  collateral,
primarily  in the form of bank  letters  of credit  from  carriers  that are not
authorized  reinsurers  in  CNA's  states  of  domicile.   Such  collateral  was
approximately  $1,191  million and $774  million at December  31, 1999 and 1998,
respectively.

CNA's  largest   recoverables  from  a  single   reinsurer,   including  prepaid
reinsurance  premiums,  were approximately $788 and $510 million at December 31,
1999,  and were with The Allstate  Corporation  (Allstate) and Lloyds of London,
respectively.

Insurance claims and policyholders'  benefits are net of reinsurance  recoveries
of $3,272  million,  $994  million and $1,309  million for 1999,  1998 and 1997,
respectively.

Life premiums are primarily from long duration  contracts and  property/casualty
premiums and accident and health  premiums  are  primarily  from short  duration
contracts.

The effects of reinsurance on earned premiums are shown in the following table:

COMPONENTS OF EARNED PREMIUMS
-----------------------------------------------------------------------------
Year Ended December 31
(In millions of dollars)      Direct       Assumed      Ceded         Net
-----------------------------------------------------------------------------

1999 EARNED PREMIUMS:
   Property/casualty         $ 9,158      $ 1,816      $ 2,199       $ 8,775
   Accident and health         3,730          198          397         3,531
   Life                        1,174          222          420           976
-----------------------------------------------------------------------------
TOTAL 1999 EARNED PREMIUMS   $14,062      $ 2,236      $ 3,016       $13,282
=============================================================================

1998 EARNED PREMIUMS:
   Property/casualty         $ 8,327      $ 1,549      $   897       $ 8,979
   Accident and health         3,745          176          256         3,665
   Life                        1,014          159          281           892
-----------------------------------------------------------------------------
TOTAL 1998 EARNED PREMIUMS   $13,086      $ 1,884      $ 1,434       $13,536
=============================================================================

1997 EARNED PREMIUMS:
   Property/casualty         $ 8,528      $ 1,101      $   612       $ 9,017
   Accident and health         3,723          259          280         3,702
   Life                          908          128          131           905
-----------------------------------------------------------------------------
TOTAL 1997 EARNED PREMIUMS   $13,159      $ 1,488      $ 1,023       $13,624
=============================================================================

60                                                          1999 ANNUAL REPORT
<PAGE>
The  effects of  reinsurance  on  written  premiums  are shown in the  following
table:

COMPONENTS OF WRITTEN PREMIUMS
-----------------------------------------------------------------------------
Year Ended December 31
(In millions of dollars)      Direct       Assumed      Ceded         Net
-----------------------------------------------------------------------------

1999 WRITTEN PREMIUMS:
   Property/casualty         $ 9,114      $ 1,948      $ 3,262       $ 7,800
   Accident and health         3,764          194          412         3,546
   Life                        1,177          196          429           944
-----------------------------------------------------------------------------
TOTAL 1999 WRITTEN PREMIUMS  $14,055      $ 2,338      $ 4,103       $12,290
=============================================================================

1998 WRITTEN PREMIUMS:
   Property/casualty         $ 8,765      $ 1,429      $   969       $ 9,225
   Accident and health         3,785          178          257         3,706
   Life                        1,014          159          281           892
-----------------------------------------------------------------------------
TOTAL 1998 WRITTEN PREMIUMS  $13,564      $ 1,766      $ 1,507       $13,823
=============================================================================

1997 WRITTEN PREMIUMS:
   Property/casualty         $ 8,576      $ 1,262      $   693       $ 9,145
   Accident and health         3,592          133          155         3,570
   Life                          908          128          131           905
-----------------------------------------------------------------------------
TOTAL 1997 WRITTEN PREMIUMS  $13,076      $ 1,523      $   979       $13,620
=============================================================================

The impact of reinsurance  on life insurance  in-force is shown in the following
table:

COMPONENTS OF LIFE INSURANCE IN-FORCE
--------------------------------------------------------------------------
December 31
(In millions of dollars)    Direct      Assumed        Ceded        Net
--------------------------------------------------------------------------
1999                       $339,255    $ 130,735    $184,376     $285,614
1998                        297,488       96,906     128,896      265,498
1997                        235,468       76,130      74,262      237,336
==========================================================================

NOTE H - DEBT:

Debt consists of the following obligations at December 31, 1999 and 1998:

DEBT
------------------------------------------------------------------------
December 31
(In millions of dollars)                               1999        1998
------------------------------------------------------------------------

Variable rate debt:
   Commercial paper                                   $  675     $  500
   Credit facility - CNA                                  77        235
   Credit facility - CNA Surety                          100        113
Senior notes:
   8.25%, due April 15, 1999                               -        100
   7.25%, due March 1, 2003                              143        147
   6.25%, due November 15, 2003                          249        249
   6.50% , due April 15, 2005                            497        497
   6.75%, due November 15, 2006                          248        248
   6.45%, due January 15, 2008                           149        149
   6.60%, due December 15, 2008                          199        199
   8.375%, due August 15, 2012                            81         98
   6.95%, due January 15, 2018                           148        148
7.25%  debenture, due November 15, 2023                  247        247
11.0% secured mortgage notes, due June 30, 2013            -        157
6.9% - 17.02% secured capital leases, due
  through December 31, 2011                               42         46
Other debt, due through 2019 (rates of 1.0% to 6.60%)     26         27
------------------------------------------------------------------------
   TOTAL DEBT                                         $2,881     $3,160
========================================================================

CNA has a $795 million  revolving credit facility (the Facility) that expires in
May  2001.  The  amount  available  under  the  Facility  is  reduced  by  CNA's
outstanding commercial paper borrowings.  As of December 31, 1999, there was $43
million of unused  borrowing  capacity under the Facility.  The interest rate on
the Facility was equal to the London  Interbank  Offered Rate  (LIBOR),  plus 16
basis points.  Additionally,  there was an annual facility fee of 9 basis points
on the entire  facility.  The average  interest rate on the borrowings under the
Facility,  excluding facility fees, at December 31, 1999 and 1998, was 6.66% and
5.49%, respectively.

The weighted-average  interest rate on commercial paper at December 31, 1999 was
6.50% compared to 5.89% at December 31, 1998. Generally,  commercial paper has a
weighted average maturity of 40 days.

To offset the  variable  rate  characteristics  of the Facility and the interest
rate risk associated with periodically  reissuing commercial paper, CNA is party
to interest rate swap  agreements  with several  banks,  which have an aggregate
notional  principal  amount of $650 million at both  December 31, 1999 and 1998,
and which terminate from May 2000 to December 2000. These agreements require CNA
to pay interest at a fixed rate,  averaging  6.07% at both December 31, 1999 and
1998,  in exchange for the receipt of the three month  LIBOR.  The effect of the
interest  rate  swaps was to  increase  interest  expense

CNA FINANCIAL CORPORATION                                                   61
<PAGE>
by  approximately  $4 million,  $2 million  and $4 million for the years  ending
December 31, 1999, 1998 and 1997, respectively.

The combined  weighted-average  cost of borrowings,  including facility fees, of
the Facility,  commercial paper borrowings and interest rate swaps was 6.47% and
6.36% at December 31, 1999 and 1998, respectively.

On February 15, 2000, Standard & Poor's lowered the Company's senior debt rating
from A- to BBB and lowered the Company's preferred stock rating from BBB to BB+.
As a result of these actions the facility fee payable on the aggregate amount of
the  Facility  was  increased  to 12 1/2 basis points per annum and the interest
rate on the Facility was increased to LIBOR plus 27 1/2 basis points.

In 1998,  CNA issued $1 billion of senior notes under a $1 billion  Registration
Statement  on Form S-3 filed with the  Securities  and  Exchange  Commission  on
August 18, 1997. This shelf registration incorporated $250 million of securities
remaining available for issuance from a prior shelf  registration.  Since filing
the shelf  registration,  the Company has issued  senior notes in four  separate
offerings with an aggregate principal amount of $1 billion.

On April 15, 1999, CNA retired $100 million of 8.25% senior notes.

On August 2, 1999,  the Company  repaid its $157 million,  11% Secured  Mortgage
Notes,  due  June  30,  2013.  The  gain  realized  on the  transaction  was not
significant.

CNA Surety Corporation (CNA Surety), a 63% owned subsidiary of the Company,  has
entered into a $130 million,  5 year revolving  credit  facility that expires in
September 2002. The interest rate on facility  borrowings is based on LIBOR plus
20 basis  points.  Additionally,  there is an  annual  facility  fee of 10 basis
points on the entire facility. The average interest rate on the borrowings under
this facility, including facility fees, at December 31, 1999 and 1998, was 6.49%
and 5.53%, respectively.

The combined  aggregate  maturities for debt at December 31, 1999, are presented
in the following table:

MATURITY OF DEBT
----------------------------------------------------------
Year Ended December 31
(In millions of dollars)
----------------------------------------------------------

2000                                              $     3
2001                                                  755
2002                                                  103
2003                                                  399
2004                                                    5
Thereafter                                          1,632
Less original issue discount                          (16)
----------------------------------------------------------
   TOTAL                                          $ 2,881
==========================================================

Commercial  paper is reported as due in 2001 in the foregoing  table because the
commercial paper program is fully supported by the Facility.

NOTE I - BENEFIT PLANS:
------------------------

PENSION AND POSTRETIREMENT HEALTHCARE AND LIFE
INSURANCE BENEFIT PLANS

CNA sponsors  noncontributory pension plans covering all full-time employees age
21 or over who have  completed at least one year of service.  While the terms of
the plans vary,  benefits are generally  based on years of credited  service and
the employee's highest sixty consecutive months of compensation.

CNA's funding  policy is to make  contributions  in accordance  with  applicable
governmental  regulatory  requirements.  The  assets of the  plans are  invested
primarily  in U.S.  government  securities  with the balance in mortgage  backed
securities, equity investments and short-term investments.

CNA provides certain health care benefits for eligible retirees, through age 64,
and provides life  insurance and  reimbursement  of Medicare Part B premiums for
all eligible  retired  persons.  The funding for these plans is generally to pay
covered expenses as they are incurred.

In  1999,  the  Company  recorded  curtailment  and  other  related  charges  of
approximately  $8 million  related to the transfer of personal  lines  insurance
business to  Allstate as  discussed  in Note O. This  transaction  resulted in a
reduction of the pension and postretirement  benefit  obligations of $44 million
and $2 million, respectively.

A 1999  amendment to the  postretirement  plan that  affected  early  retirement
eligibility  and level of employer  subsidy  resulted in a net  reduction in the
postretirement  benefit  obligation of approximately $40 million at December 31,
1999.

Additionally,  in 1999, the Company amended its benefit plans to introduce RSKCo
Choice.  The amendment resulted in a reduction in the pension and postretirement
benefit obligations of approximately $10 million and $8 million, respectively.

In 1998, CNA amended the Continental  Post-Retirement  Plan to make the benefits
available to Continental  retirees  equivalent to the benefits  available to CNA
retirees.   As  a  result  of  this   amendment,   the  Company's   consolidated
postretirement benefit obligation was reduced by $99 million.

The Company recorded  curtailment  charges of approximately  $19 million in 1998
related  to  its  restructuring   activities  as  discussed  in  Note  N.  These
curtailments  resulted in a reduction of the pension and postretirement  benefit
obligations of $88 million and $34 million, respectively.

62                                                           1999 ANNUAL REPORT
<PAGE>
The following table provides a reconciliation of benefit obligations:

BENEFIT OBLIGATIONS AND ACCRUED BENEFIT COSTS
-----------------------------------------------------------------------------
                                                            POSTRETIREMENT
                                          PENSION BENEFITS     BENEFITS
                                          ----------------  -----------------
(In millions of dollars)                  1999        1998   1999     1998
-----------------------------------------------------------------------------

Benefit obligation at January 1           $1,900   $1,780    $  321   $  377
Change in benefit obligation:
   Service cost                               64       58        11       11
   Interest cost                             129      126        22       28
   Participants' contributions                 -        -         4        5
   Plan amendments                           (10)       -       (48)     (99)
   Actuarial gain (loss)                    (130)     118        (5)      67
   Curtailment                               (44)     (88)       (2)     (34)
   Special termination benefits                3        -         -        -
   Acquisition                                 2        -         -        -
   Benefits paid                             (99)     (94)      (35)     (34)
-----------------------------------------------------------------------------
Benefit obligation at December 31          1,815    1,900       268      321
-----------------------------------------------------------------------------

Fair value of plan assets at January 1     1,424    1,313         -        -
Change in plan assets:
   Actual return on plan assets              (17)     105         -        -
   Acquisition                                 2        -         -        -
   Company contributions                     142      100        31       29
   Participants' contributions                 -        -         4        5
   Benefits paid                             (99)     (94)      (35)     (34)
-----------------------------------------------------------------------------
Fair value of plan assets at December 31   1,452    1,424         -        -
-----------------------------------------------------------------------------
Funded status                               (363)    (476)     (268)    (321)
Unrecognized net actuarial loss              173      239        41       51
Unrecognized prior service cost (benefit)     39       60      (132)     (97)
-----------------------------------------------------------------------------
   ACCRUED BENEFIT COST                   $ (151)  $ (177)   $ (359)  $ (367)
=============================================================================

The  components  of net periodic  benefit  costs are  presented in the following
table:

NET PERIODIC BENEFIT COSTS
--------------------------------------------------------------------------
                                                          POSTRETIREMENT
                                     PENSION BENEFITS        BENEFITS
Year ended December 31              ------------------   -----------------
(In millions of dollars)            1999   1998   1997   1999  1998   1997
--------------------------------------------------------------------------

Service cost                       $  64 $  58   $ 54   $ 11  $ 11  $  10
Interest cost on projected
benefit obligation                   129   126    119     22    28     25
Expected return on plan assets      (100)  (97)   (98)     -     -      -
Prior service cost amortization        6    10     11    (13)   (4)     -
Actuarial loss                         8     4      6      3     1      -
Transition amount amortization         -    (2)    (5)     -     -      -
Curtailment loss                       8    17      -      -     2      -
--------------------------------------------------------------------------
   NET PERIODIC BENEFIT COST       $ 115 $ 116   $ 87   $ 23  $ 38  $  35
==========================================================================

Actuarial assumptions are set forth in the following table:

ACTUARIAL ASSUMPTIONS
------------------------------------------------------------------------------
                                                            POSTRETIREMENT
                                    PENSION BENEFITS            BENEFITS
                                    -------------------   --------------------
December 31                         1999   1998    1997   1999    1998   1997
------------------------------------------------------------------------------

Discount rate                       7.75%  6.75%   7.25%  7.75%   6.75%  7.25%
Expected return on plan assets      8.00   7.00    7.50    N/A     N/A    N/A
Rate of compensation increases      5.70   5.70    5.70    N/A     N/A    N/A
------------------------------------------------------------------------------

CNA FINANCIAL CORPORATION                                                    63
<PAGE>
The  assumed  health  care cost trend  rate used in  measuring  the  accumulated
postretirement  benefit obligation was 8% in 1999, declining to an ultimate rate
of 5% in 2002.  The health  care cost trend rate  assumption  has a  significant
effect on the amount of the benefit  obligation and periodic cost  reported.  An
increase  in the  assumed  health  care cost trend rate of 1% in each year would
increase the accumulated  postretirement  benefit  obligation as of December 31,
1999 by $12 million and the aggregate net periodic  postretirement  benefit cost
for 1999 by $2 million. A decrease in the assumed health care cost trend rate of
1% in each year would decrease the accumulated postretirement benefit obligation
as of  December  31,  1999  by  $11  million  and  the  aggregate  net  periodic
postretirement benefit cost for 1999 by $2 million.


SAVINGS PLANS

CNA sponsors savings plans, which are generally  contributory  plans, that allow
employees to make regular contributions of up to 16% of their salary, subject to
contain limitations  prescribed by the Internal Revenue Service. CNA contributes
an additional  amount equal to 70% of the first 6% of salary  contributed by the
employee.

Contributions by the Company to the savings plans were $23 million,  $25 million
and $23 million in 1999, 1998 and 1997, respectively.

STOCK OPTIONS

The Board of Directors approved the CNA Long-Term  Incentive Plan (the LTI Plan)
during  the third  quarter  of 1999,  which  authorizes  the grant of options to
certain  management  personnel  for up to 2.0  million  shares of the  Company's
common stock.  All options  granted have 10-year terms and vest ratably over the
four-year period following the date of grant. The number of shares available for
the  granting  of  options  under  the LTI Plan as of  December  31,  1999,  was
approximately 1.7 million.

The following table presents activity under the LTI Plan during 1999:

OPTION PLAN ACTIVITY
---------------------------------------------------------------------
                                                            Weighted
                                                            Average
                                                             Option
                                       Number of           Price Per
                                        Shares               Share
---------------------------------------------------------------------
Balance at January 1, 1999                   -            $        -
    Options granted                    294,900                 35.21
    Options forfeited                    3,600                 35.09
    Options exercised                        -                     -
---------------------------------------------------------------------
Balance at December 31, 1999           291,300            $    35.21
=====================================================================

The weighted-average remaining contractual life of options granted was 9.6 years
and the range of  exercise  prices on those  options  was $35.09 to  $36.53.  No
options were exercisable at December 31, 1999.

The fair  value of granted  options  was  estimated  at the grant date using the
Black-Scholes  option-pricing  model. The weighted-average fair value of options
granted during 1999 was $11.82. The following weighted-average  assumptions were
used for the year ended  December 31,  1999:  risk free  interest  rate of 6.2%;
expected  dividend  yield of  0.0%;  expected  option  life of five  years;  and
expected stock price volatility of 22.9%.

CNA Surety has reserved  shares of its common  stock for issuance to  directors,
officers,  employees and certain advisors of CNA Surety through  incentive stock
options,  non-qualified  stock  options and stock  appreciation  rights  under a
separate  plan (CNA Surety  Plan).  CNA Surety has also  reserved  shares of its
common stock for issuance to Capsure  Holdings  Corp.  (Capsure)  option holders
under the CNA Surety  Corporation  Replacement  Stock  Option Plan  (Replacement
Plan).  The CNA Surety Plan and the Replacement Plan have an aggregate number of
3.0 million shares  available for which options may be granted.  At December 31,
1999, approximately 1.2 million options were outstanding under these two plans.

The  Company  follows  the  financial  disclosure  provisions  of  Statement  of
Financial   Accounting   Standards   No.  123,   "Accounting   for   Stock-Based
Compensation"  (Statement 123) with respect to its stock-based  incentive plans.
The Company applies Accounting  Principles Board Opinion No. 25, "Accounting for
Stock Issued to Employees," and related  interpretations,  in accounting for its
plan as permitted by Statement 123.  Accordingly,  no compensation cost has been
recognized  for any of the  aforementioned  plans,  as the exercise price of the
granted  options  equaled the market price of the underlying  stock at the grant
date.  However,  had the Company  applied the fair value  provision of Statement
123, the  Company's  net income,  including  the pro forma effect of the options
issued under the CNA Surety Plan and the  Replacement  Plan,  for the year ended
December 31, 1999, would have been a loss of $131 million,  or loss per share of
$0.78.

NOTE J - LEASES:
----------------

CNA occupies  facilities  under lease  agreements  that expire at various  dates
through  2015.  CNA's home office is partially  situated on grounds under leases
expiring  in 2058.  In  addition,  data  processing,  office and  transportation
equipment are leased under agreements that expire at various dates through 2004.
Most leases contain  renewal  options that provide for rent  increases  based on
prevailing market conditions.

CNA has vacated  certain  owned and leased  facilities  in  connection  with its
restructuring  and other related  activities (see Note N). These facilities have
been leased or subleased  under lease  agreements  that expire at various  dates
through 2014. Lease expense for the years ended December 31, 1999, 1998 and 1997
was $81 million,  $134 million and $105 million,  respectively.  Sublease income
for the years ended December 31, 1999, 1998 and 1997 was $7 million,  $5 million
and $5 million, respectively.

The table on the following page presents the future minimum lease payments to be
made under non-cancelable  operating leases along with lease and sublease future
minimum  receipts to be received on owned and leased  properties at December 31,
1999.

64                                                           1999 ANNUAL REPORT
<PAGE>
FUTURE LEASE PAYMENTS AND RECEIPTS
---------------------------------------------------------------------------
                               Future Minimum Lease   Future Minimum Lease
(In millions of dollars)            Payments               Receipts
---------------------------------------------------------------------------

2000                                 $   163               $    45
2001                                     103                    44
2002                                      90                    41
2003                                      72                    39
2004                                      47                    38
Thereafter                               153                   306
---------------------------------------------------------------------------
   TOTAL                             $   628               $   513
===========================================================================

NOTE K - STOCKHOLDERS' EQUITY AND STATUTORY FINANCIAL INFORMATION:
------------------------------------------------------------------
<TABLE>
<CAPTION>
SUMMARY OF CAPITAL STOCK
-----------------------------------------------------------------------------------------------------
                                                                                 Number of Shares
December 31                                                                    1999          1998
-----------------------------------------------------------------------------------------------------
<S>                                                                         <C>          <C>
Preferred stock, without par value, non-voting:
   Authorized                                                                12,500,000   12,500,000
Money market cumulative preferred stock, without par value, non-voting;
   Issued and outstanding:
     Series E (stated value $100,000 per share)                                     750          750
     Series F (stated value $100,000 per share)                                     750          750
Cumulative, exchangeable preferred stock, without par value, non-voting;
     Series G (stated value $100,000 per share)                                      --        2,000
Common stock with par value of $2.50;
   Authorized                                                               500,000,000  200,000,000
   Issued                                                                   185,525,907  185,525,907
   Outstanding                                                              184,406,931  183,889,569
   Treasury stock                                                             1,118,976    1,636,338
-----------------------------------------------------------------------------------------------------
</TABLE>

On May 20, 1999, the Company increased the number of authorized shares of common
stock from 200,000,000 to 500,000,000.

On May 6, 1998, CNA's Board of Directors  approved a three-for-one  split of the
Company's  common  stock which  increased  the  outstanding  common  shares from
61,798,262  to  185,394,786.  The  shares  were  distributed  on June 1, 1998 to
shareholders of record on May 22, 1998.

The dividend rate on money market  preferred  stock is determined  approximately
every 49 days by auction.  The money market  preferred  stock is  redeemable  at
CNA's  option,  as a whole or in part,  at $100,000  per share plus  accrued and
unpaid  dividends.  As of December 31, 1999,  preferred  dividends  declared and
payable  were  approximately  $7 million.  On  February  15,  2000,  the Company
announced  its  intention  to purchase or redeem all  outstanding  shares of its
money market preferred stock.

On  August  5,  1998,  CNA's  Board of  Directors  approved  a plan  (the  Share
Repurchase  Program)  to  purchase,  in the open  market  or  through  privately
negotiated transactions,  its outstanding common stock from time to time, as the
Company's  management deems appropriate.  During 1998, pursuant to the announced
Share Repurchase Program, CNA purchased 2,734,800 shares of its common stock for
approximately $102 million. Total shares classified on the December 31, 1999 and
December 31, 1998 balance  sheets as treasury stock are 1,118,976 and 1,636,338,
respectively,  resulting in a decrease in stockholders'  equity of approximately
$41 million and $61 million, respectively.

On October  9, 1998,  CNA filed a  Registration  Statement  on Form S-8 with the
Securities and Exchange  Commission  registering  $60 million of $2.50 par value
common stock, to be offered pursuant to the CNA Officer Stock Ownership Plan. On
October 9, 1998,  prior to the  opening of the  trading  session on the New York
Stock  Exchange,  CNA sold  1,229,583  shares of common  stock that were held in
treasury  to certain  senior  officers  of CNA at the average of the highest and
lowest sale price on the New York Stock Exchange composite  transactions,  which
was at a price  of  $34.91  per  share.  The  purchases  were  financed  by full
recourse,  collateralized  loans from CNA, which, at December 31, 1998, were $44
million,  including accrued interest.  The loans are ten year notes,  which bear
interest  at the  Applicable  Federal  Rate  (AFR)  for  October  1998  (5.39%),
compounding semi-annually.

During 1999,  CNA sold an  additional  507,362  shares of common stock that were
held in  treasury  to certain  senior  officers  of CNA,  at the  average of the
highest  and  lowest  sale  prices  on the New  York  Stock  Exchange  composite
transactions,  for the dates of the sales.  The purchases  were financed by full
recourse,  collateralized  loans from CNA which at December 31,  1999,  totaling
approximately $20 million,  including  accrued interest.  The loans are ten-year
notes,  which bear  interest  at the AFR for March 1999  (5.23%) and August 1999
(6.14%), compounding semi-annually.

On  December  23,  1998,  CNA  issued  2,000  shares  of  Series  G  cumulative,
exchangeable  preferred  stock to Loews for $200  million.  On June 30, 1999 CNA
repurchased the Series G preferred stock from Loews.

STATUTORY ACCOUNTING PRACTICES

CNA's  insurance  subsidiaries  are  domiciled in various  jurisdictions.  These
subsidiaries   prepare  statutory   financial   statements  in  accordance  with
accounting  practices  prescribed  or  otherwise  permitted  by  the  respective
jurisdictions'  insurance regulators.  Prescribed statutory accounting practices
are set  forth in a variety  of  publications  of the  National  Association  of
Insurance  Commissioners  as  well  as  state  laws,  regulations,  and  general
administrative  rules.  The Company's  insurance  subsidiaries  have no material
permitted accounting practices.

CNA's  ability to pay  dividends to its  stockholders  is affected,  in

CNA FINANCIAL CORPORATION                                                   65
<PAGE>
part, by receipt of dividends from its subsidiaries. The payment of dividends to
CNA by its  insurance  subsidiaries  without  prior  approval  of the  insurance
department of each subsidiary's  domiciliary jurisdiction is limited by formula.
Dividends  in  excess  of these  amounts  are  subject  to  pre-approval  by the
respective state insurance departments.  As of December 31, 1999,  approximately
$887 million of dividend  payments would not be subject to insurance  department
pre-approval.

Combined  statutory  capital and surplus and net income (loss), determined  in
accordance with accounting  practices prescribed by the regulations and statutes
of  various  insurance  regulators,  for  property/casualty  and life  insurance
subsidiaries are as follows:

STATUTORY INFORMATION
-------------------------------------------------------------------------------
                              Statutory Capital and        Statutory Net
                                     Surplus                Income(Loss)
                             ----------------------  --------------------------
                                   December 31        Year Ended December 31
(Unaudited)                  ----------------------  --------------------------
(In millions of dollars)        1999       1998        1999     1998      1997
-------------------------------------------------------------------------------

Property/casualty  companies*  $8,679     $7,593        $361    $161    $1,043
Life insurance companies        1,222      1,109          77     (57)       43
-------------------------------------------------------------------------------
* Surplus  includes  equity of  property/casualty  companies'  ownership in life
insurance subsidiaries.

NOTE L - COMPREHENSIVE INCOME:
------------------------------

Comprehensive income is comprised of all changes to stockholders' equity, except
those changes resulting from transactions with stockholders in their capacity as
stockholders. The components of comprehensive income are shown below:

COMPREHENSIVE INCOME
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------
Year ended December 31
(In millions of dollars)                                             1999    1998    1997
-------------------------------------------------------------------------------------------
<S>                                                                 <C>     <C>     <C>
Net income (loss)                                                   $(130)  $ 282   $  966
Other comprehensive income:
   Change in unrealized gains/losses on general account investments:
     Holding gains (losses) arising during the period                 729     925      567
Unrealized losses (gains) at beginning of period included in
       realized gains/losses during the period                       (413)   (207)    (186)
-------------------------------------------------------------------------------------------
   Net change in unrealized gains/losses on general account           316     718      381
   investments
   Net change in unrealized gains (losses) on separate                (74)      5        -
     accounts and other
   Foreign currency translation adjustment                            (42)      7       19
   Minority interest and other                                         24      (6)      (9)
-------------------------------------------------------------------------------------------
   Other comprehensive income, before tax                             224     724      391
Deferred income tax expense related to other comprehensive           (100)   (249)    (101)
     income
-------------------------------------------------------------------------------------------
Other comprehensive income, net of tax                                124     475      290
-------------------------------------------------------------------------------------------
   TOTAL COMPREHENSIVE INCOME (LOSS)                                $  (6)  $ 757   $1,256
===========================================================================================
</TABLE>

In  the  preceding  table,   deferred  income  tax  expense  related  to  other
comprehensive  income  is  attributable  to  each  of the  components  of  other
comprehensive  income  in  equal  proportion  except  for the  foreign  currency
translation adjustment, for which there are no deferred taxes.

The following table displays the components of accumulated  other  comprehensive
income  included in the  consolidated  balance  sheets at December  31, 1999 and
1998.

ACCUMULATED OTHER COMPREHENSIVE INCOME
-----------------------------------------------------------------
December 31
(In millions of dollars)                     1999          1998
-----------------------------------------------------------------

Foreign currency translation adjustment    $   31         $   73
Net unrealized gains on investments         1,157            991
-----------------------------------------------------------------
ACCUMULATED OTHER COMPREHENSIVE INCOME     $1,188         $1,064
=================================================================

66                                                          1999 ANNUAL REPORT
<PAGE>
NOTE M - BUSINESS SEGMENTS:
---------------------------

CNA conducts its  operations  through seven  operating  segments:  Agency Market
Operations,  Specialty Operations,  CNA Re, Global Operations,  Risk Management,
Group  Operations  and Life  Operations.  In  addition  to the  seven  operating
segments,  certain other activities are reported in a Corporate  segment.  These
segments  reflect  the  way  in  which  CNA  distributes  its  products  to  the
marketplace  and the way in which  it  manages  operations  and  makes  business
decisions.

Agency Market Operations provides a wide range of property/casualty  products to
individuals and small to mid-size  businesses.  Specialty  Operations provides a
broad array of professional,  financial and specialty property/casualty products
and  services.  CNA Re offers  primarily  traditional  property/casualty  treaty
reinsurance.  Global Operations provides marine, casualty,  surety, warranty and
specialty products.  Risk Management serves the property/casualty needs of large
domestic commercial businesses by offering customized, solution-based strategies
to address risk management needs. Group Operations offers a broad array of group
life and health insurance and reinsurance products to employers, affinity groups
and other entities that purchase insurance as a group. Life Operations  provides
financial  protection  to  individuals  through a full product line of term life
insurance,  universal life insurance, long-term care insurance and annuities and
provides retirement service products to institutional markets.

Corporate  segment results consist of interest expense on corporate  borrowings,
certain  run-off  insurance  operations,  asbestos  claims related to Fibreboard
Corporation,  financial guarantee insurance contracts, and certain non-insurance
operations,  principally  the  operations  of  AMS  Services,  Inc.  (AMS),  an
information technology and agency software development subsidiary. See Note O to
the  consolidated  financial  statements  regarding  the  sale of a  significant
portion of the Company's investment in AMS during 1999.

The accounting  policies of the segments are the same as those  described in the
summary of significant  accounting polices.  The Company manages its assets on a
legal entity basis while segment operations are conducted across legal entities,
as such assets are not readily  identifiable by individual segment. In addition,
distinct  investment  portfolios  are  not  maintained  for  each  segment,  and
accordingly,  allocation of assets to each segment is not  performed.  Therefore
investment  income and realized  investment  gains/losses are allocated based on
each segment's net carried insurance reserves, as adjusted.

All intersegment income and expense has been eliminated. Risk Management's other
revenues and expenses in 1999 include revenues for services  provided by RSKCoSM
to other units within the Risk  Management  segment that are  eliminated  at the
consolidated  level.  Such intrasegment  revenue and expenses  eliminated at the
consolidated level were $176 million for the year ended December 31, 1999.

Income  taxes  have been  allocated  on the basis of the  taxable  income of the
segments.

Approximately 97% of the Company's  premiums are derived from the United States.
Premiums from any individual foreign country are not significant.


Group Operations'  revenues include $2.1 billion,  $2.0 billion and $2.1 billion
in 1999, 1998 and 1997,  respectively,  under contracts covering U.S. government
employees and their dependents (FEHBP).

SEGMENT RESULTS
<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------------------------
                                                    Agency
Year Ended December 31, 1999                        Market    Specialty               Global     Risk
(In millions of dollars)                          Operations Operations    CNA Re  Operations  Management
----------------------------------------------------------------------------------------------------------
<S>                                                <C>         <C>        <C>         <C>         <C>
Net earned premiums                                $ 4,799     $ 1,001    $ 1,176     $ 1,010     $   801
Benefits and Expenses                                5,791       1,166      1,369       1,037         936
Restructuring and other related charges                 60           -          -           -           -
----------------------------------------------------------------------------------------------------------
Underwriting gain (loss)                            (1,052)       (165)      (193)        (27)       (135)
Net investment income                                  686         235        161         132         154
Other revenues                                          80          19          4         120         316
Other expenses                                          77          30          -         100         307
Non-insurance restructuring & related charges            -           -          -           -          10
----------------------------------------------------------------------------------------------------------
Pre-tax operating income (loss)                       (363)         59        (28)        125          18
Income tax benefit (expense)                           162         (10)        15         (33)          1
Minority interest                                        -           -          -         (28)          -
----------------------------------------------------------------------------------------------------------
Net operating income (loss) (excluding realized
       investment gains (losses))                     (201)         49        (13)         64          19
Realized investment gains, net of tax and
       minority interest                                75          38         21          15          19
Cumulative effect of a change in accounting
       principle, net of tax                          (93)         (3)          -          (3)        (74)
----------------------------------------------------------------------------------------------------------
Net income (loss)                                 $  (219)    $    84    $      8     $    76     $   (36)
==========================================================================================================
</TABLE>
   Group           Life
  Operations      Operations   Corporate   Eliminations      Total
---------------------------------------------------------------------

$   3,571        $     936     $      35      $     (47)   $  13,282
    3,706            1,331           228           (224)      15,340
        5                -             -              -           65
---------------------------------------------------------------------
     (140)            (395)         (193)           177       (2,123)
      130              556            47              -        2,101
       40              123           204           (196)         710
       46               68           387            (19)         996
        -                -             8              -           18
---------------------------------------------------------------------
      (16)             216          (337)             -         (326)
       10              (71)          137              -          211
        -                -            (2)             -          (30)
---------------------------------------------------------------------

       (6)             145          (202)             -         (145)

        4              (31)           51              -          192

       (2)              (2)            -              -         (177)
---------------------------------------------------------------------
$      (4)       $     112     $    (151)     $       -    $    (130)
=====================================================================

CNA FINANCIAL CORPORATION                                                    67
<PAGE>
                           SEGMENT RESULTS (CONTINUED)
<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------------------------
                                                     Agency
Year Ended December 31, 1998                         Market    Specialty               Global     Risk
(In millions of dollars)                           Operations Operations    CNA Re  Operations  Management
----------------------------------------------------------------------------------------------------------
<S>                                               <C>         <C>        <C>          <C>         <C>
Net earned premiums                               $ 5,247     $ 1,092    $    944     $   941     $   823
Benefits and Expenses                               6,050       1,251       1,005         991       1,018
Restructuring and other related charges                96           5           1           1           -
----------------------------------------------------------------------------------------------------------
Underwriting gain (loss)                             (899)       (164)        (62)        (51)       (195)
Net investment income                                 744         245         163         110         144
Other revenues                                         48          27           5          82         230
Other expenses                                         52          44          11          80         227
Non-insurance restructuring & related charges           -           -           -           -          88
----------------------------------------------------------------------------------------------------------
Pre-tax operating income (loss)                      (159)         64          95          61        (136)
Income tax benefit (expense)                          105          (6)        (27)        (18)         48
Minority interest                                       -           -           -         (25)          -
----------------------------------------------------------------------------------------------------------
Net operating income (loss) (excluding realized
       investment gains (losses))                     (54)         58          68          18         (88)
Realized investment gains, net of tax and
       minority interest                              171          57          27          17          31
----------------------------------------------------------------------------------------------------------
Net income (loss)                                 $   117     $   115     $    95     $    35     $   (57)
==========================================================================================================
</TABLE>
---------------------------------------------------------------------

     Group           Life
  Operations      Operations     Corporate   Eliminations     Total
---------------------------------------------------------------------

$   3,733        $     823     $     (26)     $     (41)   $  13,536
    3,903            1,225           308            (57)      15,694
       39                3             -              -          145
---------------------------------------------------------------------
     (209)            (405)         (334)            16       (2,303)
      133              525            82              -        2,146
       24              115           284            (16)         799
       31               68           360              -          873
        -                4             9              -          101
---------------------------------------------------------------------
      (83)             163          (337)             -         (332)
       35              (58)          121              -          200
        -                -             5              -          (20)
---------------------------------------------------------------------

      (48)             105          (211)             -         (152)

       29               82            20              -          434
---------------------------------------------------------------------
$     (19)       $     187     $    (191)     $       -    $     282
=====================================================================

SEGMENT RESULTS (CONTINUED)
<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------------------------
                                                     Agency
Year Ended December 31, 1997                         Market    Specialty               Global     Risk
(In millions of dollars)                           Operations Operations    CNA Re  Operations  Management
----------------------------------------------------------------------------------------------------------
<S>                                                <C>         <C>        <C>         <C>         <C>
Net earned premiums                               $ 5,092     $ 1,251    $    898     $   854     $    776
Benefits and expenses                               5,491       1,397         991         858          974
-----------------------------------------------------------------------------------------------------------
Underwriting gain(loss)                              (399)       (146)        (93)         (4)        (198)
Net investment income                                 787         268         153         117          158
Other revenues                                         50          14           7          29          194
Other expenses                                          6          10           5          26          216
-----------------------------------------------------------------------------------------------------------
Pre-tax operating income (loss)                       432         126          62         116          (62)
Income tax benefit (expense)                         (106)        (31)        (11)        (35)          25
Minority interest                                       -           -           -         (29)           -
-----------------------------------------------------------------------------------------------------------
Net operating income (loss) (excluding realized
       investment gains/(losses)                      326          95          51          52          (37)
Realized investment gains, net of tax and
       minority interest                              187          63          34          20           37
-----------------------------------------------------------------------------------------------------------
NET  INCOME (LOSS)                                $   513      $  158     $    85     $    72     $      -
===========================================================================================================
</TABLE>
---------------------------------------------------------------------

     Group           Life
  Operations      Operations     Corporate   Eliminations     Total
---------------------------------------------------------------------

$   3,936        $     797     $      20      $       -    $  13,624
    4,069            1,158           323            (24)      15,237
---------------------------------------------------------------------
     (133)            (361)         (303)            24       (1,613)
      117              501           108              -        2,209
       17              105           249            (37)         628
       19               58           267            (13)         594
---------------------------------------------------------------------
      (18)             187          (213)             -          630
       10              (66)           82              -         (132)
        -                -            19              -          (10)
---------------------------------------------------------------------

       (8)             121          (112)             -          488

       28              124           (15)             -          478
---------------------------------------------------------------------
$      20        $     245     $    (127)     $       -    $     966
=====================================================================

68                                                           1999 ANNUAL REPORT
<PAGE>
NOTE N - RESTRUCTURING AND OTHER RELATED CHARGES:
-------------------------------------------------

The Company  finalized  and approved a  restructuring  plan (the Plan) in August
1998. In connection with the Plan, the Company  incurred  various  expenses that
were  recorded  in the third and fourth  quarters of 1998 and  throughout  1999.
These restructuring and other related charges primarily related to the following
activities:  planned  reductions in the workforce;  the consolidation of certain
processing  centers;  the  exiting of certain  businesses  and  facilities;  the
termination of lease obligations;  and the writeoff of certain assets related to
these activities.  The Plan contemplates a gross reduction in workforce of 4,500
employees,   resulting  in  a  planned  net  reduction  of  approximately  2,400
employees.  As of December 31, 1999, the Company had completed  essentially  all
aspects of the Plan.

The  Company  accrued  $220  million of these  restructuring  and other  related
charges in the third quarter of 1998 (the Initial  Accrual).  Other charges such
as parallel processing costs,  relocation costs, and retention bonuses,  did not
qualify  for  accrual  under GAAP and have been  charged to expense as  incurred
(Period Costs). The Company incurred Period Costs of $83 million and $26 million
during 1999 and the fourth quarter of 1998, respectively.

The Company incurred  restructuring and other related charges of $246 million in
1998 that were comprised of the Initial Accrual and fourth quarter Period Costs,
and which  included  the  following:  a) costs and  benefits  related to planned
employee  terminations of $98 million, of which $53 million related to severance
and outplacement costs, $24 million related to other employee transition related
costs and $21 million related to benefit plan curtailment costs; b) writedown of
certain assets to their fair value of $74 million,  of which $59 million related
to a writedown of an intangible  asset,  and $15 million of abandoned  leasehold
improvements  and other  related fixed assets  associated  with leases that were
terminated as part of the restructuring  plan; c) lease termination costs of $42
million; d) losses incurred on the exiting of certain businesses of $32 million.

The 1998  restructuring  and other  related  charges  incurred by Agency  Market
Operations  were  approximately  $96 million.  These charges  included  employee
severance  and  outplacement  costs of $43  million  related to the  planned net
reduction in the workforce of approximately  1,200 employees.  Lease termination
costs  of  approximately  $29  million  were  incurred  in  connection  with the
consolidation  of four regional offices into two zone offices and a reduction of
the  number  of  claim  processing  offices  from  24 to 8.  The  Agency  Market
Operations  charges also included benefit plan curtailment costs of $12 million,
parallel  processing  charges  of $7  million  and $5  million  of  fixed  asset
writedowns.   Through  December  31,  1998,   approximately  364  Agency  Market
Operations  employees,  the  majority  of whom were loss  adjusters  and  office
support staff had been released.

The 1999 Period Costs incurred by Agency Market  Operations  were  approximately
$60 million.  These charges included  employee  related expenses  (outplacement,
retention  bonuses and  relocation  costs) of $23 million,  parallel  processing
costs of $16 million and  consulting  expenses of $10  million.  Other  charges,
including  technology  and facility  charges,  were  approximately  $15 million.
Additionally,   Agency  Market   Operations   reduced  its  estimate  for  lease
termination  costs by $4 million during 1999. During 1999,  approximately  1,000
Agency Market  Operations  employees,  the majority of whom were office  support
staff, were released.

The 1998  restructuring  and other related  charges  incurred by Risk Management
were  approximately $88 million.  These charges included lease termination costs
associated with the  consolidation of claim offices in 36 market  territories of
approximately $8 million. In addition, employee severance and outplacement costs
relating  to the  planned  net  reduction  in  workforce  of  approximately  200
employees  were  approximately  $10  million  and the  writedown  of  fixed  and
intangible assets was approximately $64 million.  Parallel  processing and other
charges were approximately $6 million.  Through December 31, 1998, approximately
152 Risk Management employees had been released, the majority of whom were claim
adjusters and office support staff.

The  charges  related to fixed and  intangible  assets were  primarily  due to a
writedown of an intangible asset (goodwill)  related to Alexsis,  Inc., a wholly
owned  subsidiary   acquired  by  the  Company  in  1995  that  provided  claims
administration services for unrelated parties. As part of the Company's periodic
reviews of asset  recoverability  and as a result of several adverse events, the
Company concluded,  based on an undiscounted cash flow analysis completed in the
third  quarter of 1998,  that an impairment  existed,  and based on a discounted
cash flow  analysis,  that a $59 million  writeoff  was  necessary.  The adverse
events  contributing  to this  conclusion  included  operating  losses  from the
business,  the loss of several significant  customers whose business volume with
this operation  constituted a large portion of the revenue base, and substantial
changes in the overall market demand for the services  offered by this operation
which,  in turn,  had  negative  effects  on the  prospects  for  achieving  the
profitability levels necessary to recover the intangible asset.

The 1999  Period  Costs  incurred  by Risk  Management  were  approximately  $10
million.  These charges  included  employee  related  expenses of $3 million and
parallel processing charges of $3 million.  Other charges,  including consulting
and  facility  charges,  were  approximately  $7  million.  Additionally,   Risk
Management  reduced its estimate for lease  termination  costs by $2 million and
its estimate of employee severance costs by $1 million during 1999. During 1999,
approximately 136 Risk Management employees were released,  the majority of whom
were claims adjusters and office support staff.

The 1998  restructuring  and other related charges  incurred by Group Operations
were approximately $39 million. These charges included approximately $29 million
of costs  related to the  Company's  decision  to exit the  Employer  Health and
Affinity  lines of business.  These costs  represent the  Company's  estimate of
losses in connection with fulfilling the remaining  obligations under contracts.
Earned premiums for these lines of business were  approximately  $400 million in
1998. The 1998 charges also included employee  severance and outplacement  costs
of approximately $7 million related to the planned net reduction in workforce of
approximately 400 employees. Charges

CNA FINANCIAL CORPORATION                                                    69
<PAGE>
for lease termination costs and fixed asset writedowns were $3 million.  Through
December  31,  1998,  approximately  56  Group  Operations  employees  had  been
released.  The majority of the released  employees were claims and sales support
staff.

The 1999  Period  Costs  incurred  by Group  Operations  were  approximately  $5
million.  These  charges  include $7 million of employee  severance  and related
charges.  Additionally,  Group Operations reduced its estimate for business exit
costs by $2 million during 1999. During 1999, approximately 300 Group Operations
employees  were released,  the majority of whom were claims  adjusters and sales
support staff.

For the other segments of the Company,  restructuring  and other related charges
were approximately $23 million in 1998. Charges related primarily to the closing
of leased  facilities  were $3 million and employee  severance and  outplacement
costs  related  to  planned  net  reductions  of 600  employees  in the  current
workforce and benefit costs  associated with those  reductions were $13 million.
In  addition,  there  were  charges of $4 million  related to the  writedown  of
certain  assets and $3 million  related  to the  exiting of certain  businesses.
Through December 31, 1998,  approximately 270 employees of these other segments,
most of whom were underwriters and office support staff, had been released.

For the other  segments  of the  Company,  Period  Costs were  approximately  $8
million for 1999. These charges were primarily for employee  termination related
costs.  Through  December 31, 1999,  approximately  600 employees of these other
segments,  most of whom were  underwriters  and office support  staff,  had been
released.

The following  table sets forth the major  categories of the Initial Accrual and
the activity in the accrual during 1998 and 1999.

ACCRUED RESTRUCTURING AND OTHER RELATED CHARGES
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------
                                    Employee
                                  Termination and                 Lease
                                  Related Benefit    Writedown  Termination  Business
(In millions of dollars)             Costs           of Assets    Costs     Exit Costs   Total
-----------------------------------------------------------------------------------------------
<S>                                  <C>              <C>          <C>        <C>        <C>
Initial Accrual                      $72              $74          $42        $32        $220
    Payments charged against
    liability                        (14)               -            -          -         (14)
     Costs that did not
     require cash                    (21)             (74)           -          -         (95)
-----------------------------------------------------------------------------------------------
Accrued costs at December 31,
1998                                  37                -           42         32         111
    Payments charged against
    liability                        (32)               -           (9)       (15)        (56)
    Reduction in estimated
    costs                             (1)               -           (6)        (2)         (9)
-----------------------------------------------------------------------------------------------
Accrued costs at
December 31, 1999                     $4               $-          $27        $15        $ 46
================================================================================================
</TABLE>
NOTE O - SIGNIFICANT TRANSACTIONS:
----------------------------------

PERSONAL INSURANCE TRANSACTION

On October 1, 1999,  certain  subsidiaries  of CNA completed a transaction  with
Allstate,  whereby CNA's personal lines insurance business and related employees
were  transferred  to  Allstate.  Approximately  $1.1  billion  of cash and $1.1
billion of additional assets (primarily premium  receivables and deferred policy
acquisition  costs) were  transferred  to Allstate,  and  Allstate  assumed $2.2
billion  of claim and  claim  adjustment  expense  reserves.  Additionally,  CNA
received  $140  million in cash which  consisted  of (i) $120  million in ceding
commission  for  the  reinsurance  of the CNA  personal  insurance  business  by
Allstate, and (ii) $20 million for an option exercisable during 2002 to purchase
100% of the common stock of five CNA insurance  subsidiaries at a price equal to
GAAP carrying value as of the exercise date. Also, CNA invested $75 million in a
ten year equity-linked note issued by Allstate.

CNA will continue to write new and renewal  personal  insurance  policies and to
reinsure  this business  with  Allstate  companies,  until such time as Allstate
exercises  its  option  to buy the five  CNA  subsidiaries.  Prior to 2002,  the
Company will concentrate the direct writing of personal lines insurance business
into the five optioned  companies,  such that most, if not all, business related
to this  transaction  will be written by those  companies  by the date  Allstate
exercises  its option.  CNA  continues  to have  primary  liability  on policies
reinsured by Allstate.

CNA will  continue  to have an ongoing  interest in the  profitability  of CNA's
personal lines insurance  business and the related successor business through an
agreement  licensing  the "CNA  Personal  Insurance"  trademark and a portion of
CNA's  Agency  Market  Operations  distribution  system to  Allstate  for use in
Allstate's  personal insurance agency business for a period of five years. Under
this  agreement,  CNA will receive a royalty fee based on the business volume of
personal  insurance  policies  sold  through  the CNA agents for a period of six
years.  In  addition,  the $75  million  equity-linked  note will be redeemed on
September 30, 2009 (subject to earlier  redemption on stated  contingencies) for
an amount  equal to the face  amount plus or minus an amount not  exceeding  $10
million,  depending  on  the  underwriting  profitability  of the  CNA  personal
insurance business.

CNA also shares in any reserve development related to claim and claim adjustment
expense  reserves  transferred to Allstate at the  transaction  date.  Under the
reserve development  sharing agreement,  80% of any favorable or adverse reserve
development  up to $40  million  and 90% of any  favorable  or  adverse  reserve
development in excess of $40 million inure to CNA. CNA's obligation with respect
to unallocated  loss adjustment  expense reserves was settled at the transaction
date, and is therefore not subject to the reserve sharing arrangement.

70                                                          1999 ANNUAL REPORT
<PAGE>
The retroactive portion of the reinsurance transaction,  consisting primarily of
the cession of claim and claim adjustment  expense reserves  approximating  $1.0
billion,  was not recognized as reinsurance  because  criteria for risk transfer
was not met for this portion of the transaction.  The related consideration paid
was  recorded as a deposit and is included  in  reinsurance  receivables  in the
consolidated  balance sheets. The prospective portion of the transaction,  which
as of the transaction date consisted primarily of the cession of $1.1 billion of
unearned  premium  reserves,  has been  recorded  as  reinsurance.  The  related
consideration paid was recorded as prepaid reinsurance premiums.  Premiums ceded
after the  transaction  date will  follow this same  treatment.  The $20 million
received from Allstate for the option to purchase the five CNA  subsidiaries was
deferred and will not be recognized  until  Allstate  exercises  its option,  at
which time it will be recorded in realized gains and losses.

CNA recognized an after-tax realized loss of  approximately  $39 million related
to the transaction, consisting primarily of the accrual of lease obligations and
the  write-down of assets that related  specifically  to the Personal  Insurance
lines of business.  The ceding commission related to the prospective  portion of
the  transaction  will be recognized in  proportion  to the  recognition  of the
unearned  premium  reserve  to which  it  relates.  $51  million  of the  ceding
commission was earned in 1999. Royalty fees earned in 1999 were approximately $7
million.

The Personal  Insurance  lines  transferred to Allstate  contributed  net earned
premiums  of $1,354  million,  $1,622  million  and $1,607  million  and pre-tax
operating  income of $89  million,  $97  million  and $237  million for the nine
months ended  September 30, 1999 and the years ended December 31, 1998 and 1997,
respectively.

SALE OF AMS SERVICES, INC.

On November  30, 1999,  CNA sold the  majority of its interest in AMS  Services,
Inc. (AMS), a software  development company serving the insurance agency market.
Prior to the sale,  CNA owned 89% of AMS and  consolidated  AMS in its financial
statements.  As a result of the sale, CNA owns 9% of AMS and therefore AMS is no
longer  consolidated.  CNA  recognized  an after-tax  gain of $21 million on the
sale. Total assets of AMS as of the sale date were  approximately  $135 million.
CNA's share of the AMS' operating results were $206 million,  $264 million,  and
$216 million of operating revenue and $8 million,  $28 million,  and $10 million
of operating  losses,  for the eleven  months ended  November 30, 1999,  and the
years ended December 31, 1998 and 1997, respectively.

MERGER WITH CAPSURE HOLDINGS CORP.

In the fourth quarter of 1996, CNA entered into a merger  agreement with Capsure
Holdings  Corp.  (Capsure) to merge CNA's surety  business  with the business of
Capsure and form a new stock company,  CNA Surety  Corporation (CNA Surety),  of
which CNA owns  approximately  63%. The transaction closed on September 30, 1997
and was accounted for as a sale of  approximately  39% of CNA's previous  surety
business and a purchase of 61% of Capsure.  In  conjunction  with the closing of
the  transaction,  CNA realized an investment gain of $95 million.  CNA Surety's
results  of  operations  have been  included  in CNA's  consolidated  results of
operations,  net of minority  interest  subsequent  to September  30,  1997.  At
December 31, 1997,  total assets of CNA Surety were $727  million.  CNA Surety's
revenues  and net income  for the three  months  ended  December  31,  1997 were
approximately $71 million and $11 million, respectively.

CNA FINANCIAL CORPORATION                                                    71
<PAGE>
NOTE P - UNAUDITED QUARTERLY FINANCIAL DATA:
--------------------------------------------

UNAUDITED QUARTERLY FINANCIAL DATA
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------
(In millions of dollars,
except per share data)                     First    Second    Third    Fourth      Year
--------------------------------------------------------------------------------------------
<S>                                        <C>       <C>       <C>       <C>        <C>
1999 QUARTERS

Revenues                                   $4,386    $4,387    $3,922    $3,708     $16,403
Net operating income (loss)
    excluding realized gains/losses            28        45        82      (300)       (145)
Net realized investment gains (losses)        144       109       (53)       (8)        192
--------------------------------------------------------------------------------------------
Net Income (loss) before cumulative effect
  of a change in accounting principle         172       154        29      (308)         47
Cumulative effect of a change in
  accounting principle, net of tax           (177)        -         -         -        (177)
--------------------------------------------------------------------------------------------
Net income (loss)                          $   (5)   $  154    $   29    $ (308)    $  (130)
============================================================================================

Basic and diluted earnings (loss) per
share                                      $(0.05)   $ 0.82    $ 0.15    $(1.68)    $ (0.77)
============================================================================================

1998 QUARTERS

Revenues                                   $4,354    $4,466    $4,170    $4,172   $17,162
Net operating income (loss)
    excluding realized gains/losses           117        64       (70)     (263)     (152)
Net realized investment gains                 116       146        56       116       434
------------------------------------------------------------------------------------------
Net income (loss)                          $  233    $  210    $  (14)   $ (147)  $   282
==========================================================================================
Earnings (loss) per share                  $ 1.25    $ 1.12    $(0.09)   $(0.81)  $  1.49
==========================================================================================

1997 QUARTERS

Revenues                                   $4,172    $4,273    $4,337    $4,417   $17,199
Net operating income
    excluding realized gains/losses           136       126       121       105       488
Net realized investment gains                  42       109       153       174       478
------------------------------------------------------------------------------------------
Net income                                 $  178    $  235    $  274    $  279   $   966
==========================================================================================
Earnings per share                         $ 0.95    $ 1.26    $ 1.47    $ 1.49   $  5.17
==========================================================================================
</TABLE>

72                                                          1999 ANNUAL REPORT
<PAGE>
NOTE Q- RELATED PARTY TRANSACTIONS:
-----------------------------------

CNA reimburses or pays directly to Loews for management fees, travel and related
expenses,  and expenses of investment  facilities and services  provided to CNA.
Amounts paid to Loews amounted to approximately $13 million, $13 million and $11
million in 1999, 1998 and 1997, respectively.

CNA and its  eligible  subsidiaries  are  included in the  consolidated  Federal
income  tax  return of Loews  and its  eligible  subsidiaries.  See Note D for a
detailed  description of the income tax agreement between the Company and Loews.
Note D also  includes  payments  made between the Company and Loews  pursuant to
this agreement.

CNA writes,  at standard  rates, a limited amount of insurance for Loews and its
affiliates. The total premiums from Loews and its affiliates were $5 million for
1999, and $6 million for 1998 and 1997.

CNA  assumes the risk for a limited  amount of  insurance  from R.V.I.  Guaranty
Company, Inc. (RVI), a 50% owned affiliate. CNA assumed approximately $5 million
in written premiums from RVI during 1999.

CNA sponsors a stock ownership plan whereby the Company finances the purchase of
Company  stock  by  certain  executive  officers.  See  Note  K for  a  detailed
discussion of this plan.

CNA FINANCIAL CORPORATION                                                   73
<PAGE>
                          INDEPENDENT AUDITORS' REPORT


THE BOARD OF DIRECTORS AND STOCKHOLDERS OF CNA FINANCIAL CORPORATION:

We have audited the consolidated balance sheets of CNA Financial Corporation (an
affiliate of Loews  Corporation)  and  subsidiaries  as of December 31, 1999 and
1998,  and the related  consolidated  statements  of  operations,  stockholders'
equity,  and cash flows for each of the three years in the period ended December
31, 1999.  These financial  statements are the  responsibility  of the Company's
management.  Our  responsibility  is to express  an  opinion on these  financial
statements  based on our audits.

We  conducted  our  audits  in  accordance  with  generally   accepted  auditing
standards.  Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement.  An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements.  An audit also includes
assessing the  accounting  principles  used and  significant  estimates  made by
management, as well as evaluating the over  financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

In our opinion,  such consolidated  financial  statements present fairly, in all
material  respects,  the  financial  position of CNA Financial  Corporation  and
subsidiaries  as of  December  31,  1999  and  1998,  and the  results  of their
operations  and their cash flows for each of the three years in the period ended
December 31, 1999 in conformity with generally accepted accounting principles.

As discussed in Note A to the  consolidated  financial  statements,  the Company
changed  its  method  of  accounting  for  liabilities   for   insurance-related
assessments in 1999.

DELOITTE & TOUCHE LLP

Chicago, Illinois
February 23, 2000

74                                                          1999 ANNUAL REPORT
<PAGE>

DIRECTORS
------------------------------------------

Antoinette Cook Bush 1,2,3
Partner
Skadden, Arps, Slate, Meagher & Flom LLP

Dennis H. Chookaszian 2*,3
Chairman and Chief Executive Officer
mPower

Ronald L. Gallatin 1,2,3,4
Independent Consultant

Robert P. Gwinn 1,2,3,4
Retired Chairman
and Chief Executive Officer
Encyclopedia Britannica

Bernard L. Hengesbaugh 2,3
Chairman and Chief Executive Officer
CNA Insurance Companies

Walter F. Mondale 1,2,3
Partner
Dorsey & Whitney LLP

Edward J. Noha 2,3
Chairman of the Board
CNA Financial Corporation

Joseph Rosenberg 2,3
Senior Investment Strategist
Loews Corporation

James S. Tisch 2,3*
Chief Executive Officer and President
Loews Corporation

Laurence A. Tisch 2,3
Chief Executive Officer
CNA Financial Corporation
Co-Chairman of the Board
Loews Corporation

Preston R. Tisch 2,3
Co-Chairman of the Board
Loews Corporation

Marvin Zonis 1*,2,3,4
Professor of International
Political Economy
University of Chicago
Graduate School of Business

COMMITTEES OF THE BOARD:
-----------------------------------
1. Audit
2. Executive
3. Finance
4. Incentive Compensation
*  indicates committee chairperson

OFFICERS
-----------------------------------
Laurence A. Tisch
Chief Executive Officer
CNA Financial Corporation

Bernard L. Hengesbaugh
Chairman and Chief Executive Officer
CNA Insurance Companies

Robert V. Deutsch
Senior Vice President
and Chief Executive Officer
CNA Financial Corporation

Jonathan D. Kantor
Senior Vice President,
General Counsel and Secretary
CNA Financial Corporation

Thomas F. Taylor
Executive Vice President
CNA Insurance Companies

CNA FINANCIAL CORPORATION                                                    75
<PAGE>
COMPANY INFORMATION
----------------------------------------------------------------
COMPANY HEADQUARTERS

CNA Financial Corporation
CNA Plaza
333 South Wabash Avenue
Chicago, Illinois 60685
312-822-5000
www.cna.com


STOCKHOLDER INFORMATION
----------------------------------------------------------------

CNA's common stock is listed on the New York Stock  Exchange,  the Chicago Stock
Exchange  and the  Pacific  Exchange,  and is traded on the  Philadelphia  Stock
Exchange. Its trading symbol is CNA.

SHARES OUTSTANDING

As of March 15, 2000,  CNA had 184 million  shares of common stock  outstanding.
Approximately  86 percent of CNA's  outstanding  common  stock is owned by Loews
Corporation. CNA had 2,634 stockholders of record at March 15, 2000.

COMMON STOCK INFORMATION

The table  below shows the high and low closing  sales  prices for CNA's  common
stock based on the New York Stock Exchange Composite Transactions.  No dividends
have been paid on CNA's  common  stock in order to develop and maintain a strong
surplus position for CNA's insurance subsidiaries, which is necessary to support
growth  in  an  increasingly  competitive  environment.  CNA's  ability  to  pay
dividends is  influenced,  in part,  by dividend  restrictions  of its principal
operating  insurance  subsidiaries  as described  in Note K to the  Consolidated
Financial Statements.

COMMON STOCK INFORMATION
--------------------------------------------------------------------
                                1999                 1998
                          ------------------------------------------
Quarter                     HIGH      LOW       High      Low
--------------------------------------------------------------------
Fourth                    42 1/8   33 15/16    44 11/16   34 1/2
Third                     41 1/4   34 5/16     47         35 1/8
Second                    45 5/16  35 1/16     53 5/16    45 1/2
First                     41       33          51         42 1/16
--------------------------------------------------------------------

ANNUAL MEETING

The Annual Meeting of  Stockholders  will be held at 10:00 a.m.  Central time on
Thursday,  May 11,  2000,  in Room 207N,  CNA Plaza,  333 South  Wabash  Avenue,
Chicago.

Shareholders  unable to attend are requested to exercise  their right to vote by
proxy. Proxy materials will be mailed to shareholders prior to the meeting.

FORM 10-K

A copy of CNA Financial Corporation's annual report on Form 10-K, which is filed
with the Securities and Exchange  Commission,  will be furnished to shareholders
without charge upon written request to:

Jonathan D. Kantor
Senior Vice President,
General Counsel and Secretary
CNA Financial Corporation
CNA Plaza, 43 South
Chicago, Illinois  60685

INDEPENDENT AUDITORS

Deloitte & Touche LLP
180 North Stetson Avenue
Chicago, Illinois 60601

INVESTOR RELATIONS

Donald P. Lofe, Jr.
Group Vice President, Corporate Finance
CNA Financial Corporation
CNA Plaza, 22 South
Chicago, Illinois  60685
312-822-3993


TRANSFER AGENT AND REGISTRAR
----------------------------------------------------------------

First Chicago Trust Company,
a Division of EquiServe
P.O. Box 2500
Jersey City, New Jersey 07303-2500

TELEPHONE

Inside the United States
1-800-446-2617
Outside the United States
1-201-324-0498
TDD/TTY for hearing impaired
1-201-222-4955
(Operators are available Monday - Friday, 8:30 a.m. to 7:00 p.m. Eastern time.
An interactive automated system is available around the clock every day.)

INTERNET

http://www.equiserve.com

CERTIFICATE TRANSFERS BY  MAIL

EquiServe
P.O. Box 2589
Jersey City, New Jersey  07303-2506

CERTIFICATE TRANSFERS BY PRIVATE COURIER

EquiServe
Transfer Department
525 Washington Boulevard
Jersey City, New Jersey  07310

CERTIFICATE TRANSFERS BY MESSENGER

EquiServe
c/o Securities Transfer
and Reporting Service, Inc.
100 William Street, Galleria
New York, New York  10038

76                                                           1999 ANNUAL REPORT
<PAGE>
APPENDIX
OMITTED GRAPH MATERIAL AND OTHER
Exhibit 13.1 - CNA Financial Corporation Annual Report:
* Bar graphs of:
     - Revenues for the period 1989 and 1999.
     - Assets for the period of 1989 through 1999.
     - Stockholders' equity for the period 1989 through 1999.
     - Book value per common share 1989 through 1999.

(See page 5 of Exhibit 13.1 for a table showing the data points used in the
above graphs.

The  following  is on outquote  located in the margins  from the "Letters to Our
Shareholders', found on pages 4 through 7 of the annual report.

"Completing our turn-around plan lays the essential underwriting and management
foundation for making our vision a bottom-line success."