--------------------------------------------------------------------------------
                       SECURITIES AND EXCHANGE COMMISSION

                             Washington, D.C. 20549

                           --------------------------

                                    FORM 10-Q

                QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
                     OF THE SECURITIES EXCHANGE ACT OF 1934


For the Quarterly Period Ended September 30, 1996  Commission File Number 1-5823

                           --------------------------


                            CNA FINANCIAL CORPORATION

             (Exact name of registrant as specified in its charter)


             Delaware                                   36-6169860
 (State or other jurisdiction of                        (I.R.S. Employer
 incorporation or organization)                         Identification No.)

            CNA Plaza
         Chicago, Illinois                              60685
 (Address of principal executive offices)               (Zip Code)


                                 (312) 822-5000
              (Registrant's telephone number, including area code)

     Indicate  by check mark  whether the  registrant  (1) has filed all reports
required to be filed by Section 13 or 15(d) of the  Securities  Exchange  Act of
1934  during the  preceding  12 months  (or for such  shorter  periods  that the
registrant was required to file such reports),  and (2) has been subject to such
filing requirements for the past 90 days. Yes x No...


     Indicate the number of shares  outstanding of each of the issuer's  classes
of common stock, as of the latest practicable date.


           Class                                Outstanding at November 1, 1996
-----------------------------------             -------------------------------
Common Stock, Par value $2.50                              61,798,262

--------------------------------------------------------------------------------

                                Page (1) of (30)
<PAGE>

                            CNA FINANCIAL CORPORATION

                                      INDEX


PART I.   FINANCIAL INFORMATION                                         PAGE NO.

CONDENSED CONSOLIDATED FINANCIAL STATEMENTS:

   CONSOLIDATED BALANCE SHEET
     SEPTEMBER 30, 1996 (Unaudited) and DECEMBER 31, 1995..............     3

   STATEMENT OF CONSOLIDATED OPERATIONS (Unaudited)
     FOR THE THREE AND NINE MONTHS ENDED
     SEPTEMBER 30, 1996 AND 1995.......................................     4

   STATEMENT OF CONSOLIDATED STOCKHOLDERS' EQUITY (Unaudited)
     FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996 AND 1995.............     5

   STATEMENT OF CONSOLIDATED CASH FLOWS (Unaudited)
     FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996 AND 1995.............     6

   NOTES TO CONDENSED CONSOLIDATED FINANCIAL
     STATEMENTS (Unaudited) SEPTEMBER 30, 1996.........................     7

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
     AND RESULTS OF OPERATIONS.........................................    16


PART II.  OTHER INFORMATION

ITEM 6.     EXHIBITS AND REPORTS ON FORM 8-K...........................    27

SIGNATURES.............................................................    28

EXHIBIT 11  COMPUTATION OF NET INCOME PER COMMON SHARE.................    29

EXHIBIT 27  FINANCIAL DATA SCHEDULE....................................    30


                                      (2)
<PAGE>
<TABLE>
<CAPTION>                           
                                              CNA FINANCIAL CORPORATION

                                              CONSOLIDATED BALANCE SHEET


-------------------------------------------------------------------------------------------------------------------
                                                                                        September 30   December 31
                                                                                            1996          1995
(In millions of dollars)                                                                 (Unaudited)
-------------------------------------------------------------------------------------------------------------------
<S>                                                                                     <C>           <C>   
Assets
     Investments:
         Fixed maturities available for sale:(cost $27,057.2 and $29,385.4)............  $27,037.6     $30,444.7
         Equity securities available for sale:(cost $778.4 and $736.3) ................      975.2         917.7
         Mortgage loans and real estate:(less accumulated depreciation $4.2 and $3.6 )       134.8         122.4
         Policy loans..................................................................      175.9         177.2
         Other invested assets.........................................................      383.6         499.9
         Short-term investments........................................................    6,162.2       3,724.5
                                                                                        ----------     ---------
              Total investments........................................................   34,869.3      35,886.4
    Cash...............................................................................      264.8         221.6
    Insurance receivables:
         Reinsurance receivables ......................................................    7,273.2       7,169.1
         Other insurance receivables...................................................    6,086.2       5,302.4
         Less allowance for doubtful accounts..........................................     (279.8)       (288.7)
    Deferred acquisition costs.........................................................    1,777.8       1,493.3
    Accrued investment income..........................................................      493.3         545.4
    Receivables for securities sold....................................................      585.1         185.2
    Federal income taxes recoverable:(includes $55.8 and $153.0 due from Loews)  ......       34.2         132.7
    Deferred income taxes..............................................................    1,673.9       1,254.9
    Property and equipment at cost:(less accumulated depreciation $429.0 and $313.7) ..      605.2         584.7
    Prepaid reinsurance premiums.......................................................      373.3         495.4
    Intangibles........................................................................      426.7         456.3
    Other assets.......................................................................      900.4         595.0
    Separate Account business..........................................................    5,711.5       5,868.1
-----------------------------------------------------------------------------------------------------------------
           Total assets                                                                  $60,795.1     $59,901.8
=================================================================================================================
</TABLE>
<PAGE>
<TABLE>
<CAPTION>                           
                                            CNA FINANCIAL CORPORATION

                                      CONSOLIDATED BALANCE SHEET - continued


-------------------------------------------------------------------------------------------------------------------
                                                                                        September 30   December 31
                                                                                            1996          1995
(In millions of dollars)                                                                 (Unaudited)
-------------------------------------------------------------------------------------------------------------------
<S>                                                                                     <C>           <C>   
Liabilities and Stockholders' Equity
Liabilities:
    Insurance reserves:
         Claim and claim expense.......................................................  $31,589.0     $32,032.4
         Unearned premiums.............................................................    4,786.3       4,549.4
         Future policy benefits........................................................    3,990.6       3,515.9
         Policyholders' funds..........................................................      707.4         705.0
    Securities sold under repurchase agreements........................................      602.6         774.1
    Payables for securities purchased..................................................      661.1         163.3
    Participating policyholders' equity................................................      121.5         140.1
    Short-term debt....................................................................        0.0         257.6
    Long-term debt.....................................................................    2,774.0       2,767.9
    Other liabilities..................................................................    3,140.3       2,392.5
    Separate Account business..........................................................    5,711.5       5,868.1
                                                                                          --------      --------
            Total liabilities..........................................................   54,084.3      53,166.3
                                                                                          --------      --------  
Commitments and contingent liabilities Stockholders' equity:
    Common stock ($2.50 par value; Authorized - 200,000,000 shares;
        Issued - 61,841,969 shares)....................................................      154.6         154.6
    Preferred stock....................................................................      150.0         150.0
    Additional paid-in capital.........................................................      434.7         434.7
    Retained earnings..................................................................    5,830.9       5,065.6
    Net unrealized investment gains ...................................................      143.1         933.1
    Treasury stock, at cost............................................................       (2.5)         (2.5)
                                                                                           -------       -------
            Total stockholders' equity.................................................    6,710.8       6,735.5
------------------------------------------------------------------------------------------------------------------
            Total liabilities and stockholders' equity                                   $60,795.1     $59,901.8
==================================================================================================================
<FN>
                         See accompanying Notes to Condensed Consolidated Financial Statements (Unaudited).
</FN>
</TABLE>
                                      (3)
<PAGE>
<TABLE>
<CAPTION>
      
                                              CNA FINANCIAL CORPORATION

                                         STATEMENT OF CONSOLIDATED OPERATIONS
                                                       (Unaudited)

---------------------------------------------------------------------------------------------------------
PERIOD ENDED SEPTEMBER 30                                THIRD QUARTER                 NINE MONTHS
                                                     1996            1995           1996         1995*
(In millions of dollars, except per share data)
---------------------------------------------------------------------------------------------------------
<S>                                               <C>             <C>           <C>            <C> 
Revenues:
  Premiums.........................................$3,435.3        $3,196.2      $10,049.0      $8,581.1
  Net investment income............................   540.3           552.0        1,675.9       1,497.6
  Realized investment gains .......................   109.3            97.7          487.1         339.3
  Other............................................   170.7           155.0          454.1         294.9
                                                   --------        ---------      --------      ---------
                                                    4,255.6         4,000.9       12,666.1      10,712.9
                                                   --------        ---------      --------      ---------
Benefits and expenses:
  Insurance claims and policyholders' benefits..... 2,839.5         2,740.9        8,400.9       7,314.8
  Amortization of deferred acquisition costs.......   601.5           480.2        1,568.5       1,262.9
  Other operating expenses.........................   464.4           472.1        1,469.7       1,204.5
  Interest expense.................................    50.9            64.8          155.4         120.5
                                                   --------        ---------    ----------      ---------
                                                    3,956.3         3,758.0       11,594.5       9,902.7
                                                   --------        ---------    ----------      ---------
    Income before income tax.......................   299.3           242.9        1,071.6         810.2
Income tax expense.................................    60.8            76.6          301.7         234.4
                                                   --------        ---------    ----------      ---------
    Net income                                     $  238.5        $  166.3      $   769.9     $   575.8  
=========================================================================================================

EARNINGS PER SHARE
Net income ........................................$  3.83        $   2.66      $     12.38    $  9.23 
                                                   ========        =========    ===========    ==========

Weighted average outstanding shares of
common stock (in millions of shares)...............  61.8            61.8             61.8        61.8
=========================================================================================================

<FN>
* Includes results of The Continental Corporation from May 10, 1995.

                     See accompanying Notes to Condensed Consolidated Financial Statements (Unaudited).
</FN>
</TABLE>
                                      (4)
<PAGE>
<TABLE>
<CAPTION>

                                            CNA FINANCIAL CORPORATION

                                 STATEMENT OF CONSOLIDATED STOCKHOLDERS' EQUITY
                                                    (Unaudited)

-----------------------------------------------------------------------------------------------------
Nine Months Ended September 30, 1996 and 1995
                                                                                 Net
                                                 Additional                  Unrealized
                                       Capital    Paid in    Retained     Investment Gains    Total
                                        Stock     Capital    Earnings         (Losses)
(In millions of dollars)
-----------------------------------------------------------------------------------------------------
<S>                                <C>         <C>          <C>            <C>            <C>  
Balance, December 31, 1994          $   302.1   $   434.7    $  4,315.5     $   (506.4)    $  4,545.9
  Net income.......................       -           -           575.8             -           575.8
  Unrealized investment gains......       -           -             -          1,143.6        1,143.6
  Preferred dividends..............       -           -            (5.1)            -            (5.1)
-----------------------------------------------------------------------------------------------------
Balance, September 30, 1995         $   302.1   $   434.7    $  4,886.2     $    637.2     $  6,260.2
=====================================================================================================

Balance, December 31, 1995          $   302.1   $   434.7    $  5,065.6     $    933.1     $  6,735.5
  Net income.......................       -           -           769.9            -            769.9
  Unrealized investment (losses)...       -           -            -            (790.0)        (790.0)
  Preferred dividends..............       -           -            (4.6)           -             (4.6)
-----------------------------------------------------------------------------------------------------
Balance, September 30, 1996         $   302.1   $   434.7    $  5,830.9     $    143.1     $  6,710.8
=====================================================================================================
</TABLE>
                                      (5)
<PAGE>
<TABLE>
<CAPTION>
                                           CNA FINANCIAL CORPORATION 
                                      STATEMENT OF CONSOLIDATED CASH FLOWS
                                                    (Unaudited)

----------------------------------------------------------------------------------------------------------
NINE MONTHS ENDED SEPTEMBER 30                                                      1996         1995
(In millions of dollars)
----------------------------------------------------------------------------------------------------------
<S>                                                                             <C>         <C>  
CASH FLOWS FROM OPERATING ACTIVITIES:
  Net income ....................................................................$    769.9  $       575.8
                                                                                  ---------    -----------
  Adjustments  to  reconcile  net  income  to  net  cash  flows  from  operating
  activities:
    Net realized investment gains, pre-tax ......................................    (487.1)        (339.3)
    Participating policyholders' interest........................................       1.9           (1.4)
    Amortization of intangibles..................................................      18.8           12.2
    Amortization of bond discount................................................    (129.6)        (108.3)
    Depreciation.................................................................     118.1           65.2
    Changes in:
       Reinsurance and other insurance receivables, net..........................    (896.9)      (1,117.3)
       Prepaid reinsurance premiums..............................................     122.1           57.9
       Deferred acquisition costs................................................    (284.5)        (147.1)
       Accrued investment income.................................................      52.1          (38.8)
       Insurance reserves........................................................     292.6          755.6
       Federal income taxes......................................................      98.5          (34.4)
       Deferred income taxes.....................................................     139.1          190.4
       Reinsurance payables......................................................     234.7           41.5
       Other, net................................................................    (114.7)         497.2
                                                                                  ----------    -----------
               Total adjustments ................................................    (834.9)        (166.6)
                                                                                  ----------    -----------
               NET CASH FLOWS FROM OPERATING ACTIVITIES .........................     (65.0)         409.2
                                                                                  ----------    -----------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
                                             CNA FINANCIAL CORPORATION
                                STATEMENT OF CONSOLIDATED CASH FLOWS - continued
                                                    (Unaudited)

----------------------------------------------------------------------------------------------------------
NINE MONTHS ENDED SEPTEMBER 30                                                      1996         1995
(In millions of dollars)
----------------------------------------------------------------------------------------------------------
<S>                                                                             <C>         <C>  

Cash flows from investing activities:
   Purchases of fixed maturities................................................. (24,783.0)     (25,308.3)
   Proceeds from fixed maturities:
     Sales.......................................................................  25,758.4       23,320.0
     Maturities, calls and redemptions...........................................   1,657.9        2,306.3
   Purchases of equity securities................................................    (513.1)        (567.0)
   Proceeds from sale of equity securities.......................................     650.0          914.4
   Change in short-term investments..............................................  (2,340.2)      (1,029.2)
   Purchases of property and equipment ..........................................    (148.9)         (72.5)
   Change in securities sold under repurchase agreements.........................    (171.6)          26.2
   Change in other investments...................................................     256.0          (18.6)
   Purchase of The Continental Corporation.......................................       -         (1,125.5)
   Cash acquired in connection with the Continental merger.......................       -            165.1
   Purchase of Alexsis...........................................................       -            (46.3)
   Other, net....................................................................      21.0          (13.0)
                                                                                  ----------    -----------
               NET CASH FLOWS FROM INVESTING ACTIVITIES .........................     386.5       (1,448.4)
                                                                                  ----------    -----------

CASH FLOWS FROM FINANCING ACTIVITIES:
   Dividends paid to preferred shareholders......................................      (4.7)          (5.2)
   Receipts from investment contracts credited to policyholder account balances..      11.7           19.4
   Return of policyholder account balances on investment contracts...............     (33.8)         (25.9)
   Change in short-term debt.....................................................    (257.6)            -
   Principal payments on long-term debt..........................................      (3.4)        (504.5)
   Reitrement of notes payable...................................................        -          (205.0)
   Proceeds from issuance of long-term debt......................................       9.5        1,831.1
                                                                                    --------    -----------
               NET CASH FLOWS FROM  FINANCING ACTIVITIES.........................    (278.3)       1,109.9
                                                                                    --------    -----------
                       Net cash flows............................................      43.2           70.7
Cash at beginning of period......................................................     221.6          147.6
===========================================================================================================
CASH AT END OF PERIOD                                                            $    264.8   $      218.3
===========================================================================================================
Supplemental disclosures of cash flow information:
  Cash paid:
   Interest expense..............................................................$   (166.2)  $     (113.4)
   Federal income taxes..........................................................     (42.9)        (122.7)
===========================================================================================================
<FN>
                See accompanying Notes to Condensed Consolidated Financial Statements (Unaudited).
</FN>
</TABLE>
                                      (6)
<PAGE>
                            CNA FINANCIAL CORPORATION
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

NOTE A.  Basis of Presentation:

         The Condensed Consolidated Financial Statements (Unaudited) include CNA
Financial Corporation (CNA or the Company) and its subsidiaries which consist of
property/casualty  insurance companies (principally Continental Casualty Company
and Continental  Insurance  Company) and life insurance  companies  (principally
Continental  Assurance Company and Valley Forge Life Insurance  Company).  Loews
Corporation  (Loews) owns  approximately 84% of the outstanding  common stock of
CNA.

         CNA is a  multiple-line  insurer  underwriting  property  and  casualty
coverages;  life,  accident and health insurance.  CNA serves a wide spectrum of
insureds,   including   individuals;   small,   medium  and  large   businesses;
associations; professionals and groups.

         CNA acquired The Continental  Corporation  (Continental) through a cash
merger for approximately $1.1 billion. The merger was completed on May 10, 1995.

         Results of operations  for the  nine-month  period ended  September 30,
1996  include the  operations  of  Continental.  Results of  operations  for the
nine-months  ended  September  30,  1995  reflect  the  results  of  Continental
subsequent to May 10, 1995 (See Note B).

         The  operating  results  for the interim  periods  are not  necessarily
indicative  of the results to be expected  for the full year.  These  statements
should be read in  conjunction  with the financial  statements and notes thereto
included in CNA's Annual Report to  Shareholders  (incorporated  by reference in
Form 10-K) for the year ended  December 31, 1995,  filed with the  Commission on
March 29, 1996.

         The accompanying  Condensed Consolidated Financial Statements have been
prepared in conformity with generally accepted  accounting  principles.  Certain
amounts  applicable  to prior  periods  have been  reclassified  to  conform  to
classifications followed in 1996. All significant intercompany amounts have been
eliminated.

         The  preparation of financial  statements in conformity  with generally
accepted  accounting  principles  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 financial
statements  and the  reported  amounts  of  revenues  and  expenses  during  the
reporting  period.  Actual  results  could differ from those  estimates.  In the
opinion  of  CNA's  management,   these  statements   include  all  adjustments,
consisting  of  normal  recurring  accruals,  which are  necessary  for the fair
presentation of the financial position,  results of operations and cash flows in
the accompanying condensed consolidated financial statements.

NOTE B.  The  Continental Corporation:

         On December 6, 1994, CNA entered into a merger agreement  providing for
the  payment of  approximately  $1.1  billion to holders of  Continental  common
stock. To finance the acquisition, CNA entered into a five year revolving credit
facility (see Note F). The merger was consummated on May 10, 1995.

         The  acquisition of  Continental  has been accounted for as a purchase;
therefore,  Continental's  operations are included in the Condensed Consolidated
Financial  Statements  since May 10, 1995.  CNA has completed its evaluation and
appraisal of  Continental's  net assets  resulting in goodwill of  approximately
$315 million.  Goodwill will be amortized over twenty years.

                                      (7)
<PAGE>
                            CNA FINANCIAL CORPORATION
        NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - continued

         The unaudited pro forma condensed results of operations presented below
assume the Continental acquisition had occurred at the beginning of 1995:

|-----------------------------------------------------------------------|
|PRO FORMA                                                              |
|NINE MONTHS ENDED  SEPTEMBER 30, 1995                                  |
|(In millions of dollars, except per share data)                        |
|-----------------------------------------------------------------------|
|Revenues                                                     $12,200.5 |
|                                                                       |
|Realized investment gains included in revenue                    459.4 |
|                                                                       |
|Income before income tax expense                                 839.0 |
|Income tax expense                                              (257.8)|
|                                                              ---------|
|Net income                                                   $   581.2 |
|                                                              =========|
|                                                                       |
|Net income  per share                                        $    9.32 |
|                                                              =========|
|                                                                       |
|-----------------------------------------------------------------------|
                                                                        
         The  unaudited  pro  forma  condensed  financial   information  is  not
necessarily  indicative  either of the  results  of  operations  that would have
occurred had this  transaction  been  consummated at the beginning of 1995 or of
future operations of the combined companies.

         Certain   discontinued   operations   were  acquired  as  part  of  the
Continental  merger.  The  components of operating  results of the  discontinued
operations are shown net in the accompanying financials and are comprised of the
following:

|---------------------------------------------------------------------|
|NINE MONTHS ENDED SEPTEMBER 30               1996          1995      |
|(In millions of dollars)                                             |
|---------------------------------------------------------------------|
|                                                                     |
|Revenues                                    $ 68.8         $29.8     |
|Expenses                                      68.8          29.8     |
|                                              -----         -----    |
|   Income before income taxes                   -             -      |
|Income taxes                                    -             -      |
|                                              -----         -----    |
|   Income from discontinued operations      $   -          $  -      |
|                                              =====         =====    |
|                                                                     |
|---------------------------------------------------------------------|
<PAGE>
                                                                      
         Net assets of discontinued  insurance  operations at September 30, 1996
and December 31, 1995 were included in "Other Assets".  The table below reflects
assets  and  liabilities  of the  discontinued  operations  net of  intercompany
eliminations (excluding intercompany notes):                         

|------------------------------------------------------------------------------|
|FOR THE PERIOD ENDED                     SEPTEMBER 30, 1996  DECEMBER 31, 1995|
|(In millions of dollars)                                                      |
|------------------------------------------------------------------------------|
|                                                                              |
|ASSETS:                                                                       |
|Cash and investments                         $   785.5          $   825.3     |
|Reinsurance receivables and other assets         791.3              521.9     |
|                                               -------            -------     |
|                                               1,576.8            1,347.2     |
|                                               -------            -------     |
|                                                                              |
|LIABILITIES:                                                                  |
|Claim and claim expenses                       1,163.9              955.7     |
|Other liabilities                                312.8              257.6     |
|                                               -------           --------     |
|                                               1,476.7            1,213.3     |
|                                               -------           --------     |
|   Net assets                                $   100.1          $   133.9     |
|                                               =======           ========     |
|                                                                              |
|------------------------------------------------------------------------------|
                                      (8)
<PAGE>
                            CNA FINANCIAL CORPORATION
        NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - continued

NOTE C.  Restricted Investments:

         On  December  30,  1993,  CNA  deposited  $986.8  million  in an escrow
account,  pursuant to the Fibreboard Global Settlement Agreement,  (see Note E).
At September 30, 1996,  the escrow  account  amounted to $1,065.8  million.  The
funds are included in short-term  investments and are invested in U. S. Treasury
securities.

NOTE D.  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, to provide greater  diversification  of
risk and to minimize  exposures on larger risks.  The reinsurance  coverages are
tailored to the specific  risk  characteristics  of each product line with CNA's
retained amount varying by type of coverage. Generally, reinsurance coverage for
property risks is 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.

    The ceding of  insurance  does not  discharge  the primary  liability of the
original insurer.  CNA places reinsurance with other carriers only after careful
review  of  the  nature  of  the  contract  and a  thorough  assessment  of  the
reinsurers'  credit  quality  and claim  settlement  performance.  Further,  for
carriers  that are not  authorized  reinsurers  in its states of  domicile,  CNA
receives collateral primarily in the form of bank letters of credit,  securing a
large  portion of the  recoverables.  At  September  30, 1996,  such  collateral
totaled  approximately  $1.1 billion.  CNA's largest  recoverable  from a single
reinsurer,  including prepaid reinsurance  premiums,  at September 30, 1996, was
approximately $435 million with Lloyd's of London.
<TABLE>
<CAPTION>
|---------------------------------------------------------------------------------------------|
|NINE MONTHS ENDED SEPTEMBER 30                          EARNED PREMIUMS                      |
|                                ------------------------------------------------   ASSUMED/  |
|                                                                                     NET     |
|(In millions of dollars)          DIRECT     ASSUMED       CEDED        NET           %      |
|---------------------------------------------------------------------------------------------|
<S>                             <C>          <C>        <C>        <C>                <C>
|                                                                                             |
|1996                                                                                         |
|     Life                       $    519.4   $    87.3   $    33.1  $   573.6         15.2  %|
|     Accident and health           2,580.3       183.0       112.4    2,650.9          6.9   |
|     Property and casualty         6,702.2     1,177.5     1,055.2    6,824.5         17.3   |
|---------------------------------------------------------------------------------------------|
|          Total premiums        $  9,801.9   $ 1,447.8   $ 1,200.7  $10,049.0         14.4  %|
|=============================================================================================|
|                                                                                             |
|1995                                                                                         |
|     Life                       $    467.8   $    81.4   $    16.1  $   533.1         15.3  %|
|     Accident and health           2,289.1        95.9        59.6    2,325.4          4.1   |
|     Property and casualty         5,764.0       925.5       966.9    5,722.6         16.2   |
|---------------------------------------------------------------------------------------------|
|          Total  premiums       $  8,520.9   $ 1,102.8   $ 1,042.6  $ 8,581.1         12.9  %|
|=============================================================================================|
</TABLE>
<PAGE>
<TABLE>
<CAPTION>                                                                                              
|----------------------------------------------------------------------------------------------|
|THREE MONTHS ENDED SEPTEMBER 30                         EARNED PREMIUMS                       |
|                                ------------------------------------------------  ASSUMED/    |
|                                                                                     NET      |
|(In millions of dollars)          DIRECT     ASSUMED       CEDED       NET           %        |
|--------------------------------------------------------------------------------------------- |
|                                                                                              |
<S>                             <C>          <C>        <C>        <C>                <C>
|1996                                                                                          |
|     Life                       $    165.5    $   30.1    $   17.9  $   177.7        16.9  %  |
|     Accident and health             919.6        93.5        79.2      933.9        10.0     |
|     Property and casualty         2,453.2       174.7       304.2    2,323.7         7.5     |
|----------------------------------------------------------------------------------------------|
|          Total premiums        $  3,538.3    $  298.3    $  401.3  $ 3,435.3         8.7  %  |
|----------------------------------------------------------------------------------------------|
|                                                                                              |
|1995                                                                                          |
|     Life                       $    168.9    $   26.5    $    6.7  $   188.7        14.0  %  |
|     Accident and health             847.9        27.7        21.4      854.2         3.2     |
|     Property and casualty         2,316.5       352.2       515.4    2,153.3        16.4     |
|----------------------------------------------------------------------------------------------|
|          Total  premiums       $  3,333.3    $  406.4    $  543.5  $ 3,196.2        12.7  %  |
|==============================================================================================|
</TABLE>

                                      (9)
<PAGE>
                            CNA FINANCIAL CORPORATION
        NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - continued

         In the table above, life earned premium is primarily from long duration
contracts,  property/casualty  earned premium is from short duration  contracts,
and  accident  and health  earned  premiums are  primarily  from short  duration
contracts.

         Insurance claims and policyholders'  benefits are net of reinsurance of
$108.5 million and $1,010.3  million and $782.8 million and $1,112.8 million for
the quarter and nine months  ending  September  30, 1996 and September 30, 1995,
respectively.

NOTE E.  Legal Proceedings and Contingent Liabilities:

         The following  information  updates legal  proceedings  and  contingent
liabilities reported in Notes J and K of the Notes to the Consolidated Financial
Statements in the 1995 Annual Report to Shareholders.

FIBREBOARD LITIGATION

         CNA's  primary  property/casualty   subsidiary,   Continental  Casualty
Company  ("Casualty"),  is  party  to  litigation  with  Fibreboard  Corporation
("Fibreboard")  involving  coverage  for  certain  asbestos-related  claims  and
defense costs (San  Francisco  Superior  Court,  Judicial  Council  Coordination
Proceeding  1072). As described  below,  Casualty,  Fibreboard,  another insurer
(Pacific Indemnity,  a subsidiary of the Chubb  Corporation),  and a negotiating
committee of asbestos claimant attorneys  (collectively  referred to as Settling
Parties) have reached a Global  Settlement (the "Global  Settlement") to resolve
all future asbestos-related bodily injury claims involving Fibreboard,  which is
subject to court approval. Casualty,  Fibreboard and Pacific Indemnity have also
reached an agreement (the  "Trilateral  Agreement"),  on a settlement to resolve
the coverage litigation in the event the Global Settlement does not obtain final
court approval or is subsequently  successfully  attacked. The implementation of
the  Global  Settlement  or the  Trilateral  Agreement  would have the effect of
settling Casualty's litigation with Fibreboard.

         On July 27,  1995,  the United  States  District  Court for the Eastern
District of Texas entered judgment approving the Global Settlement Agreement and
the Trilateral  Agreement.  As expected,  appeals were filed as respects both of
these  decisions.  On July 25, 1996, a panel of the United  States Fifth Circuit
Court of Appeals in New  Orleans  affirmed  the  judgment  approving  the Global
Settlement  Agreement by a 2 to 1 vote and affirmed the judgment  approving  the
Trilateral  Agreement by a 3 to 0 vote. A petition has been filed for re-hearing
by the entire  Fifth  Circuit  Court of Appeals as respects  the decision on the
Global Settlement Agreement.

         No  further  appeal  has been  filed  with  respect  to the  Trilateral
Agreement  and CNA believes  that the time to file any such  further  appeal has
expired,  and  accordingly,  CNA believes that court  approval of the Trilateral
Agreement has become final.  CNA currently  expects that  Casualty's  litigation
with Fibreboard will be dismissed during the first quarter of 1997.

Global Settlement

         On April 9, 1993,  Casualty  and  Fibreboard  entered into an agreement
pursuant to which,  among  other  things,  the parties  agreed to use their best
efforts  to  negotiate  and  finalize  a global  class  action  settlement  with
asbestos-related bodily injury and death claimants.

         On August 27,  1993,  the  Settling  Parties  reached an  agreement  in
principle  for an  omnibus  settlement  to resolve  all future  asbestos-related
bodily injury claims involving  Fibreboard.  The Global Settlement Agreement was
executed on December 23, 1993. The agreement calls for  contribution by Casualty

                                      (10)
<PAGE>
                            CNA FINANCIAL CORPORATION
        NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - continued

and Pacific  Indemnity of an  aggregate of $1.525  billion to a trust fund for a
class of all future asbestos claimants, defined generally as those persons whose
claims against Fibreboard were neither filed nor settled before August 27, 1993.
An additional $10 million is to be  contributed  to the fund by  Fibreboard.  As
indicated  hereinabove,  the Global  Settlement  approval  has been  affirmed on
appeal,  however,  further review is being sought and there is limited precedent
with settlements which determine the rights of future claimants to seek relief.

         Subsequent to the announcement of the agreement in principle, Casualty,
Fibreboard and Pacific  Indemnity  entered into the Trilateral  Agreement  which
among other things, settles the coverage case in the event the Global Settlement
approval is not ultimately upheld. In such case,  Casualty and Pacific Indemnity
will  contribute to a settlement  fund an aggregate of $2 billion,  less certain
adjustments.  Such fund would be devoted to the payment of Fibreboard's asbestos
liabilities  other than  liabilities  for claims settled before August 23, 1993.
Casualty's  share of such fund would be $1.44 billion reduced by a portion of an
additional payment of $635 million which Pacific Indemnity has agreed to pay for
claims either filed or settled before August 27, 1993. Based upon receipt of the
final approval of the Trilateral Agreement,  Casualty will assume responsibility
for the  claims  that were  settled  before  August 27,  1993.  A portion of the
additional  $635 million to be contributed by Pacific  Indemnity will be applied
to the payment of such claims as well.  As a part of the Global  Settlement  and
the  Trilateral  Agreement,  Casualty is to be released by  Fibreboard  from any
further liability under the  comprehensive  general liability policy written for
Fibreboard   by  Casualty,   including   but  not  limited  to   liability   for
asbestos-related  claims against  Fibreboard.  As indicated  above, CNA believes
that  court  approval  of  the   Trilateral   Agreement  has  become  final  and
non-appealable.

         Casualty and Fibreboard have entered into a supplemental agreement (the
"Supplemental Agreement") which governs the interim arrangements and obligations
between the parties  until such time as the coverage  case is finally  resolved,
either through final court approval of the Global Settlement Agreement, or final
court disapproval of the Global Settlement Agreement and final court approval of
the Trilateral Agreement,  or through a final decision in the California courts.
It also  governs  certain  obligations  between  the  parties  upon  the  Global
Settlement  being upheld on appeal including the payment of claims which are not
included in the Global Settlement.

         In  addition,  Casualty  and Pacific  Indemnity  have  entered  into an
agreement  (the  "Casualty-Pacific  Agreement")  which sets  forth the  parties'
agreement   with  respect  to  the  means  for   allocating   among   themselves
responsibility  for payments arising out of the Fibreboard  insurance  policies.
Under the Casualty-Pacific Agreement, Casualty and Pacific Indemnity have agreed
to pay  64.71% and  35.29%,  respectively,  of the $1.525  billion to be used to
satisfy  the  claims of future  claimants,  plus  certain  expenses.  The $1.525
billion has already been deposited  into an escrow for such purpose.  Based upon
the final approval of the Trilateral  Agreement,  Pacific  Indemnity's share for
unsettled present claims and presently settled claims will be $635 million.

         Through  September  30,  1996,   Casualty,   Fibreboard  and  plaintiff
attorneys had reached settlements with respect to approximately  133,700 claims,
subject to resolution of the coverage issues, for an estimated settlement amount
of  approximately  $1.62  billion  plus any  applicable  interest.  Final  court
approval  of the  Trilateral  Agreement  obligates  Casualty  to pay under these
settlements.  Approximately $705 million was paid through September 30, 1996. As
described above, such payments are partially recoverable from Pacific Indemnity.
Casualty  may  negotiate  other  agreements  with  various  classes of claimants
including groups who may have previously reached agreement with Fibreboard.

                                      (11)
<PAGE>
                            CNA FINANCIAL CORPORATION
        NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - continued

Reserves

         In the fourth  quarter of 1992,  Casualty  increased  its reserve  with
respect to potential  exposure to  asbestos-related  bodily injury cases by $1.5
billion.  In connection with the agreement in principle  announced on August 27,
1993,  Casualty added $500 million to such claim reserve in the third quarter of
1993.  The  Fibreboard   claims   represent  the  major  portion  of  Casualty's
asbestos-related claim exposure.

         Casualty believes that final court approval of the Trilateral Agreement
and its implementation will eliminate any further material exposure with respect
to the Fibreboard matter.

         Under various reinsurance agreements,  Casualty has asserted a right to
reimbursement for a portion of its potential exposure to Fibreboard.  Casualty's
principal  reinsurers have disputed  Casualty's right to reimbursement  and have
taken the position  that any claim by Casualty is subject to  arbitration  under
provisions  in the  reinsurance  agreement.  A Federal  court has ruled that the
dispute must be resolved by arbitration. There can be no assurance that Casualty
will be  successful in obtaining a significant  recovery  under its  reinsurance
agreements.

ENVIRONMENTAL AND ASBESTOS

         The CNA property/casualty  insurance companies have potential exposures
related to environmental and asbestos-related claims.

         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" ("PRP's"). Superfund and the mini-Superfunds (Environmental
Clean-up  Laws or "ECLs")  establish  a mechanism  to pay for  clean-up of waste
sites if PRP's fail to do so, and to assign  liability  to PRP's.  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.  On the other  hand,  the
Congressional  Budget  Office is  estimating  that there will be 4,500  National
Priority List sites,  and other  estimates  project as many as 30,000 sites that
will require  clean-up under ECLs.  Very few sites have been subject to clean-up
to date.  The extent of clean-up  necessary and the  assignment of liability has
not been established.

         CNA and the  insurance  industry are  disputing  coverage for many such
claims.  Key  coverage  issues  include  whether  Superfund  response  costs are
considered  damages under the policies,  trigger of coverage,  applicability  of
pollution  exclusions,  the  potential  for  joint  and  several  liability  and
definition of an occurrence. Similar coverage issues exist for clean-up of waste
sites not covered under  Superfund.  To date,  courts have been  inconsistent in
their rulings on these issues.
<PAGE>

         A number of  proposals  to reform  Superfund  have been made by various
parties.  Despite  Superfund  taxing  authority  expiring at the end of 1995, no
reforms have been enacted by Congress.  While the next Congress may address this
issue,  no  predictions  can be made as to what  positions  the  Congress or the
Administration will take 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  materially  reduced in favor of

                                      (12)
<PAGE>
                            CNA FINANCIAL CORPORATION
        NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - continued

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  exposure to CNA for
environmental  pollution  claims cannot be  meaningfully  quantified.  Claim and
claim expense reserves represent  management's estimates of ultimate liabilities
based on currently  available  facts and case law.  However,  in addition to the
uncertainties  previously  discussed,  additional issues related to, among other
things,  specific  policy  provisions,   multiple  insurers  and  allocation  of
liability  among  insurers,  consequences  of  conduct by the  insured,  missing
policies and proof of coverage make quantification of liabilities  exceptionally
difficult and subject to adjustment  based on new data. As of September 30, 1996
and  December  31,  1995,  CNA  carried  approximately  $802  million and $1,030
million,  respectively,  of claim and claim expense reserves, net of reinsurance
recoverable,  for reported and unreported environmental pollution claims. There
was no environmental  reserve  development for the nine months and quarter ended
September 30, 1996. Adverse  environmental  reserve  development of $241 million
for the year ended December 31, 1995 includes $60 million related to Continental
and results from CNA's  on-going  monitoring  of  settlement  patterns,  current
pending cases and potential  future claims.  The foregoing  reserve  information
relates to claims for accident years 1988 and prior,  which coincides with CNA's
adoption of the  Simplified  Commercial  General  Liability  coverage form which
included an absolute pollution exclusion.

         CNA  has  exposure  to   asbestos-related   claims,   including   those
attributable  to  CNA's  on-going  litigation  with  Fibreboard  Corporation.  A
detailed  discussion of CNA's litigation with Fibreboard  Corporation  regarding
asbestos-related  bodily  injury  claims is discussed  at the  beginning of this
note.  Estimation of asbestos-related  claim reserves encounter many of the same
limitations   discussed  above  for  environmental   pollution  claims  such  as
inconsistency of court decisions, specific policy provisions,  multiple insurers
and  allocation  of  liability  among  insurers,  missing  policies and proof of
coverage.  As  of  September  30,  1996  and  December  31,  1995,  CNA  carried
approximately  $2,051  million and $2,224  million,  respectively,  of claim and
claim  expense  reserves,  net of  reinsurance  recoverable,  for  reported  and
unreported asbestos-related claims. Unfavorable reserve development for the nine
months ended  September 30, 1996 and the year ended  December 31, 1995,  totaled
$38 million and $258 million, respectively.

         The results of  operations in future years may continue to be adversely
affected  by  environmental  pollution  and  asbestos  aims and claim  expenses.
Management  will  continue to monitor  potential  liabilities  and make  further
adjustments as warranted.

         CNA, consistent with sound reserving  practices,  regularly adjusts its
reserve estimates in subsequent reporting periods as new facts and circumstances
emerge that indicate the previous  estimates need to be modified.  Beginning the
latter part of 1995 and through  1996 to date,  CNA has been  actively  settling
many of its larger environmental pollution and asbestos-related claim exposures.
This strategy has resulted in a large volume of claim payments  during 1996, and
corresponding  reductions in reserves.  In addition,  Fibreboard  claim payments
escalated  in 1996 as some  scheduled  payments  came due.  Management  does not
believe that these recent activities have changed facts or circumstances evident
at December 31, 1995, therefore,  no material  modifications to previous reserve
estimates have been made in 1996. The following  table provides  additional data
related to CNA's environmental pollution and asbestos-related claims reserves.

                                      (13)
<PAGE>
                            CNA FINANCIAL CORPORATION
        NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - continued

<TABLE>
<CAPTION>

|-----------------------------------------------------------------------------------------------|
|                                                                                               |
|RESERVE SUMMARY                        SEPTEMBER 30, 1996               DECEMBER 31, 1995      |
|                              ------------------------------- ---------------------------------|
|                                ENVIRONMENTAL       ASBESTOS       ENVIRONMENTAL      ASBESTOS |
|                                                                                               |
|------------------------------------------------------------- ---------------------------------|
|(In millions of dollars)                                                                       |
|                                                                                               |
<S>                           <C>               <C>              <C>              <C>    
|Gross reserves:                                                                                |
|         Reported claims      $      328        $    1,877       $      337       $    1,963   |
|         Unreported claims           594               275              840              358   |
|                                  ------            ------           ------           ------   |
|                                     922             2,152            1,177            2,321   |
|Less reinsurance recoverable        (120)             (101)            (147)             (97)  |
|-----------------------------------------------------------------------------------------------|
|Net reserves                 $       802        $    2,051       $    1,030       $    2,224   |
|===============================================================================================|
</TABLE>

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.

                                      (14)
<PAGE>
                            CNA FINANCIAL CORPORATION
        NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - concluded

NOTE F. Debt:

Long and short-term borrowings consisted of the following:
<TABLE>
<CAPTION>
|-------------------------------------------------------------------------------------------------|
|LONG AND SHORT-TERM DEBT                                                                         |
|(In millions of dollars)                                           SEPTEMBER 30     DECEMBER 31  |
|                                                                       1996               1995   |
|-------------------------------------------------------------------------------------------------|
<S>                                                                 <C>              <C>   
|Long-term:                                                                                       |
|   Acquisition debt:                                                                             |
|     Credit Facility                                                $    650.0       $    825.0  |
|     Commercial Paper                                                    675.0            500.0  |
|   Senior Notes:                                                                                 |
|     8 7/8%, due March 1, 1998                                           149.4            149.2  |
|     8 1/4%, due April 15, 1999                                          102.2            102.8  |
|     7 1/4%, due March 1, 2003                                           145.8            145.4  |
|     6 1/4%, due November 15, 2003                                       248.4            248.2  |
|     8 3/8%, due August 15, 2012                                          97.9             97.9  |
|   71/4% Debenture, due November 15, 2023                                247.1            247.1  |
|   11% Secured Mortgage Notes, due June 20, 2013                         393.2            386.6  |
|   8% - 13.7% Secured Capital Leases, due December 31, 2011               46.6             46.0  |
|   Other                                                                  18.4             19.7  |
|                                                                    ----------       ----------  |
|     Total long-term debt                                              2,774.0          2,767.9  |
|Short-term                                                                 -              257.6  |
|                                                                    ----------       ----------  |
|     Total debt                                                     $  2,774.0       $  3,025.5  |
|                                                                    ==========       ==========  |
|-------------------------------------------------------------------------------------------------|
</TABLE>
                                    
     To finance the  acquisition  of Continental  (including the  refinancing of
$205 million of  Continental  debt) CNA entered into a five-year  $1.325 billion
revolving credit  facility.  CNA renegotiated the facility in 1996 extending the
maturity by one year.  The average  interest  rate on the  borrowings  under the
revolver at September 30, 1996 was 5.66%.  Under the terms of the facility,  CNA
may  prepay  the  debt  without  penalty,  giving  CNA  flexibility  to  arrange
longer-term  financing on more  favorable  terms.  In 1995, to take advantage of
favorable  interest rate spreads,  CNA  established a Commercial  Paper Program,
borrowing  $500  million  from  investors  to  replace  a like  amount  of  bank
financing.  In the first  nine  months of 1996 CNA  increased  commercial  paper
borrowings  by $175  million  replacing  a like  amount of bank  financing.  The
weighted-average  rate on commercial  paper at September 30, 1996 was 5.66%. The
commercial  paper  borrowings are classified as long-term as $675 million of the
committed credit facility supports the commercial paper program.

     CNA entered into  interest  rate swap  agreements  with several banks which
terminate  from May to December,  2000.  The effect of these interest rate swaps
was to increase  interest  expense by $5.6 million and $1.9 million for the nine
months and quarter ended September 30, 1996.  Interest  expense was increased by
$1.1 million in the third quarter of 1995.

     The weighted average interest rate on the acquisition  debt, which includes
the revolving credit facility,  commercial paper, and the effect of the interest
rate swaps, was 6.36% on September 30, 1996.

     On March 1, 1996,  CNA repaid at the due date $250 million of 8 5/8% senior
notes. These notes were classified as short-term debt in 1995.

                                      (15)
<PAGE>
                            CNA FINANCIAL CORPORATION
           MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
                            AND RESULTS OF OPERATIONS

The following  discussion and analysis  should be read in  conjunction  with the
consolidated  financial  statements  and notes  thereto  found on pages 3 to 15,
which contain additional information helpful in evaluating operating results and
financial condition.

CNA  Financial  Corporation  (CNA) is the parent  company  of the CNA  Insurance
Companies.  The CNA  Insurance  Companies,  the  largest  writer  of  commercial
property and casualty  insurance,  is comprised of Continental  Casualty Company
and its subsidiaries, Continental Assurance Company and its subsidiaries and The
Continental Corporation, acquired on May 10, 1995, and its subsidiaries. The CNA
Insurance  Companies provide property and casualty coverage,  life, accident and
health insurance.

                                       
<PAGE>

RESULTS OF OPERATIONS:

         The following chart summarizes key components of operating  results for
the nine months and  quarters  ended  September  30,  1996 and 1995.  Results of
operations include The Continental Corporation subsequent to May 10, 1995.
<TABLE>
<CAPTION>
|-------------------------------------------------------------------------------------------------------------|
|PERIOD ENDED SEPTEMBER 30                                      THIRD QUARTER                  NINE MONTHS    |
|(In millions of dollars)                                  1996             1995         1996          1995   |
|-------------------------------------------------------------------------------------------------------------|
<S>                                                    <C>           <C>          <C>           <C>  
|                                                                                                             |
|OPERATING SUMMARY (EXCLUDING NET REALIZED INVESTMENT                                                         |
|GAINS/LOSSES):                                                                                               |
|Revenues:                                                                                                    |
|  Premiums:                                                                                                  |
|    Property/Casualty                                  $ 2,592.8     $ 2,427.8    $ 7,579.2     $ 6,375.1    |
|    Life                                                   842.5         768.4      2,469.8       2,206.0    |
|                                                        --------      --------     --------      --------    |
|                                                         3,435.3       3,196.2     10,049.0       8,581.1    |
|  Net investment income                                    540.3         552.0      1,675.9       1,497.6    |
|  Other                                                    170.7         155.0        454.1         294.9    |
|                                                        --------      --------     --------      --------    |
|                                                         4,146.3       3,903.3     12,179.0      10,373.6    |
|Benefits and expenses                                    3,957.6       3,757.3     11,583.4       9,895.1    |
|                                                        --------       -------     --------      --------    |
|  Operating income before income tax expense               188.7         145.9        595.6         478.5    |
|Income tax expense                                         (27.9)        (42.8)      (138.1)       (116.6)   |
|                                                        --------       -------     --------      --------    |
|  Net operating income                                  $  160.8     $   103.1    $   457.5     $   361.9    |
|                                                        ========      ========     ========      ========    |
|SUPPLEMENTAL FINANCIAL DATA:                                                                                 |
|Net operating income (loss) by group:                                                                        |
|  Property/Casualty                                    $   164.9     $   122.1    $   462.6     $   361.7    |
|  Life                                                      22.9          24.6         77.5          73.1    |
|  Other                                                    (27.0)        (43.6)       (82.6)        (72.9)   |
|                                                        ---------     --------     ---------     --------    |
|                                                           160.8         103.1        457.5         361.9    |
|                                                        ---------     --------     ---------     --------    |
|Net realized investment gains by group:                                                                      |
|  Property/Casualty                                         52.2          52.3        232.4         138.0    |
|  Life                                                      22.0           9.2         79.0          72.9    |
|  Other                                                      3.5           1.7          1.0           3.0    |
|                                                        --------      --------     --------      --------    |
|                                                            77.7          63.2        312.4         213.9    |
|                                                        --------      --------     --------      --------    |
|Net income (loss) by group:                                                                                  |
|  Property/Casualty                                        217.1         174.4        695.0         499.7    |
|  Life                                                      44.9          33.8        156.5         146.0    |
|  Other                                                    (23.5)        (41.9)       (81.6)        (69.9)   |
|                                                        ---------     --------       -------     --------    |
|                                                       $   238.5     $   166.3    $   769.9     $   575.8    |
|=============================================================================================================|
</TABLE>

                                      (16)
<PAGE>
                            CNA FINANCIAL CORPORATION
           MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
                      AND RESULTS OF OPERATIONS - continued

Consolidated Results
--------------------

         CNA reported  earnings for the first nine months of 1996 that  continue
to  reflect  improved  operating  results  despite  weather-related  catastrophe
losses. Earnings were also boosted by substantial capital gains.

         Net operating income, which excludes net realized investment gains, was
$457.5 million,  or $7.33 per share,  for the first nine months of 1996 compared
to net operating  income of $361.9  million,  or $5.77 per share,  for the first
nine  months of 1995.  Net  operating  income for the third  quarter  was $160.8
million,  or $2.57 per share,  compared with $103.2 million, or $1.64 per share,
for the same  quarter in 1995.  CNA's income in the first nine months of 1996 is
net of pretax losses of $280.2  million  related to catastrophe  claims;  pretax
catastrophe losses in the first nine months of 1995 were $115.9 million.

         Realized  investment  gains,  net of tax,  for the first nine months of
1996  were  $312.4  million,  or  $5.05  per  share,  compared  to net  realized
investment  gains for the first nine months of 1995 of $213.9 million,  or $3.46
per share.  The components of the net realized  investment gains (losses) are as
follows:

|----------------------------------------------------------------------------|
|REALIZED INVESTMENT GAINS(LOSSES)                                           |
|NINE MONTHS ENDED SEPTEMBER 30                         1996       1995      |
|(In millions of dollars)                                                    |
|----------------------------------------------------------------------------|
|Fixed maturity securities:                                                  |
|  U.S. Government                                     $ 102.0   $  99.2     |
|  Taxable                                               109.0     (17.6)    |
|  Asset-backed                                           23.1      35.7     |
|  Tax exempt                                             13.5      23.6     |
|                                                       ------    ------     |
|     Total fixed maturity securities                    247.6     140.9     |
|Stocks                                                  148.2     126.3     |
|Derivative securities                                    11.3       0.8     |
|Separate accounts and other                              80.0      71.3     |
|                                                       ------    ------     |
|     Realized investment gains reported in revenues     487.1     339.3     |
|Participating policyholders' interest                   (11.1)     (7.6)    |
|Income tax expense                                     (163.6)   (117.8)    |
|                                                        -----     -----     |
|     Net realized investment gains                    $ 312.4   $ 213.9     |
|============================================================================|
                                   

         Net income was $769.9  million,  or $12.38 per share for the first nine
months of 1996,  compared to $575.8 million,  or $9.23 per share,  for the first
nine  months of 1995.  Net  income  for the  third  quarter  of 1996 was  $238.5
million,  or $3.83 per share,  compared with  net income of $166.3 million,  or
$2.66 per share, for the third quarter of 1995.

                                      (17)
<PAGE>
                            CNA FINANCIAL CORPORATION
           MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
                      AND RESULTS OF OPERATIONS - continued


Property/Casualty Operations
----------------------------
<TABLE>
<CAPTION>

|--------------------------------------------------------------------------------------------------------------|
|PROPERTY/CASUALTY GROUP                                 THIRD QUARTER                      NINE MONTHS        |
|PERIOD ENDED SEPTEMBER 30                           1996            1995              1996            1995    |
|(In millions of dollars)                                                                                      |
|--------------------------------------------------------------------------------------------------------------|
<S>                                              <C>              <C>              <C>              <C>  
|                                                                                                              |
|OPERATING SUMMARY (EXCLUDING NET REALIZED                                                                     |
| INVESTMENT GAINS/LOSSES):                                                                                    |
|Revenues:                                                                                                     |
|  Premiums                                       $ 2,592.8        $ 2,427.8        $ 7,579.2        $ 6,375.1 |
|  Net investment income                              444.6            460.4          1,384.3          1,226.8 |
|  Other                                              137.0            136.0            378.1            252.0 |
|                                                 ---------        ---------         --------         -------- |
|                                                   3,174.4          3,024.2          9,341.6          7,853.9 |
|Benefits and expenses                              2,978.8          2,848.9          8,740.3          7,376.2 |
|                                                 ---------        ---------         --------         -------- |
|  Income before income tax                           195.6            175.3            601.3            477.7 |
|Income tax expense                                   (30.7)           (53.2)          (138.7)          (116.0)|
|                                                 ---------        ----------        --------         ---------|
|  Net operating income  (excluding net                                                                        |
|realized investment gains/losses)                $   164.9        $   122.1        $   462.6         $  361.7 |
|==============================================================================================================|
</TABLE>
                                                                               
         Property/casualty   revenues,   excluding   net   realized   investment
gains/losses,  increased  18.9% for the nine months ended  September 30, 1996 to
$9.3 billion  compared to the same period a year ago.  Property/casualty  earned
premium  increased  $1.2  billion,  or 18.9%  from the prior  years'  comparable
period.

         The  increase  in earned  premium is due  primarily  to an  increase in
personal lines premium  resulting from  cancellation of a quota share agreement,
under  which  Continental  was  ceding  premium,  and also an  increase  in mass
marketing business. Additionally, earned premium increased with the inclusion of
Continental  business  for the full nine  months of 1996.  These  increases  are
partially offset by a decline in workers' compensation premium.

         Property/casualty profitability, as measured by pretax operating income
before  realized  gains,  continued to show  improvement  in the third  quarter.
Operating  results  reflect  continued  favorable  loss trends  particularly  in
workers'  compensation  business,  partially offset by increased weather related
catastrophe  costs.  CNA incurred  pre-tax  catastrophe  losses of approximately
$280.2  million and $72.2  million in the first nine months and third quarter of
1996 compared to $115.9 million and $37.9 million for the respective  periods in
1995. In addition,  underwriting  expenses reflect  expected  economies of scale
from merging the operations of Continental into CNA.
<PAGE>

         Pretax operating income excluding net realized investment  gains/losses
for the property/casualty  insurance  subsidiaries was $601.3 million and $195.6
million  for the first nine months and three  months  ended  September  30, 1996
compared to $477.7  million  and $175.3  million for the same period a year ago.
Investment  income  increased 12.8% for the nine months ended September 30, 1996
to $1,384.3 million from $1,226.8 million for the comparable  period a year ago.
The increase is primarily the result of inclusion of the  Continental  portfolio
for the full nine months of 1996.  This  increase  was offset in part by a lower
asset base  resulting  from operating cash outflows in 1996 and the repayment of
$250  million in long-term  debt,  as  discussed  in the  liquidity  and capital
resource  section.  Third  quarter 1996  investment  income as compared to third
quarter 1995  investment  income  decreased  3.43% to $444.6 million from $460.4
resulting  primarily from cash outflows as noted above.  The bond segment of the
investment portfolio yielded 6.6% in the first nine months of 1996 compared with
7.0% for the same period a year ago.  Underwriting losses for the nine and three
months  ended  September  30,  1996,  were $783.0  million  and $249.0  million,
compared to $749.1 million and $285.1 million for the same period in 1995.

                                      (18)
<PAGE>
                            CNA FINANCIAL CORPORATION
           MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
                      AND RESULTS OF OPERATIONS - continued


         The net  income  of  CNA's  property/casualty  insurance  subsidiaries,
excluding net realized  investment  gains/losses,  was $462.6 and $164.9 million
for the nine and three  months  ended  September  30,  1996,  compared to $361.7
million and $122.1 million for the same periods in 1995. Net realized investment
gains for the nine and three months ended September  30,1996 were $232.4 million
and  $52.2  million,  compared  to  $138.0  million  and  $52.3  million  in the
comparable periods of 1995.

         CNA's  primary  property/casualty   subsidiary,   Continental  Casualty
Company  ("Casualty"),  is  party  to  litigation  with  Fibreboard  Corporation
("Fibreboard")  involving  coverage  for  certain  asbestos-related  claims  and
defense costs (see Note E).

         On July 27,  1995,  the United  States  District  Court for the Eastern
District of Texas entered  judgment  approving the Global  Settlement  Agreement
(see  Note E for a  discussion  on the  Global  Settlement)  and the  Trilateral
Agreement. As expected,  appeals were filed as respects both of these decisions.
On July 25, 1996, a panel of the United States Fifth Circuit Court of Appeals in
New Orleans affirmed the judgment approving the Global Settlement Agreement by a
2 to 1 vote and affirmed the judgment approving the Trilateral  Agreement by a 3
to 0 vote. A petition has been filed for  re-hearing by the entire Fifth Circuit
Court of Appeals as respects the decision on the Global Settlement Agreement.

         No  further  appeal  has been  filed  with  respect  to the  Trilateral
Agreement  and CNA believes  that the time to file any such  further  appeal has
expired,  and  accordingly,  CNA believes that court  approval of the Trilateral
Agreement has become final. The  implementation of the Trilateral  Agreement has
the effect of settling  Casualty's  litigation  with  Fibreboard.  CNA currently
expects that Casualty's  litigation with Fibreboard will be dismissed during the
first quarter of 1997.
<PAGE>

Life Operations
---------------
<TABLE>
<CAPTION>
|---------------------------------------------------------------------------------------------|
|LIFE GROUP                                        THIRD QUARTER             NINE MONTHS      |
|PERIOD ENDED SEPTEMBER 30                     1996            1995       1996        1995    |
|(In millions of dollars)                                                                     |
|---------------------------------------------------------------------------------------------|
<S>                                            <C>          <C>          <C>         <C> 
|                                                                                             |
|Operating Summary (excluding net realized                                                    |
| investment gains/losses):                                                                   |
|Revenues:                                                                                    |
|  Premiums                                     $  848.6     $  775.3    $2,488.3    $2,227.0 |
|  Net investment income                            98.6         88.8       295.1       266.0 |
|  Other                                            32.7         19.1        75.1        43.0 |
|                                                -------       -------    --------    ------- |
|                                                  979.9        883.2     2,858.5     2,536.0 |
|Benefits and expenses                             944.7        845.2     2,737.2     2,423.0 |
|                                                -------       -------    --------    ------- |
|  Income before income tax                         35.2         38.0       121.3       113.0 |
|Income tax expense                                (12.3)       (13.4)      (43.8)      (39.9)|
|                                                --------     -------     --------    ------- |
|  Net operating income (excluding net                                                        |
|realized investment gains/losses)              $   22.9     $   24.6    $   77.5    $   73.1 |
|                                                                                             |
|=============================================================================================|
</TABLE>
                                                                                
         CNA continues to build on the momentum  established  last year with the
introduction of new individual life and annuities products.

              Life revenues,  excluding net realized investment gains, were $2.9
billion,  up 12.7% for the nine months ended  September 30, 1996 compared to the
same period a year ago. Life premium revenues for the third quarter in 1996 were
$979.9 million,  up 10.9% from the same quarter in 1995, with the primary growth
in both group  business  and  individual  life  business,  which  markets  term,

                                      (19)
<PAGE>
                            CNA FINANCIAL CORPORATION
           MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
                      AND RESULTS OF OPERATIONS - continued


universal life and annuities.  Investment income increased 10.9% compared to the
same  period a year ago due to a larger  asset  base  generated  from  increased
cashflows  from  premium  growth.  The  bond  segment  of  the  life  investment
portfolio,  which is the primary investment  segment,  yielded 6.7% in the first
nine months of 1996 compared with 7.0% for the same period a year ago.

         Pretax operating income for the life insurance subsidiaries,  excluding
net realized investment  gains/losses,  was $121.3 million and $35.2 million for
the nine and three months ended  September 30, 1996,  compared to $113.0 million
and $38.0 million for the same period in 1995.

         CNA's life insurance  subsidiaries'  net income  excluding net realized
investment  gains/losses  was $77.5  million and $22.9  million for the nine and
three  months  ended  September  30, 1996  compared  to $73.1  million and $24.6
million for the same period in 1995. Net realized  investment gains for the nine
and three months ended  September 30, 1996 were $79.0 million and $22.0 million,
compared to $72.9 million and $9.2 million for the same periods of 1995.

                                      (20)
<PAGE>
                            CNA FINANCIAL CORPORATION
           MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
                      AND RESULTS OF OPERATIONS - continued


INVESTMENTS:
<TABLE>
<CAPTION>
|---------------------------------------------------------------------------------|-------------------------------|
|Summary of General Account Investments at Market Value                           |Nine months ended September 30 |
|                                                                                 |             1996              |
|                                                                                 |----------------|--------------|
|                                                                                 |    CHANGE IN   |              |
|                                                      SEPTEMBER 30  DECEMBER 31  |  NET UNREALIZED|   REALIZED   |
|(In millions of dollars)                                  1996         1995      |  GAINS(LOSSES) | GAINS(LOSSES)|
|---------------------------------------------------------------------------------|----------------|--------------|
<S>                                                    <C>          <C>                 <C>             <C>
|                                                                                 |                |              |
|Fixed maturity securities:                                                       |                |              |
|U. S. Treasury securities and                                                    |                |              |
|  obligations of government agencies                   $   9,948    $  13,542    |    $   (564)   |     $ 102    |
|Asset-backed securities                                    6,045        6,086    |        (218)   |        14    |
|Tax exempt securities                                      4,147        3,603    |         (90)   |        23    |
|Taxable                                                    6,898        7,214    |        (207)   |       109    |
|                                                        --------     --------    |       ------   |      ----    |
|   Total fixed maturity securities                        27,038       30,445    |      (1,079)   |       248    |
|Stocks                                                       975          918    |          15    |       148    |
|Short-term investments and other                           6,855        4,482    |           -    |        (5)   |
|Derivative security investments                                1           41    |           -    |        11    |
|                                                        --------     --------    |       ------   |      ----    |
|   Total investments                                   $  34,869    $  35,886    |      (1,064)   |       402    |
|                                                        ========     ========    |                |              |
|Separate accounts and discontinued operations                                    |        (116)   |        85    |
|Participating policyholders' interest                                            |          21    |       (11)   |
|Income tax  benefit (expense)                                                    |         369    |      (164)   |
|                                                                                 |       ------   |      -----   |
|   Net investment (losses) gains                                                 |    $   (790)   |     $ 312    |
|                                                                                 |       ======   |      ====    |    
|---------------------------------------------------------------------------------|----------------|--------------|
                                                                                                                    
|---------------------------------------------------------------------------------|                               
|SHORT-TERM INVESTMENTS:                                                          |
|---------------------------------------------------------------------------------|
|Security repurchase collateral                           $  603      $   776     |
|Escrow  account                                           1,066        1,045     |
|Other                                                     4,493        1,904     |
|                                                          -----        -----     |
|   Total short-term investments                          $6,162      $ 3,725     |
|                                                          =====        =====     |
|                                                                                 |
|---------------------------------------------------------------------------------|
</TABLE>

         CNA's  general  account  investment  portfolio  is managed to  maximize
after-tax  investment  return,  while minimizing  credit risks, with investments
concentrated  in high quality  securities to support its insurance  underwriting
operations.

         CNA has the capacity to hold its fixed maturity  portfolio to maturity.
However,  securities may be sold as part of CNA's asset/liability  strategies or
to take  advantage of investment  opportunities  generated by changing  interest
rates,  prepayments,  tax and credit  considerations,  or other similar factors.
Accordingly, the fixed maturity securities are classified as available for sale.
<PAGE>

         CNA holds a relatively small amount of derivative financial instruments
for purposes of enhancing income and total return. The derivative securities are
marked-to-market  with valuation  changes reported as realized  investment gains
and losses. CNA's investment in, and risk in relation to, derivative  securities
is not significant.

                                      (21)
<PAGE>
                            CNA FINANCIAL CORPORATION
           MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
                      AND RESULTS OF OPERATIONS - continued

         The  general  account  portfolio  consists  primarily  of high  quality
marketable fixed maturity  securities,  approximately  96% of which are rated as
investment  grade. At September 30, 1996,  tax-exempt  securities and short-term
investments,   excluding   collateral  for  securities  sold  under   repurchase
agreements,  comprised  approximately 12% and 16%, respectively,  of the general
account's total investment  portfolio compared to 10% and 8%,  respectively,  at
December 31, 1995. Historically, CNA has maintained short-term assets at a level
that  provided for  liquidity  to meet its  short-term  obligations,  as well as
reasonable  contingencies  and anticipated  claim payout  patterns.  The current
level of short-term  investments is anticipated to cover an increased  volume of
Fibreboard  claim payments (see Note E) resulting from the final approval of the
Trilateral  Agreement,  as well  as  settlement  of  security  transactions.  At
September 30, 1996, the major components of the short-term  investment portfolio
consist  primarily  of  high-grade  commercial  paper and U.S.  Treasury  bills.
Collateral  for  securities  sold under  repurchase  agreements  decreased  $173
million to $603 million at September  30, 1996 from $776 million at December 31,
1995.

         As of September  30, 1996,  the market value of CNA's  general  account
investments  in fixed  maturities  was $27.0 billion and was less than amortized
cost by  approximately  $20  million.  This  compares to a market value of $30.4
billion and $1,059  million of net unrealized  investment  gains at December 31,
1995. The gross  unrealized  investment  gains and losses for the fixed maturity
securities  portfolio at September 30, 1996, were $351 million and $371 million,
respectively,  compared to $1,136  million  and $77  million,  respectively,  at
December  31,  1995.  The  change in  unrealized  investment  gains on the fixed
maturity  portfolio of $1,079  million for the nine months ended  September  30,
1996 is  attributable,  in large part, to increases in interest rates which have
an adverse effect on bond prices.

         Net unrealized investment losses on general account fixed maturities at
September 30, 1996 include net unrealized  losses on high yield securities of $1
million,  compared to net unrealized  gains of $67 million at December 31, 1995.
The  change  in  unrealized   investment  gains  on  high  yield  securities  is
attributable to increases in interest rates which have an adverse effect on bond
prices.  High yield securities are bonds rated as below investment grade by bond
rating agencies,  plus private placements and other unrated securities which, in
the opinion of management, are below investment grade. Fair values of high yield
securities  in the general  account  were $1.2  billion at  September  30, 1996,
compared to $1.9 billion at December 31, 1995.

         CNA's general  account also maintains an equity  securities  portfolio,
the fair value of which was $975 million at September  30, 1996 compared to cost
of $778 million reflecting  unrealized gains of approximately $197 million.  The
fair value of the equity  securities  portfolio in the general  account was $918
million at December  31, 1995  compared  to a cost of $736  million,  reflecting
unrealized appreciation of approximately $182 million.

         At September  30, 1996,  total  separate  account cash and  investments
amounted to $5.7 billion with taxable  fixed  maturity  securities  representing
approximately  83% of the separate  accounts'  portfolio.  Approximately  80% of
separate account  investments are used to fund guaranteed  investments 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 portfolio are matched approximately with the corresponding
payout pattern of the liabilities of the guaranteed  investment  contracts.  The
fair  value  of all  fixed  maturity  securities  in the  guaranteed  investment
portfolio  was $4.0 billion  compared to $4.8  billion at December 31, 1995.  At
September  30,  1996,  amortized  cost  was  greater  than  the  fair  value  by
approximately $26 million. This compares to an unrealized gain of $53 million at

                                      (22)
<PAGE>
                            CNA FINANCIAL CORPORATION
           MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
                      AND RESULTS OF OPERATIONS - continued

December  31, 1995.  The gross  unrealized  investment  gains and losses for the
guaranteed investment fixed maturity securities portfolio at September 30, 1996,
were $56 million and $82 million, respectively.

         Carrying values of high yield  securities in the guaranteed  investment
portfolio were $603 million at September 30, 1996 and $944 million  December 31,
1995. Net unrealized  investment  losses on such high yield securities held were
$34 million at September 30, 1996, compared to $14 million at December 31, 1995.

         High yield securities  generally  involve a greater degree of risk than
that  of  investment  grade  securities.   Expected  returns  should,   however,
compensate for the added risk. The risk is also  considered in the interest rate
assumptions  in the  underlying  insurance  products.  As of September 30, 1996,
CNA's  concentration  in  high  yield  bonds  including  separate  accounts  was
approximately  3% of total  assets.  In addition,  CNA's  investment in mortgage
loans and investment real estate are  substantially  below the industry average,
representing less than one half of one percent of its total assets.

         Included in CNA's  fixed  maturity  securities  at  September  30, 1996
(general and guaranteed investment  portfolios) are $8.3 billion of asset-backed
securities,   consisting  of  approximately  36%  in   collateralized   mortgage
obligations  ("CMO's"),  12% in corporate asset-backed  obligations,  and 42% in
U.S. Government issued pass-through certificates. The majority of CMO's held are
U.S.  Government agency issues,  which are actively traded in liquid markets and
are priced monthly by  broker-dealers.  At September 30, 1996, the fair value of
asset-backed  securities  was more  than  amortized  cost by  approximately  $69
million compared to unrealized  investment gains of $200 million at December 31,
1995.  CNA limits the risks  associated  with  interest  rate  fluctuations  and
prepayment by  concentrating  its CMO investments in early planned  amortization
classes with relatively short principal repayment windows.

         Over the last few years,  much  concern has been raised  regarding  the
quality of insurance  company invested assets. At September 30, 1996, 56% of the
general  account's  fixed  maturity  securities  portfolio  was invested in U.S.
Government  securities,  25% in other AAA rated  securities  and 11% in AA and A
rated securities.  CNA's guaranteed investment portfolio includes fixed maturity
securities comprised of 38% U.S. Government  securities,  18% in other AAA rated
securities  and 15% in AA and A rated  securities.  These  ratings are primarily
from Standard & Poor's.
<PAGE>

FINANCIAL CONDITION:

|----------------------------------------------------------------------------|
|Financial Position                               September 30   December 31 |
|(In millions of dollars, except per share data)        1996          1995   |
|----------------------------------------------------------------------------|
|                                                                            |
|Assets                                              $60,795.1      $59,901.8|
|Stockholders' Equity                                  6,710.8        6,735.5|
|Unrealized Net Appreciation (Depreciation)                                  |
|  Included in Stockholders' Equity                      143.1          933.1| 
|Book Value per Common Share                            106.17         106.56|
|----------------------------------------------------------------------------|
                                                                          
         CNA's assets increased  approximately  $900 million to $60.8 billion as
of September 30, 1996. CNA's investment  portfolio  decreased by $1.0 billion to
$34.9 billion  reflecting a reduction in pretax unrealized gains of $1.2 billion
from December 31, 1995 as discussed in the investments section above.

         Debt  security  carrying  values are highly  susceptible  to changes in
interest rates and were  unfavorably  affected by a general increase in interest

                                      (23)
<PAGE>
                            CNA FINANCIAL CORPORATION
           MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
                      AND RESULTS OF OPERATIONS - continued

rates  that  occurred  in the  latter  part of the  first  quarter  of 1996  and
continued throughout the second quarter. Interest rates declined somewhat in the
third quarter of 1996 resulting in an increase in net unrealized appreciation of
approximately $100 million for the quarter.

         The statutory surplus of the property/casualty  subsidiaries  increased
3.1% in the  first  nine  months  of 1996 to  approximately  $5.9  billion.  The
statutory surplus of the life insurance subsidiaries remained at $1.1 billion.

         CNA and the  insurance  industry  are  exposed to an unknown  amount of
liability for  environmental  pollution,  primarily  related to toxic waste site
clean-up.  Refer  to Note E of  Notes to the  Condensed  Consolidated  Financial
Statements for further discussion of environmental pollution exposures.

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 first nine months of 1996, CNA's operating activities used cash
flows of  approximately  $65 million,  compared  with positive cash flow of $409
million in 1995.  The  decrease  is  primarily  the result of cash flows used by
underwriting activities including higher payments for catastrophe related losses
and as discussed in Note E, increased settlement of environmental  pollution and
asbestos  related claim exposures  resulting in a large volume of claim payments
in 1996.  Also  contributing  to the decreased  operating cash flow is increased
interest  payments on  acquisition  debt for the full nine month  period in 1996
compared to approximately five months in 1995.

         Net cash flows from  operations  are  generally  invested in marketable
securities.  Investment  strategies  employed  by CNA's  insurance  subsidiaries
consider the cash flow  requirements of the insurance  products sold and the tax
attributes of the various types of marketable investments.

         To finance the acquisition of Continental (including the refinancing of
$205 million of  Continental  debt) CNA entered into a five-year  $1.325 billion
revolving credit facility. The average interest rate on the borrowings under the
revolving  credit  facility  at  September  30,  1996 was  5.66%.  In 1996,  CNA
renegotiated  the credit facility  extending the maturity by one year. Under the
terms of the  facility,  CNA may prepay  the debt  without  penalty,  giving CNA
flexibility to arrange longer-term financing on more favorable terms.

         To offset  the  variable  rate  characteristics  of the  facility,  CNA
entered into five-year  interest rate swap agreements with several banks.  These
agreements  convert  variable rate debt into fixed rate debt  resulting in fixed
rates on notional  amounts of $1.2  billion.  The effect of these  interest rate
swaps was to increase  interest expense by $1.9 million and $5.6 million for the
quarter and nine months ended September 30, 1996.

         In 1995, to take  advantage of favorable  interest  rate  spreads,  CNA
established a Commercial Paper Program, borrowing $500 million from investors to
replace a like  amount of bank  financing.  In the first nine months of 1996 CNA
increased commercial paper borrowings by $175 million replacing a like amount of
bank financing.  The weighted-average yield on commercial paper at September 30,
1996 was 5.66%.  The commercial  paper borrowings are classified as long-term as

                                      (24)
<PAGE>
                            CNA FINANCIAL CORPORATION
           MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
                      AND RESULTS OF OPERATIONS - continued

$675  million of the  committed  bank  facility  supports the  commercial  paper
program.

         The weighted-average  interest rate (interest and facility fees) on the
acquisition debt, which includes the revolving credit facility, commercial paper
and the effect of the interest rate swaps, was 6.36% at September 30, 1996.

         On March 1,  1996,  CNA  repaid at the due date $250  million of 8 5/8%
senior notes.

The chart  below  lists the  current  insurance  ratings  for CNA's  Continental
Casualty Company Intercompany Pool,  Continental  Insurance Company Intercompany
Pool and Continental Assurance Company. Also shown are the ratings on the senior
debt of both CNA Financial  Corporation  (CNA) and The  Continental  Corporation
(Continental) and CNA's commercial paper and preferred stock.


<TABLE>
<CAPTION>
<S>                <C>         <C>         <C>        <C>         <C>         <C>        <C>


|-----------------|----------------------------------|------------------------------------------------|
|                 |         INSURANCE RATINGS        |             DEBT AND STOCK RATINGS             |
|                 |----------------------------------|------------------------------------------------|
|                 |         Financial Strength       |                                                |
|                 |----------|-----------|-----------|                                                |
|                 |          |           |           |                  CNA             | Continental |
|                 |          |           |           |-----------|-----------|----------|-------------|
|                 |          |           |           |Senior Debt|Commercial |Preferred |Senior Debt  |
|                 |  CCC     |   CAC     |  CIC      |           |  Paper    |  Stock   |             |
|                 |----------|-----------|-----------|           |           |          |             |
|                 |          |           |           |-----------|-----------|----------|-------------|
|                 |          |           |           |           |           |          |             |
|A.M. Best        |   A      |    A      |   A-      |     -     |    -      |    -     |     -       |
|                 |          |           |           |           |           |          |             |
|                 |          |           |           |           |           |          |             |
|Moody's          |   A1     |    A1     |   A2      |    A3     |    P2     |    a3    |   Baa1      |
|                 |          |           |           |           |           |          |             |
|                 |----------|-----------|-----------|           |           |          |             |
|                 |       Claims Paying Ability      |           |           |          |             |
|                 |----------|-----------|-----------|           |           |          |             |
|                 |          |           |           |           |           |          |             |
|Standard & Poor's|   A+     |    AA     |   A-      |    A-     |    A2     |    A-    |   BBB-      |
|                 |          |           |           |           |           |          |             |
|                 |          |           |           |           |           |          |             |
|Duff & Phelps    |  AA-     |    AA     |   -       |    A-     |    -      |    A-    |     -       |
|-----------------|----------|-----------|-----------|-----------|-----------|----------|-------------|
|                 |          |           |           |           |           |          |             |
|-----------------|----------|-----------|-----------|-----------|-----------|----------|-------------|
</TABLE>

                                      (25)
<PAGE>
                            CNA FINANCIAL CORPORATION
           MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
                      AND RESULTS OF OPERATIONS - concluded

Accounting Standards:

     In March 1995,  the  Financial  Accounting  Standards  Board (FASB)  issued
Statement of Financial  Accounting  Standards  (SFAS) 121,  "Accounting  for the
Impairment of Long-Lived  Assets and for  Long-Lived  Assets to be Disposed Of".
This Statement establishes accounting standards for the impairment of long-lived
assets, certain identifiable  intangibles,  and goodwill related to those assets
to be held and used for long-lived assets and certain  identifiable  intangibles
to be disposed of. This statement  requires that  long-lived  assets and certain
identifiable  intangibles  to be held and used by the  entity  be  reviewed  for
impairment  whenever  events  or  changes  in  circumstances  indicate  that the
carrying  amount of an asset may not be recoverable.  This Statement  applies to
financial  statements for fiscal years  beginning  after December 15, 1995. This
Statement did not have a significant impact on CNA.

     In October  1995,  the FASB issued SFAS 123,  "Accounting  for  Stock-Based
Compensation."  This Statement  establishes  financial  accounting and reporting
standards for stock-based employee  compensation plans. The requirements of this
Statement  will  generally  be effective  for 1996  financial  statements.  This
Statement  has no impact on the results of  operations of CNA as the Company has
no compensation which qualifies.

     In June 1996,  the FASB  issued SFAS 125,  "Accounting  for  Transfers  and
Servicing of Financial Assets and Extinguishment of Liabilities." This Statement
establishes   accounting   standards  based  on  consistent   application  of  a
financial-components  approach  that  focuses on control.  Under that  approach,
after a transfer of financial  assets,  an entity  recognized  the financial and
servicing  assets it controls and the liabilities it has incurred,  derecognizes
financial assets when control has been surrendered, and derecognizes liabilities
when  extinguished.   The  statement  also  provides  consistent  standards  for
distinguishing  transfers of financial assets that are sales from transfers that
are secured borrowings. This Statement is effective for transfers and serving of
financial assets and extinguishments of liabilities occurring after December 31,
1996,  and is to be  applied  prospectively.  This  Statement  will  not  have a
significant impact on CNA.

                                      (26)

<PAGE>
                           CNA FINANCIAL CORPORATION

                            PART II OTHER INFORMATION


Item 6. Exhibits and Reports on Form 8-K

(a)  EXHIBITS:

                  Description of Exhibit
                                                        Exhibit       Page
                                                        Number       Number

(11)  Computation of Net Income per Common Share          11           29
(27)  Financial Data Schedule                             27           30

(b)  REPORTS ON FORM 8-K:
         There were no reports on Form 8-K for the three months ended  September
30, 1996.

                                      (27)
<PAGE>

                            CNA FINANCIAL CORPORATION

                      PART II OTHER INFORMATION - Concluded

                                   SIGNATURES


Pursuant  to the  requirements  of the  Securities  Exchange  Act of  1934,  the
registrant  has duly  caused  this  report  to be  signed  on its  behalf by the
undersigned thereunto duly authorized.


                                 CNA FINANCIAL CORPORATION


Date:  November 14, 1996         By: S/PETER E. JOKIEL
       -----------------             --------------------------
                                      Peter E. Jokiel
                                      Senior Vice President and
                                      Chief Financial Officer



                                      (28)
<PAGE>
                                                        
<TABLE>
<CAPTION>                                                                                                         
                                                                                                 EXHIBIT 11
                                              CNA FINANCIAL CORPORATION
                                     COMPUTATION OF NET INCOME PER COMMON SHARE

------------------------------------------------------------------------------------------------------------
Period Ended September 30                                    Third Quarter                Nine Months
(In millions, except per share data)                       1996          1995          1996          1995
------------------------------------------------------------------------------------------------------------
<S>                                                      <C>          <C>          <C>           <C>   
Earnings per share:

   Net income .......................................     $ 238.5      $ 166.3      $ 769.9       $  575.8
   Less preferred stock dividends....................         1.6          1.3          4.6            5.1
                                                            -----        -----        -----         ------
   Net income available to common stockholders.......     $ 236.9      $ 165.0      $ 765.3       $  570.7
                                                           ======       ======       ======         ======

   Weighted average shares outstanding...............        61.8         61.8         61.8           61.8
                                                           ======       ======       ======         ======

   Net income per common share.......................     $  3.83      $  2.66      $ 12.38       $   9.23
                                                           ======       ======       ======         ======
------------------------------------------------------------------------------------------------------------
</TABLE>

                                      (29)