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 JUNE 30, 1997 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 AUGUST 1, 1997
------------------------------                     -----------------------------
Common Stock, Par value $2.50                               61,798,262

--------------------------------------------------------------------------------
                                Page (1) of (27)
<PAGE>
                            CNA FINANCIAL CORPORATION

                                      INDEX


PART I.   FINANCIAL INFORMATION                                         PAGE NO.

CONDENSED CONSOLIDATED FINANCIAL STATEMENTS:

   CONSOLIDATED BALANCE SHEET
     JUNE 30, 1997 (Unaudited) and DECEMBER 31, 1996...................       3

   STATEMENT OF CONSOLIDATED OPERATIONS (Unaudited)
     FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 1997 AND 1996.........       4

   STATEMENT OF CONDENSED CONSOLIDATED STOCKHOLDERS' EQUITY (Unaudited)
     FOR THE SIX MONTHS ENDED JUNE 30, 1997 AND 1996...................       5

   STATEMENT OF CONSOLIDATED CASH FLOWS (Unaudited)
     FOR THE SIX MONTHS ENDED JUNE 30, 1997 AND 1996...................       6

   NOTES TO CONDENSED CONSOLIDATED FINANCIAL
     STATEMENTS (Unaudited) JUNE 30, 1997..............................       7

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
     AND RESULTS OF OPERATIONS.........................................      14


PART II.  OTHER INFORMATION

ITEM 4.      SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.......      23

ITEM 6.      EXHIBITS AND REPORTS ON FORM 8-K..........................      24

SIGNATURES.............................................................      25

EXHIBIT 11   COMPUTATION OF NET INCOME PER COMMON SHARE................      26

EXHIBIT 12.1 COMPUTATION OF RATIO OF EARNINGS
                         TO FIXED CHARGES..............................      27

EXHIBIT 12.2 COMPUTATION OF RATIO OF NET INCOME, AS ADJUSTED,
                        TO FIXED CHARGES..............................       27

EXHIBIT 27      FINANCIAL DATA SCHEDULE...............................       28

                                      (2)
<PAGE>

                            CNA FINANCIAL CORPORATION

                           CONSOLIDATED BALANCE SHEET
--------------------------------------------------------------------------------
                                                        June 30    December 31
                                                          1997         1996
(In millions of dollars)                              (Unaudited)
--------------------------------------------------------------------------------
Assets                                                                        
  Investments:                                                                
   Fixed maturities available for sale                                        
   (cost: $25,849 and $27,540)....................   $ 25,940     $   27,721  
   Equity securities available for sale                                       
   (cost: $541 and $702)..........................        657            859  
   Mortgage loans and real estate                                             
  (less accumulated depreciation: $4 and $4)......        114            123  
   Policy loans...................................        179            174  
   Other invested assets..........................        649            681  
   Short-term investments.........................      9,003          5,854  
                                                    ------------     -----------
        Total investments.........................     36,542         35,412  
   Cash...........................................        402            257  
   Insurance receivables:                                                     
      Reinsurance receivables.....................      6,599          6,965  
      Other insurance receivables.................      6,458          5,943  
      Less allowance for doubtful accounts........       (278)          (277) 
   Deferred acquisition costs.....................      2,123          1,854  
   Accrued investment income......................        427            508  
   Receivables for securities sold................        517            264  
   Federal income taxes recoverable                                           
   (includes $22 and $151 due from Loews).........         11            134  
   Deferred income taxes..........................      1,263          1,347  
   Property and equipment at cost                                              
   (less accumulated depreciation:
    $539 and $436)................................        672            645  
   Prepaid reinsurance premiums...................        249            295  
   Intangibles....................................        411            418  
   Other assets...................................      1,166            849  
   Separate Account business......................      6,023          6,121  
   -----------------------------------------------------------------------------
       Total assets                                $   62,585      $  60,735  
   =============================================================================
<PAGE>
                            CNA FINANCIAL CORPORATION

                     CONSOLIDATED BALANCE SHEET - CONTINUED
--------------------------------------------------------------------------------
                                                        June 30    December 31
                                                          1997         1996
(In millions of dollars)                              (Unaudited)
--------------------------------------------------------------------------------
Liabilities and Stockholders' Equity                                          
Liabilities:                                                                  
  Insurance reserves:                                                         
      Claim and claim expense..................... $  30,619       $  30,830  
      Unearned premiums...........................     5,107           4,659  
      Future policy benefits......................     4,526           4,181  
      Policyholders' funds........................       720             746  
  Securities sold under repurchase agreements.....     1,618             100  
  Payables for securities purchased...............     1,042             405  
  Participating policyholders' equity.............       122             119  
  Long-term debt..................................     2,763           2,765  
  Other liabilities...............................     2,705           3,749  
  Separate Account business.......................     6,023           6,121  
                                                   ----------        -----------
      Total liabilities...........................    55,245          53,675  
                                                   ----------        -----------
Stockholders' equity:                                                         
 Common stock ($2.50 par value; 
  Authorized - 200,000,000 shares;                        
  Issued - 61,841,969 shares).....................       155             155   
 Money market cumulative preferred stock.........        150             150   
 Additional paid-in capital......................        435             435   
 Retained earnings...............................      6,433           6,024   
 Net unrealized investment gains(losses).........        170             299   
 Treasury stock, at cost.........................         (3)             (3)  
                                                   ----------        -----------
      Total stockholders' equity..................     7,340           7,060   
--------------------------------------------------------------------------------
      Total liabilities and stockholders' equity.. $  62,585        $ 60,735   
================================================================================
    See accompanying Notes to Condensed Consolidated Financial Statements.

                                      (3)
<PAGE>
                            CNA FINANCIAL CORPORATION
                      STATEMENT OF CONSOLIDATED OPERATIONS
                                   (Unaudited)

--------------------------------------------------------------------------------
PERIOD ENDED JUNE 30                             SECOND QUARTER     SIX MONTHS
                                                 1997      1996   1997    1996
(In millions of dollars, except per share data)                               
--------------------------------------------------------------------------------
Revenues:                                                                     
  Premiums.....................................$  3,348  $ 3,321 $ 6,695 $ 6,614
  Net investment income........................     547      558   1,111   1,135
  Realized investment gains....................     172       73     238     378
  Other........................................     176      143     331     283
                                               ---------  ------- ------- ------
                                                  4,243    4,095   8,375   8,410
                                               ---------  ------- ------- ------
Benefits and expenses:                                                        
 Insurance claims and policyholders' benefits..   2,860    2,774   5,752   5,561
 Amortization of deferred acquisition costs....     596      484   1,116   1,057
 Other operating expenses......................     399      502     841     916
 Interest expense..............................      46       45      96     104
                                               --------- -------- ------- ------
                                                  3,901    3,805   7,805   7,638
                                               --------- -------- ------- ------
   Income before income tax...................      342      290     570     772
Income tax expense............................      107       88     158     241
                                               --------- -------- ------- ------
   Net Income                                    $  235  $   202 $   412  $  531
================================================================================
                                                                              
EARNINGS PER SHARE                                                            
------------------                                                            
Net income....................................   $ 3.78  $  3.25 $ 6.63   $ 8.55
                                                 ======   ======  ======  ======
                                                                              
Weighted average outstanding shares of                                        
common stock (in millions of shares)..........     61.8    61.8    61.8     61.8
================================================================================
See accompanying Notes to Condensed Consolidated Financial Statements(Unaudited)

                                      (4)
<PAGE>
                            CNA FINANCIAL CORPORATION
                 STATEMENT OF CONSOLIDATED STOCKHOLDERS' EQUITY
                                   (Unaudited)

-------------------------------------------------------------------------------
Six Months Ended June 30, 1997 and 1996                                        
                                                                           
                                    Additional            Net Unrealized  Total 
                           Capital  Paid in    Retained  Investment Gains  
                           Stock    Capital    Earnings      (Losses)         
                                              
(In millions of dollars)
-------------------------------------------------------------------------------
Balance, December 31, 1995 $ 302   $ 435       $5,066        $  933      $6,736 
  New Income                   -       -          531             -         531 
  Unrealized investment        -       -            -          (888)       (888)
  Preferred dividends          -       -           (3)            -          (3)
-------------------------------------------------------------------------------
Balance, June 30, 1996       302     435       $5,594        $   45      $6,376 
===============================================================================
                                                                              
Balance, December 31, 1996   302     435       $6,024        $  299      $7,060 
  Net income                   -       -          412             -         412 
  Unrealized investment        -       -            -          (129)       (129)
  Preferred dividends          -       -           (3)            -          (3)
-------------------------------------------------------------------------------
Balance, June 30, 1997     $ 302   $ 435       $6,433        $  170      $7,340 
===============================================================================
     See accompanying Notes to Condensed Consolidated Financial Statements.


                                      (5)
<PAGE>
                            CNA FINANCIAL CORPORATION

                      STATEMENT OF CONSOLIDATED CASH FLOWS

                                   (Unaudited)
                                                                                
------------------------------------------------------------------------------
Six Months Ended June 30                                1997           1996   
(In millions of dollars)                                                      
------------------------------------------------------------------------------
Cash flows from operating activities:                                         
  Net income....................................... $    412       $     531  
                                                    --------       ---------- 
  Adjustments to reconcile net income to net                                  
  cash flows from operating activities:                                         
    Net realized investment gains, pre-tax.........     (238)           (378) 
    Participating policyholders' interest..........       (1)              4  
    Amortization of intangibles....................       13              11  
    Amortization of bond discount..................     (150)            (85) 
    Depreciation...................................       93              79  
    Changes in:                                                               
       Insurance receivables, net..................     (148)           (302) 
       Deferred acquisition costs..................     (269)           (205) 
       Accrued investment income...................       81              87  
       Federal income taxes........................      123              99  
       Deferred income tax recoverable.............      115              28  
       Prepaid reinsurance premiums................       46             (36) 
       Insurance reserves..........................      564             312  
       Reinsurance payables........................      (17)            227  
       Other liabilities...........................   (1,156)            (98) 
       Other, net..................................     (138)           (387) 
                                                    ------------     ---------
         Total adjustments.........................   (1,082)           (644) 
                                                    ------------     ---------
         Net cash flows from operating activities..     (670)           (113) 
                                                    ------------     ---------
Cash flows from investing activities:                                         
  Purchases of fixed maturities....................  (17,652)        (16,864) 
  Proceeds from fixed maturities:                                             
   Sales...........................................   18,656          17,128  
   Maturities, calls and redemptions...............    1,106           1,311  
   Purchases of equity securities..................     (564)           (602) 
   Proceeds from sale of equity securities.........      781             779  
   Change in short-term investments................   (2,852)         (1,600) 
   Purchases of property and equipment.............     (130)            (91) 
   Change in securities sold under                                            
   repurchase agreements...........................    1,518             135  
                                                                              
   Change in other investments.....................       26             278  
   Investment in affiliates........................      (65)             --  
   Other, net......................................        3               2  
                                                    -----------      ---------
         Net cash flows from investing activities..      827             476  
                                                    -----------      ---------
<PAGE>
                             CNA FINANCIAL CORPORATION

                STATEMENT OF CONSOLIDATED CASH FLOWS - CONTINUED

                                   (Unaudited)    
------------------------------------------------------------------------------
Six Months Ended June 30                                1997           1996   
(In millions of dollars)                                                      
------------------------------------------------------------------------------
Cash flows from financing activities:                                         
 Dividends paid to preferred shareholders..........       (3)             (3) 
 Receipts from investment contracts credited to                             
 policyholder account balances.....................        4               9  
 Return of policyholder account balances on 
 investment contracts..............................      (11)            (18) 
 Change in short-term debt.........................       --            (255) 
 Principal payments on long-term debt..............       (3)             (1) 
 Proceeds from issuance of long-term debt..........        1               9  
                                                    -----------       --------
       Net cash flows from  financing activities...      (12)           (259) 
                                                    ------------      --------
             Net cash flows........................      145             104  
Cash at beginning of period........................      257             222  
------------------------------------------------------------------------------
Cash at end of period                               $    402          $  326  
==============================================================================
                                                                              
Supplemental disclosures of cash flow information:                            
 Cash (paid) received:                                                        
   Interest expense................................ $   (106)         $ (111) 
   Federal income taxes............................      153             (92) 
==============================================================================
     See accompanying Notes to Condensed Consolidated Financial Statements.

                                      (6)
<PAGE>

                            CNA FINANCIAL CORPORATION
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                  JUNE 30, 1997
                                   (UNAUDITED)


NOTE A.  Basis of Presentation:

         The Condensed Consolidated Financial Statements (unaudited) include CNA
Financial Corporation (CNA or the Company) and its operating  subsidiaries which
consist  of  property/casualty   insurance  companies  (principally  Continental
Casualty  Company and The  Continental  Insurance  Company)  and life  insurance
companies  (principally  Continental  Assurance  Company  and Valley  Forge Life
Insurance  Company).  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;  and  pension  and  annuity
business. CNA serves a wide spectrum of insureds, including individuals;  small,
medium and large businesses; associations; professionals and groups.

         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, 1996,  filed with the  Commission on
March 31, 1997, and the information shown below.

         The accompanying  condensed consolidated financial statements have been
prepared in conformity with generally accepted  accounting  principles.  Certain
amounts  applicable  to  prior  years  have  been  reclassified  to  conform  to
classifications followed in 1997. 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.  Restricted Investments:

         On December 30, 1993, CNA deposited $987 million in an escrow  account,
pursuant to the Fibreboard Global Settlement  Agreement,  as discussed in Note C
below. At June 30, 1997, the escrow account amounted to $1.09 billion. The funds
are included in short-term  investments and are invested  substantially in U. S.
Treasury securities. The escrow account is the prefunding mechanism to the trust
fund for future claimants.

NOTE C.  Legal Proceedings and Contingent Liabilities:

         The following  information  updates legal  proceedings  and  contingent
liabilities  reported  in  Note F of the  Notes  to the  Consolidated  Financial
Statements in the 1996 Annual Report to Shareholders.

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

FIBREBOARD LITIGATION

         CNA's  primary  property/casualty   subsidiary,   Continental  Casualty
Company ("Casualty"),  has been 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 either
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. Petitions for rehearing by the panel and
Suggestions  for  Rehearing  by the  entire  Fifth  Circuit  Court of Appeals as
respects  the  decision on the Global  Settlement  Agreement  were  denied.  Two
petitions for certiorari  were filed in the Supreme Court as respects the Global
Settlement  Agreement.  On June  27,  1997,  the  Supreme  Court  granted  these
petitions,   vacated  the  Fifth  Circuit's  judgment  as  respects  the  Global
Settlement  Agreement,  and remanded to the Fifth Circuit for reconsideration in
light of the Supreme  Court's  decision in Amchem  Products Co. v. Windsor.  The
Fifth Circuit has not yet rendered a decision on this remand.

         No further appeal was filed with respect to the  Trilateral  Agreement;
therefore, court approval of the Trilateral Agreement has become final.

Global Settlement Agreement

         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
and Pacific  Indemnity of an  aggregate  of $1.53  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  above, the Global  Settlement  approval is presently before the Fifth
Circuit on remand by order of the Supreme  Court  vacating  the Fifth  Circuit's
previous decision  approving the Global  Settlement.  There is limited precedent
for settlements which determine the rights of future claimants to seek relief.

                                      (8)
<PAGE>
                            CNA FINANCIAL CORPORATION
         NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS- CONTINUED

         Through June 30, 1997, Casualty, Fibreboard and plaintiff attorneys had
reached  settlements  with  respect  to  approximately  134,800  claims,  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  $1.53 billion was paid through June
30, 1997,  including  approximately  $590 million paid in the fourth  quarter of
1996 and the  first  quarter  of 1997 as a result  of the  Trilateral  Agreement
becoming final. 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.

         Final court approval of the Trilateral Agreement and its implementation
has  eliminated  any further  material  exposure with respect to the  Fibreboard
matter, and subsequent reserve  adjustments,  if any, will not materially affect
the results of operations or equity of CNA.

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.

ENVIRONMENTAL POLLUTION AND ASBESTOS-RELATED CLAIMS

         The CNA property/casualty  insurance companies have potential exposures
related to environmental pollution 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.

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

         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 yet been  enacted by  Congress.  While the  current  Congress  may
address this issue, no predictions can be made as to 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 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 June
30, 1997 and December 31, 1996, CNA carried  approximately $882 million and $908
million,  respectively,  of claim and claim expense reserves, net of reinsurance
recoverables,  for reported and unreported  environmental  pollution claims. The
reserves  relate 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. There was no unfavorable reserve
development for the six months ended June 30, 1997 and 1996.

         CNA  has  exposure  to   asbestos-related   claims,   including   those
attributable to the Fibreboard Claim. 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 June 30,  1997 and
December 31, 1996, CNA carried  approximately $1,516 million and $1,506 million,
respectively,   of  claim  and  claim  expense  reserves,   net  of  reinsurance
recoverable,  for reported and unreported  asbestos-related claims.  Unfavorable
reserve development for the six months ended June 30, 1997 and 1996, totaled $25
million and $26 million, respectively.
<PAGE>

         The  following   table  provides   additional  data  related  to  CNA's
environmental pollution and asbestos-related claims reserves.

|------------------------------------------------------------------------------|
|                                                                              |
|RESERVE SUMMARY                    JUNE 30, 1997           DECEMBER 31, 1996  |
|                            ------------------------  ------------------------|
|                            ENVIRONMENTAL  ASBESTOS    ENVIRONMENTAL  ASBESTOS|
|                              POLLUTION                  POLLUTION            |
|------------------------------------------------------------------------------|
|(In millions of dollars)                                                      |
|                                                                              |
|Gross reserves:                                                               |
|   Reported claims              $ 306       $ 1,517      $  289       $ 1,551 |
|   Unreported claims              659           105         714            94 |
|                                 ----         ------       ----         ----- |
|                                  965         1,622       1,003         1,645 |
|Less reinsurance recoverable      (83)         (106)        (95)         (139)|
|------------------------------------------------------------------------------|
|NET RESERVES                    $ 882       $ 1,516      $  908       $ 1,506 |
|==============================================================================|
                                                                               
                                      (10)
<PAGE>
                            CNA FINANCIAL CORPORATION
         NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS- CONTINUED


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

OTHER

         Other  reserve  development  for the six months ended June 30, 1997 and
1996  was   favorable   and   aggregated  to  $116  million  and  $267  million,
respectively.  Reserve  development  for the six  months  ended  June  30,  1997
reflects  continued  favorable claim  frequency  (rate of claim  occurrence) and
severity (average cost per claim)  experience in the workers'  compensation line
of  business as well as  favorable  experience  in the surety line of  business.
Reserve  development  for the six months ended June 30, 1996 was principally due
to favorable  experience  in workers'  compensation.  These  trends  reflect the
positive effects of changes in workers' compensation laws, or moderate increases
in medical costs, and a generally strong economy in which individuals  return to
the workplace more quickly.

         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.

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.
<PAGE>

|------------------------------------------------------------------------------|
|SIX MONTHS ENDED JUNE 30               EARNED PREMIUMS                        |
|                          -----------------------------------------  ASSUMED/ |
|                                                                       NET    |
|(In millions of dollars)    DIRECT     ASSUMED     CEDED       NET      %     |
|------------------------------------------------------------------------------|
|                                                                              |
|1997                                                                          |
|     Life                    $  435      $  61     $  57    $   439    13.8  %|
|     Accident and health      1,859         57        65      1,851     3.1   |
|     Property and casualty    4,304        560       459      4,405    12.7   |
|------------------------------------------------------------------------------|
|          TOTAL PREMIUMS     $6,598      $ 678     $ 581    $ 6,695    10.1  %|
|==============================================================================|
|                                                                              |
|1996                                                                          |
|     Life                    $  354      $  57     $  15    $   396    14.5  %|
|     Accident and health      1,661         90        34      1,717     5.2   |
|     Property and casualty    4,249      1,003       751      4,501    22.3   |
|------------------------------------------------------------------------------|
|          TOTAL  PREMIUMS    $6,264     $1,150     $ 800    $ 6,614    17.4  %|
|==============================================================================|
                                                                         
                                      (11)
<PAGE>
                            CNA FINANCIAL CORPORATION
         NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS- CONTINUED

         In the  table  above,  life  premium  revenue  is  from  long  duration
contracts,  property/casualty  earned premium is from short duration  contracts,
and approximately three-quarters of accident and health earned premiums are from
short duration contracts.

         Insurance  claims and  policyholders'  benefits are net of  reinsurance
recoveries  of $394  and $604  million  at June  30,  1997  and  June 30,  1996,
respectively.

NOTE E. Debt:

Long-term borrowings consisted of the following:
|----------------------------------------------------------------------------|
|LONG-TERM DEBT                                         JUNE 30   DECEMBER 31|
|(In millions of dollars)                                1997         1996   |
|----------------------------------------------------------------------------|
|                                                                            |
|   Variable Rate Debt:                                                      |
|       Credit Facility                              $    400     $    400   |
|       Commercial Paper                                  675          675   |
|   Senior Notes:                                                            |
|       8 7/8%, due March 1, 1998                         150          150   |
|       8 1/4%, due April 15, 1999                        102          102   |
|       7 1/4%, due March 1, 2003                         146          146   |
|       6 1/4%, due November 15, 2003                     249          248   |
|      6 3/4%, due November 15, 2006                      248          248   |
|       8 3/8%, due August 15, 2012                        98           98   |
|   7 1/4% Debenture, due November 15, 2023               247          247   |
|   11% Secured Mortgage Notes, due June 20, 2013         387          387   |
|   6.90% - 16.29%  Secured  Capital  Leases,                                |
|    due December 31, 2011                                 46           47   |
|   Other                                                  15           17   |
|----------------------------------------------------------------------------|
|  TOTAL LONG-TERM DEBT                              $  2,763     $   2,765  |
|============================================================================|
                                                           
         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.  In 1996,  the company  renegotiated  the facility,
extending the maturity to May 2001.  The interest rate for the facility is based
on  the  London   Interbank   Offered  Rate  (LIBOR),   plus  16  basis  points.
Additionally,  there is a facility fee of 9 basis points  annually.  The average
interest rate on the  borrowings  under the revolver at June 30, 1997 was 5.83%.
Under the terms of the facility, CNA may prepay the debt without penalty.

         On November 15, 1996,  CNA issued $250 million of 6 3/4% senior  notes,
due November 15, 2006. The net proceeds from this issuance of approximately $248
million were used to pay down a portion of the borrowings  outstanding under the
revolving credit facility. As a result of this debt issuance, borrowing capacity
under the  revolving  credit  facility  was  reduced  by $250  million to $1.075
billion.  Concurrent  with the paydown of $250 million on the  revolving  credit
facility,  CNA terminated  interest rate swaps with a total  notional  amount of
$250 million.

         An additional $250 million of securities  remain available for issuance
under a shelf registration.

         CNA maintains a Commercial Paper Program to take advantage of favorable
interest  rate  spreads.  The  commercial  paper  borrowings  are  classified as
long-term  as $675  million of the  committed  bank  facility  will  support the
commercial paper program. The weighted-average yield on commercial paper at June
30, 1997 was 5.92%.
<PAGE>

         As of August 1, 1997, the outstanding  loans under the revolving credit
facility were $400 million.  There was no unused  borrowing  capacity  under the
facility after the effects of the commercial paper program.

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

         To offset  the  variable  rate  characteristics  of the  facility,  CNA
entered into  interest  rate swap  agreements  with several banks having a total
notional principal amount of $950 million.  These agreements  terminate from May
to December  2000.  These  agreements  provide  that CNA pay interest at a fixed
rate,  averaging 6.20% at June 30, 1997, in exchange for the receipt of interest
at the three month LIBOR rate.  The effect of these  interest  rate swaps was to
increase  interest  expense by $2.3  million  for the six months  ended June 30,
1997.

         The weighted  average interest rate (interest and facility fees) on the
variable rate acquisition debt, which includes the revolving credit facility and
commercial  paper was 6.32% at June 30, 1997.  This rate  reflects the effect of
the interest rate swaps.

NOTE F. Pending Acquisition

         In the fourth quarter of 1996, CNA entered into a merger agreement with
Capsure  Holdings  Corp.  (Capsure)  to form a new  stock  company,  CNA  Surety
Corporation.  CNA will be the  majority  shareholder  of the new company  owning
approximately  62% of the shares.  The remaining shares will be held by existing
Capsure  shareholders and option holders.  The transaction will be accounted for
as a  purchase  and is  expected  to close in the  third  quarter  of 1997.  The
transaction  closing is subject to the  approvals  of the Capsure  shareholders,
state   insurance   regulators,   certain   governmental   authorities  and  the
satisfaction  of certain  other  conditions.  Until the required  approvals  are
received and the transaction is complete, the companies will continue to operate
independently.

         Capsure  provides  surety  and  fidelity  bonds  nationwide through its
subsidiaries  Western Surety Company and Universal Surety of America.  Capsure's
revenues for the year ended December 31, 1996 were  approximately  $111 million.
Total assets were approximately $313 million at December 31, 1996.

                                      (13)
<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
13, which contain additional information helpful in evaluating operating results
and financial condition.

         CNA is one of the largest commercial insurers in the United States, the
third  largest  property-casualty  company and the  twenty-second  largest  life
insurance  company in the country,  based on 1996 net written premium.  Based on
market  share,  CNA ranks  first among  United  States  insurers  in  commercial
affiliation marketing, commercial multiple peril, personal packages, surety, and
ocean marine; second in commercial auto, general liability, medical malpractice,
federal  employees health benefit plans,  multiple peril crop,  offshore energy,
accounts receivable credit; third in automobile warranty,  directors & officers,
farmowners multiple peril,  recreational  watercraft and workers'  compensation;
and sixth in  reinsurance in the United  States.  In addition,  CNA ranks first,
second or third for various  errors & omissions  coverages  for  architects  and
engineers, accountants, lawyers and other professionals.
<PAGE>

RESULTS OF OPERATIONS:

         The following chart summarizes key components of operating  results for
the six months and quarter ended June 30, 1997 and 1996.
<TABLE>
<CAPTION>
|------------------------------------------------------------------------------------------------|
|PERIOD ENDED JUNE 30                                  SECOND QUARTER               SIX MONTHS   |
|(In millions of dollars)                             1997        1996           1997      1996  |
|------------------------------------------------------------------------------------------------|
|OPERATING SUMMARY (EXCLUDING REALIZED INVESTMENT                                                |
|   GAINS/LOSSES):                                                                               |
|Revenues:                                                                                       |
|  Premiums:                                                                                     |
<S>                                                <C>         <C>            <C>      <C>        
|    Property/Casualty                             $ 2,529     $ 2,479        $ 5,000   $ 4,987  |
|    Life                                              819         842          1,695     1,627  |
|                                                   ------      ------         ------     -----  |
|                                                    3,348       3,321          6,695     6,614  | 
|  Net investment income                               547         558          1,111     1,135  |
|  Other                                               176         143            331       283  |
|                                                   ------      ------         ------     -----  |
|                                                    4,071       4,022          8,137     8,032  |
|Benefits and expenses                               3,900       3,805          7,800     7,625  |
|                                                   ------      ------         ------     -----  |
|  Operating income before income tax                  171         217            337       407  |
|                                                      (45)        (66)           (75)     (110) |
|Income tax expense                                 ------      ------          -----     -----  |
|  Net operating income                            $   126     $   151        $   262   $   297  |
|                                                   ------      ------          -----     -----  |
|SUPPLEMENTAL FINANCIAL DATA:                                                                    |
|Net operating income (loss) by group:                                                           |
|  Property/Casualty                               $   125     $   146        $   264   $   298  | 
|  Life                                                 24          26             47        55  |
|  Other, primarily interest expense                   (23)        (21)           (49)      (56) |
|                                                    -----       -----          -----     ------ |
|                                                      126         151            262        297 |
|                                                    -----        ----          -----     ------ |
|Net realized investment gains (losses) by group:                                                |             
|  Property/Casualty                                    82          46             94        180 |
|  Life                                                 26           8             44         57 |
|  Other                                                 1          (4)            12         (3)|
|                                                    ------      -----          -----     ------ |
|                                                      109          50            150        234 |
|                                                    ------      -----          -----     ------ |
|Net income (loss) by group:                                                                     |
|  Property/Casualty                                   207         192            358        478 |
|  Life                                                 50          34             90        111 |
|  Other, primarily interest expense                   (22)        (24)           (36)       (58)|
|                                                    ------      -----          -----     ------ |
|                                                  $   235     $   202        $   412   $    531 |
|                                                                                                |
|================================================================================================|
</TABLE>
                                                    

                                      (14)
<PAGE>
                            CNA FINANCIAL CORPORATION
           MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
                      AND RESULTS OF OPERATIONS - CONTINUED

Consolidated Results

         Consolidated  revenues  for the first six  months of both 1997 and 1996
were  approximately  $8.4  billion.  Consolidated  revenues  excluding  realized
investment  gains,  increased  to $8.1  billion  for the  first  half of 1997 as
compared to $8.0  billion for the first half of 1996.  For the first six months,
revenues  reflect  an  increase  of $81  million  (1.2%) in earned  premiums,  a
decrease  of $25  million  (2.2%) in  investment  income and an  increase of $48
million (16.9%) in other income.

         Net operating income, which excludes net realized investment gains, for
the first half of 1997 was $262  million,  or $4.19 per share,  compared  to net
operating  income of $297 million,  or $4.76 per share, for the first six months
of 1996. Net operating income for the second quarter was $126 million,  or $2.01
per share,  compared with $152 million, or $2.44 per share, for the same quarter
in 1996.  CNA's income in the first half of 1997 is net of pretax  losses of $76
million related to catastrophe  claims;  pretax  catastrophe losses in the first
half of 1996 were $208 million.

         Realized  investment gains, net of tax, for the first half of 1997 were
$150 million, or $2.44 per share,  compared to net realized investment gains for
the first half of 1996 of $234 million,  or $3.79 per share.  The  components of
the net realized investment gains (losses) are as follows:

|--------------------------------------------------------------------------|
|REALIZED INVESTMENT GAINS(LOSSES)                                         |
|SIX MONTHS ENDED JUNE 30                                  1997       1996 |
|(In millions of dollars)                                                  |
|--------------------------------------------------------------------------|
|Bonds:                                                                    |
|  U.S. Government                                        $  49     $ 112  |
|  Tax exempt                                                 2        10  |
|  Asset-backed                                               9        21  |
|  Taxable                                                   84        45  |
|                                                        ------     -----  |
|     Total bonds                                           144       188  |
|                                                                          |
|Stocks                                                      39       129  |
|Derivative securities                                       (1)       12  |
|Separate accounts and other                                 55        49  |
|                                                         ------    -----  |
|     Realized investment gains  reported in revenues       237       378  |
|Participating policyholders' interest                       (5)      (13) |
|Income tax expense                                         (82)     (131) |
|                                                         ------    -----  |
|     Net realized investment gains                                        |
|                                                         $ 150     $ 234  |
|==========================================================================|
                                                                              

         Net  income was $412  million,  or $6.63 per  share,  compared  to $531
million,  or $8.55 per share,  for the first six months of 1996.  Net income for
the second  quarter was $235  million,  or $3.78 per share,  compared with a net
income of $202 million, or $3.25 per share, for the second quarter of 1996.

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

Property/Casualty Operations
|------------------------------------------------------------------------------|
|PROPERTY/CASUALTY GROUP                       SECOND QUARTER      SIX MONTHS  |
|PERIOD ENDED JUNE 30                          1997     1996     1997    1996  |
|(In millions of dollars)                                                      |
|------------------------------------------------------------------------------|
|OPERATING SUMMARY (EXCLUDING REALIZED                                         |
|INVESTMENT GAINS/LOSSES):                                                     |
|Revenues:                                                                     |
|  Premiums                                  $ 2,537  $ 2,479  $ 5,000 $ 4,986 |
|  Net investment income                         450      458      911     940 |
|  Other                                         142      126      275     241 |
|                                             ------   ------   ------  ------ |
|                                              3,129    3,063    6,186   6,167 |
|Benefits and expenses                         2,956    2,848    5,845   5,761 |
|                                              -----    -----   ------   ----- |
|  Income before income tax                      173      215      341     406 |
|Income tax expense                              (48)     (69)     (77)   (108)|
|                                             ------    -----   -------  ------|
| Net operating income  (excluding realized                                    |
|    investment gains/losses)                $   125  $   146  $   264 $   298 |
|==============================================================================|
                                                          
         Property/casualty   revenues,   excluding   net   realized   investment
gains/losses,  increased $19 million for the six months ended June 30, 1997 when
compared  to the  same  period  a year  ago.  Property/casualty  earned  premium
increased $14 million from the prior years  comparable  period.  The increase in
earned  premium  is  due  primarily  to an  increase  in  commercial  operations
particularly in professional and specialty,  accident and health and reinsurance
business partially offset by a decrease in involuntary risk business.

         Property/casualty   pretax   operating  income  before  realized  gains
reflects a decrease of $65 million for the first six months of 1997  compared to
the same period in 1996. The decrease in operating income stems from an increase
in underwriting  losses as well as a decline in investment income. This decrease
was offset in part by lower operating  expenses and favorable  catastrophe  loss
experience.  Underwriting  losses  for the six and three  months  ended June 30,
1997,  were $570  million and $277  million,  compared to $534  million and $243
million for the same periods in 1996. The GAAP combined ratio for the six months
ending June 30, 1997 was 109.3% as compared to 108.6% for the comparable  period
in 1996.  GAAP  expense  ratios  were 29.8% and 30.0% for the six month  periods
ended June 30, 1997 and June 30, 1996,  respectively.  Deterioration in the loss
ratio reflects continued  competitive pressures on virtually all segments of the
insurance  market,  particularly  commercial  insurance.  CNA  incurred  pre-tax
catastrophe  losses of approximately $76 million and $45 million for the six and
three months  ended June 30, 1997  compared to $208 million and $115 million for
the respective periods in 1996.

         Pretax operating income excluding net realized investment gains/losses,
for the  property/casualty  insurance  subsidiaries  was $341  million  and $173
million for the six months and three  months  ended June 30,  1997,  compared to
$406 million and $215 million for the same period a year ago.  Investment income
decreased  3.1% and 1.7% for the six and three months  ended June 30,  1997,  to
$911 million and $450 million,  respectively,  when compared with the comparable
periods a year ago of $940 million and $458 million,  respectively. The decrease
reflects  reduced  operating  cash  flow  and a  movement  to  shorter  duration
investments.  The fixed maturities  segment of the investment  portfolio yielded
6.4% in the first half of 1997 as compared to 6.9% for the first half of 1996.

                                      (16)
<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 $264 and $125 million for
the six and three months ended June 30, 1997,  compared to $298 million and $146
million for the same periods in 1996. Net realized  investment gains for the six
and three months ended June 30, 1997 were $94 million and $82 million,  compared
to $180 million and $46 million in the comparable periods of 1996.

Life Operations
|------------------------------------------------------------------------------|
|LIFE GROUP                                    SECOND QUARTER      SIX MONTHS  |
|                                                                              |
|PERIOD ENDED JUNE 30                          1997    1996     1997      1996 |
|(In millions of dollars)                                                      |
|------------------------------------------------------------------------------|
|OPERATING SUMMARY (EXCLUDING REALIZED                                         |
|  INVESTMENT GAINS/LOSSES):                                                   |
|Revenues:                                                                     |
|  Premiums                                  $ 812    $ 847   $1,697   $ 1,640 |
|  Net investment income                        99      100      204       197 |
|  Other                                        33       17       56        42 |
|                                             ----     ----    -----    ------ |
|                                              944      964    1,957     1,879 |
|Benefits and expenses                         909      924    1,884     1,793 |
|                                             ----     -----   -----    ------ |
|  Income before income tax                     35       40       73        86 |
|Income tax expense                            (11)     (14)     (26)      (31)|
|                                             ----     -----   -----    ------ |
|  Net operating income (excluding realized                                    |
|    investment gains/losses)               $  24     $  26   $  47    $    55 |
|==============================================================================|
              Life group revenues,  excluding  realized  investment  gains, were
approximately  $2.0  billion,  up 4.2% for the six months  ended  June 30,  1997
compared  to the same  period a year ago.  Life  premium  revenues  were  $1.697
billion for the six months  ended June 30, 1997  compared to $1.640  billion and
$847 million for the same period in 1996.  The increase is due to the  continued
growth in sales in the Viaterm life product,  continued growth in Disability and
Accident  premium and an increase  in premiums in the Federal  Employees  Health
Benefits Program, due to strong enrollment through the first six months at 1997.
The  increase  in  premiums  is offset by a drop in group  reinsurance  premium.
Investment  income for the six months  ended June 30,  1997 was $204  million as
compared to $197  million for the same period a year ago,  this  increase can be
mainly attributed to a larger asset base generated from increased operating cash
flows. The fixed maturities segment of the life investment  portfolio,  which is
the primary investment segment,  yielded 6.4% in the first half of 1997 compared
with 6.8% for the same period a year ago.

              Life group revenues,  excluding  realized  investment  gains, were
down 4.13% to $812 million from $847 million for the second quarter of 1997 when
compared to the second quarter of 1996. The primary reasons for this decline are
a decrease in annuity business and group reinsurance  business offset in part by
increases in Viaterm and Disability and Accident premium.

         Pretax operating income for the life insurance subsidiaries,  excluding
net realized  investment  gains/losses,  was $73 million and $35 million for the
six and three  months  ended June 30,  1997,  compared  to $86  million  and $40
million for the same periods in 1996.

         CNA's life insurance subsidiaries' net operating income,  excluding net
realized investment gains/losses was $47 million and $24 million for the six and
three months ended June 30, 1997 compared to $55 million and $26 million for the

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

same period in 1996. Net realized  investment gains for the six and three months
ended June 30, 1997 were $44 million  and $26  million,  compared to $57 million
and $8 million for the same periods of 1996.

INVESTMENTS:
<TABLE>
<CAPTION>
|--------------------------------------------------------------------------------------------------------|
|SUMMARY OF GENERAL ACCOUNT INVESTMENTS                                    SIX MONTHS ENDED JUNE 30, 1997|
|                                                                          ------------------------------|
|   AT MARKET VALUE                                                          CHANGE IN                   |
|                                                  JUNE 30    DECEMBER 31  NET UNREALIZED    REALIZED    |
|(In millions of dollars)                           1997         1996      GAINS(LOSSES)   GAINS(LOSSES) |
|--------------------------------------------------------------------------------------------------------|
|FIXED MATURITY SECURITIES:                                                                              |
<S>                                             <C>          <C>               <C>            <C>  
|U. S. Treasury securities and                                                                           |
|  obligations of government agencies            $  10,460    $   9,835         $ (72)         $  49     |
|Asset-backed securities                             4,634        6,292            15              9     |
|Tax exempt securities                               4,425        4,951            20              2     |
|Taxable securities                                  6,421        6,643           (53)            84     |
|                                                 --------     --------          -----          ----     |
|   Total fixed maturity securities                 25,940       27,721           (90)           144     |
|Stocks                                                657          859           (41)            39     |
|Short-term investments and other                    9,944        6,830           (11)            13     |
|Derivative security investments                         1            2            --             (1)    |
|                                                 --------     --------          ----           ----     |
|   TOTAL INVESTMENTS                            $  36,542    $  35,412          (142)           195     |
|                                                 ========     ========                                  | 
|Separate accounts and discontinued operations                                    (15)            42     |
|Participating policyholders' interest                                             (3)            (5)    |
|Income tax  benefit (expense )                                                    31            (82)    |
|                                                                                ----           ----     |
|   NET INVESTMENT GAINS (LOSSES)                                               $(129)         $ 150     |
|                                                                                                        |
|--------------------------------------------------------------------------------------------------------|
|                                                                                                            
|-----------------------------------------------------------------------|                                
|SHORT-TERM INVESTMENTS:                                                |                                
|-----------------------------------------------------------------------|                                
|Security repurchase collateral                $   1,626       $   101  |                                
|Escrow                                            1,092         1,062  |                                
|Commercial paper                                  3,707         3,207  |                                
|Money markets                                       813           746  |                                
|Other                                             1,765           738  |                                
|-----------------------------------------------------------------------|                                
|   TOTAL SHORT-TERM INVESTMENTS               $   9,003       $ 5,854  |                               
|-----------------------------------------------------------------------|                                
</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 has a securities  lending  program where  securities  are loaned to
third parties,  primarily major brokerage  firms.  Borrowers of these securities
must  deposit  cash or  securities  in excess  of 100% of the fair  value of the
securities  borrowed.  Cash  deposits  from these  transactions  are invested in
short-term  investments  (primarily  commercial paper). CNA continues to receive
the interest on loaned debt  securities,  as beneficial  owner, and accordingly,
loaned debt  securities  are included  within  fixed  maturity  securities.  The
liabilities for securities sold subject to repurchase agreements are recorded at
their contractual repurchase amounts.

         On December 30, 1993, CNA deposited $987 million in an escrow  account,
pursuant to the Fibreboard Global Settlement Agreement,  as discussed in Note C.
The funds are included in short-term investments and are invested mainly in U.S.
Treasury  securities.  The escrow  account at June 30,  1997  amounted to $1.094
billion as compared to $1.071 billion at year end 1996.

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

         In  addition to interest  rate swaps used to covert  CNA's  acquisition
debt  from a  variable  rate to a fixed  rate,  CNA holds  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.

         The  general  account  portfolio  consists  primarily  of high  quality
marketable fixed maturity  securities,  approximately  94% of which are rated as
investment  grade.  At June  30,  1997,  tax-exempt  securities  and  short-term
investments,   excluding   collateral  for  securities  sold  under   repurchase
agreements,  comprised  approximately 12% and 20%, respectively,  of the general
account's total investment portfolio compared to 14% and 16%,  respectively,  at
December 31, 1996. 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.  At June 30,
1997,  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  increased $1,525 million to $1,626
million.

         As of June  30,  1997,  the  market  value  of  CNA's  general  account
investments in fixed maturities was $25.9 billion and was greater than amortized
cost by  approximately  $91  million.  This  compares to a market value of $27.7
billion and $181  million of net  unrealized  investment  gains at December  31,
1996. The gross  unrealized  investment  gains and losses for the fixed maturity
securities  portfolio  at June 30,  1997,  were $323  million and $232  million,
respectively,  compared  to $444  million  and $263  million,  respectively,  at
December 31, 1996. The decline in unrealized  investment  gains is attributable,
in large part,  to increases in interest  rates which have an adverse  effect on
bond values.

         Net unrealized investment losses on general account fixed maturities at
June 30, 1997  include net  unrealized  losses on high yield  securities  of $10
million,  compared to net unrealized  gains of $41 million at December 31, 1996.
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  $1.46  billion  at June 30,  1997 as
compared to $2.02 billion at December 31, 1996.

         At June 30, 1997, total Separate Account cash and investments  amounted
to  $5.8  billion   with  taxable   fixed   maturity   securities   representing
approximately  83% of the separate  accounts'  portfolio.  Approximately  77% 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  guaranteed  investment  contracts.  The fair value of all
fixed  maturity  securities  in the  guaranteed  investment  portfolio  was $4.0
billion at June 30, 1997  compared to $3.8 billion at December 31, 1996. At June
30, 1997, fair  value  was  greater than the amortized cost by approximately $9
million. This compares to an unrealized loss of $1 million at December 31, 1996.
The gross unrealized  investment gains and losses for the guaranteed  investment
fixed  maturity  securities  portfolio at June 30, 1997 were $45 million and $36
million, respectively.
<PAGE>

         Carrying values of high yield  securities in the guaranteed  investment
portfolio were $444 million at June 30, 1997 and $472 million December 31, 1996.
Net  unrealized  investment  losses on such high yield  securities  held were $6
million at June 30, 1997, and December 31, 1996.

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

         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 June 30, 1997,  CNA's
investment in high yield bonds,  including Separate Accounts,  was approximately
3.3% 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 quarter of one percent of its total assets.

         Included in CNA's fixed  maturity  securities at June 30, 1997 (general
and  guaranteed   investment   portfolios)  are  $7.1  billion  of  asset-backed
securities,   consisting  of  approximately  52%  in   collateralized   mortgage
obligations ("CMOs"), 9% in corporate asset-backed obligations,  and 39% in U.S.
Government issued pass-through certificates.  The majority of CMOs held are U.S.
Government  agency issues,  which are actively  traded in liquid markets and are
priced  monthly  by  broker-dealers.  At  June  30,  1997,  the  fair  value  of
asset-backed  securities  was more  than  amortized  cost by  approximately  $22
million compared to net unrealized  investment  losses of $5 million at December
31, 1996. 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 June 30,  1997,  46% of the
general  account's  fixed  maturity  securities  portfolio  was invested in U.S.
Government  securities,  30% in other AAA rated  securities  and 13% in AA and A
rated securities.  CNA's guaranteed investment portfolio includes fixed maturity
securities  comprised of 4% U.S. Government  securities,  62% in other AAA rated
securities  and 13% in AA and A rated  securities.  These  ratings are primarily
from Standard & Poor's.

FINANCIAL CONDITION:

|------------------------------------------------------------------------|
|FINANCIAL POSITION                                  JUNE 30  DECEMBER 31|
|(In millions of dollars, except per share data)       1997        1996  |
|------------------------------------------------------------------------|
|                                                                        |
|Assets                                              $ 62,585   $ 60,735 |
|Stockholders' equity                                   7,340      7,060 |
|Unrealized net appreciation included                                    |
|  in stockholders' equity                                170        299 |
|Book value per common share                           116.35     111.81 |
|------------------------------------------------------------------------|
                                                          
         CNA's assets  increased  approximately  $1.85 billion from December 31,
1996 to $62.6 billion as of June 30, 1997.  This change was primarily the result
of an increase in securities sold under  repurchase  agreements of approximately
$1.5 billion.

         During  the  first  six  months  of 1997,  CNA's  stockholders'  equity
increased by $280 million, or 4.0%, to $7.3 billion. The major component of this
change was net income of $412 million which was offset by a $129 million decline
in net unrealized investment gains.

         When  compared to  December  31,  1996,  the  statutory  surplus of the
property/casualty  subsidiaries  remained at  approximately  $6.4  billion.  The
statutory surplus of the life insurance  subsidiaries  remained at approximately
$1.2 billion, when compared to year end 1996.

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

LIQUIDITY AND CAPITAL RESOURCES:

         The  liquidity  requirements  of CNA have been met  primarily  by funds
generated from  operations.  The principal  operating cash flow sources of CNA's
property/casualty  and life insurance  subsidiaries  are premiums and investment
income and sales and maturities of investments.  The primary operating cash flow
uses are payments for claims, policy benefits and operating expenses.

         CNA's  operating  activities  generated  net  negative  cash  flows  of
approximately  $670  million and $113  million for the six months ended June 30,
1997 and 1996,  respectively.  Negative  cash  flows in 1997 are  primarily  the
result of  substantial  claim  payments  resulting  from the  settlement  of the
Fibreboard  litigation.  CNA believes  that future  liquidity  needs will be met
primarily by cash generated from operations.

         Net cash flows from  operations are 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.

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


ACCOUNTING STANDARDS:

         In June 1996, the Financial  Accounting  Standards  Board (FASB) issued
Statements  on  Financial  Accounting  Standards  (SFAS)  125,  "Accounting  for
Transfers and Servicing of Financial Assets and Extinguishments of Liabilities."
This  Statement  provides  standards for  distinguishing  transfers of financial
assets that are sales from transfers that are secured borrowings. This Statement
has been amended and is now  effective  for transfers and servicing of financial
assets and  extinguishment  of liabilities  occurring after December 31, 1996 or
1997,  depending  on the type of  transaction.  This  Statement  will not have a
significant impact on CNA.

         In January  1997,  the  Securities  and  Exchange  Commission  approved
 amendments to Regulation S-X, Regulation S-K, Regulation S-B, and various forms
 to clarify and expand existing disclosure requirements
with  respect to  derivative  financial  instruments  and  derivative  commodity
instruments. The new rules require enhanced descriptions in the footnotes to the
financial statements of accounting policies for derivative financial instruments
and derivative commodity  instruments.  They also require disclosure outside the
financial  statements of qualitative and quantitative  information  about market
risk related to derivative financial  instruments,  other financial instruments,
and derivative  commodity  instruments.  These  amendments are effective for the
year end 1997  financial  statements  and will not have a significant  impact on
CNA.

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

         In February 1997, the FASB issued SFAS 128,  "Earnings per Share." This
Statement  establishes standards for computing and presenting earnings per share
(EPS), which simplifies the computations  originally  established in APB Opinion
No. 15,  "Earnings  per Share" and makes them  comparable to  international  EPS
standards.  It replaces the  presentation  of primary EPS with basic EPS,  which
excludes  dilution.  It also requires dual presentation of basic and diluted EPS
on the face of the  income  statement  for all  entities  with  complex  capital
structures  and requires a  reconciliation  between the two  computations.  This
Statement is effective for financial  statements issued for periods ending after
December 15, 1997. This Statement will not have a significant impact on CNA.

         In February 1997, the FASB issued SFAS 129,  "Disclosure of Information
about Capital Structure," which establishes standards for disclosing information
about  an  entity's  capital  structure.  The  Statement  consolidates  existing
disclosure  requirements  for  ease  of  retrieval  and  greater  visibility  to
nonpublic  entities.   The  new  Statement  contains  no  change  in  disclosure
requirements for companies previously subject to the requirements of APB Opinion
No. 10, "Omnibus  Opinion--1966,"  APB Opinion No. 15, "Earnings per Share," and
FASB  Statement 47,  "Disclosure  of Long-Term  Obligations."  It applies to all
entities and is effective for  financial  statements  issued for periods  ending
after December 15, 1997. This Statement has no impact on CNA.

         In June  1997,  the FASB  issued  SFAS  130,  "Reporting  Comprehensive
Income,"  which  establishes  accounting  standards for reporting and display of
comprehensive income and its components (revenues,  expenses, gains, and losses)
in a full set of general-purpose  financial statements.  This Statement requires
that an enterprise  (a) classify  items of other  comprehensive  income by their
nature in a financial statement and (b) display the accumulated balance of other
comprehensive  income separately from retained  earnings and additional  paid-in
capital in the  equity  section  of a  statement  of  financial  position.  This
Statement is effective for fiscal years  beginning after December 15, 1997. This
Statement  is  not  expected  to  result  in  a  significant   change  on  CNA's
disclosures.

         In June 1997, the FASB issued SFAS 131,  "Disclosures about Segments of
an Enterprise and Related  Information," which establishes standards for the way
that public business  enterprises report information about operating segments in
interim and annual  financial  statements.  It requires  that those  enterprises
report a measure of segment profit or loss, certain specific revenue and expense
items, and segment assets, and that the enterprises reconcile the total of those
amounts  to  the  general-purpose  financial  statements.  It  also  establishes
standards for related disclosures about products and services, geographic areas,
and major  customers.  This Statement is effective for financial  statements for
periods  beginning  after December 15, 1997.  This Statement will redefine CNA's
business segment disclosure.

                                      (22)
<PAGE>
                            CNA FINANCIAL CORPORATION

                            PART II OTHER INFORMATION


ITEM 4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

Set  forth  below  is  information  relating  to  the  1997  Annual  Meeting  of
Shareholders of CNA Financial Corporation.

The annual meeting was called to order at 10:00 A.M.,  May 7, 1997.  Represented
at the meeting,  in person or by proxy,  were 57,238,056  shares,  approximately
92.621% of the issued and outstanding shares entitled to vote.

The following business was transacted:

Election of Directors
Over 99.0% of the votes cast for  directors  were votes for the  election of the
following  directors.  The number of votes cast FOR and WITHHELD with respect to
each director were as follows:

                                               Votes For          Votes Withheld
                                             -----------         ---------------
          Antoinette Cook Bush                57,164,043             74,013
          Dennis H. Chookaszian               57,164,043             74,013
          Philip L. Engel                     57,164,043             74,013
          Robert P. Gwinn                     57,164,003             74,053
          Walter F. Mondale                   57,163,924             74,132
          Edward J. Noha                      57,164,043             74,013
          Joseph Rosenberg                    57,164,043             74,013
          Richard L. Thomas                   57,164,043             74,013
          James S. Tisch                      57,164,043             74,013
          Laurence A. Tisch                   57,164,043             74,013
          Preston R. Tisch                    57,164,043             74,013
          Marvin Zonis                        57,164,043             74,013

Ratification of the Appointment of Independent Certified Public Accountants
The appointment of Deloitte & Touche LLP as independent  public auditors for the
Company  was  ratified by a vote of  57,223,432  shares or 99.975% of the shares
voting.  12,350 shares or approximately  0.021% of the shares voting,  were cast
against,  and  2,274  shares,  or  approximately  0.004% of the  shares  voting,
abstained.

                                      (23)
<PAGE>


                            CNA FINANCIAL CORPORATION

                      PART II OTHER INFORMATION - CONTINUED


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           27
(12.1) Computation of Ratio of Earnings to Fixed Charges         12.1         28
(12.2) Computation of Ratio of Net Income,
         As Adjusted, to Fixed Charges                           12.2         28
(27)   Financial Data Schedule                                   27           29

(b)  REPORTS ON FORM 8-K:
         There were no reports on Form 8-K for the three  months  ended June 30,
         1997.

                                      (24)
<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:  August 14, 1997                  By: S/PATRICIA L. KUBERA
       ---------------                     --------------------------------
                                              Patricia L. Kubera
                                              Group Vice President, and
                                              Controller
                                              (Principal Accounting Officer)



<PAGE>
                                                                      EXHIBIT 11
                            CNA FINANCIAL CORPORATION
                   COMPUTATION OF NET INCOME PER COMMON SHARE

--------------------------------------------------------------------------------
PERIOD ENDED JUNE 30                               SECOND QUARTER    SIX MONTHS
(In millions, except per share data)               1997     1996    1997    1996
--------------------------------------------------------------------------------
Earnings per share:
 Net income ...................................  $  235   $  202  $  412  $  531
 Less preferred stock dividends................       1        1       3       3
                                                   -----    ----    ----  ------
 Net income  available to common stockholders..  $  234   $  201  $  409  $  529
                                                   =====    ====    ====   =====
 Weighted average shares outstanding...........    61.8     61.8    61.8    61.8
                                                   =====    ====    ====   =====
 Net income per common share...................  $ 3.78   $ 3.25  $ 6.63  $ 8.55
                                                   =====    ====   =====  =====
--------------------------------------------------------------------------------


                                      (26)
<PAGE>
                                                                    EXHIBIT 12.1

                            CNA FINANCIAL CORPORATION
                COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES

---------------------------------------------------------------------------
PERIOD ENDED JUNE 30                                           1997   1996
(In millions of dollars, except ratios)
---------------------------------------------------------------------------
Income before income tax and cumulative effect 
     of accounting changes.................................. $  570  $ 772
Adjustments:
   Interest expense.........................................     96    105
   Interest element of operating lease rental...............     12     18
                                                               ----   -----
Income before income tax and cumulative effect of
     accounting changes, as adjusted........................ $  678 $  895
                                                               ====   =====
Fixed charges:
   Interest expense......................................... $   96 $  105
   Interest element of operating lease rental...............     12     18
                                                               ----   ----
Fixed charges............................................... $  108 $  123
                                                               ====   ====
Ratio of earnings to fixed charges (1)......................    6.3    7.3
---------------------------------------------------------------------------
(1)  For purposes of computing  this ratio,  earnings  consist of income  before
     income taxes and cumulative effect of accounting changes plus fixed charges
     of  consolidated  companies.  Fixed  charges  consist of interest  and that
     portion of operating lease rental expense which is deemed to be an interest
     factor for such rentals.

                                                                   EXHIBIT 12.2

                            CNA FINANCIAL CORPORATION
                       COMPUTATION OF RATIO OF NET INCOME,
                          AS ADJUSTED, TO FIXED CHARGES

--------------------------------------------------------------------------
PERIOD ENDED JUNE 30,                                         1997    1996
(In millions of dollars, except ratios)
--------------------------------------------------------------------------
Net income...................................................$  412  $ 531
Adjustments:
   Interest expense, after tax...............................    62     68
   Interest element of operating lease rental, after tax.....     8     12
                                                              -----  -----
Net income, as adjusted......................................$  482  $ 611
                                                               ====  =====
Fixed charges:
   Interest expense, after tax...............................$   62  $  68
   Interest element of operating lease rental, after tax.....     8     12
                                                              -----   ----
Fixed charges................................................$   70  $  80
                                                              =====   ====
Ratio of net income, as adjusted, to fixed charges (1).......  6.9    7.6
--------------------------------------------------------------------------
(1)  For  purposes  of  computing  this ratio,  net income has been  adjusted to
     include fixed charges of consolidated  companies,  after tax. Fixed charges
     consist of interest  and that portion of  operating  lease  rental  expense
     which is deemed to be an interest factor for such rentals.

                                      (27)