--------------------------------------------------------------------------------
                     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 March 31, 1998     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 May 1, 1998
----------------------------               --------------------------
Common Stock, Par value $2.50                       61,798,262
--------------------------------------------------------------------------------
<PAGE>
                            CNA FINANCIAL CORPORATION

                                      INDEX


PART I.   FINANCIAL INFORMATION                                       PAGE NO.
-------   ---------------------                                       --------

ITEM 1.       CONDENSED CONSOLIDATED FINANCIAL STATEMENTS:

 CONDENSED CONSOLIDATED BALANCE SHEET
  MARCH 31, 1998 (Unaudited) and DECEMBER 31, 1997...................     3

 CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS (Unaudited)
  FOR THE THREE MONTHS ENDED MARCH 31, 1998 AND 1997.................     4

 CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY (Unaudited)
  FOR THE THREE MONTHS ENDED MARCH 31, 1998 AND 1997.................     5

 CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS (Unaudited)
  FOR THE THREE MONTHS ENDED MARCH 31, 1998 AND 1997.................     6

 NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
  STATEMENTS (Unaudited) MARCH 31, 1998..............................     7

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
        CONDITION AND RESULTS OF OPERATIONS..........................    17


PART II.  OTHER INFORMATION
--------  ------------------

ITEM 6.      EXHIBITS AND REPORTS ON FORM 8-K........................    30

SIGNATURES...........................................................    31

EXHIBIT 11.  COMPUTATION OF NET INCOME PER COMMON SHARE...............   32

EXHIBIT 12.1 COMPUTATION OF RATIO OF EARNINGS TO FIXED
             CHARGES..................................................   33

EXHIBIT 12.2 COMPUTATION OF RATIO OF NET INCOME, AS ADJUSTED,
             TO FIXED CHARGES.........................................   33

EXHIBIT 27.  FINANCIAL DATA SCHEDULE..................................   34
                                      (2)
<PAGE>
CNA FINANCIAL CORPORATION

                      CONDENSED CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------------------------------
                                                                                     MARCH 31     DECEMBER 31
                                                                                       1998          1997
(In millions of dollars)                                                           (Unaudited)
--------------------------------------------------------------------------------------------------------------
<S>                                                                                <C>             <C>  
ASSETS
  Investments:
    Fixed maturities available for sale (cost: $29,327 and $29,020)...............  $29,797           $29,548
    Equity securities available for sale (cost: $802 and $695)....................      982               814
    Mortgage loans and real estate (less accumulated depreciation: $1 and $1).....       84                85
     Policy loans.................................................................      178               177
     Other invested assets........................................................      780               695
     Short-term investments ......................................................    4,895             4,884
                                                                                    -------          --------
        Total investments.........................................................   36,716            36,203
  Cash............................................................................      201               383
  Receivables:
     Reinsurances.................................................................    5,773             5,726
     Insurance   .................................................................    6,730             6,086
     Other trade .................................................................      276               248
     Less allowance for doubtful accounts.........................................     (305)             (303)
  Deferred acquisition costs......................................................    2,291             2,142
  Accrued investment income.......................................................      407               389
  Receivables for securities sold.................................................      538               744
  Federal income taxes recoverable (includes $23 and $26 due from Loews)..........       15                18
  Deferred income taxes...........................................................    1,069             1,070
  Property and equipment at cost (less accumulated depreciation:$605 and $553)....      744               747
  Prepaid reinsurance premiums....................................................      367               202
  Intangibles.....................................................................      625               620
  Other assets....................................................................      940             1,182
  Separate Account business.......................................................    5,736             5,812
--------------------------------------------------------------------------------------------------------------
     TOTAL ASSETS                                                                   $62,123           $61,269
==============================================================================================================
</TABLE>
<PAGE>
                           CNA FINANCIAL CORPORATION

                           CONSOLIDATED BALANCE SHEET - CONTINUED
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------------------------------
                                                                                     MARCH 31     DECEMBER 31
                                                                                       1998          1997
(In millions of dollars)                                                           (Unaudited)
--------------------------------------------------------------------------------------------------------------
<S>                                                                                <C>             <C>  
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
  Insurance reserves:
     Claim and claim expense........................................................ 29,401           $29,227
     Unearned premiums..............................................................  5,268             4,700
     Future policy benefits.........................................................  4,982             4,829
     Policyholders' funds...........................................................    757               742
  Securities sold under repurchase agreements.......................................    546               153
  Payables for securities purchased.................................................    752               648
  Participating policyholders' equity...............................................    136               132
  Long-term debt....................................................................  2,893             2,897
  Other liabilities.................................................................  3,136             3,820
  Separate Account business.........................................................  5,736             5,812
                                                                                    --------          --------
      TOTAL LIABILITIES............................................................. 53,607            52,960
                                                                                    ========          ========
Commitments and contingent liabilities - Notes C and D 
Stockholders' equity:
  Common stock ($2.50 par value;  Authorized -  200,000,000  shares;
   Issued - 61,841,969 shares  Outstanding - 61,798,262 shares)......................   155               155
  Money market cumulative preferred stock...........................................    150               150
  Additional paid-in capital........................................................    435               435
  Retained earnings.................................................................  7,215             6,983
  Accumulated other comprehensive income............................................    564               589
  Treasury stock, at cost...........................................................     (3)               (3)
                                                                                    --------          --------
      TOTAL STOCKHOLDERS' EQUITY....................................................  8,516             8,309
--------------------------------------------------------------------------------------------------------------
      TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY                                    $62,123           $61,269
==============================================================================================================
</TABLE>
      See accompanying Notes to Condensed Consolidated Financial Statements
                                  (Unaudited).
                                       (3)
<PAGE>
                            CNA FINANCIAL CORPORATION
                 CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
                                   (Unaudited)

-------------------------------------------------------------------------
THREE MONTHS ENDED MARCH 31                       1998          1997
(In millions of dollars, except per share data)
-------------------------------------------------------------------------


Revenues:
 Premiums....................................... $3,368         $3,347
 Net investment income..........................    562            564
 Realized investment gains .....................    183             66
 Other..........................................    215            155
                                                 -------        --------
                                                  4,328          4,132
                                                 -------        --------
Benefits and expenses:
 Insurance claims and policyholders' benefits...  2,850          2,892
 Amortization of deferred acquisition costs.....    588            520
 Other operating expenses.......................    504            443
 Interest expense...............................     55             49
                                                 -------        --------
                                                  3,997          3,904
                                                 -------        --------
  Income before income tax.....................     331            228
Income tax expense.............................      98             50
                                                 -------        --------
   Net income                                    $  233         $  178
------------------------------------------------------------------------
EARNINGS PER SHARE
------------------
Net income ....................................  $ 3.75         $ 2.85
                                                 =======        ========
Weighted average outstanding shares of
common stock (in millions of shares)...........    61.8           61.8
========================================================================
 See accompanying Notes to Condensed Consolidated Financial Statements
                           (Unaudited).
                                      (4)
<PAGE>
                            CNA FINANCIAL CORPORATION

            CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
                                   (Unaudited)
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------------------------------------
                                                                                        ACCUMULATED
                                                        ADDITIONAL COMPREHENSIVE        OTHER             TOTAL
                            COMMON  PREFERRED  TREASURY  PAID IN     INCOME   RETAINED  COMPREHENSIVE  STOCKHOLDERS'
(in millions of dollars)    STOCK     STOCK      STOCK   CAPITAL     (LOSS)   EARNINGS  INCOME (LOSS)     EQUITY
----------------------------------------------------------------------------------------------------------------------
<S>                        <C>     <C>        <C>       <C>         <C>       <C>        <C>            <C>
BALANCE,JANUARY 1, 1997     $  155  $  150     $   (3)   $   435               $6,024     $   299        $7,060    
Comprehensive income:                
  Net income................    -       -           -         -      $   178      178          -            178
Other comprehensive income           
(loss):                              
  Unrealized investment              
  gains/losses net of                
  reclassification adjustment        
  and taxes.................    -       -           -         -         (363)       -        (363)         (363)
                                                                     ---------
Total Comprehensive income...                                        $  (185)
                                                                     =========
Preferred dividends........     -       -           -         -                    (2)         -             (2)
--------------------------- ------ -------     -------   ---------             -------    --------       -------
BALANCE, MARCH 31, 1997     $  155  $  150     $   (3)   $   435               $6,200     $   (64)       $6,873    
=================================================================              =================================
                                     
BALANCE, DECEMBER 31, 1997  $  155  $  150         (3)       435               $6,983     $   589        $8,309    
Comprehensive income:                
  Net income................    -       -           -         -      $   233      233          -            233
Other comprehensive income           
(loss):                              
  Unrealized investment              
  gains/losses net of                
  reclassification adjustment   -       -           -         -          (25)      -          (25)         (25)
  and taxes...................                                                            
                                                                     ---------
Total Comprehensive income....                                       $   208
                                     
                                                                     =========
Preferred dividends.......      -       -           -         -                    (1)         -            (1)
--------------------------- ------ -------     --------  -------               --------   --------      -------
BALANCE, MARCH 31, 1998     $  155  $  150     $   (3)   $   435               $7,215     $   564       $8,516    
=================================================================              ================================
</TABLE>                             

      See accompanying Notes to Condensed Consolidated Financial Statements
                                  (Unaudited).
                                      (5)
<PAGE>
                            CNA FINANCIAL CORPORATION

                 CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
                                   (Unaudited)
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------------------------------
THREE MONTHS ENDED MARCH 31                                                                    1998         1997
(In millions of dollars)
-------------------------------------------------------------------------------------------------------------------
<S>                                                                                         <C>           <C>
Cash flows from operating activities:
 Net income ..............................................................................   $    233     $   178
                                                                                             
 Adjustments  to  reconcile  net  income  to  net cash  flows  from  operating activities:
  Net realized investment gains, pre-tax .................................................       (183)        (66)
  Participating policyholders' interest...................................................          7           2
  Amortization of intangibles.............................................................          9           7
  Amortization of bond discount...........................................................        (20)        (64)
  Depreciation............................................................................         48          33
  Changes in:
   Insurance receivables, net.............................................................       (717)       (230)
   Deferred acquisition costs.............................................................       (149)       (130)
   Accrued investment income..............................................................        (18)         33
   Federal income taxes...................................................................          3         (48)
   Deferred income taxes..................................................................         10          87
   Prepaid reinsurance premiums...........................................................       (165)         35
   Insurance reserves.....................................................................        916         574
   Other liabilities......................................................................       (401)     (1,080)
    Other, net............................................................................        187         (68)
                                                                                             --------      --------
         Total adjustments ...............................................................       (473)       (915)
                                                                                             --------      --------
         NET CASH FLOWS FROM OPERATING ACTIVITIES ........................................       (240)       (737)
                                                                                             --------      --------
</TABLE>
<PAGE>
                            CNA FINANCIAL CORPORATION

                 CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS - CONTINUED
                                   (Unaudited)
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------------------------------
THREE MONTHS ENDED MARCH 31                                                                    1998         1997
(In millions of dollars)
-------------------------------------------------------------------------------------------------------------------
<S>                                                                                         <C>           <C>

CASH FLOWS FROM INVESTING ACTIVITIES:
 Purchases of fixed maturities............................................................     (8,340)     (8,493)
 Proceeds from fixed maturities:
  Sales...................................................................................      7,809       8,708
  Maturities, calls and redemptions.......................................................        676         603
 Purchases of equity securities...........................................................       (307)       (409)
 Proceeds from sale of equity securities..................................................        192         301
 Change in short-term investments.........................................................       (182)     (1,664)
 Purchases of property and equipment .....................................................        (51)        (45)
 Change in securities sold under repurchase agreements....................................        393       1,853
 Change in other investments..............................................................       (117)         47
 Other, net...............................................................................         (5)        (12)
                                                                                               ---------   --------
         NET CASH FLOWS FROM INVESTING ACTIVITIES ........................................         68         889
                                                                                               ---------   --------

CASH FLOWS FROM FINANCING ACTIVITIES:
 Dividends paid to preferred stockholders..................................................        (1)         (2)
 Receipts from investment contracts credited to policyholder account balances.............          1           3
 Return of policyholder account balances on investment contracts..........................         (6)         (7)         
 Principal payments on long-term debt.....................................................       (301)         (1)
 Proceeds from issuance of long-term debt.................................................        297           -
                                                                                               ---------   --------
        NET CASH FLOWS FROM  FINANCING ACTIVITIES.........................................        (10)         (7)
                                                                                               ---------   --------
        Net cash flows....................................................................       (182)        145
Cash at beginning of period...............................................................        383         257
----------------------------------------------------------------------------------------------------------------------
Cash at end of period                                                                        $    201      $  402
=======================================================================================================================
Supplemental disclosures of cash flow information:
 Cash paid:
 Interest ................................................................................   $    (45)     $  (42)
 Federal income taxes.....................................................................        (70)         -
=======================================================================================================================
</TABLE>
     See accompanying Notes to Condensed Consolidated Financial Statements
                                  (Unaudited).
                                      (6)
<PAGE>
                            CNA FINANCIAL CORPORATION
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                 MARCH 31, 1998
                                   (UNAUDITED)


NOTE A.  Basis of Presentation:

     The consolidated  financial  statements  (unaudited)  include CNA Financial
Corporation  ("CNAF" 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),  collectively   CNA.   Loews   Corporation   (Loews)  owns
approximately 84% of the outstanding common stock of CNAF.

         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 CNAF's Annual Report to Shareholders  (incorporated  by reference in
Form 10-K) for the year ended  December 31, 1997 (filed with the  Commission on
March 31, 1998) 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  periods  have been  reclassified  to  conform  to
classifications followed in 1998. 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 consolidated  financial position,  results of operations and
cash flows.


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 March 31, 1998,  the escrow  account  amounted to $1.1  billion.  The
majority of the funds are included in  short-term  investments  and are invested
primarily in U. S. Treasury Securities.

                                      (7)
<PAGE>
                            CNA FINANCIAL CORPORATION
        NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
              
NOTE C. Legal Proceedings and Contingent Liabilities:
        
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.

         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 to 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 to 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  to the Global
Settlement  Agreement,  and  remanded  the  matter  to  the  Fifth  Circuit  for
reconsideration  in light of the Supreme Court's decision in Amchem Products Co.
V. Windsor.

     On January  27,  1998,  a panel of United  States  Fifth  Circuit  Court of
Appeals again  approved the Global  Settlement  Agreement by a 2 to 1 vote.  Two
sets of Objectors filed  petitions for certiorari,  which were docketed on April
16 and 17, 1998, by the United States Supreme Court.  The Settling  Parties will
file papers in opposition of the petitions on May 18, 1998.

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

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 has been approved by the Fifth Circuit a second
time,  but the  Objectors  have  petitioned  the Supreme Court for review of the
decision. There is limited precedent with settlements which determine the rights
of future personal injury claimants to seek relief.

         Through March 31, 1998,  Casualty,  Fibreboard and plaintiff  attorneys
had reached  settlements  with respect to approximately  135,400 claims,  for an
estimated  settlement  amount of approximately  $1.6 billion plus any applicable
interest. Final court approval of the Trilateral Agreement obligates Casualty to
pay under these settlements.  Approximately $1.6 billion (including  interest of
$182 million) was paid through March 31, 1998. Such payments have been partially
recovered from Pacific  Indemnity.  Casualty may negotiate other  agreements for
unsettled claims.

     Final court  approval of the  Trilateral  Agreement and its  implementation
resolved  Casualty's  exposure with respect to the Fibreboard  asbestos  claims.
Casualty  does not  anticipate  further  material  exposure  with respect to the
Fibreboard matter, and subsequent adverse reserve  adjustments,  if any, are not
expected to materially affect the results of operations or equity of CNA.

TOBACCO LITIGATION

         CNA's  primary  property/casualty   subsidiaries  have  been  named  as
defendants  as part of a  "direct  action"  lawsuit,  Richard  P.  Ieyoub v. The
American Tobacco Company, et al., filed by the Attorney General for the State of
Louisiana,  in state court,  Calcasieu  Parish,  Louisiana.  In that suit, filed
against   certain  tobacco   manufacturers   and   distributors   (the  "Tobacco
Defendants") and over 100 insurance  companies,  the State of Louisiana seeks to
recover  medical  expenses  allegedly  incurred  by the  State  as a  result  of
tobacco-related illnesses.

         The  original  suit was filed on March 13,  1996,  against  the Tobacco
Defendants  only.  The insurance  companies were added to the suit in March 1997
under a "direct action" procedure in Louisiana. Under the direct action statute,
the Louisiana  Attorney General is pursuing liability claims against the Tobacco
Defendants and their insurers in the same suit,  even though none of the Tobacco
Defendants has made a claim for insurance coverage.

         In June of 1997,  the  United  States  District  Court for the  Western
District of Louisiana, Lake Charles Division,  granted a petition to remove this
litigation  to the federal  district  court.  The district  court's  decision is
currently on appeal to the United States Fifth Circuit Court of Appeals.  During
the pending appeal,  all proceedings in state court and in the federal  district
court are stayed. Because of the uncertainties inherent in assessing the risk of
liability at this very early stage of the  litigation,  management  is unable to
make a meaningful  estimate of the amount of range of any loss that could result
from an  unfavorable  outcome of the  pending  litigation.  However,  management
believes  that  the  ultimate  outcome  of the  pending  litigation  should  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.
                                      (9)
<PAGE>
                           CNA FINANCIAL CORPORATION
        NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED


ENVIRONMENTAL AND ASBESTOS

         The CNA property/casualty  insurance companies have potential exposures
related to environmental pollution and asbestos 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" ("PRPs"). Superfund and the mini-Superfunds  (Environmental
Clean-up Laws or "ECLs") establish mechanisms to pay for clean-up of waste sites
if PRPs fail to do so, and to assign  liability to PRPs. The extent of liability
to be  allocated to a PRP is  dependent  on a variety of factors.  Further,  the
number of waste sites  subject to clean-up  is unknown.  To date,  approximately
1,300 clean-up sites have been identified by the Environmental Protection Agency
on its National Priorities List (NPL). The addition of new clean-up sites to the
NPL has slowed in recent  years.  Many clean up sites  have been  designated  by
state authorities as well.

         Many  policyholders  have made claims  against  various  CNA  insurance
subsidiaries   for  defense  costs  and   indemnification   in  connection  with
environmental  pollution  matters.  CNA and the insurance industry are disputing
coverage for many such claims.  Key coverage  issues  include  whether  clean-up
costs  are  considered   damages  under  the  policies,   trigger  of  coverage,
applicability  of  pollution  exclusions  and  owned  property  exclusions,  the
potential for joint and several  liability and definition of an  occurrence.  To
date, courts have been inconsistent in their rulings on these issues.

         A number of  proposals  to reform  Superfund  have been made by various
parties.  However, no reforms were enacted by Congress in 1997 and it is unclear
as to what  positions  the  Congress  or the  Administration  will take and what
legislation,  if  any,  will  result.  If  there  is  legislation,  and in  some
circumstances even if there is no legislation, the federal role in environmental
clean up may be  significantly  reduced  in favor of state  action.  Substantial
changes in the federal  statute or the  activity of the EPA may cause  states to
reconsider their environmental  clean up statutes and regulations.  There can be
no meaningful prediction of the pattern of regulation that would result.

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

     As of March 31, 1998 and December 31, 1997, CNA carried  approximately $701
million and $773 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,  after
which CNA adopted the  Simplified  Commercial  General  Liability  coverage form
which  includes  an  absolute  pollution  exclusion.  There  was no  unfavorable
environmental pollution reserve development for the three months ended March 31,
1998 and 1997.

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

     CNA's insurance  subsidiaries  have exposure to asbestos claims,  including
those attributable to CNA's litigation with Fibreboard  Corporation.  Estimation
of asbestos claim reserves involves many of the same limitations discussed above
for  environmental  pollution  claims such as  inconsistency of court decisions,
specific policy  provisions,  allocation of liability  among  insurers,  missing
policies and proof of coverage.  As of March 31, 1998 and December 31, 1997, CNA
carried approximately $1.3 billion and $1.4 billion,  respectively, of claim and
claim  expense  reserves,  net of  reinsurance  recoverables,  for  reported and
unreported   asbestos-related   claims.   Unfavorable   asbestos  claim  reserve
development  for the periods  ended March 31, 1998 and 1997  totaled $14 million
and $12 million, respectively.


|-----------------------------------------------------------------------------|
|RESERVE SUMMARY                  MARCH 31, 1998           DECEMBER 31, 1997  |
|                             ----------------------   -----------------------|
|                             ENVIRONMENTAL            ENVIRONMENTAL          |
|(In millions of dollars)     POLLUTION    ASBESTOS    POLLUTION      ASBESTOS|
|-----------------------------------------------------------------------------|
|                                                                             | 
| Reported claims:                                                            |
| Gross reserves                $318         $1,228         $279      $ 1,384 |
| Less reinsurance recoverable   (42)          (106)         (36)        (117)|
|                               -----         ------        -----     --------|
| Net  reported claims           276          1,122          243        1,267 |
| Net unreported claims          425            178          530          133 |
|-----------------------------------------------------------------------------|
|NET RESERVES                   $701         $1,300         $773      $ 1,400 |
|=============================================================================|

         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  these   liabilities  and  make  further
adjustments as warranted.
                                      (11)
<PAGE>
                           CNA FINANCIAL CORPORATION
        NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

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.

|-----------------------------------------------------------------------------|
|THREE MONTHS ENDED MARCH 31             EARNED PREMIUMS             ASSUMED/ |
|                               ------------------------------------          |
|                                                                        NET  |
|(In millions of dollars)          DIRECT    ASSUMED   CEDED     NET      %   |
|------------------------------ ----------------------------------------------|
|                                                                             |
|1998                                                                         |
|  Property/casualty            $ 1,817    $ 373    $ 138   $ 2,052   18.2 %  |
|  Accident and health            1,091       78       91     1,078    7.2    |
|  Life                             251       36       49       238   15.1    |
|-----------------------------------------------------------------------------|
|     TOTAL PREMIUMS            $ 3,159    $ 487    $ 278   $ 3,368   14.5 %  |
|=============================================================================|
|                                                                             |
|1997                                                                         |
|  Property/casualty            $ 2,164    $ 236    $ 228   $ 2,172   10.9 %  |
|  Accident and health              945       29       31       943    3.1    |
|  Life                             227       29       24       232   12.5    |
|=============================================================================|
|     TOTAL  PREMIUMS           $ 3,336    $ 294    $ 283   $ 3,347    8.8 %  |
|=============================================================================|
                                                                             
         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
recoverable  of $179 million and $248 million for the three months  ending March
31, 1998 and 1997, respectively. 
                                      (12)
<PAGE>
                            CNA FINANCIAL CORPORATION
        NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

NOTE E.  Debt:

Borrowings consisted of the following:
<TABLE>
<CAPTION>
|--------------------------------------------------------------------------------------------------|
|  DEBT                                                                March 31        December 31 |                                
|  (In millions of dollars)                                              1998             1997     |
|--------------------------------------------------------------------------------------------------|
<S>                                                                   <C>            <C>
|  Variable Rate Debt:                                                                             |
|       Credit Facility                                                $    250       $    400     |
|       Commercial Paper                                                    675            675     |
|       Credit Facility - CNA Surety                                        118            118     |
|  Senior Notes:                                                                                   |
|       8.875%, due March 1, 1998                                            -             150     |
|       6.45% due January 15, 2008                                          149             -      |
|       6.95% due January 15, 2018                                          148             -      |
|       8.25%, due April 15, 1999                                           101            102     |
|       7.25%, due March 1, 2003                                            147            146     |
|       6.25%, due November 15, 2003                                        249            249     |
|       6.75%, due November 15, 2006                                        248            248     |
|       8.375%, due August 15, 2012                                          98             98     |
|  7.25% Debenture, due November 15, 2023                                   247            247     |
|  11% Secured Mortgage Notes, due June 1, 2013                             389            389     |
|  6.90% - 16.29% Secured Capital  Leases,  due December  31, 2011           46             47     |
|  Other  debt,  due 1998  through  2019 (rates of 1% to 12.71%)             28             28     |
| -------------------------------------------------------------------------------------------------|
|  TOTAL DEBT                                                          $  2,893       $  2,897     |
|==================================================================================================|
</TABLE>
                                                                                
    The  Company  has in place a  revolving  credit  facility  that was used to
finance  the  acquisition  of The  Continental  Corporation  (Continental).  The
interest rate for the credit 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
credit facility at March 31, 1998 was 5.85% compared to 5.61% at March 31, 1997.

         To take  advantage of  favorable  interest  rates,  CNA  established  a
commercial  paper  program  to replace  borrowings  under the  revolving  credit
facility.  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  interest rate on commercial  paper at March 31,
1998 and 1997, respectively, was 5.80% and 5.67%.

     As of May 1, 1998,  there were no  outstanding  loans  under the  revolving
credit facility. There was no unused borrowing capacity under the facility after
the effects of the commercial paper program.

         To offset  the  variable  rate  characteristics  of the  facility,  CNA
entered into interest rate swap  agreements  with several banks which  terminate
from May 2000 to December 2000. These  agreements  provide that CNA pay interest
at a fixed rate,  averaging 6.07% at March 31, 1998, 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 $0.3  million  for the three  months
ended March 31, 1998.

         The weighted  average interest rate (interest and facility fees) on the
variable  acquisition  debt,  which  includes  the  revolving  credit  facility,
commercial  paper,  and the effect of the interest rate swaps was 6.12% at March
31, 1998 and 6.26% at March 31, 1997.
                                      (13)
<PAGE>
                           CNA FINANCIAL CORPORATION
        NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

     On August 18, 1997,  CNAF filed a  Registration  Statement on Form S-3 with
the  Securities  and  Exchange  Commission  relating to $1 billion of senior and
subordinated debt and preferred stock that became effective on October 22, 1997.
This new shelf  registration  incorporated $250 million of securities  remaining
available for issuance from a prior shelf registration.  On January 8, 1998, the
Company issued $150 million  principal amount of 6.45% senior notes, due January
15, 2008, and $150 million  principal  amount of 6.95% senior notes, due January
15, 2018.  The net proceeds were used to pay down bank loans under the Company's
revolving credit facility.

         On April 15, 1998, the Company issued $500 million  principal amount of
6.50% senior notes, due April 15, 2005.  The net proceeds  were used to 
refinance the existing bank debt outstanding under the Company's revolving 
credit facility and to refinance a portion of the Company's outstanding
commercial paper.

         On  September  30, 1997,  CNA Surety,  a 62% owned  subsidiary  of CNA,
entered into a $130 million,  5 year revolving credit facility.  The interest on
credit facility borrowings is based on LIBOR plus 20 basis points. Additionally,
there is a credit facility fee of 10 basis points  annually.  At March 31, 1998,
the outstanding  borrowings under this credit facility were $118 million and the
weighted average interest rate was 5.89%.
                                      (14)
<PAGE>
                           CNA FINANCIAL CORPORATION
        NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

NOTE F.  Other Comprehensive Income:

         The Company  adopted  Statement of Financial  Accounting  Standards No.
130, "Reporting Comprehensive Income," which established standards for reporting
and  display  of  comprehensive  income  and  its  components  in the  financial
statements.  Comprehensive  income is comprised of all changes to  stockholders'
equity, including net income, except those changes resulting from investments by
owners and  distributions  to  owners.  The  change in the  components  of other
comprehensive income (loss) are reported net of income tax as shown below:
<TABLE>
<CAPTION>
|------------------------------------------------------------------------------------|
|                                                                   TAX              |
|   THREE MONTHS ENDED MARCH 31, 1998                    PRE-TAX  (EXPENSE)          |
|   (In millions of dollars)                             AMOUNT    BENEFIT     NET   |
|                                                                             AMOUNT |
|----------------------------------------------------------------------------------- |
<S>                                                        <C>    <C>      <C>
|                                                                                    |
|                                                                                    |
|------------------------------------------------------------------------------------|
|   Net unrealized gains (losses) on investment securities:                          |
|       Net  unrealized  holding gains  (losses)  arising                            |
|       during the period                                   106    (37)       69     |
|       Reclassification adjustment for (gains) losses                               |
|       included  in net income                            (149)    52       (97)    |
|                                                                                    |
|                                                                                    |
|       Adjustment for :                                                             |
|         Participating policyholder liabilities              4     (1)        3     |
|------------------------------------------------------------------------------------|
|   Total Other Comprehensive Income                        (39)    14       (25)    |
|====================================================================================|
</TABLE>
<TABLE>
<CAPTION>
|------------------------------------------------------------------------------------|
|                                                                   TAX              |
|   THREE MONTHS ENDED MARCH 31, 1997                    PRE-TAX  (EXPENSE)          |
|   (In millions of dollars)                             AMOUNT    BENEFIT     NET   |
|                                                                             AMOUNT |
|------------------------------------------------------------------------------------|
<S>                                                        <C>    <C>      <C>
|                                                                                    |
|                                                                                    |
|   Net unrealized gains (losses) on investment securities:                          |
|       Net  unrealized  holding gains (losses) arising                              |
|       during the period                                  (453)   141       (312)   |
|       Reclassification adjustment for (gains) losses                               |
|       included in net income                              (88)    31        (57)   |
|                                                                                    |       
|                                                                                    |
|       Adjustment for :                                                             |
|          Participating policyholder liabilities             9     (3)         6    |
|------------------------------------------------------------------------------------|
|   Total Other Comprehensive Income                       (532)   169       (363)   |
|====================================================================================|
</TABLE>
                                      (15)
<PAGE>
                           CNA FINANCIAL CORPORATION
        NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONCLUDED


NOTE G. Subsequent Events:
--------------------------

Proposed Acquisition:
--------------------

     On April 7, 1998, a subsidiary of the Company  entered into an agreement to
acquire Maritime  Insurance Co., a U.K. - based insurer,  for 56 million British
Pounds  (approximately $94 million as of April 1, 1998).  Maritime Insurance Co.
is a  marine,  aviation  and  transportation  insurer.  The  completion  of  the
acquisition is subject to certain regulatory approvals,  and no assurance can be
given that the acquisition will be consummated.

Stock Split:
------------

     On May 6, 1998, CNA's Board of Directors  approved a three for one split of
the Company's common shares of stock, and authorized a commensurate  increase in
the outstanding common shares from 61,798,262 to 185,394,786. The shares will be
distributable on June 1, 1998,  subject to the approval of the New York, Pacific
and  Chicago  stock  exchanges,  at a rate of three  shares for each one held by
shareholders of record at the close of business on May 22, 1998.

                                      (16)
<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 condensed  consolidated financial statements and notes thereto found on
pages 3 to 16,  which  contain  additional  information  helpful  in  evaluating
operating results and financial condition.

         CNA  Financial   Corporation   is  a  holding   company  whose  primary
subsidiaries  consist  of   property/casualty   and  life  insurance  companies,
collectively   CNA.  This  holding  company's   primary   subsidiaries   include
Continental Casualty Company,  primarily a commercial lines writer,  Continental
Assurance Company, a life insurance  subsidiary,  and The Continental  Insurance
Company,  primarily a personal lines and ocean marine writer.  CNA is one of the
largest  writers of  commercial  property/casualty  insurance and one of the ten
largest insurance organizations in the United States.

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

         The following chart summarizes key components of operating  results for
the three months ended March 31, 1998 and 1997.

|---------------------------------------------------------------------|
|THREE MONTHS ENDED MARCH 31                          1998        1997|     
|In millions of dollars)                                              |
|---------------------------------------------------------------------|
|                                                                     |    
|OPERATING SUMMARY (EXCLUDING REALIZED INVESTMENT                     |
|GAINS/LOSSES):                                                       |
|Revenues:                                                            |
| Premiums:                                                           |
|  Property/Casualty                                $ 2,527  $ 2,463  |
|  Life                                                 841      884  |
|                                                   -------- -------- |
|    Total premiums                                    3,368   3,347  |
| Net investment income                                  562     564  |
| Other                                                  215     155  |
|                                                   -------- ---------|
|    Total revenues                                    4,145   4,066  |
|Benefits and expenses                                 3,993   3,901  |
|    Operating income  before income tax                 152     165  |
|Income tax expense                                      (35)    (29) |
|                                                   -------- ---------|
|    Net operating income                           $    117 $   136  |
|                                                   ======== =========|
|                                                                     |
|Supplemental Financial Data:                                         |
|Net operating income (loss) by group:                                |
| Property/Casualty                                 $    126 $   139  |
| Life                                                    18      23  |
| Other                                                  (27)    (26) |
|                                                   -------- ---------|
|                                                   $    117 $   136  |
|                                                   -------- ---------|
|Net realized investment gains by group:                              |
| Property/Casualty                                 $    86  $    12  |
| Life                                                   30       18  |
| Other                                                  -        12  |
|                                                   -------- ---------|
|                                                   $   116  $    42  |
|                                                   -------- ---------|
|Net income (loss) by group:                                          |
| Property/Casualty                                 $   212  $   151  |
| Life                                                   48       41  |
| Other                                                 (27)     (14) |
|                                                    -------- --------|
|                                                    $   233 $   178  |
|=====================================================================|
                                      (17)                            
<PAGE>
                            CNA FINANCIAL CORPORATION
           MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
                      AND RESULTS OF OPERATIONS - continued

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

         Consolidated revenues, which consist of premium, net investment income,
realized  investment  gains and other revenues,  were $4.3 billion for the first
three months of 1998, up from $4.1 billion for the same period in 1997.  For the
first  quarter of 1998  revenues  reflect an increase  in earned  premium of $21
million,  resulting from an increase in property/casualty of $64 million, offset
in part by a decline in life premium of $43 million.  Investment income was down
$2  million  in the first  quarter  of 1998  compared  to 1997.  Other  revenues
increased by $60 million or 38.7% to $215 million for the first  quarter of 1998
due to increased  revenue from the  non-insurance  affiliates,  primarily in the
auto-warranty and agency software businesses.

     Net operating income, which excludes net realized investment gains, for the
first  quarter of 1998 was $117  million,  or $1.87 per share,  compared  to net
operating income of $136 million, or $2.18 per share, for the first three months
of 1997. CNA's net income in the first quarter of 1998 reflects after tax losses
of $16 million related to catastrophe  claims;  catastrophe  losses in the first
quarter of 1997 were $20 million, after tax.

         Net realized  investment  gains for the first quarter of 1998 were $116
million,  or $1.88 per share,  compared to net realized investment gains for the
first  quarter  of 1997 of $42  million,  or $0.67 per share.  This  substantial
increase is indicative of CNA's well established investment approach of managing
its  portfolio  on a total  return  basis,  taking gains in periods of favorable
market conditions.  The components of the net realized investment gains (losses)
are as follows:

|---------------------------------------------------------------------|
|REALIZED INVESTMENT GAINS(LOSSES)                                    |
|THREE MONTHS ENDED MARCH 31                     1998           1997  |
|(In millions of dollars)                                             |
|---------------------------------------------------------------------|
|Bonds:                                                               |
| U.S. Government                                 $  50          $  6 |
| Tax-exempt                                         16             1 |
| Asset-backed                                       13             7 |
| Taxable                                            29            10 |
|                                                   ---            -- |
|   Total bonds                                     108            24 |
|Stocks                                              (4)           30 |
|Derivative securities                               (7)            3 |
|Separate accounts and other                         86             9 |
|                                                   ---           --- |
|   Realized investment gains reported  in          183            66 |
|   revenues                                                          |
|Participating policyholders' interest               (4)           (3)|
|Income tax expense                                 (63)          (21)|
|---------------------------------------------------------------------|
|   NET REALIZED INVESTMENT GAINS                 $ 116          $ 42 |
|=====================================================================|

     Net income for the first three  months of 1998 was $233  million,  or $3.75
per share,  compared to $178  million,  or $2.85 per share,  for the first three
months of 1997.

                                      (18)
<PAGE>

                            CNA FINANCIAL CORPORATION
           MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
                      AND RESULTS OF OPERATIONS - continued

Property/Casualty Operations
----------------------------

|---------------------------------------------------------------------------|
|PROPERTY/CASUALTY GROUP                                                    |
|THREE MONTHS ENDED MARCH 31                          1998             1997 |
|(In millions of dollars)                                                   |
|---------------------------------------------------------------------------|
|OPERATING   SUMMARY   (EXCLUDING   NET                                     |
|REALIZED   INVESTMENT GAINS/LOSSES):                                       |
| Revenues:                                                                 |
|   Premiums                                      $ 2,527           $2,463  |
|   Net investment income                             453              461  |
|   Other                                             185              133  |
|                                                 -------            -----  |
|                                                   3,165            3,057  |
|  Benefits and expenses                            3,000            2,889  |
|                                                 -------            -----  |
| Income before income tax                            165              168  |
|Income tax expense                                   (39)             (29) |
|---------------------------------------------------------------------------|
|                                                                           |
|                                                                           |
|NET OPERATING  INCOME  (EXCLUDING  NET                                     |
|REALIZED  INVESTMENT GAINS/LOSSES)               $   126           $  139  |
|===========================================================================|
                                                                            
         Property/casualty   revenues,   excluding   net   realized   investment
gains/losses,  increased  3.5% for the three months ended March 31, 1998 to $3.2
billion compared to the same period a year ago. Property/casualty earned premium
increased $64 million, or 2.6% from the prior years comparable period.

     The growth in earned premiums is attributable to an increase in involuntary
risk premium of  approximately  $138  million and an increase in personal  lines
premium of approximately $42 million, offset in part by a decrease in commercial
lines premium of  approximately  $116 million.  Involuntary risk premium for the
1st quarter  1997 was $(75)  million,  reflecting  reductions  in  estimates  of
premiums for 1996 and prior periods, primarily in the workers' compensation line
of  business.  The decrease in  involuntary  risk premium in 1997 stemmed from a
greater  willingness on the part of the  involuntary  market,  including CNA, to
write these types of risks.  The increase in personal lines  continues the trend
seen in 1997 and is  attributable  to growth  in  private  passenger  automobile
business and  individual  long-term  care.  The decrease in commercial  lines is
primarily due to a decrease in accident and health business.

     Pretax operating income,  excluding net realized  investment  gains/losses,
for the property/casualty  insurance subsidiaries was $165 million for the first
three  months of 1998  compared to $168  million for the same period a year ago.
The decrease in operating income stems primarily from reduced investment income,
including a reduction in tax-exempt interest and dividends,  which was partially
offset by lower  catastrophe  losses.  Underwriting  losses for the three months
ended March 31, 1998 were $288  million,  compared to $293  million for the same
period in 1997. Pre-tax catastrophe losses were approximately $24 million in the
first  quarter of 1998 as compared to $31 million in the first  quarter of 1997.
Investment  income  decreased  1.7% for the three months ended March 31, 1998 to
$453 million from $461 million for the comparable period a year ago due to lower
yielding investments.  The bond segment of the investment portfolio yielded 6.4%
in the first quarter of 1998 compared with 6.7% for the same period a year ago.
<PAGE>
         The  net  operating   income  of  CNA's   property/casualty   insurance
subsidiaries,  excluding net realized investment gains/losses,  was $126 million
for the first three months of 1998, compared to $139 million for the same period
in 1997.  Net realized  investment  gains for the first quarter of 1998 were $86
million compared to $12 million in the first three months of 1997.

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

Life Operations
---------------

|-----------------------------------------------------------------------------|
|LIFE  GROUP                                                                  |
|THREE MONTHS ENDED MARCH 31                             1998             1997|
|(In millions of dollars)                                                     |
|-----------------------------------------------------------------------------|
|OPERATING   SUMMARY   (EXCLUDING   NET  REALIZED                             |
|INVESTMENT GAINS/LOSSES):                                                    |
|Revenues:                                                                    |
| Premiums                                            $  841           $  885 |
| Net investment income                                  111              105 |
| Other                                                   29               23 |
|                                                     ------            ----- |
|                                                        981            1,013 |
|Benefits and expenses                                   952              975 |
|                                                     ------            ----- |
| Income before income tax                                29               38 |
|Income tax expense                                      (11)             (15)|
|-----------------------------------------------------------------------------|
|NET  OPERATING  INCOME  (EXCLUDING  NET  REALIZED                            |
|INVESTMENT GAINS/LOSSES)                             $   18           $   23 |
|=============================================================================|
                                                                              
         CNA sells a variety of individual  and group  insurance  products.  The
individual  insurance  products  consist  primarily  of  term,  universal  life,
participating  policies,  annuity  products  and  variable  products,  including
annuity and universal  life products.  Group  insurance  products  include life,
accident and health consisting  primarily of major medical and  hospitalization,
as  well  as  variable  annuities  and  pension  products,  such  as  guaranteed
investment  contracts and annuities.  CNA has undertaken a number of initiatives
to enhance  service,  manage  health care  utilization  demand and quality,  and
strengthen CNA's networks of physicians, hospitals and other providers.

         Life group revenues, excluding net realized investment gains, were $981
million,  down 3.0% for the three  months  ended March 31, 1998  compared to the
same period a year ago. Life group earned  premium was $841  million,  down 5.0%
compared to the quarter  ended March 31, 1997,  with the growth in term business
more than offset by a reduction in individual  annuities  and Federal  Employees
Health  Benefit  Plan  (FEHBP)  premiums.  The  decrease in  individual  annuity
premiums is mainly due to a shift in marketing  efforts  towards more profitable
products. The decrease in FEHBP premiums is the result of lower claims submitted
during the first  three  months of 1998 as compared to the same period for 1997.
Investment income increased 5.7% compared to the same period a year ago due to a
larger asset base generated  from increased cash flows.  The bond segment of the
life investment  portfolio  yielded  approximately  6.9% in the first quarter of
1998 compared to 6.8% in the first quarter of 1997.

     Pre-tax operating income for the life insurance subsidiaries, excluding net
realized investment gains/losses,  was $29 million for the first three months of
1998,  compared  to $38 million  for the same  period in 1997.  The  decrease in
pretax  operating  income is primarily  due to lower premium  revenue,  as noted
above, and higher losses in group business during the first three months of 1998
as compared to the same period in 1997.

         Net realized  investment  gains for the first three months of 1998 were
$30 million,  compared to $18 million in the first three months of 1997,  as the
Company took advantage of favorable market conditions.
                                      (20)
<PAGE>
                           CNA FINANCIAL CORPORATION
           MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
                      AND RESULTS OF OPERATIONS - continued

INVESTMENTS:
<TABLE>
<CAPTION>
|--------------------------------------------------------------------|--------------------------------|
|SUMMARY OF GENERAL ACCOUNT INVESTMENTS                              |    Change in                   |
|  AT CARRYING VALUE                     MARCH 31       DECEMBER 31  |   Unrealized       Realized    |
|                                          1998            1997      |  Gains(Losses)   Gains(Losses) |
|(In millions of dollars)                                            |                                |
|--------------------------------------------------------------------|--------------------------------|
<S>                                      <C>             <C>                <C>            <C>         
|FIXED MATURITY SECURITIES:                                          |                                |
|U. S. Treasury securities and                                       |                                |
|  obligations of government agencies     $  12,373       $  12,980  |      $ (37)          $  50     |
|Asset-backed securities                      5,370           4,804  |         (8)             13     |
|                                                                    |                                |
|Tax-exempt securities                        5,148           4,724  |        (37)             16     |
|Taxable                                      6,906           7,040  |         24              29     |
|                                         ---------       ---------  |      ------          -----     |
|   Total fixed maturity securities          29,797          29,548  |        (58)            108     |
|Stocks                                         982             814  |         62              (4)    |
|Short-term investments                       4,895           4,884  |          -               -     |
|Other investments                            1,031             945  |        (34)             68     |
|Derivative security investments                 11              12  |          -              (7)    |
|                                         ---------       ---------  |      ------          ------    |
|   TOTAL INVESTMENTS                     $  36,716       $  36,203  |        (30)            165     |
|                                         =========       =========  |                                |
|Separate accounts and discontinued                                  |                                |
|operations                                                          |         (7)             18     |
|Participating policyholders' interest                               |          4              (4)    |
|Income tax  benefit (expense)                                       |          8             (63)    |
|                                                                    |      ------          ------    |
|   NET INVESTMENT GAINS (LOSSES)                                    |      $ (25)          $ 116     |
|====================================================================|================================|

|--------------------------------------------------------------------|
|SHORT-TERM INVESTMENTS:                                             |
|--------------------------------------------------------------------|
|Security repurchase collateral           $     548       $     154  |
|Escrow                                         990           1,065  |
|U.S. Treasuries                                510             558  |
|Commercial paper                             2,064           1,850  |
|                                                                    |
|Money markets                                  261             624  |
|                                                                    |
|Other                                          522             633  |
|                                                                    |
|--------------------------------------------------------------------|
|   TOTAL SHORT-TERM INVESTMENTS          $   4,895       $   4,884  |
|====================================================================|
</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.

         CNA  invests  from  time  to  time  in  certain  derivative   financial
instruments  primarily  to  reduce  its  exposure  to market  risk  (principally
interest  rate,  equity  price,  and  foreign  currency  risk).  CNA  also  uses
derivatives  to mitigate  the risk  associated  with its indexed  group  annuity
contract by purchasing S&P 500 futures  contracts in a notional  amount equal to
the original customer deposit.

         CNA considers  its  derivatives  as being held for purposes  other than
trading.  Derivative securities,  except for interest rate swaps associated with
certain corporate borrowings, are recorded at fair market value at the reporting
date with changes in market value  reflected in realized  gains and losses.  The
interest  rate swaps on corporate  borrowings  are  accounted  for using accrual
accounting  with the  related  income or expense  recorded as an  adjustment  to
interest expense; the changes in fair value are not recorded.

     The general account portfolio consists primarily of high quality marketable
fixed maturity securities,  approximately 95.6% of which are rated as investment
grade.  At March 31, 1998,  tax-exempt  securities  and  short-term investments,
excluding collateral for securities sold under repurchase agreements,  comprised
approximately  14.0% and 11.8%,  respectively,  of the general  account's  total
investment portfolio compared to 13.1% and 13.1%, respectively,  at December 31,
1997. Historically, CNA has
                                      (21)
<PAGE>
                           CNA FINANCIAL CORPORATION
           MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
                      AND RESULTS OF OPERATIONS - continued


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.  Short-term  investments  at both  March  31,  1998 and
December  31,  1997  are   substantially   higher  than  historical   levels  in
anticipation of additional  Fibreboard-related  claim payments.  The increase in
short-term  investments  at March 31, 1998 compared to December 31, 1997, is due
to increased collateral related to security repurchase transactions.  Collateral
for securities sold under repurchase  agreements  increased $394 million to $548
million.  At March 31, 1998, the major  components of the short-term  investment
portfolio  consist  primarily of high-grade  commercial paper and U.S.  Treasury
bills.
                                    
         As of March  31,  1998,  the  market  value of  CNA's  general  account
investments in fixed maturities was $29.8 billion and was greater than amortized
cost by  approximately  $470  million.  This compares to a market value of $29.5
billion and $528  million of net  unrealized  investment  gains at December  31,
1997. The gross  unrealized  investment  gains and losses for the fixed maturity
securities  portfolio  at March 31,  1998 were $579  million  and $109  million,
respectively,  compared  to $644  million  and $116  million,  respectively,  at
December 31, 1997. The decline in unrealized  investment  gains is attributable,
in large part, to the Company taking  advantage of favorable  market  conditions
and by selling securities and realizing investment gains.

         Net unrealized  investment gains on general account fixed maturities at
March 31, 1998  include net  unrealized  gains on high yield  securities  of $31
million,  compared to net unrealized  losses of $2 million on such securities at
December 31, 1997.  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 decreased $200 million to
approximately $1.3 billion at March 31, 1998 when compared to December 31, 1997.

         At March 31, 1998, total separate account cash and investments amounted
to  $5.6  billion   with  taxable   fixed   maturity   securities   representing
approximately 80% of the separate accounts'  portfolios.  Approximately 70.6% of
separate account  investments are used to fund guaranteed  investments for which
Continental Assurance Company guarantees principal and a specified return to the
contractholders.  The  duration  of fixed  maturity  securities  included in the
guaranteed investment portfolio are matched approximately with the corresponding
payout pattern of the liabilities of the guaranteed  investment  contracts.  The
fair  value  of all  fixed  maturity  securities  in the  guaranteed  investment
portfolio  was $3.6  billion at March 31, 1998 and $3.8  billion at December 31,
1997.  At  March  31,  1998,  amortized  cost was  less  than the fair  value by
approximately $88 million.  This compares to a gain of approximately $71 million
at December 31, 1997. The gross  unrealized  investment gains and losses for the
guaranteed  investment  fixed maturity  securities  portfolio at March 31, 1998,
were $102  million and $14 million,  respectively,  as compared to a gain of $87
million and a loss of $16 million at December 31, 1997.

     Carrying  values of high  yield  securities  in the  guaranteed  investment
portfolio  were $220  million at March 31, 1998 and $310 million at December 31,
1997. Net unrealized  investment  losses on high yield  securities  held in such
separate  accounts were $2 million at March 31, 1998, and $1 million on December
31, 1997.

     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 March 31, 1998, CNA's concentration in

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

high yield bonds,  including separate accounts,  was approximately 2.8% 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 March 31, 1998 (general and
guaranteed investment  portfolios) are $7.7 billion of asset-backed  securities,
consisting  of  approximately  36.5%  in  collateralized   mortgage  obligations
("CMOs"),  28.4%  in  corporate  asset-backed  obligations,   24.6%  incorporate
mortgage backed  security pass thru  obligations,  and 10.5% in U.S.  Government
agency issued pass-through certificates. The majority of CMOs held are corporate
mortgage backed securities,  which are actively traded in liquid markets and are
priced by  broker-dealers.  At March 31,  1998,  the fair value of  asset-backed
securities  exceeded the amoritized cost by approximately  $119 million compared
to net  unrealized  investment  gains of $114 million at December 31, 1997.  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.

         At March  31,  1998,  43.1% of the  general  account's  fixed  maturity
securities portfolio was invested in U.S. Government securities,  33.1% in other
AAA rated  securities and 13.0% in AA and A rated  securities.  CNA's guaranteed
investment  fixed  maturity  securities  portfolio  is  comprised  of 4.4%  U.S.
Government securities, 63.2% in other AAA rated securities and 13.9% in AA and A
rated  securities.  These ratings are primarily from Standard & Poor's (95.6% of
the  general  account  and 93.8% of the  guaranteed  investment  fixed  maturity
account).

                                      (23)

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

MARKET RISK:
         Market risk is a broad term  related to economic  losses due to adverse
changes in the fair value of a financial instrument.  Market risk is inherent to
all  financial  instruments,  and  accordingly,  the Company's  risk  management
policies and procedures include all market risk sensitive financial instruments.

         A  significant  component  of market  risk is price  risk.  Price  risk
relates to changes  in the level of prices  due to  changes in  interest  rates,
equity  prices,  foreign  exchange  rates or other factors that relate to market
volatility of the rate, index, or price underlying the financial instrument. The
Company's  primary  market  risk  exposures  are to changes in  interest  rates,
although  the  Company  has certain  exposures  to changes in equity  prices and
foreign currency exchange rates.

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

         The Company's market risk sensitive  instruments presented in the table
below are classified as held for purposes  other than trading.  The Company does
not generally hold or issue derivatives for trading purposes.

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

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

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

Sensitivity Analysis:
         CNA monitors its  sensitivity  to interest rate risk by evaluating  the
change in its  financial  assets and  liabilities  relative to  fluctuations  in
interest rates. The evaluation is made using an instantaneous parallel change in
interest rates of varying  magnitudes on a static balance sheet to determine the
effect such a change in rates would have on the  Company's  market value at risk
and the resulting  effect on  stockholders'  equity.  The analysis  presents the
sensitivity  of the  market  value of the  Company's  financial  instruments  to
selected  changes  in market  rates and  prices.  The  range of  changes  chosen
reflects the  Company's  view of changes  which are  reasonably  possible over a
one-year period. The selection of the range of values chosen

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

to represent  changes in interest rates should not be construed as the Company's
prediction of future market events;  but rather an illustration of the impact of
such events.

         The analysis  assumes that the  composition  of the Company's  interest
sensitive assets and liabilities existing at the beginning of the period remains
constant  over the period  being  measured  and also  assumes  that a particular
change  in  interest  rates  is  reflected  uniformly  across  the  yield  curve
regardless of the time to maturity.  Also the interest rates on certain types of
assets and  liabilities  may fluctuate in advance of changes in market  interest
rates,  while  interest  rates on other  types may lag behind  changes in market
rates.  Accordingly,  the analysis may not be indicative  of, is not intended to
provide,  and does not  provide a precise  forecast  of the effect of changes of
market interest rates on the Company's income or stockholders' equity.  Further,
the  computations do not contemplate any actions CNA would undertake in response
to changes in interest rates.

         The  sensitivity  analysis  assumes  an  instantaneous  shift in market
interest rates,  with scenarios of interest rates  increasing and decreasing 100
and 150  basis  points  from  their  levels  at March  31,  1998  with all other
variables held constant.  A 100 and 150 basis point increase in market  interest
rates  would  result  in a  pre-tax  decrease  in the net  financial  instrument
position of $1.7 billion and $2.5 billion, respectively. Similarly a 100 and 150
basis point decrease in market interest rates would result in a pre-tax increase
in the net  financial  instrument  position of $1.7  billion  and $2.5  billion,
respectively.

         The Company's long-term debt,  including interest rate swap agreements,
as of March 31, 1998 is denominated in U.S.  dollars.  Approximately  91% of the
Company's  long-term debt has been issued at fixed rates or has been effectively
converted into fixed rate debt by interest rate swap  arrangements  which mature
in May through December of 2000. As such,  interest expense on this indebtedness
would not be impacted by interest rate shifts. The impact of a 100 and 150 basis
point increase in market interest rates would result in a decrease in the market
value of the fixed rate debt by $139 million and $198 million, respectively. The
impact of a 100 and 150 basis  point  increase in market  interest  rates on the
variable rate debt would result in additional  interest  expense of $2.6 million
and $3.8 million,  respectively, per year. A 100 and 150 basis point decrease in
interest  rates would lower  interest  expense by $2.6 million and $3.8 million,
respectively, per year.

         Equity price risk was measured  assuming an  instantaneous  10% and 25%
change in the  Standard & Poor's 500 Index (the  Index)  from its level of March
31, 1998, with all other variables held constant.  The Company's equity holdings
were assumed to be perfectly  correlated with this index. A 10% and 25% decrease
in the  Index  would  result  in a  $212  million  and  $529  million  decrease,
respectively,  in the net financial instrument  position.  Of these amounts, $80
million  and  $200  million,  respectively,  would be  offset  by  decreases  in
liabilities to customers under variable annuity contracts.  Similarly, increases
in the index would  result in like  increases  in the net  financial  instrument
position.

         The  sensitivity  analysis  also assumes an  instantaneous  10% and 20%
change in the foreign currency  exchange rates versus the U.S. Dollar from their
levels at March 31, 1998, with all other variables held constant.  A 10% and 20%
strengthening  of the U.S.  dollar  versus  other  currencies  would  result  in
decreases  of $172  million  and $343  million in the net  financial  instrument
position.  Weakening of the U.S. dollar versus all other currencies would result
in like increases in the net financial instrument position.

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

     The  following  table  reflects an increase in interest  rates of 100 basis
points,  a 10%  decline  in the S&P 500  index,  and a decline of 10% in foreign
currency exchange rates.
<TABLE>
<CAPTION>
|-----------------------------------------------------------------------------------------------------------------|
|MARCH 31, 1998                                  Market           Interest         Currency          Equity       |
|(In millions of dollars)                         Value          Rate Risk           Risk             Risk        |
|-----------------------------------------------------------------------------------------------------------------|
<S>                                        <C>               <C>              <C>              <C>
|Held for Other Than Trading Purposes                                                                             |
| General accounts                                                                                                |
| Fixed maturity securities                 $  29,797         $  (1,454)       $     (95)       $       -         |
| Equity securities                               982                 -              (24)            (105)        |
| Short term investments                        4,895                (6)             (31)              (1)        |
| Interest rate swaps                              (1)               13                -                -         |
|-----------------------------------------------------------------------------------------------------------------|
|       Total general accounts                 35,673            (1,447)            (150)            (106)        |
|-----------------------------------------------------------------------------------------------------------------|
| Separate accounts                                                                                               |
| Fixed maturity securities                     4,490              (205)             (20)              (3)        |
| Equity securities                               225                 -                -              (23)        |
| Short term investments                          737                (1)              (2)               -         |
| Equity index futures                              -                 2                -              (80)        |
|-----------------------------------------------------------------------------------------------------------------|
|       Total separate accounts                 5,452              (204)             (22)            (106)        |
|-----------------------------------------------------------------------------------------------------------------|
|       Total all securities                $  41,125         $  (1,651)       $    (172)       $    (212)        |
|=================================================================================================================|
|Long term debt                             $  (2,907)        $     139        $       -        $       -         |
==================================================================================================================|
</TABLE>
<PAGE>                                                                          
   The  following  table  reflects an increase in interest  rates of 150 basis
points,  a 25%  decline  in the S&P 500  index,  and a decline of 20% in foreign
currency exchange rates.

<TABLE>
<CAPTION>
|-----------------------------------------------------------------------------------------------------------------|
|MARCH 31, 1998                                 Market           Interest          Currency          Equity       |
|(In millions of dollars)                        Value           Rate Risk           Risk             Risk        |
|-----------------------------------------------------------------------------------------------------------------|
 <S>                                        <C>               <C>             <C>              <C>                                  
|Held for Other Than Trading Purposes                                                                             |
| General accounts                                                                                                |
| Fixed maturity securities                 $  29,797         $  (2,166)       $    (190)       $       -         |
| Equity securities                               982                 -              (47)            (263)        |
| Short term investments                        4,895               (10)             (61)              (1)        |
| Interest rate swaps                              (1)               20                -                -         |
|-----------------------------------------------------------------------------------------------------------------|
|       Total general accounts                 35,673            (2,156)            (298)            (264)        |
|-----------------------------------------------------------------------------------------------------------------|
| Separate accounts                                                                                               |
| Fixed maturity securities                     4,490              (312)             (40)              (9)        |
| Equity securities                               225                 -               (1)             (56)        |
| Short term investments                          737                (1)              (4)               -         |
| Equity index futures                              -                 3                -             (200)        |
|-----------------------------------------------------------------------------------------------------------------|
|       Total separate accounts                 5,452              (310)             (45)            (265)        |
|-----------------------------------------------------------------------------------------------------------------|
|       Total all securities                $  41,125         $  (2,466)        $   (343)       $    (529)        |
|=================================================================================================================|
|Long term debt                             $  (2,907)        $     198         $      -        $       -         |
==================================================================================================================|
</TABLE>
                                       (26)
<PAGE>
                            CNA FINANCIAL CORPORATION
           MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
                      AND RESULTS OF OPERATIONS -continued

FINANCIAL CONDITION:

|--------------------------------------------------------------------------|
|Financial Position                           MARCH 31      DECEMBER 31    |
|(In millions of dollars,                       1998             1997      |
|except per share data)                                                    |
|--------------------------------------------------------------------------|
|                                                                          |    
|                                                                          |
|                                                                          |
|Assets                                       $ 62,123          $ 61,269   |
|Stockholders' Equity                            8,516             8,309   |
|Accumulated Other Comprehensive                                           |
| Income Included in Stockholders' Equity          564               589   |
|Book Value per Common Share                    135.37            132.02   |
|--------------------------------------------------------------------------|
                                                                                
     CNA's assets  increased  approximately  $854 million to $62.1 billion as of
March  31,  1998.  This  change  was  primarily  the  result of an  increase  in
investments   related  to  an  increase  in  securities  sold  under  repurchase
agreements of $394  million,  and an increase in insurance  receivables  of $644
million due to an increase in net written premium of approximately  $900 million
to $3.0 billion for the 3 months ended March 31, 1998 from $2.1 billion 3 months
ended December 31, 1997.

         The  statutory  surplus  of  the  property/casualty   subsidiaries  was
approximately  $7.0 billion,  compared to approximately $7.1 billion on December
31, 1997. The statutory surplus of the life insurance  subsidiaries  remained at
$1.2 billion.

LIQUIDITY AND CAPITAL RESOURCES:

         The  liquidity  requirements  of CNA have been met  primarily  by funds
generated from operating, investing and financing activities. In early 1998, CNA
was able to take  advantage of favorable  market  conditions to refinance,  on a
fixed rate basis,  a portion of its existing debt under the Company's  revolving
credit  facility.  Additionally,  on April 15,  1998,  the  Company  issued $500
million  principal  amount of 6.50%  senior  notes due April 15,  2005.  The net
proceeds  were used to refinance the existing  bank debt  outstanding  under the
Company's  revolving credit facility and to refinance a portion of the Company's
outstanding commercial paper.

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

         Net cash flows from  operations  are  primarily  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.

         For the quarter ended March 31, 1998, CNA's operating cash flows were a
negative $240 million, compared to a negative $737 million for the quarter ended
March 31, 1997. The Company had substantially lower operating cash flow in 1997,
primarily due to claim payments  resulting from the settlement of the Fibreboard
litigation.
                                      (27)
<PAGE>

                            CNA FINANCIAL CORPORATION
           MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
                      AND RESULTS OF OPERATIONS -continued


IMPACT OF YEAR 2000:

     The  widespread  use of computer  programs,  both in the United  States and
internationally,  that rely on two digit date fields to perform computations and
decision  making  functions  may cause  computer  systems  to  malfunction  when
processing  information  involving dates  beginning in 1999.  Such  malfunctions
could lead to business delays and disruptions.  The Company is in the process of
replacing many of its legacy  systems to accommodate  business for the year 2000
and beyond.  Based upon its current  assessment,  the Company estimates that the
total  cost to  replace  and  upgrade  its  systems  to  accommodate  year  2000
processing will be approximately  $60 to $70 million.  The Company believes that
it will be able to resolve the year 2000 issue in a timely manner.  However, due
to the interdependent  nature of computer systems,  the company may be adversely
impacted  depending upon whether it or other  entities not  affiliated  with the
Company  (vendors and business  partners)  address this issue  successfully.  To
mitigate this impact, the Company is communicating with its vendors and business
partners to coordinate the year 2000 conversion.

         In  addition,   property/casualty   insurance  companies  may  have  an
underwriting  exposure  related to year 2000.  Although CNA has not received any
claims for coverage from its  policyholders  based on losses resulting from year
2000  issues,  there can be no  assurances  that  policyholders  will not suffer
losses of this type and seek compensation under CNA's insurance polices.  If any
claims are made, coverage, if any, will depend on the facts and circumstances of
the claim and the provisions of the policy.  At this time, the Company is unable
to  determine  whether  the  adverse  impact,  if any,  in  connection  with the
foregoing circumstances would be material to the Company.

                                      (28)
<PAGE>
                           CNA FINANCIAL CORPORATION
           MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
                      AND RESULTS OF OPERATIONS -continued

ACCOUNTING STANDARDS:

     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 need not be applied to
interm  financial  statements  in the  initial  year  of its  application.  This
Statement will redefine CNA's business segment disclosure.


         In  December   1997,  the  American   Institute  of  Certified   Public
Accountants'   Accounting   Standards   Executive  Committee  issued  SOP  97-3,
"Accounting   by  Insurance   and  Other   Enterprises   for   Insurance-Related
Assessments," which provides guidance on accounting by entities that are subject
to   insurance-related   assessments.   It  requires  that  entities   recognize
liabilities for insurance-related assessments when all of the following criteria
have been met: an assessment has been imposed or a probable  assessment  will be
imposed; the event obligating an entity to pay an imposed or probable assessment
has occurred on or before the date of the financial  statements;  and the amount
of the  assessment  can be  reasonably  estimated.  This  SOP is  effective  for
financial  statements for fiscal years beginning after December 15, 1998. CNA is
currently   evaluating   the  effects  of  this  SOP  on  its   accounting   for
insurance-related assessments.


         In February 1998, the FASB issued SFAS No.132,  "Employers' Disclosures
about Pensions and Other Postretirement Benefits," which standardizes disclosure
requirements  for  pension  and  other  postretirement  benefits  to the  extent
practicable,   requires  additional   information  on  changes  in  the  benefit
obligations  and fair  values  of plan  assets  that will  facilitate  financial
analysis.  The Statement  also suggests  combined  formats for  presentation  of
pension and other  postretirement  benefit  disclosures.  The Statement  changes
disclosure only and does not address measurement or recognition. It is effective
for fiscal years beginning after December 15, 1997. CNA is currently  evaluating
the effects of this Statement on its benefit plan disclosures.


     In March 1998,  the American  Institute of  Certified  Public  Accountants'
Accounting  Standards  Executive  Committee  issued  Statement of Position (SOP)
98-1,  "Accounting for the Costs of Computer Software  Developed or Obtained for
Internal  Use,"  which  provides  guidance on  accounting  for costs of computer
software  developed or obtained for  internal  use and for  determining  whether
computer  software is for internal  use. For purposes of this SOP,  internal-use
software is software acquired,  internally  developed or modified solely to meet
the entity's  internal  needs for which no  substantive  plan exists or is being
developed to market the software externally during the software's development or
modification.  Accounting treatment for costs associated with software developed
or obtained for internal  use, as defined by this SOP, is based upon a number of
factors,  including the point in time during the project that costs are incurred
as well as the types of costs  incurred.  This SOP is  effective  for  financial
statements for fiscal years  beginning after December 15, 1998. CNA is currently
evaluating the effects of this SOP.
                                      (29)
<PAGE>
                            CNA FINANCIAL CORPORATION

                           PART II. OTHER INFORMATION



ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K               
                                                  
(a)  EXHIBITS:

                  Description of Exhibit
                                                     Exhibit          Page
                                                     Number           Number
                                                     --------         -------

Computation of Net Income per Common Share               11              32
Computation of Ratio of Earnings to Fixed Charges        12.1            33
Computation of Ratio of Net Income
  As Adjusted, to Fixed Charges                          12.2            33
Financial Data Schedule                                  27              34

(b)  REPORTS ON FORM 8-K:
         On February 4, 1998, CNA Financial  Corporation  filed a report on Form
8-K  related  to a  February  2, 1998  press  release  announcing  that  Bernard
Hengesbaugh was named  executive vice president and chief  operating  officer of
CNA's insurance and insurance-related operations.
                                      (30)
<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:  May 15, 1998                              By:S/W. JAMES MACGINNITIE
       ------------                                  --------------------
                                                     W. James MacGinnitie
                                                     Senior Vice President and
                                                     Chief Financial Officer
                                      (31)
<PAGE>
                                                             EXHIBIT 11

                            CNA FINANCIAL CORPORATION
                   COMPUTATION OF NET INCOME PER COMMON SHARE

-----------------------------------------------------------------------
THREE MONTHS ENDED MARCH 31                            1998      1997
(In millions, except per share data)
-----------------------------------------------------------------------

Earnings per share:

 Net income ....................................    $ 233        $ 178
 Less preferred stock dividends.................        1            2
                                                    -----        -----

 Net income  available to common stockholders...    $ 232        $ 176
                                                    =====        =====

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

 Net income  per common share...................    $3.75        $2.85
                                                    ======       =====
-----------------------------------------------------------------------
                                      (32)
<PAGE>
<TABLE>
<CAPTION>
                                                                                              EXHIBIT 12.1

                            CNA FINANCIAL CORPORATION
                COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES

=============================================================================================================
THREE MONTHS ENDED MARCH 31                                                                 1998        1997
(In millions of dollars, except ratios)
-------------------------------------------------------------------------------------------------------------
<S>                                                                                       <C>        <C>    
Income before income tax and cumulative effect of accounting changes..................     $ 331      $  228
Adjustments:
   Interest expense...................................................................        55          49
   Interest element of operating lease rental.........................................        10           9
Income before income tax and cumulative effect of
     accounting changes, as adjusted..................................................       396         286


Fixed charges:
   Interest expense...................................................................        55          49
   Interest element of operating lease rental.........................................        10           9
Fixed charges.........................................................................        65          58


Ratio of earnings to fixed charges (1)................................................       6.1         4.9
==============================================================================================================
<FN>
(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.
</FN>
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
                                                                                                EXHIBIT 12.2

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

--------------------------------------------------------------------------------------------------------------
THREE MONTHS ENDED MARCH 31                                                                 1998        1997
(In millions of dollars, except ratios)
--------------------------------------------------------------------------------------------------------------
<S>                                                                                       <C>        <C>  
Net income............................................................................     $ 233       $ 178
Adjustments:
   Interest expense, after tax........................................................        35          32
   Interest element of operating lease rental, after tax..............................         7           6
Net income, as adjusted...............................................................       275         216


Fixed charges:
   Interest expense, after tax........................................................        35          32
   Interest element of operating lease rental, after tax..............................         7           6
Fixed charges.........................................................................        42          38


Ratio of net income, as adjusted, to fixed charges (1)................................       6.5         5.7
---------------------------------------------------------------------------------------------------------------
</TABLE>

(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.
                                      (33)