--------------------------------------------------------------------------------
                       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, 1997    COMMISSION FILE NUMBER 1-5823

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


                            CNA FINANCIAL CORPORATION

             (Exact name of registrant as specified in its charter)


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

           CNA PLAZA
        CHICAGO, ILLINOIS                                           60685
(Address of principal executive offices)                         (Zip Code)


                                 (312) 822-5000
              (REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)

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


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


          CLASS                                      OUTSTANDING AT MAY 1, 1997
------------------------------                      ----------------------------
Common Stock, Par value $2.50                                  61,798,262

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

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

                                      INDEX


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

CONDENSED CONSOLIDATED FINANCIAL STATEMENTS:

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

   STATEMENT OF CONSOLIDATED OPERATIONS (Unaudited)
     FOR THE THREE MONTHS ENDED MARCH 31, 1997 AND 1996................     4

   STATEMENT OF CONSOLIDATED STOCKHOLDERS' EQUITY (Unaudited)
     FOR THE THREE MONTHS ENDED MARCH 31, 1997 AND 1996................     5

   STATEMENT OF CONSOLIDATED CASH FLOWS (Unaudited)
     FOR THE THREE MONTHS ENDED MARCH 31, 1997 AND 1996................     6

   NOTES TO CONDENSED CONSOLIDATED FINANCIAL
     STATEMENTS (Unaudited) MARCH 31, 1997.............................     7

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
     AND RESULTS OF OPERATIONS.........................................    15


PART II.  OTHER INFORMATION

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

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

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

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

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

                           CONSOLIDATED BALANCE SHEET
<CAPTION>
------------------------------------------------------------------------------------------------------------------
                                                                                      MARCH 31         DECEMBER 31
                                                                                        1997              1996
(In millions of dollars)                                                             (Unaudited)
------------------------------------------------------------------------------------------------------------------
ASSETS
    Investments:
<S>                                                                                  <C>                <C>     
         Fixed maturities available for sale (cost: $27,171 and $27,540) ..........     $ 26,877        $ 27,721
         Equity securities available for sale (cost: $801 and $702)................          923             859
         Mortgage loans and real estate (less accumulated depreciation: $4 and $4).          116             123
         Policy loans..............................................................          176             174
         Other invested assets.....................................................          667             681
         Short-term investments....................................................        7,567           5,854
                                                                                         -------         -------
              Total investments....................................................       36,326          35,412
    Cash...........................................................................          402             257
    Insurance receivables:
         Reinsurance receivables ..................................................        6,805           6,965
         Other insurance receivables...............................................        6,333           5,943
         Less allowance for doubtful accounts......................................         (278)           (277)
    Deferred acquisition costs.....................................................        1,984           1,854
    Accrued investment income......................................................          475             508
    Receivables for securities sold................................................          323             264
    Federal income taxes recoverable (includes $186 and $151 due from Loews) ......          182             134
    Deferred income taxes..........................................................        1,430           1,347
    Property and equipment at cost (less accumulated depreciation: $475 and $436)..          660             645
    Prepaid reinsurance premiums...................................................          260             295
    Intangibles....................................................................          415             418
    Other assets...................................................................        1,040             849
    Separate Account business......................................................        6,084           6,121
----------------------------------------------------------------------------------------------------------------
              TOTAL ASSETS                                                             $  62,441        $ 60,735
================================================================================================================
</TABLE>

<PAGE>
<TABLE>
                        
                            CNA FINANCIAL CORPORATION

                     CONSOLIDATED BALANCE SHEET - Continued
<CAPTION>
------------------------------------------------------------------------------------------------------------------
                                                                                      MARCH 31         DECEMBER 31
                                                                                        1997              1996
(In millions of dollars)                                                             (Unaudited)
------------------------------------------------------------------------------------------------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
   <S>                                                                                <C>             <C>  
    Insurance reserves:
         Claim and claim expense................................................       $ 30,932        $ 30,830
         Unearned premiums......................................................          4,950           4,659
         Future policy benefits.................................................          4,382           4,181
         Policyholders' funds...................................................            721             746
    Securities sold under repurchase agreements.................................          1,954             100
    Payables for securities purchased...........................................            837             405
    Participating policyholders' equity.........................................            112             119
    Long-term debt..............................................................          2,764           2,765
    Other liabilities...........................................................          2,832           3,749
    Separate Account business...................................................          6,084           6,121
                                                                                         ------         -------
            TOTAL LIABILITIES...................................................         55,568          53,675
                                                                                         ------         -------
Stockholders' equity:
    Common stock ($2.50 par value; Authorized - 200,000,000 shares;
        Issued - 61,841,969 shares).............................................            155             155
    Money market cumulative preferred stock.....................................            150             150
    Additional paid-in capital..................................................            435             435
    Retained earnings...........................................................          6,200           6,024
    Net unrealized investment gains(losses) ....................................            (64)            299
    Treasury stock, at cost.....................................................             (3)             (3)
                                                                                         -------         ------
            TOTAL STOCKHOLDERS' EQUITY..........................................          6,873           7,060
---------------------------------------------------------------------------------------------------------------
            TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY                                 $ 62,441        $ 60,735
===============================================================================================================
<FN>
     See accompanying Notes to Condensed Consolidated Financial Statements.
</FN>
</TABLE>

                                      (3)
<PAGE>
<TABLE>
                          
                            CNA FINANCIAL CORPORATION

                      STATEMENT OF CONSOLIDATED OPERATIONS
                                   (Unaudited)

<CAPTION>
--------------------------------------------------------------------------------
THREE MONTHS ENDED MARCH 31                           1997              1996
(In millions of dollars, except per share data)
--------------------------------------------------------------------------------
Revenues:
<S>                                             <C>                <C>         
  Premiums......................................$        3,347     $      3,293
  Net investment income.........................           564              578
  Realized investment gains ....................            66              305
  Other.........................................           155              139
                                                ---------------    -------------
                                                         4,132            4,315
                                                ---------------    -------------
Benefits and expenses:
  Insurance claims and policyholders' benefits..         2,892            2,787
  Amortization of deferred acquisition costs....           520              528
  Other operating expenses......................           443              458
  Interest expense..............................            49               60
                                                ---------------    -------------
                                                         3,904            3,833
                                                ---------------    -------------
    Income before income tax....................           228              482
Income tax expense .............................           (50)            (153)
                                                ---------------    -------------
    Net income .................................$          178     $        329
================================================================================

EARNINGS PER SHARE
Net income .....................................$         2.85     $       5.30
                                                ===============    =============

Weighted average outstanding shares of
common stock (in millions of shares)...........           61.8             61.8
================================================================================
<FN>
      See accompanying Notes to Condensed Consolidated Financial Statements
</FN>
</TABLE>

                                      (4)
<PAGE>
<TABLE>
                           
                           CNA FINANCIAL CORPORATION

                 STATEMENT OF CONSOLIDATED STOCKHOLDERS' EQUITY
                                   (Unaudited)
<CAPTION>
------------------------------------------------------------------------------------------------
THREE MONTHS ENDED MARCH 31, 1997 AND 1996
                                                                             NET
                                              ADDITIONAL                 UNREALIZED
                                   CAPITAL     PAID IN      RETAINED  INVESTMENT GAINS  TOTAL
                                    STOCK      CAPITAL      EARNINGS      (LOSSES)
(In millions of dollars)
-----------------------------------------------------------------------------------------------
<S>                                <C>          <C>       <C>            <C>          <C>          
BALANCE, DECEMBER 31, 1995          $ 302        $ 435     $  5,066       $  933       $ 6,736      
  Net income.......................     -            -          329            -           329
  Unrealized investment (losses)...     -            -            -         (599)         (599)
  Preferred dividends..............     -            -           (2)           -            (2)
-----------------------------------------------------------------------------------------------
BALANCE, MARCH 31, 1996             $ 302        $ 435    $   5,393      $   334       $ 6,464 
===============================================================================================

BALANCE, DECEMBER 31, 1996          $ 302        $ 435    $   6,024      $   299       $ 7,060 
  Net income........................    -            -          178            -           178
  Unrealized investment (losses)....    -            -            -         (363)         (363)
  Preferred dividends...............    -            -           (2)           -            (2)
-----------------------------------------------------------------------------------------------
BALANCE, MARCH 31, 1997             $ 302        $ 435    $   6,200      $   (64)      $ 6,873 
===============================================================================================
<FN>
     See accompanying Notes to Condensed Consolidated Financial Statements.
</FN>
</TABLE>
                                      (5)
<PAGE>
<TABLE>                           
                            CNA FINANCIAL CORPORATION

                      STATEMENT OF CONSOLIDATED CASH FLOWS

                                   (Unaudited)
<CAPTION>
-----------------------------------------------------------------------------------------------------
THREE MONTHS ENDED MARCH 31                                                    1997           1996
(In millions of dollars)
-----------------------------------------------------------------------------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES:
<S>                                                                             <C>           <C>   
  Net income .............................................................      $ 178         $  329
                                                                            ----------      ---------
  Adjustments  to  reconcile  net  income  to  net  
    cash  flows  from  operating activities:
    Net realized investment gains, pre-tax ...............................        (66)          (305)
    Participating policyholders' interest.................................          2              3
    Amortization of intangibles...........................................          7              7
    Amortization of bond discount.........................................        (64)           (32)
    Depreciation..........................................................         33             37
    Changes in:
       Insurance receivables, net.........................................       (230)          (543)
       Deferred acquisition costs.........................................       (130)           (82)
       Accrued investment income..........................................         33            (79)
       Federal income taxes...............................................        (48)           213
       Deferred income taxes..............................................         87             12
       Prepaid reinsurance premiums.......................................         35            (11)
       Insurance reserves.................................................        574            137
       Reinsurance payables...............................................         39             (9)
       Other Liabilities..................................................     (1,119)           452
       Other, net.........................................................        (68)          (275)
                                                                            ----------      ---------
               Total adjustments .........................................       (915)          (475)
                                                                            ----------      ---------
               NET CASH FLOWS FROM OPERATING ACTIVITIES ..................       (737)          (146)
                                                                            ----------      ---------

CASH FLOWS FROM INVESTING ACTIVITIES:
   Purchases of fixed maturities..........................................     (8,493)       (10,460)
   Proceeds from fixed maturities:
     Sales................................................................      8,708         10,726
     Maturities, calls and redemptions....................................        603            698
   Purchases of equity securities.........................................       (409)          (168)
   Proceeds from sale of equity securities................................        301            214
   Change in short-term investments.......................................     (1,664)        (2,105)
   Purchases of property and equipment ...................................        (45)           (43)
   Change in securities sold under repurchase agreements..................      1,853          1,469
   Change in other investments............................................         47            260
   Investment in affiliates...............................................        (15)             -
   Other, net.............................................................          3            (25)
                                                                            ----------      ---------
               NET CASH FLOWS FROM INVESTING ACTIVITIES ..................        889            566
                                                                            ----------      ---------
</TABLE>
<PAGE>
<TABLE>                           
                            CNA FINANCIAL CORPORATION

                STATEMENT OF CONSOLIDATED CASH FLOWS - Continued

                                   (Unaudited)
<CAPTION>
-----------------------------------------------------------------------------------------------------
THREE MONTHS ENDED MARCH 31                                                    1997           1996
(In millions of dollars)
-----------------------------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
<S>                                                                                <C>            <C>
   Dividends paid to preferred shareholders...............................         (2)            (2)
   Receipts from investment contracts credited to
      policyholder account balances.......................................          3              3
   Return of policyholder account balances on investment contracts........         (7)            (9)
   Change in short-term debt..............................................          -           (252)
   Principal payments on long-term debt...................................         (1)            (1)
   Proceeds from issuance of long-term debt...............................          -              7
                                                                            ----------      ---------
               NET CASH FLOWS FROM  FINANCING ACTIVITIES..................         (7)          (254)
                                                                            ----------      ---------
                       Net cash flows.....................................        145            166
Cash at beginning of period...............................................        257            222
=====================================================================================================
CASH AT END OF PERIOD                                                           $ 402          $ 388  
=====================================================================================================

Supplemental disclosures of cash flow information: Cash (paid) received:
   Interest expense.......................................................      $ (42)         $ (38)
   Federal income taxes...................................................          -            (79)
=====================================================================================================
<FN>
                  See accompanying Notes to Condensed Consolidated Financial Statements.
</FN>
</TABLE>
                                      (6)
<PAGE>
                            CNA FINANCIAL CORPORATION
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                 MARCH 31, 1997
                                   (UNAUDITED)


NOTE A.  Basis of Presentation:

         The condensed consolidated financial statements (unaudited) include CNA
Financial Corporation (CNA or the Company) and its operating  subsidiaries which
consist  of  property/casualty   insurance  companies  (principally  Continental
Casualty  Company and The  Continental  Insurance  Company)  and life  insurance
companies  (principally  Continental  Assurance  Company  and Valley  Forge Life
Insurance  Company).  Loews  Corporation  (Loews) owns  approximately 84% of the
outstanding common stock of CNA.

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

         The  operating  results  for the interim  periods  are not  necessarily
indicative  of the results to be expected  for the full year.  These  statements
should be read in  conjunction  with the financial  statements and notes thereto
included in CNA's Annual Report to  Shareholders  (incorporated  by reference in
Form 10-K) for the year ended  December 31, 1996,  filed with the  Commission on
March 31, 1997, and the information shown below.

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

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

NOTE B.  Restricted Investments:

         On December 30, 1993, CNA deposited $987 million in an escrow  account,
pursuant to the Fibreboard Global Settlement  Agreement,  as discussed in Note C
below. At March 31, 1997, the escrow account amounted to $1.1 billion. The funds
are included in short-term  investments and are invested  substantially in U. S.
Treasury securities. The escrow account is the prefunding mechanism to the trust
fund for future claimants.

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


NOTE C.  Legal Proceedings and Contingent Liabilities:

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

FIBREBOARD LITIGATION

         CNA's  primary  property/casualty   subsidiary,   Continental  Casualty
Company ("Casualty"),  has been party to litigation with Fibreboard  Corporation
("Fibreboard")  involving  coverage  for  certain  asbestos-related  claims  and
defense costs (San  Francisco  Superior  Court,  Judicial  Council  Coordination
Proceeding  1072). As described  below,  Casualty,  Fibreboard,  another insurer
(Pacific Indemnity,  a subsidiary of the Chubb  Corporation),  and a negotiating
committee of asbestos claimant attorneys  (collectively  referred to as Settling
Parties) have reached a Global  Settlement (the "Global  Settlement") to resolve
all future asbestos-related bodily injury claims involving Fibreboard,  which is
subject to court approval.

         Casualty,  Fibreboard  and  Pacific  Indemnity  have  also  reached  an
agreement (the "Trilateral Agreement"),  on a settlement to resolve the coverage
litigation  in the event the  Global  Settlement  does not  obtain  final  court
approval or is subsequently  successfully attacked. The implementation of either
the  Global  Settlement  or the  Trilateral  Agreement  would have the effect of
settling Casualty's litigation with Fibreboard.

         On July 27,  1995,  the United  States  District  Court for the Eastern
District of Texas entered judgment approving the Global Settlement Agreement and
the Trilateral  Agreement.  As expected,  appeals were filed as respects both of
these  decisions.  On July 25, 1996, a panel of the United  States Fifth Circuit
Court of Appeals in New  Orleans  affirmed  the  judgment  approving  the Global
Settlement  Agreement by a 2 to 1 vote and affirmed the judgment  approving  the
Trilateral  Agreement by a 3 to 0 vote. Petitions for rehearing by the panel and
Suggestions  for  Rehearing  by the  entire  Fifth  Circuit  Court of Appeals as
respects  the  decision on the Global  Settlement  Agreement  were  denied.  Two
petitions for certiorari were filed in the Supreme Court.  The Court has not yet
approved or denied such petition.

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

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

         Through March 31, 1997,  Casualty,  Fibreboard and plaintiff  attorneys
had reached  settlements  with respect to approximately  134,200 claims,  for an
estimated  settlement amount of approximately  $1.61 billion plus any applicable
interest. Final court approval of the Trilateral Agreement obligates Casualty to
pay under these settlements.  Approximately $1.39 billion was paid through March
31, 1997,  including  approximately  $590 million paid in the fourth  quarter of
1996 and the  first  quarter  of 1997 as a result  of the  Trilateral  Agreement
becoming final. As described above, such payments are partially recoverable from
Pacific Indemnity.  Casualty may negotiate other agreements with various classes
of claimants  including  groups who may have previously  reached  agreement with
Fibreboard.

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

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.

         The suit does not  specify  the  dollar  amount of the  damages  sought
against the CNA property/casualty  subsidiaries and such subsidiaries are in the
process of verifying  the  policies  referred to in the  complaint.  The time in
which the CNA  companies  have to respond to the  complaint has not yet expired.
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  or  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 have a material
adverse effect on the financial position of CNA.

OTHER LITIGATION

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

ENVIRONMENTAL AND ASBESTOS

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

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

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

         The Comprehensive Environmental Response Compensation and Liability Act
of 1980  ("Superfund") and comparable state statutes  ("mini-Superfund")  govern
the clean-up and  restoration  of abandoned  toxic waste sites and formalize the
concept  of  legal  liability  for  clean-up  and  restoration  by  "Potentially
Responsible Parties" ("PRP's"). Superfund and the mini-Superfunds (Environmental
Clean-up Laws or "ECLs") establish mechanisms to pay for clean-up of waste sites
if PRP's  fail to do so,  and to  assign  liability  to  PRP's.  The  extent  of
liability  to be  allocated  to a PRP is  dependent  on a  variety  of  factors.
Further,  the number of waste sites  subject to  clean-up  is unknown.  To date,
approximately  1,300  clean-up sites have been  identified by the  Environmental
Protection  Agency on its  National  Priorities  List.  On the other  hand,  the
Congressional  Budget  Office is  estimating  that there will be 4,500  National
Priority List sites,  and other  estimates  project as many as 30,000 sites that
will require  clean-up under ECLs.  Very few sites have been subject to clean-up
to date; the addition of new clean-up sites has  substantially  slowed in recent
years. The extent of clean-up  necessary and the assignment of liability has not
been established.

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

         A number of  proposals  to reform  Superfund  have been made by various
parties.  Despite  Superfund  taxing  authority  expiring at the end of 1995, no
reforms  have been enacted by Congress.  No  predictions  can be made as to what
positions the Congress or the Administration will take and what legislation,  if
any, will result.  If there is legislation,  and in some  circumstances  even if
there is no  legislation,  the  federal  role in  environmental  clean up may be
materially reduced in favor of state action.  Substantial changes in the federal
statute  or the  activity  of the EPA  may  cause  states  to  reconsider  their
environmental  clean up statutes  and  regulations.  There can be no  meaningful
prediction of the pattern of regulation that would result.

         Due  to the  inherent  uncertainties  described  above,  including  the
inconsistency of court decisions, the number of waste sites subject to clean-up,
and the standards for clean-up and liability,  the ultimate  exposure to CNA for
environmental pollution claims cannot be meaningfully quantified.

         Claim and claim expense reserves  represent  management's  estimates of
ultimate  liabilities based on currently  available facts and case law. However,
in addition to the uncertainties previously discussed, additional issues related
to,  among other  things,  specific  policy  provisions,  multiple  insurers and
allocation of liability among insurers,  consequences of conduct by the insured,
missing  policies  and proof of  coverage  make  quantification  of  liabilities
exceptionally difficult and subject to adjustment based on new data.
<PAGE>

         As of March 31, 1997 and December 31, 1996,  CNA carried  approximately
$874  million  and $908  million,  respectively,  of  claim  and  claim  expense
reserves,   net  of  reinsurance   recoverable,   for  reported  and  unreported
environmental pollution claims. The reserves relate to claims for accident years
1988 and prior, which coincides with CNA's adoption of the Simplified Commercial
General Liability coverage form which included an absolute pollution  exclusion.
There was no  unfavorable  reserve  development  for the periods ended March 31,
1997 and 1996.

         CNA has exposure to asbestos  claims,  including those  attributable to
CNA's  litigation  with  Fibreboard  Corporation.  Estimation of asbestos  claim

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

reserves   encounter  many  of  the  same   limitations   discussed   above  for
environmental  pollution  claims  such  as  inconsistency  of  court  decisions,
specific policy provisions,  multiple insurers and allocation of liability among
insurers,  missing  policies  and proof of  coverage.  As of March 31,  1997 and
December 31, 1996, CNA carried  approximately $1,643 million and $1,506 million,
respectively,   of  claim  and  claim  expense  reserves,   net  of  reinsurance
recoverable,  for reported and unreported  asbestos-related claims.  Unfavorable
reserve  development  for the periods  ended March 31, 1997 and 1996 totaled $12
million and $13 million, respectively.

<TABLE>
<CAPTION>
|------------------------------------------------------------------------------------------------------| 
|RESERVE SUMMARY                           MARCH 31, 1997                      DECEMBER 31, 1996       |
|                               ---------------------------------     ---------------------------------|
|(In millions of dollars)        ENVIRONMENTAL        ASBESTOS          ENVIRONMENTAL        ASBESTOS  | 
|------------------------------------------------------------------------------------------------------|
|                                                                                                      |
|Gross reserves:                                                                                       |
         <S>                   <C>                <C>                <C>                <C>            
|         Reported claims       $      333         $    1,652         $      289         $    1,551    |
|         Unreported claims            622                118                714                 94    |
|                                   ------             ------             ------            -------    |
|                                      955              1,770              1,003              1,645    |
|Less reinsurance recoverable          (81)              (127)               (95)              (139)   |
|------------------------------------------------------------------------------------------------------|
|    NET RESERVES               $      874         $    1,643         $      908         $    1,506    |
|======================================================================================================|
</TABLE>                                           

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

OTHER

         Other reserve  development at March 31, 1997 and,  1996, aggregated $51
million and $87 million,  respectively, of favorable reserve development and was
principally  due to favorable  claim  frequency  (rate of claim  occurrence) and
severity (average cost per claim)  experience in the workers'  compensation line
of business.

         These  trends  reflect  the  positive  effects of  changes in  workers'
compensation  laws,  more moderate  increases in medical costs,  and a generally
strong economy in which individuals return to the workplace more quickly.

         CNA, consistent with sound reserving  practices,  regularly adjusts its
reserve estimates in subsequent reporting periods as new facts and circumstances
emerge that indicate the previous  estimates need to be modified.  Beginning the
latter  part of  1995,  CNA  has  been  actively  settling  many  of its  larger
environmental pollution and asbestos-related claim exposures.  This strategy has
resulted in a large  volume of claim  payments  during 1996,  and  corresponding
reductions in reserves. In addition, Fibreboard claim payments escalated in 1996
as some  scheduled  payments  came due.  Management  does not believe that these
recent  activities have changed facts or  circumstances  evident at December 31,
1995,  therefore,  no material  modifications to previous reserve estimates have
been made in 1996 or 1997 to date.

                                      (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.  

<TABLE>
<CAPTION>

|----------------------------------------------------------------------------------------------|
|THREE MONTHS ENDED MARCH 31                         EARNED PREMIUMS                           |
|                               --------------------------------------------------   ASSUMED/  |
|                                                                                      NET     |
|(In millions of dollars)              DIRECT    ASSUMED        CEDED        NET        %      |
|----------------------------------------------------------------------------------------------|
|                                                                                              |
|1997                                                                                          |
     <S>                          <C>           <C>          <C>         <C>           <C>     
|     Life                         $     227     $   29       $    24     $   232       12.4  %|
|     Accident and health                945         29            31         943        3.1   |
|     Property and casualty            2,164        236           228       2,172       10.9   |
|----------------------------------------------------------------------------------------------|
|          TOTAL PREMIUMS          $   3,336     $  294       $   283     $ 3,347        8.8  %|
|==============================================================================================|
|                                                                                              |
|1996                                                                                          |
|     Life                         $     144     $   27       $     4     $   167       16.1  %|
|     Accident and health                832         45            29         848        5.3   |
|     Property and casualty            2,206        415           343       2,278       18.2   |
|----------------------------------------------------------------------------------------------|
|          TOTAL  PREMIUMS         $   3,182     $  487       $   376     $ 3,293       14.8  %|
|==============================================================================================|
</TABLE>                                             

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

         Insurance  claims and  policyholders'  benefits are net of  reinsurance
recoveries  of $248 and $479  million for the period  ending  March 31, 1997 and
March 31, 1996, respectively.

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

NOTE E.  Debt:

Long and short-term borrowings consisted of the following:
<TABLE>
<CAPTION>
|---------------------------------------------------------------------------------------------------|
|LONG-TERM DEBT                                                          MARCH 31     DECEMBER 31   |
|(In millions of dollars)                                                  1997            1996     |
|---------------------------------------------------------------------------------------------------|
|                                                                                                   |
| Variable Rate Debt:                                                                               |
   <S>                                                              <C>               <C>           
|   Credit Facility                                                  $    400          $    400     |
|   Commercial Paper                                                      675               675     |
| Senior Notes:                                                                                     |
|   8 7/8%, due March 1, 1998                                             150               150     |
|   8 1/4%, due April 15, 1999                                            102               102     |
|   7 1/4%, due March 1, 2003                                             146               146     |
|   6 1/4%, due November 15, 2003                                         248               248     |
|   6 3/4%, due November 15, 2006                                         248               248     |
|   8 3/8%, due August 15, 2012                                            98                98     |
| 71/4% Debenture, due November 15, 2023                                  247               247     |
| 11% Secured Mortgage Notes, due June 20, 2013                           386               387     |
| 6.90% - 16.29%  Secured  Capital  Leases,  due December 31, 2011         47                47     |
| Other                                                                    17                17     |
|---------------------------------------------------------------------------------------------------|
|   TOTAL LONG-TERM DEBT                                             $  2,764          $  2,765     |
|===================================================================================================| 
</TABLE>   

         To finance the acquisition of Continental (including the refinancing of
$205 million of  Continental  debt) CNA entered into a five-year  $1.325 billion
revolving  credit  facility.  In 1996,  the company  renegotiated  the facility,
extending the maturity to May 2001.  The interest rate for the facility is based
on  the  London   Interbank   Offered  Rate  (LIBOR),   plus  16  basis  points.
Additionally,  there is a facility fee of 9 basis points  annually.  The average
interest rate on the borrowings  under the revolver at March 31, 1997 was 5.61%.
Under the terms of the facility, CNA may prepay the debt without penalty.

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

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

         In 1995, to take  advantage of favorable  interest  rate  spreads,  CNA
established a Commercial Paper Program, borrowing $500 million from investors to
replace a like amount of bank financing.  In 1996 CNA increased commercial paper
borrowings  by $175  million  replacing  a like  amount of bank  financing.  The
weighted-average  yield on  commercial  paper at March 31,  1997 was 5.67%.  The
commercial  paper  borrowings are classified as long-term as $675 million of the
committed bank facility will support the commercial paper program.
<PAGE>

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

         To offset the variable rate  characteristics  of the facility,  CNA 
entered into interest rate swap  agreements  with several banks which  terminate
from May to December 2000. These  agreements  provide that CNA pay interest at a
fixed rate,  averaging  6.20% at March 31, 1997,  in exchange for the receipt of
interest at the three month LIBOR rate.  The effect of these interest rate swaps
was to increase  interest  expense by $1.3  million for the three  months  ended
March 31, 1997.

                                      (13)
<PAGE>

                            CNA FINANCIAL CORPORATION
         NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -CONCLUDED


         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 6.26% at March
31, 1997.

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



                                      (14)
<PAGE>

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


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

         CNA is the  largest  commercial  insurer  in the United  States,  third
largest  property-casualty  company and the twenty-second largest life insurance
company  in the  country,  based on 1995 net  written  premium.  Based on market
share,  CNA ranks first among United States  insurers in commercial  affiliation
marketing, commercial multiple peril, personal packages and ocean marine; second
in commercial auto, general liability,  medical  malpractice,  federal employees
health benefit plans,  multiple peril crop,  surety,  offshore energy,  accounts
receivable  credit;  third  in  automobile   warranty,   directors  &  officers,
farmowners  multiple  peril,  and  recreational  watercraft;  fourth in workers'
compensation  and sixth in reinsurance in the United  States.  In addition,  CNA
ranks  first,  second or third for  various  errors &  omissions  coverages  for
architects and engineers, accountants, lawyers and other professionals.


                                      (15)
<PAGE>

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



RESULTS OF OPERATIONS:

         The following chart summarizes key components of operating  results for
the three months ended March 31, 1997 and 1996.


|-----------------------------------------------------------------------------|
|THREE MONTHS ENDED MARCH 31                              1997         1996   |
|(In millions of dollars)                                                     |
|-----------------------------------------------------------------------------|
|                                                                             |
|OPERATING SUMMARY (EXCLUDING REALIZED INVESTMENT                             |
|GAINS/LOSSES):                                                               |
|Revenues:                                                                    |
|  Premiums:                                                                  |
|    Property/Casualty                                 $ 2,471       $ 2,508  |
|    Life                                                  876           785  |
|                                                       ------        ------  |
|       Total premiums                                   3,347         3,293  |
|  Net investment income                                   564           578  |
|  Other                                                   155           139  |
|                                                       ------        ------  |
|       Total revenues                                   4,066         4,010  |
|Benefits and expenses                                   3,901         3,821  |
|                                                       ------        ------  |
|      Operating income  before income tax                 165           189  |
|Income tax expense                                        (29)          (44) |
|                                                       ------        ------  |
|      Net operating income                            $   136       $   145  |
|                                                       ======        ======  |
|                                                                             |
|SUPPLEMENTAL FINANCIAL DATA:                                                 |
|Net operating income (loss) by group:                                        |
|  Property/Casualty                                   $   139       $   152  |
|  Life                                                     23            29  |
|  Other                                                   (26)          (36) |
|                                                       ------        ------  |
|                                                          136           145  |
|                                                       ------        ------  |
|Net realized investment gains by group:                                      |
|  Property/Casualty                                        12           134  |
|  Life                                                     18            49  |
|  Other                                                    12             1  |
|                                                       ------        ------  |
|                                                           42           184  |
|                                                       ------        ------  |
|Net income (loss) by group:                                                  |
|  Property/Casualty                                       151           286  |
|  Life                                                     41            78  |
|  Other                                                   (14)          (35) |
|                                                       -------       ------- |
|                                                      $   178       $   329  |
|=============================================================================|
<PAGE>
                                                                                
Consolidated Results
--------------------

         Consolidated  revenues  were $4.1 billion for the first three months of
1997 as  compared  to $4.3  billion  for the same  period in 1996.  Consolidated
revenues  excluding  realized  investment gains,  increased to $4.1 billion from
$4.0  billion for the first  quarter of 1996.  For the first  quarter,  revenues
reflect an increase of $54 million (1.6%) in earned premiums,  a decrease of $14
million  (2.4%) in investment  income and an increase of $16 million  (11.3%) in
other income.

         Net operating income, which excludes net realized investment gains, for
the first quarter of 1997 was $136 million, or $2.18 per share,  compared to net
operating income of $145 million, or $2.32 per share, for the first three months
of 1996.  CNA's income in the first quarter of 1997 is net of pre-tax  losses of
$31 million related to catastrophe  claims;  pre-tax  catastrophe  losses in the
first quarter of 1996 were $94 million.

         Realized  investment  gains,  net of tax, for the first quarter of 1997
were $42 million, or $0.67 per share,  compared to net realized investment gains
for the  first  quarter  of 1996  of $184  million,  or  $2.98  per  share.  The
components of the net realized investment gains (losses) are as follows:

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


|--------------------------------------------------------------------------|
|REALIZED INVESTMENT GAINS(LOSSES)                                         |
|THREE MONTHS ENDED MARCH 31                       1997              1996  |
|(In millions of dollars)                                                  |
|--------------------------------------------------------------------------|
|Bonds:                                                                    |
|  U.S. Government                              $     6           $  134   |
|  Tax exempt                                         1               20   |
|  Asset-backed                                       7               17   |
|  Taxable                                           10               28   |
|                                                  ----             ----   |
|     Total bonds                                    24              199   |
|Stocks                                              30               55   |
|Derivative securities                                3                9   |
|Separate accounts and other                          9               42   |
|                                                  ----             ----   |
|     Realized investment gains  reported in                               |
|       revenues                                     66              305   |
|Participating policyholders' interest               (3)             (12)  |
|Income tax expense                                 (21)            (109)  |
|--------------------------------------------------------------------------|
|     NET REALIZED INVESTMENT GAINS               $  42            $  184  |
|==========================================================================|
                                                                           

         CNA's  income tax  expense  for the three  months  ended March 31, 1997
amounted  to $50 million  compared to $153  million for the same period in 1996.
CNA's income tax expense excluding realized investment  gains/losses amounted to
$29 million for the three months  ended March 31, 1997,  compared to $44 million
in the first three months of 1996. The income tax on realized  investment  gains
for the three  months ended March 31, 1997,  totaled $21 million  compared  with
$109 million for the same period a year ago.

          Net income was $178 million, or $2.85 per share,  compared to $329 
million, or $5.30 per share, for the first three months of 1996.

                                      (17)
<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                             1997         1996     |
|(In millions of dollars)                                                      |
|------------------------------------------------------------------------------|
|OPERATING SUMMARY (EXCLUDING REALIZED INVESTMENT                              |
|GAINS/LOSSES):                                                                |
|Revenues:                                                                     |
|  Premiums                                            $2,463       $2,508     |
|  Net investment income                                  461          482     |
|  Other                                                  133          114     |
|                                                       -----        -----     |
|                                                       3,057        3,104     |
|Benefits and expenses                                  2,889        2,913     |
|                                                       -----        -----     |
|  Income before income tax                               168          191     |
|Income tax expense                                       (29)         (39)    |
|------------------------------------------------------------------------------|
|  NET OPERATING INCOME(EXCLUDING REALIZED                                     |
|    INVESTMENT GAINS/LOSSES)                          $  139       $  152     |
|==============================================================================|
                                                                               

     Property/casualty revenues, excluding net realized investment gains/losses,
decreased  1.5% for the  three  months  ended  March  31,  1997 to $3.1  billion
compared  to the  same  period  a year  ago.  Property/casualty  earned  premium
decreased $45 million, or 1.8% from the prior years comparable period, primarily
as a result of a decrease in involuntary risk earned premium.

     Pretax operating income excluding net realized investment  gains/losses for
the  property/casualty  insurance  subsidiaries  was $168  million for the first
three  months of 1997  compared to $191  million for the same period a year ago.
The  decrease in  operating  income  stems from  increased  losses and  expenses
relative to premium as well as reduced  investment  income  which was  partially
offset by lower  catastrophe  losses.  Underwriting  losses for the three months
ended March 31, 1997,  were $293 million,  compared to $291 million for the same
period in 1996.  The  first  quarter  1997  statutory  combined  ratio was 111.6
compared with 107.9 for the same period in 1996. The statutory expense ratio for
the first  quarter of 1997 was 31.1  compared to 28.5 for the first three months
of 1996. Deterioration in the loss and expense ratios reflect a softening in the
commercial  insurance  market  and  increased  competative  pressures.   Pre-tax
catastrophe  losses were  approximately $31 million in the first quarter of 1997
as  compared  to $94  million in the first  quarter of 1996.  Investment  income
decreased  4.3% for the three  months  ended March 31, 1997 to $461 million from
$482  million  for  the  comparable  period  a year  ago due to  lower  yielding
investments  and a  reduced  asset  base.  The bond  segment  of the  investment
portfolio  yielded 6.7% in the first  quarter of 1997 compared with 7.1% for the
same period a year ago.

         The net  income  of  CNA's  property/casualty  insurance  subsidiaries,
excluding net realized investment  gains/losses,  was $139 million for the first
three months of 1997,  compared to $152 million for the same period in 1996. Net
realized  investment  gains for the  first  quarter  of 1997  were $12  million,
compared to $134 million in the first three months of 1996.


                                      (18)
<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                            1997             1996 |
|(In millions of dollars)                                                     |
|-----------------------------------------------------------------------------|
|OPERATING SUMMARY (EXCLUDING REALIZED INVESTMENT                             |
|GAINS/LOSSES):                                                               |
|Revenues:                                                                    |
|  Premiums                                          $  885           $  793  |
|  Net investment income                                105               97  |
|  Other                                                 23               25  |
|                                                     -----            -----  |
|                                                     1,013              915  |
|Benefits and expenses                                  975              869  |
|                                                     -----            -----  |
|  Income before income tax                              38               46  |
|Income tax expense                                     (15)             (17) |
|-----------------------------------------------------------------------------|
|  NET OPERATING INCOME (EXCLUDING REALIZED                                   |
|    INVESTMENT GAINS/LOSSES)                        $   23           $   29  |
|=============================================================================|
                                                                              

         CNA sells a variety of individual  and group  insurance  products.  The
individual  insurance  products  consist  primarily  of  term,  universal  life,
participating  policies and individual  annuity products.  Products developed in
1996 and  marketed in 1997,  included a portfolio  of variable  products and new
universal life products.  Group insurance  products  include life,  accident and
health consisting  primarily of major medical and  hospitalization,  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  realized  investment  gains, were $1.0
billion, up 10.7% for the three months ended March 31, 1997 compared to the same
period a year ago. Life group earned premium was $885 million,  up 11.6% for the
quarter, with the primary growth in term and annuity business. Investment income
increased 8.2% compared to the same period a year ago due to a larger asset base
generated from increased cash flows from premium growth. The bond segment of the
life  investment  portfolio  yielded 6.8% in the first  quarter of 1997 compared
with 6.6% for the same period a year ago.

         Pre-tax operating income for the life insurance subsidiaries, excluding
net realized investment gains/losses, was $38 million for the first three months
of 1997,  compared to $46 million for the same period in 1996.  The  decrease in
pretax  operating  income is primarily  due to higher  morbidity  costs in group
health insurance.

         CNA's life insurance  subsidiaries'  net income  excluding net realized
investment  gains/losses  was $23  million  for the first  three  months of 1997
compared to $29 million for the same  period in 1996.  Net  realized  investment
gains for the first  three  months of 1997  were $18  million,  compared  to $49
million in the first three months of 1996.

                                      (19)
<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 MARKET VALUE                                       MARCH 31   DECEMBER 31| UNREALIZED  |  REALIZED   |
|                                                          1997        1996    |GAINS(LOSSES)|GAINS(LOSSES)|
|(In millions of dollars)                                                      |             |             |
|------------------------------------------------------------------------------|-------------|-------------|
|                                                                              |             |             |
|FIXED MATURITY SECURITIES:                                                    |             |             |
<S>                                                    <C>         <C>             <C>           <C>  
|U. S. Treasury securities and                                                 |             |             |
|  obligations of government agencies                   $ 10,593    $   9,835  |    $(226)   |    $   6    |
|Asset-backed securities                                   4,829        6,292  |      (88)   |        7    |
|Tax exempt securities                                     5,024        4,951  |      (56)   |        1    |
|Taxable                                                   6,431        6,643  |     (106)   |       10    |
|                                                        -------     --------  |     -----   |     -----   |
|   Total fixed maturity securities                       26,877       27,721  |     (476)   |       24    |
|Stocks                                                      923          859  |      (35)   |       30    |
|Short-term investments and other                          8,523        6,830  |       28    |       (1)   |
|Derivative security investments                               3            2  |        -    |        3    |
|                                                        -------     --------  |     ----    |     -----   |
|   TOTAL INVESTMENTS                                   $ 36,326    $  35,412  |     (483)   |       56    |
|                                                        =======     ========  |             |             |
|Separate accounts and discontinued operations                                 |      (58)   |       10    |
|Participating policyholders' interest                                         |        9    |       (3)   |
|Income tax  benefit (expense )                                                |      169    |      (21)   |
|                                                                              |     ----    |     -----   |
|   NET INVESTMENT GAINS (LOSSES)                                              |    $(363)   |    $  42    |
|==============================================================================|=============|=============|
                                                                                                
|------------------------------------------------------------------------------|
|SHORT-TERM INVESTMENTS:                                                       |
|------------------------------------------------------------------------------|
|Security repurchase collateral                          $ 1,963      $   101  |
|Escrow                                                    1,133        1,062  |
|Commercial paper                                          3,036        3,207  |
|Money markets                                               429          746  |
|Other                                                     1,006          738  |
|------------------------------------------------------------------------------|
|   TOTAL SHORT-TERM INVESTMENTS                          $7,567      $ 5,854  |
|==============================================================================|
</TABLE>
<PAGE>
                                                                                
                                                                                
         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  holds a small  amount  of  derivative  financial  instruments  for
purposes of enhancing  income and total return.  The  derivative  securities are
marked-to-market  with valuation  changes reported as realized  investment gains
and losses. CNA's investment in, and risk in relation to, derivative  securities
is not significant.

     The general account portfolio consists primarily of high quality marketable
fixed maturity  securities,  approximately  93% of which are rated as investment
grade.  At March 31, 1997,  tax-exempt  securities  and  short-term  investments
excluding collateral for securities sold under repurchase agreements,  comprised
approximately  14%  and  15%,  respectively,  of  the  general  account's  total
investment  portfolio  compared to 14% and 16%,  respectively,  at December  31,
1996.  Historically,  CNA has  maintained  short-term  assets  at a  level  that
provided for liquidity to meet its short-term obligations, as well as reasonable
contingencies and anticipated claim payout patterns.  The increase in short-term
investments at March 31, 1997 compared to December 31, 1996, is due to increased
collateral related to security repurchase transactions. At March 31, 1997,

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

the major components of the short-term  investment  portfolio consists primarily
of  high-grade  commercial  paper  and  U.S.  Treasury  bills.   Collateral  for
securities sold under repurchase  agreements  increased $1,862 million to $1,963
million.

         As of March  31,  1997,  the  market  value of  CNA's  general  account
investments  in fixed  maturities  was $26.9 billion and was less than amortized
cost by  approximately  $294  million.  This compares to a market value of $27.7
billion and $181  million of net  unrealized  investment  gains at December  31,
1996. The gross  unrealized  investment  gains and losses for the fixed maturity
securities  portfolio  at March 31, 1997,  were $257  million and $551  million,
respectively,  compared  to $444  million  and $263  million,  respectively,  at
December 31, 1996. The decline in unrealized  investment  gains is attributable,
in large part,  to increases in interest  rates which have an adverse  effect on
bond prices.

         Net unrealized investment losses on general account fixed maturities at
March 31,  1997  include net  unrealized  gains on high yield  securities  of $6
million,  compared to net unrealized  gains of $41 million at December 31, 1996.
High yield  securities are bonds rated as below  investment grade by bond rating
agencies,  plus private  placements and other unrated  securities  which, in the
opinion of management,  are below  investment  grade.  Fair values of high yield
securities in the general account  decreased $212 million to approximately  $1.8
billion at March 31, 1997 when compared to December 31, 1996.

         At March 31, 1997, total separate account cash and investments amounted
to   approximately   $5.8  billion  with  taxable  fixed   maturity   securities
representing   approximately   78%  of   the   separate   accounts'   portfolio.
Approximately  78% 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 $3.8 billion at both March 31, 1997,
and December 31, 1996.  At March 31, 1997,  amortized  cost was greater than the
fair  value  by  approximately   $36  million.   This  compares  to  a  loss  of
approximately $1 million at December 31, 1996. The gross  unrealized  investment
gains  and  losses  for the  guaranteed  investment  fixed  maturity  securities
portfolio at March 31, 1997, were $35 million and $71 million, respectively.

         Carrying values of high yield  securities in the guaranteed  investment
portfolio  were $433  million at March 31, 1997 and $472  million  December  31,
1996. Net unrealized  investment  losses on high yield  securities  held in such
separate  accounts were $9 million at March 31, 1997,  compared to $6 million at
December 31, 1996.

         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, 1997, CNA's
concentration in high yield bonds including  separate accounts was approximately
3.8% 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.
<PAGE>

         Included in CNA's fixed maturity  securities at March 31, 1997 (general
and guaranteed investment portfolios) are $7 billion of asset-backed securities,
consisting  of  approximately  45.5%  in  collateralized   mortgage  obligations
("CMO's"),  11.0%  in  corporate  asset-backed  obligations,  and  43.5% in U.S.
government agency issued pass-through  certificates.  The majority of CMO's held
are U.S.  Government agency issues,  which are actively traded in liquid markets
and are priced monthly by broker-dealers.  At March 31, 1997, the amortized cost
of asset-backed securities was in excess of the fair value by approximately $112
million compared to unrealized  investment  losses of $5 million at December 31,

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

1996.  CNA limits the risks  associated  with  interest  rate  fluctuations  and
prepayment by  concentrating  its CMO investments in early planned  amortization
classes with relatively short principal repayment windows.

         Over the last few years,  much  concern has been raised  regarding  the
quality of insurance  company invested  assets.  At March 31, 1997, 44.9% of the
general  account's  fixed  maturity  securities  portfolio  was invested in U.S.
Government securities, 30.7% in other AAA rated securities and 12.7% in AA and A
rated  securities.   CNA's  guaranteed   investment  fixed  maturity  securities
portfolio is comprised of 7.0% U.S.  Government  securities,  58.2% in other AAA
rated  securities  and 14.0% in AA and A rated  securities.  These  ratings  are
primarily from Standard & Poor's (91.9% of the general  account and 85.8% of the
guaranteed investment fixed maturity account).

FINANCIAL CONDITION:

|------------------------------------------------------------------------------|
|FINANCIAL POSITION                                       MARCH 31  DECEMBER 31|
|(In millions of dollars, except per share data)            1997         1996  |
|------------------------------------------------------------------------------|
|                                                                              |
|Assets                                                    $62,441      $60,735|
|Stockholders' Equity                                        6,873        7,060|
|Unrealized Net Appreciation (Depreciation) Included in                        |
|Stockholders' Equity                                          (64)         299|
|Book Value per Common Share                                108.79       111.81|
|------------------------------------------------------------------------------|
                                                                                

         CNA's assets increased  approximately  $1.7 billion to $62.4 billion as
of March 31, 1997.  This change was primarily the result of an increase in short
term  investments  caused by an increase  in  securities  sold under  repurchase
agreements of $1.9 billion.

         During  the first  three  months of 1997,  CNA's  stockholders'  equity
decreased by $187  million,  or 2.7%,  to  approximately  $7 billion.  The major
component of this change was a $363 million decrease in unrealized appreciation,
net of tax,  primarily  related to changes in market values of debt  securities.
Debt security  carrying values were adversely  impacted by increases in interest
rates in 1997.

         The statutory surplus of the property/casualty  subsidiaries  decreased
2.1% to approximately  $6.2 billion.  The decrease  resulted  primarily from the
payment of $71  million of  dividends  from the  insurance  subsidiaries  to the
parent  company.  The  statutory  surplus  of the  life  insurance  subsidiaries
remained at $1.2 billion.

<PAGE>

LIQUIDITY AND CAPITAL RESOURCES:

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

         CNA's  operating  activities  generated  net  negative  cash  flows  of
approximately  $737  million  and $146  million  at  March  31,  1997 and  1996,
respectively.   Negative  cash  flows  in  1997  are  primarily  the  result  of
substantial  claim  payments  resulting  from the  settlement of the  Fibreboard
litigation.  CNA believes that future  liquidity  needs will be met primarily by
cash generated from operations.

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

                                      (22)

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


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

ACCOUNTING STANDARDS:

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

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

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

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

                                      (23)
<PAGE>
                            CNA FINANCIAL CORPORATION

                           PART II. OTHER INFORMATION



ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K

(a)  EXHIBITS:

                  Description of Exhibit
                                                        Exhibit        Page
                                                         Number        Number

(11)  Computation of Net Income per Common Share          11            26
(27)  Financial Data Schedule                             27            27

(b)  REPORTS ON FORM 8-K:
         There were no reports on Form 8-K for the three  months ended March 31,
1997.


                                      (24)
<PAGE>

                            CNA FINANCIAL CORPORATION

                     PART II. OTHER INFORMATION - CONCLUDED

                                   SIGNATURES


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


                                CNA FINANCIAL CORPORATION


Date:  May 14, 1997             By: S/PETER E. JOKIEL
       ------------                 ---------------
                                     Peter E. Jokiel
                                     Senior Vice President and
                                     Chief Financial Officer


                                      (25)
<PAGE>

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

--------------------------------------------------------------------------------
THREE MONTHS ENDED MARCH 31                                   1997       1996
(In millions, except per share data)
--------------------------------------------------------------------------------

Earnings per share:

   Net income .........................................    $   178       $  329
   Less preferred stock dividends......................          2            2
                                                           -------        ------

   Net income available to common stockholders.........    $   176       $  327
                                                            ======         =====

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

   Net income per common share.........................    $  2.85       $ 5.30
                                                            ======        ======
--------------------------------------------------------------------------------

                                      (26)