SECURITIES AND EXCHANGE COMMISSION

                             Washington, D.C. 20549

                           __________________________

                                    FORM 10-Q

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

   FOR THE QUARTERLY PERIOD ENDED JUNE 30, 1998 COMMISSION FILE NUMBER 1-5823

                           __________________________


                            CNA FINANCIAL CORPORATION

             (Exact name of registrant as specified in its charter)


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


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

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

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


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

                   Class                        Outstanding at August 1, 1998
         -----------------------------          -----------------------------
         Common Stock, Par value $2.50                185,394,786

________________________________________________________________________________
                                Page (1) of (35)
<PAGE>
                            CNA FINANCIAL CORPORATION

                                      INDEX

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

CONDENSED CONSOLIDATED FINANCIAL STATEMENTS:

 CONDENSED CONSOLIDATED BALANCE SHEETS
  JUNE 30, 1998 (Unaudited) and DECEMBER 31, 1997.....................     3

 CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)
  FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 1998 AND 1997...........     4

 CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
  (Unaudited) FOR THE SIX MONTHS ENDED JUNE 30, 1998 AND 1997.........     5

 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
  FOR THE SIX MONTHS ENDED JUNE 30, 1998 AND 1997.....................     6

 NOTES TO CONDENSED CONSOLIDATED FINANCIAL
  STATEMENTS (Unaudited) JUNE 30, 1998................................     7

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


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

ITEM 4.      SUBMISSION OF MATTERS TO A VOTE OF
             SECURITY HOLDERS..........................................    31

ITEM 6.      EXHIBITS AND REPORTS ON FORM 8-K..........................    32

             SIGNATURES................................................    33

EXHIBIT 11   COMPUTATION OF NET INCOME PER COMMON SHARE................    34

EXHIBIT 12.1 COMPUTATION OF RATIO OF EARNINGS
             TO FIXED CHARGES..........................................    35

EXHIBIT 12.2 COMPUTATION OF RATIO OF NET INCOME, AS ADJUSTED,
             TO FIXED CHARGES..........................................    35

EXHIBIT 27   FINANCIAL DATA SCHEDULE...................................    36
                                      (2)
<PAGE>
                           CNA FINANCIAL CORPORATION

                      CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
---------------------------------------------------------------------------------------------------
                                                                             June 30    December 31
                                                                              1998         1997
(In millions of dollars, except share data)                                (Unaudited)
---------------------------------------------------------------------------------------------------
<S>                                                                            <C>            <C>
ASSETS
  Investments:
    Fixed maturities available for sale (cost: $29,014 and $29,020).............$29,559   $29,548
    Equity securities available for sale (cost: $827 and $695)..................  1,054       814
    Mortgage loans and real estate (less accumulated depreciation: $1 and $1)...     73        85
    Policy loans................................................................    177       177
    Other invested assets.......................................................    924       695
    Short-term investments .....................................................  4,388     4,884
                                                                                --------  ---------
      TOTAL INVESTMENTS......................................................... 36,175    36,203
  Cash..........................................................................    156       383
  Receivables:
    Reinsurance.................................................................  6,033     5,726
    Insurance ..................................................................  7,187     6,086
    Other trade ................................................................    362       248
    Less allowance for doubtful accounts........................................   (304)     (303)
  Deferred acquisition costs....................................................  2,379     2,142
  Accrued investment income.....................................................    375       389
  Receivables for securities sold...............................................  1,349       744
  Federal income taxes recoverable (includes $94 and $26 due from Loews)........     95        18
  Deferred income taxes.........................................................  1,007     1,070
  Property and equipment at cost (less accumulated depreciation: $620 and $553).    773       747
  Prepaid reinsurance premiums..................................................    271       202
  Intangibles...................................................................    629       620
  Other assets..................................................................  1,095     1,182
  Separate Account business.....................................................  5,582     5,812
---------------------------------------------------------------------------------------------------
      TOTAL ASSETS                                                              $63,164   $61,269
===================================================================================================
</TABLE>
<PAGE>
                            CNA FINANCIAL CORPORATION

                CONDENSED CONSOLIDATED BALANCE SHEETS (continued)
<TABLE>
<CAPTION>
---------------------------------------------------------------------------------------------------
                                                                             June 30    December 31
                                                                              1998         1997
(In millions of dollars, except share data)                                (Unaudited)
---------------------------------------------------------------------------------------------------
<S>                                                                            <C>            <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
  Insurance reserves:
     Claim and claim expense ...................................................$29,407   $29,227
     Unearned premiums..........................................................  5,296     4,700
     Future policy benefits.....................................................  5,135     4,829
     Policyholders' funds.......................................................    784       742
  Securities sold under repurchase agreements...................................    251       153
  Payables for securities purchased.............................................  1,289       648
  Participating policyholders' equity...........................................    140       132
  Long-term debt................................................................  2,958     2,897
  Other liabilities.............................................................  3,535     3,820
  Separate Account business.....................................................  5,582     5,812
                                                                                --------  --------
      TOTAL LIABILITIES......................................................... 54,377    52,960
                                                                                --------  --------
Commitments and contingent liabilities - Notes C and D
Stockholders' equity:
  Common stock  ($2.50 par value;  
  Authorized  -  200,000,000  shares; 
  Issued - 185,525,907 shares
  Outstanding - 185,394,786 shares)...........................................      464       464
  Money market cumulative preferred stock.......................................    150       150
  Additional paid-in capital....................................................    126       126
  Retained earnings.............................................................  7,423     6,983
  Accumulated other comprehensive income........................................    627       589
  Treasury stock, at cost.......................................................     (3)       (3)
                                                                                --------- --------
      TOTAL STOCKHOLDERS' EQUITY................................................  8,787     8,309
--------------------------------------------------------------------------------------------------
      TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY                                $63,164   $61,269
==================================================================================================
             See accompanying Notes to Condensed Consolidated Financial Statements (Unaudited).
</TABLE>
                                      (3)
<PAGE>
                            CNA FINANCIAL CORPORATION

                 CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
                                   (Unaudited)
<TABLE>
<CAPTION>
---------------------------------------------------------------------------------------------
PERIOD ENDED JUNE 30                                     THREE MONTHS          SIX MONTHS
(In millions of dollars, except per share data)       1998         1997     1998        1997
---------------------------------------------------------------------------------------------
<S>                                                  <C>         <C>      <C>        <C>
Revenues:
 Premiums........................................... $3,467      $3,348    $6,835     6,695
 Net investment income..............................    558         547     1,120     1,111
 Realized investment gains .........................    232         172       415       238
 Other..............................................    172         176       387       331
                                                     -------     -------   -------    -------
                                                      4,429       4,243     8,757     8,375
                                                     -------     -------   -------    -------
Benefits and expenses:
 Insurance claims and policyholders' benefits.......  2,937       2,860     5,787     5,752
 Amortization of deferred acquisition costs.........    671         596     1,259     1,116
 Other operating expenses...........................    477         399       981       841
 Interest expense...................................     60          46       115        96
                                                     -------     -------   -------    -------
                                                      4,145       3,901     8,142     7,805
                                                     -------     -------   -------    -------
  Income before income tax..........................    284         342       615       570
Income tax expense..................................     74         107       172       158
                                                     -------     -------   -------    -------
 Net income                                          $  210      $  235    $  443       412
=============================================================================================

EARNINGS PER SHARE
------------------
Net income ......................................... $ 1.12      $ 1.26    $ 2.37      2.21
                                                     =======     =======   =======     ======

Weighted average outstanding shares of
common stock (in millions of shares)................  185.4       185.4     185.4     185.4
=============================================================================================
 See accompanying Notes to Condensed Consolidated Financial Statements (Unaudited).
</TABLE>
                                      (4)
<PAGE>
                            CNA FINANCIAL CORPORATION

            CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
                                   (Unaudited)
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------------------------------------------
                                                                                              Accumulated
                                                            Additional Comprehensive             Other        Total
                               Common  Preferred  Treasury   Paid in    Income     Retained Comprehensive  Stockholders'
(In millions of dollars)        Stock    Stock      Stock    Capital    (Loss)     Earnings   Income(Loss)   Equity
--------------------------------------------------------------------------------------------------------------------------
<S>                             <C>      <C>      <C>       <C>       <C>          <C>        <C>        <C>
BALANCE,JANUARY 1, 1997           $ 464  $  150    $   (3)  $  126                $   6,024   $    299   $   7,060     
Comprehensive income:
 Net income.......................   -       -         -        -     $   412           412         -          412
Other comprehensive income (loss):
 Unrealized investment gains/losses 
 net of reclassification adjustment 
 and taxes                           -       -         -        -        (129)           -        (129)       (129)
                                                                      ---------
   Total Comprehensive income.......                                  $   283
                                                                      =========
 Preferred dividends................ -       -         -        -                        (3)        -           (3)
---------------------------------- ----- -------   -------- ---------             ----------  ---------- --------------
BALANCE, JUNE 30, 1997            $ 464  $  150    $   (3)  $  126                    6,433   $    170   $   7,340    
=====================================================================             =====================================
BALANCE, DECEMBER 31, 1997        $ 464  $  150    $   (3)  $  126                $   6,983   $    589   $   8,309    
Comprehensive income:
 Net income........................  -       -         -        -     $   443           443         -          443
Other comprehensive income:
 Unrealized  investment gains/losses
 net of  reclassification adjustment
 and taxes.........................  -       -         -        -          38            -          38          38
                                                                      ---------
   Total Comprehensive income......                                   $   481
                                                                      =========
  Preferred dividends..............  -       -         -        -                        (3)        -           (3)
--------------------------------- ------- --------- ------- ---------             ---------   --------   -------------
BALANCE, JUNE 30, 1998            $ 464  $  150        (3)  $  126                $   7,423   $    627   $   8,787    
=====================================================================             ====================================
See accompanying Notes to Condensed Consolidated Financial Statements (Unaudited).
</TABLE>

                                      (5)
<PAGE>
                            CNA FINANCIAL CORPORATION

                 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
                                   (Unaudited)
<TABLE>
<CAPTION>
---------------------------------------------------------------------------------------------------------------
SIX MONTHS ENDED JUNE 30                                                             1998              1997
(In millions of dollars)
---------------------------------------------------------------------------------------------------------------
<S>                                                                                  <C>            <C>         
Cash flows from operating activities:
 Net income ........................................................................$      443      $       412
 Adjustments to reconcile net income to net cash flows from operating activities:
  Net realized investment gains, pre-tax ...........................................      (415)            (238)
  Participating policyholders' interest.............................................         9               (1)
  Amortization of intangibles.......................................................        18               13
  Amortization of bond discount.....................................................      (118)            (150)
  Depreciation......................................................................        81               93
  Changes in:
   Insurance receivables, net.......................................................    (1,521)            (148)
   Deferred acquisition costs.......................................................      (237)            (269)
   Accrued investment income........................................................        14               81
   Federal income taxes.............................................................       (78)             123
   Deferred income taxes............................................................        40              115
   Prepaid reinsurance premiums.....................................................       (69)              46
   Insurance reserves...............................................................     1,133              564
   Other liabilities................................................................       (90)          (1,173)
   Other, net.......................................................................       211             (138)
                                                                                      ------------    ------------
        Total adjustments...........................................................    (1,022)          (1,082)
                                                                                      ------------    ------------
        NET CASH FLOWS FROM OPERATING ACTIVITIES ...................................      (579)            (670)
                                                                                      ------------    ------------
-------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
                           CNA FINANCIAL CORPORATION

                CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS - continued
                            (Unaudited)
<TABLE>
<CAPTION>
---------------------------------------------------------------------------------------------------------------
SIX MONTHS ENDED JUNE 30                                                             1998              1997
(In millions of dollars)
---------------------------------------------------------------------------------------------------------------
<S>                                                                                  <C>            <C>         
CASH FLOWS FROM INVESTING ACTIVITIES:
 Purchases of fixed maturities......................................................   (18,957)         (17,652)
 Proceeds from fixed maturities:                                       
  Sales.............................................................................    18,235           18,656
  Maturities, calls and redemptions.................................................     1,043            1,106
 Purchases of equity securities.....................................................      (457)            (564)
 Proceeds from sale of equity securities............................................       343              781
 Change in short-term investments...................................................       411           (2,852)
 Purchases of property and equipment ...............................................      (115)            (130)
 Change in securities sold under repurchase agreements..............................        98            1,518
 Change in other investments........................................................      (279)              26
 Other, net.........................................................................       (19)             (62)
                                                                                      ------------    ------------
        NET CASH FLOWS FROM INVESTING ACTIVITIES ...................................       303              827
                                                                                      ------------    ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
 Dividends paid to preferred stockholders...........................................        (3)              (3)
 Receipts from investment contracts credited to policyholder account balances.......         7                4
 Return of policyholder account balances on investment contracts....................       (16)             (11)
 Principal payments on long-term debt...............................................      (944)              (3)
 Proceeds from issuance of long-term debt...........................................     1,005                1
                                                                                      ------------    ------------
        NET CASH FLOWS FROM  FINANCING ACTIVITIES...................................        49              (12)
                                                                                      ------------    ------------
      Net cash flows................................................................      (227)             145
Cash at beginning of period.........................................................       383              257
------------------------------------------------------------------------------------------------------------------
CASH AT END OF PERIOD                                                               $      156      $       402                     
=================================================================================================================
                                                                                           

Supplemental disclosures of cash flow information:
 Cash (paid) received:
 Interest ..........................................................................$      (98)     $      (106)
 Federal income taxes...............................................................      (168)             153
=================================================================================================================
See accompanying Notes to Condensed Consolidated Financial Statements (Unaudited).
</TABLE>
                                      (6)
<PAGE>
                           CNA FINANCIAL CORPORATION
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                 JUNE 30, 1998
                                  (Unaudited)

NOTE A.  Basis of Presentation:

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

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

         The  operating  results  for the interim  periods  are not  necessarily
indicative  of the results to be expected  for the full year.  These  statements
should be read in  conjunction  with the financial  statements and notes thereto
included in CNAF's Annual Report to Shareholders  (incorporated  by reference in
Form 10-K) for the year ended  December 31, 1997 (filed with the  Commission  on
March 31, 1998) and the information shown below.

         The accompanying  condensed consolidated financial statements have been
prepared in conformity with generally accepted  accounting  principles.  Certain
amounts  applicable  to prior  periods  have been  reclassified  to  conform  to
classifications followed in 1998. All intercompany amounts have been eliminated.

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

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


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. The escrow account  amounted to  approximately  $1.10 billion at June 30,
1998 and December 31, 1997. The majority of the funds are included in short-term
investments and are invested substantially in U. S. Treasury securities.


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


NOTE C.  Legal Proceedings and Contingent Liabilities:

FIBREBOARD LITIGATION

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

         Casualty,  Fibreboard  and  Pacific  Indemnity  have  also  reached  an
agreement (the  "Trilateral  Agreement") on a settlement to resolve the coverage
litigation  in the event the  Global  Settlement  does not  obtain  final  court
approval.

         On July 27,  1995,  the United  States  District  Court for the Eastern
District of Texas entered judgment approving the Global Settlement Agreement and
the Trilateral Agreement. As expected, appeals were filed as respects to both of
these  decisions.  On July 25, 1996, a panel of the United  States Fifth Circuit
Court of Appeals in New  Orleans  affirmed  the  judgment  approving  the Global
Settlement  Agreement by a 2 to 1 vote and affirmed the judgment  approving  the
Trilateral  Agreement by a 3 to 0 vote. Petitions for rehearing by the panel and
Suggestions  for  Rehearing  by the  entire  Fifth  Circuit  Court of Appeals as
respects to the decision on the Global  Settlement  Agreement  were denied.  Two
petitions for certiorari  were filed in the Supreme Court as respects the Global
Settlement  Agreement.  On June  27,  1997,  the  Supreme  Court  granted  these
petitions,  vacated  the Fifth  Circuit's  judgment  as  respects  to the Global
Settlement  Agreement,  and  remanded  the  matter  to  the  Fifth  Circuit  for
reconsideration  in light of the Supreme Court's decision in Amchem Products Co.
V. Windsor.

         On January 27, 1998, a panel of United  States Fifth  Circuit  Court of
Appeals again  approved the Global  Settlement  Agreement by a 2 to 1 vote.  Two
sets of Objectors filed  petitions for certiorari,  which were docketed on April
16 and 17, 1998,  by the United  States  Supreme  Court.  On June 22, 1998,  the
Supreme  Court granted the petition for  certiorari  filed by one of the sets of
objectors.  The parties  will file briefs on the merits  during the next several
months.  The Supreme  Court will most likely set oral  argument for late 1998 or
early 1999.

         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.


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


         On August 27,  1993,  the  Settling  Parties  reached an  agreement  in
principle  for an  omnibus  settlement  to resolve  all future  asbestos-related
bodily injury claims involving  Fibreboard.  The Global Settlement Agreement was
executed on December 23, 1993. The agreement calls for  contribution by Casualty
and Pacific  Indemnity of an  aggregate  of $1.53  billion to a trust fund for a
class of all future asbestos claimants, defined generally as those persons whose
claims against Fibreboard were neither filed nor settled before August 27, 1993.
An additional $10 million is to be  contributed  to the fund by  Fibreboard.  As
indicated above, the Global  Settlement  approval has been approved by the Fifth
Circuit a second  time,  but the  Supreme  Court  has  granted  a  petition  for
certiorari filed by one of the sets of objectors to the settlement.

         On October 12, 1993, Casualty, Pacific Indemnity and Fibreboard entered
into an agreement to settle the coverage litigation to operate in the event that
the Global Settlement  Agreement is disapproved.  The Trilateral Agreement calls
for payment by Casualty and Pacific  Indemnity of an aggregate of $ 2.0 billion,
of which  Casualty's  portion is approximately  $1.46 billion,  to Fibreboard to
resolve all claims by Fibreboard and all future and unsettled  present  asbestos
claimants arising under the policy issued to Fibreboard by Casualty.

         Under  either  the  Global  Settlement   Agreement  or  the  Trilateral
Agreement,  Casualty is also obligated to pay under prior settlements of present
asbestos claims. As a result of the final approval of the Trilateral  Agreement,
such obligation has become final as well.

         Through June 30, 1998, Casualty, Fibreboard and plaintiff attorneys had
reached  settlements  with  respect  to  approximately  135,500  claims,  for an
estimated  settlement amount of approximately  $1.63 billion plus any applicable
interest. Final court approval of the Trilateral Agreement obligates Casualty to
pay under these settlements.  Approximately $1.66 billion (including interest of
$184 million) was paid through June 30, 1998.  Such payments have been partially
recovered from Pacific  Indemnity.  Casualty may negotiate other  agreements for
unsettled claims.

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

TOBACCO LITIGATION

         Several  of CNA's  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.

                                      (9)
<PAGE>

                           CNA FINANCIAL CORPORATION
         NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-CONTINUED

         In June of 1997,  the  United  States  District  Court for the  Western
District of Louisiana, Lake Charles Division,  granted a petition to remove this
litigation  to the federal  district  court.  The district  court's  decision is
currently on appeal to the United States Fifth Circuit Court of Appeals.  During
the pending appeal,  all proceedings in state court and in the federal  district
court are stayed. Because of the uncertainties inherent in assessing the risk of
liability at this very early stage of the  litigation,  management  is unable to
make a meaningful  estimate of the amount 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
materially affect the results of operations or equity of CNAF.



OTHER LITIGATION

         CNAF 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 CNAF.



ENVIRONMENTAL AND ASBESTOS

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

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

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

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


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


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

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

         As of June 30, 1998 and December 31,  1997,  CNA carried  approximately
$681  million  and $768  million,  respectively,  of  claim  and  claim  expense
reserves,  net  of  reinsurance   recoverables,   for  reported  and  unreported
environmental pollution claims. The reserves relate to claims for accident years
1988 and prior,  after  which CNA  adopted  the  Simplified  Commercial  General
Liability  coverage form which includes an absolute pollution  exclusion.  There
was no environmental pollution reserve development for the six months ended June
30, 1998 and 1997.

         CNA's   property/casualty   insurance  subsidiaries  have  exposure  to
asbestos  claims,   including  those   attributable  to  CNA's  litigation  with
Fibreboard  Corporation.  Estimation of asbestos claim reserves involves many of
the same limitations discussed above for environmental  pollution claims such as
inconsistency  of court  decisions,  specific policy  provisions,  allocation of
liability among insurers, missing policies and proof of coverage. As of June 30,
1998 and December 31, 1997,  CNA carried  approximately  $1.38 billion and $1.45
billion,  respectively,  of claim and claim expense reserves, net of reinsurance
recoverables,  for reported and unreported  asbestos-related claims. Unfavorable
asbestos  claim reserve  development  for the six months ended June 30, 1998 and
1997 totaled $29 million and $25 million, respectively.
<TABLE>
<CAPTION>
|---------------------------------------------------------------------------------------------------------------|
|RESERVE SUMMARY                                  JUNE 30, 1998                         DECEMBER 31, 1997       |
|                                        ---------------------------------       -------------------------------|
|                                        ENVIRONMENTAL                           ENVIRONMENTAL                  |
|                                         POLLUTION             ASBESTOS          POLLUTION           ASBESTOS  |
|(In millions of dollars)                                                                                       |
|---------------------------------------------------------------------------------------------------------------|
<S>                                   <C>                   <C>                <C>                  <C>
|Reported claims:                                                                                               |
|      Gross Reserves                  $     263       $     1,439               $    276           $    1,430  |
|      Less reinsurance recoverable          (39)              (91)                   (38)                (118) |
|                                      -------------   ------------              ------------       ------------|
|    Net reported claims                     224             1,348                    238                1,312  |
|Net unreported claims                       457                34                    530                  133  |
|---------------------------------------------------------------------------------------------------------------|
|NET RESERVES                          $     681       $     1,382               $    768           $    1,445  |
|===============================================================================================================|
</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  these   liabilities  and  make  further
adjustments as warranted.


                                      (11)
<PAGE>

                           CNA FINANCIAL CORPORATION
          NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-CONTINUED


NOTE D.  Reinsurance:

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

         The ceding of insurance does not discharge the primary liability of the
original insurer.  CNA places reinsurance with other carriers only after careful
review  of  the  nature  of  the  contract  and a  thorough  assessment  of  the
reinsurers'  credit  quality  and claim  settlement  performance.  Further,  for
carriers  that are not  authorized  reinsurers  in its states of  domicile,  CNA
receives collateral, primarily in the form of bank letters of credit, securing a
large portion of the recoverables.

<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------------------|
|SIX MONTHS ENDED JUNE 30                            EARNED PREMIUMS                        ASSUMED/|
|                               -----------------------------------------------------------         |
|                                                                                             Net   |
|(In millions of dollars)       DIRECT         ASSUMED          CEDED            NET           %    |
|---------------------------------------------------------------------------------------------------|
<S>                              <C>               <C>            <C>
|1998                                                                                               |
|  Property and casualty         $ 3,938        $   976         $   262         $ 4,652      21.0  %|
|  Accident and health             1,732            115             144           1,703       6.8   |
|  Life                              526             72             118             480      15.0   |
|---------------------------------------------------------------------------------------------------|
|     TOTAL PREMIUMS             $ 6,196        $ 1,163         $   524         $ 6,835      17.0  %|
|===================================================================================================|
|1997                                                                                               |
|  Property and casualty         $ 4,304        $   560         $   459         $ 4,405      12.7  %|
|  Accident and health             1,859             57              65           1,851       3.1   |
|  Life                              435             61              57             439      13.8   |
|---------------------------------------------------------------------------------------------------|
|     TOTAL PREMIUMS             $ 6,598        $   678         $   581         $ 6,695      10.1  %|
|===================================================================================================|
</TABLE>


         In the table  above,  life  premium  revenue is  principally  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 $501 and $394  million for the six months ended June 30, 1998 and
June 30, 1997, respectively. 

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

NOTE E. Debt:

Borrowings consisted of the following:

<TABLE>
<CAPTION>
|---------------------------------------------------------------------------------------|
|LONG-TERM DEBT                                                     JUNE 30 DECEMBER 31 |
|(In millions of dollars)                                            1998      1997     |
|---------------------------------------------------------------------------------------|
<S>                                                              <C>          <C>
|Variable Rate Debt:                                                                    |
|      Credit Facility                                            $    75      $   400  |
|      Commercial Paper                                               650          675  |
|      Credit Facility - CNA Surety                                   118          118  |
|      Senior Notes:                                                                    |
|      8.875%, due March 1, 1998                                       -           150  |
|      8.25%, due April 15, 1999                                      101          102  |
|      7.25%, due March 1, 2003                                       147          146  |
|      6.25%, due November 15, 2003                                   249          249  |
|      6.50%, due April 15, 2005                                      497           -   |
|      6.75%, due November 15, 2006                                   248          248  |
|      6.45%, due January 15, 2008                                    149           -   |
|      8.375%, due August 15, 2012                                     98           98  |
|      6.95%, due January 15, 2018                                    148           -   |
|      7.25%, Debenture, due November 15, 2023                        247          247  |
|   11% Secured Mortgage Notes, due June 1, 2013                      158          389  |
|   6.90% - 16.29% Secured Capital Leases, due December 31, 2011       46           47  |
|   Other debt, due 1998 through 2019 (rates of 1% to 12.71%)          27           28  |
|---------------------------------------------------------------------------------------|
|   TOTAL LONG-TERM DEBT                                          $ 2,958       $ 2,897 |
|=======================================================================================|
</TABLE>

         The Company has in place an $875  million  revolving  credit  facility,
borrowing  capacity  under  which is  reduced by the  effects  of the  Company's
commercial  paper  program.  As of August 1, 1998,  outstanding  loans under the
revolving  credit  facility  were $85 million.  There was $140 million of unused
borrowing capacity under the facility. The interest rate for the credit facility
is based on the London Interbank  Offered Rate ("LIBOR"),  plus 16 basis points.
Additionally,  there is a facility fee of 9 basis points  annually.  The average
interest rate on the borrowings  under the credit  facility at June 30, 1998 was
5.85% compared to 5.83% at June 30, 1997.

         To take  advantage of  favorable  interest  rates,  CNA  established  a
commercial  paper  program  to replace  borrowings  under the  revolving  credit
facility.  The commercial  paper  borrowings are classified as long-term as $650
million of the  committed  bank  facility  will  support  the  commercial  paper
program. The weighted-average interest rate on commercial paper at June 30, 1998
and 1997, respectively, was 5.83 % and 5.92%.

         To offset  the  variable  rate  characteristics  of the  facility,  CNA
entered into interest rate swap  agreements  with several banks.  The agreements
terminate from May 2000 to December 2000. These agreements  provide that CNA pay
interest at a fixed rate,  averaging 6.07% at June 30, 1998, in exchange for the
receipt of interest at the three month LIBOR rate.  The effect of these interest
rate swaps was to increase interest expense by $0.7 million and $2.3 million for
the six months ended June 30, 1998 and June 30, 1997, respectively.

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

         The weighted  average interest rate (interest and facility fees) on the
variable rate  acquisition  debt,  which includes the revolving credit facility,
commercial  paper,  and the effect of the interest  rate swaps was 6.19% at June
30, 1998 and 6.32% at June 30, 1997.


         On August 18,  1997,  CNAF filed a  Registration  Statement on Form S-3
with the Securities and Exchange  Commission  relating to $1.0 billion of senior
and  subordinated  debt and preferred stock that became effective on October 22,
1997. This shelf registration  incorporated $250 million of securities remaining
available for issuance from a prior shelf registration.  On January 8, 1998, the
Company issued $150 million  principal amount of 6.45% senior notes, due January
15, 2008, and $150 million  principal  amount of 6.95% senior notes, due January
15, 2018. The net proceeds were used to repay a portion of the revolving  credit
facility.


         On April 15, 1998, the Company issued $500 million  principal amount of
6.50% senior notes,  due April 15, 2005.  The net proceeds were used to prepay a
portion of the secured mortgage notes in the amount of $212 million,  pay down a
portion of the existing  bank debt  outstanding  under the  Company's  revolving
credit  facility,  provide  refinancing  of senior  notes and provide  funds for
acquisitions. The mortgages had an effective interest rate of 11% and a maturity
of June 1, 2013.


         On  September  30, 1997,  CNA Surety,  a 62% owned  subsidiary  of CNA,
entered into a $130 million,  5 year revolving credit facility.  The interest on
credit facility borrowings is based on LIBOR plus 20 basis points. Additionally,
there is a credit  facility fee of 10 basis points  annually.  At June 30, 1998,
the outstanding  borrowings under this credit facility were $118 million and the
weighted average interest rate was 5.86%.


                                      (14)

<PAGE>

                            CNA FINANCIAL CORPORATION
         NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS- concluded

NOTE F.  Accumulated Other Comprehensive Income:


         Comprehensive  income is  comprised  of all  changes  to  stockholders'
equity, including net income, except those changes resulting from investments by
owners and distributions to owners.  The change in the components of accumulated
other comprehensive income (loss) are reported net of income tax as shown below:


<TABLE>
<CAPTION>
|-------------------------------------------------------------------------------------------------------|
|                                                                                        TAX            |
|      THREE MONTHS ENDED JUNE 30, 1998                                    PRE-TAX    (EXPENSE)     NET |
|      (In millions of dollars)                                             AMOUNT     BENEFIT    AMOUNT|
|-------------------------------------------------------------------------------------------------------|
<S>                                                                           <C>        <C>          <C>  
|      Net unrealized gains (losses) on investment securities:                                          |
|          Net unrealized holding gains (losses) arising during the period    221        (77)        144|
|          Reclassification adjustment for (gains) losses included                                      |
|          in net income                                                      (128)       45        (83)|
|      Foreign currency translation adjustments                                 7         (3)         4 |
|      Adjustment for participating policyholder liabilities                   (3)         1         (2)|
|-------------------------------------------------------------------------------------------------------|
|      TOTAL OTHER COMPREHENSIVE INCOME                                        97        (34)        63 |
|=======================================================================================================|
</TABLE>
<TABLE>
<CAPTION>
|-------------------------------------------------------------------------------------------------------|
|                                                                                       TAX             |
|      THREE MONTHS ENDED JUNE 30, 1997                                   PRE-TAX    (EXPENSE)     NET  |
|      (In millions of dollars)                                            AMOUNT     BENEFIT    AMOUNT |
|-------------------------------------------------------------------------------------------------------|
<S>                                                                           <C>       <C>      <C>
|      Net unrealized gains (losses) on investment securities:                                          |
|          Net unrealized holding gains (losses) arising during the period    426       (131)       295 |
|          Reclassification adjustment for (gains) losses included                                      |
|          in net income                                                      (87)        30        (57)|
|      Foreign currency translation adjustments                                (1)         -         (1)|
|      Adjustment for participating policyholder liabilities                   (5)         2         (3)|
|-------------------------------------------------------------------------------------------------------|
|      TOTAL OTHER COMPREHENSIVE INCOME                                       333        (99)       234 |
|=======================================================================================================|
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
|-------------------------------------------------------------------------------------------------------|
|                                                                                        TAX            |
|SIX MONTHS ENDED JUNE 30, 1998                                             PRE-TAX    (EXPENSE)   NET  |
|                                                                            AMOUNT     BENEFIT  AMOUNT |
|(In millions of dollars)                                                                               |
|-------------------------------------------------------------------------------------------------------|
<S>                                                                         <C>        <C>        <C>
|Net unrealized gains (losses) on investment securities:                                                |
| Net unrealized holding gains (losses) arising during the period             338        (118)      220 |
| Reclassification adjustment for (gains) losses included                                               |
|    in net income                                                           (277)        97       (180)|
|Foreign currency translation adjustments                                      (4)         1         (3)|
|Adjustment for participating policyholder liabilities                          1          -          1 |
|-------------------------------------------------------------------------------------------------------|
|TOTAL OTHER COMPREHENSIVE INCOME                                              58        (20)        38 |
|=======================================================================================================|
</TABLE>
<TABLE>
<CAPTION>
|-------------------------------------------------------------------------------------------------------|
|                                                                                     TAX               |
|SIX MONTHS ENDED JUNE 30, 1997                                       PRE-TAX      (EXPENSE)       NET  |
|(In millions of dollars)                                              AMOUNT       BENEFIT      AMOUNT |
|-------------------------------------------------------------------------------------------------------|
<S>                                                                  <C>        <C>           <C>
|Net unrealized gains (losses) on investment securities:                                                |
| Net unrealized holding gains (losses) arising during the period             (29)        10        (19)|
| Reclassification adjustment for (gains) losses included                                               |
| in net income                                                              (175)        61       (114)|
|Foreign currency translation adjustments                                       1          -          1 |
|Adjustment for participating policyholder liabilities                          4         (1)         3 |
|-------------------------------------------------------------------------------------------------------|
|TOTAL OTHER COMPREHENSIVE INCOME                                            (199)        70       (129)|
|=======================================================================================================|
</TABLE>
                                      (15)
<PAGE>
                            CNA FINANCIAL CORPORATION
           MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
                            AND RESULTS OF OPERATIONS

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

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

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

         On August 5, 1998,  CNA  announced  current  estimates of the financial
implications of its initiatives to achieve world-class performance. "World-class
performance",  as defined by the Company,  refers to the Company's  intention to
position  each of its  strategic  business  units  (SBUs) as a market  leader by
sharpening  its focus on customers and employing new  technology to work smarter
and faster.  As a result of these  initiatives,  the Company is  reorganizing  a
number of its SBUs and  corporate  support  areas.  The  organizational  changes
include  the  closing  of a  number  of  facilities  and  consolidating  certain
processing locations, reducing workforce and enhancing computer systems.

         Within its commercial insurance business,  the Company will consolidate
four  regional  offices  into two zone  offices and  streamline  decision-making
processes  in support of branch  offices and  agents.  The plan also calls for a
reduction of its claim  processing  offices from 24 to 8 and system  upgrades to
enable the Company to centralize its policy  processing  into one center located
in Orlando,  Florida.  These changes are expected to reduce  paperwork and allow
branch employees to spend more time with customers.

         Within  its risk  management  business,  the  Company  will  form a new
holding  company  with  a  simplified   cost   structure.   Two  separate  claim
organizations  will be  united to form a new  claims  service  company  for risk
management  clients.  The new  company  will  employ one of the  largest  claims
technical  staff in the  insurance  industry  as well as  achieve  cost  savings
through economies of scale.

         Certain other of the Company's  remaining  SBUs  anticipate  finalizing
their reorganization plans by the end of the third quarter of 1998.

         With  finalization  of the plan  expected  to occur by the end of third
quarter,  the Company  estimates that it will record a pre-tax charge of $100 to
$140 million for  restructuring  costs. The Company expects  additional  pre-tax
transition  costs of $200 to $260 million  related to the  restructuring,  which
will  be  incurred  over  the  next  12 to 18  months.  The  pre-tax  impact  on
third-quarter earnings from these reorganization charges is estimated to be $175
million to $260 million.  The Company anticipates that its workforce,  currently
about 24,000 employees will be reduced by about 10%.
                                      (16)
<PAGE>
                            CNA FINANCIAL CORPORATION
           MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
                      AND RESULTS OF OPERATIONS - continued

         While the Company has not yet  completed  its  analysis of  anticipated
cost savings, it estimates that its world-class  initiatives,  which include the
restructuring plan as well as revenue  enhancements and operating  efficiencies,
will result in anticipated reductions of approximately 2 points in the Company's
expense ratio and savings of approximately $300 to $350 million on an annualized
basis. The Company expects a portion of the anticipated savings will be realized
beginning  in the latter  part of 1998 and to  achieve  the full  expense  ratio
reduction within 18 months.

RESULTS OF OPERATIONS:

         The following chart summarizes key components of operating  results for
the three and six months ended June 30, 1998 and 1997.
<TABLE>
<CAPTION>
|--------------------------------------------------------------------------------------------------|
|PERIOD ENDED JUNE 30                                  THREE MONTHS               SIX MONTHS       |
|(In millions of dollars)                          1998            1997      1998            1997  |
|--------------------------------------------------------------------------------------------------|
<S>                                            <C>          <C>           <C>         <C>
|OPERATING SUMMARY (EXCLUDING REALIZED INVESTMENT                                                  |
|GAINS/LOSSES):                                                                                    |
|Revenues:                                                                                         |
| Premiums:                                                                                        |                    
|  Property/Casualty                             $    2,666  $     2,529    $    5,193  $    5,000 |
|  Life                                                 801          819         1,642       1,695 |
|                                                 ----------   ----------     ---------  --------- |
|                                                     3,467        3,348         6,835       6,695 |
| Net investment income                                 558          547         1,120       1,111 |
| Other                                                 172          176           387         331 |
|                                                 ----------   ----------     ---------  --------- |
|                                                     4,197        4,071         8,342       8,137 |
|Benefits and expenses                                4,142        3,900         8,135       7,800 |
|                                                 ----------   ----------     ---------  --------- |
| Operating income before income tax                     55          171           207         337 |
|Income tax benefit (expense)                             9          (45)          (26)        (75)|
|                                                 ----------   ----------     ---------   ---------|
| Net operating income                           $       64  $       126    $      181   $     262 |
|                                                 ==========  ===========     =========   =========|
|SUPPLEMENTAL FINANCIAL DATA:                                                                      |
|Net operating income (loss) by group:                                                             |
| Property/Casualty                              $       74  $       125    $      200    $    264 |
| Life                                                   20           24            38          47 |
| Other, primarily interest expense                     (30)         (23)          (57)        (49)|
|                                                 ----------  -----------    ----------    --------|
|                                                        64          126           181         262 |
|                                                 ---------   -----------    ----------    --------|
|Net realized investment gains (losses) by group:                                                  |
| Property/Casualty                                     122           82           208          94 |
| Life                                                   25           26            55          44 |
| Other                                                  (1)           1            (1)         12 |
|                                                 ----------  -----------    ----------    --------|
|                                                       146          109           262         150 |
|                                                 ----------  -----------    ----------    --------|
|Net income (loss) by group:                                                                       |
| Property/Casualty                                     196          207           408         358 |
| Life                                                   45           50            93          91 |
| Other, primarily interest expense                     (31)         (22)          (58)        (37)|
|                                                 ----------  -----------    ---------     --------|
|                                                $      210  $       235    $      443     $   412 |
|==================================================================================================|
</TABLE>
                                      (17)
<PAGE>
                            CNA FINANCIAL CORPORATION
           MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
                      AND RESULTS OF OPERATIONS - continued

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

         Consolidated revenues, which consist of premium, net investment income,
realized  investment  gains and other revenue,  were $8.76 billion for the first
six months of 1998, up from $8.38  billion for the same period in 1997.  For the
first six months of 1998,  revenues,  as  compared  to the same  period in 1997,
reflect  an  increase  in earned  premium  of $140  million,  resulting  from an
increase in property/casualty  premiums of $193 million,  offset by a decline in
life premium of $53 million. Investment income was up slightly in the first half
of 1998, a $9 million increase over the same period in 1997. Other revenues were
$387  million for the first six months of 1998 as  compared to $331  million for
the same period in 1997.

         Net operating income, which excludes net realized investment gains, was
$181 million,  or $0.96 per share,  for the first half of 1998,  compared to net
operating  income of $262 million,  or $1.40 per share, for the first six months
of 1997.  Net  operating  income was $64  million,  or $0.33 per share,  for the
second quarter of 1998,  compared to $126 million,  or $0.67 per share,  for the
same quarter in 1997. CNA's income in the first half of 1998 is net of after-tax
catastrophe  losses of $98 million;  after-tax  catastrophe  losses in the first
half of 1997 were $49 million.

         Realized  investment gains, net of tax, for the first half of 1998 were
$262 million, or $1.41 per share,  compared to net realized investment gains for
the first half of 1997 of $150 million, or $0.81 per share.  Realized investment
gains,  net of tax, for the second  quarter of 1998 were $146 million,  or $0.79
per share,  compared to net realized  investment gains for the second quarter of
1997 of $109  million,  or $0.59 per share.  The  components of the net realized
investment gains (losses) are as follows:

|---------------------------------------------------------------------------|
|REALIZED INVESTMENT GAINS(LOSSES)                                          |
|SIX MONTHS ENDED JUNE 30                                  1998       1997  |
|(in millions of dollars)                                                   |
|---------------------------------------------------------------------------|
|Bonds:                                                                     |
| U.S. Government                                    $       96     $    49 |
| Tax exempt                                                 32           2 |
| Asset-backed                                               27           9 |
| Taxable                                                    69          84 |
|                                                     ----------    --------|
|    Total bonds                                            224         144 |
|Stocks                                                      13          39 |
|Derivative security investments                             34          (1)|
|Separate Accounts and other                                144          56 |
|                                                     ----------    --------|
|  Realized investment gains reported in revenues           415         238 |
|Participating policyholders' interest                       (7)         (5)|
|Income tax expense                                        (146)        (83)|
|                                                     ----------    --------|
|   NET REALIZED INVESTMENT GAINS                    $      262     $   150 |
|===========================================================================|

         Net income for the first six months of 1998 was $443 million,  or $2.37
per share,  compared to $412 million, or $2.21 per share, for the first of 1997.
Net income for the second quarter was $210 million, or $1.12 per share, compared
to a net income of $235 million,  or $1.26 per share,  for the second quarter of
1997.
                                      (18)
<PAGE>
                            CNA FINANCIAL CORPORATION
           MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
                      AND RESULTS OF OPERATIONS - continued

PROPERTY/CASUALTY OPERATIONS
----------------------------
<TABLE>
<CAPTION>
|--------------------------------------------------------------------------------------------------|
|PROPERTY/CASUALTY GROUP                                                                           |
|PERIOD ENDED JUNE 30                                  THREE MONTHS             SIX MONTHS         |
|(In millions of dollars)                           1998            1997     1998        1997      |
|--------------------------------------------------------------------------------------------------|
<S>                                        <C>             <C>            <C>            <C>   
|OPERATING SUMMARY (EXCLUDING REALIZED                                                             |
|INVESTMENT GAINS/LOSSES):                                                                         |
|Revenues:                                                                                         |
| Premiums                                    $    2,666    $     2,537    $    5,193  $    5,000  |
| Net investment income                              448            450           901         911  |
| Other                                              150            142           335         275  |
|                                              ----------    -----------     ---------   --------- |
|                                                  3,264          3,129         6,429       6,186  |
|Benefits and expenses                             3,190          2,956         6,190       5,845  |
|                                              ----------    -----------     ---------   --------- |
| Income before income tax                            74            173           239         341  |
|Income tax expense                                  -              (48)          (39)        (77) |
|                                              ----------    -----------     ---------   --------- |
| NET OPERATING INCOME (EXCLUDING REALIZED                                                         |
|  investment gains/losses)                   $       74    $       125    $      200  $      264  |
===================================================================================================|
</TABLE>
     Property/casualty revenues, excluding net realized investment gains/losses,
increased 3.9% for the six months ended June 30, 1998, to $6.43 billion compared
to the same period a year ago.  Property/casualty  earned premium increased $193
million,  or 3.9% from the comparable  period in the prior year. The increase in
earned  premium is due primarily to an increase in  involuntary  risk premium of
approximately  $206  million and an increase  in personal  lines  premium of $41
million,  offset by a decrease in commercial lines premium of approximately  $54
million.  Involuntary  premium for 1997  reflected  reductions  in  estimates of
premium for 1996 and prior periods,  primarily in the workers' compensation line
of business,  and a greater  willingness on the part of the voluntary  market,
including  CNA,  to write  these  types of risks.  The 1998  estimated  premiums
reflects a return to historical  levels.  The increase in personal lines premium
continues  the  trend  seen  in 1997  and  the  first  quarter  of  1998  and is
attributable  to  growth  in  the  private  passenger  automobile  business  and
individual  long-term care. The decrease in commercial lines is primarily due to
a decrease in accident and health business.

     Pre-tax  operating  income,  excluding net realized  gains/losses,  for the
property/casualty  insurance  subsidiaries  was $239  million for the six months
ended June 30 ,1998,  compared to $341 million for the same period one year ago.
Underwriting  losses for the six and three months ended June 30, 1998, were $661
million and $373 million, compared to $570 million and $277 million for the same
periods in 1997.  The increase in  underwriting  losses is  primarily  due to an
increase  in  catastrophe  losses for the first six months of 1998.  Catastrophe
losses for the six months ended June 30, 1998 were $151  million,  pre-tax,  and
were $76 million for the comparable period in 1997.  Pre-tax  catastrophe losses
for the three months  ended June 30,  1998,  and June 30, 1997 were $126 million
and $45 million,  respectively. The increase in catastrophe losses is mainly due
to spring storms throughout the United States.  Investment income decreased 1.1%
for the six months  ended June 30,  1998 as compared to the same period for 1997
due  to  lower  yielding  investments.  The  fixed  maturities  segment  of  the
investment  portfolio yielded 6.2% in the first half of 1998 as compared to 6.4%
for the first half of 1997.
<PAGE>

     The net operating income of CNA's property/casualty insurance subsidiaries,
excluding net realized investment gains/losses, was $200 and $74 million for the
six and three  months  ended June 30,  1998,  compared to $264  million and $125
million for the same periods in 1997. Net realized  investment gains for the six
and  three  months  ended  June 30,  1998 were $208  million  and $122  million,
compared to $94 million and $82 million in the comparable periods of 1997.

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

Life Operations
---------------
<TABLE>
<CAPTION>
|--------------------------------------------------------------------------------------------------|
|LIFE GROUP                                                                                        |
|PERIOD ENDED JUNE 30                                   THREE MONTHS               SIX MONTHS      |
|(In millions of dollars)                           1998              1997      1998        1997   |
|--------------------------------------------------------------------------------------------------|
<S>                                       <C>             <C>                <C>              <C>    
|OPERATING SUMMARY (EXCLUDING REALIZED                                                             |
|INVESTMENT GAINS/LOSSES):                                                                         |
|Revenues:                                                                                         |
| Premiums                                  $      801      $       812    $    1,642  $    1,697  |
| Net investment income                            113               99           224         204  |
| Other                                             23               33            52          56  |     
|                                            ----------      -----------   ----------   ---------- |
|                                                  937              944         1,918       1,957  |
|Benefits and expenses                             911              909         1,863       1,884  | 
|                                            ----------      -----------   ----------   ---------- |
| Income before income tax                          26               35            55          73  |
|Income tax expense                                 (6)             (11)          (17)        (26) |
|                                            ----------       ----------   ----------   ---------- |
| NET OPERATING INCOME (EXCLUDING REALIZED                                                         |
|  INVESTMENT GAINS/LOSSES)                 $       20      $        24    $       38  $       47  |
|==================================================================================================|
</TABLE>

     Life  group   revenues,   excluding   realized   investment   gains,   were
approximately  $1.92  billion,  down 2.0% for the six months ended June 30, 1998
compared to the same period a year ago.  Revenues for the second quarter of 1998
were down  slightly to $937  million as  compared  to $944  million for the same
period in 1997. Life group earned premium was $1.64 billion in the first half of
1998,  down 3.2% as compared to $1.70  billion for the six months ended June 30,
1997. For the three months ended June 30, 1998, earned premium decreased 1.4% to
$801  million  from $812  million for the same period in 1997.  The  decrease is
primarily due to lower  premiums for the Federal  Employees  Health Benefit Plan
(FEHBP) and a reduction in individual annuities.  The decrease in FEHBP premiums
is due to improved claim  experience upon which premiums are based and continues
the trend from the first  quarter  of this  year.  The  decrease  in  individual
annuity premium is  attributable  to a shift in CNA's marketing  efforts towards
more profitable  products.  Investment  income for the six months ended June 30,
1998 was $224  million as  compared  to $204  million for the same period a year
ago. The fixed maturities segment of the life investment  portfolio yielded 6.4%
in the first half of 1998 and 1997.

     Pre-tax operating income for the life insurance subsidiaries, excluding net
realized  investment  gains/losses,  was $55 million and $26 million for the six
and three months  ended June 30,  1998,  compared to $73 million and $35 million
for the same  periods  in 1997.  The  decrease  in pre-tax  operating  income is
primarily due to lower  premium  revenue,  as noted above,  and higher losses in
group  business  for the first six months of 1998 as compared to the same period
in 1997.

     Net realized  investment  gains for the six and three months ended June 30,
1998 were $55 million and $25  million,  compared to $44 million and $26 million
for the same periods in 1997.
                                      (20)
<PAGE>
                           CNA FINANCIAL CORPORATION
           MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
                      AND RESULTS OF OPERATIONS - continued

Investments
-----------
<TABLE>
<CAPTION>
|--------------------------------------------------------------------------------|------------------------------|
|SUMMARY OF GENERAL ACCOUNT INVESTMENTS                                          |SIX MONTHS ENDED JUNE 30, 1998|
|AT CARRYING VALUE                                                               |---------------|--------------|
|                                                                                |  CHANGE IN    |              |
|                                                       JUNE 30     DECEMBER 31  |NET UNREALIZED |  REALIZED    |
|(IN MILLIONS OF DOLLARS)                                 1998        1997       | GAINS(LOSSES) |GAINS(LOSSES) |
<S>                                              <C>            <C>                <C>                <C>            
|--------------------------------------------------------------------------------|---------------|--------------|
|FIXED MATURITY SECURITIES:                                                      |               |              |
|U.S. Treasury securities and                                                    |               |              |
| obligations of government agencies              $     11,043   $    12,980     |  $       18   |  $        96 |
|Asset-backed securities                                 5,697         4,804     |           8   |           27 |
|Tax exempt securities                                   5,996         4,724     |         (28)  |           32 |
|Taxable securities                                      6,823         7,040     |          18   |           69 |
|                                                  -----------     ---------     |   ----------  |   -----------|
| Total fixed maturity securities                       29,559        29,548     |          16   |          224 |
|Stocks                                                  1,054           814     |         107   |           13 |
|Short-term investments                                  4,388         4,884     |          -    |           (5)|
|Other investments                                       1,110           945     |         (54)  |          113 |
|Derivative security investments                            64            12     |          -    |           34 |
|                                                  -----------     ---------     |   ----------  |   -----------|
| TOTAL INVESTMENTS                               $     36,175   $    36,203     |          69   |          379 |
|                                                  ===========     =========     |               |              |
|Other, principally Separate Accounts                                            |         (2)   |           36 |
|                                                                                |               |              |
|Participating policyholders' interest                                           |          1    |           (7)|
|                                                                                |               |              |
|Income tax benefit (expense)                                                    |        (26)   |         (146)|
|                                                                                |   ----------  |   -----------|
| NET INVESTMENT GAINS (LOSSES)                                                  |  $      42    |  $       262 |
|--------------------------------------------------------------------------------|---------------|--------------|
|--------------------------------------------------------------------------|
|SHORT-TERM INVESTMENTS:                                                   |
|--------------------------------------------------------------------------|
|Security repurchase collateral              $        251       $       154|
|Escrow                                               969             1,065|
|U.S. Treasuries                                      536               558|
|Commercial paper                                   1,598             1,850|
|Money markets                                        446               624|
|Other                                                588               633|
|--------------------------------------------------------------------------|
| TOTAL SHORT-TERM INVESTMENTS               $      4,388       $     4,884|
|--------------------------------------------------------------------------|
</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 invests from time to time in certain derivative  financial  instruments
primarily  to reduce its  exposure to market risk  (principally  interest  rate,
equity price,  and foreign currency risk). CNA also uses derivatives to mitigate
the risk  associated  with its indexed group annuity  contract by purchasing S&P
500  futures  contracts  in a notional  amount  equal to the  original  customer
deposit.

     CNA  considers  its  derivatives  as being  held for  purposes  other  than
trading.  Derivative securities,  except for interest rate swaps associated with
certain corporate borrowings, are recorded at fair market value at the reporting
date with changes in market value  reflected in realized  gains and losses.  The
interest  rate swaps on corporate  borrowings  are  accounted  for using accrual
accounting  with the  related  income or expense  recorded as an  adjustment  to
interest expense; the changes in fair value are not recorded.
                                      (21)
<PAGE>
                           CNA FINANCIAL CORPORATION
           MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
                      AND RESULTS OF OPERATIONS - continued

     The general account portfolio consists primarily of high quality marketable
fixed maturity securities,  approximately 94.3% of which are rated as investment
grade.  At June 30, 1998,  tax-exempt  securities  and  short-term  investments,
excluding collateral for securities sold under repurchase agreements,  comprised
approximately  16.6% and 11.4%,  respectively,  of the general  account's  total
investment portfolio compared to 13.1% and 13.1%, respectively,  at December 31,
1997.  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.  Short-term  investments at
both  June  30,  1998  and  December  31,  1997 are  substantially  higher  than
historical levels in anticipation of Fibreboard-related  claim payments. At June
30, 1998, the major components of the short-term  investment  portfolio  consist
primarily of high-grade commercial paper and U.S. Treasury bills.

     As of June 30, 1998, the market value of CNA's general account  investments
in fixed  maturities  was $29.56  billion and was greater than amortized cost by
approximately  $545 million.  This compares to a market value of $29.55  billion
and  approximately  $528 million of net unrealized  investment gains at December
31,  1997.  The  gross  unrealized  investment  gains and  losses  for the fixed
maturity  securities  portfolio  at June 30,  1998  were $653  million  and $108
million, respectively,  compared to $644 million and $116 million, respectively,
at December 31, 1997.

     Net unrealized investment gains on general account fixed maturities at June
30, 1998 include net  unrealized  gains on high yield  securities of $4 million,
compared to net unrealized  losses of $2 million on such  securities at December
31, 1997.  High yield  securities are bonds rated as below  investment  grade by
bond rating  agencies,  plus private  placements  and other  unrated  securities
which, in the opinion of management,  are below investment grade. Fair values of
high  yield  securities  in  the  general  account  decreased  $203  million  to
approximately $1.68 billion at June 30, 1998 when compared to December 31, 1997.

     At June 30, 1998, total Separate  Account cash and investments  amounted to
$5.45 billion with taxable fixed maturity securities representing  approximately
82.5% of the  Separate  Accounts'  portfolios.  Approximately  68.7% 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 generally  matched 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 $3.53  billion at June 30, 1998 and $3.83 billion at December 31,
1997. At June 30, 1998, fair value exceeded  amortized cost by approximately $79
million.  This compares to an unrealized  gain of  approximately  $71 million at
December  31, 1997.  The gross  unrealized  investment  gains and losses for the
guaranteed investment fixed maturity securities portfolio at June 30, 1998, were
$93 million and $14 million,  respectively, as compared to a gain of $87 million
and a loss of $16 million at December 31, 1997.

     Carrying  values of high  yield  securities  in the  guaranteed  investment
portfolio  were $272  million at June 30, 1998 and $310  million at December 31,
1997. Net unrealized  investment  losses on high yield  securities  held in such
Separate  Accounts were $4 million at June 30, 1998,  and $1 million at December
31, 1997.
                                      (22)
<PAGE>
                           CNA FINANCIAL CORPORATION
           MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
                      AND RESULTS OF OPERATIONS - continued

     High yield securities  generally involve a greater degree of risk than that
of investment grade securities. Expected returns should, however, compensate for
the added risk. The risk is also considered in the interest rate  assumptions in
the underlying  insurance products.  As of June 30, 1998, CNA's concentration in
high yield bonds,  including Separate Accounts,  was approximately 3.4% of total
assets.  In addition,  CNA's  investment in mortgage loans and  investment  real
estate are substantially below the industry average,  representing less than one
quarter of one percent of its total assets.

     Included in CNA's fixed  maturity  securities at June 30, 1998 (general and
guaranteed investment  portfolios) are $8.0 billion of asset-backed  securities,
consisting  of  approximately  51.3%  in  collateralized   mortgage  obligations
("CMOs"),  16.1% in  corporate  asset-backed  obligations,  23.5%  in  corporate
mortgage  backed  security pass thru  obligations,  and 9.1% in U.S.  Government
agency issued pass-through certificates. The majority of CMOs held are corporate
mortgage backed securities,  which are actively traded in liquid markets and are
priced by  broker-dealers.  At June 30,  1998,  the fair  value of  asset-backed
securities exceeded the amortized cost by approximately $139 million compared to
net unrealized investment gains of $114 million at December 31, 1997. CNA limits
the  risks  associated  with  interest  rate   fluctuations  and  prepayment  by
concentrating  its CMO  investments in early planned  amortization  classes with
relatively short principal repayment windows.

     At June 30, 1998, 38.8% of the general account's fixed maturity  securities
portfolio was invested in U.S. Government  securities,  36.2% in other AAA rated
securities and 13.9% in AA and A rated securities.  CNA's guaranteed  investment
fixed  maturity  securities  portfolio  is  comprised  of 3.8%  U.S.  Government
securities,  62.9% in other  AAA  rated  securities  and 14.2% in AA and A rated
securities. These ratings are primarily from Standard & Poor's.

MARKET RISK:

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

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

     Active  management of market risk is integral to the Company's  operations.
The Company may use the  following  tools to manage its  exposure to market risk
within defined tolerance  ranges: 1) change the character of future  investments
purchased or sold, 2) use  derivatives to offset the market behavior of existing
assets and  liabilities or assets expected to be purchased and liabilities to be
incurred or 3) rebalance its existing asset and liability portfolios.
                                      (23)
<PAGE>
                           CNA FINANCIAL CORPORATION
           MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
                      AND RESULTS OF OPERATIONS - continued

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

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

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

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

Sensitivity Analysis
--------------------

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

     The  analysis  assumes  that  the  composition  of the  Company's  interest
sensitive assets and liabilities existing at the beginning of the period remains
constant  over the period  being  measured  and also  assumes  that a particular
change  in  interest  rates  is  reflected  uniformly  across  the  yield  curve
regardless of the time to maturity.  Also the interest rates on certain types of
assets and  liabilities  may fluctuate in advance of changes in market  interest
rates,  while  interest  rates on other  types may lag behind  changes in market
rates.  Accordingly,  the analysis may not be indicative  of, is not intended to
provide,  and does not  provide a precise  forecast  of the effect of changes of
market interest rates on the Company's income or stockholders' equity.  Further,
the  computations do not contemplate any actions CNA would undertake in response
to changes in interest rates.
                                      (24)
<PAGE>
                           CNA FINANCIAL CORPORATION
           MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
                      AND RESULTS OF OPERATIONS - continued

     The sensitivity  analysis assumes an instantaneous shift in market interest
rates,  with scenarios of interest  rates  increasing and decreasing 100 and 150
basis  points from their levels at June 30, 1998 with all other  variables  held
constant.  A 100 and 150 basis  point  increase in market  interest  rates would
result in a pre-tax decrease in the net financial  instrument  position of $1.80
billion  and $2.67  billion,  respectively.  Similarly a 100 and 150 basis point
decrease in market interest rates would result in a pre-tax  increase in the net
financial instrument position of $1.81 billion and $2.72 billion, respectively.

     The Company's long-term debt,  including interest rate swap agreements,  as
of June  30,  1998 is  denominated  in U.S.  dollars.  Approximately  93% of the
Company's  long-term debt has been issued at fixed rates or has been effectively
converted into fixed rate debt by interest rate swap  arrangements  which mature
in  May  2000  through  December  2000.  As  such,   interest  expense  on  this
indebtedness  would not be impacted by interest rate shifts. The impact of a 100
and 150 basis point increase in market interest rates would result in a decrease
in the market  value of the fixed rate debt by $132  million  and $187  million,
respectively.  The  impact  of a 100 and 150  basis  point  decrease  in  market
interest  rates would result in a increase in the market value of the fixed rate
debt by $162 million and $254 million, respectively. The impact of a 100 and 150
basis point  increase in market  interest  rates on the variable rate debt would
result  in  additional  interest  expense  of $2.1  million  and  $3.1  million,
respectively,  per year.  A 100 and 150 basis point  decrease in interest  rates
would lower interest expense by $2.1 million and $3.1 million, respectively, per
year.

     Equity price risk was measured assuming an instantaneous 10% and 25% change
in the  Standard & Poor's 500 Index (the Index) from its level of June 30, 1998,
with all other  variables  held  constant.  The Company's  equity  holdings were
assumed to be perfectly  correlated  with this index.  A 10% and 25% decrease in
the  Index  would  result  in  a  $213   million  and  $532  million   decrease,
respectively,  in the net financial instrument  position.  Of these amounts, $84
million  and  $209  million,  respectively,  would be  offset  by  decreases  in
liabilities to customers under variable annuity contracts.  Similarly, increases
in the index would  result in like  increases  in the net  financial  instrument
position.

     The sensitivity  analysis also assumes an instantaneous  10% and 20% change
in the foreign currency  exchange rates versus the U.S. Dollar from their levels
at June  30,  1998,  with  all  other  variables  held  constant.  A 10% and 20%
strengthening  of the U.S.  dollar  versus  other  currencies  would  result  in
decreases  of $196  million  and $392  million in the net  financial  instrument
position.  Weakening of the U.S. dollar versus all other currencies would result
in like increases in the net financial instrument position.
                                      (25)
<PAGE>
                            CNA FINANCIAL CORPORATION
           MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
                      AND RESULTS OF OPERATIONS - continued
     The  following  table  reflects an increase in interest  rates of 100 basis
points,  a 10%  decline  in the S&P 500  index,  and a decline of 10% in foreign
currency exchange rates.
<TABLE>
<CAPTION>
|-----------------------------------------------------------------------------------------------------------------|
|JUNE 30, 1998                               MARKET            INTEREST             CURRENCY        EQUITY        |
|(In millions of dollars)                    VALUE            RATE RISK              RISK            RISK         |
|-----------------------------------------------------------------------------------------------------------------|
<S>                                   <C>                <C>                  <C>               <C>
|Held for Other Than Trading Purposes                                                                             |
|    General accounts                                                                                             |
|      Fixed maturity securities         $    29,559       $      (1,592)        $     (118)      $         -     |
|      Equity securities                       1,054                   -                (23)             (105)    |
|      Short term investments                  4,388                  (9)               (32)                -     |
|      Interest rate swaps                        (3)                  9                  -                 -     |
|-----------------------------------------------------------------------------------------------------------------|
|         Total general accounts              34,998              (1,592)              (173)             (105)    |
|-----------------------------------------------------------------------------------------------------------------|
|    Separate Accounts                                                                                            |
|      Fixed maturity securities               4,496                (219)               (20)               (3)    |
|      Equity securities                         208                   -                  -               (21)    |
|      Short term investments                    605                  (1)                (3)                -     |
|      Equity index futures                        -                   -                  -               (84)    |
|-----------------------------------------------------------------------------------------------------------------|
|         Total Separate Accounts              5,309                (220)               (23)             (108)    |
|-----------------------------------------------------------------------------------------------------------------|
|         Total all securities           $    40,307       $      (1,812)        $     (196)      $      (213)    |
|-----------------------------------------------------------------------------------------------------------------|
|Long term debt                          $    (2,975)      $         132         $        -       $         -     |
|=================================================================================================================|
</TABLE>
     The  following  table  reflects an increase in interest  rates of 150 basis
points,  a 25%  decline  in the S&P 500  index,  and a decline of 20% in foreign
currency exchange rates.
<TABLE>
<CAPTION>
|-----------------------------------------------------------------------------------------------------------------|
|JUNE 30, 1998                               MARKET            INTEREST               CURRENCY        EQUITY      |
|(In millions of dollars)                    VALUE            RATE RISK              RISK              RISK       |
|-----------------------------------------------------------------------------------------------------------------|
<S>                                     <C>               <C>                   <C>             <C>    
|Held for Other Than Trading Purposes                                                                             |
|    General accounts                                                                                             |
|      Fixed maturity securities         $    29,559       $      (2,383)        $     (236)      $         -     |
|      Equity securities                       1,054                   -                (46)             (264)    |
|      Short term investments                  4,388                 (13)               (65)                -     |
|      Interest rate swaps                        (3)                 15                  -                 -     |
|-----------------------------------------------------------------------------------------------------------------|
|         Total general accounts              34,998              (2,381)              (347)             (264)    |
|-----------------------------------------------------------------------------------------------------------------|
|    Separate Accounts                                                                                            |
|      Fixed maturity securities               4,496                (334)               (39)               (7)    |
|      Equity securities                         208                   -                  -               (52)    |
|      Short term investments                    605                  (1)                (6)                -     |
|      Equity index futures                        -                   -                  -              (209)    |
|-----------------------------------------------------------------------------------------------------------------|
|         Total Separate Accounts              5,309                (335)               (45)             (268)    |
|-----------------------------------------------------------------------------------------------------------------|
|         Total all securities           $    40,307       $      (2,716)        $     (392)      $      (532)    |
|=================================================================================================================|
|Long term debt                          $    (2,975)      $         187         $        -       $         -     |
|=================================================================================================================|
</TABLE>
                                      (26)
<PAGE>
                           CNA FINANCIAL CORPORATION
           MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
                      AND RESULTS OF OPERATIONS - continued

FINANCIAL CONDITION:

<TABLE>
<CAPTION>
|-------------------------------------------------------------------------------------------------|
|FINANCIAL POSITION                                                   JUNE 30         DECEMBER 31 |
|(In millions of dollars, except per share data)                       1998               1997    |
|-------------------------------------------------------------------------------------------------|
<S>                                                              <C>               <C>       
|Assets                                                            $63,164      $     61,269      |
|Stockholders' equity                                                8,787             8,309      |
|Accumulated other comprehensive income                                627               589      |
|Book value per common share                                         46.59             44.01      |
|=================================================================================================|
</TABLE>
     CNA's assets increased  approximately  $1.90 billion from December 31, 1997
to $63.16 billion as of June 30, 1998.

     During the first six months of 1998, CNA's  stockholders'  equity increased
by $478 million,  or 5.8%, to $8.79 billion.  The major component of this change
was net income of $443 million.

     The   statutory   surplus  of  the   property/casualty   subsidiaries   was
approximately  $7.0 billion at June 30,  1998,  compared to  approximately  $7.1
billion on December 31, 1997.  The major  component of this change was statutory
net income of $147 million and a change in net  unrealized  investment  gains of
$181 million.  These  increases were  partially  offset by $369 million of other
items,  primarily dividends paid to the parent company. The statutory surplus of
the life insurance subsidiaries was approximately $1.3 billion at June 30, 1998,
compared to $1.2 billion at year end 1997.

LIQUIDITY AND CAPITAL RESOURCES:

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

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

     For the six months ended June 30, 1998,  CNA's  operating cash flows were a
negative  $579  million,  compared to a negative $670 million for the six months
ended June 30, 1997. Negative cash flows for 1998 and 1997 are substantially the
result  of  claim  payments  resulting  primarily  from  the  settlement  of the
Fibreboard litigation.

     In  early  1998,  CNA was  able  to  take  advantage  of  favorable  market
conditions  to refinance,  on a fixed rate basis,  $300 million of existing debt
under the Company's revolving credit facility.

     During the second quarter of 1998 the Company issued $500 million principal
amount of 6.50% senior notes,  due April 15, 2005. The net proceeds were used to
pay down existing debt, provide  refinancing of certain senior notes and provide
funds for acquisitions.  The net effect of these transactions was an increase in
cash flows from financing activities of approximately $61 million.
                                      (27)
<PAGE>
                           CNA FINANCIAL CORPORATION
           MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
                      AND RESULTS OF OPERATIONS - continued

     On August 5, 1998, CNA's board of directors approved a plan to purchase, in
open market or privately negotiated  transactions,  its outstanding common stock
from time to time as market conditions warrant.

IMPACT OF YEAR 2000:

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

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

ACCOUNTING STANDARDS:

     In June 1997, the Financial  Accounting  Standards  Board  ("FASB")  issued
Statement of Financial  Accounting  Standards  ("SFAS") 131,  "Disclosures about
Segments of an Enterprise and Related  Information," which establishes standards
for the way that public business  enterprises report information about operating
segments  in interim and annual  financial  statements.  It requires  that those
enterprises report a measure of segment profit or loss, certain specific revenue
and expense items,  and segment assets,  and that the enterprises  reconcile the
total of those  amounts to the  general-purpose  financial  statements.  It also
establishes  standards  for related  disclosures  about  products and  services,
geographic areas and major customers.  This Statement is effective for financial
statements for periods  beginning  after December 15, 1997.  This Statement need
not be  applied to  interim  financial  statements  in the  initial  year of its
application. This Statement will redefine CNA's business segment disclosure.
                                      (28)
<PAGE>
                            CNA FINANCIAL CORPORATION
           MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
                      AND RESULTS OF OPERATIONS - concluded

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

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

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

     In June  1998,  the  FASB  issued  SFAS  133,  "Accounting  for  Derivative
Instruments  and  Hedging  Activities,"  which  establishes  standards  for  the
accounting and reporting for derivative  instruments and for hedging activities.
It  requires  that an entity  recognize  all  derivatives  as  either  assets or
liabilities in the statement of financial position and measure those instruments
at fair value.  If certain  conditions are met, a derivative may be specifically
designated  as (a) a hedge of the  exposure  to  changes  in the fair value of a
recognized asset or liability or an unrecognized firm commitment, (b) a hedge of
the exposure to variable cash flows of a forecasted transaction,  or (c) a hedge
of the foreign currency exposure of a net investment in a foreign operation,  an
unrecognized   firm   commitment,   an   available-for-sale   security,   or   a
foreign-currency-denominated  forecasted transaction. The accounting for changes
in the fair value of a derivative  depends on the intended use of the derivative
and the  resulting  designation.  This  Statement  is  effective  for all fiscal
quarters  of fiscal  years  beginning  after  June 15,  1999.  CNA is  currently
evaluating  the effects of this  Statement on its  accounting  and reporting for
derivatives and hedges.
                                      (29)
<PAGE>
                           CNA FINANCIAL CORPORATION
           MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
                      AND RESULTS OF OPERATIONS - concluded

FORWARD-LOOKING STATEMENTS:

     When included in management's discussion and analysis, the words "believe",
"expects", "intends" "anticipates",  "estimates", and analogous expressions are
intended to identify forward-looking  statements. Such statements inherently are
subject to a variety of risks and uncertainties  that could cause actual results
to differ materially from those projected. Such risks and uncertainties include,
among others, general economic and business conditions,  competition, changes in
financial markets  (interest rate,  credit,  currency,  commodities and stocks),
changes in  foreign,  political,  social  and  economic  conditions,  regulatory
initiatives and compliance with governmental regulations, judicial decisions and
rulings,  and  various  other  matters,  many of which are beyond the  Company's
control.  See the  Company's  discussions  elsewhere in this report on how these
various risks may affect CNA. These forward-looking  statements speak only as of
the date of this report.  The Company  expressly  disclaims  any  obligation  or
undertaking to release publicly any updates or revisions to any  forward-looking
statement  contained herein to reflect any change in the Company's  expectations
with regard  thereto or any change in events,  conditions  or  circumstances  on
which any statement is based.

                                      (30)
<PAGE>

                            CNA FINANCIAL CORPORATION

                            PART II OTHER INFORMATION


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

Set  forth  below  is  information  relating  to  the  1998  Annual  Meeting  of
Shareholders of CNA Financial Corporation.

The annual meeting was called to order at 10:00 A.M.,  May 6, 1998.  Represented
at the meeting,  in person or by proxy,  were  61,112,939  on a pre-stock  split
basis,  approximately  98.891% of the issued and outstanding  shares entitled to
vote.

The following business was transacted:

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

                           Votes For                       Votes Withheld
                     --------------------               --------------------
Antoinette Cook Bush        61,053,900                           59,039
Dennis H. Chookaszian       61,055,766                           57,173
Philip L. Engel             61,055,797                           57,142
Robert P. Gwinn             61,055,380                           57,559
Walter F. Mondale           60,683,543                          429,396
Edward J. Noha              61,055,464                           57,475
Joseph Rosenberg            61,055,717                           57,222
Richard L. Thomas           61,055,286                           57,653
James S. Tisch              60,936,255                          176,684
Laurence A. Tisch           61,054,998                           57,941
Preston R. Tisch            61,055,001                           57,938
Marvin Zonis                61,055,775                           57,164

Ratification of the Appointment of Independent Certified Public Accountants
---------------------------------------------------------------------------
The appointment of Deloitte & Touche LLP as independent  public auditors for the
Company  was  ratified  by a vote of  61,107,118  shares or 99.99% of the shares
voting.  3,357 shares or  approximately  0.005% of the shares voting,  were cast
against,  and  2,464  shares,  or  approximately  0.004% of the  shares  voting,
abstained.

Ratification of the Amendment to the Certificate of Incorporation
-----------------------------------------------------------------
The  amendment to the  Certificate  of  Incorporation  was ratified by a vote of
59,894,109   shares  or  98.973%  of  the  shares  voting.   606,343  shares  or
approximately 1.002% of the shares voting, were cast against,  15,270 shares, or
approximately  0.025% of the shares  voting,  abstained and 597,217  shares,  or
approximately 0.966% of the shares did not vote.

                                      (31)
<PAGE>
                            CNA FINANCIAL CORPORATION

                      PART II OTHER INFORMATION - Continued


ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K

(a) EXHIBITS:

              Description of Exhibit
                                                        Exhibit        Page
                                                        Number         Number
                                                        -------        ------
    Computation of Net Income per Common Share            11              34
    Computation of Ratio of Earnings to Fixed Charges     12.1            35
    Computation of Ratio of Net Income, 
      As Adjusted, to Fixed Charges                       12.2            35
    Financial Data Schedule                               27              36


(b)  REPORTS ON FORM 8-K:

     On April 17, 1998,  CNA  Financial  Corporation  filed a report on Form 8-K
related  to the  consent  to  incorporation  by  reference  within  Registration
Statement  #33-50753  of  the  independent  auditors'  report  appearing  in and
incorporated  by  reference in the Annual  Report on Form 10-K of CNA  Financial
Corporation and subsidiaries for the year ended December 31, 1997.


                                      (32)
<PAGE>
                            CNA FINANCIAL CORPORATION

                      PART II OTHER INFORMATION - Concluded

                                   SIGNATURES


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

                                                 CNA FINANCIAL CORPORATION
                                                 -------------------------

Date:  August 14, 1998                           By:  S/W. JAMES MACGINNITIE
       ---------------                                --------------------
                                                      W. James MacGinnitie
                                                      Senior Vice President and
                                                      Chief Financial Officer
      
                                (33)
<PAGE>
                                                            EXHIBIT 11

                            CNA FINANCIAL CORPORATION
                   COMPUTATION OF NET INCOME PER COMMON SHARE
<TABLE>
<CAPTION>
|----------------------------------------------------------------------------------------------------------------|
|PERIOD ENDED JUNE 30                                    SECOND QUARTER                         SIX MONTHS       |
|(In millions of dollars, except per share data)     1998              1997               1998              1997 |
|----------------------------------------------------------------------------------------------------------------|
<S>                                           <C>              <C>                 <C>              <C>   
|Earnings per share:                                                                                             |
|                                                                                                                |
| Net income                                    $      210       $       235         $      443        $      412|
| Less preferred stock dividends                         2                 1                  3                 3|
|                                                ---------         ---------          ---------         ---------|
|                                                                                                                |
| Net income available to common stockholders   $      208       $       234         $      440        $      409|
|                                                =========         =========          =========         =========|
|                                                                                                                |
| Weighted average shares outstanding                185.4             185.4              185.4             185.4|
|                                                =========         =========          =========         =========|
|                                                                                                                |
| Net income per common share                   $     1.12    $         1.26      $        2.37     $        2.21|
|                                                =========         =========          =========         =========|
|                                                                                                                |
|----------------------------------------------------------------------------------------------------------------|
</TABLE>
                                      (34)
<PAGE>
                                                            EXHIBIT 12.1

                            CNA FINANCIAL CORPORATION
                COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
<TABLE>
<CAPTION>
|-----------------------------------------------------------------------------------------------------------|
|PERIOD ENDED JUNE 30                                                                                       |
|(in millions of dollars, except ratios)                                          1998                1997  |
|-----------------------------------------------------------------------------------------------------------|
<S>                                                                         <C>                 <C>    
|Income before income tax and cumulative effect of accounting changes        $        615        $      570 |
|Adjustments:                                                                                               |
|     Interest expense                                                                115                96 |
|     Interest element of operating lease rental                                       18                12 |
|                                                                              -----------        ----------|
|Income before income tax as adjusted                                        $        748        $      678 |
|                                                                              ===========        ==========|
|                                                                                                           |
|Fixed charges:                                                                                             |
|     Interest expense                                                                                      |
|     Interest element of operating lease rental                             $        115        $       96 |
|Fixed charges                                                                         18                12 |
|                                                                              -----------        ----------|
|                                                                            $        133        $      108 |
|                                                                              ===========        ==========|
|Ratio of earnings to fixed charges (1)                                               5.6               6.3 |
|-----------------------------------------------------------------------------------------------------------|
</TABLE>
(1) For  purposes of computing  this ratio,  earnings  consist of income  before
income taxes plus fixed charges of consolidated companies. Fixed charges consist
of interest and that portion of operating  lease rental  expense which is deemed
to be an interest factor for such rentals.
                                                           EXHIBIT 12.2

                            CNA FINANCIAL CORPORATION
                       COMPUTATION OF RATIO OF NET INCOME,
                          AS ADJUSTED, TO FIXED CHARGES
<TABLE>
<CAPTION>
|-----------------------------------------------------------------------------------------------------------|
|PERIOD ENDED JUNE 30                                                                                       |
|(in millions of dollars, except ratios)                                          1998                1997  |
|-----------------------------------------------------------------------------------------------------------|
<S>                                                                        <C>                 <C>
|Net Income                                                                  $        443        $      412 |
|Adjustments:                                                                                               |
|     Interest expense, after tax                                                      75                62 |
|     Interest element of operating lease rental, after tax                            12                 8 |
|                                                                              -----------        ----------|
|Net income, as adjusted                                                     $        530        $      482 |
|                                                                              ===========        ==========|
|Fixed charges:                                                                                             |
|     Interest expense, after tax                                            $         75        $       62 |
|     Interest element of operating lease rental, after tax                            12                 8 |
|Fixed charges                                                                 -----------        ----------|
|                                                                            $         87        $       70 |
|                                                                              ===========        ==========|
|Ratio of net income, as adjusted, to fixed charges (1)                               6.1               6.9 |
|-----------------------------------------------------------------------------------------------------------|
</TABLE>
(1) For  purposes  of  computing  this  ratio,  net income has been  adjusted to
include  fixed  charges of  consolidated  companies,  after tax.  Fixed  charges
consist of interest and that portion of operating  lease rental expense which is
deemed to be an interest factor for such rentals.
                                      (35)