SECURITIES AND EXCHANGE COMMISSION

                             Washington, D.C. 20549

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

                                    FORM 10-Q

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


FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 1997  COMMISSION FILE NUMBER 1-5823

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


                            CNA FINANCIAL CORPORATION

             (Exact name of registrant as specified in its charter)


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


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


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

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


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


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

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

                                Page (1) of (30)
<PAGE>
                            CNA FINANCIAL CORPORATION

                                      INDEX


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

CONDENSED CONSOLIDATED FINANCIAL STATEMENTS:

   CONSOLIDATED BALANCE SHEET
     SEPTEMBER 30, 1997 (Unaudited) AND DECEMBER 31, 1996..............     3

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

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

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

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

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


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

ITEM 6.     EXHIBITS AND REPORTS ON FORM 8-K...........................    26

SIGNATURES.............................................................    27

EXHIBIT 11    COMPUTATION OF NET INCOME PER COMMON SHARE...............    28

EXHIBIT 12.1  COMPUTATION OF RATIO OF EARNINGS
                         TO FIXED CHARGES..............................    29

EXHIBIT 12.2  COMPUTATION OF RATIO OF NET INCOME, AS ADJUSTED,
                        TO FIXED CHARGES...............................    29

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


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

                           CONSOLIDATED BALANCE SHEET
-----------------------------------------------------------------------------------------------
                                                                  SEPTEMBER 30   DECEMBER 31
                                                                    1997             1996
(In millions of dollars)                                          (Unaudited)
-----------------------------------------------------------------------------------------------
<S>                                                                  <C>          <C>
ASSETS
 Investments:
   Fixed maturities available for sale (cost: $27,784 and $27,540)...$   28,169    $     27,721
   Equity securities available for sale (cost: $704 and $702)........       863             859
   Mortgage loans and real estate
   (less accumulated depreciation: $4 and $4)........................        98             123
   Policy loans......................................................       177             174
   Other invested assets.............................................       732             681
   Short-term investments............................................     6,844           5,854
                                                                     ----------    ------------
     Total investments...............................................    36,883          35,412
 Cash................................................................       371             257
 Insurance receivables:
   Reinsurance receivables ..........................................     6,031           6,530
   Other insurance receivables.......................................     6,501           5,943
   Less allowance for doubtful accounts..............................      (294)           (277)
 Deferred acquisition costs..........................................     2,223           1,854
 Accrued investment income...........................................       410             508
 Receivables for securities sold.....................................       704             264
 Federal income taxes recoverable (includes $(15) and $151 due (to)
 from Loews).........................................................       (31)            134
 Deferred income taxes...............................................     1,091           1,347
 Property and equipment at cost (less accumulated depreciation:
 $563 and $436)......................................................       698             645
 Prepaid reinsurance premiums........................................       372             295
 Intangibles.........................................................       573             418
 Other assets........................................................       945             849
 Separate Account business...........................................     6,012           6,121
-----------------------------------------------------------------------------------------------
   TOTAL ASSETS                                                      $   62,489    $     60,300
===============================================================================================
</TABLE>
<PAGE>
<TABLE>
                            CNA FINANCIAL CORPORATION

                     CONSOLIDATED BALANCE SHEET - CONTINUED
-----------------------------------------------------------------------------------------------
                                                                  September 30   December 31
                                                                    1997             1996
(In millions of dollars)                                          (Unaudited)
-----------------------------------------------------------------------------------------------
<S>                                                                  <C>          <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
  Insurance reserves:
     Claim and claim expense.........................................$   30,150    $     30,395
     Unearned premiums...............................................     5,221           4,659
     Future policy benefits..........................................     4,508           4,181
     Policyholders' funds............................................       752             746
  Securities sold under repurchase agreements........................     1,176             100
  Payables for securities purchased..................................     1,088             405
  Participating policyholders' equity................................       126             119
  Short-term debt....................................................       150              -
  Long-term debt.....................................................     2,721           2,765
  Other liabilities..................................................     2,668           3,749
  Separate Account business..........................................     6,012           6,121
                                                                     -----------   -------------
      TOTAL LIABILITIES..............................................    54,572          53,240
                                                                     -----------   -------------
Stockholders' equity:
  Common stock ($2.50 par value; Authorized - 200,000,000 shares;
    Issued - 61,841,969 shares)......................................       155             155
  Money market cumulative preferred stock............................       150             150
  Additional paid-in capital.........................................       435             435
  Retained earnings..................................................     6,706           6,024
  Net unrealized investment gains....................................       474             299
  Treasury stock, at cost............................................        (3)             (3)
                                                                     ------------  -------------
      TOTAL STOCKHOLDERS' EQUITY.....................................     7,917           7,060
-------------------------------------------------------------------------------------------------
      TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY                     $   62,489    $     60,300
=================================================================================================
<FN>
     See accompanying Notes to Condensed Consolidated Financial Statements
                                  (Unaudited).
</FN>
</TABLE>
                                      (3)
<PAGE>
<TABLE>
<CAPTION>
                            CNA FINANCIAL CORPORATION

                      STATEMENT OF CONSOLIDATED OPERATIONS
                                   (Unaudited)

-------------------------------------------------------------------------------------------------------
                                                      THIRD QUARTER                   NINE MONTHS
-------------------------------------------------------------------------------------------------------
PERIOD ENDED SEPTEMBER 30                            1997       1996             1997            1996
(In millions of dollars, except per share data)
-------------------------------------------------------------------------------------------------------
<S>                                             <C>            <C>             <C>           <C>
Revenues:
  Premiums...................................... $  3,336       $  3,435        $10,031        $10,049
  Net investment income.........................      530            540          1,641          1,676
  Realized investment gains.....................      237            109            475            487
  Other.........................................      206            172            537            454
                                                 ---------      ---------       --------       --------
                                                    4,309          4,256         12,684         12,666
                                                 ---------      ---------       --------       --------
Benefits and expenses:
  Insurance claims and policyholders' benefits..    2,854          2,839          8,607          8,401
  Amortization of deferred acquisition costs....      621            602          1,738          1,568
  Other operating expenses......................      384            464          1,223          1,470
  Interest expense..............................       57             51            153            155
                                                 ---------      ---------       --------       --------
                                                    3,916          3,956         11,721         11,594
                                                 ---------      ---------       --------       --------
  Income before income tax......................      393            300            963          1,072
Income tax expense..............................      119             61            276            302
                                                 ---------      ---------       --------       --------
                                                 $    274       $    239        $   687        $   770
=======================================================================================================

EARNINGS PER SHARE
------------------
Net income ..................................... $   4.41       $   3.83        $ 11.04        $ 12.38
                                                 =========      =========       ========       ========

Weighted average outstanding shares of
common stock (in millions of shares)............     61.8           61.8           61.8           61.8
=======================================================================================================
<FN>
 See accompanying Notes to Condensed Consolidated Financial Statements
                                  (Unaudited).
</FN>
</TABLE>
                                      (4)
<PAGE>
<TABLE>
<CAPTION>
                            CNA FINANCIAL CORPORATION

                 STATEMENT OF CONSOLIDATED STOCKHOLDERS' EQUITY
                                   (Unaudited)

-------------------------------------------------------------------------------------------------------------
Nine months Ended September 30, 1997 and 1996
                                                                                      Net
                                                    Additional                    Unrealized
                                        Capital      Paid in         Retained   Investment Gains      Total
                                         Stock       Capital         Earnings       (Losses)
(In millions of dollars)
-------------------------------------------------------------------------------------------------------------
<S>                                 <C>           <C>            <C>           <C>              <C>
Balance, December 31, 1995           $     302     $      435     $     5,066   $     933        $    6,736
  Net income........................         -              -             770           -               770
  Change in net unrealized
  investment losses.................         -              -               -        (790)             (790)
  Preferred dividends...............         -              -              (5)          -                (5)
-------------------------------------------------------------------------------------------------------------
Balance, September 30, 1996          $     302     $      435     $     5,831   $     143        $    6,711
=============================================================================================================

Balance, December 31, 1996           $     302     $      435     $     6,024   $     299        $    7,060
  Net income........................         -              -             687           -               687
  Change in net unrealized
  investment losses.................         -              -               -         175               175
  Preferred dividends...............         -              -              (5)          -                (5)
------------------------------------------------------------------------------------------------------------
Balance, September 30, 1997          $     302     $      435     $     6,706   $     474        $    7,917
============================================================================================================
<FN>
 See accompanying Notes to Condensed Consolidated Financial Statements
                                  (Unaudited).
</FN>
</TABLE>
                                       (5)
<PAGE>
<TABLE>
<CAPTION>
                            CNA FINANCIAL CORPORATION

                      STATEMENT OF CONSOLIDATED CASH FLOWS

                                   (Unaudited)
-----------------------------------------------------------------------------------------------------------------
NINE MONTHS ENDED SEPTEMBER 30                                                       1997              1996
(In millions of dollars)
-----------------------------------------------------------------------------------------------------------------
<S>                                                                             <C>              <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
  Net income ................................................................... $      687        $         770
                                                                                 ------------      --------------
  Adjustments  to  reconcile  net  income  to  net  cash  flows  from  operating
    activities:
   Net realized investment gains, pre-tax ......................................       (475)                (487)
   Participating policyholders' interest........................................          2                    2
   Amortization of intangibles..................................................         20                   19
   Amortization of bond discount................................................        (81)                (130)
   Depreciation.................................................................        132                  118
   Changes in:
    Insurance receivables, net..................................................        (42)                (897)
    Deferred acquisition costs..................................................       (369)                (285)
    Accrued investment income...................................................         98                   52
    Federal income taxes recoverable............................................        165                   99
    Deferred income taxes.......................................................        156                  139
    Prepaid reinsurance premiums................................................        (77)                 122
    Insurance reserves..........................................................        662                  293
    Reinsurance payables........................................................        (60)                 235
    Other liabilities...........................................................       (991)                 289
    Other, net..................................................................       (186)                (404)
                                                                                  ------------     --------------
        Total adjustments ......................................................     (1,046)                (835)
                                                                                  ------------     --------------
        NET CASH FLOWS FROM OPERATING ACTIVITIES ...............................       (359)                 (65)
                                                                                  ------------     --------------
=================================================================================================================
</TABLE>
<PAGE>
<TABLE>

                            CNA FINANCIAL CORPORATION

                STATEMENT OF CONSOLIDATED CASH FLOWS - CONTINUED

                                   (Unaudited)
-----------------------------------------------------------------------------------------------------------------
NINE MONTHS ENDED SEPTEMBER 30                                                       1997              1996
(In millions of dollars)
-----------------------------------------------------------------------------------------------------------------
<S>                                                                             <C>              <C>
CASH FLOWS FROM INVESTING ACTIVITIES:
 Purchases of fixed maturities..................................................    (28,756)             (24,783)
 Proceeds from fixed maturities:
  Sales.........................................................................     27,545               25,758
  Maturities, calls and redemptions.............................................      1,668                1,658
 Purchases of equity securities.................................................       (854)                (513)
 Proceeds from sale of equity securities........................................        937                  650
 Change in short-term investments...............................................       (993)              (2,340)
 Purchases of property and equipment ...........................................       (195)                (149)
 Change in securities sold under repurchase agreements..........................      1,075                 (172)
 Change in other investments....................................................        173                  256
 Investment in affiliates.......................................................        (65)                  --
 Other, net.....................................................................       (151)                  21
                                                                                  ------------     --------------
        NET CASH FLOWS FROM INVESTING ACTIVITIES ...............................        384                  386
                                                                                  ------------     --------------
Cash flows from financing activities:
 Dividends paid to preferred shareholders.......................................         (5)                  (5)
 Receipts from investment contracts credited to policyholder account balances...          7                   12
 Return of policyholder account balances on investment contracts................        (18)                 (34)
 Change in short-term debt......................................................         --                 (258)
 Principal payments on long-term debt...........................................         (4)                  (3)
 Proceeds from issuance of long-term debt.......................................        109                   10
                                                                                  ------------     --------------
        NET CASH FLOWS FROM  FINANCING ACTIVITIES...............................         89                 (278)
                                                                                  ------------     --------------
             Net cash flows.....................................................        114                   43
Cash at beginning of period.....................................................        257                  222
==================================================================================================================
CASH AT END OF PERIOD                                                             $     371        $         265
==================================================================================================================

Supplemental disclosures of cash flow information: Cash (paid) received:
 Interest expense...............................................................  $    (148)        $        (166)
 Federal income taxes...........................................................         50                   (43)
===================================================================================================================
<FN>
 See accompanying Notes to Condensed Consolidated Financial Statements
                                  (Unaudited).
</FN>
</TABLE>
                                       (6)
<PAGE>
                            CNA FINANCIAL CORPORATION
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                               SEPTEMBER 30, 1997
                                   (Unaudited)
NOTE A.  Basis of Presentation:

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

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

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

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

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

     CNA, its  subsidiaries and Separate  Accounts,  invest from time to time in
certain derivative  financial  instruments to increase investment returns and to
reduce the impact of changes in interest rates on certain corporate  borrowings.
Financial  instruments  used for such purposes  include interest rate swaps, put
and call options, commitments to purchase securities, futures and forwards.

     Unrealized investment gains and losses on derivative securities, except for
the interest rate swaps associated with corporate  borrowings,  are reflected as
part of realized investment gains and losses. Unrealized gains or losses related
to changes in the value of the interest  rate swaps  associated  with  corporate
borrowings are not recognized.

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

NOTE B.  Restricted Investments:

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

NOTE C.  Legal Proceedings and Contingent Liabilities:

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

FIBREBOARD LITIGATION

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

     Casualty,  Fibreboard and Pacific  Indemnity have also reached an agreement
(the "Trilateral Agreement"), on a settlement to resolve the coverage litigation
and provides  funding for  Fibreboard's  asbestos claims 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 both of these
decisions. On July 25, 1996, a panel of the United States Fifth Circuit Court of
Appeals in New Orleans  affirmed the judgment  approving  the Global  Settlement
Agreement by a 2 to 1 vote and affirmed the judgment  approving  the  Trilateral
Agreement by a 3 to 0 vote. Petitions for rehearing by the panel and Suggestions
for  Rehearing  by the entire  Fifth  Circuit  Court of Appeals as respects  the
decision on the Global  Settlement  Agreement  were denied.  Two  petitions  for
certiorari  were filed in the Supreme  Court as respects  the Global  Settlement
Agreement. On June 27, 1997, the Supreme Court granted these petitions,  vacated
the Fifth Circuit's  judgment as respects the Global Settlement  Agreement,  and
remanded  to the  Fifth  Circuit  for  reconsideration  in light of the  Supreme
Court's  decision  in Amchem  Products  Co. v.  Windsor.  The Fifth  Circuit has
                      --------------------------------- 
not yet rendered a decision on this remand.

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

GLOBAL SETTLEMENT AGREEMENT

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

                                      (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 is presently before the Fifth
Circuit on remand by order of the Supreme  Court  vacating  the Fifth  Circuit's
previous decision  approving the Global  Settlement.  There is limited precedent
with settlements  which determine the rights of future personal injury claimants
to seek relief.

     Through September 30, 1997,  Casualty,  Fibreboard and plaintiff  attorneys
had reached  settlements  with respect to approximately  135,620 claims,  for an
estimated  settlement amount of approximately  $1.62 billion plus any applicable
interest. Final court approval of the Trilateral Agreement obligates Casualty to
pay under these settlements.  Approximately $1.59 billion including interest was
paid through September 30, 1997,  including  approximately  $590 million paid in
the  fourth  quarter  of 1996 and the first  quarter  of 1997 as a result of the
Trilateral Agreement becoming final. As described above, such payments 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 has
eliminated any further material exposure with respect to the Fibreboard  matter,
and  subsequent  reserve  adjustments,  if any, will not  materially  affect the
results of operations or equity of CNA.

TOBACCO LITIGATION

     CNA's primary property/casualty  subsidiaries have been named as defendants
as  part  of  a   "direct   action"   lawsuit,   Richard   P.   Ieyoub   v.  The
                                                 -------------------------------
American Tobacco Company, etal., 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"  statute 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.
<PAGE>

     Recently,  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 CNA.

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

OTHER LITIGATION

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


ENVIRONMENTAL POLLUTION AND ASBESTOS-RELATED CLAIMS

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

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

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

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

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

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

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

     Claim  and claim  expense  reserves  represent  management's  estimates  of
ultimate  liabilities based on currently  available facts and case law. However,
in addition to the uncertainties previously discussed, additional issues related
to,  among other  things,  specific  policy  provisions,  multiple  insurers and
allocation of liability among insurers,  consequences of conduct by the insured,
missing  policies  and proof of  coverage  make  quantification  of  liabilities
exceptionally  difficult  and  subject to  adjustment  based on new data.  As of
September 30, 1997 and December 31, 1996, CNA carried approximately $824 million
and $908  million,  respectively,  of claim and claim expense  reserves,  net of
reinsurance  recoverables,  for reported and unreported  environmental pollution
claims.  The reserves relate to claims for accident years 1988 and prior,  which
coincides  with CNA's adoption of the Simplified  Commercial  General  Liability
coverage  form which  included an  absolute  pollution  exclusion.  There was no
unfavorable reserve development for the nine months ended September 30, 1997 and
1996.

     CNA has exposure to asbestos-related  claims,  including those attributable
to the  Fibreboard  Claim.  A  detailed  discussion  of  CNA's  litigation  with
Fibreboard  Corporation  regarding  asbestos-related  bodily  injury  claims  is
discussed at the beginning of this note.  Estimation of  asbestos-related  claim
reserves   encounter  many  of  the  same   limitations   discussed   above  for
environmental  pollution  claims  such  as  inconsistency  of  court  decisions,
specific policy provisions,  multiple insurers and allocation of liability among
insurers,  missing policies and proof of coverage.  As of September 30, 1997 and
December 31, 1996, CNA carried  approximately $1,415 million and $1,506 million,
respectively,   of  claim  and  claim  expense  reserves,   net  of  reinsurance
recoverable,  for reported and unreported  asbestos-related claims.  Unfavorable
reserve  development  for the nine  months  ended  September  30, 1997 and 1996,
totaled $40 million and $38 million, respectively.

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

|------------------------------------------------------------------------------|
|                                                                              |
|Reserve Summary               September 30, 1997          December 31, 1996   |
|                         -----------------------------------------------------|
|                           Environmental  Asbestos      Environmental Asbestos|
|                            Pollution                    Pollution            |
|------------------------------------------------------------------------------|
|In millions of dollars)                                                       |
|                                                                              |
|Gross reserves:                                                               |
|        Reported claims     $ 288        $1,431        $  289         $1,551  |
|        Unreported claims     577           101           714             94  |
|                            ------       ------        -------        ------- |
|                              865         1,532         1,003          1,645  |
|Less reinsurance recoverable  (41)         (117)          (95)          (139) |
|------------------------------------------------------------------------------|
|Net reserves                $ 824        $1,415        $  908         $1,506  |
|==============================================================================|

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

                                      (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 each
reinsurer's  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.

|-----------------------------------------------------------------------------|
|NINE MONTHS ENDED                  EARNED PREMIUMS                 ASSUMED/  |
|SEPTEMBER 30                                                                 |
|                           --------------------------------------            |
|                                                                      NET    |
|(In millions of dollars)    DIRECT   ASSUMED    CEDED      NET         %     |
|-----------------------------------------------------------------------------|
|                                                                             |
|1997                                                                         |
| Life                      $   649   $    92     $    90    $   651   14.1%  |
| Accident and health         2,806        73         115      2,764    2.6   |
| Property and casualty       6,087     1,078         549      6,616   16.3   |
|-----------------------------------------------------------------------------|
|   TOTAL PREMIUMS          $ 9,542   $ 1,243     $   754    $10,031   12.4%  |
|=============================================================================|
|1996                                                                         |
| Life                      $   520   $    87     $    33    $   574   15.2%  |
| Accident and health         2,580       183         113      2,650    6.9   |
| Property and casualty       6,702     1,056         933      6,825   15.5   |
|-----------------------------------------------------------------------------|
|   TOTAL  PREMIUMS         $ 9,802   $ 1,326     $ 1,079    $10,049   13.2%  |
|=============================================================================|

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

     Insurance  claims  and  policyholders'  benefits  are  net  of  reinsurance
recoveries  of $618 and $1,010  million for the nine months ended  September 30,
1997 and September 30, 1996, respectively.

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


NOTE E. Debt:

Long-term and short-term borrowings consisted of the following:
|------------------------------------------------------------------------------|
|LONG-TERM AND SHORT-TERM DEBT                    SEPTEMBER 30      DECEMBER 31|
|(In millions of dollars)                             1997             1996    |
-------------------------------------------------------------------------------|
|Long-term:                                                                    |
| Variable Rate Debt:                                                          |
|   Credit Facility                                $   400          $    400   |
|   Commercial Paper                                   675               675   |
|   Credit Facility - CNA Surety                       105               ---   |
|Senior Notes:                                                                 |
|  8 7/8%, due March 1, 1998*                          ---               150   |
|  8 1/4%, due April 15, 1999                          101               102   |
|  7 1/4%, due March 1, 2003                           146               146   |
|  6 1/4%, due November 15, 2003                       249               248   |
|  6 3/4%, due November 15, 2006                       248               248   |
|  8 3/8%, due August 15, 2012                          98                98   |
|  7 1/4% Debenture, due November 15, 2023             247               247   |
|  11% Secured Mortgage Notes, due June 20, 2013       388               387   |
|  6.90% - 16.29%  Secured  Capital  Leases,                                   |
|  due December 31, 2011                                46                47   |
|  Other                                                18                17   |
|------------------------------------------------------------------------------|
|  TOTAL LONG-TERM DEBT                            $ 2,721          $  2,765   |
|  Short-term:                                                                 |
|    8 7/8%, due March 1, 1998                         150               ---   |
|------------------------------------------------------------------------------|
|  TOTAL  DEBT                                     $ 2,871          $  2,765   |
|==============================================================================|
*Included in short-term in 1997.

     To finance the  acquisition  of Continental  (including the  refinancing of
$205 million of  Continental  debt) CNA entered into a five-year  $1.325 billion
revolving  credit  facility.  In 1996,  the Company  renegotiated  the facility,
extending the maturity to May 2001.  The interest rate for the facility is based
on  the  London   Interbank   Offered  Rate  (LIBOR),   plus  16  basis  points.
Additionally,  there is a facility fee of 9 basis points  annually.  The average
interest  rate on the  borrowings  under the revolver at September  30, 1997 was
5.82%. Under the terms of the facility, CNA may prepay the debt without penalty.

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

     CNA  maintains a commercial  paper  program to take  advantage of favorable
interest  rate  spreads.  The  commercial  paper  borrowings  are  classified as
long-term  as $675  million of the  committed  bank  facility  will  support the
commercial  paper program.  The  weighted-average  yield on commercial  paper at
September 30, 1997 was 5.82%.
<PAGE>
     As of November 1, 1997, the  outstanding  loans under the revolving  credit
facility were $400 million.  There was no unused  borrowing  capacity  under the
facility after the effects of the commercial paper program.

                                      (13)

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

     To offset the variable rate  characteristics  of the facility,  CNA entered
into interest rate swap  agreements  with several banks having a total  notional
principal  amount  of $950  million.  These  agreements  terminate  from  May to
December 2000. These  agreements  provide that CNA pay interest at a fixed rate,
averaging  6.20% at September  30, 1997, in exchange for the receipt of interest
at the three month LIBOR rate.  The effect of these  interest  rate swaps was to
increase  interest expense by $3 million for the nine months ended September 30,
1997.

     The weighted  average  interest rate  (interest  and facility  fees) on the
variable rate acquisition debt, which includes the revolving credit facility and
commercial paper, was 6.28% at September 30, 1997. This rate reflects the effect
of the interest rate swaps.

     In conjunction  with the merger with Capsure  Holdings  Corp.  (See Note F)
CNA's affiliate, CNA Surety entered into a $130 million, 5 year revolving credit
facility  which closed and was funded on September  30, 1997.  The interest rate
for the facility is based on LIBOR plus 20 basis points. Additionally there is a
facility fee of 10 basis  points  annually.  At September  30, 1997 the interest
rate was 5.86%.

     As of September 30, 1997, $250 million of securities remained available for
issuance  under a shelf  registration.  On October 22, 1997, an additional  $750
million shelf  registration for senior and subordinated debt and preferred stock
became  effective.  A portion of the net  proceeds is expected to be used to pay
down borrowings outstanding under the Company's revolving credit facility and/or
commercial paper program.  The remaining proceeds will be added to the Company's
general funds and used for general corporate  purposes,  which may include,  but
are not limited to,  pre-payment of other debt, and/or capital  contributions to
the  Company's   subsidiaries  to  strengthen  such   subsidiaries'   continuing
operations.


NOTE F.  Merger CNA Surety Corporation/Capsure Holdings Corp.

     In the fourth quarter of 1996, CNA Surety Corporation, an affiliate of CNA,
entered into a merger agreement with Capsure Holdings Corp.  (Capsure) to form a
new stock company,  CNA Surety Corporation.  The transaction closed on September
30,  1997.  In  conjunction  with the  closing  of the surety  transaction,  CNA
recognized a realized investment gain of $89 million.  The new company, in which
CNA owns  approximately 62% of the outstanding  shares on a fully diluted basis,
is the largest  U.S.  surety  company  with the  broadest  product line and most
extensive distribution system. The remaining shares are held by existing Capsure
shareholders and option holders. The transaction was accounted for as a purchase
and,  accordingly,  CNA Surety's results of operations will be included in CNA's
consolidated  results  of  operations  subsequent  to the  date  of  merger.  At
September 30, 1997,  total assets of CNA Surety  Corporation  were $686 million.
Capsure's  revenues for the year ended December 31, 1996 were approximately $111
million. Total assets were approximately $313 million at December 31, 1996.

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

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

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

Results of Operations:

         The following chart summarizes key components of operating  results for
the nine months and quarters ended September 30, 1997 and 1996.
<TABLE>
<CAPTION>
|----------------------------------------------------------------------------------------------------------|
|PERIOD ENDED SEPTEMBER 30                                  THIRD QUARTER               NINE MONTHS        |
|(In millions of dollars)                              1997             1996        1997             1996  |
|----------------------------------------------------------------------------------------------------------|
|OPERATING SUMMARY (EXCLUDING REALIZED INVESTMENT                                                          |
|  GAINS/LOSSES):                                                                                          |
|Revenues:                                                                                                 |
| Premiums:                                                                                                |
<S>                                                <C>              <C>         <C>              <C>    
|    Property/Casualty                              $ 2,489          $ 2,593     $ 7,489          $ 7,579  |
|    Life                                               847              842       2,542            2,470  |
|                                                    ------           ------      ------           ------  |
|                                                     3,336            3,435      10,031           10,049  |
|  Net investment income                                530              540       1,641            1,676  |
|  Other                                                206              171         537              454  |
|                                                    ------           ------      ------           ------  |
|                                                     4,072            4,146      12,209           12,179  |
|Benefits and expenses                                3,911            3,957      11,712           11,583  |
|                                                    ------           ------      ------           ------  |
|  Operating income before income tax                   161              189         497              596  |
|Income tax expense                                     (40)             (28)       (114)            (138) |
|                                                    ------           ------      ------            ------ |
|  Net operating income                             $   121          $   161     $   383          $   458  |
|                                                    ======           ======      ======            ====== |
|                                                                                                          |
|SUPPLEMENTAL FINANCIAL DATA:                                                                              |
|Net operating income (loss) by group:                                                                     |
|  Property/Casualty                                $  121           $  165      $  385           $   463  |
|  Life                                                 24               23          71                78  |
|  Other, primarily interest expense                   (24)             (27)        (73)              (83) |
|                                                    ------            -----       -----             ----- |
|                                                      121              161         383               458  |
|                                                    ------            -----       -----             ----- |
|Net realized investment gains (losses) by group:                                                          |
|  Property/Casualty                                   126               52          221              232  |
|  Life                                                 29               22           73               79  |
|  Other                                                (2)               4           10                1  |
|                                                    ------             ----       ------            ----  |
|                                                      153               78          304              312  |
|                                                    ------             ----       ------            ----  |
|Net income (loss) by group:                                                                               |
|  Property/Casualty                                   247              217          606              695  |
|  Life                                                 53               45          144              157  |
|  Other, primarily interest expense                   (26)             (23)         (63)             (82) |
|                                                    ------            -----       ------            ----- |
|                                                  $   274           $  239       $  687           $  770  |
|==========================================================================================================|
</TABLE> 
                                      (15)
<PAGE>
                            CNA FINANCIAL CORPORATION
           MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
                      AND RESULTS OF OPERATIONS - CONTINUED

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

         Consolidated  revenues  for the first nine months of both 1997 and 1996
were approximately $12.7 billion.  Consolidated  revenues excluding net realized
investment  gains,  for the  first  nine  months  of both  1997  and  1996  were
approximately  $12.2  billion.  For the first nine  months,  revenues  reflect a
decrease of $18  million  (0.2%) in earned  premiums,  a decrease of $35 million
(2.1%) in  investment  income and an increase  of $83  million  (18.3%) in other
income.

         Net operating income, which excludes net realized investment gains, for
the first nine months of 1997 was $383 million, or $6.12 per share,  compared to
net  operating  income of $458 million,  or $7.33 per share,  for the first nine
months of 1996. Net operating income for the third quarter was $121 million,  or
$1.93 per share,  compared with $161 million,  or $2.57 per share,  for the same
quarter in 1996.  CNA's income in the first nine months of 1997 is net of pretax
losses of $79 million related to catastrophe  claims;  pretax catastrophe losses
in the first nine months of 1996 were $280 million.

     Realized  investment  gains,  net of tax, for the first nine months of 1997
were $304 million, or $4.92 per share, compared to net realized investment gains
for the first  nine  months of 1996 of $312  million,  or $5.05 per  share.  The
components of the net realized investment gains (losses) are as follows:

|-----------------------------------------------------------------------------|
|REALIZED INVESTMENT GAINS(LOSSES)                                            |
|NINE  MONTHS ENDED SEPTEMBER 30                        1997            1996  |
|(In millions of dollars)                                                     |
|-----------------------------------------------------------------------------|
|Bonds:                                                                       |
|  U.S. Government                                    $  103          $ 102   |
|  Tax-exempt                                             26            109   |
|  Asset-backed                                           18             23   |
|  Taxable                                               102             14   |
|                                                     -------       -------   |
|     Total bonds                                        249            248   |
|Stocks                                                   57            148   |
|Derivative securities                                     2             11   |
|Separate accounts and other                             167 *           80   |
|                                                     ------        -------   |
|     Realized investment gains  reported in revenues    475            487   |
|Participating policyholders' interest                    (8)           (11)  |
|Income tax expense                                     (163)          (164)  |
|                                                     -------       --------  |
|     Net realized investment gains                   $  304          $ 312   |
|=============================================================================|
*Includes a realized  investment gain of $89 million on the merger of CNA Surety
Corporation and Capsure  Holdings Corp. (See Note F).


         Net income was $687  million,  or $11.04  per share,  compared  to $770
million,  or $12.38 per share, for the first nine months of 1996. Net income for
the third  quarter was $274  million,  or $4.41 per share,  compared  with a net
income of $239 million, or $3.83 per share, for the third quarter of 1996.

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

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

|------------------------------------------------------------------------------|
|PROPERTY/CASUALTY GROUP                  THIRD QUARTER          NINE MONTHS   |
|PERIOD ENDED SEPTEMBER 30               1997         1996     1997       1996 |
|(In millions of dollars)                                                      |
|----------------------------------------------------------------------------- |
|OPERATING SUMMARY (EXCLUDING NET                                              |
|  REALIZED INVESTMENT GAINS/LOSSES):                                          |
|Revenues:                                                                     |
|  Premiums                           $ 2,489      $ 2,593  $ 7,489    $ 7,579 |
|  Net investment income                  432          445    1,343      1,384 |
|  Other                                  173          137      448        379 |
|                                      ------       ------   ------     ------ |
|                                       3,094        3,175    9,280      9,342 |
|Benefits and expenses                  2,936        2,979    8,781      8,740 |
|                                       -----        -----    -----      ----- |
|  Income before income tax               158          196      499        602 |
|Income tax expense                       (37)         (31)    (114)      (139)|
|                                      -------      -------   ------     ------|
|Net operating income (excluding net                                           |
|  realized investment gains/losses)  $   121      $   165  $   385    $   463 |
|                                                                              |
|==============================================================================|
                                                                            
     Property/casualty revenues, excluding net realized investment gains/losses,
decreased $62 million for the first nine months ended  September 30, 1997,  when
compared  to the  same  period  a year  ago.  Property/casualty  earned  premium
decreased $90 million from the prior years  comparable  period.  The decrease in
earned  premium is due  primarily to a reduction  in premium in the  involuntary
risk business , primarily workers' compensation, of $285 million and $70 million
for the nine and three months  ended  September  30, 1997,  compared to the same
periods a year ago. These reductions are as a result of improved loss experience
in the involuntary risk business.

     Property/casualty  pretax operating income before realized gains reflects a
decrease of $103 million for the first nine months of 1997  compared to the same
period in 1996.  The  decrease  in  operating  income  stems from an increase in
underwriting losses as well as a decline in investment income. This decrease was
offset  in part by lower  operating  expenses  and  favorable  catastrophe  loss
experience. Pre-tax catastrophe losses of approximately $79 million for the nine
months ended  September  30, 1997  compared to $280  million for the  respective
period in 1996.  Underwriting  losses for the first nine and three  months ended
September 30, 1997, were $844 million and $273 million, compared to $783 million
and $249 million for the same periods in 1996.  The GAAP combined  ratio for the
nine months  ending  September 30, 1997 was 108.9% as compared to 108.6% for the
comparable period in 1996. GAAP expense ratios were 29.9% and 31.0% for the nine
month  periods ended  September  30, 1997 and September 30, 1996,  respectively.
There was profitability improvement in the personal insurance lines, both in the
private passenger and homeowner lines. However,  continued competitive pressures
on virtually all other  segments of the insurance  market,  particularly  in the
commercial  insurance  market,  resulted in continued  deterioration of the loss
ratio.
<PAGE>

         CNA,  consistent with sound insurance  reserving  practices,  regularly
adjusts its reserve  estimates in subsequent  reporting periods as new facts and
circumstances  emerge that indicate the previous  estimates need to be modified.
These  adjustments,  referred to as "reserve  development" are inevitable given
the  complexities of the reserving  process and are recorded in the statement of
operations in the period the need for the adjustments becomes apparent.

     Loss & loss  adjustment  expense  reserve  development  for the nine months
ended  September 30, 1997 and 1996 was favorable and aggregated $297 million and
$142  million,  respectively  (including  the  effects  of  unfavorable  reserve
development  for asbestos  related claims - see Note D).  Favorable loss reserve
development  was partially  offset by  unfavorable  premium  development,  which
aggregated  $165 million and $21 million for the nine months ended September 30,
1997 and 1996, respectively.

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

Loss reserve  development  for the nine months ended September 30, 1997 reflects
continued  favorable  claim  frequency  (rate of claim  occurrence) and severity
(average cost per claim)  experience,  principally in the workers'  compensation
line of business as well as favorable experience in the surety line of business.
In  addition,  involuntary  risk  exposures  have  developed  to  be  less  than
previously  anticipated,  which reduced both premium and losses  associated with
the residual market pool participation,  principally for workers'  compensation.
These trends  reflect the positive  effects of changes in workers'  compensation
laws,  moderate  increases in medical  costs and a generally  strong  economy in
which individuals return to the workplace more quickly.

     Pretax operating income excluding net realized investment gains/losses, for
the property/casualty  insurance  subsidiaries was $499 million and $158 million
for the nine months and three months ended September 30, 1997,  compared to $602
million and $196  million  for the same  periods a year ago.  Investment  income
decreased 3.0% and 2.9% for the nine and three months ended  September 30, 1997,
to  $1,343  million  and $432  million,  respectively,  when  compared  with the
comparable periods a year ago of $1,384 million and $445 million,  respectively.
The decrease reflects reduced operating cash flow and a movement to lower market
yields. The fixed maturities segment of the investment portfolio yielded 6.3% in
the nine months of 1997 as compared to 6.6% for the nine months of 1996.

         The net  income  of  CNA's  property/casualty  insurance  subsidiaries,
excluding net realized  investment  gains/losses,  was $385 and $121 million for
the nine and three months ended September 30, 1997, compared to $463 million and
$165 million for the same periods in 1996. Net realized investment gains for the
nine and three  months  ended  September  30,  1997 were $221  million  and $126
million,  compared to $232 million and $52 million in the comparable  periods of
1996.

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

|------------------------------------------------------------------------------|
|LIFE GROUP                                THIRD QUARTER         NINE MONTHS   |
|PERIOD ENDED SEPTEMBER 30                1997      1996      1997       1996  |
|(In millions of dollars)                                                      |
|------------------------------------------------------------------------------|
|OPERATING SUMMARY (EXCLUDING NET                                              |
| REALIZED INVESTMENT GAINS/LOSSES):                                           |
|Revenues:                                                                     |
|  Premiums                            $  847     $  849    $ 2,544    $ 2,488 |
|  Net investment income                  102         99        306        295 |
|  Other                                   33         32         89         75 |
|                                       -----      -----      -----      ----- |
|                                         982        980      2,939      2,858 |
|Benefits and expenses                    943        945      2,827      2,737 |
|                                       -----      -----      -----      ----- |
|  Income before income tax                39         35        112        121 |
|Income tax expense                       (15)       (12)       (41)       (43)|
|                                      ------     ------     ------     ------ |
|Net operating income (excluding net                                           |
| realized investment gains/losses)  $    24    $    23    $    71    $    78  |
|                                                                              |
|==============================================================================|
                                                                 
     Life  group  revenues,   excluding  net  realized  investment  gains,  were
approximately $2.9 billion, up 2.8% for the nine months ended September 30, 1997
compared  to the  same  period  a year  ago.  Life  premium  revenues  increased
approximately 2.3% for the nine months ended September 30, 1997 when compared to
the  first  nine  months  of  1996.   Individual   life   operations   increased
approximately  $45  million  due to the  continued  growth in sales and  renewal
premiums  in  the  Viaterm  life  product.   Group  life  operations   increased
approximately $80 million with increases in the Federal Employees Health Benefit
Program,  group medical and specialty  risks. The increase in premiums for these
products is primarily offset by a drop in group reinsurance premium.  Investment
income for the nine months ended September 30, 1997 was $306 million as compared
to $295  million for the same  period a year ago.  This  increase  can be mainly
attributed to a larger asset base generated from increased operating cash flows.


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

The fixed  maturities  segment of the life  investment  portfolio,  which is the
primary  investment  segment,  yielded 6.3% in the nine months of 1997  compared
with 6.7% for the same period a year ago.

     Life group premiums declined approximately $2 million for the third quarter
of 1997 when compared to the third quarter of 1996. The primary reasons for this
decline are a decrease in annuity business and group reinsurance business offset
in part by increases in Viaterm and Disability and Accident premium.

         Pretax operating income for the life insurance subsidiaries,  excluding
net realized investment  gains/losses,  was $112 million and $39 million for the
nine and three months ended September 30, 1997, compared to $121 million and $35
million for the same periods in 1996.

     CNA's life  insurance  subsidiaries'  net operating  income,  excluding net
realized  investment  gains/losses  was $71 million and $24 million for the nine
and three  months  ended  September  30,  1997  compared  to $78 million and $23
million for the same periods in 1996. Net realized investment gains for the nine
and three  months  ended  September  30, 1997 were $73 million and $29  million,
compared to $79 million and $22 million for the same periods of 1996.
<PAGE>
INVESTMENTS:
<TABLE>
<CAPTION>
|--------------------------------------------------------------------------|----------------------------------|
|SUMMARY OF GENERAL ACCOUNT INVESTMENTS AT MARKET VALUE                    |        NINE MONTHS ENDED         |
|                                                                          |        SEPTEMBER 30, 1997        |
|                                                                          |-----------------|----------------|
|                                                                          |    CHANGE IN    |                |
|                                                 SEPTEMBER 30  DECEMBER 31|  NET UNREALIZED |   REALIZED     |
|(In millions of dollars)                             1997         1996    |  GAINS(LOSSES)  | GAINS(LOSSES)  |
|--------------------------------------------------------------------------|-----------------|----------------|
|                                                                          |                 |                |
|FIXED MATURITY SECURITIES:                                                |                 |                |
<S>                                               <C>          <C>                <C>             <C> 
|U. S. Treasury securities and                                             |                 |                |
|  obligations of government agencies              $  12,046    $   9,835  |       $  59     |     $ 103      |
|Asset-backed securities                               4,763        6,292  |          69     |        26      |
|Tax exempt securities                                 4,831        4,951  |          52     |        18      |
|Taxable securities                                    6,529        6,643  |          24     |       102      |
|                                                   --------     --------  |        ----     |      ----      |
|   Total fixed maturity securities                   28,169       27,721  |         204     |       249      |
|Stocks                                                  863          859  |           1     |        57      |
|Short-term investments and other                      7,848        6,830  |          40     |      120*      |
|Derivative security investments                           3            2  |          --     |         2      |
|                                                   --------     --------  |        ----     |      ----      |
|   TOTAL INVESTMENTS                              $  36,883    $  35,412  |         245     |       428      |
|                                                   ========     ========  |                 |                |
|Separate accounts and discontinued operations                             |          35     |        47      |
|Participating policyholders' interest                                     |          --     |        (8)     |
|Income tax  expense                                                       |        (105)    |      (163)     |
|                                                                          |        -----    |      -----     |
|   NET INVESTMENT GAINS                                                   |       $ 175     |     $ 304      |
|                                                                          |                 |                |
|--------------------------------------------------------------------------|-----------------|----------------|
                                                                                                           
|--------------------------------------------------------------------------|
|SHORT-TERM INVESTMENTS:                                                   |
|--------------------------------------------------------------------------|
|Security repurchase collateral                    $   1,185    $    101   |
|Escrow                                                1,099       1,062   |
|Commercial paper                                      2,446       3,207   |
|Money markets                                         1,528         746   |
|Other                                                   586         738   |
|--------------------------------------------------------------------------|
|   TOTAL SHORT-TERM INVESTMENTS                   $   6,844    $  5,854   |
|--------------------------------------------------------------------------|
<FN>
*Includes a realized  investment gain of $89 million on the merger of CNA Surety      
Corporation and Capsure  Holdings Corp. (See Note F).
</FN>
</TABLE>
         CNA's  general  account  investment  portfolio  is managed to  maximize
after-tax  investment  return,  while minimizing  credit risks, with investments
concentrated in high quality securities to support its insurance 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


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

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 has a securities  lending  program where  securities  are loaned to
third parties,  primarily major brokerage  firms.  Borrowers of these securities
must deposit 100% of the fair value of the securities if the collateral is cash,
or 102% if the collateral is securities.  Cash deposits from these  transactions
are  invested  in  short-term  investments  (primarily  commercial  paper).  CNA
continues  to receive  the  interest on loaned debt  securities,  as  beneficial
owner,  and  accordingly,  loaned debt  securities  are  included  within  fixed
maturity  securities.  The liabilities for securities sold subject to repurchase
agreements are recorded at their contractual repurchase amounts.

         On December 30, 1993, CNA deposited $987 million in an escrow  account,
pursuant to the Fibreboard Global Settlement Agreement,  as discussed in Note C.
The funds are included in short-term investments and are invested mainly in U.S.
Treasury securities. The escrow account at September 30, 1997 amounted to $1,100
million as compared to $1,071 million at year end 1996.

         In  addition  to  interest  rate swaps  used to  convert  CNA's debt to
acquire  Continental  from a variable rate to a fixed rate, CNA holds derivative
financial  instruments  for purposes of enhancing  income and total return.  The
derivative  securities are  marked-to-market  with valuation changes reported as
realized investment gains and losses.  CNA's investment in, and risk in relation
to, derivative securities are not significant.

         The general account portfolio  consists  primarily of high quality (BBB
or higher) marketable fixed maturity securities,  approximately 94% of which are
rated as  investment  grade at  September  30,  1997.  At  September  30,  1997,
tax-exempt  securities  and  short-term  investments,  excluding  collateral for
securities sold under repurchase  agreements,  comprised  approximately  13% and
15%, respectively,  of the general account's total investment portfolio compared
to 14% and 16%,  respectively,  at  December  31,  1996.  Historically,  CNA has
maintained  short-term assets at a level that provided for liquidity to meet its
short-term  obligations,  as well as reasonable  contingencies  and  anticipated
claim payout  patterns.  At  September  30, 1997,  the major  components  of the
short-term investment portfolio consist primarily of high-grade commercial paper
and U.S.  Treasury  bills.  Collateral  for  securities  sold  under  repurchase
agreements  increased $1,084 million from December 31, 1996 to $1,185 million at
September 30, 1997.

         As of September  30, 1997,  the market value of CNA's  general  account
investments in fixed maturities was $28.2 billion and was greater than amortized
cost by  approximately  $385  million.  This compares to a market value of $27.7
billion and $181  million of net  unrealized  investment  gains at December  31,
1996. The gross  unrealized  investment  gains and losses for the fixed maturity
securities  portfolio at September 30, 1997, were $508 million and $123 million,
respectively,  compared  to $444  million  and $263  million,  respectively,  at
December 31, 1996. The increase in unrealized  investment gains is attributable,
in large part,  to decreases in interest  rates which have a positive  effect on
bond values.
<PAGE>

         Net unrealized  investment gains on general account fixed maturities at
September 30, 1997 include net unrealized losses on high yield securities of $25
million,  compared to net unrealized  gains of $41 million at December 31, 1996.
High yield  securities are bonds rated as below  investment grade by bond rating
agencies,  plus private  placements and other unrated  securities  which, in the
opinion of management,  are below  investment  grade.  Fair values of high yield
securities  in the general  account were $1.79  billion at September 30, 1997 as
compared to $2.02 billion at December 31, 1996.

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

         At September  30, 1997,  total  Separate  Account cash and  investments
amounted to $5.9 billion with taxable  fixed  maturity  securities  representing
approximately  83% of the separate  accounts'  portfolio.  Approximately  75% of
separate account  investments are used to fund guaranteed  investments for which
Continental Assurance Company guarantees principal and a specified return to the
contractholders.  The  duration  of fixed  maturity  securities  included in the
guaranteed investment portfolio are matched approximately with the corresponding
payout pattern of the  guaranteed  investment  contracts.  The fair value of all
fixed  maturity  securities  in the  guaranteed  investment  portfolio  was $4.0
billion at September  30, 1997 compared to $3.8 billion at December 31, 1996. At
September  30,  1997,  fair  value  was  greater  than  the  amortized  cost  by
approximately $43 million.  This compares to an unrealized loss of $1 million at
December  31, 1996.  The gross  unrealized  investment  gains and losses for the
guaranteed  investment fixed maturity securities portfolio at September 30, 1997
were $66 million and $23 million,  respectively. The gross unrealized investment
gains  and  losses  for the  guaranteed  investment  fixed  maturity  securities
portfolio at December 31, 1996 were $55 million and $56 million, respectively.

         Carrying values of high yield  securities in the guaranteed  investment
portfolio were $543 million and approximated  market value at September 30, 1997
as  compared  to a carrying  value of $472  million at December  31,  1996.  Net
unrealized  investment  losses on such high yield  securities were $6 million at
December 31, 1996.

         High yield securities (below BBB) generally involve a greater degree of
risk than that of investment grade securities. Expected returns should, however,
compensate for the added risk. The risk is also  considered in the interest rate
assumptions  in the  underlying  insurance  products.  As of September 30, 1997,
CNA's  investment  in  high  yield  bonds,   including  Separate  Accounts,  was
approximately  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  September  30, 1997,
(general and guaranteed investment  portfolios) are $7.3 billion of asset-backed
securities,   consisting  of  approximately  54%  in   collateralized   mortgage
obligations ("CMOs"), 9% in corporate asset-backed obligations,  and 37% in U.S.
Government issued pass-through certificates.  The majority of CMOs held are U.S.
Government  agency issues,  which are actively  traded in liquid markets and are
priced  monthly by  broker-dealers.  At September  30,  1997,  the fair value of
asset-backed  securities  was more  than  amortized  cost by  approximately  $91
million compared to net unrealized  investment  losses of $5 million at December
31, 1996. CNA limits the risks  associated with interest rate  fluctuations  and
prepayment by  concentrating  its CMO investments in early planned  amortization
classes with relatively short principal repayment windows.

         Over the last few years,  much  concern has been raised  regarding  the
quality of insurance  company invested assets. At September 30, 1997, 47% of the
general  account's  fixed  maturity  securities  portfolio  was invested in U.S.
Government  securities,  30% in other AAA rated  securities  and 12% in AA and A
rated securities.  CNA's guaranteed investment portfolio includes fixed maturity
securities which are comprised of 2% U.S.  Government  securities,  61% in other
AAA rated  securities  and 13% in AA and A rated  securities.  These ratings are
primarily from Standard & Poor's.

         CNA, its subsidiaries and Separate  Accounts,  invest from time to time
in certain derivative  financial  instruments to increase investment returns and
to  reduce  the  impact  of  changes  in  interest  rates on  certain  corporate
borrowings.  Financial  instruments used for such purposes include interest rate
swaps,  put and call options,  commitments to purchase  securities,  futures and
forwards.
                                      (21)
<PAGE>
                         CNA FINANCIAL CORPORATION
           MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
                      AND RESULTS OF OPERATIONS - CONTINUED

         The  fair  values  associated  with  these  instruments  are  generally
affected by changes in interest rates and the stock market.  The credit exposure
associated  with these  instruments is generally  limited to the unrealized fair
value of the  instruments  and will vary based on changes in market prices.  The
risk of  default  depends on the  creditworthiness  of the  counterparty  to the
instrument.

         The fair value of derivatives  generally reflects the estimated amounts
that CNA would receive or pay upon termination of the contracts at the reporting
date. Dealer quotes are available for  substantially  all of CNA's  derivatives.
For  securities  not actively  traded,  fair values are  estimated  using values
obtained from  independent  pricing  services,  costs to settle or quoted market
prices of comparable instruments.

         Unrealized investment gains and losses on derivative securities, except
for the interest rate swaps associated with corporate borrowings,  are reflected
as part of  realized  investment  gains and losses.  Unrealized  gains or losses
related to  changes in the value of the  interest  rate  swaps  associated  with
corporate borrowings are not recognized.

         One Separate  Account product is an indexed group annuity  contract for
institutional  investors  which  guarantees  the S&P 500 rate of return  plus 25
basis  points.  Deposits  are taken for a 3 year period with no payout until the
end of the period.  CNA hedges the  contract  liability  by  purchasing  S&P 500
futures  contracts  in a  notional  amount  equal to the  original  deposit  and
investing the remaining cash in a variety of short term strategies.  The futures
contracts  are  rolled  quarterly,  and the  number  of  contracts  is  adjusted
periodically  to  approximate  the  future  liability  to  the  customer.  As of
September  30, 1997,  CNA held 1,303 S&P 500 futures  contracts  with a notional
value of $622  million.  This  position  hedged a liability to  depositors  in a
nearly equal amount.

FINANCIAL CONDITION:

|------------------------------------------------------------------------------|
|FINANCIAL POSITION                                  SEPTEMBER 30   DECEMBER 31|
|(In millions of dollars, except per share data)           1997          1996  |
|------------------------------------------------------------------------------|
|Assets                                                $ 62,489      $ 60,300  |
|Stockholders' equity                                     7,917         7,060  |
|Unrealized net appreciation included in                                       |
|  stockholders' equity                                     474           299  |
|Book value per common share                             125.69        111.81  |
|------------------------------------------------------------------------------|
                                                                  
     CNA's assets increased approximately $2.2 billion from December 31, 1996 to
$62.5 billion at September 30, 1997.  This change was primarily the result of an
increase in securities sold under repurchase  agreements of  approximately  $1.1
billion  and increases of  approximately  $450 million in both  receivables for
securities sold and fixed maturities investments.

         During  the first  nine  months  of 1997,  CNA's  stockholders'  equity
increased by $857 million,  or 12.1%, to $7.9 billion.  The major  components of
this change were net operating income of $383 million,  net realized  investment
gains  of $304  million  and an  increase  of  $175  million  in net  unrealized
investment gains.

         When  compared to  December  31,  1996,  the  statutory  surplus of the
property/casualty  subsidiaries  increased  $435  million to $6.8  billion.  The
statutory surplus of the life insurance  subsidiaries  remained at approximately
$1.2 billion, when compared to year end 1996.

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

LIQUIDITY AND CAPITAL RESOURCES:

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

         CNA's  operating  activities  generated  net  negative  cash  flows  of
approximately  $359 million and $65 million for the nine months ended  September
30, 1997, and 1996, respectively.  Negative cash flows in 1997 are primarily the
result of  substantial  claim  payments  resulting  from the  settlement  of the
Fibreboard  litigation.  CNA believes  that future  liquidity  needs will be met
primarily by cash generated from operations.

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

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

         The  chart  below  lists  the  current   insurance  ratings  for  CNA's
Continental  Casualty  Company  Intercompany  Pool,  The  Continental  Insurance
Company  Intercompany Pool and Continental  Assurance Company (CAC) Intercompany
Pool.  Also  shown are the  ratings  on the  senior  debt of both CNA  Financial
Corporation  (CNA)  and The  Continental  Corporation  (Continental)  and  CNA's
commercial paper and preferred stock.
<TABLE>
<CAPTION>
|------------------|-------------------------------------||--------------------------------------------------|
|                  |         INSURANCE RATINGS           ||                 DEBT AND STOCK RATINGS           |
|                  |-------------------------------------||-------------------------------------|------------|
|                  |         FINANCIAL STRENGTH          ||                                     |            |
|                  |----------|-------------|------------||                                     |            |
|                  |          |             |            ||                  CNA                | Continental|
|                  |          |             |            ||-------------------------------------|------------|
|                  |          |             |            ||Senior Debt   Commercial  Preferred  | Senior Debt|
|                  |  CCC     |      CAC    |     CIC    ||                 Paper      Stock    |            |
|                  |----------|-------------|------------||                                     |            |
|                  |          |             |            ||------------|-------------|----------|------------|
|                  |          |             |            ||            |             |          |            |
<S>                   <C>            <C>          <C>          <C>            <C>         <C>          <C>
|A.M. Best         |   A      |       A     |      A-    ||     -      |       -     |     -    |      -     |
|                  |          |             |            ||            |             |          |            |
|                  |          |             |            ||            |             |          |            |
|Moody's           |   A1     |      A1*    |      A2    ||     A3     |      P2     |     a3   |    Baa1    |
|                  |          |             |            ||            |             |          |            |
|                  |----------|-------------|------------||            |             |          |            |
|                  |       CLAIMS PAYING ABILITY         ||            |             |          |            |
|                  |----------|-------------|------------||            |             |          |            |
|                  |          |             |            ||            |             |          |            |
|Standard & Poor's |   A+     |      AA-    |      A-    ||     A-     |      A2     |     A-   |    BBB-    |
|                  |          |             |            ||            |             |          |            |
|                  |          |             |            ||            |             |          |            |
|Duff & Phelps     |  AA-     |      AA     |      -     ||     A-     |       -     |     A-   |      -     |
|------------------|----------|-------------|------------||------------|-------------|----------|------------|
<FN>
*Applies to Continental Assurance Company only.                                                                       
</FN>
</TABLE>
                                      (23)
<PAGE>
                       CNA FINANCIAL CORPORATION
           MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
                      AND RESULTS OF OPERATIONS - CONTINUED

ACCOUNTING STANDARDS:

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

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

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

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

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

                                      (24)
<PAGE>

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

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

                                      (25)
<PAGE>
                            CNA FINANCIAL CORPORATION

                            PART II OTHER INFORMATION


ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K

(a)  EXHIBITS:


                                                          Exhibit        Page
                Description of Exhibit                     Number       Number
                                                          --------      ------
      Computation of Net Income per Common Share             11            28
      Computation of Ratio of Earnings to Fixed Charges      12.1          29
      Computation of Ratio of Net Income
      As Adjusted, to Fixed Charges                          12.2          29
      Financial Data Schedule                                27            30

(b)  REPORTS ON FORM 8-K:
    
     On July  30,  1997,  CNA  Financial  Corporation  issued  a  press  release
announcing that W. James  MacGinnitie has been named chief financial officer and
senior vice president of CNA.

     On July  24,  1997,  CNA  Financial  Corporation  issued  a  press  release
announcing senior management changes in Commercial Operations.

                                      (26)
<PAGE>


                            CNA FINANCIAL CORPORATION

                      PART II OTHER INFORMATION - CONCLUDED

                                   SIGNATURES


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


                                                  CNA FINANCIAL CORPORATION


Date:  November 14, 1997                          By: S\W. JAMES MACGINNITIE
       -----------------                             ---------------------
                                                       W. James MacGinnitie
                                                       Senior Vice President and
                                                       Chief Financial Officer


                                      (27)
<PAGE>


                                                                      EXHIBIT 11

                            CNA FINANCIAL CORPORATION
                   COMPUTATION OF NET INCOME PER COMMON SHARE

--------------------------------------------------------------------------------
Period Ended September 30                    Third Quarter         Nine Months
(In millions, except per share data)       1997        1996     1997       1996
--------------------------------------------------------------------------------

Earnings per share:

   Net income ........................... $   274    $   239      687   $   770
   Less preferred stock dividends........       2          2        5         5
                                            ------     -----   ------     ------
   Net income  available to 
     common stockholders................. $   272    $   237    $ 682   $   765
                                           ======     ======   ======     ======
   Weighted average shares outstanding...    61.8       61.8     61.8      61.8
                                           ======     ======   ======     ======
   Net income per common share........... $  4.41    $  3.83   $11.04   $  12.38
                                           ======     ======   ======     ======
================================================================================


                                      (28)
<PAGE>
                                                                    EXHIBIT 12.1

                            CNA FINANCIAL CORPORATION
                COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES

--------------------------------------------------------------------------------
PERIOD ENDED SEPTEMBER 30                                        1997     1996
(In millions of dollars, except ratios)
--------------------------------------------------------------------------------
Income before income tax and 
   cumulative effect of accounting changes....................  $ 963  $ 1,072
Adjustments:
   Interest expense...........................................    153      155
   Interest element of operating lease rental.................     25       26
                                                                -----  --------
Income before income tax and cumulative effect of
     accounting changes, as adjusted..........................$ 1,141  $ 1,253
                                                                ======   ======


Fixed charges:
   Interest expense...........................................$   153  $  155
   Interest element of operating lease rental.................     25      26
                                                              -------  -------
Fixed charges.................................................$   178  $  181
                                                               ======   ======


Ratio of earnings to fixed charges (1)........................    6.4     6.9
--------------------------------------------------------------------------------
(1)  For purposes of computing  this ratio,  earnings  consist of income  before
     income taxes and cumulative effect of accounting changes plus fixed charges
     of  consolidated  companies.  Fixed  charges  consist of interest  and that
     portion of operating lease rental expense which is deemed to be an interest
     factor for such rentals.


<PAGE>



                                                                   EXHIBIT 12.2

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

--------------------------------------------------------------------------------
PERIOD ENDED SEPTEMBER 30                                        1997      1996
(In millions of dollars, except ratios)
--------------------------------------------------------------------------------
Net income.................................................... $  687    $  770
Adjustments:
   Interest expense, after tax................................    100       101
   Interest element of operating lease rental, after tax......     16        17
                                                              --------   ------
Net income, as adjusted.......................................  $ 803    $  888
                                                                 ====     =====


Fixed charges:
   Interest expense, after tax................................$    100   $  101
   Interest element of operating lease rental, after tax......      16       17
                                                               -------   ------
Fixed charges.................................................$    116   $  118
                                                                ======     ====


Ratio of net income, as adjusted, to fixed charges (1)........    6.9       7.5
--------------------------------------------------------------------------------
(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.

                                      (29)