##### Table of Contents



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
  
 FORM 10-Q
 þ     o
 Commission File Number 1-5823
 
 CNA FINANCIAL CORPORATION
  Delaware
    
    36-6169860(State or other jurisdiction of
    
    (I.R.S. Employerincorporation or organization)
    
    Identification No.)333 S. WabashChicago, Illinois
    
    60604(Address of principal executive offices)
    
    (Zip Code)
 (312) 822-5000
(Registrants telephone number, including area code)
 þ o
  þ o o
 o þ
  Class
    
    Outstanding at October 24, 2007Common Stock, Par value $2.50
    
    271,656,478




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##### 



CNA FINANCIAL CORPORATION
INDEX
 Item
    
    
    
    PageNumber
    
    
    
    NumberPART I. Financial Information1.
    
    Condensed Consolidated Financial Statements (Unaudited):Condensed Consolidated Statements of Operations for the
Three and Nine months Ended September 30, 2007 and 2006
    
    
    3Condensed Consolidated Balance Sheets at September 30,
2007 and December 31, 2006
    
    
    4Condensed Consolidated Statements of Cash Flows for the
Nine months Ended September 30, 2007 and 2006
    
    
    5Condensed Consolidated Statements of Stockholders
Equity for the Nine months Ended September 30, 2007 and
2006
    
    
    7Notes to Condensed Consolidated Financial Statements
    
    
    82.
    
    Managements Discussion and Analysis of Financial
Condition and Results of Operations
    
    
    413.
    
    Quantitative and Qualitative Disclosures About Market
Risk
    
    
    734.
    
    Controls and Procedures
    
    
    74PART II. Other Information1.
    
    Legal Proceedings
    
    
    756.
    
    Exhibits
    
    
    75Employment AgreementCertification of Chief Executive OfficerCertification of Chief Financial OfficerWritten Statement of the Chief Executive OfficerWritten Statement of the Chief Financial Officer
  2




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##### Table of Contents



CNA FINANCIAL CORPORATION
 
 PART I. FINANCIAL INFORMATION
 
 ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 
 CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
 Three months
    
    
    Nine monthsPeriod ended September 30
    
    2007
    
    
    2006
    
    
    2007
    
    
    2006(In millions, except per share data)RevenuesNet earned premiums
    
    $
    1,882
    
    
    $
    1,943
    
    
    $
    5,617
    
    
    $
    5,704Net investment income
    
    
    580
    
    
    
    600
    
    
    
    1,859
    
    
    
    1,722Realized investment gains (losses), net of participating
policyholders and minority interests
    
    
    (57
    )
    
    
    21
    
    
    
    (217
    )
    
    
    (68
    )Other revenues
    
    
    79
    
    
    
    56
    
    
    
    211
    
    
    
    175Total revenues
    
    
    2,484
    
    
    
    2,620
    
    
    
    7,470
    
    
    
    7,533Claims, Benefits and ExpensesInsurance claims and policyholders benefits
    
    
    1,575
    
    
    
    1,522
    
    
    
    4,496
    
    
    
    4,446Amortization of deferred acquisition costs
    
    
    384
    
    
    
    390
    
    
    
    1,137
    
    
    
    1,132Other operating expenses
    
    
    244
    
    
    
    224
    
    
    
    722
    
    
    
    723Restructuring and other related charges
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (13
    )Interest
    
    
    35
    
    
    
    35
    
    
    
    104
    
    
    
    93Total claims, benefits and expenses
    
    
    2,238
    
    
    
    2,171
    
    
    
    6,459
    
    
    
    6,381Income before income tax and minority interest
    
    
    246
    
    
    
    449
    
    
    
    1,011
    
    
    
    1,152Income tax expense
    
    
    (56
    )
    
    
    (131
    )
    
    
    (279
    )
    
    
    (339
    )Minority interest
    
    
    (16
    )
    
    
    (13
    )
    
    
    (37
    )
    
    
    (32
    )Income from continuing operations
    
    
    174
    
    
    
    305
    
    
    
    695
    
    
    
    781Income (loss) from discontinued operations, net of income tax
(expense) benefit of $(1), $9, $0 and $9
    
    
    
    
    
    
    6
    
    
    
    (8
    )
    
    
    (2
    )Net Income
    
    $
    174
    
    
    $
    311
    
    
    $
    687
    
    
    $
    779Basic and Diluted Earnings Per ShareIncome from continuing operations
    
    $
    0.64
    
    
    $
    1.13
    
    
    $
    2.56
    
    
    $
    2.84Income (loss) from discontinued operations
    
    
    
    
    
    
    0.02
    
    
    
    (0.03
    )
    
    
    (0.01
    )Basic and diluted earnings per share available to common stockholders
    
    $
    0.64
    
    
    $
    1.15
    
    
    $
    2.53
    
    
    $
    2.83Weighted average outstanding common stock and common stock
equivalentsBasic
    
    
    271.6
    
    
    
    265.0
    
    
    
    271.5
    
    
    
    259.0Diluted
    
    
    271.9
    
    
    
    265.2
    
    
    
    271.8
    
    
    
    259.2
  3




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##### Table of Contents



CNA FINANCIAL CORPORATION
 
 CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)
 September 30,
    
    
    December 31,2007
    
    
    2006(In millions, except share data)AssetsInvestments:Fixed maturity securities at fair value (amortized cost of $34,107 and $35,135)
    
    $
    34,196
    
    
    $
    35,851Equity securities at fair value (cost of $346 and $408)
    
    
    608
    
    
    
    657Limited partnership investments
    
    
    2,093
    
    
    
    1,852Other invested assets
    
    
    43
    
    
    
    26Short term investments
    
    
    6,972
    
    
    
    5,710Total investments
    
    
    43,912
    
    
    
    44,096Cash
    
    
    80
    
    
    
    84Reinsurance receivables (less allowance for uncollectible receivables of $464 and $469)
    
    
    8,893
    
    
    
    9,478Insurance receivables (less allowance for doubtful accounts of $343 and $368)
    
    
    2,084
    
    
    
    2,108Accrued investment income
    
    
    339
    
    
    
    313Receivables for securities sold
    
    
    668
    
    
    
    303Deferred acquisition costs
    
    
    1,189
    
    
    
    1,190Prepaid reinsurance premiums
    
    
    321
    
    
    
    342Deferred income taxes
    
    
    1,076
    
    
    
    855Property and equipment at cost (less accumulated depreciation of $595 and $571)
    
    
    353
    
    
    
    277Goodwill and other intangible assets
    
    
    142
    
    
    
    142Other assets
    
    
    586
    
    
    
    592Separate account business
    
    
    472
    
    
    
    503Total assets
    
    $
    60,115
    
    
    $
    60,283Liabilities and Stockholders EquityLiabilities:Insurance reserves:Claim and claim adjustment expenses
    
    $
    28,992
    
    
    $
    29,636Unearned premiums
    
    
    3,753
    
    
    
    3,784Future policy benefits
    
    
    6,993
    
    
    
    6,645Policyholders funds
    
    
    1,013
    
    
    
    1,015Collateral on loaned securities and derivatives
    
    
    83
    
    
    
    2,851Payables for securities purchased
    
    
    3,062
    
    
    
    221Participating policyholders funds
    
    
    43
    
    
    
    50Short term debt
    
    
    150
    
    
    
    Long term debt
    
    
    2,007
    
    
    
    2,156Federal income taxes payable (includes $3 and $38 due to Loews Corporation)
    
    
    5
    
    
    
    40Reinsurance balances payable
    
    
    483
    
    
    
    539Other liabilities
    
    
    2,575
    
    
    
    2,740Separate account business
    
    
    472
    
    
    
    503Total liabilities
    
    
    49,631
    
    
    
    50,180Commitments and contingencies (Notes D, F, G, I and N)Minority interest
    
    
    369
    
    
    
    335Stockholders equity:Common stock ($2.50 par value; 500,000,000 shares authorized; 273,040,243 shares
issued; and 271,656,478 and 271,108,480 shares outstanding)
    
    
    683
    
    
    
    683Additional paid-in capital
    
    
    2,168
    
    
    
    2,166Retained earnings
    
    
    7,162
    
    
    
    6,486Accumulated other comprehensive income
    
    
    192
    
    
    
    549Treasury stock (1,383,765 and 1,931,763 shares), at cost
    
    
    (39
    )
    
    
    (58
    )10,166
    
    
    
    9,826Notes receivable for the issuance of common stock
    
    
    (51
    )
    
    
    (58
    )Total stockholders equity
    
    
    10,115
    
    
    
    9,768Total liabilities and stockholders equity
    
    $
    60,115
    
    
    $
    60,283
  4




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CNA FINANCIAL CORPORATION
 
 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
 Nine months ended September 30
    
    2007
    
    
    2006(In millions)Cash Flows from Operating Activities:Net income
    
    $
    687
    
    
    $
    779Adjustments to reconcile net income to net cash flows
provided by operating activities:Loss from discontinued operations
    
    
    8
    
    
    
    2Loss on disposal of property and equipment
    
    
    1
    
    
    
    Minority interest
    
    
    37
    
    
    
    32Deferred income tax provision
    
    
    (26
    )
    
    
    163Trading securities activity
    
    
    (44
    )
    
    
    391Realized investment losses, net of participating
policyholders and minority interests
    
    
    217
    
    
    
    68Undistributed earnings of equity method investees
    
    
    (74
    )
    
    
    (70
    )Net amortization of bond (discount) premium
    
    
    (195
    )
    
    
    (211
    )Depreciation
    
    
    46
    
    
    
    35Changes in:Receivables, net
    
    
    609
    
    
    
    1,503Deferred acquisition costs
    
    
    1
    
    
    
    (23
    )Accrued investment income
    
    
    (26
    )
    
    
    (14
    )Federal income taxes recoverable/payable
    
    
    (35
    )
    
    
    153Prepaid reinsurance premiums
    
    
    21
    
    
    
    (27
    )Reinsurance balances payable
    
    
    (56
    )
    
    
    (750
    )Insurance reserves
    
    
    (272
    )
    
    
    (315
    )Other assets
    
    
    31
    
    
    
    67Other liabilities
    
    
    (117
    )
    
    
    37Other, net
    
    
    (84
    )
    
    
    (37
    )Total adjustments
    
    
    42
    
    
    
    1,004Net cash flows provided by operating activities-continuing
operations
    
    $
    729
    
    
    $
    1,783Net cash flows used by operating activities-discontinued
operations
    
    $
    (16
    )
    
    $
    Net cash flows provided by operating activities-total
    
    $
    713
    
    
    $
    1,783Cash Flows from Investing Activities:Purchases of fixed maturity securities
    
    $
    (53,496
    )
    
    $
    (32,425
    )Proceeds from fixed maturity securities:Sales
    
    
    53,003
    
    
    
    30,942Maturities, calls and redemptions
    
    
    3,720
    
    
    
    3,114Purchases of equity securities
    
    
    (157
    )
    
    
    (267
    )Proceeds from sales of equity securities
    
    
    182
    
    
    
    153Change in short term investments
    
    
    (963
    )
    
    
    (4,381
    )Change in collateral on loaned securities
    
    
    (2,768
    )
    
    
    1,618Change in other investments
    
    
    (95
    )
    
    
    (139
    )Purchases of property and equipment
    
    
    (118
    )
    
    
    (87
    )Dispositions
    
    
    
    
    
    
    7Other, net
    
    
    (17
    )
    
    
    (49
    )Net cash flows used by investing activities-continuing operations
    
    $
    (709
    )
    
    $
    (1,514
    )Net cash flows provided by investing activities-discontinued
operations, including proceeds from disposition
    
    $
    42
    
    
    $
    24Net cash flows used by investing activities-total
    
    $
    (667
    )
    
    $
    (1,490
    )
  5




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CNA FINANCIAL CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
 Nine months ended September 30
    
    2007
    
    
    2006(In millions)Cash Flows from Financing Activities:Dividends paid to stockholders
    
    
    (54
    )
    
    
    Proceeds from the issuance of long-term debt
    
    
    
    
    
    
    759Principal payments on debt
    
    
    
    
    
    
    (44
    )Return of investment contract account balances
    
    
    (59
    )
    
    
    (510
    )Receipts of investment contract account balances
    
    
    2
    
    
    
    2Payment to repurchase Series H Issue preferred stock
    
    
    
    
    
    
    (993
    )Proceeds from the issuance of common stock
    
    
    
    
    
    
    499Stock options exercised
    
    
    17
    
    
    
    4Other, net
    
    
    11
    
    
    
    1Net cash flows used by financing activities-continuing operations
    
    $
    (83
    )
    
    $
    (282
    )Net cash flows used by financing activities-discontinued
operations
    
    $
    
    
    
    $
    Net cash flows used by financing activities-total
    
    $
    (83
    )
    
    $
    (282
    )Net change in cash
    
    
    (37
    )
    
    
    11Net cash transactions from continuing operations to discontinued
operations
    
    
    59
    
    
    
    15Net cash transactions from discontinued operations to continuing
operations
    
    
    (59
    )
    
    
    (15
    )Cash, beginning of year
    
    
    124
    
    
    
    125Cash, end of period
    
    $
    87
    
    
    $
    136Cash-continuing operations
    
    $
    80
    
    
    $
    98Cash-discontinued operations
    
    
    7
    
    
    
    38Cash-total
    
    $
    87
    
    
    $
    136
  6




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CNA FINANCIAL CORPORATION
 
 CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITY
(UNAUDITED)
 Nine months ended September 30
    
    2007
    
    
    2006(In millions)Preferred StockBalance, beginning of period
    
    $
    
    
    
    $
    750Repurchase of Series H Issue
    
    
    
    
    
    
    (750
    )Balance, end of period
    
    
    
    
    
    
    Common StockBalance, beginning of period
    
    
    683
    
    
    
    645Issuance of common stock
    
    
    
    
    
    
    38Balance, end of period
    
    
    683
    
    
    
    683Additional Paid-in CapitalBalance, beginning of period
    
    
    2,166
    
    
    
    1,701Issuance of common stock and other
    
    
    2
    
    
    
    465Balance, end of period
    
    
    2,168
    
    
    
    2,166Retained EarningsBalance, beginning of period
    
    
    6,486
    
    
    
    5,621Adjustment
to initially apply FSP 85-4-1, net of tax
    
    
    38
    
    
    
    Adjustment to initially apply FIN 48
    
    
    5
    
    
    
    Adjusted balance, beginning of period
    
    
    6,529
    
    
    
    5,621Dividends paid to stockholders
    
    
    (54
    )
    
    
    Net income
    
    
    687
    
    
    
    779Liquidation preference in excess of par value on Series H Issue
    
    
    
    
    
    
    (243
    )Balance, end of period
    
    
    7,162
    
    
    
    6,157Accumulated Other Comprehensive IncomeBalance, beginning of period
    
    
    549
    
    
    
    359Other comprehensive income (loss)
    
    
    (357
    )
    
    
    88Balance, end of period
    
    
    192
    
    
    
    447Treasury StockBalance, beginning of period
    
    
    (58
    )
    
    
    (67
    )Stock options exercised
    
    
    19
    
    
    
    2Balance, end of period
    
    
    (39
    )
    
    
    (65
    )Notes Receivable for the Issuance of Common StockBalance, beginning of period
    
    
    (58
    )
    
    
    (59
    )Decrease in notes receivable for the issuance of common stock
    
    
    7
    
    
    
    Balance, end of period
    
    
    (51
    )
    
    
    (59
    )Total Stockholders Equity
    
    $
    10,115
    
    
    $
    9,329
  7




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CNA FINANCIAL CORPORATION
 
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
 Note A. Basis of Presentation
    Note B. Accounting Pronouncements
 Financial Accounting Standards Board (FASB) Staff Position Technical Bulletin No. 85-4-1, Accounting for Life Settlement Contracts by Third-Party Investors (FSP 85-4-1)
 Accounting for Purchases of Life Insurance
   8




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##### Table of Contents



CNA FINANCIAL CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS, Continued
(UNAUDITED)
    September 30, 2007
    
    Number of Life Settlement
    
    
    Fair Value of Life Settlement
    
    
    Face Amount of Life InsuranceContracts
    
    
    Contracts
    
    
    Policies(In millions)
    
    
    (In millions)Estimated maturity during:2007
    
    
    20
    
    
    $
    4
    
    
    $
    132008
    
    
    80
    
    
    
    15
    
    
    
    512009
    
    
    80
    
    
    
    13
    
    
    
    502010
    
    
    80
    
    
    
    12
    
    
    
    502011
    
    
    80
    
    
    
    11
    
    
    
    50Thereafter
    
    
    1,076
    
    
    
    56
    
    
    
    536Total
    
    
    1,416
    
    
    $
    111
    
    
    $
    750
   FASB Interpretation No. 48, Accounting for Uncertainty in Income Taxes an interpretation of
FASB Statement No. 109 (FIN 48)
  9




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CNA FINANCIAL CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS, Continued
(UNAUDITED)
 Note C. Earnings Per Share
   Earnings Per ShareThree Months
    
    
    Nine MonthsPeriod ended September 30
    
    2007
    
    
    2006
    
    
    2007
    
    
    2006(In millions, except per share amounts)Income from continuing operations
    
    $
    174
    
    
    $
    305
    
    
    $
    695
    
    
    $
    781Less: undeclared preferred stock dividend through repurchase date
    
    
    
    
    
    
    (8
    )
    
    
    
    
    
    
    (46
    )Income from continuing operations available to common stockholders
    
    $
    174
    
    
    $
    297
    
    
    $
    695
    
    
    $
    735Weighted average outstanding common stock and common stock equivalents
    
    
    271.6
    
    
    
    265.0
    
    
    
    271.5
    
    
    
    259.0Effect of dilutive securities, employee stock options and appreciation rights
    
    
    0.3
    
    
    
    0.2
    
    
    
    0.3
    
    
    
    0.2Adjusted weighted average outstanding common stock and common stock
equivalents assuming conversions
    
    
    271.9
    
    
    
    265.2
    
    
    
    271.8
    
    
    
    259.2Basic and diluted earnings per share from continuing operations available to
common stockholders
    
    $
    0.64
    
    
    $
    1.13
    
    
    $
    2.56
    
    
    $
    2.84
  10




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CNA FINANCIAL CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS, Continued
(UNAUDITED)
 Note D. Investments
  Net Investment IncomeThree Months
    
    
    Nine MonthsPeriod ended September 30
    
    2007
    
    
    2006
    
    
    2007
    
    
    2006(In millions)Fixed maturity securities
    
    $
    501
    
    
    $
    477
    
    
    $
    1,523
    
    
    $
    1,372Short term investments
    
    
    57
    
    
    
    61
    
    
    
    146
    
    
    
    184Limited partnerships
    
    
    19
    
    
    
    46
    
    
    
    142
    
    
    
    173Equity securities
    
    
    7
    
    
    
    4
    
    
    
    18
    
    
    
    18Income (loss) from trading portfolio (a)
    
    
    (2
    )
    
    
    30
    
    
    
    41
    
    
    
    63Interest on funds withheld and other deposits
    
    
    
    
    
    
    (10
    )
    
    
    (1
    )
    
    
    (65
    )Other
    
    
    9
    
    
    
    2
    
    
    
    32
    
    
    
    10Gross investment income
    
    
    591
    
    
    
    610
    
    
    
    1,901
    
    
    
    1,755Investment expense
    
    
    (11
    )
    
    
    (10
    )
    
    
    (42
    )
    
    
    (33
    )Net investment income
    
    $
    580
    
    
    $
    600
    
    
    $
    1,859
    
    
    $
    1,722
   Realized Investment Gains (Losses)Three Months
    
    
    Nine MonthsPeriod ended September 30
    
    2007
    
    
    2006
    
    
    2007
    
    
    2006(In millions)Fixed maturity securities:U.S. Government bonds
    
    $
    131
    
    
    $
    18
    
    
    $
    37
    
    
    $
    22Corporate and other taxable bonds
    
    
    (88
    )
    
    
    (18
    )
    
    
    (113
    )
    
    
    (114
    )Tax-exempt bonds
    
    
    10
    
    
    
    40
    
    
    
    (43
    )
    
    
    51Asset-backed bonds
    
    
    (81
    )
    
    
    (1
    )
    
    
    (191
    )
    
    
    (15
    )Redeemable preferred stock
    
    
    (11
    )
    
    
    (2
    )
    
    
    (12
    )
    
    
    (3
    )Total fixed maturity securities
    
    
    (39
    )
    
    
    37
    
    
    
    (322
    )
    
    
    (59
    )Equity securities
    
    
    16
    
    
    
    (3
    )
    
    
    30
    
    
    
    3Derivative securities
    
    
    (45
    )
    
    
    (12
    )
    
    
    62
    
    
    
    (7
    )Short term investments
    
    
    5
    
    
    
    (2
    )
    
    
    5
    
    
    
    (6
    )Other, net of participating policyholders interest
    
    
    8
    
    
    
    1
    
    
    
    9
    
    
    
    (1
    )Realized investment gains (losses) before allocation to
participating policyholders and minority interests
    
    
    (55
    )
    
    
    21
    
    
    
    (216
    )
    
    
    (70
    )Allocated to participating policyholders and minority interests
    
    
    (2
    )
    
    
    
    
    
    
    (1
    )
    
    
    2Realized investment gains (losses)
    
    $
    (57
    )
    
    $
    21
    
    
    $
    (217
    )
    
    $
    (68
    )
  11




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##### Table of Contents



CNA FINANCIAL CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS, Continued
(UNAUDITED)
   12




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##### Table of Contents



CNA FINANCIAL CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS, Continued
(UNAUDITED)
  Summary of Fixed Maturity and Equity SecuritiesCost or
    
    
    Gross
    
    
    Gross Unrealized Losses
    
    
    EstimatedAmortized
    
    
    Unrealized
    
    
    Less than
    
    
    Greater than
    
    
    FairSeptember 30, 2007
    
    Cost
    
    
    Gains
    
    
    12 Months
    
    
    12 Months
    
    
    Value(In millions)Fixed maturity securities available-for-sale:U.S. Treasury securities and obligations
of government agencies
    
    $
    3,059
    
    
    $
    78
    
    
    $
    1
    
    
    $
    1
    
    
    $
    3,135Asset-backed securities
    
    
    11,615
    
    
    
    31
    
    
    
    234
    
    
    
    167
    
    
    
    11,245States, municipalities and political
subdivisions  tax-exempt
    
    
    6,573
    
    
    
    189
    
    
    
    64
    
    
    
    4
    
    
    
    6,694Corporate securities
    
    
    7,693
    
    
    
    215
    
    
    
    77
    
    
    
    11
    
    
    
    7,820Other debt securities
    
    
    3,835
    
    
    
    183
    
    
    
    23
    
    
    
    6
    
    
    
    3,989Redeemable preferred stock
    
    
    1,159
    
    
    
    9
    
    
    
    28
    
    
    
    
    
    
    
    1,140Total fixed maturity securities
available-for-sale
    
    
    33,934
    
    
    
    705
    
    
    
    427
    
    
    
    189
    
    
    
    34,023Total fixed maturity securities trading
    
    
    173
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    173Equity securities available-for-sale:Common stock
    
    
    217
    
    
    
    259
    
    
    
    1
    
    
    
    
    
    
    
    475Preferred stock
    
    
    129
    
    
    
    5
    
    
    
    1
    
    
    
    
    
    
    
    133Total equity securities available-for-sale
    
    
    346
    
    
    
    264
    
    
    
    2
    
    
    
    
    
    
    
    608Total
    
    $
    34,453
    
    
    $
    969
    
    
    $
    429
    
    
    $
    189
    
    
    $
    34,804
 Summary of Fixed Maturity and Equity SecuritiesCost or
    
    
    Gross
    
    
    Gross Unrealized Losses
    
    
    EstimatedAmortized
    
    
    Unrealized
    
    
    Less than
    
    
    Greater than
    
    
    FairDecember 31, 2006
    
    Cost
    
    
    Gains
    
    
    12 Months
    
    
    12 Months
    
    
Value(In millions)Fixed maturity securities available-for-sale:U.S. Treasury securities and obligations
of government agencies
    
    $
    5,056
    
    
    $
    86
    
    
    $
    3
    
    
    $
    1
    
    
    $
    5,138Asset-backed securities
    
    
    13,821
    
    
    
    28
    
    
    
    20
    
    
    
    152
    
    
    
    13,677States, municipalities and political
subdivisions  tax-exempt
    
    
    4,915
    
    
    
    237
    
    
    
    1
    
    
    
    5
    
    
    
    5,146Corporate securities
    
    
    6,811
    
    
    
    338
    
    
    
    8
    
    
    
    9
    
    
    
    7,132Other debt securities
    
    
    3,443
    
    
    
    207
    
    
    
    7
    
    
    
    1
    
    
    
    3,642Redeemable preferred stock
    
    
    885
    
    
    
    28
    
    
    
    1
    
    
    
    
    
    
    
    912Total fixed maturity securities
available-for-sale
    
    
    34,931
    
    
    
    924
    
    
    
    40
    
    
    
    168
    
    
    
    35,647Total fixed maturity securities trading
    
    
    204
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    204Equity securities available-for-sale:Common stock
    
    
    214
    
    
    
    239
    
    
    
    1
    
    
    
    
    
    
    
    452Preferred stock
    
    
    134
    
    
    
    11
    
    
    
    
    
    
    
    
    
    
    
    145Total equity securities available-for-sale
    
    
    348
    
    
    
    250
    
    
    
    1
    
    
    
    
    
    
    
    597Total equity securities trading
    
    
    60
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    60Total
    
    $
    35,543
    
    
    $
    1,174
    
    
    $
    41
    
    
    $
    168
    
    
    $
    36,508
 13




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##### Table of Contents



CNA FINANCIAL CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS, Continued
(UNAUDITED)
  Unrealized Loss AgingSeptember 30, 2007
    
    
    December 31, 2006Gross
    
    
    
    
    
    
    GrossEstimated
    
    
    Unrealized
    
    
    Estimated
    
    
    UnrealizedFair Value
    
    
    Loss
    
    
    Fair Value
    
    
    Loss(In millions)Fixed maturity securities:Investment grade:0-6 months
    
    $
    6,102
    
    
    $
    312
    
    
    $
    9,829
    
    
    $
    247-12 months
    
    
    1,116
    
    
    
    78
    
    
    
    1,267
    
    
    
    1213-24 months
    
    
    1,145
    
    
    
    37
    
    
    
    5,248
    
    
    
    127Greater than 24 months
    
    
    4,444
    
    
    
    150
    
    
    
    1,022
    
    
    
    41Total investment grade
    
    
    12,807
    
    
    
    577
    
    
    
    17,366
    
    
    
    204Non-investment grade:0-6 months
    
    
    1,889
    
    
    
    37
    
    
    
    509
    
    
    
    27-12 months
    
    
    4
    
    
    
    
    
    
    
    87
    
    
    
    213-24 months
    
    
    28
    
    
    
    2
    
    
    
    24
    
    
    
    Greater than 24 months
    
    
    2
    
    
    
    
    
    
    
    2
    
    
    
    Total non-investment grade
    
    
    1,923
    
    
    
    39
    
    
    
    622
    
    
    
    4Total fixed maturity securities
    
    
    14,730
    
    
    
    616
    
    
    
    17,988
    
    
    
    208Equity securities:0-6 months
    
    
    82
    
    
    
    1
    
    
    
    10
    
    
    
    17-12 months
    
    
    2
    
    
    
    1
    
    
    
    1
    
    
    
    13-24 months
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Greater than 24 months
    
    
    3
    
    
    
    
    
    
    
    3
    
    
    
    Total equity securities
    
    
    87
    
    
    
    2
    
    
    
    14
    
    
    
    1Total fixed maturity and equity securities
    
    $
    14,817
    
    
    $
    618
    
    
    $
    18,002
    
    
    $
    209
   Asset-Backed Securities
  14




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##### Table of Contents



CNA FINANCIAL CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS, Continued
(UNAUDITED)
 Recognition of Interest Income and Impairment on Purchased
and Retained Beneficial Interests in Securitized Financial Assets
   States, Municipalities and Political Subdivisions  Tax-Exempt Securities
  Corporate Securities
   15




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##### Table of Contents



CNA FINANCIAL CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS, Continued
(UNAUDITED)
  Investment Commitments
  
 16




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##### Table of Contents



CNA FINANCIAL CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS, Continued
(UNAUDITED)
 Note E. Derivative Financial Instruments
  Derivative Financial Instruments Recognized Gains (Losses)Three Months
    
    
    Nine MonthsPeriod ended September 30
    
    2007
    
    
    2006
    
    
    2007
    
    
    2006(In millions)General accountWithout hedge designationSwaps
    
    $
    (43
    )
    
    $
    (14
    )
    
    $
    65
    
    
    $
    (8
    )Futures purchased
    
    
    7
    
    
    
    
    
    
    
    7
    
    
    
    Futures sold, not yet purchased
    
    
    (8
    )
    
    
    (1
    )
    
    
    (8
    )
    
    
    1Currency forwards
    
    
    (1
    )
    
    
    1
    
    
    
    (2
    )
    
    
    (1
    )Commitments to purchase government and municipal securities (TBAs)
    
    
    (1
    )
    
    
    
    
    
    
    
    
    
    
    Options embedded in convertible debt securities
    
    
    1
    
    
    
    
    
    
    
    1
    
    
    
    Trading activitiesFutures purchased
    
    
    5
    
    
    
    22
    
    
    
    32
    
    
    
    33Futures sold, not yet purchased
    
    
    (1
    )
    
    
    (1
    )
    
    
    
    
    
    
    1Currency forwards
    
    
    1
    
    
    
    
    
    
    
    
    
    
    
    Total
    
    $
    (40
    )
    
    $
    7
    
    
    $
    95
    
    
    $
    26
  Derivative Financial InstrumentsEstimatedContractual/
    
    
    Fair ValueSeptember 30, 2007
    
    Notional
    
    
    Asset(In millions)
    
    Amount
    
    
    (Liability)General accountWithout hedge designationSwaps
    
    $
    1,122
    
    
    $
    3Currency forwards
    
    
    108
    
    
    
    (1
    )Equity warrants
    
    
    4
    
    
    
    2Options embedded in convertible debt securities
    
    
    3
    
    
    
    Trading activitiesFutures purchased
    
    
    820
    
    
    
    (3
    )Futures sold, not yet purchased
    
    
    104
    
    
    
    Currency forwards
    
    
    42
    
    
    
    1Total general account
    
    $
    2,203
    
    
    $
    2Separate accountsOptions written
    
    $
    1
    
    
    $
    Total separate accounts
    
    $
    1
    
    
    $
    
 17




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##### Table of Contents



CNA FINANCIAL CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS, Continued
(UNAUDITED)
 Derivative
Financial Instruments
 EstimatedContractual/
    
    
    Fair ValueDecember 31, 2006
    
    Notional
    
    
    Asset(In millions)
    
    Amount
    
    
    (Liability)General accountWithout hedge designationSwaps
    
    $
    4,795
    
    
    $
    (30
    )Currency forwards
    
    
    8
    
    
    
    Equity warrants
    
    
    6
    
    
    
    2Options embedded in convertible debt securities
    
    
    9
    
    
    
    Trading activitiesFutures purchased
    
    
    722
    
    
    
    (3
    )Futures sold, not yet purchased
    
    
    79
    
    
    
    Currency forwards
    
    
    25
    
    
    
    Total general account
    
    $
    5,644
    
    
    $
    (31
    )Separate accountsOptions written
    
    $
    1
    
    
    $
    Total separate accounts
    
    $
    1
    
    
    $
    
  Note F. Claim and Claim Adjustment Expense Reserves
     18




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##### Table of Contents



CNA FINANCIAL CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS, Continued
(UNAUDITED)
 APMT Reserves
      APMT ReservesSeptember 30, 2007
    
    
    December 31, 2006Environmental
    
    
    
    
    
    
    EnvironmentalPollution and
    
    
    
    
    
    
    Pollution andAsbestos
    
    
    Mass Tort
    
    
    Asbestos
    
    
    Mass Tort(In millions)Gross reserves
    
    $
    2,400
    
    
    $
    597
    
    
    $
    2,635
    
    
    $
    647Ceded reserves
    
    
    (1,063
    )
    
    
    (210
    )
    
    
    (1,183
    )
    
    
    (231
    )Net reserves
    
    $
    1,337
    
    
    $
    387
    
    
    $
    1,452
    
    
    $
    416
 19




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##### Table of Contents



CNA FINANCIAL CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS, Continued
(UNAUDITED)
 Asbestos
        20




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##### Table of Contents



CNA FINANCIAL CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS, Continued
(UNAUDITED)
  In re:
Burns & Roe Enterprises, Inc
 Boson v. Union Carbide
Corp.,
 21




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##### Table of Contents



CNA FINANCIAL CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS, Continued
(UNAUDITED)
  Pennock, et al. v. Maryland Casualty,
et al.
  Environmental Pollution and Mass Tort
   22




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##### Table of Contents



CNA FINANCIAL CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS, Continued
(UNAUDITED)
 Net Prior Year Development
  Three Month Comparison
  Net Prior Year DevelopmentThree months ended September 30, 2007CorporateStandard
    
    
    Specialty
    
    
    and OtherLines
    
    
    Lines
    
    
    Non-Core
    
    
    Total(In millions)Pretax unfavorable (favorable) net
prior year claim and allocated
claim adjustment expense reserve
development:Core (Non-APMT)
    
    $
    (77
    )
    
    $
    13
    
    
    $
    4
    
    
    $
    (60
    )APMT
    
    
    
    
    
    
    
    
    
    
    3
    
    
    
    3Pretax unfavorable (favorable) net
prior year development before
impact of premium development
    
    
    (77
    )
    
    
    13
    
    
    
    7
    
    
    
    (57
    )Pretax favorable premium development
    
    
    (7
    )
    
    
    (1
    )
    
    
    (2
    )
    
    
    (10
    )Total pretax unfavorable
(favorable) net prior year
development
    
    $
    (84
    )
    
    $
    12
    
    
    $
    5
    
    
    $
    (67
    )
 Net Prior Year DevelopmentThree months ended September 30, 2006CorporateStandard
    
    
    Specialty
    
    
    and OtherLines
    
    
    Lines
    
    
    Non-Core
    
    
    Total(In millions)Pretax unfavorable (favorable) net prior year
claim and allocated claim adjustment expense
reserve development:Core (Non-APMT)
    
    $
    6
    
    
    $
    (4
    )
    
    $
    2
    
    
    $
    4APMT
    
    
    
    
    
    
    
    
    
    
    1
    
    
    
    1Pretax unfavorable (favorable) net prior year
development before impact of premium development
    
    
    6
    
    
    
    (4
    )
    
    
    3
    
    
    
    5Pretax unfavorable (favorable) premium development
    
    
    (19
    )
    
    
    6
    
    
    
    (3
    )
    
    
    (16
    )Total pretax unfavorable (favorable) net prior
year development
    
    $
    (13
    )
    
    $
    2
    
    
    $
    
    
    
    $
    (11
    )
 23




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##### Table of Contents



CNA FINANCIAL CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS, Continued
(UNAUDITED)
 2007 Net Prior Year Development
 Standard Lines
   Specialty Lines
   2006 Net Prior Year Development
 Standard Lines
     24




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##### Table of Contents



CNA FINANCIAL CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS, Continued
(UNAUDITED)
 Nine Month Comparison
  Net Prior Year DevelopmentNine months ended September 30, 2007CorporateStandard
    
    
    Specialty
    
    
    and OtherLines
    
    
    Lines
    
    
    Non-Core
    
    
    Total(In millions)Pretax unfavorable (favorable) net
prior year claim and allocated
claim adjustment expense reserve
development:Core (Non-APMT)
    
    $
    (97
    )
    
    $
    19
    
    
    $
    12
    
    
    $
    (66
    )APMT
    
    
    
    
    
    
    
    
    
    
    7
    
    
    
    7Pretax unfavorable (favorable) net
prior year development before
impact of premium development
    
    
    (97
    )
    
    
    19
    
    
    
    19
    
    
    
    (59
    )Pretax favorable premium development
    
    
    (20
    )
    
    
    (8
    )
    
    
    (5
    )
    
    
    (33
    )Total pretax unfavorable
(favorable) net prior year
development
    
    $
    (117
    )
    
    $
    11
    
    
    $
    14
    
    
    $
    (92
    )
 Net Prior Year DevelopmentNine months ended September 30, 2006CorporateStandard
    
    
    Specialty
    
    
    and OtherLines
    
    
    Lines
    
    
    Non-Core
    
    
    Total(In millions)Pretax unfavorable (favorable) net prior year
claim and allocated claim adjustment expense
reserve development:Core (Non-APMT)
    
    $
    70
    
    
    $
    (1
    )
    
    $
    13
    
    
    $
    82APMT
    
    
    
    
    
    
    
    
    
    
    2
    
    
    
    2Pretax unfavorable (favorable) net prior year
development before impact of premium development
    
    
    70
    
    
    
    (1
    )
    
    
    15
    
    
    
    84Pretax unfavorable (favorable) premium development
    
    
    (92
    )
    
    
    
    
    
    
    1
    
    
    
    (91
    )Total pretax unfavorable (favorable) net prior
year development
    
    $
    (22
    )
    
    $
    (1
    )
    
    $
    16
    
    
    $
    (7
    )
 2007 Net Prior Year Development
 Standard Lines
  25




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##### Table of Contents



CNA FINANCIAL CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS, Continued
(UNAUDITED)
      Specialty Lines
  Corporate and Other Non-Core
  2006 Net Prior Year Development
 Standard Lines
     26




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##### Table of Contents



CNA FINANCIAL CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS, Continued
(UNAUDITED)
         Corporate and Other Non-Core
  27




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##### Table of Contents



CNA FINANCIAL CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS, Continued
(UNAUDITED)
 Note G. Legal Proceedings and Contingent Liabilities
 Insurance Brokerage Antitrust Litigation
 In re Insurance Brokerage Antitrust Litigation, Civil No.
04-5184 (FSH)
  Global Crossing Limited Litigation
   IGI Contingency
 
 28




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##### Table of Contents



CNA FINANCIAL CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS, Continued
(UNAUDITED)
  New Jersey Wage and Hour Litigation
 W. Curtis Himmelman, individually and on behalf of all others similarly situated v. Continental
Casualty Company
  California Long Term Care Litigation
 Shaffer v. Continental Casualty Company, et al.
 Asbestos, Environmental Pollution and Mass Tort (APMT) Reserves
  Other Litigation
 
 29




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##### Table of Contents



CNA FINANCIAL CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS, Continued
(UNAUDITED)
 Note H. Benefit Plans
 Pension and Postretirement Healthcare and Life Insurance Benefit Plans
     Net Periodic Benefit CostsThree Months
    
    
    Nine MonthsPeriod ended September 30
    
    2007
    
    
    2006
    
    
    2007
    
    
    2006(In millions)Pension benefitsService cost
    
    $
    5
    
    
    $
    6
    
    
    $
    17
    
    
    $
    19Interest cost on projected benefit obligation
    
    
    36
    
    
    
    35
    
    
    
    109
    
    
    
    107Expected return on plan assets
    
    
    (43
    )
    
    
    (40
    )
    
    
    (130
    )
    
    
    (120
    )Prior service cost amortization
    
    
    
    
    
    
    
    
    
    
    1
    
    
    
    1Actuarial loss
    
    
    2
    
    
    
    4
    
    
    
    8
    
    
    
    21Net periodic pension cost
    
    $
    
    
    
    $
    5
    
    
    $
    5
    
    
    $
    28Postretirement benefitsService cost
    
    $
    
    
    
    $
    1
    
    
    $
    1
    
    
    $
    2Interest cost on projected benefit obligation
    
    
    2
    
    
    
    3
    
    
    
    7
    
    
    
    7Prior service cost amortization
    
    
    (4
    )
    
    
    (7
    )
    
    
    (13
    )
    
    
    (20
    )Actuarial loss
    
    
    1
    
    
    
    1
    
    
    
    2
    
    
    
    3Net periodic postretirement benefit
    
    $
    (1
    )
    
    $
    (2
    )
    
    $
    (3
    )
    
    $
    (8
    )
 
 30




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##### Table of Contents



CNA FINANCIAL CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS, Continued
(UNAUDITED)
 Note I. Operating Leases, Other Commitments and Contingencies, and Guarantees
 Operating Leases
    Other Commitments and Contingencies
   Guarantees
   31




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##### Table of Contents



CNA FINANCIAL CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS, Continued
(UNAUDITED)
  Note J. Comprehensive Income (Loss)
  Comprehensive Income (Loss)Three months
    
    
    Nine MonthsPeriod ended September 30
    
    2007
    
    
    2006
    
    
    2007
    
    
    2006(In millions)Net income
    
    $
    174
    
    
    $
    311
    
    
    $
    687
    
    
    $
    779Other comprehensive income (loss):Change in unrealized gains (losses) on general account
investments:Holding gains (losses) arising during the period, net of tax
(expense) benefit of $10, ($315), $156 and ($35)
    
    
    (19
    )
    
    
    586
    
    
    
    (291
    )
    
    
    66Reclassification adjustment for (gains) losses included in net
income, net of tax expense (benefit) of $25, $2, $58 and $6
    
    
    (45
    )
    
    
    (1
    )
    
    
    (107
    )
    
    
    (9
    )Net change in unrealized gains (losses) on general account
investments, net of tax (expense) benefit of $35, ($313), $214
and ($29)
    
    
    (64
    )
    
    
    585
    
    
    
    (398
    )
    
    
    57Net change in unrealized gains (losses) on discontinued
operations and other, net of tax (expense) benefit of $0, ($2),
$0 and $0
    
    
    1
    
    
    
    (1
    )
    
    
    
    
    
    
    Net change in foreign currency translation adjustment
    
    
    24
    
    
    
    5
    
    
    
    29
    
    
    
    32Net change related to pensions, net of tax (expense) benefit of
$0, $0, ($1) and $0
    
    
    (2
    )
    
    
    
    
    
    
    1
    
    
    
    (1
    )Allocation to participating policyholders and minority interests
    
    
    (2
    )
    
    
    (15
    )
    
    
    11
    
    
    
    Other comprehensive income (loss), net of tax (expense) benefit
of $35, ($315), $213 and ($29)
    
    
    (43
    )
    
    
    574
    
    
    
    (357
    )
    
    
    88Total comprehensive income
    
    $
    131
    
    
    $
    885
    
    
    $
    330
    
    
    $
    867
 32




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##### Table of Contents



CNA FINANCIAL CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS, Continued
(UNAUDITED)
 Note K. Business Segments
       33




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##### Table of Contents



CNA FINANCIAL CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS, Continued
(UNAUDITED)
 CorporateStandard
    
    
    Specialty
    
    
    Life and Group
    
    
    and OtherThree months ended
    
    Lines
    
    
    Lines
    
    
    Non-Core
    
    
    Non-Core
    
    
    Eliminations
    
    
    TotalSeptember 30, 2007(In millions)Revenues:Net earned premiums
    
    $
    1,054
    
    
    $
    672
    
    
    $
    156
    
    
    $
    1
    
    
    $
    (1
    )
    
    $
    1,882Net investment income
    
    
    248
    
    
    
    113
    
    
    
    145
    
    
    
    74
    
    
    
    
    
    
    
    580Other revenues
    
    
    20
    
    
    
    49
    
    
    
    16
    
    
    
    4
    
    
    
    (10
    )
    
    
    79Total operating revenues
    
    
    1,322
    
    
    
    834
    
    
    
    317
    
    
    
    79
    
    
    
    (11
    )
    
    
    2,541Claims, benefits and expenses:Net incurred claims and benefits
    
    
    649
    
    
    
    418
    
    
    
    463
    
    
    
    40
    
    
    
    
    
    
    
    1,570Policyholders dividends
    
    
    3
    
    
    
    2
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    5Amortization of deferred acquisition costs
    
    
    234
    
    
    
    146
    
    
    
    4
    
    
    
    
    
    
    
    
    
    
    
    384Other insurance related expenses
    
    
    90
    
    
    
    37
    
    
    
    48
    
    
    
    1
    
    
    
    (1
    )
    
    
    175Other expenses
    
    
    22
    
    
    
    44
    
    
    
    17
    
    
    
    31
    
    
    
    (10
    )
    
    
    104Total claims, benefits and expenses
    
    
    998
    
    
    
    647
    
    
    
    532
    
    
    
    72
    
    
    
    (11
    )
    
    
    2,238Operating income (loss) from continuing operations
before income tax and minority interest
    
    
    324
    
    
    
    187
    
    
    
    (215
    )
    
    
    7
    
    
    
    
    
    
    
    303Income tax (expense) benefit on operating income (loss)
    
    
    (104
    )
    
    
    (60
    )
    
    
    84
    
    
    
    5
    
    
    
    
    
    
    
    (75
    )Minority interest
    
    
    (5
    )
    
    
    (11
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (16
    )Net operating income (loss) from continuing operations
    
    
    215
    
    
    
    116
    
    
    
    (131
    )
    
    
    12
    
    
    
    
    
    
    
    212Realized investment losses, net of participating
policyholders and minority interests
    
    
    (29
    )
    
    
    (13
    )
    
    
    (9
    )
    
    
    (6
    )
    
    
    
    
    
    
    (57
    )Income tax benefit on realized investment losses
    
    
    9
    
    
    
    5
    
    
    
    3
    
    
    
    2
    
    
    
    
    
    
    
    19Income (loss) from continuing operations
    
    $
    195
    
    
    $
    108
    
    
    $
    (137
    )
    
    $
    8
    
    
    $
    
    
    
    $
    174
 34




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##### Table of Contents



CNA FINANCIAL CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS, Continued
(UNAUDITED)
 CorporateStandard
    
    
    Specialty
    
    
    Life and Group
    
    
    and OtherThree months ended
    
    Lines
    
    
    Lines
    
    
    Non-Core
    
    
    Non-Core
    
    
    Eliminations
    
    
    TotalSeptember 30, 2006(In millions)Revenues:Net earned premiums
    
    $
    1,128
    
    
    $
    654
    
    
    $
    160
    
    
    $
    3
    
    
    $
    (2
    )
    
    $
    1,943Net investment income
    
    
    239
    
    
    
    101
    
    
    
    179
    
    
    
    81
    
    
    
    
    
    
    
    600Other revenues
    
    
    16
    
    
    
    38
    
    
    
    8
    
    
    
    6
    
    
    
    (12
    )
    
    
    56Total operating revenues
    
    
    1,383
    
    
    
    793
    
    
    
    347
    
    
    
    90
    
    
    
    (14
    )
    
    
    2,599Claims, benefits and expenses:Net incurred claims and benefits
    
    
    776
    
    
    
    397
    
    
    
    314
    
    
    
    31
    
    
    
    
    
    
    
    1,518Policyholders dividends
    
    
    4
    
    
    
    1
    
    
    
    (1
    )
    
    
    
    
    
    
    
    
    
    
    4Amortization of deferred acquisition costs
    
    
    249
    
    
    
    137
    
    
    
    4
    
    
    
    
    
    
    
    
    
    
    
    390Other insurance related expenses
    
    
    89
    
    
    
    31
    
    
    
    48
    
    
    
    8
    
    
    
    (1
    )
    
    
    175Other expenses
    
    
    20
    
    
    
    35
    
    
    
    14
    
    
    
    28
    
    
    
    (13
    )
    
    
    84Total claims, benefits and expenses
    
    
    1,138
    
    
    
    601
    
    
    
    379
    
    
    
    67
    
    
    
    (14
    )
    
    
    2,171Operating income (loss) from continuing operations
before income tax and minority interest
    
    
    245
    
    
    
    192
    
    
    
    (32
    )
    
    
    23
    
    
    
    
    
    
    
    428Income tax (expense) benefit on operating income (loss)
    
    
    (78
    )
    
    
    (64
    )
    
    
    17
    
    
    
    (7
    )
    
    
    
    
    
    
    (132
    )Minority interest
    
    
    (4
    )
    
    
    (9
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (13
    )Net operating income (loss) from continuing operations
    
    
    163
    
    
    
    119
    
    
    
    (15
    )
    
    
    16
    
    
    
    
    
    
    
    283Realized investment gains (losses), net of
participating policyholders and minority interests
    
    
    18
    
    
    
    6
    
    
    
    (10
    )
    
    
    7
    
    
    
    
    
    
    
    21Income tax (expense) benefit on realized investment
gains (losses)
    
    
    (7
    )
    
    
    (1
    )
    
    
    3
    
    
    
    6
    
    
    
    
    
    
    
    1Income (loss) from continuing operations
    
    $
    174
    
    
    $
    124
    
    
    $
    (22
    )
    
    $
    29
    
    
    $
    
    
    
    $
    305
 35




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##### Table of Contents



CNA FINANCIAL CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS, Continued
(UNAUDITED)
 CorporateStandard
    
    
    Specialty
    
    
    Life and Group
    
    
    and OtherNine months ended
    
    Lines
    
    
    Lines
    
    
    Non-Core
    
    
    Non-Core
    
    
    Eliminations
    
    
    TotalSeptember 30, 2007(In millions)Revenues:Net earned premiums
    
    $
    3,169
    
    
    $
    1,977
    
    
    $
    469
    
    
    $
    5
    
    
    $
    (3
    )
    
    $
    5,617Net investment income
    
    
    784
    
    
    
    343
    
    
    
    494
    
    
    
    238
    
    
    
    
    
    
    
    1,859Other revenues
    
    
    65
    
    
    
    137
    
    
    
    34
    
    
    
    6
    
    
    
    (31
    )
    
    
    211Total operating revenues
    
    
    4,018
    
    
    
    2,457
    
    
    
    997
    
    
    
    249
    
    
    
    (34
    )
    
    
    7,687Claims, benefits and expenses:Net incurred claims and benefits
    
    
    2,098
    
    
    
    1,217
    
    
    
    1,062
    
    
    
    111
    
    
    
    
    
    
    
    4,488Policyholders dividends
    
    
    4
    
    
    
    4
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    8Amortization of deferred acquisition costs
    
    
    707
    
    
    
    417
    
    
    
    13
    
    
    
    
    
    
    
    
    
    
    
    1,137Other insurance related expenses
    
    
    266
    
    
    
    111
    
    
    
    143
    
    
    
    16
    
    
    
    (3
    )
    
    
    533Other expenses
    
    
    77
    
    
    
    115
    
    
    
    34
    
    
    
    98
    
    
    
    (31
    )
    
    
    293Total claims, benefits and expenses
    
    
    3,152
    
    
    
    1,864
    
    
    
    1,252
    
    
    
    225
    
    
    
    (34
    )
    
    
    6,459Operating income (loss) from continuing operations
before income tax and minority interest
    
    
    866
    
    
    
    593
    
    
    
    (255
    )
    
    
    24
    
    
    
    
    
    
    
    1,228Income tax (expense) benefit on operating income (loss)
    
    
    (277
    )
    
    
    (194
    )
    
    
    113
    
    
    
    4
    
    
    
    
    
    
    
    (354
    )Minority interest
    
    
    (9
    )
    
    
    (27
    )
    
    
    
    
    
    
    (1
    )
    
    
    
    
    
    
    (37
    )Net operating income (loss) from continuing operations
    
    
    580
    
    
    
    372
    
    
    
    (142
    )
    
    
    27
    
    
    
    
    
    
    
    837Realized investment losses, net of participating
policyholders and minority interests
    
    
    (126
    )
    
    
    (52
    )
    
    
    (26
    )
    
    
    (13
    )
    
    
    
    
    
    
    (217
    )Income tax benefit on realized investment losses
    
    
    43
    
    
    
    18
    
    
    
    9
    
    
    
    5
    
    
    
    
    
    
    
    75Income (loss) from continuing operations
    
    $
    497
    
    
    $
    338
    
    
    $
    (159
    )
    
    $
    19
    
    
    $
    
    
    
    $
    695September 30, 2007(In millions)Reinsurance receivables
    
    $
    3,151
    
    
    $
    1,371
    
    
    $
    2,316
    
    
    $
    2,519
    
    
    $
    
    
    
    $
    9,357Insurance receivables
    
    $
    2,000
    
    
    $
    424
    
    
    $
    (1
    )
    
    $
    4
    
    
    $
    
    
    
    $
    2,427Insurance reserves:Claim and claim adjustment expenses
    
    $
    14,747
    
    
    $
    5,982
    
    
    $
    3,097
    
    
    $
    5,166
    
    
    $
    
    
    
    $
    28,992Unearned premiums
    
    
    2,031
    
    
    
    1,553
    
    
    
    166
    
    
    
    4
    
    
    
    (1
    )
    
    
    3,753Future policy benefits
    
    
    
    
    
    
    
    
    
    
    6,993
    
    
    
    
    
    
    
    
    
    
    
    6,993Policyholders funds
    
    
    26
    
    
    
    
    
    
    
    987
    
    
    
    
    
    
    
    
    
    
    
    1,013Deferred acquisition costs
    
    $
    404
    
    
    $
    298
    
    
    $
    487
    
    
    $
    
    
    
    $
    
    
    
    $
    1,189
 36




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##### Table of Contents



CNA FINANCIAL CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS, Continued
(UNAUDITED)
 CorporateStandard
    
    
    Specialty
    
    
    Life and Group
    
    
    and OtherNine months ended
    
    Lines
    
    
    Lines
    
    
    Non-Core
    
    
    Non-Core
    
    
    Eliminations
    
    
    TotalSeptember 30, 2006(In millions)Revenues:Net earned premiums
    
    $
    3,310
    
    
    $
    1,915
    
    
    $
    482
    
    
    $
    1
    
    
    $
    (4
    )
    
    $
    5,704Net investment income
    
    
    705
    
    
    
    287
    
    
    
    504
    
    
    
    226
    
    
    
    
    
    
    
    1,722Other revenues
    
    
    49
    
    
    
    112
    
    
    
    44
    
    
    
    8
    
    
    
    (38
    )
    
    
    175Total operating revenues
    
    
    4,064
    
    
    
    2,314
    
    
    
    1,030
    
    
    
    235
    
    
    
    (42
    )
    
    
    7,601Claims, benefits and expenses:Net incurred claims and benefits
    
    
    2,297
    
    
    
    1,157
    
    
    
    886
    
    
    
    90
    
    
    
    1
    
    
    
    4,431Policyholders dividends
    
    
    12
    
    
    
    3
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    15Amortization of deferred acquisition costs
    
    
    725
    
    
    
    395
    
    
    
    12
    
    
    
    
    
    
    
    
    
    
    
    1,132Other insurance related expenses
    
    
    293
    
    
    
    109
    
    
    
    141
    
    
    
    24
    
    
    
    (4
    )
    
    
    563Restructuring and other related charges
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (13
    )
    
    
    
    
    
    
    (13
    )Other expenses
    
    
    58
    
    
    
    103
    
    
    
    40
    
    
    
    91
    
    
    
    (39
    )
    
    
    253Total claims, benefits and expenses
    
    
    3,385
    
    
    
    1,767
    
    
    
    1,079
    
    
    
    192
    
    
    
    (42
    )
    
    
    6,381Operating income (loss) from continuing operations
before income tax and minority interest
    
    
    679
    
    
    
    547
    
    
    
    (49
    )
    
    
    43
    
    
    
    
    
    
    
    1,220Income tax (expense) benefit on operating income (loss)
    
    
    (207
    )
    
    
    (181
    )
    
    
    36
    
    
    
    (14
    )
    
    
    
    
    
    
    (366
    )Minority interest
    
    
    (9
    )
    
    
    (23
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (32
    )Net operating income (loss) from continuing operations
    
    
    463
    
    
    
    343
    
    
    
    (13
    )
    
    
    29
    
    
    
    
    
    
    
    822Realized investment losses, net of participating
policyholders and minority interests
    
    
    (6
    )
    
    
    (4
    )
    
    
    (56
    )
    
    
    (2
    )
    
    
    
    
    
    
    (68
    )Income tax benefit on realized investment losses
    
    
    2
    
    
    
    2
    
    
    
    19
    
    
    
    4
    
    
    
    
    
    
    
    27Income (loss) from continuing operations
    
    $
    459
    
    
    $
    341
    
    
    $
    (50
    )
    
    $
    31
    
    
    $
    
    
    
    $
    781December 31, 2006(In millions)Reinsurance receivables
    
    $
    3,260
    
    
    $
    1,296
    
    
    $
    2,378
    
    
    $
    3,013
    
    
    $
    
    
    
    $
    9,947Insurance receivables
    
    $
    2,053
    
    
    $
    424
    
    
    $
    52
    
    
    $
    (53
    )
    
    $
    
    
    
    $
    2,476Insurance reserves:Claim and claim adjustment expenses
    
    $
    14,934
    
    
    $
    5,529
    
    
    $
    3,134
    
    
    $
    6,039
    
    
    $
    
    
    
    $
    29,636Unearned premiums
    
    
    2,007
    
    
    
    1,599
    
    
    
    173
    
    
    
    5
    
    
    
    
    
    
    
    3,784Future policy benefits
    
    
    
    
    
    
    
    
    
    
    6,645
    
    
    
    
    
    
    
    
    
    
    
    6,645Policyholders funds
    
    
    35
    
    
    
    
    
    
    
    980
    
    
    
    
    
    
    
    
    
    
    
    1,015Deferred acquisition costs
    
    $
    407
    
    
    $
    283
    
    
    $
    500
    
    
    $
    
    
    
    $
    
    
    
    $
    1,190
 37




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##### Table of Contents



CNA FINANCIAL CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS, Continued
(UNAUDITED)
  Revenues by Line of BusinessThree Months
    
    
    Nine MonthsPeriod ended September 30
    
    2007
    
    
    2006
    
    
    2007
    
    
    2006(In millions)Standard LinesProperty
    
    $
    310
    
    
    $
    323
    
    
    $
    948
    
    
    $
    915Casualty
    
    
    780
    
    
    
    884
    
    
    
    2,365
    
    
    
    2,592CNA Global
    
    
    203
    
    
    
    194
    
    
    
    579
    
    
    
    551Standard Lines revenues
    
    
    1,293
    
    
    
    1,401
    
    
    
    3,892
    
    
    
    4,058Specialty LinesUS Specialty Lines
    
    
    621
    
    
    
    615
    
    
    
    1,834
    
    
    
    1,775Surety
    
    
    125
    
    
    
    113
    
    
    
    352
    
    
    
    323Warranty
    
    
    75
    
    
    
    71
    
    
    
    219
    
    
    
    212Specialty Lines revenues
    
    
    821
    
    
    
    799
    
    
    
    2,405
    
    
    
    2,310Life and Group Non-CoreLife & Annuity
    
    
    47
    
    
    
    100
    
    
    
    226
    
    
    
    266Health
    
    
    241
    
    
    
    224
    
    
    
    693
    
    
    
    655Other
    
    
    20
    
    
    
    13
    
    
    
    52
    
    
    
    53Life and Group Non-Core revenues
    
    
    308
    
    
    
    337
    
    
    
    971
    
    
    
    974Corporate and Other Non-CoreCNA Re
    
    
    24
    
    
    
    35
    
    
    
    96
    
    
    
    78Other
    
    
    49
    
    
    
    62
    
    
    
    140
    
    
    
    155Corporate and Other Non-Core revenues
    
    
    73
    
    
    
    97
    
    
    
    236
    
    
    
    233Eliminations
    
    
    (11
    )
    
    
    (14
    )
    
    
    (34
    )
    
    
    (42
    )Total revenues
    
    $
    2,484
    
    
    $
    2,620
    
    
    $
    7,470
    
    
    $
    7,533
 38




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##### Table of Contents



CNA FINANCIAL CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS, Continued
(UNAUDITED)
 Note L. Discontinued Operations
   Discontinued OperationsThree Months
    
    
    Nine MonthsPeriod ended September 30
    
    2007
    
    
    2006
    
    
    2007
    
    
    2006(In millions)Revenues:Net investment income
    
    $
    2
    
    
    $
    5
    
    
    $
    11
    
    
    $
    13Realized investment gains (losses) and other
    
    
    2
    
    
    
    
    
    
    
    4
    
    
    
    (3
    )Total revenues
    
    
    4
    
    
    
    5
    
    
    
    15
    
    
    
    10Insurance related expenses
    
    
    (3
    )
    
    
    (8
    )
    
    
    (23
    )
    
    
    (21
    )Income (loss) before income taxes
    
    
    1
    
    
    
    (3
    )
    
    
    (8
    )
    
    
    (11
    )Income tax (expense) benefit
    
    
    (1
    )
    
    
    9
    
    
    
    
    
    
    
    9Income (loss) from discontinued operations, net of tax
    
    $
    
    
    
    $
    6
    
    
    $
    (8
    )
    
    $
    (2
    )
   Discontinued Operations(In millions)
    
    September 30, 2007
    
    
    December 31, 2006Assets:Investments
    
    $
    184
    
    
    $
    317Reinsurance receivables
    
    
    1
    
    
    
    33Cash
    
    
    7
    
    
    
    40Other assets
    
    
    2
    
    
    
    3Total assets
    
    
    194
    
    
    
    393Liabilities:Insurance reserves
    
    
    168
    
    
    
    308Other liabilities
    
    
    5
    
    
    
    17Total liabilities
    
    
    173
    
    
    
    325Net assets of discontinued operations
    
    $
    21
    
    
    $
    68
  39




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##### Table of Contents



CNA FINANCIAL CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS, Continued
(UNAUDITED)
 Reporting the Results of Operations  Reporting the Effects of Disposal of a Segment of a
Business, and Extraordinary, Unusual and Infrequently Occurring Events and Transactions
 Note M. Restructuring and Other Related Charges
  Note N. Debt
 Revolving Credit Facility
   40




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##### Table of Contents



CNA FINANCIAL CORPORATION
 
 ITEM 2.
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
 Overview
   
 41




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##### Table of Contents



CNA FINANCIAL CORPORATION
 ITEM 2.
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS, Continued
 CONSOLIDATED OPERATIONS
 Results of Operations
  Three Months
    
    
    Nine MonthsPeriod ended September 30
    
    2007
    
    
    2006
    
    
    2007
    
    
    2006(In millions, except per share data)RevenuesNet earned premiums
    
    $
    1,882
    
    
    $
    1,943
    
    
    $
    5,617
    
    
    $
    5,704Net investment income
    
    
    580
    
    
    
    600
    
    
    
    1,859
    
    
    
    1,722Other revenues
    
    
    79
    
    
    
    56
    
    
    
    211
    
    
    
    175Total operating revenues
    
    
    2,541
    
    
    
    2,599
    
    
    
    7,687
    
    
    
    7,601Claims, Benefits and ExpensesNet incurred claims and benefits
    
    
    1,570
    
    
    
    1,518
    
    
    
    4,488
    
    
    
    4,431Policyholders dividends
    
    
    5
    
    
    
    4
    
    
    
    8
    
    
    
    15Amortization of deferred acquisition costs
    
    
    384
    
    
    
    390
    
    
    
    1,137
    
    
    
    1,132Other insurance related expenses
    
    
    175
    
    
    
    175
    
    
    
    533
    
    
    
    563Restructuring and other related charges
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (13
    )Other expenses
    
    
    104
    
    
    
    84
    
    
    
    293
    
    
    
    253Total claims, benefits and expenses
    
    
    2,238
    
    
    
    2,171
    
    
    
    6,459
    
    
    
    6,381Operating income from continuing operations before
income tax and minority interest
    
    
    303
    
    
    
    428
    
    
    
    1,228
    
    
    
    1,220Income tax expense on operating income
    
    
    (75
    )
    
    
    (132
    )
    
    
    (354
    )
    
    
    (366
    )Minority interest
    
    
    (16
    )
    
    
    (13
    )
    
    
    (37
    )
    
    
    (32
    )Net operating income from continuing operations
    
    
    212
    
    
    
    283
    
    
    
    837
    
    
    
    822Realized investment gains (losses), net of
participating policyholders and minority interests
    
    
    (57
    )
    
    
    21
    
    
    
    (217
    )
    
    
    (68
    )Income tax benefit on realized investment gains (losses)
    
    
    19
    
    
    
    1
    
    
    
    75
    
    
    
    27Income from continuing operations
    
    
    174
    
    
    
    305
    
    
    
    695
    
    
    
    781Income (loss) from discontinued operations, net of
income tax (expense) benefit of $(1), $9, $0 and $9
    
    
    
    
    
    
    6
    
    
    
    (8
    )
    
    
    (2
    )Net Income
    
    $
    174
    
    
    $
    311
    
    
    $
    687
    
    
    $
    779Basic and Diluted Earnings Per ShareIncome from continuing operations
    
    $
    0.64
    
    
    $
    1.13
    
    
    $
    2.56
    
    
    $
    2.84Income (loss) from discontinued operations
    
    
    
    
    
    
    0.02
    
    
    
    (0.03
    )
    
    
    (0.01
    )Basic and diluted earnings per share available to
common stockholders
    
    $
    0.64
    
    
    $
    1.15
    
    
    $
    2.53
    
    
    $
    2.83Weighted average outstanding common stock and common
stock equivalentsBasic
    
    
    271.6
    
    
    
    265.0
    
    
    
    271.5
    
    
    
    259.0Diluted
    
    
    271.9
    
    
    
    265.2
    
    
    
    271.8
    
    
    
    259.2
 42




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##### Table of Contents



CNA FINANCIAL CORPORATION
 ITEM 2.
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS, Continued
 Three Month Comparison
       Nine Month Comparison
     43




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##### Table of Contents



CNA FINANCIAL CORPORATION
 ITEM 2.
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS, Continued
   Critical Accounting Estimates
    
    
    Insurance Reserves
 
    
    Reinsurance
 
    
    Valuation of Investments and Impairment of Securities
 
    
    Long Term Care Products
 
    
    Pension and Postretirement Benefit Obligations
 
    
    Legal Proceedings
 
 44




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##### Table of Contents



CNA FINANCIAL CORPORATION
 ITEM 2.
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS, Continued
 SEGMENT RESULTS
 STANDARD LINES
  Results of OperationsThree Months
    
    
    Nine MonthsPeriod ended September 30
    
    2007
    
    
    2006
    
    
    2007
    
    
    2006(In millions)Net written premiums
    
    $
    956
    
    
    $
    1,121
    
    
    $
    3,171
    
    
    $
    3,394Net earned premiums
    
    
    1,054
    
    
    
    1,128
    
    
    
    3,169
    
    
    
    3,310Net investment income
    
    
    248
    
    
    
    239
    
    
    
    784
    
    
    
    705Net operating income
    
    
    215
    
    
    
    163
    
    
    
    580
    
    
    
    463Net realized investment gains (losses), after-tax
    
    
    (20
    )
    
    
    11
    
    
    
    (83
    )
    
    
    (4
    )Net income
    
    
    195
    
    
    
    174
    
    
    
    497
    
    
    
    459RatiosLoss and loss adjustment expense
    
    
    61.6
    %
    
    
    68.7
    %
    
    
    66.2
    %
    
    
    69.4
    %Expense
    
    
    30.8
    
    
    
    30.1
    
    
    
    30.8
    
    
    
    30.7Dividend
    
    
    0.3
    
    
    
    0.4
    
    
    
    0.1
    
    
    
    0.4Combined
    
    
    92.7
    %
    
    
    99.2
    %
    
    
    97.1
    %
    
    
    100.5
    %
 Three Month Comparison
    45




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##### Table of Contents



CNA FINANCIAL CORPORATION
 ITEM 2.
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS, Continued
     Nine Month Comparison
       46




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##### Table of Contents



CNA FINANCIAL CORPORATION
 ITEM 2.
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS, Continued
   Gross and Net CarriedClaim and Claim Adjustment Expense ReservesSeptember 30, 2007
    
    
    December 31, 2006(In millions)Gross Case Reserves
    
    $
    6,868
    
    
    $
    6,746Gross IBNR Reserves
    
    
    7,879
    
    
    
    8,188Total Gross Carried Claim and Claim
Adjustment Expense Reserves
    
    $
    14,747
    
    
    $
    14,934Net Case Reserves
    
    $
    5,407
    
    
    $
    5,234Net IBNR Reserves
    
    
    6,376
    
    
    
    6,632Total Net Carried Claim and Claim
Adjustment Expense Reserves
    
    $
    11,783
    
    
    $
    11,866
 47




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##### Table of Contents



CNA FINANCIAL CORPORATION
ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS, Continued
 SPECIALTY LINES
  Results of OperationsThree Months
    
    
    Nine MonthsPeriod ended September 30
    
    2007
    
    
    2006
    
    
    2007
    
    
    2006(In millions)Net written premiums
    
    $
    683
    
    
    $
    675
    
    
    $
    1,972
    
    
    $
    1,948Net earned premiums
    
    
    672
    
    
    
    654
    
    
    
    1,977
    
    
    
    1,915Net investment income
    
    
    113
    
    
    
    101
    
    
    
    343
    
    
    
    287Net operating income
    
    
    116
    
    
    
    119
    
    
    
    372
    
    
    
    343Net realized investment gains (losses), after-tax
    
    
    (8
    )
    
    
    5
    
    
    
    (34
    )
    
    
    (2
    )Net income
    
    
    108
    
    
    
    124
    
    
    
    338
    
    
    
    341RatiosLoss and loss adjustment expense
    
    
    62.3
    %
    
    
    60.7
    %
    
    
    61.6
    %
    
    
    60.4
    %Expense
    
    
    27.3
    
    
    
    25.8
    
    
    
    26.7
    
    
    
    26.4Dividend
    
    
    0.2
    
    
    
    0.1
    
    
    
    0.2
    
    
    
    0.1Combined
    
    
    89.8
    %
    
    
    86.6
    %
    
    
    88.5
    %
    
    
    86.9
    %
 Three Month Comparison
      48




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##### Table of Contents



CNA FINANCIAL CORPORATION
ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS, Continued
   Nine Month Comparison
        49




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##### Table of Contents



CNA FINANCIAL CORPORATION
ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS, Continued
  Gross and Net CarriedClaim and Claim Adjustment Expense ReservesSeptember 30, 2007
    
    
    December 31, 2006(In millions)Gross Case Reserves
    
    $
    1,705
    
    
    $
    1,715Gross IBNR Reserves
    
    
    4,277
    
    
    
    3,814Total Gross Carried Claim and Claim
Adjustment Expense Reserves
    
    $
    5,982
    
    
    $
    5,529Net Case Reserves
    
    $
    1,370
    
    
    $
    1,350Net IBNR Reserves
    
    
    3,263
    
    
    
    2,921Total Net Carried Claim and Claim
Adjustment Expense Reserves
    
    $
    4,633
    
    
    $
    4,271
 50




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##### Table of Contents



CNA FINANCIAL CORPORATION
ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS, Continued
 LIFE AND GROUP NON-CORE
  Results of OperationsThree Months
    
    Nine MonthsPeriod ended September 30
    
    2007
    
    2006
    
    2007
    
    2006(In millions)Net earned premiums
    
    $
    156
    
    
    $
    160
    
    
    $
    469
    
    
    $
    482Net investment income
    
    
    145
    
    
    
    179
    
    
    
    494
    
    
    
    504Net operating loss
    
    
    (131
    )
    
    
    (15
    )
    
    
    (142
    )
    
    
    (13
    )Net realized investment losses, after tax
    
    
    (6
    )
    
    
    (7
    )
    
    
    (17
    )
    
    
    (37
    )Net loss
    
    
    (137
    )
    
    
    (22
    )
    
    
    (159
    )
    
    
    (50
    )
 Three Month Comparison
   Nine Month Comparison
   51




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##### Table of Contents



CNA FINANCIAL CORPORATION
ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS, Continued
 CORPORATE AND OTHER NON-CORE
  Results of OperationsThree Months
    
    Nine MonthsPeriod ended September 30
    
    2007
    
    2006
    
    2007
    
    2006(In millions)Net investment income
    
    $
    74
    
    
    $
    81
    
    
    $
    238
    
    
    $
    226Revenues
    
    
    62
    
    
    
    83
    
    
    
    202
    
    
    
    191Net operating income
    
    
    12
    
    
    
    16
    
    
    
    27
    
    
    
    29Net realized investment gains (losses), after-tax
    
    
    (4
    )
    
    
    13
    
    
    
    (8
    )
    
    
    2Net income
    
    
    8
    
    
    
    29
    
    
    
    19
    
    
    
    31
 Three Month Comparison
    Nine Month Comparison
    52




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##### Table of Contents



CNA FINANCIAL CORPORATION
ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS, Continued
  Gross and Net CarriedClaim and Claim Adjustment Expense ReservesSeptember 30, 2007
    
    
    December 31, 2006(In millions)Gross Case Reserves
    
    $
    2,247
    
    
    $
    2,511Gross IBNR Reserves
    
    
    2,919
    
    
    
    3,528Total Gross Carried Claim and Claim
Adjustment Expense Reserves
    
    $
    5,166
    
    
    $
    6,039Net Case Reserves
    
    $
    1,388
    
    
    $
    1,453Net IBNR Reserves
    
    
    1,745
    
    
    
    1,999Total Net Carried Claim and Claim
Adjustment Expense Reserves
    
    $
    3,133
    
    
    $
    3,452
 53




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##### Table of Contents



CNA FINANCIAL CORPORATION
ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS, Continued
 APMT Reserves
       54




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##### Table of Contents



CNA FINANCIAL CORPORATION
ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS, Continued
 Asbestos
       55




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##### Table of Contents



CNA FINANCIAL CORPORATION
ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS, Continued
    Pending Asbestos Accounts and Associated Reserves
 September 30, 2007Net Paid Losses
    
    
    Net Asbestos
    
    
    Percent ofNumber of
    
    
    in 2007
    
    
    Reserves
    
    
    AsbestosPolicyholders
    
    
    (In millions)
    
    
    (In millions)
    
    
    Net ReservesPolicyholders with settlement agreementsStructured Settlements
    
    
    14
    
    
    $
    27
    
    
    $
    158
    
    
    
    12
    %Wellington
    
    
    3
    
    
    
    1
    
    
    
    13
    
    
    
    1Coverage in place
    
    
    36
    
    
    
    39
    
    
    
    84
    
    
    
    7Total with settlement agreements
    
    
    53
    
    
    
    67
    
    
    
    255
    
    
    
    20Other policyholders with active accountsLarge asbestos accounts
    
    
    228
    
    
    
    43
    
    
    
    206
    
    
    
    15Small asbestos accounts
    
    
    1,028
    
    
    
    4
    
    
    
    84
    
    
    
    6Total other policyholders
    
    
    1,256
    
    
    
    47
    
    
    
    290
    
    
    
    21Assumed reinsurance and pools
    
    
    
    
    
    
    7
    
    
    
    134
    
    
    
    10Unassigned IBNR
    
    
    
    
    
    
    
    
    
    
    658
    
    
    
    49Total
    
    
    1,309
    
    
    $
    121
    
    
    $
    1,337
    
    
    
    100
    %
 Pending Asbestos Accounts and Associated Reserves
 December 31, 2006Net Paid(Recovered) Losses
    
    
    Net Asbestos
    
    
    Percent ofNumber of
    
    
    in 2006
    
    
    Reserves
    
    
    AsbestosPolicyholders
    
    
    (In millions)
    
    
    (In millions)
    
    
    Net ReservesPolicyholders with settlement agreementsStructured Settlements
    
    
    15
    
    
    $
    22
    
    
    $
    171
    
    
    
    12
    %Wellington
    
    
    3
    
    
    
    (1
    )
    
    
    14
    
    
    
    1Coverage in place
    
    
    38
    
    
    
    (18
    )
    
    
    132
    
    
    
    9Total with settlement agreements
    
    
    56
    
    
    
    3
    
    
    
    317
    
    
    
    22Other policyholders with active accountsLarge asbestos accounts
    
    
    220
    
    
    
    76
    
    
    
    254
    
    
    
    17Small asbestos accounts
    
    
    1,080
    
    
    
    17
    
    
    
    101
    
    
    
    7Total other policyholders
    
    
    1,300
    
    
    
    93
    
    
    
    355
    
    
    
    24Assumed reinsurance and pools
    
    
    
    
    
    
    6
    
    
    
    141
    
    
    
    10Unassigned IBNR
    
    
    
    
    
    
    
    
    
    
    639
    
    
    
    44Total
    
    
    1,356
    
    
    $
    102
    
    
    $
    1,452
    
    
    
    100
    %
  56




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##### Table of Contents



CNA FINANCIAL CORPORATION
ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS, Continued
    Environmental Pollution and Mass Tort
   57




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##### Table of Contents



CNA FINANCIAL CORPORATION
ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS, Continued
        58




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##### Table of Contents



CNA FINANCIAL CORPORATION
ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS, Continued
  Pending Environmental Pollution Accounts and Associated Reserves
 September 30, 2007NetEnvironmental
    
    
    Percent ofNet Paid Losses
    
    
    Pollution
    
    
    EnvironmentalNumber of
    
    
    in 2007
    
    
    Reserves
    
    
    Pollution NetPolicyholders
    
    
    (In millions)
    
    
    (In millions)
    
    
    ReservePolicyholders with Settlement AgreementsStructured settlements
    
    
    9
    
    
    $
    5
    
    
    $
    6
    
    
    
    2
    %Coverage in place
    
    
    18
    
    
    
    3
    
    
    
    11
    
    
    
    4Total with Settlement Agreements
    
    
    27
    
    
    
    8
    
    
    
    17
    
    
    
    6Other Policyholders with Active AccountsLarge pollution accounts
    
    
    108
    
    
    
    16
    
    
    
    55
    
    
    
    22Small pollution accounts
    
    
    336
    
    
    
    5
    
    
    
    42
    
    
    
    17Total Other Policyholders
    
    
    444
    
    
    
    21
    
    
    
    97
    
    
    
    39Assumed Reinsurance & Pools
    
    
    
    
    
    
    1
    
    
    
    31
    
    
    
    12Unassigned IBNR
    
    
    
    
    
    
    
    
    
    
    110
    
    
    
    43Total
    
    
    471
    
    
    $
    30
    
    
    $
    255
    
    
    
    100
    %
 Pending Environmental Pollution Accounts and Associated Reserves
 December 31, 2006NetEnvironmental
    
    
    Percent ofNet Paid Losses
    
    
    Pollution
    
    
    EnvironmentalNumber of
    
    
    in 2006
    
    
    Reserves
    
    
    Pollution NetPolicyholders
    
    
    (In millions)
    
    
    (In millions)
    
    
    ReservePolicyholders with Settlement AgreementsStructured settlements
    
    
    11
    
    
    $
    16
    
    
    $
    9
    
    
    
    3
    %Coverage in place
    
    
    18
    
    
    
    5
    
    
    
    14
    
    
    
    5Total with Settlement Agreements
    
    
    29
    
    
    
    21
    
    
    
    23
    
    
    
    8Other Policyholders with Active AccountsLarge pollution accounts
    
    
    115
    
    
    
    20
    
    
    
    58
    
    
    
    20Small pollution accounts
    
    
    346
    
    
    
    9
    
    
    
    46
    
    
    
    17Total Other Policyholders
    
    
    461
    
    
    
    29
    
    
    
    104
    
    
    
    37Assumed Reinsurance & Pools
    
    
    
    
    
    
    1
    
    
    
    32
    
    
    
    11Unassigned IBNR
    
    
    
    
    
    
    
    
    
    
    126
    
    
    
    44Total
    
    
    490
    
    
    $
    51
    
    
    $
    285
    
    
    
    100
    %
 59




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##### Table of Contents



CNA FINANCIAL CORPORATION
ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS, Continued
 INVESTMENTS
 Net Investment Income
  Net Investment IncomeThree Months
    
    
    Nine MonthsPeriod ended September 30
    
    2007
    
    
    2006
    
    
    2007
    
    
    2006(In millions)Fixed maturity securities
    
    $
    501
    
    
    $
    477
    
    
    $
    1,523
    
    
    $
    1,372Short term investments
    
    
    57
    
    
    
    61
    
    
    
    146
    
    
    
    184Limited partnerships
    
    
    19
    
    
    
    46
    
    
    
    142
    
    
    
    173Equity securities
    
    
    7
    
    
    
    4
    
    
    
    18
    
    
    
    18Income (loss) from trading portfolio (a)
    
    
    (2
    )
    
    
    30
    
    
    
    41
    
    
    
    63Interest on funds withheld and other deposits
    
    
    
    
    
    
    (10
    )
    
    
    (1
    )
    
    
    (65
    )Other
    
    
    9
    
    
    
    2
    
    
    
    32
    
    
    
    10Gross investment income
    
    
    591
    
    
    
    610
    
    
    
    1,901
    
    
    
    1,755Investment expense
    
    
    (11
    )
    
    
    (10
    )
    
    
    (42
    )
    
    
    (33
    )Net investment income
    
    $
    580
    
    
    $
    600
    
    
    $
    1,859
    
    
    $
    1,722
     60




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##### Table of Contents



CNA FINANCIAL CORPORATION
ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS, Continued
 Net Realized Investment Gains (Losses)
  Net Realized Investment Gains (Losses)Three Months
    
    
    Nine MonthsPeriod ended September 30
    
    2007
    
    
    2006
    
    
    2007
    
    
    2006(In millions)Fixed maturity securities:U.S. Government bonds
    
    $
    131
    
    
    $
    18
    
    
    $
    37
    
    
    $
    22Corporate and other taxable bonds
    
    
    (88
    )
    
    
    (18
    )
    
    
    (113
    )
    
    
    (114
    )Tax-exempt bonds
    
    
    10
    
    
    
    40
    
    
    
    (43
    )
    
    
    51Asset-backed bonds
    
    
    (81
    )
    
    
    (1
    )
    
    
    (191
    )
    
    
    (15
    )Redeemable preferred stock
    
    
    (11
    )
    
    
    (2
    )
    
    
    (12
    )
    
    
    (3
    )Total fixed maturity securities
    
    
    (39
    )
    
    
    37
    
    
    
    (322
    )
    
    
    (59
    )Equity securities
    
    
    16
    
    
    
    (3
    )
    
    
    30
    
    
    
    3Derivative securities
    
    
    (45
    )
    
    
    (12
    )
    
    
    62
    
    
    
    (7
    )Short term investments
    
    
    5
    
    
    
    (2
    )
    
    
    5
    
    
    
    (6
    )Other, net of participating policyholders interest
    
    
    8
    
    
    
    1
    
    
    
    9
    
    
    
    (1
    )Realized investment gains (losses) before allocation to
participating policyholders and minority interests
    
    
    (55
    )
    
    
    21
    
    
    
    (216
    )
    
    
    (70
    )Allocated to participating policyholders and minority interests
    
    
    (2
    )
    
    
    
    
    
    
    (1
    )
    
    
    2Income tax benefit
    
    
    19
    
    
    
    1
    
    
    
    75
    
    
    
    27Net realized investment gains (losses), net of participating
policyholders and minority interests
    
    $
    (38
    )
    
    $
    22
    
    
    $
    (142
    )
    
    $
    (41
    )
    61




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##### Table of Contents



CNA FINANCIAL CORPORATION
ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS, Continued
    Effective DurationsSeptember 30, 2007
    
    
    December 31, 2006Effective Duration
    
    
    
    
    
    
    Effective DurationFair Value
    
    
    (In years)
    
    
    Fair Value
    
    
    (In years)(In millions)Segregated investments
    
    $
    8,899
    
    
    
    10.5
    
    
    $
    8,524
    
    
    
    9.8Other interest sensitive investments
    
    
    29,740
    
    
    
    3.5
    
    
    
    30,178
    
    
    
    3.2Total
    
    $
    38,639
    
    
    
    5.1
    
    
    $
    38,702
    
    
    
    4.7
  â
  62




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##### Table of Contents



CNA FINANCIAL CORPORATION
ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS, Continued
  Realized Investment Gains (Losses)Three Months
    
    
    Nine MonthsPeriod ended September 30
    
    2007
    
    
    2006
    
    
    2007
    
    
    2006(In millions)Net realized investment gains (losses) on fixed maturity and equity securities:Fixed maturity securities:Gross realized gains
    
    $
    181
    
    
    $
    114
    
    
    $
    324
    
    
    $
    216Gross realized losses
    
    
    (220
    )
    
    
    (77
    )
    
    
    (646
    )
    
    
    (275
    )Net realized investment gains (losses) on fixed maturity securities
    
    
    (39
    )
    
    
    37
    
    
    
    (322
    )
    
    
    (59
    )Equity securities:Gross realized gains
    
    
    30
    
    
    
    1
    
    
    
    50
    
    
    
    9Gross realized losses
    
    
    (14
    )
    
    
    (4
    )
    
    
    (20
    )
    
    
    (6
    )Net realized investment gains (losses) on equity securities
    
    
    16
    
    
    
    (3
    )
    
    
    30
    
    
    
    3Net realized investment gains (losses) on fixed maturity and equity securities
    
    $
    (23
    )
    
    $
    34
    
    
    $
    (292
    )
    
    $
    (56
    )
  Largest Realized Investment Losses from Securities Sold at a LossNine months ended September 30, 2007
    
    Fair
    
    
    
    
    
    
    Months inValue at
    
    
    
    
    
    
    UnrealizedDate of
    
    
    Loss
    
    
    Loss PriorIssuer Description and Discussion
    
    Sale
    
    
    On Sale
    
    
    To Sale (a)(In millions)Various notes and bonds issued by the United States Treasury.
Securities sold due to outlook on interest rates.
    
    $
    10,674
    
    
    $
    83
    
    
    
    0-6Mortgage-backed pass-through securities sold based on view of
interest rate changes.
    
    
    394
    
    
    
    9
    
    
    
    0-6Bank and financial issuer that came under pressure due to the
mortgage market disruption.
    
    
    35
    
    
    
    5
    
    
    
    0-6State specific general obligation municipal bonds sold to reduce
exposure due to change in outlook.
    
    
    513
    
    
    
    5
    
    
    
    0-6Total
    
    $
    11,616
    
    
    $
    102
  63




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##### Table of Contents



CNA FINANCIAL CORPORATION
ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS, Continued
 Valuation and Impairment of Investments
  Carrying Value of InvestmentsSeptember 30,
    
    
    
    
    
    
    December 31,2007
    
    
    %
    
    
    2006
    
    
    %(In millions)General account investments:Fixed maturity securities available-for-sale:U.S. Treasury securities and obligations of government agencies
    
    $
    3,135
    
    
    
    7
    %
    
    $
    5,138
    
    
    
    12
    %Asset-backed securities
    
    
    11,245
    
    
    
    26
    
    
    
    13,677
    
    
    
    31States, municipalities and political subdivisions  tax-exempt
    
    
    6,694
    
    
    
    15
    
    
    
    5,146
    
    
    
    12Corporate securities
    
    
    7,820
    
    
    
    18
    
    
    
    7,132
    
    
    
    16Other debt securities
    
    
    3,989
    
    
    
    9
    
    
    
    3,642
    
    
    
    8Redeemable preferred stock
    
    
    1,140
    
    
    
    3
    
    
    
    912
    
    
    
    2Total fixed maturity securities available-for-sale
    
    
    34,023
    
    
    
    78
    
    
    
    35,647
    
    
    
    81Fixed maturity securities trading:U.S. Treasury securities and obligations of government agencies
    
    
    3
    
    
    
    
    
    
    
    2
    
    
    
    Asset-backed securities
    
    
    35
    
    
    
    
    
    
    
    55
    
    
    
    Corporate securities
    
    
    119
    
    
    
    
    
    
    
    133
    
    
    
    1Other debt securities
    
    
    16
    
    
    
    
    
    
    
    14
    
    
    
    Total fixed maturity securities trading
    
    
    173
    
    
    
    
    
    
    
    204
    
    
    
    1Equity securities available-for-sale:Common stock
    
    
    475
    
    
    
    1
    
    
    
    452
    
    
    
    1Preferred stock
    
    
    133
    
    
    
    
    
    
    
    145
    
    
    
    Total equity securities available-for-sale
    
    
    608
    
    
    
    1
    
    
    
    597
    
    
    
    1Total equity securities trading
    
    
    
    
    
    
    
    
    
    
    60
    
    
    
    Short term investments available-for-sale
    
    
    6,748
    
    
    
    15
    
    
    
    5,538
    
    
    
    13Short term investments trading
    
    
    224
    
    
    
    1
    
    
    
    172
    
    
    
    Limited partnerships
    
    
    2,093
    
    
    
    5
    
    
    
    1,852
    
    
    
    4Other investments
    
    
    43
    
    
    
    
    
    
    
    26
    
    
    
    Total general account investments
    
    $
    43,912
    
    
    
    100
    %
    
    $
    44,096
    
    
    
    100
    %
   64




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##### Table of Contents



CNA FINANCIAL CORPORATION
ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS, Continued
  Maturity ProfilePercent of
    
    
    Percent ofMarket
    
    
    UnrealizedValue
    
    
    LossDue in one year or less
    
    
    6
    %
    
    
    2
    %Due after one year through five years
    
    
    33
    
    
    
    29Due after five years through ten years
    
    
    31
    
    
    
    31Due after ten years
    
    
    30
    
    
    
    38Total
    
    
    100
    %
    
    
    100
    %
  Unrealized Loss Aging for Non-investment Grade Securities
 Fair Value as a Percentage of Amortized Cost
    
    
    GrossEstimated
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    UnrealizedSeptember 30, 2007
    
    Fair Value
    
    
    90-99%
    
    
    80-89%
    
    
    70-79%
    
    
    <70%
    
    
    Loss(In millions)Fixed maturity securities:0-6 months
    
    $
    1,889
    
    
    $
    36
    
    
    $
    1
    
    
    $
    
    
    
    $
    
    
    
    $
    377-12 months
    
    
    4
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    13-24 months
    
    
    28
    
    
    
    1
    
    
    
    1
    
    
    
    
    
    
    
    
    
    
    
    2Greater than 24 months
    
    
    2
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Total non-investment grade
    
    $
    1,923
    
    
    $
    37
    
    
    $
    2
    
    
    $
    
    
    
    $
    
    
    
    $
    39
 Unrealized Loss Aging for Non-investment Grade Securities
 Fair Value as a Percentage of Amortized Cost
    
    
    GrossEstimated
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    UnrealizedDecember 31, 2006
    
    Fair Value
    
    
    90-99%
    
    
    80-89%
    
    
    70-79%
    
    
    <70%
    
    
    Loss(In millions)Fixed maturity securities:0-6 months
    
    $
    509
    
    
    $
    2
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    27-12 months
    
    
    87
    
    
    
    1
    
    
    
    1
    
    
    
    
    
    
    
    
    
    
    
    213-24 months
    
    
    24
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Greater than 24 months
    
    
    2
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Total non-investment grade
    
    $
    622
    
    
    $
    3
    
    
    $
    1
    
    
    $
    
    
    
    $
    
    
    
    $
    4
  65




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##### Table of Contents



CNA FINANCIAL CORPORATION
ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS, Continued
    General Account Bond RatingsSeptember 30,
    
    
    
    
    
    
    December 31,2007
    
    
    %
    
    
    2006
    
    
    %(In millions)U.S. Government and affiliated agency securities
    
    $
    3,216
    
    
    
    10
    %
    
    $
    5,285
    
    
    
    15
    %Other AAA rated
    
    
    15,758
    
    
    
    48
    
    
    
    16,311
    
    
    
    47AA and A rated
    
    
    5,463
    
    
    
    16
    
    
    
    5,222
    
    
    
    15BBB rated
    
    
    5,124
    
    
    
    15
    
    
    
    4,933
    
    
    
    14Non-investment grade
    
    
    3,495
    
    
    
    11
    
    
    
    3,188
    
    
    
    9Total
    
    $
    33,056
    
    
    
    100
    %
    
    $
    34,939
    
    
    
    100
    %
    Sub-prime Mortgage Exposure
  66




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CNA FINANCIAL CORPORATION
ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS, Continued
  Short Term Investments
  Short term InvestmentsSeptember 30,
    
    
    December 31,2007
    
    
    2006(In millions)Short term investments available-for-sale:Commercial paper
    
    $
    4,493
    
    
    $
    923U.S. Treasury securities
    
    
    590
    
    
    
    1,093Money market funds
    
    
    412
    
    
    
    196Other, including collateral held related to securities lending
    
    
    1,253
    
    
    
    3,326Total short term investments available-for-sale
    
    
    6,748
    
    
    
    5,538Short term investments trading:Commercial paper
    
    
    35
    
    
    
    43U.S. Treasury securities
    
    
    1
    
    
    
    2Money market funds
    
    
    171
    
    
    
    127Other
    
    
    17
    
    
    
    Total short term investments trading
    
    
    224
    
    
    
    172Total short term investments
    
    $
    6,972
    
    
    $
    5,710
 
 67




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##### Table of Contents



CNA FINANCIAL CORPORATION
ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS, Continued
 LIQUIDITY AND CAPITAL RESOURCES
 Cash Flow
          Dividends
  68




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CNA FINANCIAL CORPORATION
ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS, Continued
 Regulatory Matters
    Ratings
   Insurance Financial Strength Ratings
    
    Debt RatingsProperty & Casualty
    
    Life
    
    CNAF
    
    ContinentalCCC Group
    
    CAC
    
    Senior Debt
    
    Senior DebtA.M. Best
    
    A
    
    A-
    
    bbb
    
    Not ratedFitch
    
    A
    
    Not rated
    
    BBB
    
    BBBMoodys
    
    A3
    
    Not rated
    
    Baa3
    
    Baa3S&P
    
    A-
    
    BBB+
    
    BBB-
    
    BBB-
 69




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CNA FINANCIAL CORPORATION
ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS, Continued
  Accounting Pronouncements
 Statement of Financial Accounting Standard (SFAS) No. 157, Fair Value Measurement (SFAS
157)
  SFAS No. 159, The Fair Value Option for Financial Assets and Financial Liabilities (SFAS 159)
  Disclosures about Fair Value of Financial Instruments
 70




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CNA FINANCIAL CORPORATION
ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS, Continued
 FORWARD-LOOKING STATEMENTS
  
    
    general economic and business conditions, including inflationary pressures on medical care
costs, construction costs and other economic sectors that increase the severity of claims;
 
    
    changes in financial markets such as fluctuations in interest rates, long term periods of
low interest rates, credit conditions and currency, commodity and stock prices, including the
short and long-term effects of losses produced or threatened in relation to sub-prime
residential mortgage-backed securities;
 
    
    the effects of corporate bankruptcies, such as Enron and WorldCom, on capital markets, and
on the markets for directors and officers and errors and omissions coverages;
 
    
    changes in foreign or domestic political, social and economic conditions;
 
    
    regulatory initiatives and compliance with governmental regulations, judicial decisions,
including interpretation of policy provisions, decisions regarding coverage and theories of
liability, trends in litigation and the outcome of any litigation involving us, and rulings
and changes in tax laws and regulations;
 
    
    effects upon insurance markets and upon industry business practices and relationships of
current litigation, investigations and regulatory activity by the New York State Attorney
Generals office and other authorities concerning contingent commission arrangements with
brokers and bid solicitation activities;
 
    
    legal and regulatory activities with respect to certain non-traditional and finite-risk
insurance products, and possible resulting changes in accounting and financial reporting in
relation to such products, including our restatement of financial results in May of 2005 and
our relationship with an affiliate, Accord Re Ltd., as disclosed in connection with that
restatement;
 
    
    regulatory limitations, impositions and restrictions upon us, including the effects of
assessments and other surcharges for guaranty funds and second-injury funds and other
mandatory pooling arrangements;
 
    
    the impact of competitive products, policies and pricing and the competitive environment in
which we operate, including changes in our book of business;
 
    
    product and policy availability and demand and market responses, including the level of
ability to obtain rate increases and decline or non-renew under priced accounts, to achieve
premium targets and profitability and to realize growth and retention estimates;
 
    
    development of claims and the impact on loss reserves, including changes in claim
settlement policies;
 
    
    the effectiveness of current initiatives by claims management to reduce loss and expense
ratios through more efficacious claims handling techniques;
 
    
    the performance of reinsurance companies under reinsurance contracts with us;
 
    
    results of financing efforts, including the availability of bank credit facilities;
 
    
    changes in our composition of operating segments;
 71




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CNA FINANCIAL CORPORATION
ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS, Continued
 
    
    weather and other natural physical events, including the severity and frequency of storms,
hail, snowfall and other winter conditions, natural disasters such as hurricanes and
earthquakes, as well as climate change, including effects on weather patterns, greenhouse
gases, sea, land and air temperatures, sea levels, rain and snow;
 
    
    man-made disasters, including the possible occurrence of terrorist attacks and the effect
of the absence or insufficiency of applicable terrorism legislation on coverages;
 
    
    the unpredictability of the nature, targets, severity or frequency of potential terrorist
events, as well as the uncertainty as to our ability to contain our terrorism exposure
effectively, notwithstanding the extension through December 31, 2007 of the Terrorism Risk
Insurance Act of 2002;
 
    
    the occurrence of epidemics;
 
    
    exposure to liabilities due to claims made by insureds and others relating to asbestos
remediation and health-based asbestos impairments, as well as exposure to liabilities for
environmental pollution, mass tort, construction defect claims and exposure to liabilities due
to claims made by insureds and others relating to lead-based paint;
 
    
    whether a national privately financed trust to replace litigation of asbestos claims with
payments to claimants from the trust will be established or approved through federal
legislation, or, if established and approved, whether it will contain funding requirements in
excess of our established loss reserves or carried loss reserves;
 
    
    the sufficiency of our loss reserves and the possibility of future increases in reserves;
 
    
    regulatory limitations and restrictions, including limitations upon our ability to receive
dividends from our insurance subsidiaries imposed by state regulatory agencies and minimum
risk-based capital standards established by the National Association of Insurance
Commissioners;
 
    
    the risks and uncertainties associated with our loss reserves as outlined in the Critical
Accounting Estimates and the Reserves  Estimates and Uncertainties sections of our Annual
Report on Form 10-K for the period ended December 31, 2006;
 
    
    the level of success in integrating acquired businesses and operations, and in
consolidating, or selling existing ones;
 
    
    the possibility of changes in our ratings by ratings agencies, including the inability to
access certain markets or distribution channels and the required collateralization of future
payment obligations as a result of such changes, and changes in rating agency policies and
practices; and
 
    
    the actual closing of contemplated transactions and agreements.
  72




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CNA FINANCIAL CORPORATION
 
 ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
  73




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CNA FINANCIAL CORPORATION
 
 ITEM 4. CONTROLS AND PROCEDURES
    74




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##### Table of Contents



CNA FINANCIAL CORPORATION
 
 PART II. OTHER INFORMATION
 
 Item 1. Legal Proceedings
  
 Item 6. Exhibits
  Description of Exhibit
    
    Exhibit NumberEmployment Agreement
    
    
    10.1Certification of Chief Executive Officer
    
    
    31.1Certification of Chief Financial Officer
    
    
    31.2Written Statement of the Chief Executive Officer of CNA Financial Corporation Pursuant
to 18 U.S.C. Section 1350 (As adopted by Section 906 of the Sarbanes-Oxley Act of 2002)
    
    
    32.1Written Statement of the Chief Financial Officer of CNA Financial Corporation Pursuant
to 18 U.S.C. Section 1350 (As adopted by Section 906 of the Sarbanes-Oxley Act of 2002)
    
    
    32.2
 75




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##### Table of Contents



CNA FINANCIAL CORPORATION
PART II. OTHER INFORMATION
 SIGNATURES
  CNA Financial CorporationDated:  October 29, 2007
    By
    /s/ D. Craig MenseD. Craig MenseExecutive Vice President and
Chief Financial Officer 76