##### Table of Contents



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 
 FORM 10-Q
 þ
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
 
 o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
  Commission File Number 1-5823
 
 CNA FINANCIAL CORPORATION
  Delaware
(State or other jurisdiction of
incorporation or organization)
    
    36-6169860
(I.R.S. Employer
Identification No.)
 CNA Center
Chicago, Illinois
(Address of principal executive offices)
    
    60685
(Zip Code)
 (312) 822-5000
(Registrants telephone number, including area code)
  þ
  þ
  þ
  Class
    
    Outstanding at October 24, 2005Common Stock, Par value $2.50
    
    255,963,918




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##### Table of Contents



CNA FINANCIAL CORPORATION
INDEX
  
 Item
    
    
    
    PageNumber
    
    
    
    NumberPART I. Financial Information1.
    
    Condensed Consolidated Financial Statements (Unaudited):Condensed Consolidated Balance Sheets at September 30, 2005 and at December 31, 2004
    
    
    3Condensed Consolidated Statements of Operations for the Three and Nine Months EndedSeptember 30, 2005 and 2004 (as restated)
    
    
    4Condensed Consolidated Statements of Cash Flows for the Nine Months EndedSeptember 30, 2005 and 2004 (as restated)
    
    
    5Notes to Condensed Consolidated Financial Statements
    
    
    62.
    
    Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    533.
    
    Quantitative and Qualitative Disclosures about Market Risk
    
    
    1114.
    
    Controls and Procedures
    
    
    115PART II. Other Information1.
    
    Legal Proceedings
    
    
    1165.
    
    Other Information
    
    
    1166.
    
    Exhibits
    
    
    116Signatures
    
    
    117Employment Agreement with James R. LewisEmployment Agreement with Stephen W. Lilienthal302 Certification of Chief Executive Officer302 Certification of Chief Financial Officer906 Certification of Chief Executive Officer906 Certification of Chief Financial Officer




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##### Table of Contents



CNA FINANCIAL CORPORATION
 
 PART I. FINANCIAL INFORMATION
 
 ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 
 CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)
 September 30,
    
    
    December 31,(In millions, except share data)
    
    2005
    
    
    2004AssetsInvestments:Fixed maturity securities at fair value (amortized cost of $31,785 and $30,266)
    
    $
    32,429
    
    
    $
    31,327Equity securities at fair value (cost of $423 and $320)
    
    
    549
    
    
    
    456Limited partnership investments
    
    
    1,618
    
    
    
    1,549Other invested assets
    
    
    34
    
    
    
    36Short-term investments at cost, which approximates fair value
    
    
    7,153
    
    
    
    5,863Total investments
    
    
    41,783
    
    
    
    39,231Cash
    
    
    86
    
    
    
    95Reinsurance receivables (less allowance for uncollectible receivables of $552 and $546)
    
    
    14,098
    
    
    
    15,342Insurance receivables (less allowance for doubtful accounts of $474 and $502)
    
    
    1,875
    
    
    
    2,065Accrued investment income
    
    
    317
    
    
    
    297Receivables for securities sold
    
    
    635
    
    
    
    496Deferred acquisition costs
    
    
    1,234
    
    
    
    1,268Prepaid reinsurance premiums
    
    
    914
    
    
    
    1,128Federal income taxes recoverable (includes $216 and $7 due from Loews Corporation)
    
    
    212
    
    
    
    Deferred income taxes
    
    
    908
    
    
    
    709Property and equipment at cost (less accumulated depreciation of $563 and $524)
    
    
    230
    
    
    
    235Goodwill and other intangible assets
    
    
    145
    
    
    
    162Other assets
    
    
    985
    
    
    
    815Separate account business
    
    
    554
    
    
    
    568Total assets
    
    $
    63,976
    
    
    $
    62,411Liabilities and Stockholders EquityLiabilities:Insurance reserves:Claim and claim adjustment expense
    
    $
    31,435
    
    
    $
    31,523Unearned premiums
    
    
    4,343
    
    
    
    4,522Future policy benefits
    
    
    6,181
    
    
    
    5,883Policyholders funds
    
    
    1,588
    
    
    
    1,725Collateral on loaned securities and derivatives
    
    
    2,006
    
    
    
    918Payables for securities purchased
    
    
    1,540
    
    
    
    288Participating policyholders funds
    
    
    56
    
    
    
    63Short term debt
    
    
    52
    
    
    
    531Long term debt
    
    
    1,699
    
    
    
    1,726Reinsurance balances payable
    
    
    2,649
    
    
    
    2,980Other liabilities
    
    
    2,196
    
    
    
    2,231Separate account business
    
    
    554
    
    
    
    568Total liabilities
    
    
    54,299
    
    
    
    52,958Commitments and contingencies (Notes G, H, J and L)Minority interest
    
    
    283
    
    
    
    275Stockholders equity:Preferred stock (12,500,000 shares authorized)
Series H Issue (no par value; $100,000 stated value; 7,500 shares issued; held by Loews Corporation)
    
    
    750
    
    
    
    750Common stock ($2.50 par value; 500,000,000 shares authorized; 258,177,285 shares issued; and
255,962,718 and 255,953,958 shares outstanding)
    
    
    645
    
    
    
    645Additional paid-in capital
    
    
    1,701
    
    
    
    1,701Retained earnings
    
    
    6,041
    
    
    
    5,572Accumulated other comprehensive income
    
    
    384
    
    
    
    650Treasury stock (2,214,567 and 2,223,327 shares), at cost
    
    
    (69
    )
    
    
    (69
    )9,452
    
    
    
    9,249Notes receivable for the issuance of common stock
    
    
    (58
    )
    
    
    (71
    )Total stockholders equity
    
    
    9,394
    
    
    
    9,178Total liabilities and stockholders equity
    
    $
    63,976
    
    
    $
    62,411
  3




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CNA FINANCIAL CORPORATION
 
 CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
 Three Months
    
    
    Nine MonthsPeriod ended September 30
    
    2005
    
    
    2004
    
    
    2005
    
    
    2004(In millions, except per share data)
    
    
    
    
    
    Restated
    
    
    
    
    
    
    RestatedSee Note R
    
    
    
    
    
    
    See Note RRevenuesNet earned premiums
    
    $
    1,873
    
    
    $
    1,947
    
    
    $
    5,684
    
    
    $
    6,221Net investment income
    
    
    500
    
    
    
    360
    
    
    
    1,345
    
    
    
    1,216Realized investment gains (losses), net of
participating policyholders and minority
interests
    
    
    67
    
    
    
    (62
    )
    
    
    74
    
    
    
    (415
    )Other revenues
    
    
    80
    
    
    
    73
    
    
    
    351
    
    
    
    227Total revenues
    
    
    2,520
    
    
    
    2,318
    
    
    
    7,454
    
    
    
    7,249Claims, Benefits and ExpensesInsurance claims and policyholders benefits
    
    
    1,871
    
    
    
    1,596
    
    
    
    4,886
    
    
    
    4,854Amortization of deferred acquisition costs
    
    
    416
    
    
    
    374
    
    
    
    1,168
    
    
    
    1,114Other operating expenses
    
    
    241
    
    
    
    393
    
    
    
    766
    
    
    
    1,100Interest
    
    
    29
    
    
    
    28
    
    
    
    96
    
    
    
    94Total claims, benefits and expenses
    
    
    2,557
    
    
    
    2,391
    
    
    
    6,916
    
    
    
    7,162Income (loss) before income tax and minority interest
    
    
    (37
    )
    
    
    (73
    )
    
    
    538
    
    
    
    87Income tax (expense) benefit
    
    
    51
    
    
    
    52
    
    
    
    (53
    )
    
    
    74Minority interest
    
    
    (11
    )
    
    
    (6
    )
    
    
    (16
    )
    
    
    (19
    )Net income (loss)
    
    $
    3
    
    
    $
    (27
    )
    
    $
    469
    
    
    $
    142Basic and Diluted Earnings (Loss) Per ShareBasic and diluted earnings (loss) per share
available to common stockholders
    
    $
    (0.06
    )
    
    $
    (0.16
    )
    
    $
    1.63
    
    
    $
    0.37Weighted average outstanding common stock and common
stock equivalents
    
    
    256.0
    
    
    
    256.0
    
    
    
    256.0
    
    
    
    256.0
  4




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CNA FINANCIAL CORPORATION
 
 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
 Nine months ended September 30
    
    2005
    
    
    2004(In millions)
    
    
    
    
    
    RestatedSee Note RCash Flows from Operating ActivitiesNet income
    
    $
    469
    
    
    $
    142Adjustments to reconcile net income to net cash flows provided by operating activities:Bad debt provision for insurance and reinsurance receivables
    
    
    73
    
    
    
    70Minority interest
    
    
    16
    
    
    
    19Loss (gain) on disposal of property and equipment
    
    
    (9
    )
    
    
    19Deferred income tax provision
    
    
    (37
    )
    
    
    (39
    )Realized investment gains/losses, net of participating policyholders and minority interests
    
    
    (74
    )
    
    
    415Equity method income
    
    
    (190
    )
    
    
    (134
    )Amortization of bond (discount) premium
    
    
    (84
    )
    
    
    (1
    )Depreciation
    
    
    41
    
    
    
    58Changes in:Receivables, net
    
    
    1,361
    
    
    
    (506
    )Deferred acquisition costs
    
    
    34
    
    
    
    150Accrued investment income
    
    
    (20
    )
    
    
    (56
    )Federal income taxes payable/recoverable
    
    
    (211
    )
    
    
    472Prepaid reinsurance premiums
    
    
    214
    
    
    
    440Reinsurance balances payable
    
    
    (331
    )
    
    
    (257
    )Insurance reserves
    
    
    (106
    )
    
    
    488Other, net
    
    
    (105
    )
    
    
    (19
    )Net purchases of trading securities
    
    
    (7
    )
    
    
    (2
    )Total adjustments
    
    
    565
    
    
    
    1,117Net cash flows provided by operating activities
    
    
    1,034
    
    
    
    1,259Cash Flows from Investing ActivitiesPurchases of fixed maturity securities
    
    
    (46,570
    )
    
    
    (44,581
    )Proceeds from fixed maturity securities:Sales
    
    
    42,235
    
    
    
    35,641Maturities, calls and redemptions
    
    
    3,895
    
    
    
    3,756Purchases of equity securities
    
    
    (360
    )
    
    
    (365
    )Proceeds from sales of equity securities
    
    
    290
    
    
    
    528Change in short-term investments
    
    
    (1,161
    )
    
    
    3,689Change in collateral on loaned securities and derivatives
    
    
    1,088
    
    
    
    (326
    )Change in other investments
    
    
    17
    
    
    
    (79
    )Purchases of property and equipment
    
    
    (28
    )
    
    
    (32
    )Dispositions
    
    
    12
    
    
    
    647Other, net
    
    
    42
    
    
    
    (27
    )Net cash flows used by investing activities
    
    
    (540
    )
    
    
    (1,149
    )Cash Flows from Financing ActivitiesPrincipal payments on debt
    
    
    (507
    )
    
    
    (537
    )Proceeds from issuance of surplus notes
    
    
    
    
    
    
    346Returns and deposits of policyholder account balances on investment contracts
    
    
    
    
    
    
    10Other
    
    
    4
    
    
    
    3Net cash flows used by financing activities
    
    
    (503
    )
    
    
    (178
    )Net change in cash
    
    
    (9
    )
    
    
    (68
    )Cash, beginning of period
    
    
    95
    
    
    
    139Cash, end of period
    
    $
    86
    
    
    $
    71Supplemental Disclosures of Cash Flow Information:Cash paid (received):Interest
    
    $
    86
    
    
    $
    67Federal income taxes
    
    
    289
    
    
    
    (534
    )
  5




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CNA FINANCIAL CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
 Note A. Basis of Presentation
    
 Note B. Accounting Pronouncements
 Exchanges of Non-Monetary Assets  an amendment of APB Opinion No.
29
 6




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CNA FINANCIAL CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS, Continued
(UNAUDITED)
 Note C. Earnings (Loss) Per Share
    Earnings (Loss) Per Share
 Period ended September 30
    
    Three Months
    
    
    Nine Months(In millions, except per share amounts)
    
    2005
    
    
    2004
    
    
    2005
    
    
    2004Net income (loss)
    
    $
    3
    
    
    $
    (27
    )
    
    $
    469
    
    
    $
    142Less: undeclared preferred stock dividend
    
    
    (17
    )
    
    
    (16
    )
    
    
    (52
    )
    
    
    (48
    )Net income (loss) available to common stockholders
    
    $
    (14
    )
    
    $
    (43
    )
    
    $
    417
    
    
    $
    94Weighted average outstanding common stock and common
stock equivalents
    
    
    256.0
    
    
    
    256.0
    
    
    
    256.0
    
    
    
    256.0Effect of dilutive securities, employee stock options
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Adjusted weighted average outstanding common stock
and common stock equivalents assuming conversions
    
    
    256.0
    
    
    
    256.0
    
    
    
    256.0
    
    
    
    256.0Basic and diluted earnings (loss) per share
available to common stockholders
    
    $
    (0.06
    )
    
    $
    (0.16
    )
    
    $
    1.63
    
    
    $
    0.37
 Accounting for Stock Issued to Employees
 7




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CNA FINANCIAL CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS, Continued
(UNAUDITED)
 Accounting for Stock-Based Compensation
 Pro Forma Effect of SFAS 123 on Results
 Period ended September 30
    
    Three Months
    
    
    
    
    
    
    Nine Months(In millions, except per share amounts)
    
    2005
    
    
    2004
    
    
    2005
    
    
    2004Net income (loss) available to common stockholders
    
    $
    (14
    )
    
    $
    (43
    )
    
    $
    417
    
    
    $
    94Less: Total stock-based compensation cost determined under
the fair value method, net of tax
    
    
    
    
    
    
    
    
    
    
    (1
    )
    
    
    (1
    )Pro forma net income (loss) available to common stockholders
    
    $
    (14
    )
    
    $
    (43
    )
    
    $
    416
    
    
    $
    93Basic and diluted earnings (loss) per share, as reported
    
    $
    (0.06
    )
    
    $
    (0.16
    )
    
    $
    1.63
    
    
    $
    0.37Basic and diluted earnings (loss) per share, pro forma
    
    $
    (0.06
    )
    
    $
    (0.16
    )
    
    $
    1.63
    
    
    $
    0.37
 8




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CNA FINANCIAL CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS, Continued
(UNAUDITED)
 Note D. Investments
  Net Investment Income
 Period ended September 30
    
    Three Months
    
    
    Nine Months(In millions)
    
    2005
    
    
    2004
    
    
    2005
    
    
    2004Fixed maturity securities
    
    $
    393
    
    
    $
    396
    
    
    $
    1,167
    
    
    $
    1,189Short term investments
    
    
    42
    
    
    
    14
    
    
    
    103
    
    
    
    39Limited partnerships
    
    
    72
    
    
    
    26
    
    
    
    189
    
    
    
    131Equity securities
    
    
    6
    
    
    
    3
    
    
    
    18
    
    
    
    11Income (loss) from trading portfolio (a)
    
    
    41
    
    
    
    (21
    )
    
    
    25
    
    
    
    13Interest on funds withheld and other
deposits
    
    
    (50
    )
    
    
    (54
    )
    
    
    (139
    )
    
    
    (157
    )Other
    
    
    5
    
    
    
    4
    
    
    
    16
    
    
    
    15Gross investment income
    
    
    509
    
    
    
    368
    
    
    
    1,379
    
    
    
    1,241Investment expense
    
    
    (9
    )
    
    
    (8
    )
    
    
    (34
    )
    
    
    (25
    )Net investment income
    
    $
    500
    
    
    $
    360
    
    
    $
    1,345
    
    
    $
    1,216
   Realized Investment Gains (Losses)
 Period ended September 30
    
    Three Months
    
    
    Nine Months(In millions)
    
    2005
    
    
    2004
    
    
    2005
    
    
    2004Realized investment gains (losses):Fixed maturity securities:U.S. Government bonds
    
    $
    2
    
    
    $
    4
    
    
    $
    (10
    )
    
    $
    13Corporate and other taxable bonds
    
    
    9
    
    
    
    (35
    )
    
    
    (36
    )
    
    
    (2
    )Tax-exempt bonds
    
    
    4
    
    
    
    42
    
    
    
    38
    
    
    
    23Asset-backed bonds
    
    
    7
    
    
    
    9
    
    
    
    18
    
    
    
    44Redeemable preferred stock
    
    
    
    
    
    
    6
    
    
    
    10
    
    
    
    11Total fixed maturity securities
    
    
    22
    
    
    
    26
    
    
    
    20
    
    
    
    89Equity securities
    
    
    6
    
    
    
    10
    
    
    
    45
    
    
    
    187Derivative securities
    
    
    53
    
    
    
    (105
    )
    
    
    34
    
    
    
    (88
    )Short term investments
    
    
    1
    
    
    
    
    
    
    
    1
    
    
    
    Other, including disposition of businesses net of
participating policyholders interest
    
    
    (15
    )
    
    
    10
    
    
    
    (28
    )
    
    
    (594
    )Realized investment gains (losses) before allocation to
participating policyholders and minority interests
    
    
    67
    
    
    
    (59
    )
    
    
    72
    
    
    
    (406
    )Allocated to participating policyholders and minority interest
    
    
    
    
    
    
    (3
    )
    
    
    2
    
    
    
    (9
    )Realized investment gains (losses)
    
    $
    67
    
    
    $
    (62
    )
    
    $
    74
    
    
    $
    (415
    )
   9




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CNA FINANCIAL CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS, Continued
(UNAUDITED)
  Unrealized Gains (Losses) on Fixed Maturity and Equity Securities
 Cost or
    
    
    Gross
    
    
    Gross Unrealized Losses
    
    
    NetAmortized
    
    
    Unrealized
    
    
    Less than
    
    
    Greater than
    
    
    UnrealizedSeptember 30, 2005
    
    Cost
    
    
    Gains
    
    
    12 Months
    
    
    12 Months
    
    
    Gain/(Loss)(In millions)Fixed maturity securities available-for-sale:U.S. Treasury securities and obligations
of government agencies
    
    $
    3,182
    
    
    $
    124
    
    
    $
    18
    
    
    $
    1
    
    
    $
    105Asset-backed securities
    
    
    10,616
    
    
    
    42
    
    
    
    102
    
    
    
    14
    
    
    
    (74
    )States, municipalities and political
subdivisions tax-exempt
    
    
    8,945
    
    
    
    181
    
    
    
    44
    
    
    
    7
    
    
    
    130Corporate securities
    
    
    5,722
    
    
    
    326
    
    
    
    70
    
    
    
    14
    
    
    
    242Other debt securities
    
    
    2,697
    
    
    
    255
    
    
    
    14
    
    
    
    2
    
    
    
    239Redeemable preferred stock
    
    
    212
    
    
    
    4
    
    
    
    2
    
    
    
    
    
    
    
    2Options embedded in convertible debt
securities
    
    
    1
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Total fixed maturity securities
available-for-sale
    
    
    31,375
    
    
    
    932
    
    
    
    250
    
    
    
    38
    
    
    
    644Total fixed maturity securities trading
    
    
    410
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Equity securities available-for-sale:Common stock
    
    
    171
    
    
    
    112
    
    
    
    2
    
    
    
    
    
    
    
    110Non-redeemable preferred stock
    
    
    210
    
    
    
    16
    
    
    
    
    
    
    
    
    
    
    
    16Total equity securities available-for-sale
    
    
    381
    
    
    
    128
    
    
    
    2
    
    
    
    
    
    
    
    126Total equity securities trading
    
    
    42
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Total fixed maturity and equity securities
    
    $
    32,208
    
    
    $
    1,060
    
    
    $
    252
    
    
    $
    38
    
    
    $
    770
 10




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CNA FINANCIAL CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS, Continued
(UNAUDITED)
 Cost or
    
    
    Gross
    
    
    Gross Unrealized Losses
    
    
    NetAmortized
    
    
    Unrealized
    
    
    Less than
    
    
    Greater than
    
    
    UnrealizedDecember 31, 2004
    
    Cost
    
    
    Gains
    
    
    12 Months
    
    
    12 Months
    
    
    Gain(In millions)Fixed maturity securities available-for-sale:U.S. Treasury securities and obligations
of government agencies
    
    $
    4,233
    
    
    $
    126
    
    
    $
    13
    
    
    $
    
    
    
    $
    113Asset-backed securities
    
    
    7,706
    
    
    
    105
    
    
    
    19
    
    
    
    4
    
    
    
    82States, municipalities and political
subdivisions tax-exempt
    
    
    8,699
    
    
    
    189
    
    
    
    28
    
    
    
    3
    
    
    
    158Corporate securities
    
    
    6,093
    
    
    
    477
    
    
    
    52
    
    
    
    5
    
    
    
    420Other debt securities
    
    
    2,769
    
    
    
    295
    
    
    
    11
    
    
    
    
    
    
    
    284Redeemable preferred stock
    
    
    142
    
    
    
    6
    
    
    
    
    
    
    
    2
    
    
    
    4Options embedded in convertible debt
securities
    
    
    234
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Total fixed maturity securities
available-for-sale
    
    
    29,876
    
    
    
    1,198
    
    
    
    123
    
    
    
    14
    
    
    
    1,061Total fixed maturity securities trading
    
    
    390
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Equity securities available-for-sale:Common stock
    
    
    148
    
    
    
    112
    
    
    
    
    
    
    
    
    
    
    
    112Non-redeemable preferred stock
    
    
    126
    
    
    
    24
    
    
    
    
    
    
    
    
    
    
    
    24Total equity securities available-for-sale
    
    
    274
    
    
    
    136
    
    
    
    
    
    
    
    
    
    
    
    136Total equity securities trading
    
    
    46
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Total fixed maturity and equity securities
    
    $
    30,586
    
    
    $
    1,334
    
    
    $
    123
    
    
    $
    14
    
    
    $
    1,197
 Note E. Derivative Financial Instruments
  Derivative Financial Instruments Recognized Gains (Losses)
 Three Months
    
    
    Nine MonthsPeriod ended September 30
    
    2005
    
    
    2004
    
    
    2005
    
    
    2004(In millions)General accountSwaps
    
    $
    52
    
    
    $
    3
    
    
    $
    32
    
    
    $
    26Futures purchased
    
    
    31
    
    
    
    (25
    )
    
    
    5
    
    
    
    3Futures sold, not yet purchased
    
    
    1
    
    
    
    (107
    )
    
    
    1
    
    
    
    (113
    )Forwards
    
    
    
    
    
    
    (2
    )
    
    
    1
    
    
    
    (1
    )Forwards sold, not yet purchased
    
    
    
    
    
    
    (1
    )
    
    
    
    
    
    
    4Commitments to purchase government and municipal securities
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (12
    )Equity warrants
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1Options purchased
    
    
    (1
    )
    
    
    (1
    )
    
    
    (2
    )
    
    
    (1
    )Options written
    
    
    1
    
    
    
    
    
    
    
    2
    
    
    
    2Collateralized debt obligation liabilities
    
    
    
    
    
    
    1
    
    
    
    
    
    
    
    5Options embedded in convertible debt securities
    
    
    (6
    )
    
    
    (48
    )
    
    
    (33
    )
    
    
    (33
    )Total
    
    $
    78
    
    
    $
    (180
    )
    
    $
    6
    
    
    $
    (119
    )
  11




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##### Table of Contents



CNA FINANCIAL CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS, Continued
(UNAUDITED)
 Derivative Financial Instruments
 Contractual/
    
    
    Estimated
    
    
    EstimatedSeptember 30, 2005
    
    Notional
    
    
    Fair Value
    
    
    Fair Value(In millions)
    
    Amount
    
    
    Asset
    
    
    (Liability)General accountSwaps
    
    $
    1,581
    
    
    $
    
    
    
    $
    (2
    )Futures purchased
    
    
    1,179
    
    
    
    2
    
    
    
    Futures sold, not yet purchased
    
    
    127
    
    
    
    
    
    
    
    Forwards purchased
    
    
    42
    
    
    
    
    
    
    
    Forwards sold, not yet purchased
    
    
    41
    
    
    
    
    
    
    
    Commitments to purchase government and municipal securities
    
    
    22
    
    
    
    
    
    
    
    Commitments to sell government and municipal securities
    
    
    35
    
    
    
    
    
    
    
    Equity warrants
    
    
    6
    
    
    
    2
    
    
    
    Options purchased
    
    
    87
    
    
    
    
    
    
    
    Options written
    
    
    88
    
    
    
    
    
    
    
    Options embedded in convertible debt securities
    
    
    12
    
    
    
    1
    
    
    
    Total
    
    $
    3,220
    
    
    $
    5
    
    
    $
    (2
    )Separate accountsOptions written
    
    $
    4
    
    
    $
    
    
    
    $
    Total
    
    $
    4
    
    
    $
    
    
    
    $
    
 Contractual/
    
    
    Estimated
    
    
    EstimatedDecember 31, 2004
    
    Notional
    
    
    Fair Value
    
    
    Fair Value(In millions)
    
    Amount
    
    
    Asset
    
    
    (Liability)General accountSwaps
    
    $
    489
    
    
    $
    
    
    
    $
    (8
    )Futures purchased
    
    
    1,230
    
    
    
    
    
    
    
    (1
    )Futures sold, not yet purchased
    
    
    124
    
    
    
    
    
    
    
    Forwards purchased
    
    
    139
    
    
    
    1
    
    
    
    Forwards sold, not yet purchased
    
    
    9
    
    
    
    
    
    
    
    Commitments to purchase government and municipal securities
    
    
    25
    
    
    
    
    
    
    
    Equity warrants
    
    
    11
    
    
    
    1
    
    
    
    Options purchased
    
    
    103
    
    
    
    1
    
    
    
    Options written
    
    
    102
    
    
    
    
    
    
    
    Options embedded in convertible debt securities
    
    
    701
    
    
    
    234
    
    
    
    Total
    
    $
    2,933
    
    
    $
    237
    
    
    $
    (9
    )Separate accountsOptions written
    
    $
    9
    
    
    $
    
    
    
    $
    Total
    
    $
    9
    
    
    $
    
    
    
    $
    
  12




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##### Table of Contents



CNA FINANCIAL CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS, Continued
(UNAUDITED)
 Note F. Income Taxes
     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
   13




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##### Table of Contents



CNA FINANCIAL CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS, Continued
(UNAUDITED)
 IGI Contingency
      California Wage and Hour Litigation
 Ernestine Samora, et al. v. CCC Brian Wenzel v. Galway Insurance Company
 14




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##### Table of Contents



CNA FINANCIAL CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS, Continued
(UNAUDITED)
   Voluntary Market Premium Litigation
 Sandwich Chef of Texas, Inc. v.
Reliance National Indemnity Insurance Co., 202 F.R.D. 480 (S.D. Tex. 2001), revd, 319 F.3d 205
(5th Cir. 2003), cert. denied, 72 USLW 3235 (U.S. Oct 6, 2003)
  Asbestos, Environmental Pollution and Mass Tort (APMT) Reserves
  Other Litigation
 
 15




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##### Table of Contents



CNA FINANCIAL CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS, Continued
(UNAUDITED)
 Note H. Claim and Claim Adjustment Expense Reserves
      16




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##### Table of Contents



CNA FINANCIAL CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS, Continued
(UNAUDITED)
  September 30, 2005
 Gross and Net CarriedClaim and Claim Adjustment Expense Reserves
    
    
    
    
    
    
    
    
    
    Life and
    
    
    CorporateStandard
    
    
    Specialty
    
    
    Group
    
    
    and Other(In millions)
    
    Lines
    
    
    Lines
    
    
    Non-Core
    
    
    Non-Core
    
    
    TotalGross Case Reserves
    
    $
    6,764
    
    
    $
    1,820
    
    
    $
    2,714
    
    
    $
    3,477
    
    
    $
    14,775Gross IBNR Reserves
    
    
    8,023
    
    
    
    3,287
    
    
    
    782
    
    
    
    4,568
    
    
    
    16,660Total Gross Carried Claim and Claim
Adjustment Expense Reserves
    
    $
    14,787
    
    
    $
    5,107
    
    
    $
    3,496
    
    
    $
    8,045
    
    
    $
    31,435Net Case Reserves
    
    $
    4,289
    
    
    $
    1,214
    
    
    $
    1,442
    
    
    $
    1,483
    
    
    $
    8,428Net IBNR Reserves
    
    
    5,756
    
    
    
    2,339
    
    
    
    386
    
    
    
    1,684
    
    
    
    10,165Total Net Carried Claim and Claim
Adjustment Expense Reserves
    
    $
    10,045
    
    
    $
    3,553
    
    
    $
    1,828
    
    
    $
    3,167
    
    
    $
    18,593
 December 31, 2004
 Gross and Net CarriedClaim and Claim Adjustment Expense Reserves
    
    
    
    
    
    
    
    
    
    Life and
    
    
    CorporateStandard
    
    
    Specialty
    
    
    Group
    
    
    and Other(In millions)
    
    Lines
    
    
    Lines
    
    
    Non-Core
    
    
    Non-Core
    
    
    TotalGross Case Reserves
    
    $
    6,904
    
    
    $
    1,659
    
    
    $
    2,800
    
    
    $
    3,806
    
    
    $
    15,169Gross IBNR Reserves
    
    
    7,398
    
    
    
    3,201
    
    
    
    880
    
    
    
    4,875
    
    
    
    16,354Total Gross Carried Claim and Claim
Adjustment Expense Reserves
    
    $
    14,302
    
    
    $
    4,860
    
    
    $
    3,680
    
    
    $
    8,681
    
    
    $
    31,523Net Case Reserves
    
    $
    4,761
    
    
    $
    1,191
    
    
    $
    1,394
    
    
    $
    1,588
    
    
    $
    8,934Net IBNR Reserves
    
    
    4,547
    
    
    
    2,042
    
    
    
    430
    
    
    
    1,691
    
    
    
    8,710Total Net Carried Claim and Claim
Adjustment Expense Reserves
    
    $
    9,308
    
    
    $
    3,233
    
    
    $
    1,824
    
    
    $
    3,279
    
    
    $
    17,644
 APMT Reserves
   17




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##### Table of Contents



CNA FINANCIAL CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS, Continued
(UNAUDITED)
       18




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##### Table of Contents



CNA FINANCIAL CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS, Continued
(UNAUDITED)
  Asbestos and Environmental Pollution and Mass Tort Reserves
 September 30, 2005
    
    
    December 31, 2004Environmental
    
    
    
    
    
    
    EnvironmentalPollution and
    
    
    
    
    
    
    Pollution and(In millions)
    
    Asbestos
    
    
    Mass Tort
    
    
    Asbestos
    
    
    Mass TortGross reserves
    
    $
    3,072
    
    
    $
    634
    
    
    $
    3,218
    
    
    $
    755Ceded reserves
    
    
    (1,493
    )
    
    
    (232
    )
    
    
    (1,532
    )
    
    
    (258
    )Net reserves
    
    $
    1,579
    
    
    $
    402
    
    
    $
    1,686
    
    
    $
    497
 Asbestos
     19
    Table of Contents   CNA FINANCIAL CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS, Continued
(UNAUDITED)
   Continental Casualty Co. v. Employers Ins. of Wausau et
al. Keasbey
 In re: Burns & Roe Enterprises, Inc.
 20




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##### Table of Contents



CNA FINANCIAL CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS, Continued
(UNAUDITED)
  Continental Insurance Co., et al. v. Honeywell
International Inc.
 Varner v. Ford Motor Co., Peplowski v. ACE American Ins. Co., Cross
v. Garlock, Inc. Budd v. Am. Std., Inc., No. 84829
 21




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##### Table of Contents



CNA FINANCIAL CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS, Continued
(UNAUDITED)
  Boson v. Union Carbide Corp.,
 Adams v. Aetna, Inc., et al. Adams v. Ins. Co. of North America (INA) et al.
 22




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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
  23




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##### Table of Contents



CNA FINANCIAL CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS, Continued
(UNAUDITED)
      Net Prior Year Development
  24




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##### Table of Contents



CNA FINANCIAL CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS, Continued
(UNAUDITED)
    25




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##### Table of Contents



CNA FINANCIAL CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS, Continued
(UNAUDITED)
 Net Prior Year DevelopmentCorporateFor the nine months ended September 30, 2005
    
    Standard
    
    
    Specialty
    
    
    and Other(In millions)
    
    Lines
    
    
    Lines
    
    
    Non-Core
    
    
    TotalPretax unfavorable net prior year claim and allocated claim
adjustment expense development excluding the impact of the
corporate aggregate reinsurance treaties:Core (Non-APMT)
    
    $
    183
    
    
    $
    56
    
    
    $
    57
    
    
    $
    296APMT
    
    
    
    
    
    
    
    
    
    
    11
    
    
    
    11Total
    
    
    183
    
    
    
    56
    
    
    
    68
    
    
    
    307Ceded losses related to corporate aggregate reinsurance treaties
    
    
    19
    
    
    
    (25
    )
    
    
    6
    
    
    
    Pretax unfavorable net prior year development before impact of
premium development
    
    
    202
    
    
    
    31
    
    
    
    74
    
    
    
    307Unfavorable (favorable) premium development, excluding
impact of corporate aggregate reinsurance treaties
    
    
    (99
    )
    
    
    (9
    )
    
    
    11
    
    
    
    (97
    )Ceded premiums related to corporate aggregate reinsurance
treaties
    
    
    (6
    )
    
    
    19
    
    
    
    4
    
    
    
    17Total premium development
    
    
    (105
    )
    
    
    10
    
    
    
    15
    
    
    
    (80
    )Total unfavorable net prior year development (pretax)
    
    $
    97
    
    
    $
    41
    
    
    $
    89
    
    
    $
    227
 Net Prior Year DevelopmentCorporateFor the nine months ended September 30, 2004
    
    Standard
    
    
    Specialty
    
    
    and Other(In millions)
    
    Lines
    
    
    Lines
    
    
    Non-Core
    
    
    TotalPretax unfavorable net prior year claim and allocated claim
adjustment expense development excluding the impact of the
corporate aggregate reinsurance treaties:Core (Non-APMT)
    
    $
    107
    
    
    
    74
    
    
    $
    9
    
    
    $
    190APMT
    
    
    
    
    
    
    
    
    
    
    44
    
    
    
    44Total
    
    
    107
    
    
    
    74
    
    
    
    53
    
    
    
    234Ceded losses related to corporate aggregate reinsurance treaties
    
    
    4
    
    
    
    (9
    )
    
    
    5
    
    
    
    Pretax unfavorable net prior year development before impact of
premium development
    
    
    111
    
    
    
    65
    
    
    
    58
    
    
    
    234Unfavorable (favorable) premium development, excluding
impact of corporate aggregate reinsurance treaties
    
    
    (97
    )
    
    
    (29
    )
    
    
    15
    
    
    
    (111
    )Ceded premiums related to corporate aggregate reinsurance
treaties
    
    
    (1
    )
    
    
    3
    
    
    
    (2
    )
    
    
    Total premium development
    
    
    (98
    )
    
    
    (26
    )
    
    
    13
    
    
    
    (111
    )Total unfavorable net prior year development (pretax)
    
    
    13
    
    
    
    39
    
    
    
    71
    
    
    $
    123
 26




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##### Table of Contents



CNA FINANCIAL CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS, Continued
(UNAUDITED)
 Standard Lines
  2005 Net Prior Year Development
        2004 Net Prior Year Development
   27




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##### Table of Contents



CNA FINANCIAL CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS, Continued
(UNAUDITED)
   Specialty Lines
  2005 Net Prior Year Development
      2004 Net Prior Year Development
  28




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##### Table of Contents



CNA FINANCIAL CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS, Continued
(UNAUDITED)
 Corporate and Other Non-Core
  2005 Net Prior Year Development
  2004 Net Prior Year Development
  Note I. Reinsurance
   29




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##### Table of Contents



CNA FINANCIAL CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS, Continued
(UNAUDITED)
  Components of reinsurance receivables
    
    September 30, 2005
    
    
    December 31, 2004(In millions)Reinsurance receivables related to insurance reserves:Ceded claim and claim adjustment expense
    
    $
    12,842
    
    
    $
    13,879Ceded future policy benefits
    
    
    1,213
    
    
    
    1,260Ceded policyholders funds
    
    
    59
    
    
    
    65Billed reinsurance receivables
    
    
    536
    
    
    
    684Reinsurance receivables
    
    
    14,650
    
    
    
    15,888Allowance for uncollectible reinsurance
    
    
    (552
    )
    
    
    (546
    )Reinsurance receivables, net of allowance
for uncollectible reinsurance
    
    $
    14,098
    
    
    $
    15,342
   30




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##### Table of Contents



CNA FINANCIAL CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS, Continued
(UNAUDITED)
  Components of Earned Premiums
 Three months ended September 30
    
    Direct
    
    
    Assumed
    
    
    Ceded
    
    
    Net(In millions)2005Property and casualty
    
    $
    2,548
    
    
    $
    13
    
    
    $
    856
    
    
    $
    1,705Accident and health
    
    
    245
    
    
    
    18
    
    
    
    96
    
    
    
    167Life
    
    
    27
    
    
    
    
    
    
    
    26
    
    
    
    1Total earned premiums
    
    $
    2,820
    
    
    $
    31
    
    
    $
    978
    
    
    $
    1,8732004Property and casualty
    
    $
    2,666
    
    
    $
    36
    
    
    $
    905
    
    
    $
    1,797Accident and health
    
    
    260
    
    
    
    19
    
    
    
    130
    
    
    
    149Life
    
    
    46
    
    
    
    
    
    
    
    45
    
    
    
    1Total earned premiums
    
    $
    2,972
    
    
    $
    55
    
    
    $
    1,080
    
    
    $
    1,947
 Nine months ended September 30
    
    Direct
    
    
    Assumed
    
    
    Ceded
    
    
    Net(In millions)2005Property and casualty
    
    $
    7,600
    
    
    $
    72
    
    
    $
    2,526
    
    
    $
    5,146Accident and health
    
    
    805
    
    
    
    42
    
    
    
    311
    
    
    
    536Life
    
    
    109
    
    
    
    
    
    
    
    107
    
    
    
    2Total earned premiums
    
    $
    8,514
    
    
    $
    114
    
    
    $
    2,944
    
    
    $
    5,6842004Property and casualty
    
    $
    8,059
    
    
    $
    163
    
    
    $
    2,663
    
    
    $
    5,559Accident and health
    
    
    919
    
    
    
    45
    
    
    
    421
    
    
    
    543Life
    
    
    369
    
    
    
    
    
    
    
    250
    
    
    
    119Total earned premiums
    
    $
    9,347
    
    
    $
    208
    
    
    $
    3,334
    
    
    $
    6,221
    31




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##### Table of Contents





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




Catastrophe Reinsurance






Funds Withheld Reinsurance Arrangements




32



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##### Table of Contents



CNA FINANCIAL CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS, Continued
(UNAUDITED)
  Three months ended September 30
    
    Aggregate Cover
    
    
    CCC Cover
    
    
    All Other
    
    
    Total(In millions)2005Ceded earned premium
    
    $
    1
    
    
    $
    
    
    
    $
    (9
    )
    
    $
    (8
    )Ceded claim and claim adjustment expense
    
    
    
    
    
    
    
    
    
    
    15
    
    
    
    15Ceding commissions
    
    
    
    
    
    
    
    
    
    
    3
    
    
    
    3Interest charges
    
    
    (15
    )
    
    
    (17
    )
    
    
    (16
    )
    
    
    (48
    )Pretax expense
    
    $
    (14
    )
    
    $
    (17
    )
    
    $
    (7
    )
    
    $
    (38
    )2004Ceded earned premium
    
    $
    3
    
    
    $
    
    
    
    $
    (21
    )
    
    $
    (18
    )Ceded claim and claim adjustment expense
    
    
    
    
    
    
    
    
    
    
    29
    
    
    
    29Ceding commissions
    
    
    
    
    
    
    
    
    
    
    (2
    )
    
    
    (2
    )Interest charges
    
    
    (19
    )
    
    
    (12
    )
    
    
    (22
    )
    
    
    (53
    )Pretax expense
    
    $
    (16
    )
    
    $
    (12
    )
    
    $
    (16
    )
    
    $
    (44
    )
 Nine months ended September 30
    
    Aggregate Cover
    
    
    CCC Cover
    
    
    All Other
    
    
    Total(In millions)2005Ceded earned premium
    
    $
    (17
    )
    
    $
    
    
    
    $
    56
    
    
    $
    39Ceded claim and claim adjustment expense
    
    
    
    
    
    
    
    
    
    
    (52
    )
    
    
    (52
    )Ceding commissions
    
    
    
    
    
    
    
    
    
    
    (27
    )
    
    
    (27
    )Interest charges
    
    
    (57
    )
    
    
    (49
    )
    
    
    (26
    )
    
    
    (132
    )Pretax expense
    
    $
    (74
    )
    
    $
    (49
    )
    
    $
    (49
    )
    
    $
    (172
    )2004Ceded earned premium
    
    $
    
    
    
    $
    
    
    
    $
    (13
    )
    
    $
    (13
    )Ceded claim and claim adjustment expense
    
    
    
    
    
    
    
    
    
    
    12
    
    
    
    12Ceding commissions
    
    
    
    
    
    
    
    
    
    
    1
    
    
    
    1Interest charges
    
    
    (61
    )
    
    
    (34
    )
    
    
    (55
    )
    
    
    (150
    )Pretax expense
    
    $
    (61
    )
    
    $
    (34
    )
    
    $
    (55
    )
    
    $
    (150
    )
  33




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##### Table of Contents



CNA FINANCIAL CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS, Continued
(UNAUDITED)
  Period ended September 30
    
    Three Months
    
    
    Nine Months(In millions)
    
    2005
    
    
    2004
    
    
    2005
    
    
    2004Standard Lines
    
    $
    (24
    )
    
    $
    (38
    )
    
    $
    (120
    )
    
    $
    (118
    )Specialty Lines
    
    
    (3
    )
    
    
    4
    
    
    
    (10
    )
    
    
    Corporate and Other
    
    
    (11
    )
    
    
    (10
    )
    
    
    (42
    )
    
    
    (32
    )Pretax expense
    
    $
    (38
    )
    
    $
    (44
    )
    
    $
    (172
    )
    
    $
    (150
    )
   Corporate Aggregate Reinsurance Treaties
    34




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##### Table of Contents



CNA FINANCIAL CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS, Continued
(UNAUDITED)
   Note J. Debt
  Debt
 September 30,
    
    
    December 31,(In millions)
    
    2005
    
    
    2004Variable rate debt:Credit Facility  CNA Surety, due June 30, 2008
    
    $
    30
    
    
    $
    Debenture, CNA Surety, face amount of $31, due April 29, 2034
    
    
    30
    
    
    
    30Credit Facility  CNA Surety due September, 30, 2005
    
    
    
    
    
    
    25Term Loan  CNA Surety, due September 30, 2005
    
    
    
    
    
    
    10Senior notes:6.500%, face amount of $493, due April 15, 2005
    
    
    
    
    
    
    4936.750%, face amount of $250, due November 15, 2006
    
    
    250
    
    
    
    2496.450%, face amount of $150, due January 15, 2008
    
    
    149
    
    
    
    1496.600%, face amount of $200, due December 15, 2008
    
    
    199
    
    
    
    1998.375%, face amount of $70, due August 15, 2012
    
    
    69
    
    
    
    695.850%, face amount of $549, due December 15, 2014
    
    
    546
    
    
    
    5466.950%, face amount of $150, due January 15, 2018
    
    
    149
    
    
    
    149Debenture, CNAF, 7.250%, face amount of $243, due November 15, 2023
    
    
    241
    
    
    
    241Other debt, 1.000%-6.850%, due through 2019
    
    
    38
    
    
    
    47Surplus Note:Encompass Insurance Company of America (EICA) Surplus Note,
face amount of $50, due March 31, 2006
    
    
    50
    
    
    
    50Total debt
    
    $
    1,751
    
    
    $
    2,257Short term debt
    
    $
    52
    
    
    $
    531Long term debt
    
    
    1,699
    
    
    
    1,726Total debt
    
    $
    1,751
    
    
    $
    2,257
  35




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##### Table of Contents



CNA FINANCIAL CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS, Continued
(UNAUDITED)
      Maturity of Debt
 (In millions)2005
    
    $
    12006
    
    
    3032007
    
    
    112008
    
    
    3832009
    
    
    3Thereafter
    
    
    1,059Less original issue discount
    
    
    (9
    )Total
    
    $
    1,751
 36




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##### Table of Contents



CNA FINANCIAL CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS, Continued
(UNAUDITED)
 Note K. Benefit Plans
 Pension and Postretirement Healthcare and Life Insurance Benefit Plans
     Net Periodic Benefit Costs
 Period ended September 30
    
    Three Months
    
    
    Nine Months(In millions)
    
    2005
    
    
    2004
    
    
    2005
    
    
    2004Pension BenefitsService cost
    
    $
    6
    
    
    $
    8
    
    
    $
    20
    
    
    $
    32Interest cost on projected benefit obligation
    
    
    33
    
    
    
    30
    
    
    
    105
    
    
    
    151Expected return on plan assets
    
    
    (37
    )
    
    
    (30
    )
    
    
    (114
    )
    
    
    (157
    )Prior service cost amortization
    
    
    1
    
    
    
    
    
    
    
    2
    
    
    
    2Actuarial loss
    
    
    4
    
    
    
    4
    
    
    
    15
    
    
    
    14Net periodic pension cost
    
    $
    7
    
    
    $
    12
    
    
    $
    28
    
    
    $
    42Postretirement benefitsService cost
    
    $
    1
    
    
    $
    1
    
    
    $
    2
    
    
    $
    5Interest cost on projected benefit obligation
    
    
    3
    
    
    
    3
    
    
    
    8
    
    
    
    22Prior service cost amortization
    
    
    (7
    )
    
    
    (4
    )
    
    
    (21
    )
    
    
    (21
    )Actuarial loss
    
    
    1
    
    
    
    1
    
    
    
    3
    
    
    
    4Net periodic postretirement cost (benefit)
    
    $
    (2
    )
    
    $
    1
    
    
    $
    (8
    )
    
    $
    10
  37




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##### Table of Contents



CNA FINANCIAL CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS, Continued
(UNAUDITED)
 Note L. Commitments, Contingencies and Guarantees
 Commitments and Contingencies
        Guarantees
  38




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##### Table of Contents



CNA FINANCIAL CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS, Continued
(UNAUDITED)
       
 39




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##### Table of Contents



CNA FINANCIAL CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS, Continued
(UNAUDITED)
 Note M. Comprehensive Income (Loss)
  Comprehensive Income (Loss)
 Period ended September 30
    
    Three Months
    
    
    Nine Months(In millions)
    
    2005
    
    
    2004
    
    
    2005
    
    
    2004Net income (loss)
    
    $
    3
    
    
    $
    (27
    )
    
    $
    469
    
    
    $
    142Other comprehensive income (loss):Net change in unrealized gains/losses on general account
investments, net of tax benefit (expense) of $209, $(325), $150
and $72
    
    
    (389
    )
    
    
    605
    
    
    
    (278
    )
    
    
    (134
    )Net change in unrealized gains/losses on separate accounts and
other, net of tax benefit (expense) of $13, $(4), $13 and $16
    
    
    8
    
    
    
    1
    
    
    
    7
    
    
    
    (53
    )Foreign currency translation adjustment
    
    
    10
    
    
    
    (4
    )
    
    
    (8
    )
    
    
    (17
    )Allocation to participating policyholders and minority interests
    
    
    13
    
    
    
    (2
    )
    
    
    13
    
    
    
    15Other comprehensive income (loss), net of tax (expense) benefit of
$222, $(329), $163 and $88
    
    
    (358
    )
    
    
    600
    
    
    
    (266
    )
    
    
    (189
    )Total comprehensive income (loss)
    
    $
    (355
    )
    
    $
    573
    
    
    $
    203
    
    
    $
    (47
    )
 40




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##### Table of Contents



CNA FINANCIAL CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS, Continued
(UNAUDITED)
 Note N. Business Segments
      41
    Table of Contents   CNA FINANCIAL CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS, Continued
(UNAUDITED)
 For the three months ended
    
    
    
    
    
    
    
    
    
    
    
    
    
    CorporateSeptember 30, 2005
    
    Standard
    
    
    Specialty
    
    
    Life and Group
    
    
    and Other(In millions)
    
    Lines
    
    
    Lines
    
    
    Non-Core
    
    
    Non-Core
    
    
    Eliminations
    
    
    TotalNet earned premiums
    
    $
    1,080
    
    
    $
    628
    
    
    $
    169
    
    
    $
    (1
    )
    
    $
    (3
    )
    
    $
    1,873Net investment income
    
    
    186
    
    
    
    74
    
    
    
    179
    
    
    
    61
    
    
    
    
    
    
    
    500Other revenues
    
    
    26
    
    
    
    34
    
    
    
    20
    
    
    
    16
    
    
    
    (16
    )
    
    
    80Total operating revenues
    
    
    1,292
    
    
    
    736
    
    
    
    368
    
    
    
    76
    
    
    
    (19
    )
    
    
    2,453Claims, benefits and expenses:Net incurred claims and benefits
    
    
    1,148
    
    
    
    366
    
    
    
    342
    
    
    
    12
    
    
    
    
    
    
    
    1,868Policyholders dividends
    
    
    4
    
    
    
    1
    
    
    
    (1
    )
    
    
    (1
    )
    
    
    
    
    
    
    3Amortization of deferred acquisition costs
    
    
    281
    
    
    
    128
    
    
    
    5
    
    
    
    2
    
    
    
    
    
    
    
    416Other insurance related expenses
    
    
    76
    
    
    
    45
    
    
    
    69
    
    
    
    (4
    )
    
    
    (3
    )
    
    
    183Other operating expenses
    
    
    23
    
    
    
    28
    
    
    
    13
    
    
    
    39
    
    
    
    (16
    )
    
    
    87Total claims, benefits and expenses
    
    
    1,532
    
    
    
    568
    
    
    
    428
    
    
    
    48
    
    
    
    (19
    )
    
    
    2,557Operating income (loss) before income tax and minority interest
    
    
    (240
    )
    
    
    168
    
    
    
    (60
    )
    
    
    28
    
    
    
    
    
    
    
    (104
    )Income tax (expense) benefit on operating income (loss)
    
    
    100
    
    
    
    (53
    )
    
    
    25
    
    
    
    4
    
    
    
    
    
    
    
    76Minority interest
    
    
    (4
    )
    
    
    (7
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (11
    )Net operating income (loss)
    
    
    (144
    )
    
    
    108
    
    
    
    (35
    )
    
    
    32
    
    
    
    
    
    
    
    (39
    )Realized investment gains (losses), net of participating
policyholders and minority interests
    
    
    51
    
    
    
    16
    
    
    
    (2
    )
    
    
    2
    
    
    
    
    
    
    
    67Income tax (expense) benefit on realized investment gains
(losses)
    
    
    (18
    )
    
    
    (5
    )
    
    
    1
    
    
    
    (3
    )
    
    
    
    
    
    
    (25
    )Net income (loss)
    
    $
    (111
    )
    
    $
    119
    
    
    $
    (36
    )
    
    $
    31
    
    
    $
    
    
    
    $
    3
 42




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##### Table of Contents



CNA FINANCIAL CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS, Continued
(UNAUDITED)
 For the three months ended
    
    
    
    
    
    
    
    
    
    
    
    
    
    CorporateSeptember 30, 2004
    
    Standard
    
    
    Specialty
    
    
    Life and Group
    
    
    and Other(In millions)
    
    Lines
    
    
    Lines
    
    
    Non-Core
    
    
    Non-Core
    
    
    Eliminations
    
    
    TotalNet earned premiums
    
    $
    1,183
    
    
    $
    576
    
    
    $
    182
    
    
    $
    10
    
    
    $
    (4
    )
    
    $
    1,947Net investment income
    
    
    125
    
    
    
    61
    
    
    
    109
    
    
    
    65
    
    
    
    
    
    
    
    360Other revenues
    
    
    32
    
    
    
    36
    
    
    
    12
    
    
    
    9
    
    
    
    (16
    )
    
    
    73Total operating revenues
    
    
    1,340
    
    
    
    673
    
    
    
    303
    
    
    
    84
    
    
    
    (20
    )
    
    
    2,380Claims, benefits and expenses:Net incurred claims and benefits
    
    
    951
    
    
    
    361
    
    
    
    245
    
    
    
    34
    
    
    
    
    
    
    
    1,591Policyholders dividends
    
    
    8
    
    
    
    2
    
    
    
    (4
    )
    
    
    (1
    )
    
    
    
    
    
    
    5Amortization of deferred acquisition costs
    
    
    247
    
    
    
    112
    
    
    
    11
    
    
    
    4
    
    
    
    
    
    
    
    374Other insurance related expenses
    
    
    239
    
    
    
    46
    
    
    
    61
    
    
    
    (8
    )
    
    
    (4
    )
    
    
    334Other operating expenses
    
    
    25
    
    
    
    29
    
    
    
    17
    
    
    
    32
    
    
    
    (16
    )
    
    
    87Total claims, benefits and expenses
    
    
    1,470
    
    
    
    550
    
    
    
    330
    
    
    
    61
    
    
    
    (20
    )
    
    
    2,391Operating income (loss) before income tax and minority interest
    
    
    (130
    )
    
    
    123
    
    
    
    (27
    )
    
    
    23
    
    
    
    
    
    
    
    (11
    )Income tax (expense) benefit on operating income (loss)
    
    
    58
    
    
    
    (39
    )
    
    
    14
    
    
    
    (1
    )
    
    
    
    
    
    
    32Minority interest
    
    
    (2
    )
    
    
    (4
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (6
    )Net operating income (loss)
    
    
    (74
    )
    
    
    80
    
    
    
    (13
    )
    
    
    22
    
    
    
    
    
    
    
    15Realized investment gains (losses), net of participating
policyholders and minority interests
    
    
    (33
    )
    
    
    (13
    )
    
    
    2
    
    
    
    (18
    )
    
    
    
    
    
    
    (62
    )Income tax benefit on realized investment gains (losses)
    
    
    10
    
    
    
    5
    
    
    
    
    
    
    
    5
    
    
    
    
    
    
    
    20Net income (loss)
    
    $
    (97
    )
    
    $
    72
    
    
    $
    (11
    )
    
    $
    9
    
    
    $
    
    
    
    $
    (27
    )
 43




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##### Table of Contents



CNA FINANCIAL CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS, Continued
(UNAUDITED)
 For the nine months ended
    
    
    
    
    
    
    
    
    
    
    
    
    
    CorporateSeptember 30, 2005
    
    Standard
    
    
    Specialty
    
    
    Life and Group
    
    
    and Other(In millions)
    
    Lines
    
    
    Lines
    
    
    Non-Core
    
    
    Non-Core
    
    
    Eliminations
    
    
    TotalNet earned premiums
    
    $
    3,333
    
    
    $
    1,831
    
    
    $
    539
    
    
    $
    (10
    )
    
    $
    (9
    )
    
    $
    5,684Net investment income
    
    
    540
    
    
    
    197
    
    
    
    431
    
    
    
    177
    
    
    
    
    
    
    
    1,345Other revenues
    
    
    74
    
    
    
    94
    
    
    
    78
    
    
    
    156
    
    
    
    (51
    )
    
    
    351Total operating revenues
    
    
    3,947
    
    
    
    2,122
    
    
    
    1,048
    
    
    
    323
    
    
    
    (60
    )
    
    
    7,380Claims, benefits, and expenses:Net incurred claims and benefits
    
    
    2,750
    
    
    
    1,158
    
    
    
    860
    
    
    
    102
    
    
    
    (2
    )
    
    
    4,868Policyholders dividends
    
    
    16
    
    
    
    3
    
    
    
    (1
    )
    
    
    
    
    
    
    
    
    
    
    18Amortization of deferred acquisition costs
    
    
    757
    
    
    
    390
    
    
    
    18
    
    
    
    3
    
    
    
    
    
    
    
    1,168Other insurance related expenses
    
    
    318
    
    
    
    93
    
    
    
    194
    
    
    
    6
    
    
    
    (7
    )
    
    
    604Other operating expenses
    
    
    82
    
    
    
    81
    
    
    
    43
    
    
    
    103
    
    
    
    (51
    )
    
    
    258Total claims, benefits and expenses
    
    
    3,923
    
    
    
    1,725
    
    
    
    1,114
    
    
    
    214
    
    
    
    (60
    )
    
    
    6,916Operating income (loss) before income tax and minority interest
    
    
    24
    
    
    
    397
    
    
    
    (66
    )
    
    
    109
    
    
    
    
    
    
    
    464Income tax (expense) benefit on operating income (loss)
    
    
    41
    
    
    
    (121
    )
    
    
    37
    
    
    
    20
    
    
    
    
    
    
    
    (23
    )Minority interest
    
    
    (8
    )
    
    
    (8
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (16
    )Net operating income (loss)
    
    
    57
    
    
    
    268
    
    
    
    (29
    )
    
    
    129
    
    
    
    
    
    
    
    425Realized investment gains (losses), net of participating
policyholders and minority interests
    
    
    71
    
    
    
    25
    
    
    
    (8
    )
    
    
    (14
    )
    
    
    
    
    
    
    74Income tax (expense) benefit on realized investment gains
(losses)
    
    
    (29
    )
    
    
    (6
    )
    
    
    3
    
    
    
    2
    
    
    
    
    
    
    
    (30
    )Net income (loss)
    
    $
    99
    
    
    $
    287
    
    
    $
    (34
    )
    
    $
    117
    
    
    $
    
    
    
    $
    469As of September 30, 2005(In millions)Reinsurance receivables
    
    $
    4,854
    
    
    $
    1,618
    
    
    $
    2,967
    
    
    $
    5,211
    
    
    $
    
    
    
    $
    14,650Insurance receivables
    
    $
    1,781
    
    
    $
    406
    
    
    $
    115
    
    
    $
    47
    
    
    $
    
    
    
    $
    2,349Insurance reserves:Claim and claim adjustment expense
    
    $
    14,787
    
    
    $
    5,107
    
    
    $
    3,496
    
    
    $
    8,045
    
    
    $
    
    
    
    $
    31,435Unearned premiums
    
    
    2,003
    
    
    
    1,616
    
    
    
    169
    
    
    
    558
    
    
    
    (3
    )
    
    
    4,343Future policy benefits
    
    
    
    
    
    
    
    
    
    
    6,181
    
    
    
    
    
    
    
    
    
    
    
    6,181Policyholders funds
    
    
    33
    
    
    
    
    
    
    
    1,555
    
    
    
    
    
    
    
    
    
    
    
    1,588Deferred acquisition costs
    
    $
    434
    
    
    $
    281
    
    
    $
    518
    
    
    $
    1
    
    
    $
    
    
    
    $
    1,234
 44




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##### Table of Contents



CNA FINANCIAL CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS, Continued
(UNAUDITED)
 For the nine months ended
    
    
    
    
    
    
    
    
    
    
    
    
    
    CorporateSeptember 30, 2004
    
    Standard
    
    
    Specialty
    
    
    Life and Group
    
    
    and Other(In millions)
    
    Lines
    
    
    Lines
    
    
    Non-Core
    
    
    Non-Core
    
    
    Eliminations
    
    
    TotalNet earned premiums
    
    $
    3,756
    
    
    $
    1,672
    
    
    $
    710
    
    
    $
    112
    
    
    $
    (29
    )
    
    $
    6,221Net investment income
    
    
    382
    
    
    
    182
    
    
    
    457
    
    
    
    195
    
    
    
    
    
    
    
    1,216Other revenues
    
    
    102
    
    
    
    93
    
    
    
    72
    
    
    
    25
    
    
    
    (65
    )
    
    
    227Total operating revenues
    
    
    4,240
    
    
    
    1,947
    
    
    
    1,239
    
    
    
    332
    
    
    
    (94
    )
    
    
    7,664Claims, benefits and expenses:Net incurred claims and benefits
    
    
    2,701
    
    
    
    1,059
    
    
    
    981
    
    
    
    128
    
    
    
    (21
    )
    
    
    4,848Policyholders dividends
    
    
    2
    
    
    
    5
    
    
    
    (1
    )
    
    
    
    
    
    
    
    
    
    
    6Amortization of deferred acquisition costs
    
    
    729
    
    
    
    328
    
    
    
    30
    
    
    
    27
    
    
    
    
    
    
    
    1,114Other insurance related expenses
    
    
    579
    
    
    
    115
    
    
    
    218
    
    
    
    23
    
    
    
    (8
    )
    
    
    927Other operating expenses
    
    
    84
    
    
    
    84
    
    
    
    58
    
    
    
    106
    
    
    
    (65
    )
    
    
    267Total claims, benefits and expenses
    
    
    4,095
    
    
    
    1,591
    
    
    
    1,286
    
    
    
    284
    
    
    
    (94
    )
    
    
    7,162Operating income (loss) before income tax and minority interest
    
    
    145
    
    
    
    356
    
    
    
    (47
    )
    
    
    48
    
    
    
    
    
    
    
    502Income tax (expense) benefit on operating income (loss)
    
    
    (1
    )
    
    
    (107
    )
    
    
    27
    
    
    
    (3
    )
    
    
    
    
    
    
    (84
    )Minority interest
    
    
    (6
    )
    
    
    (13
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (19
    )Net operating income (loss)
    
    
    138
    
    
    
    236
    
    
    
    (20
    )
    
    
    45
    
    
    
    
    
    
    
    399Realized investment gains (losses), net of participating
policyholders and minority interests
    
    
    101
    
    
    
    37
    
    
    
    (616
    )
    
    
    63
    
    
    
    
    
    
    
    (415
    )Income tax (expense) benefit on realized investment gains
(losses)
    
    
    (36
    )
    
    
    (14
    )
    
    
    231
    
    
    
    (23
    )
    
    
    
    
    
    
    158Net income (loss)
    
    $
    203
    
    
    $
    259
    
    
    $
    (405
    )
    
    $
    85
    
    
    $
    
    
    
    $
    142As of December 31, 2004(In millions)Reinsurance receivables
    
    $
    5,129
    
    
    $
    1,682
    
    
    $
    3,284
    
    
    $
    5,793
    
    
    $
    
    
    
    $
    15,888Insurance receivables
    
    $
    2,013
    
    
    $
    340
    
    
    $
    153
    
    
    $
    61
    
    
    $
    
    
    
    $
    2,567Insurance reserves:Claim and claim adjustment expense
    
    $
    14,302
    
    
    $
    4,860
    
    
    $
    3,680
    
    
    $
    8,681
    
    
    $
    
    
    
    $
    31,523Unearned premiums
    
    
    1,978
    
    
    
    1,546
    
    
    
    164
    
    
    
    834
    
    
    
    
    
    
    
    4,522Future policy benefits
    
    
    
    
    
    
    
    
    
    
    5,883
    
    
    
    
    
    
    
    
    
    
    
    5,883Policyholders funds
    
    
    43
    
    
    
    
    
    
    
    1,682
    
    
    
    
    
    
    
    
    
    
    
    1,725Deferred acquisition costs
    
    $
    444
    
    
    $
    285
    
    
    $
    537
    
    
    $
    2
    
    
    $
    
    
    
    $
    1,268
 45




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##### Table of Contents



CNA FINANCIAL CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS, Continued
(UNAUDITED)
  Revenue by Line of BusinessThree Months
    
    
    Nine MonthsPeriod ended September 30
    
    2005
    
    
    2004
    
    
    2005
    
    
    2004(In millions)Standard LinesProperty
    
    $
    149
    
    
    $
    159
    
    
    $
    458
    
    
    $
    492Casualty
    
    
    963
    
    
    
    939
    
    
    
    2,891
    
    
    
    3,174CNA Global
    
    
    231
    
    
    
    209
    
    
    
    669
    
    
    
    675Standard Lines revenue
    
    
    1,343
    
    
    
    1,307
    
    
    
    4,018
    
    
    
    4,341Specialty LinesProfessional Liability Insurance (CNA Pro)
    
    
    576
    
    
    
    487
    
    
    
    1,635
    
    
    
    1,484Surety
    
    
    101
    
    
    
    92
    
    
    
    290
    
    
    
    267Warranty
    
    
    75
    
    
    
    81
    
    
    
    222
    
    
    
    233Specialty Lines revenue
    
    
    752
    
    
    
    660
    
    
    
    2,147
    
    
    
    1,984Life and Group Non-CoreLife & Annuity
    
    
    111
    
    
    
    41
    
    
    
    247
    
    
    
    (217
    )Health
    
    
    230
    
    
    
    265
    
    
    
    679
    
    
    
    786Other
    
    
    25
    
    
    
    (1
    )
    
    
    114
    
    
    
    54Life and Group Non-Core revenue
    
    
    366
    
    
    
    305
    
    
    
    1,040
    
    
    
    623Corporate and Other Non-CoreCNA Re
    
    
    23
    
    
    
    28
    
    
    
    49
    
    
    
    191Other
    
    
    55
    
    
    
    38
    
    
    
    260
    
    
    
    204Corporate and Other Non-Core revenue
    
    
    78
    
    
    
    66
    
    
    
    309
    
    
    
    395Eliminations
    
    
    (19
    )
    
    
    (20
    )
    
    
    (60
    )
    
    
    (94
    )Total revenue
    
    $
    2,520
    
    
    $
    2,318
    
    
    $
    7,454
    
    
    $
    7,249
 46




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##### Table of Contents



CNA FINANCIAL CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS, Continued
(UNAUDITED)
 Note O. Significant Transactions
 Managed Care Holdings Corporation
  Specialty Medical Business
  Individual Life Sale
   47




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##### Table of Contents



CNA FINANCIAL CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS, Continued
(UNAUDITED)
 Note P. Related Party Transactions
    Loans to National Contractor
    48




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##### Table of Contents



CNA FINANCIAL CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS, Continued
(UNAUDITED)
      CNA Surety Corporation
  Note Q. Statutory Accounting Practices
   49




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##### Table of Contents



CNA FINANCIAL CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS, Continued
(UNAUDITED)
       50




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##### Table of Contents



CNA FINANCIAL CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS, Continued
(UNAUDITED)
  Preliminary Statutory Information
 Statutory Capital and Surplus
    
    
    Statutory Net Income (Loss)
    
    
    Statutory Net Income (Loss)Three months ended September 30
    
    
    Nine months ended September 30(In millions)
    
    September 30, 2005
    
    
    December 31, 2004
    
    
    2005
    
    
    2004
    
    
    2005
    
    
    2004Property and casualty companies
    
    $
    7,332
    
    
    $
    6,998
    
    
    $
    (19
    )
    
    $
    (123
    )
    
    $
    849
    
    
    $
    280Life and group insurance companies (a)
    
    
    722
    
    
    
    1,177
    
    
    
    (4
    )
    
    
    20
    
    
    
    49
    
    
    
    414
  51




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##### Table of Contents



CNA FINANCIAL CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS, Continued
(UNAUDITED)
 Note R. Restatement for Reinsurance and Equity Investee Accounting
      Three Months
    
    
    Nine MonthsPeriod ended September 30, 2004
    
    As Previously
    
    
    As
    
    
    As Previously
    
    
    As(In millions, except per share data)
    
    Reported
    
    
    Restated
    
    
    Reported
    
    
    RestatedConsolidated statements of operations:Net investment income
    
    $
    359
    
    
    $
    360
    
    
    $
    1,212
    
    
    $
    1,216Insurance claims and policyholders benefits
    
    
    1,596
    
    
    
    1,596
    
    
    
    4,859
    
    
    
    4,854Income tax benefit
    
    
    52
    
    
    
    52
    
    
    
    77
    
    
    
    74Net income (loss)
    
    
    (28
    )
    
    
    (27
    )
    
    
    136
    
    
    
    142Basic and diluted earnings (loss) per share
available to common stockholders:
    
    $
    (0.17
    )
    
    $
    (0.16
    )
    
    $
    0.35
    
    
    $
    0.37
   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
 Overview
   
 53




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##### Table of Contents



CNA FINANCIAL CORPORATION
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
    
    2005
    
    
    2004
    
    
    2005
    
    
    2004(In millions, except per share data)RevenuesNet earned premiums
    
    $
    1,873
    
    
    $
    1,947
    
    
    $
    5,684
    
    
    $
    6,221Net investment income
    
    
    500
    
    
    
    360
    
    
    
    1,345
    
    
    
    1,216Other revenues
    
    
    80
    
    
    
    73
    
    
    
    351
    
    
    
    227Total operating revenues
    
    
    2,453
    
    
    
    2,380
    
    
    
    7,380
    
    
    
    7,664Claims, Benefits and ExpensesNet incurred claims and benefits
    
    
    1,868
    
    
    
    1,591
    
    
    
    4,868
    
    
    
    4,848Policyholders dividends
    
    
    3
    
    
    
    5
    
    
    
    18
    
    
    
    6Amortization of deferred acquisition costs
    
    
    416
    
    
    
    374
    
    
    
    1,168
    
    
    
    1,114Other insurance related expenses
    
    
    183
    
    
    
    334
    
    
    
    604
    
    
    
    927Other operating expenses
    
    
    87
    
    
    
    87
    
    
    
    258
    
    
    
    267Total claims, benefits and expenses
    
    
    2,557
    
    
    
    2,391
    
    
    
    6,916
    
    
    
    7,162Operating income (loss) before income tax
and minority interest
    
    
    (104
    )
    
    
    (11
    )
    
    
    464
    
    
    
    502Income tax (expense) benefit on operating
income (loss)
    
    
    76
    
    
    
    32
    
    
    
    (23
    )
    
    
    (84
    )Minority interest
    
    
    (11
    )
    
    
    (6
    )
    
    
    (16
    )
    
    
    (19
    )Net operating income (loss)
    
    
    (39
    )
    
    
    15
    
    
    
    425
    
    
    
    399Realized investment gains (losses), net of
participating policyholders and minority
interests
    
    
    67
    
    
    
    (62
    )
    
    
    74
    
    
    
    (415
    )Income tax (expense) benefit on realized
investment gains (losses)
    
    
    (25
    )
    
    
    20
    
    
    
    (30
    )
    
    
    158Net income (loss)
    
    $
    3
    
    
    $
    (27
    )
    
    $
    469
    
    
    $
    142Basic and Diluted Earnings (Loss) Per ShareBasic and diluted earnings (loss) per share
available to common stockholders
    
    $
    (0.06
    )
    
    $
    (0.16
    )
    
    $
    1.63
    
    
    $
    0.37Weighted average outstanding common stock
and common stock equivalents
    
    
    256.0
    
    
    
    256.0
    
    
    
    256.0
    
    
    
    256.0
 Three Month Comparison
  54




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##### Table of Contents



CNA FINANCIAL CORPORATION
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS, Continued
       Nine Month Comparison
     55




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##### Table of Contents



CNA FINANCIAL CORPORATION
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS, Continued
   Net Prior Year Development
  56




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##### Table of Contents



CNA FINANCIAL CORPORATION
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS, Continued
 Net Prior Year Development
For the three months ended September 30, 2005
 CorporateStandard
    
    
    Specialty
    
    
    and Other(In millions)
    
    Lines
    
    
    Lines
    
    
    Non-Core
    
    
    TotalPretax unfavorable (favorable) net
prior year claim and allocated
claim adjustment expense
development excluding the impact
of the corporate aggregate
reinsurance treaties:Core (Non-APMT)
    
    $
    18
    
    
    $
    (7
    )
    
    $
    (1
    )
    
    $
    10APMT
    
    
    
    
    
    
    
    
    
    
    1
    
    
    
    1Pretax unfavorable (favorable) net
prior year development before
impact of premium development
    
    
    18
    
    
    
    (7
    )
    
    
    
    
    
    
    11Unfavorable premium
development, excluding
impact of corporate
aggregate reinsurance
treaties
    
    
    8
    
    
    
    6
    
    
    
    1
    
    
    
    15Ceded premiums related to
corporate aggregate
reinsurance treaties
    
    
    (1
    )
    
    
    
    
    
    
    
    
    
    
    (1
    )Total premium development
    
    
    7
    
    
    
    6
    
    
    
    1
    
    
    
    14Total unfavorable (favorable) net
prior year development (pretax)
    
    $
    25
    
    
    $
    (1
    )
    
    $
    1
    
    
    $
    25Total unfavorable (favorable) net
prior year development (after-tax)
    
    $
    17
    
    
    $
    (1
    )
    
    $
    1
    
    
    $
    17
 Net Prior Year Development
For the three months ended September 30, 2004
 CorporateStandard
    
    
    Specialty
    
    
    and Other(In millions)
    
    Lines
    
    
    Lines
    
    
    Non-Core
    
    
    TotalPretax unfavorable (favorable) net prior
year claim and allocated claim adjustment
expense development excluding the impact of
the corporate aggregate reinsurance
treaties:Core (Non-APMT)
    
    $
    (6
    )
    
    $
    
    
    
    $
    
    
    
    $
    (6
    )APMT
    
    
    
    
    
    
    
    
    
    
    4
    
    
    
    4Ceded losses related to corporate
aggregate reinsurance treaties
    
    
    4
    
    
    
    (9
    )
    
    
    5
    
    
    
    Pretax unfavorable (favorable) net prior
year development before impact of premium
development
    
    
    (2
    )
    
    
    (9
    )
    
    
    9
    
    
    
    (2
    )Unfavorable (favorable) premium
development, excluding impact of
corporate aggregate reinsurance
treaties
    
    
    11
    
    
    
    (15
    )
    
    
    5
    
    
    
    1Ceded premiums related to corporate
aggregate reinsurance treaties
    
    
    (3
    )
    
    
    3
    
    
    
    (3
    )
    
    
    (3
    )Total premium development
    
    
    8
    
    
    
    (12
    )
    
    
    2
    
    
    
    (2
    )Total unfavorable (favorable) net prior year
development (pretax)
    
    $
    6
    
    
    $
    (21
    )
    
    $
    11
    
    
    $
    (4
    )Total unfavorable (favorable) net prior year
development (after-tax)
    
    $
    5
    
    
    $
    (14
    )
    
    $
    7
    
    
    $
    (2
    )
 57




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##### Table of Contents



CNA FINANCIAL CORPORATION
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS, Continued
 Net Prior Year Development
For the nine months ended September 30, 2005
 CorporateStandard
    
    
    Specialty
    
    
    and Other(In millions)
    
    Lines
    
    
    Lines
    
    
    Non-Core
    
    
    TotalPretax unfavorable net prior year claim and allocated claim
adjustment expense development excluding the impact of the
corporate aggregate reinsurance treaties:Core (Non-APMT)
    
    $
    183
    
    
    $
    56
    
    
    $
    57
    
    
    $
    296APMT
    
    
    
    
    
    
    
    
    
    
    11
    
    
    
    11Total
    
    
    183
    
    
    
    56
    
    
    
    68
    
    
    
    307Ceded losses related to corporate aggregate reinsurance treaties
    
    
    19
    
    
    
    (25
    )
    
    
    6
    
    
    
    Pretax unfavorable net prior year development before impact of
premium development
    
    
    202
    
    
    
    31
    
    
    
    74
    
    
    
    307Unfavorable (favorable) premium development, excluding
impact of corporate aggregate reinsurance treaties
    
    
    (99
    )
    
    
    (9
    )
    
    
    11
    
    
    
    (97
    )Ceded premiums related to corporate aggregate reinsurance
treaties
    
    
    (6
    )
    
    
    19
    
    
    
    4
    
    
    
    17Total premium development
    
    
    (105
    )
    
    
    10
    
    
    
    15
    
    
    
    (80
    )Total unfavorable net prior year development (pretax)
    
    $
    97
    
    
    $
    41
    
    
    $
    89
    
    
    $
    227Total unfavorable net prior year development (after-tax)
    
    $
    64
    
    
    $
    26
    
    
    $
    58
    
    
    $
    148
 Net Prior Year Development
For the nine months ended September 30, 2004
 CorporateStandard
    
    
    Specialty
    
    
    and Other(In millions)
    
    Lines
    
    
    Lines
    
    
    Non-Core
    
    
    TotalPretax unfavorable net prior year claim and allocated claim
adjustment expense development excluding the impact of the
corporate aggregate reinsurance treaties:Core (Non-APMT)
    
    $
    107
    
    
    $
    74
    
    
    $
    9
    
    
    $
    190APMT
    
    
    
    
    
    
    
    
    
    
    44
    
    
    
    44Total
    
    
    107
    
    
    
    74
    
    
    
    53
    
    
    
    234Ceded losses related to corporate aggregate reinsurance
treaties
    
    
    4
    
    
    
    (9
    )
    
    
    5
    
    
    
    Pretax unfavorable net prior year development before impact
of premium development
    
    
    111
    
    
    
    65
    
    
    
    58
    
    
    
    234Unfavorable (favorable) premium development, excluding
impact of corporate aggregate reinsurance treaties
    
    
    (97
    )
    
    
    (29
    )
    
    
    15
    
    
    
    (111
    )Ceded premiums related to corporate aggregate
reinsurance treaties
    
    
    (1
    )
    
    
    3
    
    
    
    (2
    )
    
    
    Total premium development
    
    
    (98
    )
    
    
    (26
    )
    
    
    13
    
    
    
    (111
    )Total unfavorable net prior year development (pretax)
    
    $
    13
    
    
    $
    39
    
    
    $
    71
    
    
    $
    123Total unfavorable net prior year development (after-tax)
    
    $
    9
    
    
    $
    25
    
    
    $
    46
    
    
    $
    80
 58




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##### Table of Contents



CNA FINANCIAL CORPORATION
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS, Continued
 Critical Accounting Estimates
    Insurance Reserves
  Reinsurance
   59




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##### Table of Contents



CNA FINANCIAL CORPORATION
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS, Continued
 Valuation of Investments and Impairment of Securities
   Long Term Care Products
  Pension and Postretirement Benefit Obligations
  Legal Proceedings
  Loans to National Contractor
   60




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##### Table of Contents



CNA FINANCIAL CORPORATION
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS, Continued
       Reserves  Estimates and Uncertainties
  61




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##### Table of Contents



CNA FINANCIAL CORPORATION
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS, Continued
      
    
    increases in the number and size of claims relating to injuries from medical products,
and exposure to lead;
    
    the effects of accounting and financial reporting scandals and other major corporate
governance failures, which have resulted in an increase in the number and size of claims,
including director and officer and errors and omissions insurance claims;
    
    class action litigation relating to claims handling and other practices;
    
    construction defect claims, including claims for a broad range of additional insured
endorsements on policies; and
    
    increases in the number of claims alleging abuse by members of the clergy, including
passage of legislation to reopen or extend various statutes of limitations.
   62




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##### Table of Contents



CNA FINANCIAL CORPORATION
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS, Continued
  
    
    coverage issues, including whether certain costs are covered under the policies and
whether policy limits apply;
    
    inconsistent court decisions and developing legal theories;
    
    increasingly aggressive tactics of plaintiffs lawyers;
    
    the risks and lack of predictability inherent in major litigation;
    
    changes in the volume of asbestos and environmental pollution and mass tort claims which
cannot now be anticipated;
    
    continued increase in mass tort claims relating to silica and silica-containing
products;
    
    the impact of the exhaustion of primary limits and the resulting increase in claims on
any umbrella or excess policies the Company has issued;
    
    the number and outcome of direct actions against the Company; and
    
    the Companys ability to recover reinsurance for asbestos and environmental pollution
and mass tort claims.
    63




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##### Table of Contents



CNA FINANCIAL CORPORATION
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS, Continued
    Reinsurance
   64




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##### Table of Contents



CNA FINANCIAL CORPORATION
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS, Continued
  Components of reinsurance receivables
    
    September 30, 2005
    
    
    December 31, 2004(In millions)Reinsurance receivables related to insurance reserves:Ceded claim and claim adjustment expense
    
    $
    12,842
    
    
    $
    13,879Ceded future policy benefits
    
    
    1,213
    
    
    
    1,260Ceded policyholders funds
    
    
    59
    
    
    
    65Billed reinsurance receivables
    
    
    536
    
    
    
    684Reinsurance receivables
    
    
    14,650
    
    
    
    15,888Allowance for uncollectible reinsurance
    
    
    (552
    )
    
    
    (546
    )Reinsurance receivables, net of allowance for
uncollectible reinsurance
    
    $
    14,098
    
    
    $
    15,342
      Catastrophe Reinsurance
  65




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##### Table of Contents



CNA FINANCIAL CORPORATION
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS, Continued
   Funds Withheld Reinsurance Arrangements
  66




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##### Table of Contents



CNA FINANCIAL CORPORATION
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS, Continued
  Three months ended September 30
    
    Aggregate Cover
    
    
    CCC Cover
    
    
    All Other
    
    
    Total(In millions)2005Ceded earned premium
    
    $
    1
    
    
    $
    
    
    
    $
    (9
    )
    
    $
    (8
    )Ceded claim and claim adjustment expense
    
    
    
    
    
    
    
    
    
    
    15
    
    
    
    15Ceding commissions
    
    
    
    
    
    
    
    
    
    
    3
    
    
    
    3Interest charges
    
    
    (15
    )
    
    
    (17
    )
    
    
    (16
    )
    
    
    (48
    )Pretax benefit (expense)
    
    $
    (14
    )
    
    $
    (17
    )
    
    $
    (7
    )
    
    $
    (38
    )2004Ceded earned premium
    
    $
    3
    
    
    $
    
    
    
    $
    (21
    )
    
    $
    (18
    )Ceded claim and claim adjustment expense
    
    
    
    
    
    
    
    
    
    
    29
    
    
    
    29Ceding commissions
    
    
    
    
    
    
    
    
    
    
    (2
    )
    
    
    (2
    )Interest charges
    
    
    (19
    )
    
    
    (12
    )
    
    
    (22
    )
    
    
    (53
    )Pretax benefit (expense)
    
    $
    (16
    )
    
    $
    (12
    )
    
    $
    (16
    )
    
    $
    (44
    )
 Nine months ended September 30
    
    Aggregate Cover
    
    
    CCC Cover
    
    
    All Other
    
    
    Total(In millions)2005Ceded earned premium
    
    $
    (17
    )
    
    $
    
    
    
    $
    56
    
    
    $
    39Ceded claim and claim adjustment expense
    
    
    
    
    
    
    
    
    
    
    (52
    )
    
    
    (52
    )Ceding commissions
    
    
    
    
    
    
    
    
    
    
    (27
    )
    
    
    (27
    )Interest charges
    
    
    (57
    )
    
    
    (49
    )
    
    
    (26
    )
    
    
    (132
    )Pretax benefit (expense)
    
    $
    (74
    )
    
    $
    (49
    )
    
    $
    (49
    )
    
    $
    (172
    )2004Ceded earned premium
    
    $
    
    
    
    $
    
    
    
    $
    (13
    )
    
    $
    (13
    )Ceded claim and claim adjustment expense
    
    
    
    
    
    
    
    
    
    
    12
    
    
    
    12Ceding commissions
    
    
    
    
    
    
    
    
    
    
    1
    
    
    
    1Interest charges
    
    
    (61
    )
    
    
    (34
    )
    
    
    (55
    )
    
    
    (150
    )Pretax benefit (expense)
    
    $
    (61
    )
    
    $
    (34
    )
    
    $
    (55
    )
    
    $
    (150
    )
  67




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##### Table of Contents



CNA FINANCIAL CORPORATION
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS, Continued
  Three Months
    
    
    Nine MonthsPeriod ended September 30
    
    2005
    
    
    2004
    
    
    2005
    
    
    2004(In millions)Standard Lines
    
    $
    (24
    )
    
    $
    (38
    )
    
    $
    (120
    )
    
    $
    (118
    )Specialty Lines
    
    
    (3
    )
    
    
    4
    
    
    
    (10
    )
    
    
    Corporate and Other
    
    
    (11
    )
    
    
    (10
    )
    
    
    (42
    )
    
    
    (32
    )Pretax benefit (expense)
    
    $
    (38
    )
    
    $
    (44
    )
    
    $
    (172
    )
    
    $
    (150
    )
   Corporate Aggregate Reinsurance Treaties
    68




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##### Table of Contents



CNA FINANCIAL CORPORATION
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS, Continued
   Terrorism Insurance
       69




---



##### Table of Contents



CNA FINANCIAL CORPORATION
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS, Continued
  Restructuring
  SEGMENT RESULTS
   70




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##### Table of Contents



CNA FINANCIAL CORPORATION
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS, Continued
 STANDARD LINES
  Results
of Operations
 Three Months
    
    
    Nine MonthsPeriod ended September 30
    
    2005
    
    
    2004
    
    
    2005
    
    
    2004(In millions)Net written premiums
    
    $
    1,047
    
    
    $
    1,046
    
    
    $
    3,352
    
    
    $
    3,520Net earned premiums
    
    
    1,080
    
    
    
    1,183
    
    
    
    3,333
    
    
    
    3,756Net investment income
    
    
    186
    
    
    
    125
    
    
    
    540
    
    
    
    382Net operating income (loss)
    
    
    (144
    )
    
    
    (74
    )
    
    
    57
    
    
    
    138Net realized investment gains (losses)
    
    
    33
    
    
    
    (23
    )
    
    
    42
    
    
    
    65Net income (loss)
    
    
    (111
    )
    
    
    (97
    )
    
    
    99
    
    
    
    203RatiosLoss and loss adjustment expense
    
    
    106.3
    %
    
    
    80.4
    %
    
    
    82.5
    %
    
    
    71.9
    %Expense
    
    
    33.0
    
    
    
    41.1
    
    
    
    32.2
    
    
    
    34.8Dividend
    
    
    0.3
    
    
    
    0.7
    
    
    
    0.5
    
    
    
    0.1Combined
    
    
    139.6
    %
    
    
    122.2
    %
    
    
    115.2
    %
    
    
    106.8
    %
 Three Month Comparison
       71




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##### Table of Contents



CNA FINANCIAL CORPORATION
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS, Continued
  2005 Net Prior Year Development
   2004 Net Prior Year Development
    Nine Month Comparison
    72




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##### Table of Contents



CNA FINANCIAL CORPORATION
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS, Continued
    2005 Net Prior Year Development
        2004 Net Prior Year Development
  73




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##### Table of Contents



CNA FINANCIAL CORPORATION
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS, Continued
    Gross and Net Carried
Claim and Claim Adjustment Expense Reserves
 September 30, 2005
    
    
    December 31, 2004(In millions)Gross Case Reserves
    
    $
    6,764
    
    
    $
    6,904Gross IBNR Reserves
    
    
    8,023
    
    
    
    7,398Total Gross Carried Claim and Claim
Adjustment Expense Reserves
    
    $
    14,787
    
    
    $
    14,302Net Case Reserves
    
    $
    4,289
    
    
    $
    4,761Net IBNR Reserves
    
    
    5,756
    
    
    
    4,547Total Net Carried Claim and Claim
Adjustment Expense Reserves
    
    $
    10,045
    
    
    $
    9,308
   74




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##### Table of Contents



CNA FINANCIAL CORPORATION
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS, Continued
 SPECIALTY LINES
  Results of Operations
 Three Months
    
    
    Nine MonthsPeriod ended September 30
    
    2005
    
    
    2004
    
    
    2005
    
    
    2004(In millions)Net written premiums
    
    $
    649
    
    
    $
    599
    
    
    $
    1,838
    
    
    $
    1,772Net earned premiums
    
    
    628
    
    
    
    576
    
    
    
    1,831
    
    
    
    1,672Net investment income
    
    
    74
    
    
    
    61
    
    
    
    197
    
    
    
    182Net operating income
    
    
    108
    
    
    
    80
    
    
    
    268
    
    
    
    236Net realized investment gains (losses)
    
    
    11
    
    
    
    (8
    )
    
    
    19
    
    
    
    23Net income
    
    
    119
    
    
    
    72
    
    
    
    287
    
    
    
    259RatiosLoss and loss adjustment expense
    
    
    58.4
    %
    
    
    62.8
    %
    
    
    63.3
    %
    
    
    63.4
    %Expense
    
    
    27.3
    
    
    
    27.2
    
    
    
    26.3
    
    
    
    26.4Dividend
    
    
    0.2
    
    
    
    0.4
    
    
    
    0.2
    
    
    
    0.3Combined
    
    
    85.9
    %
    
    
    90.4
    %
    
    
    89.8
    %
    
    
    90.1
    %
 Three Month Comparison
       75




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##### Table of Contents



CNA FINANCIAL CORPORATION
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS, Continued
    Nine Month Comparison
       2005 Net Prior Year Development
  76




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##### Table of Contents



CNA FINANCIAL CORPORATION
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS, Continued
      2004 Net Prior Year Development
   Gross and Net Carried
Claim and Claim Adjustment Expense Reserves
 September 30, 2005
    
    
    December 31, 2004(In millions)Gross Case Reserves
    
    $
    1,820
    
    
    $
    1,659Gross IBNR Reserves
    
    
    3,287
    
    
    
    3,201Total Gross Carried Claim and Claim
Adjustment Expense Reserves
    
    $
    5,107
    
    
    $
    4,860Net Case Reserves
    
    $
    1,214
    
    
    $
    1,191Net IBNR Reserves
    
    
    2,339
    
    
    
    2,042Total Net Carried Claim and Claim
Adjustment Expense Reserves
    
    $
    3,553
    
    
    $
    3,233
  77




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##### Table of Contents



CNA FINANCIAL CORPORATION
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS, Continued
 LIFE AND GROUP NON-CORE
  Results of Operations
 Three Months
    
    
    Nine MonthsPeriod ended September 30
    
    2005
    
    
    2004
    
    
    2005
    
    
    2004(In millions)Net earned premiums
    
    $
    169
    
    
    $
    182
    
    
    $
    539
    
    
    $
    710Net investment income
    
    
    179
    
    
    
    109
    
    
    
    431
    
    
    
    457Net operating loss
    
    
    (35
    )
    
    
    (13
    )
    
    
    (29
    )
    
    
    (20
    )Net realized investment gains (losses)
    
    
    (1
    )
    
    
    2
    
    
    
    (5
    )
    
    
    (385
    )Net loss
    
    
    (36
    )
    
    
    (11
    )
    
    
    (34
    )
    
    
    (405
    )
 Three Month Comparison
   Nine Month Comparison
   78




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##### Table of Contents



CNA FINANCIAL CORPORATION
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS, Continued
 CORPORATE AND OTHER NON-CORE
  Results of Operations
 Three Months
    
    
    Nine MonthsPeriod ended September 30
    
    2005
    
    
    2004
    
    
    2005
    
    
    2004(In millions)Net investment income
    
    $
    61
    
    
    $
    65
    
    
    $
    177
    
    
    $
    195Revenues
    
    
    59
    
    
    
    46
    
    
    
    249
    
    
    
    301Net operating income
    
    
    32
    
    
    
    22
    
    
    
    129
    
    
    
    45Net realized investment gains (losses)
    
    
    (1
    )
    
    
    (13
    )
    
    
    (12
    )
    
    
    40Net income
    
    
    31
    
    
    
    9
    
    
    
    117
    
    
    
    85
 Three Month Comparison
    Nine Month Comparison
    79




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##### Table of Contents



CNA FINANCIAL CORPORATION
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS, Continued
   2005 Net Prior Year Development
  2004 Net Prior Year Development
   Gross
and Net Carried

Claim and Claim Adjustment Expense Reserves
 September 30, 2005
    
    
    December 31, 2004(In millions)Gross Case Reserves
    
    $
    3,477
    
    
    $
    3,806Gross IBNR Reserves
    
    
    4,568
    
    
    
    4,875Total Gross Carried Claim and Claim
Adjustment Expense Reserves
    
    $
    8,045
    
    
    $
    8,681Net Case Reserves
    
    $
    1,483
    
    
    $
    1,588Net IBNR Reserves
    
    
    1,684
    
    
    
    1,691Total Net Carried Claim and Claim
Adjustment Expense Reserves
    
    $
    3,167
    
    
    $
    3,279
 APMT Reserves
   80




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##### Table of Contents



CNA FINANCIAL CORPORATION
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS, Continued
        81




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##### Table of Contents



CNA FINANCIAL CORPORATION
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS, Continued
  82




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##### Table of Contents



CNA FINANCIAL CORPORATION
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS, Continued
  Asbestos and Environmental Pollution and Mass Tort Reserves
 September 30, 2005
    
    
    December 31, 2004Environmental
    
    
    
    
    
    
    EnvironmentalPollution and
    
    
    
    
    
    
    Pollution and(In millions)
    
    Asbestos
    
    
    Mass Tort
    
    
    Asbestos
    
    
    Mass TortGross reserves
    
    $
    3,072
    
    
    $
    634
    
    
    $
    3,218
    
    
    $
    755Ceded reserves
    
    
    (1,493
    )
    
    
    (232
    )
    
    
    (1,532
    )
    
    
    (258
    )Net reserves
    
    $
    1,579
    
    
    $
    402
    
    
    $
    1,686
    
    
    $
    497
 Asbestos
     83




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##### Table of Contents



CNA FINANCIAL CORPORATION
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS, Continued
       84




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##### Table of Contents



CNA FINANCIAL CORPORATION
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS, Continued
    Pending
Asbestos Accounts and Associated Reserves
 

September 30, 2005
 Net Paid Losses
    
    
    Net Asbestos
    
    
    Percent ofNumber of
    
    
    in 2005
    
    
    Reserves
    
    
    AsbestosPolicyholders
    
    
    (In millions)
    
    
    (In millions)
    
    
    Net ReservesPolicyholders with settlement agreementsStructured Settlements
    
    
    13
    
    
    $
    29
    
    
    $
    158
    
    
    
    10
    %Wellington
    
    
    4
    
    
    
    2
    
    
    
    16
    
    
    
    1Coverage in place
    
    
    34
    
    
    
    7
    
    
    
    70
    
    
    
    5Fibreboard
    
    
    1
    
    
    
    
    
    
    
    54
    
    
    
    3Total with settlement agreements
    
    
    52
    
    
    
    38
    
    
    
    298
    
    
    
    19Other policyholders with active accountsLarge asbestos accounts
    
    
    201
    
    
    
    52
    
    
    
    339
    
    
    
    22Small asbestos accounts
    
    
    1,082
    
    
    
    21
    
    
    
    113
    
    
    
    7Total other policyholders
    
    
    1,283
    
    
    
    73
    
    
    
    452
    
    
    
    29Assumed reinsurance and pools
    
    
    
    
    
    
    4
    
    
    
    145
    
    
    
    9Unassigned IBNR
    
    
    
    
    
    
    
    
    
    
    684
    
    
    
    43Total
    
    
    1,335
    
    
    $
    115
    
    
    $
    1,579
    
    
    
    100
    %
 December 31, 2004
 Net Paid Losses
    
    
    Net Asbestos
    
    
    Percent ofNumber of
    
    
    in 2004
    
    
    Reserves
    
    
    AsbestosPolicyholders
    
    
    (In millions)
    
    
    (In millions)
    
    
    Net ReservesPolicyholders with settlement agreementsStructured Settlements
    
    
    11
    
    
    $
    39
    
    
    $
    175
    
    
    
    10
    %Wellington
    
    
    4
    
    
    
    4
    
    
    
    17
    
    
    
    1Coverage in place
    
    
    33
    
    
    
    14
    
    
    
    76
    
    
    
    5Fibreboard
    
    
    1
    
    
    
    
    
    
    
    54
    
    
    
    3Total with settlement agreements
    
    
    49
    
    
    
    57
    
    
    
    322
    
    
    
    19Other policyholders with active accountsLarge asbestos accounts
    
    
    180
    
    
    
    47
    
    
    
    368
    
    
    
    22Small asbestos accounts
    
    
    1,109
    
    
    
    23
    
    
    
    141
    
    
    
    8Total other policyholders
    
    
    1,289
    
    
    
    70
    
    
    
    509
    
    
    
    30Assumed reinsurance and pools
    
    
    
    
    
    
    8
    
    
    
    148
    
    
    
    9Unassigned IBNR
    
    
    
    
    
    
    
    
    
    
    707
    
    
    
    42Total
    
    
    1,338
    
    
    $
    135
    
    
    $
    1,686
    
    
    
    100
    %
 85




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##### Table of Contents



CNA FINANCIAL CORPORATION
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS, Continued
     Continental Casualty Co. v. Employers Ins. of Wausau et
al. Keasbey
 86




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##### Table of Contents



CNA FINANCIAL CORPORATION
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS, Continued
  In re: Burns & Roe Enterprises, Inc.
 Continental Insurance Co., et al. v. Honeywell
International Inc.
 87




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##### Table of Contents



CNA FINANCIAL CORPORATION
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS, Continued
  Varner v. Ford Motor Co., Peplowski v. ACE American Ins. Co. Cross v. Garlock Budd v. Am. Std., Inc., No. 84829
 Boson v. Union Carbide Corp.,
 Adams v. Aetna, Inc., et al.
 88




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##### Table of Contents



CNA FINANCIAL CORPORATION
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS, Continued
 Adams v. Ins. Co. of North America (INA), et al.
 Pennock, et al. v. Maryland Casualty,
et al.
   
    
    inconsistency of court decisions, jury attitudes and future court decisions
    
    specific policy provisions
    
    allocation of liability among insurers and insureds
    
    missing policies and proof of coverage
    
    the proliferation of bankruptcy proceedings and attendant uncertainties
 89




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CNA FINANCIAL CORPORATION
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS, Continued
 
    
    novel theories asserted by policyholders and their counsel
    
    the targeting of a broader range of businesses and entities as defendants
    
    the uncertainty as to which other insureds may be targeted in the future and the
uncertainties inherent in predicting the number of future claims
    
    volatility in claim numbers and settlement demands
    
    increases in the number of non-impaired claimants and the extent to which they can be
precluded from making claims
    
    the efforts by insureds to obtain coverage not subject to aggregate limits
    
    long latency period between asbestos exposure and disease manifestation and the
resulting potential for involvement of multiple policy periods for individual claims
    
    medical inflation trends
    
    the mix of asbestos-related diseases presented and
    
    the ability to recover reinsurance.
  Environmental Pollution and Mass Tort
    90




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CNA FINANCIAL CORPORATION
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS, Continued
        91




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CNA FINANCIAL CORPORATION
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS, Continued
   At September 30, 2005
 NetEnvironmental
    
    
    Percent ofNet Paid Losses
    
    
    Pollution
    
    
    EnvironmentalNumber of
    
    
    in 2005
    
    
    Reserves
    
    
    Pollution NetPolicyholders
    
    
    (In millions)
    
    
    (In millions)
    
    
    ReservePolicyholders with Settlement AgreementsStructured settlements
    
    
    5
    
    
    $
    5
    
    
    $
    7
    
    
    
    2
    %Coverage in place
    
    
    18
    
    
    
    9
    
    
    
    17
    
    
    
    6Total with Settlement Agreements
    
    
    23
    
    
    
    14
    
    
    
    24
    
    
    
    8Other Policyholders with Active AccountsLarge pollution accounts
    
    
    124
    
    
    
    22
    
    
    
    66
    
    
    
    23Small pollution accounts
    
    
    372
    
    
    
    15
    
    
    
    43
    
    
    
    15Total Other Policyholders
    
    
    496
    
    
    
    37
    
    
    
    109
    
    
    
    38Assumed Reinsurance & Pools
    
    
    
    
    
    
    2
    
    
    
    34
    
    
    
    12Unassigned IBNR
    
    
    
    
    
    
    
    
    
    
    122
    
    
    
    42Total
    
    
    519
    
    
    $
    53
    
    
    $
    289
    
    
    
    100
    %
 At December 31, 2004
 NetEnvironmental
    
    
    Percent ofNet Paid Losses
    
    
    Pollution
    
    
    EnvironmentalNumber of
    
    
    in 2004
    
    
    Reserves
    
    
    Pollution NetPolicyholders
    
    
    (In millions)
    
    
    (In millions)
    
    
    ReservePolicyholders with Settlement AgreementsStructured settlements
    
    
    2
    
    
    $
    14
    
    
    $
    5
    
    
    
    1
    %Coverage in place
    
    
    15
    
    
    
    5
    
    
    
    16
    
    
    
    5Total with Settlement Agreements
    
    
    17
    
    
    
    19
    
    
    
    21
    
    
    
    6Other Policyholders with Active AccountsLarge pollution accounts
    
    
    134
    
    
    
    18
    
    
    
    75
    
    
    
    22Small pollution accounts
    
    
    405
    
    
    
    14
    
    
    
    47
    
    
    
    14Total Other Policyholders
    
    
    539
    
    
    
    32
    
    
    
    122
    
    
    
    36Assumed Reinsurance & Pools
    
    
    
    
    
    
    2
    
    
    
    36
    
    
    
    10Unassigned IBNR
    
    
    
    
    
    
    
    
    
    
    163
    
    
    
    48Total
    
    
    556
    
    
    $
    53
    
    
    $
    342
    
    
    
    100
    %
 92




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##### Table of Contents



CNA FINANCIAL CORPORATION
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS, Continued
 INVESTMENTS
 Net Investment Income
  Net Investment Income
 Three Months
    
    
    Nine MonthsPeriod ended September 30
    
    2005
    
    
    2004
    
    
    2005
    
    
    2004(In millions)Fixed maturity securities
    
    $
    393
    
    
    $
    396
    
    
    $
    1,167
    
    
    $
    1,189Short term investments
    
    
    42
    
    
    
    14
    
    
    
    103
    
    
    
    39Limited partnerships
    
    
    72
    
    
    
    26
    
    
    
    189
    
    
    
    131Equity securities
    
    
    6
    
    
    
    3
    
    
    
    18
    
    
    
    11Income (loss) from trading portfolio (a)
    
    
    41
    
    
    
    (21
    )
    
    
    25
    
    
    
    13Interest on funds withheld and other deposits
    
    
    (50
    )
    
    
    (54
    )
    
    
    (139
    )
    
    
    (157
    )Other
    
    
    5
    
    
    
    4
    
    
    
    16
    
    
    
    15Gross investment income
    
    
    509
    
    
    
    368
    
    
    
    1,379
    
    
    
    1,241Investment expense
    
    
    (9
    )
    
    
    (8
    )
    
    
    (34
    )
    
    
    (25
    )Net investment income
    
    $
    500
    
    
    $
    360
    
    
    $
    1,345
    
    
    $
    1,216
     93




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CNA FINANCIAL CORPORATION
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
    
    2005
    
    
    2004
    
    
    2005
    
    
    2004(In millions)Realized investment gains (losses):Fixed maturity securities:U.S. Government bonds
    
    $
    2
    
    
    $
    4
    
    
    $
    (10
    )
    
    $
    13Corporate and other taxable bonds
    
    
    9
    
    
    
    (35
    )
    
    
    (36
    )
    
    
    (2
    )Tax-exempt bonds
    
    
    4
    
    
    
    42
    
    
    
    38
    
    
    
    23Asset-backed bonds
    
    
    7
    
    
    
    9
    
    
    
    18
    
    
    
    44Redeemable preferred stock
    
    
    
    
    
    
    6
    
    
    
    10
    
    
    
    11Total fixed maturity securities
    
    
    22
    
    
    
    26
    
    
    
    20
    
    
    
    89Equity securities
    
    
    6
    
    
    
    10
    
    
    
    45
    
    
    
    187Derivative securities
    
    
    53
    
    
    
    (105
    )
    
    
    34
    
    
    
    (88
    )Short term investments
    
    
    1
    
    
    
    
    
    
    
    1
    
    
    
    Other, including disposition of businesses net of
participating policyholders interest
    
    
    (15
    )
    
    
    10
    
    
    
    (28
    )
    
    
    (594
    )Realized investment gains (losses) before allocation to
participating policyholders and minority interests
    
    
    67
    
    
    
    (59
    )
    
    
    72
    
    
    
    (406
    )Allocated to participating policyholders and minority interest
    
    
    
    
    
    
    (3
    )
    
    
    2
    
    
    
    (9
    )Income tax (expense) benefit
    
    
    (25
    )
    
    
    20
    
    
    
    (30
    )
    
    
    158Net realized investment gains (losses), net of participating
policyholders and minority interests
    
    $
    42
    
    
    $
    (42
    )
    
    $
    44
    
    
    $
    (257
    )
    94




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CNA FINANCIAL CORPORATION
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS, Continued
      Realized Gains and Losses
 Three Months
    
    
    Nine MonthsPeriod ended September 30
    
    2005
    
    
    2004
    
    
    2005
    
    
    2004(In millions)Net realized gains (losses) on fixed maturity securities
and equity securities:Fixed maturity securities:Gross realized gains
    
    $
    65
    
    
    $
    130
    
    
    $
    330
    
    
    $
    443Gross realized losses
    
    
    (43
    )
    
    
    (104
    )
    
    
    (310
    )
    
    
    (354
    )Net realized gains on fixed maturity securities
    
    
    22
    
    
    
    26
    
    
    
    20
    
    
    
    89Equity securities:Gross realized gains
    
    
    16
    
    
    
    16
    
    
    
    70
    
    
    
    198Gross realized losses
    
    
    (10
    )
    
    
    (6
    )
    
    
    (25
    )
    
    
    (11
    )Net realized gains on equity securities
    
    
    6
    
    
    
    10
    
    
    
    45
    
    
    
    187Net realized gains on fixed maturity and equity securities
    
    $
    28
    
    
    $
    36
    
    
    $
    65
    
    
    $
    276
 95




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CNA FINANCIAL CORPORATION
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS, Continued
  Largest Realized Losses from Securities Sold at a Loss
 Nine Months Ended September 30, 2005Fair
    
    
    
    
    
    
    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. Volatility of interest rates prompted movement
to other asset classes.
    
    $
    12,661
    
    
    $
    59
    
    
    
    0-12+Manufactures and sells vehicles worldwide under various
brand names. The company also has financing and
insurance operations. The company is experiencing
inventory capacity issues. Losses relate to trades that
took place to reduce issuer exposure.
    
    
    357
    
    
    
    45
    
    
    
    0-12+Large media
company that was downgraded to below investment grade. Losses relate
to trades that took place to reduce issuer exposure.
    
    
    76
    
    
    
    5
    
    
    
    0-12+Large domestic passenger and freight airline that filed
for bankruptcy during third quarter 2005. Losses relate
to trades that took place to reduce issuer exposure.
    
    
    12
    
    
    
    5
    
    
    
    0-6Issuer of high grade state general obligation bonds. Loss
was incurred as a result of unfavorable interest rate
change.
    
    
    227
    
    
    
    5
    
    
    
    0-12Total
    
    $
    13,333
    
    
    $
    119
  96




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##### Table of Contents



CNA FINANCIAL CORPORATION
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS, Continued
 Valuation and Impairment of Investments
  Carrying Value of Investments
 September 30,
    
    
    
    
    
    
    December 31,2005
    
    
    %
    
    
    2004
    
    
    %(In millions)General account investments:Fixed maturity securities available-for-sale:U.S. Treasury securities and obligations of government agencies
    
    $
    3,287
    
    
    
    8
    %
    
    $
    4,346
    
    
    
    11
    %Asset-backed securities
    
    
    10,542
    
    
    
    25
    
    
    
    7,788
    
    
    
    20States, municipalities and political subdivisions  tax-exempt
    
    
    9,075
    
    
    
    22
    
    
    
    8,857
    
    
    
    22Corporate securities
    
    
    5,964
    
    
    
    14
    
    
    
    6,513
    
    
    
    17Other debt securities
    
    
    2,936
    
    
    
    7
    
    
    
    3,053
    
    
    
    8Redeemable preferred stock
    
    
    214
    
    
    
    1
    
    
    
    146
    
    
    
    Options embedded in convertible debt securities
    
    
    1
    
    
    
    
    
    
    
    234
    
    
    
    1Total fixed maturity securities available-for-sale
    
    
    32,019
    
    
    
    77
    
    
    
    30,937
    
    
    
    79Fixed maturity securities trading:U.S. Treasury securities and obligations of government agencies
    
    
    67
    
    
    
    
    
    
    
    27
    
    
    
    Asset-backed securities
    
    
    109
    
    
    
    
    
    
    
    125
    
    
    
    Corporate securities
    
    
    196
    
    
    
    1
    
    
    
    199
    
    
    
    1Other debt securities
    
    
    33
    
    
    
    
    
    
    
    35
    
    
    
    Redeemable preferred stock
    
    
    5
    
    
    
    
    
    
    
    4
    
    
    
    Total fixed maturity securities trading
    
    
    410
    
    
    
    1
    
    
    
    390
    
    
    
    1Equity securities available-for-sale:Common stock
    
    
    281
    
    
    
    1
    
    
    
    260
    
    
    
    1Non-redeemable preferred stock
    
    
    226
    
    
    
    
    
    
    
    150
    
    
    
    Total equity securities available-for-sale
    
    
    507
    
    
    
    1
    
    
    
    410
    
    
    
    1Total equity securities trading
    
    
    42
    
    
    
    
    
    
    
    46
    
    
    
    Short term investments available-for-sale
    
    
    6,772
    
    
    
    16
    
    
    
    5,404
    
    
    
    14Short term investments trading
    
    
    381
    
    
    
    1
    
    
    
    459
    
    
    
    1Limited partnerships
    
    
    1,618
    
    
    
    4
    
    
    
    1,549
    
    
    
    4Other investments
    
    
    34
    
    
    
    
    
    
    
    36
    
    
    
    Total general account investments
    
    $
    41,783
    
    
    
    100
    %
    
    $
    39,231
    
    
    
    100
    %
   97




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##### Table of Contents



CNA FINANCIAL CORPORATION
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS, Continued
 Unrealized Gains (Losses) on Fixed Maturity and Equity Securities
 Cost or
    
    
    Gross
    
    
    Gross Unrealized Losses
    
    
    NetAmortized
    
    
    Unrealized
    
    
    Less than
    
    
    Greater than
    
    
    UnrealizedSeptember 30, 2005
    
    Cost
    
    
    Gains
    
    
    12 Months
    
    
    12 Months
    
    
    Gain/(Loss)(In millions)Fixed maturity securities available-for-sale:U.S. Treasury securities and obligations
of government agencies
    
    $
    3,182
    
    
    $
    124
    
    
    $
    18
    
    
    $
    1
    
    
    $
    105Asset-backed securities
    
    
    10,616
    
    
    
    42
    
    
    
    102
    
    
    
    14
    
    
    
    (74
    )States, municipalities and political
subdivisions  tax-exempt
    
    
    8,945
    
    
    
    181
    
    
    
    44
    
    
    
    7
    
    
    
    130Corporate securities
    
    
    5,722
    
    
    
    326
    
    
    
    70
    
    
    
    14
    
    
    
    242Other debt securities
    
    
    2,697
    
    
    
    255
    
    
    
    14
    
    
    
    2
    
    
    
    239Redeemable preferred stock
    
    
    212
    
    
    
    4
    
    
    
    2
    
    
    
    
    
    
    
    2Options embedded in convertible debt
securities
    
    
    1
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Total fixed maturity securities
available-for-sale
    
    
    31,375
    
    
    
    932
    
    
    
    250
    
    
    
    38
    
    
    
    644Total fixed maturity securities trading
    
    
    410
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Equity securities available-for-sale:Common stock
    
    
    171
    
    
    
    112
    
    
    
    2
    
    
    
    
    
    
    
    110Non-redeemable preferred stock
    
    
    210
    
    
    
    16
    
    
    
    
    
    
    
    
    
    
    
    16Total equity securities available-for-sale
    
    
    381
    
    
    
    128
    
    
    
    2
    
    
    
    
    
    
    
    126Total equity securities trading
    
    
    42
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Total fixed maturity and equity securities
    
    $
    32,208
    
    
    $
    1,060
    
    
    $
    252
    
    
    $
    38
    
    
    $
    770
 Cost or
    
    
    Gross
    
    
    Gross Unrealized Losses
    
    
    NetAmortized
    
    
    Unrealized
    
    
    Less than
    
    
    Greater than
    
    
    UnrealizedDecember 31, 2004
    
    Cost
    
    
    Gains
    
    
    12 Months
    
    
    12 Months
    
    
    Gain(In millions)Fixed maturity securities available-for-sale:U.S. Treasury securities and obligations
of government agencies
    
    $
    4,233
    
    
    $
    126
    
    
    $
    13
    
    
    $
    
    
    
    $
    113Asset-backed securities
    
    
    7,706
    
    
    
    105
    
    
    
    19
    
    
    
    4
    
    
    
    82States, municipalities and political
subdivisions  tax-exempt
    
    
    8,699
    
    
    
    189
    
    
    
    28
    
    
    
    3
    
    
    
    158Corporate securities
    
    
    6,093
    
    
    
    477
    
    
    
    52
    
    
    
    5
    
    
    
    420Other debt securities
    
    
    2,769
    
    
    
    295
    
    
    
    11
    
    
    
    
    
    
    
    284Redeemable preferred stock
    
    
    142
    
    
    
    6
    
    
    
    
    
    
    
    2
    
    
    
    4Options embedded in convertible debt
securities
    
    
    234
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Total fixed maturity securities
available-for-sale
    
    
    29,876
    
    
    
    1,198
    
    
    
    123
    
    
    
    14
    
    
    
    1,061Total fixed maturity securities trading
    
    
    390
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Equity securities available-for-sale:Common stock
    
    
    148
    
    
    
    112
    
    
    
    
    
    
    
    
    
    
    
    112Non-redeemable preferred stock
    
    
    126
    
    
    
    24
    
    
    
    
    
    
    
    
    
    
    
    24Total equity securities available-for-sale
    
    
    274
    
    
    
    136
    
    
    
    
    
    
    
    
    
    
    
    136Total equity securities trading
    
    
    46
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Total fixed maturity and equity securities
    
    $
    30,586
    
    
    $
    1,334
    
    
    $
    123
    
    
    $
    14
    
    
    $
    1,197
 98




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CNA FINANCIAL CORPORATION
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS, Continued
    Contractual Maturity
 Percent of
    
    
    Percent ofMarket
    
    
    UnrealizedValue
    
    
    LossDue in one year or less
    
    
    3
    %
    
    
    
    %Due after one year through five years
    
    
    11
    
    
    
    5Due after five years through ten years
    
    
    7
    
    
    
    13Due after ten years
    
    
    71
    
    
    
    76Asset-backed securities
    
    
    8
    
    
    
    6Total
    
    
    100
    %
    
    
    100
    %
 99




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##### Table of Contents



CNA FINANCIAL CORPORATION
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS, Continued
  Unrealized Loss Aging
 September 30, 2005
    
    
    December 31, 2004Gross
    
    
    
    
    
    
    GrossEstimated
    
    
    Unrealized
    
    
    Estimated
    
    
    UnrealizedFair Value
    
    
    Loss
    
    
    Fair Value
    
    
    Loss(In millions)Fixed maturity securities:Investment grade:0-6 months
    
    $
    13,637
    
    
    $
    160
    
    
    $
    7,742
    
    
    $
    537-12 months
    
    
    2,160
    
    
    
    45
    
    
    
    2,448
    
    
    
    5913-24 months
    
    
    965
    
    
    
    25
    
    
    
    368
    
    
    
    12Greater than 24 months
    
    
    136
    
    
    
    5
    
    
    
    2
    
    
    
    Total investment grade
    
    
    16,898
    
    
    
    235
    
    
    
    10,560
    
    
    
    124Non-investment grade:0-6 months
    
    
    656
    
    
    
    25
    
    
    
    188
    
    
    
    77-12 months
    
    
    157
    
    
    
    20
    
    
    
    69
    
    
    
    413-24 months
    
    
    106
    
    
    
    8
    
    
    
    20
    
    
    
    2Greater than 24 months
    
    
    2
    
    
    
    
    
    
    
    
    
    
    
    Total non-investment grade
    
    
    921
    
    
    
    53
    
    
    
    277
    
    
    
    13Total fixed maturity securities
    
    
    17,819
    
    
    
    288
    
    
    
    10,837
    
    
    
    137Equity securities:0-6 months
    
    
    90
    
    
    
    2
    
    
    
    4
    
    
    
    7-12 months
    
    
    3
    
    
    
    
    
    
    
    1
    
    
    
    13-24 months
    
    
    
    
    
    
    
    
    
    
    1
    
    
    
    Greater than 24 months
    
    
    4
    
    
    
    
    
    
    
    3
    
    
    
    Total equity securities
    
    
    97
    
    
    
    2
    
    
    
    9
    
    
    
    Total fixed maturity and equity securities
    
    $
    17,916
    
    
    $
    290
    
    
    $
    10,846
    
    
    $
    137
    100




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##### Table of Contents



CNA FINANCIAL CORPORATION
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS, Continued
   Unrealized Loss Aging for Non-investment Grade Securities
 Fair Value as a Percentage of Book Value
    
    
    GrossEstimated
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    UnrealizedSeptember 30, 2005
    
    Fair Value
    
    
    90-99%
    
    
    80-89%
    
    
    70-79%
    
    
    <70%
    
    
    Loss(In millions)Fixed maturity securities:Non-investment grade:0-6 months
    
    $
    656
    
    
    $
    19
    
    
    $
    4
    
    
    $
    2
    
    
    $
    
    
    
    $
    257-12 months
    
    
    157
    
    
    
    5
    
    
    
    11
    
    
    
    4
    
    
    
    
    
    
    
    2013-24 months
    
    
    106
    
    
    
    4
    
    
    
    4
    
    
    
    
    
    
    
    
    
    
    
    8Greater than 24 months
    
    
    2
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Total non-investment grade
    
    $
    921
    
    
    $
    28
    
    
    $
    19
    
    
    $
    6
    
    
    $
    
    
    
    $
    53
 Fair Value as a Percentage of Book Value
    
    
    GrossEstimated
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    UnrealizedDecember 31, 2004
    
    Fair Value
    
    
    90-99%
    
    
    80-89%
    
    
    70-79%
    
    
    <70%
    
    
    Loss(In millions)Fixed maturity securities:Non-investment grade:0-6 months
    
    $
    188
    
    
    $
    6
    
    
    $
    1
    
    
    $
    
    
    
    $
    
    
    
    $
    77-12 months
    
    
    69
    
    
    
    3
    
    
    
    1
    
    
    
    
    
    
    
    
    
    
    
    413-24 months
    
    
    20
    
    
    
    1
    
    
    
    1
    
    
    
    
    
    
    
    
    
    
    
    2Total non-investment grade
    
    $
    277
    
    
    $
    10
    
    
    $
    3
    
    
    $
    
    
    
    $
    
    
    
    $
    13
   101




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CNA FINANCIAL CORPORATION
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS, Continued
    General Account Bond Ratings
 September 30,
    
    
    
    
    
    
    December 31,2005
    
    
    %
    
    
    2004
    
    
    %(In millions)U.S. Government and affiliated agency securities
    
    $
    3,550
    
    
    
    11
    %
    
    $
    4,640
    
    
    
    15
    %Other AAA rated
    
    
    16,439
    
    
    
    51
    
    
    
    14,628
    
    
    
    47AA and A rated
    
    
    5,371
    
    
    
    17
    
    
    
    5,597
    
    
    
    18BBB rated
    
    
    4,023
    
    
    
    12
    
    
    
    4,072
    
    
    
    13Below investment-grade
    
    
    2,826
    
    
    
    9
    
    
    
    2,240
    
    
    
    7Total
    
    $
    32,209
    
    
    
    100
    %
    
    $
    31,177
    
    
    
    100
    %
     102




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##### Table of Contents



CNA FINANCIAL CORPORATION
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS, Continued
  Short-term Investments
 September 30,
    
    
    December 31,2005
    
    
    2004(In millions)Short-term investments available-for-sale:Commercial paper
    
    $
    1,778
    
    
    $
    1,655U.S. Treasury securities
    
    
    1,851
    
    
    
    2,382Money market funds
    
    
    453
    
    
    
    174Other
    
    
    2,690
    
    
    
    1,193Total short-term investments available-for-sale
    
    
    6,772
    
    
    
    5,404Short-term investments trading:Commercial paper
    
    
    91
    
    
    
    46U.S. Treasury securities
    
    
    62
    
    
    
    300Money market funds
    
    
    228
    
    
    
    99Other
    
    
    
    
    
    
    14Total short-term investments trading
    
    
    381
    
    
    
    459Total short-term investments
    
    $
    7,153
    
    
    $
    5,863
  â
 LIQUIDITY AND CAPITAL RESOURCES
 Cash Flow
     103




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CNA FINANCIAL CORPORATION
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS, Continued
     Debt and Other Commitments
     Commitments
 2010 andSeptember 30, 2005
    
    2005
    
    
    2006
    
    
    2007
    
    
    2008
    
    
    2009
    
    
    Beyond
    
    
    Total(In millions)Debt (a)
    
    $
    43
    
    
    $
    409
    
    
    $
    106
    
    
    $
    472
    
    
    $
    73
    
    
    $
    1,629
    
    
    
    2,732Lease obligations
    
    
    17
    
    
    
    52
    
    
    
    44
    
    
    
    36
    
    
    
    29
    
    
    
    77
    
    
    
    255Claim and claim expense reserves
(b)
    
    
    2,441
    
    
    
    7,173
    
    
    
    5,111
    
    
    
    3,658
    
    
    
    2,612
    
    
    
    12,349
    
    
    
    33,344Future policy benefits reserves (c)
    
    
    68
    
    
    
    178
    
    
    
    173
    
    
    
    174
    
    
    
    170
    
    
    
    8,866
    
    
    
    9,629Policyholder funds reserves (c)
    
    
    258
    
    
    
    952
    
    
    
    155
    
    
    
    35
    
    
    
    9
    
    
    
    156
    
    
    
    1,565Guaranteed payment contracts (d)
    
    
    8
    
    
    
    15
    
    
    
    7
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    30Total
    
    $
    2,835
    
    
    $
    8,779
    
    
    $
    5,596
    
    
    $
    4,375
    
    
    $
    2,893
    
    
    $
    23,077
    
    
    $
    47,555
 (a)
    
    Includes estimated future interest payments, but does not include original issue
discount.(b)
    
    Claim and claim adjustment expense reserves are not discounted and represent the
Companys estimate of the amount and timing of the ultimate settlement and administration
of claims based on its assessment of facts and circumstances known as of September 30,
2005. See the Reserves  Estimates and Uncertainties section of this MD&A for further
information. Claim and claim adjustment expense reserves of $12 million related to
business which has been 100% ceded to unaffiliated parties in connection with the
individual life sale are not included.(c)
    
    Future policy benefits and policyholder funds reserves are not discounted and represent
the Companys estimate of the ultimate amount and timing of the settlement of benefits
based on its assessment of facts and circumstances known as of
September 30, 2005. Future policy benefit reserves of $979
million and policyholder fund reserves of $54 million related to
business which has been 100% ceded to unaffiliated parties in
connection with the individual life sale are not included.(d)
    
    Primarily relating to telecommunications and software services.
 104




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CNA FINANCIAL CORPORATION
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS, Continued
 Regulatory Matters
      105




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##### Table of Contents



CNA FINANCIAL CORPORATION
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS, Continued
 Dividends from Subsidiaries
     Loews
   Ratings
   106




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CNA FINANCIAL CORPORATION
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS, Continued
   Insurance Financial Strength Ratings
    
    
    Debt RatingsProperty & Casualty (a)
    
    
    Life (b)
    
    
    CNAF
    
    
    ContinentalCCC
    
    
    CIC
    
    
    
    
    
    
    Senior
    
    
    SeniorGroup
    
    
    Group
    
    
    CAC
    
    
    Debt
    
    
    DebtA.M. Best
    
    
    A
    
    
    
    A
    
    
    
    A
    
    
    bbb
    
    Not ratedFitch
    
    
    A
    
    
    
    A
    
    
    
    A
    
    
    BBB
    
    BBBMoodys
    
    
    A3
    
    
    
    A3
    
    
    Baa1
    
    Baa3
    
    Baa3S&P
    
    
    A
    
    
    
    A
    
    
    BBB+
    
    BBB
    
    BBB
 (a) Fitchs outlook for the Property & Casualty companies financial strength and holding
company debt ratings is stable. All others are negative.
 (b) A.M. Best, Fitch and Moodys have a stable outlook while S&P has a negative outlook on the CAC
rating.
     107




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CNA FINANCIAL CORPORATION
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS, Continued
 Accounting Pronouncements
   FORWARD-LOOKING STATEMENTS
  108




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CNA FINANCIAL CORPORATION
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS, Continued
 
    
    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;
 
    
    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 the
Company, 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 the Companys restatement of financial
results in May of 2005 and its relationship with Accord Re Ltd. as disclosed in connection
with that restatement;
 
    
    regulatory limitations, impositions and restrictions upon the Company, 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 the Company operates, including changes in the Companys 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 of 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 ratio through more efficacious claims handling techniques;
 
    
    the performance of reinsurance companies under reinsurance contracts with the Company;
    
    results of financing efforts, including the availability of bank credit facilities;
    
    changes in the Companys composition of operating segments;
 
    
    weather and other natural physical events, including the severity and frequency of
storms, hail, snowfall and other winter conditions, as well as of natural disasters such as
hurricanes and earthquakes;
 
    
    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 possibility that the Terrorism Risk Insurance Act of 2002 will not be extended
beyond the end of 2005, as a result of which the Company could incur substantial additional
exposure to losses resulting from terrorist attacks, which could be increased by current state
regulatory restrictions on terrorism policy exclusions and by regulatory unwillingness to
approve such exclusions prospectively;
    
    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, and construction defect claims;
 109




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##### Table of Contents



CNA FINANCIAL CORPORATION
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS, Continued
 
    
    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 the Companys established loss reserves or carried loss reserves;
 
    
    the sufficiency of the Companys loss reserves and the possibility of future
increases in reserves;
 
    
    regulatory limitations and restrictions, including limitations upon the Companys
ability to receive dividends from its 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 the Companys loss reserves as
outlined in the Reserves  Estimates and Uncertainties section of this Managements
Discussion and Analysis of Financial Condition and Results of Operations;
 
    
    the level of success in integrating acquired businesses and operations, and in
consolidating, or selling existing ones;
 
    
    the possibility of further changes in the Companys 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.
  110




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CNA FINANCIAL CORPORATION
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
 Market Risk
   Sensitivity Analysis
      111




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##### Table of Contents



CNA FINANCIAL CORPORATION
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK, Continued
 Market Risk Scenario 1
 Increase (Decrease)Market
    
    
    Interest
    
    
    Currency
    
    
    EquitySeptember 30, 2005
    
    Value
    
    
    Rate Risk
    
    
    Risk
    
    
    Risk(In millions)General account:Fixed maturity securities available-for-sale
    
    $
    32,019
    
    
    $
    (1,884
    )
    
    $
    (81
    )
    
    $
    (21
    )Fixed maturity securities trading
    
    
    410
    
    
    
    (4
    )
    
    
    
    
    
    
    (2
    )Equity securities available-for-sale
    
    
    507
    
    
    
    
    
    
    
    (6
    )
    
    
    (51
    )Equity securities trading
    
    
    42
    
    
    
    
    
    
    
    
    
    
    
    (4
    )Short term investments available-for-sale
    
    
    6,772
    
    
    
    (11
    )
    
    
    (40
    )
    
    
    Short term investments trading
    
    
    381
    
    
    
    
    
    
    
    
    
    
    
    Limited partnerships
    
    
    1,618
    
    
    
    7
    
    
    
    
    
    
    
    (20
    )Other invested assets
    
    
    31
    
    
    
    
    
    
    
    
    
    
    
    Interest rate swaps
    
    
    
    
    
    
    104
    
    
    
    
    
    
    
    Equity indexed futures for trading securities
    
    
    
    
    
    
    2
    
    
    
    
    
    
    
    (110
    )Other derivative securities
    
    
    3
    
    
    
    6
    
    
    
    
    
    
    
    Total general account
    
    
    41,783
    
    
    
    (1,780
    )
    
    
    (127
    )
    
    
    (208
    )Separate accounts:Fixed maturity securities
    
    
    476
    
    
    
    (22
    )
    
    
    
    
    
    
    Equity securities
    
    
    45
    
    
    
    
    
    
    
    
    
    
    
    (4
    )Short term investments
    
    
    26
    
    
    
    
    
    
    
    
    
    
    
    Total separate accounts
    
    
    547
    
    
    
    (22
    )
    
    
    
    
    
    
    (4
    )Total securities
    
    $
    42,330
    
    
    $
    (1,802
    )
    
    $
    (127
    )
    
    $
    (212
    )Debt (carrying value)
    
    $
    1,751
    
    
    $
    (94
    )
    
    $
    
    
    
    $
    
 Market Risk Scenario 1
 Increase (Decrease)Fair
    
    
    Interest
    
    
    Currency
    
    
    EquityDecember 31, 2004
    
    Value
    
    
    Rate Risk
    
    
    Risk
    
    
    Risk(In millions)General account:Fixed maturity securities available-for-sale
    
    $
    30,937
    
    
    $
    (1,824
    )
    
    $
    (88
    )
    
    $
    (26
    )Fixed maturity securities trading
    
    
    390
    
    
    
    (4
    )
    
    
    (1
    )
    
    
    (3
    )Equity securities available-for-sale
    
    
    410
    
    
    
    
    
    
    
    (9
    )
    
    
    (41
    )Equity securities trading
    
    
    46
    
    
    
    
    
    
    
    
    
    
    
    (5
    )Short term investments available-for-sale
    
    
    5,404
    
    
    
    (7
    )
    
    
    (10
    )
    
    
    Short term investments trading
    
    
    459
    
    
    
    
    
    
    
    
    
    
    
    Limited partnerships
    
    
    1,549
    
    
    
    6
    
    
    
    
    
    
    
    (18
    )Other invested assets
    
    
    42
    
    
    
    
    
    
    
    
    
    
    
    Interest rate swaps
    
    
    (8
    )
    
    
    8
    
    
    
    
    
    
    
    Equity index futures for trading
    
    
    
    
    
    
    2
    
    
    
    
    
    
    
    (116
    )Other derivative securities
    
    
    2
    
    
    
    7
    
    
    
    (21
    )
    
    
    Total general account
    
    
    39,231
    
    
    
    (1,812
    )
    
    
    (129
    )
    
    
    (209
    )Separate accounts:Fixed maturity securities
    
    
    486
    
    
    
    (24
    )
    
    
    
    
    
    
    Equity securities
    
    
    55
    
    
    
    
    
    
    
    
    
    
    
    (5
    )Short term investments
    
    
    20
    
    
    
    
    
    
    
    
    
    
    
    Total separate accounts
    
    
    561
    
    
    
    (24
    )
    
    
    
    
    
    
    (5
    )Total securities
    
    $
    39,792
    
    
    $
    (1,836
    )
    
    $
    (129
    )
    
    $
    (214
    )Debt (carrying value)
    
    $
    2,257
    
    
    $
    (97
    )
    
    $
    
    
    
    $
    
 112




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##### Table of Contents



CNA FINANCIAL CORPORATION
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK, Continued
  Market Risk Scenario 2
 Increase (Decrease)Market
    
    
    Interest
    
    
    Currency
    
    
    EquitySeptember 30, 2005
    
    Value
    
    
    Rate Risk
    
    
    Risk
    
    
    Risk(In millions)General account:Fixed maturity securities available-for-sale
    
    $
    32,019
    
    
    $
    (2,799
    )
    
    $
    (163
    )
    
    $
    (54
    )Fixed maturity securities trading
    
    
    410
    
    
    
    (6
    )
    
    
    
    
    
    
    (5
    )Equity securities available-for-sale
    
    
    507
    
    
    
    
    
    
    
    (12
    )
    
    
    (127
    )Equity securities trading
    
    
    42
    
    
    
    
    
    
    
    
    
    
    
    (10
    )Short term investments available-for-sale
    
    
    6,772
    
    
    
    (17
    )
    
    
    (79
    )
    
    
    Short term securities trading
    
    
    381
    
    
    
    
    
    
    
    
    
    
    
    Limited partnerships
    
    
    1,618
    
    
    
    10
    
    
    
    
    
    
    
    (49
    )Other invested assets
    
    
    31
    
    
    
    
    
    
    
    
    
    
    
    Interest rate swaps
    
    
    
    
    
    
    152
    
    
    
    
    
    
    
    Equity indexed futures for trading
    
    
    
    
    
    
    3
    
    
    
    (1
    )
    
    
    (274
    )Other derivative securities
    
    
    3
    
    
    
    9
    
    
    
    4
    
    
    
    (1
    )Total general account
    
    
    41,783
    
    
    
    (2,648
    )
    
    
    (251
    )
    
    
    (520
    )Separate accounts:Fixed maturity securities
    
    
    476
    
    
    
    (34
    )
    
    
    
    
    
    
    Equity securities
    
    
    45
    
    
    
    
    
    
    
    
    
    
    
    (11
    )Short term investments
    
    
    26
    
    
    
    
    
    
    
    
    
    
    
    Total separate accounts
    
    
    547
    
    
    
    (34
    )
    
    
    
    
    
    
    (11
    )Total securities
    
    $
    42,330
    
    
    $
    (2,682
    )
    
    $
    (251
    )
    
    $
    (531
    )Debt (carrying value)
    
    $
    1,751
    
    
    $
    (138
    )
    
    $
    
    
    
    $
    
 113




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##### Table of Contents



CNA FINANCIAL CORPORATION
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK, Continued
 Market Risk Scenario 2
 Increase (Decrease)Fair
    
    
    Interest
    
    
    Currency
    
    
    EquityDecember 31, 2004
    
    Value
    
    
    Rate Risk
    
    
    Risk
    
    
    Risk(In millions)General account:Fixed maturity securities available-for-sale
    
    $
    30,937
    
    
    $
    (2,703
    )
    
    $
    (177
    )
    
    $
    (63
    )Fixed maturity securities trading
    
    
    390
    
    
    
    (6
    )
    
    
    (1
    )
    
    
    (8
    )Equity securities available-for-sale
    
    
    410
    
    
    
    
    
    
    
    (18
    )
    
    
    (103
    )Equity securities trading
    
    
    46
    
    
    
    
    
    
    
    
    
    
    
    (11
    )Short term investments available-for-sale
    
    
    5,404
    
    
    
    (11
    )
    
    
    (20
    )
    
    
    Short term investments trading
    
    
    459
    
    
    
    
    
    
    
    
    
    
    
    Limited partnerships
    
    
    1,549
    
    
    
    9
    
    
    
    
    
    
    
    (46
    )Other invested assets
    
    
    42
    
    
    
    
    
    
    
    
    
    
    
    Interest rate swaps
    
    
    (8
    )
    
    
    12
    
    
    
    
    
    
    
    Equity index futures for trading
    
    
    
    
    
    
    3
    
    
    
    
    
    
    
    (289
    )Other derivative securities
    
    
    2
    
    
    
    10
    
    
    
    (38
    )
    
    
    Total general account
    
    
    39,231
    
    
    
    (2,686
    )
    
    
    (254
    )
    
    
    (520
    )Separate accounts:Fixed maturity securities
    
    
    486
    
    
    
    (35
    )
    
    
    
    
    
    
    Equity securities
    
    
    55
    
    
    
    
    
    
    
    
    
    
    
    (14
    )Short term investments
    
    
    20
    
    
    
    
    
    
    
    
    
    
    
    Total separate accounts
    
    
    561
    
    
    
    (35
    )
    
    
    
    
    
    
    (14
    )Total securities
    
    $
    39,792
    
    
    $
    (2,721
    )
    
    $
    (254
    )
    
    $
    (534
    )Debt (carrying value)
    
    $
    2,257
    
    
    $
    (141
    )
    
    $
    
    
    
    $
    
 114




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##### Table of Contents



CNA FINANCIAL CORPORATION
ITEM 4. CONTROLS AND PROCEDURES
   
 115




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##### Table of Contents



CNA FINANCIAL CORPORATION
PART II. OTHER INFORMATION
 
 Item 1. Legal Proceedings
  Item 5. Other Information
 (a)
    
    CCC and James R. Lewis entered into an Employment Agreement as of October 26, 2005
pursuant to which Mr. Lewis will continue to serve as Executive Vice President and Chief
Executive Officer of the Companys Property and Casualty Operations from January 1, 2006 to
December 31, 2008. A copy of said Employment Agreement is filed with this Report as Exhibit
10.21.(b)
    
    CNAF and Stephen W. Lilienthal entered into an Employment Agreement as of October 26,
2005 pursuant to which Mr. Lilienthal will continue to serve as Chief Executive Officer of
CNAF and as Chairman and Chief Executive Officer of CNAFs wholly-owned insurance
subsidiaries from January 1, 2006 to December 31, 2008. A copy of said Employment Agreement
is filed with this Report as Exhibit 10.22.
 
 Item 6. Exhibits
  Description of Exhibit
    
    Exhibit NumberCertification of Chief Executive Officer pursuant to 18 U.S.C. 1350,
as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
    
    
    31.1Certification of Chief Financial Officer pursuant to 18 U.S.C. 1350,
as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
    
    
    31.2Certification of Chief Executive Officer pursuant to 18 U.S.C. 1350,
as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
    
    
    32.1*Certification of Chief Financial Officer pursuant to 18 U.S.C. 1350,
as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
    
    
    32.2*
 *
    
    Exhibits 32.1 and 32.2 are being furnished and shall not be deemed filed for the purpose
of Section 18 of the Securities Exchange Act of 1934, as amended, or otherwise subject to the
liabilities of that Section. These Exhibits shall not be incorporated by reference into any
registration statement or other document pursuant to the Securities Act of 1933, as amended.
 116




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##### Table of Contents



CNA FINANCIAL CORPORATION
PART II. OTHER INFORMATION
 SIGNATURES
  CNA Financial CorporationDated:  October 28, 2005
    By
    /s/ D. Craig MenseD. Craig MenseChief Financial Officer 117