##### Table of Contents



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
  
 FORM 10-Q
 þ     o
 Commission File Number 1-5823
 
 CNA FINANCIAL CORPORATION
  Delaware
    
    36-6169860(State or other jurisdiction of
    
    (I.R.S. Employerincorporation or organization)
    
    Identification No.)333 S. WabashChicago, Illinois
    
    60604(Address of principal executive offices)
    
    (Zip Code)
 (312) 822-5000
(Registrants telephone number, including area code)
 þ o
  Large accelerated filer þ
    
    Accelerated filer o
    
    Non-accelerated filer o
    
    Smaller reporting company o(Do not check if a smaller reporting company)
 o þ
  Class
    
    Outstanding at April 23, 2008Common Stock, Par value $2.50
    
    269,012,657




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##### 



CNA FINANCIAL CORPORATION
INDEX
 Item
    
    
    
    PageNumber
    
    
    
    NumberPART I. Financial Information1.
    
    Condensed Consolidated Financial Statements (Unaudited):Condensed Consolidated Statements of Operations for the
Three months ended March 31, 2008 and 2007
    
    
    3Condensed
Consolidated Balance Sheets at March 31,
2008 and December 31, 2007
    
    
    4Condensed Consolidated Statements of Cash Flows for the
Three months ended March 31, 2008 and 2007
    
    
    5Condensed Consolidated Statements of Stockholders
Equity for the Three months ended March 31, 2008 and
2007
    
    
    7Notes to Condensed Consolidated Financial Statements
    
    
    82.
    
    Managements Discussion and Analysis of Financial
Condition and Results of Operations
    
    
    353.
    
    Quantitative and Qualitative Disclosures About Market
Risk
    
    
    604.
    
    Controls and Procedures
    
    
    61PART II. Other Information1.
    
    Legal Proceedings
    
    
    622.
    
    Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    626.
    
    Exhibits
    
    
    62Form of Award Letter to Executive Officers for the Long-Term Incentive Cash PlanForm of Award Letter to Executive OfficersEmployment AgreementFourth Amendment to Supplemental Executive Retirement PlanAcknowledgement to Investment Facilities and Services AgreementAcknowledgement to Investment Facilities and Services AgreementAcknowledgement to Investment Facilities and Services AgreementCertification of Chief Executive OfficerCertification of Chief Financial Officer906 Certification of Chief Executive Officer906 Certification of Chief Financial Officer




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CNA FINANCIAL CORPORATION
 
 PART I. FINANCIAL INFORMATION
 
 ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 
 CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
 Three months ended March 31
    
    2008
    
    
    2007(In millions, except per share data)RevenuesNet earned premiums
    
    $
    1,813
    
    
    $
    1,863Net investment income
    
    
    434
    
    
    
    608Realized investment losses, net of participating policyholders and minority interests
    
    
    (51
    )
    
    
    (21
    )Other revenues
    
    
    86
    
    
    
    67Total revenues
    
    
    2,282
    
    
    
    2,517
    
    
    
    Claims, Benefits and ExpensesInsurance claims and policyholders benefits
    
    
    1,389
    
    
    
    1,448Amortization of deferred acquisition costs
    
    
    368
    
    
    
    381Other operating expenses
    
    
    227
    
    
    
    218Interest
    
    
    34
    
    
    
    34Total claims, benefits and expenses
    
    
    2,018
    
    
    
    2,081Income before income tax and minority interest
    
    
    264
    
    
    
    436Income tax expense
    
    
    (64
    )
    
    
    (132
    )Minority interest
    
    
    (12
    )
    
    
    (10
    )Income from continuing operations
    
    
    188
    
    
    
    294Income (loss) from discontinued operations, net of income tax expense of $0 and $1
    
    
    (1
    )
    
    
    2Net Income
    
    $
    187
    
    
    $
    296Basic and Diluted Earnings Per ShareIncome from continuing operations
    
    $
    0.70
    
    
    $
    1.08Income (loss) from discontinued operations
    
    
    (0.01
    )
    
    
    0.01Basic and diluted earnings per share available to common stockholders
    
    $
    0.69
    
    
    $
    1.09Weighted average outstanding common stock and common stock equivalentsBasic
    
    
    270.7
    
    
    
    271.3Diluted
    
    
    270.8
    
    
    
    271.6
  3




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CNA FINANCIAL CORPORATION
 
 CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)
 March 31,
    
    
    December 31,2008
    
    
    2007(In millions, except share data)AssetsInvestments:Fixed maturity securities at fair value (amortized cost of $33,956 and $34,388)
    
    $
    32,496
    
    
    $
    34,257Equity securities at fair value (cost of $287 and $366)
    
    
    474
    
    
    
    568Limited partnership investments
    
    
    2,245
    
    
    
    2,214Other invested assets
    
    
    9
    
    
    
    46Short term investments
    
    
    5,347
    
    
    
    4,677Total investments
    
    
    40,571
    
    
    
    41,762Cash
    
    
    132
    
    
    
    94Reinsurance receivables (less allowance for uncollectible receivables of $453 and $461)
    
    
    8,096
    
    
    
    8,228Insurance receivables (less allowance for doubtful accounts of $304 and $312)
    
    
    1,946
    
    
    
    1,972Accrued investment income
    
    
    358
    
    
    
    330Receivables for securities sold and collateral
    
    
    575
    
    
    
    142Deferred acquisition costs
    
    
    1,158
    
    
    
    1,161Prepaid reinsurance premiums
    
    
    292
    
    
    
    270Deferred income taxes
    
    
    1,694
    
    
    
    1,198Property and equipment at cost (less accumulated depreciation of $600 and $596)
    
    
    394
    
    
    
    378Goodwill and other intangible assets
    
    
    142
    
    
    
    142Other assets
    
    
    601
    
    
    
    579Separate account business
    
    
    465
    
    
    
    476Total assets
    
    $
    56,424
    
    
    $
    56,732Liabilities and Stockholders EquityLiabilities:Insurance reserves:Claim and claim adjustment expenses
    
    $
    28,502
    
    
    $
    28,588Unearned premiums
    
    
    3,578
    
    
    
    3,598Future policy benefits
    
    
    7,209
    
    
    
    7,106Policyholders funds
    
    
    859
    
    
    
    930Collateral on loaned securities and derivatives
    
    
    878
    
    
    
    63Payables for securities purchased
    
    
    273
    
    
    
    353Participating policyholders funds
    
    
    34
    
    
    
    45Short term debt
    
    
    200
    
    
    
    350Long term debt
    
    
    1,807
    
    
    
    1,807Federal income taxes payable (includes $70 and $5 due to Loews Corporation)
    
    
    74
    
    
    
    2Reinsurance balances payable
    
    
    396
    
    
    
    401Other liabilities
    
    
    2,394
    
    
    
    2,478Separate account business
    
    
    465
    
    
    
    476Total liabilities
    
    
    46,669
    
    
    
    46,197Commitments and contingencies (Notes D, G, H, and J)Minority interest
    
    
    395
    
    
    
    385Stockholders equity:Common stock ($2.50 par value; 500,000,000 shares authorized; 273,040,243 shares
issued; and 269,012,657 and 271,662,278 shares outstanding)
    
    
    683
    
    
    
    683Additional paid-in capital
    
    
    2,170
    
    
    
    2,169Retained earnings
    
    
    7,431
    
    
    
    7,285Accumulated other comprehensive income (loss)
    
    
    (763
    )
    
    
    103Treasury stock (4,027,586 and 1,377,965 shares), at cost
    
    
    (109
    )
    
    
    (39
    )9,412
    
    
    
    10,201Notes receivable for the issuance of common stock
    
    
    (52
    )
    
    
    (51
    )Total stockholders equity
    
    
    9,360
    
    
    
    10,150Total liabilities and stockholders equity
    
    $
    56,424
    
    
    $
    56,732
  4




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CNA FINANCIAL CORPORATION
 
 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
 Three months ended March 31
    
    2008
    
    
    2007(In millions)Cash Flows from Operating Activities:Net income
    
    $
    187
    
    
    $
    296Adjustments to reconcile net income to net cash flows provided by
operating activities:(Income) loss from discontinued operations
    
    
    1
    
    
    
    (2
    )Loss on disposal of property and equipment
    
    
    
    
    
    
    2Minority interest
    
    
    12
    
    
    
    10Deferred income tax (benefit) provision
    
    
    (21
    )
    
    
    20Trading securities activity
    
    
    63
    
    
    
    (6
    )Realized investment losses, net of participating policyholders and
minority interests
    
    
    51
    
    
    
    21Undistributed losses (earnings) of equity method investees
    
    
    70
    
    
    
    (24
    )Net amortization of bond (discount) premium
    
    
    (65
    )
    
    
    (56
    )Depreciation
    
    
    18
    
    
    
    13Changes in:Receivables, net
    
    
    158
    
    
    
    43Accrued investment income
    
    
    (28
    )
    
    
    (8
    )Deferred acquisition costs
    
    
    3
    
    
    
    1Prepaid reinsurance premiums
    
    
    (22
    )
    
    
    (31
    )Federal income taxes recoverable/payable
    
    
    72
    
    
    
    60Insurance reserves
    
    
    (41
    )
    
    
    32Reinsurance balances payable
    
    
    (5
    )
    
    
    38Other assets
    
    
    (23
    )
    
    
    (2
    )Other liabilities
    
    
    (131
    )
    
    
    (178
    )Other, net
    
    
    
    
    
    
    6Total adjustments
    
    
    112
    
    
    
    (61
    )Net cash flows provided by operating activities-continuing operations
    
    $
    299
    
    
    $
    235Net cash flows provided (used) by operating activities-discontinued operations
    
    $
    4
    
    
    $
    (18
    )Net cash flows provided by operating activities-total
    
    $
    303
    
    
    $
    217Cash Flows from Investing Activities:Purchases of fixed maturity securities
    
    $
    (11,231
    )
    
    $
    (15,552
    )Proceeds from fixed maturity securities:Sales
    
    
    10,262
    
    
    
    16,435Maturities, calls and redemptions
    
    
    1,038
    
    
    
    1,016Purchases of equity securities
    
    
    (56
    )
    
    
    (67
    )Proceeds from sales of equity securities
    
    
    28
    
    
    
    69Change in short term investments
    
    
    (696
    )
    
    
    (2,060
    )Change in collateral on loaned securities and derivatives
    
    
    815
    
    
    
    63Change in other investments
    
    
    (125
    )
    
    
    (37
    )Purchases of property and equipment
    
    
    (32
    )
    
    
    (34
    )Other, net
    
    
    10
    
    
    
    (35
    )Net cash flows provided (used) by investing activities-continuing operations
    
    $
    13
    
    
    $
    (202
    )Net cash flows provided (used) by investing activities-discontinued operations
    
    $
    (2
    )
    
    $
    1Net cash flows provided (used) by investing activities-total
    
    $
    11
    
    
    $
    (201
    )
  5




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##### Table of Contents



Three months ended March 31
    
    2008
    
    
    2007(In millions)Cash Flows from Financing Activities:Dividends paid to stockholders
    
    
    (41
    )
    
    
    Principal payments on debt
    
    
    (150
    )
    
    
    Return of investment contract account balances
    
    
    (14
    )
    
    
    (46
    )Receipts of investment contract account balances
    
    
    1
    
    
    
    1Stock options exercised
    
    
    
    
    
    
    15Purchase of treasury stock
    
    
    (70
    )
    
    
    Other, net
    
    
    1
    
    
    
    4Net cash flows used by financing activities-continuing operations
    
    $
    (273
    )
    
    $
    (26
    )Net cash flows provided by financing activities-discontinued operations
    
    $
    
    
    
    $
    Net cash flows used by financing activities-total
    
    $
    (273
    )
    
    $
    (26
    )Effect of foreign exchange rate changes on cash-continuing operations
    
    
    (1
    )
    
    
    Net change in cash
    
    
    40
    
    
    
    (10
    )Cash, beginning of year
    
    
    101
    
    
    
    124Cash, end of period
    
    $
    141
    
    
    $
    114Cash-continuing operations
    
    $
    132
    
    
    $
    91Cash-discontinued operations
    
    
    9
    
    
    
    23Cash-total
    
    $
    141
    
    
    $
    114
  6




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CNA FINANCIAL CORPORATION  CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITY (UNAUDITED)
 Three months ended March 31
    
    2008
    
    
    2007(In millions)Common StockBalance, beginning and end of period
    
    $
    683
    
    
    $
    683Additional Paid-in CapitalBalance, beginning of period
    
    
    2,169
    
    
    
    2,166Stock-based compensation
    
    
    1
    
    
    
    2Balance, end of period
    
    
    2,170
    
    
    
    2,168Retained EarningsBalance, beginning of period
    
    
    7,285
    
    
    
    6,486Adjustment to initially apply FASB Staff Position Technical
Bulletin No. 85-4-1, Accounting for Life Settlement
Contracts by Third-Party Investors, net of tax
    
    
    
    
    
    
    38Adjustment to initially apply FASB Interpretation No. 48, Accounting
for Uncertainty in Income Taxes an interpretation of FASB No. 109
    
    
    
    
    
    
    5Adjusted balance, beginning of period
    
    
    7,285
    
    
    
    6,529Dividends paid to stockholders
    
    
    (41
    )
    
    
    Net income
    
    
    187
    
    
    
    296Balance, end of period
    
    
    7,431
    
    
    
    6,825Accumulated Other Comprehensive IncomeBalance, beginning of period
    
    
    103
    
    
    
    549Other comprehensive income (loss)
    
    
    (866
    )
    
    
    14Balance, end of period
    
    
    (763
    )
    
    
    563Treasury StockBalance, beginning of period
    
    
    (39
    )
    
    
    (58
    )Purchase of treasury stock
    
    
    (70
    )
    
    
    Stock options exercised and other
    
    
    
    
    
    
    14Balance, end of period
    
    
    (109
    )
    
    
    (44
    )Notes Receivable for the Issuance of Common StockBalance, beginning of period
    
    
    (51
    )
    
    
    (58
    )(Increase) decrease in notes receivable for the issuance of common
stock
    
    
    (1
    )
    
    
    2Balance, end of period
    
    
    (52
    )
    
    
    (56
    )Total Stockholders Equity
    
    $
    9,360
    
    
    $
    10,139
  7




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##### Table of Contents



CNA FINANCIAL CORPORATION
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS  (UNAUDITED)
 Note A. Basis of Presentation
    Note B. Accounting Pronouncements
 Statement of Financial Accounting Standard (SFAS) No. 157, Fair Value Measurement (SFAS
157)
  Effective Date of FASB Statement
No. 157
  8




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##### Table of Contents



SFAS No. 159, The Fair Value Option for Financial Assets and Financial Liabilities (SFAS
159)
   Note C. Earnings Per Share
   Earnings Per Share
 Three months ended March 31
    
    2008
    
    
    2007(In millions, except per share amounts)Income from continuing operations available to common stockholders
    
    $
    188
    
    
    $
    294Weighted average outstanding common stock and common stock equivalents
    
    
    270.7
    
    
    
    271.3Effect of dilutive securities, employee stock options and appreciation rights
    
    
    0.1
    
    
    
    0.3Adjusted weighted average outstanding common stock and common stock
equivalents assuming conversions
    
    
    270.8
    
    
    
    271.6Basic and diluted earnings per share from continuing operations available to
common stockholders
    
    $
    0.70
    
    
    $
    1.08
 9




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Note D. Investments
  Net Investment Income
 Three months ended March 31
    
    2008
    
    
    2007(In millions)Fixed maturity securities
    
    $
    518
    
    
    $
    496Short term investments
    
    
    39
    
    
    
    50Limited partnerships
    
    
    (39
    )
    
    
    52Equity securities
    
    
    5
    
    
    
    5Income (loss) from trading portfolio (a)
    
    
    (77
    )
    
    
    3Other
    
    
    6
    
    
    
    10Gross investment income
    
    
    452
    
    
    
    616Investment expense
    
    
    (18
    )
    
    
    (8
    )Net investment income
    
    $
    434
    
    
    $
    608
   Realized Investment Gains (Losses)
 Three months ended March 31
    
    2008
    
    
    2007(In millions)Fixed maturity securities:U.S. Government bonds
    
    $
    32
    
    
    $
    2Corporate and other taxable bonds
    
    
    (31
    )
    
    
    25Tax-exempt bonds
    
    
    40
    
    
    
    (11
    )Asset-backed bonds
    
    
    (39
    )
    
    
    (33
    )Redeemable preferred stock
    
    
    (4
    )
    
    
    Total fixed maturity securities
    
    
    (2
    )
    
    
    (17
    )Equity securities
    
    
    (15
    )
    
    
    3Derivative securities
    
    
    (44
    )
    
    
    (8
    )Short term investments
    
    
    2
    
    
    
    Other
    
    
    8
    
    
    
    1Realized investment losses, net of participating policyholders and minority interests
    
    $
    (51
    )
    
    $
    (21
    )
   10




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##### Table of Contents



Summary of Fixed Maturity and Equity Securities
 Cost or
    
    
    Gross
    
    
    Gross Unrealized Losses
    
    
    EstimatedAmortized
    
    
    Unrealized
    
    
    Less than
    
    
    Greater than
    
    
    FairMarch 31, 2008
    
    Cost
    
    
    Gains
    
    
    12 Months
    
    
    12 Months
    
    
    Value(In millions)Fixed maturity securities available-for-sale:U.S. Treasury securities and obligations
of government agencies
    
    $
    1,347
    
    
    $
    121
    
    
    $
    
    
    
    $
    
    
    
    $
    1,468Asset-backed securities
    
    
    11,116
    
    
    
    77
    
    
    
    543
    
    
    
    318
    
    
    
    10,332States, municipalities and political
subdivisions  tax-exempt securities
    
    
    7,232
    
    
    
    51
    
    
    
    315
    
    
    
    11
    
    
    
    6,957Corporate bonds
    
    
    8,932
    
    
    
    189
    
    
    
    484
    
    
    
    13
    
    
    
    8,624Other debt securities
    
    
    3,924
    
    
    
    170
    
    
    
    157
    
    
    
    3
    
    
    
    3,934Redeemable preferred stock
    
    
    1,249
    
    
    
    4
    
    
    
    228
    
    
    
    
    
    
    
    1,025Total fixed maturity securities
available-for-sale
    
    
    33,800
    
    
    
    612
    
    
    
    1,727
    
    
    
    345
    
    
    
    32,340Total fixed maturity securities trading
    
    
    156
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    156Equity securities available-for-sale:Common stock
    
    
    242
    
    
    
    192
    
    
    
    2
    
    
    
    
    
    
    
    432Preferred stock
    
    
    45
    
    
    
    
    
    
    
    3
    
    
    
    
    
    
    
    42Total equity securities available-for-sale
    
    
    287
    
    
    
    192
    
    
    
    5
    
    
    
    
    
    
    
    474Total
    
    $
    34,243
    
    
    $
    804
    
    
    $
    1,732
    
    
    $
    345
    
    
    $
    32,970
 Summary of Fixed Maturity and Equity Securities
 Cost or
    
    
    Gross
    
    
    Gross Unrealized Losses
    
    
    EstimatedAmortized
    
    
    Unrealized
    
    
    Less than
    
    
    Greater than
    
    
    FairDecember 31, 2007
    
    Cost
    
    
    Gains
    
    
    12 Months
    
    
    12 Months
    
    
    Value(In millions)Fixed maturity securities available-for-sale:U.S. Treasury securities and obligations
of government agencies
    
    $
    594
    
    
    $
    93
    
    
    $
    
    
    
    $
    
    
    
    $
    687Asset-backed securities
    
    
    11,776
    
    
    
    39
    
    
    
    223
    
    
    
    183
    
    
    
    11,409States, municipalities and political
subdivisions  tax-exempt securities
    
    
    7,615
    
    
    
    144
    
    
    
    82
    
    
    
    2
    
    
    
    7,675Corporate bonds
    
    
    8,867
    
    
    
    246
    
    
    
    149
    
    
    
    12
    
    
    
    8,952Other debt securities
    
    
    4,143
    
    
    
    208
    
    
    
    48
    
    
    
    4
    
    
    
    4,299Redeemable preferred stock
    
    
    1,216
    
    
    
    2
    
    
    
    160
    
    
    
    
    
    
    
    1,058Total fixed maturity securities
available-for-sale
    
    
    34,211
    
    
    
    732
    
    
    
    662
    
    
    
    201
    
    
    
    34,080Total fixed maturity securities trading
    
    
    177
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    177Equity securities available-for-sale:Common stock
    
    
    246
    
    
    
    207
    
    
    
    1
    
    
    
    
    
    
    
    452Preferred stock
    
    
    120
    
    
    
    7
    
    
    
    11
    
    
    
    
    
    
    
    116Total equity securities available-for-sale
    
    
    366
    
    
    
    214
    
    
    
    12
    
    
    
    
    
    
    
    568Total
    
    $
    34,754
    
    
    $
    946
    
    
    $
    674
    
    
    $
    201
    
    
    $
    34,825
 11




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##### Table of Contents



Unrealized Loss Aging
 March 31, 2008
    
    
    December 31, 2007Gross
    
    
    
    
    
    
    GrossEstimated
    
    
    Unrealized
    
    
    Estimated
    
    
    UnrealizedFair Value
    
    
    Loss
    
    
    Fair Value
    
    
    Loss(In millions)Fixed maturity securities:Investment grade:0-6 months
    
    $
    10,657
    
    
    $
    756
    
    
    $
    5,578
    
    
    $
    3577-12 months
    
    
    2,581
    
    
    
    643
    
    
    
    1,689
    
    
    
    22113-24 months
    
    
    613
    
    
    
    110
    
    
    
    690
    
    
    
    57Greater than 24 months
    
    
    2,137
    
    
    
    228
    
    
    
    3,869
    
    
    
    138Total investment grade
    
    
    15,988
    
    
    
    1,737
    
    
    
    11,826
    
    
    
    773Non-investment grade:0-6 months
    
    
    1,688
    
    
    
    159
    
    
    
    1,549
    
    
    
    767-12 months
    
    
    814
    
    
    
    169
    
    
    
    125
    
    
    
    813-24 months
    
    
    27
    
    
    
    7
    
    
    
    26
    
    
    
    4Greater than 24 months
    
    
    2
    
    
    
    
    
    
    
    8
    
    
    
    2Total non-investment grade
    
    
    2,531
    
    
    
    335
    
    
    
    1,708
    
    
    
    90Total fixed maturity securities
    
    
    18,519
    
    
    
    2,072
    
    
    
    13,534
    
    
    
    863Equity securities:0-6 months
    
    
    56
    
    
    
    4
    
    
    
    98
    
    
    
    127-12 months
    
    
    13
    
    
    
    1
    
    
    
    1
    
    
    
    13-24 months
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Greater than 24 months
    
    
    3
    
    
    
    
    
    
    
    3
    
    
    
    Total equity securities
    
    
    72
    
    
    
    5
    
    
    
    102
    
    
    
    12Total fixed maturity and equity securities
    
    $
    18,591
    
    
    $
    2,077
    
    
    $
    13,636
    
    
    $
    875
    12




---



##### Table of Contents



Asset-Backed Securities
  Recognition of
Interest Income and Impairment on Purchased and Retained Beneficial Interests in Securitized
Financial Assets
   States, Municipalities and Political Subdivisions  Tax-Exempt Securities
  Corporate Bonds
  13




---



##### Table of Contents



Redeemable Preferred Stock
  Investment Commitments
   14




---



##### Table of Contents



Note E. Derivative Financial Instruments
  Recognized Gains (Losses)
 Three months ended March 31
    
    2008
    
    
    2007(In millions)General accountWithout hedge designationSwaps
    
    $
    (22
    )
    
    $
    (7
    )Futures sold, not yet purchased
    
    
    (21
    )
    
    
    Currency forwards
    
    
    (1
    )
    
    
    (1
    )Trading activitiesFutures purchased
    
    
    (72
    )
    
    
    (5
    )Currency forwards
    
    
    1
    
    
    
    Total
    
    $
    (115
    )
    
    $
    (13
    )
  Derivative Financial Instruments
 EstimatedContractual/
    
    
    Fair ValueNotional
    
    
    AssetMarch 31, 2008
    
    Amount
    
    
    (Liability)(In millions)General accountWithout hedge designationSwaps
    
    $
    980
    
    
    $
    (84
    )Futures sold, not yet purchased
    
    
    891
    
    
    
    (3
    )Currency forwards
    
    
    25
    
    
    
    (1
    )Equity warrants
    
    
    4
    
    
    
    2Options embedded in convertible debt securities
    
    
    3
    
    
    
    Trading activitiesFutures purchased
    
    
    725
    
    
    
    2Currency forwards
    
    
    42
    
    
    
    1Futures sold, not yet purchased
    
    
    126
    
    
    
    Total general account
    
    $
    2,796
    
    
    $
    (83
    )
 15




---



##### Table of Contents



Derivative Financial Instruments
 EstimatedContractual/
    
    
    Fair ValueNotional
    
    
    AssetDecember 31, 2007
    
    Amount
    
    
    (Liability)(In millions)General accountWithout hedge designationSwaps
    
    $
    1,605
    
    
    $
    Equity warrants
    
    
    4
    
    
    
    2Options embedded in convertible debt securities
    
    
    3
    
    
    
    Trading activitiesFutures purchased
    
    
    791
    
    
    
    (4
    )Futures sold, not yet purchased
    
    
    135
    
    
    
    Currency forwards
    
    
    44
    
    
    
    1Total general account
    
    $
    2,582
    
    
    $
    (1
    )
   16




---



##### Table of Contents



Note F. Fair Value
       TotalAssets/LiabilitiesMarch 31, 2008
    
    Level 1
    
    
    Level 2
    
    
    Level 3
    
    
    at fair value(In millions)AssetsFixed maturity securities
    
    $
    2,306
    
    
    $
    27,945
    
    
    $
    2,245
    
    
    $
    32,496Equity securities
    
    
    239
    
    
    
    42
    
    
    
    193
    
    
    
    474Derivative financial instruments, included in Other invested
assets
    
    
    1
    
    
    
    
    
    
    
    2
    
    
    
    3Short term investments
    
    
    2,268
    
    
    
    2,994
    
    
    
    85
    
    
    
    5,347Life settlement contracts, included in Other assets
    
    
    
    
    
    
    
    
    
    
    118
    
    
    
    118Discontinued operations investments, included in Other assets
    
    
    52
    
    
    
    95
    
    
    
    41
    
    
    
    188Separate account business
    
    
    41
    
    
    
    371
    
    
    
    47
    
    
    
    459Total assets
    
    $
    4,907
    
    
    $
    31,447
    
    
    $
    2,731
    
    
    $
    39,085LiabilitiesDerivative financial instruments, included in Other liabilities
    
    $
    (1
    )
    
    $
    
    
    
    $
    (84
    )
    
    $
    (85
    )Total liabilities
    
    $
    (1
    )
    
    $
    
    
    
    $
    (84
    )
    
    $
    (85
    )
 17




---



##### Table of Contents



Derivative
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    DerivativeFixed
    
    
    
    
    
    
    financial
    
    
    
    
    
    
    
    
    
    
    Discontinued
    
    
    Separate
    
    
    financialmaturity
    
    
    Equity
    
    
    instruments
    
    
    Short term
    
    
    Life settlement
    
    
    operations
    
    
    account
    
    
    instrumentsLevel 3
    
    securities
    
    
    securities
    
    
    (Assets)
    
    
    investments
    
    
    contracts
    
    
    investments
    
    
    business
    
    
    (Liabilities)(In millions)Balance at January 1, 2008
    
    $
    2,684
    
    
    $
    196
    
    
    $
    38
    
    
    $
    85
    
    
    $
    115
    
    
    $
    42
    
    
    $
    30
    
    
    $
    (36
    )Total net realized investment
gains (losses) and net change
in unrealized appreciation
(depreciation):Included in net income
    
    
    (38
    )
    
    
    (2
    )
    
    
    24
    
    
    
    
    
    
    
    18
    
    
    
    
    
    
    
    
    
    
    
    (46
    )Included in other comprehensive
income
    
    
    (215
    )
    
    
    (1
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Purchases, sales, issuances and
settlements
    
    
    (5
    )
    
    
    
    
    
    
    (60
    )
    
    
    
    
    
    
    (15
    )
    
    
    (1
    )
    
    
    (3
    )
    
    
    (2
    )Net transfers in (out) of Level 3
    
    
    (181
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    20
    
    
    
    Balance at March 31, 2008
    
    $
    2,245
    
    
    $
    193
    
    
    $
    2
    
    
    $
    85
    
    
    $
    118
    
    
    $
    41
    
    
    $
    47
    
    
    $
    (84
    )
  Derivative
    
    
    
    
    
    
    DerivativeFixed
    
    
    
    
    
    
    financial
    
    
    
    
    
    
    financialLevel 3
    
    maturity
    
    
    Equity
    
    
    instruments
    
    
    Life settlement
    
    
    instruments(In millions)
    
    securities
    
    
    securities
    
    
    (Assets)
    
    
    contracts
    
    
    (Liabilities)
    
    
    TotalClassification of net realized investment
gains (losses) and net change in unrealized
appreciation (depreciation)Net investment income
    
    $
    3
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    3Realized investment gains (losses)
    
    
    (41
    )
    
    
    (2
    )
    
    
    24
    
    
    
    
    
    
    
    (46
    )
    
    
    (65
    )Other revenues
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    18
    
    
    
    
    
    
    
    18Total
    
    $
    (38
    )
    
    $
    (2
    )
    
    $
    24
    
    
    $
    18
    
    
    $
    (46
    )
    
    $
    (44
    )
  Derivative
    
    
    
    
    
    
    DerivativeFixed
    
    
    
    
    
    
    financial
    
    
    
    
    
    
    financialmaturity
    
    
    Equity
    
    
    instruments
    
    
    Life settlement
    
    
    instrumentsLevel 3
    
    securities
    
    
    securities
    
    
    (Assets)
    
    
    contracts
    
    
    (Liabilities)
    
    
    Total(In millions)Changes in unrealized gains
(losses) recorded in net income
for securities held at March 31,
2008Net investment income
    
    $
    (1
    )
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    (1
    )Realized investment gains (losses)
    
    
    (43
    )
    
    
    (2
    )
    
    
    (36
    )
    
    
    
    
    
    
    (48
    )
    
    
    (129
    )Other revenues
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    4
    
    
    
    
    
    
    
    4Total
    
    $
    (44
    )
    
    $
    (2
    )
    
    $
    (36
    )
    
    $
    4
    
    
    $
    (48
    )
    
    $
    (126
    )
 18




---



##### Table of Contents



Fixed Maturity Securities
  Equity Securities
   Derivative Financial Instruments
  Short Term Investments
  Life Settlement Contracts
  19




---



##### Table of Contents



Discontinued
Operations Investments
  Separate Account Business
  Note G. Claim and Claim Adjustment Expense Reserves
     A&E Reserves
  A&E ReservesMarch 31, 2008
    
    
    December 31, 2007Environmental
    
    
    
    
    
    
    EnvironmentalAsbestos
    
    
    Pollution
    
    
    Asbestos
    
    
    Pollution(In millions)Gross reserves
    
    $
    2,269
    
    
    $
    346
    
    
    $
    2,352
    
    
    $
    367Ceded reserves
    
    
    (994
    )
    
    
    (123
    )
    
    
    (1,030
    )
    
    
    (125
    )Net reserves
    
    $
    1,275
    
    
    $
    223
    
    
    $
    1,322
    
    
    $
    242
 20




---



##### Table of Contents



Asbestos
        21




---



##### Table of Contents



In re:
Burns & Roe Enterprises, Inc
 Boson v. Union Carbide
Corp.,
 22




---



##### Table of Contents



Pennock, et al. v. Maryland Casualty,
et al.
  Environmental Pollution
  23




---



##### Table of Contents



Net Prior Year Development
   Net Prior Year Development  Three months ended March 31, 2008
 CorporateStandard
    
    
    Specialty
    
    
    & OtherLines
    
    
    Lines
    
    
    Non-Core
    
    
    Total(In millions)Pretax unfavorable (favorable) net prior year
claim and allocated claim adjustment expense
reserve development:Core (Non-A&E)
    
    $
    (35
    )
    
    $
    17
    
    
    $
    3
    
    
    $
    (15
    )A&E
    
    
    
    
    
    
    
    
    
    
    2
    
    
    
    2Pretax unfavorable (favorable) net prior year
development before impact of premium development
    
    
    (35
    )
    
    
    17
    
    
    
    5
    
    
    
    (13
    )Pretax unfavorable (favorable) premium development
    
    
    9
    
    
    
    (19
    )
    
    
    (1
    )
    
    
    (11
    )Total pretax unfavorable (favorable) net prior
year development
    
    $
    (26
    )
    
    $
    (2
    )
    
    $
    4
    
    
    $
    (24
    )Net Prior Year DevelopmentThree months ended March 31, 2007CorporateStandard
    
    
    Specialty
    
    
    & OtherLines
    
    
    Lines
    
    
    Non-Core
    
    
    Total(In millions)Pretax unfavorable (favorable) net prior year
claim and allocated claim adjustment expense
reserve development:Core (Non-A&E)
    
    $
    13
    
    
    $
    7
    
    
    $
    
    
    
    $
    20A&E
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Pretax unfavorable (favorable) net prior year
development before impact of premium development
    
    
    13
    
    
    
    7
    
    
    
    
    
    
    
    20Pretax unfavorable (favorable) premium development
    
    
    (26
    )
    
    
    (10
    )
    
    
    2
    
    
    
    (34
    )Total pretax unfavorable (favorable) net prior
year development
    
    $
    (13
    )
    
    $
    (3
    )
    
    $
    2
    
    
    $
    (14
    )
 24




---



##### Table of Contents



2008 Net Prior Year Development
 Standard Lines
    Specialty Lines
  2007 Net Prior Year Development
 Standard Lines
   Note H. Legal Proceedings and Contingent Liabilities
 Insurance Brokerage Antitrust Litigation
 In re Insurance Brokerage Antitrust Litigation
  25




---



##### Table of Contents



Global Crossing Limited Litigation
 Global Crossing Estate Representative, for itself and as the Liquidating Trustee of the
Global Crossing Liquidating Trust v. Gary Winnick, et al.,
  California Long Term Care Litigation
 Shaffer v. Continental Casualty Company
 Asbestos and Environmental Pollution (A&E) Reserves
  Other Litigation
  Note I. Benefit Plans
 Pension and Postretirement Healthcare and Life Insurance Benefit Plans
    26




---



##### Table of Contents



Net Periodic Benefit Costs
 Three months ended March 31
    
    2008
    
    
    2007(In millions)Pension benefitsService cost
    
    $
    6
    
    
    $
    7Interest cost on projected benefit obligation
    
    
    36
    
    
    
    38Expected return on plan assets
    
    
    (45
    )
    
    
    (43
    )Actuarial loss amortization
    
    
    1
    
    
    
    4Net periodic pension cost (benefit)
    
    $
    (2
    )
    
    $
    6Postretirement benefitsService cost
    
    $
    1
    
    
    $
    1Interest cost on projected benefit obligation
    
    
    2
    
    
    
    2Prior service cost amortization
    
    
    (4
    )
    
    
    (5
    )Actuarial loss amortization
    
    
    
    
    
    
    1Net periodic postretirement (benefit)
    
    $
    (1
    )
    
    $
    (1
    )
  Note J. Operating Leases, Other Commitments and Contingencies, and Guarantees
 Operating Leases
    Other Commitments and Contingencies
   27




---



##### Table of Contents



Guarantees
    28




---



##### Table of Contents



Note K. Comprehensive Income (Loss)
  Comprehensive Income (Loss)Three months ended March 31
    
    2008
    
    
    2007(In millions)Net income
    
    $
    187
    
    
    $
    296Other comprehensive income (loss):Change in unrealized gains (losses) on general account
investments:Holding gains (losses) arising during the period, net of tax
(expense) benefit of $462 and $(28)
    
    
    (853
    )
    
    
    52Reclassification adjustment for (gains) losses included in net
income, net of tax expense (benefit) of $11 and $20
    
    
    (20
    )
    
    
    (35
    )Net change in unrealized gains (losses) on general account
investments, net of tax (expense) benefit of $473 and ($8)
    
    
    (873
    )
    
    
    17Net change in unrealized gains (losses) on discontinued
operations and other, net of tax (expense) benefit of $1 and
($1)
    
    
    4
    
    
    
    1Net change in foreign currency translation adjustment
    
    
    (11
    )
    
    
    (7
    )Net change related to pensions and postretirement benefits, net
of tax (expense) benefit of $1 and ($1)
    
    
    (2
    )
    
    
    4Allocation to participating policyholders and minority interests
    
    
    16
    
    
    
    (1
    )Other comprehensive income (loss), net of tax (expense) benefit
of $475 and ($10)
    
    
    (866
    )
    
    
    14Total comprehensive income (loss)
    
    $
    (679
    )
    
    $
    310
 Note L. Business Segments
    29




---



##### Table of Contents



30




---



##### Table of Contents



CorporateStandard
    
    
    Specialty
    
    
    Life & Group
    
    
    & OtherThree months ended
    
    Lines
    
    
    Lines
    
    
    Non-Core
    
    
    Non-Core
    
    
    Eliminations
    
    
    TotalMarch 31, 2008(In millions)Revenues:Net earned premiums
    
    $
    783
    
    
    $
    873
    
    
    $
    157
    
    
    $
    1
    
    
    $
    (1
    )
    
    $
    1,813Net investment income
    
    
    164
    
    
    
    132
    
    
    
    84
    
    
    
    54
    
    
    
    
    
    
    
    434Other revenues
    
    
    14
    
    
    
    53
    
    
    
    13
    
    
    
    6
    
    
    
    
    
    
    
    86Total operating revenues
    
    
    961
    
    
    
    1,058
    
    
    
    254
    
    
    
    61
    
    
    
    (1
    )
    
    
    2,333Claims, benefits and expenses:Net incurred claims and benefits
    
    
    577
    
    
    
    566
    
    
    
    212
    
    
    
    21
    
    
    
    
    
    
    
    1,376Policyholders dividends
    
    
    4
    
    
    
    7
    
    
    
    2
    
    
    
    
    
    
    
    
    
    
    
    13Amortization of deferred acquisition costs
    
    
    179
    
    
    
    184
    
    
    
    4
    
    
    
    1
    
    
    
    
    
    
    
    368Other insurance related expenses
    
    
    58
    
    
    
    50
    
    
    
    50
    
    
    
    4
    
    
    
    (1
    )
    
    
    161Other expenses
    
    
    12
    
    
    
    51
    
    
    
    5
    
    
    
    32
    
    
    
    
    
    
    
    100Total claims, benefits and expenses
    
    
    830
    
    
    
    858
    
    
    
    273
    
    
    
    58
    
    
    
    (1
    )
    
    
    2,018Operating income (loss) from continuing operations
before income tax and minority interest
    
    
    131
    
    
    
    200
    
    
    
    (19
    )
    
    
    3
    
    
    
    
    
    
    
    315Income tax (expense) benefit on operating income (loss)
    
    
    (36
    )
    
    
    (64
    )
    
    
    16
    
    
    
    2
    
    
    
    
    
    
    
    (82
    )Minority interest
    
    
    
    
    
    
    (12
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (12
    )Net operating income (loss) from continuing operations
    
    
    95
    
    
    
    124
    
    
    
    (3
    )
    
    
    5
    
    
    
    
    
    
    
    221Realized investment losses, net of participating
policyholders and minority interests
    
    
    (16
    )
    
    
    (9
    )
    
    
    (17
    )
    
    
    (9
    )
    
    
    
    
    
    
    (51
    )Income tax benefit on realized investment losses
    
    
    5
    
    
    
    4
    
    
    
    6
    
    
    
    3
    
    
    
    
    
    
    
    18Income (loss) from continuing operations
    
    $
    84
    
    
    $
    119
    
    
    $
    (14
    )
    
    $
    (1
    )
    
    $
    
    
    
    $
    188March 31, 2008(In millions)Reinsurance receivables
    
    $
    2,209
    
    
    $
    1,852
    
    
    $
    2,147
    
    
    $
    2,341
    
    
    $
    
    
    
    $
    8,549Insurance receivables
    
    $
    1,661
    
    
    $
    564
    
    
    $
    16
    
    
    $
    9
    
    
    $
    
    
    
    $
    2,250Insurance reserves:Claim and claim adjustment expenses
    
    $
    11,987
    
    
    $
    8,602
    
    
    $
    3,006
    
    
    $
    4,907
    
    
    $
    
    
    
    $
    28,502Unearned premiums
    
    
    1,460
    
    
    
    1,948
    
    
    
    168
    
    
    
    5
    
    
    
    (3
    )
    
    
    3,578Future policy benefits
    
    
    
    
    
    
    
    
    
    
    7,209
    
    
    
    
    
    
    
    
    
    
    
    7,209Policyholders funds
    
    
    27
    
    
    
    6
    
    
    
    826
    
    
    
    
    
    
    
    
    
    
    
    859Deferred acquisition costs
    
    $
    308
    
    
    $
    369
    
    
    $
    481
    
    
    $
    
    
    
    $
    
    
    
    $
    1,158
 31




---



##### Table of Contents



CorporateStandard
    
    
    Specialty
    
    
    Life & Group
    
    
    & OtherLines
    
    
    Lines
    
    
    Non-Core
    
    
    Non-Core
    
    
    Eliminations
    
    
    TotalThree months endedMarch 31, 2007(In millions)Revenues:Net earned premiums
    
    $
    863
    
    
    $
    845
    
    
    $
    156
    
    
    $
    
    
    
    $
    (1
    )
    
    $
    1,863Net investment income
    
    
    220
    
    
    
    149
    
    
    
    161
    
    
    
    78
    
    
    
    
    
    
    
    608Other revenues
    
    
    11
    
    
    
    42
    
    
    
    12
    
    
    
    2
    
    
    
    
    
    
    
    67Total operating revenues
    
    
    1,094
    
    
    
    1,036
    
    
    
    329
    
    
    
    80
    
    
    
    (1
    )
    
    
    2,538Claims, benefits and expenses:Net incurred claims and benefits
    
    
    593
    
    
    
    543
    
    
    
    273
    
    
    
    34
    
    
    
    
    
    
    
    1,443Policyholders dividends
    
    
    3
    
    
    
    3
    
    
    
    (1
    )
    
    
    
    
    
    
    
    
    
    
    5Amortization of deferred acquisition costs
    
    
    194
    
    
    
    182
    
    
    
    5
    
    
    
    
    
    
    
    
    
    
    
    381Other insurance related expenses
    
    
    65
    
    
    
    41
    
    
    
    51
    
    
    
    4
    
    
    
    (1
    )
    
    
    160Other expenses
    
    
    10
    
    
    
    42
    
    
    
    9
    
    
    
    31
    
    
    
    
    
    
    
    92Total claims, benefits and expenses
    
    
    865
    
    
    
    811
    
    
    
    337
    
    
    
    69
    
    
    
    (1
    )
    
    
    2,081Operating income (loss) from continuing operations
before income tax and minority interest
    
    
    229
    
    
    
    225
    
    
    
    (8
    )
    
    
    11
    
    
    
    
    
    
    
    457Income tax (expense) benefit on operating income (loss)
    
    
    (75
    )
    
    
    (73
    )
    
    
    10
    
    
    
    (2
    )
    
    
    
    
    
    
    (140
    )Minority interest
    
    
    
    
    
    
    (10
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (10
    )Net operating income from continuing operations
    
    
    154
    
    
    
    142
    
    
    
    2
    
    
    
    9
    
    
    
    
    
    
    
    307Realized investment gains (losses), net of
participating policyholders and minority interests
    
    
    (24
    )
    
    
    (14
    )
    
    
    1
    
    
    
    16
    
    
    
    
    
    
    
    (21
    )Income tax (expense) benefit on realized investment
gains (losses)
    
    
    9
    
    
    
    5
    
    
    
    
    
    
    
    (6
    )
    
    
    
    
    
    
    8Income from continuing operations
    
    $
    139
    
    
    $
    133
    
    
    $
    3
    
    
    $
    19
    
    
    $
    
    
    
    $
    294December 31, 2007(In millions)Reinsurance receivables
    
    $
    2,269
    
    
    $
    1,819
    
    
    $
    2,201
    
    
    $
    2,400
    
    
    $
    
    
    
    $
    8,689Insurance receivables
    
    $
    1,664
    
    
    $
    605
    
    
    $
    26
    
    
    $
    (11
    )
    
    $
    
    
    
    $
    2,284Insurance reserves:Claim and claim adjustment expenses
    
    $
    12,048
    
    
    $
    8,403
    
    
    $
    3,027
    
    
    $
    5,110
    
    
    $
    
    
    
    $
    28,588Unearned premiums
    
    
    1,483
    
    
    
    1,948
    
    
    
    162
    
    
    
    5
    
    
    
    
    
    
    
    3,598Future policy benefits
    
    
    
    
    
    
    
    
    
    
    7,106
    
    
    
    
    
    
    
    
    
    
    
    7,106Policyholders funds
    
    
    26
    
    
    
    1
    
    
    
    903
    
    
    
    
    
    
    
    
    
    
    
    930Deferred acquisition costs
    
    $
    311
    
    
    $
    365
    
    
    $
    485
    
    
    $
    
    
    
    $
    
    
    
    $
    1,161
 32




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##### Table of Contents



Revenues by Line of BusinessThree months ended March 31
    
    2008
    
    
    2007(In millions)Standard LinesBusiness Insurance
    
    $
    155
    
    
    $
    163Commercial Insurance
    
    
    790
    
    
    
    907Standard Lines revenues
    
    
    945
    
    
    
    1,070Specialty LinesU.S. Specialty Lines
    
    
    647
    
    
    
    662Surety
    
    
    115
    
    
    
    110Warranty
    
    
    73
    
    
    
    71CNA Global
    
    
    214
    
    
    
    179Specialty Lines revenues
    
    
    1,049
    
    
    
    1,022Life & Group Non-CoreLife & Annuity
    
    
    (21
    )
    
    
    81Health
    
    
    238
    
    
    
    233Other
    
    
    20
    
    
    
    16Life & Group Non-Core revenues
    
    
    237
    
    
    
    330Corporate & Other Non-CoreCNA Re
    
    
    17
    
    
    
    47Other
    
    
    35
    
    
    
    49Corporate & Other Non-Core revenues
    
    
    52
    
    
    
    96Eliminations
    
    
    (1
    )
    
    
    (1
    )Total revenues
    
    $
    2,282
    
    
    $
    2,517
 33




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##### Table of Contents



Note M. Discontinued Operations
   Discontinued OperationsThree months ended March 31
    
    2008
    
    
    2007(In millions)Revenues:Net investment income
    
    $
    2
    
    
    $
    5Realized investment gains (losses) and other
    
    
    1
    
    
    
    (1
    )Total revenues
    
    
    3
    
    
    
    4Insurance related expenses
    
    
    4
    
    
    
    1Income (loss) before income taxes
    
    
    (1
    )
    
    
    3Income tax expense
    
    
    
    
    
    
    1Income (loss) from discontinued operations, net of tax
    
    $
    (1
    )
    
    $
    2
  Discontinued Operations(In millions)
    
    March 31, 2008
    
    
    December 31, 2007Assets:Investments
    
    $
    188
    
    
    $
    185Reinsurance receivables
    
    
    1
    
    
    
    1Cash
    
    
    9
    
    
    
    7Other assets
    
    
    1
    
    
    
    4Total assets
    
    
    199
    
    
    
    197Liabilities:Insurance reserves
    
    
    171
    
    
    
    172Other liabilities
    
    
    6
    
    
    
    2Total liabilities
    
    
    177
    
    
    
    174Net assets of discontinued operations
    
    $
    22
    
    
    $
    23
 Reporting the Results of Operations  Reporting the Effects of Disposal of a Segment of a
Business, and Extraordinary, Unusual and Infrequently Occurring Events and Transactions
 34




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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
   
 35




---



##### Table of Contents



CONSOLIDATED OPERATIONS
 Results of Operations
  Three months ended March 31
    
    2008
    
    
    2007(In millions, except per share data)RevenuesNet earned premiums
    
    $
    1,813
    
    
    $
    1,863Net investment income
    
    
    434
    
    
    
    608Other revenues
    
    
    86
    
    
    
    67Total operating revenues
    
    
    2,333
    
    
    
    2,538Claims, Benefits and ExpensesNet incurred claims and benefits
    
    
    1,376
    
    
    
    1,443Policyholders dividends
    
    
    13
    
    
    
    5Amortization of deferred acquisition costs
    
    
    368
    
    
    
    381Other insurance related expenses
    
    
    161
    
    
    
    160Other expenses
    
    
    100
    
    
    
    92Total claims, benefits and expenses
    
    
    2,018
    
    
    
    2,081Operating income from continuing operations before income tax and minority interest
    
    
    315
    
    
    
    457Income tax expense on operating income
    
    
    (82
    )
    
    
    (140
    )Minority interest
    
    
    (12
    )
    
    
    (10
    )Net operating income from continuing operations
    
    
    221
    
    
    
    307Realized investment losses, net of participating policyholders and minority interests
    
    
    (51
    )
    
    
    (21
    )Income tax benefit on realized investment losses
    
    
    18
    
    
    
    8Income from continuing operations
    
    
    188
    
    
    
    294Income (loss) from discontinued operations, net of income tax expense of $0 and $1
    
    
    (1
    )
    
    
    2Net Income
    
    $
    187
    
    
    $
    296Basic and Diluted Earnings Per ShareIncome from continuing operations
    
    $
    0.70
    
    
    $
    1.08Income (loss) from discontinued operations
    
    
    (0.01
    )
    
    
    0.01Basic and diluted earnings per share available to common stockholders
    
    $
    0.69
    
    
    $
    1.09Weighted average outstanding common stock and common stock equivalentsBasic
    
    
    270.7
    
    
    
    271.3Diluted
    
    
    270.8
    
    
    
    271.6
 36




---



##### Table of Contents



37




---



##### Table of Contents



Critical Accounting Estimates
    
    
    Insurance Reserves
 
    
    Reinsurance
 
    
    Valuation of Investments and Impairment of Securities
 
    
    Long Term Care Products
 
    
    Pension and Postretirement Benefit Obligations
 
    
    Legal Proceedings
 
 38




---



##### Table of Contents



SEGMENT RESULTS
 
 STANDARD LINES
  Results of OperationsThree months ended March 31
    
    2008
    
    
    2007(In millions)Net written premiums
    
    $
    771
    
    
    $
    867Net earned premiums
    
    
    783
    
    
    
    863Net investment income
    
    
    164
    
    
    
    220Net operating income
    
    
    95
    
    
    
    154Net realized investment losses, after-tax
    
    
    (11
    )
    
    
    (15
    )Net income
    
    
    84
    
    
    
    139RatiosLoss and loss adjustment expense
    
    
    73.7
    %
    
    
    68.7
    %Expense
    
    
    30.2
    
    
    
    30.0Dividend
    
    
    0.5
    
    
    
    0.4Combined
    
    
    104.4
    %
    
    
    99.1
    %
      39




---



##### Table of Contents



Gross and Net CarriedClaim and Claim Adjustment Expense ReservesMarch 31, 2008
    
    
    December 31, 2007(In millions)Gross Case Reserves
    
    $
    6,075
    
    
    $
    5,988Gross IBNR Reserves
    
    
    5,912
    
    
    
    6,060Total Gross Carried Claim and Claim Adjustment Expense Reserves
    
    $
    11,987
    
    
    $
    12,048Net Case Reserves
    
    $
    4,844
    
    
    $
    4,750Net IBNR Reserves
    
    
    5,036
    
    
    
    5,170Total Net Carried Claim and Claim Adjustment Expense Reserves
    
    $
    9,880
    
    
    $
    9,920
 40




---



##### Table of Contents



SPECIALTY LINES
  Results of OperationsThree months ended March 31
    
    2008
    
    
    2007(In millions)Net written premiums
    
    $
    848
    
    
    $
    864Net earned premiums
    
    
    873
    
    
    
    845Net investment income
    
    
    132
    
    
    
    149Net operating income
    
    
    124
    
    
    
    142Net realized investment losses, after-tax
    
    
    (5
    )
    
    
    (9
    )Net income
    
    
    119
    
    
    
    133RatiosLoss and loss adjustment expense
    
    
    64.8
    %
    
    
    64.2
    %Expense
    
    
    26.8
    
    
    
    26.5Dividend
    
    
    0.8
    
    
    
    0.3Combined
    
    
    92.4
    %
    
    
    91.0
    %
       41




---



##### Table of Contents



Gross and Net CarriedClaim and Claim Adjustment Expense ReservesMarch 31, 2008
    
    
    December 31, 2007(In millions)Gross Case Reserves
    
    $
    2,688
    
    
    $
    2,585Gross IBNR Reserves
    
    
    5,914
    
    
    
    5,818Total Gross Carried Claim and Claim Adjustment Expense Reserves
    
    $
    8,602
    
    
    $
    8,403Net Case Reserves
    
    $
    2,199
    
    
    $
    2,090Net IBNR Reserves
    
    
    4,608
    
    
    
    4,527Total Net Carried Claim and Claim Adjustment Expense Reserves
    
    $
    6,807
    
    
    $
    6,617
 42




---



##### Table of Contents



LIFE & GROUP NON-CORE
  Results of OperationsThree months ended March 31
    
    2008
    
    2007(In millions)Net earned premiums
    
    $
    157
    
    
    $
    156Net investment income
    
    
    84
    
    
    
    161Net operating income (loss)
    
    
    (3
    )
    
    
    2Net realized investment gains (losses), after tax
    
    
    (11
    )
    
    
    1Net income (loss)
    
    
    (14
    )
    
    
    3
    43




---



##### Table of Contents



CORPORATE & OTHER NON-CORE
  Results of OperationsThree months ended March 31
    
    2008
    
    2007(In millions)Net investment income
    
    $
    54
    
    
    $
    78Revenues
    
    
    51
    
    
    
    95Net operating income
    
    
    5
    
    
    
    9Net realized investment gains (losses), after-tax
    
    
    (6
    )
    
    
    10Net income (loss)
    
    
    (1
    )
    
    
    19
     Gross and Net CarriedClaim and Claim Adjustment Expense ReservesMarch 31, 2008
    
    
    December 31, 2007(In millions)Gross Case Reserves
    
    $
    2,046
    
    
    $
    2,159Gross IBNR Reserves
    
    
    2,861
    
    
    
    2,951Total Gross Carried Claim and Claim Adjustment Expense Reserves
    
    $
    4,907
    
    
    $
    5,110Net Case Reserves
    
    $
    1,250
    
    
    $
    1,328Net IBNR Reserves
    
    
    1,742
    
    
    
    1,787Total Net Carried Claim and Claim Adjustment Expense Reserves
    
    $
    2,992
    
    
    $
    3,115
 44




---



##### Table of Contents



A&E Reserves
  Asbestos
       45




---



##### Table of Contents



Pending Asbestos Accounts and Associated Reserves
 March 31, 2008Net Paid Losses
    
    
    Net Asbestos
    
    
    Percent ofNumber of
    
    
    in 2008
    
    
    Reserves
    
    
    AsbestosPolicyholders
    
    
    (In millions)
    
    
    (In millions)
    
    
    Net ReservesPolicyholders with settlement agreementsStructured settlements
    
    
    13
    
    
    $
    8
    
    
    $
    145
    
    
    
    11
    %Wellington
    
    
    3
    
    
    
    
    
    
    
    12
    
    
    
    1Coverage in place
    
    
    37
    
    
    
    12
    
    
    
    93
    
    
    
    7Total with settlement agreements
    
    
    53
    
    
    
    20
    
    
    
    250
    
    
    
    19Other policyholders with active accountsLarge asbestos accounts
    
    
    232
    
    
    
    22
    
    
    
    211
    
    
    
    17Small asbestos accounts
    
    
    960
    
    
    
    5
    
    
    
    88
    
    
    
    7Total other policyholders
    
    
    1,192
    
    
    
    27
    
    
    
    299
    
    
    
    24Assumed reinsurance and pools
    
    
    
    
    
    
    2
    
    
    
    131
    
    
    
    10Unassigned IBNR
    
    
    
    
    
    
    
    
    
    
    595
    
    
    
    47Total
    
    
    1,245
    
    
    $
    49
    
    
    $
    1,275
    
    
    
    100
    %
 Pending Asbestos Accounts and Associated Reserves
 December 31, 2007Net Paid Losses
    
    
    Net Asbestos
    
    
    Percent ofNumber of
    
    
    in 2007
    
    
    Reserves
    
    
    AsbestosPolicyholders
    
    
    (In millions)
    
    
    (In millions)
    
    
    Net ReservesPolicyholders with settlement agreementsStructured settlements
    
    
    14
    
    
    $
    29
    
    
    $
    151
    
    
    
    11
    %Wellington
    
    
    3
    
    
    
    1
    
    
    
    12
    
    
    
    1Coverage in place
    
    
    34
    
    
    
    38
    
    
    
    100
    
    
    
    8Total with settlement agreements
    
    
    51
    
    
    
    68
    
    
    
    263
    
    
    
    20Other policyholders with active accountsLarge asbestos accounts
    
    
    233
    
    
    
    45
    
    
    
    237
    
    
    
    18Small asbestos accounts
    
    
    1,005
    
    
    
    15
    
    
    
    93
    
    
    
    7Total other policyholders
    
    
    1,238
    
    
    
    60
    
    
    
    330
    
    
    
    25Assumed reinsurance and pools
    
    
    
    
    
    
    8
    
    
    
    133
    
    
    
    10Unassigned IBNR
    
    
    
    
    
    
    
    
    
    
    596
    
    
    
    45Total
    
    
    1,289
    
    
    $
    136
    
    
    $
    1,322
    
    
    
    100
    %
   Environmental Pollution
   46




---



##### Table of Contents



Pending Environmental Pollution Accounts and Associated Reserves
 March 31, 2008NetNumber of
    
    
    Net Paid Losses in 2008
    
    
    Environmental Pollution Reserves
    
    
    Percent of Environmental Pollution NetPolicyholders
    
    
    (In millions)
    
    
    (In millions)
    
    
    ReservePolicyholders with settlement agreementsStructured settlements
    
    
    9
    
    
    $
    2
    
    
    $
    6
    
    
    
    3
    %Coverage in place
    
    
    18
    
    
    
    
    
    
    
    15
    
    
    
    7Total with settlement agreements
    
    
    27
    
    
    
    2
    
    
    
    21
    
    
    
    10Other policyholders with active accountsLarge pollution accounts
    
    
    104
    
    
    
    12
    
    
    
    47
    
    
    
    21Small pollution accounts
    
    
    267
    
    
    
    4
    
    
    
    38
    
    
    
    17Total other policyholders
    
    
    371
    
    
    
    16
    
    
    
    85
    
    
    
    38Assumed reinsurance and pools
    
    
    
    
    
    
    1
    
    
    
    31
    
    
    
    14Unassigned IBNR
    
    
    
    
    
    
    
    
    
    
    86
    
    
    
    38Total
    
    
    398
    
    
    $
    19
    
    
    $
    223
    
    
    
    100
    %
 Pending Environmental Pollution Accounts and Associated Reserves
 December 31, 2007Number of
    
    
    Net Paid Losses in 2007
    
    
    Net Environmental Pollution Reserves
    
    
    Percent of Environmental Pollution NetPolicyholders
    
    
    (In millions)
    
    
    (In millions)
    
    
    ReservePolicyholders with settlement agreementsStructured settlements
    
    
    10
    
    
    $
    9
    
    
    $
    6
    
    
    
    2
    %Coverage in place
    
    
    18
    
    
    
    8
    
    
    
    14
    
    
    
    6Total with settlement agreements
    
    
    28
    
    
    
    17
    
    
    
    20
    
    
    
    8Other policyholders with active accountsLarge pollution accounts
    
    
    112
    
    
    
    17
    
    
    
    53
    
    
    
    22Small pollution accounts
    
    
    298
    
    
    
    9
    
    
    
    42
    
    
    
    17Total other policyholders
    
    
    410
    
    
    
    26
    
    
    
    95
    
    
    
    39Assumed reinsurance and pools
    
    
    
    
    
    
    1
    
    
    
    31
    
    
    
    13Unassigned IBNR
    
    
    
    
    
    
    
    
    
    
    96
    
    
    
    40Total
    
    
    438
    
    
    $
    44
    
    
    $
    242
    
    
    
    100
    %
 47




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##### Table of Contents



INVESTMENTS
 Net Investment Income
  Net Investment Income
 Three months ended March 31
    
    2008
    
    
    2007(In millions)Fixed maturity securities
    
    $
    518
    
    
    $
    496Short term investments
    
    
    39
    
    
    
    50Limited partnerships
    
    
    (39
    )
    
    
    52Equity securities
    
    
    5
    
    
    
    5Income (loss) from trading portfolio (a)
    
    
    (77
    )
    
    
    3Other
    
    
    6
    
    
    
    10Gross investment income
    
    
    452
    
    
    
    616Investment expense
    
    
    (18
    )
    
    
    (8
    )Net investment income
    
    $
    434
    
    
    $
    608
 (a) The change in net unrealized gains (losses) on trading securities included in net investment
income was $(13) million and $2 million for the three months ended March 31, 2008 and 2007.   48




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##### Table of Contents



Net Realized Investment Gains (Losses)
  Three months ended March 31
    
    2008
    
    
    2007(In millions)Fixed maturity securities:U.S. Government bonds
    
    $
    32
    
    
    $
    2Corporate and other taxable bonds
    
    
    (31
    )
    
    
    25Tax-exempt bonds
    
    
    40
    
    
    
    (11
    )Asset-backed bonds
    
    
    (39
    )
    
    
    (33
    )Redeemable preferred stock
    
    
    (4
    )
    
    
    Total fixed maturity securities
    
    
    (2
    )
    
    
    (17
    )Equity securities
    
    
    (15
    )
    
    
    3Derivative securities
    
    
    (44
    )
    
    
    (8
    )Short term investments
    
    
    2
    
    
    
    Other
    
    
    8
    
    
    
    1Realized investment losses,net of participating policyholders and minority interests
    
    
    (51
    )
    
    
    (21
    )Income tax benefit
    
    
    18
    
    
    
    8Net realized investment losses, net of participating policyholders and minority interests
    
    $
    (33
    )
    
    $
    (13
    )
     49




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##### Table of Contents



Effective DurationsMarch 31, 2008
    
    
    December 31, 2007Effective Duration
    
    
    
    
    
    
    Effective DurationFair Value
    
    
    (In years)
    
    
    Fair Value
    
    
    (In years)(In millions)Segregated investments
    
    $
    8,927
    
    
    
    10.6
    
    
    $
    9,211
    
    
    
    10.7Other interest sensitive investments
    
    
    28,267
    
    
    
    3.3
    
    
    
    29,406
    
    
    
    3.3Total
    
    $
    37,194
    
    
    
    5.0
    
    
    $
    38,617
    
    
    
    5.1
   Fair Value Measurement
 50




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##### Table of Contents



Realized Investment Gains (Losses)
 Three months ended March 31
    
    2008
    
    
    2007(In millions)Net realized investment gains (losses) on fixed maturity and equity securities:Fixed maturity securities:Gross realized gains
    
    $
    117
    
    
    $
    98Gross realized losses
    
    
    (119
    )
    
    
    (115
    )Net realized investment losses on fixed maturity securities
    
    
    (2
    )
    
    
    (17
    )Equity securities:Gross realized gains
    
    
    4
    
    
    
    7Gross realized losses
    
    
    (19
    )
    
    
    (4
    )Net realized investment gains (losses) on equity securities
    
    
    (15
    )
    
    
    3Net realized investment losses on fixed maturity and equity securities
    
    $
    (17
    )
    
    $
    (14
    )
  Largest Realized Investment Losses from Securities Sold at a Loss
 Three months ended March 31, 2008
    
    Fair
    
    
    
    
    
    
    Months inValue at
    
    
    
    
    
    
    UnrealizedDate of
    
    
    Loss
    
    
    Loss PriorIssuer Description and Discussion
    
    Sale
    
    
    On Sale
    
    
    To Sale (a)(In millions)A provider of wireless and wire line communication services.
Securities were sold to reduce exposure because the company
announced a significant shortfall in operating results, causing
significant credit deterioration which resulted in a rating
downgrade.
    
    $
    38
    
    
    $
    16
    
    
    
    7-12A provider of electronic communications solutions. Company
announced a decision to explore the sale of a struggling and
major product unit creating uncertainty with respect to asset
value relative to total debt. Securities were sold to reduce
exposure.
    
    
    61
    
    
    
    7
    
    
    
    7-12Total
    
    $
    99
    
    
    $
    23
 
 (a) Represents the range of consecutive months the various positions were in an unrealized loss
prior to sale. 51




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##### Table of Contents



Valuation and Impairment of Investments
  Carrying Value of General Account InvestmentsMarch 31,
    
    
    
    
    
    
    December 31,2008
    
    
    %
    
    
    2007
    
    
    %(In millions)Fixed maturity securities available-for-sale:U.S. Treasury securities and obligations of government agencies
    
    $
    1,468
    
    
    
    4
    %
    
    $
    687
    
    
    
    2
    %Asset-backed securities
    
    
    10,332
    
    
    
    25
    
    
    
    11,409
    
    
    
    27States, municipalities and political subdivisions 
tax-exempt securities
    
    
    6,957
    
    
    
    17
    
    
    
    7,675
    
    
    
    18Corporate bonds
    
    
    8,624
    
    
    
    21
    
    
    
    8,952
    
    
    
    22Other debt securities
    
    
    3,934
    
    
    
    10
    
    
    
    4,299
    
    
    
    10Redeemable preferred stock
    
    
    1,025
    
    
    
    3
    
    
    
    1,058
    
    
    
    3Total fixed maturity securities available-for-sale
    
    
    32,340
    
    
    
    80
    
    
    
    34,080
    
    
    
    82Fixed maturity securities trading:U.S. Treasury securities and obligations of government agencies
    
    
    5
    
    
    
    
    
    
    
    5
    
    
    
    Asset-backed securities
    
    
    24
    
    
    
    
    
    
    
    31
    
    
    
    Corporate bonds
    
    
    110
    
    
    
    
    
    
    
    123
    
    
    
    Other debt securities
    
    
    17
    
    
    
    
    
    
    
    18
    
    
    
    Total fixed maturity securities trading
    
    
    156
    
    
    
    
    
    
    
    177
    
    
    
    Equity securities available-for-sale:Common stock
    
    
    432
    
    
    
    1
    
    
    
    452
    
    
    
    1Preferred stock
    
    
    42
    
    
    
    
    
    
    
    116
    
    
    
    Total equity securities available-for-sale
    
    
    474
    
    
    
    1
    
    
    
    568
    
    
    
    1Short term investments available-for-sale
    
    
    5,209
    
    
    
    13
    
    
    
    4,497
    
    
    
    11Short term investments trading
    
    
    138
    
    
    
    
    
    
    
    180
    
    
    
    1Limited partnerships
    
    
    2,245
    
    
    
    6
    
    
    
    2,214
    
    
    
    5Other investments
    
    
    9
    
    
    
    
    
    
    
    46
    
    
    
    Total general account investments
    
    $
    40,571
    
    
    
    100
    %
    
    $
    41,762
    
    
    
    100
    %
   52




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##### Table of Contents



Maturity ProfilePercent of
    
    
    Percent ofMarket
    
    
    UnrealizedValue
    
    
    LossDue in one year or less
    
    
    6
    %
    
    
    3
    %Due after one year through five years
    
    
    34
    
    
    
    30Due after five years through ten years
    
    
    19
    
    
    
    25Due after ten years
    
    
    41
    
    
    
    42Total
    
    
    100
    %
    
    
    100
    %
  Unrealized Loss Aging for Non-investment Grade Securities
 Fair Value as a Percentage of Amortized Cost
    
    
    GrossEstimated
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    UnrealizedMarch 31, 2008
    
    Fair Value
    
    
    90-99%
    
    
    80-89%
    
    
    70-79%
    
    
    <70%
    
    
    Loss(In millions)Fixed maturity securities:0-6 months
    
    $
    1,688
    
    
    $
    63
    
    
    $
    65
    
    
    $
    25
    
    
    $
    6
    
    
    $
    1597-12 months
    
    
    814
    
    
    
    27
    
    
    
    66
    
    
    
    11
    
    
    
    65
    
    
    
    16913-24 months
    
    
    27
    
    
    
    
    
    
    
    3
    
    
    
    
    
    
    
    4
    
    
    
    7Greater than 24 months
    
    
    2
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Total non-investment grade
    
    $
    2,531
    
    
    $
    90
    
    
    $
    134
    
    
    $
    36
    
    
    $
    75
    
    
    $
    335
 Unrealized Loss Aging for Non-investment Grade Securities
 Fair Value as a Percentage of Amortized Cost
    
    
    GrossEstimated
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    UnrealizedDecember 31, 2007
    
    Fair Value
    
    
    90-99%
    
    
    80-89%
    
    
    70-79%
    
    
    <70%
    
    
    Loss(In millions)Fixed maturity securities:0-6 months
    
    $
    1,549
    
    
    $
    57
    
    
    $
    16
    
    
    $
    3
    
    
    $
    
    
    
    $
    767-12 months
    
    
    125
    
    
    
    7
    
    
    
    1
    
    
    
    
    
    
    
    
    
    
    
    813-24 months
    
    
    26
    
    
    
    1
    
    
    
    1
    
    
    
    1
    
    
    
    1
    
    
    
    4Greater than 24 months
    
    
    8
    
    
    
    
    
    
    
    2
    
    
    
    
    
    
    
    
    
    
    
    2Total non-investment grade
    
    $
    1,708
    
    
    $
    65
    
    
    $
    20
    
    
    $
    4
    
    
    $
    1
    
    
    $
    90
  53




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##### Table of Contents



General Account Bond RatingsMarch 31,
    
    
    
    
    
    
    December 31,2008
    
    
    %
    
    
    2007
    
    
    %(In millions)U.S. Government and affiliated agency securities
    
    $
    1,596
    
    
    
    5
    %
    
    $
    816
    
    
    
    3
    %Other AAA rated
    
    
    13,864
    
    
    
    44
    
    
    
    16,728
    
    
    
    50AA and A rated
    
    
    6,787
    
    
    
    22
    
    
    
    6,326
    
    
    
    19BBB rated
    
    
    5,745
    
    
    
    18
    
    
    
    5,713
    
    
    
    17Non-investment grade
    
    
    3,479
    
    
    
    11
    
    
    
    3,616
    
    
    
    11Total
    
    $
    31,471
    
    
    
    100
    %
    
    $
    33,199
    
    
    
    100
    %
    54




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##### Table of Contents



Asset-Backed and Sub-prime Mortgage Exposure
 Asset-Backed DistributionSecurity TypePercent
    
    
    Percentof Total
    
    
    of TotalMarch 31, 2008
    
    MBS
    
    
    CMO
    
    
    ABS
    
    
    CDO
    
    
    Total
    
    
    Security Type
    
    
    Investments(In millions)U.S. Government Agencies
    
    $
    1,022
    
    
    $
    1,229
    
    
    $
    
    
    
    $
    
    
    
    $
    2,251
    
    
    
    22
    %
    
    
    6
    %AAA
    
    
    
    
    
    
    4,773
    
    
    
    2,235
    
    
    
    9
    
    
    
    7,017
    
    
    
    67
    
    
    
    17AA
    
    
    
    
    
    
    24
    
    
    
    254
    
    
    
    51
    
    
    
    329
    
    
    
    3
    
    
    
    1A
    
    
    
    
    
    
    23
    
    
    
    157
    
    
    
    126
    
    
    
    306
    
    
    
    3
    
    
    
    1BBB
    
    
    
    
    
    
    8
    
    
    
    381
    
    
    
    12
    
    
    
    401
    
    
    
    4
    
    
    
    1Non-investment grade and equity tranches
    
    
    
    
    
    
    2
    
    
    
    39
    
    
    
    11
    
    
    
    52
    
    
    
    1
    
    
    
    Total Fair Value
    
    $
    1,022
    
    
    $
    6,059
    
    
    $
    3,066
    
    
    $
    209
    
    
    $
    10,356
    
    
    
    100
    %
    
    
    26
    %Total Amortized Cost
    
    $
    1,018
    
    
    $
    6,372
    
    
    $
    3,336
    
    
    $
    413
    
    
    $
    11,139Percent of total fair value by security type
    
    
    10
    %
    
    
    58
    %
    
    
    30
    %
    
    
    2
    %
    
    
    100
    %Sub-prime (included above)Fair Value
    
    $
    
    
    
    $
    5
    
    
    $
    1,485
    
    
    $
    18
    
    
    $
    1,508
    
    
    
    15
    %
    
    
    4
    %Amortized Cost
    
    $
    
    
    
    $
    5
    
    
    $
    1,634
    
    
    $
    37
    
    
    $
    1,676
    
    
    
    15
    %
    
    
    4
    %Alt-A (included above)Fair Value
    
    $
    
    
    
    $
    1,213
    
    
    $
    1
    
    
    $
    32
    
    
    $
    1,246
    
    
    
    12
    %
    
    
    3
    %Amortized Cost
    
    $
    
    
    
    $
    1,299
    
    
    $
    1
    
    
    $
    35
    
    
    $
    1,335
    
    
    
    12
    %
    
    
    3
    %
   55




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##### Table of Contents



Short Term Investments
  March 31,
    
    
    December 31,2008
    
    
    2007(In millions)Short term investments available-for-sale:Commercial paper
    
    $
    2,294
    
    
    $
    3,040U.S. Treasury securities
    
    
    536
    
    
    
    577Money market funds
    
    
    194
    
    
    
    72Other, including collateral held related to securities lending
    
    
    2,185
    
    
    
    808Total short term investments available-for-sale
    
    
    5,209
    
    
    
    4,497Short term investments trading:Commercial paper
    
    
    18
    
    
    
    35Money market funds
    
    
    114
    
    
    
    139Other
    
    
    6
    
    
    
    6Total short term investments trading
    
    
    138
    
    
    
    180Total short term investments
    
    $
    5,347
    
    
    $
    4,677
  LIQUIDITY AND CAPITAL RESOURCES
 Cash Flows
      56




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##### Table of Contents



Dividends
  Share Repurchases
  Accounting Pronouncements
 Statement of Financial Accounting Standard (SFAS) No. 161, Disclosures about Derivative
Instruments and Hedging Activities (SFAS 161)
 Accounting for Derivative Instruments and Hedging Activities
 57




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##### Table of Contents



FORWARD-LOOKING STATEMENTS
  
    
    general economic and business conditions, including inflationary pressures on medical care
costs, construction costs and other economic sectors that increase the severity of claims;
    
    changes in financial markets such as fluctuations in interest rates, long term periods of
low interest rates, credit conditions and currency, commodity and stock prices, including the
short and long-term effects of losses produced or threatened in relation to sub-prime
residential mortgage-backed securities (sub-prime), including claims under directors and
officers and errors and omissions coverages in connection with market disruptions recently
experienced in relation to the sub-prime crisis in the U.S. economy;
    
    the effects of corporate bankruptcies and accounting errors on capital markets, and on the
markets for directors and officers and errors and omissions coverages;
    
    changes in foreign or domestic political, social and economic conditions;
    
    regulatory initiatives and compliance with governmental regulations, judicial decisions,
including interpretation of policy provisions, decisions regarding coverage and theories of
liability, trends in litigation and the outcome of any litigation involving us, and rulings
and changes in tax laws and regulations;
    
    effects upon insurance markets and upon industry business practices and relationships of
current litigation, investigations and regulatory activity by the New York State Attorney
Generals office and other authorities concerning contingent commission arrangements with
brokers and bid solicitation activities;
    
    legal and regulatory activities with respect to certain non-traditional and finite-risk
insurance products, and possible resulting changes in accounting and financial reporting in
relation to such products, including our restatement of financial results in May of 2005 and
our relationship with an affiliate, Accord Re Ltd., as disclosed in connection with that
restatement;
    
    regulatory limitations, impositions and restrictions upon us, including the effects of
assessments and other surcharges for guaranty funds and second-injury funds and other
mandatory pooling arrangements;
    
    the impact of competitive products, policies and pricing and the competitive environment in
which we operate, including changes in our book of business;
    
    product and policy availability and demand and market responses, including the level of
ability to obtain rate increases and decline or non-renew under priced accounts, to achieve
premium targets and profitability and to realize growth and retention estimates;
    
    development of claims and the impact on loss reserves, including changes in claim
settlement policies;
    
    the effectiveness of current initiatives by claims management to reduce loss and expense
ratios through more efficacious claims handling techniques;
    
    the performance of reinsurance companies under reinsurance contracts with us;
    
    results of financing efforts, including the availability of bank credit facilities;
    
    changes in our composition of operating segments;
 
 58




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##### Table of Contents




    
    weather and other natural physical events, including the severity and frequency of storms,
hail, snowfall and other winter conditions, natural disasters such as hurricanes and
earthquakes, as well as climate change, including effects on weather patterns, greenhouse
gases, sea, land and air temperatures, sea levels, rain and snow;
    
    regulatory requirements imposed by coastal state regulators in the wake of hurricanes or
other natural disasters, including limitations on the ability to exit markets or to non-renew,
cancel or change terms and conditions in policies, as well as mandatory assessments to fund
any shortfalls arising from the inability of quasi-governmental insurers to pay claims;
    
    man-made disasters, including the possible occurrence of terrorist attacks and the effect
of the absence or insufficiency of applicable terrorism legislation on coverages;
    
    the unpredictability of the nature, targets, severity or frequency of potential terrorist
events, as well as the uncertainty as to our ability to contain our terrorism exposure
effectively, notwithstanding the extension through December 31, 2014 of the Terrorism Risk
Insurance Act of 2002;
    
    the occurrence of epidemics;
    
    exposure to liabilities due to claims made by insureds and others relating to asbestos
remediation and health-based asbestos impairments, as well as exposure to liabilities for
environmental pollution, construction defect claims and exposure to liabilities due to claims
made by insureds and others relating to lead-based paint and other mass torts;
    
    the sufficiency of our loss reserves and the possibility of future increases in reserves;
    
    regulatory limitations and restrictions, including limitations upon our ability to receive
dividends from our insurance subsidiaries imposed by state regulatory agencies and minimum
risk-based capital standards established by the National Association of Insurance
Commissioners;
    
    the risks and uncertainties associated with our loss reserves as outlined in the Critical
Accounting Estimates and the Reserves  Estimates and Uncertainties sections of our Annual
Report on Form 10-K;
    
    the level of success in integrating acquired businesses and operations, and in
consolidating, or selling existing ones;
    
    the possibility of changes in our ratings by ratings agencies, including the inability to
access certain markets or distribution channels and the required collateralization of future
payment obligations as a result of such changes, and changes in rating agency policies and
practices; and
    
    the actual closing of contemplated transactions and agreements.
  59




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##### Table of Contents



CNA FINANCIAL CORPORATION  ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
 
 60




---



##### Table of Contents



CNA FINANCIAL CORPORATION  ITEM 4. CONTROLS AND PROCEDURES
    61




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##### Table of Contents



CNA FINANCIAL CORPORATION
 
 PART II. OTHER INFORMATION
 
 Item 1. Legal Proceedings
  
 Item 2 (c). Unregistered Sales of Equity Securities and Use of Proceeds
 Issuer Purchases of Equity Securities
    
    
    
    
    
    
    
    
    
    Total Number of
    
    
    Maximum Number ofAverage Price Paid
    
    
    Shares Purchased as
    
    
    Shares that May Yetper Share
    
    
    Part of Publicly
    
    
    Be Purchased UnderTotal Number of
    
    
    (Including
    
    
    Announced Plans or
    
    
    the Plans orPeriod
    
    Shares Purchased(a)
    
    
    Commission)
    
    
    Programs
    
    
    ProgramsJanuary 1, 2008  January 31, 2008
    
    
    
    
    
    $
    
    
    
    
    
    
    
    
    February 1, 2008  February 29, 2008
    
    
    1,224,145
    
    
    
    27.33
    
    
    
    
    
    
    
    March 1, 2008  March 31, 2008
    
    
    1,425,476
    
    
    
    25.84
    
    
    
    
    
    
    
    Total
    
    
    2,649,621
    
    
    $
    26.53
    
    
    
    
    
    
    
    
  
 Item 6. Exhibits
  Description of Exhibit
    
    Exhibit NumberForm of Award Letter to Executive Officers for the Long-Term Incentive Cash Plan for the
2005-2007 Long-Term Incentive Cash Plan Cycle
    
    10.1Form of Award Letter to Executive Officers, along with Form of Award Terms, for the Long-Term
Incentive Cash Plan for the 2008-2010 Long-Term Incentive Cash Plan Cycle
    
    10.2Employment Agreement, dated April 11, 2008, between Continental Casualty Company and
Larry A. Haefner
    
    10.3Fourth Amendment to the CNA Supplemental Executive Retirement Plan, dated December 31,
2007
    
    10.4Acknowledgment to Investment Facilities and Services Agreement, dated January 1, 2008,
by and among Loews/CNA Holdings, Inc., CNA Financial Corporation, and Continental
Reinsurance Corporation International Limited
    
    10.5Acknowledgment to Investment Facilities and Services Agreement, dated January 1, 2008,
by and among Loews/CNA Holdings, Inc., CNA Financial Corporation, and North Rock
Insurance Company Limited
    
    10.6Acknowledgment to Investment Facilities and Services Agreement, dated January 1, 2008, by and among
 Loews/CNA Holdings, Inc., CNA Financial Corporation, and CNA National Warranty Corporation
    
    10.7Certification of Chief Executive Officer
    
    31.1Certification of Chief Financial Officer
    
    31.2Written Statement of the Chief Executive Officer of CNA Financial Corporation Pursuant
to 18 U.S.C. Section 1350 (As adopted by Section 906 of the Sarbanes-Oxley Act of 2002)
    
    32.1Written Statement of the Chief Financial Officer of CNA Financial Corporation Pursuant
to 18 U.S.C. Section 1350 (As adopted by Section 906 of the Sarbanes-Oxley Act of 2002)
    
    32.2
 62




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CNA FINANCIAL CORPORATION  PART II. OTHER INFORMATION
 SIGNATURES
  CNA Financial CorporationDated: April 25, 2008
    By
    /s/ D. Craig MenseD. Craig MenseExecutive Vice President and
Chief Financial Officer 63