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
 For the quarterly period ended September 30, 2008
 OR
 o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
 For the transition period from  to
 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.)333 S. WabashChicago, Illinois
    
    60604(Address of principal executive offices)
    
    (Zip Code)
 (312) 822-5000
 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 October 22, 2008Common Stock, Par value $2.50
    
    269,019,408




---



##### 



CNA Financial Corporation
Index
 Item
    
    
    
    PageNumber
    
    
    
    NumberPART I. Financial Information1.
    
    Condensed Consolidated Financial Statements (Unaudited):Condensed Consolidated Statements of Operations for the Three and Nine months ended September 30, 2008 and 2007
    
    3Condensed Consolidated Balance Sheets at September 30, 2008 and December 31, 2007
    
    4Condensed Consolidated Statements of Cash Flows for the Nine months ended September 30, 2008 and 2007
    
    5Condensed Consolidated Statements of Stockholders' Equity for the Nine months ended September 30, 2008 and 2007
    
    7Notes to Condensed Consolidated Financial Statements
    
    82.
    
    Management's Discussion and Analysis of Financial Condition and Results of Operations
    
    443.
    
    Quantitative and Qualitative Disclosures About Market Risk
    
    754.
    
    Controls and Procedures
    
    76PART II. Other Information1.
    
    Legal Proceedings
    
    771A.
    
    Risk Factors
    
    776.
    
    Exhibits
    
    78




---



##### 



CNA Financial Corporation
 
 Part I. Financial Information
 
 Item 1. Condensed Consolidated Financial Statements
 
 Condensed Consolidated Statements of Operations (Unaudited)
 Period ended September 30
    
    Three months
    
    
    Nine months(In millions, except per share data)
    
    2008
    
    
    2007
    
    
    2008
    
    
    2007RevenuesNet earned premiums
    
    $
    1,799
    
    
    $
    1,882
    
    
    $
    5,386
    
    
    $
    5,617Net investment income
    
    
    439
    
    
    
    580
    
    
    
    1,449
    
    
    
    1,859Realized investment losses, net of participating
policyholders and minority interests
    
    
    (651
    )
    
    
    (57
    )
    
    
    (813
    )
    
    
    (217
    )Other revenues
    
    
    72
    
    
    
    79
    
    
    
    240
    
    
    
    211Total revenues
    
    
    1,659
    
    
    
    2,484
    
    
    
    6,262
    
    
    
    7,470Claims, Benefits and ExpensesInsurance claims and policyholders benefits
    
    
    1,519
    
    
    
    1,575
    
    
    
    4,380
    
    
    
    4,496Amortization of deferred acquisition costs
    
    
    355
    
    
    
    384
    
    
    
    1,083
    
    
    
    1,137Other operating expenses
    
    
    294
    
    
    
    244
    
    
    
    724
    
    
    
    722Interest
    
    
    33
    
    
    
    35
    
    
    
    100
    
    
    
    104Total claims, benefits and expenses
    
    
    2,201
    
    
    
    2,238
    
    
    
    6,287
    
    
    
    6,459Income (loss) before income tax and minority interest
    
    
    (542
    )
    
    
    246
    
    
    
    (25
    )
    
    
    1,011Income tax (expense) benefit
    
    
    218
    
    
    
    (56
    )
    
    
    92
    
    
    
    (279
    )Minority interest
    
    
    (16
    )
    
    
    (16
    )
    
    
    (40
    )
    
    
    (37
    )Income (loss) from continuing operations
    
    
    (340
    )
    
    
    174
    
    
    
    27
    
    
    
    695Income (loss) from discontinued operations, net of income
tax (expense) benefit of $9, $(1), $9 and $0
    
    
    9
    
    
    
    
    
    
    
    10
    
    
    
    (8
    )Net income (loss)
    
    $
    (331
    )
    
    $
    174
    
    
    $
    37
    
    
    $
    687Basic and Diluted Earnings (Loss) Per ShareIncome (loss) from continuing operations
    
    $
    (1.26
    )
    
    $
    0.64
    
    
    $
    0.10
    
    
    $
    2.56Income (loss) from discontinued operations
    
    
    0.03
    
    
    
    
    
    
    
    0.04
    
    
    
    (0.03
    )Basic and diluted earnings (loss) per share available to
common stockholders
    
    $
    (1.23
    )
    
    $
    0.64
    
    
    $
    0.14
    
    
    $
    2.53Weighted average outstanding common stock and common stock
equivalentsBasic
    
    
    269.0
    
    
    
    271.6
    
    
    
    269.6
    
    
    
    271.5Diluted
    
    
    269.1
    
    
    
    271.9
    
    
    
    269.6
    
    
    
    271.8
 
 3




---



##### 



CNA Financial Corporation
 
 Condensed Consolidated Balance Sheets (Unaudited)
 September 30,
    
    
    December 31,(In millions, except share data)
    
    2008
    
    
    2007AssetsInvestments:Fixed maturity securities at fair value (amortized cost of $32,419 and $34,388)
    
    $
    29,176
    
    
    $
    34,257Equity securities at fair value (cost of $1,109 and $366)
    
    
    961
    
    
    
    568Limited partnership investments
    
    
    2,110
    
    
    
    2,214Other invested assets
    
    
    63
    
    
    
    73Short term investments
    
    
    4,749
    
    
    
    4,677Total investments
    
    
    37,059
    
    
    
    41,789Cash
    
    
    115
    
    
    
    94Reinsurance receivables (less allowance for uncollectible receivables of $387 and $461)
    
    
    7,611
    
    
    
    8,228Insurance receivables (less allowance for doubtful accounts of $283 and $312)
    
    
    1,877
    
    
    
    1,972Accrued investment income
    
    
    384
    
    
    
    330Receivables for securities sold and collateral
    
    
    999
    
    
    
    142Deferred acquisition costs
    
    
    1,157
    
    
    
    1,161Prepaid reinsurance premiums
    
    
    276
    
    
    
    270Federal income tax recoverable (includes $275 and $0 due from Loews Corporation)
    
    
    274
    
    
    
    Deferred income taxes
    
    
    2,409
    
    
    
    1,198Property and equipment at cost (less accumulated depreciation of $634 and $596)
    
    
    404
    
    
    
    378Goodwill and other intangible assets
    
    
    142
    
    
    
    142Other assets
    
    
    571
    
    
    
    579Separate account business
    
    
    430
    
    
    
    476Total assets
    
    $
    53,708
    
    
    $
    56,759Liabilities and Stockholders EquityLiabilities:Insurance reserves:Claim and claim adjustment expenses
    
    $
    28,023
    
    
    $
    28,588Unearned premiums
    
    
    3,550
    
    
    
    3,598Future policy benefits
    
    
    7,442
    
    
    
    7,106Policyholders funds
    
    
    453
    
    
    
    930Collateral on loaned securities and derivatives
    
    
    6
    
    
    
    63Payables for securities purchased
    
    
    951
    
    
    
    353Participating policyholders funds
    
    
    27
    
    
    
    45Short term debt
    
    
    200
    
    
    
    350Long term debt
    
    
    1,807
    
    
    
    1,807Federal income taxes payable (includes $0 and $5 due to Loews Corporation)
    
    
    
    
    
    
    2Reinsurance balances payable
    
    
    367
    
    
    
    401Other liabilities
    
    
    2,312
    
    
    
    2,505Separate account business
    
    
    430
    
    
    
    476Total liabilities
    
    
    45,568
    
    
    
    46,224Commitments and contingencies (Notes D, G, H, and K)Minority interest
    
    
    404
    
    
    
    385Stockholders equity:Common stock ($2.50 par value; 500,000,000 shares authorized; 273,040,243 shares
issued; and 269,019,408 and 271,662,278 shares outstanding)
    
    
    683
    
    
    
    683Additional paid-in capital
    
    
    2,172
    
    
    
    2,169Retained earnings
    
    
    7,200
    
    
    
    7,285Accumulated other comprehensive income (loss)
    
    
    (2,163
    )
    
    
    103Treasury stock (4,020,835 and 1,377,965 shares), at cost
    
    
    (109
    )
    
    
    (39
    )7,783
    
    
    
    10,201Notes receivable for the issuance of common stock
    
    
    (47
    )
    
    
    (51
    )Total stockholders equity
    
    
    7,736
    
    
    
    10,150Total liabilities and stockholders equity
    
    $
    53,708
    
    
    $
    56,759
 
 4




---



##### 



CNA Financial Corporation
 
 Condensed Consolidated Statements of Cash Flows (Unaudited)
 Nine months ended September 30(In millions)
    
    2008
    
    
    2007Cash Flows from Operating Activities:Net income
    
    $
    37
    
    
    $
    687Adjustments to reconcile net income to net cash flows provided by
operating activities:(Income) loss from discontinued operations
    
    
    (10
    )
    
    
    8Loss on disposal of property and equipment
    
    
    1
    
    
    
    1Minority interest
    
    
    40
    
    
    
    37Deferred income tax (benefit) provision
    
    
    6
    
    
    
    (26
    )Trading securities activity
    
    
    472
    
    
    
    (44
    )Realized investment losses, net of participating policyholders
and minority interests
    
    
    813
    
    
    
    217Undistributed losses (earnings) of equity method investees
    
    
    137
    
    
    
    (74
    )Net amortization of bond (discount) premium
    
    
    (217
    )
    
    
    (195
    )Depreciation
    
    
    56
    
    
    
    46Changes in:Receivables, net
    
    
    712
    
    
    
    609Accrued investment income
    
    
    (54
    )
    
    
    (26
    )Deferred acquisition costs
    
    
    4
    
    
    
    1Prepaid reinsurance premiums
    
    
    (6
    )
    
    
    21Federal income taxes recoverable/payable
    
    
    (276
    )
    
    
    (35
    )Insurance reserves
    
    
    (238
    )
    
    
    (272
    )Reinsurance balances payable
    
    
    (34
    )
    
    
    (56
    )Other assets
    
    
    (6
    )
    
    
    31Other liabilities
    
    
    (174
    )
    
    
    (117
    )Other, net
    
    
    5
    
    
    
    (84
    )Total adjustments
    
    
    1,231
    
    
    
    42Net cash flows provided by operating activities-continuing operations
    
    $
    1,268
    
    
    $
    729Net cash flows used by operating activities-discontinued operations
    
    $
    (7
    )
    
    $
    (16
    )Net cash flows provided by operating activities-total
    
    $
    1,261
    
    
    $
    713Cash Flows from Investing Activities:Purchases of fixed maturity securities
    
    $
    (39,989
    )
    
    $
    (53,496
    )Proceeds from fixed maturity securities:Sales
    
    
    36,545
    
    
    
    53,003Maturities, calls and redemptions
    
    
    3,374
    
    
    
    3,720Purchases of equity securities
    
    
    (170
    )
    
    
    (157
    )Proceeds from sales of equity securities
    
    
    177
    
    
    
    182Change in short term investments
    
    
    (165
    )
    
    
    (963
    )Change in collateral on loaned securities and derivatives
    
    
    (57
    )
    
    
    (2,768
    )Change in other investments
    
    
    (153
    )
    
    
    (95
    )Purchases of property and equipment
    
    
    (90
    )
    
    
    (118
    )Other, net
    
    
    3
    
    
    
    (17
    )Net cash flows used by investing activities-continuing operations
    
    $
    (525
    )
    
    $
    (709
    )Net cash flows provided by investing activities-discontinued operations
    
    $
    17
    
    
    $
    42Net cash flows used by investing activities-total
    
    $
    (508
    )
    
    $
    (667
    )
 
 5




---



##### 



Nine months ended September 30(In millions)
    
    2008
    
    
    2007Cash Flows from Financing Activities:Dividends paid to stockholders
    
    
    (122
    )
    
    
    (54
    )Principal payments on debt
    
    
    (150
    )
    
    
    Return of investment contract account balances
    
    
    (421
    )
    
    
    (59
    )Receipts on investment contract account balances
    
    
    3
    
    
    
    2Stock options exercised
    
    
    1
    
    
    
    17Purchase of treasury stock
    
    
    (70
    )
    
    
    Other, net
    
    
    26
    
    
    
    11Net cash flows used by financing activities-continuing operations
    
    $
    (733
    )
    
    $
    (83
    )Net cash flows provided by financing activities-discontinued operations
    
    $
    
    
    
    $
    Net cash flows used by financing activities-total
    
    $
    (733
    )
    
    $
    (83
    )Effect of foreign exchange rate changes on cash-continuing operations
    
    
    (6
    )
    
    
    Net change in cash
    
    
    14
    
    
    
    (37
    )Net cash transactions from continuing operations to discontinued
operations
    
    
    17
    
    
    
    59Net cash transactions from discontinued operations to continuing
operations
    
    
    (17
    )
    
    
    (59
    )Cash, beginning of year
    
    
    101
    
    
    
    124Cash, end of period
    
    $
    115
    
    
    $
    87Cash-continuing operations
    
    $
    115
    
    
    $
    80Cash-discontinued operations
    
    
    
    
    
    
    7Cash-total
    
    $
    115
    
    
    $
    87
 
 6




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##### 



CNA Financial Corporation
 
 Condensed Consolidated Statements of Stockholders Equity (Unaudited)
 Nine months ended September 30(In millions)
    
    2008
    
    
    2007Common StockBalance, beginning and end of period
    
    $
    683
    
    
    $
    683Additional Paid-in CapitalBalance, beginning of period
    
    
    2,169
    
    
    
    2,166Stock-based compensation
    
    
    3
    
    
    
    2Balance, end of period
    
    
    2,172
    
    
    
    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
    
    
    (122
    )
    
    
    (54
    )Net income
    
    
    37
    
    
    
    687Balance, end of period
    
    
    7,200
    
    
    
    7,162Accumulated Other Comprehensive IncomeBalance, beginning of period
    
    
    103
    
    
    
    549Other comprehensive loss
    
    
    (2,266
    )
    
    
    (357
    )Balance, end of period
    
    
    (2,163
    )
    
    
    192Treasury StockBalance, beginning of period
    
    
    (39
    )
    
    
    (58
    )Purchase of treasury stock
    
    
    (70
    )
    
    
    Stock options exercised and other
    
    
    
    
    
    
    19Balance, end of period
    
    
    (109
    )
    
    
    (39
    )Notes Receivable for the Issuance of Common StockBalance, beginning of period
    
    
    (51
    )
    
    
    (58
    )Decrease in notes receivable for the issuance of common
stock
    
    
    4
    
    
    
    7Balance, end of period
    
    
    (47
    )
    
    
    (51
    )Total Stockholders Equity
    
    $
    7,736
    
    
    $
    10,115
 
 7




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##### 



CNA Financial Corporation
 
 Notes to Condensed Consolidated Financial Statements (Unaudited)
 Note A. Basis of Presentation
    Note B. Accounting Pronouncement
 Financial Accounting Standards Board (FASB) Staff Position (FSP) FAS 157-3,Determining the
Fair Value of a Financial Asset in a Market That Is Not Active (FSP FAS 157-3)
 Fair Value Measurement
  8




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##### 



Note C. Earnings (Loss) Per Share
   Earnings (Loss) Per Share
 Period ended September 30
    
    Three Months
    
    
    Nine Months(In millions, except per share amounts)
    
    2008
    
    
    2007
    
    
    2008
    
    
    2007Income (loss) from continuing
operations available to common
stockholders
    
    $
    (340
    )
    
    $
    174
    
    
    $
    27
    
    
    $
    695Weighted average outstanding common
stock and common stock equivalents
    
    
    269.0
    
    
    
    271.6
    
    
    
    269.6
    
    
    
    271.5Effect of dilutive securities,
employee stock options and
appreciation rights
    
    
    0.1
    
    
    
    0.3
    
    
    
    
    
    
    
    0.3Adjusted weighted average outstanding
common stock and common stock
equivalents assuming conversions
    
    
    269.1
    
    
    
    271.9
    
    
    
    269.6
    
    
    
    271.8Basic and diluted earnings (loss) per
share from continuing operations
available to common stockholders
    
    $
    (1.26
    )
    
    $
    0.64
    
    
    $
    0.10
    
    
    $
    2.56Dividends declared per common share
    
    $
    0.15
    
    
    $
    0.10
    
    
    $
    0.45
    
    
    $
    0.20
 9




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##### 



Note D. Investments
  Net Investment Income
 Period ended September 30
    
    Three Months
    
    
    Nine Months(In millions)
    
    2008
    
    
    2007
    
    
    2008
    
    
    2007Fixed maturity securities
    
    $
    501
    
    
    $
    501
    
    
    $
    1,495
    
    
    $
    1,523Short term investments
    
    
    29
    
    
    
    57
    
    
    
    94
    
    
    
    146Limited partnerships
    
    
    (77
    )
    
    
    19
    
    
    
    (70
    )
    
    
    142Equity securities
    
    
    18
    
    
    
    7
    
    
    
    62
    
    
    
    18Income (loss) from trading portfolio (a)
    
    
    (23
    )
    
    
    (2
    )
    
    
    (104
    )
    
    
    41Other
    
    
    3
    
    
    
    9
    
    
    
    14
    
    
    
    31Gross investment income
    
    
    451
    
    
    
    591
    
    
    
    1,491
    
    
    
    1,901Investment expense
    
    
    (12
    )
    
    
    (11
    )
    
    
    (42
    )
    
    
    (42
    )Net investment income
    
    $
    439
    
    
    $
    580
    
    
    $
    1,449
    
    
    $
    1,859
 
 (a)
    
    The change in net unrealized losses on trading securities included in net investment
income was $(6) million and $(21) million for the three and nine months ended September 30,
2008 and $(12) million and $(9) million for the three and nine months ended September 30,
2007.  Realized Investment Gains (Losses)
 Period ended September 30
    
    Three Months
    
    
    Nine Months(In millions)
    
    2008
    
    
    2007
    
    
    2008
    
    
    2007Fixed maturity securities:U.S. Government bonds
    
    $
    34
    
    
    $
    131
    
    
    $
    20
    
    
    $
    37Corporate and other taxable bonds
    
    
    (289
    )
    
    
    (88
    )
    
    
    (328
    )
    
    
    (113
    )Tax-exempt bonds
    
    
    1
    
    
    
    10
    
    
    
    51
    
    
    
    (43
    )Asset-backed bonds
    
    
    (61
    )
    
    
    (81
    )
    
    
    (218
    )
    
    
    (191
    )Redeemable preferred stock
    
    
    
    
    
    
    (11
    )
    
    
    
    
    
    
    (12
    )Total fixed maturity securities
    
    
    (315
    )
    
    
    (39
    )
    
    
    (475
    )
    
    
    (322
    )Equity securities
    
    
    (376
    )
    
    
    16
    
    
    
    (405
    )
    
    
    30Derivative securities
    
    
    35
    
    
    
    (45
    )
    
    
    47
    
    
    
    62Short term investments
    
    
    4
    
    
    
    5
    
    
    
    11
    
    
    
    5Other
    
    
    1
    
    
    
    6
    
    
    
    9
    
    
    
    8Realized investment losses, net of
participating policyholders and
minority interests
    
    $
    (651
    )
    
    $
    (57
    )
    
    $
    (813
    )
    
    $
    (217
    )
   10




---



##### 



Summary of Fixed Maturity and Equity Securities
 Cost or
    
    
    Gross
    
    
    Gross Unrealized Losses
    
    
    EstimatedSeptember 30, 2008
    
    Amortized
    
    
    Unrealized
    
    
    Less than
    
    
    12 Months
    
    
    Fair(In millions)
    
    Cost
    
    
    Gains
    
    
    12 Months
    
    
    or Greater
    
    
    ValueFixed maturity securities available-for-sale:U.S. Treasury securities and obligations
of government agencies
    
    $
    1,431
    
    
    $
    88
    
    
    $
    1
    
    
    $
    
    
    
    $
    1,518Asset-backed securities
    
    
    9,982
    
    
    
    27
    
    
    
    484
    
    
    
    746
    
    
    
    8,779States, municipalities and political
subdivisions  tax-exempt securities
    
    
    7,781
    
    
    
    21
    
    
    
    596
    
    
    
    240
    
    
    
    6,966Corporate bonds
    
    
    9,495
    
    
    
    73
    
    
    
    797
    
    
    
    352
    
    
    
    8,419Other debt securities
    
    
    3,618
    
    
    
    59
    
    
    
    193
    
    
    
    103
    
    
    
    3,381Redeemable preferred stock
    
    
    72
    
    
    
    3
    
    
    
    2
    
    
    
    
    
    
    
    73Total fixed maturity securities
available-for-sale
    
    
    32,379
    
    
    
    271
    
    
    
    2,073
    
    
    
    1,441
    
    
    
    29,136Total fixed maturity securities trading
    
    
    40
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    40Equity securities available-for-sale:Common stock
    
    
    213
    
    
    
    187
    
    
    
    9
    
    
    
    2
    
    
    
    389Preferred stock
    
    
    896
    
    
    
    
    
    
    
    157
    
    
    
    167
    
    
    
    572Total equity securities available-for-sale
    
    
    1,109
    
    
    
    187
    
    
    
    166
    
    
    
    169
    
    
    
    961Total
    
    $
    33,528
    
    
    $
    458
    
    
    $
    2,239
    
    
    $
    1,610
    
    
    $
    30,137
 11




---



##### 



Summary of Fixed Maturity and Equity Securities
 Cost or
    
    
    Gross
    
    
    Gross Unrealized Losses
    
    
    EstimatedDecember 31, 2007
    
    Amortized
    
    
    Unrealized
    
    
    Less than
    
    
    12 Months
    
    
    Fair(In millions)

    
    Cost
    
    
    Gains
    
    
    12 Months
    
    
    or Greater
    
    
    ValueFixed 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
 12




---



##### 



Unrealized Loss Aging
 September 30, 2008
    
    
    December 31, 2007Gross
    
    
    
    
    
    
    GrossEstimated
    
    
    Unrealized
    
    
    Estimated
    
    
    Unrealized(In millions)
    
    Fair Value
    
    
    Loss
    
    
    Fair Value
    
    
    LossFixed income securities:Investment grade:0-6 months
    
    $
    10,068
    
    
    $
    698
    
    
    $
    4,771
    
    
    $
    2287-12 months
    
    
    6,269
    
    
    
    1,048
    
    
    
    1,584
    
    
    
    19313-24 months
    
    
    2,775
    
    
    
    937
    
    
    
    690
    
    
    
    57Greater than 24 months
    
    
    1,880
    
    
    
    325
    
    
    
    3,869
    
    
    
    138Total investment grade
    
    
    20,992
    
    
    
    3,008
    
    
    
    10,914
    
    
    
    616Non-investment grade:0-6 months
    
    
    1,037
    
    
    
    122
    
    
    
    1,527
    
    
    
    737-12 months
    
    
    839
    
    
    
    203
    
    
    
    125
    
    
    
    813-24 months
    
    
    798
    
    
    
    168
    
    
    
    26
    
    
    
    4Greater than 24 months
    
    
    16
    
    
    
    11
    
    
    
    9
    
    
    
    2Total non-investment grade
    
    
    2,690
    
    
    
    504
    
    
    
    1,687
    
    
    
    87Total fixed income securities
    
    
    23,682
    
    
    
    3,512
    
    
    
    12,601
    
    
    
    703Redeemable and non-redeemable preferred stocks:0-6 months
    
    
    21
    
    
    
    3
    
    
    
    893
    
    
    
    1437-12 months
    
    
    371
    
    
    
    156
    
    
    
    104
    
    
    
    2813-24 months
    
    
    172
    
    
    
    167
    
    
    
    
    
    
    
    Greater than 24 months
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Total preferred stocks
    
    
    564
    
    
    
    326
    
    
    
    997
    
    
    
    171Common stocks:0-6 months
    
    
    12
    
    
    
    9
    
    
    
    34
    
    
    
    17-12 months
    
    
    1
    
    
    
    
    
    
    
    1
    
    
    
    13-24 months
    
    
    11
    
    
    
    2
    
    
    
    
    
    
    
    Greater than 24 months
    
    
    3
    
    
    
    
    
    
    
    3
    
    
    
    Total common stocks
    
    
    27
    
    
    
    11
    
    
    
    38
    
    
    
    1Total
    
    $
    24,273
    
    
    $
    3,849
    
    
    $
    13,636
    
    
    $
    875
   13




---



##### 



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
  14




---



##### 



Corporate Bonds
  Preferred Stock
  Investment Commitments
   15




---



##### 



Note E. Derivative Financial Instruments
  Recognized Gains (Losses)
 Period ended September 30
    
    Three Months
    
    
    Nine Months(In millions)
    
    2008
    
    
    2007
    
    
    2008
    
    
    2007General accountWithout hedge designationInterest rate swaps
    
    $
    4
    
    
    $
    (68
    )
    
    $
    6
    
    
    $
    30Credit default swaps  purchased protection
    
    
    53
    
    
    
    47
    
    
    
    64
    
    
    
    65Credit default swaps  sold protection
    
    
    (4
    )
    
    
    (22
    )
    
    
    (13
    )
    
    
    (30
    )Futures purchased
    
    
    
    
    
    
    7
    
    
    
    
    
    
    
    7Futures sold, not yet purchased
    
    
    (23
    )
    
    
    (8
    )
    
    
    (12
    )
    
    
    (8
    )Currency forwards
    
    
    
    
    
    
    (1
    )
    
    
    
    
    
    
    (2
    )Commitments to purchase government and municipal securities (TBAs)
    
    
    3
    
    
    
    (1
    )
    
    
    3
    
    
    
    Options embedded in convertible debt securities
    
    
    1
    
    
    
    1
    
    
    
    1
    
    
    
    1Equity warrants
    
    
    
    
    
    
    
    
    
    
    (2
    )
    
    
    Trading activitiesFutures purchased
    
    
    (18
    )
    
    
    5
    
    
    
    (96
    )
    
    
    32Futures sold, not yet purchased
    
    
    
    
    
    
    (1
    )
    
    
    1
    
    
    
    Currency forwards
    
    
    
    
    
    
    1
    
    
    
    1
    
    
    
    Total
    
    $
    16
    
    
    $
    (40
    )
    
    $
    (47
    )
    
    $
    95
  Derivative Financial Instruments
 Contractual/September 30, 2008
    
    Notional
    
    
    Estimated Fair Value(In millions)
    
    Amount
    
    
    Asset
    
    
    (Liability)General accountWithout hedge designationCredit default swaps  purchased protection
    
    $
    355
    
    
    $
    55
    
    
    $
    (2
    )Credit default swaps  sold protection
    
    
    198
    
    
    
    
    
    
    
    (44
    )Currency forwards
    
    
    12
    
    
    
    
    
    
    
    Commitments to purchase government and municipal securities (TBAs)
    
    
    95
    
    
    
    3
    
    
    
    Equity warrants
    
    
    4
    
    
    
    
    
    
    
    Trading activitiesFutures purchased
    
    
    203
    
    
    
    
    
    
    
    Total general account
    
    $
    867
    
    
    $
    58
    
    
    $
    (46
    )
 16




---



##### 



Derivative Financial Instruments
 Contractual/December 31, 2007
    
    Notional
    
    
    Estimated Fair Value(In millions)
    
    Amount
    
    
    Asset
    
    
    (Liability)General accountWithout hedge designationInterest rate swaps
    
    $
    451
    
    
    $
    
    
    
    $
    (27
    )Credit default swaps  purchased protection
    
    
    928
    
    
    
    61
    
    
    
    (4
    )Credit default swaps  sold protection
    
    
    226
    
    
    
    1
    
    
    
    (31
    )Equity warrants
    
    
    4
    
    
    
    2
    
    
    
    Options embedded in convertible debt securities
    
    
    3
    
    
    
    
    
    
    
    Trading activitiesFutures purchased
    
    
    791
    
    
    
    
    
    
    
    (4
    )Futures sold, not yet purchased
    
    
    135
    
    
    
    
    
    
    
    Currency forwards
    
    
    44
    
    
    
    2
    
    
    
    (1
    )Total general account
    
    $
    2,582
    
    
    $
    66
    
    
    $
    (67
    )
    Credit Default Swaps
  17




---



##### 



Note F. Fair Value
       TotalSeptember 30, 2008
    
    
    
    
    
    
    
    
    
    
    
    
    
    Assets/(Liabilities)(In millions)
    
    Level 1
    
    
    Level 2
    
    
    Level 3
    
    
    at fair valueAssetsFixed maturity securities
    
    $
    1,581
    
    
    $
    24,613
    
    
    $
    2,982
    
    
    $
    29,176Equity securities
    
    
    632
    
    
    
    115
    
    
    
    214
    
    
    
    961Derivative financial instruments, included in Other invested
assets
    
    
    
    
    
    
    3
    
    
    
    55
    
    
    
    58Short term investments
    
    
    3,496
    
    
    
    1,253
    
    
    
    
    
    
    
    4,749Life settlement contracts, included in Other assets
    
    
    
    
    
    
    
    
    
    
    121
    
    
    
    121Discontinued operations investments, included in Other assets
    
    
    77
    
    
    
    69
    
    
    
    20
    
    
    
    166Separate account business
    
    
    44
    
    
    
    338
    
    
    
    43
    
    
    
    425Total assets
    
    $
    5,830
    
    
    $
    26,391
    
    
    $
    3,435
    
    
    $
    35,656LiabilitiesDerivative financial instruments, included in Other liabilities
    
    $
    
    
    
    $
    
    
    
    $
    (46
    )
    
    $
    (46
    )Total liabilities
    
    $
    
    
    
    $
    
    
    
    $
    (46
    )
    
    $
    (46
    )
 18




---



##### 



Net realized
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    UnrealizedNet realized
    
    
    investment gains
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    gains (losses)investment gains
    
    
    (losses) and net
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    recorded in(losses) and net
    
    
    change in
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    net incomechange in
    
    
    unrealized
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    on level 3unrealized
    
    
    appreciation
    
    
    Purchases,
    
    
    
    
    
    
    
    
    
    
    assets andappreciation
    
    
    (depreciation)
    
    
    sales,
    
    
    
    
    
    
    
    
    
    
    liabilities(depreciation)
    
    
    included in other
    
    
    issuances
    
    
    Net transfers
    
    
    Balance at
    
    
    held atLevel 3
    
    Balance at
    
    
    included in net
    
    
    comprehensive
    
    
    and
    
    
    in (out) of
    
    
    September
    
    
    September(In millions)
    
    July 1, 2008
    
    
    income*
    
    
    income
    
    
    settlements
    
    
    level 3
    
    
    30, 2008
    
    
    30, 2008*Fixed maturity securities
    
    $
    3,213
    
    
    $
    (27
    )
    
    $
    (103
    )
    
    $
    (152
    )
    
    $
    51
    
    
    $
    2,982
    
    
    $
    (23
    )Equity securities
    
    
    261
    
    
    
    
    
    
    
    (1
    )
    
    
    (23
    )
    
    
    (23
    )
    
    
    214
    
    
    
    Derivative financial instruments, net
    
    
    (67
    )
    
    
    54
    
    
    
    
    
    
    
    22
    
    
    
    
    
    
    
    9
    
    
    
    76Short term investments
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Life settlement contracts
    
    
    118
    
    
    
    4
    
    
    
    
    
    
    
    (1
    )
    
    
    
    
    
    
    121
    
    
    
    3Discontinued operations investments
    
    
    23
    
    
    
    
    
    
    
    (2
    )
    
    
    (1
    )
    
    
    
    
    
    
    20
    
    
    
    Separate account business
    
    
    45
    
    
    
    
    
    
    
    (7
    )
    
    
    (1
    )
    
    
    6
    
    
    
    43
    
    
    
    Total
    
    $
    3,593
    
    
    $
    31
    
    
    $
    (113
    )
    
    $
    (156
    )
    
    $
    34
    
    
    $
    3,389
    
    
    $
    56
  Net realized
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    UnrealizedNet realized
    
    
    investment gains
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    gains (losses)investment gains
    
    
    (losses) and net
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    recorded in(losses) and net
    
    
    change in
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    net incomechange in
    
    
    unrealized
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    on level 3unrealized
    
    
    appreciation
    
    
    Purchases,
    
    
    
    
    
    
    
    
    
    
    assets andappreciation
    
    
    (depreciation)
    
    
    sales,
    
    
    
    
    
    
    
    
    
    
    liabilitiesBalance at
    
    
    (depreciation)
    
    
    included in other
    
    
    issuances
    
    
    Net transfers
    
    
    Balance at
    
    
    held atLevel 3
    
    January 1,
    
    
    included in net
    
    
    comprehensive
    
    
    and
    
    
    in (out) of
    
    
    September
    
    
    September(In millions)
    
    2008
    
    
    income*
    
    
    income
    
    
    settlements
    
    
    level 3
    
    
    30, 2008
    
    
    30, 2008*Fixed maturity securities
    
    $
    2,684
    
    
    $
    (150
    )
    
    $
    (373
    )
    
    $
    (68
    )
    
    $
    889
    
    
    $
    2,982
    
    
    $
    (158
    )Equity securities
    
    
    196
    
    
    
    (2
    )
    
    
    (4
    )
    
    
    25
    
    
    
    (1
    )
    
    
    214
    
    
    
    (4
    )Derivative financial instruments, net
    
    
    2
    
    
    
    55
    
    
    
    
    
    
    
    (48
    )
    
    
    
    
    
    
    9
    
    
    
    7Short term investments
    
    
    85
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (85
    )
    
    
    
    
    
    
    Life settlement contracts
    
    
    115
    
    
    
    34
    
    
    
    
    
    
    
    (28
    )
    
    
    
    
    
    
    121
    
    
    
    8Discontinued operations investments
    
    
    42
    
    
    
    
    
    
    
    (2
    )
    
    
    (3
    )
    
    
    (17
    )
    
    
    20
    
    
    
    Separate account business
    
    
    30
    
    
    
    
    
    
    
    (11
    )
    
    
    (2
    )
    
    
    26
    
    
    
    43
    
    
    
    Total
    
    $
    3,154
    
    
    $
    (63
    )
    
    $
    (390
    )
    
    $
    (124
    )
    
    $
    812
    
    
    $
    3,389
    
    
    $
    (147
    )
 19




---



##### 



*
    
    Net realized and unrealized gains and losses shown above are reported in net income as follows: Major Category of Assets and Liabilities
    
    Consolidated Statement of Operations Line ItemsFixed maturity securities
    
    Net investment income and Realized investment gains (losses)Equity securities
    
    Realized investment gains (losses)Derivative financial instruments (Assets)
    
    Realized investment gains (losses)Life settlement contracts
    
    Other revenuesDerivative financial instruments (Liabilities)
    
    Realized investment gains (losses)
   Fixed Maturity Securities
  Equity Securities
   Derivative Financial Instruments
  20




---



##### 



Short Term Investments
  Life Settlement Contracts
  Discontinued Operations Investments
  Separate Account Business
  Note G. Claim and Claim Adjustment Expense Reserves
    21




---



##### 



A&E Reserves
  A&E Reserves
 September 30, 2008
    
    
    December 31, 2007Environmental
    
    
    
    
    
    
    Environmental(In millions)
    
    Asbestos
    
    
    Pollution
    
    
    Asbestos
    
    
    PollutionGross reserves
    
    $
    2,155
    
    
    $
    309
    
    
    $
    2,352
    
    
    $
    367Ceded reserves
    
    
    (940
    )
    
    
    (115
    )
    
    
    (1,030
    )
    
    
    (125
    )Net reserves
    
    $
    1,215
    
    
    $
    194
    
    
    $
    1,322
    
    
    $
    242
 Asbestos
      22




---



##### 



In re:
Burns & Roe Enterprises, Inc
 23




---



##### 



Boson v. Union Carbide
Corp.,
 Pennock, et al. v. Maryland Casualty,
et al.
  24




---



##### 



Environmental Pollution
  Net Prior Year Development
  Three Month Comparison
 Net Prior Year Development
Three months ended September 30, 2008
 Corporate &Standard
    
    
    Specialty
    
    
    Other Non-(In millions)
    
    Lines
    
    
    Lines
    
    
    Core
    
    
    TotalPretax unfavorable (favorable) net prior year claim and
allocated claim adjustment expense reserve development:Core (Non-A&E)
    
    $
    (4
    )
    
    $
    (68
    )
    
    $
    1
    
    
    $
    (71
    )A&E
    
    
    
    
    
    
    
    
    
    
    13
    
    
    
    13Pretax unfavorable (favorable) net prior year development
before impact of premium development
    
    
    (4
    )
    
    
    (68
    )
    
    
    14
    
    
    
    (58
    )Pretax unfavorable (favorable) premium development
    
    
    3
    
    
    
    (2
    )
    
    
    (3
    )
    
    
    (2
    )Total pretax unfavorable (favorable) net prior year development
    
    $
    (1
    )
    
    $
    (70
    )
    
    $
    11
    
    
    $
    (60
    )
 Net Prior Year Development
Three months ended September 30, 2007
 Corporate &Standard
    
    
    Specialty
    
    
    Other Non-(In millions)
    
    Lines
    
    
    Lines
    
    
    Core
    
    
    TotalPretax unfavorable (favorable) net prior year
claim and allocated claim adjustment expense
reserve development:Core (Non-A&E)
    
    $
    (67
    )
    
    $
    3
    
    
    $
    4
    
    
    $
    (60
    )A&E
    
    
    
    
    
    
    
    
    
    
    3
    
    
    
    3Pretax unfavorable (favorable) net prior year
development before impact of premium development
    
    
    (67
    )
    
    
    3
    
    
    
    7
    
    
    
    (57
    )Pretax unfavorable (favorable) premium development
    
    
    (5
    )
    
    
    (3
    )
    
    
    (2
    )
    
    
    (10
    )Total pretax unfavorable (favorable) net prior
year development
    
    $
    (72
    )
    
    $
    
    
    
    $
    5
    
    
    $
    (67
    )
 25




---



##### 



2008 Net Prior Year Development
 Standard Lines
    Specialty Lines
    Corporate & Other Non-Core
  26




---



##### 



2007 Net Prior Year Development
 Standard Lines
   Nine Month Comparison
 Net Prior Year Development
Nine months ended September 30, 2008
 Corporate &Standard
    
    
    Specialty
    
    
    Other Non-(In millions)
    
    Lines
    
    
    Lines
    
    
    Core
    
    
    TotalPretax unfavorable (favorable) net prior year claim and
allocated claim adjustment expense reserve development:Core (Non-A&E)
    
    $
    (54
    )
    
    $
    (50
    )
    
    $
    9
    
    
    $
    (95
    )A&E
    
    
    
    
    
    
    
    
    
    
    21
    
    
    
    21Pretax unfavorable (favorable) net prior year development
before impact of premium development
    
    
    (54
    )
    
    
    (50
    )
    
    
    30
    
    
    
    (74
    )Pretax unfavorable (favorable) premium development
    
    
    4
    
    
    
    (20
    )
    
    
    (3
    )
    
    
    (19
    )Total pretax unfavorable (favorable) net prior year development
    
    $
    (50
    )
    
    $
    (70
    )
    
    $
    27
    
    
    $
    (93
    )
 Net Prior Year Development
Nine months ended September 30, 2007
 Corporate &Standard
    
    
    Specialty
    
    
    Other Non-(In millions)
    
    Lines
    
    
    Lines
    
    
    Core
    
    
    TotalPretax unfavorable (favorable) net prior year
claim and allocated claim adjustment expense
reserve development:Core (Non-A&E)
    
    $
    (74
    )
    
    $
    (4
    )
    
    $
    12
    
    
    $
    (66
    )A&E
    
    
    
    
    
    
    
    
    
    
    7
    
    
    
    7Pretax unfavorable (favorable) net prior year
development before impact of premium development
    
    
    (74
    )
    
    
    (4
    )
    
    
    19
    
    
    
    (59
    )Pretax unfavorable (favorable) premium development
    
    
    (15
    )
    
    
    (13
    )
    
    
    (5
    )
    
    
    (33
    )Total pretax unfavorable (favorable) net prior
year development
    
    $
    (89
    )
    
    $
    (17
    )
    
    $
    14
    
    
    $
    (92
    )
 27




---



##### 



2008 Net Prior Year Development
 Standard Lines
    Specialty Lines
     28




---



##### 



Corporate & Other Non-Core
  2007 Net Prior Year Development
 Standard Lines
      Specialty Lines
   Corporate & Other Non-Core
  29




---



##### 



Note H. Legal Proceedings and Contingent Liabilities
 Insurance Brokerage Antitrust Litigation
 In re Insurance Brokerage Antitrust Litigation
  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
 
 30




---



##### 



Note I. Reinsurance
   Components of reinsurance receivables(In millions)
    
    September 30, 2008
    
    
    December 31, 2007Reinsurance receivables related to insurance reserves:Ceded claim and claim adjustment expense
    
    $
    6,468
    
    
    $
    7,056Ceded future policy benefits
    
    
    946
    
    
    
    987Ceded policyholders funds
    
    
    41
    
    
    
    43Reinsurance receivables related to paid losses
    
    
    543
    
    
    
    603Reinsurance receivables
    
    
    7,998
    
    
    
    8,689Allowance for uncollectible reinsurance
    
    
    (387
    )
    
    
    (461
    )Reinsurance receivables, net of allowance
for uncollectible reinsurance
    
    $
    7,611
    
    
    $
    8,228
  31




---



##### 



Note J. 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)
    
    2008
    
    
    2007
    
    
    2008
    
    
    2007Pension benefitsService cost
    
    $
    5
    
    
    $
    5
    
    
    $
    15
    
    
    $
    17Interest cost on projected benefit obligation
    
    
    37
    
    
    
    36
    
    
    
    110
    
    
    
    109Expected return on plan assets
    
    
    (45
    )
    
    
    (43
    )
    
    
    (134
    )
    
    
    (130
    )Prior service cost amortization
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1Actuarial loss
    
    
    1
    
    
    
    2
    
    
    
    3
    
    
    
    8Net periodic pension (benefit) cost
    
    $
    (2
    )
    
    $
    
    
    
    $
    (6
    )
    
    $
    5Postretirement benefitsService cost
    
    $
    
    
    
    $
    
    
    
    $
    1
    
    
    $
    1Interest cost on projected benefit obligation
    
    
    2
    
    
    
    2
    
    
    
    6
    
    
    
    7Prior service cost amortization
    
    
    (3
    )
    
    
    (4
    )
    
    
    (11
    )
    
    
    (13
    )Actuarial loss
    
    
    
    
    
    
    1
    
    
    
    1
    
    
    
    2Net periodic postretirement benefit
    
    $
    (1
    )
    
    $
    (1
    )
    
    $
    (3
    )
    
    $
    (3
    )
  32




---



##### 



Note K. Operating Leases, Other Commitments and Contingencies, and Guarantees
 Operating Leases
    Other Commitments and Contingencies
   Guarantees
   33




---



##### 



Note L. Comprehensive Income (Loss)
  Comprehensive Income (Loss)
 Period ended September 30
    
    Three Months
    
    
    Nine Months(In millions)
    
    2008
    
    
    2007
    
    
    2008
    
    
    2007Net income (loss)
    
    $
    (331
    )
    
    $
    174
    
    
    $
    37
    
    
    $
    687Other 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 $677, $10, $1,240 and $156
    
    
    (1,253
    )
    
    
    (19
    )
    
    
    (2,294
    )
    
    
    (291
    )Reclassification adjustment for (gains) losses included in net
income, net of tax expense (benefit) of ($22), $25, ($26) and
$58
    
    
    41
    
    
    
    (45
    )
    
    
    48
    
    
    
    (107
    )Net change in unrealized gains (losses) on general account
investments, net of tax (expense) benefit of $655, $35, $1,214
and $214
    
    
    (1,212
    )
    
    
    (64
    )
    
    
    (2,246
    )
    
    
    (398
    )Net change in unrealized gains (losses) on discontinued
operations and other, net of tax (expense) benefit of $1, $0, $3
and $0
    
    
    (3
    )
    
    
    1
    
    
    
    (3
    )
    
    
    Net change in foreign currency translation adjustment
    
    
    (44
    )
    
    
    24
    
    
    
    (53
    )
    
    
    29Net change related to pensions and postretirement benefits, net
of tax (expense) benefit of ($2), $0, $1 and ($1)
    
    
    (2
    )
    
    
    (2
    )
    
    
    (5
    )
    
    
    1Allocation to participating policyholders and minority interests
    
    
    19
    
    
    
    (2
    )
    
    
    41
    
    
    
    11Other comprehensive income (loss), net of tax (expense) benefit
of $654, $35, $1,218 and $213
    
    
    (1,242
    )
    
    
    (43
    )
    
    
    (2,266
    )
    
    
    (357
    )Total comprehensive income (loss)
    
    $
    (1,573
    )
    
    $
    131
    
    
    $
    (2,229
    )
    
    $
    330
 34




---



##### 



Note M. Business Segments
       35




---



##### 



Three months ended
    
    
    
    
    
    
    
    
    
    
    
    
    
    CorporateSeptember 30, 2008
    
    Standard
    
    
    Specialty
    
    
    Life & Group
    
    
    & Other(In millions)
    
    Lines
    
    
    Lines
    
    
    Non-Core
    
    
    Non-Core
    
    
    Eliminations
    
    
    TotalRevenues:Net earned premiums
    
    $
    762
    
    
    $
    882
    
    
    $
    154
    
    
    $
    2
    
    
    $
    (1
    )
    
    $
    1,799Net investment income
    
    
    136
    
    
    
    121
    
    
    
    135
    
    
    
    47
    
    
    
    
    
    
    
    439Other revenues
    
    
    13
    
    
    
    59
    
    
    
    (1
    )
    
    
    1
    
    
    
    
    
    
    
    72Total operating revenues
    
    
    911
    
    
    
    1,062
    
    
    
    288
    
    
    
    50
    
    
    
    (1
    )
    
    
    2,310Claims, benefits and expenses:Net incurred claims and benefits
    
    
    734
    
    
    
    516
    
    
    
    294
    
    
    
    (19
    )
    
    
    
    
    
    
    1,525Policyholders dividends
    
    
    (10
    )
    
    
    2
    
    
    
    2
    
    
    
    
    
    
    
    
    
    
    
    (6
    )Amortization of deferred acquisition costs
    
    
    174
    
    
    
    177
    
    
    
    4
    
    
    
    
    
    
    
    
    
    
    
    355Other insurance related expenses
    
    
    87
    
    
    
    79
    
    
    
    51
    
    
    
    6
    
    
    
    (1
    )
    
    
    222Other expenses
    
    
    20
    
    
    
    52
    
    
    
    7
    
    
    
    26
    
    
    
    
    
    
    
    105Total claims, benefits and expenses
    
    
    1,005
    
    
    
    826
    
    
    
    358
    
    
    
    13
    
    
    
    (1
    )
    
    
    2,201Operating income (loss) from continuing operations
before income tax and minority interest
    
    
    (94
    )
    
    
    236
    
    
    
    (70
    )
    
    
    37
    
    
    
    
    
    
    
    109Income tax (expense) benefit on operating income (loss)
    
    
    41
    
    
    
    (74
    )
    
    
    34
    
    
    
    (11
    )
    
    
    
    
    
    
    (10
    )Minority interest
    
    
    
    
    
    
    (17
    )
    
    
    
    
    
    
    1
    
    
    
    
    
    
    
    (16
    )Net operating income (loss) from continuing operations
    
    
    (53
    )
    
    
    145
    
    
    
    (36
    )
    
    
    27
    
    
    
    
    
    
    
    83Realized investment losses, net of participating
policyholders and minority interests
    
    
    (178
    )
    
    
    (116
    )
    
    
    (298
    )
    
    
    (59
    )
    
    
    
    
    
    
    (651
    )Income tax benefit on realized investment losses
    
    
    63
    
    
    
    41
    
    
    
    104
    
    
    
    20
    
    
    
    
    
    
    
    228Income (loss) from continuing operations
    
    $
    (168
    )
    
    $
    70
    
    
    $
    (230
    )
    
    $
    (12
    )
    
    $
    
    
    
    $
    (340
    )
 36




---



##### 



Three months ended
    
    
    
    
    
    
    
    
    
    
    
    
    
    CorporateSeptember 30, 2007

    
    
    Standard
    
    
    Specialty
    
    
    Life & Group
    
    
    & Other(In millions)

    
    Lines
    
    
    Lines
    
    
    Non-Core
    
    
    Non-Core
    
    
    Eliminations
    
    
    TotalRevenues:Net earned premiums
    
    $
    841
    
    
    $
    885
    
    
    $
    156
    
    
    $
    1
    
    
    $
    (1
    )
    
    $
    1,882Net investment income
    
    
    209
    
    
    
    152
    
    
    
    145
    
    
    
    74
    
    
    
    
    
    
    
    580Other revenues
    
    
    9
    
    
    
    50
    
    
    
    16
    
    
    
    4
    
    
    
    
    
    
    
    79Total operating revenues
    
    
    1,059
    
    
    
    1,087
    
    
    
    317
    
    
    
    79
    
    
    
    (1
    )
    
    
    2,541Claims, benefits and expenses:Net incurred claims and benefits
    
    
    511
    
    
    
    556
    
    
    
    463
    
    
    
    40
    
    
    
    
    
    
    
    1,570Policyholders dividends
    
    
    4
    
    
    
    1
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    5Amortization of deferred acquisition costs
    
    
    190
    
    
    
    190
    
    
    
    4
    
    
    
    
    
    
    
    
    
    
    
    384Other insurance related expenses
    
    
    82
    
    
    
    45
    
    
    
    48
    
    
    
    1
    
    
    
    (1
    )
    
    
    175Other expenses
    
    
    12
    
    
    
    44
    
    
    
    17
    
    
    
    31
    
    
    
    
    
    
    
    104Total claims, benefits and expenses
    
    
    799
    
    
    
    836
    
    
    
    532
    
    
    
    72
    
    
    
    (1
    )
    
    
    2,238Operating income (loss) from continuing operations
before income tax and minority interest
    
    
    260
    
    
    
    251
    
    
    
    (215
    )
    
    
    7
    
    
    
    
    
    
    
    303Income tax (expense) benefit on operating income (loss)
    
    
    (82
    )
    
    
    (82
    )
    
    
    84
    
    
    
    5
    
    
    
    
    
    
    
    (75
    )Minority interest
    
    
    
    
    
    
    (16
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (16
    )Net operating income (loss) from continuing operations
    
    
    178
    
    
    
    153
    
    
    
    (131
    )
    
    
    12
    
    
    
    
    
    
    
    212Realized investment losses, net of participating
policyholders and minority interests
    
    
    (29
    )
    
    
    (13
    )
    
    
    (9
    )
    
    
    (6
    )
    
    
    
    
    
    
    (57
    )Income tax benefit on realized investment losses
    
    
    10
    
    
    
    4
    
    
    
    3
    
    
    
    2
    
    
    
    
    
    
    
    19Income (loss) from continuing operations
    
    $
    159
    
    
    $
    144
    
    
    $
    (137
    )
    
    $
    8
    
    
    $
    
    
    
    $
    174
 37




---



##### 



Nine months ended
    
    
    
    
    
    
    
    
    
    
    
    
    
    CorporateSeptember 30, 2008


    
    Standard
    
    
    Specialty
    
    
    Life & Group
    
    
    & Other(In millions)

    
    Lines
    
    
    Lines
    
    
    Non-Core
    
    
    Non-Core
    
    
    Eliminations
    
    
    TotalRevenues:Net earned premiums
    
    $
    2,313
    
    
    $
    2,614
    
    
    $
    460
    
    
    $
    2
    
    
    $
    (3
    )
    
    $
    5,386Net investment income
    
    
    499
    
    
    
    408
    
    
    
    376
    
    
    
    166
    
    
    
    
    
    
    
    1,449Other revenues
    
    
    42
    
    
    
    166
    
    
    
    20
    
    
    
    12
    
    
    
    
    
    
    
    240Total operating revenues
    
    
    2,854
    
    
    
    3,188
    
    
    
    856
    
    
    
    180
    
    
    
    (3
    )
    
    
    7,075Claims, benefits and expenses:Net incurred claims and benefits
    
    
    1,877
    
    
    
    1,641
    
    
    
    822
    
    
    
    28
    
    
    
    
    
    
    
    4,368Policyholders dividends
    
    
    (3
    )
    
    
    10
    
    
    
    5
    
    
    
    
    
    
    
    
    
    
    
    12Amortization of deferred acquisition costs
    
    
    528
    
    
    
    545
    
    
    
    10
    
    
    
    
    
    
    
    
    
    
    
    1,083Other insurance related expenses
    
    
    193
    
    
    
    182
    
    
    
    152
    
    
    
    8
    
    
    
    (3
    )
    
    
    532Other expenses
    
    
    44
    
    
    
    144
    
    
    
    17
    
    
    
    87
    
    
    
    
    
    
    
    292Total claims, benefits and expenses
    
    
    2,639
    
    
    
    2,522
    
    
    
    1,006
    
    
    
    123
    
    
    
    (3
    )
    
    
    6,287Operating income (loss) from continuing operations
before income tax and minority interest
    
    
    215
    
    
    
    666
    
    
    
    (150
    )
    
    
    57
    
    
    
    
    
    
    
    788Income tax (expense) benefit on operating income (loss)
    
    
    (49
    )
    
    
    (212
    )
    
    
    81
    
    
    
    (14
    )
    
    
    
    
    
    
    (194
    )Minority interest
    
    
    
    
    
    
    (40
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (40
    )Net operating income (loss) from continuing operations
    
    
    166
    
    
    
    414
    
    
    
    (69
    )
    
    
    43
    
    
    
    
    
    
    
    554Realized investment losses, net of participating
policyholders and minority interests
    
    
    (254
    )
    
    
    (154
    )
    
    
    (321
    )
    
    
    (84
    )
    
    
    
    
    
    
    (813
    )Income tax benefit on realized investment losses
    
    
    89
    
    
    
    55
    
    
    
    112
    
    
    
    30
    
    
    
    
    
    
    
    286Income (loss) from continuing operations
    
    $
    1
    
    
    $
    315
    
    
    $
    (278
    )
    
    $
    (11
    )
    
    $
    
    
    
    $
    27September 30, 2008
(In millions)Reinsurance receivables
    
    $
    2,282
    
    
    $
    1,541
    
    
    $
    2,011
    
    
    $
    2,164
    
    
    $
    
    
    
    $
    7,998Insurance receivables
    
    $
    1,341
    
    
    $
    785
    
    
    $
    13
    
    
    $
    21
    
    
    $
    
    
    
    $
    2,160Insurance reserves:Claim and claim adjustment expenses
    
    $
    12,157
    
    
    $
    8,364
    
    
    $
    2,930
    
    
    $
    4,572
    
    
    $
    
    
    
    $
    28,023Unearned premiums
    
    
    1,470
    
    
    
    1,919
    
    
    
    159
    
    
    
    3
    
    
    
    (1
    )
    
    
    3,550Future policy benefits
    
    
    
    
    
    
    
    
    
    
    7,442
    
    
    
    
    
    
    
    
    
    
    
    7,442Policyholders funds
    
    
    13
    
    
    
    7
    
    
    
    433
    
    
    
    
    
    
    
    
    
    
    
    453Deferred acquisition costs
    
    $
    309
    
    
    $
    374
    
    
    $
    474
    
    
    $
    
    
    
    $
    
    
    
    $
    1,157
 38




---



##### 



Nine months ended
    
    
    
    
    
    
    
    
    
    
    
    
    
    CorporateSeptember 30, 2007


    
    Standard
    
    
    Specialty
    
    
    Life & Group
    
    
    & Other(In millions)

    
    Lines
    
    
    Lines
    
    
    Non-Core
    
    
    Non-Core
    
    
    Eliminations
    
    
    TotalRevenues:Net earned premiums
    
    $
    2,546
    
    
    $
    2,600
    
    
    $
    469
    
    
    $
    5
    
    
    $
    (3
    )
    
    $
    5,617Net investment income
    
    
    664
    
    
    
    463
    
    
    
    494
    
    
    
    238
    
    
    
    
    
    
    
    1,859Other revenues
    
    
    32
    
    
    
    139
    
    
    
    34
    
    
    
    6
    
    
    
    
    
    
    
    211Total operating revenues
    
    
    3,242
    
    
    
    3,202
    
    
    
    997
    
    
    
    249
    
    
    
    (3
    )
    
    
    7,687Claims, benefits and expenses:Net incurred claims and benefits
    
    
    1,685
    
    
    
    1,630
    
    
    
    1,062
    
    
    
    111
    
    
    
    
    
    
    
    4,488Policyholders dividends
    
    
    3
    
    
    
    5
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    8Amortization of deferred acquisition costs
    
    
    575
    
    
    
    549
    
    
    
    13
    
    
    
    
    
    
    
    
    
    
    
    1,137Other insurance related expenses
    
    
    243
    
    
    
    134
    
    
    
    143
    
    
    
    16
    
    
    
    (3
    )
    
    
    533Other expenses
    
    
    36
    
    
    
    125
    
    
    
    34
    
    
    
    98
    
    
    
    
    
    
    
    293Total claims, benefits and expenses
    
    
    2,542
    
    
    
    2,443
    
    
    
    1,252
    
    
    
    225
    
    
    
    (3
    )
    
    
    6,459Operating income (loss) from continuing operations
before income tax and minority interest
    
    
    700
    
    
    
    759
    
    
    
    (255
    )
    
    
    24
    
    
    
    
    
    
    
    1,228Income tax (expense) benefit on operating income (loss)
    
    
    (222
    )
    
    
    (249
    )
    
    
    113
    
    
    
    4
    
    
    
    
    
    
    
    (354
    )Minority interest
    
    
    
    
    
    
    (36
    )
    
    
    
    
    
    
    (1
    )
    
    
    
    
    
    
    (37
    )Net operating income (loss) from continuing operations
    
    
    478
    
    
    
    474
    
    
    
    (142
    )
    
    
    27
    
    
    
    
    
    
    
    837Realized investment losses, net of participating
policyholders and minority interests
    
    
    (116
    )
    
    
    (62
    )
    
    
    (26
    )
    
    
    (13
    )
    
    
    
    
    
    
    (217
    )Income tax benefit on realized investment losses
    
    
    40
    
    
    
    21
    
    
    
    9
    
    
    
    5
    
    
    
    
    
    
    
    75Income (loss) from continuing operations
    
    $
    402
    
    
    $
    433
    
    
    $
    (159
    )
    
    $
    19
    
    
    $
    
    
    
    $
    695December 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
 39




---



##### 



Revenue by Line of Business
 Period ended September 30
    
    Three Months
    
    
    Nine Months(In millions)
    
    2008
    
    
    2007
    
    
    2008
    
    
    2007Standard LinesBusiness Insurance
    
    $
    140
    
    
    $
    162
    
    
    $
    450
    
    
    $
    472Commercial Insurance
    
    
    593
    
    
    
    868
    
    
    
    2,150
    
    
    
    2,654Standard Lines revenue
    
    
    733
    
    
    
    1,030
    
    
    
    2,600
    
    
    
    3,126Specialty LinesU.S. Specialty Lines
    
    
    547
    
    
    
    670
    
    
    
    1,834
    
    
    
    1,990Surety
    
    
    121
    
    
    
    125
    
    
    
    356
    
    
    
    352Warranty
    
    
    70
    
    
    
    75
    
    
    
    218
    
    
    
    219CNA Global
    
    
    208
    
    
    
    204
    
    
    
    626
    
    
    
    579Specialty Lines revenue
    
    
    946
    
    
    
    1,074
    
    
    
    3,034
    
    
    
    3,140Life & Group Non-CoreLife & Annuity
    
    
    (18
    )
    
    
    47
    
    
    
    15
    
    
    
    226Health
    
    
    11
    
    
    
    241
    
    
    
    491
    
    
    
    693Other
    
    
    (3
    )
    
    
    20
    
    
    
    29
    
    
    
    52Life & Group Non-Core revenue
    
    
    (10
    )
    
    
    308
    
    
    
    535
    
    
    
    971Corporate & Other Non-CoreCNA Re
    
    
    
    
    
    
    24
    
    
    
    32
    
    
    
    96Other
    
    
    (9
    )
    
    
    49
    
    
    
    64
    
    
    
    140Corporate & Other Non-Core revenue
    
    
    (9
    )
    
    
    73
    
    
    
    96
    
    
    
    236Eliminations
    
    
    (1
    )
    
    
    (1
    )
    
    
    (3
    )
    
    
    (3
    )Total revenue
    
    $
    1,659
    
    
    $
    2,484
    
    
    $
    6,262
    
    
    $
    7,470
 Note N. Statutory Accounting Practices
    40




---



##### 



Preliminary Statutory Information
 Statutory Capital and Surplus
    
    Statutory Net Income (Loss)
    
    Statutory Net Income (Loss)Three months ended September 30
    
    Nine months ended September 30September 30, 2008
    
    December 31, 2007
    
    2008
    
    2007
    
    2008
    
    2007(In millions)Property and casualty companies (a)
    
    $
    7,967
    
    
    $
    8,511
    
    
    $
    (259
    )
    
    $
    164
    
    
    $
    
    
    
    $
    570Life company
    
    
    514
    
    
    
    471
    
    
    
    (26
    )
    
    
    (3
    )
    
    
    5
    
    
    
    26
 
 (a)
    
    Surplus includes the property and casualty companies equity ownership of the life
companys capital and surplus.  41




---



##### 



Note O. Discontinued Operations
   Discontinued Operations
 Period ended September 30
    
    Three Months
    
    
    Nine Months(In millions)
    
    2008
    
    
    2007
    
    
    2008
    
    
    2007Revenues:Net investment income
    
    $
    2
    
    
    $
    2
    
    
    $
    6
    
    
    $
    11Realized investment gains and other
    
    
    1
    
    
    
    2
    
    
    
    3
    
    
    
    4Total revenues
    
    
    3
    
    
    
    4
    
    
    
    9
    
    
    
    15Insurance related expenses
    
    
    3
    
    
    
    3
    
    
    
    8
    
    
    
    23Income (loss) before income taxes
    
    
    
    
    
    
    1
    
    
    
    1
    
    
    
    (8
    )Income tax (expense) benefit
    
    
    9
    
    
    
    (1
    )
    
    
    9
    
    
    
    Income (loss) from discontinued operations, net of tax
    
    $
    9
    
    
    $
    
    
    
    $
    10
    
    
    $
    (8
    )
   Discontinued Operations
 (In millions)
    
    September 30, 2008
    
    
    December 31, 2007Assets:Investments
    
    $
    166
    
    
    $
    185Reinsurance receivables
    
    
    6
    
    
    
    1Cash
    
    
    
    
    
    
    7Other assets
    
    
    1
    
    
    
    4Total assets
    
    
    173
    
    
    
    197Liabilities:Insurance reserves
    
    
    168
    
    
    
    172Other liabilities
    
    
    4
    
    
    
    2Total liabilities
    
    
    172
    
    
    
    174Net assets of discontinued operations
    
    $
    1
    
    
    $
    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
 42




---



##### 



Note P. Subsequent Events
 CNAF Preferred Issue and CCC Surplus Note
  
    
    The Preferred Issue is perpetual and is senior to CNAFs common stock and any future
preferred stock as to the payment of dividends and amounts payable upon any liquidation,
dissolution or winding up.
    
    No dividends may be declared on CNAFs common stock or any future preferred stock until
the Preferred Issue has been paid in full. As such, the Company has suspended its
quarterly dividend payment.
    
    The Preferred Issue is not convertible into any other securities and may only be
redeemed upon the mutual agreement of the Company and Loews.
    
    The Preferred Issue accrues cumulative dividends at an initial rate of 10% per year. On
the fifth anniversary of the issuance and every five years thereafter, the dividend rate
will increase to the higher of 10% or the then current 10-year U.S. Treasury yield plus
700 basis points.
    
    Dividends are payable quarterly and any dividends not paid when due will be compounded
quarterly.
  Limited Partnership Investments
   43




---



##### 



CNA Financial Corporation
 
 Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
 Overview
    44




---



##### 



CONSOLIDATED OPERATIONS
 Results of Operations
  Period ended September 30
    
    Three Months
    
    
    Nine Months(In millions, except per share data)
    
    2008
    
    
    2007
    
    
    2008
    
    
    2007RevenuesNet earned premiums
    
    $
    1,799
    
    
    $
    1,882
    
    
    $
    5,386
    
    
    $
    5,617Net investment income
    
    
    439
    
    
    
    580
    
    
    
    1,449
    
    
    
    1,859Other revenues
    
    
    72
    
    
    
    79
    
    
    
    240
    
    
    
    211Total operating revenues
    
    
    2,310
    
    
    
    2,541
    
    
    
    7,075
    
    
    
    7,687Claims, Benefits and ExpensesNet incurred claims and benefits
    
    
    1,525
    
    
    
    1,570
    
    
    
    4,368
    
    
    
    4,488Policyholders dividends
    
    
    (6
    )
    
    
    5
    
    
    
    12
    
    
    
    8Amortization of deferred acquisition costs
    
    
    355
    
    
    
    384
    
    
    
    1,083
    
    
    
    1,137Other insurance related expenses
    
    
    222
    
    
    
    175
    
    
    
    532
    
    
    
    533Other expenses
    
    
    105
    
    
    
    104
    
    
    
    292
    
    
    
    293Total claims, benefits and expenses
    
    
    2,201
    
    
    
    2,238
    
    
    
    6,287
    
    
    
    6,459Operating income from continuing operations
before income tax and minority interest
    
    
    109
    
    
    
    303
    
    
    
    788
    
    
    
    1,228Income tax expense on operating income
    
    
    (10
    )
    
    
    (75
    )
    
    
    (194
    )
    
    
    (354
    )Minority interest
    
    
    (16
    )
    
    
    (16
    )
    
    
    (40
    )
    
    
    (37
    )Net operating income from continuing operations
    
    
    83
    
    
    
    212
    
    
    
    554
    
    
    
    837Realized investment losses, net of
participating policyholders and minority
interests
    
    
    (651
    )
    
    
    (57
    )
    
    
    (813
    )
    
    
    (217
    )Income tax benefit on realized investment losses
    
    
    228
    
    
    
    19
    
    
    
    286
    
    
    
    75Income (loss) from continuing operations
    
    
    (340
    )
    
    
    174
    
    
    
    27
    
    
    
    695Income (loss) from discontinued operations, net
of income tax (expense) benefit of $9, $(1),
$9 and $0
    
    
    9
    
    
    
    
    
    
    
    10
    
    
    
    (8
    )Net income (loss)
    
    $
    (331
    )
    
    $
    174
    
    
    $
    37
    
    
    $
    687Basic and Diluted Earnings (Loss) Per ShareIncome (loss) from continuing operations
    
    $
    (1.26
    )
    
    $
    0.64
    
    
    $
    0.10
    
    
    $
    2.56Income (loss) from discontinued operations
    
    
    0.03
    
    
    
    
    
    
    
    0.04
    
    
    
    (0.03
    )Basic and diluted earnings (loss) per share
available to common stockholders
    
    $
    (1.23
    )
    
    $
    0.64
    
    
    $
    0.14
    
    
    $
    2.53Weighted average outstanding common stock and
common stock equivalentsBasic
    
    
    269.0
    
    
    
    271.6
    
    
    
    269.6
    
    
    
    271.5Diluted
    
    
    269.1
    
    
    
    271.9
    
    
    
    269.6
    
    
    
    271.8
 45




---



##### 



Three Month Comparison
      Nine Month Comparison
    46




---



##### 



Critical Accounting Estimates
    
    
    Insurance Reserves
 
    
    Reinsurance
 
    
    Valuation of Investments and Impairment of Securities
 
    
    Long Term Care Products
 
    
    Pension and Postretirement Benefit Obligations
 
    
    Legal Proceedings
  47




---



##### 



SEGMENT RESULTS
  48




---



##### 



STANDARD LINES
  Results of Operations
 Period ended September 30
    
    Three Months
    
    
    Nine Months(In millions)
    
    2008
    
    
    2007
    
    
    2008
    
    
    2007Net written premiums
    
    $
    723
    
    
    $
    753
    
    
    $
    2,342
    
    
    $
    2,524Net earned premiums
    
    
    762
    
    
    
    841
    
    
    
    2,313
    
    
    
    2,546Net investment income
    
    
    136
    
    
    
    209
    
    
    
    499
    
    
    
    664Net operating income (loss)
    
    
    (53
    )
    
    
    178
    
    
    
    166
    
    
    
    478Net realized investment losses, after-tax
    
    
    (115
    )
    
    
    (19
    )
    
    
    (165
    )
    
    
    (76
    )Net income (loss)
    
    
    (168
    )
    
    
    159
    
    
    
    1
    
    
    
    402RatiosLoss and loss adjustment expense
    
    
    96.3
    %
    
    
    60.9
    %
    
    
    81.1
    %
    
    
    66.2
    %Expense
    
    
    34.4
    
    
    
    32.3
    
    
    
    31.3
    
    
    
    32.1Dividend
    
    
    (1.4
    )
    
    
    0.4
    
    
    
    (0.2
    )
    
    
    0.1Combined
    
    
    129.3
    %
    
    
    93.6
    %
    
    
    112.2
    %
    
    
    98.4
    %
 Three Month Comparison
       49




---



##### 



Nine Month Comparison
       50




---



##### 



Gross and Net Carried
Claim and Claim Adjustment Expense Reserves
 (In millions)
    
    September 30, 2008
    
    
    December 31, 2007Gross Case Reserves
    
    $
    6,071
    
    
    $
    5,988Gross IBNR Reserves
    
    
    6,086
    
    
    
    6,060Total Gross Carried Claim and Claim Adjustment Expense Reserves
    
    $
    12,157
    
    
    $
    12,048Net Case Reserves
    
    $
    4,877
    
    
    $
    4,750Net IBNR Reserves
    
    
    5,100
    
    
    
    5,170Total Net Carried Claim and Claim Adjustment Expense Reserves
    
    $
    9,977
    
    
    $
    9,920
 51




---



##### 



SPECIALTY LINES
  Results of Operations
 Period ended September 30
    
    Three Months
    
    
    Nine Months(In millions)
    
    2008
    
    
    2007
    
    
    2008
    
    
    2007Net written premiums
    
    $
    875
    
    
    $
    886
    
    
    $
    2,583
    
    
    $
    2,619Net earned premiums
    
    
    882
    
    
    
    885
    
    
    
    2,614
    
    
    
    2,600Net investment income
    
    
    121
    
    
    
    152
    
    
    
    408
    
    
    
    463Net operating income
    
    
    145
    
    
    
    153
    
    
    
    414
    
    
    
    474Net realized investment losses, after-tax
    
    
    (75
    )
    
    
    (9
    )
    
    
    (99
    )
    
    
    (41
    )Net income
    
    
    70
    
    
    
    144
    
    
    
    315
    
    
    
    433RatiosLoss and loss adjustment expense
    
    
    58.5
    %
    
    
    62.8
    %
    
    
    62.8
    %
    
    
    62.7
    %Expense
    
    
    29.0
    
    
    
    26.6
    
    
    
    27.8
    
    
    
    26.3Dividend
    
    
    0.3
    
    
    
    0.2
    
    
    
    0.4
    
    
    
    0.2Combined
    
    
    87.8
    %
    
    
    89.6
    %
    
    
    91.0
    %
    
    
    89.2
    %
 Three Month Comparison
        52




---



##### 



Nine Month Comparison
       53




---



##### 



Gross and Net Carried
Claim and Claim Adjustment Expense Reserves
 (In millions)
    
    September 30, 2008
    
    
    December 31, 2007Gross Case Reserves
    
    $
    2,662
    
    
    $
    2,585Gross IBNR Reserves
    
    
    5,702
    
    
    
    5,818Total Gross Carried Claim and Claim Adjustment Expense Reserves
    
    $
    8,364
    
    
    $
    8,403Net Case Reserves
    
    $
    2,204
    
    
    $
    2,090Net IBNR Reserves
    
    
    4,681
    
    
    
    4,527Total Net Carried Claim and Claim Adjustment Expense Reserves
    
    $
    6,885
    
    
    $
    6,617
 54




---



##### 



LIFE & GROUP NON-CORE
  Results of Operations
 Period ended September 30
    
    Three Months
    
    Nine Months(In millions)
    
    2008
    
    2007
    
    2008
    
    2007Net earned premiums
    
    $
    154
    
    
    $
    156
    
    
    $
    460
    
    
    $
    469Net investment income
    
    
    135
    
    
    
    145
    
    
    
    376
    
    
    
    494Net operating loss
    
    
    (36
    )
    
    
    (131
    )
    
    
    (69
    )
    
    
    (142
    )Net realized investment losses, after-tax
    
    
    (194
    )
    
    
    (6
    )
    
    
    (209
    )
    
    
    (17
    )Net loss
    
    
    (230
    )
    
    
    (137
    )
    
    
    (278
    )
    
    
    (159
    )
 Three Month Comparison
   Nine Month Comparison
    55




---



##### 



CORPORATE & OTHER NON-CORE
  Results of Operations
 Period ended September 30
    
    Three Months
    
    Nine Months(In millions)
    
    2008
    
    2007
    
    2008
    
    2007Net investment income
    
    $
    47
    
    
    $
    74
    
    
    $
    166
    
    
    $
    238Revenues
    
    
    (10
    )
    
    
    72
    
    
    
    93
    
    
    
    233Net operating income
    
    
    27
    
    
    
    12
    
    
    
    43
    
    
    
    27Net realized investment losses, after-tax
    
    
    (39
    )
    
    
    (4
    )
    
    
    (54
    )
    
    
    (8
    )Net income (loss)
    
    
    (12
    )
    
    
    8
    
    
    
    (11
    )
    
    
    19
 Three Month Comparison
    Nine Month Comparison
    56




---



##### 



Gross and Net Carried
Claim and Claim Adjustment Expense Reserves
 (In millions)
    
    September 30, 2008
    
    
    December 31, 2007Gross Case Reserves
    
    $
    1,886
    
    
    $
    2,159Gross IBNR Reserves
    
    
    2,686
    
    
    
    2,951Total Gross Carried Claim and Claim Adjustment Expense Reserves
    
    $
    4,572
    
    
    $
    5,110Net Case Reserves
    
    $
    1,182
    
    
    $
    1,328Net IBNR Reserves
    
    
    1,597
    
    
    
    1,787Total Net Carried Claim and Claim Adjustment Expense Reserves
    
    $
    2,779
    
    
    $
    3,115
 A&E Reserves
  Asbestos
       57




---



##### 



Pending Asbestos Accounts and Associated Reserves
 Net Paid Losses
    
    
    Net Asbestos
    
    
    Percent ofNumber of
    
    
    in 2008
    
    
    Reserves
    
    
    AsbestosSeptember 30, 2008
    
    Policyholders
    
    
    (In millions)
    
    
    (In millions)
    
    
    Net ReservesPolicyholders with settlement agreementsStructured settlements
    
    
    16
    
    
    $
    16
    
    
    $
    135
    
    
    
    11
    %Wellington
    
    
    3
    
    
    
    1
    
    
    
    11
    
    
    
    1Coverage in place
    
    
    36
    
    
    
    16
    
    
    
    87
    
    
    
    7Total with settlement agreements
    
    
    55
    
    
    
    33
    
    
    
    233
    
    
    
    19Other policyholders with active accountsLarge asbestos accounts
    
    
    233
    
    
    
    65
    
    
    
    226
    
    
    
    19Small asbestos accounts
    
    
    994
    
    
    
    21
    
    
    
    84
    
    
    
    7Total other policyholders
    
    
    1,227
    
    
    
    86
    
    
    
    310
    
    
    
    26Assumed reinsurance and pools
    
    
    
    
    
    
    6
    
    
    
    127
    
    
    
    10Unassigned IBNR
    
    
    
    
    
    
    
    
    
    
    545
    
    
    
    45Total
    
    
    1,282
    
    
    $
    125
    
    
    $
    1,215
    
    
    
    100
    %
 Pending Asbestos Accounts and Associated Reserves
 Net Paid Losses
    
    
    Net Asbestos
    
    
    Percent ofNumber of
    
    
    in 2007
    
    
    Reserves
    
    
    AsbestosDecember 31, 2007
    
    Policyholders
    
    
    (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
    %
  58




---



##### 



Environmental Pollution
       Pending Environmental Pollution Accounts and Associated Reserves
 September 30, 2008
 NetEnvironmental
    
    
    Percent ofNet Paid Losses
    
    
    Pollution
    
    
    EnvironmentalNumber of
    
    
    in 2008
    
    
    Reserves
    
    
    Pollution NetPolicyholders
    
    
    (In millions)
    
    
    (In millions)
    
    
    ReservePolicyholders with settlement agreementsStructured settlements
    
    
    11
    
    
    $
    2
    
    
    $
    6
    
    
    
    3
    %Coverage in place
    
    
    16
    
    
    
    2
    
    
    
    15
    
    
    
    8Total with settlement agreements
    
    
    27
    
    
    
    4
    
    
    
    21
    
    
    
    11Other policyholders with active accountsLarge pollution accounts
    
    
    110
    
    
    
    34
    
    
    
    49
    
    
    
    25Small pollution accounts
    
    
    320
    
    
    
    11
    
    
    
    33
    
    
    
    17Total other policyholders
    
    
    430
    
    
    
    45
    
    
    
    82
    
    
    
    42Assumed reinsurance and pools
    
    
    
    
    
    
    2
    
    
    
    29
    
    
    
    15Unassigned IBNR
    
    
    
    
    
    
    
    
    
    
    62
    
    
    
    32Total
    
    
    457
    
    
    $
    51
    
    
    $
    194
    
    
    
    100
    %
 59




---



##### 



Pending Environmental Pollution Accounts and Associated Reserves
 December 31, 2007
 NetEnvironmental
    
    
    Percent ofNet Paid Losses
    
    
    Pollution
    
    
    EnvironmentalNumber of
    
    
    in 2007
    
    
    Reserves
    
    
    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
    %
 60




---



##### 



INVESTMENTS
 Net Investment Income
  Net Investment Income
 Period ended September 30
    
    Three Months
    
    
    Nine Months(In millions)
    
    2008
    
    
    2007
    
    
    2008
    
    
    2007Fixed maturity securities
    
    $
    501
    
    
    $
    501
    
    
    $
    1,495
    
    
    $
    1,523Short term investments
    
    
    29
    
    
    
    57
    
    
    
    94
    
    
    
    146Limited partnerships
    
    
    (77
    )
    
    
    19
    
    
    
    (70
    )
    
    
    142Equity securities
    
    
    18
    
    
    
    7
    
    
    
    62
    
    
    
    18Income (loss) from trading portfolio (a)
    
    
    (23
    )
    
    
    (2
    )
    
    
    (104
    )
    
    
    41Other
    
    
    3
    
    
    
    9
    
    
    
    14
    
    
    
    31Gross investment income
    
    
    451
    
    
    
    591
    
    
    
    1,491
    
    
    
    1,901Investment expense
    
    
    (12
    )
    
    
    (11
    )
    
    
    (42
    )
    
    
    (42
    )Net investment income
    
    $
    439
    
    
    $
    580
    
    
    $
    1,449
    
    
    $
    1,859
 
 (a)
    
    The change in net unrealized losses on trading securities included in net investment income,
was $(6) million and $(21) million for the three and nine months ended September 30, 2008 and
$(12) million and $(9) million for the three and nine months ended September 30, 2007.     61




---



##### 



Net Realized Investment Gains (Losses)
  Period ended September 30
    
    Three Months
    
    
    Nine Months(In millions)
    
    2008
    
    
    2007
    
    
    2008
    
    
    2007Fixed maturity securities:U.S. Government bonds
    
    $
    34
    
    
    $
    131
    
    
    $
    20
    
    
    $
    37Corporate and other taxable bonds
    
    
    (289
    )
    
    
    (88
    )
    
    
    (328
    )
    
    
    (113
    )Tax-exempt bonds
    
    
    1
    
    
    
    10
    
    
    
    51
    
    
    
    (43
    )Asset-backed bonds
    
    
    (61
    )
    
    
    (81
    )
    
    
    (218
    )
    
    
    (191
    )Redeemable preferred stock
    
    
    
    
    
    
    (11
    )
    
    
    
    
    
    
    (12
    )Total fixed maturity securities
    
    
    (315
    )
    
    
    (39
    )
    
    
    (475
    )
    
    
    (322
    )Equity securities
    
    
    (376
    )
    
    
    16
    
    
    
    (405
    )
    
    
    30Derivative securities
    
    
    35
    
    
    
    (45
    )
    
    
    47
    
    
    
    62Short term investments
    
    
    4
    
    
    
    5
    
    
    
    11
    
    
    
    5Other
    
    
    1
    
    
    
    6
    
    
    
    9
    
    
    
    8Realized investment losses, net of
participating policyholders and
minority interests
    
    
    (651
    )
    
    
    (57
    )
    
    
    (813
    )
    
    
    (217
    )Income tax benefit
    
    
    228
    
    
    
    19
    
    
    
    286
    
    
    
    75Net realized investment losses,
net of participating
policyholders and minority
interests
    
    $
    (423
    )
    
    $
    (38
    )
    
    $
    (527
    )
    
    $
    (142
    )
      62




---



##### 



Effective Durations
 September 30, 2008
    
    
    December 31, 2007Effective Duration
    
    
    
    
    
    
    Effective Duration(In millions)
    
    Fair Value
    
    
    (In years)
    
    
    Fair Value
    
    
    (In years)Segregated investments
    
    $
    8,182
    
    
    
    10.2
    
    
    $
    9,211
    
    
    
    10.7Other interest sensitive investments
    
    
    26,339
    
    
    
    4.1
    
    
    
    29,406
    
    
    
    3.3Total
    
    $
    34,521
    
    
    
    5.6
    
    
    $
    38,617
    
    
    
    5.1
    63




---



##### 



Fair Value Measurement
  Realized Investment Gains (Losses)
 Period ended September 30
    
    Three Months
    
    
    Nine Months(In millions)
    
    2008
    
    
    2007
    
    
    2008
    
    
    2007Net realized investment gains (losses) on fixed maturity
securities and equity securities:Fixed maturity securities:Gross realized gains
    
    $
    75
    
    
    $
    181
    
    
    $
    275
    
    
    $
    324Gross realized losses
    
    
    (390
    )
    
    
    (220
    )
    
    
    (750
    )
    
    
    (646
    )Net realized investment losses on fixed maturity securities
    
    
    (315
    )
    
    
    (39
    )
    
    
    (475
    )
    
    
    (322
    )Equity securities:Gross realized gains
    
    
    10
    
    
    
    30
    
    
    
    21
    
    
    
    50Gross realized losses
    
    
    (386
    )
    
    
    (14
    )
    
    
    (426
    )
    
    
    (20
    )Net realized investment gains (losses) on equity securities
    
    
    (376
    )
    
    
    16
    
    
    
    (405
    )
    
    
    30Net realized investment losses on fixed maturity and equity
securities
    
    $
    (691
    )
    
    $
    (23
    )
    
    $
    (880
    )
    
    $
    (292
    )
 64




---



##### 



Largest Realized Investment Losses from Securities Sold at a Loss
 Fair
    
    
    
    
    
    
    Months inNine months ended September 30, 2008
    
    Value at
    
    
    
    
    
    
    UnrealizedDate of
    
    
    Loss
    
    
    Loss PriorIssuer Description and Discussion
    
    Sale
    
    
    On Sale
    
    
    To Sale (a)(In millions)Various notes and bonds issued by the United States Treasury.
Securities sold due to outlook on interest rates.
    
    $
    10,309
    
    
    $
    105
    
    
    
    0-6Non-redeemable preferred stock of Fannie Mae. The company is
now in conservatorship.
    
    
    2
    
    
    
    48
    
    
    
    7-12Fixed Income securities of an investment banking firm that filed
bankruptcy causing the market value of the securities to decline
rapidly.
    
    
    13
    
    
    
    40
    
    
    
    0-12Non-redeemable preferred stock of Freddie Mac. The company is
now in conservatorship.
    
    
    1
    
    
    
    23
    
    
    
    0-12Mortgage backed pass-through securities were sold based on
deteriorating performance of the underlying loans and the
resulting rapid market price decline.
    
    
    36
    
    
    
    18
    
    
    
    0-6Fixed income securities of 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.
    
    
    37
    
    
    
    16
    
    
    
    0-6Total
    
    $
    10,398
    
    
    $
    250
 
 (a)
    
    Represents the range of consecutive months the various positions were in an unrealized loss
prior to sale. 65




---



##### 



Valuation and Impairment of Investments
  Carrying Value of General Account Investments
 September 30,
    
    
    
    
    
    
    December 31,(In millions)
    
    2008
    
    
    %
    
    
    2007
    
    
    %Fixed maturity securities available-for-sale:U.S. Treasury securities and obligations of government agencies
    
    $
    1,518
    
    
    
    4
    %
    
    $
    687
    
    
    
    2
    %Asset-backed securities
    
    
    8,779
    
    
    
    24
    
    
    
    11,409
    
    
    
    27States, municipalities and political subdivisions  tax-exempt
securities
    
    
    6,966
    
    
    
    19
    
    
    
    7,675
    
    
    
    18Corporate bonds
    
    
    8,419
    
    
    
    23
    
    
    
    8,952
    
    
    
    22Other debt securities
    
    
    3,381
    
    
    
    9
    
    
    
    4,299
    
    
    
    10Redeemable preferred stock
    
    
    73
    
    
    
    
    
    
    
    1,058
    
    
    
    3Total fixed maturity securities available-for-sale
    
    
    29,136
    
    
    
    79
    
    
    
    34,080
    
    
    
    82Fixed maturity securities trading:U.S. Treasury securities and obligations of government agencies
    
    
    
    
    
    
    
    
    
    
    5
    
    
    
    Asset-backed securities
    
    
    14
    
    
    
    
    
    
    
    31
    
    
    
    Corporate bonds
    
    
    24
    
    
    
    
    
    
    
    123
    
    
    
    Other debt securities
    
    
    2
    
    
    
    
    
    
    
    18
    
    
    
    Total fixed maturity securities trading
    
    
    40
    
    
    
    
    
    
    
    177
    
    
    
    Equity securities available-for-sale:Common stock
    
    
    389
    
    
    
    1
    
    
    
    452
    
    
    
    1Preferred stock
    
    
    572
    
    
    
    1
    
    
    
    116
    
    
    
    Total equity securities available-for-sale
    
    
    961
    
    
    
    2
    
    
    
    568
    
    
    
    1Short term investments available-for-sale
    
    
    4,728
    
    
    
    13
    
    
    
    4,497
    
    
    
    11Short term investments trading
    
    
    21
    
    
    
    
    
    
    
    180
    
    
    
    1Limited partnerships
    
    
    2,110
    
    
    
    6
    
    
    
    2,214
    
    
    
    5Other investments
    
    
    63
    
    
    
    
    
    
    
    73
    
    
    
    Total general account investments
    
    $
    37,059
    
    
    
    100
    %
    
    $
    41,789
    
    
    
    100
    %
   66




---



##### 



Maturity Profile
 Percent of
    
    Percent ofMarket
    
    UnrealizedValue
    
    LossDue in one year or less
    
    
    1
    %
    
    
    
    %Due after one year through five years
    
    
    10
    
    
    
    4Due after five years through ten years
    
    
    14
    
    
    
    11Due after ten years
    
    
    75
    
    
    
    85Total
    
    
    100
    %
    
    
    100
    %
  Unrealized Loss Aging for Non-investment Grade Securities
 Fair Value as a Percentage of Amortized Cost
    
    
    
    
    
    
    GrossSeptember 30, 2008
    
    Estimated
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Unrealized(In millions)
    
    Fair Value
    
    
    90-99%
    
    
    80-89%
    
    
    70-79%
    
    
    <70%
    
    
    LossFixed income securities:0-6 months
    
    $
    1,037
    
    
    $
    40
    
    
    $
    40
    
    
    $
    17
    
    
    $
    25
    
    
    $
    1227-11 months
    
    
    839
    
    
    
    20
    
    
    
    46
    
    
    
    55
    
    
    
    82
    
    
    
    20312-24 months
    
    
    798
    
    
    
    14
    
    
    
    70
    
    
    
    38
    
    
    
    46
    
    
    
    168Greater than 24 months
    
    
    16
    
    
    
    
    
    
    
    
    
    
    
    4
    
    
    
    7
    
    
    
    11Total non-investment grade
    
    $
    2,690
    
    
    $
    74
    
    
    $
    156
    
    
    $
    114
    
    
    $
    160
    
    
    $
    504
 Unrealized Loss Aging for Non-investment Grade Securities
 Fair Value as a Percentage of Amortized Cost
    
    
    
    
    
    
    GrossDecember 31, 2007
    
    Estimated
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Unrealized(In millions)
    
    Fair Value
    
    
    90-99%
    
    
    80-89%
    
    
    70-79%
    
    
    <70%
    
    
    LossFixed income securities:0-6 months
    
    $
    1,527
    
    
    $
    56
    
    
    $
    14
    
    
    $
    3
    
    
    $
    
    
    
    $
    737-12 months
    
    
    125
    
    
    
    6
    
    
    
    2
    
    
    
    
    
    
    
    
    
    
    
    813-24 months
    
    
    26
    
    
    
    1
    
    
    
    1
    
    
    
    1
    
    
    
    1
    
    
    
    4Greater than 24 months
    
    
    9
    
    
    
    1
    
    
    
    1
    
    
    
    
    
    
    
    
    
    
    
    2Total non-investment grade
    
    $
    1,687
    
    
    $
    64
    
    
    $
    18
    
    
    $
    4
    
    
    $
    1
    
    
    $
    87
 67




---



##### 



General Account Bond Ratings
 September 30,
    
    
    
    
    
    
    December 31,(In millions)
    
    2008
    
    
    %
    
    
    2007
    
    
    %U.S. Government and affiliated agency securities
    
    $
    1,515
    
    
    
    5
    %
    
    $
    816
    
    
    
    3
    %Other AAA rated
    
    
    11,477
    
    
    
    39
    
    
    
    16,728
    
    
    
    50AA and A rated
    
    
    7,518
    
    
    
    26
    
    
    
    6,326
    
    
    
    19BBB rated
    
    
    5,481
    
    
    
    19
    
    
    
    5,713
    
    
    
    17Non-investment grade
    
    
    3,112
    
    
    
    11
    
    
    
    3,616
    
    
    
    11Total
    
    $
    29,103
    
    
    
    100
    %
    
    $
    33,199
    
    
    
    100
    %
   68




---



##### 



Asset-Backed and Sub-prime Mortgage Exposure
 Asset-Backed Distribution
 Security TypePercent
    
    
    PercentSeptember 30, 2008
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    of Total
    
    
    of Total(In millions)
    
    MBS(a)
    
    
    CMO(b)
    
    
    ABS(c)
    
    
    CDO(d)
    
    
    Total
    
    
    Security Type
    
    
    InvestmentsU.S. Government Agencies
    
    $
    448
    
    
    $
    1,061
    
    
    $
    
    
    
    $
    
    
    
    $
    1,509
    
    
    
    17
    %
    
    
    4
    %AAA
    
    
    
    
    
    
    4,379
    
    
    
    1,929
    
    
    
    9
    
    
    
    6,317
    
    
    
    72
    
    
    
    17AA
    
    
    
    
    
    
    42
    
    
    
    294
    
    
    
    25
    
    
    
    361
    
    
    
    4
    
    
    
    1A
    
    
    
    
    
    
    1
    
    
    
    107
    
    
    
    71
    
    
    
    179
    
    
    
    2
    
    
    
    1BBB
    
    
    
    
    
    
    33
    
    
    
    291
    
    
    
    10
    
    
    
    334
    
    
    
    4
    
    
    
    1Non-investment grade and equity tranches
    
    
    
    
    
    
    27
    
    
    
    43
    
    
    
    23
    
    
    
    93
    
    
    
    1
    
    
    
    Total Fair Value
    
    $
    448
    
    
    $
    5,543
    
    
    $
    2,664
    
    
    $
    138
    
    
    $
    8,793
    
    
    
    100
    %
    
    
    24
    %Total Amortized Cost
    
    $
    454
    
    
    $
    6,163
    
    
    $
    3,018
    
    
    $
    361
    
    
    $
    9,996Percent of total fair value by security type
    
    
    5
    %
    
    
    63
    %
    
    
    30
    %
    
    
    2
    %
    
    
    100
    %Sub-prime (included above)Fair Value
    
    $
    
    
    
    $
    
    
    
    $
    1,371
    
    
    $
    7
    
    
    $
    1,378
    
    
    
    16
    %
    
    
    4
    %Amortized Cost
    
    $
    
    
    
    $
    
    
    
    $
    1,535
    
    
    $
    32
    
    
    $
    1,567
    
    
    
    16
    %
    
    
    4
    %Alt-A (included above)Fair Value
    
    $
    
    
    
    $
    1,084
    
    
    $
    
    
    
    $
    4
    
    
    $
    1,088
    
    
    
    12
    %
    
    
    3
    %Amortized Cost
    
    $
    
    
    
    $
    1,268
    
    
    $
    
    
    
    $
    8
    
    
    $
    1,276
    
    
    
    13
    %
    
    
    3
    %
 
 (a)
    
    Mortgage-backed securities (MBS)(b)
    
    Collateralized mortgage obligations (CMO)(c)
    
    Asset-backed securities (ABS)(d)
    
    Collateralized debt obligations (CDO)   69




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##### 



Short Term Investments
  September 30,
    
    
    December 31,(In millions)
    
    2008
    
    
    2007Short term investments available-for-sale:Commercial paper
    
    $
    1,035
    
    
    $
    3,040U.S. Treasury securities
    
    
    2,192
    
    
    
    577Money market funds
    
    
    121
    
    
    
    72Other, including collateral held related to securities lending
    
    
    1,380
    
    
    
    808Total short term investments available-for-sale
    
    
    4,728
    
    
    
    4,497Short term investments trading:Commercial paper
    
    
    
    
    
    
    35Money market funds
    
    
    21
    
    
    
    139Other
    
    
    
    
    
    
    6Total short term investments trading
    
    
    21
    
    
    
    180Total short term investments
    
    $
    4,749
    
    
    $
    4,677
 Securities Lending Activities
   70




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##### 



LIQUIDITY AND CAPITAL RESOURCES
 Cash Flows
       Liquidity
  
    
    We do not anticipate changes in our core property and casualty commercial insurance
operations which would significantly impact liquidity and we continue to maintain
reinsurance contracts which limit the impact of potential catastrophic events.
    
    We have entered into several settlement agreements and assumed reinsurance contracts
that require collateralization of future payment obligations and assumed reserves if our
ratings or other specific criteria fall below certain thresholds. The ratings triggers
are generally more than one level below our current ratings. A downgrade below our
current ratings levels would also result in additional collateral requirements for
derivative contracts for which we are in a liability position at any given point in time.
At September 30, 2008, the total potential collateralization requirements amount to
approximately $90 million.
    
    As of September 30, 2008, the registrant held short term investments of approximately
$710 million.
  71




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##### 



Dividends
  CNAF Preferred Issue and CCC Surplus Note
  Share Repurchases
 Accounting Pronouncements
 Financial Accounting Standards Board (FASB) Staff Position (FSP) FAS 133 and FIN
45-4, Disclosures About Credit Derivatives and Certain Guarantees: An Amendment of FASB
Statement No. 133 and FASB Interpretation No. 45; and Clarification of the Effective Date of FASB
Statement No. 161 (FSP FAS 133-1 and FIN 45-4)
 Accounting for Derivative Instruments and Hedging Activities Guarantors Accounting and Disclosure Requirements for Guarantees,
Including Indirect Guarantees of Indebtedness of Others
 72




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##### 



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 and
a decrease in the size and number of existing and potential insurance customers resulting from
a recessionary economic climate;
    
    changes in financial markets such as illiquidity, changes in credit spreads, lack of price
transparency, fluctuations in interest rates, long term periods of low interest rates, credit
conditions and currency, commodity and stock prices, correlations among previously
uncorrelated asset sectors 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 and financial
markets credit crisis in the U.S. economy;
    
    the effects of corporate bankruptcies and accounting errors on capital markets, as well as
on the markets for directors and officers and errors and omissions coverages, along with the
effects of liquidity crises that may impact the types, liquidity and valuation of investments
that may be held by insurers and their holding companies;
    
    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, other mandatory
pooling arrangements and future assessments levied on insurance companies and other financial
industry participants under the Emergency Economic Stabilization Act of 2008 recoupment
provisions;
    
    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;
 73




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##### 




    
    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 a decrease in lenders willing to lend to the
financial sector, the availability of bank credit facilities and the dimunition in the number
and competition among investment banks and other capital markets providers;
    
    changes in our composition of operating segments;
    
    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.
  74




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##### 



CNA Financial Corporation
 
 Item 3. Quantitative and Qualitative Disclosures About Market Risk
 
 75




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##### 



CNA Financial Corporation
 
 Item 4. Controls and Procedures
    76




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##### 



CNA Financial Corporation
 
 Part II. Other Information
 
 Item 1. Legal Proceedings
  
 Item 1A. Risk Factors
  Deterioration in the public debt and equity markets could lead to additional investment losses.
  The Emergency Economic Stabilization Act of 2008 may impact the fair value determinations of our
invested assets and may lead to regulatory limitations, impositions and restrictions upon us.
  77




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##### 



CNA Financial Corporation
Part II. Other Information
 
 Item 6. Exhibits
 Description of Exhibit
    
    Exhibit NumberAmendment to Employment Agreement, dated as of August 20, 2008, by and between CNA
Financial Corporation and Stephen W. Lilienthal
    
    
    10.1Employment Agreement, dated as of April 1, 2008, by and between Continental Casualty
Company and Jonathan D. Kantor
    
    
    10.2Amendment to Employment Agreement, dated as of July 1, 2008, by and between Continental
Casualty Company and Larry A. Haefner
    
    
    10.3Amendment to Employment Agreement, dated as of July 1, 2008, by and between Continental
Casualty Company and D. Craig Mense
    
    
    10.4Stock
Purchase Agreement, dated as of October 27, 2008, between CNA Financial
Corporation and Loews Corporation
    
    
    10.5First
Amendment to Employment Agreement, dated as of October 24, 2008, by
and between CNA Financial Corporation and Thomas F. Motamed
    
    
    10.6Certification 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
 78




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##### 



CNA Financial Corporation
Part II. Other Information
 
 SIGNATURES
  CNA Financial CorporationDated:  October 27, 2008
    
    By
    
    /s/ D. Craig MenseD. Craig Mense
Executive Vice President andChief Financial Officer
 79