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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549



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FORM 10-Q

[ü] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended June 30, 2003
OR
[   ] 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

(Exact name of registrant as specified in its charter)

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

|                                                                     |  |                 
|-------------------------------------------------------------------- |  | ----------------
|CNA Plaza
Chicago, Illinois
(Address of principal executive offices) |  | 60685
(Zip Code)

(312) 822-5000
(Registrants telephone number, including area code)

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

Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Act).
Yes  ü    No.....

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

|                              |  |                              
|----------------------------- |  | -----------------------------
|Class                         |  | Outstanding at August 1, 2003
|                              |  |                              
|Common Stock, Par value $2.50 |  | 223,613,811                  



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TABLE OF CONTENTS



|                                  |                                                                                               |                                                      |  |  |  |  |  | 
|--------------------------------- | --------------------------------------------------------------------------------------------- | ---------------------------------------------------- |  |  |  |  |  | 
|PART I. FINANCIAL INFORMATION    
|                                  | ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS                                          
|                                  |                                                                                               | CONDENSED CONSOLIDATED BALANCE SHEETS               
|                                  |                                                                                               | CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS     
|                                  |                                                                                               | CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS     
|                                  |                                                                                               | NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
|                                  | ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
|                                  | ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK                           
|                                  | ITEM 4. DISCLOSURE CONTROLS AND PROCEDURES                                                   
|                                  | Item 1. Legal Proceedings                                                                    
|                                  | Item 4. Matters Subject to a Vote of Security Holders                                        
|                                  | Item 6. Exhibits and Reports on Form 8-K                                                     
|SIGNATURES                       
|Executive Severance Agreement    
|Amendment to Employment Agreement
|Certification of CEO             
|Certification of CFO             
|Certification of CEO             
|Certification of CFO             



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##### Table of Contents



CNA FINANCIAL CORPORATION
INDEX

|       |  |                                                                                                                      |  |       
|------ |  | -------------------------------------------------------------------------------------------------------------------- |  | ------
|Item   |  |                                                                                                                      |  | Page  
|Number |  |                                                                                                                      |  | Number
|       |  |                                                                                                                      |  |       
|       |  | PART I. Financial Information                                                                                        |  |       
|1.     |  | Condensed Consolidated Financial Statements (Unaudited):                                                             |  |       
|       |  | Condensed Consolidated Balance Sheets at June 30, 2003
and at December 31,
2002                                      |  | 3     
|       |  | Condensed Consolidated Statements of Operations for the
Three and Six Months Ended June 30, 2003 and 2002
(Restated) |  | 4     
|       |  | Condensed Consolidated Statements of Cash Flows for the
Six Months Ended June 30, 2003 and 2002
(Restated)           |  | 5     
|       |  | Notes to Condensed Consolidated Financial Statements                                                                 |  | 6     
|2.     |  | Managements Discussion and Analysis of Financial Condition and Results of Operations                                |  | 38    
|3.     |  | Quantitative and Qualitative Disclosures about Market Risk                                                           |  | 88    
|4.     |  | Disclosure Controls and Procedures                                                                                   |  | 93    
|       |  | PART II. Other Information                                                                                           |  |       
|1.     |  | Legal Proceedings                                                                                                    |  | 94    
|4.     |  | Submission of Matters to a Vote of Security Holders                                                                  |  | 94    
|6.     |  | Exhibits and Reports on Form 8-K                                                                                     |  | 95    
|       |  | Signatures                                                                                                           |  | 96    





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CNA FINANCIAL CORPORATION
PART I. FINANCIAL INFORMATION
ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)

|                                                       |                                                                                                                                                               |                                                                                                     |                            |                                            |        |          |        |              |        |        |        | 
|------------------------------------------------------ | ------------------------------------------------------------------------------------------------------------------------------------------------------------- | --------------------------------------------------------------------------------------------------- | -------------------------- | ------------------------------------------ | ------ | -------- | ------ | ------------ | ------ | ------ | ------ | 
|                                                       |                                                                                                                                                               |                                                                                                     |                            |                                            |        | June 30, |        | December 31,
|(In millions, except share data)                       |                                                                                                                                                               | 2003                                                                                                |                            | 2002                                      
|                                                       |                                                                                                                                                               |                                                                                                     |                            |                                           
|Assets                                                 |                                                                                                                                                               |                                                                                                     |                            |                                            |        |          |        |             
|                                                       | Investments:                                                                                                                                                  |                                                                                                     |                            |                                            |        |          |        |              |       
|                                                       |                                                                                                                                                               | Fixed maturity securities available-for-sale, at fair value (amortized cost of $28,691 and $25,533) |                            | $                                          | 30,487 |          |        | $            | 26,275 |       
|                                                       |                                                                                                                                                               | Equity securities available-for-sale, at fair value (cost of $426 and $519)                         |                            |                                            | 647    |          |        |              | 666    |       
|                                                       |                                                                                                                                                               | Mortgage loans and real estate (less accumulated depreciation of $10 and $55)                       |                            |                                            | 35     |          |        |              | 57     |       
|                                                       |                                                                                                                                                               | Policy loans                                                                                        |                            |                                            | 179    |          |        |              | 180    |       
|                                                       |                                                                                                                                                               | Limited partnership investments                                                                     |                            |                                            | 1,146  |          |        |              | 1,060  |       
|                                                       |                                                                                                                                                               | Other invested assets                                                                               |                            |                                            | 17     |          |        |              | 47     |       
|                                                       |                                                                                                                                                               | Short-term investments, cost approximates fair value                                                |                            |                                            | 5,335  |          |        |              | 7,008  |       
|                                                       |                                                                                                                                                               |                                                                                                     |                            |                                            |        |          |        |              |        |       
|                                                       |                                                                                                                                                               |                                                                                                     | Total investments          |                                            |        | 37,846   |        |              |        | 35,293 |       
|                                                       | Cash                                                                                                                                                          |                                                                                                     |                            | 140                                        |        |          |        | 126          |       
|                                                       | Reinsurance receivables (less allowance for doubtful accounts of $239 and $196)                                                                               |                                                                                                     |                            | 13,114                                     |        |          |        | 12,500       |       
|                                                       | Insurance receivables (less allowance for doubtful accounts of $203 and $156)                                                                                 |                                                                                                     |                            | 3,198                                      |        |          |        | 3,007        |       
|                                                       | Accrued investment income                                                                                                                                     |                                                                                                     |                            | 363                                        |        |          |        | 300          |       
|                                                       | Receivables for securities sold                                                                                                                               |                                                                                                     |                            | 521                                        |        |          |        | 455          |       
|                                                       | Deferred acquisition costs                                                                                                                                    |                                                                                                     |                            | 2,620                                      |        |          |        | 2,551        |       
|                                                       | Prepaid reinsurance premiums                                                                                                                                  |                                                                                                     |                            | 1,461                                      |        |          |        | 1,345        |       
|                                                       | Federal income taxes recoverable (includes $185 and $0 due from Loews Corporation)                                                                            |                                                                                                     |                            | 179                                        |        |          |        |             |       
|                                                       | Deferred income taxes                                                                                                                                         |                                                                                                     |                            | 179                                        |        |          |        | 723          |       
|                                                       | Property and equipment at cost (less accumulated depreciation of $780 and $771)                                                                               |                                                                                                     |                            | 358                                        |        |          |        | 369          |       
|                                                       | Goodwill and other intangible assets                                                                                                                          |                                                                                                     |                            | 172                                        |        |          |        | 174          |       
|                                                       | Other assets                                                                                                                                                  |                                                                                                     |                            | 1,744                                      |        |          |        | 1,785        |       
|                                                       | Separate account business                                                                                                                                     |                                                                                                     |                            | 3,429                                      |        |          |        | 3,103        |       
|                                                       |                                                                                                                                                               |                                                                                                     |                            |                                            |        |          |        |              |        |       
|                                                       |                                                                                                                                                               |                                                                                                     |                            | Total assets                               |        | $        | 65,324 |              |        | $      | 61,731 | 
|                                                       |                                                                                                                                                               |                                                                                                     |                            |                                            |        |          |        |              |        |       
|Liabilities and Stockholders Equity                   |                                                                                                                                                               |                                                                                                     |                            |                                            |        |          |        |             
|Liabilities:                                           |                                                                                                                                                               |                                                                                                     |                            |                                            |        |          |        |             
|                                                       | Insurance reserves:                                                                                                                                           |                                                                                                     |                            |                                            |        |          |        |              |       
|                                                       |                                                                                                                                                               | Claim and claim adjustment expense                                                                  |                            | $                                          | 27,944 |          |        | $            | 27,370 |       
|                                                       |                                                                                                                                                               | Unearned premiums                                                                                   |                            |                                            | 5,198  |          |        |              | 4,820  |       
|                                                       |                                                                                                                                                               | Future policy benefits                                                                              |                            |                                            | 7,759  |          |        |              | 7,409  |       
|                                                       |                                                                                                                                                               | Policyholders funds                                                                                |                            |                                            | 550    |          |        |              | 580    |       
|                                                       | Collateral on loaned securities and derivatives                                                                                                               |                                                                                                     |                            | 985                                        |        |          |        | 552          |       
|                                                       | Payables for securities purchased                                                                                                                             |                                                                                                     |                            | 1,155                                      |        |          |        | 464          |       
|                                                       | Participating policyholders funds                                                                                                                            |                                                                                                     |                            | 128                                        |        |          |        | 119          |       
|                                                       | Short term debt                                                                                                                                               |                                                                                                     |                            | 292                                        |        |          |        | 420          |       
|                                                       | Long term debt                                                                                                                                                |                                                                                                     |                            | 1,866                                      |        |          |        | 1,872        |       
|                                                       | Reinsurance balances payable                                                                                                                                  |                                                                                                     |                            | 2,840                                      |        |          |        | 2,763        |       
|                                                       | Federal income taxes payable (includes $0 and $13 due to Loews Corporation)                                                                                   |                                                                                                     |                            |                                           |        |          |        | 29           |       
|                                                       | Other liabilities                                                                                                                                             |                                                                                                     |                            | 2,595                                      |        |          |        | 2,573        |       
|                                                       | Separate account business                                                                                                                                     |                                                                                                     |                            | 3,429                                      |        |          |        | 3,103        |       
|                                                       |                                                                                                                                                               |                                                                                                     |                            |                                            |        |          |        |              |        |       
|                                                       |                                                                                                                                                               |                                                                                                     | Total liabilities          |                                            |        | 54,741   |        |              |        | 52,074 |       
|                                                       |                                                                                                                                                               |                                                                                                     |                            |                                            |        |          |        |              |        |       
|Commitments and contingencies (Notes F, G, I, L and M) |                                                                                                                                                               |                                                                                                     |                            |                                            |        |          |        |             
|Minority interest                                      |                                                                                                                                                               |                                                                                                     | 265                        |                                            |        |          | 256    |             
|Stockholders equity:                                  |                                                                                                                                                               |                                                                                                     |                            |                                            |        |          |        |             
|                                                       | Preferred stock (Series H, no par value; $100,000 stated value; 12,500,000 shares authorized; 7,500
shares issued and outstanding, held by Loews Corporation) |                                                                                                     |                            | 750                                        |        |          |        | 750          |       
|                                                       | Common stock ($2.50 par value; 500,000,000 shares authorized; 225,850,270 shares issued; and
223,608,868 shares outstanding)                                  |                                                                                                     |                            | 565                                        |        |          |        | 565          |       
|                                                       | Additional paid-in capital                                                                                                                                    |                                                                                                     |                            | 1,031                                      |        |          |        | 1,031        |       
|                                                       | Retained earnings                                                                                                                                             |                                                                                                     |                            | 6,746                                      |        |          |        | 6,593        |       
|                                                       | Accumulated other comprehensive income                                                                                                                        |                                                                                                     |                            | 1,370                                      |        |          |        | 604          |       
|                                                       | Treasury stock (2,241,402 shares), at cost                                                                                                                    |                                                                                                     |                            | (70                                        | )      |          |        | (70          | )     
|                                                       |                                                                                                                                                               |                                                                                                     |                            |                                            |        |          |        |              |        |       
|                                                       |                                                                                                                                                               |                                                                                                     | 10,392                     |                                            |        |          | 9,473  |             
|                                                       | Notes receivable for the issuance of common stock                                                                                                             |                                                                                                     |                            | (74                                        | )      |          |        | (72          | )     
|                                                       |                                                                                                                                                               |                                                                                                     |                            |                                            |        |          |        |              |        |       
|                                                       |                                                                                                                                                               |                                                                                                     | Total stockholders equity |                                            |        | 10,318   |        |              |        | 9,401  |       
|                                                       |                                                                                                                                                               |                                                                                                     |                            |                                            |        |          |        |              |        |       
|                                                       |                                                                                                                                                               |                                                                                                     |                            | Total liabilities and stockholders equity |        | $        | 65,324 |              |        | $      | 61,731 | 
|                                                       |                                                                                                                                                               |                                                                                                     |                            |                                            |        |          |        |              |        |       

The accompanying Notes are an
integral part of these Condensed Consolidated Financial Statements (Unaudited).

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CNA FINANCIAL CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)

|                                                                          |                                                                                                |   |              |       |            |              |       |       |      |   |       |              |  |   |       |       |  
|------------------------------------------------------------------------- | ---------------------------------------------------------------------------------------------- | - | ------------ | ----- | ---------- | ------------ | ----- | ----- | ---- | - | ----- | ------------ |  | - | ----- | ----- | -
|                                                                          |                                                                                                |   | Three months |       | Six months
|                                                                          |                                                                                                |   |              |       |           
|                                                                          |                                                                                                |   | 2003         |       | 2002       |              | 2003  |       | 2002
|Period ended June 30                                                      |                                                                                                |   |              |       |            |              |       |      
|(In millions, except per share data)                                      |                                                                                                |   |              |       |            | Restated (a) |       |       |      |   |       | Restated (a)
|Revenues                                                                  |                                                                                                |   |              |       |            |              |       |       |      |   |       |              |  |   |       |      
|                                                                          | Net earned premiums                                                                            |   | $            | 2,197 |            |              | $     | 2,826 |      |   | $     | 4,578        |  |   | $     | 5,663 |  
|                                                                          | Net investment income                                                                          |   |              | 427   |            |              |       | 502   |      |   |       | 859          |  |   |       | 928   |  
|                                                                          | Realized investment gains (losses), net of participating
policyholders and minority interests |   |              | 378   |            |              |       | (162  | )    |   |       | 302          |  |   |       | (161  | )
|                                                                          | Other revenues                                                                                 |   |              | 97    |            |              |       | 146   |      |   |       | 205          |  |   |       | 328   |  
|                                                                          |                                                                                                |   |              |       |            |              |       |       |      |   |       |              |  |   |       |       |  
|Total revenues                                                            |                                                                                                |   | 3,099        |       |            |              | 3,312 |       |      |   | 5,944 |              |  |   | 6,758 |      
|                                                                          |                                                                                                |   |              |       |            |              |       |       |      |   |       |              |  |   |       |       |  
|Claims, Benefits and Expenses                                             |                                                                                                |   |              |       |            |              |       |       |      |   |       |              |  |   |       |      
|                                                                          | Insurance claims and policyholders benefits                                                   |   |              | 2,067 |            |              |       | 2,382 |      |   |       | 3,937        |  |   |       | 4,692 |  
|                                                                          | Amortization of deferred acquisition costs                                                     |   |              | 481   |            |              |       | 462   |      |   |       | 939          |  |   |       | 902   |  
|                                                                          | Other operating expenses                                                                       |   |              | 441   |            |              |       | 392   |      |   |       | 820          |  |   |       | 883   |  
|                                                                          | Interest                                                                                       |   |              | 33    |            |              |       | 38    |      |   |       | 67           |  |   |       | 75    |  
|                                                                          |                                                                                                |   |              |       |            |              |       |       |      |   |       |              |  |   |       |       |  
|Total claims, benefits and expenses                                       |                                                                                                |   | 3,022        |       |            |              | 3,274 |       |      |   | 5,763 |              |  |   | 6,552 |      
|                                                                          |                                                                                                |   |              |       |            |              |       |       |      |   |       |              |  |   |       |       |  
|Income from continuing operations before income tax and minority
interest |                                                                                                |   | 77           |       |            |              | 38    |       |      |   | 181   |              |  |   | 206   |      
|Income tax expense                                                        |                                                                                                |   | (5           | )     |            |              | (2    | )     |      |   | (23   | )            |  |   | (53   | )    
|Minority interest                                                         |                                                                                                |   | (2           | )     |            |              | (5    | )     |      |   | (5    | )            |  |   | (10   | )    
|                                                                          |                                                                                                |   |              |       |            |              |       |       |      |   |       |              |  |   |       |       |  
|Income from continuing operations                                         |                                                                                                |   | 70           |       |            |              | 31    |       |      |   | 153   |              |  |   | 143   |      
|Loss from discontinued operations, net of tax of $9                       |                                                                                                |   |             |       |            |              |      |       |      |   |      |              |  |   | (35   | )    
|                                                                          |                                                                                                |   |              |       |            |              |       |       |      |   |       |              |  |   |       |       |  
|Income before cumulative effect of a change in accounting principle       |                                                                                                |   | 70           |       |            |              | 31    |       |      |   | 153   |              |  |   | 108   |      
|Cumulative effect of a change in accounting principle, net of tax
of $7   |                                                                                                |   |             |       |            |              |      |       |      |   |      |              |  |   | (57   | )    
|                                                                          |                                                                                                |   |              |       |            |              |       |       |      |   |       |              |  |   |       |       |  
|Net income                                                                |                                                                                                | $ | 70           |       |            | $            | 31    |       |      | $ | 153   |              |  | $ | 51    |      
|                                                                          |                                                                                                |   |              |       |            |              |       |       |      |   |       |              |  |   |       |       |  
|Basic and Diluted Earnings Per Share                                      |                                                                                                |   |              |       |            |              |       |       |      |   |       |              |  |   |       |      
|                                                                          | Income from continuing operations                                                              |   | $            | 0.25  |            |              | $     | 0.14  |      |   | $     | 0.55         |  |   | $     | 0.65  |  
|                                                                          | Loss from discontinued operations, net of tax                                                  |   |              |      |            |              |       |      |      |   |       |             |  |   |       | (0.16 | )
|                                                                          |                                                                                                |   |              |       |            |              |       |       |      |   |       |              |  |   |       |       |  
|                                                                          | Income before cumulative effect of a change in accounting
principle                            |   |              | 0.25  |            |              |       | 0.14  |      |   |       | 0.55         |  |   |       | 0.49  |  
|                                                                          | Cumulative effect of a change in accounting principle, net of tax                              |   |              |      |            |              |       |      |      |   |       |             |  |   |       | (0.26 | )
|                                                                          |                                                                                                |   |              |       |            |              |       |       |      |   |       |              |  |   |       |       |  
|Basic and diluted earnings per share available to common
stockholders     |                                                                                                | $ | 0.25         |       |            | $            | 0.14  |       |      | $ | 0.55  |              |  | $ | 0.23  |      
|                                                                          |                                                                                                |   |              |       |            |              |       |       |      |   |       |              |  |   |       |       |  
|Weighted average outstanding common stock and common stock
equivalents    |                                                                                                |   | 223.6        |       |            |              | 223.6 |       |      |   | 223.6 |              |  |   | 223.6 |      
|                                                                          |                                                                                                |   |              |       |            |              |       |       |      |   |       |              |  |   |       |       |  

(a) See Note O.

The accompanying Notes are an
integral part of these Condensed Consolidated Financial Statements (Unaudited).

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CNA FINANCIAL CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)

|                                                       |                                                                                         |                                                                                                |                                          |                   |        |              |      |         |        |      |     | 
|------------------------------------------------------ | --------------------------------------------------------------------------------------- | ---------------------------------------------------------------------------------------------- | ---------------------------------------- | ----------------- | ------ | ------------ | ---- | ------- | ------ | ---- | --- | 
|                                                       |                                                                                         |                                                                                                |                                          |                   |        | 2003         |      | 2002   
|Six
months ended June 30                               |                                                                                         |                                                                                                |                                          |                  
|(In millions)                                          |                                                                                         |                                                                                                |                                          |                   |        | Restated (a)
|Cash Flows from Operating Activities                   |                                                                                         |                                                                                                |                                          |                   |        |              |      |        
|                                                       | Net income                                                                              |                                                                                                | $                                        | 153               |        |              | $    | 51      |       
|                                                       | Adjustments to reconcile net income to net cash flows provided by operating activities: |                                                                                                |                                          |                   |        |              |      |         |       
|                                                       |                                                                                         | Cumulative effect of a change in accounting principle, net of tax                              |                                          |                   |       |              |      |         | 57     |     
|                                                       |                                                                                         | Minority interest                                                                              |                                          |                   | 5      |              |      |         | 10     |     
|                                                       |                                                                                         | Loss on disposal of property and equipment                                                     |                                          |                   | 18     |              |      |         | 7      |     
|                                                       |                                                                                         | Deferred income tax provision                                                                  |                                          |                   | 131    |              |      |         | (36    | )   
|                                                       |                                                                                         | Realized investment (gains) losses, net of participating policyholders and minority interests |                                          |                   | (302   | )            |      |         | 161    |     
|                                                       |                                                                                         | Realized loss on disposition of discontinued operations, net of tax                            |                                          |                   |       |              |      |         | 37     |     
|                                                       |                                                                                         | Equity method income                                                                           |                                          |                   | (97    | )            |      |         | (47    | )   
|                                                       |                                                                                         | Amortization of bond discount                                                                  |                                          |                   | (33    | )            |      |         | (65    | )   
|                                                       |                                                                                         | Depreciation                                                                                   |                                          |                   | 44     |              |      |         | 52     |     
|                                                       |                                                                                         | Changes in:                                                                                    |                                          |                   |        |              |      |         |        |     
|                                                       |                                                                                         |                                                                                                | Receivables, net                         |                   |        | (805         | )    |         |        | 13   |    
|                                                       |                                                                                         |                                                                                                | Deferred acquisition costs               |                   |        | (97          | )    |         |        | (92  | )  
|                                                       |                                                                                         |                                                                                                | Accrued investment income                |                   |        | (63          | )    |         |        | (24  | )  
|                                                       |                                                                                         |                                                                                                | Federal income taxes recoverable/payable |                   |        | (208         | )    |         |        | 696  |    
|                                                       |                                                                                         |                                                                                                | Prepaid reinsurance premiums             |                   |        | (116         | )    |         |        | (228 | )  
|                                                       |                                                                                         |                                                                                                | Reinsurance balances payable             |                   |        | 77           |      |         |        | (4   | )  
|                                                       |                                                                                         |                                                                                                | Insurance reserves                       |                   |        | 1,276        |      |         |        | (225 | )  
|                                                       |                                                                                         |                                                                                                | Other, net                               |                   |        | 132          |      |         |        | 72   |    
|                                                       |                                                                                         |                                                                                                |                                          |                   |        |              |      |         |       
|                                                       |                                                                                         |                                                                                                |                                          | Total adjustments |        |              | (38  | )       |        |      | 384 | 
|                                                       |                                                                                         |                                                                                                |                                          |                   |        |              |      |         |       
|Net cash flows provided by operating activities        |                                                                                         |                                                                                                | 115                                      |                   |        |              | 435  |        
|                                                       |                                                                                         |                                                                                                |                                          |                   |        |              |      |         |       
|Cash Flows from Investing Activities                   |                                                                                         |                                                                                                |                                          |                   |        |              |      |        
|                                                       | Purchases of fixed maturity securities                                                  |                                                                                                |                                          | (34,111           | )      |              |      | (32,543 | )     
|                                                       | Proceeds from fixed maturity securities:                                                |                                                                                                |                                          |                   |        |              |      |         |       
|                                                       |                                                                                         | Sales                                                                                          |                                          |                   | 28,924 |              |      |         | 30,109 |     
|                                                       |                                                                                         | Maturities, calls and redemptions                                                              |                                          |                   | 3,062  |              |      |         | 1,175  |     
|                                                       | Purchases of equity securities                                                          |                                                                                                |                                          | (151              | )      |              |      | (448    | )     
|                                                       | Proceeds from sales of equity securities                                                |                                                                                                |                                          | 265               |        |              |      | 516     |       
|                                                       | Change in short-term investments                                                        |                                                                                                |                                          | 1,722             |        |              |      | (317    | )     
|                                                       | Change in collateral on loaned securities and derivatives                               |                                                                                                |                                          | 433               |        |              |      | 1,148   |       
|                                                       | Change in other investments                                                             |                                                                                                |                                          | (3                | )      |              |      | (63     | )     
|                                                       | Purchases of property and equipment                                                     |                                                                                                |                                          | (54               | )      |              |      | (36     | )     
|                                                       | Dispositions                                                                            |                                                                                                |                                          | (44               | )      |              |      | 71      |       
|                                                       | Other, net                                                                              |                                                                                                |                                          | 5                 |        |              |      | (22     | )     
|                                                       |                                                                                         |                                                                                                |                                          |                   |        |              |      |         |       
|Net cash flows provided (used) by investing activities |                                                                                         |                                                                                                | 48                                       |                   |        |              | (410 | )      
|                                                       |                                                                                         |                                                                                                |                                          |                   |        |              |      |         |       
|Net Cash Flows from Financing Activities               |                                                                                         |                                                                                                |                                          |                   |        |              |      |        
|                                                       | Principal payments on debt                                                              |                                                                                                |                                          | (135              | )      |              |      |        |       
|                                                       | Return of policyholder account balances on investment contracts                         |                                                                                                |                                          | (13               | )      |              |      | (26     | )     
|                                                       | Other                                                                                   |                                                                                                |                                          | (1                | )      |              |      | 4       |       
|                                                       |                                                                                         |                                                                                                |                                          |                   |        |              |      |         |       
|Net cash flows used by financing activities            |                                                                                         |                                                                                                | (149                                     | )                 |        |              | (22  | )      
|                                                       |                                                                                         |                                                                                                |                                          |                   |        |              |      |         |       
|Net change in cash and cash equivalents                |                                                                                         |                                                                                                | 14                                       |                   |        |              | 3    |        
|Cash and cash equivalents, beginning of period         |                                                                                         |                                                                                                | 126                                      |                   |        |              | 142  |        
|                                                       |                                                                                         |                                                                                                |                                          |                   |        |              |      |         |       
|Cash and cash equivalents, end of period               |                                                                                         | $                                                                                              | 140                                      |                   |        | $            | 145  |        
|                                                       |                                                                                         |                                                                                                |                                          |                   |        |              |      |         |       
|Supplemental Disclosures of Cash Flow Information:     |                                                                                         |                                                                                                |                                          |                   |        |              |      |        
|                                                       | Cash
paid (received):                                                                   |                                                                                                |                                          |                   |        |              |      |         |       
|                                                       |                                                                                         | Interest                                                                                       |                                          | $                 | 69     |              |      | $       | 75     |     
|                                                       |                                                                                         | Federal income taxes                                                                           |                                          |                   | 81     |              |      |         | (625   | )   
|                                                       | Non-cash transactions:                                                                  |                                                                                                |                                          |                   |        |              |      |         |       
|                                                       |                                                                                         | Notes receivable for the issuance of common stock                                              |                                          |                   | 1      |              |      |         | 1      |     

(a) See Note O.

The accompanying Notes are an
integral part of these Condensed Consolidated Financial Statements (Unaudited).

5



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##### Table of Contents






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

Note A. Basis of Presentation

The Condensed Consolidated Financial Statements (Unaudited) include the
accounts of CNA Financial Corporation (CNAF) and its controlled subsidiaries,
which include property and casualty insurance companies (principally
Continental Casualty Company (CCC) and The Continental Insurance Company (CIC))
and life and group insurance companies (principally Continental Assurance
Company (CAC), Valley Forge Life Insurance Company (VFL) and CNA Group Life
Assurance Company (CNAGLA)), collectively CNA or the Company. As of June 30,
2003, Loews Corporation (Loews) owned approximately 90% of the outstanding
common stock of CNAF.

The accompanying Condensed Consolidated Financial Statements have been prepared
in conformity with accounting principles generally accepted in the United
States of America (GAAP). Certain financial information that is normally
included in annual financial statements, including certain financial statement
footnotes, prepared in accordance with GAAP, is not required for interim
reporting purposes and has been condensed or omitted. These statements should
be read in conjunction with the consolidated financial statements and notes
thereto included in CNAFs Form 10-K filed with the Securities and Exchange
Commission (SEC) for the year ended December 31, 2002.

The interim financial data as of June 30, 2003 and for the three and six months
ended June 30, 2003 and 2002 is unaudited. However, in the opinion of
management, the interim data includes all adjustments, consisting of normal
recurring accruals, necessary for a fair statement of the Companys results for
the interim periods. The results of operations for the interim periods are not
necessarily indicative of the results to be expected for the full year. All
significant intercompany amounts have been eliminated.

As a result of a routine review of the Companys periodic filings by the
Division of Corporation Finance of the SEC, the Company has restated its
results of operations for the three and six months ended June 30, 2002. The
restated financial statements reflect an adjustment to the Companys historical
accounting for its investment in life settlement contracts and the related
revenue recognition. See Note O for further discussion.

Certain amounts applicable to prior periods have been reclassified to conform
to the current period presentation.

Note B. Accounting Pronouncements

CNA adopted Statement of Financial Accounting Standards No. 142, Goodwill and
Other Intangible Assets (SFAS 142) on January 1, 2002. SFAS 142 changed the
accounting for goodwill and indefinite-lived intangible assets from an
amortization method to an impairment-only approach. Amortization of goodwill
and indefinite-lived intangible assets recorded in past business combinations
ceased upon adoption of SFAS 142.

During 2002, the Company completed its initial goodwill impairment testing and
recorded a $64 million pretax, or $57 million after-tax, impairment charge. In
accordance with SFAS 142, the impairment charge, which consisted of a $51
million pretax, or $48 million after-tax, charge in Specialty Lines, a $12
million pretax, or $8 million after-tax, charge in Life Operations, and a $1
million pretax, or $1 million after-tax, charge in Corporate and Other, was
recorded as a cumulative effect of a change in accounting principle as of
January 1, 2002. Goodwill and indefinite-lived intangible assets are tested
for impairment annually and when certain triggering events require such tests.

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

Any future impairment losses incurred will be reported in results of
operations. Goodwill of $152 million and $154 million as of June 30, 2003 and
December 31, 2002 represents the excess of purchase price over fair value of
the net assets of acquired entities. Other intangible assets were $20 million
as of June 30, 2003 and December 31, 2002.

In November of 2002, the Financial Accounting Standards Board (FASB) issued
FASB Interpretation No. 45, Guarantors Accounting and Disclosure Requirements
for Guarantees, Including Indirect Guarantees of Indebtedness of Others (an
interpretation of FASB Statements of Financial Accounting Standards No. 5, 57,
and 107 and rescission of FASB Interpretation No. 34) (FIN 45). FIN 45
clarifies the requirements of FASB Statement of Financial Accounting Standards
No. 5, Accounting for Contingencies (SFAS 5) relating to a guarantors
accounting for, and disclosure of, the issuance of certain types of guarantees.
FIN 45 provides for additional disclosure requirements related to guarantees
which were effective for financial periods ending after December 15, 2002. The
Company adopted the disclosure requirements of FIN 45 during the fourth quarter
of 2002. Additionally, FIN 45 outlines provisions for initial recognition and
measurement of the liability incurred in providing a guarantee. The Company
adopted the initial recognition and measurement requirements for all guarantees
as of January 1, 2003. The initial adoption of the recognition and measurement
requirements of FIN 45 did not have a significant impact on the results of
operations or equity of the Company.

In December of 2002, the FASB issued Statement of Financial Accounting
Standards No. 148, Accounting for Stock-Based Compensation, Transition and
Disclosure (SFAS 148). SFAS 148 provides alternative methods of transition for
a voluntary change to the fair value based method of accounting for stock-based
employee compensation. SFAS 148 also amends the disclosure requirements of
SFAS 123, Accounting for Stock-Based Compensation (SFAS 123),to require
prominent disclosures in both annual and interim financial statements about the
method of accounting for stock-based employee compensation and the effect of
the method used on reported results. CNA has adopted the disclosure provisions
of this standard for all annual and interim financial statements. The Company
has determined that it will not adopt the fair value based method of accounting
for stock-based employee compensation in 2003.

The effect on net income and earnings per share if the Company had applied the
fair value recognition provisions of SFAS 123 to stock-based employee
compensation under the Companys stock-based compensation plans is illustrated
in Note C.

In April of 2003, the FASB issued Statement of Financial Accounting Standards
No. 149, Amendment of Statement 133 on Derivative Instruments and Hedging
Activities (SFAS 149). SFAS 149 amends and clarifies accounting for derivative
instruments, including certain derivative instruments embedded in other
contracts, and for hedging activities under Statement of Financial Accounting
Standard No. 133, Accounting for Derivative Instruments and Hedging Activities
(SFAS 133). SFAS 149 is effective for contracts entered into or modified after
June 30, 2003 and for hedging relationships designated after June 30, 2003.
The Company is currently in the process of evaluating the impact SFAS 149 may
have on its Condensed Consolidated Financial Statements.

In May of 2003, the FASB issued Statement of Financial Accounting Standards No.
150, Accounting for Certain Financial Instruments with Characteristics of both
Liabilities and Equity (SFAS 150). SFAS 150 establishes standards for how an
issuer of financial instruments classifies and measures in its statement of
financial position certain instruments with characteristics of both liabilities
and equity. SFAS 150 modifies the accounting and financial statement
disclosures of certain financial instruments that, under previous guidance,
issuers could account for as equity. SFAS 150 affects the issuers accounting
for three types of financial instruments that are required to be accounted for
as liabilities.

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##### Table of Contents



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

SFAS 150 is effective for all financial instruments entered into or modified
after May 31, 2003. For all financial instruments entered into prior to May
31, 2003, SFAS 150 is effective at the beginning of the first interim period
beginning after June 15, 2003, which for CNA begins July 1, 2003. The Company
does not have any financial instruments outstanding to which the provisions of
SFAS 150 apply; therefore, the adoption of SFAS 150 is not expected to have any
impact on the results of operations or equity of the Company.

Note C. Earnings Per Share

The computation of earnings per share was as follows.

Earnings Per Share

|                                                                                                     |  |              |       |            |  |      |       |      |  |   |       |   |  |   |       |  
|---------------------------------------------------------------------------------------------------- |  | ------------ | ----- | ---------- |  | ---- | ----- | ---- |  | - | ----- | - |  | - | ----- | -
|                                                                                                     |  | Three Months |       | Six Months
|                                                                                                     |  |              |       |           
|Period ended June 30                                                                                 |  | 2003         |       | 2002       |  | 2003 |       | 2002
|(In millions, except per share amounts)                                                              |  |              |       |            |  |      |       |     
|Income from continuing operations                                                                    |  | $            | 70    |            |  | $    | 31    |      |  | $ | 153   |   |  | $ | 143   |  
|Less: preferred stock dividend (accumulated but undeclared)                                          |  |              | (15   | )          |  |      |      |      |  |   | (30   | ) |  |   |      |  
|                                                                                                     |  |              |       |            |  |      |       |      |  |   |       |   |  |   |       |  
|Income from continuing operations available to common
stockholders                                   |  |              | 55    |            |  |      | 31    |      |  |   | 123   |   |  |   | 143   |  
|Loss from discontinued operations, net of tax                                                        |  |              |      |            |  |      |      |      |  |   |      |   |  |   | (35   | )
|Cumulative effect of a change in accounting principle, net of tax                                    |  |              |      |            |  |      |      |      |  |   |      |   |  |   | (57   | )
|                                                                                                     |  |              |       |            |  |      |       |      |  |   |       |   |  |   |       |  
|Net income available to common stockholders                                                          |  | $            | 55    |            |  | $    | 31    |      |  | $ | 123   |   |  | $ | 51    |  
|                                                                                                     |  |              |       |            |  |      |       |      |  |   |       |   |  |   |       |  
|Weighted average outstanding common stock and common stock
equivalents                               |  |              | 223.6 |            |  |      | 223.6 |      |  |   | 223.6 |   |  |   | 223.6 |  
|Effect of dilutive securities, employee stock options                                                |  |              |      |            |  |      |      |      |  |   |      |   |  |   |      |  
|                                                                                                     |  |              |       |            |  |      |       |      |  |   |       |   |  |   |       |  
|Adjusted weighted average outstanding common stock and common
stock equivalents assuming conversions |  |              | 223.6 |            |  |      | 223.6 |      |  |   | 223.6 |   |  |   | 223.6 |  
|                                                                                                     |  |              |       |            |  |      |       |      |  |   |       |   |  |   |       |  
|Basic and diluted earnings per share available to common
stockholders                                |  | $            | 0.25  |            |  | $    | 0.14  |      |  | $ | 0.55  |   |  | $ | 0.23  |  
|                                                                                                     |  |              |       |            |  |      |       |      |  |   |       |   |  |   |       |  

The Company applies Accounting Principles Board Opinion No. 25, Accounting for
Stock Issued to Employees (APB 25), and related interpretations, in accounting
for its stock-based compensation plan. Under the recognition and measurement
principles of APB 25, no stock-based compensation cost has been recognized, as
the exercise price of the granted options equaled the market price of the
underlying stock at the grant date.

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

The following table illustrates the pro forma effect on net income and earnings
per share, had the Company applied the fair value recognition provisions of
SFAS 123 to stock-based employee compensation under the Companys stock-based
compensation plans.

Pro Forma Effect of SFAS 123 on Net Income and Earnings Per Share

|                                                                                             |  |              |      |            |  |      |      |      |  |   |      |   |  |   |      | 
|-------------------------------------------------------------------------------------------- |  | ------------ | ---- | ---------- |  | ---- | ---- | ---- |  | - | ---- | - |  | - | ---- | 
|                                                                                             |  | Three Months |      | Six Months
|                                                                                             |  |              |      |           
|Period ended June 30                                                                         |  | 2003         |      | 2002       |  | 2003 |      | 2002
|(In millions, except per share amounts)                                                      |  |              |      |            |  |      |      |     
|Net income                                                                                   |  | $            | 70   |            |  | $    | 31   |      |  | $ | 153  |   |  | $ | 51   | 
|Less: Total stock-based compensation cost
determined under the fair value method, net of
tax |  |              | (1   | )          |  |      |     |      |  |   | (1   | ) |  |   |     | 
|                                                                                             |  |              |      |            |  |      |      |      |  |   |      |   |  |   |      | 
|Pro forma net income                                                                         |  | $            | 69   |            |  | $    | 31   |      |  | $ | 152  |   |  | $ | 51   | 
|                                                                                             |  |              |      |            |  |      |      |      |  |   |      |   |  |   |      | 
|Basic and diluted earnings per share                                                         |  | $            | 0.25 |            |  | $    | 0.14 |      |  | $ | 0.55 |   |  | $ | 0.23 | 
|                                                                                             |  |              |      |            |  |      |      |      |  |   |      |   |  |   |      | 
|Basic and diluted earnings per share, pro forma                                              |  | $            | 0.25 |            |  | $    | 0.14 |      |  | $ | 0.55 |   |  | $ | 0.23 | 
|                                                                                             |  |              |      |            |  |      |      |      |  |   |      |   |  |   |      | 

Note D. Investments

The significant components of net investment income are presented in the
following table.

Net Investment Income

|                                              |  |              |     |            |  |      |     |      |  |   |      |   |  |   |      |  
|--------------------------------------------- |  | ------------ | --- | ---------- |  | ---- | --- | ---- |  | - | ---- | - |  | - | ---- | -
|                                              |  | Three Months |     | Six Months
|                                              |  |              |     |           
|Period ended June 30                          |  | 2003         |     | 2002       |  | 2003 |     | 2002
|(In millions)                                 |  |              |     |            |  |      |     |     
|Fixed maturity securities                     |  | $            | 422 |            |  | $    | 496 |      |  | $ | 842  |   |  | $ | 943  |  
|Short term investments                        |  |              | 12  |            |  |      | 11  |      |  |   | 32   |   |  |   | 27   |  
|Limited partnerships                          |  |              | 75  |            |  |      | 37  |      |  |   | 98   |   |  |   | 44   |  
|Equity securities                             |  |              | 4   |            |  |      | 8   |      |  |   | 9    |   |  |   | 15   |  
|Interest on funds withheld and other deposits |  |              | (93 | )          |  |      | (57 | )    |  |   | (140 | ) |  |   | (115 | )
|Other                                         |  |              | 18  |            |  |      | 19  |      |  |   | 43   |   |  |   | 40   |  
|                                              |  |              |     |            |  |      |     |      |  |   |      |   |  |   |      |  
|Gross investment income                       |  |              | 438 |            |  |      | 514 |      |  |   | 884  |   |  |   | 954  |  
|Investment expense                            |  |              | (11 | )          |  |      | (12 | )    |  |   | (25  | ) |  |   | (26  | )
|                                              |  |              |     |            |  |      |     |      |  |   |      |   |  |   |      |  
|Net investment income                         |  | $            | 427 |            |  | $    | 502 |      |  | $ | 859  |   |  | $ | 928  |  
|                                              |  |              |     |            |  |      |     |      |  |   |      |   |  |   |      |  

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

The components of net realized investment results are presented in the
following table.

Net Realized Investment Gains (Losses)

|                                                                 |                                   |      |              |      |            |      |      |      |   |   |      |     |   |   |      |      |  
|---------------------------------------------------------------- | --------------------------------- | ---- | ------------ | ---- | ---------- | ---- | ---- | ---- | - | - | ---- | --- | - | - | ---- | ---- | -
|                                                                 |                                   |      | Three Months |      | Six Months
|                                                                 |                                   |      |              |      |           
|Period ended June 30                                             |                                   | 2003 |              | 2002 |            | 2003 |      | 2002
|(In millions)                                                    |                                   |      |              |      |            |      |      |     
|Realized investment gains (losses):                              |                                   |      |              |      |            |      |      |      |   |   |      |     |   |   |      |     
|Fixed maturity securities:                                       |                                   |      |              |      |            |      |      |      |   |   |      |     |   |   |      |     
|                                                                 | U.S. Government bonds             |      | $            | 37   |            |      | $    | 44   |   |   | $    | 75  |   |   | $    | 49   |  
|                                                                 | Corporate and other taxable bonds |      |              | 244  |            |      |      | (258 | ) |   |      | 126 |   |   |      | (249 | )
|                                                                 | Tax-exempt bonds                  |      |              | 76   |            |      |      | 14   |   |   |      | 95  |   |   |      | 16   |  
|                                                                 | Asset-backed bonds                |      |              | 23   |            |      |      | 19   |   |   |      | 41  |   |   |      | 28   |  
|                                                                 | Redeemable preferred stock        |      |              | (5   | )          |      |      | (1   | ) |   |      | (10 | ) |   |      | (15  | )
|                                                                 |                                   |      |              |      |            |      |      |      |   |   |      |     |   |   |      |      |  
|Total fixed maturity securities                                  |                                   |      | 375          |      |            |      | (182 | )    |   |   | 327  |     |   |   | (171 | )   
|Equity securities                                                |                                   |      | 58           |      |            |      | 42   |      |   |   | 58   |     |   |   | 49   |     
|Derivative securities                                            |                                   |      | (55          | )    |            |      | (13  | )    |   |   | (77  | )   |   |   | (34  | )   
|Short term investments                                           |                                   |      | 6            |      |            |      | 10   |      |   |   | 10   |     |   |   | 10   |     
|Other invested assets                                            |                                   |      | (4           | )    |            |      | (18  | )    |   |   | (17  | )   |   |   | (14  | )   
|                                                                 |                                   |      |              |      |            |      |      |      |   |   |      |     |   |   |      |      |  
|Total realized investment gains (losses)                         |                                   |      | 380          |      |            |      | (161 | )    |   |   | 301  |     |   |   | (160 | )   
|Allocated to participating policyholders and minority interests |                                   |      | (2           | )    |            |      | (1   | )    |   |   | 1    |     |   |   | (1   | )   
|Income tax (expense) benefit                                     |                                   |      | (129         | )    |            |      | 57   |      |   |   | (102 | )   |   |   | 58   |     
|                                                                 |                                   |      |              |      |            |      |      |      |   |   |      |     |   |   |      |      |  
|Net realized investment gains (losses)                           |                                   | $    | 249          |      |            | $    | (105 | )    |   | $ | 200  |     |   | $ | (103 | )   
|                                                                 |                                   |      |              |      |            |      |      |      |   |   |      |     |   |   |      |      |  

Net realized investment results included $31 million and $292 million of pretax
impairment losses for the three months ended June 30, 2003 and 2002 and $286
million and $310 million of pretax impairment losses for the six months ended
June 30, 2003 and 2002. The impairment losses for the three and six months
ended June 30, 2003 were recorded across several sectors, including the
airline, healthcare and energy industries. For the three and six months ended
June 30, 2002, the impairment losses were recorded primarily in the
communications sector.

Note E. Derivative Financial Instruments

A derivative is typically defined as an instrument whose value is derived
from an underlying instrument, index or rate, has a notional amount, requires
little or no initial investment and can be net settled. Derivatives include,
but are not limited to, the following types of financial instruments: interest
rate swaps, interest rate caps and floors, put and call options, warrants,
futures, forwards, commitments to purchase securities, and combinations of the
foregoing. Derivatives embedded within non-derivative instruments (such as
call options embedded in convertible bonds) must be split from the host
instrument and accounted for in accordance with SFAS 133 when the embedded
derivative is not clearly and closely related to the host instrument. In
addition, non-investment instruments, including certain types of insurance
contracts, mainly collateralized debt obligation products (CDOs) and synthetic
guaranteed investment contracts (synthetic GICs) that have historically not
been considered derivatives, may be derivatives or contain embedded derivatives
under SFAS 133.

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##### Table of Contents



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

A summary of the recognized (losses) gains related to derivative financial
instruments follows.

Derivative Financial Instruments Recognized (Losses) Gains

|                     |                                                             |      |              |      |            |      |      |      |   |   |     |     |   |   |      |      |  
|-------------------- | ----------------------------------------------------------- | ---- | ------------ | ---- | ---------- | ---- | ---- | ---- | - | - | --- | --- | - | - | ---- | ---- | -
|                     |                                                             |      | Three Months |      | Six Months
|                     |                                                             |      |              |      |           
|Period ended June 30 |                                                             | 2003 |              | 2002 |            | 2003 |      | 2002
|(In millions)        |                                                             |      |              |      |            |      |      |     
|General account      |                                                             |      |              |      |            |      |      |      |   |   |     |     |   |   |      |     
|                     | Swaps                                                       |      | $            | (12  | )          |      | $    | 13   |   |   | $   | (12 | ) |   | $    | 12   |  
|                     | Futures sold, not yet purchased                             |      |              | (39  | )          |      |      | (1   | ) |   |     | (39 | ) |   |      | (1   | )
|                     | Forwards                                                    |      |              | 1    |            |      |      | (16  | ) |   |     | 1   |   |   |      | (13  | )
|                     | Commitments to purchase government and municipal securities |      |              | (7   | )          |      |      | (1   | ) |   |     | (18 | ) |   |      | (15  | )
|                     | Equity warrants                                             |      |              |     |            |      |      |     |   |   |     |    |   |   |      | (1   | )
|                     | Collateralized debt obligation liabilities                  |      |              | 2    |            |      |      | (8   | ) |   |     | (9  | ) |   |      | (16  | )
|                     | Options embedded in convertible debt securities             |      |              | 43   |            |      |      | (48  | ) |   |     | 9   |   |   |      | (64  | )
|                     |                                                             |      |              |      |            |      |      |      |   |   |     |     |   |   |      |      |  
|Total                |                                                             | $    | (12          | )    |            | $    | (61  | )    |   | $ | (68 | )   |   | $ | (98  | )   
|                     |                                                             |      |              |      |            |      |      |      |   |   |     |     |   |   |      |      |  
|Separate accounts    |                                                             |      |              |      |            |      |      |      |   |   |     |     |   |   |      |     
|                     | Futures purchased                                           |      | $            | 112  |            |      | $    | (112 | ) |   | $   | 75  |   |   | $    | (114 | )
|                     | Futures sold, not yet purchased                             |      |              | (1   | )          |      |      |     |   |   |     | (1  | ) |   |      |     |  
|                     | Commitments to purchase government and municipal securities |      |              |     |            |      |      | 2    |   |   |     |    |   |   |      | 2    |  
|                     | Options purchased                                           |      |              | (1   | )          |      |      | (1   | ) |   |     | (1  | ) |   |      | (2   | )
|                     | Options written                                             |      |              |     |            |      |      | (1   | ) |   |     | 1   |   |   |      |     |  
|                     |                                                             |      |              |      |            |      |      |      |   |   |     |     |   |   |      |      |  
|Total                |                                                             | $    | 110          |      |            | $    | (112 | )    |   | $ | 74  |     |   | $ | (114 | )   
|                     |                                                             |      |              |      |            |      |      |      |   |   |     |     |   |   |      |      |  

A summary of the aggregate contractual or notional amounts and estimated fair
values related to derivative financial instruments follows.

Derivative Financial Instruments

|                  |                                                             |          |              |       |  |             |     |     |  |   |     |     |  
|----------------- | ----------------------------------------------------------- | -------- | ------------ | ----- |  | ----------- | --- | --- |  | - | --- | --- | -
|                  |                                                             |          | Contractual/ |       |  |             |     |     |  |   |    
|June 30, 2003     |                                                             | Notional |              |       |  |             |     |     |  |  
|(In millions)     |                                                             | Amount   |              | Asset |  | (Liability)
|                  |                                                             |          |              |       |  |            
|General account   |                                                             |          |              |       |  |             |     |     |  |   |     |    
|                  | Swaps                                                       |          | $            | 3,169 |  |             | $   |    |  |   | $   | (12 | )
|                  | Interest rate caps                                          |          |              | 500   |  |             |     |    |  |   |     |    |  
|                  | Futures sold, not yet purchased                             |          |              | 13    |  |             |     |    |  |   |     |    |  
|                  | Forwards                                                    |          |              | 78    |  |             |     | 1   |  |   |     |    |  
|                  | Commitments to purchase government and municipal securities |          |              | 425   |  |             |     |    |  |   |     | (4  | )
|                  | Equity warrants                                             |          |              | 15    |  |             |     |    |  |   |     |    |  
|                  | Collateralized debt obligation liabilities                  |          |              | 125   |  |             |     |    |  |   |     | (22 | )
|                  | Options purchased                                           |          |              | 5     |  |             |     |    |  |   |     |    |  
|                  | Synthetic guaranteed investment contracts                   |          |              | 379   |  |             |     |    |  |   |     |    |  
|                  | Options embedded in convertible debt securities             |          |              | 893   |  |             |     | 185 |  |   |     |    |  
|                  |                                                             |          |              |       |  |             |     |     |  |   |     |     |  
|Total             |                                                             | $        | 5,602        |       |  | $           | 186 |     |  | $ | (38 | )  
|                  |                                                             |          |              |       |  |             |     |     |  |   |     |     |  
|Separate accounts |                                                             |          |              |       |  |             |     |     |  |   |     |    
|                  | Futures purchased                                           |          | $            | 917   |  |             | $   |    |  |   | $   |    |  
|                  | Futures sold, not yet purchased                             |          |              | 12    |  |             |     |    |  |   |     |    |  
|                  | Options purchased                                           |          |              | 34    |  |             |     |    |  |   |     |    |  
|                  | Options written                                             |          |              | 65    |  |             |     |    |  |   |     | (1  | )
|                  |                                                             |          |              |       |  |             |     |     |  |   |     |     |  
|Total             |                                                             | $        | 1,028        |       |  | $           |    |     |  | $ | (1  | )  
|                  |                                                             |          |              |       |  |             |     |     |  |   |     |     |  

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

|                  |                                                             |          |              |       |  |             |     |     |  |   |     |     |  
|----------------- | ----------------------------------------------------------- | -------- | ------------ | ----- |  | ----------- | --- | --- |  | - | --- | --- | -
|                  |                                                             |          | Contractual/ |       |  |             |     |     |  |   |    
|December 31, 2002 |                                                             | Notional |              |       |  |             |     |     |  |  
|(In millions)     |                                                             | Amount   |              | Asset |  | (Liability)
|                  |                                                             |          |              |       |  |            
|General account   |                                                             |          |              |       |  |             |     |     |  |   |     |    
|                  | Swaps                                                       |          | $            | 553   |  |             | $   |    |  |   | $   |    |  
|                  | Interest rate caps                                          |          |              | 500   |  |             |     |    |  |   |     |    |  
|                  | Futures sold, not yet purchased                             |          |              | 14    |  |             |     |    |  |   |     |    |  
|                  | Forwards                                                    |          |              | 9     |  |             |     |    |  |   |     |    |  
|                  | Commitments to purchase government and municipal securities |          |              | 1,289 |  |             |     | 14  |  |   |     |    |  
|                  | Equity warrants                                             |          |              | 10    |  |             |     | 8   |  |   |     |    |  
|                  | Collateralized debt obligation liabilities                  |          |              | 126   |  |             |     |    |  |   |     | (14 | )
|                  | Options purchased                                           |          |              | 6     |  |             |     |    |  |   |     |    |  
|                  | Synthetic guaranteed investment contracts                   |          |              | 481   |  |             |     |    |  |   |     |    |  
|                  | Options embedded in convertible debt securities             |          |              | 843   |  |             |     | 130 |  |   |     |    |  
|                  |                                                             |          |              |       |  |             |     |     |  |   |     |     |  
|Total             |                                                             | $        | 3,831        |       |  | $           | 152 |     |  | $ | (14 | )  
|                  |                                                             |          |              |       |  |             |     |     |  |   |     |     |  
|Separate accounts |                                                             |          |              |       |  |             |     |     |  |   |     |    
|                  | Futures purchased                                           |          | $            | 614   |  |             | $   | 1   |  |   | $   |    |  
|                  | Futures sold, not yet purchased                             |          |              | 10    |  |             |     |    |  |   |     |    |  
|                  | Commitments to purchase government and municipal securities |          |              | 11    |  |             |     |    |  |   |     |    |  
|                  | Options purchased                                           |          |              | 33    |  |             |     |    |  |   |     |    |  
|                  | Options written                                             |          |              | 51    |  |             |     |    |  |   |     | (1  | )
|                  |                                                             |          |              |       |  |             |     |     |  |   |     |     |  
|Total             |                                                             | $        | 719          |       |  | $           | 1   |     |  | $ | (1  | )  
|                  |                                                             |          |              |       |  |             |     |     |  |   |     |     |  

Options embedded in convertible debt securities are classified as fixed
maturity securities in the Condensed Consolidated Balance Sheets, consistent
with the host instruments.

Fair Value Hedges

The Companys hedging activities primarily involve hedging interest rate and
foreign currency risks on various assets and liabilities. For the three and
six months ended June 30, 2003, there was no ineffective portion of fair value
hedges that resulted in realized gains or losses. The ineffective portion of
fair value hedges resulted in realized losses of less than $1 million for the
three and six months ended June 30, 2002.

Note F. Legal Proceedings and Contingent Liabilities

IGI Contingency

In 1997, CNA Reinsurance Company Limited (CNA Re Ltd.) entered into an
arrangement with IOA Global, Ltd. (IOA), an independent managing general agent
based in Philadelphia, Pennsylvania, to develop and manage a book of accident
and health coverages. Pursuant to this arrangement, IGI Underwriting Agencies,
Ltd. (IGI), a personal accident reinsurance managing general underwriter, was
appointed to underwrite and market the book under the supervision of IOA.
Between April 1, 1997 and December 1, 1999, IGI underwrote a number of
reinsurance arrangements with respect to personal accident insurance worldwide
(the IGI Program). Under various arrangements, CNA Re Ltd. both

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

assumed risks
as a reinsurer and also ceded a substantial portion of those risks to other
companies, including other CNA insurance subsidiaries and ultimately to a group
of reinsurers participating in a reinsurance pool known as the Associated
Accident and Health Reinsurance Underwriters (AAHRU)
Facility. CNAs Group Operations business unit participated as a pool member
in the AAHRU Facility in varying percentages between 1997 and 1999.

CNA has determined that a portion of the premiums assumed under the IGI Program
related to United States workers compensation carve-out business. Some of
these premiums were received from John Hancock Financial Services, Inc. (John
Hancock). CNA is aware that a number of reinsurers with workers compensation
carve-out insurance exposure, including John Hancock, have disavowed their
obligations under various legal theories. If one or more such companies are
successful in avoiding or reducing their liabilities, then it is likely that
CNAs potential liability will also be reduced. Moreover, based on information
known at this time, CNA believes it has strong grounds to successfully
challenge its alleged exposure on a substantial portion of its United States
workers compensation carve-out business, including all purported exposure
derived from John Hancock, through legal action.

As noted, CNA arranged substantial reinsurance protection to manage its
exposures under the IGI Program. CNA believes it has valid and enforceable
reinsurance contracts with the AAHRU Facility and other reinsurers with respect
to the IGI Program, including the United States workers compensation carve-out
business. However, certain reinsurers dispute their liabilities to CNA, and
CNA has commenced arbitration proceedings against such reinsurers.

CNA has established reserves for its estimated exposure under the IGI Program,
other than that derived from John Hancock, and an estimate for recoverables
from retrocessionaires. CNA has not established any reserve for any exposure
derived from John Hancock because, as indicated, CNA believes the contract will
be rescinded.

The Company is pursuing a number of loss mitigation strategies with respect to
the entire IGI Program. Although the results of these various actions to date
support the recorded reserves, the estimate of ultimate losses is subject to
considerable uncertainty due to the complexities described above. As a result
of these uncertainties, the results of operations in future periods may be
adversely affected by potentially significant reserve additions. Management
does not believe that any such reserve additions would be material to the
equity of the Company, although results of operations may be adversely
affected. The Companys position in relation to the IGI Program was unaffected
by the sale of CNA Re Ltd. in 2002.

California Wage and Hour Litigation

In Ernestine Samora, et al. v.
CCC, Case No. BC 242487, Superior Court of
California, County of Los Angeles, California and Brian Wenzel v. Galway
Insurance Company, Superior Court of California, County of Orange No.
BC01CC08868 (coordinated), two former CNA employees, filed lawsuits on behalf
of purported classes of CNA employees asserting they worked hours for which
they should have been compensated at a rate of one and one-half times their
base hourly wage over a four-year period. The cases were coordinated and an
amended complaint was filed which alleges overtime claims under California law
over a four-year period. In June 2002, the Company filed a responsive pleading
denying the material allegations of the amended complaint. The Company intends
to defend this case vigorously. Due to the recent commencement of discovery
and the uncertainty of how the courts may interpret California law as applied
to the facts of these cases, the extent of losses beyond any amounts that may
be accrued are not readily determinable at this time. Based on facts and
circumstances presently known,

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

however, in the opinion of management, the
outcome will not materially affect the equity of the Company, although results
of operations may be adversely affected.

Voluntary Market Premium Litigation

CNA, along with dozens of other insurance companies, is a defendant in sixteen
purported class action cases brought by large policyholders, which generally
allege that the defendants, as part of an industry-wide conspiracy, included
improper charges in their retrospectively rated and other loss-sensitive
insurance premiums. Fourteen lawsuits were brought as class actions in state
courts and two in federal court. Among the claims asserted were violations of
state antitrust laws, breach of contract, fraud and unjust enrichment. In two
of the cases, the defendants won dismissals on motions and, in four others,
class certification was denied after hearing. Plaintiffs voluntarily dismissed
their claims in four states. In the federal court case, Sandwich Chef of
Texas, Inc., et al. v. Reliance National Indemnity Insurance Company,
et al.,
Civil Action No. H-98-1484, United States District Court for the Southern
District of Texas, the district court certified a multi-state class but was
reversed on interlocutory appeal by the U.S. Court of Appeals for the Fifth
Circuit. Due to the uncertainty of how the courts may interpret state and
federal law as applied to the facts of the cases, the extent of potential
losses beyond any amounts that may be accrued are not readily determinable at
this time. Based on facts and circumstances presently known, however, in the
opinion of management the outcome will not materially affect the equity of the
Company, although results of operations may be adversely affected.

Environmental Pollution and Mass Tort and Asbestos (APMT) Litigation

CNA is also a party to litigation and claims related to
APMT cases arising in the ordinary course of business. See Note G for further
discussion.

Other Litigation

CNA is also a party to other litigation arising in the
ordinary course of business. Based on the facts and circumstances currently
known, such other litigation will not, in the opinion of management, materially
affect the results of operations or equity of CNA.

Note G. Claim and Claim Adjustment Expense Reserves

CNAs property and casualty insurance claim and claim adjustment expense
reserves represent the estimated amounts necessary to settle all outstanding
claims, including claims that are incurred but not reported (IBNR) as of the
reporting date. The Companys reserve projections are based primarily on
detailed analysis of the facts in each case, CNAs experience with similar
cases and various historical development patterns. Consideration is given to
such historical patterns as field reserving trends and claims settlement
practices, loss payments, pending levels of unpaid claims and product mix, as
well as court decisions, economic conditions and public attitudes.

Establishing claim and claim adjustment expense reserves, including claim and
claim adjustment expense reserves for catastrophic events that have occurred,
is an estimation process. Many factors can ultimately affect the final
settlement of a claim and, therefore, the necessary reserve. Changes in the
law, results of litigation, medical costs, the cost of repair materials and
labor rates can all affect ultimate claim costs. In addition, time can be a
critical part of reserving determinations since the longer the span between the
incidence of a loss and the payment or settlement of the claim, the more
variable the ultimate settlement

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

amount can be. Accordingly, short-tail
claims, such as property damage claims, tend to be more reasonably estimable
than long-tail claims, such as workers compensation, general liability and
professional liability claims. Adjustments to prior year reserve estimates, if
necessary, are reflected in the results of operations in the period that the
need for such adjustments is determined.

Catastrophes are an inherent risk of the property and casualty insurance
business and have contributed to material period-to-period fluctuations in the
Companys results of operations and equity. The level of catastrophe losses
experienced in any period cannot be predicted and can be material to the
results of operations or equity of the Company.

APMT Reserves

CNAs property and casualty insurance subsidiaries have actual and potential
exposures related to APMT claims.

Establishing reserves for APMT claim and claim adjustment expenses is subject
to uncertainties that are greater than those presented by other claims.
Traditional actuarial methods and techniques employed to estimate the ultimate
cost of claims for more traditional property and casualty exposures are less
precise in estimating claim and claim adjustment expense reserves for APMT,
particularly in an environment of emerging or potential claims and coverage
issues that arise from industry practices and legal, judicial, and social
conditions. Therefore, these traditional actuarial methods and techniques are
necessarily supplemented with additional estimating techniques and
methodologies, many of which involve significant judgments that are required of
management. Accordingly, a high degree of uncertainty remains for the Companys
ultimate liability for APMT claim and claim adjustment expenses.

In addition to the difficulties described above, estimating the ultimate cost
of both reported and unreported APMT claims is subject to a higher degree of
variability due to a number of additional factors, including among others: the
number and outcome of direct actions against the Company; coverage issues,
including whether certain costs are covered under the policies and whether
policy limits apply; allocation of liability among numerous parties, some of
whom may be in bankruptcy proceedings, and in particular the application of
joint and several liability to specific insurers on a risk; inconsistent
court decisions and developing legal theories; increasingly aggressive tactics
of plaintiffs lawyers; the risks and lack of predictability inherent in major
litigation; increased filings of claims in certain states to avoid the
application of tort reform statute effective dates; a further increase in
asbestos and environmental claims which cannot now be anticipated; continued
increase in mass tort claims relating to silica and silica-containing products,
and the outcome of ongoing disputes as to coverage in relation to these claims;
the role the exhaustion of primary limits for certain accounts and increased
demands on any umbrella or excess policies the Company has issued; and future
developments pertaining to the Companys ability to recover reinsurance for
asbestos and environmental claims.

Due to the inherent uncertainties in estimating reserves for APMT claim and
claim adjustment expenses and the degree of variability due to, among other
things, the factors described above, it may be necessary for the Company to
record material changes in its APMT claim and claim adjustment expense reserves in
the future, should new information become available or other developments
emerge.

Since 1999, CNA has performed semi-annual ground-up reviews of all open APMT
claims to evaluate the adequacy of the Companys APMT reserves. The completion
of a comprehensive ground up analysis of its APMT exposures, previously
scheduled for the second quarter, will be completed in the third quarter of
2003. Significant resources were dedicated to the proposed national asbestos
reform legislation and to

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

support regulatory reviews. As such, the Company
plans to complete its more formal and comprehensive analysis in the third
quarter of 2003. The Company considers input from its analyst professionals
with direct responsibility for the claims, inside and outside counsel with
responsibility for representation of the Company, and its actuarial staff.
These professionals review, among many factors, the policyholders present and
future exposures, including such factors as claims volume, trial conditions,
settlement demands and defense costs; the policies issued by CNA, including
such factors as aggregate or per
occurrence limits, whether the policy is primary, umbrella or excess, and the
existence of policyholder retentions and/or deductibles; the existence of other
insurance; and reinsurance arrangements.

Due to the significant uncertainties previously described related to APMT
claims, the ultimate liability for these cases, both individually and in
aggregate, may exceed the recorded reserves. Any such potential additional
liability, or any range of potential additional amounts, cannot be reasonably
estimated currently, but could be material to the Companys business, results
of operations, equity, insurer financial strength and debt ratings.

The following table provides data related to CNAs APMT claim and claim
adjustment expense reserves.

Environmental Pollution and Mass Tort and Asbestos

|               |  |               |      |                   |  |           |       |               |  |   |      |   |  |   |       |  
|-------------- |  | ------------- | ---- | ----------------- |  | --------- | ----- | ------------- |  | - | ---- | - |  | - | ----- | -
|               |  | June 30, 2003 |      | December 31, 2002
|               |  |               |      |                  
|               |  | Environmental |      |                   |  |           |       | Environmental |  |   |      |  
|               |  | Pollution and |      |                   |  |           |       | Pollution and |  |   |      |  
|               |  | Mass Tort     |      | Asbestos          |  | Mass Tort |       | Asbestos     
|(In millions)  |  |               |      |                   |  |           |       |              
|Gross reserves |  | $             | 780  |                   |  | $         | 1,662 |               |  | $ | 830  |   |  | $ | 1,758 |  
|Ceded reserves |  |               | (299 | )                 |  |           | (501  | )             |  |   | (313 | ) |  |   | (527  | )
|               |  |               |      |                   |  |           |       |               |  |   |      |   |  |   |       |  
|Net reserves   |  | $             | 481  |                   |  | $         | 1,161 |               |  | $ | 517  |   |  | $ | 1,231 |  
|               |  |               |      |                   |  |           |       |               |  |   |      |   |  |   |       |  

Environmental Pollution and Mass Tort

Environmental pollution cleanup is the subject of both federal and state
regulation. By some estimates, there are thousands of potential waste sites
subject to cleanup. The insurance industry is involved in extensive litigation
regarding coverage issues. Judicial interpretations in many cases have
expanded the scope of coverage and liability beyond the original intent of the
policies. The Comprehensive Environmental Response Compensation and Liability
Act of 1980 (Superfund) and comparable state statutes (mini-Superfunds) govern
the cleanup and restoration of toxic waste sites and formalize the concept of
legal liability for cleanup and restoration by Potentially Responsible
Parties (PRPs). Superfund and the mini-Superfunds establish mechanisms to pay
for cleanup of waste sites if PRPs fail to do so, and to assign liability to
PRPs. The extent of liability to be allocated to a PRP is dependent upon a
variety of factors. Further, the number of waste sites subject to cleanup is
unknown. To date, approximately 1,200 cleanup sites have been identified by
the Environmental Protection Agency (EPA) and included on its National
Priorities List (NPL). State authorities have designated many cleanup sites as
well.

Many policyholders have made claims against various CNA insurance subsidiaries
for defense costs and indemnification in connection with environmental
pollution matters. The vast majority of these claims relate to accident years
1989 and prior, which coincides with CNAs adoption of the Simplified
Commercial General Liability coverage form, which includes what is referred to
in the industry as an absolute pollution exclusion. CNA and the insurance
industry are disputing coverage for many such

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

claims. Key coverage issues
include whether cleanup costs are considered damages under the policies,
trigger of coverage, allocation of liability among triggered policies,
applicability of pollution exclusions and owned property exclusions, the
potential for joint and several liability and the definition of an occurrence.
To date, courts have been inconsistent in their rulings on these issues.

A number of proposals to reform Superfund have been made by various parties.
However, no reforms were enacted by Congress during 2002 or during the first six
months of 2003, and it is unclear what positions Congress or the administration
will take and what legislation, if any, will result in the future. If there is
legislation, and in some circumstances even if there is no legislation, the
federal role in environmental cleanup may be significantly reduced in favor of state action.
Substantial changes in the federal statute or the activity of the EPA may cause
states to reconsider their environmental cleanup statutes and regulations.
There can be no meaningful prediction of the pattern of regulation that would
result or the possible effect upon CNAs results of operations or equity.

During 2002 and continuing into 2003, mass tort claims arising from alleged
injury due to exposure to silica and silica containing products have been
increasing. The Company is monitoring silica mass tort claims to assess what,
if any, impact the increased claims may have on mass tort reserves. As to
other mass tort sub-types, the Company has not experienced material negative
development either in the number of claims or in the emergence of new
policyholders seeking coverage for known mass tort sub-types.

The Companys ultimate liability for its environmental pollution and mass tort
claims is impacted by several factors including ongoing disputes with
policyholders over scope and meaning of coverage terms and, in the area of
environmental pollution, court decisions that continue to restrict the scope
and applicability of the absolute pollution exclusion contained in policies
issued by the Company post 1989. Due to the inherent uncertainties described
above, including the inconsistency of court decisions, the number of waste
sites subject to cleanup, and in the area of environmental pollution, the
standards for cleanup and liability, the ultimate liability of CNA for
environmental pollution and mass tort claims may vary substantially from the
amount currently recorded.

As of June 30, 2003 and December 31, 2002, CNA carried approximately $481
million and $517 million of claim and claim adjustment expense reserves, net of
reinsurance recoverables, for reported and unreported environmental pollution
and mass tort claims. There was no environmental pollution and mass tort net
claim and claim adjustment expense reserve development for the three and six
months ended June 30, 2003 and 2002. The Company paid environmental
pollution-related claims and mass tort-related claims, net of reinsurance
recoveries, of $36 million and $58 million for the six months ended June 30,
2003 and 2002.

Asbestos

CNAs property and casualty insurance subsidiaries also have exposure to
asbestos-related claims. Estimation of asbestos-related claim and claim
adjustment expense reserves involves many of the same limitations discussed
above for environmental pollution claims, such as inconsistency of court
decisions, specific policy provisions, allocation of liability among insurers
and insureds, and additional factors such as missing policies and proof of
coverage. Furthermore, estimation of asbestos-related claims is difficult due
to, among other reasons, the proliferation of bankruptcy proceedings and
attendant uncertainties, the targeting of a broader range of businesses and
entities as defendants, the uncertainty as to which other

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

insureds may be
targeted in the future and the uncertainties inherent in predicting the number
of future claims.

In the past several years, CNA has experienced significant increases in claim
counts for asbestos-related claims. The factors that led to these increases
included, among other things, intensive advertising campaigns by lawyers for
asbestos claimants, mass medical screening programs sponsored by plaintiff
lawyers, and the addition of new defendants such as the distributors and
installers of products containing asbestos. Currently, the majority of
asbestos bodily injury claims are filed by persons exhibiting few, if any,
disease symptoms. It is estimated that approximately 90% of the current
non-malignant asbestos claimants do not meet the American Medical Associations
definition of impairment. Some courts, including the federal district court
responsible for pre-trial proceedings in all federal asbestos bodily injury
actions, have ordered that so-called unimpaired claimants may not recover
unless at some point the claimants condition worsens to the point of
impairment.

Some asbestos-related defendants have asserted that their claims for insurance
are not subject to aggregate limits on coverage. CNA has such claims from a
number of insureds. Some of these claims involve insureds facing exhaustion of
products liability aggregate limits in their policies, who have asserted that
their asbestos-related claims fall within so-called non-products liability
coverage contained within their policies rather than products liability
coverage, and that the claimed non-products coverage is not subject to any
aggregate limit. It is difficult to predict the ultimate size of any of the
claims for coverage purportedly not subject to aggregate limits or predict to
what extent, if any, the attempts to assert non-products claims outside the
products liability aggregate will succeed. The Company has attempted to manage
its asbestos exposure by aggressively seeking to settle claims on acceptable
terms. There can be no assurance that any of these settlement efforts will be
successful, or that any such claims can be settled on terms acceptable to CNA.
Where CNA cannot settle a claim on acceptable terms, the Company aggressively litigates
the claim. Adverse developments with respect to such matters discussed in this
report could have a material adverse effect on CNAs results of operations
or equity.

Certain asbestos litigations in which CNA is currently engaged are described
below:

On February 13, 2003, CNA announced it had resolved asbestos related coverage
litigation and claims involving A.P. Green Industries, A.P. Green Services and
Bigelow  Liptak Corporation. Under the agreement, CNA will be required to pay
$74 million, net of reinsurance recoveries, over a ten year period. The
settlement resolves CNAs liabilities for all pending and future asbestos
claims involving A.P. Green Industries, Bigelow  Liptak Corporation and
related subsidiaries, including alleged non-products exposures. The
settlement is subject to bankruptcy court approval and confirmation of a
bankruptcy plan containing a channeling injunction to protect CNA from any
future claims.

CNA is engaged in insurance coverage litigation with underlying plaintiffs who
have asbestos bodily injury claims against the former Robert A. Keasbey Company
(Keasbey) in New York State court (Continental Casualty Co. v. Nationwide
Indemnity Co. et al., No. 601037/03 (N.Y. County)). Keasbey, a currently
dissolved corporation, was a seller and installer of asbestos-containing
insulation products in New York and New Jersey. Thousands of plaintiffs have
filed bodily injury claims against Keasbey; however, Keasbeys involvement at a
number of work sites is a highly contested issue. Therefore, the
defense disputes the percentage of
valid claims against Keasbey. CNA issued Keasbey primary policies
for 1970-1987 and excess policies for 1972-1978. CNA has paid an amount
substantially equal to the policies aggregate limits for products and
completed operations claims. Claimants against Keasbey allege, among other
things, that CNA owes coverage under sections of the policies not subject to
the aggregate limits, an allegation CNA vigorously contests in the lawsuit.

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

CNA has insurance coverage disputes related to asbestos bodily injury claims
against Burns & Roe Enterprises, Inc. (Burns & Roe). Originally raised in
litigation, now stayed, these disputes are currently part of In re: Burns & Roe
Enterprises, Inc., pending in the U.S. Bankruptcy Court for the District of New
Jersey, No. 00-41610. Burns & Roe provided engineering and related services in
connection with construction projects. At the time of its bankruptcy filing,
Burns & Roe faced approximately 11,000 claims alleging bodily injury resulting
from exposure to asbestos as a result of construction projects in which Burns &
Roe was involved. CNA allegedly provided primary liability coverage to Burns &
Roe from 1956-1969 and 1971-1974, along with certain project-specific policies
from 1964-1970.

CIC issued certain primary and excess policies to Bendix Corporation (Bendix),
now part of Honeywell International Inc. (Honeywell). Honeywell faces
approximately 50,000 pending asbestos bodily injury claims resulting from
alleged exposure to Bendix friction products. CICs primary policies allegedly
covered the period from at least 1939 (when Bendix began to use asbestos in its
friction products) to 1983, although the parties disagree about whether CICs
policies provided product liability coverage before 1940 and from 1945 to 1956.
CIC asserts that it owes no further material obligations to Bendix
under any primary policy. Honeywell alleges that two primary policies issued
by CIC covering 1969-1975 contain occurrence limits but not product liability
aggregate limits for asbestos bodily injury claims. CIC has asserted, among
other things, that even if Honeywells allegation is correct, which CNA denies,
its liability is limited to a single occurrence limit per policy or per year,
and in the alternative, a proper allocation of losses would substantially limit
its exposure under the 1969-1975 policies to asbestos claims. These and other
issues are being litigated in Continental Insurance Co., et al. v. Honeywell
International Inc., No. MRS-L-1523-00 (Morris County, New Jersey).

Policyholders have also initiated litigation directly against CNA and other
insurers in four jurisdictions: Ohio, Texas, West Virginia and Montana. In
the Ohio action, plaintiffs allege the defendants negligently performed duties
undertaken to protect the public from the effects of asbestos (Varner v. Ford
Motor Co., et al., (Cuyahoga County, Ohio)). Similar lawsuits have also been
filed in Texas against CNA, and other insurers and non-insurer corporate
defendants asserting liability for failing to warn of the dangers of asbestos
(Boson v. Union Carbide Corp., et al., (District Court of Nueces County,
Texas)). CNA has been named in Adams v. Aetna, Inc., et al., (Circuit Court of
Kanhwha County, West Virginia), a purported class action against CNA and other
insurers, alleging that the defendants violated West Virginias Unfair Trade
Practices Act in handling and resolving asbestos claims against their
policyholders. A direct action has also been filed in Montana (Pennock, et al.
v. Maryland Casualty, et al., First Judicial District Court of Lewis & Clark
County, Montana) by eight individual plaintiffs (all employees of W.R. Grace &
Co. (W.R. Grace)) and their spouses against CNA, Maryland Casualty and the
State of Montana. This action alleges that CNA failed to fulfill its
obligations as W.R. Graces Workers Compensation carrier because of the alleged
negligent failure of CNA to warn of or otherwise protect W.R. Grace employees
from the dangers of asbestos at a W.R. Grace vermiculite mining facility in
Libby, Montana. This action is currently stayed as to CNA because of W.R.
Graces pending bankruptcy. On July 23, 2003, the stay of the litigation was
lifted by the District Court as to Maryland Casualty. The time for an appeal
by Maryland Casualty has not expired. The stay of the litigation may also be
lifted as to CNA.

CNA is vigorously defending these and other cases and believes that it has
meritorious defenses to the claims asserted. However, there are numerous
factual and legal issues to be resolved in connection with these claims, and it
is extremely difficult to predict the outcome or ultimate financial exposure
represented by these matters. Adverse developments with respect to any of
these matters could have a material adverse effect on CNAs business, insurer
financial strength and debt ratings and equity.

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

As a result of the uncertainties and complexities involved, reserves for
asbestos claims cannot be estimated with traditional actuarial techniques that
rely on historical accident year loss development factors. In establishing
asbestos reserves, CNA evaluates the exposure presented by each insured. As
part of this evaluation, CNA considers the available insurance coverage; limits
and deductibles; the potential role of other insurance, particularly underlying
coverage below any CNA excess liability policies; and applicable coverage
defenses, including asbestos exclusions. Estimation of asbestos-related claim
and claim adjustment expense reserves involves a high degree of judgment on the
part of management and consideration of many complex factors, including:
inconsistency of court decisions, jury attitudes and future court decisions;
specific policy provisions; allocation of liability among insurers and insureds; missing
policies and proof of coverage; the proliferation of bankruptcy proceedings and
attendant uncertainties; novel theories asserted by policyholders and their
counsel; the targeting of a broader range of businesses and entities as
defendants; the uncertainty as to which other insureds may be targeted in the
future and the uncertainties inherent in predicting the number of future
claims; volatility in claim numbers and settlement demands; increases in the
number of non-impaired claimants and the extent to which they can be precluded
from making claims; the efforts by insureds to obtain coverage not subject to
aggregate limits; long latency period between asbestos exposure and disease
manifestation and the resulting potential for involvement of multiple policy periods for individual
claims; medical inflation trends; the mix of asbestos-related diseases
presented and the ability to recover reinsurance.

The Company is also monitoring possible legislative reforms, including the
possible creation of a national privately financed trust, which if established
and approved through federal legislation, could replace litigation of asbestos
claims with payments to claimants from the trust. It is uncertain at the
present time whether such a trust will be created or, if it is, what will be
the terms and conditions of its establishment or its impact on the Company.

As of June 30, 2003 and December 31, 2002, CNA carried approximately $1,161
million and $1,231 million of claim and claim adjustment expense reserves, net
of reinsurance recoverables, for reported and unreported asbestos-related
claims. There was no asbestos-related net claim and claim adjustment expense
reserve development for the three and six months ended June 30, 2003 and 2002.
The Company paid asbestos-related claims, net of reinsurance, of $70 million
for the six months ended June 30, 2003 and had net reinsurance recoveries of
$15 million for the six months ended June 30, 2002.

Other Reserves

Net unfavorable prior year development of $522 million, including $358 million
of unfavorable claim and allocated claim adjustment expense reserve development
and $164 million of unfavorable premium development, was recorded for the six
months ended June 30, 2003. The net unfavorable prior year reserve development
not associated with the unfavorable premium development was recorded
principally in the property and casualty companies. A brief summary of these
lines of business and the associated reserve development is discussed below.

The gross carried claim and claim adjustment expense reserves for Standard
Lines were $11,793 million and $11,576 million at June 30, 2003 and December
31, 2002. The net carried claim and claim adjustment expense reserves for
Standard Lines were $7,127 million and $7,262 million at June 30, 2003 and
December 31, 2002.

Unfavorable net prior year development of approximately $310 million, including
$233 million of unfavorable claim and allocated claim adjustment expense
reserve development and $77 million of unfavorable premium development, was
recorded for large account business, driven by workers

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

compensation exposures. This development resulted from the completion
of reserve reviews for large account business where the insured is often
responsible for a portion of the losses and claims are handled by the Company.
The review did not cover the large account business where the claims are
handled by a third-party administrator. Initial reserves for this business are
set based on the expected losses associated with the individual accounts
covered and the terms of the individual plans. Based on analyses completed
during the second quarter, it became apparent that the assumptions regarding
the number and size of the losses, which were used to estimate the expected
losses, were no longer appropriate. The analysis showed that the actual number
of claims and the average claim size were larger than expected. The
development was recorded in accident years prior to 2002.

Approximately $21 million of unfavorable net prior year claim and allocated
claim adjustment expense reserve development resulted from a program covering
facilities that provide services to developmentally disabled individuals. The
development was due to an increase in the size of known claims and increases in
policyholder defense costs. The reserve development was recorded in accident
years prior to 2001.

Approximately $25 million of unfavorable net prior year premium development was
recorded related to a second quarter 2003 reevaluation of losses ceded to a
reinsurance contract covering middle market workers compensation exposures.
The reevaluation of losses led to a new estimate of the number and dollar
amount of claims that would be ceded under the reinsurance contract. As a
result of the reevaluation of losses, the Company recorded approximately $36
million of unfavorable claim and allocated claim adjustment expense reserve
development, which was ceded under the contract. The development was recorded
in accident year 2000.

Unfavorable net prior year claim and allocated claim adjustment expense reserve
development of approximately $36 million was recorded for a program covering
tow truck and ambulance operators, primarily impacting the 2001 accident year.
The Company had previously expected that loss ratios for this business would be
similar to its middle market commercial automobile liability business. During
2002, the Company ceased writing business under this program.

Offsetting these unfavorable developments was a $75 million underwriting
benefit from cessions to corporate aggregate reinsurance treaties. The benefit
is comprised of $180 million of ceded losses and $105 million of ceded
premiums for accident years 2000 and 2001. See Note H for further discussion.

Favorable prior year claim and allocated claim adjustment expense reserve
development was also recorded in property lines during 2003. The favorable
reserve development was principally from accident years 2001 and 2002 and was
the result of the lower than expected number of large losses in recent years.

The gross carried claim and claim adjustment expense reserves for Specialty
Lines were $6,085 million and $5,874 million at June 30, 2003 and December 31,
2002. The net carried claim and claim adjustment expense reserves for
Specialty Lines were $3,467 million and $3,373 million at June 30, 2003 and
December 31, 2002.

Unfavorable net prior year claim and allocated claim adjustment expense reserve
development of approximately $75 million was recorded related to a recent
adverse arbitration decision involving a single large property and business
interruption loss. The decision was rendered against a voluntary insurance
pool in which the Company was a participant. The loss was caused by a fire
which occurred in 1995. The Company no longer participates in this pool.

Approximately $50 million of unfavorable net prior year claim and allocated
claim adjustment expense reserve development was recorded for directors and
officers exposures. The reserve development was a

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

result of a claims review that was completed during the second quarter of 2003.
The unfavorable net prior year reserve development was primarily due to
securities class action cases related to certain known corporate malfeasance
cases and investment banking firms. The reserve development was recorded
primarily in accident years 2001 and 2002.

Approximately $37 million of losses were recorded as the result of a
commutation of three ceded reinsurance treaties covering CNA HealthPro,
relating to accident years 1999 through 2001. See Note H for further
discussion.

Approximately $21 million of unfavorable net prior year claim and allocated
claim adjustment expense reserve development was recorded in the Surety line of
business as the result of recent developments on one large claim.

The gross carried claim and claim adjustment expense reserves for CNA Re were
$2,064 million and $2,264 million at June 30, 2003 and December 31, 2002. The
net carried claim and claim adjustment expense reserves for CNA Re were $1,217
million and $1,362 million at June 30, 2003 and December 31, 2002.

Unfavorable net prior year claim and allocated claim adjustment expense reserve
development of approximately $25 million was recorded primarily for directors
and officers exposures. The reserve development was a result of a claims
review that was completed during the second quarter of 2003. The unfavorable
net prior year reserve development was primarily due to securities class action
cases related to certain known corporate malfeasance cases and investment
banking firms. The reserve development was recorded in accident years 2000 and
2001.

Offsetting this unfavorable development was a $10 million underwriting benefit
from cessions to corporate aggregate reinsurance treaties. The benefit is
comprised of $24 million of ceded losses and $14 million of ceded premiums for
accident years 2000 and 2001. See Note H for further discussion.

Note H. Reinsurance

CNA assumes and cedes reinsurance with other insurers, reinsurers and members
of various reinsurance pools and associations. CNA utilizes reinsurance
arrangements to limit its maximum loss, provide greater diversification of
risk, minimize exposures on larger risks and to exit certain lines of business.

Interest cost on reinsurance contracts accounted for on a funds withheld basis
is credited during all periods in which a funds withheld liability exists.
Interest cost, which is included in net investment income, was $93 million and
$57 million for the three months ended June 30, 2003 and 2002 and $140 million
and $115 million for the six months ended June 30, 2003 and 2002. The amount
subject to interest crediting rates on such contracts was $2,500 million and
$2,766 million at June 30, 2003 and December 31, 2002.

The amount subject to interest crediting on these funds withheld contracts will
vary over time based on a number of factors, including the timing of loss
payments and ultimate gross losses incurred. The Company expects that it will
continue to incur significant interest costs on these contracts for several
years.

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

The ceding of insurance does not discharge the primary liability of the
Company. Therefore, a credit exposure exists with respect to property and
casualty and life reinsurance ceded to the extent that any reinsurer is unable
to meet the obligations assumed under reinsurance agreements.

As disclosed in CNAFs Form 10-K filed with the SEC for the year ended December
31, 2002, the Company has reinsurance receivables from several reinsurers who
have recently experienced multiple downgrades of their financial strength
ratings, have announced that they will no longer accept new business and are
placing their books of business into run-off. One of the Companys principal
credit exposures from these recent events arises from reinsurance receivables
from Gerling Global (Gerling).

The Company has been in discussions with Gerling with respect to resolving a
dispute concerning possession of collateral on three CNA HealthPro treaties,
and is in discussions regarding a possible commutation of all other reinsurance
arrangements between CNA and Gerling. The three CNA HealthPro treaties were
commuted as of June 30, 2003, which resulted in a $37 million pretax loss.

Life premiums are primarily from long duration contracts; property and casualty
premiums and accident and health premiums are primarily from short duration
contracts.

The effects of reinsurance on earned premiums are shown in the following table.

Components of Earned Premiums

|                         |                       |        |       |         |  |       |     |     |  |   |       |       |  |   |       |       | 
|------------------------ | --------------------- | ------ | ----- | ------- |  | ----- | --- | --- |  | - | ----- | ----- |  | - | ----- | ----- | 
|Six months ended June 30 |                       |        |       |         |  |       |     |     |  |   |       |       |  |   |       |      
|(In millions)            |                       | Direct |       | Assumed |  | Ceded |     | Net
|                         |                       |        |       |         |  |       |     |     | 
|2003                     |                       |        |       |         |  |       |     |     |  |   |       |       |  |   |       |      
|                         | Property and casualty |        | $     | 5,281   |  |       | $   | 376 |  |   | $     | 2,222 |  |   | $     | 3,435 | 
|                         | Accident and health   |        |       | 790     |  |       |     | 55  |  |   |       | 29    |  |   |       | 816   | 
|                         | Life                  |        |       | 529     |  |       |     | 9   |  |   |       | 211   |  |   |       | 327   | 
|                         |                       |        |       |         |  |       |     |     |  |   |       |       |  |   |       |      
|Total earned premiums    |                       | $      | 6,600 |         |  | $     | 440 |     |  | $ | 2,462 |       |  | $ | 4,578 |      
|                         |                       |        |       |         |  |       |     |     |  |   |       |       |  |   |       |      
|2002                     |                       |        |       |         |  |       |     |     |  |   |       |       |  |   |       |      
|                         | Property and casualty |        | $     | 4,882   |  |       | $   | 409 |  |   | $     | 1,897 |  |   | $     | 3,394 | 
|                         | Accident and health   |        |       | 1,860   |  |       |     | 75  |  |   |       | 4     |  |   |       | 1,931 | 
|                         | Life                  |        |       | 538     |  |       |     | 18  |  |   |       | 218   |  |   |       | 338   | 
|                         |                       |        |       |         |  |       |     |     |  |   |       |       |  |   |       |      
|Total earned premiums    |                       | $      | 7,280 |         |  | $     | 502 |     |  | $ | 2,119 |       |  | $ | 5,663 |      
|                         |                       |        |       |         |  |       |     |     |  |   |       |       |  |   |       |      

The Company has an aggregate reinsurance treaty related to the 1999 through
2001 accident years that covers substantially all of the Companys property and
casualty lines of business (the Aggregate Cover). The Aggregate Cover provides
for two sections of coverage. These coverages attach at defined loss ratios
for each accident year. Coverage under the first section of the Aggregate
Cover, which is available for all accident years covered by the treaty, has a
$500 million limit per accident year of ceded losses and an aggregate limit of
$1 billion of ceded losses for the three accident years. The ceded premiums
associated with the first section are a percentage of ceded losses and for each
$500 million of limit the ceded premium is $230 million. The second section of
the Aggregate Cover, which only relates to accident year 2001, provides
additional coverage of up to $510 million of ceded losses for a maximum ceded
premium of $310 million. Under the Aggregate Cover, interest charges on the
funds withheld liability accrue at 8% per annum. If the aggregate loss ratio
for the three-year period exceeds certain thresholds, additional premiums may
be payable and the rate at which interest charges are accrued would increase to
8.25% per annum commencing in 2006.

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

During the second quarter of 2003, as a result of the unfavorable reserve
development recorded related to accident year 2000, losses of $78 million were
ceded under the first section of the Aggregate Cover. In 2001, as a result of
reserve additions including those related to accident year 1999, the $500
million limit related to the 1999 accident year under the first section was
fully utilized and losses of $510 million were
ceded under the second section as a result of losses related to the September
11, 2001 World Trade Center Disaster and related events (WTC event).

The impact of the Aggregate Cover on pretax results of operations was as
follows:

Impact of Aggregate Cover on Pretax Results of Operations

|                                         |  |              |     |            |  |      |     |      |  |   |     |   |  |   |     |  
|---------------------------------------- |  | ------------ | --- | ---------- |  | ---- | --- | ---- |  | - | --- | - |  | - | --- | -
|                                         |  | Three Months |     | Six Months
|Period ended June 30                     |  |              |     |           
|(In millions)                            |  | 2003         |     | 2002       |  | 2003 |     | 2002
|                                         |  |              |     |            |  |      |     |     
|Ceded earned premiums                    |  | $            | (28 | )          |  | $    |    |      |  | $ | (28 | ) |  | $ |    |  
|Ceded claim and claim adjustment expense |  |              | 78  |            |  |      |    |      |  |   | 78  |   |  |   |    |  
|Interest charges                         |  |              | (22 | )          |  |      | (12 | )    |  |   | (35 | ) |  |   | (25 | )
|                                         |  |              |     |            |  |      |     |      |  |   |     |   |  |   |     |  
|Pretax benefit (expense)                 |  | $            | 28  |            |  | $    | (12 | )    |  | $ | 15  |   |  | $ | (25 | )
|                                         |  |              |     |            |  |      |     |      |  |   |     |   |  |   |     |  

In 2001, the Company entered into a one-year aggregate reinsurance treaty
related to the 2001 accident year covering substantially all property and
casualty lines of business in the Continental Casualty Company pool (the CCC
Cover). The loss protection provided by the CCC Cover has an aggregate limit
of approximately $760 million of ceded losses. The ceded premiums are a
percentage of ceded losses. The ceded premium related to full utilization of
the $760 million of limit is $456 million. The CCC Cover provides continuous
coverage in excess of the second section of the Aggregate Cover discussed
above. Under the CCC Cover, interest charges on the funds withheld generally
accrue at 8% per annum. The interest rate increases to 10% per annum if the
aggregate loss ratio exceeds certain thresholds. Losses of $745 million have
been ceded under the CCC Cover through June 30, 2003.

The impact of the CCC Cover on pretax results of operations was as follows:

Impact of CCC Cover on Pretax Results of Operations

|                                         |  |              |     |            |  |      |    |      |  |   |     |   |  |   |     |  
|---------------------------------------- |  | ------------ | --- | ---------- |  | ---- | -- | ---- |  | - | --- | - |  | - | --- | -
|                                         |  | Three Months |     | Six Months
|Period ended June 30                     |  |              |     |           
|(In millions)                            |  | 2003         |     | 2002       |  | 2003 |    | 2002
|                                         |  |              |     |            |  |      |    |     
|Ceded earned premiums                    |  | $            | (91 | )          |  | $    |   |      |  | $ | (91 | ) |  | $ | (61 | )
|Ceded claim and claim adjustment expense |  |              | 126 |            |  |      |   |      |  |   | 126 |   |  |   | 93  |  
|Interest charges                         |  |              | (27 | )          |  |      | (6 | )    |  |   | (35 | ) |  |   | (16 | )
|                                         |  |              |     |            |  |      |    |      |  |   |     |   |  |   |     |  
|Pretax benefit (expense)                 |  | $            | 8   |            |  | $    | (6 | )    |  | $ |    |   |  | $ | 16  |  
|                                         |  |              |     |            |  |      |    |      |  |   |     |   |  |   |     |  

Note I. Commitments, Contingencies and Guarantees

In the normal course of business, CNA has obtained letters of credit in favor
of various unaffiliated insurance companies, regulatory authorities and other
entities. As of June 30, 2003 and December 31, 2002 there were approximately
$195 million and $222 million of outstanding letters of credit.

The Company has provided guarantees related to irrevocable standby letters of
credit for certain of its subsidiaries. Certain of these subsidiaries have
been sold; however, the irrevocable standby letter of

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

credit guarantees remain
in effect. The Company would be required to remit prompt payment on the
letters of credit in question if the primary obligor drew down on these letters
of credit and failed to repay such loans in accordance with the terms of the
letters of credit. The maximum potential amount of future payments that CNA
could be required to pay under these guarantees is approximately $30 million at
June 30, 2003.

The Company is obligated to make future payments totaling $360 million for
non-cancelable operating leases expiring from 2003 through 2014 primarily for
office space and data processing, office and transportation equipment.
Estimated future minimum payments under these contracts are as follows: $41
million in 2003; $67 million in 2004; $58 million in 2005; $48 million in 2006;
and $146 million in 2007 and beyond. Additionally, the Company has entered
into a limited number of guaranteed payment contracts, primarily relating to
telecommunication services, amounting to approximately $24 million. Estimated
future minimum purchases under these contracts are as follows: $6 million in
2003; $13 million in 2004; and $5 million in 2005.

The Company holds an investment in a real estate joint venture. In the normal
course of business, CNA, on a joint and several basis with other unrelated
insurance company shareholders, has committed to continue funding the operating
deficits of this joint venture. Additionally, CNA and the other unrelated
shareholders, on a joint and several basis, have guaranteed an operating lease
for an office building, which expires in 2016.

The guarantee of the operating lease is a parallel guarantee to the commitment
to fund operating deficits; consequently, the separate guarantee to the lessor
is not expected to be triggered as long as the joint venture continues to be
funded by its shareholders and continues to make its annual lease payments.

In the event that the other parties to the joint venture are unable to meet
their commitments in funding the operations of this joint venture, the Company
would be required to assume the obligation for the entire office building
operating lease. The maximum potential future lease payments at June 30, 2003
that the Company could be required to pay under this guarantee are
approximately $324 million. If CNA were required to assume the entire lease
obligation, the Company would have the right to pursue reimbursement from the
other shareholders and would have the right to all sublease revenues.

The Company has recorded a liability of approximately $9 million and $10
million as of June 30, 2003 and December 31, 2002 for its share of estimated
future operating deficits of this joint venture through 2016.

The Company has a commitment to purchase up to a $100 million floating rate
note issued by the California Earthquake Authority in the event of an
earthquake during calendar year 2003 that results in California earthquake
related losses greater than $4.2 billion.

CNA has provided guarantees of the indebtedness of certain of its independent
insurance producers. These guarantees expire in 2003. The Company would be
required to remit prompt and complete payment when due, should the primary
obligor default. In the event of default on the part of the primary obligor,
the Company has a right to any and all shares of common stock of the primary
obligor. The maximum potential amount of future payments that CNA could be
required to pay under these guarantees is approximately $7 million at June 30,
2003.

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

As of June 30, 2003 and December 31, 2002, the Company had committed
approximately $97 million and $141 million for future capital calls from
various third-party limited partnership investments in exchange for an
ownership interest in the related partnership.

The Company invests in multiple bank loan participations as part of its overall
investment strategy and has committed to additional future purchases
and sales. The
purchase and sale of these investments are recorded on the date that the legal
agreements are finalized and cash settlement is made. As of
June 30, 2003, the
Company had commitments to purchase $157 million and commitments to sell $46 million of various
bank loan participations.

In the normal course of investing activities, CCC had committed approximately
$51 million as of June 30, 2003 to future capital calls from certain of its
unconsolidated affiliates in exchange for an ownership interest in such
affiliates.

In the ordinary course of selling business entities and assets to third
parties, the Company has agreed to indemnify purchasers for losses arising out
of breaches of representation and warranties with respect to the business
entities or assets being sold, including, in certain cases, losses arising from
undisclosed liabilities or certain named litigation. Such indemnification
provisions generally survive for periods ranging from six months following the
applicable closing date to the expiration of the relevant statutes of
limitation. As of June 30, 2003, the aggregate amount of quantifiable
indemnification agreements in effect for sales of business entities and assets
was $375 million.

In addition, the Company has agreed to provide indemnification to third party
purchasers for certain losses associated with sold business entities or assets
that are not limited by a contractual monetary amount. As of June 30, 2003,
the Company had outstanding unlimited indemnifications in connection with the
sales of certain of its business entities or assets for tax liabilities arising
prior to a purchasers ownership of an entity or asset, defects in title at the
time of sale, employee claims arising prior to closing and in some cases losses
arising from certain litigation and undisclosed liabilities. These
indemnification agreements survive until the applicable statutes of limitation
expire, or until the agreed upon contract terms expire. The Company has
recorded approximately $15 million of liabilities related to these quantifiable
and unquantifiable indemnification agreements.

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

Note J. Comprehensive Income

Comprehensive income is composed of all changes to stockholders equity, except
those changes resulting from transactions with stockholders in their capacity
as stockholders. The components of comprehensive income (loss) are shown
below.

Comprehensive Income (Loss)

|                                                                                   |                                                                   |                                                                                                 |      |            |     |      |      |      |     |   |       |   |       |   |      |   |      |  
|---------------------------------------------------------------------------------- | ----------------------------------------------------------------- | ----------------------------------------------------------------------------------------------- | ---- | ---------- | --- | ---- | ---- | ---- | --- | - | ----- | - | ----- | - | ---- | - | ---- | -
|                                                                                   |                                                                   | Three Months                                                                                    |      | Six Months
|Period ended June 30                                                               |                                                                   |                                                                                                 |      |           
|(In millions)                                                                      |                                                                   | 2003                                                                                            |      | 2002       |     | 2003 |      | 2002
|                                                                                   |                                                                   |                                                                                                 |      |            |     |      |      |     
|Net income                                                                         |                                                                   | $                                                                                               | 70   |            |     | $    | 31   |      |     | $ | 153   |   |       | $ | 51   |  
|                                                                                   |                                                                   |                                                                                                 |      |            |     |      |      |      |     |   |       |   |       |   |      |  
|Other comprehensive income (loss):                                                 |                                                                   |                                                                                                 |      |            |     |      |      |      |     |   |       |   |       |   |      |  
|                                                                                   | Change in unrealized gains/losses on general account investments: |                                                                                                 |      |            |     |      |      |      |     |   |       |   |       |   |      |   |     
|                                                                                   |                                                                   | Holding gains (losses) arising during the period                                                |      |            | 755 |      |      |      | 281 |   |       |   | 963   |   |      |   | (157 | )
|                                                                                   |                                                                   | Net unrealized gains/losses at beginning of period included in
realized gains during the period |      |            | 53  |      |      |      | 48  |   |       |   | 169   |   |      |   | 40   |  
|                                                                                   |                                                                   |                                                                                                 |      |            |     |      |      |      |     |   |       |   |       |   |      |  
|                                                                                   |                                                                   | Net change in unrealized gains/losses on general account
investments                            |      |            | 808 |      |      |      | 329 |   |       |   | 1,132 |   |      |   | (117 | )
|                                                                                   |                                                                   | Net change in unrealized gains/losses on separate accounts and
other                            |      |            | 25  |      |      |      | 34  |   |       |   | 41    |   |      |   | 12   |  
|                                                                                   |                                                                   | Foreign currency translation adjustment                                                         |      |            | 10  |      |      |      | (21 | ) |       |   | 21    |   |      |   | (8   | )
|                                                                                   |                                                                   | Allocation to participating policyholders and minority interests                               |      |            | (15 | )    |      |      | (2  | ) |       |   | (15   | ) |      |   | 3    |  
|                                                                                   |                                                                   |                                                                                                 |      |            |     |      |      |      |     |   |       |   |       |   |      |  
|Other comprehensive income (loss), before tax                                      |                                                                   |                                                                                                 | 828  |            |     |      | 340  |      |     |   | 1,179 |   |       |   | (110 | )
|Deferred income tax (expense) benefit related to other comprehensive
income (loss) |                                                                   |                                                                                                 | (285 | )          |     |      | (131 | )    |     |   | (413  | ) |       |   | 58   |  
|                                                                                   |                                                                   |                                                                                                 |      |            |     |      |      |      |     |   |       |   |       |   |      |  
|Other comprehensive income (loss), net of tax                                      |                                                                   |                                                                                                 | 543  |            |     |      | 209  |      |     |   | 766   |   |       |   | (52  | )
|                                                                                   |                                                                   |                                                                                                 |      |            |     |      |      |      |     |   |       |   |       |   |      |  
|Total comprehensive income (loss)                                                  |                                                                   | $                                                                                               | 613  |            |     | $    | 240  |      |     | $ | 919   |   |       | $ | (1   | )
|                                                                                   |                                                                   |                                                                                                 |      |            |     |      |      |      |     |   |       |   |       |   |      |  

Note K. Business Segments

CNA conducts its operations through five operating segments: Standard Lines,
Specialty Lines and CNA Re (which comprise the property and casualty segments),
Group Operations and Life Operations. In addition to the five operating
segments, certain other activities are reported in the Corporate and Other
segment. These operating segments reflect the way CNA manages its operations
and makes business decisions.

During 2002, CNA underwent management changes and strategic realignment. These
events have changed the way CNA manages its operations and makes business
decisions and, therefore, necessitated a change in the Companys reportable
segments. The financial results for the segment changes are reflected in the
following tables in this note.

The Corporate and Other segment is principally comprised of losses and expenses
related to the centralized adjusting and settlement of APMT claims, certain
run-off insurance and non-insurance operations and other operations including
interest expense on corporate borrowings.

The Company manages most of its assets on a legal entity basis, while segment
operations are conducted across legal entities. As such, only receivables,
insurance reserves and deferred acquisition costs are

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

readily identifiable by
individual segment. Distinct investment portfolios are not maintained for each
segment; accordingly, allocation of assets to each segment is not performed.
Therefore, net investment income and realized investment gains or losses are
allocated primarily based on each segments net carried insurance reserves, as
adjusted.

Income taxes have been allocated on the basis of the taxable income of the
segments.

In the following four tables, certain GAAP and non-GAAP financial measures are
presented to provide information used by management to monitor the Companys
operating performance. Management utilizes various financial measures to
monitor the Companys insurance operations and investment portfolio. Net
operating income, which is derived from certain income statement amounts, is
considered a non-GAAP financial measure and is used by management to monitor
performance of the Companys insurance operations. The Companys investment
portfolio is monitored through analysis of various quantitative and qualitative
factors and certain decisions related to the sale or impairment of investments
that produce realized gains and losses. Net realized investment gains and
losses, which are comprised of after tax realized investment gains and losses
net of participating policyholders and minority interests, are a non-GAAP
financial measure.

Net operating income is calculated by excluding from net income the after-tax
effects of 1) net realized investment gains or losses, 2) gains or losses from
discontinued operations and any 3) cumulative effects of changes in accounting
principles. In the calculation of net operating income, management excludes
after-tax net realized investment gains or losses because net realized
investment gains or losses related to the Companys available-for-sale
investment portfolio are largely discretionary, except for losses related to
other-than-temporary impairments, are generally driven by economic factors that
are not necessarily consistent with key drivers of underwriting performance,
and are therefore not an indication of trends in insurance operations.

Management excludes after-tax net
realized investment gains or losses when analyzing the insurance
operations because net realized investment gains or losses related to
the Companys available-for-sale investment portfolio are
largely discretionary, except for losses related to
other-than-temporary impairments, and are generally driven by
economic factors that are not necessarily consistent with key
drivers of underwriting performance.

The Companys investment portfolio is monitored by management through analyses
of various factors including unrealized gains and losses on securities,
portfolio duration and exposure to interest rate, market and credit risk.
Based on such analyses, the Company may impair an investment security in
accordance with its policy, or sell a security. Such activities will produce
realized gains and losses.

While management uses various non-GAAP financial measures to monitor various
aspects of the Companys performance, relying on any measure other than net
income, which is the most directly comparable GAAP measure to net operating
income and realized gains and losses, is not a complete representation of
financial performance. Management believes that its process of evaluating
performance through the use of these non-GAAP financial measures provides a
basis for understanding the operations and the impact on net income as a whole.
Management also believes that investors find these non-GAAP financial measures
described above useful to help interpret the underlying trends and performance,
as well as to provide visibility into the significant components of net income.

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

|                                                                                      |                          |          |       |           |  |        |     |            |  |            |     |           |  |           |     |        |  |   |     |     |  |   |     |    |  |   |     |     |   |   |       |       | 
|------------------------------------------------------------------------------------- | ------------------------ | -------- | ----- | --------- |  | ------ | --- | ---------- |  | ---------- | --- | --------- |  | --------- | --- | ------ |  | - | --- | --- |  | - | --- | -- |  | - | --- | --- | - | - | ----- | ----- | 
|For the three months ended                                                            |                          |          |       |           |  |        |     |            |  |            |     |           |  |           |     |        |  |   |     |     |  |   |     |    |  |   |     |     |   |   |       |      
|June 30, 2003                                                                         |                          | Standard |       | Specialty |  |        |     |            |  | Group      |     | Life      |  | Corporate |     | Elimi- |  |   |     |    
|(In millions)                                                                         |                          | Lines    |       | Lines     |  | CNA Re |     | Operations |  | Operations |     | and Other |  | nations   |     | Total 
|                                                                                      |                          |          |       |           |  |        |     |            |  |            |     |           |  |           |     |        | 
|Net earned premiums                                                                   |                          | $        | 823   |           |  | $      | 664 |            |  | $          | 134 |           |  | $         | 329 |        |  | $ | 263 |     |  | $ | 11  |    |  | $ | (27 | )   |   | $ | 2,197 |      
|Net investment income                                                                 |                          |          | 84    |           |  |        | 79  |            |  |            | 22  |           |  |           | 70  |        |  |   | 133 |     |  |   | 39  |    |  |   |    |     |   |   | 427   |      
|Other revenues                                                                        |                          |          | 59    |           |  |        | 26  |            |  |            |    |           |  |           | 15  |        |  |   | 19  |     |  |   | 10  |    |  |   | (32 | )   |   |   | 97    |      
|                                                                                      |                          |          |       |           |  |        |     |            |  |            |     |           |  |           |     |        |  |   |     |     |  |   |     |    |  |   |     |     |   |   |       |      
|                                                                                      | Total operating revenues |          |       | 966       |  |        |     | 769        |  |            |     | 156       |  |           |     | 414    |  |   |     | 415 |  |   |     | 60 |  |   |     | (59 | ) |   |       | 2,721 | 
|Claims, benefits and expenses                                                         |                          |          | 1,206 |           |  |        | 853 |            |  |            | 139 |           |  |           | 377 |        |  |   | 392 |     |  |   | 114 |    |  |   | (59 | )   |   |   | 3,022 |      
|                                                                                      |                          |          |       |           |  |        |     |            |  |            |     |           |  |           |     |        |  |   |     |     |  |   |     |    |  |   |     |     |   |   |       |      
|Operating (loss) income before income tax and
minority interest                       |                          |          | (240  | )         |  |        | (84 | )          |  |            | 17  |           |  |           | 37  |        |  |   | 23  |     |  |   | (54 | )  |  |   |    |     |   |   | (301  | )    
|Income tax benefit (expense) on operating income                                      |                          |          | 96    |           |  |        | 28  |            |  |            | (4  | )         |  |           | (11 | )      |  |   | (6  | )   |  |   | 21  |    |  |   |    |     |   |   | 124   |      
|Minority interest                                                                     |                          |          |      |           |  |        | (2  | )          |  |            |    |           |  |           |    |        |  |   |    |     |  |   |    |    |  |   |    |     |   |   | (2    | )    
|                                                                                      |                          |          |       |           |  |        |     |            |  |            |     |           |  |           |     |        |  |   |     |     |  |   |     |    |  |   |     |     |   |   |       |      
|Net operating (loss) income                                                           |                          |          | (144  | )         |  |        | (58 | )          |  |            | 13  |           |  |           | 26  |        |  |   | 17  |     |  |   | (33 | )  |  |   |    |     |   |   | (179  | )    
|Realized investment gains, net of participating
policyholders and minority interests |                          |          | 169   |           |  |        | 79  |            |  |            | 33  |           |  |           | 20  |        |  |   | 28  |     |  |   | 49  |    |  |   |    |     |   |   | 378   |      
|Income tax expense on realized investment gains                                       |                          |          | (59   | )         |  |        | (24 | )          |  |            | (11 | )         |  |           | (7  | )      |  |   | (10 | )   |  |   | (18 | )  |  |   |    |     |   |   | (129  | )    
|                                                                                      |                          |          |       |           |  |        |     |            |  |            |     |           |  |           |     |        |  |   |     |     |  |   |     |    |  |   |     |     |   |   |       |      
|Net (loss) income                                                                     |                          | $        | (34   | )         |  | $      | (3  | )          |  | $          | 35  |           |  | $         | 39  |        |  | $ | 35  |     |  | $ | (2  | )  |  | $ |    |     |   | $ | 70    |      
|                                                                                      |                          |          |       |           |  |        |     |            |  |            |     |           |  |           |     |        |  |   |     |     |  |   |     |    |  |   |     |     |   |   |       |      

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

|                                                                                       |                          |          |       |           |  |        |     |            |  |            |     |           |  |           |     |        |  |   |     |     |  |   |     |     |  |   |     |     |   |   |       |       | 
|-------------------------------------------------------------------------------------- | ------------------------ | -------- | ----- | --------- |  | ------ | --- | ---------- |  | ---------- | --- | --------- |  | --------- | --- | ------ |  | - | --- | --- |  | - | --- | --- |  | - | --- | --- | - | - | ----- | ----- | 
|For the three months ended                                                             |                          |          |       |           |  |        |     |            |  |            |     |           |  |           |     |        |  |   |     |     |  |   |     |     |  |   |     |     |   |   |       |      
|June 30, 2002                                                                          |                          | Standard |       | Specialty |  |        |     |            |  | Group      |     | Life      |  | Corporate |     | Elimi- |  |   |     |    
|(In millions)                                                                          |                          | Lines    |       | Lines     |  | CNA Re |     | Operations |  | Operations |     | and Other |  | nations   |     | Total 
|                                                                                       |                          |          |       |           |  |        |     |            |  |            |     |           |  |           |     |        | 
|Net earned premiums                                                                    |                          | $        | 1,032 |           |  | $      | 535 |            |  | $          | 168 |           |  | $         | 820 |        |  | $ | 234 |     |  | $ | 44  |     |  | $ | (7  | )   |   | $ | 2,826 |      
|Net investment income                                                                  |                          |          | 134   |           |  |        | 75  |            |  |            | 48  |           |  |           | 62  |        |  |   | 137 |     |  |   | 46  |     |  |   |    |     |   |   | 502   |      
|Other revenues                                                                         |                          |          | 80    |           |  |        | 33  |            |  |            |    |           |  |           | 26  |        |  |   | 25  |     |  |   | 15  |     |  |   | (33 | )   |   |   | 146   |      
|                                                                                       |                          |          |       |           |  |        |     |            |  |            |     |           |  |           |     |        |  |   |     |     |  |   |     |     |  |   |     |     |   |   |       |      
|                                                                                       | Total operating revenues |          |       | 1,246     |  |        |     | 643        |  |            |     | 216       |  |           |     | 908    |  |   |     | 396 |  |   |     | 105 |  |   |     | (40 | ) |   |       | 3,474 | 
|Claims, benefits and expenses                                                          |                          |          | 1,197 |           |  |        | 575 |            |  |            | 183 |           |  |           | 871 |        |  |   | 354 |     |  |   | 134 |     |  |   | (40 | )   |   |   | 3,274 |      
|                                                                                       |                          |          |       |           |  |        |     |            |  |            |     |           |  |           |     |        |  |   |     |     |  |   |     |     |  |   |     |     |   |   |       |      
|Operating income (loss) before income tax and
minority interest                        |                          |          | 49    |           |  |        | 68  |            |  |            | 33  |           |  |           | 37  |        |  |   | 42  |     |  |   | (29 | )   |  |   |    |     |   |   | 200   |      
|Income tax (expense) benefit on operating income                                       |                          |          | (9    | )         |  |        | (23 | )          |  |            | (9  | )         |  |           | (12 | )      |  |   | (15 | )   |  |   | 9   |     |  |   |    |     |   |   | (59   | )    
|Minority interest                                                                      |                          |          |      |           |  |        | (5  | )          |  |            |    |           |  |           |    |        |  |   |    |     |  |   |    |     |  |   |    |     |   |   | (5    | )    
|                                                                                       |                          |          |       |           |  |        |     |            |  |            |     |           |  |           |     |        |  |   |     |     |  |   |     |     |  |   |     |     |   |   |       |      
|Net operating income (loss)                                                            |                          |          | 40    |           |  |        | 40  |            |  |            | 24  |           |  |           | 25  |        |  |   | 27  |     |  |   | (20 | )   |  |   |    |     |   |   | 136   |      
|Realized investment losses, net of
participating policyholders and minority
interests |                          |          | (31   | )         |  |        | (26 | )          |  |            | (6  | )         |  |           | (27 | )      |  |   | (53 | )   |  |   | (19 | )   |  |   |    |     |   |   | (162  | )    
|Income tax benefit on realized investment losses                                       |                          |          | 10    |           |  |        | 9   |            |  |            | 2   |           |  |           | 9   |        |  |   | 18  |     |  |   | 9   |     |  |   |    |     |   |   | 57    |      
|                                                                                       |                          |          |       |           |  |        |     |            |  |            |     |           |  |           |     |        |  |   |     |     |  |   |     |     |  |   |     |     |   |   |       |      
|Net income (loss)                                                                      |                          | $        | 19    |           |  | $      | 23  |            |  | $          | 20  |           |  | $         | 7   |        |  | $ | (8  | )   |  | $ | (30 | )   |  | $ |    |     |   | $ | 31    |      
|                                                                                       |                          |          |       |           |  |        |     |            |  |            |     |           |  |           |     |        |  |   |     |     |  |   |     |     |  |   |     |     |   |   |       |      

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

|                                                                                               |                                    |          |       |           |  |        |       |            |  |            |       |           |  |           |     |        |  |   |       |       |  |   |       |       |  |   |      |      |   |   |        |        | 
|---------------------------------------------------------------------------------------------- | ---------------------------------- | -------- | ----- | --------- |  | ------ | ----- | ---------- |  | ---------- | ----- | --------- |  | --------- | --- | ------ |  | - | ----- | ----- |  | - | ----- | ----- |  | - | ---- | ---- | - | - | ------ | ------ | 
|For the six months ended                                                                       |                                    |          |       |           |  |        |       |            |  |            |       |           |  |           |     |        |  |   |       |       |  |   |       |       |  |   |      |      |   |   |        |       
|June 30, 2003                                                                                  |                                    | Standard |       | Specialty |  |        |       |            |  | Group      |       | Life      |  | Corporate |     | Elimi- |  |   |       |      
|(In millions)                                                                                  |                                    | Lines    |       | Lines     |  | CNA Re |       | Operations |  | Operations |       | and Other |  | nations   |     | Total 
|                                                                                               |                                    |          |       |           |  |        |       |            |  |            |       |           |  |           |     |        | 
|Net earned premiums                                                                            |                                    | $        | 1,862 |           |  | $      | 1,288 |            |  | $          | 287   |           |  | $         | 644 |        |  | $ | 519   |       |  | $ | 32    |       |  | $ | (54  | )    |   | $ | 4,578  |       
|Net investment income                                                                          |                                    |          | 194   |           |  |        | 149   |            |  |            | 46    |           |  |           | 133 |        |  |   | 264   |       |  |   | 73    |       |  |   |     |      |   |   | 859    |       
|Other revenues                                                                                 |                                    |          | 130   |           |  |        | 46    |            |  |            | 1     |           |  |           | 33  |        |  |   | 43    |       |  |   | 17    |       |  |   | (65  | )    |   |   | 205    |       
|                                                                                               |                                    |          |       |           |  |        |       |            |  |            |       |           |  |           |     |        |  |   |       |       |  |   |       |       |  |   |      |      |   |   |        |       
|                                                                                               | Total operating revenues           |          |       | 2,186     |  |        |       | 1,483      |  |            |       | 334       |  |           |     | 810    |  |   |       | 826   |  |   |       | 122   |  |   |      | (119 | ) |   |        | 5,642  | 
|Claims, benefits and expenses                                                                  |                                    |          | 2,385 |           |  |        | 1,500 |            |  |            | 281   |           |  |           | 744 |        |  |   | 788   |       |  |   | 184   |       |  |   | (119 | )    |   |   | 5,763  |       
|                                                                                               |                                    |          |       |           |  |        |       |            |  |            |       |           |  |           |     |        |  |   |       |       |  |   |       |       |  |   |      |      |   |   |        |       
|Operating (loss) income before income tax and
minority interest                                |                                    |          | (199  | )         |  |        | (17   | )          |  |            | 53    |           |  |           | 66  |        |  |   | 38    |       |  |   | (62   | )     |  |   |     |      |   |   | (121   | )     
|Income tax benefit (expense) on operating income                                               |                                    |          | 90    |           |  |        | 10    |            |  |            | (15   | )         |  |           | (21 | )      |  |   | (11   | )     |  |   | 26    |       |  |   |     |      |   |   | 79     |       
|Minority interest                                                                              |                                    |          |      |           |  |        | (5    | )          |  |            |      |           |  |           |    |        |  |   |      |       |  |   |      |       |  |   |     |      |   |   | (5     | )     
|                                                                                               |                                    |          |       |           |  |        |       |            |  |            |       |           |  |           |     |        |  |   |       |       |  |   |       |       |  |   |      |      |   |   |        |       
|Net operating (loss) income                                                                    |                                    |          | (109  | )         |  |        | (12   | )          |  |            | 38    |           |  |           | 45  |        |  |   | 27    |       |  |   | (36   | )     |  |   |     |      |   |   | (47    | )     
|Realized investment gains (losses), net of
participating policyholders and minority
interests |                                    |          | 182   |           |  |        | 66    |            |  |            | 42    |           |  |           | (32 | )      |  |   | (23   | )     |  |   | 67    |       |  |   |     |      |   |   | 302    |       
|Income tax (expense) benefit on realized
investment gains (losses)                             |                                    |          | (64   | )         |  |        | (22   | )          |  |            | (11   | )         |  |           | 11  |        |  |   | 8     |       |  |   | (24   | )     |  |   |     |      |   |   | (102   | )     
|                                                                                               |                                    |          |       |           |  |        |       |            |  |            |       |           |  |           |     |        |  |   |       |       |  |   |       |       |  |   |      |      |   |   |        |       
|Net income                                                                                     |                                    | $        | 9     |           |  | $      | 32    |            |  | $          | 69    |           |  | $         | 24  |        |  | $ | 12    |       |  | $ | 7     |       |  | $ |     |      |   | $ | 153    |       
|                                                                                               |                                    |          |       |           |  |        |       |            |  |            |       |           |  |           |     |        |  |   |       |       |  |   |       |       |  |   |      |      |   |   |        |       
|As of June 30, 2003(In millions)                                                               |                                    |          |       |           |  |        |       |            |  |            |       |           |  |           |     |        |  |   |       |       |  |   |       |       |  |   |      |      |   |   |        |       
|Reinsurance and insurance receivables, net                                                     |                                    | $        | 7,714 |           |  | $      | 3,065 |            |  | $          | 1,139 |           |  | $         | 291 |        |  | $ | 991   |       |  | $ | 3,112 |       |  | $ |     |      |   | $ | 16,312 |       
|Insurance reserves:                                                                            |                                    |          |       |           |  |        |       |            |  |            |       |           |  |           |     |        |  |   |       |       |  |   |       |       |  |   |      |      |   |   |        |       
|                                                                                               | Claim and claim adjustment expense |          | $     | 11,793    |  |        | $     | 6,085      |  |            | $     | 2,064     |  |           | $   | 1,468  |  |   | $     | 1,457 |  |   | $     | 5,077 |  |   | $    |     |   |   | $      | 27,944 | 
|                                                                                               | Unearned premiums                  |          |       | 1,982     |  |        |       | 1,868      |  |            |       | 253       |  |           |     | 11     |  |   |       | 156   |  |   |       | 936   |  |   |      | (8   | ) |   |        | 5,198  | 
|                                                                                               | Future policy benefits             |          |       |          |  |        |       |           |  |            |       |          |  |           |     | 615    |  |   |       | 6,808 |  |   |       | 336   |  |   |      |     |   |   |        | 7,759  | 
|                                                                                               | Policyholders funds               |          |       | 33        |  |        |       | 2          |  |            |       |          |  |           |     | 452    |  |   |       | 62    |  |   |       | 1     |  |   |      |     |   |   |        | 550    | 
|Deferred acquisition costs                                                                     |                                    | $        | 450   |           |  | $      | 332   |            |  | $          | 54    |           |  | $         | 112 |        |  | $ | 1,672 |       |  | $ |      |       |  | $ |     |      |   | $ | 2,620  |       

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

|                                                                                               |                                    |          |       |           |  |        |       |            |  |            |       |           |  |           |       |        |  |   |       |       |  |   |       |       |   |   |     |     |   |   |        |        | 
|---------------------------------------------------------------------------------------------- | ---------------------------------- | -------- | ----- | --------- |  | ------ | ----- | ---------- |  | ---------- | ----- | --------- |  | --------- | ----- | ------ |  | - | ----- | ----- |  | - | ----- | ----- | - | - | --- | --- | - | - | ------ | ------ | 
|For the six months ended                                                                       |                                    |          |       |           |  |        |       |            |  |            |       |           |  |           |       |        |  |   |       |       |  |   |       |       |   |   |     |     |   |   |        |       
|June 30, 2002                                                                                  |                                    | Standard |       | Specialty |  |        |       |            |  | Group      |       | Life      |  | Corporate |       | Elimi- |  |   |       |      
|(In millions)                                                                                  |                                    | Lines    |       | Lines     |  | CNA Re |       | Operations |  | Operations |       | and Other |  | nations   |       | Total 
|                                                                                               |                                    |          |       |           |  |        |       |            |  |            |       |           |  |           |       |        | 
|Net earned premiums                                                                            |                                    | $        | 2,048 |           |  | $      | 1,043 |            |  | $          | 305   |           |  | $         | 1,725 |        |  | $ | 474   |       |  | $ | 81    |       |   | $ | (13 | )   |   | $ | 5,663  |       
|Net investment income                                                                          |                                    |          | 237   |           |  |        | 135   |            |  |            | 81    |           |  |           | 123   |        |  |   | 271   |       |  |   | 81    |       |   |   |    |     |   |   | 928    |       
|Other revenues                                                                                 |                                    |          | 163   |           |  |        | 87    |            |  |            | 1     |           |  |           | 45    |        |  |   | 55    |       |  |   | 50    |       |   |   | (73 | )   |   |   | 328    |       
|                                                                                               |                                    |          |       |           |  |        |       |            |  |            |       |           |  |           |       |        |  |   |       |       |  |   |       |       |   |   |     |     |   |   |        |       
|                                                                                               | Total operating revenues           |          |       | 2,448     |  |        |       | 1,265      |  |            |       | 387       |  |           |       | 1,893  |  |   |       | 800   |  |   |       | 212   |   |   |     | (86 | ) |   |        | 6,919  | 
|Claims, benefits and expenses                                                                  |                                    |          | 2,393 |           |  |        | 1,134 |            |  |            | 295   |           |  |           | 1,829 |        |  |   | 710   |       |  |   | 277   |       |   |   | (86 | )   |   |   | 6,552  |       
|                                                                                               |                                    |          |       |           |  |        |       |            |  |            |       |           |  |           |       |        |  |   |       |       |  |   |       |       |   |   |     |     |   |   |        |       
|Operating income (loss) from continuing operations
before income tax and minority interest     |                                    |          | 55    |           |  |        | 131   |            |  |            | 92    |           |  |           | 64    |        |  |   | 90    |       |  |   | (65   | )     |   |   |    |     |   |   | 367    |       
|Income tax (expense) benefit on operating income                                               |                                    |          | (5    | )         |  |        | (47   | )          |  |            | (28   | )         |  |           | (21   | )      |  |   | (32   | )     |  |   | 22    |       |   |   |    |     |   |   | (111   | )     
|Minority interest                                                                              |                                    |          |      |           |  |        | (10   | )          |  |            |      |           |  |           |      |        |  |   |      |       |  |   |      |       |   |   |    |     |   |   | (10    | )     
|                                                                                               |                                    |          |       |           |  |        |       |            |  |            |       |           |  |           |       |        |  |   |       |       |  |   |       |       |   |   |     |     |   |   |        |       
|Net operating income (loss) from continuing
operations                                         |                                    |          | 50    |           |  |        | 74    |            |  |            | 64    |           |  |           | 43    |        |  |   | 58    |       |  |   | (43   | )     |   |   |    |     |   |   | 246    |       
|Realized investment (losses) gains, net of
participating policyholders and minority
interests |                                    |          | (24   | )         |  |        | (31   | )          |  |            | 3     |           |  |           | (17   | )      |  |   | (42   | )     |  |   | (50   | )     |   |   |    |     |   |   | (161   | )     
|Income tax benefit on realized investment gains
(losses)                                       |                                    |          | 8     |           |  |        | 10    |            |  |            | 1     |           |  |           | 5     |        |  |   | 15    |       |  |   | 19    |       |   |   |    |     |   |   | 58     |       
|Loss from discontinued operations, net of tax of $9                                            |                                    |          |      |           |  |        |      |            |  |            |      |           |  |           |      |        |  |   | (35   | )     |  |   |      |       |   |   |    |     |   |   | (35    | )     
|Cumulative effect of a change in accounting
principle, net of tax of $7                        |                                    |          |      |           |  |        | (48   | )          |  |            |      |           |  |           |      |        |  |   | (8    | )     |  |   | (1    | )     |   |   |    |     |   |   | (57    | )     
|                                                                                               |                                    |          |       |           |  |        |       |            |  |            |       |           |  |           |       |        |  |   |       |       |  |   |       |       |   |   |     |     |   |   |        |       
|Net income (loss)                                                                              |                                    | $        | 34    |           |  | $      | 5     |            |  | $          | 68    |           |  | $         | 31    |        |  | $ | (12   | )     |  | $ | (75   | )     |   | $ |    |     |   | $ | 51     |       
|                                                                                               |                                    |          |       |           |  |        |       |            |  |            |       |           |  |           |       |        |  |   |       |       |  |   |       |       |   |   |     |     |   |   |        |       
|As
of December 31, 2002
(In millions)                                                          |                                    |          |       |           |  |        |       |            |  |            |       |           |  |           |       |        |  |   |       |       |  |   |       |       |   |   |     |     |   |   |        |       
|
|
|Reinsurance and insurance receivables, net                                                     |                                    | $        | 6,987 |           |  | $      | 3,214 |            |  | $          | 1,170 |           |  | $         | 275   |        |  | $ | 954   |       |  | $ | 2,907 |       |   | $ |    |     |   | $ | 15,507 |       
|Insurance reserves:                                                                            |                                    |          |       |           |  |        |       |            |  |            |       |           |  |           |       |        |  |   |       |       |  |   |       |       |   |   |     |     |   |   |        |       
|                                                                                               | Claim and claim adjustment expense |          | $     | 11,576    |  |        | $     | 5,874      |  |            | $     | 2,264     |  |           | $     | 1,400  |  |   | $     | 1,409 |  |   | $     | 4,847 |   |   | $   |    |   |   | $      | 27,370 | 
|                                                                                               | Unearned premiums                  |          |       | 1,811     |  |        |       | 1,763      |  |            |       | 195       |  |           |       | 7      |  |   |       | 149   |  |   |       | 908   |   |   |     | (13 | ) |   |        | 4,820  | 
|                                                                                               | Future policy benefits             |          |       |          |  |        |       |           |  |            |       |          |  |           |       | 571    |  |   |       | 6,503 |  |   |       | 335   |   |   |     |    |   |   |        | 7,409  | 
|                                                                                               | Policyholders funds               |          |       | 47        |  |        |       | 3          |  |            |       |          |  |           |       | 470    |  |   |       | 63    |  |   |       | (3    | ) |   |     |    |   |   |        | 580    | 
|Deferred acquisition costs                                                                     |                                    | $        | 421   |           |  | $      | 319   |            |  | $          | 47    |           |  | $         | 107   |        |  | $ | 1,657 |       |  | $ |      |       |   | $ |    |     |   | $ | 2,551  |       

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

The following table provides revenue by line of business for each reportable
segment.

Revenue by Line of Business

|                            |                                            |              |       |            |  |      |       |      |  |   |       |       |  |   |       |       | 
|--------------------------- | ------------------------------------------ | ------------ | ----- | ---------- |  | ---- | ----- | ---- |  | - | ----- | ----- |  | - | ----- | ----- | 
|                            |                                            | Three months |       | Six months
|Period ended June 30        |                                            |              |       |           
|(In millions)               |                                            | 2003         |       | 2002       |  | 2003 |       | 2002
|                            |                                            |              |       |            |  |      |       |     
|Standard Lines              |                                            |              |       |            |  |      |       |      |  |   |       |       |  |   |       |      
|                            | Property and Casualty                      |              | $     | 728        |  |      | $     | 803  |  |   | $     | 1,491 |  |   | $     | 1,614 | 
|                            | Excess & Surplus                           |              |       | 407        |  |      |       | 412  |  |   |       | 877   |  |   |       | 810   | 
|                            |                                            |              |       |            |  |      |       |      |  |   |       |       |  |   |       |      
|Standard Lines revenue      |                                            |              | 1,135 |            |  |      | 1,215 |      |  |   | 2,368 |       |  |   | 2,424 |      
|                            |                                            |              |       |            |  |      |       |      |  |   |       |       |  |   |       |      
|Specialty Lines             |                                            |              |       |            |  |      |       |      |  |   |       |       |  |   |       |      
|                            | Professional Liability Insurance (CNA Pro) |              |       | 424        |  |      |       | 271  |  |   |       | 778   |  |   |       | 514   | 
|                            | CNA Global                                 |              |       | 245        |  |      |       | 194  |  |   |       | 451   |  |   |       | 415   | 
|                            | CNA Guaranty & Credit                      |              |       | 2          |  |      |       |     |  |   |       |      |  |   |       | 1     | 
|                            | Surety                                     |              |       | 92         |  |      |       | 82   |  |   |       | 172   |  |   |       | 161   | 
|                            | Warranty                                   |              |       | 85         |  |      |       | 70   |  |   |       | 148   |  |   |       | 143   | 
|                            |                                            |              |       |            |  |      |       |      |  |   |       |       |  |   |       |      
|Specialty Lines revenue     |                                            |              | 848   |            |  |      | 617   |      |  |   | 1,549 |       |  |   | 1,234 |      
|                            |                                            |              |       |            |  |      |       |      |  |   |       |       |  |   |       |      
|CNA Re                      |                                            |              | 189   |            |  |      | 210   |      |  |   | 376   |       |  |   | 390   |      
|                            |                                            |              |       |            |  |      |       |      |  |   |       |       |  |   |       |      
|Group Operations            |                                            |              |       |            |  |      |       |      |  |   |       |       |  |   |       |      
|                            | Group Benefits                             |              |       | 393        |  |      |       | 318  |  |   |       | 732   |  |   |       | 655   | 
|                            | Institutional Markets & Other              |              |       | 41         |  |      |       | 26   |  |   |       | 46    |  |   |       | 68    | 
|                            | Federal Markets                            |              |       |           |  |      |       | 537  |  |   |       |      |  |   |       | 1,153 | 
|                            |                                            |              |       |            |  |      |       |      |  |   |       |       |  |   |       |      
|Group Operations revenue    |                                            |              | 434   |            |  |      | 881   |      |  |   | 778   |       |  |   | 1,876 |      
|                            |                                            |              |       |            |  |      |       |      |  |   |       |       |  |   |       |      
|Life Operations revenue     |                                            |              | 443   |            |  |      | 343   |      |  |   | 803   |       |  |   | 758   |      
|                            |                                            |              |       |            |  |      |       |      |  |   |       |       |  |   |       |      
|Corporate and Other revenue |                                            |              | 109   |            |  |      | 86    |      |  |   | 189   |       |  |   | 162   |      
|                            |                                            |              |       |            |  |      |       |      |  |   |       |       |  |   |       |      
|Intersegment eliminations   |                                            |              | (59   | )          |  |      | (40   | )    |  |   | (119  | )     |  |   | (86   | )    
|                            |                                            |              |       |            |  |      |       |      |  |   |       |       |  |   |       |      
|Total revenue               |                                            | $            | 3,099 |            |  | $    | 3,312 |      |  | $ | 5,944 |       |  | $ | 6,758 |      
|                            |                                            |              |       |            |  |      |       |      |  |   |       |       |  |   |       |      

Note L. Significant Transactions

Third Party Risk Management Business

During the second quarter of 2003, the Company entered into an agreement,
whereby Cunningham Lindsey, U.S. (Cunningham Lindsey), a subsidiary of Lindsey
Morden Group, Inc., acquired the business of RSKCo Services, Inc. (RSKCoSM).
Included in the sale was the RSKCoSM trademarked name, as well as all claims
and other risk management services business provided by RSKCoSM that is not
sold in connection with insurance products of other CNA subsidiaries. The Company has
recorded an estimated, pretax loss on this sale of $16 million. The business
sold represented annual revenues of approximately $40 million.

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

As a result of this agreement, Cunningham Lindsey assumed assets and
liabilities of $72 million and $56 million. At
December 31, 2002, the assets
and liabilities of the RSKCoSM business sold were $71 million and $54 million.

National Postal Mail Handlers Union Contract Termination

During 2002, the Company sold Claims Administration Corporation and transferred
the National Postal Handlers Union group benefits plan (the Mail Handlers Plan)
to First Health Group Corporation. Revenues for the Mail Handlers Plan were
$537 million for the three months ended June 30, 2002 and $1,153 million for
the six months ended June 30, 2002.

CNA Vida Disposition

In the first quarter of 2002, the Company completed the sale of the common
stock of CNA Holdings Limited and its subsidiaries (CNA Vida), CNAs life
operations in Chile, to Consorcio Financiero S.A. (Consorcio). In connection
with the sale, CNA received proceeds of $73 million and recorded an after-tax
loss from discontinued operations of $35 million. This loss is composed of $37
million, net of tax, realized loss on the sale of CNA Vida and income of $2
million, net of tax, from CNA Vidas operations for 2002.

Personal Insurance Transaction

CNA entered into a retroactive reinsurance agreement as part of the sale of the
Companys personal insurance business to The Allstate Corporation (Allstate) in
1999. CNA shares in indemnity and claim and allocated claim adjustment
expenses if payments related to losses incurred prior to October 1, 1999 on the
CNA policies transferred to Allstate exceed the claim and allocated claim
adjustment expense reserves of approximately $1 billion at the date of sale.
The Company must begin to reimburse Allstate for claim and allocated claim
adjustment expense payments when cumulative claim payments after October 1,
1999 on losses occurring prior to that date exceed the $1 billion. The
Companys remaining obligation valued under this loss sharing provision as of
October 1, 2003 will be settled by agreement of the parties or by an
independent actuarial review of the unpaid claim liabilities as of that date.
Cumulative payments of indemnity and allocated loss adjustment expenses on such
policies exceeded $1 billion during the second quarter of 2003. The Company
has established reserves for its estimated liability under this loss sharing
arrangement.

Note M. Related Party Transactions

CNA reimburses Loews, or pays directly to Loews employees, approximately $19
million annually for management fees, travel and related expenses and expenses
of investment facilities and services provided to CNA.

CNA and its eligible subsidiaries are included in the consolidated federal
income tax return of Loews and its eligible subsidiaries. For the six months
ended June 30, 2003 and 2002, CNA paid to Loews $73 million and CNA received
$634 million from Loews related to federal income taxes.

CNA writes, at standard rates, a limited amount of insurance for Loews and its
affiliates. The total premiums from Loews and its affiliates are approximately
$4 million on an annual basis.

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

On December 19, 2002, CNAF sold $750 million of a new issue of preferred stock,
designated Series H Cumulative Preferred Issue (Preferred Issue), to Loews.
The terms of the Preferred Issue were approved by a special committee of
independent members of CNAFs Board of Directors. The Preferred Issue is
senior to CNAFs common 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 until all cumulative dividends on the Preferred
Issue have been paid.

CNA previously sponsored a stock ownership plan whereby the Company financed
the purchase of Company stock by certain officers, including executive
officers. Interest charged on the principal amount of these stock purchase
loans is generally equivalent to the long term applicable federal rate,
compounded semi-annually, in effect on the disbursement date of the loan.
Loans made pursuant to the plan are secured by the stock purchased and
generally have a ten-year term. The outstanding aggregate loan balance was $29
million as of June 30, 2003 and December 31, 2002 for all participants who were
then Company officers and directors.

CNA Surety Corporation

CCC provided an excess of loss reinsurance contract to the insurance
subsidiaries of CNA Surety Corporation (CNA Surety), a 64% owned and
consolidated subsidiary of CNA, over a period that expired on December 31, 2000
(the stop loss contract). The stop loss contract limits the net loss ratios
for CNA Surety with respect to certain accounts and lines of insurance
business. In the event that CNA Suretys accident year net loss ratio exceeds
24% for 1997 through 2000 (the contractual loss ratio), the stop loss contract
requires CCC to pay amounts equal to the amount, if any, by which CNA Suretys
actual accident year net loss ratio exceeds the contractual loss ratio
multiplied by the applicable net earned premiums. The minority shareholders of
CNA Surety do not share in any losses that apply to this contract. There were
no reinsurance balances payable under this stop loss contract as of June 30,
2003 and December 31, 2002.

Effective October 1, 2002, CCC provides an excess of loss protection for new
and renewal bonds for CNA Surety for per principal exposures that exceed $60
million since October 1, 2002 in two parts  a) $40 million excess of $60
million and b) $50 million excess of $100 million for CNA Surety. This excess
of loss protection is necessary primarily to support new and renewal bonds for
contract surety accounts with bonded backlogs or work-in-process in excess of
$60 million. In consideration for the reinsurance coverage provided by the $40
million excess of $60 million contract, CNA Surety will pay to CCC, on a
quarterly basis, a premium equal to $3 million. In consideration for the
reinsurance coverage provided by the $50 million excess of $100 million, the
insurance subsidiaries of CNA Surety will pay $6 million in premium to CCC.

In March of 2003, CNAF entered into a credit agreement with a large national
contractor, which undertakes projects for the construction of government and
private facilities, to provide loans to the contractor in a maximum aggregate
amount of $86.4 million (the Credit Facility). Of the $86.4 million capacity,
$62.1 million, including accrued interest, was outstanding at June 30, 2003.
The Credit Facility and all related loans will mature in March of 2006.
Advances under the Credit Facility bear interest at the prime rate plus 6%.
Payment of 3% of the interest is deferred until the Credit Facility matures,
and the remainder is to be paid monthly in cash. Loans under the credit
facility are secured by a pledge of substantially all of the assets of the
contractor and certain of its affiliates.

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

In addition, in June of 2003, the Company and one of its subsidiaries provided
repayment guarantees to certain creditors of the contractor and a subsidiary of
the contractor amounting to $8.7 million. Such
guarantees were provided in order to allow the contractor to receive financial
accommodations from a creditor and in order to comply with certain regulatory
requirements. Under the terms of the guarantees, any payments made by the
Company, or any of its subsidiaries, would be considered a draw under the
Credit Facility.

CNA Surety has provided significant surety bond protection for projects by this
contractor through surety bonds underwritten by CCC or its affiliates. The
loans were provided by CNAF to help the contractor meet its liquidity needs.

In March of 2003, CNAF also purchased the contractors outstanding bank debt
for $16.4 million. The contractor retired the bank debt by paying CNAF $16.4
million, with $11.4 million of the payoff amount being funded under the new
Credit Facility and $5 million from money loaned to the contractor by its
shareholders. Under its purchase agreement with the banks, CNAF is also
required to reimburse the banks for any draws upon approximately $6.5 million
in outstanding letters of credit issued by the banks for the contractors
benefit that expire between May and August of 2003. Any amounts paid by CNAF
to the banks as reimbursements for draws upon the banks letters of credit will
become obligations of the contractor to CNAF as draws upon the Credit Facility.

Loews has purchased a participation interest in one-third of the loans and
commitments under the new Credit Facility, on a dollar-for-dollar basis, up to
a maximum of $25 million. Although Loews does not have rights against the
contractor directly under the participation agreement, it shares recoveries and
certain fees under the Credit Facility proportionally with CNAF.

The contractor has initiated a restructuring plan that is intended to reduce
costs and improve cash flow, and a chief restructuring officer has been
appointed to manage execution of the plan. CNAF, through its affiliate CNA
Surety, intends to continue to provide surety bonds on behalf of the contractor
during this restructuring period, subject to the contractors initial and
ongoing compliance with CNA Suretys underwriting standards. Any losses arising
from bonds issued or assumed by the insurance subsidiaries of CNA Surety to the
contractor are excluded from CNA Suretys $45 million excess of $15 million per
principal reinsurance program with unaffiliated reinsurers in place in 2003.
As a result, CNA Surety retains the first $60 million of losses on bonds
written with an effective date of September 30, 2002 and prior, and CCC will
incur 100% of losses above that retention level on bonds with effective dates
prior to September 30, 2002. Through facultative reinsurance contracts with
CCC, CNA Suretys exposure on bonds written from October 1, 2002 through
December 31, 2002 has been limited to $20 million per bond.

Indemnification and subrogation rights, including rights to contract proceeds
on construction projects in the event of default, exist that reduce CNA
Suretys and ultimately the Companys exposure to loss. While CNAF believes
that the contractors restructuring efforts are expected to be successful and
provide sufficient cash flow for its operations and repayment of its borrowings
under the credit facility, the contractors failure to achieve its
restructuring plan or perform its contractual obligations under the credit
facility and underlying all of the Companys surety bonds could have a material
adverse effect on the Companys future results of operations. If such failures
occur, the Company estimates the surety loss, net of indemnification and
subrogation recoveries, but before the effects of corporate aggregate
reinsurance treaties, if any, and minority interest could be up to $200
million.

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

Note N. Statutory Accounting Practices

CNAs insurance subsidiaries are domiciled in various jurisdictions. These
subsidiaries prepare statutory financial statements in accordance with
accounting practices prescribed or permitted by the respective
jurisdictions insurance regulators. Prescribed statutory accounting practices
are set forth in a variety of publications of the National Association of
Insurance Commissioners (NAIC) as well as state laws, regulations and general
administrative rules. The Companys insurance subsidiaries follow one
significant permitted accounting practice at June 30, 2003, related to
discounting of certain non-tabular workers compensation claims. The impact of
this permitted practice was to increase statutory surplus by approximately $31
million and $56 million at June 30, 2003 and December 31, 2002. This practice
was followed by an acquired company, and CNA received permission to eliminate
the effect of the permitted practice over a ten-year period, which ends in
2003.

Note O. Restatement For Life Settlement Contracts

As a result of a routine review of the Companys periodic filings by the
Division of Corporation Finance of the SEC, the Company has revised the
historical accounting for its investment in life settlement contracts and the
related revenue recognition and has restated its 2002 interim financial
information for the three and six months ended June 30, 2002. The Company has
also restated its financial statements as of December 31, 2001 and for the
years ended December 31, 2001 and 2000 in its 2002 Form 10-K.

The SEC concluded that FASB Technical Bulletin 85-4 Accounting for Purchases of
Life Insurance (FTB 85-4) should have been applied to the Companys investment
in life settlement contracts. Under FTB 85-4, the carrying value of each
contract at purchase and at the end of each reporting period is equal to the
cash surrender value of the policy. Amounts paid to purchase these contracts
that are in excess of the cash surrender value, at the date of purchase, are
expensed immediately. Periodic maintenance costs, such as premiums, necessary
to keep the underlying policy inforce are expensed as incurred and included in
other operating expense. Revenue is recognized and included in other revenue
in the Condensed Consolidated Statements of Operations when the life insurance
policy underlying the life settlement contract matures. The Companys
historical accounting was to record an asset for the amount paid to acquire the
life settlement contract along with other direct acquisition costs, and to
recognize revenue over the period the contract was held.

The effect of the restatement is as follows:

Restatement

|                                                                          |                          |          |              |          |            |          |            |          |    |   |      |     |   |   |      |     |  
|------------------------------------------------------------------------- | ------------------------ | -------- | ------------ | -------- | ---------- | -------- | ---------- | -------- | -- | - | ---- | --- | - | - | ---- | --- | -
|                                                                          |                          |          | Three months |          | Six months
|                                                                          |                          |          |              |          |           
|                                                                          |                          |          | Previously   |          | As         |          | Previously |          | As
|Period ended June 30                                                      |                          | Reported |              | Restated |            | Reported |            | Restated
|(In millions, except per share data)                                      |                          | 2002     |              | 2002     |            | 2002     |            | 2002    
|                                                                          |                          |          |              |          |            |          |            |         
|Condensed consolidated statements of operations:                          |                          |          |              |          |            |          |            |          |    |   |      |     |   |   |      |    
|                                                                          | Other revenues           |          | $            | 152      |            |          | $          | 146      |    |   | $    | 336 |   |   | $    | 328 |  
|                                                                          | Other operating expenses |          |              | 392      |            |          |            | 392      |    |   |      | 884 |   |   |      | 883 |  
|                                                                          | Income tax expense       |          |              | (4       | )          |          |            | (2       | )  |   |      | (55 | ) |   |      | (53 | )
|                                                                          | Net income (a)           |          |              | 35       |            |          |            | 31       |    |   |      | 56  |   |   |      | 51  |  
|Basic and Diluted earnings per share available
to common stockholders (a) |                          | $        | 0.16         |          |            | $        | 0.14       |          |    | $ | 0.25 |     |   | $ | 0.23 |    



|(a) |  | Amounts previously reported have been revised to reflect the
presentation of SFAS 142 as a cumulative effect of a change in accounting
principle. See Note B for further discussion.
|--- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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CNA FINANCIAL CORPORATION


ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION ANDRESULTS OF OPERATIONS


CONSOLIDATED OPERATIONS

The following discussion highlights significant factors impacting the
consolidated operations and financial condition of CNA Financial Corporation
(CNAF) and its controlled subsidiaries (collectively CNA or the Company). CNA
is one of the largest insurance organizations in the United States and, based
on 2002 statutory net written premiums, is the 11th largest property and
casualty organization and, based on 2001 statutory net written premiums, is the
51st largest life insurance organization.

Loews Corporation (Loews) owned approximately 90% of the outstanding common
stock of CNAF as of June 30, 2003. The following discussion should be read in
conjunction with the Condensed Consolidated Financial Statements in Item 1 of
Part 1.

CNA conducts its operations through five operating segments: Standard Lines,
Specialty Lines and CNA Re (which comprise the property and casualty segments),
Group Operations and Life Operations. In addition to these five operating
segments, certain other activities are reported in the Corporate and Other
segment. These operating segments reflect the way CNA manages its operations
and makes business decisions.

During 2002, CNA underwent management changes and strategic realignment. These
events have changed the way CNA manages its operations and makes business
decisions and, therefore, necessitated a change in the Companys reportable
segments. The financial results for the segment changes are reflected
throughout the Managements Discussion and Analysis of Financial Condition and
Results of Operations (MD&A).

As a result of a routine review of the Companys periodic filings by the
Division of Corporation Finance of the Securities and Exchange Commission
(SEC), the Company has revised the historical accounting for its investment in
life settlement contracts and the related revenue recognition and has restated
its 2002 interim financial information for the three and six months ended June
30, 2002. The Company has also restated its financial statements as of
December 31, 2001 and for the years ended December 31, 2001 and 2000 in its
2002 Form 10-K. The Companys 2002 Form 10-K as well as Note O of the
Condensed Consolidated Financial Statements, in Item 1 of Part 1, provides a
discussion of the historical and current accounting for life settlement
contracts.

The adjustment related to life settlement contracts reduced net income for the
three and six months ended June 30, 2002 by $4 million and $5 million. The
MD&A gives effect to the restatement of the Condensed Consolidated Financial
Statements for the three and six months ended June 30, 2002.

Critical Accounting Estimates

The preparation of the Condensed Consolidated Financial Statements in
conformity with accounting principles generally accepted in the United States
of America (GAAP) requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and the disclosure of
contingent assets and liabilities at the date of the Condensed Consolidated
Financial Statements and the amounts of revenues and expenses reported during
the period. Actual results may differ from those estimates.

CNAs Condensed Consolidated Financial Statements and accompanying notes have
been prepared in accordance with GAAP and have been applied on a consistent
basis. CNA continually evaluates the

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

accounting policies and estimates used to prepare the Condensed Consolidated
Financial Statements. In general, managements estimates are based on
historical experience, evaluation of current trends, information from third
party professionals and various other assumptions that are believed to be
reasonable under the known facts and circumstances.

The accounting estimates discussed below are considered by management to be
critical to an understanding of CNAs Condensed Consolidated Financial
Statements as their application places the most significant demands on
managements judgment. Due to the inherent uncertainties involved with this
type of judgment, actual results could differ significantly from estimates and
have a material impact on the Companys results of operations or equity.

Insurance Reserves

Insurance reserves are established for both short and long-duration insurance
contracts. Short-duration contracts are primarily related to property and
casualty policies where the reserving process is based on actuarial estimates
of the amount of loss, including amounts for known and unknown claims.
Long-duration contracts typically include traditional life insurance and long
term care products and are estimated using actuarial estimates about mortality
and morbidity, as well as assumptions about expected investment returns. The
inherent risks associated with the reserving process are discussed in the
Reserves  Estimates and Uncertainties and Third Quarter Reserve Reviews
sections of the MD&A.

Reinsurance

Amounts recoverable from reinsurers are estimated in a manner consistent with
claim and claim adjustment expense reserves or future policy benefit reserves
and are reported as a receivable in the Condensed Consolidated Balance Sheets.
The cost of reinsurance related to long-duration contracts is accounted for
over the life of the underlying reinsured policies using assumptions consistent
with those used to account for the underlying policies. The ceding of
insurance does not discharge the primary liability of the Company. An
estimated allowance for doubtful accounts is recorded on the basis of periodic
evaluations of balances due from reinsurers, reinsurer solvency, managements
experience and current economic conditions. Further information on reinsurance
is provided in the Reinsurance section of the MD&A.

Valuation of Investments and Impairment of Securities

The Companys investment portfolio is subject to market declines below book
value that may be other-than-temporary. The Company has an Impairment
Committee (the Impairment Committee), which reviews the investment portfolio on
a quarterly basis, with ongoing analysis as new information becomes available.
Any decline in value that is determined to be other-than-temporary is recorded
as a realized loss in the period in which the determination occurred. Further
information on the Companys investments is provided in the Investments section
of the MD&A.

39



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

Results of Operations

The following table summarizes key components of the results of operations.

|                                                                          |                                                                                                |              |       |            |  |      |       |       |   |   |       |       |  |   |       |       |  
|------------------------------------------------------------------------- | ---------------------------------------------------------------------------------------------- | ------------ | ----- | ---------- |  | ---- | ----- | ----- | - | - | ----- | ----- |  | - | ----- | ----- | -
|                                                                          |                                                                                                | Three months |       | Six months
|Period ended June 30                                                      |                                                                                                |              |       |           
|(In millions, except per share data)                                      |                                                                                                | 2003         |       | 2002       |  | 2003 |       | 2002 
|                                                                          |                                                                                                |              |       |            |  |      |       |      
|Revenues                                                                  |                                                                                                |              |       |            |  |      |       |       |   |   |       |       |  |   |       |      
|                                                                          | Net earned premiums                                                                            |              | $     | 2,197      |  |      | $     | 2,826 |   |   | $     | 4,578 |  |   | $     | 5,663 |  
|                                                                          | Net investment income                                                                          |              |       | 427        |  |      |       | 502   |   |   |       | 859   |  |   |       | 928   |  
|                                                                          | Realized investment gains (losses), net of participating
policyholders and minority interests |              |       | 378        |  |      |       | (162  | ) |   |       | 302   |  |   |       | (161  | )
|                                                                          | Other revenues                                                                                 |              |       | 97         |  |      |       | 146   |   |   |       | 205   |  |   |       | 328   |  
|                                                                          |                                                                                                |              |       |            |  |      |       |       |   |   |       |       |  |   |       |      
|Total revenues                                                            |                                                                                                |              | 3,099 |            |  |      | 3,312 |       |   |   | 5,944 |       |  |   | 6,758 |      
|                                                                          |                                                                                                |              |       |            |  |      |       |       |   |   |       |       |  |   |       |      
|Claims, Benefits and Expenses                                             |                                                                                                |              |       |            |  |      |       |       |   |   |       |       |  |   |       |      
|                                                                          | Insurance claims and policyholders benefits                                                   |              |       | 2,067      |  |      |       | 2,382 |   |   |       | 3,937 |  |   |       | 4,692 |  
|                                                                          | Amortization of deferred acquisition costs                                                     |              |       | 481        |  |      |       | 462   |   |   |       | 939   |  |   |       | 902   |  
|                                                                          | Other operating expenses                                                                       |              |       | 441        |  |      |       | 392   |   |   |       | 820   |  |   |       | 883   |  
|                                                                          | Interest                                                                                       |              |       | 33         |  |      |       | 38    |   |   |       | 67    |  |   |       | 75    |  
|                                                                          |                                                                                                |              |       |            |  |      |       |       |   |   |       |       |  |   |       |      
|Total claims, benefits and expenses                                       |                                                                                                |              | 3,022 |            |  |      | 3,274 |       |   |   | 5,763 |       |  |   | 6,552 |      
|                                                                          |                                                                                                |              |       |            |  |      |       |       |   |   |       |       |  |   |       |      
|Income from continuing operations before income tax and minority
interest |                                                                                                |              | 77    |            |  |      | 38    |       |   |   | 181   |       |  |   | 206   |      
|Income tax expense                                                        |                                                                                                |              | (5    | )          |  |      | (2    | )     |   |   | (23   | )     |  |   | (53   | )    
|Minority interest                                                         |                                                                                                |              | (2    | )          |  |      | (5    | )     |   |   | (5    | )     |  |   | (10   | )    
|                                                                          |                                                                                                |              |       |            |  |      |       |       |   |   |       |       |  |   |       |      
|Income from continuing operations                                         |                                                                                                |              | 70    |            |  |      | 31    |       |   |   | 153   |       |  |   | 143   |      
|Loss from discontinued operations, net of tax of $9                       |                                                                                                |              |      |            |  |      |      |       |   |   |      |       |  |   | (35   | )    
|                                                                          |                                                                                                |              |       |            |  |      |       |       |   |   |       |       |  |   |       |      
|Income before cumulative effect of a change in accounting principle       |                                                                                                |              | 70    |            |  |      | 31    |       |   |   | 153   |       |  |   | 108   |      
|Cumulative effect of a change in accounting principle, net of tax
of $7   |                                                                                                |              |      |            |  |      |      |       |   |   |      |       |  |   | (57   | )    
|                                                                          |                                                                                                |              |       |            |  |      |       |       |   |   |       |       |  |   |       |      
|Net income                                                                |                                                                                                | $            | 70    |            |  | $    | 31    |       |   | $ | 153   |       |  | $ | 51    |      
|                                                                          |                                                                                                |              |       |            |  |      |       |       |   |   |       |       |  |   |       |      
|Basic and Diluted Earnings Per Share                                      |                                                                                                |              |       |            |  |      |       |       |   |   |       |       |  |   |       |      
|                                                                          | Income from continuing operations                                                              |              | $     | 0.25       |  |      | $     | 0.14  |   |   | $     | 0.55  |  |   | $     | 0.65  |  
|                                                                          | Loss from discontinued operations, net of tax                                                  |              |       |           |  |      |       |      |   |   |       |      |  |   |       | (0.16 | )
|                                                                          |                                                                                                |              |       |            |  |      |       |       |   |   |       |       |  |   |       |      
|                                                                          | Income before cumulative effect of a change in accounting
principle                            |              |       | 0.25       |  |      |       | 0.14  |   |   |       | 0.55  |  |   |       | 0.49  |  
|                                                                          | Cumulative effect of a change in accounting principle, net of tax                              |              |       |           |  |      |       |      |   |   |       |      |  |   |       | (0.26 | )
|                                                                          |                                                                                                |              |       |            |  |      |       |       |   |   |       |       |  |   |       |      
|Basic and diluted earnings per share available to common
stockholders     |                                                                                                | $            | 0.25  |            |  | $    | 0.14  |       |   | $ | 0.55  |       |  | $ | 0.23  |      
|                                                                          |                                                                                                |              |       |            |  |      |       |       |   |   |       |       |  |   |       |      
|Weighted average outstanding common stock and common stock
equivalents    |                                                                                                |              | 223.6 |            |  |      | 223.6 |       |   |   | 223.6 |       |  |   | 223.6 |      
|                                                                          |                                                                                                |              |       |            |  |      |       |       |   |   |       |       |  |   |       |      

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

Three Month Comparison

Net income increased $39 million for the three months ended June 30, 2003 as
compared with the same period in 2002. The improvement in net income was due
primarily to increased net realized investment gains, partially offset by
increased net prior year development. Net realized
investment results increased $354 million after-tax for the three months ended
June 30, 2003 as compared with the same period in 2002. This change was due
primarily to increased net gains on sales of fixed maturity securities and a
reduction in impairment losses for other-than-temporary declines in market
value for fixed maturity and equity securities, partially offset by increased
realized losses for derivative securities. See the Investments section of the
MD&A for further details.

Net income also included increased unfavorable net prior year development in the
property and casualty segments, a $51 million after-tax increase in bad debt
expense reserves for insurance and reinsurance receivables, $39 million
after-tax of catastrophe losses principally related to Texas tornados and
Midwest rain storms and decreased net investment income. Catastrophe losses of
$5 million after-tax were recorded for the three months ended June 30, 2002.
These items were partially offset by improvements in the current net accident
year loss ratio and a benefit from cessions to corporate aggregate reinsurance
treaties in 2003.

Net unfavorable prior year development of $498 million, including $268 million
of unfavorable claim and allocated claim adjustment expense reserve development
and $230 million of unfavorable premium development, was recorded for the three
months ended June 30, 2003. Net unfavorable prior year development of $25
million, including $29 million of unfavorable claim and allocated claim
adjustment expense reserve development and $4 million of favorable premium
development, was recorded for the three months ended June 30, 2002.

Net earned premiums decreased $629 million for the three months ended June 30,
2003 as compared with the same period in 2002. The decrease in net earned
premiums was due primarily to the July 1, 2002 transfer of the National Postal
Mail Handlers Union group benefits plan (the Mail Handlers Plan) to First
Health Corporation. Net earned premiums for the Mail Handlers Plan were $535
million for the three months ended June 30, 2002. Net earned
premiums were also
adversely impacted by additional ceded premiums to corporate aggregate reinsurance treaties
and other reinsurance treaties resulting from unfavorable net prior year
reserve development. Partially offsetting these items were rate increases and
new business in Standard Lines, Specialty Lines, Group Operations and Life
Operations.

Six Month Comparison

Net income increased $102 million for the six months ended June 30, 2003 as
compared with the same period in 2002. The improvement in net income was due
primarily to increased net realized investment gains and losses and the absence
of both a loss from discontinued operations and the cumulative effect of change
in accounting principle, partially offset by increased net prior year development. Net realized investment results increased $303
million after-tax for the six months ended June 30, 2003 as compared with the
same period in 2002. This change was due primarily to increased net gains on
sales of fixed maturity securities and a $16 million reduction in impairment
losses for other-than-temporary declines in market value for fixed maturity and
equity securities, partially offset by increased realized losses for derivative
securities. See the Investments section of the MD&A for further details.

Net income also included increased unfavorable net prior year development in
the property and casualty segments, a $51 million after-tax increase in bad
debt expense reserve for insurance and

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

reinsurance receivables, $49 million
after-tax of catastrophe losses primarily related to Texas tornados and Midwest
rain storms, and decreased net investment income. Catastrophe losses of $7
million after-tax were recorded for the six months ended June 30, 2002. These
items were partially offset by improvements in the current net accident year
loss ratio and an increased benefit from cessions to corporate aggregate reinsurance
treaties in 2003.

Net unfavorable prior year development of $522 million, including $358 million
of unfavorable claim and allocated claim adjustment expense reserve development
and $164 million of unfavorable premium development, was recorded for the six
months ended June 30, 2003. Net unfavorable prior year development of $17
million, including $24 million of unfavorable claim and allocated claim
adjustment expense reserve development and $7 million of favorable premium
development, was recorded for the six months ended June 30, 2002.

The loss from discontinued operations, net of tax, of $35 million for the six
months ended June 30, 2002 related to the results of CNA Vida, CNAs
Chilean-based life insurer, which was sold during 2002. Net income for the six
months ended June 30, 2002 also includes a charge of $57 million, net of tax,
for the cumulative effect of a change in accounting principle related to the
adoption of Statement of Financial Accounting Standards No. 142, Goodwill and
Other Intangible Assets (SFAS 142).

During 2002, the Company completed its initial goodwill impairment testing and
recorded a $64 million pretax, or $57 million after-tax, impairment charge. In
accordance with SFAS 142, the impairment charge, which primarily consisted of a
$51 million pretax, or $48 million after-tax, charge in Specialty Lines, a $12
million pretax, or $8 million after-tax, charge in Life Operations, and a $1
million pretax, or $1 million after-tax, charge in Corporate and Other, was
recorded as a cumulative effect of a change in accounting principle as of
January 1, 2002. Goodwill and indefinite-lived intangible assets are tested
for impairment annually and when certain triggering events require such tests.

Net earned premiums decreased $1,085 million for the six months ended June 30,
2003 as compared with the same period in 2002. The decrease in net earned
premiums was due primarily to the absence of $1,151 million of premium for the
six months ended June 30, 2002 related to the Mail Handlers Plan. Net earned
premium was also adversely impacted by ceded premium to corporate aggregate
reinsurance treaties and other reinsurance treaties resulting from unfavorable
net prior year reserve development. Partially offsetting these items were rate
increases and new business in Standard Lines, Specialty Lines, Group Operations
and Life Operations.

Reserves  Estimates and Uncertainties

The Company maintains reserves to cover its estimated ultimate unpaid liability
for claim and claim adjustment expenses and future policy benefits, including
the estimated cost of the claims adjudication process, for claims that have
been reported but not yet settled and claims that have been incurred but not
reported. Claim and claim adjustment expense and future policy benefit
reserves are reflected as liabilities on the Condensed Consolidated Balance
Sheets under the heading Insurance Reserves. Adjustments to prior year
reserve estimates, if necessary, are reflected in the results of operations in
the period that the need for such adjustments is determined.

The level of Insurance Reserves maintained by the Company represents
managements best estimate, as of a particular point in time, of what the
ultimate settlement and administration of claims will cost based on its
assessment of facts and circumstances known at that time. Insurance Reserves
are not an exact

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

calculation of liability but instead are complex estimates
that are derived by the Company, generally
utilizing a variety of actuarial reserve estimation techniques, from numerous
assumptions and expectations about future events, both internal and external,
many of which are highly uncertain.

Among the many uncertain future events about which the Company makes
assumptions and estimates, many of which have become increasingly
unpredictable, are claims severity, frequency of claims, mortality, morbidity,
expected interest rates, inflation, claims handling and case reserving policies
and procedures, underwriting and pricing policies, changes in the legal and
regulatory environment and the lag time between the occurrence of an insured
event and the time it is ultimately settled, referred to in the insurance
industry as the tail. These factors must be individually considered in
relation to the Companys evaluation of each type of business. Many of these
uncertainties are not precisely quantifiable, particularly on a prospective
basis, and require significant management judgment.

Given the factors described above, it is not possible to quantify precisely the
ultimate exposure represented by claims and related litigation. As a result,
the Company regularly reviews the adequacy of its reserves and reassesses its
reserve estimates as historical loss experience develops, additional claims are
reported and settled and additional information becomes
available in subsequent periods.

In addition, the Company is subject to the uncertain effects of emerging or
potential claims and coverage issues that arise as industry practices and
legal, judicial, social and other environmental conditions change. These
issues have had and may continue to have a negative effect on the Companys
business by either extending coverage beyond the original underwriting intent
or by increasing the number or size of claims. Recent examples of emerging or
potential claims and coverage issues include:



| |  |  | increases in the number and size of water damage claims, including
those related to expenses for testing and remediation of mold
conditions;                                                                                                                              
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | increases in the number and size of claims relating to injuries
from medical products, and exposure to lead;                                                                                                                                                              
|
| |  |  | changes in interpretation of the named insured provision with
respect to the uninsured/underinsured motorist coverage in commercial
automobile policies;                                                                                                                  
|
| |  |  | the effects of recently uncovered accounting and financial
reporting scandals and other major corporate governance failures which
have resulted in an increase in the number and size of claims,
including director and officer and errors and omissions insurance
claims;
|
| |  |  | a growing trend of plaintiffs targeting insurers in class action
litigation relating to claims handling and other practices; and                                                                                                                                          
|
| |  |  | increases in the number of construction defect claims.                                                                                                                                                                                                                    

The future impact of these and other unforeseen emerging or potential claims
and coverage issues is difficult to predict and could materially adversely
affect the adequacy of the Companys claim and claim adjustment expense
reserves and could lead to future reserve additions. See the Consolidated
Operations and Segment Results sections of the MD&A for a discussion of changes
in reserve estimates and the impact on the Companys results of operations.

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

The Companys experience has been that establishing reserves for casualty
coverages relating to APMT claim and claim adjustment expenses is subject to
uncertainties that are greater than those presented by
other claims. Estimating the ultimate cost of both reported and unreported
APMT claims is subject to a higher degree of variability due to a number of
additional factors, including among others:



| |  |  | coverage issues, including whether certain costs are covered under
the policies and whether policy limits apply;                                                                                 
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | allocation of liability among numerous parties some of whom may be
in bankruptcy proceedings and, in particular, the application of joint
and several liability to specific insurers on a risk;
|
| |  |  | inconsistent court decisions and developing legal theories;                                                                                                                                      
|
| |  |  | increasingly aggressive tactics of plaintiffs lawyers;                                                                                                                                          
|
| |  |  | increased filings of claims in certain states to avoid the
application of tort reform statute effective dates;                                                                                   
|
| |  |  | the risks and lack of predictability inherent in major litigation;                                                                                                                               
|
| |  |  | a further increase or decrease in asbestos and environmental claims
which cannot now be anticipated;                                                                                             
|
| |  |  | continued increase in mass tort claims relating to silica and
silica-containing products, and the outcome of ongoing disputes as to
coverage in relation to these claims;                        
|
| |  |  | the role the exhaustion of primary limits for certain accounts and
increased demands on any umbrella or excess policies the Company has
issued;                                                  
|
| |  |  | the number and outcome of direct actions against the Company; and                                                                                                                                
|
| |  |  | future developments pertaining to the Companys ability to recover
reinsurance for asbestos and environmental claims.                                                                            

It is also not possible to predict changes in the legal and legislative
environment and their impact on the future development of APMT claims. This
development will be affected by future court decisions and interpretations, as
well as changes in applicable legislation. It is difficult to predict the
ultimate outcome of large coverage disputes until settlement negotiations near
completion and significant legal questions are resolved or, failing settlement,
until the dispute is adjudicated. This is particularly the case with
policyholders in bankruptcy where negotiations often involve a large number of
claimants and other parties and require court approval to be effective. A
further uncertainty exists as to whether a national privately financed trust to
replace litigation of asbestos claims with payments to claimants from the trust
will be established and approved through federal legislation, and, if
established and approved, whether it will contain funding requirements in
excess of the Companys carried loss reserves.

Due to the factors described above, among others, establishing reserves for
APMT claim and claim adjustment expenses is subject to uncertainties that are
greater than those presented by other claims. Traditional actuarial methods
and techniques employed to estimate the ultimate cost of claims for more
traditional property and casualty exposures are less precise in estimating
claim and claim adjustment

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

reserves for APMT, particularly in an environment of
emerging or potential claims and coverage issues that arise from industry
practices and legal, judicial and social conditions. Therefore, these
traditional actuarial methods and techniques are necessarily supplemented with
additional estimating techniques and methodologies, many of which involve
significant judgements that are required of management. Due to
the inherent uncertainties in estimating reserves for APMT claim and claim
adjustment expenses and the degree of variability due to, among other things,
the factors described above, the Company may be required to record material
changes in its claim and claim adjustment expense reserves in the future,
should new information become available or other developments emerge. See the
Environmental Pollution and Mass Tort and Asbestos Reserves section of the MD&A
for additional information relating to APMT claims and reserves.

The Companys recorded Insurance Reserves, including APMT reserves, reflect
managements best estimate as of a particular point in time based upon known
facts, current law and managements judgment. In light of the many
uncertainties associated with establishing the estimates and making the
assumptions necessary to establish reserve levels, the Company reviews its
reserve estimates on a regular basis and makes adjustments in the period that
the need for such adjustments is determined. These reviews have resulted in
the Company identifying information and trends that have caused the Company to
increase its reserves in prior periods and could lead to the identification of
a need for additional material increases in claim and claim adjustment expense
reserves, which could materially adversely affect the Companys results of
operations, equity, business, insurer financial strength and debt ratings (see
the Ratings section of the MD&A).

Third Quarter Reserve Reviews

Adverse trends in APMT and certain non-APMT property and casualty segments
continue to impact the property and casualty insurance industry. As noted in
Reserves  Estimates and Uncertainties, the Company reviews its Insurance
Reserves on a regular basis. As part of these reviews, the Company has noted
an increase in reported construction defect claims. In addition, other
volatile exposures will also be reviewed on a comprehensive basis in the third
quarter.

While the Company continues to monitor and evaluate its APMT exposures on a
regular basis, the completion of a comprehensive ground up analysis of its APMT
exposures, previously scheduled for the second quarter, will be completed in
the third quarter of 2003. Significant resources were dedicated to the
proposed national asbestos reform legislation, as discussed in Reserves 
Estimates and Uncertainties section of the MD&A, and to support the regulatory
reviews described below. As such, the Company plans to complete its more
formal and comprehensive analysis in the third quarter of 2003.

In addition, in connection with routine state regulatory exams of Continental
Casualty Company (CCC) and Continental Insurance Company (CIC), an independent
actuarial firm is in the process of reviewing the Companys property and
casualty Insurance Reserves as of December 31, 2001. The Company intends to
have the independent actuarial firm update its review to include an assessment
of its December 31, 2002 property and casualty Insurance Reserves using more
recent data. These independent reviews are expected to be completed by
December 31, 2003. The Company will consider the results of these independent
actuarial reviews in the reserving process. It is uncertain as to what action,
if any, the state departments of insurance may take as a result of these
examinations.

While management believes that the Companys property and casualty Insurance
Reserves as of June 30, 2003 are appropriate and represent managements best
estimate of what the ultimate settlement and

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

administration of claims will cost
based on its assessment of facts and circumstances known at that time, the
Company, as a result of the Third Quarter Reviews and the independent
actuarial firm and other factors deemed relevant by the Company, may
in future periods determine that its recorded Insurance Reserves are not
sufficient and may need to increase its reserves by amounts that may
be material, which could adversely affect the Companys
business, results of operations, equity, insurer financial strength and debt ratings (see
the Ratings section of the MD&A). Adjustments to prior year reserve estimates,
if necessary, are reflected in the results of operations in the period that the
need for such adjustments is determined.

Reinsurance

CNA assumes and cedes reinsurance with other insurers, reinsurers and members
of various reinsurance pools and associations. CNA utilizes reinsurance
arrangements to limit its maximum loss, provide greater diversification of
risk, minimize exposures on larger risks and to exit certain lines of business.

Interest cost on reinsurance contracts accounted for on a funds withheld basis
is credited during all periods in which a funds withheld liability exists.
Interest cost, which is included in net investment income, was $93 million and
$57 million for the three months ended June 30, 2003 and 2002 and $140 million
and $115 million for the six months ended June 30, 2003 and 2002. The amount
subject to interest crediting rates on such contracts was $2,500 million and
$2,766 million at June 30, 2003 and December 31, 2002.

The amount subject to interest crediting on these funds withheld contracts will
vary over time based on a number of factors, including the timing of loss
payments and ultimate gross losses incurred. The Company expects that it will
continue to incur significant interest costs on these contracts for several
years.

The ceding of insurance does not discharge the primary liability of the
Company. Therefore, a credit exposure exists with respect to property and
casualty and life reinsurance ceded to the extent that any reinsurer is unable
to meet the obligations assumed under reinsurance agreements.

As disclosed in CNAFs Form 10-K filed with the SEC for the year ended December
31, 2002, the Company has reinsurance receivables from several reinsurers who
have recently experienced multiple downgrades of their financial strength
ratings, have announced that they will no longer accept new business and are
placing their books of business into run-off. One of the Companys principal
credit exposures from these recent events arises from reinsurance receivables
from Gerling Global (Gerling).

The Company has been in discussions with Gerling with respect to resolving a
dispute concerning possession of collateral on three CNA HealthPro treaties,
and is in discussions regarding a possible commutation of all other reinsurance
arrangements between CNA and Gerling. The three CNA HealthPro treaties were
commuted as of June 30, 2003, which resulted in a $37 million pretax loss. The
Company estimates that these commutations will reduce pretax interest expense
related to these treaties by approximately $8 million over the balance of 2003
and $11 million in 2004.

In certain circumstances, including significant deterioration of a reinsurers
financial strength ratings, the Company may engage in other commutation
discussions with individual reinsurers. The outcome of such discussions may
result in a lump sum settlement that is less than the recorded receivable, net
of any applicable allowance for doubtful accounts. Losses arising from
commutations, including any related to Gerling, could have an adverse material
impact on the Companys results of operations or equity.

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

The Company has established an allowance for doubtful accounts to provide for
estimated uncollectible reinsurance receivables. The allowance for doubtful
accounts was $239 million and $196 million at June 30, 2003 and December 31,
2002. The Company increased the allowance $40 million in the second quarter of
2003 in recognition of deterioration of the financial strength ratings of
several reinsurers. While the Company believes the allowance for doubtful
accounts is adequate based on existing collateral and information currently
available, failure of reinsurers to meet their obligations could have a
material adverse impact on CNAs results of operations or equity.

The Company has an aggregate reinsurance treaty related to the 1999 through
2001 accident years that covers substantially all of the Companys property and
casualty lines of business (the Aggregate Cover). The Aggregate Cover provides for two sections of coverage. These coverages
attach at defined loss ratios for each accident year. Coverage under the first
section of the Aggregate Cover, which is available for all accident years
covered by the treaty, has a $500 million limit per accident year of ceded
losses and an aggregate limit of $1 billion of ceded losses for the three
accident years. The ceded premiums associated with the first section are a
percentage of ceded losses and for each $500 million of limit the ceded premium
is $230 million. The second section of the Aggregate Cover, which only relates
to accident year 2001, provides additional coverage of up to $510 million of
ceded losses for a maximum ceded premium of $310 million. Under the Aggregate
Cover, interest charges on the funds withheld liability accrue at 8% per annum.
If the aggregate loss ratio for the three-year period exceeds certain
thresholds, additional premiums may be payable and the rate at which interest
charges are accrued would increase to 8.25% per annum commencing in 2006.

During the second quarter of 2003, as a result of the unfavorable reserve
development recorded related to accident year 2000, losses of $78 million were
ceded under the first section of the Aggregate Cover. In 2001, as a result of
reserve additions including those related to accident year 1999, the $500
million limit related to the 1999 accident year under the first section was
fully utilized and losses of $510 million were ceded under the second section
as a result of losses related to the September 11, 2001 World Trade Center
Disaster and related events (WTC event).

The impact of the Aggregate Cover on pretax results of operations was as
follows:

Impact of Aggregate Cover on Pretax Results of Operations

|                                                     |  |              |     |            |  |      |     |      |  |   |     |   |  |   |     |  
|---------------------------------------------------- |  | ------------ | --- | ---------- |  | ---- | --- | ---- |  | - | --- | - |  | - | --- | -
|                                                     |  | Three Months |     | Six Months
|                                                     |  |              |     |           
|Period ended June 30                                 |  | 2003         |     | 2002       |  | 2003 |     | 2002
|(In millions)                                        |  |              |     |            |  |      |     |     
|Ceded earned premiums                                |  | $            | (28 | )          |  | $    |    |      |  | $ | (28 | ) |  | $ |    |  
|Ceded claim and claim adjustment expense             |  |              | 78  |            |  |      |    |      |  |   | 78  |   |  |   |    |  
|Interest charges (included in net investment income) |  |              | (22 | )          |  |      | (12 | )    |  |   | (35 | ) |  |   | (25 | )
|                                                     |  |              |     |            |  |      |     |      |  |   |     |   |  |   |     |  
|Pretax benefit (expense)                             |  | $            | 28  |            |  | $    | (12 | )    |  | $ | 15  |   |  | $ | (25 | )
|                                                     |  |              |     |            |  |      |     |      |  |   |     |   |  |   |     |  

In 2001, the Company entered into a one-year aggregate reinsurance treaty
related to the 2001 accident year covering substantially all property and
casualty lines of business in the Continental Casualty Company pool (the CCC
Cover). The loss protection provided by the CCC Cover has an aggregate limit
of approximately $760 million of ceded losses. The ceded premiums are a
percentage of ceded losses. The ceded premium related to full utilization of
the $760 million of limit is $456 million. The CCC Cover provides continuous
coverage in excess of the second section of the Aggregate Cover discussed
above. Under the CCC Cover, interest charges on the funds withheld generally
accrue at 8% per annum.

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

The interest rate increases to 10% per annum if the
aggregate loss ratio exceeds certain thresholds. Losses of $745 million have
been ceded under the CCC Cover through June 30, 2003.

The impact of the CCC Cover on pretax results of operations was as follows:

Impact of CCC Cover on Pretax Results of Operations

|                                                     |  |              |     |            |  |      |    |      |  |   |     |   |  |   |     |  
|---------------------------------------------------- |  | ------------ | --- | ---------- |  | ---- | -- | ---- |  | - | --- | - |  | - | --- | -
|                                                     |  | Three Months |     | Six Months
|                                                     |  |              |     |           
|Period ended June 30                                 |  | 2003         |     | 2002       |  | 2003 |    | 2002
|(In millions)                                        |  |              |     |            |  |      |    |     
|Ceded earned premiums                                |  | $            | (91 | )          |  | $    |   |      |  | $ | (91 | ) |  | $ | (61 | )
|Ceded claim and claim adjustment expense             |  |              | 126 |            |  |      |   |      |  |   | 126 |   |  |   | 93  |  
|Interest charges (included in net investment income) |  |              | (27 | )          |  |      | (6 | )    |  |   | (35 | ) |  |   | (16 | )
|                                                     |  |              |     |            |  |      |    |      |  |   |     |   |  |   |     |  
|Pretax benefit (expense)                             |  | $            | 8   |            |  | $    | (6 | )    |  | $ |    |   |  | $ | 16  |  
|                                                     |  |              |     |            |  |      |    |      |  |   |     |   |  |   |     |  

The impact by operating segment of the Aggregate Cover and the CCC Cover on
pretax results of operations was as follows:

Impact of Aggregate Cover and CCC Cover on Pretax Results of Operations

|                         |  |              |    |            |  |      |     |      |  |   |    |   |  |   |     |  
|------------------------ |  | ------------ | -- | ---------- |  | ---- | --- | ---- |  | - | -- | - |  | - | --- | -
|                         |  | Three Months |    | Six Months
|                         |  |              |    |           
|Period ended June 30     |  | 2003         |    | 2002       |  | 2003 |     | 2002
|(In millions)            |  |              |    |            |  |      |     |     
|Standard Lines           |  | $            | 36 |            |  | $    | (13 | )    |  | $ | 23 |   |  | $ | (25 | )
|Specialty Lines          |  |              | (2 | )          |  |      | (2  | )    |  |   | (4 | ) |  |   | (4  | )
|CNA Re                   |  |              | 2  |            |  |      | (3  | )    |  |   | (3 | ) |  |   | 20  |  
|Corporate and Other      |  |              |   |            |  |      |    |      |  |   | (1 | ) |  |   |    |  
|                         |  |              |    |            |  |      |     |      |  |   |    |   |  |   |     |  
|Pretax benefit (expense) |  | $            | 36 |            |  | $    | (18 | )    |  | $ | 15 |   |  | $ | (9  | )
|                         |  |              |    |            |  |      |     |      |  |   |    |   |  |   |     |  

Terrorism Exposure

CNA and the insurance industry incurred substantial losses related to the WTC
event. For the most part, the industry was able to absorb the loss of capital
from these losses, but the capacity to withstand the effect of any additional
terrorism events was significantly diminished.

On November 26, 2002, the President of the United States of America, George W.
Bush, signed into law the Terrorism Risk Insurance Act of 2002 (the Act), which
established a program within the Department of the Treasury under which the
Federal Government will share the risk of loss from future terrorist attacks
with the insurance industry. The Act terminates on December 31, 2005. Each
participating insurance company must pay a deductible before Federal Government
assistance becomes available. This deductible is based on a percentage of
direct earned premiums for commercial insurance lines from the previous
calendar year, and rises from 1% from date of enactment to December 31, 2002
(the Transition Period) to 7% during the first subsequent calendar year, 10% in
year two and 15% in year three. For losses in excess of a companys
deductible, the Federal Government will cover 90% of the excess losses, while
companies retain the remaining 10%. Losses covered by the program will be
capped annually at $100 billion; above this amount, insurers are not liable for
covered losses and Congress is to determine the procedures for and the source
of any payments. Amounts paid by the Federal Government under the program over
certain phased limits are to be recouped by the Department of the Treasury
through policy surcharges, which cannot exceed 3% of annual premium.

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

Insurance companies providing commercial property and casualty insurance are
required to participate in the program, but it does not cover life or health
insurance products. State law limitations applying to premiums and policies
for terrorism coverage are not generally affected under the program, but they
are pre-empted in relation to prior approval requirements for rates and forms.
The Act has policyholder notice requirements in order for insurers to be
reimbursed for terrorism-related losses and, from the date of enactment until
December 31, 2004, a mandatory offer requirement for terrorism coverage,
although the coverage may be rejected by insureds. The Secretary of the
Department of the Treasury has discretion to extend this offer requirement
until December 31, 2005.

While the Act provides the property and casualty industry with an increased
ability to withstand the effect of a terrorist event through 2005, given the
unpredictability of the nature, targets, severity or frequency of potential
terrorist events, the Companys results of operations or equity could
nevertheless be materially adversely impacted by them. The Company is
attempting to mitigate this exposure through its underwriting practices, policy
terms and conditions (where applicable) and the use of reinsurance. In
addition, under state laws, the Company is generally prohibited from excluding
terrorism exposure from its primary workers compensation, individual life and
group life and health policies. In those states that mandate property
insurance coverage of damage from fire following a loss, the Company is also
prohibited from excluding terrorism exposure under such coverage.

Reinsurers obligations for terrorism-related losses under reinsurance
agreements are not covered by the Act. The Companys current reinsurance
arrangements either exclude terrorism coverage or significantly limit the level
of coverage.

Restructuring

As discussed in the Companys 2002 Form 10-K, the Company finalized
and approved two separate restructuring plans in 2001. The first plan related to the
Companys Information Technology operations (the IT Plan). The second plan
related to restructuring the property and casualty segments and Life
Operations, discontinuation of the variable life and annuity business and
consolidation of real estate locations (the 2001 Plan).

No restructuring and other related charges related to the IT Plan were incurred
for the three and six months ended June 30, 2003 and 2002. During 2003, $1
million in payments were charged against the liability. As of June 30, 2003,
the accrued liability relating to employee termination and related benefit
costs was $4 million. The remaining accrual is expected to be paid through
2004.

No restructuring and other related charges related to the 2001 Plan were
incurred for the three and six months ended June 30, 2003 and 2002. During
2003, $11 million in payments for occupancy and employee related costs and $1
million of other restructuring costs were charged against the liability. As of
June 30, 2003, the accrued liability, relating primarily to lease termination
costs, was $26 million. Of the remaining accrual, approximately $6 million is
expected to be paid in the remainder of 2003.

Expense Initiatives

The Company has launched a $200 million expense reduction initiative. The
primary components of the initiative are a reduction of the current workforce
by approximately five percent, lower commissions and other acquisition costs,
principally related to workers compensation, and reduced spending in other
areas. Strategies expected to realize such savings are anticipated to be implemented over
the next year.

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

Non-GAAP Financial Measures

The MD&A discusses certain GAAP and non-GAAP financial measures to provide
information used by management to monitor the Companys operating performance.
Management utilizes various financial measures to monitor the Companys
insurance operations and investment portfolio. Underwriting results, which are
derived from certain income statement amounts, are considered non-GAAP
financial measures and are used by management to monitor performance of the
Companys insurance operations. The Companys investment portfolio is
monitored through analysis of various quantitative and qualitative factors and
certain decisions related to the sale or impairment of investments that produce
realized gains and losses. Net realized investment gains and losses, which are
comprised of after-tax realized
investment gains and losses net of participating policyholders and minority
interests are a non-GAAP financial measure.

Underwriting results are computed as net earned premiums less net incurred
claims and the cost incurred to settle these claims, acquisition expenses,
underwriting expenses and dividend expenses. Management uses underwriting
results and operating ratios to monitor its insurance operations results
without the impact of certain factors, including investment income, other
revenues, other expenses, minority interest, income tax benefit (expense) and
net realized investment gains or losses. Management excludes these factors in
order to analyze the direct relationship between the net earned premiums and
the related claims and the cost incurred to settle these claims, acquisition
expenses, underwriting expenses and dividend expenses.

Management excludes after-tax net realized investment gains or losses when
analyzing the insurance operations because net realized investment gains or
losses related to the Companys available-for-sale investment portfolio are
largely discretionary, except for losses related to other-than-temporary
impairments, and are generally driven by economic factors that are not necessarily
consistent with key drivers of underwriting performance.

Operating ratios are calculated using insurance results and are used by the
insurance industry and regulators such as state departments of insurance and
the National Association of Insurance Commissioners for financial regulation
and as a basis of comparison among companies. The ratios discussed in the
Companys MD&A are calculated using GAAP financial results and include the loss
and loss adjustment expense ratio (loss ratio) as well as the expense, dividend
and combined ratios. The loss ratio is the percentage of net incurred claim
and claim adjustment expenses to net earned premiums. The expense ratio is the
percentage of underwriting and acquisition expenses, including the amortization
of deferred acquisition costs, to net earned premiums. The dividend ratio is
the ratio of dividends incurred to net earned premiums. The combined ratio is
the sum of the loss, expense and dividend ratios.

The Companys investment portfolio is monitored by management through analyses
of various factors including unrealized gains and losses on securities,
portfolio duration and exposure to interest rate, market and credit risk.
Based on such analyses, the Company may impair an investment security in
accordance with its policy, or sell a security. Such activities will produce
realized gains and losses.

While management uses various non-GAAP financial measures to monitor various
aspects of the Companys performance, relying on any measure other than net
income, which is the most directly comparable GAAP measure to underwriting
results and realized gains and losses, is not a complete representation of
financial performance. Management believes that its process of evaluating
performance through the use of these non-GAAP financial measures provides a
basis for understanding the operations and the impact to net income as a whole.
Management also believes that investors find these non-GAAP

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

financial measures
described above useful to help interpret the underlying trends and performance,
as well as to provide visibility into the significant components of net income.

Throughout the MD&A, business segment results are discussed using Underwriting
Results, which as described above is a non-GAAP measure. The following
reconciliation provides the differences between Underwriting Results and Net
Income (Loss).

Reconciliation of Underwriting Loss to Net (Loss) Income

|                                                                                                       |  |          |      |           |  |        |      |   |  |   |     |  
|------------------------------------------------------------------------------------------------------ |  | -------- | ---- | --------- |  | ------ | ---- | - |  | - | --- | -
|Three months ended                                                                                     |  | Standard |      | Specialty |  |        |      |  
|June 30, 2003                                                                                          |  | Lines    |      | Lines     |  | CNA Re
|(In millions)                                                                                          |  |          |      |           |  |       
|Underwriting loss                                                                                      |  | $        | (326 | )         |  | $      | (162 | ) |  | $ | (5  | )
|Net investment income                                                                                  |  |          | 84   |           |  |        | 79   |   |  |   | 22  |  
|Other revenues                                                                                         |  |          | 59   |           |  |        | 26   |   |  |   |    |  
|Other expenses                                                                                         |  |          | (57  | )         |  |        | (27  | ) |  |   |    |  
|                                                                                                       |  |          |      |           |  |        |      |   |  |   |     |  
|(Loss) income before income tax benefit (expense), minority interest and net
realized investment gains |  |          | (240 | )         |  |        | (84  | ) |  |   | 17  |  
|Income tax benefit (expense)                                                                           |  |          | 96   |           |  |        | 28   |   |  |   | (4  | )
|Minority interest                                                                                      |  |          |     |           |  |        | (2   | ) |  |   |    |  
|                                                                                                       |  |          |      |           |  |        |      |   |  |   |     |  
|(Loss) income before net realized investment gains                                                     |  |          | (144 | )         |  |        | (58  | ) |  |   | 13  |  
|Realized investment gains, net of participating policyholders and minority interest                   |  |          | 169  |           |  |        | 79   |   |  |   | 33  |  
|Income tax expense on realized investment gains                                                        |  |          | (59  | )         |  |        | (24  | ) |  |   | (11 | )
|                                                                                                       |  |          |      |           |  |        |      |   |  |   |     |  
|Net (loss) income                                                                                      |  | $        | (34  | )         |  | $      | (3   | ) |  | $ | 35  |  
|                                                                                                       |  |          |      |           |  |        |      |   |  |   |     |  

Reconciliation of Underwriting Loss to Net Income

|                                                                                       |  |          |     |           |  |        |     |   |  |   |     |  
|-------------------------------------------------------------------------------------- |  | -------- | --- | --------- |  | ------ | --- | - |  | - | --- | -
|Three months ended                                                                     |  | Standard |     | Specialty |  |        |     |  
|June 30, 2002                                                                          |  | Lines    |     | Lines     |  | CNA Re
|(In millions)                                                                          |  |          |     |           |  |       
|Underwriting loss                                                                      |  | $        | (95 | )         |  | $      | (15 | ) |  | $ | (15 | )
|Net investment income                                                                  |  |          | 134 |           |  |        | 75  |   |  |   | 48  |  
|Other revenues                                                                         |  |          | 80  |           |  |        | 33  |   |  |   |    |  
|Other expenses                                                                         |  |          | (70 | )         |  |        | (25 | ) |  |   |    |  
|                                                                                       |  |          |     |           |  |        |     |   |  |   |     |  
|Income before income tax expense, minority interest and net realized investment
losses |  |          | 49  |           |  |        | 68  |   |  |   | 33  |  
|Income tax expense                                                                     |  |          | (9  | )         |  |        | (23 | ) |  |   | (9  | )
|Minority interest                                                                      |  |          |    |           |  |        | (5  | ) |  |   |    |  
|                                                                                       |  |          |     |           |  |        |     |   |  |   |     |  
|Income before net realized investment losses                                           |  |          | 40  |           |  |        | 40  |   |  |   | 24  |  
|Realized investment losses, net of participating policyholders and minority interest  |  |          | (31 | )         |  |        | (26 | ) |  |   | (6  | )
|Income tax benefit on realized investment losses                                       |  |          | 10  |           |  |        | 9   |   |  |   | 2   |  
|                                                                                       |  |          |     |           |  |        |     |   |  |   |     |  
|Net income                                                                             |  | $        | 19  |           |  | $      | 23  |   |  | $ | 20  |  
|                                                                                       |  |          |     |           |  |        |     |   |  |   |     |  

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

Reconciliation of Underwriting (Loss) Gain to Net Income

|                                                                                                       |  |          |      |           |  |        |      |   |  |   |     |  
|------------------------------------------------------------------------------------------------------ |  | -------- | ---- | --------- |  | ------ | ---- | - |  | - | --- | -
|Six months ended                                                                                       |  | Standard |      | Specialty |  |        |      |  
|June 30, 2003                                                                                          |  | Lines    |      | Lines     |  | CNA Re
|(In millions)                                                                                          |  |          |      |           |  |       
|Underwriting (loss) gain                                                                               |  | $        | (406 | )         |  | $      | (168 | ) |  | $ | 6   |  
|Net investment income                                                                                  |  |          | 194  |           |  |        | 149  |   |  |   | 46  |  
|Other revenues                                                                                         |  |          | 130  |           |  |        | 46   |   |  |   | 1   |  
|Other expenses                                                                                         |  |          | (117 | )         |  |        | (44  | ) |  |   |    |  
|                                                                                                       |  |          |      |           |  |        |      |   |  |   |     |  
|(Loss) income before income tax benefit (expense), minority interest and net
realized investment gains |  |          | (199 | )         |  |        | (17  | ) |  |   | 53  |  
|Income tax benefit (expense)                                                                           |  |          | 90   |           |  |        | 10   |   |  |   | (15 | )
|Minority interest                                                                                      |  |          |     |           |  |        | (5   | ) |  |   |    |  
|                                                                                                       |  |          |      |           |  |        |      |   |  |   |     |  
|(Loss) income before net realized investment gains                                                     |  |          | (109 | )         |  |        | (12  | ) |  |   | 38  |  
|Realized investment gains, net of participating policyholders and minority interest                   |  |          | 182  |           |  |        | 66   |   |  |   | 42  |  
|Income tax expense on realized investment gains                                                        |  |          | (64  | )         |  |        | (22  | ) |  |   | (11 | )
|                                                                                                       |  |          |      |           |  |        |      |   |  |   |     |  
|Net income                                                                                             |  | $        | 9    |           |  | $      | 32   |   |  | $ | 69  |  
|                                                                                                       |  |          |      |           |  |        |      |   |  |   |     |  

Reconciliation of Underwriting (Loss) Gain to Net Income

|                                                                                               |  |          |      |           |  |        |     |   |  |   |     |  
|---------------------------------------------------------------------------------------------- |  | -------- | ---- | --------- |  | ------ | --- | - |  | - | --- | -
|Six months ended                                                                               |  | Standard |      | Specialty |  |        |     |  
|June 30, 2002                                                                                  |  | Lines    |      | Lines     |  | CNA Re
|(In millions)                                                                                  |  |          |      |           |  |       
|Underwriting (loss) gain                                                                       |  | $        | (204 | )         |  | $      | (35 | ) |  | $ | 10  |  
|Net investment income                                                                          |  |          | 237  |           |  |        | 135 |   |  |   | 81  |  
|Other revenues                                                                                 |  |          | 163  |           |  |        | 87  |   |  |   | 1   |  
|Other expenses                                                                                 |  |          | (141 | )         |  |        | (56 | ) |  |   |    |  
|                                                                                               |  |          |      |           |  |        |     |   |  |   |     |  
|Income before income tax expense, minority interest and net realized investment
(losses) gains |  |          | 55   |           |  |        | 131 |   |  |   | 92  |  
|Income tax expense                                                                             |  |          | (5   | )         |  |        | (47 | ) |  |   | (28 | )
|Minority interest                                                                              |  |          |     |           |  |        | (10 | ) |  |   |    |  
|                                                                                               |  |          |      |           |  |        |     |   |  |   |     |  
|Income before net realized investment (losses) gains                                           |  |          | 50   |           |  |        | 74  |   |  |   | 64  |  
|Realized investment (losses) gains, net of participating policyholders and minority
interest  |  |          | (24  | )         |  |        | (31 | ) |  |   | 3   |  
|Income tax benefit on realized investment (losses) gains                                       |  |          | 8    |           |  |        | 10  |   |  |   | 1   |  
|                                                                                               |  |          |      |           |  |        |     |   |  |   |     |  
|Income from continuing operations                                                              |  |          | 34   |           |  |        | 53  |   |  |   | 68  |  
|Cumulative effect of a change in accounting principle, net of tax of $7                        |  |          |     |           |  |        | (48 | ) |  |   |    |  
|                                                                                               |  |          |      |           |  |        |     |   |  |   |     |  
|Net income                                                                                     |  | $        | 34   |           |  | $      | 5   |   |  | $ | 68  |  
|                                                                                               |  |          |      |           |  |        |     |   |  |   |     |  

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

Segment Results

The following discussion is of the Companys operating segments.

STANDARD LINES

The following table details the results of operations for Standard Lines.

Results of Operations

|                                                            |                                  |      |              |       |            |      |       |       |   |   |       |       |   |   |       |       |  
|----------------------------------------------------------- | -------------------------------- | ---- | ------------ | ----- | ---------- | ---- | ----- | ----- | - | - | ----- | ----- | - | - | ----- | ----- | -
|                                                            |                                  |      | Three Months |       | Six Months
|                                                            |                                  |      |              |       |           
|Period ended June 30                                        |                                  | 2003 |              | 2002  |            | 2003 |       | 2002 
|(In millions)                                               |                                  |      |              |       |            |      |       |      
|Net written premiums                                        |                                  | $    | 890          |       |            | $    | 1,056 |       |   | $ | 1,994 |       |   | $ | 2,139 |      
|Net earned premiums                                         |                                  |      | 823          |       |            |      | 1,032 |       |   |   | 1,862 |       |   |   | 2,048 |      
|Underwriting loss                                           |                                  |      | (326         | )     |            |      | (95   | )     |   |   | (406  | )     |   |   | (204  | )    
|(Loss) income before net realized investment gains (losses) |                                  |      | (144         | )     |            |      | 40    |       |   |   | (109  | )     |   |   | 50    |      
|Net realized investment gains (losses)                      |                                  |      | 110          |       |            |      | (21   | )     |   |   | 118   |       |   |   | (16   | )    
|Net (loss) income                                           |                                  |      | (34          | )     |            |      | 19    |       |   |   | 9     |       |   |   | 34    |      
|Ratios                                                      |                                  |      |              |       |            |      |       |       |   |   |       |       |   |   |       |      
|                                                            | Loss and loss adjustment expense |      |              | 93.9  | %          |      |       | 78.1  | % |   |       | 82.8  | % |   |       | 77.6  | %
|                                                            | Expense                          |      |              | 44.4  |            |      |       | 29.7  |   |   |       | 37.6  |   |   |       | 30.9  |  
|                                                            | Dividend                         |      |              | 1.3   |            |      |       | 1.5   |   |   |       | 1.4   |   |   |       | 1.5   |  
|                                                            |                                  |      |              |       |            |      |       |       |   |   |       |       |   |   |       |      
|                                                            | Combined                         |      |              | 139.6 | %          |      |       | 109.3 | % |   |       | 121.8 | % |   |       | 110.0 | %
|                                                            |                                  |      |              |       |            |      |       |       |   |   |       |       |   |   |       |      

Three Month Comparison

Net written premiums for Standard Lines decreased $166 million and net earned
premiums decreased $209 million for the three months ended June 30, 2003 as
compared with the same period in 2002. These decreases were due primarily to
premiums ceded to corporate aggregate reinsurance treaties and other
reinsurance treaties principally due to the unfavorable net prior year reserve
development discussed below. These items were partially offset by rate and
production increases in Property and Casualty (P&C).

Standard Lines averaged rate increases of 17% and 28% for the three months
ended June 30, 2003 and 2002 for the contracts that renewed during the period.
Retention rates of 74% and 66% were achieved for those contracts that were up
for renewal.

Net results decreased $53 million for the three months ended June 30, 2003 as
compared with the same period in 2002. The decrease in net results was
primarily due to decreased underwriting results and decreased net investment
income, partially offset by increased net realized investment gains. See the
Investments section of the MD&A for further discussion on net investment income
and net realized investment gains (losses).

The combined ratio increased 30.3 points and underwriting results decreased
$231 million for the three months ended June 30, 2003 as compared with the same
period in 2002. This change was due principally to increases in the loss and
expense ratios. The loss ratio increased 15.8 points due principally to
unfavorable net prior year development, as discussed below, and $48 million of
catastrophe losses, primarily related to Texas tornados and Midwest rain
storms, which occurred during the three months ended June 30, 2003.
Catastrophe losses were $6 million for the three months ended June 30, 2002.

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

Partially offsetting these declines were improvements in the current net
accident year loss ratio and cessions to corporate aggregate reinsurance
treaties.

Unfavorable net prior year development, including premium and claim and
allocated claim adjustment expense reserve development, of $284 million,
including $221 million of unfavorable premium development and $63 million of
unfavorable claim and allocated claim adjustment expense reserve development,
was recorded for the three months ended June 30, 2003. Unfavorable net prior
year development of $32 million, including $30 million of unfavorable claim and
allocated claim adjustment expense reserve development and $2 million of
unfavorable premium development, was recorded for the same period in 2002.

Unfavorable net prior year development of approximately $310 million, including
$233 million of unfavorable claim and allocated claim adjustment expense
reserve development and $77 million of unfavorable premium development, was
recorded for large account business, driven by workers compensation exposures.
This reserve development resulted from the completion of reserve reviews for
large account business where the insured is often responsible for a portion of
the losses, and claims are handled by the Company. The review did not cover
the large account business where claims are handled by a third-party
administrator (TPA). Initial reserves for this business are set based on the
expected losses associated with the individual accounts covered and the terms
of the individual plans. Based on analyses completed during the second
quarter, it became apparent that the assumptions regarding the number and size
of the losses, which were used to estimate the expected losses, were no longer
appropriate. The analysis showed that the actual number of claims and the
average claim size were larger than expected. The development was recorded in
accident years prior to 2002.

Approximately $11 million of unfavorable net prior year claim and allocated
claim adjustment expense reserve development resulted from a program covering
facilities that provide services to developmentally disabled individuals. This
development was due to an increase in the size of known claims and increases in
policyholder defense costs. The reserve development was recorded in accident
years prior to 2001.

Approximately $25 million of unfavorable net prior year premium development was
recorded related to a second quarter 2003 reevaluation of losses ceded to a
reinsurance contract covering middle market workers compensation exposures.
The reevaluation of losses led to a new estimate of the number and dollar
amount of claims that would be ceded under the reinsurance contract. As a
result of the reevaluation of losses, the Company recorded approximately $36
million of unfavorable claim and allocated claim adjustment expense reserve
development, which was ceded under this contract. The development was recorded
in accident year 2000.

Unfavorable net prior year claim and allocated claim adjustment expense reserve
development of approximately $11 million was recorded for a program covering
tow truck and ambulance operators, primarily impacting the 2001 accident year.
The Company had previously expected that loss ratios for this business would be
similar to its middle market commercial automobile liability business. During
2002, the Company ceased writing business under this program.

Offsetting these unfavorable developments was a $75 million underwriting
benefit from cessions to corporate aggregate reinsurance treaties. The benefit
is comprised of $180 million of ceded losses and $105 million of ceded premiums
for accident years 2000 and 2001. See the Reinsurance section of the MD&A for
further discussion of the Companys aggregate reinsurance treaties.

The expense ratio increased 14.7 points due to a decreased net earned premium
base and a $39 million pretax increase in the bad debt reserve, primarily related
to Excess and Surplus (E&S) lines. Based on

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

recent experience with troubled
unsecured creditors, an increase in the bad debt reserve was deemed
appropriate. Also increasing the expense ratio was approximately $17 million
of expenses related to eBusiness in 2003. The 2002 eBusiness expenses were
included in the Corporate and Other segment.

Six Month Comparison

Net written premiums for Standard Lines decreased $145 million and net earned
premiums decreased $186 million for the six months ended June 30, 2003 as
compared with the same period in 2002. These decreases were due primarily to
premiums ceded to corporate aggregate reinsurance treaties and other
reinsurance treaties, partially offset by strong rate increases and increased
new business in P&C and E&S.

Standard Lines averaged rate increases of 19% and 29% for the six months ended
June 30, 2003 and 2002 for the contracts that renewed during the period.
Retention rates of 73% and 66% were achieved for those contracts that were up
for renewal.

Net results decreased $25 million for the six months ended June 30, 2003 as
compared with the same period in 2002. The decrease in net results was
primarily related to decreased underwriting results and decreased net
investment income, partially offset by increased net realized investment gains.
See the Investments section of the MD&A for further discussion on net
investment income and net realized gains (losses).

The combined ratio increased 11.8 points and underwriting results decreased
$202 million for the six months ended June 30, 2003 as compared with the same
period in 2002. This change was due principally to increases in the loss and
expense ratios. The loss ratio increased 5.2 points due principally to an
increase in unfavorable net prior year development, as discussed below, and $61
million of catastrophe losses, which occurred during the six months ended June
30, 2003. Catastrophe losses were $9 million for the six months ended June 30,
2002. Partially offsetting these declines were improvements in the current net
accident year loss ratio and a $75 million underwriting benefit related to
corporate aggregate reinsurance treaties.

Unfavorable net prior year development, including premium and claim and
allocated claim adjustment expense reserve development, of $312 million,
including $184 million of unfavorable premium development and $128 million of
unfavorable claim and allocated claim adjustment expense reserve development,
was recorded for the six months ended June 30, 2003. Unfavorable net prior year
development of $33 million, including $29 million of unfavorable claim and
allocated claim adjustment expense reserve development and $4 million of
unfavorable premium development, was recorded for the same period in 2002. The
gross carried claim and claim adjustment expense reserve was $11,793 million
and $11,576 million at June 30, 2003 and December 31, 2002. The net carried
claim and claim adjustment expense reserve was $7,127 million and $7,262
million at June 30, 2003 and December 31, 2002.

Unfavorable net prior year development of approximately $310 million, including
$233 million of unfavorable claim and allocated claim adjustment expense
reserve development and $77 million of unfavorable premium development, was
recorded for large account business, driven by workers compensation exposures.
This development resulted from the completion of reserve reviews for
large account business where the insured is often responsible for a portion of
the losses, and claims are handled by the Company. The review did not cover
the large account business where claims are handled by a TPA. Initial reserves
for this business are set based on the expected losses associated with the
individual accounts covered and the terms of the individual plans. Based on
analyses completed during

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

the second quarter, it became apparent that the
assumptions regarding the number and size of the losses, which were used to
estimate the expected losses, were no longer appropriate. The analysis showed
that the actual number of claims and the average claim size were larger than
expected. The development was recorded in accident years prior to 2002.

Approximately $21 million of unfavorable net prior year claim and allocated
claim adjustment expense reserve development resulted from a program covering
facilities that provide services to developmentally
disabled individuals. This development was due to an increase in the size of
known claims and increases in policyholder defense costs. The reserve
development was recorded in accident years prior to 2001.

Approximately $25 million of unfavorable net prior year premium development was
recorded related to a second quarter 2003 reevaluation of losses ceded to a
reinsurance contract covering middle market workers compensation exposures.
The reevaluation of losses led to a new estimate of the number and dollar
amount of claims that would be ceded under the reinsurance contract. As a
result of the reevaluation of losses, the Company recorded approximately $36
million of unfavorable claim and allocated claim adjustment expense reserve
development, which was ceded under this contract. The development was recorded
in accident year 2000.

Unfavorable net prior year claim and allocated claim adjustment expense reserve
development of approximately $36 million was recorded for a program covering
tow truck and ambulance operators, primarily impacting the 2001 accident year.
The Company had previously expected that loss ratios for this business would be
similar to its middle market commercial automobile liability business. During
2002, the Company ceased writing business under this program.

Offsetting these unfavorable developments was a $75 million underwriting
benefit from cessions to corporate aggregate reinsurance treaties. The benefit
is comprised of $180 million of ceded losses and $105 million of ceded premiums
for accident years 2000 and 2001. See the Reinsurance section of the MD&A for
further discussion of the Companys aggregate reinsurance treaties.

Favorable prior year claim and allocated claim adjustment expense reserve
development was also recorded in property lines primarily in the first quarter
of 2003. The favorable reserve development was principally from accident years
2001 and 2002 and was the result of the lower than expected number of large
losses in recent years.

The expense ratio increased 6.7 points due to a decreased net earned premium
base and a $39 million pretax increase in the bad debt reserve, primarily related
to E&S lines. Based on recent experience with troubled unsecured creditors, an
increase in the bad debt reserve was deemed appropriate. Also increasing the
expense ratio was approximately $33 million of expenses related to eBusiness in
2003. The 2002 eBusiness expenses were included in the Corporate and Other
segment.

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

SPECIALTY LINES

The following table details the results of operations for Specialty Lines.

Results of Operations

|                                                            |                                  |      |              |       |            |      |     |       |   |   |       |       |   |   |       |       |  
|----------------------------------------------------------- | -------------------------------- | ---- | ------------ | ----- | ---------- | ---- | --- | ----- | - | - | ----- | ----- | - | - | ----- | ----- | -
|                                                            |                                  |      | Three Months |       | Six Months
|                                                            |                                  |      |              |       |           
|Period ended June 30                                        |                                  | 2003 |              | 2002  |            | 2003 |     | 2002 
|(In millions)                                               |                                  |      |              |       |            |      |     |      
|Net written premiums                                        |                                  | $    | 681          |       |            | $    | 572 |       |   | $ | 1,345 |       |   | $ | 1,112 |      
|Net earned premiums                                         |                                  |      | 664          |       |            |      | 535 |       |   |   | 1,288 |       |   |   | 1,043 |      
|Underwriting loss                                           |                                  |      | (162         | )     |            |      | (15 | )     |   |   | (168  | )     |   |   | (35   | )    
|(Loss) income before net realized investment gains (losses) |                                  |      | (58          | )     |            |      | 40  |       |   |   | (12   | )     |   |   | 74    |      
|Net realized investment gains (losses)                      |                                  |      | 55           |       |            |      | (17 | )     |   |   | 44    |       |   |   | (21   | )    
|Net (loss) income                                           |                                  |      | (3           | )     |            |      | 23  |       |   |   | 32    |       |   |   | 5     |      
|Ratios                                                      |                                  |      |              |       |            |      |     |       |   |   |       |       |   |   |       |      
|                                                            | Loss and loss adjustment expense |      |              | 92.7  | %          |      |     | 70.3  | % |   |       | 81.4  | % |   |       | 70.8  | %
|                                                            | Expense                          |      |              | 31.6  |            |      |     | 32.4  |   |   |       | 31.5  |   |   |       | 32.4  |  
|                                                            | Dividend                         |      |              | 0.1   |            |      |     | 0.1   |   |   |       | 0.1   |   |   |       | 0.1   |  
|                                                            |                                  |      |              |       |            |      |     |       |   |   |       |       |   |   |       |      
|                                                            | Combined                         |      |              | 124.4 | %          |      |     | 102.8 | % |   |       | 113.0 | % |   |       | 103.3 | %
|                                                            |                                  |      |              |       |            |      |     |       |   |   |       |       |   |   |       |      

Three Month Comparison

Net written premiums for Specialty Lines increased $109 million and net earned
premiums increased $129 million for the three months ended June 30, 2003 as
compared with the same period in 2002. These increases were due primarily to
increases in rates and new business, principally in Professional Liability
Insurance (CNA Pro).

Specialty Lines averaged rate increases of 24% for the three months ended June
30, 2003 and 2002 for the contracts that renewed during the period. Retention
rates of 80% and 76% were achieved for those contracts that were up for
renewal.

Net results decreased $26 million for the three months ended June 30, 2003 as
compared with the same period in 2002. The decrease in net results was
primarily related to decreased underwriting results, partially offset by
increased net investment income and increased net realized investment gains.
See the Investments section of the MD&A for further discussion on net
investment income and net realized gains (losses).

The combined ratio increased 21.6 points and underwriting results decreased by
$147 million for the three months ended June 30, 2003 as compared with the same
period in 2002. This change was due to an increase in the loss ratio,
partially offset by a decrease in the expense ratio. The loss ratio increased
22.4 points due principally to increased unfavorable net prior year
development, as discussed below, partially offset by improvement in the current
net accident year loss ratio. The expense ratio decreased 0.8 points primarily
as a result of the increased net earned premium base.

Unfavorable net prior year development, including premium and claim and
allocated claim adjustment expense reserve development, of $190 million,
including $182 million of unfavorable claim and allocated claim adjustment
expense reserve development and $8 million of unfavorable premium development,
was recorded for the three months ended June 30, 2003. Unfavorable premium
development of $4 million and

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

favorable claim and allocated claim adjustment
expense reserve development of $4 million was recorded for the same period in
2002.

Unfavorable net prior year claim and allocated claim adjustment expense reserve
development of approximately $75 million was recorded related to a recent
adverse arbitration decision involving a single large property and business
interruption loss. The decision was rendered against a voluntary insurance
pool in which the Company was a participant. The loss was caused by a fire
which occurred in 1995. The Company no longer participates in this pool.

Approximately $50 million of unfavorable net prior year claim and allocated
claim adjustment expense reserve development was recorded for directors and
officers exposures. The reserve development was a result of a claims review
that was completed during the second quarter of 2003. The unfavorable net
prior year reserve development was primarily due to securities class action
cases related to certain known corporate malfeasance cases and investment
banking firms. The reserve development was recorded primarily in accident
years 2001 and 2002.

Approximately $37 million of losses were recorded as the result of a
commutation of three ceded reinsurance treaties covering CNA HealthPro, related
to accident years 1999 through 2001. Further information regarding this
commutation is provided in the Reinsurance section of the MD&A.

Approximately $21 million of unfavorable net prior year claim and allocated
claim adjustment expense reserve development was recorded in the Surety line of
business as the result of recent developments on one large claim.

Six Month Comparison

Net written premiums for Specialty Lines increased $233 million and net earned
premiums increased $245 million for the six months ended June 30, 2003 as
compared with the same period in 2002. These increases were due primarily to
rate increases and strong new business, principally in CNA Pro.

Specialty Lines averaged rate increases of 27% and 21% for the six months ended
June 30, 2003 and 2002 for the contracts that renewed during the period.
Retention rates of 80% and 76% were achieved for those contracts that were up
for renewal.

Net income increased $27 million for the six months ended June 30, 2003 as
compared with the same period in 2002. The increase in net income was
primarily related to increased net realized investment gains and increased net
investment income. These items were partially offset by decreased underwriting
results. See the Investments section of the MD&A for further discussion on net
investment income and net realized gains (losses).

In addition, net income includes a 2002 non-recurring currency translation gain
on U.S. dollar denominated investments held by an Argentinean subsidiary. The
Argentine government changed its local currency and required conversion of all
U.S. denominated investments to Argentine Pesos. This conversion resulted in a
translation gain of $18 million, which was partially offset by a write-off of
the goodwill of that entity in the amount of $10 million.

The combined ratio increased 9.7 points and underwriting results decreased by
$133 million for the six months ended June 30, 2003 as compared with the same
period in 2002. The change was due to an increase in the loss ratio, partially
offset by a decrease in the expense ratio. The loss ratio increased

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

10.6
points due principally to increased unfavorable net prior year development, as
discussed below, partially offset by improvement in the current net accident
year loss ratio. The expense ratio decreased 0.9 points as a result of the
increased net earned premium base.

Unfavorable net prior year development, including premium and claim and
allocated claim adjustment expense reserve development, of $190 million,
including $205 million of unfavorable claim and allocated claim adjustment
expense reserve development and $15 million of favorable premium development,
was recorded for the six months ended June 30, 2003. Unfavorable net prior
year development of $2 million, including $10 million of unfavorable premium
development and $8 million of favorable claim and allocated claim adjustment
expense reserve development, was recorded for the same period in 2002. This
development is discussed above in the three month comparison. The gross
carried claim and claim adjustment expense reserve was $6,085 million and
$5,874 million at June 30, 2003 and December 31, 2002. The net carried claim
and claim adjustment expense reserve was $3,467 million and $3,373 million at
June 30, 2003 and December 31, 2002.

CNA RE

The following table details the results of operations for CNA Re.

Results of Operations

|                                                     |                                  |      |              |       |            |      |     |       |   |   |     |      |   |   |     |      |  
|---------------------------------------------------- | -------------------------------- | ---- | ------------ | ----- | ---------- | ---- | --- | ----- | - | - | --- | ---- | - | - | --- | ---- | -
|                                                     |                                  |      | Three Months |       | Six Months
|                                                     |                                  |      |              |       |           
|Period ended June 30                                 |                                  | 2003 |              | 2002  |            | 2003 |     | 2002 
|(In millions)                                        |                                  |      |              |       |            |      |     |      
|Net written premiums                                 |                                  | $    | 123          |       |            | $    | 160 |       |   | $ | 328 |      |   | $ | 327 |     
|Net earned premiums                                  |                                  |      | 134          |       |            |      | 168 |       |   |   | 287 |      |   |   | 305 |     
|Underwriting (loss) gain                             |                                  |      | (5           | )     |            |      | (15 | )     |   |   | 6   |      |   |   | 10  |     
|Income before net realized investment gains (losses) |                                  |      | 13           |       |            |      | 24  |       |   |   | 38  |      |   |   | 64  |     
|Net realized investment gains (losses)               |                                  |      | 22           |       |            |      | (4  | )     |   |   | 31  |      |   |   | 4   |     
|Net income                                           |                                  |      | 35           |       |            |      | 20  |       |   |   | 69  |      |   |   | 68  |     
|Ratios                                               |                                  |      |              |       |            |      |     |       |   |   |     |      |   |   |     |     
|                                                     | Loss and loss adjustment expense |      |              | 71.4  | %          |      |     | 81.6  | % |   |     | 67.4 | % |   |     | 63.6 | %
|                                                     | Expense                          |      |              | 32.4  |            |      |     | 27.3  |   |   |     | 30.5 |   |   |     | 33.1 |  
|                                                     |                                  |      |              |       |            |      |     |       |   |   |     |      |   |   |     |     
|                                                     | Combined                         |      |              | 103.8 | %          |      |     | 108.9 | % |   |     | 97.9 | % |   |     | 96.7 | %
|                                                     |                                  |      |              |       |            |      |     |       |   |   |     |      |   |   |     |     

Three Month Comparison

Net written premiums for CNA Re decreased $37 million and net earned premiums
decreased $34 million for the three months ended June 30, 2003 as compared with
the same period in 2002. These decreases were due primarily to increased ceded
premiums related to corporate aggregate reinsurance treaties, reduced level of
premiums from prior underwriting years and the absence of premiums from CNA
Reinsurance Company Limited (CNA Re U.K.), which was sold in 2002. Partially
offsetting these decreases were achieved rate increases.

Net income increased $15 million for the three months ended June 30, 2003 as
compared with the same period in 2002. The increase in net income was
primarily related to the increase in net realized investment gains and the decrease in
underwriting loss, partially offset by decreased net investment income due
primarily to a reduction of invested assets resulting from the sale of CNA Re
U.K. See the Investments section of the MD&A for further discussion on net
investment income and net realized gains (losses).

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

The combined ratio decreased 5.1 points and underwriting results improved $10
million for the three months ended June 30, 2003 as compared with the same
period in 2002. This change was due to a decrease in the loss ratio, partially
offset by an increase in the expense ratio. The loss ratio decreased 10.2
points due principally to an improvement in the current net accident year loss
ratio and cessions to corporate aggregate reinsurance treaties. These items
were partially offset by increased unfavorable net prior year development, as
discussed below, and $11 million of catastrophe losses related to the Texas
tornados and Midwest rain storms, which occurred during the three months ended
June 30, 2003. There were no catastrophe losses in the three months ended June
30, 2002. The expense ratio increased 5.1 points primarily as a result of the
decreased net earned premium base.

Unfavorable net prior year development, including premium and claim and
allocated claim adjustment expense reserve development, of $11 million,
including $9 million of unfavorable claim and allocated claim adjustment
expense reserve development and $2 million of unfavorable premium development,
was recorded for the three months ended June 30, 2003. Unfavorable net prior
year development of $17 million, including $25 million of unfavorable claim and
allocated claim adjustment expense reserve development and $8 million of
favorable premium development, was recorded for the same period in 2002.

Unfavorable net prior year claim and allocated claim adjustment expense reserve
development of approximately $25 million was recorded primarily for directors
and officers exposures. The reserve development was a result of a claims
review in the second quarter of 2003 of securities class action cases related
to certain known corporate malfeasance cases and investment banking firms. The
reserve development was recorded in accident years 2000 and 2001.

Offsetting this unfavorable reserve
development was a $10 million underwriting benefit from cessions
to corporate aggregate reinsurance treaties. The benefit was
comprised of $24 million of ceded losses and $14 million of
ceded premiums for accident years 2000 and 2001. See the Reinsurance section of the
MD&A for further discussion of the Companys aggregate reinsurance treaties.

Recent concerns about reinsurance security, prompted in part by rating agency
downgrades of several reinsurers financial strength ratings, have impacted the
reinsurance marketplace. Many ceding companies are seeking provisions for the
collateralization of assumed reserves in the event of a financial strength
ratings downgrade or other triggers. CNA Re has been impacted by this trend
and has entered into several contracts with rating or other triggers. See the
Ratings section of the MD&A for more information.

Six Month Comparison

Net written premiums for CNA Re increased $1 million and net earned premiums
decreased $18 million for the six months ended June 30, 2003 as compared with
the same period in 2002. The decrease in net earned premiums was due primarily to reduced levels of
premium from prior underwriting years and the absence of CNA Re U.K. Partially
offsetting these decreases were decreased cessions related to corporate
aggregate reinsurance treaties in 2003 as compared with 2002 and rate increases
achieved in 2003.

Net income increased $1 million for the six months ended June 30, 2003 as
compared with the same period in 2002. The increase in net income
was primarily related to the increase in net realized investment gains, partially offset
by the decrease in underwriting income and decreased net investment income due

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

primarily to a reduction of invested assets resulting from the sale of CNA Re
U.K. See the Investments section of the MD&A for further discussion on net
investment income and net realized gains (losses).

The combined ratio increased 1.2 points and underwriting results decreased $4
million for the six months ended June 30, 2003 as compared with the same period
in 2002. This change was due to an increase in the loss ratio, partially
offset by a decrease in the expense ratio. The loss ratio increased 3.8 points
due principally to increased unfavorable net prior year development, $11
million of 2003 catastrophe losses for the Texas tornados and Midwest rain
storms, and decreased cessions related to corporate aggregate reinsurance
treaties. There were no catastrophe losses in the six months ended June 30,
2002. Partially offsetting these declines were improvements in the current net
accident year loss ratio. The expense ratio decreased 2.6 points primarily due
to the absence of expenses from CNA Re U.K.

Unfavorable net prior year development, including premium and claim and
allocated claim adjustment expense reserve development, of $12 million,
including $10 million of unfavorable claim and allocated claim adjustment
expense reserve development and $2 million of unfavorable premium development,
was recorded for the six months ended June 30, 2003. Favorable net prior year
development of $25 million, including $17 million of favorable premium
development and $8 million of favorable claim and allocated claim adjustment
expense reserve development, was recorded for the same period in 2002. The
gross carried claim and claim adjustment expense reserve was $2,064 million and
$2,264 million at June 30, 2003 and December 31, 2002. The net carried claim
and claim adjustment expense reserve was $1,217 million and $1,362 million at
June 30, 2003 and December 31, 2002.

A $10 million underwriting
benefit from cessions to corporate aggregate reinsurance treaties was
recorded for the six months ended June 30, 2003. The benefit was
comprised of $24 million of ceded losses and $14 million of
ceded premiums for accident years 2000 and 2001. A $32 million
underwriting benefit was recorded for the corporate aggregate
reinsurance treaties for the six months ended June 30, 2002. The
benefit was comprised of $93 million of ceded losses and
$61 million of ceded premiums, related primarily to the WTC
event discussed below.

During the first quarter of 2002, CNA Re revised its estimate of premiums and
losses related to the WTC event. In estimating CNA Res WTC event losses, the
Company performed a treaty-by-treaty analysis of exposure. The Companys
original loss estimate was based on a number of assumptions including the loss
to the industry, the loss to individual lines of business and the market share
of CNA Res cedants. Information that became available in the first quarter of
2002 resulted in CNA Re increasing its estimate of WTC event related premiums
and losses on its property facultative and property catastrophe business. The
impact of increasing the estimate of gross WTC event losses by $144 million was
fully offset on a net of reinsurance basis (before the impact of the CCC Cover)
by higher reinstatement premiums and a reduction of return premiums. As a
result of the increased losses, additional cessions to the CCC Cover were
recorded.

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

GROUP OPERATIONS

The following table details the results of operations for Group Operations.

Results of Operations

|                                                     |  |              |     |            |  |      |     |      |  |   |     |   |  |   |       |  
|---------------------------------------------------- |  | ------------ | --- | ---------- |  | ---- | --- | ---- |  | - | --- | - |  | - | ----- | -
|                                                     |  | Three Months |     | Six Months
|Period ended June 30                                 |  |              |     |           
|(In millions)                                        |  | 2003         |     | 2002       |  | 2003 |     | 2002
|                                                     |  |              |     |            |  |      |     |     
|Net earned premiums                                  |  | $            | 329 |            |  | $    | 820 |      |  | $ | 644 |   |  | $ | 1,725 |  
|Income before net realized investment gains (losses) |  |              | 26  |            |  |      | 25  |      |  |   | 45  |   |  |   | 43    |  
|Net realized investment gains (losses)               |  |              | 13  |            |  |      | (18 | )    |  |   | (21 | ) |  |   | (12   | )
|Net income                                           |  |              | 39  |            |  |      | 7   |      |  |   | 24  |   |  |   | 31    |  

Three Month Comparison

Net earned premiums for Group Operations decreased $491 million for the three
months ended June 30, 2003 as compared with the same period in 2002. The
decrease in net earned premiums was due primarily to the transfer of the Mail
Handlers Plan. Net earned premiums for the Mail Handlers Plan were $535
million for the three months ended June 30, 2002. This item was partially
offset by premium growth in the disability, life and long term care products
within Group Benefits due to increased new sales and rate increases.

Group Operations achieved rate increases that averaged approximately 7% and 6%
for the three months ended June 30, 2003 and 2002 for the disability, accident
and life lines of business within Group Benefits for those contracts that were
renewed during the period. Premium persistency rates of approximately 84% and
83% were achieved for those contracts that were up for renewal for the three
months ended June 30, 2003 and 2002.

Net income increased by $32 million for the three months ended June 30, 2003 as
compared with the same period in 2002. The increase in net income
related primarily to an increase in net realized investment gains,
the positive impact of premium growth within
Group Benefits and the absence of unfavorable net results related to
the variable products business, which was sold to The Phoenix Companies, Inc.
in the third quarter of 2002. These items were partially offset by the absence
of net income related to the Mail Handlers Plan. See the Investments section
of the MD&A for further discussion on net investment income and net realized
gains (losses).

Six Month Comparison

Net earned premiums for Group Operations decreased $1,081 million for the six
months ended June 30, 2003 as compared with the same period in 2002. The
decrease in net earned premiums was due primarily to the transfer of the Mail
Handlers Plan. Net earned premiums for the Mail Handlers Plan were $1,151
million for the six months ended June 30, 2002. This item was partially offset
by premium growth in the disability, life and long term care products within
Group Benefits due to increased new sales and rate increases.

Group Operations achieved rate increases that averaged approximately 6% and 5%
for the six months ended June 30, 2003 and 2002 for the disability, accident
and life lines of business within Group Benefits for those contracts that were
renewed during the period. Premium persistency rates of approximately 86% and
79% were achieved for those contracts that were up for renewal for the six
months ended June 30, 2003 and 2002.

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

Net income decreased by $7 million for the six months ended June 30, 2003 as
compared with the same period in 2002. The decrease in net income related
primarily to increased net realized investment losses and the absence of net income related to the
Mail Handlers Plan. These items were partially offset by the absence of unfavorable net
results related to the variable products business, which was sold to The
Phoenix Companies, Inc. in the third quarter of 2002, the positive
impact of premium growth within
Group Benefits, favorable single premium guaranteed annuities (SPGA)
mortality. See the
Investments section of the MD&A for further discussion on net investment income
and net realized gains (losses).

LIFE OPERATIONS

The following table details the results of operations for Life Operations.

Results of Operations

|                                                     |  |              |     |            |  |      |     |      |  |   |     |   |  |   |     |  
|---------------------------------------------------- |  | ------------ | --- | ---------- |  | ---- | --- | ---- |  | - | --- | - |  | - | --- | -
|                                                     |  | Three Months |     | Six Months
|Period ended June 30                                 |  |              |     |           
|(In millions)                                        |  | 2003         |     | 2002       |  | 2003 |     | 2002
|                                                     |  |              |     |            |  |      |     |     
|Net earned premiums                                  |  | $            | 263 |            |  | $    | 234 |      |  | $ | 519 |   |  | $ | 474 |  
|Income before net realized investment gains (losses) |  |              | 17  |            |  |      | 27  |      |  |   | 27  |   |  |   | 58  |  
|Net realized investment gains (losses)               |  |              | 18  |            |  |      | (35 | )    |  |   | (15 | ) |  |   | (27 | )
|Net income (loss)                                    |  |              | 35  |            |  |      | (8  | )    |  |   | 12  |   |  |   | (12 | )

Three Month Comparison

Net earned premiums for Life Operations increased $29 million for the three
months ended June 30, 2003 as compared with the same period in 2002. The
increase in net earned premiums was due primarily to higher sales of structured
settlement annuities and growth in the individual long term care and life insurance
products.

During the three months ended June 30, 2003, the Company completed a review of
its individual long term care product offerings. The focus of the review was
to determine whether the current products provide adequate pricing flexibility
under the range of reasonably possible claims experience levels. Based on the
review and current market conditions, the Company decided to significantly
reduce new sales of this product and certain infrastructure costs, and recorded
$4 million pretax of associated severance costs in the second quarter of 2003.
Premium will continue to be received on inforce business, but the actions to
reduce new business will lower the rate of overall premium growth for this
line. The Company does not expect these actions to have a material adverse
impact on the results of operations.

Net income increased by $43 million for the three months ended June 30, 2003 as
compared with the same period in 2002. The increase in net income related
primarily to increased net realized investment gains and a $3 million
improvement in net results for life settlement contracts. Partially
offsetting these items were unfavorable individual long term care morbidity due
to increased severity, the severance costs noted above and decreased net
investment income. See the Investments section of the MD&A for further
discussion on net investment income and net realized gains (losses).

Six Month Comparison

Net earned premiums for Life Operations increased $45 million for the six
months ended June 30, 2003 as compared with the same period in 2002. The
increase in net earned premiums was due primarily to growth in the long term
care product, higher sales of structured settlement annuities and growth in
individual life insurance products.

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

Net income increased by $24 million for the six months ended June 30, 2003 as
compared with the same period in 2002. The increase in net income
related primarily to increased net realized investment gains and a $4 million
improvement in net results for life settlement contracts. Partially
offsetting these items were unfavorable individual long term care morbidity,
due to increased
severity, the write-off of $5 million after-tax of capitalized software costs
and lower net investment income. Also contributing to the decrease were
severance costs related to the individual long term care product. See the
Investments section of the MD&A for further discussion on net investment income
and net realized gains (losses).

CORPORATE AND OTHER

The following table details the results of operations for the Corporate and
Other segment, including APMT and intrasegment eliminations.

Results of Operations

|                                                   |  |              |     |            |  |      |     |      |  |   |     |   |  |   |     |  
|-------------------------------------------------- |  | ------------ | --- | ---------- |  | ---- | --- | ---- |  | - | --- | - |  | - | --- | -
|                                                   |  | Three Months |     | Six Months
|Period ended June 30                               |  |              |     |           
|(In millions)                                      |  | 2003         |     | 2002       |  | 2003 |     | 2002
|                                                   |  |              |     |            |  |      |     |     
|Revenues                                           |  | $            | 50  |            |  | $    | 46  |      |  | $ | 70  |   |  | $ | 76  |  
|Loss before net realized investment gains (losses) |  |              | (33 | )          |  |      | (20 | )    |  |   | (36 | ) |  |   | (43 | )
|Net realized investment gains (losses)             |  |              | 31  |            |  |      | (10 | )    |  |   | 43  |   |  |   | (31 | )
|Net (loss) income                                  |  |              | (2  | )          |  |      | (30 | )    |  |   | 7   |   |  |   | (75 | )

Three Month Comparison

Revenues increased $4 million for the three months
ended June 30, 2003 as compared with the same period in 2002.
The increase in revenues was due primarily to increased
realized investment gains, partially offset by reduced revenues from
CNA UniSource and reduced net earned premiums in group reinsurance
due to the exit of these businesses in 2002.

Net loss decreased $28 million for the three months ended June 30, 2003 as
compared with the same period in 2002. The decrease in net loss was due
primarily to increased net realized investment gains, partially offset by a $26
million after-tax addition to the allowance for doubtful accounts in
recognition of deterioration of the financial strength rating of several
reinsurers. The 2003 net results were favorably impacted by the
absence of eBusiness expenses, which beginning in 2003 were included in the
property and casualty operating segments of the Company. In addition, reduced
losses from CNA UniSource favorably impacted the net results. See
the Investments section of the MD&A for further discussion on net investment
income and net realized gains (losses).

Unfavorable net prior year claim and allocated claim adjustment expense reserve
development of $6 million, related to certain run-off operations, was recorded
for the three months ended June 30, 2003. Favorable net prior year claim and
allocated claim adjustment expense reserve development of $12 million was
recorded for the same period in 2002.

Six Month Comparison

Revenues decreased $6 million for the six months
ended June 30, 2003 as compared with the same period in 2002.
The decrease in revenues was due primarily to reduced revenues from
CNA UniSource and reduced net earned premiums in group reinsurance
due to the exit of these businesses in 2002, partially offset by
increased realized investment gains.

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

Net results improved $82 million for the six months ended June 30, 2003 as
compared with the same period in 2002. The 2003 net results was favorably
impacted by increased net realized investment gains and the absence of
eBusiness expenses, which beginning in 2003 were included in the property and
casualty operating segments of the Company. In addition, reduced losses from
CNA UniSource favorably
impacted the net results. Partially offsetting these increases was a
$26 million after-tax addition to the allowance for doubtful accounts in
recognition of deterioration of the financial strength rating of several
reinsurers. See the Investments section of the MD&A for further discussion on
net investment income and net realized gains (losses).

Unfavorable net prior year development, including premium and claim and
allocated claim adjustment expense reserve development, of $3 million,
including $9 million of unfavorable claim and allocated claim adjustment
expense reserve development and $6 million of favorable premium development,
related to certain run-off operations was recorded for the six months ended
June 30, 2003. Favorable net prior year development of $13 million, including
$10 million of favorable claim and allocated claim adjustment expense reserve
development and $3 million of favorable premium development, was recorded for
the same period in 2002. The gross carried claim and claim adjustment expense
reserve was $5,077 million and $4,847 million at June 30, 2003 and December 31,
2002. The net carried claim and claim adjustment expense reserve was $1,896
million and $2,002 million for June 30, 2003 and December 31, 2002.

CNA entered into a retroactive reinsurance agreement as part of the sale of the
Companys personal insurance business to The Allstate Corporation (Allstate) in
1999. CNA shares in indemnity and claim and allocated claim adjustment
expenses if payments related to losses incurred prior to October 1, 1999 on the
CNA policies transferred to Allstate exceed the claim and allocated claim
adjustment expense reserves of approximately $1 billion at the date of sale.
The Company must begin to reimburse Allstate for claim and allocated claim
adjustment expense payments when cumulative claim payments after October 1,
1999 on losses occurring prior to that date exceed the $1 billion. The
Companys remaining obligation valued under this loss sharing provision as of
October 1, 2003 will be settled by agreement of the parties or by an
independent actuarial review of the unpaid claim liabilities as of that date.
Cumulative payments of indemnity and allocated loss adjustment expenses on such
policies exceeded $1 billion during the second quarter of 2003. The Company
has established reserves for its estimated liability under this loss sharing
arrangement.

APMT Reserves

CNAs property and casualty insurance subsidiaries have actual and potential
exposures related to APMT claims.

Establishing reserves for APMT claim and claim adjustment expenses is subject
to uncertainties that are greater than those presented by other claims.
Traditional actuarial methods and techniques employed to estimate the ultimate
cost of claims for more traditional property and casualty exposures are less
precise in estimating claim and claim adjustment reserves for APMT,
particularly in an environment of emerging or potential claims and coverage
issues that arise from industry practices and legal, judicial, and social
conditions. Therefore, these traditional actuarial methods and techniques are
necessarily supplemented with additional estimating techniques and
methodologies, many of which involve significant judgments

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

that are required of
management. Accordingly, a high degree of uncertainty remains for the Companys
ultimate liability for APMT claim and claim adjustment expenses.

In addition to the difficulties described above, estimating the ultimate cost
of both reported and unreported APMT claims is subject to a higher degree of
variability due to a number of additional factors, including among others: the
number and outcome of direct actions against the Company; coverage issues,
including whether certain costs are covered under the policies and whether
policy limits apply; allocation of liability among numerous parties, some of
whom may be in bankruptcy proceedings, and in particular the application of
joint and several liability to specific insurers on a risk; inconsistent
court decisions and developing legal theories; increasingly aggressive tactics

of plaintiffs lawyers; the risks and lack of
predictability inherent in major litigation; increased filings of claims in
certain states to avoid the application of tort reform statute effective dates;
a further increase in asbestos and environmental claims which cannot now be
anticipated; continued increase in mass tort claims relating to silica and
silica-containing products, and the outcome of ongoing disputes as to coverage
in relation to these claims; the role the exhaustion of primary limits for
certain accounts and increased demands on any umbrella or excess policies the
Company has issued; and future developments pertaining to the Companys ability
to recover reinsurance for asbestos and environmental claims.

Due to the inherent uncertainties in estimating reserves for APMT claim and
claim adjustment expenses and the degree of variability due to, among other
things, the factors described above, it may be necessary for the Company to
record material changes in its APMT claim and claim adjustment expense reserves in
the future, should new information become available or other developments
emerge.

The following table provides data related to CNAs APMT claim and claim
adjustment expense reserves.

Environmental Pollution and Mass Tort and Asbestos

|               |  |               |      |                   |  |           |       |               |  |   |      |   |  |   |       |  
|-------------- |  | ------------- | ---- | ----------------- |  | --------- | ----- | ------------- |  | - | ---- | - |  | - | ----- | -
|               |  | June 30, 2003 |      | December 31, 2002
|               |  |               |      |                  
|               |  | Environmental |      |                   |  |           |       | Environmental |  |   |      |  
|               |  | Pollution and |      |                   |  |           |       | Pollution and |  |   |      |  
|(In millions)  |  | Mass Tort     |      | Asbestos          |  | Mass Tort |       | Asbestos     
|               |  |               |      |                   |  |           |       |              
|Gross reserves |  | $             | 780  |                   |  | $         | 1,662 |               |  | $ | 830  |   |  | $ | 1,758 |  
|Ceded reserves |  |               | (299 | )                 |  |           | (501  | )             |  |   | (313 | ) |  |   | (527  | )
|               |  |               |      |                   |  |           |       |               |  |   |      |   |  |   |       |  
|Net reserves   |  | $             | 481  |                   |  | $         | 1,161 |               |  | $ | 517  |   |  | $ | 1,231 |  
|               |  |               |      |                   |  |           |       |               |  |   |      |   |  |   |       |  

Since 1999, CNA has performed semi-annual ground-up reviews of all open APMT
claims to evaluate the adequacy of the Companys APMT reserves. As noted in
the Third Quarter Reserve Reviews section of the MD&A, the Company is currently
undergoing a ground-up review of all open APMT claims. In doing so, the
Company considers input from its analyst professionals with direct
responsibility for the claims, inside and outside counsel with responsibility
for representation of the Company, and its actuarial staff. These
professionals review, among many factors, the policyholders present and future
exposures, including such factors as claims volume, trial conditions,
settlement demands and defense costs; the policies issued by CNA, including
such factors as aggregate or per occurrence limits, whether the policy is
primary, umbrella or excess, and the existence of policyholder retentions
and/or deductibles; the existence of other insurance; and reinsurance
arrangements.

Due to significant uncertainties
previously described related to APMT claims, the ultimate liability
for these cases, both individually and in aggregate, may exceed the
recorded reserves. Prior reviews have at times resulted in CNA strengthening its APMT reserves and
management may strengthen CNAs reserves as a result of the Third Quarter
Reserve Reviews and any subsequent reserve

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

studies. Any such potential additional
liability, or range of potential additional amounts, cannot be
reasonably estimated currently, but could be material to the
Companys business, results of operations, equity, insurer
financial strength and debt ratings.

Environmental Pollution and Mass Tort

Environmental pollution cleanup is the subject of both federal and state
regulation. By some estimates, there are thousands of potential waste sites
subject to cleanup. The insurance industry is involved in extensive litigation
regarding coverage issues. Judicial interpretations in many cases have
expanded the scope of coverage and liability beyond the original intent of the
policies. The Comprehensive Environmental Response Compensation and Liability
Act of 1980 (Superfund) and comparable state statutes (mini-Superfunds) govern
the cleanup and restoration of toxic waste sites and formalize the concept of
legal liability for cleanup and restoration by Potentially Responsible
Parties (PRPs). Superfund and the mini-Superfunds establish mechanisms to pay
for cleanup of waste sites if PRPs fail to
do so, and to assign liability to PRPs. The extent of liability to be
allocated to a PRP is dependent upon a variety of factors. Further, the number
of waste sites subject to cleanup is unknown. To date, approximately 1,200
cleanup sites have been identified by the Environmental Protection Agency (EPA)
and included on its National Priorities List (NPL). State authorities have
designated many cleanup sites as well.

Many policyholders have made claims against various CNA insurance subsidiaries
for defense costs and indemnification in connection with environmental
pollution matters. The vast majority of these claims relate to accident years
1989 and prior, which coincides with CNAs adoption of the Simplified
Commercial General Liability coverage form, which includes what is referred to
in the industry as an absolute pollution exclusion. CNA and the insurance
industry are disputing coverage for many such claims. Key coverage issues
include whether cleanup costs are considered damages under the policies,
trigger of coverage, allocation of liability among triggered policies,
applicability of pollution exclusions and owned property exclusions, the
potential for joint and several liability and the definition of an occurrence.
To date, courts have been inconsistent in their rulings on these issues.

A number of proposals to reform Superfund have been made by various parties.
However, no reforms were enacted by Congress during 2002 or during the first six
months of 2003, and it is unclear what positions Congress or the administration
will take and what legislation, if any, will result in the future. If there is
legislation, and in some circumstances even if there is no legislation, the
federal role in environmental cleanup may be significantly reduced in favor of
state action. Substantial changes in the federal statute or the activity of
the EPA may cause states to reconsider their environmental cleanup statutes and
regulations. There can be no meaningful prediction of the pattern of
regulation that would result or the possible effect upon CNAs results of
operations or equity.

During 2002 and continuing into 2003, mass tort claims arising from alleged
injury due to exposure to silica and silica containing products have been
increasing. The Company is monitoring silica mass tort claims to assess what,
if any, impact the increased claims may have on mass tort reserves. As to
other mass tort sub-types, the Company has not experienced material negative
development either in the number of claims or in the emergence of new
policyholders seeking coverage for known mass tort sub-types.

The Companys ultimate liability for its environmental pollution and mass tort
claims is impacted by several factors including ongoing disputes with
policyholders over scope and meaning of coverage terms and, in the area of
environmental pollution, court decisions that continue to restrict the scope
and

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

applicability of the absolute pollution exclusion contained in policies
issued by the Company post 1989. Due to the inherent uncertainties described
above, including the inconsistency of court decisions, the number of waste
sites subject to cleanup, and in the area of environmental pollution, the
standards for cleanup and liability, the ultimate liability of CNA for
environmental pollution and mass tort claims may vary substantially from the
amount currently recorded.

As of June 30, 2003 and December 31, 2002, CNA carried approximately $481
million and $517 million of claim and claim adjustment expense reserves, net of
reinsurance recoverables, for reported and unreported environmental pollution
and mass tort claims. There was no environmental pollution and mass tort net
claim and claim adjustment expense reserve development for the three and six
months ended June 30, 2003 and 2002. The Company paid environmental
pollution-related claims and mass tort-related claims, net of reinsurance
recoveries, of $36 million and $58 million for the six months ended June 30,
2003 and 2002.

Asbestos

CNAs property and casualty insurance subsidiaries also have exposure to
asbestos-related claims. Estimation of asbestos-related claim and claim
adjustment expense reserves involves many of the same limitations discussed
above for environmental pollution claims, such as inconsistency of court
decisions, specific policy provisions, allocation of liability among insurers
and insureds, and additional factors such as missing policies and proof of
coverage. Furthermore, estimation of asbestos-related claims is difficult due
to, among other reasons, the proliferation of bankruptcy proceedings and
attendant uncertainties, the targeting of a broader range of businesses and
entities as defendants, the uncertainty as to which other insureds may be
targeted in the future and the uncertainties inherent in predicting the number
of future claims.

In the past several years, CNA has experienced significant increases in claim
counts for asbestos-related claims. The factors that led to these increases
included, among other things, intensive advertising campaigns by lawyers for
asbestos claimants, mass medical screening programs sponsored by plaintiff
lawyers, and the addition of new defendants such as the distributors and
installers of products containing asbestos. Currently, the majority of
asbestos bodily injury claims are filed by persons exhibiting few, if any,
disease symptoms. It is estimated that approximately 90% of the current
non-malignant asbestos claimants do not meet the American Medical Associations
definition of impairment. Some courts, including the federal district court
responsible for pre-trial proceedings in all federal asbestos bodily injury
actions, have ordered that so-called unimpaired claimants may not recover
unless at some point the claimants condition worsens to the point of
impairment.

Since 2002, at least 17 companies filed for bankruptcy protection citing costs
associated with asbestos claims litigation as a basis for filing. Since 1982,
at least 67 companies, including the 17 companies that filed since 2002, that
mined asbestos, or manufactured or used asbestos-containing products, have
filed for bankruptcy. This phenomenon has prompted plaintiff attorneys to file
claims against companies that had only peripheral involvement with asbestos.
Many of these defendants were users or distributors of asbestos-containing
products, or manufacturers of products in which asbestos was encapsulated.
These defendants include equipment manufacturers, brake, gasket, and sealant
manufacturers, and general construction contractors. According to a
comprehensive report on asbestos litigation recently released by the Rand
Corporation, over 6,000 companies have been named as defendants in asbestos
lawsuits, with 75 out of 83 different types of industries in the United States
impacted by asbestos litigation. The study

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

found that a typical claimant names
70 to 80 defendants, up from an average of 20 in the early years of asbestos
litigation.

Some asbestos-related defendants have asserted that their claims for insurance
are not subject to aggregate limits on coverage. CNA has such claims from a
number of insureds. Some of these claims involve insureds facing exhaustion of
products liability aggregate limits in their policies, who have asserted that
their asbestos-related claims fall within so-called non-products liability
coverage contained within their policies rather than products liability
coverage, and that the claimed non-products coverage is not subject to any
aggregate limit. It is difficult to predict the ultimate size of any of the
claims for coverage purportedly not subject to aggregate limits or predict to
what extent, if any, the attempts to assert non-products claims outside the
products liability aggregate will succeed. The Company has attempted to manage
its asbestos exposure by aggressively seeking to settle claims on acceptable
terms. There can be no assurance that any of these settlement efforts will be
successful, or that any such claims can be settled on terms acceptable to CNA.
Where CNA cannot settle a claim on acceptable terms it aggressively litigates
the claim. Adverse developments with respect to such matters discussed in this
report could have a material adverse effect on CNAs results of operations
or equity.

Certain asbestos litigations in which CNA is currently engaged are described
below:

On February 13, 2003, CNA announced it had resolved asbestos related coverage
litigation and claims involving A.P. Green Industries, A.P. Green Services and
Bigelow  Liptak Corporation. Under the agreement, CNA will be required to pay
$74 million, net of reinsurance recoveries, over a ten year period. The
settlement resolves CNAs liabilities for all pending and future asbestos
claims involving A.P. Green Industries, Bigelow  Liptak Corporation and
related subsidiaries, including alleged non-products exposures. The
settlement is subject to bankruptcy court approval and confirmation of a
bankruptcy plan containing a channeling injunction to protect CNA from any
future claims.

CNA is engaged in insurance coverage litigation with underlying plaintiffs who
have asbestos bodily injury claims against the former Robert A. Keasbey Company
(Keasbey) in New York State court (Continental Casualty Co. v. Nationwide
Indemnity Co. et al., No. 601037/03 (N.Y. County)). Keasbey, a currently
dissolved corporation, was a seller and installer of asbestos-containing
insulation products in New York and New Jersey. Thousands of plaintiffs have
filed bodily injury claims against Keasbey; however Keasbeys involvement at a
number of work sites is a highly contested issue. Therefore, the
defense disputes the percentage of
valid claims against Keasbey. CNA issued Keasbey primary policies
for 1970-1987 and excess policies for 1972-1978. CNA has paid an amount
substantially equal to the policies aggregate limits for products and
completed operations claims. Claimants against Keasbey allege, among other
things, that CNA owes coverage under sections of the policies not subject to
the aggregate limits, an allegation CNA vigorously contests in the lawsuit.

CNA has insurance coverage disputes related to asbestos bodily injury claims
against Burns & Roe Enterprises, Inc. (Burns & Roe). Originally raised in
litigation, now stayed, these disputes are currently part of In re: Burns &
Roe Enterprises, Inc., pending in the U.S. Bankruptcy Court for the District of
New Jersey, No. 00-41610. Burns & Roe provided engineering and related
services in connection with construction projects. At the time of its
bankruptcy filing, Burns & Roe faced approximately 11,000 claims alleging
bodily injury resulting from exposure to asbestos as a result of construction
projects in which Burns & Roe was involved. CNA allegedly provided primary
liability coverage to Burns & Roe from 1956-1969 and 1971-1974, along with
certain project-specific policies from 1964-1970.

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

CIC issued certain primary and excess policies to Bendix Corporation (Bendix),
now part of Honeywell International Inc (Honeywell). Honeywell faces
approximately 50,000 pending asbestos bodily injury claims resulting from
alleged exposure to Bendix friction products. CICs primary policies allegedly
covered the period from at least 1939 (when Bendix began to use asbestos in its
friction products) to 1983, although the parties disagree about whether CICs
policies provided product liability coverage before 1940 and from 1945 to 1956.
CIC asserts that it owes no further material obligations to Bendix under any
primary policy. Honeywell alleges that two primary policies issued by CIC
covering 1969-75 contain occurrence limits but not product liability aggregate
limits for asbestos bodily injury claims. CIC has asserted, among other
things, that even if Honeywells allegation is correct, which CNA denies, its
liability is limited to a single occurrence limit per policy or per year, and
in the alternative, a proper allocation of losses would substantially limit its
exposure under the 1969-75 policies to asbestos claims. These and other issues
are being litigated in Continental Insurance Co., et al. v. Honeywell
International Inc., No. MRS-L-1523-00 (Morris County, New Jersey).

Policyholders have also initiated litigation directly against CNA and other
insurers in four jurisdictions: Ohio, Texas, West Virginia and Montana. In
the Ohio action, plaintiffs allege the defendants negligently performed duties
undertaken to protect the public from the effects of asbestos (Varner v. Ford
Motor Co., et al., (Cuyahoga County, Ohio)). Similar lawsuits have also been
filed in Texas against CNA, and other insurers and non-insurer corporate
defendants asserting liability for failing to warn of the dangers of asbestos
(Boson v. Union Carbide Corp., et al., (District Court of Nueces County,
Texas)). CNA has been named in Adams v. Aetna, Inc., et al., (Circuit Court of
Kanhwha County, West Virginia), a purported class action against CNA and other
insurers, alleging that the defendants violated West
Virginias Unfair Trade Practices Act in handling and resolving asbestos claims
against their policyholders. A direct action has also been filed in Montana
(Pennock, et al. v. Maryland Casualty, et al., First Judicial District Court of
Lewis & Clark County, Montana) by eight individual plaintiffs (all employees of
W.R. Grace & Co. (W.R. Grace)) and their spouses against CNA, Maryland Casualty
and the State of Montana. This action alleges that CNA failed to fulfill its
obligations as W.R. Graces Workers Compensation carrier because of the alleged
negligent failure of CNA to warn of or otherwise protect W.R. Grace employees
from the dangers of asbestos at a W.R. Grace vermiculite mining facility in
Libby, Montana. This action is currently stayed as to CNA because of W.R.
Graces pending bankruptcy. On July 23, 2003, the stay of the litigation was
lifted by the District Court as to Maryland Casualty. The time for an appeal
by Maryland Casualty has not expired. The stay of the litigation may also be
lifted as to CNA. It is difficult to predict the outcome or financial exposure
represented by this type of litigation in light of the broad nature of the
relief requested and the novel theories asserted.

CNA is vigorously defending these and other cases and believes that it has
meritorious defenses to the claims asserted. However, there are numerous
factual and legal issues to be resolved in connection with these
claims, and it
is extremely difficult to predict the outcome or ultimate financial exposure
represented by these matters. Adverse developments with respect to any of
these matters could have a material adverse effect on CNAs business, insurer
financial strength and debt ratings and equity.

As a result of the uncertainties and complexities involved, reserves for
asbestos claims cannot be estimated with traditional actuarial techniques that
rely on historical accident year loss development factors. In establishing
asbestos reserves, CNA evaluates the exposure presented by each insured. As
part of this evaluation, CNA considers the available insurance coverage; limits
and deductibles; the potential role of other insurance, particularly underlying
coverage below any CNA excess liability

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

policies; and applicable coverage defenses, including asbestos exclusions.
Estimation of asbestos-related claim and claim adjustment expense reserves
involves a high degree of judgment on the part of management and consideration
of many complex factors, including:



| |  | inconsistency of court decisions, jury attitudes and future court decisions;                                                                                         
|- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------
| 
| |  | specific policy provisions;                                                                                                                                          
| 
| |  | allocation of liability among insurers and insureds;                                                                                                                 
| 
| |  | missing policies and proof of coverage;                                                                                                                              
| 
| |  | the proliferation of bankruptcy proceedings and attendant uncertainties;                                                                                             
| 
| |  | novel theories asserted by policyholders and their counsel;                                                                                                          
| 
| |  | the targeting of a broader range of businesses and entities as defendants;                                                                                           
| 
| |  | the uncertainty as to which other insureds may be targeted in the future and the uncertainties inherent in predicting the
number of future claims;                   
| 
| |  | volatility in claim numbers and settlement demands;                                                                                                                  
| 
| |  | increases in the number of non-impaired claimants and the extent to which they can be precluded from making claims;                                                  
| 
| |  | the efforts by insureds to obtain coverage not subject to aggregate limits;                                                                                          
| 
| |  | long latency period between asbestos exposure and disease manifestation and the resulting potential for involvement of
multiple policy periods for individual claims;
| 
| |  | medical inflation trends;                                                                                                                                            
| 
| |  | the mix of asbestos-related diseases presented; and                                                                                                                  
| 
| |  | the ability to recover reinsurance.                                                                                                                                  

The Company is also monitoring possible legislative reforms, including the
possible creation of a national privately financed trust, which if established
and approved through federal legislation, could replace litigation of asbestos
claims with payments to claimants from the trust. It is uncertain at the
present time whether such a trust will be created or, if it is, what will be
the terms and conditions of its establishment or its impact on the Company.

As of June 30, 2003 and December 31, 2002, CNA carried approximately $1,161
million and $1,231 million of claim and claim adjustment expense reserves, net
of reinsurance recoverables, for reported and unreported asbestos-related
claims. There was no asbestos-related net claim and claim adjustment expense
reserve development for the three and six months ended June 30, 2003 and 2002.
The Company paid asbestos-related claims, net of reinsurance, of $70 million
for the six months ended June 30, 2003 and had net reinsurance recoveries of
$15 million for the six months ended June 30, 2002.

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

INVESTMENTS

The significant components of net investment income are presented in the
following table.

Net Investment Income

|                                              |  |              |     |            |  |      |     |      |  |   |      |   |  |   |      |  
|--------------------------------------------- |  | ------------ | --- | ---------- |  | ---- | --- | ---- |  | - | ---- | - |  | - | ---- | -
|                                              |  | Three Months |     | Six Months
|Period ended June 30                          |  |              |     |           
|(In millions)                                 |  | 2003         |     | 2002       |  | 2003 |     | 2002
|                                              |  |              |     |            |  |      |     |     
|Fixed maturity securities                     |  | $            | 422 |            |  | $    | 496 |      |  | $ | 842  |   |  | $ | 943  |  
|Short term investments                        |  |              | 12  |            |  |      | 11  |      |  |   | 32   |   |  |   | 27   |  
|Limited partnerships                          |  |              | 75  |            |  |      | 37  |      |  |   | 98   |   |  |   | 44   |  
|Equity securities                             |  |              | 4   |            |  |      | 8   |      |  |   | 9    |   |  |   | 15   |  
|Interest on funds withheld and other deposits |  |              | (93 | )          |  |      | (57 | )    |  |   | (140 | ) |  |   | (115 | )
|Other                                         |  |              | 18  |            |  |      | 19  |      |  |   | 43   |   |  |   | 40   |  
|                                              |  |              |     |            |  |      |     |      |  |   |      |   |  |   |      |  
|Gross investment income                       |  |              | 438 |            |  |      | 514 |      |  |   | 884  |   |  |   | 954  |  
|Investment expense                            |  |              | (11 | )          |  |      | (12 | )    |  |   | (25  | ) |  |   | (26  | )
|                                              |  |              |     |            |  |      |     |      |  |   |      |   |  |   |      |  
|Net investment income                         |  | $            | 427 |            |  | $    | 502 |      |  | $ | 859  |   |  | $ | 928  |  
|                                              |  |              |     |            |  |      |     |      |  |   |      |   |  |   |      |  

The Company experienced lower net investment income for the three and six
months ended June 30, 2003 as compared with the same periods in 2002. The
decrease was due primarily to lower investment yields on fixed maturity
securities and increased interest costs on funds withheld and other deposits,
partially offset by increased limited partnership income. The interest costs
on funds withheld and other deposits increased principally as a result of
additional cessions to the corporate aggregate reinsurance and other treaties
due to additional development recorded for the three months ended June 30,
2003. See the Reinsurance section of the MD&A for further discussion of the
Companys aggregate reinsurance treaties.

The bond segment of the investment portfolio yielded 5.4% and 6.1% for the six
months ended June 30, 2003 and 2002.

The components of net realized investment results are presented in the
following table.

Net Realized Investment Gains (Losses)

|                                                                |                                   |              |      |            |   |      |      |      |   |   |      |     |   |   |      |      |  
|--------------------------------------------------------------- | --------------------------------- | ------------ | ---- | ---------- | - | ---- | ---- | ---- | - | - | ---- | --- | - | - | ---- | ---- | -
|                                                                |                                   | Three Months |      | Six Months
|Period ended June 30                                            |                                   |              |      |           
|(In millions)                                                   |                                   | 2003         |      | 2002       |   | 2003 |      | 2002
|                                                                |                                   |              |      |            |   |      |      |     
|Realized investment gains (losses):                             |                                   |              |      |            |   |      |      |      |   |   |      |     |   |   |      |     
|Fixed maturity securities:                                      |                                   |              |      |            |   |      |      |      |   |   |      |     |   |   |      |     
|                                                                | U.S. Government bonds             |              | $    | 37         |   |      | $    | 44   |   |   | $    | 75  |   |   | $    | 49   |  
|                                                                | Corporate and other taxable bonds |              |      | 244        |   |      |      | (258 | ) |   |      | 126 |   |   |      | (249 | )
|                                                                | Tax-exempt bonds                  |              |      | 76         |   |      |      | 14   |   |   |      | 95  |   |   |      | 16   |  
|                                                                | Asset-backed bonds                |              |      | 23         |   |      |      | 19   |   |   |      | 41  |   |   |      | 28   |  
|                                                                | Redeemable preferred stock        |              |      | (5         | ) |      |      | (1   | ) |   |      | (10 | ) |   |      | (15  | )
|                                                                |                                   |              |      |            |   |      |      |      |   |   |      |     |   |   |      |     
|Total fixed maturity securities                                 |                                   |              | 375  |            |   |      | (182 | )    |   |   | 327  |     |   |   | (171 | )   
|Equity securities                                               |                                   |              | 58   |            |   |      | 42   |      |   |   | 58   |     |   |   | 49   |     
|Derivative securities                                           |                                   |              | (55  | )          |   |      | (13  | )    |   |   | (77  | )   |   |   | (34  | )   
|Short term investments                                          |                                   |              | 6    |            |   |      | 10   |      |   |   | 10   |     |   |   | 10   |     
|Other invested assets                                           |                                   |              | (4   | )          |   |      | (18  | )    |   |   | (17  | )   |   |   | (14  | )   
|                                                                |                                   |              |      |            |   |      |      |      |   |   |      |     |   |   |      |     
|Total realized investment gains (losses)                        |                                   |              | 380  |            |   |      | (161 | )    |   |   | 301  |     |   |   | (160 | )   
|Allocated to participating policyholders and minority interest |                                   |              | (2   | )          |   |      | (1   | )    |   |   | 1    |     |   |   | (1   | )   
|Income tax (expense) benefit                                    |                                   |              | (129 | )          |   |      | 57   |      |   |   | (102 | )   |   |   | 58   |     
|                                                                |                                   |              |      |            |   |      |      |      |   |   |      |     |   |   |      |     
|Net realized investment gains (losses)                          |                                   | $            | 249  |            |   | $    | (105 | )    |   | $ | 200  |     |   | $ | (103 | )   
|                                                                |                                   |              |      |            |   |      |      |      |   |   |      |     |   |   |      |     

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

Net realized investment results increased $354 million after-tax for the three
months ended June 30, 2003 as compared with the same period in 2002. This
change was due primarily to increased net gains on sales of fixed maturity
securities and a reduction in after-tax impairment losses, partially offset by
increased
realized losses for derivative securities. Impairment losses of $20 million
after-tax were recorded across several sectors for the three months ended June
30, 2003. Impairment losses of $190 million after-tax were recorded primarily
in the communications sector for the same period in 2002.

Net realized investment results increased $303 million after-tax for the six
months ended June 30, 2003 as compared with the same period in 2002. This
change was due primarily to increased net gains on sales of fixed maturity
securities and a $16 million reduction in after-tax impairment losses,
partially offset by increased realized losses for derivative securities.
Impairment losses of $186 million after-tax were recorded across several
sectors, including the airline, healthcare and energy industries, for the six
months ended June 30, 2003. Impairment losses of $202 million after-tax were
recorded primarily in the communications sector for the same period in 2002.

A primary objective in the management of the fixed maturity and equity
portfolios is to maximize total return relative to underlying liabilities and
respective liquidity needs. In achieving this goal, assets may be sold to take
advantage of market conditions or other investment opportunities or for credit
or tax considerations. This activity will produce realized gains and losses.

CNA classifies its fixed maturity securities (bonds and redeemable preferred
stocks) and its equity securities as available-for-sale, and as such, they are
carried at fair value. The amortized cost of fixed maturity securities is
adjusted for amortization of premiums and accretion of discounts to maturity,
which is included in net investment income. Changes in fair value are reported
as a component of other comprehensive income.

The following table provides further detail of gross realized gains and gross
realized losses on fixed maturity securities and equity securities.

Realized Gains and Losses

|                                                                                |                                                          |                       |     |            |     |      |      |      |     |   |     |     |     |   |      |      |     | 
|------------------------------------------------------------------------------- | -------------------------------------------------------- | --------------------- | --- | ---------- | --- | ---- | ---- | ---- | --- | - | --- | --- | --- | - | ---- | ---- | --- | 
|                                                                                |                                                          | Three Months          |     | Six Months
|Period ended June 30                                                            |                                                          |                       |     |           
|(In millions)                                                                   |                                                          | 2003                  |     | 2002       |     | 2003 |      | 2002
|                                                                                |                                                          |                       |     |            |     |      |      |     
|Net realized gains (losses) on fixed maturity securities
and equity securities: |                                                          |                       |     |            |     |      |      |      |     |   |     |     |     |   |      |     
|                                                                                | Fixed maturity securities:                               |                       |     |            |     |      |      |      |     |   |     |     |     |   |      |      |    
|                                                                                |                                                          | Gross realized gains  |     | $          | 410 |      |      | $    | 217 |   |     | $   | 695 |   |      | $    | 357 | 
|                                                                                |                                                          | Gross realized losses |     |            | 35  |      |      |      | 399 |   |     |     | 368 |   |      |      | 528 | 
|                                                                                |                                                          |                       |     |            |     |      |      |      |     |   |     |     |     |   |      |     
|                                                                                | Net realized gains (losses) on fixed maturity securities |                       |     | 375        |     |      |      | (182 | )   |   |     | 327 |     |   |      | (171 | )  
|                                                                                | Equity securities:                                       |                       |     |            |     |      |      |      |     |   |     |     |     |   |      |      |    
|                                                                                |                                                          | Gross realized gains  |     |            | 58  |      |      |      | 74  |   |     |     | 70  |   |      |      | 133 | 
|                                                                                |                                                          | Gross realized losses |     |            |    |      |      |      | 32  |   |     |     | 12  |   |      |      | 84  | 
|                                                                                |                                                          |                       |     |            |     |      |      |      |     |   |     |     |     |   |      |     
|                                                                                | Net realized gains on equity securities                  |                       |     | 58         |     |      |      | 42   |     |   |     | 58  |     |   |      | 49   |    
|                                                                                |                                                          |                       |     |            |     |      |      |      |     |   |     |     |     |   |      |     
|Net realized gains (losses) on fixed maturity and equity
securities             |                                                          | $                     | 433 |            |     | $    | (140 | )    |     | $ | 385 |     |     | $ | (122 | )   
|                                                                                |                                                          |                       |     |            |     |      |      |      |     |   |     |     |     |   |      |     

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

The following table provides details of the largest realized losses from sales
of securities aggregated by issuer for the six months ended June 30, 2003,
including: the fair value of the securities at sales date, the amount of the
loss recorded and the period of time that the security had been in an
unrealized loss position prior to sale. The period of time that the security
had been in an unrealized loss position prior to sale can vary due to the
timing of individual security purchases. Also footnoted is a narrative
providing the industry sector along with the facts and circumstances giving
rise to the loss.

Largest Realized Losses from Securities Sold at a Loss

|                                                                                                                                                |  |          |     |         |  |            |    |            |  |  |               | 
|----------------------------------------------------------------------------------------------------------------------------------------------- |  | -------- | --- | ------- |  | ---------- | -- | ---------- |  |  | ------------- | 
|                                                                                                                                                |  | Fair     |     |         |  |            |    | Months in 
|                                                                                                                                                |  | Value at |     |         |  |            |    | Unrealized
|                                                                                                                                                |  | Date of  |     | Loss    |  | Loss Prior
|Issuer Description and Discussion                                                                                                               |  | Sale     |     | On Sale |  | To Sale   
|                                                                                                                                                |  |          |     |         |  |           
|(In millions)                                                                                                                                   |  |          |     |         |  |            |    |            |  |  |               | 
|A company which operates supermarkets and discount
stores in the U.S. and Europe. Also supplies food to
institutional foodservice companies (a) |  | $        | 34  |         |  | $          | 12 |            |  |  | 0-6           | 
|A company which manufactures rubber and
rubber-related chemicals. They also manufacture and
distribute tires (b)                                |  |          | 23  |         |  |            | 9  |            |  |  | Various, 0-24 | 
|A company which provides wholesale financing and
capital loans to auto retail dealerships and vehicle
leasing companies (c)                     |  |          | 122 |         |  |            | 8  |            |  |  | Various, 0-12 | 
|A company which provides and operates a network of
in-patient and outpatient surgery and rehabilitation
facilities (d)                          |  |          | 18  |         |  |            | 7  |            |  |  | Various, 0-12 | 
|                                                                                                                                                |  |          |     |         |  |            |    |            |  |  |               | 
|Total                                                                                                                                           |  | $        | 197 |         |  | $          | 36 |            |  |  |               | 
|                                                                                                                                                |  |          |     |         |  |            |    |            |  |  |               | 



|(a) |  | The issuer is under investigation for accounting fraud. Losses relate to
trades that took place to reduce issuer exposure.                                                         
|--- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|(b) |  | These losses relate to trades that took place to reduce issuer exposure.                                                                                                           
|   
|(c) |  | The issuers financial condition is in good standing and is investment
grade quality. A decision was made to reduce the portfolios overall
exposure to this issuer.               
|   
|(d) |  | The issuer is under investigation for accounting fraud and various
security issues relating to management. These losses relate to trades
that took place to reduce issuer exposure.

Invested assets are exposed to various risks, such as interest rate, market and
credit risk. Due to the level of risk associated with certain invested assets
and the level of uncertainty related to changes in the value of these assets,
it is possible that changes in risks in the near term could have an adverse
material impact on the Companys results of operations or equity.

A significant judgment in the valuation of investments is the determination of
when an other-than-temporary decline in value has occurred. The Company
follows a consistent and systematic process for impairing securities that
sustain other-than-temporary declines in value. The Company has established a
committee responsible for the impairment process. This committee, referred to
as the Impairment Committee, is made up of three officers appointed by the
Companys Chief Financial Officer. The Impairment Committee is responsible for
analyzing watch list securities on at least a quarterly basis. The watch list
includes individual securities that fall below certain thresholds or that
exhibit evidence of impairment indicators including, but not limited to, a
significant adverse change in the financial condition and near term prospects
of the investment or a significant adverse change in legal factors, the
business climate or credit ratings.

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

When a security is placed on the watch list, it is monitored for further market
value changes and additional news related to the issuers financial condition.
The focus is on objective evidence that may influence the evaluation of
impairment factors.

The decision to impair a security incorporates both quantitative criteria and
qualitative information. The Impairment Committee considers a number of
factors including, but not limited to: (1) the length of time and the extent
to which the market value has been less than book value, (2) the financial
condition and near term prospects of the issuer, (3) the intent and ability of
the Company to retain its investment for a period of time sufficient to allow
for any anticipated recovery in value, (4) whether the debtor is current on
interest and principal payments and (5) general market conditions and industry
or sector specific factors. The Impairment Committees decision to impair a
security is primarily based on whether the securitys fair value is likely to
remain significantly below its book value in light of all of the factors
considered above. For securities that are impaired, the security is written
down to fair value and the resulting losses are recognized in realized
gains/losses in the Condensed Consolidated Statements of Operations.

Substantially all invested assets are marketable securities classified as
available-for-sale in the accompanying Condensed Consolidated Financial
Statements. Accordingly, changes in fair value for these securities are
reported in other comprehensive income.

The following table details the carrying value of CNAs general account
investment portfolios.

Carrying Value of Investments

|                                  |                            |                                                                 |        |          |        |      |     |   |    |              |        |     |        |  |     |   |    |  
|--------------------------------- | -------------------------- | --------------------------------------------------------------- | ------ | -------- | ------ | ---- | --- | - | -- | ------------ | ------ | --- | ------ |  | --- | - | -- | -
|                                  |                            |                                                                 |        | June 30, |        |      |     |   |    | December 31, |        |     |        | 
|(In millions)                     |                            | 2003                                                            |        | %        |        | 2002 |     | %
|                                  |                            |                                                                 |        |          |        |      |     |  
|General account investments:      |                            |                                                                 |        |          |        |      |     |   |    |              |        |     |        |  |     |  
|                                  | Fixed maturity securities: |                                                                 |        |          |        |      |     |   |    |              |        |     |        |  |     |   |   
|                                  |                            | U.S. Treasury securities and obligations of government agencies |        | $        | 2,501  |      |     |   | 6  | %            |        | $   | 1,376  |  |     |   | 4  | %
|                                  |                            | Asset-backed securities                                         |        |          | 7,598  |      |     |   | 20 |              |        |     | 8,208  |  |     |   | 23 |  
|                                  |                            | States, municipalities and political subdivisions  tax-exempt  |        |          | 8,388  |      |     |   | 22 |              |        |     | 5,074  |  |     |   | 14 |  
|                                  |                            | Corporate securities                                            |        |          | 7,579  |      |     |   | 20 |              |        |     | 7,591  |  |     |   | 22 |  
|                                  |                            | Other debt securities                                           |        |          | 4,101  |      |     |   | 11 |              |        |     | 3,827  |  |     |   | 11 |  
|                                  |                            | Redeemable preferred stock                                      |        |          | 135    |      |     |   |   |              |        |     | 69     |  |     |   |   |  
|                                  |                            | Options embedded in convertible debt securities                 |        |          | 185    |      |     |   | 1  |              |        |     | 130    |  |     |   |   |  
|                                  |                            |                                                                 |        |          |        |      |     |   |    |              |        |     |        |  |     |  
|                                  |                            | Total fixed maturity securities                                 |        |          | 30,487 |      |     |   | 80 |              |        |     | 26,275 |  |     |   | 74 |  
|                                  |                            |                                                                 |        |          |        |      |     |   |    |              |        |     |        |  |     |  
|                                  | Equity securities:         |                                                                 |        |          |        |      |     |   |    |              |        |     |        |  |     |   |   
|                                  |                            | Common stock                                                    |        |          | 476    |      |     |   | 1  |              |        |     | 461    |  |     |   | 1  |  
|                                  |                            | Non-redeemable preferred stock                                  |        |          | 171    |      |     |   | 1  |              |        |     | 205    |  |     |   | 1  |  
|                                  |                            |                                                                 |        |          |        |      |     |   |    |              |        |     |        |  |     |  
|                                  | Total equity securities    |                                                                 |        | 647      |        |      |     | 2 |    |              |        | 666 |        |  |     | 2 |   
|                                  |                            |                                                                 |        |          |        |      |     |   |    |              |        |     |        |  |     |  
|                                  |                            | Short-term investments                                          |        |          | 5,335  |      |     |   | 14 |              |        |     | 7,008  |  |     |   | 20 |  
|                                  |                            | Limited partnerships                                            |        |          | 1,146  |      |     |   | 3  |              |        |     | 1,060  |  |     |   | 3  |  
|                                  |                            | Other investments                                               |        |          | 231    |      |     |   | 1  |              |        |     | 284    |  |     |   | 1  |  
|                                  |                            |                                                                 |        |          |        |      |     |   |    |              |        |     |        |  |     |  
|Total general account investments |                            | $                                                               | 37,846 |          |        |      | 100 | % |    | $            | 35,293 |     |        |  | 100 | %
|                                  |                            |                                                                 |        |          |        |      |     |   |    |              |        |     |        |  |     |  

The Companys general account investment portfolio consists primarily of
publicly traded government bonds, asset-backed securities, mortgage-backed
securities, municipal bonds and corporate bonds.

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

Investments in the general account had a total net unrealized gain of $2,019
million at June 30, 2003 compared with $887 million at December 31, 2002. The
net unrealized position at June 30, 2003 was composed of a net unrealized gain
of $1,796 million for fixed maturities, a net unrealized gain of $221 million
for equity securities and a net unrealized gain of $2 million for short-term
securities. The net unrealized position at December 31, 2002 was composed of a
net unrealized gain of $742 million for fixed maturities, a net unrealized gain
of $147 million for equity securities and a net unrealized loss of $2 million
for short-term securities.

Unrealized Gains (Losses) on Fixed Maturity and Equity Securities

|                                           |                                                                 |      |           |       |            |        |            |      |            |   |     |    |  |   |       |     | 
|------------------------------------------ | --------------------------------------------------------------- | ---- | --------- | ----- | ---------- | ------ | ---------- | ---- | ---------- | - | --- | -- |  | - | ----- | --- | 
|                                           |                                                                 |      | Cost or   |       | Gross      |        | Gross      |      | Net       
|                                           |                                                                 |      | Amortized |       | Unrealized |        | Unrealized |      | Unrealized
|June 30, 2003                              |                                                                 | Cost |           | Gains |            | Losses |            | Gain
|(In millions)                              |                                                                 |      |           |       |            |        |            |     
|Fixed maturity securities:                 |                                                                 |      |           |       |            |        |            |      |            |   |     |    |  |   |       |    
|                                           | U.S. Treasury securities and obligations of government agencies |      | $         | 2,404 |            |        | $          | 128  |            |   | $   | 31 |  |   | $     | 97  | 
|                                           | Asset-backed securities                                         |      |           | 7,374 |            |        |            | 234  |            |   |     | 10 |  |   |       | 224 | 
|                                           | States, municipalities and political subdivisions  tax-exempt  |      |           | 8,122 |            |        |            | 290  |            |   |     | 24 |  |   |       | 266 | 
|                                           | Corporate securities                                            |      |           | 6,885 |            |        |            | 763  |            |   |     | 69 |  |   |       | 694 | 
|                                           | Other debt securities                                           |      |           | 3,595 |            |        |            | 529  |            |   |     | 23 |  |   |       | 506 | 
|                                           | Redeemable preferred stock                                      |      |           | 126   |            |        |            | 10   |            |   |     | 1  |  |   |       | 9   | 
|                                           | Options embedded in convertible debt securities                 |      |           | 185   |            |        |            |     |            |   |     |   |  |   |       |    | 
|                                           |                                                                 |      |           |       |            |        |            |      |            |   |     |    |  |   |       |     | 
|Total fixed maturity securities            |                                                                 |      | 28,691    |       |            |        | 1,954      |      |            |   | 158 |    |  |   | 1,796 |    
|                                           |                                                                 |      |           |       |            |        |            |      |            |   |     |    |  |   |       |    
|Equity securities:                         |                                                                 |      |           |       |            |        |            |      |            |   |     |    |  |   |       |    
|                                           | Common stock                                                    |      |           | 272   |            |        |            | 212  |            |   |     | 8  |  |   |       | 204 | 
|                                           | Non-redeemable preferred stock                                  |      |           | 154   |            |        |            | 18   |            |   |     | 1  |  |   |       | 17  | 
|                                           |                                                                 |      |           |       |            |        |            |      |            |   |     |    |  |   |       |    
|Total equity securities                    |                                                                 |      | 426       |       |            |        | 230        |      |            |   | 9   |    |  |   | 221   |    
|                                           |                                                                 |      |           |       |            |        |            |      |            |   |     |    |  |   |       |    
|Total fixed maturity and equity securities |                                                                 | $    | 29,117    |       |            | $      | 2,184      |      |            | $ | 167 |    |  | $ | 2,017 |    
|                                           |                                                                 |      |           |       |            |        |            |      |            |   |     |    |  |   |       |    

Unrealized Gains (Losses) on Fixed Maturity and Equity Securities

|                                           |                                                                 |      |           |       |            |        |            |             |            |   |     |     |  |   |     |     |  
|------------------------------------------ | --------------------------------------------------------------- | ---- | --------- | ----- | ---------- | ------ | ---------- | ----------- | ---------- | - | --- | --- |  | - | --- | --- | -
|                                           |                                                                 |      | Cost or   |       | Gross      |        | Gross      |             | Net       
|                                           |                                                                 |      | Amortized |       | Unrealized |        | Unrealized |             | Unrealized
|December 31, 2002                          |                                                                 | Cost |           | Gains |            | Losses |            | Gain/(Loss)
|(In millions)                              |                                                                 |      |           |       |            |        |            |            
|Fixed maturity securities:                 |                                                                 |      |           |       |            |        |            |             |            |   |     |     |  |   |     |    
|                                           | U.S. Treasury securities and obligations of government agencies |      | $         | 1,266 |            |        | $          | 114         |            |   | $   | 4   |  |   | $   | 110 |  
|                                           | Asset-backed securities                                         |      |           | 7,888 |            |        |            | 336         |            |   |     | 16  |  |   |     | 320 |  
|                                           | States, municipalities and political subdivisions  tax-exempt  |      |           | 4,966 |            |        |            | 151         |            |   |     | 43  |  |   |     | 108 |  
|                                           | Corporate securities                                            |      |           | 7,439 |            |        |            | 487         |            |   |     | 335 |  |   |     | 152 |  
|                                           | Other debt securities                                           |      |           | 3,780 |            |        |            | 284         |            |   |     | 237 |  |   |     | 47  |  
|                                           | Redeemable preferred stock                                      |      |           | 64    |            |        |            | 5           |            |   |     |    |  |   |     | 5   |  
|                                           | Options embedded in convertible debt securities                 |      |           | 130   |            |        |            |            |            |   |     |    |  |   |     |    |  
|                                           |                                                                 |      |           |       |            |        |            |             |            |   |     |     |  |   |     |    
|Total fixed maturity securities            |                                                                 |      | 25,533    |       |            |        | 1,377      |             |            |   | 635 |     |  |   | 742 |    
|                                           |                                                                 |      |           |       |            |        |            |             |            |   |     |     |  |   |     |    
|Equity securities:                         |                                                                 |      |           |       |            |        |            |             |            |   |     |     |  |   |     |    
|                                           | Common stock                                                    |      |           | 310   |            |        |            | 166         |            |   |     | 15  |  |   |     | 151 |  
|                                           | Non-redeemable preferred stock                                  |      |           | 209   |            |        |            | 3           |            |   |     | 7   |  |   |     | (4  | )
|                                           |                                                                 |      |           |       |            |        |            |             |            |   |     |     |  |   |     |    
|Total equity securities                    |                                                                 |      | 519       |       |            |        | 169        |             |            |   | 22  |     |  |   | 147 |    
|                                           |                                                                 |      |           |       |            |        |            |             |            |   |     |     |  |   |     |    
|Total fixed maturity and equity securities |                                                                 | $    | 26,052    |       |            | $      | 1,546      |             |            | $ | 657 |     |  | $ | 889 |    
|                                           |                                                                 |      |           |       |            |        |            |             |            |   |     |     |  |   |     |    

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

The Companys investment policies for the general account emphasize high credit
quality and diversification by industry, issuer and issue. Assets supporting
interest rate sensitive liabilities are segmented within the general account to
facilitate asset/liability duration management.

At June 30, 2003, the carrying value of the general account fixed maturities
was $30,487 million, representing 80% of the total investment portfolio. The
net unrealized gain related to this fixed maturity portfolio was $1,796
million, comprising gross unrealized gains of $1,954 million and gross
unrealized losses of $158 million. Corporate bonds represented 44%, other
fixed maturity securities represented 26%, municipal securities represented
15%, and other debt securities, which includes public utility and foreign
government bonds, represented 15% of the gross unrealized losses. Within
corporate bonds, the largest industry sectors were consumer-cyclical and
financial, which represented 25% and 27% of the gross unrealized losses. Gross
unrealized losses in any single issuer were less than 0.1% of the carrying
value of the total general account fixed maturity portfolio.

If the deterioration in these industry sectors continues in future periods and
the Company continues to hold these securities, the Company is likely to have
additional impairments in the future.

The following table provides the composition of fixed maturity securities with
an unrealized loss at June 30, 2003 in relation to the total of all fixed
maturity securities with an unrealized loss by contractual maturities.

Contractual Maturity

|                                       |  |            |     |            |  |  |     |  
|-------------------------------------- |  | ---------- | --- | ---------- |  |  | --- | -
|                                       |  | Percent of |     | Percent of
|                                       |  | Market     |     | Unrealized
|                                       |  | Value      |     | Loss      
|                                       |  |            |     |           
|Due in one year or less                |  |            | 1   | %          |  |  | 3   | %
|Due after one year through five years  |  |            | 7   |            |  |  | 15  |  
|Due after five years through ten years |  |            | 35  |            |  |  | 32  |  
|Due after ten years                    |  |            | 37  |            |  |  | 44  |  
|Asset-backed securities                |  |            | 20  |            |  |  | 6   |  
|                                       |  |            |     |            |  |  |     |  
|Total                                  |  |            | 100 | %          |  |  | 100 | %
|                                       |  |            |     |            |  |  |     |  

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

The following tables summarize, for fixed maturity and equity securities in an
unrealized loss position at June 30, 2003 and December 31, 2002, the aggregate
fair value and gross unrealized loss by length of time those securities have
been continuously in an unrealized loss position.

Gross Unrealized Loss Aging

|                                           |                            |                        |       |               |       |                   |     |           |    |            |       |       |       |       |     |     |     | 
|------------------------------------------ | -------------------------- | ---------------------- | ----- | ------------- | ----- | ----------------- | --- | --------- | -- | ---------- | ----- | ----- | ----- | ----- | --- | --- | --- | 
|                                           |                            |                        |       | June 30, 2003 |       | December 31, 2002
|                                           |                            |                        |       |               |       |                  
|                                           |                            |                        |       |               |       |                   |     | Gross     |    |            |       |       |       | Gross
|                                           |                            |                        |       | Estimated     |       | Unrealized        |     | Estimated |    | Unrealized
|(In millions)                              |                            | Fair Value             |       | Loss          |       | Fair Value        |     | Loss     
|                                           |                            |                        |       |               |       |                   |     |          
|Fixed maturity securities:                 |                            |                        |       |               |       |                   |     |           |    |            |       |       |       |       |     |    
|                                           | Investment grade:          |                        |       |               |       |                   |     |           |    |            |       |       |       |       |     |     |    
|                                           |                            | 0-6 months             |       | $             | 4,815 |                   |     | $         | 70 |            |       | $     | 2,632 |       |     | $   | 100 | 
|                                           |                            | 7-12 months            |       |               | 212   |                   |     |           | 16 |            |       |       | 361   |       |     |     | 30  | 
|                                           |                            | 13-24 months           |       |               | 126   |                   |     |           | 9  |            |       |       | 163   |       |     |     | 21  | 
|                                           |                            | Greater than 24 months |       |               | 47    |                   |     |           | 8  |            |       |       | 172   |       |     |     | 20  | 
|                                           |                            |                        |       |               |       |                   |     |           |    |            |       |       |       |       |     |    
|                                           | Total investment grade     |                        |       | 5,200         |       |                   |     | 103       |    |            |       | 3,328 |       |       |     | 171 |    
|                                           |                            |                        |       |               |       |                   |     |           |    |            |       |       |       |       |     |    
|                                           | Non-investment grade:      |                        |       |               |       |                   |     |           |    |            |       |       |       |       |     |     |    
|                                           |                            | 0-6 months             |       |               | 432   |                   |     |           | 16 |            |       |       | 892   |       |     |     | 119 | 
|                                           |                            | 7-12 months            |       |               | 144   |                   |     |           | 7  |            |       |       | 473   |       |     |     | 115 | 
|                                           |                            | 13-24 months           |       |               | 203   |                   |     |           | 16 |            |       |       | 458   |       |     |     | 157 | 
|                                           |                            | Greater than 24 months |       |               | 118   |                   |     |           | 16 |            |       |       | 169   |       |     |     | 73  | 
|                                           |                            |                        |       |               |       |                   |     |           |    |            |       |       |       |       |     |    
|                                           | Total non-investment grade |                        |       | 897           |       |                   |     | 55        |    |            |       | 1,992 |       |       |     | 464 |    
|                                           |                            |                        |       |               |       |                   |     |           |    |            |       |       |       |       |     |    
|Total fixed maturity securities            |                            |                        | 6,097 |               |       |                   | 158 |           |    |            | 5,320 |       |       |       | 635 |    
|                                           |                            |                        |       |               |       |                   |     |           |    |            |       |       |       |       |     |    
|Equity securities:                         |                            |                        |       |               |       |                   |     |           |    |            |       |       |       |       |     |    
|                                           | 0-6 months                 |                        |       | 21            |       |                   |     | 3         |    |            |       | 119   |       |       |     | 13  |    
|                                           | 7-12 months                |                        |       | 13            |       |                   |     | 4         |    |            |       | 79    |       |       |     | 9   |    
|                                           | 13-24 months               |                        |       | 11            |       |                   |     | 2         |    |            |       | 4     |       |       |     |    |    
|                                           | Greater than 24 months     |                        |       | 8             |       |                   |     |          |    |            |       | 4     |       |       |     |    |    
|                                           |                            |                        |       |               |       |                   |     |           |    |            |       |       |       |       |     |    
|Total equity securities                    |                            |                        | 53    |               |       |                   | 9   |           |    |            | 206   |       |       |       | 22  |    
|                                           |                            |                        |       |               |       |                   |     |           |    |            |       |       |       |       |     |    
|Total fixed maturity and equity securities |                            | $                      | 6,150 |               |       | $                 | 167 |           |    | $          | 5,526 |       |       | $     | 657 |    
|                                           |                            |                        |       |               |       |                   |     |           |    |            |       |       |       |       |     |    

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

The Companys non-investment grade fixed maturity securities held as of June
30, 2003 that were in a gross unrealized loss position had a fair value of $897
million. As discussed previously, a significant judgment in the valuation of
investments is the determination of when an other-than-temporary impairment has
occurred. The Companys Impairment Committee analyzes securities placed on the
watch list on at least a quarterly basis. Part of this analysis is to monitor
the length of time and severity of the decline below book value of the watch
list securities. The following tables summarize the fair value and gross
unrealized loss of non-investment grade securities categorized by the length of
time those securities have been in a continuous unrealized loss position and
further categorized by the severity of the unrealized loss position in 10%
increments as of June 30, 2003 and December 31, 2002.

Gross Unrealized Loss Aging for Non-investment Grade Securities

|                           |  |            |     |        |  |                                          |    |        |  |      |    |      |  |   |   |  |  |   |   |  |  |   |    | 
|-------------------------- |  | ---------- | --- | ------ |  | ---------------------------------------- | -- | ------ |  | ---- | -- | ---- |  | - | - |  |  | - | - |  |  | - | -- | 
|                           |  |            |     |        |  | Fair Value as a Percentage of Book Value |    | Gross 
|                           |  | Estimated  |     |        |  | Unrealized                              
|June 30, 2003              |  | Fair Value |     | 90-99% |  | 80-89%                                   |    | 70-79% |  | <70% |    | Loss
|(In millions)              |  |            |     |        |  |                                          |    |        |  |      |    |     
|Fixed maturity securities: |  |            |     |        |  |                                          |    |        |  |      |    |      |  |   |   |  |  |   |   |  |  |   |    | 
|Non-investment grade:      |  |            |     |        |  |                                          |    |        |  |      |    |      |  |   |   |  |  |   |   |  |  |   |    | 
|0-6 months                 |  | $          | 432 |        |  | $                                        | 8  |        |  | $    | 7  |      |  | $ |  |  |  | $ | 1 |  |  | $ | 16 | 
|7-12 months                |  |            | 144 |        |  |                                          | 2  |        |  |      | 5  |      |  |   |  |  |  |   |  |  |  |   | 7  | 
|13-24 months               |  |            | 203 |        |  |                                          | 8  |        |  |      | 6  |      |  |   | 2 |  |  |   |  |  |  |   | 16 | 
|Greater than 24 months     |  |            | 118 |        |  |                                          | 3  |        |  |      | 5  |      |  |   | 5 |  |  |   | 3 |  |  |   | 16 | 
|                           |  |            |     |        |  |                                          |    |        |  |      |    |      |  |   |   |  |  |   |   |  |  |   |    | 
|Total non-investment grade |  | $          | 897 |        |  | $                                        | 21 |        |  | $    | 23 |      |  | $ | 7 |  |  | $ | 4 |  |  | $ | 55 | 
|                           |  |            |     |        |  |                                          |    |        |  |      |    |      |  |   |   |  |  |   |   |  |  |   |    | 

Gross Unrealized Loss Aging for Non-investment Grade Securities

|                           |  |            |       |        |  |                                          |    |        |  |      |    |      |  |   |     |  |  |   |     |  |  |   |     | 
|-------------------------- |  | ---------- | ----- | ------ |  | ---------------------------------------- | -- | ------ |  | ---- | -- | ---- |  | - | --- |  |  | - | --- |  |  | - | --- | 
|                           |  |            |       |        |  | Fair Value as a Percentage of Book Value |    | Gross 
|                           |  | Estimated  |       |        |  | Unrealized                              
|December 31, 2002          |  | Fair Value |       | 90-99% |  | 80-89%                                   |    | 70-79% |  | <70% |    | Loss
|(In millions)              |  |            |       |        |  |                                          |    |        |  |      |    |     
|Fixed maturity securities: |  |            |       |        |  |                                          |    |        |  |      |    |      |  |   |     |  |  |   |     |  |  |   |     | 
|Non-investment grade:      |  |            |       |        |  |                                          |    |        |  |      |    |      |  |   |     |  |  |   |     |  |  |   |     | 
|0-6 months                 |  | $          | 892   |        |  | $                                        | 30 |        |  | $    | 28 |      |  | $ | 28  |  |  | $ | 33  |  |  | $ | 119 | 
|7-12 months                |  |            | 473   |        |  |                                          | 9  |        |  |      | 12 |      |  |   | 24  |  |  |   | 70  |  |  |   | 115 | 
|13-24 months               |  |            | 458   |        |  |                                          | 5  |        |  |      | 12 |      |  |   | 50  |  |  |   | 90  |  |  |   | 157 | 
|Greater than 24 months     |  |            | 169   |        |  |                                          | 2  |        |  |      | 6  |      |  |   | 15  |  |  |   | 50  |  |  |   | 73  | 
|                           |  |            |       |        |  |                                          |    |        |  |      |    |      |  |   |     |  |  |   |     |  |  |   |     | 
|Total non-investment grade |  | $          | 1,992 |        |  | $                                        | 46 |        |  | $    | 58 |      |  | $ | 117 |  |  | $ | 243 |  |  | $ | 464 | 
|                           |  |            |       |        |  |                                          |    |        |  |      |    |      |  |   |     |  |  |   |     |  |  |   |     | 

The non-investment grade securities that were in an unrealized loss severity of
less than 70% for greater than 24 months as of June 30, 2003 primarily
consisted of a financial sector security which represented less than 2% of the
gross unrealized loss for the total fixed maturity portfolio.

As part of the ongoing impairment monitoring process, the Impairment Committee
has evaluated the facts and circumstances based on available information for
each of these non-investment grade securities and determined that no further
impairments were appropriate at June 30, 2003. This determination was based on
a number of factors that the Impairment Committee regularly considers
including, but not limited to: the issuers ability to meet current and future
interest and principal payments, an evaluation of the issuers financial
condition and near term prospects, the Companys sector outlook and estimates
of the fair value of any underlying collateral. In all cases where a decline
in value is judged to be temporary, the Company had the intent and ability to
hold these securities for a period of time sufficient to recover the

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

book value
of its investment through a recovery in the market value of such securities or
by holding the securities to maturity. In many cases, the securities held are
matched to liabilities as part of ongoing asset/liability duration management.
As such, the Impairment Committee continually assesses its ability
to hold securities for a time sufficient to recover any temporary loss in value
or until maturity. The Company maintains sufficient levels of liquidity so as
to not impact the asset/liability management process.

The Companys equity securities held as of June 30, 2003 that were in a gross
unrealized loss position had a fair value of $53 million. The Companys
Impairment Committee, under the same process as fixed maturity securities,
monitors the equity securities for other-than-temporary declines in value. In
all cases where a decline in value is judged to be temporary, the Company
expects to recover the book value of its investment through a recovery in the
market value of the security.

The general account portfolio consists primarily of high quality (rated BBB or
higher) bonds, 89% of which were rated as investment grade at June 30, 2003 and
December 31, 2002. The following table summarizes the ratings of CNAs general
account bond portfolio at carrying value.

General Account Bond Ratings

|                                                 |  |          |        |   |  |      |     |              |  |   |        |  |  |  |     |  
|------------------------------------------------ |  | -------- | ------ | - |  | ---- | --- | ------------ |  | - | ------ |  |  |  | --- | -
|                                                 |  | June 30, |        |   |  |      |     | December 31, |  |   |        | 
|(In millions)                                    |  | 2003     |        | % |  | 2002 |     | %           
|                                                 |  |          |        |   |  |      |     |             
|U.S. Government and affiliated agency securities |  | $        | 2,987  |   |  |      | 10  | %            |  | $ | 1,908  |  |  |  | 7   | %
|Other AAA rated                                  |  |          | 12,919 |   |  |      | 42  |              |  |   | 10,856 |  |  |  | 41  |  
|AA and A rated                                   |  |          | 6,037  |   |  |      | 20  |              |  |   | 5,730  |  |  |  | 22  |  
|BBB rated                                        |  |          | 5,061  |   |  |      | 17  |              |  |   | 4,930  |  |  |  | 19  |  
|Below investment-grade                           |  |          | 3,348  |   |  |      | 11  |              |  |   | 2,782  |  |  |  | 11  |  
|                                                 |  |          |        |   |  |      |     |              |  |   |        |  |  |  |     |  
|Total                                            |  | $        | 30,352 |   |  |      | 100 | %            |  | $ | 26,206 |  |  |  | 100 | %
|                                                 |  |          |        |   |  |      |     |              |  |   |        |  |  |  |     |  

At June 30, 2003 and December 31, 2002, approximately 97% of the general
account portfolio was U.S. Government and affiliated agency securities or was
rated by Standard & Poors (S&P) or Moodys Investors Service (Moodys). The
remaining bonds were rated by other rating agencies or Company management.

Non-investment grade bonds, as presented in the table above, are high-yield
securities rated below BBB by bond rating agencies, as well as other unrated
securities that, in the opinion of management, are below investment-grade.
High-yield securities generally involve a greater degree of risk than
investment-grade securities. However, expected returns should compensate for
the added risk. This risk is also considered in the interest rate assumptions
for the underlying insurance products.

The carrying value of private placement securities at June 30, 2003 was $264
million which represents 0.7% of the Companys total investment portfolio.
These securities were in a net unrealized gain position of $50 million at June
30, 2003. Of the non-traded securities, 53% are priced by unrelated third
party sources.

The carrying value of non-traded securities at December 31, 2002 was $237
million which represents 0.7% of the Companys total investment portfolio.
These securities were in a net unrealized loss position of $0.4 million at
December 31, 2002. Of the non-traded securities, 78% are priced by unrelated
third party sources.

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

Included in CNAs general account fixed maturity securities at June 30, 2003
are $7,598 million of asset-backed securities, at fair value, consisting of
approximately 62% in collateralized mortgage obligations (CMOs), 12% in
corporate asset-backed obligations, 5% in U.S. Government agency issued
pass-through certificates and 21% in corporate mortgage-backed pass-through
certificates. The majority of CMOs held are actively traded in liquid markets
and are priced by broker-dealers.

Included in CNAs general account fixed maturity securities at December 31,
2002 are $8,208 million of asset-backed securities, at fair value, consisting
of approximately 67% in collateralized mortgage obligations (CMOs), 11% in
corporate asset-backed obligations, 7% in U.S. Government agency issued
pass-through certificates and 15% in corporate mortgage-backed pass-through
certificates. The majority of CMOs held are actively traded in liquid markets
and are priced by broker-dealers.

The carrying value of the components of the general account short-term
investment portfolio is presented in the following table.

Short-term Investments

|                             |  |          |       |              |  |   |       | 
|---------------------------- |  | -------- | ----- | ------------ |  | - | ----- | 
|                             |  | June 30, |       | December 31,
|                             |  | 2003     |       | 2002        
|(In millions)                |  |          |       |             
|Commercial paper             |  | $        | 1,826 |              |  | $ | 1,141 | 
|U.S. Treasury securities     |  |          | 248   |              |  |   | 2,756 | 
|Money market funds           |  |          | 2,617 |              |  |   | 2,161 | 
|Other                        |  |          | 644   |              |  |   | 950   | 
|                             |  |          |       |              |  |   |       | 
|Total short-term investments |  | $        | 5,335 |              |  | $ | 7,008 | 
|                             |  |          |       |              |  |   |       | 

CNA invests in certain derivative financial instruments primarily to reduce its
exposure to market risk (principally interest rate, equity price and foreign
currency risk) and credit risk (risk of non-performance of underlying obligor).
CNA considers the derivatives in its general account to be held for purposes
other than trading. Derivative securities are recorded at fair value at the
reporting date.

Most derivatives in separate accounts are held for hedging purposes. The
Company uses these derivatives to mitigate market risk by purchasing
S&P 500®
index futures in a notional amount equal to the contract liability relating to
Group Operations Index 500 guaranteed investment contract product.

LIQUIDITY AND CAPITAL RESOURCES

The principal operating cash flow sources of CNAs property and casualty and
life insurance subsidiaries are premiums and investment income. The primary
operating cash flow uses are payments for claims, policy benefits and operating
expenses.

For the six months ended June 30, 2003, net cash provided by operating
activities was $115 million as compared with $435 million for the same period
in 2002. The decrease related primarily to lower federal income tax refunds in
2003 as compared with 2002.

Cash flows from investing activities include purchases and sales of financial
instruments, as well as the purchase and sale of land, buildings, equipment and
other assets not generally held for resale.

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

For the six months ended June 30, 2003, net cash provided by investing
activities was $48 million as compared with net cash used by investing
activities of $410 million for the same period in 2002. This improvement
related principally to sales of fixed maturity securities.

Cash flows from financing activities include proceeds from the issuance of debt
or equity securities, outflows for dividends or repayment of debt and outlays
to reacquire equity instruments.

For the six months ended June 30, 2003, net cash used by financing activities
was $149 million as compared with $22 million for the same period in 2002.
Cash flows used by financing activities were related principally to repayment
of debt.

The Company is closely managing the cash flows related to claims and
reinsurance recoverables from the WTC event. It is anticipated that
significant claim payments will be made prior to receipt of the corresponding
reinsurance recoverables. The Company does not anticipate any liquidity
problems resulting from these payments. As of July 3, 2003, the Company has
paid $533 million in claims and recovered $363 million from reinsurers.

CNAs estimated gross pretax losses for the WTC event were $1,648 million
pretax ($1,071 million after-tax). Net pretax losses before the effect of
corporate aggregate reinsurance treaties were $727 million. Approximately 1%,
72% and 21% of the reinsurance recoverables on the estimated losses related to
the WTC event are from companies with S&P ratings of AAA, AA or A.

The Company has an existing shelf registration statement under which it may
issue an aggregate of $549 million of debt or equity securities, declared
effective by the SEC.

The Companys 2002 Form 10-K provides a detailed discussion of the Companys
debt.

During the first quarter of 2003, The Continental Corporation (Continental)
repaid its $128 million, 7.250% Senior Note, due March 1, 2003.

The Company pays a facility fee to the lenders for having funds available for
loans under the credit facility maturing April 30, 2004. The fee varies based
on the long term debt ratings of the Company. At June 30, 2003 and December
31, 2002, the facility fee was 17.5 basis points.

The Company pays interest on any outstanding debt/borrowings under the facility
based on a rate determined using the long term debt ratings of the Company.
The interest rate is equal to the London Interbank Offering Rate (LIBOR) plus
57.5 basis points. Further, if the Company has outstanding loans greater than
50% of the amounts available under the facility, the Company will also pay a
utilization fee of 12.5 basis points on such loans. At June 30, 2003 and
December 31, 2002, the weighted-average interest rate on the borrowings under
the facility, including facility fees and utilization fees, was 2.2% and 2.3%.

A Moodys downgrade of the CNAF senior debt rating from Baa2 to Baa3 would
increase the facility fee from 17.5 basis points to 25.0 basis points. The
applicable interest rate would increase from LIBOR plus 57.5 basis points to
LIBOR plus 75.0 basis points. The utilization fee would remain unchanged on
the facility at 12.5 basis points.

CNA Surety Corporation (CNA Surety), a 64% owned and consolidated subsidiary of
CNA, pays interest on any outstanding borrowings under its credit agreement
based on an applicable margin determined by

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

the amount of leverage of the company. The current interest rate on any
borrowings under the facility is LIBOR plus 45.0 basis points. In addition,
CNA Surety pays a facility fee that is currently 12.5 basis points. If the
utilization of the credit facility is greater than 50% of the amount available
under the facility, an additional fee of 5.0 basis points will be incurred. At
June 30, 2003, the aggregate commitment of the term loan component of the
credit agreement was reduced by $5 million to an aggregate commitment of $25
million. Effective January 30, 2003, CNA Surety entered into an interest rate
swap on the term loan portion of its credit agreement, which uses the 3-month
LIBOR to determine the swap increment. The term loan interest rate on June 30,
2003 was 2.6%. At June 30, 2003, the weighted-average interest rate on the $55
million of outstanding borrowings under the credit agreement, including
facility fees and utilization fees was 2.3%. At December 31, 2002, the
weighted-average interest rate on the $60 million of outstanding borrowings
under the credit agreement, including facility fees and utilization fees was
2.0%. At June 30, 2003 and December 31, 2002, CNA Surety was in compliance
with all restrictive debt covenants.

See Note M of the Notes to the Condensed Consolidated Financial Statements for
information related to CNA Suretys related party transactions with CNAF. The
impact of these transactions should be considered when evaluating the Companys
liquidity and capital resources.

See Note I of the Notes to the Condensed Consolidated Financial Statements for
information related to the Companys commitments and contingencies. The impact
of these commitments and contingencies should be considered when evaluating the
Companys liquidity and capital resources.

A summary of the Companys commitments as of June 30, 2003 is presented in the
following table.

Commitments

|                             |  |      |     |      |  |      |     |      |  |        |     |       |  |   |     |  |  |          |       |  |  |   |       | 
|---------------------------- |  | ---- | --- | ---- |  | ---- | --- | ---- |  | ------ | --- | ----- |  | - | --- |  |  | -------- | ----- |  |  | - | ----- | 
|                             |  |      |     |      |  |      |     |      |  |        |     |       |  |   |     |  |  | 2007 and |       |  |  |  
|June 30, 2003                |  | 2003 |     | 2004 |  | 2005 |     | 2006 |  | Beyond |     | Total
|(In millions)                |  |      |     |      |  |      |     |      |  |        |     |      
|                             |  |      |     |      |  |      |     |      |  |        |     |       |  |   |     |  |  |          |       |  |  |   |       | 
|Debt (a)                     |  | $    | 285 |      |  | $    | 260 |      |  | $      | 503 |       |  | $ | 251 |  |  | $        | 834   |  |  | $ | 2,133 | 
|Capital leases               |  |      | 1   |      |  |      | 3   |      |  |        | 3   |       |  |   | 3   |  |  |          | 24    |  |  |   | 34    | 
|Lease obligations            |  |      | 41  |      |  |      | 67  |      |  |        | 58  |       |  |   | 48  |  |  |          | 146   |  |  |   | 360   | 
|Guaranteed payment contracts |  |      | 6   |      |  |      | 13  |      |  |        | 5   |       |  |   |    |  |  |          |      |  |  |   | 24    | 
|                             |  |      |     |      |  |      |     |      |  |        |     |       |  |   |     |  |  |          |       |  |  |   |       | 
|Total                        |  | $    | 333 |      |  | $    | 343 |      |  | $      | 569 |       |  | $ | 302 |  |  | $        | 1,004 |  |  | $ | 2,551 | 
|                             |  |      |     |      |  |      |     |      |  |        |     |       |  |   |     |  |  |          |       |  |  |   |       | 

(a) Does not include original issue discount of $9 million.

Dividends from Subsidiaries

CNAFs ability to pay dividends and other credit obligations is significantly
dependent on receipt of dividends from its subsidiaries. The payment of
dividends to CNAF by its insurance subsidiaries without prior approval of the
insurance department of each subsidiarys domiciliary jurisdiction is limited
by formula. Dividends in excess of these amounts are subject to prior approval
by the respective state insurance departments.

Dividends from CCC are subject to the insurance holding company laws of the
State of Illinois, the domiciliary state of CCC. Under these laws, ordinary
dividends, or dividends that do not require prior approval of the Illinois
Department of Insurance, may be paid only from earned surplus, which is
calculated by removing unrealized gains from unassigned surplus. As of June
30, 2003, CCCs earned

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

surplus was in a positive position, thereby enabling CCC to pay approximately
$1,258 million of dividend payments during 2003 that would not be subject to
the Departments prior approval. The actual level of dividends paid in any
year is determined after an assessment of available dividend capacity, holding
company liquidity and cash needs as well as the impact the dividends will have
on the statutory surplus of the applicable insurance company.

In addition, by agreement with the New Hampshire Insurance Department, as well
as certain other state insurance departments, dividend payments for the CIC
pool are restricted to internal and external debt service requirements through
September 2003 up to a maximum of $85 million annually, without the prior
approval of the New Hampshire Insurance Department. The Company is currently
in discussions with the New Hampshire Insurance Department, which may result in
the extension of the term of this agreement through September 2004.

Loews

On December 19, 2002, CNAF sold $750 million of a new issue of preferred stock,
designated Series H Cumulative Preferred Issue (Preferred Issue), to Loews.
The terms of the Preferred Issue were approved by a special committee of
independent members of CNAFs Board of Directors. The Preferred Issue is
senior to CNAFs common 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 until all cumulative dividends on the Preferred
Issue have been paid.

The Preferred Issue accrues cumulative dividends at an initial rate of 8% per
year, compounded annually. It will be adjusted quarterly to a rate equal to
400 basis points above the ten-year U.S. Treasury rate beginning with the
quarterly dividend after the first triggering event to occur of either (1) an
increase by two intermediate ratings levels of the financial strength rating of
CCC from its December 19, 2002 rating by any of A.M. Best, S&P or Moodys or (2) one year
following an increase by one intermediate ratings level of the financial
strength rating of CCC by any one of those rating agencies. Accrued but unpaid
cumulative dividends cannot be paid on the Preferred Issue unless and until one
of the two triggering events described above has occurred. Beginning with the
quarter following an increase of one intermediate ratings level in CCCs
financial strength rating, however, current (but not accrued cumulative)
quarterly dividends can be paid. For the three months ended June 30, 2003, the
Company has $15 million of undeclared but accumulated dividends. As of June
30, 2003, the cumulative undeclared dividend was $32 million.

CNA completed a common stock rights offering on September 26, 2001,
successfully raising $1,006 million (40.3 million shares sold at $25 per
share). Loews purchased 38.3 million shares issued in connection with the
rights offering for $957 million.

Loews owned approximately 90% of the outstanding common stock of CNAF as of
June 30, 2003. Loews has been a major source of capital for the Company to
meet its liquidity and capital resource needs.

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

Ratings

Ratings have become an increasingly important factor in establishing the
competitive position of insurance companies. CNAs insurance company
subsidiaries are rated by major rating agencies, and these ratings reflect the
rating agencys opinion of the insurance companys financial strength,
operating performance, strategic position and ability to meet its obligations
to policyholders. Agency ratings are not a recommendation to buy, sell or hold
any security, and may be revised or withdrawn at any time by the issuing
organization. Each agencys rating should be evaluated independently of any
other agencys rating. One or more of these agencies could take action in the
future to change the ratings of CNAs insurance subsidiaries.

The actions that can be taken by
rating agencies are changes in ratings or modifiers.
On Review, Credit Watch and Rating
Watch are modifiers used by the ratings agencies to alert those
parties relying on the Companys ratings of the possibility of a
rating change in the near term. Modifiers are utilized
when the agencies are uncertain as to the impact of a Company action
or initiative, which could prove to be material to the current rating
level. Modifiers are generally used to indicate a possible change in
rating within 90 days.

On August 7, 2003, the rating
agencies took various actions with respect to CNAs ratings. A.M.
Best confirmed that the existing CNA insurance financial strength and
debt ratings remain unchanged. S&P placed all of CNAs insurance
financial strength and debt ratings on Credit Watch with negative
implications. Moodys placed all of CNAs insurance
financial strength and debt ratings on review for possible downgrade.
Fitch has lowered the insurance financial strength ratings and senior
debt ratings one level and placed all of the ratings on Rating Watch
Negative status.

The table below reflects the various group ratings issued by A.M. Best, S&P,
Moodys and Fitch as of August 7, 2003 for the Property and Casualty and Life
and Group companies. The table also includes the ratings for CNAFs senior
debt and Continental senior debt.

|          |  |                                      |  |              |  |         |  |             |  |      |  |      |  |        |  |        |  |  |  |  |  |  |  | 
|--------- |  | ------------------------------------ |  | ------------ |  | ------- |  | ----------- |  | ---- |  | ---- |  | ------ |  | ------ |  |  |  |  |  |  |  | 
|          |  | Insurance Financial Strength Ratings |  | Debt Ratings
|          |  |                                      |  |             
|          |  | Property & Casualty                  |  | Life & Group |  | CNAF    |  | Continental
|          |  |                                      |  |              |  |         |  |            
|          |  | CCC                                  |  | CIC          |  |         |  |             |  |      |  |      |  | Senior |  | Senior
|          |  | Group                                |  | Group        |  | CAC/VFL |  | CNAGLA      |  | Debt |  | Debt
|          |  |                                      |  |              |  |         |  |             |  |      |  |     
|A.M. Best |  | A                                    |  | A            |  | A       |  | A           |  | bbb  |  | bbb-
|Fitch     |  | A-                                   |  | A-           |  | A+      |  | A           |  | BBB- |  | BBB-
|Moodys   |  | A3                                   |  | A3           |  | A2*     |  | NR          |  | Baa2 |  | Baa3
|S&P       |  | A-                                   |  | A-           |  | A       |  | NR          |  | BBB- |  | BBB-

NR = Not Rated
All modifiers for the insurance financial strength and debt
ratings as evaluated by Fitch are Rating Watch Negative, as evaluated
by Moodys are on review for possible downgrade, and as
evaluated by S&P are Credit Watch with negative implications.
*Continental Assurance Corporation (CAC) and Valley Forge Life
Insurance Company (VFL) are rated separately by Moodys and both have an
A2 rating.

If CNAs ratings were downgraded,
CNAs business, results of operations and/or equity could be materially adversely
affected. Among potential adverse effects in the event of such
downgrading would be the inability to access certain markets of
distribution channels, and also the required collateralization of
future payment obligations or reserves.

The Company has entered into several
settlement agreements and assumed reinsurance contracts that require
collateralization of future payment obligations and assumed reserves
if the Companys ratings or other specific criteria fall below
certain thresholds. The ratings triggers are generally more than one
level below the Companys ratings as of August 7, 2003.

FORWARD-LOOKING STATEMENTS

This quarterly report includes a number of statements which relate to
anticipated future events (forward-looking statements) rather than actual
present conditions or historical events. You can identify forward-looking
statements because generally they include words such as believes, expects,
intends, anticipates, estimates, and similar expressions.
Forward-looking statements in this quarterly report include expected
developments in the Companys insurance business, including
losses  and loss reserves for
asbestos, environmental pollution and mass tort claims, which are
more uncertain, and therefore more difficult to estimate than loss
reserves respecting traditional property and casualty exposures; the
impact of the insurance reserve reviews being conducted by the
Company and an independent actuarial firm, the ongoing state
regulatory examinations of the Companys primary insurance
company subsidiaries, and the Companys responses to the results
of those reviews and examinations; the Companys
expectations concerning its revenues, earnings, expenses and investment
activities; expected cost savings and other results from the Companys
expense reduction and restructuring activities; and the Companys proposed
actions in response to trends in its business.

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

Forward-looking statements, by their nature, are subject to a variety of
inherent risks and uncertainties that could cause actual results to differ
materially from the results projected. Many of these risks and uncertainties
cannot be controlled by the Company. Some examples of these risks and
uncertainties are:



| |  | general economic and business conditions, including inflationary pressures on medical care costs, construction costs and other
economic sectors that increase the severity of claims;                                                                                                                                             
|- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| 
| |  | changes in financial markets such as fluctuations in interest rates, long-term periods of low interest rates, credit conditions
and currency, commodity and stock prices;                                                                                                                                                         
| 
| |  | the effects of corporate bankruptcies, such as Enron and WorldCom, on surety bond claims, as well as on capital markets, and on
the markets for directors and officers and errors and omissions coverages;                                                                                                                        
| 
| |  | changes in foreign or domestic political, social and economic conditions;                                                                                                                                                                                                                                                         
| 
| |  | regulatory initiatives and compliance with governmental regulations, judicial decisions, including interpretation of policy
provisions, decisions regarding coverage and theories of liability, trends in litigation and the outcome of any litigation
involving the Company, and rulings and changes in tax laws and regulations;
| 
| |  | regulatory limitations,
impositions and restrictions upon the Company, including the effects
of assessments and other surcharges for guaranty funds and
second-injury funds and other mandatory pooling arrangements;                                                                                                             
| 
| |  | the impact of competitive products, policies and pricing and the competitive environment in which the Company operates,
including changes in the Companys books 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 underpriced 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
practices;                                                                                                                                                                                                                           
| 
| |  | the effectiveness of current initiatives by claims management to reduce loss and expense ratio through more efficacious claims
handling techniques;                                                                                                                                                                               
| 
| |  | the performance of reinsurance companies under reinsurance contracts with the Company;                                                                                                                                                                                                                                            
| 
| |  | results of financing efforts, including the availability of bank credit facilities;                                                                                                                                                                                                                                               
| 
| |  | changes in the Companys composition of operating segments;                                                                                                                                                                                                                                                                       
| 
| |  | weather and other natural physical events, including the severity and frequency of storms, hail, snowfall and other winter
conditions, as well as of natural disasters such as hurricanes and earthquakes;                                                                                                                        
| 
| |  | man-made disasters, including the possible occurrence of terrorist attacks and the effect of the absence of applicable
terrorism legislation on coverages;                                                                                                                                                                        
| 
| |  | the occurrence of epidemics;                                                                                                                                                                                                                                                                                                      
| 
| |  | exposure to liabilities due to claims made by insureds and others relating to asbestos remediation and health-based asbestos
impairments, and exposure to liabilities for environmental pollution and mass tort claims;                                                                                                           

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



| |  | whether a national privately financed trust to replace litigation of asbestos claims with payments to claimants from the trust
will be established or approved through federal legislation, or, if established and approved, whether it will contain funding
requirements in excess of the Companys established loss reserves or carried loss reserves;
|- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| 
| |  | the sufficiency of the Companys loss reserves and the possibility of future increases in reserves;                                                                                                                                                                                                                                                     
| 
| |  | the level of success in integrating acquired businesses and operations, and in consolidating existing ones;                                                                                                                                                                                                                                             
| 
| |  | the possibility of changes in the Companys ratings by ratings agencies, including the inability to access certain markets or
distribution channels and the required collateralization of future payment obligations as a result of such changes, and changes
in rating agency policies and practices; and                                              
| 
| |  | the actual closing of contemplated transactions and agreements.                                                                                                                                                                                                                                                                                         

Any forward-looking statements made in this quarterly report are made by the
Company as of the date of this quarterly report. The Company does not have any
obligation to update or revise any forward-looking statement contained in this
quarterly report, even if the Companys expectations or any related events,
conditions or circumstances change.

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

Market Risk

Market risk is a broad term related to changes in the fair value of a financial
instrument. Discussions herein regarding market risk focus on only one element
of market risk-price risk. Price risk relates to changes in the level of
prices due to changes in interest rates, equity prices, foreign exchange rates
or other factors that relate to market volatility of the rate, index or price
underlying the financial instrument. The Companys primary market risk
exposures are due to changes in interest rates, although the Company has
certain exposures to changes in equity prices and foreign currency exchange
rates. The fair value of the financial instruments is adversely affected when
interest rates rise, equity markets decline and the dollar strengthens against
foreign currency.

Active management of market risk is integral to the Companys operations. The
Company may use the following tools to manage its exposure to market risk
within defined tolerance ranges: (1) change the character of future
investments purchased or sold, (2) use derivatives to offset the market
behavior of existing assets and liabilities or assets expected to be purchased
and liabilities to be incurred, or (3) rebalance its existing asset and
liability portfolios.

For purposes of this disclosure, market risk sensitive instruments are divided
into two categories: (1) instruments entered into for trading purposes and (2)
instruments entered into for purposes other than trading. The Companys
general account market risk sensitive instruments presented are classified as
held for purposes other than trading.

Sensitivity Analysis

CNA monitors its sensitivity to interest rate risk by evaluating the change in
the value of financial assets and liabilities due to fluctuations in interest
rates. The evaluation is performed by applying an instantaneous change in
interest rates of varying magnitudes on a static balance sheet to determine the
effect such a change in rates would have on the Companys market value at risk
and the resulting effect on stockholders equity. The analysis presents the
sensitivity of the market value of the Companys financial instruments to
selected changes in market rates and prices. The range of change chosen
reflects the Companys view of changes that are reasonably possible over a
one-year period. The selection of the range of values chosen to represent
changes in interest rates should not be construed as the Companys prediction
of future market events, but rather an illustration of the impact of such
events.

The sensitivity analysis estimates the decline in the market value of the
Companys interest sensitive assets and liabilities that were held on June 30,
2003 and December 31, 2002 due to instantaneous parallel increases in the
period end yield curve of 100 and 150 basis points.

The sensitivity analysis also assumes an instantaneous 10% and 20% decline in
the foreign currency exchange rates versus the United States dollar from their
levels at June 30, 2003 and December 31, 2002, with all other variables held
constant.

Equity price risk was measured assuming an instantaneous 10% and 25% decline in
the S&P 500 Index (Index) from its level at June 30, 2003 and December 31, 2002,
with all other variables held constant. The Companys equity holdings were
assumed to be highly and positively correlated with the Index. At June 30,
2003, a 10% and 25% decrease in the Index would result in a $236 million and
$591 million decrease compared to $234 million and $585 million decrease at
December 31, 2002, in the market value of the Companys equity investments.

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CNA FINANCIAL CORPORATION
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK, Continued

Of these amounts, under the 10% and 25% scenarios, $143 million and $359
million at June 30, 2003 and $113 million and $284 million at December 31, 2002
pertained to decreases in the market value of the separate account investments.
These decreases would substantially be offset by decreases in related separate
account liabilities to customers. Similarly, increases in the market value of
the separate account equity investments would also be offset by increases in
the same related separate account liabilities by the same approximate amounts.

The following tables present the estimated effects on the market value of the
Companys financial instruments at June 30, 2003 and December 31, 2002, due to
an increase in interest rates of 100 basis points, a 10% decline in foreign
currency exchange rates and a 10% decline in the Index.

Market Risk Scenario 1

|                                                      |                             |                         |        |           |        |          |        |                     |        |        |     |     |     |   |      |     |     |  
|----------------------------------------------------- | --------------------------- | ----------------------- | ------ | --------- | ------ | -------- | ------ | ------------------- | ------ | ------ | --- | --- | --- | - | ---- | --- | --- | -
|                                                      |                             |                         |        |           |        |          |        | Increase (Decrease)
|                                                      |                             |                         |        |           |        |          |        |                    
|                                                      |                             |                         |        | Market    |        | Interest |        | Currency            |        | Equity
|June 30, 2003                                         |                             | Value                   |        | Rate Risk |        | Risk     |        | Risk               
|(In millions)                                         |                             |                         |        |           |        |          |        |                    
|                                                      |                             |                         |        |           |        |          |        |                     |        |        |     |     |     |   |      |    
|Held for Other Than Trading Purposes:                 |                             |                         |        |           |        |          |        |                     |        |        |     |     |     |   |      |    
|General account:                                      |                             |                         |        |           |        |          |        |                     |        |        |     |     |     |   |      |    
|                                                      | Fixed maturity securities   |                         | $      | 30,487    |        |          | $      | (1,932              | )      |        | $   | (46 | )   |   | $    | (17 | )  
|                                                      | Equity securities           |                         |        | 647       |        |          |        |                    |        |        |     | (23 | )   |   |      | (62 | )  
|                                                      | Short-term investments      |                         |        | 5,335     |        |          |        | (2                  | )      |        |     | (13 | )   |   |      |    |    
|                                                      | Limited partnerships        |                         |        | 1,146     |        |          |        | 5                   |        |        |     |    |     |   |      | (14 | )  
|                                                      | Other invested assets       |                         |        | 246       |        |          |        |                    |        |        |     |    |     |   |      |    |    
|                                                      | Interest rate caps          |                         |        |          |        |          |        |                    |        |        |     |    |     |   |      |    |    
|                                                      | Interest rate swaps         |                         |        | (12       | )      |          |        | 112                 |        |        |     |    |     |   |      |    |    
|                                                      | Other derivative securities |                         |        | (3        | )      |          |        | (27                 | )      |        |     | 8   |     |   |      |    |    
|                                                      |                             |                         |        |           |        |          |        |                     |        |        |     |     |     |   |      |     |    
|                                                      |                             | Total general account   |        |           | 37,846 |          |        |                     | (1,844 | )      |     |     | (74 | ) |      |     | (93 | )
|                                                      |                             |                         |        |           |        |          |        |                     |        |        |     |     |     |   |      |     |    
|Separate accounts:                                    |                             |                         |        |           |        |          |        |                     |        |        |     |     |     |   |      |    
|                                                      | Fixed maturity securities   |                         |        | 1,881     |        |          |        | (110                | )      |        |     |    |     |   |      |    |    
|                                                      | Equity securities           |                         |        | 113       |        |          |        |                    |        |        |     |    |     |   |      | (11 | )  
|                                                      | Short-term investments      |                         |        | 97        |        |          |        |                    |        |        |     |    |     |   |      |    |    
|                                                      | Other invested assets       |                         |        | 395       |        |          |        |                    |        |        |     |    |     |   |      | (39 | )  
|                                                      |                             |                         |        |           |        |          |        |                     |        |        |     |     |     |   |      |     |    
|                                                      |                             | Total separate accounts |        |           | 2,486  |          |        |                     | (110   | )      |     |     |    |   |      |     | (50 | )
|                                                      |                             |                         |        |           |        |          |        |                     |        |        |     |     |     |   |      |     |    
|Total securities held for other than trading purposes |                             |                         | 40,332 |           |        |          | (1,954 | )                   |        |        | (74 | )   |     |   | (143 | )  
|                                                      |                             |                         |        |           |        |          |        |                     |        |        |     |     |     |   |      |     |    
|Held for Trading Purposes:                            |                             |                         |        |           |        |          |        |                     |        |        |     |     |     |   |      |    
|Separate accounts:                                    |                             |                         |        |           |        |          |        |                     |        |        |     |     |     |   |      |    
|                                                      | Fixed maturity securities   |                         |        | 296       |        |          |        | (4                  | )      |        |     |    |     |   |      | (1  | )  
|                                                      | Equity securities           |                         |        |          |        |          |        |                    |        |        |     |    |     |   |      |    |    
|                                                      | Short-term investments      |                         |        | 315       |        |          |        |                    |        |        |     |    |     |   |      |    |    
|                                                      | Limited partnerships        |                         |        | 364       |        |          |        |                    |        |        |     |    |     |   |      | (2  | )  
|                                                      | Equity indexed futures      |                         |        |          |        |          |        | 2                   |        |        |     |    |     |   |      | (90 | )  
|                                                      |                             |                         |        |           |        |          |        |                     |        |        |     |     |     |   |      |     |    
|Total securities held for trading purposes            |                             |                         | 975    |           |        |          | (2     | )                   |        |        |    |     |     |   | (93  | )  
|                                                      |                             |                         |        |           |        |          |        |                     |        |        |     |     |     |   |      |     |    
|Total securities                                      |                             | $                       | 41,307 |           |        | $        | (1,956 | )                   |        | $      | (74 | )   |     | $ | (236 | )  
|                                                      |                             |                         |        |           |        |          |        |                     |        |        |     |     |     |   |      |     |    
|Debt (carrying value)                                 |                             | $                       | 2,158  |           |        | $        | (74    | )                   |        | $      |    |     |     | $ |     |    
|                                                      |                             |                         |        |           |        |          |        |                     |        |        |     |     |     |   |      |     |    

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CNA FINANCIAL CORPORATION
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK, Continued

Market Risk Scenario 1

|                                                      |                             |                         |        |           |        |          |        |                     |        |        |     |     |     |   |      |     |      |  
|----------------------------------------------------- | --------------------------- | ----------------------- | ------ | --------- | ------ | -------- | ------ | ------------------- | ------ | ------ | --- | --- | --- | - | ---- | --- | ---- | -
|                                                      |                             |                         |        |           |        |          |        | Increase (Decrease)
|                                                      |                             |                         |        |           |        |          |        |                    
|                                                      |                             |                         |        | Market    |        | Interest |        | Currency            |        | Equity
|December 31, 2002                                     |                             | Value                   |        | Rate Risk |        | Risk     |        | Risk               
|(In millions)                                         |                             |                         |        |           |        |          |        |                    
|                                                      |                             |                         |        |           |        |          |        |                     |        |        |     |     |     |   |      |    
|Held for Other Than Trading Purposes:                 |                             |                         |        |           |        |          |        |                     |        |        |     |     |     |   |      |    
|General account:                                      |                             |                         |        |           |        |          |        |                     |        |        |     |     |     |   |      |    
|                                                      | Fixed maturity securities   |                         | $      | 26,275    |        |          | $      | (1,629              | )      |        | $   | (37 | )   |   | $    | (10 | )   
|                                                      | Equity securities           |                         |        | 666       |        |          |        |                    |        |        |     | (20 | )   |   |      | (67 | )   
|                                                      | Short-term investments      |                         |        | 7,008     |        |          |        | (6                  | )      |        |     | (18 | )   |   |      |    |     
|                                                      | Limited partnerships        |                         |        | 1,060     |        |          |        | 41                  |        |        |     |    |     |   |      | (43 | )   
|                                                      | Other invested assets       |                         |        | 263       |        |          |        |                    |        |        |     |    |     |   |      |    |     
|                                                      | Interest rate caps          |                         |        |          |        |          |        |                    |        |        |     |    |     |   |      |    |     
|                                                      | Interest rate swaps         |                         |        |          |        |          |        | 5                   |        |        |     |    |     |   |      |    |     
|                                                      | Other derivative securities |                         |        | 21        |        |          |        | (52                 | )      |        |     | 1   |     |   |      | (1  | )   
|                                                      |                             |                         |        |           |        |          |        |                     |        |        |     |     |     |   |      |     |     
|                                                      |                             | Total general account   |        |           | 35,293 |          |        |                     | (1,641 | )      |     |     | (74 | ) |      |     | (121 | )
|                                                      |                             |                         |        |           |        |          |        |                     |        |        |     |     |     |   |      |     |     
|Separate accounts:                                    |                             |                         |        |           |        |          |        |                     |        |        |     |     |     |   |      |    
|                                                      | Fixed maturity securities   |                         |        | 1,868     |        |          |        | (96                 | )      |        |     |    |     |   |      |    |     
|                                                      | Equity securities           |                         |        | 112       |        |          |        |                    |        |        |     |    |     |   |      | (11 | )   
|                                                      | Short-term investments      |                         |        | 110       |        |          |        |                    |        |        |     |    |     |   |      |    |     
|                                                      | Other invested assets       |                         |        | 387       |        |          |        |                    |        |        |     |    |     |   |      | (39 | )   
|                                                      |                             |                         |        |           |        |          |        |                     |        |        |     |     |     |   |      |     |     
|                                                      |                             | Total separate accounts |        |           | 2,477  |          |        |                     | (96    | )      |     |     |    |   |      |     | (50  | )
|                                                      |                             |                         |        |           |        |          |        |                     |        |        |     |     |     |   |      |     |     
|Total securities held for other than trading purposes |                             |                         | 37,770 |           |        |          | (1,737 | )                   |        |        | (74 | )   |     |   | (171 | )  
|                                                      |                             |                         |        |           |        |          |        |                     |        |        |     |     |     |   |      |     |     
|Held for Trading Purposes:                            |                             |                         |        |           |        |          |        |                     |        |        |     |     |     |   |      |    
|Separate accounts:                                    |                             |                         |        |           |        |          |        |                     |        |        |     |     |     |   |      |    
|                                                      | Fixed maturity securities   |                         |        | 145       |        |          |        | (3                  | )      |        |     |    |     |   |      |    |     
|                                                      | Equity securities           |                         |        | 6         |        |          |        |                    |        |        |     |    |     |   |      | (1  | )   
|                                                      | Short-term investments      |                         |        | 167       |        |          |        |                    |        |        |     |    |     |   |      |    |     
|                                                      | Limited partnerships        |                         |        | 327       |        |          |        |                    |        |        |     |    |     |   |      | (2  | )   
|                                                      | Equity indexed futures      |                         |        |          |        |          |        | 1                   |        |        |     |    |     |   |      | (60 | )   
|                                                      |                             |                         |        |           |        |          |        |                     |        |        |     |     |     |   |      |     |     
|Total securities held for trading purposes            |                             |                         | 645    |           |        |          | (2     | )                   |        |        |    |     |     |   | (63  | )  
|                                                      |                             |                         |        |           |        |          |        |                     |        |        |     |     |     |   |      |     |     
|Total securities                                      |                             | $                       | 38,415 |           |        | $        | (1,739 | )                   |        | $      | (74 | )   |     | $ | (234 | )  
|                                                      |                             |                         |        |           |        |          |        |                     |        |        |     |     |     |   |      |     |     
|Debt (carrying value)                                 |                             | $                       | 2,292  |           |        | $        | (86    | )                   |        | $      |    |     |     | $ |     |    
|                                                      |                             |                         |        |           |        |          |        |                     |        |        |     |     |     |   |      |     |     

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CNA FINANCIAL CORPORATION
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK, Continued

The following tables present the estimated effects on the market value of the
Companys financial instruments at June 30, 2003 and December 31, 2002, due to
an increase in interest rates of 150 basis points, a 20% decline in foreign
currency exchange rates and a 25% decline in the Index.

Market Risk Scenario 2

|                                                      |                             |                         |        |           |        |          |        |                     |        |        |      |     |      |   |      |      |      |  
|----------------------------------------------------- | --------------------------- | ----------------------- | ------ | --------- | ------ | -------- | ------ | ------------------- | ------ | ------ | ---- | --- | ---- | - | ---- | ---- | ---- | -
|                                                      |                             |                         |        |           |        |          |        | Increase (Decrease)
|                                                      |                             |                         |        |           |        |          |        |                    
|                                                      |                             |                         |        | Market    |        | Interest |        | Currency            |        | Equity
|June 30, 2003                                         |                             | Value                   |        | Rate Risk |        | Risk     |        | Risk               
|(In millions)                                         |                             |                         |        |           |        |          |        |                    
|                                                      |                             |                         |        |           |        |          |        |                     |        |        |      |     |      |   |      |     
|Held for Other Than Trading Purposes:                 |                             |                         |        |           |        |          |        |                     |        |        |      |     |      |   |      |     
|General account:                                      |                             |                         |        |           |        |          |        |                     |        |        |      |     |      |   |      |     
|                                                      | Fixed maturity securities   |                         | $      | 30,487    |        |          | $      | (2,723              | )      |        | $    | (92 | )    |   | $    | (42  | )   
|                                                      | Equity securities           |                         |        | 647       |        |          |        |                    |        |        |      | (46 | )    |   |      | (156 | )   
|                                                      | Short-term investments      |                         |        | 5,335     |        |          |        | (3                  | )      |        |      | (27 | )    |   |      |     |     
|                                                      | Limited partnerships        |                         |        | 1,146     |        |          |        | 7                   |        |        |      |    |      |   |      | (34  | )   
|                                                      | Other invested assets       |                         |        | 246       |        |          |        |                    |        |        |      |    |      |   |      |     |     
|                                                      | Interest rate caps          |                         |        |          |        |          |        | 1                   |        |        |      |    |      |   |      |     |     
|                                                      | Interest rate swaps         |                         |        | (12       | )      |          |        | 163                 |        |        |      |    |      |   |      |     |     
|                                                      | Other derivative securities |                         |        | (3        | )      |          |        | (41                 | )      |        |      | 16  |      |   |      |     |     
|                                                      |                             |                         |        |           |        |          |        |                     |        |        |      |     |      |   |      |      |     
|                                                      |                             | Total general account   |        |           | 37,846 |          |        |                     | (2,596 | )      |      |     | (149 | ) |      |      | (232 | )
|                                                      |                             |                         |        |           |        |          |        |                     |        |        |      |     |      |   |      |      |     
|Separate accounts:                                    |                             |                         |        |           |        |          |        |                     |        |        |      |     |      |   |      |     
|                                                      | Fixed maturity securities   |                         |        | 1,881     |        |          |        | (158                | )      |        |      |    |      |   |      |     |     
|                                                      | Equity securities           |                         |        | 113       |        |          |        |                    |        |        |      |    |      |   |      | (28  | )   
|                                                      | Short-term investments      |                         |        | 97        |        |          |        |                    |        |        |      |    |      |   |      |     |     
|                                                      | Other invested assets       |                         |        | 395       |        |          |        |                    |        |        |      |    |      |   |      | (98  | )   
|                                                      |                             |                         |        |           |        |          |        |                     |        |        |      |     |      |   |      |      |     
|                                                      |                             | Total separate accounts |        |           | 2,486  |          |        |                     | (158   | )      |      |     |     |   |      |      | (126 | )
|                                                      |                             |                         |        |           |        |          |        |                     |        |        |      |     |      |   |      |      |     
|Total securities held for other than trading purposes |                             |                         | 40,332 |           |        |          | (2,754 | )                   |        |        | (149 | )   |      |   | (358 | )   
|                                                      |                             |                         |        |           |        |          |        |                     |        |        |      |     |      |   |      |      |     
|Held for Trading Purposes:                            |                             |                         |        |           |        |          |        |                     |        |        |      |     |      |   |      |     
|Separate accounts:                                    |                             |                         |        |           |        |          |        |                     |        |        |      |     |      |   |      |     
|                                                      | Fixed maturity securities   |                         |        | 296       |        |          |        | (5                  | )      |        |      |    |      |   |      | (2   | )   
|                                                      | Equity securities           |                         |        |          |        |          |        |                    |        |        |      |    |      |   |      |     |     
|                                                      | Short-term investments      |                         |        | 315       |        |          |        |                    |        |        |      |    |      |   |      |     |     
|                                                      | Limited partnerships        |                         |        | 364       |        |          |        |                    |        |        |      |    |      |   |      | (6   | )   
|                                                      | Equity indexed futures      |                         |        |          |        |          |        | 3                   |        |        |      |    |      |   |      | (225 | )   
|                                                      |                             |                         |        |           |        |          |        |                     |        |        |      |     |      |   |      |      |     
|Total securities held for trading purposes            |                             |                         | 975    |           |        |          | (2     | )                   |        |        |     |     |      |   | (233 | )   
|                                                      |                             |                         |        |           |        |          |        |                     |        |        |      |     |      |   |      |      |     
|Total securities                                      |                             | $                       | 41,307 |           |        | $        | (2,756 | )                   |        | $      | (149 | )   |      | $ | (591 | )   
|                                                      |                             |                         |        |           |        |          |        |                     |        |        |      |     |      |   |      |      |     
|Debt (carrying value)                                 |                             | $                       | 2,158  |           |        | $        | (107   | )                   |        | $      |     |     |      | $ |     |     
|                                                      |                             |                         |        |           |        |          |        |                     |        |        |      |     |      |   |      |      |     

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CNA FINANCIAL CORPORATION
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK, Continued

Market Risk Scenario 2

|                                                      |                             |                         |        |           |        |          |        |                     |        |        |      |     |      |   |      |      |      |  
|----------------------------------------------------- | --------------------------- | ----------------------- | ------ | --------- | ------ | -------- | ------ | ------------------- | ------ | ------ | ---- | --- | ---- | - | ---- | ---- | ---- | -
|                                                      |                             |                         |        |           |        |          |        | Increase (Decrease)
|                                                      |                             |                         |        |           |        |          |        |                    
|                                                      |                             |                         |        | Market    |        | Interest |        | Currency            |        | Equity
|December 31, 2002                                     |                             | Value                   |        | Rate Risk |        | Risk     |        | Risk               
|(In millions)                                         |                             |                         |        |           |        |          |        |                    
|                                                      |                             |                         |        |           |        |          |        |                     |        |        |      |     |      |   |      |     
|Held for Other Than Trading Purposes:                 |                             |                         |        |           |        |          |        |                     |        |        |      |     |      |   |      |     
|General account:                                      |                             |                         |        |           |        |          |        |                     |        |        |      |     |      |   |      |     
|                                                      | Fixed maturity securities   |                         | $      | 26,275    |        |          | $      | (2,430              | )      |        | $    | (73 | )    |   | $    | (24  | )   
|                                                      | Equity securities           |                         |        | 666       |        |          |        |                    |        |        |      | (41 | )    |   |      | (166 | )   
|                                                      | Short-term investments      |                         |        | 7,008     |        |          |        | (9                  | )      |        |      | (36 | )    |   |      |     |     
|                                                      | Limited partnerships        |                         |        | 1,060     |        |          |        | 62                  |        |        |      |    |      |   |      | (109 | )   
|                                                      | Other invested assets       |                         |        | 263       |        |          |        |                    |        |        |      |    |      |   |      |     |     
|                                                      | Interest rate caps          |                         |        |          |        |          |        | 1                   |        |        |      |    |      |   |      |     |     
|                                                      | Interest rate swaps         |                         |        |          |        |          |        | 7                   |        |        |      |    |      |   |      |     |     
|                                                      | Other derivative securities |                         |        | 21        |        |          |        | (86                 | )      |        |      | 2   |      |   |      | (2   | )   
|                                                      |                             |                         |        |           |        |          |        |                     |        |        |      |     |      |   |      |      |     
|                                                      |                             | Total general account   |        |           | 35,293 |          |        |                     | (2,455 | )      |      |     | (148 | ) |      |      | (301 | )
|                                                      |                             |                         |        |           |        |          |        |                     |        |        |      |     |      |   |      |      |     
|Separate accounts:                                    |                             |                         |        |           |        |          |        |                     |        |        |      |     |      |   |      |     
|                                                      | Fixed maturity securities   |                         |        | 1,868     |        |          |        | (137                | )      |        |      |    |      |   |      |     |     
|                                                      | Equity securities           |                         |        | 112       |        |          |        |                    |        |        |      |    |      |   |      | (28  | )   
|                                                      | Short-term investments      |                         |        | 110       |        |          |        |                    |        |        |      |    |      |   |      |     |     
|                                                      | Other invested assets       |                         |        | 387       |        |          |        |                    |        |        |      |    |      |   |      | (97  | )   
|                                                      |                             |                         |        |           |        |          |        |                     |        |        |      |     |      |   |      |      |     
|                                                      |                             | Total separate accounts |        |           | 2,477  |          |        |                     | (137   | )      |      |     |     |   |      |      | (125 | )
|                                                      |                             |                         |        |           |        |          |        |                     |        |        |      |     |      |   |      |      |     
|Total securities held for other than trading purposes |                             |                         | 37,770 |           |        |          | (2,592 | )                   |        |        | (148 | )   |      |   | (426 | )   
|                                                      |                             |                         |        |           |        |          |        |                     |        |        |      |     |      |   |      |      |     
|Held for Trading Purposes:                            |                             |                         |        |           |        |          |        |                     |        |        |      |     |      |   |      |     
|Separate accounts:                                    |                             |                         |        |           |        |          |        |                     |        |        |      |     |      |   |      |     
|                                                      | Fixed maturity securities   |                         |        | 145       |        |          |        | (5                  | )      |        |      |    |      |   |      | (1   | )   
|                                                      | Equity securities           |                         |        | 6         |        |          |        |                    |        |        |      |    |      |   |      | (2   | )   
|                                                      | Short-term investments      |                         |        | 167       |        |          |        |                    |        |        |      |    |      |   |      |     |     
|                                                      | Limited partnerships        |                         |        | 327       |        |          |        |                    |        |        |      |    |      |   |      | (5   | )   
|                                                      | Equity indexed futures      |                         |        |          |        |          |        | 2                   |        |        |      |    |      |   |      | (151 | )   
|                                                      |                             |                         |        |           |        |          |        |                     |        |        |      |     |      |   |      |      |     
|Total securities held for trading purposes            |                             |                         | 645    |           |        |          | (3     | )                   |        |        |     |     |      |   | (159 | )   
|                                                      |                             |                         |        |           |        |          |        |                     |        |        |      |     |      |   |      |      |     
|Total securities                                      |                             | $                       | 38,415 |           |        | $        | (2,595 | )                   |        | $      | (148 | )   |      | $ | (585 | )   
|                                                      |                             |                         |        |           |        |          |        |                     |        |        |      |     |      |   |      |      |     
|Debt (carrying value)                                 |                             | $                       | 2,292  |           |        | $        | (125   | )                   |        | $      |     |     |      | $ |     |     
|                                                      |                             |                         |        |           |        |          |        |                     |        |        |      |     |      |   |      |      |     

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CNA FINANCIAL CORPORATION
ITEM 4. DISCLOSURE CONTROLS AND PROCEDURES

The Company maintains a system of disclosure controls and procedures which are
designed to ensure that information required to be disclosed by the Company in
reports that it files or submits to the Securities and Exchange Commission
under the Securities Exchange Act of 1934, including this report, is recorded,
processed, summarized and reported on a timely basis. These disclosure
controls and procedures include controls and procedures designed to ensure that
information required to be disclosed under the Exchange Act is accumulated and
communicated to the Companys management on a timely basis to allow decisions
regarding required disclosure.

The Companys principal executive officer and its principal financial officer
undertook an evaluation of the Companys disclosure controls and procedures (as
defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) as of the end of the
period covered by this report and concluded that the Companys controls and
procedures were effective.

Management, in consultation with the Companys independent accountants,
identified deficiencies in certain aspects of initial policy set-up and
processing for large account property and casualty business in the Standard
Lines segment which constitute a Reportable Condition under standards
established by the American Institute of Certified Public Accountants. These
deficiencies impacted the quality of the claim data used by the Companys
actuaries as the basis for their comprehensive actuarial reviews, which
hampered the timeliness of these reviews.

This matter, as well as managements action plan for remediation, have been
discussed with the Companys Audit Committee. The Company has made substantial
progress towards remediation, and expects to complete its action plan by the
end of 2003.

There were no other changes in the
Companys internal control over financial reporting identified
in connection with the foregoing evaluation that occurred during the
Companys last fiscal quarter that has materially affected, or
is reasonably likely to materially affect, the
Companys internal control over financial reporting.

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Item 1. Legal Proceedings

Information on CNAs legal proceedings is set forth in Notes F and G of the
Condensed Consolidated Financial Statements included under Part I, Item 1.




Item 4. Matters Subject to a Vote of Security Holders

Set forth below is information relating to the 2003 Annual Meeting of
Shareholders of the Registrant.

The annual meeting was called to order at 10:00 a.m., May 7, 2003. Represented
at the meeting, in person or by proxy, were 220,132,594 shares, approximately
98.4% of the issued and outstanding shares entitled to vote.

The following business was transacted:

Election of Directors

Over 97.4% of the votes cast for directors were voted for the election of the
following directors. The number of votes for and withheld with respect to each
director was as follows:

|                       |  |  |             |  |  |                |           | 
|---------------------- |  |  | ----------- |  |  | -------------- | --------- | 
|                       |  |  | Votes For   |  |  | Votes Withheld
|Antoinette Cook Bush   |  |  | 214,888,500 |  |  |                | 5,244,094 | 
|Walter L. Harris       |  |  | 214,892,598 |  |  |                | 5,239,996 | 
|Bernard L. Hengesbaugh |  |  | 214,832,416 |  |  |                | 5,300,178 | 
|Stephen W. Lilienthal  |  |  | 215,766,014 |  |  |                | 4,366,580 | 
|Don M. Randel          |  |  | 214,887,524 |  |  |                | 5,245,070 | 
|Joseph Rosenberg       |  |  | 215,767,722 |  |  |                | 4,364,872 | 
|James S. Tisch         |  |  | 215,766,594 |  |  |                | 4,366,000 | 
|Laurence A. Tisch      |  |  | 215,818,864 |  |  |                | 4,313,730 | 
|Preston R. Tisch       |  |  | 215,812,274 |  |  |                | 4,320,320 | 
|Marvin Zonis           |  |  | 214,891,854 |  |  |                | 5,240,740 | 

Ratification of the appointment of Independent Certified Public Accountants

Approved 214,276,371 votes, approximately 95.8% of the votes cast, voted to
ratify the appointment of Deloitte & Touche, LLP as independent certified
public accountants for the Company, 5,844,767 votes, approximately 2.6% of the
votes cast, voted against, and shares representing 11,456 votes, approximately
0.0% of the votes cast, abstained.

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Item 6. Exhibits and Reports on Form 8-K

(a) Exhibits

|                                                                                                                                          |  |                |       |  
|----------------------------------------------------------------------------------------------------------------------------------------- |  | -------------- | ----- | -
|Description of Exhibit                                                                                                                    |  | Exhibit Number
|Executive Severance Agreement between CNA Financial
Corporation and Debra L. McClenahan, dated June 12, 2003                              |  |                | 10.15 |  
|                                                                                                                                          |  |                |       |  
|Amendment to Employment Agreement between CNA Financial
Corporation and Robert L. McGinnis, dated June 10, 2003                           |  |                | 10.16 |  
|                                                                                                                                          |  |                |       |  
|Certification of Chief Executive Officer pursuant to 18 U.S.C. 1350,
as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 |  |                | 31.1  |  
|                                                                                                                                          |  |                |       |  
|Certification of Chief Financial Officer pursuant to 18 U.S.C. 1350,
as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 |  |                | 31.2  |  
|                                                                                                                                          |  |                |       |  
|Certification of Chief Executive Officer pursuant to 18 U.S.C. 1350,
as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 |  |                | 32.1  | *
|                                                                                                                                          |  |                |       |  
|Certification of Chief Financial Officer pursuant to 18 U.S.C. 1350,
as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 |  |                | 32.2  | *

*Exhibits 32.1 and 32.2 are being
furnished and shall not be deemed filed for the purpose
of Section 18 of the Securities Exchange Act of 1934, as
amended, or otherwise subject to the liabilities of that Section.
These Exhibits shall not be incorporated by reference into any
registration statement or other document pursuant to the Securities
Act of 1933, as amended.

(b) Reports on Form 8-K

On June 11, 2003, CNA Financial Corporation issued a release announcing the
promotion of Robert L. McGinnis to President and Chief Executive Officer of CNA
Life and Group Operations, CNA insurance companies.

On May 30, 2003, CNA Financial Corporation issued a release announcing a second
quarter charge relating to a 1995 property loss.

On May 8, 2003, CNA Financial Corporation issued a release announcing its first
quarter 2003 operating results.

On April 21, 2003, CNA Financial Corporation filed a Form 8-K for its preferred
stock designated Series H Cumulative Preferred Issue.

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SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.

|                      |  |  |                           |                                                       
|--------------------- |  |  | ------------------------- | ------------------------------------------------------
|                      |  |  | CNA Financial Corporation
|                      |  |  |                           |                                                       
|Dated: August 8, 2003 |  |  | By                        | /s/ Robert V. Deutsch                                 
|                      |  |  |                           |                                                       
|                      |  |  |                           | Robert V. Deutsch                                     
|                      |  |  |                           | Executive Vice President and                          
|                      |  |  |                           | Chief Financial
Officer (Principal Accounting Officer)

96