##### Table of Contents



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 
 FORM 10-Q
 þ
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
 For the quarterly period ended March 31, 2009
 OR
 o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
 For the transition period from  to
 Commission File Number 1-5823
 
 CNA FINANCIAL CORPORATION
  Delaware
    
    36-6169860(State or other jurisdiction of
    
    (I.R.S. Employerincorporation or organization)
    
    Identification No.)
 333 S. WabashChicago, Illinois
    
    60604(Address of principal executive offices)
    
    (Zip Code)
 (312) 822-5000
 þ o
 o o
  Large accelerated filer þ
    
    Accelerated filer o
    
    Non-accelerated filer o
(Do not check if a smaller reporting company)
    
    Smaller reporting company o
 o þ
  Class
    
    Outstanding at April 30, 2009Common Stock, Par value $2.50
    
    
    269,024,408




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##### 



CNA Financial Corporation  Index
  
 Item
    
    
    
    PageNumber
    
    
    
    NumberPART I. Financial Information1.
    
    
    Condensed Consolidated Financial Statements (Unaudited):Condensed Consolidated Statements of Operations for the Three months ended March 31, 2009 and 2008
    
    
    3Condensed Consolidated Statements of Comprehensive Income for the Three months ended March 31, 2009 and 2008
    
    
    4Condensed Consolidated Balance Sheets at March 31, 2009 and December 31, 2008
    
    
    5Condensed Consolidated Statements of Cash Flows for the Three months ended March 31, 2009 and 2008
    
    
    6Condensed Consolidated Statements of Equity for the Three months ended March 31, 2009 and 2008
    
    
    8Notes to Condensed Consolidated Financial Statements
    
    
    92.
    
    
    Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    413.
    
    
    Quantitative and Qualitative Disclosures About Market Risk
    
    
    634.
    
    
    Controls and Procedures
    
    
    64PART II. Other Information1.
    
    
    Legal Proceedings
    
    
    656.
    
    
    Exhibits
    
    
    66EX-10.1EX-10.2EX-31.1EX-31.2EX-32.1EX-32.2




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##### Table of Contents



CNA Financial Corporation (CNAF)
 
 Part I. Financial Information
 
 Item 1. Condensed Consolidated Financial Statements
 
 Condensed Consolidated Statements of Operations (Unaudited)
 Three months ended March 31
    
    2009
    
    
    2008(In millions, except per share data)RevenuesNet earned premiums
    
    $
    1,672
    
    
    $
    1,813Net investment income
    
    
    420
    
    
    
    434Realized investment losses, net of participating policyholders
interests
    
    
    (532
    )
    
    
    (51
    )Other revenues
    
    
    78
    
    
    
    86Total revenues
    
    
    1,638
    
    
    
    2,282Claims, Benefits and ExpensesInsurance claims and policyholders benefits
    
    
    1,342
    
    
    
    1,389Amortization of deferred acquisition costs
    
    
    349
    
    
    
    368Other operating expenses
    
    
    251
    
    
    
    227Interest
    
    
    31
    
    
    
    34Total claims, benefits and expenses
    
    
    1,973
    
    
    
    2,018Income (loss) from continuing operations before income tax
    
    
    (335
    )
    
    
    264Income tax (expense) benefit
    
    
    150
    
    
    
    (64
    )Income (loss) from continuing operations
    
    
    (185
    )
    
    
    200Income (loss) from discontinued operations, net of income tax
(expense) benefit of $0 and $0
    
    
    
    
    
    
    (1
    )Net income (loss)
    
    
    (185
    )
    
    
    199Net income attributable to noncontrolling interests
    
    
    (10
    )
    
    
    (12
    )Net income (loss) attributable to CNAF
    
    $
    (195
    )
    
    $
    187Income (Loss) Attributable to CNAF Common StockholdersIncome (loss) from continuing operations attributable to CNAF
    
    $
    (195
    )
    
    $
    188Less: Dividend on 2008 Senior Preferred
    
    
    (31
    )
    
    
    Income (loss) from continuing operations attributable to CNAF common
stockholders
    
    
    (226
    )
    
    
    188Income (loss) from discontinued operations attributable to CNAF common
stockholders
    
    
    
    
    
    
    (1
    )Income (loss) attributable to CNAF common stockholders
    
    $
    (226
    )
    
    $
    187Basic and Diluted Earnings (Loss) Per Share Attributable to CNAF
Common StockholdersIncome (loss) from continuing operations attributable to CNAF common
stockholders
    
    $
    (0.84
    )
    
    $
    0.70Income (loss) from discontinued operations attributable to CNAF common
stockholders
    
    
    
    
    
    
    (0.01
    )Basic and diluted earnings (loss) per share attributable to CNAF
common stockholders
    
    $
    (0.84
    )
    
    $
    0.69Weighted Average Outstanding Common Stock and Common Stock EquivalentsBasic
    
    
    269.0
    
    
    
    270.7Diluted
    
    
    269.0
    
    
    
    270.8
 
 3




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CNA Financial Corporation (CNAF)
 
 Condensed Consolidated Statements of Comprehensive Income (Unaudited)
 Three months ended March 31
    
    2009
    
    
    2008(In millions)Net income (loss)
    
    $
    (185
    )
    
    $
    199Other comprehensive income (loss), net of taxChanges in:Unrealized gains (losses) on investments
    
    
    401
    
    
    
    (873
    )Unrealized gains (losses) on discontinued operations and other
    
    
    (2
    )
    
    
    4Foreign currency translation adjustment
    
    
    (8
    )
    
    
    (11
    )Pension and postretirement benefits
    
    
    2
    
    
    
    (2
    )Allocation to participating policyholders
    
    
    
    
    
    
    14Other comprehensive income (loss), net of tax
    
    
    393
    
    
    
    (868
    )Comprehensive income (loss)
    
    
    208
    
    
    
    (669
    )Net income attributable to noncontrolling interests
    
    
    (10
    )
    
    
    (12
    )Other comprehensive (income) loss attributable to noncontrolling interests
    
    
    (5
    )
    
    
    2Total comprehensive income (loss) attributable to CNAF
    
    $
    193
    
    
    $
    (679
    )
 
 4




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CNA Financial Corporation (CNAF)
 
 Condensed Consolidated Balance Sheets (Unaudited)
 March 31,
    
    
    December 31,2009
    
    
    2008(In millions, except share data)AssetsInvestments:Fixed maturity securities at fair value (amortized cost of $33,189 and $34,155)
    
    $
    28,461
    
    
    $
    28,887Equity securities at fair value (cost of $783 and $1,016)
    
    
    726
    
    
    
    871Limited partnership investments
    
    
    1,667
    
    
    
    1,683Other invested assets
    
    
    11
    
    
    
    28Short term investments
    
    
    4,583
    
    
    
    3,534Total investments
    
    
    35,448
    
    
    
    35,003Cash
    
    
    94
    
    
    
    85Reinsurance receivables (less allowance for uncollectible receivables of $365 and $366)
    
    
    7,180
    
    
    
    7,395Insurance receivables (less allowance for doubtful accounts of $221 and $221)
    
    
    1,810
    
    
    
    1,818Accrued investment income
    
    
    387
    
    
    
    356Receivables for securities sold and collateral
    
    
    285
    
    
    
    402Deferred acquisition costs
    
    
    1,132
    
    
    
    1,125Prepaid reinsurance premiums
    
    
    255
    
    
    
    237Federal income tax recoverable (includes $318 and $299 due from Loews Corporation)
    
    
    315
    
    
    
    294Deferred income taxes
    
    
    3,413
    
    
    
    3,493Property and equipment at cost (less accumulated depreciation of $550 and $641)
    
    
    390
    
    
    
    393Goodwill and other intangible assets
    
    
    141
    
    
    
    141Other assets
    
    
    551
    
    
    
    562Separate account business
    
    
    376
    
    
    
    384Total assets
    
    $
    51,777
    
    
    $
    51,688Liabilities and EquityLiabilities:Insurance reserves:Claim and claim adjustment expenses
    
    $
    27,243
    
    
    $
    27,593Unearned premiums
    
    
    3,461
    
    
    
    3,406Future policy benefits
    
    
    7,634
    
    
    
    7,529Policyholders funds
    
    
    253
    
    
    
    243Collateral on loaned securities and derivatives
    
    
    41
    
    
    
    6Payables for securities purchased
    
    
    198
    
    
    
    12Participating policyholders funds
    
    
    21
    
    
    
    20Long term debt
    
    
    2,058
    
    
    
    2,058Reinsurance balances payable
    
    
    344
    
    
    
    316Other liabilities
    
    
    2,659
    
    
    
    2,824Separate account business
    
    
    376
    
    
    
    384Total liabilities
    
    
    44,288
    
    
    
    44,391Commitments and contingencies (Notes D, E, G, H, and J)Equity:Preferred stock (12,500,000 shares authorized)
2008 Senior Preferred (no par value; $100,000 stated value; 12,500 shares issued;
held by Loews Corporation)
    
    
    1,250
    
    
    
    1,250Common stock ($2.50 par value; 500,000,000 shares authorized; 273,040,243 shares
issued; and 269,024,408 shares outstanding)
    
    
    683
    
    
    
    683Additional paid-in capital
    
    
    2,175
    
    
    
    2,174Retained earnings
    
    
    6,619
    
    
    
    6,845Accumulated other comprehensive loss
    
    
    (3,536
    )
    
    
    (3,924
    )Treasury stock (4,015,835 shares), at cost
    
    
    (109
    )
    
    
    (109
    )Notes receivable for the issuance of common stock
    
    
    (30
    )
    
    
    (42
    )Total CNAF stockholders equity
    
    
    7,052
    
    
    
    6,877Noncontrolling interests
    
    
    437
    
    
    
    420Total equity
    
    
    7,489
    
    
    
    7,297Total liabilities and equity
    
    $
    51,777
    
    
    $
    51,688
 
 5




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CNA Financial Corporation (CNAF)
 
 Condensed Consolidated Statements of Cash Flows (Unaudited)
 Three months ended March 31
    
    2009
    
    
    2008(In millions)Cash Flows from Operating Activities:Net income (loss)
    
    $
    (185
    )
    
    $
    199Adjustments to reconcile net income (loss) to net cash flows provided by
operating activities:(Income) loss from discontinued operations
    
    
    
    
    
    
    1Deferred income tax benefit
    
    
    (139
    )
    
    
    (21
    )Trading portfolio activity
    
    
    (3
    )
    
    
    63Realized investment losses, net of participating policyholders
interests
    
    
    532
    
    
    
    51Undistributed losses of equity method investees
    
    
    104
    
    
    
    70Net amortization of bond discount
    
    
    (58
    )
    
    
    (65
    )Depreciation
    
    
    21
    
    
    
    18Changes in:Receivables, net
    
    
    223
    
    
    
    158Accrued investment income
    
    
    (31
    )
    
    
    (28
    )Deferred acquisition costs
    
    
    (7
    )
    
    
    3Prepaid reinsurance premiums
    
    
    (18
    )
    
    
    (22
    )Federal income taxes recoverable
    
    
    (21
    )
    
    
    72Insurance reserves
    
    
    (139
    )
    
    
    (41
    )Reinsurance balances payable
    
    
    28
    
    
    
    (5
    )Other assets
    
    
    8
    
    
    
    (23
    )Other liabilities
    
    
    (125
    )
    
    
    (131
    )Other, net
    
    
    6
    
    
    
    Total adjustments
    
    
    381
    
    
    
    100Net cash flows provided by operating activities-continuing operations
    
    $
    196
    
    
    $
    299Net cash flows provided (used) by operating activities-discontinued operations
    
    $
    (9
    )
    
    $
    4Net cash flows provided by operating activities-total
    
    $
    187
    
    
    $
    303Cash Flows from Investing Activities:Purchases of fixed maturity securities
    
    $
    (7,079
    )
    
    $
    (11,231
    )Proceeds from fixed maturity securities:Sales
    
    
    7,046
    
    
    
    10,262Maturities, calls and redemptions
    
    
    827
    
    
    
    1,038Purchases of equity securities
    
    
    (134
    )
    
    
    (56
    )Proceeds from sales of equity securities
    
    
    146
    
    
    
    28Change in short term investments
    
    
    (1,041
    )
    
    
    (696
    )Change in collateral on loaned securities and derivatives
    
    
    35
    
    
    
    815Change in other investments
    
    
    55
    
    
    
    (125
    )Purchases of property and equipment
    
    
    (17
    )
    
    
    (32
    )Other, net
    
    
    3
    
    
    
    10Net cash flows provided (used) by investing activities-continuing operations
    
    $
    (159
    )
    
    $
    13Net cash flows provided (used) by investing activities-discontinued operations
    
    $
    9
    
    
    $
    (2
    )Net cash flows provided (used) by investing activities-total
    
    $
    (150
    )
    
    $
    11
 
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##### Table of Contents



Three months ended March 31
    
    2009
    
    
    2008(In millions)Cash Flows from Financing Activities:Dividends paid to common stockholders
    
    
    
    
    
    
    (41
    )Dividends paid to Loews Corporation for 2008 Senior Preferred
    
    
    (31
    )
    
    
    Principal payments on debt
    
    
    
    
    
    
    (150
    )Return of investment contract account balances
    
    
    (8
    )
    
    
    (14
    )Receipts on investment contract account balances
    
    
    1
    
    
    
    1Purchase of treasury stock
    
    
    
    
    
    
    (70
    )Other, net
    
    
    12
    
    
    
    1Net cash flows used by financing activities-continuing operations
    
    $
    (26
    )
    
    $
    (273
    )Net cash flows provided (used) by financing activities-discontinued operations
    
    $
    
    
    
    $
    Net cash flows used by financing activities-total
    
    $
    (26
    )
    
    $
    (273
    )Effect of foreign exchange rate changes on cash-continuing operations
    
    
    (2
    )
    
    
    (1
    )Net change in cash
    
    
    9
    
    
    
    40Cash, beginning of year
    
    
    85
    
    
    
    101Cash, end of period
    
    $
    94
    
    
    $
    141Cash-continuing operations
    
    $
    94
    
    
    $
    132Cash-discontinued operations
    
    
    
    
    
    
    9Cash-total
    
    $
    94
    
    
    $
    141
 
 7




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CNA Financial Corporation (CNAF)
 
 Condensed Consolidated Statements of Equity (Unaudited)
 Three months ended March 31
    
    2009
    
    
    2008(In millions)Preferred StockBalance, beginning and end of period
    
    $
    1,250
    
    
    $
    Common StockBalance, beginning and end of period
    
    
    683
    
    
    
    683Additional Paid-in CapitalBalance, beginning of period
    
    
    2,174
    
    
    
    2,169Stock-based compensation and other
    
    
    1
    
    
    
    1Balance, end of period
    
    
    2,175
    
    
    
    2,170Retained EarningsBalance, beginning of period
    
    
    6,845
    
    
    
    7,285Dividends paid to common stockholders
    
    
    
    
    
    
    (41
    )Dividends paid to Loews Corporation for 2008 Senior Preferred
    
    
    (31
    )
    
    
    Net income (loss) attributable to CNAF
    
    
    (195
    )
    
    
    187Balance, end of period
    
    
    6,619
    
    
    
    7,431Accumulated Other Comprehensive Income (Loss)Balance, beginning of period
    
    
    (3,924
    )
    
    
    103Other comprehensive income (loss) attributable to CNAF
    
    
    388
    
    
    
    (866
    )Balance, end of period
    
    
    (3,536
    )
    
    
    (763
    )Treasury StockBalance, beginning of period
    
    
    (109
    )
    
    
    (39
    )Purchase of treasury stock
    
    
    
    
    
    
    (70
    )Balance, end of period
    
    
    (109
    )
    
    
    (109
    )Notes Receivable for the Issuance of Common StockBalance, beginning of period
    
    
    (42
    )
    
    
    (51
    )(Increase) decrease in notes receivable for the issuance of common stock
    
    
    12
    
    
    
    (1
    )Balance, end of period
    
    
    (30
    )
    
    
    (52
    )Total CNAF Stockholders Equity
    
    
    7,052
    
    
    
    9,360Noncontrolling InterestsBalance, beginning of period
    
    
    420
    
    
    
    385Net income
    
    
    10
    
    
    
    12Other comprehensive income (loss)
    
    
    5
    
    
    
    (2
    )Other
    
    
    2
    
    
    
    Balance, end of period
    
    
    437
    
    
    
    395Total Equity
    
    $
    7,489
    
    
    $
    9,755
 
 8




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CNA Financial Corporation
 
 Notes to Condensed Consolidated Financial Statements (Unaudited)
 Note A. Basis of Presentation
    Note B. Accounting Pronouncements
 Adopted in the first quarter of 2009
 Statement of Financial Accounting Standard (SFAS) No. 160, Noncontrolling Interests in
Consolidated Financial Statements  an amendment of Accounting Research Bulletin No. 51 (SFAS
160)
  SFAS No. 161, Disclosures about Derivative Instruments and Hedging Activities  an amendment of
FASB Statement No. 133 (SFAS 161)
 Accounting for Derivative
Instruments and Hedging Activities
 9




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FASB Staff Position (FSP) No. 157-2, Effective Date of FASB Statement No. 157 (FSP FAS
157-2)
 Fair Value Measurement
 Recently issued accounting pronouncements to be adopted
 FSP FAS 107-1 and Accounting Principles Board (APB) 28-1, Interim Disclosures about Fair Value
of Financial Instruments (FSP FAS 107-1 and APB 28-1)
 Disclosures about Fair Value of Financial Instruments
 FSP FAS 115-2 and FAS 124-2, Recognition and Presentation of Other-Than-Temporary
Impairments (FSP FAS 115-2 and FAS 124-2)
  FSP FAS 157-4, Determining Fair Value When the Volume and Level of Activity for the Asset or
Liability Have Significantly Decreased and Identifying Transactions That Are Not Orderly (FSP
FAS 157-4)
  10




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Note C. Earnings (Loss) Per Share
     11




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Note D. Investments
  Net Investment Income
 Three months ended March 31
    
    2009
    
    
    2008(In millions)Fixed maturity securities
    
    $
    475
    
    
    $
    518Short term investments
    
    
    10
    
    
    
    39Limited partnerships
    
    
    (70
    )
    
    
    (39
    )Equity securities
    
    
    14
    
    
    
    5Trading portfolio (a)
    
    
    
    
    
    
    (77
    )Other
    
    
    3
    
    
    
    6Gross investment income
    
    
    432
    
    
    
    452Investment expense
    
    
    (12
    )
    
    
    (18
    )Net investment income
    
    $
    420
    
    
    $
    434
 
 (a)
    
    The change in net unrealized losses on trading securities included in net investment
income was $13 million for the three months ended March 31, 2008. As of March 31, 2009,
the Company no longer has a trading portfolio. 12




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Realized Investment Gains (Losses)
 Three months ended March 31
    
    2009
    
    
    2008(In millions)Net realized investment gains (losses):Fixed maturity securities:Gross realized gains:
    
    $
    104
    
    
    $
    117Gross realized losses:Other-than-temporary impairments
    
    
    (395
    )
    
    
    (67
    )Transactions
    
    
    (67
    )
    
    
    (52
    )Net realized investment losses on fixed maturity securities
    
    
    (358
    )
    
    
    (2
    )Equity securities:Gross realized gains:
    
    
    4
    
    
    
    4Gross realized losses:Other-than-temporary impairments
    
    
    (219
    )
    
    
    (19
    )Transactions
    
    
    (1
    )
    
    
    Net realized investment losses on equity securities
    
    
    (216
    )
    
    
    (15
    )Derivatives
    
    
    31
    
    
    
    (44
    )Other
    
    
    11
    
    
    
    10Net realized investment losses, net of participating policyholders interests
    
    $
    (532
    )
    
    $
    (51
    )
       13




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14




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Summary of Fixed Maturity and Equity Securities
 Cost or
    
    
    Gross
    
    
    Gross Unrealized Losses
    
    
    EstimatedAmortized
    
    
    Unrealized
    
    
    Less than
    
    
    12 Months
    
    
    FairMarch 31, 2009
    
    Cost
    
    
    Gains
    
    
    12 Months
    
    
    or Greater
    
    
    Value(In millions)Fixed maturity securities available-for-sale:U.S. Treasury securities and obligations of
government agencies
    
    $
    1,056
    
    
    $
    62
    
    
    $
    21
    
    
    $
    
    
    
    $
    1,097Asset-backed securities
    
    
    9,113
    
    
    
    48
    
    
    
    409
    
    
    
    1,465
    
    
    
    7,287States, municipalities and political
subdivisions  tax-exempt securities
    
    
    9,268
    
    
    
    119
    
    
    
    186
    
    
    
    730
    
    
    
    8,471Corporate and other taxable bonds
    
    
    13,683
    
    
    
    222
    
    
    
    827
    
    
    
    1,524
    
    
    
    11,554Redeemable preferred stock
    
    
    69
    
    
    
    1
    
    
    
    12
    
    
    
    6
    
    
    
    52Total fixed maturity securities available-for-sale
    
    
    33,189
    
    
    
    452
    
    
    
    1,455
    
    
    
    3,725
    
    
    
    28,461Equity securities available-for-sale:Common stock
    
    
    118
    
    
    
    203
    
    
    
    1
    
    
    
    3
    
    
    
    317Preferred stock
    
    
    665
    
    
    
    
    
    
    
    4
    
    
    
    252
    
    
    
    409Total equity securities available-for-sale
    
    
    783
    
    
    
    203
    
    
    
    5
    
    
    
    255
    
    
    
    726Total
    
    $
    33,972
    
    
    $
    655
    
    
    $
    1,460
    
    
    $
    3,980
    
    
    $
    29,187
 Summary of Fixed Maturity and Equity Securities
 Cost or
    
    
    Gross
    
    
    Gross Unrealized Losses
    
    
    EstimatedAmortized
    
    
    Unrealized
    
    
    Less than
    
    
    12 Months
    
    
    FairDecember 31, 2008
    
    Cost
    
    
    Gains
    
    
    12 Months
    
    
    or Greater
    
    
    Value(In millions)Fixed maturity securities available-for-sale:U.S. Treasury securities and obligations of
government agencies
    
    $
    2,862
    
    
    $
    69
    
    
    $
    1
    
    
    $
    
    
    
    $
    2,930Asset-backed securities
    
    
    9,670
    
    
    
    24
    
    
    
    961
    
    
    
    969
    
    
    
    7,764States, municipalities and political
subdivisions  tax-exempt securities
    
    
    8,557
    
    
    
    90
    
    
    
    609
    
    
    
    623
    
    
    
    7,415Corporate and other taxable bonds
    
    
    12,993
    
    
    
    275
    
    
    
    1,164
    
    
    
    1,374
    
    
    
    10,730Redeemable preferred stock
    
    
    72
    
    
    
    1
    
    
    
    23
    
    
    
    3
    
    
    
    47Total fixed maturity securities available-for-sale
    
    
    34,154
    
    
    
    459
    
    
    
    2,758
    
    
    
    2,969
    
    
    
    28,886Total fixed maturity securities trading
    
    
    1
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1Equity securities available-for-sale:Common stock
    
    
    134
    
    
    
    190
    
    
    
    1
    
    
    
    3
    
    
    
    320Preferred stock
    
    
    882
    
    
    
    5
    
    
    
    15
    
    
    
    321
    
    
    
    551Total equity securities available-for-sale
    
    
    1,016
    
    
    
    195
    
    
    
    16
    
    
    
    324
    
    
    
    871Total
    
    $
    35,171
    
    
    $
    654
    
    
    $
    2,774
    
    
    $
    3,293
    
    
    $
    29,758
 15




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##### Table of Contents



Unrealized Loss Aging
 March 31, 2009
    
    
    December 31, 2008Gross
    
    
    
    
    
    
    GrossEstimated
    
    
    Unrealized
    
    
    Estimated
    
    
    UnrealizedFair Value
    
    
    Loss
    
    
    Fair Value
    
    
    Loss(In millions)Fixed income securities:Investment grade:0-6 months
    
    $
    3,324
    
    
    $
    257
    
    
    $
    6,749
    
    
    $
    6817-11 months
    
    
    5,313
    
    
    
    821
    
    
    
    6,159
    
    
    
    1,59112-24 months
    
    
    6,752
    
    
    
    2,561
    
    
    
    3,549
    
    
    
    1,803Greater than 24 months
    
    
    1,623
    
    
    
    479
    
    
    
    1,778
    
    
    
    509Total investment grade
    
    
    17,012
    
    
    
    4,118
    
    
    
    18,235
    
    
    
    4,584Non-investment grade:0-6 months
    
    
    369
    
    
    
    76
    
    
    
    853
    
    
    
    2907-11 months
    
    
    756
    
    
    
    289
    
    
    
    374
    
    
    
    17312-24 months
    
    
    1,235
    
    
    
    668
    
    
    
    1,078
    
    
    
    647Greater than 24 months
    
    
    9
    
    
    
    11
    
    
    
    12
    
    
    
    7Total non-investment grade
    
    
    2,369
    
    
    
    1,044
    
    
    
    2,317
    
    
    
    1,117Total fixed income securities
    
    
    19,381
    
    
    
    5,162
    
    
    
    20,552
    
    
    
    5,701Redeemable and non-redeemable preferred stocks:0-6 months
    
    
    34
    
    
    
    12
    
    
    
    39
    
    
    
    267-11 months
    
    
    7
    
    
    
    4
    
    
    
    43
    
    
    
    1212-24 months
    
    
    312
    
    
    
    258
    
    
    
    497
    
    
    
    324Total preferred stocks
    
    
    353
    
    
    
    274
    
    
    
    579
    
    
    
    362Common stocks:0-6 months
    
    
    4
    
    
    
    1
    
    
    
    5
    
    
    
    17-11 months
    
    
    1
    
    
    
    
    
    
    
    
    
    
    
    12-24 months
    
    
    9
    
    
    
    3
    
    
    
    9
    
    
    
    3Greater than 24 months
    
    
    3
    
    
    
    
    
    
    
    3
    
    
    
    Total common stocks
    
    
    17
    
    
    
    4
    
    
    
    17
    
    
    
    4Total
    
    $
    19,751
    
    
    $
    5,440
    
    
    $
    21,148
    
    
    $
    6,067
     16




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##### Table of Contents



Asset-Backed Securities
     Gross Unrealized Losses by Ratings Distribution
 March 31, 2009
 GrossAmortized
    
    
    Estimated
    
    
    UnrealizedRating
    
    Cost
    
    
    Fair Value
    
    
    LossAAA
    
    $
    5,541
    
    
    $
    4,519
    
    
    $
    1,022AA
    
    
    643
    
    
    
    354
    
    
    
    289A
    
    
    434
    
    
    
    185
    
    
    
    249BBB
    
    
    320
    
    
    
    225
    
    
    
    95Non-investment grade
    
    
    609
    
    
    
    390
    
    
    
    219Total
    
    $
    7,547
    
    
    $
    5,673
    
    
    $
    1,874
 17




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##### Table of Contents



States, Municipalities and Political Subdivisions  Tax-Exempt Securities
  Gross Unrealized Losses by Ratings Distribution
 March 31, 2009
 GrossAmortized
    
    
    Estimated
    
    
    UnrealizedRating
    
    Cost
    
    
    Fair Value
    
    
    LossAAA
    
    $
    1,968
    
    
    $
    1,813
    
    
    $
    155AA
    
    
    2,494
    
    
    
    2,294
    
    
    
    200A
    
    
    1,113
    
    
    
    904
    
    
    
    209BBB
    
    
    907
    
    
    
    555
    
    
    
    352Total
    
    $
    6,482
    
    
    $
    5,566
    
    
    $
    916
    18




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##### Table of Contents



Corporate and Other Taxable Bonds
   Gross Unrealized Losses by Industry Sector
 March 31, 2009
    
    
    
    
    
    Estimated
    
    
    Gross(In millions)
    
    Amortized Cost
    
    
    Fair Value
    
    
    Unrealized LossCommunications
    
    $
    1,498
    
    
    $
    1,230
    
    
    $
    268Consumer, Cyclical
    
    
    1,251
    
    
    
    931
    
    
    
    320Consumer, Non-cyclical
    
    
    971
    
    
    
    810
    
    
    
    161Energy
    
    
    1,061
    
    
    
    880
    
    
    
    181Financial
    
    
    2,345
    
    
    
    1,495
    
    
    
    850Industrial
    
    
    760
    
    
    
    589
    
    
    
    171Utilities
    
    
    1,171
    
    
    
    952
    
    
    
    219Other
    
    
    764
    
    
    
    583
    
    
    
    181Total
    
    $
    9,821
    
    
    $
    7,470
    
    
    $
    2,351
 Gross Unrealized Losses by Ratings Distribution
 March 31, 2009
 Estimated
    
    
    GrossRating
    
    Amortized Cost
    
    
    Fair Value
    
    
    Unrealized LossAAA
    
    $
    130
    
    
    $
    102
    
    
    $
    28AA
    
    
    201
    
    
    
    170
    
    
    
    31A
    
    
    2,078
    
    
    
    1,682
    
    
    
    396BBB
    
    
    4,608
    
    
    
    3,538
    
    
    
    1,070Non-investment grade
    
    
    2,804
    
    
    
    1,978
    
    
    
    826Total
    
    $
    9,821
    
    
    $
    7,470
    
    
    $
    2,351
   19




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##### Table of Contents



Preferred Stock
  Gross Unrealized Losses by Ratings Distribution
 March 31, 2009
 Estimated
    
    
    GrossRating
    
    Amortized Cost
    
    
    Fair Value
    
    
    Unrealized LossA
    
    $
    142
    
    
    $
    68
    
    
    $
    74BBB
    
    
    452
    
    
    
    258
    
    
    
    194Non-investment grade
    
    
    33
    
    
    
    27
    
    
    
    6Total
    
    $
    627
    
    
    $
    353
    
    
    $
    274
  Investment Commitments
   20




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##### Table of Contents



Note E. Derivative Financial Instruments
         21




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##### Table of Contents



Credit Ratings of
Underlying
Reference
Obligations
 Fair Value of
    
    
    Maximum Amount of
    
    
    WeightedMarch 31, 2009
    
    Credit Default
    
    
    Future Payments under
    
    
    Average Years(In millions)
    
    Swaps
    
    
    Credit Default Swaps
    
    
    to MaturityAAA/AA/A
    
    $
    (13
    )
    
    $
    38
    
    
    
    18.0BBB
    
    
    
    
    
    
    25
    
    
    
    0.7B
    
    
    (1
    )
    
    
    8
    
    
    
    3.9CCC and lower
    
    
    (33
    )
    
    
    45
    
    
    
    4.2Total
    
    $
    (47
    )
    
    $
    116
    
    
    
    8.0
 Credit Ratings of
Underlying
Reference
Obligations
 Fair Value of
    
    
    Maximum Amount of
    
    
    WeightedDecember 31, 2008
    
    Credit Default
    
    
    Future Payments under
    
    
    Average Years(In millions)
    
    Swaps
    
    
    Credit Default Swaps
    
    
    to MaturityAAA/AA/A
    
    $
    (8
    )
    
    $
    40
    
    
    
    12.3BBB
    
    
    (4
    )
    
    
    55
    
    
    
    3.1B
    
    
    (2
    )
    
    
    8
    
    
    
    4.1CCC and lower
    
    
    (29
    )
    
    
    45
    
    
    
    4.5Total
    
    $
    (43
    )
    
    $
    148
    
    
    
    6.1
  22




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##### Table of Contents



Recognized Gains (Losses)
 Three months ended March 31
    
    2009
    
    
    2008(In millions)Without hedge designationInterest rate swaps
    
    $
    21
    
    
    $
    (23
    )Credit default swaps  purchased protection
    
    
    (9
    )
    
    
    16Credit default swaps  sold protection
    
    
    (6
    )
    
    
    (15
    )Futures sold, not yet purchased
    
    
    14
    
    
    
    (21
    )Currency forwards
    
    
    
    
    
    
    (1
    )Options written
    
    
    11
    
    
    
    Trading activitiesFutures purchased
    
    
    
    
    
    
    (72
    )Currency forwards
    
    
    
    
    
    
    1Total
    
    $
    31
    
    
    $
    (115
    )
   Derivative Financial Instruments
 Contractual/March 31, 2009
    
    Notional
    
    
    Estimated Fair Value(In millions)
    
    Amount
    
    
    Asset
    
    
    (Liability)Without hedge designationInterest rate swaps
    
    $
    1,000
    
    
    $
    
    
    
    $
    (22
    )Credit default swaps  purchased protection
    
    
    360
    
    
    
    7
    
    
    
    (1
    )Credit default swaps  sold protection
    
    
    116
    
    
    
    
    
    
    
    (47
    )Commitments to purchase government and municipal securities (TBAs)
    
    
    156
    
    
    
    
    
    
    
    Equity warrants
    
    
    4
    
    
    
    
    
    
    
    Total
    
    $
    1,636
    
    
    $
    7
    
    
    $
    (70
    )
 23




---



##### Table of Contents



Derivative Financial Instruments
 Contractual/December 31, 2008
    
    Notional
    
    
    Estimated Fair Value(In millions)
    
    Amount
    
    
    Asset
    
    
    (Liability)Without hedge designationInterest rate swaps
    
    $
    900
    
    
    $
    
    
    
    $
    (66
    )Credit default swaps  purchased protection
    
    
    405
    
    
    
    24
    
    
    
    (2
    )Credit default swaps  sold protection
    
    
    148
    
    
    
    
    
    
    
    (43
    )Equity warrants
    
    
    4
    
    
    
    
    
    
    
    Total
    
    $
    1,457
    
    
    $
    24
    
    
    $
    (111
    )
  Note F. Fair Value
      24




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##### Table of Contents



TotalAssets/(Liabilities)March 31, 2009
    
    Level 1
    
    
    Level 2
    
    
    Level 3
    
    
    at fair value(In millions)AssetsFixed maturity securities
    
    $
    284
    
    
    $
    25,412
    
    
    $
    2,765
    
    
    $
    28,461Equity securities
    
    
    427
    
    
    
    89
    
    
    
    210
    
    
    
    726Derivative financial instruments, included in Other invested
assets
    
    
    
    
    
    
    
    
    
    
    7
    
    
    
    7Short term investments
    
    
    3,687
    
    
    
    896
    
    
    
    
    
    
    
    4,583Life settlement contracts, included in Other assets
    
    
    
    
    
    
    
    
    
    
    127
    
    
    
    127Discontinued operations investments, included in Other
liabilities
    
    
    78
    
    
    
    55
    
    
    
    13
    
    
    
    146Separate account business
    
    
    35
    
    
    
    303
    
    
    
    38
    
    
    
    376Total assets
    
    $
    4,511
    
    
    $
    26,755
    
    
    $
    3,160
    
    
    $
    34,426LiabilitiesDerivative financial instruments, included in Other liabilities
    
    $
    
    
    
    $
    
    
    
    $
    (70
    )
    
    $
    (70
    )Total liabilities
    
    $
    
    
    
    $
    
    
    
    $
    (70
    )
    
    $
    (70
    )
 TotalAssets/(Liabilities)December 31, 2008
    
    Level 1
    
    
    Level 2
    
    
    Level 3
    
    
    at fair value(In millions)AssetsFixed maturity securities
    
    $
    2,028
    
    
    $
    24,367
    
    
    $
    2,492
    
    
    $
    28,887Equity securities
    
    
    567
    
    
    
    94
    
    
    
    210
    
    
    
    871Derivative financial instruments, included in Other invested
assets
    
    
    
    
    
    
    
    
    
    
    24
    
    
    
    24Short term investments
    
    
    2,926
    
    
    
    608
    
    
    
    
    
    
    
    3,534Life settlement contracts, included in Other assets
    
    
    
    
    
    
    
    
    
    
    129
    
    
    
    129Discontinued operations investments, included in Other
liabilities
    
    
    83
    
    
    
    59
    
    
    
    15
    
    
    
    157Separate account business
    
    
    40
    
    
    
    306
    
    
    
    38
    
    
    
    384Total assets
    
    $
    5,644
    
    
    $
    25,434
    
    
    $
    2,908
    
    
    $
    33,986LiabilitiesDerivative financial instruments, included in Other liabilities
    
    $
    
    
    
    $
    
    
    
    $
    (111
    )
    
    $
    (111
    )Total liabilities
    
    $
    
    
    
    $
    
    
    
    $
    (111
    )
    
    $
    (111
    )
 25




---



##### Table of Contents



Net realized
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    UnrealizedNet realized
    
    
    investment gains
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    gains (losses)investment gains
    
    
    (losses) and net
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    recorded in(losses) and net
    
    
    change in
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    net incomechange in
    
    
    unrealized
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    on level 3unrealized
    
    
    appreciation
    
    
    Purchases,
    
    
    
    
    
    
    
    
    
    
    assets andappreciation
    
    
    (depreciation)
    
    
    sales,
    
    
    
    
    
    
    
    
    
    
    liabilitiesBalance at
    
    
    (depreciation)
    
    
    included in other
    
    
    issuances
    
    
    
    
    
    
    Balance at
    
    
    held atJanuary 1,
    
    
    included in net
    
    
    comprehensive
    
    
    and
    
    
    Net transfers
    
    
    March 31,
    
    
    March 31,Level 3
    
    2009
    
    
    income*
    
    
    income
    
    
    settlements
    
    
    into level 3
    
    
    2009
    
    
    2009*(In millions)Fixed maturity securities
    
    $
    2,492
    
    
    $
    (71
    )
    
    $
    62
    
    
    $
    140
    
    
    $
    142
    
    
    $
    2,765
    
    
    $
    (75
    )Equity securities
    
    
    210
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    210
    
    
    
    Derivative financial instruments, net
    
    
    (87
    )
    
    
    6
    
    
    
    
    
    
    
    18
    
    
    
    
    
    
    
    (63
    )
    
    
    24Life settlement contracts
    
    
    129
    
    
    
    11
    
    
    
    
    
    
    
    (13
    )
    
    
    
    
    
    
    127
    
    
    
    2Discontinued operations investments
    
    
    15
    
    
    
    
    
    
    
    (1
    )
    
    
    (1
    )
    
    
    
    
    
    
    13
    
    
    
    Separate account business
    
    
    38
    
    
    
    
    
    
    
    1
    
    
    
    (1
    )
    
    
    
    
    
    
    38
    
    
    
    Total
    
    $
    2,797
    
    
    $
    (54
    )
    
    $
    62
    
    
    $
    143
    
    
    $
    142
    
    
    $
    3,090
    
    
    $
    (49
    )
 Net realized
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    UnrealizedNet realized
    
    
    investment gains
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    gains (losses)investment gains
    
    
    (losses) and net
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    recorded in(losses) and net
    
    
    change in
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    net incomechange in
    
    
    unrealized
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    on level 3unrealized
    
    
    appreciation
    
    
    Purchases,
    
    
    
    
    
    
    
    
    
    
    assets andappreciation
    
    
    (depreciation)
    
    
    sales,
    
    
    
    
    
    
    
    
    
    
    liabilitiesBalance at
    
    
    (depreciation)
    
    
    included in other
    
    
    issuances
    
    
    Net transfers
    
    
    Balance at
    
    
    held atJanuary 1,
    
    
    included in net
    
    
    comprehensive
    
    
    and
    
    
    into (out
    
    
    March 31,
    
    
    March 31,Level 3
    
    2008
    
    
    income*
    
    
    income
    
    
    settlements
    
    
    of) level 3
    
    
    2008
    
    
    2008*(In millions)Fixed maturity securities
    
    $
    2,684
    
    
    $
    (38
    )
    
    $
    (215
    )
    
    $
    (5
    )
    
    $
    (181
    )
    
    $
    2,245
    
    
    $
    (44
    )Equity securities
    
    
    196
    
    
    
    (2
    )
    
    
    (1
    )
    
    
    
    
    
    
    
    
    
    
    193
    
    
    
    (2
    )Derivative financial instruments, net
    
    
    2
    
    
    
    (22
    )
    
    
    
    
    
    
    (62
    )
    
    
    
    
    
    
    (82
    )
    
    
    (84
    )Short term investments
    
    
    85
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    85
    
    
    
    Life settlement contracts
    
    
    115
    
    
    
    18
    
    
    
    
    
    
    
    (15
    )
    
    
    
    
    
    
    118
    
    
    
    4Discontinued operations investments
    
    
    42
    
    
    
    
    
    
    
    
    
    
    
    (1
    )
    
    
    
    
    
    
    41
    
    
    
    Separate account business
    
    
    30
    
    
    
    
    
    
    
    
    
    
    
    (3
    )
    
    
    20
    
    
    
    47
    
    
    
    Total
    
    $
    3,154
    
    
    $
    (44
    )
    
    $
    (216
    )
    
    $
    (86
    )
    
    $
    (161
    )
    
    $
    2,647
    
    
    $
    (126
    )
 
 *
    
    Net realized and unrealized gains and losses shown above are reported in Net income (loss) as
follows: Major Category of Assets and Liabilities
    
    Condensed Consolidated Statement of Operations Line ItemsFixed maturity securities
    
    Net investment income and Realized investment gains (losses)Equity securities
    
    Realized investment gains (losses)Derivative financial instruments
    
    Net investment income and Realized investment gains (losses)Life settlement contracts
    
    Other revenues
  26




---



##### Table of Contents



Note G. Claim and Claim Adjustment Expense Reserves
    27




---



##### Table of Contents



A&E Reserves
  A&E Reserves
 March 31, 2009
    
    
    December 31, 2008Environmental
    
    
    
    
    
    
    EnvironmentalAsbestos
    
    
    Pollution
    
    
    Asbestos
    
    
    Pollution(In millions)Gross reserves
    
    $
    2,020
    
    
    $
    376
    
    
    $
    2,112
    
    
    $
    392Ceded reserves
    
    
    (869
    )
    
    
    (128
    )
    
    
    (910
    )
    
    
    (130
    )Net reserves
    
    $
    1,151
    
    
    $
    248
    
    
    $
    1,202
    
    
    $
    262
 Asbestos
      28




---



##### Table of Contents



In re:
Burns & Roe Enterprises, Inc
 29




---



##### Table of Contents



Boson v. Union Carbide
Corp.,
 Pennock, et al. v. Maryland Casualty,
et al.
  30




---



##### Table of Contents



Environmental Pollution
  Net Prior Year Development
  Net Prior Year Development
Three months ended March 31, 2009
 Corporate &Standard
    
    
    Specialty
    
    
    Other Non-(In millions)
    
    Lines
    
    
    Lines
    
    
    Core
    
    
    TotalPretax (favorable) unfavorable net prior year claim and
allocated claim adjustment expense reserve development:Core (Non-A&E)
    
    $
    (30
    )
    
    $
    (41
    )
    
    $
    1
    
    
    $
    (70
    )A&E
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Pretax (favorable) unfavorable net prior year development
before impact of premium development
    
    
    (30
    )
    
    
    (41
    )
    
    
    1
    
    
    
    (70
    )Pretax (favorable) unfavorable premium development
    
    
    17
    
    
    
    (2
    )
    
    
    (1
    )
    
    
    14Total pretax (favorable) unfavorable net prior year development
    
    $
    (13
    )
    
    $
    (43
    )
    
    $
    
    
    
    $
    (56
    )
 Net Prior Year Development
Three months ended March 31, 2008
 Corporate &Standard
    
    
    Specialty
    
    
    Other Non-(In millions)
    
    Lines
    
    
    Lines
    
    
    Core
    
    
    TotalPretax (favorable) unfavorable net prior year
claim and allocated claim adjustment expense
reserve development:Core (Non-A&E)
    
    $
    (35
    )
    
    $
    17
    
    
    $
    3
    
    
    $
    (15
    )A&E
    
    
    
    
    
    
    
    
    
    
    2
    
    
    
    2Pretax (favorable) unfavorable net prior year
development before impact of premium development
    
    
    (35
    )
    
    
    17
    
    
    
    5
    
    
    
    (13
    )Pretax (favorable) unfavorable premium development
    
    
    9
    
    
    
    (19
    )
    
    
    (1
    )
    
    
    (11
    )Total pretax (favorable) unfavorable net prior
year development
    
    $
    (26
    )
    
    $
    (2
    )
    
    $
    4
    
    
    $
    (24
    )
 31




---



##### Table of Contents



2009 Net Prior Year Development
 Standard Lines
  Specialty Lines
   2008 Net Prior Year Development
 Standard Lines
    Specialty Lines
  Note H. Legal Proceedings and Contingent Liabilities
 Insurance Brokerage Antitrust Litigation
 In re Insurance Brokerage Antitrust Litigation
 32




---



##### Table of Contents



Global Crossing Limited Litigation
 Global Crossing Estate Representative, for itself and as the Liquidating Trustee of the
Global Crossing Liquidating Trust v. Gary Winnick, et al.,
 California Long Term Care Litigation
 Shaffer v. Continental Casualty Company
 Asbestos and Environmental Pollution (A&E) Reserves
  Other Litigation
  33




---



##### Table of Contents



Note I. Benefit Plans
  Net Periodic Cost (Benefit)
 Three months ended March 31(In millions)
    
    2009
    
    
    2008Pension cost (benefit)Service cost
    
    $
    5
    
    
    $
    6Interest cost on projected benefit obligation
    
    
    38
    
    
    
    36Expected return on plan assets
    
    
    (36
    )
    
    
    (45
    )Actuarial loss amortization
    
    
    6
    
    
    
    1Net periodic pension cost (benefit)
    
    $
    13
    
    
    $
    (2
    )Postretirement benefitService cost
    
    $
    1
    
    
    $
    1Interest cost on projected benefit obligation
    
    
    2
    
    
    
    2Prior service cost amortization
    
    
    (4
    )
    
    
    (4
    )Net periodic postretirement benefit
    
    $
    (1
    )
    
    $
    (1
    )
 34




---



##### Table of Contents



Note J. Commitments, Contingencies, and Guarantees
 Commitments and Contingencies
     Guarantees
     35




---



##### Table of Contents



Note K. Business Segments
       36




---



##### Table of Contents



Three months ended
    
    
    
    
    
    
    
    
    
    
    
    
    
    CorporateMarch 31, 2009
    
    Standard
    
    
    Specialty
    
    
    Life & Group
    
    
    & Other(In millions)
    
    Lines
    
    
    Lines
    
    
    Non-Core
    
    
    Non-Core
    
    
    Eliminations
    
    
    TotalRevenues:Net earned premiums
    
    $
    710
    
    
    $
    812
    
    
    $
    150
    
    
    $
    1
    
    
    $
    (1
    )
    
    $
    1,672Net investment income
    
    
    120
    
    
    
    108
    
    
    
    159
    
    
    
    33
    
    
    
    
    
    
    
    420Other revenues
    
    
    13
    
    
    
    57
    
    
    
    6
    
    
    
    2
    
    
    
    
    
    
    
    78Total operating revenues
    
    
    843
    
    
    
    977
    
    
    
    315
    
    
    
    36
    
    
    
    (1
    )
    
    
    2,170Claims, benefits and expenses:Net incurred claims and benefits
    
    
    510
    
    
    
    499
    
    
    
    305
    
    
    
    21
    
    
    
    
    
    
    
    1,335Policyholders dividends
    
    
    3
    
    
    
    3
    
    
    
    1
    
    
    
    
    
    
    
    
    
    
    
    7Amortization of deferred acquisition costs
    
    
    166
    
    
    
    177
    
    
    
    6
    
    
    
    
    
    
    
    
    
    
    
    349Other insurance related expenses
    
    
    76
    
    
    
    59
    
    
    
    46
    
    
    
    1
    
    
    
    (1
    )
    
    
    181Other expenses
    
    
    9
    
    
    
    56
    
    
    
    6
    
    
    
    30
    
    
    
    
    
    
    
    101Total claims, benefits and expenses
    
    
    764
    
    
    
    794
    
    
    
    364
    
    
    
    52
    
    
    
    (1
    )
    
    
    1,973Operating income (loss) from continuing operations before
income tax
    
    
    79
    
    
    
    183
    
    
    
    (49
    )
    
    
    (16
    )
    
    
    
    
    
    
    197Income tax (expense) benefit on operating income (loss)
    
    
    (18
    )
    
    
    (53
    )
    
    
    27
    
    
    
    7
    
    
    
    
    
    
    
    (37
    )Net operating income attributable to noncontrolling interests
    
    
    
    
    
    
    (11
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (11
    )Net operating income (loss) from continuing operations
attributable to CNAF
    
    
    61
    
    
    
    119
    
    
    
    (22
    )
    
    
    (9
    )
    
    
    
    
    
    
    149Realized investment losses, net of participating
policyholders interests
    
    
    (179
    )
    
    
    (116
    )
    
    
    (190
    )
    
    
    (47
    )
    
    
    
    
    
    
    (532
    )Income tax benefit on realized investment losses
    
    
    62
    
    
    
    41
    
    
    
    66
    
    
    
    18
    
    
    
    
    
    
    
    187Realized investment losses, after-tax, attributable to
noncontrolling interests
    
    
    
    
    
    
    1
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1Net realized investment losses attributable to CNAF
    
    
    (117
    )
    
    
    (74
    )
    
    
    (124
    )
    
    
    (29
    )
    
    
    
    
    
    
    (344
    )Net income (loss) from continuing operations attributable to
CNAF
    
    $
    (56
    )
    
    $
    45
    
    
    $
    (146
    )
    
    $
    (38
    )
    
    $
    
    
    
    $
    (195
    )March 31, 2009(In millions)Reinsurance receivables
    
    $
    2,199
    
    
    $
    1,455
    
    
    $
    1,876
    
    
    $
    2,015
    
    
    $
    
    
    
    $
    7,545Insurance receivables
    
    $
    1,269
    
    
    $
    755
    
    
    $
    4
    
    
    $
    3
    
    
    $
    
    
    
    $
    2,031Deferred acquisition costs
    
    $
    299
    
    
    $
    367
    
    
    $
    466
    
    
    $
    
    
    
    $
    
    
    
    $
    1,132Insurance reserves:Claim and claim adjustment expenses
    
    $
    11,893
    
    
    $
    8,290
    
    
    $
    2,857
    
    
    $
    4,203
    
    
    $
    
    
    
    $
    27,243Unearned premiums
    
    
    1,415
    
    
    
    1,885
    
    
    
    159
    
    
    
    4
    
    
    
    (2
    )
    
    
    3,461Future policy benefits
    
    
    
    
    
    
    
    
    
    
    7,634
    
    
    
    
    
    
    
    
    
    
    
    7,634Policyholders funds
    
    
    14
    
    
    
    11
    
    
    
    228
    
    
    
    
    
    
    
    
    
    
    
    253
 37




---



##### Table of Contents



Three months ended
    
    
    
    
    
    
    
    
    
    
    
    
    
    CorporateMarch 31, 2008
    
    Standard
    
    
    Specialty
    
    
    Life & Group
    
    
    & Other(In millions)
    
    Lines
    
    
    Lines
    
    
    Non-Core
    
    
    Non-Core
    
    
    Eliminations
    
    
    TotalRevenues:Net earned premiums
    
    $
    783
    
    
    $
    873
    
    
    $
    157
    
    
    $
    1
    
    
    $
    (1
    )
    
    $
    1,813Net investment income
    
    
    164
    
    
    
    132
    
    
    
    84
    
    
    
    54
    
    
    
    
    
    
    
    434Other revenues
    
    
    14
    
    
    
    53
    
    
    
    13
    
    
    
    6
    
    
    
    
    
    
    
    86Total operating revenues
    
    
    961
    
    
    
    1,058
    
    
    
    254
    
    
    
    61
    
    
    
    (1
    )
    
    
    2,333Claims, benefits and expenses:Net incurred claims and benefits
    
    
    577
    
    
    
    566
    
    
    
    212
    
    
    
    21
    
    
    
    
    
    
    
    1,376Policyholders dividends
    
    
    4
    
    
    
    7
    
    
    
    2
    
    
    
    
    
    
    
    
    
    
    
    13Amortization of deferred acquisition costs
    
    
    179
    
    
    
    184
    
    
    
    4
    
    
    
    1
    
    
    
    
    
    
    
    368Other insurance related expenses
    
    
    58
    
    
    
    50
    
    
    
    50
    
    
    
    4
    
    
    
    (1
    )
    
    
    161Other expenses
    
    
    12
    
    
    
    51
    
    
    
    5
    
    
    
    32
    
    
    
    
    
    
    
    100Total claims, benefits and expenses
    
    
    830
    
    
    
    858
    
    
    
    273
    
    
    
    58
    
    
    
    (1
    )
    
    
    2,018Operating income (loss) from continuing operations before
income tax
    
    
    131
    
    
    
    200
    
    
    
    (19
    )
    
    
    3
    
    
    
    
    
    
    
    315Income tax (expense) benefit on operating income (loss)
    
    
    (36
    )
    
    
    (64
    )
    
    
    16
    
    
    
    2
    
    
    
    
    
    
    
    (82
    )Net operating income attributable to noncontrolling interests
    
    
    
    
    
    
    (12
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (12
    )Net operating income (loss) from continuing operations
attributable to CNAF
    
    
    95
    
    
    
    124
    
    
    
    (3
    )
    
    
    5
    
    
    
    
    
    
    
    221Realized investment losses, net of participating
policyholders interests
    
    
    (16
    )
    
    
    (9
    )
    
    
    (17
    )
    
    
    (9
    )
    
    
    
    
    
    
    (51
    )Income tax benefit on realized investment losses
    
    
    5
    
    
    
    4
    
    
    
    6
    
    
    
    3
    
    
    
    
    
    
    
    18Realized investment (gains) losses, after-tax, attributable
to noncontrolling interests
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Net realized investment losses attributable to CNAF
    
    
    (11
    )
    
    
    (5
    )
    
    
    (11
    )
    
    
    (6
    )
    
    
    
    
    
    
    (33
    )Net income (loss) from continuing operations attributable to
CNAF
    
    $
    84
    
    
    $
    119
    
    
    $
    (14
    )
    
    $
    (1
    )
    
    $
    
    
    
    $
    188December 31, 2008(In millions)Reinsurance receivables
    
    $
    2,266
    
    
    $
    1,496
    
    
    $
    1,907
    
    
    $
    2,092
    
    
    $
    
    
    
    $
    7,761Insurance receivables
    
    $
    1,264
    
    
    $
    765
    
    
    $
    6
    
    
    $
    4
    
    
    $
    
    
    
    $
    2,039Deferred acquisition costs
    
    $
    293
    
    
    $
    360
    
    
    $
    472
    
    
    $
    
    
    
    $
    
    
    
    $
    1,125Insurance reserves:Claim and claim adjustment expenses
    
    $
    12,048
    
    
    $
    8,282
    
    
    $
    2,862
    
    
    $
    4,401
    
    
    $
    
    
    
    $
    27,593Unearned premiums
    
    
    1,401
    
    
    
    1,848
    
    
    
    152
    
    
    
    5
    
    
    
    
    
    
    
    3,406Future policy benefits
    
    
    
    
    
    
    
    
    
    
    7,529
    
    
    
    
    
    
    
    
    
    
    
    7,529Policyholders funds
    
    
    14
    
    
    
    10
    
    
    
    219
    
    
    
    
    
    
    
    
    
    
    
    243
 38




---



##### Table of Contents



Revenue by Line of Business
 Three months ended March 31(In millions)
    
    2009
    
    
    2008Standard LinesBusiness Insurance
    
    $
    130
    
    
    $
    155Commercial Insurance
    
    
    534
    
    
    
    790Standard Lines revenues
    
    
    664
    
    
    
    945Specialty LinesU.S. Specialty Lines
    
    
    517
    
    
    
    647Surety
    
    
    113
    
    
    
    115Warranty
    
    
    52
    
    
    
    73CNA Global
    
    
    179
    
    
    
    214Specialty Lines revenues
    
    
    861
    
    
    
    1,049Life & Group Non-CoreLife & Annuity
    
    
    24
    
    
    
    (21
    )Health
    
    
    97
    
    
    
    238Other
    
    
    4
    
    
    
    20Life & Group Non-Core revenues
    
    
    125
    
    
    
    237Corporate & Other Non-CoreCNA Re
    
    
    
    
    
    
    17Other
    
    
    (11
    )
    
    
    35Corporate & Other Non-Core revenues
    
    
    (11
    )
    
    
    52Eliminations
    
    
    (1
    )
    
    
    (1
    )Total revenues
    
    $
    1,638
    
    
    $
    2,282
 39




---



##### Table of Contents



Note L. Discontinued Operations
   Discontinued Operations
 Three months ended March 31(In millions)
    
    2009
    
    
    2008Revenues:Net investment income
    
    $
    1
    
    
    $
    2Realized investment gains (losses) and other
    
    
    
    
    
    
    1Total revenues
    
    
    1
    
    
    
    3Insurance related expenses
    
    
    1
    
    
    
    4Income (loss) before income taxes
    
    
    
    
    
    
    (1
    )Income tax (expense) benefit
    
    
    
    
    
    
    Income (loss) from discontinued operations, net of tax
    
    $
    
    
    
    $
    (1
    )
  Discontinued Operations(In millions)
    
    March 31, 2009
    
    
    December 31, 2008Assets:Investments
    
    $
    146
    
    
    $
    157Reinsurance receivables
    
    
    6
    
    
    
    6Cash
    
    
    
    
    
    
    Other assets
    
    
    1
    
    
    
    1Total assets
    
    
    153
    
    
    
    164Liabilities:Insurance reserves
    
    
    154
    
    
    
    162Other liabilities
    
    
    7
    
    
    
    8Total liabilities
    
    
    161
    
    
    
    170Net liabilities of discontinued operations
    
    $
    (8
    )
    
    $
    (6
    )
 Reporting the Results of Operations  Reporting the Effects of Disposal of a Segment of a
Business, and Extraordinary, Unusual and Infrequently Occurring Events and Transactions
 40




---



##### Table of Contents



CNA Financial Corporation
 
 Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
 Overview
    41




---



##### Table of Contents



CONSOLIDATED OPERATIONS
 Results of Operations
  Three months ended March 31(In millions, except per share data)
    
    2009
    
    
    2008RevenuesNet earned premiums
    
    $
    1,672
    
    
    $
    1,813Net investment income
    
    
    420
    
    
    
    434Other revenues
    
    
    78
    
    
    
    86Total operating revenues
    
    
    2,170
    
    
    
    2,333Claims, benefits and expensesNet incurred claims and benefits
    
    
    1,335
    
    
    
    1,376Policyholders dividends
    
    
    7
    
    
    
    13Amortization of deferred acquisition costs
    
    
    349
    
    
    
    368Other insurance related expenses
    
    
    181
    
    
    
    161Other expenses
    
    
    101
    
    
    
    100Total claims, benefits and expenses
    
    
    1,973
    
    
    
    2,018Operating income from continuing operations before income tax
    
    
    197
    
    
    
    315Income tax expense on operating income
    
    
    (37
    )
    
    
    (82
    )Net operating income attributable to noncontrolling interests
    
    
    (11
    )
    
    
    (12
    )Net operating income from continuing operations attributable to CNAF
    
    
    149
    
    
    
    221Realized investment losses, net of participating policyholders interests
    
    
    (532
    )
    
    
    (51
    )Income tax benefit on realized investment losses
    
    
    187
    
    
    
    18Realized investment losses, after-tax, attributable to noncontrolling interests
    
    
    1
    
    
    
    Net realized investment losses attributable to CNAF
    
    
    (344
    )
    
    
    (33
    )Income (loss) from continuing operations attributable to CNAF
    
    
    (195
    )
    
    
    188Income (loss) from discontinued operations attributable to CNAF, net of income
tax (expense) benefit of $0 and $0
    
    
    
    
    
    
    (1
    )Net income (loss) attributable to CNAF
    
    $
    (195
    )
    
    $
    187
     42




---



##### Table of Contents



Critical Accounting Estimates
    
    
    Insurance Reserves
 
    
    Reinsurance
 
    
    Valuation of Investments and Impairment of Securities
 
    
    Long Term Care Products
 
    
    Pension and Postretirement Benefit Obligations
 
    
    Legal Proceedings
 
    
    Income Taxes
  SEGMENT RESULTS
  43




---



##### Table of Contents



STANDARD LINES
  Results of Operations
 Three months ended March 31(In millions)
    
    2009
    
    
    2008Net written premiums
    
    $
    763
    
    
    $
    771Net earned premiums
    
    
    710
    
    
    
    783Net investment income
    
    
    120
    
    
    
    164Net operating income
    
    
    61
    
    
    
    95Net realized investment losses, after-tax
    
    
    (117
    )
    
    
    (11
    )Net income (loss) attributable to CNAF
    
    
    (56
    )
    
    
    84RatiosLoss and loss adjustment expense
    
    
    71.8
    %
    
    
    73.7
    %Expense
    
    
    34.0
    
    
    
    30.2Dividend
    
    
    0.5
    
    
    
    0.5Combined
    
    
    106.3
    %
    
    
    104.4
    %
      44




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##### Table of Contents



Gross and Net Carried
Claim and Claim Adjustment Expense Reserves
 (In millions)
    
    March 31, 2009
    
    
    December 31, 2008Gross Case Reserves
    
    $
    6,090
    
    
    $
    6,158Gross IBNR Reserves
    
    
    5,803
    
    
    
    5,890Total Gross Carried Claim and Claim Adjustment Expense Reserves
    
    $
    11,893
    
    
    $
    12,048Net Case Reserves
    
    $
    4,886
    
    
    $
    4,995Net IBNR Reserves
    
    
    4,885
    
    
    
    4,875Total Net Carried Claim and Claim Adjustment Expense Reserves
    
    $
    9,771
    
    
    $
    9,870
 45




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##### Table of Contents



SPECIALTY LINES
  Results of Operations
 Three months ended March 31(In millions)
    
    2009
    
    
    2008Net written premiums
    
    $
    829
    
    
    $
    848Net earned premiums
    
    
    812
    
    
    
    873Net investment income
    
    
    108
    
    
    
    132Net operating income
    
    
    119
    
    
    
    124Net realized investment losses, after-tax
    
    
    (74
    )
    
    
    (5
    )Net income attributable to CNAF
    
    
    45
    
    
    
    119RatiosLoss and loss adjustment expense
    
    
    61.4
    %
    
    
    64.8
    %Expense
    
    
    29.2
    
    
    
    26.8Dividend
    
    
    0.4
    
    
    
    0.8Combined
    
    
    91.0
    %
    
    
    92.4
    %
        46




---



##### Table of Contents



Gross and Net Carried
Claim and Claim Adjustment Expense Reserves
 (In millions)
    
    March 31, 2009
    
    
    December 31, 2008Gross Case Reserves
    
    $
    2,621
    
    
    $
    2,719Gross IBNR Reserves
    
    
    5,669
    
    
    
    5,563Total Gross Carried Claim and Claim Adjustment Expense Reserves
    
    $
    8,290
    
    
    $
    8,282Net Case Reserves
    
    $
    2,095
    
    
    $
    2,149Net IBNR Reserves
    
    
    4,775
    
    
    
    4,694Total Net Carried Claim and Claim Adjustment Expense Reserves
    
    $
    6,870
    
    
    $
    6,843
 LIFE & GROUP NON-CORE
  Results of Operations
 Three months ended March 31(In millions)
    
    2009
    
    2008Net earned premiums
    
    $
    150
    
    
    $
    157Net investment income
    
    
    159
    
    
    
    84Net operating loss
    
    
    (22
    )
    
    
    (3
    )Net realized investment losses, after-tax
    
    
    (124
    )
    
    
    (11
    )Net loss attributable to CNAF
    
    
    (146
    )
    
    
    (14
    )
    47




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##### Table of Contents



CORPORATE & OTHER NON-CORE
  Results of Operations
 Three months ended March 31(In millions)
    
    2009
    
    2008Net investment income
    
    $
    33
    
    
    $
    54Revenues
    
    
    (12
    )
    
    
    51Net operating income (loss)
    
    
    (9
    )
    
    
    5Net realized investment losses, after-tax
    
    
    (29
    )
    
    
    (6
    )Net loss attributable to CNAF
    
    
    (38
    )
    
    
    (1
    )
     Gross and Net Carried
Claim and Claim Adjustment Expense Reserves
 (In millions)
    
    March 31, 2009
    
    
    December 31, 2008Gross Case Reserves
    
    $
    1,727
    
    
    $
    1,823Gross IBNR Reserves
    
    
    2,476
    
    
    
    2,578Total Gross Carried Claim and Claim Adjustment Expense Reserves
    
    $
    4,203
    
    
    $
    4,401Net Case Reserves
    
    $
    1,049
    
    
    $
    1,126Net IBNR Reserves
    
    
    1,526
    
    
    
    1,561Total Net Carried Claim and Claim Adjustment Expense Reserves
    
    $
    2,575
    
    
    $
    2,687
 A&E Reserves
  Asbestos
  48




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##### Table of Contents



Pending Asbestos Accounts and Associated Reserves
 Net Paid Losses
    
    
    Net Asbestos
    
    
    Percent ofNumber of
    
    
    in 2009
    
    
    Reserves
    
    
    AsbestosMarch 31, 2009
    
    Policyholders
    
    
    (In millions)
    
    
    (In millions)
    
    
    Net ReservesPolicyholders with settlement agreementsStructured settlements
    
    
    18
    
    
    $
    9
    
    
    $
    124
    
    
    
    11
    %Wellington
    
    
    3
    
    
    
    
    
    
    
    9
    
    
    
    1Coverage in place
    
    
    38
    
    
    
    6
    
    
    
    115
    
    
    
    10Total with settlement agreements
    
    
    59
    
    
    
    15
    
    
    
    248
    
    
    
    22Other policyholders with active accountsLarge asbestos accounts
    
    
    240
    
    
    
    23
    
    
    
    220
    
    
    
    19Small asbestos accounts
    
    
    984
    
    
    
    8
    
    
    
    84
    
    
    
    7Total other policyholders
    
    
    1,224
    
    
    
    31
    
    
    
    304
    
    
    
    26Assumed reinsurance and pools
    
    
    
    
    
    
    5
    
    
    
    110
    
    
    
    10Unassigned IBNR
    
    
    
    
    
    
    
    
    
    
    489
    
    
    
    42Total
    
    
    1,283
    
    
    $
    51
    
    
    $
    1,151
    
    
    
    100
    %
 49




---



##### Table of Contents



Pending Asbestos Accounts and Associated Reserves
 Net Paid Losses
    
    
    Net Asbestos
    
    
    Percent ofNumber of
    
    
    in 2008
    
    
    Reserves
    
    
    AsbestosDecember 31, 2008
    
    Policyholders
    
    
    (In millions)
    
    
    (In millions)
    
    
    Net ReservesPolicyholders with settlement agreementsStructured settlements
    
    
    18
    
    
    $
    17
    
    
    $
    133
    
    
    
    11
    %Wellington
    
    
    3
    
    
    
    1
    
    
    
    11
    
    
    
    1Coverage in place
    
    
    36
    
    
    
    16
    
    
    
    94
    
    
    
    8Total with settlement agreements
    
    
    57
    
    
    
    34
    
    
    
    238
    
    
    
    20Other policyholders with active accountsLarge asbestos accounts
    
    
    236
    
    
    
    62
    
    
    
    234
    
    
    
    19Small asbestos accounts
    
    
    1,009
    
    
    
    32
    
    
    
    91
    
    
    
    8Total other policyholders
    
    
    1,245
    
    
    
    94
    
    
    
    325
    
    
    
    27Assumed reinsurance and pools
    
    
    
    
    
    
    19
    
    
    
    114
    
    
    
    9Unassigned IBNR
    
    
    
    
    
    
    
    
    
    
    525
    
    
    
    44Total
    
    
    1,302
    
    
    $
    147
    
    
    $
    1,202
    
    
    
    100
    %
   Environmental Pollution
    50




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##### Table of Contents



Pending Environmental Pollution Accounts and Associated Reserves
 NetEnvironmental
    
    
    Percent ofNet Paid
    
    
    Pollution
    
    
    EnvironmentalNumber of
    
    
    Losses in 2009
    
    
    Reserves
    
    
    Pollution NetMarch 31, 2009
    
    Policyholders
    
    
    (In millions)
    
    
    (In millions)
    
    
    ReservePolicyholders with settlement agreementsStructured settlements
    
    
    13
    
    
    $
    5
    
    
    $
    5
    
    
    
    2
    %Coverage in place
    
    
    16
    
    
    
    
    
    
    
    13
    
    
    
    5Total with settlement agreements
    
    
    29
    
    
    
    5
    
    
    
    18
    
    
    
    7Other policyholders with active accountsLarge pollution accounts
    
    
    114
    
    
    
    4
    
    
    
    45
    
    
    
    18Small pollution accounts
    
    
    313
    
    
    
    5
    
    
    
    37
    
    
    
    15Total other policyholders
    
    
    427
    
    
    
    9
    
    
    
    82
    
    
    
    33Assumed reinsurance and pools
    
    
    
    
    
    
    
    
    
    
    27
    
    
    
    11Unassigned IBNR
    
    
    
    
    
    
    
    
    
    
    121
    
    
    
    49Total
    
    
    456
    
    
    $
    14
    
    
    $
    248
    
    
    
    100
    %
 Pending Environmental Pollution Accounts and Associated Reserves
 NetEnvironmental
    
    
    Percent ofNet Paid Losses
    
    
    Pollution
    
    
    EnvironmentalNumber of
    
    
    in 2008
    
    
    Reserves
    
    
    Pollution NetDecember 31, 2008
    
    Policyholders
    
    
    (In millions)
    
    
    (In millions)
    
    
    ReservePolicyholders with settlement agreementsStructured settlements
    
    
    16
    
    
    $
    5
    
    
    $
    9
    
    
    
    4
    %Coverage in place
    
    
    16
    
    
    
    3
    
    
    
    13
    
    
    
    5Total with settlement agreements
    
    
    32
    
    
    
    8
    
    
    
    22
    
    
    
    9Other policyholders with active accountsLarge pollution accounts
    
    
    116
    
    
    
    40
    
    
    
    48
    
    
    
    18Small pollution accounts
    
    
    320
    
    
    
    11
    
    
    
    41
    
    
    
    16Total other policyholders
    
    
    436
    
    
    
    51
    
    
    
    89
    
    
    
    34Assumed reinsurance and pools
    
    
    
    
    
    
    4
    
    
    
    27
    
    
    
    10Unassigned IBNR
    
    
    
    
    
    
    
    
    
    
    124
    
    
    
    47Total
    
    
    468
    
    
    $
    63
    
    
    $
    262
    
    
    
    100
    %
 51




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##### Table of Contents



INVESTMENTS
   Net Investment Income
  Three months ended March 31(In millions)
    
    2009
    
    
    2008Fixed maturity securities
    
    $
    475
    
    
    $
    518Short term investments
    
    
    10
    
    
    
    39Limited partnerships
    
    
    (70
    )
    
    
    (39
    )Equity securities
    
    
    14
    
    
    
    5Trading portfolio (a)
    
    
    
    
    
    
    (77
    )Other
    
    
    3
    
    
    
    6Gross investment income
    
    
    432
    
    
    
    452Investment expense
    
    
    (12
    )
    
    
    (18
    )Net investment income
    
    $
    420
    
    
    $
    434
 
 (a)
    
    The change in net unrealized losses on trading securities included in net investment
income was $13 million for the three months ended March 31, 2008. As of March 31, 2009,
we no longer had a trading portfolio.   52




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##### Table of Contents



Net Realized Investment Gains (Losses)
  Net Realized Investment Gains (Losses)
 Three months ended March 31(In millions)
    
    2009
    
    
    2008Fixed maturity securities:U.S. Treasury securities and obligations of government agencies
    
    $
    (21
    )
    
    $
    32Corporate and other taxable bonds
    
    
    (173
    )
    
    
    (31
    )States, municipalities and political subdivisions  tax-exempt securities
    
    
    37
    
    
    
    40Asset-backed securities
    
    
    (192
    )
    
    
    (39
    )Redeemable preferred stock
    
    
    (9
    )
    
    
    (4
    )Total fixed maturity securities
    
    
    (358
    )
    
    
    (2
    )Equity securities
    
    
    (216
    )
    
    
    (15
    )Derivative securities
    
    
    31
    
    
    
    (44
    )Short term investments
    
    
    13
    
    
    
    2Other
    
    
    (2
    )
    
    
    8Realized investment losses, net of participating policyholders interests
    
    
    (532
    )
    
    
    (51
    )Income tax benefit
    
    
    187
    
    
    
    18Realized investment losses, after-tax, attributable to noncontrolling interests
    
    
    1
    
    
    
    Net realized investment losses attributable to CNAF
    
    $
    (344
    )
    
    $
    (33
    )
   Largest Realized Investment Losses from Securities Sold at a Loss
 Three months ended March 31, 2009
 Fair
    
    
    
    
    
    
    Months inValue at
    
    
    
    
    
    
    UnrealizedDate of
    
    
    Loss
    
    
    Loss PriorIssuer Description and Discussion
    
    Sale
    
    
    On Sale
    
    
    To Sale (a)(In millions)Various notes and bonds issued by the United States Treasury.
Securities sold due to outlook on interest rates.
    
    $
    2,870
    
    
    $
    31
    
    
    
    0-6Fixed income securities of a provider of wireless and wire line
communication products. Economic conditions have caused a
weakness in sales which have resulted in cash flow issues
causing additional financial deterioration.
    
    
    37
    
    
    
    17
    
    
    
    0-12+$
    2,907
    
    
    $
    48
 
 (a)
    
    Represents the range of consecutive months the various positions were in an
unrealized loss prior to sale. 0-12+ means certain positions were less than 12 months,
while others were greater than 12 months. 53




---



##### Table of Contents



Gross Unrealized Losses
  Unrealized Loss Aging for Fixed Income Securities
 Fair Value as a Percentage of Amortized CostMarch 31, 2009
    
    Estimated
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Gross Unrealized(In millions)
    
    Fair Value
    
    
    90-99%
    
    
    80-89%
    
    
    70-79%
    
    
    60-69%
    
    
    50-59%
    
    
    40-49%
    
    
    <40%
    
    
    LossInvestment grade:0-6 months
    
    $
    3,324
    
    
    $
    85
    
    
    $
    77
    
    
    $
    26
    
    
    $
    35
    
    
    $
    
    
    
    $
    3
    
    
    $
    31
    
    
    $
    2577-11 months
    
    
    5,313
    
    
    
    184
    
    
    
    185
    
    
    
    173
    
    
    
    118
    
    
    
    98
    
    
    
    50
    
    
    
    13
    
    
    
    82112-24 months
    
    
    6,752
    
    
    
    112
    
    
    
    262
    
    
    
    437
    
    
    
    363
    
    
    
    645
    
    
    
    311
    
    
    
    431
    
    
    
    2,561Greater than 24 months
    
    
    1,623
    
    
    
    31
    
    
    
    55
    
    
    
    120
    
    
    
    35
    
    
    
    16
    
    
    
    74
    
    
    
    148
    
    
    
    479Total investment grade
    
    
    17,012
    
    
    
    412
    
    
    
    579
    
    
    
    756
    
    
    
    551
    
    
    
    759
    
    
    
    438
    
    
    
    623
    
    
    
    4,118Non-investment grade:0-6 months
    
    
    369
    
    
    
    14
    
    
    
    8
    
    
    
    23
    
    
    
    5
    
    
    
    23
    
    
    
    
    
    
    
    3
    
    
    
    767-11 months
    
    
    756
    
    
    
    8
    
    
    
    39
    
    
    
    75
    
    
    
    81
    
    
    
    13
    
    
    
    25
    
    
    
    48
    
    
    
    28912-24 months
    
    
    1,235
    
    
    
    7
    
    
    
    54
    
    
    
    82
    
    
    
    118
    
    
    
    182
    
    
    
    118
    
    
    
    107
    
    
    
    668Greater than 24 months
    
    
    9
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2
    
    
    
    9
    
    
    
    11Total non-investment grade
    
    
    2,369
    
    
    
    29
    
    
    
    101
    
    
    
    180
    
    
    
    204
    
    
    
    218
    
    
    
    145
    
    
    
    167
    
    
    
    1,044Total
    
    $
    19,381
    
    
    $
    441
    
    
    $
    680
    
    
    $
    936
    
    
    $
    755
    
    
    $
    977
    
    
    $
    583
    
    
    $
    790
    
    
    $
    5,162
 54




---



##### Table of Contents



Unrealized Loss Aging for Fixed Income Securities
 Fair Value as a Percentage of Amortized CostDecember 31, 2008
    
    Estimated
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Gross Unrealized(In millions)
    
    Fair Value
    
    
    90-99%
    
    
    80-89%
    
    
    70-79%
    
    
    60-69%
    
    
    50-59%
    
    
    40-49%
    
    
    <40%
    
    
    LossInvestment grade:0-6 months
    
    $
    6,749
    
    
    $
    169
    
    
    $
    264
    
    
    $
    167
    
    
    $
    58
    
    
    $
    7
    
    
    $
    11
    
    
    $
    5
    
    
    $
    6817-11 months
    
    
    6,159
    
    
    
    126
    
    
    
    376
    
    
    
    315
    
    
    
    364
    
    
    
    262
    
    
    
    118
    
    
    
    30
    
    
    
    1,59112-24 months
    
    
    3,549
    
    
    
    55
    
    
    
    143
    
    
    
    128
    
    
    
    355
    
    
    
    449
    
    
    
    230
    
    
    
    443
    
    
    
    1,803Greater than 24 months
    
    
    1,778
    
    
    
    27
    
    
    
    67
    
    
    
    151
    
    
    
    68
    
    
    
    52
    
    
    
    8
    
    
    
    136
    
    
    
    509Total investment grade
    
    
    18,235
    
    
    
    377
    
    
    
    850
    
    
    
    761
    
    
    
    845
    
    
    
    770
    
    
    
    367
    
    
    
    614
    
    
    
    4,584Non-investment grade:0-6 months
    
    
    853
    
    
    
    10
    
    
    
    47
    
    
    
    93
    
    
    
    50
    
    
    
    44
    
    
    
    16
    
    
    
    30
    
    
    
    2907-11 months
    
    
    374
    
    
    
    1
    
    
    
    20
    
    
    
    43
    
    
    
    40
    
    
    
    33
    
    
    
    19
    
    
    
    17
    
    
    
    17312-24 months
    
    
    1,078
    
    
    
    3
    
    
    
    30
    
    
    
    83
    
    
    
    193
    
    
    
    94
    
    
    
    203
    
    
    
    41
    
    
    
    647Greater than 24 months
    
    
    12
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    5
    
    
    
    
    
    
    
    2
    
    
    
    
    
    
    
    7Total non-investment grade
    
    
    2,317
    
    
    
    14
    
    
    
    97
    
    
    
    219
    
    
    
    288
    
    
    
    171
    
    
    
    240
    
    
    
    88
    
    
    
    1,117Total
    
    $
    20,552
    
    
    $
    391
    
    
    $
    947
    
    
    $
    980
    
    
    $
    1,133
    
    
    $
    941
    
    
    $
    607
    
    
    $
    702
    
    
    $
    5,701
 55




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##### Table of Contents



Fixed Income Bond Ratings
 (In millions)
    
    March 31, 2009
    
    
    %
    
    
    December 31, 2008
    
    
    %U.S. Government and affiliated agency securities
    
    $
    1,124
    
    
    
    4
    %
    
    $
    2,993
    
    
    
    11
    %Other AAA rated
    
    
    9,698
    
    
    
    34
    
    
    
    10,112
    
    
    
    35AA and A rated
    
    
    9,366
    
    
    
    33
    
    
    
    8,166
    
    
    
    28BBB rated
    
    
    5,348
    
    
    
    19
    
    
    
    5,000
    
    
    
    17Non-investment grade
    
    
    2,873
    
    
    
    10
    
    
    
    2,569
    
    
    
    9Total
    
    $
    28,409
    
    
    
    100
    %
    
    $
    28,840
    
    
    
    100
    %
   56




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##### Table of Contents



Maturity Profile
 Percent of
    
    
    Percent ofFair Value
    
    
    Unrealized LossDue in one year or less
    
    
    9
    %
    
    
    9
    %Due after one year through five years
    
    
    23
    
    
    
    21Due after five years through ten years
    
    
    15
    
    
    
    19Due after ten years
    
    
    53
    
    
    
    51Total
    
    
    100
    %
    
    
    100
    %
 Duration
     Effective Durations
 March 31, 2009
    
    
    December 31, 2008Effective Duration
    
    
    
    
    
    
    Effective Duration(In millions)
    
    Fair Value
    
    
    (In years)
    
    
    Fair Value
    
    
    (In years)Segregated investments
    
    $
    8,072
    
    
    
    10.0
    
    
    $
    8,168
    
    
    
    9.9Other interest sensitive investments
    
    
    25,428
    
    
    
    3.6
    
    
    
    25,194
    
    
    
    4.5Total
    
    $
    33,500
    
    
    
    5.2
    
    
    $
    33,362
    
    
    
    5.8
  57




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Asset-Backed Mortgage Exposure
 Asset-Backed Distribution
 Percent
    
    
    PercentMarch 31, 2009
    
    Security Type
    
    
    
    
    
    
    of Total
    
    
    of Total(In millions)
    
    MBS(a)
    
    
    CMO(b)
    
    
    ABS(c)
    
    
    CDO(d)
    
    
    Total
    
    
    Security Type
    
    
    InvestmentsU.S. Government Agencies
    
    $
    502
    
    
    $
    1,190
    
    
    $
    
    
    
    $
    
    
    
    $
    1,692
    
    
    
    23
    %
    
    
    5
    %AAA
    
    
    
    
    
    
    2,764
    
    
    
    1,421
    
    
    
    
    
    
    
    4,185
    
    
    
    58
    
    
    
    12AA
    
    
    
    
    
    
    192
    
    
    
    169
    
    
    
    8
    
    
    
    369
    
    
    
    5
    
    
    
    1A
    
    
    
    
    
    
    107
    
    
    
    78
    
    
    
    14
    
    
    
    199
    
    
    
    3
    
    
    
    1BBB
    
    
    
    
    
    
    114
    
    
    
    200
    
    
    
    1
    
    
    
    315
    
    
    
    4
    
    
    
    1Non-investment grade and equity
tranches
    
    
    
    
    
    
    455
    
    
    
    68
    
    
    
    4
    
    
    
    527
    
    
    
    7
    
    
    
    1Total Fair Value
    
    $
    502
    
    
    $
    4,822
    
    
    $
    1,936
    
    
    $
    27
    
    
    $
    7,287
    
    
    
    100
    %
    
    
    21
    %Total Amortized Cost
    
    $
    492
    
    
    $
    5,772
    
    
    $
    2,693
    
    
    $
    156
    
    
    $
    9,113Sub-prime (included above)Fair Value
    
    $
    
    
    
    $
    
    
    
    $
    922
    
    
    $
    1
    
    
    $
    923
    
    
    
    13
    %
    
    
    3
    %Amortized Cost
    
    $
    
    
    
    $
    
    
    
    $
    1,313
    
    
    $
    1
    
    
    $
    1,314
    
    
    
    14
    %
    
    
    3
    %Alt-A (included above)Fair Value
    
    $
    
    
    
    $
    854
    
    
    $
    
    
    
    $
    2
    
    
    $
    856
    
    
    
    12
    %
    
    
    2
    %Amortized Cost
    
    $
    
    
    
    $
    1,101
    
    
    $
    
    
    
    $
    6
    
    
    $
    1,107
    
    
    
    12
    %
    
    
    3
    %
 
 (a)
    
    Mortgage-backed securities (MBS)(b)
    
    Collateralized mortgage obligations (CMO)(c)
    
    Asset-backed securities (ABS)(d)
    
    Collateralized debt obligations (CDO)    58




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Short Term Investments
  Short Term Investments
 March 31,
    
    
    December 31,(In millions)
    
    2009
    
    
    2008Short term investments available-for-sale:Commercial paper
    
    $
    1,164
    
    
    $
    563U.S. Treasury securities
    
    
    2,516
    
    
    
    2,258Money market funds
    
    
    262
    
    
    
    329Other, including collateral held related to securities lending
    
    
    641
    
    
    
    384Total short term investments
    
    $
    4,583
    
    
    $
    3,534
  LIQUIDITY AND CAPITAL RESOURCES
 Cash Flows
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Liquidity
  
    
    We do not anticipate changes in our core property and casualty commercial insurance
operations which would significantly impact liquidity and we continue to maintain
reinsurance contracts which limit the impact of potential catastrophic events.
    
    We have entered into several settlement agreements and assumed reinsurance contracts
that require collateralization of future payment obligations and assumed reserves if our
ratings or other specific criteria fall below certain thresholds. The ratings triggers
are generally more than one level below our current ratings. A downgrade below our
current ratings levels would also result in additional collateral requirements for
derivative contracts for which we are in a liability position at any given point in time.
The maximum potential collateralization requirements are approximately $90 million.
    
    As of March 31, 2009, our holding company held short term investments of $504 million.
Our holding companys ability to meet its debt service and other obligations is
significantly dependent on receipt of dividends from our subsidiaries. The payment of
dividends to us by our insurance subsidiaries without prior approval of the insurance
department of each subsidiarys domiciliary jurisdiction is limited by formula.
Notwithstanding this limitation, we believe that our holding company has sufficient
liquidity to fund our preferred stock dividend and debt service payments in 2009.
  Accounting Pronouncements
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FORWARD-LOOKING STATEMENTS
  
    
    conditions in the capital and credit markets including severe levels of volatility,
illiquidity, uncertainty and overall disruption, as well as sharply reduced economic activity,
that may impact the returns, types, liquidity and valuation of our investments;
    
    general economic and business conditions, including recessionary conditions that may
decrease the size and number of our insurance customers and create higher exposures to our
lines of business, especially those that provide management and professional liability
insurance, as well as surety bonds, to businesses engaged in real estate, financial services
and professional services, and inflationary pressures on medical care costs, construction
costs and other economic sectors that increase the severity of claims;
    
    the effects of the mergers and failures of a number of prominent financial institutions and
government sponsored entities, as well as the effects of accounting and financial reporting
scandals and other major failures in internal controls and governance, on capital and credit
markets, as well as on the markets for directors and officers and errors and omissions
coverages;
    
    changes in foreign or domestic political, social and economic conditions;
    
    regulatory initiatives and compliance with governmental regulations, judicial decisions,
including interpretation of policy provisions, decisions regarding coverage and theories of
liability, trends in litigation and the outcome of any litigation involving us, and rulings
and changes in tax laws and regulations;
    
    regulatory limitations, impositions and restrictions upon us, including the effects of
assessments and other surcharges for guaranty funds and second-injury funds, other mandatory
pooling arrangements and future assessments levied on insurance companies and other financial
industry participants under the Emergency Economic Stabilization Act of 2008 recoupment
provisions;
    
    the impact of competitive products, policies and pricing and the competitive environment in
which we operate, including changes in our book of business;
    
    product and policy availability and demand and market responses, including the level of
ability to obtain rate increases and decline or non-renew under priced accounts, to achieve
premium targets and profitability and to realize growth and retention estimates;
    
    development of claims and the impact on loss reserves, including changes in claim
settlement policies;
    
    the effectiveness of current initiatives by claims management to reduce loss and expense
ratios through more efficacious claims handling techniques;
    
    the performance of reinsurance companies under reinsurance contracts with us;
    
    conditions in the capital and credit markets that may limit our ability to raise
significant amounts of capital on favorable terms, as well as restrictions on the ability or
willingness of Loews Corporation to provide additional capital support to us;
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##### Table of Contents




    
    weather and other natural physical events, including the severity and frequency of storms,
hail, snowfall and other winter conditions, natural disasters such as hurricanes and
earthquakes, as well as climate change, including effects on weather patterns, greenhouse
gases, sea, land and air temperatures, sea levels, rain and snow;
    
    regulatory requirements imposed by coastal state regulators in the wake of hurricanes or
other natural disasters, including limitations on the ability to exit markets or to non-renew,
cancel or change terms and conditions in policies, as well as mandatory assessments to fund
any shortfalls arising from the inability of quasi-governmental insurers to pay claims;
    
    man-made disasters, including the possible occurrence of terrorist attacks and the effect
of the absence or insufficiency of applicable terrorism legislation on coverages;
    
    the unpredictability of the nature, targets, severity or frequency of potential terrorist
events, as well as the uncertainty as to our ability to contain our terrorism exposure
effectively, notwithstanding the extension through December 31, 2014 of the Terrorism Risk
Insurance Act of 2002;
    
    the occurrence of epidemics;
    
    exposure to liabilities due to claims made by insureds and others relating to asbestos
remediation and health-based asbestos impairments, as well as exposure to liabilities for
environmental pollution, construction defect claims and exposure to liabilities due to claims
made by insureds and others relating to lead-based paint and other mass torts;
    
    the sufficiency of our loss reserves and the possibility of future increases in reserves;
    
    regulatory limitations and restrictions, including limitations upon our ability to receive
dividends from our insurance subsidiaries imposed by state regulatory agencies and minimum
risk-based capital standards established by the National Association of Insurance
Commissioners;
    
    the risks and uncertainties associated with our loss reserves as outlined in the Critical
Accounting Estimates and the Reserves  Estimates and Uncertainties sections of our Annual
Report on Form 10-K;
    
    the possibility of changes in our ratings by ratings agencies, including the inability to
access certain markets or distribution channels and the required collateralization of future
payment obligations as a result of such changes, and changes in rating agency policies and
practices; and
    
    the actual closing of contemplated transactions and agreements.
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CNA
Financial Corporation
 
 Item 3. Quantitative and Qualitative Disclosures About Market Risk
  63




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CNA
Financial Corporation
 
 Item 4. Controls and Procedures
    64




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CNA
Financial Corporation
 
 Part II. Other Information
 
 Item 1. Legal Proceedings
  65




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CNA Financial Corporation
Part II.  Other Information
 
 Item 6. Exhibits
  Description of Exhibit
    
    Exhibit NumberEmployment Agreement, dated May 22, 2008, by and between CNA Financial Corporation
and Thomas F. Motamed
    
    
    10.1Employment Agreement, dated April 7, 2008, by and between Continental Casualty
Company and Larry A. Haefner
    
    
    10.2Certification of Chief Executive Officer
    
    
    31.1Certification of Chief Financial Officer
    
    
    31.2Written Statement of the Chief Executive Officer of CNA Financial Corporation Pursuant
to 18 U.S.C. Section 1350 (As adopted by Section 906 of the Sarbanes-Oxley Act of 2002)
    
    
    32.1Written Statement of the Chief Financial Officer of CNA Financial Corporation Pursuant
to 18 U.S.C. Section 1350 (As adopted by Section 906 of the Sarbanes-Oxley Act of 2002)
    
    
    32.2
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CNA Financial Corporation
Part II.  Other Information
 
 SIGNATURES
  CNA Financial CorporationDated: May 4, 2009
    
    By
    
    /s/ D. Craig MenseD. Craig MenseExecutive Vice President andChief Financial Officer
 67