##### Table of Contents



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 
 FORM 10-Q
 þ
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
 o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
  Commission File Number 1-5823
 
 CNA FINANCIAL CORPORATION
  Delaware
    
    36-6169860(State or other jurisdiction ofincorporation or organization)
    
    (I.R.S. EmployerIdentification No.)CNA CenterChicago, Illinois(Address of principal executive offices)
    
    60685(Zip Code)
 (312) 822-5000
(Registrants telephone number, including area code)
  þ
  þ
  þ
  Class
    
    Outstanding at April 25, 2006Common Stock, Par value $2.50
    
    256,007,095




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##### 



CNA FINANCIAL CORPORATIONINDEX
 Item
    
    
    
    PageNumber
    
    
    
    NumberPART I. Financial Information1.
    
    Condensed Consolidated Financial Statements (Unaudited):Condensed Consolidated Balance Sheets at March 31, 2006 and at December 31, 2005
    
    
    3Condensed Consolidated Statements of Operations for the Three Months Ended March 31, 2006 and 2005
    
    
    4Condensed Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2006 and 2005
    
    
    5Notes to Condensed Consolidated Financial Statements
    
    
    72.
    
    Management's Discussion and Analysis of Financial Condition and Results of Operations
    
    
    453.
    
    Quantitative and Qualitative Disclosures about Market Risk
    
    
    734.
    
    Controls and Procedures
    
    
    77PART II. Other Information1.
    
    Legal Proceedings
    
    
    781A.
    
    Risk Factors
    
    
    785.
    
    Other Information
    
    
    786.
    
    Exhibits
    
    
    78Signatures
    
    
    79Certifications
    
    
    80302 Certification of Chief Executive Officer302 Certification of Chief Financial Officer906 Certification of Chief Executive Officer906 Certification of Chief Financial Officer
  2




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CNA FINANCIAL CORPORATION
PART I. FINANCIAL INFORMATION
ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)
 March 31,
    
    
    December 31,2006
    
    
    2005(In millions, except share data)AssetsInvestments:Fixed maturity securities at fair value (amortized cost of $29,751 and $32,616)
    
    $
    29,971
    
    
    $
    33,234Equity securities at fair value (cost of $537 and $511)
    
    
    720
    
    
    
    681Limited partnership investments
    
    
    1,653
    
    
    
    1,509Other invested assets
    
    
    37
    
    
    
    33Short term investments at cost, which approximates fair value
    
    
    8,277
    
    
    
    4,238Total investments
    
    
    40,658
    
    
    
    39,695Cash
    
    
    96
    
    
    
    96Reinsurance receivables (less allowance for uncollectible receivables of $520 and $519)
    
    
    11,643
    
    
    
    11,917Insurance receivables (less allowance for doubtful accounts of $443 and $445)
    
    
    1,861
    
    
    
    1,866Accrued investment income
    
    
    279
    
    
    
    312Receivables for securities sold
    
    
    759
    
    
    
    565Deferred acquisition costs
    
    
    1,198
    
    
    
    1,197Prepaid reinsurance premiums
    
    
    440
    
    
    
    340Federal income taxes recoverable (includes $0 and $68 due from Loews Corporation)
    
    
    
    
    
    
    62Deferred income taxes
    
    
    1,199
    
    
    
    1,105Property and equipment at cost (less accumulated depreciation of $551 and $546)
    
    
    200
    
    
    
    197Goodwill and other intangible assets
    
    
    147
    
    
    
    146Other assets
    
    
    675
    
    
    
    737Separate account business
    
    
    520
    
    
    
    551Total assets
    
    $
    59,675
    
    
    $
    58,786Liabilities and Stockholders EquityLiabilities:Insurance reserves:Claim and claim adjustment expense
    
    $
    30,541
    
    
    $
    30,938Unearned premiums
    
    
    3,847
    
    
    
    3,706Future policy benefits
    
    
    6,339
    
    
    
    6,297Policyholders funds
    
    
    1,185
    
    
    
    1,495Collateral on loaned securities
    
    
    1,789
    
    
    
    767Payables for securities purchased
    
    
    566
    
    
    
    129Participating policyholders funds
    
    
    47
    
    
    
    53Short term debt
    
    
    252
    
    
    
    252Long term debt
    
    
    1,438
    
    
    
    1,438Federal income taxes payable (includes $39 and $0 due to Loews Corporation)
    
    
    54
    
    
    
    Reinsurance balances payable
    
    
    1,619
    
    
    
    1,636Other liabilities
    
    
    2,240
    
    
    
    2,283Separate account business
    
    
    520
    
    
    
    551Total liabilities
    
    
    50,437
    
    
    
    49,545Commitments and contingencies (Notes D, F, G, and J)Minority interest
    
    
    298
    
    
    
    291Stockholders equity:Preferred stock (12,500,000 shares authorized)
Series H Issue (no par value; $100,000 stated value; 7,500 shares issued; held by Loews Corporation)
    
    
    750
    
    
    
    750Common stock ($2.50 par value; 500,000,000 shares authorized; 258,177,285 shares issued; and
256,007,095 and 256,001,968 shares outstanding)
    
    
    645
    
    
    
    645Additional paid-in capital
    
    
    1,702
    
    
    
    1,701Retained earnings
    
    
    5,850
    
    
    
    5,621Accumulated other comprehensive income
    
    
    120
    
    
    
    359Treasury stock (2,170,190 and 2,175,317 shares), at cost
    
    
    (67
    )
    
    
    (67
    )9,000
    
    
    
    9,009Notes receivable for the issuance of common stock
    
    
    (60
    )
    
    
    (59
    )Total stockholders equity
    
    
    8,940
    
    
    
    8,950Total liabilities and stockholders equity
    
    $
    59,675
    
    
    $
    58,786
  3




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CNA FINANCIAL CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
 Three months ended March 31
    
    2006
    
    
    2005(In millions, except per share data)
    
    
    
    
    
    RestatedSee Note QRevenuesNet earned premiums
    
    $
    1,869
    
    
    $
    1,899Net investment income
    
    
    570
    
    
    
    406Realized investment gains (losses), net of participating
policyholders and minority interests
    
    
    9
    
    
    
    (19
    )Other revenues
    
    
    53
    
    
    
    78Total revenues
    
    
    2,501
    
    
    
    2,364Claims, Benefits and ExpensesInsurance claims and policyholders benefits
    
    
    1,492
    
    
    
    1,434Amortization of deferred acquisition costs
    
    
    370
    
    
    
    378Other operating expenses
    
    
    257
    
    
    
    274Interest
    
    
    30
    
    
    
    37Total claims, benefits and expenses
    
    
    2,149
    
    
    
    2,123Income before income tax and minority interest
    
    
    352
    
    
    
    241Income tax expense
    
    
    (108
    )
    
    
    (56
    )Minority interest
    
    
    (9
    )
    
    
    (7
    )Income from continuing operations
    
    
    235
    
    
    
    178Income (loss) from discontinued operations, net of tax of
$0 and $0
    
    
    (6
    )
    
    
    7Net income
    
    $
    229
    
    
    $
    185Basic and Diluted Earnings Per ShareIncome from continuing operations
    
    $
    0.84
    
    
    $
    0.63Income (loss) from discontinued operations
    
    
    (0.02
    )
    
    
    0.03Basic and diluted earnings per share available to common
stockholders
    
    $
    0.82
    
    
    $
    0.66Weighted average outstanding common stock and common stock
equivalents
    
    
    256.0
    
    
    
    256.0
  4




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CNA FINANCIAL CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
 Three months ended March 31
    
    2006
    
    
    2005(In millions)
    
    
    
    
    
    RestatedSee Note QCash Flows from Operating Activities:Net income
    
    $
    229
    
    
    $
    185Adjustments to reconcile net income to net cash flows provided
by operating activities:(Income) loss from discontinued operations
    
    
    6
    
    
    
    (7
    )Loss on disposal of property and equipment
    
    
    4
    
    
    
    7Minority interest
    
    
    9
    
    
    
    7Deferred income tax provision
    
    
    41
    
    
    
    12Trading securities
    
    
    267
    
    
    
    (18
    )Realized investment (gains) losses, net of participating
policyholders and minority interests
    
    
    (9
    )
    
    
    19Undistributed earnings of equity method investees
    
    
    (15
    )
    
    
    (20
    )Amortization of bond (discount) premium
    
    
    (62
    )
    
    
    (22
    )Depreciation
    
    
    12
    
    
    
    14Changes in:Receivables, net
    
    
    279
    
    
    
    446Deferred acquisition costs
    
    
    (1
    )
    
    
    14Accrued investment income
    
    
    33
    
    
    
    (12
    )Federal income taxes recoverable/payable
    
    
    116
    
    
    
    (23
    )Prepaid reinsurance premiums
    
    
    (100
    )
    
    
    109Reinsurance balances payable
    
    
    (17
    )
    
    
    (13
    )Insurance reserves
    
    
    (181
    )
    
    
    (423
    )Other, net
    
    
    20
    
    
    
    (105
    )Total adjustments
    
    
    402
    
    
    
    (15
    )Net cash flows provided by operating activities-continuing
operations
    
    $
    631
    
    
    $
    170Net cash flows used by operating activities-discontinued
operations
    
    $
    (5
    )
    
    $
    (11
    )Net cash flows provided by operating activities-total
    
    $
    626
    
    
    $
    159Cash Flows from Investing Activities:Purchases of fixed maturity securities
    
    $
    (9,951
    )
    
    $
    (12,021
    )Proceeds from fixed maturity securities:Sales
    
    
    11,697
    
    
    
    12,360Maturities, calls and redemptions
    
    
    1,089
    
    
    
    946Purchases of equity securities
    
    
    (596
    )
    
    
    (24
    )Proceeds from sales of equity securities
    
    
    582
    
    
    
    57Change in short term investments
    
    
    (4,014
    )
    
    
    (1,662
    )Change in collateral on loaned securities
    
    
    1,022
    
    
    
    193Change in other investments
    
    
    (86
    )
    
    
    22Purchases of property and equipment
    
    
    (16
    )
    
    
    (16
    )Dispositions
    
    
    (2
    )
    
    
    12Other, net
    
    
    (29
    )
    
    
    18Net cash flows used by investing activities-continuing operations
    
    $
    (304
    )
    
    $
    (115
    )Net cash flows provided (used) by investing
activities-discontinued operations
    
    $
    (3
    )
    
    $
    5Net cash flows used by investing activities-total
    
    $
    (307
    )
    
    $
    (110
    )
  5




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2006
    
    
    2005RestatedSee Note QCash Flows from Financing Activities:Principal payments on debt
    
    $
    
    
    
   $
     (14
    )Return of investment contract account balances
    
    
    (344
    )
    
    
    (47
    )Receipts of investment contract account balances
    
    
    1
    
    
    
    2Stock options exercised by officers
    
    
    1
    
    
    
    Other, net
    
    
    (1
    )
    
    
    3Net cash flows used by financing activities-continuing operations
    
    $
    (343
    )
    
    $
    (56
    )Net cash flows provided by financing activities-discontinued
operations
    
    $
    
    
    
    $
    Net cash flows used by financing activities-total
    
    $
    (343
    )
    
    $
    (56
    )Net change in cash
    
    
    (24
    )
    
    
    (7
    )Net cash transactions from continuing operations to discontinued
operations
    
    
    16
    
    
    
    (1
    )Net cash transactions from discontinued operations to continuing
operations
    
    
    (16
    )
    
    
    1Cash, beginning of year
    
    
    125
    
    
    
    109Cash, end of period
    
    $
    101
    
    
    $
    102Cash-continuing operations
    
    $
    96
    
    
    $
    93Cash-discontinued operations
    
    
    5
    
    
    
    9Cash-total
    
    
    101
    
    
    
    102
  6




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CNA FINANCIAL CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
 Note A. Basis of Presentation
    Note B. Accounting Pronouncements
 Accounting Changes and Error Correction Accounting Changes, Reporting Accounting Changes in Interim Financial Statements
 The Meaning of Other-Than-Temporary Impairment and its Application to Certain Investments Accounting
for Certain Investments in Debt and Equity Securities The Equity Method of Accounting for Investments in Common Stock The Meaning
of Other-Than-Temporary Impairment and its Application to Certain Investments
 7




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CNA FINANCIAL CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS, Continued
(UNAUDITED)
  Share-Based Payment Accounting for Stock-Based Compensation Accounting for Stock Issued to Employees Transition Election Related to Accounting for the Tax Effects of Share-Based Payment
Awards
  Note C. Earnings Per Share
    8




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CNA FINANCIAL CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS, Continued
(UNAUDITED)
  Earnings Per Share
 For the three months ended March 31
    
    2006
    
    
    2005(In millions, except per share amounts)Income from continuing operations
    
    $
    235
    
    
    $
    178Less: undeclared preferred stock dividend
    
    
    (19
    )
    
    
    (17
    )Income from continuing operations available to common stockholders
    
    $
    216
    
    
    $
    161Weighted average outstanding common stock and common stock
equivalents
    
    
    256.0
    
    
    
    256.0Effect of dilutive securities, employee stock options
    
    
    
    
    
    
    Adjusted weighted average outstanding common stock and common
stock equivalents assuming conversions
    
    
    256.0
    
    
    
    256.0Basic and diluted earnings per share from continuing operations
available to common stockholders
    
    $
    0.84
    
    
    $
    0.63
  Pro Forma Effect of SFAS 123 on Results
 For the three months ended March 31
    
    2005(In millions, except per share amounts)Income from continuing operations
    
    $
    178Less: undeclared preferred stock dividend
    
    
    (17
    )Income from continuing operations available to common stockholders
    
    
    161Income from discontinued operations, net of tax
    
    
    7Net income available to common stockholders
    
    
    168Less: Total stock-based compensation cost determined under the fair
value method, net of tax
    
    
    (1
    )Pro forma net income available to common stockholders
    
    $
    167Basic and diluted earnings per share, as reported
    
    $
    0.66Basic and diluted earnings per share, pro forma
    
    $
    0.66
 9




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##### Table of Contents



CNA FINANCIAL CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS, Continued
(UNAUDITED)
 Note D. Investments
  Net Investment Income
 Three months ended March 31
    
    2006
    
    
    2005(In millions)Fixed maturity securities
    
    $
    415
    
    
    $
    364Short term investments
    
    
    65
    
    
    
    32Limited partnerships
    
    
    74
    
    
    
    79Equity securities
    
    
    6
    
    
    
    4Income (loss) from trading portfolio (a)
    
    
    42
    
    
    
    (30
    )Interest on funds withheld and other deposits
    
    
    (25
    )
    
    
    (39
    )Other
    
    
    3
    
    
    
    7Gross investment income
    
    
    580
    
    
    
    417Investment expense
    
    
    (10
    )
    
    
    (11
    )Net investment income
    
    $
    570
    
    
    $
    406
   Realized Investment Gains (Losses)
 Three months ended March 31
    
    2006
    
    
    2005(In millions)Fixed maturity securities:U.S. Government bonds
    
    $
    4
    
    
    $
    (26
    )Corporate and other taxable bonds
    
    
    (20
    )
    
    
    (21
    )Tax-exempt bonds
    
    
    25
    
    
    
    7Asset-backed bonds
    
    
    (9
    )
    
    
    7Redeemable preferred stock
    
    
    
    
    
    
    10Total fixed maturity securities
    
    
    
    
    
    
    (23
    )Equity securities
    
    
    3
    
    
    
    14Derivative securities
    
    
    7
    
    
    
    4Short term investments
    
    
    (2
    )
    
    
    Other, including disposition of businesses, net of
participating policyholders interest
    
    
    
    
    
    
    (17
    )Realized investment gains (losses) before allocation to
participating policyholders and minority interests
    
    
    8
    
    
    
    (22
    )Allocated to participating policyholders and minority interests
    
    
    1
    
    
    
    3Realized investment gains (losses)
    
    $
    9
    
    
    $
    (19
    )
  10




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##### Table of Contents



CNA FINANCIAL CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS, Continued
(UNAUDITED)
   Summary of Fixed Maturity and Equity Securities
 Cost or
    
    
    Gross
    
    
    Gross Unrealized Losses
    
    
    EstimatedAmortized
    
    
    Unrealized
    
    
    Less than
    
    
    Greater than
    
    
    FairMarch 31, 2006
    
    Cost
    
    
    Gains
    
    
    12 Months
    
    
    12 Months
    
    
    Value(In millions)Fixed maturity securities available-for-sale:U.S. Treasury securities and obligations
of government agencies
    
    $
    1,421
    
    
    $
    86
    
    
    $
    4
    
    
    $
    3
    
    
    $
    1,500Asset-backed securities
    
    
    13,827
    
    
    
    21
    
    
    
    211
    
    
    
    66
    
    
    
    13,571States, municipalities and political
subdivisions  tax-exempt
    
    
    4,936
    
    
    
    137
    
    
    
    39
    
    
    
    11
    
    
    
    5,023Corporate securities
    
    
    6,092
    
    
    
    242
    
    
    
    66
    
    
    
    14
    
    
    
    6,254Other debt securities
    
    
    2,965
    
    
    
    174
    
    
    
    28
    
    
    
    1
    
    
    
    3,110Redeemable preferred stock
    
    
    307
    
    
    
    7
    
    
    
    3
    
    
    
    1
    
    
    
    310Options embedded in convertible debt
securities
    
    
    1
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1Total fixed maturity securities
available-for-sale
    
    
    29,549
    
    
    
    667
    
    
    
    351
    
    
    
    96
    
    
    
    29,769Total fixed maturity securities trading
    
    
    202
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    202Equity securities available-for-sale:Common stock
    
    
    102
    
    
    
    167
    
    
    
    1
    
    
    
    
    
    
    
    268Preferred stock
    
    
    377
    
    
    
    17
    
    
    
    
    
    
    
    
    
    
    
    394Total equity securities available-for-sale
    
    
    479
    
    
    
    184
    
    
    
    1
    
    
    
    
    
    
    
    662Total equity securities trading
    
    
    58
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    58Total
    
    $
    30,288
    
    
    $
    851
    
    
    $
    352
    
    
    $
    96
    
    
    $
    30,691
 11




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CNA FINANCIAL CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS, Continued
(UNAUDITED)
 Summary of Fixed Maturity and Equity Securities
 Cost or
    
    
    Gross
    
    
    Gross Unrealized Losses
    
    
    EstimatedAmortized
    
    
    Unrealized
    
    
    Less than
    
    
    Greater than
    
    
    FairDecember 31, 2005
    
    Cost
    
    
    Gains
    
    
    12 Months
    
    
    12 Months
    
    
    Value(In millions)Fixed maturity securities available-for-sale:U.S. Treasury securities and obligations
of government agencies
    
    $
    1,355
    
    
    $
    119
    
    
    $
    4
    
    
    $
    1
    
    
    $
    1,469Asset-backed securities
    
    
    12,986
    
    
    
    43
    
    
    
    137
    
    
    
    33
    
    
    
    12,859States, municipalities and political
subdivisions  tax-exempt
    
    
    9,054
    
    
    
    193
    
    
    
    31
    
    
    
    7
    
    
    
    9,209Corporate securities
    
    
    5,906
    
    
    
    322
    
    
    
    52
    
    
    
    11
    
    
    
    6,165Other debt securities
    
    
    2,830
    
    
    
    234
    
    
    
    18
    
    
    
    2
    
    
    
    3,044Redeemable preferred stock
    
    
    213
    
    
    
    4
    
    
    
    
    
    
    
    1
    
    
    
    216Options embedded in convertible debt
securities
    
    
    1
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1Total fixed maturity securities
available-for-sale
    
    
    32,345
    
    
    
    915
    
    
    
    242
    
    
    
    55
    
    
    
    32,963Total fixed maturity securities trading
    
    
    271
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    271Equity securities available-for-sale:Common stock
    
    
    140
    
    
    
    150
    
    
    
    1
    
    
    
    
    
    
    
    289Preferred stock
    
    
    322
    
    
    
    22
    
    
    
    1
    
    
    
    
    
    
    
    343Total equity securities available-for-sale
    
    
    462
    
    
    
    172
    
    
    
    2
    
    
    
    
    
    
    
    632Total equity securities trading
    
    
    49
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    49Total
    
    $
    33,127
    
    
    $
    1,087
    
    
    $
    244
    
    
    $
    55
    
    
    $
    33,915
 12




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##### Table of Contents



CNA FINANCIAL CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS, Continued
(UNAUDITED)
  Unrealized Loss Aging
 March 31, 2006
    
    
    December 31, 2005Gross
    
    
    
    
    
    
    GrossEstimated
    
    
    Unrealized
    
    
    Estimated
    
    
    UnrealizedFair Value
    
    
    Loss
    
    
    Fair Value
    
    
    Loss(In millions)Fixed maturity securities:Investment grade:0-6 months
    
    $
    9,767
    
    
    $
    132
    
    
    $
    9,976
    
    
    $
    1427-12 months
    
    
    6,325
    
    
    
    201
    
    
    
    2,739
    
    
    
    6113-24 months
    
    
    2,013
    
    
    
    74
    
    
    
    1,400
    
    
    
    45Greater than 24 months
    
    
    389
    
    
    
    19
    
    
    
    219
    
    
    
    7Total investment grade
    
    
    18,494
    
    
    
    426
    
    
    
    14,334
    
    
    
    255Non-investment grade:0-6 months
    
    
    479
    
    
    
    8
    
    
    
    632
    
    
    
    297-12 months
    
    
    229
    
    
    
    10
    
    
    
    118
    
    
    
    1013-24 months
    
    
    44
    
    
    
    3
    
    
    
    122
    
    
    
    3Greater than 24 months
    
    
    15
    
    
    
    
    
    
    
    2
    
    
    
    Total non-investment grade
    
    
    767
    
    
    
    21
    
    
    
    874
    
    
    
    42Total fixed maturity securities
    
    
    19,261
    
    
    
    447
    
    
    
    15,208
    
    
    
    297Equity securities:0-6 months
    
    
    39
    
    
    
    
    
    
    
    49
    
    
    
    27-12 months
    
    
    23
    
    
    
    1
    
    
    
    1
    
    
    
    13-24 months
    
    
    1
    
    
    
    
    
    
    
    
    
    
    
    Greater than 24 months
    
    
    3
    
    
    
    
    
    
    
    3
    
    
    
    Total equity securities
    
    
    66
    
    
    
    1
    
    
    
    53
    
    
    
    2Total fixed maturity and equity securities
    
    $
    19,327
    
    
    $
    448
    
    
    $
    15,261
    
    
    $
    299
     13




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##### Table of Contents



CNA FINANCIAL CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS, Continued
(UNAUDITED)
      Asset-Backed Securities
  Recognition of
Interest Income and Impairment on Purchased and Retained Beneficial Interests in Securitized
Financial Assets
 14




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##### Table of Contents



CNA FINANCIAL CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS, Continued
(UNAUDITED)
  States, Municipalities and Political Subdivisions  Tax-Exempt Securities
  Corporate Securities
   Investment Commitments
   15




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##### Table of Contents



CNA FINANCIAL CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS, Continued
(UNAUDITED)
 Note E. Derivative Financial Instruments
  Derivative Financial Instruments Recognized Gains (Losses)
 For the three months ended March 31
    
    2006
    
    
    2005(In millions)General accountWithout hedge designationSwaps
    
    $
    6
    
    
    $
    3Futures sold, not yet purchased
    
    
    2
    
    
    
    Currency forwards
    
    
    
    
    
    
    1Commitments to purchase government and municipal securities
(TBAs)
    
    
    (1
    )
    
    
    Options embedded in convertible bonds
    
    
    
    
    
    
    (12
    )Trading activitiesFutures purchased
    
    
    29
    
    
    
    (33
    )Currency forwards
    
    
    1
    
    
    
    Options written
    
    
    
    
    
    
    1Total general account
    
    $
    37
    
    
    $
    (40
    )
  Derivative Financial Instruments
 Contractual/
    
    
    Estimated
    
    
    EstimatedAs of March 31, 2006
    
    Notional
    
    
    Fair Value
    
    
    Fair Value(In millions)
    
    Amount
    
    
    Asset
    
    
    (Liability)General accountWithout hedge designationSwaps
    
    $
    344
    
    
    $
    
    
    
    $
    (5
    )Currency forwards
    
    
    37
    
    
    
    
    
    
    
    Commitments to purchase government and municipal securities (TBAs)
    
    
    200
    
    
    
    
    
    
    
    (1
    )Equity warrants
    
    
    6
    
    
    
    2
    
    
    
    Options embedded in convertible debt securities
    
    
    12
    
    
    
    1
    
    
    
    Trading activitiesFutures purchased
    
    
    778
    
    
    
    
    
    
    
    (2
    )Futures sold, not yet purchased
    
    
    145
    
    
    
    
    
    
    
    Currency forwards
    
    
    41
    
    
    
    1
    
    
    
    Commitments to purchase government and municipal securities (TBAs)
    
    
    16
    
    
    
    
    
    
    
    Total general account
    
    $
    1,579
    
    
    $
    4
    
    
    $
    (8
    )Separate accountsOptions written
    
    $
    7
    
    
    $
    
    
    
    $
    Total
    
    $
    7
    
    
    $
    
    
    
    $
    
 16




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##### Table of Contents



CNA FINANCIAL CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS, Continued
(UNAUDITED)
 Derivative Financial Instruments
 Contractual/
    
    
    Estimated
    
    
    EstimatedAs of December 31, 2005
    
    Notional
    
    
    Fair Value
    
    
    Fair Value(In millions)
    
    Amount
    
    
    Asset
    
    
    (Liability)General accountWith hedge designationSwaps
    
    $
    265
    
    
    $
    
    
    
    $
    (1
    )Without hedge designationSwaps
    
    
    756
    
    
    
    
    
    
    
    (8
    )Currency forwards
    
    
    15
    
    
    
    
    
    
    
    Equity warrants
    
    
    6
    
    
    
    2
    
    
    
    Options embedded in convertible debt securities
    
    
    12
    
    
    
    1
    
    
    
    Trading activitiesFutures purchased
    
    
    1,058
    
    
    
    
    
    
    
    (4
    )Futures sold, not yet purchased
    
    
    166
    
    
    
    
    
    
    
    Currency forwards
    
    
    59
    
    
    
    
    
    
    
    (1
    )Commitments to purchase mortgage-backed securities
    
    
    21
    
    
    
    
    
    
    
    Options purchased
    
    
    20
    
    
    
    
    
    
    
    Options written
    
    
    21
    
    
    
    
    
    
    
    Total general account
    
    $
    2,399
    
    
    $
    3
    
    
    $
    (14
    )Separate accountsOptions written
    
    $
    7
    
    
    $
    
    
    
    $
    Total
    
    $
    7
    
    
    $
    
    
    
    $
    
  Note F. Legal Proceedings and Contingent Liabilities
 Insurance Brokerage Antitrust Litigation
 In re Insurance Brokerage Antitrust Litigation, Civil No.
04-5184 (FSH)
  Global Crossing Limited Litigation
  17




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##### Table of Contents



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




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##### Table of Contents



CNA FINANCIAL CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS, Continued
(UNAUDITED)
 California Wage and Hour Litigation
 Ernestine Samora, et al. v. CCC Brian Wenzel v. Galway Insurance Company
 New Jersey Wage and Hour Litigation
   Voluntary Market Premium Litigation
  Asbestos, Environmental Pollution and Mass Tort (APMT) Reserves
  Other Litigation
  19




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##### Table of Contents



CNA FINANCIAL CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS, Continued
(UNAUDITED)
 Note G. Claim and Claim Adjustment Expense Reserves
      March 31, 2006
 Gross and Net Carried
    
    
    
    
    
    
    
    
    
    Life and
    
    
    CorporateClaim and Claim Adjustment Expense Reserves
    
    Standard
    
    
    Specialty
    
    
    Group
    
    
    and Other(In millions)
    
    Lines
    
    
    Lines
    
    
    Non-Core
    
    
    Non-Core
    
    
    TotalGross Case Reserves
    
    $
    7,216
    
    
    $
    1,834
    
    
    $
    2,523
    
    
    $
    3,085
    
    
    $
    14,658Gross IBNR Reserves
    
    
    7,689
    
    
    
    3,482
    
    
    
    708
    
    
    
    4,004
    
    
    
    15,883Total Gross Carried Claim and Claim
Adjustment Expense Reserves
    
    $
    14,905
    
    
    $
    5,316
    
    
    $
    3,231
    
    
    $
    7,089
    
    
    $
    30,541Net Case Reserves
    
    $
    5,028
    
    
    $
    1,358
    
    
    $
    1,463
    
    
    $
    1,385
    
    
    $
    9,234Net IBNR Reserves
    
    
    6,107
    
    
    
    2,523
    
    
    
    383
    
    
    
    1,942
    
    
    
    10,955Total Net Carried Claim and Claim
Adjustment Expense Reserves
    
    $
    11,135
    
    
    $
    3,881
    
    
    $
    1,846
    
    
    $
    3,327
    
    
    $
    20,189
 20




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##### Table of Contents



CNA FINANCIAL CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS, Continued
(UNAUDITED)
 December 31, 2005
 Gross and Net Carried
    
    
    
    
    
    
    
    
    
    Life and
    
    
    CorporateClaim and Claim Adjustment Expense Reserves
    
    Standard
    
    
    Specialty
    
    
    Group
    
    
    and Other(In millions)
    
    Lines
    
    
    Lines
    
    
    Non-Core
    
    
    Non-Core
    
    
    TotalGross Case Reserves
    
    $
    7,033
    
    
    $
    1,907
    
    
    $
    2,542
    
    
    $
    3,297
    
    
    $
    14,779Gross IBNR Reserves
    
    
    8,051
    
    
    
    3,298
    
    
    
    735
    
    
    
    4,075
    
    
    
    16,159Total Gross Carried Claim and Claim
Adjustment Expense Reserves
    
    $
    15,084
    
    
    $
    5,205
    
    
    $
    3,277
    
    
    $
    7,372
    
    
    $
    30,938Net Case Reserves
    
    $
    5,165
    
    
    $
    1,442
    
    
    $
    1,456
    
    
    $
    1,554
    
    
    $
    9,617Net IBNR Reserves
    
    
    6,081
    
    
    
    2,352
    
    
    
    381
    
    
    
    1,902
    
    
    
    10,716Total Net Carried Claim and Claim
Adjustment Expense Reserves
    
    $
    11,246
    
    
    $
    3,794
    
    
    $
    1,837
    
    
    $
    3,456
    
    
    $
    20,333
  APMT Reserves
     21




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##### Table of Contents



CNA FINANCIAL CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS, Continued
(UNAUDITED)
   APMT Reserves
 March 31, 2006
    
    
    December 31, 2005Environmental
    
    
    
    
    
    
    EnvironmentalPollution and
    
    
    
    
    
    
    Pollution andAsbestos
    
    
    Mass Tort
    
    
    Asbestos
    
    
    Mass Tort(In millions)Gross reserves
    
    $
    2,919
    
    
    $
    626
    
    
    $
    2,992
    
    
    $
    680Ceded reserves
    
    
    (1,411
    )
    
    
    (230
    )
    
    
    (1,438
    )
    
    
    (257
    )Net reserves
    
    $
    1,508
    
    
    $
    396
    
    
    $
    1,554
    
    
    $
    423
 Asbestos
      22




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##### Table of Contents



CNA FINANCIAL CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS, Continued
(UNAUDITED)
 Continental Casualty Co. v. Employers Ins. of Wausau et
al. Keasbey
 In re:
Burns & Roe Enterprises, Inc.
 23




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##### Table of Contents



CNA FINANCIAL CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS, Continued
(UNAUDITED)
 Continental Insurance Co., et al. v. Honeywell International Inc.
 Varner v. Ford Motor Co., Peplowski v. ACE American Ins. Co., Cross v. Garlock, Inc. E.g., Ball v. Goodyear Tire & Rubber Co. Bugg v. Am. Std., Inc., No. 84829 Maynard v. The Louis Berkman
Co. Peplowski
 Boson v. Union Carbide Corp.,
 24




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##### Table of Contents



CNA FINANCIAL CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS, Continued
(UNAUDITED)
  Adams v. Aetna, Inc., et al. Adams v. Ins. Co. of North America (INA) et al.
 Pennock, et al. v. Maryland Casualty,
et al.
  25




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##### Table of Contents



CNA FINANCIAL CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS, Continued
(UNAUDITED)
  Environmental Pollution and Mass Tort
  Net Prior Year Development
     2006 Net Prior Year Development
 Standard Lines
   26




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##### Table of Contents



CNA FINANCIAL CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS, Continued
(UNAUDITED)
    Specialty Lines
   Corporate and Other Non-Core
   2005 Net Prior Year Development
 Standard Lines
   27




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##### Table of Contents



CNA FINANCIAL CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS, Continued
(UNAUDITED)
 Specialty Lines
   Corporate and Other Non-Core
    Note H. Reinsurance
   Components of reinsurance receivables
    
    March 31, 2006
    
    
    December 31, 2005(In millions)Reinsurance receivables related to insurance reserves:Ceded claim and claim adjustment expense
    
    $
    10,352
    
    
    $
    10,605Ceded future policy benefits
    
    
    1,104
    
    
    
    1,193Ceded policyholders funds
    
    
    56
    
    
    
    56Billed reinsurance receivables
    
    
    651
    
    
    
    582Reinsurance receivables
    
    
    12,163
    
    
    
    12,436Allowance for uncollectible reinsurance
    
    
    (520
    )
    
    
    (519
    )Reinsurance receivables, net of allowance
for uncollectible reinsurance
    
    $
    11,643
    
    
    $
    11,917
 28




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##### Table of Contents



CNA FINANCIAL CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS, Continued
(UNAUDITED)
    Components of Earned Premiums
 Three months ended March 31
    
    Direct
    
    
    Assumed
    
    
    Ceded
    
    
    Net(In millions)2006Property and casualty
    
    $
    2,194
    
    
    $
    21
    
    
    $
    509
    
    
    $
    1,706Accident and health
    
    
    192
    
    
    
    16
    
    
    
    45
    
    
    
    163Life
    
    
    25
    
    
    
    
    
    
    
    25
    
    
    
    Total earned premiums
    
    $
    2,411
    
    
    $
    37
    
    
    $
    579
    
    
    $
    1,8692005Property and casualty
    
    $
    2,522
    
    
    $
    58
    
    
    $
    846
    
    
    $
    1,734Accident and health
    
    
    308
    
    
    
    14
    
    
    
    158
    
    
    
    164Life
    
    
    45
    
    
    
    
    
    
    
    44
    
    
    
    1Total earned premiums
    
    $
    2,875
    
    
    $
    72
    
    
    $
    1,048
    
    
    $
    1,899
     29




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##### Table of Contents



CNA FINANCIAL CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS, Continued
(UNAUDITED)
 Funds Withheld Reinsurance Arrangements
    Three months ended March 31
    
    Aggregate Cover
    
    
    CCC Cover
    
    
    All Other
    
    
    Total(In millions)2006Ceded earned premium
    
    $
    
    
    
    $
    
    
    
    $
    (2
    )
    
    $
    (2
    )Ceded claim and claim adjustment expense
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Ceding commissions
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Interest charges
    
    
    
    
    
    
    (17
    )
    
    
    (7
    )
    
    
    (24
    )Pretax expense
    
    $
    
    
    
    $
    (17
    )
    
    $
    (9
    )
    
    $
    (26
    )2005Ceded earned premium
    
    $
    (12
    )
    
    $
    
    
    
    $
    62
    
    
    $
    50Ceded claim and claim adjustment expense
    
    
    
    
    
    
    
    
    
    
    (69
    )
    
    
    (69
    )Ceding commissions
    
    
    
    
    
    
    
    
    
    
    (33
    )
    
    
    (33
    )Interest charges
    
    
    (24
    )
    
    
    (16
    )
    
    
    2
    
    
    
    (38
    )Pretax expense
    
    $
    (36
    )
    
    $
    (16
    )
    
    $
    (38
    )
    
    $
    (90
    )
  30




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##### Table of Contents



CNA FINANCIAL CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS, Continued
(UNAUDITED)
  Three months ended March 31
    
    2006
    
    
    2005(In millions)Standard Lines
    
    $
    (13
    )
    
    $
    (66
    )Specialty Lines
    
    
    (2
    )
    
    
    (7
    )Corporate and Other
    
    
    (11
    )
    
    
    (17
    )Pretax expense
    
    $
    (26
    )
    
    $
    (90
    )
 Corporate Aggregate Reinsurance Treaty
   Note I. Benefit Plans
 Pension and Postretirement Healthcare and Life Insurance Benefit Plans
    31




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##### Table of Contents



CNA FINANCIAL CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS, Continued
(UNAUDITED)
  Net Periodic Benefit Costs
 Three months ended March 31
    
    2006
    
    
    2005(In millions)Pension BenefitsService cost
    
    $
    8
    
    
    $
    8Interest cost on projected benefit obligation
    
    
    37
    
    
    
    36Expected return on plan assets
    
    
    (40
    )
    
    
    (38
    )Prior service cost amortization
    
    
    1
    
    
    
    1Actuarial loss
    
    
    10
    
    
    
    7Net periodic pension cost
    
    $
    16
    
    
    $
    14Postretirement benefitsService cost
    
    $
    1
    
    
    $
    Interest cost on projected benefit obligation
    
    
    3
    
    
    
    3Prior service cost amortization
    
    
    (7
    )
    
    
    (7
    )Actuarial loss
    
    
    1
    
    
    
    1Net periodic postretirement cost (benefit)
    
    $
    (2
    )
    
    $
    (3
    )
  Stock-Based Compensation
   Options and SARs Plan Activity
 WeightedAverage OptionNumber
    
    
    Price perof Awards
    
    
    AwardBalance at January 1, 2006
    
    
    1,628,600
    
    
    $
    28.71Awards granted
    
    
    327,000
    
    
    
    30.98Awards exercised
    
    
    (1,600
    )
    
    
    25.73Awards forfeited
    
    
    (15,500
    )
    
    
    28.11Balance at March 31, 2006
    
    
    1,938,500
    
    
    $
    29.09Awards exercisable at March 31, 2006
    
    
    1,035,000
    
    
    $
    29.95
  32




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##### Table of Contents



CNA FINANCIAL CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS, Continued
(UNAUDITED)
      Note J. Commitments, Contingencies and Guarantees
 Commitments and Contingencies
    Guarantees
  33




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##### Table of Contents



CNA FINANCIAL CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS, Continued
(UNAUDITED)
         34




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##### Table of Contents



CNA FINANCIAL CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS, Continued
(UNAUDITED)
 Note K. Comprehensive Income (Loss)
  Comprehensive Income (Loss)
 For the three months ended March 31
    
    2006
    
    
    2005(In millions)Net income
    
    $
    229
    
    
    $
    185Other comprehensive income (loss):Change in unrealized gains/losses on general account investments:Holding gains/losses arising during the period, net of tax
benefit of $132 and $131
    
    
    (244
    )
    
    
    (242
    )Net unrealized gains/losses at beginning of period included in
realized gains/losses during the period, net of tax benefit of
$3 and $31
    
    
    (7
    )
    
    
    (58
    )Net change in unrealized gains/losses on general account
investments, net of tax benefit of $135 and $162
    
    
    (251
    )
    
    
    (300
    )Net change in unrealized gains/losses on discontinued operations
and other, net of tax benefit (expense) of $2 and $(3)
    
    
    1
    
    
    
    (9
    )Foreign currency translation adjustment
    
    
    3
    
    
    
    (6
    )Net change in minimum pension liability, net of tax benefit of
$0 and $0
    
    
    (1
    )
    
    
    Allocation to participating policyholders and minority interests
    
    
    9
    
    
    
    10Other comprehensive loss, net of tax benefit of $137 and $159
    
    
    (239
    )
    
    
    (305
    )Total comprehensive loss
    
    $
    (10
    )
    
    $
    (120
    )
 Note L. Business Segments
     35




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##### Table of Contents



CNA FINANCIAL CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS, Continued
(UNAUDITED)
    36




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##### Table of Contents



CNA FINANCIAL CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS, Continued
(UNAUDITED)
 CorporateStandard
    
    
    Specialty
    
    
    Life and Group
    
    
    and OtherFor the three months ended
    
    Lines
    
    
    Lines
    
    
    Non-Core
    
    
    Non-Core
    
    
    Eliminations
    
    
    TotalMarch 31, 2006(In millions)Net earned premiums
    
    $
    1,086
    
    
    $
    628
    
    
    $
    163
    
    
    $
    (7
    )
    
    $
    (1
    )
    
    $
    1,869Net investment income
    
    
    228
    
    
    
    87
    
    
    
    187
    
    
    
    68
    
    
    
    
    
    
    
    570Other revenues
    
    
    20
    
    
    
    33
    
    
    
    12
    
    
    
    1
    
    
    
    (13
    )
    
    
    53Total operating revenues
    
    
    1,334
    
    
    
    748
    
    
    
    362
    
    
    
    62
    
    
    
    (14
    )
    
    
    2,492Claims, benefits and expenses:Net incurred claims and benefits
    
    
    780
    
    
    
    372
    
    
    
    306
    
    
    
    28
    
    
    
    1
    
    
    
    1,487Policyholders dividends
    
    
    4
    
    
    
    1
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    5Amortization of deferred acquisition costs
    
    
    238
    
    
    
    127
    
    
    
    4
    
    
    
    1
    
    
    
    
    
    
    
    370Other insurance related expenses
    
    
    101
    
    
    
    37
    
    
    
    53
    
    
    
    17
    
    
    
    (2
    )
    
    
    206Other expenses
    
    
    19
    
    
    
    32
    
    
    
    13
    
    
    
    30
    
    
    
    (13
    )
    
    
    81Total claims, benefits and expenses
    
    
    1,142
    
    
    
    569
    
    
    
    376
    
    
    
    76
    
    
    
    (14
    )
    
    
    2,149Operating income (loss) from continuing operations
before income tax and minority interest
    
    
    192
    
    
    
    179
    
    
    
    (14
    )
    
    
    (14
    )
    
    
    
    
    
    
    343Income tax (expense) benefit on operating income (loss)
    
    
    (56
    )
    
    
    (59
    )
    
    
    11
    
    
    
    4
    
    
    
    
    
    
    
    (100
    )Minority interest
    
    
    (3
    )
    
    
    (6
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (9
    )Net operating income (loss) from continuing operations
    
    
    133
    
    
    
    114
    
    
    
    (3
    )
    
    
    (10
    )
    
    
    
    
    
    
    234Realized investment gains (losses), net of
participating policyholders and minority interests
    
    
    13
    
    
    
    3
    
    
    
    (12
    )
    
    
    5
    
    
    
    
    
    
    
    9Income tax (expense) benefit on realized investment
gains (losses)
    
    
    (4
    )
    
    
    (1
    )
    
    
    5
    
    
    
    (8
    )
    
    
    
    
    
    
    (8
    )Income (loss) from continuing operations
    
    $
    142
    
    
    $
    116
    
    
    $
    (10
    )
    
    $
    (13
    )
    
    $
    
    
    
    $
    235As of March 31, 2006(In millions)Reinsurance receivables
    
    $
    3,953
    
    
    $
    1,496
    
    
    $
    2,568
    
    
    $
    4,146
    
    
    $
    
    
    
    $
    12,163Insurance receivables
    
    $
    1,845
    
    
    $
    433
    
    
    $
    35
    
    
    $
    (9
    )
    
    $
    
    
    
    $
    2,304Insurance reserves:Claim and claim adjustment expense
    
    $
    14,905
    
    
    $
    5,316
    
    
    $
    3,231
    
    
    $
    7,089
    
    
    $
    
    
    
    $
    30,541Unearned premiums
    
    
    1,989
    
    
    
    1,662
    
    
    
    173
    
    
    
    26
    
    
    
    (3
    )
    
    
    3,847Future policy benefits
    
    
    
    
    
    
    
    
    
    
    6,339
    
    
    
    
    
    
    
    
    
    
    
    6,339Policyholders funds
    
    
    32
    
    
    
    
    
    
    
    1,153
    
    
    
    
    
    
    
    
    
    
    
    1,185Deferred acquisition costs
    
    $
    413
    
    
    $
    275
    
    
    $
    510
    
    
    $
    
    
    
    $
    
    
    
    $
    1,198
 37




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##### Table of Contents



CNA FINANCIAL CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS, Continued
(UNAUDITED)
 CorporateStandard
    
    
    Specialty
    
    
    Life and Group
    
    
    and OtherFor the three months ended
    
    Lines
    
    
    Lines
    
    
    Non-Core
    
    
    Non-Core
    
    
    Eliminations
    
    
    TotalMarch 31, 2005(In millions)Net earned premiums
    
    $
    1,169
    
    
    $
    573
    
    
    $
    166
    
    
    $
    (6
    )
    
    $
    (3
    )
    
    $
    1,899Net investment income
    
    
    183
    
    
    
    56
    
    
    
    106
    
    
    
    61
    
    
    
    
    
    
    
    406Other revenues
    
    
    21
    
    
    
    31
    
    
    
    33
    
    
    
    12
    
    
    
    (19
    )
    
    
    78Total operating revenues
    
    
    1,373
    
    
    
    660
    
    
    
    305
    
    
    
    67
    
    
    
    (22
    )
    
    
    2,383Claims, benefits and expenses:Net incurred claims and benefits
    
    
    830
    
    
    
    357
    
    
    
    234
    
    
    
    10
    
    
    
    (2
    )
    
    
    1,429Policyholders dividends
    
    
    4
    
    
    
    1
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    5Amortization of deferred acquisition costs
    
    
    239
    
    
    
    130
    
    
    
    7
    
    
    
    2
    
    
    
    
    
    
    
    378Other insurance related expenses
    
    
    139
    
    
    
    24
    
    
    
    54
    
    
    
    10
    
    
    
    (1
    )
    
    
    226Other expenses
    
    
    26
    
    
    
    28
    
    
    
    14
    
    
    
    36
    
    
    
    (19
    )
    
    
    85Total claims, benefits and expenses
    
    
    1,238
    
    
    
    540
    
    
    
    309
    
    
    
    58
    
    
    
    (22
    )
    
    
    2,123Operating income (loss) from continuing operations
before income tax and minority interest
    
    
    135
    
    
    
    120
    
    
    
    (4
    )
    
    
    9
    
    
    
    
    
    
    
    260Income tax (expense) benefit on operating income (loss)
    
    
    (32
    )
    
    
    (36
    )
    
    
    5
    
    
    
    2
    
    
    
    
    
    
    
    (61
    )Minority interest
    
    
    (2
    )
    
    
    (5
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (7
    )Net operating income from continuing operations
    
    
    101
    
    
    
    79
    
    
    
    1
    
    
    
    11
    
    
    
    
    
    
    
    192Realized investment gains (losses), net of
participating policyholders and minority interests
    
    
    (5
    )
    
    
    1
    
    
    
    (5
    )
    
    
    (10
    )
    
    
    
    
    
    
    (19
    )Income tax (expense) benefit on realized investment
gains (losses)
    
    
    (3
    )
    
    
    2
    
    
    
    2
    
    
    
    4
    
    
    
    
    
    
    
    5Income (loss) from continuing operations
    
    $
    93
    
    
    $
    82
    
    
    $
    (2
    )
    
    $
    5
    
    
    $
    
    
    
    $
    178As of December 31, 2005(In millions)Reinsurance receivables
    
    $
    3,968
    
    
    $
    1,493
    
    
    $
    2,707
    
    
    $
    4,268
    
    
    $
    
    
    
    $
    12,436Insurance receivables
    
    $
    1,826
    
    
    $
    375
    
    
    $
    105
    
    
    $
    5
    
    
    $
    
    
    
    $
    2,311Insurance reserves:Claim and claim adjustment expense
    
    $
    15,084
    
    
    $
    5,205
    
    
    $
    3,277
    
    
    $
    7,372
    
    
    $
    
    
    
    $
    30,938Unearned premiums
    
    
    1,952
    
    
    
    1,577
    
    
    
    168
    
    
    
    9
    
    
    
    
    
    
    
    3,706Future policy benefits
    
    
    
    
    
    
    
    
    
    
    6,297
    
    
    
    
    
    
    
    
    
    
    
    6,297Policyholders funds
    
    
    30
    
    
    
    
    
    
    
    1,465
    
    
    
    
    
    
    
    
    
    
    
    1,495Deferred acquisition costs
    
    $
    408
    
    
    $
    274
    
    
    $
    515
    
    
    $
    
    
    
    $
    
    
    
    $
    1,197
 38




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##### Table of Contents



CNA FINANCIAL CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS, Continued
(UNAUDITED)
  Revenue by Line of Business
 For the three months ended March 31
    
    2006
    
    
    2005(In millions)Standard LinesProperty
    
    $
    163
    
    
    $
    153Casualty
    
    
    952
    
    
    
    1,012CNA Global
    
    
    232
    
    
    
    203Standard Lines revenue
    
    
    1,347
    
    
    
    1,368Specialty LinesProfessional Liability Insurance (CNA Pro)
    
    
    581
    
    
    
    495Surety
    
    
    102
    
    
    
    94Warranty
    
    
    68
    
    
    
    72Specialty Lines revenue
    
    
    751
    
    
    
    661Life and Group Non-CoreLife & Annuity
    
    
    108
    
    
    
    38Health
    
    
    224
    
    
    
    229Other
    
    
    18
    
    
    
    33Life and Group Non-Core revenue
    
    
    350
    
    
    
    300Corporate and Other Non-CoreCNA Re
    
    
    17
    
    
    
    16Other
    
    
    50
    
    
    
    41Corporate and Other Non-Core revenue
    
    
    67
    
    
    
    57Eliminations
    
    
    (14
    )
    
    
    (22
    )Total revenue
    
    $
    2,501
    
    
    $
    2,364
 Note M. Significant Transactions
 Managed Care Holdings Corporation
  Specialty Medical Business
  Note N. Related Party Transactions
  39




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##### Table of Contents



CNA FINANCIAL CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS, Continued
(UNAUDITED)
   CNA Surety Corporation
 Loans to National Contractor
       40




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##### Table of Contents



CNA FINANCIAL CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS, Continued
(UNAUDITED)
   Note O. Statutory Accounting Practices
       Preliminary Statutory Information
 Statutory Net IncomeStatutory Capital and Surplus
    
    
    Three months ended March 31,March 31, 2006
    
    
    December 31, 2005
    
    
    2006
    
    
    2005(In millions)Property and casualty companies (a)
    
    $
    7,193
    
    
    $
    6,940
    
    
    $
    166
    
    
    $
    580Life and group insurance company
    
    
    640
    
    
    
    627
    
    
    
    10
    
    
    
    22
 Surplus includes the property and casualty companies equity ownership of the life and group
companys capital and surplus.
 Note P. Discontinued Operations
  41




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##### Table of Contents



CNA FINANCIAL CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS, Continued
(UNAUDITED)
   Discontinued Operations
 For the three months ended March 31
    
    2006
    
    
    2005(In millions)Revenues:Net investment income
    
    $
    4
    
    
    $
    4Other
    
    
    
    
    
    
    (6
    )Total revenues
    
    
    4
    
    
    
    (2
    )Insurance related (expenses) benefits
    
    
    (10
    )
    
    
    9Income (loss) before income taxes
    
    
    (6
    )
    
    
    7Income tax (expense) benefit
    
    
    
    
    
    
    Income (loss) from discontinued operations, net of tax
    
    $
    (6
    )
    
    $
    7
  Discontinued Operations
 (In millions)
    
    March 31, 2006
    
    
    December 31, 2005Assets:Investments
    
    $
    360
    
    
    $
    358Reinsurance receivables
    
    
    59
    
    
    
    78Cash
    
    
    5
    
    
    
    29Other assets
    
    
    10
    
    
    
    5Total assets
    
    
    434
    
    
    
    470Liabilities:Insurance reserves
    
    
    (329
    )
    
    
    (338
    )Other liabilities
    
    
    (12
    )
    
    
    (19
    )Total liabilities
    
    
    (341
    )
    
    
    (357
    )Net assets of discontinued operations
    
    $
    93
    
    
    $
    113
  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
 Note Q. Restatements
  42




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##### Table of Contents



CNA FINANCIAL CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS, Continued
(UNAUDITED)
 Discontinued Operations
   (In millions, except per share data)
    
    As Previously
    
    
    AsReported
    
    
    RestatedFor the three months ended March 31, 2005Income from discontinued operations, net of tax
expense of $0
    
    $
    
    
    
    $
    7Net income
    
    
    178
    
    
    
    185Earnings per share:Income from discontinued operations, net of tax
    
    $
    
    
    
    $
    0.03Basic and diluted earnings per share available
to common stockholders
    
    
    0.63
    
    
    
    0.66
 Condensed Consolidated Statement of Cash Flows
  
    
    Net purchases and sales of trading securities and changes
in the net receivable/payable from unsettled investment
purchases and sales related to trading securities, previously
classified within investing activities, have been reclassified
to cash flows from operating activities.
    
    Cash flows from equity method investees were reclassified
to distinguish between return on investments, which are
reflected within operating cash flows, and return of
investments, which are reflected within investing cash flows.
Previously, all amounts were reflected within investing cash
flows.
    
    Deposits and withdrawals related to investment contract
products issued by the Company have been reflected within
financing cash flows. Previously, amounts related to certain
investment contracts were reflected within operating cash
flows.
    
    The impact of cumulative translation adjustment,
previously reflected within investing activities, is now
classified within operating activities.
 43




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##### Table of Contents



CNA FINANCIAL CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS, Continued
(UNAUDITED)
  For the three months ended March 31
    
    2005(In millions)Cash flows provided by operating activities-continuing operationsAs previously reported
    
    $
    124Impact of restatements
    
    
    46As restated
    
    $
    170Cash flows used by investing activities-continuing operationsAs previously reported
    
    $
    (115
    )Impact of restatements
    
    
    As restated
    
    $
    (115
    )Cash flows used by financing activities-continuing operationsAs previously reported
    
    $
    (11
    )Impact of restatements
    
    
    (45
    )As restated
    
    $
    (56
    )
   44




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##### Table of Contents



CNA FINANCIAL CORPORATION  ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
 Overview
     45




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##### Table of Contents



CNA FINANCIAL CORPORATION  MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS, Continued
 CONSOLIDATED OPERATIONS
 Results of Operations
  For the three months ended March 31
    
    2006
    
    
    2005(In millions, except per share data)RevenuesNet earned premiums
    
    $
    1,869
    
    
    $
    1,899Net investment income
    
    
    570
    
    
    
    406Other revenues
    
    
    53
    
    
    
    78Total operating revenues
    
    
    2,492
    
    
    
    2,383Claims, Benefits and ExpensesNet incurred claims and benefits
    
    
    1,487
    
    
    
    1,429Policyholders dividends
    
    
    5
    
    
    
    5Amortization of deferred acquisition costs
    
    
    370
    
    
    
    378Other insurance related expenses
    
    
    206
    
    
    
    226Other expenses
    
    
    81
    
    
    
    85Total claims, benefits and expenses
    
    
    2,149
    
    
    
    2,123Operating income from continuing operations before
income tax and minority interest
    
    
    343
    
    
    
    260Income tax expense on operating income
    
    
    (100
    )
    
    
    (61
    )Minority interest
    
    
    (9
    )
    
    
    (7
    )Net operating income from continuing operations
    
    
    234
    
    
    
    192Realized investment gains (losses), net of
participating policyholders and minority interests
    
    
    9
    
    
    
    (19
    )Income tax (expense) benefit on realized investment
gains (losses)
    
    
    (8
    )
    
    
    5Income from continuing operations
    
    
    235
    
    
    
    178Income (loss) from discontinued operations, net of
tax of $0 and $0
    
    
    (6
    )
    
    
    7Net income
    
    $
    229
    
    
    $
    185Basic and Diluted Earnings Per ShareIncome from continuing operations
    
    $
    0.84
    
    
    $
    0.63Income (loss) from discontinued operations
    
    
    (0.02
    )
    
    
    0.03Basic and diluted earnings per share available to
common stockholders
    
    $
    0.82
    
    
    $
    0.66Weighted average outstanding common stock and common
stock equivalents
    
    
    256.0
    
    
    
    256.0
   46




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##### Table of Contents



CNA FINANCIAL CORPORATION  MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS, Continued
      Critical Accounting Estimates
    
    
    Insurance Reserves
    
    Reinsurance
    
    Valuation of Investments and Impairment of Securities
    
    Long Term Care Products
    
    Pension and Postretirement Benefit Obligations
    
    Legal Proceedings
  Insurance Reserves
  47




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##### Table of Contents



CNA FINANCIAL CORPORATION  MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS, Continued
      
    
    increases in the number and size of claims relating to injuries from medical products, and exposure for alleged
bodily injury and property damage due to lead pigment;
    
    the effects of accounting and financial reporting scandals and other major corporate governance failures, which
have resulted in an increase in the number and size of claims, including director and officer and errors and omissions
insurance claims;
    
    class action litigation relating to claims handling and other practices;
    
    construction defect claims, including claims for a broad range of additional insured endorsements on policies; and
    
    increases in the number of claims alleging abuse by members of the clergy, including passage of legislation to
reopen or extend various statutes of limitations.
   48




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##### Table of Contents



CNA FINANCIAL CORPORATION  MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS, Continued
 Terrorism Insurance
      Restructuring
  SEGMENT RESULTS
  49




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##### Table of Contents



CNA FINANCIAL CORPORATION  MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS, Continued
 STANDARD LINES
  Results of Operations
 For the three months ended March 31
    
    2006
    
    
    2005(In millions)Net written premiums
    
    $
    1,110
    
    
    $
    1,171Net earned premiums
    
    
    1,086
    
    
    
    1,169Net investment income
    
    
    228
    
    
    
    183Net operating income
    
    
    133
    
    
    
    101Net realized investment gains (losses)
    
    
    9
    
    
    
    (8
    )Net income
    
    
    142
    
    
    
    93RatiosLoss and loss adjustment expense
    
    
    71.8
    %
    
    
    71.0
    %Expense
    
    
    31.2
    
    
    
    32.4Dividend
    
    
    0.4
    
    
    
    0.3Combined
    
    
    103.4
    %
    
    
    103.7
    %
         50




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##### Table of Contents



CNA FINANCIAL CORPORATION  MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS, Continued
   Gross and Net Carried Claim and Claim Adjustment Expense Reserves
 March 31, 2006
    
    
    December 31, 2005(In millions)Gross Case Reserves
    
    $
    7,216
    
    
    $
    7,033Gross IBNR Reserves
    
    
    7,689
    
    
    
    8,051Total Gross Carried Claim and Claim
Adjustment Expense Reserves
    
    $
    14,905
    
    
    $
    15,084Net Case Reserves
    
    $
    5,028
    
    
    $
    5,165Net IBNR Reserves
    
    
    6,107
    
    
    
    6,081Total Net Carried Claim and Claim
Adjustment Expense Reserves
    
    $
    11,135
    
    
    $
    11,246
 SPECIALTY LINES
  Results of Operations
 For the three months ended March 31
    
    2006
    
    
    2005(In millions)Net written premiums
    
    $
    648
    
    
    $
    594Net earned premiums
    
    
    628
    
    
    
    573Net investment income
    
    
    87
    
    
    
    56Net operating income
    
    
    114
    
    
    
    79Net realized investment gains
    
    
    2
    
    
    
    3Net income
    
    
    116
    
    
    
    82RatiosLoss and loss adjustment expense
    
    
    59.3
    %
    
    
    62.3
    %Expense
    
    
    26.1
    
    
    
    26.9Dividend
    
    
    0.2
    
    
    
    0.2Combined
    
    
    85.6
    %
    
    
    89.4
    %
    51




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##### Table of Contents



CNA FINANCIAL CORPORATION  MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS, Continued
     Gross and Net Carried Claim and Claim Adjustment Expense Reserves
 March 31, 2006
    
    
    December 31, 2005(In millions)Gross Case Reserves
    
    $
    1,834
    
    
    $
    1,907Gross IBNR Reserves
    
    
    3,482
    
    
    
    3,298Total Gross Carried Claim and Claim
Adjustment Expense Reserves
    
    $
    5,316
    
    
    $
    5,205Net Case Reserves
    
    $
    1,358
    
    
    $
    1,442Net IBNR Reserves
    
    
    2,523
    
    
    
    2,352Total Net Carried Claim and Claim
Adjustment Expense Reserves
    
    $
    3,881
    
    
    $
    3,794
 LIFE AND GROUP NON-CORE
  Results of Operations
 For the three months ended March 31
    
    2006
    
    
    2005(In millions)Net earned premiums
    
    $
    163
    
    
    $
    166Net investment income
    
    
    187
    
    
    
    106Net operating income (loss)
    
    
    (3
    )
    
    
    1Net realized investment losses
    
    
    (7
    )
    
    
    (3
    )Net loss
    
    
    (10
    )
    
    
    (2
    )
   52




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##### Table of Contents



CNA FINANCIAL CORPORATION  MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS, Continued
 CORPORATE AND OTHER NON-CORE
  Results of Operations
 For the three months ended March 31
    
    2006
    
    
    2005(In millions)Net investment income
    
    $
    68
    
    
    $
    61Revenues
    
    
    53
    
    
    
    35Net operating income (loss)
    
    
    (10
    )
    
    
    11Net realized investment losses
    
    
    (3
    )
    
    
    (6
    )Net income (loss)
    
    
    (13
    )
    
    
    5
     Gross and Net Carried Claim and Claim Adjustment Expense Reserves
 March 31, 2006
    
    
    December 31, 2005(In millions)Gross Case Reserves
    
    $
    3,085
    
    
    $
    3,297Gross IBNR Reserves
    
    
    4,004
    
    
    
    4,075Total Gross Carried Claim and Claim
Adjustment Expense Reserves
    
    $
    7,089
    
    
    $
    7,372Net Case Reserves
    
    $
    1,385
    
    
    $
    1,554Net IBNR Reserves
    
    
    1,942
    
    
    
    1,902Total Net Carried Claim and Claim
Adjustment Expense Reserves
    
    $
    3,327
    
    
    $
    3,456
 APMT Reserves
   53




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##### Table of Contents



CNA FINANCIAL CORPORATION  MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS, Continued
      APMT Reserves
 March 31, 2006
    
    
    December 31, 2005Environmental
    
    
    
    
    
    
    EnvironmentalPollution and
    
    
    
    
    
    
    Pollution andAsbestos
    
    
    Mass Tort
    
    
    Asbestos
    
    
    Mass Tort(In millions)Gross reserves
    
    $
    2,919
    
    
    $
    626
    
    
    $
    2,992
    
    
    $
    680Ceded reserves
    
    
    (1,411
    )
    
    
    (230
    )
    
    
    (1,438
    )
    
    
    (257
    )Net reserves
    
    $
    1,508
    
    
    $
    396
    
    
    $
    1,554
    
    
    $
    423
 Asbestos
  54




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##### Table of Contents



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




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##### Table of Contents



CNA FINANCIAL CORPORATION  MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS, Continued
  Pending Asbestos Accounts and Associated Reserves
 March 31, 2006
 Net Paid Losses
    
    
    Net Asbestos
    
    
    Percent ofNumber of
    
    
    in 2006
    
    
    Reserves
    
    
    AsbestosPolicyholders
    
    
    (In millions)
    
    
    (In millions)
    
    
    Net ReservesPolicyholders with settlement agreementsStructured Settlements
    
    
    13
    
    
    $
    10
    
    
    $
    158
    
    
    
    10
    %Wellington
    
    
    3
    
    
    
    
    
    
    
    15
    
    
    
    1Coverage in place
    
    
    36
    
    
    
    6
    
    
    
    64
    
    
    
    4Fibreboard
    
    
    1
    
    
    
    
    
    
    
    54
    
    
    
    4Total with settlement agreements
    
    
    53
    
    
    
    16
    
    
    
    291
    
    
    
    19Other policyholders with active accountsLarge asbestos accounts
    
    
    199
    
    
    
    23
    
    
    
    232
    
    
    
    16Small asbestos accounts
    
    
    1,062
    
    
    
    7
    
    
    
    127
    
    
    
    8Total other policyholders
    
    
    1,261
    
    
    
    30
    
    
    
    359
    
    
    
    24Assumed reinsurance and pools
    
    
    
    
    
    
    1
    
    
    
    146
    
    
    
    10Unassigned IBNR
    
    
    
    
    
    
    
    
    
    
    712
    
    
    
    47Total
    
    
    1,314
    
    
    $
    47
    
    
    $
    1,508
    
    
    
    100
    %
 December 31, 2005
 Net Paid Losses
    
    
    Net Asbestos
    
    
    Percent ofNumber of
    
    
    in 2005
    
    
    Reserves
    
    
    AsbestosPolicyholders
    
    
    (In millions)
    
    
    (In millions)
    
    
    Net ReservesPolicyholders with settlement agreementsStructured Settlements
    
    
    13
    
    
    $
    30
    
    
    $
    167
    
    
    
    11
    %Wellington
    
    
    4
    
    
    
    2
    
    
    
    15
    
    
    
    1Coverage in place
    
    
    34
    
    
    
    13
    
    
    
    58
    
    
    
    4Fibreboard
    
    
    1
    
    
    
    
    
    
    
    54
    
    
    
    3Total with settlement agreements
    
    
    52
    
    
    
    45
    
    
    
    294
    
    
    
    19Other policyholders with active accountsLarge asbestos accounts
    
    
    199
    
    
    
    68
    
    
    
    273
    
    
    
    17Small asbestos accounts
    
    
    1,073
    
    
    
    23
    
    
    
    135
    
    
    
    9Total other policyholders
    
    
    1,272
    
    
    
    91
    
    
    
    408
    
    
    
    26Assumed reinsurance and pools
    
    
    
    
    
    
    6
    
    
    
    143
    
    
    
    9Unassigned IBNR
    
    
    
    
    
    
    
    
    
    
    709
    
    
    
    46Total
    
    
    1,324
    
    
    $
    142
    
    
    $
    1,554
    
    
    
    100
    %
  56




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##### Table of Contents



CNA FINANCIAL CORPORATION  MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS, Continued
     Environmental Pollution and Mass Tort
    57




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##### Table of Contents



CNA FINANCIAL CORPORATION  MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS, Continued
        Pending Environmental Pollution Accounts and Associated Reserves
 March 31, 2006
 Percent ofNet Paid Losses
    
    
    Net Environmental
    
    
    EnvironmentalNumber of
    
    
    in 2006
    
    
    Pollution Reserves
    
    
    Pollution NetPolicyholders
    
    
    (In millions)
    
    
    (In millions)
    
    
    ReservePolicyholders with Settlement AgreementsStructured settlements
    
    
    7
    
    
    $
    5
    
    
    $
    13
    
    
    
    4
    %Coverage in place
    
    
    15
    
    
    
    2
    
    
    
    21
    
    
    
    7Total with Settlement Agreements
    
    
    22
    
    
    
    7
    
    
    
    34
    
    
    
    11Other Policyholders with Active AccountsLarge pollution accounts
    
    
    114
    
    
    
    9
    
    
    
    59
    
    
    
    19Small pollution accounts
    
    
    358
    
    
    
    4
    
    
    
    47
    
    
    
    15Total Other Policyholders
    
    
    472
    
    
    
    13
    
    
    
    106
    
    
    
    34Assumed Reinsurance & Pools
    
    
    
    
    
    
    
    
    
    
    33
    
    
    
    10Unassigned IBNR
    
    
    
    
    
    
    
    
    
    
    143
    
    
    
    45Total
    
    
    494
    
    
    $
    20
    
    
    $
    316
    
    
    
    100
    %
 58




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##### Table of Contents



CNA FINANCIAL CORPORATION  MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS, Continued
 Pending Environmental Pollution Accounts and Associated Reserves
 December 31, 2005
 Percent ofNet Paid Losses
    
    
    Net Environmental
    
    
    EnvironmentalNumber of
    
    
    in 2005
    
    
    Pollution Reserves
    
    
    Pollution NetPolicyholders
    
    
    (In millions)
    
    
    (In millions)
    
    
    ReservePolicyholders with Settlement AgreementsStructured settlements
    
    
    6
    
    
    $
    10
    
    
    $
    17
    
    
    
    5
    %Coverage in place
    
    
    16
    
    
    
    10
    
    
    
    23
    
    
    
    7Total with Settlement Agreements
    
    
    22
    
    
    
    20
    
    
    
    40
    
    
    
    12Other Policyholders with Active AccountsLarge pollution accounts
    
    
    120
    
    
    
    18
    
    
    
    63
    
    
    
    19Small pollution accounts
    
    
    362
    
    
    
    15
    
    
    
    50
    
    
    
    15Total Other Policyholders
    
    
    482
    
    
    
    33
    
    
    
    113
    
    
    
    34Assumed Reinsurance & Pools
    
    
    
    
    
    
    3
    
    
    
    33
    
    
    
    10Unassigned IBNR
    
    
    
    
    
    
    
    
    
    
    150
    
    
    
    44Total
    
    
    504
    
    
    $
    56
    
    
    $
    336
    
    
    
    100
    %
 INVESTMENTS
 Net Investment Income
  Net Investment Income
 Three months ended March 31
    
    2006
    
    
    2005(In millions)Fixed maturity securities
    
    $
    415
    
    
    $
    364Short term investments
    
    
    65
    
    
    
    32Limited partnerships
    
    
    74
    
    
    
    79Equity securities
    
    
    6
    
    
    
    4Income (loss) from trading portfolio (a)
    
    
    42
    
    
    
    (30
    )Interest on funds withheld and other deposits
    
    
    (25
    )
    
    
    (39
    )Other
    
    
    3
    
    
    
    7Gross investment income
    
    
    580
    
    
    
    417Investment expense
    
    
    (10
    )
    
    
    (11
    )Net investment income
    
    $
    570
    
    
    $
    406
    59




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##### Table of Contents



CNA FINANCIAL CORPORATION  MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS, Continued
 Net Realized Investment Gains (Losses)
  Net Realized Investment Gains (Losses)
 Three months ended March 31
    
    2006
    
    
    2005(In millions)Realized investment gains (losses):Fixed maturity securities:U.S. Government bonds
    
    $
    4
    
    
    $
    (26
    )Corporate and other taxable bonds
    
    
    (20
    )
    
    
    (21
    )Tax-exempt bonds
    
    
    25
    
    
    
    7Asset-backed bonds
    
    
    (9
    )
    
    
    7Redeemable preferred stock
    
    
    
    
    
    
    10Total fixed maturity securities
    
    
    
    
    
    
    (23
    )Equity securities
    
    
    3
    
    
    
    14Derivative securities
    
    
    7
    
    
    
    4Short term investments
    
    
    (2
    )
    
    
    Other, including disposition of businesses, net of
participating policyholders interest
    
    
    
    
    
    
    (17
    )Realized investment gains (losses) before allocation to
participating policyholders and minority interests
    
    
    8
    
    
    
    (22
    )Allocated to participating policyholders and minority interest
    
    
    1
    
    
    
    3Income tax (expense) benefit
    
    
    (8
    )
    
    
    5Net realized investment gains (losses), net of participating
policyholders and minority interests
    
    $
    1
    
    
    $
    (14
    )
    60




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##### Table of Contents



CNA FINANCIAL CORPORATION  MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS, Continued
 â
    Realized Gains and Losses
 Three months ended March 31
    
    2006
    
    
    2005(In millions)Net realized gains (losses) on fixed maturity securities
and equity securities:Fixed maturity securities:Gross realized gains
    
    $
    77
    
    
    $
    176Gross realized losses
    
    
    (77
    )
    
    
    (199
    )Net realized gains (losses) on fixed maturity securities
    
    
    
    
    
    
    (23
    )Equity securities:Gross realized gains
    
    
    4
    
    
    
    20Gross realized losses
    
    
    (1
    )
    
    
    (6
    )Net realized gains on equity securities
    
    
    3
    
    
    
    14Net realized gains (losses) on fixed maturity and equity
securities
    
    $
    3
    
    
    $
    (9
    )
 61




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##### Table of Contents



CNA FINANCIAL CORPORATION  MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS, Continued
  Largest Realized Losses from Securities Sold at a Loss
 Three Months Ended March 31, 2006Fair
    
    
    
    
    
    
    Months inValue at
    
    
    
    
    
    
    UnrealizedDate of
    
    
    Loss
    
    
    Loss PriorIssuer Description and Discussion
    
    Sale
    
    
    On Sale
    
    
    To Sale (a)(In millions)State of New York revenue bonds. Position was sold to reduce municipal holdings.
    
    $
    187
    
    
    $
    4
    
    
    
    0-12Company manufactures and markets newsprint and uncoated papers around the globe.
Position was sold to reduce exposure to the industry.
    
    
    27
    
    
    
    3
    
    
    
    0-12+Total
    
    $
    214
    
    
    $
    7
  62




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##### Table of Contents



CNA FINANCIAL CORPORATION  MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS, Continued
 Valuation and Impairment of Investments
  Carrying Value of Investments
 March 31,
    
    
    
    
    
    
    December 31,2006
    
    
    %
    
    
    2005
    
    
    %(In millions)General account investments:Fixed maturity securities available-for-sale:U.S. Treasury securities and obligations of government agencies
    
    $
    1,500
    
    
    
    4
    %
    
    $
    1,469
    
    
    
    4
    %Asset-backed securities
    
    
    13,571
    
    
    
    33
    
    
    
    12,859
    
    
    
    32States, municipalities and political subdivisions  tax-exempt
    
    
    5,023
    
    
    
    12
    
    
    
    9,209
    
    
    
    23Corporate securities
    
    
    6,254
    
    
    
    15
    
    
    
    6,165
    
    
    
    15Other debt securities
    
    
    3,110
    
    
    
    8
    
    
    
    3,044
    
    
    
    8Redeemable preferred stock
    
    
    310
    
    
    
    1
    
    
    
    216
    
    
    
    1Options embedded in convertible debt securities
    
    
    1
    
    
    
    
    
    
    
    1
    
    
    
    Total fixed maturity securities available-for-sale
    
    
    29,769
    
    
    
    73
    
    
    
    32,963
    
    
    
    83Fixed maturity securities trading:U.S. Treasury securities and obligations of government agencies
    
    
    2
    
    
    
    
    
    
    
    4
    
    
    
    Asset-backed securities
    
    
    51
    
    
    
    
    
    
    
    87
    
    
    
    Corporate securities
    
    
    130
    
    
    
    
    
    
    
    154
    
    
    
    1Other debt securities
    
    
    19
    
    
    
    
    
    
    
    26
    
    
    
    Redeemable preferred stock
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Total fixed maturity securities trading
    
    
    202
    
    
    
    
    
    
    
    271
    
    
    
    1Equity securities available-for-sale:Common stock
    
    
    268
    
    
    
    1
    
    
    
    289
    
    
    
    1Preferred stock
    
    
    394
    
    
    
    1
    
    
    
    343
    
    
    
    1Total equity securities available-for-sale
    
    
    662
    
    
    
    2
    
    
    
    632
    
    
    
    2Total equity securities trading
    
    
    58
    
    
    
    
    
    
    
    49
    
    
    
    Short term investments available-for-sale
    
    
    8,050
    
    
    
    20
    
    
    
    3,870
    
    
    
    9Short term investments trading
    
    
    227
    
    
    
    1
    
    
    
    368
    
    
    
    1Limited partnerships
    
    
    1,653
    
    
    
    4
    
    
    
    1,509
    
    
    
    4Other investments
    
    
    37
    
    
    
    
    
    
    
    33
    
    
    
    Total general account investments
    
    $
    40,658
    
    
    
    100
    %
    
    $
    39,695
    
    
    
    100
    %
    63




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##### Table of Contents



CNA FINANCIAL CORPORATION  MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS, Continued
   Contractual Maturity
 Percent of
    
    
    Percent ofMarket
    
    
    UnrealizedValue
    
    
    LossDue in one year or less
    
    
    1
    %
    
    
    
    %Due after one year through five years
    
    
    7
    
    
    
    4Due after five years through ten years
    
    
    7
    
    
    
    8Due after ten years
    
    
    23
    
    
    
    26Asset-backed securities
    
    
    62
    
    
    
    62Total
    
    
    100
    %
    
    
    100
    %
  Unrealized Loss Aging for Non-investment Grade Securities
 Fair Value as a Percentage of Book Value
    
    
    GrossEstimated
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    UnrealizedMarch 31, 2006
    
    Fair Value
    
    
    90-99%
    
    
    80-89%
    
    
    70-79%
    
    
    <70%
    
    
    Loss(In millions)Fixed maturity securities:Non-investment grade:0-6 months
    
    $
    479
    
    
    $
    8
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    87-12 months
    
    
    229
    
    
    
    8
    
    
    
    2
    
    
    
    
    
    
    
    
    
    
    
    1013-24 months
    
    
    44
    
    
    
    2
    
    
    
    1
    
    
    
    
    
    
    
    
    
    
    
    3Greater than 24 months
    
    
    15
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Total non-investment grade
    
    $
    767
    
    
    $
    18
    
    
    $
    3
    
    
    $
    
    
    
    $
    
    
    
    $
    21
 Unrealized Loss Aging for Non-investment Grade Securities
 Fair Value as a Percentage of Book Value
    
    
    GrossEstimated
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    UnrealizedDecember 31, 2005
    
    Fair Value
    
    
    90-99%
    
    
    80-89%
    
    
    70-79%
    
    
    <70%
    
    
    Loss(In millions)Fixed maturity securities:Non-investment grade:0-6 months
    
    $
    632
    
    
    $
    20
    
    
    $
    8
    
    
    $
    1
    
    
    $
    
    
    
    $
    297-12 months
    
    
    118
    
    
    
    4
    
    
    
    6
    
    
    
    
    
    
    
    
    
    
    
    1013-24 months
    
    
    122
    
    
    
    3
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3Greater than 24 months
    
    
    2
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Total non-investment grade
    
    $
    874
    
    
    $
    27
    
    
    $
    14
    
    
    $
    1
    
    
    $
    
    
    
    $
    42
  64




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##### Table of Contents



CNA FINANCIAL CORPORATION  MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS, Continued
     General Account Bond Ratings
 March 31,
    
    
    
    
    
    
    December 31,2006
    
    
    %
    
    
    2005
    
    
    %(In millions)U.S. Government and affiliated agency securities
    
    $
    1,658
    
    
    
    5
    %
    
    $
    1,628
    
    
    
    5
    %Other AAA rated
    
    
    16,239
    
    
    
    55
    
    
    
    18,233
    
    
    
    55AA and A rated
    
    
    4,656
    
    
    
    16
    
    
    
    6,046
    
    
    
    18BBB rated
    
    
    4,436
    
    
    
    15
    
    
    
    4,499
    
    
    
    14Below investment-grade
    
    
    2,672
    
    
    
    9
    
    
    
    2,612
    
    
    
    8Total
    
    $
    29,661
    
    
    
    100
    %
    
    $
    33,018
    
    
    
    100
    %
     65




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##### Table of Contents



CNA FINANCIAL CORPORATION  MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS, Continued
  Short term Investments
 March 31,
    
    
    December 31,2006
    
    
    2005(In millions)Short term investments available-for-sale:Commercial paper
    
    $
    2,254
    
    
    $
    1,906U.S. Treasury securities
    
    
    3,082
    
    
    
    251Money market funds
    
    
    325
    
    
    
    294Other
    
    
    2,389
    
    
    
    1,419Total short term investments available-for-sale
    
    
    8,050
    
    
    
    3,870Short term investments trading:Commercial paper
    
    
    30
    
    
    
    94U.S. Treasury securities
    
    
    2
    
    
    
    64Money market funds
    
    
    194
    
    
    
    200Other
    
    
    1
    
    
    
    10Total short term investments trading
    
    
    227
    
    
    
    368Total short term investments
    
    $
    8,277
    
    
    $
    4,238
  LIQUIDITY AND CAPITAL RESOURCES
 Cash Flow
        66




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CNA FINANCIAL CORPORATION  MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS, Continued
  Commitments, Contingencies and Guarantees
   Contractual Commitments
 March 31, 2006
    
    Total
    
    
    Less than 1 year
    
    
    1-3 years
    
    
    3-5 years
    
    
    More than 5 years(In millions)Debt (a)
    
    $
    2,636
    
    
    $
    352
    
    
    $
    570
    
    
    $
    145
    
    
    $
    1,569Lease obligations
    
    
    252
    
    
    
    40
    
    
    
    85
    
    
    
    58
    
    
    
    69Claim and claim expense reserves (b)
    
    
    32,430
    
    
    
    5,675
    
    
    
    10,304
    
    
    
    5,340
    
    
    
    11,111Future policy benefits reserves (c)
    
    
    8,964
    
    
    
    102
    
    
    
    234
    
    
    
    231
    
    
    
    8,397Policyholder funds reserves (c)
    
    
    1,177
    
    
    
    438
    
    
    
    455
    
    
    
    135
    
    
    
    149Guaranteed payment contracts (d)
    
    
    21
    
    
    
    13
    
    
    
    8
    
    
    
    
    
    
    
    Total
    
    $
    45,480
    
    
    $
    6,620
    
    
    $
    11,656
    
    
    $
    5,909
    
    
    $
    21,295
 (a)
    
    Includes estimated future interest payments, but does not include original issue
discount.(b)
    
    Claim and claim adjustment expense reserves are not discounted and represent our
estimate of the amount and timing of the ultimate settlement and administration of claims
based on our assessment of facts and circumstances known as of March 31, 2006. See the
Critical Accounting Estimates section of this MD&A for further information. Claim and
claim adjustment expense reserves of $12 million related to business which has been 100%
ceded to unaffiliated parties in connection with the individual life sale are not included.(c)
    
    Future policy benefits and policyholder funds reserves are not discounted and represent
our estimate of the ultimate amount and timing of the settlement of benefits based on our
assessment of facts and circumstances known as of March 31, 2006. Future policy benefit
reserves of $947 million and policyholder fund reserves of $50 million related to business
which has been 100% ceded to unaffiliated parties in connection with the individual life
sale are not included.(d)
    
    Primarily relating to telecommunications and software services.
  Regulatory Matters
   67




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CNA FINANCIAL CORPORATION  MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS, Continued
   Dividends from Subsidiaries
   Loews
   Ratings
  68




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CNA FINANCIAL CORPORATION  MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS, Continued
   Insurance Financial Strength Ratings
    
    Debt RatingsProperty &Casualty (a)
    
    Life (b)
    
    CNAF
    
    ContinentalCCC
    
    
    
    Senior
    
    SeniorGroup
    
    CAC
    
    Debt
    
    DebtA.M. Best
    
    A
    
    A
    
    bbb
    
    Not ratedFitch
    
    A
    
    A
    
    BBB
    
    BBBMoodys
    
    A3
    
    Baa1
    
    Baa3
    
    Baa3S&P
    
    A
    
    BBB+
    
    BBB
    
    BBB
      Accounting Pronouncements
 Accounting for Life Settlement Contracts by Third-Party Investors Accounting for Purchases of Life Insurance
 69




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CNA FINANCIAL CORPORATION  MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS, Continued
 Accounting
for Certain Hybrid Financial Instruments Accounting for Derivative Instruments and Hedging Activities Accounting for Transfers and Servicing of Financial Assets and Extinguishments of
Liabilities Application of Statement 133 to Beneficial Interests in Securitized Financial Assets
 Accounting by Insurance
Enterprises for Deferred Acquisition Costs in Connection with Modifications or Exchanges of
Insurance Contracts Accounting and Reporting by Insurance Enterprises for Certain Long-Duration Contracts and
for Realized Gains and Losses from the Sale of Investments
 FORWARD-LOOKING STATEMENTS
  
    
    general economic and business conditions, including inflationary pressures on
medical care costs, construction costs and other economic sectors that increase the severity
of claims;
    
    changes in financial markets such as fluctuations in interest rates, long term
periods of low interest rates, credit conditions and currency, commodity and stock prices;
    
    the effects of corporate bankruptcies, such as Enron and WorldCom, on capital
markets, and on the markets for directors and officers and errors and omissions coverages;
    
    changes in foreign or domestic political, social and economic conditions;
    
    regulatory initiatives and compliance with governmental regulations, judicial
decisions, including interpretation of policy provisions, decisions regarding coverage and
theories of liability, trends in litigation and the outcome of any litigation involving us,
and rulings and changes in tax laws and regulations;
 70




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CNA FINANCIAL CORPORATION  MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS, Continued
 
    
    effects upon insurance markets and upon industry business practices and
relationships of current litigation, investigations and regulatory activity by the New York
State Attorney Generals office and other authorities concerning contingent commission
arrangements with brokers and bid solicitation activities;
    
    legal and regulatory activities with respect to certain non-traditional and
finite-risk insurance products, and possible resulting changes in accounting and financial
reporting in relation to such products, including our restatement of financial results in May
of 2005 and our relationship with an affiliate, Accord Re Ltd., as disclosed in connection
with that restatement;
    
    regulatory limitations, impositions and restrictions upon us, including the
effects of assessments and other surcharges for guaranty funds and second-injury funds and
other mandatory pooling arrangements;
    
    the impact of competitive products, policies and pricing and the competitive
environment in which we operate, including changes in our book of business;
    
    product and policy availability and demand and market responses, including the
level of ability to obtain rate increases and decline or non-renew under priced accounts, to
achieve premium targets and profitability and to realize growth and retention estimates;
    
    development of claims and the impact on loss reserves, including changes in claim
settlement policies;
    
    the effectiveness of current initiatives by claims management to reduce loss and
expense ratios through more efficacious claims handling techniques;
    
    the performance of reinsurance companies under reinsurance contracts with us;
    
    results of financing efforts, including the availability of bank credit facilities;
    
    changes in our composition of operating segments;
    
    weather and other natural physical events, including the severity and frequency of
storms, hail, snowfall and other winter conditions, as well as of natural disasters such as
hurricanes and earthquakes;
    
    man-made disasters, including the possible occurrence of terrorist attacks and the
effect of the absence or insufficiency of applicable terrorism legislation on coverages;
    
    the 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 until 2007 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, mass tort, construction defect claims and exposure to liabilities
due to claims made by insureds and others relating to lead-based paint;
    
    whether a national privately financed trust to replace litigation of asbestos
claims with payments to claimants from the trust will be established or approved through
federal legislation, or, if established and approved, whether it will contain funding
requirements in excess of our established loss reserves or carried loss reserves;
    
    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 section of this MD&A;
    
    the level of success in integrating acquired businesses and operations, and in
consolidating, or selling existing ones;
    
    the possibility of further 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.
 71




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CNA FINANCIAL CORPORATION  MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS, Continued
  72




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CNA FINANCIAL CORPORATION
 
 ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
 Market Risk
   Sensitivity Analysis
       73




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CNA FINANCIAL CORPORATION  ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK, Continued
 Market Risk Scenario 1
 Increase (Decrease)Market
    
    
    Interest
    
    
    Currency
    
    
    EquityMarch 31, 2006
    
    Value
    
    
    Rate Risk
    
    
    Risk
    
    
    Risk(In millions)General account:Fixed maturity securities available-for-sale
    
    $
    29,769
    
    
    $
    (1,654
    )
    
    $
    (90
    )
    
    $
    (31
    )Fixed maturity securities trading
    
    
    202
    
    
    
    (2
    )
    
    
    (1
    )
    
    
    (2
    )Equity securities available-for-sale
    
    
    662
    
    
    
    
    
    
    
    (7
    )
    
    
    (66
    )Equity securities trading
    
    
    58
    
    
    
    
    
    
    
    
    
    
    
    (6
    )Short term investments available-for-sale
    
    
    8,050
    
    
    
    (12
    )
    
    
    (40
    )
    
    
    Short term investments trading
    
    
    227
    
    
    
    
    
    
    
    
    
    
    
    Limited partnerships
    
    
    1,653
    
    
    
    1
    
    
    
    
    
    
    
    (32
    )Other invested assets
    
    
    34
    
    
    
    
    
    
    
    
    
    
    
    Interest rate swaps
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Equity indexed futures for trading securities
    
    
    
    
    
    
    2
    
    
    
    
    
    
    
    (74
    )Other derivative securities
    
    
    3
    
    
    
    (8
    )
    
    
    11
    
    
    
    Total general account
    
    
    40,658
    
    
    
    (1,673
    )
    
    
    (127
    )
    
    
    (211
    )Separate accounts:Fixed maturity securities
    
    
    459
    
    
    
    (22
    )
    
    
    
    
    
    
    Equity securities
    
    
    40
    
    
    
    
    
    
    
    
    
    
    
    (4
    )Short term investments
    
    
    15
    
    
    
    
    
    
    
    
    
    
    
    Total separate accounts
    
    
    514
    
    
    
    (22
    )
    
    
    
    
    
    
    (4
    )Total securities
    
    $
    41,172
    
    
    $
    (1,695
    )
    
    $
    (127
    )
    
    $
    (215
    )Debt (carrying value)
    
    $
    1,690
    
    
    $
    (89
    )
    
    $
    
    
    
    $
    
 Market Risk Scenario 1
 Increase (Decrease)Market
    
    
    Interest
    
    
    Currency
    
    
    EquityDecember 31, 2005
    
    Value
    
    
    Rate Risk
    
    
    Risk
    
    
    Risk(In millions)General account:Fixed maturity securities available-for-sale
    
    $
    32,963
    
    
    $
    (1,897
    )
    
    $
    (89
    )
    
    $
    (22
    )Fixed maturity securities trading
    
    
    271
    
    
    
    (2
    )
    
    
    (1
    )
    
    
    (2
    )Equity securities available-for-sale
    
    
    632
    
    
    
    
    
    
    
    (6
    )
    
    
    (63
    )Equity securities trading
    
    
    49
    
    
    
    
    
    
    
    
    
    
    
    (5
    )Short term investments available-for-sale
    
    
    3,870
    
    
    
    (4
    )
    
    
    (37
    )
    
    
    Short term investments trading
    
    
    368
    
    
    
    
    
    
    
    
    
    
    
    Limited partnerships
    
    
    1,509
    
    
    
    1
    
    
    
    
    
    
    
    (29
    )Other invested assets
    
    
    30
    
    
    
    
    
    
    
    
    
    
    
    Interest rate swaps
    
    
    
    
    
    
    66
    
    
    
    
    
    
    
    Equity index futures for trading
    
    
    
    
    
    
    2
    
    
    
    
    
    
    
    (102
    )Other derivative securities
    
    
    3
    
    
    
    3
    
    
    
    10
    
    
    
    Total general account
    
    
    39,695
    
    
    
    (1,831
    )
    
    
    (123
    )
    
    
    (223
    )Separate accounts:Fixed maturity securities
    
    
    466
    
    
    
    (23
    )
    
    
    
    
    
    
    Equity securities
    
    
    44
    
    
    
    
    
    
    
    
    
    
    
    (4
    )Short term investments
    
    
    36
    
    
    
    
    
    
    
    
    
    
    
    Total separate accounts
    
    
    546
    
    
    
    (23
    )
    
    
    
    
    
    
    (4
    )Total securities
    
    $
    40,241
    
    
    $
    (1,854
    )
    
    $
    (123
    )
    
    $
    (227
    )Debt (carrying value)
    
    $
    1,690
    
    
    $
    (92
    )
    
    $
    
    
    
    $
    
 74




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CNA FINANCIAL CORPORATION  ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK, Continued
  Market Risk Scenario 2
 Increase (Decrease)Market
    
    
    Interest
    
    
    Currency
    
    
    EquityMarch 31, 2006
    
    Value
    
    
    Rate Risk
    
    
    Risk
    
    
    Risk(In millions)General account:Fixed maturity securities available-for-sale
    
    $
    29,769
    
    
    $
    (2,467
    )
    
    $
    (180
    )
    
    $
    (77
    )Fixed maturity securities trading
    
    
    202
    
    
    
    (3
    )
    
    
    (1
    )
    
    
    (6
    )Equity securities available-for-sale
    
    
    662
    
    
    
    
    
    
    
    (14
    )
    
    
    (165
    )Equity securities trading
    
    
    58
    
    
    
    
    
    
    
    
    
    
    
    (14
    )Short term investments available-for-sale
    
    
    8,050
    
    
    
    (18
    )
    
    
    (80
    )
    
    
    Short term securities trading
    
    
    227
    
    
    
    
    
    
    
    
    
    
    
    Limited partnerships
    
    
    1,653
    
    
    
    1
    
    
    
    
    
    
    
    (81
    )Other invested assets
    
    
    34
    
    
    
    
    
    
    
    
    
    
    
    Interest rate swaps
    
    
    
    
    
    
    1
    
    
    
    
    
    
    
    Equity indexed futures for trading
    
    
    
    
    
    
    2
    
    
    
    
    
    
    
    (184
    )Other derivative securities
    
    
    3
    
    
    
    (11
    )
    
    
    20
    
    
    
    (1
    )Total general account
    
    
    40,658
    
    
    
    (2,495
    )
    
    
    (255
    )
    
    
    (528
    )Separate accounts:Fixed maturity securities
    
    
    459
    
    
    
    (33
    )
    
    
    
    
    
    
    Equity securities
    
    
    40
    
    
    
    
    
    
    
    
    
    
    
    (10
    )Short term investments
    
    
    15
    
    
    
    
    
    
    
    
    
    
    
    Total separate accounts
    
    
    514
    
    
    
    (33
    )
    
    
    
    
    
    
    (10
    )Total securities
    
    $
    41,172
    
    
    $
    (2,528
    )
    
    $
    (255
    )
    
    $
    (538
    )Debt (carrying value)
    
    $
    1,690
    
    
    $
    (130
    )
    
    $
    
    
    
    $
    
 75




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##### Table of Contents



CNA FINANCIAL CORPORATION  ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK, Continued
 Market Risk Scenario 2
 Increase (Decrease)Market
    
    
    Interest
    
    
    Currency
    
    
    EquityDecember 31, 2005
    
    Value
    
    
    Rate Risk
    
    
    Risk
    
    
    Risk(In millions)General account:Fixed maturity securities available-for-sale
    
    $
    32,963
    
    
    $
    (2,827
    )
    
    $
    (178
    )
    
    $
    (54
    )Fixed maturity securities trading
    
    
    271
    
    
    
    (4
    )
    
    
    (1
    )
    
    
    (4
    )Equity securities available-for-sale
    
    
    632
    
    
    
    
    
    
    
    (11
    )
    
    
    (158
    )Equity securities trading
    
    
    49
    
    
    
    
    
    
    
    
    
    
    
    (12
    )Short term investments available-for-sale
    
    
    3,870
    
    
    
    (6
    )
    
    
    (74
    )
    
    
    Short term investments trading
    
    
    368
    
    
    
    
    
    
    
    
    
    
    
    Limited partnerships
    
    
    1,509
    
    
    
    1
    
    
    
    
    
    
    
    (72
    )Other invested assets
    
    
    30
    
    
    
    
    
    
    
    
    
    
    
    Interest rate swaps
    
    
    
    
    
    
    95
    
    
    
    
    
    
    
    Equity index futures for trading
    
    
    
    
    
    
    3
    
    
    
    (1
    )
    
    
    (255
    )Other derivative securities
    
    
    3
    
    
    
    5
    
    
    
    20
    
    
    
    (1
    )Total general account
    
    
    39,695
    
    
    
    (2,733
    )
    
    
    (245
    )
    
    
    (556
    )Separate accounts:Fixed maturity securities
    
    
    466
    
    
    
    (34
    )
    
    
    
    
    
    
    Equity securities
    
    
    44
    
    
    
    
    
    
    
    
    
    
    
    (11
    )Short term investments
    
    
    36
    
    
    
    
    
    
    
    
    
    
    
    Total separate accounts
    
    
    546
    
    
    
    (34
    )
    
    
    
    
    
    
    (11
    )Total securities
    
    $
    40,241
    
    
    $
    (2,767
    )
    
    $
    (245
    )
    
    $
    (567
    )Debt (carrying value)
    
    $
    1,690
    
    
    $
    (135
    )
    
    $
    
    
    
    $
    
 76




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##### Table of Contents



CNA FINANCIAL CORPORATION
 
 ITEM 4. CONTROLS AND PROCEDURES
   
 77




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##### Table of Contents



CNA FINANCIAL CORPORATION
 
 PART II. OTHER INFORMATION
 
 Item 1. Legal Proceedings
  
 Item 1A. Risk Factors
  
 Item 5. Other Information
  
 Item 6. Exhibits
  Description of Exhibit
    
    Exhibit NumberCertification of Chief Executive Officer pursuant to 18 U.S.C. 1350,
as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
    
    
    31.1Certification of Chief Financial Officer pursuant to 18 U.S.C. 1350,
as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
    
    
    31.2Certification of Chief Executive Officer pursuant to 18 U.S.C. 1350,
as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
    
    
    32.1*Certification of Chief Financial Officer pursuant to 18 U.S.C. 1350,
as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
    
    
    32.2*
 *
    
    Exhibits 32.1 and 32.2 are being furnished and shall not be deemed filed for the purpose
of Section 18 of the Securities Exchange Act of 1934, as amended, or otherwise subject to the
liabilities of that Section. These Exhibits shall not be incorporated by reference into any
registration statement or other document pursuant to the Securities Act of 1933, as amended.
 78




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##### Table of Contents



CNA FINANCIAL CORPORATION  PART II. OTHER INFORMATION
 
 SIGNATURES
  CNA Financial CorporationDated: May 2, 2006
    By
    /s/ D. Craig MenseD. Craig MenseChief Financial Officer 79