##### Table of Contents



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
  
 FORM 10-Q
 þ     o
 Commission File Number 1-5823
 
 CNA FINANCIAL CORPORATION
  Delaware
    
    36-6169860(State or other jurisdiction of
    
    (I.R.S. Employerincorporation or organization)
    
    Identification No.)333 S. WabashChicago, Illinois
    
    60604(Address of principal executive offices)
    
    (Zip Code)
 (312) 822-5000
(Registrants telephone number, including area code)
 þ o
  þ o o
 o þ
  Class
    
    Outstanding at July 25, 2007Common Stock, Par value $2.50
    
    271,646,669




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##### 



CNA FINANCIAL CORPORATION
INDEX
 Item
    
    
    
    PageNumber
    
    
    
    NumberPART I. Financial Information1.
    
    Condensed Consolidated Financial Statements (Unaudited):Condensed Consolidated Statements of Operations for the Three and Six Months Ended June 30, 2007 and 2006
    
    3Condensed Consolidated Balance Sheets at June 30, 2007 and at December 31, 2006
    
    4Condensed Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2007 and 2006
    
    5Condensed Consolidated Statements of Stockholders Equity for the Six Months Ended June 30, 2007 and 2006
    
    7Notes to Condensed Consolidated Financial Statements
    
    82.
    
    Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    413.
    
    Quantitative and Qualitative Disclosures About Market Risk
    
    694.
    
    Controls and Procedures
    
    70PART II. Other Information1.
    
    Legal Proceedings
    
    714.
    
    Submission of Matters to a Vote of Security Holders
    
    716.
    
    Exhibits
    
    71Certification of Chief Executive OfficerCertification of Chief Financial OfficerWritten Statement of Chief Executive OfficerWritten Statement of Chief Financial Officer
  2




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##### Table of Contents



CNA FINANCIAL CORPORATION
 
 PART I. FINANCIAL INFORMATION
 
 ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 
 CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
 Three months
    
    
    Six monthsPeriod ended June 30
    
    2007
    
    
    2006
    
    
    2007
    
    
    2006(In millions, except per share data)RevenuesNet earned premiums
    
    $
    1,872
    
    
    $
    1,892
    
    
    $
    3,735
    
    
    $
    3,761Net investment income
    
    
    671
    
    
    
    552
    
    
    
    1,279
    
    
    
    1,122Realized investment losses, net of participating policyholders
and minority interests
    
    
    (139
    )
    
    
    (98
    )
    
    
    (160
    )
    
    
    (89
    )Other revenues
    
    
    65
    
    
    
    66
    
    
    
    132
    
    
    
    119Total revenues
    
    
    2,469
    
    
    
    2,412
    
    
    
    4,986
    
    
    
    4,913Claims, Benefits and ExpensesInsurance claims and policyholders benefits
    
    
    1,473
    
    
    
    1,432
    
    
    
    2,921
    
    
    
    2,924Amortization of deferred acquisition costs
    
    
    372
    
    
    
    372
    
    
    
    753
    
    
    
    742Other operating expenses
    
    
    260
    
    
    
    242
    
    
    
    478
    
    
    
    499Restructuring and other related charges
    
    
    
    
    
    
    (13
    )
    
    
    
    
    
    
    (13
    )Interest
    
    
    35
    
    
    
    28
    
    
    
    69
    
    
    
    58Total claims, benefits and expenses
    
    
    2,140
    
    
    
    2,061
    
    
    
    4,221
    
    
    
    4,210Income before income tax and minority interest
    
    
    329
    
    
    
    351
    
    
    
    765
    
    
    
    703Income tax expense
    
    
    (91
    )
    
    
    (100
    )
    
    
    (223
    )
    
    
    (208
    )Minority interest
    
    
    (11
    )
    
    
    (10
    )
    
    
    (21
    )
    
    
    (19
    )Income from continuing operations
    
    
    227
    
    
    
    241
    
    
    
    521
    
    
    
    476Loss from discontinued operations, net of income tax benefit of $2,
$0, $1 and $0
    
    
    (10
    )
    
    
    (2
    )
    
    
    (8
    )
    
    
    (8
    )Net income
    
    $
    217
    
    
    $
    239
    
    
    $
    513
    
    
    $
    468Basic and Diluted Earnings Per ShareIncome from continuing operations
    
    $
    0.84
    
    
    $
    0.87
    
    
    $
    1.92
    
    
    $
    1.71Loss from discontinued operations
    
    
    (0.04
    )
    
    
    (0.01
    )
    
    
    (0.03
    )
    
    
    (0.03
    )Basic and diluted earnings per share available to common stockholders
    
    $
    0.80
    
    
    $
    0.86
    
    
    $
    1.89
    
    
    $
    1.68Weighted average outstanding common stock and common stock
equivalentsBasic
    
    
    271.6
    
    
    
    256.0
    
    
    
    271.5
    
    
    
    256.0Diluted
    
    
    271.9
    
    
    
    256.0
    
    
    
    271.8
    
    
    
    256.0
  3




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##### Table of Contents



CNA FINANCIAL CORPORATION
 
 CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)
 June 30,
    
    
    December 31,2007
    
    
    2006(In millions, except share data)AssetsInvestments:Fixed maturity securities at fair value (amortized cost of $34,363 and $35,135)
    
    $
    34,554
    
    
    $
    35,851Equity securities at fair value (cost of $425 and $408)
    
    
    685
    
    
    
    657Limited partnership investments
    
    
    2,012
    
    
    
    1,852Other invested assets
    
    
    68
    
    
    
    26Short term investments
    
    
    7,108
    
    
    
    5,710Total investments
    
    
    44,427
    
    
    
    44,096Cash
    
    
    80
    
    
    
    84Reinsurance receivables (less allowance for uncollectible receivables of $468 and $469)
    
    
    8,924
    
    
    
    9,478Insurance receivables (less allowance for doubtful accounts of $358 and $368)
    
    
    2,218
    
    
    
    2,108Accrued investment income
    
    
    326
    
    
    
    313Receivables for securities sold
    
    
    655
    
    
    
    303Deferred acquisition costs
    
    
    1,197
    
    
    
    1,190Federal income taxes recoverable (includes $19 and $0 due from Loews Corporation)
    
    
    21
    
    
    
    Prepaid reinsurance premiums
    
    
    364
    
    
    
    342Deferred income taxes
    
    
    1,007
    
    
    
    855Property and equipment at cost (less accumulated depreciation of $580 and $571)
    
    
    334
    
    
    
    277Goodwill and other intangible assets
    
    
    142
    
    
    
    142Other assets
    
    
    559
    
    
    
    592Separate account business
    
    
    483
    
    
    
    503Total assets
    
    $
    60,737
    
    
    $
    60,283Liabilities and Stockholders EquityLiabilities:Insurance reserves:Claim and claim adjustment expenses
    
    $
    29,184
    
    
    $
    29,636Unearned premiums
    
    
    3,883
    
    
    
    3,784Future policy benefits
    
    
    6,871
    
    
    
    6,645Policyholders funds
    
    
    1,000
    
    
    
    1,015Collateral on loaned securities and derivatives
    
    
    3,099
    
    
    
    2,851Payables for securities purchased
    
    
    567
    
    
    
    221Participating policyholders funds
    
    
    43
    
    
    
    50Short term debt
    
    
    150
    
    
    
    Long term debt
    
    
    2,006
    
    
    
    2,156Federal income taxes payable (includes $0 and $38 due to Loews Corporation)
    
    
    
    
    
    
    40Reinsurance balances payable
    
    
    528
    
    
    
    539Other liabilities
    
    
    2,560
    
    
    
    2,740Separate account business
    
    
    483
    
    
    
    503Total liabilities
    
    
    50,374
    
    
    
    50,180Commitments and contingencies (Notes D, F, G and I)Minority interest
    
    
    352
    
    
    
    335Stockholders equity:Common stock ($2.50 par value; 500,000,000 shares authorized; 273,040,243 shares
issued; and 271,644,318 and 271,108,480 shares outstanding)
    
    
    683
    
    
    
    683Additional paid-in capital
    
    
    2,167
    
    
    
    2,166Retained earnings
    
    
    7,015
    
    
    
    6,486Accumulated other comprehensive income
    
    
    235
    
    
    
    549Treasury stock (1,395,925 and 1,931,763 shares), at cost
    
    
    (39
    )
    
    
    (58
    )10,061
    
    
    
    9,826Notes receivable for the issuance of common stock
    
    
    (50
    )
    
    
    (58
    )Total stockholders equity
    
    
    10,011
    
    
    
    9,768Total liabilities and stockholders equity
    
    $
    60,737
    
    
    $
    60,283
  4




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CNA FINANCIAL CORPORATION
 
 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
 (UNAUDITED)
 Six months ended June 30
    
    2007
    
    
    2006(In millions)Cash Flows from Operating Activities:Net income
    
    $
    513
    
    
    $
    468Adjustments to reconcile net income to net cash flows
provided by operating activities:Loss from discontinued operations
    
    
    8
    
    
    
    8Loss on disposal of property and equipment
    
    
    3
    
    
    
    2Minority interest
    
    
    21
    
    
    
    19Deferred income tax provision
    
    
    7
    
    
    
    39Trading securities activity
    
    
    (44
    )
    
    
    331Realized investment losses, net of participating
policyholders and minority interests
    
    
    160
    
    
    
    89Undistributed earnings of equity method investees
    
    
    (81
    )
    
    
    (44
    )Net amortization of bond (discount) premium
    
    
    (132
    )
    
    
    (152
    )Depreciation
    
    
    28
    
    
    
    24Changes in:Receivables, net
    
    
    444
    
    
    
    223Deferred acquisition costs
    
    
    (7
    )
    
    
    (14
    )Accrued investment income
    
    
    (13
    )
    
    
    16Federal income taxes recoverable/payable
    
    
    (61
    )
    
    
    118Prepaid reinsurance premiums
    
    
    (22
    )
    
    
    (48
    )Reinsurance balances payable
    
    
    (11
    )
    
    
    21Insurance reserves
    
    
    (86
    )
    
    
    (370
    )Other assets
    
    
    21
    
    
    
    87Other liabilities
    
    
    (135
    )
    
    
    79Other, net
    
    
    (47
    )
    
    
    31Total adjustments
    
    
    53
    
    
    
    459Net cash flows provided by operating activities-continuing
operations
    
    $
    566
    
    
    $
    927Net cash flows used by operating activities-discontinued
operations
    
    $
    (25
    )
    
    $
    (4
    )Net cash flows provided by operating activities-total
    
    $
    541
    
    
    $
    923Cash Flows from Investing Activities:Purchases of fixed maturity securities
    
    $
    (33,938
    )
    
    $
    (22,683
    )Proceeds from fixed maturity securities:Sales
    
    
    31,598
    
    
    
    21,130Maturities, calls and redemptions
    
    
    2,836
    
    
    
    2,163Purchases of equity securities
    
    
    (97
    )
    
    
    (263
    )Proceeds from sales of equity securities
    
    
    109
    
    
    
    120Change in short term investments
    
    
    (1,215
    )
    
    
    (1,337
    )Change in collateral on loaned securities
    
    
    248
    
    
    
    574Change in other investments
    
    
    (89
    )
    
    
    (95
    )Purchases of property and equipment
    
    
    (87
    )
    
    
    (58
    )Dispositions
    
    
    
    
    
    
    7Other, net
    
    
    56
    
    
    
    (85
    )Net cash flows used by investing activities-continuing operations
    
    $
    (579
    )
    
    $
    (527
    )Net cash flows provided by investing activities-discontinued
operations, including proceeds from disposition
    
    $
    50
    
    
    $
    24Net cash flows used by investing activities-total
    
    $
    (529
    )
    
    $
    (503
    )
  5




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CNA FINANCIAL CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
 Six months ended June 30
    
    2007
    
    
    2006(In millions)Cash Flows from Financing Activities:Dividends paid to stockholders
    
    
    (27
    )
    
    
    Proceeds from the issuance of long-term debt
    
    
    
    
    
    
    12Principal payments on debt
    
    
    
    
    
    
    (23
    )Return of investment contract account balances
    
    
    (57
    )
    
    
    (407
    )Receipts of investment contract account balances
    
    
    1
    
    
    
    1Stock options exercised
    
    
    17
    
    
    
    2Other, net
    
    
    12
    
    
    
    2Net cash flows used by financing activities-continuing operations
    
    $
    (54
    )
    
    $
    (413
    )Net cash flows used by financing activities-discontinued
operations
    
    $
    
    
    
    $
    Net cash flows used by financing activities-total
    
    $
    (54
    )
    
    $
    (413
    )Net change in cash
    
    
    (42
    )
    
    
    7Net cash transactions from continuing operations to discontinued
operations
    
    
    63
    
    
    
    15Net cash transactions from discontinued operations to continuing
operations
    
    
    (63
    )
    
    
    (15
    )Cash, beginning of year
    
    
    124
    
    
    
    125Cash, end of period
    
    $
    82
    
    
    $
    132Cash-continuing operations
    
    $
    80
    
    
    $
    98Cash-discontinued operations
    
    
    2
    
    
    
    34Cash-total
    
    $
    82
    
    
    $
    132
  6




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CNA FINANCIAL CORPORATION
 
 CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITY
 (UNAUDITED)
 Six months ended June 30
    
    2007
    
    
    2006(In millions)Preferred StockBalance, beginning and end of period
    
    $
    
    
    
    $
    750Common StockBalance, beginning and end of period
    
    
    683
    
    
    
    645Additional Paid-in CapitalBalance, beginning of period
    
    
    2,166
    
    
    
    1,701Stock options exercised and other
    
    
    1
    
    
    
    2Balance, end of period
    
    
    2,167
    
    
    
    1,703Retained EarningsBalance, beginning of period
    
    
    6,486
    
    
    
    5,621Adjustment
to initially apply FSP 85-4-1, net of tax
    
    
    38
    
    
    
    Adjustment to initially apply FIN 48
    
    
    5
    
    
    
    Adjusted balance, beginning of period
    
    
    6,529
    
    
    
    5,621Dividends paid to stockholders
    
    
    (27
    )
    
    
    Net income
    
    
    513
    
    
    
    468Balance, end of period
    
    
    7,015
    
    
    
    6,089Accumulated Other Comprehensive IncomeBalance, beginning of period
    
    
    549
    
    
    
    359Other comprehensive loss
    
    
    (314
    )
    
    
    (486
    )Balance, end of period
    
    
    235
    
    
    
    (127
    )Treasury StockBalance, beginning of period
    
    
    (58
    )
    
    
    (67
    )Stock options exercised and other
    
    
    19
    
    
    
    Balance, end of period
    
    
    (39
    )
    
    
    (67
    )Notes Receivable for the Issuance of Common StockBalance, beginning of period
    
    
    (58
    )
    
    
    (59
    )Decrease in notes receivable for the issuance of common stock
    
    
    8
    
    
    
    1Balance, end of period
    
    
    (50
    )
    
    
    (58
    )Total Stockholders Equity
    
    $
    10,011
    
    
    $
    8,935
  7




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CNA FINANCIAL CORPORATION
 
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 (UNAUDITED)
 Note A. Basis of Presentation
    Note B. Accounting Pronouncements
 Financial Accounting Standards Board (FASB) Staff Position Technical Bulletin No. 85-4-1, Accounting for Life Settlement Contracts by Third-Party Investors (FSP 85-4-1)
 Accounting for Purchases of Life Insurance
 
 8




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CNA FINANCIAL CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS, Continued
(UNAUDITED)
    June 30, 2007
    
    Number of Life Settlement
    
    
    Fair Value of Life Settlement
    
    
    Face Amount of Life InsuranceContracts
    
    
    Contracts
    
    
    Policies(In millions)
    
    
    (In millions)Estimated maturity during:2007
    
    
    40
    
    
    $
    4
    
    
    $
    252008
    
    
    80
    
    
    
    9
    
    
    
    512009
    
    
    80
    
    
    
    9
    
    
    
    502010
    
    
    80
    
    
    
    9
    
    
    
    502011
    
    
    80
    
    
    
    9
    
    
    
    50Thereafter
    
    
    1,086
    
    
    
    68
    
    
    
    541Total
    
    
    1,446
    
    
    $
    108
    
    
    $
    767
  FASB Interpretation No. 48, Accounting for Uncertainty in Income Taxes an interpretation of
FASB Statement No. 109 (FIN 48)
  9




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CNA FINANCIAL CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS, Continued
(UNAUDITED)
 Note C. Earnings Per Share
   Earnings Per ShareThree Months
    
    
    Six MonthsPeriod ended June 30
    
    2007
    
    
    2006
    
    
    2007
    
    
    2006(In millions, except per share amounts)Income from continuing operations
    
    $
    227
    
    
    $
    241
    
    
    $
    521
    
    
    $
    476Less: undeclared preferred stock dividend
    
    
    
    
    
    
    (19
    )
    
    
    
    
    
    
    (38
    )Income from continuing operations available to common stockholders
    
    $
    227
    
    
    $
    222
    
    
    $
    521
    
    
    $
    438Weighted average outstanding common stock and common stock equivalents
    
    
    271.6
    
    
    
    256.0
    
    
    
    271.5
    
    
    
    256.0Effect of dilutive securities, employee stock options and appreciation rights
    
    
    0.3
    
    
    
    
    
    
    
    0.3
    
    
    
    Adjusted weighted average outstanding common stock and common stock
equivalents assuming conversions
    
    
    271.9
    
    
    
    256.0
    
    
    
    271.8
    
    
    
    256.0Basic and diluted earnings per share from continuing operations available to
common stockholders
    
    $
    0.84
    
    
    $
    0.87
    
    
    $
    1.92
    
    
    $
    1.71
  10




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CNA FINANCIAL CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS, Continued
(UNAUDITED)
 Note D. Investments
  Net Investment IncomeThree Months
    
    
    Six MonthsPeriod ended June 30
    
    2007
    
    
    2006
    
    
    2007
    
    
    2006(In millions)Fixed maturity securities
    
    $
    526
    
    
    $
    480
    
    
    $
    1,022
    
    
    $
    895Short term investments
    
    
    39
    
    
    
    58
    
    
    
    89
    
    
    
    123Limited partnerships
    
    
    71
    
    
    
    53
    
    
    
    123
    
    
    
    127Equity securities
    
    
    6
    
    
    
    8
    
    
    
    11
    
    
    
    14Income (loss) from trading portfolio (a)
    
    
    40
    
    
    
    (9
    )
    
    
    43
    
    
    
    33Interest on funds withheld and other deposits
    
    
    
    
    
    
    (30
    )
    
    
    (1
    )
    
    
    (55
    )Other
    
    
    12
    
    
    
    5
    
    
    
    23
    
    
    
    8Gross investment income
    
    
    694
    
    
    
    565
    
    
    
    1,310
    
    
    
    1,145Investment expense
    
    
    (23
    )
    
    
    (13
    )
    
    
    (31
    )
    
    
    (23
    )Net investment income
    
    $
    671
    
    
    $
    552
    
    
    $
    1,279
    
    
    $
    1,122
   Realized Investment Gains (Losses)Three Months
    
    
    Six MonthsPeriod ended June 30
    
    2007
    
    
    2006
    
    
    2007
    
    
    2006(In millions)Fixed maturity securities:U.S. Government bonds
    
    $
    (96
    )
    
    $
    
    
    
    $
    (94
    )
    
    $
    4Corporate and other taxable bonds
    
    
    (50
    )
    
    
    (76
    )
    
    
    (25
    )
    
    
    (96
    )Tax-exempt bonds
    
    
    (42
    )
    
    
    (14
    )
    
    
    (53
    )
    
    
    11Asset-backed bonds
    
    
    (77
    )
    
    
    (5
    )
    
    
    (110
    )
    
    
    (14
    )Redeemable preferred stock
    
    
    (1
    )
    
    
    (1
    )
    
    
    (1
    )
    
    
    (1
    )Total fixed maturity securities
    
    
    (266
    )
    
    
    (96
    )
    
    
    (283
    )
    
    
    (96
    )Equity securities
    
    
    11
    
    
    
    3
    
    
    
    14
    
    
    
    6Derivative securities
    
    
    115
    
    
    
    (2
    )
    
    
    107
    
    
    
    5Short term investments
    
    
    
    
    
    
    (2
    )
    
    
    
    
    
    
    (4
    )Other, net of participating policyholders interest
    
    
    
    
    
    
    (2
    )
    
    
    1
    
    
    
    (2
    )Realized investment losses before allocation to participating
policyholders and minority interests
    
    
    (140
    )
    
    
    (99
    )
    
    
    (161
    )
    
    
    (91
    )Allocated to participating policyholders and minority interests
    
    
    1
    
    
    
    1
    
    
    
    1
    
    
    
    2Realized investment losses
    
    $
    (139
    )
    
    $
    (98
    )
    
    $
    (160
    )
    
    $
    (89
    )
   11




---



##### Table of Contents



CNA FINANCIAL CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS, Continued
(UNAUDITED)
   Summary of Fixed Maturity and Equity SecuritiesCost or
    
    
    Gross
    
    
    Gross Unrealized Losses
    
    
    EstimatedAmortized
    
    
    Unrealized
    
    
    Less than
    
    
    Greater than
    
    
    FairJune 30, 2007
    
    Cost
    
    
    Gains
    
    
    12 Months
    
    
    12 Months
    
    
    Value(In millions)Fixed maturity securities available-for-sale:U.S. Treasury securities and obligations
of government agencies
    
    $
    3,581
    
    
    $
    64
    
    
    $
    3
    
    
    $
    1
    
    
    $
    3,641Asset-backed securities
    
    
    11,004
    
    
    
    14
    
    
    
    84
    
    
    
    194
    
    
    
    10,740States, municipalities and political
subdivisions  tax-exempt
    
    
    7,864
    
    
    
    128
    
    
    
    48
    
    
    
    7
    
    
    
    7,937Corporate securities
    
    
    7,167
    
    
    
    212
    
    
    
    33
    
    
    
    10
    
    
    
    7,336Other debt securities
    
    
    3,509
    
    
    
    158
    
    
    
    15
    
    
    
    6
    
    
    
    3,646Redeemable preferred stock
    
    
    1,039
    
    
    
    23
    
    
    
    7
    
    
    
    
    
    
    
    1,055Total fixed maturity securities
available-for-sale
    
    
    34,164
    
    
    
    599
    
    
    
    190
    
    
    
    218
    
    
    
    34,355Total fixed maturity securities trading
    
    
    199
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    199Equity securities available-for-sale:Common stock
    
    
    219
    
    
    
    252
    
    
    
    1
    
    
    
    
    
    
    
    470Preferred stock
    
    
    132
    
    
    
    9
    
    
    
    
    
    
    
    
    
    
    
    141Total equity securities available-for-sale
    
    
    351
    
    
    
    261
    
    
    
    1
    
    
    
    
    
    
    
    611Total equity securities trading
    
    
    74
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    74Total
    
    $
    34,788
    
    
    $
    860
    
    
    $
    191
    
    
    $
    218
    
    
    $
    35,239
 12




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##### Table of Contents



CNA FINANCIAL CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS, Continued
(UNAUDITED)
 Summary of Fixed Maturity and Equity SecuritiesCost or
    
    
    Gross
    
    
    Gross Unrealized Losses
    
    
    EstimatedAmortized
    
    
    Unrealized
    
    
    Less than
    
    
    Greater than
    
    
    FairDecember 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
    
    $
    5,056
    
    
    $
    86
    
    
    $
    3
    
    
    $
    1
    
    
    $
    5,138Asset-backed securities
    
    
    13,821
    
    
    
    28
    
    
    
    20
    
    
    
    152
    
    
    
    13,677States, municipalities and political
subdivisions  tax-exempt
    
    
    4,915
    
    
    
    237
    
    
    
    1
    
    
    
    5
    
    
    
    5,146Corporate securities
    
    
    6,811
    
    
    
    338
    
    
    
    8
    
    
    
    9
    
    
    
    7,132Other debt securities
    
    
    3,443
    
    
    
    207
    
    
    
    7
    
    
    
    1
    
    
    
    3,642Redeemable preferred stock
    
    
    885
    
    
    
    28
    
    
    
    1
    
    
    
    
    
    
    
    912Total fixed maturity securities
available-for-sale
    
    
    34,931
    
    
    
    924
    
    
    
    40
    
    
    
    168
    
    
    
    35,647Total fixed maturity securities trading
    
    
    204
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    204Equity securities available-for-sale:Common stock
    
    
    214
    
    
    
    239
    
    
    
    1
    
    
    
    
    
    
    
    452Preferred stock
    
    
    134
    
    
    
    11
    
    
    
    
    
    
    
    
    
    
    
    145Total equity securities available-for-sale
    
    
    348
    
    
    
    250
    
    
    
    1
    
    
    
    
    
    
    
    597Total equity securities trading
    
    
    60
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    60Total
    
    $
    35,543
    
    
    $
    1,174
    
    
    $
    41
    
    
    $
    168
    
    
    $
    36,508
 13




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##### Table of Contents



CNA FINANCIAL CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS, Continued
(UNAUDITED)
  Unrealized Loss AgingJune 30, 2007
    
    
    December 31, 2006Gross
    
    
    
    
    
    
    GrossEstimated
    
    
    Unrealized
    
    
    Estimated
    
    
    UnrealizedFair Value
    
    
    Loss
    
    
    Fair Value
    
    
    Loss(In millions)Fixed maturity securities:Investment grade:0-6 months
    
    $
    10,467
    
    
    $
    133
    
    
    $
    9,829
    
    
    $
    247-12 months
    
    
    1,017
    
    
    
    51
    
    
    
    1,267
    
    
    
    1213-24 months
    
    
    3,644
    
    
    
    129
    
    
    
    5,248
    
    
    
    127Greater than 24 months
    
    
    2,227
    
    
    
    88
    
    
    
    1,022
    
    
    
    41Total investment grade
    
    
    17,355
    
    
    
    401
    
    
    
    17,366
    
    
    
    204Non-investment grade:0-6 months
    
    
    1,089
    
    
    
    5
    
    
    
    509
    
    
    
    27-12 months
    
    
    14
    
    
    
    1
    
    
    
    87
    
    
    
    213-24 months
    
    
    17
    
    
    
    1
    
    
    
    24
    
    
    
    Greater than 24 months
    
    
    2
    
    
    
    
    
    
    
    2
    
    
    
    Total non-investment grade
    
    
    1,122
    
    
    
    7
    
    
    
    622
    
    
    
    4Total fixed maturity securities
    
    
    18,477
    
    
    
    408
    
    
    
    17,988
    
    
    
    208Equity securities:0-6 months
    
    
    13
    
    
    
    
    
    
    
    10
    
    
    
    17-12 months
    
    
    2
    
    
    
    1
    
    
    
    1
    
    
    
    13-24 months
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Greater than 24 months
    
    
    3
    
    
    
    
    
    
    
    3
    
    
    
    Total equity securities
    
    
    18
    
    
    
    1
    
    
    
    14
    
    
    
    1Total fixed maturity and equity securities
    
    $
    18,495
    
    
    $
    409
    
    
    $
    18,002
    
    
    $
    209
   Asset-Backed Securities
  14




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##### Table of Contents



CNA FINANCIAL CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS, Continued
(UNAUDITED)
  Recognition
of Interest Income and Impairment on Purchased and Retained Beneficial Interests in Securitized
Financial Assets
  States, Municipalities and Political Subdivisions  Tax-Exempt Securities
  Corporate Securities
   15




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##### Table of Contents



CNA FINANCIAL CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS, Continued
(UNAUDITED)
 Investment Commitments
   Note E. Derivative Financial Instruments
  Derivative Financial Instruments Recognized Gains (Losses)Three Months
    
    
    Six MonthsPeriod ended June 30
    
    2007
    
    
    2006
    
    
    2007
    
    
    2006(In millions)General accountWithout hedge designationSwaps
    
    $
    115
    
    
    $
    
    
    
    $
    108
    
    
    $
    6Futures sold, not yet purchased
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2Currency forwards
    
    
    
    
    
    
    (2
    )
    
    
    (1
    )
    
    
    (2
    )Commitments to purchase government and municipal securities (TBAs)
    
    
    1
    
    
    
    1
    
    
    
    1
    
    
    
    Trading activitiesFutures purchased
    
    
    32
    
    
    
    (18
    )
    
    
    27
    
    
    
    11Futures sold, not yet purchased
    
    
    1
    
    
    
    2
    
    
    
    1
    
    
    
    2Currency forwards
    
    
    (1
    )
    
    
    (1
    )
    
    
    (1
    )
    
    
    Total
    
    $
    148
    
    
    $
    (18
    )
    
    $
    135
    
    
    $
    19
 16




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##### Table of Contents



CNA FINANCIAL CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS, Continued
(UNAUDITED)
  Derivative Financial InstrumentsEstimatedContractual/
    
    
    Fair ValueJune 30, 2007
    
    Notional
    
    
    Asset(In millions)
    
    Amount
    
    
    (Liability)General accountWithout hedge designationSwaps
    
    $
    5,697
    
    
    $
    43Currency forwards
    
    
    36
    
    
    
    (1
    )Commitments to purchase government and municipal securities (TBAs)
    
    
    99
    
    
    
    Equity warrants
    
    
    6
    
    
    
    2Options embedded in convertible debt securities
    
    
    9
    
    
    
    Trading activitiesFutures purchased
    
    
    728
    
    
    
    (1
    )Futures sold, not yet purchased
    
    
    175
    
    
    
    1Currency forwards
    
    
    40
    
    
    
    Total general account
    
    $
    6,790
    
    
    $
    44Separate accountsOptions written
    
    $
    3
    
    
    $
    Total separate accounts
    
    $
    3
    
    
    $
    
 Derivative Financial InstrumentsEstimatedContractual/
    
    
    Fair ValueDecember 31, 2006
    
    Notional
    
    
    Asset(In millions)
    
    Amount
    
    
    (Liability)General accountWithout hedge designationSwaps
    
    $
    4,795
    
    
    $
    (30
    )Currency forwards
    
    
    8
    
    
    
    Equity warrants
    
    
    6
    
    
    
    2Options embedded in convertible debt securities
    
    
    9
    
    
    
    Trading activitiesFutures purchased
    
    
    722
    
    
    
    (3
    )Futures sold, not yet purchased
    
    
    79
    
    
    
    Currency forwards
    
    
    25
    
    
    
    Total general account
    
    $
    5,644
    
    
    $
    (31
    )Separate accountsOptions written
    
    $
    1
    
    
    $
    Total separate accounts
    
    $
    1
    
    
    $
    
  17




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##### Table of Contents



CNA FINANCIAL CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS, Continued
(UNAUDITED)
 Note F. Claim and Claim Adjustment Expense Reserves
     APMT Reserves
    18




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##### Table of Contents



CNA FINANCIAL CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS, Continued
(UNAUDITED)
    APMT ReservesJune 30, 2007
    
    
    December 31, 2006Environmental
    
    
    
    
    
    
    EnvironmentalPollution and
    
    
    
    
    
    
    Pollution andAsbestos
    
    
    Mass Tort
    
    
    Asbestos
    
    
    Mass Tort(In millions)Gross reserves
    
    $
    2,456
    
    
    $
    608
    
    
    $
    2,635
    
    
    $
    647Ceded reserves
    
    
    (1,090
    )
    
    
    (215
    )
    
    
    (1,183
    )
    
    
    (231
    )Net reserves
    
    $
    1,366
    
    
    $
    393
    
    
    $
    1,452
    
    
    $
    416
 Asbestos
   19




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##### Table of Contents



CNA FINANCIAL CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS, Continued
(UNAUDITED)
      In re:
Burns & Roe Enterprises, Inc
 20




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##### Table of Contents



CNA FINANCIAL CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS, Continued
(UNAUDITED)
  Boson v. Union Carbide
Corp.,
 Pennock, et al. v. Maryland Casualty,
et al.
 21




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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
  22




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##### Table of Contents



CNA FINANCIAL CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS, Continued
(UNAUDITED)
 Three Month Comparison
  Net Prior Year DevelopmentThree months ended June 30, 2007CorporateStandard
    
    
    Specialty
    
    
    and OtherLines
    
    
    Lines
    
    
    Non-Core
    
    
    Total(In millions)Pretax unfavorable (favorable) net prior year
claim and allocated claim adjustment expense
reserve development:Core (Non-APMT)
    
    $
    (33
    )
    
    $
    (1
    )
    
    $
    8
    
    
    $
    (26
    )APMT
    
    
    
    
    
    
    
    
    
    
    4
    
    
    
    4Pretax unfavorable (favorable) net prior year
development before impact of premium development
    
    
    (33
    )
    
    
    (1
    )
    
    
    12
    
    
    
    (22
    )Pretax unfavorable (favorable) premium development
    
    
    14
    
    
    
    2
    
    
    
    (5
    )
    
    
    11Total pretax unfavorable (favorable) net prior
year development
    
    $
    (19
    )
    
    $
    1
    
    
    $
    7
    
    
    $
    (11
    )
 Net Prior Year DevelopmentThree months ended June 30, 2006CorporateStandard
    
    
    Specialty
    
    
    and OtherLines
    
    
    Lines
    
    
    Non-Core
    
    
    Total(In millions)Pretax unfavorable (favorable) net prior year
claim and allocated claim adjustment expense
reserve development:Core (Non-APMT)
    
    $
    5
    
    
    $
    (2
    )
    
    $
    5
    
    
    $
    8APMT
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Pretax unfavorable (favorable) net prior year
development before impact of premium development
    
    
    5
    
    
    
    (2
    )
    
    
    5
    
    
    
    8Pretax unfavorable (favorable) premium development
    
    
    (24
    )
    
    
    2
    
    
    
    (3
    )
    
    
    (25
    )Total pretax unfavorable (favorable) net prior
year development
    
    $
    (19
    )
    
    $
    
    
    
    $
    2
    
    
    $
    (17
    )
 2007 Net Prior Year Development
  Standard Lines
  23




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##### Table of Contents



CNA FINANCIAL CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS, Continued
(UNAUDITED)
   Corporate and Other Non-Core
  2006 Net Prior Year Development
  Standard Lines
      24




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##### Table of Contents



CNA FINANCIAL CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS, Continued
(UNAUDITED)
  Six Month Comparison
  Net Prior Year DevelopmentSix months ended June 30, 2007CorporateStandard
    
    
    Specialty
    
    
    and OtherLines
    
    
    Lines
    
    
    Non-Core
    
    
    Total(In millions)Pretax unfavorable (favorable) net
prior year claim and allocated
claim adjustment expense reserve
development:Core (Non-APMT)
    
    $
    (20
    )
    
    $
    6
    
    
    $
    8
    
    
    $
    (6
    )APMT
    
    
    
    
    
    
    
    
    
    
    4
    
    
    
    4Pretax unfavorable (favorable) net
prior year development before
impact of premium development
    
    
    (20
    )
    
    
    6
    
    
    
    12
    
    
    
    (2
    )Pretax favorable premium development
    
    
    (13
    )
    
    
    (7
    )
    
    
    (3
    )
    
    
    (23
    )Total pretax unfavorable
(favorable) net prior year
development
    
    $
    (33
    )
    
    $
    (1
    )
    
    $
    9
    
    
    $
    (25
    )
 Net Prior Year DevelopmentSix months ended June 30, 2006CorporateStandard
    
    
    Specialty
    
    
    and OtherLines
    
    
    Lines
    
    
    Non-Core
    
    
    Total(In millions)Pretax unfavorable net prior year claim and
allocated claim adjustment expense reserve
development:Core (Non-APMT)
    
    $
    64
    
    
    $
    3
    
    
    $
    11
    
    
    $
    78APMT
    
    
    
    
    
    
    
    
    
    
    1
    
    
    
    1Pretax unfavorable net prior year development
before impact of premium development
    
    
    64
    
    
    
    3
    
    
    
    12
    
    
    
    79Pretax unfavorable (favorable) premium development
    
    
    (73
    )
    
    
    (6
    )
    
    
    4
    
    
    
    (75
    )Total pretax unfavorable (favorable) net prior
year development
    
    $
    (9
    )
    
    $
    (3
    )
    
    $
    16
    
    
    $
    4
 25




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##### Table of Contents



CNA FINANCIAL CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS, Continued
(UNAUDITED)
 2007 Net Prior Year Development
  Standard Lines
    Corporate and Other Non-Core
  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)
      Corporate and Other Non-Core
  Note G. Legal Proceedings and Contingent Liabilities
 Insurance Brokerage Antitrust Litigation
 In re Insurance Brokerage Antitrust Litigation, Civil No.
04-5184 (FSH)
  27




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##### Table of Contents



CNA FINANCIAL CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS, Continued
(UNAUDITED)
 Global Crossing Limited Litigation
   IGI Contingency
    28




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##### Table of Contents



CNA FINANCIAL CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS, Continued
(UNAUDITED)
  New Jersey Wage and Hour Litigation
 W. Curtis Himmelman, individually and on behalf of all others similarly situated v. Continental
Casualty Company
  California Long Term Care Litigation
 Shaffer v. Continental Casualty Company, et al.
  29




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##### Table of Contents



CNA FINANCIAL CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS, Continued
(UNAUDITED)
 Asbestos, Environmental Pollution and Mass Tort (APMT) Reserves
  Other Litigation
  Note H. Benefit Plans
 Pension and Postretirement Healthcare and Life Insurance Benefit Plans
     Net Periodic Benefit CostsThree Months
    
    
    Six MonthsPeriod ended June 30
    
    2007
    
    
    2006
    
    
    2007
    
    
    2006(In millions)Pension benefitsService cost
    
    $
    5
    
    
    $
    5
    
    
    $
    12
    
    
    $
    13Interest cost on projected benefit obligation
    
    
    35
    
    
    
    35
    
    
    
    73
    
    
    
    72Expected return on plan assets
    
    
    (44
    )
    
    
    (40
    )
    
    
    (87
    )
    
    
    (80
    )Prior service cost amortization
    
    
    1
    
    
    
    
    
    
    
    1
    
    
    
    1Actuarial loss
    
    
    2
    
    
    
    7
    
    
    
    6
    
    
    
    17Net periodic pension (benefit) cost
    
    $
    (1
    )
    
    $
    7
    
    
    $
    5
    
    
    $
    23Postretirement benefitsService cost
    
    $
    
    
    
    $
    
    
    
    $
    1
    
    
    $
    1Interest cost on projected benefit obligation
    
    
    3
    
    
    
    1
    
    
    
    5
    
    
    
    4Prior service cost amortization
    
    
    (4
    )
    
    
    (6
    )
    
    
    (9
    )
    
    
    (13
    )Actuarial loss
    
    
    
    
    
    
    1
    
    
    
    1
    
    
    
    2Net periodic postretirement benefit
    
    $
    (1
    )
    
    $
    (4
    )
    
    $
    (2
    )
    
    $
    (6
    )
  30




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##### Table of Contents



CNA FINANCIAL CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS, Continued
(UNAUDITED)
 Note I. Operating Leases, Other Commitments and Contingencies, and Guarantees
 Operating Leases
    Other Commitments and Contingencies
   Guarantees
   
 31




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##### Table of Contents



CNA FINANCIAL CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS, Continued
(UNAUDITED)
 Note J. Comprehensive Income (Loss)
  Comprehensive Income (Loss)Three months
    
    
    Six MonthsPeriod ended June 30
    
    2007
    
    
    2006
    
    
    2007
    
    
    2006(In millions)Net income
    
    $
    217
    
    
    $
    239
    
    
    $
    513
    
    
    $
    468Other comprehensive income (loss):Change in unrealized gains (losses) on general account investments:Holding gains (losses) arising during the period, net of tax
(expense) benefit of $174, $148, $146 and $280
    
    
    (324
    )
    
    
    (276
    )
    
    
    (272
    )
    
    
    (520
    )Reclassification adjustment for (gains) losses included in net
income, net of tax expense (benefit) of $13, $1, $33 and $4
    
    
    (27
    )
    
    
    (1
    )
    
    
    (62
    )
    
    
    (8
    )Net change in unrealized gains (losses) on general account
investments, net of tax (expense) benefit of $187, $149, $179 and
$284
    
    
    (351
    )
    
    
    (277
    )
    
    
    (334
    )
    
    
    (528
    )Net change in unrealized gains (losses) on discontinued operations
and other, net of tax (expense) benefit of $1, $0, $0 and $2
    
    
    (2
    )
    
    
    
    
    
    
    (1
    )
    
    
    1Net change in foreign currency translation adjustment
    
    
    12
    
    
    
    24
    
    
    
    5
    
    
    
    27Net change related to pensions, net of tax (expense) benefit of
$0, $0, $(1) and $0
    
    
    (1
    )
    
    
    
    
    
    
    3
    
    
    
    (1
    )Allocation to participating policyholders and minority interests
    
    
    14
    
    
    
    6
    
    
    
    13
    
    
    
    15Other comprehensive loss, net of tax benefit of $188, $149, $178
and $286
    
    
    (328
    )
    
    
    (247
    )
    
    
    (314
    )
    
    
    (486
    )Total comprehensive income (loss)
    
    $
    (111
    )
    
    $
    (8
    )
    
    $
    199
    
    
    $
    (18
    )
 32




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##### Table of Contents



CNA FINANCIAL CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS, Continued
(UNAUDITED)
 Note K. Business Segments
       33




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##### Table of Contents



CNA FINANCIAL CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS, Continued
(UNAUDITED)
 CorporateStandard
    
    
    Specialty
    
    
    Life and Group
    
    
    and OtherThree months ended
    
    Lines
    
    
    Lines
    
    
    Non-Core
    
    
    Non-Core
    
    
    Eliminations
    
    
    TotalJune 30, 2007(In millions)Net earned premiums
    
    $
    1,055
    
    
    $
    657
    
    
    $
    157
    
    
    $
    4
    
    
    $
    (1
    )
    
    $
    1,872Net investment income
    
    
    277
    
    
    
    120
    
    
    
    188
    
    
    
    86
    
    
    
    
    
    
    
    671Other revenues
    
    
    22
    
    
    
    47
    
    
    
    6
    
    
    
    
    
    
    
    (10
    )
    
    
    65Total operating revenues
    
    
    1,354
    
    
    
    824
    
    
    
    351
    
    
    
    90
    
    
    
    (11
    )
    
    
    2,608Claims, benefits and expenses:Net incurred claims and benefits
    
    
    711
    
    
    
    401
    
    
    
    326
    
    
    
    37
    
    
    
    
    
    
    
    1,475Policyholders dividends
    
    
    (4
    )
    
    
    1
    
    
    
    1
    
    
    
    
    
    
    
    
    
    
    
    (2
    )Amortization of deferred acquisition costs
    
    
    231
    
    
    
    137
    
    
    
    4
    
    
    
    
    
    
    
    
    
    
    
    372Other insurance related expenses
    
    
    110
    
    
    
    34
    
    
    
    44
    
    
    
    11
    
    
    
    (1
    )
    
    
    198Other expenses
    
    
    30
    
    
    
    33
    
    
    
    8
    
    
    
    36
    
    
    
    (10
    )
    
    
    97Total claims, benefits and expenses
    
    
    1,078
    
    
    
    606
    
    
    
    383
    
    
    
    84
    
    
    
    (11
    )
    
    
    2,140Operating income (loss) from continuing operations
before income tax and minority interest
    
    
    276
    
    
    
    218
    
    
    
    (32
    )
    
    
    6
    
    
    
    
    
    
    
    468Income tax (expense) benefit on operating income (loss)
    
    
    (87
    )
    
    
    (72
    )
    
    
    19
    
    
    
    1
    
    
    
    
    
    
    
    (139
    )Minority interest
    
    
    (2
    )
    
    
    (8
    )
    
    
    
    
    
    
    (1
    )
    
    
    
    
    
    
    (11
    )Net operating income (loss) from continuing operations
    
    
    187
    
    
    
    138
    
    
    
    (13
    )
    
    
    6
    
    
    
    
    
    
    
    318Realized investment losses, net of participating
policyholders and minority interests
    
    
    (69
    )
    
    
    (29
    )
    
    
    (18
    )
    
    
    (23
    )
    
    
    
    
    
    
    (139
    )Income tax benefit on realized investment losses
    
    
    24
    
    
    
    9
    
    
    
    6
    
    
    
    9
    
    
    
    
    
    
    
    48Income (loss) from continuing operations
    
    $
    142
    
    
    $
    118
    
    
    $
    (25
    )
    
    $
    (8
    )
    
    $
    
    
    
    $
    227
 34




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##### Table of Contents



CNA FINANCIAL CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS, Continued
(UNAUDITED)
 CorporateStandard
    
    
    Specialty
    
    
    Life and Group
    
    
    and OtherThree months ended
    
    Lines
    
    
    Lines
    
    
    Non-Core
    
    
    Non-Core
    
    
    Eliminations
    
    
    TotalJune 30, 2006(In millions)Net earned premiums
    
    $
    1,096
    
    
    $
    633
    
    
    $
    159
    
    
    $
    5
    
    
    $
    (1
    )
    
    $
    1,892Net investment income
    
    
    238
    
    
    
    99
    
    
    
    138
    
    
    
    77
    
    
    
    
    
    
    
    552Other revenues
    
    
    13
    
    
    
    41
    
    
    
    24
    
    
    
    1
    
    
    
    (13
    )
    
    
    66Total operating revenues
    
    
    1,347
    
    
    
    773
    
    
    
    321
    
    
    
    83
    
    
    
    (14
    )
    
    
    2,510Claims, benefits and expenses:Net incurred claims and benefits
    
    
    741
    
    
    
    388
    
    
    
    266
    
    
    
    31
    
    
    
    
    
    
    
    1,426Policyholders dividends
    
    
    4
    
    
    
    1
    
    
    
    1
    
    
    
    
    
    
    
    
    
    
    
    6Amortization of deferred acquisition costs
    
    
    238
    
    
    
    131
    
    
    
    4
    
    
    
    (1
    )
    
    
    
    
    
    
    372Other insurance related expenses
    
    
    103
    
    
    
    41
    
    
    
    40
    
    
    
    (1
    )
    
    
    (1
    )
    
    
    182Restructuring and other related charges
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (13
    )
    
    
    
    
    
    
    (13
    )Other expenses
    
    
    19
    
    
    
    36
    
    
    
    13
    
    
    
    33
    
    
    
    (13
    )
    
    
    88Total claims, benefits and expenses
    
    
    1,105
    
    
    
    597
    
    
    
    324
    
    
    
    49
    
    
    
    (14
    )
    
    
    2,061Operating income (loss) from continuing operations
before income tax and minority interest
    
    
    242
    
    
    
    176
    
    
    
    (3
    )
    
    
    34
    
    
    
    
    
    
    
    449Income tax (expense) benefit on operating income (loss)
    
    
    (73
    )
    
    
    (58
    )
    
    
    8
    
    
    
    (11
    )
    
    
    
    
    
    
    (134
    )Minority interest
    
    
    (2
    )
    
    
    (8
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (10
    )Net operating income from continuing operations
    
    
    167
    
    
    
    110
    
    
    
    5
    
    
    
    23
    
    
    
    
    
    
    
    305Realized investment losses, net of participating
policyholders and minority interests
    
    
    (37
    )
    
    
    (13
    )
    
    
    (34
    )
    
    
    (14
    )
    
    
    
    
    
    
    (98
    )Income tax benefit on realized investment losses
    
    
    13
    
    
    
    4
    
    
    
    11
    
    
    
    6
    
    
    
    
    
    
    
    34Income (loss) from continuing operations
    
    $
    143
    
    
    $
    101
    
    
    $
    (18
    )
    
    $
    15
    
    
    $
    
    
    
    $
    241
 35




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##### Table of Contents



CNA FINANCIAL CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS, Continued
(UNAUDITED)
 CorporateStandard
    
    
    Specialty
    
    
    Life and Group
    
    
    and OtherSix months ended
    
    Lines
    
    
    Lines
    
    
    Non-Core
    
    
    Non-Core
    
    
    Eliminations
    
    
    TotalJune 30, 2007(In millions)Net earned premiums
    
    $
    2,115
    
    
    $
    1,305
    
    
    $
    313
    
    
    $
    4
    
    
    $
    (2
    )
    
    $
    3,735Net investment income
    
    
    536
    
    
    
    230
    
    
    
    349
    
    
    
    164
    
    
    
    
    
    
    
    1,279Other revenues
    
    
    45
    
    
    
    88
    
    
    
    18
    
    
    
    2
    
    
    
    (21
    )
    
    
    132Total operating revenues
    
    
    2,696
    
    
    
    1,623
    
    
    
    680
    
    
    
    170
    
    
    
    (23
    )
    
    
    5,146Claims, benefits and expenses:Net incurred claims and benefits
    
    
    1,449
    
    
    
    799
    
    
    
    599
    
    
    
    71
    
    
    
    
    
    
    
    2,918Policyholders dividends
    
    
    1
    
    
    
    2
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3Amortization of deferred acquisition costs
    
    
    473
    
    
    
    271
    
    
    
    9
    
    
    
    
    
    
    
    
    
    
    
    753Other insurance related expenses
    
    
    176
    
    
    
    74
    
    
    
    95
    
    
    
    15
    
    
    
    (2
    )
    
    
    358Other expenses
    
    
    55
    
    
    
    71
    
    
    
    17
    
    
    
    67
    
    
    
    (21
    )
    
    
    189Total claims, benefits and expenses
    
    
    2,154
    
    
    
    1,217
    
    
    
    720
    
    
    
    153
    
    
    
    (23
    )
    
    
    4,221Operating income (loss) from continuing operations
before income tax and minority interest
    
    
    542
    
    
    
    406
    
    
    
    (40
    )
    
    
    17
    
    
    
    
    
    
    
    925Income tax (expense) benefit on operating income (loss)
    
    
    (173
    )
    
    
    (134
    )
    
    
    29
    
    
    
    (1
    )
    
    
    
    
    
    
    (279
    )Minority interest
    
    
    (4
    )
    
    
    (16
    )
    
    
    
    
    
    
    (1
    )
    
    
    
    
    
    
    (21
    )Net operating income (loss) from continuing operations
    
    
    365
    
    
    
    256
    
    
    
    (11
    )
    
    
    15
    
    
    
    
    
    
    
    625Realized investment losses, net of participating
policyholders and minority interests
    
    
    (97
    )
    
    
    (39
    )
    
    
    (17
    )
    
    
    (7
    )
    
    
    
    
    
    
    (160
    )Income tax benefit on realized investment losses
    
    
    34
    
    
    
    13
    
    
    
    6
    
    
    
    3
    
    
    
    
    
    
    
    56Income (loss) from continuing operations
    
    $
    302
    
    
    $
    230
    
    
    $
    (22
    )
    
    $
    11
    
    
    $
    
    
    
    $
    521June 30, 2007(In millions)Reinsurance receivables
    
    $
    3,087
    
    
    $
    1,351
    
    
    $
    2,273
    
    
    $
    2,681
    
    
    $
    
    
    
    $
    9,392Insurance receivables
    
    $
    2,109
    
    
    $
    449
    
    
    $
    67
    
    
    $
    (49
    )
    
    $
    
    
    
    $
    2,576Insurance reserves:Claim and claim adjustment expense
    
    $
    14,786
    
    
    $
    5,845
    
    
    $
    3,072
    
    
    $
    5,481
    
    
    $
    
    
    
    $
    29,184Unearned premiums
    
    
    2,136
    
    
    
    1,573
    
    
    
    172
    
    
    
    4
    
    
    
    (2
    )
    
    
    3,883Future policy benefits
    
    
    
    
    
    
    
    
    
    
    6,871
    
    
    
    
    
    
    
    
    
    
    
    6,871Policyholders funds
    
    
    25
    
    
    
    
    
    
    
    975
    
    
    
    
    
    
    
    
    
    
    
    1,000Deferred acquisition costs
    
    $
    415
    
    
    $
    291
    
    
    $
    491
    
    
    $
    
    
    
    $
    
    
    
    $
    1,197
 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 OtherSix months ended
    
    Lines
    
    
    Lines
    
    
    Non-Core
    
    
    Non-Core
    
    
    Eliminations
    
    
    TotalJune 30, 2006(In millions)Net earned premiums
    
    $
    2,182
    
    
    $
    1,261
    
    
    $
    322
    
    
    $
    (2
    )
    
    $
    (2
    )
    
    $
    3,761Net investment income
    
    
    466
    
    
    
    186
    
    
    
    325
    
    
    
    145
    
    
    
    
    
    
    
    1,122Other revenues
    
    
    33
    
    
    
    74
    
    
    
    36
    
    
    
    2
    
    
    
    (26
    )
    
    
    119Total operating revenues
    
    
    2,681
    
    
    
    1,521
    
    
    
    683
    
    
    
    145
    
    
    
    (28
    )
    
    
    5,002Claims, benefits and expenses:Net incurred claims and benefits
    
    
    1,521
    
    
    
    760
    
    
    
    572
    
    
    
    59
    
    
    
    1
    
    
    
    2,913Policyholders dividends
    
    
    8
    
    
    
    2
    
    
    
    1
    
    
    
    
    
    
    
    
    
    
    
    11Amortization of deferred acquisition costs
    
    
    476
    
    
    
    258
    
    
    
    8
    
    
    
    
    
    
    
    
    
    
    
    742Other insurance related expenses
    
    
    204
    
    
    
    78
    
    
    
    93
    
    
    
    16
    
    
    
    (3
    )
    
    
    388Restructuring and other related charges
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (13
    )
    
    
    
    
    
    
    (13
    )Other expenses
    
    
    38
    
    
    
    68
    
    
    
    26
    
    
    
    63
    
    
    
    (26
    )
    
    
    169Total claims, benefits and expenses
    
    
    2,247
    
    
    
    1,166
    
    
    
    700
    
    
    
    125
    
    
    
    (28
    )
    
    
    4,210Operating income (loss) from continuing operations before
income tax and minority interest
    
    
    434
    
    
    
    355
    
    
    
    (17
    )
    
    
    20
    
    
    
    
    
    
    
    792Income tax (expense) benefit on operating income (loss)
    
    
    (129
    )
    
    
    (117
    )
    
    
    19
    
    
    
    (7
    )
    
    
    
    
    
    
    (234
    )Minority interest
    
    
    (5
    )
    
    
    (14
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (19
    )Net operating income from continuing operations
    
    
    300
    
    
    
    224
    
    
    
    2
    
    
    
    13
    
    
    
    
    
    
    
    539Realized investment losses, net of participating
policyholders and minority interests
    
    
    (24
    )
    
    
    (10
    )
    
    
    (46
    )
    
    
    (9
    )
    
    
    
    
    
    
    (89
    )Income tax (expense) benefit on realized investment losses
    
    
    9
    
    
    
    3
    
    
    
    16
    
    
    
    (2
    )
    
    
    
    
    
    
    26Income (loss) from continuing operations
    
    $
    285
    
    
    $
    217
    
    
    $
    (28
    )
    
    $
    2
    
    
    $
    
    
    
    $
    476December 31, 2006(In millions)Reinsurance receivables
    
    $
    3,260
    
    
    $
    1,296
    
    
    $
    2,378
    
    
    $
    3,013
    
    
    $
    
    
    
    $
    9,947Insurance receivables
    
    $
    2,053
    
    
    $
    424
    
    
    $
    52
    
    
    $
    (53
    )
    
    $
    
    
    
    $
    2,476Insurance reserves:Claim and claim adjustment expense
    
    $
    14,934
    
    
    $
    5,529
    
    
    $
    3,134
    
    
    $
    6,039
    
    
    $
    
    
    
    $
    29,636Unearned premiums
    
    
    2,007
    
    
    
    1,599
    
    
    
    173
    
    
    
    5
    
    
    
    
    
    
    
    3,784Future policy benefits
    
    
    
    
    
    
    
    
    
    
    6,645
    
    
    
    
    
    
    
    
    
    
    
    6,645Policyholders funds
    
    
    35
    
    
    
    
    
    
    
    980
    
    
    
    
    
    
    
    
    
    
    
    1,015Deferred acquisition costs
    
    $
    407
    
    
    $
    283
    
    
    $
    500
    
    
    $
    
    
    
    $
    
    
    
    $
    1,190
 37




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##### Table of Contents



CNA FINANCIAL CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS, Continued
(UNAUDITED)
  Revenue by Line of BusinessThree Months
    
    
    Six MonthsPeriod ended June 30
    
    2007
    
    
    2006
    
    
    2007
    
    
    2006(In millions)Standard LinesProperty
    
    $
    321
    
    
    $
    305
    
    
    $
    638
    
    
    $
    592Casualty
    
    
    767
    
    
    
    821
    
    
    
    1,585
    
    
    
    1,708CNA Global
    
    
    197
    
    
    
    184
    
    
    
    376
    
    
    
    357Standard Lines revenue
    
    
    1,285
    
    
    
    1,310
    
    
    
    2,599
    
    
    
    2,657Specialty LinesUS Specialty Lines
    
    
    605
    
    
    
    579
    
    
    
    1,213
    
    
    
    1,160Surety
    
    
    117
    
    
    
    108
    
    
    
    227
    
    
    
    210Warranty
    
    
    73
    
    
    
    73
    
    
    
    144
    
    
    
    141Specialty Lines revenue
    
    
    795
    
    
    
    760
    
    
    
    1,584
    
    
    
    1,511Life and Group Non-CoreLife & Annuity
    
    
    98
    
    
    
    58
    
    
    
    179
    
    
    
    166Health
    
    
    219
    
    
    
    207
    
    
    
    452
    
    
    
    431Other
    
    
    16
    
    
    
    22
    
    
    
    32
    
    
    
    40Life and Group Non-Core revenue
    
    
    333
    
    
    
    287
    
    
    
    663
    
    
    
    637Corporate and Other Non-CoreCNA Re
    
    
    25
    
    
    
    26
    
    
    
    72
    
    
    
    43Other
    
    
    42
    
    
    
    43
    
    
    
    91
    
    
    
    93Corporate and Other Non-Core revenue
    
    
    67
    
    
    
    69
    
    
    
    163
    
    
    
    136Eliminations
    
    
    (11
    )
    
    
    (14
    )
    
    
    (23
    )
    
    
    (28
    )Total revenue
    
    $
    2,469
    
    
    $
    2,412
    
    
    $
    4,986
    
    
    $
    4,913
 38




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##### Table of Contents



CNA FINANCIAL CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS, Continued
(UNAUDITED)
 Note L. Discontinued Operations
   Discontinued OperationsThree Months
    
    
    Six MonthsPeriod ended June 30
    
    2007
    
    
    2006
    
    
    2007
    
    
    2006(In millions)Revenues:Net investment income
    
    $
    3
    
    
    $
    4
    
    
    $
    9
    
    
    $
    8Realized investment gains (losses) and other
    
    
    4
    
    
    
    (3
    )
    
    
    2
    
    
    
    (3
    )Total revenues
    
    
    7
    
    
    
    1
    
    
    
    11
    
    
    
    5Insurance related expenses
    
    
    (19
    )
    
    
    (3
    )
    
    
    (20
    )
    
    
    (13
    )Loss before income taxes
    
    
    (12
    )
    
    
    (2
    )
    
    
    (9
    )
    
    
    (8
    )Income tax benefit
    
    
    2
    
    
    
    
    
    
    
    1
    
    
    
    Loss from discontinued operations, net of tax
    
    $
    (10
    )
    
    $
    (2
    )
    
    $
    (8
    )
    
    $
    (8
    )
   Discontinued Operations(In millions)
    
    June 30, 2007
    
    
    December 31, 2006Assets:Investments
    
    $
    147
    
    
    $
    317Reinsurance receivables
    
    
    1
    
    
    
    33Cash
    
    
    2
    
    
    
    40Other assets
    
    
    22
    
    
    
    3Total assets
    
    
    172
    
    
    
    393Liabilities:Insurance reserves
    
    
    169
    
    
    
    308Other liabilities
    
    
    3
    
    
    
    17Total liabilities
    
    
    172
    
    
    
    325Net assets of discontinued operations
    
    $
    
    
    
    $
    68
 39




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##### Table of Contents



CNA FINANCIAL CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS, Continued
(UNAUDITED)
 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 M. Restructuring and Other Related Charges
 
 40




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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
   
 41




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##### Table of Contents



CNA FINANCIAL CORPORATION
ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS, Continued
 CONSOLIDATED OPERATIONS
 Results of Operations
  Three Months
    
    
    Six MonthsPeriod ended June 30
    
    2007
    
    
    2006
    
    
    2007
    
    
    2006(In millions, except per share data)RevenuesNet earned premiums
    
    $
    1,872
    
    
    $
    1,892
    
    
    $
    3,735
    
    
    $
    3,761Net investment income
    
    
    671
    
    
    
    552
    
    
    
    1,279
    
    
    
    1,122Other revenues
    
    
    65
    
    
    
    66
    
    
    
    132
    
    
    
    119Total operating revenues
    
    
    2,608
    
    
    
    2,510
    
    
    
    5,146
    
    
    
    5,002Claims, Benefits and ExpensesNet incurred claims and benefits
    
    
    1,475
    
    
    
    1,426
    
    
    
    2,918
    
    
    
    2,913Policyholders dividends
    
    
    (2
    )
    
    
    6
    
    
    
    3
    
    
    
    11Amortization of deferred acquisition costs
    
    
    372
    
    
    
    372
    
    
    
    753
    
    
    
    742Other insurance related expenses
    
    
    198
    
    
    
    182
    
    
    
    358
    
    
    
    388Restructuring and other related charges
    
    
    
    
    
    
    (13
    )
    
    
    
    
    
    
    (13
    )Other expenses
    
    
    97
    
    
    
    88
    
    
    
    189
    
    
    
    169Total claims, benefits and expenses
    
    
    2,140
    
    
    
    2,061
    
    
    
    4,221
    
    
    
    4,210Operating income from continuing operations
before income tax and minority interest
    
    
    468
    
    
    
    449
    
    
    
    925
    
    
    
    792Income tax expense on operating income
    
    
    (139
    )
    
    
    (134
    )
    
    
    (279
    )
    
    
    (234
    )Minority interest
    
    
    (11
    )
    
    
    (10
    )
    
    
    (21
    )
    
    
    (19
    )Net operating income from continuing operations
    
    
    318
    
    
    
    305
    
    
    
    625
    
    
    
    539Realized investment losses, net of
participating policyholders and minority
interests
    
    
    (139
    )
    
    
    (98
    )
    
    
    (160
    )
    
    
    (89
    )Income tax benefit on realized investment losses
    
    
    48
    
    
    
    34
    
    
    
    56
    
    
    
    26Income from continuing operations
    
    
    227
    
    
    
    241
    
    
    
    521
    
    
    
    476Loss from discontinued operations, net of
income tax benefit of $2, $0, $1 and $0
    
    
    (10
    )
    
    
    (2
    )
    
    
    (8
    )
    
    
    (8
    )Net income
    
    $
    217
    
    
    $
    239
    
    
    $
    513
    
    
    $
    468Basic and Diluted Earnings Per ShareIncome from continuing operations
    
    $
    0.84
    
    
    $
    0.87
    
    
    $
    1.92
    
    
    $
    1.71Loss from discontinued operations
    
    
    (0.04
    )
    
    
    (0.01
    )
    
    
    (0.03
    )
    
    
    (0.03
    )Basic and diluted earnings per share available
to common stockholders
    
    $
    0.80
    
    
    $
    0.86
    
    
    $
    1.89
    
    
    $
    1.68Weighted average outstanding common stock and
common stock equivalentsBasic
    
    
    271.6
    
    
    
    256.0
    
    
    
    271.5
    
    
    
    256.0Diluted
    
    
    271.9
    
    
    
    256.0
    
    
    
    271.8
    
    
    
    256.0
 42




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##### Table of Contents



CNA FINANCIAL CORPORATION
ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS, Continued
 Three Month Comparison
       Six Month Comparison
     43




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##### Table of Contents



CNA FINANCIAL CORPORATION
ITEM 2. 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
  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, Continued
 SEGMENT RESULTS
  STANDARD LINES
  Results of OperationsThree Months
    
    
    Six MonthsPeriod ended June 30
    
    2007
    
    
    2006
    
    
    2007
    
    
    2006(In millions)Net written premiums
    
    $
    1,134
    
    
    $
    1,163
    
    
    $
    2,215
    
    
    $
    2,273Net earned premiums
    
    
    1,055
    
    
    
    1,096
    
    
    
    2,115
    
    
    
    2,182Net investment income
    
    
    277
    
    
    
    238
    
    
    
    536
    
    
    
    466Net operating income
    
    
    187
    
    
    
    167
    
    
    
    365
    
    
    
    300Net realized investment losses, after-tax
    
    
    (45
    )
    
    
    (24
    )
    
    
    (63
    )
    
    
    (15
    )Net income
    
    
    142
    
    
    
    143
    
    
    
    302
    
    
    
    285RatiosLoss and loss adjustment expense
    
    
    67.4
    %
    
    
    67.6
    %
    
    
    68.5
    %
    
    
    69.7
    %Expense
    
    
    32.3
    
    
    
    31.1
    
    
    
    30.7
    
    
    
    31.1Dividend
    
    
    (0.3
    )
    
    
    0.4
    
    
    
    
    
    
    
    0.4Combined
    
    
    99.4
    %
    
    
    99.1
    %
    
    
    99.2
    %
    
    
    101.2
    %
 Three Month Comparison
     45




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CNA FINANCIAL CORPORATION
ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS, Continued
      Six Month Comparison
       46




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##### Table of Contents



CNA FINANCIAL CORPORATION
ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS, Continued
   Gross and Net CarriedClaim and Claim Adjustment Expense ReservesJune 30, 2007
    
    
    December 31, 2006(In millions)Gross Case Reserves
    
    $
    6,805
    
    
    $
    6,746Gross IBNR Reserves
    
    
    7,981
    
    
    
    8,188Total Gross Carried Claim and Claim
Adjustment Expense Reserves
    
    $
    14,786
    
    
    $
    14,934Net Case Reserves
    
    $
    5,312
    
    
    $
    5,234Net IBNR Reserves
    
    
    6,533
    
    
    
    6,632Total Net Carried Claim and Claim
Adjustment Expense Reserves
    
    $
    11,845
    
    
    $
    11,866
 SPECIALTY LINES
  Results of OperationsThree Months
    
    
    Six MonthsPeriod ended June 30
    
    2007
    
    
    2006
    
    
    2007
    
    
    2006(In millions)Net written premiums
    
    $
    639
    
    
    $
    625
    
    
    $
    1,289
    
    
    $
    1,273Net earned premiums
    
    
    657
    
    
    
    633
    
    
    
    1,305
    
    
    
    1,261Net investment income
    
    
    120
    
    
    
    99
    
    
    
    230
    
    
    
    186Net operating income
    
    
    138
    
    
    
    110
    
    
    
    256
    
    
    
    224Net realized investment losses, after-tax
    
    
    (20
    )
    
    
    (9
    )
    
    
    (26
    )
    
    
    (7
    )Net income
    
    
    118
    
    
    
    101
    
    
    
    230
    
    
    
    217RatiosLoss and loss adjustment expense
    
    
    60.9
    %
    
    
    61.2
    %
    
    
    61.2
    %
    
    
    60.2
    %Expense
    
    
    26.0
    
    
    
    27.2
    
    
    
    26.4
    
    
    
    26.8Dividend
    
    
    0.2
    
    
    
    0.1
    
    
    
    0.2
    
    
    
    0.1Combined
    
    
    87.1
    %
    
    
    88.5
    %
    
    
    87.8
    %
    
    
    87.1
    %
 Three Month Comparison
  47




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CNA FINANCIAL CORPORATION
ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS, Continued
      Six Month Comparison
   
    48




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##### Table of Contents



CNA FINANCIAL CORPORATION
ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS, Continued
   Gross and Net CarriedClaim and Claim Adjustment Expense ReservesJune 30, 2007
    
    
    December 31, 2006(In millions)Gross Case Reserves
    
    $
    1,702
    
    
    $
    1,715Gross IBNR Reserves
    
    
    4,143
    
    
    
    3,814Total Gross Carried Claim and Claim
Adjustment Expense Reserves
    
    $
    5,845
    
    
    $
    5,529Net Case Reserves
    
    $
    1,358
    
    
    $
    1,350Net IBNR Reserves
    
    
    3,130
    
    
    
    2,921Total Net Carried Claim and Claim
Adjustment Expense Reserves
    
    $
    4,488
    
    
    $
    4,271
 LIFE AND GROUP NON-CORE
  Results of OperationsThree Months
    
    Six MonthsPeriod ended June 30
    
    2007
    
    2006
    
    2007
    
    2006(In millions)Net earned premiums
    
    $
    157
    
    
    $
    159
    
    
    $
    313
    
    
    $
    322Net investment income
    
    
    188
    
    
    
    138
    
    
    
    349
    
    
    
    325Net operating income (loss)
    
    
    (13
    )
    
    
    5
    
    
    
    (11
    )
    
    
    2Net realized investment losses, after tax
    
    
    (12
    )
    
    
    (23
    )
    
    
    (11
    )
    
    
    (30
    )Net loss
    
    
    (25
    )
    
    
    (18
    )
    
    
    (22
    )
    
    
    (28
    )
 Three Month Comparison
   49




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##### Table of Contents



CNA FINANCIAL CORPORATION
ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS, Continued
 Six Month Comparison
   CORPORATE AND OTHER NON-CORE
  Results of OperationsThree Months
    
    Six MonthsPeriod ended June 30
    
    2007
    
    2006
    
    2007
    
    2006(In millions)Net investment income
    
    $
    86
    
    
    $
    77
    
    
    $
    164
    
    
    $
    145Revenues
    
    
    56
    
    
    
    55
    
    
    
    140
    
    
    
    108Net operating income
    
    
    6
    
    
    
    23
    
    
    
    15
    
    
    
    13Net realized investment losses, after-tax
    
    
    (14
    )
    
    
    (8
    )
    
    
    (4
    )
    
    
    (11
    )Net income (loss)
    
    
    (8
    )
    
    
    15
    
    
    
    11
    
    
    
    2
 Three Month Comparison
    Six Month Comparison
   50




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##### Table of Contents



CNA FINANCIAL CORPORATION
ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS, Continued
   Gross and Net CarriedClaim and Claim Adjustment Expense ReservesJune 30, 2007
    
    
    December 31, 2006(In millions)Gross Case Reserves
    
    $
    2,390
    
    
    $
    2,511Gross IBNR Reserves
    
    
    3,091
    
    
    
    3,528Total Gross Carried Claim and Claim
Adjustment Expense Reserves
    
    $
    5,481
    
    
    $
    6,039Net Case Reserves
    
    $
    1,423
    
    
    $
    1,453Net IBNR Reserves
    
    
    1,818
    
    
    
    1,999Total Net Carried Claim and Claim
Adjustment Expense Reserves
    
    $
    3,241
    
    
    $
    3,452
 APMT Reserves
    51




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##### Table of Contents



CNA FINANCIAL CORPORATION
ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS, Continued
     Asbestos
    52




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##### Table of Contents



CNA FINANCIAL CORPORATION
ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS, Continued
         Pending Asbestos Accounts and Associated ReservesJune 30, 2007Net Paid Losses
    
    
    Net Asbestos
    
    
    Percent ofNumber of
    
    
    in 2007
    
    
    Reserves
    
    
    AsbestosPolicyholders
    
    
    (In millions)
    
    
    (In millions)
    
    
    Net ReservesPolicyholders with settlement agreementsStructured Settlements
    
    
    14
    
    
    $
    19
    
    
    $
    167
    
    
    
    12
    %Wellington
    
    
    3
    
    
    
    2
    
    
    
    12
    
    
    
    1Coverage in place
    
    
    36
    
    
    
    39
    
    
    
    85
    
    
    
    7Total with settlement agreements
    
    
    53
    
    
    
    60
    
    
    
    264
    
    
    
    20Other policyholders with active accountsLarge asbestos accounts
    
    
    231
    
    
    
    24
    
    
    
    216
    
    
    
    16Small asbestos accounts
    
    
    1,038
    
    
    
    
    
    
    
    87
    
    
    
    6Total other policyholders
    
    
    1,269
    
    
    
    24
    
    
    
    303
    
    
    
    22Assumed reinsurance and pools
    
    
    
    
    
    
    5
    
    
    
    137
    
    
    
    10Unassigned IBNR
    
    
    
    
    
    
    
    
    
    
    662
    
    
    
    48Total
    
    
    1,322
    
    
    $
    89
    
    
    $
    1,366
    
    
    
    100
    %
 53




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##### Table of Contents



CNA FINANCIAL CORPORATION
ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS, Continued
 Pending Asbestos Accounts and Associated ReservesDecember 31, 2006Net Paid(Recovered)Losses
    
    
    Net Asbestos
    
    
    Percent ofNumber of
    
    
    in 2006
    
    
    Reserves
    
    
    AsbestosPolicyholders
    
    
    (In millions)
    
    
    (In millions)
    
    
    Net ReservesPolicyholders with settlement agreementsStructured Settlements
    
    
    15
    
    
    $
    22
    
    
    $
    171
    
    
    
    12
    %Wellington
    
    
    3
    
    
    
    (1
    )
    
    
    14
    
    
    
    1Coverage in place
    
    
    38
    
    
    
    (18
    )
    
    
    132
    
    
    
    9Total with settlement agreements
    
    
    56
    
    
    
    3
    
    
    
    317
    
    
    
    22Other policyholders with active accountsLarge asbestos accounts
    
    
    220
    
    
    
    76
    
    
    
    254
    
    
    
    17Small asbestos accounts
    
    
    1,080
    
    
    
    17
    
    
    
    101
    
    
    
    7Total other policyholders
    
    
    1,300
    
    
    
    93
    
    
    
    355
    
    
    
    24Assumed reinsurance and pools
    
    
    
    
    
    
    6
    
    
    
    141
    
    
    
    10Unassigned IBNR
    
    
    
    
    
    
    
    
    
    
    639
    
    
    
    44Total
    
    
    1,356
    
    
    $
    102
    
    
    $
    1,452
    
    
    
    100
    %
   54




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##### Table of Contents



CNA FINANCIAL CORPORATION
ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS, Continued
  Environmental Pollution and Mass Tort
       55




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##### Table of Contents



CNA FINANCIAL CORPORATION
ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS, Continued
    Pending Environmental Pollution Accounts and Associated ReservesJune 30, 2007NetEnvironmental
    
    
    Percent ofNet Paid Losses
    
    
    Pollution
    
    
    EnvironmentalNumber of
    
    
    in 2007
    
    
    Reserves
    
    
    Pollution NetPolicyholders
    
    
    (In millions)
    
    
    (In millions)
    
    
    ReservePolicyholders with Settlement AgreementsStructured settlements
    
    
    8
    
    
    $
    5
    
    
    $
    6
    
    
    
    2
    %Coverage in place
    
    
    19
    
    
    
    3
    
    
    
    10
    
    
    
    4Total with Settlement Agreements
    
    
    27
    
    
    
    8
    
    
    
    16
    
    
    
    6Other Policyholders with Active AccountsLarge pollution accounts
    
    
    105
    
    
    
    10
    
    
    
    56
    
    
    
    21Small pollution accounts
    
    
    332
    
    
    
    2
    
    
    
    45
    
    
    
    17Total Other Policyholders
    
    
    437
    
    
    
    12
    
    
    
    101
    
    
    
    38Assumed Reinsurance & Pools
    
    
    
    
    
    
    
    
    
    
    32
    
    
    
    12Unassigned IBNR
    
    
    
    
    
    
    
    
    
    
    116
    
    
    
    44Total
    
    
    464
    
    
    $
    20
    
    
    $
    265
    
    
    
    100
    %
 Pending Environmental Pollution Accounts and Associated ReservesDecember 31, 2006NetEnvironmental
    
    
    Percent ofNet Paid Losses
    
    
    Pollution
    
    
    EnvironmentalNumber of
    
    
    in 2006
    
    
    Reserves
    
    
    Pollution NetPolicyholders
    
    
    (In millions)
    
    
    (In millions)
    
    
    ReservePolicyholders with Settlement AgreementsStructured settlements
    
    
    11
    
    
    $
    16
    
    
    $
    9
    
    
    
    3
    %Coverage in place
    
    
    18
    
    
    
    5
    
    
    
    14
    
    
    
    5Total with Settlement Agreements
    
    
    29
    
    
    
    21
    
    
    
    23
    
    
    
    8Other Policyholders with Active AccountsLarge pollution accounts
    
    
    115
    
    
    
    20
    
    
    
    58
    
    
    
    20Small pollution accounts
    
    
    346
    
    
    
    9
    
    
    
    46
    
    
    
    17Total Other Policyholders
    
    
    461
    
    
    
    29
    
    
    
    104
    
    
    
    37Assumed Reinsurance & Pools
    
    
    
    
    
    
    1
    
    
    
    32
    
    
    
    11Unassigned IBNR
    
    
    
    
    
    
    
    
    
    
    126
    
    
    
    44Total
    
    
    490
    
    
    $
    51
    
    
    $
    285
    
    
    
    100
    %
 56




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##### Table of Contents



CNA FINANCIAL CORPORATION
ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS, Continued
 INVESTMENTS
 Net Investment Income
  Net Investment IncomeThree Months
    
    
    Six MonthsPeriod ended June 30
    
    2007
    
    
    2006
    
    
    2007
    
    
    2006(In millions)Fixed maturity securities
    
    $
    526
    
    
    $
    480
    
    
    $
    1,022
    
    
    $
    895Short term investments
    
    
    39
    
    
    
    58
    
    
    
    89
    
    
    
    123Limited partnerships
    
    
    71
    
    
    
    53
    
    
    
    123
    
    
    
    127Equity securities
    
    
    6
    
    
    
    8
    
    
    
    11
    
    
    
    14Income (loss) from trading portfolio (a)
    
    
    40
    
    
    
    (9
    )
    
    
    43
    
    
    
    33Interest on funds withheld and other deposits
    
    
    
    
    
    
    (30
    )
    
    
    (1
    )
    
    
    (55
    )Other
    
    
    12
    
    
    
    5
    
    
    
    23
    
    
    
    8Gross investment income
    
    
    694
    
    
    
    565
    
    
    
    1,310
    
    
    
    1,145Investment expense
    
    
    (23
    )
    
    
    (13
    )
    
    
    (31
    )
    
    
    (23
    )Net investment income
    
    $
    671
    
    
    $
    552
    
    
    $
    1,279
    
    
    $
    1,122
     57




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##### Table of Contents



CNA FINANCIAL CORPORATION
ITEM 2. 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
    
    
    Six MonthsPeriod ended June 30
    
    2007
    
    
    2006
    
    
    2007
    
    
    2006(In millions)Fixed maturity securities:U.S. Government bonds
    
    $
    (96
    )
    
    $
    
    
    
    $
    (94
    )
    
    $
    4Corporate and other taxable bonds
    
    
    (50
    )
    
    
    (76
    )
    
    
    (25
    )
    
    
    (96
    )Tax-exempt bonds
    
    
    (42
    )
    
    
    (14
    )
    
    
    (53
    )
    
    
    11Asset-backed bonds
    
    
    (77
    )
    
    
    (5
    )
    
    
    (110
    )
    
    
    (14
    )Redeemable preferred stock
    
    
    (1
    )
    
    
    (1
    )
    
    
    (1
    )
    
    
    (1
    )Total fixed maturity securities
    
    
    (266
    )
    
    
    (96
    )
    
    
    (283
    )
    
    
    (96
    )Equity securities
    
    
    11
    
    
    
    3
    
    
    
    14
    
    
    
    6Derivative securities
    
    
    115
    
    
    
    (2
    )
    
    
    107
    
    
    
    5Short term investments
    
    
    
    
    
    
    (2
    )
    
    
    
    
    
    
    (4
    )Other, net of participating policyholders interest
    
    
    
    
    
    
    (2
    )
    
    
    1
    
    
    
    (2
    )Realized investment losses before allocation to participating
policyholders and minority interests
    
    
    (140
    )
    
    
    (99
    )
    
    
    (161
    )
    
    
    (91
    )Allocated to participating policyholders and minority interests
    
    
    1
    
    
    
    1
    
    
    
    1
    
    
    
    2Income tax benefit
    
    
    48
    
    
    
    34
    
    
    
    56
    
    
    
    26Net realized investment losses, net of participating
policyholders and minority interests
    
    $
    (91
    )
    
    $
    (64
    )
    
    $
    (104
    )
    
    $
    (63
    )
    58




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##### Table of Contents



CNA FINANCIAL CORPORATION
ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS, Continued
    Effective DurationsJune 30, 2007
    
    
    December 31, 2006Effective Duration
    
    
    
    
    
    
    Effective DurationFair Value
    
    
    (In years)
    
    
    Fair Value
    
    
    (In years)(In millions)Segregated investments
    
    $
    8,585
    
    
    
    9.9
    
    
    $
    8,524
    
    
    
    9.8Other interest sensitive investments
    
    
    29,995
    
    
    
    3.5
    
    
    
    30,178
    
    
    
    3.2Total
    
    $
    38,580
    
    
    
    5.0
    
    
    $
    38,702
    
    
    
    4.7
  â
  59




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CNA FINANCIAL CORPORATION
ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS, Continued
  Realized Gains and LossesThree Months
    
    
    Six MonthsPeriod ended June 30
    
    2007
    
    
    2006
    
    
    2007
    
    
    2006(In millions)Net realized gains (losses) on fixed maturity securities and equity
securities:Fixed maturity securities:Gross realized gains
    
    $
    45
    
    
    $
    25
    
    
    $
    143
    
    
    $
    102Gross realized losses
    
    
    (311
    )
    
    
    (121
    )
    
    
    (426
    )
    
    
    (198
    )Net realized losses on fixed maturity securities
    
    
    (266
    )
    
    
    (96
    )
    
    
    (283
    )
    
    
    (96
    )Equity securities:Gross realized gains
    
    
    13
    
    
    
    4
    
    
    
    20
    
    
    
    8Gross realized losses
    
    
    (2
    )
    
    
    (1
    )
    
    
    (6
    )
    
    
    (2
    )Net realized gains on equity securities
    
    
    11
    
    
    
    3
    
    
    
    14
    
    
    
    6Net realized losses on fixed maturity and equity securities
    
    $
    (255
    )
    
    $
    (93
    )
    
    $
    (269
    )
    
    $
    (90
    )
  Largest Realized Losses from Securities Sold at a LossSix months ended June 30, 2007
    
    Fair
    
    
    
    
    
    
    Months inValue at
    
    
    
    
    
    
    UnrealizedDate of
    
    
    Loss
    
    
    Loss PriorIssuer Description and Discussion
    
    Sale
    
    
    On Sale
    
    
    To Sale (a)(In millions)Various notes and bonds issued by the United States
Treasury. Securities sold due to inflationary outlook
and asset class reallocation.
    
    $
    8,435
    
    
    $
    78
    
    
    
    0-6Mortgage-backed pass-through securities sold based on
view of interest rate changes.
    
    
    376
    
    
    
    9
    
    
    
    0-6Total
    
    $
    8,811
    
    
    $
    87
  60




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##### Table of Contents



CNA FINANCIAL CORPORATION
ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS, Continued
 Valuation and Impairment of Investments
  Carrying Value of InvestmentsJune 30,
    
    
    
    
    
    
    December 31,2007
    
    
    %
    
    
    2006
    
    
    %(In millions)General account investments:Fixed maturity securities available-for-sale:U.S. Treasury securities and obligations of government agencies
    
    $
    3,641
    
    
    
    8
    %
    
    $
    5,138
    
    
    
    12
    %Asset-backed securities
    
    
    10,740
    
    
    
    24
    
    
    
    13,677
    
    
    
    31States, municipalities and political subdivisions  tax-exempt
    
    
    7,937
    
    
    
    18
    
    
    
    5,146
    
    
    
    12Corporate securities
    
    
    7,336
    
    
    
    17
    
    
    
    7,132
    
    
    
    16Other debt securities
    
    
    3,646
    
    
    
    8
    
    
    
    3,642
    
    
    
    8Redeemable preferred stock
    
    
    1,055
    
    
    
    2
    
    
    
    912
    
    
    
    2Total fixed maturity securities available-for-sale
    
    
    34,355
    
    
    
    77
    
    
    
    35,647
    
    
    
    81Fixed maturity securities trading:U.S. Treasury securities and obligations of government agencies
    
    
    4
    
    
    
    
    
    
    
    2
    
    
    
    Asset-backed securities
    
    
    53
    
    
    
    
    
    
    
    55
    
    
    
    Corporate securities
    
    
    124
    
    
    
    
    
    
    
    133
    
    
    
    1Other debt securities
    
    
    18
    
    
    
    
    
    
    
    14
    
    
    
    Total fixed maturity securities trading
    
    
    199
    
    
    
    
    
    
    
    204
    
    
    
    1Equity securities available-for-sale:Common stock
    
    
    470
    
    
    
    1
    
    
    
    452
    
    
    
    1Preferred stock
    
    
    141
    
    
    
    
    
    
    
    145
    
    
    
    Total equity securities available-for-sale
    
    
    611
    
    
    
    1
    
    
    
    597
    
    
    
    1Total equity securities trading
    
    
    74
    
    
    
    
    
    
    
    60
    
    
    
    Short term investments available-for-sale
    
    
    6,901
    
    
    
    16
    
    
    
    5,538
    
    
    
    13Short term investments trading
    
    
    207
    
    
    
    1
    
    
    
    172
    
    
    
    Limited partnerships
    
    
    2,012
    
    
    
    5
    
    
    
    1,852
    
    
    
    4Other investments
    
    
    68
    
    
    
    
    
    
    
    26
    
    
    
    Total general account investments
    
    $
    44,427
    
    
    
    100
    %
    
    $
    44,096
    
    
    
    100
    %
   61




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##### Table of Contents



CNA FINANCIAL CORPORATION
ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS, Continued
 Sub-prime Mortgage Exposure
   Maturity ProfilePercent of
    
    
    Percent ofMarket
    
    
    UnrealizedValue
    
    
    LossDue in one year or less
    
    
    5
    %
    
    
    2
    %Due after one year through five years
    
    
    29
    
    
    
    27Due after five years through ten years
    
    
    36
    
    
    
    30Due after ten years
    
    
    30
    
    
    
    41Total
    
    
    100
    %
    
    
    100
    %
  Unrealized Loss Aging for Non-investment Grade SecuritiesFair Value as a Percentage of Amortized Cost
    
    
    GrossEstimated
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    UnrealizedJune 30, 2007
    
    Fair Value
    
    
    90-99%
    
    
    80-89%
    
    
    70-79%
    
    
    <70%
    
    
    Loss(In millions)Fixed maturity securities:0-6 months
    
    $
    1,089
    
    
    $
    5
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    57-12 months
    
    
    14
    
    
    
    1
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    113-24 months
    
    
    17
    
    
    
    1
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1Greater than 24 months
    
    
    2
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Total non-investment grade
    
    $
    1,122
    
    
    $
    7
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    7
 62




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##### Table of Contents



CNA FINANCIAL CORPORATION
ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS, Continued
 Unrealized Loss Aging for Non-investment Grade SecuritiesFair Value as a Percentage of Amortized Cost
    
    
    GrossEstimated
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    UnrealizedDecember 31, 2006
    
    Fair Value
    
    
    90-99%
    
    
    80-89%
    
    
    70-79%
    
    
    <70%
    
    
    Loss(In millions)Fixed maturity securities:0-6 months
    
    $
    509
    
    
    $
    2
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    27-12 months
    
    
    87
    
    
    
    1
    
    
    
    1
    
    
    
    
    
    
    
    
    
    
    
    213-24 months
    
    
    24
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Greater than 24 months
    
    
    2
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Total non-investment grade
    
    $
    622
    
    
    $
    3
    
    
    $
    1
    
    
    $
    
    
    
    $
    
    
    
    $
    4
    General Account Bond RatingsJune 30,
    
    
    
    
    
    
    December 31,2007
    
    
    %
    
    
    2006
    
    
    %(In millions)U.S. Government and affiliated agency securities
    
    $
    3,777
    
    
    
    11
    %
    
    $
    5,285
    
    
    
    15
    %Other AAA rated
    
    
    15,320
    
    
    
    46
    
    
    
    16,311
    
    
    
    47AA and A rated
    
    
    5,713
    
    
    
    17
    
    
    
    5,222
    
    
    
    15BBB rated
    
    
    5,320
    
    
    
    16
    
    
    
    4,933
    
    
    
    14Non investment-grade
    
    
    3,369
    
    
    
    10
    
    
    
    3,188
    
    
    
    9Total
    
    $
    33,499
    
    
    
    100
    %
    
    $
    34,939
    
    
    
    100
    %
   63




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##### Table of Contents



CNA FINANCIAL CORPORATION
ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS, Continued
    Short term InvestmentsJune 30,
    
    
    December 31,2007
    
    
    2006(In millions)Short term investments available-for-sale:Commercial paper
    
    $
    1,264
    
    
    $
    923U.S. Treasury securities
    
    
    1,639
    
    
    
    1,093Money market funds
    
    
    341
    
    
    
    196Other, including collateral held related to securities lending
    
    
    3,657
    
    
    
    3,326Total short term investments available-for-sale
    
    
    6,901
    
    
    
    5,538Short term investments trading:Commercial paper
    
    
    77
    
    
    
    43U.S. Treasury securities
    
    
    1
    
    
    
    2Money market funds
    
    
    129
    
    
    
    127Total short term investments trading
    
    
    207
    
    
    
    172Total short term investments
    
    $
    7,108
    
    
    $
    5,710
  LIQUIDITY AND CAPITAL RESOURCES
 Cash Flow
     64




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##### Table of Contents



CNA FINANCIAL CORPORATION
ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS, Continued
     Dividends
  Regulatory Matters
    65




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CNA FINANCIAL CORPORATION
ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS, Continued
 Accounting Pronouncements
 Statement of Financial Accounting Standard (SFAS) No. 157, Fair Value Measurement
  SFAS No. 159, The Fair Value Option for Financial Assets and Financial Liabilities (SFAS 159)
  Disclosures about Fair Value of Financial Instruments
 FORWARD-LOOKING STATEMENTS
  66




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##### Table of Contents



CNA FINANCIAL CORPORATION
ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS, Continued
  
    
    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;
    
    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, natural disasters such as hurricanes and
earthquakes, as well as climate change, including effects on weather patterns, greenhouse
gases, sea, land and air temperatures, sea levels, rain and snow;
    
    man-made disasters, including the possible occurrence of terrorist attacks and the
effect of the absence or insufficiency of applicable terrorism legislation on coverages;
    
    the unpredictability of the nature, targets, severity or frequency of potential
terrorist events, as well as the uncertainty as to our ability to contain our terrorism
exposure effectively, notwithstanding the extension through December 31, 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;
 67




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##### Table of Contents



CNA FINANCIAL CORPORATION
ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS, Continued
 
    
    whether a national privately financed trust to replace litigation of asbestos
claims with payments to claimants from the trust will be established or approved through
federal legislation, or, if established and approved, whether it will contain funding
requirements in excess of 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 and the Reserves  Estimates and Uncertainties sections of our
Annual Report on Form 10-K for the period ended December 31, 2006;
    
    the level of success in integrating acquired businesses and operations, and in
consolidating, or selling existing ones;
    
    the possibility of changes in our ratings by ratings agencies, including the
inability to access certain markets or distribution channels and the required
collateralization of future payment obligations as a result of such changes, and changes in
rating agency policies and practices; and
    
    the actual closing of contemplated transactions and agreements.
  68




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CNA FINANCIAL CORPORATION
 
 ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
  69




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##### Table of Contents



CNA FINANCIAL CORPORATION
 
 ITEM 4. CONTROLS AND PROCEDURES
    70




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CNA FINANCIAL CORPORATION
 
 PART II. OTHER INFORMATION
 
 Item 1. Legal Proceedings
  
 Item 4. Submission of Matters to a Vote of Security Holders
      Votes For
    
    Votes WithheldStephen W. Lilienthal
    
    
    254,657,720
    
    
    
    11,553,304Paul J. Liska
    
    
    253,970,519
    
    
    
    12,240,505Jose O. Montemayor
    
    
    265,496,658
    
    
    
    714,366Don M. Randel
    
    
    265,497,808
    
    
    
    713,216Joseph Rosenberg
    
    
    253,421,594
    
    
    
    12,789,430Andrew H. Tisch
    
    
    253,421,864
    
    
    
    12,789,160James S. Tisch
    
    
    253,573,875
    
    
    
    12,637,149Marvin Zonis
    
    
    264,677,181
    
    
    
    1,533,843
    Votes For
    
    Votes Against
    
    Votes AbstainedDeloitte & Touche LLP
    
    
    265,662,871
    
    
    
    545,889
    
    
    
    2,264
 
 Item 6. Exhibits
  Description of Exhibit
    
    Exhibit NumberCertification of Chief Executive Officer
    
    
    31.1Certification of Chief Financial Officer
    
    
    31.2Written Statement of the Chief Executive Officer of CNA Financial Corporation Pursuant
to 18 U.S.C. Section 1350 (As adopted by Section 906 of the Sarbanes-Oxley Act of 2002)
    
    
    32.1Written Statement of the Chief Financial Officer of CNA Financial Corporation Pursuant
to 18 U.S.C. Section 1350 (As adopted by Section 906 of the Sarbanes-Oxley Act of 2002)
    
    
    32.2
 71




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##### Table of Contents



CNA FINANCIAL CORPORATION
PART II. OTHER INFORMATION
 
 SIGNATURES
  CNA Financial CorporationDated: July 27, 2007
    
    By
    
    /s/ D. Craig MenseD. Craig Mense
Executive Vice President and
Chief Financial Officer