##### Table of Contents



UNITED STATES 
SECURITIES AND EXCHANGE COMMISSION
  
 FORM 10-Q
 Ö
 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)
  Ö
  Ö
  Ö
  Class
    

Outstanding
at October 27, 2006Common Stock, Par value $2.50
    
    270,929,753




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##### 



CNA FINANCIAL CORPORATION  INDEX
  
 Item
    
    
    
    PageNumber
    
    
    
    NumberPART I. Financial Information1.
    
    Condensed Consolidated Financial Statements (Unaudited):Condensed Consolidated Balance Sheets at September 30,
2006 and at December 31, 2005
    
    
    3Condensed Consolidated Statements of Operations for the
Three and Nine Months Ended September 30, 2006 and 2005
    
    
    4Condensed Consolidated Statements of Cash Flows for the
Nine Months Ended September 30, 2006 and 2005
    
    
    5Condensed Consolidated Statements of Stockholders Equity
for the Nine Months Ended September 30, 2006 and 2005
    
    
    7Notes to Condensed Consolidated Financial Statements
    
    
    82.
    
    Managements Discussion and Analysis of Financial
Condition and Results of Operations
    
    
    553.
    
    Quantitative and Qualitative Disclosures about Market Risk
    
    
    924.
    
    Controls and Procedures
    
    
    96PART II. Other Information1.
    
    Legal Proceedings
    
    
    971A.
    
    Risk Factors
    
    
    976.
    
    Exhibits
    
    
    97Signatures
    
    
    98Certifications
    
    
    99302 Certification of Chief Executive Officer302 Certification of Chief Financial Officer906 Certification of Chief Executive Officer906 Certification of Chief Financial Officer
  2




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##### Table of Contents



CNA FINANCIAL CORPORATION
 
 PART I. FINANCIAL INFORMATION
 
 ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 
 CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)
 September 30,
    
    
    December 31,2006
    
    
    2005(In millions, except share data)AssetsInvestments:Fixed maturity securities at fair value (amortized cost of $31,457 and $32,616)
    
    $
    32,150
    
    
    $
    33,234Equity securities at fair value (cost of $395 and $511)
    
    
    576
    
    
    
    681Limited partnership investments
    
    
    1,723
    
    
    
    1,509Other invested assets
    
    
    30
    
    
    
    33Short term investments at cost, which approximates fair value
    
    
    8,460
    
    
    
    4,238Total investments
    
    
    42,939
    
    
    
    39,695Cash
    
    
    98
    
    
    
    96Reinsurance receivables (less allowance for uncollectible receivables of $535 and $519)
    
    
    10,368
    
    
    
    11,917Insurance receivables (less allowance for doubtful accounts of $420 and $445)
    
    
    1,872
    
    
    
    1,866Accrued investment income
    
    
    326
    
    
    
    312Receivables for securities sold
    
    
    899
    
    
    
    565Deferred acquisition costs
    
    
    1,220
    
    
    
    1,197Prepaid reinsurance premiums
    
    
    367
    
    
    
    340Federal income taxes recoverable (includes $0 and $68 due from Loews Corporation)
    
    
    -
    
    
    
    62Deferred income taxes
    
    
    912
    
    
    
    1,105Property and equipment at cost (less accumulated depreciation of $562 and $546)
    
    
    239
    
    
    
    197Goodwill and other intangible assets
    
    
    142
    
    
    
    146Other assets
    
    
    650
    
    
    
    737Separate account business
    
    
    525
    
    
    
    551Total assets
    
    $
    60,557
    
    
    $
    58,786Liabilities and Stockholders EquityLiabilities:Insurance reserves:Claim and claim adjustment expense
    
    $
    30,141
    
    
    $
    30,938Unearned premiums
    
    
    3,871
    
    
    
    3,706Future policy benefits
    
    
    6,552
    
    
    
    6,297Policyholders funds
    
    
    1,049
    
    
    
    1,495Collateral on loaned securities
    
    
    2,385
    
    
    
    767Payables for securities purchased
    
    
    693
    
    
    
    129Participating policyholders funds
    
    
    49
    
    
    
    53Short term debt
    
    
    250
    
    
    
    252Long term debt
    
    
    2,155
    
    
    
    1,438Federal income taxes payable (includes $85 and $0 due to Loews Corporation)
    
    
    91
    
    
    
    -Reinsurance balances payable
    
    
    886
    
    
    
    1,636Other liabilities
    
    
    2,256
    
    
    
    2,283Separate account business
    
    
    525
    
    
    
    551Total liabilities
    
    
    50,903
    
    
    
    49,545Commitments and contingencies (Notes D, G, H, J and L)Minority interest
    
    
    325
    
    
    
    291Stockholders equity:Preferred stock (12,500,000 shares authorized)
Series H Issue (no par value; $100,000 stated value; no shares and 7,500 shares
issued; held by Loews Corporation)
    
    
    -
    
    
    
    750Common stock ($2.50 par value; 500,000,000 shares authorized; 273,040,543 and
258,177,285 shares issued; and 270,929,753 and 256,001,968 shares outstanding)
    
    
    683
    
    
    
    645Additional paid-in capital
    
    
    2,166
    
    
    
    1,701Retained earnings
    
    
    6,157
    
    
    
    5,621Accumulated other comprehensive income
    
    
    447
    
    
    
    359Treasury stock (2,110,790 and 2,175,317 shares), at cost
    
    
    (65
    )
    
    
    (67
    )9,388
    
    
    
    9,009Notes receivable for the issuance of common stock
    
    
    (59
    )
    
    
    (59
    )Total stockholders equity
    
    
    9,329
    
    
    
    8,950Total liabilities and stockholders equity
    
    $
    60,557
    
    
    $
    58,786
  3




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CNA FINANCIAL CORPORATION
 
 CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
 Three Months
    
    
    Nine MonthsPeriod ended September 30
    
    2006
    
    
    2005
    
    
    2006
    
    
    2005(In millions, except per share data)
    
    
    
    
    
    Restated
    
    
    
    
    
    
    RestatedSee Note T
    
    
    
    
    
    
    See Note TRevenuesNet earned premiums
    
    $
    1,943
    
    
    $
    1,873
    
    
    $
    5,704
    
    
    $
    5,684Net investment income
    
    
    600
    
    
    
    500
    
    
    
    1,722
    
    
    
    1,345Realized investment gains (losses), net of
participating policyholders and minority
interests
    
    
    21
    
    
    
    67
    
    
    
    (68
    )
    
    
    74Other revenues
    
    
    56
    
    
    
    80
    
    
    
    175
    
    
    
    351Total revenues
    
    
    2,620
    
    
    
    2,520
    
    
    
    7,533
    
    
    
    7,454Claims, Benefits and ExpensesInsurance claims and policyholders benefits
    
    
    1,522
    
    
    
    1,871
    
    
    
    4,446
    
    
    
    4,886Amortization of deferred acquisition costs
    
    
    390
    
    
    
    416
    
    
    
    1,132
    
    
    
    1,168Other operating expenses
    
    
    224
    
    
    
    241
    
    
    
    723
    
    
    
    766Restructuring and other related charges
    
    
    -
    
    
    
    -
    
    
    
    (13
    )
    
    
    -Interest
    
    
    35
    
    
    
    29
    
    
    
    93
    
    
    
    96Total claims, benefits and expenses
    
    
    2,171
    
    
    
    2,557
    
    
    
    6,381
    
    
    
    6,916Income (loss) before income tax and minority interest
    
    
    449
    
    
    
    (37
    )
    
    
    1,152
    
    
    
    538Income tax (expense) benefit
    
    
    (131
    )
    
    
    51
    
    
    
    (339
    )
    
    
    (53
    )Minority interest
    
    
    (13
    )
    
    
    (11
    )
    
    
    (32
    )
    
    
    (16
    )Income from continuing operations
    
    
    305
    
    
    
    3
    
    
    
    781
    
    
    
    469Income (loss) from discontinued operations, net of
income tax benefit of $9, $0, $9 and $0
    
    
    6
    
    
    
    3
    
    
    
    (2
    )
    
    
    12Net income
    
    $
    311
    
    
    $
    6
    
    
    $
    779
    
    
    $
    481Basic and Diluted Earnings (Loss) Per ShareIncome (loss) from continuing operations
    
    $
    1.13
    
    
    $
    (0.06
    )
    
    $
    2.84
    
    
    $
    1.63Income (loss) from discontinued operations
    
    
    0.02
    
    
    
    0.02
    
    
    
    (0.01
    )
    
    
    0.05Basic and diluted earnings (loss) per share
available to common stockholders
    
    $
    1.15
    
    
    $
    (0.04
    )
    
    $
    2.83
    
    
    $
    1.68Weighted average outstanding common stock and common
stock equivalentsBasic
    
    
    265.0
    
    
    
    256.0
    
    
    
    259.0
    
    
    
    256.0Diluted
    
    
    265.2
    
    
    
    256.0
    
    
    
    259.2
    
    
    
    256.0
  4




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CNA FINANCIAL CORPORATION
 
 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
 Nine months ended September 30
    
    2006
    
    
    2005(In millions)
    
    
    
    
    
    RestatedSee Note TCash Flows from Operating Activities:Net income
    
    $
    779
    
    
    $
    481Adjustments to reconcile net income to net cash flows provided
by operating activities:(Income) loss from discontinued operations
    
    
    2
    
    
    
    (12
    )Loss (gain) on disposal of property and equipment
    
    
    -
    
    
    
    (9
    )Minority interest
    
    
    32
    
    
    
    16Deferred income tax provision
    
    
    163
    
    
    
    (37
    )Trading securities
    
    
    391
    
    
    
    112Realized investment (gains) losses, net of participating
policyholders and minority interests
    
    
    68
    
    
    
    (74
    )Undistributed earnings of equity method investees
    
    
    (70
    )
    
    
    (46
    )Net amortization of bond (discount) premium
    
    
    (211
    )
    
    
    (84
    )Depreciation
    
    
    35
    
    
    
    41Changes in:Receivables, net
    
    
    1,543
    
    
    
    1,571Deferred acquisition costs
    
    
    (23
    )
    
    
    34Accrued investment income
    
    
    (14
    )
    
    
    (20
    )Federal income taxes recoverable/payable
    
    
    153
    
    
    
    (211
    )Prepaid reinsurance premiums
    
    
    (27
    )
    
    
    214Reinsurance balances payable
    
    
    (750
    )
    
    
    (331
    )Insurance reserves
    
    
    (315
    )
    
    
    58Other, net
    
    
    27
    
    
    
    (210
    )Total adjustments
    
    
    1,004
    
    
    
    1,012Net cash flows provided by operating activities-continuing
operations
    
    
    1,783
    
    
    
    1,493Net cash flows used by operating activities-discontinued
operations
    
    
    -
    
    
    
    (33
    )Net cash flows provided by operating activities-total
    
    
    1,783
    
    
    
    1,460Cash Flows from Investing Activities:Purchases of fixed maturity securities
    
    
    (32,425
    )
    
    
    (46,204
    )Proceeds from fixed maturity securities:Sales
    
    
    30,942
    
    
    
    41,418Maturities, calls and redemptions
    
    
    3,114
    
    
    
    3,788Purchases of equity securities
    
    
    (267
    )
    
    
    (361
    )Proceeds from sales of equity securities
    
    
    153
    
    
    
    276Change in short term investments
    
    
    (4,381
    )
    
    
    (896
    )Change in collateral on loaned securities
    
    
    1,618
    
    
    
    1,088Change in other investments
    
    
    (139
    )
    
    
    72Purchases of property and equipment
    
    
    (87
    )
    
    
    (28
    )Dispositions
    
    
    7
    
    
    
    12Other, net
    
    
    (49
    )
    
    
    42Net cash flows used by investing activities-continuing operations
    
    
    (1,514
    )
    
    
    (793
    )Net cash flows provided (used) by investing
activities-discontinued operations
    
    
    24
    
    
    
    (3
    )Net cash flows used by investing activities-total
    
    
    (1,490
    )
    
    
    (796
    )
  5




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CNA FINANCIAL CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS, Continued
(UNAUDITED)
 Nine months ended September 30
    
    2006
    
    
    2005(In millions)
    
    
    
    
    
    RestatedSee Note TCash Flows from Financing Activities:Proceeds from the issuance of long-term debt
    
    
    759
    
    
    
    -Principal payments on debt
    
    
    (44
    )
    
    
    (507
    )Return of investment contract account balances
    
    
    (510
    )
    
    
    (168
    )Receipts of investment contract account balances
    
    
    2
    
    
    
    4Payment to repurchase Series H Issue preferred stock
    
    
    (993
    )
    
    
    -Proceeds from the issuance of common stock
    
    
    499
    
    
    
    -Stock options exercised by officers
    
    
    4
    
    
    
    -Other, net
    
    
    1
    
    
    
    4Net cash flows used by financing activities-continuing operations
    
    
    (282
    )
    
    
    (667
    )Net cash flows used by financing activities-discontinued
operations
    
    
    -
    
    
    
    -Net cash flows used by financing activities-total
    
    
    (282
    )
    
    
    (667
    )Net change in cash
    
    
    11
    
    
    
    (3
    )Net cash transactions from continuing operations to discontinued
operations
    
    
    15
    
    
    
    (42
    )Net cash transactions from discontinued operations to continuing
operations
    
    
    (15
    )
    
    
    42Cash, beginning of year
    
    
    125
    
    
    
    109Cash, end of period
    
    $
    136
    
    
    $
    106Cash-continuing operations
    
    $
    98
    
    
    $
    86Cash-discontinued operations
    
    
    38
    
    
    
    20Cash-total
    
    
    136
    
    
    
    106
 
 6




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CNA FINANCIAL CORPORATION
 
 CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITY
(UNAUDITED)
 Nine months ended September 30
    
    2006
    
    
    2005(In millions)
    
    
    
    
    
    RestatedSee Note TPreferred StockBalance, beginning of period
    
    $
    750
    
    
    $
    750Repurchase of Series H Issue
    
    
    (750
    )
    
    
    -Balance, end of period
    
    
    -
    
    
    
    750Common StockBalance, beginning of period
    
    
    645
    
    
    
    645Issuance of common stock
    
    
    38
    
    
    
    -Balance, end of period
    
    
    683
    
    
    
    645Additional Paid-in CapitalBalance, beginning of period
    
    
    1,701
    
    
    
    1,701Issuance of common stock and other
    
    
    465
    
    
    
    -Balance, end of period
    
    
    2,166
    
    
    
    1,701Retained EarningsBalance, beginning of period
    
    
    5,621
    
    
    
    5,357Net income
    
    
    779
    
    
    
    481Liquidation preference in excess of par value on Series H Issue
    
    
    (243
    )
    
    
    -Balance, end of period
    
    
    6,157
    
    
    
    5,838Accumulated Other Comprehensive Income (Loss)Balance, beginning of period
    
    
    359
    
    
    
    661Other comprehensive income (loss)
    
    
    88
    
    
    
    (273
    )Balance, end of period
    
    
    447
    
    
    
    388Treasury StockBalance, beginning of period
    
    
    (67
    )
    
    
    (69
    )Stock options exercised
    
    
    2
    
    
    
    -Balance, end of period
    
    
    (65
    )
    
    
    (69
    )Notes Receivable for the Issuance of Common StockBalance, beginning of period
    
    
    (59
    )
    
    
    (71
    )Decrease in notes receivable for the issuance of common stock
    
    
    -
    
    
    
    13Balance, end of period
    
    
    (59
    )
    
    
    (58
    )Total Stockholders Equity
    
    $
    9,329
    
    
    $
    9,195
  7




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##### Table of Contents



CNA FINANCIAL CORPORATION
 
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
 Note A. Basis of Presentation
    Note B. Accounting Pronouncements
 Accounting Changes and Error Correction Accounting
Changes, Reporting Accounting Changes in Interim Financial
Statements
 The
Meaning of Other-Than-Temporary Impairment and its Application to Certain Investments Accounting for Certain Investments in Debt and Equity Securities The Equity Method of Accounting for Investments in Common Stock The Meaning of
Other-Than-Temporary Impairment and its Application to Certain Investments
 8




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CNA FINANCIAL CORPORATION  NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS, Continued  (UNAUDITED)
  Share-Based Payment Accounting for Stock-Based Compensation Accounting for Stock Issued to
Employees Transition Election Related to Accounting for the Tax Effects of
Share-Based Payment Awards
  Employers Accounting for Defined Benefit Pension and Other
Postretirement Plans (an amendment of FASB Statements No. 87, 88, 106 and 132(R))
 Note C. Earnings Per Share
    9




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CNA FINANCIAL CORPORATION  NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS, Continued  (UNAUDITED)
  Earnings Per ShareThree Months
    
    
    Nine MonthsPeriod ended September 30
    
    2006
    
    
    2005
    
    
    2006
    
    
    2005(In millions, except per share amounts)Income from continuing operations
    
    $
    305
    
    
    $
    3
    
    
    $
    781
    
    
    $
    469Less: undeclared preferred stock dividend through repurchase date
    
    
    (8
    )
    
    
    (17
    )
    
    
    (46
    )
    
    
    (52
    )Income (loss) from continuing operations available to common
stockholders
    
    $
    297
    
    
    $
    (14
    )
    
    $
    735
    
    
    $
    417Weighted average outstanding common stock and common stock
equivalents
    
    
    265.0
    
    
    
    256.0
    
    
    
    259.0
    
    
    
    256.0Effect of dilutive securities, employee stock options
    
    
    0.2
    
    
    
    -
    
    
    
    0.2
    
    
    
    -Adjusted weighted average outstanding common stock and common
stock equivalents assuming conversions
    
    
    265.2
    
    
    
    256.0
    
    
    
    259.2
    
    
    
    256.0Basic and diluted earnings (loss) per share from continuing
operations available to common stockholders
    
    $
    1.13
    
    
    $
    (0.06
    )
    
    $
    2.84
    
    
    $
    1.63
  Pro Forma Effect of SFAS 123 on ResultsThree Months
    
    
    Nine MonthsPeriod ended September 30
    
    2005
    
    
    2005(In millions, except per share amounts)Income from continuing operations
    
    $
    3
    
    
    $
    469Less: undeclared preferred stock dividend
    
    
    (17
    )
    
    
    (52
    )Income (loss) from continuing operations available to
common stockholders
    
    
    (14
    )
    
    
    417Income from discontinued operations, net of tax
    
    
    3
    
    
    
    12Net income (loss) available to common stockholders
    
    
    (11
    )
    
    
    429Less: Total stock-based compensation cost determined under
the fair value method, net of tax
    
    
    -
    
    
    
    (1
    )Pro forma net income (loss) available to common stockholders
    
    $
    (11
    )
    
    $
    428Basic and diluted earnings (loss) per share, as reported
    
    $
    (0.04
    )
    
    $
    1.68Basic and diluted earnings (loss) per share, pro forma
    
    $
    (0.04
    )
    
    $
    1.68
 10




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CNA FINANCIAL CORPORATION  NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS, Continued  (UNAUDITED)
 Note D. Investments
  Net Investment IncomeThree Months
    
    
    Nine MonthsPeriod ended September 30
    
    2006
    
    
    2005
    
    
    2006
    
    
    2005(In millions)Fixed maturity securities
    
    $
    477
    
    
    $
    393
    
    
    $
    1,372
    
    
    $
    1,167Short term investments
    
    
    61
    
    
    
    42
    
    
    
    184
    
    
    
    103Limited partnerships
    
    
    46
    
    
    
    72
    
    
    
    173
    
    
    
    189Equity securities
    
    
    4
    
    
    
    6
    
    
    
    18
    
    
    
    18Income from trading portfolio (a)
    
    
    30
    
    
    
    41
    
    
    
    63
    
    
    
    25Interest on funds withheld and
other deposits
    
    
    (10
    )
    
    
    (50
    )
    
    
    (65
    )
    
    
    (139
    )Other
    
    
    2
    
    
    
    5
    
    
    
    10
    
    
    
    16Gross investment income
    
    
    610
    
    
    
    509
    
    
    
    1,755
    
    
    
    1,379Investment expense
    
    
    (10
    )
    
    
    (9
    )
    
    
    (33
    )
    
    
    (34
    )Net investment income
    
    $
    600
    
    
    $
    500
    
    
    $
    1,722
    
    
    $
    1,345
   Realized Investment Gains (Losses)Three Months
    
    
    Nine MonthsPeriod ended September 30
    
    2006
    
    
    2005
    
    
    2006
    
    
    2005(In millions)Fixed maturity securities:U.S. Government bonds
    
    $
    18
    
    
    $
    2
    
    
    $
    22
    
    
    $
    (10
    )Corporate and other taxable bonds
    
    
    (18
    )
    
    
    9
    
    
    
    (114
    )
    
    
    (36
    )Tax-exempt bonds
    
    
    40
    
    
    
    4
    
    
    
    51
    
    
    
    38Asset-backed bonds
    
    
    (1
    )
    
    
    7
    
    
    
    (15
    )
    
    
    18Redeemable preferred stock
    
    
    (2
    )
    
    
    -
    
    
    
    (3
    )
    
    
    10Total fixed maturity securities
    
    
    37
    
    
    
    22
    
    
    
    (59
    )
    
    
    20Equity securities
    
    
    (3
    )
    
    
    6
    
    
    
    3
    
    
    
    45Derivative securities
    
    
    (12
    )
    
    
    53
    
    
    
    (7
    )
    
    
    34Short term investments
    
    
    (2
    )
    
    
    1
    
    
    
    (6
    )
    
    
    1Other, including disposition of businesses, net of
participating policyholders interest
    
    
    1
    
    
    
    (15
    )
    
    
    (1
    )
    
    
    (28
    )Realized investment gains (losses) before allocation to
participating policyholders and minority interests
    
    
    21
    
    
    
    67
    
    
    
    (70
    )
    
    
    72Allocated to participating policyholders and minority interests
    
    
    -
    
    
    
    -
    
    
    
    2
    
    
    
    2Realized investment gains (losses)
    
    $
    21
    
    
    $
    67
    
    
    $
    (68
    )
    
    $
    74
   11




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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
    
    
    FairSeptember 30, 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
    
    $
    2,293
    
    
    $
    133
    
    
    $
    1
    
    
    $
    1
    
    
    $
    2,424Asset-backed securities
    
    
    14,169
    
    
    
    36
    
    
    
    19
    
    
    
    156
    
    
    
    14,030States, municipalities and political
subdivisions  tax-exempt
    
    
    4,230
    
    
    
    212
    
    
    
    -
    
    
    
    5
    
    
    
    4,437Corporate securities
    
    
    6,450
    
    
    
    309
    
    
    
    10
    
    
    
    15
    
    
    
    6,734Other debt securities
    
    
    3,288
    
    
    
    198
    
    
    
    8
    
    
    
    3
    
    
    
    3,475Redeemable preferred stock
    
    
    828
    
    
    
    25
    
    
    
    2
    
    
    
    -
    
    
    
    851Options embedded in convertible debt
securities
    
    
    1
    
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    1Total fixed maturity securities
available-for-sale
    
    
    31,259
    
    
    
    913
    
    
    
    40
    
    
    
    180
    
    
    
    31,952Total fixed maturity securities trading
    
    
    198
    
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    198Equity securities available-for-sale:Common stock
    
    
    201
    
    
    
    172
    
    
    
    -
    
    
    
    -
    
    
    
    373Preferred stock
    
    
    138
    
    
    
    9
    
    
    
    -
    
    
    
    -
    
    
    
    147Total equity securities available-for-sale
    
    
    339
    
    
    
    181
    
    
    
    -
    
    
    
    -
    
    
    
    520Total equity securities trading
    
    
    56
    
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    56Total
    
    $
    31,852
    
    
    $
    1,094
    
    
    $
    40
    
    
    $
    180
    
    
    $
    32,726
 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, 2005
    
    Cost
    
    
    Gains
    
    
    12 Months
    
    
    12 Months
    
    
    Value(In millions)Fixed maturity securities available-for-sale:U.S. Treasury securities and obligations
of government agencies
    
    $
    1,355
    
    
    $
    119
    
    
    $
    4
    
    
    $
    1
    
    
    $
    1,469Asset-backed securities
    
    
    12,986
    
    
    
    43
    
    
    
    137
    
    
    
    33
    
    
    
    12,859States, municipalities and political
subdivisions  tax-exempt
    
    
    9,054
    
    
    
    193
    
    
    
    31
    
    
    
    7
    
    
    
    9,209Corporate securities
    
    
    5,906
    
    
    
    322
    
    
    
    52
    
    
    
    11
    
    
    
    6,165Other debt securities
    
    
    2,830
    
    
    
    234
    
    
    
    18
    
    
    
    2
    
    
    
    3,044Redeemable preferred stock
    
    
    213
    
    
    
    4
    
    
    
    -
    
    
    
    1
    
    
    
    216Options embedded in convertible debt
securities
    
    
    1
    
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    1Total fixed maturity securities
available-for-sale
    
    
    32,345
    
    
    
    915
    
    
    
    242
    
    
    
    55
    
    
    
    32,963Total fixed maturity securities trading
    
    
    271
    
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    271Equity securities available-for-sale:Common stock
    
    
    140
    
    
    
    150
    
    
    
    1
    
    
    
    -
    
    
    
    289Preferred stock
    
    
    322
    
    
    
    22
    
    
    
    1
    
    
    
    -
    
    
    
    343Total equity securities available-for-sale
    
    
    462
    
    
    
    172
    
    
    
    2
    
    
    
    -
    
    
    
    632Total equity securities trading
    
    
    49
    
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    49Total
    
    $
    33,127
    
    
    $
    1,087
    
    
    $
    244
    
    
    $
    55
    
    
    $
    33,915
 13




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##### Table of Contents



CNA FINANCIAL CORPORATION  NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS, Continued  (UNAUDITED)
  Unrealized Loss AgingSeptember 30, 2006
    
    
    December 31, 2005Gross
    
    
    
    
    
    
    GrossEstimated
    
    
    Unrealized
    
    
    Estimated
    
    
    UnrealizedFair Value
    
    
    Loss
    
    
    Fair Value
    
    
    Loss(In millions)Fixed maturity securities:Investment grade:0-6 months
    
    $
    1,578
    
    
    $
    8
    
    
    $
    9,976
    
    
    $
    1427-12 months
    
    
    3,477
    
    
    
    26
    
    
    
    2,739
    
    
    
    6113-24 months
    
    
    5,774
    
    
    
    147
    
    
    
    1,400
    
    
    
    45Greater than 24 months
    
    
    725
    
    
    
    30
    
    
    
    219
    
    
    
    7Total investment grade
    
    
    11,554
    
    
    
    211
    
    
    
    14,334
    
    
    
    255Non-investment grade:0-6 months
    
    
    622
    
    
    
    5
    
    
    
    632
    
    
    
    297-12 months
    
    
    30
    
    
    
    1
    
    
    
    118
    
    
    
    1013-24 months
    
    
    70
    
    
    
    3
    
    
    
    122
    
    
    
    3Greater than 24 months
    
    
    2
    
    
    
    -
    
    
    
    2
    
    
    
    -Total non-investment grade
    
    
    724
    
    
    
    9
    
    
    
    874
    
    
    
    42Total fixed maturity securities
    
    
    12,278
    
    
    
    220
    
    
    
    15,208
    
    
    
    297Equity securities:0-6 months
    
    
    3
    
    
    
    -
    
    
    
    49
    
    
    
    27-12 months
    
    
    1
    
    
    
    -
    
    
    
    1
    
    
    
    -13-24 months
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    -Greater than 24 months
    
    
    3
    
    
    
    -
    
    
    
    3
    
    
    
    -Total equity securities
    
    
    7
    
    
    
    -
    
    
    
    53
    
    
    
    2Total fixed maturity and equity securities
    
    $
    12,285
    
    
    $
    220
    
    
    $
    15,261
    
    
    $
    299
     14




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##### Table of Contents



CNA FINANCIAL CORPORATION  NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS, Continued  (UNAUDITED)
      Asset-Backed Securities
  Recognition of Interest Income and Impairment on Purchased and
Retained Beneficial Interests in Securitized Financial Assets
  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
    
    
    Nine MonthsPeriod ended September 30
    
    2006
    
    
    2005
    
    
    2006
    
    
    2005(In millions)General accountWithout hedge designationSwaps
    
    $
    (14
    )
    
    $
    52
    
    
    $
    (8
    )
    
    $
    32Futures sold, not yet purchased
    
    
    (1
    )
    
    
    1
    
    
    
    1
    
    
    
    1Currency forwards
    
    
    1
    
    
    
    -
    
    
    
    (1
    )
    
    
    1Options embedded in convertible debt securities
    
    
    -
    
    
    
    (6
    )
    
    
    -
    
    
    
    (33
    )Trading activitiesFutures purchased
    
    
    22
    
    
    
    31
    
    
    
    33
    
    
    
    5Futures sold, not yet purchased
    
    
    (1
    )
    
    
    -
    
    
    
    1
    
    
    
    -Options purchased
    
    
    -
    
    
    
    (1
    )
    
    
    -
    
    
    
    (2
    )Options written
    
    
    -
    
    
    
    1
    
    
    
    -
    
    
    
    2Total
    
    $
    7
    
    
    $
    78
    
    
    $
    26
    
    
    $
    6
  16




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##### Table of Contents



CNA FINANCIAL CORPORATION  NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS, Continued  (UNAUDITED)
  Derivative Financial Instruments
 Contractual/
    
    
    Estimated
    
    
    EstimatedSeptember 30, 2006
    
    Notional
    
    
    Fair Value
    
    
    Fair Value(In millions)
    
    Amount
    
    
    Asset
    
    
    (Liability)General accountWithout hedge designationSwaps
    
    $
    3,691
    
    
    $
    -
    
    
    $
    (17
    )Currency forwards
    
    
    92
    
    
    
    -
    
    
    
    -Equity warrants
    
    
    6
    
    
    
    2
    
    
    
    -Options embedded in convertible debt securities
    
    
    12
    
    
    
    1
    
    
    
    -Trading activitiesFutures purchased
    
    
    659
    
    
    
    -
    
    
    
    -Futures sold, not yet purchased
    
    
    62
    
    
    
    -
    
    
    
    -Currency forwards
    
    
    34
    
    
    
    -
    
    
    
    (1
    )Total general account
    
    $
    4,556
    
    
    $
    3
    
    
    $
    (18
    )Separate accountsOptions written
    
    $
    7
    
    
    $
    -
    
    
    $
    -Total separate accounts
    
    $
    7
    
    
    $
    -
    
    
    $
    -
 Derivative Financial Instruments
 Contractual/
    
    
    Estimated
    
    
    EstimatedDecember 31, 2005
    
    Notional
    
    
    Fair Value
    
    
    Fair Value(In millions)
    
    Amount
    
    
    Asset
    
    
    (Liability)General accountWith hedge designationSwaps
    
    $
    265
    
    
    $
    -
    
    
    $
    (1
    )Without hedge designationSwaps
    
    
    756
    
    
    
    -
    
    
    
    (8
    )Currency forwards
    
    
    15
    
    
    
    -
    
    
    
    -Equity warrants
    
    
    6
    
    
    
    2
    
    
    
    -Options embedded in convertible debt securities
    
    
    12
    
    
    
    1
    
    
    
    -Trading activitiesFutures purchased
    
    
    1,058
    
    
    
    -
    
    
    
    (4
    )Futures sold, not yet purchased
    
    
    166
    
    
    
    -
    
    
    
    -Currency forwards
    
    
    59
    
    
    
    -
    
    
    
    (1
    )Commitments to purchase mortgage-backed securities
    
    
    21
    
    
    
    -
    
    
    
    -Options purchased
    
    
    20
    
    
    
    -
    
    
    
    -Options written
    
    
    21
    
    
    
    -
    
    
    
    -Total general account
    
    $
    2,399
    
    
    $
    3
    
    
    $
    (14
    )Separate accountsOptions written
    
    $
    7
    
    
    $
    -
    
    
    $
    -Total separate accounts
    
    $
    7
    
    
    $
    -
    
    
    $
    -
  17




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##### Table of Contents



CNA FINANCIAL CORPORATION  NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS, Continued  (UNAUDITED)
 Note F. Income Taxes
        Note G. Legal Proceedings and Contingent Liabilities
 Insurance Brokerage Antitrust Litigation
 In re Insurance Brokerage Antitrust Litigation, Civil No.
04-5184 (FSH)
  18




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##### Table of Contents



CNA FINANCIAL CORPORATION  NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS, Continued  (UNAUDITED)
 Global Crossing Limited Litigation
   IGI Contingency
      19




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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
  Voluntary Market Premium Litigation
  Asbestos, Environmental Pollution and Mass Tort (APMT) Reserves
  Other Litigation
  Note H. Claim and Claim Adjustment Expense Reserves
  20




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##### Table of Contents



CNA FINANCIAL CORPORATION  NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS, Continued  (UNAUDITED)
       September 30, 2006
 Gross and Net CarriedClaim and Claim Adjustment Expense Reserves
    
    
    
    
    
    
    
    
    
    Life and
    
    
    CorporateStandard
    
    
    Specialty
    
    
    Group
    
    
    and Other(In millions)
    
    Lines
    
    
    Lines
    
    
    Non-Core
    
    
    Non-Core
    
    
    TotalGross Case Reserves
    
    $
    6,843
    
    
    $
    $1,724
    
    
    $
    2,443
    
    
    $
    2,766
    
    
    $
    13,776Gross IBNR Reserves
    
    
    7,979
    
    
    
    3,783
    
    
    
    826
    
    
    
    3,777
    
    
    
    16,365Total Gross Carried Claim and Claim
Adjustment Expense Reserves
    
    $
    14,822
    
    
    $
    5,507
    
    
    $
    3,269
    
    
    $
    6,543
    
    
    $
    30,141Net Case Reserves
    
    $
    5,117
    
    
    $
    1,352
    
    
    $
    1,483
    
    
    $
    1,390
    
    
    $
    9,342Net IBNR Reserves
    
    
    6,484
    
    
    
    2,813
    
    
    
    388
    
    
    
    2,023
    
    
    
    11,708Total Net Carried Claim and Claim
Adjustment Expense Reserves
    
    $
    11,601
    
    
    $
    4,165
    
    
    $
    1,871
    
    
    $
    3,413
    
    
    $
    21,050
 21




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##### Table of Contents



CNA FINANCIAL CORPORATION  NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS, Continued  (UNAUDITED)
 December 31, 2005
 Gross and Net CarriedClaim and Claim Adjustment Expense Reserves
    
    
    
    
    
    
    
    
    
    Life and
    
    
    CorporateStandard
    
    
    Specialty
    
    
    Group
    
    
    and Other(In millions)
    
    Lines
    
    
    Lines
    
    
    Non-Core
    
    
    Non-Core
    
    
    TotalGross Case Reserves
    
    $
    7,033
    
    
    $
    1,907
    
    
    $
    2,542
    
    
    $
    3,297
    
    
    $
    14,779Gross IBNR Reserves
    
    
    8,051
    
    
    
    3,298
    
    
    
    735
    
    
    
    4,075
    
    
    
    16,159Total Gross Carried Claim and Claim
Adjustment Expense Reserves
    
    $
    15,084
    
    
    $
    5,205
    
    
    $
    3,277
    
    
    $
    7,372
    
    
    $
    30,938Net Case Reserves
    
    $
    5,165
    
    
    $
    1,442
    
    
    $
    1,456
    
    
    $
    1,554
    
    
    $
    9,617Net IBNR Reserves
    
    
    6,081
    
    
    
    2,352
    
    
    
    381
    
    
    
    1,902
    
    
    
    10,716Total Net Carried Claim and Claim
Adjustment Expense Reserves
    
    $
    11,246
    
    
    $
    3,794
    
    
    $
    1,837
    
    
    $
    3,456
    
    
    $
    20,333
  APMT Reserves
     22




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##### Table of Contents



CNA FINANCIAL CORPORATION  NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS, Continued  (UNAUDITED)
   APMT Reserves
 September 30, 2006
    
    
    December 31, 2005Environmental
    
    
    
    
    
    
    EnvironmentalPollution and
    
    
    
    
    
    
    Pollution and(In millions)
    
    Asbestos
    
    
    Mass Tort
    
    
    Asbestos
    
    
    Mass TortGross reserves
    
    $
    2,735
    
    
    $
    585
    
    
    $
    2,992
    
    
    $
    680Ceded reserves
    
    
    (1,255
    )
    
    
    (220
    )
    
    
    (1,438
    )
    
    
    (257
    )Net reserves
    
    $
    1,480
    
    
    $
    365
    
    
    $
    1,554
    
    
    $
    423
 Asbestos
      23




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##### Table of Contents



CNA FINANCIAL CORPORATION  NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS, Continued  (UNAUDITED)
 Continental Casualty Co. v. Employers Ins. of Wausau et
al.
  24




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##### Table of Contents



CNA FINANCIAL CORPORATION  NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS, Continued  (UNAUDITED)
 Bugg v. Am. Std., Inc., No. 84829 Peplowski
 Boson v. Union Carbide Corp.,
 Adams v. Aetna, Inc., et al.
 25




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##### Table of Contents



CNA FINANCIAL CORPORATION  NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS, Continued  (UNAUDITED)
 Adams v. Ins. Co. of North America
(INA) et al.
 Pennock, et al. v. Maryland Casualty,
et al.
  26




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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
      27




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##### Table of Contents



CNA FINANCIAL CORPORATION  NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS, Continued  (UNAUDITED)
 Net Prior Year Development  For the three months ended September 30, 2006
 CorporateStandard
    
    
    Specialty
    
    
    and OtherLines
    
    
    Lines
    
    
    Non-Core
    
    
    Total(In millions)Pretax unfavorable (favorable) net prior year claim
and allocated claim adjustment expense development:Core (Non-APMT)
    
    $
    6
    
    
    $
    (4
    )
    
    $
    2
    
    
    $
    4APMT
    
    
    -
    
    
    
    -
    
    
    
    1
    
    
    
    1Pretax unfavorable (favorable) net prior year
development before impact of premium development
    
    
    6
    
    
    
    (4
    )
    
    
    3
    
    
    
    5Total unfavorable (favorable) premium development
    
    
    (19
    )
    
    
    6
    
    
    
    (3
    )
    
    
    (16
    )Total unfavorable (favorable) net prior year
development (pretax)
    
    $
    (13
    )
    
    $
    2
    
    
    $
    -
    
    
    $
    (11
    )
 Net Prior Year Development  For the three months ended September 30, 2005
 CorporateStandard
    
    
    Specialty
    
    
    and OtherLines
    
    
    Lines
    
    
    Non-Core
    
    
    Total(In millions)Pretax unfavorable (favorable) net
prior year claim and allocated
claim adjustment expense
development excluding the impact
of the corporate aggregate
reinsurance treaties:Core (Non-APMT)
    
    $
    18
    
    
    $
    (7
    )
    
    $
    (1
    )
    
    $
    10APMT
    
    
    -
    
    
    
    -
    
    
    
    1
    
    
    
    1Pretax unfavorable (favorable) net
prior year development before
impact of premium development
    
    
    18
    
    
    
    (7
    )
    
    
    -
    
    
    
    11Unfavorable premium
development, excluding
impact of corporate
aggregate reinsurance
treaties
    
    
    8
    
    
    
    6
    
    
    
    1
    
    
    
    15Ceded premiums related to
corporate aggregate
reinsurance treaties
    
    
    (1
    )
    
    
    -
    
    
    
    -
    
    
    
    (1
    )Total premium development
    
    
    7
    
    
    
    6
    
    
    
    1
    
    
    
    14Total unfavorable (favorable) net
prior year development (pretax)
    
    $
    25
    
    
    $
    (1
    )
    
    $
    1
    
    
    $
    25
 28




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##### Table of Contents



CNA FINANCIAL CORPORATION  NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS, Continued  (UNAUDITED)
 Net Prior Year Development
For the nine months ended September 30, 2006
 CorporateStandard
    
    
    Specialty
    
    
    and OtherLines
    
    
    Lines
    
    
    Non-Core
    
    
    Total(In millions)Pretax unfavorable (favorable) net prior year claim and
allocated claim adjustment expense development excluding the
impact of the corporate aggregate reinsurance treaty:Core (Non-APMT)
    
    $
    70
    
    
    $
    (1
    )
    
    $
    13
    
    
    $
    82APMT
    
    
    -
    
    
    
    -
    
    
    
    2
    
    
    
    2Total
    
    
    70
    
    
    
    (1
    )
    
    
    15
    
    
    
    84Ceded losses related to corporate aggregate reinsurance treaty
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    -Pretax unfavorable (favorable) net prior year development
before impact of premium development
    
    
    70
    
    
    
    (1
    )
    
    
    15
    
    
    
    84Unfavorable (favorable) premium development, excluding
impact of corporate aggregate reinsurance treaty
    
    
    (92
    )
    
    
    -
    
    
    
    1
    
    
    
    (91
    )Ceded premiums related to corporate aggregate
reinsurance treaty
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    -Total premium development
    
    
    (92
    )
    
    
    -
    
    
    
    1
    
    
    
    (91
    )Total unfavorable (favorable) net prior year development
(pretax)
    
    $
    (22
    )
    
    $
    (1
    )
    
    $
    16
    
    
    $
    (7
    )
 Net Prior Year Development  For the nine months ended September 30, 2005
 CorporateStandard
    
    
    Specialty
    
    
    and OtherLines
    
    
    Lines
    
    
    Non-Core
    
    
    Total(In millions)Pretax unfavorable net prior year claim and allocated claim
adjustment expense development excluding the impact of the
corporate aggregate reinsurance treaties:Core (Non-APMT)
    
    $
    183
    
    
    $
    56
    
    
    $
    57
    
    
    $
    296APMT
    
    
    -
    
    
    
    -
    
    
    
    11
    
    
    
    11Total
    
    
    183
    
    
    
    56
    
    
    
    68
    
    
    
    307Ceded losses related to corporate aggregate reinsurance treaties
    
    
    19
    
    
    
    (25
    )
    
    
    6
    
    
    
    -Pretax unfavorable net prior year development before impact of
premium development
    
    
    202
    
    
    
    31
    
    
    
    74
    
    
    
    307Unfavorable (favorable) premium development, excluding
impact of corporate aggregate reinsurance treaties
    
    
    (99
    )
    
    
    (9
    )
    
    
    11
    
    
    
    (97
    )Ceded premiums related to corporate aggregate reinsurance
treaties
    
    
    (6
    )
    
    
    19
    
    
    
    4
    
    
    
    17Total premium development
    
    
    (105
    )
    
    
    10
    
    
    
    15
    
    
    
    (80
    )Total unfavorable net prior year development (pretax)
    
    $
    97
    
    
    $
    41
    
    
    $
    89
    
    
    $
    227
 29




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##### Table of Contents



CNA FINANCIAL CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS, Continued
(UNAUDITED)
 Three Month Comparison
 2006 Net Prior Year Development
 Standard Lines
      Specialty Lines
  Corporate and Other Non-Core
  30




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##### Table of Contents



CNA FINANCIAL CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS, Continued
(UNAUDITED)
 2005 Net Prior Year Development
 Standard Lines
    Specialty Lines
  Corporate and Other Non-Core
  Nine Month Comparison
 2006 Net Prior Year Development
 Standard Lines
     31




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##### Table of Contents



CNA FINANCIAL CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS, Continued
(UNAUDITED)
          Specialty Lines
   32




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##### Table of Contents



CNA FINANCIAL CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS, Continued
(UNAUDITED)
     Corporate and Other Non-Core
   2005 Net Prior Year Development
 Standard Lines
    33




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##### Table of Contents



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




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##### Table of Contents



CNA FINANCIAL CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS, Continued
(UNAUDITED)
  Corporate and Other Non-Core
   Note I. Reinsurance
   Components of reinsurance receivables
    
    September 30, 2006
    
    
    December 31, 2005(In millions)Reinsurance receivables related to insurance reserves:Ceded claim and claim adjustment expense
    
    $
    9,091
    
    
    $
    10,605Ceded future policy benefits
    
    
    1,070
    
    
    
    1,193Ceded policyholders funds
    
    
    54
    
    
    
    56Billed reinsurance receivables
    
    
    688
    
    
    
    582Reinsurance receivables
    
    
    10,903
    
    
    
    12,436Allowance for uncollectible reinsurance
    
    
    (535
    )
    
    
    (519
    )Reinsurance receivables, net of allowance
for uncollectible reinsurance
    
    $
    10,368
    
    
    $
    11,917
   35




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##### Table of Contents



CNA FINANCIAL CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS, Continued
(UNAUDITED)
   Components of Earned PremiumsThree months ended September 30
    
    Direct
    
    
    Assumed
    
    
    Ceded
    
    
    Net(In millions)2006Property and casualty
    
    $
    2,342
    
    
    $
    19
    
    
    $
    577
    
    
    $
    1,784Accident and health
    
    
    186
    
    
    
    15
    
    
    
    42
    
    
    
    159Life
    
    
    18
    
    
    
    
    
    
    
    18
    
    
    
    Total earned premiums
    
    $
    2,546
    
    
    $
    34
    
    
    $
    637
    
    
    $
    1,9432005Property and casualty
    
    $
    2,548
    
    
    $
    13
    
    
    $
    856
    
    
    $
    1,705Accident and health
    
    
    245
    
    
    
    18
    
    
    
    96
    
    
    
    167Life
    
    
    27
    
    
    
    
    
    
    
    26
    
    
    
    1Total earned premiums
    
    $
    2,820
    
    
    $
    31
    
    
    $
    978
    
    
    $
    1,873
 Components of Earned PremiumsNine months ended September 30
    
    Direct
    
    
    Assumed
    
    
    Ceded
    
    
    Net(In millions)2006Property and casualty
    
    $
    6,795
    
    
    $
    47
    
    
    $
    1,620
    
    
    $
    5,222Accident and health
    
    
    550
    
    
    
    44
    
    
    
    114
    
    
    
    480Life
    
    
    76
    
    
    
    
    
    
    
    74
    
    
    
    2Total earned premiums
    
    $
    7,421
    
    
    $
    91
    
    
    $
    1,808
    
    
    $
    5,7042005Property and casualty
    
    $
    7,600
    
    
    $
    72
    
    
    $
    2,526
    
    
    $
    5,146Accident and health
    
    
    805
    
    
    
    42
    
    
    
    311
    
    
    
    536Life
    
    
    109
    
    
    
    
    
    
    
    107
    
    
    
    2Total earned premiums
    
    $
    8,514
    
    
    $
    114
    
    
    $
    2,944
    
    
    $
    5,684
    36




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##### Table of Contents



CNA FINANCIAL CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS, Continued
(UNAUDITED)
   Funds Withheld Reinsurance Arrangements
    37




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##### Table of Contents



CNA FINANCIAL CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS, Continued
(UNAUDITED)
 Three months ended September 30
    
    Aggregate Cover
    
    
    CCC Cover
    
    
    All Other
    
    
    Total(In millions)2006Ceded earned premium
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    Ceded claim and claim adjustment expense
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Ceding commissions
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Interest charges
    
    
    
    
    
    
    (5
    )
    
    
    (4
    )
    
    
    (9
    )Pretax expense
    
    $
    
    
    
    $
    (5
    )
    
    $
    (4
    )
    
    $
    (9
    )2005Ceded earned premium
    
    $
    1
    
    
    $
    
    
    
    $
    (9
    )
    
    $
    (8
    )Ceded claim and claim adjustment expense
    
    
    
    
    
    
    
    
    
    
    15
    
    
    
    15Ceding commissions
    
    
    
    
    
    
    
    
    
    
    3
    
    
    
    3Interest charges
    
    
    (15
    )
    
    
    (17
    )
    
    
    (16
    )
    
    
    (48
    )Pretax expense
    
    $
    (14
    )
    
    $
    (17
    )
    
    $
    (7
    )
    
    $
    (38
    )
 Nine months ended September 30
    
    Aggregate Cover
    
    
    CCC Cover
    
    
    All Other
    
    
    Total(In millions)2006Ceded earned premium
    
    $
    
    
    
    $
    
    
    
    $
    (12
    )
    
    $
    (12
    )Ceded claim and claim adjustment expense
    
    
    
    
    
    
    
    
    
    
    17
    
    
    
    17Ceding commissions
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Interest charges
    
    
    
    
    
    
    (40
    )
    
    
    (20
    )
    
    
    (60
    )Pretax expense
    
    $
    
    
    
    $
    (40
    )
    
    $
    (15
    )
    
    $
    (55
    )2005Ceded earned premium
    
    $
    (17
    )
    
    $
    
    
    
    $
    56
    
    
    $
    39Ceded claim and claim adjustment expense
    
    
    
    
    
    
    
    
    
    
    (52
    )
    
    
    (52
    )Ceding commissions
    
    
    
    
    
    
    
    
    
    
    (27
    )
    
    
    (27
    )Interest charges
    
    
    (57
    )
    
    
    (49
    )
    
    
    (26
    )
    
    
    (132
    )Pretax expense
    
    $
    (74
    )
    
    $
    (49
    )
    
    $
    (49
    )
    
    $
    (172
    )
   Three Months
    
    
    Nine MonthsPeriod ended September 30
    
    2006
    
    
    2005
    
    
    2006
    
    
    2005(In millions)Standard Lines
    
    $
    (7
    )
    
    $
    (24
    )
    
    $
    (31
    )
    
    $
    (120
    )Specialty Lines
    
    
    
    
    
    
    (3
    )
    
    
    (4
    )
    
    
    (10
    )Corporate and Other
    
    
    (2
    )
    
    
    (11
    )
    
    
    (20
    )
    
    
    (42
    )Pretax benefit (expense)
    
    $
    (9
    )
    
    $
    (38
    )
    
    $
    (55
    )
    
    $
    (172
    )
 38




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##### Table of Contents



CNA FINANCIAL CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS, Continued
(UNAUDITED)
 Note J. Debt
  DebtSeptember 30,
    
    
    December 31,2006
    
    
    2005(In millions)Variable rate debt:Credit facility  CNA Surety, due June 30, 2008
    
    $
    
    
    
    $
    20Debenture  CNA Surety, face amount of $31, due April 29, 2034
    
    
    31
    
    
    
    31Senior notes:6.750%, face amount of $250, due November 15, 2006
    
    
    250
    
    
    
    2506.450%, face amount of $150, due January 15, 2008
    
    
    149
    
    
    
    1496.600%, face amount of $200, due December 15, 2008
    
    
    199
    
    
    
    1996.000%, face amount of $400, due August 15, 2011
    
    
    398
    
    
    
    8.375%, face amount of $70, due August 15, 2012
    
    
    69
    
    
    
    695.850%, face amount of $549, due December 15, 2014
    
    
    546
    
    
    
    5466.500%, face amount of $350, due August 15, 2016
    
    
    348
    
    
    
    6.950%, face amount of $150, due January 15, 2018
    
    
    149
    
    
    
    149Debenture, 7.250%, face amount of $243, due November 15, 2023
    
    
    241
    
    
    
    241Other debt, 1.000%-6.850%, due through 2019
    
    
    25
    
    
    
    36Total debt
    
    $
    2,405
    
    
    $
    1,690Short term debt
    
    $
    250
    
    
    $
    252Long term debt
    
    
    2,155
    
    
    
    1,438Total debt
    
    $
    2,405
    
    
    $
    1,690
    Maturity of Debt(In millions)2006
    
    $
    2502007
    
    
    2008
    
    
    3502009
    
    
    2010
    
    
    Thereafter
    
    
    1,817Less original issue discount
    
    
    (12
    )Total
    
    $
    2,405
 39




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##### Table of Contents



CNA FINANCIAL CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS, Continued
(UNAUDITED)
 Note K. Benefit Plans
 Pension and Postretirement Healthcare and Life Insurance Benefit Plans
     Net Periodic Benefit CostsThree Months
    
    
    Nine MonthsPeriod ended September 30
    
    2006
    
    
    2005
    
    
    2006
    
    
    2005(In millions)Pension BenefitsService cost
    
    $
    6
    
    
    $
    6
    
    
    $
    19
    
    
    $
    20Interest cost on projected benefit obligation
    
    
    35
    
    
    
    34
    
    
    
    107
    
    
    
    106Expected return on plan assets
    
    
    (40
    )
    
    
    (38
    )
    
    
    (120
    )
    
    
    (115
    )Prior service cost amortization
    
    
    
    
    
    
    1
    
    
    
    1
    
    
    
    2Actuarial loss
    
    
    4
    
    
    
    4
    
    
    
    21
    
    
    
    15Net periodic pension cost
    
    $
    5
    
    
    $
    7
    
    
    $
    28
    
    
    $
    28Postretirement benefitsService cost
    
    $
    1
    
    
    $
    1
    
    
    $
    2
    
    
    $
    2Interest cost on projected benefit obligation
    
    
    3
    
    
    
    3
    
    
    
    7
    
    
    
    8Prior service cost amortization
    
    
    (7
    )
    
    
    (7
    )
    
    
    (20
    )
    
    
    (21
    )Actuarial loss
    
    
    1
    
    
    
    1
    
    
    
    3
    
    
    
    3Net periodic postretirement benefit
    
    $
    (2
    )
    
    $
    (2
    )
    
    $
    (8
    )
    
    $
    (8
    )
  Stock-Based Compensation
  40




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##### Table of Contents



CNA FINANCIAL CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS, Continued
(UNAUDITED)
  Options and SARs Plan ActivityWeightedAverage OptionNumber
    
    
    Price perof Awards
    
    
    AwardBalance at January 1, 2006
    
    
    1,628,600
    
    
    $
    28.71Awards granted
    
    
    327,000
    
    
    
    30.98Awards exercised
    
    
    (61,000
    )
    
    
    28.91Awards forfeited
    
    
    (19,900
    )
    
    
    28.53Balance at September 30, 2006
    
    
    1,874,700
    
    
    $
    29.10Awards exercisable at September
30, 2006
    
    
    1,136,150
    
    
    $
    29.50
       Note L. Commitments, Contingencies and Guarantees
 Commitments and Contingencies
  41




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##### Table of Contents



CNA FINANCIAL CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS, Continued
(UNAUDITED)
   Guarantees
       42




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##### Table of Contents



CNA FINANCIAL CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS, Continued
(UNAUDITED)
 
 Note M. Stockholders Equity and Statutory Financial Information
  Summary of Capital StockSeptember 30,
    
    
    December 31,2006
    
    
    2005Preferred stock, without par value, non-votingAuthorized
    
    
    12,500,000
    
    
    
    12,500,000Issued and outstanding:Series H (stated value $100,000 per share, held by Loews)
    
    
    
    
    
    
    7,500Common stock, par value $2.50Authorized
    
    
    500,000,000
    
    
    
    500,000,000Issued
    
    
    273,040,543
    
    
    
    258,177,285Outstanding
    
    
    270,929,753
    
    
    
    256,001,968Treasury stock
    
    
    2,110,790
    
    
    
    2,175,317
   Statutory Accounting Practices
      43




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##### Table of Contents



CNA FINANCIAL CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS, Continued
(UNAUDITED)
   Preliminary Statutory InformationStatutory Capital and Surplus
    
    Statutory Net Income (Loss)
    
    Statutory Net Income (Loss)Three months ended
    
    Nine months endedSeptember 30
    
    September 30September 30,
    
    December 31,2006
    
    2005
    
    2006
    
    2005
    
    2006
    
    2005(In millions)Property and casualty companies (a)
    
    $
    7,827
    
    
    $
    6,940
    
    
    $
    351
    
    
    $
    (19
    )
    
    $
    614
    
    
    $
    849Life and group insurance companies
    
    
    701
    
    
    
    627
    
    
    
    29
    
    
    
    (5
    )
    
    
    71
    
    
    
    49
 (a)
    
    Surplus includes the property and casualty companies equity ownership of the life and group
companys capital and surplus.
  Note N. Comprehensive Income (Loss)
  Comprehensive Income (Loss)Three Months
    
    
    Nine MonthsPeriod ended September 30
    
    2006
    
    
    2005
    
    
    2006
    
    
    2005(In millions)Net income
    
    $
    311
    
    
    $
    6
    
    
    $
    779
    
    
    $
    481Other comprehensive income (loss):Change in unrealized gains/losses on general account investments:Holding gains/losses arising during the period, net of tax
benefit (expense) of ($315), $207, ($35) and $88
    
    
    586
    
    
    
    (386
    )
    
    
    66
    
    
    
    (164
    )Net unrealized gains/losses at beginning of period included in
realized gains/losses during the period, net of tax benefit of
$2, $2, $6 and $62
    
    
    (1
    )
    
    
    (3
    )
    
    
    (9
    )
    
    
    (114
    )Net change in unrealized gains/losses on general account
investments, net of tax benefit (expense) of ($313), $209, ($29)
and $150
    
    
    585
    
    
    
    (389
    )
    
    
    57
    
    
    
    (278
    )Net change in unrealized gains/losses on discontinued operations
and other, net of tax benefit (expense) of ($2), $13, $0 and $13
    
    
    (1
    )
    
    
    7
    
    
    
    
    
    
    
    7Net change in foreign currency translation adjustment
    
    
    5
    
    
    
    9
    
    
    
    32
    
    
    
    (15
    )Net change in minimum pension liability, net of tax benefit of
$0, $0, $0 and $0
    
    
    
    
    
    
    
    
    
    
    (1
    )
    
    
    Allocation to participating policyholders and minority interests
    
    
    (15
    )
    
    
    13
    
    
    
    
    
    
    
    13Other comprehensive income (loss), net of tax benefit (expense)
of ($315), $222, ($29) and $163
    
    
    574
    
    
    
    (360
    )
    
    
    88
    
    
    
    (273
    )Total comprehensive income (loss)
    
    $
    885
    
    
    $
    (354
    )
    
    $
    867
    
    
    $
    208
 44




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##### Table of Contents



CNA FINANCIAL CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS, Continued
(UNAUDITED)
 Note O. Business Segments
       45




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##### Table of Contents



CNA FINANCIAL CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS, Continued
(UNAUDITED)
 CorporateStandard
    
    
    Specialty
    
    
    Life and Group
    
    
    and OtherFor the three months ended
    
    Lines
    
    
    Lines
    
    
    Non-Core
    
    
    Non-Core
    
    
    Eliminations
    
    
    TotalSeptember 30, 2006(In millions)Net earned premiums
    
    $
    1,128
    
    
    $
    654
    
    
    $
    160
    
    
    $
    3
    
    
    $
    (2
    )
    
    $
    1,943Net investment income
    
    
    239
    
    
    
    101
    
    
    
    179
    
    
    
    81
    
    
    
    
    
    
    
    600Other revenues
    
    
    16
    
    
    
    38
    
    
    
    8
    
    
    
    6
    
    
    
    (12
    )
    
    
    56Total operating revenues
    
    
    1,383
    
    
    
    793
    
    
    
    347
    
    
    
    90
    
    
    
    (14
    )
    
    
    2,599Claims, benefits and expenses:Net incurred claims and benefits
    
    
    776
    
    
    
    397
    
    
    
    314
    
    
    
    31
    
    
    
    
    
    
    
    1,518Policyholders dividends
    
    
    4
    
    
    
    1
    
    
    
    (1
    )
    
    
    
    
    
    
    
    
    
    
    4Amortization of deferred acquisition costs
    
    
    249
    
    
    
    137
    
    
    
    4
    
    
    
    
    
    
    
    
    
    
    
    390Other insurance related expenses
    
    
    89
    
    
    
    31
    
    
    
    48
    
    
    
    8
    
    
    
    (1
    )
    
    
    175Other expenses
    
    
    20
    
    
    
    35
    
    
    
    14
    
    
    
    28
    
    
    
    (13
    )
    
    
    84Total claims, benefits and expenses
    
    
    1,138
    
    
    
    601
    
    
    
    379
    
    
    
    67
    
    
    
    (14
    )
    
    
    2,171Operating income (loss) from continuing operations
before income tax and minority interest
    
    
    245
    
    
    
    192
    
    
    
    (32
    )
    
    
    23
    
    
    
    
    
    
    
    428Income tax (expense) benefit on operating income (loss)
    
    
    (78
    )
    
    
    (64
    )
    
    
    17
    
    
    
    (7
    )
    
    
    
    
    
    
    (132
    )Minority interest
    
    
    (4
    )
    
    
    (9
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (13
    )Net operating income (loss) from continuing operations
    
    
    163
    
    
    
    119
    
    
    
    (15
    )
    
    
    16
    
    
    
    
    
    
    
    283Realized investment gains (losses), net of
participating policyholders and minority interests
    
    
    18
    
    
    
    6
    
    
    
    (10
    )
    
    
    7
    
    
    
    
    
    
    
    21Income tax (expense) benefit on realized investment
gains (losses)
    
    
    (7
    )
    
    
    (1
    )
    
    
    3
    
    
    
    6
    
    
    
    
    
    
    
    1Income (loss) from continuing operations
    
    $
    174
    
    
    $
    124
    
    
    $
    (22
    )
    
    $
    29
    
    
    $
    
    
    
    $
    305
 46




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##### Table of Contents



CNA FINANCIAL CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS, Continued
(UNAUDITED)
 CorporateStandard
    
    
    Specialty
    
    
    Life and Group
    
    
    And OtherFor the three months ended
    
    Lines
    
    
    Lines
    
    
    Non-Core
    
    
    Non-Core
    
    
    Eliminations
    
    
    TotalSeptember 30, 2005(In millions)Net earned premiums
    
    $
    1,080
    
    
    $
    628
    
    
    $
    169
    
    
    $
    (1
    )
    
    $
    (3
    )
    
    $
    1,873Net investment income
    
    
    186
    
    
    
    74
    
    
    
    179
    
    
    
    61
    
    
    
    
    
    
    
    500Other revenues
    
    
    26
    
    
    
    34
    
    
    
    20
    
    
    
    16
    
    
    
    (16
    )
    
    
    80Total operating revenues
    
    
    1,292
    
    
    
    736
    
    
    
    368
    
    
    
    76
    
    
    
    (19
    )
    
    
    2,453Claims, benefits and expenses:Net incurred claims and benefits
    
    
    1,148
    
    
    
    366
    
    
    
    342
    
    
    
    12
    
    
    
    
    
    
    
    1,868Policyholders dividends
    
    
    4
    
    
    
    1
    
    
    
    (1
    )
    
    
    (1
    )
    
    
    
    
    
    
    3Amortization of deferred acquisition costs
    
    
    281
    
    
    
    128
    
    
    
    5
    
    
    
    2
    
    
    
    
    
    
    
    416Other insurance related expenses
    
    
    76
    
    
    
    45
    
    
    
    69
    
    
    
    (4
    )
    
    
    (3
    )
    
    
    183Other expenses
    
    
    23
    
    
    
    28
    
    
    
    13
    
    
    
    39
    
    
    
    (16
    )
    
    
    87Total claims, benefits and expenses
    
    
    1,532
    
    
    
    568
    
    
    
    428
    
    
    
    48
    
    
    
    (19
    )
    
    
    2,557Operating income (loss) from continuing operations
before income tax and minority interest
    
    
    (240
    )
    
    
    168
    
    
    
    (60
    )
    
    
    28
    
    
    
    
    
    
    
    (104
    )Income tax (expense) benefit on operating income (loss)
    
    
    100
    
    
    
    (53
    )
    
    
    25
    
    
    
    4
    
    
    
    
    
    
    
    76Minority interest
    
    
    (4
    )
    
    
    (7
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (11
    )Net operating income (loss) from continuing operations
    
    
    (144
    )
    
    
    108
    
    
    
    (35
    )
    
    
    32
    
    
    
    
    
    
    
    (39
    )Realized investment gains (losses), net of
participating policyholders and minority interests
    
    
    51
    
    
    
    16
    
    
    
    (2
    )
    
    
    2
    
    
    
    
    
    
    
    67Income tax (expense) benefit on realized investment
gains (losses)
    
    
    (18
    )
    
    
    (5
    )
    
    
    1
    
    
    
    (3
    )
    
    
    
    
    
    
    (25
    )Income (loss) from continuing operations
    
    $
    (111
    )
    
    $
    119
    
    
    $
    (36
    )
    
    $
    31
    
    
    $
    
    
    
    $
    3
 47




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##### Table of Contents



CNA FINANCIAL CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS, Continued
(UNAUDITED)
 CorporateStandard
    
    
    Specialty
    
    
    Life and Group
    
    
    and OtherFor the nine months ended
    
    Lines
    
    
    Lines
    
    
    Non-Core
    
    
    Non-Core
    
    
    Eliminations
    
    
    TotalSeptember 30, 2006(In millions)Net earned premiums
    
    $
    3,310
    
    
    $
    1,915
    
    
    $
    482
    
    
    $
    1
    
    
    $
    (4
    )
    
    $
    5,704Net investment income
    
    
    705
    
    
    
    287
    
    
    
    504
    
    
    
    226
    
    
    
    
    
    
    
    1,722Other revenues
    
    
    49
    
    
    
    112
    
    
    
    44
    
    
    
    8
    
    
    
    (38
    )
    
    
    175Total operating revenues
    
    
    4,064
    
    
    
    2,314
    
    
    
    1,030
    
    
    
    235
    
    
    
    (42
    )
    
    
    7,601Claims, benefits and expenses:Net incurred claims and benefits
    
    
    2,297
    
    
    
    1,157
    
    
    
    886
    
    
    
    90
    
    
    
    1
    
    
    
    4,431Policyholders dividends
    
    
    12
    
    
    
    3
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    15Amortization of deferred acquisition costs
    
    
    725
    
    
    
    395
    
    
    
    12
    
    
    
    
    
    
    
    
    
    
    
    1,132Other insurance related expenses
    
    
    293
    
    
    
    109
    
    
    
    141
    
    
    
    24
    
    
    
    (4
    )
    
    
    563Restructuring and other related charges
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (13
    )
    
    
    
    
    
    
    (13
    )Other expenses
    
    
    58
    
    
    
    103
    
    
    
    40
    
    
    
    91
    
    
    
    (39
    )
    
    
    253Total claims, benefits and expenses
    
    
    3,385
    
    
    
    1,767
    
    
    
    1,079
    
    
    
    192
    
    
    
    (42
    )
    
    
    6,381Operating income (loss) from continuing operations
before income
tax and minority interest
    
    
    679
    
    
    
    547
    
    
    
    (49
    )
    
    
    43
    
    
    
    
    
    
    
    1,220Income tax (expense) benefit on operating income (loss)
    
    
    (207
    )
    
    
    (181
    )
    
    
    36
    
    
    
    (14
    )
    
    
    
    
    
    
    (366
    )Minority interest
    
    
    (9
    )
    
    
    (23
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (32
    )Net operating income (loss) from continuing operations
    
    
    463
    
    
    
    343
    
    
    
    (13
    )
    
    
    29
    
    
    
    
    
    
    
    822Realized investment losses, net of participating
policyholders and minority interests
    
    
    (6
    )
    
    
    (4
    )
    
    
    (56
    )
    
    
    (2
    )
    
    
    
    
    
    
    (68
    )Income tax benefit on realized investment gains (losses)
    
    
    2
    
    
    
    2
    
    
    
    19
    
    
    
    4
    
    
    
    
    
    
    
    27Income (loss) from continuing operations
    
    $
    459
    
    
    $
    341
    
    
    $
    (50
    )
    
    $
    31
    
    
    $
    
    
    
    $
    781As of September 30, 2006(In millions)Reinsurance receivables
    
    $
    3,333
    
    
    $
    1,415
    
    
    $
    2,537
    
    
    $
    3,618
    
    
    $
    
    
    
    $
    10,903Insurance receivables
    
    $
    1,856
    
    
    $
    425
    
    
    $
    41
    
    
    $
    (30
    )
    
    $
    
    
    
    $
    2,292Insurance reserves:Claim and claim adjustment expense
    
    $
    14,822
    
    
    $
    5,507
    
    
    $
    3,268
    
    
    $
    6,544
    
    
    $
    
    
    
    $
    30,141Unearned premiums
    
    
    2,083
    
    
    
    1,614
    
    
    
    170
    
    
    
    5
    
    
    
    (1
    )
    
    
    3,871Future policy benefits
    
    
    
    
    
    
    
    
    
    
    6,552
    
    
    
    
    
    
    
    
    
    
    
    6,552Policyholders funds
    
    
    32
    
    
    
    
    
    
    
    1,017
    
    
    
    
    
    
    
    
    
    
    
    1,049Deferred acquisition costs
    
    $
    433
    
    
    $
    284
    
    
    $
    503
    
    
    $
    
    
    
    $
    
    
    
    $
    1,220
 48




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##### Table of Contents



CNA FINANCIAL CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS, Continued
(UNAUDITED)
 CorporateStandard
    
    
    Specialty
    
    
    Life and Group
    
    
    and OtherFor the nine months ended
    
    Lines
    
    
    Lines
    
    
    Non-Core
    
    
    Non-Core
    
    
    Eliminations
    
    
    TotalSeptember 30, 2005(In millions)Net earned premiums
    
    $
    3,333
    
    
    $
    1,831
    
    
    $
    539
    
    
    $
    (10
    )
    
    $
    (9
    )
    
    $
    5,684Net investment income
    
    
    540
    
    
    
    197
    
    
    
    431
    
    
    
    177
    
    
    
    
    
    
    
    1,345Other revenues
    
    
    74
    
    
    
    94
    
    
    
    78
    
    
    
    156
    
    
    
    (51
    )
    
    
    351Total operating revenues
    
    
    3,947
    
    
    
    2,122
    
    
    
    1,048
    
    
    
    323
    
    
    
    (60
    )
    
    
    7,380Claims, benefits and expenses:Net incurred claims and benefits
    
    
    2,750
    
    
    
    1,158
    
    
    
    860
    
    
    
    102
    
    
    
    (2
    )
    
    
    4,868Policyholders dividends
    
    
    16
    
    
    
    3
    
    
    
    (1
    )
    
    
    
    
    
    
    
    
    
    
    18Amortization of deferred acquisition costs
    
    
    757
    
    
    
    390
    
    
    
    18
    
    
    
    3
    
    
    
    
    
    
    
    1,168Other insurance related expenses
    
    
    318
    
    
    
    93
    
    
    
    194
    
    
    
    6
    
    
    
    (7
    )
    
    
    604Other expenses
    
    
    82
    
    
    
    81
    
    
    
    43
    
    
    
    103
    
    
    
    (51
    )
    
    
    258Total claims, benefits and expenses
    
    
    3,923
    
    
    
    1,725
    
    
    
    1,114
    
    
    
    214
    
    
    
    (60
    )
    
    
    6,916Operating income (loss) from continuing operations
before income
tax and minority interest
    
    
    24
    
    
    
    397
    
    
    
    (66
    )
    
    
    109
    
    
    
    
    
    
    
    464Income tax (expense) benefit on operating income (loss)
    
    
    41
    
    
    
    (121
    )
    
    
    37
    
    
    
    20
    
    
    
    
    
    
    
    (23
    )Minority interest
    
    
    (8
    )
    
    
    (8
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (16
    )Net operating income (loss) from continuing operations
    
    
    57
    
    
    
    268
    
    
    
    (29
    )
    
    
    129
    
    
    
    
    
    
    
    425Realized investment gains (losses), net of
participating policyholders and minority interests
    
    
    71
    
    
    
    25
    
    
    
    (8
    )
    
    
    (14
    )
    
    
    
    
    
    
    74Income tax (expense) benefit on realized investment
gains (losses)
    
    
    (29
    )
    
    
    (6
    )
    
    
    3
    
    
    
    2
    
    
    
    
    
    
    
    (30
    )Income (loss) from continuing operations
    
    $
    99
    
    
    $
    287
    
    
    $
    (34
    )
    
    $
    117
    
    
    $
    
    
    
    $
    469As of December 31, 2005(In millions)Reinsurance receivables
    
    $
    3,968
    
    
    $
    1,493
    
    
    $
    2,707
    
    
    $
    4,268
    
    
    $
    
    
    
    $
    12,436Insurance receivables
    
    $
    1,826
    
    
    $
    375
    
    
    $
    105
    
    
    $
    5
    
    
    $
    
    
    
    $
    2,311Insurance reserves:Claim and claim adjustment expense
    
    $
    15,084
    
    
    $
    5,205
    
    
    $
    3,277
    
    
    $
    7,372
    
    
    $
    
    
    
    $
    30,938Unearned premiums
    
    
    1,952
    
    
    
    1,577
    
    
    
    168
    
    
    
    9
    
    
    
    
    
    
    
    3,706Future policy benefits
    
    
    
    
    
    
    
    
    
    
    6,297
    
    
    
    
    
    
    
    
    
    
    
    6,297Policyholders funds
    
    
    30
    
    
    
    
    
    
    
    1,465
    
    
    
    
    
    
    
    
    
    
    
    1,495Deferred acquisition costs
    
    $
    408
    
    
    $
    274
    
    
    $
    515
    
    
    $
    
    
    
    $
    
    
    
    $
    1,197
 49




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##### Table of Contents



CNA FINANCIAL CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS, Continued
(UNAUDITED)
  Revenue by Line of BusinessThree Months
    
    
    Nine MonthsPeriod ended September 30
    
    2006
    
    
    2005
    
    
    2006
    
    
    2005(In millions)Standard LinesProperty
    
    $
    260
    
    
    $
    212
    
    
    $
    732
    
    
    $
    644Casualty
    
    
    884
    
    
    
    900
    
    
    
    2,592
    
    
    
    2,705CNA Global
    
    
    257
    
    
    
    231
    
    
    
    734
    
    
    
    669Standard Lines revenue
    
    
    1,401
    
    
    
    1,343
    
    
    
    4,058
    
    
    
    4,018Specialty LinesProfessional Liability Insurance
    
    
    615
    
    
    
    576
    
    
    
    1,775
    
    
    
    1,635Surety
    
    
    113
    
    
    
    101
    
    
    
    323
    
    
    
    290Warranty
    
    
    71
    
    
    
    75
    
    
    
    212
    
    
    
    222Specialty Lines revenue
    
    
    799
    
    
    
    752
    
    
    
    2,310
    
    
    
    2,147Life and Group Non-CoreLife & Annuity
    
    
    100
    
    
    
    107
    
    
    
    266
    
    
    
    233Health
    
    
    224
    
    
    
    228
    
    
    
    655
    
    
    
    677Other
    
    
    13
    
    
    
    31
    
    
    
    53
    
    
    
    130Life and Group Non-Core revenue
    
    
    337
    
    
    
    366
    
    
    
    974
    
    
    
    1,040Corporate and Other Non-CoreCNA Re
    
    
    35
    
    
    
    23
    
    
    
    78
    
    
    
    49Other
    
    
    62
    
    
    
    55
    
    
    
    155
    
    
    
    260Corporate and Other Non-Core revenue
    
    
    97
    
    
    
    78
    
    
    
    233
    
    
    
    309Eliminations
    
    
    (14
    )
    
    
    (19
    )
    
    
    (42
    )
    
    
    (60
    )Total revenue
    
    $
    2,620
    
    
    $
    2,520
    
    
    $
    7,533
    
    
    $
    7,454
  Note P. Restructuring and Other Related Charges
  Note Q. Significant Transactions
 Managed Care Holdings Corporation
  50




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##### Table of Contents



CNA FINANCIAL CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS, Continued
(UNAUDITED)
 Specialty Medical Business
  Note R. Related Party Transactions
    CNA Surety Corporation
 Loans to National Contractor
     51




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##### Table of Contents



CNA FINANCIAL CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS, Continued
(UNAUDITED)
     Note S. Discontinued Operations
   Discontinued OperationsThree Months
    
    
    Nine MonthsPeriod ended September 30
    
    2006
    
    
    2005
    
    
    2006
    
    
    2005(In millions)Revenues:Net investment income
    
    $
    5
    
    
    $
    3
    
    
    $
    13
    
    
    $
    11Realized investment gains (losses) and other
    
    
    -
    
    
    
    4
    
    
    
    (3
    )
    
    
    (1
    )Total revenues
    
    
    5
    
    
    
    7
    
    
    
    10
    
    
    
    10Insurance related (expenses) benefits
    
    
    (8
    )
    
    
    (4
    )
    
    
    (21
    )
    
    
    2Income (loss) before income taxes
    
    
    (3
    )
    
    
    3
    
    
    
    (11
    )
    
    
    12Income tax benefit
    
    
    9
    
    
    
    -
    
    
    
    9
    
    
    
    -Income (loss) from discontinued operations, net of tax
    
    $
    6
    
    
    $
    3
    
    
    $
    (2
    )
    
    $
    12
  Discontinued Operations(In millions)
    
    September 30, 2006
    
    
    December 31, 2005Assets:Investments
    
    $
    332
    
    
    $
    358Reinsurance receivables
    
    
    48
    
    
    
    78Cash
    
    
    38
    
    
    
    29Other assets
    
    
    5
    
    
    
    5Total assets
    
    
    423
    
    
    
    470Liabilities:Insurance reserves
    
    
    (320
    )
    
    
    (338
    )Other liabilities
    
    
    (4
    )
    
    
    (19
    )Total liabilities
    
    
    (324
    )
    
    
    (357
    )Net assets of discontinued operations
    
    $
    99
    
    
    $
    113
 52




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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 T. Restatements
  Discontinued Operations
   (In millions, except per share data)
    
    Three Months
    
    
    Nine MonthsAs Previously
    
    
    As
    
    
    As Previously
    
    
    AsReported
    
    
    Restated
    
    
    Reported
    
    
    RestatedPeriod ended September 30, 2005Condensed consolidated statements of
operations:Income from discontinued operations, net of
tax expense of $0 and $0
    
    $
    -
    
    
    $
    3
    
    
    $
    -
    
    
    $
    12Net income
    
    
    3
    
    
    
    6
    
    
    
    469
    
    
    
    481Earnings per share:Income from discontinued operations, net of tax
    
    $
    -
    
    
    $
    0.02
    
    
    $
    -
    
    
    $
    0.05Basic and diluted earnings (loss) per share
available to common stockholders
    
    
    (0.06
    )
    
    
    (0.04
    )
    
    
    1.63
    
    
    
    1.68
 (In millions)
    
    As Previously
    
    
    AsReported
    
    
    RestatedNine months ended September 30, 2005Condensed consolidated statement of stockholders equity:Retained earnings
    
    $
    6,041
    
    
    $
    5,838Accumulated
other comprehensive income
    
    
    384
    
    
    
    388
 53




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##### Table of Contents



CNA FINANCIAL CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS, Continued
(UNAUDITED)
 Condensed Consolidated Statement of Cash Flows
  
    
    Net purchases and sales of trading securities and changes
in the net receivable/payable from unsettled investment
purchases and sales related to trading securities, previously
classified within investing activities, have been reclassified
to cash flows from operating activities.
    
    Cash flows from equity method investees were reclassified
to distinguish between return on investments, which are
reflected within operating cash flows, and return of
investments, which are reflected within investing cash flows.
Previously, all amounts were reflected within investing cash
flows.
    
    Deposits and withdrawals related to investment contract
products issued by the Company have been reflected within
financing cash flows. Previously, amounts related to certain
investment contracts were reflected within operating cash
flows.
    
    The impact of cumulative translation adjustment,
previously reflected within investing activities, is now
classified within operating activities.
  For the nine months ended September 30
    
    2005(In millions)Cash flows provided by operating activities-continuing operationsAs previously reported
    
    $
    1,034Impact of restatements
    
    
    459As restated
    
    $
    1,493Cash flows used by investing activities-continuing operationsAs previously reported
    
    $
    (540
    )Impact of restatements
    
    
    (253
    )As restated
    
    $
    (793
    )Cash flows used by financing activities-continuing operationsAs previously reported
    
    $
    (503
    )Impact of restatements
    
    
    (164
    )As restated
    
    $
    (667
    )
   54




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CNA
FINANCIAL CORPORATION
 
 ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
 Overview
    
 55




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##### Table of Contents



CNA FINANCIAL CORPORATION
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS, Continued
 CONSOLIDATED OPERATIONS
 Results of Operations
  Three Months
    
    
    Nine MonthsPeriod ended September 30
    
    2006
    
    
    2005
    
    
    2006
    
    
    2005(In millions, except per share data)RevenuesNet earned premiums
    
    $
    1,943
    
    
    $
    1,873
    
    
    $
    5,704
    
    
    $
    5,684Net investment income
    
    
    600
    
    
    
    500
    
    
    
    1,722
    
    
    
    1,345Other revenues
    
    
    56
    
    
    
    80
    
    
    
    175
    
    
    
    351Total operating revenues
    
    
    2,599
    
    
    
    2,453
    
    
    
    7,601
    
    
    
    7,380Claims, Benefits and ExpensesNet incurred claims and benefits
    
    
    1,518
    
    
    
    1,868
    
    
    
    4,431
    
    
    
    4,868Policyholders dividends
    
    
    4
    
    
    
    3
    
    
    
    15
    
    
    
    18Amortization of deferred acquisition costs
    
    
    390
    
    
    
    416
    
    
    
    1,132
    
    
    
    1,168Other insurance related expenses
    
    
    175
    
    
    
    183
    
    
    
    563
    
    
    
    604Restructuring and other related charges
    
    
    -
    
    
    
    -
    
    
    
    (13
    )
    
    
    -Other expenses
    
    
    84
    
    
    
    87
    
    
    
    253
    
    
    
    258Total claims, benefits and expenses
    
    
    2,171
    
    
    
    2,557
    
    
    
    6,381
    
    
    
    6,916Operating income (loss) from continuing operations
before income tax and minority interest
    
    
    428
    
    
    
    (104
    )
    
    
    1,220
    
    
    
    464Income tax (expense) benefit on operating income
    
    
    (132
    )
    
    
    76
    
    
    
    (366
    )
    
    
    (23
    )Minority interest
    
    
    (13
    )
    
    
    (11
    )
    
    
    (32
    )
    
    
    (16
    )Net operating income (loss) from continuing operations
    
    
    283
    
    
    
    (39
    )
    
    
    822
    
    
    
    425Realized investment gains (losses), net of
participating policyholders and minority interests
    
    
    21
    
    
    
    67
    
    
    
    (68
    )
    
    
    74Income tax (expense) benefit on realized investment
gains (losses)
    
    
    1
    
    
    
    (25
    )
    
    
    27
    
    
    
    (30
    )Income from continuing operations
    
    
    305
    
    
    
    3
    
    
    
    781
    
    
    
    469Income (loss) from discontinued operations, net of
income tax benefit of $9, $0, $9 and $0
    
    
    6
    
    
    
    3
    
    
    
    (2
    )
    
    
    12Net income
    
    $
    311
    
    
    $
    6
    
    
    $
    779
    
    
    $
    481Basic and Diluted Earnings (Loss) Per ShareIncome (loss) from continuing operations
    
    $
    1.13
    
    
    $
    (0.06
    )
    
    $
    2.84
    
    
    $
    1.63Income (loss) from discontinued operations
    
    
    0.02
    
    
    
    0.02
    
    
    
    (0.01
    )
    
    
    0.05Basic and diluted earnings (loss) per share available
to common stockholders
    
    $
    1.15
    
    
    $
    (0.04
    )
    
    $
    2.83
    
    
    $
    1.68Weighted average outstanding common stock and common
stock equivalentsBasic
    
    
    265.0
    
    
    
    256.0
    
    
    
    259.0
    
    
    
    256.0Diluted
    
    
    265.2
    
    
    
    256.0
    
    
    
    259.2
    
    
    
    256.0
 56




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CNA FINANCIAL CORPORATION
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS, Continued
 Three Month Comparison
      Nine Month Comparison
      57




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CNA FINANCIAL CORPORATION
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS, Continued
   Critical Accounting Estimates
    
    
    Insurance Reserves
    
    Reinsurance
    
    Valuation of Investments and Impairment of Securities
    
    Long Term Care Products
    
    Pension and Postretirement Benefit Obligations
    
    Legal Proceedings
  Reserves
- Estimates and Uncertainties
    58




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CNA FINANCIAL CORPORATION
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS, Continued
  
    
    coverage issues, including whether certain costs are covered under the policies and whether policy limits apply;
    
    inconsistent court decisions and developing legal theories;
    
    continuing aggressive tactics of plaintiffs lawyers;
    
    the risks and lack of predictability inherent in major litigation;
    
    changes in the volume of APMT claims which cannot now be anticipated;
    
    the impact of the exhaustion of primary limits and the resulting increase in claims on any umbrella or excess policies
we have issued;
    
    the number and outcome of direct actions against us; and
    
    our ability to recover reinsurance for APMT claims.
    
    
    increases in the number and size of claims relating to injuries from medical products;
    
    the effects of accounting and financial reporting scandals and other major corporate governance failures, which have
resulted in an increase in the number and size of claims, including director and officer and errors and omissions
insurance claims;
    
    class action litigation relating to claims handling and other practices;
 59




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CNA FINANCIAL CORPORATION
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS, Continued
 
    
    construction defect claims, including claims for a broad range of additional insured endorsements on policies;
    
    clergy abuse claims, including passage of legislation to reopen or extend various statutes of limitations; and
    
    mass tort claims, including bodily injury claims related to silica, welding rods, benzene, lead and various other
chemical exposure claims.
  Establishing Reserve Estimates
     
    
    Paid Development,
    
    Incurred Development,
    
    Loss Ratio,
    
    Bornhuetter-Ferguson Using Premiums and Paid Loss,
    
    Bornhuetter-Ferguson Using Premiums and Incurred Loss, and
    
    Average Loss.
  60




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CNA FINANCIAL CORPORATION
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS, Continued
          61




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##### Table of Contents



CNA FINANCIAL CORPORATION
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS, Continued
    Periodic Reserve Reviews
      62




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##### Table of Contents



CNA FINANCIAL CORPORATION
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS, Continued
         63




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##### Table of Contents



CNA FINANCIAL CORPORATION
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS, Continued
  Reinsurance
        Terrorism Insurance
  64




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##### Table of Contents



CNA FINANCIAL CORPORATION
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS, Continued
    Restructuring
  SEGMENT RESULTS
  65




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CNA FINANCIAL CORPORATION
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS, Continued
 STANDARD LINES
  Results of OperationsThree Months
    
    
    Nine MonthsPeriod ended September 30
    
    2006
    
    
    2005
    
    
    2006
    
    
    2005(In millions)Net written premiums
    
    $
    1,121
    
    
    $
    1,047
    
    
    $
    3,394
    
    
    $
    3,352Net earned premiums
    
    
    1,128
    
    
    
    1,080
    
    
    
    3,310
    
    
    
    3,333Net investment income
    
    
    239
    
    
    
    186
    
    
    
    705
    
    
    
    540Net operating income (loss)
    
    
    163
    
    
    
    (144
    )
    
    
    463
    
    
    
    57Net realized investment gains (losses)
    
    
    11
    
    
    
    33
    
    
    
    (4
    )
    
    
    42Net income (loss)
    
    
    174
    
    
    
    (111
    )
    
    
    459
    
    
    
    99RatiosLoss and loss adjustment expense
    
    
    68.7
    %
    
    
    106.3
    %
    
    
    69.4
    %
    
    
    82.5
    %Expense
    
    
    30.1
    
    
    
    33.0
    
    
    
    30.7
    
    
    
    32.2Dividend
    
    
    0.4
    
    
    
    0.3
    
    
    
    0.4
    
    
    
    0.5Combined
    
    
    99.2
    %
    
    
    139.6
    %
    
    
    100.5
    %
    
    
    115.2
    %
 Three Month Comparison
        66




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CNA FINANCIAL CORPORATION
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS, Continued
  Nine Month Comparison
        67




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##### Table of Contents



CNA FINANCIAL CORPORATION
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS, Continued
  Gross and Net CarriedClaim and Claim Adjustment Expense ReservesSeptember 30, 2006
    
    
    December 31, 2005(In millions)Gross Case Reserves
    
    $
    6,843
    
    
    $
    7,033Gross IBNR Reserves
    
    
    7,979
    
    
    
    8,051Total Gross Carried Claim and Claim
Adjustment Expense Reserves
    
    $
    14,822
    
    
    $
    15,084Net Case Reserves
    
    $
    5,117
    
    
    $
    5,165Net IBNR Reserves
    
    
    6,484
    
    
    
    6,081Total Net Carried Claim and Claim
Adjustment Expense Reserves
    
    $
    11,601
    
    
    $
    11,246
 SPECIALTY LINES
  Results of OperationsThree Months
    
    
    Nine MonthsPeriod ended September 30
    
    2006
    
    
    2005
    
    
    2006
    
    
    2005(In millions)Net written premiums
    
    $
    675
    
    
    $
    649
    
    
    $
    1,948
    
    
    $
    1,838Net earned premiums
    
    
    654
    
    
    
    628
    
    
    
    1,915
    
    
    
    1,831Net investment income
    
    
    101
    
    
    
    74
    
    
    
    287
    
    
    
    197Net operating income
    
    
    119
    
    
    
    108
    
    
    
    343
    
    
    
    268Net realized investment gains (losses)
    
    
    5
    
    
    
    11
    
    
    
    (2
    )
    
    
    19Net income
    
    
    124
    
    
    
    119
    
    
    
    341
    
    
    
    287RatiosLoss and loss adjustment expense
    
    
    60.7
    %
    
    
    58.4
    %
    
    
    60.4
    %
    
    
    63.3
    %Expense
    
    
    25.8
    
    
    
    27.3
    
    
    
    26.4
    
    
    
    26.3Dividend
    
    
    0.1
    
    
    
    0.2
    
    
    
    0.1
    
    
    
    0.2Combined
    
    
    86.6
    %
    
    
    85.9
    %
    
    
    86.9
    %
    
    
    89.8
    %
 Three Month Comparison
    68




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CNA FINANCIAL CORPORATION
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS, Continued
     Nine Month Comparison
       69




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##### Table of Contents



CNA FINANCIAL CORPORATION
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS, Continued
  Gross and Net CarriedClaim and Claim Adjustment Expense ReservesSeptember 30, 2006
    
    
    December 31, 2005(In millions)Gross Case Reserves
    
    $
    1,724
    
    
    $
    1,907Gross IBNR Reserves
    
    
    3,783
    
    
    
    3,298Total Gross Carried Claim and Claim
Adjustment Expense Reserves
    
    $
    5,507
    
    
    $
    5,205Net Case Reserves
    
    $
    1,352
    
    
    $
    1,442Net IBNR Reserves
    
    
    2,813
    
    
    
    2,352Total Net Carried Claim and Claim
Adjustment Expense Reserves
    
    $
    4,165
    
    
    $
    3,794
 LIFE AND GROUP NON-CORE
  Results of OperationsThree Months
    
    
    Nine MonthsPeriod ended September 30
    
    2006
    
    
    2005
    
    
    2006
    
    
    2005(In millions)Net earned premiums
    
    $
    160
    
    
    $
    169
    
    
    $
    482
    
    
    $
    539Net investment income
    
    
    179
    
    
    
    179
    
    
    
    504
    
    
    
    431Net operating loss
    
    
    (15
    )
    
    
    (35
    )
    
    
    (13
    )
    
    
    (29
    )Net realized investment losses
    
    
    (7
    )
    
    
    (1
    )
    
    
    (37
    )
    
    
    (5
    )Net loss
    
    
    (22
    )
    
    
    (36
    )
    
    
    (50
    )
    
    
    (34
    )
 Three Month Comparison
   Nine Month Comparison
   70




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CNA FINANCIAL CORPORATION
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS, Continued
  CORPORATE AND OTHER NON-CORE
  Results of OperationsThree Months
    
    Nine MonthsPeriod ended September 30
    
    2006
    
    2005
    
    2006
    
    2005(In millions)Net investment income
    
    $
    81
    
    
    $
    61
    
    
    $
    226
    
    
    $
    177Revenues
    
    
    83
    
    
    
    59
    
    
    
    191
    
    
    
    249Net operating income
    
    
    16
    
    
    
    32
    
    
    
    29
    
    
    
    129Net realized investment gains (losses)
    
    
    13
    
    
    
    (1
    )
    
    
    2
    
    
    
    (12
    )Net income
    
    
    29
    
    
    
    31
    
    
    
    31
    
    
    
    117
 Three Month Comparison
    Nine Month Comparison
    71




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##### Table of Contents



CNA FINANCIAL CORPORATION
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS, Continued
   Gross and Net CarriedClaim and Claim Adjustment Expense ReservesSeptember 30, 2006
    
    
    December 31, 2005(In millions)Gross Case Reserves
    
    $
    2,766
    
    
    $
    3,297Gross IBNR Reserves
    
    
    3,777
    
    
    
    4,075Total Gross Carried Claim and Claim Adjustment Expense Reserves
    
    $
    6,543
    
    
    $
    7,372Net Case Reserves
    
    $
    1,390
    
    
    $
    1,554Net IBNR Reserves
    
    
    2,023
    
    
    
    1,902Total Net Carried Claim and Claim Adjustment Expense Reserves
    
    $
    3,413
    
    
    $
    3,456
 APMT Reserves
     72




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CNA FINANCIAL CORPORATION
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS, Continued
   APMT Reserves
 September 30, 2006
    
    
    December 31, 2005Environmental
    
    
    
    
    
    
    EnvironmentalPollution and
    
    
    
    
    
    
    Pollution andAsbestos
    
    
    Mass Tort
    
    
    Asbestos
    
    
    Mass Tort(In millions)Gross reserves
    
    $
    2,735
    
    
    $
    585
    
    
    $
    2,992
    
    
    $
    680Ceded reserves
    
    
    (1,255
    )
    
    
    (220
    )
    
    
    (1,438
    )
    
    
    (257
    )Net reserves
    
    $
    1,480
    
    
    $
    365
    
    
    $
    1,554
    
    
    $
    423
 Asbestos
     73




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##### Table of Contents



CNA FINANCIAL CORPORATION
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS, Continued
       Pending Asbestos Accounts and Associated Reserves
 September 30, 2006Net Paid Losses
    
    
    Net Asbestos
    
    
    Percent ofNumber of
    
    
    in 2006
    
    
    Reserves
    
    
    AsbestosPolicyholders
    
    
    (In millions)
    
    
    (In millions)
    
    
    Net ReservesPolicyholders with settlement agreementsStructured Settlements
    
    
    15
    
    
    $
    33
    
    
    $
    151
    
    
    
    10
    %Wellington
    
    
    3
    
    
    
    1
    
    
    
    14
    
    
    
    1Coverage in place
    
    
    37
    
    
    
    (12
    )
    
    
    90
    
    
    
    6Fibreboard
    
    
    1
    
    
    
    -
    
    
    
    54
    
    
    
    4Total with settlement agreements
    
    
    56
    
    
    
    22
    
    
    
    309
    
    
    
    21Other policyholders with active accountsLarge asbestos accounts
    
    
    209
    
    
    
    36
    
    
    
    246
    
    
    
    16Small asbestos accounts
    
    
    1,096
    
    
    
    14
    
    
    
    84
    
    
    
    6Total other policyholders
    
    
    1,305
    
    
    
    50
    
    
    
    330
    
    
    
    22Assumed reinsurance and pools
    
    
    -
    
    
    
    4
    
    
    
    143
    
    
    
    10Unassigned IBNR
    
    
    -
    
    
    
    -
    
    
    
    698
    
    
    
    47Total
    
    
    1,361
    
    
    $
    76
    
    
    $
    1,480
    
    
    
    100
    %
 74




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##### Table of Contents



CNA FINANCIAL CORPORATION
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS, Continued
 Pending Asbestos Accounts and Associated Reserves
 December 31, 2005Net Paid Losses
    
    
    Net Asbestos
    
    
    Percent ofNumber of
    
    
    in 2005
    
    
    Reserves
    
    
    AsbestosPolicyholders
    
    
    (In millions)
    
    
    (In millions)
    
    
    Net ReservesPolicyholders with settlement agreementsStructured Settlements
    
    
    13
    
    
    $
    30
    
    
    $
    167
    
    
    
    11
    %Wellington
    
    
    4
    
    
    
    2
    
    
    
    15
    
    
    
    1Coverage in place
    
    
    34
    
    
    
    13
    
    
    
    58
    
    
    
    4Fibreboard
    
    
    1
    
    
    
    -
    
    
    
    54
    
    
    
    3Total with settlement agreements
    
    
    52
    
    
    
    45
    
    
    
    294
    
    
    
    19Other policyholders with active accountsLarge asbestos accounts
    
    
    199
    
    
    
    68
    
    
    
    273
    
    
    
    17Small asbestos accounts
    
    
    1,073
    
    
    
    23
    
    
    
    135
    
    
    
    9Total other policyholders
    
    
    1,272
    
    
    
    91
    
    
    
    408
    
    
    
    26Assumed reinsurance and pools
    
    
    -
    
    
    
    6
    
    
    
    143
    
    
    
    9Unassigned IBNR
    
    
    -
    
    
    
    -
    
    
    
    709
    
    
    
    46Total
    
    
    1,324
    
    
    $
    142
    
    
    $
    1,554
    
    
    
    100
    %
   75




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CNA FINANCIAL CORPORATION
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS, Continued
   Environmental Pollution and Mass Tort
        76




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##### Table of Contents



CNA FINANCIAL CORPORATION
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS, Continued
   Pending Environmental Pollution Accounts and Associated Reserves
 September 30, 2006NetEnvironmental
    
    
    Percent ofNet Paid Losses
    
    
    Pollution
    
    
    EnvironmentalNumber of
    
    
    in 2006
    
    
    Reserves
    
    
    Pollution NetPolicyholders
    
    
    (In millions)
    
    
    (In millions)
    
    
    ReservePolicyholders with Settlement AgreementsStructured settlements
    
    
    12
    
    
    $
    14
    
    
    $
    10
    
    
    
    3
    %Coverage in place
    
    
    18
    
    
    
    4
    
    
    
    22
    
    
    
    7Total with Settlement Agreements
    
    
    30
    
    
    
    18
    
    
    
    32
    
    
    
    10Other Policyholders with Active AccountsLarge pollution accounts
    
    
    110
    
    
    
    16
    
    
    
    52
    
    
    
    18Small pollution accounts
    
    
    358
    
    
    
    8
    
    
    
    37
    
    
    
    13Total Other Policyholders
    
    
    468
    
    
    
    24
    
    
    
    89
    
    
    
    31Assumed Reinsurance & Pools
    
    
    -
    
    
    
    1
    
    
    
    32
    
    
    
    11Unassigned IBNR
    
    
    -
    
    
    
    -
    
    
    
    140
    
    
    
    48Total
    
    
    498
    
    
    $
    43
    
    
    $
    293
    
    
    
    100
    %
 Pending Environmental Pollution Accounts and Associated Reserves
 December 31, 2005NetEnvironmental
    
    
    Percent ofNet Paid Losses
    
    
    Pollution
    
    
    EnvironmentalNumber of
    
    
    in 2005
    
    
    Reserves
    
    
    Pollution NetPolicyholders
    
    
    (In millions)
    
    
    (In millions)
    
    
    ReservePolicyholders with Settlement AgreementsStructured settlements
    
    
    6
    
    
    $
    10
    
    
    $
    17
    
    
    
    5
    %Coverage in place
    
    
    16
    
    
    
    10
    
    
    
    23
    
    
    
    7Total with Settlement Agreements
    
    
    22
    
    
    
    20
    
    
    
    40
    
    
    
    12Other Policyholders with Active AccountsLarge pollution accounts
    
    
    120
    
    
    
    18
    
    
    
    63
    
    
    
    19Small pollution accounts
    
    
    362
    
    
    
    15
    
    
    
    50
    
    
    
    15Total Other Policyholders
    
    
    482
    
    
    
    33
    
    
    
    113
    
    
    
    34Assumed Reinsurance & Pools
    
    
    -
    
    
    
    3
    
    
    
    33
    
    
    
    10Unassigned IBNR
    
    
    -
    
    
    
    -
    
    
    
    150
    
    
    
    44Total
    
    
    504
    
    
    $
    56
    
    
    $
    336
    
    
    
    100
    %
 77




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##### Table of Contents



CNA FINANCIAL CORPORATION
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS, Continued
 INVESTMENTS
 Net Investment Income
  Net Investment IncomeThree Months
    
    
    Nine MonthsPeriod ended September 30
    
    2006
    
    
    2005
    
    
    2006
    
    
    2005(In millions)Fixed maturity securities
    
    $
    477
    
    
    $
    393
    
    
    $
    1,372
    
    
    $
    1,167Short term investments
    
    
    61
    
    
    
    42
    
    
    
    184
    
    
    
    103Limited partnerships
    
    
    46
    
    
    
    72
    
    
    
    173
    
    
    
    189Equity securities
    
    
    4
    
    
    
    6
    
    
    
    18
    
    
    
    18Income from trading portfolio (a)
    
    
    30
    
    
    
    41
    
    
    
    63
    
    
    
    25Interest on funds withheld and other deposits
    
    
    (10
    )
    
    
    (50
    )
    
    
    (65
    )
    
    
    (139
    )Other
    
    
    2
    
    
    
    5
    
    
    
    10
    
    
    
    16Gross investment income
    
    
    610
    
    
    
    509
    
    
    
    1,755
    
    
    
    1,379Investment expense
    
    
    (10
    )
    
    
    (9
    )
    
    
    (33
    )
    
    
    (34
    )Net investment income
    
    $
    600
    
    
    $
    500
    
    
    $
    1,722
    
    
    $
    1,345
     78




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##### Table of Contents



CNA FINANCIAL CORPORATION
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS, Continued
 Net Realized Investment Gains (Losses)
  Net Realized Investment Gains (Losses)Three Months
    
    
    Nine MonthsPeriod ended September 30
    
    2006
    
    
    2005
    
    
    2006
    
    
    2005(In millions)Realized investment gains (losses):Fixed maturity securities:U.S. Government bonds
    
    $
    18
    
    
    $
    2
    
    
    $
    22
    
    
    $
    (10
    )Corporate and other taxable bonds
    
    
    (18
    )
    
    
    9
    
    
    
    (114
    )
    
    
    (36
    )Tax-exempt bonds
    
    
    40
    
    
    
    4
    
    
    
    51
    
    
    
    38Asset-backed bonds
    
    
    (1
    )
    
    
    7
    
    
    
    (15
    )
    
    
    18Redeemable preferred stock
    
    
    (2
    )
    
    
    -
    
    
    
    (3
    )
    
    
    10Total fixed maturity securities
    
    
    37
    
    
    
    22
    
    
    
    (59
    )
    
    
    20Equity securities
    
    
    (3
    )
    
    
    6
    
    
    
    3
    
    
    
    45Derivative securities
    
    
    (12
    )
    
    
    53
    
    
    
    (7
    )
    
    
    34Short term investments
    
    
    (2
    )
    
    
    1
    
    
    
    (6
    )
    
    
    1Other, including disposition of businesses, net of
participating policyholders interest
    
    
    1
    
    
    
    (15
    )
    
    
    (1
    )
    
    
    (28
    )Realized investment gains (losses) before allocation to
participating policyholders and minority interests
    
    
    21
    
    
    
    67
    
    
    
    (70
    )
    
    
    72Allocated to participating policyholders and minority interest
    
    
    -
    
    
    
    -
    
    
    
    2
    
    
    
    2Income tax (expense) benefit
    
    
    1
    
    
    
    (25
    )
    
    
    27
    
    
    
    (30
    )Net realized investment gains (losses), net of participating
policyholders and minority interests
    
    $
    22
    
    
    $
    42
    
    
    $
    (41
    )
    
    $
    44
     79




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##### Table of Contents



CNA FINANCIAL CORPORATION
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS, Continued
  â
    Realized Gains and LossesThree Months
    
    
    Nine MonthsPeriod ended September 30
    
    2006
    
    
    2005
    
    
    2006
    
    
    2005(In millions)Net realized gains (losses) on fixed maturity securities
and equity securities:Fixed maturity securities:Gross realized gains
    
    $
    114
    
    
    $
    65
    
    
    $
    216
    
    
    $
    330Gross realized losses
    
    
    (77
    )
    
    
    (43
    )
    
    
    (275
    )
    
    
    (310
    )Net realized gains (losses) on fixed maturity securities
    
    
    37
    
    
    
    22
    
    
    
    (59
    )
    
    
    20Equity securities:Gross realized gains
    
    
    1
    
    
    
    16
    
    
    
    9
    
    
    
    70Gross realized losses
    
    
    (4
    )
    
    
    (10
    )
    
    
    (6
    )
    
    
    (25
    )Net realized gains (losses) on equity securities
    
    
    (3
    )
    
    
    6
    
    
    
    3
    
    
    
    45Net realized gains (losses) on fixed maturity and equity
securities
    
    $
    34
    
    
    $
    28
    
    
    $
    (56
    )
    
    $
    65
 80




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##### Table of Contents



CNA FINANCIAL CORPORATION
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS, Continued
  Largest Realized Losses from Securities Sold at a Loss
 Nine months ended September 30, 2006
    
    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, including Treasury
Inflation-Protected Securities. Securities sold due to inflationary outlook and
asset reallocation.
    
    $
    3,050
    
    
    $
    12
    
    
    
    0-6State of New York revenue bonds. Position was sold to reduce municipal holdings.
    
    
    289
    
    
    
    6
    
    
    
    0-12Company provides property and casualty, managed care, life and various other
insurance products in the United States. Position was sold to reduce exposure
in the insurance sector.
    
    
    56
    
    
    
    5
    
    
    
    0-6Corporation operates hybrid fiber-coaxial broadband cable communications and
provides high speed internet access and digital video applications. Position
was sold to reduce exposure.
    
    
    92
    
    
    
    5
    
    
    
    0-6Total
    
    $
    3,487
    
    
    $
    28
  81




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##### Table of Contents



CNA FINANCIAL CORPORATION
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS, Continued
 Valuation and Impairment of Investments
  Carrying Value of Investments
 September 30,
    
    
    
    
    
    
    December 31,2006
    
    
    %
    
    
    2005
    
    
    %(In millions)General account investments:Fixed maturity securities available-for-sale:U.S. Treasury securities and obligations of government
Agencies
    
    $
    2,424
    
    
    
    6
    %
    
    $
    1,469
    
    
    
    4
    %Asset-backed securities
    
    
    14,030
    
    
    
    33
    
    
    
    12,859
    
    
    
    32States, municipalities and political subdivisions  tax-exempt
    
    
    4,437
    
    
    
    11
    
    
    
    9,209
    
    
    
    23Corporate securities
    
    
    6,734
    
    
    
    15
    
    
    
    6,165
    
    
    
    15Other debt securities
    
    
    3,475
    
    
    
    8
    
    
    
    3,044
    
    
    
    8Redeemable preferred stock
    
    
    851
    
    
    
    2
    
    
    
    216
    
    
    
    1Options embedded in convertible debt securities
    
    
    1
    
    
    
    -
    
    
    
    1
    
    
    
    -Total fixed maturity securities available-for-sale
    
    
    31,952
    
    
    
    75
    
    
    
    32,963
    
    
    
    83Fixed maturity securities trading:U.S. Treasury securities and obligations of government
Agencies
    
    
    3
    
    
    
    -
    
    
    
    4
    
    
    
    -Asset-backed securities
    
    
    51
    
    
    
    -
    
    
    
    87
    
    
    
    -Corporate securities
    
    
    127
    
    
    
    -
    
    
    
    154
    
    
    
    1Other debt securities
    
    
    17
    
    
    
    -
    
    
    
    26
    
    
    
    -Total fixed maturity securities trading
    
    
    198
    
    
    
    -
    
    
    
    271
    
    
    
    1Equity securities available-for-sale:Common stock
    
    
    373
    
    
    
    1
    
    
    
    289
    
    
    
    1Preferred stock
    
    
    147
    
    
    
    -
    
    
    
    343
    
    
    
    1Total equity securities available-for-sale
    
    
    520
    
    
    
    1
    
    
    
    632
    
    
    
    2Total equity securities trading
    
    
    56
    
    
    
    -
    
    
    
    49
    
    
    
    -Short term investments available-for-sale
    
    
    8,297
    
    
    
    20
    
    
    
    3,870
    
    
    
    9Short term investments trading
    
    
    163
    
    
    
    -
    
    
    
    368
    
    
    
    1Limited partnerships
    
    
    1,723
    
    
    
    4
    
    
    
    1,509
    
    
    
    4Other investments
    
    
    30
    
    
    
    -
    
    
    
    33
    
    
    
    -Total general account investments
    
    $
    42,939
    
    
    
    100
    %
    
    $
    39,695
    
    
    
    100
    %
    82




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##### Table of Contents



CNA FINANCIAL CORPORATION
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS, Continued
    Maturity Profile
 Percent of
    
    Percent ofMarket
    
    UnrealizedValue
    
    LossDue in one year or less
    
    
    6
    %
    
    
    2
    %Due after one year through five years
    
    
    45
    
    
    
    45Due after five years through ten years
    
    
    33
    
    
    
    30Due after ten years
    
    
    16
    
    
    
    23Total
    
    
    100
    %
    
    
    100
    %
  Unrealized Loss Aging for Non-investment Grade Securities
 Fair Value as a Percentage of Book Value
    
    
    GrossEstimated
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    UnrealizedSeptember 30, 2006
    
    Fair Value
    
    
    90-99%
    
    
    80-89%
    
    
    70-79%
    
    
    <70%
    
    
    Loss(In millions)Fixed maturity securities:Non-investment grade:0-6 months
    
    $
    622
    
    
    $
    5
    
    
    $
    -
    
    
    $
    -
    
    
    $
    -
    
    
    $
    57-12 months
    
    
    30
    
    
    
    1
    
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    113-24 months
    
    
    70
    
    
    
    3
    
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    3Greater than 24 months
    
    
    2
    
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    -Total non-investment grade
    
    $
    724
    
    
    $
    9
    
    
    $
    -
    
    
    $
    -
    
    
    $
    -
    
    
    $
    9
 Unrealized Loss Aging for Non-investment Grade Securities
 Fair Value as a Percentage of Book Value
    
    
    GrossEstimated
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    UnrealizedDecember 31, 2005
    
    Fair Value
    
    
    90-99%
    
    
    80-89%
    
    
    70-79%
    
    
    <70%
    
    
    Loss(In millions)Fixed maturity securities:Non-investment grade:0-6 months
    
    $
    632
    
    
    $
    20
    
    
    $
    8
    
    
    $
    1
    
    
    $
    -
    
    
    $
    297-12 months
    
    
    118
    
    
    
    4
    
    
    
    6
    
    
    
    -
    
    
    
    -
    
    
    
    1013-24 months
    
    
    122
    
    
    
    3
    
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    3Greater than 24 months
    
    
    2
    
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    -
    
    
    
    -Total non-investment grade
    
    $
    874
    
    
    $
    27
    
    
    $
    14
    
    
    $
    1
    
    
    $
    -
    
    
    $
    42
 83




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##### Table of Contents



CNA FINANCIAL CORPORATION
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS, Continued
     General Account Bond Ratings
 September 30,
    
    
    
    
    
    
    December 31,2006
    
    
    %
    
    
    2005
    
    
    %(In millions)U.S. Government and affiliated agency securities
    
    $
    2,580
    
    
    
    8
    %
    
    $
    1,628
    
    
    
    5
    %Other AAA rated
    
    
    15,749
    
    
    
    51
    
    
    
    18,233
    
    
    
    55AA and A rated
    
    
    5,076
    
    
    
    16
    
    
    
    6,046
    
    
    
    18BBB rated
    
    
    4,974
    
    
    
    16
    
    
    
    4,499
    
    
    
    14Below investment-grade
    
    
    2,920
    
    
    
    9
    
    
    
    2,612
    
    
    
    8Total
    
    $
    31,299
    
    
    
    100
    %
    
    $
    33,018
    
    
    
    100
    %
     84




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##### Table of Contents



CNA FINANCIAL CORPORATION
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS, Continued
   Short term Investments
 September 30,
    
    
    December 31,2006
    
    
    2005(In millions)Short term investments available-for-sale:Commercial paper
    
    $
    1,619
    
    
    $
    1,906U.S. Treasury securities
    
    
    3,169
    
    
    
    251Money market funds
    
    
    376
    
    
    
    294Other, including collateral held related to securities lending
    
    
    3,133
    
    
    
    1,419Total short term investments available-for-sale
    
    
    8,297
    
    
    
    3,870Short term investments trading:Commercial paper
    
    
    38
    
    
    
    94U.S. Treasury securities
    
    
    2
    
    
    
    64Money market funds
    
    
    123
    
    
    
    200Other
    
    
    -
    
    
    
    10Total short term investments trading
    
    
    163
    
    
    
    368Total short term investments
    
    $
    8,460
    
    
    $
    4,238
  LIQUIDITY AND CAPITAL RESOURCES
 Cash Flow
       85




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##### Table of Contents



CNA FINANCIAL CORPORATION
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS, Continued
   Commitments, Contingencies and Guarantees
   Contractual Commitments
 September 30, 2006
    
    Total
    
    
    Less than 1 year
    
    
    1-3 years
    
    
    3-5 years
    
    
    More than 5 years(In millions)Debt (a)
    
    $
    2,554
    
    
    $
    292
    
    
    $
    533
    
    
    $
    142
    
    
    $
    1,587Lease obligations
    
    
    248
    
    
    
    19
    
    
    
    90
    
    
    
    64
    
    
    
    75Claim and claim expense reserves (b)
    
    
    31,980
    
    
    
    2,122
    
    
    
    11,800
    
    
    
    6,225
    
    
    
    11,833Future policy benefits reserves (c)
    
    
    10,163
    
    
    
    66
    
    
    
    353
    
    
    
    343
    
    
    
    9,401Policyholder funds reserves (c)
    
    
    1,032
    
    
    
    197
    
    
    
    506
    
    
    
    181
    
    
    
    148Guaranteed payment contracts (d)
    
    
    19
    
    
    
    7
    
    
    
    12
    
    
    
    -
    
    
    
    -Total
    
    $
    45,996
    
    
    $
    2,703
    
    
    $
    13,294
    
    
    $
    6,955
    
    
    $
    23,044
 (a)
    
    Includes estimated future interest payments, but does not include original issue
discount.(b)
    
    Claim and claim adjustment expense reserves are not discounted and represent our
estimate of the amount and timing of the ultimate settlement and administration of claims
based on our assessment of facts and circumstances known as of September 30, 2006. See the
Reserves  Estimates and Uncertainties section of this MD&A for further information. Claim
and claim adjustment expense reserves of $12 million related to business which has been
100% ceded to unaffiliated parties in connection with the individual life sale are not
included.(c)
    
    Future policy benefits and policyholder funds reserves are not discounted and represent
our estimate of the ultimate amount and timing of the settlement of benefits based on our
assessment of facts and circumstances known as of September 30, 2006. Future policy
benefit reserves of $907 million and policyholder fund reserves of $49 million related to
business which has been 100% ceded to unaffiliated parties in connection with the
individual life sale are not included.(d)
    
    Primarily relating to telecommunications and software services.
  Regulatory Matters
  86




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##### Table of Contents



CNA FINANCIAL CORPORATION
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS, Continued
    Dividends from Subsidiaries
   Loews
   Ratings
  87




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##### Table of Contents



CNA FINANCIAL CORPORATION
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS, Continued
   Insurance Financial StrengthRatings (a)
    
    Debt Ratings (a)Property &Casualty
    
    Life
    
    CNAF
    
    ContinentalCCC
    
    CAC
    
    Senior
    
    SeniorGroup
    
    
    
    
    
    Debt
    
    DebtA.M. Best
    
    
    A
    
    
    
    A-
    
    
    bbb
    
    Not ratedFitch
    
    
    A-
    
    
    
    A-
    
    
    BBB-
    
    BBB-Moodys
    
    
    A3
    
    
    Baa1
    
    Baa3
    
    Baa3S&P
    
    
    A-
    
    
    BBB+
    
    BBB-
    
    BBB-
      88




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##### Table of Contents



CNA FINANCIAL CORPORATION
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS, Continued
 Accounting Pronouncements
 Fair Value Measurement
 Considering the Effects of Prior Year Misstatements when Quantifying
Misstatements in Current Year Financial Statements Accounting Changes and Error Correction
 Accounting for Uncertainty in Income
Taxes an interpretation of FASB Statement No. 109
 Accounting for Life Settlement
Contracts by Third-Party Investors Accounting for Purchases of Life Insurance
 Accounting for Certain Hybrid Financial
Instruments Accounting for Derivative
Instruments and Hedging Activities Accounting for Transfers and
Servicing of Financial Assets and Extinguishments of Liabilities Application of
 89




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##### Table of Contents



CNA FINANCIAL CORPORATION
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS, Continued
 Statement 133
to Beneficial Interests in Securitized Financial Assets
 Accounting by Insurance Enterprises
for Deferred Acquisition Costs in Connection with Modifications or Exchanges of Insurance
Contracts Accounting and Reporting by Insurance
Enterprises for Certain Long-Duration Contracts and for Realized Gains and Losses from the Sale of
Investments
  FORWARD-LOOKING STATEMENTS
  
    
    general economic and business conditions, including inflationary pressures on
medical care costs, construction costs and other economic sectors that increase the severity
of claims;
    
    changes in financial markets such as fluctuations in interest rates, long term
periods of low interest rates, credit conditions and currency, commodity and stock prices;
    
    the effects of corporate bankruptcies, such as Enron and WorldCom, on capital
markets, and on the markets for directors and officers and errors and omissions coverages;
    
    changes in foreign or domestic political, social and economic conditions;
    
    regulatory initiatives and compliance with governmental regulations, judicial
decisions, including interpretation of policy provisions, decisions regarding coverage and
theories of liability, trends in litigation and the outcome of any litigation involving us,
and rulings and changes in tax laws and regulations;
    
    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;
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CNA FINANCIAL CORPORATION
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS, Continued
 
    
    legal and regulatory activities with respect to certain non-traditional and
finite-risk insurance products, and possible resulting changes in accounting and financial
reporting in relation to such products, including our restatement of financial results in May
of 2005 and our relationship with an affiliate, Accord Re Ltd., as disclosed in connection
with that restatement;
 
    
    regulatory limitations, impositions and restrictions upon us, including the
effects of assessments and other surcharges for guaranty funds and second-injury funds and
other mandatory pooling arrangements;
    
    the impact of competitive products, policies and pricing and the competitive
environment in which we operate, including changes in our book of business;
    
    product and policy availability and demand and market responses, including the
level of ability to obtain rate increases and decline or non-renew under priced accounts, to
achieve premium targets and profitability and to realize growth and retention estimates;
    
    development of claims and the impact on loss reserves, including changes in claim
settlement policies;
    
    the effectiveness of current initiatives by claims management to reduce loss and
expense ratios through more efficacious claims handling techniques;
    
    the performance of reinsurance companies under reinsurance contracts with us;
    
    results of financing efforts, including the availability of bank credit facilities;
    
    changes in our composition of operating segments;
    
    weather and other natural physical events, including the severity and frequency of
storms, hail, snowfall and other winter conditions, as well as of natural disasters such as
hurricanes and earthquakes;
    
    man-made disasters, including the possible occurrence of terrorist attacks and the
effect of the absence or insufficiency of applicable terrorism legislation on coverages;
    
    the unpredictability of the nature, targets, severity or frequency of potential
terrorist events, as well as the uncertainty as to our ability to contain our terrorism
exposure effectively, notwithstanding the extension until 2007 of the Terrorism Risk Insurance
Act of 2002;
    
    the occurrence of epidemics;
    
    exposure to liabilities due to claims made by insureds and others relating to
asbestos remediation and health-based asbestos impairments, as well as exposure to liabilities
for environmental pollution, mass tort, construction defect claims and exposure to liabilities
due to claims made by insureds and others relating to lead-based paint;
    
    whether a national privately financed trust to replace litigation of asbestos
claims with payments to claimants from the trust will be established or approved through
federal legislation, or, if established and approved, whether it will contain funding
requirements in excess of our established loss reserves or carried loss reserves;
    
    the sufficiency of our loss reserves and the possibility of future increases in
reserves;
    
    regulatory limitations and restrictions, including limitations upon our ability to
receive dividends from our insurance subsidiaries imposed by state regulatory agencies and
minimum risk-based capital standards established by the National Association of Insurance
Commissioners;
    
    the risks and uncertainties associated with our loss reserves as outlined in the
Critical Accounting Estimates and the Reserves  Estimates and Uncertainties sections of this
MD&A;
    
    the level of success in integrating acquired businesses and operations, and in
consolidating, or selling existing ones;
    
    the possibility of further changes in our ratings by ratings agencies, including
the inability to access certain markets or distribution channels and the required
collateralization of future payment obligations as a result of such changes, and changes in
rating agency policies and practices; and
    
    the actual closing of contemplated transactions and agreements.
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CNA
FINANCIAL CORPORATION
 
 ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
 Market Risk
   Sensitivity Analysis
       92




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CNA FINANCIAL CORPORATION
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK, Continued
 Market Risk Scenario 1Increase (Decrease)Market
    
    
    Interest
    
    
    Currency
    
    
    EquitySeptember 30, 2006
    
    Value
    
    
    Rate Risk
    
    
    Risk
    
    
    Risk(In millions)General account:Fixed maturity securities available-for-sale
    
    $
    31,952
    
    
    $
    (1,862
    )
    
    $
    (91
    )
    
    $
    (85
    )Fixed maturity securities trading
    
    
    198
    
    
    
    (2
    )
    
    
    -
    
    
    
    (2
    )Equity securities available-for-sale
    
    
    520
    
    
    
    -
    
    
    
    (7
    )
    
    
    (52
    )Equity securities trading
    
    
    56
    
    
    
    -
    
    
    
    -
    
    
    
    (6
    )Short term investments available-for-sale
    
    
    8,297
    
    
    
    (18
    )
    
    
    (46
    )
    
    
    -Short term investments trading
    
    
    163
    
    
    
    -
    
    
    
    -
    
    
    
    -Limited partnerships
    
    
    1,723
    
    
    
    1
    
    
    
    -
    
    
    
    (34
    )Other invested assets
    
    
    28
    
    
    
    -
    
    
    
    -
    
    
    
    -Interest rate swaps
    
    
    -
    
    
    
    128
    
    
    
    -
    
    
    
    -Equity indexed futures for trading securities
    
    
    -
    
    
    
    1
    
    
    
    -
    
    
    
    (60
    )Other derivative securities
    
    
    2
    
    
    
    1
    
    
    
    7
    
    
    
    -Total general account
    
    
    42,939
    
    
    
    (1,751
    )
    
    
    (137
    )
    
    
    (239
    )Separate accounts:Fixed maturity securities
    
    
    462
    
    
    
    (23
    )
    
    
    -
    
    
    
    -Equity securities
    
    
    40
    
    
    
    -
    
    
    
    -
    
    
    
    (4
    )Short term investments
    
    
    17
    
    
    
    -
    
    
    
    -
    
    
    
    -Total separate accounts
    
    
    519
    
    
    
    (23
    )
    
    
    -
    
    
    
    (4
    )Total securities
    
    $
    43,458
    
    
    $
    (1,774
    )
    
    $
    (137
    )
    
    $
    (243
    )Debt (carrying value)
    
    $
    2,405
    
    
    $
    (123
    )
    
    $
    -
    
    
    $
    -
 Market Risk Scenario 1Increase (Decrease)Market
    
    
    Interest
    
    
    Currency
    
    
    EquityDecember 31, 2005
    
    Value
    
    
    Rate Risk
    
    
    Risk
    
    
    Risk(In millions)General account:Fixed maturity securities available-for-sale
    
    $
    32,963
    
    
    $
    (1,897
    )
    
    $
    (89
    )
    
    $
    (22
    )Fixed maturity securities trading
    
    
    271
    
    
    
    (2
    )
    
    
    (1
    )
    
    
    (2
    )Equity securities available-for-sale
    
    
    632
    
    
    
    -
    
    
    
    (6
    )
    
    
    (63
    )Equity securities trading
    
    
    49
    
    
    
    -
    
    
    
    -
    
    
    
    (5
    )Short term investments available-for-sale
    
    
    3,870
    
    
    
    (4
    )
    
    
    (37
    )
    
    
    -Short term investments trading
    
    
    368
    
    
    
    -
    
    
    
    -
    
    
    
    -Limited partnerships
    
    
    1,509
    
    
    
    1
    
    
    
    -
    
    
    
    (29
    )Other invested assets
    
    
    30
    
    
    
    -
    
    
    
    -
    
    
    
    -Interest rate swaps
    
    
    -
    
    
    
    66
    
    
    
    -
    
    
    
    -Equity index futures for trading
    
    
    -
    
    
    
    2
    
    
    
    -
    
    
    
    (102
    )Other derivative securities
    
    
    3
    
    
    
    3
    
    
    
    10
    
    
    
    -Total general account
    
    
    39,695
    
    
    
    (1,831
    )
    
    
    (123
    )
    
    
    (223
    )Separate accounts:Fixed maturity securities
    
    
    466
    
    
    
    (23
    )
    
    
    -
    
    
    
    -Equity securities
    
    
    44
    
    
    
    -
    
    
    
    -
    
    
    
    (4
    )Short term investments
    
    
    36
    
    
    
    -
    
    
    
    -
    
    
    
    -Total separate accounts
    
    
    546
    
    
    
    (23
    )
    
    
    -
    
    
    
    (4
    )Total securities
    
    $
    40,241
    
    
    $
    (1,854
    )
    
    $
    (123
    )
    
    $
    (227
    )Debt (carrying value)
    
    $
    1,690
    
    
    $
    (92
    )
    
    $
    -
    
    
    $
    -
 93




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CNA FINANCIAL CORPORATION
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK, Continued
  Market Risk Scenario 2Increase (Decrease)Market
    
    
    Interest
    
    
    Currency
    
    
    EquitySeptember 30, 2006
    
    Value
    
    
    Rate Risk
    
    
    Risk
    
    
    Risk(In millions)General account:Fixed maturity securities available-for-sale
    
    $
    31,952
    
    
    $
    (2,768
    )
    
    $
    (181
    )
    
    $
    (212
    )Fixed maturity securities trading
    
    
    198
    
    
    
    (3
    )
    
    
    -
    
    
    
    (5
    )Equity securities available-for-sale
    
    
    520
    
    
    
    -
    
    
    
    (15
    )
    
    
    (130
    )Equity securities trading
    
    
    56
    
    
    
    -
    
    
    
    -
    
    
    
    (14
    )Short term investments available-for-sale
    
    
    8,297
    
    
    
    (26
    )
    
    
    (91
    )
    
    
    -Short term securities trading
    
    
    163
    
    
    
    -
    
    
    
    -
    
    
    
    -Limited partnerships
    
    
    1,723
    
    
    
    1
    
    
    
    -
    
    
    
    (86
    )Other invested assets
    
    
    28
    
    
    
    -
    
    
    
    -
    
    
    
    -Interest rate swaps
    
    
    -
    
    
    
    189
    
    
    
    -
    
    
    
    -Equity indexed futures for trading
    
    
    -
    
    
    
    2
    
    
    
    -
    
    
    
    (151
    )Other derivative securities
    
    
    2
    
    
    
    1
    
    
    
    14
    
    
    
    -Total general account
    
    
    42,939
    
    
    
    (2,604
    )
    
    
    (273
    )
    
    
    (598
    )Separate accounts:Fixed maturity securities
    
    
    462
    
    
    
    (34
    )
    
    
    -
    
    
    
    -Equity securities
    
    
    40
    
    
    
    -
    
    
    
    -
    
    
    
    (10
    )Short term investments
    
    
    17
    
    
    
    -
    
    
    
    -
    
    
    
    -Total separate accounts
    
    
    519
    
    
    
    (34
    )
    
    
    -
    
    
    
    (10
    )Total securities
    
    $
    43,458
    
    
    $
    (2,638
    )
    
    $
    (273
    )
    
    $
    (608
    )Debt (carrying value)
    
    $
    2,405
    
    
    $
    (180
    )
    
    $
    -
    
    
    $
    -
 94




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




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CNA
FINANCIAL CORPORATION
 
 ITEM 4. CONTROLS AND PROCEDURES
    96




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CNA FINANCIAL CORPORATION
 
 PART II. OTHER INFORMATION
 
 Item 1. Legal Proceedings
  
 Item 1A. Risk Factors
  
 Item 6. Exhibits
  Description of Exhibit
    
    Exhibit NumberCertification of Chief Executive Officer pursuant to Rule 13a-14(a) or
15d-14(a) of the Securities Exchange Act of 1934, as amended,
as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
    
    
    31.1Certification of Chief Financial Officer pursuant to Rule 13a-14(a) or
15d-14(a) of the Securities Exchange Act of 1934, as amended,
as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
    
    
    31.2Certification of Chief Executive Officer pursuant to 18 U.S.C. 1350,
as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
    
    
    32.1
    *Certification of Chief Financial Officer pursuant to 18 U.S.C. 1350,
as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
    
    
    32.2
    *
 *
    
    Exhibits 32.1 and 32.2 are being furnished and shall not be deemed filed for the purpose
of Section 18 of the Securities Exchange Act of 1934, as amended, or otherwise subject to the
liabilities of that Section. These Exhibits shall not be incorporated by reference into any
registration statement or other document pursuant to the Securities Act of 1933, as amended.
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CNA FINANCIAL CORPORATION
PART II. OTHER INFORMATION
 SIGNATURES
  CNA Financial CorporationDated: November 2, 2006
    
    By
    
    /s/ D. Craig MenseD. Craig MenseChief Financial Officer
 98