UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 
 FORM 10-Q
 þ
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
 For the quarterly period ended June 30, 2008
 OR
 o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
 For the transition period from  to
 Commission File Number 1-5823
 CNA FINANCIAL CORPORATION
  Delaware
    
    36-6169860(State or other jurisdiction of
    
    (I.R.S. Employerincorporation or organization)
    
    Identification No.)333 S. WabashChicago, Illinois
    
    60604(Address of principal executive offices)
    
    (Zip Code)
 (312) 822-5000
  þ o
  Large accelerated filer þ
    
    Accelerated filer o
    
    Non-accelerated filer o
(Do not check if a
smaller reporting company)
    
    Smaller reporting company o
  o þ
  Class
    

Outstanding
at July 23, 2008Common Stock, Par value$2.50
    
    269,019,408




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##### 



CNA Financial Corporation
Index
  
 Item
    
    
    
    PageNumber
    
    
    
    NumberPART I. Financial Information1.
    
    Condensed Consolidated Financial Statements (Unaudited):Condensed Consolidated Statements of Operations for the
Three and Six months ended June 30, 2008 and 2007
    
    
    3Condensed Consolidated Balance Sheets at June 30, 2008
and December 31, 2007
    
    
    4Condensed Consolidated Statements of Cash Flows for the
Six months ended June 30, 2008 and 2007
    
    
    5Condensed Consolidated Statements of Stockholders
Equity for the Six months ended June 30, 2008 and 2007
    
    
    7Notes to Condensed Consolidated Financial Statements
    
    
    82.
    
    Managements Discussion and Analysis of Financial
Condition and Results of Operations
    
    
    413.
    
    Quantitative and Qualitative Disclosures About Market
Risk
    
    
    684.
    
    Controls and Procedures
    
    
    69PART II. Other Information1.
    
    Legal Proceedings
    
    
    704.
    
    Submission of Matters to a Vote of Security Holders
    
    
    706.
    
    Exhibits
    
    
    70




---



##### 



CNA Financial Corporation
 
 Part I. Financial Information
 
 Item 1. Condensed Consolidated Financial Statements
 
 Condensed Consolidated Statements of Operations (Unaudited)
 Period ended June 30
    
    Three months
    
    
    Six months(In millions, except per share data)
    
    2008
    
    
    2007
    
    
    2008
    
    
    2007RevenuesNet earned premiums
    
    $
    1,774
    
    
    $
    1,872
    
    
    $
    3,587
    
    
    $
    3,735Net investment income
    
    
    576
    
    
    
    671
    
    
    
    1,010
    
    
    
    1,279Realized investment losses, net of participating policyholders
and minority interests
    
    
    (111
    )
    
    
    (139
    )
    
    
    (162
    )
    
    
    (160
    )Other revenues
    
    
    82
    
    
    
    65
    
    
    
    168
    
    
    
    132Total revenues
    
    
    2,321
    
    
    
    2,469
    
    
    
    4,603
    
    
    
    4,986Claims, Benefits and ExpensesInsurance claims and policyholders benefits
    
    
    1,472
    
    
    
    1,473
    
    
    
    2,861
    
    
    
    2,921Amortization of deferred acquisition costs
    
    
    360
    
    
    
    372
    
    
    
    728
    
    
    
    753Other operating expenses
    
    
    203
    
    
    
    260
    
    
    
    430
    
    
    
    478Interest
    
    
    33
    
    
    
    35
    
    
    
    67
    
    
    
    69Total claims, benefits and expenses
    
    
    2,068
    
    
    
    2,140
    
    
    
    4,086
    
    
    
    4,221Income before income tax and minority interest
    
    
    253
    
    
    
    329
    
    
    
    517
    
    
    
    765Income tax expense
    
    
    (62
    )
    
    
    (91
    )
    
    
    (126
    )
    
    
    (223
    )Minority interest
    
    
    (12
    )
    
    
    (11
    )
    
    
    (24
    )
    
    
    (21
    )Income from continuing operations
    
    
    179
    
    
    
    227
    
    
    
    367
    
    
    
    521Income (loss) from discontinued operations, net of income tax
(expense) benefit of $0, $2, $0 and $1
    
    
    2
    
    
    
    (10
    )
    
    
    1
    
    
    
    (8
    )Net income
    
    $
    181
    
    
    $
    217
    
    
    $
    368
    
    
    $
    513Basic and Diluted Earnings Per ShareIncome from continuing operations
    
    $
    0.66
    
    
    $
    0.84
    
    
    $
    1.36
    
    
    $
    1.92Income (loss) from discontinued operations
    
    
    0.01
    
    
    
    (0.04
    )
    
    
    
    
    
    
    (0.03
    )Basic and diluted earnings per share available to common stockholders
    
    $
    0.67
    
    
    $
    0.80
    
    
    $
    1.36
    
    
    $
    1.89Weighted average outstanding common stock and common stock
equivalentsBasic
    
    
    269.0
    
    
    
    271.6
    
    
    
    269.9
    
    
    
    271.5Diluted
    
    
    269.1
    
    
    
    271.9
    
    
    
    270.0
    
    
    
    271.8
 
 3




---



##### 



CNA Financial Corporation
 
 Condensed Consolidated Balance Sheets (Unaudited)
 June 30,
    
    
    December 31,(In millions, except share data)
    
    2008
    
    
    2007AssetsInvestments:Fixed maturity securities at fair value (amortized cost of $31,991 and $34,388)
    
    $
    30,560
    
    
    $
    34,257Equity securities at fair value (cost of $1,504 and $366)
    
    
    1,419
    
    
    
    568Limited partnership investments
    
    
    2,321
    
    
    
    2,214Other invested assets
    
    
    9
    
    
    
    73Short term investments
    
    
    5,064
    
    
    
    4,677Total investments
    
    
    39,373
    
    
    
    41,789Cash
    
    
    78
    
    
    
    94Reinsurance receivables (less allowance for uncollectible receivables of $445 and $461)
    
    
    7,797
    
    
    
    8,228Insurance receivables (less allowance for doubtful accounts of $282 and $312)
    
    
    2,002
    
    
    
    1,972Accrued investment income
    
    
    324
    
    
    
    330Receivables for securities sold and collateral
    
    
    767
    
    
    
    142Deferred acquisition costs
    
    
    1,167
    
    
    
    1,161Prepaid reinsurance premiums
    
    
    290
    
    
    
    270Deferred income taxes
    
    
    1,805
    
    
    
    1,198Property and equipment at cost (less accumulated depreciation of $617 and $596)
    
    
    402
    
    
    
    378Goodwill and other intangible assets
    
    
    142
    
    
    
    142Other assets
    
    
    583
    
    
    
    579Separate account business
    
    
    451
    
    
    
    476Total assets
    
    $
    55,181
    
    
    $
    56,759Liabilities and Stockholders EquityLiabilities:Insurance reserves:Claim and claim adjustment expenses
    
    $
    28,202
    
    
    $
    28,588Unearned premiums
    
    
    3,645
    
    
    
    3,598Future policy benefits
    
    
    7,325
    
    
    
    7,106Policyholders funds
    
    
    582
    
    
    
    930Collateral on loaned securities and derivatives
    
    
    
    
    
    
    63Payables for securities purchased
    
    
    489
    
    
    
    353Participating policyholders funds
    
    
    34
    
    
    
    45Short term debt
    
    
    200
    
    
    
    350Long term debt
    
    
    1,807
    
    
    
    1,807Federal income taxes payable (includes $30 and $5 due to Loews Corporation)
    
    
    24
    
    
    
    2Reinsurance balances payable
    
    
    373
    
    
    
    401Other liabilities
    
    
    2,305
    
    
    
    2,505Separate account business
    
    
    451
    
    
    
    476Total liabilities
    
    
    45,437
    
    
    
    46,224Commitments and contingencies (Notes D, G, H, and J)Minority interest
    
    
    398
    
    
    
    385Stockholders equity:Common stock ($2.50 par value; 500,000,000 shares authorized; 273,040,243 shares
issued; and 269,017,057 and 271,662,278 shares outstanding)
    
    
    683
    
    
    
    683Additional paid-in capital
    
    
    2,171
    
    
    
    2,169Retained earnings
    
    
    7,572
    
    
    
    7,285Accumulated other comprehensive income (loss)
    
    
    (921
    )
    
    
    103Treasury stock (4,023,186 and 1,377,965 shares), at cost
    
    
    (109
    )
    
    
    (39
    )9,396
    
    
    
    10,201Notes receivable for the issuance of common stock
    
    
    (50
    )
    
    
    (51
    )Total stockholders equity
    
    
    9,346
    
    
    
    10,150Total liabilities and stockholders equity
    
    $
    55,181
    
    
    $
    56,759
 
 4




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##### 



CNA Financial Corporation
 
 Condensed Consolidated Statements of Cash Flows (Unaudited)
 Six months ended June 30
    
    2008
    
    
    2007(In millions)Cash Flows from Operating Activities:Net income
    
    $
    368
    
    
    $
    513Adjustments to reconcile net income to net cash flows provided by
operating activities:(Income) loss from discontinued operations
    
    
    (1
    )
    
    
    8Loss on disposal of property and equipment
    
    
    
    
    
    
    3Minority interest
    
    
    24
    
    
    
    21Deferred income tax (benefit) provision
    
    
    (44
    )
    
    
    7Trading securities activity
    
    
    351
    
    
    
    (44
    )Realized investment losses, net of participating policyholders and
minority interests
    
    
    162
    
    
    
    160Undistributed losses (earnings) of equity method investees
    
    
    36
    
    
    
    (81
    )Net amortization of bond (discount) premium
    
    
    (137
    )
    
    
    (132
    )Depreciation
    
    
    36
    
    
    
    28Changes in:Receivables, net
    
    
    401
    
    
    
    444Accrued investment income
    
    
    6
    
    
    
    (13
    )Deferred acquisition costs
    
    
    (6
    )
    
    
    (7
    )Prepaid reinsurance premiums
    
    
    (20
    )
    
    
    (22
    )Federal income taxes recoverable/payable
    
    
    22
    
    
    
    (61
    )Insurance reserves
    
    
    (148
    )
    
    
    (86
    )Reinsurance balances payable
    
    
    (28
    )
    
    
    (11
    )Other assets
    
    
    (23
    )
    
    
    21Other liabilities
    
    
    (190
    )
    
    
    (135
    )Other, net
    
    
    1
    
    
    
    (47
    )Total adjustments
    
    
    442
    
    
    
    53Net cash flows provided by operating activities-continuing operations
    
    $
    810
    
    
    $
    566Net cash flows provided (used) by operating activities-discontinued operations
    
    $
    2
    
    
    $
    (25
    )Net cash flows provided by operating activities-total
    
    $
    812
    
    
    $
    541Cash Flows from Investing Activities:Purchases of fixed maturity securities
    
    $
    (28,260
    )
    
    $
    (33,938
    )Proceeds from fixed maturity securities:Sales
    
    
    26,260
    
    
    
    31,598Maturities, calls and redemptions
    
    
    2,464
    
    
    
    2,836Purchases of equity securities
    
    
    (133
    )
    
    
    (97
    )Proceeds from sales of equity securities
    
    
    132
    
    
    
    109Change in short term investments
    
    
    (430
    )
    
    
    (1,215
    )Change in collateral on loaned securities and derivatives
    
    
    (63
    )
    
    
    248Change in other investments
    
    
    (153
    )
    
    
    (89
    )Purchases of property and equipment
    
    
    (64
    )
    
    
    (87
    )Other, net
    
    
    1
    
    
    
    56Net cash flows used by investing activities-continuing operations
    
    $
    (246
    )
    
    $
    (579
    )Net cash flows provided by investing activities-discontinued operations
    
    $
    15
    
    
    $
    50Net cash flows used by investing activities-total
    
    $
    (231
    )
    
    $
    (529
    )
 
 5




---



##### 



Six months ended June 30
    
    2008
    
    
    2007(In millions)Cash Flows from Financing Activities:Dividends paid to stockholders
    
    
    (81
    )
    
    
    (27
    )Principal payments on debt
    
    
    (150
    )
    
    
    Return of investment contract account balances
    
    
    (299
    )
    
    
    (57
    )Receipts of investment contract account balances
    
    
    2
    
    
    
    1Stock options exercised
    
    
    1
    
    
    
    17Purchase of treasury stock
    
    
    (70
    )
    
    
    Other, net
    
    
    3
    
    
    
    12Net cash flows used by financing activities-continuing operations
    
    $
    (594
    )
    
    $
    (54
    )Net cash flows provided by financing activities-discontinued operations
    
    $
    
    
    
    $
    Net cash flows used by financing activities-total
    
    $
    (594
    )
    
    $
    (54
    )Effect of foreign exchange rate changes on cash-continuing operations
    
    
    (1
    )
    
    
    Net change in cash
    
    
    (14
    )
    
    
    (42
    )Net cash transactions from continuing operations to discontinued
operations
    
    
    15
    
    
    
    63Net cash transactions from discontinued operations to continuing
operations
    
    
    (15
    )
    
    
    (63
    )Cash, beginning of year
    
    
    101
    
    
    
    124Cash, end of period
    
    $
    87
    
    
    $
    82Cash-continuing operations
    
    $
    78
    
    
    $
    80Cash-discontinued operations
    
    
    9
    
    
    
    2Cash-total
    
    $
    87
    
    
    $
    82
 
 6




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##### 



CNA Financial Corporation
 
 Condensed Consolidated Statements of Stockholders Equity (Unaudited)
 Six months ended June 30
    
    2008
    
    
    2007(In millions)Common StockBalance, beginning and end of period
    
    $
    683
    
    
    $
    683Additional Paid-in CapitalBalance, beginning of period
    
    
    2,169
    
    
    
    2,166Stock-based compensation
    
    
    2
    
    
    
    1Balance, end of period
    
    
    2,171
    
    
    
    2,167Retained EarningsBalance, beginning of period
    
    
    7,285
    
    
    
    6,486Adjustment to initially apply FASB Staff Position Technical
Bulletin No. 85-4-1, Accounting for Life Settlement
Contracts by Third-Party Investors, net of tax
    
    
    
    
    
    
    38Adjustment
to initially apply FASB Interpretation No. 48, Accounting
for Uncertainty in Income Taxes an interpretation of FASB
No. 109
    
    
    
    
    
    
    5Adjusted balance, beginning of period
    
    
    7,285
    
    
    
    6,529Dividends paid to stockholders
    
    
    (81
    )
    
    
    (27
    )Net income
    
    
    368
    
    
    
    513Balance, end of period
    
    
    7,572
    
    
    
    7,015Accumulated Other Comprehensive IncomeBalance, beginning of period
    
    
    103
    
    
    
    549Other comprehensive loss
    
    
    (1,024
    )
    
    
    (314
    )Balance, end of period
    
    
    (921
    )
    
    
    235Treasury StockBalance, beginning of period
    
    
    (39
    )
    
    
    (58
    )Purchase of treasury stock
    
    
    (70
    )
    
    
    Stock options exercised and other
    
    
    
    
    
    
    19Balance, end of period
    
    
    (109
    )
    
    
    (39
    )Notes Receivable for the Issuance of Common StockBalance, beginning of period
    
    
    (51
    )
    
    
    (58
    )Decrease in notes receivable for the issuance of common
stock
    
    
    1
    
    
    
    8Balance, end of period
    
    
    (50
    )
    
    
    (50
    )Total Stockholders Equity
    
    $
    9,346
    
    
    $
    10,011
 
 7




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##### 



CNA Financial Corporation
 
 Notes to Condensed Consolidated Financial Statements (Unaudited)
 Note A. Basis of Presentation
    Note B. Accounting Pronouncements
 Financial Accounting Standards Board (FASB) Staff Position (FSP) FIN 39-1, Amendment of FASB
Interpretation (FIN) No. 39 (FIN 39-1)
 Offsetting of Amounts Related to
Certain Contracts
  8




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##### 



Note C. Earnings Per Share
   Earnings Per Share
 Period ended June 30
    
    Three Months
    
    
    Six Months(In millions, except per share amounts)
    
    2008
    
    
    2007
    
    
    2008
    
    
    2007Income from continuing operations
available to common stockholders
    
    $
    179
    
    
    $
    227
    
    
    $
    367
    
    
    $
    521Weighted average outstanding common
stock and common stock equivalents
    
    
    269.0
    
    
    
    271.6
    
    
    
    269.9
    
    
    
    271.5Effect of dilutive securities,
employee stock options and
appreciation rights
    
    
    0.1
    
    
    
    0.3
    
    
    
    0.1
    
    
    
    0.3Adjusted weighted average outstanding
common stock and common stock
equivalents assuming conversions
    
    
    269.1
    
    
    
    271.9
    
    
    
    270.0
    
    
    
    271.8Basic and diluted earnings per share
from continuing operations available
to common stockholders
    
    $
    0.66
    
    
    $
    0.84
    
    
    $
    1.36
    
    
    $
    1.92Dividends declared per common share
    
    $
    0.15
    
    
    $
    0.10
    
    
    $
    0.30
    
    
    $
    0.10
 9




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##### 



Note D. Investments
  Net Investment Income
 Period ended June 30
    
    Three Months
    
    
    Six Months(In millions)
    
    2008
    
    
    2007
    
    
    2008
    
    
    2007Fixed maturity securities
    
    $
    476
    
    
    $
    526
    
    
    $
    994
    
    
    $
    1,022Short term investments
    
    
    26
    
    
    
    39
    
    
    
    65
    
    
    
    89Limited partnerships
    
    
    46
    
    
    
    71
    
    
    
    7
    
    
    
    123Equity securities
    
    
    39
    
    
    
    6
    
    
    
    44
    
    
    
    11Income (loss) from trading portfolio (a)
    
    
    (4
    )
    
    
    40
    
    
    
    (81
    )
    
    
    43Other
    
    
    5
    
    
    
    12
    
    
    
    11
    
    
    
    22Gross investment income
    
    
    588
    
    
    
    694
    
    
    
    1,040
    
    
    
    1,310Investment expense
    
    
    (12
    )
    
    
    (23
    )
    
    
    (30
    )
    
    
    (31
    )Net investment income
    
    $
    576
    
    
    $
    671
    
    
    $
    1,010
    
    
    $
    1,279
 
 (a)
    
    The change in net unrealized gains (losses) on trading securities included in net
investment income was $(2) million and $(15) million for the three and six months ended June
30, 2008 and $1 million and $3 million for the three and six months ended June 30, 2007.
  Realized Investment Gains (Losses)
 Period ended June 30
    
    Three Months
    
    
    Six Months(In millions)
    
    2008
    
    
    2007
    
    
    2008
    
    
    2007Fixed maturity securities:U.S. Government bonds
    
    $
    (46
    )
    
    $
    (96
    )
    
    $
    (14
    )
    
    $
    (94
    )Corporate and other taxable bonds
    
    
    (8
    )
    
    
    (50
    )
    
    
    (39
    )
    
    
    (25
    )Tax-exempt bonds
    
    
    10
    
    
    
    (42
    )
    
    
    50
    
    
    
    (53
    )Asset-backed bonds
    
    
    (118
    )
    
    
    (77
    )
    
    
    (157
    )
    
    
    (110
    )Redeemable preferred stock
    
    
    4
    
    
    
    (1
    )
    
    
    
    
    
    
    (1
    )Total fixed maturity securities
    
    
    (158
    )
    
    
    (266
    )
    
    
    (160
    )
    
    
    (283
    )Equity securities
    
    
    (14
    )
    
    
    11
    
    
    
    (29
    )
    
    
    14Derivative securities
    
    
    56
    
    
    
    115
    
    
    
    12
    
    
    
    107Short term investments
    
    
    5
    
    
    
    
    
    
    
    7
    
    
    
    Other
    
    
    
    
    
    
    1
    
    
    
    8
    
    
    
    2Realized investment losses, net of
participating policyholders and
minority interests
    
    $
    (111
    )
    
    $
    (139
    )
    
    $
    (162
    )
    
    $
    (160
    )
  10




---



##### 



Summary of Fixed Maturity and Equity Securities
 Cost or
    
    
    Gross
    
    
    Gross Unrealized Losses
    
    
    EstimatedAmortized
    
    
    Unrealized
    
    
    Less than
    
    
    12 Months
    
    
    FairJune 30, 2008
    
    Cost
    
    
    Gains
    
    
    12 Months
    
    
    or Greater
    
    
    Value(In millions)Fixed maturity securities available-for-sale:U.S. Treasury securities and obligations
of government agencies
    
    $
    597
    
    
    $
    92
    
    
    $
    1
    
    
    $
    1
    
    
    $
    687Asset-backed securities
    
    
    10,695
    
    
    
    69
    
    
    
    328
    
    
    
    524
    
    
    
    9,912States, municipalities and political
subdivisions  tax-exempt securities
    
    
    7,153
    
    
    
    46
    
    
    
    255
    
    
    
    111
    
    
    
    6,833Corporate bonds
    
    
    9,690
    
    
    
    170
    
    
    
    389
    
    
    
    144
    
    
    
    9,327Other debt securities
    
    
    3,756
    
    
    
    100
    
    
    
    131
    
    
    
    24
    
    
    
    3,701Redeemable preferred stock
    
    
    49
    
    
    
    1
    
    
    
    1
    
    
    
    
    
    
    
    49Total fixed maturity securities
available-for-sale
    
    
    31,940
    
    
    
    478
    
    
    
    1,105
    
    
    
    804
    
    
    
    30,509Total fixed maturity securities trading
    
    
    51
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    51Equity securities available-for-sale:Common stock
    
    
    247
    
    
    
    210
    
    
    
    9
    
    
    
    1
    
    
    
    447Preferred stock
    
    
    1,257
    
    
    
    
    
    
    
    177
    
    
    
    108
    
    
    
    972Total equity securities available-for-sale
    
    
    1,504
    
    
    
    210
    
    
    
    186
    
    
    
    109
    
    
    
    1,419Total
    
    $
    33,495
    
    
    $
    688
    
    
    $
    1,291
    
    
    $
    913
    
    
    $
    31,979
 11




---



##### 



Summary of Fixed Maturity and Equity Securities
 Cost or
    
    
    Gross
    
    
    Gross Unrealized Losses
    
    
    EstimatedAmortized
    
    
    Unrealized
    
    
    Less than
    
    
    12 Months
    
    
    FairDecember 31, 2007
    
    Cost
    
    
    Gains
    
    
    12 Months
    
    
    or Greater
    
    
    Value(In millions)Fixed maturity securities available-for-sale:U.S. Treasury securities and obligations
of government agencies
    
    $
    594
    
    
    $
    93
    
    
    $
    
    
    
    $
    
    
    
    $
    687Asset-backed securities
    
    
    11,776
    
    
    
    39
    
    
    
    223
    
    
    
    183
    
    
    
    11,409States, municipalities and political
subdivisions  tax-exempt securities
    
    
    7,615
    
    
    
    144
    
    
    
    82
    
    
    
    2
    
    
    
    7,675Corporate bonds
    
    
    8,867
    
    
    
    246
    
    
    
    149
    
    
    
    12
    
    
    
    8,952Other debt securities
    
    
    4,143
    
    
    
    208
    
    
    
    48
    
    
    
    4
    
    
    
    4,299Redeemable preferred stock
    
    
    1,216
    
    
    
    2
    
    
    
    160
    
    
    
    
    
    
    
    1,058Total fixed maturity securities
available-for-sale
    
    
    34,211
    
    
    
    732
    
    
    
    662
    
    
    
    201
    
    
    
    34,080Total fixed maturity securities trading
    
    
    177
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    177Equity securities available-for-sale:Common stock
    
    
    246
    
    
    
    207
    
    
    
    1
    
    
    
    
    
    
    
    452Preferred stock
    
    
    120
    
    
    
    7
    
    
    
    11
    
    
    
    
    
    
    
    116Total equity securities available-for-sale
    
    
    366
    
    
    
    214
    
    
    
    12
    
    
    
    
    
    
    
    568Total
    
    $
    34,754
    
    
    $
    946
    
    
    $
    674
    
    
    $
    201
    
    
    $
    34,825
 12




---



##### 



Unrealized Loss Aging
 June 30, 2008
    
    
    December 31, 2007Gross
    
    
    
    
    
    
    GrossEstimated
    
    
    Unrealized
    
    
    Estimated
    
    
    UnrealizedFair Value
    
    
    Loss
    
    
    Fair Value
    
    
    Loss(In millions)Fixed income securities:Investment grade:0-6 months
    
    $
    11,981
    
    
    $
    628
    
    
    $
    4,771
    
    
    $
    2287-12 months
    
    
    2,543
    
    
    
    431
    
    
    
    1,584
    
    
    
    19313-24 months
    
    
    1,477
    
    
    
    346
    
    
    
    690
    
    
    
    57Greater than 24 months
    
    
    2,057
    
    
    
    244
    
    
    
    3,869
    
    
    
    138Total investment grade
    
    
    18,058
    
    
    
    1,649
    
    
    
    10,914
    
    
    
    616Non-investment grade:0-6 months
    
    
    1,012
    
    
    
    70
    
    
    
    1,527
    
    
    
    737-12 months
    
    
    1,262
    
    
    
    149
    
    
    
    125
    
    
    
    813-24 months
    
    
    147
    
    
    
    36
    
    
    
    26
    
    
    
    4Greater than 24 months
    
    
    8
    
    
    
    4
    
    
    
    9
    
    
    
    2Total non-investment grade
    
    
    2,429
    
    
    
    259
    
    
    
    1,687
    
    
    
    87Total fixed income securities
    
    
    20,487
    
    
    
    1,908
    
    
    
    12,601
    
    
    
    703Redeemable and non-redeemable preferred stocks:0-6 months
    
    
    127
    
    
    
    14
    
    
    
    893
    
    
    
    1437-12 months
    
    
    745
    
    
    
    237
    
    
    
    104
    
    
    
    2813-24 months
    
    
    96
    
    
    
    35
    
    
    
    
    
    
    
    Greater than 24 months
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Total preferred stocks
    
    
    968
    
    
    
    286
    
    
    
    997
    
    
    
    171Common stocks:0-6 months
    
    
    33
    
    
    
    9
    
    
    
    34
    
    
    
    17-12 months
    
    
    13
    
    
    
    1
    
    
    
    1
    
    
    
    13-24 months
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Greater than 24 months
    
    
    3
    
    
    
    
    
    
    
    3
    
    
    
    Total common stocks
    
    
    49
    
    
    
    10
    
    
    
    38
    
    
    
    1Total
    
    $
    21,504
    
    
    $
    2,204
    
    
    $
    13,636
    
    
    $
    875
   13




---



##### 



Asset-Backed Securities
  Recognition of
Interest Income and Impairment on Purchased and Retained Beneficial Interests in Securitized
Financial Assets
   States, Municipalities and Political Subdivisions  Tax-Exempt Securities
  14




---



##### 



Corporate Bonds
  Preferred Stock
  Investment Commitments
   15




---



##### 



Note E. Derivative Financial Instruments
  Recognized Gains (Losses)
 Three Months
    
    
    Six MonthsPeriod ended June 30
    
    2008
    
    
    2007
    
    
    2008
    
    
    2007(In millions)General accountWithout hedge designationSwaps
    
    $
    26
    
    
    $
    115
    
    
    $
    4
    
    
    $
    108Futures sold, not yet purchased
    
    
    32
    
    
    
    
    
    
    
    11
    
    
    
    Currency forwards
    
    
    1
    
    
    
    
    
    
    
    
    
    
    
    (1
    )Commitments to purchase government and municipal securities (TBAs)
    
    
    
    
    
    
    1
    
    
    
    
    
    
    
    1Equity warrants
    
    
    (2
    )
    
    
    
    
    
    
    (2
    )
    
    
    Trading activitiesFutures purchased
    
    
    (6
    )
    
    
    32
    
    
    
    (78
    )
    
    
    27Futures sold, not yet purchased
    
    
    1
    
    
    
    1
    
    
    
    1
    
    
    
    1Currency forwards
    
    
    
    
    
    
    (1
    )
    
    
    1
    
    
    
    (1
    )Total
    
    $
    52
    
    
    $
    148
    
    
    $
    (63
    )
    
    $
    135
  Derivative Financial Instruments
 Contractual/Notional
    
    
    Estimated Fair ValueJune 30, 2008
    
    Amount
    
    
    Asset
    
    
    (Liability)(In millions)General accountWithout hedge designationSwaps
    
    $
    1,034
    
    
    $
    5
    
    
    $
    (72
    )Futures sold, not yet purchased
    
    
    231
    
    
    
    1
    
    
    
    Currency forwards
    
    
    14
    
    
    
    
    
    
    
    Equity warrants
    
    
    4
    
    
    
    
    
    
    
    Trading activitiesFutures purchased
    
    
    339
    
    
    
    
    
    
    
    Futures sold, not yet purchased
    
    
    2
    
    
    
    
    
    
    
    Total general account
    
    $
    1,624
    
    
    $
    6
    
    
    $
    (72
    )
 16




---



##### 



Derivative Financial Instruments
 Contractual/Notional
    
    
    Estimated Fair ValueDecember 31, 2007
    
    Amount
    
    
    Asset
    
    
    (Liability)(In millions)General accountWithout hedge designationSwaps
    
    $
    1,605
    
    
    $
    62
    
    
    $
    (62
    )Equity warrants
    
    
    4
    
    
    
    2
    
    
    
    Options embedded in convertible debt securities
    
    
    3
    
    
    
    
    
    
    
    Trading activitiesFutures purchased
    
    
    791
    
    
    
    
    
    
    
    (4
    )Futures sold, not yet purchased
    
    
    135
    
    
    
    
    
    
    
    Currency forwards
    
    
    44
    
    
    
    2
    
    
    
    (1
    )Total general account
    
    $
    2,582
    
    
    $
    66
    
    
    $
    (67
    )
   17




---



##### 



Note F. Fair Value
       TotalAssets/(Liabilities)June 30, 2008
    
    Level 1
    
    
    Level 2
    
    
    Level 3
    
    
    at fair value(In millions)AssetsFixed maturity securities
    
    $
    543
    
    
    $
    26,804
    
    
    $
    3,213
    
    
    $
    30,560Equity securities
    
    
    1,056
    
    
    
    102
    
    
    
    261
    
    
    
    1,419Derivative financial instruments, included in Other invested
assets
    
    
    
    
    
    
    
    
    
    
    5
    
    
    
    5Short term investments
    
    
    2,053
    
    
    
    3,011
    
    
    
    
    
    
    
    5,064Life settlement contracts, included in Other assets
    
    
    
    
    
    
    
    
    
    
    118
    
    
    
    118Discontinued operations investments, included in Other assets
    
    
    36
    
    
    
    111
    
    
    
    23
    
    
    
    170Separate account business
    
    
    42
    
    
    
    359
    
    
    
    45
    
    
    
    446Total assets
    
    $
    3,730
    
    
    $
    30,387
    
    
    $
    3,665
    
    
    $
    37,782LiabilitiesDerivative financial instruments, included in Other liabilities
    
    $
    
    
    
    $
    
    
    
    $
    (72
    )
    
    $
    (72
    )Total liabilities
    
    $
    
    
    
    $
    
    
    
    $
    (72
    )
    
    $
    (72
    )
 18




---



##### 



Net realizedinvestment gains
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    UnrealizedNet realized
    
    
    (losses) and net
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    gains (losses)investment gains
    
    
    change in
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    recorded in(losses) and net
    
    
    unrealized
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    net incomechange in unrealized
    
    
    appreciation
    
    
    Purchases,
    
    
    
    
    
    
    
    
    
    
    on level 3appreciation
    
    
    (depreciation)
    
    
    sales,
    
    
    
    
    
    
    
    
    
    assets and(depreciation)
    
    
    included in other
    
    
    issuances
    
    
    Net transfers
    
    
    Balance at
    
    
    liabilitiesBalance at
    
    
    included in net
    
    
    comprehensive
    
    
    and
    
    
    in (out) of
    
    
    June 30,
    
    
    held at JuneLevel 3
    
    April 1, 2008
    
    
    income*
    
    
    income
    
    
    settlements
    
    
    level 3
    
    
    2008
    
    
    30, 2008*(In millions)Fixed maturity securities
    
    $
    2,245
    
    
    $
    (85
    )
    
    $
    (55
    )
    
    $
    89
    
    
    $
    1,019
    
    
    $
    3,213
    
    
    $
    (91
    )Equity securities
    
    
    193
    
    
    
    
    
    
    
    (2
    )
    
    
    48
    
    
    
    22
    
    
    
    261
    
    
    
    (2
    )Derivative
financial instruments, net
    
    
    (82
    )
    
    
    23
    
    
    
    
    
    
    
    (8
    )
    
    
    
    
    
    
    (67
    )
    
    
    15Short term investments
    
    
    85
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (85
    )
    
    
    
    
    
    
    Life settlement contracts
    
    
    118
    
    
    
    12
    
    
    
    
    
    
    
    (12
    )
    
    
    
    
    
    
    118
    
    
    
    1Discontinued operations investments
    
    
    41
    
    
    
    
    
    
    
    
    
    
    
    (1
    )
    
    
    (17
    )
    
    
    23
    
    
    
    Separate account business
    
    
    47
    
    
    
    
    
    
    
    (4
    )
    
    
    2
    
    
    
    
    
    
    
    45
    
    
    
    Total
    
    $
    2,647
    
    
    $
    (50
    )
    
    $
    (61
    )
    
    $
    118
    
    
    $
    939
    
    
    $
    3,593
    
    
    $
    (77
    )
  Net realizedinvestment gains
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    UnrealizedNet realized
    
    
    (losses) and net
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    gains (losses)investment gains
    
    
    change in
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    recorded in(losses) and net
    
    
    unrealized
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    net incomechange in unrealized
    
    
    appreciation
    
    
    Purchases,
    
    
    
    
    
    
    
    
    
    
    on level 3appreciation
    
    
    (depreciation)
    
    
    sales,
    
    
    
    
    
    
    
    
    
    assets andBalance at
    
    
    (depreciation)
    
    
    included other
    
    
    issuances
    
    
    Net transfers
    
    
    Balance at
    
    
    liabilitiesJanuary 1,
    
    
    included in net
    
    
    comprehensive
    
    
    and
    
    
    in (out) of
    
    
    June 30,
    
    
    held at JuneLevel 3
    
    2008
    
    
    income*
    
    
    income
    
    
    settlements
    
    
    level 3
    
    
    2008
    
    
    30, 2008*(In millions)Fixed maturity securities
    
    $
    2,684
    
    
    $
    (123
    )
    
    $
    (270
    )
    
    $
    84
    
    
    $
    838
    
    
    $
    3,213
    
    
    $
    (135
    )Equity securities
    
    
    196
    
    
    
    (2
    )
    
    
    (3
    )
    
    
    48
    
    
    
    22
    
    
    
    261
    
    
    
    (4
    )Derivative
financial instruments, net
    
    
    2
    
    
    
    1
    
    
    
    
    
    
    
    (70
    )
    
    
    
    
    
    
    (67
    )
    
    
    (69
    )Short term investments
    
    
    85
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (85
    )
    
    
    
    
    
    
    Life settlement contracts
    
    
    115
    
    
    
    30
    
    
    
    
    
    
    
    (27
    )
    
    
    
    
    
    
    118
    
    
    
    5Discontinued operations investments
    
    
    42
    
    
    
    
    
    
    
    
    
    
    
    (2
    )
    
    
    (17
    )
    
    
    23
    
    
    
    Separate account business
    
    
    30
    
    
    
    
    
    
    
    (4
    )
    
    
    (1
    )
    
    
    20
    
    
    
    45
    
    
    
    Total
    
    $
    3,154
    
    
    $
    (94
    )
    
    $
    (277
    )
    
    $
    32
    
    
    $
    778
    
    
    $
    3,593
    
    
    $
    (203
    )
 19




---



##### 



* Net realized and unrealized gains and losses shown above are reported in net income as follows:
 Major Category of Assets and Liabilities
    
    Consolidated Statement of Operations Line ItemsFixed maturity securities
    
    Net investment income and Realized investment gains (losses)Equity securities
    
    Realized investment gains (losses)Derivative financial instruments (Assets)
    
    Realized investment gains (losses)Life settlement contracts
    
    Other revenuesDerivative financial instruments (Liabilities)
    
    Realized investment gains (losses)
   Fixed Maturity Securities
  Equity Securities
   Derivative Financial Instruments
  20




---



##### 



Short Term Investments
  Life Settlement Contracts
  Discontinued Operations Investments
  Separate Account Business
  21




---



##### 



Note G. Claim and Claim Adjustment Expense Reserves
     A&E Reserves
  A&E Reserves
 June 30, 2008
    
    
    December 31, 2007Environmental
    
    
    
    
    
    
    Environmental(In millions)
    
    Asbestos
    
    
    Pollution
    
    
    Asbestos
    
    
    PollutionGross reserves
    
    $
    2,206
    
    
    $
    326
    
    
    $
    2,352
    
    
    $
    367Ceded reserves
    
    
    (977
    )
    
    
    (118
    )
    
    
    (1,030
    )
    
    
    (125
    )Net reserves
    
    $
    1,229
    
    
    $
    208
    
    
    $
    1,322
    
    
    $
    242
 Asbestos
  22




---



##### 



23




---



##### 



In re:
Burns & Roe Enterprises, Inc
 Boson v. Union Carbide
Corp.,
 24




---



##### 



Pennock, et al. v. Maryland Casualty,
et al.
  Environmental Pollution
  25




---



##### 



Net Prior Year Development
  Three Month Comparison
 Net Prior Year Development
Three months ended June 30, 2008
 Corporate &Standard
    
    
    Specialty
    
    
    Other Non-(In millions)
    
    Lines
    
    
    Lines
    
    
    Core
    
    
    TotalPretax unfavorable (favorable) net prior year claim and
allocated claim adjustment expense reserve development:Core (Non-A&E)
    
    $
    (15
    )
    
    $
    1
    
    
    $
    5
    
    
    $
    (9
    )A&E
    
    
    
    
    
    
    
    
    
    
    6
    
    
    
    6Pretax unfavorable (favorable) net prior year development
before impact of premium development
    
    
    (15
    )
    
    
    1
    
    
    
    11
    
    
    
    (3
    )Pretax unfavorable (favorable) premium development
    
    
    (8
    )
    
    
    1
    
    
    
    1
    
    
    
    (6
    )Total pretax unfavorable (favorable) net prior year development
    
    $
    (23
    )
    
    $
    2
    
    
    $
    12
    
    
    $
    (9
    )
 Net Prior Year Development
Three months ended June 30, 2007
 Corporate &Standard
    
    
    Specialty
    
    
    Other Non-(In millions)
    
    Lines
    
    
    Lines
    
    
    Core
    
    
    TotalPretax unfavorable (favorable) net prior year claim and
allocated claim adjustment expense reserve development:Core (Non-A&E)
    
    $
    (20
    )
    
    $
    (14
    )
    
    $
    8
    
    
    $
    (26
    )A&E
    
    
    
    
    
    
    
    
    
    
    4
    
    
    
    4Pretax unfavorable (favorable) net prior year development
before impact of premium development
    
    
    (20
    )
    
    
    (14
    )
    
    
    12
    
    
    
    (22
    )Pretax unfavorable (favorable) premium development
    
    
    16
    
    
    
    
    
    
    
    (5
    )
    
    
    11Total pretax unfavorable (favorable) net prior year development
    
    $
    (4
    )
    
    $
    (14
    )
    
    $
    7
    
    
    $
    (11
    )
 2008 Net Prior Year Development
 Standard Lines
   26




---



##### 



Corporate & Other Non-Core
  2007 Net Prior Year Development
 Standard Lines
    Specialty Lines
  Corporate & Other Non-Core
  27




---



##### 



Six Month Comparison
 Net Prior Year Development
Six months ended June 30, 2008
 Corporate &Standard
    
    
    Specialty
    
    
    Other Non-(In millions)
    
    Lines
    
    
    Lines
    
    
    Core
    
    
    TotalPretax unfavorable (favorable) net prior year claim and
allocated claim adjustment expense reserve development:Core (Non-A&E)
    
    $
    (50
    )
    
    $
    18
    
    
    $
    8
    
    
    $
    (24
    )A&E
    
    
    
    
    
    
    
    
    
    
    8
    
    
    
    8Pretax unfavorable (favorable) net prior year development
before impact of premium development
    
    
    (50
    )
    
    
    18
    
    
    
    16
    
    
    
    (16
    )Pretax unfavorable (favorable) premium development
    
    
    1
    
    
    
    (18
    )
    
    
    
    
    
    
    (17
    )Total pretax unfavorable (favorable) net prior year development
    
    $
    (49
    )
    
    $
    
    
    
    $
    16
    
    
    $
    (33
    )
 Net Prior Year Development
Six months ended June 30, 2007
 Corporate &Standard
    
    
    Specialty
    
    
    Other Non-(In millions)
    
    Lines
    
    
    Lines
    
    
    Core
    
    
    TotalPretax unfavorable (favorable) net prior year
claim and allocated claim adjustment expense
reserve development:Core (Non-A&E)
    
    $
    (7
    )
    
    $
    (7
    )
    
    $
    8
    
    
    $
    (6
    )A&E
    
    
    
    
    
    
    
    
    
    
    4
    
    
    
    4Pretax unfavorable (favorable) net prior year
development before impact of premium development
    
    
    (7
    )
    
    
    (7
    )
    
    
    12
    
    
    
    (2
    )Pretax unfavorable (favorable) premium development
    
    
    (10
    )
    
    
    (10
    )
    
    
    (3
    )
    
    
    (23
    )Total pretax unfavorable (favorable) net prior
year development
    
    $
    (17
    )
    
    $
    (17
    )
    
    $
    9
    
    
    $
    (25
    )
 28




---



##### 



2008 Net Prior Year Development
 Standard Lines
    Specialty Lines
  Corporate & Other Non-Core
  2007 Net Prior Year Development
 Standard Lines
    Specialty Lines
   Corporate & Other Non-Core
  29




---



##### 



Note H. Legal Proceedings and Contingent Liabilities
 Insurance Brokerage Antitrust Litigation
 In re Insurance Brokerage Antitrust Litigation
  Global Crossing Limited Litigation
 Global Crossing Estate Representative, for itself and as the Liquidating Trustee of the
Global Crossing Liquidating Trust v. Gary Winnick, et al.,
  California Long Term Care Litigation
 Shaffer v. Continental Casualty Company
 Asbestos and Environmental Pollution (A&E) Reserves
  Other Litigation
  30




---



##### 



Note I. Benefit Plans
 Pension and Postretirement Healthcare and Life Insurance Benefit Plans
     Net Periodic Benefit Costs
 Period ended June 30
    
    Three Months
    
    
    Six Months(In millions)
    
    2008
    
    
    2007
    
    
    2008
    
    
    2007Pension benefitsService cost
    
    $
    4
    
    
    $
    5
    
    
    $
    10
    
    
    $
    12Interest cost on projected benefit obligation
    
    
    37
    
    
    
    35
    
    
    
    73
    
    
    
    73Expected return on plan assets
    
    
    (44
    )
    
    
    (44
    )
    
    
    (89
    )
    
    
    (87
    )Prior service cost amortization
    
    
    
    
    
    
    1
    
    
    
    
    
    
    
    1Actuarial loss
    
    
    1
    
    
    
    2
    
    
    
    2
    
    
    
    6Net periodic pension (benefit) cost
    
    $
    (2
    )
    
    $
    (1
    )
    
    $
    (4
    )
    
    $
    5Postretirement benefitsService cost
    
    $
    
    
    
    $
    
    
    
    $
    1
    
    
    $
    1Interest cost on projected benefit obligation
    
    
    2
    
    
    
    3
    
    
    
    4
    
    
    
    5Prior service cost amortization
    
    
    (4
    )
    
    
    (4
    )
    
    
    (8
    )
    
    
    (9
    )Actuarial loss
    
    
    1
    
    
    
    
    
    
    
    1
    
    
    
    1Net periodic postretirement benefit
    
    $
    (1
    )
    
    $
    (1
    )
    
    $
    (2
    )
    
    $
    (2
    )
  31




---



##### 



Note J. Operating Leases, Other Commitments and Contingencies, and Guarantees
 Operating Leases
    Other Commitments and Contingencies
   Guarantees
   32




---



##### 



Note K. Comprehensive Income (Loss)
  Comprehensive Income (Loss)
 Period ended June 30
    
    Three Months
    
    
    Six Months(In millions)
    
    2008
    
    
    2007
    
    
    2008
    
    
    2007Net income
    
    $
    181
    
    
    $
    217
    
    
    $
    368
    
    
    $
    513Other comprehensive income (loss):Change in unrealized gains (losses) on general account
investments:Holding gains (losses) arising during the period, net of tax
(expense) benefit of $101, $174, $563 and $146
    
    
    (188
    )
    
    
    (324
    )
    
    
    (1,041
    )
    
    
    (272
    )Reclassification adjustment for (gains) losses included in net
income, net of tax expense (benefit) of ($15), $13, ($4) and
$33
    
    
    27
    
    
    
    (27
    )
    
    
    7
    
    
    
    (62
    )Net change in unrealized gains (losses) on general account
investments, net of tax (expense) benefit of $86, $187, $559 and
$179
    
    
    (161
    )
    
    
    (351
    )
    
    
    (1,034
    )
    
    
    (334
    )Net change in unrealized gains (losses) on discontinued
operations and other, net of tax (expense) benefit of $1, $1, $2
and $0
    
    
    (4
    )
    
    
    (2
    )
    
    
    
    
    
    
    (1
    )Net change in foreign currency translation adjustment
    
    
    2
    
    
    
    12
    
    
    
    (9
    )
    
    
    5Net change related to pensions and postretirement benefits, net
of tax (expense) benefit of $2, $0, $3 and ($1)
    
    
    (1
    )
    
    
    (1
    )
    
    
    (3
    )
    
    
    3Allocation to participating policyholders and minority interests
    
    
    6
    
    
    
    14
    
    
    
    22
    
    
    
    13Other comprehensive income (loss), net of tax (expense) benefit
of $89, $188, $564 and $178
    
    
    (158
    )
    
    
    (328
    )
    
    
    (1,024
    )
    
    
    (314
    )Total comprehensive income (loss)
    
    $
    23
    
    
    $
    (111
    )
    
    $
    (656
    )
    
    $
    199
 33




---



##### 



Note L. Business Segments
       34




---



##### 



Three months ended
    
    
    
    
    
    
    
    
    
    
    
    
    
    CorporateJune 30, 2008
    
    Standard
    
    
    Specialty
    
    
    Life & Group
    
    
    & Other(In millions)
    
    Lines
    
    
    Lines
    
    
    Non-Core
    
    
    Non-Core
    
    
    Eliminations
    
    
    TotalRevenues:Net earned premiums
    
    $
    768
    
    
    $
    859
    
    
    $
    149
    
    
    $
    (1
    )
    
    $
    (1
    )
    
    $
    1,774Net investment income
    
    
    199
    
    
    
    155
    
    
    
    157
    
    
    
    65
    
    
    
    
    
    
    
    576Other revenues
    
    
    15
    
    
    
    54
    
    
    
    8
    
    
    
    5
    
    
    
    
    
    
    
    82Total operating revenues
    
    
    982
    
    
    
    1,068
    
    
    
    314
    
    
    
    69
    
    
    
    (1
    )
    
    
    2,432Claims, benefits and expenses:Net incurred claims and benefits
    
    
    566
    
    
    
    559
    
    
    
    316
    
    
    
    26
    
    
    
    
    
    
    
    1,467Policyholders dividends
    
    
    3
    
    
    
    1
    
    
    
    1
    
    
    
    
    
    
    
    
    
    
    
    5Amortization of deferred acquisition costs
    
    
    175
    
    
    
    184
    
    
    
    2
    
    
    
    (1
    )
    
    
    
    
    
    
    360Other insurance related expenses
    
    
    48
    
    
    
    53
    
    
    
    51
    
    
    
    (2
    )
    
    
    (1
    )
    
    
    149Other expenses
    
    
    12
    
    
    
    41
    
    
    
    5
    
    
    
    29
    
    
    
    
    
    
    
    87Total claims, benefits and expenses
    
    
    804
    
    
    
    838
    
    
    
    375
    
    
    
    52
    
    
    
    (1
    )
    
    
    2,068Operating income (loss) from continuing operations
before income tax and minority interest
    
    
    178
    
    
    
    230
    
    
    
    (61
    )
    
    
    17
    
    
    
    
    
    
    
    364Income tax (expense) benefit on operating income (loss)
    
    
    (54
    )
    
    
    (74
    )
    
    
    31
    
    
    
    (5
    )
    
    
    
    
    
    
    (102
    )Minority interest
    
    
    
    
    
    
    (11
    )
    
    
    
    
    
    
    (1
    )
    
    
    
    
    
    
    (12
    )Net operating income (loss) from continuing operations
    
    
    124
    
    
    
    145
    
    
    
    (30
    )
    
    
    11
    
    
    
    
    
    
    
    250Realized investment losses, net of participating
policyholders and minority interests
    
    
    (60
    )
    
    
    (29
    )
    
    
    (6
    )
    
    
    (16
    )
    
    
    
    
    
    
    (111
    )Income tax benefit on realized investment losses
    
    
    21
    
    
    
    10
    
    
    
    2
    
    
    
    7
    
    
    
    
    
    
    
    40Income (loss) from continuing operations
    
    $
    85
    
    
    $
    126
    
    
    $
    (34
    )
    
    $
    2
    
    
    $
    
    
    
    $
    179
 35




---



##### 



Three months ended
    
    
    
    
    
    
    
    
    
    
    
    
    
    CorporateJune 30, 2007
    
    Standard
    
    
    Specialty
    
    
    Life & Group
    
    
    & Other(In millions)
    
    Lines
    
    
    Lines
    
    
    Non-Core
    
    
    Non-Core
    
    
    Eliminations
    
    
    TotalRevenues:Net earned premiums
    
    $
    842
    
    
    $
    870
    
    
    $
    157
    
    
    $
    4
    
    
    $
    (1
    )
    
    $
    1,872Net investment income
    
    
    235
    
    
    
    162
    
    
    
    188
    
    
    
    86
    
    
    
    
    
    
    
    671Other revenues
    
    
    12
    
    
    
    47
    
    
    
    6
    
    
    
    
    
    
    
    
    
    
    
    65Total operating revenues
    
    
    1,089
    
    
    
    1,079
    
    
    
    351
    
    
    
    90
    
    
    
    (1
    )
    
    
    2,608Claims, benefits and expenses:Net incurred claims and benefits
    
    
    581
    
    
    
    531
    
    
    
    326
    
    
    
    37
    
    
    
    
    
    
    
    1,475Policyholders dividends
    
    
    (4
    )
    
    
    1
    
    
    
    1
    
    
    
    
    
    
    
    
    
    
    
    (2
    )Amortization of deferred acquisition costs
    
    
    191
    
    
    
    177
    
    
    
    4
    
    
    
    
    
    
    
    
    
    
    
    372Other insurance related expenses
    
    
    96
    
    
    
    48
    
    
    
    44
    
    
    
    11
    
    
    
    (1
    )
    
    
    198Other expenses
    
    
    14
    
    
    
    39
    
    
    
    8
    
    
    
    36
    
    
    
    
    
    
    
    97Total claims, benefits and expenses
    
    
    878
    
    
    
    796
    
    
    
    383
    
    
    
    84
    
    
    
    (1
    )
    
    
    2,140Operating income (loss) from continuing operations
before income tax and minority interest
    
    
    211
    
    
    
    283
    
    
    
    (32
    )
    
    
    6
    
    
    
    
    
    
    
    468Income tax (expense) benefit on operating income (loss)
    
    
    (65
    )
    
    
    (94
    )
    
    
    19
    
    
    
    1
    
    
    
    
    
    
    
    (139
    )Minority interest
    
    
    
    
    
    
    (10
    )
    
    
    
    
    
    
    (1
    )
    
    
    
    
    
    
    (11
    )Net operating income (loss) from continuing operations
    
    
    146
    
    
    
    179
    
    
    
    (13
    )
    
    
    6
    
    
    
    
    
    
    
    318Realized investment losses, net of participating
policyholders and minority interests
    
    
    (63
    )
    
    
    (35
    )
    
    
    (18
    )
    
    
    (23
    )
    
    
    
    
    
    
    (139
    )Income tax benefit on realized investment losses
    
    
    21
    
    
    
    12
    
    
    
    6
    
    
    
    9
    
    
    
    
    
    
    
    48Income (loss) from continuing operations
    
    $
    104
    
    
    $
    156
    
    
    $
    (25
    )
    
    $
    (8
    )
    
    $
    
    
    
    $
    227
 36




---



##### 



Six months ended
    
    
    
    
    
    
    
    
    
    
    
    
    
    CorporateJune 30, 2008
    
    Standard
    
    
    Specialty
    
    
    Life & Group
    
    
    & Other(In millions)
    
    Lines
    
    
    Lines
    
    
    Non-Core
    
    
    Non-Core
    
    
    Eliminations
    
    
    TotalRevenues:Net earned premiums
    
    $
    1,551
    
    
    $
    1,732
    
    
    $
    306
    
    
    $
    
    
    
    $
    (2
    )
    
    $
    3,587Net investment income
    
    
    363
    
    
    
    287
    
    
    
    241
    
    
    
    119
    
    
    
    
    
    
    
    1,010Other revenues
    
    
    29
    
    
    
    107
    
    
    
    21
    
    
    
    11
    
    
    
    
    
    
    
    168Total operating revenues
    
    
    1,943
    
    
    
    2,126
    
    
    
    568
    
    
    
    130
    
    
    
    (2
    )
    
    
    4,765Claims, benefits and expenses:Net incurred claims and benefits
    
    
    1,143
    
    
    
    1,125
    
    
    
    528
    
    
    
    47
    
    
    
    
    
    
    
    2,843Policyholders dividends
    
    
    7
    
    
    
    8
    
    
    
    3
    
    
    
    
    
    
    
    
    
    
    
    18Amortization of deferred acquisition costs
    
    
    354
    
    
    
    368
    
    
    
    6
    
    
    
    
    
    
    
    
    
    
    
    728Other insurance related expenses
    
    
    106
    
    
    
    103
    
    
    
    101
    
    
    
    2
    
    
    
    (2
    )
    
    
    310Other expenses
    
    
    24
    
    
    
    92
    
    
    
    10
    
    
    
    61
    
    
    
    
    
    
    
    187Total claims, benefits and expenses
    
    
    1,634
    
    
    
    1,696
    
    
    
    648
    
    
    
    110
    
    
    
    (2
    )
    
    
    4,086Operating income (loss) from continuing operations
before income tax and minority interest
    
    
    309
    
    
    
    430
    
    
    
    (80
    )
    
    
    20
    
    
    
    
    
    
    
    679Income tax (expense) benefit on operating income (loss)
    
    
    (90
    )
    
    
    (138
    )
    
    
    47
    
    
    
    (3
    )
    
    
    
    
    
    
    (184
    )Minority interest
    
    
    
    
    
    
    (23
    )
    
    
    
    
    
    
    (1
    )
    
    
    
    
    
    
    (24
    )Net operating income (loss) from continuing operations
    
    
    219
    
    
    
    269
    
    
    
    (33
    )
    
    
    16
    
    
    
    
    
    
    
    471Realized investment losses, net of participating
policyholders and minority interests
    
    
    (76
    )
    
    
    (38
    )
    
    
    (23
    )
    
    
    (25
    )
    
    
    
    
    
    
    (162
    )Income tax benefit on realized investment losses
    
    
    26
    
    
    
    14
    
    
    
    8
    
    
    
    10
    
    
    
    
    
    
    
    58Income (loss) from continuing operations
    
    $
    169
    
    
    $
    245
    
    
    $
    (48
    )
    
    $
    1
    
    
    $
    
    
    
    $
    367June 30, 2008
(In millions)Reinsurance receivables
    
    $
    2,200
    
    
    $
    1,711
    
    
    $
    2,071
    
    
    $
    2,260
    
    
    $
    
    
    
    $
    8,242Insurance receivables
    
    $
    1,501
    
    
    $
    753
    
    
    $
    13
    
    
    $
    17
    
    
    $
    
    
    
    $
    2,284Insurance reserves:Claim and claim adjustment expenses
    
    $
    11,976
    
    
    $
    8,520
    
    
    $
    2,972
    
    
    $
    4,734
    
    
    $
    
    
    
    $
    28,202Unearned premiums
    
    
    1,533
    
    
    
    1,945
    
    
    
    164
    
    
    
    5
    
    
    
    (2
    )
    
    
    3,645Future policy benefits
    
    
    
    
    
    
    
    
    
    
    7,325
    
    
    
    
    
    
    
    
    
    
    
    7,325Policyholders funds
    
    
    27
    
    
    
    6
    
    
    
    549
    
    
    
    
    
    
    
    
    
    
    
    582Deferred acquisition costs
    
    $
    318
    
    
    $
    370
    
    
    $
    479
    
    
    $
    
    
    
    $
    
    
    
    $
    1,167
 37




---



##### 



Six months ended
    
    
    
    
    
    
    
    
    
    
    
    
    
    CorporateJune 30, 2007
    
    Standard
    
    
    Specialty
    
    
    Life & Group
    
    
    & Other(In millions)
    
    Lines
    
    
    Lines
    
    
    Non-Core
    
    
    Non-Core
    
    
    Eliminations
    
    
    TotalRevenues:Net earned premiums
    
    $
    1,705
    
    
    $
    1,715
    
    
    $
    313
    
    
    $
    4
    
    
    $
    (2
    )
    
    $
    3,735Net investment income
    
    
    455
    
    
    
    311
    
    
    
    349
    
    
    
    164
    
    
    
    
    
    
    
    1,279Other revenues
    
    
    23
    
    
    
    89
    
    
    
    18
    
    
    
    2
    
    
    
    
    
    
    
    132Total operating revenues
    
    
    2,183
    
    
    
    2,115
    
    
    
    680
    
    
    
    170
    
    
    
    (2
    )
    
    
    5,146Claims, benefits and expenses:Net incurred claims and benefits
    
    
    1,174
    
    
    
    1,074
    
    
    
    599
    
    
    
    71
    
    
    
    
    
    
    
    2,918Policyholders dividends
    
    
    (1
    )
    
    
    4
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3Amortization of deferred acquisition costs
    
    
    385
    
    
    
    359
    
    
    
    9
    
    
    
    
    
    
    
    
    
    
    
    753Other insurance related expenses
    
    
    161
    
    
    
    89
    
    
    
    95
    
    
    
    15
    
    
    
    (2
    )
    
    
    358Other expenses
    
    
    24
    
    
    
    81
    
    
    
    17
    
    
    
    67
    
    
    
    
    
    
    
    189Total claims, benefits and expenses
    
    
    1,743
    
    
    
    1,607
    
    
    
    720
    
    
    
    153
    
    
    
    (2
    )
    
    
    4,221Operating income (loss) from continuing operations
before income tax and minority interest
    
    
    440
    
    
    
    508
    
    
    
    (40
    )
    
    
    17
    
    
    
    
    
    
    
    925Income tax (expense) benefit on operating income (loss)
    
    
    (140
    )
    
    
    (167
    )
    
    
    29
    
    
    
    (1
    )
    
    
    
    
    
    
    (279
    )Minority interest
    
    
    
    
    
    
    (20
    )
    
    
    
    
    
    
    (1
    )
    
    
    
    
    
    
    (21
    )Net operating income from continuing operations
    
    
    300
    
    
    
    321
    
    
    
    (11
    )
    
    
    15
    
    
    
    
    
    
    
    625Realized investment losses, net of participating
policyholders and minority interests
    
    
    (87
    )
    
    
    (49
    )
    
    
    (17
    )
    
    
    (7
    )
    
    
    
    
    
    
    (160
    )Income tax benefit on realized investment losses
    
    
    30
    
    
    
    17
    
    
    
    6
    
    
    
    3
    
    
    
    
    
    
    
    56Income (loss) from continuing operations
    
    $
    243
    
    
    $
    289
    
    
    $
    (22
    )
    
    $
    11
    
    
    $
    
    
    
    $
    521December 31, 2007
(In millions)Reinsurance receivables
    
    $
    2,269
    
    
    $
    1,819
    
    
    $
    2,201
    
    
    $
    2,400
    
    
    $
    
    
    
    $
    8,689Insurance receivables
    
    $
    1,664
    
    
    $
    605
    
    
    $
    26
    
    
    $
    (11
    )
    
    $
    
    
    
    $
    2,284Insurance reserves:Claim and claim adjustment expenses
    
    $
    12,048
    
    
    $
    8,403
    
    
    $
    3,027
    
    
    $
    5,110
    
    
    $
    
    
    
    $
    28,588Unearned premiums
    
    
    1,483
    
    
    
    1,948
    
    
    
    162
    
    
    
    5
    
    
    
    
    
    
    
    3,598Future policy benefits
    
    
    
    
    
    
    
    
    
    
    7,106
    
    
    
    
    
    
    
    
    
    
    
    7,106Policyholders funds
    
    
    26
    
    
    
    1
    
    
    
    903
    
    
    
    
    
    
    
    
    
    
    
    930Deferred acquisition costs
    
    $
    311
    
    
    $
    365
    
    
    $
    485
    
    
    $
    
    
    
    $
    
    
    
    $
    1,161
 38




---



##### 



Revenue by Line of Business
 Period ended June 30
    
    Three Months
    
    
    Six Months(In millions)
    
    2008
    
    
    2007
    
    
    2008
    
    
    2007Standard LinesBusiness Insurance
    
    $
    155
    
    
    $
    147
    
    
    $
    310
    
    
    $
    310Commercial Insurance
    
    
    767
    
    
    
    879
    
    
    
    1,557
    
    
    
    1,786Standard Lines revenue
    
    
    922
    
    
    
    1,026
    
    
    
    1,867
    
    
    
    2,096Specialty LinesU.S. Specialty Lines
    
    
    640
    
    
    
    658
    
    
    
    1,287
    
    
    
    1,320Surety
    
    
    120
    
    
    
    117
    
    
    
    235
    
    
    
    227Warranty
    
    
    75
    
    
    
    73
    
    
    
    148
    
    
    
    144CNA Global
    
    
    204
    
    
    
    196
    
    
    
    418
    
    
    
    375Specialty Lines revenue
    
    
    1,039
    
    
    
    1,044
    
    
    
    2,088
    
    
    
    2,066Life & Group Non-CoreLife & Annuity
    
    
    54
    
    
    
    98
    
    
    
    33
    
    
    
    179Health
    
    
    242
    
    
    
    219
    
    
    
    480
    
    
    
    452Other
    
    
    12
    
    
    
    16
    
    
    
    32
    
    
    
    32Life & Group Non-Core revenue
    
    
    308
    
    
    
    333
    
    
    
    545
    
    
    
    663Corporate & Other Non-CoreCNA Re
    
    
    15
    
    
    
    25
    
    
    
    32
    
    
    
    72Other
    
    
    38
    
    
    
    42
    
    
    
    73
    
    
    
    91Corporate & Other Non-Core revenue
    
    
    53
    
    
    
    67
    
    
    
    105
    
    
    
    163Eliminations
    
    
    (1
    )
    
    
    (1
    )
    
    
    (2
    )
    
    
    (2
    )Total revenue
    
    $
    2,321
    
    
    $
    2,469
    
    
    $
    4,603
    
    
    $
    4,986
 39




---



##### 



Note M. Discontinued Operations
   Discontinued Operations
 Period ended June 30
    
    Three Months
    
    
    Six Months(In millions)
    
    2008
    
    
    2007
    
    
    2008
    
    
    2007Revenues:Net investment income
    
    $
    2
    
    
    $
    3
    
    
    $
    4
    
    
    $
    9Realized investment gains and other
    
    
    1
    
    
    
    4
    
    
    
    2
    
    
    
    2Total revenues
    
    
    3
    
    
    
    7
    
    
    
    6
    
    
    
    11Insurance related expenses
    
    
    1
    
    
    
    19
    
    
    
    5
    
    
    
    20Income (loss) before income taxes
    
    
    2
    
    
    
    (12
    )
    
    
    1
    
    
    
    (9
    )Income tax (expense) benefit
    
    
    
    
    
    
    2
    
    
    
    
    
    
    
    1Income (loss) from discontinued operations, net of tax
    
    $
    2
    
    
    $
    (10
    )
    
    $
    1
    
    
    $
    (8
    )
  Discontinued Operations
 (In millions)
    
    June 30, 2008
    
    
    December 31, 2007Assets:Investments
    
    $
    170
    
    
    $
    185Reinsurance receivables
    
    
    6
    
    
    
    1Cash
    
    
    9
    
    
    
    7Other assets
    
    
    2
    
    
    
    4Total assets
    
    
    187
    
    
    
    197Liabilities:Insurance reserves
    
    
    170
    
    
    
    172Other liabilities
    
    
    11
    
    
    
    2Total liabilities
    
    
    181
    
    
    
    174Net assets of discontinued operations
    
    $
    6
    
    
    $
    23
 Reporting the Results of Operations  Reporting the Effects of Disposal of a Segment of a
Business, and Extraordinary, Unusual and Infrequently Occurring Events and Transactions
 40




---



##### 



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




---



##### 



CONSOLIDATED OPERATIONS
 Results of Operations
  Period ended June 30
    
    Three Months
    
    
    Six Months(In millions, except per share data)
    
    2008
    
    
    2007
    
    
    2008
    
    
    2007RevenuesNet earned premiums
    
    $
    1,774
    
    
    $
    1,872
    
    
    $
    3,587
    
    
    $
    3,735Net investment income
    
    
    576
    
    
    
    671
    
    
    
    1,010
    
    
    
    1,279Other revenues
    
    
    82
    
    
    
    65
    
    
    
    168
    
    
    
    132Total operating revenues
    
    
    2,432
    
    
    
    2,608
    
    
    
    4,765
    
    
    
    5,146Claims, Benefits and ExpensesNet incurred claims and benefits
    
    
    1,467
    
    
    
    1,475
    
    
    
    2,843
    
    
    
    2,918Policyholders dividends
    
    
    5
    
    
    
    (2
    )
    
    
    18
    
    
    
    3Amortization of deferred acquisition costs
    
    
    360
    
    
    
    372
    
    
    
    728
    
    
    
    753Other insurance related expenses
    
    
    149
    
    
    
    198
    
    
    
    310
    
    
    
    358Other expenses
    
    
    87
    
    
    
    97
    
    
    
    187
    
    
    
    189Total claims, benefits and expenses
    
    
    2,068
    
    
    
    2,140
    
    
    
    4,086
    
    
    
    4,221Operating income from continuing operations
before income tax and minority interest
    
    
    364
    
    
    
    468
    
    
    
    679
    
    
    
    925Income tax expense on operating income
    
    
    (102
    )
    
    
    (139
    )
    
    
    (184
    )
    
    
    (279
    )Minority interest
    
    
    (12
    )
    
    
    (11
    )
    
    
    (24
    )
    
    
    (21
    )Net operating income from continuing operations
    
    
    250
    
    
    
    318
    
    
    
    471
    
    
    
    625Realized investment losses, net of
participating policyholders and minority
interests
    
    
    (111
    )
    
    
    (139
    )
    
    
    (162
    )
    
    
    (160
    )Income tax benefit on realized investment losses
    
    
    40
    
    
    
    48
    
    
    
    58
    
    
    
    56Income from continuing operations
    
    
    179
    
    
    
    227
    
    
    
    367
    
    
    
    521Income (loss) from discontinued operations, net
of income tax (expense) benefit of $0, $2, $0
and $1
    
    
    2
    
    
    
    (10
    )
    
    
    1
    
    
    
    (8
    )Net income
    
    $
    181
    
    
    $
    217
    
    
    $
    368
    
    
    $
    513Basic and Diluted Earnings Per ShareIncome from continuing operations
    
    $
    0.66
    
    
    $
    0.84
    
    
    $
    1.36
    
    
    $
    1.92Income (loss) from discontinued operations
    
    
    0.01
    
    
    
    (0.04
    )
    
    
    
    
    
    
    (0.03
    )Basic and diluted earnings per share available
to common stockholders
    
    $
    0.67
    
    
    $
    0.80
    
    
    $
    1.36
    
    
    $
    1.89Weighted average outstanding common stock and
common stock equivalentsBasic
    
    
    269.0
    
    
    
    271.6
    
    
    
    269.9
    
    
    
    271.5Diluted
    
    
    269.1
    
    
    
    271.9
    
    
    
    270.0
    
    
    
    271.8
 42




---



##### 



Three Month Comparison
      Six Month Comparison
     43




---



##### 



Critical Accounting Estimates
    
    
    Insurance Reserves
 
    
    Reinsurance
 
    
    Valuation of Investments and Impairment of Securities
 
    
    Long Term Care Products
 
    
    Pension and Postretirement Benefit Obligations
 
    
    Legal Proceedings
 
 44




---



##### 



SEGMENT RESULTS
 
 STANDARD LINES
  Results of Operations
 Period ended June 30
    
    Three Months
    
    
    Six Months(In millions)
    
    2008
    
    
    2007
    
    
    2008
    
    
    2007Net written premiums
    
    $
    848
    
    
    $
    904
    
    
    $
    1,619
    
    
    $
    1,771Net earned premiums
    
    
    768
    
    
    
    842
    
    
    
    1,551
    
    
    
    1,705Net investment income
    
    
    199
    
    
    
    235
    
    
    
    363
    
    
    
    455Net operating income
    
    
    124
    
    
    
    146
    
    
    
    219
    
    
    
    300Net realized investment losses, after-tax
    
    
    (39
    )
    
    
    (42
    )
    
    
    (50
    )
    
    
    (57
    )Net income
    
    
    85
    
    
    
    104
    
    
    
    169
    
    
    
    243RatiosLoss and loss adjustment expense
    
    
    73.7
    %
    
    
    69.0
    %
    
    
    73.7
    %
    
    
    68.8
    %Expense
    
    
    29.0
    
    
    
    34.0
    
    
    
    29.6
    
    
    
    32.0Dividend
    
    
    0.5
    
    
    
    (0.4
    )
    
    
    0.5
    
    
    
    0.0Combined
    
    
    103.2
    %
    
    
    102.6
    %
    
    
    103.8
    %
    
    
    100.8
    %
 Three Month Comparison
     45




---



##### 



Six Month Comparison
         46




---



##### 



Gross and Net Carried
Claim and Claim Adjustment Expense Reserves
 (In millions)
    
    June 30, 2008
    
    
    December 31, 2007Gross Case Reserves
    
    $
    6,083
    
    
    $
    5,988Gross IBNR Reserves
    
    
    5,893
    
    
    
    6,060Total Gross Carried Claim and Claim Adjustment Expense Reserves
    
    $
    11,976
    
    
    $
    12,048Net Case Reserves
    
    $
    4,863
    
    
    $
    4,750Net IBNR Reserves
    
    
    5,003
    
    
    
    5,170Total Net Carried Claim and Claim Adjustment Expense Reserves
    
    $
    9,866
    
    
    $
    9,920
 47




---



##### 



SPECIALTY LINES
  Results of Operations
 Period ended June 30
    
    Three Months
    
    
    Six Months(In millions)
    
    2008
    
    
    2007
    
    
    2008
    
    
    2007Net written premiums
    
    $
    860
    
    
    $
    869
    
    
    $
    1,708
    
    
    $
    1,733Net earned premiums
    
    
    859
    
    
    
    870
    
    
    
    1,732
    
    
    
    1,715Net investment income
    
    
    155
    
    
    
    162
    
    
    
    287
    
    
    
    311Net operating income
    
    
    145
    
    
    
    179
    
    
    
    269
    
    
    
    321Net realized investment losses, after-tax
    
    
    (19
    )
    
    
    (23
    )
    
    
    (24
    )
    
    
    (32
    )Net income
    
    
    126
    
    
    
    156
    
    
    
    245
    
    
    
    289RatiosLoss and loss adjustment expense
    
    
    65.2
    %
    
    
    61.1
    %
    
    
    65.0
    %
    
    
    62.6
    %Expense
    
    
    27.6
    
    
    
    25.7
    
    
    
    27.1
    
    
    
    26.2Dividend
    
    
    0.1
    
    
    
    0.2
    
    
    
    0.5
    
    
    
    0.2Combined
    
    
    92.9
    %
    
    
    87.0
    %
    
    
    92.6
    %
    
    
    89.0
    %
 Three Month Comparison
        48




---



##### 



Six Month Comparison
        Gross and Net Carried
Claim and Claim Adjustment Expense Reserves
 (In millions)
    
    June 30, 2008
    
    
    December 31, 2007Gross Case Reserves
    
    $
    2,730
    
    
    $
    2,585Gross IBNR Reserves
    
    
    5,790
    
    
    
    5,818Total Gross Carried Claim and Claim Adjustment Expense Reserves
    
    $
    8,520
    
    
    $
    8,403Net Case Reserves
    
    $
    2,231
    
    
    $
    2,090Net IBNR Reserves
    
    
    4,656
    
    
    
    4,527Total Net Carried Claim and Claim Adjustment Expense Reserves
    
    $
    6,887
    
    
    $
    6,617
 49




---



##### 



LIFE & GROUP NON-CORE
  Results of Operations
 Period ended June 30
    
    Three Months
    
    Six Months(In millions)
    
    2008
    
    2007
    
    2008
    
    2007Net earned premiums
    
    $
    149
    
    
    $
    157
    
    
    $
    306
    
    
    $
    313Net investment income
    
    
    157
    
    
    
    188
    
    
    
    241
    
    
    
    349Net operating loss
    
    
    (30
    )
    
    
    (13
    )
    
    
    (33
    )
    
    
    (11
    )Net realized
investment losses, after-tax
    
    
    (4
    )
    
    
    (12
    )
    
    
    (15
    )
    
    
    (11
    )Net loss
    
    
    (34
    )
    
    
    (25
    )
    
    
    (48
    )
    
    
    (22
    )
 Three Month Comparison
    Six Month Comparison
    50




---



##### 



CORPORATE & OTHER NON-CORE
  Results of Operations
 Period ended June 30
    
    Three Months
    
    Six Months(In millions)
    
    2008
    
    2007
    
    2008
    
    2007Net investment income
    
    $
    65
    
    
    $
    86
    
    
    $
    119
    
    
    $
    164Revenues
    
    
    52
    
    
    
    66
    
    
    
    103
    
    
    
    161Net operating income
    
    
    11
    
    
    
    6
    
    
    
    16
    
    
    
    15Net realized investment losses, after-tax
    
    
    (9
    )
    
    
    (14
    )
    
    
    (15
    )
    
    
    (4
    )Net income (loss)
    
    
    2
    
    
    
    (8
    )
    
    
    1
    
    
    
    11
 Three Month Comparison
    Six Month Comparison
     51




---



##### 



Gross and Net Carried
Claim and Claim Adjustment Expense Reserves
 (In millions)
    
    June 30, 2008
    
    
    December 31, 2007Gross Case Reserves
    
    $
    1,963
    
    
    $
    2,159Gross IBNR Reserves
    
    
    2,771
    
    
    
    2,951Total Gross Carried Claim and Claim Adjustment Expense Reserves
    
    $
    4,734
    
    
    $
    5,110Net Case Reserves
    
    $
    1,209
    
    
    $
    1,328Net IBNR Reserves
    
    
    1,659
    
    
    
    1,787Total Net Carried Claim and Claim Adjustment Expense Reserves
    
    $
    2,868
    
    
    $
    3,115
 A&E Reserves
  Asbestos
       52




---



##### 



Pending Asbestos Accounts and Associated Reserves
 Net Paid Losses
    
    
    Net Asbestos
    
    
    Percent ofNumber of
    
    
    in 2008
    
    
    Reserves
    
    
    AsbestosJune 30, 2008
    
    Policyholders
    
    
    (In millions)
    
    
    (In millions)
    
    
    Net ReservesPolicyholders with settlement agreementsStructured settlements
    
    
    14
    
    
    $
    15
    
    
    $
    130
    
    
    
    11
    %Wellington
    
    
    3
    
    
    
    1
    
    
    
    11
    
    
    
    1Coverage in place
    
    
    37
    
    
    
    19
    
    
    
    91
    
    
    
    7Total with settlement agreements
    
    
    54
    
    
    
    35
    
    
    
    232
    
    
    
    19Other policyholders with active accountsLarge asbestos accounts
    
    
    235
    
    
    
    42
    
    
    
    213
    
    
    
    17Small asbestos accounts
    
    
    952
    
    
    
    18
    
    
    
    86
    
    
    
    7Total other policyholders
    
    
    1,187
    
    
    
    60
    
    
    
    299
    
    
    
    24Assumed reinsurance and pools
    
    
    
    
    
    
    4
    
    
    
    130
    
    
    
    11Unassigned IBNR
    
    
    
    
    
    
    
    
    
    
    568
    
    
    
    46Total
    
    
    1,241
    
    
    $
    99
    
    
    $
    1,229
    
    
    
    100
    %
 Pending Asbestos Accounts and Associated Reserves
 Net Paid Losses
    
    
    Net Asbestos
    
    
    Percent ofNumber of
    
    
    in 2007
    
    
    Reserves
    
    
    AsbestosDecember 31, 2007
    
    Policyholders
    
    
    (In millions)
    
    
    (In millions)
    
    
    Net ReservesPolicyholders with settlement agreementsStructured settlements
    
    
    14
    
    
    $
    29
    
    
    $
    151
    
    
    
    11
    %Wellington
    
    
    3
    
    
    
    1
    
    
    
    12
    
    
    
    1Coverage in place
    
    
    34
    
    
    
    38
    
    
    
    100
    
    
    
    8Total with settlement agreements
    
    
    51
    
    
    
    68
    
    
    
    263
    
    
    
    20Other policyholders with active accountsLarge asbestos accounts
    
    
    233
    
    
    
    45
    
    
    
    237
    
    
    
    18Small asbestos accounts
    
    
    1,005
    
    
    
    15
    
    
    
    93
    
    
    
    7Total other policyholders
    
    
    1,238
    
    
    
    60
    
    
    
    330
    
    
    
    25Assumed reinsurance and pools
    
    
    
    
    
    
    8
    
    
    
    133
    
    
    
    10Unassigned IBNR
    
    
    
    
    
    
    
    
    
    
    596
    
    
    
    45Total
    
    
    1,289
    
    
    $
    136
    
    
    $
    1,322
    
    
    
    100
    %
  53




---



##### 



Environmental Pollution
       Pending Environmental Pollution Accounts and Associated Reserves
 NetEnvironmental
    
    
    Percent ofNet Paid
    
    
    Pollution
    
    
    EnvironmentalNumber of
    
    
    Losses in 2008
    
    
    Reserves
    
    
    Pollution NetJune 30, 2008
    
    Policyholders
    
    
    (In millions)
    
    
    (In millions)
    
    
    ReservePolicyholders with settlement agreementsStructured settlements
    
    
    10
    
    
    $
    1
    
    
    $
    6
    
    
    
    3
    %Coverage in place
    
    
    18
    
    
    
    3
    
    
    
    15
    
    
    
    7Total with settlement agreements
    
    
    28
    
    
    
    4
    
    
    
    21
    
    
    
    10Other policyholders with active accountsLarge pollution accounts
    
    
    107
    
    
    
    24
    
    
    
    46
    
    
    
    22Small pollution accounts
    
    
    288
    
    
    
    7
    
    
    
    35
    
    
    
    17Total other policyholders
    
    
    395
    
    
    
    31
    
    
    
    81
    
    
    
    39Assumed reinsurance and pools
    
    
    
    
    
    
    1
    
    
    
    30
    
    
    
    14Unassigned IBNR
    
    
    
    
    
    
    
    
    
    
    76
    
    
    
    37Total
    
    
    423
    
    
    $
    36
    
    
    $
    208
    
    
    
    100
    %
 54




---



##### 



Pending Environmental Pollution Accounts and Associated Reserves
 Net
    
    
    Percent ofNet Paid Losses
    
    
    Environmental
    
    
    EnvironmentalNumber of
    
    
    in 2007
    
    
    Pollution Reserves
    
    
    Pollution NetDecember 31, 2007
    
    Policyholders
    
    
    (In millions)
    
    
    (In millions)
    
    
    ReservePolicyholders with settlement agreementsStructured settlements
    
    
    10
    
    
    $
    9
    
    
    $
    6
    
    
    
    2
    %Coverage in place
    
    
    18
    
    
    
    8
    
    
    
    14
    
    
    
    6Total with settlement agreements
    
    
    28
    
    
    
    17
    
    
    
    20
    
    
    
    8Other policyholders with active accountsLarge pollution accounts
    
    
    112
    
    
    
    17
    
    
    
    53
    
    
    
    22Small pollution accounts
    
    
    298
    
    
    
    9
    
    
    
    42
    
    
    
    17Total other policyholders
    
    
    410
    
    
    
    26
    
    
    
    95
    
    
    
    39Assumed reinsurance and pools
    
    
    
    
    
    
    1
    
    
    
    31
    
    
    
    13Unassigned IBNR
    
    
    
    
    
    
    
    
    
    
    96
    
    
    
    40Total
    
    
    438
    
    
    $
    44
    
    
    $
    242
    
    
    
    100
    %
 55




---



##### 



INVESTMENTS
 Net Investment Income
  Net Investment Income
 Period ended June 30
    
    Three Months
    
    
    Six Months(In millions)
    
    2008
    
    
    2007
    
    
    2008
    
    
    2007Fixed maturity securities
    
    $
    476
    
    
    $
    526
    
    
    $
    994
    
    
    $
    1,022Short term investments
    
    
    26
    
    
    
    39
    
    
    
    65
    
    
    
    89Limited partnerships
    
    
    46
    
    
    
    71
    
    
    
    7
    
    
    
    123Equity securities
    
    
    39
    
    
    
    6
    
    
    
    44
    
    
    
    11Income (loss) from trading portfolio (a)
    
    
    (4
    )
    
    
    40
    
    
    
    (81
    )
    
    
    43Other
    
    
    5
    
    
    
    12
    
    
    
    11
    
    
    
    22Gross investment income
    
    
    588
    
    
    
    694
    
    
    
    1,040
    
    
    
    1,310Investment expense
    
    
    (12
    )
    
    
    (23
    )
    
    
    (30
    )
    
    
    (31
    )Net investment income
    
    $
    576
    
    
    $
    671
    
    
    $
    1,010
    
    
    $
    1,279
 
 (a)
    
    The change in net unrealized gains (losses) on trading securities included in net investment
income was $(2) million and $(15) million for the three and six months ended June 30, 2008 and
$1 million and $3 million for the three and six months ended June 30, 2007.    56




---



##### 



Net Realized Investment Gains (Losses)
  Period ended June 30
    
    Three Months
    
    
    Six Months(In millions)
    
    2008
    
    
    2007
    
    
    2008
    
    
    2007Fixed maturity securities:U.S. Government bonds
    
    $
    (46
    )
    
    $
    (96
    )
    
    $
    (14
    )
    
    $
    (94
    )Corporate and other taxable bonds
    
    
    (8
    )
    
    
    (50
    )
    
    
    (39
    )
    
    
    (25
    )Tax-exempt bonds
    
    
    10
    
    
    
    (42
    )
    
    
    50
    
    
    
    (53
    )Asset-backed bonds
    
    
    (118
    )
    
    
    (77
    )
    
    
    (157
    )
    
    
    (110
    )Redeemable preferred stock
    
    
    4
    
    
    
    (1
    )
    
    
    
    
    
    
    (1
    )Total fixed maturity securities
    
    
    (158
    )
    
    
    (266
    )
    
    
    (160
    )
    
    
    (283
    )Equity securities
    
    
    (14
    )
    
    
    11
    
    
    
    (29
    )
    
    
    14Derivative securities
    
    
    56
    
    
    
    115
    
    
    
    12
    
    
    
    107Short term investments
    
    
    5
    
    
    
    
    
    
    
    7
    
    
    
    Other
    
    
    
    
    
    
    1
    
    
    
    8
    
    
    
    2Realized investment losses, net of
participating policyholders and
minority interests
    
    
    (111
    )
    
    
    (139
    )
    
    
    (162
    )
    
    
    (160
    )Income tax benefit
    
    
    40
    
    
    
    48
    
    
    
    58
    
    
    
    56Net realized investment losses,
net of participating
policyholders and minority
interests
    
    $
    (71
    )
    
    $
    (91
    )
    
    $
    (104
    )
    
    $
    (104
    )
      57




---



##### 



Effective Durations
 June 30, 2008
    
    
    December 31, 2007Effective Duration
    
    
    
    
    
    
    Effective Duration(In millions)
    
    Fair Value
    
    
    (In years)
    
    
    Fair Value
    
    
    (In years)Segregated investments
    
    $
    9,066
    
    
    
    10.6
    
    
    $
    9,211
    
    
    
    10.7Other interest sensitive investments
    
    
    27,781
    
    
    
    3.6
    
    
    
    29,406
    
    
    
    3.3Total
    
    $
    36,847
    
    
    
    5.3
    
    
    $
    38,617
    
    
    
    5.1
   Fair Value Measurement
  58




---



##### 



Realized Investment Gains (Losses)
 Period ended June 30
    
    Three Months
    
    
    Six Months(In millions)
    
    2008
    
    
    2007
    
    
    2008
    
    
    2007Net realized investment gains (losses) on fixed maturity securities
and equity securities:Fixed maturity securities:Gross realized gains
    
    $
    83
    
    
    $
    45
    
    
    $
    200
    
    
    $
    143Gross realized losses
    
    
    (241
    )
    
    
    (311
    )
    
    
    (360
    )
    
    
    (426
    )Net realized investment losses on fixed maturity securities
    
    
    (158
    )
    
    
    (266
    )
    
    
    (160
    )
    
    
    (283
    )Equity securities:Gross realized gains
    
    
    7
    
    
    
    13
    
    
    
    11
    
    
    
    20Gross realized losses
    
    
    (21
    )
    
    
    (2
    )
    
    
    (40
    )
    
    
    (6
    )Net realized investment gains (losses) on equity securities
    
    
    (14
    )
    
    
    11
    
    
    
    (29
    )
    
    
    14Net realized investment losses on fixed maturity and equity securities
    
    $
    (172
    )
    
    $
    (255
    )
    
    $
    (189
    )
    
    $
    (269
    )
  Largest Realized Investment Losses from Securities Sold at a Loss
 Six months ended June 30, 2008
 Fair
    
    
    
    
    
    
    Months inValue at
    
    
    
    
    
    
    UnrealizedDate of
    
    
    Loss
    
    
    Loss PriorIssuer Description and Discussion
    
    Sale
    
    
    On Sale
    
    
    To Sale (a)(In millions)Various notes and bonds issued by the United States Treasury.
Securities sold due to outlook on interest rates.
    
    $
    7,839
    
    
    $
    84
    
    
    
    0-6A provider of wireless and wire line communication services.
Securities were sold to reduce exposure because the company
announced a significant shortfall in operating results, causing
significant credit deterioration which resulted in a rating
downgrade.
    
    
    38
    
    
    
    16
    
    
    
    7-12A provider of electronic communications solutions. Company
announced a decision to explore the sale of a struggling and
major product unit creating uncertainty with respect to asset
value relative to total debt. Securities were sold to reduce
exposure.
    
    
    61
    
    
    
    7
    
    
    
    7-12Total
    
    $
    7,938
    
    
    $
    107
 
 (a)
    
    Represents the range of consecutive months the various positions were in an unrealized loss
prior to sale. 59




---



##### 



Valuation and Impairment of Investments
  Carrying Value of General Account Investments
 June 30,
    
    
    
    
    
    
    December 31,(In millions)
    
    2008
    
    
    %
    
    
    2007
    
    
    %Fixed maturity securities available-for-sale:U.S. Treasury securities and obligations of government agencies
    
    $
    687
    
    
    
    2
    %
    
    $
    687
    
    
    
    2
    %Asset-backed securities
    
    
    9,912
    
    
    
    25
    
    
    
    11,409
    
    
    
    27States, municipalities and political subdivisions  tax-exempt
securities
    
    
    6,833
    
    
    
    17
    
    
    
    7,675
    
    
    
    18Corporate bonds
    
    
    9,327
    
    
    
    24
    
    
    
    8,952
    
    
    
    22Other debt securities
    
    
    3,701
    
    
    
    9
    
    
    
    4,299
    
    
    
    10Redeemable preferred stock
    
    
    49
    
    
    
    
    
    
    
    1,058
    
    
    
    3Total fixed maturity securities available-for-sale
    
    
    30,509
    
    
    
    77
    
    
    
    34,080
    
    
    
    82Fixed maturity securities trading:U.S. Treasury securities and obligations of government agencies
    
    
    
    
    
    
    
    
    
    
    5
    
    
    
    Asset-backed securities
    
    
    18
    
    
    
    
    
    
    
    31
    
    
    
    Corporate bonds
    
    
    29
    
    
    
    
    
    
    
    123
    
    
    
    Other debt securities
    
    
    4
    
    
    
    
    
    
    
    18
    
    
    
    Total fixed maturity securities trading
    
    
    51
    
    
    
    
    
    
    
    177
    
    
    
    Equity securities available-for-sale:Common stock
    
    
    447
    
    
    
    1
    
    
    
    452
    
    
    
    1Preferred stock
    
    
    972
    
    
    
    3
    
    
    
    116
    
    
    
    Total equity securities available-for-sale
    
    
    1,419
    
    
    
    4
    
    
    
    568
    
    
    
    1Short term investments available-for-sale
    
    
    5,014
    
    
    
    13
    
    
    
    4,497
    
    
    
    11Short term investments trading
    
    
    50
    
    
    
    
    
    
    
    180
    
    
    
    1Limited partnerships
    
    
    2,321
    
    
    
    6
    
    
    
    2,214
    
    
    
    5Other investments
    
    
    9
    
    
    
    
    
    
    
    73
    
    
    
    Total general account investments
    
    $
    39,373
    
    
    
    100
    %
    
    $
    41,789
    
    
    
    100
    %
   60




---



##### 



Maturity Profile
 Percent of
    
    Percent ofMarket
    
    UnrealizedValue
    
    LossDue in one year or less
    
    
    5
    %
    
    
    4
    %Due after one year through five years
    
    
    23
    
    
    
    14Due after five years through ten years
    
    
    26
    
    
    
    31Due after ten years
    
    
    46
    
    
    
    51Total
    
    
    100
    %
    
    
    100
    %
  Unrealized Loss Aging for Non-investment Grade Securities
 GrossJune 30, 2008
    
    Estimated
    
    
    Fair Value as a Percentage of Amortized Cost
    
    
    Unrealized(In millions)
    
    Fair Value
    
    
    90-99%
    
    
    80-89%
    
    
    70-79%
    
    
    <70%
    
    
    LossFixed income securities:0-6 months
    
    $
    1,012
    
    
    $
    29
    
    
    $
    20
    
    
    $
    8
    
    
    $
    13
    
    
    $
    707-12 months
    
    
    1,262
    
    
    
    46
    
    
    
    63
    
    
    
    11
    
    
    
    29
    
    
    
    14913-24 months
    
    
    147
    
    
    
    3
    
    
    
    13
    
    
    
    2
    
    
    
    18
    
    
    
    36Greater than 24 months
    
    
    8
    
    
    
    
    
    
    
    1
    
    
    
    
    
    
    
    3
    
    
    
    4Total non-investment grade
    
    $
    2,429
    
    
    $
    78
    
    
    $
    97
    
    
    $
    21
    
    
    $
    63
    
    
    $
    259
 Unrealized Loss Aging for Non-investment Grade Securities
 GrossDecember 31, 2007
    
    Estimated
    
    
    Fair Value as a Percentage of Amortized Cost
    
    
    Unrealized(In millions)
    
    Fair Value
    
    
    90-99%
    
    
    80-89%
    
    
    70-79%
    
    
    <70%
    
    
    LossFixed income securities:0-6 months
    
    $
    1,527
    
    
    $
    56
    
    
    $
    14
    
    
    $
    3
    
    
    $
    
    
    
    $
    737-12 months
    
    
    125
    
    
    
    6
    
    
    
    2
    
    
    
    
    
    
    
    
    
    
    
    813-24 months
    
    
    26
    
    
    
    1
    
    
    
    1
    
    
    
    1
    
    
    
    1
    
    
    
    4Greater than 24 months
    
    
    9
    
    
    
    1
    
    
    
    1
    
    
    
    
    
    
    
    
    
    
    
    2Total non-investment grade
    
    $
    1,687
    
    
    $
    64
    
    
    $
    18
    
    
    $
    4
    
    
    $
    1
    
    
    $
    87
  61




---



##### 



General Account Bond Ratings
 June 30,
    
    
    
    
    
    
    December 31,(In millions)
    
    2008
    
    
    %
    
    
    2007
    
    
    %U.S. Government and
affiliated agency
securities
    
    $
    789
    
    
    
    3
    %
    
    $
    816
    
    
    
    3
    %Other AAA rated
    
    
    12,358
    
    
    
    40
    
    
    
    16,728
    
    
    
    50AA and A rated
    
    
    8,038
    
    
    
    26
    
    
    
    6,326
    
    
    
    19BBB rated
    
    
    5,809
    
    
    
    19
    
    
    
    5,713
    
    
    
    17Non-investment grade
    
    
    3,517
    
    
    
    12
    
    
    
    3,616
    
    
    
    11Total
    
    $
    30,511
    
    
    
    100
    %
    
    $
    33,199
    
    
    
    100
    %
    62




---



##### 



Asset-Backed and Sub-prime Mortgage Exposure
 Asset-Backed Distribution
 Percent
    
    
    PercentJune 30, 2008
    
    Security Type
    
    
    
    
    
    
    of Total
    
    
    of Total(In millions)
    
    MBS(a)
    
    
    CMO(b)
    
    
    ABS(c)
    
    
    CDO(d)
    
    
    Total
    
    
    Security Type
    
    
    InvestmentsU.S. Government Agencies
    
    $
    638
    
    
    $
    1,120
    
    
    $
    
    
    
    $
    
    
    
    $
    1,758
    
    
    
    18
    %
    
    
    4
    %AAA
    
    
    
    
    
    
    4,796
    
    
    
    2,238
    
    
    
    9
    
    
    
    7,043
    
    
    
    71
    
    
    
    18AA
    
    
    
    
    
    
    150
    
    
    
    329
    
    
    
    29
    
    
    
    508
    
    
    
    5
    
    
    
    1A
    
    
    
    
    
    
    8
    
    
    
    131
    
    
    
    116
    
    
    
    255
    
    
    
    2
    
    
    
    1BBB
    
    
    
    
    
    
    1
    
    
    
    278
    
    
    
    7
    
    
    
    286
    
    
    
    3
    
    
    
    1Non-investment grade and
equity tranches
    
    
    
    
    
    
    5
    
    
    
    61
    
    
    
    14
    
    
    
    80
    
    
    
    1
    
    
    
    Total Fair Value
    
    $
    638
    
    
    $
    6,080
    
    
    $
    3,037
    
    
    $
    175
    
    
    $
    9,930
    
    
    
    100
    %
    
    
    25
    %Total Amortized Cost
    
    $
    650
    
    
    $
    6,416
    
    
    $
    3,297
    
    
    $
    351
    
    
    $
    10,714Percent of total fair
value by security type
    
    
    6
    %
    
    
    61
    %
    
    
    31
    %
    
    
    2
    %
    
    
    100
    %Sub-prime (included above)Fair Value
    
    $
    
    
    
    $
    1
    
    
    $
    1,558
    
    
    $
    10
    
    
    $
    1,569
    
    
    
    16
    %
    
    
    4
    %Amortized Cost
    
    $
    
    
    
    $
    1
    
    
    $
    1,668
    
    
    $
    33
    
    
    $
    1,702
    
    
    
    16
    %
    
    
    4
    %Alt-A (included above)Fair Value
    
    $
    
    
    
    $
    1,218
    
    
    $
    
    
    
    $
    12
    
    
    $
    1,230
    
    
    
    12
    %
    
    
    3
    %Amortized Cost
    
    $
    
    
    
    $
    1,321
    
    
    $
    
    
    
    $
    12
    
    
    $
    1,333
    
    
    
    12
    %
    
    
    3
    %
 
 (a)
    
    Mortgage-backed securities (MBS)(b)
    
    Collateralized mortgage obligations (CMO)(c)
    
    Asset-backed securities (ABS)(d)
    
    Collateralized debt obligations (CDO)   63




---



##### 



Federal National Mortgage Association and Federal Home Loan Mortgage Corporation
  June 30,(In millions)
    
    2008Fannie MaePreferred stock
    
    $
    137Senior bonds
    
    $
    16Freddie MacDiscount notes
    
    $
    846Preferred stock
    
    $
    184Senior bonds
    
    $
    67
  Short Term Investments
  June 30,
    
    
    December 31,(In millions)
    
    2008
    
    
    2007Short term investments available-for-sale:Commercial paper
    
    $
    2,004
    
    
    $
    3,040U.S. Treasury securities
    
    
    1,207
    
    
    
    577Money market funds
    
    
    263
    
    
    
    72Other, including collateral held related to
securities lending
    
    
    1,540
    
    
    
    808Total short term investments available-for-sale
    
    
    5,014
    
    
    
    4,497Short term investments trading:Commercial paper
    
    
    
    
    
    
    35Money market funds
    
    
    49
    
    
    
    139Other
    
    
    1
    
    
    
    6Total short term investments trading
    
    
    50
    
    
    
    180Total short term investments
    
    $
    5,064
    
    
    $
    4,677
 
 LIQUIDITY AND CAPITAL RESOURCES
 Cash Flows
   64




---



##### 



Dividends
  Share Repurchases
  65




---



##### 



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, including the
short and long-term effects of losses produced or threatened in relation to sub-prime
residential mortgage-backed securities (sub-prime), including claims under directors and
officers and errors and omissions coverages in connection with market disruptions recently
experienced in relation to the sub-prime crisis in the U.S. economy;
    
    the effects of corporate bankruptcies and accounting errors on capital markets, and on the
markets for directors and officers and errors and omissions coverages;
    
    changes in foreign or domestic political, social and economic conditions;
    
    regulatory initiatives and compliance with governmental regulations, judicial decisions,
including interpretation of policy provisions, decisions regarding coverage and theories of
liability, trends in litigation and the outcome of any litigation involving us, and rulings
and changes in tax laws and regulations;
    
    effects upon insurance markets and upon industry business practices and relationships of
current litigation, investigations and regulatory activity by the New York State Attorney
Generals office and other authorities concerning contingent commission arrangements with
brokers and bid solicitation activities;
    
    legal and regulatory activities with respect to certain non-traditional and finite-risk
insurance products, and possible resulting changes in accounting and financial reporting in
relation to such products, including our restatement of financial results in May of 2005 and
our relationship with an affiliate, Accord Re Ltd., as disclosed in connection with that
restatement;
    
    regulatory limitations, impositions and restrictions upon us, including the effects of
assessments and other surcharges for guaranty funds and second-injury funds and other
mandatory pooling arrangements;
    
    the impact of competitive products, policies and pricing and the competitive environment in
which we operate, including changes in our book of business;
    
    product and policy availability and demand and market responses, including the level of
ability to obtain rate increases and decline or non-renew under priced accounts, to achieve
premium targets and profitability and to realize growth and retention estimates;
    
    development of claims and the impact on loss reserves, including changes in claim
settlement policies;
    
    the effectiveness of current initiatives by claims management to reduce loss and expense
ratios through more efficacious claims handling techniques;
    
    the performance of reinsurance companies under reinsurance contracts with us;
    
    results of financing efforts, including the availability of bank credit facilities;
    
    changes in our composition of operating segments;
 66




---



##### 




    
    weather and other natural physical events, including the severity and frequency of storms,
hail, snowfall and other winter conditions, natural disasters such as hurricanes and
earthquakes, as well as climate change, including effects on weather patterns, greenhouse
gases, sea, land and air temperatures, sea levels, rain and snow;
    
    regulatory requirements imposed by coastal state regulators in the wake of hurricanes or
other natural disasters, including limitations on the ability to exit markets or to non-renew,
cancel or change terms and conditions in policies, as well as mandatory assessments to fund
any shortfalls arising from the inability of quasi-governmental insurers to pay claims;
    
    man-made disasters, including the possible occurrence of terrorist attacks and the effect
of the absence or insufficiency of applicable terrorism legislation on coverages;
    
    the unpredictability of the nature, targets, severity or frequency of potential terrorist
events, as well as the uncertainty as to our ability to contain our terrorism exposure
effectively, notwithstanding the extension through December 31, 2014 of the Terrorism Risk
Insurance Act of 2002;
    
    the occurrence of epidemics;
    
    exposure to liabilities due to claims made by insureds and others relating to asbestos
remediation and health-based asbestos impairments, as well as exposure to liabilities for
environmental pollution, construction defect claims and exposure to liabilities due to claims
made by insureds and others relating to lead-based paint and other mass torts;
    
    the sufficiency of our loss reserves and the possibility of future increases in reserves;
    
    regulatory limitations and restrictions, including limitations upon our ability to receive
dividends from our insurance subsidiaries imposed by state regulatory agencies and minimum
risk-based capital standards established by the National Association of Insurance
Commissioners;
    
    the risks and uncertainties associated with our loss reserves as outlined in the Critical
Accounting Estimates and the Reserves  Estimates and Uncertainties sections of our Annual
Report on Form 10-K;
    
    the level of success in integrating acquired businesses and operations, and in
consolidating, or selling existing ones;
    
    the possibility of changes in our ratings by ratings agencies, including the inability to
access certain markets or distribution channels and the required collateralization of future
payment obligations as a result of such changes, and changes in rating agency policies and
practices; and
    
    the actual closing of contemplated transactions and agreements.
  67




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##### 



CNA Financial Corporation
 
 Item 3. Quantitative and Qualitative Disclosures About Market Risk
  68




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##### 



CNA Financial Corporation
 
 Item 4. Controls and Procedures
    69




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##### 



CNA Financial Corporation
 
 Part II. Other Information
 
 Item 1. Legal Proceedings
  
 Item 4. Submission of Matters to a Vote of Security Holders
      Votes For
    
    Votes WithheldStephen W. Lilienthal
    
    
    252,350,575
    
    
    
    12,754,135Paul J. Liska
    
    
    251,560,988
    
    
    
    13,543,722Jose O. Montemayor
    
    
    264,776,224
    
    
    
    328,486Don M. Randel
    
    
    264,787,158
    
    
    
    317,552Joseph Rosenberg
    
    
    251,432,150
    
    
    
    13,672,560Andrew H. Tisch
    
    
    251,465,619
    
    
    
    13,639,091James S. Tisch
    
    
    251,427,298
    
    
    
    13,677,412Marvin Zonis
    
    
    264,669,878
    
    
    
    434,832
    Votes For
    
    Votes Against
    
    Votes AbstainedDeloitte & Touche LLP
    
    
    265,067,047
    
    
    
    23,916
    
    
    
    13,747
 
 Item 6. Exhibits
  Description of Exhibit
    
    Exhibit NumberEmployment Agreement, dated as of May 22, 2008, by and between CNA Financial
Corporation and Thomas F. Motamed
    
    
    10.1Second Amendment to Employment Agreement, dated as of April 7, 2008, by and between
Continental Casualty Company and Michael Fusco
    
    
    10.2Certification of Chief Executive Officer
    
    
    31.1Certification of Chief Financial Officer
    
    
    31.2
 70




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##### 



CNA Financial Corporation
 
 Part II. Other Information
 Written Statement of the Chief Executive Officer of CNA Financial Corporation Pursuant
to 18 U.S.C. Section 1350 (As adopted by Section 906 of the Sarbanes-Oxley Act of 2002)
    
    
    32.1Written Statement of the Chief Financial Officer of CNA Financial Corporation Pursuant
to 18 U.S.C. Section 1350 (As adopted by Section 906 of the Sarbanes-Oxley Act of 2002)
    
    
    32.2
 71




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##### 



CNA Financial Corporation
 
 Part II. Other Information
 
 SIGNATURES
  CNA Financial CorporationDated:  July 28, 2008
    By
    /s/ D. Craig MenseD. Craig MenseExecutive Vice President and
Chief Financial Officer 72