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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549



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FORM 10-Q

[ü] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934For the Quarterly Period Ended March 31, 2003
OR[  ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934For the transition period from
 to

Commission File Number 1-5823



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CNA FINANCIAL CORPORATION

(Exact name of registrant as specified in its charter)

|                                                                        |  |                                                 
|----------------------------------------------------------------------- |  | ------------------------------------------------
|Delaware
(State or other jurisdiction of
incorporation or organization) |  | 36-6169860
(I.R.S. Employer
 Identification No.)

|                                                                     |  |                 
|-------------------------------------------------------------------- |  | ----------------
|CNA Plaza
Chicago, Illinois
(Address of principal executive offices) |  | 60685
(Zip Code)

(312) 822-5000
(Registrants telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes [ ü] 
No [  ]

Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Act).
Yes  [ü] 
No [  ]

Indicate the number of shares outstanding of each of the issuers classes
of common stock, as of the latest practicable date.

|                              |  |                           
|----------------------------- |  | --------------------------
|Class                         |  | Outstanding at May 1, 2003
|                              |  |                           
|Common Stock, Par value $2.50 |  | 223,608,868               



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CNA FINANCIAL CORPORATION
INDEX


TABLE OF CONTENTS



|                                  |                                                                                               |                                                      |  |  |  |  |  | 
|--------------------------------- | --------------------------------------------------------------------------------------------- | ---------------------------------------------------- |  |  |  |  |  | 
|PART I. FINANCIAL INFORMATION    
|                                  | ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS                                          
|                                  |                                                                                               | CONDENSED CONSOLIDATED BALANCE SHEETS               
|                                  |                                                                                               | CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS     
|                                  |                                                                                               | CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS     
|                                  |                                                                                               | NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
|                                  | ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
|                                  | ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK                           
|                                  | ITEM 4. CONTROLS AND PROCEDURES                                                              
|PART II. OTHER INFORMATION       
|                                  | Item 1. Legal Proceedings                                                                    
|                                  | Item 6. Exhibits and Reports on Form 8-K                                                     
|SIGNATURES                       
|CERTIFICATIONS                   
|Amendment to Employment Agreement
|Certification of CEO             
|Certification of CFO             



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##### Table of Contents



CNA FINANCIAL CORPORATION
INDEX

|       |    |  |                                                                                                               |  |  |        |  |  | 
|------ | -- |  | ------------------------------------------------------------------------------------------------------------- |  |  | ------ |  |  | 
|Item   |    |  |                                                                                                               |  |  | Page  
|Number |    |  |                                                                                                               |  |  | Number
|       |    |  |                                                                                                               |  |  |       
|       |    |  | PART I. Financial Information                                                                                 |  |  |        | 
|       | 1. |  | Condensed Consolidated Financial Statements (Unaudited):                                                      |  |  |        | 
|       |    |  | Condensed Consolidated Balance Sheets at March 31, 2003 and at December 31, 2002                              |  |  | 3      | 
|       |    |  | Condensed Consolidated Statements of Operations for the Three Months Ended March 31, 2003 and 2002 (Restated) |  |  | 4      | 
|       |    |  | Condensed Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2003 and 2002 (Restated) |  |  | 5      | 
|       |    |  | Notes to Condensed Consolidated Financial Statements                                                          |  |  | 6      | 
|       | 2. |  | Management's Discussion and Analysis of Financial Condition and Results of Operations                         |  |  | 37     | 
|       | 3. |  | Quantitative and Qualitative Disclosures about Market Risk                                                    |  |  | 82     | 
|       | 4. |  | Controls and Procedures                                                                                       |  |  | 88     | 
|       |    |  | PART II. Other Information                                                                                    |  |  |        | 
|       | 1. |  | Legal Proceedings                                                                                             |  |  | 89     | 
|       | 6. |  | Exhibits and Reports on Form 8-K                                                                              |  |  | 89     | 
|       |    |  | Signatures                                                                                                    |  |  | 90     | 
|       |    |  | Certifications                                                                                                |  |  | 91     | 





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CNA FINANCIAL CORPORATION
PART I. FINANCIAL INFORMATION
ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
CONDENSED CONSOLIDATED BALANCE SHEETS(UNAUDITED)

|                                                                                                                                                              |  |      |        |      |  |           |        |              |  |  |  | 
|------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ---- | ------ | ---- |  | --------- | ------ | ------------ |  |  |  | 
|                                                                                                                                                              |  |      |        |      |  | March 31, |        | December 31,
|(In millions, except share data)                                                                                                                              |  | 2003 |        | 2002
|                                                                                                                                                              |  |      |        |     
|Assets                                                                                                                                                        |  |      |        |      |  |           |        |             
|Investments:                                                                                                                                                  |  |      |        |      |  |           |        |             
|Fixed maturity securities available-for-sale, at fair value (amortized cost of $26,867 and $25,533)                                                           |  | $    | 27,971 |      |  | $         | 26,275 |             
|Equity securities available-for-sale, at fair value (cost of $442 and $519)                                                                                   |  |      | 553    |      |  |           | 666    |             
|Mortgage loans and real estate (less accumulated depreciation of $56 and $55)                                                                                 |  |      | 56     |      |  |           | 57     |             
|Policy loans                                                                                                                                                  |  |      | 178    |      |  |           | 180    |             
|Limited partnership investments                                                                                                                               |  |      | 1,069  |      |  |           | 1,060  |             
|Other invested assets                                                                                                                                         |  |      | 32     |      |  |           | 47     |             
|Short-term investments, cost approximates fair value                                                                                                          |  |      | 5,354  |      |  |           | 7,008  |             
|                                                                                                                                                              |  |      |        |      |  |           |        |              |  | 
|Total investments                                                                                                                                             |  |      | 35,213 |      |  |           | 35,293 |             
|Cash                                                                                                                                                          |  |      | 166    |      |  |           | 126    |             
|Reinsurance receivables (less allowance for doubtful accounts of $199 and $196)                                                                               |  |      | 12,732 |      |  |           | 12,500 |             
|Insurance receivables (less allowance for doubtful accounts of $159 and $156)                                                                                 |  |      | 3,146  |      |  |           | 3,007  |             
|Accrued investment income                                                                                                                                     |  |      | 347    |      |  |           | 300    |             
|Receivables for securities sold                                                                                                                               |  |      | 1,671  |      |  |           | 455    |             
|Deferred acquisition costs                                                                                                                                    |  |      | 2,597  |      |  |           | 2,551  |             
|Prepaid reinsurance premiums                                                                                                                                  |  |      | 1,462  |      |  |           | 1,345  |             
|Federal income taxes recoverable (includes $59 and $0 due from Loews Corporation)                                                                             |  |      | 47     |      |  |           |       |             
|Deferred income taxes                                                                                                                                         |  |      | 573    |      |  |           | 723    |             
|Property and equipment at cost (less accumulated depreciation of $788 and $771)                                                                               |  |      | 363    |      |  |           | 369    |             
|Goodwill and other intangible assets                                                                                                                          |  |      | 174    |      |  |           | 174    |             
|Other assets                                                                                                                                                  |  |      | 1,773  |      |  |           | 1,785  |             
|Separate account business                                                                                                                                     |  |      | 3,240  |      |  |           | 3,103  |             
|                                                                                                                                                              |  |      |        |      |  |           |        |              |  | 
|Total assets                                                                                                                                                  |  | $    | 63,504 |      |  | $         | 61,731 |             
|                                                                                                                                                              |  |      |        |      |  |           |        |              |  | 
|Liabilities and Stockholders Equity                                                                                                                          |  |      |        |      |  |           |        |             
|Liabilities:                                                                                                                                                  |  |      |        |      |  |           |        |             
|Insurance reserves:                                                                                                                                           |  |      |        |      |  |           |        |             
|Claim and claim adjustment expense                                                                                                                            |  | $    | 27,446 |      |  | $         | 27,370 |             
|Unearned premiums                                                                                                                                             |  |      | 5,115  |      |  |           | 4,820  |             
|Future policy benefits                                                                                                                                        |  |      | 7,576  |      |  |           | 7,409  |             
|Policyholders funds                                                                                                                                          |  |      | 568    |      |  |           | 580    |             
|Collateral on loaned securities and derivatives                                                                                                               |  |      | 419    |      |  |           | 552    |             
|Payables for securities purchased                                                                                                                             |  |      | 1,590  |      |  |           | 464    |             
|Participating policyholders funds                                                                                                                            |  |      | 120    |      |  |           | 119    |             
|Short term debt                                                                                                                                               |  |      | 291    |      |  |           | 420    |             
|Long term debt                                                                                                                                                |  |      | 1,872  |      |  |           | 1,872  |             
|Reinsurance balances payable                                                                                                                                  |  |      | 2,791  |      |  |           | 2,763  |             
|Federal income taxes payable (includes $0 and $13 due to Loews Corporation)                                                                                   |  |      |       |      |  |           | 29     |             
|Other liabilities                                                                                                                                             |  |      | 2,516  |      |  |           | 2,573  |             
|Separate account business                                                                                                                                     |  |      | 3,240  |      |  |           | 3,103  |             
|                                                                                                                                                              |  |      |        |      |  |           |        |              |  | 
|Total liabilities                                                                                                                                             |  |      | 53,544 |      |  |           | 52,074 |             
|                                                                                                                                                              |  |      |        |      |  |           |        |              |  | 
|Commitments and contingencies (Notes F, G, I, J, N and O)                                                                                                     |  |      |        |      |  |           |        |             
|Minority interest                                                                                                                                             |  |      | 254    |      |  |           | 256    |             
|Stockholders equity:                                                                                                                                         |  |      |        |      |  |           |        |             
|Preferred stock (Series H, no par value; $100,000 stated value; 12,500,000 shares authorized;
7,500 shares issued and outstanding, held by Loews Corporation) |  |      | 750    |      |  |           | 750    |             
|Common stock ($2.50 par value; 500,000,000 shares authorized; 225,850,270 shares issued;
and 223,608,868 shares outstanding)                                  |  |      | 565    |      |  |           | 565    |             
|Additional paid-in capital                                                                                                                                    |  |      | 1,031  |      |  |           | 1,031  |             
|Retained earnings                                                                                                                                             |  |      | 6,676  |      |  |           | 6,593  |             
|Accumulated other comprehensive income                                                                                                                        |  |      | 827    |      |  |           | 604    |             
|Treasury stock (2,241,402 shares), at cost                                                                                                                    |  |      | (70    | )    |  |           | (70    | )           
|                                                                                                                                                              |  |      |        |      |  |           |        |              |  | 
|                                                                                                                                                              |  |      | 9,779  |      |  |           | 9,473  |             
|Notes receivable for the issuance of common stock                                                                                                             |  |      | (73    | )    |  |           | (72    | )           
|                                                                                                                                                              |  |      |        |      |  |           |        |              |  | 
|Total stockholders equity                                                                                                                                    |  |      | 9,706  |      |  |           | 9,401  |             
|                                                                                                                                                              |  |      |        |      |  |           |        |              |  | 
|Total liabilities and stockholders equity                                                                                                                    |  | $    | 63,504 |      |  | $         | 61,731 |             
|                                                                                                                                                              |  |      |        |      |  |           |        |              |  | 

The accompanying Notes are an integral part of these Condensed Consolidated Financial
Statements (Unaudited).

3



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CNA FINANCIAL CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)

|                                                                                               |  |      |       |      |  |              |       |   | 
|---------------------------------------------------------------------------------------------- |  | ---- | ----- | ---- |  | ------------ | ----- | - | 
|Three months ended March 31                                                                    |  |      |       |     
|(In
millions, except per share data)                                                           |  | 2003 |       | 2002
|                                                                                               |  |      |       |     
|                                                                                               |  |      |       |      |  | Restated
(a)
|Revenues                                                                                       |  |      |       |      |  |              |       |  
|Net earned premiums                                                                            |  | $    | 2,381 |      |  | $            | 2,837 |  
|Net investment income                                                                          |  |      | 432   |      |  |              | 426   |  
|Realized investment (losses) gains, net of participating
policyholders and minority interests |  |      | (76   | )    |  |              | 1     |  
|Other revenues                                                                                 |  |      | 108   |      |  |              | 182   |  
|                                                                                               |  |      |       |      |  |              |       |   | 
|Total revenues                                                                                 |  |      | 2,845 |      |  |              | 3,446 |  
|                                                                                               |  |      |       |      |  |              |       |   | 
|Claims, Benefits and Expenses                                                                  |  |      |       |      |  |              |       |  
|Insurance claims and policyholders benefits                                                   |  |      | 1,870 |      |  |              | 2,310 |  
|Amortization of deferred acquisition costs                                                     |  |      | 458   |      |  |              | 440   |  
|Other operating expenses                                                                       |  |      | 379   |      |  |              | 491   |  
|Interest                                                                                       |  |      | 34    |      |  |              | 37    |  
|                                                                                               |  |      |       |      |  |              |       |   | 
|Total claims, benefits and expenses                                                            |  |      | 2,741 |      |  |              | 3,278 |  
|                                                                                               |  |      |       |      |  |              |       |   | 
|Income from continuing operations before income tax and minority
interest                      |  |      | 104   |      |  |              | 168   |  
|Income tax expense                                                                             |  |      | (18   | )    |  |              | (51   | )
|Minority interest                                                                              |  |      | (3    | )    |  |              | (5    | )
|                                                                                               |  |      |       |      |  |              |       |   | 
|Income from continuing operations                                                              |  |      | 83    |      |  |              | 112   |  
|Loss from discontinued operations, net of tax of $9                                            |  |      |      |      |  |              | (35   | )
|                                                                                               |  |      |       |      |  |              |       |   | 
|Income before cumulative effect of a change in accounting principle                            |  |      | 83    |      |  |              | 77    |  
|Cumulative effect of a change in accounting principle, net of tax
of $7                        |  |      |      |      |  |              | (57   | )
|                                                                                               |  |      |       |      |  |              |       |   | 
|Net income                                                                                     |  | $    | 83    |      |  | $            | 20    |  
|                                                                                               |  |      |       |      |  |              |       |   | 
|Basic and Diluted Earnings Per Share                                                           |  |      |       |      |  |              |       |  
|Income from continuing operations                                                              |  | $    | 0.30  |      |  | $            | 0.51  |  
|Loss from discontinued operations, net of tax                                                  |  |      |      |      |  |              | (0.16 | )
|                                                                                               |  |      |       |      |  |              |       |   | 
|Income before cumulative effect of a change in accounting
principle                            |  |      | 0.30  |      |  |              | 0.35  |  
|Cumulative effect of a change in accounting principle, net of tax                              |  |      |      |      |  |              | (0.26 | )
|                                                                                               |  |      |       |      |  |              |       |   | 
|Basic and diluted earnings per share available to common
stockholders                          |  | $    | 0.30  |      |  | $            | 0.09  |  
|                                                                                               |  |      |       |      |  |              |       |   | 
|Weighted average outstanding common stock and common stock
equivalents                         |  |      | 223.6 |      |  |              | 223.6 |  
|                                                                                               |  |      |       |      |  |              |       |   | 



|(a) |  | See Note Q.
|--- |  | -----------

The accompanying Notes are an integral part of these Condensed Consolidated Financial
Statements (Unaudited).

4



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CNA FINANCIAL CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)

|                                                       |                                                                                                |                                                                                               |                                            |                   |        |              |     |         |        |      |     |  
|------------------------------------------------------ | ---------------------------------------------------------------------------------------------- | --------------------------------------------------------------------------------------------- | ------------------------------------------ | ----------------- | ------ | ------------ | --- | ------- | ------ | ---- | --- | -
|Three months ended March 31                            |                                                                                                |                                                                                               |                                            |                  
|(In millions)                                          |                                                                                                | 2003                                                                                          |                                            | 2002             
|                                                       |                                                                                                |                                                                                               |                                            |                  
|                                                       |                                                                                                |                                                                                               |                                            |                   |        | Restated (a)
|Cash Flows from Operating Activities                   |                                                                                                |                                                                                               |                                            |                   |        |              |     |        
|                                                       | Net income                                                                                     |                                                                                               | $                                          | 83                |        |              | $   | 20      |       
|                                                       | Adjustments to reconcile net income to net cash flows provided (used)
by operating activities: |                                                                                               |                                            |                   |        |              |     |         |       
|                                                       |                                                                                                | Cumulative effect of a change in accounting principle, net of tax                             |                                            |                   |       |              |     |         | 57     |     
|                                                       |                                                                                                | Minority interest                                                                             |                                            |                   | 3      |              |     |         | 5      |     
|                                                       |                                                                                                | Loss on disposal of property and equipment                                                    |                                            |                   | 12     |              |     |         | 7      |     
|                                                       |                                                                                                | Deferred income tax provision                                                                 |                                            |                   | 12     |              |     |         | 22     |     
|                                                       |                                                                                                | Realized investment losses (gains), net of participating
policyholders and minority interest |                                            |                   | 76     |              |     |         | (1     | )   
|                                                       |                                                                                                | Realized loss on disposition of discontinued operations, net of tax                           |                                            |                   |       |              |     |         | 37     |     
|                                                       |                                                                                                | Equity method income                                                                          |                                            |                   | (26    | )            |     |         | (8     | )   
|                                                       |                                                                                                | Amortization of bond discount                                                                 |                                            |                   | (21    | )            |     |         | (18    | )   
|                                                       |                                                                                                | Depreciation                                                                                  |                                            |                   | 24     |              |     |         | 24     |     
|                                                       |                                                                                                | Changes in:                                                                                   |                                            |                   |        |              |     |         |        |     
|                                                       |                                                                                                |                                                                                               | Receivables, net                           |                   |        | (371         | )   |         |        | (153 | )  
|                                                       |                                                                                                |                                                                                               | Deferred acquisition costs                 |                   |        | (57          | )   |         |        | (39  | )  
|                                                       |                                                                                                |                                                                                               | Accrued investment income                  |                   |        | (47          | )   |         |        | 15   |    
|                                                       |                                                                                                |                                                                                               | Federal income taxes (recoverable) payable |                   |        | (75          | )   |         |        | 115  |    
|                                                       |                                                                                                |                                                                                               | Prepaid reinsurance premiums               |                   |        | (117         | )   |         |        | (326 | )  
|                                                       |                                                                                                |                                                                                               | Reinsurance balances payable               |                   |        | 28           |     |         |        | 159  |    
|                                                       |                                                                                                |                                                                                               | Insurance reserves                         |                   |        | 528          |     |         |        | 181  |    
|                                                       |                                                                                                |                                                                                               | Other, net                                 |                   |        | (7           | )   |         |        | (175 | )  
|                                                       |                                                                                                |                                                                                               |                                            |                   |        |              |     |         |       
|                                                       |                                                                                                |                                                                                               |                                            | Total adjustments |        |              | (38 | )       |        |      | (98 | )
|                                                       |                                                                                                |                                                                                               |                                            |                   |        |              |     |         |       
|Net cash flows provided (used) by operating activities |                                                                                                | $                                                                                             | 45                                         |                   |        | $            | (78 | )      
|                                                       |                                                                                                |                                                                                               |                                            |                   |        |              |     |         |       
|Cash Flows from Investing Activities                   |                                                                                                |                                                                                               |                                            |                   |        |              |     |        
|                                                       | Purchases of fixed maturity securities                                                         |                                                                                               |                                            | (17,802           | )      |              |     | (14,303 | )     
|                                                       | Proceeds from fixed maturity securities:                                                       |                                                                                               |                                            |                   |        |              |     |         |       
|                                                       |                                                                                                | Sales                                                                                         |                                            |                   | 15,492 |              |     |         | 13,064 |     
|                                                       |                                                                                                | Maturities, calls and redemptions                                                             |                                            |                   | 958    |              |     |         | 636    |     
|                                                       | Purchases of equity securities                                                                 |                                                                                               |                                            | (71               | )      |              |     | (233    | )     
|                                                       | Proceeds from sales of equity securities                                                       |                                                                                               |                                            | 61                |        |              |     | 285     |       
|                                                       | Change in short-term investments                                                               |                                                                                               |                                            | 1,668             |        |              |     | 532     |       
|                                                       | Change in collateral on loaned securities and derivatives                                      |                                                                                               |                                            | (133              | )      |              |     | 48      |       
|                                                       | Change in other investments                                                                    |                                                                                               |                                            | 4                 |        |              |     | (33     | )     
|                                                       | Purchases of property and equipment                                                            |                                                                                               |                                            | (31               | )      |              |     | (25     | )     
|                                                       | Dispositions                                                                                   |                                                                                               |                                            |                  |        |              |     | 71      |       
|                                                       | Other, net                                                                                     |                                                                                               |                                            | (14               | )      |              |     | (7      | )     
|                                                       |                                                                                                |                                                                                               |                                            |                   |        |              |     |         |       
|Net cash flows provided by investing activities        |                                                                                                | $                                                                                             | 132                                        |                   |        | $            | 35  |        
|                                                       |                                                                                                |                                                                                               |                                            |                   |        |              |     |         |       
|Net Cash Flows from Financing Activities               |                                                                                                |                                                                                               |                                            |                   |        |              |     |        
|                                                       | Principal payments on debt                                                                     |                                                                                               |                                            | (129              | )      |              |     |        |       
|                                                       | Return of policyholder account balances on investment contracts                                |                                                                                               |                                            | (7                | )      |              |     | (13     | )     
|                                                       | Other                                                                                          |                                                                                               |                                            | (1                | )      |              |     | 8       |       
|                                                       |                                                                                                |                                                                                               |                                            |                   |        |              |     |         |       
|Net cash flows used by financing activities            |                                                                                                |                                                                                               | (137                                       | )                 |        |              | (5  | )      
|                                                       |                                                                                                |                                                                                               |                                            |                   |        |              |     |         |       
|Net change in cash and cash equivalents                |                                                                                                |                                                                                               | 40                                         |                   |        |              | (48 | )      
|Cash and cash equivalents, beginning of period         |                                                                                                |                                                                                               | 126                                        |                   |        |              | 142 |        
|                                                       |                                                                                                |                                                                                               |                                            |                   |        |              |     |         |       
|Cash and cash equivalents, end of period               |                                                                                                | $                                                                                             | 166                                        |                   |        | $            | 94  |        
|                                                       |                                                                                                |                                                                                               |                                            |                   |        |              |     |         |       
|Supplemental Disclosures of Cash Flow Information:     |                                                                                                |                                                                                               |                                            |                   |        |              |     |        
|                                                       | Cash paid:                                                                                     |                                                                                               |                                            |                   |        |              |     |         |       
|                                                       |                                                                                                | Interest                                                                                      |                                            | $                 | 19     |              |     | $       | 22     |     
|                                                       |                                                                                                | Federal income taxes                                                                          |                                            |                   | 63     |              |     |         | 90     |     
|                                                       | Non-cash transactions:                                                                         |                                                                                               |                                            |                   |        |              |     |         |       
|                                                       |                                                                                                | Notes receivable for the issuance of common stock                                             |                                            |                   | 1      |              |     |         | 1      |     



|(a) |  | See Note Q.
|--- |  | -----------

The accompanying Notes are an integral part of these Condensed Consolidated Financial
Statements (Unaudited).

5



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##### Table of Contents






CNA FINANCIAL CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)

Note A. Basis of Presentation

The Condensed Consolidated Financial Statements (Unaudited) include the
accounts of CNA Financial Corporation (CNAF) and its controlled subsidiaries,
which include property and casualty insurance companies (principally
Continental Casualty Company (CCC) and The Continental Insurance Company (CIC))
and life and group insurance companies (principally Continental Assurance
Company (CAC), Valley Forge Life Insurance Company (VFL) and CNA Group Life
Assurance Company (CNAGLA)), collectively CNA or the Company. As of March 31,
2003, Loews Corporation (Loews) owned approximately 90% of the outstanding
common stock of CNAF.

The accompanying Condensed Consolidated Financial Statements have been prepared
in conformity with accounting principles generally accepted in the United
States of America (GAAP). Certain financial information that is normally
included in annual financial statements, including certain financial statement
footnotes, prepared in accordance with GAAP, is not required for interim
reporting purposes and has been condensed or omitted. These statements should
be read in conjunction with the consolidated financial statements and notes
thereto included in CNAFs Form 10-K filed with the Securities and Exchange
Commission (SEC) for the year ended December 31, 2002.

The interim financial data as of March 31, 2003 and for the three months ended
March 31, 2003 and 2002 is unaudited. However, in the opinion of management,
the interim data includes all adjustments, consisting of normal recurring
accruals, necessary for a fair statement of the Companys results for the
interim periods. The results of operations for the interim periods are not
necessarily indicative of the results to be expected for the full year. All
significant intercompany amounts have been eliminated.

As a result of a routine review of the Companys periodic filings by the
Division of Corporation Finance of the SEC, the Company has restated its
results of operations for the three months ended March 31, 2002. The restated
financial statements reflect an adjustment to the Companys historical
accounting for its investment in life settlement contracts and the related
revenue recognition. See Note Q for further discussion.

Certain amounts applicable to prior periods have been reclassified to conform
to the current period presentation.

Note B. Accounting Pronouncements

CNA adopted Statement of Financial
Accounting Standards No. 142, Goodwill and
Other Intangible Assets (SFAS 142) on January 1, 2002. SFAS 142 changed the
accounting for goodwill and indefinite-lived intangible assets from an
amortization method to an impairment-only approach. Amortization of goodwill
and indefinite-lived intangible assets recorded in past business combinations
ceased upon adoption of SFAS 142.

During 2002, the Company completed its initial goodwill impairment testing and
recorded a $64 million pretax, or $57 million after-tax, impairment charge. In
accordance with SFAS 142, the impairment charge, which primarily consisted of a
$51 million pretax, or $48 million after-tax, charge in Specialty Lines, a $12
million pretax, or $8 million after-tax, charge in Life Operations,

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

and a $1 million pretax, or $1 million after-tax, charge in Corporate and
Other, was recorded as a cumulative effect of a change in accounting principle
as of January 1, 2002. Goodwill and indefinite-lived intangible assets are
tested for impairment annually or when certain triggering events require such
tests.

Any future impairment losses incurred will be reported in results of
operations. Goodwill of $154 million as of March 31, 2003 and December 31,
2002 represents the excess of purchase price over fair value of the net assets
of acquired entities. Other intangible assets were $20 million as of March 31,
2003 and December 31, 2002.

In November of 2002, the Financial Accounting Standards Board (FASB) issued
FASB Interpretation No. 45, Guarantors Accounting and Disclosure Requirements
for Guarantees, Including Indirect Guarantees of Indebtedness of Others (an
interpretation of FASB Statements of Financial Accounting Standards No. 5, 57,
and 107 and rescission of FASB Interpretation No. 34) (FIN 45). FIN 45
clarifies the requirements of FASB Statement of Financial Accounting Standards
No. 5, Accounting for Contingencies (SFAS 5) relating to a guarantors
accounting for, and disclosure of, the issuance of certain types of guarantees.
FIN 45 provides for additional disclosure requirements related to guarantees,
which were effective for financial periods ending after December 15, 2002. The
Company adopted the disclosure requirements of FIN 45 during the fourth quarter
of 2002. Additionally, FIN 45 outlines provisions for initial recognition and
measurement of the liability incurred in providing a guarantee. The Company
adopted the initial recognition and measurement requirements for all guarantees
as of January 1, 2003. The initial adoption for the recognition and
measurement requirements of FIN 45 did not have a significant impact on the
results of operations or equity of the Company.

In December of 2002, the FASB issued Statement of Financial Accounting
Standards No. 148, Accounting for Stock-Based Compensation, Transition and
Disclosure (SFAS 148). SFAS 148 provides alternative methods of transition for
a voluntary change to the fair value based method of accounting for stock-based
employee compensation. SFAS 148 also amends the disclosure requirements of
SFAS 123, Accounting for Stock-Based Compensation (SFAS 123),to require
prominent disclosures in both annual and interim financial statements about the
method of accounting for stock-based employee compensation and the effect of
the method used on reported results. CNA has adopted the disclosure provisions
of this standard for all annual and interim financial statements. The Company
has determined that it will not adopt the fair value based method of accounting
for stock-based employee compensation in 2003.

The Company applies Accounting Policy Board Opinion No. 25, Accounting for
Stock Issued to Employees (APB 25), and related interpretations, in accounting
for its stock-based compensation plan. Under the recognition and measurement
principles of APB 25, no stock-based compensation cost has been recognized, as
the exercise price of the granted options equaled the market price of the
underlying stock at the grant date.

The effect on net income and earnings per share if the Company had applied the
fair value recognition provisions of SFAS 123 to stock-based employee
compensation under the Companys stock-based compensation plans is illustrated
in Note C.

In April of 2003 the FASB issued Statement of Financial Accounting Standards
No. 149, Amendment of Statement 133 on Derivative Instruments and Hedging
Activities (SFAS 149). SFAS 149 amends and clarifies accounting for derivative
instruments, including certain

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

derivative instruments embedded in other contracts, and for hedging activities
under Statement of Financial Accounting Standard No. 133, Accounting for
Derivative Instruments and Hedging Activities (SFAS 133). SFAS 149 is
effective for contracts entered into or modified after June 30, 2003 and for
hedging relationships designated after June 30, 2003. The Company is currently
in the process of evaluating the impact SFAS 149 may have on its Condensed
Consolidated Financial Statements.

Note C. Earnings Per Share

The computation of earnings per share was as follows.

Earnings Per Share

|                                                                                                    |  |      |       |      |  |   |       |  
|--------------------------------------------------------------------------------------------------- |  | ---- | ----- | ---- |  | - | ----- | -
|Three Months Ended March 31                                                                         |  |      |       |     
|(In millions, except per share amounts)                                                             |  | 2003 |       | 2002
|                                                                                                    |  |      |       |     
|Income from continuing operations                                                                   |  | $    | 83    |      |  | $ | 112   |  
|Less: preferred stock dividend (accumulated but undeclared)                                         |  |      | (15   | )    |  |   |      |  
|                                                                                                    |  |      |       |      |  |   |       |  
|Income from continuing operations available to common stockholders                                  |  |      | 68    |      |  |   | 112   |  
|Loss from discontinued operations, net of tax                                                       |  |      |      |      |  |   | (35   | )
|Cumulative effect of a change in accounting principle, net of tax                                   |  |      |      |      |  |   | (57   | )
|                                                                                                    |  |      |       |      |  |   |       |  
|Net income available to common stockholders                                                         |  | $    | 68    |      |  | $ | 20    |  
|                                                                                                    |  |      |       |      |  |   |       |  
|Weighted average outstanding common stock and common stock equivalents                              |  |      | 223.6 |      |  |   | 223.6 |  
|Effect of dilutive securities, employee stock options                                               |  |      |      |      |  |   |      |  
|                                                                                                    |  |      |       |      |  |   |       |  
|Adjusted weighted average outstanding common stock and common stock
equivalents assumingconversions |  |      | 223.6 |      |  |   | 223.6 |  
|                                                                                                    |  |      |       |      |  |   |       |  
|Basic and diluted earnings per share available to common stockholders                               |  | $    | 0.30  |      |  | $ | 0.09  |  
|                                                                                                    |  |      |       |      |  |   |       |  

The following table illustrates the pro forma effect on net income and earnings
per share, had the Company applied the fair value recognition provisions of
SFAS 123 to stock-based employee compensation under the Companys stock-based
compensation plans.

Pro Forma Effect of SFAS 123 on Net Income and Earnings Per Share

|                                                                                             |  |      |      |      |  |   |      | 
|-------------------------------------------------------------------------------------------- |  | ---- | ---- | ---- |  | - | ---- | 
|Three Months Ended March 31                                                                  |  |      |      |     
|(In millions, except per share amounts)                                                      |  | 2003 |      | 2002
|                                                                                             |  |      |      |     
|Net income                                                                                   |  | $    | 83   |      |  | $ | 20   | 
|Less: Total stock-based compensation cost determined under the fair value method, net of tax |  |      |     |      |  |   |     | 
|                                                                                             |  |      |      |      |  |   |      | 
|Pro forma net income                                                                         |  | $    | 83   |      |  | $ | 20   | 
|                                                                                             |  |      |      |      |  |   |      | 
|Basic and diluted earnings per share                                                         |  | $    | 0.30 |      |  | $ | 0.09 | 
|                                                                                             |  |      |      |      |  |   |      | 
|Basic and diluted earnings per share, pro forma                                              |  | $    | 0.30 |      |  | $ | 0.09 | 
|                                                                                             |  |      |      |      |  |   |      | 

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

Note D. Investments

The significant components of net investment income are presented in the
following table.



Net Investment Income

|                                              |  |      |     |      |  |   |     |  
|--------------------------------------------- |  | ---- | --- | ---- |  | - | --- | -
|Three months ended March 31                   |  |      |     |     
|(In millions)                                 |  | 2003 |     | 2002
|                                              |  |      |     |     
|Fixed maturity securities                     |  | $    | 420 |      |  | $ | 447 |  
|Short term investments                        |  |      | 20  |      |  |   | 16  |  
|Limited partnerships                          |  |      | 23  |      |  |   | 7   |  
|Equity securities                             |  |      | 5   |      |  |   | 7   |  
|Interest on funds withheld and other deposits |  |      | (47 | )    |  |   | (58 | )
|Other                                         |  |      | 25  |      |  |   | 21  |  
|                                              |  |      |     |      |  |   |     |  
|Gross investment income                       |  |      | 446 |      |  |   | 440 |  
|Investment expense                            |  |      | (14 | )    |  |   | (14 | )
|                                              |  |      |     |      |  |   |     |  
|Net investment income                         |  | $    | 432 |      |  | $ | 426 |  
|                                              |  |      |     |      |  |   |     |  

The components of net realized investment (losses) gains are presented in the
following table.

Net Realized Investment (Losses) Gains

|                                                                |  |      |      |      |  |   |     |   | 
|--------------------------------------------------------------- |  | ---- | ---- | ---- |  | - | --- | - | 
|Three months ended March 31                                     |  |      |      |     
|(In millions)                                                   |  | 2003 |      | 2002
|                                                                |  |      |      |     
|Realized investment gains (losses):                             |  |      |      |      |  |   |     |  
|Fixed maturity securities:                                      |  |      |      |      |  |   |     |  
|U.S. Government bonds                                           |  | $    | 38   |      |  | $ | 5   |  
|Corporate and other taxable bonds                               |  |      | (118 | )    |  |   | 9   |  
|Tax-exempt bonds                                                |  |      | 19   |      |  |   | 2   |  
|Asset-backed bonds                                              |  |      | 18   |      |  |   | 9   |  
|Redeemable preferred stock                                      |  |      | (5   | )    |  |   | (14 | )
|                                                                |  |      |      |      |  |   |     |   | 
|Total fixed maturity securities                                 |  |      | (48  | )    |  |   | 11  |  
|Equity securities                                               |  |      |     |      |  |   | 7   |  
|Derivative securities                                           |  |      | (22  | )    |  |   | (21 | )
|Other invested assets                                           |  |      | (9   | )    |  |   | 4   |  
|                                                                |  |      |      |      |  |   |     |   | 
|Total realized investment (losses) gains                        |  |      | (79  | )    |  |   | 1   |  
|Allocated to participating policyholders and minority interest |  |      | 3    |      |  |   |    |  
|Income tax benefit                                              |  |      | 27   |      |  |   | 1   |  
|                                                                |  |      |      |      |  |   |     |   | 
|Net realized investment (losses) gains                          |  | $    | (49  | )    |  | $ | 2   |  
|                                                                |  |      |      |      |  |   |     |   | 

Realized investment losses included $255 million and $18 million of pretax
impairment losses for the three months ended March 31, 2003 and 2002. The
impairment losses recorded for the three months ended March 31, 2003 were
primarily for securities in certain market sectors, including the airline,
healthcare and energy industries. For the three months ended March 31, 2002,
the impairment losses recorded related primarily to the credit deterioration of
a specific equity holding.

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

Note E. Derivative Financial Instruments

A derivative is typically defined as an instrument whose value is derived
from an underlying instrument, index or rate, has a notional amount, requires
little or no initial investment and can be net settled. Derivatives include,
but are not limited to, the following types of financial instruments: interest
rate swaps, interest rate caps and floors, put and call options, warrants,
futures, forwards, commitments to purchase securities, and combinations of the
foregoing. Derivatives embedded within non-derivative instruments (such as
call options embedded in convertible bonds) must be split from the host
instrument and accounted for in accordance with SFAS 133 when the embedded
derivative is not clearly and closely related to the host instrument. In
addition, non-investment instruments, including certain types of insurance
contracts, mainly collateralized debt obligation products (CDOs) and synthetic
guaranteed investment contracts (synthetic GICs) that have historically not
been considered derivatives, may be derivatives or contain embedded derivatives
under SFAS 133.

A summary of the recognized (losses) gains related to derivative financial
instruments follows.

Derivative Financial Instruments Recognized (Losses) Gains

|                                                            |  |      |     |      |  |   |     |   | 
|----------------------------------------------------------- |  | ---- | --- | ---- |  | - | --- | - | 
|For the three months ended March 31                         |  |      |     |     
|(In millions)                                               |  | 2003 |     | 2002
|                                                            |  |      |     |     
|General account                                             |  |      |     |      |  |   |     |  
|Swaps                                                       |  | $    |    |      |  | $ | (1  | )
|Forwards                                                    |  |      |    |      |  |   | 3   |  
|Commitments to purchase government and municipal securities |  |      | (11 | )    |  |   | (14 | )
|Equity warrants                                             |  |      |    |      |  |   | (1  | )
|Collateralized debt obligation liabilities                  |  |      | (11 | )    |  |   | (8  | )
|Options embedded in convertible debt securities             |  |      | (34 | )    |  |   | (16 | )
|                                                            |  |      |     |      |  |   |     |   | 
|Total                                                       |  | $    | (56 | )    |  | $ | (37 | )
|                                                            |  |      |     |      |  |   |     |   | 
|Separate accounts                                           |  |      |     |      |  |   |     |  
|Futures purchased                                           |  | $    | (37 | )    |  | $ | (2  | )
|Options purchased                                           |  |      |    |      |  |   | (1  | )
|Options written                                             |  |      | 1   |      |  |   | 1   |  
|                                                            |  |      |     |      |  |   |     |   | 
|Total                                                       |  | $    | (36 | )    |  | $ | (2  | )
|                                                            |  |      |     |      |  |   |     |   | 

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

A summary of the aggregate contractual or notional amounts and estimated fair
values related to derivative financial instruments follows.

Derivative Financial Instruments

|                                                            |  |          |              |       |  |             |     |  |  |   |     |   | 
|----------------------------------------------------------- |  | -------- | ------------ | ----- |  | ----------- | --- |  |  | - | --- | - | 
|                                                            |  |          | Contractual/ |       |  |             |     |  |  |   |    
|March 31, 2003                                              |  | Notional |              |       |  |             |     |  |  |  
|(In millions)                                               |  | Amount   |              | Asset |  | (Liability)
|                                                            |  |          |              |       |  |            
|General account                                             |  |          |              |       |  |             |     |  |  |   |     |  
|Swaps                                                       |  | $        | 596          |       |  | $           |    |  |  | $ | (1  | )
|Interest rate caps                                          |  |          | 500          |       |  |             |    |  |  |   |    |  
|Futures sold, not yet purchased                             |  |          | 14           |       |  |             |    |  |  |   |    |  
|Forwards                                                    |  |          | 9            |       |  |             |    |  |  |   |    |  
|Commitments to purchase government and municipal securities |  |          | 1,125        |       |  |             | 3   |  |  |   |    |  
|Equity warrants                                             |  |          | 15           |       |  |             |    |  |  |   |    |  
|Collateralized debt obligation liabilities                  |  |          | 125          |       |  |             |    |  |  |   | (24 | )
|Options purchased                                           |  |          | 5            |       |  |             |    |  |  |   |    |  
|Synthetic guaranteed investment contracts                   |  |          | 371          |       |  |             |    |  |  |   |    |  
|Options embedded in convertible debt securities             |  |          | 936          |       |  |             | 144 |  |  |   |    |  
|                                                            |  |          |              |       |  |             |     |  |  |   |     |   | 
|Total                                                       |  | $        | 3,696        |       |  | $           | 147 |  |  | $ | (25 | )
|                                                            |  |          |              |       |  |             |     |  |  |   |     |   | 
|Separate accounts                                           |  |          |              |       |  |             |     |  |  |   |     |  
|Futures purchased                                           |  | $        | 743          |       |  | $           |    |  |  | $ | (14 | )
|Futures sold, not yet purchased                             |  |          | 10           |       |  |             |    |  |  |   |    |  
|Options purchased                                           |  |          | 31           |       |  |             |    |  |  |   |    |  
|Options written                                             |  |          | 64           |       |  |             |    |  |  |   | (1  | )
|                                                            |  |          |              |       |  |             |     |  |  |   |     |   | 
|Total                                                       |  | $        | 848          |       |  | $           |    |  |  | $ | (15 | )
|                                                            |  |          |              |       |  |             |     |  |  |   |     |   | 

Derivative Financial Instruments

|                                                            |  |          |              |       |  |             |     |  |  |   |     |   | 
|----------------------------------------------------------- |  | -------- | ------------ | ----- |  | ----------- | --- |  |  | - | --- | - | 
|                                                            |  |          | Contractual/ |       |  |             |     |  |  |   |    
|December 31, 2002                                           |  | Notional |              |       |  |             |     |  |  |  
|(In millions)                                               |  | Amount   |              | Asset |  | (Liability)
|                                                            |  |          |              |       |  |            
|General account                                             |  |          |              |       |  |             |     |  |  |   |     |  
|Swaps                                                       |  | $        | 553          |       |  | $           |    |  |  | $ |    |  
|Interest rate caps                                          |  |          | 500          |       |  |             |    |  |  |   |    |  
|Futures sold, not yet purchased                             |  |          | 14           |       |  |             |    |  |  |   |    |  
|Forwards                                                    |  |          | 9            |       |  |             |    |  |  |   |    |  
|Commitments to purchase government and municipal securities |  |          | 1,289        |       |  |             | 14  |  |  |   |    |  
|Equity warrants                                             |  |          | 10           |       |  |             | 8   |  |  |   |    |  
|Collateralized debt obligation liabilities                  |  |          | 126          |       |  |             |    |  |  |   | (14 | )
|Options purchased                                           |  |          | 6            |       |  |             |    |  |  |   |    |  
|Synthetic guaranteed investment contracts                   |  |          | 481          |       |  |             |    |  |  |   |    |  
|Options embedded in convertible debt securities             |  |          | 843          |       |  |             | 130 |  |  |   |    |  
|                                                            |  |          |              |       |  |             |     |  |  |   |     |   | 
|Total                                                       |  | $        | 3,831        |       |  | $           | 152 |  |  | $ | (14 | )
|                                                            |  |          |              |       |  |             |     |  |  |   |     |   | 
|Separate accounts                                           |  |          |              |       |  |             |     |  |  |   |     |  
|Futures purchased                                           |  | $        | 614          |       |  | $           | 1   |  |  | $ |    |  
|Futures sold, not yet purchased                             |  |          | 10           |       |  |             |    |  |  |   |    |  
|Commitments to purchase government and municipal securities |  |          | 11           |       |  |             |    |  |  |   |    |  
|Options purchased                                           |  |          | 33           |       |  |             |    |  |  |   |    |  
|Options written                                             |  |          | 51           |       |  |             |    |  |  |   | (1  | )
|                                                            |  |          |              |       |  |             |     |  |  |   |     |   | 
|Total                                                       |  | $        | 719          |       |  | $           | 1   |  |  | $ | (1  | )
|                                                            |  |          |              |       |  |             |     |  |  |   |     |   | 

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##### Table of Contents



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

Options embedded in convertible debt securities are classified as fixed
maturity securities in the Condensed Consolidated Balance Sheets, consistent
with the host instruments.

Fair Value Hedges

The Companys hedging activities primarily involve hedging interest rate and
foreign currency risks on various assets and liabilities. For the three months
ended March 31, 2003, there was no ineffective portion of fair value hedges
that resulted in realized gains or losses. The ineffective portion of fair
value hedges resulted in realized losses of $1 million for the three months
ended March 31, 2002.

Note F. Legal Proceedings and Contingent Liabilities

IGI Contingency

In 1997, CNA Reinsurance Company Limited (CNA Re Ltd.) entered into an
arrangement with IOA Global, Ltd. (IOA), an independent managing general agent
based in Philadelphia, Pennsylvania, to develop and manage a book of accident
and health coverages. Pursuant to this arrangement, IGI Underwriting Agencies,
Ltd. (IGI), a personal accident reinsurance managing general underwriter, was
appointed to underwrite and market the book under the supervision of IOA.
Between April 1, 1997 and December 1, 1999, IGI underwrote a number of
reinsurance arrangements with respect to personal accident insurance worldwide
(the IGI Program). Under various arrangements, CNA Re Ltd. both assumed risks
as a reinsurer and also ceded a substantial portion of those risks to other
companies, including other CNA insurance subsidiaries and ultimately to a group
of reinsurers participating in a reinsurance pool known as the Associated
Accident and Health Reinsurance Underwriters (AAHRU) Facility. CNAs Group
Operations business unit participated as a pool member in the AAHRU Facility in
varying percentages between 1997 and 1999.

CNA has determined that a portion of the premiums assumed under the IGI Program
related to United States workers compensation carve-out business. Some of
these premiums were received from John Hancock Financial Services, Inc. (John
Hancock). CNA is aware that a number of reinsurers with workers compensation
carve-out insurance exposure, including John Hancock, have disavowed their
obligations under various legal theories. If one or more such companies are
successful in avoiding or reducing their liabilities, then it is likely that
CNAs potential liability will also be reduced. Moreover, based on information
known at this time, CNA believes it has strong grounds to successfully
challenge its alleged exposure on a substantial portion of its United States
workers compensation carve-out business, including all purported exposure
derived from John Hancock, through legal action.

As noted, CNA arranged substantial reinsurance protection to manage its
exposures under the IGI Program. CNA believes it has valid and enforceable
reinsurance contracts with the AAHRU Facility and other reinsurers with respect
to the IGI Program, including the United States workers compensation carve-out
business. However, certain reinsurers dispute their liabilities to CNA, and
CNA has commenced arbitration proceedings against such reinsurers.

CNA has established reserves for its estimated exposure under the IGI Program,
other than that derived from John Hancock, and an estimate for recoverables
from retrocessionaires. CNA has

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##### Table of Contents



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

not established any reserve for any exposure derived from John Hancock because,
as indicated, CNA believes the contract will be rescinded.

The Company is pursuing a number of loss mitigation strategies with respect to
the entire IGI Program. Although the results of these various actions to date
support the recorded reserves, the estimate of ultimate losses is subject to
considerable uncertainty due to the complexities described above. As a result
of these uncertainties, the results of operations in future periods may be
adversely affected by potentially significant reserve additions. Management
does not believe that any such reserve additions would be material to the
equity of the Company, although results of operations may be adversely
affected. The Companys position in relation to the IGI Program was unaffected
by the sale of CNA Re Ltd. in 2002.

California Wage and Hour Litigation

In Ernestine Samora, et al. v. CCC, Case No. BC 242487, Superior Court of
California, County of Los Angeles, California and Brian Wenzel v. Galway
Insurance Company, Superior Court of California, County of Orange No.
BC01CC08868 (coordinated), two former CNA employees, filed lawsuits in Los
Angeles Superior Court on behalf of purported classes of CNA employees
asserting they worked hours for which they should have been compensated at a
rate of one and one-half times their base hourly wage over a four-year period.
The cases were coordinated and an amended complaint was filed which alleges
overtime claims under California law over a four-year period. In June 2002,
the Company filed a responsive pleading denying the material allegations of the
amended complaint. The Company intends to defend this case vigorously. Due to
the recent commencement of discovery and the uncertainty of how the courts may
interpret California law as applied to the facts of these cases, the extent of
losses beyond any amounts that may be accrued are not readily determinable at
this time. Based on facts and circumstances presently known, however, in the
opinion of management, the outcome will not materially affect the equity of the
Company, although results of operations may be adversely affected.

Voluntary Market Premium Litigation

CNA, along with dozens of other insurance companies, is a defendant in sixteen
purported class action cases brought by large policyholders, which generally
allege that the defendants, as part of an industry-wide conspiracy, included
improper charges in their retrospectively rated and other loss-sensitive
insurance premiums. Fourteen lawsuits were brought as class actions in state
courts and two in federal court. Among the claims asserted were violations of
state antitrust laws, breach of contract, fraud and unjust enrichment. In two
of the cases, the defendants won dismissals on motions and, in four others,
class certification was denied after hearing. Plaintiffs voluntarily dismissed
their claims in four states. In the federal court case, Sandwich Chef of
Texas, Inc., et al. v. Reliance National Indemnity Insurance Company, et al.,
Civil Action No. H-98-1484, United States District Court for the Southern
District of Texas, the district court certified a multi-state class but was
reversed on interlocutory appeal by the U.S. Court of Appeals for the Fifth
Circuit. Due to the uncertainty of how the courts may interpret state and
federal law as applied to the facts of the cases, the extent of potential
losses beyond any amounts that may be accrued are not readily determinable at
this time. Based on facts and circumstances presently known, however, in the
opinion of management the outcome will not

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

materially affect the equity of the Company, although results of operations may
be adversely affected.

Other Litigation

CNA and its subsidiaries are also parties to other litigation arising in the
ordinary course of business. Based on the facts and circumstances currently
known, such other litigation will not, in the opinion of management, materially
affect the results of operations or equity of CNA. See Note G for discussion
of other pending litigation and claims related to environmental pollution,
asbestos and mass tort cases.

Note G. Claim and Claim Adjustment Expense Reserves

CNAs property and casualty insurance claim and claim adjustment expense
reserves represent the estimated amounts necessary to settle all outstanding
claims, including claims that are incurred but not reported (IBNR) as of the
reporting date. The Companys reserve projections are based primarily on
detailed analysis of the facts in each case, CNAs experience with similar
cases and various historical development patterns. Consideration is given to
such historical patterns as field reserving trends and claims settlement
practices, loss payments, pending levels of unpaid claims and product mix, as
well as court decisions, economic conditions and public attitudes. All of
these factors can affect the estimation of claim and claim adjustment expense
reserves.

Establishing claim and claim adjustment expense reserves, including claim and
claim adjustment expense reserves for catastrophic events that have occurred,
is an estimation process. Many factors can ultimately affect the final
settlement of a claim and, therefore, the necessary reserve. Changes in the
law, results of litigation, medical costs, the cost of repair materials and
labor rates can all affect ultimate claim costs. In addition, time can be a
critical part of reserving determinations since the longer the span between the
incidence of a loss and the payment or settlement of the claim, the more
variable the ultimate settlement amount can be. Accordingly, short-tail
claims, such as property damage claims, tend to be more reasonably estimable
than long-tail claims, such as workers compensation, general liability and
professional liability claims. Adjustments to prior year reserve estimates, if
necessary, are reflected in the results of operations in the period that the
need for such adjustments is determined.

Catastrophes are an inherent risk of the property and casualty insurance
business and have contributed to material period-to-period fluctuations in the
Companys results of operations and equity. The level of catastrophe losses
experienced in any period cannot be predicted and can be material to the
results of operations or equity of the Company.

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

Environmental Pollution and Mass Tort and Asbestos (APMT) Reserves

CNAs property and casualty insurance subsidiaries have actual and potential
exposures related to environmental pollution and mass tort and asbestos claims.

The following table provides data related to CNAs environmental pollution and
mass tort and asbestos claim and claim adjustment expense reserves.

Environmental Pollution and Mass Tort and Asbestos

|               |  |                |      |                   |  |      |       |               |  |   |      |   |  |   |       |  
|-------------- |  | -------------- | ---- | ----------------- |  | ---- | ----- | ------------- |  | - | ---- | - |  | - | ----- | -
|               |  | March 31, 2003 |      | December 31, 2002
|               |  |                |      |                  
|               |  | Environmental  |      |                   |  |      |       | Environmental |  |   |      |  
|               |  | Pollution      |      |                   |  |      |       | Pollution     |  |   |      |  
|               |  | and Mass       |      |                   |  |      |       | and Mass      |  |   |      |  
|(In millions)  |  | Tort           |      | Asbestos          |  | Tort |       | Asbestos     
|               |  |                |      |                   |  |      |       |              
|Gross reserves |  | $              | 811  |                   |  | $    | 1,719 |               |  | $ | 830  |   |  | $ | 1,758 |  
|Ceded reserves |  |                | (319 | )                 |  |      | (527  | )             |  |   | (313 | ) |  |   | (527  | )
|               |  |                |      |                   |  |      |       |               |  |   |      |   |  |   |       |  
|Net reserves   |  | $              | 492  |                   |  | $    | 1,192 |               |  | $ | 517  |   |  | $ | 1,231 |  
|               |  |                |      |                   |  |      |       |               |  |   |      |   |  |   |       |  

Environmental Pollution and Mass Tort

Environmental pollution cleanup is the subject of both federal and state
regulation. By some estimates, there are thousands of potential waste sites
subject to cleanup. The insurance industry is involved in extensive litigation
regarding coverage issues. Judicial interpretations in many cases have
expanded the scope of coverage and liability beyond the original intent of the
policies. The Comprehensive Environmental Response Compensation and Liability
Act of 1980 (Superfund) and comparable state statutes (mini-Superfunds) govern
the cleanup and restoration of toxic waste sites and formalize the concept of
legal liability for cleanup and restoration by Potentially Responsible
Parties (PRPs). Superfund and the mini-Superfunds establish mechanisms to pay
for cleanup of waste sites if PRPs fail to do so, and to assign liability to
PRPs. The extent of liability to be allocated to a PRP is dependent upon a
variety of factors. Further, the number of waste sites subject to cleanup is
unknown. To date, approximately 1,200 cleanup sites have been identified by
the Environmental Protection Agency (EPA) and included on its National
Priorities List (NPL). State authorities have designated many cleanup sites as
well.

Many policyholders have made claims against various CNA insurance subsidiaries
for defense costs and indemnification in connection with environmental
pollution matters. The vast majority of these claims relate to accident years
1989 and prior, which coincides with CNAs adoption of the Simplified
Commercial General Liability coverage form, which includes what is referred to
in the industry as an absolute pollution exclusion. CNA and the insurance
industry are disputing coverage for many such claims. Key coverage issues
include whether cleanup costs are considered damages under the policies,
trigger of coverage, allocation of liability among triggered policies,
applicability of pollution exclusions and owned property exclusions, the
potential for joint and several liability and the definition of an occurrence.
To date, courts have been inconsistent in their rulings on these issues.

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

A number of proposals to reform Superfund have been made by various parties.
However no reforms were enacted by Congress during 2002 or during the first
three months of 2003, and it
is unclear what positions Congress or the administration will take and what
legislation, if any, will result in the future. If there is legislation, and
in some circumstances even if there is no legislation, the federal role in
environmental cleanup may be significantly reduced in favor of state action.
Substantial changes in the federal statute or the activity of the EPA may cause
states to reconsider their environmental cleanup statutes and regulations.
There can be no meaningful prediction of the pattern of regulation that would
result or the possible effect upon CNAs results of operations or equity.

The Companys ultimate liability for its environmental pollution and mass tort
claims is impacted by several factors including ongoing disputes with
policyholders over scope and meaning of coverage terms and, in the area of
environmental pollution, court decisions that continue to restrict the scope
and applicability of the absolute pollution exclusion contained in policies
issued by the Company post 1989. Due to the inherent uncertainties described
above, including the inconsistency of court decisions, the number of waste
sites subject to cleanup, and in the area of environmental pollution, the
standards for cleanup and liability, the ultimate liability of CNA for
environmental pollution and mass tort claims may vary substantially from the
amount currently recorded.

As of March 31, 2003 and December 31, 2002, CNA carried approximately $492
million and $517 million of claim and claim adjustment expense reserves, net of
reinsurance recoverables, for reported and unreported environmental pollution
and mass tort claims. There was no environmental pollution and mass tort net
claim and claim adjustment expense reserve development for the three months
ended March 31, 2003 and 2002. The Company paid environmental
pollution-related claims and mass tort-related claims, net of reinsurance
recoveries, of $25 million and $33 million for the three months ended March 31,
2003 and 2002.

Asbestos

CNAs property and casualty insurance subsidiaries also have exposure to
asbestos-related claims. Estimation of asbestos-related claim and claim
adjustment expense reserves involves many of the same limitations discussed
above for environmental pollution claims, such as inconsistency of court
decisions, specific policy provisions, allocation of liability among insurers
and insureds, and additional factors such as missing policies and proof of
coverage. Furthermore, estimation of asbestos-related claims is difficult due
to, among other reasons, the proliferation of bankruptcy proceedings and
attendant uncertainties, the targeting of a broader range of businesses and
entities as defendants, the uncertainty as to which other insureds may be
targeted in the future and the uncertainties inherent in predicting the number
of future claims.

In the past several years, CNA has experienced significant increases in claim
counts for asbestos-related claims. The factors that led to these increases
included, among other things, intensive advertising campaigns by lawyers for
asbestos claimants, mass medical screening programs sponsored by plaintiff
lawyers, and the addition of new defendants such as the distributors and
installers of products containing asbestos. Currently, the majority of
asbestos bodily injury claims are filed by persons exhibiting few, if any,
disease symptoms. It is estimated that approximately 90% of the current
non-malignant asbestos claimants do not meet the American Medical Associations
definition of impairment. Some courts, including the federal

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

district court responsible for pre-trial proceedings in all federal asbestos bodily injury
actions,
have ordered that so-called unimpaired claimants may not recover unless at
some point the claimants condition worsens to the point of impairment.

As of March 31, 2003 and December 31, 2002, CNA carried approximately $1,192
million and $1,231 million of claim and claim adjustment expense reserves, net
of reinsurance recoverables, for reported and unreported asbestos-related
claims. There was no asbestos-related net claim and claim adjustment expense
reserve development for the three months ended March 31, 2003 and 2002. The
Company paid asbestos-related claims, net of reinsurance, of $39 million for
the three months ended March 31, 2003 and had net reinsurance recoveries of $20
million for the three months ended March 31, 2002.

Some asbestos-related defendants have asserted that their claims for insurance
are not subject to aggregate limits on coverage. CNA has such claims from a
number of insureds. Some of these claims involve insureds facing exhaustion of
products liability aggregate limits in their policies, who have asserted that
their asbestos-related claims fall within so-called non-products liability
coverage contained within their policies rather than products liability
coverage, and that the claimed non-products coverage is not subject to any
aggregate limit. It is difficult to predict the ultimate size of any of the
claims for coverage purportedly not subject to aggregate limits or predict to
what extent, if any, the attempts to assert non-products claims outside the
products liability aggregate will succeed. The Company has attempted to manage
such exposures by aggressive settlement strategies. Nevertheless, there can be
no assurance any of these settlement efforts will be successful, or that any
such claims can be settled on terms acceptable to CNA. Adverse developments
with respect to such matters discussed in this paragraph could have a material
adverse effect on CNAs results of operations or equity.

On February 13, 2003, CNA announced it had resolved asbestos related coverage
litigation and claims involving A.P. Green Industries, A.P. Green Services and
Bigelow  Liptak Corporation. Under the agreement, CNA will be required to pay
$74 million, net of reinsurance recoveries, over a ten year period. The
settlement resolves CNAs liabilities for all pending and future asbestos
claims involving A.P. Green Industries, Bigelow-Liptak Corporation and related
subsidiaries, including alleged non-products exposures. The settlement is
subject to bankruptcy court approval and confirmation of a bankruptcy plan
containing a channeling injunction to protect CNA from any future claims.

CNA is engaged in insurance coverage litigation with Robert A. Keasbey Company
(Keasbey) and associated claimants in New York state court (Continental
Casualty Company vs. Robert A. Keasbey Company et al.,Supreme Court State of
New York  County of New York, No. 401621/02).Keasbey was a seller and
installer of asbestos products in the New York and New Jersey area. CNA paid
its full product liability limits to Keasbey in prior years. Claimants against
Keasbey now claim CNA owes additional coverage under the operations section of
policies issued to it by CNA. CNA is also a party to insurance coverage
litigation between Burns & Roe Enterprises, Inc. (Burns & Roe) and its
insurance carriers related to asbestos bodily injury and wrongful death claims
(In re: Burns & Roe Enterprises, Inc., pending in the U.S. Bankruptcy Court for
the District of New Jersey, No. 00-41610). Burns & Roe provided various
engineering and related services in connection with construction projects.
Burns & Roe is currently in bankruptcy. There are numerous factual and legal
issues to be resolved in connection with these cases and it is difficult to
predict the outcome or financial exposure represented by these matters in light
of the novel theories asserted by policyholders and their counsel.

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

Policyholders have also initiated litigation directly against CNA and other
insurers. CNA has been named in Adams v. Aetna, Inc., et al. (Circuit Court of
Kanhwha County, West Virginia), a purported class action against CNA and other
insurers, alleging that the defendants violated West Virginias Unfair Trade
Practices Act in handling and resolving asbestos claims against their
policyholders. In addition, lawsuits have been filed in Texas against CNA, and
other insurers and non-insurer corporate defendants asserting liability for
failing to warn of the dangers of asbestos (Boson v. Union Carbide Corp., et
al. (District Court of Nueces County, Texas)). It is difficult to predict the
outcome or financial exposure represented by this type of litigation in light
of the broad nature of the relief requested and the novel theories asserted.

CNA reviews each active asbestos account every six months to determine whether
changes in reserve estimates may be necessary. The Company considers input
from its analyst professionals with direct responsibility for the claims,
inside and outside counsel with responsibility for representation of the
Company, and its actuarial staff. These professionals review, among many
factors, the policyholders present and future exposures (including such
factors as claims volume, disease mix, trial conditions, settlement demands and
defense costs); the policies issued by CNA (including such factors as aggregate
or per occurrence limits, whether the policy is primary, umbrella or excess,
and the existence of policyholder retentions and/or deductibles); the existence
of other insurance; and reinsurance arrangements.

Due to the uncertainties created by volatility in claim numbers and settlement
demands, the effect of bankruptcies, the extent to which non-impaired claimants
can be precluded from making claims and the efforts by insureds to obtain
coverage not subject to aggregate limits, the ultimate liability of CNA for
asbestos-related claims may vary substantially from the amount currently
recorded. Other variables that will influence CNAs ultimate exposure to
asbestos-related claims will be medical inflation trends, jury attitudes, the
strategies of plaintiff attorneys to broaden the scope of defendants, the mix
of asbestos-related diseases presented, CNAs abilities to recover reinsurance,
future court decisions and the possibility of legislative reform. Another of
these variables is the possible creation of a national privately financed
trust, which if established and approved through federal legislation, could
replace litigation of asbestos claims with payments to claimants from the
trust. It is uncertain at the present time whether such a trust will be
created or, if it is, what will be the terms and conditions of its
establishment. Adverse developments with respect to such matters discussed in
this paragraph could have a material adverse effect on CNAs results of
operations or equity.

The results of operations or equity of CNA in future years may be adversely
affected by environmental pollution and mass tort and asbestos claim and claim
adjustment expenses. Management will continue to review and monitor these
liabilities and make further adjustments, including the potential for further
reserve strengthening, as necessary.

Other Reserves

Net unfavorable prior year development of $31 million, including $97 million of
unfavorable claim and claim adjustment expense reserve development and $66
million of favorable premium development, was recorded for the three months
ended March 31, 2003. The net unfavorable prior year reserve development not
associated with the favorable premium development was recorded principally in
Standard Lines.

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

Unfavorable net prior year reserve development of approximately $47 million was
recorded related to certain programs written in Excess & Surplus (E&S). One
E&S program, covering facilities that provide services to developmentally
disabled individuals, accounted for approximately $10 million of the
unfavorable prior year reserve development. The reserve development was due to
an increase in the size of known claims and increases in policyholder defense
costs. These increases became apparent as the result of an actuarial review
completed during the first quarter of 2003, with most of the reserve
development from accident years 1999 and 2000. Another E&S program, which
accounts for approximately $25 million of E&S reserve development, covers tow
truck and ambulance operators in the 2000 and 2001 accident years. The Company
expected that loss ratios for this business would be similar to its middle
market commercial automobile liability business. During 2002, the Company
ceased writing business under this program. Approximately $12 million of
unfavorable prior year reserve development was recorded during 2003 related to
a specific large loss.

Partially offsetting the unfavorable reserve development in E&S was favorable
prior year reserve development recorded in property lines during 2003. The
favorable reserve development was principally from accident years 2001 and 2002
and was the result of the low number of large losses in recent years.

Note H. Reinsurance

CNA assumes and cedes reinsurance with other insurers, reinsurers and members
of various reinsurance pools and associations. CNA utilizes reinsurance
arrangements to limit its maximum loss, provide greater diversification of
risk, minimize exposures on larger risks and to exit certain lines of business.
Reinsurance coverages are tailored to the specific risk characteristics of
each product line and CNAs retained amount varies by type of coverage.
Generally, property risks are reinsured on an excess of loss, per risk basis.
Liability coverages are generally reinsured on a quota share basis in excess of
CNAs retained risk. CNAs ceded life reinsurance includes utilization of
coinsurance, yearly renewable term and facultative programs. A majority of the
reinsurance utilized by the Companys life insurance operations relates to term
life insurance policies. Term life insurance policies issued from 1994 onward
are generally ceded at 60%-90% of the face value. Universal Life policies
issued from 1998 onward are generally ceded at 75% of the face value.

The Companys overall reinsurance program includes certain property and
casualty contracts, such as the corporate aggregate reinsurance treaties
discussed in more detail later in this note, that are entered into and
accounted for on a funds withheld basis. Under the funds withheld basis, the
Company records the cash remitted to the reinsurer for the reinsurers margin,
or cost of the reinsurance contract, as ceded premiums. The remainder of the
premiums ceded under the reinsurance contract is recorded as funds withheld
liabilities. The Company is required to increase the funds withheld balance at
stated interest crediting rates applied to the funds withheld balance or as
otherwise specified under the terms of the contract. The funds withheld
liability is reduced by any cumulative claim payments made by the Company in
excess of the Companys retention under the reinsurance contract. If the funds
withheld liability is exhausted, interest crediting will cease and additional
claim payments are recoverable from the reinsurer. The funds withheld
liability is recorded in reinsurance balances payable in the Condensed
Consolidated Balance Sheets.

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

Interest cost on these contracts is credited during all periods in which a
funds withheld liability exists. Interest cost, which is included in net
investment income, was $47 million and $58 million for the three months ended
March 31, 2003 and 2002. The amount subject to interest crediting rates on
such contracts was $2,550 million and $2,766 million at March 31, 2003 and
December 31, 2002.

The amount subject to interest crediting on these funds withheld contracts will
vary over time based on a number of factors, including the timing of loss
payments and ultimate gross losses incurred. The Company expects that it will
continue to incur significant interest costs on these contracts for several
years.

The ceding of insurance does not discharge the primary liability of the
Company. Therefore, a credit exposure exists with respect to property and
casualty and life reinsurance ceded to the extent that any reinsurer is unable
to meet the obligations assumed under reinsurance agreements.

The Company has reinsurance receivables from several reinsurers who have
recently experienced multiple downgrades of their financial strength ratings,
have announced that they will no longer accept new business and are placing
their books of business into run-off. One of the Companys principal credit
exposures from these recent events arise from reinsurance receivables from
Gerling Global (Gerling).

In March of 2003, Gerling informed the Company that, under Gerlings
interpretation of three treaties relating to CNA HealthPro, the Company was
required to transfer approximately $205 million of funds withheld balances to a
trust established by Gerling for the Companys benefit or the treaties would be
commuted. In April of 2003, Gerling advised the Company that it deems these
treaties to be commuted as of April 7, 2003. CNA, in turn, advised Gerling
that it disputes the commutation and regards the reinsurance treaties as
remaining in effect. The Company has begun discussions with Gerling with
respect to resolving the dispute concerning these treaties, as well as a
possible commutation of all other reinsurance arrangements between CNA and
Gerling.

Life premiums are primarily from long duration contracts and property and
casualty premiums and accident and health premiums are primarily from short
duration contracts.

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

The effects of reinsurance on earned premiums are shown in the following table.

Components of Earned Premiums

|                            |                     |        |       |         |  |       |     |     |  |   |       |       |   |   |       |       | 
|--------------------------- | ------------------- | ------ | ----- | ------- |  | ----- | --- | --- |  | - | ----- | ----- | - | - | ----- | ----- | 
|Three months ended March 31 |                     |        |       |         |  |       |     |    
|(In millions)               |                     | Direct |       | Assumed |  | Ceded |     | Net
|                            |                     |        |       |         |  |       |     |    
|2003                        |                     |        |       |         |  |       |     |     |  |   |       |       |   |   |       |      
|                            | Property-casualty   |        | $     | 2,638   |  |       | $   | 161 |  |   | $     | 981   |   |   | $     | 1,818 | 
|                            | Accident and health |        |       | 389     |  |       |     | 37  |  |   |       | 24    |   |   |       | 402   | 
|                            | Life                |        |       | 258     |  |       |     | 5   |  |   |       | 102   |   |   |       | 161   | 
|                            |                     |        |       |         |  |       |     |     |  |   |       |       |   |   |       |       | 
|Total earned premiums       |                     | $      | 3,285 |         |  | $     | 203 |     |  | $ | 1,107 |       |   | $ | 2,381 |      
|                            |                     |        |       |         |  |       |     |     |  |   |       |       |   |   |       |       | 
|2002                        |                     |        |       |         |  |       |     |     |  |   |       |       |   |   |       |      
|                            | Property-casualty   |        | $     | 2,440   |  |       | $   | 237 |  |   | $     | 1,015 |   |   | $     | 1,662 | 
|                            | Accident and health |        |       | 973     |  |       |     | 19  |  |   |       | (12   | ) |   |       | 1,004 | 
|                            | Life                |        |       | 263     |  |       |     | 21  |  |   |       | 113   |   |   |       | 171   | 
|                            |                     |        |       |         |  |       |     |     |  |   |       |       |   |   |       |       | 
|Total earned premiums       |                     | $      | 3,676 |         |  | $     | 277 |     |  | $ | 1,116 |       |   | $ | 2,837 |      
|                            |                     |        |       |         |  |       |     |     |  |   |       |       |   |   |       |       | 

In 1999, the Company entered into an aggregate reinsurance treaty related to
the 1999 through 2001 accident years covering substantially all of the
Companys property and casualty lines of business (the Aggregate Cover). The
Company has two sections of coverage under the terms of the Aggregate Cover.
These coverages attach at defined loss ratios for each accident year. Coverage
under the first section of the Aggregate Cover, which is available for all
accident years covered by the contract, has annual limits of $500 million of
ceded losses with an aggregate limit of $1 billion of ceded losses for the
three year period. The ceded premiums are a percentage of ceded losses and for
each $500 million of limit the ceded premium is $230 million. The second
section of the Aggregate Cover, which was only utilized for accident year 2001,
provides additional coverage of up to $510 million of ceded losses for a
maximum ceded premium of $310 million. Under the Aggregate Cover, interest
charges on the funds withheld liability accrue at 8% per annum. If the
aggregate loss ratio for the three-year period exceeds certain thresholds,
additional premiums may be payable and the rate at which interest charges are
accrued would increase to 8.25% per annum commencing in 2006.

The coverage under the second section of the Aggregate Cover was triggered for
the 2001 accident year. As a result of losses related to the September 11,
2001 World Trade Center disaster and related events (WTC event), the limit
under this section was exhausted. Additionally, as a result of significant
reserve additions recorded in 2001, the $500 million limit on the 1999 accident
year under the first section was also fully utilized. No losses have been
ceded to the remaining $500 million of aggregate limit on accident years 2000
and 2001 under the first section of the Aggregate Cover. Included in the
pretax results of operations for the three months ended March 31, 2003 and 2002
is $13 million of interest charges from the Aggregate Cover.

In 2001, the Company entered into a one-year aggregate reinsurance treaty
related to the 2001 accident year covering substantially all property and
casualty lines of business in the Continental Casualty Company pool (the CCC
Cover). The loss protection provided by the CCC Cover has an aggregate limit
of approximately $760 million of ceded losses. The ceded premiums are a
percentage of ceded losses. The ceded premium related to full utilization of
the $760 million of limit is $456 million. The CCC Cover provides continuous
coverage in excess of

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

the second section of the Aggregate Cover discussed above. Under the CCC Cover, interest
charges on the funds withheld generally accrue at 8% per annum. The interest
rate increases to 10% per annum if the aggregate loss ratio exceeds certain
thresholds. Losses of $618 million have been ceded under the CCC Cover through
March 31, 2003.

The impact of the CCC Cover on pretax results of operations was as follows:

Impact of CCC Cover on Pretax Results of Operations

|                                         |  |      |    |      |  |   |     |  
|---------------------------------------- |  | ---- | -- | ---- |  | - | --- | -
|For the three months ended March 31      |  |      |    |     
|(In millions)                            |  | 2003 |    | 2002
|                                         |  |      |    |     
|Ceded earned premiums                    |  | $    |   |      |  | $ | (61 | )
|Ceded claim and claim adjustment expense |  |      |   |      |  |   | 93  |  
|Interest charges                         |  |      | (8 | )    |  |   | (10 | )
|                                         |  |      |    |      |  |   |     |  
|Pretax (expense) benefit                 |  | $    | (8 | )    |  | $ | 22  |  
|                                         |  |      |    |      |  |   |     |  

Note I. Debt

Debt is composed of the following obligations.

|                                                              |                                                        |           |       |              |  |   |       |     | 
|------------------------------------------------------------- | ------------------------------------------------------ | --------- | ----- | ------------ |  | - | ----- | --- | 
|Debt                                                          |                                                        | March 31, |       | December 31,
|(In millions)                                                 |                                                        | 2003      |       | 2002        
|                                                              |                                                        |           |       |             
|Variable rate debt:                                           |                                                        |           |       |              |  |   |       |    
|                                                              | Credit facility  CNAF, due April 30, 2004             |           | $     | 250          |  |   | $     | 250 | 
|                                                              | Credit facility  CNA Surety, due September 30, 2003   |           |       | 30           |  |   |       | 30  | 
|                                                              | Term loan  CNA Surety, due through September 30, 2005 |           |       | 30           |  |   |       | 30  | 
|Senior notes:                                                 |                                                        |           |       |              |  |   |       |    
|                                                              | 7.250%, face amount of $128, due March 1, 2003         |           |       |             |  |   |       | 128 | 
|                                                              | 6.250%, face amount of $248, due November 15, 2003     |           |       | 248          |  |   |       | 248 | 
|                                                              | 6.500%, face amount of $493, due April 15, 2005        |           |       | 491          |  |   |       | 491 | 
|                                                              | 6.750%, face amount of $250, due November 15, 2006     |           |       | 249          |  |   |       | 249 | 
|                                                              | 6.450%, face amount of $150, due January 15, 2008      |           |       | 149          |  |   |       | 149 | 
|                                                              | 6.600%, face amount of $200, due December 15, 2008     |           |       | 199          |  |   |       | 199 | 
|                                                              | 8.375%, face amount of $70, due August 15, 2012        |           |       | 69           |  |   |       | 69  | 
|                                                              | 6.950%, face amount of $150, due January 15, 2018      |           |       | 148          |  |   |       | 148 | 
|Debenture, 7.250%, face amount of $243, due November 15, 2023 |                                                        |           | 240   |              |  |   | 240   |    
|Capital leases, 8.000%-13.700%, due through December 31, 2011 |                                                        |           | 35    |              |  |   | 36    |    
|Other debt, 1.000%-6.600%, due through 2019                   |                                                        |           | 25    |              |  |   | 25    |    
|                                                              |                                                        |           |       |              |  |   |       |     | 
|Total debt                                                    |                                                        | $         | 2,163 |              |  | $ | 2,292 |    
|                                                              |                                                        |           |       |              |  |   |       |     | 
|Short term debt                                               |                                                        | $         | 291   |              |  | $ | 420   |    
|Long term debt                                                |                                                        |           | 1,872 |              |  |   | 1,872 |    
|                                                              |                                                        |           |       |              |  |   |       |     | 
|Total debt                                                    |                                                        | $         | 2,163 |              |  | $ | 2,292 |    
|                                                              |                                                        |           |       |              |  |   |       |     | 

During the first quarter of 2003, The Continental Corporation (Continental)
repaid its $128 million, 7.250% Senior Note, due March 1, 2003.

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

The Company pays a facility fee to the lenders for having funds available for
loans under the credit facility maturing April 30, 2004. The fee varies based
on the long term debt ratings of the Company. At March 31, 2003 and December
31, 2002, the facility fee was 17.5 basis points.

The Company pays interest on any outstanding debt/borrowings under the facility
based on a rate determined using the long term debt ratings of the Company.
The interest rate is equal to the London Interbank Offering Rate (LIBOR) plus
57.5 basis points. Further, if the Company has outstanding loans greater than
50% of the amounts available under the facility, the Company also will pay a
utilization fee of 12.5 basis points on such loans. At March 31, 2003 and
December 31, 2002, the weighted-average interest rate on the borrowings under
the facility, including facility fees and utilization fees, was 2.3%.

A Moodys Investors Service downgrade of the CNAF senior debt rating from Baa2
to Baa3 would increase the facility fee from 17.5 basis points to 25.0 basis
points. The applicable interest rate would increase from LIBOR plus 57.5 basis
points to LIBOR plus 75.0 basis points. The utilization fee would remain
unchanged on the facility at 12.5 basis points.

The terms of CNAFs credit agreement requires the Company to maintain certain
financial ratios and combined property and casualty company statutory surplus
levels. At March 31, 2003 and December 31, 2002, CNAF was in compliance with
all restrictive debt covenants.

CNA Surety Corporation (CNA Surety), a 64% owned and consolidated subsidiary of
CNA, pays interest on any outstanding borrowings under its credit agreement
based on an applicable margin determined by the amount of leverage of the
company. The current interest rate on any borrowings under the facility is
LIBOR plus 45.0 basis points. In addition, CNA Surety pays a facility fee that
is currently 12.5 basis points. If the utilization of the credit facility is
greater than 50% of the amount available under the facility, an additional fee
of 5.0 basis points will be incurred. Effective January 30, 2003, CNA Surety
entered into an interest rate swap on the term loan portion of its credit
agreement that fixed the interest rate at 2.75%. At March 31, 2003 and
December 31, 2002, the weighted-average interest rate on the $60 million of
outstanding borrowings under the credit agreement, including facility fees and
utilization fees was 2.4% and 2.0%. At March 31, 2003 and December 31, 2002,
CNA Surety was in compliance with all restrictive debt covenants.

Note J. Commitments and Contingencies

In the normal course of business, CNA has obtained letters of credit in favor
of various unaffiliated insurance companies, regulatory authorities and other
entities. As of March 31, 2003 and December 31, 2002 there were approximately
$187 million and $222 million of outstanding letters of credit.

The Company has provided guarantees related to irrevocable standby letters of
credit for certain of its subsidiaries. Certain of these subsidiaries have
been sold; however, the irrevocable standby letter of credit guarantees remain
in effect. The Company would be required to remit prompt payment on the
letters of credit in question if the primary obligor drew down on these letters
of credit and failed to repay such loans in accordance with the terms of the
letters of credit. The maximum potential amount of future payments that CNA
could be required to pay under these guarantees is approximately $30 million at
March 31, 2003.

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

The Company is obligated to make future payments totaling $357 million for
non-cancelable operating leases expiring from 2003 through 2058 primarily for
office space and data processing, office and transportation equipment.
Estimated future minimum payments under
these contracts are as follows: $62 million in 2003; $60 million in 2004; $53
million in 2005; $43 million in 2006; and $139 million in 2007 and beyond.
Additionally, the Company has entered into a limited number of guaranteed
payment contracts, primarily relating to telecommunication services, amounting
to approximately $24 million. Estimated future minimum purchases under these
contracts are as follows: $13 million in 2003; $9 million in 2004; and $2
million in 2005.

The Company has provided parent company guarantees, which expire in 2015,
related to lease obligations of certain subsidiaries. Certain of those
subsidiaries have been sold; however, the lease obligation guarantees remain in
effect. CNAF would be required to remit prompt payment on leases in question
if the primary obligor fails to observe and perform its covenants under the
lease agreements. The maximum potential amount of future payments that the
Company could be required to pay under these guarantees is approximately $7
million at March 31, 2003.

The Company holds an investment in a real estate joint venture that is
accounted for on the equity basis of accounting. In the normal course of
business, CNA on a joint and several basis with other unrelated insurance
company shareholders has committed to continue funding the operating deficits
of this joint venture. Additionally, CNA and the other unrelated shareholders,
on a joint and several basis, have guaranteed an operating lease for an office
building, which expires in 2016.

The guarantee of the operating lease is a parallel guarantee to the commitment
to fund operating deficits; consequently, the separate guarantee to the lessor
is not expected to be triggered as long as the joint venture continues to be
funded by its shareholders and continues to make its annual lease payments.

In the event that the other parties to the joint venture are unable to meet
their commitments in funding the operations of this joint venture, the Company
would be required to assume the obligation for the entire office building
operating lease. The maximum potential future lease payments at March 31, 2003
that the Company could be required to pay under this guarantee is approximately
$333 million. If CNA were required to assume the entire lease obligation, the
Company would have the right to pursue reimbursement from the other
shareholders and would have the right to all sublease revenues.

The Company has recorded a liability of approximately $10 million as of March
31, 2003 and December 31, 2002 for its share of estimated future operating
deficits of this joint venture through 2016.

The Company has a commitment to purchase up to a $100 million floating rate
note issued by the California Earthquake Authority in the event of an
earthquake during calendar year 2003 that results in California earthquake
related losses greater than $4.2 billion.

CNA has provided guarantees of the indebtedness of certain of its independent
insurance producers. These guarantees expire in 2003. The Company would be
required to remit prompt and complete payment when due, should the primary
obligor default. In the event of default on the part of the primary obligor,
the Company has a right to any and all shares of common stock

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

of the primary
obligor. The maximum potential amount of future payments that CNA could be
required to pay under these guarantees is approximately $7 million at March 31,
2003.

As of March 31, 2003 and December 31, 2002, the Company had committed
approximately $111 million and $141 million for future capital calls from
various third-party limited partnership investments in exchange for an
ownership interest in the related partnership.

In the normal course of investing activities, CCC had committed approximately
$51 million as of March 31, 2003 to future capital calls from certain of its
unconsolidated affiliates in exchange for an ownership interest in such
affiliates.

Note K. Comprehensive Income

Comprehensive income is composed of all changes to stockholders equity, except
those changes resulting from transactions with stockholders in their capacity
as stockholders. The components of comprehensive income (loss) are shown
below.

Comprehensive Income (Loss)

|                                                                                   |                                                                   |                                                                                                 |      |      |     |   |      |   |      |  
|---------------------------------------------------------------------------------- | ----------------------------------------------------------------- | ----------------------------------------------------------------------------------------------- | ---- | ---- | --- | - | ---- | - | ---- | -
|Three months ended March 31                                                        |                                                                   |                                                                                                 |      |     
|(In millions)                                                                      |                                                                   | 2003                                                                                            |      | 2002
|                                                                                   |                                                                   |                                                                                                 |      |     
|Net income                                                                         |                                                                   | $                                                                                               | 83   |      |     | $ | 20   |  
|                                                                                   |                                                                   |                                                                                                 |      |      |     |   |      |  
|Other comprehensive income (loss):                                                 |                                                                   |                                                                                                 |      |      |     |   |      |  
|                                                                                   | Change in unrealized gains/losses on general account investments: |                                                                                                 |      |      |     |   |      |   |     
|                                                                                   |                                                                   | Holding gains (losses) arising during the period                                                |      |      | 208 |   |      |   | (438 | )
|                                                                                   |                                                                   | Net unrealized gains/losses at beginning of period included in
realized gains during the period |      |      | 116 |   |      |   | (8   | )
|                                                                                   |                                                                   |                                                                                                 |      |      |     |   |      |  
|                                                                                   |                                                                   | Net change in unrealized gains/losses on general account investments                            |      |      | 324 |   |      |   | (446 | )
|                                                                                   |                                                                   | Net change in unrealized gains/losses on separate accounts and other                            |      |      | 16  |   |      |   | (22  | )
|                                                                                   |                                                                   | Foreign currency translation adjustment                                                         |      |      | 11  |   |      |   | 13   |  
|                                                                                   |                                                                   | Allocation to participating policyholders and minority interests                               |      |      |    |   |      |   | 5    |  
|                                                                                   |                                                                   |                                                                                                 |      |      |     |   |      |  
|Other comprehensive income (loss), before tax                                      |                                                                   |                                                                                                 | 351  |      |     |   | (450 | )
|Deferred income tax (expense) benefit related to other comprehensive
income (loss) |                                                                   |                                                                                                 | (128 | )    |     |   | 189  |  
|                                                                                   |                                                                   |                                                                                                 |      |      |     |   |      |  
|Other comprehensive income (loss), net of tax                                      |                                                                   |                                                                                                 | 223  |      |     |   | (261 | )
|                                                                                   |                                                                   |                                                                                                 |      |      |     |   |      |  
|Total comprehensive income (loss)                                                  |                                                                   | $                                                                                               | 306  |      |     | $ | (241 | )
|                                                                                   |                                                                   |                                                                                                 |      |      |     |   |      |  

Note L. Business Segments

CNA conducts its operations through five operating segments: Standard Lines,
Specialty Lines and CNA Re (which comprise the property and casualty segments),
Group Operations and Life Operations. In addition to the five operating
segments, certain other activities are reported in the Corporate and Other
segment. These operating segments reflect the way CNA manages its operations
and makes business decisions.

During 2002, CNA underwent management changes and strategic realignment. These
events have changed the way CNA manages its operations and makes business
decisions and,

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

therefore, necessitated a change in the Companys reportable
segments. The financial results for the segment changes are reflected in the
following tables in this note.

The Corporate and Other segment is principally comprised of losses and expenses
related to the centralized adjusting and settlement of APMT claims, certain
run-off insurance and non-insurance operations and other operations including
interest expense on corporate borrowings.

The Company manages most of its assets on a legal entity basis, while segment
operations are conducted across legal entities. As such, only receivables,
insurance reserves and deferred acquisition costs are readily identifiable by
individual segment. Distinct investment portfolios are not maintained for each
segment; accordingly, allocation of assets to each segment is not performed.
Therefore, net investment income and realized investment gains or losses are
allocated primarily based on each segments net carried insurance reserves, as
adjusted.

All significant intrasegment income and expense has been eliminated. Standard
Lines other revenues and expenses include revenues for services provided by
RSKCoSM to other units within the Standard Lines segment that are eliminated at
the consolidated level. Intrasegment revenue and expenses eliminated at the
consolidated level were approximately $30 million and $36 million for the three
months ended March 31, 2003 and 2002.

Income taxes have been allocated on the basis of the taxable income of the
segments.

In the following two tables, the caption net operating income (loss) is used
by the Company as an operating measure of segment performance. This non-GAAP
measure is presented to provide information used by management to monitor its
operating performance. Net operating income (loss) excludes the after-tax
effects of net realized investment gains or losses, gains or losses from
discontinued operations and any cumulative effects of changes in accounting
principles, which are included in net income. Management excludes after-tax
net realized investment gains or losses from net operating income (loss)
because net realized investment gains or losses related to the Companys
available-for-sale investment portfolio are largely discretionary, except for
losses related to other-than-temporary impairments, are generally driven by
economic factors that are not necessarily consistent with key drivers of
underwriting performance, and are therefore not an indication of trends in
operations. The Company believes that net operating income (loss) is a
meaningful measure of operating performance for insurance companies.

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



|                                                                                              |                                    |                          |       |           |       |        |       |            |     |       |       |       |     |   |     |       |     | 
|--------------------------------------------------------------------------------------------- | ---------------------------------- | ------------------------ | ----- | --------- | ----- | ------ | ----- | ---------- | --- | ----- | ----- | ----- | --- | - | --- | ----- | --- | 
|For the three months ended                                                                    |                                    |                          |       |           |       |        |       |            |     |       |       |       |     |   |     |      
|March 31, 2003                                                                                |                                    | Standard                 |       | Specialty |       |        |       |            |     | Group
|(In millions)                                                                                 |                                    | Lines                    |       | Lines     |       | CNA Re |       | Operations
|                                                                                              |                                    |                          |       |           |       |        |       |           
|Net earned premiums                                                                           |                                    | $                        | 1,039 |           |       | $      | 624   |            |     | $     | 153   |       |     | $ | 315 |      
|Net investment income                                                                         |                                    |                          | 110   |           |       |        | 70    |            |     |       | 24    |       |     |   | 63  |      
|Other revenues                                                                                |                                    |                          | 71    |           |       |        | 20    |            |     |       | 1     |       |     |   | 18  |      
|                                                                                              |                                    |                          |       |           |       |        |       |            |     |       |       |       |     |   |     |      
|                                                                                              |                                    | Total operating revenues |       |           | 1,220 |        |       |            | 714 |       |       |       | 178 |   |     |       | 396 | 
|Claims, benefits and expenses                                                                 |                                    |                          | 1,179 |           |       |        | 647   |            |     |       | 142   |       |     |   | 367 |      
|                                                                                              |                                    |                          |       |           |       |        |       |            |     |       |       |       |     |   |     |      
|Operating income (loss) from continuing
operations before income tax and minority
interest    |                                    |                          | 41    |           |       |        | 67    |            |     |       | 36    |       |     |   | 29  |      
|Income tax (expense) benefit on operating income                                              |                                    |                          | (6    | )         |       |        | (18   | )          |     |       | (11   | )     |     |   | (10 | )    
|Minority interest                                                                             |                                    |                          |      |           |       |        | (3    | )          |     |       |      |       |     |   |    |      
|                                                                                              |                                    |                          |       |           |       |        |       |            |     |       |       |       |     |   |     |      
|Net operating income (loss) from continuing
operations                                        |                                    |                          | 35    |           |       |        | 46    |            |     |       | 25    |       |     |   | 19  |      
|Realized investment gains (losses), net of
participating policyholders and minority
interest |                                    |                          | 13    |           |       |        | (13   | )          |     |       | 9     |       |     |   | (52 | )    
|Income tax (expense) benefit on realized
investment gains (losses)                            |                                    |                          | (5    | )         |       |        | 2     |            |     |       |      |       |     |   | 18  |      
|                                                                                              |                                    |                          |       |           |       |        |       |            |     |       |       |       |     |   |     |      
|Net income (loss)                                                                             |                                    | $                        | 43    |           |       | $      | 35    |            |     | $     | 34    |       |     | $ | (15 | )    
|                                                                                              |                                    |                          |       |           |       |        |       |            |     |       |       |       |     |   |     |      
|As of March 31, 2003
(In millions)                                                            |                                    |                          |       |           |       |        |       |            |     |       |       |       |     |   |     |      
|Reinsurance and insurance receivables, net                                                    |                                    | $                        | 7,187 |           |       | $      | 3,228 |            |     | $     | 1,213 |       |     | $ | 286 |      
|Insurance reserves:                                                                           |                                    |                          |       |           |       |        |       |            |     |       |       |       |     |   |     |      
|                                                                                              | Claim and claim adjustment expense |                          | $     | 11,408    |       |        | $     | 5,893      |     |       | $     | 2,193 |     |   | $   | 1,436 |    
|                                                                                              | Unearned premiums                  |                          |       | 1,901     |       |        |       | 1,903      |     |       |       | 263   |     |   |     | 12    |    
|                                                                                              | Future policy benefits             |                          |       |          |       |        |       |           |     |       |       |      |     |   |     | 597   |    
|                                                                                              | Policyholders funds               |                          |       | 38        |       |        |       | 3          |     |       |       |      |     |   |     | 467   |    
|Deferred acquisition costs                                                                    |                                    | $                        | 429   |           |       | $      | 330   |            |     | $     | 57    |       |     | $ | 110 |      

[Additional columns below]

[Continued from above table, first column(s) repeated]

|                                                                                              |                                    |                          |       |           |     |         |       |       |    |   |     |     |     |   |        |        |       | 
|--------------------------------------------------------------------------------------------- | ---------------------------------- | ------------------------ | ----- | --------- | --- | ------- | ----- | ----- | -- | - | --- | --- | --- | - | ------ | ------ | ----- | 
|For the three months ended                                                                    |                                    |                          |       |           |     |         |       |       |    |   |     |     |     |   |        |       
|March 31, 2003                                                                                |                                    | Life                     |       | Corporate |     | Elimi-  |       |       |    |  
|(In millions)                                                                                 |                                    | Operations               |       | and Other |     | nations |       | Total
|                                                                                              |                                    |                          |       |           |     |         |       |      
|Net earned premiums                                                                           |                                    | $                        | 256   |           |     | $       | 21    |       |    | $ | (27 | )   |     | $ | 2,381  |       
|Net investment income                                                                         |                                    |                          | 131   |           |     |         | 34    |       |    |   |    |     |     |   | 432    |       
|Other revenues                                                                                |                                    |                          | 24    |           |     |         | 7     |       |    |   | (33 | )   |     |   | 108    |       
|                                                                                              |                                    |                          |       |           |     |         |       |       |    |   |     |     |     |   |        |       
|                                                                                              |                                    | Total operating revenues |       |           | 411 |         |       |       | 62 |   |     |     | (60 | ) |        |        | 2,921 | 
|Claims, benefits and expenses                                                                 |                                    |                          | 396   |           |     |         | 70    |       |    |   | (60 | )   |     |   | 2,741  |       
|                                                                                              |                                    |                          |       |           |     |         |       |       |    |   |     |     |     |   |        |       
|Operating income (loss) from continuing
operations before income tax and minority
interest    |                                    |                          | 15    |           |     |         | (8    | )     |    |   |    |     |     |   | 180    |       
|Income tax (expense) benefit on operating income                                              |                                    |                          | (5    | )         |     |         | 5     |       |    |   |    |     |     |   | (45    | )     
|Minority interest                                                                             |                                    |                          |      |           |     |         |      |       |    |   |    |     |     |   | (3     | )     
|                                                                                              |                                    |                          |       |           |     |         |       |       |    |   |     |     |     |   |        |       
|Net operating income (loss) from continuing
operations                                        |                                    |                          | 10    |           |     |         | (3    | )     |    |   |    |     |     |   | 132    |       
|Realized investment gains (losses), net of
participating policyholders and minority
interest |                                    |                          | (51   | )         |     |         | 18    |       |    |   |    |     |     |   | (76    | )     
|Income tax (expense) benefit on realized
investment gains (losses)                            |                                    |                          | 18    |           |     |         | (6    | )     |    |   |    |     |     |   | 27     |       
|                                                                                              |                                    |                          |       |           |     |         |       |       |    |   |     |     |     |   |        |       
|Net income (loss)                                                                             |                                    | $                        | (23   | )         |     | $       | 9     |       |    | $ |    |     |     | $ | 83     |       
|                                                                                              |                                    |                          |       |           |     |         |       |       |    |   |     |     |     |   |        |       
|As of March 31, 2003
(In millions)                                                            |                                    |                          |       |           |     |         |       |       |    |   |     |     |     |   |        |       
|Reinsurance and insurance receivables, net                                                    |                                    | $                        | 947   |           |     | $       | 3,017 |       |    | $ |    |     |     | $ | 15,878 |       
|Insurance reserves:                                                                           |                                    |                          |       |           |     |         |       |       |    |   |     |     |     |   |        |       
|                                                                                              | Claim and claim adjustment expense |                          | $     | 1,431     |     |         | $     | 5,085 |    |   | $   |    |     |   | $      | 27,446 |      
|                                                                                              | Unearned premiums                  |                          |       | 156       |     |         |       | 891   |    |   |     | (11 | )   |   |        | 5,115  |      
|                                                                                              | Future policy benefits             |                          |       | 6,645     |     |         |       | 334   |    |   |     |    |     |   |        | 7,576  |      
|                                                                                              | Policyholders funds               |                          |       | 63        |     |         |       | (3    | )  |   |     |    |     |   |        | 568    |      
|Deferred acquisition costs                                                                    |                                    | $                        | 1,671 |           |     | $       |      |       |    | $ |    |     |     | $ | 2,597  |       

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



|                                                                                              |                                    |                          |       |           |       |        |       |            |     |       |       |       |     |   |     |       |     | 
|--------------------------------------------------------------------------------------------- | ---------------------------------- | ------------------------ | ----- | --------- | ----- | ------ | ----- | ---------- | --- | ----- | ----- | ----- | --- | - | --- | ----- | --- | 
|For the three months ended                                                                    |                                    |                          |       |           |       |        |       |            |     |       |       |       |     |   |     |      
|March 31, 2002                                                                                |                                    | Standard                 |       | Specialty |       |        |       |            |     | Group
|(In millions)                                                                                 |                                    | Lines                    |       | Lines     |       | CNA Re |       | Operations
|                                                                                              |                                    |                          |       |           |       |        |       |           
|Net earned premiums                                                                           |                                    | $                        | 1,016 |           |       | $      | 508   |            |     | $     | 137   |       |     | $ | 905 |      
|Net investment income                                                                         |                                    |                          | 103   |           |       |        | 60    |            |     |       | 33    |       |     |   | 61  |      
|Other revenues                                                                                |                                    |                          | 83    |           |       |        | 54    |            |     |       | 1     |       |     |   | 19  |      
|                                                                                              |                                    |                          |       |           |       |        |       |            |     |       |       |       |     |   |     |      
|                                                                                              |                                    | Total operating revenues |       |           | 1,202 |        |       |            | 622 |       |       |       | 171 |   |     |       | 985 | 
|Claims, benefits and expenses                                                                 |                                    |                          | 1,196 |           |       |        | 559   |            |     |       | 112   |       |     |   | 958 |      
|                                                                                              |                                    |                          |       |           |       |        |       |            |     |       |       |       |     |   |     |      
|Operating income (loss) from continuing operations
before income tax and minority interest    |                                    |                          | 6     |           |       |        | 63    |            |     |       | 59    |       |     |   | 27  |      
|Income tax benefit (expense) on operating income                                              |                                    |                          | 4     |           |       |        | (24   | )          |     |       | (19   | )     |     |   | (9  | )    
|Minority interest                                                                             |                                    |                          |      |           |       |        | (5    | )          |     |       |      |       |     |   |    |      
|                                                                                              |                                    |                          |       |           |       |        |       |            |     |       |       |       |     |   |     |      
|Net operating income (loss) from continuing
operations                                        |                                    |                          | 10    |           |       |        | 34    |            |     |       | 40    |       |     |   | 18  |      
|Realized investment gains (losses), net of
participating policyholders and minority interest |                                    |                          | 7     |           |       |        | (5    | )          |     |       | 9     |       |     |   | 10  |      
|Income tax (expense) benefit on realized
investment gains (losses)                            |                                    |                          | (2    | )         |       |        | 1     |            |     |       | (1    | )     |     |   | (4  | )    
|Loss from discontinued operations, net of tax of $9                                           |                                    |                          |      |           |       |        |      |            |     |       |      |       |     |   |    |      
|Cumulative effect of a change in accounting
principle, net of tax of $7                       |                                    |                          |      |           |       |        | (48   | )          |     |       |      |       |     |   |    |      
|                                                                                              |                                    |                          |       |           |       |        |       |            |     |       |       |       |     |   |     |      
|Net income (loss)                                                                             |                                    | $                        | 15    |           |       | $      | (18   | )          |     | $     | 48    |       |     | $ | 24  |      
|                                                                                              |                                    |                          |       |           |       |        |       |            |     |       |       |       |     |   |     |      
|As of December 31, 2002
(In millions)                                                         |                                    |                          |       |           |       |        |       |            |     |       |       |       |     |   |     |      
|Reinsurance and insurance receivables, net                                                    |                                    | $                        | 6,987 |           |       | $      | 3,214 |            |     | $     | 1,170 |       |     | $ | 275 |      
|Insurance reserves:                                                                           |                                    |                          |       |           |       |        |       |            |     |       |       |       |     |   |     |      
|                                                                                              | Claim and claim adjustment expense |                          | $     | 11,576    |       |        | $     | 5,874      |     |       | $     | 2,264 |     |   | $   | 1,400 |    
|                                                                                              | Unearned premiums                  |                          |       | 1,811     |       |        |       | 1,763      |     |       |       | 195   |     |   |     | 7     |    
|                                                                                              | Future policy benefits             |                          |       |          |       |        |       |           |     |       |       |      |     |   |     | 571   |    
|                                                                                              | Policyholders funds               |                          |       | 47        |       |        |       | 3          |     |       |       |      |     |   |     | 470   |    

[Additional columns below]

[Continued from above table, first column(s) repeated]

|                                                                                              |                                    |                          |     |           |     |         |       |       |     |   |     |     |     |   |        |        |       | 
|--------------------------------------------------------------------------------------------- | ---------------------------------- | ------------------------ | --- | --------- | --- | ------- | ----- | ----- | --- | - | --- | --- | --- | - | ------ | ------ | ----- | 
|For the three months ended                                                                    |                                    |                          |     |           |     |         |       |       |     |   |     |     |     |   |        |       
|March 31, 2002                                                                                |                                    | Life                     |     | Corporate |     | Elimi-  |       |       |     |  
|(In millions)                                                                                 |                                    | Operations               |     | and Other |     | nations |       | Total
|                                                                                              |                                    |                          |     |           |     |         |       |      
|Net earned premiums                                                                           |                                    | $                        | 240 |           |     | $       | 37    |       |     | $ | (6  | )   |     | $ | 2,837  |       
|Net investment income                                                                         |                                    |                          | 134 |           |     |         | 35    |       |     |   |    |     |     |   | 426    |       
|Other revenues                                                                                |                                    |                          | 30  |           |     |         | 35    |       |     |   | (40 | )   |     |   | 182    |       
|                                                                                              |                                    |                          |     |           |     |         |       |       |     |   |     |     |     |   |        |       
|                                                                                              |                                    | Total operating revenues |     |           | 404 |         |       |       | 107 |   |     |     | (46 | ) |        |        | 3,445 | 
|Claims, benefits and expenses                                                                 |                                    |                          | 356 |           |     |         | 143   |       |     |   | (46 | )   |     |   | 3,278  |       
|                                                                                              |                                    |                          |     |           |     |         |       |       |     |   |     |     |     |   |        |       
|Operating income (loss) from continuing operations
before income tax and minority interest    |                                    |                          | 48  |           |     |         | (36   | )     |     |   |    |     |     |   | 167    |       
|Income tax benefit (expense) on operating income                                              |                                    |                          | (17 | )         |     |         | 13    |       |     |   |    |     |     |   | (52    | )     
|Minority interest                                                                             |                                    |                          |    |           |     |         |      |       |     |   |    |     |     |   | (5     | )     
|                                                                                              |                                    |                          |     |           |     |         |       |       |     |   |     |     |     |   |        |       
|Net operating income (loss) from continuing
operations                                        |                                    |                          | 31  |           |     |         | (23   | )     |     |   |    |     |     |   | 110    |       
|Realized investment gains (losses), net of
participating policyholders and minority interest |                                    |                          | 11  |           |     |         | (31   | )     |     |   |    |     |     |   | 1      |       
|Income tax (expense) benefit on realized
investment gains (losses)                            |                                    |                          | (3  | )         |     |         | 10    |       |     |   |    |     |     |   | 1      |       
|Loss from discontinued operations, net of tax of $9                                           |                                    |                          | (35 | )         |     |         |      |       |     |   |    |     |     |   | (35    | )     
|Cumulative effect of a change in accounting
principle, net of tax of $7                       |                                    |                          | (8  | )         |     |         | (1    | )     |     |   |    |     |     |   | (57    | )     
|                                                                                              |                                    |                          |     |           |     |         |       |       |     |   |     |     |     |   |        |       
|Net income (loss)                                                                             |                                    | $                        | (4  | )         |     | $       | (45   | )     |     | $ |    |     |     | $ | 20     |       
|                                                                                              |                                    |                          |     |           |     |         |       |       |     |   |     |     |     |   |        |       
|As of December 31, 2002
(In millions)                                                         |                                    |                          |     |           |     |         |       |       |     |   |     |     |     |   |        |       
|Reinsurance and insurance receivables, net                                                    |                                    | $                        | 954 |           |     | $       | 2,907 |       |     | $ |    |     |     | $ | 15,507 |       
|Insurance reserves:                                                                           |                                    |                          |     |           |     |         |       |       |     |   |     |     |     |   |        |       
|                                                                                              | Claim and claim adjustment expense |                          | $   | 1,409     |     |         | $     | 4,847 |     |   |     |    |     |   | $      | 27,370 |      
|                                                                                              | Unearned premiums                  |                          |     | 149       |     |         |       | 908   |     |   |     | (13 | )   |   |        | 4,820  |      
|                                                                                              | Future policy benefits             |                          |     | 6,503     |     |         |       | 335   |     |   |     |    |     |   |        | 7,409  |      
|                                                                                              | Policyholders funds               |                          |     | 63        |     |         |       | (3    | )   |   |     |    |     |   |        | 580    |      

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

|                           |  |          |     |           |  |        |     |            |  |       |    |  |  |   |     | 
|-------------------------- |  | -------- | --- | --------- |  | ------ | --- | ---------- |  | ----- | -- |  |  | - | --- | 
|As of December 31, 2002    |  | Standard |     | Specialty |  |        |     |            |  | Group
|(In millions)              |  | Lines    |     | Lines     |  | CNA Re |     | Operations
|                           |  |          |     |           |  |        |     |           
|Deferred
acquisition costs |  | $        | 421 |           |  | $      | 319 |            |  | $     | 47 |  |  | $ | 107 | 

[Additional columns below]

[Continued from above table, first column(s) repeated]

|                           |  |            |       |           |  |         |   |       |  |   |   |  |  |   |       | 
|-------------------------- |  | ---------- | ----- | --------- |  | ------- | - | ----- |  | - | - |  |  | - | ----- | 
|As of December 31, 2002    |  | Life       |       | Corporate |  | Elimi-  |   |       |  |  
|(In millions)              |  | Operations |       | and Other |  | nations |   | Total
|                           |  |            |       |           |  |         |   |      
|Deferred
acquisition costs |  | $          | 1,657 |           |  | $       |  |       |  | $ |  |  |  | $ | 2,551 | 

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

The following table provides revenue by line of business for each reportable
segment.

Revenue by Line of Business

|                            |                                            |      |       |      |   |   |       |     | 
|--------------------------- | ------------------------------------------ | ---- | ----- | ---- | - | - | ----- | --- | 
|Three months ended March 31 |                                            |      |       |     
|(In millions)               |                                            | 2003 |       | 2002
|                            |                                            |      |       |     
|Standard Lines              |                                            |      |       |      |   |   |       |    
|                            | Property and Casualty                      |      | $     | 763  |   |   | $     | 811 | 
|                            | Excess & Surplus                           |      |       | 470  |   |   |       | 398 | 
|                            |                                            |      |       |      |   |   |       |     | 
|Standard Lines revenue      |                                            |      | 1,233 |      |   |   | 1,209 |    
|                            |                                            |      |       |      |   |   |       |     | 
|Specialty Lines             |                                            |      |       |      |   |   |       |    
|                            | Professional Liability Insurance (CNA Pro) |      |       | 354  |   |   |       | 243 | 
|                            | CNA Global                                 |      |       | 206  |   |   |       | 221 | 
|                            | CNA Guaranty & Credit                      |      |       | (2   | ) |   |       | 1   | 
|                            | Surety                                     |      |       | 80   |   |   |       | 79  | 
|                            | Warranty                                   |      |       | 63   |   |   |       | 73  | 
|                            |                                            |      |       |      |   |   |       |     | 
|Specialty Lines revenue     |                                            |      | 701   |      |   |   | 617   |    
|                            |                                            |      |       |      |   |   |       |     | 
|CNA Re                      |                                            |      | 187   |      |   |   | 180   |    
|                            |                                            |      |       |      |   |   |       |     | 
|Group Operations            |                                            |      |       |      |   |   |       |    
|                            | Group Benefits                             |      |       | 339  |   |   |       | 337 | 
|                            | Institutional Markets & Other              |      |       | 5    |   |   |       | 42  | 
|                            | Federal Markets                            |      |       |     |   |   |       | 616 | 
|                            |                                            |      |       |      |   |   |       |     | 
|Group Operations revenue    |                                            |      | 344   |      |   |   | 995   |    
|                            |                                            |      |       |      |   |   |       |     | 
|Life Operations revenue     |                                            |      | 360   |      |   |   | 415   |    
|                            |                                            |      |       |      |   |   |       |     | 
|Corporate and Other revenue |                                            |      | 80    |      |   |   | 76    |    
|                            |                                            |      |       |      |   |   |       |     | 
|Intersegment eliminations   |                                            |      | (60   | )    |   |   | (46   | )  
|                            |                                            |      |       |      |   |   |       |     | 
|Total revenue               |                                            | $    | 2,845 |      |   | $ | 3,446 |    
|                            |                                            |      |       |      |   |   |       |     | 

Note M. Restructuring

2001 Restructuring

In 2001, the Company finalized and approved two separate restructuring plans.
The first plan related to the Companys Information Technology operations (the
IT Plan). The second plan related to restructuring the property and casualty
segments and Life Operations, discontinuation of the variable life and annuity
business and consolidation of real estate locations (the 2001 Plan).

IT Plan

The overall goal of the IT Plan was to improve technology for the underwriting
function and throughout the Company and to eliminate inefficiencies in the
deployment of IT resources. The changes facilitated a strong focus on
enterprise-wide system initiatives. The IT Plan had two main components, which
included the reorganization of IT resources into the Technology and Operations
Group with a structure based on centralized, functional roles and the
implementation

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

of an integrated technology roadmap that included common architecture and
platform standards that directly support the Companys strategies.

No restructuring and other related charges related to the IT Plan were incurred
for the three months ended March 31, 2003 and 2002. Employee termination and
related benefit payments will continue through 2004 due to employment contract
obligations. The following table summarizes the remaining IT Plan accrual at
March 31, 2003 and the activity in that accrual since inception.

IT Plan Accrual

|                                           |  |               |     |          |  |       |     |       |  |   |    |   |  |   |     |  
|------------------------------------------ |  | ------------- | --- | -------- |  | ----- | --- | ----- |  | - | -- | - |  | - | --- | -
|                                           |  | Employee      |     |          |  |       |     |       |  |   |    |   |  |  
|                                           |  | Termination   |     | Impaired |  |       |     |       |  |   |    |  
|                                           |  | and Related   |     | Asset    |  | Other |     |       |  |  
|(In millions)                              |  | Benefit Costs |     | Charges  |  | Costs |     | Total
|                                           |  |               |     |          |  |       |     |      
|IT Plan Initial Accrual                    |  | $             | 29  |          |  | $     | 32  |       |  | $ | 1  |   |  | $ | 62  |  
|Costs that did not require cash in 2001    |  |               |    |          |  |       | (32 | )     |  |   |   |   |  |   | (32 | )
|Payments charged against liability in 2001 |  |               | (19 | )        |  |       |    |       |  |   |   |   |  |   | (19 | )
|                                           |  |               |     |          |  |       |     |       |  |   |    |   |  |   |     |  
|Accrued costs at December 31, 2001         |  |               | 10  |          |  |       |    |       |  |   | 1  |   |  |   | 11  |  
|Payments charged against liability in 2002 |  |               | (2  | )        |  |       |    |       |  |   |   |   |  |   | (2  | )
|Reduction of accrual                       |  |               | (3  | )        |  |       |    |       |  |   | (1 | ) |  |   | (4  | )
|                                           |  |               |     |          |  |       |     |       |  |   |    |   |  |   |     |  
|Accrued costs at December 31, 2002         |  |               | 5   |          |  |       |    |       |  |   |   |   |  |   | 5   |  
|Payments charged against liability in 2003 |  |               |    |          |  |       |    |       |  |   |   |   |  |   |    |  
|                                           |  |               |     |          |  |       |     |       |  |   |    |   |  |   |     |  
|Accrued costs at March 31, 2003            |  | $             | 5   |          |  | $     |    |       |  | $ |   |   |  | $ | 5   |  
|                                           |  |               |     |          |  |       |     |       |  |   |    |   |  |   |     |  

2001 Plan

The overall goal of the 2001 Plan was to create a simplified and leaner
organization for customers and business partners. The major components of the
plan included a reduction in the number of strategic business units (SBUs) in
the property and casualty operations, changes in the strategic focus of the
Life Operations and Group Operations and consolidation of real estate
locations. The reduction in the number of property and casualty SBUs resulted
in consolidation of SBU functions, including underwriting, claims, marketing
and finance. The strategic changes in Group Operations included a decision to
discontinue the variable life and annuity business.

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

No restructuring and other related charges related to the 2001 Plan were
incurred for the three months ended March 31, 2003 and 2002. The following
table summarizes the remaining 2001 Plan accrual as of March 31, 2003 and the
activity in that accrual since inception.

2001 Plan Initial Accrual

|                                   |  |               |     |             |  |          |     |       |  |       |     |   |  |   |     |   |  |   |     |  
|---------------------------------- |  | ------------- | --- | ----------- |  | -------- | --- | ----- |  | ----- | --- | - |  | - | --- | - |  | - | --- | -
|                                   |  | Employee      |     |             |  |          |     |       |  |       |     |   |  |   |     |   |  |  
|                                   |  | Termination   |     | Lease       |  | Impaired |     |       |  |       |     |   |  |  
|                                   |  | and Related   |     | Termination |  | Asset    |     | Other |  |       |     |  
|(In millions)                      |  | Benefit Costs |     | Costs       |  | Charges  |     | Costs |  | Total
|                                   |  |               |     |             |  |          |     |       |  |      
|2001 Plan Initial Accrual          |  | $             | 68  |             |  | $        | 56  |       |  | $     | 30  |   |  | $ | 35  |   |  | $ | 189 |  
|Costs that did not require cash    |  |               |    |             |  |          |    |       |  |       |    |   |  |   | (35 | ) |  |   | (35 | )
|Payments charged against liability |  |               | (2  | )           |  |          |    |       |  |       |    |   |  |   |    |   |  |   | (2  | )
|                                   |  |               |     |             |  |          |     |       |  |       |     |   |  |   |     |   |  |   |     |  
|Accrued costs December 31, 2001    |  |               | 66  |             |  |          | 56  |       |  |       | 30  |   |  |   |    |   |  |   | 152 |  
|Costs that did not require cash    |  |               | (1  | )           |  |          | (3  | )     |  |       | (9  | ) |  |   |    |   |  |   | (13 | )
|Payments charged against liability |  |               | (53 | )           |  |          | (12 | )     |  |       | (4  | ) |  |   |    |   |  |   | (69 | )
|Reduction of accrual               |  |               | (10 | )           |  |          | (7  | )     |  |       | (15 | ) |  |   |    |   |  |   | (32 | )
|                                   |  |               |     |             |  |          |     |       |  |       |     |   |  |   |     |   |  |   |     |  
|Accrued costs December 31, 2002    |  |               | 2   |             |  |          | 34  |       |  |       | 2   |   |  |   |    |   |  |   | 38  |  
|Costs that did not require cash    |  |               |    |             |  |          |    |       |  |       | (1  | ) |  |   |    |   |  |   | (1  | )
|Payments charged against liability |  |               | (1  | )           |  |          | (6  | )     |  |       |    |   |  |   |    |   |  |   | (7  | )
|                                   |  |               |     |             |  |          |     |       |  |       |     |   |  |   |     |   |  |   |     |  
|Accrued costs March 31, 2003       |  | $             | 1   |             |  | $        | 28  |       |  | $     | 1   |   |  | $ |    |   |  | $ | 30  |  
|                                   |  |               |     |             |  |          |     |       |  |       |     |   |  |   |     |   |  |   |     |  

Note N. Significant Transactions

National Postal Mail Handlers Union Contract Termination

During the second quarter of 2002, the Company sold Claims Administration
Corporation and transferred the National Postal Handlers Union group benefits
plan (the Mail Handlers Plan) to First Health Group Corporation. Revenues for
the Mail Handlers Plan were $616 million for the three months ended March 31,
2002.

CNA Vida Disposition

In the first quarter of 2002, the Company completed the sale of the common
stock of CNA Holdings Limited and its subsidiaries (CNA Vida), CNAs life
operations in Chile, to Consorcio Financiero S.A. (Consorcio). In connection
with the sale, CNA received proceeds of $73 million and recorded an after-tax
loss from discontinued operations of $35 million. This loss is composed of $37
million, net of tax, realized loss on the sale of CNA Vida and income of $2
million, net of tax, from CNA Vidas operations for 2002.

Personal Insurance Transaction

CNA entered into a retroactive reinsurance agreement as part of the sale of the
Companys personal insurance business to The Allstate Corporation (Allstate) in
1999. CNA shares in indemnity and claim and allocated claim adjustment
expenses if payments related to losses incurred prior to October 1, 1999 on the
CNA policies transferred to Allstate exceed the claim and allocated claim
adjustment expense reserves of approximately $1 billion at the date of sale.

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

The Company must begin to reimburse Allstate for claim and allocated claim
adjustment expense payments when cumulative claim payments after October 1, 1999 on losses
occurring prior to that date exceed the $1 billion. The Companys remaining
obligation valued under this loss sharing provision as of October 1, 2003, will
be settled by agreement of the parties or by an independent actuarial review of
the unpaid claim liabilities as of that date. Cumulative payments of indemnity
and allocated loss adjustment expenses on such policies are expected to exceed
$1 billion during 2003. The Company has established reserves for its estimated
liability under this loss sharing arrangement.

Note O. Related Party Transactions

CNA reimburses Loews, or pays directly to Loews employees, approximately $19
million annually for management fees, travel and related expenses and expenses
of investment facilities and services provided to CNA.

CNA and its eligible subsidiaries are included in the consolidated federal
income tax return of Loews and its eligible subsidiaries. For the three
months ended March 31, 2003 and 2002, CNA paid to Loews $62 million and CNA
received $91 million from Loews related to federal income taxes.

CNA writes, at standard rates, a limited amount of insurance for Loews and its
affiliates. The total premiums from Loews and its affiliates are approximately
$4 million on an annual basis.

On December 19, 2002, CNAF sold $750 million of a new issue of preferred stock,
designated Series H Cumulative Preferred Issue (Preferred Issue), to Loews.
The terms of the Preferred Issue were approved by a special committee of
independent members of CNAFs Board of Directors.

CNA previously sponsored a stock ownership plan whereby the Company financed
the purchase of Company stock by certain officers, including executive
officers. Interest charged on the principal amount of these stock purchase
loans is generally equivalent to the long-term applicable federal rate,
compounded semi-annually, in effect on the disbursement date of the loan.
Loans made pursuant to the plan are secured by the stock purchased and
generally have a ten-year term. The outstanding aggregate loan balance was $29
million as of March 31, 2003 and December 31, 2002 for all participants who
were then Company officers and directors.

CNA Surety

In March of 2003, CNAF entered into a credit agreement with a large national
contractor, which undertakes projects for the construction of government and
private facilities, to provide loans to the contractor in a maximum aggregate
amount of $86.4 million (the Credit Facility). Of the $86.4 million, $57
million was outstanding at March 31, 2003. The Credit Facility and all related
loans will mature in March of 2006. Advances under the Credit Facility bear
interest at the prime rate plus 6%. Payment of 3% of the interest is deferred
until the Credit Facility matures, and the remainder is to be paid monthly in
cash. Loans under the credit facility are secured by a pledge of substantially
all of the assets of the contractor and certain affiliates. CNA Surety has
provided significant surety bond protection for projects by this contractor
through surety

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

bonds underwritten by CCC or its affiliates. The loans were
provided by CNAF to help the contractor meet its liquidity needs.

In March of 2003, CNAF also purchased the contractors outstanding bank debt
for $16.4 million. The contractor retired the bank debt by paying CNAF $16.4
million, with $11.4 million of the payoff amount being funded under the new
Credit Facility and $5 million from money loaned to the contractor by its
shareholders. Under its purchase agreement with the banks, CNAF is also
required to reimburse the banks for any draws upon approximately $6.5 million
in outstanding letters of credit issued by the banks for the contractors
benefit that expire between May and August of 2003. Any amounts paid by CNAF
to the banks as reimbursements for draws upon the banks letters of credit will
become obligations of the contractor to CNAF as draws upon the Credit Facility.

Loews has purchased a participation interest in one-third of the loans and
commitments under the new Credit Facility, on a dollar-for-dollar basis, up to
a maximum of $25 million. Although Loews does not have rights against the
contractor directly under the participation agreement, it shares recoveries and
certain fees under the Credit Facility proportionally with CNAF. The contractor
has initiated a restructuring plan that is intended to reduce costs and improve
cash flow, and a chief restructuring officer has been appointed to manage
execution of the plan. CNAF, through its affiliate CNA Surety, intends to
continue to provide surety bonds on behalf of the contractor during this
restructuring period, subject to the contractors initial and ongoing
compliance with CNA Suretys underwriting standards. Any losses arising from
bonds issued or assumed by the insurance subsidiaries of CNA Surety to the
contractor are excluded from CNA Suretys $40 million excess of $20 million per
principal reinsurance program with unaffiliated reinsurers in place in 2002.
As a result, CNA Surety retains the first $60 million of losses on bonds
written with an effective date of September 30, 2002 and prior, and CCC will
incur 100% of losses above that retention level on bonds with effective dates
prior to September 30, 2002. Through facultative reinsurance contracts with
CCC, CNA Suretys exposure on bonds written from October 1, 2002 through
December 31, 2002 has been limited to $20 million per bond.

Indemnification and subrogation rights, including rights to contract proceeds
on construction projects in the event of default, exist that reduce CNA
Suretys and ultimately the Companys exposure to loss. While CNAF believes
that the contractors restructuring efforts are expected to be successful and
provide sufficient cash flow for its operations and repayment of its borrowings
under the credit facility, the contractors failure to achieve its
restructuring plan or perform its contractual obligations under the credit
facility and underlying all of the Companys surety bonds could have a material
adverse effect on the Companys future results of operations. If such failures
occur, the Company estimates the surety loss, net of indemnification and
subrogation recoveries, but before the effects of corporate aggregate
reinsurance treaties, if any, and minority interest could be up to $200
million.

CCC provided an excess of loss reinsurance contract to the insurance
subsidiaries of CNA Surety over a period that expired on December 31, 2000 (the
stop loss contract). The stop loss contract limits the net loss ratios for CNA
Surety with respect to certain accounts and lines of insurance business. In
the event that CNA Suretys accident year net loss ratio exceeds 24% for 1997
through 2000 (the contractual loss ratio), the stop loss contract requires CCC
to pay amounts equal to the amount, if any, by which CNA Suretys actual
accident year net loss ratio exceeds the contractual loss ratio multiplied by
the applicable net earned premiums. The minority shareholders of CNA Surety do
not share in any losses that apply to this contract.

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

There were no reinsurance
balances payable under this stop loss contract as of March 31, 2003 and
December 31, 2002.

CCC, effective October 1, 2002, has secured replacement excess of loss
protection for new and renewal bonds for CNA Surety for per principal exposures
that exceed $60 million since October 1, 2002 in two parts  a) $40 million
excess of $60 million and b) $50 million excess of $100 million for CNA Surety.
This excess of loss protection is necessary primarily to support new and
renewal bonds for contract surety accounts with bonded backlogs or
work-in-process in excess of $60 million. In consideration for the reinsurance
coverage provided by the $40 million excess of $60 million contract, CNA Surety
will pay to CCC, on a quarterly basis, a premium equal to $3 million. In
consideration for the reinsurance coverage provided by the $50 million excess
of $100 million, the insurance subsidiaries of CNA Surety will pay $6 million
in premium to CCC.

Note P. Statutory Accounting Practices

CNAs insurance subsidiaries are domiciled in various jurisdictions. These
subsidiaries prepare statutory financial statements in accordance with
accounting practices prescribed or permitted by the respective jurisdictions
insurance regulators. Prescribed statutory accounting practices are set forth
in a variety of publications of the National Association of Insurance
Commissioners (NAIC) as well as state laws, regulations and general
administrative rules. The Companys insurance subsidiaries follow one
significant permitted accounting practice at March 31, 2003, related to
discounting of certain non-tabular workers compensation claims. The impact of
this permitted practice was to increase statutory surplus by approximately $46
million and $56 million at March 31, 2003 and December 31, 2002. This practice
was followed by an acquired company, and CNA received permission to eliminate
the effect of the permitted practice over a ten-year period, which ends in
2003.

Note Q. Restatement For Life Settlement Contracts

As a result of a routine review of the Companys periodic filings by the
Division of Corporation Finance of the SEC, the Company has revised the
historical accounting for its investment in life settlement contracts and the
related revenue recognition and has restated its 2002 interim financial
information for the three months ended March 31, 2002. The Company has also
restated its financial statements as of December 31, 2001 and for the years
ended December 31, 2001 and 2000 in its 2002 Form 10-K.

The SEC concluded that FASB Technical Bulletin 85-4
Accounting for Purchases of
Life Insurance (FTB 85-4) should have been applied to the Companys investment
in life settlement contracts. Under FTB 85-4, the carrying value of each
contract at purchase and at the end of each reporting period is equal to the
cash surrender value of the policy. Amounts paid to purchase these contracts
that are in excess of the cash surrender value, at the date of purchase, are
expensed immediately. Periodic maintenance costs, such as premiums, necessary
to keep the underlying policy inforce are expensed as incurred and included in
other operating expense. Revenue is recognized and included in other revenue
in the Condensed Consolidated Statements of Operations when the life insurance
policy underlying the life settlement contract matures. The Companys
historical accounting was to record an asset for

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

the amount paid to acquire the
life settlement contract along with other direct acquisition costs, and to
recognize revenue over the period the contract was held.

The effect of the restatement is as follows:

Restatement

|                                                                          |                          |          |               |          |    |   |      |     |  
|------------------------------------------------------------------------- | ------------------------ | -------- | ------------- | -------- | -- | - | ---- | --- | -
|                                                                          |                          |          | As Previously |          | As
|Three months ended March 31                                               |                          | Reported |               | Restated
|(In millions, except per share data)                                      |                          | 2002     |               | 2002    
|                                                                          |                          |          |               |         
|Condensed consolidated statements of operations:                          |                          |          |               |          |    |   |      |    
|                                                                          | Other revenues           |          | $             | 184      |    |   | $    | 182 |  
|                                                                          | Other operating expenses |          |               | 492      |    |   |      | 491 |  
|                                                                          | Income tax expense       |          |               | (51      | )  |   |      | (51 | )
|                                                                          | Net income (a)           |          |               | 21       |    |   |      | 20  |  
|Basic and Diluted earnings per share available
to common stockholders (a) |                          | $        | 0.09          |          |    | $ | 0.09 |    



|(a) |  | Amounts previously reported have been revised to reflect the presentation
of SFAS 142 as a cumulative effect of a change in accounting principle.
See Note B for further discussion.
|--- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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CNA FINANCIAL CORPORATION




ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS


CONSOLIDATED OPERATIONS

The following discussion highlights significant factors impacting the
consolidated operations and financial condition of CNA Financial Corporation
(CNAF) and its controlled subsidiaries (collectively CNA or the Company). CNA
is one of the largest insurance organizations in the United States and, based
on 2002 statutory net written premiums, is the 11th largest property and
casualty company and based on 2001 statutory net written premiums, is the 51st
largest life insurance company.

Loews Corporation (Loews) owned approximately 90% of the outstanding common
stock of CNAF as of March 31, 2003. The following discussion should be read in
conjunction with the Condensed Consolidated Financial Statements in Item 1 of
Part 1.

CNA conducts its operations through five operating segments: Standard Lines,
Specialty Lines and CNA Re (which comprise the property and casualty segments),
Group Operations and Life Operations. In addition to these five operating
segments, certain other activities are reported in the Corporate and Other
segment. These operating segments reflect the way CNA manages its operations
and makes business decisions.

During 2002, CNA underwent management changes and strategic realignment. These
events have changed the way CNA manages its operations and makes business
decisions and, therefore, necessitated a change in the Companys reportable
segments. The financial results for the segment changes are reflected
throughout the Managements Discussion and Analysis of Financial Condition and
Results of Operations (MD&A).

As a result of a routine review of the Companys periodic filings by the
Division of Corporation Finance of the Securities and Exchange Commission
(SEC), the Company has revised the historical accounting for its investment in
life settlement contracts and the related revenue recognition and has restated
its 2002 interim financial information for the three months ended March 31,
2002. The Company has also restated its financial statements as of December
31, 2001 and for the years ended December 31, 2001 and 2000 in its 2002 Form
10-K.

The SEC concluded that Financial Accounting Standards Board (FASB) Technical
Bulletin 85-4 Accounting for Purchases of Life Insurance (FTB 85-4) should have
been applied to the Companys investment in life settlement contracts. Under
FTB 85-4, the carrying value of each contract at purchase and at the end of
each reporting period is equal to the cash surrender value of the policy.
Amounts paid to purchase these contracts that are in excess of the cash
surrender value, at the date of purchase, are expensed immediately. Periodic
maintenance costs, such as premiums, necessary to keep the underlying policy
inforce are expensed as incurred and included in other operating expense.
Revenue is recognized and included in other revenue in the Condensed
Consolidated Statements of Operations when the life insurance policy underlying
the life settlement contract matures. The Companys historical accounting was
to record an asset for the amount paid to acquire the life settlement contract
along with other direct acquisition costs, and to recognize revenue over the
period the contract was held.

The adjustment related to life settlement contracts reduced both net operating
income and net income for the three months ended March 31, 2002 by $1 million.
The MD&A gives effect to the

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

restatement of the Condensed Consolidated Financial Statements for the three
months ended March 31, 2002.

Critical Accounting Estimates

The preparation of the Condensed Consolidated Financial Statements in
conformity with accounting principles generally accepted in the United States
of America (GAAP) requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and the disclosure of
contingent assets and liabilities at the date of the Condensed Consolidated
Financial Statements and the amounts of revenues and expenses reported during
the period. Actual results may differ from those estimates.

CNAs Condensed Consolidated Financial Statements and accompanying notes have
been prepared in accordance with GAAP and have been applied on a consistent
basis. CNA continually evaluates the accounting policies and estimates used to
prepare the Condensed Consolidated Financial Statements. In general,
managements estimates are based on historical experience, evaluation of
current trends, information from third party professionals and various other
assumptions that are believed to be reasonable under the known facts and
circumstances.

The accounting policies discussed below are considered by management to be
critical to an understanding of CNAs Condensed Consolidated Financial
Statements as their application places the most significant demands on
managements judgment. Due to the inherent uncertainties involved with this
type of judgment, actual results could differ significantly from estimates and
have a material adverse impact on the Companys results of operations or
equity.

Insurance Reserves

Insurance reserves are established for both short and long-duration insurance
contracts. Short-duration contracts are primarily related to property and
casualty policies where the reserving process is based on actuarial estimates
of the amount of loss, including amounts for known and unknown claims.
Long-duration contracts typically include traditional life insurance and long
term care products and are estimated using actuarial estimates about mortality
and morbidity, as well as assumptions about expected investment returns. The
inherent risks associated with the reserving process are discussed in the
Reserves  Estimates and Uncertainties section of the MD&A.

Reinsurance

Amounts recoverable from reinsurers are estimated in a manner consistent with
claim and claim adjustment expense reserves or future policy benefit reserves
and are reported as a receivable in the Condensed Consolidated Balance Sheets.
The cost of reinsurance related to long-duration contracts is accounted for
over the life of the underlying reinsured policies using assumptions consistent
with those used to account for the underlying policies. The ceding of
insurance does not discharge the primary liability of the Company. An
estimated allowance for doubtful accounts is recorded on the basis of periodic
evaluations of balances due from reinsurers, reinsurer solvency, managements
experience and current economic conditions. Further information on reinsurance
is provided in the Reinsurance section of the MD&A.

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

Valuation of Investments and Impairment of Securities

The Companys investment portfolio is subject to market declines below book
value that may be other-than-temporary. The Company has an Impairment
Committee (the Impairment Committee), which reviews the investment portfolio on
a quarterly basis, with ongoing analysis as new information becomes available.
Any decline that is determined to be other-than-temporary is recorded as an
impairment loss in the period in which the determination occurred. Further
information on the Companys investments is provided in the Investments section
of the MD&A.

Results of Operations

The MD&A presents certain non-GAAP measures in order to provide information
used by management to monitor its operating performance. Net operating income
(loss) excludes the after-tax effects of net realized investment gains or
losses, gains or losses from discontinued operations and any cumulative effects
of changes in accounting principles, which are included in net income.
Management excludes after-tax net realized investment gains or losses from net
operating income (loss) because net realized investment gains or losses related
to the Companys available-for-sale investment portfolio are largely
discretionary, except for losses related to other-than-temporary impairments,
are generally driven by economic factors that are not necessarily consistent
with key drivers of underwriting performance, and are therefore not an
indication of trends in operations. The Company believes that net operating
income (loss) is a meaningful measure of operating performance for insurance
companies. A reconciliation of net operating income (loss) to net income by
segment is provided below.

In addition to net operating income (loss), management monitors other industry
non-GAAP measures such as underwriting results in the property and casualty
segments and deposits in the life operations and group operations segments.
Management believes that the discussion of results in terms of these non-GAAP
measures provides a meaningful analysis of the underlying business results of
CNAs insurance subsidiaries.

Underwriting results are net earned premiums less net incurred claims and the
cost incurred to settle these claims, acquisition expenses and underwriting
expenses. The loss and loss adjustment expense ratio (loss ratio) is the
percentage of net incurred claim and claim adjustment expenses to net earned
premiums. The expense ratio is the percentage of underwriting and acquisition
expenses, including the amortization of deferred acquisition costs, to net
earned premiums. The dividend ratio is the ratio of dividends incurred to net
earned premiums. The combined ratio is the sum of the loss and loss adjustment
expense, expense and dividend ratios.

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

The following table summarizes key components of the results of operations.

Consolidated Operations

|                                                                                                      |  |      |       |      |  |   |       |   | 
|----------------------------------------------------------------------------------------------------- |  | ---- | ----- | ---- |  | - | ----- | - | 
|Three months ended March 31                                                                           |  |      |       |      |  |   |       |  
|(In millions, except per share data)                                                                  |  | 2003 |       | 2002
|                                                                                                      |  |      |       |     
|Operating revenues:                                                                                   |  |      |       |      |  |   |       |  
|Net earned premiums                                                                                   |  | $    | 2,381 |      |  | $ | 2,837 |  
|Net investment income                                                                                 |  |      | 432   |      |  |   | 426   |  
|Other revenues                                                                                        |  |      | 108   |      |  |   | 182   |  
|                                                                                                      |  |      |       |      |  |   |       |   | 
|Total operating revenues                                                                              |  |      | 2,921 |      |  |   | 3,445 |  
|Claims, benefits and expenses                                                                         |  |      | 2,741 |      |  |   | 3,278 |  
|                                                                                                      |  |      |       |      |  |   |       |   | 
|Operating income from continuing operations before income tax and minority interest                   |  |      | 180   |      |  |   | 167   |  
|Income tax expense                                                                                    |  |      | (45   | )    |  |   | (52   | )
|Minority interest                                                                                     |  |      | (3    | )    |  |   | (5    | )
|                                                                                                      |  |      |       |      |  |   |       |   | 
|Net operating income from continuing operations                                                       |  |      | 132   |      |  |   | 110   |  
|Realized investment (losses) gains, net of tax and participating policyholders and minority interest |  |      | (49   | )    |  |   | 2     |  
|                                                                                                      |  |      |       |      |  |   |       |   | 
|Income from continuing operations                                                                     |  |      | 83    |      |  |   | 112   |  
|Loss from discontinued operations, net of tax of $9                                                   |  |      |      |      |  |   | (35   | )
|                                                                                                      |  |      |       |      |  |   |       |   | 
|Income before cumulative effect of a change in accounting principle                                   |  |      | 83    |      |  |   | 77    |  
|Cumulative effect of a change in accounting principle, net of tax of $7                               |  |      |      |      |  |   | (57   | )
|                                                                                                      |  |      |       |      |  |   |       |   | 
|Net income                                                                                            |  | $    | 83    |      |  | $ | 20    |  
|                                                                                                      |  |      |       |      |  |   |       |   | 
|Basic and diluted earnings per common share:                                                          |  |      |       |      |  |   |       |  
|Income from continuing operations                                                                     |  | $    | 0.30  |      |  | $ | 0.51  |  
|Loss from discontinued operations, net of tax                                                         |  |      |      |      |  |   | (0.16 | )
|                                                                                                      |  |      |       |      |  |   |       |   | 
|Income before cumulative effect of a change in accounting principle                                   |  |      | 0.30  |      |  |   | 0.35  |  
|Cumulative effect of a change in accounting principle, net of tax                                     |  |      |      |      |  |   | (0.26 | )
|                                                                                                      |  |      |       |      |  |   |       |   | 
|Basic and diluted earnings per share available to common stockholders                                 |  | $    | 0.30  |      |  | $ | 0.09  |  
|                                                                                                      |  |      |       |      |  |   |       |   | 
|Weighted average outstanding common stock and common stock equivalents                                |  |      | 223.6 |      |  |   | 223.6 |  
|                                                                                                      |  |      |       |      |  |   |       |   | 

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

Throughout the MD&A, business segment results are discussed using Net Operating
Income (Loss), which as described above is a non-GAAP measure. The following
reconciliation is provided in order to understand the differences between Net
Operating Income (Loss) and Net Income (Loss).

Reconciliation of Net Operating Income (Loss) to Net Income (Loss)

|                                                                                              |  |          |    |           |  |        |     |            |  |            |    |           |  |           |     |   |  |   |     |   |  |   |    |   |  |   |     |  
|--------------------------------------------------------------------------------------------- |  | -------- | -- | --------- |  | ------ | --- | ---------- |  | ---------- | -- | --------- |  | --------- | --- | - |  | - | --- | - |  | - | -- | - |  | - | --- | -
|Three months ended                                                                            |  |          |    |           |  |        |     |            |  |            |    |           |  |           |     |   |  |   |     |   |  |   |    |   |  |   |     |  
|March 31, 2003                                                                                |  | Standard |    | Specialty |  |        |     |            |  | Group      |    | Life      |  | Corporate |     |   |  |  
|(In millions)                                                                                 |  | Lines    |    | Lines     |  | CNA Re |     | Operations |  | Operations |    | and Other |  | Total    
|                                                                                              |  |          |    |           |  |        |     |            |  |            |    |           |  |          
|Net operating income (loss) from continuing
operations                                        |  | $        | 35 |           |  | $      | 46  |            |  | $          | 25 |           |  | $         | 19  |   |  | $ | 10  |   |  | $ | (3 | ) |  | $ | 132 |  
|Realized investment gains (losses), net of
participating policyholders and minority interest |  |          | 13 |           |  |        | (13 | )          |  |            | 9  |           |  |           | (52 | ) |  |   | (51 | ) |  |   | 18 |   |  |   | (76 | )
|Income tax (expense) benefit on realized
investment gains (losses)                            |  |          | (5 | )         |  |        | 2   |            |  |            |   |           |  |           | 18  |   |  |   | 18  |   |  |   | (6 | ) |  |   | 27  |  
|                                                                                              |  |          |    |           |  |        |     |            |  |            |    |           |  |           |     |   |  |   |     |   |  |   |    |   |  |   |     |  
|Net income (loss)                                                                             |  | $        | 43 |           |  | $      | 35  |            |  | $          | 34 |           |  | $         | (15 | ) |  | $ | (23 | ) |  | $ | 9  |   |  | $ | 83  |  
|                                                                                              |  |          |    |           |  |        |     |            |  |            |    |           |  |           |     |   |  |   |     |   |  |   |    |   |  |   |     |  

Reconciliation of Net Operating Income (Loss) to Net Income (Loss)

|                                                                                              |  |          |    |           |  |        |     |            |  |            |    |           |  |           |    |   |  |   |     |   |  |   |     |   |  |   |     |  
|--------------------------------------------------------------------------------------------- |  | -------- | -- | --------- |  | ------ | --- | ---------- |  | ---------- | -- | --------- |  | --------- | -- | - |  | - | --- | - |  | - | --- | - |  | - | --- | -
|Three months ended                                                                            |  |          |    |           |  |        |     |            |  |            |    |           |  |           |    |   |  |   |     |   |  |   |     |   |  |   |     |  
|March 31, 2002                                                                                |  | Standard |    | Specialty |  |        |     |            |  | Group      |    | Life      |  | Corporate |    |   |  |  
|(In millions)                                                                                 |  | Lines    |    | Lines     |  | CNA Re |     | Operations |  | Operations |    | and Other |  | Total    
|                                                                                              |  |          |    |           |  |        |     |            |  |            |    |           |  |          
|Net operating income (loss) from continuing
operations                                        |  | $        | 10 |           |  | $      | 34  |            |  | $          | 40 |           |  | $         | 18 |   |  | $ | 31  |   |  | $ | (23 | ) |  | $ | 110 |  
|Realized investment gains (losses), net of
participating policyholders and minority interest |  |          | 7  |           |  |        | (5  | )          |  |            | 9  |           |  |           | 10 |   |  |   | 11  |   |  |   | (31 | ) |  |   | 1   |  
|Income tax (expense) benefit on realized
investment gains (losses)                            |  |          | (2 | )         |  |        | 1   |            |  |            | (1 | )         |  |           | (4 | ) |  |   | (3  | ) |  |   | 10  |   |  |   | 1   |  
|                                                                                              |  |          |    |           |  |        |     |            |  |            |    |           |  |           |    |   |  |   |     |   |  |   |     |   |  |   |     |  
|Income (loss) from continuing operations                                                      |  |          | 15 |           |  |        | 30  |            |  |            | 48 |           |  |           | 24 |   |  |   | 39  |   |  |   | (44 | ) |  |   | 112 |  
|Loss from discontinued operations, net of tax of $9                                           |  |          |   |           |  |        |    |            |  |            |   |           |  |           |   |   |  |   | (35 | ) |  |   |    |   |  |   | (35 | )
|Cumulative effect of a change in accounting
principle, net of tax of $7                       |  |          |   |           |  |        | (48 | )          |  |            |   |           |  |           |   |   |  |   | (8  | ) |  |   | (1  | ) |  |   | (57 | )
|                                                                                              |  |          |    |           |  |        |     |            |  |            |    |           |  |           |    |   |  |   |     |   |  |   |     |   |  |   |     |  
|Net income (loss)                                                                             |  | $        | 15 |           |  | $      | (18 | )          |  | $          | 48 |           |  | $         | 24 |   |  | $ | (4  | ) |  | $ | (45 | ) |  | $ | 20  |  
|                                                                                              |  |          |    |           |  |        |     |            |  |            |    |           |  |           |    |   |  |   |     |   |  |   |     |   |  |   |     |  

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

In addition, the property and casualty business segment results are also
discussed using underwriting gain (loss), which is a non-GAAP measure. The
following reconciliation is provided in order to understand the differences
between underwriting gain (loss) and Net Income (Loss).

Reconciliation of Underwriting (Loss) Gain to Net Income

|                                                                                              |  |          |     |           |  |        |     |   |  |   |     |  
|--------------------------------------------------------------------------------------------- |  | -------- | --- | --------- |  | ------ | --- | - |  | - | --- | -
|Three months ended                                                                            |  |          |     |           |  |        |     |   |  |   |     |  
|March 31, 2003                                                                                |  | Standard |     | Specialty |  |        |     |  
|(In millions)                                                                                 |  | Lines    |     | Lines     |  | CNA Re
|                                                                                              |  |          |     |           |  |       
|Underwriting (loss) gain                                                                      |  | $        | (80 | )         |  | $      | (6  | ) |  | $ | 11  |  
|Net investment income                                                                         |  |          | 110 |           |  |        | 70  |   |  |   | 24  |  
|Other revenues                                                                                |  |          | 71  |           |  |        | 20  |   |  |   | 1   |  
|Other expenses                                                                                |  |          | 60  |           |  |        | 17  |   |  |   |    |  
|                                                                                              |  |          |     |           |  |        |     |   |  |   |     |  
|Pretax operating income                                                                       |  |          | 41  |           |  |        | 67  |   |  |   | 36  |  
|Income tax expense                                                                            |  |          | (6  | )         |  |        | (18 | ) |  |   | (11 | )
|Minority interest                                                                             |  |          |    |           |  |        | (3  | ) |  |   |    |  
|                                                                                              |  |          |     |           |  |        |     |   |  |   |     |  
|Net operating income from continuing operations                                               |  |          | 35  |           |  |        | 46  |   |  |   | 25  |  
|Realized investment gains (losses), net of participating
policyholders and minority interest |  |          | 13  |           |  |        | (13 | ) |  |   | 9   |  
|Income tax (expense) benefit on realized investment gains (losses)                            |  |          | (5  | )         |  |        | 2   |   |  |   |    |  
|                                                                                              |  |          |     |           |  |        |     |   |  |   |     |  
|Net income                                                                                    |  | $        | 43  |           |  | $      | 35  |   |  | $ | 34  |  
|                                                                                              |  |          |     |           |  |        |     |   |  |   |     |  

Reconciliation of Underwriting (Loss) Gain to Net Income (Loss)

|                                                                                              |  |          |      |           |  |        |     |   |  |   |     |  
|--------------------------------------------------------------------------------------------- |  | -------- | ---- | --------- |  | ------ | --- | - |  | - | --- | -
|Three months ended                                                                            |  |          |      |           |  |        |     |   |  |   |     |  
|March 31, 2002                                                                                |  | Standard |      | Specialty |  |        |     |  
|(In millions)                                                                                 |  | Lines    |      | Lines     |  | CNA Re
|                                                                                              |  |          |      |           |  |       
|Underwriting (loss) gain                                                                      |  | $        | (109 | )         |  | $      | (20 | ) |  | $ | 25  |  
|Net investment income                                                                         |  |          | 103  |           |  |        | 60  |   |  |   | 33  |  
|Other revenues                                                                                |  |          | 83   |           |  |        | 54  |   |  |   | 1   |  
|Other expenses                                                                                |  |          | 71   |           |  |        | 31  |   |  |   |    |  
|                                                                                              |  |          |      |           |  |        |     |   |  |   |     |  
|Pretax operating income                                                                       |  |          | 6    |           |  |        | 63  |   |  |   | 59  |  
|Income tax benefit (expense)                                                                  |  |          | 4    |           |  |        | (24 | ) |  |   | (19 | )
|Minority interest                                                                             |  |          |     |           |  |        | (5  | ) |  |   |    |  
|                                                                                              |  |          |      |           |  |        |     |   |  |   |     |  
|Net operating income from continuing operations                                               |  |          | 10   |           |  |        | 34  |   |  |   | 40  |  
|Realized investment gains (losses), net of participating
policyholders and minority interest |  |          | 7    |           |  |        | (5  | ) |  |   | 9   |  
|Income tax (expense) benefit on realized investment gains (losses)                            |  |          | (2   | )         |  |        | 1   |   |  |   | (1  | )
|                                                                                              |  |          |      |           |  |        |     |   |  |   |     |  
|Income from continuing operations                                                             |  |          | 15   |           |  |        | 30  |   |  |   | 48  |  
|Cumulative effect of a change in accounting principle, net of tax of $7                       |  |          |     |           |  |        | (48 | ) |  |   |    |  
|                                                                                              |  |          |      |           |  |        |     |   |  |   |     |  
|Net income (loss)                                                                             |  | $        | 15   |           |  | $      | (18 | ) |  | $ | 48  |  
|                                                                                              |  |          |      |           |  |        |     |   |  |   |     |  

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

Net income increased $63 million for the three months ended March 31, 2003 as
compared with the same period in 2002. The increase in net income was due
primarily to increased net operating income in the property and casualty
segments and the absence of a loss from discontinued operations and a
cumulative effect of a change in accounting principle, partially offset by
decreased net realized investment gains and losses. Net realized investment
gains (losses) decreased $51 million, net of tax, for the three months ended
March 31, 2003 as compared with the same period in 2002 due primarily to
investment related impairment losses for other-than-temporary declines in the
market value of fixed maturity and equity securities, partially offset by gains
on sales of fixed maturity securities. See the Investments section of the MD&A
for further details. The loss from discontinued operations, net of tax, of $35
million for the three months ended March 31, 2002 related to the results of CNA
Vida, CNAs Chilean-based life insurer, which was sold during 2002. Net income
for the three months ended March 31, 2002 also includes a charge of $57
million, net of tax, for the cumulative effect of a change in accounting
principle related to the adoption of Statement of Financial Accounting
Standards No. 142 Goodwill and Other Intangible Assets (SFAS 142).

CNA adopted SFAS 142 on January 1, 2002. SFAS 142 changed the accounting for
goodwill and indefinite-lived intangible assets from an amortization method to
an impairment-only approach. Amortization of goodwill and indefinite-lived
intangible assets recorded in past business combinations ceased upon adoption
of SFAS 142.

During 2002, the Company completed its initial goodwill impairment testing and
recorded a $64 million pretax, or $57 million after-tax, impairment charge. In
accordance with SFAS 142, the impairment charge, which primarily consisted of a
$51 million pretax, or $48 million after-tax, charge in Specialty Lines, a $12
million pretax, or $8 million after-tax, charge in Life Operations, and a $1
million pretax, or $1 million after-tax, charge in Corporate and Other, was
recorded as a cumulative effect of a change in accounting principle as of
January 1, 2002.

Net operating income increased $22 million for the three months ended March 31,
2003 as compared with the same period in 2002. The increase in net operating
income was due primarily to improved underwriting results in the property and
casualty segments, primarily due to improvements in the current net accident
year loss ratios, which was partially offset by decreased net operating results
in Life Operations. Net unfavorable prior year development of $31 million,
including $97 million of unfavorable claim and claim adjustment expense reserve
development and $66 million of favorable premium development, was recorded for
the three months ended March 31, 2003. Net unfavorable prior year development
of $11 million, including $14 million of unfavorable claim and claim adjustment
expense reserve development and $3 million of favorable premium development,
was recorded for the three months ended March 31, 2002.

Net earned premiums decreased $456 million for the three months ended March 31,
2003 as compared with the same period in 2002. The decrease in net earned
premiums was due primarily to the July 1, 2002 transfer of the National Postal
Mail Handlers Union group benefits plan (the Mail Handlers Plan) to First
Health Corporation. Net earned premiums for the Mail Handlers Plan were $616
million for the three months ended March 31, 2002. This decrease was
partially offset by strong rate increases and increased new business in the
property and casualty segments.

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

Reinsurance

CNA assumes and cedes reinsurance with other insurers, reinsurers and members
of various reinsurance pools and associations. CNA utilizes reinsurance
arrangements to limit its maximum loss, provide greater diversification of

risk, minimize exposures on larger risks and to exit certain lines of business.
Reinsurance coverages are tailored to the specific risk characteristics of
each product line and CNAs retained amount varies by type of coverage.
Generally, property risks are reinsured on an excess of loss, per risk basis.
Liability coverages are generally reinsured on a quota share basis in excess of
CNAs retained risk. CNAs ceded life reinsurance includes utilization of
coinsurance, yearly renewable term and facultative programs. A majority of the
reinsurance utilized by the Companys life insurance operations relates to term
life insurance policies. Term life insurance policies issued from 1994 onward
are generally ceded at 60%-90% of the face value. Universal Life policies
issued from 1998 onward are generally ceded at 75% of the face value.

The Companys overall reinsurance program includes certain property and
casualty contracts, such as the corporate aggregate reinsurance treaties
discussed in more detail later in this section, that are entered into and
accounted for on a funds withheld basis. Under the funds withheld basis, the
Company records the cash remitted to the reinsurer for the reinsurers margin,
or cost of the reinsurance contract, as ceded premiums. The remainder of the
premiums ceded under the reinsurance contract is recorded as funds withheld
liabilities. The Company is required to increase the funds withheld balance at
stated interest crediting rates applied to the funds withheld balance or as
otherwise specified under the terms of the contract. The funds withheld
liability is reduced by any cumulative claim payments made by the Company in
excess of the Companys retention under the reinsurance contract. If the funds
withheld liability is exhausted, interest crediting will cease and additional
claim payments are recoverable from the reinsurer. The funds withheld
liability is recorded in reinsurance balances payable in the Condensed
Consolidated Balance Sheets.

Interest cost on these contracts is credited during all periods in which a
funds withheld liability exists. Interest cost, which is included in net
investment income, was $47 million and $58 million for the three months ended
March 31, 2003 and 2002. The amount subject to interest crediting rates on
such contracts was $2,550 million and $2,766 million at March 31, 2003 and
December 31, 2002.

The amount subject to interest crediting on these funds withheld contracts will
vary over time based on a number of factors, including the timing of loss
payments and ultimate gross losses incurred. The Company expects that it will
continue to incur significant interest costs on these contracts for several
years.

The ceding of insurance does not discharge the primary liability of the
Company. Therefore, a credit exposure exists with respect to property and
casualty and life reinsurance ceded to the extent that any reinsurer is unable
to meet the obligations assumed under reinsurance agreements.

The Company has reinsurance receivables from several reinsurers who have
recently experienced multiple downgrades of their financial strength ratings,
have announced that they will no longer accept new business and are placing
their books of business into run-off. One of the Companys principal credit
exposures from these recent events arise from reinsurance receivables from
Gerling Global (Gerling).

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

In March of 2003, Gerling informed the Company that, under Gerlings
interpretation of three treaties relating to CNA HealthPro, the Company was
required to transfer approximately $205 million of funds withheld balances to a
trust established by Gerling for the Companys benefit or the treaties would be
commuted. In April of 2003, Gerling advised the Company that it deems these
treaties to be commuted as of April 7, 2003. CNA, in turn, advised Gerling
that it disputes the commutation and regards the reinsurance treaties as
remaining in effect. The Company has begun discussions with Gerling with
respect to resolving the dispute concerning these treaties, as well as a
possible commutation of all other reinsurance arrangements between CNA and
Gerling.

If these three CNA HealthPro treaties were commuted as of April 7, 2003, the
Company would reduce reinsurance recoverables and the related funds withheld
liability, which would result in a non-cash pretax loss of approximately $43
million. Furthermore, the Company estimates that pretax interest expense would
be reduced by $10 million over the balance of 2003 and $11 million in 2004.

In certain circumstances, including significant deterioration of a reinsurers
financial strength ratings, the Company may engage in other commutation
discussions with individual reinsurers. The outcome of such discussions may
result in a lump sum settlement that is less than the recorded receivable, net
of any applicable allowance for doubtful accounts. Losses arising from
commutations, including any related to Gerling, could have an adverse material
impact on the Companys results of operations or equity.

The Company has established an allowance for doubtful accounts to provide for
estimated uncollectible reinsurance receivables. The allowance for doubtful
accounts was $199 million and $196 million at March 31, 2003 and December 31,
2002. While the Company believes the allowance for doubtful accounts is
adequate based on current collateral and information currently available,
failure of reinsurers to meet their obligations could have a material adverse
impact on CNAs results of operations or equity.

In 1999, the Company entered into an aggregate reinsurance treaty related to
the 1999 through 2001 accident years covering substantially all of the
Companys property and casualty lines of business (the Aggregate Cover). The
Company has two sections of coverage under the terms of the Aggregate Cover.
These coverages attach at defined loss ratios for each accident year. Coverage
under the first section of the Aggregate Cover, which is available for all
accident years covered by the contract, has annual limits of $500 million of
ceded losses with an aggregate limit of $1 billion of ceded losses for the
three year period. The ceded premiums are a percentage of ceded losses and for
each $500 million of limit the ceded premium is $230 million. The second
section of the Aggregate Cover, which was only utilized for accident year 2001,
provides additional coverage of up to $510 million of ceded losses for a
maximum ceded premium of $310 million. Under the Aggregate Cover, interest
charges on the funds withheld liability accrue at 8% per annum. If the
aggregate loss ratio for the three-year period exceeds certain thresholds,
additional premiums may be payable and the rate at which interest charges are
accrued would increase to 8.25% per annum commencing in 2006.

The coverage under the second section of the Aggregate Cover was triggered for
the 2001 accident year. As a result of losses related to the September 11,
2001 World Trade Center Disaster and related events (WTC event), the limit
under this section was exhausted. Additionally, as a result of significant
reserve additions recorded in 2001, the $500 million limit on the 1999 accident
year under the first section was also fully utilized. No losses have been

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

ceded to the remaining $500 million of aggregate limit on accident years 2000
and 2001 under the first section of the Aggregate Cover. Included in the
pretax results of operations for the three months ended March 31, 2003 and
2002, is $13 million of interest charges from the Aggregate Cover.

In 2001, the Company entered into a one-year aggregate reinsurance treaty
related to the 2001 accident year covering substantially all property and
casualty lines of business in the Continental Casualty Company pool (the CCC
Cover). The loss protection provided by the CCC Cover has an aggregate limit
of approximately $760 million of ceded losses. The ceded premiums are a
percentage of ceded losses. The ceded premium related to full utilization of
the $760 million of limit is $456 million. The CCC Cover provides continuous
coverage in excess of the second section of the Aggregate Cover discussed
above. Under the CCC Cover, interest charges on the funds withheld generally
accrue at 8% per annum. The interest rate increases to 10% per annum if the
aggregate loss ratio exceeds certain thresholds. Losses of $618 million have
been ceded under the CCC Cover through March 31, 2003.

The impact of the CCC Cover on pretax results of operations was as follows:

Impact of CCC Cover on Pretax Results of Operations

|                                          |  |      |    |      |  |   |     |  
|----------------------------------------- |  | ---- | -- | ---- |  | - | --- | -
|Three months ended March 31               |  |      |    |      |  |   |     |  
|(In millions)                             |  | 2003 |    | 2002
|                                          |  |      |    |     
|Ceded earned premiums                     |  | $    |   |      |  | $ | (61 | )
|Ceded claim and claim adjustment expenses |  |      |   |      |  |   | 93  |  
|Interest charges                          |  |      | (8 | )    |  |   | (10 | )
|                                          |  |      |    |      |  |   |     |  
|Pretax (expense) benefit                  |  | $    | (8 | )    |  | $ | 22  |  
|                                          |  |      |    |      |  |   |     |  

The impact by operating segment of the Aggregate Cover and the CCC Cover on
pretax results of operations was as follows:

Impact of Aggregate Cover and CCC Cover on Pretax Results of Operations

|                            |  |      |     |      |  |   |     |  
|--------------------------- |  | ---- | --- | ---- |  | - | --- | -
|Three months ended March 31 |  |      |     |      |  |   |     |  
|(In millions)               |  | 2003 |     | 2002
|                            |  |      |     |     
|Standard Lines              |  | $    | (13 | )    |  | $ | (12 | )
|Specialty Lines             |  |      | (2  | )    |  |   | (2  | )
|CNA Re                      |  |      | (5  | )    |  |   | 23  |  
|Corporate and Other         |  |      | (1  | )    |  |   |    |  
|                            |  |      |     |      |  |   |     |  
|Pretax (expense) benefit    |  | $    | (21 | )    |  | $ | 9   |  
|                            |  |      |     |      |  |   |     |  

2001 Restructuring

In 2001, the Company finalized and approved two separate restructuring plans.
The first plan related to the Companys Information Technology operations (the
IT Plan). The second plan related to restructuring the property and casualty
segments and Life Operations, discontinuation of the variable life and annuity
business and consolidation of real estate locations (the 2001 Plan).

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

IT Plan

The overall goal of the IT Plan was to improve technology for the underwriting
function and throughout the Company and to eliminate inefficiencies in the
deployment of IT resources. The changes facilitated a strong focus on
enterprise-wide system initiatives. The IT Plan had two main components, which
included the reorganization of IT resources into the Technology and Operations
Group with a structure based on centralized, functional roles and the
implementation of an integrated technology roadmap that included common
architecture and platform standards that directly support the Companys
strategies.

No restructuring and other related charges related to the IT Plan were incurred
for the three months ended March 31, 2003 and 2002. Employee termination and
related benefit payments will continue through 2004 due to employment contract
obligations. The following table summarizes the remaining IT Plan accrual at
March 31, 2003 and the activity in that accrual since inception.

IT Plan Accrual

|                                           |  |               |     |          |  |       |     |       |  |   |    |   |  |   |     |  
|------------------------------------------ |  | ------------- | --- | -------- |  | ----- | --- | ----- |  | - | -- | - |  | - | --- | -
|                                           |  | Employee      |     |          |  |       |     |       |  |   |    |   |  |  
|                                           |  | Termination   |     | Impaired |  |       |     |       |  |   |    |  
|                                           |  | and Related   |     | Asset    |  | Other |     |       |  |  
|(In millions)                              |  | Benefit Costs |     | Charges  |  | Costs |     | Total
|                                           |  |               |     |          |  |       |     |      
|IT Plan Initial Accrual                    |  | $             | 29  |          |  | $     | 32  |       |  | $ | 1  |   |  | $ | 62  |  
|Costs that did not require cash in 2001    |  |               |    |          |  |       | (32 | )     |  |   |   |   |  |   | (32 | )
|Payments charged against liability in 2001 |  |               | (19 | )        |  |       |    |       |  |   |   |   |  |   | (19 | )
|                                           |  |               |     |          |  |       |     |       |  |   |    |   |  |   |     |  
|Accrued costs at December 31, 2001         |  |               | 10  |          |  |       |    |       |  |   | 1  |   |  |   | 11  |  
|Payments charged against liability in 2002 |  |               | (2  | )        |  |       |    |       |  |   |   |   |  |   | (2  | )
|Reduction of accrual                       |  |               | (3  | )        |  |       |    |       |  |   | (1 | ) |  |   | (4  | )
|                                           |  |               |     |          |  |       |     |       |  |   |    |   |  |   |     |  
|Accrued costs at December 31, 2002         |  |               | 5   |          |  |       |    |       |  |   |   |   |  |   | 5   |  
|Payments charged against liability in 2003 |  |               |    |          |  |       |    |       |  |   |   |   |  |   |    |  
|                                           |  |               |     |          |  |       |     |       |  |   |    |   |  |   |     |  
|Accrued costs at March 31, 2003            |  | $             | 5   |          |  | $     |    |       |  | $ |   |   |  | $ | 5   |  
|                                           |  |               |     |          |  |       |     |       |  |   |    |   |  |   |     |  

The remaining $5 million of the accrual relating to employee termination and
related benefit costs is expected to be paid through 2004.

2001 Plan

The overall goal of the 2001 Plan was to create a simplified and leaner
organization for customers and business partners. The major components of the
plan included a reduction in the number of strategic business units (SBUs) in
the property and casualty operations, changes in the strategic focus of the
Life Operations and Group Operations and consolidation of real estate
locations. The reduction in the number of property and casualty SBUs resulted
in consolidation of SBU functions, including underwriting, claims, marketing
and finance. The strategic changes in Group Operations included a decision to
discontinue the variable life and annuity business.

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

No restructuring and other related charges related to the 2001 Plan were
incurred for the three months ended March 31, 2003 and 2002. The following
table summarizes the remaining 2001 Plan accrual as of March 31, 2003 and the
activity in that accrual since inception.

2001 Plan Initial Accrual

|                                   |  |               |     |             |  |          |     |       |  |       |     |   |  |   |     |   |  |   |     |  
|---------------------------------- |  | ------------- | --- | ----------- |  | -------- | --- | ----- |  | ----- | --- | - |  | - | --- | - |  | - | --- | -
|                                   |  | Employee      |     |             |  |          |     |       |  |       |     |   |  |   |     |   |  |  
|                                   |  | Termination   |     | Lease       |  | Impaired |     |       |  |       |     |   |  |  
|                                   |  | and Related   |     | Termination |  | Asset    |     | Other |  |       |     |  
|(In millions)                      |  | Benefit Costs |     | Costs       |  | Charges  |     | Costs |  | Total
|                                   |  |               |     |             |  |          |     |       |  |      
|2001 Plan Initial Accrual          |  | $             | 68  |             |  | $        | 56  |       |  | $     | 30  |   |  | $ | 35  |   |  | $ | 189 |  
|Costs that did not require cash    |  |               |    |             |  |          |    |       |  |       |    |   |  |   | (35 | ) |  |   | (35 | )
|Payments charged against liability |  |               | (2  | )           |  |          |    |       |  |       |    |   |  |   |    |   |  |   | (2  | )
|                                   |  |               |     |             |  |          |     |       |  |       |     |   |  |   |     |   |  |   |     |  
|Accrued costs December 31, 2001    |  |               | 66  |             |  |          | 56  |       |  |       | 30  |   |  |   |    |   |  |   | 152 |  
|Costs that did not require cash    |  |               | (1  | )           |  |          | (3  | )     |  |       | (9  | ) |  |   |    |   |  |   | (13 | )
|Payments charged against liability |  |               | (53 | )           |  |          | (12 | )     |  |       | (4  | ) |  |   |    |   |  |   | (69 | )
|Reduction of accrual               |  |               | (10 | )           |  |          | (7  | )     |  |       | (15 | ) |  |   |    |   |  |   | (32 | )
|                                   |  |               |     |             |  |          |     |       |  |       |     |   |  |   |     |   |  |   |     |  
|Accrued costs December 31, 2002    |  |               | 2   |             |  |          | 34  |       |  |       | 2   |   |  |   |    |   |  |   | 38  |  
|Costs that did not require cash    |  |               |    |             |  |          |    |       |  |       | (1  | ) |  |   |    |   |  |   | (1  | )
|Payments charged against liability |  |               | (1  | )           |  |          | (6  | )     |  |       |    |   |  |   |    |   |  |   | (7  | )
|                                   |  |               |     |             |  |          |     |       |  |       |     |   |  |   |     |   |  |   |     |  
|Accrued costs March 31, 2003       |  | $             | 1   |             |  | $        | 28  |       |  | $     | 1   |   |  | $ |    |   |  | $ | 30  |  
|                                   |  |               |     |             |  |          |     |       |  |       |     |   |  |   |     |   |  |   |     |  

Of the remaining $30 million accrual relating to lease termination costs and
impaired asset charges, approximately $10 million is expected to be paid in the
remainder of 2003.

Reserves  Estimates and Uncertainties

The Company maintains reserves to cover its estimated ultimate unpaid liability
for claim and claim adjustment expenses and future policy benefits, including
the estimated cost of the claims adjudication process, for claims that have
been reported but not yet settled and claims that have been incurred but not
reported. Claim and claim adjustment expense and future policy benefit
reserves are reflected as liabilities on the Condensed Consolidated Balance
Sheets under the heading Insurance Reserves. Changes in estimates of
Insurance Reserves are reflected in the Companys Condensed Consolidated
Statements of Operations in the period in which the change arises.

The level of Insurance Reserves maintained by the Company represents
managements best estimate, as of a particular point in time, of what the
ultimate settlement and administration of claims will cost based on its
assessment of facts and circumstances known at that time. Insurance Reserves
are not an exact calculation of liability but instead are estimates that are
derived by the Company, generally utilizing a variety of actuarial reserve
estimation techniques, from numerous assumptions and expectations about future
events, both internal and external, many of which are highly uncertain. Some
of the many uncertain future events about which the Company makes assumptions
and estimates are claims severity, frequency of claims, mortality, morbidity,
expected interest rates, economic inflation, the impact of underwriting policy
and claims handling practices and the lag time between the occurrence of an
insured event and the time it is ultimately settled, referred to in the
insurance industry as the tail.

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

The Companys experience has been that the inherent uncertainties of estimating
Insurance Reserves are generally greater for casualty coverages (particularly
long-tail casualty risks such as Environmental Pollution and Mass Tort and
Asbestos (APMT) losses) than for property coverages. Estimates of the cost of
future APMT claims are highly complex and include an assessment of, among other
things, whether certain costs are covered under the policies and whether
recovery limits apply, allocation of liability among numerous parties, some of
whom are in bankruptcy proceedings, inconsistent court decisions and developing
legal theories and tactics of plaintiffs lawyers. Reserves for
property-related catastrophes, both natural disasters and man-made catastrophes
such as terrorist acts, are also difficult to estimate. See the discussion of
Environmental Pollution and Mass Tort and Asbestos Reserves in the MD&A for
further information.

In addition to the uncertainties inherent in estimating APMT and catastrophe
losses, the Company is subject to the uncertain effects of the regulatory
environment, including regulatory reserve reviews, and emerging or potential
claims and coverage issues, which arise as industry practices and legal,
judicial, social, and other environmental conditions change. These issues can
have a negative effect on the Companys business by either extending coverage
beyond the original underwriting intent or by increasing the number or size of
claims. Either development could require material increases in claim and claim
adjustment expense reserves. Examples of emerging or potential claims and
coverage issues include: (i) increases in the number and size of water damage
claims related to expenses for testing and remediation of mold conditions; (ii)
increases in the number and size of claims relating to injuries from medical
products, and exposure to lead and radiation related to cellular phone usage;
(iii) expected increases in the number and size of claims relating to
accounting and financial reporting, including director and officer and errors
and omissions insurance claims, in an environment of major corporate
bankruptcies; and (iv) a growing trend of plaintiffs targeting insurers in
class action litigation relating to claims-handling and other practices. The
future impact of these and other unforeseen emerging or potential claims and
coverage issues is extremely hard to predict and could materially adversely
affect the adequacy of the Companys claim and claim adjustment expense
reserves and could lead to future reserve additions.

The Companys recorded Insurance Reserves reflect managements best estimate at
March 31, 2003 and December 31, 2002, which is based on the reviews and
analyses performed by the Companys actuaries and managements judgment as to
the responsiveness of these reviews and analyses to the factors affecting the
Companys loss and loss adjustment expense reserves. Management considers
factors such as changes in inflation, changes in claims handling and case
reserving, changes in underwriting and pricing, and changes in the legal
environment. Management considers different specific factors for each
situation since the factors affect each type of business differently. However,
in light of the many uncertainties associated with making the estimates and
assumptions necessary to establish reserve levels, the Company reviews its
reserve estimates on a regular and ongoing basis and makes changes as
experience develops. The Company may in the future determine that its recorded
Insurance Reserves are not sufficient and may increase its reserves by amounts
that may be material, which could materially adversely affect the Companys
business and equity. Any such increase in reserves would be reflected in the
Companys Condensed Consolidated Statements of Operation in the period in which
the change in estimate arises.

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

Terrorism Exposure

CNA and the insurance industry incurred substantial losses related to the WTC
event. For the most part, the Company believes the industry was able to absorb
the loss of capital from these losses, but the capacity to withstand the effect
of any additional terrorism events was significantly diminished.

On November 26, 2002, the President of the United States of America, George W.
Bush, signed into law the Terrorism Risk Insurance Act of 2002 (the Act), which
established a program within the Department of the Treasury under which the
Federal Government will share the risk of loss from future terrorist attacks
with the insurance industry. The Act terminates on December 31, 2005. Each
participating insurance company must pay a deductible before Federal Government
assistance becomes available. This deductible is based on a percentage of
direct earned premiums for commercial insurance lines from the previous
calendar year, and rises from 1% from date of enactment to December 31, 2002
(the Transition Period) to 7% during the first subsequent calendar year, 10% in
year two and 15% in year three. For losses in excess of a companys
deductible, the Federal Government will cover 90% of the excess losses, while
companies retain the remaining 10%. Losses covered by the program will be
capped annually at $100 billion; above this amount, insurers are not liable for
covered losses and Congress is to determine the procedures for and the source
of any payments. Amounts paid by the Federal Government under the program over
certain phased limits are to be recouped by the Department of the Treasury
through policy surcharges, which cannot exceed 3% of annual premium.

Insurance companies providing commercial property and casualty insurance are
required to participate in the program, but it does not cover life or health
insurance products. State law limitations applying to premiums and policies
for terrorism coverage are not generally affected under the program, but they
are pre-empted in relation to prior approval requirements for rates and forms.
The Act has policyholder notice requirements in order for insurers to be
reimbursed for terrorism-related losses and, from the date of enactment until
December 31, 2004, a mandatory offer requirement for terrorism coverage,
although it may be rejected by insureds. The Secretary of the Department of
the Treasury has discretion to extend this offer requirement until December 31,
2005.

While the Act provides the property and casualty industry with an increased
ability to withstand the effect of a terrorist event during the next three
years, given the unpredictability of the nature, targets, severity or frequency
of potential terrorist events, the Companys results of operations or equity
could nevertheless be materially adversely impacted by them. The Company is
attempting to mitigate this exposure through its underwriting practices, policy
terms and conditions (where applicable) and the use of reinsurance. In
addition, under state laws, the Company is generally prohibited from excluding
terrorism exposure from its primary workers compensation, individual life and
group life and health policies, and is also prohibited from excluding coverage
for fire losses following a terrorist event in a number of states. In those
states that mandate property insurance coverage of damage from fire following a
loss, the Company is also prohibited from excluding terrorism exposure under
such coverage.

Reinsurers obligations for terrorism-related losses under reinsurance
agreements are not covered by the Act. The Companys current reinsurance
arrangements either exclude terrorism coverage or significantly limit the level
of coverage.

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

The following discussion is of the Companys operating segments.

STANDARD LINES

The following table details the results of operations for Standard Lines.

Results of Operations

|                            |                                  |      |       |       |   |   |       |       |  
|--------------------------- | -------------------------------- | ---- | ----- | ----- | - | - | ----- | ----- | -
|Three months ended March 31 |                                  |      |       |       |   |   |       |      
|(In millions)               |                                  | 2003 |       | 2002 
|                            |                                  |      |       |      
|Net written premiums        |                                  | $    | 1,104 |       |   | $ | 1,083 |      
|Net earned premiums         |                                  |      | 1,039 |       |   |   | 1,016 |      
|Underwriting loss           |                                  |      | (80   | )     |   |   | (109  | )    
|Net investment income       |                                  |      | 110   |       |   |   | 103   |      
|Net operating income        |                                  |      | 35    |       |   |   | 10    |      
|Ratios                      |                                  |      |       |       |   |   |       |      
|                            | Loss and loss adjustment expense |      |       | 74.1  | % |   |       | 77.1  | %
|                            | Expense                          |      |       | 32.1  |   |   |       | 32.0  |  
|                            | Dividend                         |      |       | 1.5   |   |   |       | 1.6   |  
|                            |                                  |      |       |       |   |   |       |      
|                            | Combined                         |      |       | 107.7 | % |   |       | 110.7 | %
|                            |                                  |      |       |       |   |   |       |      

Net written premiums for Standard Lines increased $21 million and net earned
premiums increased $23 million for the three months ended March 31, 2003 as
compared with the same period in 2002. The increase in net written and net
earned premiums was due primarily to strong rate increases and increased new
business in Property and Casualty (P&C) and Excess & Surplus (E&S).

Standard Lines achieved average rate increases of 21% and 31% in the first
three months of 2003 and 2002 for the contracts that renewed during the period
and had retention rates of 70% and 66% for those contracts that were up for
renewal.

The combined ratio decreased 3.0 points and underwriting results improved $29
million for the three months ended March 31, 2003 as compared with the same
period in 2002. This change was due principally to a decrease in the loss
ratio. The loss ratio decreased 3.0 points due principally to improvement in
the current net accident year loss ratio, partially offset by increased adverse
net prior year development, including premium and loss development, in the
first three months of 2003.

Unfavorable net prior year development, including premium and claim and claim
adjustment expense reserve development, of $28 million was recorded in the
first three months of 2003 as compared with $1 million of unfavorable net prior
year development recorded for the same period in 2002. The gross carried claim
and claim adjustment expense reserve was $11,408 million and $11,576 million at
March 31, 2003 and December 31, 2002. The net carried claim and claim
adjustment expense reserve was $7,178 million and $7,262 million at March 31,
2003 and December 31, 2002.

Unfavorable net prior year reserve development of approximately $47 million was
recorded related to certain programs written in E&S. One E&S program, covering
facilities that provide services to developmentally disabled individuals,
accounted for approximately $10 million of the unfavorable prior year reserve
development. The reserve development was due to an increase

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

in the size of known claims and increases in policyholder defense costs. These
increases became apparent as the result of an actuarial review completed during
the first quarter of 2003, with most of the reserve development from accident
years 1999 and 2000. Another E&S program, which accounts for approximately $25
million of E&S reserve development, covers tow truck and ambulance operators in
the 2000 and 2001 accident years. The Company expected that loss ratios for
this business would be similar to its middle market commercial automobile
liability business. During 2002, the Company ceased writing business under
this program. Approximately $12 million of unfavorable prior year reserve
development was recorded during 2003 related to a specific large loss.

Partially offsetting the unfavorable reserve development in E&S was favorable
prior year reserve development recorded in property lines during 2003. The
favorable reserve development was principally from accident years 2001 and 2002
and was the result of the low number of large losses in recent years.

The expense ratio increased 0.1 points due to the inclusion of approximately
$17 million of expenses related to eBusiness, offset by an increased net earned
premium base. The eBusiness expenses were included in the Corporate and Other
segment during 2002.

Net operating income increased $25 million for the three months ended March 31,
2003 as compared with the same period in 2002. The improvement in net
operating income was primarily related to improved underwriting results and
increased net investment income, principally as a result of improved limited
partnership income.

SPECIALTY LINES

The following table details the results of operations for Specialty Lines.

Results of Operations

|                            |                                  |      |     |       |   |   |     |       |  
|--------------------------- | -------------------------------- | ---- | --- | ----- | - | - | --- | ----- | -
|Three months ended March 31 |                                  |      |     |       |   |   |     |      
|(In millions)               |                                  | 2003 |     | 2002 
|                            |                                  |      |     |      
|Net written premiums        |                                  | $    | 664 |       |   | $ | 540 |      
|Net earned premiums         |                                  |      | 624 |       |   |   | 508 |      
|Underwriting loss           |                                  |      | (6  | )     |   |   | (20 | )    
|Net investment income       |                                  |      | 70  |       |   |   | 60  |      
|Net operating income        |                                  |      | 46  |       |   |   | 34  |      
|Ratios                      |                                  |      |     |       |   |   |     |      
|                            | Loss and loss adjustment expense |      |     | 69.4  | % |   |     | 71.2  | %
|                            | Expense                          |      |     | 31.5  |   |   |     | 32.7  |  
|                            | Dividend                         |      |     | 0.1   |   |   |     | 0.1   |  
|                            |                                  |      |     |       |   |   |     |      
|                            | Combined                         |      |     | 101.0 | % |   |     | 104.0 | %
|                            |                                  |      |     |       |   |   |     |      

Net written premiums for Specialty Lines increased $124 million and net earned
premiums increased $116 million for the three months ended March 31, 2003 as
compared with the same period in 2002. The increase in net written and net
earned premiums was due primarily to rate increases and strong new business,
principally in Professional Liability Insurance (CNA Pro).

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

Specialty Lines achieved average rate increases of 31% and 20% in the first
three months of 2003 and 2002 for the contracts that renewed during the period
and had retention rates of 77% and 75% for those contracts that were up for
renewal.

The combined ratio decreased 3.0 points and underwriting results improved by
$14 million for the three months ended March 31, 2003 as compared with the same
period in 2002. This improvement was due to decreases in both the loss and
expense ratios. The loss ratio decreased 1.8 points due principally to
improvement in the current net accident year loss ratio in most lines of
business within CNA Pro. The expense ratio decreased 1.2 points as a result of
an increased net earned premium base.

Favorable net prior year development, including premium and claim and claim
adjustment expense reserve development, of $0.3 million was recorded in the
first three months of 2003 as compared with $2 million of unfavorable net prior
year development recorded for the same period in 2002. The gross carried claim
and claim adjustment expense reserve was $5,893 million and $5,874 million at
March 31, 2003 and December 31, 2002. The net carried claim and claim
adjustment expense reserve was $3,160 million and $3,373 million at March 31,
2003 and December 31, 2002.

Net operating income increased $12 million for the three months ended March 31,
2003 as compared with the same period in 2002. The improvement in net
operating income was primarily related to the improved underwriting results and
increased net investment income, including improved limited partnership
results. In addition, the results of operations for the first quarter of 2002
include a non-recurring currency translation gain on U.S. dollar denominated
investments held by an Argentinean subsidiary. The Argentine government
changed its local currency and required conversion of all U.S. denominated
investments to Argentine Pesos. This conversion resulted in a translation gain
of $18 million, which was partially offset by a write-off of the goodwill of
that entity in the amount of $10 million.

CNA RE

The following table details the results of operations for CNA Re.

Results of Operations

|                            |                                  |      |     |      |   |   |     |      |  
|--------------------------- | -------------------------------- | ---- | --- | ---- | - | - | --- | ---- | -
|Three months ended March 31 |                                  |      |     |      |   |   |     |     
|(In millions)               |                                  | 2003 |     | 2002
|                            |                                  |      |     |     
|Net written premiums        |                                  | $    | 205 |      |   | $ | 167 |     
|Net earned premiums         |                                  |      | 153 |      |   |   | 137 |     
|Underwriting income         |                                  |      | 11  |      |   |   | 25  |     
|Net investment income       |                                  |      | 24  |      |   |   | 33  |     
|Net operating income        |                                  |      | 25  |      |   |   | 40  |     
|Ratios                      |                                  |      |     |      |   |   |     |     
|                            | Loss and loss adjustment expense |      |     | 64.0 | % |   |     | 41.4 | %
|                            | Expense                          |      |     | 28.7 |   |   |     | 40.3 |  
|                            |                                  |      |     |      |   |   |     |     
|                            | Combined                         |      |     | 92.7 | % |   |     | 81.7 | %
|                            |                                  |      |     |      |   |   |     |     

Net written premiums for CNA Re increased $38 million and net earned premiums
increased $16 million for the three months ended March 31, 2003 as compared
with the same period in 2002. The increase in net written and net earned
premiums is due primarily to rate increases

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

and the absence of cessions to the CCC Cover discussed below and CNA
Reinsurance Company Limited (CNA Re U.K.) ceded premiums, which was sold in
2002.

The combined ratio increased 11.0 points and underwriting results decreased $14
million for the three months ended March 31, 2003 as compared with the same
period in 2002. This change was due to an increase in the loss ratio,
partially offset by a decrease in the expense ratio. The loss ratio increased
22.6 points due principally to the absence of the underwriting benefit related
to corporate aggregate reinsurance treaties discussed below, partially offset
by improvement in the current net accident year loss ratio. The expense ratio
decreased 11.6 points as a result of an increased net earned premium base, the
absence of CNA Re U.K., and a shift in the mix of business.

Unfavorable net prior year development, including premium and claim and claim
adjustment expense reserve development, of $1 million was recorded in the first
three months of 2003 as compared with $42 million of favorable net prior year
development recorded for the same period in 2002, of which $32 million related
primarily to the corporate aggregate reinsurance treaties discussed below. The
gross carried claim and claim adjustment expense reserve was $2,193 million and
$2,264 million at March 31, 2003 and December 31, 2002. The net carried claim
and claim adjustment expense reserve was $1,302 million and $1,362 million at
March 31, 2003 and December 31, 2002.

During the first quarter of 2002, CNA Re revised its estimate of premiums and
losses related to the WTC event. In estimating CNA Res WTC event losses, the
Company performed a treaty-by-treaty analysis of exposure. The Companys
original loss estimate was based on a number of assumptions including the loss
to the industry, the loss to individual lines of business and the market share
of CNA Res cedants. Information that became available in the first quarter of
2002 resulted in CNA Re increasing its estimate of WTC event related premiums
and losses on its property facultative and property catastrophe business. The
impact of increasing the estimate of gross WTC event losses by $144 million was
fully offset on a net of reinsurance basis (before the impact of the CCC Cover)
by higher reinstatement premiums and a reduction of return premiums. As a
result, additional cessions were recorded to the CCC Cover.

Net operating income decreased $15 million for the three months ended March 31,
2003 as compared with the same period in 2002. The decrease in net operating
income was primarily related to the decrease in underwriting income as
discussed above and a decrease in net investment income due primarily to a
reduction of invested assets resulting from the sale of CNA Re U.K.

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

GROUP OPERATIONS

The following table details the results of operations for Group Operations.

Results of Operations

|                            |  |      |     |      |  |   |     | 
|--------------------------- |  | ---- | --- | ---- |  | - | --- | 
|Three months ended March 31 |  |      |     |      |  |   |     | 
|(In millions)               |  | 2003 |     | 2002
|                            |  |      |     |     
|Net earned premiums         |  | $    | 315 |      |  | $ | 905 | 
|Net investment income       |  |      | 63  |      |  |   | 61  | 
|Net operating income        |  |      | 19  |      |  |   | 18  | 
|Deposits (a)                |  |      | 534 |      |  |   | 48  | 

(a)  Deposits are a non-GAAP measure which represent the amount of cash received
from clients in anticipation of receiving a specified or unspecified return.
Deposits are an important measure used by management to understand and monitor
new business activity.

Net earned premiums for Group Operations decreased $590 million for the three
months ended March 31, 2003 as compared with the same period in 2002. The
decrease in net earned premiums was due primarily to the transfer of the Mail
Handlers Plan. Net earned premiums for the Mail Handlers Plan were $616
million for the three months ended March 31, 2002. This decrease was partially
offset by premium growth in the disability, life and long term care products
within Group Benefits.

Group Operations achieved rate increases that averaged approximately 6% and 5%
in the first three months of 2003 and 2002 for the disability, accident and
life lines of business within Group Benefits. Premium persistency rates were
approximately 89% and 76% in the first three months of 2003 and 2002.

Deposits for Group Operations increased $486 million for the three months ended
March 31, 2003 as compared with the same period in 2002. The increase in
deposits was due primarily to new sales in the Index 500 product, partially
offset by decreased guaranteed investment contracts (GICs) deposits.

Net operating income increased by $1 million for the three months ended March
31, 2003 as compared with the same period in 2002. The increase in net
operating income related primarily to the absence of unfavorable net operating
results related to the variable products business, which was sold to The
Phoenix Companies, Inc. in the third quarter of 2002, and favorable single
premium guaranteed annuities (SPGA) mortality. These increases were partially
offset by the absence of net operating income related to the Mail Handlers
Plan.

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

LIFE OPERATIONS

The following table details the results of operations for Life Operations.

Results of Operations

|                            |  |      |     |      |  |   |     | 
|--------------------------- |  | ---- | --- | ---- |  | - | --- | 
|Three months ended March 31 |  |      |     |      |  |   |     | 
|(In millions)               |  | 2003 |     | 2002
|                            |  |      |     |     
|Net earned premiums         |  | $    | 256 |      |  | $ | 240 | 
|Net investment income       |  |      | 131 |      |  |   | 134 | 
|Net operating income        |  |      | 10  |      |  |   | 31  | 
|Deposits (a)                |  |      | 43  |      |  |   | 34  | 

(a)  Deposits are a non-GAAP measure which represent the amount of cash received
from clients in anticipation of receiving a specified or unspecified return.
Deposits are an important measure used by management to understand and monitor
new business activity.

Net earned premiums for Life Operations increased $16 million for the three
months ended March 31, 2003 as compared with the same period in 2002. The
increase in net earned premiums was due primarily to growth in the long term
care product.

Deposits for Life Operations increased $9 million for the three months ended
March 31, 2003 as compared with the same period in 2002. The increase in
deposits was due primarily to higher sales of structured settlement annuities.

During the second quarter of 2003, the Company completed a review of its
individual long term care product offerings. The focus of the review was to
determine whether the current products provide adequate pricing flexibility
under the range of reasonably possible claims experience levels. Based on the
review and current market conditions, the Company has decided to significantly
reduce new sales of this product and certain infrastructure costs, with any
associated expense to be recorded in the second quarter of 2003. Premium will
continue to be received on inforce business, but the actions to reduce new
business will lower the rate of overall premium growth for this line. The
Company does not expect these actions to have a material adverse impact on the
results of operations.

Net operating income decreased by $21 million for the three months ended March
31, 2003 as compared with the same period in 2002. The decrease in net
operating income related primarily to unfavorable individual long term care
morbidity due to increases in severity and incidence and the write-off of $5
million after-tax of capitalized software costs. These decreases were
partially offset by improved mortality in life insurance and improved net
operating results for life settlement contracts.

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

CORPORATE AND OTHER

The following table details the results of operations for the Corporate and
Other segment, including intrasegment eliminations.

Results of Operations

|                            |  |      |    |      |  |   |     |  
|--------------------------- |  | ---- | -- | ---- |  | - | --- | -
|Three months ended March 31 |  |      |    |      |  |   |     |  
|(In millions)               |  | 2003 |    | 2002
|                            |  |      |    |     
|Net investment income       |  | $    | 34 |      |  | $ | 35  |  
|Operating revenues          |  |      | 2  |      |  |   | 61  |  
|Net operating loss          |  |      | (3 | )    |  |   | (23 | )

Operating revenues, which includes net earned premiums, net investment income
and other revenue, decreased $59 million for the three months ended March 31,
2003 as compared with the same period in 2002. The decrease in operating
revenues was due primarily to reduced revenues from CNA UniSource and reduced
earned premiums in group reinsurance due to the exit from these businesses in
2002.

Favorable net prior year development, including premium and claim and claim
adjustment expense reserve development, of $3 million was recorded in the three
months ended March 31, 2003 as compared with $1 million of favorable net prior
year development recorded for the same period in 2002. The gross carried claim
and claim adjustment expense reserve was $5,085 million and $4,847 million at
March 31, 2003 and December 31, 2002. The net carried claim and claim
adjustment expense reserve was $1,890 million and $2,002 million for March 31,
2003 and December 31, 2002.

CNA entered into a retroactive reinsurance agreement as part of the sale of the
Companys personal insurance business to The Allstate Corporation (Allstate) in
1999. CNA shares in indemnity and claim and allocated claim adjustment
expenses if payments related to losses incurred prior to October 1, 1999 on the
CNA policies transferred to Allstate exceed the claim and allocated claim
adjustment expense reserves of approximately $1 billion at the date of sale.
The Company must begin to reimburse Allstate for claim and allocated claim
adjustment expense payments when cumulative claim payments after October 1,
1999 on losses occurring prior to that date exceed the $1 billion. The
Companys remaining obligation valued under this loss sharing provision as of
October 1, 2003, will be settled by agreement of the parties or by an
independent actuarial review of the unpaid claim liabilities as of that date.
Cumulative payments of indemnity and allocated loss adjustment expenses on such
policies are expected to exceed $1 billion during 2003. The Company has
established reserves for its estimated liability under this loss sharing
arrangement.

Net operating results improved $20 million for the three months ended March 31,
2003 as compared with the same period in 2002. The improvement in the net
results of operations was due primarily to decreased eBusiness expenses and
decreased interest expense on corporate borrowings. Beginning in 2003,
expenses related to eBusiness were included in the property and casualty
operating segments of the Company.

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

Environmental Pollution and Mass Tort and Asbestos Reserves

CNAs property and casualty insurance subsidiaries have actual and potential
exposures related to environmental pollution and mass tort and asbestos claims.

The following table provides data related to CNAs environmental pollution and
mass tort and asbestos claim and claim adjustment expense reserves.

Environmental Pollution and Mass Tort and Asbestos

|               |  |                |      |                   |  |      |       |               |  |   |      |   |  |   |       |  
|-------------- |  | -------------- | ---- | ----------------- |  | ---- | ----- | ------------- |  | - | ---- | - |  | - | ----- | -
|               |  | March 31, 2003 |      | December 31, 2002
|               |  |                |      |                  
|               |  | Environmental  |      |                   |  |      |       | Environmental |  |   |      |  
|               |  | Pollution      |      |                   |  |      |       | Pollution     |  |   |      |  
|               |  | and Mass       |      |                   |  |      |       | and Mass      |  |   |      |  
|(In millions)  |  | Tort           |      | Asbestos          |  | Tort |       | Asbestos     
|               |  |                |      |                   |  |      |       |              
|Gross reserves |  | $              | 811  |                   |  | $    | 1,719 |               |  | $ | 830  |   |  | $ | 1,758 |  
|Ceded reserves |  |                | (319 | )                 |  |      | (527  | )             |  |   | (313 | ) |  |   | (527  | )
|               |  |                |      |                   |  |      |       |               |  |   |      |   |  |   |       |  
|Net reserves   |  | $              | 492  |                   |  | $    | 1,192 |               |  | $ | 517  |   |  | $ | 1,231 |  
|               |  |                |      |                   |  |      |       |               |  |   |      |   |  |   |       |  

Environmental Pollution and Mass Tort

Environmental pollution cleanup is the subject of both federal and state
regulation. By some estimates, there are thousands of potential waste sites
subject to cleanup. The insurance industry is involved in extensive litigation
regarding coverage issues. Judicial interpretations in many cases have
expanded the scope of coverage and liability beyond the original intent of the
policies. The Comprehensive Environmental Response Compensation and Liability
Act of 1980 (Superfund) and comparable state statutes (mini-Superfunds) govern
the cleanup and restoration of toxic waste sites and formalize the concept of
legal liability for cleanup and restoration by Potentially Responsible
Parties (PRPs). Superfund and the mini-Superfunds establish mechanisms to pay
for cleanup of waste sites if PRPs fail to do so, and to assign liability to
PRPs. The extent of liability to be allocated to a PRP is dependent upon a
variety of factors. Further, the number of waste sites subject to cleanup is
unknown. To date, approximately 1,200 cleanup sites have been identified by
the Environmental Protection Agency (EPA) and included on its National
Priorities List (NPL). State authorities have designated many cleanup sites as
well.

Many policyholders have made claims against various CNA insurance subsidiaries
for defense costs and indemnification in connection with environmental
pollution matters. The vast majority of these claims relate to accident years
1989 and prior, which coincides with CNAs adoption of the Simplified
Commercial General Liability coverage form, which includes what is referred to
in the industry as an absolute pollution exclusion. CNA and the insurance
industry are disputing coverage for many such claims. Key coverage issues
include whether cleanup costs are considered damages under the policies,
trigger of coverage, allocation of liability among triggered policies,
applicability of pollution exclusions and owned property exclusions, the
potential for joint and several liability and the definition of an occurrence.
To date, courts have been inconsistent in their rulings on these issues.

A number of proposals to reform Superfund have been made by various parties.
However no reforms were enacted by Congress during 2002 or during the first
three months of 2003, and it

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

is unclear what positions Congress or the administration will take and what
legislation, if any, will result in the future. If there is legislation, and
in some circumstances even if there is no legislation, the federal role in
environmental cleanup may be significantly reduced in favor of state action.
Substantial changes in the federal statute or the activity of the EPA may cause
states to reconsider their environmental cleanup statutes and regulations.
There can be no meaningful prediction of the pattern of regulation that would
result or the possible effect upon CNAs results of operations or equity.

The Companys ultimate liability for its environmental pollution and mass tort
claims is impacted by several factors including ongoing disputes with
policyholders over scope and meaning of coverage terms and, in the area of
environmental pollution, court decisions that continue to restrict the scope
and applicability of the absolute pollution exclusion contained in policies
issued by the Company post 1989. Due to the inherent uncertainties described
above, including the inconsistency of court decisions, the number of waste
sites subject to cleanup, and in the area of environmental pollution, the
standards for cleanup and liability, the ultimate liability of CNA for
environmental pollution and mass tort claims may vary substantially from the
amount currently recorded.

As of March 31, 2003 and December 31, 2002, CNA carried approximately $492
million and $517 million of claim and claim adjustment expense reserves, net of
reinsurance recoverables, for reported and unreported environmental pollution
and mass tort claims. There was no environmental pollution and mass tort net
claim and claim adjustment expense reserve development for the three months
ended March 31, 2003 and 2002. The Company paid environmental
pollution-related claims and mass tort-related claims, net of reinsurance
recoveries, of $25 million and $33 million for the three months ended March 31,
2003 and 2002.

Asbestos

CNAs property and casualty insurance subsidiaries also have exposure to
asbestos-related claims. Estimation of asbestos-related claim and claim
adjustment expense reserves involves many of the same limitations discussed
above for environmental pollution claims, such as inconsistency of court
decisions, specific policy provisions, allocation of liability among insurers
and insureds, and additional factors such as missing policies and proof of
coverage. Furthermore, estimation of asbestos-related claims is difficult due
to, among other reasons, the proliferation of bankruptcy proceedings and
attendant uncertainties, the targeting of a broader range of businesses and
entities as defendants, the uncertainty as to which other insureds may be
targeted in the future and the uncertainties inherent in predicting the number
of future claims.

In the past several years, CNA has experienced significant increases in claim
counts for asbestos-related claims. The factors that led to these increases
included, among other things, intensive advertising campaigns by lawyers for
asbestos claimants, mass medical screening programs sponsored by plaintiff
lawyers, and the addition of new defendants such as the distributors and
installers of products containing asbestos. Currently, the majority of
asbestos bodily injury claims are filed by persons exhibiting few, if any,
disease symptoms. It is estimated that approximately 90% of the current
non-malignant asbestos claimants do not meet the American Medical Associations
definition of impairment. Some courts, including the federal district court
responsible for pre-trial proceedings in all federal asbestos bodily injury
actions, have ordered that so-called unimpaired claimants may not recover
unless at some point the claimants condition worsens to the point of
impairment.

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

As of March 31, 2003 and December 31, 2002, CNA carried approximately $1,192
million and $1,231 million of claim and claim adjustment expense reserves, net
of reinsurance recoverables, for reported and unreported asbestos-related
claims. There was no asbestos-related net claim and claim adjustment expense
reserve development for the three months ended March 31, 2003 and 2002. The
Company paid asbestos-related claims, net of reinsurance, of $39 million during
the three months ended March 31, 2003 and had net reinsurance recoveries of $20
million for the three months ended March 31, 2002.

In 2002, at least fifteen companies filed for bankruptcy protection citing
costs associated with asbestos claims litigation as a basis for filing. Since
1982, at least 67 companies, including the 15 companies that filed in 2002,
that mined asbestos, or manufactured or used asbestos-containing products, have
filed for bankruptcy. This phenomenon has prompted plaintiff attorneys to file
claims against companies that had only peripheral involvement with asbestos.
Many of these defendants were users or distributors of asbestos-containing
products, or manufacturers of products in which asbestos was encapsulated.
These defendants include equipment manufacturers, brake, gasket, and sealant
manufacturers, and general construction contractors. According to a
comprehensive report on asbestos litigation recently released by the Rand
Corporation, over 6,000 companies have been named as defendants in asbestos
lawsuits, with 75 out of 83 different types of industries in the United States
impacted by asbestos litigation. The study found that a typical claimant names
70 to 80 defendants, up from an average of 20 in the early years of asbestos
litigation.

Some asbestos-related defendants have asserted that their claims for insurance
are not subject to aggregate limits on coverage. CNA has such claims from a
number of insureds. Some of these claims involve insureds facing exhaustion of
products liability aggregate limits in their policies, who have asserted that
their asbestos-related claims fall within so-called non-products liability
coverage contained within their policies rather than products liability
coverage, and that the claimed non-products coverage is not subject to any
aggregate limit. It is difficult to predict the ultimate size of any of the
claims for coverage purportedly not subject to aggregate limits or predict to
what extent, if any, the attempts to assert non-products claims outside the
products liability aggregate will succeed. The Company has attempted to manage
such exposures by aggressive settlement strategies. Nevertheless, there can be
no assurance any of these settlement efforts will be successful, or that any
such claims can be settled on terms acceptable to CNA. Adverse developments
with respect to such matters discussed in this paragraph could have a material
adverse effect on CNAs results of operations or equity.

On February 13, 2003, CNA announced it had resolved asbestos related coverage
litigation and claims involving A.P. Green Industries, A.P. Green Services and
Bigelow  Liptak Corporation. Under the agreement, CNA will be required to pay
$74 million, net of reinsurance recoveries, over a ten year period. The
settlement resolves CNAs liabilities for all pending and future asbestos
claims involving A.P. Green Industries, Bigelow-Liptak Corporation and related
subsidiaries, including alleged non-products exposures. The settlement is
subject to bankruptcy court approval and confirmation of a bankruptcy plan
containing a channeling injunction to protect CNA from any future claims.

CNA is engaged in insurance coverage litigation with Robert A. Keasbey Company
(Keasbey) and associated claimants in New York state court (Continental
Casualty Company vs. Robert A. Keasbey Company et al.,Supreme Court State of
New York  County of New York, No. 401621/02).Keasbey was a seller and
installer of asbestos products in the New York and New Jersey area. CNA paid
its full product liability limits to Keasbey in prior years. Claimants against

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

Keasbey now claim CNA owes additional coverage under the operations section of
policies issued to it by CNA. CNA is also a party to insurance coverage
litigation between Burns & Roe Enterprises, Inc. (Burns & Roe) and its
insurance carriers related to asbestos bodily injury and wrongful death claims
(In re: Burns & Roe Enterprises, Inc., pending in the U.S. Bankruptcy Court for
the District of New Jersey, No. 00-41610). Burns & Roe provided various
engineering and related services in connection with construction projects.
Burns & Roe is currently in bankruptcy. There are numerous factual and legal
issues to be resolved in connection with these cases and it is difficult to
predict the outcome or financial exposure represented by these matters in light
of the novel theories asserted by policyholders and their counsel.

Policyholders have also initiated litigation directly against CNA and other
insurers. CNA has been named in Adams v. Aetna, Inc., et al. (Circuit Court of
Kanhwha County, West Virginia), a purported class action against CNA and other
insurers, alleging that the defendants violated West Virginias Unfair Trade
Practices Act in handling and resolving asbestos claims against their
policyholders. In addition, lawsuits have been filed in Texas against CNA, and
other insurers and non-insurer corporate defendants asserting liability for
failing to warn of the dangers of asbestos (Boson v. Union Carbide Corp., et
al. (District Court of Nueces County, Texas)). It is difficult to predict the
outcome or financial exposure represented by this type of litigation in light
of the broad nature of the relief requested and the novel theories asserted.

CNA reviews each active asbestos account every six months to determine whether
changes in reserve estimates may be necessary. The Company considers input
from its analyst professionals with direct responsibility for the claims,
inside and outside counsel with responsibility for representation of the
Company, and its actuarial staff. These professionals review, among many
factors, the policyholders present and future exposures (including such
factors as claims volume, disease mix, trial conditions, settlement demands and
defense costs); the policies issued by CNA (including such factors as aggregate
or per occurrence limits, whether the policy is primary, umbrella or excess,
and the existence of policyholder retentions and/or deductibles); the existence
of other insurance; and reinsurance arrangements.

Due to the uncertainties created by volatility in claim numbers and settlement
demands, the effect of bankruptcies, the extent to which non-impaired claimants
can be precluded from making claims and the efforts by insureds to obtain
coverage not subject to aggregate limits, the ultimate liability of CNA for
asbestos-related claims may vary substantially from the amount currently
recorded. Other variables that will influence CNAs ultimate exposure to
asbestos-related claims will be medical inflation trends, jury attitudes, the
strategies of plaintiff attorneys to broaden the scope of defendants, the mix
of asbestos-related diseases presented, CNAs abilities to recover reinsurance,
future court decisions and the possibility of legislative reform. Another of
these variables is the possible creation of a national privately financed
trust, which if established and approved through federal legislation, could
replace litigation of asbestos claims with payments to claimants from the
trust. It is uncertain at the present time whether such a trust will be
created or, if it is, what will be the terms and conditions of its
establishment. Adverse developments with respect to such matters discussed in this paragraph
could have a material adverse effect on CNAs results of operations or equity.

The results of operations or equity of CNA in future years may be adversely
impacted by environmental pollution and mass tort and asbestos claim and claim
adjustment expenses. Management will continue to review and monitor these
liabilities and make further adjustments, including the potential for further
reserve strengthening, as necessary.

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

INVESTMENTS

The significant components of net investment income are presented in the
following table.

Net Investment Income

|                                              |  |      |     |      |  |   |     |  
|--------------------------------------------- |  | ---- | --- | ---- |  | - | --- | -
|Three months ended March 31                   |  |      |     |      |  |   |     |  
|(In millions)                                 |  | 2003 |     | 2002
|                                              |  |      |     |     
|Fixed maturity securities                     |  | $    | 420 |      |  | $ | 447 |  
|Short term investments                        |  |      | 20  |      |  |   | 16  |  
|Limited partnerships                          |  |      | 23  |      |  |   | 7   |  
|Equity securities                             |  |      | 5   |      |  |   | 7   |  
|Interest on funds withheld and other deposits |  |      | (47 | )    |  |   | (58 | )
|Other                                         |  |      | 25  |      |  |   | 21  |  
|                                              |  |      |     |      |  |   |     |  
|Gross investment income                       |  |      | 446 |      |  |   | 440 |  
|Investment expense                            |  |      | (14 | )    |  |   | (14 | )
|                                              |  |      |     |      |  |   |     |  
|Net investment income                         |  | $    | 432 |      |  | $ | 426 |  
|                                              |  |      |     |      |  |   |     |  

The Company experienced higher net investment income for the three months ended
March 31, 2003 as compared with the same period in 2002. The increase was due
primarily to increased limited partnership income and lower interest costs on
funds withheld and other deposits, partially offset by lower investment yields
on fixed income securities. See the Reinsurance section of the MD&A for
additional information regarding interest costs on funds withheld and other
deposits, which is included in net investment income.

The bond segment of the investment portfolio yielded 5.5% and 6.0% for the
first quarter of 2003 and 2002.

The components of net realized investment (losses) gains are presented in the
following table.

Net Realized Investment (Losses) Gains

|                                                                |                                   |      |     |      |   |   |     |     |  
|--------------------------------------------------------------- | --------------------------------- | ---- | --- | ---- | - | - | --- | --- | -
|Three months ended March 31                                     |                                   |      |     |      |   |   |     |    
|(In millions)                                                   |                                   | 2003 |     | 2002
|                                                                |                                   |      |     |     
|Realized investment gains (losses):                             |                                   |      |     |      |   |   |     |    
|Fixed maturity securities:                                      |                                   |      |     |      |   |   |     |    
|                                                                | U.S. Government bonds             |      | $   | 38   |   |   | $   | 5   |  
|                                                                | Corporate and other taxable bonds |      |     | (118 | ) |   |     | 9   |  
|                                                                | Tax-exempt bonds                  |      |     | 19   |   |   |     | 2   |  
|                                                                | Asset-backed bonds                |      |     | 18   |   |   |     | 9   |  
|                                                                | Redeemable preferred stock        |      |     | (5   | ) |   |     | (14 | )
|                                                                |                                   |      |     |      |   |   |     |    
|Total fixed maturity securities                                 |                                   |      | (48 | )    |   |   | 11  |    
|Equity securities                                               |                                   |      |    |      |   |   | 7   |    
|Derivative securities                                           |                                   |      | (22 | )    |   |   | (21 | )  
|Other invested assets                                           |                                   |      | (9  | )    |   |   | 4   |    
|                                                                |                                   |      |     |      |   |   |     |    
|Total realized investment (losses) gains                        |                                   |      | (79 | )    |   |   | 1   |    
|Allocated to participating policyholders and minority interest |                                   |      | 3   |      |   |   |    |    
|Income tax benefit                                              |                                   |      | 27  |      |   |   | 1   |    
|                                                                |                                   |      |     |      |   |   |     |    
|Net realized investment (losses) gains                          |                                   | $    | (49 | )    |   | $ | 2   |    
|                                                                |                                   |      |     |      |   |   |     |    

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

Net realized investment gains (losses) decreased $51 million after-tax for the
three months ended March 31, 2003 as compared with the same period in 2002.
This change was due primarily to impairment losses related to the investment
portfolio of $166 million after tax for the three months ended March 31, 2003
across certain market sectors, including the airline, healthcare and energy
industries. Impairment losses related to the investment portfolio of $12
million after tax were recorded for the three months ended March 31, 2002
primarily due to the credit deterioration of a specific equity holding. The
increase in impairment losses was partially offset by increased net gains on
sales of fixed maturity securities.

A primary objective in the management of the fixed maturity and equity
portfolios is to maximize total return relative to underlying liabilities and
respective liquidity needs. In achieving this goal, assets may be sold to take
advantage of market conditions or other investment opportunities or for credit
or tax considerations. This activity will produce realized gains and losses.

CNA classifies its fixed maturity securities (bonds and redeemable preferred
stocks) and its equity securities as available-for-sale, and as such, they are
carried at fair value. The amortized cost of fixed maturity securities is
adjusted for amortization of premiums and accretion of discounts to maturity,
which is included in net investment income. Changes in fair value are reported
as a component of other comprehensive income.

The following table provides further detail of gross realized gains and gross
realized losses on fixed maturity securities and equity securities.

Realized Gains and Losses

|                                                                                |                                                          |                       |     |      |     |   |    |    |     | 
|------------------------------------------------------------------------------- | -------------------------------------------------------- | --------------------- | --- | ---- | --- | - | -- | -- | --- | 
|Three Months ended March 31                                                     |                                                          |                       |     |      |     |   |    |   
|(In millions)                                                                   |                                                          | 2003                  |     | 2002
|                                                                                |                                                          |                       |     |     
|Net realized gains (losses) on fixed maturity securities and equity securities: |                                                          |                       |     |      |     |   |    |   
|                                                                                | Fixed maturity securities:                               |                       |     |      |     |   |    |    |    
|                                                                                |                                                          | Gross realized gains  |     | $    | 285 |   |    | $  | 140 | 
|                                                                                |                                                          | Gross realized losses |     |      | 333 |   |    |    | 129 | 
|                                                                                |                                                          |                       |     |      |     |   |    |   
|                                                                                | Net realized (losses) gains on fixed maturity securities |                       |     | (48  | )   |   |    | 11 |    
|                                                                                |                                                          |                       |     |      |     |   |    |   
|                                                                                | Equity securities:                                       |                       |     |      |     |   |    |    |    
|                                                                                |                                                          | Gross realized gains  |     |      | 12  |   |    |    | 59  | 
|                                                                                |                                                          | Gross realized losses |     |      | 12  |   |    |    | 52  | 
|                                                                                |                                                          |                       |     |      |     |   |    |   
|                                                                                | Net realized gains on equity securities                  |                       |     |     |     |   |    | 7  |    
|                                                                                |                                                          |                       |     |      |     |   |    |   
|Net realized (losses) gains on fixed maturity and equity securities             |                                                          | $                     | (48 | )    |     | $ | 18 |   
|                                                                                |                                                          |                       |     |      |     |   |    |   

The following table provides details of the largest realized losses from sales
of securities aggregated by issuer for the three months ended March 31, 2003,
including: the fair value of the securities at sales date, the amount of the
loss recorded and the period of time that the security had been in an
unrealized loss position prior to sale. The period of time that the security
had been in an unrealized loss position prior to sale can vary due to the
timing of
individual security purchases. Also footnoted is a narrative providing the
industry sector along with the facts and circumstances giving rise to the loss.

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

Largest Realized Losses from Securities Sold at a Loss

|                                                                                                                                          |  |          |     |         |  |            |    |            |  |               |     | 
|----------------------------------------------------------------------------------------------------------------------------------------- |  | -------- | --- | ------- |  | ---------- | -- | ---------- |  | ------------- | --- | 
|                                                                                                                                          |  | Fair     |     |         |  |            |    | Months in 
|                                                                                                                                          |  | Value at |     |         |  |            |    | Unrealized
|                                                                                                                                          |  | Date of  |     | Loss    |  | Loss Prior
|Issuer Description and Discussion                                                                                                         |  | Sale     |     | On Sale |  | To Sale   
|                                                                                                                                          |  |          |     |         |  |           
|(In millions)                                                                                                                             |  |          |     |         |  |            |    |            |  |               |     | 
|A food retailer of supermarkets and discount stores
in the U.S. and Europe. Also supplies food to
institutional foodservice companies (a) |  | $        | 34  |         |  | $          | 12 |            |  |               | 0-6 | 
|A company which manufactures rubber and
rubber-related chemicals. They also manufacture and
distribute tires (b)                          |  |          | 21  |         |  |            | 9  |            |  | Various, 0-24
|A company which provides and operates a network of
in-patient and outpatient surgery and rehabilitation
facilities (c)                    |  |          | 12  |         |  |            | 6  |            |  | Various, 0-12
|A company which provides wholesale financing and
capital loans to auto retail dealerships and vehicle
leasing companies (d)               |  |          | 70  |         |  |            | 6  |            |  | Various, 0-12
|                                                                                                                                          |  |          |     |         |  |            |    |            |  |               |     | 
|Total                                                                                                                                     |  | $        | 137 |         |  | $          | 33 |            |  |               |     | 
|                                                                                                                                          |  |          |     |         |  |            |    |            |  |               |     | 



|(a) |  | The issuer is under investigation for accounting fraud. Losses relate to
trades that took place to reduce issuer exposure.                                                                                                                             
|--- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|(b) |  | These losses relate to trades that took place to reduce issuer exposure.
Remaining holdings have been impaired in the first quarter of 2003.                                                                                                           
|   
|(c) |  | The issuer is under investigation for accounting fraud and various
security issues relating to management. These losses relate to trades
that took place to reduce issuer exposure. Remaining holdings have been
impaired in the first quarter of 2003.
|   
|(d) |  | The issuers financial condition is in good standing and is investment
grade quality. A decision was made to reduce the portfolios overall
exposure to this issuer.                                                                                   

Invested assets are exposed to various risks, such as interest rate, market and
credit risk. Due to the level of risk associated with certain invested assets
and the level of uncertainty related to changes in the value of these assets,
it is possible that changes in risks in the near term could have an adverse
material impact on the Companys results of operations or equity.

A significant judgment in the valuation of investments is the determination of
when an other-than-temporary decline in value has occurred. The Company
follows a consistent and systematic process for impairing securities that
sustain other-than-temporary declines in value. The Company has established a
committee responsible for the impairment process. This committee, referred to
as the Impairment Committee, is made up of three officers appointed by the
Companys Chief Financial Officer. The Impairment Committee is responsible for
analyzing watch list securities on at least a quarterly basis. The watch list
includes individual securities that fall below certain thresholds or that
exhibit evidence of impairment indicators including, but not limited to, a
significant adverse change in the financial condition and near term prospects
of the investment or a significant adverse change in legal factors, the
business climate or credit ratings.

When a security is placed on the watch list, it is monitored for further market
value changes and additional news related to the issuers financial condition.
The focus is on objective evidence that may influence the evaluation of
impairment factors.

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

The decision to impair a security incorporates both quantitative criteria and
qualitative information. The Impairment Committee considers a number of
factors including, but not limited to: (a) the length of time and the extent
to which the market value has been less than book value, (b) the financial
condition and near term prospects of the issuer, (c) the intent and ability of
the Company to retain its investment for a period of time sufficient to allow
for any anticipated recovery in value, (d) whether the debtor is current on
interest and principal payments and (e) general market conditions and industry
or sector specific factors. The Impairment Committees decision to impair a
security is primarily based on whether the securitys fair value is likely to
remain significantly below its book value in light of all of the factors
considered above. For securities that are impaired, the security is written
down to fair value and the resulting losses are recognized in realized
gains/losses in the Condensed Consolidated Statements of Operations.

Substantially all invested assets are marketable securities classified as
available-for-sale in the accompanying Condensed Consolidated Financial
Statements. Accordingly, changes in fair value for these securities are
reported in other comprehensive income.

The following table details the carrying value of CNAs general account
investment portfolios.

Carrying Value of Investments

|                                                                |  |      |        |           |  |      |     |   |  |              |        |  |  |  |     |   |  | 
|--------------------------------------------------------------- |  | ---- | ------ | --------- |  | ---- | --- | - |  | ------------ | ------ |  |  |  | --- | - |  | 
|                                                                |  |      |        | March 31, |  |      |     |   |  | December 31, |        |  |  | 
|(In millions)                                                   |  | 2003 |        | %         |  | 2002 |     | %
|                                                                |  |      |        |           |  |      |     |  
|General account investments:                                    |  |      |        |           |  |      |     |   |  |              |        |  |  |  |     |  
|Fixed maturity securities:                                      |  |      |        |           |  |      |     |   |  |              |        |  |  |  |     |  
|U.S. Treasury securities and obligations of government
agencies |  | $    | 1,200  |           |  |      | 3   | % |  | $            | 1,376  |  |  |  | 4   | %
|Asset-backed securities                                         |  |      | 9,278  |           |  |      | 26  |   |  |              | 8,208  |  |  |  | 23  |  
|States, municipalities and political subdivisions  tax-exempt  |  |      | 5,842  |           |  |      | 17  |   |  |              | 5,074  |  |  |  | 14  |  
|Corporate securities                                            |  |      | 7,300  |           |  |      | 21  |   |  |              | 7,591  |  |  |  | 22  |  
|Other debt securities                                           |  |      | 4,050  |           |  |      | 12  |   |  |              | 3,827  |  |  |  | 11  |  
|Redeemable preferred stock                                      |  |      | 157    |           |  |      |    |   |  |              | 69     |  |  |  |    |  
|Options embedded in convertible debt securities                 |  |      | 144    |           |  |      |    |   |  |              | 130    |  |  |  |    |  
|                                                                |  |      |        |           |  |      |     |   |  |              |        |  |  |  |     |  
|Total fixed maturity securities                                 |  |      | 27,971 |           |  |      | 79  |   |  |              | 26,275 |  |  |  | 74  |  
|                                                                |  |      |        |           |  |      |     |   |  |              |        |  |  |  |     |  
|Equity securities:                                              |  |      |        |           |  |      |     |   |  |              |        |  |  |  |     |  
|Common stock                                                    |  |      | 427    |           |  |      | 2   |   |  |              | 461    |  |  |  | 1   |  
|Non-redeemable preferred stock                                  |  |      | 126    |           |  |      |    |   |  |              | 205    |  |  |  | 1   |  
|                                                                |  |      |        |           |  |      |     |   |  |              |        |  |  |  |     |  
|Total equity securities                                         |  |      | 553    |           |  |      | 2   |   |  |              | 666    |  |  |  | 2   |  
|                                                                |  |      |        |           |  |      |     |   |  |              |        |  |  |  |     |  
|Short-term investments                                          |  |      | 5,354  |           |  |      | 15  |   |  |              | 7,008  |  |  |  | 20  |  
|Limited partnerships                                            |  |      | 1,069  |           |  |      | 3   |   |  |              | 1,060  |  |  |  | 3   |  
|Other investments                                               |  |      | 266    |           |  |      | 1   |   |  |              | 284    |  |  |  | 1   |  
|                                                                |  |      |        |           |  |      |     |   |  |              |        |  |  |  |     |  
|Total general account investments                               |  | $    | 35,213 |           |  |      | 100 | % |  | $            | 35,293 |  |  |  | 100 | %
|                                                                |  |      |        |           |  |      |     |   |  |              |        |  |  |  |     |  

The Companys general account investment portfolio consists primarily of
publicly traded government bonds, asset-backed securities, mortgage-backed
securities, municipal bonds and corporate bonds.

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

Investments in the general account had a total net unrealized gain of $1,212
million at March 31, 2003 compared with $887 million at December 31, 2002. The
net unrealized position at March 31, 2003 was composed of a net unrealized gain
of $1,104 million for fixed maturities, a net unrealized gain of $111 million
for equity securities and a net unrealized loss of $3 million for short-term
securities. The net unrealized position at December 31, 2002 was composed of a
net unrealized gain of $742 million for fixed maturities, a net unrealized gain
of $147 million for equity securities and a net unrealized loss of $2 million
for short-term securities.

Unrealized Gains (Losses) on Fixed Maturity and Equity Securities

|                                           |                                                                 |           |         |            |       |            |       |             |     |   |     |     |  |   |       |     | 
|------------------------------------------ | --------------------------------------------------------------- | --------- | ------- | ---------- | ----- | ---------- | ----- | ----------- | --- | - | --- | --- |  | - | ----- | --- | 
|                                           |                                                                 |           | Cost or |            | Gross |            | Gross |             | Net
|March 31, 2003                             |                                                                 | Amortized |         | Unrealized |       | Unrealized |       | Unrealized 
|(In millions)                              |                                                                 | Cost      |         | Gains      |       | Losses     |       | Gain/(Loss)
|                                           |                                                                 |           |         |            |       |            |       |            
|Fixed maturity securities:                 |                                                                 |           |         |            |       |            |       |             |     |   |     |     |  |   |       |    
|                                           | U.S. Treasury securities and obligations of government
agencies |           | $       | 1,092      |       |            | $     | 112         |     |   | $   | 4   |  |   | $     | 108 | 
|                                           | Asset-backed securities                                         |           |         | 8,987      |       |            |       | 294         |     |   |     | 3   |  |   |       | 291 | 
|                                           | States, municipalities and political subdivisions  tax-exempt  |           |         | 5,736      |       |            |       | 154         |     |   |     | 48  |  |   |       | 106 | 
|                                           | Corporate securities                                            |           |         | 6,969      |       |            |       | 487         |     |   |     | 156 |  |   |       | 331 | 
|                                           | Other debt securities                                           |           |         | 3,782      |       |            |       | 349         |     |   |     | 81  |  |   |       | 268 | 
|                                           | Redeemable preferred stock                                      |           |         | 157        |       |            |       | 8           |     |   |     | 8   |  |   |       |    | 
|                                           | Options embedded in convertible debt securities                 |           |         | 144        |       |            |       |            |     |   |     |    |  |   |       |    | 
|                                           |                                                                 |           |         |            |       |            |       |             |     |   |     |     |  |   |       |     | 
|Total fixed maturity securities            |                                                                 |           | 26,867  |            |       |            | 1,404 |             |     |   | 300 |     |  |   | 1,104 |    
|                                           |                                                                 |           |         |            |       |            |       |             |     |   |     |     |  |   |       |    
|Equity securities:                         |                                                                 |           |         |            |       |            |       |             |     |   |     |     |  |   |       |    
|                                           | Common stock                                                    |           |         | 325        |       |            |       | 121         |     |   |     | 19  |  |   |       | 102 | 
|                                           | Non-redeemable preferred stock                                  |           |         | 117        |       |            |       | 10          |     |   |     | 1   |  |   |       | 9   | 
|                                           |                                                                 |           |         |            |       |            |       |             |     |   |     |     |  |   |       |    
|Total equity securities                    |                                                                 |           | 442     |            |       |            | 131   |             |     |   | 20  |     |  |   | 111   |    
|                                           |                                                                 |           |         |            |       |            |       |             |     |   |     |     |  |   |       |    
|Total fixed maturity and equity securities |                                                                 | $         | 27,309  |            |       | $          | 1,535 |             |     | $ | 320 |     |  | $ | 1,215 |    
|                                           |                                                                 |           |         |            |       |            |       |             |     |   |     |     |  |   |       |    

Unrealized Gains (Losses) on Fixed Maturity and Equity Securities

|                                           |                                                                 |           |         |            |       |            |       |             |     |   |     |     |  |   |     |     |  
|------------------------------------------ | --------------------------------------------------------------- | --------- | ------- | ---------- | ----- | ---------- | ----- | ----------- | --- | - | --- | --- |  | - | --- | --- | -
|                                           |                                                                 |           | Cost or |            | Gross |            | Gross |             | Net
|December 31, 2002                          |                                                                 | Amortized |         | Unrealized |       | Unrealized |       | Unrealized 
|(In millions)                              |                                                                 | Cost      |         | Gains      |       | Losses     |       | Gain/(Loss)
|                                           |                                                                 |           |         |            |       |            |       |            
|Fixed maturity securities:                 |                                                                 |           |         |            |       |            |       |             |     |   |     |     |  |   |     |    
|                                           | U.S. Treasury securities and obligations of government
agencies |           | $       | 1,266      |       |            | $     | 114         |     |   | $   | 4   |  |   | $   | 110 |  
|                                           | Asset-backed securities                                         |           |         | 7,888      |       |            |       | 336         |     |   |     | 16  |  |   |     | 320 |  
|                                           | States, municipalities and political subdivisions  tax-exempt  |           |         | 4,966      |       |            |       | 151         |     |   |     | 43  |  |   |     | 108 |  
|                                           | Corporate securities                                            |           |         | 7,439      |       |            |       | 487         |     |   |     | 335 |  |   |     | 152 |  
|                                           | Other debt securities                                           |           |         | 3,780      |       |            |       | 284         |     |   |     | 237 |  |   |     | 47  |  
|                                           | Redeemable preferred stock                                      |           |         | 64         |       |            |       | 5           |     |   |     |    |  |   |     | 5   |  
|                                           | Options embedded in convertible debt securities                 |           |         | 130        |       |            |       |            |     |   |     |    |  |   |     |    |  
|                                           |                                                                 |           |         |            |       |            |       |             |     |   |     |     |  |   |     |     |  
|Total fixed maturity securities            |                                                                 |           | 25,533  |            |       |            | 1,377 |             |     |   | 635 |     |  |   | 742 |    
|                                           |                                                                 |           |         |            |       |            |       |             |     |   |     |     |  |   |     |    
|Equity securities:                         |                                                                 |           |         |            |       |            |       |             |     |   |     |     |  |   |     |    
|                                           | Common stock                                                    |           |         | 310        |       |            |       | 166         |     |   |     | 15  |  |   |     | 151 |  
|                                           | Non-redeemable preferred stock                                  |           |         | 209        |       |            |       | 3           |     |   |     | 7   |  |   |     | (4  | )
|                                           |                                                                 |           |         |            |       |            |       |             |     |   |     |     |  |   |     |    
|Total equity securities                    |                                                                 |           | 519     |            |       |            | 169   |             |     |   | 22  |     |  |   | 147 |    
|                                           |                                                                 |           |         |            |       |            |       |             |     |   |     |     |  |   |     |    
|Total fixed maturity and equity securities |                                                                 | $         | 26,052  |            |       | $          | 1,546 |             |     | $ | 657 |     |  | $ | 889 |    
|                                           |                                                                 |           |         |            |       |            |       |             |     |   |     |     |  |   |     |    

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

The Companys investment policies for the general account emphasizes high
credit quality and diversification by industry, issuer and issue. Assets
supporting interest rate sensitive liabilities are segmented within the general
account to facilitate asset/liability duration management.

At March 31, 2003, the carrying value of the general account fixed maturities
was $27,971 million, representing 79% of the total investment portfolio. The
net unrealized gain related to this fixed maturity portfolio was $1,104
million, comprising gross unrealized gains of $1,404 million and gross
unrealized losses of $300 million. Corporate bonds represented 52%, municipal
securities represented 16%, other debt securities, which includes public
utility and foreign government bonds, represented 27% and other fixed maturity
securities represented 5% of the gross unrealized losses. Within corporate
bonds, the largest industry sectors were consumer  cyclical, utilities, and
financial, which represented 16%, 14%, and 14% of gross unrealized losses.
Gross unrealized losses in any single issuer did not exceed 0.1% of the
carrying value of the total general account fixed maturity portfolio.

If the deterioration in these industry sectors continues in future periods and
the Company continues to hold these securities, the Company is likely to have
additional impairments in the future.

The following table provides the composition of fixed maturity securities with
an unrealized loss at March 31, 2003 in relation to the total of all fixed
maturity securities with an unrealized loss by contractual maturities.

Contractual Maturity

|                                       |  |            |     |            |  |  |     |  
|-------------------------------------- |  | ---------- | --- | ---------- |  |  | --- | -
|                                       |  | Percent of |     | Percent of
|                                       |  | Market     |     | Unrealized
|                                       |  | Value      |     | Loss      
|                                       |  |            |     |           
|Due in one year or less                |  |            | 2   | %          |  |  | 2   | %
|Due after one year through five years  |  |            | 18  |            |  |  | 20  |  
|Due after five years through ten years |  |            | 24  |            |  |  | 27  |  
|Due after ten years                    |  |            | 44  |            |  |  | 50  |  
|Asset-backed securities                |  |            | 12  |            |  |  | 1   |  
|                                       |  |            |     |            |  |  |     |  
|Total                                  |  |            | 100 | %          |  |  | 100 | %
|                                       |  |            |     |            |  |  |     |  

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

The following tables summarize for fixed maturity and equity securities in an
unrealized loss position at March 31, 2003 and December 31, 2002, the aggregate
fair value and gross unrealized loss by length of time those securities have
been continuously in an unrealized loss position.

Gross Unrealized Loss Aging

|                                           |                            |                        |       |                |       |                   |     |           |    |            |       |       |       |       |     |     |     | 
|------------------------------------------ | -------------------------- | ---------------------- | ----- | -------------- | ----- | ----------------- | --- | --------- | -- | ---------- | ----- | ----- | ----- | ----- | --- | --- | --- | 
|                                           |                            |                        |       | March 31, 2003 |       | December 31, 2002
|                                           |                            |                        |       |                |       |                  
|                                           |                            |                        |       |                |       |                   |     | Gross     |    |            |       |       |       | Gross
|                                           |                            |                        |       | Estimated      |       | Unrealized        |     | Estimated |    | Unrealized
|(In millions)                              |                            | Fair Value             |       | Loss           |       | Fair Value        |     | Loss     
|                                           |                            |                        |       |                |       |                   |     |          
|Fixed maturity securities:                 |                            |                        |       |                |       |                   |     |           |    |            |       |       |       |       |     |    
|                                           | Investment grade:          |                        |       |                |       |                   |     |           |    |            |       |       |       |       |     |     |    
|                                           |                            | 0-6 months             |       | $              | 2,288 |                   |     | $         | 46 |            |       | $     | 2,632 |       |     | $   | 100 | 
|                                           |                            | 7-12 months            |       |                | 287   |                   |     |           | 32 |            |       |       | 361   |       |     |     | 30  | 
|                                           |                            | 13-24 months           |       |                | 103   |                   |     |           | 9  |            |       |       | 163   |       |     |     | 21  | 
|                                           |                            | Greater than 24 months |       |                | 95    |                   |     |           | 13 |            |       |       | 172   |       |     |     | 20  | 
|                                           |                            |                        |       |                |       |                   |     |           |    |            |       |       |       |       |     |    
|                                           | Total investment grade     |                        |       | 2,773          |       |                   |     | 100       |    |            |       | 3,328 |       |       |     | 171 |    
|                                           |                            |                        |       |                |       |                   |     |           |    |            |       |       |       |       |     |    
|                                           | Non-investment grade:      |                        |       |                |       |                   |     |           |    |            |       |       |       |       |     |     |    
|                                           |                            | 0-6 months             |       | $              | 338   |                   |     |           | 33 |            |       |       | 892   |       |     |     | 119 | 
|                                           |                            | 7-12 months            |       |                | 621   |                   |     |           | 60 |            |       |       | 473   |       |     |     | 115 | 
|                                           |                            | 13-24 months           |       |                | 416   |                   |     |           | 81 |            |       |       | 458   |       |     |     | 157 | 
|                                           |                            | Greater than 24 months |       |                | 150   |                   |     |           | 26 |            |       |       | 169   |       |     |     | 73  | 
|                                           |                            |                        |       |                |       |                   |     |           |    |            |       |       |       |       |     |    
|                                           | Total non-investment grade |                        |       | 1,525          |       |                   |     | 200       |    |            |       | 1,992 |       |       |     | 464 |    
|                                           |                            |                        |       |                |       |                   |     |           |    |            |       |       |       |       |     |    
|Total fixed maturity securities            |                            |                        | 4,298 |                |       |                   | 300 |           |    |            | 5,320 |       |       |       | 635 |    
|                                           |                            |                        |       |                |       |                   |     |           |    |            |       |       |       |       |     |    
|Equity securities:                         |                            |                        |       |                |       |                   |     |           |    |            |       |       |       |       |     |    
|                                           | 0-6 months                 |                        |       | 43             |       |                   |     | 9         |    |            |       | 119   |       |       |     | 13  |    
|                                           | 7-12 months                |                        |       | 25             |       |                   |     | 6         |    |            |       | 79    |       |       |     | 9   |    
|                                           | 13-24 months               |                        |       | 28             |       |                   |     | 4         |    |            |       | 4     |       |       |     |    |    
|                                           | Greater than 24 months     |                        |       | 9              |       |                   |     | 1         |    |            |       | 4     |       |       |     |    |    
|                                           |                            |                        |       |                |       |                   |     |           |    |            |       |       |       |       |     |    
|Total equity securities                    |                            |                        | 105   |                |       |                   | 20  |           |    |            | 206   |       |       |       | 22  |    
|                                           |                            |                        |       |                |       |                   |     |           |    |            |       |       |       |       |     |    
|Total fixed maturity and equity securities |                            | $                      | 4,403 |                |       | $                 | 320 |           |    | $          | 5,526 |       |       | $     | 657 |    
|                                           |                            |                        |       |                |       |                   |     |           |    |            |       |       |       |       |     |    

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

The Companys non-investment grade fixed maturity securities held as of March
31, 2003 that were in a gross unrealized loss position had a fair value of
$1,525 million. As discussed previously, a significant judgment in the
valuation of investments is the determination of when an other-than-temporary
impairment has occurred. The Companys Impairment Committee analyzes
securities placed on the watch list on at least a quarterly basis. Part of
this analysis is to monitor the length of time and severity of the decline
below book value of the watch list securities. The following tables summarize
the fair value and gross unrealized loss of non-investment grade securities
categorized by the length of time those securities have been in a continuous
unrealized loss position and further categorized by the severity of the
unrealized loss position in 10% increments as of March 31, 2003 and December
31, 2002.

Gross Unrealized Loss Aging for Non-investment Grade Securities

|                           |  |            |       |        |  |                                          |    |        |  |      |    |      |  |   |    |  |  |   |    |  |  |   |     | 
|-------------------------- |  | ---------- | ----- | ------ |  | ---------------------------------------- | -- | ------ |  | ---- | -- | ---- |  | - | -- |  |  | - | -- |  |  | - | --- | 
|                           |  |            |       |        |  | Fair Value as a Percentage of Book Value |    | Gross 
|March 31, 2003             |  | Estimated  |       |        |  | Unrealized                              
|(In millions)              |  | Fair Value |       | 90-99% |  | 80-89%                                   |    | 70-79% |  | <70% |    | Loss
|                           |  |            |       |        |  |                                          |    |        |  |      |    |     
|Fixed maturity securities: |  |            |       |        |  |                                          |    |        |  |      |    |      |  |   |    |  |  |   |    |  |  |   |     | 
|Non-investment grade:      |  |            |       |        |  |                                          |    |        |  |      |    |      |  |   |    |  |  |   |    |  |  |   |     | 
|0-6 months                 |  | $          | 338   |        |  | $                                        | 8  |        |  | $    | 6  |      |  | $ | 8  |  |  | $ | 11 |  |  | $ | 33  | 
|7-12 months                |  |            | 621   |        |  |                                          | 14 |        |  |      | 23 |      |  |   | 23 |  |  |   | 0  |  |  |   | 60  | 
|13-24 months               |  |            | 416   |        |  |                                          | 8  |        |  |      | 17 |      |  |   | 12 |  |  |   | 44 |  |  |   | 81  | 
|Greater than 24 months     |  |            | 150   |        |  |                                          | 4  |        |  |      | 5  |      |  |   | 5  |  |  |   | 12 |  |  |   | 26  | 
|                           |  |            |       |        |  |                                          |    |        |  |      |    |      |  |   |    |  |  |   |    |  |  |   |     | 
|Total non-investment grade |  | $          | 1,525 |        |  | $                                        | 34 |        |  | $    | 51 |      |  | $ | 48 |  |  | $ | 67 |  |  | $ | 200 | 
|                           |  |            |       |        |  |                                          |    |        |  |      |    |      |  |   |    |  |  |   |    |  |  |   |     | 

Gross Unrealized Loss Aging for Non-investment Grade Securities

|                           |  |            |       |        |  |                                          |    |        |  |      |    |      |  |   |     |  |  |   |     |  |  |   |     | 
|-------------------------- |  | ---------- | ----- | ------ |  | ---------------------------------------- | -- | ------ |  | ---- | -- | ---- |  | - | --- |  |  | - | --- |  |  | - | --- | 
|                           |  |            |       |        |  | Fair Value as a Percentage of Book Value |    | Gross 
|December 31, 2002          |  | Estimated  |       |        |  | Unrealized                              
|(In millions)              |  | Fair Value |       | 90-99% |  | 80-89%                                   |    | 70-79% |  | <70% |    | Loss
|                           |  |            |       |        |  |                                          |    |        |  |      |    |     
|Fixed maturity securities: |  |            |       |        |  |                                          |    |        |  |      |    |      |  |   |     |  |  |   |     |  |  |   |     | 
|Non-investment grade:      |  |            |       |        |  |                                          |    |        |  |      |    |      |  |   |     |  |  |   |     |  |  |   |     | 
|0-6 months                 |  | $          | 892   |        |  | $                                        | 30 |        |  | $    | 28 |      |  | $ | 28  |  |  | $ | 33  |  |  | $ | 119 | 
|7-12 months                |  |            | 473   |        |  |                                          | 9  |        |  |      | 12 |      |  |   | 24  |  |  |   | 70  |  |  |   | 115 | 
|13-24 months               |  |            | 458   |        |  |                                          | 5  |        |  |      | 12 |      |  |   | 50  |  |  |   | 90  |  |  |   | 157 | 
|Greater than 24 months     |  |            | 169   |        |  |                                          | 2  |        |  |      | 6  |      |  |   | 15  |  |  |   | 50  |  |  |   | 73  | 
|                           |  |            |       |        |  |                                          |    |        |  |      |    |      |  |   |     |  |  |   |     |  |  |   |     | 
|Total non-investment grade |  | $          | 1,992 |        |  | $                                        | 46 |        |  | $    | 58 |      |  | $ | 117 |  |  | $ | 243 |  |  | $ | 464 | 
|                           |  |            |       |        |  |                                          |    |        |  |      |    |      |  |   |     |  |  |   |     |  |  |   |     | 

The non-investment grade securities that were in an unrealized loss severity of
less than 70% for longer than six months as of March 31, 2003 primarily
consisted of a municipal security representing 55% of the gross unrealized loss
and corporate bonds in the communications, utilities, and transportation
sectors representing 16%, 12%, and 12% of the gross unrealized loss. The
non-investment grade securities that were in an unrealized loss severity of
less than 70% for greater than 24 months as of March 31, 2003 primarily
consisted of a security in the communications sector representing 75% of the
unrealized loss. Unrealized losses in the
communication sector are predominately attributable to a European leader in
telecommunication services. The unrealized losses on securities held in the
transportation sector are primarily comprised of debt issued from a major
domestic airline.

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

As part of the ongoing impairment monitoring process, the Impairment Committee
has evaluated the facts and circumstances based on available information for
each of these non-investment grade securities and determined that no further
impairments were necessary at March 31, 2003. This determination was based on
a number of factors that the Impairment Committee regularly considers
including, but not limited to: the issuers ability to meet current and future
interest and principal payments, an evaluation of the issuers financial
condition and near term prospects, the Companys sector outlook and estimates
of the fair value of any underlying collateral. In all cases where a decline
in value is judged to be temporary, the Company had the intent and ability to
hold these securities for a period of time sufficient to recover the book value
of its investment through a recovery in the market value of such securities or
by holding the securities to maturity. In many cases, the securities held are
matched to liabilities as part of ongoing asset/liability duration management.
As such the Impairment Committee continually assesses its ability to hold
securities for a time sufficient to recover any temporary loss in value or
until maturity. The Company maintains sufficient levels of liquidity so as to
not impact the asset/liability management process.

The Companys equity securities held as of March 31, 2003 that were in a gross
unrealized loss position had a fair value of $105 million. The Companys
Impairment Committee, under the same process as fixed maturity securities,
monitors the equity securities for other-than-temporary declines in value. In
all cases where a decline in value is judged to be temporary, the Company
expects to recover the book value of its investment through a recovery in the
market value of the security.

The general account portfolio consists primarily of high quality (rated BBB or
higher) bonds, 89% of which were rated as investment grade at March 31, 2003
and December 31, 2002. The following table summarizes the ratings of CNAs
general account bond portfolio at carrying value.

General Account Bond Ratings

|                                                 |  |           |        |   |  |      |     |              |  |   |        |  |  |  |     |  
|------------------------------------------------ |  | --------- | ------ | - |  | ---- | --- | ------------ |  | - | ------ |  |  |  | --- | -
|                                                 |  | March 31, |        |   |  |      |     | December 31, |  |   |        | 
|(In millions)                                    |  | 2003      |        | % |  | 2002 |     | %           
|                                                 |  |           |        |   |  |      |     |             
|U.S. Government and affiliated agency securities |  | $         | 1,612  |   |  |      | 6   | %            |  | $ | 1,908  |  |  |  | 7   | %
|Other AAA rated                                  |  |           | 12,900 |   |  |      | 46  |              |  |   | 10,856 |  |  |  | 41  |  
|AA and A rated                                   |  |           | 5,181  |   |  |      | 19  |              |  |   | 5,730  |  |  |  | 22  |  
|BBB rated                                        |  |           | 4,898  |   |  |      | 18  |              |  |   | 4,930  |  |  |  | 19  |  
|Below investment-grade                           |  |           | 3,223  |   |  |      | 11  |              |  |   | 2,782  |  |  |  | 11  |  
|                                                 |  |           |        |   |  |      |     |              |  |   |        |  |  |  |     |  
|Total                                            |  | $         | 27,814 |   |  |      | 100 | %            |  | $ | 26,206 |  |  |  | 100 | %
|                                                 |  |           |        |   |  |      |     |              |  |   |        |  |  |  |     |  

At March 31, 2003 and December 31, 2002, approximately 97% of the general
account portfolio was U.S. Government and affiliated agency securities or was
rated by Standard & Poors (S&P) or Moodys Investors Service (Moodys). The
remaining bonds were rated by other rating agencies or Company management.

Non-investment grade bonds, as presented in the table above, are high-yield
securities rated below BBB by bond rating agencies, as well as other unrated
securities that, in the opinion of management, are below investment-grade.
High-yield securities generally involve a greater degree of risk than
investment-grade securities. However, expected returns should
compensate

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

for the added risk. This risk is also considered in the interest rate assumptions
for the underlying insurance products.

The carrying value of private placement securities at March 31, 2003 was $265
million which represents 0.8% of the Companys total investment portfolio.
These securities were in a net unrealized gain position of $7 million at March
31, 2003. Of the non-traded securities, 71% are priced by unrelated third
party sources.

The carrying value of non-traded securities at December 31, 2002 was $237
million which represents 0.7% of the Companys total investment portfolio.
These securities were in a net unrealized loss position of $0.4 million at
December 31, 2002. Of the non-traded securities, 78% are priced by unrelated
third party sources.

Included in CNAs general account fixed maturity securities at March 31, 2003
are $9,278 million of asset-backed securities, at fair value, consisting of
approximately 59% in collateralized mortgage obligations (CMOs), 10% in
corporate asset-backed obligations, 5% in U.S. Government agency issued
pass-through certificates and 26% in corporate mortgage-backed pass-through
certificates. The majority of CMOs held are actively traded in liquid markets
and are priced by broker-dealers.

Included in CNAs general account fixed maturity securities at December 31,
2002 are $8,208 million of asset-backed securities, at fair value, consisting
of approximately 67% in collateralized mortgage obligations (CMOs), 11% in
corporate asset-backed obligations, 7% in U.S. Government agency issued
pass-through certificates and 15% in corporate mortgage-backed pass-through
certificates. The majority of CMOs held are actively traded in liquid markets
and are priced by broker-dealers.

The carrying value of the components of the general account short-term
investment portfolio is presented in the following table.

Short-term Investments

|                             |  |           |       |              |  |   |       | 
|---------------------------- |  | --------- | ----- | ------------ |  | - | ----- | 
|                             |  | March 31, |       | December 31,
|(In millions)                |  | 2003      |       | 2002        
|                             |  |           |       |             
|Commercial paper             |  | $         | 1,859 |              |  | $ | 1,141 | 
|U.S. Treasury securities     |  |           | 1,694 |              |  |   | 2,756 | 
|Money market funds           |  |           | 993   |              |  |   | 2,161 | 
|Other                        |  |           | 808   |              |  |   | 950   | 
|                             |  |           |       |              |  |   |       | 
|Total short-term investments |  | $         | 5,354 |              |  | $ | 7,008 | 
|                             |  |           |       |              |  |   |       | 

CNA invests in certain derivative financial instruments primarily to reduce its
exposure to market risk (principally interest rate, equity price and foreign
currency risk) and credit risk (risk of nonperformance of underlying obligor).
CNA considers the derivatives in its general account to be held for purposes
other than trading. Derivative securities are recorded at fair value at the
reporting date.

Most derivatives in separate accounts are held for hedging purposes. The
Company uses these derivatives to mitigate market risk by purchasing S&P 500®
index futures in a notional amount

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

equal to the contract liability relating to
Group Operations Index 500 guaranteed investment contract product.

LIQUIDITY AND CAPITAL RESOURCES

The principal operating cash flow sources of CNAs property and casualty and
life insurance subsidiaries are premiums and investment income. The primary
operating cash flow uses are payments for claims, policy benefits and operating
expenses.

For the three months ended March 31, 2003, net cash provided by operating
activities was $45 million as compared with net cash used by operating
activities of $78 million for the same period in 2002. The improvement related
primarily to decreased paid claims.

Cash flows from investing activities include purchases and sales of financial
instruments, as well as the purchase and sale of land, buildings, equipment and
other assets not generally held for resale.

For the three months ended March 31, 2003, net cash provided by investing
activities was $132 million as compared with $35 million for the same period in
2002. Cash flows provided by investing activities were related principally to
trading gains of fixed maturity securities.

Cash flows from financing activities include proceeds from the issuance of debt
or equity securities, outflows for dividends or repayment of debt and outlays
to reacquire equity instruments.

For the three months ended March 31, 2003, net cash used by financing
activities was $137 million as compared with $5 million for the same period in
2002. Cash flows used by financing activities were related principally to
repayment of debt.

The Company is closely managing the cash flows related to claims and
reinsurance recoverables from the WTC event. It is anticipated that
significant claim payments will be made
prior to receipt of the corresponding reinsurance recoverables. The Company
does not anticipate any liquidity problems resulting from these payments. As
of April 4, 2003, the Company has paid $490 million in claims and recovered
$250 million from reinsurers.

CNAs estimated gross pretax losses for the WTC event were $1,648 million
pretax ($1,071 million after-tax). Net pretax losses before the effect of
corporate aggregate reinsurance treaties were $727 million. Approximately 1%,
72% and 21% of the reinsurance recoverables on the estimated losses related to
the WTC event are from companies with S&P ratings of AAA, AA or A.

On December 19, 2002, CNAF sold $750 million of a new issue of preferred stock,
designated Series H Cumulative Preferred Issue (Preferred Issue), to Loews.
The terms of the Preferred Issue were approved by a special committee of
independent members of CNAFs Board of Directors.

The Preferred Issue accrues cumulative dividends at an initial rate of 8% per
year, compounded annually. It will be adjusted quarterly to a rate equal to
400 basis points above the ten-year U.S. Treasury rate beginning with the
quarterly dividend after the first triggering event to occur of either (i) an
increase by two intermediate ratings levels of the financial strength rating of
CCC

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

from its current rating by any of A.M. Best, S&P or Moodys or (ii) one
year following an increase by one intermediate ratings level of the financial
strength rating of CCC by any one of those rating agencies. Accrued but unpaid
cumulative dividends cannot be paid on the Preferred Issue unless and until one
of the two triggering events described above has occurred. Beginning with the
quarter following an increase of one intermediate ratings level in CCCs
financial strength rating, however, current (but not accrued cumulative)
quarterly dividends can be paid. For the three months ended March 31, 2003,
the Company has accrued $15 million of undeclared but accumulated dividends.
As of March 31, 2003 the cumulative undeclared dividend was $17 million.

Debt is composed of the following obligations.

Debt

|                                                              |                                                        |      |           |      |              |   |       |     | 
|------------------------------------------------------------- | ------------------------------------------------------ | ---- | --------- | ---- | ------------ | - | ----- | --- | 
|                                                              |                                                        |      | March 31, |      | December 31,
|(In millions)                                                 |                                                        | 2003 |           | 2002
|                                                              |                                                        |      |           |     
|Variable rate debt:                                           |                                                        |      |           |      |              |   |       |    
|                                                              | Credit facility  CNAF, due April 30, 2004             |      | $         | 250  |              |   | $     | 250 | 
|                                                              | Credit facility  CNA Surety, due September 30, 2003   |      |           | 30   |              |   |       | 30  | 
|                                                              | Term loan  CNA Surety, due through September 30, 2005 |      |           | 30   |              |   |       | 30  | 
|Senior notes:                                                 |                                                        |      |           |      |              |   |       |    
|                                                              | 7.250%, face amount of $128, due March 1, 2003         |      |           |     |              |   |       | 128 | 
|                                                              | 6.250%, face amount of $248, due November 15, 2003     |      |           | 248  |              |   |       | 248 | 
|                                                              | 6.500%, face amount of $493, due April 15, 2005        |      |           | 491  |              |   |       | 491 | 
|                                                              | 6.750%, face amount of $250, due November 15, 2006     |      |           | 249  |              |   |       | 249 | 
|                                                              | 6.450%, face amount of $150, due January 15, 2008      |      |           | 149  |              |   |       | 149 | 
|                                                              | 6.600%, face amount of $200, due December 15, 2008     |      |           | 199  |              |   |       | 199 | 
|                                                              | 8.375%, face amount of $70, due August 15, 2012        |      |           | 69   |              |   |       | 69  | 
|                                                              | 6.950%, face amount of $150, due January 15, 2018      |      |           | 148  |              |   |       | 148 | 
|Debenture, 7.250%, face amount of $243, due November 15, 2023 |                                                        |      | 240       |      |              |   | 240   |    
|Capital leases, 8.000%-13.700%, due through December 31, 2011 |                                                        |      | 35        |      |              |   | 36    |    
|Other debt, 1.000%-6.600%, due through 2019                   |                                                        |      | 25        |      |              |   | 25    |    
|                                                              |                                                        |      |           |      |              |   |       |    
|Total debt                                                    |                                                        | $    | 2,163     |      |              | $ | 2,292 |    
|                                                              |                                                        |      |           |      |              |   |       |    
|Short term debt                                               |                                                        | $    | 291       |      |              | $ | 420   |    
|Long term debt                                                |                                                        |      | 1,872     |      |              |   | 1,872 |    
|                                                              |                                                        |      |           |      |              |   |       |    
|Total debt                                                    |                                                        | $    | 2,163     |      |              | $ | 2,292 |    
|                                                              |                                                        |      |           |      |              |   |       |    

The Company has an existing shelf registration statement under which it may
issue an aggregate of $549 million of debt or equity securities, declared
effective by the SEC.

During the first quarter of 2003, The Continental Corporation (Continental)
repaid its $128 million, 7.250% Senior Note, due March 1, 2003.

The Company pays a facility fee to the lenders for having funds available for
loans under the credit facility maturing April 30, 2004. The fee varies based
on the long term debt ratings of the Company. At March 31, 2003 and December
31, 2002, the facility fee was 17.5 basis points.

The Company pays interest on any outstanding debt/borrowings under the facility
based on a rate determined using the long term debt ratings of the Company.
The interest rate is equal to the London Interbank Offering Rate (LIBOR) plus
57.5 basis points. Further, if the Company has outstanding loans greater than
50% of the amounts available under the facility, the

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

Company will also pay a
utilization fee of 12.5 basis points on such loans. At March 31, 2003 and
December 31, 2002, the weighted-average interest rate on the borrowings under
the facility, including facility fees and utilization fees, was 2.3%.

A Moodys downgrade of the CNAF senior debt rating from Baa2 to Baa3 would
increase the facility fee from 17.5 basis points to 25.0 basis points. The
applicable interest rate would increase from LIBOR plus 57.5 basis points to
LIBOR plus 75.0 basis points. The utilization fee would remain unchanged on
the facility at 12.5 basis points.

CNA Surety Corporation (CNA Surety), a 64% owned and consolidated subsidiary of
CNA, pays interest on any outstanding borrowings under its credit agreement
based on an applicable margin determined by the amount of leverage of the
company. The current interest rate on any borrowings under the facility is
LIBOR plus 45.0 basis points. In addition, CNA Surety pays a facility fee of
12.5 basis points. If the utilization of the credit facility is greater than
50% of the amount available under the facility, an additional fee of 5.0 basis
points will be incurred. Effective January 30, 2003, CNA Surety entered into
an interest rate swap on the term loan portion of its credit agreement that
fixed the interest rate at 2.75%. At March 31, 2003 and December 31, 2002, the
weighted-average interest rate on the $60 million of outstanding borrowings
under the credit agreement, including facility fees and utilization fees was
2.4% and 2.0%. At March 31, 2003 and December 31, 2002, CNA Surety was in
compliance with all restrictive debt covenants.

In March of 2003, CNAF entered into a credit agreement with a large national
contractor, which undertakes projects for the construction of government and
private facilities, to provide loans to the contractor in a maximum aggregate
amount of $86.4 million (the Credit Facility). Of the $86.4 million, $57
million was outstanding at March 31, 2003. The Credit Facility and related
loans will mature in March of 2006. Advances under the Credit Facility bear
interest at the prime rate plus 6%. Payment of 3% of the interest is deferred
until the Credit Facility matures, and the remainder is to be paid monthly in
cash. Loans under the Credit Facility are secured by a pledge of substantially
all of the assets of the contractor and certain affiliates. CNA Surety has
provided significant surety bond protection for projects by this contractor
through surety bonds underwritten by CCC or its affiliates. The loans were
provided by CNAF to help the contractor meet its liquidity needs.

In March of 2003, CNAF also purchased the contractors outstanding bank debt
for $16.4 million. The contractor retired the bank debt by paying CNAF $16.4
million, with $11.4 million of the payoff amount being funded under the new
Credit Facility and $5 million from money loaned to the contractor by its
shareholders. Under its purchase agreement with the banks, CNAF is also
required to reimburse the banks for any draws upon approximately $6.5 million
in outstanding letters of credit issued by the banks for the contractors
benefit that expire between May and August of 2003. Any amounts paid by CNAF
to the banks as reimbursements for draws upon the banks letters of credit will
become obligations of the contractor to CNAF as draws upon the Credit Facility.

Loews has purchased a participation interest in one-third of the loans and
commitments under the new Credit Facility, on a dollar-for-dollar basis, up to
a maximum of $25 million. Although Loews does not have rights against the
contractor directly under the participation agreement, it shares recoveries and
certain fees under the Credit Facility proportionally with CNAF.

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

The contractor has initiated a restructuring plan that is intended to reduce
costs and improve cash flow, and a chief restructuring officer has been
appointed to manage execution of the plan. CNAF, through its affiliate CNA
Surety, intends to continue to provide surety bonds on behalf of the contractor
during this restructuring period, subject to the contractors initial and
ongoing compliance with CNA Suretys underwriting standards. Any losses arising
from bonds issued or assumed by the insurance subsidiaries of CNA Surety to the
contractor are excluded from CNA Suretys $40 million excess of $20 million per
principal reinsurance program with unaffiliated reinsurers in place in 2002.
As a result, CNA Surety retains the first $60 million of losses on bonds
written with an effective date of September 30, 2002 and prior, and CCC will
incur 100% of losses above that retention level on bonds with effective dates
prior to September 30, 2002. Through facultative reinsurance contracts with
CCC, CNA Suretys exposure on bonds written from October 1, 2002 through
December 31, 2002 has been limited to $20 million per bond.

Indemnification and subrogation rights, including rights to contract proceeds
on construction projects in the event of default, exist that reduce CNA
Suretys and ultimately the Companys exposure to loss. While CNAF believes
that the contractors restructuring efforts are expected to be successful and
provide sufficient cash flow for its operations and repayment of its borrowings
under the credit facility, the contractors failure to achieve its
restructuring plan or
perform its contractual obligations under the credit facility and underlying
all of the Companys surety bonds could have a material adverse effect on the
Companys future results of operations. If such failures occur, the Company
estimates the surety loss, net of indemnification and subrogation recoveries,
but before the effects of corporate aggregate reinsurance treaties, if any, and
minority interest could be up to $200 million.

CCC provided an excess of loss reinsurance contract to the insurance
subsidiaries of CNA Surety over a period that expired on December 31, 2000 (the
stop loss contract). The stop loss contract limits the net loss ratios for CNA
Surety with respect to certain accounts and lines of insurance business. In
the event that CNA Suretys accident year net loss ratio exceeds 24% for 1997
through 2000 (the contractual loss ratio), the stop loss contract requires CCC
to pay amounts equal to the amount, if any, by which CNA Suretys actual
accident year net loss ratio exceeds the contractual loss ratio multiplied by
the applicable net earned premiums. The minority shareholders of CNA Surety do
not share in any losses that apply to this contract. There were no reinsurance
balances payable under this stop loss contract as of March 31, 2003 and
December 31, 2002.

CCC, effective October 1, 2002, has secured replacement excess of loss
protection for new and renewal bonds for CNA Surety for per principal exposures
that exceed $60 million since October 1, 2002 in two parts  a) $40 million
excess of $60 million and b) $50 million excess of $100 million for CNA Surety.
This excess of loss protection is necessary primarily to support new and
renewal bonds for contract surety accounts with bonded backlogs or
work-in-process in excess of $60 million. In consideration for the reinsurance
coverage provided by the $40 million excess of $60 million contract, CNA Surety
will pay to CCC, on a quarterly basis, a premium equal to $3 million. In
consideration for the reinsurance coverage provided by the $50 million excess
of $100 million, the insurance subsidiaries of CNA Surety will pay $6 million
in premium to CCC.

In the normal course of business, CNA has obtained letters of credit in favor
of various unaffiliated insurance companies, regulatory authorities and other
entities. As of March 31, 2003 and December 31, 2002 there were approximately
$187 million and $222 million of outstanding letters of credit.

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

The Company has provided guarantees related to irrevocable standby letters of
credit for certain of its subsidiaries. Certain of these subsidiaries have
been sold; however, the irrevocable standby letter of credit guarantees remain
in effect. The Company would be required to remit prompt payment on the
letters of credit in question if the primary obligor drew down on these letters
of credit and failed to repay such loans in accordance with the terms of the
letters of credit. The maximum potential amount of future payments that CNA
could be required to pay under these guarantees are approximately $30 million
at March 31, 2003.

A summary of the Companys commitments as of March 31, 2003 is presented in the
following table.

Commitments

|                             |  |      |     |      |  |      |     |      |  |        |     |       |  |   |     |  |  |          |     |  |  |   |       | 
|---------------------------- |  | ---- | --- | ---- |  | ---- | --- | ---- |  | ------ | --- | ----- |  | - | --- |  |  | -------- | --- |  |  | - | ----- | 
|March 31, 2003               |  |      |     |      |  |      |     |      |  |        |     |       |  |   |     |  |  | 2007 and |     |  |  |  
|(In millions)                |  | 2003 |     | 2004 |  | 2005 |     | 2006 |  | Beyond |     | Total
|                             |  |      |     |      |  |      |     |      |  |        |     |      
|Debt (a)                     |  | $    | 291 |      |  | $    | 263 |      |  | $      | 506 |       |  | $ | 254 |  |  | $        | 858 |  |  | $ | 2,172 | 
|Lease obligations            |  |      | 62  |      |  |      | 60  |      |  |        | 53  |       |  |   | 43  |  |  |          | 139 |  |  |   | 357   | 
|Guaranteed payment contracts |  |      | 13  |      |  |      | 9   |      |  |        | 2   |       |  |   |    |  |  |          |    |  |  |   | 24    | 
|                             |  |      |     |      |  |      |     |      |  |        |     |       |  |   |     |  |  |          |     |  |  |   |       | 
|Total                        |  | $    | 366 |      |  | $    | 332 |      |  | $      | 561 |       |  | $ | 297 |  |  | $        | 997 |  |  | $ | 2,553 | 
|                             |  |      |     |      |  |      |     |      |  |        |     |       |  |   |     |  |  |          |     |  |  |   |       | 

(a)  Does not include original issue discount of $9 million.

The Company has provided parent company guarantees, which expire in 2015,
related to lease obligations of certain subsidiaries. Certain of those
subsidiaries have been sold; however, the lease obligation guarantees remain in
effect. CNAF would be required to remit prompt payment on leases in question
if the primary obligor fails to observe and perform its covenants under the
lease agreements. The maximum potential amount of future payments that the
Company could be required to pay under these guarantees is approximately $7
million at March 31, 2003.

The Company holds an investment in a real estate joint venture that is
accounted for on the equity basis of accounting. In the normal course of
business, CNA on a joint and several basis with other unrelated insurance
company shareholders has committed to continue funding the operating deficits
of this joint venture. Additionally, CNA and the other unrelated shareholders,
on a joint and several basis, have guaranteed an operating lease for an office
building, which expires in 2016.

The guarantee of the operating lease is a parallel guarantee to the commitment
to fund operating deficits; consequently, the separate guarantee to the lessor
is not expected to be triggered as long as the joint venture continues to be
funded by its shareholders and continues to make its annual lease payments.

In the event that the other parties to the joint venture are unable to meet
their commitments in funding the operations of this joint venture, the Company
would be required to assume the obligation for the entire office building
operating lease. The maximum potential future lease payments at March 31, 2003
that the Company could be required to pay under this guarantee is approximately
$333 million. If CNA were required to assume the entire lease obligation, the
Company would have the right to pursue reimbursement from the other
shareholders and would have the right to all sublease revenues.

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

The Company has recorded a liability of approximately $10 million as of March
31, 2003 and December 31, 2002 for its share of the estimated operating
deficits of this joint venture through 2016.

The Company has a commitment to purchase up to a $100 million floating rate
note issued by the California Earthquake Authority in the event of an
earthquake during calendar year 2003 that results in California earthquake
related losses greater than $4.2 billion.

CNA has provided guarantees of the indebtedness of certain of its independent
insurance producers. These guarantees expire in 2003. The Company would be
required to remit prompt and complete payment when due, should the primary
obligor default. In the event of default on the part of the primary obligor,
the Company has a right to any and all shares of common stock of the primary
obligor. The maximum potential amount of future payments that CNA could be
required to pay under these guarantees is approximately $7 million at March 31,
2003.

As of March 31, 2003 and December 31, 2002, the Company had committed
approximately $111 million and $141 million for future capital calls from
various third-party limited partnership investments in exchange for an
ownership interest in the related partnerships.

In the normal course of investing activities, CCC has committed approximately
$51 million as of March 31, 2003 to future capital calls from certain of its
unconsolidated affiliates in exchange for an ownership interest in such
affiliates.

Ratings have become an increasingly important factor in establishing the
competitive position of insurance companies. CNAs insurance company
subsidiaries are rated by major rating agencies, and these ratings reflect the
rating agencys opinion of the insurance companys financial strength,
operating performance, strategic position and ability to meet its obligations
to policyholders. Agency ratings are not a recommendation to buy, sell or hold
any security, and may be revised or withdrawn at any time by the issuing
organization. Each agencys rating should be evaluated independently of any
other agencys rating. One or more of these agencies could take action in the
future to change the ratings of CNAs insurance subsidiaries. If those ratings
were downgraded as a result, CNAs results of operations and/or equity could be
materially adversely affected.

The table below reflects the various group ratings issued by A.M. Best, S&P,
Moodys and Fitch as of April 25, 2003 for the Property and Casualty and Life
and Group companies. The table also includes the ratings for CNAFs senior
debt and Continental senior debt.

|          |  |                                      |    |              |  |         |    |             |  |                |   |      |    |        |   |        |  |      |  |      |  |  |  | 
|--------- |  | ------------------------------------ | -- | ------------ |  | ------- | -- | ----------- |  | -------------- | - | ---- | -- | ------ | - | ------ |  | ---- |  | ---- |  |  |  | 
|          |  | Insurance Financial Strength Ratings |    | Debt Ratings
|          |  |                                      |    |             
|          |  | Property & Casualty                  |    | Life & Group |  | CNAF    |    | Continental
|          |  |                                      |    |              |  |         |    |            
|          |  | CCC                                  |    | CIC          |  |         |    |             |  |                |   |      |    | Senior |   | Senior
|          |  | Group                                |    | Group        |  | CAC/VFL |    | CNAGLA      |  | Debt           |   | Debt
|          |  |                                      |    |              |  |         |    |             |  |                |   |     
|A.M. Best |  |                                      | A  |              |  |         | A  |             |  |                | A |      |    |        | A |        |  | bbb  |  | bbb-
|Fitch     |  |                                      | A  |              |  |         | A  |             |  | AA-            |   |      | A+ |        |   | BBB    |  | BBB 
|Moodys   |  |                                      | A3 |              |  |         | A3 |             |  | A2 (Negative)* |   | NR   |    | Baa2   |   | Baa3  
|S&P       |  |                                      | A- |              |  |         | A- |             |  |                | A |      |    | NR     |   | BBB-   |  | BBB-

NR = Not Rated

All rating outlooks on the above ratings are stable unless otherwise noted.

*Continental Assurance Corporation (CAC) and Valley Forge Life Insurance
Company (VFL) are rated separately by Moodys and both have an A2 rating.

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

During the fourth quarter of 2002, A.M. Best and Fitch affirmed the existing
financial strength ratings of each of the insurance pools and the debt ratings
of CNAF, as noted in the above table.

In February of 2003, S&P affirmed the ratings of the property and casualty
pools, CCC and CIC, and downgraded the life pool, CAC, by one notch from A+ to
A. S&P cited that the downgrade of the life operations was primarily because
S&P wanted to bring the ratings on all the companies in the group closer
together and because the companies business profile has changed over the past
two years.

CNAFs ability to pay dividends and other credit obligations is significantly
dependent on receipt of dividends from its subsidiaries. The payment of
dividends to CNAF by its insurance subsidiaries without prior approval of the
insurance department of each subsidiarys domiciliary jurisdiction is limited
by formula. Dividends in excess of these amounts are subject to prior approval
by the respective state insurance departments.

In addition, by agreement with the New Hampshire Insurance Department, as well
as certain other state insurance departments, dividend payments for the CIC
pool are restricted to internal and external debt service requirements through
September 2003 up to a maximum of $85 million annually, without the prior
approval of the New Hampshire Insurance Department.

Dividends from CCC are subject to the insurance holding company laws of the
State of Illinois, the domiciliary state of CCC. Under these laws, ordinary
dividends, or dividends that do not require prior approval of the Department,
may be paid only from earned surplus, which is calculated by removing
unrealized gains from unassigned surplus. As of March 31, 2003, CCCs earned
surplus is in a positive position, thereby enabling CCC to pay approximately
$1,210 million of dividend payments during 2003 that would not be subject to
the Departments prior approval. The actual level of dividends paid in any
year is determined after an assessment of available dividend capacity, holding
company liquidity and cash needs as well as the impact the dividends will have
on the statutory surplus of the applicable insurance company.

Accounting Pronouncements

In November of 2002, the FASB issued FASB Interpretation No. 45,
Guarantors
Accounting and Disclosure Requirements for Guarantees, Including Indirect
Guarantees of Indebtedness of Others (an interpretation of FASB Statements of
Financial Accounting Standards No. 5, 57, and 107 and rescission of FASB
Interpretation No. 34) (FIN 45). FIN 45 clarifies the requirements of FASB
Statement of Financial Accounting Standards No. 5, Accounting for Contingencies
(SFAS 5) relating to a guarantors accounting for, and disclosure of, the
issuance of certain types of guarantees. FIN 45 provides for additional
disclosure requirements related to guarantees, which were effective for
financial periods ending after December 15, 2002. The Company adopted the
disclosure requirements of FIN 45 during the fourth quarter of 2002.
Additionally, FIN 45 outlines provisions for initial recognition and
measurement of the liability incurred in providing a guarantee. The Company
adopted the initial recognition and measurement requirements for all guarantees
as of January 1, 2003. The initial adoption for the recognition and
measurement requirements of FIN 45 did not have a significant impact on the
results of operations or equity of the Company.

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

In December of 2002, the FASB issued Statement of Financial Accounting
Standards No. 148, Accounting for Stock-Based Compensation, Transition and
Disclosure (SFAS 148). SFAS 148 provides alternative methods of transition for
a voluntary change to the fair value based method of accounting for stock-based
employee compensation. SFAS 148 also amends the disclosure requirements of
SFAS 123, Accounting for Stock-Based Compensation (SFAS 123),to require
prominent disclosures in both annual and interim financial statements about the
method of accounting for stock-based employee compensation and the effect of
the method used on reported results. CNA has adopted the disclosure provisions
of this standard for all annual and interim financial statements. The Company
has determined that it will not adopt the fair value based method of accounting
for stock-based employee compensation in 2003.

The Company applies Accounting Policy Board Opinion No. 25,
Accounting for
Stock Issued to Employees (APB 25), and related interpretations, in accounting
for its stock-based compensation plan. Under the recognition and measurement
principles of APB 25, no stock-based compensation cost has been recognized, as
the exercise price of the granted options equaled the market price of the
underlying stock at the grant date.

In April of 2003 the FASB issued Statement of Financial Accounting Standards
No. 149, Amendment of Statement 133 on Derivative Instruments and Hedging
Activities (SFAS 149). SFAS 149 amends and clarifies accounting for derivative
instruments, including certain derivative instruments embedded in other
contracts, and for hedging activities under Statement of Financial Accounting
Standard No. 133, Accounting for Derivative Instruments and Hedging Activities
(SFAS 133). SFAS 149 is effective for contracts entered into or modified after
June 30, 2003 and for hedging relationships designated after June 30, 2003.
The Company is currently in the process of evaluating the impact SFAS 149 may
have on its Condensed Consolidated Financial Statements.

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

FORWARD-LOOKING STATEMENTS

This quarterly report includes a number of statements which relate to
anticipated future events (forward-looking statements) rather than actual
present conditions or historical events. You can identify forward-looking
statements because generally they include words such as believes, expects,
intends, anticipates, estimates, and similar expressions.
Forward-looking statements in this quarterly report include expected
developments in the Companys insurance business, including losses for
asbestos, environmental pollution and mass tort claims; the Companys
expectations concerning its revenues, earnings, expenses and investment
activities; expected cost savings and other results from the Companys
restructuring activities; and the Companys proposed actions in response to
trends in its business.

Forward-looking statements, by their nature, are subject to a variety of
inherent risks and uncertainties that could cause actual results to differ
materially from the results projected. Many of these risks and uncertainties
cannot be controlled by the Company. Some examples of these risks and
uncertainties are:



| |  | general economic and business conditions, including inflationary pressures on medical care costs, construction costs and
other economic sectors that increase the severity of claims;                                                                                                                                             
|- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| 
| |  | changes in financial markets such as fluctuations in interest rates, long-term periods of low interest rates, credit
conditions and currency, commodity and stock prices;                                                                                                                                                         
| 
| |  | the effects of corporate bankruptcies, such as Enron and WorldCom, on surety bond claims, as well as 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 the Company, and rulings and changes in tax laws and regulations;
| 
| |  | regulatory limitations and restrictions upon the Company;                                                                                                                                                                                                                                                                         
| 
| |  | the impact of competitive products, policies and pricing and the competitive environment in which the Company operates,
including changes in the Companys books 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 underpriced 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 practices;                                                                                                                                                                                                                           
| 
| |  | the effectiveness of current initiatives by claims management to reduce loss and expense ratio through more efficacious
claims handling techniques;                                                                                                                                                                               
| 
| |  | the performance of reinsurance companies under reinsurance contracts with the Company;                                                                                                                                                                                                                                            
| 
| |  | results of financing efforts, including the availability of bank credit facilities;                                                                                                                                                                                                                                               
| 
| |  | changes in the Companys composition of operating segments;                                                                                                                                                                                                                                                                       

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



| |  | weather and other natural physical events, including the severity and
frequency of storms, hail, snowfall and other winter conditions, as
well as of natural disasters such as hurricanes and earthquakes;                                                                                                                           
|- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| 
| |  | man-made disasters, including the possible occurrence of terrorist
attacks and the effect of the absence of applicable terrorism
legislation on coverages;                                                                                                                                                                           
| 
| |  | the occurrence of epidemics;                                                                                                                                                                                                                                                                                                         
| 
| |  | exposure to liabilities due to claims made by insureds and others
relating to asbestos remediation and health-based asbestos
impairments, and exposure to liabilities for environmental pollution
and mass tort claims;                                                                                                              
| 
| |  | a national privately financed trust to replace litigation of asbestos
claims with payments to claimants from the trust is not established or
is not approved through federal legislation, or, if established and
approved, contains funding requirements in excess of the Companys
established loss reserve or carried loss reserve;
| 
| |  | the sufficiency of the Companys loss reserves and the possibility of
future increases in reserves;                                                                                                                                                                                                                                  
| 
| |  | the level of success in integrating acquired businesses and
operations, and in consolidating existing ones;                                                                                                                                                                                                                          
| 
| |  | the possibility of changes in the Companys ratings by ratings
agencies and changes in rating agency policies and practices; and                                                                                                                                                                                                     
| 
| |  | the actual closing of contemplated transactions and agreements.                                                                                                                                                                                                                                                                      

Any forward-looking statements made in this quarterly report are made by the
Company as of the date of this quarterly report. The Company does not have any
obligation to update or revise any forward-looking statement contained in this
quarterly report, even if the Companys expectations or any related events,
conditions or circumstances change.

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

Market Risk

Market risk is a broad term related to changes in the fair value of a financial
instrument. Discussions herein regarding market risk focus on only one element
of market risk - price risk. Price risk relates to changes in the level of
prices due to changes in interest rates, equity prices, foreign exchange rates
or other factors that relate to market volatility of the rate, index or price
underlying the financial instrument. The Companys primary market risk
exposures are due to changes in interest rates, although the Company has
certain exposures to changes in equity prices and foreign currency exchange
rates. The fair value of the financial instruments is adversely affected when
interest rates rise, equity markets decline and the dollar strengthens against
foreign currency.

Active management of market risk is integral to the Companys operations. The
Company may use the following tools to manage its exposure to market risk
within defined tolerance ranges: (1) change the character of future
investments purchased or sold, (2) use derivatives to offset the market
behavior of existing assets and liabilities or assets expected to be purchased
and liabilities to be incurred, or (3) rebalance its existing asset and
liability portfolios.

For purposes of this disclosure, market risk sensitive instruments are divided
into two categories: (1) instruments entered into for trading purposes and (2)
instruments entered into for purposes other than trading. The Companys
general account market risk sensitive instruments presented are classified as
held for purposes other than trading.

Sensitivity Analysis

CNA monitors its sensitivity to interest rate risk by evaluating the change in
the value of financial assets and liabilities due to fluctuations in interest
rates. The evaluation is performed by applying an instantaneous change in
interest rates of varying magnitudes on a static balance sheet to determine the
effect such a change in rates would have on the Companys market value at risk
and the resulting effect on stockholders equity. The analysis presents the
sensitivity of the market value of the Companys financial instruments to
selected changes in market rates and prices. The range of change chosen
reflects the Companys view of changes that are reasonably possible over a
one-year period. The selection of the range of values chosen to represent
changes in interest rates should not be construed as the Companys prediction
of future market events, but rather an illustration of the impact of such
events.

The sensitivity analysis estimates the decline in the market value of the
Companys interest sensitive assets and liabilities that were held on March 31,
2003 and December 31, 2002 due to instantaneous parallel increases in the
period end yield curve of 100 and 150 basis points.

The sensitivity analysis also assumes an instantaneous 10% and 20% decline in
the foreign currency exchange rates versus the United States dollar from their
levels at March 31, 2003 and December 31, 2002, with all other variables held
constant.

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CNA FINANCIAL CORPORATION
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK, Continued

Equity price risk was measured assuming an instantaneous 10% and 25% decline in
the S&P 500 Index (Index) from its level at March 31, 2003 and December 31,
2002 with all other variables held constant. The Companys equity holdings
were assumed to be highly and positively correlated with the Index. At March
31, 2003, a 10% and 25% decrease in the Index would result in a $271 million
and $675 million decrease compared to $234 million and $585 million decrease at
December 31, 2002, in the market value of the Companys equity investments.

Of these amounts, under the 10% and 25% scenarios, $123 million and $307
million at March 31, 2003 and $113 million and $284 million at December 31,
2002 pertained to decreases in the market value of the separate account
investments. These decreases would substantially be offset by decreases in
related separate account liabilities to customers. Similarly, increases in the
market value of the separate account equity investments would also be offset by
increases in the same related separate account liabilities by the same
approximate amounts.

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CNA FINANCIAL CORPORATION
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK, Continued

The following tables present the estimated effects on the market value of the
Companys financial instruments at March 31, 2003 and December 31, 2002, due to
an increase in interest rates of 100 basis points, a 10% decline in foreign
currency exchange rates and a 10% decline in the Index.

Market Risk Scenario 1

|                                                      |                             |                         |        |           |        |          |        |                     |        |   |     |     |     |   |      |     |      |  
|----------------------------------------------------- | --------------------------- | ----------------------- | ------ | --------- | ------ | -------- | ------ | ------------------- | ------ | - | --- | --- | --- | - | ---- | --- | ---- | -
|                                                      |                             |                         |        |           |        |          |        | Increase (Decrease)
|                                                      |                             |                         |        |           |        |          |        |                    
|March 31, 2003                                        |                             | Market                  |        | Interest  |        | Currency |        | Equity             
|(In millions)                                         |                             | Value                   |        | Rate Risk |        | Risk     |        | Risk               
|                                                      |                             |                         |        |           |        |          |        |                    
|Held for Other Than Trading Purposes:                 |                             |                         |        |           |        |          |        |                     |        |   |     |     |     |   |      |    
|General account:                                      |                             |                         |        |           |        |          |        |                     |        |   |     |     |     |   |      |    
|                                                      | Fixed maturity securities   |                         | $      | 27,971    |        |          | $      | (1,558              | )      |   | $   | (39 | )   |   | $    | (49 | )   
|                                                      | Equity securities           |                         |        | 553       |        |          |        |                    |        |   |     | (15 | )   |   |      | (55 | )   
|                                                      | Short-term investments      |                         |        | 5,354     |        |          |        | (5                  | )      |   |     | (12 | )   |   |      |    |     
|                                                      | Limited partnerships        |                         |        | 1,069     |        |          |        | 42                  |        |   |     |    |     |   |      | (44 | )   
|                                                      | Other invested assets       |                         |        | 263       |        |          |        |                    |        |   |     |    |     |   |      |    |     
|                                                      | Interest rate caps          |                         |        | 1         |        |          |        | 1                   |        |   |     |    |     |   |      |    |     
|                                                      | Interest rate swaps         |                         |        | (1        | )      |          |        | 6                   |        |   |     |    |     |   |      |    |     
|                                                      | Other derivative securities |                         |        | 3         |        |          |        | (58                 | )      |   |     | 1   |     |   |      |    |     
|                                                      |                             |                         |        |           |        |          |        |                     |        |   |     |     |     |   |      |    
|                                                      |                             | Total general account   |        |           | 35,213 |          |        |                     | (1,572 | ) |     |     | (65 | ) |      |     | (148 | )
|                                                      |                             |                         |        |           |        |          |        |                     |        |   |     |     |     |   |      |    
|Separate accounts:                                    |                             |                         |        |           |        |          |        |                     |        |   |     |     |     |   |      |    
|                                                      | Fixed maturity securities   |                         |        | 1,848     |        |          |        | (99                 | )      |   |     |    |     |   |      |    |     
|                                                      | Equity securities           |                         |        | 107       |        |          |        |                    |        |   |     |    |     |   |      | (11 | )   
|                                                      | Short-term investments      |                         |        | 94        |        |          |        |                    |        |   |     |    |     |   |      |    |     
|                                                      | Other invested assets       |                         |        | 363       |        |          |        |                    |        |   |     |    |     |   |      | (36 | )   
|                                                      |                             |                         |        |           |        |          |        |                     |        |   |     |     |     |   |      |    
|                                                      |                             | Total separate accounts |        |           | 2,412  |          |        |                     | (99    | ) |     |     |    |   |      |     | (47  | )
|                                                      |                             |                         |        |           |        |          |        |                     |        |   |     |     |     |   |      |    
|Total securities held for other than trading purposes |                             |                         | 37,625 |           |        |          | (1,671 | )                   |        |   | (65 | )   |     |   | (195 | )  
|                                                      |                             |                         |        |           |        |          |        |                     |        |   |     |     |     |   |      |    
|Held for Trading Purposes:                            |                             |                         |        |           |        |          |        |                     |        |   |     |     |     |   |      |    
|Separate accounts:                                    |                             |                         |        |           |        |          |        |                     |        |   |     |     |     |   |      |    
|                                                      | Fixed maturity securities   |                         |        | 235       |        |          |        | (4                  | )      |   |     |    |     |   |      | (1  | )   
|                                                      | Equity securities           |                         |        |          |        |          |        |                    |        |   |     |    |     |   |      |    |     
|                                                      | Short-term investments      |                         |        | 236       |        |          |        |                    |        |   |     |    |     |   |      |    |     
|                                                      | Limited partnerships        |                         |        | 339       |        |          |        |                    |        |   |     |    |     |   |      | (2  | )   
|                                                      | Equity indexed futures      |                         |        |          |        |          |        | 2                   |        |   |     |    |     |   |      | (73 | )   
|                                                      | Other derivative securities |                         |        |          |        |          |        | 1                   |        |   |     |    |     |   |      |    |     
|                                                      |                             |                         |        |           |        |          |        |                     |        |   |     |     |     |   |      |    
|Total securities held for trading purposes            |                             |                         | 810    |           |        |          | (1     | )                   |        |   |    |     |     |   | (76  | )  
|                                                      |                             |                         |        |           |        |          |        |                     |        |   |     |     |     |   |      |    
|Total securities                                      |                             | $                       | 38,435 |           |        | $        | (1,672 | )                   |        | $ | (65 | )   |     | $ | (271 | )  
|                                                      |                             |                         |        |           |        |          |        |                     |        |   |     |     |     |   |      |    
|Debt (carrying value)                                 |                             | $                       | 2,163  |           |        | $        | (77    | )                   |        | $ |    |     |     | $ |     |    
|                                                      |                             |                         |        |           |        |          |        |                     |        |   |     |     |     |   |      |    

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CNA FINANCIAL CORPORATION
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK, Continued

Market Risk Scenario 1

|                                                      |                             |                         |        |           |        |          |        |                     |        |   |     |     |     |   |      |     |      |  
|----------------------------------------------------- | --------------------------- | ----------------------- | ------ | --------- | ------ | -------- | ------ | ------------------- | ------ | - | --- | --- | --- | - | ---- | --- | ---- | -
|                                                      |                             |                         |        |           |        |          |        | Increase (Decrease)
|                                                      |                             |                         |        |           |        |          |        |                    
|December 31, 2002                                     |                             | Market                  |        | Interest  |        | Currency |        | Equity             
|(In millions)                                         |                             | Value                   |        | Rate Risk |        | Risk     |        | Risk               
|                                                      |                             |                         |        |           |        |          |        |                    
|Held for Other Than Trading Purposes:                 |                             |                         |        |           |        |          |        |                     |        |   |     |     |     |   |      |    
|General account:                                      |                             |                         |        |           |        |          |        |                     |        |   |     |     |     |   |      |    
|                                                      | Fixed maturity securities   |                         | $      | 26,275    |        |          | $      | (1,629              | )      |   | $   | (37 | )   |   | $    | (10 | )   
|                                                      | Equity securities           |                         |        | 666       |        |          |        |                    |        |   |     | (20 | )   |   |      | (67 | )   
|                                                      | Short-term investments      |                         |        | 7,008     |        |          |        | (6                  | )      |   |     | (18 | )   |   |      |    |     
|                                                      | Limited partnerships        |                         |        | 1,060     |        |          |        | 41                  |        |   |     |    |     |   |      | (43 | )   
|                                                      | Other invested assets       |                         |        | 263       |        |          |        |                    |        |   |     |    |     |   |      |    |     
|                                                      | Interest rate caps          |                         |        |          |        |          |        |                    |        |   |     |    |     |   |      |    |     
|                                                      | Interest rate swaps         |                         |        |          |        |          |        | 5                   |        |   |     |    |     |   |      |    |     
|                                                      | Other derivative securities |                         |        | 21        |        |          |        | (52                 | )      |   |     | 1   |     |   |      | (1  | )   
|                                                      |                             |                         |        |           |        |          |        |                     |        |   |     |     |     |   |      |    
|                                                      |                             | Total general account   |        |           | 35,293 |          |        |                     | (1,641 | ) |     |     | (74 | ) |      |     | (121 | )
|                                                      |                             |                         |        |           |        |          |        |                     |        |   |     |     |     |   |      |    
|Separate accounts:                                    |                             |                         |        |           |        |          |        |                     |        |   |     |     |     |   |      |    
|                                                      | Fixed maturity securities   |                         |        | 1,868     |        |          |        | (96                 | )      |   |     |    |     |   |      |    |     
|                                                      | Equity securities           |                         |        | 112       |        |          |        |                    |        |   |     |    |     |   |      | (11 | )   
|                                                      | Short-term investments      |                         |        | 110       |        |          |        |                    |        |   |     |    |     |   |      |    |     
|                                                      | Other invested assets       |                         |        | 387       |        |          |        |                    |        |   |     |    |     |   |      | (39 | )   
|                                                      |                             |                         |        |           |        |          |        |                     |        |   |     |     |     |   |      |    
|                                                      |                             | Total separate accounts |        |           | 2,477  |          |        |                     | (96    | ) |     |     |    |   |      |     | (50  | )
|                                                      |                             |                         |        |           |        |          |        |                     |        |   |     |     |     |   |      |    
|Total securities held for other than trading purposes |                             |                         | 37,770 |           |        |          | (1,737 | )                   |        |   | (74 | )   |     |   | (171 | )  
|                                                      |                             |                         |        |           |        |          |        |                     |        |   |     |     |     |   |      |    
|Held for Trading Purposes:                            |                             |                         |        |           |        |          |        |                     |        |   |     |     |     |   |      |    
|Separate accounts:                                    |                             |                         |        |           |        |          |        |                     |        |   |     |     |     |   |      |    
|                                                      | Fixed maturity securities   |                         |        | 145       |        |          |        | (3                  | )      |   |     |    |     |   |      |    |     
|                                                      | Equity securities           |                         |        | 6         |        |          |        |                    |        |   |     |    |     |   |      | (1  | )   
|                                                      | Short-term investments      |                         |        | 167       |        |          |        |                    |        |   |     |    |     |   |      |    |     
|                                                      | Limited partnerships        |                         |        | 327       |        |          |        |                    |        |   |     |    |     |   |      | (2  | )   
|                                                      | Equity indexed futures      |                         |        |          |        |          |        | 1                   |        |   |     |    |     |   |      | (60 | )   
|                                                      | Other derivative securities |                         |        |          |        |          |        |                    |        |   |     |    |     |   |      |    |     
|                                                      |                             |                         |        |           |        |          |        |                     |        |   |     |     |     |   |      |    
|Total securities held for trading purposes            |                             |                         | 645    |           |        |          | (2     | )                   |        |   |    |     |     |   | (63  | )  
|                                                      |                             |                         |        |           |        |          |        |                     |        |   |     |     |     |   |      |    
|Total securities                                      |                             | $                       | 38,415 |           |        | $        | (1,739 | )                   |        | $ | (74 | )   |     | $ | (234 | )  
|                                                      |                             |                         |        |           |        |          |        |                     |        |   |     |     |     |   |      |    
|Debt (carrying value)                                 |                             | $                       | 2,292  |           |        | $        | (86    | )                   |        | $ |    |     |     | $ |     |    
|                                                      |                             |                         |        |           |        |          |        |                     |        |   |     |     |     |   |      |    

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CNA FINANCIAL CORPORATION
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK, Continued

The following tables present the estimated effects on the market value of the
Companys financial instruments at March 31, 2003 and December 31, 2002, due to
an increase in interest rates of 150 basis points, a 20% decline in foreign
currency exchange rates and a 25% decline in the Index.

Market Risk Scenario 2

|                                                      |                             |                         |        |           |        |          |        |                     |        |   |      |     |      |   |      |      |      |  
|----------------------------------------------------- | --------------------------- | ----------------------- | ------ | --------- | ------ | -------- | ------ | ------------------- | ------ | - | ---- | --- | ---- | - | ---- | ---- | ---- | -
|                                                      |                             |                         |        |           |        |          |        | Increase (Decrease)
|                                                      |                             |                         |        |           |        |          |        |                    
|March 31, 2003                                        |                             | Market                  |        | Interest  |        | Currency |        | Equity             
|(In millions)                                         |                             | Value                   |        | Rate Risk |        | Risk     |        | Risk               
|                                                      |                             |                         |        |           |        |          |        |                    
|Held for Other Than Trading Purposes:                 |                             |                         |        |           |        |          |        |                     |        |   |      |     |      |   |      |     
|General account:                                      |                             |                         |        |           |        |          |        |                     |        |   |      |     |      |   |      |     
|                                                      | Fixed maturity securities   |                         | $      | 27,971    |        |          | $      | (2,225              | )      |   | $    | (78 | )    |   | $    | (120 | )   
|                                                      | Equity securities           |                         |        | 553       |        |          |        |                    |        |   |      | (30 | )    |   |      | (138 | )   
|                                                      | Short-term investments      |                         |        | 5,354     |        |          |        | (7                  | )      |   |      | (24 | )    |   |      |     |     
|                                                      | Limited partnerships        |                         |        | 1,069     |        |          |        | 63                  |        |   |      |    |      |   |      | (110 | )   
|                                                      | Other invested assets       |                         |        | 263       |        |          |        |                    |        |   |      |    |      |   |      |     |     
|                                                      | Interest rate caps          |                         |        | 1         |        |          |        | 1                   |        |   |      |    |      |   |      |     |     
|                                                      | Interest rate swaps         |                         |        | (1        | )      |          |        | 9                   |        |   |      |    |      |   |      |     |     
|                                                      | Other derivative securities |                         |        | 3         |        |          |        | (90                 | )      |   |      | 2   |      |   |      |     |     
|                                                      |                             |                         |        |           |        |          |        |                     |        |   |      |     |      |   |      |     
|                                                      |                             | Total general account   |        |           | 35,213 |          |        |                     | (2,249 | ) |      |     | (130 | ) |      |      | (368 | )
|                                                      |                             |                         |        |           |        |          |        |                     |        |   |      |     |      |   |      |     
|Separate accounts:                                    |                             |                         |        |           |        |          |        |                     |        |   |      |     |      |   |      |     
|                                                      | Fixed maturity securities   |                         |        | 1,848     |        |          |        | (141                | )      |   |      |    |      |   |      |     |     
|                                                      | Equity securities           |                         |        | 107       |        |          |        |                    |        |   |      |    |      |   |      | (27  | )   
|                                                      | Short-term investments      |                         |        | 94        |        |          |        |                    |        |   |      |    |      |   |      |     |     
|                                                      | Other invested assets       |                         |        | 363       |        |          |        |                    |        |   |      |    |      |   |      | (90  | )   
|                                                      |                             |                         |        |           |        |          |        |                     |        |   |      |     |      |   |      |     
|                                                      |                             | Total separate accounts |        |           | 2,412  |          |        |                     | (141   | ) |      |     |     |   |      |      | (117 | )
|                                                      |                             |                         |        |           |        |          |        |                     |        |   |      |     |      |   |      |     
|Total securities held for other than trading purposes |                             |                         | 37,625 |           |        |          | (2,390 | )                   |        |   | (130 | )   |      |   | (485 | )   
|                                                      |                             |                         |        |           |        |          |        |                     |        |   |      |     |      |   |      |     
|Held for Trading Purposes:                            |                             |                         |        |           |        |          |        |                     |        |   |      |     |      |   |      |     
|Separate accounts:                                    |                             |                         |        |           |        |          |        |                     |        |   |      |     |      |   |      |     
|                                                      | Fixed maturity securities   |                         |        | 235       |        |          |        | (6                  | )      |   |      |    |      |   |      | (2   | )   
|                                                      | Equity securities           |                         |        |          |        |          |        |                    |        |   |      |    |      |   |      |     |     
|                                                      | Short-term investments      |                         |        | 236       |        |          |        |                    |        |   |      |    |      |   |      |     |     
|                                                      | Limited partnerships        |                         |        | 339       |        |          |        |                    |        |   |      |    |      |   |      | (6   | )   
|                                                      | Equity indexed futures      |                         |        |          |        |          |        | 2                   |        |   |      |    |      |   |      | (182 | )   
|                                                      | Other derivative securities |                         |        |          |        |          |        | 2                   |        |   |      |    |      |   |      |     |     
|                                                      |                             |                         |        |           |        |          |        |                     |        |   |      |     |      |   |      |     
|Total securities held for trading purposes            |                             |                         | 810    |           |        |          | (2     | )                   |        |   |     |     |      |   | (190 | )   
|                                                      |                             |                         |        |           |        |          |        |                     |        |   |      |     |      |   |      |     
|Total securities                                      |                             | $                       | 38,435 |           |        | $        | (2,392 | )                   |        | $ | (130 | )   |      | $ | (675 | )   
|                                                      |                             |                         |        |           |        |          |        |                     |        |   |      |     |      |   |      |     
|Debt (carrying value)                                 |                             | $                       | 2,163  |           |        | $        | (112   | )                   |        | $ |     |     |      | $ |     |     
|                                                      |                             |                         |        |           |        |          |        |                     |        |   |      |     |      |   |      |     

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CNA FINANCIAL CORPORATION
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK, Continued

Market Risk Scenario 2

|                                                      |                             |                         |        |           |        |          |        |                     |        |   |      |     |      |   |      |      |      |  
|----------------------------------------------------- | --------------------------- | ----------------------- | ------ | --------- | ------ | -------- | ------ | ------------------- | ------ | - | ---- | --- | ---- | - | ---- | ---- | ---- | -
|                                                      |                             |                         |        |           |        |          |        | Increase (Decrease)
|                                                      |                             |                         |        |           |        |          |        |                    
|December 31, 2002                                     |                             | Market                  |        | Interest  |        | Currency |        | Equity             
|(In millions)                                         |                             | Value                   |        | Rate Risk |        | Risk     |        | Risk               
|                                                      |                             |                         |        |           |        |          |        |                    
|Held for Other Than Trading Purposes:                 |                             |                         |        |           |        |          |        |                     |        |   |      |     |      |   |      |     
|General account:                                      |                             |                         |        |           |        |          |        |                     |        |   |      |     |      |   |      |     
|                                                      | Fixed maturity securities   |                         | $      | 26,275    |        |          | $      | (2,430              | )      |   | $    | (73 | )    |   | $    | (24  | )   
|                                                      | Equity securities           |                         |        | 666       |        |          |        |                    |        |   |      | (41 | )    |   |      | (166 | )   
|                                                      | Short-term investments      |                         |        | 7,008     |        |          |        | (9                  | )      |   |      | (36 | )    |   |      |     |     
|                                                      | Limited partnerships        |                         |        | 1,060     |        |          |        | 62                  |        |   |      |    |      |   |      | (109 | )   
|                                                      | Other invested assets       |                         |        | 263       |        |          |        |                    |        |   |      |    |      |   |      |     |     
|                                                      | Interest rate caps          |                         |        |          |        |          |        | 1                   |        |   |      |    |      |   |      |     |     
|                                                      | Interest rate swaps         |                         |        |          |        |          |        | 7                   |        |   |      |    |      |   |      |     |     
|                                                      | Other derivative securities |                         |        | 21        |        |          |        | (86                 | )      |   |      | 2   |      |   |      | (2   | )   
|                                                      |                             |                         |        |           |        |          |        |                     |        |   |      |     |      |   |      |     
|                                                      |                             | Total general account   |        |           | 35,293 |          |        |                     | (2,455 | ) |      |     | (148 | ) |      |      | (301 | )
|                                                      |                             |                         |        |           |        |          |        |                     |        |   |      |     |      |   |      |     
|Separate accounts:                                    |                             |                         |        |           |        |          |        |                     |        |   |      |     |      |   |      |     
|                                                      | Fixed maturity securities   |                         |        | 1,868     |        |          |        | (137                | )      |   |      |    |      |   |      |     |     
|                                                      | Equity securities           |                         |        | 112       |        |          |        |                    |        |   |      |    |      |   |      | (28  | )   
|                                                      | Short-term investments      |                         |        | 110       |        |          |        |                    |        |   |      |    |      |   |      |     |     
|                                                      | Other invested assets       |                         |        | 387       |        |          |        |                    |        |   |      |    |      |   |      | (97  | )   
|                                                      |                             |                         |        |           |        |          |        |                     |        |   |      |     |      |   |      |     
|                                                      |                             | Total separate accounts |        |           | 2,477  |          |        |                     | (137   | ) |      |     |     |   |      |      | (125 | )
|                                                      |                             |                         |        |           |        |          |        |                     |        |   |      |     |      |   |      |     
|Total securities held for other than trading purposes |                             |                         | 37,770 |           |        |          | (2,592 | )                   |        |   | (148 | )   |      |   | (426 | )   
|                                                      |                             |                         |        |           |        |          |        |                     |        |   |      |     |      |   |      |     
|Held for Trading Purposes:                            |                             |                         |        |           |        |          |        |                     |        |   |      |     |      |   |      |     
|Separate accounts:                                    |                             |                         |        |           |        |          |        |                     |        |   |      |     |      |   |      |     
|                                                      | Fixed maturity securities   |                         |        | 145       |        |          |        | (5                  | )      |   |      |    |      |   |      | (1   | )   
|                                                      | Equity securities           |                         |        | 6         |        |          |        |                    |        |   |      |    |      |   |      | (2   | )   
|                                                      | Short-term investments      |                         |        | 167       |        |          |        |                    |        |   |      |    |      |   |      |     |     
|                                                      | Limited partnerships        |                         |        | 327       |        |          |        |                    |        |   |      |    |      |   |      | (5   | )   
|                                                      | Equity indexed futures      |                         |        |          |        |          |        | 2                   |        |   |      |    |      |   |      | (151 | )   
|                                                      | Other derivative securities |                         |        |          |        |          |        |                    |        |   |      |    |      |   |      |     |     
|                                                      |                             |                         |        |           |        |          |        |                     |        |   |      |     |      |   |      |     
|Total securities held for trading purposes            |                             |                         | 645    |           |        |          | (3     | )                   |        |   |     |     |      |   | (159 | )   
|                                                      |                             |                         |        |           |        |          |        |                     |        |   |      |     |      |   |      |     
|Total securities                                      |                             | $                       | 38,415 |           |        | $        | (2,595 | )                   |        | $ | (148 | )   |      | $ | (585 | )   
|                                                      |                             |                         |        |           |        |          |        |                     |        |   |      |     |      |   |      |     
|Debt (carrying value)                                 |                             | $                       | 2,292  |           |        | $        | (125   | )                   |        | $ |     |     |      | $ |     |     
|                                                      |                             |                         |        |           |        |          |        |                     |        |   |      |     |      |   |      |     

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CNA FINANCIAL CORPORATION
ITEM 4. CONTROLS AND PROCEDURES

The Company maintains a system of disclosure controls and procedures which are
designed to ensure that information required to be disclosed by the Company in
reports that it files or submits to the Securities and Exchange Commission
under the Securities Exchange Act of 1934, including this report, is recorded,
processed, summarized and reported on a timely basis. These disclosure
controls and procedures include controls and procedures designed to ensure that
information required to be disclosed under the Exchange Act is accumulated and
communicated to the Companys management on a timely basis to allow decisions
regarding required disclosure.

The Companys chief executive officer and chief financial officer have
conducted an evaluation of the Companys disclosure controls and procedures as
of a date within 90 days prior to the date of this report. Based on this
evaluation, the Companys chief executive officer and chief financial officer
have each concluded that the Companys disclosure controls and procedures are
effective for their intended purpose.

There were no significant changes in the Companys internal controls or in
other factors that could significantly affect these controls subsequent to the
date of their evaluation, including any corrective actions with regard to
significant deficiencies and material weaknesses.

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CNA FINANCIAL CORPORATION
PART II. OTHER INFORMATION




Item 1. Legal Proceedings

Information on CNAs legal proceedings is set forth in Notes F and G of the
Condensed Consolidated Financial Statements included under Part I, Item 1.




Item 6. Exhibits and Reports on Form 8-K

(a)  Exhibits

|                                                                                                                                          |  |                |       | 
|----------------------------------------------------------------------------------------------------------------------------------------- |  | -------------- | ----- | 
|Description of Exhibit                                                                                                                    |  | Exhibit Number
|                                                                                                                                         
|Amendment to Employment Agreement between CNA Financial
Corporation and Jonathan D. Kantor, dated March 20, 2003                          |  |                | 10.14 | 
|                                                                                                                                          |  |                |       | 
|Certification of Chief Executive Officer pursuant to 18 U.S.C. 1350,
as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 |  |                | 99.1  | 
|                                                                                                                                          |  |                |       | 
|Certification of Chief Financial Officer pursuant to 18 U.S.C. 1350, as
adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 |  |                | 99.2  | 

(b)  Reports on Form 8-K

On March 19, 2003, CNA Financial Corporation issued a release providing
information with respect to a revision of 4th quarter and year-end 2002
results.

On March 12, 2003, CNA Financial Corporation issued a release providing
information with respect to certain reinsurance receivables.

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CNA FINANCIAL CORPORATION
PART II. OTHER INFORMATION




SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.



|
|

| |  |  |  |  | CNA Financial Corporation
| |  |  |  |  | -------------------------

|                   |  |  |  |  |    |                                    |  | 
|------------------ |  |  |  |  | -- | ---------------------------------- |  | 
|Dated: May 9, 2003 |  |  |  |  | By | /s/ Robert V. Deutsch             
|                   |  |  |  |  |    |                                   
|                   |  |  |  |  |    | Robert V. Deutsch                 
|                   |  |  |  |  |    | Executive Vice President and      
|                   |  |  |  |  |    | Chief Financial Officer (Principal
|                   |  |  |  |  |    | Accounting Officer)               

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CNA FINANCIAL CORPORATION
PART II. OTHER INFORMATION




CERTIFICATIONS

I, Stephen W. Lilienthal, Chief Executive Officer of CNA Financial Corporation, certify that:



|1. |  | I have reviewed this quarterly report on Form 10-Q of CNA Financial Corporation;                                                                                                                                                                                                                                              
|-- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|  
|2. |  | Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact
or omit to state a material fact necessary to make the statements made, in light of the circumstances
under which such statements were made, not misleading with respect to the period covered by this
quarterly report;
|  
|3. |  | Based on my knowledge, the financial statements, and other financial information included in this
quarterly report, fairly present in all material respects the financial condition, results of
operations and cash flows of the registrant as of, and for, the periods presented in this quarterly
report;                   
|  
|4. |  | The registrants other certifying officers and I are responsible for establishing and maintaining
disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the
registrant and we have:                                                                                                     



| | a) |  | Designed such disclosure controls and procedures to ensure that material
information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities,
particularly during the period in which this quarterly report is being
prepared;
| | -- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| | b) |  | Evaluated the effectiveness of the registrants disclosure controls and
procedures as of a date within 90 days prior to the filing date of this
quarterly report (the Evaluation Date); and                                                                                                    
|
| | c) |  | Presented in this quarterly report our conclusions about the effectiveness
of the disclosure controls and procedures based on our evaluation as of the
Evaluation Date;                                                                                                                        



|5. |  | The registrants other certifying officers and I have disclosed, based on our most recent evaluation,
to the registrants auditors and the audit committee of registrants board of directors (or persons
performing the equivalent function):
|-- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | a) |  | All significant deficiencies in the design or operation of internal controls
which could adversely affect the registrants ability to record, process,
summarize and report financial data and have identified for the registrants
auditors any material weaknesses in internal controls; and
| | -- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| | b) |  | Any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrants internal controls;
and                                                                                                                                        



|6. |  | The registrants other certifying officers and I have indicated in this quarterly report whether or
not there were significant changes in internal controls or in other factors that could significantly
affect internal controls subsequent to the date of our most recent evaluation, including any
corrective actions with regard to significant deficiencies and material weaknesses.
|-- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|                   |  |  |    |                           |  |                         |  | 
|------------------ |  |  | -- | ------------------------- |  | ----------------------- |  | 
|Dated: May 9, 2003 |  |  | By | /s/ Stephen W. Lilienthal
|                   |  |  |    |                           |  |                        
|                   |  |  |    |                           |  | Stephen W. Lilienthal  
|                   |  |  |    |                           |  | Chief Executive Officer

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##### Table of Contents



CNA FINANCIAL CORPORATION
PART II. OTHER INFORMATION

CERTIFICATIONS

I, Robert V. Deutsch, Chief Financial Officer of CNA Financial Corporation, certify that:



|1. |  | I have reviewed this quarterly report on Form 10-Q of CNA Financial Corporation;                                                                                                                                                                                                                                              
|-- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|  
|2. |  | Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact
or omit to state a material fact necessary to make the statements made, in light of the circumstances
under which such statements were made, not misleading with respect to the period covered by this
quarterly report;
|  
|3. |  | Based on my knowledge, the financial statements, and other financial information included in this
quarterly report, fairly present in all material respects the financial condition, results of
operations and cash flows of the registrant as of, and for, the periods presented in this quarterly
report;                   
|  
|4. |  | The registrants other certifying officers and I are responsible for establishing and maintaining
disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the
registrant and we have:                                                                                                     



| | a) |  | Designed such disclosure controls and procedures to ensure that material
information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities,
particularly during the period in which this quarterly report is being
prepared;
| | -- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| | b) |  | Evaluated the effectiveness of the registrants disclosure controls and
procedures as of a date within 90 days prior to the filing date of this
quarterly report (the Evaluation Date); and                                                                                                    
|
| | c) |  | Presented in this quarterly report our conclusions about the effectiveness
of the disclosure controls and procedures based on our evaluation as of the
Evaluation Date;                                                                                                                        



|5. |  | The registrants other certifying officers and I have disclosed, based on our most recent evaluation,
to the registrants auditors and the audit committee of registrants board of directors (or persons
performing the equivalent function):
|-- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | a) |  | All significant deficiencies in the design or operation of internal controls
which could adversely affect the registrants ability to record, process,
summarize and report financial data and have identified for the registrants
auditors any material weaknesses in internal controls; and
| | -- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| | b) |  | Any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrants internal controls;
and                                                                                                                                        



|6. |  | The registrants other certifying officers and I have indicated in this quarterly report whether or
not there were significant changes in internal controls or in other factors that could significantly
affect internal controls subsequent to the date of our most recent evaluation, including any
corrective actions with regard to significant deficiencies and material weaknesses.
|-- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|                   |  |  |    |                       |  |                         |  | 
|------------------ |  |  | -- | --------------------- |  | ----------------------- |  | 
|Dated: May 9, 2003 |  |  | By | /s/ Robert V. Deutsch
|                   |  |  |    |                       |  |                        
|                   |  |  |    |                       |  | Robert V. Deutsch      
|                   |  |  |    |                       |  | Chief Financial Officer

92