##### Table of Contents



UNITED STATES SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 
 FORM 10-K
 
 þ
    
    ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
 For the Fiscal Year Ended December 31, 2006
  o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
 For
the transition period from ___ to ___
 Commission File Number 1-5823
 
 CNA FINANCIAL CORPORATION
 (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.)333 S. Wabash 
Chicago, Illinois(Address of principal executive
offices)
    
    60604(Zip Code)
 (312) 822-5000(Registrants telephone number,
including area code)
 
  Title
of each class
    
    Name of each exchange on
which registeredCommon Stock 
with a par value 
of $2.50 per share
    
    New York Stock Exchange
Chicago Stock Exchange
NYSE Arca
 Securities
registered pursuant to Section 12(g) of the Act: None
 
 þ o
 o þ
 þ o
 o
  þ o o
 o þ
  DOCUMENTS INCORPORATED BY REFERENCE:




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##### 



Item
    
    
    
    PageNumber
    
    
    
    NumberPART I1.
    
    Business
    
    
    31A.
    
    Risk Factors
    
    
    81B.
    
    Unresolved Staff Comments
    
    
    152.
    
    Properties
    
    
    153.
    
    Legal Proceedings
    
    
    154.
    
    Submission of Matters to a Vote of Security Holders
    
    
    15PART II5.
    
    Market for the Registrants Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
    
    
    166.
    
    Selected Financial Data
    
    
    177.
    
    Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    187A.
    
    Quantitative and Qualitative Disclosures about Market Risk
    
    
    608.
    
    Financial Statements and Supplementary Data
    
    
    659.
    
    Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
    
    
    1399A.
    
    Controls and Procedures
    
    
    1399B.
    
    Other Information
    
    
    139PART III10.
    
    Directors, Executive Officers and Corporate Governance
    
    
    14011.
    
    Executive Compensation
    
    
    14112.
    
    Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
    
    
    14113.
    
    Certain Relationships and Related Transactions, and Director Independence
    
    
    14114.
    
    Principal Accounting Fees and Services
    
    
    141PART IV15.
    
    Exhibits and Financial Statement Schedules
    
    
    142Certificate of Amendment of Certificate of IncorporationAmendment to Employment AgreementSignificant SubsidiariesConsent of Independent Registered Public Accounting FirmCertificationCertificationCertificationCertification




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##### Table of Contents



PART I
 
 ITEM 1. BUSINESS
     Competition
    Regulation
   3




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##### Table of Contents



Employee Relations
   4




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##### Table of Contents



Supplementary Insurance Data
  Supplementary Insurance Data
 Years ended December 31(In millions, except ratio information)
    
    2006
    
    2005
    
    2004Trade Ratios  GAAP basis (a)Loss and loss adjustment expense ratio
    
    
    75.7
    %
    
    
    89.4
    %
    
    
    74.6
    %Expense ratio
    
    
    30.0
    
    
    
    31.2
    
    
    
    31.5Dividend ratio
    
    
    0.3
    
    
    
    0.3
    
    
    
    0.2Combined ratio
    
    
    106.0
    %
    
    
    120.9
    %
    
    
    106.3
    %Trade Ratios  Statutory basis (preliminary) (a)Loss and loss adjustment expense ratio
    
    
    78.7
    %
    
    
    92.2
    %
    
    
    78.1
    %Expense ratio
    
    
    30.2
    
    
    
    30.0
    
    
    
    27.2Dividend ratio
    
    
    0.2
    
    
    
    0.5
    
    
    
    0.6Combined ratio
    
    
    109.1
    %
    
    
    122.7
    %
    
    
    105.9
    %Individual Life and Group Life Insurance InforceIndividual life
    
    $
    9,866
    
    
    $
    10,711
    
    
    $
    11,566Group life
    
    
    5,787
    
    
    
    9,838
    
    
    
    45,079Total
    
    $
    15,653
    
    
    $
    20,549
    
    
    $
    56,645Other Data  Statutory basis (preliminary) (b)Property and casualty companies capital and surplus (c)
    
    $
    8,137
    
    
    $
    6,940
    
    
    $
    6,998Life companys capital and surplus
    
    
    687
    
    
    
    627
    
    
    
    1,177Property and casualty companies written premiums to surplus ratio
    
    
    0.9
    
    
    
    1.0
    
    
    
    1.0Life companys capital and surplus-percent to total liabilities
    
    
    38.9
    %
    
    
    33.1
    %
    
    
    56.0
    %Participating policyholders-percent of gross life insurance inforce
    
    
    4.4
    %
    
    
    3.5
    %
    
    
    1.4
    %
 
 (a)
    
    Trade ratios reflect the results of our property and casualty insurance
subsidiaries. Trade ratios are industry measures of property and casualty underwriting
results. The loss and loss adjustment expense ratio is the percentage of net incurred claim
and claim adjustment expenses and the expenses incurred related to uncollectible
reinsurance receivables to net earned premiums. The primary difference in this ratio between
accounting principles generally accepted in the United States of America (GAAP) and
statutory accounting practices (SAP) is related to the treatment of active life reserves
(ALR) related to long term care insurance products written in property and casualty
insurance subsidiaries. For GAAP, ALR is classified as claim and claim adjustment expense
reserves whereas for SAP, ALR is classified as unearned premium reserves. The expense ratio,
using amounts determined in accordance with GAAP, is the percentage of underwriting and
acquisition expenses (including the amortization of deferred acquisition expenses) to net
earned premiums. The expense ratio, using amounts determined in accordance with SAP, is the
percentage of acquisition and underwriting expenses (with no deferral of acquisition
expenses) to net written premiums. The dividend ratio, using amounts determined in
accordance with GAAP, is the ratio of dividends incurred to net earned premiums. The
dividend ratio, using amounts determined in accordance with SAP, is the ratio of dividends
paid to net earned premiums. The combined ratio is the sum of the loss and loss adjustment
expense, expense and dividend ratios.(b)
    
    Other data is determined in accordance with SAP. Life and group statutory capital and
surplus as a percent of total liabilities is determined after excluding separate account
liabilities and reclassifying the statutorily required Asset Valuation Reserve to surplus.(c)
    
    Surplus includes the property and casualty companies equity ownership of the life
companys capital and surplus. 5




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##### Table of Contents



Gross Written Premiums
 Percent of TotalYears ended December 31
    
    2006
    
    2005
    
    2004California
    
    
    9.6
    %
    
    
    9.0
    %
    
    
    9.3
    %Florida
    
    
    7.9
    
    
    
    7.1
    
    
    
    7.1New York
    
    
    7.3
    
    
    
    7.9
    
    
    
    7.9Texas
    
    
    5.9
    
    
    
    5.7
    
    
    
    5.4New Jersey
    
    
    4.4
    
    
    
    3.8
    
    
    
    5.3Illinois
    
    
    4.1
    
    
    
    4.2
    
    
    
    5.1Pennsylvania
    
    
    3.4
    
    
    
    4.2
    
    
    
    4.7United Kingdom
    
    
    3.2
    
    
    
    2.8
    
    
    
    2.3Missouri
    
    
    3.0
    
    
    
    2.8
    
    
    
    1.4Massachusetts
    
    
    2.4
    
    
    
    3.3
    
    
    
    3.2All other states, countries or political subdivisions (a)
    
    
    48.8
    
    
    
    49.2
    
    
    
    48.3Total
    
    
    100.0
    %
    
    
    100.0
    %
    
    
    100.0
    %
 
 (a)
    
    No other individual state, country or political subdivision accounts for more than 3.0% of
gross written premiums.  Property and Casualty Claim and Claim Adjustment Expenses
   6




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##### Table of Contents



Schedule of Loss Reserve Development
 Calendar Year Ended(In millions)
    
    1996
    
    
    1997
    
    
    1998
    
    
    1999 (a)
    
    
    2000
    
    
    2001 (b)
    
    
    2002 (c)
    
    
    2003
    
    
    2004
    
    
    2005
    
    
    2006Originally reported gross
reserves for unpaid claim
and claim adjustment
expenses
    
    $
    29,559
    
    
    $
    28,731
    
    
    $
    28,506
    
    
    $
    26,850
    
    
    $
    26,510
    
    
    $
    29,649
    
    
    $
    25,719
    
    
    $
    31,284
    
    
    $
    31,204
    
    
    $
    30,694
    
    
    $
    29,459Originally reported ceded
recoverable
    
    
    5,385
    
    
    
    5,056
    
    
    
    5,182
    
    
    
    6,091
    
    
    
    7,333
    
    
    
    11,703
    
    
    
    10,490
    
    
    
    13,847
    
    
    
    13,682
    
    
    
    10,438
    
    
    
    8,078Originally reported net
reserves for unpaid claim
and claim adjustment
expenses
    
    $
    24,174
    
    
    $
    23,675
    
    
    $
    23,324
    
    
    $
    20,759
    
    
    $
    19,177
    
    
    $
    17,946
    
    
    $
    15,229
    
    
    $
    17,437
    
    
    $
    17,522
    
    
    $
    20,256
    
    
    $
    21,381Cumulative net paid as of:One year later
    
    $
    5,851
    
    
    $
    5,954
    
    
    $
    7,321
    
    
    $
    6,547
    
    
    $
    7,686
    
    
    $
    5,981
    
    
    $
    5,373
    
    
    $
    4,382
    
    
    $
    2,651
    
    
    $
    3,442
    
    
    $
    Two years later
    
    
    9,796
    
    
    
    11,394
    
    
    
    12,241
    
    
    
    11,937
    
    
    
    11,992
    
    
    
    10,355
    
    
    
    8,768
    
    
    
    6,104
    
    
    
    4,963
    
    
    
    
    
    
    
    Three years later
    
    
    13,602
    
    
    
    14,423
    
    
    
    16,020
    
    
    
    15,256
    
    
    
    15,291
    
    
    
    12,954
    
    
    
    9,747
    
    
    
    7,780
    
    
    
    
    
    
    
    
    
    
    
    Four years later
    
    
    15,793
    
    
    
    17,042
    
    
    
    18,271
    
    
    
    18,151
    
    
    
    17,333
    
    
    
    13,244
    
    
    
    10,870
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Five years later
    
    
    17,736
    
    
    
    18,568
    
    
    
    20,779
    
    
    
    19,686
    
    
    
    17,775
    
    
    
    13,922
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Six years later
    
    
    18,878
    
    
    
    20,723
    
    
    
    21,970
    
    
    
    20,206
    
    
    
    18,970
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Seven years later
    
    
    20,828
    
    
    
    21,649
    
    
    
    22,564
    
    
    
    21,231
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Eight years later
    
    
    21,609
    
    
    
    22,077
    
    
    
    23,453
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Nine years later
    
    
    21,986
    
    
    
    22,800
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Ten years later
    
    
    22,642
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Net reserves re-estimated
as of:End of initial year
    
    $
    24,174
    
    
    $
    23,675
    
    
    $
    23,324
    
    
    $
    20,759
    
    
    $
    19,177
    
    
    $
    17,946
    
    
    $
    15,229
    
    
    $
    17,437
    
    
    $
    17,522
    
    
    $
    20,256
    
    
    $
    21,381One year later
    
    
    23,970
    
    
    
    23,904
    
    
    
    24,306
    
    
    
    21,163
    
    
    
    21,502
    
    
    
    17,980
    
    
    
    17,650
    
    
    
    17,671
    
    
    
    18,513
    
    
    
    20,588
    
    
    
    Two years later
    
    
    23,610
    
    
    
    24,106
    
    
    
    24,134
    
    
    
    23,217
    
    
    
    21,555
    
    
    
    20,533
    
    
    
    18,248
    
    
    
    19,120
    
    
    
    19,044
    
    
    
    
    
    
    
    Three years later
    
    
    23,735
    
    
    
    23,776
    
    
    
    26,038
    
    
    
    23,081
    
    
    
    24,058
    
    
    
    21,109
    
    
    
    19,814
    
    
    
    19,760
    
    
    
    
    
    
    
    
    
    
    
    Four years later
    
    
    23,417
    
    
    
    25,067
    
    
    
    25,711
    
    
    
    25,590
    
    
    
    24,587
    
    
    
    22,547
    
    
    
    20,384
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Five years later
    
    
    24,499
    
    
    
    24,636
    
    
    
    27,754
    
    
    
    26,000
    
    
    
    25,594
    
    
    
    22,983
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Six years later
    
    
    24,120
    
    
    
    26,338
    
    
    
    28,078
    
    
    
    26,625
    
    
    
    26,023
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Seven years later
    
    
    25,629
    
    
    
    26,537
    
    
    
    28,437
    
    
    
    27,009
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Eight years later
    
    
    25,813
    
    
    
    26,770
    
    
    
    28,705
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Nine years later
    
    
    26,072
    
    
    
    26,997
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Ten years later
    
    
    26,305
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Total net (deficiency)
redundancy
    
    $
    (2,131
    )
    
    $
    (3,322
    )
    
    $
    (5,381
    )
    
    $
    (6,250
    )
    
    $
    (6,846
    )
    
    $
    (5,037
    )
    
    $
    (5,155
    )
    
    $
    (2,323
    )
    
    $
    (1,522
    )
    
    $
    (332
    )
    
    $
    Reconciliation to gross
re-estimated reserves:Net reserves re-estimated
    
    $
    26,305
    
    
    $
    26,997
    
    
    $
    28,705
    
    
    $
    27,009
    
    
    $
    26,023
    
    
    $
    22,983
    
    
    $
    20,384
    
    
    $
    19,760
    
    
    $
    19,044
    
    
    $
    20,588
    
    
    $
    Re-estimated ceded
recoverable
    
    
    7,619
    
    
    
    6,953
    
    
    
    7,469
    
    
    
    9,810
    
    
    
    10,541
    
    
    
    15,939
    
    
    
    15,298
    
    
    
    13,722
    
    
    
    12,624
    
    
    
    10,094
    
    
    
    Total gross re-estimated
reserves
    
    $
    33,924
    
    
    $
    33,950
    
    
    $
    36,174
    
    
    $
    36,819
    
    
    $
    36,564
    
    
    $
    38,922
    
    
    $
    35,682
    
    
    $
    33,482
    
    
    $
    31,668
    
    
    $
    30,682
    
    
    $
    Net (deficiency)
redundancy related to:Asbestos claims
    
    $
    (2,461
    )
    
    $
    (2,361
    )
    
    $
    (2,120
    )
    
    $
    (1,544
    )
    
    $
    (1,479
    )
    
    $
    (707
    )
    
    $
    (707
    )
    
    $
    (65
    )
    
    $
    (11
    )
    
    $
    
    
    
    $
    Environmental and mass
tort claims
    
    
    (807
    )
    
    
    (834
    )
    
    
    (618
    )
    
    
    (722
    )
    
    
    (716
    )
    
    
    (256
    )
    
    
    (263
    )
    
    
    (117
    )
    
    
    (116
    )
    
    
    (63
    )
    
    
    Total asbestos,
environmental and mass
tort
    
    
    (3,268
    )
    
    
    (3,195
    )
    
    
    (2,738
    )
    
    
    (2,266
    )
    
    
    (2,195
    )
    
    
    (963
    )
    
    
    (970
    )
    
    
    (182
    )
    
    
    (127
    )
    
    
    (63
    )
    
    
    Other claims
    
    
    1,137
    
    
    
    (127
    )
    
    
    (2,643
    )
    
    
    (3,984
    )
    
    
    (4,651
    )
    
    
    (4,074
    )
    
    
    (4,185
    )
    
    
    (2,141
    )
    
    
    (1,395
    )
    
    
    (269
    )
    
    
    Total net (deficiency)
redundancy
    
    $
    (2,131
    )
    
    $
    (3,322
    )
    
    $
    (5,381
    )
    
    $
    (6,250
    )
    
    $
    (6,846
    )
    
    $
    (5,037
    )
    
    $
    (5,155
    )
    
    $
    (2,323
    )
    
    $
    (1,522
    )
    
    $
    (332
    )
    
    $
    
 7




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##### Table of Contents



(a)
    
    Ceded recoverable includes reserves transferred under retroactive reinsurance
agreements of $784 million as of December 31, 1999.(b)
    
    Effective January 1, 2001, we established a new life insurance company, CNA Group Life
Assurance Company (CNAGLA). Further, on January 1, 2001 approximately $1,055 million of
reserves were transferred from CCC to CNAGLA.(c)
    
    Effective October 31,
2002, we sold CNA Reinsurance Company Limited (CNA Re U.K.). As a
result of the sale, net reserves were reduced by approximately $1,316 million.  Investments
  Available Information
   
 ITEM 1A. RISK FACTORS
  If we determine that loss reserves are insufficient to cover our estimated ultimate unpaid
liability for claims, we may need to increase our loss reserves.
  8




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##### Table of Contents




    
    increases in the number and size of claims relating to injuries from medical products;
    
    the effects of accounting and financial reporting scandals and other major corporate governance failures,
which have resulted in an increase in the number and size of claims, including director and officer and errors and
omissions insurance claims;
    
    class action litigation relating to claims handling and other practices;
    
    construction defect claims, including claims for a broad range of additional insured endorsements on policies;
    
    clergy abuse claims, including passage of legislation to reopen or extend various statutes of limitations; and
    
    mass tort claims, including bodily injury claims related to silica, welding rods, benzene, lead and various
other chemical exposure claims.
  Loss reserves for asbestos, environmental pollution and mass torts are especially difficult to
estimate and may result in more frequent and larger additions to these reserves.
  
    
    coverage issues including whether certain costs are covered under the policies and whether policy limits apply;
    
    inconsistent court decisions and developing legal theories;
    
    increasingly aggressive tactics of plaintiffs lawyers;
    
    the risks and lack of predictability inherent in major litigation;
    
    changes in the volume of asbestos, environmental pollution and mass tort claims which cannot now be
anticipated;
    
    continued increases in mass tort claims relating to silica and silica-containing products;
    
    the impact of the exhaustion of primary limits and the resulting increase in claims on any umbrella or excess
policies we have issued;
    
    the number and outcome of direct actions against us;
 9




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##### Table of Contents




    
    our ability to recover reinsurance for these claims; and

    
    changes in the legal and legislative environment in which we operate.
  Environmental pollution claims.
 

    
    whether cleanup costs are considered damages under the policies (and accordingly whether we would be liable
for these costs);

    
    the trigger of coverage and the allocation of liability among triggered policies;

    
    the applicability of pollution exclusions and owned property exclusions;

    
    the potential for joint and several liability; and

    
    the definition of an occurrence.
   Asbestos claims.
 

    
    inconsistency of court decisions and jury attitudes, as well as future court decisions;

    
    specific policy provisions;

    
    allocation of liability among insurers and insureds;

    
    missing policies and proof of coverage;

    
    the proliferation of bankruptcy proceedings and attendant uncertainties;

    
    novel theories asserted by policyholders and their legal counsel;

    
    the targeting of a broader range of businesses and entities as defendants;

    
    uncertainties in predicting the number of future claims and which other insureds may be targeted in the future;

    
    volatility in claim numbers and settlement demands;

    
    increases in the number of non-impaired claimants and the extent to which they can be precluded from making
claims;

    
    the efforts by insureds to obtain coverage that is not subject to aggregate limits;

    
    the long latency period between asbestos exposure and disease manifestation, as well as the resulting
potential for involvement of multiple policy periods for individual claims;

    
    medical inflation trends;
 10




---



##### Table of Contents




    
    the mix of asbestos-related diseases presented; and
    
    the ability to recover reinsurance.
  Catastrophe losses are unpredictable.
  Our key assumptions used to determine reserves and deferred acquisition costs for our long term
care product offerings could vary significantly.
  We continue to face exposure to losses arising from terrorist acts, despite the passage of the
Terrorism Risk Insurance Extension Act of 2005.
  High levels of retained overhead expenses associated with business lines in run-off negatively
impact our operating results.
  Our premium writings and profitability are affected by the availability and cost of reinsurance.
  11




---



##### Table of Contents



We may not be able to collect amounts owed to us by reinsurers.
  Rating agencies may downgrade their ratings of us and thereby adversely affect our ability to write
insurance at competitive rates or at all.
    We are subject to extensive federal, state and local governmental regulations that
restrict our ability to do business and generate revenues.
  
    
    standards of solvency including risk-based capital measurements;

    
    restrictions on the nature, quality and concentration of investments;

    
    restrictions on our ability to withdraw from unprofitable lines of insurance;

    
    the required use of certain methods of accounting and reporting;
 12




---



##### Table of Contents





    
    the establishment of reserves for unearned premiums, losses and other purposes;

    
    potential assessments for funds necessary to settle covered claims against impaired, insolvent or failed
insurance companies;

    
    licensing of insurers and agents;

    
    approval of policy forms; and

    
    limitations on the ability of our insurance subsidiaries to pay dividends to us.
  We are subject to capital adequacy requirements and, if we do not meet these requirements,
regulatory agencies may restrict or prohibit us from operating our business.
  Our insurance subsidiaries, upon whom we depend for dividends in order to fund our working capital
needs, are limited by state regulators in their ability to pay dividends.
  We are responding to subpoenas, interrogatories and inquiries relating to insurance brokers and
agents, contingent commissions and bidding practices, and certain finite-risk insurance products.
   13




---



##### Table of Contents



In prior years, we restated our financial results and identified material weaknesses in our
internal control over financial reporting.
    Our investment portfolio, which is a key component of our overall profitability, may suffer reduced
returns or losses, especially with respect to our equity in various limited partnership net assets
which are often subject to greater leverage and volatility.
  We may be adversely affected by the cyclical nature of the property and casualty business.
  We face intense competition in our industry.
  14




---



##### Table of Contents



We may suffer losses from non-routine litigation and arbitration matters which may exceed the
reserves we have established.
   We are dependent on a small number of key executives and other key personnel to operate our
business successfully.
  
 ITEM 1B. UNRESOLVED STAFF COMMENTS
  
 ITEM 2. PROPERTIES
  Amount (Square Feet) of BuildingOwned and Occupied or LeasedLocation
    
    and Occupied by CNA
    
    Principal Usage333 S. Wabash Avenue, Chicago, Illinois
    
    
    904,990
    
    
    Principal executive offices of CNAF401 Penn Street, Reading, Pennsylvania
    
    
    171,406
    
    
    Property and casualty insurance offices2405 Lucien Way, Maitland, Florida
    
    
    147,815
    
    
    Property and casualty insurance offices40 Wall Street, New York, New York
    
    
    110,131
    
    
    Property and casualty insurance offices675 Placentia Avenue, Brea, California
    
    
    78,655
    
    
    Property and casualty insurance offices600 N. Pearl Street, Dallas, Texas
    
    
    75,544
    
    
    Property and casualty insurance offices1100 Cornwall Road, Monmouth Junction, New Jersey
    
    
    74,067
    
    
    Property and casualty insurance offices3175 Satellite Boulevard, Duluth, Georgia
    
    
    48,696
    
    
    Property and casualty insurance offices405 Howard Street, San Francisco, California
    
    
    47,195
    
    
    Property and casualty insurance offices4150 N. Drinkwater Boulevard, Scottsdale, Arizona
    
    
    37,799
    
    
    Property and casualty insurance offices
  
 ITEM 3. LEGAL PROCEEDINGS
  
 ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
  15




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##### Table of Contents



PART II
 
 ITEM 5. MARKET FOR THE REGISTRANTS COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER
PURCHASES OF EQUITY SECURITIES
    Common Stock Information
 2006
    
    2005High
    
    Low
    
    High
    
    LowQuarter:Fourth
    
    $
    40.32
    
    
    $
    36.19
    
    
    $
    34.91
    
    
    $
    28.52Third
    
    
    36.04
    
    
    
    33.05
    
    
    
    30.46
    
    
    
    28.40Second
    
    
    33.20
    
    
    
    30.90
    
    
    
    28.90
    
    
    
    26.21First
    
    
    33.60
    
    
    
    29.88
    
    
    
    29.79
    
    
    
    25.84
 
 Stock Price Performance Graph
 Company Index
    
    2001
    
    2002
    
    2003
    
    2004
    
    2005
    
    2006CNA Financial Corp.
    
    
    100
    
    
    
    87.76
    
    
    
    82.62
    
    
    
    91.70
    
    
    
    112.20
    
    
    
    138.22S&P 500 Index
    
    
    100
    
    
    
    77.90
    
    
    
    100.25
    
    
    
    111.15
    
    
    
    116.61
    
    
    
    135.03S&P
Property & Casualty Insurance
    
    
    100
    
    
    
    88.98
    
    
    
    112.48
    
    
    
    124.20
    
    
    
    142.97
    
    
    
    161.38
 
 16




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##### Table of Contents



ITEM 6. SELECTED FINANCIAL DATA
  Selected Financial Data
 As of and for the Years EndedDecember 31(In millions, except per share data and ratios)
    
    2006
    
    
    2005
    
    
    2004
    
    
    2003
    
    
    2002Results of Operations:Revenues
    
    $
    10,376
    
    
    $
    9,862
    
    
    $
    9,924
    
    
    $
    11,715
    
    
    $
    12,293Income (loss) from continuing operations
    
    $
    1,137
    
    
    $
    243
    
    
    $
    446
    
    
    $
    (1,419
    )
    
    $
    263Income (loss) from discontinued operations, net of tax
    
    
    (29
    )
    
    
    21
    
    
    
    (21
    )
    
    
    2
    
    
    
    (43
    )Cumulative effects of changes in accounting principles, net of tax
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (57
    )Net income (loss)
    
    $
    1,108
    
    
    $
    264
    
    
    $
    425
    
    
    $
    (1,417
    )
    
    $
    163Basic Earnings (Loss) per Share:Income (loss) from continuing operations
    
    $
    4.17
    
    
    $
    0.68
    
    
    $
    1.49
    
    
    $
    (6.52
    )
    
    $
    1.18Income (loss) from discontinued operations
    
    
    (0.11
    )
    
    
    0.08
    
    
    
    (0.09
    )
    
    
    0.01
    
    
    
    (0.20
    )Cumulative effects of changes in accounting principles
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (0.26
    )Basic earnings (loss) per share available to common stockholders
    
    $
    4.06
    
    
    $
    0.76
    
    
    $
    1.40
    
    
    $
    (6.51
    )
    
    $
    0.72Diluted Earnings (Loss) per Share:Income (loss) from continuing operations
    
    $
    4.16
    
    
    $
    0.68
    
    
    $
    1.49
    
    
    $
    (6.52
    )
    
    $
    1.18Income (loss) from discontinued operations
    
    
    (0.11
    )
    
    
    0.08
    
    
    
    (0.09
    )
    
    
    0.01
    
    
    
    (0.20
    )Cumulative effects of changes in accounting principles
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (0.26
    )Diluted earnings (loss) per share available to common stockholders
    
    $
    4.05
    
    
    $
    0.76
    
    
    $
    1.40
    
    
    $
    (6.51
    )
    
    $
    0.72Financial Condition:Total investments
    
    $
    44,096
    
    
    $
    39,695
    
    
    $
    39,231
    
    
    $
    38,100
    
    
    $
    35,293Total assets
    
    
    60,283
    
    
    
    59,016
    
    
    
    62,496
    
    
    
    68,296
    
    
    
    61,426Insurance reserves
    
    
    41,080
    
    
    
    42,436
    
    
    
    43,653
    
    
    
    45,494
    
    
    
    40,250Long and short term debt
    
    
    2,156
    
    
    
    1,690
    
    
    
    2,257
    
    
    
    1,904
    
    
    
    2,292Stockholders equity
    
    
    9,768
    
    
    
    8,950
    
    
    
    8,974
    
    
    
    8,735
    
    
    
    9,139Book value per share
    
    $
    36.03
    
    
    $
    31.26
    
    
    $
    31.63
    
    
    $
    30.95
    
    
    $
    37.51Statutory Surplus (preliminary):Property and casualty companies (a)
    
    $
    8,137
    
    
    $
    6,940
    
    
    $
    6,998
    
    
    $
    6,170
    
    
    $
    6,836Life and group insurance company(ies)
    
    
    687
    
    
    
    627
    
    
    
    1,177
    
    
    
    707
    
    
    
    1,645
 
 (a)
    
    Surplus includes the property and casualty companies equity ownership of the life and
group company(ies) capital and surplus. 17




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##### Table of Contents



ITEM 7. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
 Overview
  Index to this MD&A
  Page No.Consolidated Operations
    
    19Critical Accounting Estimates
    
    22Reserves  Estimates and Uncertainties
    
    23Reinsurance
    
    29Terrorism Insurance
    
    30Restructuring
    
    30Segment Results
    
    30Standard Lines
    
    30Specialty Lines
    
    33Life and Group Non-Core
    
    36Corporate and Other Non-Core
    
    37Asbestos and Environmental Pollution and Mass Tort (APMT) Reserves
    
    39Investments
    
    45Net Investment Income
    
    45Net Realized Investment Gains (Losses)
    
    46Valuation and Impairment of Investments
    
    49Liquidity and Capital Resources
    
    53Cash Flows
    
    53Commitments, Contingencies, and Guarantees
    
    53Off-Balance Sheet Arrangements
    
    54Regulatory Matters
    
    54Dividends from Subsidiaries
    
    55Loews
    
    55Ratings
    
    55Accounting Pronouncements
    
    56Forward-Looking Statements
    
    57
 18




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##### Table of Contents



CONSOLIDATED OPERATIONS
 Results of Operations
  Years ended December 31(In millions, except per share data)
    
    2006
    
    
    2005
    
    
    2004RevenuesNet earned premiums
    
    $
    7,603
    
    
    $
    7,569
    
    
    $
    8,209Net investment income
    
    
    2,412
    
    
    
    1,892
    
    
    
    1,680Other revenues
    
    
    275
    
    
    
    411
    
    
    
    283Total operating revenues
    
    
    10,290
    
    
    
    9,872
    
    
    
    10,172Claims, Benefits and ExpensesNet incurred claims and benefits
    
    
    6,025
    
    
    
    6,975
    
    
    
    6,434Policyholders dividends
    
    
    22
    
    
    
    24
    
    
    
    11Amortization of deferred acquisition costs
    
    
    1,534
    
    
    
    1,543
    
    
    
    1,680Other insurance related expenses
    
    
    757
    
    
    
    829
    
    
    
    972Restructuring and other related charges
    
    
    (13
    )
    
    
    
    
    
    
    (3
    )Other expenses
    
    
    401
    
    
    
    329
    
    
    
    326Total claims, benefits and expenses
    
    
    8,726
    
    
    
    9,700
    
    
    
    9,420Operating income from continuing operations before income tax and minority interest
    
    
    1,564
    
    
    
    172
    
    
    
    752Income tax (expense) benefit on operating income
    
    
    (450
    )
    
    
    105
    
    
    
    (126
    )Minority interest
    
    
    (44
    )
    
    
    (24
    )
    
    
    (27
    )Net operating income from continuing operations
    
    
    1,070
    
    
    
    253
    
    
    
    599Realized investment gains (losses), net of participating policyholders and
minority interests
    
    
    86
    
    
    
    (10
    )
    
    
    (248
    )Income tax (expense) benefit on realized investment gains (losses)
    
    
    (19
    )
    
    
    
    
    
    
    95Income from continuing operations
    
    
    1,137
    
    
    
    243
    
    
    
    446Income (loss) from discontinued operations, net of income tax (expense) benefit of
$7, $(2) and $(1)
    
    
    (29
    )
    
    
    21
    
    
    
    (21
    )Net income
    
    $
    1,108
    
    
    $
    264
    
    
    $
    425Basic Earnings per ShareIncome from continuing operations
    
    $
    4.17
    
    
    $
    0.68
    
    
    $
    1.49Income (loss) from discontinued operations
    
    
    (0.11
    )
    
    
    0.08
    
    
    
    (0.09
    )Basic earnings per share available to common stockholders
    
    $
    4.06
    
    
    $
    0.76
    
    
    $
    1.40Diluted Earnings per ShareIncome from continuing operations
    
    $
    4.16
    
    
    $
    0.68
    
    
    $
    1.49Income (loss) from discontinued operations
    
    
    (0.11
    )
    
    
    0.08
    
    
    
    (0.09
    )Diluted earnings per share available to common stockholders
    
    $
    4.05
    
    
    $
    0.76
    
    
    $
    1.40Weighted Average Outstanding Common Stock and Common Stock EquivalentsBasic
    
    
    262.1
    
    
    
    256.0
    
    
    
    256.0Diluted
    
    
    262.3
    
    
    
    256.0
    
    
    
    256.0
 19




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2006 Compared with 2005
       2005 Compared with 2004
    20




---



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21




---



##### Table of Contents



Critical Accounting Estimates
    Insurance Reserves
  Reinsurance
   22




---



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Valuation of Investments and Impairment of Securities
   Long Term Care Products
  Pension and Postretirement Benefit Obligations
    Legal Proceedings
  Reserves
- Estimates and Uncertainties
  23




---



##### Table of Contents




    
    coverage issues, including whether certain costs are covered under the policies and whether policy limits
apply;

    
    inconsistent court decisions and developing legal theories;

    
    continuing aggressive tactics of plaintiffs lawyers;

    
    the risks and lack of predictability inherent in major litigation;

    
    changes in the volume of APMT claims which cannot now be anticipated;

    
    the impact of the exhaustion of primary limits and the resulting increase in claims on any umbrella or excess
policies we have issued;

    
    the number and outcome of direct actions against us; and

    
    our ability to recover reinsurance for APMT claims.
   24




---



##### Table of Contents





    
    increases in the number and size of claims relating to injuries from medical products;

    
    the effects of accounting and financial reporting scandals and other major corporate governance failures,
which have resulted in an increase in the number and size of claims, including director and officer and errors and
omissions insurance claims;

    
    class action litigation relating to claims handling and other practices;

    
    construction defect claims, including claims for a broad range of additional insured endorsements on policies;

    
    clergy abuse claims, including passage of legislation to reopen or extend various statutes of limitations; and

    
    mass tort claims, including bodily injury claims related to silica, welding rods, benzene, lead and various
other chemical exposure claims.
  Establishing Reserve Estimates
     

    
    Paid Development,

    
    Incurred Development,
 25




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##### Table of Contents





    
    Loss Ratio,

    
    Bornhuetter-Ferguson Using Premiums and Paid Loss,

    
    Bornhuetter-Ferguson Using Premiums and Incurred Loss, and

    
    Average Loss.
        26




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##### Table of Contents



Periodic Reserve Reviews
     27




---



##### Table of Contents



28




---



##### Table of Contents



Reinsurance
        29




---



##### Table of Contents



Terrorism Insurance
    Restructuring
   SEGMENT RESULTS
 
 STANDARD LINES
 Business Overview
  30




---



##### Table of Contents



Property
 Casualty
  Property and Casualtys
 CNA Global
  Results of Operations
 Years ended December 31
    
    2006
    
    
    2005
    
    
    2004(In millions)Net written premiums
    
    $
    4,433
    
    
    $
    4,382
    
    
    $
    4,582Net earned premiums
    
    
    4,413
    
    
    
    4,410
    
    
    
    4,917Net investment income
    
    
    991
    
    
    
    767
    
    
    
    496Net operating income (loss)
    
    
    617
    
    
    
    (41
    )
    
    
    220Net realized investment gains, after-tax
    
    
    55
    
    
    
    9
    
    
    
    139Net income (loss)
    
    
    672
    
    
    
    (32
    )
    
    
    359RatiosLoss and loss adjustment expense
    
    
    70.1
    %
    
    
    87.5
    %
    
    
    70.8
    %Expense
    
    
    31.1
    
    
    
    32.4
    
    
    
    34.6Dividend
    
    
    0.4
    
    
    
    0.4
    
    
    
    0.2Combined
    
    
    101.6
    %
    
    
    120.3
    %
    
    
    105.6
    %
 2006 Compared with 2005
  31




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##### Table of Contents



Gross and Net Carried
Claim and Claim Adjustment Expense Reserves
 December 31
    
    2006
    
    
    2005(In millions)Gross Case Reserves
    
    $
    6,746
    
    
    $
    7,033Gross IBNR Reserves
    
    
    8,188
    
    
    
    8,051Total Gross Carried Claim and Claim Adjustment Expense Reserves
    
    $
    14,934
    
    
    $
    15,084Net Case Reserves
    
    $
    5,234
    
    
    $
    5,165Net IBNR Reserves
    
    
    6,632
    
    
    
    6,081Total Net Carried Claim and Claim Adjustment Expense Reserves
    
    $
    11,866
    
    
    $
    11,246
 2005 Compared with 2004
  32




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##### Table of Contents



SPECIALTY LINES
 Business Overview
   33




---



##### Table of Contents



US Specialty Lines
  Surety
 Warranty
  Results of Operations
 Years ended December 31
    
    2006
    
    
    2005
    
    
    2004(In millions)Net written premiums
    
    $
    2,596
    
    
    $
    2,463
    
    
    $
    2,391Net earned premiums
    
    
    2,555
    
    
    
    2,475
    
    
    
    2,277Net investment income
    
    
    403
    
    
    
    281
    
    
    
    246Net operating income
    
    
    464
    
    
    
    336
    
    
    
    324Net realized investment gains, after-tax
    
    
    18
    
    
    
    12
    
    
    
    54Net income
    
    
    482
    
    
    
    348
    
    
    
    378RatiosLoss and loss adjustment expense
    
    
    60.5
    %
    
    
    65.3
    %
    
    
    63.3
    %Expense
    
    
    26.7
    
    
    
    26.1
    
    
    
    26.1Dividend
    
    
    0.2
    
    
    
    0.2
    
    
    
    0.2Combined
    
    
    87.4
    %
    
    
    91.6
    %
    
    
    89.6
    %
 2006 Compared with 2005
     34




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##### Table of Contents



Gross and Net Carried
Claim and Claim Adjustment Expense Reserves
 December 31
    
    2006
    
    
    2005(In millions)Gross Case Reserves
    
    $
    1,715
    
    
    $
    1,907Gross IBNR Reserves
    
    
    3,814
    
    
    
    3,298Total Gross Carried Claim and Claim Adjustment Expense
Reserves
    
    $
    5,529
    
    
    $
    5,205Net Case Reserves
    
    $
    1,350
    
    
    $
    1,442Net IBNR Reserves
    
    
    2,921
    
    
    
    2,352Total Net Carried Claim and Claim Adjustment Expense Reserves
    
    $
    4,271
    
    
    $
    3,794
 2005 Compared with 2004
     35




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##### Table of Contents



LIFE AND GROUP NON-CORE
 Business Overview
   Results of Operations
 Years ended December 31
    
    2006
    
    2005
    
    2004(In millions)Net earned premiums
    
    $
    641
    
    
    $
    704
    
    
    $
    921Net investment income
    
    
    698
    
    
    
    593
    
    
    
    692Net operating loss
    
    
    (14
    )
    
    
    (51
    )
    
    
    (29
    )Net realized investment losses, after-tax
    
    
    (33
    )
    
    
    (19
    )
    
    
    (385
    )Net loss
    
    
    (47
    )
    
    
    (70
    )
    
    
    (414
    )
 2006 Compared with 2005
   36




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##### Table of Contents



2005 Compared with 2004
   CORPORATE AND OTHER NON-CORE
 Overview
   Results of Operations
 Years ended December 31
    
    2006
    
    2005
    
    2004(In millions)Net investment income
    
    $
    320
    
    
    $
    251
    
    
    $
    246Revenues
    
    
    305
    
    
    
    311
    
    
    
    358Net operating income
    
    
    3
    
    
    
    9
    
    
    
    84Net realized investment gains (losses), after-tax
    
    
    27
    
    
    
    (12
    )
    
    
    39Net income (loss)
    
    
    30
    
    
    
    (3
    )
    
    
    123
 2006 Compared with 2005
    37




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##### Table of Contents



Gross and Net Carried
Claim and Claim Adjustment Expense Reserves
 December 31
    
    2006
    
    
    2005(In millions)Gross Case Reserves
    
    $
    2,511
    
    
    $
    3,297Gross IBNR Reserves
    
    
    3,528
    
    
    
    4,075Total Gross Carried Claim and Claim Adjustment Expense
Reserves
    
    $
    6,039
    
    
    $
    7,372Net Case Reserves
    
    $
    1,453
    
    
    $
    1,554Net IBNR Reserves
    
    
    1,999
    
    
    
    1,902Total Net Carried Claim and Claim Adjustment Expense
Reserves
    
    $
    3,452
    
    
    $
    3,456
 2005 Compared with 2004
     38




---



##### Table of Contents



APMT Reserves
       39




---



##### Table of Contents



APMT Reserves
 December 31, 2006
    
    
    December 31, 2005Environmental
    
    
    
    
    
    
    EnvironmentalPollution and
    
    
    
    
    
    
    Pollution andAsbestos
    
    
    Mass Tort
    
    
    Asbestos
    
    
    Mass Tort(In millions)Gross reserves
    
    $
    2,635
    
    
    $
    647
    
    
    $
    2,992
    
    
    $
    680Ceded reserves
    
    
    (1,183
    )
    
    
    (231
    )
    
    
    (1,438
    )
    
    
    (257
    )Net reserves
    
    $
    1,452
    
    
    $
    416
    
    
    $
    1,554
    
    
    $
    423
 Asbestos
       40




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##### Table of Contents



Pending
Asbestos Accounts and Associated Reserves
 Net Paid(Recovered) Losses
    
    
    Net Asbestos
    
    
    Percent ofNumber of
    
    
    in 2006
    
    
    Reserves
    
    
    AsbestosDecember 31, 2006
    
    Policyholders
    
    
    (In millions)
    
    
    (In millions)
    
    
    Net ReservesPolicyholders with settlement agreementsStructured Settlements
    
    
    15
    
    
    $
    22
    
    
    $
    171
    
    
    
    12
    %Wellington
    
    
    3
    
    
    
    (1
    )
    
    
    14
    
    
    
    1Coverage in place
    
    
    37
    
    
    
    (18
    )
    
    
    79
    
    
    
    5Fibreboard
    
    
    1
    
    
    
    
    
    
    
    53
    
    
    
    4Total with settlement agreements
    
    
    56
    
    
    
    3
    
    
    
    317
    
    
    
    22Other policyholders with active accountsLarge asbestos accounts
    
    
    220
    
    
    
    76
    
    
    
    254
    
    
    
    17Small asbestos accounts
    
    
    1,080
    
    
    
    17
    
    
    
    101
    
    
    
    7Total other policyholders
    
    
    1,300
    
    
    
    93
    
    
    
    355
    
    
    
    24Assumed reinsurance and pools
    
    
    
    
    
    
    6
    
    
    
    141
    
    
    
    10Unassigned IBNR
    
    
    
    
    
    
    
    
    
    
    639
    
    
    
    44Total
    
    
    1,356
    
    
    $
    102
    
    
    $
    1,452
    
    
    
    100
    %
 41




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##### Table of Contents



Pending Asbestos Accounts and Associated Reserves
 Net Paid Losses
    
    
    Net Asbestos
    
    
    Percent ofNumber of
    
    
    in 2005
    
    
    Reserves
    
    
    AsbestosDecember 31, 2005
    
    Policyholders
    
    
    (In millions)
    
    
    (In millions)
    
    
    Net ReservesPolicyholders with settlement agreementsStructured Settlements
    
    
    13
    
    
    $
    30
    
    
    $
    167
    
    
    
    11
    %Wellington
    
    
    4
    
    
    
    2
    
    
    
    15
    
    
    
    1Coverage in place
    
    
    34
    
    
    
    13
    
    
    
    58
    
    
    
    4Fibreboard
    
    
    1
    
    
    
    
    
    
    
    54
    
    
    
    3Total with settlement agreements
    
    
    52
    
    
    
    45
    
    
    
    294
    
    
    
    19Other policyholders with active accountsLarge asbestos accounts
    
    
    199
    
    
    
    68
    
    
    
    273
    
    
    
    17Small asbestos accounts
    
    
    1,073
    
    
    
    23
    
    
    
    135
    
    
    
    9Total other policyholders
    
    
    1,272
    
    
    
    91
    
    
    
    408
    
    
    
    26Assumed reinsurance and pools
    
    
    
    
    
    
    6
    
    
    
    143
    
    
    
    9Unassigned IBNR
    
    
    
    
    
    
    
    
    
    
    709
    
    
    
    46Total
    
    
    1,324
    
    
    $
    142
    
    
    $
    1,554
    
    
    
    100
    %
   42




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##### Table of Contents



Environmental Pollution and Mass Tort
         43




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##### Table of Contents



Pending Environmental Pollution Accounts and Associated Reserves
 NetEnvironmental
    
    
    Percent ofNet Paid Losses
    
    
    Pollution
    
    
    EnvironmentalNumber of
    
    
    in 2006
    
    
    Reserves
    
    
    Pollution NetDecember 31, 2006
    
    Policyholders
    
    
    (In millions)
    
    
    (In millions)
    
    
    ReservePolicyholders with Settlement AgreementsStructured settlements
    
    
    11
    
    
    $
    16
    
    
    $
    9
    
    
    
    3
    %Coverage in place
    
    
    18
    
    
    
    5
    
    
    
    14
    
    
    
    5Total with Settlement Agreements
    
    
    29
    
    
    
    21
    
    
    
    23
    
    
    
    8Other Policyholders with Active AccountsLarge pollution accounts
    
    
    115
    
    
    
    20
    
    
    
    58
    
    
    
    20Small pollution accounts
    
    
    346
    
    
    
    9
    
    
    
    46
    
    
    
    17Total Other Policyholders
    
    
    461
    
    
    
    29
    
    
    
    104
    
    
    
    37Assumed Reinsurance & Pools
    
    
    
    
    
    
    1
    
    
    
    32
    
    
    
    11Unassigned IBNR
    
    
    
    
    
    
    
    
    
    
    126
    
    
    
    44Total
    
    
    490
    
    
    $
    51
    
    
    $
    285
    
    
    
    100
    %
 Pending Environmental Pollution Accounts and Associated Reserves
 NetEnvironmental
    
    
    Percent ofNet Paid Losses
    
    
    Pollution
    
    
    EnvironmentalNumber of
    
    
    in 2005
    
    
    Reserves
    
    
    Pollution NetDecember 31, 2005
    
    Policyholders
    
    
    (In millions)
    
    
    (In millions)
    
    
    ReservePolicyholders with Settlement AgreementsStructured settlements
    
    
    6
    
    
    $
    10
    
    
    $
    17
    
    
    
    5
    %Coverage in place
    
    
    16
    
    
    
    10
    
    
    
    23
    
    
    
    7Total with Settlement Agreements
    
    
    22
    
    
    
    20
    
    
    
    40
    
    
    
    12Other Policyholders with Active AccountsLarge pollution accounts
    
    
    120
    
    
    
    18
    
    
    
    63
    
    
    
    19Small pollution accounts
    
    
    362
    
    
    
    15
    
    
    
    50
    
    
    
    15Total Other Policyholders
    
    
    482
    
    
    
    33
    
    
    
    113
    
    
    
    34Assumed Reinsurance & Pools
    
    
    
    
    
    
    3
    
    
    
    33
    
    
    
    10Unassigned IBNR
    
    
    
    
    
    
    
    
    
    
    150
    
    
    
    44Total
    
    
    504
    
    
    $
    56
    
    
    $
    336
    
    
    
    100
    %
 44




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##### Table of Contents



INVESTMENTS
 Net Investment Income
  Net Investment Income
 Years ended December 31
    
    2006
    
    
    2005
    
    
    2004(In millions)Fixed maturity securities
    
    $
    1,842
    
    
    $
    1,608
    
    
    $
    1,571Short term investments
    
    
    248
    
    
    
    147
    
    
    
    56Limited partnerships
    
    
    288
    
    
    
    254
    
    
    
    212Equity securities
    
    
    23
    
    
    
    25
    
    
    
    14Income from trading portfolio (a)
    
    
    103
    
    
    
    47
    
    
    
    110Interest on funds withheld and other deposits
    
    
    (68
    )
    
    
    (166
    )
    
    
    (261
    )Other
    
    
    18
    
    
    
    20
    
    
    
    18Gross investment income
    
    
    2,454
    
    
    
    1,935
    
    
    
    1,720Investment expense
    
    
    (42
    )
    
    
    (43
    )
    
    
    (40
    )Net investment income
    
    $
    2,412
    
    
    $
    1,892
    
    
    $
    1,680
 
 (a)
    
    There was no change in net unrealized gains (losses) on trading securities included in
net investment income for the year ended December 31, 2006. The change in net unrealized
gains (losses) on trading securities included in net investment income was $(7) million and
$2 million for the years ended December 31, 2005 and 2004.    45




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##### Table of Contents



Net Realized Investment Gains (Losses)
  Net Realized Investment Gains (Losses)
 Years ended December 31
    
    2006
    
    
    2005
    
    
    2004(In millions)Realized investment gains (losses):Fixed maturity securities:U.S. Government bonds
    
    $
    62
    
    
    $
    (33
    )
    
    $
    10Corporate and other taxable bonds
    
    
    (98
    )
    
    
    (86
    )
    
    
    123Tax-exempt bonds
    
    
    53
    
    
    
    12
    
    
    
    42Asset-backed bonds
    
    
    (9
    )
    
    
    14
    
    
    
    53Redeemable preferred stock
    
    
    (3
    )
    
    
    3
    
    
    
    19Total fixed maturity securities
    
    
    5
    
    
    
    (90
    )
    
    
    247Equity securities
    
    
    16
    
    
    
    38
    
    
    
    202Derivative securities
    
    
    18
    
    
    
    49
    
    
    
    (84
    )Short term investments
    
    
    (5
    )
    
    
    
    
    
    
    (3
    )Other, including dispositions of businesses net of participating policyholders interest
    
    
    53
    
    
    
    (10
    )
    
    
    (601
    )Realized investment gains (losses) before allocation to participating policyholders and
minority interests
    
    
    87
    
    
    
    (13
    )
    
    
    (239
    )Allocated to participating policyholders and minority interests
    
    
    (1
    )
    
    
    3
    
    
    
    (9
    )Income tax (expense) benefit
    
    
    (19
    )
    
    
    
    
    
    
    95Net realized investment gains (losses), net of participating policyholders and minority
interests
    
    $
    67
    
    
    $
    (10
    )
    
    $
    (153
    )
     46




---



##### Table of Contents



â
    Realized Gains and Losses
 Years ended December 31
    
    2006
    
    
    2005
    
    
    2004(In millions)Net realized gains (losses) on fixed maturity securities
and equity securities:Fixed maturity securities:Gross realized gains
    
    $
    382
    
    
    $
    361
    
    
    $
    704Gross realized losses
    
    
    (377
    )
    
    
    (451
    )
    
    
    (457
    )Net realized gains (losses) on fixed maturity securities
    
    
    5
    
    
    
    (90
    )
    
    
    247Equity securities:Gross realized gains
    
    
    24
    
    
    
    73
    
    
    
    225Gross realized losses
    
    
    (8
    )
    
    
    (35
    )
    
    
    (23
    )Net realized gains on equity securities
    
    
    16
    
    
    
    38
    
    
    
    202Net realized gains (losses) on fixed maturity and equity
securities
    
    $
    21
    
    
    $
    (52
    )
    
    $
    449
 47




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##### Table of Contents



Largest Realized Losses from Securities Sold at a Loss
 Year ended December 31, 2006
 Fair
    
    
    
    
    
    
    Months inValue at
    
    
    
    
    
    
    UnrealizedDate of
    
    
    Loss
    
    
    Loss PriorIssuer Description and Discussion
    
    Sale
    
    
    On Sale
    
    
    To Sale (a)(In millions)Various notes and bonds issued by the United States
Treasury. Securities sold due to outlook on interest
rates and inflation.
    
    $
    4,529
    
    
    $
    18
    
    
    
    0-6State issued revenue bonds. Positions were sold as part
of a broader initiative to reduce municipal holdings.
    
    
    289
    
    
    
    6
    
    
    
    0-12Financial services group that provides property and
casualty, managed care, life, and various other insurance
products in the United States. Position was sold to
reduce exposure to the issuer and sector.
    
    
    56
    
    
    
    5
    
    
    
    0-6Company is in the advertising industry, utilizing various
venues including television, radio, outdoor displays, and
live entertainment. The company has entered into an
agreement to be acquired. Position was reduced in
response to the announced transaction.
    
    
    66
    
    
    
    5
    
    
    
    0-12+Company develops and operates broadband cable
communication networks, high speed internet service and
digital video applications. Position was sold in
response to newly issued debt.
    
    
    92
    
    
    
    5
    
    
    
    0-6$
    5,032
    
    
    $
    39
 
 (a)
    
    Represents the range of consecutive months the various positions were in an unrealized
loss prior to sale. 0-12+ means certain positions were less than 12 months, while others
were greater than 12 months. 48




---



##### Table of Contents



Valuation and Impairment of Investments
  Carrying Value of Investments
 December 31,
    
    
    
    
    
    
    December 31,2006
    
    
    %
    
    
    2005
    
    
    %(In millions)General account investments:Fixed maturity securities available-for-sale:U.S. Treasury securities and obligations of government agencies
    
    $
    5,138
    
    
    
    12
    %
    
    $
    1,469
    
    
    
    4
    %Asset-backed securities
    
    
    13,677
    
    
    
    31
    
    
    
    12,859
    
    
    
    32States, municipalities and political subdivisions  tax-exempt
    
    
    5,146
    
    
    
    12
    
    
    
    9,209
    
    
    
    23Corporate securities
    
    
    7,132
    
    
    
    16
    
    
    
    6,165
    
    
    
    15Other debt securities
    
    
    3,642
    
    
    
    8
    
    
    
    3,044
    
    
    
    8Redeemable preferred stock
    
    
    912
    
    
    
    2
    
    
    
    216
    
    
    
    1Options embedded in convertible debt securities
    
    
    
    
    
    
    
    
    
    
    1
    
    
    
    Total fixed maturity securities available-for-sale
    
    
    35,647
    
    
    
    81
    
    
    
    32,963
    
    
    
    83Fixed maturity securities trading:U.S. Treasury securities and obligations of government agencies
    
    
    2
    
    
    
    
    
    
    
    4
    
    
    
    Asset-backed securities
    
    
    55
    
    
    
    
    
    
    
    87
    
    
    
    Corporate securities
    
    
    133
    
    
    
    1
    
    
    
    154
    
    
    
    1Other debt securities
    
    
    14
    
    
    
    
    
    
    
    26
    
    
    
    Total fixed maturity securities trading
    
    
    204
    
    
    
    1
    
    
    
    271
    
    
    
    1Equity securities available-for-sale:Common stock
    
    
    452
    
    
    
    1
    
    
    
    289
    
    
    
    1Preferred stock
    
    
    145
    
    
    
    
    
    
    
    343
    
    
    
    1Total equity securities available-for-sale
    
    
    597
    
    
    
    1
    
    
    
    632
    
    
    
    2Total equity securities trading
    
    
    60
    
    
    
    
    
    
    
    49
    
    
    
    Short term investments available-for-sale
    
    
    5,538
    
    
    
    13
    
    
    
    3,870
    
    
    
    9Short term investments trading
    
    
    172
    
    
    
    
    
    
    
    368
    
    
    
    1Limited partnerships
    
    
    1,852
    
    
    
    4
    
    
    
    1,509
    
    
    
    4Other investments
    
    
    26
    
    
    
    
    
    
    
    33
    
    
    
    Total general account investments
    
    $
    44,096
    
    
    
    100
    %
    
    $
    39,695
    
    
    
    100
    %
    49




---



##### Table of Contents



Maturity Profile
 Percent of
    
    
    Percent ofMarket
    
    
    UnrealizedValue
    
    
    LossDue in one year or less
    
    
    5
    %
    
    
    3
    %Due after one year through five years
    
    
    44
    
    
    
    50Due after five years through ten years
    
    
    33
    
    
    
    24Due after ten years
    
    
    18
    
    
    
    23Total
    
    
    100
    %
    
    
    100
    %
  Unrealized Loss Aging for Non-investment Grade Securities
 Fair Value as a Percentage of Book ValueGrossEstimated
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    UnrealizedDecember 31, 2006
    
    Fair Value
    
    
    90-99%
    
    
    80-89%
    
    
    70-79%
    
    
    <70%
    
    
    Loss(In millions)Fixed maturity securities:Non-investment grade:0-6 months
    
    $
    509
    
    
    $
    2
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    27-12 months
    
    
    87
    
    
    
    1
    
    
    
    1
    
    
    
    
    
    
    
    
    
    
    
    213-24 months
    
    
    24
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Greater than 24 months
    
    
    2
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Total non-investment grade
    
    $
    622
    
    
    $
    3
    
    
    $
    1
    
    
    $
    
    
    
    $
    
    
    
    $
    4
 Unrealized Loss Aging for Non-investment Grade Securities
 Fair Value as a Percentage of Book ValueGrossEstimated
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    UnrealizedDecember 31, 2005
    
    Fair Value
    
    
    90-99%
    
    
    80-89%
    
    
    70-79%
    
    
    <70%
    
    
    Loss(In millions)Fixed maturity securities:Non-investment grade:0-6 months
    
    $
    632
    
    
    $
    20
    
    
    $
    8
    
    
    $
    1
    
    
    $
    
    
    
    $
    297-12 months
    
    
    118
    
    
    
    4
    
    
    
    6
    
    
    
    
    
    
    
    
    
    
    
    1013-24 months
    
    
    122
    
    
    
    3
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3Greater than 24 months
    
    
    2
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Total non-investment grade
    
    $
    874
    
    
    $
    27
    
    
    $
    14
    
    
    $
    1
    
    
    $
    
    
    
    $
    42
  50




---



##### Table of Contents



General Account Bond Ratings
 December 31
    
    2006
    
    
    %
    
    
    2005
    
    
    %(In millions)U.S. Government and affiliated agency securities
    
    $
    5,285
    
    
    
    15
    %
    
    $
    1,628
    
    
    
    5
    %Other AAA rated
    
    
    16,311
    
    
    
    47
    
    
    
    18,233
    
    
    
    55AA and A rated
    
    
    5,222
    
    
    
    15
    
    
    
    6,046
    
    
    
    18BBB rated
    
    
    4,933
    
    
    
    14
    
    
    
    4,499
    
    
    
    14Non investment-grade
    
    
    3,188
    
    
    
    9
    
    
    
    2,612
    
    
    
    8Total
    
    $
    34,939
    
    
    
    100
    %
    
    $
    33,018
    
    
    
    100
    %
   Separate Account Bond Ratings
 December 31
    
    2006
    
    
    %
    
    
    2005
    
    
    %(In millions)U.S. Government and affiliated agency securities
    
    $
    
    
    
    
    
    %
    
    $
    
    
    
    
    
    %Other AAA rated
    
    
    111
    
    
    
    26
    
    
    
    120
    
    
    
    26AA and A rated
    
    
    242
    
    
    
    56
    
    
    
    193
    
    
    
    41BBB rated
    
    
    75
    
    
    
    17
    
    
    
    142
    
    
    
    31Non investment-grade
    
    
    6
    
    
    
    1
    
    
    
    11
    
    
    
    2Total
    
    $
    434
    
    
    
    100
    %
    
    $
    466
    
    
    
    100
    %
  51




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##### Table of Contents



Short term Investments
 December 31,
    
    
    December 31,2006
    
    
    2005(In millions)Short term investments available-for-sale:Commercial paper
    
    $
    923
    
    
    $
    1,906U.S. Treasury securities
    
    
    1,093
    
    
    
    251Money market funds
    
    
    196
    
    
    
    294Other, including collateral held related to securities lending
    
    
    3,326
    
    
    
    1,419Total short term investments available-for-sale
    
    
    5,538
    
    
    
    3,870Short term investments trading:Commercial paper
    
    
    43
    
    
    
    94U.S. Treasury securities
    
    
    2
    
    
    
    64Money market funds
    
    
    127
    
    
    
    200Other
    
    
    
    
    
    
    10Total short term investments trading
    
    
    172
    
    
    
    368Total short term investments
    
    $
    5,710
    
    
    $
    4,238
 
 52




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LIQUIDITY AND CAPITAL RESOURCES
 Cash Flows
            Commitments, Contingencies, and Guarantees
  53




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##### Table of Contents



Contractual Commitments
 December 31, 2006
    
    Total
    
    
    Less than 1 year
    
    
    1-3 years
    
    
    3-5 years
    
    
    More than 5 years(In millions)Debt (a)
    
    
    3,364
    
    
    
    143
    
    
    
    604
    
    
    
    636
    
    
    
    1,981Lease obligations
    
    
    234
    
    
    
    49
    
    
    
    78
    
    
    
    56
    
    
    
    51Claim and claim expense reserves (b)
    
    
    31,398
    
    
    
    7,147
    
    
    
    9,341
    
    
    
    4,810
    
    
    
    10,100Future policy benefits reserves (c)
    
    
    10,803
    
    
    
    346
    
    
    
    348
    
    
    
    337
    
    
    
    9,772Policyholder funds reserves (c)
    
    
    994
    
    
    
    382
    
    
    
    454
    
    
    
    9
    
    
    
    149Guaranteed payment contracts (d)
    
    
    15
    
    
    
    12
    
    
    
    3
    
    
    
    
    
    
    
    Total
    
    $
    46,808
    
    
    $
    8,079
    
    
    $
    10,828
    
    
    $
    5,848
    
    
    $
    22,053
 
 (a)
    
    Includes estimated future interest payments, but does not include original issue
discount.(b)
    
    Claim and claim adjustment expense reserves are not discounted and represent our
estimate of the amount and timing of the ultimate settlement and administration of claims
based on our assessment of facts and circumstances known as of December 31, 2006. See the
Reserves  Estimates and Uncertainties section of this MD&A for further information. Claim
and claim adjustment expense reserves of $12 million related to business which has been
100% ceded to unaffiliated parties in connection with the individual life sale are not
included.(c)
    
    Future policy benefits and policyholder funds reserves are not discounted and represent
our estimate of the ultimate amount and timing of the settlement of benefits based on our
assessment of facts and circumstances known as of December 31, 2006. Future policy benefit
reserves of $891 million and policyholder fund reserves of $47 million related to business
which has been 100% ceded to unaffiliated parties in connection with the individual life
sale are not included. Additional information on future policy benefits and policyholder
funds reserves is included in Note A of the Consolidated Financial Statements included
under Item 8.(d)
    
    Primarily relating to telecommunications and software services.  Off-Balance Sheet Arrangements
    Regulatory Matters
  54




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Dividends from Subsidiaries
   Loews
   Ratings
  55




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##### Table of Contents



Insurance Financial StrengthRatings (a)
    
    Debt Ratings (a)Property &Casualty
    
    Life
    
    CNAF
    
    ContinentalCCC
    
    CAC
    
    Senior
    
    SeniorGroup
    
    
    
    
    
    Debt
    
    DebtA.M. Best
    
    
    A
    
    
    
    A-
    
    
    bbb
    
    Not ratedFitch
    
    
    A-
    
    
    
    A-
    
    
    BBB-
    
    BBB-Moodys
    
    
    A3
    
    
    Baa1
    
    Baa3
    
    Baa3S&P
    
    
    A-
    
    
    BBB+
    
    BBB-
    
    BBB-
 
 (a)
    
    A.M. Best, Fitch, Moodys and Standard & Poors outlooks are stable for our debt and
insurance financial strength ratings.    Accounting Pronouncements
 Fair Value Measurement
 Accounting for Certain Hybrid Financial
Instruments Accounting for Derivative
Instruments and Hedging Activities Accounting for Transfers
and Servicing of Financial Assets and Extinguishments of Liabilities
 56




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##### Table of Contents



Application of Statement 133 to Beneficial Interests in Securitized Financial Assets
 Embedded
Derivatives: Application of Paragraph 13(b) to Securitized Interests in Prepayable Financial
Assets
 Accounting by
Insurance Enterprises for Deferred Acquisition Costs in Connection with Modifications or Exchanges
of Insurance Contracts Accounting and Reporting by
Insurance Enterprises for Certain Long-Duration Contracts and for Realized Gains and Losses from
the Sale of Investments
  FORWARD-LOOKING STATEMENTS
  
    
    general economic and business conditions, including inflationary pressures on medical care costs, construction
costs and other economic sectors that increase the severity of claims;
    
    changes in financial markets such as fluctuations in interest rates, long term periods of low interest rates,
credit conditions and currency, commodity and stock prices;
    
    the effects of corporate bankruptcies, such as Enron and WorldCom, on capital markets, and on the markets for
D&O and errors and omissions coverages;
 57




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##### Table of Contents




    
    changes in foreign or domestic political, social and economic conditions;
    
    regulatory initiatives and compliance with governmental regulations, judicial decisions, including
interpretation of policy provisions, decisions regarding coverage and theories of liability, trends in litigation
and the outcome of any litigation involving us, and rulings and changes in tax laws and regulations;
    
    effects upon insurance markets and upon industry business practices and relationships of current litigation,
investigations and regulatory activity by the New York State Attorney Generals office and other authorities
concerning contingent commission arrangements with brokers and bid solicitation activities;
    
    legal and regulatory activities with respect to certain non-traditional and finite-risk insurance products,
and possible resulting changes in accounting and financial reporting in relation to such products, including our
restatement of financial results in May of 2005 and our relationship with an affiliate, Accord Re Ltd., as
disclosed in connection with that restatement;
    
    regulatory limitations, impositions and restrictions upon us, including the effects of assessments and other
surcharges for guaranty funds and second-injury funds and other mandatory pooling arrangements;
    
    the impact of competitive products, policies and pricing and the competitive environment in which we operate,
including changes in our book of business;
    
    product and policy availability and demand and market responses, including the level of ability to obtain rate
increases and decline or non-renew under priced accounts, to achieve premium targets and profitability and to
realize growth and retention estimates;
    
    development of claims and the impact on loss reserves, including changes in claim settlement policies;
    
    the effectiveness of current initiatives by claims management to reduce loss and expense ratios through more
efficacious claims handling techniques;
    
    the performance of reinsurance companies under reinsurance contracts with us;
    
    results of financing efforts, including the availability of bank credit facilities;
    
    changes in our composition of operating segments;
    
    weather and other natural physical events, including the severity and frequency of storms, hail, snowfall and
other winter conditions, natural disasters such as hurricanes and earthquakes, as well as climate change, including
effects on weather patterns, greenhouse gases, sea, land and air temperatures, sea levels, rain and snow;
    
    man-made disasters, including the possible occurrence of terrorist attacks and the effect of the absence or
insufficiency of applicable terrorism legislation on coverages;
    
    the unpredictability of the nature, targets, severity or frequency of potential terrorist events, as well as
the uncertainty as to our ability to contain our terrorism exposure effectively, notwithstanding the extension
through December 31, 2007 of the Terrorism Risk Insurance Act of 2002;
    
    the occurrence of epidemics;
    
    exposure to liabilities due to claims made by insureds and others relating to asbestos remediation and
health-based asbestos impairments, as well as exposure to liabilities for environmental pollution, mass tort,
construction defect claims and exposure to liabilities due to claims made by insureds and others relating to
lead-based paint;
    
    whether a national privately financed trust to replace litigation of asbestos claims with payments to
claimants from the trust will be established or approved through federal legislation, or, if established and
approved, whether it will contain funding requirements in excess of our established loss reserves or carried loss
reserves;
    
    the sufficiency of our loss reserves and the possibility of future increases in reserves;
    
    regulatory limitations and restrictions, including limitations upon our ability to receive dividends from our
insurance subsidiaries imposed by state regulatory agencies and minimum risk-based capital standards established by
the National Association of Insurance Commissioners;
 58




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##### Table of Contents




    
    the risks and uncertainties associated with our loss reserves as outlined in the Critical Accounting Estimates
and the Reserves  Estimates and Uncertainties sections of this MD&A;
    
    the level of success in integrating acquired businesses and operations, and in consolidating, or selling
existing ones;
    
    the possibility of further changes in our ratings by ratings agencies, including the inability to access
certain markets or distribution channels and the required collateralization of future payment obligations as a
result of such changes, and changes in rating agency policies and practices; and
    
    the actual closing of contemplated transactions and agreements.
  59




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ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
   Sensitivity Analysis
      60




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##### Table of Contents



Market Risk Scenario 1
 Increase (Decrease)Market
    
    
    Interest
    
    
    Currency
    
    
    EquityDecember 31, 2006
    
    Value
    
    
    Rate Risk
    
    
    Risk
    
    
    Risk(In millions)General account:Fixed maturity securities available-for-sale
    
    $
    35,647
    
    
    $
    (1,959
    )
    
    $
    (98
    )
    
    $
    (91
    )Fixed maturity securities trading
    
    
    204
    
    
    
    (2
    )
    
    
    
    
    
    
    (2
    )Equity securities available-for-sale
    
    
    597
    
    
    
    
    
    
    
    (9
    )
    
    
    (60
    )Equity securities trading
    
    
    60
    
    
    
    
    
    
    
    
    
    
    
    (6
    )Short term investments available-for-sale
    
    
    5,538
    
    
    
    (5
    )
    
    
    (32
    )
    
    
    Short term investments trading
    
    
    172
    
    
    
    
    
    
    
    
    
    
    
    Limited partnerships
    
    
    1,852
    
    
    
    1
    
    
    
    
    
    
    
    (37
    )Other invested assets
    
    
    23
    
    
    
    
    
    
    
    
    
    
    
    Interest rate swaps
    
    
    1
    
    
    
    190
    
    
    
    
    
    
    
    Equity index futures trading
    
    
    
    
    
    
    1
    
    
    
    
    
    
    
    (65
    )Other derivative securities
    
    
    2
    
    
    
    1
    
    
    
    (2
    )
    
    
    Total general account
    
    
    44,096
    
    
    
    (1,773
    )
    
    
    (141
    )
    
    
    (261
    )Separate accounts:Fixed maturity securities
    
    
    434
    
    
    
    (21
    )
    
    
    
    
    
    
    Equity securities
    
    
    41
    
    
    
    
    
    
    
    
    
    
    
    (4
    )Short term investments
    
    
    21
    
    
    
    
    
    
    
    
    
    
    
    Total separate accounts
    
    
    496
    
    
    
    (21
    )
    
    
    
    
    
    
    (4
    )Total securities
    
    $
    44,592
    
    
    $
    (1,794
    )
    
    $
    (141
    )
    
    $
    (265
    )Debt (carrying value)
    
    $
    2,156
    
    
    $
    (122
    )
    
    $
    
    
    
    $
    
 61




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##### Table of Contents



Market Risk Scenario 1
 Increase (Decrease)Market
    
    
    Interest
    
    
    Currency
    
    
    EquityDecember 31, 2005
    
    Value
    
    
    Rate Risk
    
    
    Risk
    
    
    Risk(In millions)General account:Fixed maturity securities available-for-sale
    
    $
    32,963
    
    
    $
    (1,897
    )
    
    $
    (89
    )
    
    $
    (22
    )Fixed maturity securities trading
    
    
    271
    
    
    
    (2
    )
    
    
    (1
    )
    
    
    (2
    )Equity securities available-for-sale
    
    
    632
    
    
    
    
    
    
    
    (6
    )
    
    
    (63
    )Equity securities trading
    
    
    49
    
    
    
    
    
    
    
    
    
    
    
    (5
    )Short term investments available-for-sale
    
    
    3,870
    
    
    
    (4
    )
    
    
    (37
    )
    
    
    Short term investments trading
    
    
    368
    
    
    
    
    
    
    
    
    
    
    
    Limited partnerships
    
    
    1,509
    
    
    
    1
    
    
    
    
    
    
    
    (29
    )Other invested assets
    
    
    30
    
    
    
    
    
    
    
    
    
    
    
    Interest rate swaps
    
    
    
    
    
    
    66
    
    
    
    
    
    
    
    Equity index futures trading
    
    
    
    
    
    
    2
    
    
    
    
    
    
    
    (102
    )Other derivative securities
    
    
    3
    
    
    
    3
    
    
    
    10
    
    
    
    Total general account
    
    
    39,695
    
    
    
    (1,831
    )
    
    
    (123
    )
    
    
    (223
    )Separate accounts:Fixed maturity securities
    
    
    466
    
    
    
    (23
    )
    
    
    
    
    
    
    Equity securities
    
    
    44
    
    
    
    
    
    
    
    
    
    
    
    (4
    )Short term investments
    
    
    36
    
    
    
    
    
    
    
    
    
    
    
    Total separate accounts
    
    
    546
    
    
    
    (23
    )
    
    
    
    
    
    
    (4
    )Total securities
    
    $
    40,241
    
    
    $
    (1,854
    )
    
    $
    (123
    )
    
    $
    (227
    )Debt (carrying value)
    
    $
    1,690
    
    
    $
    (92
    )
    
    $
    
    
    
    $
    
 62




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##### Table of Contents



Market Risk Scenario 2
 Increase (Decrease)Market
    
    
    Interest
    
    
    Currency
    
    
    EquityDecember 31, 2006
    
    Value
    
    
    Rate Risk
    
    
    Risk
    
    
    Risk(In millions)General account:Fixed maturity securities available-for-sale
    
    $
    35,647
    
    
    $
    (2,925
    )
    
    $
    (197
    )
    
    $
    (227
    )Fixed maturity securities trading
    
    
    204
    
    
    
    (3
    )
    
    
    
    
    
    
    (5
    )Equity securities available-for-sale
    
    
    597
    
    
    
    
    
    
    
    (18
    )
    
    
    (149
    )Equity securities trading
    
    
    60
    
    
    
    
    
    
    
    
    
    
    
    (15
    )Short term investments available-for-sale
    
    
    5,538
    
    
    
    (7
    )
    
    
    (64
    )
    
    
    Short term investments trading
    
    
    172
    
    
    
    
    
    
    
    
    
    
    
    Limited partnerships
    
    
    1,852
    
    
    
    1
    
    
    
    
    
    
    
    (93
    )Other invested assets
    
    
    23
    
    
    
    
    
    
    
    
    
    
    
    Interest rate swaps
    
    
    1
    
    
    
    279
    
    
    
    
    
    
    
    Equity index futures trading
    
    
    
    
    
    
    2
    
    
    
    
    
    
    
    (162
    )Other derivative securities
    
    
    2
    
    
    
    1
    
    
    
    (4
    )
    
    
    (1
    )Total general account
    
    
    44,096
    
    
    
    (2,652
    )
    
    
    (283
    )
    
    
    (652
    )Separate accounts:Fixed maturity securities
    
    
    434
    
    
    
    (31
    )
    
    
    
    
    
    
    Equity securities
    
    
    41
    
    
    
    
    
    
    
    
    
    
    
    (10
    )Short term investments
    
    
    21
    
    
    
    
    
    
    
    
    
    
    
    Total separate accounts
    
    
    496
    
    
    
    (31
    )
    
    
    
    
    
    
    (10
    )Total securities
    
    $
    44,592
    
    
    $
    (2,683
    )
    
    $
    (283
    )
    
    $
    (662
    )Debt (carrying value)
    
    $
    2,156
    
    
    $
    (180
    )
    
    $
    
    
    
    $
    
 63




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##### Table of Contents



Market Risk Scenario 2
 Increase (Decrease)Market
    
    
    Interest
    
    
    Currency
    
    
    EquityDecember 31, 2005
    
    Value
    
    
    Rate Risk
    
    
    Risk
    
    
    Risk(In millions)General account:Fixed maturity securities available-for-sale
    
    $
    32,963
    
    
    $
    (2,827
    )
    
    $
    (178
    )
    
    $
    (54
    )Fixed maturity securities trading
    
    
    271
    
    
    
    (4
    )
    
    
    (1
    )
    
    
    (4
    )Equity securities available-for-sale
    
    
    632
    
    
    
    
    
    
    
    (11
    )
    
    
    (158
    )Equity securities trading
    
    
    49
    
    
    
    
    
    
    
    
    
    
    
    (12
    )Short term investments available-for-sale
    
    
    3,870
    
    
    
    (6
    )
    
    
    (74
    )
    
    
    Short term investments trading
    
    
    368
    
    
    
    
    
    
    
    
    
    
    
    Limited partnerships
    
    
    1,509
    
    
    
    1
    
    
    
    
    
    
    
    (72
    )Other invested assets
    
    
    30
    
    
    
    
    
    
    
    
    
    
    
    Interest rate swaps
    
    
    
    
    
    
    95
    
    
    
    
    
    
    
    Equity index futures trading
    
    
    
    
    
    
    3
    
    
    
    (1
    )
    
    
    (255
    )Other derivative securities
    
    
    3
    
    
    
    5
    
    
    
    20
    
    
    
    (1
    )Total general account
    
    
    39,695
    
    
    
    (2,733
    )
    
    
    (245
    )
    
    
    (556
    )Separate accounts:Fixed maturity securities
    
    
    466
    
    
    
    (34
    )
    
    
    
    
    
    
    Equity securities
    
    
    44
    
    
    
    
    
    
    
    
    
    
    
    (11
    )Short term investments
    
    
    36
    
    
    
    
    
    
    
    
    
    
    
    Total separate accounts
    
    
    546
    
    
    
    (34
    )
    
    
    
    
    
    
    (11
    )Total securities
    
    $
    40,241
    
    
    $
    (2,767
    )
    
    $
    (245
    )
    
    $
    (567
    )Debt (carrying value)
    
    $
    1,690
    
    
    $
    (135
    )
    
    $
    
    
    
    $
    
 64




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##### Table of Contents



ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
 CNA Financial Corporation
Consolidated Statements of Operations
 Years ended December 31
    
    2006
    
    
    2005
    
    
    2004(In millions, except per share data)RevenuesNet earned premiums
    
    $
    7,603
    
    
    $
    7,569
    
    
    $
    8,209Net investment income
    
    
    2,412
    
    
    
    1,892
    
    
    
    1,680Realized investment gains (losses), net of participating
policyholders and minority interests
    
    
    86
    
    
    
    (10
    )
    
    
    (248
    )Other revenues
    
    
    275
    
    
    
    411
    
    
    
    283Total revenues
    
    
    10,376
    
    
    
    9,862
    
    
    
    9,924Claims, Benefits and ExpensesInsurance claims and policyholders benefits
    
    
    6,047
    
    
    
    6,999
    
    
    
    6,445Amortization of deferred acquisition costs
    
    
    1,534
    
    
    
    1,543
    
    
    
    1,680Other operating expenses
    
    
    1,027
    
    
    
    1,034
    
    
    
    1,174Restructuring and other related charges
    
    
    (13
    )
    
    
    
    
    
    
    (3
    )Interest
    
    
    131
    
    
    
    124
    
    
    
    124Total claims, benefits and expenses
    
    
    8,726
    
    
    
    9,700
    
    
    
    9,420Income before income tax and minority interest
    
    
    1,650
    
    
    
    162
    
    
    
    504Income tax (expense) benefit
    
    
    (469
    )
    
    
    105
    
    
    
    (31
    )Minority interest
    
    
    (44
    )
    
    
    (24
    )
    
    
    (27
    )Income from continuing operations
    
    
    1,137
    
    
    
    243
    
    
    
    446Income (loss) from discontinued operations, net of income
tax (expense) benefit of $7, $(2) and $(1)
    
    
    (29
    )
    
    
    21
    
    
    
    (21
    )Net income
    
    $
    1,108
    
    
    $
    264
    
    
    $
    425Basic Earnings Per ShareIncome from continuing operations
    
    $
    4.17
    
    
    $
    0.68
    
    
    $
    1.49Income (loss) from discontinued operations
    
    
    (0.11
    )
    
    
    0.08
    
    
    
    (0.09
    )Basic earnings per share available to common stockholders
    
    $
    4.06
    
    
    $
    0.76
    
    
    $
    1.40Diluted Earnings Per ShareIncome from continuing operations
    
    $
    4.16
    
    
    $
    0.68
    
    
    $
    1.49Income (loss) from discontinued operations
    
    
    (0.11
    )
    
    
    0.08
    
    
    
    (0.09
    )Diluted earnings per share available to common stockholders
    
    $
    4.05
    
    
    $
    0.76
    
    
    $
    1.40Weighted Average Outstanding Common Stock and Common Stock
EquivalentsBasic
    
    
    262.1
    
    
    
    256.0
    
    
    
    256.0Diluted
    
    
    262.3
    
    
    
    256.0
    
    
    
    256.0
  65




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##### Table of Contents



CNA Financial Corporation
Consolidated Balance Sheets
 December 31
    
    2006
    
    
    2005(In millions, except share data)AssetsInvestments:Fixed maturity securities at fair value (amortized cost of $35,135 and $32,616)
    
    $
    35,851
    
    
    $
    33,234Equity securities at fair value (cost of $408 and $511)
    
    
    657
    
    
    
    681Limited partnership investments
    
    
    1,852
    
    
    
    1,509Other invested assets
    
    
    26
    
    
    
    33Short term investments
    
    
    5,710
    
    
    
    4,238Total investments
    
    
    44,096
    
    
    
    39,695Cash
    
    
    84
    
    
    
    96Reinsurance receivables (less allowance for uncollectible receivables of $469 and $519)
    
    
    9,478
    
    
    
    11,917Insurance receivables (less allowance for doubtful accounts of $368 and $445)
    
    
    2,108
    
    
    
    2,096Accrued investment income
    
    
    313
    
    
    
    312Receivables for securities sold
    
    
    303
    
    
    
    565Deferred acquisition costs
    
    
    1,190
    
    
    
    1,197Prepaid reinsurance premiums
    
    
    342
    
    
    
    340Federal income taxes recoverable (includes $0 and $68 due from Loews Corporation)
    
    
    
    
    
    
    62Deferred income taxes
    
    
    855
    
    
    
    1,105Property and equipment at cost (less accumulated depreciation of $571 and $546)
    
    
    277
    
    
    
    197Goodwill and other intangible assets
    
    
    142
    
    
    
    146Other assets
    
    
    592
    
    
    
    737Separate account business
    
    
    503
    
    
    
    551Total assets
    
    $
    60,283
    
    
    $
    59,016Liabilities and Stockholders EquityLiabilities:Insurance reserves:Claim and claim adjustment expenses
    
    $
    29,636
    
    
    $
    30,938Unearned premiums
    
    
    3,784
    
    
    
    3,706Future policy benefits
    
    
    6,645
    
    
    
    6,297Policyholders funds
    
    
    1,015
    
    
    
    1,495Collateral on loaned securities
    
    
    2,851
    
    
    
    767Payables for securities purchased
    
    
    221
    
    
    
    129Participating policyholders funds
    
    
    50
    
    
    
    53Short term debt
    
    
    
    
    
    
    252Long term debt
    
    
    2,156
    
    
    
    1,438Federal income taxes payable (includes $38 and $0 due to Loews Corporation)
    
    
    40
    
    
    
    Reinsurance balances payable
    
    
    539
    
    
    
    1,636Other liabilities
    
    
    2,740
    
    
    
    2,513Separate account business
    
    
    503
    
    
    
    551Total liabilities
    
    
    50,180
    
    
    
    49,775Commitments and contingencies (Notes B, F, G, I and K)Minority interest
    
    
    335
    
    
    
    291Stockholders equity:Preferred stock (12,500,000 shares authorized)Series H Issue (no par value; $100,000 stated value; no shares and
7,500 shares issued; held by Loews Corporation)
    
    
    
    
    
    
    750Common stock ($2.50 par value; 500,000,000 shares authorized; 273,040,543
and 258,177,285 shares issued; and 271,108,780 and 256,001,968 shares
outstanding)
    
    
    683
    
    
    
    645Additional paid-in capital
    
    
    2,166
    
    
    
    1,701Retained earnings
    
    
    6,486
    
    
    
    5,621Accumulated other comprehensive income
    
    
    549
    
    
    
    359Treasury stock (1,931,763 and 2,175,317 shares), at cost
    
    
    (58
    )
    
    
    (67
    )9,826
    
    
    
    9,009Notes receivable for the issuance of common stock
    
    
    (58
    )
    
    
    (59
    )Total stockholders equity
    
    
    9,768
    
    
    
    8,950Total liabilities and stockholders equity
    
    $
    60,283
    
    
    $
    59,016
  66




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##### Table of Contents



CNA Financial Corporation
Consolidated Statements of Cash Flows
 Years ended December 31
    
    2006
    
    
    2005
    
    
    2004(In millions)Cash Flows from Operating Activities:Net income
    
    $
    1,108
    
    
    $
    264
    
    
    $
    425Adjustments to reconcile net income to net cash flows provided
by operating activities:(Income) loss from discontinued operations
    
    
    29
    
    
    
    (21
    )
    
    
    21Loss (gain) on disposal of property and equipment
    
    
    
    
    
    
    (1
    )
    
    
    36Minority interest
    
    
    44
    
    
    
    24
    
    
    
    27Deferred income tax provision
    
    
    173
    
    
    
    (220
    )
    
    
    37Trading securities activity
    
    
    374
    
    
    
    164
    
    
    
    (93
    )Realized investment (gains) losses, net of participating
policyholders and minority interests
    
    
    (86
    )
    
    
    10
    
    
    
    248Undistributed earnings of equity method investees
    
    
    (170
    )
    
    
    (45
    )
    
    
    (67
    )Amortization of bond (discount) premium
    
    
    (274
    )
    
    
    (153
    )
    
    
    9Depreciation
    
    
    48
    
    
    
    54
    
    
    
    75Changes in:Receivables, net
    
    
    2,427
    
    
    
    3,531
    
    
    
    (545
    )Deferred acquisition costs
    
    
    7
    
    
    
    71
    
    
    
    194Accrued investment income
    
    
    (1
    )
    
    
    (15
    )
    
    
    (12
    )Federal income taxes recoverable/payable
    
    
    102
    
    
    
    (62
    )
    
    
    596Prepaid reinsurance premiums
    
    
    (2
    )
    
    
    788
    
    
    
    233Reinsurance balances payable
    
    
    (1,097
    )
    
    
    (1,344
    )
    
    
    (318
    )Insurance reserves
    
    
    (771
    )
    
    
    (943
    )
    
    
    1,075Other assets
    
    
    142
    
    
    
    (16
    )
    
    
    335Other liabilities
    
    
    306
    
    
    
    55
    
    
    
    105Other, net
    
    
    (98
    )
    
    
    75
    
    
    
    (397
    )Total adjustments
    
    
    1,153
    
    
    
    1,952
    
    
    
    1,559Net cash flows provided by operating activities-continuing
operations
    
    $
    2,261
    
    
    $
    2,216
    
    
    $
    1,984Net cash flows used by operating activities-discontinued
operations
    
    $
    (11
    )
    
    $
    (47
    )
    
    $
    (16
    )Net cash flows provided by operating activities-total
    
    $
    2,250
    
    
    $
    2,169
    
    
    $
    1,968Cash Flows from Investing Activities:Purchases of fixed maturity securities
    
    $
    (48,757
    )
    
    $
    (62,990
    )
    
    $
    (58,379
    )Proceeds from fixed maturity securities:Sales
    
    
    42,433
    
    
    
    55,611
    
    
    
    48,427Maturities, calls and redemptions
    
    
    4,310
    
    
    
    4,579
    
    
    
    4,800Purchases of equity securities
    
    
    (340
    )
    
    
    (482
    )
    
    
    (351
    )Proceeds from sales of equity securities
    
    
    221
    
    
    
    316
    
    
    
    522Change in short term investments
    
    
    (1,331
    )
    
    
    1,627
    
    
    
    2,021Change in collateral on loaned securities
    
    
    2,084
    
    
    
    (151
    )
    
    
    476Change in other investments
    
    
    (195
    )
    
    
    86
    
    
    
    (30
    )Purchases of property and equipment
    
    
    (131
    )
    
    
    (45
    )
    
    
    (41
    )Dispositions
    
    
    8
    
    
    
    57
    
    
    
    647Other, net
    
    
    16
    
    
    
    56
    
    
    
    (194
    )Net cash flows used by investing activities-continuing operations
    
    $
    (1,682
    )
    
    $
    (1,336
    )
    
    $
    (2,102
    )Net cash flows provided by investing activities-discontinued
operations
    
    $
    36
    
    
    $
    20
    
    
    $
    18Net cash flows used by investing activities-total
    
    $
    (1,646
    )
    
    $
    (1,316
    )
    
    $
    (2,084
    )
  67




---



##### Table of Contents



2006
    
    
    2005
    
    
    2004Cash Flows from Financing Activities:Proceeds from the issuance of long term debt
    
    $
    759
    
    
    $
    
    
    
    $
    972Principal payments on debt
    
    
    (294
    )
    
    
    (568
    )
    
    
    (618
    )Return of investment contract account balances
    
    
    (589
    )
    
    
    (281
    )
    
    
    (479
    )Receipts of investment contract account balances
    
    
    4
    
    
    
    7
    
    
    
    181Payment to repurchase Series H Issue preferred stock
    
    
    (993
    )
    
    
    
    
    
    
    Proceeds from the issuance of common stock
    
    
    499
    
    
    
    
    
    
    
    Stock options exercised
    
    
    10
    
    
    
    2
    
    
    
    Other, net
    
    
    (1
    )
    
    
    3
    
    
    
    5Net cash flows (used) provided by financing
activities-continuing operations
    
    $
    (605
    )
    
    $
    (837
    )
    
    $
    61Net cash flows provided by financing
activities-discontinued operations
    
    $
    
    
    
    $
    
    
    
    $
    Net cash flows (used) provided by financing activities-total
    
    $
    (605
    )
    
    $
    (837
    )
    
    $
    61Net change in cash
    
    
    (1
    )
    
    
    16
    
    
    
    (55
    )Net cash transactions from continuing operations to
discontinued operations
    
    
    14
    
    
    
    (42
    )
    
    
    13Net cash transactions from discontinued operations to
continuing operations
    
    
    (14
    )
    
    
    42
    
    
    
    (13
    )Cash, beginning of year
    
    
    125
    
    
    
    109
    
    
    
    164Cash, end of year
    
    $
    124
    
    
    $
    125
    
    
    $
    109Cash-continuing operations
    
    $
    84
    
    
    $
    96
    
    
    $
    95Cash-discontinued operations
    
    
    40
    
    
    
    29
    
    
    
    14Cash-total
    
    $
    124
    
    
    $
    125
    
    
    $
    109
  68




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##### Table of Contents



CNA Financial Corporation
Consolidated Statements of Stockholders Equity
 Accumulated
    
    
    
    
    
    
    NotesAdditional
    
    
    
    
    
    
    Other
    
    
    
    
    
    
    Receivable for
    
    
    TotalPreferred
    
    
    Common
    
    
    Paid-in
    
    
    Retained
    
    
    Comprehensive
    
    
    Treasury
    
    
    the Issuance of
    
    
    Stockholders(In millions)
    
    Stock
    
    
    Stock
    
    
    Capital
    
    
    Earnings
    
    
    Income (Loss)
    
    
    Stock
    
    
    Common Stock
    
    
    EquityBalance, January 1, 2004
    
    $
    1,500
    
    
    $
    565
    
    
    $
    1,031
    
    
    $
    4,932
    
    
    $
    852
    
    
    $
    (69
    )
    
    $
    (76
    )
    
    $
    8,735Comprehensive income:Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    425
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    425Other comprehensive loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (191
    )
    
    
    
    
    
    
    
    
    
    
    (191
    )Total comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    234Conversion of Series I preferred stock to
common stock
    
    
    (750
    )
    
    
    80
    
    
    
    670
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Decrease in notes receivable for the
issuance of common stock
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    5
    
    
    
    5Balance, December 31, 2004
    
    
    750
    
    
    
    645
    
    
    
    1,701
    
    
    
    5,357
    
    
    
    661
    
    
    
    (69
    )
    
    
    (71
    )
    
    
    8,974Comprehensive income:Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    264
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    264Other comprehensive loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (302
    )
    
    
    
    
    
    
    
    
    
    
    (302
    )Total comprehensive loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (38
    )Stock options exercised
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2
    
    
    
    
    
    
    
    2Decrease in notes receivable for the
issuance of common stock
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    12
    
    
    
    12Balance, December 31, 2005
    
    
    750
    
    
    
    645
    
    
    
    1,701
    
    
    
    5,621
    
    
    
    359
    
    
    
    (67
    )
    
    
    (59
    )
    
    
    8,950Comprehensive income:Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,108
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,108Other comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    236
    
    
    
    
    
    
    
    
    
    
    
    236Total comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,344Liquidation preference in excess of par
value on Series H Issue
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (243
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (243
    )Repurchase of Series H Issue
    
    
    (750
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (750
    )Issuance of common stock
    
    
    
    
    
    
    38
    
    
    
    461
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    499Adjustment to initially apply FAS 158,
net of tax
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (46
    )
    
    
    
    
    
    
    
    
    
    
    (46
    )Stock options exercised
    
    
    
    
    
    
    
    
    
    
    1
    
    
    
    
    
    
    
    
    
    
    
    9
    
    
    
    
    
    
    
    10Decrease in notes receivable for the
issuance of common stock
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1
    
    
    
    1Other
    
    
    
    
    
    
    
    
    
    
    3
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3Balance, December 31, 2006
    
    $
    
    
    
    $
    683
    
    
    $
    2,166
    
    
    $
    6,486
    
    
    $
    549
    
    
    $
    (58
    )
    
    $
    (58
    )
    
    $
    9,768
  69




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##### Table of Contents



Notes to Consolidated Financial Statements
 Note A. Summary of Significant Accounting Policies
 Basis of Presentation
    Business
    Insurance Operations
 Premiums:
  70




---



##### Table of Contents



Claim and claim adjustment expense reserves:
    Future policy benefits reserves:
 Policyholders funds reserves:
 71




---



##### Table of Contents



Guaranty fund and other insurance-related assessments:
 Reinsurance:
   Participating insurance:
 Deferred acquisition costs:
   Investments in life settlement contracts and related revenue recognition:
 72




---



##### Table of Contents



Accounting for Life Settlement Contracts by Third-Party Investors
 Separate Account Business
  Investments
 Valuation of investments:
  Consolidation of Variable Interest Entities, an Interpretation of ARB
No. 51
  Realized investment gains and losses:
 Equity in unconsolidated affiliates:
 73




---



##### Table of Contents



Securities lending activities:
  Derivative Financial Instruments
    Nature of Hedge Designation
    
    Derivatives Change in Fair Value Reflected In:No hedge designation
    
    Realized investment gains or lossesFair value designation
    
    Realized investment gains or losses, along
with the change in fair value of the hedged
asset or liability that is attributable to the
hedged riskCash flow designation
    
    Other comprehensive income, with subsequent
reclassification to earnings when the hedged
transaction, asset or liability impacts
earningsForeign currency designation
    
    Consistent with fair value or cash flow above,
depending on the nature of the hedging
relationship
   74




---



##### Table of Contents



® ®
    75




---



##### Table of Contents



Income Taxes
  Property and Equipmen t
  Goodwill and Other Intangible Assets
  Earnings
per Share Data
    76




---



##### Table of Contents



Earnings Per Share
 Years ended December 31
    
    2006
    
    
    2005
    
    
    2004(In millions, except per share amounts)Income from continuing operations
    
    $
    1,137
    
    
    $
    243
    
    
    $
    446Less: undeclared preferred stock dividend through repurchase date
    
    
    (46
    )
    
    
    (70
    )
    
    
    (65
    )Income from continuing operations available to common stockholders
    
    $
    1,091
    
    
    $
    173
    
    
    $
    381Weighted average outstanding common stock and common stock equivalents
    
    
    262.1
    
    
    
    256.0
    
    
    
    256.0Effect of dilutive securities, employee stock options
    
    
    0.2
    
    
    
    
    
    
    
    Adjusted weighted average outstanding common stock and common stock
equivalents assuming conversions
    
    
    262.3
    
    
    
    256.0
    
    
    
    256.0Basic earnings per share from continuing operations available
to common stockholders
    
    $
    4.17
    
    
    $
    0.68
    
    
    $
    1.49Diluted earnings per share from continuing operations available
to common stockholders
    
    $
    4.16
    
    
    $
    0.68
    
    
    $
    1.49
 Accounting for Stock-Based Compensation
 Pro Forma Effect of SFAS 123 on Results
 Years ended December 31
    
    2005
    
    
    2004(In millions, except per share amounts)Income from continuing operations
    
    $
    243
    
    
    $
    446Less: undeclared preferred stock dividend
    
    
    (70
    )
    
    
    (65
    )Income from continuing operations available to common
stockholders
    
    
    173
    
    
    
    381Income (loss) from discontinued operations, net of tax
    
    
    21
    
    
    
    (21
    )Net income available to common stockholders
    
    
    194
    
    
    
    360Less: Total stock-based compensation cost determined
under the fair value method, net of tax
    
    
    (2
    )
    
    
    (2
    )Pro forma net income available to common stockholders
    
    $
    192
    
    
    $
    358Basic and diluted earnings per share, as reported
    
    $
    0.76
    
    
    $
    1.40Basic and diluted earnings per share, pro forma
    
    $
    0.75
    
    
    $
    1.39
 Supplementary Cash Flow Information
  Accounting Pronouncements
 Accounting Changes and Error Correction Accounting
Changes Reporting Accounting Changes in Interim Financial
Statements
 77




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##### Table of Contents



The
Meaning of Other-Than-Temporary Impairment and its Application to Certain Investments Accounting for Certain Investments in Debt and Equity Securities The Equity Method of Accounting for Investments in Common Stock The Meaning of
Other-Than-Temporary Impairment and its Application to Certain Investments
 Share-Based Payment Accounting for Stock Issued to Employees Transition
Election Related to Accounting for the Tax Effects of Share-Based Payment Awards
 Employers Accounting for Defined Benefit
Pension and Other Postretirement Plans (an amendment of FASB Statements No. 87, 88, 106 and
132(R))
 78




---



##### Table of Contents



Considering the Effects of Prior Year Misstatements when Quantifying
Misstatements in Current Year Financial Statements Accounting Changes and Error Correction
 Accounting for Life Settlement Contracts by
Third-Party Investors Accounting for
Purchases of Life Insurance
 Accounting for Uncertainty in Income Taxes an
interpretation of FASB Statement No. 109
 79




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##### Table of Contents



Note B. Investments
  Net Investment Income
 Years ended December 31
    
    2006
    
    
    2005
    
    
    2004(In millions)Fixed maturity securities
    
    $
    1,842
    
    
    $
    1,608
    
    
    $
    1,571Short term investments
    
    
    248
    
    
    
    147
    
    
    
    56Limited partnerships
    
    
    288
    
    
    
    254
    
    
    
    212Equity securities
    
    
    23
    
    
    
    25
    
    
    
    14Income from trading portfolio (a)
    
    
    103
    
    
    
    47
    
    
    
    110Interest on funds withheld and other deposits
    
    
    (68
    )
    
    
    (166
    )
    
    
    (261
    )Other
    
    
    18
    
    
    
    20
    
    
    
    18Gross investment income
    
    
    2,454
    
    
    
    1,935
    
    
    
    1,720Investment expenses
    
    
    (42
    )
    
    
    (43
    )
    
    
    (40
    )Net investment income
    
    $
    2,412
    
    
    $
    1,892
    
    
    $
    1,680
 
 (a)
    
    There was no change in net unrealized gains (losses) on trading securities included in
net investment income for the year ended December 31, 2006. The change in net unrealized
gains (losses) on trading securities included in net investment income was $(7) million and
$2 million for the years ended December 31, 2005 and 2004. 80




---



##### Table of Contents



Net Investment Appreciation
 Years ended December 31
    
    2006
    
    
    2005
    
    
    2004(In millions)Net realized investment gains (losses):Fixed maturity securities:Gross realized gains
    
    $
    382
    
    
    $
    361
    
    
    $
    704Gross realized losses
    
    
    (377
    )
    
    
    (451
    )
    
    
    (457
    )Net realized gains (losses) on fixed maturity securities
    
    
    5
    
    
    
    (90
    )
    
    
    247Equity securities:Gross realized gains
    
    
    24
    
    
    
    73
    
    
    
    225Gross realized losses
    
    
    (8
    )
    
    
    (35
    )
    
    
    (23
    )Net realized gains on equity securities
    
    
    16
    
    
    
    38
    
    
    
    202Other, including disposition of businesses net of participating
policyholders interest
    
    
    66
    
    
    
    39
    
    
    
    (688
    )Net realized investment gains (losses) before allocation to participating
policyholders and minority interests
    
    
    87
    
    
    
    (13
    )
    
    
    (239
    )Allocation to participating policyholders and minority interests
    
    
    (1
    )
    
    
    3
    
    
    
    (9
    )Net realized investment gains (losses)
    
    
    86
    
    
    
    (10
    )
    
    
    (248
    )Net change in unrealized appreciation (depreciation) in general account investments:Fixed maturity securities
    
    
    98
    
    
    
    (443
    )
    
    
    (53
    )Equity securities
    
    
    78
    
    
    
    34
    
    
    
    (98
    )Other
    
    
    2
    
    
    
    (1
    )
    
    
    Total net change in unrealized appreciation (depreciation) in general account
investments
    
    
    178
    
    
    
    (410
    )
    
    
    (151
    )Net change in unrealized depreciation on other
    
    
    (10
    )
    
    
    (12
    )
    
    
    (70
    )Allocation to participating policyholders and minority interests
    
    
    4
    
    
    
    18
    
    
    
    19Deferred income tax (expense) benefit
    
    
    (58
    )
    
    
    158
    
    
    
    55Net change in unrealized appreciation (depreciation) in investments
    
    
    114
    
    
    
    (246
    )
    
    
    (147
    )Net realized gains (losses) and change in unrealized appreciation (depreciation) in
investments
    
    $
    200
    
    
    $
    (256
    )
    
    $
    (395
    )
    81




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##### Table of Contents



Summary of Fixed Maturity and Equity Securities
 Cost or
    
    
    Gross
    
    
    Gross Unrealized Losses
    
    
    EstimatedAmortized
    
    
    Unrealized
    
    
    Less than
    
    
    Greater than
    
    
    FairDecember 31, 2006
    
    Cost
    
    
    Gains
    
    
    12 Months
    
    
    12 Months
    
    
    Value(In millions)Fixed maturity securities available-for-sale:U.S. Treasury securities and obligations of
government agencies
    
    $
    5,056
    
    
    $
    86
    
    
    $
    3
    
    
    $
    1
    
    
    $
    5,138Asset-backed securities
    
    
    13,821
    
    
    
    28
    
    
    
    20
    
    
    
    152
    
    
    
    13,677States, municipalities and political
subdivisions  tax-exempt
    
    
    4,915
    
    
    
    237
    
    
    
    1
    
    
    
    5
    
    
    
    5,146Corporate securities
    
    
    6,811
    
    
    
    338
    
    
    
    8
    
    
    
    9
    
    
    
    7,132Other debt securities
    
    
    3,443
    
    
    
    207
    
    
    
    7
    
    
    
    1
    
    
    
    3,642Redeemable preferred stock
    
    
    885
    
    
    
    28
    
    
    
    1
    
    
    
    
    
    
    
    912Total fixed maturity securities available-for-sale
    
    
    34,931
    
    
    
    924
    
    
    
    40
    
    
    
    168
    
    
    
    35,647Total fixed maturity securities trading
    
    
    204
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    204Equity securities available-for-sale:Common stock
    
    
    214
    
    
    
    239
    
    
    
    1
    
    
    
    
    
    
    
    452Preferred stock
    
    
    134
    
    
    
    11
    
    
    
    
    
    
    
    
    
    
    
    145Total equity securities available-for-sale
    
    
    348
    
    
    
    250
    
    
    
    1
    
    
    
    
    
    
    
    597Total equity securities trading
    
    
    60
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    60Total
    
    $
    35,543
    
    
    $
    1,174
    
    
    $
    41
    
    
    $
    168
    
    
    $
    36,508
 82




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##### Table of Contents



Summary of Fixed Maturity and Equity Securities
 Cost or
    
    
    Gross
    
    
    Gross Unrealized Losses
    
    
    EstimatedAmortized
    
    
    Unrealized
    
    
    Less than
    
    
    Greater than
    
    
    FairDecember 31, 2005
    
    Cost
    
    
    Gains
    
    
    12 Months
    
    
    12 Months
    
    
    Value(In millions)Fixed maturity securities available-for-sale:U.S. Treasury securities and obligations of
government agencies
    
    $
    1,355
    
    
    $
    119
    
    
    $
    4
    
    
    $
    1
    
    
    $
    1,469Asset-backed securities
    
    
    12,986
    
    
    
    43
    
    
    
    137
    
    
    
    33
    
    
    
    12,859States, municipalities and political
subdivisions  tax-exempt
    
    
    9,054
    
    
    
    193
    
    
    
    31
    
    
    
    7
    
    
    
    9,209Corporate securities
    
    
    5,906
    
    
    
    322
    
    
    
    52
    
    
    
    11
    
    
    
    6,165Other debt securities
    
    
    2,830
    
    
    
    234
    
    
    
    18
    
    
    
    2
    
    
    
    3,044Redeemable preferred stock
    
    
    213
    
    
    
    4
    
    
    
    
    
    
    
    1
    
    
    
    216Options embedded in convertible debt securities
    
    
    1
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1Total fixed maturity securities available-for-sale
    
    
    32,345
    
    
    
    915
    
    
    
    242
    
    
    
    55
    
    
    
    32,963Total fixed maturity securities trading
    
    
    271
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    271Equity securities available-for-sale:Common stock
    
    
    140
    
    
    
    150
    
    
    
    1
    
    
    
    
    
    
    
    289Preferred stock
    
    
    322
    
    
    
    22
    
    
    
    1
    
    
    
    
    
    
    
    343Total equity securities available-for-sale
    
    
    462
    
    
    
    172
    
    
    
    2
    
    
    
    
    
    
    
    632Total equity securities trading
    
    
    49
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    49Total
    
    $
    33,127
    
    
    $
    1,087
    
    
    $
    244
    
    
    $
    55
    
    
    $
    33,915
 83




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##### Table of Contents



Unrealized Loss Aging
 December 31, 2006
    
    
    December 31, 2005Gross
    
    
    
    
    
    
    GrossEstimated
    
    
    Unrealized
    
    
    Estimated
    
    
    UnrealizedFair Value
    
    
    Loss
    
    
    Fair Value
    
    
    Loss(In millions)Fixed maturity securities:Investment grade:0-6 months
    
    $
    9,829
    
    
    $
    24
    
    
    $
    9,976
    
    
    $
    1427-12 months
    
    
    1,267
    
    
    
    12
    
    
    
    2,739
    
    
    
    6113-24 months
    
    
    5,248
    
    
    
    127
    
    
    
    1,400
    
    
    
    45Greater than 24 months
    
    
    1,022
    
    
    
    41
    
    
    
    219
    
    
    
    7Total investment grade
    
    
    17,366
    
    
    
    204
    
    
    
    14,334
    
    
    
    255Non-investment grade:0-6 months
    
    
    509
    
    
    
    2
    
    
    
    632
    
    
    
    297-12 months
    
    
    87
    
    
    
    2
    
    
    
    118
    
    
    
    1013-24 months
    
    
    24
    
    
    
    
    
    
    
    122
    
    
    
    3Greater than 24 months
    
    
    2
    
    
    
    
    
    
    
    2
    
    
    
    Total non-investment grade
    
    
    622
    
    
    
    4
    
    
    
    874
    
    
    
    42Total fixed maturity securities
    
    
    17,988
    
    
    
    208
    
    
    
    15,208
    
    
    
    297Equity securities:0-6 months
    
    
    10
    
    
    
    1
    
    
    
    49
    
    
    
    27-12 months
    
    
    1
    
    
    
    
    
    
    
    1
    
    
    
    13-24 months
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Greater than 24 months
    
    
    3
    
    
    
    
    
    
    
    3
    
    
    
    Total equity securities
    
    
    14
    
    
    
    1
    
    
    
    53
    
    
    
    2Total fixed maturity and equity securities
    
    $
    18,002
    
    
    $
    209
    
    
    $
    15,261
    
    
    $
    299
     84




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##### Table of Contents



Asset-Backed
Securities
  Recognition of Interest Income and
Impairment on Purchased and Retained Beneficial Interests in Securitized Financial Assets
  Corporate
Securities
  85




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##### Table of Contents



Contractual Maturity
 December 31, 2006
    
    
    December 31, 2005Cost or
    
    
    Estimated
    
    
    Cost or
    
    
    EstimatedAmortized
    
    
    Fair
    
    
    Amortized
    
    
    FairCost
    
    
    Value
    
    
    Cost
    
    
    Value(In millions)Due in one year or less
    
    $
    1,599
    
    
    $
    1,602
    
    
    $
    953
    
    
    $
    955Due after one year through five years
    
    
    13,024
    
    
    
    13,039
    
    
    
    11,375
    
    
    
    11,320Due after five years through ten years
    
    
    9,555
    
    
    
    9,619
    
    
    
    6,176
    
    
    
    6,280Due after ten years
    
    
    10,753
    
    
    
    11,387
    
    
    
    13,841
    
    
    
    14,408Total
    
    $
    34,931
    
    
    $
    35,647
    
    
    $
    32,345
    
    
    $
    32,963
  Investment Commitments
   Investments on Deposit
   86




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##### Table of Contents



Note C. Derivative Financial Instruments
  Derivative Financial Instruments
 Contractual/
    
    
    Estimated
    
    
    Estimated
    
    
    NetNotional
    
    
    Fair Value
    
    
    Fair Value
    
    
    RecognizedAs of and for the year ended December 31, 2006
    
    Amount
    
    
    Asset
    
    
    (Liability)
    
    
    Gains(In millions)General accountWithout hedge designationSwaps
    
    $
    4,795
    
    
    $
    
    
    
    $
    (30
    )
    
    $
    14Futures sold, not yet purchased
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    4Currency forwards
    
    
    8
    
    
    
    
    
    
    
    
    
    
    
    Equity warrants
    
    
    6
    
    
    
    2
    
    
    
    
    
    
    
    Options embedded in convertible debt securities
    
    
    9
    
    
    
    
    
    
    
    
    
    
    
    Trading activitiesFutures purchased
    
    
    722
    
    
    
    
    
    
    
    (3
    )
    
    
    65Futures sold, not yet purchased
    
    
    79
    
    
    
    
    
    
    
    
    
    
    
    Currency forwards
    
    
    25
    
    
    
    
    
    
    
    
    
    
    
    Total general account
    
    $
    5,644
    
    
    $
    2
    
    
    $
    (33
    )
    
    $
    83Separate accountsOptions written
    
    $
    1
    
    
    $
    
    
    
    $
    
    
    
    $
    Total separate accounts
    
    $
    1
    
    
    $
    
    
    
    $
    
    
    
    $
    
 87




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##### Table of Contents



Derivative Financial Instruments
 NetContractual/
    
    
    Estimated
    
    
    Estimated
    
    
    RecognizedNotional
    
    
    Fair Value
    
    
    Fair Value
    
    
    GainsAs of and for the year ended December 31, 2005
    
    Amount
    
    
    Asset
    
    
    (Liability)
    
    
    (Losses)(In millions)General accountWith hedge designationSwaps
    
    $
    265
    
    
    $
    
    
    
    $
    (1
    )
    
    $
    (1
    )Without hedge designationSwaps
    
    
    756
    
    
    
    
    
    
    
    (8
    )
    
    
    46Futures sold, not yet purchased
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2Currency forwards
    
    
    15
    
    
    
    
    
    
    
    
    
    
    
    2Equity warrants
    
    
    6
    
    
    
    2
    
    
    
    
    
    
    
    Options embedded in convertible debt securities
    
    
    12
    
    
    
    1
    
    
    
    
    
    
    
    (33
    )Trading activitiesFutures purchased
    
    
    1,058
    
    
    
    
    
    
    
    (4
    )
    
    
    18Futures sold, not yet purchased
    
    
    166
    
    
    
    
    
    
    
    
    
    
    
    2Currency forwards
    
    
    59
    
    
    
    
    
    
    
    (1
    )
    
    
    (1
    )Commitments to purchase mortgage-backed securities
    
    
    21
    
    
    
    
    
    
    
    
    
    
    
    Options purchased
    
    
    20
    
    
    
    
    
    
    
    
    
    
    
    (2
    )Options written
    
    
    21
    
    
    
    
    
    
    
    
    
    
    
    2Total general account
    
    $
    2,399
    
    
    $
    3
    
    
    $
    (14
    )
    
    $
    35Separate accountsOptions written
    
    $
    7
    
    
    $
    
    
    
    $
    
    
    
    $
    Total separate accounts
    
    $
    7
    
    
    $
    
    
    
    $
    
    
    
    $
    
  Fair Value Hedges
  Cash Flow Hedges
  88




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##### Table of Contents



Derivative Activity Without Hedge Designations
  Trading Activities
 ® ®
 Separate Accounts
  Note D. Financial Instruments
        89




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##### Table of Contents



Financial Assets and Liabilities
 2006
    
    2005Estimated
    
    
    
    
    
    EstimatedCarrying
    
    Fair
    
    Carrying
    
    FairDecember 31
    
    Amount
    
    Value
    
    Amount
    
    Value(In millions)Financial assetsInvestments:Fixed maturity securities
    
    $
    35,851
    
    
    $
    35,851
    
    
    $
    33,234
    
    
    $
    33,234Equity securities
    
    
    657
    
    
    
    657
    
    
    
    681
    
    
    
    681Limited partnership investments
    
    
    1,852
    
    
    
    1,852
    
    
    
    1,509
    
    
    
    1,509Other invested assets
    
    
    12
    
    
    
    12
    
    
    
    3
    
    
    
    3Separate account business:Fixed maturity securities
    
    
    434
    
    
    
    434
    
    
    
    466
    
    
    
    466Equity securities
    
    
    41
    
    
    
    41
    
    
    
    44
    
    
    
    44Notes receivable for the issuance of common stock
    
    
    58
    
    
    
    56
    
    
    
    59
    
    
    
    59Financial liabilitiesPremium deposits and annuity contracts
    
    $
    898
    
    
    $
    899
    
    
    $
    1,363
    
    
    $
    1,359Long term debt
    
    
    2,156
    
    
    
    2,240
    
    
    
    1,438
    
    
    
    1,507Short term debt
    
    
    
    
    
    
    
    
    
    
    252
    
    
    
    252Separate account business:Variable separate accounts
    
    
    52
    
    
    
    52
    
    
    
    53
    
    
    
    53Other
    
    
    448
    
    
    
    448
    
    
    
    491
    
    
    
    491
 Note E. Income Taxes
   90




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##### Table of Contents



Tax Reconciliation
 Years ended December 31
    
    2006
    
    
    2005
    
    
    2004(In millions)Income tax expense at statutory rates
    
    $
    (577
    )
    
    $
    (57
    )
    
    $
    (176
    )Tax benefit from tax exempt income
    
    
    75
    
    
    
    116
    
    
    
    111Other tax benefits, including IRS settlements
    
    
    33
    
    
    
    46
    
    
    
    34Effective income tax (expense) benefit
    
    $
    (469
    )
    
    $
    105
    
    
    $
    (31
    )
   Current and Deferred Taxes
 Years ended December 31
    
    2006
    
    
    2005
    
    
    2004(In millions)Current tax (expense) benefit
    
    $
    (296
    )
    
    $
    (115
    )
    
    $
    6Deferred tax (expense) benefit
    
    
    (173
    )
    
    
    220
    
    
    
    (37
    )Total income tax (expense) benefit
    
    $
    (469
    )
    
    $
    105
    
    
    $
    (31
    )
 91




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##### Table of Contents



Components of Net Deferred Tax Asset
 December 31(In millions)
    
    2006
    
    
    2005Deferred Tax Assets:Insurance reserves:Property and casualty claim and claim adjustment expense reserves
    
    $
    775
    
    
    $
    807Unearned premium reserves
    
    
    245
    
    
    
    232Life reserves
    
    
    132
    
    
    
    187Other insurance reserves
    
    
    26
    
    
    
    24Receivables
    
    
    248
    
    
    
    292Employee benefits
    
    
    187
    
    
    
    214Life settlement contracts
    
    
    102
    
    
    
    102Investment valuation differences
    
    
    93
    
    
    
    130Net operating loss carried forward
    
    
    23
    
    
    
    38Other assets
    
    
    171
    
    
    
    194Gross deferred tax assets
    
    
    2,002
    
    
    
    2,220Valuation allowance
    
    
    
    
    
    
    (30
    )Deferred tax assets after valuation allowance
    
    
    2,002
    
    
    
    2,190Deferred Tax Liabilities:Deferred acquisition costs
    
    
    648
    
    
    
    651Net unrealized gains
    
    
    340
    
    
    
    274Foreign and other affiliate(s)
    
    
    11
    
    
    
    15Other liabilities
    
    
    148
    
    
    
    145Gross deferred tax liabilities
    
    
    1,147
    
    
    
    1,085Net deferred tax asset
    
    $
    855
    
    
    $
    1,105
  Note F. Claim and Claim Adjustment Expense Reserves
   92




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##### Table of Contents



Reconciliation of Claim and Claim Adjustment Expense Reserves
 As of and for the years ended December 31(In millions)
    
    2006
    
    
    2005
    
    
    2004Reserves, beginning of year:Gross
    
    $
    30,938
    
    
    $
    31,523
    
    
    $
    31,732Ceded
    
    
    10,605
    
    
    
    13,879
    
    
    
    14,066Net reserves, beginning of year
    
    
    20,333
    
    
    
    17,644
    
    
    
    17,666Reduction of net reserves (a)
    
    
    
    
    
    
    
    
    
    
    (42
    )Net incurred claim and claim adjustment expenses:Provision for insured events of current year
    
    
    4,840
    
    
    
    5,516
    
    
    
    6,062Increase in provision for insured events of prior years
    
    
    361
    
    
    
    1,100
    
    
    
    240Amortization of discount
    
    
    121
    
    
    
    115
    
    
    
    135Total net incurred (b)
    
    
    5,322
    
    
    
    6,731
    
    
    
    6,437Net payments attributable to:Current year events (c)
    
    
    784
    
    
    
    1,341
    
    
    
    1,936Prior year events
    
    
    3,439
    
    
    
    2,711
    
    
    
    4,522Reinsurance recoverable against net reserve transferred under
retroactive reinsurance agreements
    
    
    (13
    )
    
    
    (10
    )
    
    
    (41
    )Total net payments
    
    
    4,210
    
    
    
    4,042
    
    
    
    6,417Net reserves, end of year
    
    
    21,445
    
    
    
    20,333
    
    
    
    17,644Ceded reserves, end of year
    
    
    8,191
    
    
    
    10,605
    
    
    
    13,879Gross reserves, end of year
    
    $
    29,636
    
    
    $
    30,938
    
    
    $
    31,523
 
 (a)
    
    In 2004, the net reserves were reduced by $42 million as a result of the sale of the
individual life insurance business. See Note P for further discussion of this sale.(b)
    
    Total net incurred above does not agree to Insurance claims and policyholders benefit
as reflected in the Consolidated Statements of Operations due to expenses incurred related
to uncollectible reinsurance receivables and benefit expenses related to future policy
benefits and policyholders funds which are not reflected in the table above.(c)
    
    In 2006, net payments were decreased by $935 million due to the impact of significant
commutations. In 2005, net payments were decreased by $1,581 million due to the impact of
significant commutations. See Note H for further discussion related to commutations. 93




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##### Table of Contents



Reserve Development
 Years ended December 31(In millions)
    
    2006
    
    
    2005
    
    
    2004Environmental pollution and mass tort
    
    $
    63
    
    
    $
    53
    
    
    $
    1Asbestos
    
    
    
    
    
    
    10
    
    
    
    54Other
    
    
    269
    
    
    
    1,044
    
    
    
    179Property and casualty reserve development
    
    
    332
    
    
    
    1,107
    
    
    
    234Life reserve development in life company
    
    
    29
    
    
    
    (7
    )
    
    
    6Total
    
    $
    361
    
    
    $
    1,100
    
    
    $
    240
  December 31, 2006
Gross and Net Carried
Claim and Claim Adjustment Expense Reserves
 Life and
    
    
    CorporateStandard
    
    
    Specialty
    
    
    Group
    
    
    and Other(In millions)
    
    Lines
    
    
    Lines
    
    
    Non-Core
    
    
    Non-Core
    
    
    TotalGross Case Reserves
    
    $
    6,746
    
    
    $
    1,715
    
    
    $
    2,366
    
    
    $
    2,511
    
    
    $
    13,338Gross IBNR Reserves
    
    
    8,188
    
    
    
    3,814
    
    
    
    768
    
    
    
    3,528
    
    
    
    16,298Total Gross Carried Claim and Claim
Adjustment Expense Reserves
    
    $
    14,934
    
    
    $
    5,529
    
    
    $
    3,134
    
    
    $
    6,039
    
    
    $
    29,636Net Case Reserves
    
    $
    5,234
    
    
    $
    1,350
    
    
    $
    1,496
    
    
    $
    1,453
    
    
    $
    9,533Net IBNR Reserves
    
    
    6,632
    
    
    
    2,921
    
    
    
    360
    
    
    
    1,999
    
    
    
    11,912Total Net Carried Claim and Claim
Adjustment Expense Reserves
    
    $
    11,866
    
    
    $
    4,271
    
    
    $
    1,856
    
    
    $
    3,452
    
    
    $
    21,445
 December 31, 2005
 Gross and Net Carried
Claim and Claim Adjustment Expense Reserves
 Life and
    
    
    CorporateStandard
    
    
    Specialty
    
    
    Group
    
    
    and Other(In millions)
    
    Lines
    
    
    Lines
    
    
    Non-Core
    
    
    Non-Core
    
    
    TotalGross Case Reserves
    
    $
    7,033
    
    
    $
    1,907
    
    
    $
    2,542
    
    
    $
    3,297
    
    
    $
    14,779Gross IBNR Reserves
    
    
    8,051
    
    
    
    3,298
    
    
    
    735
    
    
    
    4,075
    
    
    
    16,159Total Gross Carried Claim and Claim
Adjustment Expense Reserves
    
    $
    15,084
    
    
    $
    5,205
    
    
    $
    3,277
    
    
    $
    7,372
    
    
    $
    30,938Net Case Reserves
    
    $
    5,165
    
    
    $
    1,442
    
    
    $
    1,456
    
    
    $
    1,554
    
    
    $
    9,617Net IBNR Reserves
    
    
    6,081
    
    
    
    2,352
    
    
    
    381
    
    
    
    1,902
    
    
    
    10,716Total Net Carried Claim and Claim
Adjustment Expense Reserves
    
    $
    11,246
    
    
    $
    3,794
    
    
    $
    1,837
    
    
    $
    3,456
    
    
    $
    20,333
 94




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##### Table of Contents



APMT Reserves
      APMT Reserves
 December 31, 2006
    
    
    December 31, 2005Environmental
    
    
    
    
    
    
    EnvironmentalPollution and
    
    
    
    
    
    
    Pollution and(In millions)
    
    Asbestos
    
    
    Mass Tort
    
    
    Asbestos
    
    
    Mass TortGross reserves
    
    $
    2,635
    
    
    $
    647
    
    
    $
    2,992
    
    
    $
    680Ceded reserves
    
    
    (1,183
    )
    
    
    (231
    )
    
    
    (1,438
    )
    
    
    (257
    )Net reserves
    
    $
    1,452
    
    
    $
    416
    
    
    $
    1,554
    
    
    $
    423
 Asbestos
  95




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##### Table of Contents



Continental Casualty Co. v. Employers Ins. of Wausau et
al.
 96




---



##### Table of Contents



Boson v. Union Carbide
Corp.,
 Adams v. Aetna, Inc., et al.
 97




---



##### Table of Contents



Pennock, et al. v. Maryland Casualty,
et al.
  Environmental Pollution and Mass Tort
   98




---



##### Table of Contents



Net Prior Year Development
     2006 Net Prior Year Development
 CorporateStandard
    
    
    Specialty
    
    
    and Other(In millions)
    
    Lines
    
    
    Lines
    
    
    Non-Core
    
    
    TotalPretax unfavorable (favorable) net prior year claim and
allocated claim adjustment expense reserve development:Core (Non-APMT)
    
    $
    157
    
    
    $
    (10
    )
    
    $
    23
    
    
    $
    170APMT
    
    
    
    
    
    
    
    
    
    
    63
    
    
    
    63Pretax unfavorable (favorable) net prior year
development before impact of premium development
    
    
    157
    
    
    
    (10
    )
    
    
    86
    
    
    
    233Total unfavorable (favorable) premium development
    
    
    (88
    )
    
    
    25
    
    
    
    2
    
    
    
    (61
    )Total 2006 unfavorable net prior year development (pretax)
    
    $
    69
    
    
    $
    15
    
    
    $
    88
    
    
    $
    172
 99




---



##### Table of Contents



2005 Net Prior Year Development
 CorporateStandard
    
    
    Specialty
    
    
    and Other(In millions)
    
    Lines
    
    
    Lines
    
    
    Non-Core
    
    
    TotalPretax unfavorable net prior year claim and allocated claim
adjustment expense reserve development, excluding the impact of
corporate aggregate reinsurance treaties:Core (Non-APMT)
    
    $
    376
    
    
    $
    42
    
    
    $
    171
    
    
    $
    589APMT
    
    
    
    
    
    
    
    
    
    
    63
    
    
    
    63Total
    
    
    376
    
    
    
    42
    
    
    
    234
    
    
    
    652Ceded losses related to corporate aggregate reinsurance treaties
    
    
    183
    
    
    
    5
    
    
    
    57
    
    
    
    245Pretax unfavorable net prior year development before impact of
premium development
    
    
    559
    
    
    
    47
    
    
    
    291
    
    
    
    897Unfavorable (favorable) premium development, excluding
impact of corporate aggregate reinsurance treaties
    
    
    (101
    )
    
    
    (12
    )
    
    
    11
    
    
    
    (102
    )Ceded premiums related to corporate aggregate reinsurance
treaties
    
    
    (6
    )
    
    
    19
    
    
    
    4
    
    
    
    17Total unfavorable (favorable) premium development
    
    
    (107
    )
    
    
    7
    
    
    
    15
    
    
    
    (85
    )Total 2005 unfavorable net prior year development (pretax)
    
    $
    452
    
    
    $
    54
    
    
    $
    306
    
    
    $
    812
 2004 Net Prior Year Development
 CorporateStandard
    
    
    Specialty
    
    
    and Other(In millions)
    
    Lines
    
    
    Lines
    
    
    Non-Core
    
    
    TotalPretax unfavorable net prior year claim and allocated claim
adjustment expense reserve development, excluding the impact of
corporate aggregate reinsurance treaties:Core (Non-APMT)
    
    $
    107
    
    
    $
    75
    
    
    $
    20
    
    
    $
    202APMT
    
    
    
    
    
    
    
    
    
    
    55
    
    
    
    55Total
    
    
    107
    
    
    
    75
    
    
    
    75
    
    
    
    257Ceded losses related to corporate aggregate reinsurance treaties
    
    
    8
    
    
    
    (17
    )
    
    
    9
    
    
    
    Pretax unfavorable net prior year development before impact of
premium development
    
    
    115
    
    
    
    58
    
    
    
    84
    
    
    
    257Unfavorable (favorable) premium development, excluding
impact of corporate aggregate reinsurance treaties
    
    
    (96
    )
    
    
    (33
    )
    
    
    12
    
    
    
    (117
    )Ceded premiums related to corporate aggregate reinsurance
treaties
    
    
    (1
    )
    
    
    5
    
    
    
    (3
    )
    
    
    1Total unfavorable (favorable) premium development
    
    
    (97
    )
    
    
    (28
    )
    
    
    9
    
    
    
    (116
    )Total 2004 unfavorable net prior year development (pretax)
    
    $
    18
    
    
    $
    30
    
    
    $
    93
    
    
    $
    141
 100




---



##### Table of Contents



2006 Net Prior Year Development
 Standard Lines
    Specialty Lines
      Corporate and Other Non-Core
  101




---



##### Table of Contents



2005 Net Prior Year Development
 Standard Lines
         102




---



##### Table of Contents



Specialty Lines
         103




---



##### Table of Contents



Corporate and Other Non-Core
       2004 Net Prior Year Development
 Standard Lines
    104




---



##### Table of Contents



Specialty Lines
  Corporate and Other Non-Core
  Note G. Legal Proceedings and Contingent Liabilities
 Insurance Brokerage Antitrust Litigation
 In re Insurance Brokerage Antitrust Litigation, Civil No.
04-5184 (FSH)
  Global Crossing Limited Litigation
  105




---



##### Table of Contents



IGI Contingency
      106




---



##### Table of Contents



New Jersey Wage and Hour Litigation
 W. Curtis Himmelman, individually and on behalf of all others similarly situated v. Continental
Casualty Company
  California Long Term Care Litigation
   Asbestos, Environmental Pollution and Mass Tort (APMT) Reserves
  Other Litigation
  Note H. Reinsurance
  107




---



##### Table of Contents



Components of reinsurance receivables(In millions)
    
    December 31, 2006
    
    
    December 31, 2005Reinsurance receivables related to insurance reserves:Ceded claim and claim adjustment expense
    
    $
    8,191
    
    
    $
    10,605Ceded future policy benefits
    
    
    1,050
    
    
    
    1,193Ceded policyholders funds
    
    
    48
    
    
    
    56Reinsurance receivables related to paid losses
    
    
    658
    
    
    
    582Reinsurance receivables
    
    
    9,947
    
    
    
    12,436Allowance for uncollectible reinsurance
    
    
    (469
    )
    
    
    (519
    )Reinsurance receivables, net of allowance
for uncollectible reinsurance
    
    $
    9,478
    
    
    $
    11,917
         108




---



##### Table of Contents



Components of Earned Premiums
 Assumed/(In millions)
    
    Direct
    
    
    Assumed
    
    
    Ceded
    
    
    Net
    
    
    Net %2006 Earned PremiumsProperty and casualty
    
    $
    9,125
    
    
    $
    120
    
    
    $
    2,283
    
    
    $
    6,962
    
    
    
    1.7
    %Accident and health
    
    
    718
    
    
    
    59
    
    
    
    138
    
    
    
    639
    
    
    
    9.2Life
    
    
    100
    
    
    
    
    
    
    
    98
    
    
    
    2
    
    
    
    Total earned premiums
    
    $
    9,943
    
    
    $
    179
    
    
    $
    2,519
    
    
    $
    7,603
    
    
    
    2.4
    %2005 Earned PremiumsProperty and casualty
    
    $
    10,354
    
    
    $
    186
    
    
    $
    3,675
    
    
    $
    6,865
    
    
    
    2.7
    %Accident and health
    
    
    1,040
    
    
    
    60
    
    
    
    400
    
    
    
    700
    
    
    
    8.6Life
    
    
    140
    
    
    
    
    
    
    
    136
    
    
    
    4
    
    
    
    Total earned premiums
    
    $
    11,534
    
    
    $
    246
    
    
    $
    4,211
    
    
    $
    7,569
    
    
    
    3.3
    %2004 Earned PremiumsProperty and casualty
    
    $
    10,739
    
    
    $
    199
    
    
    $
    3,634
    
    
    $
    7,304
    
    
    
    2.7
    %Accident and health
    
    
    1,228
    
    
    
    63
    
    
    
    507
    
    
    
    784
    
    
    
    8.0Life
    
    
    419
    
    
    
    
    
    
    
    298
    
    
    
    121
    
    
    
    Total earned premiums
    
    $
    12,386
    
    
    $
    262
    
    
    $
    4,439
    
    
    $
    8,209
    
    
    
    3.2
    %
  109




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##### Table of Contents



Components of Written Premiums
 Assumed/(In millions)
    
    Direct
    
    
    Assumed
    
    
    Ceded
    
    
    Net
    
    
    Net %2006 Written PremiumsProperty and casualty
    
    $
    9,193
    
    
    $
    111
    
    
    $
    2,282
    
    
    $
    7,022
    
    
    
    1.6
    %Accident and health
    
    
    719
    
    
    
    59
    
    
    
    139
    
    
    
    639
    
    
    
    9.2Life
    
    
    86
    
    
    
    
    
    
    
    84
    
    
    
    2
    
    
    
    Total written premiums
    
    $
    9,998
    
    
    $
    170
    
    
    $
    2,505
    
    
    $
    7,663
    
    
    
    2.2
    %2005 Written PremiumsProperty and casualty
    
    $
    9,546
    
    
    $
    203
    
    
    $
    2,934
    
    
    $
    6,815
    
    
    
    3.0
    %Accident and health
    
    
    1,037
    
    
    
    58
    
    
    
    395
    
    
    
    700
    
    
    
    8.3Life
    
    
    136
    
    
    
    
    
    
    
    132
    
    
    
    4
    
    
    
    Total written premiums
    
    $
    10,719
    
    
    $
    261
    
    
    $
    3,461
    
    
    $
    7,519
    
    
    
    3.5
    %2004 Written PremiumsProperty and casualty
    
    $
    10,289
    
    
    $
    48
    
    
    $
    3,375
    
    
    $
    6,962
    
    
    
    0.7
    %Accident and health
    
    
    1,241
    
    
    
    62
    
    
    
    508
    
    
    
    795
    
    
    
    7.8Life
    
    
    427
    
    
    
    
    
    
    
    305
    
    
    
    122
    
    
    
    Total written premiums
    
    $
    11,957
    
    
    $
    110
    
    
    $
    4,188
    
    
    $
    7,879
    
    
    
    1.4
    %
  Components of Life Insurance Inforce
 (In millions)
    
    Direct
    
    Assumed
    
    Ceded
    
    Net2006
    
    $
    15,652
    
    
    $
    1
    
    
    $
    15,633
    
    
    $
    202005
    
    
    20,548
    
    
    
    1
    
    
    
    20,528
    
    
    
    212004
    
    
    56,610
    
    
    
    35
    
    
    
    54,486
    
    
    
    2,159
   Funds Withheld Reinsurance Arrangements
  110




---



##### Table of Contents



111




---



##### Table of Contents



Years ended December 31(In millions)
    
    Aggregate Cover
    
    
    CCC Cover
    
    
    All Other
    
    
    Total2006Ceded earned premium
    
    $
    
    
    
    $
    
    
    
    $
    (11
    )
    
    $
    (11
    )Ceded claim and claim adjustment expense
    
    
    
    
    
    
    
    
    
    
    (113
    )
    
    
    (113
    )Ceding commissions
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Interest charges
    
    
    
    
    
    
    (40
    )
    
    
    (19
    )
    
    
    (59
    )Pretax expense
    
    $
    
    
    
    $
    (40
    )
    
    $
    (143
    )
    
    $
    (183
    )2005Ceded earned premium
    
    $
    (17
    )
    
    $
    
    
    
    $
    48
    
    
    $
    31Ceded claim and claim adjustment expense
    
    
    (244
    )
    
    
    
    
    
    
    (154
    )
    
    
    (398
    )Ceding commissions
    
    
    
    
    
    
    
    
    
    
    (27
    )
    
    
    (27
    )Interest charges
    
    
    (57
    )
    
    
    (66
    )
    
    
    (34
    )
    
    
    (157
    )Pretax expense
    
    $
    (318
    )
    
    $
    (66
    )
    
    $
    (167
    )
    
    $
    (551
    )2004Ceded earned premium
    
    $
    (1
    )
    
    $
    
    
    
    $
    (19
    )
    
    $
    (20
    )Ceded claim and claim adjustment expense
    
    
    
    
    
    
    
    
    
    
    15
    
    
    
    15Ceding commissions
    
    
    
    
    
    
    
    
    
    
    2
    
    
    
    2Interest charges
    
    
    (82
    )
    
    
    (91
    )
    
    
    (72
    )
    
    
    (245
    )Pretax expense
    
    $
    (83
    )
    
    $
    (91
    )
    
    $
    (74
    )
    
    $
    (248
    )
    Years ended December 31(In millions)
    
    2006
    
    
    2005
    
    
    2004Standard Lines
    
    $
    (155
    )
    
    $
    (399
    )
    
    $
    (185
    )Specialty Lines
    
    
    (4
    )
    
    
    (41
    )
    
    
    (1
    )Corporate and Other
    
    
    (24
    )
    
    
    (111
    )
    
    
    (62
    )Pretax benefit (expense)
    
    $
    (183
    )
    
    $
    (551
    )
    
    $
    (248
    )
 112




---



##### Table of Contents



Note I. Debt
  Debt
 December 31(In millions)
    
    2006
    
    
    2005Variable rate debt:Credit facility  CNA Surety, due June 30, 2008
    
    $
    
    
    
    $
    20Debenture  CNA Surety, face amount of $31, due April 29, 2034
    
    
    31
    
    
    
    31Senior notes:6.750%, face amount of $250, due November 15, 2006
    
    
    
    
    
    
    2506.450%, face amount of $150, due January 15, 2008
    
    
    150
    
    
    
    1496.600%, face amount of $200, due December 15, 2008
    
    
    200
    
    
    
    1996.000%, face amount of $400, due August 15, 2011
    
    
    398
    
    
    
    8.375%, face amount of $70, due August 15, 2012
    
    
    69
    
    
    
    695.850%, face amount of $549, due December 15, 2014
    
    
    546
    
    
    
    5466.500%, face amount of $350, due August 15, 2016
    
    
    348
    
    
    
    6.950%, face amount of $150, due January 15, 2018
    
    
    149
    
    
    
    149Debenture, 7.250%, face amount of $243, due November 15, 2023
    
    
    241
    
    
    
    241Other debt, 1.000%-6.850%, due through 2019
    
    
    24
    
    
    
    36Total debt
    
    $
    2,156
    
    
    $
    1,690Short term debt
    
    $
    
    
    
    $
    252Long term debt
    
    
    2,156
    
    
    
    1,438Total debt
    
    $
    2,156
    
    
    $
    1,690
     Maturity of Debt
 (In millions)2007
    
    $
    2008
    
    
    3502009
    
    
    2010
    
    
    2011
    
    
    400Thereafter
    
    
    1,418Less original issue discount
    
    
    (12
    )Total
    
    $
    2,156
 113




---



##### Table of Contents



Note J. Benefit Plans
 Pension and Postretirement Healthcare and Life Insurance Benefit Plans
      114




---



##### Table of Contents



Benefit Obligations and Accrued Benefit Costs
 Pension Benefits
    
    
    Postretirement Benefits(In millions)
    
    2006
    
    
    2005
    
    
    2006
    
    
    2005Benefit obligation at January 1
    
    $
    2,636
    
    
    $
    2,527
    
    
    $
    210
    
    
    $
    180Changes in benefit obligation:Service cost
    
    
    26
    
    
    
    27
    
    
    
    2
    
    
    
    3Interest cost
    
    
    142
    
    
    
    145
    
    
    
    10
    
    
    
    10Participants contributions
    
    
    
    
    
    
    
    
    
    
    7
    
    
    
    8Plan amendments
    
    
    
    
    
    
    1
    
    
    
    
    
    
    
    Actuarial loss (gain)
    
    
    (60
    )
    
    
    87
    
    
    
    (34
    )
    
    
    21Benefits paid
    
    
    (152
    )
    
    
    (146
    )
    
    
    (19
    )
    
    
    (12
    )Special termination benefits
    
    
    2
    
    
    
    
    
    
    
    
    
    
    
    Foreign currency translation and other
    
    
    8
    
    
    
    (5
    )
    
    
    1
    
    
    
    Benefit obligations at December 31
    
    
    2,602
    
    
    
    2,636
    
    
    
    177
    
    
    
    210Fair value of plan assets at January 1
    
    
    2,107
    
    
    
    2,029
    
    
    
    
    
    
    
    Change in plan assets:Actual return on plan assets
    
    
    226
    
    
    
    161
    
    
    
    
    
    
    
    Company contributions
    
    
    79
    
    
    
    67
    
    
    
    12
    
    
    
    4Participants contributions
    
    
    
    
    
    
    
    
    
    
    7
    
    
    
    8Benefits paid
    
    
    (152
    )
    
    
    (146
    )
    
    
    (19
    )
    
    
    (12
    )Foreign currency translation and other
    
    
    (2
    )
    
    
    (4
    )
    
    
    
    
    
    
    Fair value of plan assets at December 31
    
    
    2,258
    
    
    
    2,107
    
    
    
    
    
    
    
    Funded status
    
    
    (344
    )
    
    
    (529
    )
    
    
    (177
    )
    
    
    (210
    )Unrecognized net actuarial loss
    
    
    
    
    
    
    528
    
    
    
    
    
    
    
    94Unrecognized net transition asset
    
    
    
    
    
    
    (1
    )
    
    
    
    
    
    
    Unrecognized prior service cost (benefit)
    
    
    
    
    
    
    9
    
    
    
    
    
    
    
    (174
    )Prepaid (accrued) benefit cost
    
    
    
    
    
    $
    7
    
    
    
    
    
    
    $
    (290
    )Amounts recognized in the Consolidated Balance Sheet:Prepaid benefit cost
    
    
    
    
    
    
    20
    
    
    
    
    
    
    
    Accrued benefit liability
    
    
    
    
    
    
    (372
    )
    
    
    
    
    
    
    (290
    )Intangible assets
    
    
    
    
    
    
    9
    
    
    
    
    
    
    
    Accumulated other comprehensive income
    
    
    
    
    
    
    350
    
    
    
    
    
    
    
    Net amount recognized
    
    
    
    
    
    $
    7
    
    
    
    
    
    
    $
    (290
    )Amounts recognized in the Consolidated Balance Sheet:Other liabilities
    
    
    (344
    )
    
    
    
    
    
    
    (177
    )Net benefit plan liability at December 31
    
    $
    (344
    )
    
    
    
    
    
    $
    (177
    )Amounts recognized in Accumulated other comprehensive income,
not yet recognized in net periodic benefit cost:Net transition asset
    
    
    (1
    )
    
    
    
    
    
    
    Prior service cost (credit)
    
    
    6
    
    
    
    
    
    
    
    (146
    )Net actuarial loss
    
    
    381
    
    
    
    
    
    
    
    55Net amount recognized
    
    $
    386
    
    
    
    
    
    
    $
    (91
    )
 115




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##### Table of Contents



Pension Plans with Accumulated Benefit Obligationin Excess of Plan Assets(In millions)
    
    2006
    
    2005Projected benefit obligation
    
    $
    2,485
    
    
    $
    2,567Accumulated benefit obligation
    
    
    2,351
    
    
    
    2,408Fair value of plan assets
    
    
    2,148
    
    
    
    2,036
  Years ended December 31
    
    2006
    
    
    2005
    
    
    2004(In millions)Pension benefitsService cost
    
    $
    26
    
    
    $
    27
    
    
    $
    31Interest cost on projected benefit obligation
    
    
    142
    
    
    
    145
    
    
    
    145Expected return on plan assets
    
    
    (162
    )
    
    
    (156
    )
    
    
    (152
    )Prior service cost amortization
    
    
    2
    
    
    
    2
    
    
    
    2Actuarial loss
    
    
    25
    
    
    
    21
    
    
    
    13Settlement loss
    
    
    
    
    
    
    
    
    
    
    5Net periodic pension cost
    
    $
    33
    
    
    $
    39
    
    
    $
    44Postretirement benefitsService cost
    
    $
    2
    
    
    $
    3
    
    
    $
    4Interest cost on projected benefit obligation
    
    
    10
    
    
    
    10
    
    
    
    17Prior service cost amortization
    
    
    (28
    )
    
    
    (28
    )
    
    
    (20
    )Actuarial loss
    
    
    4
    
    
    
    4
    
    
    
    3Net periodic postretirement (benefit) cost
    
    $
    (12
    )
    
    $
    (11
    )
    
    $
    4Pension and postretirement benefitsIncrease (decrease) in FAS 87 minimum
liability included in other comprehensive
income
    
    $
    (124
    )
    
    $
    51
    
    
    $
    101Increase in FAS 158 liability included in
accumulated other comprehensive income
    
    
    71
    
    
    
    
    
    
    
    Total increase (decrease)
    
    $
    (53
    )
    
    $
    51
    
    
    $
    101
 116




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##### Table of Contents



Effect of Applying SFAS 158
 December 31, 2006
    
    Before Application of
    
    
    
    
    
    After Application of(In millions)
    
    SFAS 158
    
    Adjustments
    
    SFAS 158Deferred income taxes
    
    $
    830
    
    
    $
    25
    
    
    $
    855Other assets
    
    
    614
    
    
    
    (22
    )
    
    
    592Total assets
    
    
    60,280
    
    
    
    3
    
    
    
    60,283Other liabilities
    
    
    2,691
    
    
    
    49
    
    
    
    2,740Total liabilities
    
    
    50,131
    
    
    
    49
    
    
    
    50,180Minority interest
    
    
    337
    
    
    
    (2
    )
    
    
    335Accumulated
other comprehensive income, net of minority interest of
$2 million
    
    
    593
    
    
    
    (44
    )
    
    
    549Total stockholders equity
    
    
    9,812
    
    
    
    (44
    )
    
    
    9,768
  Weighted Average Actuarial Assumptions for Benefit
Obligations
 December 31
    
    2006
    
    2005Pension benefitsDiscount rate
    
    
    5.750
    %
    
    
    5.625
    %Expected long term rate of return
    
    
    8.00
    
    
    
    8.00Rate of compensation increases
    
    
    5.83
    
    
    
    5.83Postretirement benefitsDiscount rate
    
    
    5.625
    %
    
    
    5.500
    %
  Weighted Average Actuarial Assumptions for Net Cost
 December 31
    
    2006
    
    2005
    
    2004Pension benefitsDiscount rate
    
    
    5.625
    %
    
    
    5.875
    %
    
    
    6.22
    %Expected long term rate of return
    
    
    8.00
    
    
    
    8.00
    
    
    
    8.00Rate of compensation increases
    
    
    5.83
    
    
    
    5.83
    
    
    
    5.83Postretirement benefitsDiscount rate
    
    
    5.500
    %
    
    
    5.875
    %
    
    
    6.190
    %
  (In millions)
    
    Pension Benefits
    
    
    Postretirement BenefitsAmortization of net actuarial loss
    
    $
    13
    
    
    $
    2Amortization of prior service cost (benefit)
    
    
    1
    
    
    
    (18
    )Total estimated amounts to be recognized
    
    $
    14
    
    
    $
    (16
    )
 117




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##### Table of Contents



Pension Plan Assets
 Percentage of Plan AssetsDecember 31,2006
    
    
    2005Asset CategoryFixed maturity securities
    
    
    48
    %
    
    
    24
    %Equity securities
    
    
    26
    
    
    
    25Limited partnerships
    
    
    22
    
    
    
    15Short term investments
    
    
    2
    
    
    
    33Other
    
    
    2
    
    
    
    3Total
    
    
    100
    %
    
    
    100
    %
  118




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##### Table of Contents



Estimated Future Minimum Benefit Payments to Participants
 Pension
    
    PostretirementBenefits
    
    Benefits(In millions)2007
    
    
    150
    
    
    
    122008
    
    
    148
    
    
    
    122009
    
    
    149
    
    
    
    132010
    
    
    150
    
    
    
    132011
    
    
    153
    
    
    
    142012-2016
    
    
    826
    
    
    
    71
  Savings Plans
    Stock-Based Compensation
  119




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##### Table of Contents



Options and SARs Plan Activity
 2006
    
    
    2005
    
    
    2004Weighted-
    
    
    
    
    
    
    Weighted-
    
    
    
    
    
    
    Weighted-Average
    
    
    
    
    
    
    Average
    
    
    
    
    
    
    AverageOption
    
    
    
    
    
    
    Option
    
    
    
    
    
    
    OptionNumber
    
    
    Price per
    
    
    Number
    
    
    Price per
    
    
    Number
    
    
    Price perof Awards
    
    
    Award
    
    
    of Awards
    
    
    Award
    
    
    of Awards
    
    
    AwardBalance at January 1
    
    
    1,628,600
    
    
    $
    28.71
    
    
    
    1,474,000
    
    
    $
    29.17
    
    
    
    1,434,800
    
    
    $
    29.97Awards granted
    
    
    327,000
    
    
    
    30.98
    
    
    
    328,800
    
    
    
    27.27
    
    
    
    350,400
    
    
    
    26.30Awards exercised
    
    
    (236,500
    )
    
    
    30.71
    
    
    
    (42,050
    )
    
    
    28.60
    
    
    
    (2,900
    )
    
    
    26.28Awards forfeited
    
    
    (24,200
    )
    
    
    29.05
    
    
    
    (132,150
    )
    
    
    30.38
    
    
    
    (308,300
    )
    
    
    29.63Balance at December 31
    
    
    1,694,900
    
    
    $
    28.86
    
    
    
    1,628,600
    
    
    $
    28.71
    
    
    
    1,474,000
    
    
    $
    29.17Awards exercisable at December 31
    
    
    965,400
    
    
    $
    29.13
    
    
    
    963,650
    
    
    $
    30.17
    
    
    
    827,450
    
    
    $
    31.16Weighted average fair value per
share of awards granted
    
    
    
    
    
    $
    10.73
    
    
    
    
    
    
    $
    7.48
    
    
    
    
    
    
    $
    7.74
        120




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##### Table of Contents



Note K. Operating Leases, Other Commitments and Contingencies, and Guarantees
 Operating Leases
   Future Minimum Lease Payments and Sublease Receipts
 Future
    
    
    FutureMinimum
    
    
    MinimumLease
    
    
    SubleasePayments
    
    
    Receipts(In millions)2007
    
    $
    49
    
    
    $
    72008
    
    
    43
    
    
    
    62009
    
    
    35
    
    
    
    52010
    
    
    31
    
    
    
    52011
    
    
    25
    
    
    
    4Thereafter
    
    
    51
    
    
    
    5Total
    
    $
    234
    
    
    $
    32
    Other Commitments and Contingencies
    121




---



##### Table of Contents



Guarantees
     Note L. Stockholders Equity and Statutory Financial Information
 Stockholders Equity
    Statutory Accounting Practices (Unaudited)
  122




---



##### Table of Contents



Preliminary Statutory Information
 Statutory Capital and Surplus
    
    
    Statutory Net IncomeDecember 31
    
    
    Years Ended December 312006
    
    
    2005
    
    
    2006
    
    
    2005
    
    
    2004(In millions)Property and casualty companies (a)
    
    $
    8,137
    
    
    $
    6,940
    
    
    $
    721
    
    
    $
    550
    
    
    $
    694Life and group insurance companies
    
    
    687
    
    
    
    627
    
    
    
    67
    
    
    
    65
    
    
    
    334
 
 (a)
    
    Surplus includes the property and casualty companies equity ownership of the life companys
capital and surplus. 123




---



##### Table of Contents



Note M. Comprehensive Income (Loss)
  Comprehensive Income (Loss)
 Years ended December 31
    
    2006
    
    
    2005
    
    
    2004(In millions)Net income
    
    $
    1,108
    
    
    $
    264
    
    
    $
    425Other comprehensive income (loss):Change in unrealized gains (losses) on general account investments:Holding gains (losses) arising during the period, net of tax
benefit (expense) of $(68), $72 and $(170)
    
    
    127
    
    
    
    (136
    )
    
    
    316Net unrealized (gains) losses at beginning of period included in
realized gains (losses) during the period, net of tax expense of
$6, $71 and $223
    
    
    (11
    )
    
    
    (131
    )
    
    
    (414
    )Net change in unrealized gains (losses) on general account
investments, net of tax benefit (expense) of $(62), $143 and $53
    
    
    116
    
    
    
    (267
    )
    
    
    (98
    )Net change in unrealized gains (losses) on discontinued
operations, separate accounts and other, net of tax benefit of $4,
$16 and $0
    
    
    (6
    )
    
    
    4
    
    
    
    (68
    )Net change in foreign currency translation adjustment
    
    
    42
    
    
    
    (24
    )
    
    
    24Net change in derivative instruments designated as cash flow
hedge, net of tax benefit of $0, $0 and $1
    
    
    
    
    
    
    
    
    
    
    (3
    )Net change in minimum pension liability, net of tax benefit
(expense) of $(44), $18 and $36
    
    
    80
    
    
    
    (33
    )
    
    
    (65
    )Allocation to participating policyholders and minority interests
    
    
    4
    
    
    
    18
    
    
    
    19Other comprehensive income (loss), net of tax benefit (expense) of
$(102), $177 and $90
    
    
    236
    
    
    
    (302
    )
    
    
    (191
    )Total comprehensive income (loss)
    
    $
    1,344
    
    
    $
    (38
    )
    
    $
    234
  Accumulated Other Comprehensive Income
 December 31
    
    2006
    
    
    2005(In millions)Cumulative foreign currency translation adjustment
    
    $
    93
    
    
    $
    51Minimum pension liability, net of tax benefit of $79 and $123
    
    
    (147
    )
    
    
    (227
    )Adjustment to initially apply FAS 158, net of tax benefit of $25
    
    
    (46
    )
    
    
    Net unrealized gains on investments and other, net of tax expense of $329 and $271
    
    
    649
    
    
    
    535Accumulated other comprehensive income
    
    $
    549
    
    
    $
    359
 Note N. Business Segments
  124




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##### Table of Contents



125




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##### Table of Contents



CorporateStandard
    
    
    Specialty
    
    
    Life and Group
    
    
    and OtherYear ended December 31, 2006
    
    Lines
    
    
    Lines
    
    
    Non-Core
    
    
    Non-Core
    
    
    Eliminations
    
    
    Total(In millions)Net earned premiums
    
    $
    4,413
    
    
    $
    2,555
    
    
    $
    641
    
    
    $
    (1
    )
    
    $
    (5
    )
    
    $
    7,603Net investment income
    
    
    991
    
    
    
    403
    
    
    
    698
    
    
    
    320
    
    
    
    
    
    
    
    2,412Other revenues
    
    
    96
    
    
    
    154
    
    
    
    66
    
    
    
    9
    
    
    
    (50
    )
    
    
    275Total operating revenues
    
    
    5,500
    
    
    
    3,112
    
    
    
    1,405
    
    
    
    328
    
    
    
    (55
    )
    
    
    10,290Claims, benefits and expenses:Net incurred claims and benefits
    
    
    3,093
    
    
    
    1,546
    
    
    
    1,195
    
    
    
    190
    
    
    
    1
    
    
    
    6,025Policyholders dividends
    
    
    18
    
    
    
    4
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    22Amortization of deferred acquisition costs
    
    
    981
    
    
    
    538
    
    
    
    14
    
    
    
    1
    
    
    
    
    
    
    
    1,534Other insurance related expenses
    
    
    393
    
    
    
    145
    
    
    
    201
    
    
    
    24
    
    
    
    (6
    )
    
    
    757Restructuring and other related charges
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (13
    )
    
    
    
    
    
    
    (13
    )Other expenses
    
    
    128
    
    
    
    139
    
    
    
    58
    
    
    
    126
    
    
    
    (50
    )
    
    
    401Total claims, benefits and expenses
    
    
    4,613
    
    
    
    2,372
    
    
    
    1,468
    
    
    
    328
    
    
    
    (55
    )
    
    
    8,726Operating income (loss) from continuing operations
before income tax and minority interest
    
    
    887
    
    
    
    740
    
    
    
    (63
    )
    
    
    
    
    
    
    
    
    
    
    1,564Income tax (expense) benefit on operating income
(loss)
    
    
    (258
    )
    
    
    (245
    )
    
    
    49
    
    
    
    4
    
    
    
    
    
    
    
    (450
    )Minority interest
    
    
    (12
    )
    
    
    (31
    )
    
    
    
    
    
    
    (1
    )
    
    
    
    
    
    
    (44
    )Net operating income (loss) from continuing operations
    
    
    617
    
    
    
    464
    
    
    
    (14
    )
    
    
    3
    
    
    
    
    
    
    
    1,070Realized investment gains (losses), net of
participating
policyholders and minority interests
    
    
    76
    
    
    
    28
    
    
    
    (50
    )
    
    
    32
    
    
    
    
    
    
    
    86Income tax (expense) benefit on realized investment
gains (losses)
    
    
    (21
    )
    
    
    (10
    )
    
    
    17
    
    
    
    (5
    )
    
    
    
    
    
    
    (19
    )Income (loss) from continuing operations
    
    $
    672
    
    
    $
    482
    
    
    $
    (47
    )
    
    $
    30
    
    
    $
    
    
    
    $
    1,137As of December 31, 2006(In millions)Reinsurance receivables
    
    $
    3,260
    
    
    $
    1,296
    
    
    $
    2,378
    
    
    $
    3,013
    
    
    $
    
    
    
    $
    9,947Insurance receivables
    
    $
    2,053
    
    
    $
    424
    
    
    $
    52
    
    
    $
    (53
    )
    
    $
    
    
    
    $
    2,476Insurance reserves:Claim and claim adjustment expense
    
    $
    14,934
    
    
    $
    5,529
    
    
    $
    3,134
    
    
    $
    6,039
    
    
    $
    
    
    
    $
    29,636Unearned premiums
    
    
    2,007
    
    
    
    1,599
    
    
    
    173
    
    
    
    5
    
    
    
    
    
    
    
    3,784Future policy benefits
    
    
    
    
    
    
    
    
    
    
    6,645
    
    
    
    
    
    
    
    
    
    
    
    6,645Policyholders funds
    
    
    35
    
    
    
    
    
    
    
    980
    
    
    
    
    
    
    
    
    
    
    
    1,015Deferred acquisition costs
    
    $
    407
    
    
    $
    283
    
    
    $
    500
    
    
    $
    
    
    
    $
    
    
    
    $
    1,190
 126




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##### Table of Contents



CorporateStandard
    
    
    Specialty
    
    
    Life and Group
    
    
    and OtherYear ended December 31, 2005
    
    Lines
    
    
    Lines
    
    
    Non-Core
    
    
    Non-Core
    
    
    Eliminations
    
    
    Total(In millions)Net earned premiums
    
    $
    4,410
    
    
    $
    2,475
    
    
    $
    704
    
    
    $
    (8
    )
    
    $
    (12
    )
    
    $
    7,569Net investment income
    
    
    767
    
    
    
    281
    
    
    
    593
    
    
    
    251
    
    
    
    
    
    
    
    1,892Other revenues
    
    
    98
    
    
    
    124
    
    
    
    95
    
    
    
    159
    
    
    
    (65
    )
    
    
    411Total operating revenues
    
    
    5,275
    
    
    
    2,880
    
    
    
    1,392
    
    
    
    402
    
    
    
    (77
    )
    
    
    9,872Claims, benefits and expenses:Net incurred claims and benefits
    
    
    3,857
    
    
    
    1,617
    
    
    
    1,160
    
    
    
    343
    
    
    
    (2
    )
    
    
    6,975Policyholders dividends
    
    
    19
    
    
    
    4
    
    
    
    1
    
    
    
    
    
    
    
    
    
    
    
    24Amortization of deferred acquisition costs
    
    
    986
    
    
    
    532
    
    
    
    22
    
    
    
    3
    
    
    
    
    
    
    
    1,543Other insurance related expenses
    
    
    444
    
    
    
    115
    
    
    
    257
    
    
    
    23
    
    
    
    (10
    )
    
    
    829Other expenses
    
    
    110
    
    
    
    108
    
    
    
    61
    
    
    
    115
    
    
    
    (65
    )
    
    
    329Total claims, benefits and expenses
    
    
    5,416
    
    
    
    2,376
    
    
    
    1,501
    
    
    
    484
    
    
    
    (77
    )
    
    
    9,700Operating income (loss) from continuing operations
before income tax and minority interest
    
    
    (141
    )
    
    
    504
    
    
    
    (109
    )
    
    
    (82
    )
    
    
    
    
    
    
    172Income tax (expense) benefit on operating income (loss)
    
    
    110
    
    
    
    (154
    )
    
    
    58
    
    
    
    91
    
    
    
    
    
    
    
    105Minority interest
    
    
    (10
    )
    
    
    (14
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (24
    )Net operating income (loss) from continuing operations
    
    
    (41
    )
    
    
    336
    
    
    
    (51
    )
    
    
    9
    
    
    
    
    
    
    
    253Realized investment gains (losses), net of participating
policyholders and minority interests
    
    
    20
    
    
    
    14
    
    
    
    (30
    )
    
    
    (14
    )
    
    
    
    
    
    
    (10
    )Income tax (expense) benefit on realized investment
gains (losses)
    
    
    (11
    )
    
    
    (2
    )
    
    
    11
    
    
    
    2
    
    
    
    
    
    
    
    Income (loss) from continuing operations
    
    $
    (32
    )
    
    $
    348
    
    
    $
    (70
    )
    
    $
    (3
    )
    
    $
    
    
    
    $
    243As of December 31, 2005(In millions)Reinsurance receivables
    
    $
    3,968
    
    
    $
    1,493
    
    
    $
    2,707
    
    
    $
    4,268
    
    
    $
    
    
    
    $
    12,436Insurance receivables
    
    $
    2,056
    
    
    $
    375
    
    
    $
    105
    
    
    $
    5
    
    
    $
    
    
    
    $
    2,541Insurance reserves:Claim and claim adjustment expense
    
    $
    15,084
    
    
    $
    5,205
    
    
    $
    3,277
    
    
    $
    7,372
    
    
    $
    
    
    
    $
    30,938Unearned premiums
    
    
    1,952
    
    
    
    1,577
    
    
    
    168
    
    
    
    9
    
    
    
    
    
    
    
    3,706Future policy benefits
    
    
    
    
    
    
    
    
    
    
    6,297
    
    
    
    
    
    
    
    
    
    
    
    6,297Policyholders funds
    
    
    30
    
    
    
    
    
    
    
    1,465
    
    
    
    
    
    
    
    
    
    
    
    1,495Deferred acquisition costs
    
    $
    408
    
    
    $
    274
    
    
    $
    515
    
    
    $
    
    
    
    $
    
    
    
    $
    1,197
 127




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##### Table of Contents



CorporateStandard
    
    
    Specialty
    
    
    Life and Group
    
    
    and OtherYear ended December 31, 2004
    
    Lines
    
    
    Lines
    
    
    Non-Core
    
    
    Non-Core
    
    
    Eliminations
    
    
    Total(In millions)Net earned premiums
    
    $
    4,917
    
    
    $
    2,277
    
    
    $
    921
    
    
    $
    128
    
    
    $
    (34
    )
    
    $
    8,209Net investment income
    
    
    496
    
    
    
    246
    
    
    
    692
    
    
    
    246
    
    
    
    
    
    
    
    1,680Other revenues
    
    
    129
    
    
    
    109
    
    
    
    91
    
    
    
    40
    
    
    
    (86
    )
    
    
    283Total operating revenues
    
    
    5,542
    
    
    
    2,632
    
    
    
    1,704
    
    
    
    414
    
    
    
    (120
    )
    
    
    10,172Claims, benefits and expenses:Net incurred claims and benefits
    
    
    3,480
    
    
    
    1,441
    
    
    
    1,372
    
    
    
    162
    
    
    
    (21
    )
    
    
    6,434Policyholders dividends
    
    
    9
    
    
    
    5
    
    
    
    (3
    )
    
    
    
    
    
    
    
    
    
    
    11Amortization of deferred acquisition costs
    
    
    1,109
    
    
    
    506
    
    
    
    36
    
    
    
    29
    
    
    
    
    
    
    
    1,680Other insurance related expenses
    
    
    593
    
    
    
    88
    
    
    
    291
    
    
    
    13
    
    
    
    (13
    )
    
    
    972Restructuring and other related charges
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (3
    )
    
    
    
    
    
    
    (3
    )Other expenses
    
    
    94
    
    
    
    101
    
    
    
    76
    
    
    
    141
    
    
    
    (86
    )
    
    
    326Total claims, benefits and expenses
    
    
    5,285
    
    
    
    2,141
    
    
    
    1,772
    
    
    
    342
    
    
    
    (120
    )
    
    
    9,420Operating income (loss) from continuing operations
before income tax and minority interest
    
    
    257
    
    
    
    491
    
    
    
    (68
    )
    
    
    72
    
    
    
    
    
    
    
    752Income tax (expense) benefit on operating income (loss)
    
    
    (27
    )
    
    
    (150
    )
    
    
    39
    
    
    
    12
    
    
    
    
    
    
    
    (126
    )Minority interest
    
    
    (10
    )
    
    
    (17
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (27
    )Net operating income (loss) from continuing operations
    
    
    220
    
    
    
    324
    
    
    
    (29
    )
    
    
    84
    
    
    
    
    
    
    
    599Realized investment gains (losses), net of participating
policyholders and minority interests
    
    
    219
    
    
    
    84
    
    
    
    (615
    )
    
    
    64
    
    
    
    
    
    
    
    (248
    )Income tax (expense) benefit on realized investment
gains (losses)
    
    
    (80
    )
    
    
    (30
    )
    
    
    230
    
    
    
    (25
    )
    
    
    
    
    
    
    95Income (loss) from continuing operations
    
    $
    359
    
    
    $
    378
    
    
    $
    (414
    )
    
    $
    123
    
    
    $
    
    
    
    $
    446
 128




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##### Table of Contents



Revenue by Line of Business
 Years ended December 31
    
    2006
    
    
    2005
    
    
    2004(In millions)Standard LinesProperty
    
    $
    1,249
    
    
    $
    1,108
    
    
    $
    1,180Casualty
    
    
    3,576
    
    
    
    3,532
    
    
    
    3,938CNA Global
    
    
    751
    
    
    
    655
    
    
    
    643Standard Lines revenue
    
    
    5,576
    
    
    
    5,295
    
    
    
    5,761Specialty LinesUS Specialty Lines
    
    
    2,417
    
    
    
    2,205
    
    
    
    2,053Surety
    
    
    436
    
    
    
    393
    
    
    
    361Warranty
    
    
    287
    
    
    
    296
    
    
    
    302Specialty Lines revenue
    
    
    3,140
    
    
    
    2,894
    
    
    
    2,716Life and Group Non-CoreLife & Annuity
    
    
    384
    
    
    
    311
    
    
    
    435Health
    
    
    889
    
    
    
    900
    
    
    
    1,025Other
    
    
    82
    
    
    
    151
    
    
    
    (371
    )Life and Group Non-Core revenue
    
    
    1,355
    
    
    
    1,362
    
    
    
    1,089Corporate and Other Non-Core revenueCNA Re
    
    
    129
    
    
    
    71
    
    
    
    225Other
    
    
    231
    
    
    
    317
    
    
    
    253Corporate and Other Non-Core revenue
    
    
    360
    
    
    
    388
    
    
    
    478Eliminations
    
    
    (55
    )
    
    
    (77
    )
    
    
    (120
    )Total revenue
    
    $
    10,376
    
    
    $
    9,862
    
    
    $
    9,924
 Note O. Restructuring and Other Related Charges
   Note P. Significant Transactions
 Specialty Medical Business
  129




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##### Table of Contents



Individual Life Sale
   Note Q. Discontinued Operations
    Discontinued Operations
 Years ended December 31
    
    2006
    
    
    2005
    
    
    2004(In millions)Revenues:Net investment income
    
    $
    17
    
    
    $
    15
    
    
    $
    17Realized investment gains (losses) and other
    
    
    (2
    )
    
    
    7
    
    
    
    (7
    )Total revenues
    
    
    15
    
    
    
    22
    
    
    
    10Insurance related (expenses) benefits
    
    
    (51
    )
    
    
    1
    
    
    
    (30
    )Income (loss) before income taxes
    
    
    (36
    )
    
    
    23
    
    
    
    (20
    )Income tax (expense) benefit
    
    
    7
    
    
    
    (2
    )
    
    
    (1
    )Income (loss) from discontinued operations, net of tax
    
    $
    (29
    )
    
    $
    21
    
    
    $
    (21
    )
  130




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##### Table of Contents



Discontinued Operations
 December 31
    
    2006
    
    
    2005(In millions)Assets:Investments
    
    $
    317
    
    
    $
    358Reinsurance receivables
    
    
    33
    
    
    
    78Cash
    
    
    40
    
    
    
    29Other assets
    
    
    3
    
    
    
    5Total assets
    
    
    393
    
    
    
    470Liabilities:Insurance reserves
    
    
    308
    
    
    
    338Other liabilities
    
    
    17
    
    
    
    19Total liabilities
    
    
    325
    
    
    
    357Net assets of discontinued operations
    
    $
    68
    
    
    $
    113
  Reporting the Results of Operations  Reporting the Effects of Disposal of a Segment of a
Business, and Extraordinary, Unusual and Infrequently Occurring Events and Transactions
 131




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##### Table of Contents



Note R. Quarterly Financial Data (Unaudited)
  Quarterly Financial Data
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    FullFirst
    
    
    Second
    
    
    Third
    
    
    Fourth
    
    
    Year(In millions, except per share data)2006Revenues
    
    $
    2,501
    
    
    $
    2,412
    
    
    $
    2,620
    
    
    $
    2,843
    
    
    $
    10,376Income from continuing operations before
income tax
    
    $
    343
    
    
    $
    341
    
    
    $
    436
    
    
    $
    486
    
    
    $
    1,606Income tax expense
    
    
    (108
    )
    
    
    (100
    )
    
    
    (131
    )
    
    
    (130
    )
    
    
    (469
    )Income from continuing operations
    
    
    235
    
    
    
    241
    
    
    
    305
    
    
    
    356
    
    
    
    1,137Income (loss) from discontinued
operations, net of tax
    
    
    (6
    )
    
    
    (2
    )
    
    
    6
    
    
    
    (27
    )
    
    
    (29
    )Net income
    
    $
    229
    
    
    $
    239
    
    
    $
    311
    
    
    $
    329
    
    
    $
    1,108Basic Earnings Per ShareIncome from continuing operations
    
    $
    0.84
    
    
    $
    0.87
    
    
    $
    1.13
    
    
    $
    1.33
    
    
    $
    4.17Income (loss) from discontinued operations
    
    
    (0.02
    )
    
    
    (0.01
    )
    
    
    0.02
    
    
    
    (0.10
    )
    
    
    (0.11
    )Basic earnings per share available to
common stockholders
    
    $
    0.82
    
    
    $
    0.86
    
    
    $
    1.15
    
    
    $
    1.23
    
    
    $
    4.06Diluted Earnings Per ShareIncome from continuing operations
    
    $
    0.84
    
    
    $
    0.87
    
    
    $
    1.13
    
    
    $
    1.32
    
    
    $
    4.16Income (loss) from discontinued operations
    
    
    (0.02
    )
    
    
    (0.01
    )
    
    
    0.02
    
    
    
    (0.10
    )
    
    
    (0.11
    )Diluted earnings per share available to
common stockholders
    
    $
    0.82
    
    
    $
    0.86
    
    
    $
    1.15
    
    
    $
    1.22
    
    
    $
    4.05
 Quarterly Financial Data
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    FullFirst
    
    
    Second
    
    
    Third
    
    
    Fourth
    
    
    Year(In millions, except per share data)2005Revenues
    
    $
    2,364
    
    
    $
    2,570
    
    
    $
    2,520
    
    
    $
    2,408
    
    
    $
    9,862Income (loss) from continuing
operations before income tax
    
    $
    234
    
    
    $
    336
    
    
    $
    (48
    )
    
    $
    (384
    )
    
    $
    138Income tax (expense) benefit
    
    
    (56
    )
    
    
    (48
    )
    
    
    51
    
    
    
    158
    
    
    
    105Income (loss) from continuing operations
    
    
    178
    
    
    
    288
    
    
    
    3
    
    
    
    (226
    )
    
    
    243Income from discontinued operations,
net of tax
    
    
    7
    
    
    
    2
    
    
    
    3
    
    
    
    9
    
    
    
    21Net income (loss)
    
    $
    185
    
    
    $
    290
    
    
    $
    6
    
    
    $
    (217
    )
    
    $
    264Basic and Diluted Earnings (Loss) Per
ShareIncome (loss) from continuing operations
    
    $
    0.63
    
    
    $
    1.06
    
    
    $
    (0.06
    )
    
    $
    (0.95
    )
    
    $
    0.68Income from discontinued operations
    
    
    0.03
    
    
    
    
    
    
    
    0.02
    
    
    
    0.03
    
    
    
    0.08Basic and diluted earnings (loss) per
share available to common stockholders
    
    $
    0.66
    
    
    $
    1.06
    
    
    $
    (0.04
    )
    
    $
    (0.92
    )
    
    $
    0.76
 132




---



##### Table of Contents



Note S. Related Party Transactions
    CNA
Surety Corporation - Loans to National Contractor
   133




---



##### Table of Contents



Reinsurance
  134




---



##### Table of Contents



REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
 
       
 135




---



##### Table of Contents



MANAGEMENTS REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING
     
 136




---



##### Table of Contents



REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
 
      137




---



##### Table of Contents



138




---



##### Table of Contents



ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE
  
 ITEM 9A. CONTROLS AND PROCEDURES
    
 ITEM 9B. OTHER INFORMATION
  139




---



##### Table of Contents



PART
III
 
 ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
  FIRSTPOSITION AND
    
    
    
    
    
    BECAMEOFFICES
    
    
    
    
    
    EXECUTIVEHELD WITH
    
    
    
    
    
    OFFICER OFNAME
    
    REGISTRANT
    
    AGE
    
    CNA
    
    PRINCIPAL OCCUPATION DURING PAST FIVE YEARSStephen W. Lilienthal
    
    Chief Executive
Officer, CNA
Financial
Corporation
    
    
    56
    
    
    
    2001
    
    

Chief Executive Officer of CNA Financial
Corporation and subsidiaries since August,
2002. Prior to that time, President and
Chief Executive Officer, Property and
Casualty Operations of the CNA insurance
companies.Michael Fusco
    
    Executive Vice
President, Chief
Actuary, CNA
insurance companies
    
    
    58
    
    
    
    2004
    
    

Executive Vice President, Chief Actuary of
the CNA insurance companies since March,
2002. Prior to that time, Senior Vice
President of the CNA insurance companies.Jonathan D. Kantor
    
    Executive Vice
President, General
Counsel and
Secretary
    
    
    51
    
    
    
    1997
    
    

Executive Vice President, General Counsel
and Secretary of CNA Financial
Corporation.James R. Lewis
    
    President and Chief
Executive Officer,
Property and
Casualty
Operations, CNA
insurance companies
    
    
    57
    
    
    
    2002
    
    

President and Chief Executive Officer,
Property and Casualty Operations of the
CNA insurance companies since August,
2002. Prior to that time, Executive Vice
President, U.S. Insurance Operations,
Property and Casualty Operations of the
CNA insurance companies.D. Craig Mense
    
    Executive Vice
President & Chief
Financial Officer
    
    
    55
    
    
    
    2004
    
    

Executive Vice President and Chief
Financial Officer since November, 2004.
Prior to that time, President and Chief
Executive Officer of Global Run-Off
Operations at St. Paul Travelers from
June, 2004 to November, 2004. Prior to
that time, the following positions at
Travelers Property Casualty Corp.: Chief
Operating Officer of the Gulf Insurance
Group (May, 2003 to May, 2004); Chief
Financial and Administrative Officer
(Personal Lines) (July, 2002 to March,
2003); and Senior Vice President and Chief
Financial Officer (Bond) (April, 1996 to
July, 2002).
  
 140




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##### Table of Contents



ITEM 11. EXECUTIVE COMPENSATION
  
 ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS
 Equity Compensation Plan
  Executive Compensation Information
 December 31, 2006
 Number of securitiesNumber of securities to
    
    
    
    
    
    
    remaining available forbe issued upon
    
    
    Weighted average exercise
    
    
    future issuance underexercise of outstanding
    
    
    price of outstanding
    
    
    equity compensation plansoptions, warrants and
    
    
    options, warrants and
    
    
    (excluding securitiesrights
    
    
    rights
    
    
    reflected in column (a))(a)
    
    
    (b)
    
    
    (c)Plan CategoryEquity compensation plans approved by
security holders
    
    
    1,694,900
    
    
    $
    28.86
    
    
    
    2,011,725Equity compensation plans not
approved by security holders
    
    
    
    
    
    
    
    
    
    
    Total
    
    
    1,694,900
    
    
    $
    28.86
    
    
    
    2,011,725
  
 ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
  
 ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES
  141




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##### Table of Contents



PART IV
 
 ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
 PageNumber(a)
    
    
    1.
    
    
    FINANCIAL STATEMENTS:Statements of Operations  Years Ended December 31, 2006, 2005 and 2004
    
    
    65Balance Sheets  December 31, 2006 and 2005
    
    
    66Statements of Cash Flows  Years Ended December 31, 2006, 2005 and 2004
    
    
    67Statements of Stockholders
Equity  Years Ended December 31, 2006, 2005 and 2004
    
    
    69Notes to Consolidated Financial Statements
    
    
    70Report of Independent Registered Public Accounting Firm
    
    
    135(a)
    
    
    2.
    
    
    FINANCIAL STATEMENT SCHEDULES:Schedule I     Summary of Investments
    
    
    145Schedule II    Condensed Financial Information of Registrant (Parent Company)
    
    
    146Schedule III   Supplementary Insurance Information
    
    
    151Schedule IV    Reinsurance
    
    
    152Schedule V     Valuation and Qualifying Accounts
    
    
    152Schedule VI    Supplemental Information Concerning Property and Casualty Insurance Operations
    
    
    152(a)
    
    
    3.
    
    
    EXHIBITS:
 ExhibitDescription
of Exhibit
    

Number(3
    )
    
    Articles of incorporation and by-laws:Certificate of Incorporation of CNA Financial Corporation, as amended May 6, 1987 (Exhibit 3.1 to 1987 Form 10-K incorporated herein by
reference)
    
    
    3.1Certificate of Amendment of Certificate of Incorporation, dated May 14, 1998
    
    
    3.1aCertificate of Amendment of Certificate of Incorporation, dated May 10, 1999 (Exhibit 3.1 to 1999 Form 10-K incorporated herein by reference)
    
    
    3.1bBy-Laws of CNA Financial Corporation, as amended April 28, 2004 (Exhibit 3.2 to 2004 Form 10-K incorporated herein by reference)
    
    
    3.2(4
    )
    
    Instruments defining the rights of security holders, including indentures:CNA Financial Corporation hereby agrees to furnish to the Commission upon request copies of instruments with respect to long term debt,
pursuant to Item 601(b) (4) (iii) of Regulation S-K
    
    
    4.1(10
    )
    
    Material contracts:
 142




---



##### Table of Contents



ExhibitDescription of Exhibit
    
    NumberFederal Income Tax Allocation Agreement, dated February 29, 1980 between CNA Financial Corporation and Loews Corporation (Exhibit 10.2 to
1987 Form 10-K incorporated herein by reference)
    
    
    10.1CNA Supplemental Executive Retirement Plan, restated as of January 1, 2003 (Exhibit 99.2 to Form 8-K filed January 6, 2005 incorporated
herein by reference)
    
    
    10.2First Amendment to the CNA Supplemental Executive Retirement Plan, dated February 27, 2004 (Exhibit 99.3 to Form 8-K filed January 6, 2005
incorporated herein by reference)
    
    
    10.3Second Amendment to the CNA Supplemental Executive Retirement Plan, dated March 23, 2004 (Exhibit 99.4 to Form 8-K filed January 6, 2005
incorporated herein by reference)
    
    
    10.4Third Amendment to the CNA Supplemental Executive Retirement Plan, dated December 31, 2004 (Exhibit 99.1 to Form 8-K filed January 6, 2005
incorporated herein by reference)
    
    
    10.5CNA Financial Corporation 2000 Long Term Incentive Plan, dated August 4, 1999 (Exhibit 4.1 to 1999 Form S-8 filed August 4, 1999,
incorporated herein by reference)
    
    
    10.6CNA Financial Corporation 2000 Incentive Compensation Plan, as amended and restated, effective as of February 9, 2005 (Exhibit A to Form DEF
14A, filed March 31, 2005, incorporated herein by reference (as indicated in Form 8-K, filed May 2, 2005, CNAF shareholders voted to approve
this plan on April 27, 2005))
    
    
    10.7Share Purchase Agreement between CNA and TAWA UK Limited,
dated July 15, 2002 for the entire issued share capital of CNA Re
Management Company Limited (Exhibit 2.1 to September 30, 2002
Form 10-Q incorporated herein by reference)
    
    
    10.8Employment Agreement between CNA Financial Corporation
and Stephen W. Lilienthal, dated October 26, 2005 (Exhibit 10.22 to
September 30, 2005 Form 10-Q incorporated herein by reference)
    
    
    10.9Employment Agreement between Continental Casualty Company
and James R. Lewis, dated October 26, 2005 (Exhibit 10.21 to
September 30, 2005 Form 10-Q incorporated herein by reference)
    
    
    10.10Employment Agreement between Continental Casualty Company
and Jonathan D. Kantor, dated March 16, 2005 (Exhibit 99.1 to June 13,
2005 Form 8-K incorporated herein by reference)
    
    
    10.11Capital Support Agreement among CNA Financial Corporation, Loews
Corporation and Continental Casualty Company, dated November 12, 2003 (Exhibit
10.15 to 2003 Form 10-K incorporated herein by reference)
    
    
    10.12Employment Agreement between Continental Casualty Company
and D. Craig Mense, dated December 2, 2004 (Exhibit 99.1 to December 8,
2004 Form 8-K incorporated herein by reference)
    
    
    10.13
 143




---



##### Table of Contents



ExhibitDescription of Exhibit
    
    NumberAddendum to Employment Agreement between Continental Casualty Company
and D. Craig Mense, dated December 2, 2004 (Exhibit 99.2 to December 8,
2004 Form 8-K incorporated herein by reference)
    
    
    10.14Employment Agreement between Continental Casualty Company
and Michael Fusco, dated April 1, 2004 (Exhibit 10.16 to 2004 Form
10-K incorporated herein by reference)
    
    
    10.15CNA Supplemental Executive Savings and Capital Accumulation Plan, dated
July 1, 2003 (Exhibit 10.17 to 2004 Form 10-K incorporated herein by reference)
    
    
    10.16First Amendment to the CNA Supplemental Executive Savings and Capital
Accumulation Plan, dated February 27, 2004 (Exhibit 10.18 to 2004 Form 10-K
incorporated herein by reference)
    
    
    10.17Second Amendment to the CNA Supplemental Executive Savings and Capital
Accumulation Plan, dated March 23, 2004 (Exhibit 10.19 to 2004 Form 10-K
incorporated herein by reference)
    
    
    10.18Form of Award Letter for Long-Term Incentive Cash Award to Executive
Officers for the Performance Period Beginning January 1, 2006 and Ending
December 31, 2008, Delivered on April 14, 2006 (Exhibit 99.1 to April 19, 2006
Form 8-K incorporated herein by reference)
    
    
    10.19Form of Award Terms for Long-Term Incentive Cash Award to Executive Officers
for the Performance Period Beginning January 1, 2006 and Ending December 31, 2008,
Delivered on April 14, 2006 (Exhibit 99.2 to April 19, 2006 Form 8-K incorporated
herein by reference)
    
    
    10.20Registration Rights Agreement, dated August 8, 2006, between CNA Financial
Corporation and Loews Corporation (Exhibit 10.1 to August 8, 2006 Form 8-K
incorporated herein by reference)
    
    
    10.21Amendment to Employment Agreement
between Continental Casualty Company and Michael Fusco, dated
February 7, 2007
    
    
    10.22(21
    )
    
    Significant Subsidiaries of CNAF
    
    
    21.1(23
    )
    
    Consent of Independent Registered Public Accounting Firm
    
    
    23.1(31
    )
    
    Certification of Chief Executive Officer
    
    
    31.1Certification of Chief Financial Officer
    
    
    31.2(32
    )
    
    Written Statement of the Chief Executive Officer of CNA Financial Corporation Pursuant
to 18 U.S.C Section 1350 (As adopted by Section 906 of the Sarbanes-Oxley Act of 2002)
    
    
    32.1Written Statement of the Chief Financial Officer of CNA Financial Corporation Pursuant
to 18 U.S.C Section 1350 (As adopted by Section 906 of the Sarbanes-Oxley Act of 2002)
    
    
    32.2(b)

    
    
    
    
    
    Exhibits:None.(c)
    
    
    
    
    
    Condensed Financial Information of Unconsolidated Subsidiaries:None.
 
 144




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##### Table of Contents



SCHEDULE I. SUMMARY OF INVESTMENTS  OTHER THAN INVESTMENTS IN RELATED PARTIES
 December 31, 2006Cost or
    
    
    EstimatedAmortized
    
    
    Fair
    
    
    CarryingCost
    
    
    Value
    
    
    Value(In millions)Fixed maturity securities available-for-sale:Bonds:U.S. Government and government agencies and authorities  taxable
    
    $
    5,368
    
    
    $
    5,445
    
    
    $
    5,445States, municipalities and political subdivisions  tax exempt
    
    
    4,915
    
    
    
    5,146
    
    
    
    5,146Foreign governments and political subdivisions
    
    
    2,679
    
    
    
    2,779
    
    
    
    2,779Public utilities
    
    
    753
    
    
    
    850
    
    
    
    850All other corporate bonds
    
    
    20,331
    
    
    
    20,515
    
    
    
    20,515Redeemable preferred stocks
    
    
    885
    
    
    
    912
    
    
    
    912Total fixed maturity securities available-for-sale
    
    
    34,931
    
    
    
    35,647
    
    
    
    35,647Fixed maturity securities trading:Bonds:U.S. Government and government agencies and authorities  taxable
    
    
    2
    
    
    
    2
    
    
    
    2Foreign governments and political subdivisions
    
    
    14
    
    
    
    14
    
    
    
    14All other corporate bonds
    
    
    188
    
    
    
    188
    
    
    
    188Total fixed maturity securities trading
    
    
    204
    
    
    
    204
    
    
    
    204Equity securities available-for-sale:Common stocks:Banks, trusts and insurance companies
    
    
    3
    
    
    
    5
    
    
    
    5Industrial and other
    
    
    211
    
    
    
    447
    
    
    
    447Non-redeemable preferred stocks
    
    
    134
    
    
    
    145
    
    
    
    145Total equity securities available-for-sale
    
    
    348
    
    
    
    597
    
    
    
    597Equity securities trading:Common stocks:Industrial and other
    
    
    60
    
    
    
    60
    
    
    
    60Total equity securities trading
    
    
    60
    
    
    $
    60
    
    
    
    60Limited partnership investments
    
    
    1,852
    
    
    
    
    
    
    
    1,852Other invested assets
    
    
    26
    
    
    
    
    
    
    
    26Short term investments available-for-sale
    
    
    5,537
    
    
    
    
    
    
    
    5,538Short term investments trading
    
    
    172
    
    
    
    
    
    
    
    172Total investments
    
    $
    43,130
    
    
    
    
    
    
    $
    44,096
 145




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##### Table of Contents



SCHEDULE II. CONDENSED FINANCIAL INFORMATION OF REGISTRANT (PARENT COMPANY)
 CNA Financial Corporation
Statements of Operations
 Years ended December 31
    
    2006
    
    
    2005
    
    
    2004(In millions)Revenues:Net investment income
    
    $
    21
    
    
    $
    18
    
    
    $
    14Realized investment losses
    
    
    (7
    )
    
    
    (29
    )
    
    
    (62
    )Other income
    
    
    1
    
    
    
    
    
    
    
    5Total revenues
    
    
    15
    
    
    
    (11
    )
    
    
    (43
    )Expenses:Administrative and general
    
    
    2
    
    
    
    9
    
    
    
    5Interest
    
    
    118
    
    
    
    110
    
    
    
    104Total expenses
    
    
    120
    
    
    
    119
    
    
    
    109Loss from operations before income taxes and
equity in net income of subsidiaries
    
    
    (105
    )
    
    
    (130
    )
    
    
    (152
    )Income tax benefit
    
    
    37
    
    
    
    46
    
    
    
    53Loss before equity in net income of subsidiaries
    
    
    (68
    )
    
    
    (84
    )
    
    
    (99
    )Equity in net income of subsidiaries
    
    
    1,176
    
    
    
    348
    
    
    
    524Net income
    
    $
    1,108
    
    
    $
    264
    
    
    $
    425
  146




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##### Table of Contents



CNA Financial Corporation
Balance Sheets
 December 31
    
    2006
    
    
    2005(In millions)Assets:Investment in subsidiaries
    
    $
    11,512
    
    
    $
    10,263Fixed maturity securities available-for-sale, at fair value (amortized
cost of $9 and $1)
    
    
    9
    
    
    
    1Equity securities available-for-sale, at fair value (cost of $1 and $1)
    
    
    1
    
    
    
    1Short term investments
    
    
    280
    
    
    
    198Receivables for securities sold
    
    
    1
    
    
    
    10Amounts due from affiliates
    
    
    37
    
    
    
    44Other assets
    
    
    7
    
    
    
    Total assets
    
    $
    11,847
    
    
    $
    10,517Liabilities and Stockholders Equity:Liabilities:Short term debt
    
    
    
    
    
    
    250Long term debt
    
    
    2,035
    
    
    
    1,287Other
    
    
    44
    
    
    
    30Total liabilities
    
    
    2,079
    
    
    
    1,567Stockholders equity:Preferred
stock (12,500,000 shares authorized)
Series H Issue (no par value; $100,000 stated value; no shares and
7,500 shares issued;   held by Loews Corporation)
    
    
    
    
    
    
    750Common stock ($2.50 par value; 500,000,000 shares authorized;
273,040,543 and 258,177,285 shares issued; and 271,108,780 and
256,001,968 shares outstanding)
    
    
    683
    
    
    
    645Additional paid-in capital
    
    
    2,166
    
    
    
    1,701Retained earnings
    
    
    6,486
    
    
    
    5,621Accumulated other comprehensive income
    
    
    549
    
    
    
    359Treasury stock (1,931,763 and 2,175,317 shares), at cost
    
    
    (58
    )
    
    
    (67
    )9,826
    
    
    
    9,009Notes receivable for the issuance of common stock
    
    
    (58
    )
    
    
    (59
    )Total stockholders equity
    
    
    9,768
    
    
    
    8,950Total liabilities and stockholders equity
    
    $
    11,847
    
    
    $
    10,517
  147




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##### Table of Contents



CNA Financial Corporation
Statements of Cash Flows
 Years ended December 31
    
    2006
    
    
    2005
    
    
    2004(In millions)Cash flows from operating activities:Net income
    
    $
    1,108
    
    
    $
    264
    
    
    $
    425Adjustments to reconcile net income to net cash flows from operating activities:Income of subsidiaries
    
    
    (1,176
    )
    
    
    (348
    )
    
    
    (524
    )Dividends received from subsidiaries
    
    
    91
    
    
    
    127
    
    
    
    307Realized investment losses
    
    
    7
    
    
    
    29
    
    
    
    62Other, net
    
    
    7
    
    
    
    (59
    )
    
    
    233Total adjustments
    
    
    (1,071
    )
    
    
    (251
    )
    
    
    78Net cash flows provided by operating activities
    
    
    37
    
    
    
    13
    
    
    
    503Cash flows from investing activities:Sales of fixed maturity securities
    
    
    1
    
    
    
    8
    
    
    
    85Purchases of fixed maturity securities
    
    
    
    
    
    
    
    
    
    
    (27
    )Change in short term investments
    
    
    (60
    )
    
    
    563
    
    
    
    (710
    )Capital contributions to subsidiaries
    
    
    (3
    )
    
    
    (41
    )
    
    
    (156
    )Return of capital from subsidiaries
    
    
    19
    
    
    
    
    
    
    
    18Other, net
    
    
    (7
    )
    
    
    (64
    )
    
    
    (14
    )Net cash flows provided (used) by investing activities
    
    
    (50
    )
    
    
    466
    
    
    
    (804
    )Cash flows from financing activities:Proceeds from the issuance of long-term debt
    
    
    746
    
    
    
    
    
    
    
    546Principal payments on debt
    
    
    (250
    )
    
    
    (493
    )
    
    
    (250
    )Payment to repurchase Series H issue preferred stock
    
    
    (993
    )
    
    
    
    
    
    
    Proceeds from the issuance of common stock
    
    
    499
    
    
    
    
    
    
    
    Stock options exercised
    
    
    10
    
    
    
    2
    
    
    
    Other, net
    
    
    1
    
    
    
    12
    
    
    
    5Net cash flows provided (used) by financing activities
    
    
    13
    
    
    
    (479
    )
    
    
    301Net change in cash
    
    
    
    
    
    
    
    
    
    
    Cash, beginning of year
    
    
    
    
    
    
    
    
    
    
    Cash, end of year
    
    $
    
    
    
    $
    
    
    
    $
    
  148




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##### Table of Contents



Notes to Condensed Financial Information
 A. Basis of Presentation
  B. Debt
  Debt
 December 31
    
    2006
    
    
    2005(In millions)Senior notes:6.750%, face amount of $250, due November 15, 2006
    
    $
    
    
    
    $
    2506.450%, face amount of $150, due January 15, 2008
    
    
    150
    
    
    
    1496.600%, face amount of $200, due December 15, 2008
    
    
    200
    
    
    
    1996.000%, face amount of $400, due August 15, 2011
    
    
    398
    
    
    
    5.850%, face amount of $549, due December 15, 2014
    
    
    546
    
    
    
    5466.500%, face amount of $350, due August 15, 2016
    
    
    348
    
    
    
    6.950%, face amount of $150, due January 15, 2018
    
    
    149
    
    
    
    149Debenture, 7.250%, face amount of $243, due November 15, 2023
    
    
    241
    
    
    
    241Urban Development Action Grant, 1.00%, due May 7, 2019
    
    
    3
    
    
    
    3Total
    
    $
    2,035
    
    
    $
    1,537Short term debt
    
    $
    
    
    
    $
    250Long term debt
    
    
    2,035
    
    
    
    1,287Total
    
    $
    2,035
    
    
    $
    1,537
   C. Commitments and Contingencies
    149




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##### Table of Contents



CNA
Surety Corporation - Loans to National Contractor
  
 150




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##### Table of Contents



SCHEDULE III. SUPPLEMENTARY INSURANCE INFORMATION
 Gross Insurance Reserves
    
    
    
    
    
    
    
    
    
    
    Insurance
    
    
    Amortiz-Claim
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Claims and
    
    
    ationDeferred
    
    
    And Claim
    
    
    Future
    
    
    
    
    
    
    Policy-
    
    
    
    
    
    
    Net
    
    
    Policy-
    
    
    of Deferred
    
    
    Other
    
    
    NetAcquisition
    
    
    Adjustment
    
    
    Policy
    
    
    Unearned
    
    
    holders
    
    
    Net Earned
    
    
    Investment
    
    
    holders
    
    
    Acquisition
    
    
    Operating
    
    
    Written Pre-Costs
    
    
    Expense
    
    
    Benefits
    
    
    Premium
    
    
    Funds
    
    
    Premiums
    
    
    Income (a)
    
    
    Benefits
    
    
    Cost
    
    
    Expenses
    
    
    miums (b)(In millions)December 31, 2006Standard Lines
    
    $
    407
    
    
    $
    14,934
    
    
    $
    
    
    
    $
    2,007
    
    
    $
    35
    
    
    $
    4,413
    
    
    $
    991
    
    
    $
    3,111
    
    
    $
    981
    
    
    $
    521
    
    
    $
    4,433Specialty Lines
    
    
    283
    
    
    
    5,529
    
    
    
    
    
    
    
    1,599
    
    
    
    
    
    
    
    2,555
    
    
    
    403
    
    
    
    1,550
    
    
    
    538
    
    
    
    284
    
    
    
    2,596Life and Group Non-Core
    
    
    500
    
    
    
    3,134
    
    
    
    6,645
    
    
    
    173
    
    
    
    980
    
    
    
    641
    
    
    
    698
    
    
    
    1,195
    
    
    
    14
    
    
    
    259
    
    
    
    633Corporate and Other Non-Core
    
    
    
    
    
    
    6,039
    
    
    
    
    
    
    
    5
    
    
    
    
    
    
    
    (1
    )
    
    
    320
    
    
    
    190
    
    
    
    1
    
    
    
    137
    
    
    
    (2
    )Eliminations
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (5
    )
    
    
    
    
    
    
    1
    
    
    
    
    
    
    
    (56
    )
    
    
    (5
    )Consolidated Operations
    
    $
    1,190
    
    
    $
    29,636
    
    
    $
    6,645
    
    
    $
    3,784
    
    
    $
    1,015
    
    
    $
    7,603
    
    
    $
    2,412
    
    
    $
    6,047
    
    
    $
    1,534
    
    
    $
    1,145
    
    
    $
    7,655December 31, 2005Standard Lines
    
    $
    408
    
    
    $
    15,084
    
    
    $
    
    
    
    $
    1,952
    
    
    $
    30
    
    
    $
    4,410
    
    
    $
    767
    
    
    $
    3,876
    
    
    $
    986
    
    
    $
    554
    
    
    $
    4,382Specialty Lines
    
    
    274
    
    
    
    5,205
    
    
    
    
    
    
    
    1,577
    
    
    
    
    
    
    
    2,475
    
    
    
    281
    
    
    
    1,621
    
    
    
    532
    
    
    
    223
    
    
    
    2,463Life and Group Non-Core
    
    
    515
    
    
    
    3,277
    
    
    
    6,297
    
    
    
    168
    
    
    
    1,465
    
    
    
    704
    
    
    
    593
    
    
    
    1,161
    
    
    
    22
    
    
    
    318
    
    
    
    694Corporate and Other Non-Core
    
    
    
    
    
    
    7,372
    
    
    
    
    
    
    
    9
    
    
    
    
    
    
    
    (8
    )
    
    
    251
    
    
    
    343
    
    
    
    3
    
    
    
    138
    
    
    
    (19
    )Eliminations
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (12
    )
    
    
    
    
    
    
    (2
    )
    
    
    
    
    
    
    (75
    )
    
    
    (12
    )Consolidated Operations
    
    $
    1,197
    
    
    $
    30,938
    
    
    $
    6,297
    
    
    $
    3,706
    
    
    $
    1,495
    
    
    $
    7,569
    
    
    $
    1,892
    
    
    $
    6,999
    
    
    $
    1,543
    
    
    $
    1,158
    
    
    $
    7,508December 31, 2004Standard Lines
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    4,917
    
    
    $
    496
    
    
    $
    3,489
    
    
    $
    1,109
    
    
    $
    687
    
    
    $
    4,582Specialty Lines
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,277
    
    
    
    246
    
    
    
    1,446
    
    
    
    506
    
    
    
    189
    
    
    
    2,391Life and Group Non-Core
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    921
    
    
    
    692
    
    
    
    1,369
    
    
    
    36
    
    
    
    367
    
    
    
    633Corporate and Other Non-Core
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    128
    
    
    
    246
    
    
    
    162
    
    
    
    29
    
    
    
    151
    
    
    
    5Eliminations
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (34
    )
    
    
    
    
    
    
    (21
    )
    
    
    
    
    
    
    (99
    )
    
    
    (17
    )Consolidated Operations
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    8,209
    
    
    $
    1,680
    
    
    $
    6,445
    
    
    $
    1,680
    
    
    $
    1,295
    
    
    $
    7,594
 
 (a)
    
    Investment income is allocated based on each segments net carried insurance reserves as
adjusted.(b)
    
    Net written premiums relate to business in property and casualty companies only. 151




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##### Table of Contents



SCHEDULE IV. REINSURANCE
  SCHEDULE V. VALUATION AND QUALIFYING ACCOUNTS
 Balance at
    
    
    Charged to
    
    
    Charged toBeginning
    
    
    Costs and
    
    
    Other
    
    
    
    
    
    
    Balance atof Period
    
    
    Expenses
    
    
    Accounts (a)
    
    
    Deductions
    
    
    End of Period(In millions)Year ended December 31, 2006Deducted from assets:Allowance for doubtful accounts:Insurance and reinsurance
receivables
    
    $
    964
    
    
    $
    48
    
    
    $
    3
    
    
    $
    178
    
    
    $
    837Valuation allowance:Deferred income taxes
    
    $
    30
    
    
    $
    
    
    
    $
    
    
    
    $
    30
    
    
    $
    Year ended December 31, 2005Deducted from assets:Allowance for doubtful accounts:Insurance and reinsurance
receivables
    
    $
    1,048
    
    
    $
    111
    
    
    $
    3
    
    
    $
    198
    
    
    $
    964Valuation allowance:Deferred income taxes
    
    $
    33
    
    
    $
    (3
    )
    
    $
    
    
    
    $
    
    
    
    $
    30Year ended December 31, 2004Deducted from assets:Allowance for doubtful accounts:Insurance and reinsurance
receivables
    
    $
    948
    
    
    $
    312
    
    
    $
    5
    
    
    $
    217
    
    
    $
    1,048Valuation allowance:Deferred income taxes
    
    $
    
    
    
    $
    33
    
    
    $
    
    
    
    $
    
    
    
    $
    33
 
 (a)
    
    Amount includes effects of foreign currency translation. SCHEDULE VI. SUPPLEMENTAL INFORMATION CONCERNING PROPERTY AND CASUALTY INSURANCE OPERATIONS
 Consolidated Property and Casualty OperationsAs of and for the years ended December 31
    
    2006
    
    2005
    
    2004(In millions)Deferred acquisition costs
    
    $
    1,190
    
    
    $
    1,197Reserves for unpaid claim and claim adjustment expenses
    
    
    29,459
    
    
    
    30,694Discount deducted from claim and claim adjustment expense reserves
above (based on interest rates ranging from 3.5% to 7.5%)
    
    
    1,648
    
    
    
    1,739Unearned premiums
    
    
    3,784
    
    
    
    3,706Net written premiums
    
    
    7,655
    
    
    
    7,509
    
    
    $
    7,594Net earned premiums
    
    
    7,595
    
    
    
    7,558
    
    
    
    7,925Net investment income
    
    
    2,035
    
    
    
    1,595
    
    
    
    1,266Incurred claim and claim adjustment expenses related to current year
    
    
    4,837
    
    
    
    5,054
    
    
    
    5,118Incurred claim and claim adjustment expenses related to prior years
    
    
    332
    
    
    
    1,107
    
    
    
    234Amortization of deferred acquisition costs
    
    
    1,534
    
    
    
    1,541
    
    
    
    1,641Paid claim and claim adjustment expenses
    
    
    4,165
    
    
    
    3,541
    
    
    
    5,401
 152




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##### Table of Contents



SIGNATURES
  CNA Financial CorporationDated: February 22, 2007
    
    By
    
    /s/ Stephen W. LilienthalStephen W. LilienthalChief Executive Officer(Principal Executive Officer)By
    
    /s/ D. Craig MenseD. Craig MenseExecutive Vice President andChief Financial Officer
  Dated: February 22, 2007
    
    By
    
    /s/ Brenda J. Gaines(Brenda J. Gaines, Director)Dated: February 22, 2007
    
    By
    
    /s/ Stephen W. Lilienthal(Stephen W. Lilienthal, Chief Executive Officer and Director)Dated: February 22, 2007
    
    By
    
    /s/ Paul J. Liska(Paul J. Liska, Director)Dated: February 22, 2007
    
    By
    
    /s/ Jose Montemayor(Jose Montemayor, Director)Dated: February 22, 2007
    
    By
    
    /s/ Don M. Randel(Don M. Randel, Director)
 153




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##### Table of Contents



Dated: February 22, 2007
    
    By
    
    /s/ Joseph Rosenberg(Joseph Rosenberg, Director)Dated: February 22, 2007
    
    By
    
    /s/ Andrew Tisch(Andrew Tisch, Director)Dated: February 22, 2007
    
    By
    
    /s/ James S. Tisch(James S. Tisch, Director)Dated: February 22, 2007
    
    By
    
    /s/ Marvin Zonis(Marvin Zonis, Director)
 154