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, 2008
  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
    
    36-6169860(State
or other jurisdiction of incorporation or organization)
    
    (I.R.S. Employer
Identification No.)333 S. WabashChicago, Illinois
    
    60604(Address of principal
executive offices)
    
    (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
 Securities registered pursuant to Section 12(g) of the Act: None
 
 o þ
 o þ
 þ o
 o
  Large accelerated filer þ
    
    Accelerated filer o
    
    Non-accelerated filer o
    
    Smaller reporting company o(Do not check if a smaller reporting company)
 o þ
  DOCUMENTS INCORPORATED BY REFERENCE:




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Item
    
    
    
    PageNumber
    
    
    
    NumberPART I1.
    
    Business
    
    
    31A.
    
    Risk Factors
    
    
    91B.
    
    Unresolved Staff Comments
    
    
    172.
    
    Properties
    
    
    173.
    
    Legal Proceedings
    
    
    174.
    
    Submission of Matters to a Vote of Security Holders
    
    
    17PART II5.
    
    Market for Registrants Common Equity, Related Stockholder Matters and
Issuer Purchases of Equity Securities
    
    
    186.
    
    Selected Financial Data
    
    
    207.
    
    Managements Discussion and Analysis of Financial Condition and Results
of Operations
    
    
    217A.
    
    Quantitative and Qualitative Disclosures About Market Risk
    
    
    638.
    
    Financial Statements and Supplementary Data
    
    
    669.
    
    Changes in and Disagreements With Accountants on Accounting and
Financial Disclosure
    
    
    1429A.
    
    Controls and Procedures
    
    
    1429B.
    
    Other Information
    
    
    142PART III10.
    
    Directors, Executive Officers and Corporate Governance
    
    
    14311.
    
    Executive Compensation
    
    
    14312.
    
    Security Ownership of Certain Beneficial Owners and Management and
Related Stockholder Matters
    
    
    14413.
    
    Certain Relationships and Related Transactions, and Director Independence
    
    
    14414.
    
    Principal Accounting Fees and Services
    
    
    144PART IV15.
    
    Exhibits, Financial Statement Schedules
    
    
    145
  2




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##### 



PART I
 
 ITEM 1. BUSINESS
     Competition
    Regulation
   3




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##### 



Employee Relations
   4




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##### 



Supplementary Insurance Data
  Supplementary Insurance Data
 Years ended December 31
    
    2008
    
    
    2007
    
    
    2006Trade Ratios  GAAP basis (a)Loss and loss adjustment expense ratio
    
    
    78.7
    %
    
    
    77.7
    %
    
    
    75.7
    %Expense ratio
    
    
    30.1
    
    
    
    30.0
    
    
    
    30.0Dividend ratio
    
    
    0.2
    
    
    
    0.2
    
    
    
    0.3Combined ratio
    
    
    109.0
    %
    
    
    107.9
    %
    
    
    106.0
    %Trade Ratios  Statutory basis (preliminary) (a)Loss and loss adjustment expense ratio
    
    
    83.8
    %
    
    
    79.8
    %
    
    
    78.7
    %Expense ratio
    
    
    30.1
    
    
    
    30.0
    
    
    
    30.2Dividend ratio
    
    
    0.3
    
    
    
    0.3
    
    
    
    0.2Combined ratio
    
    
    114.2
    %
    
    
    110.1
    %
    
    
    109.1
    %
 (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
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 future policy benefits 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 policyholders dividends incurred
to net earned premiums. The dividend ratio, using amounts determined in accordance with SAP,
is the ratio of policyholders dividends paid to net earned premiums. The combined ratio is
the sum of the loss and loss adjustment expense, expense and dividend ratios.  Direct Written Premiums
 Percent of TotalYears ended December 31
    
    2008
    
    2007
    
    2006California
    
    
    9.2
    %
    
    
    9.5
    %
    
    
    9.7
    %New York
    
    
    6.9
    
    
    
    7.0
    
    
    
    7.5Florida
    
    
    6.5
    
    
    
    7.5
    
    
    
    8.0Texas
    
    
    6.2
    
    
    
    6.1
    
    
    
    5.8Illinois
    
    
    3.8
    
    
    
    3.8
    
    
    
    4.2New Jersey
    
    
    3.8
    
    
    
    3.7
    
    
    
    4.0Pennsylvania
    
    
    3.3
    
    
    
    3.4
    
    
    
    3.4Missouri
    
    
    3.1
    
    
    
    2.9
    
    
    
    3.1All other states, countries or political subdivisions (a)
    
    
    57.2
    
    
    
    56.1
    
    
    
    54.3Total
    
    
    100.0
    %
    
    
    100.0
    %
    
    
    100.0
    %
 
 (a)
    
    No other individual state, country or political subdivision accounts for more than 3.0% of
direct written premiums.  5




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##### 



Property and Casualty Claim and Claim Adjustment Expenses
   6




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##### 



Schedule of Loss Reserve Development
 Calendar Year Ended(In millions)
    
    1998
    
    
    1999 (a)
    
    
    2000
    
    
    2001 (b)
    
    
    2002 (c)
    
    
    2003
    
    
    2004
    
    
    2005
    
    
    2006
    
    
    2007
    
    
    2008Originally reported gross
reserves for unpaid claim
and claim adjustment
expenses
    
    $
    28,506
    
    
    $
    26,850
    
    
    $
    26,510
    
    
    $
    29,649
    
    
    $
    25,719
    
    
    $
    31,284
    
    
    $
    31,204
    
    
    $
    30,694
    
    
    $
    29,459
    
    
    $
    28,415
    
    
    $
    27,475Originally reported ceded
recoverable
    
    
    5,182
    
    
    
    6,091
    
    
    
    7,333
    
    
    
    11,703
    
    
    
    10,490
    
    
    
    13,847
    
    
    
    13,682
    
    
    
    10,438
    
    
    
    8,078
    
    
    
    6,945
    
    
    
    6,213Originally reported net
reserves for unpaid claim
and claim adjustment
expenses
    
    $
    23,324
    
    
    $
    20,759
    
    
    $
    19,177
    
    
    $
    17,946
    
    
    $
    15,229
    
    
    $
    17,437
    
    
    $
    17,522
    
    
    $
    20,256
    
    
    $
    21,381
    
    
    $
    21,470
    
    
    $
    21,262Cumulative net paid as of:One year later
    
    $
    7,321
    
    
    $
    6,547
    
    
    $
    7,686
    
    
    $
    5,981
    
    
    $
    5,373
    
    
    $
    4,382
    
    
    $
    2,651
    
    
    $
    3,442
    
    
    $
    4,436
    
    
    $
    4,308
    
    
    $
    Two years later
    
    
    12,241
    
    
    
    11,937
    
    
    
    11,992
    
    
    
    10,355
    
    
    
    8,768
    
    
    
    6,104
    
    
    
    4,963
    
    
    
    7,022
    
    
    
    7,676
    
    
    
    
    
    
    
    Three years later
    
    
    16,020
    
    
    
    15,256
    
    
    
    15,291
    
    
    
    12,954
    
    
    
    9,747
    
    
    
    7,780
    
    
    
    7,825
    
    
    
    9,620
    
    
    
    
    
    
    
    
    
    
    
    Four years later
    
    
    18,271
    
    
    
    18,151
    
    
    
    17,333
    
    
    
    13,244
    
    
    
    10,870
    
    
    
    10,085
    
    
    
    9,914
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Five years later
    
    
    20,779
    
    
    
    19,686
    
    
    
    17,775
    
    
    
    13,922
    
    
    
    12,814
    
    
    
    11,834
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Six years later
    
    
    21,970
    
    
    
    20,206
    
    
    
    18,970
    
    
    
    15,493
    
    
    
    14,320
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Seven years later
    
    
    22,564
    
    
    
    21,231
    
    
    
    20,297
    
    
    
    16,769
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Eight years later
    
    
    23,453
    
    
    
    22,373
    
    
    
    21,382
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Nine years later
    
    
    24,426
    
    
    
    23,276
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Ten years later
    
    
    25,178
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Net reserves re-estimated
as of:End of initial year
    
    $
    23,324
    
    
    $
    20,759
    
    
    $
    19,177
    
    
    $
    17,946
    
    
    $
    15,229
    
    
    $
    17,437
    
    
    $
    17,522
    
    
    $
    20,256
    
    
    $
    21,381
    
    
    $
    21,470
    
    
    $
    21,262One year later
    
    
    24,306
    
    
    
    21,163
    
    
    
    21,502
    
    
    
    17,980
    
    
    
    17,650
    
    
    
    17,671
    
    
    
    18,513
    
    
    
    20,588
    
    
    
    21,601
    
    
    
    21,463
    
    
    
    Two years later
    
    
    24,134
    
    
    
    23,217
    
    
    
    21,555
    
    
    
    20,533
    
    
    
    18,248
    
    
    
    19,120
    
    
    
    19,044
    
    
    
    20,975
    
    
    
    21,706
    
    
    
    
    
    
    
    Three years later
    
    
    26,038
    
    
    
    23,081
    
    
    
    24,058
    
    
    
    21,109
    
    
    
    19,814
    
    
    
    19,760
    
    
    
    19,631
    
    
    
    21,408
    
    
    
    
    
    
    
    
    
    
    
    Four years later
    
    
    25,711
    
    
    
    25,590
    
    
    
    24,587
    
    
    
    22,547
    
    
    
    20,384
    
    
    
    20,425
    
    
    
    20,212
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Five years later
    
    
    27,754
    
    
    
    26,000
    
    
    
    25,594
    
    
    
    22,983
    
    
    
    21,076
    
    
    
    21,060
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Six years later
    
    
    28,078
    
    
    
    26,625
    
    
    
    26,023
    
    
    
    23,603
    
    
    
    21,769
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Seven years later
    
    
    28,437
    
    
    
    27,009
    
    
    
    26,585
    
    
    
    24,267
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Eight years later
    
    
    28,705
    
    
    
    27,541
    
    
    
    27,207
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Nine years later
    
    
    29,211
    
    
    
    28,035
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Ten years later
    
    
    29,674
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Total net (deficiency)
redundancy
    
    $
    (6,350
    )
    
    $
    (7,276
    )
    
    $
    (8,030
    )
    
    $
    (6,321
    )
    
    $
    (6,540
    )
    
    $
    (3,623
    )
    
    $
    (2,690
    )
    
    $
    (1,152
    )
    
    $
    (325
    )
    
    $
    7
    
    
    $
    Reconciliation to gross
re-estimated reserves:Net reserves re-estimated
    
    $
    29,674
    
    
    $
    28,035
    
    
    $
    27,207
    
    
    $
    24,267
    
    
    $
    21,769
    
    
    $
    21,060
    
    
    $
    20,212
    
    
    $
    21,408
    
    
    $
    21,706
    
    
    $
    21,463
    
    
    $
    Re-estimated ceded
recoverable
    
    
    8,178
    
    
    
    10,673
    
    
    
    11,458
    
    
    
    16,965
    
    
    
    16,313
    
    
    
    14,709
    
    
    
    13,576
    
    
    
    10,935
    
    
    
    8,622
    
    
    
    7,277
    
    
    
    Total gross re-estimated
reserves
    
    $
    37,852
    
    
    $
    38,708
    
    
    $
    38,665
    
    
    $
    41,232
    
    
    $
    38,082
    
    
    $
    35,769
    
    
    $
    33,788
    
    
    $
    32,343
    
    
    $
    30,328
    
    
    $
    28,740
    
    
    $
    Net (deficiency)
redundancy related to:Asbestos claims
    
    $
    (2,152
    )
    
    $
    (1,576
    )
    
    $
    (1,511
    )
    
    $
    (739
    )
    
    $
    (748
    )
    
    $
    (98
    )
    
    $
    (43
    )
    
    $
    (34
    )
    
    $
    (32
    )
    
    $
    (27
    )
    
    $
    Environmental claims
    
    
    (616
    )
    
    
    (616
    )
    
    
    (559
    )
    
    
    (212
    )
    
    
    (207
    )
    
    
    (134
    )
    
    
    (134
    )
    
    
    (83
    )
    
    
    (84
    )
    
    
    (83
    )
    
    
    Total asbestos and
environmental
    
    
    (2,768
    )
    
    
    (2,192
    )
    
    
    (2,070
    )
    
    
    (951
    )
    
    
    (955
    )
    
    
    (232
    )
    
    
    (177
    )
    
    
    (117
    )
    
    
    (116
    )
    
    
    (110
    )
    
    
    Other claims
    
    
    (3,582
    )
    
    
    (5,084
    )
    
    
    (5,960
    )
    
    
    (5,370
    )
    
    
    (5,585
    )
    
    
    (3,391
    )
    
    
    (2,513
    )
    
    
    (1,035
    )
    
    
    (209
    )
    
    
    117
    
    
    
    Total net (deficiency)
redundancy
    
    $
    (6,350
    )
    
    $
    (7,276
    )
    
    $
    (8,030
    )
    
    $
    (6,321
    )
    
    $
    (6,540
    )
    
    $
    (3,623
    )
    
    $
    (2,690
    )
    
    $
    (1,152
    )
    
    $
    (325
    )
    
    $
    7
    
    
    $
    
 7




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##### 



(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 $1,055 million of reserves were
transferred from CCC to CNAGLA.(c)
    
    Effective October 31, 2002, we sold CNA Reinsurance Company Limited. As a result of the
sale, net reserves were reduced by $1,316 million.  Investments
  Available Information
 http://www.sec.gov
  8




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ITEM 1A. RISK FACTORS
  We may continue to incur significant realized and unrealized investment losses and volatility in
net investment income arising from the severe disruption in the capital and credit markets.
    We may continue to incur underwriting losses as a result of the global economic crisis.
  Our valuation of investments and impairment of securities requires significant judgment.
  9




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We are unable to predict the impact on us of governmental efforts taken and proposed to be taken in
response to the economic and credit crisis.
  We may continue to incur significant losses from our investments in financial institutions.
  Rating agencies may downgrade their ratings of us and thereby adversely affect our ability to write
insurance at competitive rates or at all.
    10




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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 or
unprofitable market areas;
    
    the required use of certain methods of accounting and reporting;
    
    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 private or quasi-governmental insurers;
    
    licensing of insurers and agents;
    
    approval of policy forms;
    
    limitations on the ability of our insurance subsidiaries to pay dividends to us; and
    
    limitations on the ability to non-renew, cancel or change terms and conditions in policies.
   We are subject to capital adequacy requirements and, if we are unable to maintain or raise
sufficient capital to meet these requirements, regulatory agencies may restrict or prohibit us from
operating our business.
   11




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##### 



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.
  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.
   
    
    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.
  12




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##### 



Loss reserves for asbestos and environmental pollution 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;
    
    continuing aggressive tactics of plaintiffs lawyers;
    
    the risks and lack of predictability inherent in major litigation;
    
    changes in the volume of asbestos and environmental pollution claims;
    
    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;
    
    our ability to recover reinsurance for these claims; and
    
    changes in the legal and legislative environment in which we operate.
  Asbestos claims.
 
    
    inconsistency of court decisions and jury attitudes, as well as future court decisions;
    
    interpretation of 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;
 13




---



##### 




    
    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;
    
    the mix of asbestos-related diseases presented; and
    
    the ability to recover reinsurance.
  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.
   We may suffer losses from non-routine litigation and arbitration matters which may exceed the
reserves we have established.
   Catastrophe losses are unpredictable.
  14




---



##### 



Our key assumptions used to determine reserves and deferred acquisition costs for our long term
care product offerings could vary significantly from actual experience.
  We continue to face exposure to losses arising from terrorist acts, despite the passage of the
Terrorism Risk Insurance Program Reauthorization Act of 2007.
  Our premium writings and profitability are affected by the availability and cost of reinsurance.
  We may not be able to collect amounts owed to us by reinsurers.
  15




---



##### 



We face intense competition in our industry and may be adversely affected by the cyclical nature of
the property and casualty business.
  We are dependent on a small number of key executives and other key personnel to operate our
business successfully.
  16




---



##### 



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
    
    845,567
    
    Principal executive offices of CNAF401 Penn Street, Reading, Pennsylvania
    
    170,143
    
    Property and casualty insurance offices2405 Lucien Way, Maitland, Florida
    
    124,946
    
    Property and casualty insurance offices40 Wall Street, New York, New York
    
    107,607
    
    Property and casualty insurance offices1100 Ward Avenue, Honolulu, Hawaii
    
    104,478
    
    Property and casualty insurance offices101 S. Phillips Avenue, Sioux Falls, South Dakota
    
    81,101
    
    Property and casualty insurance offices600 N. Pearl Street, Dallas, Texas
    
    72,240
    
    Property and casualty insurance offices4267 Meridian Parkway, Aurora, Illinois
    
    70,004
    
    Data Center675 Placentia Avenue, Brea, California
    
    64,939
    
    Property and casualty insurance offices1249 South River Road, Cranbury, New Jersey
    
    57,671
    
    Property and casualty insurance offices
  
 ITEM 3. LEGAL PROCEEDINGS
  
 ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
  17




---



##### 



PART II
 
 ITEM 5. MARKET FOR THE REGISTRANTS COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER
PURCHASES OF EQUITY SECURITIES
      Common Stock Information
 2008
    
    2007Dividends
    
    
    
    
    
    
    
    
    
    DividendsHigh
    
    Low
    
    Declared
    
    High
    
    Low
    
    DeclaredQuarter:First
    
    $
    35.04
    
    
    $
    23.01
    
    
    $
    0.15
    
    
    $
    44.29
    
    
    $
    39.09
    
    
    $
    Second
    
    
    32.15
    
    
    
    24.34
    
    
    
    0.15
    
    
    
    51.96
    
    
    
    42.96
    
    
    
    0.10Third
    
    
    30.61
    
    
    
    21.88
    
    
    
    0.15
    
    
    
    49.18
    
    
    
    37.12
    
    
    
    0.10Fourth
    
    
    26.70
    
    
    
    8.50
    
    
    
    
    
    
    
    41.84
    
    
    
    32.26
    
    
    
    0.15
 18




---



##### 



Stock Price Performance Graph
 Company / Index
    
    2003
    
    2004
    
    2005
    
    2006
    
    2007
    
    2008CNA Financial Corporation
    
    
    100.00
    
    
    
    111.00
    
    
    
    135.81
    
    
    
    167.30
    
    
    
    141.12
    
    
    
    69.90S&P 500 Index
    
    
    100.00
    
    
    
    110.88
    
    
    
    116.33
    
    
    
    134.70
    
    
    
    142.10
    
    
    
    89.53S&P 500 Property & Casualty Insurance Index
    
    
    100.00
    
    
    
    110.42
    
    
    
    127.11
    
    
    
    143.47
    
    
    
    123.44
    
    
    
    87.13
 
 19




---



##### 



ITEM 6. SELECTED FINANCIAL DATA
  Selected Financial Data
 As of and for the Years EndedDecember 31(In millions, except per share data)
    
    2008
    
    
    2007
    
    
    2006
    
    
    2005
    
    
    2004Results of Operations:Revenues
    
    $
    7,799
    
    
    $
    9,885
    
    
    $
    10,376
    
    
    $
    9,862
    
    
    $
    9,924Income (loss) from continuing
operations
    
    $
    (308
    )
    
    $
    857
    
    
    $
    1,137
    
    
    $
    243
    
    
    $
    446Income (loss) from discontinued
operations, net of tax
    
    
    9
    
    
    
    (6
    )
    
    
    (29
    )
    
    
    21
    
    
    
    (21
    )Net income (loss)
    
    $
    (299
    )
    
    $
    851
    
    
    $
    1,108
    
    
    $
    264
    
    
    $
    425Basic Earnings (Loss) Per Share:Income (loss) from continuing
operations
    
    $
    (1.21
    )
    
    $
    3.15
    
    
    $
    4.17
    
    
    $
    0.68
    
    
    $
    1.49Income (loss) from discontinued
operations
    
    
    0.03
    
    
    
    (0.02
    )
    
    
    (0.11
    )
    
    
    0.08
    
    
    
    (0.09
    )Basic earnings (loss) per share
available to common stockholders
    
    $
    (1.18
    )
    
    $
    3.13
    
    
    $
    4.06
    
    
    $
    0.76
    
    
    $
    1.40Diluted Earnings (Loss) Per Share:Income (loss) from continuing
operations
    
    $
    (1.21
    )
    
    $
    3.15
    
    
    $
    4.16
    
    
    $
    0.68
    
    
    $
    1.49Income (loss) from discontinued
operations
    
    
    0.03
    
    
    
    (0.02
    )
    
    
    (0.11
    )
    
    
    0.08
    
    
    
    (0.09
    )Diluted earnings (loss) per share
available to common stockholders
    
    $
    (1.18
    )
    
    $
    3.13
    
    
    $
    4.05
    
    
    $
    0.76
    
    
    $
    1.40Dividends declared per common share
    
    $
    0.45
    
    
    $
    0.35
    
    
    $
    
    
    
    $
    
    
    
    $
    Financial Condition:Total investments
    
    $
    35,003
    
    
    $
    41,789
    
    
    $
    44,096
    
    
    $
    39,695
    
    
    $
    39,231Total assets
    
    
    51,688
    
    
    
    56,759
    
    
    
    60,283
    
    
    
    59,016
    
    
    
    62,496Insurance reserves
    
    
    38,771
    
    
    
    40,222
    
    
    
    41,080
    
    
    
    42,436
    
    
    
    43,653Long and short term debt
    
    
    2,058
    
    
    
    2,157
    
    
    
    2,156
    
    
    
    1,690
    
    
    
    2,257Stockholders equity
    
    
    6,877
    
    
    
    10,150
    
    
    
    9,768
    
    
    
    8,950
    
    
    
    8,974Book value per common share
    
    $
    20.92
    
    
    $
    37.36
    
    
    $
    36.03
    
    
    $
    31.26
    
    
    $
    31.63Statutory Surplus (preliminary):Property and casualty companies (a)
    
    $
    8,002
    
    
    $
    8,511
    
    
    $
    8,137
    
    
    $
    6,940
    
    
    $
    6,998Life company
    
    
    487
    
    
    
    471
    
    
    
    687
    
    
    
    627
    
    
    
    1,177
 (a)
    
    Surplus includes the property and casualty companies equity ownership of the life companys
capital and surplus. 20




---



##### 



ITEM 7. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
 Overview
  Index to this MD&A
  Page No.Consolidated Operations
    
    22Critical Accounting Estimates
    
    25Reserves  Estimates and Uncertainties
    
    27Segment Results
    
    33Standard Lines
    
    34Specialty Lines
    
    37Life & Group Non-Core
    
    40Corporate & Other Non-Core
    
    41Asbestos and Environmental Pollution (A&E) Reserves
    
    42Investments
    
    48Net Investment Income
    
    48Net Realized Investment Gains (Losses)
    
    49Gross Unrealized Losses
    
    51Duration
    
    54Asset-Backed and Sub-prime Mortgage Exposure
    
    55Short Term Investments
    
    56Separate Accounts
    
    56Liquidity and Capital Resources
    
    57Cash Flows
    
    57Common Stock Dividends
    
    58Share Repurchases
    
    58Liquidity
    
    58Commitments, Contingencies, and Guarantees
    
    59Ratings
    
    59Accounting Pronouncements
    
    60Forward-Looking Statements
    
    61
 21




---



##### 



CONSOLIDATED OPERATIONS
 Results of Operations
  Years ended December 31(In millions, except per share data)
    
    2008
    
    
    2007
    
    
    2006RevenuesNet earned premiums
    
    $
    7,151
    
    
    $
    7,484
    
    
    $
    7,603Net investment income
    
    
    1,619
    
    
    
    2,433
    
    
    
    2,412Other revenues
    
    
    326
    
    
    
    279
    
    
    
    275Total operating revenues
    
    
    9,096
    
    
    
    10,196
    
    
    
    10,290Claims, Benefits and ExpensesNet incurred claims and benefits
    
    
    5,703
    
    
    
    5,995
    
    
    
    6,025Policyholders dividends
    
    
    20
    
    
    
    14
    
    
    
    22Amortization of deferred acquisition costs
    
    
    1,467
    
    
    
    1,520
    
    
    
    1,534Other insurance related expenses
    
    
    694
    
    
    
    733
    
    
    
    757Restructuring and other related charges
    
    
    
    
    
    
    
    
    
    
    (13
    )Other expenses
    
    
    477
    
    
    
    401
    
    
    
    401Total claims, benefits and expenses
    
    
    8,361
    
    
    
    8,663
    
    
    
    8,726Operating income from continuing operations before income tax and
minority interest
    
    
    735
    
    
    
    1,533
    
    
    
    1,564Income tax expense on operating income
    
    
    (145
    )
    
    
    (425
    )
    
    
    (450
    )Minority interest
    
    
    (57
    )
    
    
    (48
    )
    
    
    (44
    )Net operating income from continuing operations
    
    
    533
    
    
    
    1,060
    
    
    
    1,070Realized investment gains (losses), net of participating
policyholders and minority interests
    
    
    (1,297
    )
    
    
    (311
    )
    
    
    86Income tax (expense) benefit on realized investment gains (losses)
    
    
    456
    
    
    
    108
    
    
    
    (19
    )Income (loss) from continuing operations
    
    
    (308
    )
    
    
    857
    
    
    
    1,137Income (loss) from discontinued operations, net of income tax (expense)
benefit of $9, $0 and $7
    
    
    9
    
    
    
    (6
    )
    
    
    (29
    )Net income (loss)
    
    $
    (299
    )
    
    $
    851
    
    
    $
    1,108Basic Earnings (Loss) Per ShareIncome (loss) from continuing operations
    
    $
    (1.21
    )
    
    $
    3.15
    
    
    $
    4.17Income (loss) from discontinued operations
    
    
    0.03
    
    
    
    (0.02
    )
    
    
    (0.11
    )Basic earnings (loss) per share available to common stockholders
    
    $
    (1.18
    )
    
    $
    3.13
    
    
    $
    4.06Diluted Earnings (Loss) Per ShareIncome (loss) from continuing operations
    
    $
    (1.21
    )
    
    $
    3.15
    
    
    $
    4.16Income (loss) from discontinued operations
    
    
    0.03
    
    
    
    (0.02
    )
    
    
    (0.11
    )Diluted earnings (loss) per share available to common stockholders
    
    $
    (1.18
    )
    
    $
    3.13
    
    
    $
    4.05Weighted Average Outstanding Common Stock and Common Stock EquivalentsBasic
    
    
    269.4
    
    
    
    271.5
    
    
    
    262.1Diluted
    
    
    269.4
    
    
    
    271.8
    
    
    
    262.3
 22




---



##### 



2008 Compared with 2007
       2007 Compared with 2006
    23




---



##### 



24




---



##### 



Critical Accounting Estimates
    Insurance Reserves
  Reinsurance
  Valuation of Investments and Impairment of Securities
   25




---



##### 



Long Term Care Products
  Pension and Postretirement Benefit Obligations
     Legal Proceedings
  Income Taxes
  26




---



##### 



Reserves - Estimates and Uncertainties
    
    
    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 directors and officers (D&O) and errors and omissions (E&O) 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.
  
    
    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 A&E claims;
    
    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 A&E claims.
 27




---



##### 



Establishing Reserve Estimates
   28




---



##### 




    
    Paid Development,
 
    
    Incurred Development,
 
    
    Loss Ratio,
 
    
    Bornhuetter-Ferguson Using Premiums and Paid Loss,
 
    
    Bornhuetter-Ferguson Using Premiums and Incurred Loss, and
 
    
    Average Loss.
      29




---



##### 



Periodic Reserve Reviews
  30




---



##### 



31




---



##### 



32




---



##### 



Segment Results
      33




---



##### 



STANDARD LINES
 Business Overview
  Business Commercial
  Results of Operations
 Years ended December 31
    
    2008
    
    
    2007
    
    
    2006(In millions)Net written premiums
    
    $
    3,054
    
    
    $
    3,267
    
    
    $
    3,598Net earned premiums
    
    
    3,065
    
    
    
    3,379
    
    
    
    3,557Net investment income
    
    
    506
    
    
    
    878
    
    
    
    840Net operating income
    
    
    221
    
    
    
    602
    
    
    
    446Net realized investment gains (losses), after-tax
    
    
    (317
    )
    
    
    (97
    )
    
    
    48Net income (loss)
    
    
    (96
    )
    
    
    505
    
    
    
    494RatiosLoss and loss adjustment expense
    
    
    75.4
    %
    
    
    67.4
    %
    
    
    72.5
    %Expense
    
    
    31.6
    
    
    
    32.5
    
    
    
    31.6Dividend
    
    
    
    
    
    
    0.2
    
    
    
    0.5Combined
    
    
    107.0
    %
    
    
    100.1
    %
    
    
    104.6
    %
 2008 Compared with 2007
     34




---



##### 



Gross and Net Carried
Claim and Claim Adjustment Expense Reserves
 December 31
    
    2008
    
    
    2007(In millions)Gross Case Reserves
    
    $
    6,158
    
    
    $
    5,988Gross IBNR Reserves
    
    
    5,890
    
    
    
    6,060Total Gross Carried Claim and Claim Adjustment Expense Reserves
    
    $
    12,048
    
    
    $
    12,048Net Case Reserves
    
    $
    4,995
    
    
    $
    4,750Net IBNR Reserves
    
    
    4,875
    
    
    
    5,170Total Net Carried Claim and Claim Adjustment Expense Reserves
    
    $
    9,870
    
    
    $
    9,920
 2007 Compared with 2006
     35




---



##### 



36




---



##### 



SPECIALTY LINES
 Business Overview
   U.S. Specialty Lines
   Surety
 Warranty
 CNA Global
 37




---



##### 



Results of Operations
 Years ended December 31
    
    2008
    
    
    2007
    
    
    2006(In millions)Net written premiums
    
    $
    3,435
    
    
    $
    3,506
    
    
    $
    3,431Net earned premiums
    
    
    3,477
    
    
    
    3,484
    
    
    
    3,411Net investment income
    
    
    451
    
    
    
    621
    
    
    
    554Net operating income
    
    
    482
    
    
    
    619
    
    
    
    635Net realized investment gains (losses), after-tax
    
    
    (185
    )
    
    
    (53
    )
    
    
    25Net income
    
    
    297
    
    
    
    566
    
    
    
    660RatiosLoss and loss adjustment expense
    
    
    61.9
    %
    
    
    62.8
    %
    
    
    60.4
    %Expense
    
    
    27.8
    
    
    
    26.7
    
    
    
    27.4Dividend
    
    
    0.4
    
    
    
    0.2
    
    
    
    0.1Combined
    
    
    90.1
    %
    
    
    89.7
    %
    
    
    87.9
    %
 2008 Compared with 2007
        38




---



##### 



Gross and Net Carried
Claim and Claim Adjustment Expense Reserves
 December 31
    
    2008
    
    
    2007(In millions)Gross Case Reserves
    
    $
    2,719
    
    
    $
    2,585Gross IBNR Reserves
    
    
    5,563
    
    
    
    5,818Total Gross Carried Claim and Claim Adjustment Expense Reserves
    
    $
    8,282
    
    
    $
    8,403Net Case Reserves
    
    $
    2,149
    
    
    $
    2,090Net IBNR Reserves
    
    
    4,694
    
    
    
    4,527Total Net Carried Claim and Claim Adjustment Expense Reserves
    
    $
    6,843
    
    
    $
    6,617
 2007 Compared with 2006
        39




---



##### 



LIFE & GROUP NON-CORE
 Business Overview
   Results of Operations
 Years ended December 31
    
    2008
    
    2007
    
    2006(In millions)Net earned premiums
    
    $
    612
    
    
    $
    618
    
    
    $
    641Net investment income
    
    
    484
    
    
    
    622
    
    
    
    698Net operating loss
    
    
    (108
    )
    
    
    (159
    )
    
    
    (14
    )Net realized investment losses, after-tax
    
    
    (236
    )
    
    
    (36
    )
    
    
    (33
    )Net loss
    
    
    (344
    )
    
    
    (195
    )
    
    
    (47
    )
 2008 Compared with 2007
    2007 Compared with 2006
   40




---



##### 



CORPORATE & OTHER NON-CORE
 Overview
   Results of Operations
 Years ended December 31
    
    2008
    
    2007
    
    2006(In millions)Net investment income
    
    $
    178
    
    
    $
    312
    
    
    $
    320Revenues
    
    
    30
    
    
    
    298
    
    
    
    355Net operating income (loss)
    
    
    (62
    )
    
    
    (2
    )
    
    
    3Net realized investment gains (losses), after-tax
    
    
    (103
    )
    
    
    (17
    )
    
    
    27Net income (loss)
    
    
    (165
    )
    
    
    (19
    )
    
    
    30
 2008 Compared with 2007
     Gross and Net Carried
Claim and Claim Adjustment Expense Reserves
 December 31
    
    2008
    
    
    2007(In millions)Gross Case Reserves
    
    $
    1,823
    
    
    $
    2,159Gross IBNR Reserves
    
    
    2,578
    
    
    
    2,951Total Gross Carried Claim and Claim Adjustment Expense Reserves
    
    $
    4,401
    
    
    $
    5,110Net Case Reserves
    
    $
    1,126
    
    
    $
    1,328Net IBNR Reserves
    
    
    1,561
    
    
    
    1,787Total Net Carried Claim and Claim Adjustment Expense Reserves
    
    $
    2,687
    
    
    $
    3,115
 41




---



##### 



2007 Compared with 2006
    A&E Reserves
      42




---



##### 



A&E Reserves
 December 31, 2008
    
    
    December 31, 2007Environmental
    
    
    
    
    
    
    EnvironmentalAsbestos
    
    
    Pollution
    
    
    Asbestos
    
    
    Pollution(In millions)Gross reserves
    
    $
    2,112
    
    
    $
    392
    
    
    $
    2,352
    
    
    $
    367Ceded reserves
    
    
    (910
    )
    
    
    (130
    )
    
    
    (1,030
    )
    
    
    (125
    )Net reserves
    
    $
    1,202
    
    
    $
    262
    
    
    $
    1,322
    
    
    $
    242
 Asbestos
     43




---



##### 



Pending Asbestos Accounts and Associated Reserves
 Net Paid Losses
    
    
    Net Asbestos
    
    
    Percent ofNumber of
    
    
    in 2008
    
    
    Reserves
    
    
    AsbestosPolicyholders
    
    
    (In millions)
    
    
    (In millions)
    
    
    Net ReservesDecember 31, 2008Policyholders with settlement agreementsStructured settlements
    
    
    18
    
    
    $
    17
    
    
    $
    133
    
    
    
    11
    %Wellington
    
    
    3
    
    
    
    1
    
    
    
    11
    
    
    
    1Coverage in place
    
    
    36
    
    
    
    16
    
    
    
    94
    
    
    
    8Total with settlement agreements
    
    
    57
    
    
    
    34
    
    
    
    238
    
    
    
    20Other policyholders with active accountsLarge asbestos accounts
    
    
    236
    
    
    
    62
    
    
    
    234
    
    
    
    19Small asbestos accounts
    
    
    1,009
    
    
    
    32
    
    
    
    91
    
    
    
    8Total other policyholders
    
    
    1,245
    
    
    
    94
    
    
    
    325
    
    
    
    27Assumed reinsurance and pools
    
    
    
    
    
    
    19
    
    
    
    114
    
    
    
    9Unassigned IBNR
    
    
    
    
    
    
    
    
    
    
    525
    
    
    
    44Total
    
    
    1,302
    
    
    $
    147
    
    
    $
    1,202
    
    
    
    100
    %
 44




---



##### 



Pending Asbestos Accounts and Associated Reserves
 Net Paid Losses
    
    
    Net Asbestos
    
    
    Percent ofNumber of
    
    
    in 2007
    
    
    Reserves
    
    
    AsbestosDecember 31, 2007
    
    Policyholders
    
    
    (In millions)
    
    
    (In millions)
    
    
    Net ReservesPolicyholders with settlement agreementsStructured settlements
    
    
    14
    
    
    $
    29
    
    
    $
    151
    
    
    
    11
    %Wellington
    
    
    3
    
    
    
    1
    
    
    
    12
    
    
    
    1Coverage in place
    
    
    34
    
    
    
    38
    
    
    
    100
    
    
    
    8Total with settlement agreements
    
    
    51
    
    
    
    68
    
    
    
    263
    
    
    
    20Other policyholders with active accountsLarge asbestos accounts
    
    
    233
    
    
    
    45
    
    
    
    237
    
    
    
    18Small asbestos accounts
    
    
    1,005
    
    
    
    15
    
    
    
    93
    
    
    
    7Total other policyholders
    
    
    1,238
    
    
    
    60
    
    
    
    330
    
    
    
    25Assumed reinsurance and pools
    
    
    
    
    
    
    8
    
    
    
    133
    
    
    
    10Unassigned IBNR
    
    
    
    
    
    
    
    
    
    
    596
    
    
    
    45Total
    
    
    1,289
    
    
    $
    136
    
    
    $
    1,322
    
    
    
    100
    %
   45




---



##### 



Environmental
Pollution
         46




---



##### 



Pending Environmental Pollution Accounts and Associated Reserves
 NetEnvironmental
    
    
    Percent ofNet Paid Losses
    
    
    Pollution
    
    
    EnvironmentalNumber of
    
    
    in 2008
    
    
    Reserves
    
    
    Pollution NetDecember 31, 2008
    
    Policyholders
    
    
    (In millions)
    
    
    (In millions)
    
    
    ReservePolicyholders with settlement agreementsStructured settlements
    
    
    16
    
    
    $
    5
    
    
    $
    9
    
    
    
    4
    %Coverage in place
    
    
    16
    
    
    
    3
    
    
    
    13
    
    
    
    5Total with settlement agreements
    
    
    32
    
    
    
    8
    
    
    
    22
    
    
    
    9Other policyholders with active accountsLarge pollution accounts
    
    
    116
    
    
    
    40
    
    
    
    48
    
    
    
    18Small pollution accounts
    
    
    320
    
    
    
    11
    
    
    
    41
    
    
    
    16Total other policyholders
    
    
    436
    
    
    
    51
    
    
    
    89
    
    
    
    34Assumed reinsurance and pools
    
    
    
    
    
    
    4
    
    
    
    27
    
    
    
    10Unassigned IBNR
    
    
    
    
    
    
    
    
    
    
    124
    
    
    
    47Total
    
    
    468
    
    
    $
    63
    
    
    $
    262
    
    
    
    100
    %
 Pending Environmental Pollution Accounts and Associated Reserves
 NetEnvironmental
    
    
    Percent ofNet Paid Losses
    
    
    Pollution
    
    
    EnvironmentalNumber of
    
    
    in 2007
    
    
    Reserves
    
    
    Pollution NetDecember 31, 2007
    
    Policyholders
    
    
    (In millions)
    
    
    (In millions)
    
    
    ReservePolicyholders with settlement agreementsStructured settlements
    
    
    10
    
    
    $
    9
    
    
    $
    6
    
    
    
    2
    %Coverage in place
    
    
    18
    
    
    
    8
    
    
    
    14
    
    
    
    6Total with settlement agreements
    
    
    28
    
    
    
    17
    
    
    
    20
    
    
    
    8Other policyholders with active accountsLarge pollution accounts
    
    
    112
    
    
    
    17
    
    
    
    53
    
    
    
    22Small pollution accounts
    
    
    298
    
    
    
    9
    
    
    
    42
    
    
    
    17Total other policyholders
    
    
    410
    
    
    
    26
    
    
    
    95
    
    
    
    39Assumed reinsurance and pools
    
    
    
    
    
    
    1
    
    
    
    31
    
    
    
    13Unassigned IBNR
    
    
    
    
    
    
    
    
    
    
    96
    
    
    
    40Total
    
    
    438
    
    
    $
    44
    
    
    $
    242
    
    
    
    100
    %
 47




---



##### 



INVESTMENTS
   Net Investment Income
  Net Investment Income
 Years ended December 31
    
    2008
    
    
    2007
    
    
    2006(In millions)Fixed maturity securities
    
    $
    1,984
    
    
    $
    2,047
    
    
    $
    1,842Short term investments
    
    
    115
    
    
    
    186
    
    
    
    248Limited partnerships
    
    
    (379
    )
    
    
    183
    
    
    
    288Equity securities
    
    
    80
    
    
    
    25
    
    
    
    23Income (loss) from trading portfolio (a)
    
    
    (149
    )
    
    
    10
    
    
    
    103Interest on funds withheld and other deposits
    
    
    (2
    )
    
    
    (1
    )
    
    
    (68
    )Other
    
    
    21
    
    
    
    36
    
    
    
    18Gross investment income
    
    
    1,670
    
    
    
    2,486
    
    
    
    2,454Investment expense
    
    
    (51
    )
    
    
    (53
    )
    
    
    (42
    )Net investment income
    
    $
    1,619
    
    
    $
    2,433
    
    
    $
    2,412
 
 (a)
    
    The change in net unrealized gains (losses) on trading securities included in Net investment
income was $3 million and $(15) million for the years ended December 31, 2008 and 2007. There
was no change in net unrealized gains (losses) on trading securities included in Net
investment income for the year ended December 31, 2006.     48




---



##### 



Net Realized Investment Gains (Losses)
  Net Realized Investment Gains (Losses)
 Years ended December 31
    
    2008
    
    
    2007
    
    
    2006(In millions)Fixed maturity securities:U.S. Government bonds
    
    $
    235
    
    
    $
    86
    
    
    $
    62Corporate and other taxable bonds
    
    
    (643
    )
    
    
    (183
    )
    
    
    (98
    )Tax-exempt bonds
    
    
    53
    
    
    
    3
    
    
    
    53Asset-backed bonds
    
    
    (476
    )
    
    
    (343
    )
    
    
    (9
    )Redeemable preferred stock
    
    
    
    
    
    
    (41
    )
    
    
    (3
    )Total fixed maturity securities
    
    
    (831
    )
    
    
    (478
    )
    
    
    5Equity securities
    
    
    (490
    )
    
    
    117
    
    
    
    16Derivative securities
    
    
    (19
    )
    
    
    32
    
    
    
    18Short term investments
    
    
    34
    
    
    
    7
    
    
    
    (5
    )Other
    
    
    9
    
    
    
    11
    
    
    
    52Realized investment gains
(losses), net of participating
policyholders and minority
interests
    
    
    (1,297
    )
    
    
    (311
    )
    
    
    86Income tax (expense) benefit
    
    
    456
    
    
    
    108
    
    
    
    (19
    )Net realized investment gains
(losses), net of participating
policyholders and minority
interests
    
    $
    (841
    )
    
    $
    (203
    )
    
    $
    67
  49




---



##### 



Largest Realized Investment Losses from Securities Sold at a Loss
 Year ended December 31, 2008
 Fair
    
    
    
    
    
    
    Months inValue at
    
    
    
    
    
    
    UnrealizedDate of
    
    
    Loss
    
    
    Loss PriorIssuer Description and Discussion
    
    Sale
    
    
    On Sale
    
    
    To Sale (a)(In millions)Various notes and bonds issued by the United States Treasury.
Securities sold due to outlook on interest rates.
    
    $
    10,663
    
    
    $
    106
    
    
    
    0-6Non-redeemable preferred stock of Federal National Mortgage
Association. The company is now in conservatorship.
    
    
    6
    
    
    
    51
    
    
    
    0-12
    +Fixed income securities of an investment banking firm that filed
bankruptcy causing the fair value of the securities to decline
rapidly.
    
    
    37
    
    
    
    41
    
    
    
    0-12Non-redeemable preferred stock of Federal Home Loan Mortgage
Corporation. The company is now in conservatorship.
    
    
    3
    
    
    
    27
    
    
    
    0-12Mortgage backed pass-through securities were sold based on
deteriorating performance of the underlying loans and the
resulting rapid market price decline.
    
    
    36
    
    
    
    18
    
    
    
    0-6Fixed income securities of a provider of wireless and wire line
communication services. Securities were sold to reduce exposure
because the company announced a significant shortfall in
operating results, causing significant credit deterioration
which resulted in a rating downgrade.
    
    
    41
    
    
    
    17
    
    
    
    0-12$
    10,786
    
    
    $
    260
 (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. 50




---



##### 



Gross Unrealized Losses
  Unrealized Loss Aging for Fixed Income Securities
 Fair Value as a Percentage of Amortized CostEstimated
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    GrossUnrealizedDecember 31, 2008
    
    Fair Value
    
    
    90-99%
    
    
    80-89%
    
    
    70-79%
    
    
    60-69%
    
    
    50-59%
    
    
    40-49%
    
    
    <40%
    
    
    Loss(In millions)Investment grade:0-6 months
    
    $
    6,749
    
    
    $
    169
    
    
    $
    264
    
    
    $
    167
    
    
    $
    58
    
    
    $
    7
    
    
    $
    11
    
    
    $
    5
    
    
    $
    6817-11 months
    
    
    6,159
    
    
    
    126
    
    
    
    376
    
    
    
    315
    
    
    
    364
    
    
    
    262
    
    
    
    118
    
    
    
    30
    
    
    
    1,59112-24 months
    
    
    3,549
    
    
    
    55
    
    
    
    143
    
    
    
    128
    
    
    
    355
    
    
    
    449
    
    
    
    230
    
    
    
    443
    
    
    
    1,803Greater than 24 months
    
    
    1,778
    
    
    
    27
    
    
    
    67
    
    
    
    151
    
    
    
    68
    
    
    
    52
    
    
    
    8
    
    
    
    136
    
    
    
    509Total
investment grade
    
    $
    18,235
    
    
    $
    377
    
    
    $
    850
    
    
    $
    761
    
    
    $
    845
    
    
    $
    770
    
    
    $
    367
    
    
    $
    614
    
    
    $
    4,584Non-investment grade:0-6
months
    
    $
    853
    
    
    $
    10
    
    
    $
    47
    
    
    $
    93
    
    
    $
    50
    
    
    $
    44
    
    
    $
    16
    
    
    $
    30
    
    
    $
    2907-11 months
    
    
    374
    
    
    
    1
    
    
    
    20
    
    
    
    43
    
    
    
    40
    
    
    
    33
    
    
    
    19
    
    
    
    17
    
    
    
    17312-24 months
    
    
    1,078
    
    
    
    3
    
    
    
    30
    
    
    
    83
    
    
    
    193
    
    
    
    94
    
    
    
    203
    
    
    
    41
    
    
    
    647Greater than 24 months
    
    
    12
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    5
    
    
    
    
    
    
    
    2
    
    
    
    
    
    
    
    7Total
non-investment grade
    
    $
    2,317
    
    
    $
    14
    
    
    $
    97
    
    
    $
    219
    
    
    $
    288
    
    
    $
    171
    
    
    $
    240
    
    
    $
    88
    
    
    $
    1,117Total
    
    $
    20,552
    
    
    $
    391
    
    
    $
    947
    
    
    $
    980
    
    
    $
    1,133
    
    
    $
    941
    
    
    $
    607
    
    
    $
    702
    
    
    $
    5,701
 51




---



##### 



Unrealized Loss Aging for Fixed Income Securities
 Fair Value as a Percentage of Amortized CostEstimated
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    GrossUnrealizedDecember 31, 2007
    
    Fair Value
    
    
    90-99%
    
    
    80-89%
    
    
    70-79%
    
    
    60-69%
    
    
    50-59%
    
    
    40-49%
    
    
    <40%
    
    
    Loss(In millions)Investment grade:0-6 months
    
    $
    4,771
    
    
    $
    100
    
    
    $
    42
    
    
    $
    29
    
    
    $
    26
    
    
    $
    25
    
    
    $
    6
    
    
    $
    
    
    
    $
    2287-11 months
    
    
    1,584
    
    
    
    35
    
    
    
    81
    
    
    
    17
    
    
    
    25
    
    
    
    13
    
    
    
    7
    
    
    
    15
    
    
    
    19312-24 months
    
    
    690
    
    
    
    21
    
    
    
    2
    
    
    
    10
    
    
    
    7
    
    
    
    8
    
    
    
    9
    
    
    
    
    
    
    
    57Greater than 24 months
    
    
    3,869
    
    
    
    88
    
    
    
    42
    
    
    
    8
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    138Total
investment grade
    
    $
    10,914
    
    
    $
    244
    
    
    $
    167
    
    
    $
    64
    
    
    $
    58
    
    
    $
    46
    
    
    $
    22
    
    
    $
    15
    
    
    $
    616Non-investment grade:0-6 months
    
    $
    1,527
    
    
    $
    56
    
    
    $
    14
    
    
    $
    3
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    737-11 months
    
    
    125
    
    
    
    6
    
    
    
    2
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    812-24 months
    
    
    26
    
    
    
    1
    
    
    
    1
    
    
    
    1
    
    
    
    1
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    4Greater than 24 months
    
    
    9
    
    
    
    1
    
    
    
    1
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2Total
non-investment grade
    
    $
    1,687
    
    
    $
    64
    
    
    $
    18
    
    
    $
    4
    
    
    $
    1
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    87Total
    
    $
    12,601
    
    
    $
    308
    
    
    $
    185
    
    
    $
    68
    
    
    $
    59
    
    
    $
    46
    
    
    $
    22
    
    
    $
    15
    
    
    $
    703
 52




---



##### 



Maturity Profile
 Percent of
 Fair
    
    
    Percent ofUnrealizedValue
    
    
    LossDue in one year or less
    
    
    11
    %
    
    
    8
    %Due after one year through five years
    
    
    31
    
    
    
    21Due after five years through ten years
    
    
    14
    
    
    
    21Due after ten years
    
    
    44
    
    
    
    50Total
    
    
    100
    %
    
    
    100
    %
  Fixed Income Bond Ratings
 December 31
    
    2008
    
    
    %
    
    
    2007
    
    
    %(In millions)U.S. Government and affiliated agency securities
    
    $
    2,993
    
    
    
    11
    %
    
    $
    816
    
    
    
    3
    %Other AAA rated
    
    
    10,112
    
    
    
    35
    
    
    
    16,728
    
    
    
    50AA and A rated
    
    
    8,166
    
    
    
    28
    
    
    
    6,326
    
    
    
    19BBB rated
    
    
    5,000
    
    
    
    17
    
    
    
    5,713
    
    
    
    17Non-investment grade
    
    
    2,569
    
    
    
    9
    
    
    
    3,616
    
    
    
    11Total
    
    $
    28,840
    
    
    
    100
    %
    
    $
    33,199
    
    
    
    100
    %
  53




---



##### 



Duration
     Effective Durations
 December 31, 2008
    
    
    December 31, 2007Effective Duration
    
    
    
    
    
    
    Effective DurationFair Value
    
    
    (In years)
    
    
    Fair Value
    
    
    (In years)(In millions)Segregated investments
    
    $
    8,168
    
    
    
    9.9
    
    
    $
    9,211
    
    
    
    10.7Other interest sensitive investments
    
    
    25,194
    
    
    
    4.5
    
    
    
    29,406
    
    
    
    3.3Total
    
    $
    33,362
    
    
    
    5.8
    
    
    $
    38,617
    
    
    
    5.1
  54




---



##### 



Asset-Backed Mortgage Exposure
 Asset-Backed Distribution
 Security TypePercent
    
    
    Percentof Total
    
    
    of TotalDecember 31, 2008
    
    MBS(a)
    
    
    CMO(b)
    
    
    ABS(c)
    
    
    CDO(d)
    
    
    Total
    
    
    Security Type
    
    
    Investments(In millions)U.S. Government Agencies
    
    $
    408
    
    
    $
    1,273
    
    
    $
    
    
    
    $
    
    
    
    $
    1,681
    
    
    
    22
    %
    
    
    4
    %AAA
    
    
    
    
    
    
    3,249
    
    
    
    1,672
    
    
    
    3
    
    
    
    4,924
    
    
    
    63
    
    
    
    14AA
    
    
    
    
    
    
    187
    
    
    
    190
    
    
    
    6
    
    
    
    383
    
    
    
    5
    
    
    
    1A
    
    
    
    
    
    
    80
    
    
    
    96
    
    
    
    28
    
    
    
    204
    
    
    
    3
    
    
    
    1BBB
    
    
    
    
    
    
    92
    
    
    
    230
    
    
    
    2
    
    
    
    324
    
    
    
    4
    
    
    
    1Non-investment grade and equity tranches
    
    
    
    
    
    
    213
    
    
    
    27
    
    
    
    8
    
    
    
    248
    
    
    
    3
    
    
    
    1Total Fair Value
    
    $
    408
    
    
    $
    5,094
    
    
    $
    2,215
    
    
    $
    47
    
    
    $
    7,764
    
    
    
    100
    %
    
    
    22
    %Total Amortized Cost
    
    $
    405
    
    
    $
    6,181
    
    
    $
    2,887
    
    
    $
    197
    
    
    $
    9,670Percent of total fair value by security type
    
    
    5
    %
    
    
    65
    %
    
    
    29
    %
    
    
    1
    %
    
    
    100
    %Sub-prime (included above)Fair Value
    
    $
    
    
    
    $
    
    
    
    $
    1,163
    
    
    $
    1
    
    
    $
    1,164
    
    
    
    15
    %
    
    
    3
    %Amortized Cost
    
    $
    
    
    
    $
    
    
    
    $
    1,477
    
    
    $
    31
    
    
    $
    1,508
    
    
    
    16
    %
    
    
    4
    %Alt-A (included above)Fair Value
    
    $
    
    
    
    $
    898
    
    
    $
    
    
    
    $
    3
    
    
    $
    901
    
    
    
    12
    %
    
    
    3
    %Amortized Cost
    
    $
    
    
    
    $
    1,229
    
    
    $
    
    
    
    $
    8
    
    
    $
    1,237
    
    
    
    13
    %
    
    
    3
    %
 (a)
    
    Mortgage-backed securities (MBS)(b)
    
    Collateralized mortgage obligations (CMO)(c)
    
    Asset-backed securities (ABS)(d)
    
    Collateralized debt obligations (CDO)    55




---



##### 



Short Term Investments
  Short Term Investments
 December 31
    
    2008
    
    
    2007(In millions)Short term investments available-for-sale:Commercial paper
    
    $
    563
    
    
    $
    3,040U.S. Treasury securities
    
    
    2,258
    
    
    
    577Money market funds
    
    
    329
    
    
    
    72Other, including collateral held related to securities lending
    
    
    384
    
    
    
    808Total short term investments available-for-sale
    
    
    3,534
    
    
    
    4,497Short term investments trading:Commercial paper
    
    
    
    
    
    
    35Money market funds
    
    
    
    
    
    
    139Other
    
    
    
    
    
    
    6Total short term investments trading
    
    
    
    
    
    
    180Total short term investments
    
    $
    3,534
    
    
    $
    4,677
 Separate Accounts
  Separate Account Bond Ratings
 December 31
    
    2008
    
    
    %
    
    
    2007
    
    
    %(In millions)AAA rated
    
    $
    120
    
    
    
    35
    %
    
    $
    122
    
    
    
    29
    %AA and A rated
    
    
    148
    
    
    
    43
    
    
    
    224
    
    
    
    54BBB rated
    
    
    74
    
    
    
    22
    
    
    
    73
    
    
    
    17Non-investment grade
    
    
    1
    
    
    
    
    
    
    
    
    
    
    
    Total
    
    $
    343
    
    
    
    100
    %
    
    $
    419
    
    
    
    100
    %
  56




---



##### 



LIQUIDITY AND CAPITAL RESOURCES
  
    
    In October 2008, we suspended our quarterly dividend payment to common stockholders.
    
    In November 2008, we issued, and Loews Corporation (Loews) purchased, 12,500 shares of
our non-voting cumulative preferred stock (2008 Senior Preferred) for $1.25 billion.
    
    We used the majority of the proceeds from the 2008 Senior Preferred to increase the
statutory surplus of our principal insurance subsidiary, Continental Casualty Company
(CCC), through the purchase of a $1.0 billion surplus note of CCC.
    
    In November 2008, we borrowed $250 million on an existing credit facility and used $200
million of the proceeds to retire senior notes that matured in December 2008.
    
    In December 2008, we contributed $500 million of cash and short term investments from
our holding company to CCC.
    
    We requested and received approval for a statutory permitted practice related to the
recognition of deferred tax assets which increased statutory surplus of CCC by
approximately $700 million as of December 31, 2008. The permitted practice will remain in
effect for the first, second and third quarter 2009 reporting periods.
  Cash Flows
      57




---



##### 



Common Stock Dividends
  Share Repurchases
  Liquidity
  
    
    We do not anticipate changes in our core property and casualty commercial insurance
operations which would significantly impact liquidity and we continue to maintain
reinsurance contracts which limit the impact of potential catastrophic events.
    
    We have entered into several settlement agreements and assumed reinsurance contracts
that require collateralization of future payment obligations and assumed reserves if our
ratings or other specific criteria fall below certain thresholds. The ratings triggers
are generally more than one level below our current ratings. A downgrade below our
current ratings levels would also result in additional collateral requirements for
derivative contracts for which we are in a liability position at any given point in time.
As of December 31, 2008, the total potential collateralization requirements amounted to
approximately $85 million.
    
    As of December 31, 2008, our holding company held short term investments of $539
million. Our holding companys ability to meet its debt service and other obligations is
significantly dependent on receipt of dividends from our subsidiaries. As discussed
further in Note L of the Consolidated Financial Statements included under Item 8, the
payment of dividends to us by our insurance subsidiaries without prior approval of the
insurance department of each subsidiarys domiciliary jurisdiction is limited by formula.
Notwithstanding this limitation, we believe that our holding company has sufficient
liquidity to fund our preferred stock dividend and debt service payments in 2009.
  58




---



##### 



Commitments, Contingencies, and Guarantees
   Contractual Commitments
 December 31, 2008
    
    Total
    
    
    Less than 1 year
    
    
    1-3 years
    
    
    3-5 years
    
    
    More than 5 years(In millions)Debt (a)
    
    $
    2,980
    
    
    $
    123
    
    
    $
    644
    
    
    $
    503
    
    
    $
    1,710Lease obligations
    
    
    204
    
    
    
    41
    
    
    
    70
    
    
    
    54
    
    
    
    39Claim and claim expense reserves (b)
    
    
    29,104
    
    
    
    6,425
    
    
    
    8,087
    
    
    
    4,210
    
    
    
    10,382Future policy benefits reserves (c)
    
    
    11,956
    
    
    
    176
    
    
    
    342
    
    
    
    327
    
    
    
    11,111Policyholder funds reserves (c)
    
    
    207
    
    
    
    24
    
    
    
    10
    
    
    
    4
    
    
    
    169Guaranteed payment contracts (d)
    
    
    17
    
    
    
    16
    
    
    
    1
    
    
    
    
    
    
    
    Preferred stock dividends (e)
    
    
    625
    
    
    
    125
    
    
    
    250
    
    
    
    250
    
    
    
    Total (f)
    
    $
    45,093
    
    
    $
    6,930
    
    
    $
    9,404
    
    
    $
    5,348
    
    
    $
    23,411
 (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 gross claims based on
our assessment of facts and circumstances known as of December 31, 2008. 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, 2008. Future policy benefit
reserves of $810 million and policyholder fund reserves of $38 million related to business
which has been 100% ceded to unaffiliated parties in connection with the sale of our
individual life business in 2004 are not included. Additional information on future policy
benefits and policyholder funds reserves is included in Note A of the Consolidated Financial
Statements under Item 8.(d)
    
    Primarily relating to telecommunications and software services.(e)
    
    Our preferred stock has a dividend rate of 10% due quarterly. We have reflected the dividend
payment in the table above for a period of 5 years, which may be more or less than the actual
period the preferred stock remains outstanding. As long as the preferred stock is outstanding,
the minimum dividend payment, if declared, is $125 million a year.(f)
    
    Does not include expected estimated contribution of $70 million to the Companys pension and
postretirement plans in 2009.  Ratings
  59




---



##### 



Insurance Financial StrengthRatings
    
    Debt RatingsProperty &Casualty
    
    Life
    
    CNAF
    
    ContinentalCCC
    

CAC
    
    Senior
    
    SeniorGroup
    
    
    
    Debt
    
    DebtA.M. Best
    
    A
    
    A-
    
    bbb
    
    Not ratedMoodys
    
    A3
    
    Not rated
    
    Baa3
    
    Baa3S&P
    
    A-
    
    Not rated
    
    BBB-
    
    BBB-
  
    
    On January 27, 2009, S&P withdrew CACs insurance financial strength rating of BBB+ at
our request.
    
    On February 9, 2009, Moodys affirmed CNAs ratings and revised the outlook from stable
to negative.
    
    On February 13, 2009, A.M. Best affirmed CNAs ratings and revised the outlook from
stable to negative.
     Accounting Pronouncements
 
 60




---



##### 



FORWARD-LOOKING STATEMENTS
  
    
    conditions in the capital and credit markets including severe levels of volatility,
illiquidity, uncertainty and overall disruption, as well as sharply reduced economic activity,
that may impact the returns, types, liquidity and valuation of our investments;
    
    general economic and business conditions, including recessionary conditions that may
decrease the size and number of our insurance customers and create higher exposures to our
lines of business, especially those that provide management and professional liability
insurance, as well as surety bonds, to businesses engaged in real estate, financial services
and professional services, and inflationary pressures on medical care costs, construction
costs and other economic sectors that increase the severity of claims;
    
    the effects of the mergers and failures of a number of prominent financial institutions and
government sponsored entities, as well as the effects of accounting and financial reporting
scandals and other major failures in internal controls and governance, on capital and credit
markets, as well as on the markets for directors and officers and errors and omissions
coverages;
    
    changes in foreign or domestic political, social and economic conditions;
    
    regulatory initiatives and compliance with governmental regulations, judicial decisions,
including interpretation of policy provisions, decisions regarding coverage and theories of
liability, trends in litigation and the outcome of any litigation involving us, and rulings
and changes in tax laws and regulations;
    
    regulatory limitations, impositions and restrictions upon us, including the effects of
assessments and other surcharges for guaranty funds and second-injury funds, other mandatory
pooling arrangements and future assessments levied on insurance companies and other financial
industry participants under the Emergency Economic Stabilization Act of 2008 recoupment
provisions;
    
    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;
    
    conditions in the capital and credit markets that may limit our ability to raise
significant amounts of capital on favorable terms, as well as restrictions on the ability or
willingness of Loews Corporation to provide additional capital support to us;
 61




---



##### 




    
    weather and other natural physical events, including the severity and frequency of storms,
hail, snowfall and other winter conditions, natural disasters such as hurricanes and
earthquakes, as well as climate change, including effects on weather patterns, greenhouse
gases, sea, land and air temperatures, sea levels, rain and snow;
 
    
    regulatory requirements imposed by coastal state regulators in the wake of hurricanes or
other natural disasters, including limitations on the ability to exit markets or to non-renew,
cancel or change terms and conditions in policies, as well as mandatory assessments to fund
any shortfalls arising from the inability of quasi-governmental insurers to pay claims;
 
    
    man-made disasters, including the possible occurrence of terrorist attacks and the effect
of the absence or insufficiency of applicable terrorism legislation on coverages;
 
    
    the unpredictability of the nature, targets, severity or frequency of potential terrorist
events, as well as the uncertainty as to our ability to contain our terrorism exposure
effectively, notwithstanding the extension through December 31, 2014 of the Terrorism Risk
Insurance Act of 2002;
 
    
    the occurrence of epidemics;
 
    
    exposure to liabilities due to claims made by insureds and others relating to asbestos
remediation and health-based asbestos impairments, as well as exposure to liabilities for
environmental pollution, construction defect claims and exposure to liabilities due to claims
made by insureds and others relating to lead-based paint and other mass torts;
 
    
    the sufficiency of our loss reserves and the possibility of future increases in reserves;
 
    
    regulatory limitations and restrictions, including limitations upon our ability to receive
dividends from our insurance subsidiaries imposed by state regulatory agencies and minimum
risk-based capital standards established by the National Association of Insurance
Commissioners;
 
    
    the risks and uncertainties associated with our loss reserves as outlined in the Critical
Accounting Estimates and the Reserves  Estimates and Uncertainties sections of this MD&A;
 
    
    the possibility of changes in our ratings by ratings agencies, including the inability to
access certain markets or distribution channels and the required collateralization of future
payment obligations as a result of such changes, and changes in rating agency policies and
practices; and
 
    
    the actual closing of contemplated transactions and agreements.
  62




---



##### 



ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
    Sensitivity Analysis
      63




---



##### 



Market Risk Scenario 1
 Increase (Decrease)Market
    
    
    Interest
    
    
    Currency
    
    
    EquityDecember 31, 2008
    
    Value
    
    
    Rate Risk
    
    
    Risk
    
    
    Risk(In millions)General account:Fixed maturity securities available-for-sale
    
    $
    28,886
    
    
    $
    (1,919
    )
    
    $
    (99
    )
    
    $
    (2
    )Fixed maturity securities trading
    
    
    1
    
    
    
    
    
    
    
    
    
    
    
    Equity securities available-for-sale
    
    
    871
    
    
    
    
    
    
    
    (1
    )
    
    
    (87
    )Short term investments available-for-sale
    
    
    3,534
    
    
    
    (17
    )
    
    
    (13
    )
    
    
    Limited partnerships
    
    
    1,683
    
    
    
    1
    
    
    
    
    
    
    
    (38
    )Other invested assets
    
    
    28
    
    
    
    
    
    
    
    
    
    
    
    Total general account
    
    
    35,003
    
    
    
    (1,935
    )
    
    
    (113
    )
    
    
    (127
    )Separate accounts:Fixed maturity securities
    
    
    343
    
    
    
    (17
    )
    
    
    
    
    
    
    Equity securities
    
    
    27
    
    
    
    
    
    
    
    
    
    
    
    (2
    )Short term investments
    
    
    7
    
    
    
    
    
    
    
    
    
    
    
    Total separate accounts
    
    
    377
    
    
    
    (17
    )
    
    
    
    
    
    
    (2
    )Derivative financial instruments, included
in Other liabilities
    
    
    (111
    )
    
    
    90
    
    
    
    
    
    
    
    Total securities
    
    $
    35,269
    
    
    $
    (1,862
    )
    
    $
    (113
    )
    
    $
    (129
    )Debt (carrying value)
    
    $
    2,058
    
    
    $
    (102
    )
    
    $
    
    
    
    $
    
 Market Risk Scenario 1
 Increase (Decrease)Market
    
    
    Interest
    
    
    Currency
    
    
    EquityDecember 31, 2007
    
    Value
    
    
    Rate Risk
    
    
    Risk
    
    
    Risk(In millions)General account:Fixed maturity securities available-for-sale
    
    $
    34,080
    
    
    $
    (1,900
    )
    
    $
    (111
    )
    
    $
    (42
    )Fixed maturity securities trading
    
    
    177
    
    
    
    (2
    )
    
    
    (1
    )
    
    
    (1
    )Equity securities available-for-sale
    
    
    568
    
    
    
    
    
    
    
    (1
    )
    
    
    (57
    )Short term investments available-for-sale
    
    
    4,497
    
    
    
    (4
    )
    
    
    (42
    )
    
    
    Short term investments trading
    
    
    180
    
    
    
    
    
    
    
    
    
    
    
    Limited partnerships
    
    
    2,214
    
    
    
    1
    
    
    
    
    
    
    
    (43
    )Other invested assets
    
    
    73
    
    
    
    (2
    )
    
    
    8
    
    
    
    (69
    )Total general account
    
    
    41,789
    
    
    
    (1,907
    )
    
    
    (147
    )
    
    
    (212
    )Separate accounts:Fixed maturity securities
    
    
    419
    
    
    
    (20
    )
    
    
    
    
    
    
    Equity securities
    
    
    45
    
    
    
    
    
    
    
    
    
    
    
    (5
    )Short term investments
    
    
    6
    
    
    
    
    
    
    
    
    
    
    
    Total separate accounts
    
    
    470
    
    
    
    (20
    )
    
    
    
    
    
    
    (5
    )Derivative financial instruments, included
in Other liabilities
    
    
    (62
    )
    
    
    33
    
    
    
    
    
    
    
    Total securities
    
    $
    42,197
    
    
    $
    (1,894
    )
    
    $
    (147
    )
    
    $
    (217
    )Debt (carrying value)
    
    $
    2,157
    
    
    $
    (107
    )
    
    $
    
    
    
    $
    
 64




---



##### 



Market Risk Scenario 2
 Increase (Decrease)Market
    
    
    Interest
    
    
    Currency
    
    
    EquityDecember 31, 2008
    
    Value
    
    
    Rate Risk
    
    
    Risk
    
    
    Risk(In millions)General account:Fixed maturity securities available-for-sale
    
    $
    28,886
    
    
    $
    (2,834
    )
    
    $
    (197
    )
    
    $
    (5
    )Fixed maturity securities trading
    
    
    1
    
    
    
    
    
    
    
    
    
    
    
    Equity securities available-for-sale
    
    
    871
    
    
    
    
    
    
    
    (2
    )
    
    
    (218
    )Short term investments available-for-sale
    
    
    3,534
    
    
    
    (29
    )
    
    
    (26
    )
    
    
    Limited partnerships
    
    
    1,683
    
    
    
    1
    
    
    
    
    
    
    
    (94
    )Other invested assets
    
    
    28
    
    
    
    
    
    
    
    
    
    
    
    Total general account
    
    
    35,003
    
    
    
    (2,862
    )
    
    
    (225
    )
    
    
    (317
    )Separate accounts:Fixed maturity securities
    
    
    343
    
    
    
    (25
    )
    
    
    
    
    
    
    Equity securities
    
    
    27
    
    
    
    
    
    
    
    
    
    
    
    (7
    )Short term investments
    
    
    7
    
    
    
    
    
    
    
    
    
    
    
    Total separate accounts
    
    
    377
    
    
    
    (25
    )
    
    
    
    
    
    
    (7
    )Derivative financial instruments, included
in Other liabilities
    
    
    (111
    )
    
    
    131
    
    
    
    
    
    
    
    Total securities
    
    $
    35,269
    
    
    $
    (2,756
    )
    
    $
    (225
    )
    
    $
    (324
    )Debt (carrying value)
    
    $
    2,058
    
    
    $
    (149
    )
    
    $
    
    
    
    $
    
 Market Risk Scenario 2
 Increase (Decrease)Market
    
    
    Interest
    
    
    Currency
    
    
    EquityDecember 31, 2007
    
    Value
    
    
    Rate Risk
    
    
    Risk
    
    
    Risk(In millions)General account:Fixed maturity securities available-for-sale
    
    $
    34,080
    
    
    $
    (2,789
    )
    
    $
    (221
    )
    
    $
    (106
    )Fixed maturity securities trading
    
    
    177
    
    
    
    (3
    )
    
    
    (1
    )
    
    
    (3
    )Equity securities available-for-sale
    
    
    568
    
    
    
    
    
    
    
    (2
    )
    
    
    (142
    )Short term investments available-for-sale
    
    
    4,497
    
    
    
    (6
    )
    
    
    (85
    )
    
    
    Short term investments trading
    
    
    180
    
    
    
    
    
    
    
    
    
    
    
    Limited partnerships
    
    
    2,214
    
    
    
    1
    
    
    
    
    
    
    
    (109
    )Other invested assets
    
    
    73
    
    
    
    2
    
    
    
    (8
    )
    
    
    (171
    )Total general account
    
    
    41,789
    
    
    
    (2,795
    )
    
    
    (317
    )
    
    
    (531
    )Separate accounts:Fixed maturity securities
    
    
    419
    
    
    
    (30
    )
    
    
    
    
    
    
    Equity securities
    
    
    45
    
    
    
    
    
    
    
    
    
    
    
    (11
    )Short term investments
    
    
    6
    
    
    
    
    
    
    
    
    
    
    
    Total separate accounts
    
    
    470
    
    
    
    (30
    )
    
    
    
    
    
    
    (11
    )Derivative financial instruments, included
in Other liabilities
    
    
    (62
    )
    
    
    48
    
    
    
    
    
    
    
    Total securities
    
    $
    42,197
    
    
    $
    (2,777
    )
    
    $
    (317
    )
    
    $
    (542
    )Debt (carrying value)
    
    $
    2,157
    
    
    $
    (156
    )
    
    $
    
    
    
    $
    
 65




---



##### 



ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
 CNA Financial Corporation
Consolidated Statements of Operations
 Years ended December 31
    
    2008
    
    
    2007
    
    
    2006(In millions, except per share data)RevenuesNet earned premiums
    
    $
    7,151
    
    
    $
    7,484
    
    
    $
    7,603Net investment income
    
    
    1,619
    
    
    
    2,433
    
    
    
    2,412Realized investment gains (losses), net of participating
policyholders and minority interests
    
    
    (1,297
    )
    
    
    (311
    )
    
    
    86Other revenues
    
    
    326
    
    
    
    279
    
    
    
    275Total revenues
    
    
    7,799
    
    
    
    9,885
    
    
    
    10,376Claims, Benefits and ExpensesInsurance claims and policyholders benefits
    
    
    5,723
    
    
    
    6,009
    
    
    
    6,047Amortization of deferred acquisition costs
    
    
    1,467
    
    
    
    1,520
    
    
    
    1,534Other operating expenses
    
    
    1,037
    
    
    
    994
    
    
    
    1,027Restructuring and other related charges
    
    
    
    
    
    
    
    
    
    
    (13
    )Interest
    
    
    134
    
    
    
    140
    
    
    
    131Total claims, benefits and expenses
    
    
    8,361
    
    
    
    8,663
    
    
    
    8,726Income (loss) before income tax and minority interest
    
    
    (562
    )
    
    
    1,222
    
    
    
    1,650Income tax (expense) benefit
    
    
    311
    
    
    
    (317
    )
    
    
    (469
    )Minority interest
    
    
    (57
    )
    
    
    (48
    )
    
    
    (44
    )Income (loss) from continuing operations
    
    
    (308
    )
    
    
    857
    
    
    
    1,137Income (loss) from discontinued operations, net of income tax
(expense) benefit of $9, $0 and $7
    
    
    9
    
    
    
    (6
    )
    
    
    (29
    )Net income (loss)
    
    $
    (299
    )
    
    $
    851
    
    
    $
    1,108Basic Earnings (Loss) Per ShareIncome (loss) from continuing operations
    
    $
    (1.21
    )
    
    $
    3.15
    
    
    $
    4.17Income (loss) from discontinued operations
    
    
    0.03
    
    
    
    (0.02
    )
    
    
    (0.11
    )Basic earnings (losses) per share available to common stockholders
    
    $
    (1.18
    )
    
    $
    3.13
    
    
    $
    4.06Diluted Earnings (Loss) Per ShareIncome (loss) from continuing operations
    
    $
    (1.21
    )
    
    $
    3.15
    
    
    $
    4.16Income (loss) from discontinued operations
    
    
    0.03
    
    
    
    (0.02
    )
    
    
    (0.11
    )Diluted earnings (losses) per share available to common stockholders
    
    $
    (1.18
    )
    
    $
    3.13
    
    
    $
    4.05Weighted Average Outstanding Common Stock and Common Stock
EquivalentsBasic
    
    
    269.4
    
    
    
    271.5
    
    
    
    262.1Diluted
    
    
    269.4
    
    
    
    271.8
    
    
    
    262.3
  66




---



##### 



CNA Financial Corporation
Consolidated Balance Sheets
 December 31
    
    2008
    
    
    2007(In millions, except share data)AssetsInvestments:Fixed maturity securities at fair value (amortized cost of $34,155 and $34,388)
    
    $
    28,887
    
    
    $
    34,257Equity securities at fair value (cost of $1,016 and $366)
    
    
    871
    
    
    
    568Limited partnership investments
    
    
    1,683
    
    
    
    2,214Other invested assets
    
    
    28
    
    
    
    73Short term investments
    
    
    3,534
    
    
    
    4,677Total investments
    
    
    35,003
    
    
    
    41,789Cash
    
    
    85
    
    
    
    94Reinsurance receivables (less allowance for uncollectible receivables of $366 and $461)
    
    
    7,395
    
    
    
    8,228Insurance receivables (less allowance for doubtful accounts of $221 and $312)
    
    
    1,818
    
    
    
    1,972Accrued investment income
    
    
    356
    
    
    
    330Receivables for securities sold and collateral
    
    
    402
    
    
    
    142Deferred acquisition costs
    
    
    1,125
    
    
    
    1,161Prepaid reinsurance premiums
    
    
    237
    
    
    
    270Federal income tax recoverable (includes $299 and $0 due from Loews Corporation)
    
    
    294
    
    
    
    Deferred income taxes
    
    
    3,493
    
    
    
    1,198Property and equipment at cost (less accumulated depreciation of $641 and $596)
    
    
    393
    
    
    
    378Goodwill and other intangible assets
    
    
    141
    
    
    
    142Other assets
    
    
    562
    
    
    
    579Separate account business
    
    
    384
    
    
    
    476Total assets
    
    $
    51,688
    
    
    $
    56,759Liabilities and Stockholders EquityLiabilities:Insurance reserves:Claim and claim adjustment expenses
    
    $
    27,593
    
    
    $
    28,588Unearned premiums
    
    
    3,406
    
    
    
    3,598Future policy benefits
    
    
    7,529
    
    
    
    7,106Policyholders funds
    
    
    243
    
    
    
    930Collateral on loaned securities and derivatives
    
    
    6
    
    
    
    63Payables for securities purchased
    
    
    12
    
    
    
    353Participating policyholders funds
    
    
    20
    
    
    
    45Short term debt
    
    
    
    
    
    
    350Long term debt
    
    
    2,058
    
    
    
    1,807Federal income taxes payable (includes $0 and $5 due to Loews Corporation)
    
    
    
    
    
    
    2Reinsurance balances payable
    
    
    316
    
    
    
    401Other liabilities
    
    
    2,824
    
    
    
    2,505Separate account business
    
    
    384
    
    
    
    476Total liabilities
    
    
    44,391
    
    
    
    46,224Commitments and contingencies (Notes B, C, F, G, I , K and L)Minority interest
    
    
    420
    
    
    
    385Stockholders equity:Preferred stock (12,500,000 shares authorized) 

2008 Senior Preferred (no par value; $100,000 stated value; 12,500
shares and no shares issued;
held by Loews Corporation)
    
    
    1,250
    
    
    
    Common stock ($2.50 par value; 500,000,000 shares authorized; 273,040,243
shares issued; and 269,024,408 and 271,662,278 shares outstanding)
    
    
    683
    
    
    
    683Additional paid-in capital
    
    
    2,174
    
    
    
    2,169Retained earnings
    
    
    6,845
    
    
    
    7,285Accumulated other comprehensive income (loss)
    
    
    (3,924
    )
    
    
    103Treasury stock (4,015,835 and 1,377,965 shares), at cost
    
    
    (109
    )
    
    
    (39
    )6,919
    
    
    
    10,201Notes receivable for the issuance of common stock
    
    
    (42
    )
    
    
    (51
    )Total stockholders equity
    
    
    6,877
    
    
    
    10,150Total liabilities and stockholders equity
    
    $
    51,688
    
    
    $
    56,759
  67




---



##### 



CNA Financial Corporation
Consolidated Statements of Cash Flows
 Years ended December 31
    
    2008
    
    
    2007
    
    
    2006(In millions)Cash Flows from Operating Activities:Net income (loss)
    
    $
    (299
    )
    
    $
    851
    
    
    $
    1,108Adjustments to reconcile net income (loss) to net cash flows
provided by operating activities:(Income) loss from discontinued operations
    
    
    (9
    )
    
    
    6
    
    
    
    29Loss on disposal of property and equipment
    
    
    1
    
    
    
    1
    
    
    
    Minority interest
    
    
    57
    
    
    
    48
    
    
    
    44Deferred income tax (benefit) provision
    
    
    (174
    )
    
    
    (99
    )
    
    
    173Trading portfolio activity
    
    
    644
    
    
    
    (12
    )
    
    
    374Realized investment (gains) losses, net of participating
policyholders and minority interests
    
    
    1,297
    
    
    
    311
    
    
    
    (86
    )Undistributed losses (earnings) of equity method investees
    
    
    446
    
    
    
    (99
    )
    
    
    (170
    )Net amortization of bond discount
    
    
    (278
    )
    
    
    (252
    )
    
    
    (274
    )Depreciation
    
    
    78
    
    
    
    64
    
    
    
    48Changes in:Receivables, net
    
    
    987
    
    
    
    1,386
    
    
    
    2,427Accrued investment income
    
    
    (26
    )
    
    
    (17
    )
    
    
    (1
    )Deferred acquisition costs
    
    
    36
    
    
    
    29
    
    
    
    7Prepaid reinsurance premiums
    
    
    33
    
    
    
    72
    
    
    
    (2
    )Federal income taxes recoverable/payable
    
    
    (287
    )
    
    
    (38
    )
    
    
    102Insurance reserves
    
    
    (590
    )
    
    
    (830
    )
    
    
    (771
    )Reinsurance balances payable
    
    
    (85
    )
    
    
    (138
    )
    
    
    (1,097
    )Other assets
    
    
    13
    
    
    
    42
    
    
    
    142Other liabilities
    
    
    (287
    )
    
    
    (80
    )
    
    
    306Other, net
    
    
    9
    
    
    
    7
    
    
    
    (98
    )Total adjustments
    
    
    1,865
    
    
    
    401
    
    
    
    1,153Net cash flows provided by operating activities-continuing
operations
    
    $
    1,566
    
    
    $
    1,252
    
    
    $
    2,261Net cash flows used by operating activities-discontinued
operations
    
    $
    (8
    )
    
    $
    (13
    )
    
    $
    (11
    )Net cash flows provided by operating activities-total
    
    $
    1,558
    
    
    $
    1,239
    
    
    $
    2,250Cash Flows from Investing Activities:Purchases of fixed maturity securities
    
    $
    (48,404
    )
    
    $
    (73,157
    )
    
    $
    (48,757
    )Proceeds from fixed maturity securities:Sales
    
    
    41,749
    
    
    
    69,012
    
    
    
    42,433Maturities, calls and redemptions
    
    
    4,092
    
    
    
    4,744
    
    
    
    4,310Purchases of equity securities
    
    
    (205
    )
    
    
    (236
    )
    
    
    (340
    )Proceeds from sales of equity securities
    
    
    220
    
    
    
    340
    
    
    
    221Change in short term investments
    
    
    1,032
    
    
    
    1,347
    
    
    
    (1,331
    )Change in collateral on loaned securities and derivatives
    
    
    (57
    )
    
    
    (2,788
    )
    
    
    2,084Change in other investments
    
    
    (295
    )
    
    
    (168
    )
    
    
    (195
    )Purchases of property and equipment
    
    
    (104
    )
    
    
    (160
    )
    
    
    (131
    )Dispositions
    
    
    
    
    
    
    14
    
    
    
    8Other, net
    
    
    46
    
    
    
    (69
    )
    
    
    16Net cash flows used by investing activities-continuing
operations
    
    $
    (1,926
    )
    
    $
    (1,121
    )
    
    $
    (1,682
    )Net cash flows provided by investing activities-discontinued
operations
    
    $
    18
    
    
    $
    39
    
    
    $
    36Net cash flows used by investing activities-total
    
    $
    (1,908
    )
    
    $
    (1,082
    )
    
    $
    (1,646
    )
  68




---



##### 



Years ended December 31
    
    2008
    
    
    2007
    
    
    2006(In millions)Cash Flows from Financing Activities:Dividends paid to common stockholders
    
    $
    (122
    )
    
    $
    (95
    )
    
    $
    Dividends paid to Loews for 2008 Senior Preferred
    
    
    (19
    )
    
    
    
    
    
    
    Proceeds from the issuance of long term debt
    
    
    250
    
    
    
    
    
    
    
    759Principal payments on debt
    
    
    (350
    )
    
    
    
    
    
    
    (294
    )Return of investment contract account balances
    
    
    (607
    )
    
    
    (122
    )
    
    
    (589
    )Receipts on investment contract account balances
    
    
    3
    
    
    
    3
    
    
    
    4Payment to repurchase Series H Issue preferred stock
    
    
    
    
    
    
    
    
    
    
    (993
    )Proceeds from the issuance of common stock
    
    
    
    
    
    
    
    
    
    
    499Proceeds from the issuance of 2008 Senior Preferred
    
    
    1,250
    
    
    
    
    
    
    
    Stock options exercised
    
    
    1
    
    
    
    18
    
    
    
    10Purchase of treasury stock
    
    
    (70
    )
    
    
    
    
    
    
    Other, net
    
    
    11
    
    
    
    11
    
    
    
    (1
    )Net cash flows provided (used) by financing
activities-continuing operations
    
    $
    347
    
    
    $
    (185
    )
    
    $
    (605
    )Net cash flows provided by financing
activities-discontinued operations
    
    $
    
    
    
    $
    
    
    
    $
    Net cash flows provided (used) by financing activities-total
    
    $
    347
    
    
    $
    (185
    )
    
    $
    (605
    )Effect of foreign exchange rate changes on cash-continuing
operations
    
    
    (13
    )
    
    
    5
    
    
    
    Net change in cash
    
    
    (16
    )
    
    
    (23
    )
    
    
    (1
    )Net cash transactions from continuing operations to
discontinued operations
    
    
    17
    
    
    
    59
    
    
    
    14Net cash transactions from discontinued operations to
continuing operations
    
    
    (17
    )
    
    
    (59
    )
    
    
    (14
    )Cash, beginning of year
    
    
    101
    
    
    
    124
    
    
    
    125Cash, end of year
    
    $
    85
    
    
    $
    101
    
    
    $
    124Cash-continuing operations
    
    $
    85
    
    
    $
    94
    
    
    $
    84Cash-discontinued operations
    
    
    
    
    
    
    7
    
    
    
    40Cash-total
    
    $
    85
    
    
    $
    101
    
    
    $
    124
  69




---



##### 



CNA Financial Corporation
Consolidated Statements of Stockholders Equity
 Years ended December 31
    
    2008
    
    
    2007
    
    
    2006(In millions)Preferred StockBalance, beginning of period
    
    $
    
    
    
    $
    
    
    
    $
    750Repurchase of Series H Issue
    
    
    
    
    
    
    
    
    
    
    (750
    )Issuance of 2008 Senior Preferred
    
    
    1,250
    
    
    
    
    
    
    
    Balance, end of period
    
    
    1,250
    
    
    
    
    
    
    
    Common StockBalance, beginning of period
    
    
    683
    
    
    
    683
    
    
    
    645Issuance of common stock
    
    
    
    
    
    
    
    
    
    
    38Balance, end of period
    
    
    683
    
    
    
    683
    
    
    
    683Additional Paid-in CapitalBalance, beginning of period
    
    
    2,169
    
    
    
    2,166
    
    
    
    1,701Issuance of common stock and other
    
    
    5
    
    
    
    3
    
    
    
    465Balance, end of period
    
    
    2,174
    
    
    
    2,169
    
    
    
    2,166Retained EarningsBalance, beginning of period
    
    
    7,285
    
    
    
    6,486
    
    
    
    5,621Adjustment
to initially apply FSP 85-4-1, net of tax
    
    
    
    
    
    
    38
    
    
    
    Adjustment to initially apply FIN 48
    
    
    
    
    
    
    5
    
    
    
    Adjusted balance, beginning of period
    
    
    7,285
    
    
    
    6,529
    
    
    
    5,621Dividends paid to common stockholders
    
    
    (122
    )
    
    
    (95
    )
    
    
    Dividends paid to Loews for 2008 Senior Preferred
    
    
    (19
    )
    
    
    
    
    
    
    Liquidation preference in excess of par value on
Series H Issue
    
    
    
    
    
    
    
    
    
    
    (243
    )Net income (loss)
    
    
    (299
    )
    
    
    851
    
    
    
    1,108Balance, end of period
    
    
    6,845
    
    
    
    7,285
    
    
    
    6,486Accumulated Other Comprehensive Income (Loss)Balance, beginning of period
    
    
    103
    
    
    
    549
    
    
    
    359Other comprehensive income (loss)
    
    
    (4,027
    )
    
    
    (446
    )
    
    
    236Adjustment to initially apply SFAS 158, net of tax
    
    
    
    
    
    
    
    
    
    
    (46
    )Balance, end of period
    
    
    (3,924
    )
    
    
    103
    
    
    
    549Treasury StockBalance, beginning of period
    
    
    (39
    )
    
    
    (58
    )
    
    
    (67
    )Purchase of treasury stock
    
    
    (70
    )
    
    
    
    
    
    
    Stock options exercised
    
    
    
    
    
    
    19
    
    
    
    9Balance, end of period
    
    
    (109
    )
    
    
    (39
    )
    
    
    (58
    )Notes Receivable for the Issuance of Common StockBalance, beginning of period
    
    
    (51
    )
    
    
    (58
    )
    
    
    (59
    )Decrease in notes receivable for the issuance of
common stock
    
    
    9
    
    
    
    7
    
    
    
    1Balance, end of period
    
    
    (42
    )
    
    
    (51
    )
    
    
    (58
    )Total Stockholders Equity
    
    $
    6,877
    
    
    $
    10,150
    
    
    $
    9,768
  70




---



##### 



Notes to Consolidated Financial Statements
 Note A. Summary of Significant Accounting Policies
 Basis of Presentation
   Business
    Insurance Operations
 Premiums:
   Claim and claim adjustment expense reserves:
 71




---



##### 



Future policy benefits reserves:
 Policyholders funds reserves:
 72




---



##### 



Guaranty fund and other insurance-related assessments:
 Reinsurance:
   Participating insurance:
 Deferred acquisition costs:
   Investments in life settlement contracts and related revenue recognition:
 73




---



##### 



Accounting for Life Settlement Contracts by Third-Party Investors
     Fair Value of Life Settlement
    
    
    Face Amount of Life InsuranceNumber of Life Settlement
    
    
    Contracts
    
    
    PoliciesDecember 31, 2008
    
    Contracts
    
    
    (In millions)
    
    
    (In millions)Estimated maturity during:2009
    
    
    100
    
    
    $
    19
    
    
    $
    552010
    
    
    100
    
    
    
    17
    
    
    
    552011
    
    
    100
    
    
    
    15
    
    
    
    532012
    
    
    100
    
    
    
    13
    
    
    
    532013
    
    
    100
    
    
    
    11
    
    
    
    51Thereafter
    
    
    814
    
    
    
    54
    
    
    
    436Total
    
    
    1,314
    
    
    $
    129
    
    
    $
    703
  74




---



##### 



Separate Account Business
 Investments
 Valuation of investments:
     Realized investment gains (losses):
 Securities lending activities:
 75




---



##### 



Derivative Financial Instruments
    Nature of Hedge Designation
    
    Derivatives Change in Fair Value Reflected In:No hedge designation
    
    Realized investment gains (losses)Fair value designation
    
    Realized investment gains (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
  76




---



##### 



Income Taxes
 Pension and
Postretirement Benefits
  Stock-Based Compensation
  Foreign Currency
  Property and Equipment
  Goodwill and Other Intangible Assets
  77




---



##### 



Earnings (Loss) Per Share Data
     Earnings (Loss) Per Share
 Years ended December 31
    
    2008
    
    
    2007
    
    
    2006(In millions, except per share amounts)Income (loss) from continuing operations
    
    $
    (308
    )
    
    $
    857
    
    
    $
    1,137Less: undeclared Series H Issue dividend through repurchase date
    
    
    
    
    
    
    
    
    
    
    (46
    )Less: declared 2008 Senior Preferred dividend
    
    
    (19
    )
    
    
    
    
    
    
    Income (loss) from continuing operations available to common stockholders
    
    $
    (327
    )
    
    $
    857
    
    
    $
    1,091Weighted average outstanding common stock and common stock equivalents
    
    
    269.4
    
    
    
    271.5
    
    
    
    262.1Effect of dilutive securities, employee stock options and appreciation rights
    
    
    
    
    
    
    0.3
    
    
    
    0.2Adjusted weighted average outstanding common stock and common stock
equivalents assuming conversions
    
    
    269.4
    
    
    
    271.8
    
    
    
    262.3Basic earnings (loss) per share from continuing operations available
to common stockholders
    
    $
    (1.21
    )
    
    $
    3.15
    
    
    $
    4.17Diluted earnings (loss) per share from continuing operations available
to common stockholders
    
    $
    (1.21
    )
    
    $
    3.15
    
    
    $
    4.16Dividends declared per common share
    
    $
    0.45
    
    
    $
    0.35
    
    
    $
    
 Supplementary Cash Flow Information
  78




---



##### 



Accounting Pronouncements
 Adopted as of December 31, 2008
 Statement of Financial Accounting Standard (SFAS) No. 157, Fair Value Measurement (SFAS
157)
  Effective Date of FASB Statement
No. 157
  FASB Staff Position (FSP) FAS 157-3, Determining the Fair Value of a Financial Asset in a
Market That Is Not Active (FSP FAS 157-3)
   SFAS No. 159, The Fair Value Option for Financial Assets and Financial Liabilities (SFAS
159)
   79




---



##### 



FSP FIN 39-1, Amendment of FASB Interpretation (FIN) No. 39 (FSP FIN 39-1)
 Offsetting of Amounts Related
to Certain Contracts
  FSP FAS 133-1 and FIN 45-4, Disclosures About Credit Derivatives and Certain Guarantees: An
Amendment of FASB Statement No. 133 and FASB Interpretation No. 45; and Clarification of the
Effective Date of FASB Statement No. 161 (FSP FAS 133-1 and FIN 45-4)
 Accounting for Derivative Instruments and Hedging Activities Guarantors Accounting and Disclosure Requirements for Guarantees, Including Indirect
Guarantees of Indebtedness of Others
 FSP Emerging Issues Task Force (EITF) Issue No. 99-20-1, Amendments to the Impairment and
Interest Income Measurement Guidance of EITF Issue 99-20 (FSP 99-20-1)
 Recognition of
Interest Income and Impairment on Purchased Beneficial Interests and Beneficial Interests That
Continue to Be Held by a Transferor in Securitized Financial Assets Accounting for Certain
Investments in Debt and Equity Securities
 80




---



##### 



To be adopted after December 31, 2008
 SFAS No. 161, Disclosures about Derivative Instruments and Hedging Activities (SFAS 161)
 Accounting for Derivative
Instruments and Hedging Activities
 SFAS No. 160, Noncontrolling Interest in Consolidated Financial Statements an amendment of
Accounting Research Bulletin No. 51 (SFAS 160)
  FSP No. 132(R)-1, Employers Disclosures about Postretirement Benefit Plan Assets (FSP
132(R)-1)
 
 81




---



##### 



Note B. Investments
  Net Investment Income
 Years ended December 31
    
    2008
    
    
    2007
    
    
    2006(In millions)Fixed maturity securities
    
    $
    1,984
    
    
    $
    2,047
    
    
    $
    1,842Short term investments
    
    
    115
    
    
    
    186
    
    
    
    248Limited partnerships
    
    
    (379
    )
    
    
    183
    
    
    
    288Equity securities
    
    
    80
    
    
    
    25
    
    
    
    23Income (loss) from trading portfolio (a)
    
    
    (149
    )
    
    
    10
    
    
    
    103Interest on funds withheld and other deposits
    
    
    (2
    )
    
    
    (1
    )
    
    
    (68
    )Other
    
    
    21
    
    
    
    36
    
    
    
    18Gross investment income
    
    
    1,670
    
    
    
    2,486
    
    
    
    2,454Investment expenses
    
    
    (51
    )
    
    
    (53
    )
    
    
    (42
    )Net investment income
    
    $
    1,619
    
    
    $
    2,433
    
    
    $
    2,412
 
 (a)
    
    The change in net unrealized gains (losses) on trading securities included in Net investment
income was $3 million and $(15) million for the years ended December 31, 2008 and 2007. There
was no change in net unrealized gains (losses) on trading securities included in Net
investment income for the year ended December 31, 2006.  82




---



##### 



Net Realized Investment Gains (Losses)
 Years ended December 31
    
    2008
    
    
    2007
    
    
    2006(In millions)Net realized investment gains (losses):Fixed maturity securities:Gross realized gains:
    
    $
    532
    
    
    $
    486
    
    
    $
    382Gross realized losses:Other-than-temporary impairments
    
    
    (1,081
    )
    
    
    (716
    )
    
    
    (168
    )Trading
    
    
    (282
    )
    
    
    (248
    )
    
    
    (209
    )Net realized investment gains (losses) on fixed maturity securities
    
    
    (831
    )
    
    
    (478
    )
    
    
    5Equity securities:Gross realized gains:
    
    
    22
    
    
    
    146
    
    
    
    24Gross realized losses:Other-than-temporary impairments
    
    
    (403
    )
    
    
    (25
    )
    
    
    (5
    )Trading
    
    
    (109
    )
    
    
    (4
    )
    
    
    (3
    )Net realized investment gains (losses) on equity securities
    
    
    (490
    )
    
    
    117
    
    
    
    16Other net realized investment gains
    
    
    24
    
    
    
    50
    
    
    
    65Net realized investment gains (losses), net of participating
policyholders and minority interest
    
    $
    (1,297
    )
    
    $
    (311
    )
    
    $
    86
  Net Change in Unrealized Gains (Losses)
 Years ended December 31
    
    2008
    
    
    2007
    
    
    2006(In millions)Net change in unrealized gains (losses) on investments:Fixed maturity securities
    
    $
    (5,137
    )
    
    $
    (847
    )
    
    $
    98Equity securities
    
    
    (347
    )
    
    
    (47
    )
    
    
    78Other
    
    
    5
    
    
    
    2
    
    
    
    2Total net change in unrealized gains (losses) on investments
    
    
    (5,479
    )
    
    
    (892
    )
    
    
    178Net change in unrealized gains (losses) on discontinued operations and other
    
    
    (12
    )
    
    
    1
    
    
    
    (10
    )Allocated to participating policyholders and minority interests
    
    
    48
    
    
    
    3
    
    
    
    4Deferred income tax (expense) benefit
    
    
    1,932
    
    
    
    315
    
    
    
    (58
    )Net change in unrealized gains (losses) on investments
    
    $
    (3,511
    )
    
    $
    (573
    )
    
    $
    114
   83




---



##### 



84




---



##### 



Summary of Fixed Maturity and Equity Securities
 Cost or
    
    
    Gross
    
    
    Gross Unrealized Losses
    
    
    EstimatedAmortized
    
    
    Unrealized
    
    
    Less than
    
    
    12 Months
    
    
    FairDecember 31, 2008
    
    Cost
    
    
    Gains
    
    
    12 Months
    
    
    or Greater
    
    
    Value(In millions)Fixed maturity securities available-for-sale:U.S. Treasury securities and obligations of
government agencies
    
    $
    2,862
    
    
    $
    69
    
    
    $
    1
    
    
    $
    
    
    
    $
    2,930Asset-backed securities
    
    
    9,670
    
    
    
    24
    
    
    
    961
    
    
    
    969
    
    
    
    7,764States, municipalities and political
subdivisions  tax-exempt securities
    
    
    8,557
    
    
    
    90
    
    
    
    609
    
    
    
    623
    
    
    
    7,415Corporate and other taxable bonds
    
    
    12,993
    
    
    
    275
    
    
    
    1,164
    
    
    
    1,374
    
    
    
    10,730Redeemable preferred stock
    
    
    72
    
    
    
    1
    
    
    
    23
    
    
    
    3
    
    
    
    47Total fixed maturity securities available-for-sale
    
    
    34,154
    
    
    
    459
    
    
    
    2,758
    
    
    
    2,969
    
    
    
    28,886Total fixed maturity securities trading
    
    
    1
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1Equity securities available-for-sale:Common stock
    
    
    134
    
    
    
    190
    
    
    
    1
    
    
    
    3
    
    
    
    320Preferred stock
    
    
    882
    
    
    
    5
    
    
    
    15
    
    
    
    321
    
    
    
    551Total equity securities available-for-sale
    
    
    1,016
    
    
    
    195
    
    
    
    16
    
    
    
    324
    
    
    
    871Total
    
    $
    35,171
    
    
    $
    654
    
    
    $
    2,774
    
    
    $
    3,293
    
    
    $
    29,758
 Summary of Fixed Maturity and Equity Securities
 Cost or
    
    
    Gross
    
    
    Gross Unrealized Losses
    
    
    EstimatedAmortized
    
    
    Unrealized
    
    
    Less than
    
    
    12 Months
    
    
    FairDecember 31, 2007
    
    Cost
    
    
    Gains
    
    
    12 Months
    
    
    or Greater
    
    
    Value(In millions)Fixed maturity securities available-for-sale:U.S. Treasury securities and obligations of
government agencies
    
    $
    594
    
    
    $
    93
    
    
    $
    
    
    
    $
    
    
    
    $
    687Asset-backed securities
    
    
    11,776
    
    
    
    39
    
    
    
    223
    
    
    
    183
    
    
    
    11,409States, municipalities and political
subdivisions  tax-exempt securities
    
    
    7,615
    
    
    
    144
    
    
    
    82
    
    
    
    2
    
    
    
    7,675Corporate and other taxable bonds
    
    
    13,010
    
    
    
    454
    
    
    
    197
    
    
    
    16
    
    
    
    13,251Redeemable preferred stock
    
    
    1,216
    
    
    
    2
    
    
    
    160
    
    
    
    
    
    
    
    1,058Total fixed maturity securities available-for-sale
    
    
    34,211
    
    
    
    732
    
    
    
    662
    
    
    
    201
    
    
    
    34,080Total fixed maturity securities trading
    
    
    177
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    177Equity securities available-for-sale:Common stock
    
    
    246
    
    
    
    207
    
    
    
    1
    
    
    
    
    
    
    
    452Preferred stock
    
    
    120
    
    
    
    7
    
    
    
    11
    
    
    
    
    
    
    
    116Total equity securities available-for-sale
    
    
    366
    
    
    
    214
    
    
    
    12
    
    
    
    
    
    
    
    568Total
    
    $
    34,754
    
    
    $
    946
    
    
    $
    674
    
    
    $
    201
    
    
    $
    34,825
 85




---



##### 



Unrealized Loss Aging
 December 31, 2008
    
    
    December 31, 2007Gross
    
    
    
    
    
    
    GrossEstimated
    
    
    Unrealized
    
    
    Estimated
    
    
    UnrealizedFair Value
    
    
    Loss
    
    
    Fair Value
    
    
    Loss(In millions)Fixed income securities:Investment grade:0-6 months
    
    $
    6,749
    
    
    $
    681
    
    
    $
    4,771
    
    
    $
    2287-11 months
    
    
    6,159
    
    
    
    1,591
    
    
    
    1,584
    
    
    
    19312-24 months
    
    
    3,549
    
    
    
    1,803
    
    
    
    690
    
    
    
    57Greater than 24 months
    
    
    1,778
    
    
    
    509
    
    
    
    3,869
    
    
    
    138Total investment grade
    
    
    18,235
    
    
    
    4,584
    
    
    
    10,914
    
    
    
    616Non-investment grade:0-6 months
    
    
    853
    
    
    
    290
    
    
    
    1,527
    
    
    
    737-11 months
    
    
    374
    
    
    
    173
    
    
    
    125
    
    
    
    812-24 months
    
    
    1,078
    
    
    
    647
    
    
    
    26
    
    
    
    4Greater than 24 months
    
    
    12
    
    
    
    7
    
    
    
    9
    
    
    
    2Total non-investment grade
    
    
    2,317
    
    
    
    1,117
    
    
    
    1,687
    
    
    
    87Total fixed income securities
    
    
    20,552
    
    
    
    5,701
    
    
    
    12,601
    
    
    
    703Redeemable and non-redeemable preferred stocks:0-6 months
    
    
    39
    
    
    
    26
    
    
    
    893
    
    
    
    1437-11 months
    
    
    43
    
    
    
    12
    
    
    
    104
    
    
    
    2812-24 months
    
    
    497
    
    
    
    324
    
    
    
    
    
    
    
    Greater than 24 months
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Total preferred stocks
    
    
    579
    
    
    
    362
    
    
    
    997
    
    
    
    171Common stocks:0-6 months
    
    
    5
    
    
    
    1
    
    
    
    34
    
    
    
    17-11 months
    
    
    
    
    
    
    
    
    
    
    1
    
    
    
    12-24 months
    
    
    9
    
    
    
    3
    
    
    
    
    
    
    
    Greater than 24 months
    
    
    3
    
    
    
    
    
    
    
    3
    
    
    
    Total common stocks
    
    
    17
    
    
    
    4
    
    
    
    38
    
    
    
    1Total
    
    $
    21,148
    
    
    $
    6,067
    
    
    $
    13,636
    
    
    $
    875
     86




---



##### 



Asset-Backed Securities
     Gross Unrealized Losses by Ratings Distribution
 December 31, 2008
 GrossAmortized
    
    
    Estimated
    
    
    UnrealizedRating
    
    Cost
    
    
    Fair Value
    
    
    LossAAA
    
    $
    6,810
    
    
    $
    5,545
    
    
    $
    1,265AA
    
    
    568
    
    
    
    318
    
    
    
    250A
    
    
    437
    
    
    
    186
    
    
    
    251BBB
    
    
    327
    
    
    
    264
    
    
    
    63Non-investment grade
    
    
    289
    
    
    
    188
    
    
    
    101Total
    
    $
    8,431
    
    
    $
    6,501
    
    
    $
    1,930
  87




---



##### 



States, Municipalities and Political Subdivisions  Tax-Exempt Securities
  Gross Unrealized Losses by Ratings Distribution
 December 31, 2008
 GrossAmortized
    
    
    Estimated
    
    
    UnrealizedRating
    
    Cost
    
    
    Fair Value
    
    
    LossAAA
    
    $
    2,044
    
    
    $
    1,780
    
    
    $
    264AA
    
    
    2,566
    
    
    
    2,213
    
    
    
    353A
    
    
    1,080
    
    
    
    831
    
    
    
    249BBB
    
    
    862
    
    
    
    496
    
    
    
    366Total
    
    $
    6,552
    
    
    $
    5,320
    
    
    $
    1,232
    88




---



##### 



Corporate and other Taxable Bonds
   Gross Unrealized Losses by Industry Sector
 Estimated
    
    
    GrossDecember 31, 2008
    
    Amortized Cost
    
    
    Fair Value
    
    
    Unrealized Loss(In millions)Communications
    
    $
    1,408
    
    
    $
    1,088
    
    
    $
    320Consumer, Cyclical
    
    
    1,372
    
    
    
    947
    
    
    
    425Consumer, Non-cyclical
    
    
    928
    
    
    
    761
    
    
    
    167Energy
    
    
    1,090
    
    
    
    867
    
    
    
    223Financial
    
    
    2,229
    
    
    
    1,509
    
    
    
    720Industrial
    
    
    843
    
    
    
    616
    
    
    
    227Utilities
    
    
    1,285
    
    
    
    1,028
    
    
    
    257Other
    
    
    819
    
    
    
    620
    
    
    
    199Total
    
    $
    9,974
    
    
    $
    7,436
    
    
    $
    2,538
 Gross Unrealized Losses by Ratings Distribution
 December 31, 2008
 Estimated
    
    
    GrossRating
    
    Amortized Cost
    
    
    Fair Value
    
    
    Unrealized LossAAA
    
    $
    116
    
    
    $
    99
    
    
    $
    17AA
    
    
    156
    
    
    
    138
    
    
    
    18A
    
    
    2,223
    
    
    
    1,769
    
    
    
    454BBB
    
    
    4,335
    
    
    
    3,303
    
    
    
    1,032Non-investment grade
    
    
    3,144
    
    
    
    2,127
    
    
    
    1,017Total
    
    $
    9,974
    
    
    $
    7,436
    
    
    $
    2,538
   89




---



##### 



Preferred Stock
  Gross Unrealized Losses by Ratings Distribution
 December 31, 2008
 Estimated
    
    
    GrossRating
    
    Amortized Cost
    
    
    Fair Value
    
    
    Unrealized LossA
    
    $
    338
    
    
    $
    217
    
    
    $
    121BBB
    
    
    537
    
    
    
    324
    
    
    
    213Non-investment grade
    
    
    66
    
    
    
    38
    
    
    
    28Total
    
    $
    941
    
    
    $
    579
    
    
    $
    362
  Contractual Maturity
  Contractual Maturity
 December 31, 2008
    
    
    December 31, 2007Cost or
    
    
    Estimated
    
    
    Cost or
    
    
    EstimatedAmortized
    
    
    Fair
    
    
    Amortized
    
    
    FairCost
    
    
    Value
    
    
    Cost
    
    
    Value(In millions)Due in one year or less
    
    $
    3,105
    
    
    $
    2,707
    
    
    $
    2,685
    
    
    $
    2,678Due after one year through five years
    
    
    10,295
    
    
    
    9,210
    
    
    
    12,219
    
    
    
    12,002Due after five years through ten years
    
    
    5,929
    
    
    
    4,822
    
    
    
    6,150
    
    
    
    6,052Due after ten years
    
    
    14,825
    
    
    
    12,147
    
    
    
    13,157
    
    
    
    13,348Total
    
    $
    34,154
    
    
    $
    28,886
    
    
    $
    34,211
    
    
    $
    34,080
  90




---



##### 



Limited Partnerships
  Investment Commitments
    Investments on Deposit
    91




---



##### 



Note C. Derivative Financial Instruments
        92




---



##### 



Credit Ratings of Underlying Reference  Obligations
 Fair Value of
    
    
    Maximum Amount of
    
    
    WeightedCredit Default
    
    
    Future Payments under
    
    
    Average YearsDecember 31, 2008
    
    Swaps
    
    
    Credit Default Swaps
    
    
    to Maturity(In millions)AAA/AA/A
    
    $
    (8
    )
    
    $
    40
    
    
    
    12.3BBB
    
    
    (4
    )
    
    
    55
    
    
    
    3.1BB
    
    
    
    
    
    
    
    
    
    
    B
    
    
    (2
    )
    
    
    8
    
    
    
    4.1CCC and lower
    
    
    (29
    )
    
    
    45
    
    
    
    4.5Total
    
    $
    (43
    )
    
    $
    148
    
    
    
    6.1
    Recognized Gains (Losses)
 Years ended December 31
    
    2008
    
    
    2007
    
    
    2006(In millions)Without hedge designationInterest rate swaps
    
    $
    (59
    )
    
    $
    11
    
    
    $
    14Credit default swaps  purchased protection
    
    
    86
    
    
    
    95
    
    
    
    (4
    )Credit default swaps  sold protection
    
    
    (35
    )
    
    
    (40
    )
    
    
    4Futures purchased
    
    
    
    
    
    
    7
    
    
    
    Futures sold, not yet purchased
    
    
    (11
    )
    
    
    (38
    )
    
    
    4Currency forwards
    
    
    2
    
    
    
    (4
    )
    
    
    Options embedded in convertible debt securities
    
    
    1
    
    
    
    1
    
    
    
    Equity warrants
    
    
    (2
    )
    
    
    
    
    
    
    Trading activitiesFutures purchased
    
    
    (131
    )
    
    
    
    
    
    
    65Futures sold, not yet purchased
    
    
    1
    
    
    
    
    
    
    
    Total
    
    $
    (148
    )
    
    $
    32
    
    
    $
    83
 93




---



##### 



Derivative Financial Instruments
 Contractual/Notional
    
    
    Estimated Fair ValueDecember 31, 2008
    
    Amount
    
    
    Asset
    
    
    (Liability)(In millions)Without hedge designationInterest rate swaps
    
    $
    900
    
    
    $
    
    
    
    $
    (66
    )Credit default swaps  purchased protection
    
    
    405
    
    
    
    24
    
    
    
    (2
    )Credit default swaps  sold protection
    
    
    148
    
    
    
    
    
    
    
    (43
    )Equity warrants
    
    
    4
    
    
    
    
    
    
    
    Total
    
    $
    1,457
    
    
    $
    24
    
    
    $
    (111
    )
 Derivative Financial Instruments
 Contractual/Notional
    
    
    Estimated Fair ValueDecember 31, 2007
    
    Amount
    
    
    Asset
    
    
    (Liability)(In millions)Without hedge designationInterest rate swaps
    
    $
    451
    
    
    $
    
    
    
    $
    (27
    )Credit default swaps  purchased protection
    
    
    928
    
    
    
    61
    
    
    
    (4
    )Credit default swaps  sold protection
    
    
    226
    
    
    
    1
    
    
    
    (31
    )Equity warrants
    
    
    4
    
    
    
    2
    
    
    
    Options embedded in convertible debt securities
    
    
    3
    
    
    
    
    
    
    
    Trading activitiesFutures purchased
    
    
    791
    
    
    
    
    
    
    
    (4
    )Futures sold, not yet purchased
    
    
    135
    
    
    
    
    
    
    
    Currency forwards
    
    
    44
    
    
    
    2
    
    
    
    (1
    )Total
    
    $
    2,582
    
    
    $
    66
    
    
    $
    (67
    )
 
 94




---



##### 



Note D. Fair Value
      Assets and Liabilities Measured at Fair Value
  TotalAssets/(Liabilities)December 31, 2008
    
    Level 1
    
    
    Level 2
    
    
    Level 3
    
    
    at fair value(In millions)AssetsFixed maturity securities
    
    $
    2,028
    
    
    $
    24,367
    
    
    $
    2,492
    
    
    $
    28,887Equity securities
    
    
    567
    
    
    
    94
    
    
    
    210
    
    
    
    871Derivative financial instruments, included in Other invested
assets
    
    
    
    
    
    
    
    
    
    
    24
    
    
    
    24Short term investments
    
    
    2,926
    
    
    
    608
    
    
    
    
    
    
    
    3,534Life settlement contracts, included in Other assets
    
    
    
    
    
    
    
    
    
    
    129
    
    
    
    129Discontinued operations investments, included in Other
liabilities
    
    
    83
    
    
    
    59
    
    
    
    15
    
    
    
    157Separate account business
    
    
    40
    
    
    
    306
    
    
    
    38
    
    
    
    384Total assets
    
    $
    5,644
    
    
    $
    25,434
    
    
    $
    2,908
    
    
    $
    33,986LiabilitiesDerivative financial instruments, included in Other liabilities
    
    $
    
    
    
    $
    
    
    
    $
    (111
    )
    
    $
    (111
    )Total liabilities
    
    $
    
    
    
    $
    
    
    
    $
    (111
    )
    
    $
    (111
    )
 95




---



##### 



Net realized
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    UnrealizedNet realized
    
    
    investment gains
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    gains (losses)investment gains
    
    
    (losses) and net
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    recorded in(losses) and net
    
    
    change in
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    net incomechange in
    
    
    unrealized
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    on level 3unrealized
    
    
    appreciation
    
    
    Purchases,
    
    
    
    
    
    
    
    
    
    
    assets andappreciation
    
    
    (depreciation)
    
    
    sales,
    
    
    
    
    
    
    
    
    
    
    liabilitiesBalance at
    
    
    (depreciation)
    
    
    included in other
    
    
    issuances
    
    
    Net transfers
    
    
    Balance at
    
    
    held atJanuary 1,
    
    
    included in net
    
    
    comprehensive
    
    
    and
    
    
    in (out) of
    
    
    December
    
    
    DecemberLevel 3
    
    2008
    
    
    income*
    
    
    income
    
    
    settlements
    
    
    level 3
    
    
    31, 2008
    
    
    31, 2008*(In millions)Fixed maturity securities
    
    $
    2,684
    
    
    $
    (379
    )
    
    $
    (505
    )
    
    $
    (178
    )
    
    $
    870
    
    
    $
    2,492
    
    
    $
    (378
    )Equity securities
    
    
    196
    
    
    
    (16
    )
    
    
    6
    
    
    
    25
    
    
    
    (1
    )
    
    
    210
    
    
    
    (4
    )Derivative financial instruments, net
    
    
    2
    
    
    
    (10
    )
    
    
    
    
    
    
    (79
    )
    
    
    
    
    
    
    (87
    )
    
    
    (89
    )Short term investments
    
    
    85
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (85
    )
    
    
    
    
    
    
    Life settlement contracts
    
    
    115
    
    
    
    48
    
    
    
    
    
    
    
    (34
    )
    
    
    
    
    
    
    129
    
    
    
    17Discontinued operations investments
    
    
    42
    
    
    
    (1
    )
    
    
    (5
    )
    
    
    (4
    )
    
    
    (17
    )
    
    
    15
    
    
    
    Separate account business
    
    
    30
    
    
    
    
    
    
    
    
    
    
    
    (18
    )
    
    
    26
    
    
    
    38
    
    
    
    Total
    
    $
    3,154
    
    
    $
    (358
    )
    
    $
    (504
    )
    
    $
    (288
    )
    
    $
    793
    
    
    $
    2,797
    
    
    $
    (454
    )
 *
    
    Net realized and unrealized gains and losses shown above are reported in Net income as follows. Major Category of Assets and Liabilities
    
    Consolidated Statement of Operations Line ItemsFixed maturity securities
    
    Net investment income and Realized investment gains (losses)Equity securities
    
    Realized investment gains (losses)Derivative financial instruments (Assets)
    
    Net investment income and Realized investment gains (losses)Life settlement contracts
    
    Other revenuesDerivative financial instruments (Liabilities)
    
    Net investment income and Realized investment gains (losses)
   Fixed Maturity Securities
  96




---



##### 



Equity Securities
   Derivative Financial Instruments
  Short Term Investments
  Life Settlement Contracts
  Discontinued Operations Investments
  Separate Account Business
  Assets and Liabilities Not Measured at Fair Value
  Financial Assets and Liabilities
 2008
    
    2007Carrying
    
    Estimated
    
    Carrying
    
    EstimatedDecember 31
    
    Amount
    
    Fair Value
    
    Amount
    
    Fair Value(In millions)Financial assetsNotes receivable for the issuance of common stock
    
    $
    42
    
    
    $
    42
    
    
    $
    51
    
    
    $
    51Financial liabilitiesPremium deposits and annuity contracts
    
    $
    111
    
    
    $
    113
    
    
    $
    826
    
    
    $
    826Short term debt
    
    
    
    
    
    
    
    
    
    
    350
    
    
    
    350Long term debt
    
    
    2,058
    
    
    
    1,585
    
    
    
    1,807
    
    
    
    1,851
  97




---



##### 



Note E. Income Taxes
      98




---



##### 



Reconciliation of Unrecognized Tax Benefits
 Year ended December 31
    
    2008
    
    
    2007(In millions)Balance at January 1
    
    $
    
    
    
    $
    3Reductions for tax positions of prior years
    
    
    
    
    
    
    (2
    )Settlements
    
    
    
    
    
    
    (1
    )Balance at December 31
    
    $
    
    
    
    $
    
    Tax Reconciliation
 Years ended December 31
    
    2008
    
    
    2007
    
    
    2006(In millions)Income tax (expense) benefit at statutory rates
    
    $
    198
    
    
    $
    (428
    )
    
    $
    (577
    )Tax benefit from tax exempt income
    
    
    118
    
    
    
    100
    
    
    
    75Other tax (expense) benefit, including IRS settlements
    
    
    (5
    )
    
    
    11
    
    
    
    33Effective income tax (expense) benefit
    
    $
    311
    
    
    $
    (317
    )
    
    $
    (469
    )
   Current and Deferred Taxes
 Years ended December 31
    
    2008
    
    
    2007
    
    
    2006(In millions)Current tax (expense) benefit
    
    $
    137
    
    
    $
    (418
    )
    
    $
    (296
    )Tax benefit recognized for FIN 48 uncertainties in the income statement
    
    
    
    
    
    
    2
    
    
    
    Deferred tax (expense) benefit
    
    
    174
    
    
    
    99
    
    
    
    (173
    )Total income tax (expense) benefit
    
    $
    311
    
    
    $
    (317
    )
    
    $
    (469
    )
 99




---



##### 



Components of Net Deferred Tax Asset
 December 31
    
    2008
    
    
    2007(In millions)Deferred Tax Assets:Insurance reserves:Property and casualty claim and claim adjustment expense reserves
    
    $
    731
    
    
    $
    771Unearned premium reserves
    
    
    234
    
    
    
    243Other insurance reserves
    
    
    24
    
    
    
    24Receivables
    
    
    169
    
    
    
    231Employee benefits
    
    
    282
    
    
    
    116Life settlement contracts
    
    
    70
    
    
    
    73Investment valuation differences
    
    
    302
    
    
    
    8Net unrealized losses
    
    
    1,905
    
    
    
    Net operating loss carried forward
    
    
    24
    
    
    
    19Other assets
    
    
    228
    
    
    
    199Gross deferred tax assets
    
    
    3,969
    
    
    
    1,684Deferred Tax Liabilities:Deferred acquisition costs
    
    
    241
    
    
    
    251Net unrealized gains
    
    
    
    
    
    
    25Other liabilities
    
    
    235
    
    
    
    210Gross deferred tax liabilities
    
    
    476
    
    
    
    486Net deferred tax asset
    
    $
    3,493
    
    
    $
    1,198
  100




---



##### 



Note F. Claim and Claim Adjustment Expense Reserves
    101




---



##### 



Reconciliation of Claim and Claim Adjustment Expense Reserves
 As of and for the years ended December 31
    
    2008
    
    
    2007
    
    
    2006(In millions)Reserves, beginning of year:Gross
    
    $
    28,588
    
    
    $
    29,636
    
    
    $
    30,938Ceded
    
    
    7,056
    
    
    
    8,191
    
    
    
    10,605Net reserves, beginning of year
    
    
    21,532
    
    
    
    21,445
    
    
    
    20,333Net incurred claim and claim adjustment expenses:Provision for insured events of current year
    
    
    5,193
    
    
    
    4,939
    
    
    
    4,840(Decrease) increase in provision for insured events of prior years
    
    
    (5
    )
    
    
    231
    
    
    
    361Amortization of discount
    
    
    123
    
    
    
    120
    
    
    
    121Total net incurred (a)
    
    
    5,311
    
    
    
    5,290
    
    
    
    5,322Net payments attributable to:Current year events
    
    
    1,034
    
    
    
    867
    
    
    
    835Prior year events
    
    
    4,328
    
    
    
    4,447
    
    
    
    3,439Reinsurance recoverable against net reserve transferred under
retroactive reinsurance agreements
    
    
    (10
    )
    
    
    (17
    )
    
    
    (13
    )Total net payments (b)
    
    
    5,352
    
    
    
    5,297
    
    
    
    4,261Foreign currency translation adjustment
    
    
    (186
    )
    
    
    94
    
    
    
    51Net reserves, end of year
    
    
    21,305
    
    
    
    21,532
    
    
    
    21,445Ceded reserves, end of year
    
    
    6,288
    
    
    
    7,056
    
    
    
    8,191Gross reserves, end of year
    
    $
    27,593
    
    
    $
    28,588
    
    
    $
    29,636
 
 (a)
    
    Total net incurred above does not agree to Insurance claims and policyholders benefits as
reflected on the Consolidated Statements of Operations due to expenses incurred related to
uncollectible reinsurance and loss deductible receivables, and benefit expenses related to
future policy benefits and policyholders funds, which are not reflected in the table above.(b)
    
    In 2006, net payments were decreased by $935 million due to the impact of significant
commutations.  Reserve Development
 Years ended December 31
    
    2008
    
    
    2007
    
    
    2006(In millions)Asbestos and environmental pollution
    
    $
    110
    
    
    $
    7
    
    
    $
    Other
    
    
    (117
    )
    
    
    213
    
    
    
    332Property and casualty reserve development
    
    
    (7
    )
    
    
    220
    
    
    
    332Life reserve development in life company
    
    
    2
    
    
    
    11
    
    
    
    29Total
    
    $
    (5
    )
    
    $
    231
    
    
    $
    361
 102




---



##### 



December 31, 2008
 Gross and Net Carried
Claim and Claim Adjustment Expense Reserves
 Life &
    
    
    CorporateStandard
    
    
    Specialty
    
    
    Group
    
    
    & Other(In millions)
    
    Lines
    
    
    Lines
    
    
    Non-Core
    
    
    Non-Core
    
    
    TotalGross Case Reserves
    
    $
    6,158
    
    
    $
    2,719
    
    
    $
    2,473
    
    
    $
    1,823
    
    
    $
    13,173Gross IBNR Reserves
    
    
    5,890
    
    
    
    5,563
    
    
    
    389
    
    
    
    2,578
    
    
    
    14,420Total Gross Carried Claim and Claim Adjustment
Expense Reserves
    
    $
    12,048
    
    
    $
    8,282
    
    
    $
    2,862
    
    
    $
    4,401
    
    
    $
    27,593Net Case Reserves
    
    $
    4,995
    
    
    $
    2,149
    
    
    $
    1,656
    
    
    $
    1,126
    
    
    $
    9,926Net IBNR Reserves
    
    
    4,875
    
    
    
    4,694
    
    
    
    249
    
    
    
    1,561
    
    
    
    11,379Total Net Carried Claim and Claim Adjustment
Expense Reserves
    
    $
    9,870
    
    
    $
    6,843
    
    
    $
    1,905
    
    
    $
    2,687
    
    
    $
    21,305
 December 31, 2007
 Gross and Net Carried
Claim and Claim Adjustment Expense Reserves
 Life &
    
    
    CorporateStandard
    
    
    Specialty
    
    
    Group
    
    
    & Other(In millions)
    
    Lines
    
    
    Lines
    
    
    Non-Core
    
    
    Non-Core
    
    
    TotalGross Case Reserves
    
    $
    5,988
    
    
    $
    2,585
    
    
    $
    2,554
    
    
    $
    2,159
    
    
    $
    13,286Gross IBNR Reserves
    
    
    6,060
    
    
    
    5,818
    
    
    
    473
    
    
    
    2,951
    
    
    
    15,302Total Gross Carried Claim and Claim
Adjustment Expense Reserves
    
    $
    12,048
    
    
    $
    8,403
    
    
    $
    3,027
    
    
    $
    5,110
    
    
    $
    28,588Net Case Reserves
    
    $
    4,750
    
    
    $
    2,090
    
    
    $
    1,583
    
    
    $
    1,328
    
    
    $
    9,751Net IBNR Reserves
    
    
    5,170
    
    
    
    4,527
    
    
    
    297
    
    
    
    1,787
    
    
    
    11,781Total Net Carried Claim and Claim
Adjustment Expense Reserves
    
    $
    9,920
    
    
    $
    6,617
    
    
    $
    1,880
    
    
    $
    3,115
    
    
    $
    21,532
  A&E Reserves
    103




---



##### 



A&E Reserves
 December 31, 2008
    
    
    December 31, 2007Environmental
    
    
    
    
    
    
    Environmental(In millions)
    
    Asbestos
    
    
    Pollution
    
    
    Asbestos
    
    
    PollutionGross reserves
    
    $
    2,112
    
    
    $
    392
    
    
    $
    2,352
    
    
    $
    367Ceded reserves
    
    
    (910
    )
    
    
    (130
    )
    
    
    (1,030
    )
    
    
    (125
    )Net reserves
    
    $
    1,202
    
    
    $
    262
    
    
    $
    1,322
    
    
    $
    242
 Asbestos
     104




---



##### 



In re:
Burns & Roe Enterprises, Inc
 105




---



##### 



Boson v. Union Carbide
Corp.,
 Pennock, et al. v. Maryland Casualty,
et al.
 106




---



##### 



Environmental Pollution
  Net Prior Year Development
   2008 Net Prior Year Development
 CorporateStandard
    
    
    Specialty
    
    
    & Other Non-(In millions)
    
    Lines
    
    
    Lines
    
    
    Core
    
    
    TotalPretax unfavorable (favorable) net prior year claim and
allocated claim adjustment expense reserve development:Core (Non-A&E)
    
    $
    (34
    )
    
    $
    (164
    )
    
    $
    13
    
    
    $
    (185
    )A&E
    
    
    
    
    
    
    
    
    
    
    110
    
    
    
    110Pretax unfavorable (favorable) net prior year development
before impact of premium development
    
    
    (34
    )
    
    
    (164
    )
    
    
    123
    
    
    
    (75
    )Pretax unfavorable (favorable) premium development
    
    
    16
    
    
    
    (20
    )
    
    
    (1
    )
    
    
    (5
    )Total pretax unfavorable (favorable) net prior year development
    
    $
    (18
    )
    
    $
    (184
    )
    
    $
    122
    
    
    $
    (80
    )
 107




---



##### 



2007 Net Prior Year Development
 CorporateStandard
    
    
    Specialty
    
    
    & Other Non-(In millions)
    
    Lines
    
    
    Lines
    
    
    Core
    
    
    TotalPretax unfavorable (favorable) net prior year claim and
allocated claim adjustment expense reserve development:Core (Non-A&E)
    
    $
    (104
    )
    
    $
    (25
    )
    
    $
    84
    
    
    $
    (45
    )A&E
    
    
    
    
    
    
    
    
    
    
    7
    
    
    
    7Pretax unfavorable (favorable) net prior year development
before impact of premium development
    
    
    (104
    )
    
    
    (25
    )
    
    
    91
    
    
    
    (38
    )Pretax favorable premium development
    
    
    (19
    )
    
    
    (11
    )
    
    
    (5
    )
    
    
    (35
    )Total pretax unfavorable (favorable) net prior year development
    
    $
    (123
    )
    
    $
    (36
    )
    
    $
    86
    
    
    $
    (73
    )
 2006 Net Prior Year Development
 CorporateStandard
    
    
    Specialty
    
    
    & Other Non-(In millions)
    
    Lines
    
    
    Lines
    
    
    Core
    
    
    TotalPretax unfavorable (favorable) net prior year claim and
allocated claim adjustment expense reserve development:Core (Non-A&E)
    
    $
    208
    
    
    $
    (61
    )
    
    $
    86
    
    
    $
    233A&E
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Pretax unfavorable (favorable) net prior year development
before impact of premium development
    
    
    208
    
    
    
    (61
    )
    
    
    86
    
    
    
    233Pretax unfavorable (favorable) premium development
    
    
    (58
    )
    
    
    (5
    )
    
    
    2
    
    
    
    (61
    )Total pretax unfavorable (favorable) net prior year development
    
    $
    150
    
    
    $
    (66
    )
    
    $
    88
    
    
    $
    172
 108




---



##### 



2008 Net Prior Year Development
 Standard Lines
     Specialty Lines
    109




---



##### 



Corporate & Other Non-Core
   2007 Net Prior Year Development
 Standard Lines
      Specialty Lines
    110




---



##### 



Corporate & Other Non-Core
   2006 Net Prior Year Development
 Standard Lines
    Specialty Lines
  111




---



##### 



Corporate & Other Non-Core
  112




---



##### 



Note G. Legal Proceedings and Contingent Liabilities
 Insurance Brokerage Antitrust Litigation
 In re Insurance Brokerage Antitrust Litigation
  Global Crossing Limited Litigation
 Global Crossing Estate Representative, for itself and as the Liquidating Trustee of the
Global Crossing Liquidating Trust v. Gary Winnick, et al.,
 California Long Term Care Litigation
 Shaffer v. Continental Casualty Company
 Asbestos and Environmental Pollution (A&E) Reserves
  Other Litigation
 
 113




---



##### 



Note H. Reinsurance
     Components of Reinsurance ReceivablesDecember 31(In millions)
    
    2008
    
    
    2007Reinsurance receivables related to insurance reserves:Ceded claim and claim adjustment expense
    
    $
    6,288
    
    
    $
    7,056Ceded future policy benefits
    
    
    903
    
    
    
    987Ceded policyholders funds
    
    
    39
    
    
    
    43Reinsurance receivables related to paid losses
    
    
    531
    
    
    
    603Reinsurance receivables
    
    
    7,761
    
    
    
    8,689Allowance for uncollectible reinsurance
    
    
    (366
    )
    
    
    (461
    )Reinsurance receivables, net of allowance for uncollectible reinsurance
    
    $
    7,395
    
    
    $
    8,228
    114




---



##### 



Components of Earned Premiums
 Assumed/(In millions)
    
    Direct
    
    
    Assumed
    
    
    Ceded
    
    
    Net
    
    
    Net %2008 Earned PremiumsProperty and casualty
    
    $
    8,496
    
    
    $
    164
    
    
    $
    2,121
    
    
    $
    6,539
    
    
    
    2.5
    %Accident and health
    
    
    593
    
    
    
    46
    
    
    
    28
    
    
    
    611
    
    
    
    7.5Life
    
    
    99
    
    
    
    
    
    
    
    98
    
    
    
    1
    
    
    
    Total earned premiums
    
    $
    9,188
    
    
    $
    210
    
    
    $
    2,247
    
    
    $
    7,151
    
    
    
    2.9
    %2007 Earned PremiumsProperty and casualty
    
    $
    9,097
    
    
    $
    118
    
    
    $
    2,349
    
    
    $
    6,866
    
    
    
    1.7
    %Accident and health
    
    
    660
    
    
    
    76
    
    
    
    119
    
    
    
    617
    
    
    
    12.3Life
    
    
    76
    
    
    
    
    
    
    
    75
    
    
    
    1
    
    
    
    Total earned premiums
    
    $
    9,833
    
    
    $
    194
    
    
    $
    2,543
    
    
    $
    7,484
    
    
    
    2.6
    %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
    %
  Components of Written Premiums
 Assumed/(In millions)
    
    Direct
    
    
    Assumed
    
    
    Ceded
    
    
    Net
    
    
    Net %2008 Written PremiumsProperty and casualty
    
    $
    8,413
    
    
    $
    182
    
    
    $
    2,109
    
    
    $
    6,486
    
    
    
    2.8
    %Accident and health
    
    
    572
    
    
    
    51
    
    
    
    18
    
    
    
    605
    
    
    
    8.4Life
    
    
    70
    
    
    
    
    
    
    
    69
    
    
    
    1
    
    
    
    Total written premiums
    
    $
    9,055
    
    
    $
    233
    
    
    $
    2,196
    
    
    $
    7,092
    
    
    
    3.3
    %2007 Written PremiumsProperty and casualty
    
    $
    8,925
    
    
    $
    123
    
    
    $
    2,272
    
    
    $
    6,776
    
    
    
    1.8
    %Accident and health
    
    
    646
    
    
    
    75
    
    
    
    113
    
    
    
    608
    
    
    
    12.3Life
    
    
    81
    
    
    
    
    
    
    
    80
    
    
    
    1
    
    
    
    Total written premiums
    
    $
    9,652
    
    
    $
    198
    
    
    $
    2,465
    
    
    $
    7,385
    
    
    
    2.7
    %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
    %
 115




---



##### 



Components of Life Insurance Inforce
 (In millions)
    
    Direct
    
    Assumed
    
    Ceded
    
    Net2008
    
    $
    10,805
    
    
    $
    
    
    
    $
    10,790
    
    
    $
    152007
    
    
    14,089
    
    
    
    1
    
    
    
    14,071
    
    
    
    192006
    
    
    15,652
    
    
    
    1
    
    
    
    15,633
    
    
    
    20
  116




---



##### 



Note I. Debt
  Debt
 December 31(In millions)
    
    2008
    
    
    2007Variable rate debt:Credit Facility  variable rate and term, due August 1, 2012
    
    $
    250
    
    
    $
    Debenture  CNA Surety, face amount of $31, due April 29, 2034
    
    
    31
    
    
    
    31Senior notes:6.450%, face amount of $150, due January 15, 2008
    
    
    
    
    
    
    1506.600%, face amount of $200, due December 15, 2008
    
    
    
    
    
    
    2006.000%, face amount of $400, due August 15, 2011
    
    
    399
    
    
    
    3998.375%, face amount of $70, due August 15, 2012
    
    
    69
    
    
    
    695.850%, face amount of $549, due December 15, 2014
    
    
    547
    
    
    
    5466.500%, face amount of $350, due August 15, 2016
    
    
    348
    
    
    
    3486.950%, 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%-7.600%, due through 2019
    
    
    24
    
    
    
    24Total debt
    
    $
    2,058
    
    
    $
    2,157
     Maturity of Debt
 (In millions)2009
    
    $
    2010
    
    
    2011
    
    
    4002012
    
    
    3202013
    
    
    Thereafter
    
    
    1,347Less original issue discount
    
    
    (9
    )Total
    
    $
    2,058
 117




---



##### 



Note J. Benefit Plans
 Pension and Postretirement Healthcare and Life Insurance Benefit Plans
     118




---



##### 



Benefit Obligations and Accrued Benefit Costs
 Pension Benefits
    
    
    Postretirement Benefits(In millions)
    
    2008
    
    
    2007
    
    
    2008
    
    
    2007Benefit obligation at January 1
    
    $
    2,503
    
    
    $
    2,602
    
    
    $
    162
    
    
    $
    177Changes in benefit obligation:Service cost
    
    
    20
    
    
    
    23
    
    
    
    1
    
    
    
    2Interest cost
    
    
    147
    
    
    
    145
    
    
    
    9
    
    
    
    9Participants contributions
    
    
    
    
    
    
    
    
    
    
    7
    
    
    
    7Plan amendments
    
    
    2
    
    
    
    (7
    )
    
    
    
    
    
    
    Actuarial (gain) loss
    
    
    27
    
    
    
    (111
    )
    
    
    (10
    )
    
    
    (15
    )Benefits paid
    
    
    (149
    )
    
    
    (147
    )
    
    
    (19
    )
    
    
    (18
    )Foreign currency translation and other
    
    
    (21
    )
    
    
    (2
    )
    
    
    
    
    
    
    Benefit obligations at December 31
    
    
    2,529
    
    
    
    2,503
    
    
    
    150
    
    
    
    162Fair value of plan assets at January 1
    
    
    2,331
    
    
    
    2,258
    
    
    
    
    
    
    
    Change in plan assets:Actual return on plan assets
    
    
    (347
    )
    
    
    187
    
    
    
    
    
    
    
    Company contributions
    
    
    71
    
    
    
    30
    
    
    
    12
    
    
    
    11Participants contributions
    
    
    
    
    
    
    
    
    
    
    7
    
    
    
    7Benefits paid
    
    
    (149
    )
    
    
    (147
    )
    
    
    (19
    )
    
    
    (18
    )Foreign currency translation and other
    
    
    (22
    )
    
    
    3
    
    
    
    
    
    
    
    Fair value of plan assets at December 31
    
    
    1,884
    
    
    
    2,331
    
    
    
    
    
    
    
    Funded status
    
    $
    (645
    )
    
    $
    (172
    )
    
    $
    (150
    )
    
    $
    (162
    )Amounts recognized on the Consolidated Balance
Sheets at December 31:Other assets
    
    $
    2
    
    
    $
    3
    
    
    $
    
    
    
    $
    Other liabilities
    
    
    (647
    )
    
    
    (175
    )
    
    
    (150
    )
    
    
    (162
    )Net amount recognized
    
    $
    (645
    )
    
    $
    (172
    )
    
    $
    (150
    )
    
    $
    (162
    )Amounts recognized in Accumulated other
comprehensive income,
not yet recognized in net periodic (benefit) cost:Prior service credit
    
    $
    (1
    )
    
    $
    (3
    )
    
    $
    (113
    )
    
    $
    (128
    )Net actuarial loss
    
    
    792
    
    
    
    242
    
    
    
    27
    
    
    
    37Net amount recognized
    
    $
    791
    
    
    $
    239
    
    
    $
    (86
    )
    
    $
    (91
    )
  119




---



##### 



Pension and Postretirement Plans with Accumulated Benefit Obligation in Excess of Plan Assets
 Pension Benefits
    
    Postretirement Benefits(In millions)
    
    2008
    
    2007
    
    2008
    
    2007Accumulated benefit obligation
    
    $
    2,324
    
    
    $
    91
    
    
    $
    150
    
    
    $
    162Fair value of plan assets
    
    
    1,793
    
    
    
    
    
    
    
    
    
    
    
    
  Years ended December 31(In millions)
    
    2008
    
    
    2007
    
    
    2006Pension benefitsService cost
    
    $
    20
    
    
    $
    23
    
    
    $
    26Interest cost on projected benefit obligation
    
    
    147
    
    
    
    145
    
    
    
    142Expected return on plan assets
    
    
    (180
    )
    
    
    (174
    )
    
    
    (162
    )Prior service cost amortization
    
    
    
    
    
    
    2
    
    
    
    2Actuarial loss amortization
    
    
    4
    
    
    
    11
    
    
    
    25Net periodic pension (benefit) cost
    
    $
    (9
    )
    
    $
    7
    
    
    $
    33Postretirement benefitsService cost
    
    $
    1
    
    
    $
    2
    
    
    $
    2Interest cost on projected benefit obligation
    
    
    9
    
    
    
    9
    
    
    
    10Prior service cost amortization
    
    
    (16
    )
    
    
    (18
    )
    
    
    (28
    )Actuarial loss amortization
    
    
    1
    
    
    
    3
    
    
    
    4Net periodic postretirement benefit
    
    $
    (5
    )
    
    $
    (4
    )
    
    $
    (12
    )
  Years ended December 31(In millions)
    
    2008
    
    
    2007
    
    
    2006Pension and postretirement benefitsIncrease in FAS 87 minimum liability
    
    $
    
    
    
    $
    
    
    
    $
    124Amounts arising during the period
    
    
    (546
    )
    
    
    151
    
    
    
    Reclassification adjustment relating to prior service cost
    
    
    (16
    )
    
    
    (16
    )
    
    
    Reclassification adjustment relating to actuarial loss
    
    
    5
    
    
    
    14
    
    
    
    Total increase (decrease) in Other comprehensive income
    
    $
    (557
    )
    
    $
    149
    
    
    $
    124
  Pension
    
    
    Postretirement(In millions)
    
    Benefits
    
    
    BenefitsAmortization of prior service cost
    
    $
    
    
    
    $
    (15
    )Amortization of actuarial loss
    
    
    25
    
    
    
    1Total estimated amounts to be recognized
    
    $
    25
    
    
    $
    (14
    )
 120




---



##### 



Actuarial Assumptions for Benefit Obligations
 December 31
    
    2008
    
    2007Pension benefitsDiscount rate
    
    
    6.300
    %
    
    
    6.000
    %Expected long term rate of return
    
    
    8.000
    
    
    
    8.000Rate of compensation increases
    
    
    5.830
    
    
    
    5.830Postretirement benefitsDiscount rate
    
    
    6.300
    %
    
    
    5.875
    %
  Actuarial Assumptions for Net Cost or Benefit
 Years ended December 31
    
    2008
    
    2007
    
    2006Pension benefitsDiscount rate
    
    
    6.000
    %
    
    
    5.750
    %
    
    
    5.625
    %Expected long term rate of return
    
    
    8.000
    
    
    
    8.000
    
    
    
    8.000Rate of compensation increases
    
    
    5.830
    
    
    
    5.830
    
    
    
    5.830Postretirement benefitsDiscount rate
    
    
    5.875
    %
    
    
    5.625
    %
    
    
    5.500
    %
    Pension Plan Assets
 Percentage of Plan AssetsDecember 31
    
    2008
    
    
    2007Asset CategoryFixed maturity securities
    
    
    35
    %
    
    
    25
    %Equity securities
    
    
    17
    
    
    
    20Limited partnerships
    
    
    33
    
    
    
    28Short term investments
    
    
    11
    
    
    
    26Other
    
    
    4
    
    
    
    1Total
    
    
    100
    %
    
    
    100
    %
  121




---



##### 



Estimated Future Minimum Benefit Payments to Participants
 Pension
    
    Postretirement(In millions)
    
    Benefits
    
    Benefits2009
    
    $
    160
    
    
    $
    112010
    
    
    164
    
    
    
    122011
    
    
    168
    
    
    
    122012
    
    
    171
    
    
    
    122013
    
    
    177
    
    
    
    132014-2018
    
    
    956
    
    
    
    64
  Savings Plans
     Stock-Based Compensation
  122




---



##### 



Options and SARs Plan Activity
 2008Weighted-AverageOptionNumber
    
    
    Price perof Awards
    
    
    AwardBalance at January 1
    
    
    1,408,550
    
    
    $
    31.21Awards granted
    
    
    501,000
    
    
    
    32.06Awards exercised
    
    
    (4,400
    )
    
    
    25.97Awards forfeited, cancelled or expired
    
    
    (141,600
    )
    
    
    31.64Balance at December 31
    
    
    1,763,550
    
    
    $
    31.43Awards vested and expected to vest at December 31
    
    
    1,635,312
    
    
    $
    31.18Awards exercisable at December 31
    
    
    963,350
    
    
    $
    29.06Weighted average fair value per share of awards granted
    
    
    
    
    
    $
    5.45
       123




---



##### 



Note K. Operating Leases, Other Commitments and Contingencies, and Guarantees
 Operating Leases
   Future Minimum Lease Payments and Sublease Receipts
 Future
    
    
    FutureMinimum
    
    
    MinimumLease
    
    
    Sublease(In millions)
    
    Payments
    
    
    Receipts2009
    
    $
    41
    
    
    $
    32010
    
    
    37
    
    
    
    32011
    
    
    33
    
    
    
    32012
    
    
    29
    
    
    
    32013
    
    
    25
    
    
    
    2Thereafter
    
    
    39
    
    
    
    Total
    
    $
    204
    
    
    $
    14
   Other Commitments and Contingencies
  124




---



##### 



Guarantees
     
 125




---



##### 



Note L. Stockholders Equity and Statutory Accounting Practices
 2008 Senior Preferred
  
    
    The 2008 Senior Preferred is perpetual and is senior to CNAFs common stock and any
future preferred stock as to the payment of dividends and amounts payable upon any
liquidation, dissolution or winding up.
    
    No dividends may be declared on CNAFs common stock or any future preferred stock until
the 2008 Senior Preferred has been paid in full. Accordingly, the Company has suspended
common stock dividend payments.
    
    The 2008 Senior Preferred is not convertible into any other securities and may only be
redeemed upon the mutual agreement of the Company and Loews.
    
    The 2008 Senior Preferred accrues cumulative dividends at an initial rate of 10% per
year. On the fifth anniversary of the issuance and every five years thereafter, the
dividend rate will increase to the higher of 10% or the then current 10-year U.S. Treasury
yield plus 700 basis points.
    
    Dividends are payable quarterly and any dividends not paid when due will be compounded
quarterly. The Company paid $19 million on December 31, 2008, representing the first
quarterly dividend payment on the 2008 Senior Preferred.
  Common Stock Dividends
  Share Repurchases
  Series H Cumulative Preferred Stock Issue
   126




---



##### 



Statutory Accounting Practices (Unaudited)
       127




---



##### 



Preliminary Statutory Information
 Statutory Capital and Surplus
    
    
    Statutory Net Income (Loss)December 31
    
    
    Years Ended December 312008
    
    
    2007
    
    
    2008
    
    
    2007
    
    
    2006(In millions)Property and casualty companies (a)
    
    $
    8,002
    
    
    $
    8,511
    
    
    $
    (89
    )
    
    $
    575
    
    
    $
    721Life company
    
    
    487
    
    
    
    471
    
    
    
    (51
    )
    
    
    27
    
    
    
    67
 
 (a)
    
    Surplus includes the property and casualty companies equity ownership of the life companys
capital and surplus. 128




---



##### 



Note M. Comprehensive Income (Loss)
  Years ended December 31
    
    2008
    
    
    2007
    
    
    2006(In millions)
    
    Tax
    
    
    After- Tax
    
    
    Tax
    
    
    After- Tax
    
    
    Tax
    
    
    After- TaxOther comprehensive income (loss):Change in unrealized gains
(losses) on investments:Holding gains (losses)
arising during the period
    
    $
    1,942
    
    
    $
    (3,583
    )
    
    $
    226
    
    
    $
    (420
    )
    
    $
    (68
    )
    
    $
    127Reclassification adjustment
for (gains) losses included
in net income (loss)
    
    
    (16
    )
    
    
    30
    
    
    
    87
    
    
    
    (159
    )
    
    
    6
    
    
    
    (11
    )Net change in unrealized gains
(losses) on investments
    
    
    1,926
    
    
    
    (3,553
    )
    
    
    313
    
    
    
    (579
    )
    
    
    (62
    )
    
    
    116Net change in unrealized
gains (losses) on
discontinued operations and
other
    
    
    6
    
    
    
    (6
    )
    
    
    2
    
    
    
    3
    
    
    
    4
    
    
    
    (6
    )Net change in foreign
currency translation
adjustment
    
    
    
    
    
    
    (153
    )
    
    
    
    
    
    
    30
    
    
    
    
    
    
    
    42Net change related to pension
and postretirement benefits
    
    
    194
    
    
    
    (363
    )
    
    
    (52
    )
    
    
    97
    
    
    
    (44
    )
    
    
    80Allocation to participating
policyholders and minority
interests
    
    
    
    
    
    
    48
    
    
    
    
    
    
    
    3
    
    
    
    
    
    
    
    4Other comprehensive
income (loss)
    
    $
    2,126
    
    
    
    (4,027
    )
    
    $
    263
    
    
    
    (446
    )
    
    $
    (102
    )
    
    
    236Net income (loss)
    
    
    
    
    
    
    (299
    )
    
    
    
    
    
    
    851
    
    
    
    
    
    
    
    1,108Total comprehensive income (loss)
    
    
    
    
    
    $
    (4,326
    )
    
    
    
    
    
    $
    405
    
    
    
    
    
    
    $
    1,344
  Accumulated Other Comprehensive Income (Loss)
 Years ended December 31
    
    2008
    
    
    2007(In millions)
    
    Tax
    
    
    After-Tax
    
    
    Tax
    
    
    After-TaxCumulative foreign currency translation adjustment
    
    $
    
    
    
    $
    (30
    )
    
    $
    
    
    
    $
    123Net pension and postretirement benefit liabilities
    
    
    246
    
    
    
    (459
    )
    
    
    52
    
    
    
    (96
    )Net unrealized gains (losses) on investments and
other
    
    
    1,918
    
    
    
    (3,435
    )
    
    
    (14
    )
    
    
    76Accumulated other comprehensive income (loss)
    
    $
    2,164
    
    
    $
    (3,924
    )
    
    $
    38
    
    
    $
    103
 129




---



##### 



Note N. Business Segments
         130




---



##### 



Year ended December 31, 2008
    
    Standard
    
    
    Specialty
    
    
    Life & Group
    
    
    Corporate & Other(In millions)
    
    Lines
    
    
    Lines
    
    
    Non-Core
    
    
    Non-Core
    
    
    Eliminations
    
    
    TotalRevenues:Net earned premiums
    
    $
    3,065
    
    
    $
    3,477
    
    
    $
    612
    
    
    $
    1
    
    
    $
    (4
    )
    
    $
    7,151Net investment income
    
    
    506
    
    
    
    451
    
    
    
    484
    
    
    
    178
    
    
    
    
    
    
    
    1,619Other revenues
    
    
    57
    
    
    
    227
    
    
    
    28
    
    
    
    14
    
    
    
    
    
    
    
    326Total operating revenues
    
    
    3,628
    
    
    
    4,155
    
    
    
    1,124
    
    
    
    193
    
    
    
    (4
    )
    
    
    9,096Claims, benefits and expenses:Net incurred claims and benefits
    
    
    2,313
    
    
    
    2,153
    
    
    
    1,104
    
    
    
    133
    
    
    
    
    
    
    
    5,703Policyholders dividends
    
    
    (1
    )
    
    
    15
    
    
    
    6
    
    
    
    
    
    
    
    
    
    
    
    20Amortization of deferred acquisition costs
    
    
    700
    
    
    
    754
    
    
    
    13
    
    
    
    
    
    
    
    
    
    
    
    1,467Other insurance related expenses
    
    
    267
    
    
    
    213
    
    
    
    201
    
    
    
    17
    
    
    
    (4
    )
    
    
    694Other expenses
    
    
    66
    
    
    
    237
    
    
    
    24
    
    
    
    150
    
    
    
    
    
    
    
    477Total claims, benefits and expenses
    
    
    3,345
    
    
    
    3,372
    
    
    
    1,348
    
    
    
    300
    
    
    
    (4
    )
    
    
    8,361Operating income (loss) from continuing
operations
before income tax and minority interest
    
    
    283
    
    
    
    783
    
    
    
    (224
    )
    
    
    (107
    )
    
    
    
    
    
    
    735Income tax (expense) benefit on operating income
(loss)
    
    
    (62
    )
    
    
    (244
    )
    
    
    116
    
    
    
    45
    
    
    
    
    
    
    
    (145
    )Minority interest
    
    
    
    
    
    
    (57
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (57
    )Net operating income (loss) from continuing
operations
    
    
    221
    
    
    
    482
    
    
    
    (108
    )
    
    
    (62
    )
    
    
    
    
    
    
    533Realized investment losses, net of participating
policyholders and minority interests
    
    
    (487
    )
    
    
    (288
    )
    
    
    (363
    )
    
    
    (159
    )
    
    
    
    
    
    
    (1,297
    )Income tax benefit on realized investment
losses
    
    
    170
    
    
    
    103
    
    
    
    127
    
    
    
    56
    
    
    
    
    
    
    
    456Income (loss) from continuing operations
    
    $
    (96
    )
    
    $
    297
    
    
    $
    (344
    )
    
    $
    (165
    )
    
    $
    
    
    
    $
    (308
    )December 31, 2008(In millions)Reinsurance receivables
    
    $
    2,266
    
    
    $
    1,496
    
    
    $
    1,907
    
    
    $
    2,092
    
    
    $
    
    
    
    $
    7,761Insurance receivables
    
    $
    1,264
    
    
    $
    765
    
    
    $
    6
    
    
    $
    4
    
    
    $
    
    
    
    $
    2,039Insurance reserves:Claim and claim adjustment expenses
    
    $
    12,048
    
    
    $
    8,282
    
    
    $
    2,862
    
    
    $
    4,401
    
    
    $
    
    
    
    $
    27,593Unearned premiums
    
    
    1,401
    
    
    
    1,848
    
    
    
    152
    
    
    
    5
    
    
    
    
    
    
    
    3,406Future policy benefits
    
    
    
    
    
    
    
    
    
    
    7,529
    
    
    
    
    
    
    
    
    
    
    
    7,529Policyholders funds
    
    
    14
    
    
    
    10
    
    
    
    219
    
    
    
    
    
    
    
    
    
    
    
    243Deferred acquisition costs
    
    $
    293
    
    
    $
    360
    
    
    $
    472
    
    
    $
    
    
    
    $
    
    
    
    $
    1,125
 131




---



##### 



Year ended December 31, 2007
    
    Standard
    
    
    Specialty
    
    
    Life & Group
    
    
    Corporate & Other(In millions)
    
    Lines
    
    
    Lines
    
    
    Non-Core
    
    
    Non-Core
    
    
    Eliminations
    
    
    TotalRevenues:Net earned premiums
    
    $
    3,379
    
    
    $
    3,484
    
    
    $
    618
    
    
    $
    7
    
    
    $
    (4
    )
    
    $
    7,484Net investment income
    
    
    878
    
    
    
    621
    
    
    
    622
    
    
    
    312
    
    
    
    
    
    
    
    2,433Other revenues
    
    
    47
    
    
    
    188
    
    
    
    36
    
    
    
    8
    
    
    
    
    
    
    
    279Total operating revenues
    
    
    4,304
    
    
    
    4,293
    
    
    
    1,276
    
    
    
    327
    
    
    
    (4
    )
    
    
    10,196Claims, benefits and expenses:Net incurred claims and benefits
    
    
    2,279
    
    
    
    2,187
    
    
    
    1,312
    
    
    
    217
    
    
    
    
    
    
    
    5,995Policyholders dividends
    
    
    6
    
    
    
    7
    
    
    
    1
    
    
    
    
    
    
    
    
    
    
    
    14Amortization of deferred acquisition costs
    
    
    761
    
    
    
    744
    
    
    
    15
    
    
    
    
    
    
    
    
    
    
    
    1,520Other insurance related expenses
    
    
    338
    
    
    
    187
    
    
    
    199
    
    
    
    13
    
    
    
    (4
    )
    
    
    733Other expenses
    
    
    43
    
    
    
    185
    
    
    
    43
    
    
    
    130
    
    
    
    
    
    
    
    401Total claims, benefits and expenses
    
    
    3,427
    
    
    
    3,310
    
    
    
    1,570
    
    
    
    360
    
    
    
    (4
    )
    
    
    8,663Operating income (loss) from continuing
operations
before income tax and minority interest
    
    
    877
    
    
    
    983
    
    
    
    (294
    )
    
    
    (33
    )
    
    
    
    
    
    
    1,533Income tax (expense) benefit on operating income
(loss)
    
    
    (275
    )
    
    
    (317
    )
    
    
    135
    
    
    
    32
    
    
    
    
    
    
    
    (425
    )Minority interest
    
    
    
    
    
    
    (47
    )
    
    
    
    
    
    
    (1
    )
    
    
    
    
    
    
    (48
    )Net operating income (loss) from continuing
operations
    
    
    602
    
    
    
    619
    
    
    
    (159
    )
    
    
    (2
    )
    
    
    
    
    
    
    1,060Realized investment losses, net of participating
policyholders and minority interests
    
    
    (149
    )
    
    
    (81
    )
    
    
    (56
    )
    
    
    (25
    )
    
    
    
    
    
    
    (311
    )Income tax benefit on realized investment
losses
    
    
    52
    
    
    
    28
    
    
    
    20
    
    
    
    8
    
    
    
    
    
    
    
    108Income (loss) from continuing operations
    
    $
    505
    
    
    $
    566
    
    
    $
    (195
    )
    
    $
    (19
    )
    
    $
    
    
    
    $
    857December 31, 2007(In millions)Reinsurance receivables
    
    $
    2,269
    
    
    $
    1,819
    
    
    $
    2,201
    
    
    $
    2,400
    
    
    $
    
    
    
    $
    8,689Insurance receivables
    
    $
    1,664
    
    
    $
    605
    
    
    $
    26
    
    
    $
    (11
    )
    
    $
    
    
    
    $
    2,284Insurance reserves:Claim and claim adjustment expenses
    
    $
    12,048
    
    
    $
    8,403
    
    
    $
    3,027
    
    
    $
    5,110
    
    
    $
    
    
    
    $
    28,588Unearned premiums
    
    
    1,483
    
    
    
    1,948
    
    
    
    162
    
    
    
    5
    
    
    
    
    
    
    
    3,598Future policy benefits
    
    
    
    
    
    
    
    
    
    
    7,106
    
    
    
    
    
    
    
    
    
    
    
    7,106Policyholders funds
    
    
    26
    
    
    
    1
    
    
    
    903
    
    
    
    
    
    
    
    
    
    
    
    930Deferred acquisition costs
    
    $
    311
    
    
    $
    365
    
    
    $
    485
    
    
    $
    
    
    
    $
    
    
    
    $
    1,161
 132




---



##### 



Year ended December 31, 2006
    
    Standard
    
    
    Specialty
    
    
    Life & Group
    
    
    Corporate & Other(In millions)
    
    Lines
    
    
    Lines
    
    
    Non-Core
    
    
    Non-Core
    
    
    Eliminations
    
    
    TotalRevenues:Net earned premiums
    
    $
    3,557
    
    
    $
    3,411
    
    
    $
    641
    
    
    $
    (1
    )
    
    $
    (5
    )
    
    $
    7,603Net investment income
    
    
    840
    
    
    
    554
    
    
    
    698
    
    
    
    320
    
    
    
    
    
    
    
    2,412Other revenues
    
    
    44
    
    
    
    156
    
    
    
    66
    
    
    
    9
    
    
    
    
    
    
    
    275Total operating revenues
    
    
    4,441
    
    
    
    4,121
    
    
    
    1,405
    
    
    
    328
    
    
    
    (5
    )
    
    
    10,290Claims, benefits and expenses:Net incurred claims and benefits
    
    
    2,579
    
    
    
    2,060
    
    
    
    1,195
    
    
    
    190
    
    
    
    1
    
    
    
    6,025Policyholders dividends
    
    
    18
    
    
    
    4
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    22Amortization of deferred acquisition costs
    
    
    805
    
    
    
    714
    
    
    
    14
    
    
    
    1
    
    
    
    
    
    
    
    1,534Other insurance related expenses
    
    
    319
    
    
    
    219
    
    
    
    201
    
    
    
    24
    
    
    
    (6
    )
    
    
    757Restructuring and other related charges
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (13
    )
    
    
    
    
    
    
    (13
    )Other expenses
    
    
    66
    
    
    
    151
    
    
    
    58
    
    
    
    126
    
    
    
    
    
    
    
    401Total claims, benefits and expenses
    
    
    3,787
    
    
    
    3,148
    
    
    
    1,468
    
    
    
    328
    
    
    
    (5
    )
    
    
    8,726Operating income (loss) from continuing
operations
before income tax and minority interest
    
    
    654
    
    
    
    973
    
    
    
    (63
    )
    
    
    
    
    
    
    
    
    
    
    1,564Income tax (expense) benefit on operating income
(loss)
    
    
    (208
    )
    
    
    (295
    )
    
    
    49
    
    
    
    4
    
    
    
    
    
    
    
    (450
    )Minority interest
    
    
    
    
    
    
    (43
    )
    
    
    
    
    
    
    (1
    )
    
    
    
    
    
    
    (44
    )Net operating income (loss) from continuing
operations
    
    
    446
    
    
    
    635
    
    
    
    (14
    )
    
    
    3
    
    
    
    
    
    
    
    1,070Realized investment gains (losses), net of
participating policyholders and minority
interests
    
    
    72
    
    
    
    32
    
    
    
    (50
    )
    
    
    32
    
    
    
    
    
    
    
    86Income tax (expense) benefit on realized
investment
gains (losses)
    
    
    (24
    )
    
    
    (7
    )
    
    
    17
    
    
    
    (5
    )
    
    
    
    
    
    
    (19
    )Income (loss) from continuing operations
    
    $
    494
    
    
    $
    660
    
    
    $
    (47
    )
    
    $
    30
    
    
    $
    
    
    
    $
    1,137
 133




---



##### 



Revenues by Line of Business
 Years ended December 31(In millions)
    
    2008
    
    
    2007
    
    
    2006Standard LinesBusiness Insurance
    
    $
    573
    
    
    $
    628
    
    
    $
    603Commercial Insurance
    
    
    2,568
    
    
    
    3,527
    
    
    
    3,910Standard Lines revenues
    
    
    3,141
    
    
    
    4,155
    
    
    
    4,513Specialty LinesU.S. Specialty Lines
    
    
    2,271
    
    
    
    2,669
    
    
    
    2,679Surety
    
    
    479
    
    
    
    468
    
    
    
    436Warranty
    
    
    289
    
    
    
    293
    
    
    
    287CNA Global
    
    
    828
    
    
    
    782
    
    
    
    751Specialty Lines revenues
    
    
    3,867
    
    
    
    4,212
    
    
    
    4,153Life & Group Non-CoreLife & Annuity
    
    
    40
    
    
    
    257
    
    
    
    384Health
    
    
    688
    
    
    
    911
    
    
    
    889Other
    
    
    33
    
    
    
    52
    
    
    
    82Life & Group Non-Core revenues
    
    
    761
    
    
    
    1,220
    
    
    
    1,355Corporate & Other Non-CoreCNA Re
    
    
    14
    
    
    
    119
    
    
    
    129Other
    
    
    20
    
    
    
    183
    
    
    
    231Corporate & Other Non-Core revenues
    
    
    34
    
    
    
    302
    
    
    
    360Eliminations
    
    
    (4
    )
    
    
    (4
    )
    
    
    (5
    )Total revenues
    
    $
    7,799
    
    
    $
    9,885
    
    
    $
    10,376
 134




---



##### 



Note O. Restructuring and Other Related Charges
  Note P. Discontinued Operations
   Discontinued Operations
 Years ended December 31(In millions)
    
    2008
    
    
    2007
    
    
    2006Revenues:Net investment income
    
    $
    8
    
    
    $
    13
    
    
    $
    17Realized investment gains (losses) and other
    
    
    2
    
    
    
    6
    
    
    
    (2
    )Total revenues
    
    
    10
    
    
    
    19
    
    
    
    15Insurance related expenses
    
    
    (10
    )
    
    
    (25
    )
    
    
    (51
    )Income (loss) before income taxes
    
    
    
    
    
    
    (6
    )
    
    
    (36
    )Income tax benefit
    
    
    9
    
    
    
    
    
    
    
    7Income (loss) from discontinued operations, net of tax
    
    $
    9
    
    
    $
    (6
    )
    
    $
    (29
    )
   135




---



##### 



Discontinued Operations
 December 31(In millions)
    
    2008
    
    
    2007Assets:Investments
    
    $
    157
    
    
    $
    185Reinsurance receivables
    
    
    6
    
    
    
    1Cash
    
    
    
    
    
    
    7Other assets
    
    
    1
    
    
    
    4Total assets
    
    
    164
    
    
    
    197Liabilities:Insurance reserves
    
    
    162
    
    
    
    172Other liabilities
    
    
    8
    
    
    
    2Total liabilities
    
    
    170
    
    
    
    174Net assets (liabilities) of discontinued operations
    
    $
    (6
    )
    
    $
    23
 Reporting the Results of Operations  Reporting the Effects of Disposal of a Segment of a
Business, and Extraordinary, Unusual and Infrequently Occurring Events and Transactions
 136




---



##### 



Note Q. Quarterly Financial Data (Unaudited)
  Quarterly Financial Data
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    FullFirst
    
    
    Second
    
    
    Third
    
    
    Fourth
    
    
    Year(In millions, except per share data)2008Revenues
    
    $
    2,282
    
    
    $
    2,321
    
    
    $
    1,659
    
    
    $
    1,537
    
    
    $
    7,799Income (loss) from continuing operations
before income tax
    
    $
    252
    
    
    $
    241
    
    
    $
    (558
    )
    
    $
    (554
    )
    
    $
    (619
    )Income tax (expense) benefit
    
    
    (64
    )
    
    
    (62
    )
    
    
    218
    
    
    
    219
    
    
    
    311Income (loss) from continuing operations
    
    
    188
    
    
    
    179
    
    
    
    (340
    )
    
    
    (335
    )
    
    
    (308
    )Income (loss) from discontinued
operations, net of tax
    
    
    (1
    )
    
    
    2
    
    
    
    9
    
    
    
    (1
    )
    
    
    9Net income (loss)
    
    $
    187
    
    
    $
    181
    
    
    $
    (331
    )
    
    $
    (336
    )
    
    $
    (299
    )Basic and Diluted Earnings (Loss) Per
ShareIncome (loss) from continuing operations
    
    $
    0.70
    
    
    $
    0.66
    
    
    $
    (1.26
    )
    
    $
    (1.31
    )
    
    $
    (1.21
    )Income (loss) from discontinued operations
    
    
    (0.01
    )
    
    
    0.01
    
    
    
    0.03
    
    
    
    
    
    
    
    0.03Basic and diluted earnings (loss) per
share available to common stockholders
    
    $
    0.69
    
    
    $
    0.67
    
    
    $
    (1.23
    )
    
    $
    (1.31
    )
    
    $
    (1.18
    )Quarterly Financial Data
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    FullFirst
    
    
    Second
    
    
    Third
    
    
    Fourth
    
    
    Year(In millions, except per share data)2007Revenues
    
    $
    2,517
    
    
    $
    2,469
    
    
    $
    2,484
    
    
    $
    2,415
    
    
    $
    9,885Income from continuing operations before
income tax
    
    $
    426
    
    
    $
    318
    
    
    $
    230
    
    
    $
    200
    
    
    $
    1,174Income tax expense
    
    
    (132
    )
    
    
    (91
    )
    
    
    (56
    )
    
    
    (38
    )
    
    
    (317
    )Income from continuing operations
    
    
    294
    
    
    
    227
    
    
    
    174
    
    
    
    162
    
    
    
    857Income (loss) from discontinued
operations, net of tax
    
    
    2
    
    
    
    (10
    )
    
    
    
    
    
    
    2
    
    
    
    (6
    )Net income
    
    $
    296
    
    
    $
    217
    
    
    $
    174
    
    
    $
    164
    
    
    $
    851Basic and Diluted Earnings Per ShareIncome from continuing operations
    
    $
    1.08
    
    
    $
    0.84
    
    
    $
    0.64
    
    
    $
    0.59
    
    
    $
    3.15Income (loss) from discontinued operations
    
    
    0.01
    
    
    
    (0.04
    )
    
    
    
    
    
    
    0.01
    
    
    
    (0.02
    )Basic and diluted earnings per share
available to common stockholders
    
    $
    1.09
    
    
    $
    0.80
    
    
    $
    0.64
    
    
    $
    0.60
    
    
    $
    3.13
 137




---



##### 



Note R. Related Party Transactions
     Reinsurance with CNA Surety
  138




---



##### 



REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
 
      139




---



##### 



140




---



##### 



MANAGEMENTS REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING
     
 141




---



##### 



ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
  
 ITEM 9A. CONTROLS AND PROCEDURES
    
 ITEM 9B. OTHER INFORMATION
  142




---



##### 



PART III
 
 ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
  FIRSTPOSITION AND
    
    
    
    
    
    BECAMEOFFICES HELD
    
    
    
    
    
    EXECUTIVEWITH
    
    
    
    
    
    OFFICER OFNAME
    
    REGISTRANT
    
    AGE
    
    CNA
    
    PRINCIPAL OCCUPATION DURING PAST FIVE YEARSThomas F. Motamed
    
    Chief Executive
Officer, CNA 
Financial 
Corporation
    
    
    60
    
    
    
    2009
    
    
    Chief Executive Officer of CNA Financial
Corporation since January 1, 2009. From
December, 2002 to June, 2008, Vice
Chairman and Chief Operating Officer of
The Chubb Corporation and President and
Chief Operating Officer of Chubb & Son.Jonathan D. Kantor
    
    Executive Vice 
President, General 
Counsel and 
Secretary
    
    
    53
    
    
    
    1997
    
    
    Executive Vice President, General Counsel
and Secretary of CNA Financial
Corporation.D. Craig Mense
    
    Executive Vice 
President & Chief 
Financial Officer
    
    
    57
    
    
    
    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, and Chief
Operating Officer of the Gulf Insurance
Group at Travelers Property Casualty Corp.
from May, 2003 to May, 2004.Thomas Pontarelli
    
    Executive Vice 
President & Chief 
Administration 
Officer of the CNA 
insurance companies
    
    
    59
    
    
    
    2009
    
    
    Executive Vice President & Chief
Administration Officer of the CNA
insurance companies since March, 2004.
From March, 2002 to March, 2004, Executive
Vice President, Human Resources &
Corporate Services.Peter W. Wilson
    
    Executive Vice 
President, Global 
Specialty Lines of 
the CNA insurance 
companies
    
    
    49
    
    
    
    2009
    
    
    Executive Vice President, Global Specialty
Lines of the CNA insurance companies since
March, 2002.
   
 ITEM 11. EXECUTIVE COMPENSATION
 
 143




---



##### 



ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED
STOCKHOLDER MATTERS
 Equity Compensation Plan
  Executive
Compensation
Information
 December 31, 2008
 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
    
    
    1,770,215
    
    
    $
    31.44
    
    
    
    1,319,368Equity compensation
plans not approved
by security holders
    
    
    
    
    
    
    
    
    
    
    Total
    
    
    1,770,215
    
    
    $
    31.44
    
    
    
    1,319,368
  
 ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR
INDEPENDENCE
  
 ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES
  144




---



##### 



PART IV
 
 ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
 PageNumber(a)
    
    
    1
    
    
    FINANCIAL STATEMENTS:Statements of Operations  Years Ended December 31, 2008, 2007, and 2006
    
    
    66Balance Sheets  December 31, 2008 and 2007
    
    
    67Statements of Cash Flows  Years Ended December 31, 2008, 2007, and 2006
    
    
    68Statements of Stockholders Equity  Years Ended December 31, 2008, 2007, and 2006
    
    
    70Notes to Consolidated Financial Statements
    
    
    71Report of Independent Registered Public Accounting Firm
    
    
    139(a)
    
    
    2
    
    
    FINANCIAL STATEMENT SCHEDULES:Schedule I       Summary of Investments
    
    
    151Schedule II      Condensed Financial Information of Registrant (Parent Company)
    
    
    152Schedule III     Supplementary Insurance Information
    
    
    158Schedule IV     Reinsurance
    
    
    159Schedule V      Valuation and Qualifying Accounts
    
    
    159Schedule VI     Supplemental Information Concerning Property and Casualty Insurance Operations
    
    
    160(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
(Exhibit 3.1a to 2006 Form 10-K incorporated herein by reference)
    
    
    3.1.1Certificate of Amendment of Certificate of Incorporation, dated May 10, 1999
(Exhibit 3.1 to 1999 Form 10-K incorporated herein by reference)
    
    
    3.1.2By-Laws of CNA Financial Corporation, as amended October 24, 2007
(Exhibit 3ii.1 to Form 8-K filed October 29, 2007 incorporated herein by reference)
    
    
    3.2
 145




---



##### 



ExhibitDescription of Exhibit
    
    Number(4
    )
    
    Instruments defining the rights of security holders, including indentures:Certificate of Designation, as filed with the Secretary of State of the State of
Delaware on November 7, 2008, relating to the 2008 Senior
Preferred Stock, no par value, of CNA Financial Corporation
(Exhibit 3.1 to Form 8-K filed November 12, 2008 incorporated herein by reference)
    
    
    4.1Registration 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)
    
    
    4.2CNA 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
    
    
    4.3(10
    )
    
    Material contracts:Credit Agreement among CNA Financial Corporation, J.P. Morgan Securities Inc., Citibank N.A.,
Bank of America, N.A., JPMorgan Chase Bank N.A.,
Wachovia Bank, N.A. and other lenders named therein, dated August 1, 2007
(Exhibit 99.1 to August 1, 2007 Form 8-K incorporated herein by
reference)
    
    
    10.1Federal 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)
    
    
    10.2Investment Facilities and Services Agreement, dated January 1, 2006,
by and among Loews/CNA Holdings, Inc., CNA Financial Corporation and the
Participating Subsidiaries (Exhibit 10.3 to 2007 Form 10-K incorporated herein by reference)
    
    
    10.3Amendment to Investment Facilities and Services Agreement, dated January 1,
2007, by and among Loews/CNA Holdings, Inc. and CNA Financial
Corporation (Exhibit 10.3.1 to 2007 Form 10-K incorporated herein by reference)
    
    
    10.3.1Acknowledgement to Investment Facilities and Services Agreement, dated January 1, 2006,
by and among Loews/CNA Holdings, Inc., CNA Financial
Corporation, and American Casualty Company of Reading, Pennsylvania
(Exhibit 10.3.2 to 2007 Form 10-K incorporated herein by reference)
    
    
    10.3.2Acknowledgement to Investment Facilities and Services Agreement, dated January
1, 2006, by and among Loews/CNA Holdings, Inc., CNA Financial
Corporation, and Columbia Casualty Company
(Exhibit 10.3.3 to 2007 Form 10-K incorporated herein by reference)
    
    
    10.3.3Acknowledgement to Investment Facilities and Services Agreement, dated January 1, 2006, by and among Loews/CNA Holdings, Inc., CNA Financial
Corporation, and Continental Assurance Company (Exhibit 10.3.4 to 2007 Form 10-K incorporated herein by reference)
    
    
    10.3.4Acknowledgement to Investment Facilities and Services Agreement, dated January 1, 2006, by and among Loews/CNA Holdings, Inc., CNA Financial
Corporation, and Continental Casualty Company (Exhibit 10.3.5 to 2007 Form 10-K incorporated herein by reference)
    
    
    10.3.5
 146




---



##### 



ExhibitDescription of Exhibit
    
    NumberAcknowledgement to Investment Facilities and Services Agreement, dated January 1, 2006, by and among Loews/CNA Holdings, Inc., CNA Financial
Corporation, and National Fire Insurance Company of Hartford (Exhibit 10.3.6 to 2007 Form 10-K incorporated herein by reference)
    
    
    10.3.6Acknowledgement to Investment Facilities and Services Agreement, dated January 1, 2006, by and among Loews/CNA Holdings, Inc., CNA Financial
Corporation, and The Continental Insurance Company (Exhibit 10.3.7 to 2007 Form 10-K incorporated herein by reference)
    
    
    10.3.7Acknowledgement to Investment Facilities and Services Agreement, dated January 1, 2006, by and among Loews/CNA Holdings, Inc., CNA Financial
Corporation, and The Continental Insurance Company of New Jersey (Exhibit 10.3.8 to 2007 Form 10-K incorporated herein by reference)
    
    
    10.3.8Acknowledgement to Investment Facilities and Services Agreement, dated January 1, 2006, by and among Loews/CNA Holdings, Inc., CNA Financial
Corporation, and Transportation Insurance Company (Exhibit 10.3.9 to 2007 Form 10-K incorporated herein by reference)
    
    
    10.3.9Acknowledgement to Investment Facilities and Services Agreement, dated January 1, 2006, by and among Loews/CNA Holdings, Inc., CNA Financial
Corporation, and Valley Forge Insurance Company (Exhibit 10.3.10 to 2007 Form 10-K incorporated herein by reference)
    
    
    10.3.10Acknowledgment to Investment Facilities and Services Agreement, dated January 1, 2008, by and among Loews/CNA Holdings, Inc., CNA Financial
Corporation, and Continental Reinsurance Corporation International Limited (Exhibit 10.5 to March 31, 2008 Form 10-Q incorporated herein by
reference)
    
    
    10.3.11Acknowledgment to Investment Facilities and Services Agreement, dated January 1, 2008, by and among Loews/CNA Holdings, Inc., CNA Financial
Corporation, and North Rock Insurance Company Limited (Exhibit 10.6 to March 31, 2008 Form 10-Q incorporated herein by reference)
    
    
    10.3.12Acknowledgment to Investment Facilities and Services Agreement, dated January 1, 2008, by and among Loews/CNA Holdings, Inc., CNA Financial
Corporation, and CNA National Warranty Corporation (Exhibit 10.7 to March 31, 2008 Form 10-Q incorporated herein by reference)
    
    
    10.3.13Amended and Restated Surplus Note, dated as of December 11, 2008, from Continental Casualty Company to CNA Financial Corporation
    
    
    10.4CNA 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))
    
    
    10.5CNA 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 Supplemental Executive Retirement Plan, restated as of January 1, 2009
    
    
    10.7
 147




---



##### 



ExhibitDescription of Exhibit
    
    NumberCNA Supplemental Executive Savings and Capital Accumulation Plan, restated as of January 1, 2009
    
    
    10.82009 Incentive Compensation Awards to Executive Officers
    
    
    10.9Award Letter and Award Terms to Thomas F. Motamed for Stock Appreciation Rights and Restricted Stock Units
    
    
    10.102008 Incentive Compensation Awards to Executive Officers (Exhibit 10.9 to 2007 Form 10-K incorporated herein by reference)
    
    
    10.11Form of Award Letter to Executive Officers for the Long-Term Incentive Cash Plan for the 2005-2007 Long-Term Incentive Cash Plan Cycle (Exhibit
10.1 to March 31, 2008 Form 10-Q incorporated herein by reference)
    
    
    10.11.1Form of Award Letter to Executive Officers, along with Form of Award Terms, for the Long-Term Incentive Cash Plan for the 2008-2010 Long-Term
Incentive Cash Plan Cycle (Exhibit 10.2 to March 31, 2008 Form 10-Q incorporated herein by reference)
    
    
    10.11.22007 Incentive Compensation Awards to Executive Officers (Exhibit 10.23 to March 31, 2007 Form 10-Q incorporated herein by reference)
    
    
    10.12Form 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)
    
    
    10.12.1Form 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)
    
    
    10.12.2Employment Agreement, dated May 22, 2008, by and between CNA Financial Corporation and Thomas F. Motamed (Exhibit 10.1 to June 30, 2008 Form 10-Q
incorporated herein by reference)
    
    
    10.13First Amendment to Employment Agreement, dated October 24, 2008, by and between CNA Financial Corporation and Thomas F. Motamed (Exhibit 10.6 to
September 30, 2008 Form 10-Q incorporated herein by reference)
    
    
    10.13.1Employment 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)
    
    
    10.14Amendment to Employment Agreement, dated August 20, 2008, by and between CNA Financial Corporation and Stephen W. Lilienthal (Exhibit 10.1 to
September 30, 2008 Form 10-Q incorporated herein by reference)
    
    
    10.14.1Second Amendment to Employment Agreement, dated November 20, 2008, by and between CNA Financial Corporation and Stephen W. Lilienthal
    
    
    10.14.2Employment Agreement between Continental Casualty Company and D. Craig Mense, dated August 1, 2007 (Exhibit 10.1 to September 30, 2007 Form 10-Q
incorporated herein by reference)
    
    
    10.15
 148




---



##### 



ExhibitDescription of Exhibit
    
    NumberAmendment to Employment Agreement, dated July 1, 2008, by and between Continental Casualty Company and D. Craig Mense (Exhibit 10.4 to September
30, 2008 Form 10-Q incorporated herein by reference)
    
    
    10.15.1Employment
Agreement between Continental Casualty Company and Michael Fusco,
dated April 1, 2004 (Exhibit 10.16 to  2004 Form
10-K incorporated herein by reference)
    
    
    10.16Amendment
to Employment Agreement between Continental Casualty Company and
Michael Fusco, dated February 7, 2007 (Exhibit 10.22 to
 2004 Form 10-K incorporated herein by reference)
    
    
    10.16.1Second
Amendment to Employment
Agreement, dated April 7, 2008, by and between Continental
Casualty Company and Michael Fusco (Exhibit 10.2 to June 30,  2008
Form 10-Q incorporated herein by reference)
    
    
    10.16.2Employment
Agreement, dated April 11, 2008, by and  between Continental Casualty
Company and Larry A. Haefner, dated March 31, 2008
(Exhibit 10.3 to March 31, 2008 Form
10-Q incorporated herein by reference)
    
    
    10.17Amendment
to Employment Agreement, dated July 1, 2008, by and  between
Continental Casualty Company and Larry A. Haefner, dated November 21, 2008
    
    
    10.17.1Employment Agreement,
dated April 1, 2008, by and between Continental Casualty Company and Jonathan D. Kantor
(Exhibit 10.2 to September 30, 2008 Form 10-Q incorporated herein by reference)
    
    
    10.18Employment 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)
    
    
    10.19Amendment to Employment
Agreement between Continental Casualty Company and James R. Lewis, dated November 21, 2008
    
    
    10.19.1Significant Subsidiaries of CNAF
    
    
    21.1Consent of Independent Registered Public Accounting Firm
    
    
    23.1Certification of Chief Executive Officer
    
    
    31.1Certification of Chief Financial Officer
    
    
    31.2Written Statement of the Chief Executive Officer of CNA Financial Corporation Pursuant to 18 U.S.C. Section 1350 (As adopted by Section 906 of
the Sarbanes-Oxley Act of 2002)
    
    
    32.1Written Statement of the Chief Financial Officer of CNA Financial Corporation Pursuant to 18 U.S.C. Section 1350 (As adopted by Section 906 of
the Sarbanes-Oxley Act of 2002)
    
    
    32.2(b)
    
    
    
    
    
    Exhibits:
None.
 149




---



##### 



(c)
    
    
    
    
    
    Condensed Financial Information of Unconsolidated Subsidiaries:
None.
 
 150




---



##### 



SCHEDULE I. SUMMARY OF INVESTMENTS  OTHER THAN INVESTMENTS IN RELATED PARTIES
 December 31, 2008Cost or
    
    
    EstimatedAmortized
    
    
    Fair
    
    
    CarryingCost
    
    
    Value
    
    
    Value(In millions)Fixed maturity securities available-for-sale:Bonds:U.S. Government and government agencies and authorities  taxable
    
    $
    3,042
    
    
    $
    3,111
    
    
    $
    3,111States, municipalities and political subdivisions  tax exempt
    
    
    8,557
    
    
    
    7,415
    
    
    
    7,415Foreign governments and political subdivisions
    
    
    3,017
    
    
    
    2,661
    
    
    
    2,661Public utilities
    
    
    250
    
    
    
    250
    
    
    
    250All other corporate bonds
    
    
    19,216
    
    
    
    15,402
    
    
    
    15,402Redeemable preferred stock
    
    
    72
    
    
    
    47
    
    
    
    47Total fixed maturity securities available-for-sale
    
    
    34,154
    
    
    
    28,886
    
    
    
    28,886Fixed maturity securities trading:Bonds:Convertibles
    
    
    1
    
    
    
    1
    
    
    
    1Total fixed maturity securities trading
    
    
    1
    
    
    
    1
    
    
    
    1Equity securities available-for-sale:Common stock:Banks, trusts and insurance companies
    
    
    1
    
    
    
    1
    
    
    
    1Industrial and other
    
    
    133
    
    
    
    319
    
    
    
    319Non-redeemable preferred stock
    
    
    882
    
    
    
    551
    
    
    
    551Total equity securities available-for-sale
    
    
    1,016
    
    
    $
    871
    
    
    
    871Short term investments available-for-sale
    
    
    3,527
    
    
    
    
    
    
    
    3,534Limited partnership investments
    
    
    1,683
    
    
    
    
    
    
    
    1,683Other invested assets
    
    
    4
    
    
    
    
    
    
    
    28Total investments
    
    $
    40,385
    
    
    
    
    
    
    $
    35,003
 151




---



##### 



SCHEDULE II. CONDENSED FINANCIAL INFORMATION OF REGISTRANT (PARENT COMPANY)
 CNA Financial Corporation
Statements of Operations
 Years ended December 31
    
    2008
    
    
    2007
    
    
    2006(In millions)Revenues:Net investment income
    
    $
    16
    
    
    $
    20
    
    
    $
    21Realized investment losses
    
    
    (19
    )
    
    
    (6
    )
    
    
    (7
    )Other income
    
    
    15
    
    
    
    
    
    
    
    1Total revenues
    
    
    12
    
    
    
    14
    
    
    
    15Expenses:Administrative and general
    
    
    9
    
    
    
    3
    
    
    
    2Interest
    
    
    123
    
    
    
    131
    
    
    
    118Total expenses
    
    
    132
    
    
    
    134
    
    
    
    120Loss from operations before income taxes and equity in
net income (loss) of subsidiaries
    
    
    (120
    )
    
    
    (120
    )
    
    
    (105
    )Income tax benefit
    
    
    42
    
    
    
    42
    
    
    
    37Loss before equity in net income (loss) of subsidiaries
    
    
    (78
    )
    
    
    (78
    )
    
    
    (68
    )Equity in net income (loss) of subsidiaries
    
    
    (221
    )
    
    
    929
    
    
    
    1,176Net income (loss)
    
    $
    (299
    )
    
    $
    851
    
    
    $
    1,108
  152




---



##### 



CNA Financial Corporation
Balance Sheets
 December 31
    
    2008
    
    
    2007(In millions, except share data)Assets:Investment in subsidiaries
    
    $
    7,282
    
    
    $
    11,781Fixed maturity securities available-for-sale, at fair value (amortized cost of $5 and $6)
    
    
    5
    
    
    
    6Equity securities available-for-sale, at fair value (cost of $1 and $1)
    
    
    1
    
    
    
    1Other invested assets, including derivative financial instruments of $3 and $3
    
    
    3
    
    
    
    3Short term investments
    
    
    539
    
    
    
    359Receivables for securities sold and collateral
    
    
    16
    
    
    
    13Federal income taxes recoverable
    
    
    6
    
    
    
    12Deferred income taxes
    
    
    9
    
    
    
    2Amounts due from affiliates
    
    
    6
    
    
    
    46Surplus note due from affiliate
    
    
    1,000
    
    
    
    Other assets
    
    
    5
    
    
    
    6Total assets
    
    $
    8,872
    
    
    $
    12,229Liabilities and Stockholders Equity:Liabilities:Short term debt
    
    
    
    
    
    
    350Long term debt
    
    
    1,937
    
    
    
    1,686Other liabilities, including derivative financial instruments of $31 and $12
    
    
    58
    
    
    
    43Total liabilities
    
    
    1,995
    
    
    
    2,079Stockholders equity:Preferred stock (12,500,000 shares authorized)

2008 Senior Preferred (no par value; $100,000 stated value; 12,500 shares
and no shares issued; held by Loews Corporation)
    
    
    1,250
    
    
    
    Common stock ($2.50 par value; 500,000,000 shares authorized; 273,040,243 shares
issued; and 269,024,408 and 271,662,278 shares outstanding)
    
    
    683
    
    
    
    683Additional paid-in capital
    
    
    2,174
    
    
    
    2,169Retained earnings
    
    
    6,845
    
    
    
    7,285Accumulated other comprehensive income (loss)
    
    
    (3,924
    )
    
    
    103Treasury stock (4,015,835 and 1,377,965 shares), at cost
    
    
    (109
    )
    
    
    (39
    )6,919
    
    
    
    10,201Notes receivable for the issuance of common stock
    
    
    (42
    )
    
    
    (51
    )Total stockholders equity
    
    
    6,877
    
    
    
    10,150Total liabilities and stockholders equity
    
    $
    8,872

    
    
    $
    12,229
  153




---



##### 



CNA Financial Corporation
Statements of Cash Flows
 Years ended December 31
    
    2008
    
    
    2007
    
    
    2006(In millions)Cash Flows from Operating Activities:Net income (loss)
    
    $
    (299
    )
    
    $
    851
    
    
    $
    1,108Adjustments to reconcile net income (loss) to net
cash flows provided by operating activities:(Income) loss of subsidiaries
    
    
    221
    
    
    
    (929
    )
    
    
    (1,176
    )Dividends received from subsidiaries
    
    
    697
    
    
    
    270
    
    
    
    91Deferred income tax provision
    
    
    (7
    )
    
    
    
    
    
    
    Realized investment losses
    
    
    19
    
    
    
    6
    
    
    
    7Other, net
    
    
    88
    
    
    
    (54
    )
    
    
    7Total adjustments
    
    
    1,018
    
    
    
    (707
    )
    
    
    (1,071
    )Net cash flows provided by operating activities
    
    
    719
    
    
    
    144
    
    
    
    37Cash Flows from Investing Activities:Proceeds from fixed maturity securities
    
    
    1
    
    
    
    3
    
    
    
    1Change in short term investments
    
    
    (666
    )
    
    
    (63
    )
    
    
    (60
    )Capital contributions to subsidiaries
    
    
    (2
    )
    
    
    (1
    )
    
    
    (3
    )Return of capital from subsidiaries
    
    
    
    
    
    
    1
    
    
    
    19Purchase of
surplus note from affiliate
    
    
    (1,000
    )
    
    
    
    
    
    
    Other, net
    
    
    (3
    )
    
    
    (18
    )
    
    
    (7
    )Net cash flows used by investing activities
    
    
    (1,670
    )
    
    
    (78
    )
    
    
    (50
    )Cash Flows from Financing Activities:Dividends paid to common stockholders
    
    
    (122
    )
    
    
    (95
    )
    
    
    Dividends paid to Loews for 2008 Senior Preferred
    
    
    (19
    )
    
    
    
    
    
    
    Proceeds from the issuance of long term debt
    
    
    250
    
    
    
    
    
    
    
    746Principal payments on debt
    
    
    (350
    )
    
    
    
    
    
    
    (250
    )Payment to repurchase Series H Issue preferred stock
    
    
    
    
    
    
    
    
    
    
    (993
    )Proceeds from the issuance of common stock
    
    
    
    
    
    
    
    
    
    
    499Proceeds from issuance of 2008 Senior Preferred
    
    
    1,250
    
    
    
    
    
    
    
    Stock options exercised
    
    
    1
    
    
    
    18
    
    
    
    10Purchase of treasury stock
    
    
    (70
    )
    
    
    
    
    
    
    Other, net
    
    
    11
    
    
    
    11
    
    
    
    1Net cash flows provided (used) by financing activities
    
    
    951
    
    
    
    (66
    )
    
    
    13Net change in cash
    
    
    
    
    
    
    
    
    
    
    Cash, beginning of year
    
    
    
    
    
    
    
    
    
    
    Cash, end of year
    
    $
    
    
    
    $
    
    
    
    $
    
  154




---



##### 



Notes to Condensed Financial Information
 A. Basis of Presentation
  B. Debt
  Debt
 December 31
    
    2008
    
    
    2007(In millions)Variable rate debt:Credit Facility  variable rate and term, due August 1, 2012
    
    $
    250
    
    
    $
    Senior notes:6.450%, face amount of $150, due January 15, 2008
    
    
    
    
    
    
    1506.600%, face amount of $200, due December 15, 2008
    
    
    
    
    
    
    2006.000%, face amount of $400, due August 15, 2011
    
    
    399
    
    
    
    3995.850%, face amount of $549, due December 15, 2014
    
    
    547
    
    
    
    5466.500%, face amount of $350, due August 15, 2016
    
    
    348
    
    
    
    3486.950%, 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
    
    $
    1,937
    
    
    $
    2,036
    C. Commitments and Contingencies
   155




---



##### 



D. Stockholders Equity
  
    
    The 2008 Senior Preferred is perpetual and is senior to CNAFs common stock and any future
preferred stock as to the payment of dividends and amounts payable upon any liquidation,
dissolution or winding up.
    
    No dividends may be declared on CNAFs common stock or any future preferred stock until the
2008 Senior Preferred has been paid in full. Accordingly, the Company has suspended common
stock dividend payments.
    
    The 2008 Senior Preferred is not convertible into any other securities and may only be
redeemed upon the mutual agreement of the Company and Loews.
    
    The 2008 Senior Preferred accrues cumulative dividends at an initial rate of 10% per year.
On the fifth anniversary of the issuance and every five years thereafter, the dividend rate
will increase to the higher of 10% or the then current 10-year U.S. Treasury yield plus 700
basis points.
    
    Dividends are payable quarterly and any dividends not paid when due will be compounded
quarterly. The Parent Company paid $19 million on December 31, 2008, representing the first
quarterly dividend payment on the 2008 Senior Preferred.
  156




---



##### 



E. Accounting Pronouncements
 Adopted as of December 31, 2008
 FSP FIN 39-1, Amendment of FASB Interpretation (FIN) No. 39 (FSP FIN 39-1)
 Offsetting of Amounts Related
to Certain Contracts
  157




---



##### 



SCHEDULE III. SUPPLEMENTARY INSURANCE INFORMATION
 Gross Insurance Reserves
    
    
    
    
    
    
    
    
    
    
    InsuranceClaim
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Claims and
    
    
    AmortizationDeferred
    
    
    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, 2008Standard Lines
    
    $
    293
    
    
    $
    12,048
    
    
    $
    
    
    
    $
    1,401
    
    
    $
    14
    
    
    $
    3,065
    
    
    $
    506
    
    
    $
    2,312
    
    
    $
    700
    
    
    $
    333
    
    
    $
    3,054Specialty Lines
    
    
    360
    
    
    
    8,282
    
    
    
    
    
    
    
    1,848
    
    
    
    10
    
    
    
    3,477
    
    
    
    451
    
    
    
    2,168
    
    
    
    754
    
    
    
    450
    
    
    
    3,435Life & Group Non-Core
    
    
    472
    
    
    
    2,862
    
    
    
    7,529
    
    
    
    152
    
    
    
    219
    
    
    
    612
    
    
    
    484
    
    
    
    1,110
    
    
    
    13
    
    
    
    225
    
    
    
    604Corporate & Other Non-Core
    
    
    
    
    
    
    4,401
    
    
    
    
    
    
    
    5
    
    
    
    
    
    
    
    1
    
    
    
    178
    
    
    
    133
    
    
    
    
    
    
    
    167
    
    
    
    1Eliminations
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (4
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (4
    )
    
    
    (4
    )Consolidated Operations
    
    $
    1,125
    
    
    $
    27,593
    
    
    $
    7,529
    
    
    $
    3,406
    
    
    $
    243
    
    
    $
    7,151
    
    
    $
    1,619
    
    
    $
    5,723
    
    
    $
    1,467
    
    
    $
    1,171
    
    
    $
    7,090December 31, 2007Standard Lines
    
    $
    311
    
    
    $
    12,048
    
    
    $
    
    
    
    $
    1,483
    
    
    $
    26
    
    
    $
    3,379
    
    
    $
    878
    
    
    $
    2,285
    
    
    $
    761
    
    
    $
    381
    
    
    $
    3,267Specialty Lines
    
    
    365
    
    
    
    8,403
    
    
    
    
    
    
    
    1,948
    
    
    
    1
    
    
    
    3,484
    
    
    
    621
    
    
    
    2,194
    
    
    
    744
    
    
    
    372
    
    
    
    3,506Life & Group Non-Core
    
    
    485
    
    
    
    3,027
    
    
    
    7,106
    
    
    
    162
    
    
    
    903
    
    
    
    618
    
    
    
    622
    
    
    
    1,313
    
    
    
    15
    
    
    
    242
    
    
    
    607Corporate & Other Non-Core
    
    
    
    
    
    
    5,110
    
    
    
    
    
    
    
    5
    
    
    
    
    
    
    
    7
    
    
    
    312
    
    
    
    217
    
    
    
    
    
    
    
    143
    
    
    
    6Eliminations
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (4
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (4
    )
    
    
    (4
    )Consolidated Operations
    
    $
    1,161
    
    
    $
    28,588
    
    
    $
    7,106
    
    
    $
    3,598
    
    
    $
    930
    
    
    $
    7,484
    
    
    $
    2,433
    
    
    $
    6,009
    
    
    $
    1,520
    
    
    $
    1,134
    
    
    $
    7,382December 31, 2006Standard Lines
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    3,557
    
    
    $
    840
    
    
    $
    2,597
    
    
    $
    805
    
    
    $
    385
    
    
    $
    3,598Specialty Lines
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3,411
    
    
    
    554
    
    
    
    2,064
    
    
    
    714
    
    
    
    370
    
    
    
    3,431Life & Group Non-Core
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    641
    
    
    
    698
    
    
    
    1,195
    
    
    
    14
    
    
    
    259
    
    
    
    633Corporate & Other Non-Core
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1
    )
    
    
    320
    
    
    
    190
    
    
    
    1
    
    
    
    137
    
    
    
    (2
    )Eliminations
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (5
    )
    
    
    
    
    
    
    1
    
    
    
    
    
    
    
    (6
    )
    
    
    (5
    )Consolidated Operations
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    7,603
    
    
    $
    2,412
    
    
    $
    6,047
    
    
    $
    1,534
    
    
    $
    1,145
    
    
    $
    7,655
 (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. 158




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##### 



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, 2008Deducted from assets:Allowance for doubtful accounts:Insurance and reinsurance
receivables
    
    $
    773
    
    
    $
    (37
    )
    
    $
    (4
    )
    
    $
    145
    
    
    $
    587Valuation allowance:Deferred income taxes
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    Year ended December 31, 2007Deducted from assets:Allowance for doubtful accounts:Insurance and reinsurance
receivables
    
    $
    837
    
    
    $
    12
    
    
    $
    2
    
    
    $
    78
    
    
    $
    773Valuation allowance:Deferred income taxes
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    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
    
    
    $
    
 (a)
    
    Amount includes effects of foreign currency translation. 159




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##### 



SCHEDULE VI. SUPPLEMENTAL INFORMATION CONCERNING PROPERTY AND CASUALTY INSURANCE OPERATIONS
 Consolidated Property and Casualty OperationsAs of and for the years ended December 31
    
    2008
    
    
    2007
    
    
    2006(In millions)Deferred acquisition costs
    
    $
    1,125
    
    
    $
    1,161Reserves for unpaid claim and claim adjustment expenses
    
    
    27,475
    
    
    
    28,415Discount deducted from claim and claim adjustment expense reserves
above (based on interest rates ranging from 3.0% to 7.5%)
    
    
    1,620
    
    
    
    1,636Unearned premiums
    
    
    3,406
    
    
    
    3,598Net written premiums
    
    
    7,090
    
    
    
    7,382
    
    
    
    7,655Net earned premiums
    
    
    7,149
    
    
    
    7,481
    
    
    
    7,595Net investment income
    
    
    1,547
    
    
    
    2,180
    
    
    
    2,035Incurred claim and claim adjustment expenses related to current year
    
    
    5,189
    
    
    
    4,937
    
    
    
    4,837Incurred claim and claim adjustment expenses related to prior years
    
    
    (7
    )
    
    
    220
    
    
    
    332Amortization of deferred acquisition costs
    
    
    1,467
    
    
    
    1,520
    
    
    
    1,534Paid claim and claim adjustment expenses
    
    
    5,327
    
    
    
    5,282
    
    
    
    4,165
 160




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##### 



SIGNATURES
  CNA Financial CorporationDated: February 23, 2009
    
    By
    
    /s/ Thomas F. MotamedThomas F. MotamedChief Executive Officer(Principal Executive Officer)By
    
    /s/ D. Craig MenseD. Craig MenseExecutive Vice President andChief Financial Officer(Principal Financial & Accounting Officer)
  Dated: February 23, 2009
    
    By
    
    /s/ Thomas F. Motamed(Thomas F. Motamed, Chief ExecutiveOfficer and Chairman of the Board of
Directors)Dated: February 23, 2009
    
    By
    
    /s/ Paul J. Liska(Paul J. Liska, Director)Dated: February 23, 2009
    
    By
    
    /s/ Jose O. Montemayor(Jose O. Montemayor, Director)Dated: February 23, 2009
    
    By
    
    /s/ Don M. Randel(Don M. Randel, Director)Dated: February 23, 2009
    
    By
    
    /s/ Joseph Rosenberg(Joseph Rosenberg, Director)Dated: February 23, 2009
    
    By
    
    /s/ Andrew H. Tisch(Andrew H. Tisch, Director)Dated: February 23, 2009
    
    By
    
    /s/ James S. Tisch(James S. Tisch, Director)Dated: February 23, 2009
    
    By
    
    /s/ Marvin Zonis(Marvin Zonis, Director)
 161