##### Table of Contents



UNITED
STATES SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 FORM
10-K
 þ   ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
 For the fiscal year ended December 31, 2005
  o
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
 For
the transition period from ___ to ___
 Commission File Number 1-5823
 CNA FINANCIAL CORPORATION
  Delaware
    
    36-6169860(State or other jurisdiction of
    
    (I.R.S. Employerincorporation or organization)
    
    Identification No.)CNA CenterChicago, Illinois
    
    60685(Address of principal executive offices)
    
    (Zip Code)
 (312) 822-5000
(Registrants telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
 Name of each exchange onTitle of each class
    
    which registeredCommon Stock
with a par value
of $2.50 per share
    
    New York Stock Exchange
Chicago Stock Exchange
Pacific Exchange
 Securities registered pursuant to Section 12(g) of the Act:
  Yes...          Noü  Yes...          Noü  Yes
ü          No...   ü
  Yes...          Noü  DOCUMENTS INCORPORATED
BY REFERENCE:




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##### Table of Contents



Item
    
    
    PageNumber
    
    
    NumberPART I1.
    
    Business
    
    31A.
    
    Risk Factors
    
    91B.
    
    Unresolved Staff Comments
    
    162.
    
    Properties
    
    163.
    
    Legal Proceedings
    
    164.
    
    Submission of Matters to a Vote of Security Holders
    
    16PART II5.
    
    Market for the Registrants Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
    
    176.
    
    Selected Financial Data
    
    187.
    
    Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    197A.
    
    Quantitative and Qualitative Disclosures about Market Risk
    
    668.
    
    Financial Statements and Supplementary Data
    
    719.
    

Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
    
    1589A.
    
    Controls and Procedures
    
    1589B.
    
    Other Information
    
    159PART III10.
    
    Directors and Executive Officers of the Registrant
    
    16011.
    
    Executive Compensation
    
    16012.
    

Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
    
    16113.
    
    Certain Relationships and Related Transactions
    
    16114.
    
    Principal Accounting Fees and Services
    
    161PART IV15.
    
    Exhibits and Financial Statement Schedules
    
    162Consent of Independent Registered Public Accounting FirmSection 302 CertificationSeection 302 CertificationSection 1350 CertificationSection 1350 Certification




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##### Table of Contents



PART I
 
 ITEM 1. BUSINESS
     Competition
    Regulation
   3




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##### Table of Contents



Employee Relations
   4




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##### Table of Contents



Supplementary Insurance Data
  Supplementary Insurance Data
 Years ended December 31
    
    2005
    
    
    2004
    
    
    2003(In millions, except ratio information)Trade Ratios  GAAP basis (a)Loss and loss adjustment expense ratio
    
    
    89.4
    %
    
    
    74.6
    %
    
    
    111.8
    %Expense ratio
    
    
    31.2
    
    
    
    31.5
    
    
    
    37.3Dividend ratio
    
    
    0.3
    
    
    
    0.2
    
    
    
    1.4Combined ratio
    
    
    120.9
    %
    
    
    106.3
    %
    
    
    150.5
    %Trade Ratios  Statutory basis (a)Loss and loss adjustment expense ratio
    
    
    92.2
    %
    
    
    78.1
    %
    
    
    118.1
    %Expense ratio
    
    
    31.0
    
    
    
    27.2
    
    
    
    34.6Dividend ratio
    
    
    0.5
    
    
    
    0.6
    
    
    
    1.2Combined Ratio
    
    
    123.7
    %
    
    
    105.9
    %
    
    
    153.9
    %Individual Life and Group Life Insurance Inforce (b)Individual life
    
    $
    10,711
    
    
    $
    11,566
    
    
    $
    330,805Group life
    
    
    9,838
    
    
    
    45,079
    
    
    
    58,163Total
    
    $
    20,549
    
    
    $
    56,645
    
    
    $
    388,968Other Data  Statutory basis (c)Property and casualty companies capital and surplus (d)
    
    $
    6,940
    
    
    $
    6,998
    
    
    $
    6,170Life and group company(ies) capital and surplus
    
    
    627
    
    
    
    1,177
    
    
    
    707Property and casualty companies written premiums to surplus ratio
    
    
    1.0
    
    
    
    1.0
    
    
    
    1.1Life companies capital and surplus-percent to total liabilities
    
    
    33.1
    %
    
    
    56.0
    %
    
    
    13.0
    %Participating policyholders-percent of gross life insurance inforce
    
    
    3.5
    %
    
    
    1.4
    %
    
    
    0.5
    %
 (a)
    
    Trade ratios reflect the results of our property and casualty insurance subsidiaries.
Trade ratios are industry measures of property and casualty underwriting results. The loss
and loss adjustment expense ratio is the percentage of net incurred claim and claim
adjustment expenses and the expenses incurred related to uncollectible reinsurance
receivables to net earned premiums. The primary difference in this ratio between
accounting principles generally accepted in the United States of America (GAAP) and
statutory accounting practices (SAP) is related to the treatment of active life reserves
(ALR) related to long term care insurance products written in property and casualty
insurance subsidiaries. For GAAP, ALR is classified as claim and claim adjustment expense
reserves whereas for SAP, ALR is classified as unearned premium reserves. The expense
ratio, using amounts determined in accordance with GAAP, is the percentage of underwriting
and acquisition expenses (including the amortization of deferred acquisition expenses) to
net earned premiums. The expense ratio, using amounts determined in accordance with SAP,
is the percentage of acquisition and underwriting expenses (with no deferral of acquisition
expenses) to net written premiums. The dividend ratio, using amounts determined in
accordance with GAAP, is the ratio of dividends incurred to net earned premiums. The
dividend ratio, using amounts determined in accordance with SAP, is the ratio of dividends
paid to net earned premiums. The combined ratio is the sum of the loss and loss adjustment
expense, expense and dividend ratios.(b)
    
    The decline in gross inforce is attributable to the sales of the group benefits and the
individual life businesses. See Note H of the Consolidated Financial Statements included
under Item 8 for additional inforce information.(c)
    
    Other data is determined in accordance with SAP. Life and group statutory capital and
surplus as a percent of total liabilities is determined after excluding separate account
liabilities and reclassifying the statutorily required Asset Valuation Reserve to surplus.(d)
    
    Surplus includes the property and casualty companies equity ownership of the life and
group company(ies) capital and surplus.
 5




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Gross Written Premiums
 Percent of TotalYears ended December 31
    
    2005
    
    
    2004
    
    
    2003California
    
    
    9.0
    %
    
    
    9.3
    %
    
    
    8.5
    %New York
    
    
    7.9
    
    
    
    7.9
    
    
    
    7.3Florida
    
    
    7.1
    
    
    
    7.1
    
    
    
    7.6Texas
    
    
    5.7
    
    
    
    5.4
    
    
    
    5.7Illinois
    
    
    4.2
    
    
    
    5.1
    
    
    
    9.3Pennsylvania
    
    
    4.2
    
    
    
    4.7
    
    
    
    4.2New Jersey
    
    
    3.8
    
    
    
    5.3
    
    
    
    4.5Massachusetts
    
    
    3.3
    
    
    
    3.2
    
    
    
    3.1All other states, countries or political subdivisions (a)
    
    
    54.8
    
    
    
    52.0
    
    
    
    49.8Total
    
    
    100.0
    %
    
    
    100.0
    %
    
    
    100.0
    %
 (a)
    
    No other individual state, country or political subdivision accounts for more than 3.0%
of gross written premiums.
  Property and Casualty Claim and Claim Adjustment Expenses
   6




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##### Table of Contents



Schedule of Loss Reserve Development
 Calendar Year Ended
    
    1995 (a)
    
    
    1996
    
    
    1997
    
    
    1998
    
    
    1999 (b)
    
    
    2000
    
    
    2001 (c)
    
    
    2002 (d)
    
    
    2003
    
    
    2004
    
    
    2005(In millions)Originally reported gross
reserves for unpaid claim
and claim adjustment
expenses
    
    $
    31,296
    
    
    $
    29,559
    
    
    $
    28,731
    
    
    $
    28,506
    
    
    $
    26,850
    
    
    $
    26,510
    
    
    $
    29,649
    
    
    $
    25,719
    
    
    $
    31,284
    
    
    $
    31,204
    
    
    $
    30,694Originally reported ceded
recoverable
    
    
    5,784
    
    
    
    5,385
    
    
    
    5,056
    
    
    
    5,182
    
    
    
    6,091
    
    
    
    7,333
    
    
    
    11,703
    
    
    
    10,490
    
    
    
    13,847
    
    
    
    13,682
    
    
    
    10,438Originally reported net
reserves for unpaid claim
and claim adjustment
expenses
    
    $
    25,512
    
    
    $
    24,174
    
    
    $
    23,675
    
    
    $
    23,324
    
    
    $
    20,759
    
    
    $
    19,177
    
    
    $
    17,946
    
    
    $
    15,229
    
    
    $
    17,437
    
    
    $
    17,522
    
    
    $
    20,256Cumulative net paid as of:One year later
    
    $
    6,594
    
    
    $
    5,851
    
    
    $
    5,954
    
    
    $
    7,321
    
    
    $
    6,547
    
    
    $
    7,686
    
    
    $
    5,981
    
    
    $
    5,373
    
    
    $
    4,382
    
    
    $
    2,651
    
    
    $
    Two years later
    
    
    10,635
    
    
    
    9,796
    
    
    
    11,394
    
    
    
    12,241
    
    
    
    11,937
    
    
    
    11,992
    
    
    
    10,355
    
    
    
    8,768
    
    
    
    6,104
    
    
    
    
    
    
    
    Three years later
    
    
    13,516
    
    
    
    13,602
    
    
    
    14,423
    
    
    
    16,020
    
    
    
    15,256
    
    
    
    15,291
    
    
    
    12,954
    
    
    
    9,747
    
    
    
    
    
    
    
    
    
    
    
    Four years later
    
    
    16,454
    
    
    
    15,793
    
    
    
    17,042
    
    
    
    18,271
    
    
    
    18,151
    
    
    
    17,333
    
    
    
    13,244
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Five years later
    
    
    18,179
    
    
    
    17,736
    
    
    
    18,568
    
    
    
    20,779
    
    
    
    19,686
    
    
    
    17,775
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Six years later
    
    
    19,697
    
    
    
    18,878
    
    
    
    20,723
    
    
    
    21,970
    
    
    
    20,206
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Seven years later
    
    
    20,642
    
    
    
    20,828
    
    
    
    21,649
    
    
    
    22,564
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Eight years later
    
    
    22,469
    
    
    
    21,609
    
    
    
    22,077
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Nine years later
    
    
    23,156
    
    
    
    21,986
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Ten years later
    
    
    23,459
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Net reserves re-estimated
as of:End of initial year
    
    $
    25,512
    
    
    $
    24,174
    
    
    $
    23,675
    
    
    $
    23,324
    
    
    $
    20,759
    
    
    $
    19,177
    
    
    $
    17,946
    
    
    $
    15,229
    
    
    $
    17,437
    
    
    $
    17,522
    
    
    $
    20,256One year later
    
    
    25,388
    
    
    
    23,970
    
    
    
    23,904
    
    
    
    24,306
    
    
    
    21,163
    
    
    
    21,502
    
    
    
    17,980
    
    
    
    17,650
    
    
    
    17,671
    
    
    
    18,513
    
    
    
    Two years later
    
    
    24,859
    
    
    
    23,610
    
    
    
    24,106
    
    
    
    24,134
    
    
    
    23,217
    
    
    
    21,555
    
    
    
    20,533
    
    
    
    18,248
    
    
    
    19,120
    
    
    
    
    
    
    
    Three years later
    
    
    24,363
    
    
    
    23,735
    
    
    
    23,776
    
    
    
    26,038
    
    
    
    23,081
    
    
    
    24,058
    
    
    
    21,109
    
    
    
    19,814
    
    
    
    
    
    
    
    
    
    
    
    Four years later
    
    
    24,597
    
    
    
    23,417
    
    
    
    25,067
    
    
    
    25,711
    
    
    
    25,590
    
    
    
    24,587
    
    
    
    22,547
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Five years later
    
    
    24,344
    
    
    
    24,499
    
    
    
    24,636
    
    
    
    27,754
    
    
    
    26,000
    
    
    
    25,594
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Six years later
    
    
    25,345
    
    
    
    24,120
    
    
    
    26,338
    
    
    
    28,078
    
    
    
    26,625
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Seven years later
    
    
    25,086
    
    
    
    25,629
    
    
    
    26,537
    
    
    
    28,437
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Eight years later
    
    
    26,475
    
    
    
    25,813
    
    
    
    26,770
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Nine years later
    
    
    26,618
    
    
    
    26,072
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Ten years later
    
    
    26,848
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Total net (deficiency)
redundancy
    
    $
    (1,336
    )
    
    $
    (1,898
    )
    
    $
    (3,095
    )
    
    $
    (5,113
    )
    
    $
    (5,866
    )
    
    $
    (6,417
    )
    
    $
    (4,601
    )
    
    $
    (4,585
    )
    
    $
    (1,683
    )
    
    $
    (991
    )
    
    $
    Reconciliation to gross
re-estimated reserves:Net reserves re-estimated
    
    $
    26,848
    
    
    $
    26,072
    
    
    $
    26,770
    
    
    $
    28,437
    
    
    $
    26,625
    
    
    $
    25,594
    
    
    $
    22,547
    
    
    $
    19,814
    
    
    $
    19,120
    
    
    $
    18,513
    
    
    $
    Re-estimated ceded
recoverable
    
    
    8,459
    
    
    
    7,626
    
    
    
    6,967
    
    
    
    7,440
    
    
    
    9,671
    
    
    
    10,447
    
    
    
    16,043
    
    
    
    15,451
    
    
    
    13,908
    
    
    
    12,840
    
    
    
    Total gross re-estimated
reserves
    
    $
    35,307
    
    
    $
    33,698
    
    
    $
    33,737
    
    
    $
    35,877
    
    
    $
    36,296
    
    
    $
    36,041
    
    
    $
    38,590
    
    
    $
    35,265
    
    
    $
    33,028
    
    
    $
    31,353
    
    
    $
    Net (deficiency)
redundancy related to:Asbestos claims
    
    $
    (2,361
    )
    
    $
    (2,463
    )
    
    $
    (2,362
    )
    
    $
    (2,120
    )
    
    $
    (1,543
    )
    
    $
    (1,478
    )
    
    $
    (706
    )
    
    $
    (705
    )
    
    $
    (64
    )
    
    $
    (10
    )
    
    $
    Environmental and mass
tort claims
    
    
    (802
    )
    
    
    (749
    )
    
    
    (776
    )
    
    
    (561
    )
    
    
    (663
    )
    
    
    (654
    )
    
    
    (193
    )
    
    
    (200
    )
    
    
    (52
    )
    
    
    (53
    )
    
    
    Total asbestos,
environmental and mass
tort
    
    
    (3,163
    )
    
    
    (3,212
    )
    
    
    (3,138
    )
    
    
    (2,681
    )
    
    
    (2,206
    )
    
    
    (2,132
    )
    
    
    (899
    )
    
    
    (905
    )
    
    
    (116
    )
    
    
    (63
    )
    
    
    Other claims
    
    
    1,827
    
    
    
    1,314
    
    
    
    43
    
    
    
    (2,432
    )
    
    
    (3,660
    )
    
    
    (4,285
    )
    
    
    (3,702
    )
    
    
    (3,680
    )
    
    
    (1,567
    )
    
    
    (928
    )
    
    
    Total net (deficiency)
redundancy
    
    $
    (1,336
    )
    
    $
    (1,898
    )
    
    $
    (3,095
    )
    
    $
    (5,113
    )
    
    $
    (5,866
    )
    
    $
    (6,417
    )
    
    $
    (4,601
    )
    
    $
    (4,585
    )
    
    $
    (1,683
    )
    
    $
    (991
    )
    
    $
    
 7




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##### Table of Contents



(a)
    
    Includes gross reserves of $9,713 million and net reserves of $6,063 million for CIC and its
insurance affiliates, which were acquired on May 10, 1995 (the Acquisition Date) and
subsequent development thereon.(b)
    
    Ceded recoverable includes reserves transferred under retroactive reinsurance
agreements of $784 million as of December 31, 1999.(c)
    
    Effective January 1, 2001, we established a new life insurance company, CNA Group Life
Assurance Company (CNAGLA). Further, on January 1, 2001 approximately $1,055 million of
reserves were transferred from CCC to CNAGLA.(d)
    
    Effective October 31, 2002, we sold CNA Reinsurance Company Limited (CNA Re U.K.). As
a result of the sale, net reserves were reduced by approximately $1,316 million.
  
 Investments
 
 Available Information
   8




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##### Table of Contents



ITEM 1A. RISK FACTORS
  If we determine that loss reserves are insufficient to cover our estimated ultimate unpaid
liability for claims, we may need to increase our loss reserves.
   
    
    increases in the number and size of claims relating to
injuries from medical products and exposure to lead;
    
    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;
    
    increases in the volume of class action litigation
challenging a range of industry practices including claims
handling;
    
    increases in the number of construction defect claims,
including claims for a broad range of additional insured
endorsements on policies; and
    
    increases in the number of claims alleging abuse by
members of the clergy, including passage of legislation to
reopen or extend various statutes of limitations.
  Loss reserves for asbestos, environmental pollution and mass torts are especially difficult to
estimate and may result in more frequent and larger additions to these reserves.
 9




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##### Table of Contents




    
    coverage issues including whether certain costs are covered under the policies and whether policy limits apply;
    
    inconsistent court decisions and developing legal theories;
    
    increasingly aggressive tactics of plaintiffs lawyers;
    
    the risks and lack of predictability inherent in major litigation;
    
    changes in the volume of asbestos, environmental pollution and mass tort claims which cannot now be
anticipated;
    
    continued increases in mass tort claims relating to silica and silica-containing products;
    
    the impact of the exhaustion of primary limits and the resulting increase in claims on any umbrella or excess
policies we have issued;
    
    the number and outcome of direct actions against us;
    
    our ability to recover reinsurance for these claims; and
    
    changes in the legal and legislative environment in which we operate.
  Environmental pollution claims.
 
    
    whether cleanup costs are considered damages under the policies (and accordingly whether we would be liable
for these costs);
    
    the trigger of coverage and the allocation of liability among triggered policies;
    
    the applicability of pollution exclusions and owned property exclusions;
    
    the potential for joint and several liability; and
    
    the definition of an occurrence.
   Asbestos claims.
 10




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##### Table of Contents




    
    inconsistency of court decisions and jury attitudes, as well as future court decisions;
    
    specific policy provisions;
    
    allocation of liability among insurers and insureds;
    
    missing policies and proof of coverage;
    
    the proliferation of bankruptcy proceedings and attendant uncertainties;
    
    novel theories asserted by policyholders and their legal counsel;
    
    the targeting of a broader range of businesses and entities as defendants;
    
    uncertainties in predicting the number of future claims and which other insureds may be targeted in the future;
    
    volatility in claim numbers and settlement demands;
    
    increases in the number of non-impaired claimants and the extent to which they can be precluded from making
claims;
    
    the efforts by insureds to obtain coverage that is not subject to aggregate limits;
    
    the long latency period between asbestos exposure and disease manifestation, as well as the resulting
potential for involvement of multiple policy periods for individual claims;
    
    medical inflation trends;
    
    the mix of asbestos-related diseases presented; and
    
    the ability to recover reinsurance.
  Catastrophe losses are unpredictable.
  Our key assumptions used to determine reserves and deferred acquisition costs for our long-term
care product offerings could vary significantly.
  11




---



##### Table of Contents



We continue to face exposure to losses arising from terrorist acts, despite the passage of the
Terrorism Risk Insurance Extension Act of 2005.
  High levels of retained overhead expenses associated with business lines in run-off negatively
impact our operating results.
  Our premium writings and profitability are affected by the availability and cost of reinsurance.
  We may not be able to collect amounts owed to us by reinsurers.
  We incur significant interest expense related to funds withheld from reinsurance arrangements.
  Rating agencies may downgrade their ratings of us and thereby adversely affect our ability to write
insurance at competitive rates or at all.
  12




---



##### Table of Contents



We are subject to extensive federal, state and local governmental regulations that
restrict our ability to do business and generate revenues.
  
    
    standards of solvency including risk-based capital measurements;
    
    restrictions on the nature, quality and concentration of investments;
    
    restrictions on our ability to withdraw from unprofitable lines of insurance;
    
    the required use of certain methods of accounting and reporting;
    
    the establishment of reserves for unearned premiums, losses and other purposes;
    
    potential assessments for funds necessary to settle covered claims against impaired, insolvent or failed
insurance companies;
    
    licensing of insurers and agents;
    
    approval of policy forms; and
    
    limitations on the ability of our insurance subsidiaries to pay dividends to us.
  We are subject to capital adequacy requirements and, if we do not meet these requirements,
regulatory agencies may restrict or prohibit us from operating our business.
  13




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##### Table of Contents



Our insurance subsidiaries, upon whom we depend for dividends and advances in order to fund our
working capital needs, are limited by state regulators in their ability to pay dividends.
  We are responding to subpoenas, interrogatories and inquiries relating to insurance brokers and
agents, contingent commissions and bidding practices, and certain finite-risk insurance products.
   We have restated our financial results for prior years and identified material weaknesses in our
internal control over financial reporting.
   14




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##### Table of Contents



Our investment portfolio, which is a key component of our overall profitability, may suffer reduced
returns or losses, especially with respect to our equity investments in limited partnerships which
are often subject to greater leverage and volatility.
  We may be adversely affected by the cyclical nature of the property and casualty business.
  We face intense competition in our industry.
  We may suffer losses from non-routine litigation and arbitration matters which may exceed the
reserves we have established.
  15




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##### Table of Contents



We are dependent on a small number of key executives and other key personnel to operate our
business successfully.
  
 ITEM 1B. UNRESOLVED STAFF COMMENTS
  
 ITEM 2. PROPERTIES
  Amount (Square Feet) of BuildingOwned and Occupied or LeasedLocation
    
    and Occupied by CNA
    
    Principal UsageCNA Center, 333 S. Wabash, Chicago, Illinois
    
    
    904,990
    
    
    Principal executive offices of CNAF401 Penn Street, Reading, Pennsylvania
    
    
    171,406
    
    
    Property and casualty insurance offices2405 Lucien Way, Maitland, Florida
    
    
    150,825
    
    
    Property and casualty insurance offices40 Wall Street, New York, New York
    
    
    124,482
    
    
    Property and casualty insurance offices1111 E. Broad Street, Columbus, Ohio
    
    
    97,276
    
    
    Property and casualty insurance offices675 Placentia Avenue, Brea, California
    
    
    78,655
    
    
    Property and casualty insurance offices600 N. Pearl Street, Dallas, Texas
    
    
    76,666
    
    
    Property and casualty insurance offices405 Howard Street, San Francisco, California
    
    
    47,667
    
    
    Property and casualty insurance offices1100 Cornwall Road, Monmouth Junction, New
Jersey
    
    
    41,767
    
    
    Property and casualty insurance offices100 CNA Drive, Nashville, Tennessee
    
    
    35,653
    
    
    Property and casualty insurance offices
  
 ITEM 3. LEGAL PROCEEDINGS
  
 ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
  16




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##### Table of Contents



PART II
 
 ITEM 5. MARKET FOR THE REGISTRANTS COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER
PURCHASES OF EQUITY SECURITIES
    Common Stock Information
 2005
    
    
    2004High
    
    
    Low
    
    
    High
    
    
    LowQuarter:Fourth
    
    $
    34.91
    
    
    $
    28.52
    
    
    $
    27.06
    
    
    $
    22.17Third
    
    
    30.46
    
    
    
    28.40
    
    
    
    29.54
    
    
    
    23.98Second
    
    
    28.90
    
    
    
    26.21
    
    
    
    30.49
    
    
    
    26.32First
    
    
    29.79
    
    
    
    25.84
    
    
    
    28.65
    
    
    
    24.52
  17




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##### Table of Contents



ITEM 6. SELECTED FINANCIAL DATA
  Selected Financial Data
 As
of and for the Years Ended December 31
    
    2005
    
    
    2004
    
    
    2003
    
    
    2002
    
    
    2001(In millions, except per share data and ratios)
    
    
    
    
    
    Restated (a)
    
    
    Restated (a)
    
    
    Restated (a)
    
    
    Restated (a)Results of Operations:Revenues
    
    $
    9,862
    
    
    $
    9,924
    
    
    $
    11,715
    
    
    $
    12,293
    
    
    $
    13,097Income (loss) from continuing operations
    
    $
    243
    
    
    $
    446
    
    
    $
    (1,419
    )
    
    $
    263
    
    
    $
    (1,550
    )Income (loss) from discontinued
operations, net of tax
    
    
    21
    
    
    
    (21
    )
    
    
    2
    
    
    
    (43
    )
    
    
    6Cumulative effects of changes in
accounting principles, net of tax
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (57
    )
    
    
    (61
    )Net income (loss)
    
    $
    264
    
    
    $
    425
    
    
    $
    (1,417
    )
    
    $
    163
    
    
    $
    (1,605
    )Earnings (loss) per Share:Income (loss) from continuing operations
    
    $
    0.68
    
    
    $
    1.49
    
    
    $
    (6.52
    )
    
    $
    1.18
    
    
    $
    (7.99
    )Income (loss) from discontinued
operations, net of tax
    
    
    0.08
    
    
    
    (0.09
    )
    
    
    0.01
    
    
    
    (0.20
    )
    
    
    0.04Cumulative effects of changes in
accounting principles, net of tax
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (0.26
    )
    
    
    (0.32
    )Earnings (loss) per share available to
common stockholders
    
    $
    0.76
    
    
    $
    1.40
    
    
    $
    (6.51
    )
    
    $
    0.72
    
    
    $
    (8.27
    )Financial Condition:Total investments
    
    $
    39,695
    
    
    $
    39,231
    
    
    $
    38,100
    
    
    $
    35,293
    
    
    $
    35,826Total assets
    
    
    58,786
    
    
    
    62,496
    
    
    
    68,296
    
    
    
    61,426
    
    
    
    65,425Insurance reserves
    
    
    42,436
    
    
    
    43,653
    
    
    
    45,494
    
    
    
    40,250
    
    
    
    43,721Long and short term debt
    
    
    1,690
    
    
    
    2,257
    
    
    
    1,904
    
    
    
    2,292
    
    
    
    2,567Stockholders equity
    
    
    8,950
    
    
    
    8,974
    
    
    
    8,735
    
    
    
    9,139
    
    
    
    7,839Book value per share
    
    $
    31.26
    
    
    $
    31.63
    
    
    $
    30.95
    
    
    $
    37.51
    
    
    $
    35.06Statutory Surplus:Property and casualty companies (b)
    
    $
    6,940
    
    
    $
    6,998
    
    
    $
    6,170
    
    
    $
    6,836
    
    
    $
    6,241Life and group insurance company(ies)
    
    
    627
    
    
    
    1,177
    
    
    
    707
    
    
    
    1,645
    
    
    
    1,752
 (a)
    
    See Note T of the Consolidated Financial Statements included under Item 8 for further
discussion.(b)
    
    Surplus includes the property and casualty companies equity ownership of the life and
group company(ies) capital and surplus.
 18




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##### Table of Contents



ITEM 7. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
 Overview
   19




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##### Table of Contents



Index to this MD&A
  Page No.Consolidated Operations
    
    
    21Net Prior Year Development
    
    
    23Critical Accounting Estimates
    
    
    26Reserves  Estimates and Uncertainties
    
    
    28Reinsurance
    
    
    30Terrorism Insurance
    
    
    32Restructuring
    
    
    32Segment Results
    
    
    33Standard Lines
    
    
    33Specialty Lines
    
    
    37Life and Group Non-Core
    
    
    40Corporate and Other Non-Core
    
    
    41Asbestos and Environmental Pollution and Mass Tort (APMT) Reserves
    
    
    43Investments
    
    
    49Net Investment Income
    
    
    49Net Realized Investment Gains (Losses)
    
    
    51Valuation and Impairment of Investments
    
    
    54Liquidity and Capital Resources
    
    
    57Cash Flows
    
    
    57Commitments, Contingencies, and Guarantees
    
    
    58Regulatory Matters
    
    
    59Ratings
    
    
    60Dividends from Subsidiaries
    
    
    61Loews
    
    
    62Accounting Pronouncements
    
    
    62Forward-Looking Statements
    
    
    63
 20




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##### Table of Contents



CONSOLIDATED OPERATIONS
 Results of Operations
  Consolidated Operations
 Years ended December 31(In millions, except per share data)
    
    2005
    
    
    2004
    
    
    2003Revenues:Net earned premiums
    
    $
    7,569
    
    
    $
    8,209
    
    
    $
    9,216Net investment income
    
    
    1,892
    
    
    
    1,680
    
    
    
    1,656Other revenues
    
    
    411
    
    
    
    283
    
    
    
    383Total operating revenues
    
    
    9,872
    
    
    
    10,172
    
    
    
    11,255Claims, Benefits and Expenses:Net incurred claims and benefits
    
    
    6,975
    
    
    
    6,434
    
    
    
    10,163Policyholders dividends
    
    
    24
    
    
    
    11
    
    
    
    114Amortization of deferred acquisition costs
    
    
    1,543
    
    
    
    1,680
    
    
    
    1,965Other insurance related expenses
    
    
    829
    
    
    
    969
    
    
    
    1,411Other expenses
    
    
    329
    
    
    
    326
    
    
    
    393Total claims, benefits and expenses
    
    
    9,700
    
    
    
    9,420
    
    
    
    14,046Operating income (loss) before income tax and minority interest
    
    
    172
    
    
    
    752
    
    
    
    (2,791
    )Income tax (expense) benefit on operating income (loss)
    
    
    105
    
    
    
    (126
    )
    
    
    1,081Minority interest
    
    
    (24
    )
    
    
    (27
    )
    
    
    6Net operating income (loss)
    
    
    253
    
    
    
    599
    
    
    
    (1,704
    )Realized investment gains (losses), net of participating policyholders and
minority interests
    
    
    (10
    )
    
    
    (248
    )
    
    
    460Income tax (expense) benefit on realized investment gains (losses)
    
    
    
    
    
    
    95
    
    
    
    (175
    )Income (loss) from continuing operations
    
    
    243
    
    
    
    446
    
    
    
    (1,419
    )Income (loss) from discontinued operations, net of tax of $(2), $(1) and $(11)
    
    
    21
    
    
    
    (21
    )
    
    
    2Net income (loss)
    
    $
    264
    
    
    $
    425
    
    
    $
    (1,417
    )Basic and Diluted Earnings (Loss) per Share:Income (loss) from continuing operations
    
    $
    0.68
    
    
    $
    1.49
    
    
    $
    (6.52
    )Income (loss) from discontinued operations, net of tax
    
    
    0.08
    
    
    
    (0.09
    )
    
    
    0.01Basic and diluted earnings (loss) per share available to common stockholders
    
    $
    0.76
    
    
    $
    1.40
    
    
    $
    (6.51
    )Weighted Average Outstanding Common Stock and Common Stock Equivalents
    
    
    256.0
    
    
    
    256.0
    
    
    
    227.0
 2005 Compared with 2004
   21




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2004 Compared with 2003
   22




---



##### Table of Contents



Net Prior Year Development
   23




---



##### Table of Contents



2005 Net Prior Year Development
 CorporateStandard
    
    
    Specialty
    
    
    and OtherLines
    
    
    Lines
    
    
    Non-Core
    
    
    Total(In millions)Pretax unfavorable net prior year claim and allocated
claim adjustment expense development excluding the impact
of corporate aggregate reinsurance treaties:Core (Non-APMT)
    
    $
    376
    
    
    $
    42
    
    
    $
    171
    
    
    $
    589APMT
    
    
    
    
    
    
    
    
    
    
    63
    
    
    
    63Total
    
    
    376
    
    
    
    42
    
    
    
    234
    
    
    
    652Ceded losses related to corporate aggregate
reinsurance treaties
    
    
    183
    
    
    
    5
    
    
    
    57
    
    
    
    245Pretax unfavorable net prior year development before
impact of premium development
    
    
    559
    
    
    
    47
    
    
    
    291
    
    
    
    897Unfavorable (favorable) premium development,
excluding impact of corporate aggregate reinsurance
treaties
    
    
    (101
    )
    
    
    (12
    )
    
    
    11
    
    
    
    (102
    )Ceded premiums related to corporate aggregate
reinsurance treaties
    
    
    (6
    )
    
    
    19
    
    
    
    4
    
    
    
    17Total premium development
    
    
    (107
    )
    
    
    7
    
    
    
    15
    
    
    
    (85
    )Total 2005 unfavorable net prior year development (pretax)
    
    $
    452
    
    
    $
    54
    
    
    $
    306
    
    
    $
    812Total 2005 unfavorable net prior year development
(after-tax)
    
    $
    294
    
    
    $
    35
    
    
    $
    199
    
    
    $
    528
 24




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##### Table of Contents



2004 Net Prior Year Development
 CorporateStandard
    
    
    Specialty
    
    
    and Other(In millions)
    
    Lines
    
    
    Lines
    
    
    Non-Core
    
    
    TotalPretax unfavorable net prior
year claim and allocated claim
adjustment expense development
excluding the impact of
corporate aggregate
reinsurance treaties:Core (Non-APMT)
    
    $
    107
    
    
    $
    75
    
    
    $
    20
    
    
    $
    202APMT
    
    
    
    
    
    
    
    
    
    
    55
    
    
    
    55Total
    
    
    107
    
    
    
    75
    
    
    
    75
    
    
    
    257Ceded losses related to
corporate aggregate
reinsurance treaties
    
    
    8
    
    
    
    (17
    )
    
    
    9
    
    
    
    Pretax unfavorable net prior
year development before impact
of premium development
    
    
    115
    
    
    
    58
    
    
    
    84
    
    
    
    257Unfavorable (favorable)
premium development,
excluding impact of
corporate aggregate
reinsurance treaties
    
    
    (96
    )
    
    
    (33
    )
    
    
    12
    
    
    
    (117
    )Ceded premiums related
to corporate aggregate
reinsurance treaties
    
    
    (1
    )
    
    
    5
    
    
    
    (3
    )
    
    
    1Total premium development
    
    
    (97
    )
    
    
    (28
    )
    
    
    9
    
    
    
    (116
    )Total 2004 unfavorable net
prior year development
(pretax)
    
    $
    18
    
    
    $
    30
    
    
    $
    93
    
    
    $
    141Total 2004 unfavorable net
prior year development
(after-tax)
    
    $
    12
    
    
    $
    20
    
    
    $
    60
    
    
    $
    92
 2003 Net Prior Year Development
 CorporateStandard
    
    
    Specialty
    
    
    and OtherLines
    
    
    Lines
    
    
    Non-Core
    
    
    Total(In millions)Pretax unfavorable net prior year claim and allocated
claim adjustment expense development excluding the impact
of corporate aggregate reinsurance treaties:Core (Non-APMT)
    
    $
    1,423
    
    
    $
    313
    
    
    $
    346
    
    
    $
    2,082APMT
    
    
    
    
    
    
    
    
    
    
    795
    
    
    
    795Total
    
    
    1,423
    
    
    
    313
    
    
    
    1,141
    
    
    
    2,877Ceded losses related to corporate aggregate
reinsurance treaties
    
    
    (485
    )
    
    
    (56
    )
    
    
    (102
    )
    
    
    (643
    )Pretax unfavorable net prior year development before
impact of premium development
    
    
    938
    
    
    
    257
    
    
    
    1,039
    
    
    
    2,234Unfavorable (favorable) premium development,
excluding impact of corporate aggregate reinsurance
treaties
    
    
    209
    
    
    
    6
    
    
    
    (32
    )
    
    
    183Ceded premiums related to corporate aggregate
reinsurance treaties
    
    
    269
    
    
    
    31
    
    
    
    58
    
    
    
    358Total premium development
    
    
    478
    
    
    
    37
    
    
    
    26
    
    
    
    541Total 2003 unfavorable net prior year development (pretax)
    
    $
    1,416
    
    
    $
    294
    
    
    $
    1,065
    
    
    $
    2,775Total 2003 unfavorable net prior year development
(after-tax)
    
    $
    920
    
    
    $
    191
    
    
    $
    692
    
    
    $
    1,803
 25




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##### Table of Contents



Critical Accounting Estimates
    Insurance Reserves
  Reinsurance
   26




---



##### Table of Contents



Valuation of Investments and Impairment of Securities
   Long Term Care Products
  Pension and Postretirement Benefit Obligations
    Legal Proceedings
 
 27




---



##### Table of Contents



Reserves  Estimates and Uncertainties
      
    
    increases in the number and size of claims relating to injuries from medical products, and exposure to lead;
    
    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;
and
    
    increases in the number of claims alleging abuse by members of the clergy, including passage of legislation to
reopen or extend various statutes of limitations.
   
    
    coverage issues, including whether certain costs are covered under the policies and whether policy limits
apply;
 28




---



##### Table of Contents




    
    inconsistent court decisions and developing legal theories;
    
    increasingly aggressive tactics of plaintiffs lawyers;
    
    the risks and lack of predictability inherent in major litigation;
    
    changes in the volume of asbestos and environmental pollution and mass tort claims which cannot now be
anticipated;
    
    continued increase in mass tort claims relating to silica and silica-containing products;
    
    the impact of the exhaustion of primary limits and the resulting increase in claims on any umbrella or excess
policies we have issued;
    
    the number and outcome of direct actions against us; and
    
    our ability to recover reinsurance for asbestos and environmental pollution and mass tort claims.
      29




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##### Table of Contents



Estimated Volatility in Gross Carried Loss Reserves by Segment
 GrossCarried
    
    
    EstimatedLoss
    
    
    Volatility inDecember 31, 2005(In millions)
    
    Reserves
    
    
    ReservesStandard Lines
    
    $
    15,084
    
    
    
    +/- 7
    %Specialty Lines
    
    
    5,205
    
    
    
    +/- 7
    %Corporate and Other Non-Core
    
    
    7,372
    
    
    
    +/- 25
    %
  Reinsurance
  30




---



##### Table of Contents



Components of reinsurance receivables(In millions)
    
    December 31, 2005
    
    
    December 31, 2004Reinsurance receivables related to insurance reserves:Ceded claim and claim adjustment expense
    
    $
    10,605
    
    
    $
    13,879Ceded future policy benefits
    
    
    1,193
    
    
    
    1,260Ceded policyholders funds
    
    
    56
    
    
    
    65Billed reinsurance receivables
    
    
    582
    
    
    
    684Reinsurance receivables
    
    
    12,436
    
    
    
    15,888Allowance for uncollectible reinsurance
    
    
    (519
    )
    
    
    (546
    )Reinsurance receivables, net of allowance
for uncollectible reinsurance
    
    $
    11,917
    
    
    $
    15,342
       31




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##### Table of Contents



Terrorism Insurance
       Restructuring
   32




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##### Table of Contents



Segment Results
  STANDARD LINES
 Business Overview
   Property
 Casualty
  Property and Casualtys
 CNA Global
  33




---



##### Table of Contents



Results of Operations
 Years ended December 31(In millions)
    
    2005
    
    
    2004
    
    
    2003Net written premiums
    
    $
    4,382
    
    
    $
    4,582
    
    
    $
    4,563Net earned premiums
    
    
    4,410
    
    
    
    4,917
    
    
    
    4,532Net investment income
    
    
    767
    
    
    
    496
    
    
    
    408Net operating income (loss)
    
    
    (41
    )
    
    
    220
    
    
    
    (948
    )Net realized investment gains
    
    
    9
    
    
    
    139
    
    
    
    234Net income (loss)
    
    
    (32
    )
    
    
    359
    
    
    
    (714
    )RatiosLoss and loss adjustment expense
    
    
    87.5
    %
    
    
    70.8
    %
    
    
    98.0
    %Expense
    
    
    32.4
    
    
    
    34.6
    
    
    
    42.7Dividend
    
    
    0.4
    
    
    
    0.2
    
    
    
    2.2Combined
    
    
    120.3
    %
    
    
    105.6
    %
    
    
    142.9
    %
 2005 Compared with 2004
       34




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##### Table of Contents



Gross and Net Carried
Claim and Claim Adjustment Expense Reserves
 December 31,(In millions)
    
    2005
    
    
    2004Gross Case Reserves
    
    $
    7,033
    
    
    $
    6,904Gross IBNR Reserves
    
    
    8,051
    
    
    
    7,398Total Gross Carried Claim and Claim
Adjustment Expense Reserves
    
    $
    15,084
    
    
    $
    14,302Net Case Reserves
    
    $
    5,165
    
    
    $
    4,761Net IBNR Reserves
    
    
    6,081
    
    
    
    4,547Total Net Carried Claim and Claim Adjustment
Expense Reserves
    
    $
    11,246
    
    
    $
    9,308
   2004 Compared with 2003
     35




---



##### Table of Contents



36




---



##### Table of Contents



SPECIALTY LINES
 Business Overview
   Professional Liability Insurance
  Surety
 Warranty
 37




---



##### Table of Contents



Results of Operations
 Years ended December 31(In millions)
    
    2005
    
    
    2004
    
    
    2003Net written premiums
    
    $
    2,463
    
    
    $
    2,391
    
    
    $
    2,038Net earned premiums
    
    
    2,475
    
    
    
    2,277
    
    
    
    1,840Net investment income
    
    
    281
    
    
    
    246
    
    
    
    201Net operating income (loss)
    
    
    336
    
    
    
    324
    
    
    
    (34
    )Net realized investment gains
    
    
    12
    
    
    
    54
    
    
    
    74Net income
    
    
    348
    
    
    
    378
    
    
    
    40RatiosLoss and loss adjustment expense
    
    
    65.3
    %
    
    
    63.3
    %
    
    
    89.6
    %Expense
    
    
    26.1
    
    
    
    26.1
    
    
    
    27.6Dividend
    
    
    0.2
    
    
    
    0.2
    
    
    
    0.2Combined
    
    
    91.6
    %
    
    
    89.6
    %
    
    
    117.4
    %
 2005 Compared with 2004
       38




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##### Table of Contents



Gross and Net Carried
Claim and Claim Adjustment Expense Reserves
 December 31,(In millions)
    
    2005
    
    
    2004Gross Case Reserves
    
    $
    1,907
    
    
    $
    1,659Gross IBNR Reserves
    
    
    3,298
    
    
    
    3,201Total Gross Carried Claim and Claim Adjustment
Expense Reserves
    
    $
    5,205
    
    
    $
    4,860Net Case Reserves
    
    $
    1,442
    
    
    $
    1,191Net IBNR Reserves
    
    
    2,352
    
    
    
    2,042Total Net Carried Claim and Claim Adjustment
Expense Reserves
    
    $
    3,794
    
    
    $
    3,233
  2004 Compared with 2003
       39




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##### Table of Contents



LIFE AND GROUP NON-CORE
 Business Overview
   Results of Operations
 Years ended December 31
    
    2005
    
    2004
    
    2003(In millions)Net earned premiums
    
    $
    704
    
    
    $
    921
    
    
    $
    2,376Net investment income
    
    
    593
    
    
    
    692
    
    
    
    821Net operating income (loss)
    
    
    (51
    )
    
    
    (29
    )
    
    
    113Net realized investment losses
    
    
    (19
    )
    
    
    (385
    )
    
    
    (108
    )Net income (loss)
    
    
    (70
    )
    
    
    (414
    )
    
    
    5
 2005 Compared with 2004
   2004 Compared with 2003
  40




---



##### Table of Contents



CORPORATE AND OTHER NON-CORE
 Overview
   Results of Operations
 Years ended December 31
    
    2005
    
    2004
    
    2003(In millions)Net investment income
    
    $
    251
    
    
    $
    246
    
    
    $
    226Revenues
    
    
    311
    
    
    
    358
    
    
    
    737Net operating income (loss)
    
    
    9
    
    
    
    84
    
    
    
    (835
    )Net realized investment gains (losses)
    
    
    (12
    )
    
    
    39
    
    
    
    85Net income (loss)
    
    
    (3
    )
    
    
    123
    
    
    
    (750
    )
 2005 Compared with 2004
   41




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##### Table of Contents



Gross and Net Carried
Claim and Claim Adjustment Expense Reserves
 December 31,
    
    2005
    
    
    2004(In millions)Gross Case Reserves
    
    $
    3,297
    
    
    $
    3,806Gross IBNR Reserves
    
    
    4,075
    
    
    
    4,875Total Gross Carried Claim and Claim
Adjustment Expense Reserves
    
    $
    7,372
    
    
    $
    8,681Net Case Reserves
    
    $
    1,554
    
    
    $
    1,588Net IBNR Reserves
    
    
    1,902
    
    
    
    1,691Total Net Carried Claim and Claim
Adjustment Expense Reserves
    
    $
    3,456
    
    
    $
    3,279
 2004 Compared with 2003
   42




---



##### Table of Contents



APMT Reserves
      43




---



##### Table of Contents



APMT Reserves
 December 31, 2005
    
    
    December 31, 2004Environmental
    
    
    
    
    
    
    EnvironmentalPollution and
    
    
    
    
    
    
    Pollution andAsbestos
    
    
    Mass Tort
    
    
    Asbestos
    
    
    Mass Tort(In millions)Gross reserves
    
    $
    2,992
    
    
    $
    680
    
    
    $
    3,218
    
    
    $
    755Ceded reserves
    
    
    (1,438
    )
    
    
    (257
    )
    
    
    (1,532
    )
    
    
    (258
    )Net reserves
    
    $
    1,554
    
    
    $
    423
    
    
    $
    1,686
    
    
    $
    497
 Asbestos
      44




---



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45




---



##### Table of Contents



Pending Asbestos Accounts and Associated Reserves
 December 31, 2005
 Net Paid Losses
    
    
    Net Asbestos
    
    
    Percent ofNumber of
    
    
    in 2005
    
    
    Reserves
    
    
    AsbestosPolicyholders
    
    
    (In millions)
    
    
    (In millions)
    
    
    Net ReservesPolicyholders with settlement agreementsStructured Settlements
    
    
    13
    
    
    $
    30
    
    
    $
    167
    
    
    
    11
    %Wellington
    
    
    4
    
    
    
    2
    
    
    
    15
    
    
    
    1Coverage in place
    
    
    34
    
    
    
    13
    
    
    
    58
    
    
    
    4Fibreboard
    
    
    1
    
    
    
    
    
    
    
    54
    
    
    
    3Total with settlement agreements
    
    
    52
    
    
    
    45
    
    
    
    294
    
    
    
    19Other policyholders with active accountsLarge asbestos accounts
    
    
    199
    
    
    
    68
    
    
    
    273
    
    
    
    17Small asbestos accounts
    
    
    1,073
    
    
    
    23
    
    
    
    135
    
    
    
    9Total other policyholders
    
    
    1,272
    
    
    
    91
    
    
    
    408
    
    
    
    26Assumed reinsurance and pools
    
    
    
    
    
    
    6
    
    
    
    143
    
    
    
    9Unassigned IBNR
    
    
    
    
    
    
    
    
    
    
    709
    
    
    
    46Total
    
    
    1,324
    
    
    $
    142
    
    
    $
    1,554
    
    
    
    100
    %
 Pending Asbestos Accounts and Associated Reserves
 December 31, 2004
 Net Paid Losses
    
    
    Net Asbestos
    
    
    Percent ofNumber of
    
    
    in 2004
    
    
    Reserves
    
    
    AsbestosPolicyholders
    
    
    (In millions)
    
    
    (In millions)
    
    
    Net ReservesPolicyholders with settlement agreementsStructured Settlements
    
    
    11
    
    
    $
    39
    
    
    $
    175
    
    
    
    10
    %Wellington
    
    
    4
    
    
    
    4
    
    
    
    17
    
    
    
    1Coverage in place
    
    
    33
    
    
    
    14
    
    
    
    76
    
    
    
    5Fibreboard
    
    
    1
    
    
    
    
    
    
    
    54
    
    
    
    3Total with settlement agreements
    
    
    49
    
    
    
    57
    
    
    
    322
    
    
    
    19Other policyholders with active accountsLarge asbestos accounts
    
    
    180
    
    
    
    47
    
    
    
    368
    
    
    
    22Small asbestos accounts
    
    
    1,109
    
    
    
    23
    
    
    
    141
    
    
    
    8Total other policyholders
    
    
    1,289
    
    
    
    70
    
    
    
    509
    
    
    
    30Assumed reinsurance and pools
    
    
    
    
    
    
    8
    
    
    
    148
    
    
    
    9Unassigned IBNR
    
    
    
    
    
    
    
    
    
    
    707
    
    
    
    42Total
    
    
    1,338
    
    
    $
    135
    
    
    $
    1,686
    
    
    
    100
    %
  46




---



##### Table of Contents



Environmental Pollution and Mass Tort
    47




---



##### Table of Contents



At December 31, 2005
 NetEnvironmental
    
    
    Percent ofNet Paid Losses
    
    
    Pollution
    
    
    EnvironmentalNumber of
    
    
    in 2005
    
    
    Reserves
    
    
    Pollution NetPolicyholders
    
    
    (In millions)
    
    
    (In millions)
    
    
    ReservePolicyholders with Settlement AgreementsStructured settlements
    
    
    6
    
    
    $
    10
    
    
    $
    17
    
    
    
    5
    %Coverage in place
    
    
    16
    
    
    
    10
    
    
    
    23
    
    
    
    7Total with Settlement Agreements
    
    
    22
    
    
    
    20
    
    
    
    40
    
    
    
    12Other Policyholders with Active AccountsLarge pollution accounts
    
    
    120
    
    
    
    18
    
    
    
    63
    
    
    
    19Small pollution accounts
    
    
    362
    
    
    
    15
    
    
    
    50
    
    
    
    15Total Other Policyholders
    
    
    482
    
    
    
    33
    
    
    
    113
    
    
    
    34Assumed Reinsurance & Pools
    
    
    
    
    
    
    3
    
    
    
    33
    
    
    
    10Unassigned IBNR
    
    
    
    
    
    
    
    
    
    
    150
    
    
    
    44Total
    
    
    504
    
    
    $
    56
    
    
    $
    336
    
    
    
    100
    %
 48




---



##### Table of Contents



At December 31, 2004
 NetEnvironmental
    
    
    Percent ofNet Paid Losses
    
    
    Pollution
    
    
    EnvironmentalNumber of
    
    
    in 2004
    
    
    Reserves
    
    
    Pollution NetPolicyholders
    
    
    (In millions)
    
    
    (In millions)
    
    
    ReservePolicyholders with Settlement AgreementsStructured settlements
    
    
    2
    
    
    $
    14
    
    
    $
    5
    
    
    
    1
    %Coverage in place
    
    
    15
    
    
    
    5
    
    
    
    16
    
    
    
    5Total with Settlement Agreements
    
    
    17
    
    
    
    19
    
    
    
    21
    
    
    
    6Other Policyholders with Active AccountsLarge pollution accounts
    
    
    134
    
    
    
    18
    
    
    
    75
    
    
    
    22Small pollution accounts
    
    
    405
    
    
    
    14
    
    
    
    47
    
    
    
    14Total Other Policyholders
    
    
    539
    
    
    
    32
    
    
    
    122
    
    
    
    36Assumed Reinsurance & Pools
    
    
    
    
    
    
    2
    
    
    
    36
    
    
    
    10Unassigned IBNR
    
    
    
    
    
    
    
    
    
    
    163
    
    
    
    48Total
    
    
    556
    
    
    $
    53
    
    
    $
    342
    
    
    
    100
    %
  INVESTMENTS
  Net Investment Income
 Years ended December 31
    
    2005
    
    
    2004
    
    
    2003(In millions)Fixed maturity securities
    
    $
    1,608
    
    
    $
    1,571
    
    
    $
    1,651Short term investments
    
    
    147
    
    
    
    56
    
    
    
    63Limited partnerships
    
    
    254
    
    
    
    212
    
    
    
    221Equity securities
    
    
    25
    
    
    
    14
    
    
    
    19Income from trading portfolio (a)
    
    
    47
    
    
    
    110
    
    
    
    Interest on funds withheld and other deposits
    
    
    (166
    )
    
    
    (261
    )
    
    
    (335
    )Other
    
    
    20
    
    
    
    18
    
    
    
    85Gross investment income
    
    
    1,935
    
    
    
    1,720
    
    
    
    1,704Investment expense
    
    
    (43
    )
    
    
    (40
    )
    
    
    (48
    )Net investment income
    
    $
    1,892
    
    
    $
    1,680
    
    
    $
    1,656
   49




---



##### Table of Contents



50




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##### Table of Contents



Net Realized Investment Gains (Losses)
  Net Realized Investment Gains (Losses)
 Years ended December 31
    
    2005
    
    
    2004
    
    
    2003(In millions)Realized investment gains (losses):Fixed maturity securities:U.S. Government bonds
    
    $
    (33
    )
    
    $
    10
    
    
    $
    (70
    )Corporate and other taxable bonds
    
    
    (86
    )
    
    
    123
    
    
    
    380Tax-exempt bonds
    
    
    12
    
    
    
    42
    
    
    
    97Asset-backed bonds
    
    
    14
    
    
    
    53
    
    
    
    42Redeemable preferred stock
    
    
    3
    
    
    
    19
    
    
    
    (12
    )Total fixed maturity securities
    
    
    (90
    )
    
    
    247
    
    
    
    437Equity securities
    
    
    38
    
    
    
    202
    
    
    
    114Derivative securities
    
    
    49
    
    
    
    (84
    )
    
    
    78Short-term investments
    
    
    
    
    
    
    (3
    )
    
    
    3Other, including dispositions of businesses, net of
participating policyholders interest
    
    
    (10
    )
    
    
    (601
    )
    
    
    (168
    )Realized investment gains (losses) before allocation to
participating policyholders and minority interests
    
    
    (13
    )
    
    
    (239
    )
    
    
    464Allocated to participating policyholders and minority interests
    
    
    3
    
    
    
    (9
    )
    
    
    (4
    )Income tax (expense) benefit
    
    
    
    
    
    
    95
    
    
    
    (175
    )Net realized investment gains (losses), net of participating
policyholders and minority interests
    
    $
    (10
    )
    
    $
    (153
    )
    
    $
    285
    51




---



##### Table of Contents



â
    Realized Gains and Losses
 Years ended December 31
    
    2005
    
    
    2004
    
    
    2003(In millions)Net realized gains (losses) on fixed maturity securities
and equity securities:Fixed maturity securities:Gross realized gains
    
    $
    361
    
    
    $
    704
    
    
    $
    1,244Gross realized losses
    
    
    (451
    )
    
    
    (457
    )
    
    
    (807
    )Net realized gains (losses) on fixed maturity securities
    
    
    (90
    )
    
    
    247
    
    
    
    437Equity securities:Gross realized gains
    
    
    73
    
    
    
    225
    
    
    
    143Gross realized losses
    
    
    (35
    )
    
    
    (23
    )
    
    
    (29
    )Net realized gains on equity securities
    
    
    38
    
    
    
    202
    
    
    
    114Net realized gains (losses) on fixed maturity and equity
securities
    
    $
    (52
    )
    
    $
    449
    
    
    $
    551
 52




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##### Table of Contents



Largest Realized Losses from Securities Sold at a Loss
 Fair
    
    
    
    
    
    
    Months inYear ended December 31, 2005
    
    Value
    
    
    
    
    
    
    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. Volatility of interest rates prompted movement
to other asset classes.
    
    $
    16,716
    
    
    $
    92
    
    
    
    0-12+Manufactures and sells vehicles worldwide under various
brand names. The company also has financing and
insurance operations. The company is experiencing
inventory capacity issues. Losses relate to trades that
took place to reduce issuer exposure.
    
    
    356
    
    
    
    45
    
    
    
    0-12+Agency issued security that is secured by a pool of
federally insured and conventional mortgages. Specific
pools were sold and replaced with non-agency pools to
enhance yield.
    
    
    1,326
    
    
    
    9
    
    
    
    0-12Issuer of high grade state revenue bonds. Loss was
incurred as a result of unfavorable interest rate change.
    
    
    242
    
    
    
    6
    
    
    
    0-12+Large retail food-drug chain. Company was soliciting
bidders, but failed to be acquired. Sold securities to
reduce issuer exposure.
    
    
    40
    
    
    
    6
    
    
    
    0-6Manufactures and sells vehicles worldwide under various
brand names. The company also has financing operations.
The company has been downgraded. Losses relate to trades
that took place to reduce issuer exposure.
    
    
    27
    
    
    
    6
    
    
    
    0-12Large media company that was downgraded to below
investment grade. Losses relate to trades that took
place to reduce issuer exposure.
    
    
    74
    
    
    
    5
    
    
    
    0-12+Issuer of municipal general obligation bonds. Loss was
incurred as a result of unfavorable interest rate change.
    
    
    418
    
    
    
    5
    
    
    
    0-6Issuer of high grade state general obligation bonds.
Loss was incurred as a result of unfavorable interest
rate change.
    
    
    244
    
    
    
    5
    
    
    
    0-12Large domestic passenger and freight airline that filed
for bankruptcy during third quarter 2005. Losses relate
to trades that took place to reduce issuer exposure.
    
    
    12
    
    
    
    5
    
    
    
    0-6$
    19,455
    
    
    $
    184
 (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.
 53




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##### Table of Contents



Valuation and Impairment of Investments
  Carrying Value of Investments
 December 31,
    
    
    
    
    
    
    December 31,2005
    
    
    %
    
    
    2004
    
    
    %(In millions)General account investments:Fixed maturity securities available-for-sale:U.S. Treasury securities and obligations of government agencies
    
    $
    1,469
    
    
    
    4
    %
    
    $
    4,346
    
    
    
    11
    %Asset-backed securities
    
    
    12,859
    
    
    
    32
    
    
    
    7,788
    
    
    
    20States, municipalities and political subdivisions  tax-exempt
    
    
    9,209
    
    
    
    23
    
    
    
    8,857
    
    
    
    22Corporate securities
    
    
    6,165
    
    
    
    15
    
    
    
    6,513
    
    
    
    17Other debt securities
    
    
    3,044
    
    
    
    8
    
    
    
    3,053
    
    
    
    8Redeemable preferred stock
    
    
    216
    
    
    
    1
    
    
    
    146
    
    
    
    Options embedded in convertible debt securities
    
    
    1
    
    
    
    
    
    
    
    234
    
    
    
    1Total fixed maturity securities available-for-sale
    
    
    32,963
    
    
    
    83
    
    
    
    30,937
    
    
    
    79Fixed maturity securities trading:U.S. Treasury securities and obligations of government agencies
    
    
    4
    
    
    
    
    
    
    
    27
    
    
    
    Asset-backed securities
    
    
    87
    
    
    
    
    
    
    
    125
    
    
    
    Corporate securities
    
    
    154
    
    
    
    1
    
    
    
    199
    
    
    
    1Other debt securities
    
    
    26
    
    
    
    
    
    
    
    35
    
    
    
    Redeemable preferred stock
    
    
    
    
    
    
    
    
    
    
    4
    
    
    
    Total fixed maturity securities trading
    
    
    271
    
    
    
    1
    
    
    
    390
    
    
    
    1Equity securities available-for-sale:Common stock
    
    
    289
    
    
    
    1
    
    
    
    260
    
    
    
    1Preferred stock
    
    
    343
    
    
    
    1
    
    
    
    150
    
    
    
    Total equity securities available-for-sale
    
    
    632
    
    
    
    2
    
    
    
    410
    
    
    
    1Total equity securities trading
    
    
    49
    
    
    
    
    
    
    
    46
    
    
    
    Short term investments available-for-sale
    
    
    3,870
    
    
    
    9
    
    
    
    5,404
    
    
    
    14Short term investments trading
    
    
    368
    
    
    
    1
    
    
    
    459
    
    
    
    1Limited partnerships
    
    
    1,509
    
    
    
    4
    
    
    
    1,549
    
    
    
    4Other investments
    
    
    33
    
    
    
    
    
    
    
    36
    
    
    
    Total general account investments
    
    $
    39,695
    
    
    
    100
    %
    
    $
    39,231
    
    
    
    100
    %
    54




---



##### Table of Contents



Contractual Maturity
 Percent of
    
    
    Percent ofMarket
    
    
    UnrealizedValue
    
    
    LossDue in one year or less
    
    
    4
    %
    
    
    1
    %Due after one year through five years
    
    
    6
    
    
    
    5Due after five years through ten years
    
    
    7
    
    
    
    14Due after ten years
    
    
    22
    
    
    
    23Asset-backed securities
    
    
    61
    
    
    
    57Total
    
    
    100
    %
    
    
    100
    %
  Unrealized Loss Aging for Non-investment Grade Securities
 Fair Value as a Percentage of Book ValueEstimated
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Gross UnrealizedDecember 31, 2005
    
    Fair Value
    
    
    90-99%
    
    
    80-89%
    
    
    70-79%
    
    
    <70%
    
    
    Loss(In millions)Fixed maturity securities:Non-investment grade:0-6 months
    
    $
    632
    
    
    $
    20
    
    
    $
    8
    
    
    $
    1
    
    
    $
    
    
    
    $
    297-12 months
    
    
    118
    
    
    
    4
    
    
    
    6
    
    
    
    
    
    
    
    
    
    
    
    1013-24 months
    
    
    122
    
    
    
    3
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3Greater than 24 months
    
    
    2
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Total non-investment grade
    
    $
    874
    
    
    $
    27
    
    
    $
    14
    
    
    $
    1
    
    
    $
    
    
    
    $
    42
 Unrealized Loss Aging for Non-investment Grade Securities
 Fair Value as a Percentage of Book ValueEstimated
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Gross UnrealizedDecember 31, 2004
    
    Fair Value
    
    
    90-99%
    
    
    80-89%
    
    
    70-79%
    
    
    <70%
    
    
    Loss(In millions)Fixed maturity securities:Non-investment grade:0-6 months
    
    $
    188
    
    
    $
    6
    
    
    $
    1
    
    
    $
    
    
    
    $
    
    
    
    $
    77-12 months
    
    
    69
    
    
    
    3
    
    
    
    1
    
    
    
    
    
    
    
    
    
    
    
    413-24 months
    
    
    20
    
    
    
    1
    
    
    
    1
    
    
    
    
    
    
    
    
    
    
    
    2Greater than 24 months
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Total non-investment grade
    
    $
    277
    
    
    $
    10
    
    
    $
    3
    
    
    $
    
    
    
    $
    
    
    
    $
    13
  55




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##### Table of Contents



General Account Bond Ratings
 December 31
    
    2005
    
    
    %
    
    
    2004
    
    
    %(In millions)U.S. Government and affiliated agency securities
    
    $
    1,628
    
    
    
    5
    %
    
    $
    4,640
    
    
    
    15
    %Other AAA rated
    
    
    18,233
    
    
    
    55
    
    
    
    14,628
    
    
    
    47AA and A rated
    
    
    6,046
    
    
    
    18
    
    
    
    5,597
    
    
    
    18BBB rated
    
    
    4,499
    
    
    
    14
    
    
    
    4,072
    
    
    
    13Non investment-grade
    
    
    2,612
    
    
    
    8
    
    
    
    2,240
    
    
    
    7Total
    
    $
    33,018
    
    
    
    100
    %
    
    $
    31,177
    
    
    
    100
    %
   Separate Account Bond Ratings
 December 31
    
    2005
    
    
    %
    
    
    2004
    
    
    %(In millions)U.S. Government and affiliated agency securities
    
    $
    
    
    
    
    
    %
    
    $
    
    
    
    
    
    %Other AAA rated
    
    
    120
    
    
    
    26
    
    
    
    156
    
    
    
    32AA and A rated
    
    
    193
    
    
    
    41
    
    
    
    184
    
    
    
    38BBB rated
    
    
    142
    
    
    
    31
    
    
    
    117
    
    
    
    24Non investment-grade
    
    
    11
    
    
    
    2
    
    
    
    29
    
    
    
    6Total
    
    $
    466
    
    
    
    100
    %
    
    $
    486
    
    
    
    100
    %
 56




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##### Table of Contents



Short-term Investments
 December 31,
    
    
    December 31,2005
    
    
    2004(In millions)Short-term investments available-for-sale:Commercial paper
    
    $
    1,906
    
    
    $
    1,655U.S. Treasury securities
    
    
    251
    
    
    
    2,382Money market funds
    
    
    294
    
    
    
    174Other
    
    
    1,419
    
    
    
    1,193Total short-term investments available-for-sale
    
    
    3,870
    
    
    
    5,404Short-term investments trading:Commercial paper
    
    
    94
    
    
    
    46U.S. Treasury securities
    
    
    64
    
    
    
    300Money market funds
    
    
    200
    
    
    
    99Other
    
    
    10
    
    
    
    14Total short-term investments trading
    
    
    368
    
    
    
    459Total short-term investments
    
    $
    4,238
    
    
    $
    5,863
  LIQUIDITY AND CAPITAL RESOURCES
 Cash Flows
   57




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##### Table of Contents



Commitments, Contingencies, and Guarantees
  58




---



##### Table of Contents



Contractual Commitments
 December 31, 2005
    
    Total
    
    
    Less than 1 year
    
    
    1-3 years
    
    
    3-5 years
    
    
    More than 5 years(In millions)Debt (a)
    
    $
    2,636
    
    
    $
    357
    
    
    $
    570
    
    
    $
    143
    
    
    $
    1,566Lease obligations
    
    
    261
    
    
    
    53
    
    
    
    82
    
    
    
    56
    
    
    
    70Claim and claim expense reserves (b)
    
    
    32,861
    
    
    
    7,522
    
    
    
    9,610
    
    
    
    4,969
    
    
    
    10,760Future policy benefits reserves (c)
    
    
    10,010
    
    
    
    200
    
    
    
    362
    
    
    
    349
    
    
    
    9,099Policyholder funds reserves (c)
    
    
    1,489
    
    
    
    960
    
    
    
    285
    
    
    
    95
    
    
    
    149Guaranteed payment contracts (d)
    
    
    22
    
    
    
    15
    
    
    
    7
    
    
    
    
    
    
    
    Total
    
    $
    47,279
    
    
    $
    9,107
    
    
    $
    10,916
    
    
    $
    5,612
    
    
    $
    21,644
 (a)
    
    Includes estimated future interest payments, but does not include original issue
discount.(b)
    
    Claim and claim adjustment expense reserves are not discounted and represent our
estimate of the amount and timing of the ultimate settlement and administration of claims
based on our assessment of facts and circumstances known as of December 31, 2005. See the
Reserves  Estimates and Uncertainties section of this MD&A for further information. Claim
and claim adjustment expense reserves of $15 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, 2005. Future policy benefit
reserves of $968 million and policyholder fund reserves of $51 million related to business
which has been 100% ceded to unaffiliated parties in connection with the individual life
sale are not included. Additional information on future policy benefits and policyholder
funds reserves is included in Note A of the Consolidated Financial Statements included
under Item 8.(d)
    
    Primarily relating to telecommunications and software services.
  Regulatory Matters
   59




---



##### Table of Contents



Ratings
   60




---



##### Table of Contents



Insurance Financial Strength Ratings
    
    
    Debt RatingsProperty & Casualty (a)
    
    
    Life (b)
    
    
    CNAF
    
    
    ContinentalCCC
    
    
    CIC
    
    
    
    
    
    
    Senior
    
    
    SeniorGroup
    
    
    Group
    
    
    CAC
    
    
    Debt
    
    
    DebtA.M. Best
    
    A
    
    
A
    
    

A-
    
    
    bbb
    
    Not ratedFitch
    
A-
    
    

A-
    
    
A-
    
    
    BBB-
    
    BBB-Moodys
    
A3
    
    
A3
    
    
    Baa1
    
    Baa3
    
    Baa3S&P
    

A-
    
    

A-
    
    
    BBB+
    
    BBB-
    
    BBB-
 (a)
    
    Fitch and Moodys outlook for the Property & Casualty companies financial strength and
holding company debt ratings are stable. All others are negative.(b)
    
    A.M. Best, Fitch and Moodys have a stable outlook while S&P has a negative outlook on
the CAC rating.
     Dividends from Subsidiaries
    61




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##### Table of Contents



Loews
  
    
    In September of 2001, Loews purchased 38.3 million of our common shares for $957
million in a rights offering;
    
    In December of 2002, Loews purchased shares of our newly issued Series H
Cumulative Preferred Issue (Series H Issue) for $750 million, which shares remain
outstanding;
    
    In November of 2003, Loews purchased shares of our newly issued participating
convertible preferred stock for $750 million, which shares converted into 32,327,015
shares of our common stock in April 2004 in accordance with their terms; and
    
    In February of 2004, Loews purchased $346 million of surplus notes of our
subsidiary, CCC, in connection with the sales of CCCs individual life and group
benefits businesses, which notes were repaid during 2004.
   Accounting Pronouncements
 Accounting for Certain Hybrid Financial Instruments Accounting for Derivative Instruments and
Hedging Activities Accounting for Transfers and Servicing of
Financial Assets and Extinguishments of Liabilities Application of Statement 133 to Beneficial Interests
in Securitized Financial Assets
 Accounting by Insurance
Enterprises for Deferred Acquisition Costs in Connection with Modifications or Exchanges of
Insurance Contracts
 62




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##### Table of Contents



Accounting and Reporting by Insurance
Enterprises for Certain Long-Duration Contracts and for Realized Gains and Losses from the Sale of
Investments
 Accounting
Changes and Error Correction
 The
Meaning of Other-Than-Temporary Impairment and its Application to Certain Investments Accounting
for Certain Investments in Debt and Equity Securities The Equity Method of Accounting for Investments in Common Stock The Meaning
of Other-Than-Temporary Impairment and its Application to Certain Investments
 FORWARD-LOOKING STATEMENTS
  
    
    general economic and business conditions, including inflationary pressures on
medical care costs, construction costs and other economic sectors that increase the severity
of claims;
 
    
    changes in financial markets such as fluctuations in interest rates, long-term
periods of low interest rates, credit conditions and currency, commodity and stock prices;
 63




---



##### Table of Contents




    
    the effects of corporate bankruptcies, such as Enron and WorldCom, on capital
markets, and on the markets for directors and officers and errors and omissions coverages;
 
    
    changes in foreign or domestic political, social and economic conditions;
 
    
    regulatory initiatives and compliance with governmental regulations, judicial
decisions, including interpretation of policy provisions, decisions regarding coverage and
theories of liability, trends in litigation and the outcome of any litigation involving us,
and rulings and changes in tax laws and regulations;
 
    
    effects upon insurance markets and upon industry business practices and
relationships of current litigation, investigations and regulatory activity by the New York
State Attorney Generals office and other authorities concerning contingent commission
arrangements with brokers and bid solicitation activities;
 
    
    legal and regulatory activities with respect to certain non-traditional and
finite-risk insurance products, and possible resulting changes in accounting and financial
reporting in relation to such products, including our restatement of financial results in May
of 2005 and our relationship with an affiliate, Accord Re Ltd., as disclosed in connection
with that restatement;
 
    
    regulatory limitations, impositions and restrictions upon us, including the
effects of assessments and other surcharges for guaranty funds and second-injury funds and
other mandatory pooling arrangements;
 
    
    the impact of competitive products, policies and pricing and the competitive
environment in which we operate, including changes in our book of business;
 
    
    product and policy availability and demand and market responses, including the
level of ability to obtain rate increases and decline or non-renew under priced accounts, to
achieve premium targets and profitability and to realize growth and retention estimates;
 
    
    development of claims and the impact on loss reserves, including changes in claim
settlement policies;
 
    
    the effectiveness of current initiatives by claims management to reduce loss and
expense ratios through more efficacious claims handling techniques;
 
    
    the performance of reinsurance companies under reinsurance contracts with us;
    
    results of financing efforts, including the availability of bank credit facilities;
    
    changes in our composition of operating segments;
 
    
    weather and other natural physical events, including the severity and frequency of
storms, hail, snowfall and other winter conditions, as well as of natural disasters such as
hurricanes and earthquakes;
 
    
    man-made disasters, including the possible occurrence of terrorist attacks and the
effect of the absence or insufficiency of applicable terrorism legislation on coverages;
 
    
    the unpredictability of the nature, targets, severity or frequency of potential
terrorist events, as well as the uncertainty as to our ability to contain our terrorism
exposure effectively, notwithstanding the extension until 2007 of the Terrorism Risk Insurance
Act of 2002;
 
    
    the occurrence of epidemics;
 
    
    exposure to liabilities due to claims made by insureds and others relating to
asbestos remediation and health-based asbestos impairments, as well as exposure to liabilities
for environmental pollution, mass tort, and construction defect claims;
 
    
    whether a national privately financed trust to replace litigation of asbestos
claims with payments to claimants from the trust will be established or approved through
federal legislation, or, if established and approved, whether it will contain funding
requirements in excess of our established loss reserves or carried loss reserves;
 
    
    the sufficiency of our loss reserves and the possibility of future increases in
reserves;
 
    
    regulatory limitations and restrictions, including limitations upon our ability to
receive dividends from our insurance subsidiaries imposed by state regulatory agencies and
minimum risk-based capital standards established by the National Association of Insurance
Commissioners;
 
    
    the risks and uncertainties associated with our loss reserves as outlined in the
Reserves  Estimates and Uncertainties section of this Managements Discussion and Analysis of
Financial Condition and Results of Operations;
 
    
    the level of success in integrating acquired businesses and operations, and in
consolidating, or selling existing ones;
 64




---



##### Table of Contents




    
    the possibility of further changes in our ratings by ratings agencies, including
the inability to access certain markets or distribution channels and the required
collateralization of future payment obligations as a result of such changes, and changes in
rating agency policies and practices; and
 
    
    the actual closing of contemplated transactions and agreements.
  65




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##### Table of Contents



ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
   Sensitivity Analysis
      66




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##### Table of Contents



Market Risk Scenario 1
 Increase (Decrease)Market
    
    
    Interest
    
    
    Currency
    
    
    EquityDecember 31, 2005
    
    Value
    
    
    Rate Risk
    
    
    Risk
    
    
    Risk(In millions)General account:Fixed maturity securities available-for-sale
    
    $
    32,963
    
    
    $
    (1,897
    )
    
    $
    (89
    )
    
    $
    (22
    )Fixed maturity securities trading
    
    
    271
    
    
    
    (2
    )
    
    
    (1
    )
    
    
    (2
    )Equity securities available-for-sale
    
    
    632
    
    
    
    
    
    
    
    (6
    )
    
    
    (63
    )Equity securities trading
    
    
    49
    
    
    
    
    
    
    
    
    
    
    
    (5
    )Short term investments available-for-sale
    
    
    3,870
    
    
    
    (4
    )
    
    
    (37
    )
    
    
    Short term investments trading
    
    
    368
    
    
    
    
    
    
    
    
    
    
    
    Limited partnerships
    
    
    1,509
    
    
    
    1
    
    
    
    
    
    
    
    (29
    )Other invested assets
    
    
    30
    
    
    
    
    
    
    
    
    
    
    
    Interest rate swaps
    
    
    
    
    
    
    66
    
    
    
    
    
    
    
    Equity index futures for trading securities
    
    
    
    
    
    
    2
    
    
    
    
    
    
    
    (102
    )Other derivative securities
    
    
    3
    
    
    
    3
    
    
    
    10
    
    
    
    Total general account
    
    
    39,695
    
    
    
    (1,831
    )
    
    
    (123
    )
    
    
    (223
    )Separate accounts:Fixed maturity securities
    
    
    466
    
    
    
    (23
    )
    
    
    
    
    
    
    Equity securities
    
    
    44
    
    
    
    
    
    
    
    
    
    
    
    (4
    )Short term investments
    
    
    36
    
    
    
    
    
    
    
    
    
    
    
    Total separate accounts
    
    
    546
    
    
    
    (23
    )
    
    
    
    
    
    
    (4
    )Total securities
    
    $
    40,241
    
    
    $
    (1,854
    )
    
    $
    (123
    )
    
    $
    (227
    )Debt (carrying value)
    
    $
    1,690
    
    
    $
    (92
    )
    
    $
    
    
    
    $
    
 67




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##### Table of Contents



Market Risk Scenario 1
 Increase (Decrease)Market
    
    
    Interest
    
    
    Currency
    
    
    EquityDecember 31, 2004
    
    Value
    
    
    Rate Risk
    
    
    Risk
    
    
    Risk(In millions)General account:Fixed maturity securities available-for-sale
    
    $
    30,937
    
    
    $
    (1,824
    )
    
    $
    (88
    )
    
    $
    (26
    )Fixed maturity securities trading
    
    
    390
    
    
    
    (4
    )
    
    
    (1
    )
    
    
    (3
    )Equity securities available-for-sale
    
    
    410
    
    
    
    
    
    
    
    (9
    )
    
    
    (41
    )Equity securities trading
    
    
    46
    
    
    
    
    
    
    
    
    
    
    
    (5
    )Short term investments available-for-sale
    
    
    5,404
    
    
    
    (7
    )
    
    
    (10
    )
    
    
    Short term investments trading
    
    
    459
    
    
    
    
    
    
    
    
    
    
    
    Limited partnerships
    
    
    1,549
    
    
    
    6
    
    
    
    
    
    
    
    (18
    )Other invested assets
    
    
    42
    
    
    
    
    
    
    
    
    
    
    
    Interest rate swaps
    
    
    (8
    )
    
    
    8
    
    
    
    
    
    
    
    Equity index futures for trading securities
    
    
    
    
    
    
    2
    
    
    
    
    
    
    
    (116
    )Other derivative securities
    
    
    2
    
    
    
    7
    
    
    
    (21
    )
    
    
    Total general account
    
    
    39,231
    
    
    
    (1,812
    )
    
    
    (129
    )
    
    
    (209
    )Separate accounts:Fixed maturity securities
    
    
    486
    
    
    
    (24
    )
    
    
    
    
    
    
    Equity securities
    
    
    55
    
    
    
    
    
    
    
    
    
    
    
    (5
    )Short term investments
    
    
    20
    
    
    
    
    
    
    
    
    
    
    
    Total separate accounts
    
    
    561
    
    
    
    (24
    )
    
    
    
    
    
    
    (5
    )Total securities
    
    $
    39,792
    
    
    $
    (1,836
    )
    
    $
    (129
    )
    
    $
    (214
    )Debt (carrying value)
    
    $
    2,257
    
    
    $
    (97
    )
    
    $
    
    
    
    $
    
 68




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##### Table of Contents



Market Risk Scenario 2
 Increase (Decrease)Market
    
    
    Interest
    
    
    Currency
    
    
    EquityDecember 31, 2005
    
    Value
    
    
    Rate Risk
    
    
    Risk
    
    
    Risk(In millions)General account:Fixed maturity securities available-for-sale
    
    $
    32,963
    
    
    $
    (2,827
    )
    
    $
    (178
    )
    
    $
    (54
    )Fixed maturity securities trading
    
    
    271
    
    
    
    (4
    )
    
    
    (1
    )
    
    
    (4
    )Equity securities available-for-sale
    
    
    632
    
    
    
    
    
    
    
    (11
    )
    
    
    (158
    )Equity securities trading
    
    
    49
    
    
    
    
    
    
    
    
    
    
    
    (12
    )Short term investments available-for-sale
    
    
    3,870
    
    
    
    (6
    )
    
    
    (74
    )
    
    
    Short term investments trading
    
    
    368
    
    
    
    
    
    
    
    
    
    
    
    Limited partnerships
    
    
    1,509
    
    
    
    1
    
    
    
    
    
    
    
    (72
    )Other invested assets
    
    
    30
    
    
    
    
    
    
    
    
    
    
    
    Interest rate swaps
    
    
    
    
    
    
    95
    
    
    
    
    
    
    
    Equity index futures for trading
    
    
    
    
    
    
    3
    
    
    
    (1
    )
    
    
    (255
    )Other derivative securities
    
    
    3
    
    
    
    5
    
    
    
    20
    
    
    
    (1
    )Total general account
    
    
    39,695
    
    
    
    (2,733
    )
    
    
    (245
    )
    
    
    (556
    )Separate accounts:Fixed maturity securities
    
    
    466
    
    
    
    (34
    )
    
    
    
    
    
    
    Equity securities
    
    
    44
    
    
    
    
    
    
    
    
    
    
    
    (11
    )Short term investments
    
    
    36
    
    
    
    
    
    
    
    
    
    
    
    Total separate accounts
    
    
    546
    
    
    
    (34
    )
    
    
    
    
    
    
    (11
    )Total securities
    
    $
    40,241
    
    
    $
    (2,767
    )
    
    $
    (245
    )
    
    $
    (567
    )Debt (carrying value)
    
    $
    1,690
    
    
    $
    (135
    )
    
    $
    
    
    
    $
    
 69




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##### Table of Contents



Market Risk Scenario 2
 Increase
(Decrease)Market
    
    
    Interest
    
    
    Currency
    
    
    EquityDecember
31, 2004(In millions)
    
    Value
    
    
    Rate Risk
    
    
    Risk
    
    
    RiskGeneral account:Fixed maturity securities available-for-sale
    
    $
    30,937
    
    
    $
    (2,703
    )
    
    $
    (177
    )
    
    $
    (63
    )Fixed maturity securities trading
    
    
    390
    
    
    
    (6
    )
    
    
    (1
    )
    
    
    (8
    )Equity securities available-for-sale
    
    
    410
    
    
    
    
    
    
    
    (18
    )
    
    
    (103
    )Equity securities trading
    
    
    46
    
    
    
    
    
    
    
    
    
    
    
    (11
    )Short term investments available-for-sale
    
    
    5,404
    
    
    
    (11
    )
    
    
    (20
    )
    
    
    Short term investments trading
    
    
    459
    
    
    
    
    
    
    
    
    
    
    
    Limited partnerships
    
    
    1,549
    
    
    
    9
    
    
    
    
    
    
    
    (46
    )Other invested assets
    
    
    42
    
    
    
    
    
    
    
    
    
    
    
    Interest rate swaps
    
    
    (8
    )
    
    
    12
    
    
    
    
    
    
    
    Equity index futures for trading
    
    
    
    
    
    
    3
    
    
    
    
    
    
    
    (289
    )Other derivative securities
    
    
    2
    
    
    
    10
    
    
    
    (38
    )
    
    
    Total general account
    
    
    39,231
    
    
    
    (2,686
    )
    
    
    (254
    )
    
    
    (520
    )Separate accounts:Fixed maturity securities
    
    
    486
    
    
    
    (35
    )
    
    
    
    
    
    
    Equity securities
    
    
    55
    
    
    
    
    
    
    
    
    
    
    
    (14
    )Short term investments
    
    
    20
    
    
    
    
    
    
    
    
    
    
    
    Total separate accounts
    
    
    561
    
    
    
    (35
    )
    
    
    
    
    
    
    (14
    )Total securities
    
    $
    39,792
    
    
    $
    (2,721
    )
    
    $
    (254
    )
    
    $
    (534
    )Debt (carrying value)
    
    $
    2,257
    
    
    $
    (141
    )
    
    $
    
    
    
    $
    
 70




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##### Table of Contents



ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
 CNA Financial Corporation
 
 Consolidated Statements of Operations
 2005
    
    
    2004
    
    
    2003Years ended December 31(In millions, except per share data)
    
    
    
    
    
    RestatedSee Note T
    
    
    RestatedSee Note TRevenues:Net earned premiums
    
    $
    7,569
    
    
    $
    8,209
    
    
    $
    9,216Net investment income
    
    
    1,892
    
    
    
    1,680
    
    
    
    1,656Realized investment gains (losses), net of
participating policyholders and minority
interests
    
    
    (10
    )
    
    
    (248
    )
    
    
    460Other revenues
    
    
    411
    
    
    
    283
    
    
    
    383Total revenues
    
    
    9,862
    
    
    
    9,924
    
    
    
    11,715Claims, Benefits and Expenses:Insurance claims and policyholders benefits
    
    
    6,999
    
    
    
    6,445
    
    
    
    10,277Amortization of deferred acquisition costs
    
    
    1,543
    
    
    
    1,680
    
    
    
    1,965Other operating expenses
    
    
    1,034
    
    
    
    1,171
    
    
    
    1,674Interest
    
    
    124
    
    
    
    124
    
    
    
    130Total claims, benefits and expenses
    
    
    9,700
    
    
    
    9,420
    
    
    
    14,046Income (loss) before income tax and minority interest
    
    
    162
    
    
    
    504
    
    
    
    (2,331
    )Income tax (expense) benefit
    
    
    105
    
    
    
    (31
    )
    
    
    906Minority interest
    
    
    (24
    )
    
    
    (27
    )
    
    
    6Income (loss) from continuing operations
    
    
    243
    
    
    
    446
    
    
    
    (1,419
    )Income (loss) from discontinued operations, net of
tax of $(2), $(1) and $(11)
    
    
    21
    
    
    
    (21
    )
    
    
    2Net income (loss)
    
    $
    264
    
    
    $
    425
    
    
    $
    (1,417
    )Basic and diluted earnings (loss) per share:Income (loss) from continuing operations
    
    $
    0.68
    
    
    $
    1.49
    
    
    $
    (6.52
    )Income (loss) from discontinued operations
    
    
    0.08
    
    
    
    (0.09
    )
    
    
    0.01Basic and diluted earnings (loss) per share
available to common stockholders
    
    $
    0.76
    
    
    $
    1.40
    
    
    $
    (6.51
    )Weighted average outstanding common stock and common
stock equivalents
    
    
    256.0
    
    
    
    256.0
    
    
    
    227.0
  71




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##### Table of Contents



CNA Financial Corporation
 
 Consolidated Balance Sheets
 2005
    
    
    2004December 31
    
    
    
    
    
    Restated(In millions, except share data)
    
    
    
    
    
    See Note TAssetsInvestments:Fixed maturity securities at fair value (amortized cost of $32,616 and $30,266)
    
    $
    33,234
    
    
    $
    31,327Equity securities at fair value (cost of $511 and $320)
    
    
    681
    
    
    
    456Limited partnership investments
    
    
    1,509
    
    
    
    1,549Other invested assets
    
    
    33
    
    
    
    36Short-term investments at cost, which approximates fair value
    
    
    4,238
    
    
    
    5,863Total investments
    
    
    39,695
    
    
    
    39,231Cash
    
    
    96
    
    
    
    95Reinsurance receivables (less allowance for uncollectible receivables of $519 and $546)
    
    
    11,917
    
    
    
    15,342Insurance receivables (less allowance for doubtful accounts of $445 and $502)
    
    
    1,866
    
    
    
    2,202Accrued investment income
    
    
    312
    
    
    
    297Receivables for securities sold
    
    
    565
    
    
    
    496Deferred acquisition costs
    
    
    1,197
    
    
    
    1,268Prepaid reinsurance premiums
    
    
    340
    
    
    
    1,128Federal income taxes recoverable (includes $68 and $6 due from Loews Corporation)
    
    
    62
    
    
    
    Deferred income taxes
    
    
    1,105
    
    
    
    712Property and equipment at cost (less accumulated depreciation of $546 and $524)
    
    
    197
    
    
    
    235Goodwill and other intangible assets
    
    
    146
    
    
    
    162Other assets
    
    
    737
    
    
    
    760Separate account business
    
    
    551
    
    
    
    568Total assets
    
    $
    58,786
    
    
    $
    62,496
  72




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##### Table of Contents



2005
    
    
    2004RestatedSee Note TLiabilities and Stockholders EquityLiabilities:Insurance reserves:Claim and claim adjustment expenses
    
    $
    30,938
    
    
    $
    31,523Unearned premiums
    
    
    3,706
    
    
    
    4,522Future policy benefits
    
    
    6,297
    
    
    
    5,883Policyholders funds
    
    
    1,495
    
    
    
    1,725Collateral on loaned securities
    
    
    767
    
    
    
    918Payables for securities purchased
    
    
    129
    
    
    
    288Participating policyholders funds
    
    
    53
    
    
    
    63Short term debt
    
    
    252
    
    
    
    531Long term debt
    
    
    1,438
    
    
    
    1,726Reinsurance balances payable
    
    
    1,636
    
    
    
    2,980Other liabilities
    
    
    2,283
    
    
    
    2,520Separate account business
    
    
    551
    
    
    
    568Total liabilities
    
    
    49,545
    
    
    
    53,247Commitments and contingencies (Notes F, G, I and K)Minority interest
    
    
    291
    
    
    
    275Stockholders equity:Preferred stock (12,500,000 shares authorized)Series H Issue (no par value; $100,000 stated value; 7,500 shares issued; held by Loews Corporation)
    
    
    750
    
    
    
    750Common stock ($2.50 par value; 500,000,000 shares authorized; 258,177,285 shares issued; and
256,001,968 and 255,953,958 shares outstanding)
    
    
    645
    
    
    
    645Additional paid-in capital
    
    
    1,701
    
    
    
    1,701Retained earnings
    
    
    5,621
    
    
    
    5,357Accumulated other comprehensive income
    
    
    359
    
    
    
    661Treasury stock (2,175,317 and 2,223,327 shares), at cost
    
    
    (67
    )
    
    
    (69
    )9,009
    
    
    
    9,045Notes receivable for the issuance of common stock
    
    
    (59
    )
    
    
    (71
    )Total stockholders equity
    
    
    8,950
    
    
    
    8,974Total liabilities and stockholders equity
    
    $
    58,786
    
    
    $
    62,496
  73




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##### Table of Contents



CNA Financial Corporation
 
 Consolidated Statements of Cash Flows
 2005
    
    
    2004
    
    
    2003Years ended December 31
    
    
    
    
    
    Restated
    
    
    Restated(In millions)
    
    
    
    
    
    See Note T
    
    
    See Note TCash Flows from Operating Activities:Net income (loss)
    
    $
    264
    
    
    $
    425
    
    
    $
    (1,417
    )Adjustments to reconcile net income (loss) to net cash flows
provided by operating activities:(Income) loss from discontinued operations
    
    
    (21
    )
    
    
    21
    
    
    
    (2
    )Bad debt provision for insurance and reinsurance receivables
    
    
    50
    
    
    
    87
    
    
    
    602Loss (gain) on disposal of property and equipment
    
    
    (1
    )
    
    
    36
    
    
    
    22Minority interest
    
    
    24
    
    
    
    27
    
    
    
    (6
    )Deferred income tax provision
    
    
    (220
    )
    
    
    37
    
    
    
    74Trading securities
    
    
    164
    
    
    
    (93
    )
    
    
    Realized investment (gains) losses, net of participating
policyholders and minority interests
    
    
    10
    
    
    
    248
    
    
    
    (460
    )Undistributed earnings of equity method investees
    
    
    (45
    )
    
    
    (67
    )
    
    
    (61
    )Amortization of bond (discount) premium
    
    
    (153
    )
    
    
    9
    
    
    
    (79
    )Depreciation
    
    
    54
    
    
    
    75
    
    
    
    86Changes in:Receivables, net
    
    
    3,711
    
    
    
    (632
    )
    
    
    (3,478
    )Deferred acquisition costs
    
    
    71
    
    
    
    194
    
    
    
    (62
    )Accrued investment income
    
    
    (15
    )
    
    
    (12
    )
    
    
    (49
    )Federal income taxes recoverable/payable
    
    
    (62
    )
    
    
    596
    
    
    
    (642
    )Prepaid reinsurance premiums
    
    
    788
    
    
    
    233
    
    
    
    (15
    )Reinsurance balances payable
    
    
    (1,344
    )
    
    
    (318
    )
    
    
    661Insurance reserves
    
    
    (943
    )
    
    
    1,075
    
    
    
    6,813Other, net
    
    
    (116
    )
    
    
    43
    
    
    
    79Total adjustments
    
    
    1,952
    
    
    
    1,559
    
    
    
    3,483Net cash flows provided by operating activities-continuing
operations
    
    $
    2,216
    
    
    $
    1,984
    
    
    $
    2,066Net cash flows used by operating activities-discontinued
operations
    
    $
    (47
    )
    
    $
    (16
    )
    
    $
    (28
    )Net cash flows provided by operating activities-total
    
    $
    2,169
    
    
    $
    1,968
    
    
    $
    2,038Cash Flows from Investing Activities:Purchases of fixed maturity securities
    
    $
    (62,990
    )
    
    $
    (58,379
    )
    
    $
    (61,456
    )Proceeds from fixed maturity securities:Sales
    
    
    55,611
    
    
    
    48,427
    
    
    
    52,790Maturities, calls and redemptions
    
    
    4,579
    
    
    
    4,800
    
    
    
    6,435Purchases of equity securities
    
    
    (482
    )
    
    
    (351
    )
    
    
    (282
    )Proceeds from sales of equity securities
    
    
    316
    
    
    
    522
    
    
    
    589Purchases of mortgage loans and real estate
    
    
    
    
    
    
    (27
    )
    
    
    Change in short-term investments
    
    
    1,627
    
    
    
    2,021
    
    
    
    (842
    )Change in collateral on loaned securities and derivatives
    
    
    (151
    )
    
    
    476
    
    
    
    (111
    )Change in other investments
    
    
    86
    
    
    
    (30
    )
    
    
    133Purchases of property and equipment
    
    
    (45
    )
    
    
    (41
    )
    
    
    (65
    )Dispositions
    
    
    57
    
    
    
    647
    
    
    
    418Other, net
    
    
    56
    
    
    
    (167
    )
    
    
    3Net cash flows used by investing activities-continuing operations
    
    $
    (1,336
    )
    
    $
    (2,102
    )
    
    $
    (2,388
    )Net cash flows provided (used) by investing
activities-discontinued operations
    
    $
    20
    
    
    $
    18
    
    
    $
    (4
    )Net cash flows used by investing activities-total
    
    $
    (1,316
    )
    
    $
    (2,084
    )
    
    $
    (2,392
    )
 74




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##### Table of Contents



2005
    
    
    2004
    
    
    2003Restated
    
    
    RestatedSee Note T
    
    
    See Note TCash Flows from Financing Activities:Issuance of preferred stock
    
    $
    
    
    
    $
    
    
    
    $
    750Principal payments on debt
    
    
    (568
    )
    
    
    (618
    )
    
    
    (387
    )Proceeds from issuance of debt
    
    
    
    
    
    
    972
    
    
    
    Return of investment contract account balances
    
    
    (281
    )
    
    
    (479
    )
    
    
    (288
    )Receipts of investment contract account balances
    
    
    7
    
    
    
    181
    
    
    
    250Other, net
    
    
    5
    
    
    
    5
    
    
    
    (3
    )Net cash flows provided (used) by financing
activities-continuing operations
    
    $
    (837
    )
    
    $
    61
    
    
    $
    322Net cash flows provided by financing
activities-discontinued operations
    
    $
    
    
    
    $
    
    
    
    $
    Net cash flows provided (used) by financing activities-total
    
    $
    (837
    )
    
    $
    61
    
    
    $
    322Net change in cash
    
    
    16
    
    
    
    (55
    )
    
    
    (32
    )Net cash transactions from continuing operations to
discontinued operations
    
    
    (42
    )
    
    
    13
    
    
    
    13Net cash transactions from discontinued operations to
continuing operations
    
    
    42
    
    
    
    (13
    )
    
    
    (13
    )Cash, beginning of year
    
    
    109
    
    
    
    164
    
    
    
    196Cash, end of year
    
    $
    125
    
    
    $
    109
    
    
    $
    164Cash-continuing operations
    
    $
    96
    
    
    $
    95
    
    
    $
    139Cash-discontinued operations
    
    
    29
    
    
    
    14
    
    
    
    25Cash-total
    
    
    125
    
    
    
    109
    
    
    
    164
  75




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##### Table of Contents



CNA Financial Corporation
 
 Consolidated Statements of Stockholders Equity
 Accumulated
    
    
    
    
    
    
    NotesAdditional
    
    
    
    
    
    
    Other
    
    
    
    
    
    
    Receivable
    
    
    TotalPreferred
    
    
    Common
    
    
    Paid-in
    
    
    Retained
    
    
    Comprehensive
    
    
    Treasury
    
    
    Related to
    
    
    Stockholders(In millions)
    
    Stock
    
    Stock
    
    
    Capital
    
    
    Earnings
    
    
    Income (Loss)
    
    
    Stock
    
    
    Common Stock
    
    
    EquityBalance, January 1, 2003 (As previously
reported)
    
    $
    750
    
    
    $
    565
    
    
    $
    1,031
    
    
    $
    6,545
    
    
    $
    604
    
    
    $
    (70
    )
    
    $
    (72
    )
    
    $
    9,353Prior period adjustment (See Note T)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (196
    )
    
    
    (18
    )
    
    
    
    
    
    
    
    
    
    
    (214
    )Balance,
January 1, 2003 (Restated See Note T)
    
    $
    750
    
    
    $
    565
    
    
    $
    1,031
    
    
    $
    6,349
    
    
    $
    586
    
    
    $
    (70
    )
    
    $
    (72
    )
    
    $
    9,139Comprehensive income:Net loss (Restated See Note T)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,417
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,417
    )Other comprehensive income (Restated See
Note T)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    266
    
    
    
    
    
    
    
    
    
    
    
    266Total comprehensive loss (Restated See Note T)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,151
    )Issuance of Series I preferred stock
    
    
    750
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    750Stock options exercised
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1
    
    
    
    
    
    
    
    1Increase in notes receivable related to
common stock
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (4
    )
    
    
    (4
    )Balance,
December 31, 2003 (Restated See Note T)
    
    
    1,500
    
    
    
    565
    
    
    
    1,031
    
    
    
    4,932
    
    
    
    852
    
    
    
    (69
    )
    
    
    (76
    )
    
    
    8,735Comprehensive income:Net income (Restated See Note T)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    425
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    425Other comprehensive loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (191
    )
    
    
    
    
    
    
    
    
    
    
    (191
    )Total comprehensive income (Restated See Note
T)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    234Conversion of Series I preferred stock to
common stock
    
    
    (750
    )
    
    
    80
    
    
    
    670
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Decrease in notes receivable related to
common stock
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    5
    
    
    
    5Balance,
December 31, 2004 (Restated See Note T)
    
    
    750
    
    
    
    645
    
    
    
    1,701
    
    
    
    5,357
    
    
    
    661
    
    
    
    (69
    )
    
    
    (71
    )
    
    
    8,974Comprehensive income:Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    264
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    264Other comprehensive loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (302
    )
    
    
    
    
    
    
    
    
    
    
    (302
    )Total comprehensive loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (38
    )Stock options exercised
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2
    
    
    
    
    
    
    
    2Decrease in notes receivable related to
common stock
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    12
    
    
    
    12Balance, December 31, 2005
    
    $
    750
    
    
    $
    645
    
    
    $
    1,701
    
    
    $
    5,621
    
    
    $
    359
    
    
    $
    (67
    )
    
    $
    (59
    )
    
    $
    8,950
  76




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##### Table of Contents



Notes to Consolidated Financial Statements
 Note A. Summary of Significant Accounting Policies
 Basis of Presentation
     Business
    Insurance Operations
 Premiums:
  77




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##### Table of Contents



Claim and claim adjustment expense reserves:
   Future policy benefits reserves:
 Policyholders funds reserves:
 Guaranty fund and other insurance-related assessments:
 78




---



##### Table of Contents



Reinsurance:
   Participating insurance:
 Deferred acquisition costs:
    79




---



##### Table of Contents



Investments in life settlement contracts and related revenue recognition: Accounting for Purchases of Life Insurance
 Separate Account Business
  Accounting and
Reporting by Insurance Enterprises for Certain Nontraditional Long-Duration Contracts and for
Separate Accounts
   80




---



##### Table of Contents



Investments
 Valuation of investments:
  Consolidation of Variable Interest Entities, an Interpretation of ARB
No. 51
  Realized investment gains and losses:
 Equity in unconsolidated affiliates: Consolidated Financial Statements
 Securities lending activities:
  81




---



##### Table of Contents



Derivative Financial Instruments
 Accounting for Derivative Instruments and Hedging Activities
  82




---



##### Table of Contents



Nature of Hedge Designation
    
    Derivatives Change in Fair Value Reflected In:No hedge designation
    
    Realized investment gains or lossesFair value designation
    
    Realized investment gains or losses, along
with the change in fair value of the hedged
asset or liability that are 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
       83




---



##### Table of Contents



Income Taxes
  Property and Equipment
  84




---



##### Table of Contents



Goodwill and Other Intangible Assets
  Earnings (Loss) per Share Data
    85




---



##### Table of Contents



Earnings (Loss) per Share
 Years
ended December 31(In millions, except per share amounts)
    
    2005
    
    
    2004
    
    
    2003Income (loss) from continuing operations
    
    $
    243
    
    
    $
    446
    
    
    $
    (1,419
    )Less: undeclared preferred stock dividend
    
    
    (70
    )
    
    
    (65
    )
    
    
    (60
    )Income (loss) from continuing operations available to common
stockholders
    
    $
    173
    
    
    $
    381
    
    
    $
    (1,479
    )Weighted average outstanding common stock and common stock equivalents
    
    
    256.0
    
    
    
    256.0
    
    
    
    227.0Effect of dilutive securities, employee stock options
    
    
    
    
    
    
    
    
    
    
    Adjusted weighted average outstanding common stock and common stock
equivalents assuming conversions
    
    
    256.0
    
    
    
    256.0
    
    
    
    227.0Basic and diluted earnings (loss) per share from continuing
operations available to common stockholders
    
    $
    0.68
    
    
    $
    1.49
    
    
    $
    (6.52
    )
 Accounting for Stock Issued to Employees
 Accounting
for Stock-Based Compensation
 Pro Forma Effect of SFAS 123 on Results
 Years
ended December 31(In millions, except per share amounts)
    
    2005
    
    
    2004
    
    
    2003Income (loss) from continuing operations
    
    $
    243
    
    
    $
    446
    
    
    $
    (1,419
    )Less: undeclared preferred stock dividend
    
    
    (70
    )
    
    
    (65
    )
    
    
    (60
    )Income (loss) from continuing operations available to
common stockholders
    
    
    173
    
    
    
    381
    
    
    
    (1,479
    )Income (loss) from discontinued operations, net of tax
    
    
    21
    
    
    
    (21
    )
    
    
    2Net income (loss) available to common stockholders
    
    
    194
    
    
    
    360
    
    
    
    (1,477
    )Less: Total stock-based compensation cost determined under
the fair value method, net of tax
    
    
    (2
    )
    
    
    (2
    )
    
    
    (2
    )Pro forma net income (loss) available to common stockholders
    
    $
    192
    
    
    $
    358
    
    
    $
    (1,479
    )Basic and diluted earnings (loss) per share, as reported
    
    $
    0.76
    
    
    $
    1.40
    
    
    $
    (6.51
    )Basic and diluted earnings (loss) per share, pro forma
    
    $
    0.75
    
    
    $
    1.39
    
    
    $
    (6.52
    )
 Share-Based Payment Accounting for Stock Issued to Employees
 86




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##### Table of Contents



Supplementary Cash Flow Information
  Accounting Pronouncements
 Exchanges of Non-Monetary Assets an amendment of
APB Opinion No. 29
 87




---



##### Table of Contents



Note B. Investments
  Net Investment Income
 Years
ended December 31(In millions)
    
    2005
    
    
    2004
    
    
    2003Fixed maturity securities
    
    $
    1,608
    
    
    $
    1,571
    
    
    $
    1,651Short term investments
    
    
    147
    
    
    
    56
    
    
    
    63Limited partnerships
    
    
    254
    
    
    
    212
    
    
    
    221Equity securities
    
    
    25
    
    
    
    14
    
    
    
    19Income from trading portfolio (a)
    
    
    47
    
    
    
    110
    
    
    
    Interest on funds withheld and other deposits
    
    
    (166
    )
    
    
    (261
    )
    
    
    (335
    )Other
    
    
    20
    
    
    
    18
    
    
    
    85Gross investment income
    
    
    1,935
    
    
    
    1,720
    
    
    
    1,704Investment expenses
    
    
    (43
    )
    
    
    (40
    )
    
    
    (48
    )Net investment income
    
    $
    1,892
    
    
    $
    1,680
    
    
    $
    1,656
 
 (a)
    
    The change in net unrealized gains (losses) on trading securities included in net
investment income was $(7) million and $2 million for the years ended December 31, 2005 and
2004. 88




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##### Table of Contents



Net Investment Appreciation
 Years
ended December 31(In millions)
    
    2005
    
    
    2004
    
    
    2003Net realized investment gains (losses):Fixed maturity securities:Gross realized gains
    
    $
    361
    
    
    $
    704
    
    
    $
    1,244Gross realized losses
    
    
    (451
    )
    
    
    (457
    )
    
    
    (807
    )Net realized gains (losses) on fixed maturity securities
    
    
    (90
    )
    
    
    247
    
    
    
    437Equity securities:Gross realized gains
    
    
    73
    
    
    
    225
    
    
    
    143Gross realized losses
    
    
    (35
    )
    
    
    (23
    )
    
    
    (29
    )Net realized gains on equity securities
    
    
    38
    
    
    
    202
    
    
    
    114Other, including disposition of businesses, net of participating
policyholders interest
    
    
    39
    
    
    
    (688
    )
    
    
    (87
    )Net realized investment gains (losses) before allocation to participating
policyholders and minority interests
    
    
    (13
    )
    
    
    (239
    )
    
    
    464Allocation to participating policyholders and minority interests
    
    
    3
    
    
    
    (9
    )
    
    
    (4
    )Net realized investment gains (losses)
    
    
    (10
    )
    
    
    (248
    )
    
    
    460Net change in unrealized appreciation (depreciation) in general account investments:Fixed maturity securities
    
    
    (443
    )
    
    
    (53
    )
    
    
    372Equity securities
    
    
    34
    
    
    
    (98
    )
    
    
    87Other
    
    
    (1
    )
    
    
    
    
    
    
    2Total net change in unrealized appreciation (depreciation) in general account
investments
    
    
    (410
    )
    
    
    (151
    )
    
    
    461Net change in unrealized appreciation (depreciation) on other
    
    
    (12
    )
    
    
    (70
    )
    
    
    6Allocation to participating policyholders and minority interests
    
    
    18
    
    
    
    19
    
    
    
    (7
    )Deferred income tax (expense) benefit
    
    
    158
    
    
    
    55
    
    
    
    (159
    )Net change in unrealized appreciation (depreciation) in investments
    
    
    (246
    )
    
    
    (147
    )
    
    
    301Net realized gains (losses) and change in unrealized appreciation (depreciation) in
investments
    
    $
    (256
    )
    
    $
    (395
    )
    
    $
    761
    89




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##### Table of Contents



90




---



##### Table of Contents



Summary of Fixed Maturity and Equity Securities
 Cost or
    
    
    Gross
    
    
    Gross Unrealized Losses
    
    
    EstimatedAmortized
    
    
    Unrealized
    
    
    Less than
    
    
    Greater than
    
    
    FairDecember
31, 2005(In millions)
    
    Cost
    
    
    Gains
    
    
    12 Months
    
    
    12 Months
    
    
    ValueFixed maturity securities available-for-sale:U.S. Treasury securities and obligations of
government agencies
    
    $
    1,355
    
    
    $
    119
    
    
    $
    4
    
    
    $
    1
    
    
    $
    1,469Asset-backed securities
    
    
    12,986
    
    
    
    43
    
    
    
    137
    
    
    
    33
    
    
    
    12,859States, municipalities and political
subdivisions  tax-exempt
    
    
    9,054
    
    
    
    193
    
    
    
    31
    
    
    
    7
    
    
    
    9,209Corporate securities
    
    
    5,906
    
    
    
    322
    
    
    
    52
    
    
    
    11
    
    
    
    6,165Other debt securities
    
    
    2,830
    
    
    
    234
    
    
    
    18
    
    
    
    2
    
    
    
    3,044Redeemable preferred stock
    
    
    213
    
    
    
    4
    
    
    
    
    
    
    
    1
    
    
    
    216Options embedded in convertible debt securities
    
    
    1
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1Total fixed maturity securities available-for-sale
    
    
    32,345
    
    
    
    915
    
    
    
    242
    
    
    
    55
    
    
    
    32,963Total fixed maturity securities trading
    
    
    271
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    271Equity securities available-for-sale:Common stock
    
    
    140
    
    
    
    150
    
    
    
    1
    
    
    
    
    
    
    
    289Preferred stock
    
    
    322
    
    
    
    22
    
    
    
    1
    
    
    
    
    
    
    
    343Total equity securities available-for-sale
    
    
    462
    
    
    
    172
    
    
    
    2
    
    
    
    
    
    
    
    632Total equity securities trading
    
    
    49
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    49Total
    
    $
    33,127
    
    
    $
    1,087
    
    
    $
    244
    
    
    $
    55
    
    
    $
    33,915
 Cost or
    
    
    Gross
    
    
    Gross Unrealized Losses
    
    
    EstimatedAmortized
    
    
    Unrealized
    
    
    Less than
    
    
    Greater than
    
    
    FairDecember
31, 2004(In millions)
    
    Cost
    
    
    Gains
    
    
    12 Months
    
    
    12 Months
    
    
    ValueFixed maturity securities available-for-sale:U.S. Treasury securities and obligations of
government agencies
    
    $
    4,233
    
    
    $
    126
    
    
    $
    13
    
    
    $
    
    
    
    $
    4,346Asset-backed securities
    
    
    7,706
    
    
    
    105
    
    
    
    19
    
    
    
    4
    
    
    
    7,788States, municipalities and political
subdivisions  tax-exempt
    
    
    8,699
    
    
    
    189
    
    
    
    28
    
    
    
    3
    
    
    
    8,857Corporate securities
    
    
    6,093
    
    
    
    477
    
    
    
    52
    
    
    
    5
    
    
    
    6,513Other debt securities
    
    
    2,769
    
    
    
    295
    
    
    
    11
    
    
    
    
    
    
    
    3,053Redeemable preferred stock
    
    
    142
    
    
    
    6
    
    
    
    
    
    
    
    2
    
    
    
    146Options embedded in convertible debt securities
    
    
    234
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    234Total fixed maturity securities available-for-sale
    
    
    29,876
    
    
    
    1,198
    
    
    
    123
    
    
    
    14
    
    
    
    30,937Total fixed maturity securities trading
    
    
    390
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    390Equity securities available-for-sale:Common stock
    
    
    148
    
    
    
    112
    
    
    
    
    
    
    
    
    
    
    
    260Preferred stock
    
    
    126
    
    
    
    24
    
    
    
    
    
    
    
    
    
    
    
    150Total equity securities available-for-sale
    
    
    274
    
    
    
    136
    
    
    
    
    
    
    
    
    
    
    
    410Total equity securities trading
    
    
    46
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    46Total
    
    $
    30,586
    
    
    $
    1,334
    
    
    $
    123
    
    
    $
    14
    
    
    $
    31,783
 91




---



##### Table of Contents



Unrealized Loss Aging
 December 31, 2005
    
    
    December 31, 2004Gross
    
    
    
    
    
    
    GrossEstimated
    
    
    Unrealized
    
    
    Estimated
    
    
    Unrealized(In millions)
    
    Fair Value
    
    
    Loss
    
    
    Fair Value
    
    
    LossFixed maturity securities:Investment grade:0-6 months
    
    $
    9,976
    
    
    $
    142
    
    
    $
    7,742
    
    
    $
    537-12 months
    
    
    2,739
    
    
    
    61
    
    
    
    2,448
    
    
    
    5913-24 months
    
    
    1,400
    
    
    
    45
    
    
    
    368
    
    
    
    12Greater than 24 months
    
    
    219
    
    
    
    7
    
    
    
    2
    
    
    
    Total investment grade
    
    
    14,334
    
    
    
    255
    
    
    
    10,560
    
    
    
    124Non-investment grade:0-6 months
    
    
    632
    
    
    
    29
    
    
    
    188
    
    
    
    77-12 months
    
    
    118
    
    
    
    10
    
    
    
    69
    
    
    
    413-24 months
    
    
    122
    
    
    
    3
    
    
    
    20
    
    
    
    2Greater than 24 months
    
    
    2
    
    
    
    
    
    
    
    
    
    
    
    Total non-investment grade
    
    
    874
    
    
    
    42
    
    
    
    277
    
    
    
    13Total fixed maturity securities
    
    
    15,208
    
    
    
    297
    
    
    
    10,837
    
    
    
    137Equity securities:0-6 months
    
    
    49
    
    
    
    2
    
    
    
    4
    
    
    
    7-12 months
    
    
    1
    
    
    
    
    
    
    
    1
    
    
    
    13-24 months
    
    
    
    
    
    
    
    
    
    
    1
    
    
    
    Greater than 24 months
    
    
    3
    
    
    
    
    
    
    
    3
    
    
    
    Total equity securities
    
    
    53
    
    
    
    2
    
    
    
    9
    
    
    
    Total fixed maturity and equity securities
    
    $
    15,261
    
    
    $
    299
    
    
    $
    10,846
    
    
    $
    137
 92




---



##### Table of Contents



Contractual Maturity
 December 31, 2005
    
    
    December 31, 2004Cost or
    
    
    Estimated
    
    
    Cost or
    
    
    EstimatedAmortized
    
    
    Fair
    
    
    Amortized
    
    
    Fair(In millions)
    

Cost
    
    

Value
    
    

Cost
    
    

ValueDue in one year or less
    
    $
    804
    
    
    $
    806
    
    
    $
    1,048
    
    
    $
    1,054Due after one year through five years
    
    
    2,166
    
    
    
    2,202
    
    
    
    4,433
    
    
    
    4,480Due after five years through ten years
    
    
    3,417
    
    
    
    3,523
    
    
    
    9,238
    
    
    
    9,577Due after ten years
    
    
    12,972
    
    
    
    13,573
    
    
    
    7,451
    
    
    
    8,038Asset-backed securities
    
    
    12,986
    
    
    
    12,859
    
    
    
    7,706
    
    
    
    7,788Total
    
    $
    32,345
    
    
    $
    32,963
    
    
    $
    29,876
    
    
    $
    30,937
    Investments on Deposit
     93




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##### Table of Contents



Note C. Derivative Financial Instruments
  Derivative Instruments
 Contractual/
    
    
    Estimated
    
    
    Estimated
    
    
    RecognizedNotional
    
    
    Fair Value
    
    
    Fair Value
    
    
    GainsAs of and for the year ended December 31, 2005
    
    Amount
    
    
    Asset
    
    
    (Liability)
    
    
    (Losses)(In millions)General accountWith hedge designationSwaps
    
    $
    265
    
    
    $
    
    
    
    $
    (1
    )
    
    $
    (1
    )Without hedge designationSwaps
    
    
    756
    
    
    
    
    
    
    
    (8
    )
    
    
    46Futures sold, not yet purchased
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2Currency forwards
    
    
    15
    
    
    
    
    
    
    
    
    
    
    
    2Equity warrants
    
    
    6
    
    
    
    2
    
    
    
    
    
    
    
    Options embedded in convertible debt securities
    
    
    12
    
    
    
    1
    
    
    
    
    
    
    
    (33
    )Trading activitiesFutures purchased
    
    
    1,058
    
    
    
    
    
    
    
    (4
    )
    
    
    18Futures sold, not yet purchased
    
    
    166
    
    
    
    
    
    
    
    
    
    
    
    2Currency forwards
    
    
    59
    
    
    
    
    
    
    
    (1
    )
    
    
    (1
    )Commitments to purchase mortgage backed securities
    
    
    21
    
    
    
    
    
    
    
    
    
    
    
    Options purchased
    
    
    20
    
    
    
    
    
    
    
    
    
    
    
    (2
    )Options written
    
    
    21
    
    
    
    
    
    
    
    
    
    
    
    2Total general account
    
    $
    2,399
    
    
    $
    3
    
    
    $
    (14
    )
    
    $
    35Separate accountsOptions written
    
    $
    7
    
    
    $
    
    
    
    $
    
    
    
    $
    Total
    
    $
    7
    
    
    $
    
    
    
    $
    
    
    
    $
    
 94




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##### Table of Contents



Contractual/
    
    
    Estimated
    
    
    Estimated
    
    
    RecognizedNotional
    
    
    Fair Value
    
    
    Fair Value
    
    
    GainsAs
of and for the year ended December 31, 2004(In millions)
    
    Amount
    
    
    Asset
    
    
    (Liability)
    
    
    (Losses)General accountWithout hedge designationSwaps
    
    $
    489
    
    
    $
    
    
    
       $
    (8
    )
    
    $
    23Futures sold, not yet purchased
    
    
    12
    
    
    
    
    
    
    
    
    
    
    
    (113
    )Currency forwards
    
    
    95
    
    
    
    
    
    
    
    
    
    
    
    10Commitments to purchase mortgage backed securities
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (12
    )Equity warrants
    
    
    11
    
    
    
    1
    
    
    
    
    
    
    
    Options purchased
    
    
    2
    
    
    
    
    
    
    
    
    
    
    
    Options written
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3Collateralized debt obligation liabilities
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    5Options embedded in convertible debt securities
    
    
    701
    
    
    
    234
    
    
    
    
    
    
    
    24Trading activitiesFutures purchased
    
    
    1,230
    
    
    
    
    
    
    
    (1
    )
    
    
    96Futures sold, not yet purchased
    
    
    112
    
    
    
    
    
    
    
    
    
    
    
    Currency forwards
    
    
    53
    
    
    
    1
    
    
    
    
    
    
    
    Commitments to purchase mortgage backed securities
    
    
    25
    
    
    
    
    
    
    
    
    
    
    
    Options purchased
    
    
    101
    
    
    
    1
    
    
    
    
    
    
    
    (1
    )Options written
    
    
    102
    
    
    
    
    
    
    
    
    
    
    
    1Total general account
    
    $
    2,933
    
    
    $
    237
    
    
    $
    (9
    )
    
    $
    36Separate accountsOptions written
    
    $
    9
    
    
    $
    
    
    
    $
    
    
    
    $
    1Total
    
    $
    9
    
    
    $
    
    
    
    $
    
    
    
    $
    1
 Fair Value Hedges
  Cash Flow Hedges
  95




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##### Table of Contents



Derivative activity without hedge designations
  Trading Activities
  Separate Accounts
  Note D. Financial Instruments
       96




---



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97




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##### Table of Contents



Financial Assets and Liabilities
 2005
    
    
    2004Estimated
    
    
    
    
    
    
    EstimatedCarrying
    
    
    Fair
    
    
    Carrying
    
    
    FairDecember 31(In millions)
    
    Amount
    
    
    Value
    
    
    Amount
    
    
    ValueFinancial assetsInvestments:Fixed maturity securities
    
    $
    33,234
    
    
    $
    33,234
    
    
    $
    31,327
    
    
    $
    31,327Equity securities
    
    
    681
    
    
    
    681
    
    
    
    456
    
    
    
    456Mortgage loans
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1Policy loans
    
    
    
    
    
    
    
    
    
    
    1
    
    
    
    1Limited partnership investments
    
    
    1,509
    
    
    
    1,509
    
    
    
    1,549
    
    
    
    1,549Other invested assets
    
    
    3
    
    
    
    3
    
    
    
    (4
    )
    
    
    (4
    )Separate account business:Fixed maturity securities
    
    
    466
    
    
    
    466
    
    
    
    486
    
    
    
    486Equity securities
    
    
    44
    
    
    
    44
    
    
    
    55
    
    
    
    55Notes receivable for the issuance of common stock
    
    
    59
    
    
    
    59
    
    
    
    71
    
    
    
    76Financial liabilitiesPremium deposits and annuity contracts
    
    $
    1,363
    
    
    $
    1,359
    
    
    $
    1,563
    
    
    $
    1,565Long term debt
    
    
    1,438
    
    
    
    1,507
    
    
    
    1,726
    
    
    
    1,820Short-term debt
    
    
    252
    
    
    
    252
    
    
    
    531
    
    
    
    531Financial guarantee contracts
    
    
    7
    
    
    
    7
    
    
    
    45
    
    
    
    45Separate account business:Variable separate accounts
    
    
    53
    
    
    
    53
    
    
    
    64
    
    
    
    64Other
    
    
    491
    
    
    
    491
    
    
    
    499
    
    
    
    499
 Note E. Income Taxes
     98




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##### Table of Contents



Tax Reconciliation
 Years
ended December 31(In millions)
    
    2005
    
    
    2004
    
    
    2003Income tax (expense) benefit at statutory rates
    
    $
    (57
    )
    
    $
    (176
    )
    
    $
    816Tax benefit from tax exempt income
    
    
    116
    
    
    
    111
    
    
    
    101Other (expense) benefit, including IRS settlements
    
    
    46
    
    
    
    34
    
    
    
    (11
    )Effective income tax (expense) benefit
    
    $
    105
    
    
    $
    (31
    )
    
    $
    906
   Current and Deferred Taxes
 Years
ended December 31(In millions)
    
    2005
    
    
    2004
    
    
    2003Current tax (expense) benefit
    
    $
    (115
    )
    
    $
    6
    
    
    $
    980Deferred tax (expense) benefit
    
    
    220
    
    
    
    (37
    )
    
    
    (74
    )Total income tax (expense) benefit
    
    $
    105
    
    
    $
    (31
    )
    
    $
    906
 99




---



##### Table of Contents



Components of Net Deferred Tax Asset
 December 31
    
    2005
    
    
    2004(In millions)Deferred Tax Assets:Insurance reserves:Property and casualty claim and claim adjustment expense reserves
    
    $
    807
    
    
    $
    718Unearned premium reserves
    
    
    232
    
    
    
    233Life reserves
    
    
    187
    
    
    
    192Other insurance reserves
    
    
    24
    
    
    
    28Receivables
    
    
    292
    
    
    
    309Employee benefits
    
    
    214
    
    
    
    218Life settlement contracts
    
    
    102
    
    
    
    100Investment valuation differences
    
    
    130
    
    
    
    149Net operating loss carried forward
    
    
    38
    
    
    
    41Other assets
    
    
    194
    
    
    
    218Gross deferred tax assets
    
    
    2,220
    
    
    
    2,206Valuation allowance
    
    
    (30
    )
    
    
    (33
    )Deferred tax assets after valuation allowance
    
    
    2,190
    
    
    
    2,173Deferred Tax Liabilities:Deferred acquisition costs
    
    
    (651
    )
    
    
    (691
    )Net unrealized gains
    
    
    (274
    )
    
    
    (429
    )Foreign and other affiliate(s)
    
    
    (15
    )
    
    
    (207
    )Other liabilities
    
    
    (145
    )
    
    
    (134
    )Gross deferred tax liabilities
    
    
    (1,085
    )
    
    
    (1,461
    )Net deferred tax asset
    
    $
    1,105
    
    
    $
    712
 
 Note F. Claim and Claim Adjustment Expense Reserves
   100




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##### Table of Contents



101




---



##### Table of Contents



Reconciliation of Claim and Claim Adjustment Expense Reserves
 As of and for the years ended December 31
    
    2005
    
    
    2004
    
    
    2003(In millions)Reserves, beginning of year:Gross
    
    $
    31,523
    
    
    $
    31,732
    
    
    $
    27,441Ceded
    
    
    13,879
    
    
    
    14,066
    
    
    
    10,634Net reserves, beginning of year
    
    
    17,644
    
    
    
    17,666
    
    
    
    16,807Reduction of net reserves (a)
    
    
    
    
    
    
    
    
    
    
    (1,309
    )Reduction of net reserves (b)
    
    
    
    
    
    
    (42
    )
    
    
    Net incurred claim and claim adjustment expenses:Provision for insured events of current year
    
    
    5,516
    
    
    
    6,062
    
    
    
    6,745Increase in provision for insured events of prior years
    
    
    1,100
    
    
    
    240
    
    
    
    2,398Amortization of discount
    
    
    115
    
    
    
    135
    
    
    
    115Total net incurred (c)
    
    
    6,731
    
    
    
    6,437
    
    
    
    9,258Net payments attributable to:Current year events (d)
    
    
    1,341
    
    
    
    1,936
    
    
    
    2,192Prior year events
    
    
    2,711
    
    
    
    4,522
    
    
    
    4,937Reinsurance recoverable against net reserve transferred under
retroactive reinsurance agreements
    
    
    (10
    )
    
    
    (41
    )
    
    
    (39
    )Total net payments
    
    
    4,042
    
    
    
    6,417
    
    
    
    7,090Net reserves, end of year
    
    
    20,333
    
    
    
    17,644
    
    
    
    17,666Ceded reserves, end of year
    
    
    10,605
    
    
    
    13,879
    
    
    
    14,066Gross reserves, end of year
    
    $
    30,938
    
    
    $
    31,523
    
    
    $
    31,732
 (a)
    
    In 2003, the net reserves were reduced by $1,309 million as a result of the sale of
CNAGLA. See Note P for further discussion of this sale.(b)
    
    In 2004, the net reserves were reduced by $42 million as a result of the sale of the
individual life insurance business. See Note P for further discussion of this sale.(c)
    
    Total net incurred above does not agree to insurance claims and policyholders benefit
as reflected in the Consolidated Statements of Operations due to expenses incurred related
to uncollectible reinsurance receivables and benefit expenses related to future policy
benefits and policyholders funds which are not reflected in the table above.(d)
    
    In 2005, net payments were decreased by $1,581 million due to the impact of three
significant commutations. See Note H for further discussion related to commutations.
  Reserve Development
 Years ended December 31
    
    2005
    
    
    2004
    
    
    2003(In millions)Environmental pollution and mass tort
    
    $
    53
    
    
    $
    1
    
    
    $
    153Asbestos
    
    
    10
    
    
    
    54
    
    
    
    642Other
    
    
    1,037
    
    
    
    185
    
    
    
    1,603Total
    
    $
    1,100
    
    
    $
    240
    
    
    $
    2,398
 102




---



##### Table of Contents



December 31, 2005
 Gross and Net Carried
Claim and Claim Adjustment Expense Reserves
 Life and
    
    
    CorporateStandard
    
    
    Specialty
    
    
    Group
    
    
    and OtherLines
    
    
    Lines
    
    
    Non-Core
    
    
    Non-Core
    
    
    Total(In millions)Gross Case Reserves
    
    $
    7,033
    
    
    $
    1,907
    
    
    $
    2,542
    
    
    $
    3,297
    
    
    $
    14,779Gross IBNR Reserves
    
    
    8,051
    
    
    
    3,298
    
    
    
    735
    
    
    
    4,075
    
    
    
    16,159Total Gross Carried Claim and Claim
Adjustment Expense Reserves
    
    $
    15,084
    
    
    $
    5,205
    
    
    $
    3,277
    
    
    $
    7,372
    
    
    $
    30,938Net Case Reserves
    
    $
    5,165
    
    
    $
    1,442
    
    
    $
    1,456
    
    
    $
    1,554
    
    
    $
    9,617Net IBNR Reserves
    
    
    6,081
    
    
    
    2,352
    
    
    
    381
    
    
    
    1,902
    
    
    
    10,716Total Net Carried Claim and Claim
Adjustment Expense Reserves
    
    $
    11,246
    
    
    $
    3,794
    
    
    $
    1,837
    
    
    $
    3,456
    
    
    $
    20,333
 December 31, 2004
 Gross and Net Carried
Claim and Claim Adjustment Expense Reserves
 Life and
    
    
    CorporateStandard
    
    
    Specialty
    
    
    Group
    
    
    and OtherLines
    
    
    Lines
    
    
    Non-Core
    
    
    Non-Core
    
    
    Total(In millions)Gross Case Reserves
    
    $
    6,904
    
    
    $
    1,659
    
    
    $
    2,800
    
    
    $
    3,806
    
    
    $
    15,169Gross IBNR Reserves
    
    
    7,398
    
    
    
    3,201
    
    
    
    880
    
    
    
    4,875
    
    
    
    16,354Total Gross Carried Claim and Claim
Adjustment Expense Reserves
    
    $
    14,302
    
    
    $
    4,860
    
    
    $
    3,680
    
    
    $
    8,681
    
    
    $
    31,523Net Case Reserves
    
    $
    4,761
    
    
    $
    1,191
    
    
    $
    1,394
    
    
    $
    1,588
    
    
    $
    8,934Net IBNR Reserves
    
    
    4,547
    
    
    
    2,042
    
    
    
    430
    
    
    
    1,691
    
    
    
    8,710Total Net Carried Claim and Claim
Adjustment Expense Reserves
    
    $
    9,308
    
    
    $
    3,233
    
    
    $
    1,824
    
    
    $
    3,279
    
    
    $
    17,644
  APMT Reserves
    103




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##### Table of Contents



Asbestos and Environmental Pollution and Mass Tort Reserves
 December 31, 2005
    
    
    December 31, 2004Environmental
    
    
    
    
    
    
    EnvironmentalPollution and
    
    
    
    
    
    
    Pollution and(In
millions)
    

    Asbestos
    
    
    Mass Tort
    
    
    Asbestos
    
    
    Mass TortGross reserves
    
    $
    2,992
    
    
    $
    680
    
    
    $
    3,218
    
    
    $
    755Ceded reserves
    
    
    (1,438
    )
    
    
    (257
    )
    
    
    (1,532
    )
    
    
    (258
    )Net reserves
    
    $
    1,554
    
    
    $
    423
    
    
    $
    1,686
    
    
    $
    497
 Asbestos
    104




---



##### Table of Contents



Continental Casualty Co. v. Employers Ins. of Wausau et
al. Keasbey
 In re: Burns & Roe Enterprises, Inc.
 105




---



##### Table of Contents



Continental Insurance Co., et al. v. Honeywell
International Inc.
 Varner v. Ford Motor Co., Peplowski v. ACE American Ins. Co., Cross
v. Garlock, Inc. Bugg v. Am. Std., Inc., No. 84829
 106




---



##### Table of Contents



Boson v. Union Carbide Corp.,
 Adams v. Aetna, Inc., et al. Adams v. Ins. Co. of North America (INA) et al.
 107




---



##### Table of Contents



Pennock, et al. v. Maryland Casualty,
et al.
  Environmental Pollution and Mass Tort
   Net Prior Year Development
   108




---



##### Table of Contents



2005 Net Prior Year Development
 CorporateStandard
    
    
    Specialty
    
    
    and OtherLines
    
    
    Lines
    
    
    Non-Core
    
    
    Total(In millions)Pretax unfavorable net prior year
claim and allocated claim
adjustment expense development
excluding the impact of corporate
aggregate reinsurance treaties:Core (Non-APMT)
    
    $
    376
    
    
    $
    42
    
    
    $
    171
    
    
    $
    589APMT
    
    
    
    
    
    
    
    
    
    
    63
    
    
    
    63Total
    
    
    376
    
    
    
    42
    
    
    
    234
    
    
    
    652Ceded losses related to
corporate aggregate
reinsurance treaties
    
    
    183
    
    
    
    5
    
    
    
    57
    
    
    
    245Pretax unfavorable net prior year
development before impact of
premium development
    
    
    559
    
    
    
    47
    
    
    
    291
    
    
    
    897Unfavorable (favorable)
premium development,
excluding impact of
corporate aggregate
reinsurance treaties
    
    
    (101
    )
    
    
    (12
    )
    
    
    11
    
    
    
    (102
    )Ceded premiums related to
corporate aggregate
reinsurance treaties
    
    
    (6
    )
    
    
    19
    
    
    
    4
    
    
    
    17Total premium development
    
    
    (107
    )
    
    
    7
    
    
    
    15
    
    
    
    (85
    )Total 2005 unfavorable net prior
year development (pretax)
    
    $
    452
    
    
    $
    54
    
    
    $
    306
    
    
    $
    812
 109




---



##### Table of Contents



2004 Net Prior Year Development
 CorporateStandard
    
    
    Specialty
    
    
    and OtherLines
    
    
    Lines
    
    
    Non-Core
    
    
    Total(In millions)Pretax unfavorable net prior
year claim and allocated claim
adjustment expense development
excluding the impact of
corporate aggregate
reinsurance treaties:Core (Non-APMT)
    
    $
    107
    
    
    $
    75
    
    
    $
    20
    
    
    $
    202APMT
    
    
    
    
    
    
    
    
    
    
    55
    
    
    
    55Total
    
    
    107
    
    
    
    75
    
    
    
    75
    
    
    
    257Ceded losses related to
corporate aggregate
reinsurance treaties
    
    
    8
    
    
    
    (17
    )
    
    
    9
    
    
    
    Pretax unfavorable net prior
year development before impact
of premium development
    
    
    115
    
    
    
    58
    
    
    
    84
    
    
    
    257Unfavorable (favorable)
premium development,
excluding impact of
corporate aggregate
reinsurance treaties
    
    
    (96
    )
    
    
    (33
    )
    
    
    12
    
    
    
    (117
    )Ceded premiums related
to corporate aggregate
reinsurance treaties
    
    
    (1
    )
    
    
    5
    
    
    
    (3
    )
    
    
    1Total premium development
    
    
    (97
    )
    
    
    (28
    )
    
    
    9
    
    
    
    (116
    )Total 2004 unfavorable net
prior year development
(pretax)
    
    $
    18
    
    
    $
    30
    
    
    $
    93
    
    
    $
    141
 2003 Net Prior Year Development
 CorporateStandard
    
    
    Specialty
    
    
    and OtherLines
    
    
    Lines
    
    
    Non-Core
    
    
    Total(In millions)Pretax unfavorable net prior year
claim and allocated claim adjustment
expense development excluding the
impact of corporate aggregate
reinsurance treaties:Core (Non-APMT)
    
    $
    1,423
    
    
    $
    313
    
    
    $
    346
    
    
    $
    2,082APMT
    
    
    
    
    
    
    
    
    
    
    795
    
    
    
    795Total
    
    
    1,423
    
    
    
    313
    
    
    
    1,141
    
    
    
    2,877Ceded losses related to
corporate aggregate reinsurance
treaties
    
    
    (485
    )
    
    
    (56
    )
    
    
    (102
    )
    
    
    (643
    )Pretax unfavorable net prior year
development before impact of premium
development
    
    
    938
    
    
    
    257
    
    
    
    1,039
    
    
    
    2,234Unfavorable (favorable) premium
development, excluding impact
of corporate aggregate
reinsurance treaties
    
    
    209
    
    
    
    6
    
    
    
    (32
    )
    
    
    183Ceded premiums related to
corporate aggregate reinsurance
treaties
    
    
    269
    
    
    
    31
    
    
    
    58
    
    
    
    358Pretax unfavorable premium development
    
    
    478
    
    
    
    37
    
    
    
    26
    
    
    
    541Total 2003 unfavorable net prior
year development (pretax)
    
    $
    1,416
    
    
    $
    294
    
    
    $
    1,065
    
    
    $
    2,775
 110




---



##### Table of Contents



2005 Net Prior Year Development
 Standard Lines
          Specialty Lines
   111




---



##### Table of Contents



Corporate and Other Non-Core
       2004 Net Prior Year Development
 Standard Lines
  112




---



##### Table of Contents



113




---



##### Table of Contents



Specialty Lines
  Corporate and Other Non-Core
  2003 Net Prior Year Development
 Standard Lines
 Presley Homes, Inc. v. American States Insurance Company, th
   114




---



##### Table of Contents



Specialty Lines
    115




---



##### Table of Contents



Corporate and Other Non-Core
         116




---



##### Table of Contents



Note G. Legal Proceedings and Related Contingent Liabilities
 Insurance Brokerage Antitrust Litigation
 In re Insurance Brokerage Antitrust Litigation, Civil No.
04-5184 (FSH)
 Global Crossing Limited Litigation
   IGI Contingency
    117




---



##### Table of Contents



California Wage and Hour Litigation
 Ernestine Samora, et al. v. CCC Brian Wenzel v. Galway Insurance Company
 New Jersey Wage and Hour Litigation
  Voluntary Market Premium Litigation
  118




---



##### Table of Contents



Asbestos, Environmental Pollution and Mass Tort (APMT) Reserves
  Other Litigation
  Note H. Reinsurance
   Components of reinsurance receivables
 December 31, 2005
    
    
    December 31, 2004(In millions)Reinsurance receivables related to insurance reserves:Ceded claim and claim adjustment expense
    
    $
    10,605
    
    
    $
    13,879Ceded future policy benefits
    
    
    1,193
    
    
    
    1,260Ceded policyholders funds
    
    
    56
    
    
    
    65Billed reinsurance receivables
    
    
    582
    
    
    
    684Reinsurance receivables
    
    
    12,436
    
    
    
    15,888Allowance for uncollectible reinsurance
    
    
    (519
    )
    
    
    (546
    )Reinsurance receivables, net of allowance
for uncollectible reinsurance
    
    $
    11,917
    
    
    $
    15,342
    119




---



##### Table of Contents



120




---



##### Table of Contents



Components of Earned Premiums
 Assumed/Direct
    
    
    Assumed
    
    
    Ceded
    
    
    Net
    
    
    Net %(In millions)2005 Earned PremiumsProperty and casualty
    
    $
    10,354
    
    
    $
    186
    
    
    $
    3,675
    
    
    $
    6,865
    
    
    
    2.7
    %Accident and health
    
    
    1,040
    
    
    
    60
    
    
    
    400
    
    
    
    700
    
    
    
    8.6Life
    
    
    140
    
    
    
    
    
    
    
    136
    
    
    
    4
    
    
    
    Total earned premiums
    
    $
    11,534
    
    
    $
    246
    
    
    $
    4,211
    
    
    $
    7,569
    
    
    
    3.3
    %2004 Earned PremiumsProperty and casualty
    
    $
    10,739
    
    
    $
    199
    
    
    $
    3,634
    
    
    $
    7,304
    
    
    
    2.7
    %Accident and health
    
    
    1,228
    
    
    
    63
    
    
    
    507
    
    
    
    784
    
    
    
    8.0Life
    
    
    419
    
    
    
    
    
    
    
    298
    
    
    
    121
    
    
    
    Total earned premiums
    
    $
    12,386
    
    
    $
    262
    
    
    $
    4,439
    
    
    $
    8,209
    
    
    
    3.2
    %2003 Earned PremiumsProperty and casualty
    
    $
    10,661
    
    
    $
    726
    
    
    $
    4,450
    
    
    $
    6,937
    
    
    
    10.5
    %Accident and health
    
    
    1,602
    
    
    
    92
    
    
    
    59
    
    
    
    1,635
    
    
    
    5.6Life
    
    
    1,102
    
    
    
    7
    
    
    
    465
    
    
    
    644
    
    
    
    1.0Total earned premiums
    
    $
    13,365
    
    
    $
    825
    
    
    $
    4,974
    
    
    $
    9,216
    
    
    
    9.0
    %
  121




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##### Table of Contents



Components of Written Premiums
 Assumed/Direct
    
    
    Assumed
    
    
    Ceded
    
    
    Net
    
    
    Net %(In millions)2005 Written PremiumsProperty and casualty
    
    $
    9,546
    
    
    $
    203
    
    
    $
    2,934
    
    
    $
    6,815
    
    
    
    3.0
    %Accident and health
    
    
    1,037
    
    
    
    58
    
    
    
    395
    
    
    
    700
    
    
    
    8.3Life
    
    
    136
    
    
    
    
    
    
    
    132
    
    
    
    4
    
    
    
    Total written premiums
    
    $
    10,719
    
    
    $
    261
    
    
    $
    3,461
    
    
    $
    7,519
    
    
    
    3.5
    %2004 Written PremiumsProperty and casualty
    
    $
    10,289
    
    
    $
    48
    
    
    $
    3,375
    
    
    $
    6,962
    
    
    
    0.7
    %Accident and health
    
    
    1,241
    
    
    
    62
    
    
    
    508
    
    
    
    795
    
    
    
    7.8Life
    
    
    427
    
    
    
    
    
    
    
    305
    
    
    
    122
    
    
    
    Total written premiums
    
    $
    11,957
    
    
    $
    110
    
    
    $
    4,188
    
    
    $
    7,879
    
    
    
    1.4
    %2003 Written PremiumsProperty and casualty
    
    $
    10,880
    
    
    $
    649
    
    
    $
    4,448
    
    
    $
    7,081
    
    
    
    9.2
    %Accident and health
    
    
    1,601
    
    
    
    92
    
    
    
    59
    
    
    
    1,634
    
    
    
    5.6Life
    
    
    1,098
    
    
    
    6
    
    
    
    465
    
    
    
    639
    
    
    
    1.0Total written premiums
    
    $
    13,579
    
    
    $
    747
    
    
    $
    4,972
    
    
    $
    9,354
    
    
    
    8.0
    %
  Components of Life Insurance Inforce
 Direct
    
    
    Assumed
    
    
    Ceded
    
    
    Net(In millions)2005
    
    $
    20,548
    
    
    $
    1
    
    
    $
    20,528
    
    
    $
    212004(a)
    
    
    56,610
    
    
    
    35
    
    
    
    54,486
    
    
    
    2,1592003
    
    
    388,380
    
    
    
    588
    
    
    
    295,659
    
    
    
    93,309
 (a)
    
    The decline in gross inforce is attributable to the sales of the group benefits and the
individual life businesses.
   Funds Withheld Reinsurance Arrangements
  122




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123




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Years ended December 31
    
    Aggregate Cover
    
    
    CCC Cover
    
    
    All Other
    
    
    Total(In millions)2005Ceded earned premium
    
    $
    (17
    )
    
    $
    
    
    
    $
    48
    
    
    $
    31Ceded claim and claim adjustment expense
    
    
    (244
    )
    
    
    
    
    
    
    (154
    )
    
    
    (398
    )Ceding commissions
    
    
    
    
    
    
    
    
    
    
    (27
    )
    
    
    (27
    )Interest charges
    
    
    (57
    )
    
    
    (66
    )
    
    
    (34
    )
    
    
    (157
    )Pretax expense
    
    $
    (318
    )
    
    $
    (66
    )
    
    $
    (167
    )
    
    $
    (551
    )2004Ceded earned premium
    
    $
    (1
    )
    
    $
    
    
    
    $
    (19
    )
    
    $
    (20
    )Ceded claim and claim adjustment expense
    
    
    
    
    
    
    
    
    
    
    15
    
    
    
    15Ceding commissions
    
    
    
    
    
    
    
    
    
    
    2
    
    
    
    2Interest charges
    
    
    (82
    )
    
    
    (91
    )
    
    
    (72
    )
    
    
    (245
    )Pretax expense
    
    $
    (83
    )
    
    $
    (91
    )
    
    $
    (74
    )
    
    $
    (248
    )2003Ceded earned premium
    
    $
    (258
    )
    
    $
    (100
    )
    
    $
    (172
    )
    
    $
    (530
    )Ceded claim and claim adjustment expense
    
    
    500
    
    
    
    143
    
    
    
    222
    
    
    
    865Ceding commissions
    
    
    
    
    
    
    
    
    
    
    18
    
    
    
    18Interest charges
    
    
    (147
    )
    
    
    (59
    )
    
    
    (127
    )
    
    
    (333
    )Pretax benefit (expense)
    
    $
    95
    
    
    $
    (16
    )
    
    $
    (59
    )
    
    $
    20
   Period ended December 31
    
    2005
    
    
    2004
    
    
    2003(In millions)Standard Lines
    
    $
    (399
    )
    
    $
    (185
    )
    
    $
    10Specialty Lines
    
    
    (41
    )
    
    
    (1
    )
    
    
    6Corporate and Other
    
    
    (111
    )
    
    
    (62
    )
    
    
    4Pretax benefit (expense)
    
    $
    (551
    )
    
    $
    (248
    )
    
    $
    20
 Corporate Aggregate Reinsurance Treaties
  124




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Note I. Debt
  Debt
 December 31
    
    2005
    
    
    2004(In millions)Variable rate debt:Credit facility  CNA Surety, due June 30, 2008
    
    $
    20
    
    
    $
    Debenture  CNA Surety, face amount of $31, due April 29, 2034
    
    
    31
    
    
    
    30Credit facility  CNA Surety, due September 30, 2005
    
    
    
    
    
    
    25Term loan  CNA Surety, due through September 30, 2005
    
    
    
    
    
    
    10Senior notes:6.500%, face amount of $493, due April 15, 2005
    
    
    
    
    
    
    4936.750%, face amount of $250, due November 15, 2006
    
    
    250
    
    
    
    2496.450%, face amount of $150, due January 15, 2008
    
    
    149
    
    
    
    1496.600%, face amount of $200, due December 15, 2008
    
    
    199
    
    
    
    1998.375%, face amount of $70, due August 15, 2012
    
    
    69
    
    
    
    695.850%, face amount of $549, due December 15, 2014
    
    
    546
    
    
    
    5466.950%, 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%-11.500%, due through 2019
    
    
    36
    
    
    
    47Surplus notes:Encompass Insurance Company of America (EICA) surplus note,
face amount of $50, due March 31, 2006
    
    
    
    
    
    
    50Total debt
    
    $
    1,690
    
    
    $
    2,257Short term debt
    
    $
    252
    
    
    $
    531Long term debt
    
    
    1,438
    
    
    
    1,726Total debt
    
    $
    1,690
    
    
    $
    2,257
    126




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Maturity of Debt
 (In millions)2006
    
    $
    2532007
    
    
    112008
    
    
    3732009
    
    
    32010
    
    
    4Thereafter
    
    
    1,055Less original issue discount
    
    
    (9
    )Total
    
    $
    1,690
 Note J. Benefit Plans
 Pension and Postretirement Healthcare and Life Insurance Benefit Plans
      127




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##### Table of Contents



Benefit Obligations and Accrued Benefit Costs
 Pension Benefits
    
    
    Postretirement Benefits2005
    
    
    2004
    
    
    2005
    
    
    2004(In millions)Benefit obligation at January 1
    
    $
    2,527
    
    
    $
    2,403
    
    
    $
    180
    
    
    $
    345Changes in benefit obligation:Service cost
    
    
    27
    
    
    
    31
    
    
    
    3
    
    
    
    4Interest cost
    
    
    145
    
    
    
    145
    
    
    
    10
    
    
    
    17Participants contributions
    
    
    
    
    
    
    
    
    
    
    8
    
    
    
    9Plan amendments
    
    
    1
    
    
    
    
    
    
    
    
    
    
    
    (138
    )Actuarial loss (gain)
    
    
    87
    
    
    
    104
    
    
    
    21
    
    
    
    (26
    )Curtailment/settlement
    
    
    
    
    
    
    2
    
    
    
    
    
    
    
    Benefits paid
    
    
    (146
    )
    
    
    (164
    )
    
    
    (12
    )
    
    
    (31
    )Foreign currency translation
    
    
    (5
    )
    
    
    6
    
    
    
    
    
    
    
    Benefit obligations at December 31
    
    
    2,636
    
    
    
    2,527
    
    
    
    210
    
    
    
    180Fair value of plan assets at January 1
    
    
    2,029
    
    
    
    1,988
    
    
    
    
    
    
    
    Change in plan assets:Actual return on plan assets
    
    
    161
    
    
    
    164
    
    
    
    
    
    
    
    Company contributions
    
    
    67
    
    
    
    37
    
    
    
    4
    
    
    
    22Participants contributions
    
    
    
    
    
    
    
    
    
    
    8
    
    
    
    9Curtailment/settlement
    
    
    
    
    
    
    (1
    )
    
    
    
    
    
    
    Benefits paid
    
    
    (146
    )
    
    
    (164
    )
    
    
    (12
    )
    
    
    (31
    )Foreign currency translation
    
    
    (4
    )
    
    
    5
    
    
    
    
    
    
    
    Fair value of plan assets at December 31
    
    
    2,107
    
    
    
    2,029
    
    
    
    
    
    
    
    Funded status
    
    
    (529
    )
    
    
    (498
    )
    
    
    (210
    )
    
    
    (180
    )Unrecognized net actuarial loss
    
    
    528
    
    
    
    468
    
    
    
    94
    
    
    
    77Unrecognized net transition (asset) obligation
    
    
    (1
    )
    
    
    
    
    
    
    
    
    
    
    Unrecognized prior service cost (benefit)
    
    
    9
    
    
    
    9
    
    
    
    (174
    )
    
    
    (202
    )Prepaid (accrued) benefit cost
    
    $
    7
    
    
    $
    (21
    )
    
    $
    (290
    )
    
    $
    (305
    )Amounts recognized in the Consolidated Balance Sheets:Prepaid benefit cost
    
    $
    20
    
    
    $
    21
    
    
    $
    
    
    
    $
    Accrued benefit liability
    
    
    (372
    )
    
    
    (352
    )
    
    
    (290
    )
    
    
    (305
    )Intangible assets
    
    
    9
    
    
    
    11
    
    
    
    
    
    
    
    Accumulated other comprehensive income
    
    
    350
    
    
    
    299
    
    
    
    
    
    
    
    Net amount recognized
    
    $
    7
    
    
    $
    (21
    )
    
    $
    (290
    )
    
    $
    (305
    )
  128




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Years ended December 31(In millions)
    
    2005
    
    
    2004
    
    
    2003Pension benefitsService cost
    
    $
    27
    
    
    $
    31
    
    
    $
    33Interest cost on projected benefit obligation
    
    
    145
    
    
    
    145
    
    
    
    146Expected return on plan assets
    
    
    (156
    )
    
    
    (152
    )
    
    
    (146
    )Prior service cost amortization
    
    
    2
    
    
    
    2
    
    
    
    3Actuarial loss
    
    
    21
    
    
    
    13
    
    
    
    8Settlement loss
    
    
    
    
    
    
    5
    
    
    
    8Net periodic pension cost
    
    $
    39
    
    
    $
    44
    
    
    $
    52Postretirement benefitsService cost
    
    $
    3
    
    
    $
    4
    
    
    $
    6Interest cost on projected benefit obligation
    
    
    10
    
    
    
    17
    
    
    
    22Prior service cost amortization
    
    
    (28
    )
    
    
    (20
    )
    
    
    (16
    )Actuarial loss
    
    
    4
    
    
    
    3
    
    
    
    4Net periodic postretirement (benefit) cost
    
    $
    (11
    )
    
    $
    4
    
    
    $
    16Pension benefitsIncrease in minimum liability included in
other comprehensive income
    
    $
    51
    
    
    $
    101
    
    
    $
    176
  Weighted-Average Actuarial Assumptions for Benefit Obligations
 December 31
    
    2005
    
    
    2004
    
    
    2003Pension benefitsDiscount rate
    
    
    5.625
    %
    
    
    5.875
    %
    
    
    6.25
    %Expected return on plan assets
    
    
    8.00
    
    
    
    8.00
    
    
    
    8.00Rate of compensation increases
    
    
    5.83
    
    
    
    5.83
    
    
    
    5.83Postretirement benefitsDiscount rate
    
    
    5.5
    %
    
    
    5.875
    %
    
    
    6.25
    %
  Weighted-Average Actuarial Assumptions for Net Cost
 December 31
    
    2005
    
    
    2004
    
    
    2003Pension benefitsDiscount rate
    
    
    5.875
    %
    
    
    6.22
    %
    
    
    6.75
    %Expected return on plan assets
    
    
    8.00
    
    
    
    8.00
    
    
    
    8.00Rate of compensation increases
    
    
    5.83
    
    
    
    5.83
    
    
    
    5.83Postretirement benefitsDiscount rate
    
    
    5.875
    %
    
    
    6.19
    %
    
    
    6.75
    %
 129




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Pension Plan Assets
 Percentage of Plan AssetsDecember 31,2005
    
    
    2004Asset CategoryFixed maturity securities
    
    
    24
    %
    
    
    47
    %Equity securities
    
    
    25
    
    
    
    17Limited Partnerships
    
    
    15
    
    
    
    15Short term investments
    
    
    33
    
    
    
    21Other
    
    
    3
    
    
    
    Total
    
    
    100
    %
    
    
    100
    %
  130




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##### Table of Contents



Estimated Future Benefit Payments to Participants
 Pension
    
    
    Postretirement(In millions)
    

Benefits
    
    
    Benefits2006
    
    $
    138
    
    
    $
    152007
    
    
    140
    
    
    
    152008
    
    
    142
    
    
    
    162009
    
    
    146
    
    
    
    162010
    
    
    149
    
    
    
    17Thereafter
    
    
    811
    
    
    
    88Total
    
    $
    1,526
    
    
    $
    167
  Savings Plans
     Stock Options
  131




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##### Table of Contents



Option Plan Activity
 2005
    
    
    2004
    
    
    2003Weighted-
    
    
    
    
    
    
    Weighted-
    
    
    
    
    
    
    Weighted-Average
    
    
    
    
    
    
    Average
    
    
    
    
    
    
    AverageOption
    
    
    
    
    
    
    Option
    
    
    
    
    
    
    OptionNumber
    
    
    Price per
    
    
    Number
    
    
    Price per
    
    
    Number
    
    
    Price perOf Shares
    
    
    Share
    
    
    Of Shares
    
    
    Share
    
    
    Of Shares
    
    
    ShareBalance at January 1
    
    
    1,474,000
    
    
    $
    29.17
    
    
    
    1,434,800
    
    
    $
    29.97
    
    
    
    1,146,850
    
    
    $
    31.80Options granted
    
    
    328,800
    
    
    
    27.27
    
    
    
    350,400
    
    
    
    26.30
    
    
    
    384,000
    
    
    
    24.61Options exercised
    
    
    (42,050
    )
    
    
    28.60
    
    
    
    (2,900
    )
    
    
    26.28
    
    
    
    
    
    
    
    Options forfeited
    
    
    (132,150
    )
    
    
    30.38
    
    
    
    (308,300
    )
    
    
    29.63
    
    
    
    (96,050
    )
    
    
    30.51Balance at December 31
    
    
    1,628,600
    
    
    $
    28.71
    
    
    
    1,474,000
    
    
    $
    29.17
    
    
    
    1,434,800
    
    
    $
    29.97Options exercisable at December 31
    
    
    963,650
    
    
    $
    30.17
    
    
    
    827,450
    
    
    $
    31.16
    
    
    
    551,575
    
    
    $
    32.73Weighted-average fair value per
share of options granted
    
    
    
    
    
    $
    7.48
    
    
    
    
    
    
    $
    7.74
    
    
    
    
    
    
    $
    5.43
   
 Note K. Operating Leases, Other Commitments and Contingencies, and
Guarantees
 Operating Leases
  132




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Future Minimum Lease Payments and Sublease Receipts
 Future
    
    
    FutureMinimum
    
    
    MinimumLease
    
    
    Sublease(In millions)
    
    Payments
    
    
    Receipts2006
    
    $
    53
    
    
    $
    32007
    
    
    44
    
    
    
    22008
    
    
    38
    
    
    
    12009
    
    
    30
    
    
    
    12010
    
    
    26
    
    
    
    1Thereafter
    
    
    70
    
    
    
    4Total
    
    $
    261
    
    
    $
    12
     Other Commitments and Contingencies
    133




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Guarantees
     134




---



##### Table of Contents



Note L. Stockholders Equity and Statutory Financial Information
  Summary of Capital Stock
 December 31
    
    2005
    
    
    2004Preferred stock, without par value, non-votingAuthorized
    
    
    12,500,000
    
    
    
    12,500,000Issued and outstanding:Series H (stated value $100,000 per share, held by Loews)
    
    
    7,500
    
    
    
    7,500Common stock, par value $2.50Authorized
    
    
    500,000,000
    
    
    
    500,000,000Issued
    
    
    258,177,285
    
    
    
    258,177,285Outstanding
    
    
    256,001,968
    
    
    
    255,953,958Treasury stock
    
    
    2,175,317
    
    
    
    2,223,327
      Statutory Accounting Practices (Unaudited)
  135




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---



##### Table of Contents



Preliminary Statutory Information
 Statutory Capital and Surplus
    
    
    Statutory Net (Loss) IncomeDecember 31 (a)

    
    
    Years Ended December 31(In millions)
    
    2005

    
    
    2004

    
    
    2005

    
    
    2004

    
    
    2003Property and casualty companies
    
    $
    6,940
    
    
    $
    6,998
    
    
    $
    550
    
    
    $
    694
    
    
    $
    (1,484
    )Life and group insurance companies
    
    
    627
    
    
    
    1,177
    
    
    
    65
    
    
    
    334
    
    
    
    115
  Note M. Comprehensive Income
  Comprehensive Income (Loss)
 Years ended December 31(In millions)
    
    2005

    
    
    2004

    
    
    2003Net income (loss)
    
    $
    264
    
    
    $
    425
    
    
    $
    (1,417
    )Other comprehensive income (loss):Change in unrealized gains/losses on general account investments:Holding gains/losses arising during the period, net of tax
benefit (expense) of $72, $(170) and $(91)
    
    
    (136
    )
    
    
    316
    
    
    
    171Net unrealized gains/losses at beginning of period included in
realized gains/losses during the period, net of tax benefit
(expense) of $71, $223 and $(70)
    
    
    (131
    )
    
    
    (414
    )
    
    
    129Net change in unrealized gains/losses on general account
investments, net of tax benefit (expense) of $143, $53 and
$(161)
    
    
    (267
    )
    
    
    (98
    )
    
    
    300Net change in unrealized gains/losses on discontinued
operations, separate accounts and other, net of tax benefit of
$16, $0 and $3
    
    
    4
    
    
    
    (68
    )
    
    
    8Foreign currency translation adjustment
    
    
    (24
    )
    
    
    24
    
    
    
    80Net change in derivative instruments designated as cash flow
hedge, net of tax benefit of $0, $1 and $0
    
    
    
    
    
    
    (3
    )
    
    
    Net change in minimum pension liability, net of tax benefit of
$18, $36 and $61
    
    
    (33
    )
    
    
    (65
    )
    
    
    (115
    )Allocation to participating policyholders and minority interests
    
    
    18
    
    
    
    19
    
    
    
    (7
    )Other comprehensive income (loss), net of tax (expense) benefit of
$177, $90 and $(97)
    
    
    (302
    )
    
    
    (191
    )
    
    
    266Total comprehensive income (loss)
    
    $
    (38
    )
    
    $
    234
    
    
    $
    (1,151
    )
 137




---



##### Table of Contents



Accumulated Other Comprehensive Income
 December 31(In millions)
    
    2005
    
    
    2004Cumulative foreign currency translation adjustment
    
    $
    51
    
    
    $
    75Minimum pension liability, net of tax of $123 and $105
    
    
    (227
    )
    
    
    (194
    )Net unrealized gains on investments and other, net of tax of $271 and $430
    
    
    535
    
    
    
    780Accumulated other comprehensive income
    
    $
    359
    
    
    $
    661
 Note N. Business Segments
        138




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139




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CorporateStandard
    
    
    Specialty
    
    
    Life and Group
    
    
    and OtherYear ended December 31, 2005
    
    Lines
    
    
    Lines
    
    
    Non-Core
    
    
    Non-Core
    
    
    Eliminations
    
    
    Total(In millions)Net earned premiums
    
    $
    4,410
    
    
    $
    2,475
    
    
    $
    704
    
    
    $
    (8
    )
    
    $
    (12
    )
    
    $
    7,569Net investment income
    
    
    767
    
    
    
    281
    
    
    
    593
    
    
    
    251
    
    
    
    
    
    
    
    1,892Other revenues
    
    
    98
    
    
    
    124
    
    
    
    95
    
    
    
    159
    
    
    
    (65
    )
    
    
    411Total operating revenues
    
    
    5,275
    
    
    
    2,880
    
    
    
    1,392
    
    
    
    402
    
    
    
    (77
    )
    
    
    9,872Claims, benefits and expenses:Net incurred claims and benefits
    
    
    3,857
    
    
    
    1,617
    
    
    
    1,160
    
    
    
    343
    
    
    
    (2
    )
    
    
    6,975Policyholders dividends
    
    
    19
    
    
    
    4
    
    
    
    1
    
    
    
    
    
    
    
    
    
    
    
    24Amortization of deferred acquisition costs
    
    
    986
    
    
    
    532
    
    
    
    22
    
    
    
    3
    
    
    
    
    
    
    
    1,543Other insurance related expenses
    
    
    444
    
    
    
    115
    
    
    
    257
    
    
    
    23
    
    
    
    (10
    )
    
    
    829Other expenses
    
    
    110
    
    
    
    108
    
    
    
    61
    
    
    
    115
    
    
    
    (65
    )
    
    
    329Total claims, benefits and expenses
    
    
    5,416
    
    
    
    2,376
    
    
    
    1,501
    
    
    
    484
    
    
    
    (77
    )
    
    
    9,700Operating income (loss) from continuing operations
before income tax and minority
interest
    
    
    (141
    )
    
    
    504
    
    
    
    (109
    )
    
    
    (82
    )
    
    
    
    
    
    
    172Income tax (expense) benefit on operating income
(loss)
    
    
    110
    
    
    
    (154
    )
    
    
    58
    
    
    
    91
    
    
    
    
    
    
    
    105Minority interest
    
    
    (10
    )
    
    
    (14
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (24
    )Net operating income (loss) from continuing operations
    
    
    (41
    )
    
    
    336
    
    
    
    (51
    )
    
    
    9
    
    
    
    
    
    
    
    253Realized investment gains (losses), net of
participating
policyholders and minority interests
    
    
    20
    
    
    
    14
    
    
    
    (30
    )
    
    
    (14
    )
    
    
    
    
    
    
    (10
    )Income tax (expense) benefit on realized investment
gains (losses)
    
    
    (11
    )
    
    
    (2
    )
    
    
    11
    
    
    
    2
    
    
    
    
    
    
    
    Net income (loss) from continuing operations
    
    $
    (32
    )
    
    $
    348
    
    
    $
    (70
    )
    
    $
    (3
    )
    
    $
    
    
    
    $
    243Reinsurance receivables
    
    $
    3,968
    
    
    $
    1,493
    
    
    $
    2,707
    
    
    $
    4,268
    
    
    $
    
    
    
    $
    12,436Insurance receivables
    
    $
    1,826
    
    
    $
    375
    
    
    $
    105
    
    
    $
    5
    
    
    $
    
    
    
    $
    2,311Insurance reserves:Claim and claim adjustment expense
    
    $
    15,084
    
    
    $
    5,205
    
    
    $
    3,277
    
    
    $
    7,372
    
    
    $
    
    
    
    $
    30,938Unearned premiums
    
    
    1,952
    
    
    
    1,577
    
    
    
    168
    
    
    
    9
    
    
    
    
    
    
    
    3,706Future policy benefits
    
    
    
    
    
    
    
    
    
    
    6,297
    
    
    
    
    
    
    
    
    
    
    
    6,297Policyholders funds
    
    
    30
    
    
    
    
    
    
    
    1,465
    
    
    
    
    
    
    
    
    
    
    
    1,495Deferred acquisition costs
    
    $
    408
    
    
    $
    274
    
    
    $
    515
    
    
    $
    
    
    
    $
    
    
    
    $
    1,197
 140




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##### Table of Contents



CorporateStandard
    
    
    Specialty
    
    
    Life and Group
    
    
    and OtherYear ended December 31, 2004
    
    Lines
    
    
    Lines
    
    
    Non-Core
    
    
    Non-Core
    
    
    Eliminations
    
    
    Total(In millions)Net earned premiums
    
    $
    4,917
    
    
    $
    2,277
    
    
    $
    921
    
    
    $
    128
    
    
    $
    (34
    )
    
    $
    8,209Net investment income
    
    
    496
    
    
    
    246
    
    
    
    692
    
    
    
    246
    
    
    
    
    
    
    
    1,680Other revenues
    
    
    129
    
    
    
    109
    
    
    
    91
    
    
    
    40
    
    
    
    (86
    )
    
    
    283Total operating revenues
    
    
    5,542
    
    
    
    2,632
    
    
    
    1,704
    
    
    
    414
    
    
    
    (120
    )
    
    
    10,172Claims, benefits and expenses:Net incurred claims and benefits
    
    
    3,480
    
    
    
    1,441
    
    
    
    1,372
    
    
    
    162
    
    
    
    (21
    )
    
    
    6,434Policyholders dividends
    
    
    9
    
    
    
    5
    
    
    
    (3
    )
    
    
    
    
    
    
    
    
    
    
    11Amortization of deferred acquisition costs
    
    
    1,109
    
    
    
    506
    
    
    
    36
    
    
    
    29
    
    
    
    
    
    
    
    1,680Other insurance related expenses
    
    
    593
    
    
    
    88
    
    
    
    291
    
    
    
    10
    
    
    
    (13
    )
    
    
    969Other expenses
    
    
    94
    
    
    
    101
    
    
    
    76
    
    
    
    141
    
    
    
    (86
    )
    
    
    326Total claims, benefits and expenses
    
    
    5,285
    
    
    
    2,141
    
    
    
    1,772
    
    
    
    342
    
    
    
    (120
    )
    
    
    9,420Operating income (loss) from continuing operations
before income tax and minority
interest
    
    
    257
    
    
    
    491
    
    
    
    (68
    )
    
    
    72
    
    
    
    
    
    
    
    752Income tax (expense) benefit on operating income (loss)
    
    
    (27
    )
    
    
    (150
    )
    
    
    39
    
    
    
    12
    
    
    
    
    
    
    
    (126
    )Minority interest
    
    
    (10
    )
    
    
    (17
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (27
    )Net operating income (loss) from continuing operations
    
    
    220
    
    
    
    324
    
    
    
    (29
    )
    
    
    84
    
    
    
    
    
    
    
    599Realized investment gains (losses), net of participating
policyholders and minority interests
    
    
    219
    
    
    
    84
    
    
    
    (615
    )
    
    
    64
    
    
    
    
    
    
    
    (248
    )Income tax (expense) benefit on realized investment
gains (losses)
    
    
    (80
    )
    
    
    (30
    )
    
    
    230
    
    
    
    (25
    )
    
    
    
    
    
    
    95Net income (loss) from continuing operations
    
    $
    359
    
    
    $
    378
    
    
    $
    (414
    )
    
    $
    123
    
    
    $
    
    
    
    $
    446Reinsurance receivables
    
    $
    5,129
    
    
    $
    1,682
    
    
    $
    3,284
    
    
    $
    5,793
    
    
    $
    
    
    
    $
    15,888Insurance receivables
    
    $
    2,150
    
    
    $
    340
    
    
    $
    153
    
    
    $
    61
    
    
    $
    
    
    
    $
    2,704Insurance reserves:Claim and claim adjustment expense
    
    $
    14,302
    
    
    $
    4,860
    
    
    $
    3,680
    
    
    $
    8,681
    
    
    $
    
    
    
    $
    31,523Unearned premiums
    
    
    1,978
    
    
    
    1,546
    
    
    
    164
    
    
    
    834
    
    
    
    
    
    
    
    4,522Future policy benefits
    
    
    
    
    
    
    
    
    
    
    5,883
    
    
    
    
    
    
    
    
    
    
    
    5,883Policyholders funds
    
    
    43
    
    
    
    
    
    
    
    1,682
    
    
    
    
    
    
    
    
    
    
    
    1,725Deferred acquisition costs
    
    $
    444
    
    
    $
    285
    
    
    $
    537
    
    
    $
    2
    
    
    $
    
    
    
    $
    1,268
 141




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##### Table of Contents



CorporateStandard
    
    
    Specialty
    
    
    Life and Group
    
    
    and Other
    
    
    Elimi-Year ended December 31, 2003
    
    Lines
    
    
    Lines
    
    
    Non-Core
    
    
    Non-Core
    
    
    nations
    
    
    Total(In millions)Net earned premiums
    
    $
    4,532
    
    
    $
    1,840
    
    
    $
    2,376
    
    
    $
    582
    
    
    $
    (114
    )
    
    $
    9,216Net investment income
    
    
    408
    
    
    
    201
    
    
    
    821
    
    
    
    226
    
    
    
    
    
    
    
    1,656Other revenues
    
    
    199
    
    
    
    104
    
    
    
    163
    
    
    
    36
    
    
    
    (119
    )
    
    
    383Total operating revenues
    
    
    5,139
    
    
    
    2,145
    
    
    
    3,360
    
    
    
    844
    
    
    
    (233
    )
    
    
    11,255Claims, benefits and expenses:Net incurred claims and benefits
    
    
    4,440
    
    
    
    1,648
    
    
    
    2,384
    
    
    
    1,806
    
    
    
    (115
    )
    
    
    10,163Policyholders dividends
    
    
    100
    
    
    
    3
    
    
    
    10
    
    
    
    1
    
    
    
    
    
    
    
    114Amortization of deferred acquisition costs
    
    
    1,195
    
    
    
    408
    
    
    
    224
    
    
    
    138
    
    
    
    
    
    
    
    1,965Other insurance related expenses
    
    
    741
    
    
    
    100
    
    
    
    530
    
    
    
    40
    
    
    
    
    
    
    
    1,411Other expenses
    
    
    197
    
    
    
    89
    
    
    
    66
    
    
    
    159
    
    
    
    (118
    )
    
    
    393Total claims, benefits and expenses
    
    
    6,673
    
    
    
    2,248
    
    
    
    3,214
    
    
    
    2,144
    
    
    
    (233
    )
    
    
    14,046Operating income (loss) from continuing operations
before income tax and minority
interest
    
    
    (1,534
    )
    
    
    (103
    )
    
    
    146
    
    
    
    (1,300
    )
    
    
    
    
    
    
    (2,791
    )Income tax (expense) benefit on operating income (loss)
    
    
    590
    
    
    
    59
    
    
    
    (33
    )
    
    
    465
    
    
    
    
    
    
    
    1,081Minority interest
    
    
    (4
    )
    
    
    10
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    6Net operating income (loss) from continuing operations
    
    
    (948
    )
    
    
    (34
    )
    
    
    113
    
    
    
    (835
    )
    
    
    
    
    
    
    (1,704
    )Realized investment gains (losses), net of participating
policyholders and minority interests
    
    
    361
    
    
    
    114
    
    
    
    (141
    )
    
    
    126
    
    
    
    
    
    
    
    460Income tax (expense) benefit on realized investment
gains (losses)
    
    
    (127
    )
    
    
    (40
    )
    
    
    33
    
    
    
    (41
    )
    
    
    
    
    
    
    (175
    )Net income (loss) from continuing operations
    
    $
    (714
    )
    
    $
    40
    
    
    $
    5
    
    
    $
    (750
    )
    
    $
    
    
    
    $
    (1,419
    )
 142




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##### Table of Contents



Revenue by Line of Business
 Years ended December 31
    
    2005
    
    
    2004
    
    
    2003(In millions)Standard LinesProperty
    
    $
    622
    
    
    $
    664
    
    
    $
    668Casualty
    
    
    3,780
    
    
    
    4,196
    
    
    
    3,947CNA Global
    
    
    893
    
    
    
    901
    
    
    
    885Standard Lines revenue
    
    
    5,295
    
    
    
    5,761
    
    
    
    5,500Specialty LinesProfessional Liability Insurance (CNA Pro)
    
    
    2,205
    
    
    
    2,053
    
    
    
    1,612Surety
    
    
    393
    
    
    
    361
    
    
    
    346Warranty
    
    
    296
    
    
    
    302
    
    
    
    301Specialty Lines revenue
    
    
    2,894
    
    
    
    2,716
    
    
    
    2,259Life and Group Non-CoreLife & Annuity
    
    
    326
    
    
    
    (45
    )
    
    
    1,030Health
    
    
    903
    
    
    
    1,053
    
    
    
    2,026Other
    
    
    133
    
    
    
    81
    
    
    
    163Life and Group Non-Core revenue
    
    
    1,362
    
    
    
    1,089
    
    
    
    3,219Corporate and Other Non-Core revenueCNA Re
    
    
    71
    
    
    
    225
    
    
    
    696Other
    
    
    317
    
    
    
    253
    
    
    
    274Corporate and Other Non-Core revenue
    
    
    388
    
    
    
    478
    
    
    
    970Eliminations
    
    
    (77
    )
    
    
    (120
    )
    
    
    (233
    )Total revenue
    
    $
    9,862
    
    
    $
    9,924
    
    
    $
    11,715
 Note O. Restructuring and Other Related Charges
   Note P. Significant Transactions
 Personal Insurance Transaction
  143




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##### Table of Contents



Managed Care Holdings Corporation
  Specialty Medical Business
  CNA Trust
    Individual Life Sale
   144




---



##### Table of Contents



Group Benefits Sale
   Assumed Reinsurance Renewal Rights Sale
  CNA Re U.K. and Other Dispositions of Certain Businesses
   Note Q. Discontinued Operations
  145




---



##### Table of Contents



Discontinued Operations
 Year ended December 31
    
    2005
    
    
    2004
    
    
    2003(In millions)Revenues:Net investment income
    
    $
    15
    
    
    $
    17
    
    
    $
    20Other
    
    
    7
    
    
    
    (7
    )
    
    
    4Total revenues
    
    
    22
    
    
    
    10
    
    
    
    24Insurance related (expenses) benefits
    
    
    1
    
    
    
    (30
    )
    
    
    (11
    )Income (loss) before income taxes
    
    
    23
    
    
    
    (20
    )
    
    
    13Income tax (expense) benefit
    
    
    (2
    )
    
    
    (1
    )
    
    
    (11
    )Net income (loss) from discontinued operations
    
    $
    21
    
    
    $
    (21
    )
    
    $
    2
  Discontinued Operations
 December 31
    
    2005
    
    
    2004(In millions)Assets:Investments
    
    $
    358
    
    
    $
    370Reinsurance receivables
    
    
    78
    
    
    
    91Cash
    
    
    29
    
    
    
    14Other assets
    
    
    5
    
    
    
    26Total assets
    
    
    470
    
    
    
    501Liabilities:Insurance reserves
    
    
    (338
    )
    
    
    (401
    )Other liabilities
    
    
    (19
    )
    
    
    (27
    )Total liabilities
    
    
    (357
    )
    
    
    (428
    )Net assets of discontinued operations
    
    $
    113
    
    
    $
    73
  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
 146




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##### Table of Contents



Note R. Quarterly Financial Data (Unaudited)
  Quarterly Financial Data
 FullFirst
    
    
    Second
    
    
    Third
    
    
    Fourth
    
    
    Year(In millions, except per share data)
    
    Restated (a)
    
    
    Restated (a)
    
    
    Restated (a)2005Revenues
    
    $
    2,364
    
    
    $
    2,570
    
    
    $
    2,520
    
    
    $
    2,408
    
    
    $
    9,862Income (loss) from continuing
operations before income tax
    
    $
    234
    
    
    $
    336
    
    
    $
    (48
    )
    
    $
    (384
    )
    
    $
    138Income tax (expense) benefit
    
    
    (56
    )
    
    
    (48
    )
    
    
    51
    
    
    
    158
    
    
    
    105Income (loss) from continuing operations
    
    
    178
    
    
    
    288
    
    
    
    3
    
    
    
    (226
    )
    
    
    243Income from discontinued operations,
net of tax
    
    
    7
    
    
    
    2
    
    
    
    3
    
    
    
    9
    
    
    
    21Net income (loss)
    
    $
    185
    
    
    $
    290
    
    
    $
    6
    
    
    $
    (217
    )
    
    $
    264Income (loss) from continuing operations
    
    $
    0.63
    
    
    $
    1.06
    
    
    $
    (0.06
    )
    
    $
    (0.95
    )
    
    $
    0.68Income from discontinued operations
    
    
    0.03
    
    
    
    
    
    
    
    0.02
    
    
    
    0.03
    
    
    
    0.08Basic and diluted earnings (loss) per
share available to common stockholders
    
    $
    0.66
    
    
    $
    1.06
    
    
    $
    (0.04
    )
    
    $
    (0.92
    )
    
    $
    0.76
 Quarterly Financial Data
 FullFirst
    
    
    Second
    
    
    Third
    
    
    Fourth
    
    
    Year(In millions, except per share data)
    
    Restated (a)
    
    
    Restated (a)
    
    
    Restated (a)
    
    
    Restated (a)
    
    
    Restated (a)2004Revenues
    
    $
    2,266
    
    
    $
    2,659
    
    
    $
    2,313
    
    
    $
    2,686
    
    
    $
    9,924Income (loss) from continuing
operations before income tax
    
    $
    (177
    )
    
    $
    324
    
    
    $
    (79
    )
    
    $
    409
    
    
    $
    477Income tax (expense) benefit
    
    
    53
    
    
    
    (31
    )
    
    
    52
    
    
    
    (105
    )
    
    
    (31
    )Income (loss) from continuing operations
    
    
    (124
    )
    
    
    293
    
    
    
    (27
    )
    
    
    304
    
    
    
    446Loss from discontinued operations
    
    
    (6
    )
    
    
    (3
    )
    
    
    (11
    )
    
    
    (1
    )
    
    
    (21
    )Net income (loss)
    
    $
    (130
    )
    
    $
    290
    
    
    $
    (38
    )
    
    $
    303
    
    
    $
    425Income (loss) from continuing operations
    
    $
    (0.55
    )
    
    $
    1.08
    
    
    $
    (0.16
    )
    
    $
    1.12
    
    
    $
    1.49Loss from discontinued operations
    
    
    (0.02
    )
    
    
    (0.01
    )
    
    
    (0.05
    )
    
    
    (0.01
    )
    
    
    (0.09
    )Basic and diluted earnings (loss) per
share available to common stockholders
    
    $
    (0.57
    )
    
    $
    1.07
    
    
    $
    (0.21
    )
    
    $
    1.11
    
    
    $
    1.40
 (a)
    
    As restated, see Note T.
  147




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##### Table of Contents



Quarterly Financial Data
 (as previously reported)
    
    First
    
    
    Second
    
    
    Third(In millions, except per share data)2005Revenues
    
    $
    2,364
    
    
    $
    2,570
    
    
    $
    2,520Income (loss) from continuing
operations before income tax
    
    $
    234
    
    
    $
    336
    
    
    $
    (48
    )Income tax (expense) benefit
    
    
    (56
    )
    
    
    (48
    )
    
    
    51Net income (loss)
    
    $
    178
    
    
    $
    288
    
    
    $
    3Basic and diluted earnings (loss)
per share available to common
stockholders
    
    $
    0.63
    
    
    $
    1.06
    
    
    $
    (0.06
    )
 Quarterly Financial Data
 Full(as previously reported)
    
    First
    
    
    Second
    
    
    Third
    
    
    Fourth
    
    
    Year(In millions, except per share data)2004Revenues
    
    $
    2,267
    
    
    $
    2,664
    
    
    $
    2,318
    
    
    $
    2,687
    
    
    $
    9,936Income (loss) from continuing
operations before income tax
    
    $
    (177
    )
    
    $
    324
    
    
    $
    (79
    )
    
    $
    409
    
    
    $
    477Income tax (expense) benefit
    
    
    53
    
    
    
    (31
    )
    
    
    52
    
    
    
    (105
    )
    
    
    (31
    )Net income (loss)
    
    $
    (124
    )
    
    $
    293
    
    
    $
    (27
    )
    
    $
    304
    
    
    $
    446Basic and diluted earnings (loss)
per share available to common
stockholders
    
    $
    (0.55
    )
    
    $
    1.08
    
    
    $
    (0.16
    )
    
    $
    1.12
    
    
    $
    1.49
 Note S. Related Party Transactions
   148




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CNA Surety Corporation
 Loans to National Contractor
        149




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Reinsurance
 
 Note T. Restatements
  Discontinued Operations
  150




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##### Table of Contents



As Previously
    
    As
    
    As Previously
    
    AsReported
    
    Restated
    
    Reported
    
    Restated(In millions, except per share data)
    
    2004
    
    2004As of December 31Consolidated balance sheet:Deferred income taxes
    
    $
    709
    
    
    $
    712Other assets (a)
    
    
    815
    
    
    
    608Retained earnings
    
    
    5,572
    
    
    
    5,357Accumulated other comprehensive income
    
    
    650
    
    
    
    6612004
    
    
    
    2004
    
    
    
    2003
    
    
    
    2003For the year ended December 31Consolidated statements of operations:Income (loss) from discontinued operations, net of
tax expense of $1 and $11
    
    $
    
    
    
    $
    (21
    )
    
    $
    
    
    
    $
    2Net income (loss)
    
    
    446
    
    
    
    425
    
    
    
    (1,419
    )
    
    
    (1,417
    )Earnings (loss) per share:Income (loss) from discontinued operations, net of tax
    
    $
    
    
    
    $
    (0.09
    )
    
    $
    
    
    
    $
    0.01Basic and diluted earnings (loss) per share available
to common stockholders
    
    
    1.49
    
    
    
    1.40
    
    
    
    (6.52
    )
    
    
    (6.51
    )
 (a)
    
    The As Restated amount excludes a reclassification which increased other assets by $152
million.
 Consolidated Statements of Cash Flows
  
    
    Net purchases and sales of trading securities and changes in the
net receivable/payable from unsettled investment purchases and
sales related to trading securities, previously classified within
investing activities, have been reclassified to cash flows from
operating activities.
    
    Cash flows from equity method investees were reclassified to
distinguish between return on investments, which are reflected
within operating cash flows, and return of investments, which are
reflected within investing cash flows. Previously, all amounts
were reflected within investing cash flows.
    
    Deposits and withdrawals related to investment contract products
issued by the Company have been reflected within financing cash
flows. Previously, amounts related to certain investment
contracts were reflected within operating cash flows.
    
    The impact of cumulative translation adjustment, previously
reflected within investing activities, is now classified within
operating activities.
 
 151




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##### Table of Contents



Years ended December 31(In millions)
    
    2004
    
    
    2003Cash flows provided by operating activities-continuing operationsAs originally reported
    
    $
    1,607
    
    
    $
    1,760Impact of restatements
    
    
    377
    
    
    
    306Revised for restatements
    
    $
    1,984
    
    
    $
    2,066Cash flows used by investing activities-continuing operationsAs originally reported
    
    $
    (2,019
    )
    
    $
    (2,133
    )Impact of restatements
    
    
    (83
    )
    
    
    (255
    )Revised for restatements
    
    $
    (2,102
    )
    
    $
    (2,388
    )Cash flows provided by financing activities-continuing operationsAs originally reported
    
    $
    368
    
    
    $
    386Impact of restatements
    
    
    (307
    )
    
    
    (64
    )Revised for restatements
    
    $
    61
    
    
    $
    322
    152




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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
 
       
 153




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MANAGEMENTS REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING
         154




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155




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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
 
      156




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157




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ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE
 
 
 ITEM 9A. CONTROLS AND PROCEDURES
       158




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ITEM 9B. OTHER INFORMATION
  159




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PART III
 
 ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
  FIRST BECAMEPOSITION AND OFFICES
    
    
    
    
    
    EXECUTIVE OFFICERNAME
    
    HELD WITH REGISTRANT
    
    AGE
    
    OF CNA
    
    PRINCIPAL OCCUPATION DURING PAST FIVE YEARSStephen W. Lilienthal
    
    Chief Executive
Officer, CNA
Financial
Corporation
    
    
    55
    
    
    
    2001
    
    
    Chief Executive Officer of CNA Financial
Corporation and subsidiaries since August,
2002. Prior to that, President and Chief
Executive Officer, Property and Casualty
Operations of the CNA insurance companies
since July 2001. From June 1993 to June
1998, senior officer of USF&G Corporation
(USF&G). In April 1998, USF&G was
acquired by the St. Paul Companies. Mr.
Lilienthal was Executive Vice President of
the St. Paul Companies until July 2001.Michael Fusco
    
    Executive Vice
President, Chief
Actuary, CNA
insurance companies
    
    
    57
    
    
    
    2004
    
    
    Executive Vice President, Chief Actuary of
the CNA insurance companies since March,
2002. Prior to that time, he was Senior
Vice President of the CNA insurance
companies since November, 2000. From 1988
until November of 2000, Mr. Fusco held
various positions at Insurance Services
Offices, including Executive Vice
President.Jonathan D. Kantor
    
    Executive Vice
President, General
Counsel and
Secretary
    
    
    50
    
    
    
    1997
    
    
    Executive Vice President, General Counsel
and Secretary of CNA Financial Corporation
since March, 1998. Executive Vice
President, General Counsel and Secretary
of the CNA insurance companies since
April, 1997 to current date.James R. Lewis
    
    President and Chief
Executive Officer,
Property and
Casualty
Operations, CNA
insurance companies
    
    
    56
    
    
    
    2002
    
    
    President and Chief Executive Officer,
Property and Casualty Operations of the
CNA insurance companies since August,
2002. From August 2001 to August 2002,
Executive Vice President, U.S. Insurance
Operations, Property and Casualty
Operations of the CNA insurance companies.
From November 1992 to August 2001, Senior
Vice President of USF&G Corporation.D. Craig Mense
    
    Executive Vice
President & Chief
Financial Officer
    
    
    54
    
    
    
    2004
    
    
    Executive Vice President and Chief
Financial Officer since November, 2004.
Prior to that, he served as President and
Chief Executive Officer of Global Run-Off
Operations at St. Paul Travelers. From
May, 2003 to May, 2004, he was Chief
Operating Officer of the Gulf Insurance
Group at Travelers Property Casualty Corp.
Previously, at Travelers Property
Casualty Corp., Mr. Mense was Senior Vice
President and Chief Financial Officer
(Bond) from April, 1996 to July, 2002, and
Chief Financial and Administrative Officer
(Personal Lines) from July, 2002 to March,
2003.
   
 ITEM 11. EXECUTIVE COMPENSATION
 
 160




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ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED
STOCKHOLDER MATTERS
 Equity Compensation Plan
  Executive Compensation Information
 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))December 31, 2005
    
    (a)
    
    
    (b)
    
    
    (c)Plan CategoryEquity compensation plans approved by
security holders
    
    
    1,628,600
    
    
    $
    28.71
    
    
    
    2,314,525Equity compensation plans not
approved by security holders
    
    
    
    
    
    
    
    
    
    
    Total
    
    
    1,628,600
    
    
    $
    28.71
    
    
    
    2,314,525
  
 ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
  
 ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES
  161




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PART IV
 
 ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
 PageNumber(a)
    
    1.
    
    FINANCIAL STATEMENTS:Statements of Operations  Years Ended December 31, 2005, 2004 and 2003
    
    
    71Balance Sheets  December 31, 2005 and 2004
    
    
    72Statements of Cash Flows  Years Ended December 31, 2005, 2004 and 2003
    
    
    74Statements of Stockholders Equity  Years Ended December 31, 2005, 2004 and 2003
    
    
    76Notes to Condensed Financial Statements
    
    
    77Report of Independent Registered Public Accounting Firm
    
    
    153(a)
    
    2.
    
    FINANCIAL STATEMENT SCHEDULES:Schedule I Summary of Investments
    
    
    165Schedule II Condensed Financial Information of Registrant (Parent Company)
    
    
    166Schedule III Supplementary Insurance Information
    
    
    174Schedule IV Reinsurance
    
    
    175Schedule V Valuation and Qualifying Accounts
    
    
    175Schedule VI Supplemental Information Concerning Property and Casualty Insurance Operations
    
    
    176(a)
    
    3.
    
    EXHIBITS:
 ExhibitDescription of Exhibit
    
    Number(3)
    
    Articles of incorporation and by-laws:Certificate of Incorporation of CNA Financial Corporation, as amended May 20, 1999 (Exhibit 3.1 to 1999 Form 10-K incorporated herein by
reference.)
    
    
    3.1By-Laws of CNA Financial Corporation, as amended April 28, 2004 (Exhibit 3.2 to 2004 Form 10-K incorporated herein by reference)
    
    
    3.2(4)
    
    Instruments defining the rights of security holders, including indentures:CNA Financial Corporation hereby agrees to furnish to the Commission upon request copies of instruments with respect to long term debt,
pursuant to Item 601(b) (4) (iii) of Regulation S-K
    
    
    4.1(10)
    
    Material contracts:Federal Income Tax Allocation Agreement, dated February 29, 1980 between CNA
Financial Corporation and Loews Corporation (Exhibit 10.2 to 1987 Form 10-K
incorporated herein by reference.)
    
    
    10.1CNA Supplemental Executive Retirement Benefit Plan, as amended through January
1, 2003 (Exhibit 99.2 to Form 8-K filed January 6, 2005 incorporated herein by
reference.)
    
    
    10.2
 162




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##### Table of Contents



ExhibitDescription of Exhibit
    
    NumberFirst Amendment to the CNA Supplemental Executive Retirement Plan, dated
February 27, 2004 (Exhibit 99.3 to Form 8-K filed January 6, 2005 incorporated
herein by reference.)
    
    
    10.3Second Amendment to the CNA Supplemental Retirement Plan, dated March 23, 2004
(Exhibit 99.4 to Form 8-K filed January 6, 2005 incorporated herein by
reference.)
    
    
    10.4Third Amendment to the CNA Supplemental Retirement Plan, dated December 31,
2004 (Exhibit 99.1 to Form 8-K filed January 6, 2005 incorporated herein by
reference.)
    
    
    10.5Continental Casualty Company CNA Annual Incentive Bonus Plan Provisions
(Exhibit 10.1 to 1994 Form 10-K incorporated herein by reference.)
    
    
    10.6CNA 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.)
    
    
    10.7Share Purchase Agreement between CNA and TAWA UK Limited,
dated July 15, 2002 for the entire issued share capital of CNA Re
Management Company Limited (Exhibit 2.1 to September 30, 2002
Form 10-Q incorporated herein by reference.).
    
    
    10.8Employment Agreement between CNA Financial Corporation
and Stephen W. Lilienthal, dated October 26, 2005 (Exhibit 10.22 to
October 28, 2005 Form 10-Q incorporated herein by reference)
    
    
    10.9Employment Agreement between Continental Casualty Company
and James R. Lewis, dated October 26, 2005 (Exhibit 10.21 to
October 28, 2005 Form 10-Q incorporated herein by reference)
    
    
    10.10Employment Agreement between Continental Casualty Company
and Jonathan D. Kantor, dated March 16, 2005 (Exhibit 99.1 to June 13,
2005 Form 8-K incorporated herein by reference)
    
    
    10.11Capital Support Agreement among CNA Financial Corporation, Loews
Corporation and Continental Casualty Company, dated November 12, 2003 (Exhibit
10.15 to 2003 Form 10-K incorporated herein by reference)
    
    
    10.12Employment Agreement between Continental Casualty Company
and D. Craig Mense, dated December 2, 2004 (Exhibit 99.1 to December 8,
2004 Form 8-K incorporated herein by reference)
    
    
    10.13Addendum to Employment Agreement between Continental Casualty Company
and D. Craig Mense, dated December 2, 2004 (Exhibit 99.2 to December 8,
2004 Form 8-K incorporated herein by reference)
    
    
    10.14Employment Agreement between Continental Casualty Company
and Michael Fusco, dated April 1, 2004 (Exhibit 10.16 to 2004 Form
10-K incorporated herein by reference)
    
    
    10.15
 163




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##### Table of Contents



ExhibitDescription of Exhibit
    
    NumberCNA Supplemental Executive Savings and Capital Accumulation Plan, dated
July 1, 2003 (Exhibit 10.17 to 2004 Form 10-K incorporated herein by reference)
    
    
    10.16First Amendment to the CNA Supplemental Executive Savings and Capital
Accumulation Plan, dated March 23, 2004 (Exhibit 10.18 to 2004 Form 10-K
incorporated herein by reference)
    
    
    10.17Second Amendment to the CNA Supplemental Executive Savings and Capital
Accumulation Plan, dated March 23, 2004 (Exhibit 10.19 to 2004 Form 10-K
incorporated herein by reference)
    
    
    10.18CNA Financial Board of Directors Term Sheet  Director and Committee Member
Fee Schedule  2004 Annual Retainers (Exhibit 10.20 to 2004 Form 10-K
incorporated herein by reference)
    
    
    10.19(21)
    
    Primary Subsidiaries of CNAF (Exhibit 21.1 to 2004 Form 10-K incorporated
herein by reference)
    
    
    21.1(23)
    
    Consent of Independent Registered Public Accounting Firm
    
    
    23.1(c)
    
    
    
    Exhibits:None.(d)
    
    
    
    Condensed Financial Information of Unconsolidated Subsidiaries:None.
 
 164




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##### Table of Contents



SCHEDULE
I. SUMMARY OF INVESTMENTS  OTHER THAN INVESTMENTS IN RELATED PARTIES
 December 31, 2005Cost or
    
    
    EstimatedAmortized
    
    
    Fair
    
    
    Carrying(In millions)
    
    Cost
    
    
    Value
    
    
    ValueFixed maturity securities available-for-sale:Bonds:United
States Government and government agencies and authorities  taxable
    
    $
    1,687
    
    
    $
    1,798
    
    
    $
    1,798States,
municipalities and political subdivisions  tax exempt
    
    
    9,054
    
    
    
    9,209
    
    
    
    9,209Foreign governments and political subdivisions
    
    
    2,031
    
    
    
    2,129
    
    
    
    2,129Public utilities
    
    
    781
    
    
    
    894
    
    
    
    894All other corporate bonds
    
    
    18,579
    
    
    
    18,717
    
    
    
    18,717Redeemable preferred stocks
    
    
    213
    
    
    
    216
    
    
    
    216Total fixed maturity securities available-for-sale
    
    
    32,345
    
    
    
    32,963
    
    
    
    32,963Fixed maturity securities trading:Bonds:United
States Government and government agencies and authorities  taxable
    
    
    4
    
    
    
    4
    
    
    
    4Foreign governments and political subdivisions
    
    
    26
    
    
    
    26
    
    
    
    26All other corporate bonds
    
    
    241
    
    
    
    241
    
    
    
    241Total fixed maturity securities trading
    
    
    271
    
    
    
    271
    
    
    
    271Equity securities available-for-sale:Common stocks:Banks, trusts and insurance companies
    
    
    3
    
    
    
    5
    
    
    
    5Industrial and other
    
    
    137
    
    
    
    284
    
    
    
    284Non-redeemable preferred stocks
    
    
    322
    
    
    
    343
    
    
    
    343Total equity securities available-for-sale
    
    
    462
    
    
    
    632
    
    
    
    632Equity securities trading:Common stocks:Industrial and other
    
    
    48
    
    
    
    48
    
    
    
    48Non-redeemable preferred stocks
    
    
    1
    
    
    
    1
    
    
    
    1Total equity securities trading
    
    
    49
    
    
    $
    49
    
    
    
    49Limited partnership investments
    
    
    1,509
    
    
    
    
    
    
    
    1,509Other invested assets
    
    
    35
    
    
    
    
    
    
    
    33Short term investments available-for-sale
    
    
    3,871
    
    
    
    
    
    
    
    3,870Short term investments trading
    
    
    367
    
    
    
    
    
    
    
    368Total investments
    
    $
    38,909
    
    
    
    
    
    
    $
    39,695
 165




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##### Table of Contents



SCHEDULE II. CONDENSED FINANCIAL INFORMATION OF REGISTRANT (PARENT COMPANY)
 CNA Financial Corporation
Statements of Operations
 2005
    
    
    2004
    
    
    2003Years ended December 31
    
    
    
    
    
    Restated
    
    
    Restated(In millions)
    
    
    
    
    
    See Note J
    
    
    See Note JRevenues:Net investment income
    
    $
    18
    
    
    $
    14
    
    
    $
    16Realized investment losses
    
    
    (29
    )
    
    
    (62
    )
    
    
    (3
    )Other income
    
    
    
    
    
    
    5
    
    
    
    12Total revenues
    
    
    (11
    )
    
    
    (43
    )
    
    
    25Expenses:Administrative and general
    
    
    9
    
    
    
    5
    
    
    
    7Interest
    
    
    110
    
    
    
    104
    
    
    
    120Total expenses
    
    
    119
    
    
    
    109
    
    
    
    127Loss from operations before income taxes and
equity in net income (loss) of subsidiaries
    
    
    (130
    )
    
    
    (152
    )
    
    
    (102
    )Income tax benefit
    
    
    46
    
    
    
    53
    
    
    
    36Loss before equity in net income (loss) of subsidiaries
    
    
    (84
    )
    
    
    (99
    )
    
    
    (66
    )Equity in net income (loss) of subsidiaries
    
    
    348
    
    
    
    524
    
    
    
    (1,351
    )Net income (loss)
    
    $
    264
    
    
    $
    425
    
    
    $
    (1,417
    )
  166




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##### Table of Contents



CNA Financial Corporation
Balance Sheets
 2005
    
    2004December 31

    
    
    
    
    
    Restated(In millions)
    
    
    
    
    
    See Note JAssets:Investment in subsidiaries
    
    $
    10,263
    
    
    $
    10,213Fixed maturity securities available-for-sale, at fair value, (amortized
cost of $1 and $23)
    
    
    1
    
    
    
    23Equity securities available-for-sale, at fair value, (cost of $1 and $1)
    
    
    1
    
    
    
    1Other invested assets
    
    
    
    
    
    
    (1
    )Short term investments, at fair value which approximates cost
    
    
    198
    
    
    
    749Receivables for securities sold
    
    
    10
    
    
    
    3Amounts due from affiliates
    
    
    44
    
    
    
    70Total assets
    
    $
    10,517
    
    
    $
    11,058Liabilities and Stockholders Equity:Liabilities:Short term debt
    
    
    250
    
    
    
    493Long term debt
    
    
    1,287
    
    
    
    1,536Other
    
    
    30
    
    
    
    55Total liabilities
    
    
    1,567
    
    
    
    2,084Stockholders equity:Preferred stock (12,500,000 shares authorized)
Series H Issue (no par value; $100,000 stated value; 7,500 shares
issued; held by Loews Corporation)
    
    
    750
    
    
    
    750Common stock ($2.50 par value; 500,000,000 shares authorized;
258,177,285 shares issued; and 256,001,968 and 255,953,958 shares
outstanding)
    
    
    645
    
    
    
    645Additional paid-in capital
    
    
    1,701
    
    
    
    1,701Retained earnings
    
    
    5,621
    
    
    
    5,357Accumulated other comprehensive income
    
    
    359
    
    
    
    661Treasury
stock (2,175,317 and 2,223,327 shares), at cost
    
    
    (67
    )
    
    
    (69
    )9,009
    
    
    
    9,045Notes receivable for the issuance of common stock
    
    
    (59
    )
    
    
    (71
    )Total stockholders equity
    
    
    8,950
    
    
    
    8,974Total liabilities and stockholders equity
    
    $
    10,517
    
    
    $
    11,058
  167




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##### Table of Contents



CNA Financial Corporation
Statements of Cash Flows
 2005
    
    2004
    
    2003Years ended December 31
    
    
    
    
    
    Restated
    
    Restated(In millions)
    
    
    
    
    
    See Note J
    
    See Note JCash flows from operating activities:Net income (loss)
    
    $
    264
    
    
    $
    425
    
    
    $
    (1,417
    )Adjustments to reconcile net income (loss) to net
cash flows from operating activities:(Income)
loss of subsidiaries
    
    
    (348
    )
    
    
    (524
    )
    
    
    1,351Dividends received from subsidiaries
    
    
    127
    
    
    
    307
    
    
    
    93Realized investment losses
    
    
    29
    
    
    
    62
    
    
    
    3Changes in:Federal income taxes recoverable (amounts due
to/from affiliates)
    
    
    
    
    
    
    
    
    
    
    (1
    )Other, net
    
    
    (59
    )
    
    
    233
    
    
    
    107Total adjustments
    
    
    (251
    )
    
    
    78
    
    
    
    1,553Net cash flows provided by operating activities
    
    
    13
    
    
    
    503
    
    
    
    136Cash flows from investing activities:Sales of fixed maturity securities
    
    
    8
    
    
    
    85
    
    
    
    235Purchases of fixed maturity securities
    
    
    
    
    
    
    (27
    )
    
    
    (335
    )Purchases of equity securities
    
    
    
    
    
    
    
    
    
    
    2Change in short term investments
    
    
    563
    
    
    
    (710
    )
    
    
    349Capital contributions to subsidiaries
    
    
    (41
    )
    
    
    (156
    )
    
    
    (1,201
    )Return of capital from subsidiaries
    
    
    
    
    
    
    18
    
    
    
    5Change in notes receivable from affiliates
    
    
    
    
    
    
    
    
    
    
    309Other, net
    
    
    (64
    )
    
    
    (14
    )
    
    
    (2
    )Net cash flows provided (used) by investing activities
    
    
    466
    
    
    
    (804
    )
    
    
    (638
    )Cash flows from financing activities:Proceeds from issuance of debt
    
    
    
    
    
    
    546
    
    
    
    Principal payments on debt
    
    
    (493
    )
    
    
    (250
    )
    
    
    (245
    )Issuance of cumulative Series H preferred stock
    
    
    
    
    
    
    
    
    
    
    750Purchase of treasury stock
    
    
    
    
    
    
    
    
    
    
    1Other, net
    
    
    14
    
    
    
    5
    
    
    
    (4
    )Net cash flows provided (used) by financing activities
    
    
    (479
    )
    
    
    301
    
    
    
    502Net change in cash
    
    
    
    
    
    
    
    
    
    
    Cash, beginning of year
    
    
    
    
    
    
    
    
    
    
    Cash, end of year
    
    $
    
    
    
    $
    
    
    
    $
    
  168




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##### Table of Contents



Notes to Condensed Financial Information
 A. Basis of Presentation
    B. Investments
   C. Debt
  Debt
 December 31
    
    2005
    
    2004(In millions)Senior notes:6.50%, face amount of $493, due April 15, 2005
    
        $
    
    
    
        $
    4936.75%, face amount of $250, due November 15, 2006
    
    
    250
    
    
    
    2496.45%, face amount of $150, due January 15, 2008
    
    
    149
    
    
    
    1496.60%, face amount of $200, due December 15, 2008
    
    
    199
    
    
    
    1995.85%, face amount of $549, due December 15, 2014
    
    
    546
    
    
    
    5466.95%, face amount of $150, due January 15, 2018
    
    
    149
    
    
    
    149Debenture, 7.25%, face amount of $243, due November 15, 2023
    
    
    241
    
    
    
    241Urban Development Action Grant, 1.00%, due May 7, 2019
    
    
    3
    
    
    
    3Total
    
    $
    1,537
    
    
    $
    2,029Short term debt
    
    $
    250
    
    
    $
    493Long term debt
    
    
    1,287
    
    
    
    1,536Total
    
    $
    1,537
    
    
    $
    2,029
  169




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D. Management and Administrative Expenses
  E. Commitments and Contingencies
        170




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F. Capital Transactions with Subsidiaries
  171




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##### Table of Contents



G. Dividends from Subsidiaries and Affiliates
     H. Preferred Stock
  I. Supplementary Cash Flow Information
  J. Restatements
 Discontinued Operations
  172




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##### Table of Contents



Statement of Cash Flows
   Years ended December 31
    
    2004(In millions)Cash flows provided by operating activitiesAs originally reported
    
    $
    481Impact of restatements
    
    
    22Revised for restatements
    
    $
    503Cash flows used by investing activitiesAs originally reported
    
    $
    (782
    )Impact of restatements
    
    
    (22
    )Revised for restatements
    
    $
    (804
    )
   173




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##### Table of Contents



SCHEDULE III. SUPPLEMENTARY INSURANCE INFORMATION
 Gross Insurance ReservesInsurance
    
    
    Amortiz-Claims and
    
    
    ationDeferred
    
    
    Claim
    
    
    Future
    
    
    
    
    
    
    Policy-
    
    
    
    
    
    
    Net
    
    
    Policy-
    
    
    of Deferred
    
    
    Other
    
    
    NetAcquisition
    
    
    And Claim
    
    
    Policy
    
    
    Unearned
    
    
    holders
    
    
    Net Earned
    
    
    Investment
    
    
    holders
    
    
    Acquisition
    
    
    Operating
    
    
    Written Pre-(In millions)
    
    Costs
    
    Expense
    
    Benefits
    
    Premium
    
    Funds
    
    Premiums
    
    Income (a)
    
    Benefits
    
    Costs
    
    Expenses
    
    miums (b)December 31, 2005Standard Lines
    
    $
    408
    
    
    $
    15,084
    
    
    $
    
    
    
    $
    1,952
    
    
    $
    30
    
    
    $
    4,410
    
    
    $
    767
    
    
    $
    3,876
    
    
    $
    986
    
    
    $
    554
    
    
    $
    4,382Specialty Lines
    
    
    274
    
    
    
    5,205
    
    
    
    
    
    
    
    1,577
    
    
    
    
    
    
    
    2,475
    
    
    
    281
    
    
    
    1,621
    
    
    
    532
    
    
    
    223
    
    
    
    2,463Life and Group Non-Core
    
    
    515
    
    
    
    3,277
    
    
    
    6,297
    
    
    
    168
    
    
    
    1,465
    
    
    
    704
    
    
    
    593
    
    
    
    1,161
    
    
    
    22
    
    
    
    318
    
    
    
    694Corporate and Other Non-Core
    
    
    
    
    
    
    7,372
    
    
    
    
    
    
    
    9
    
    
    
    
    
    
    
    (8
    )
    
    
    251
    
    
    
    343
    
    
    
    3
    
    
    
    138
    
    
    
    (19
    )Eliminations
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (12
    )
    
    
    
    
    
    
    (2
    )
    
    
    
    
    
    
    (75
    )
    
    
    (12
    )Consolidated Operations
    
    $
    1,197
    
    
    $
    30,938
    
    
    $
    6,297
    
    
    $
    3,706
    
    
    $
    1,495
    
    
    $
    7,569
    
    
    $
    1,892
    
    
    $
    6,999
    
    
    $
    1,543
    
    
    $
    1,158
    
    
    $
    7,508December 31, 2004Standard Lines
    
    $
    444
    
    
    $
    14,302
    
    
    $
    
    
    
    $
    1,978
    
    
    $
    43
    
    
    $
    4,917
    
    
    $
    496
    
    
    $
    3,489
    
    
    $
    1,109
    
    
    $
    687
    
    
    $
    4,582Specialty Lines
    
    
    285
    
    
    
    4,860
    
    
    
    
    
    
    
    1,546
    
    
    
    
    
    
    
    2,277
    
    
    
    246
    
    
    
    1,446
    
    
    
    506
    
    
    
    189
    
    
    
    2,391Life and Group Non-Core
    
    
    537
    
    
    
    3,680
    
    
    
    5,883
    
    
    
    164
    
    
    
    1,682
    
    
    
    921
    
    
    
    692
    
    
    
    1,369
    
    
    
    36
    
    
    
    367
    
    
    
    633Corporate and Other Non-Core
    
    
    2
    
    
    
    8,681
    
    
    
    
    
    
    
    834
    
    
    
    
    
    
    
    128
    
    
    
    246
    
    
    
    162
    
    
    
    29
    
    
    
    151
    
    
    
    5Eliminations
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (34
    )
    
    
    
    
    
    
    (21
    )
    
    
    
    
    
    
    (99
    )
    
    
    (17
    )Consolidated Operations
    
    $
    1,268
    
    
    $
    31,523
    
    
    $
    5,883
    
    
    $
    4,522
    
    
    $
    1,725
    
    
    $
    8,209
    
    
    $
    1,680
    
    
    $
    6,445
    
    
    $
    1,680
    
    
    $
    1,295
    
    
    $
    7,594December 31, 2003Standard Lines
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    4,532
    
    
    $
    408
    
    
    $
    4,540
    
    
    $
    1,195
    
    
    $
    938
    
    
    $
    4,563Specialty Lines
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,840
    
    
    
    201
    
    
    
    1,651
    
    
    
    408
    
    
    
    189
    
    
    
    2,038Life and Group Non-Core
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,376
    
    
    
    821
    
    
    
    2,394
    
    
    
    224
    
    
    
    596
    
    
    
    538Corporate and Other Non-Core
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    582
    
    
    
    226
    
    
    
    1,807
    
    
    
    138
    
    
    
    199
    
    
    
    496Eliminations
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (114
    )
    
    
    
    
    
    
    (115
    )
    
    
    
    
    
    
    (118
    )
    
    
    (16
    )Consolidated Operations
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    9,216
    
    
    $
    1,656
    
    
    $
    10,277
    
    
    $
    1,965
    
    
    $
    1,804
    
    
    $
    7,619
   174




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##### Table of Contents



SCHEDULE IV. REINSURANCE
  
 SCHEDULE V. VALUATION AND QUALIFYING ACCOUNTS
 Balance at
    
    
    Charged to
    
    
    Charged toBeginning
    
    
    Costs and
    
    
    Other
    
    
    
    
    
    
    Balance at(In millions)
    
    of Period
    
    
    Expenses
    
    
    Accounts (a)
    
    
    Deductions
    
    
    End of PeriodYear ended December 31, 2005Deducted from assets:Allowance for doubtful accounts:Insurance and reinsurance
receivables
    
    $
    1,048
    
    
    $
    111
    
    
    $
    3
    
    
    $
    198
    
    
    $
    964Valuation allowance:Deferred income taxes
    
    $
    33
    
    
    $
    (3
    )
    
    $
    
    
    
    $
    
    
    
    $
    30Year ended December 31, 2004Deducted from assets:Allowance for doubtful accounts:Insurance and reinsurance
receivables
    
    $
    948
    
    
    $
    312
    
    
    $
    5
    
    
    $
    217
    
    
    $
    1,048Valuation allowance:Deferred income taxes
    
    $
    
    
    
    $
    33
    
    
    $
    
    
    
    $
    
    
    
    $
    33
  175




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##### Table of Contents



SCHEDULE VI. SUPPLEMENTAL INFORMATION CONCERNING PROPERTY AND CASUALTY INSURANCE OPERATIONS
 Consolidated Property and Casualty OperationsAs of and for the years ended December 31(In millions)
    
    2005
    
    
    2004
    
    
    2003Deferred acquisition costs
    
    $
    1,197
    
    
    $
    1,267Reserves for unpaid claim and claim adjustment expenses
    
    
    30,694
    
    
    
    31,204Discount deducted from claim and claim adjustment expense reserves
above (based on interest rates ranging from 3.5% to 7.5%)
    
    
    1,739
    
    
    
    1,827Unearned premiums
    
    
    3,706
    
    
    
    4,522Net written premiums
    
    
    7,509
    
    
    
    7,594
    
    
    $
    7,619Net earned premiums
    
    
    7,558
    
    
    
    7,925
    
    
    
    7,471Net investment income
    
    
    1,595
    
    
    
    1,266
    
    
    
    1,541Incurred claim and claim adjustment expenses related to current year
    
    
    5,054
    
    
    
    5,118
    
    
    
    4,747Incurred claim and claim adjustment expenses related to prior years
    
    
    1,107
    
    
    
    234
    
    
    
    2,421Amortization of deferred acquisition costs
    
    
    1,541
    
    
    
    1,641
    
    
    
    1,827Paid claim and claim adjustment expenses
    
    
    3,541
    
    
    
    5,401
    
    
    
    5,077
 176




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##### Table of Contents



SIGNATURES
  CNA Financial CorporationDated: March 8, 2006
    
    By
    
    /s/ Stephen W. LilienthalStephen W. LilienthalChief Executive Officer(Principal Executive Officer)By
    
    /s/ D. Craig MenseD. Craig MenseExecutive Vice President andChief Financial Officer
  Dated: March 8, 2006
    
    By
    
    /s/ Brenda J. Gaines(Brenda J. Gaines, Director)Dated: March 8, 2006
    
    By
    
    /s/ Stephen W. Lilienthal(Stephen W. Lilienthal, Chief Executive Officerand Director)Dated: March 8, 2006
    
    By
    
    /s/ Paul J. Liska(Paul J. Liska, Director)Dated: March 8, 2006
    
    By
    
    /s/ Don M. Randel(Don M. Randel, Director)
 177




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##### Table of Contents



Dated: March 8, 2006
    
    By
    
    /s/ Joseph Rosenberg(Joseph Rosenberg, Director)Dated: March 8, 2006
    
    By
    
    /s/ Andrew Tisch(Andrew Tisch, Director)Dated: March 8, 2006
    
    By
    
    /s/ James S. Tisch(James S. Tisch, Director)Dated: March 8, 2006
    
    By
    
    /s/ Marvin Zonis(Marvin Zonis, Director)
 178