SCHEDULE II. CONDENSED FINANCIAL INFORMATION OF REGISTRANT (PARENT COMPANY)

CNA Financial Corporation

Statements of Operations



Years ended December 31
(In millions)	2011			2010			2009
Revenues
Net investment income	$	1		$	4		$	3
Net realized investment gains (losses)	(9		)	(1		)	8
Other income	40			96			101
Total revenues	32			99			112
Expenses
Administrative and general	3			5			2
Interest	167			148			116
Total expenses	170			153			118
Loss from operations before income taxes and equity in net income of subsidiaries	(138		)	(54		)	(6		)
Income tax benefit	46			19			2
Loss before equity in net income of subsidiaries	(92		)	(35		)	(4		)
Equity in net income of subsidiaries	706			725			423
Net income	$	614		$	690		$	419

See accompanying Notes to Condensed Financial Information as well as the Consolidated Financial Statements and accompanying Notes.

CNA Financial Corporation

Balance Sheets



December 31
(In millions, except share data)	2011			2010
Assets
Investment in subsidiaries	$	13,564		$	12,780
Fixed maturity securities available-for-sale, at fair value (amortized cost of $2 and $3)	2			3
Short term investments	292			215
Amounts due from subsidiaries	—			11
Surplus note due from subsidiary	250			500
Other assets	18			16
Total assets	$	14,126		$	13,525
Liabilities and equity
Liabilities:
Short term debt	$	3		$	399
Long term debt	2,525			2,131
Other liabilities	41			41
Total liabilities	2,569			2,571
Equity:
Common stock ($2.50 par value; 500,000,000 shares authorized; 273,040,243 shares issued; 269,274,900 and 269,139,198 shares outstanding)	683			683
Additional paid-in capital	2,146			2,200
Retained earnings	8,382			7,876
Accumulated other comprehensive income	470			326
Treasury stock (3,765,343 and 3,901,045 shares), at cost	(102		)	(105		)
Notes receivable for the issuance of common stock	(22		)	(26		)
Total equity	11,557			10,954
Total liabilities and equity	$	14,126		$	13,525

See accompanying Notes to Condensed Financial Information as well as the Consolidated Financial Statements and accompanying Notes.

CNA Financial Corporation

Statements of Cash Flows



Years ended December 31
(In millions)	2011			2010			2009
Cash Flows from Operating Activities
Net income	$	614		$	690		$	419
Adjustments to reconcile net income to net cash flows provided (used) by operating activities:
Equity in net income of subsidiaries	(706		)	(725		)	(423		)
Dividends received from subsidiaries	—			1			—
Net realized investment (gains) losses	9			1			(8		)
Other, net	55			85			(21		)
Total adjustments	(642		)	(638		)	(452		)
Net cash flows provided (used) by operating activities	$	(28	)	$	52		$	(33	)
Cash Flows from Investing Activities
Proceeds from fixed maturity securities	$	1		$	(2	)	$	12
Change in short term investments	(77		)	181			145
Capital contributions to subsidiaries	(38		)	(6		)	(3		)
Return of capital from subsidiaries	6			—			—
Repayment of surplus note by subsidiary	250			500			—
Other, net	1			—			(12		)
Net cash flows provided by investing activities	$	143		$	673		$	142
Cash Flows from Financing Activities
Dividends paid to common stockholders	$	(108	)	$	—		$	—
Dividends paid to Loews for 2008 Senior Preferred	—			(76		)	(122		)
Payment to redeem 2008 Senior Preferred	—			(1,000		)	(250		)
Proceeds from the issuance of debt	396			495			350
Repayment of debt	(409		)	(150		)	(100		)
Stock options exercised	5			3			1
Other, net	1			3			12
Net cash flows used by financing activities	$	(115	)	$	(725	)	$	(109	)
Net change in cash	$	—		$	—		$	—
Cash, beginning of year	—			—			—
Cash, end of year	$	—		$	—		$	—

See accompanying Notes to Condensed Financial Information as well as the Consolidated Financial Statements and accompanying Notes.

Notes to Condensed Financial Information

A. Basis of Presentation

The condensed financial information of CNA Financial Corporation (CNAF or the Parent Company) should be read in conjunction with the Consolidated Financial Statements and Notes thereto included in Item 8 of this Form 10-K. CNAF’s subsidiaries are accounted for using the equity method of accounting. Equity in net income of these subsidiaries is presented on the Condensed Statements of Operations as Equity in net income of subsidiaries. Loews owned approximately 90% of the outstanding common stock of CNAF as of December 31, 2011.

B. Debt

Debt is composed of the following obligations.

Debt



December 31
(In millions)	2011		2010
Short term debt:
Senior notes:
6.000%, face amount of $400, due August 15, 2011	$	—	$	399
Other debt	3		—
Total short-term debt	3		399
Long term debt:
Senior notes:
5.850%, face amount of $549, due December 15, 2014	548		548
6.500%, face amount of $350, due August 15, 2016	348		347
6.950%, face amount of $150, due January 15, 2018	149		149
7.350%, face amount of $350, due November 15, 2019	348		348
5.875%, face amount of $500, due August 15, 2020	495		495
5.750%, face amount of $400, due August 15, 2021	396		—
Debenture, 7.250%, face amount of $243, due November 15, 2023	241		241
Other debt	—		3
Total long term debt	2,525		2,131
Total debt	$	2,528	$	2,530

In February of 2011, CNAF issued $400 million of 5.750% senior notes due August 15, 2021 in a public offering. CNAF used the net proceeds of the offering, together with cash on hand, to redeem the outstanding $400 million aggregate principal amount of 6.000% senior notes due August 15, 2011, plus accrued and unpaid interest thereon, along with a call premium.

On August 1, 2007, CNAF entered into a five-year credit agreement with a syndicate of banks and other lenders. The credit agreement established a $250 million senior unsecured revolving credit facility which is intended to be used for general corporate purposes. Borrowings under the revolving credit facility bear interest at the London Interbank Offered Rate (LIBOR) plus CNAF’s credit risk spread. Under the credit agreement, CNAF is required to pay certain fees, including a facility fee and a utilization fee, both of which would adjust automatically in the event of a change in CNAF’s financial ratings. The credit agreement includes covenants regarding maintenance of a minimum consolidated net worth and a specified ratio of consolidated indebtedness to consolidated total capitalization. The full limit of $250 million is available as of December 31, 2011.

CNAF's remaining debt obligations contain customary covenants for investment grade insurers. CNAF is in compliance with all covenants as of and for the year ended December 31, 2011.

C. Commitments, Contingencies and Guarantees

In the normal course of business, CNAF guarantees the indebtedness of certain of its subsidiaries to the debt maturity or payoff, whichever comes first. These guarantees arise in the normal course of business and are given to induce a lender to enter into an agreement with CNAF’s subsidiaries. CNAF would be required to remit prompt and complete payment when due, should the primary obligor default. The maximum potential amount of future payments that CNAF could be required to pay under these guarantees are approximately $10 million at December 31, 2011. The Parent Company does not believe that a payable is likely under these guarantees.

In the course of selling business entities and assets to third parties, CNAF has agreed to indemnify purchasers for losses arising out of breaches of representation and warranties with respect to the business entities or assets being sold, including, in certain cases, losses arising from undisclosed liabilities or certain named litigation. Such indemnification provisions generally survive for periods ranging from nine months following the applicable closing date to the expiration of the relevant statutes of limitation. As of December 31, 2011, the aggregate amount of quantifiable indemnification agreements in effect for sales of business entities and assets was $258 million.

In addition, CNAF has agreed to provide indemnification to third party purchasers for certain losses associated with sold business entities or assets that are not limited by a contractual monetary amount. As of December 31, 2011, CNAF had outstanding unlimited indemnifications in connection with the sales of certain of its business entities or assets that included tax liabilities arising prior to a purchaser’s ownership of an entity or asset, defects in title at the time of sale, employee claims arising prior to closing and in some cases losses arising from certain litigation and undisclosed liabilities. These indemnification agreements survive until the applicable statutes of limitation expire, or until the agreed upon contract terms expire.

As of December 31, 2011 and 2010, CNAF has recorded liabilities of approximately $8 million and $9 million related to indemnification agreements and management believes that it is not likely that any future indemnity claims will be significantly greater than the amounts recorded.

In the normal course of business, CNAF has provided guarantees to holders of structured settlement annuities (SSA) provided by certain of its subsidiaries, which expire through 2120. CNAF would be required to remit SSA payments due to claimants if the primary obligor failed to perform on these contracts. The maximum potential amount of future payments that CNAF could be required to pay under these guarantees are approximately $1.9 billion at December 31, 2011. The Parent Company does not believe that a payable is likely under these guarantees.