10-Q

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

þ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2009

OR

o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from                      to                     

Commission File Number 1-5823

CNA FINANCIAL CORPORATION

(Exact name of registrant as specified in its charter)

Delaware (State or other jurisdiction of incorporation or organization)	36-6169860 (I.R.S. Employer Identification No.)
333 S. Wabash Chicago, Illinois (Address of principal executive offices)	60604 (Zip Code)

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

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

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
Yes o     No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer þ Accelerated filer o  Non-accelerated filer o
(Do not check if a smaller reporting company) Smaller reporting company o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes o     No þ

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

Class	Outstanding at July 30, 2009
Common Stock, Par value $2.50	269,026,759

CNA Financial Corporation
Index

Item		Page
Number		Number
PART I. Financial Information
1.	Condensed Consolidated Financial Statements (Unaudited):
	Condensed Consolidated Statements of Operations for the Three and Six months ended June 30, 2009 and 2008		3
	Condensed Consolidated Statements of Comprehensive Income for the Three and Six months ended June 30, 2009 and 2008		5
	Condensed Consolidated Balance Sheets at June 30, 2009 and December 31, 2008		6
	Condensed Consolidated Statements of Cash Flows for the Six months ended June 30, 2009 and 2008		7
	Condensed Consolidated Statements of Equity for the Six months ended June 30, 2009 and 2008		9
	Notes to Condensed Consolidated Financial Statements		10
2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations		54
3.	Quantitative and Qualitative Disclosures About Market Risk		78
4.	Controls and Procedures		79
PART II. Other Information
1.	Legal Proceedings		80
4.	Submission of Matters to a Vote of Security Holders		80
6.	Exhibits		81
EX-10.1
EX-10.2
EX-10.3
EX-31.1
EX-31.2
EX-32.1
EX-32.2

CNA Financial Corporation (CNAF)

Part I. Financial Information

Item 1. Condensed Consolidated Financial Statements

Condensed Consolidated Statements of Operations (Unaudited)

	Three Months						Six Months
Periods ended June 30	2009			2008			2009			2008
(In millions, except per share data)
Revenues
Net earned premiums	$	1,656		$	1,774		$	3,328		$	3,587
Net investment income		675			576			1,095			1,010
Net realized investment losses, net of participating policyholders’ interests:
Other-than-temporary impairment losses		(484	)		(170	)		(1,098	)		(256	)
Portion of other-than-temporary impairment losses recognized in Other comprehensive income		89			—			89			—
Net impairment losses recognized in earnings		(395	)		(170	)		(1,009	)		(256	)
Other net realized investment gains		98			59			180			94
Net realized investment losses, net of participating policyholders’ interests		(297	)		(111	)		(829	)		(162	)
Other revenues		62			82			140			168
Total revenues		2,096			2,321			3,734			4,603
Claims, Benefits and Expenses
Insurance claims and policyholders’ benefits		1,294			1,472			2,636			2,861
Amortization of deferred acquisition costs		349			360			698			728
Other operating expenses		291			203			542			430
Interest		30			33			61			67
Total claims, benefits and expenses		1,964			2,068			3,937			4,086
Income (loss) from continuing operations before income tax		132			253			(203	)		517
Income tax (expense) benefit		(12	)		(62	)		138			(126	)
Income (loss) from continuing operations		120			191			(65	)		391
Income (loss) from discontinued operations, net of income tax (expense) benefit of $0, $0, $0 and $0		(1	)		2			(1	)		1
Net income (loss)		119			193			(66	)		392
Net income attributable to noncontrolling interests		(14	)		(12	)		(24	)		(24	)
Net income (loss) attributable to CNAF	$	105		$	181		$	(90	)	$	368
Income (Loss) Attributable to CNAF Common Stockholders
Income (loss) from continuing operations attributable to CNAF	$	106		$	179		$	(89	)	$	367
Less: Dividends on 2008 Senior Preferred		(32	)		—			(63	)		—
Income (loss) from continuing operations attributable to CNAF common stockholders		74			179			(152	)		367
Income (loss) from discontinued operations attributable to CNAF common stockholders		(1	)		2			(1	)		1
Income (loss) attributable to CNAF common stockholders	$	73		$	181		$	(153	)	$	368

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

3

	Three Months					Six Months
Periods ended June 30	2009			2008		2009			2008
(In millions, except per share data)
Basic and Diluted Earnings (Loss) Per Share Attributable to CNAF Common Stockholders
Income (loss) from continuing operations attributable to CNAF common stockholders	$	0.28		$	0.66	$	(0.56	)	$	1.36
Income (loss) from discontinued operations attributable to CNAF common stockholders		(0.01	)		0.01		(0.01	)		—
Basic and diluted earnings (loss) per share attributable to CNAF common stockholders	$	0.27		$	0.67	$	(0.57	)	$	1.36
Weighted Average Outstanding Common Stock and Common Stock Equivalents
Basic		269.0			269.0		269.0			269.9
Diluted		269.0			269.1		269.0			270.0

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

4

CNA Financial Corporation (CNAF)

Condensed Consolidated Statements of Comprehensive Income (Unaudited)

	Three Months						Six Months
Periods ended June 30	2009			2008			2009			2008
(In millions)
Net income (loss)	$	119		$	193		$	(66	)	$	392
Other comprehensive income (loss), net of tax
Changes in:
Net unrealized gains (losses) on investments		1,474			(161	)		1,875			(1,034	)
Unrealized gains (losses) on discontinued operations and other		2			(4	)		—			—
Foreign currency translation adjustment		79			2			71			(9	)
Pension and postretirement benefits		1			(1	)		3			(3	)
Allocation to participating policyholders		(19	)		—			(19	)		14
Other comprehensive income (loss), net of tax		1,537			(164	)		1,930			(1,032	)
Comprehensive income (loss)		1,656			29			1,864			(640	)
Net income attributable to noncontrolling interests		(14	)		(12	)		(24	)		(24	)
Other comprehensive (income) loss attributable to noncontrolling interests		(6	)		6			(11	)		8
Total comprehensive income (loss) attributable to CNAF	$	1,636		$	23		$	1,829		$	(656	)

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

5

CNA Financial Corporation (CNAF)

Condensed Consolidated Balance Sheets (Unaudited)

	June 30,			December 31,
	2009			2008
(In millions, except share data)
Assets
Investments:
Fixed maturity securities at fair value (amortized cost of $33,826 and $34,155)	$	31,040		$	28,887
Equity securities at fair value (cost of $667 and $1,016)		748			871
Limited partnership investments		1,780			1,683
Other invested assets		8			28
Short term investments		4,481			3,534
Total investments		38,057			35,003
Cash		98			85
Reinsurance receivables (less allowance for uncollectible receivables of $358 and $366)		6,979			7,395
Insurance receivables (less allowance for doubtful accounts of $212 and $221)		1,848			1,818
Accrued investment income		383			356
Receivables for securities sold and collateral		392			402
Deferred acquisition costs		1,145			1,125
Prepaid reinsurance premiums		240			237
Federal income tax recoverable (includes $495 and $299 due from Loews Corporation)		503			294
Deferred income taxes		2,537			3,493
Property and equipment at cost (less accumulated depreciation of $474 and $641)		378			393
Goodwill and other intangible assets		141			141
Other assets		474			562
Separate account business		413			384
Total assets	$	53,588		$	51,688
Liabilities and Equity
Liabilities:
Insurance reserves:
Claim and claim adjustment expenses	$	27,100		$	27,593
Unearned premiums		3,508			3,406
Future policy benefits		7,746			7,529
Policyholders’ funds		217			243
Collateral on loaned securities and derivatives		1			6
Payables for securities purchased		480			12
Participating policyholders’ funds		37			20
Long term debt		2,058			2,058
Reinsurance balances payable		350			316
Other liabilities		2,567			2,824
Separate account business		413			384
Total liabilities		44,477			44,391
Commitments and contingencies (Notes D, E, G, H, and J)
Equity:
Preferred stock (12,500,000 shares authorized) 2008 Senior Preferred (no par value; $100,000 stated value; 12,500 shares issued; held by Loews Corporation)		1,250			1,250
Common stock ($2.50 par value; 500,000,000 shares authorized; 273,040,243 shares issued; and 269,024,408 shares outstanding)		683			683
Additional paid-in capital		2,175			2,174
Retained earnings		6,814			6,845
Accumulated other comprehensive loss		(2,127	)		(3,924	)
Treasury stock (4,015,835 shares), at cost		(109	)		(109	)
Notes receivable for the issuance of common stock		(30	)		(42	)
Total CNAF stockholders’ equity		8,656			6,877
Noncontrolling interests		455			420
Total equity		9,111			7,297
Total liabilities and equity	$	53,588		$	51,688

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

6

CNA Financial Corporation (CNAF)
Condensed Consolidated Statements of Cash Flows (Unaudited)

Six months ended June 30
(In millions)	2009			2008
Cash Flows from Operating Activities:
Net income (loss)	$	(66	)	$	392
Adjustments to reconcile net income (loss) to net cash flows provided by operating activities:
(Income) loss from discontinued operations		1			(1	)
Loss on disposal of property and equipment		8			—
Deferred income tax benefit		(59	)		(44	)
Trading portfolio activity		(142	)		351
Net realized investment losses, net of participating policyholders’ interests		829			162
Undistributed losses (earnings) of equity method investees		(47	)		36
Net amortization of bond discount		(115	)		(137	)
Depreciation		42			36
Changes in:
Receivables, net		386			401
Accrued investment income		(27	)		6
Deferred acquisition costs		(20	)		(6	)
Prepaid reinsurance premiums		(3	)		(20	)
Federal income taxes recoverable		(209	)		22
Insurance reserves		(245	)		(148	)
Reinsurance balances payable		34			(28	)
Other assets		88			(23	)
Other liabilities		(159	)		(190	)
Other, net		3			1
Total adjustments		365			418
Net cash flows provided by operating activities-continuing operations	$	299		$	810
Net cash flows provided (used) by operating activities-discontinued operations	$	(12	)	$	2
Net cash flows provided by operating activities-total	$	287		$	812
Cash Flows from Investing Activities:
Purchases of fixed maturity securities	$	(12,402	)	$	(28,260	)
Proceeds from fixed maturity securities:
Sales		11,083			26,260
Maturities, calls and redemptions		1,723			2,464
Purchases of equity securities		(240	)		(133	)
Proceeds from sales of equity securities		440			132
Change in short term investments		(895	)		(430	)
Change in collateral on loaned securities and derivatives		(5	)		(63	)
Change in other investments		102			(153	)
Purchases of property and equipment		(33	)		(64	)
Other, net		(5	)		1
Net cash flows used by investing activities-continuing operations	$	(232	)	$	(246	)
Net cash flows provided by investing activities-discontinued operations	$	12		$	15
Net cash flows used by investing activities-total	$	(220	)	$	(231	)

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

7

Six months ended June 30
(In millions)	2009			2008
Cash Flows from Financing Activities:
Dividends paid to common stockholders		—			(81	)
Dividends paid to Loews Corporation for 2008 Senior Preferred		(63	)		—
Principal payments on debt		—			(150	)
Return of investment contract account balances		(10	)		(299	)
Receipts on investment contract account balances		2			2
Stock options exercised		—			1
Purchase of treasury stock		—			(70	)
Other, net		12			3
Net cash flows used by financing activities-continuing operations	$	(59	)	$	(594	)
Net cash flows used by financing activities-discontinued operations	$	—		$	—
Net cash flows used by financing activities-total	$	(59	)	$	(594	)
Effect of foreign exchange rate changes on cash-continuing operations		5			(1	)
Net change in cash		13			(14	)
Net cash transactions from continuing operations to discontinued operations		—			15
Net cash transactions from discontinued operations to continuing operations		—			(15	)
Cash, beginning of year		85			101
Cash, end of period	$	98		$	87
Cash-continuing operations	$	98		$	78
Cash-discontinued operations		—			9
Cash-total	$	98		$	87

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

8

CNA Financial Corporation (CNAF)
Condensed Consolidated Statements of Equity (Unaudited)

Six months ended June 30
(In millions)	2009			2008
Preferred Stock
Balance, beginning and end of period	$	1,250		$	—
Common Stock
Balance, beginning and end of period		683			683
Additional Paid-in Capital
Balance, beginning of period		2,174			2,169
Stock-based compensation and other		1			2
Balance, end of period		2,175			2,171
Retained Earnings
Balance, beginning of period		6,845			7,285
Cumulative effect adjustment from adoption of FSP FAS 115-2 and FAS 124-2 as of April 1, 2009, net of tax		122			—
Dividends paid to common stockholders		—			(81	)
Dividends paid to Loews Corporation for 2008 Senior Preferred		(63	)		—
Net income (loss) attributable to CNAF		(90	)		368
Balance, end of period		6,814			7,572
Accumulated Other Comprehensive Income (Loss)
Balance, beginning of period		(3,924	)		103
Cumulative effect adjustment from adoption of FSP FAS 115-2 and FAS 124-2 as of April 1, 2009, net of tax		(122	)		—
Other comprehensive income (loss) attributable to CNAF		1,919			(1,024	)
Balance, end of period		(2,127	)		(921	)
Treasury Stock
Balance, beginning of period		(109	)		(39	)
Purchase of treasury stock		—			(70	)
Balance, end of period		(109	)		(109	)
Notes Receivable for the Issuance of Common Stock
Balance, beginning of period		(42	)		(51	)
Decrease in notes receivable for the issuance of common stock		12			1
Balance, end of period		(30	)		(50	)
Total CNAF Stockholders’ Equity		8,656			9,346
Noncontrolling Interests
Balance, beginning of period		420			385
Net income		24			24
Other comprehensive income (loss)		11			(8	)
Other		—			(3	)
Balance, end of period		455			398
Total Equity	$	9,111		$	9,744

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

9

CNA Financial Corporation
Notes to Condensed Consolidated Financial Statements (Unaudited)

Note A. Basis of Presentation

The Condensed Consolidated Financial Statements (Unaudited) include the accounts of CNA Financial Corporation (CNAF) and its controlled subsidiaries. Collectively, CNAF and its subsidiaries are referred to as CNA or the Company. CNA’s property and casualty and the remaining life & group insurance operations are primarily conducted by Continental Casualty Company (CCC), The Continental Insurance Company (CIC), Continental Assurance Company (CAC) and CNA Surety Corporation (CNA Surety). The Company owned approximately 62% of the outstanding common stock of CNA Surety as of June 30, 2009. Loews Corporation (Loews) owned approximately 90% of the outstanding common stock of CNAF as of June 30, 2009.

The accompanying Condensed Consolidated Financial Statements have been prepared in conformity with accounting principles generally accepted in the United States of America (GAAP). Certain financial information that is normally included in annual financial statements, including certain financial statement notes, prepared in accordance with GAAP, is not required for interim reporting purposes and has been condensed or omitted. These statements should be read in conjunction with the Consolidated Financial Statements and notes thereto included in CNAF’s Form 10-K filed with the Securities and Exchange Commission (SEC) for the year ended December 31, 2008. The preparation of Condensed Consolidated Financial Statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the Condensed Consolidated Financial Statements and the reported amounts of revenues and expenses during the reporting periods. Actual results may differ from those estimates.

The interim financial data as of June 30, 2009 and for the three and six months ended June 30, 2009 and 2008 is unaudited. However, in the opinion of management, the interim data includes all adjustments, consisting of normal recurring accruals, necessary for a fair statement of the Company’s results for the interim periods. The results of operations for the interim periods are not necessarily indicative of the results to be expected for the full year. All significant intercompany amounts have been eliminated. For the period ended June 30, 2009, management has evaluated all subsequent events through the filing date of August 3, 2009.

10

Note B. Accounting Pronouncements

Adopted in the second quarter of 2009

Financial Accounting Standards Board (FASB) Staff Position (FSP) FAS 107-1 and Accounting Principles Board (APB) APB 28-1, Interim Disclosures about Fair Value of Financial Instruments (FSP FAS 107-1 and APB 28-1)

In April 2009, the FASB issued FSP FAS 107-1 and APB 28-1 which increased the frequency of disclosures regarding fair value of financial instruments, requiring the disclosures in interim as well as annual financial statements. These disclosures were previously required on an annual basis only. The adoption of FSP FAS 107-1 and APB 28-1 had no impact on the Company’s financial condition or results of operations. The Company has complied with the interim disclosure requirements in Note F.

FSP FAS 115-2 and FAS 124-2, Recognition and Presentation of Other-Than-Temporary Impairments (FSP FAS 115-2 and FAS 124-2)

In April 2009, the FASB issued FSP FAS 115-2 and FAS 124-2, which amended the other-than-temporary impairment (OTTI) loss model for fixed maturity securities. A fixed maturity security is impaired if the fair value of the security is less than its amortized cost basis, which is its cost adjusted for accretion, amortization and previously recorded OTTI losses. FSP FAS 115-2 and FAS 124-2 requires an OTTI loss equal to the difference between fair value and amortized cost to be recognized in earnings if the Company intends to sell the fixed maturity security or if it is more likely than not the Company will be required to sell the fixed maturity security before recovery of its amortized cost basis.

The remaining fixed maturity securities in an unrealized loss position are evaluated to determine if a credit loss exists. If the Company does not expect to recover the entire amortized cost basis of a fixed maturity security, the security is deemed to be other-than-temporarily impaired for credit reasons. For these securities, FSP FAS 115-2 and FAS 124-2 requires the bifurcation of OTTI losses into a credit component and a non-credit component. The credit component is recognized in earnings and represents the difference between the present value of the future cash flows that the Company expects to collect and a fixed maturity security’s amortized cost basis. The non-credit component is recognized in other comprehensive income and represents the difference between fair value and the present value of the future cash flows that the Company expects to collect.

Prior to the adoption of FSP FAS 115-2 and FAS 124-2, OTTI losses were not bifurcated between credit and non-credit components. The difference between fair value and amortized cost was recognized in earnings for all securities for which the Company did not expect to recover the amortized cost basis, or for which the Company did not have the ability and intent to hold until recovery of fair value to amortized cost.

The adoption of FSP FAS 115-2 and FAS 124-2 as of April 1, 2009 resulted in a cumulative effect adjustment of $122 million, net of tax, which was reclassified to Accumulated other comprehensive income (AOCI) from Retained earnings on the Condensed Consolidated Statement of Equity. The cumulative effect adjustment represents the non-credit component of those previously impaired fixed maturity securities that are still considered OTTI, and the entire amount previously recorded as an OTTI loss on fixed maturity securities no longer considered OTTI as of April 1, 2009. FSP FAS 115-2 and FAS 124-2 also prospectively requires disclosures regarding expected cash flows, credit losses, and additional security types within the aging of securities with unrealized losses for each reporting period. The Company has complied with the additional prospective disclosure requirements in Note D.

11

FSP FAS 157-4, Determining Fair Value When the Volume and Level of Activity for the Asset or Liability Have Significantly Decreased and Identifying Transactions That Are Not Orderly (FSP FAS 157-4)

In April 2009, the FASB issued FSP FAS 157-4 which requires entities to assess whether certain factors exist that indicate that the volume and level of market activity for an asset or liability have decreased or that transactions are not orderly. If, after evaluating those factors, the evidence indicates there has been a significant decrease in the volume and level of activity in relation to normal market activity, observed transactional values or quoted prices may not be determinative of fair value and adjustment to the observed transactional values or quoted prices may be necessary to estimate fair value. FSP FAS 157-4 also prospectively expands and increases the frequency of existing disclosures related primarily to additional security types and valuation methodologies. The adoption of FSP FAS 157-4 had no impact on the Company’s financial condition or results of operations. The Company has complied with the additional disclosure requirements in Note F.

Recently issued accounting pronouncements to be adopted

Statement of Financial Accounting Standard (SFAS) No. 167, Amendments to FASB Interpretation No. 46(R) (SFAS 167)

In June 2009, the FASB issued SFAS 167 which amends the requirements for determination of the primary beneficiary of a variable interest entity, requires an ongoing assessment of whether an entity is the primary beneficiary and requires enhanced interim and annual disclosures. SFAS 167 is effective for annual reporting periods beginning after November 15, 2009. The Company is currently evaluating whether SFAS 167 will have any impact on its financial condition or results of operations.

12

Note C. Earnings (Loss) Per Share

Earnings (loss) per share attributable to CNAF’s common stockholders is based on weighted average outstanding shares. Basic earnings (loss) per share excludes dilution and is computed by dividing net income (loss) attributable to CNAF by the weighted average number of common shares outstanding for the period. Diluted earnings per share reflects the potential dilution that could occur if securities or other contracts to issue common stock were exercised or converted into common stock.

For the three months ended June 30, 2009, approximately 20 thousand potential shares attributable to exercises under stock-based employee compensation plans were included in the calculation of diluted earnings per share. For the three months ended June 30, 2009, approximately 2 million potential shares attributable to exercises under stock-based employee compensations plans were not included in the calculation of diluted earnings per share because the effect would have been antidilutive. For the six months ended June 30, 2009, as a result of the net loss, no potential shares attributable to exercises under stock-based employee compensation plans were included in the calculation of loss per share as the effect would have been antidilutive.

For the three and six months ended June 30, 2008, approximately 100 thousand potential shares attributable to exercises under stock-based employee compensation plans were included in the calculation of diluted earnings per share. For the three and six months ended June 30, 2008, approximately 1 million potential shares attributable to exercises under stock-based employee compensation plans were not included in the calculation of diluted earnings per share because the effect would have been antidilutive.

The 2008 Senior Preferred Stock (2008 Senior Preferred) was issued in November 2008 and accrues cumulative dividends at an initial rate of 10% per year. If declared, dividends are payable quarterly and any dividends not declared or paid when due will be compounded quarterly. Dividends of $32 million and $63 million on the 2008 Senior Preferred were declared and paid for the three and six months ended June 30, 2009.

No common stock dividends were declared or paid for the three or six months ended June 30, 2009. Dividends of $0.15 and $0.30 per share of common stock were declared and paid for the three and six months ended June 30, 2008.

13

Note D. Investments

The significant components of net investment income are presented in the following table. During the second quarter of 2009, the Company resumed the use of a trading portfolio for income enhancement purposes.

Net Investment Income

Periods ended June 30	Three Months						Six Months
(In millions)	2009			2008			2009			2008
Fixed maturity securities	$	487		$	476		$	962		$	994
Short term investments		11			26			21			65
Limited partnerships		165			46			95			7
Equity securities		14			39			28			44
Trading portfolio — Indexed Group Annuity (a)		—			(5	)		—			(81	)
Trading portfolio — Other (b)		8			1			8			—
Other		1			5			4			11
Gross investment income		686			588			1,118			1,040
Investment expense		(11	)		(12	)		(23	)		(30	)
Net investment income	$	675		$	576		$	1,095		$	1,010

(a)	The gains (losses) related to the Indexed Group Annuity trading portfolio, including the net unrealized gains (losses), were substantially offset by a corresponding change in the policyholders’ funds reserves supported by this trading portfolio, which was included in Insurance claims and policyholders’ benefits on the Condensed Consolidated Statements of Operations.
(b)	The net unrealized gains on trading securities still held included in net investment income was $1 million for the three and six months ended June 30, 2009.

Net realized investment gains (losses) are presented in the following table.

Net Realized Investment Gains (Losses)

Periods ended June 30	Three Months						Six Months
(In millions)	2009			2008			2009			2008
Net realized investment gains (losses):
Fixed maturity securities:
Gross realized gains	$	100		$	83		$	204		$	200
Gross realized losses		(492	)		(241	)		(954	)		(360	)
Net realized investment losses on fixed maturity securities		(392	)		(158	)		(750	)		(160	)
Equity securities:
Gross realized gains		73			7			77			11
Gross realized losses		(9	)		(21	)		(229	)		(40	)
Net realized investment gains (losses) on equity securities		64			(14	)		(152	)		(29	)
Derivatives		33			56			64			12
Short term investments and other		(2	)		5			9			15
Net realized investment losses, net of participating policyholders’ interests	$	(297	)	$	(111	)	$	(829	)	$	(162	)

A security is impaired if the fair value of the security is less than its cost adjusted for accretion, amortization and previously recorded OTTI losses, otherwise defined as an unrealized loss. When a security is impaired, the impairment is evaluated to determine whether it is temporary or other-than-temporary.

Significant judgment is required in the determination of whether an OTTI loss has occurred for a security. The Company follows a consistent and systematic process for determining and recording an OTTI loss.

14

The Company has established a committee responsible for the OTTI process. This committee, referred to as the Impairment Committee, is made up of three officers appointed by the Company’s Chief Financial Officer. The Impairment Committee is responsible for evaluating securities in an unrealized loss position on at least a quarterly basis.

The Impairment Committee’s assessment of whether an OTTI loss has occurred incorporates both quantitative and qualitative information. Fixed maturity securities that the Company intends to sell, or it more likely than not will be required to sell before recovery of amortized cost, are considered to be other-than-temporarily impaired and the entire difference between the amortized cost basis and fair value of the security is recognized as an OTTI loss in earnings. The remaining fixed maturity securities in an unrealized loss position are evaluated to determine if a credit loss exists. In order to determine if a credit loss exists, the factors considered by the Impairment Committee include (a) the financial condition and near term prospects of the issuer, (b) whether the debtor is current on interest and principal payments, (c) credit ratings of the securities and (d) general market conditions and industry or sector specific outlook. The Company also considers results and analysis of cash flow modeling for asset-backed securities, and when appropriate, other fixed maturity securities. The focus of the analysis for asset-backed securities is on assessing the sufficiency and quality of underlying collateral and timing of cash flows based on scenario tests. If the present value of the modeled expected cash flows equals or exceeds the amortized cost of a security, no credit loss is judged to exist and the asset-backed security is deemed to be temporarily impaired. If the present value of the expected cash flows is less than amortized cost, the security is judged to be other-than-temporarily impaired for credit reasons and that shortfall, referred to as the credit component, is recognized as an OTTI loss in earnings. The difference between the adjusted amortized cost basis and fair value, referred to as the non-credit component, is recognized as an OTTI loss in Other comprehensive income.

The Company performs the discounted cash flow analysis using distressed scenarios to determine future expectations regarding recoverability. For asset-backed securities significant assumptions enter into these cash flow projections including delinquency rates, probable risk of default, loss severity upon a default, over collateralization and interest coverage triggers, credit support from lower level tranches and impacts of rating agency downgrades. The discount rate utilized is either the yield at acquisition or, for lower rated structured securities, the current yield.

The Company applies the same impairment model as described above for the majority of the non-redeemable preferred stock securities. For all other equity securities, in determining whether the security is other-than-temporarily impaired, the Impairment Committee considers a number of factors including, but not limited to: (a) the length of time and the extent to which the fair value has been less than amortized cost, (b) the financial condition and near term prospects of the issuer, (c) the intent and ability of the Company to retain its investment for a period of time sufficient to allow for an anticipated recovery in value and (d) general market conditions and industry or sector specific outlook.

Prior to adoption of FSP FAS 115-2 and FAS 124-2, the Company applied the impairment model described above for all other equity securities to both debt and equity securities.

15

The following table provides a summary of fixed maturity and equity securities.

Summary of Fixed Maturity and Equity Securities

					Gross Unrealized Losses
	Cost or		Gross						Estimated		Unrealized
June 30, 2009	Amortized		Unrealized		Less than		12 Months		Fair		OTTI
(In millions)	Cost		Gains		12 Months		or Greater		Value		Losses
Fixed maturity securities available-for-sale:
U.S. Treasury securities and obligations of government agencies	$	1,008	$	43	$	80	$	—	$	971	$	—
Asset-backed securities:
Residential mortgage-backed securities		7,457		41		308		926		6,264		141
Commercial mortgage-backed securities		901		1		10		240		652		7
Other asset-backed securities		476		9		1		54		430		—
Total asset-backed securities		8,834		51		319		1,220		7,346		148
States, municipalities and political subdivisions — tax-exempt securities		8,289		106		263		494		7,638		—
Corporate and other taxable bonds		15,526		543		564		582		14,923		2
Redeemable preferred stock		69		2		5		4		62		—
Total fixed maturity securities available-for-sale		33,726		745		1,231		2,300		30,940	$	150
Total fixed maturity securities trading		100		—		—		—		100
Equity securities available-for-sale:
Common stock		89		206		—		3		292
Preferred stock		578		31		41		112		456
Total equity securities available-for-sale		667		237		41		115		748
Total	$	34,493	$	982	$	1,272	$	2,415	$	31,788

Summary of Fixed Maturity and Equity Securities

					Gross Unrealized Losses
	Cost or		Gross						Estimated
December 31, 2008	Amortized		Unrealized		Less than		12 Months		Fair
(In millions)	Cost		Gains		12 Months		or Greater		Value
Fixed maturity securities available-for-sale:
U.S. Treasury securities and obligations of government agencies	$	2,862	$	69	$	1	$	—	$	2,930
Asset-backed securities		9,670		24		961		969		7,764
States, municipalities and political subdivisions — tax-exempt securities		8,557		90		609		623		7,415
Corporate and other taxable bonds		12,993		275		1,164		1,374		10,730
Redeemable preferred stock		72		1		23		3		47
Total fixed maturity securities available-for-sale		34,154		459		2,758		2,969		28,886
Total fixed maturity securities trading		1		—		—		—		1
Equity securities available-for-sale:
Common stock		134		190		1		3		320
Preferred stock		882		5		15		321		551
Total equity securities available-for-sale		1,016		195		16		324		871
Total	$	35,171	$	654	$	2,774	$	3,293	$	29,758

16

The amount of net unrealized losses on available-for-sale securities reclassified out of AOCI into earnings was $328 million pretax for the three months ended June 30, 2009.

Activity for the three months ended June 30, 2009 related to the pretax fixed maturity credit loss component reflected within Retained earnings for securities still held, was as follows.

(In millions)	Three Months ended
	June 30, 2009
Beginning balance of credit losses on fixed maturity securities	$	192
Additional credit losses for which an OTTI loss was previously recognized		21
Additional credit losses for which an OTTI loss was not previously recognized		84
Reductions for securities sold during the period		(36	)
Reductions for securities the Company intends to sell or more likely than not will be required to sell		(49	)
Ending balance of credit losses on fixed maturity securities	$	212

Based on current facts and circumstances, the Company has determined that no additional OTTI losses related to the securities in an unrealized loss position presented in the June 30, 2009 Summary of Fixed Maturity and Equity Securities table above are required to be recorded. A discussion of some of the factors reviewed in making that determination is presented below.

The classification between investment grade and non-investment grade presented in the discussion below is based on a ratings methodology that takes into account ratings from the three major providers, Standard & Poors (S&P), Moody’s Investor Services, Inc. (Moody’s) and Fitch Ratings (Fitch) in that order of preference. If a security is not rated by any of the three, the Company formulates an internal rating. For securities with credit support from third party guarantees, the rating reflects the greater of the underlying rating of the issuer or the insured rating.

The market disruption that emerged in 2008 has subsided moderately during the second quarter of 2009. While the government has initiated programs intended to stabilize and improve markets and the economy, the ultimate impact of these programs remains uncertain and economic conditions in the U.S. remain challenging. As a result, the Company incurred realized losses in its investment portfolio during both the first and second quarters of 2009 which have adversely impacted its results of operations. The first quarter losses were primarily driven by the continuing credit issues attributable to the asset-backed and financial sectors. The second quarter losses were primarily driven by the actual and anticipated impact of difficult economic conditions on residential and commercial mortgage-backed securities.

Asset-Backed Securities

The unrealized losses on the Company’s investments in asset-backed securities are due to a combination of factors related to the market disruption caused by credit concerns that began with the sub-prime issue, but then also extended into other collateral supporting securities in the Company’s portfolio. The fair value of these securities does not tend to be influenced by the credit of the issuer but rather the characteristics and projected cash flows of the underlying collateral.

Residential mortgage-backed securities include 333 structured securities in a gross unrealized loss position. In addition, there were 110 agency mortgage-backed pass-through securities in a gross unrealized loss position, which are guaranteed by agencies of the U.S. Government. The aggregate severity of the gross unrealized loss was approximately 21% of amortized cost.

Commercial mortgage-backed securities include 60 securities in a gross unrealized loss position. The aggregate severity of the gross unrealized loss was approximately 31% of amortized cost.

Other asset-backed securities include 19 securities in a gross unrealized loss position. The aggregate severity of the gross unrealized loss was approximately 18% of amortized cost.

17

The following table summarizes asset-backed securities in a gross unrealized loss position by ratings distribution at June 30, 2009.

Gross Unrealized Losses by Ratings Distribution

June 30, 2009
(In millions)

					Gross
	Amortized		Estimated		Unrealized
Rating	Cost		Fair Value		Loss
U.S. Government Agencies	$	732	$	714	$	18
AAA		4,327		3,431		896
AA		491		308		183
A		427		249		178
BBB		353		269		84
Non-investment grade and equity tranches		657		477		180
Total	$	6,987	$	5,448	$	1,539

The Company believes the unrealized losses were primarily attributable to broader economic conditions, liquidity concerns and wider than historical bid/ask spreads brought about as a result of portfolio liquidations and is not indicative of the quality of the underlying collateral. The Company has no current intent to sell these securities, nor is it more likely than not that it will be required to sell prior to recovery of amortized cost. Generally, non-investment grade securities relate to investments which were investment grade at the time of purchase but have subsequently been downgraded and are primarily related to holdings senior to the equity tranche. Additionally, the Company has judged that the unrealized losses on these securities were not due to factors regarding credit worthiness, collateral shortfalls, or substantial changes in future cash flow expectations and, as such, the Company has determined that there are no additional OTTI losses to be recorded at June 30, 2009.

For the six months ended June 30, 2009, OTTI losses of $480 million were recognized in earnings on the Condensed Consolidated Statement of Operations related to asset-backed securities, reflecting $268 million related to residential mortgage-backed securities, $181 million related to commercial mortgage-backed securities and $31 million related to other asset-backed securities.

States, Municipalities and Political Subdivisions — Tax-Exempt Securities

The unrealized losses on the Company’s investments in tax-exempt municipal securities are due to overall market conditions, changes in credit spreads, and to a lesser extent, changes in interest rates. Market conditions in the tax-exempt sector have improved during the first half of 2009; however, yields for certain issuers and types of securities, such as auction rate and tobacco securitizations, continue to be higher than historical norms relative to after-tax returns on alternative classes. The holdings for all tax-exempt securities in this category include 573 securities in a gross unrealized loss position. The aggregate severity of the total gross unrealized losses was approximately 14% of amortized cost.

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The following table summarizes the ratings distribution of tax-exempt securities in a gross unrealized loss position at June 30, 2009.

Gross Unrealized Losses by Ratings Distribution

June 30, 2009
(In millions)

					Gross
	Amortized		Estimated		Unrealized
Rating	Cost		Fair Value		Loss
AAA	$	1,673	$	1,548	$	125
AA		1,883		1,669		214
A		1,015		913		102
BBB		943		627		316
Total	$	5,514	$	4,757	$	757

The portfolio consists primarily of special revenue and assessment bonds, representing 93% of the overall portfolio, followed by state general obligation bonds at 4% and general obligation political subdivision bonds at 3%.

The largest exposures at June 30, 2009 as measured by gross unrealized losses were special revenue bonds issued by several states backed by tobacco settlement funds with gross unrealized losses of $284 million, and several separate issues of Puerto Rico Sales Tax revenue bonds with gross unrealized losses of $86 million. All of these securities are investment grade.

The Company has no current intent to sell these securities, nor is it more likely than not that it will be required to sell prior to recovery of amortized cost. Additionally, the Company has judged that the unrealized losses on these securities were not due to factors regarding credit worthiness and, as such, the Company has determined that there are no additional OTTI losses to be recorded at June 30, 2009.

The tax-exempt portfolio includes auction rate securities primarily issued by student loan agencies from nine states which are substantially guaranteed by The Federal Family Education Loan Program (FFELP). These securities had a fair value at June 30, 2009 of $745 million, no gross unrealized gains and gross unrealized losses of $36 million. At June 30, 2009 none of the auction rate securities held was paying below market penalty rates. The average rating on these holdings was AAA.

The obligations of both the State of California and political subdivisions in that State have not recovered as much as the majority of the municipal market, reflecting both the heavy impact that the current national recession has had on the California tax base as well as the political difficulties that the State had in reaching agreement on a budget. At June 30, 2009, the Company owned securities issued by 71 California obligors, with a fair value of $514 million, $8 million of gross unrealized gains and $61 million of gross unrealized losses.

For the six months ended June 30, 2009, OTTI losses of $15 million were recognized in earnings on the Condensed Consolidated Statement of Operations related to tax-exempt securities.

19

Corporate and Other Taxable Bonds

The holdings in this category include 608 securities in a gross unrealized loss position. The aggregate severity of the gross unrealized losses was approximately 15% of amortized cost.

The following tables summarize corporate and other taxable bonds in a gross unrealized loss position at June 30, 2009 across industry sectors and by ratings distribution.

Gross Unrealized Losses by Industry Sector

June 30, 2009
(In millions)

			Estimated		Gross
	Amortized Cost		Fair Value		Unrealized Loss
Communications	$	939	$	853	$	86
Consumer, Cyclical		927		781		146
Consumer, Non-cyclical		504		441		63
Energy		609		547		62
Financial		2,446		1,932		514
Industrial		537		472		65
Utilities		859		730		129
Other		673		592		81
Total	$	7,494	$	6,348	$	1,146

Gross Unrealized Losses by Ratings Distribution

June 30, 2009
(In millions)

			Estimated		Gross
Rating	Amortized Cost		Fair Value		Unrealized Loss
AAA	$	323	$	308	$	15
AA		285		274		11
A		1,269		1,080		189
BBB		3,540		3,001		539
Non-investment grade		2,077		1,685		392
Total	$	7,494	$	6,348	$	1,146

The unrealized losses on corporate and other taxable bonds were primarily attributable to deterioration and volatility in the broader credit markets throughout 2008 that resulted in widening of credit spreads over risk free rates well beyond historical norms and macro conditions in certain sectors that the market viewed as out of favor. These conditions generally continued into 2009 but have improved from the lows in 2008. The Company has no current intent to sell these securities, nor is it more likely than not that it will be required to sell prior to recovery of amortized cost. Additionally, the Company has judged that the unrealized losses were not due to factors regarding credit worthiness and, as such, the Company has determined that there are no additional OTTI losses to be recorded at June 30, 2009.

The Company has invested in securities with characteristics of both debt and equity investments, often referred to as hybrid debt securities. Such securities are typically debt instruments issued with long or extendable maturity dates, may provide for the ability to defer interest payments without defaulting and are usually lower in the capital structure of the issuer than traditional bonds. The financial industry sector presented above includes hybrid debt securities with an aggregate fair value of $593 million and an aggregate amortized cost of $855 million.

For the six months ended June 30, 2009, OTTI losses of $284 million were recognized in earnings on the Condensed Consolidated Statement of Operations related to corporate and other taxable bonds.

Non-Redeemable Preferred Stock

The unrealized losses on the Company’s investments in non-redeemable preferred stock were caused by similar factors as those that affected the Company’s corporate bond portfolio. Approximately 81% of the gross unrealized losses in this category come from securities issued by financial institutions and 19% from

20

utilities. The holdings in this category include 24 securities in a gross unrealized loss position. The following table summarizes non-redeemable preferred stocks in a gross unrealized loss position at June 30, 2009 by ratings distribution.

Gross Unrealized Losses by Ratings Distribution

June 30, 2009
(In millions)

			Estimated		Gross
Rating	Amortized Cost		Fair Value		Unrealized Loss
A	$	104	$	75	$	29
BBB		421		304		117
Non-investment grade		18		11		7
Total	$	543	$	390	$	153

The Company believes the holdings in this category have been adversely impacted by significant credit spread widening brought on by a combination of factors in the capital markets. The majority of securities in this category are related to the banking and mortgage industries and are experiencing what the Company believes to be temporarily depressed valuations. The Company has no current intent to sell these securities, nor is it more likely than not it will be required to sell prior to recovery of amortized cost. Additionally, the Company has judged that the unrealized losses on these securities were not due to factors regarding credit worthiness and, as such, the Company has determined that there are no additional OTTI losses to be recorded at June 30, 2009. This evaluation was made on the basis that these securities possess characteristics similar to debt securities and maintain their ability to pay dividends.

For the six months ended June 30, 2009, OTTI losses of $217 million were recognized in earnings on the Condensed Consolidated Statement of Operations on non-redeemable preferred stock, including $188 million related to a major U.S. financial institution.

Contractual Maturity

The following table summarizes available-for-sale fixed maturity securities by contractual maturity at June 30, 2009 and December 31, 2008. Actual maturities may differ from contractual maturities because certain securities may be called or prepaid with or without call or prepayment penalties. Securities not due at a single date are allocated based on weighted average life.

Contractual Maturity

	June 30, 2009				December 31, 2008
	Cost or		Estimated		Cost or		Estimated
	Amortized		Fair		Amortized		Fair
(In millions)	Cost		Value		Cost		Value
Due in one year or less	$	1,280	$	1,203	$	3,105	$	2,707
Due after one year through five years		9,247		8,718		10,295		9,210
Due after five years through ten years		8,020		7,421		5,929		4,822
Due after ten years		15,179		13,598		14,825		12,147
Total	$	33,726	$	30,940	$	34,154	$	28,886

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Limited Partnerships

The carrying value of limited partnerships as of June 30, 2009 and December 31, 2008 was approximately $1.8 billion and $1.7 billion. At June 30, 2009, limited partnerships comprising 47% of the total carrying value are reported on a current basis through June 30, 2009 with no reporting lag, 43% are reported on a one month lag and the remainder are reported on more than a one month lag. As of June 30, 2009 and December 31, 2008, the Company had 79 and 82 active limited partnership investments. The number of limited partnerships held and the strategies employed provide diversification to the limited partnership portfolio and the overall invested asset portfolio. The Company does not generally invest in highly leveraged partnerships.

Of the limited partnerships held, 91% or approximately $1.6 billion in carrying value at June 30, 2009 and 89% or approximately $1.5 billion in carrying value at December 31, 2008, employ strategies that generate returns through investing in securities that are marketable while engaging in various management techniques primarily in public fixed income and equity markets. These hedge fund strategies include both long and short positions in fixed income, equity and derivative instruments. The hedge fund strategies may seek to generate gains from mispriced or undervalued securities, price differentials between securities, distressed investments, sector rotation, or various arbitrage disciplines. Within hedge fund strategies, approximately 46% are equity related, 30% pursue a multi-strategy approach, 19% are focused on distressed investments and 5% are fixed income related.

Limited partnerships representing 6% or $110 million at June 30, 2009 and 7% or $126 million at December 31, 2008 were invested in private equity. The remaining 3% or $48 million at June 30, 2009 and 4% or $61 million at December 31, 2008 were invested in various other partnerships including real estate. The ten largest limited partnership positions held totaled $1,094 million and $915 million as of June 30, 2009 and December 31, 2008. Based on the most recent information available regarding the Company’s percentage ownership of the individual limited partnerships, the carrying value reflected on the Condensed Consolidated Balance Sheets represents approximately 4% and 3% of the aggregate partnership equity at June 30, 2009 and December 31, 2008, and the related income reflected on the Condensed Consolidated Statements of Operations represents approximately 4% and 3% of the changes in partnership equity for all limited partnership investments for the six months ended June 30, 2009 and 2008.

The risks associated with limited partnership investments may include losses due to leveraging, short-selling, derivatives or other speculative investment practices. The use of leverage increases the level of returns and volatility generated by the underlying investment strategies.

Investment Commitments

As of June 30, 2009, the Company had committed approximately $262 million to future capital calls from various third-party limited partnership investments in exchange for an ownership interest in the related partnerships.

The Company invests in multiple bank loan participations as part of its overall investment strategy and has committed to additional future purchases and sales. The purchase and sale of these investments are recorded on the date that the legal agreements are finalized and cash settlement is made. As of June 30, 2009, the Company had commitments to purchase $197 million and sell $148 million of various bank loan participations. When loan participation purchases are settled and recorded they may contain both funded and unfunded amounts. An unfunded loan represents an obligation by the Company to provide additional amounts under the terms of the loan participation. The funded portions are reflected on the Condensed Consolidated Balance Sheets, while any unfunded amounts are not recorded until a draw is made under the loan facility. As of June 30, 2009, the Company had obligations on unfunded bank loan participations in the amount of $2 million.

22

Note E. Derivative Financial Instruments

The Company uses derivatives in the normal course of business, primarily in an attempt to reduce its exposure to market risk (principally interest rate risk, equity stock price risk and foreign currency risk) stemming from various assets and liabilities and credit risk (the ability of an obligor to make timely payment of principal and/or interest). The Company’s principal objective under such risk strategies is to achieve the desired reduction in economic risk, even if the position does not receive hedge accounting treatment. The Company infrequently applies hedge accounting treatment to derivative hedging transactions.

The Company’s use of derivatives is limited by statutes and regulations promulgated by the various regulatory bodies to which it is subject, and by its own derivative policy. The derivative policy limits the authorization to initiate derivative transactions to certain personnel. Derivatives entered into for hedging, regardless of the choice to designate hedge accounting, shall have a maturity that effectively correlates to the underlying hedged asset or liability. The policy prohibits the use of derivatives containing greater than one-to-one leverage with respect to changes in the underlying price, rate or index. The policy also prohibits the use of borrowed funds, including funds obtained through securities lending, to engage in derivative transactions.

The Company has exposure to economic losses due to interest rate risk arising from changes in the level of, or volatility of, interest rates. The Company attempts to mitigate its exposure to interest rate risk through portfolio management, which includes rebalancing its existing portfolios of assets and liabilities, as well as changing the characteristics of investments to be purchased or sold in the future. In addition, various derivative financial instruments are used to modify the interest rate risk exposures of certain assets and liabilities. These strategies include the use of interest rate swaps, interest rate caps and floors, options, futures, forwards and commitments to purchase securities. These instruments are generally used to lock interest rates or market values, to shorten or lengthen durations of fixed maturity securities or investment contracts, or to hedge (on an economic basis) interest rate risks associated with investments and variable rate debt.

The Company is exposed to equity price risk as a result of its investment in equity securities and equity derivatives. Equity price risk results from changes in the level or volatility of equity prices, which affect the value of equity securities, or instruments that derive their value from such securities. The Company attempts to mitigate its exposure to such risks by limiting its investment in any one security or index. The Company may also manage this risk by utilizing instruments such as options, swaps, futures and collars to protect appreciation in securities held.

The Company has exposure to credit risk arising from the uncertainty associated with a financial instrument obligor’s ability to make timely principal and/or interest payments. The Company attempts to mitigate this risk by limiting credit concentrations, practicing diversification, and frequently monitoring the credit quality of issuers and counterparties. In addition, the Company may utilize credit derivatives such as credit default swaps (CDS) to modify the credit risk inherent in certain investments. Credit default swaps involve a transfer of credit risk from one party to another in exchange for periodic payments.

Foreign exchange rate risk arises from the possibility that changes in foreign currency exchange rates will impact the fair value of financial instruments denominated in a foreign currency. The Company’s foreign transactions are primarily denominated in British pounds, Euros and Canadian dollars. The Company typically manages this risk via asset/liability currency matching and through the use of foreign currency forwards.

In addition to the derivatives used for risk management purposes described above, the Company may also use derivatives for purposes of income enhancement. Income enhancement transactions are entered into with the intention of providing additional income or yield to a particular portfolio segment or instrument. Income enhancement transactions are limited in scope and primarily involve the sale of covered options in which the Company receives a premium in exchange for selling a call or put option.

The Company will also use CDS to sell credit protection against a specified credit event. In selling credit protection, CDS are used to replicate fixed income securities when credit exposure to certain issuers is not

23

available or when it is economically beneficial to transact in the derivative market compared to the cash market alternative. Credit risk includes both the default event risk and market value exposure due to fluctuations in credit spreads. In selling CDS protection, the Company receives a periodic premium in exchange for providing credit protection on a single name reference obligation or a credit derivative index. If there is an event of default as defined by the CDS agreement, the Company is required to pay the counterparty the referenced notional amount of the CDS contract and in exchange the Company is entitled to receive the referenced defaulted security or the cash equivalent.

At June 30, 2009 and December 31, 2008, the Company had $33 million and $148 million notional value of outstanding CDS contracts where the Company sold credit protection. The maximum payment related to these CDS contracts was $33 million and $148 million assuming there was no residual value in the defaulted securities that the Company would receive as part of the contract terminations. The fair value of these contracts at June 30, 2009 and December 31, 2008 was a liability of $1 million and $43 million which represents the amount that the Company would have to pay at those dates to exit these derivative positions.

The tables below summarize CDS contracts where the Company sold credit protection as of June 30, 2009 and December 31, 2008. The largest single reference obligation as of June 30, 2009 represented 76% of the total notional value and was rated BBB. The largest single reference obligation as of December 31, 2008 represented 20% of the total notional value and was rated AAA.

Credit Ratings of Underlying Reference
Obligations

June 30, 2009
(In millions)

						Weighted
	Fair Value of			Maximum Amount of		Average
	Credit Default			Future Payments under		Years
	Swaps			Credit Default Swaps		to Maturity
BBB	$	—		$	25		0.5
B		(1	)		8		3.6
Total	$	(1	)	$	33		1.2

Credit Ratings of Underlying Reference
Obligations

December 31, 2008
(In millions)

						Weighted
	Fair Value of			Maximum Amount of		Average
	Credit Default			Future Payments under		Years
	Swaps			Credit Default Swaps		to Maturity
AAA/AA/A	$	(8	)	$	40		12.3
BBB		(4	)		55		3.1
B		(2	)		8		4.1
CCC and lower		(29	)		45		4.5
Total	$	(43	)	$	148		6.1

Credit exposure associated with non-performance by the counterparties to derivative instruments is generally limited to the uncollateralized fair value of the asset related to the instruments recognized on the Condensed Consolidated Balance Sheets. The Company attempts to mitigate the risk of non-performance by monitoring the creditworthiness of counterparties and diversifying derivatives to multiple counterparties. The Company generally requires that all over-the-counter derivative contracts be governed by an International Swaps and Derivatives Association (ISDA) Master Agreement, and exchanges collateral under the terms of these agreements with its derivative investment counterparties depending on the amount of the exposure and the credit rating of the counterparty. The Company does not offset its net derivative positions against the fair value of the collateral provided. The fair value of cash collateral provided by the Company was $22 million and $74 million at June 30, 2009 and December 31, 2008. The

24

fair value of cash collateral received from counterparties was $1 million and $6 million at June 30, 2009 and December 31, 2008.

See Note F for information regarding the fair value of derivatives securities. The Company’s accounting for changes in the fair value of derivatives not held in a trading portfolio is reported in Net realized investment gains (losses) on the Condensed Consolidated Statements of Operations.

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

Recognized Gains (Losses)

Periods ended June 30	Three Months						Six Months
(In millions)	2009			2008			2009			2008
Without hedge designation
Interest rate swaps	$	40		$	25		$	61		$	2
Credit default swaps — purchased protection		(26	)		(5	)		(35	)		11
Credit default swaps — sold protection		8			6			2			(9	)
Total return swaps		(2	)		—			(2	)		—
Futures sold, not yet purchased		9			32			23			11
Currency forwards		—			1			—			—
Equity warrants		—			(2	)		—			(2	)
Options written		4			—			15			—
Trading activities
Futures purchased		—			(6	)		—			(78	)
Futures sold, not yet purchased		(1	)		1			(1	)		1
Currency forwards		—			—			—			1
Total	$	32		$	52		$	63		$	(63	)

The Company’s derivative activities in the trading portfolio in 2009 were associated with the resumption of a trading portfolio for income enhancement purposes. The Company’s derivative activities in the trading portfolio in 2008 were associated with its pension deposit business, through which the Company was exposed to equity price risk associated with its indexed group annuity contracts. The derivatives held for trading purposes were carried at fair value with the related gains and losses included within Net investment income on the Condensed Consolidated Statements of Operations. A corresponding increase or decrease was reflected in the Policyholders’ funds reserves supported by this trading portfolio, which was included in Insurance claims and policyholders’ benefits on the Condensed Consolidated Statements of Operations. During 2008, the Company exited the indexed group annuity portion of its pension deposit business.

A summary of the aggregate contractual or notional amounts and gross estimated fair values related to derivative financial instruments reported as Other invested assets or Other liabilities on the Condensed Consolidated Balance Sheets follows. Embedded derivative instruments subject to bifurcation are reported together with the host contract, at fair value. The contractual or notional amounts for derivatives are used to calculate the exchange of contractual payments under the agreements and may not be representative of the potential for gain or loss on these instruments.

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Derivative Financial Instruments

June 30, 2009
(In millions)

	Contractual/
	Notional		Estimated Fair Value
	Amount		Asset		(Liability)
Without hedge designation
Credit default swaps — purchased protection	$	328	$	5	$	(14	)
Credit default swaps — sold protection		33		—		(1	)
Futures sold, not yet purchased		414		—		—
Equity warrants		3		—		—
Trading activities
Futures sold, not yet purchased		118		—		—
Total	$	896	$	5	$	(15	)

Derivative Financial Instruments

December 31, 2008
(In millions)

	Contractual/
	Notional		Estimated Fair Value
	Amount		Asset		(Liability)
Without hedge designation
Interest rate swaps	$	900	$	—	$	(66	)
Credit default swaps — purchased protection		405		24		(2	)
Credit default swaps — sold protection		148		—		(43	)
Equity warrants		4		—		—
Total	$	1,457	$	24	$	(111	)

During the three and six months ended June 30, 2009, new derivative transactions entered into totaled approximately $4.5 billion and $10.6 billion in notional value while derivative termination activity totaled approximately $5.2 billion and $11.1 billion. The activity during the three and six months ended June 30, 2009 was primarily attributable to interest rate futures, interest rate options and interest rate swaps.

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Note F. Fair Value

Fair value is the price that would be received upon sale of an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The following fair value hierarchy is used in selecting inputs, with the highest priority given to Level 1, as these are the most transparent or reliable.

Level 1 — Quoted prices for identical instruments in active markets.

Level 2 — Quoted prices for similar instruments in active markets; quoted prices for identical or similar instruments in markets that are not active; and model-derived valuations in which all significant inputs are observable in active markets.

Level 3 — Valuations derived from valuation techniques in which one or more significant inputs are not observable.

The Company attempts to establish fair value as an exit price in an orderly transaction consistent with normal settlement market conventions. The Company is responsible for the valuation process and seeks to obtain quoted market prices for all securities. When quoted market prices in active markets are not available, the Company uses a number of methodologies to establish fair value estimates including: discounted cash flow models, prices from recently executed transactions of similar securities, or broker/dealer quotes, utilizing market observable information to the extent possible. In conjunction with modeling activities, the Company may use external data as inputs. The modeled inputs are consistent with observable market information, when available, or with the Company’s assumptions as to what market participants would use to value the securities. The Company also uses pricing services as a significant source of data. The Company monitors all the pricing inputs to determine if the markets from which the data is gathered are active. As further validation of the Company’s valuation process, the Company samples past fair value estimates and compares the valuations to actual transactions executed in the market on similar dates.

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Assets and Liabilities Measured at Fair Value

Assets and liabilities measured at fair value on a recurring basis are summarized below.

								Total
June 30, 2009								Assets/(Liabilities)
(in millions)	Level 1		Level 2		Level 3			at fair value
Assets
Fixed maturity securities:
U.S. Treasury securities and obligations of government agencies	$	253	$	787	$	—		$	1,040
Asset-backed securities:
Residential mortgage-backed securities		—		5,456		808			6,264
Commercial mortgage-backed securities		—		477		175			652
Other asset-backed securities		—		289		141			430
Total asset-backed securities		—		6,222		1,124			7,346
States, municipalities and political subdivisions - tax-exempt securities		—		6,853		785			7,638
Corporate and other taxable bonds		105		14,119		730			14,954
Redeemable preferred stock		21		40		1			62
Total fixed maturity securities		379		28,021		2,640			31,040
Equity securities		452		87		209			748
Derivative financial instruments, included in Other invested assets		—		—		5			5
Short term investments		3,410		1,071		—			4,481
Life settlement contracts, included in Other assets		—		—		126			126
Discontinued operations investments, included in Other liabilities		79		52		13			144
Separate account business		55		320		38			413
Total assets	$	4,375	$	29,551	$	3,031		$	36,957
Liabilities
Derivative financial instruments, included in Other liabilities	$	—	$	—	$	(15	)	$	(15	)
Total liabilities	$	—	$	—	$	(15	)	$	(15	)

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

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The tables below present a reconciliation for all assets and liabilities measured at fair value on a recurring basis using significant unobservable inputs (Level 3) for the three months ended June 30, 2009 and 2008.

							Net realized
							investment
				Net realized			gains (losses)														Unrealised
				investment			and net														gains (losses)
				gains (losses)			change in														on Level 3
				and net			unrealized														assets and
				change in			appreciation														liabilities
				unrealized			(depreciation)														held at
				appreciation			included in			Purchases,											June 30,
	Balance at			(depreciation)			other			sales,			Transfers		Transfers			Balance at			2009
Level 3	April 1,			included in			comprehensive			issuances and			into		out of			June 30,			recognized
(in millions)	2009			net income*			income			settlements			Level 3		Level 3			2009			in net income*
Fixed maturity securities:
Asset-backed securities:
Residential mortgage-backed securities	$	743		$	(6	)	$	35		$	(25	)	$	71	$	(10	)	$	808		$	(5	)
Commercial mortgage-backed securities		158			(155	)		155			(9	)		26		—			175			(155	)
Other asset-backed securities		252			—			10			(2	)		—		(119	)		141			—
Total asset-backed securities		1,153			(161	)		200			(36	)		97		(129	)		1,124			(160	)
States, municipalities and political subdivisions - tax-exempt securities		784			—			18			(17	)		—		—			785			—
Corporate and other taxable bonds		809			—			47			(137	)		16		(5	)		730			(1	)
Redeemable preferred stock		19			—			—			—			—		(18	)		1			—
Total fixed maturity securities		2,765			(161	)		265			(190	)		113		(152	)		2,640			(161	)
Equity securities		210			—			(1	)		—			—		—			209			—
Derivative financial instruments, net		(63	)		19			—			34			—		—			(10	)		(11	)
Life settlement contracts		127			5			—			(6	)		—		—			126			—
Discontinued operations investments		13			—			1			(1	)		—		—			13			—
Separate account business		38			—			3			(3	)		—		—			38			—
Total	$	3,090		$	(137	)	$	268		$	(166	)	$	113	$	(152	)	$	3,016		$	(172	)

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				Net realized			Net realized
				investment			investment gains														Unrealized
				gains (losses)			(losses) and net														gains (losses)
				and net			change in														on Level 3
				change in			unrealized														assets and
				unrealized			appreciation			Purchases,											liabilities
				appreciation			(depreciation)			sales,											held at June
				(depreciation)			included in other			issuances			Transfers		Transfers						30, 2008
Level 3	Balance at			included in			comprehensive			and			into		out of			Balance at			recognized in
(in millions)	April 1, 2008			net income*			income			settlements			Level 3		Level 3			June 30, 2008			net income*
Fixed maturity securities	$	2,245		$	(85	)	$	(55	)	$	89		$	1,159	$	(140	)	$	3,213		$	(91	)
Equity securities		193			—			(2	)		48			22		—			261			(2	)
Derivative financial instruments, net		(82	)		23			—			(8	)		—		—			(67	)		15
Short term investments		85			—			—			—			—		(85	)		—			—
Life settlement contracts		118			12			—			(12	)		—		—			118			1
Discontinued operations investments		41			—			—			(1	)		—		(17	)		23			—
Separate account business		47			—			(4	)		2			—		—			45			—
Total	$	2,647		$	(50	)	$	(61	)	$	118		$	1,181	$	(242	)	$	3,593		$	(77	)

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The tables below present a reconciliation for all assets and liabilities measured at fair value on a recurring basis using significant unobservable inputs (Level 3) for the six months ended June 30, 2009 and 2008.

																					Unrealized
				Net realized			Net realized														gains
				investment			investment gains														(losses) on
				gains (losses)			(losses) and net														Level 3
				and net			change in														assets and
				change in			unrealized														liabilities
				unrealized			appreciation			Purchases,											held at
				appreciation			(depreciation)			sales,											June 30,
				(depreciation)			included in other			issuances			Transfers		Transfers						2009
Level 3	Balance at			included in			comprehensive			and			into		out of			Balance at			recognized
(in millions)	January 1, 2009			net loss*			income			settlements			Level 3		Level 3			June 30, 2009			in net loss*
Fixed maturity securities:
Asset-backed securities:
Residential mortgage-backed securities	$	782		$	(23	)	$	36		$	(48	)	$	71	$	(10	)	$	808		$	(12	)
Commercial mortgage-backed securities		186			(165	)		142			(14	)		26		—			175			(165	)
Other asset-backed securities		139			(30	)		40			(42	)		153		(119	)		141			(31	)
Total asset-backed securities		1,107			(218	)		218			(104	)		250		(129	)		1,124			(208	)
States, municipalities and political subdivisions — tax-exempt securities		750			—			55			(20	)		—		—			785			—
Corporate and other taxable bonds		622			(5	)		46			67			18		(18	)		730			(7	)
Redeemable preferred stock		13			(9	)		8			7			—		(18	)		1			(9	)
Total fixed maturity securities		2,492			(232	)		327			(50	)		268		(165	)		2,640			(224	)
Equity securities		210			—			(1	)		—			—		—			209			—
Derivative financial instruments, net		(87	)		25			—			52			—		—			(10	)		(15	)
Life settlement contracts		129			16			—			(19	)		—		—			126			2
Discontinued operations investments		15			—			—			(2	)		—		—			13			—
Separate account business		38			—			4			(4	)		—		—			38			—
Total	$	2,797		$	(191	)	$	330		$	(23	)	$	268	$	(165	)	$	3,016		$	(237	)

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			Net realized			Net realized
			investment			investment gains														Unrealized
			gains (losses)			(losses) and net														gains (losses)
			and net			change in														on Level 3
			change in			unrealized														assets and
			unrealized			appreciation			Purchases,											liabilities held
			appreciation			(depreciation)			sales,											at June 30,
	Balance at		(depreciation)			included in other			issuances			Transfers		Transfers						2008
Level 3	January 1,		included in			comprehensive			and			into		out of			Balance at			recognized in
(in millions)	2008		net income*			loss			settlements			Level 3		Level 3			June 30, 2008			net income*
Fixed maturity securities	$	2,684	$	(123	)	$	(270	)	$	84		$	1,254	$	(416	)	$	3,213		$	(135	)
Equity securities		196		(2	)		(3	)		48			22		—			261			(4	)
Derivative financial instruments, net		2		1			—			(70	)		—		—			(67	)		(69	)
Short term investments		85		—			—			—			—		(85	)		—			—
Life settlement contracts		115		30			—			(27	)		—		—			118			5
Discontinued operations investments		42		—			—			(2	)		—		(17	)		23			—
Separate account business		30		—			(4	)		(1	)		20		—			45			—
Total	$	3,154	$	(94	)	$	(277	)	$	32		$	1,296	$	(518	)	$	3,593		$	(203	)

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* Net realized and unrealized gains and losses shown above are reported in Net income (loss) as follows:

Major Category of Assets and Liabilities	Condensed Consolidated Statement of Operations Line Items
Fixed maturity securities available-for-sale	Net realized investment gains (losses)
Fixed maturity securities trading	Net investment income
Equity securities	Net realized investment gains (losses)
Derivative financial instruments held in a trading portfolio	Net investment income
Derivative financial instruments, other	Net realized investment gains (losses)
Life settlement contracts	Other revenues

Securities transferred into Level 3 for the three months ended June 30, 2009 relate primarily to structured securities with residential and commercial mortgage collateral. For the six months ended June 30, 2009 transfers into Level 3 relate primarily to structured securities with underlying auto loan collateral and structured securities with residential and commercial mortgage collateral. These were previously valued using observable prices for similar securities, but due to decreased market activity, fair value is determined by cash flow models using market observable and unobservable inputs. Unobservable inputs include estimates of future cash flows and the maturity assumption.

The following section describes the valuation methodologies used to measure different financial instruments at fair value, including an indication of the level in the fair value hierarchy in which the instrument is generally classified.

Fixed Maturity Securities

Level 1 securities include highly liquid government bonds within the U.S. Treasury securities and corporate and other taxable bond categories for which quoted market prices are available. Level 1 securities may also include securities that have firm sale commitments and prices that are not recorded until the settlement date. The remaining fixed maturity securities are valued using pricing for similar securities, recently executed transactions, cash flow models with yield curves, broker/dealer quotes and other pricing models utilizing observable inputs. The valuation for most fixed maturity securities is classified as Level 2. Securities within Level 2 include certain corporate bonds, municipal bonds, asset-backed securities, mortgage-backed pass-through securities and redeemable preferred stock. Securities are generally assigned to Level 3 in cases where broker/dealer quotes are significant inputs to the valuation and there is a lack of transparency as to whether these quotes are based on information that is observable in the marketplace. These securities include certain corporate bonds, asset-backed securities, municipal bonds and redeemable preferred stock. Within corporate bonds and municipal bonds, Level 3 securities also include tax-exempt auction rate certificates. Fair value of auction rate securities is determined utilizing a pricing model with three primary inputs. The interest rate and spread inputs are observable from like instruments while the maturity date assumption is unobservable due to the uncertain nature of the principal prepayments prior to maturity.

Equity Securities

Level 1 securities include publicly traded securities valued using quoted market prices. Level 2 securities are primarily non-redeemable preferred securities and common stocks valued using pricing for similar securities, recently executed transactions, broker/dealer quotes and other pricing models utilizing observable inputs.

Level 3 securities include one equity security, which represents 88% of the total at June 30, 2009, in an entity which is not publicly traded and is valued based on a discounted cash flow analysis model, adjusted for the Company’s assumption regarding an inherent lack of liquidity in the security. The remaining non-redeemable preferred stocks and equity securities are primarily valued using inputs including broker/dealer quotes for which there is a lack of transparency as to whether these quotes are based on information that is observable in the marketplace.

Derivative Financial Instruments

Exchange traded derivatives are valued using quoted market prices and are classified within Level 1 of the fair value hierarchy. Level 2 derivatives primarily include currency forwards valued using observable market

34

forward rates. Over-the-counter (OTC) derivatives, principally interest rate swaps, credit default swaps, equity warrants and options, are valued using inputs including broker/dealer quotes and are classified within Level 3 of the valuation hierarchy due to a lack of transparency as to whether these quotes are based on information that is observable in the marketplace.

Short Term Investments

The valuation of securities that are actively traded or have quoted prices are classified as Level 1. These securities include money market funds and treasury bills. Level 2 includes commercial paper, for which all inputs are observable.

Life Settlement Contracts

The fair values of life settlement contracts are estimated using discounted cash flows based on the Company’s own assumptions for mortality, premium expense, and the rate of return that a buyer would require on the contracts, as no comparable market pricing data is available.

Discontinued Operations Investments

Assets relating to the Company’s discontinued operations include fixed maturity securities and short term investments. The valuation methodologies for these asset types have been described above.

Separate Account Business

Separate account business includes fixed maturity securities, equities and short term investments. The valuation methodologies for these asset types have been described above.

Financial Assets and Liabilities Not Measured at Fair Value

The carrying amount and estimated fair value of the Company’s financial instrument assets and liabilities which are not measured at fair value on the Condensed Consolidated Balance Sheets are listed in the table below.

	June 30, 2009				December 31, 2008
	Carrying		Estimated		Carrying		Estimated
(In millions)	Amount		Fair Value		Amount		Fair Value
Financial assets
Notes receivable for the issuance of common stock	$	30	$	30	$	42	$	42
Financial liabilities
Premium deposits and annuity contracts	$	106	$	107	$	111	$	113
Long term debt		2,058		1,754		2,058		1,585

The following methods and assumptions were used to estimate the fair value of these financial assets and liabilities.

The fair values of notes receivable for the issuance of common stock were estimated using discounted cash flows utilizing interest rates currently offered for obligations securitized with similar collateral.

Premium deposits and annuity contracts were valued based on cash surrender values, estimated fair values or policyholder liabilities, net of amounts ceded related to sold business.

CNAF’s senior notes and debentures were valued based on quoted market prices. The fair value for other long term debt was estimated using discounted cash flows based on current incremental borrowing rates for similar borrowing arrangements.

The carrying amounts reported on the Condensed Consolidated Balance Sheets for Cash, Accrued investment income, Receivables for securities sold, Federal income taxes recoverable/payable, Collateral on loaned securities and derivatives, Payables for securities purchased, and certain other assets and other liabilities

35

approximate fair value due to the short term nature of these items. These assets and liabilities are not listed in the table above.

Note G. Claim and Claim Adjustment Expense Reserves

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

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

Catastrophes are an inherent risk of the property and casualty insurance business and have contributed to material period-to-period fluctuations in the Company’s results of operations and/or equity. The Company reported catastrophe losses, net of reinsurance, of $43 million and $56 million for the three and six months ended June 30, 2009 for events occurring in those periods. Catastrophe losses in 2009 related primarily to tornadoes, floods, hail and wind. The Company reported catastrophe losses, net of reinsurance, of $47 million and $100 million for the three and six months ended June 30, 2008 for events occurring in those periods. There can be no assurance that CNA’s ultimate cost for catastrophes will not exceed current estimates.

The following provides discussion of the Company’s Asbestos and Environmental Pollution (A&E) reserves.

A&E Reserves

CNA’s property and casualty insurance subsidiaries have actual and potential exposures related to A&E claims. The following table provides data related to CNA’s A&E claim and claim adjustment expense reserves.

A&E Reserves

	June 30, 2009						December 31, 2008
				Environmental						Environmental
(In millions)	Asbestos			Pollution			Asbestos			Pollution
Gross reserves	$	1,964		$	366		$	2,112		$	392
Ceded reserves		(851	)		(126	)		(910	)		(130	)
Net reserves	$	1,113		$	240		$	1,202		$	262

Asbestos

There was no asbestos-related net claim and claim adjustment expense reserve development recorded for the six months ended June 30, 2009. The Company recorded $6 million of unfavorable asbestos-related net claim and

36

claim adjustment expense reserve development for the six months ended June 30, 2008. The Company paid asbestos-related claims, net of reinsurance recoveries, of $89 million and $99 million for the six months ended June 30, 2009 and 2008.

The ultimate cost of reported claims, and in particular A&E claims, is subject to a great many uncertainties, including future developments of various kinds that CNA does not control and that are difficult or impossible to foresee accurately. With respect to the litigation identified below in particular, numerous factual and legal issues remain unresolved. Rulings on those issues by the courts are critical to the evaluation of the ultimate cost to the Company. The outcome of the litigation cannot be predicted with any reliability. Accordingly, the extent of losses beyond any amounts that may be accrued are not readily determinable at this time.

Some asbestos-related defendants have asserted that their insurance policies are not subject to aggregate limits on coverage. CNA has such claims from a number of insureds. Some of these claims involve insureds facing exhaustion of products liability aggregate limits in their policies, who have asserted that their asbestos-related claims fall within so-called “non-products” liability coverage contained within their policies rather than products liability coverage, and that the claimed “non-products” coverage is not subject to any aggregate limit. It is difficult to predict the ultimate size of any of the claims for coverage purportedly not subject to aggregate limits or predict to what extent, if any, the attempts to assert “non-products” claims outside the products liability aggregate will succeed. CNA’s policies also contain other limits applicable to these claims and the Company has additional coverage defenses to certain claims. CNA has attempted to manage its asbestos exposure by aggressively seeking to settle claims on acceptable terms. There can be no assurance that any of these settlement efforts will be successful, or that any such claims can be settled on terms acceptable to CNA. Where the Company cannot settle a claim on acceptable terms, CNA aggressively litigates the claim. However, adverse developments with respect to such matters could have a material adverse effect on the Company’s results of operations and/or equity.

Certain asbestos claim litigation in which CNA is currently engaged is described below:

On February 13, 2003, CNA announced it had resolved asbestos-related coverage litigation and claims involving A.P. Green Industries, A.P. Green Services and Bigelow—Liptak Corporation. Under the agreement, CNA is required to pay $70 million, net of reinsurance recoveries, over a ten year period commencing after the final approval of a bankruptcy plan of reorganization. The settlement received initial bankruptcy court approval on August 18, 2003. The debtor’s plan of reorganization includes an injunction to protect CNA from any future claims. The bankruptcy court issued an opinion on September 24, 2007 recommending confirmation of that plan. On July 25, 2008, the District Court affirmed the Bankruptcy Court’s ruling. Several insurers have appealed that ruling to the Third Circuit Court of Appeals; that appeal is pending at this time.

CNA is engaged in insurance coverage litigation in New York State Court, filed in 2003, with a defendant class of underlying plaintiffs who have asbestos bodily injury claims against the former Robert A. Keasbey Company (Keasbey) (Continental Casualty Co. v. Employers Ins. of Wausau et al., No. 601037/03 (N.Y. County)). Keasbey, currently a dissolved corporation, was a seller and installer of asbestos-containing insulation products in New York and New Jersey. Thousands of plaintiffs have filed bodily injury claims against Keasbey. However, under New York court rules, asbestos claims are not cognizable unless they meet certain minimum medical impairment standards. Since 2002, when these court rules were adopted, only a small portion of such claims have met medical impairment criteria under New York court rules and as to the remaining claims, Keasbey’s involvement at a number of work sites is a highly contested issue.

CNA issued Keasbey primary policies for 1970-1987 and excess policies for 1971-1978. CNA has paid an amount substantially equal to the policies’ aggregate limits for products and completed operations claims in the confirmed CNA policies. Claimants against Keasbey allege, among other things, that CNA owes coverage under sections of the policies not subject to the aggregate limits, an allegation CNA vigorously contests in the lawsuit. In the litigation, CNA and the claimants seek declaratory relief as to the interpretation of various policy provisions.

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On December 30, 2008, a New York appellate court entered a unanimous decision in favor of CNA on multiple alternative grounds including findings that claims arising out of Keasbey’s asbestos insulating activities are included within the products hazard/completed operations coverage, which has been exhausted; and that the defendant claimant class is subject to the affirmative defenses that CNA may have had against Keasbey, barring all coverage claims. The claimants have sought further appellate review of the decision. The New York appellate court denied leave to appeal to the Court of Appeals. The Claimants have sought leave to appeal directly from the Court of Appeals and the decision whether to accept appeal is pending. Accordingly, the extent of losses beyond any amounts that may be accrued are not readily determinable at this time.

CNA has insurance coverage disputes related to asbestos bodily injury claims against a bankrupt insured, Burns & Roe Enterprises, Inc. (Burns & Roe). These disputes are currently part of coverage litigation (stayed in view of the bankruptcy) and an adversary proceeding in In re: Burns & Roe Enterprises, Inc., pending in the U.S. Bankruptcy Court for the District of New Jersey, No. 00-41610. Burns & Roe provided engineering and related services in connection with construction projects. At the time of its bankruptcy filing, on December 4, 2000, Burns & Roe asserted that it faced approximately 11,000 claims alleging bodily injury resulting from exposure to asbestos as a result of construction projects in which Burns & Roe was involved. CNA allegedly provided primary liability coverage to Burns & Roe from 1956-1969 and 1971-1974, along with certain project-specific policies from 1964-1970. In September of 2007, CNA entered into an agreement with Burns & Roe, the Official Committee of Unsecured Creditors appointed by the Bankruptcy Court and the Future Claims Representative (the “Addendum”), which provides that claims allegedly covered by CNA policies will be adjudicated in the tort system, with any coverage disputes related to those claims to be decided in coverage litigation. With the approval of the Bankruptcy Court, Burns & Roe included the Addendum as part of its Fourth Amended Plan (the “Plan”), which was confirmed on February 23, 2009. On June 15, 2009, the confirmation order became final and may not be appealed. Numerous factual, legal and coverage issues remain to be resolved that are critical to the final result, the outcome of which cannot be predicted with any reliability. These factors include, among others: (a) whether the Company has any further responsibility to compensate claimants against Burns & Roe under its policies and, if so, under which; (b) whether the Company’s responsibilities under its policies extend to a particular claimant’s entire claim or only to a limited percentage of the claim; (c) whether the Company’s responsibilities under its policies are limited by the occurrence limits or other provisions of the policies; (d) whether certain exclusions, including professional liability exclusions, in some of the Company’s policies apply to exclude certain claims; (e) the extent to which claimants can establish exposure to asbestos materials as to which Burns & Roe has any responsibility; (f) the legal theories which must be pursued by such claimants to establish the liability of Burns & Roe and whether such theories can, in fact, be established; (g) the diseases and damages alleged by such claimants; (h) the extent that any liability of Burns & Roe would be shared with other potentially responsible parties; and (i) the impact of bankruptcy proceedings on claims and coverage issue resolution. Accordingly, the extent of losses beyond any amounts that may be accrued are not readily determinable at this time.

Suits have also been initiated directly against the CNA companies and numerous other insurers in two jurisdictions: Texas and Montana. Approximately 80 lawsuits were filed in Texas beginning in 2002, against two CNA companies and numerous other insurers and non-insurer corporate defendants asserting liability for failing to warn of the dangers of asbestos (e.g. Boson v. Union Carbide Corp., (Nueces County, Texas)). During 2003, several of the Texas suits were dismissed and while certain of the Texas courts’ rulings were appealed, plaintiffs later dismissed their appeals. A different Texas court, however, denied similar motions seeking dismissal. After that court denied a related challenge to jurisdiction, the insurers transferred the case, among others, to a state multi-district litigation court in Harris County charged with handling asbestos cases. In February 2006, the insurers petitioned the appellate court in Houston for an order of mandamus, requiring the multi-district litigation court to dismiss the case on jurisdictional and substantive grounds. On February 29, 2008, the appellate court denied the insurers’ mandamus petition on procedural grounds, but did not reach a decision on the merits of the petition. Instead, the appellate court allowed to stand the multi-district litigation court’s determination that the case remained on its inactive docket and that no further action can be taken unless qualifying reports are filed or the filing of such reports is waived. With respect to the cases that are still pending in Texas, in June 2008, plaintiffs in the only active case dropped the remaining CNA company from that suit, leaving only inactive cases against CNA companies. In those inactive cases, numerous factual and legal issues remain to be resolved that are critical to the final result, the outcome of which cannot be predicted with any reliability. These factors include: (a) the speculative nature and unclear scope of any alleged duties

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owed to individuals exposed to asbestos and the resulting uncertainty as to the potential pool of potential claimants; (b) the fact that imposing such duties on all insurer and non-insurer corporate defendants would be unprecedented and, therefore, the legal boundaries of recovery are difficult to estimate; (c) the fact that many of the claims brought to date are barred by the Statute of Limitations and it is unclear whether future claims would also be barred; (d) the unclear nature of the required nexus between the acts of the defendants and the right of any particular claimant to recovery; and (e) the existence of hundreds of co-defendants in some of the suits and the applicability of the legal theories pled by the claimants to thousands of potential defendants. Accordingly, the extent of losses beyond any amounts that may be accrued is not readily determinable at this time.

On March 22, 2002, a direct action was filed in Montana (Pennock, et al. v. Maryland Casualty, et al. First Judicial District Court of Lewis & Clark County, Montana) by eight individual plaintiffs (all employees of W.R. Grace & Co. (W.R. Grace)) and their spouses against CNA, Maryland Casualty and the State of Montana. This action alleges that the carriers failed to warn of or otherwise protect W.R. Grace employees from the dangers of asbestos at a W.R. Grace vermiculite mining facility in Libby, Montana. The Montana direct action is currently stayed because of W.R. Grace’s pending bankruptcy. On April 7, 2008, W.R. Grace announced a settlement in principle with the asbestos personal injury claimants committee subject to confirmation of a plan of reorganization by the bankruptcy court. The confirmation hearing is held in two phases. The first was held in June 2009 and the second phase begins in September 2009. The settlement in principle with the asbestos claimants has no present impact on the stay currently imposed on the Montana direct action and with respect to such claims, numerous factual and legal issues remain to be resolved that are critical to the final result, the outcome of which cannot be predicted with any reliability. These factors include: (a) the unclear nature and scope of any alleged duties owed to people exposed to asbestos and the resulting uncertainty as to the potential pool of potential claimants; (b) the potential application of Statutes of Limitation to many of the claims which may be made depending on the nature and scope of the alleged duties; (c) the unclear nature of the required nexus between the acts of the defendants and the right of any particular claimant to recovery; (d) the diseases and damages claimed by such claimants; (e) the extent that such liability would be shared with other potentially responsible parties; and (f) the impact of bankruptcy proceedings on claims resolution. Accordingly, the extent of losses beyond any amounts that may be accrued are not readily determinable at this time.

CNA is vigorously defending these and other cases and believes that it has meritorious defenses to the claims asserted. However, there are numerous factual and legal issues to be resolved in connection with these claims, and it is extremely difficult to predict the outcome or ultimate financial exposure represented by these matters. Adverse developments with respect to any of these matters could have a material adverse effect on CNA’s business, insurer financial strength and debt ratings, results of operations and/or equity.

Environmental Pollution

There was no environmental pollution net claim and claim adjustment expense reserve development recorded for the six months ended June 30, 2009. The Company recorded $2 million of unfavorable environmental pollution net claim and claim adjustment expense reserve development for the six months ended June 30, 2008. The Company paid environmental pollution-related claims, net of reinsurance recoveries, of $22 million and $36 million for the six months ended June 30, 2009 and 2008.

Net Prior Year Development

The net prior year development presented below includes premium development due to its direct relationship to claim and allocated claim adjustment expense reserve development. The net prior year development presented below includes the impact of commutations, but excludes the impact of increases or decreases in the allowance for uncollectible reinsurance.

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Three Month Comparison

Net Prior Year Development
Three months ended June 30, 2009

							Corporate &
	Standard			Specialty			Other Non-
(In millions)	Lines			Lines			Core			Total
Pretax (favorable) unfavorable net prior year claim and allocated claim adjustment expense reserve development:
Core (Non-A&E)	$	(80	)	$	(40	)	$	4		$	(116	)
A&E		—			—			—			—
Pretax (favorable) unfavorable net prior year development before impact of premium development		(80	)		(40	)		4			(116	)
Pretax (favorable) unfavorable premium development		59			(1	)		(2	)		56
Total pretax (favorable) unfavorable net prior year development	$	(21	)	$	(41	)	$	2		$	(60	)

Net Prior Year Development
Three months ended June 30, 2008

						Corporate &
	Standard			Specialty		Other Non-
(In millions)	Lines			Lines		Core		Total
Pretax (favorable) unfavorable net prior year claim and allocated claim adjustment expense reserve development:
Core (Non-A&E)	$	(15	)	$	1	$	5	$	(9	)
A&E		—			—		6		6
Pretax (favorable) unfavorable net prior year development before impact of premium development		(15	)		1		11		(3	)
Pretax (favorable) unfavorable premium development		(8	)		1		1		(6	)
Total pretax (favorable) unfavorable net prior year development	$	(23	)	$	2	$	12	$	(9	)

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2009 Net Prior Year Development

Standard Lines

Favorable claim and allocated claim adjustment expense reserve development was primarily due to experience in property coverages. Prior year catastrophe reserves decreased approximately $33 million, driven by the favorable settlement of several claims primarily in accident years 2005 and 2007. An additional $17 million of favorable claim and allocated claim adjustment expense reserve development was due to non-catastrophe related favorable loss emergence on large property coverages, primarily in accident years 2007 and 2008.

Approximately $25 million of favorable claim and allocated claim adjustment expense reserve development was due to decreased frequency and severity trends related to construction defect exposures in accident years 2003 and prior.

Approximately $40 million of adverse premium development was related to changes in estimated ultimate premium on retrospectively rated coverages. Additional adverse premium development was due to an estimated liability for an assessment related to a reinsurance association and less premium processing on auditable policies than expected.

Specialty Lines

Favorable claim and allocated claim adjustment expense reserve development of approximately $25 million for medical professional liability was primarily due to better than expected frequency and severity in accident years 2005 and prior, including individual claims closing favorable to expectations.

Approximately $8 million of favorable claim and allocated claim adjustment expense reserve development was recorded for professional liability coverages due primarily to favorable experience on a number of large claims, primarily related to financial institutions in accident years 2003 and prior.

2008 Net Prior Year Development

Standard Lines

Approximately $29 million of favorable claim and allocated claim adjustment expense reserve development was recorded due to favorable outcomes on claims relating to catastrophes, primarily in accident year 2005.

Approximately $8 million of favorable premium development was recorded across several coverages and accident years due to additional premium processing on auditable policies and changes to ultimate premium estimates. This favorable development was partially offset by additional unfavorable claim and allocated claim adjustment expense reserve development.

Corporate & Other Non-Core

The unfavorable claim and allocated claim adjustment expense reserve development was primarily related to commutation activity, a portion of which was offset by a release of a previously established allowance for uncollectible reinsurance.

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Six Month Comparison

Net Prior Year Development
Six months ended June 30, 2009

							Corporate &
	Standard			Specialty			Other Non-
(In millions)	Lines			Lines			Core			Total
Pretax (favorable) unfavorable net prior year claim and allocated claim adjustment expense reserve development:
Core (Non-A&E)	$	(110	)	$	(81	)	$	5		$	(186	)
A&E		—			—			—			—
Pretax (favorable) unfavorable net prior year development before impact of premium development		(110	)		(81	)		5			(186	)
Pretax (favorable) unfavorable premium development		76			(3	)		(3	)		70
Total pretax (favorable) unfavorable net prior year development	$	(34	)	$	(84	)	$	2		$	(116	)

Net Prior Year Development
Six months ended June 30, 2008

							Corporate &
	Standard			Specialty			Other Non-
(In millions)	Lines			Lines			Core		Total
Pretax (favorable) unfavorable net prior year claim and allocated claim adjustment expense reserve development:
Core (Non-A&E)	$	(50	)	$	18		$	8	$	(24	)
A&E		—			—			8		8
Pretax (favorable) unfavorable net prior year development before impact of premium development		(50	)		18			16		(16	)
Pretax (favorable) unfavorable premium development		1			(18	)		—		(17	)
Total pretax (favorable) unfavorable net prior year development	$	(49	)	$	—		$	16	$	(33	)

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2009 Net Prior Year Development

Standard Lines

Favorable claim and allocated claim adjustment expense reserve development was primarily due to experience in property coverages. Prior year catastrophe reserves decreased approximately $64 million, driven by the favorable settlement of several claims primarily in accident years 2005 and 2007, and favorable frequency and severity on claims relating to catastrophes in accident year 2008. An additional $17 million of favorable claim and allocated claim adjustment expense reserve development was due to non-catastrophe related favorable loss emergence on large property coverages, primarily in accident years 2007 and 2008.

Approximately $25 million of favorable claim and allocated claim adjustment expense reserve development was due to decreased frequency and severity trends related to construction defect exposures in accident years 2003 and prior.

Approximately $40 million of adverse premium development was related to changes in estimated ultimate premium on retrospectively rated coverages. Additional adverse premium development was due to an estimated liability for an assessment related to a reinsurance association and less premium processing on auditable policies than expected.

Specialty Lines

Favorable claim and allocated claim adjustment expense reserve development of approximately $25 million for medical professional liability was primarily due to better than expected frequency and severity in accident years 2005 and prior, including claims closing favorable to expectations.

Approximately $28 million of favorable claim and allocated claim adjustment expense reserve development was recorded for professional liability coverages due primarily to favorable experience on a number of large claims related to financial institutions in accident years 2003 and prior and decreased frequency of large claims in accident years 2007 and prior.

An additional $4 million of favorable claim and allocated claim adjustment expense reserve development was a result of favorable outcomes on claims relating to catastrophes in accident year 2005.

2008 Net Prior Year Development

Standard Lines

Approximately $49 million of favorable claim and allocated claim adjustment expense reserve development was recorded in property coverages. This favorable development was due to lower than expected frequency in accident year 2007 and favorable outcomes on several individual claims in accident years 2006 and prior, including approximately $29 million related to catastrophes, primarily in accident year 2005.

Approximately $23 million of favorable claim and allocated claim adjustment expense reserve development was recorded in general liability due to favorable outcomes on individual claims causing lower severity in accident years 2003 and prior.

Approximately $24 million of unfavorable claim and allocated claim adjustment expense reserve development was recorded in excess workers’ compensation due to higher than expected frequency and severity in accident years 2003 and prior. This is a result of continued claim cost inflation in older accident years, driven by increasing medical inflation and advances in medical care.

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Specialty Lines

Approximately $10 million of favorable premium development was recorded due to a change in estimated ultimate premiums within a foreign affiliate’s property and financial lines. This was offset by approximately $9 million of related unfavorable claim and allocated claim adjustment expense reserve development.

Corporate & Other Non-Core

The net prior year development recorded for the six months ended June 30, 2008 relates to the same reasons included in the three month discussion.

Note H. Legal Proceedings and Contingent Liabilities

Insurance Brokerage Antitrust Litigation

On August 1, 2005, CNAF and several of its insurance subsidiaries were joined as defendants, along with other insurers and brokers, in multidistrict litigation pending in the United States District Court for the District of New Jersey, In re Insurance Brokerage Antitrust Litigation, Civil No. 04-5184 (FSH). The plaintiffs allege bid rigging and improprieties in the payment of contingent commissions in connection with the sale of insurance that violated federal and state antitrust laws, the federal Racketeer Influenced and Corrupt Organizations (RICO) Act and state common law. After discovery, the District Court dismissed the federal antitrust claims and the RICO claims, and declined to exercise supplemental jurisdiction over the state law claims. The plaintiffs have appealed the dismissal of their complaint to the Third Circuit Court of Appeals. The parties have filed their briefs on the appeal. Oral argument was held on April 21, 2009, and the Court took the matter under advisement. The Company believes it has meritorious defenses to this action and intends to defend the case vigorously.

The extent of losses beyond any amounts that may be accrued are not readily determinable at this time. However, based on facts and circumstances presently known, in the opinion of management, an unfavorable outcome will not materially affect the equity of the Company, although results of operations may be adversely affected.

Global Crossing Limited Litigation

CCC was named as a defendant in an action brought by the bankruptcy estate of Global Crossing Limited (Global Crossing) in the United States Bankruptcy Court for the Southern District of New York, Global Crossing Estate Representative, for itself and as the Liquidating Trustee of the Global Crossing Liquidating Trust v. Gary Winnick, et al., Case No. 04 Civ. 2558 (GEL). In the complaint, plaintiff sought damages from CCC and the other defendants for alleged fraudulent transfers and alleged breaches of fiduciary duties arising from actions taken by Global Crossing while CCC was a shareholder of Global Crossing. The parties entered into a settlement agreement during the first quarter of 2009 providing for a payment by CCC of an amount that approximated the amount accrued at March 31, 2009. In the second quarter of 2009, the Court entered an order dismissing with prejudice all claims against CCC. As a result, this matter has been fully and finally resolved.

California Long Term Care Litigation

Shaffer v. Continental Casualty Company, et al., U.S. District Court, Central District of California, CV06-2235 RGK, is a class action on behalf of certain California individual long term health care policyholders, alleging that CCC and CNAF knowingly or negligently used unrealistic actuarial assumptions in pricing these policies. On January 8, 2008, CCC, CNAF and the plaintiffs entered into a binding agreement settling the case on a nationwide basis for the policy forms potentially affected by the allegations of the complaint. Following a fairness hearing, the Court entered an order approving the settlement. This order was appealed to the Ninth Circuit Court of Appeals. The appeal has been fully briefed. No oral argument has yet been scheduled. The Company believes it has meritorious defenses to this appeal and intends to

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defend the appeal vigorously. The agreement did not have a material impact on the Company’s results of operations, however it still remains subject to the favorable resolution of the appeal.

Asbestos and Environmental Pollution (A&E) Reserves

The Company is also a party to litigation and claims related to A&E cases arising in the ordinary course of business. See Note G for further discussion.

Other Litigation

The Company is also a party to other litigation arising in the ordinary course of business. Based on the facts and circumstances currently known, such other litigation will not, in the opinion of management, materially affect the equity or results of operations of the Company.

Note I. Benefit Plans

The components of net periodic benefit plan cost (benefit) are presented in the following table.

Net Periodic Cost (Benefit)

	Three Months						Six Months
Periods ended June 30	2009			2008			2009			2008
(In millions)
Pension cost (benefit)
Service cost	$	3		$	4		$	8		$	10
Interest cost on projected benefit obligation		39			37			77			73
Expected return on plan assets		(36	)		(44	)		(72	)		(89	)
Actuarial loss		6			1			12			2
Net periodic pension cost (benefit)	$	12		$	(2	)	$	25		$	(4	)
Postretirement benefit
Service cost	$	—		$	—		$	1		$	1
Interest cost on projected benefit obligation		2			2			4			4
Prior service cost amortization		(4	)		(4	)		(8	)		(8	)
Actuarial loss		—			1			—			1
Net periodic postretirement benefit	$	(2	)	$	(1	)	$	(3	)	$	(2	)

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Note J. Commitments, Contingencies, and Guarantees

Commitments and Contingencies

The Company holds an investment in a real estate joint venture. In the normal course of business, CNA, on a joint and several basis with other unrelated insurance company shareholders, has committed to continue funding the operating deficits of this joint venture. Additionally, CNA and the other unrelated shareholders, on a joint and several basis, have guaranteed an operating lease for an office building, which expires in 2016. The guarantee of the operating lease is a parallel guarantee to the commitment to fund operating deficits; consequently, the separate guarantee to the lessor is not expected to be triggered as long as the joint venture continues to be funded by its shareholders and continues to make its annual lease payments.

In the event that the other parties to the joint venture are unable to meet their commitments in funding the operations of this joint venture, the Company would be required to assume the obligation for the entire office building operating lease. The Company does not believe it is likely that it will be required to do so. However, the maximum potential future lease payments at June 30, 2009 that the Company could be required to pay under this guarantee are approximately $141 million. If CNA were required to assume the entire lease obligation, the Company would have the right to pursue reimbursement from the other shareholders and the right to all sublease revenues.

In the normal course of business, CNA has provided letters of credit in favor of various unaffiliated insurance companies, regulatory authorities and other entities. At June 30, 2009, there were approximately $5 million of outstanding letters of credit.

The Company has entered into a limited number of guaranteed payment contracts, primarily relating to software and telecommunication services, amounting to approximately $16 million at June 30, 2009. Estimated future minimum payments under these contracts are $10 million in 2009, $3 million in 2010 and $3 million in 2011.

Guarantees

In the course of selling business entities and assets to third parties, the Company 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 June 30, 2009, the aggregate amount of quantifiable indemnification agreements in effect for sales of business entities, assets and third party loans was $873 million.

In addition, the Company 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 June 30, 2009, the Company 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 June 30, 2009 and December 31, 2008, the Company has recorded liabilities of approximately $16 million and $22 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.

CNAF has also guaranteed certain collateral obligations of a large national contractor’s letters of credit. As of June 30, 2009, these guarantees aggregated $4 million. Payment under these guarantees is reasonably possible based on various factors, including the underlying credit worthiness of the contractor.

In connection with the issuance of preferred securities by CNA Surety Capital Trust I (Issuer Trust), CNA Surety has also guaranteed the dividend payments and redemption of the preferred securities issued by the Issuer Trust. The maximum amount of undiscounted future payments the Company could make under the

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guarantee is approximately $63 million, consisting of annual dividend payments of approximately $1.3 million through April 2034 and the redemption value of $30 million. Because payment under the guarantee would only be required if the Company does not fulfill its obligations under the debentures held by the Issuer Trust, the Company has not recorded any additional liabilities related to this guarantee. There has been no change in the underlying assets of the trust and the Company does not believe that a payment is likely under this guarantee.

Note K. Business Segments

CNA’s core property and casualty commercial insurance operations are reported in two business segments: Standard Lines and Specialty Lines. CNA’s non-core operations are managed in two segments: Life & Group Non-Core and Corporate & Other Non-Core.

The accounting policies of the segments are the same as those described in Note A of the Consolidated Financial Statements within CNA’s Form 10-K. The Company manages most of its assets on a legal entity basis, while segment operations are conducted across legal entities. As such, only insurance and reinsurance receivables, insurance reserves and deferred acquisition costs are readily identifiable by individual segment. Distinct investment portfolios are not maintained for each segment; accordingly, allocation of assets to each segment is not performed. Therefore, net investment income and realized investment gains or losses are allocated primarily based on each segment’s net carried insurance reserves, as adjusted. All significant intrasegment income and expense has been eliminated. Income taxes have been allocated on the basis of the taxable income of the segments.

In the following tables, certain financial measures are presented to provide information used by management to monitor the Company’s operating performance. Management utilizes these financial measures to monitor the Company’s insurance operations and investment portfolio. Net operating income, which is derived from certain income statement amounts, is used by management to monitor performance of the Company’s insurance operations. The Company’s investment portfolio is monitored through analysis of various quantitative and qualitative factors and certain decisions related to the sale or impairment of investments that produce realized gains and losses.

Net operating income (loss) is calculated by excluding from net income (loss) attributable to CNAF the after-tax effects of 1) net realized investment gains or losses, 2) income or loss from discontinued operations and 3) any cumulative effects of changes in accounting principles. In the calculation of net operating income, management excludes net realized investment gains or losses because net realized investment gains or losses related to the Company’s investment portfolio are largely discretionary, except for losses related to other-than-temporary impairments, are generally driven by economic factors that are not necessarily consistent with key drivers of underwriting performance, and are therefore not an indication of trends in insurance operations.

The Company’s investment portfolio is monitored by management through analyses of various factors including unrealized gains and losses on securities, portfolio duration and exposure to interest rate, market and credit risk. Based on such analyses, the Company may impair an investment security in accordance with its policy, or sell a security. Such activities will produce realized gains and losses.

The significant components of the Company’s continuing operations and selected balance sheet items are presented in the following tables.

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Three months ended										Corporate
June 30, 2009	Standard			Specialty			Life & Group			& Other
(In millions)	Lines			Lines			Non-Core			Non-Core			Eliminations			Total
Revenues:
Net earned premiums	$	671		$	834		$	148		$	4		$	(1	)	$	1,656
Net investment income		252			188			168			67			—			675
Other revenues		16			48			(1	)		(1	)		—			62
Total operating revenues		939			1,070			315			70			(1	)		2,393
Claims, benefits and expenses:
Net incurred claims and benefits		478			522			269			23			—			1,292
Policyholders’ dividends		(1	)		3			—			—			—			2
Amortization of deferred acquisition costs		163			182			4			—			—			349
Other insurance related expenses		68			63			47			1			(1	)		178
Other expenses		22			40			51			30			—			143
Total claims, benefits and expenses		730			810			371			54			(1	)		1,964
Operating income (loss) from continuing operations before income tax		209			260			(56	)		16			—			429
Income tax (expense) benefit on operating income (loss)		(64	)		(73	)		30			(3	)		—			(110	)
Net operating income attributable to noncontrolling interests		—			(14	)		—			—			—			(14	)
Net operating income (loss) from continuing operations attributable to CNAF		145			173			(26	)		13			—			305
Net realized investment gains (losses), net of participating policyholders’ interests		(170	)		(96	)		13			(44	)		—			(297	)
Income tax (expense) benefit on net realized investment gains (losses)		60			28			(4	)		14			—			98
Net realized investment (gains) losses, after-tax, attributable to noncontrolling interests		—			—			—			—			—			—
Net realized investment gains (losses) attributable to CNAF		(110	)		(68	)		9			(30	)		—			(199	)
Net income (loss) from continuing operations attributable to CNAF	$	35		$	105		$	(17	)	$	(17	)	$	—		$	106

48

Three months ended										Corporate
June 30, 2008	Standard			Specialty			Life & Group			& Other
(In millions)	Lines			Lines			Non-Core			Non-Core			Eliminations			Total
Revenues:
Net earned premiums	$	768		$	859		$	149		$	(1	)	$	(1	)	$	1,774
Net investment income		199			155			157			65			—			576
Other revenues		15			54			8			5			—			82
Total operating revenues		982			1,068			314			69			(1	)		2,432
Claims, benefits and expenses:
Net incurred claims and benefits		566			559			316			26			—			1,467
Policyholders’ dividends		3			1			1			—			—			5
Amortization of deferred acquisition costs		175			184			2			(1	)		—			360
Other insurance related expenses		48			53			51			(2	)		(1	)		149
Other expenses		12			41			5			29			—			87
Total claims, benefits and expenses		804			838			375			52			(1	)		2,068
Operating income (loss) from continuing operations before income tax		178			230			(61	)		17			—			364
Income tax (expense) benefit on operating income (loss)		(54	)		(74	)		31			(5	)		—			(102	)
Net operating income attributable to noncontrolling interests		—			(11	)		—			(1	)		—			(12	)
Net operating income (loss) from continuing operations attributable to CNAF		124			145			(30	)		11			—			250
Net realized investment losses, net of participating policyholders’ interests		(60	)		(29	)		(6	)		(16	)		—			(111	)
Income tax benefit on net realized investment losses		21			10			2			7			—			40
Net realized investment (gains) losses, after-tax, attributable to noncontrolling interests		—			—			—			—			—			—
Net realized investment losses attributable to CNAF		(39	)		(19	)		(4	)		(9	)		—			(71	)
Net income (loss) from continuing operations attributable to CNAF	$	85		$	126		$	(34	)	$	2		$	—		$	179

49

Six months ended										Corporate
June 30, 2009	Standard			Specialty			Life & Group			& Other
(In millions)	Lines			Lines			Non-Core			Non-Core			Eliminations			Total
Revenues:
Net earned premiums	$	1,381		$	1,646		$	298		$	5		$	(2	)	$	3,328
Net investment income		372			296			327			100			—			1,095
Other revenues		29			105			5			1			—			140
Total operating revenues		1,782			2,047			630			106			(2	)		4,563
Claims, benefits and expenses:
Net incurred claims and benefits		988			1,021			574			44			—			2,627
Policyholders’ dividends		2			6			1			—			—			9
Amortization of deferred acquisition costs		329			359			10			—			—			698
Other insurance related expenses		144			122			93			2			(2	)		359
Other expenses		31			96			57			60			—			244
Total claims, benefits and expenses		1,494			1,604			735			106			(2	)		3,937
Operating income (loss) from continuing operations before income tax		288			443			(105	)		—			—			626
Income tax (expense) benefit on operating income (loss)		(82	)		(126	)		57			4			—			(147	)
Net operating income attributable to noncontrolling interests		—			(25	)		—			—			—			(25	)
Net operating income (loss) from continuing operations attributable to CNAF		206			292			(48	)		4			—			454
Net realized investment losses, net of participating policyholders’ interests		(349	)		(212	)		(177	)		(91	)		—			(829	)
Income tax benefit on net realized investment losses		122			69			62			32			—			285
Net realized investment (gains) losses, after-tax, attributable to noncontrolling interests		—			1			—			—			—			1
Net realized investment losses attributable to CNAF		(227	)		(142	)		(115	)		(59	)		—			(543	)
Net income (loss) from continuing operations attributable to CNAF	$	(21	)	$	150		$	(163	)	$	(55	)	$	—		$	(89	)
June 30, 2009
(In millions)
Reinsurance receivables	$	2,123		$	1,417		$	1,830		$	1,967		$	—		$	7,337
Insurance receivables	$	1,258		$	796		$	9		$	(3	)	$	—		$	2,060
Deferred acquisition costs	$	307		$	376		$	462		$	—		$	—		$	1,145
Insurance reserves:
Claim and claim adjustment expenses	$	11,705		$	8,462		$	2,862		$	4,071		$	—		$	27,100
Unearned premiums		1,481			1,872			154			3			(2	)		3,508
Future policy benefits		—			—			7,746			—			—			7,746
Policyholders’ funds		10			13			194			—			—			217

50

Six months ended										Corporate
June 30, 2008	Standard			Specialty			Life & Group			& Other
(In millions)	Lines			Lines			Non-Core			Non-Core			Eliminations			Total
Revenues:
Net earned premiums	$	1,551		$	1,732		$	306		$	—		$	(2	)	$	3,587
Net investment income		363			287			241			119			—			1,010
Other revenues		29			107			21			11			—			168
Total operating revenues		1,943			2,126			568			130			(2	)		4,765
Claims, benefits and expenses:
Net incurred claims and benefits		1,143			1,125			528			47			—			2,843
Policyholders’ dividends		7			8			3			—			—			18
Amortization of deferred acquisition costs		354			368			6			—			—			728
Other insurance related expenses		106			103			101			2			(2	)		310
Other expenses		24			92			10			61			—			187
Total claims, benefits and expenses		1,634			1,696			648			110			(2	)		4,086
Operating income (loss) from continuing operations before income tax		309			430			(80	)		20			—			679
Income tax (expense) benefit on operating income (loss)		(90	)		(138	)		47			(3	)		—			(184	)
Net operating income attributable to noncontrolling interests		—			(23	)		—			(1	)		—			(24	)
Net operating income (loss) from continuing operations attributable to CNAF		219			269			(33	)		16			—			471
Net realized investment losses, net of participating policyholders’ interests		(76	)		(38	)		(23	)		(25	)		—			(162	)
Income tax benefit on net realized investment losses		26			14			8			10			—			58
Net realized investment (gains) losses, after-tax, attributable to noncontrolling interests		—			—			—			—			—			—
Net realized investment losses attributable to CNAF		(50	)		(24	)		(15	)		(15	)		—			(104	)
Net income (loss) from continuing operations attributable to CNAF	$	169		$	245		$	(48	)	$	1		$	—		$	367
December 31, 2008
(In millions)
Reinsurance receivables	$	2,266		$	1,496		$	1,907		$	2,092		$	—		$	7,761
Insurance receivables	$	1,264		$	765		$	6		$	4		$	—		$	2,039
Deferred acquisition costs	$	293		$	360		$	472		$	—		$	—		$	1,125
Insurance reserves:
Claim and claim adjustment expenses	$	12,048		$	8,282		$	2,862		$	4,401		$	—		$	27,593
Unearned premiums		1,401			1,848			152			5			—			3,406
Future policy benefits		—			—			7,529			—			—			7,529
Policyholders’ funds		14			10			219			—			—			243

51

The following table provides revenue by line of business for each reportable segment. Revenues are comprised of operating revenues and net realized investment gains and losses, net of participating policyholders’ interests.

Revenue by Line of Business

Periods ended June 30	Three Months						Six Months
(In millions)	2009			2008			2009			2008
Standard Lines
Business Insurance	$	113		$	155		$	243		$	310
Commercial Insurance		656			767			1,190			1,557
Standard Lines revenue		769			922			1,433			1,867
Specialty Lines
U.S. Specialty Lines		602			640			1,119			1,287
Surety		119			120			232			235
Warranty		69			75			121			148
CNA Global		184			204			363			418
Specialty Lines revenue		974			1,039			1,835			2,088
Life & Group Non-Core
Life & Annuity		63			54			87			33
Health		266			242			363			480
Other		(1	)		12			3			32
Life & Group Non-Core revenue		328			308			453			545
Corporate & Other Non-Core
CNA Re		9			15			9			32
Other		17			38			6			73
Corporate & Other Non-Core revenue		26			53			15			105
Eliminations		(1	)		(1	)		(2	)		(2	)
Total revenue	$	2,096		$	2,321		$	3,734		$	4,603

52

Note L. Discontinued Operations

CNA has discontinued operations, which consist of run-off insurance and reinsurance operations acquired in its merger with The Continental Corporation in 1995. The remaining run-off business is administered by Continental Reinsurance Corporation International, Ltd., a wholly-owned Bermuda subsidiary. The business consists of facultative property and casualty, treaty excess casualty and treaty pro-rata reinsurance with underlying exposure to a diverse, multi-line domestic and international book of business encompassing property, casualty and marine liabilities.

Results of the discontinued operations were as follows.

Discontinued Operations

Periods ended June 30	Three Months					Six Months
(In millions)	2009			2008		2009			2008
Revenues:
Net investment income	$	2		$	2	$	3		$	4
Net realized investment gains and other		—			1		—			2
Total revenues		2			3		3			6
Insurance related expenses		3			1		4			5
Income (loss) before income taxes		(1	)		2		(1	)		1
Income tax (expense) benefit		—			—		—			—
Income (loss) from discontinued operations, net of tax	$	(1	)	$	2	$	(1	)	$	1

Net liabilities of discontinued operations, included in Other liabilities on the Condensed Consolidated Balance Sheets, were as follows.

Discontinued Operations

(In millions)	June 30, 2009			December 31, 2008
Assets:
Investments	$	144		$	157
Reinsurance receivables		5			6
Cash		—			—
Other assets		1			1
Total assets		150			164
Liabilities:
Insurance reserves		154			162
Other liabilities		4			8
Total liabilities		158			170
Net liabilities of discontinued operations	$	(8	)	$	(6	)

CNA’s accounting and reporting for discontinued operations is in accordance with APB Opinion No. 30, 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. At June 30, 2009 and December 31, 2008, the insurance reserves are net of discount of $61 million and $75 million. The net income (loss) from discontinued operations reported above primarily represents the net investment income, realized investment gains and losses, foreign currency transaction gains and losses, effects of the accretion of the loss reserve discount and re-estimation of the ultimate claim and claim adjustment expense of the discontinued operations.

53

CNA Financial Corporation

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Overview

The following discussion highlights significant factors impacting the consolidated operations and financial condition of CNA Financial Corporation (CNAF) and its subsidiaries (collectively CNA or the Company). References to “CNA,” “the Company,” “we,” “our,” “us” or like terms refer to the business of CNA and its subsidiaries. Based on 2007 statutory net written premiums, we are the seventh largest commercial insurance writer and the thirteenth largest property and casualty insurance organization in the United States of America. References to net operating income (loss), net realized investment gains (losses) and net income (loss) used in this MD&A reflect amounts attributable to CNAF, unless otherwise noted.

The following discussion should be read in conjunction with the Condensed Consolidated Financial Statements in Item 1 of Part I of this Form 10-Q and Item 1A Risk Factors and Item 7 Management’s Discussion and Analysis of Financial Condition and Results of Operations, which are included in our Form 10-K filed with the Securities and Exchange Commission (SEC) for the year ended December 31, 2008.

Changes in estimates of claim and allocated claim adjustment expense reserves and premium accruals, net of reinsurance, for prior years are defined as net prior year development within this MD&A. These changes can be favorable or unfavorable. Net prior year development does not include the impact of related acquisition expenses. Further information on our reserves is provided in Note G of the Condensed Consolidated Financial Statements included under Item 1.

54

CONSOLIDATED OPERATIONS

Results of Operations

The following table includes our consolidated results of operations. For more detailed components of our business operations and the net operating income financial measure, see the segment discussions within this MD&A.

Periods ended June 30	Three Months						Six Months
(In millions, except per share data)	2009			2008			2009			2008
Revenues
Net earned premiums	$	1,656		$	1,774		$	3,328		$	3,587
Net investment income		675			576			1,095			1,010
Other revenues		62			82			140			168
Total operating revenues		2,393			2,432			4,563			4,765
Claims, benefits and expenses
Net incurred claims and benefits		1,292			1,467			2,627			2,843
Policyholders’ dividends		2			5			9			18
Amortization of deferred acquisition costs		349			360			698			728
Other insurance related expenses		178			149			359			310
Other expenses		143			87			244			187
Total claims, benefits and expenses		1,964			2,068			3,937			4,086
Operating income from continuing operations before income tax		429			364			626			679
Income tax expense on operating income		(110	)		(102	)		(147	)		(184	)
Net operating income attributable to noncontrolling interests		(14	)		(12	)		(25	)		(24	)
Net operating income from continuing operations attributable to CNAF		305			250			454			471
Net realized investment losses, net of participating policyholders’ interests		(297	)		(111	)		(829	)		(162	)
Income tax benefit on net realized investment losses		98			40			285			58
Net realized investment losses, after-tax, attributable to noncontrolling interests		—			—			1			—
Net realized investment losses attributable to CNAF		(199	)		(71	)		(543	)		(104	)
Income (loss) from continuing operations attributable to CNAF		106			179			(89	)		367
Income (loss) from discontinued operations attributable to CNAF, net of income tax (expense) benefit of $0, $0, $0 and $0		(1	)		2			(1	)		1
Net income (loss) attributable to CNAF	$	105		$	181		$	(90	)	$	368

Three Month Comparison

Net income decreased $76 million for the three months ended June 30, 2009 as compared with the same period in 2008. This decrease was due to higher net realized investment losses, partially offset by improved net operating income.

Net realized investment losses increased $128 million for the three months ended June 30, 2009 as compared with the same period in 2008. See the Investments section of this MD&A for further discussion of net realized investment results.

55

Net operating income increased $55 million for the three months ended June 30, 2009 as compared with the same period in 2008. Net operating results increased $49 million for Standard and Specialty Lines and $6 million for our non-core operations. These increases were primarily due to higher net investment income. See the Investments section of this MD&A for further discussion of net investment income. Standard Lines and Specialty Lines current period underwriting results reflected lower losses and higher expenses as compared to the prior period.

Favorable net prior year development of $60 million was recorded for the three months ended June 30, 2009 related to our Standard Lines, Specialty Lines and Corporate & Other Non-Core segments. This amount reflected $116 million of favorable claim and allocated claim adjustment expense reserve development and $56 million of unfavorable premium development. Favorable net prior year development of $9 million was recorded for the three months ended June 30, 2008 related to our Standard Lines, Specialty Lines and Corporate & Other Non-Core segments. This amount reflected $3 million of favorable claim and allocated claim adjustment expense reserve development and $6 million of favorable premium development. Further information on net prior year development for the three months ended June 30, 2009 and 2008 is included in Note G of the Condensed Consolidated Financial Statements included under Item 1.

Net earned premiums decreased $118 million for the three months ended June 30, 2009 as compared with the same period in 2008, including a $97 million decrease related to Standard Lines and a $25 million decrease related to Specialty Lines. See the Segment Results section of this MD&A for further discussion.

Six Month Comparison

Net results decreased $458 million for the six months ended June 30, 2009 as compared with the same period in 2008. This decrease was primarily due to higher net realized investment losses.

Net realized investment losses increased $439 million for the six months ended June 30, 2009 as compared with the same period in 2008. See the Investments section of this MD&A for further discussion of net realized investment results.

Net operating income decreased $17 million for the six months ended June 30, 2009 as compared with the same period in 2008. Net operating income increased $10 million for Standard and Specialty Lines and decreased $27 million for our non-core operations. Net investment income for the six months ended June 30, 2008 included trading portfolio losses of $81 million. The trading portfolio supported the indexed group annuity portion of our pension deposit business which was exited during 2008. Excluding the trading portfolio losses in 2008, net investment income increased $4 million. See the Investments section of this MD&A for further discussion of net investment income. Standard Lines and Specialty Lines current period underwriting results reflected lower losses and higher expenses as compared to the prior period.

Results for the six months ended June 30, 2009 included expense of $22 million related to our pension and postretirement plans, compared with a benefit of $6 million for the six months ended June 30, 2008. Based on our current assumptions and pension trust investment performance in 2008, our estimated expense for pension and postretirement plans is approximately $46 million for the year ended December 31, 2009 as compared with a benefit of $14 million for the year ended December 31, 2008.

Favorable net prior year development of $116 million was recorded for the six months ended June 30, 2009 related to our Standard Lines, Specialty Lines and Corporate & Other Non-Core segments. This amount reflected $186 million of favorable claim and allocated claim adjustment expense reserve development and $70 million of unfavorable premium development. Favorable net prior year development of $33 million was recorded for the six months ended June 30, 2008 related to our Standard Lines, Specialty Lines and Corporate & Other Non-Core segments. This amount reflected $16 million of favorable claim and allocated claim adjustment expense reserve development and $17 million of favorable premium development. Further information on net prior year development for the six months ended June 30, 2009 and 2008 is included in Note G of the Condensed Consolidated Financial Statements included under Item 1.

Net earned premiums decreased $259 million for the six months ended June 30, 2009 as compared with the same period in 2008, including a $170 million decrease related to Standard Lines and a $86 million decrease related to Specialty Lines. See the Segment Results section of this MD&A for further discussion.

56

Critical Accounting Estimates

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

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

The accounting estimates below are considered by us to be critical to an understanding of our Condensed Consolidated Financial Statements as their application places the most significant demands on our judgment.

• Insurance Reserves

• Reinsurance

• Valuation of Investments and Impairment of Securities

• Long Term Care Products

• Pension and Postretirement Benefit Obligations

• Legal Proceedings

• Income Taxes

Due to the inherent uncertainties involved with these types of judgments, actual results could differ significantly from estimates and may have a material adverse impact on our results of operations or equity. See the Critical Accounting Estimates section of our Management’s Discussion and Analysis of Financial Condition and Results of Operations included under Item 7 of our Form 10-K for further information. During the second quarter of 2009, the Company adopted FSP FAS 115-2 and FAS 124-2, Recognition and Presentation of Other-Than-Temporary Impairments, as discussed in Note B of the Condensed Consolidated Financial Statements included under Item 1.

57

SEGMENT RESULTS

The following discusses the results of continuing operations for our operating segments. We utilize the net operating income financial measure to monitor our operations. Net operating income is calculated by excluding from net income (loss) attributable to CNAF the after-tax effects of 1) net realized investment gains or losses, 2) income or loss from discontinued operations and 3) any cumulative effects of changes in accounting principles. See further discussion regarding how we manage our business in Note K of the Condensed Consolidated Financial Statements included under Item 1. In evaluating the results of our Standard Lines and Specialty Lines segments, we utilize the loss ratio, the expense ratio, the dividend ratio, and the combined ratio. These ratios are calculated using GAAP financial results. The loss ratio is the percentage of net incurred claim and claim adjustment expenses to net earned premiums. The expense ratio is the percentage of insurance underwriting and acquisition expenses, including the amortization of deferred acquisition costs, to net earned premiums. The dividend ratio is the ratio of policyholders’ dividends incurred to net earned premiums. The combined ratio is the sum of the loss, expense and dividend ratios.

58

STANDARD LINES

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

Results of Operations

Periods ended June 30	Three Months						Six Months
(In millions)	2009			2008			2009			2008
Net written premiums	$	761		$	848		$	1,524		$	1,619
Net earned premiums		671			768			1,381			1,551
Net investment income		252			199			372			363
Net operating income		145			124			206			219
Net realized investment losses, after-tax		(110	)		(39	)		(227	)		(50	)
Net income (loss) attributable to CNAF		35			85			(21	)		169
Ratios
Loss and loss adjustment expense		71.3	%		73.7	%		71.5	%		73.7	%
Expense		34.4			29.0			34.2			29.6
Dividend		(0.2	)		0.5			0.2			0.5
Combined		105.5	%		103.2	%		105.9	%		103.8	%

Three Month Comparison

Net written premiums for Standard Lines decreased $87 million for the three months ended June 30, 2009 as compared with the same period in 2008. Despite favorable new business in the current three month period, premiums written were unfavorable in both our Business and Commercial Insurance groups, impacted by general economic conditions and lower premium rates, as compared with the second quarter of 2008. The current economic conditions have led to decreased industry insured exposures, particularly in the construction industry with smaller payrolls and reduced project volume. This, along with the competitive market conditions, may continue to put ongoing pressure on premium and income levels, and the expense ratio. Net earned premiums decreased $97 million for the three months ended June 30, 2009 as compared with the same period in 2008, consistent with the trend of lower net written premiums as well as unfavorable premium development in 2009.

Standard Lines averaged rate decreases of 1% for the three months ended June 30, 2009, as compared to decreases of 5% for the three months ended June 30, 2008 for the contracts that renewed during those periods. Retention rates of 80% and 81% were achieved for those contracts that were available for renewal in each period.

Net income decreased $50 million for the three months ended June 30, 2009 as compared with the same period in 2008. This decrease was due to higher net realized investment losses, partially offset by improved net operating income. See the Investments section of this MD&A for further discussion of the net realized investment results and net investment income.

Net operating income improved $21 million for the three months ended June 30, 2009 as compared with the same period in 2008. This improvement was primarily due to higher net investment income, partially offset by decreased underwriting results.

The combined ratio increased 2.3 points for the three months ended June 30, 2009 as compared with the same period in 2008. The loss ratio improved 2.4 points primarily due to favorable loss development.

The expense ratio increased 5.4 points for the three months ended June 30, 2009 as compared with the same period in 2008, primarily related to higher underwriting expenses and the lower net earned premium base. Underwriting expenses increased primarily due to higher employee-related costs. Additionally, the 2008 results included favorable changes in estimates for insurance-related assessment liabilities. These unfavorable impacts were partially offset by a change in estimate of the ultimate assessment from the Texas Windstorm Insurance Association related to catastrophe losses incurred in the third quarter of 2008.

The dividend ratio decreased 0.7 points due to favorable development recorded on workers’ compensation coverages.

59

Favorable net prior year development of $21 million was recorded for the three months ended June 30, 2009, reflecting $80 million of favorable claim and allocated claim adjustment expense reserve development and $59 million of unfavorable premium development. Favorable net prior year development of $23 million, reflecting $15 million of favorable claim and allocated claim adjustment expense reserve development and $8 million of favorable premium development, was recorded for the three months ended June 30, 2008. Further information on Standard Lines net prior year development for the three months ended June 30, 2009 and 2008 is included in Note G of the Condensed Consolidated Financial Statements included under Item 1.

Six Month Comparison

Net written premiums for Standard Lines decreased $95 million and net earned premiums decreased $170 million for the six months ended June 30, 2009 as compared with the same period in 2008, due primarily to the same reasons discussed above in the three month comparison.

Standard Lines averaged rate decreases of 1% for the six months ended June 30, 2009, as compared to decreases of 6% for the six months ended June 30, 2008 for the contracts that renewed during those periods. Retention rates of 81% and 81% were achieved for those contracts that were available for renewal in each period.

Net results decreased $190 million for the six months ended June 30, 2009 as compared with the same period in 2008. This decrease was due to higher net realized investment losses and decreased net operating income. See the Investments section of this MD&A for further discussion of the net realized investment results and net investment income.

Net operating income decreased $13 million for the six months ended June 30, 2009 as compared with the same period in 2008. This decline was primarily due to decreased underwriting results.

The combined ratio increased 2.1 points for the six months ended June 30, 2009 as compared with the same period in 2008. The loss ratio improved 2.2 points primarily due to decreased catastrophe losses. Catastrophe losses were $52 million, or 3.8 points of the loss ratio, for the six months ended June 30, 2009 as compared to $98 million, or 6.3 points of the loss ratio, for the same period in 2008.

The expense ratio increased 4.6 points for the six months ended June 30, 2009 as compared with the same period in 2008, primarily related to the reasons discussed in the three month comparison.

Favorable net prior year development of $34 million was recorded for the six months ended June 30, 2009, reflecting $110 million of favorable claim and allocated claim adjustment expense reserve development and $76 million of unfavorable premium development. Favorable net prior year development of $49 million, reflecting $50 million of favorable claim and allocated claim adjustment expense reserve development and $1 million of unfavorable premium development, was recorded for the six months ended June 30, 2008. Further information on Standard Lines net prior year development for the six months ended June 30, 2009 and 2008 is included in Note G of the Condensed Consolidated Financial Statements included under Item 1.

The following table summarizes the gross and net carried reserves as of June 30, 2009 and December 31, 2008 for Standard Lines.

Gross and Net Carried
Claim and Claim Adjustment Expense Reserves

(In millions)	June 30, 2009		December 31, 2008
Gross Case Reserves	$	6,030	$	6,158
Gross IBNR Reserves		5,675		5,890
Total Gross Carried Claim and Claim Adjustment Expense Reserves	$	11,705	$	12,048
Net Case Reserves	$	4,838	$	4,995
Net IBNR Reserves		4,817		4,875
Total Net Carried Claim and Claim Adjustment Expense Reserves	$	9,655	$	9,870

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SPECIALTY LINES

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

Results of Operations

Periods ended June 30	Three Months						Six Months
(In millions)	2009			2008			2009			2008
Net written premiums	$	834		$	860		$	1,663		$	1,708
Net earned premiums		834			859			1,646			1,732
Net investment income		188			155			296			287
Net operating income		173			145			292			269
Net realized investment losses, after-tax		(68	)		(19	)		(142	)		(24	)
Net income attributable to CNAF		105			126			150			245
Ratios
Loss and loss adjustment expense		62.5	%		65.2	%		62.0	%		65.0	%
Expense		29.2			27.6			29.2			27.1
Dividend		0.4			0.1			0.4			0.5
Combined		92.1	%		92.9	%		91.6	%		92.6	%

Three Month Comparison

Net written premiums for Specialty Lines decreased $26 million for the three months ended June 30, 2009 as compared with the same period in 2008. Premiums written were unfavorably impacted by foreign exchange and current economic conditions. The current economic conditions have led to decreased industry insured exposures, particularly in the surety bond, architects, engineers and realtors professional liability marketplace. This, along with the competitive market conditions, may continue to put ongoing pressure on premium and income levels, and the expense ratio. Net earned premiums decreased $25 million for the three months ended June 30, 2009 as compared with the same period in 2008, consistent with the trend of lower net written premiums.

Specialty Lines averaged rate decreases of 1% for the three months ended June 30, 2009 as compared to decreases of 3% for the three months ended June 30, 2008 for the contracts that renewed during those periods. Retention rates of 84% were achieved for those contracts that were available for renewal in both periods.

Net income decreased $21 million for the three months ended June 30, 2009 as compared with the same period in 2008. This decrease was due to higher net realized investment losses, partially offset by increased net operating income. See the Investments section of this MD&A for further discussion of the net realized investment results and net investment income.

Net operating income improved $28 million for the three months ended June 30, 2009 as compared with the same period in 2008. This improvement was primarily due to higher net investment income and a $14 million favorable income tax adjustment related to our European operation.

The combined ratio improved 0.8 points for the three months ended June 30, 2009 as compared with the same period in 2008. The loss ratio improved 2.7 points, primarily due to favorable net prior year development in the current period as compared with unfavorable net prior year development in the prior year period. This was partially offset by higher current accident year loss ratios recorded in several lines of business.

The expense ratio increased 1.6 points for the three months ended June 30, 2009 as compared with the same period in 2008. The increase primarily related to increased underwriting expenses and the lower net earned premium base. Underwriting expenses increased due primarily to higher employee-related costs.

Favorable net prior year development of $41 million, reflecting $40 million of favorable claim and allocated claim adjustment expense reserve development and $1 million of favorable premium

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development, was recorded for the three months ended June 30, 2009. Unfavorable net prior year development of $2 million, reflecting $1 million of unfavorable claim and allocated claim adjustment expense reserve development and $1 million of unfavorable premium development, was recorded for the three months ended June 30, 2008. Further information on Specialty Lines net prior year development for the three months ended June 30, 2009 and 2008 is included in Note G of the Condensed Consolidated Financial Statements included under Item 1.

Six Month Comparison

Net written premiums for Specialty Lines decreased $45 million and net earned premiums decreased $86 million for the six months ended June 30, 2009 as compared with the same period in 2008, due primarily to the same reasons discussed above in the three month comparison.

Specialty Lines averaged rate decreases of 1% for the six months ended June 30, 2009 as compared to decreases of 3% for the same period in 2008 for the contracts that renewed during those periods. Retention rates of 84% were achieved for those contracts that were available for renewal in both periods.

Net income decreased $95 million for the six months ended June 30, 2009 as compared with the same period in 2008. This decrease was primarily due to higher net realized investment losses. See the Investments section of this MD&A for further discussion of the net realized investment results.

Net operating income increased $23 million for the six months ended June 30, 2009 as compared with the same period in 2008, due to the same reasons discussed above in the three month comparison.

The combined ratio improved 1.0 point for the six months ended June 30, 2009 as compared with the same period in 2008. The loss ratio improved 3.0 points and the expense ratio increased 2.1 points, primarily due to the reasons discussed above in the three month comparison.

Favorable net prior year development of $84 million, reflecting $81 million of favorable claim and allocated claim adjustment expense reserve development and $3 million of favorable premium development, was recorded for the six months ended June 30, 2009. Unfavorable claim and allocated claim adjustment expense reserve development of $18 million and favorable premium development of $18 million was recorded for the six months ended June 30, 2008, resulting in no net prior year development. Further information on Specialty Lines net prior year development for the six months ended June 30, 2009 and 2008 is included in Note G of the Condensed Consolidated Financial Statements included under Item 1.

The following table summarizes the gross and net carried reserves as of June 30, 2009 and December 31, 2008 for Specialty Lines.

Gross and Net Carried
Claim and Claim Adjustment Expense Reserves

(In millions)	June 30, 2009		December 31, 2008
Gross Case Reserves	$	2,719	$	2,719
Gross IBNR Reserves		5,743		5,563
Total Gross Carried Claim and Claim Adjustment Expense Reserves	$	8,462	$	8,282
Net Case Reserves	$	2,194	$	2,149
Net IBNR Reserves		4,894		4,694
Total Net Carried Claim and Claim Adjustment Expense Reserves	$	7,088	$	6,843

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LIFE & GROUP NON-CORE

The following table summarizes the results of operations for Life & Group Non-Core.

Results of Operations

Periods ended June 30	Three Months						Six Months
(In millions)	2009			2008			2009			2008
Net earned premiums	$	148		$	149		$	298		$	306
Net investment income		168			157			327			241
Net operating loss		(26	)		(30	)		(48	)		(33	)
Net realized investment gains (losses), after-tax		9			(4	)		(115	)		(15	)
Net loss attributable to CNAF		(17	)		(34	)		(163	)		(48	)

Three Month Comparison

Net earned premiums for Life & Group Non-Core decreased $1 million for the three months ended June 30, 2009 as compared with the same period in 2008. Net earned premiums relate primarily to the group and individual long term care businesses.

Net loss decreased $17 million for the three months ended June 30, 2009 as compared with the same period in 2008. The decrease in net loss was due to favorable performance on our remaining pension deposit business and improved net realized investment results. Certain of the separate account investment contracts related to our pension deposit business guarantee principal and a minimum rate of interest, for which we had previously recorded an additional pretax liability in Policyholders’ funds. We decreased this pretax liability by $31 million during the second quarter of 2009 based on the results of the investments supporting this business. Partially offsetting these favorable items was a $28 million after-tax legal accrual recorded in the second quarter of 2009 related to a previously held limited partnership investment. The limited partnership investment supported the indexed group annuity portion of our pension deposit business, which we exited during 2008.

Six Month Comparison

Net earned premiums for Life & Group Non-Core decreased $8 million for the six months ended June 30, 2009 as compared with the same period in 2008.

Net loss increased $115 million for the six months ended June 30, 2009 as compared with the same period in 2008. The increase in net loss was due to higher net realized investment losses and the legal accrual related to the limited partnership investment as discussed above in the three month comparison. These unfavorable impacts were partially offset by favorable performance on our remaining pension deposit business. For the six months ended June 30, 2009, the pretax liability related to principal and interest guarantees, as discussed above, was decreased by $18 million.

Net investment income for the six months ended June 30, 2008 included trading portfolio losses of $81 million, which were substantially offset by a corresponding decrease in the policyholders’ funds reserves supported by the trading portfolio. The trading portfolio supported the indexed group annuity portion of our pension deposit business which was exited during 2008. That business had a net loss of $5 million for the six months ended June 30, 2008. See the Investments section of this MD&A for further discussion of net investment income and net realized investment results.

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CORPORATE & OTHER NON-CORE

The following table summarizes the results of operations for the Corporate & Other Non-Core segment, including Asbestos and Environmental Pollution (A&E) and intrasegment eliminations.

Results of Operations

Periods ended June 30	Three Months						Six Months
(In millions)	2009			2008			2009			2008
Net investment income	$	67		$	65		$	100		$	119
Net operating income		13			11			4			16
Net realized investment losses, after-tax		(30	)		(9	)		(59	)		(15	)
Net income (loss) attributable to CNAF		(17	)		2			(55	)		1

Three Month Comparison

Net results decreased $19 million for the three months ended June 30, 2009 as compared with the same period in 2008. The decrease was primarily due to higher net realized investment losses. See the Investments section of this MD&A for further discussion of net investment income and net realized investment results.

Unfavorable net prior year development of $2 million, reflecting $4 million of unfavorable claim and allocated claim adjustment expense reserve development and $2 million of favorable premium development, was recorded for the three months ended June 30, 2009. Unfavorable net prior year development of $12 million, reflecting $11 million of unfavorable net prior year claim and allocated claim adjustment expense reserve development and $1 million of unfavorable premium development, was recorded for the three months ended June 30, 2008.

Six Month Comparison

Net results decreased $56 million for the six months ended June 30, 2009 as compared with the same period in 2008. The decrease was primarily due to higher net realized investment losses and lower net investment income. See the Investments section of this MD&A for further discussion of net investment income and net realized investment results.

Unfavorable net prior year development of $2 million, reflecting $5 million of unfavorable claim and allocated claim adjustment expense reserve development and $3 million of favorable premium development, was recorded for the six months ended June 30, 2009. Unfavorable net prior year claim and allocated claim adjustment expense reserve development of $16 million was recorded for the six months ended June 30, 2008. There was no premium development recorded for the six months ended June 30, 2008.

The following table summarizes the gross and net carried reserves as of June 30, 2009 and December 31, 2008 for Corporate & Other Non-Core.

Gross and Net Carried
Claim and Claim Adjustment Expense Reserves

(In millions)	June 30, 2009		December 31, 2008
Gross Case Reserves	$	1,685	$	1,823
Gross IBNR Reserves		2,386		2,578
Total Gross Carried Claim and Claim Adjustment Expense Reserves	$	4,071	$	4,401
Net Case Reserves	$	1,000	$	1,126
Net IBNR Reserves		1,481		1,561
Total Net Carried Claim and Claim Adjustment Expense Reserves	$	2,481	$	2,687

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A&E Reserves

Our property and casualty insurance subsidiaries have actual and potential exposures related to asbestos and environmental pollution (A&E) claims. Further information on A&E claim and claim adjustment expense reserves and net prior year development is included in Note G of the Condensed Consolidated Financial Statements included under Item 1.

Asbestos

We have resolved a number of our large asbestos accounts by negotiating settlement agreements. Structured settlement agreements provide for payments over multiple years as set forth in each individual agreement.

In 1985, 47 asbestos producers and their insurers, including The Continental Insurance Company (CIC), executed the Wellington Agreement. The agreement was intended to resolve all issues and litigation related to coverage for asbestos exposures. Under this agreement, signatory insurers committed scheduled policy limits and made the limits available to pay asbestos claims based upon coverage blocks designated by the policyholders in 1985, subject to extension by policyholders. CIC was a signatory insurer to the Wellington Agreement.

We have also used coverage in place agreements to resolve large asbestos exposures. Coverage in place agreements are typically agreements with our policyholders identifying the policies and the terms for payment of asbestos related liabilities. Claim payments are contingent on presentation of documentation supporting the demand for claim payment. Coverage in place agreements may have annual payment caps. Coverage in place agreements are evaluated based on claim filing trends and severities.

We categorize active asbestos accounts as large or small accounts. We define a large account as an active account with more than $100 thousand of cumulative paid losses. We have made resolving large accounts a significant management priority. Small accounts are defined as active accounts with $100 thousand or less of cumulative paid losses. Approximately 80% and 81% of our total active asbestos accounts are classified as small accounts at June 30, 2009 and December 31, 2008.

We also evaluate our asbestos liabilities arising from our assumed reinsurance business and our participation in various pools, including Excess & Casualty Reinsurance Association (ECRA).

We carry unassigned IBNR reserves for asbestos. These reserves relate to potential development on accounts that have not settled and potential future claims from unidentified policyholders.

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The tables below depict our overall pending asbestos accounts and associated reserves at June 30, 2009 and December 31, 2008.

Pending Asbestos Accounts and Associated Reserves

			Net Paid Losses		Net Asbestos		Percent of
	Number of		in 2009		Reserves		Asbestos
June 30, 2009	Policyholders		(In millions)		(In millions)		Net Reserves
Policyholders with settlement agreements
Structured settlements		18	$	19	$	132		12	%
Wellington		3		1		8		1
Coverage in place		38		6		101		9
Total with settlement agreements		59		26		241		22
Other policyholders with active accounts
Large asbestos accounts		244		47		208		18
Small asbestos accounts		981		10		77		7
Total other policyholders		1,225		57		285		25
Assumed reinsurance and pools		—		6		108		10
Unassigned IBNR		—		—		479		43
Total		1,284	$	89	$	1,113		100	%

Pending Asbestos Accounts and Associated Reserves

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

Some asbestos-related defendants have asserted that their insurance policies are not subject to aggregate limits on coverage. We have such claims from a number of insureds. Some of these claims involve insureds facing exhaustion of products liability aggregate limits in their policies, who have asserted that their asbestos-related claims fall within so-called “non-products” liability coverage contained within their policies rather than products liability coverage, and that the claimed “non-products” coverage is not subject to any aggregate limit. It is difficult to predict the ultimate size of any of the claims for coverage purportedly not subject to aggregate limits or predict to what extent, if any, the attempts to assert “non-products” claims outside the products liability aggregate will succeed. Our policies also contain other limits applicable to these claims and we have additional coverage defenses to certain claims. We have attempted to manage our asbestos exposure by aggressively seeking to settle claims on acceptable terms.

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There can be no assurance that any of these settlement efforts will be successful, or that any such claims can be settled on terms acceptable to us. Where we cannot settle a claim on acceptable terms, we aggressively litigate the claim. However, adverse developments with respect to such matters could have a material adverse effect on our results of operations and/or equity.

We are involved in significant asbestos-related claim litigation, which is described in Note G of the Condensed Consolidated Financial Statements included under Item 1.

Environmental Pollution

We classify our environmental pollution accounts into several categories, which include structured settlements, coverage in place agreements and active accounts. Structured settlement agreements provide for payments over multiple years as set forth in each individual agreement.

We have also used coverage in place agreements to resolve pollution exposures. Coverage in place agreements are typically agreements with our policyholders identifying the policies and the terms for payment of pollution related liabilities. Claim payments are contingent on presentation of adequate documentation of damages during the policy periods and other documentation supporting the demand for claim payment. Coverage in place agreements may have annual payment caps.

We categorize active accounts as large or small accounts in the pollution area. We define a large account as an active account with more than $100 thousand cumulative paid losses. We have made closing large accounts a significant management priority. Small accounts are defined as active accounts with $100 thousand or less of cumulative paid losses. Approximately 74% and 73% of our total active pollution accounts are classified as small accounts as of June 30, 2009 and December 31, 2008.

We also evaluate our environmental pollution exposures arising from our assumed reinsurance and our participation in various pools, including ECRA.

We carry unassigned IBNR reserves for environmental pollution. These reserves relate to potential development on accounts that have not settled and potential future claims from unidentified policyholders.

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The tables below depict our overall pending environmental pollution accounts and associated reserves at June 30, 2009 and December 31, 2008.

Pending Environmental Pollution Accounts and Associated Reserves

					Net
					Environmental		Percent of
			Net Paid		Pollution		Environmental
	Number of		Losses in 2009		Reserves		Pollution Net
June 30, 2009	Policyholders		(In millions)		(In millions)		Reserve
Policyholders with settlement agreements
Structured settlements		13	$	6	$	19		8	%
Coverage in place		16		1		12		5
Total with settlement agreements		29		7		31		13
Other policyholders with active accounts
Large pollution accounts		115		8		41		17
Small pollution accounts		322		7		41		17
Total other policyholders		437		15		82		34
Assumed reinsurance and pools		—		—		27		11
Unassigned IBNR		—		—		100		42
Total		466	$	22	$	240		100	%

Pending Environmental Pollution Accounts and Associated Reserves

					Net		Percent of
			Net Paid Losses		Environmental		Environmental
	Number of		in 2008		Pollution Reserves		Pollution Net
December 31, 2008	Policyholders		(In millions)		(In millions)		Reserve
Policyholders with settlement agreements
Structured settlements		16	$	5	$	9		4	%
Coverage in place		16		3		13		5
Total with settlement agreements		32		8		22		9
Other policyholders with active accounts
Large pollution accounts		116		40		48		18
Small pollution accounts		320		11		41		16
Total other policyholders		436		51		89		34
Assumed reinsurance and pools		—		4		27		10
Unassigned IBNR		—		—		124		47
Total		468	$	63	$	262		100	%

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INVESTMENTS

We maintain a large portfolio of fixed maturity and equity securities, including large amounts of corporate and government issued debt securities, residential and commercial mortgage-backed securities, and other asset-backed securities and investments in limited partnerships which pursue a variety of long and short investment strategies across a broad array of asset classes. Our investment portfolio supports our obligation to pay future insurance claims and provides investment returns which are an important part of our overall profitability.

For more than a year, capital and credit markets have experienced severe levels of volatility, illiquidity, uncertainty and overall disruption. This market disruption subsided moderately during the second quarter of 2009. While the government has initiated programs intended to stabilize and improve markets and the economy, the ultimate impact of these programs remains uncertain and economic conditions in the U.S. remain challenging. As a result, we incurred realized losses in our investment portfolio during both the first and second quarters of 2009 which have adversely impacted our results of operations. The first quarter losses were primarily driven by continuing credit issues attributable to the asset-backed and financial sectors. The second quarter losses were primarily driven by the actual and anticipated impact of difficult economic conditions on residential and commercial mortgage-backed securities.

Net Investment Income

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

Net Investment Income

	Three Months						Six Months
Periods ended June 30	2009			2008			2009			2008
(In millions)
Fixed maturity securities	$	487		$	476		$	962		$	994
Short term investments		11			26			21			65
Limited partnerships		165			46			95			7
Equity securities		14			39			28			44
Trading portfolio — Indexed Group Annuity		—			(5	)		—			(81	)
Trading portfolio — Other		8			1			8			—
Other		1			5			4			11
Gross investment income		686			588			1,118			1,040
Investment expense		(11	)		(12	)		(23	)		(30	)
Net investment income	$	675		$	576		$	1,095		$	1,010

Net investment income for the three months ended June 30, 2009 increased $99 million as compared with the same period in 2008. The increase was primarily driven by improved results from limited partnership investments. This increase was partially offset by the impact of lower risk-free interest rates, particularly in short term rates. Limited partnership investments generally present greater volatility, higher illiquidity, and greater risk than fixed income investments.

Net investment income for the six months ended June 30, 2009 increased $85 million as compared with the same period in 2008. Excluding trading portfolio losses of $81 million in 2008, net investment income increased by $4 million. The trading portfolio losses were related to our indexed group annuity business and were substantially offset by a corresponding decrease in the policyholders’ funds reserves supported by the trading portfolio, which was included in Insurance claims and policyholders’ benefits on the Condensed Consolidated Statements of Operations. We exited the indexed group annuity business in 2008.

The fixed maturity investment portfolio and short term investments provided an income yield of 5.1% and 5.7% for the six months ended June 30, 2009 and 2008.

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Net Realized Investment Gains (Losses)

The components of net realized investment results are presented in the following table.

	Three Months						Six Months
Periods ended June 30	2009			2008			2009			2008
(In millions)
Fixed maturity securities:
U.S. Treasury securities and obligations of government agencies	$	(6	)	$	(46	)	$	(27	)	$	(14	)
Corporate and other taxable bonds		(96	)		(8	)		(269	)		(39	)
States, municipalities and political subdivisions — tax-exempt securities		17			10			54			50
Asset-backed securities		(307	)		(118	)		(499	)		(157	)
Redeemable preferred stock		—			4			(9	)		—
Total fixed maturity securities		(392	)		(158	)		(750	)		(160	)
Equity securities		64			(14	)		(152	)		(29	)
Derivative securities		33			56			64			12
Short term investments		(5	)		5			8			7
Other		3			—			1			8
Realized investment losses, net of participating policyholders’ interests		(297	)		(111	)		(829	)		(162	)
Income tax benefit		98			40			285			58
Realized investment losses, after-tax, attributable to noncontrolling interests		—			—			1			—
Net realized investment losses attributable to CNAF	$	(199	)	$	(71	)	$	(543	)	$	(104	)

Net realized investment losses increased by $128 million for the three months ended June 30, 2009 compared with the same period in 2008. Net realized investment losses increased by $439 million for the six months ended June 30, 2009 compared with the same period in 2008, driven by OTTI losses recognized in earnings. Further information on our realized gains and losses, including our OTTI losses and impairment decision process, is set forth in Note D of the Condensed Consolidated Financial Statements included under Item 1. During the second quarter of 2009, the Company adopted FSP FAS 115-2 and FAS 124-2, Recognition and Presentation of Other-Than-Temporary Impairments (FSP FAS 115-2 and FAS 124-2), as discussed in Note B of the Condensed Consolidated Financial Statements included under Item 1. The adoption of FSP FAS 115-2 and FAS 124-2 resulted in a cumulative effect adjustment of $122 million, net of tax, which was reclassified to Accumulated other comprehensive income from Retained earnings on the Condensed Consolidated Statement of Equity. Losses resulting from sales and OTTI of securities within the cumulative effect adjustment inventory of $52 million, net of tax, were recognized in earnings in the second quarter of 2009 and are reflected in the table above.

Our fixed maturity portfolio consists primarily of high quality bonds, 90% and 91% of which were rated as investment grade (rated BBB- or higher) at June 30, 2009 and December 31, 2008. The classification between investment grade and non-investment grade is based on a ratings methodology that takes into account ratings from the three major providers, Standard & Poors (S&P), Moody’s Investor Services, Inc. (Moody’s) and Fitch Ratings (Fitch) in that order of preference. If a security is not rated by any of the three, we formulate an internal rating. For securities with credit support from third party guarantees, the rating reflects the greater of the underlying rating of the issuer or the insured rating.

The following table summarizes the ratings of our fixed maturity portfolio at carrying value.

Fixed Maturity Ratings

	June 30,					December 31,
	2009		%			2008		%
(In millions)
U.S. Government and Agencies	$	3,128		10	%	$	4,611		16	%
AAA rated		7,165		23			8,494		29
AA and A rated		10,436		34			8,166		29
BBB rated		7,324		23			5,029		17
Non-investment grade		2,987		10			2,587		9
Total	$	31,040		100	%	$	28,887		100	%

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Non-investment grade bonds, as presented in the table below, are primarily high-yield securities rated below BBB- by bond rating agencies, as well as other unrated securities that, according to our analysis, are below investment grade. Non-investment grade securities generally involve a greater degree of risk than investment grade securities.

The following table summarizes the ratings of our non-investment grade fixed maturity bond portfolio at carrying value.

Non-investment Grade

	June 30,					December 31,
Rating	2009		%			2008		%
(In millions)
BB	$	1,244		42	%	$	1,585		61	%
B		1,084		36	%		754		29	%
CCC — C		602		20	%		232		9	%
D		57		2	%		16		1	%
Total	$	2,987		100	%	$	2,587		100	%

The increase in non-investment grade holdings primarily reflects the downgrade of previously investment grade rated asset-backed securities aggregating $441 million of fair value. The remaining change in non-investment grade was attributable to price appreciation and net sales.

Included within the fixed maturity portfolio are securities that contain credit support from third party guarantees from mono-line insurers. The ratings on these securities reflect the greater of the underlying rating of the issuer or the insured rating. At June 30, 2009, $678 million of the carrying value of the fixed maturity portfolio carried a third party guarantee that increased the underlying average rating of those securities from A+ to AA+. Of this amount, 90% was within the tax-exempt bond segment. The third party credit support on tax-exempt bonds is provided by seven mono-line insurers, the largest exposure based on fair value being Financial Security Assurance Inc. at 65%, National Re Corporation at 16% and Assured Guarantee Corporation at 11%.

At June 30, 2009 and December 31, 2008, approximately 97% of the fixed maturity portfolio was issued by U.S. Government and affiliated agencies or was rated by S&P or Moody’s. The remaining bonds were rated by other rating agencies or internally.

The carrying value of securities that are either subject to trading restrictions or trade in illiquid private placement markets at June 30, 2009 was $341 million, which represents less than 1.0% of our total investment portfolio. These securities were in a net unrealized gain position of $179 million at June 30, 2009.

The following table provides the composition of available-for-sale fixed maturity securities in a gross unrealized loss position at June 30, 2009 by maturity profile. Securities not due at a single date are allocated based on weighted average life.

Maturity Profile

	Percent of			Percent of
	Fair Value			Unrealized Loss
Due in one year or less		4	%		3	%
Due after one year through five years		23			21
Due after five years through ten years		21			23
Due after ten years		52			53
Total		100	%		100	%

Duration

A primary objective in the management of the fixed maturity and equity portfolios is to optimize return relative to underlying liabilities and respective liquidity needs. Our views on the current interest rate environment, tax regulations, asset class valuations, specific security issuer and broader industry segment conditions, and the domestic and global economic conditions, are some of the factors that enter into an investment decision. We

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also continually monitor exposure to issuers of securities held and broader industry sector exposures and may from time to time adjust such exposures based on our views of a specific issuer or industry sector.

A further consideration in the management of the investment portfolio is the characteristics of the underlying liabilities and the ability to align the duration of the portfolio to those liabilities to meet future liquidity needs, minimize interest rate risk and maintain a level of income sufficient to support the underlying insurance liabilities. For portfolios where future liability cash flows are determinable and typically long term in nature, we segregate investments for asset/liability management purposes.

The segregated investments support liabilities primarily in the Life & Group Non-Core segment including annuities, structured benefit settlements and long term care products. The remaining investments are managed to support the Standard Lines, Specialty Lines and Corporate & Other Non-Core segments.

The effective durations of fixed maturity securities, short term investments, non-redeemable preferred stocks and interest rate derivatives are presented in the table below. Short term investments are net of securities lending collateral and account payable and receivable amounts for securities purchased and sold, but not yet settled.

Effective Durations

	June 30, 2009				December 31, 2008
			Effective Duration				Effective Duration
	Fair Value		(In years)		Fair Value		(In years)
(In millions)
Segregated investments	$	9,161		10.5	$	8,168		9.9
Other interest sensitive investments		26,705		4.0		25,194		4.5
Total	$	35,866		5.6	$	33,362		5.8

The investment portfolio is periodically analyzed for changes in duration and related price change risk. Additionally, we periodically review the sensitivity of the portfolio to the level of foreign exchange rates and other factors that contribute to market price changes. A summary of these risks and specific analysis on changes is included in the Quantitative and Qualitative Disclosures About Market Risk in Item 7A of our Form 10-K.

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Asset-Backed Mortgage Exposure

Asset-Backed Distribution

	Security Type
June 30, 2009	RMBS(a)		CMBS(b)		Other ABS(c)		Total
(In millions)
U.S. Government Agencies	$	2,089	$	—	$	—	$	2,089
AAA		2,864		511		328		3,703
AA		244		72		6		322
A		203		50		9		262
BBB		255		7		87		349
Non-investment grade and equity tranches		609		12		—		621
Total Fair Value	$	6,264	$	652	$	430	$	7,346
Total Amortized Cost	$	7,457	$	901	$	476	$	8,834
Sub-prime (included above)
Fair Value	$	715	$	—	$	—	$	715
Amortized Cost	$	1,109	$	—	$	—	$	1,109
Alt-A (included above)
Fair Value	$	838	$	—	$	—	$	838
Amortized Cost	$	1,055	$	—	$	—	$	1,055

(a)	Residential mortgage-backed securities (RMBS)
(b)	Commercial mortgage-backed securities (CMBS)
(c)	Other asset-backed securities (Other ABS)

The exposure to sub-prime residential mortgage (sub-prime) collateral and Alternative A residential mortgages that have lower than normal standards of loan documentation (Alt-A) collateral is measured by the original deal structure. Of the securities with sub-prime exposure, approximately 93% were rated investment grade, while 78% of the Alt-A securities were rated investment grade. At June 30, 2009, $7 million of the carrying value of the sub-prime and Alt-A securities carried a third-party guarantee. We believe that each of these securities would be rated investment grade even without the benefit of any applicable third-party guarantees.

Included in the $480 million of OTTI losses related to asset-backed securities recognized in earnings on the Condensed Consolidated Statement of Operations for the six months ended June 30, 2009, $250 million was related to securities with sub-prime and Alt-A exposure. Continued deterioration in these markets beyond our current expectations may cause us to reconsider and incur additional OTTI losses. See Note D of the Condensed Consolidated Financial Statements included under Item 1 for additional information related to unrealized losses on asset-backed securities.

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Short Term Investments

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

Short Term Investments

	June 30,		December 31,
(In millions)	2009		2008
Short term investments available-for-sale:
Commercial paper	$	986	$	563
U.S. Treasury securities		2,483		2,258
Money market funds		238		329
Other, including collateral held related to securities lending		774		384
Total short term investments	$	4,481	$	3,534

There was no cash collateral held related to securities lending, included in other short term investments, at June 30, 2009 or December 31, 2008.

LIQUIDITY AND CAPITAL RESOURCES

Cash Flows

Our principal operating cash flow sources are premiums and investment income from our insurance subsidiaries. Our primary operating cash flow uses are payments for claims, policy benefits and operating expenses.

For the six months ended June 30, 2009, net cash provided by operating activities was $287 million as compared with $812 million for the same period in 2008. Cash provided by operating activities in 2008 was favorably impacted by increased net sales of trading securities to fund policyholders’ withdrawals of investment contract products issued by us, which are reflected as financing cash flows. The primary source of these cash flows was the indexed group annuity portion of our pension deposit business which we exited in 2008. Additionally, during the second quarter of 2009 we resumed the use of a trading portfolio for income enhancement purposes, resulting in the use of operating cash flows during 2009 to fund these activities.

Cash flows from investing activities include the purchase and sale of available-for-sale financial instruments. Additionally, cash flows from investing activities may include the purchase and sale of businesses, land, buildings, equipment and other assets not generally held for resale.

For the six months ended June 30, 2009, net cash used by investing activities was $220 million as compared with $231 million for the same period in 2008. Cash flows used by investing activities related principally to purchases of fixed maturity securities and short term investments. The cash flow from investing activities is impacted by various factors such as the anticipated payment of claims, financing activity, asset/liability management and individual security buy and sell decisions made in the normal course of portfolio management.

Cash flows from financing activities include proceeds from the issuance of debt and equity securities, outflows for dividends or repayment of debt, outlays to reacquire equity instruments, and deposits and withdrawals related to investment contract products issued by us.

For the six months ended June 30, 2009, net cash used by financing activities was $59 million as compared with $594 million for the same period in 2008. Net cash used by financing activities in 2009 was primarily related to the payment of dividends on the 2008 Senior Preferred stock to Loews Corporation.

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Liquidity

We believe that our present cash flows from operations, investing activities and financing activities are sufficient to fund our working capital and debt obligation needs and we do not expect this to change in the near term due to the following factors:

• We do not anticipate changes in our core property and casualty commercial insurance operations which would significantly impact liquidity and we continue to maintain reinsurance contracts which limit the impact of potential catastrophic events.

• We have entered into several settlement agreements and assumed reinsurance contracts that require collateralization of future payment obligations and assumed reserves if our ratings or other specific criteria fall below certain thresholds. The ratings triggers are generally more than one level below our current ratings. A downgrade below our current ratings levels would also result in additional collateral requirements for derivative contracts for which we are in a liability position at any given point in time. The maximum potential collateralization requirements are approximately $70 million.

• As of June 30, 2009, our holding company held short term investments of $454 million. Our holding company’s ability to meet its debt service and other obligations is significantly dependent on receipt of dividends from our subsidiaries. The payment of dividends to us by our insurance subsidiaries without prior approval of the insurance department of each subsidiary’s domiciliary jurisdiction is limited by formula. Notwithstanding this limitation, we believe that our holding company has sufficient liquidity to fund our preferred stock dividend and debt service payments in 2009.

We have an effective shelf registration statement under which we may issue $2.0 billion of debt or equity securities.

Accounting Pronouncements

For a discussion of accounting pronouncements that have been adopted or recently issued pronouncements that will be adopted in the future, see Note B of the Condensed Consolidated Financial Statements included under Item 1.

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FORWARD-LOOKING STATEMENTS

This report contains a number of forward-looking statements which relate to anticipated future events rather than actual present conditions or historical events. These statements are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995 and generally include words such as “believes,” “expects,” “intends,” “anticipates,” “estimates,” and similar expressions. Forward-looking statements in this report include any and all statements regarding expected developments in our insurance business, including losses and loss reserves for asbestos and environmental pollution and other mass tort claims which are more uncertain, and therefore more difficult to estimate than loss reserves respecting traditional property and casualty exposures; the impact of routine ongoing insurance reserve reviews we are conducting; our expectations concerning our revenues, earnings, expenses and investment activities; expected cost savings and other results from our expense reduction activities; and our proposed actions in response to trends in our business. Forward-looking statements, by their nature, are subject to a variety of inherent risks and uncertainties that could cause actual results to differ materially from the results projected in the forward-looking statement. We cannot control many of these risks and uncertainties. Some examples of these risks and uncertainties are:

• conditions in the capital and credit markets including severe levels of volatility, illiquidity, uncertainty and overall disruption, as well as sharply reduced economic activity, that may impact the returns, types, liquidity and valuation of our investments;

• general economic and business conditions, including recessionary conditions that may decrease the size and number of our insurance customers and create higher exposures to our lines of business, especially those that provide management and professional liability insurance, as well as surety bonds, to businesses engaged in real estate, financial services and professional services, and inflationary pressures on medical care costs, construction costs and other economic sectors that increase the severity of claims;

• the effects of the mergers and failures of a number of prominent financial institutions and government sponsored entities, as well as the effects of accounting and financial reporting scandals and other major failures in internal controls and governance, on capital and credit markets, as well as on the markets for directors and officers and errors and omissions coverages;

• changes in foreign or domestic political, social and economic conditions;

• regulatory initiatives and compliance with governmental regulations, judicial decisions, including interpretation of policy provisions, decisions regarding coverage and theories of liability, trends in litigation and the outcome of any litigation involving us, and rulings and changes in tax laws and regulations;

• regulatory limitations, impositions and restrictions upon us, including the effects of assessments and other surcharges for guaranty funds and second-injury funds, other mandatory pooling arrangements and future assessments levied on insurance companies and other financial industry participants under the Emergency Economic Stabilization Act of 2008 recoupment provisions;

• the impact of competitive products, policies and pricing and the competitive environment in which we operate, including changes in our book of business;

• product and policy availability and demand and market responses, including the level of ability to obtain rate increases and decline or non-renew under priced accounts, to achieve premium targets and profitability and to realize growth and retention estimates;

• development of claims and the impact on loss reserves, including changes in claim settlement policies;

• the effectiveness of current initiatives by claims management to reduce loss and expense ratios through more efficacious claims handling techniques;

• the performance of reinsurance companies under reinsurance contracts with us;

• conditions in the capital and credit markets that may limit our ability to raise significant amounts of capital on favorable terms, as well as restrictions on the ability or willingness of Loews Corporation to provide additional capital support to us;

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• weather and other natural physical events, including the severity and frequency of storms, hail, snowfall and other winter conditions, natural disasters such as hurricanes and earthquakes, as well as climate change, including effects on weather patterns, greenhouse gases, sea, land and air temperatures, sea levels, rain and snow;

• regulatory requirements imposed by coastal state regulators in the wake of hurricanes or other natural disasters, including limitations on the ability to exit markets or to non-renew, cancel or change terms and conditions in policies, as well as mandatory assessments to fund any shortfalls arising from the inability of quasi-governmental insurers to pay claims;

• man-made disasters, including the possible occurrence of terrorist attacks and the effect of the absence or insufficiency of applicable terrorism legislation on coverages;

• the unpredictability of the nature, targets, severity or frequency of potential terrorist events, as well as the uncertainty as to our ability to contain our terrorism exposure effectively, notwithstanding the extension through December 31, 2014 of the Terrorism Risk Insurance Act of 2002;

• the occurrence of epidemics;

• exposure to liabilities due to claims made by insureds and others relating to asbestos remediation and health-based asbestos impairments, as well as exposure to liabilities for environmental pollution, construction defect claims and exposure to liabilities due to claims made by insureds and others relating to lead-based paint and other mass torts;

• the sufficiency of our loss reserves and the possibility of future increases in reserves;

• regulatory limitations and restrictions, including limitations upon our ability to receive dividends from our insurance subsidiaries imposed by state regulatory agencies and minimum risk-based capital standards established by the National Association of Insurance Commissioners;

• the risks and uncertainties associated with our loss reserves as outlined in the Critical Accounting Estimates and the Reserves — Estimates and Uncertainties sections of our Annual Report on Form 10-K;

• the possibility of changes in our ratings by ratings agencies, including the inability to access certain markets or distribution channels and the required collateralization of future payment obligations as a result of such changes, and changes in rating agency policies and practices; and

• the actual closing of contemplated transactions and agreements.

Our forward-looking statements speak only as of the date on which they are made and we do not undertake any obligation to update or revise any forward-looking statement to reflect events or circumstances after the date of the statement, even if our expectations or any related events or circumstances change.

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CNA Financial Corporation

Item 3. Quantitative and Qualitative Disclosures About Market Risk

There were no material changes in our market risk components for the six months ended June 30, 2009. See the Quantitative and Qualitative Disclosures About Market Risk included in Item 7A of our Form 10-K filed with the Securities and Exchange Commission for the year ended December 31, 2008 for further information. Additional information related to portfolio duration and market conditions is discussed in the Investments section of the Management’s Discussion and Analysis of Financial Condition and Results of Operations included in Part I, Item 2.

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CNA Financial Corporation

Item 4. Controls and Procedures

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

As of June 30, 2009, the Company’s management, including the Company’s Chief Executive Officer (CEO) and Chief Financial Officer (CFO), conducted an evaluation of the effectiveness of the Company’s disclosure controls and procedures (as such term is defined in Exchange Act Rules 13a-15(e) and 15d-15(e)). Based on this evaluation, the CEO and CFO have concluded that the Company’s disclosure controls and procedures are effective.

There has been no change in the Company’s internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the quarter ended June 30, 2009 that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.

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Item 1. Legal Proceedings

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

Item 4. Submission of Matters to a Vote of Security Holders

Set forth below is information relating to the 2009 Annual Meeting of Stockholders of the Registrant.

The annual meeting was called to order at 10:00 a.m., April 22, 2009. Represented at the meeting, in person or by proxy, were 266,067,483 shares constituting approximately 99% of the issued and outstanding shares entitled to vote.

The following business was transacted:

1. Election of Directors

Approximately 95% of the votes cast for directors were voted for the election of the directors named below. The number of votes for and withheld with respect to each director is as follows:

	Votes For		Votes Withheld
Thomas F. Motamed		252,718,837		12,992,552
Paul J. Liska		265,352,098		359,291
Jose O. Montemayor		265,463,309		248,080
Don M. Randel		255,329,455		10,381,934
Joseph Rosenberg		252,902,347		12,809,042
Andrew H. Tisch		252,199,288		13,512,101
James S. Tisch		251,930,300		13,781,089
Marvin Zonis		255,145,502		10,565,887

There were no broker non-votes. Since the by-laws provide for director elections by plurality voting, votes may not be cast against any director.

2. Ratification of Appointment of Independent Registered Public Accounting Firm

Over 99% of the shares present and eligible to vote, voted to ratify the appointment of Deloitte & Touche LLP to serve as the independent registered public accounting firm for the Registrant for 2009. In addition, less than 1% of the shares eligible to vote either voted against the appointment or abstained. There were no broker non-votes.

	Votes For		Votes Against		Votes Abstained
Deloitte & Touche LLP		265,838,065		224,677		4,741

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Item 6. Exhibits

(a) Exhibits

Description of Exhibit	Exhibit Number
Amended and Restated Group Life and Health Indemnity Reinsurance Agreement, dated as of December 31, 2003, by and between Continental Assurance Company and Valley Forge Life Insurance Company and CNA Group Life Assurance Company		10.1
Amended and Restated Group Health Indemnity Reinsurance Agreement, dated as of December 31, 2003, by and between Continental Casualty Company and American Casualty Company of Reading, Pennsylvania and CNA Group Life Assurance Company		10.2
CAC Life and Annuity Indemnity Reinsurance Agreement, dated as of April 30, 2004, by and between Continental Assurance Company and Swiss Re Life & Health America Inc		10.3
Certification of Chief Executive Officer		31.1
Certification of Chief Financial Officer		31.2
Written Statement of the Chief Executive Officer of CNA Financial Corporation Pursuant to 18 U.S.C. Section 1350 (As adopted by Section 906 of the Sarbanes-Oxley Act of 2002)		32.1
Written Statement of the Chief Financial Officer of CNA Financial Corporation Pursuant to 18 U.S.C. Section 1350 (As adopted by Section 906 of the Sarbanes-Oxley Act of 2002)		32.2

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

	CNA Financial Corporation
Dated: August 3, 2009	By	/s/ D. Craig Mense
		D. Craig Mense
		Executive Vice President and Chief Financial Officer

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EX-10.1

Exhibit 10.1

     EXECUTION COPY

AMENDED AND RESTATED
GROUP LIFE AND HEALTH
INDEMNITY REINSURANCE AGREEMENT

     THIS AMENDED AND RESTATED GROUP LIFE AND HEALTH INDEMNITY REINSURANCE AGREEMENT, dated as of December 31, 2003 (this “Agreement”), is entered into by and between CONTINENTAL ASSURANCE COMPANY, a stock insurance company organized under the laws of Illinois (“CAC”), and VALLEY FORGE LIFE INSURANCE COMPANY, a stock insurance company organized under the laws of Pennsylvania (“VFL” and together with CAC, the “Insurers”, with each of CAC and VFL also sometimes referred to herein as an “Insurer”), and CNA GROUP LIFE ASSURANCE COMPANY, a stock insurance company organized under the laws of Illinois (the “Reinsurer”).

WITNESSETH

          WHEREAS, the parties hereto entered into a reinsurance agreement (the “Original Reinsurance Agreement”), dated as of March 31, 2001, pursuant to which the Reinsurer agreed to reinsure the group life insurance and group health insurance businesses and certain other businesses of the Insurers;

          WHEREAS, the parties hereto also entered into an administrative services agreement (the “Original Administrative Services Agreement”), dated as of March 31, 2001, pursuant to which the Reinsurer agreed to provide the administrative services described therein with respect to the business reinsured under the Original Reinsurance Agreement;

          WHEREAS, Continental Casualty Company, an Illinois stock insurance company (“CCC”), CAC, CNA Financial Corporation, a Delaware corporation (“CNA”), Hartford Life and Accident Insurance Company, a stock insurance company organized under the laws of Connecticut (“Purchaser”) and Hartford Life, Inc., a Delaware corporation, have entered into an Amended and Restated Stock Purchase Agreement, dated as of November 30, 2003 (the “Stock Purchase Agreement”), pursuant to which CCC, CAC and CNA have agreed, among other things, to sell to Purchaser all of the issued and outstanding capital stock of the Reinsurer and Charles Stedman & Co., Inc.;

          WHEREAS, pursuant to the Stock Purchase Agreement, CNA, CCC, CAC and Purchaser have agreed that at the Closing (as defined in the Stock Purchase Agreement) certain business and liabilities previously ceded to and reinsured by the Reinsurer under the Original Reinsurance Agreement would be commuted effective upon the Closing Date (as defined in the Stock Purchase Agreement) pursuant to a Commutation Agreement among CAC, VFL and the Reinsurer, the form of which is attached hereto as Exhibit A (the “Commutation Agreement”);

          WHEREAS, pursuant to the Stock Purchase Agreement, CNA, CCC, CAC and Purchaser have agreed that the Original Reinsurance Agreement and the Original Administrative Services Agreement would be amended and restated to recognize the effect of the Commutation Agreement and to give effect to certain other changes;

          WHEREAS, the parties hereto are entering into the Amended and Restated Group Life and Health Administrative Services Agreement, dated as of the date hereof, which amends and restates in its entirety the Original Administrative Services Agreement (the “Amended and Restated Administrative Services Agreement”); and

     WHEREAS, the Insurers and the Reinsurer desire to enter into this Agreement to amend and restate in its entirety the Original Reinsurance Agreement as herein set forth.

     NOW, THEREFORE, in consideration of the mutual covenants and promises, and upon the terms and conditions, hereinafter set forth, the parties hereto agree as follows:

ARTICLE I

BUSINESS REINSURED

     1. Effective as of 12:01 a.m. on the Closing Date (the “Revised Effective Time”), the Insurers hereby cede to the Reinsurer, and the Reinsurer hereby accepts and indemnity reinsures, on a coinsurance basis, from the Insurers, 100% of the Policy Liabilities (as defined below), but none of the Retained Policy Liabilities (as defined below) and Excluded Liabilities (as defined below), in each case, arising from:

(i) any and all binders, endorsements, riders, policies, certificates and contracts of insurance and assumed reinsurance included in the Subject Business issued, renewed or assumed by the Insurers prior to, on or after the Original Effective Time (as defined in Article VII of this Agreement), including without limitation all such binders, endorsements, riders, policies, certificates and contracts lapsed and terminated with unpaid claims or subsequently reinstated; (ii) Accommodation Policies (as defined in the Amended and Restated Administrative Services Agreement) for the Subject Business; and (iii) Insurer Additional Policies (as defined in the Amended and Restated Administrative Services Agreement) for the Subject Business (each such binder, endorsement, rider, policy, certificate or contract of insurance and reinsurance being referred to in (i), (ii) and (iii) above shall be hereinafter referred to individually as a “Policy” and collectively as the “Policies”).

     2. The term “Certificateholder” shall mean each insured or reinsured under a Policy.

     3. The term “Third Party Reinsurance Agreement” shall have the meaning provided therefore in the Stock Purchase Agreement.

     4. The term “Unnovated Third Party Reinsurance Agreement” shall mean a Third Party Reinsurance Agreement which has not been novated pursuant to the terms of Section 5.12.2(b) of the Stock Purchase Agreement.

     5. The term “Retained Policy Liabilities” shall mean any Policy Liabilities (a) ceded by an Insurer under an Unnovated Third Party Reinsurance Agreement or (b) required to be retained by the Insurers under applicable state law or, in the case of Policies

2

reinsured under any Third Party Reinsurance Agreement, by the terms of such Third Party Reinsurance Agreement (giving effect to any consents or modifications of such applicable agreement), with such Retained Policy Liabilities referred to in clause (b) being reflected in Schedule A hereto.

     6. The term “Subject Business” shall mean all of the insurance business that corresponds to the policy forms of the Insurers identified on Schedule B.

     7. The term “Policy Liabilities” shall mean the gross liability and obligations (whether arising from assumed reinsurance or directly written insurance) of the Insurers, based upon or arising under the express written terms and conditions of the Policies (except for Excluded Liabilities (as defined below) and Retained Policy Liabilities), including without limitation liabilities for:

(a)	withdrawals, surrenders, Policy loans, returns of premium and other deposits and any other disbursement, Policyholder interest, dividends, dividend accumulations, benefits, claims, losses and benefit and claim expenses (but excluding any amounts claimed or allegedly payable due to the accelerating or discounting of contingent or future benefits, claims or losses following the insolvency of an Insurer) in respect of the Policies;
(b)	Extra Contractual Obligations (as defined below), but only to the extent such Extra Contractual Obligations are based on acts, errors or omissions on or after the Revised Effective Time by the Reinsurer or any of its respective officers, employees, agents, subcontractors or representatives, and any attorneys’ fees incurred by an Insurer and the Reinsurer related to such liabilities;
(c)	guaranty association assessments in connection with participation by an Insurer in any guaranty fund or association established or governed by any state or jurisdiction to the extent arising on account of premiums, deposits and other consideration paid or payable after January 1, 2001 in respect of the Policies;
(d)	other assessments or payments required to be made with respect to the Policies for or on account of regulatory agencies, including but not limited to valuation fees or payments after January 1, 2001;
(e)	returns or refunds of premiums (irrespective of when due) and any other benefits or dividends under the Policies paid or payable after January 1, 2001;
(f)	premium taxes and municipal taxes paid or payable by an Insurer or the Reinsurer in respect of the Policies after January 1, 2001;
(g)	commissions or other compensation due insurance brokers, agents and producers and reinsurance intermediaries in connection with the Policies;

3

(h)	amounts payable under assumed reinsurance arrangements, and obligations to return premiums or portions thereof;
(i)	premiums or portions thereof payable under Third Party Reinsurance Agreements with respect to the Policies other than the Unnovated Third Party Reinsurance Agreements; and
(j)	accrued interest on all unpaid Policy Liabilities.

     8. The term “Excluded Liabilities” shall mean the liabilities or obligations of each Insurer that are not Policy Liabilities, including, without limitation: (i) any Extra Contractual Obligations ceded by the Insurers to the Reinsurer prior to the Revised Effective Time; (ii) Extra Contractual Obligations based on acts, errors or omissions by an Insurer, or any of its officers or employees, agents, subcontractors or representatives (other than the Reinsurer on or after the Revised Effective Time pursuant to the Amended and Restated Administrative Services Agreement), and not at the direction or request of the Reinsurer on or after the Revised Effective Time and any attorneys’ fees incurred by the Insurer related to such liabilities or obligations; (iii) any Extra Contractual Obligations based on acts, errors or omissions by the Reinsurer or any of its officers or employees, agents, subcontractors or representatives prior to the Revised Effective Time and any attorneys’ fees incurred by an Insurer related to such liabilities or obligations; and (iv) any risk, obligations or liabilities commuted and transferred to the Insurers under the Commutation Agreement.

     9. The term “Extra Contractual Obligations” shall mean all liabilities and obligations other than those arising under the express terms and conditions, and within the limits, of the Policies, including, without limitation, any liability for fines, penalties, forfeitures or punitive, exemplary, special or any other form of extra contractual damages, relating to the Policies, which arise from any act, error or omission, whether intentional, negligent or in bad faith, including, without limitation, any act, error or omission relating to (i) the marketing, underwriting, production, issuance, cancellation or administration of the Policies, (ii) the investigation, defense, trial, settlement or handling of claims, benefits, or payments under the Policies, or (iii) the failure to pay or the delay in payment of benefits, claims or any other amounts due or alleged to be due under or in connection with the Policies.

     10. The Reinsurer is entitled to the benefit of any and all rights, assets, defenses, setoffs and counterclaims to which the Insurers are entitled with respect to the Policy Liabilities or the satisfaction thereof, it being expressly understood and agreed by the parties hereto that no such rights, assets, defenses, setoffs or counterclaims are waived by the execution of this Agreement or the consummation of the transactions contemplated hereby and that the Reinsurer shall be fully subrogated to all such rights, assets, defenses, setoffs and counterclaims. The liability of the Reinsurer hereunder shall remain in effect until all liability under the Policies has been fully liquidated. An Insurer, on its own initiative, will not change the terms and conditions of any Policy or the assumptions and methods used by

4

Company to determine statutory reserves in respect of the Policies unless required by regulatory authority.

     11. The Reinsurer shall have the benefit of any premium tax credits and reductions attributable to guaranty fund assessments and similar assessments paid or payable by such Insurer with respect to the Policies but only if and to the extent that (i) the Reinsurer reinsures the Insurers for such guaranty fund and similar assessments pursuant to this Agreement and (ii) such credits are actually applied by the Insurers to reduce their premium tax liabilities, provided that Insurers shall apply such credits and any other premium tax credits and reductions attributable to guaranty fund assessments and similar assessments on a pro rata basis.

     12. The Reinsurer may, at its sole option, elect to (a) novate certain or all of the Policies by assumption reinsurance (the “Novation Option”) or (b) amend this Agreement as appropriate to add a “cut-through” for designated Policies, making Policy benefits that are included in the Policy Liabilities payable directly to the policyholders (the “Cut-Through Option”). As part of the Cut-Through Option, the Reinsurer also may elect, in it sole discretion, for the Insurers and the Reinsurer to issue a related endorsement for the designated Policies. The Reinsurer’s election, if any, to pursue either the Novation Option or the Cut-Through Option, shall be subject to obtaining any regulatory approvals, consents or confirmations deemed necessary or advisable by the Reinsurer, in its sole discretion. The Reinsurer shall promptly notify the Insurers prior to pursuing the Novation Option or Cut-Through Option, and the Insurers shall cooperate with the Reinsurer in implementing the Novation Option or Cut-Through Option (including, without limitation, amending this Agreement), provided that the Reinsurer shall be solely and exclusively responsible for the costs and expenses of effecting the Novation Option or Cut-Through Option. Notwithstanding the foregoing, the Reinsurer shall have no obligation to seek the Novation Option or Cut-Through Option, and this provision by itself shall in no way be interpreted as amending Article IX to provide any rights to any third party.

ARTICLE II

PAYMENT AND ACCOUNTING FOR CERTAIN ASSUMED POLICY LIABILITIES

     In connection with the Reinsurer’s assumption of the Policy Liabilities described in paragraphs (c), (d) and (f) of Section 7 of Article I hereof (the “Tax/Assessment Liabilities”), it is agreed that an Insurer will make direct payment of such Tax/Assessment Liabilities and that the Reinsurer’s assumption of liability therefor shall be discharged by an Insurer reporting the Tax/Assessment Liabilities paid by the Insurer to the Reinsurer in accordance with Section 7 of Article VII, and the Reinsurer reimbursing the Insurer for such amounts also in accordance with Section 7 of Article VII.

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ARTICLE III

TERRITORY

     This Agreement shall apply to Policies covering persons and risks wherever resident or situated.

ARTICLE IV

POLICY ADMINISTRATION

     The Policies and the Policy Liabilities shall be administered by the Reinsurer pursuant to the terms of the Amended and Restated Administrative Services Agreement. In connection therewith, Reinsurer will provide such periodic reports to the Insurers as are required by the Amended and Restated Administrative Services Agreement. Settlements of amounts due from the Reinsurer to the Insurers and amounts due from the Insurers to the Reinsurer, as set forth in such reports, shall be made on a monthly basis as set forth in the Amended and Restated Administrative Services Agreement.

ARTICLE V

PREMIUMS; RECOVERIES

     1. Each Insurer hereby transfers, conveys and assigns to the Reinsurer all of its rights, title and interest to, and the Reinsurer shall be entitled to, 100% of the following, except to the extent that any such amounts are attributable to Retained Policy Liabilities: all premiums (irrespective of when due), premium adjustments, reinsurance receivables, balances due from agents, principal and interest due on policy loans, retroactive increases in premiums based upon experience, accrued interest receivables and recoveries received at or after January 1, 2001 by the Insurers or the Reinsurer with respect to the Policies, together with all Policy-related rights of the Insurers, including, without limitation, subrogation and coordination of benefits rights, including, for the benefit of the Reinsurer, any and all premium tax credits attributable to guaranty fund and other assessments paid or payable by the Insurers (the “Premium Tax Credits”) to the extent provided in Section 11 of Article I.

     2. Each Insurer shall promptly endorse and remit to the Reinsurer all of the following, except to the extent that any such amounts are attributable to Retained Policy Liabilities: any premiums, premium adjustments, reinsurance receivables, balances due from agents, amounts due on policy loans, accrued interest receivables, rights, assets and recoveries received by the Insurers at or after January 1, 2001 in respect of any of the Policies or the satisfaction of Policy Liabilities, including the Premium Tax Credits, to the extent provided in Section 11 of Article I. Each Insurer shall treat any such amounts as the property of the Reinsurer to be held in a fiduciary capacity for the sole benefit of Reinsurer.

     3. Each Insurer shall provide reasonable assistance to the Reinsurer, upon the Reinsurer’s request therefor, and at the Reinsurer’s expense, in the collection of any

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premiums, premium adjustments, reinsurance receivables, balances due from agents, amounts due on policy loans, accrued interest receivables, rights, assets and recoveries due such Insurer at or after the Revised Effective Time in respect of any of the Policies or the satisfaction of Policy Liabilities. Furthermore, with respect to any such remittance, each Insurer shall also promptly furnish the Reinsurer with all pertinent information which it receives at and after the Revised Effective Time pertaining thereto (e.g., the nature of the payment, source of funds, policy or certificate number or agreement (as appropriate) and period(s) to which it relates and any instructions accompanying same); provided, however, that such Insurer may retain a copy thereof (subject to the restrictions upon use set forth in this Agreement).

     4. Each Insurer agrees to execute and deliver to the Reinsurer any further instruments or assurances that the Reinsurer may reasonably request for more effectual vesting of the Reinsurer’s right, title and interest in the following, except to the extent that any such amounts are attributable to Retained Policy Liabilities: any premiums, premium adjustments, reinsurance receivables, balances due from agents, amounts due on policy loans, accrued interest receivables, rights, assets and recoveries received by the Insurers at or after January 1, 2001 in respect of any of the Policies or the satisfaction of Policy Liabilities. Such action shall include, without limitation, each Insurer’s execution and delivery of any financing statements reasonably requested by the Reinsurer to the extent that it may appear appropriate to the Reinsurer to file such financing statements under Article 9 of the Uniform Commercial Code.

     5. Effective as of the Revised Effective Time, the Insurers have no responsibility for billing and collecting premiums in respect of the Policies or, subject to Section 7 of this Article V regarding Unnovated Third Party Reinsurance Agreements, otherwise servicing or administering any Policies, except as may otherwise be set forth in the Amended and Restated Administrative Services Agreement or in other signed writing of the relevant parties.

     6. Effective as of the Revised Effective Time, the Insurers have no responsibility for ascertaining or collecting reinsurance recoverables with respect to Policy Liabilities under the Third Party Reinsurance Agreements other than the Unnovated Third Party Reinsurance Agreements, provided that the Reinsurer shall assume responsibility for administering the Unnovated Third Party Reinsurance Agreements on behalf of the Insurers under the Amended and Restated Administrative Services Agreement. The collectibility of reinsurance with respect to the Policies from reinsurers under Third Party Reinsurance Agreements other than the Unnovated Third Party Reinsurance Agreements shall be at the risk of and for the account of the Reinsurer. The risk of collectibility of reinsurance with respect to the Policies from reinsurers under the Unnovated Third Party Reinsurance Agreements shall be shared as follows: (i) the Reinsurer shall be obligated to the applicable Insurer for 50% of any amounts more than 60 days past due from reinsurers under the Unnovated Third Party Reinsurance Agreements, with settlements of such amounts to be made on a monthly basis as set forth in the Amended and Restated Administrative Services Agreement, and (ii) all other reinsurance recoverables under the Unnovated Third Party Reinsurance Agreements shall be at the collection risk of the Insurers. With respect to any

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past due reinsurance recoverables under Unnovated Third Party Reinsurance Agreements for which the Reinsurer is obligated to the Insurers hereunder, the Reinsurer shall be entitled to its pro rata share of any subsequent recovery of such reinsurance recoverables.

     7. The Reinsurer shall have responsibility and full power and authority to act for and on behalf of the Insurers, and the Insurers shall take such measures as reasonably requested by the Reinsurer, with respect to any and all letters of credit outstanding or assets in trust held for the benefit of the Insurers pursuant to the terms of the Third Party Reinsurance Agreements.

ARTICLE VI

REINSURANCE CREDIT

     1. Licensed or Accredited Status. The Reinsurer is, and shall maintain its status as, a licensed life insurer or accredited life reinsurer in all jurisdictions of the United States where necessary so that the Insurers, in the statements required to be filed with their regulatory authority(ies), shall receive full credit as admitted reinsurance for all of the Reinsurer’s share of the Obligations (as defined in this Article).

     2. Reinsurance Credit. If a jurisdiction of the United States will not permit any Insurer, in the statements required to be filed with its regulatory authority(ies), to receive full credit as admitted reinsurance for any of the Reinsurer’s share of Obligations (as defined in this Article), such Insurer may, in its discretion, in the case of each such instance and for each applicable filing date, elect to forward to the Reinsurer a statement of the Reinsurer’s share of such Obligations. If the Insurer and the Reinsurer, cooperating reasonably, cannot resolve the matter with insurance regulatory authority(ies) in the applicable jurisdiction(s) within thirty (30) days of the Reinsurer’s receipt of such statement, then the Reinsurer shall, at its option, promptly either:

(a)

Provide such Insurer with a letter of credit that complies with the terms of New York Insurance Regulation 133, in the amount specified in the statement submitted so that full credit as admitted reinsurance shall be given for the Obligations of the Reinsurer under this Agreement; or

(b)

Establish a trust account for the benefit of such Insurer in compliance with the terms of New York Insurance Regulation 114, at least in the amount specified in the statement submitted so that full credit as admitted reinsurance shall be given for the Obligations of the Reinsurer under this Agreement. The assets in the trust account shall be pledged to the Insurer in accordance with a securities pledge agreement in form and substance reasonably satisfactory to the Insurer in order to perfect a security interest in favor of the Insurer in the trust account under Article 9 of the Uniform Commercial Code.

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     3. Definition. “Obligations”, as used in this Article, shall mean the sum of the following, all determined in accordance with SAP (as defined in the Stock Purchase Agreement), losses paid by the relevant Insurer but not yet recovered from the Reinsurer, plus the relevant Insurer’s reserves for future policy benefits, including, but not limited to, active life reserves for universal life and permanent life insurance contracts, group life premium waiver reserves and long term disability reserves, the relevant Insurer’s reserves for reported losses and benefits and claim expenses, and losses, benefits and claim expenses incurred but not reported and premiums unearned, if any, with respect to the Policies.

     4. Security Trust Agreement. At the Closing or at any time thereafter, if the Obligations ceded by an Insurer under this Agreement exceed $50 million, the Reinsurer shall transfer to a trust account, for the benefit of such Insurer, assets adequate to secure such Insurer’s Obligations, which trust account shall be established under, and be governed by the terms of, the Security Trust Agreement attached as Exhibit B hereto (the “Security Trust Agreement”). Such trust account shall be in effect for the term provided for in the Security Trust Agreement. Notwithstanding the foregoing, in the event that the Obligations ceded to the Reinsurer under this Agreement and the Amended and Restated CCC Reinsurance Agreement (as defined in the Stock Purchase Agreement) are less than $250 million in the aggregate, the Reinsurer shall not be obligated to establish or maintain any trust account pursuant to this Section 4 of Article VI.

ARTICLE VII

NET LIABILITIES, TRANSFER OF ASSETS AND CEDING COMMISSION

     1. Net GAAP Liabilities Calculation. No later than the Original Effective Time (as defined in the following paragraph), each Insurer prepared and distributed to Reinsurer, a statement, as of December 31, 2000, of all Net GAAP Liabilities for the Subject Business. Net GAAP Liabilities for purposes of such statement consisted of all insurance liabilities associated with the policies, including claim and claim expense reserves, reserves for future policy benefits (such as active life reserves, unearned premium reserves and advance premiums), policyholder funds left on deposit, reserves in provision of rate credits payable under experience rated contracts, unpaid commissions, accrued premium taxes and guaranty association assessments, allocable valuation fees imposed under state law, amounts payable under reinsurance contracts and accrued interest due on all unpaid liabilities; net of insurance assets associated with the policies, including due and uncollected premiums, balances due from agents, policy, loans, amounts due under reinsurance contracts and accrued interest receivable on all amounts due and uncollected. Such statement was prepared in accordance with generally accepted accounting principles on a basis consistent with the financial reporting and accounting practices of the Insurers with respect to the Subject Business (“Historical GAAP”) and was binding on all parties for purposes of determining the cash transfer pursuant to paragraph 2 of this Article VII. The calculation of the Net GAAP Liabilities, as of December 31, 2000, of the Subject Business of the Insurers was $336,284,921.

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     2. Transfer of Assets. On or before March 31, 2001 (or as promptly as practicable following compliance with insurance laws and regulations requiring prior notice or approval of transactions between affiliated insurance companies) (the “Original Effective Time”) and as partial consideration for the reinsurance of liability by the Reinsurer with respect to the Policies, the Insurers transferred to the Reinsurer cash and/or investment securities designated by the Insurers (and valued at market value as of the time of transfer) equal in value to the amount determined pursuant to the statement described in paragraph 1 of this Article VII. In addition to and together with the principal amount described and transferred in accordance with the preceding sentence, the Insurers also transferred cash and/or investment securities equal in value to six percent (6%) per annum simple interest on the described principal amount for the period between January 1, 2001 and the actual date of transfer.

     3. Interim Period Adjustment. The parties computed both (a) the aggregate amount collected by Insurers in respect of Policies (not including balances, receivables, accruals, rights and other items assigned in kind pursuant to Article V) between January 1, 2001 and the Original Effective Time (the “Stub Period”), and (b) the aggregate amount paid during the Stub Period in respect of Policy Liabilities (not including liabilities assumed by Reinsurer at the Original Effective Time pursuant to Article V). The difference between (a) and (b) (the “Stub Amount”) was resolved by payment of the Stub Amount (plus or minus any net interest and investment return during the Stub Period that was neither assigned or assumed pursuant to Article V nor addressed by the 6% per annum interest allowance otherwise specified in paragraphs 2, 3 and 4 of this Article VII), from the Insurers to Reinsurer if the Stub Amount was positive and from Reinsurer to Insurers if the Stub Amount was negative. Payment of the Stub Amount (adjusted as described for any net interest or investment return) was made by addition to or subtraction from the first quarterly payment due under paragraph 5 following, it being understood that the purpose of the foregoing described payment computation was to transfer effectively the financial results of Subject Business operations during the Stub Period from Insurers to Reinsurer. Any irreconcilable dispute between the parties with respect to the conformity of the statements delivered in accordance with this Article VII to Historical GAAP was resolved by the firm of Deloitte & Touche.

     4. Initial Ceding Commission. Insurers, on the Original Effective Time, received a one time ceding commission in the amount of $9,278,800, plus six percent (6%) per annum simple interest upon said amount for the period between January 1, 2001 and the date of receipt by Insurers.

     5. Additional Ceding Commission. The Reinsurer shall pay to the Insurers a ceding commission equal to the amount determined in accordance with Schedule C to this Agreement on all direct premiums collected on and after the Revised Effective Time through December 31, 2005 on all Policies.

     6. Commutation. The Insurers and Reinsurer acknowledge and agree that: (a) as of the Revised Effective Time, the Insurers and the Reinsurer completed a commutation of certain risks, liabilities and obligations pursuant to the Commutation Agreement; (b) all

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risks, liabilities and obligations subject to such Commutation Agreement have been commuted and transferred to the Insurers; (c) none of such risks, obligations or liabilities are reinsured under this Agreement; and (d) no consideration is payable under this Agreement by the Reinsurer to the Insurers in respect of such commutation.

     7. Monthly Reconciliation. Insurers will incur Tax/Assessment Liabilities, and miscellaneous expenses, including but not limited to commissions and other acquisition costs, related to the Policies. Within 30 days following the close of each calendar month, the Insurers will report such expenses to Reinsurer, and Reinsurer will, to the extent the foregoing expenses are included within the Policy Liabilities and Reinsurer has not already paid (from the Reinsurer’s funds, including premiums ceded under this Agreement) the foregoing expenses on behalf of the Insurers to third parties, pay the unsatisfied portion thereof to the Insurers within 15 days of receiving the report. The foregoing monthly report and following payment shall also include and account for other activity relating to the Subject Business requiring financial settlement under this Agreement and the Amended and Restated Administrative Services Agreement between the Insurers and the Reinsurer, including, without limitation, ceding commissions payable under Section 5 of this Article VII.

ARTICLE VIII

INSOLVENCY

     1. Payments. In the event of the insolvency of an Insurer and the appointment of a liquidator, receiver, conservator or statutory successor, this reinsurance shall be payable by the Reinsurer immediately upon demand, with reasonable provision for verification, on the basis of the liability of the Insurer as a result of claims allowed against the Insurer by any court of competent jurisdiction or any liquidator, receiver, conservator or statutory successor having authority to allow such claims, without diminution because of such insolvency or because such liquidator, receiver, conservator or statutory successor has failed to pay all or a portion of any claims.

     2. Direction of Payments. Payments by the Reinsurer as above set forth shall be made directly to the Insurer or to its liquidator, receiver, conservator or statutory successor, except where (1) this Agreement specifies another payee in the event of the insolvency of the Insurer, or (2) the Reinsurer with the consent of the direct insureds has assumed such policy obligations of the Insurer as its direct obligations to the payees under the Policies, in substitution for the obligations of the Insurer to such payees.

     3. Notice of Claims. In the event of the insolvency of an Insurer, the liquidator, receiver, conservator or statutory successor of the Insurer shall give written notice to the Reinsurer of the pendency of a claim against the insolvent Insurer on the Policies within a reasonable time after such claim is filed in the insolvency proceeding and during the pendency of such claim the Reinsurer may investigate such claim and interpose, at its own expense, in the proceeding where such claim is to be adjudicated any defense or defenses which it may deem available to the Insurer or its liquidator, receiver, conservator or statutory

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successor. The expense thus incurred by the Reinsurer shall be chargeable subject to court approval against the insolvent Insurer as part of the expense of liquidation to the extent of a proportionate share of the benefit which may accrue to the Insurer solely as a result of the defense undertaken by the Reinsurer.

     4. Apportionment. Where two or more reinsurers are involved in the same claim and a majority in interest elect to interpose defense to such claim, the expense shall be apportioned in accordance with the terms of this Agreement as though such expense had been incurred by the Insurer.

     5. Set-Off. Except as expressly stated herein, it is understood and agreed that any debits or credits, liquidated or unliquidated, in favor of or against Reinsurer and an Insurer, under this Agreement, the Amended and Restated Administrative Services Agreement and, with respect to undisputed amounts and amounts provided for in a final judgment not subject to appeal, the Stock Purchase Agreement, on the date of the entry of the receivership or liquidation order, are deemed mutual debits or credits, as the case may be, and shall be set off and the balance only shall be allowed or paid. Although such claim, if any, on the part of either such party against the other may be unliquidated or undetermined in amount on the date of the entry of the receivership or liquidation order, such claim, if any, is hereby deemed to be in existence as of such date. Any credits or claims then in existence and held by the other party may be offset against it.

ARTICLE IX

NO THIRD PARTY BENEFICIARY RIGHTS

     The Reinsurer’s reinsurance of 100% of the Policy Liabilities of the Insurers with respect to the Policies is intended for the sole benefit of the parties to this Agreement and shall not create any right on the part of any third party, including, without limitation, any policyholder, Certificateholder, insured, claimant or beneficiary under or agent, broker or producer for such Policies against the Reinsurer or any legal relation between any third-party and the Reinsurer.

ARTICLE X

DIVIDENDS; NON-GUARANTEED ELEMENTS

     Except as required under applicable law or regulation or under the terms of any Policy, the Insurers shall not declare or pay dividends on any participating Policy or reset any non-guaranteed element of any Policy, unless requested by the Reinsurer.

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ARTICLE XI

ERRORS AND OMISSIONS

     Inadvertent delays, errors or omissions made in connection with this Agreement or any transaction hereunder shall not relieve either party from any liability which would have attached had such delay, error or omission not occurred, provided always that such error or omission is rectified as soon as reasonably possible after discovery.

ARTICLE XII

COOPERATION

     The parties shall cooperate with one another in a commercially reasonable manner to carry out and implement the terms and objectives of this Agreement, and shall perform such further acts, execute such further documents and enter into such further agreements as are commercially reasonable and reasonably necessary to carry out and implement the terms and objectives of the Agreement. Without limiting the foregoing, each party shall permit the other (and its authorized representatives) reasonable access to examine its premises, files and records relating to the Subject Business and each party shall make reasonably available to the other party (and its authorized representatives) responsible officials for reasonable consultation for the purpose of more fully carrying out the terms and objectives of this Agreement, provided that the same be at the examining party’s sole cost and expense, requested during normal business hours of the non-examining party, and upon reasonable notice to and without unreasonably disrupting the business of the non-examining party. Such access and consultation shall be at the cost of the requesting party. Each party shall retain, in accordance with its corporate retention policies, all files and records related to the Subject Business, but in any event for a period not less than ten years following the Revised Effective Time. The Insurers and the Reinsurer shall not alter or destroy any files or records relating to the Subject Business without the prior written consent of the other party.

ARTICLE XIII

ARBITRATION

     1. Arbitration. As a condition precedent to any cause of action, any and all disputes between the Insurers and the Reinsurer arising out of, relating to, or concerning this Agreement, whether sounding in contract or tort and whether arising during or after termination of this Agreement, shall be submitted to the decision of a board of arbitration composed of two arbitrators and an umpire (the “Board”) meeting at a site in Chicago, Illinois. The arbitration shall be conducted under the Federal Arbitration Act and shall proceed as set forth below.

     2. Notice of Arbitration. A notice requesting arbitration, or any other notice made in connection therewith, shall be in writing and shall be sent certified or registered mail, return receipt requested to the affected parties. The notice requesting arbitration shall

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state in particulars all issues to be resolved in the view of the claimant, shall appoint the arbitrator selected by the claimant and shall set a tentative date for the hearing, which date shall be no sooner than ninety (90) days and no later than one year from the date that the notice requesting arbitration is mailed, unless otherwise agreed to by the parties. Within thirty (30) days of receipt of claimant’s notice, the respondent shall notify claimant of any additional issues to be resolved in the arbitration and of the name of its appointed arbitrator.

     3. Arbitration Panel. Unless otherwise mutually agreed, the members of the Board shall be impartial and disinterested and shall be active or former officers of life insurance companies, reinsurance companies, or Lloyd’s Underwriters or active or inactive lawyers with at least twenty (20) years of experience in insurance and reinsurance. The Insurers, together, and Reinsurer shall each appoint an arbitrator and the two (2) arbitrators shall choose an umpire before instituting the hearing. If the respondent fails to appoint its arbitrator within thirty (30) days after having received claimant’s written request for arbitration, the claimant is authorized to and shall appoint the second arbitrator. If the two arbitrators fail to agree upon the appointment of an umpire within thirty (30) days after notification of the appointment of the second arbitrator, within ten (10) days thereof, the two (2) arbitrators shall request the American Arbitration Association (the “AAA”) to appoint an umpire for the arbitration with the qualifications set forth in this Article. If the AAA fails to name an umpire, either party may apply to the court named below to appoint an umpire with the above required qualifications. The umpire shall promptly notify in writing all parties to the arbitration of his selection and of the scheduled date for the hearing. Upon resignation or death of any member of the Board, a replacement shall be appointed in the same fashion as the resigning or deceased member was appointed.

     4. Submission of Briefs. The claimant and respondent shall each submit initial briefs to the Board outlining the issues in dispute and the basis, authority and reasons for their respective positions within thirty (30) days of the date of notice of appointment of the umpire. The claimant and the respondent may submit reply briefs to the Board within ten (10) days after filing of the initial brief(s). Initial and reply briefs may be amended by the submitting party at any time, but not later than ten (10) days prior to the date of commencement of the arbitration hearing. Reasonable responses shall be allowed at the arbitration hearing to new material contained in any amendments filed to the briefs but not previously responded to.

     5. Arbitration Board’s Decision. The Board shall make a decision and award with regard to the terms of this Agreement and the original intentions of the parties to the extent reasonably ascertainable. The Board’s decision and award shall be in writing and shall state the factual and legal basis for the decision and award. The decision and award shall be based upon a hearing in which evidence shall be allowed and which the formal rules of evidence shall not strictly apply but in which cross examination and rebuttal shall be allowed. Every decision by the Board shall be by a majority of the members of the Board and each decision and award by the majority of the members of the Board shall be final and binding upon all parties to the proceeding.

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     6. Jurisdiction. Either party may apply to the United States District Court for the Northern District of Illinois for an order confirming any decision and the award; a judgment of that Court shall thereupon be entered on any decision or award. If such an order is issued, the attorneys’ fees of the party so applying and court costs will be paid by the party against whom confirmation is sought. The Board may award interest calculated from the date the Board determines that any amounts due the prevailing party should have been paid to the prevailing party.

     7. Expenses. Each party shall bear the expense of the one arbitrator appointed by it and shall jointly and equally bear with the other party the expense of any stenographer requested, and of the umpire. The remaining costs of the arbitration proceedings shall be finally allocated by the Board.

     8. Production of Documents and Witnesses. Subject to customary and recognized legal rules of privilege, each party participating in the arbitration shall have the obligation to produce those documents and as witnesses to the arbitration those of its employees as any other participating party reasonably requests providing always that the same witnesses and documents be obtainable and relevant to the issues before the arbitration and not be unduly burdensome or excessive. The parties may mutually agree as to pre-hearing discovery prior to the arbitration hearing and in the absence of agreement, upon the request of any party, pre-hearing discovery may be conducted as the Board shall determine in its sole discretion to be in the interest of fairness, full disclosure, and a prompt hearing, decision and award by the Board. The Board shall be the final judge of the procedures of the Board, the conduct of the arbitration, of the rules of evidence, the rules of privilege and production and of excessiveness and relevancy of any witnesses and documents upon the petition of any participating party. To the extent permitted by law, the Board shall have the authority to issue subpoenas and other orders to enforce their decisions.

     9. Relief Available. Nothing herein shall be construed to prevent any participating party from applying to the United States District Court for the Northern District of Illinois to issue a restraining order or other equitable relief to maintain the “status quo” of the parties participating in the arbitration pending the decision and award by the Board or to prevent any party from incurring irreparable harm or damage at any time prior to the decision and award of the Board. The Board shall also have the authority to issue interim decisions or awards in the interest of fairness, full disclosure, and a prompt and orderly hearing and decision and award by the Board.

     10. Consolidation. In the event that there is a dispute between an Insurer and Reinsurer that implicates the provisions of this Agreement and the related Amended and Restated Administrative Services Agreement, such Insurer and Reinsurer shall consolidate any such dispute under such agreements in a single arbitration proceeding.

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ARTICLE XIV

DURATION

     This Agreement shall continue in force until the earlier of (a) such time that each Insurer’s liability for the Policy Liabilities reinsured hereunder is terminated in accordance with the terms of the Policies; and (b) if the Reinsurer elects, at its sole option, to novate all then outstanding Policies, such time that the novation has been completed.

     Notwithstanding anything to the contrary stated in this Agreement, Sections 2 and 4 of Article XV shall remain in full force and effect following termination of this Agreement.

ARTICLE XV

GENERAL PROVISIONS

     1. Notices. Any notice, request or other communication to be given by any party hereunder shall be in writing and shall be delivered personally, sent by registered or certified mail, postage prepaid or by overnight courier with written confirmation of delivery or by facsimile transmission with written confirmation of error-free transmission. Any such notice shall be deemed given when so delivered personally or if sent by facsimile transmission (and immediately after transmission confirmed by telephone), if mailed, on the date shown on the receipt therefor, or if sent by overnight courier, on the date shown on the written confirmation of delivery. Such notices shall be given to the following address:

If to the Reinsurer:	CNA Group Life Assurance Company 2 North LaSalle Street Suite 2500 Chicago, IL 60602-3702 Attention: Steven A. Sack Tel: (312) 384-7715 Fax: (312) 384-7825
With a copy to:	James R. Dwyer Lord, Bissell & Brook LLP 115 South LaSalle Street Chicago, Illinois 60603 Telephone No.: (312) 443-0632 Fax Number: (312) 443-0336

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If to the Company:	Continental Assurance Company Valley Forge Life Insurance Company CNA Plaza Chicago, Illinois 60685-0001 Attention: Secretary Tel: (312) 822-1384 Fax: (312) 822-1297
With a copy to:	Dewey Ballantine LLP 1301 Avenue of the Americas New York, NY 10011 Attention: James A. FitzPatrick, Jr.                  Jeff S. Liebmann Tel: (212) 259-8000 Fax: (212) 259-6333

     Any party may by notice given in accordance with this Section 1 of Article XV to the other party hereto designate another address or Person for receipt of notices hereunder.

     2. Tax Election. With respect to this Agreement, each of the Insurers and the Reinsurer hereby make the election provided for in Section 1.848-2(g)(8) of the Treasury Regulations issued under Section 848 of the Internal Revenue Code of 1986, as amended (the “Code”), as set forth in Exhibit C, which is made a part hereof. Each of the parties hereto agrees to take such further actions as may be necessary to ensure the effectiveness of such election.

     3. Confidentiality. The Insurers and the Reinsurer shall hold and cause their respective officers, directors, employees, agents, advisors or other representatives (each a “Representative”) to hold in strict confidence, unless compelled to disclose by a governmental authority or applicable law, (i) any term of this Agreement or the transactions contemplated hereby, except to the extent mutually agreed by the parties; and (ii) any information that is furnished by or on behalf of the other party or its Representatives in connection with the transactions contemplated by this Agreement, except to the extent such information can be shown to have been (w) previously known by the party to which it was furnished, (x) in the public domain through no fault of the party to which it was furnished, (y) later lawfully acquired from other sources by the party to which it was furnished; provided that such source is not, to such party’s knowledge, bound by a confidentiality agreement with the other party or its Representatives and is not, to such party’s knowledge, otherwise prohibited from transmitting the information by a contractual, legal or fiduciary obligation or (z) independently developed by the party to which it was furnished without violating any obligations under this Agreement. Notwithstanding the foregoing, the parties agree that the obligations set forth in the covenant in this Section 3 of Article XV above shall not apply to the Reinsurer in connection with the attempted sale by the Reinsurer (including by means of a reinsurance transaction) of all or any substantial portion of the Subject Business following the Closing, so long as the Reinsurer ensures that any person

17

receiving any such information enters into a confidentiality agreement with respect to such information substantially consistent with this Section 3 of Article XV.

     4. Indemnification.

(a)	Each Insurer shall indemnify and hold Reinsurer and its directors, officers, stockholders, employees, representatives, Affiliates (as defined in the Stock Purchase Agreement), successors and assigns harmless from and against any Loss (as defined in the Stock Purchase Agreement) relating to or arising or resulting from: (i) any breach or nonfulfillment of any covenant or agreement made by the Insurers under this Agreement; (ii) any Retained Policy Liabilities; and (iii) any Excluded Liabilities. Notwithstanding the foregoing, the obligations of each Insurer under this Section 4 of Article XV shall be only for Losses relating to such Insurer’s breaches or liabilities, and neither Insurer shall be liable for any Losses resulting from breaches or liabilities of the other Insurer or the enforcement of this indemnity against the other Insurer.
(b)	The Reinsurer shall indemnify and hold the Insurers and their respective directors, officers, stockholders, employees, representatives, Affiliates (as defined in the Stock Purchase Agreement), successors and assigns harmless from and against any Loss (as defined in the Stock Purchase Agreement) relating to or arising or resulting from: (i) any breach or nonfulfillment of any covenant or agreement made by the Reinsurer under this Agreement; and (ii) any Policy Liabilities.
(c)	In the event the Insurers or the Company shall have a claim for indemnity against the other party under the terms of this Agreement, the parties shall follow the procedures set forth in Section 10.3 of the Stock Purchase Agreement.

     5. Equitable Relief. Each party hereto acknowledges that if it or its employees or representatives violate the terms of this Agreement, the other parties will not have an adequate remedy at law. In the event of such a violation, the other parties shall have the right, in addition to any other rights that may be available to them, to obtain in any court of competent jurisdiction injunctive relief to restrain any such violation and to compel specific performance of the provisions of this Agreement. The seeking or obtaining of such injunctive relief shall not foreclose or limit in any way relief against either party hereto for any monetary damage arising out of such violation.

     6. Set-Off. Except in the circumstances described in Section 5 of Article VIII, as to which the provisions of such section will apply, any debits or credits between the Insurers and the Reinsurer arising under this Agreement, the Amended and Restated Administrative Services Agreement and, with respect to undisputed amounts and amounts provided for in a final judgment not subject to appeal, the Stock Purchase Agreement, are

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deemed mutual debits or credits, as the case may be, and shall be netted or set off, as the case may be, and only the balance shall be allowed or paid hereunder.

     7. Entire Agreement; Amendments. This Agreement (including the Exhibits and Schedules hereto), the Amended and Restated Administrative Services Agreement, the Purchase Agreement, and the other Related Agreements contain the entire agreement and understanding between the parties with respect to the matters contemplated hereby, and supersede all prior agreements and understandings, written or oral, between the parties hereto with respect to such matters. Any change or modification to this Agreement shall be null and void unless made by amendment to this Agreement and signed by all the parties hereto.

     8. Invalidity. The invalidity or unenforceability of any provision or portion hereof shall not affect the validity or enforceability of the other provisions or portions hereof.

     9. Counterparts. This Agreement may be executed in counterparts, each of which shall be deemed an original and all of which together shall constitute one and the same instrument.

     10. Exclusivity. This Agreement is not intended to confer any rights upon any person other than the parties hereto and their respective successors and permitted assigns.

     11. Binding Effect. This Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective successors and permitted assigns.

     12. Governing Law. This Agreement shall be governed by and construed in accordance with the laws of the State of Illinois, without giving effect to the principles of conflicts of laws thereof.

     13. Successors and Assignment. No party hereto shall assign this Agreement or any rights or obligations hereunder, by operation of law or otherwise, or subcontract any other party to perform such party’s obligations hereunder, without the prior written consent of the other parties hereto, and any such attempted assignment or subcontracting without such prior written consent shall be void and of no force and effect. Notwithstanding the foregoing, the Reinsurer may assign its rights and obligations under this Agreement with respect to Policies covering persons and risks resident or situated in Canada to an Affiliate (as defined in the Stock Purchase Agreement), provided that such Affiliate enters into an agreement with the Insurers substantially in the form of this Agreement.

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     IN WITNESS WHEREOF, CAC, VFL and the Reinsurer have each executed this Agreement as of the date first written above.

CONTINENTAL ASSURANCE COMPANY
By:	/s/ Lawrence J. Boysen
	Name:	Lawrence J. Boysen
	Title:	Senior Vice President & Corporate Controller
VALLEY FORGE LIFE INSURANCE COMPANY
By:	/s/ Lawrence J. Boysen
	Name:	Lawrence J. Boysen
	Title:	Senior Vice President & Corporate Controller
CNA GROUP LIFE ASSURANCE COMPANY
By:	/s/ Lawrence J. Boysen
	Name:	Lawrence J. Boysen
	Title:	Senior Vice President & Corporate Controller

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SCHEDULE A
RETAINED POLICY LIABILITIES

     None.

Schedule B
CAC and VFL Business

Employer Life Insurance

Form No.	Description	Company
R-LP	Master Policy	CAC
R-LC	Certificate	CAC
Z3-66577-SF	Master Application	CAC
MMD-GTLP (1)	Master Policy (Voluntary)	CAC
MMD-GTLC (1)	Certificate	CAC
TLMA1AA (1)	Master Application	CAC
SBGTL-P (2)	Master Policy	CAC
SBGTL-C (2)	Certificate	CAC
Z3-131856-A (2)	Master Application	CAC

Affinity Life Insurance

Form No.	Description	Company
MMD-GTLP (1)	Master Policy	CAC
MMD-GTLC (1)	Certificate	CAC
TLMA1AA (1)	Master Application	CAC
P3-99944-C	Master Policy	CAC
Q3-99945-B	Certificate	CAC
Z3-99946-B	Master Application	CAC
P3-99483-A	Franchise Policy	CAC
PO-94398-A Rev. 1	Individual Term Life Policy	VFL
ZO-43361-A	Individual Term Life Application	VFL
P0-116605-A	Master Policy	VFL
Q0-116607-A	Certificate	VFL
Z0-116606-A	Master Application	VFL
SBGTL-P (2)	Master Policy	CAC
SBGTL-C (2)	Certificate	CAC
Z3-131856-A (2)	Master Application	CAC

Stedman Trust Employer Life Insurance

Form No.	Description	Company
GPIT-P	Master Policy	CAC
GPIT-C	Certificate	CAC

Z3-138310-A Master Application CAC

Portable Life Insurance

Form No.	Description	Company
P3-128912-A	Master Policy (3-Year)	CAC
Q3-128913-A	Certificate	CAC
Z3-128914-A	Master Application	CAC
P3-138368-A12	Master Policy (Pathway)	CAC
Q3-138369-A12	Certificate	CAC
Z3-138370-A12	Master Application	CAC

Universal Life Insurance

Form No.	Description	Company
P3-114021-A(BX)	Master Policy	CAC
Q3-114022-A(BX)	Certificate	CAC
Z3-114024-A(BX)	Master Application	CAC

Employer AD&D Insurance

Form No.	Description	Company
SBGADD-P	Master policy (New VAD/CO)	CAC
SBGADD-C	Certificate (New VAD/CO)	CAC
Z3-140196-A	Application (New VAD/CO)	CAC
Z3-140198-A	Application (New VAD/CO)	CAC

Employer Disability Insurance

Form No.	Description	Company
SBDI-P (3)	Policy	CAC
SBDI-C (3)	Certificate	CAC
SBDI-Z (3)	Master Application	CAC

Legacy Life Insurance — Selman

Form No.	Description	Company
Not available	Guaranteed Insurability Option	VFL
RO-10409-C	Monthly Disability Income Benefit Rider	VFL
P.E. P. 100	Special Participating Whole Life	VFL
IC-110A	Special Participating 20 Pay Life	VFL
3-N7-45-UW	Whole Life	VFL
NN1YN	Preferred Whole Life	VFL

6401-L100	Whole Life	VFL
PO-94817-A	Whole Life Independent Plan Male/Fem.	VFL
IC 75	Juvenile Life PD up @ 65	VFL

Legacy Life Insurance — Selman (Continued)

Form No.	Description	Company
PO-77766-A	Golden Life 65	VFL
3-N7-52-UW	Select Life 15	VFL
6401	Life Paid up @ 85	VFL
PO-10454-A	ILP and ILP2 Whole Life Insurance	VFL
IC-11-A	20 Pay Life	VFL
PO-10144-A12	22 Pay Life	VFL
PO-10212-A98	30 Pay Life Policy	VFL
PO-10024-B	Guardsman Life	VFL
3-N7-45-UW	Life paid up at 65	VFL
3-N7-54-UW	Juvenile Estate Builder	VFL
3-N7-12-IR	Juvenile Special	VFL
V-103-013	Life paid up at age 96	VFL
I78-H10-I56	Life insurance paid up at age 97	VFL
PO-10229-A	Xtra Life or life paid up @ 99	VFL
PO-10574-A	Life paid up at 98	VFL
106	Endowment at age 90	VFL
NN-1-U)-(3-57)	Endowment at age 85	VFL
3-N7-47-UW	Endowment at age 65	VFL
3-N7-47-UW	20 Year Endowment	VFL
NN-2-UO-(3-57)	20 Pay Endowment at age 85	VFL
3-N7-47-UW	Juvenile 20 Endowment 65	VFL
3-N7-2267-DP	Student Graduate Life	VFL
V-103-012	2500 Retirement Income 65	VFL
3-N7-2170-UW	Family Insurance Benefit	VFL
RO-75006-A	Family Insurance Benefit — Lifeguard	VFL
Not Available	Family Plan Rider	VFL
3-N7-2171 UW	Children’s Insurance Benefit	VFL
Not Available	Children’s Term Life Rider (Lifeguard)	VFL
Not Available	Family Policy	VFL
3-N7-59-HW	Valley Forge 76 Family Policy	VFL

305	Jefferson LP99	VFL
V103-011	10 Year Deposit Term	VFL
PO-10405-A	Level Term to age 65	VFL
3-N7-2166-UW	Family Income Benefit	VFL

Legacy Life Insurance — Selman (Continued)

Form No.	Description	Company
3-N7-58-UW	Mortgage Protection	VFL
Not Available	Supplemental Term Benefit	VFL
Not Available	Reducing Term Rider	VFL
PO-10404-A	Executive Decreasing Term to age 65	VFL
PO-10029-A	Level Lifeguard	VFL
PO-10029-A	Decreasing Lifeguard	VFL
PO-10351-A	Decreasing Term Insurance to age 100	VFL
3-N7-35-BV	Mortgage Security Policy	VFL
PO-94531-A	5 Year Renewable & Convertible Term	VFL
RO-95543-A	Family Rider Independent Plan +AD	VFL
RO-95542-A	Children’s Insurance Benefit	VFL

Legacy Association Group — Selman

Form No.	Description	Company
P3-91726-B42	Level Premium Whole Life Individual Policy	CAC
P3-93409-B37	Whole Life Paid Up @ 65 Individual Policy	CAC
Q3-91632-A24	Group Endowment @ 65 Certificate	CAC
Q3-91713-A	Group Life 50% Paid Up @ 65 Certificate	CAC
Q3-92204-A	Group Endowment @ 65 Certificate	CAC
Q3-96835-B	Group Whole Life Certificate	CAC
Q0-90308-A	Whole Life Insurance Certificate — VFW	VFL

Legacy Association Group — JP Pearl

Form No.	Description	Company
966	ALA Group Plans	CAC
57096	United Synagogue of America	CAC
43219	United Synagogue of America	CAC
43219	United Synagogue of America	CAC
77290	Knights of Pythias	VFL
57096	Chicago Motor Club	CAC
57096	Chicago Motor Club	CAC

99950	Transportation ACC Ins	CAC
57096	Illinois Retired Teachers Assoc	CAC
43219	Illinois Retired Teachers Assoc	CAC
43219	Illinois Retired Teachers Assoc	CAC
43219	Illinois Retired Teachers Assoc	CAC

Legacy Association Group — JP Pearl (Continued)

Form No.	Description	Company
57096	Pact Trust Direct Bill	CAC
57096	Gov Employees Benefit Assoc	CAC
57096	The Automobile Club of MD	CAC
43219	Amvets	CAC
43219	Amvets	CAC
43219	Amvets	CAC
43219	Winnebago Itasca Travelers Club	CAC
43219	Winnebago Itasca Travelers Club	CAC
43219	Illinois Education Association	CAC
00703	National Insurance Trust	CAC
00000	Professionals	CAC
43538	American Legion of Iowa	CAC
57096	Beta Sigma Phi	CAC
77290	ALA Group	VFL
77290	Jewish War Vets	VFL

Progeny

Form No.	Description	Company
P3-69668-A41	Policy	CAC
Q3-69669-A41	Certificate	CAC
Z3-69667-A	Master Application	CAC
P3-99472-A	Policy	CAC
Q3-99473-A41	Certificate	CAC
Z3-99300-A	Master Application	CAC
P3-67422-A	Policy	CAC
Q3-67448-A	Certificate	CAC
Z3-67425-A	Master Application	CAC
MMD-GTLP	Policy	CAC
MMD-GTLC	Certificate	CAC

TLAR1	Master Application	CAC
MMD-IGTLP	Policy	CAC
TLMA1AA	Application	CAC
Z3-103681-B/Z3-131823-A	Individual Application	CAC
MMCC-P	Policy	CAC
MMCC-Q	Certificate	CAC
Z3-113120-A	Master Application	CAC

⁽¹⁾ Excludes policy numbers SR400102 through SR400168 administered by Provident Agency, Inc.
⁽²⁾ Excludes Policies corresponding to Benefit Value Life risk code 59983 which have been sold or are administered by Strategic Resource Company or its Affiliates as of the Closing Date.
⁽³⁾ Excludes Policies corresponding to Benefit Value Disability risk code 59984 which have been sold or are administered by Strategic Resource Company or its Affiliates as of the Closing Date.

SCHEDULE C
ADDITIONAL CEDING COMMISSION

0.58% of direct collected life insurance premiums and 0.14% of all other direct collected premiums.

EXHIBIT A
COMMUTATION AGREEMENT

[See Item 98]

EXHIBIT B
SECURITY TRUST AGREEMENT

[See Item 123]

EXHIBIT C
TAX ELECTION

A. The parties will make a joint election, in accordance with Treas. Reg. 1.848-2(g)(8) (the “Regulation”), issued December 31, 1992, under Section 848 of the Internal Revenue Code of 1986 (the “Code”), and:

(1)	the party with the net positive consideration under this Agreement will capitalize specified policy acquisition expenses with respect to this Agreement for such taxable year without regard to the general deductions limitations of Section 848(c)(1) of the Code;
(2)	the election will take effect on the Original Effective Time and will remain in effect for all subsequent years that this Agreement remains in effect; and
(3)	each party shall attach a schedule to its federal income tax return for its first taxable year ending after the election becomes effective that identifies the agreement (including this Agreement) for which joint elections have been made under the Regulation.

B. Pursuant to this joint election:

(1)	each party will exchange information pertaining to the amount of net consideration under this Agreement to assure consistency or as may otherwise be required by the Internal Revenue Service;
(2)	the Reinsurer will submit its calculation of the “net consideration”, as defined under Treas. Reg. 1.848-2(f), to the Insurers not later than May 1 for each and every tax year for which this Agreement is in effect;
(3)	the Insurers may challenge such calculation within ten (10) working days of receipt of the Reinsurer’s calculation; and
(4)	the parties will act in good faith to reach agreement as to the correct amount of net consideration whenever there is disagreement as to the amount of net consideration, as determined under Treas. Reg. 1.848- 2(f).

C. Each Insurer and the Reinsurer represent and warrant that they are subject to U.S. taxation under Subchapter L of Chapter 1 of the Code.

Agreed and Accepted:

	CONTINENTAL ASSURANCE COMPANY
By:	/s/ Lawrence J. Boysen
	Name:	Lawrence J. Boysen
	Title:	Senior Vice President & Corporate Controller
	VALLEY FORGE LIFE INSURANCE COMPANY
By:	/s/ Lawrence J. Boysen
	Name:	Lawrence J. Boysen
	Title:	Senior Vice President & Corporate Controller
	CNA GROUP LIFE ASSURANCE COMPANY
By:	/s/ Lawrence J. Boysen
	Name:	Lawrence J. Boysen
	Title:	Senior Vice President & Corporate Controller

EX-10.2

Exhibit 10.2

     EXECUTION COPY

AMENDED AND RESTATED
GROUP HEALTH
INDEMNITY REINSURANCE AGREEMENT

     THIS AMENDED AND RESTATED GROUP HEALTH INDEMNITY REINSURANCE AGREEMENT, dated as of December 31, 2003 (this “Agreement”), is entered into by and between CONTINENTAL CASUALTY COMPANY, a stock insurance company organized under the laws of Illinois (“CCC”), and AMERICAN CASUALTY COMPANY OF READING, PENNSYLVANIA, a stock insurance company organized under the laws of Pennsylvania (“ACC” and together with CCC, the “Insurers”, with each of CCC and ACC also sometimes referred to herein as an “Insurer”), and CNA GROUP LIFE ASSURANCE COMPANY, a stock insurance company organized under the laws of Illinois (the “Reinsurer”).

WITNESSETH

          WHEREAS, the parties hereto entered into a reinsurance agreement (the “Original Reinsurance Agreement”), dated as of March 31, 2001, pursuant to which the Reinsurer agreed to reinsure the group health insurance businesses and certain other businesses of the Insurers;

          WHEREAS, the parties hereto also entered into an administrative services agreement (the “Original Administrative Services Agreement”), dated as of March 31, 2001, pursuant to which the Reinsurer agreed to provide the administrative services described therein with respect to the business reinsured under the Original Reinsurance Agreement;

          WHEREAS, CCC, Continental Assurance Company, an Illinois stock insurance company (“CAC”), CNA Financial Corporation, a Delaware corporation (“CNA”), Hartford Life and Accident Insurance Company, a stock insurance company organized under the laws of Connecticut (“Purchaser”) and Hartford Life, Inc., a Delaware corporation, have entered into an Amended and Restated Stock Purchase Agreement, dated as of November 30, 2003 (the “Stock Purchase Agreement”), pursuant to which CCC, CAC and CNA have agreed, among other things, to sell to Purchaser all of the issued and outstanding capital stock of the Reinsurer and Charles Stedman & Co., Inc.;

          WHEREAS, pursuant to the Stock Purchase Agreement, CNA, CCC, CAC and Purchaser have agreed that at the Closing (as defined in the Stock Purchase Agreement) certain business and liabilities previously ceded to and reinsured by the Reinsurer under the Original Reinsurance Agreement would be commuted effective upon the Closing Date (as defined in the Stock Purchase Agreement) pursuant to a Commutation Agreement among CCC, ACC and the Reinsurer, the form of which is attached hereto as Exhibit A (the “Commutation Agreement”);

          WHEREAS, pursuant to the Stock Purchase Agreement, CNA, CCC, CAC and Purchaser have agreed that the Original Reinsurance Agreement and the Original Administrative Services Agreement would be amended and restated to recognize the effect of the Commutation Agreement and to give effect to certain other changes;

          WHEREAS, the parties hereto are entering into the Amended and Restated Group Health Administrative Services Agreement, dated as of the date hereof, which amends and restates in its entirety the Original Administrative Services Agreement (the “Amended and Restated Administrative Services Agreement”); and

     WHEREAS, the Insurers and the Reinsurer desire to enter into this Agreement to amend and restate in its entirety the Original Reinsurance Agreement as herein set forth.

     NOW, THEREFORE, in consideration of the mutual covenants and promises, and upon the terms and conditions, hereinafter set forth, the parties hereto agree as follows:

ARTICLE I

BUSINESS REINSURED

     1. Effective as of 12:01 a.m. on the Closing Date (the “Revised Effective Time”), the Insurers hereby cede to the Reinsurer, and the Reinsurer hereby accepts and indemnity reinsures, on a coinsurance basis, from the Insurers, 100% of the Policy Liabilities (as defined below), but none of the Retained Policy Liabilities (as defined below) and Excluded Liabilities (as defined below), in each case, arising from:

(i) any and all binders, endorsements, riders, policies, certificates and contracts of insurance and assumed reinsurance included in the Subject Business issued, renewed or assumed by the Insurers prior to, on or after the Original Effective Time (as defined in Article VII of this Agreement), including without limitation all such binders, endorsements, riders, policies, certificates and contracts lapsed and terminated with unpaid claims or subsequently reinstated; (ii) Accommodation Policies (as defined in the Amended and Restated Administrative Services Agreement) for the Subject Business; and (iii) Insurer Additional Policies (as defined in the Amended and Restated Administrative Services Agreement) for the Subject Business (each such binder, endorsement, rider, policy, certificate or contract of insurance and reinsurance being referred to in (i), (ii) and (iii) above shall be hereinafter referred to individually as a “Policy” and collectively as the “Policies”).

     2. The term “Certificateholder” shall mean each insured or reinsured under a Policy.

     3. The term “Third Party Reinsurance Agreement” shall have the meaning provided therefore in the Stock Purchase Agreement.

     4. The term “Unnovated Third Party Reinsurance Agreement” shall mean a Third Party Reinsurance Agreement which has not been novated pursuant to the terms of Section 5.12.2(b) of the Stock Purchase Agreement.

     5. The term “Retained Policy Liabilities” shall mean any Policy Liabilities (a) ceded by an Insurer under an Unnovated Third Party Reinsurance Agreement or (b) required to be retained by the Insurers under applicable state law or, in the case of Policies

2

reinsured under any Third Party Reinsurance Agreement, by the terms of such Third Party Reinsurance Agreement (giving effect to any consents or modifications of such applicable agreement), with such Retained Policy Liabilities referred to in clause (b) being reflected in Schedule A hereto.

     6. The term “Subject Business” shall mean all of the insurance business that corresponds to the policy forms of the Insurers identified on Schedule B.

     7. The term “Policy Liabilities” shall mean the gross liability and obligations (whether arising from assumed reinsurance or directly written insurance) of the Insurers, based upon or arising under the express written terms and conditions of the Policies (except for Excluded Liabilities (as defined below) and Retained Policy Liabilities), including without limitation liabilities for:

(a)	withdrawals, surrenders, Policy loans, returns of premium and other deposits and any other disbursement, Policyholder interest, dividends, dividend accumulations, benefits, claims, losses and benefit and claim expenses (but excluding any amounts claimed or allegedly payable due to the accelerating or discounting of contingent or future benefits, claims or losses following the insolvency of an Insurer) in respect of the Policies;
(b)	Extra Contractual Obligations (as defined below), but only to the extent such Extra Contractual Obligations are based on acts, errors or omissions on or after the Revised Effective Time by the Reinsurer or any of its respective officers, employees, agents, subcontractors or representatives, and any attorneys’ fees incurred by an Insurer and the Reinsurer related to such liabilities;
(c)	guaranty association assessments in connection with participation by an Insurer in any guaranty fund or association established or governed by any state or jurisdiction to the extent arising on account of premiums, deposits and other consideration paid or payable after January 1, 2001 in respect of the Policies;
(d)	other assessments or payments required to be made with respect to the Policies for or on account of regulatory agencies, including but not limited to valuation fees or payments after January 1, 2001;
(e)	returns or refunds of premiums (irrespective of when due) and any other benefits or dividends under the Policies paid or payable after January 1, 2001;
(f)	premium taxes and municipal taxes paid or payable by an Insurer or the Reinsurer in respect of the Policies after January 1, 2001;
(g)	commissions or other compensation due insurance brokers, agents and producers and reinsurance intermediaries in connection with the Policies;

3

(h)	amounts payable under assumed reinsurance arrangements, and obligations to return premiums or portions thereof;
(i)	premiums or portions thereof payable under Third Party Reinsurance Agreements with respect to the Policies other than Unnovated Third Party Reinsurance Agreements; and
(j)	accrued interest on all unpaid Policy Liabilities.

     8. The term “Excluded Liabilities” shall mean the liabilities or obligations of each Insurer that are not Policy Liabilities, including, without limitation: (i) any Extra Contractual Obligations ceded by the Insurers to the Reinsurer prior to the Revised Effective Time; (ii) Extra Contractual Obligations based on acts, errors or omissions by an Insurer, or any of its officers or employees, agents, subcontractors or representatives (other than the Reinsurer on or after the Revised Effective Time pursuant to the Amended and Restated Administrative Services Agreement), and not at the direction or request of the Reinsurer on or after the Revised Effective Time and any attorneys’ fees incurred by the Insurer related to such liabilities or obligations; (iii) any Extra Contractual Obligations based on acts, errors or omissions by the Reinsurer or any of its officers or employees, agents, subcontractors or representatives prior to the Revised Effective Time and any attorneys’ fees incurred by an Insurer related to such liabilities or obligations; and (iv) any risk, obligations or liabilities commuted and transferred to the Insurers under the Commutation Agreement.

     9. The term “Extra Contractual Obligations” shall mean all liabilities and obligations other than those arising under the express terms and conditions, and within the limits, of the Policies, including, without limitation, any liability for fines, penalties, forfeitures or punitive, exemplary, special or any other form of extra contractual damages, relating to the Policies, which arise from any act, error or omission, whether intentional, negligent or in bad faith, including, without limitation, any act, error or omission relating to (i) the marketing, underwriting, production, issuance, cancellation or administration of the Policies, (ii) the investigation, defense, trial, settlement or handling of claims, benefits, or payments under the Policies, or (iii) the failure to pay or the delay in payment of benefits, claims or any other amounts due or alleged to be due under or in connection with the Policies.

     10. The Reinsurer is entitled to the benefit of any and all rights, assets, defenses, setoffs and counterclaims to which the Insurers are entitled with respect to the Policy Liabilities or the satisfaction thereof, it being expressly understood and agreed by the parties hereto that no such rights, assets, defenses, setoffs or counterclaims are waived by the execution of this Agreement or the consummation of the transactions contemplated hereby and that the Reinsurer shall be fully subrogated to all such rights, assets, defenses, setoffs and counterclaims. The liability of the Reinsurer hereunder shall remain in effect until all liability under the Policies has been fully liquidated. An Insurer, on its own initiative, will not change the terms and conditions of any Policy or the assumptions and methods used by

4

Company to determine statutory reserves in respect of the Policies unless required by regulatory authority.

     11. The Reinsurer shall have the benefit of any premium tax credits and reductions attributable to guaranty fund assessments and similar assessments paid or payable by such Insurer with respect to the Policies but only if and to the extent that (i) the Reinsurer reinsures the Insurers for such guaranty fund and similar assessments pursuant to this Agreement and (ii) such credits are actually applied by the Insurers to reduce their premium tax liabilities, provided that Insurers shall apply such credits and any other premium tax credits and reductions attributable to guaranty fund assessments and similar assessments on a pro rata basis.

     12. The Reinsurer may, at its sole option, elect to (a) novate certain or all of the Policies by assumption reinsurance (the “Novation Option”) or (b) amend this Agreement as appropriate to add a “cut-through” for designated Policies, making Policy benefits that are included in the Policy Liabilities payable directly to the policyholders (the “Cut-Through Option”). As part of the Cut-Through Option, the Reinsurer also may elect, in it sole discretion, for the Insurers and the Reinsurer to issue a related endorsement for the designated Policies. The Reinsurer’s election, if any, to pursue either the Novation Option or the Cut-Through Option, shall be subject to obtaining any regulatory approvals, consents or confirmations deemed necessary or advisable by the Reinsurer, in its sole discretion. The Reinsurer shall promptly notify the Insurers prior to pursuing the Novation Option or Cut-Through Option, and the Insurers shall cooperate with the Reinsurer in implementing the Novation Option or Cut-Through Option (including, without limitation, amending this Agreement), provided that the Reinsurer shall be solely and exclusively responsible for the costs and expenses of effecting the Novation Option or Cut-Through Option. Notwithstanding the foregoing, the Reinsurer shall have no obligation to seek the Novation Option or Cut-Through Option, and this provision by itself shall in no way be interpreted as amending Article IX to provide any rights to any third party.

ARTICLE II

PAYMENT AND ACCOUNTING FOR CERTAIN ASSUMED POLICY LIABILITIES

     In connection with the Reinsurer’s assumption of the Policy Liabilities described in paragraphs (c), (d) and (f) of Section 7 of Article I hereof (the “Tax/Assessment Liabilities”), it is agreed that an Insurer will make direct payment of such Tax/Assessment Liabilities and that the Reinsurer’s assumption of liability therefor shall be discharged by an Insurer reporting the Tax/Assessment Liabilities paid by the Insurer to the Reinsurer in accordance with Section 7 of Article VII, and the Reinsurer reimbursing the Insurer for such amounts also in accordance with Section 7 of Article VII.

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ARTICLE III

TERRITORY

     This Agreement shall apply to Policies covering persons and risks wherever resident or situated.

ARTICLE IV

POLICY ADMINISTRATION

     The Policies and the Policy Liabilities shall be administered by the Reinsurer pursuant to the terms of the Amended and Restated Administrative Services Agreement. In connection therewith, Reinsurer will provide such periodic reports to the Insurers as are required by the Amended and Restated Administrative Services Agreement. Settlements of amounts due from the Reinsurer to the Insurers and amounts due from the Insurers to the Reinsurer, as set forth in such reports, shall be made on a monthly basis as set forth in the Amended and Restated Administrative Services Agreement.

ARTICLE V

PREMIUMS; RECOVERIES

     1. Each Insurer hereby transfers, conveys and assigns to the Reinsurer all of its rights, title and interest to, and the Reinsurer shall be entitled to, 100% of the following, except to the extent that any such amounts are attributable to Retained Policy Liabilities: all premiums (irrespective of when due), premium adjustments, reinsurance receivables, balances due from agents, principal and interest due on policy loans, retroactive increases in premiums based upon experience, accrued interest receivables and recoveries received at or after January 1, 2001 by the Insurers or the Reinsurer with respect to the Policies, together with all Policy related rights of the Insurers, including, without limitation, subrogation and coordination of benefits rights, including, for the benefit of the Reinsurer, any and all premium tax credits attributable to guaranty fund and other assessments paid or payable by the Insurers (the “Premium Tax Credits”) to the extent provided in Section 11 of Article I.

     2. Each Insurer shall promptly endorse and remit to the Reinsurer all of the following, except to the extent that any such amounts are attributable to Retained Policy Liabilities: any premiums, premium adjustments, reinsurance receivables, balances due from agents, amounts due on policy loans, accrued interest receivables, rights, assets and recoveries received by the Insurers at or after January 1, 2001 in respect of any of the Policies or the satisfaction of Policy Liabilities, including the Premium Tax Credits, to the extent provided in Section 11 of Article I. Each Insurer shall treat any such amounts as the property of the Reinsurer to be held in a fiduciary capacity for the sole benefit of Reinsurer.

     3. Each Insurer shall provide reasonable assistance to the Reinsurer, upon the Reinsurer’s request therefor, and at the Reinsurer’s expense, in the collection of any

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premiums, premium adjustments, reinsurance receivables, balances due from agents, amounts due on policy loans, accrued interest receivables, rights, assets and recoveries due such Insurer at or after the Revised Effective Time in respect of any of the Policies or the satisfaction of Policy Liabilities. Furthermore, with respect to any such remittance, each Insurer shall also promptly furnish the Reinsurer with all pertinent information which it receives at and after the Revised Effective Time pertaining thereto (e.g., the nature of the payment, source of funds, policy or certificate number or agreement (as appropriate) and period(s) to which it relates and any instructions accompanying same); provided, however, that such Insurer may retain a copy thereof (subject to the restrictions upon use set forth in this Agreement).

     4. Each Insurer agrees to execute and deliver to the Reinsurer any further instruments or assurances that the Reinsurer may reasonably request for more effectual vesting of the Reinsurer’s right, title and interest in the following, except to the extent that any such amounts are attributable to Retained Policy Liabilities: any premiums, premium adjustments, reinsurance receivables, balances due from agents, amounts due on policy loans, accrued interest receivables, rights, assets and recoveries received by the Insurers at or after January 1, 2001 in respect of any of the Policies or the satisfaction of Policy Liabilities. Such action shall include, without limitation, each Insurer’s execution and delivery of any financing statements reasonably requested by the Reinsurer to the extent that it may appear appropriate to the Reinsurer to file such financing statements under Article 9 of the Uniform Commercial Code.

     5. Effective as of the Revised Effective Time, the Insurers have no responsibility for billing and collecting premiums in respect of the Policies or, subject to Section 7 of this Article V regarding Unnovated Third Party Reinsurance Agreements, otherwise servicing or administering any Policies, except as may otherwise be set forth in the Amended and Restated Administrative Services Agreement or in other signed writing of the relevant parties.

     6. Effective as of the Revised Effective Time, the Insurers have no responsibility for ascertaining or collecting reinsurance recoverables with respect to Policy Liabilities under the Third Party Reinsurance Agreements other than the Unnovated Third Party Reinsurance Agreements, provided that the Reinsurer shall assume responsibility for administering the Unnovated Third Party Reinsurance Agreements on behalf of the Insurers under the Amended and Restated Administrative Services Agreement. The collectibility of reinsurance with respect to the Policies from reinsurers under Third Party Reinsurance Agreements other than the Unnovated Third Party Reinsurance Agreements shall be at the risk of and for the account of the Reinsurer. The risk of collectibility of reinsurance with respect to the Policies from reinsurers under the Unnovated Third Party Reinsurance Agreements shall be shared as follows: (i) the Reinsurer shall be obligated to the applicable Insurer for 50% of any amounts more than 60 days past due from reinsurers under the Unnovated Third Party Reinsurance Agreements, with settlements of such amounts to be made on a monthly basis as set forth in the Amended and Restated Administrative Services Agreement, and (ii) all other reinsurance recoverables under the Unnovated Third Party Reinsurance Agreements shall be at the collection risk of the Insurers. With respect to any

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past due reinsurance recoverables under Unnovated Third Party Reinsurance Agreements for which the Reinsurer is obligated to the Insurers hereunder, the Reinsurer shall be entitled to its pro rata share of any subsequent recovery of such reinsurance recoverables.

     7. The Reinsurer shall have responsibility and full power and authority to act for and on behalf of the Insurers, and the Insurers shall take such measures as reasonably requested by the Reinsurer, with respect to any and all letters of credit outstanding or assets in trust held for the benefit of the Insurers pursuant to the terms of the Third Party Reinsurance Agreements.

ARTICLE VI

REINSURANCE CREDIT

     1. Licensed or Accredited Status. The Reinsurer is, and shall maintain its status as, a licensed life insurer or accredited life reinsurer in all jurisdictions of the United States where necessary so that the Insurers, in the statements required to be filed with their regulatory authority(ies), shall receive full credit as admitted reinsurance for all of the Reinsurer’s share of the Obligations (as defined in this Article).

     2. Reinsurance Credit. If a jurisdiction of the United States will not permit any Insurer, in the statements required to be filed with its regulatory authority(ies), to receive full credit as admitted reinsurance for any of the Reinsurer’s share of Obligations (as defined in this Article), such Insurer may, in its discretion, in the case of each such instance and for each applicable filing date, elect to forward to the Reinsurer a statement of the Reinsurer’s share of such Obligations. If the Insurer and the Reinsurer, cooperating reasonably, cannot resolve the matter with insurance regulatory authority(ies) in the applicable jurisdiction(s) within thirty (30) days of the Reinsurer’s receipt of such statement, then the Reinsurer shall, at its option, promptly either:

(a)

Provide such Insurer with a letter of credit that complies with the terms of New York Insurance Regulation 133, in the amount specified in the statement submitted so that full credit as admitted reinsurance shall be given for the Obligations of the Reinsurer under this Agreement; or

(b)

Establish a trust account for the benefit of such Insurer in compliance with the terms of New York Insurance Regulation 114, at least in the amount specified in the statement submitted so that full credit as admitted reinsurance shall be given for the Obligations of the Reinsurer under this Agreement. The assets in the trust account shall be pledged to the Insurer in accordance with a securities pledge agreement in form and substance reasonably satisfactory to the Insurer in order to perfect a security interest in favor of the Insurer in the trust account under Article 9 of the Uniform Commercial Code.

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     3. Definition. “Obligations”, as used in this Article, shall mean the sum of the following, all determined in accordance with SAP (as defined in the Stock Purchase Agreement), losses paid by the relevant Insurer but not yet recovered from the Reinsurer, plus the relevant Insurer’s reserves for future policy benefits, including, but not limited to, active life reserves for universal life and permanent life insurance contracts, group life premium waiver reserves and long term disability reserves, the relevant Insurer’s reserves for reported losses and benefits and claim expenses, and losses, benefits and claim expenses incurred but not reported and premiums unearned, if any, with respect to the Policies.

     4. Security Trust Agreement. At the Closing or at any time thereafter, if the Obligations ceded by an Insurer under this Agreement exceed $50 million, the Reinsurer shall transfer to a trust account, for the benefit of such Insurer, assets adequate to secure such Insurer’s Obligations, which trust account shall be established under, and be governed by the terms of, the Security Trust Agreement attached as Exhibit B hereto (the “Security Trust Agreement”). Such trust account shall be in effect for the term provided for in the Security Trust Agreement. Notwithstanding the foregoing, in the event that the Obligations ceded to the Reinsurer under this Agreement and the Amended and Restated CAC Reinsurance Agreement (as defined in the Stock Purchase Agreement) are less than $250 million in the aggregate, the Reinsurer shall not be obligated to establish or maintain any trust account pursuant to this Section 4 of Article VI.

ARTICLE VII

NET LIABILITIES, TRANSFER OF ASSETS AND CEDING COMMISSION

     1. Net GAAP Liabilities Calculation. No later than the Original Effective Time (as defined in the following paragraph), each Insurer prepared and distributed to Reinsurer, a statement, as of December 31, 2000, of all Net GAAP Liabilities for the Subject Business. Net GAAP Liabilities for purposes of such statement consisted of all insurance liabilities associated with the policies, including claim and claim expense reserves, reserves for future policy benefits (such as active life reserves, unearned premium reserves and advance premiums), policyholder funds left on deposit, reserves in provision of rate credits payable under experience rated contracts, unpaid commissions, accrued premium taxes and guaranty association assessments, allocable valuation fees imposed under state law, amounts payable under reinsurance contracts and accrued interest due on all unpaid liabilities; net of insurance assets associated with the policies, including due and uncollected premiums, balances due from agents, policy, loans, amounts due under reinsurance contracts and accrued interest receivable on all amounts due and uncollected. Such statement was prepared in accordance with generally accepted accounting principles on a basis consistent with the financial reporting and accounting practices of the Insurers with respect to the Subject Business (“Historical GAAP”) and was binding on all parties for purposes of determining the cash transfer pursuant to paragraph 2 of this Article VII. The calculation of the Net GAAP Liabilities, as of December 31, 2000, of the Subject Business of the Insurers was $1,167,848,949.

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     2. Transfer of Assets. On or before March 31, 2001 (or as promptly as practicable following compliance with insurance laws and regulations requiring prior notice or approval of transactions between affiliated insurance companies) (the “Original Effective Time”) and as partial consideration for the reinsurance of liability by the Reinsurer with respect to the Policies, the Insurers transferred to the Reinsurer cash and/or investment securities designated by the Insurers (and valued at market value as of the time of transfer) equal in value to the amount determined pursuant to the statement described in paragraph 1 of this Article VII. In addition to and together with the principal amount described and transferred in accordance with the preceding sentence, the Insurers also transferred cash and/or investment securities equal in value to six percent (6%) per annum simple interest on the described principal amount for the period between January 1, 2001 and the actual date of transfer.

     3. Interim Period Adjustment. The parties computed both (a) the aggregate amount collected by Insurers in respect of Policies (not including balances, receivables, accruals, rights and other items assigned in kind pursuant to Article V) between January 1, 2001 and the Original Effective Time (the “Stub Period”), and (b) the aggregate amount paid during the Stub Period in respect of Policy Liabilities (not including liabilities assumed by Reinsurer at the Original Effective Time pursuant to Article V). The difference between (a) and (b) (the “Stub Amount”) was resolved by payment of the Stub Amount (plus or minus any net interest and investment return during the Stub Period that was neither assigned or assumed pursuant to Article V nor addressed by the 6% per annum interest allowance otherwise specified in paragraphs 2, 3 and 4 of this Article VII), from the Insurers to Reinsurer if the Stub Amount was positive and from Reinsurer to Insurers if the Stub Amount was negative. Payment of the Stub Amount (adjusted as described for any net interest or investment return) was made by addition to or subtraction from the first quarterly payment due under paragraph 5 following, it being understood that the purpose of the foregoing described payment computation was to transfer effectively the financial results of Subject Business operations during the Stub Period from Insurers to Reinsurer. Any irreconcilable dispute between the parties with respect to the conformity of the statements delivered in accordance with this Article VII to Historical GAAP was resolved by the firm of Deloitte & Touche.

     4. Initial Ceding Commission. Insurers, on the Original Effective Time, received a one time ceding commission in the amount of $42,528,200, plus six percent (6%) per annum simple interest upon said amount for the period between January 1, 2001 and the date of receipt by Insurers.

     5. Additional Ceding Commission. The Reinsurer shall pay to the Insurers a ceding commission equal to the amount determined in accordance with Schedule C to this Agreement on all direct premiums written on and after the Revised Effective Time through December 31, 2005 on all Policies.

     6. Commutation. The Insurers and Reinsurer acknowledge and agree that: (a) as of the Revised Effective Time, the Insurers and the Reinsurer completed a commutation

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of certain risks, liabilities and obligations pursuant to the Commutation Agreement; (b) all risks, liabilities and obligations subject to such Commutation Agreement have been commuted and transferred to the Insurers; (c) none of such risks, obligations or liabilities are reinsured under this Agreement; and (d) no consideration is payable under this Agreement by the Reinsurer to the Insurers in respect of such commutation.

     7. Monthly Reconciliation. Insurers will incur Tax/Assessment Liabilities, and miscellaneous expenses, including but not limited to commissions and other acquisition costs, related to the Policies. Within 30 days following the close of each calendar month, the Insurers will report such expenses to Reinsurer, and Reinsurer will, to the extent the foregoing expenses are included within the Policy Liabilities and Reinsurer has not already paid (from the Reinsurer’s funds, including premiums ceded under this Agreement) the foregoing expenses on behalf of the Insurers to third parties, pay the unsatisfied portion thereof to the Insurers within 15 days of receiving the report. The foregoing monthly report and following payment shall also include and account for other activity relating to the Subject Business requiring financial settlement under this Agreement and the Amended and Restated Administrative Services Agreement between the Insurers and the Reinsurer, including, without limitation, ceding commissions payable under Section 5 of this Article VII.

ARTICLE VIII

INSOLVENCY

     1. Payments. In the event of the insolvency of an Insurer and the appointment of a liquidator, receiver, conservator or statutory successor, this reinsurance shall be payable by the Reinsurer immediately upon demand, with reasonable provision for verification, on the basis of the liability of the Insurer as a result of claims allowed against the Insurer by any court of competent jurisdiction or any liquidator, receiver, conservator or statutory successor having authority to allow such claims, without diminution because of such insolvency or because such liquidator, receiver, conservator or statutory successor has failed to pay all or a portion of any claims.

     2. Direction of Payments. Payments by the Reinsurer as above set forth shall be made directly to the Insurer or to its liquidator, receiver, conservator or statutory successor, except where (1) this Agreement specifies another payee in the event of the insolvency of the Insurer, or (2) the Reinsurer with the consent of the direct insureds has assumed such policy obligations of the Insurer as its direct obligations to the payees under the Policies, in substitution for the obligations of the Insurer to such payees.

     3. Notice of Claims. In the event of the insolvency of an Insurer, the liquidator, receiver, conservator or statutory successor of the Insurer shall give written notice to the Reinsurer of the pendency of a claim against the insolvent Insurer on the Policies within a reasonable time after such claim is filed in the insolvency proceeding and during the pendency of such claim the Reinsurer may investigate such claim and interpose, at its own expense, in the proceeding where such claim is to be adjudicated any defense or defenses

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which it may deem available to the Insurer or its liquidator, receiver, conservator or statutory successor. The expense thus incurred by the Reinsurer shall be chargeable subject to court approval against the insolvent Insurer as part of the expense of liquidation to the extent of a proportionate share of the benefit which may accrue to the Insurer solely as a result of the defense undertaken by the Reinsurer.

     4. Apportionment. Where two or more reinsurers are involved in the same claim and a majority in interest elect to interpose defense to such claim, the expense shall be apportioned in accordance with the terms of this Agreement as though such expense had been incurred by the Insurer.

     5. Set-Off. Except as expressly stated herein, it is understood and agreed that any debits or credits, liquidated or unliquidated, in favor of or against Reinsurer and an Insurer, under this Agreement, the Amended and Restated Administrative Services Agreement and, with respect to undisputed amounts and amounts provided for in a final judgment not subject to appeal, the Stock Purchase Agreement, on the date of the entry of the receivership or liquidation order, are deemed mutual debits or credits, as the case may be, and shall be set off and the balance only shall be allowed or paid. Although such claim, if any, on the part of either such party against the other may be unliquidated or undetermined in amount on the date of the entry of the receivership or liquidation order, such claim, if any, is hereby deemed to be in existence as of such date. Any credits or claims then in existence and held by the other party may be offset against it.

ARTICLE IX

NO THIRD PARTY BENEFICIARY RIGHTS

     The Reinsurer’s reinsurance of 100% of the Policy Liabilities of the Insurers with respect to the Policies is intended for the sole benefit of the parties to this Agreement and shall not create any right on the part of any third party, including, without limitation, any policyholder, Certificateholder, insured, claimant or beneficiary under or agent, broker or producer for such Policies against the Reinsurer or any legal relation between any third-party and the Reinsurer.

ARTICLE X

DIVIDENDS; NON-GUARANTEED ELEMENTS

     Except as required under applicable law or regulation or under the terms of any Policy, the Insurers shall not declare or pay dividends on any participating Policy or reset any non-guaranteed element of any Policy, unless requested by the Reinsurer.

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ARTICLE XI

ERRORS AND OMISSIONS

     Inadvertent delays, errors or omissions made in connection with this Agreement or any transaction hereunder shall not relieve either party from any liability which would have attached had such delay, error or omission not occurred, provided always that such error or omission is rectified as soon as reasonably possible after discovery.

ARTICLE XII

COOPERATION

     The parties shall cooperate with one another in a commercially reasonable manner to carry out and implement the terms and objectives of this Agreement, and shall perform such further acts, execute such further documents and enter into such further agreements as are commercially reasonable and reasonably necessary to carry out and implement the terms and objectives of the Agreement. Without limiting the foregoing, each party shall permit the other (and its authorized representatives) reasonable access to examine its premises, files and records relating to the Subject Business and each party shall make reasonably available to the other party (and its authorized representatives) responsible officials for reasonable consultation for the purpose of more fully carrying out the terms and objectives of this Agreement, provided that the same be at the examining party’s sole cost and expense, requested during normal business hours of the non-examining party, and upon reasonable notice to and without unreasonably disrupting the business of the non-examining party. Such access and consultation shall be at the cost of the requesting party. Each party shall retain, in accordance with its corporate retention policies, all files and records related to the Subject Business, but in any event for a period not less than ten years following the Revised Effective Time. The Insurers and the Reinsurer shall not alter or destroy any files or records relating to the Subject Business without the prior written consent of the other party.

ARTICLE XIII

ARBITRATION

     1. Arbitration. As a condition precedent to any cause of action, any and all disputes between the Insurers and the Reinsurer arising out of, relating to, or concerning this Agreement, whether sounding in contract or tort and whether arising during or after termination of this Agreement, shall be submitted to the decision of a board of arbitration composed of two arbitrators and an umpire (the “Board”) meeting at a site in Chicago, Illinois. The arbitration shall be conducted under the Federal Arbitration Act and shall proceed as set forth below.

     2. Notice of Arbitration. A notice requesting arbitration, or any other notice made in connection therewith, shall be in writing and shall be sent certified or registered mail, return receipt requested to the affected parties. The notice requesting arbitration shall

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state in particulars all issues to be resolved in the view of the claimant, shall appoint the arbitrator selected by the claimant and shall set a tentative date for the hearing, which date shall be no sooner than ninety (90) days and no later than one year from the date that the notice requesting arbitration is mailed, unless otherwise agreed to by the parties. Within thirty (30) days of receipt of claimant’s notice, the respondent shall notify claimant of any additional issues to be resolved in the arbitration and of the name of its appointed arbitrator.

     3. Arbitration Panel. Unless otherwise mutually agreed, the members of the Board shall be impartial and disinterested and shall be active or former officers of life insurance companies, reinsurance companies, or Lloyd’s Underwriters or active or inactive lawyers with at least twenty (20) years of experience in insurance and reinsurance. The Insurers, together, and Reinsurer shall each appoint an arbitrator and the two (2) arbitrators shall choose an umpire before instituting the hearing. If the respondent fails to appoint its arbitrator within thirty (30) days after having received claimant’s written request for arbitration, the claimant is authorized to and shall appoint the second arbitrator. If the two arbitrators fail to agree upon the appointment of an umpire within thirty (30) days after notification of the appointment of the second arbitrator, within ten (10) days thereof, the two (2) arbitrators shall request the American Arbitration Association (the “AAA”) to appoint an umpire for the arbitration with the qualifications set forth in this Article. If the AAA fails to name an umpire, either party may apply to the court named below to appoint an umpire with the above required qualifications. The umpire shall promptly notify in writing all parties to the arbitration of his selection and of the scheduled date for the hearing. Upon resignation or death of any member of the Board, a replacement shall be appointed in the same fashion as the resigning or deceased member was appointed.

     4. Submission of Briefs. The claimant and respondent shall each submit initial briefs to the Board outlining the issues in dispute and the basis, authority and reasons for their respective positions within thirty (30) days of the date of notice of appointment of the umpire. The claimant and the respondent may submit reply briefs to the Board within ten (10) days after filing of the initial brief(s). Initial and reply briefs may be amended by the submitting party at any time, but not later than ten (10) days prior to the date of commencement of the arbitration hearing. Reasonable responses shall be allowed at the arbitration hearing to new material contained in any amendments filed to the briefs but not previously responded to.

     5. Arbitration Board’s Decision. The Board shall make a decision and award with regard to the terms of this Agreement and the original intentions of the parties to the extent reasonably ascertainable. The Board’s decision and award shall be in writing and shall state the factual and legal basis for the decision and award. The decision and award shall be based upon a hearing in which evidence shall be allowed and which the formal rules of evidence shall not strictly apply but in which cross examination and rebuttal shall be allowed. Every decision by the Board shall be by a majority of the members of the Board and each decision and award by the majority of the members of the Board shall be final and binding upon all parties to the proceeding.

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     6. Jurisdiction. Either party may apply to the United States District Court for the Northern District of Illinois for an order confirming any decision and the award; a judgment of that Court shall thereupon be entered on any decision or award. If such an order is issued, the attorneys’ fees of the party so applying and court costs will be paid by the party against whom confirmation is sought. The Board may award interest calculated from the date the Board determines that any amounts due the prevailing party should have been paid to the prevailing party.

     7. Expenses. Each party shall bear the expense of the one arbitrator appointed by it and shall jointly and equally bear with the other party the expense of any stenographer requested, and of the umpire. The remaining costs of the arbitration proceedings shall be finally allocated by the Board.

     8. Production of Documents and Witnesses. Subject to customary and recognized legal rules of privilege, each party participating in the arbitration shall have the obligation to produce those documents and as witnesses to the arbitration those of its employees as any other participating party reasonably requests providing always that the same witnesses and documents be obtainable and relevant to the issues before the arbitration and not be unduly burdensome or excessive. The parties may mutually agree as to pre-hearing discovery prior to the arbitration hearing and in the absence of agreement, upon the request of any party, pre-hearing discovery may be conducted as the Board shall determine in its sole discretion to be in the interest of fairness, full disclosure, and a prompt hearing, decision and award by the Board. The Board shall be the final judge of the procedures of the Board, the conduct of the arbitration, of the rules of evidence, the rules of privilege and production and of excessiveness and relevancy of any witnesses and documents upon the petition of any participating party. To the extent permitted by law, the Board shall have the authority to issue subpoenas and other orders to enforce their decisions.

     9. Relief Available. Nothing herein shall be construed to prevent any participating party from applying to the United States District Court for the Northern District of Illinois to issue a restraining order or other equitable relief to maintain the “status quo” of the parties participating in the arbitration pending the decision and award by the Board or to prevent any party from incurring irreparable harm or damage at any time prior to the decision and award of the Board. The Board shall also have the authority to issue interim decisions or awards in the interest of fairness, full disclosure, and a prompt and orderly hearing and decision and award by the Board.

     10. Consolidation. In the event that there is a dispute between an Insurer and Reinsurer that implicates the provisions of this Agreement and the related Amended and Restated Administrative Services Agreement, such Insurer and Reinsurer shall consolidate any such dispute under such agreements in a single arbitration proceeding.

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ARTICLE XIV

DURATION

     This Agreement shall continue in force until the earlier of (a) such time that each Insurer’s liability for the Policy Liabilities reinsured hereunder is terminated in accordance with the terms of the Policies; and (b) if the Reinsurer elects, at its sole option, to novate all then outstanding Policies, such time that the novation has been completed.

     Notwithstanding anything to the contrary stated in this Agreement, Sections 2 and 4 of Article XV shall remain in full force and effect following termination of this Agreement.

ARTICLE XV

GENERAL PROVISIONS

     1. Notices. Any notice, request or other communication to be given by any party hereunder shall be in writing and shall be delivered personally, sent by registered or certified mail, postage prepaid or by overnight courier with written confirmation of delivery or by facsimile transmission with written confirmation of error-free transmission. Any such notice shall be deemed given when so delivered personally or if sent by facsimile transmission (and immediately after transmission confirmed by telephone), if mailed, on the date shown on the receipt therefor, or if sent by overnight courier, on the date shown on the written confirmation of delivery. Such notices shall be given to the following address:

If to the Reinsurer:	CNA Group Life Assurance Company 2 North LaSalle Street Suite 2500 Chicago, IL 60602-3702 Attention: Steven A. Sack Tel: (312) 384-7715 Fax: (312) 384-7825
With a copy to:	James R. Dwyer Lord, Bissell & Brook LLP 115 South LaSalle Street Chicago, Illinois 60603 Tel: (312) 443-0632 Fax: (312) 443-0336

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If to the Company:	Continental Casualty Company American Casualty Company of Reading, Pennsylvania CNA Plaza Chicago, Illinois 60685-0001 Attention: Secretary Tel: (312) 822-1384 Fax: (312) 822-1297
With a copy to:	Dewey Ballantine LLP 1301 Avenue of the Americas New York, NY 10011 Attention: James A. FitzPatrick, Jr.                  Jeff S. Liebmann Tel: (212) 259-8000 Fax: (212) 259-6333

     Any party may by notice given in accordance with this Section 1 of Article XV to the other party hereto designate another address or Person for receipt of notices hereunder.

     2. Tax Election. With respect to this Agreement, each of the Insurers and the Reinsurer hereby make the election provided for in Section 1.848-2(g)(8) of the Treasury Regulations issued under Section 848 of the Internal Revenue Code of 1986, as amended (the “Code”), as set forth in Exhibit C, which is made a part hereof. Each of the parties hereto agrees to take such further actions as may be necessary to ensure the effectiveness of such election.

     3. Confidentiality. The Insurers and the Reinsurer shall hold and cause their respective officers, directors, employees, agents, advisors or other representatives (each a “Representative”) to hold in strict confidence, unless compelled to disclose by a governmental authority or applicable law, (i) any term of this Agreement or the transactions contemplated hereby, except to the extent mutually agreed by the parties; and (ii) any information that is furnished by or on behalf of the other party or its Representatives in connection with the transactions contemplated by this Agreement, except to the extent such information can be shown to have been (w) previously known by the party to which it was furnished, (x) in the public domain through no fault of the party to which it was furnished, (y) later lawfully acquired from other sources by the party to which it was furnished; provided that such source is not, to such party’s knowledge, bound by a confidentiality agreement with the other party or its Representatives and is not, to such party’s knowledge, otherwise prohibited from transmitting the information by a contractual, legal or fiduciary obligation, or (z) independently developed by the party to which it was furnished without violating any obligations under this Agreement. Notwithstanding the foregoing, the parties agree that the obligations set forth in the covenant in this Section 3 of Article XV above shall not apply to the Reinsurer in connection with the attempted sale by the Reinsurer (including by means of a reinsurance transaction) of all or any substantial portion of the

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Subject Business following the Closing, so long as the Reinsurer ensures that any person receiving any such information enters into a confidentiality agreement with respect to such information substantially consistent with this Section 3 of Article XV.

     4. Indemnification.

(a)	Each Insurer shall indemnify and hold Reinsurer and its directors, officers, stockholders, employees, representatives, Affiliates (as defined in the Stock Purchase Agreement), successors and assigns harmless from and against any Loss (as defined in the Stock Purchase Agreement) relating to or arising or resulting from: (i) any breach or nonfulfillment of any covenant or agreement made by the Insurers under this Agreement; (ii) any Retained Policy Liabilities; and (iii) any Excluded Liabilities. Notwithstanding the foregoing, the obligations of each Insurer under this Section 4 of Article XV shall be only for Losses relating to such Insurer’s breaches or liabilities, and neither Insurer shall be liable for any Losses resulting from breaches or liabilities of the other Insurer or the enforcement of this indemnity against the other Insurer.
(b)	The Reinsurer shall indemnify and hold the Insurers and their respective directors, officers, stockholders, employees, representatives, Affiliates (as defined in the Stock Purchase Agreement), successors and assigns harmless from and against any Loss (as defined in the Stock Purchase Agreement) relating to or arising or resulting from: (i) any breach or nonfulfillment of any covenant or agreement made by the Reinsurer under this Agreement; and (ii) any Policy Liabilities.
(c)	In the event the Insurers or the Company shall have a claim for indemnity against the other party under the terms of this Agreement, the parties shall follow the procedures set forth in Section 10.3 of the Stock Purchase Agreement.

     5. Equitable Relief. Each party hereto acknowledges that if it or its employees or representatives violate the terms of this Agreement, the other parties will not have an adequate remedy at law. In the event of such a violation, the other parties shall have the right, in addition to any other rights that may be available to them, to obtain in any court of competent jurisdiction injunctive relief to restrain any such violation and to compel specific performance of the provisions of this Agreement. The seeking or obtaining of such injunctive relief shall not foreclose or limit in any way relief against either party hereto for any monetary damage arising out of such violation.

     6. Set-Off. Except in the circumstances described in Section 5 of Article VIII, as to which the provisions of such section will apply, any debits or credits between the Insurers and the Reinsurer arising under this Agreement, the Amended and Restated Administrative Services Agreement and, with respect to undisputed amounts and amounts

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provided for in a final judgment not subject to appeal, the Stock Purchase Agreement, are deemed mutual debits or credits, as the case may be, and shall be netted or set off, as the case may be, and only the balance shall be allowed or paid hereunder.

     7. Entire Agreement; Amendments. This Agreement (including the Exhibits and Schedules hereto), the Amended and Restated Administrative Services Agreement, the Purchase Agreement, and the other Related Agreements contain the entire agreement and understanding between the parties with respect to the matters contemplated hereby, and supersede all prior agreements and understandings, written or oral, between the parties hereto with respect to such matters. Any change or modification to this Agreement shall be null and void unless made by amendment to this Agreement and signed by all the parties hereto.

     8. Invalidity. The invalidity or unenforceability of any provision or portion hereof shall not affect the validity or enforceability of the other provisions or portions hereof.

     9. Counterparts. This Agreement may be executed in counterparts, each of which shall be deemed an original and all of which together shall constitute one and the same instrument.

     10. Exclusivity. This Agreement is not intended to confer any rights upon any person other than the parties hereto and their respective successors and permitted assigns.

     11. Binding Effect. This Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective successors and permitted assigns.

     12. Governing Law. This Agreement shall be governed by and construed in accordance with the laws of the State of Illinois, without giving effect to the principles of conflicts of laws thereof.

     13. Successors and Assignment. No party hereto shall assign this Agreement or any rights or obligations hereunder, by operation of law or otherwise, or subcontract any other party to perform such party’s obligations hereunder, without the prior written consent of the other parties hereto, and any such attempted assignment or subcontracting without such prior written consent shall be void and of no force and effect. Notwithstanding the foregoing, the Reinsurer may assign its rights and obligations under this Agreement with respect to Policies covering persons and risks resident or situated in Canada to an Affiliate (as defined in the Stock Purchase Agreement), provided that such Affiliate enters into an agreement with the Insurers substantially in the form of this Agreement.

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     IN WITNESS WHEREOF, CCC, ACC and the Reinsurer have each executed this Agreement as of the date first written above.

CONTINENTAL CASUALTY COMPANY
By:	/s/ Lawrence J. Boysen
	Name:	Lawrence J. Boysen
	Title:	Senior Vice President & Corporate Controller
AMERICAN CASUALTY COMPANY OF   READING, PENNSYLVANIA
By:	/s/ Lawrence J. Boysen
	Name:	Lawrence J. Boysen
	Title:	Senior Vice President & Corporate Controller
CNA GROUP LIFE ASSURANCE COMPANY
By:	/s/ Lawrence J. Boysen
	Name:	Lawrence J. Boysen
	Title:	Senior Vice President & Corporate Controller

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SCHEDULE A
RETAINED POLICY LIABILITIES

     None.

Schedule B
CCC, CCC of Canada and ACCO Business

Employer AD&D Insurance

Form No.	Description	Company
SBGADD-P	Master policy (New VAD/CO)	CCC of Canada
SBGADD-C	Certificate (New VAD/CO)	CCC of Canada
Z3-140196-A	Application (New VAD/CO)	CCC of Canada
Z3-140198-A	Application (New VAD/CO)	CCC of Canada
P1-120811-A	Master Policy (old VAD/CO)	CCC
Q1-120812-A	Certificate (old VAD/CO)	CCC
Z1-120883-A	Master Policy (old VAD/CO)	CCC
P1-68434-A	Master Policy (old Voluntary)	CCC
Q1-67546-B	Certificate (old Voluntary)	CCC
Q1-68460-A	Certificate (old Voluntary)	CCC
Q1-68461-A	Certificate (old Voluntary)	CCC
Q1-68462-A	Certificate (old Voluntary)	CCC
Q1-68463-A	Certificate (old Voluntary)	CCC
Z1-68435-A	Application (old Voluntary)	CCC
P1-101994-A	Master Policy (old Carve-Out)	CCC
Q1-102694-A	Certificate (old Carve-Out)	CCC
Q1-102695-A	Certificate (old Carve-Out)	CCC
Z1-101995-A	Application (old Carve-Out)	CCC

Group Travel Employee AD&D Insurance

Form No.	Description	Company
P1-66721-A (3)	Master policy	CCC
Q1-667017-A (3)	Certificate	CCC
Q1-667018-A (3)	Certificate	CCC

Conversion Employer AD&D Insurance

Form No.	Description	Company
P1-68989-A	Master Policy	CCC
Q1-68990-A	Certificate	CCC
Z1-68991-A	Master Application	CCC

Foresight Accident Insurance

Form No.	Description	Company
P1-60781-A	Individual Policy	CCC
P1-60822-A	Individual Policy	CCC
P1-63029-A	Individual Policy	CCC

Affinity AD&D Insurance

Form No.	Description	Company
MMD-ADDP	Master Policy	CCC
MMD-ADDC	Certificate	CCC
Z1-99850-C	Application	CCC
P1-54914-A	Master Policy	CCC
Q1-68802-A	Certificate	CCC
Z1-99850-B	Application	CCC
Z1-55017-A	Individual Application	CCC
P1-68775-A	Master Policy	CCC
Z1-68787-A	Application	CCC
P1-66635-A	Master Policy	CCC
P1-59385-A	Individual Accident Policy	CCC
P1-111066-A	Individual AD Policy	CCC

Little League Baseball Blanket Accident Insurance

Form No.	Description	Company
P8-138372-A (Rev. 06/03)	Group Policy	ACCO
Z8-138372-A (Rev. 06/03)	Master Application	ACCO

Travel Protection Accident Indemnity Policy

Form No.	Description	Company
P1-140266-A	Group Policy	CCC
Z1-140267-A	Master Application	CCC

Business Overhead Expense (Group A&H)

Form No.	Description	Company
MMBOE-P	Policy	CCC
MMBOE-C	Certificate	CCC
Z1-87017-B37	Master Application	CCC
P1-87015-A	Policy	CCC
Q1-87016-A	Certificate	CCC
Z1-87017-A	Master Application	CCC

Employer Disability Insurance

Form No.	Description	Company
SBDI-P (1)	Policy	CCC, CCC of Canada
SBDI-C (1)	Certificate	CCC, CCC of Canada
SBDI-Z (1)	Master Application	CCC, CCC of Canada

Employer Disability Insurance (Continued)

Form No.	Description	Company
SRDI-P	Policy	CCC
SRDI-C	Certificate	CCC
SRDI-Z	Master Application	CCC

Affinity Disability Insurance

Form No.	Description	Company
MMDI-P (2)	Policy	CCC
MMDI-C (2)	Certificate	CCC
Z1-16240-A (2)	Master Application	CCC

Stedman Disability Insurance

Form No.	Description	Company
SBDI-P (1)	Policy	CCC
SBDI-C (1)	Certificate	CCC
SBDI-Z (1)	Master Application	CCC
Z1-131821-A (1)	Participating ER Application	CCC
SRZ-9952-B	Individual Application	CCC
CDI-13AB STED etal.		CCC

Disability Conversion Insurance

Form No.	Description	Company
P1-54956-A	Policy	CCC
Z1-54957-A	Master Application	CCC
Q1-54958-B	Certificate	CCC

Progeny

Form No.	Description	Company
P1-68775-A	Policy	CCC
Q1-68802-A	Certificate	CCC
Z1-68787-A	Master Application	CCC
P1-58604-A	Policy	CCC
Q1-58605-A	Certificate	CCC
Z1-58606-A	Master Application	CCC
P1-54914-A	Policy	CCC
Q1-68802-A	Certificate	CCC
Z1-99580-B	Master Application	CCC
P1-59288-A	Policy	CCC

A1-43434-A	Individual Application	CCC
P1-59385-A	Policy	CCC
P1-59380-A	Policy	CCC
P1-111066-A	Policy	CCC
P1-98897-A41	Policy	CCC
Q1-98898-C41	Certificate	CCC
P1-104858-A41	Policy	CCC
Q1-104859-A41	Certificate	CCC
Z1-104892-A41	Master Application	CCC
P1-59287-A	Policy	CCC
MMD-ADDP	Policy	CCC
MMD-ADDC	Certificate	CCC
Z1-99850-C	Master Application	CCC
MMFEL-P	Policy	CCC
MMFEL-Q	Certificate	CCC
Z1-99850-B	Master Application	CCC
MMCHS-P	Policy	CCC
MMCHS-C	Certificate	CCC
MMCHS-A	Master Application	CCC
MMCHS-IP	Policy	CCC
P1-140288-A	Policy	CCC

Reduced Initial Premium Filing Status

Form No.	Description	Company
MMD-ADDP	Policy	CCC
P1-140288-A	Policy	CCC

⁽¹⁾ Excludes Policies corresponding to Benefit Value Disability risk code 59984 which have been sold or are administered by Strategic Resource Company or its Affiliates as of the Closing Date Date.

⁽²⁾ Excludes Mailhandlers Supplement policy numbers 18-A-1527, 19-A-1527 and 20-A-1527.

⁽³⁾ Excludes United States Trotters Association policy numbers 83108384 and 68081795 administered by Van Gundy Agency; Volunteer Fire Associations policy numbers 700001 through 700057 and 83108749, 83108750, 83108755, 83108761, 83198762, 83115608 and 83115682 administered by Provident Agency, Inc.

SCHEDULE C
ADDITIONAL CEDING COMMISSION

0.14% of all direct premiums written

EXHIBIT A
COMMUTATION AGREEMENT

[See Item 99]

EXHIBIT B
SECURITY TRUST AGREEMENT

[See Item 125]

EXHIBIT C
TAX ELECTION

A. The parties will make a joint election, in accordance with Treas. Reg. 1.848-2(g)(8) (the “Regulation”), issued December 31, 1992, under Section 848 of the Internal Revenue Code of 1986 (the “Code”), and:

(1)	the party with the net positive consideration under this Agreement will capitalize specified policy acquisition expenses with respect to this Agreement for such taxable year without regard to the general deductions limitations of Section 848(c)(1) of the Code;
(2)	the election will take effect on the Original Effective Time and will remain in effect for all subsequent years that this Agreement remains in effect; and
(3)	each party shall attach a schedule to its federal income tax return for its first taxable year ending after the election becomes effective that identifies the agreement (including this Agreement) for which joint elections have been made under the Regulation.

B. Pursuant to this joint election:

(1)	each party will exchange information pertaining to the amount of net consideration under this Agreement to assure consistency or as may otherwise be required by the Internal Revenue Service;
(2)	the Reinsurer will submit its calculation of the “net consideration”, as defined under Treas. Reg. 1.848-2(f), to the Insurers not later than May 1 for each and every tax year for which this Agreement is in effect;
(3)	the Insurers may challenge such calculation within ten (10) working days of receipt of the Reinsurer’s calculation; and
(4)	the parties will act in good faith to reach agreement as to the correct amount of net consideration whenever there is disagreement as to the amount of net consideration, as determined under Treas. Reg. 1.848- 2(f).

C. Each Insurer and the Reinsurer represent and warrant that they are subject to U.S. taxation under Subchapter L of Chapter 1 of the Code.

Agreed and Accepted:

CONTINENTAL CASUALTY COMPANY
By:	/s/ Lawrence J. Boysen
	Name:	Lawrence J. Boysen
	Title:	Senior Vice President & Corporate Controller
AMERICAN CASUALTY COMPANY OF   READING, PENNSYLVANIA
By:	/s/ Lawrence J. Boysen
	Name:	Lawrence J. Boysen
	Title:	Senior Vice President & Corporate Controller
CNA GROUP LIFE ASSURANCE COMPANY
By:	/s/ Lawrence J. Boysen
	Name:	Lawrence J. Boysen
	Title:	Senior Vice President & Corporate Controller

EX-10.3

Exhibit 10.3

CAC LIFE AND ANNUITY
INDEMNITY REINSURANCE AGREEMENT

     THIS CAC LIFE AND ANNUITY INDEMNITY REINSURANCE AGREEMENT (this “Agreement”), dated as of April 30, 2004, is made by and between Continental Assurance Company, an Illinois insurance company (the “Company”), and Swiss Re Life & Health America Inc., a Connecticut insurance company (the “Reinsurer”).

     WHEREAS, pursuant to that certain Asset and Stock Purchase Agreement, dated as of February 5, 2004 (the “Purchase Agreement”), by and between the Company and Reinsurer, Reinsurer agreed to purchase, among other things, the individual life insurance and annuity businesses and certain assets of the Company, and the capital stock of Valley Forge Life Insurance Company, a Pennsylvania insurance company, and CNA International Life Company SPC, Ltd., a segregated portfolio company organized and existing under the laws of the Cayman Islands.

     WHEREAS, under the Purchase Agreement, the Company has agreed to enter into this Agreement so as to cede to the Reinsurer, and the Reinsurer has agreed to enter into this Agreement so as to accept and assume from the Company, 100% of the Policy Liabilities (as defined below) arising under the Policies (as defined below), upon the terms and conditions set forth herein.

     NOW, THEREFORE, in consideration of the mutual covenants and promises, and upon the terms and conditions, hereinafter set forth, the parties hereto agree as follows:

ARTICLE I
BUSINESS REINSURED

     1. Effective as of 12:00 a.m. on January 1, 2004 (the “Effective Time”), the Company hereby cedes to the Reinsurer, and the Reinsurer hereby accepts and assumes from the Company as of the Effective Time, on an indemnity reinsurance (coinsurance) basis, 100% of the Policy Liabilities arising from any and all (i) binders, endorsements, riders, policies, certificates, contracts of insurance and supplementary contracts of insurance constituting the Subject Business (as defined below) issued, renewed, or assumed by the Company prior to the Closing Date (as defined in the Purchase Agreement), including without limitation all such binders, endorsements, riders, policies, certificates, contracts and supplementary contracts lapsed and terminated with unpaid claims or amended to increase coverage or reinstated before, at or after the Closing Date as required pursuant to the terms thereof (the “Pre-Closing Policies”), (ii) Accommodation Policies (as defined in the CAC Life and Annuity Administrative Services Agreement between the Company and the Reinsurer dated as of the date hereof (the “CAC Administrative Services Agreement”)), and (iii) CAC Additional Policies (as defined in the CAC Administrative Services Agreement) (the Pre-Closing Policies, Accommodation Policies and CAC Additional Policies being referred to herein collectively as the “Policies”). The term “Policyholder” shall mean each owner of a Policy.

     2. The term “Subject Business” shall mean the term, universal and permanent individual life insurance and annuity products business of the Company.

     3. The term “Policy Liabilities” shall mean all liability and obligations of the Company, except for Excluded Liabilities (as defined below), based upon or arising out of the Policies, net of

any and all amounts (i) actually recovered by the Company under Third Party Reinsurance Agreements and (ii) that would have been collected from a Specified Reinsurer under a Specified Third Party Reinsurance Agreement, and such term shall include without limitation liabilities for:

(a)	annuity principal and interest, withdrawals, surrenders, Policy loans, returns of principal and premium and other deposits and any other disbursement, Policyholder interest, dividend accumulations, benefits, claims, losses and benefit and claim expenses in respect of the Policies, whether incurred prior to, at or after the Effective Time, including Extra Contractual Obligations (as defined below) based on acts, errors or omissions (i) by the Reinsurer or any of its officers, employees, agents, subcontractors or representatives or (ii) by the Company or any of its officers, employees, agents, subcontractors or representatives and, in any case described by this clause (ii), attributable to a direction or request of a Designated Officer (as defined in Article XIV hereof) of the Reinsurer under this Agreement or the CAC Administrative Services Agreement, which direction or request, as to actions of Company employees other than Seller Business Employees (as defined in the Purchase Agreement), has been given in writing, and any attorneys’ fees incurred by the Company and the Reinsurer related to such liabilities;
(b)	guaranty association assessments in connection with participation by the Company in any guaranty fund or association established or governed by any state or jurisdiction to the extent arising on account of premiums, deposits and other consideration paid or payable in respect of the Policies at or after the Effective Time;
(c)	other assessments or payments (to the extent required to be made with respect to the Policies) for or on account of regulatory agencies, including but not limited to valuation fees or payments, that are calculated or assumed with reference to facts or circumstances related to the Policies (e.g., an assessment base or in force date) existing at a point in time that is at or after the Effective Time (provided that no additional amounts will be due as a result of a change in domicile of the Company);
(d)	that portion of other assessments or payments (to the extent required to be made with respect to the Policies) for or on account of regulatory agencies, including but not limited to valuation fees or payments, that are calculated or assessed with reference to a period of time commencing before and ending after the Effective Time which is equal to the full amount of such assessments or payments multiplied by a fraction, the numerator of which is the number of days from and including the Effective Time to and including the end of such period and the denominator of which is the number of days in such period (provided that no additional amounts will be due as a result of a change in domicile of the Company);
(e)	returns or refunds of premiums (irrespective of when due) under the Policies paid or payable at or after the Effective Time;
(f)	premium taxes paid or payable for premiums received by the Company or the Reinsurer in respect of the Policies at or after the Effective Time;

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(g)	commissions due insurance brokers, agents and producers in connection with the Policies;
(h)	amounts due in connection with the Policies under bonus programs and deferred compensation agreements identified in Schedule A hereto (except bonuses attributable to the termination of new Subject Business production by the Company);
(i)	amounts payable by the Company under Third Party Reinsurance Agreements, including Specified Third Party Reinsurance Agreements (which amounts, in the case of amounts that would have been payable to Specified Reinsurers under Specified Third Party Reinsurance Agreements, shall be paid by the Reinsurer to the Company); and
(j)	accrued interest payable to Policyholders, if any, on all unpaid Policy Liabilities.

     4. The term “Excluded Liabilities” shall mean any liability or obligation of the Company for:

(a)	Extra Contractual Obligations based on acts, errors or omissions by the Company, or any of its officers or employees, agents, subcontractors or representatives, prior to the Closing Date and any attorneys’ fees incurred by the Company related to such liabilities or obligations;
(b)	Extra Contractual Obligations to the extent resulting from acts, errors or omissions of the Company or any of its officers or employees, agents, subcontractors or representatives occurring after the Closing Date and not attributable to a direction or request of a Designated Officer of the Reinsurer under this Agreement or the CAC Administrative Services Agreement which direction or request, as to actions of Company employees other than Business Employees, has been given in writing;
(c)	guaranty association assessments in connection with participation by the Company in any guaranty fund or association established or governed by any state or other jurisdiction to the extent arising on account of premiums, deposits or other consideration paid to the Company in respect of the Policies prior to the Effective Time;
(d)	amounts, liabilities and obligations ceded to one or more Specified Reinsurers under Specified Third Party Reinsurance Agreements irrespective of any recission, recapture or other termination of any such Specified Third Party Reinsurance Agreements;
(e)	dividends in respect of the Policies, whether incurred prior to, at or after the Effective Time;
(f)	other assessments or payments required to be made with respect to the Policies for or on account of regulatory agencies, including but not limited to valuation fees or

3

	payments, that are calculated or assumed with reference to facts or circumstances existing at a point in time that is prior to the Effective Time;
(g)	that portion of other assessments or payments required to be made with respect to Policies for or on account of regulatory agencies, including but not limited to valuation fees or payments, that are calculated or assessed with reference to a period of time commencing before and ending after the Effective Time which is equal to the full amount of such assessments or payments multiplied by a fraction, the numerator of which is the number of days from and including the beginning of such period to but excluding the Effective Time and the denominator of which is the number of days in such period;
(h)	premium taxes paid or payable for premiums received by the Company or the Reinsurer in respect of the Policies prior to the Effective Time; and
(i)	accrued interest payable to Policyholders, if any, on all unpaid Excluded Liabilities.

     For the avoidance of doubt, with respect to a Specified Third Party Reinsurance Agreement, (i) amounts which would have been payable by the Company to Specified Reinsurers thereunder, in the absence of any recission, recapture or termination, shall instead be payable by the Reinsurer to the Company under this Agreement and (ii) amounts, liabilities and obligations formerly ceded to Specified Reinsurers under such Specified Third Party Reinsurance Agreement shall be deemed Excluded Liabilities and the Reinsurer shall have no liability to the Company with respect thereto.

     In addition, for the avoidance of doubt, the Reinsurer shall have the benefit of any premium tax credits and reductions attributable to guaranty fund assessments and similar assessments paid or payable by the Company with respect to the Policies but only if and to the extent that (i) the Reinsurer reimburses the Company for such guaranty fund and similar assessments pursuant to this Agreement and (ii) such credits are applied to reduce, and actually reduce, the premium tax liability of the Company (as so limited, the “Premium Tax Credits”); provided that the Company shall apply such credits and any other premium tax credits and reductions attributable to guaranty fund assessments and similar assessments on a pro rata basis.

     5. The term “Extra Contractual Obligations” shall mean all liabilities and obligations other than those arising under the express terms and conditions, and within the limits, of the Policies, including, without limitation, any liability for punitive, exemplary, special or any other form of extra contractual damages, relating to the Policies, which arise from any act, error or omission in bad faith, including, without limitation, any act, error or omission relating to (i) the marketing, underwriting, production, issuance, cancellation or administration of the Policies, (ii) the investigation, defense, trial, settlement or handling of claims, benefits, or payments under the Policies, or (iii) the failure to pay or the delay in payment of benefits, claims or any other amounts due or alleged to be due under or in connection with the Policies.

     6. The term “Third Party Reinsurance Agreement” shall have the meaning given in paragraph 3 of Article V hereof.

     7. The term “Specified Third Party Reinsurance Agreement” shall mean a Third Party Reinsurance Agreement under which one or more reinsurers, other than the Reinsurer or an

4

Affiliate thereof, on or prior to the third anniversary of this Agreement, has refused to pay when due any amounts owed to the Company under such Third Party Reinsurance Agreement to the extent resulting from such reinsurer’s declaration that the Company has breached such Third Party Reinsurance Agreement by reason of the consummation of the transactions contemplated by the Purchase Agreement or this Agreement.

     8. The term “Specified Reinsurer” shall mean a reinsurer, other than the Reinsurer or an Affiliate thereof, that has taken the actions referred to in Section 7 of this Article I with respect to a Third Party Reinsurance Agreement.

     9. The term “Affiliate” shall mean, with respect to any Person, at the time in question, any other Person controlling, controlled by or under common control with such Person.

     10. The term “Person” shall mean any natural person, corporation, partnership, limited liability company, trust, joint venture or other entity.

ARTICLE II
PAYMENT AND ACCOUNTING FOR CERTAIN ASSUMED POLICY LIABILITIES

     In connection with the Reinsurer’s assumption of the Policy Liabilities described in paragraphs (b), (c), (d) and (f) of Section 3 of Article I hereof (the “Tax/Assessment Liabilities”), it is agreed that the Company will make direct payment of such Tax/Assessment Liabilities and that the Reinsurer’s assumption of liability therefor shall be discharged by the Company reporting the Tax/Assessment Liabilities paid by the Company to the Reinsurer in accordance with Article IV and the Reinsurer reimbursing the Company for such amounts also in accordance with Article IV.

ARTICLE III
TERRITORY

     This Agreement shall apply to Policies covering persons and risks wherever resident or situated.

ARTICLE IV
POLICY ADMINISTRATION

     The Policies and the Policy Liabilities shall be administered by the Reinsurer in the name of, and on behalf of, the Company pursuant to the terms of the CAC Administrative Services Agreement. In connection therewith, the Reinsurer will provide such periodic accounting and settlement reports to the Company as are set forth in the CAC Administrative Services Agreement. Settlements of amounts due from the Reinsurer to the Company and amounts due from the Company to the Reinsurer hereunder, as set forth in such reports, shall be made on a quarterly basis as set forth in the CAC Administrative Services Agreement; provided, however, that any amounts received by the Reinsurer from a Specified Reinsurer in connection with the termination or recapture of such Specified Reinsurer’s obligations under a Specified Third Party Reinsurance Agreement shall be remitted by the Reinsurer to the Company within 15 days of receipt thereof by the Reinsurer. Notwithstanding the terms of this Agreement, no amounts settled between the Company and the Reinsurer under Article II of the Purchase Agreement shall be settled again hereunder.

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ARTICLE V
PREMIUMS AND RECOVERIES

     1. Except as otherwise provided in this Agreement, the Reinsurer shall be entitled to 100% of all gross premiums, premium adjustments, reinsurance recoverables (including expense allowances), balances due from agents, principal and interest due on Policy loans, accrued interest receivables and recoveries received at and after the Effective Time by the Company or the Reinsurer with respect to the Policies, other than amounts recoverable or recovered from Specified Reinsurers under Specified Third Party Reinsurance Agreements, together with all Policy related rights of the Company, including, without limitation, subrogation and coordination of benefits rights including for the benefit of the Reinsurer any and all Premium Tax Credits to the extent provided for in Section 4 of Article I. The Company shall promptly endorse and remit and hereby assigns to the Reinsurer any premiums, premium adjustments, reinsurance recoverables (including expense allowances), balances due from agents, principal and interest due on Policy loans, accrued interest receivables, rights, assets and recoveries received or receivable by the Company at or after the Effective Time in respect of any of the Policies or the satisfaction of Policy Liabilities (including the Premium Tax Credits to the extent provided in Section 4 of Article I), other than amounts recoverable or recovered from Specified Reinsurers under Specified Third Party Reinsurance Agreements. The Company shall likewise promptly endorse and remit and hereby assigns to the Reinsurer any amount paid to the Company by a reinsurer in connection with a termination or recapture of a Third Party Reinsurance Agreement other than such amounts paid by a Specified Reinsurer under a Specified Third Party Reinsurance Agreement (e.g., assets transferred to the Company to effectuate a recapture). For the avoidance of doubt, any amount paid to either the Company or the Reinsurer by or on behalf of a Specified Reinsurer under a Specified Third Party Reinsurance Agreement, including without limitation in connection with a termination or recapture of such reinsurer’s obligation under such agreement, shall be for the account of the Company, and the Reinsurer shall promptly endorse and remit to the Company any such amount it receives in respect thereof. The Company shall provide reasonable assistance to the Reinsurer, upon the Reinsurer’s request therefor, and at the Reinsurer’s expense (excluding any internal expenses of the Company), in the collection of any premiums, premium adjustments, reinsurance receivables, balances due from agents, principal and interest due on Policy loans, accrued interest receivables, rights, assets and recoveries due the Company in respect of any of the Policies or the satisfaction of Policy Liabilities. Furthermore, with respect to any such remittance, the Company shall also promptly furnish the Reinsurer with all pertinent information which it receives pertaining thereto (e.g., the nature of the payment, source of funds, policy or certificate number or agreement (as appropriate) and period(s) to which it relates and any instructions accompanying same); provided, however, that the Company may retain a copy thereof.

     2. Effective as of the Closing Date, as between the Reinsurer and the Company, the Company shall have no further responsibility for billing and collecting premiums in respect of the Policies or otherwise servicing or administering any Policies, except as may otherwise be agreed upon in writing by the parties or required by applicable law. The Company hereby acknowledges that notwithstanding the foregoing or any other provision of this Agreement to the contrary, as between the Company and its Policyholders, the Company is not relieved of any obligation under the Policies, including its responsibility to service its Policyholders.

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     3. A listing of ceded reinsurance agreements under which any Policy Liabilities are reinsured for the benefit of the Company to reinsurers that are not Affiliates of the Company is Schedule B to this Agreement (the “Third Party Reinsurance Agreements”). Effective as of the Closing Date, the Company shall have no further responsibility for ascertaining and collecting reinsurance recoverables with respect to the Policy Liabilities under the Third Party Reinsurance Agreements other than the Specified Third Party Reinsurance Agreements. The Reinsurer shall assume such responsibility for administering on behalf of the Company the Third Party Reinsurance Agreements, including the Specified Third Party Reinsurance Agreements, under the CAC Administrative Services Agreement. The collectibility of amounts due under the Third Party Reinsurance Agreements shall be at the risk of and for the account of the Reinsurer, other than amounts due from Specified Reinsurers under the Specified Third Party Reinsurance Agreements which shall be at the risk of and for the account of the Company.

     4. The Reinsurer shall have responsibility and full power and authority to act for and on behalf of the Company, and will so act in good faith pursuant to the terms of the CAC Administrative Services Agreement, and the Company shall take such measures as reasonably may be requested by the Reinsurer, with respect to any and all letters of credit outstanding or assets in trust held for the benefit of the Company pursuant to the terms of any Third Party Reinsurance Agreements, collection of amounts owed under any Third Party Reinsurance Agreements, recapture under any Third Party Reinsurance Agreements and enforcement of the terms of the Third Party Reinsurance Agreements; provided that, in no event will Reinsurer have any responsibility with respect to any Specified Reinsurer under a Third Party Reinsurance Agreement after it has become a Specified Third Party Reinsurance Agreement.

ARTICLE VI
REINSURANCE CREDIT

     1. Licensed or Accredited Status. The Reinsurer is, and shall maintain its status as, a licensed life insurer or accredited life reinsurer in all jurisdictions of the United States so that the Company, in the statements required to be filed with its regulatory authority(ies) in such jurisdictions, shall receive full credit as admitted reinsurance for all of the Reinsurer’s share of the reserves and any other liabilities ceded hereunder (the “Obligations”).

     2. Reinsurance Credit. If a jurisdiction of the United States will not permit the Company, in the statements required to be filed with its regulatory authority(ies), to receive full credit as admitted reinsurance for any of the Reinsurer’s share of the Obligations, the Company shall forward to the Reinsurer a statement of the Reinsurer’s share of such Obligations. Upon receipt of such statement, the Reinsurer shall, at its option and at its expense, promptly either:

(a)	Provide the Company with a “clean”, unconditional and irrevocable letter of credit, with terms and bank acceptable to the regulatory authority(ies) in such jurisdiction so that full credit as admitted reinsurance shall be given for the Reinsurer’s share of the Obligations under this Agreement in such jurisdiction; or
(b)	Establish a trust account for the benefit of the Company, and enter into a trust agreement concerning such account with terms and a bank, as trustee, acceptable to the relevant regulatory authority(ies), so that full credit as admitted reinsurance shall

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be given for the Reinsurer’s share of the Obligations under this Agreement in such jurisdiction.

     3. Rating Agency or RBC Credit. (a) If at any time:

(y)	(i)	the Reinsurer has a Standard & Poor’s Corporation (“S&P”) Insurer Financial Strength Rating of lower than “A-” (or, if such agency modifies its rating system, the equivalent rating under the modified system)
		AND

	(ii)	the Reinsurer has an Insurance Financial Strength Rating as provided by Moody’s Investors Service (“Moody’s”) of lower than “A3” (or, if such agency modifies its rating system, the equivalent rating under the modified system)
OR

(z) the Reinsurer’s total adjusted capital falls to a level which is less than 150% of company action level risk based capital, as reported to the insurance department of the Reinsurer’s state of domicile (the “RBC Trigger”) (or, if the methodology established by the National Association of Insurance Commissioners for measuring risk based capital is modified, the measurement level equivalent to the standard in effect on the date hereof (examples of appropriate adjustments being described on Exhibit B hereto)),

then the Reinsurer shall, at the election of the Reinsurer, take one of the following actions to ensure its performance hereunder: (A) provide to the Company a “clean”, unconditional and irrevocable letter of credit to secure the Reinsurer’s share of the Obligations or (B) transfer to a trust account unencumbered assets adequate to secure Reinsurer’s share of the Obligations (which trust account shall be established under a trust agreement substantially in the form of Exhibit A hereto) and pledge such assets to the Company under such trust agreement as reasonably satisfactory to the Company and sufficient to perfect a first priority lien security interest in favor of the Company in such assets in the trust account under Article 9 of the Uniform Commercial Code. During the term of a trust agreement established under Section 3(a) or 3(b) of this Article VI, the Reinsurer shall not, and shall direct that the trustee shall not, grant or cause to be created in favor of any third person a security interest in any of the assets in the trust whatsoever.

     (b) Notwithstanding the provisions of paragraph (a) of this Section 3 of Article VI, in the event that the insurance regulatory authority of any of the 50 states of the United States, the District of Columbia or the federal government should determine in writing that the assets in the trust account established pursuant to this Section 3 of Article VI shall not be deemed admitted assets or that the Reinsurer will be required to establish a substantially equivalent offsetting liability, for purposes of the Reinsurer’s financial statements prepared under statutory accounting principles for filing with such insurance regulatory authority, solely as a result of the perfection of the Company’s security interest under the trust agreement established pursuant to this Section 3 of Article VI, the Company and the Reinsurer shall amend the trust agreement so that the trust agreement complies with the requirements of New York Insurance Department Regulation 114, except as hereinafter

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provided. The trust agreement, as so amended, shall provide that the Company shall have the right to withdraw assets from the trust account only to pay the Company for the Reinsurer’s share of the Obligations which have not been paid when due or in the event that the Company has received notice of termination of the trust account under such trust agreement. The minimum amount to be held in the trust account shall equal 100 percent of the amount required to fund the Reinsurer’s share of the Obligations.

     (c) Notwithstanding the foregoing, in the event that after a letter of credit or trust account has been established pursuant to paragraph (a) or paragraph (b) of this Section 3, the Reinsurer is assigned and maintains the financial strength rating of S&P or Moody’s referred to in subparagraph (a)(y)(i) or (a)(y)(ii), respectively, of this Section 3 of Article VI and has statutory surplus in excess of the RBC Trigger, such letter of credit or trust account shall be terminated or returned to the Reinsurer. If the Reinsurer shall thereafter fail to maintain both of such ratings or the risk based capital level, the provisions of paragraphs (a) and (b) of this Section 3 shall apply once again.

ARTICLE VII
TRANSFER OF ASSETS

     1. Transfer of Assets. Cash and/or investment securities will be transferred to the Reinsurer by the Company in accordance with Section 2.3(b)(i) of the Purchase Agreement.

     2. Adjustment. Adjustment of the amount due pursuant to Section 1 of this Article VII shall be made in accordance with and pursuant to Section 2.5 of the Purchase Agreement.

     3. Ceding Commission. The Reinsurer shall pay to the Company at the Closing (as defined in the Purchase Agreement) in accordance with Section 2.3(b)(ii) of the Purchase Agreement a ceding commission in the amount of $45,000,000 plus interest thereon from January 1, 2004 through the Closing Date calculated at the Contract Interest Rate (as defined in the Purchase Agreement).

ARTICLE VIII
INSOLVENCY

     1. Payments. In the event of the insolvency of the Company, all reinsurance, ceded, renewed or otherwise becoming effective under this Agreement shall be payable by the Reinsurer directly to the Company or to its liquidator, receiver or statutory successor on the basis of the liability of the Company under the contract or contracts reinsured without diminution because of the insolvency of the Company.

     2. Notice of Claims. In the event of the insolvency of the Company, the liquidator, receiver, conservator or statutory successor of the Company shall give written notice to the Reinsurer of the pendency of a claim against the insolvent Company on the Policies within a reasonable time after such claim is filed in the insolvency proceeding and during the pendency of such claim the Reinsurer may investigate such claim and interpose, at its own expense, in the proceeding where such claim is to be adjudicated any defense or defenses which it may deem available to the Company or its liquidator, receiver, conservator or statutory successor. The expense thus incurred by the Reinsurer shall be chargeable subject to court approval against the insolvent

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Company as part of the expense of liquidation to the extent of a proportionate share of the benefit which may accrue to the Company solely as a result of the defense undertaken by the Reinsurer.

     3. Apportionment. Where two or more reinsurers are involved in the same claim and a majority in interest elect to interpose defense to such claim, the expense shall be apportioned in accordance with the terms of this Agreement as though such expense had been incurred by the Company.

ARTICLE IX
RIGHTS WITH RESPECT TO THE POLICIES

     The Reinsurer’s reinsurance of the Policy Liabilities of the Company with respect to the Policies is intended for the sole benefit of the parties to this Agreement and shall not create any right on the part of any Policyholder, insured, claimant or beneficiary under such Policies against the Reinsurer or any legal relation between such Policyholders, insureds, claimants or beneficiaries and the Reinsurer.

ARTICLE X
DIVIDENDS; NON-GUARANTEED ELEMENTS; PARTICIPATING POLICIES

     1. Except as required under applicable law or regulation or under the terms of any Policy, the Company shall declare and pay dividends on any participating Policy and reset any non-guaranteed element of any Policy taking into account the recommendations of the Reinsurer. The Reinsurer shall assist the Company in determining the dividends in respect of the participating Policies, and shall administer the payment of dividends, in accordance with Article IV hereof.

     2. The Reinsurer shall remit to the Company, on a quarterly basis pursuant to the CAC Administrative Services Agreement, an amount equal to 90% of the pre-tax statutory profits, before Policyholders’ dividends, for the preceding calendar quarter on the Company’s participating Policies as determined in accordance with Schedule C hereto. In the event that there are no such profits for the preceding calendar quarter, no amounts shall be remitted by the Reinsurer to the Company pursuant to this Section 2 of Article X and the loss carryforward provisions provided in Schedule C hereto shall apply. The obligations of the Reinsurer under this Section 2 shall be the only obligations of the Reinsurer with respect to dividends on the Company’s participating Policies.

     3. The Company shall have sole responsibility for maintaining the policyholder surplus in respect of the participating Policies and for compliance with applicable law in respect thereof.

     4. The Reinsurer shall invest and maintain assets in support of the liabilities in respect of the participating Policies in accordance with the principles set forth on Schedule D hereto.

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ARTICLE XI
ERRORS AND OMISSIONS

     Inadvertent delays, errors or omissions made in connection with this Agreement or any transaction hereunder shall not relieve either party from any liability which would have attached had such delay, error or omission not occurred, provided always that such error or omission is rectified as soon as possible after discovery.

ARTICLE XII
COOPERATION

     The parties shall cooperate with one another in a commercially reasonable manner to carry out and implement the terms and objectives of this Agreement, and shall perform such further acts, execute such further documents and enter into such further agreements as are commercially reasonable and reasonably necessary to carry out and implement the terms and objectives of the Agreement. Without limiting the foregoing, each party shall permit the other (and its authorized representatives) reasonable access to its premises, files and records relating to the Policies and each party shall make available to the other party (and its authorized representatives) responsible officials for consultation for the purpose of more fully carrying out the terms and objectives of this Agreement, provided that the same be requested during normal business hours upon reasonable notice and without unreasonably disrupting the business of either party. Each party shall retain, in accordance with its corporate retention policies, all files and records related to the Policies, but in any event for a period not less than six years following the Closing Date.

ARTICLE XIII
ARBITRATION

     1. Arbitration. As a condition precedent to any cause of action, any and all disputes between the Company and the Reinsurer arising out of, relating to, or concerning this Agreement, whether sounding in contract or tort and whether arising during or after termination of this Agreement, shall be submitted to the decision of a board of arbitration composed of two arbitrators and an umpire (the “Board”) meeting at a site in Chicago, Illinois. The arbitration shall be conducted under the Federal Arbitration Act and shall proceed as set forth below.

     2. Notice of Arbitration. A notice requesting arbitration, or any other notice made in connection therewith, shall be in writing and shall be sent certified or registered mail, return receipt requested to the affected parties. The notice requesting arbitration shall state in particulars all issues to be resolved in the view of the claimant, shall appoint the arbitrator selected by the claimant and shall set a tentative date for the hearing, which date shall be no sooner than ninety (90) days and no later than one hundred fifty (150) days from the date that the notice requesting arbitration is mailed. Within thirty (30) days of receipt of claimant’s notice, the respondent shall notify claimant of any additional issues to be resolved in the arbitration and of the name of its appointed arbitrator.

     3. Arbitration Panel. Unless otherwise mutually agreed, the members of the Board shall be impartial and disinterested and shall be active or former executive officers of life insurance companies, reinsurance companies, or Lloyd’s Underwriters or active or inactive lawyers with at least twenty (20) years of experience in insurance and reinsurance. The Company and Reinsurer shall each appoint an arbitrator and the two (2) arbitrators shall choose an umpire before instituting the

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hearing. If the respondent fails to appoint its arbitrator within thirty (30) days after having received claimant’s written request for arbitration, the claimant is authorized to and shall appoint the second arbitrator. If the two arbitrators fail to agree upon the appointment of an umpire within thirty (30) days after notification of the appointment of the second arbitrator, within ten (10) days thereof, the two (2) arbitrators shall request the American Arbitration Association (the “AAA”) to appoint an umpire for the arbitration with the qualifications set forth in this Article. If the AAA fails to name an umpire, either party may apply to the court named below to appoint an umpire with the above required qualifications. The umpire shall promptly notify in writing all parties to the arbitration of his selection and of the scheduled date for the hearing. Upon resignation or death of any member of the Board, a replacement shall be appointed in the same fashion as the resigning or deceased member was appointed.

     4. Submission of Briefs. The claimant and respondent shall each submit initial briefs to the Board outlining the issues in dispute and the basis, authority and reasons for their respective positions within thirty (30) days of the date of notice of appointment of the umpire. The claimant and the respondent may submit reply briefs to the Board within ten (10) days after filing of the initial brief(s). Initial and reply briefs may be amended by the submitting party at any time, but not later than ten (10) days prior to the date of commencement of the arbitration hearing. Reasonable responses shall be allowed at the arbitration hearing to new material contained in any amendments filed to the briefs but not previously responded to.

     5. Arbitration Board’s Decision. The Board shall make a decision and award with regard to the terms of this Agreement and the original intentions of the parties to the extent reasonably ascertainable. The Board’s decision and award shall be in writing and shall state the factual and legal basis for the decision and award. The decision and award shall be based upon a hearing in which evidence shall be allowed and which the formal rules of evidence shall not strictly apply but in which cross examination and rebuttal shall be allowed. At its own election or at the request of the Board, either party may submit a post-hearing brief for consideration of the Board within twenty (20) days of the close of the hearing. The Board shall make its decision and award within thirty (30) days following the close of the hearing or the submission of post-hearing briefs, whichever is later, unless the parties consent to an extension. Every decision by the Board shall be by a majority of the members of the Board and each decision and award by the majority of the members of the Board shall be final and binding upon all parties to the proceeding.

     6. Jurisdiction. Either party may apply to the United States District Court for the Northern District of Illinois for an order confirming any decision and the award; a judgment of that Court shall thereupon be entered on any decision or award. If such an order is issued, the attorneys’ fees of the party so applying and court costs will be paid by the party against whom confirmation is sought. The Board may award interest calculated from the date the Board determines that any amounts due the prevailing party should have been paid to the prevailing party.

     7. Expenses. Each party shall bear the expense of the one arbitrator appointed by it and shall jointly and equally bear with the other party the expense of any stenographer requested, and of the umpire. The remaining costs of the arbitration proceedings shall be finally allocated by the Board.

     8. Production of Documents and Witnesses. Subject to customary and recognized legal rules of privilege, each party participating in the arbitration shall have the obligation to produce

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those documents and as witnesses to the arbitration those of its employees as any other participating party reasonably requests providing always that the same witnesses and documents be obtainable and relevant to the issues before the arbitration and not be unduly burdensome or excessive. The parties may mutually agree as to pre-hearing discovery prior to the arbitration hearing and in the absence of agreement, upon the request of any party, pre-hearing discovery may be conducted as the Board shall determine in its sole discretion to be in the interest of fairness, full disclosure, and a prompt hearing, decision and award by the Board. The Board shall be the final judge of the procedures of the Board, the conduct of the arbitration, the rules of evidence, the rules of privilege and production and of excessiveness and relevancy of any witnesses and documents upon the petition of any participating party. To the extent permitted by law, the Board shall have the authority to issue subpoenas and other orders to enforce their decisions.

     9. Relief Available. Nothing herein shall be construed to prevent any participating party from applying to the United States District Court for the Northern District of Illinois to issue a restraining order or other equitable relief to maintain the “status quo” of the parties participating in the arbitration pending the decision and award by the Board or to prevent any party from incurring irreparable harm or damage at any time prior to the decision and award of the Board. The Board shall also have the authority to issue interim decisions or awards in the interest of fairness, full disclosure, and a prompt and orderly hearing and decision and award by the Board.

     10. Consolidation. In the event that there is a dispute between the Company and Reinsurer that implicates the provisions of this Agreement or the CAC Administrative Services Agreement, the Company and Reinsurer shall consolidate any such dispute under such agreements in a single arbitration proceeding.

ARTICLE XIV
GENERAL PROVISIONS

     1. Notices. (a) Any notice, request or other communication to be given by any party hereunder shall be in writing and shall be delivered personally, sent by registered or certified mail, postage prepaid or by overnight courier with written confirmation of delivery or by facsimile transmission with telephonic confirmation of error-free transmission. Any such notice shall be deemed given when so delivered personally or if sent by facsimile transmission (and immediately after transmission confirmed by telephone), if mailed, on the date shown on the receipt therefor, or if sent by overnight courier, on the date shown on the written confirmation of delivery. Such notices shall be given to the following address:

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If to the Reinsurer:	Swiss Re Life & Health America Inc. 175 King Street Armonk, New York 10504 Attention: General Counsel Telephone No.: 914-828-8925 Fax Number: 914-828-7925
With a copy to:	Sutherland Asbill & Brennan LLP 1275 Pennsylvania Avenue, NW Washington, DC 20004-2415 Attention: David A. Massey Telephone No.: 202-383-0100 Fax Number: 202-637-3593
If to the Company:	Continental Assurance Company CNA Plaza Chicago, Illinois 60685-0001 Attention: Secretary Tel: (312) 822-1384 Fax: (312) 822-1297
With a copy to:	Dewey Ballantine LLP
	1301 Avenue of the Americas
	New York, NY 10011
	Attention: James A. FitzPatrick, Jr. Jeff S. Liebmann
	Tel: (212) 259-8000
	Fax: (212) 259-6333

     (b) Reinsurer shall designate by name two or more officers to provide all requests and directions to the Company concerning the Business under this Agreement and the CAC Administrative Services Agreement (the “Designated Officers”). The initial Designated Officers shall be Donna Kinnaird and Kenneth Stewart. The Reinsurer may change or appoint new Designated Officers by delivering written notice thereof (in accordance with the delivery methods described in Article XIV.1(a)) to the Company.

     (c) Any party may by notice given in accordance with this Section 1 of Article XIV to the other party hereto designate another address or Person for receipt of notices hereunder.

     2. Tax Election. With respect to this Agreement, the Company and the Reinsurer hereby make the election provided for in Section 1.848-2(g)(8) of the Treasury Regulations issued under Section 848 of the Internal Revenue Code of 1986, as amended, as set forth in Exhibit C, which is made a part hereof. Each of the parties hereto agrees to take such further actions as may be necessary to ensure the effectiveness of such election.

     3. Confidentiality. The Company and the Reinsurer shall hold and cause their respective officers, directors, employees, agents, advisors, or other representatives (each a “Representative”) to hold in strict confidence, unless compelled to disclose by applicable law, (i) any

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term of this Agreement or the transactions contemplated hereby; and (ii) any information that is furnished by or on behalf of the other party or its Representatives in connection with the transactions contemplated by this Agreement, except to the extent such information can be shown to have been (x) previously known by the party to which it was furnished, (y) in the public domain through no fault of the party to which it was furnished, or (z) later lawfully acquired from other sources by the party to which it was furnished; provided that such source is not, to such party’s knowledge, bound by a confidentiality agreement with the other party or its Representatives and is not, to such party’s knowledge, otherwise prohibited from transmitting the information by a contractual, legal or fiduciary obligation; provided, however, that the Reinsurer may disclose the terms of this Agreement to the extent reasonably necessary for the Reinsurer to comply with its obligations under the CAC Administrative Services Agreement.

     4. Indemnification. Each party hereto shall indemnify, defend and hold the other party harmless from and against all loss, liability and expense arising out of any failure of the indemnifying party to perform its obligations in accordance with this Agreement.

     5. Equitable Relief. Each party hereto acknowledges that if it or its employees violate the terms of this Agreement, the other party will not have an adequate remedy at law. In the event of such a violation, the other party shall have the right, in addition to any other rights that may be available to it, to obtain in any court of competent jurisdiction injunctive relief to restrain any such violation and to compel specific performance of the provisions of this Agreement. The seeking or obtaining of such injunctive relief shall not foreclose or limit in any way relief against either party hereto for any monetary damage arising out of such violation.

     6. Set Off. It is understood and agreed that any debits or credits, liquidated or unliquidated, in favor of or against either party under this Agreement or the CAC Administrative Services Agreement, are deemed mutual debits or credits, as the case may be, and shall be netted or set off, as the case may be, and only the balance shall be allowed or paid.

     7. Entire Agreement; Amendments. This Agreement (including the Schedules and Exhibits hereto), the Purchase Agreement and the CAC Administrative Services Agreement contain the entire agreement and understanding between the parties with respect to the matters contemplated hereby, and supersede all prior agreements and understandings, written or oral, between the parties hereto with respect to such matters. Any change or modification to this Agreement shall be null and void unless made by amendment to this Agreement and signed by both parties hereto.

     8. Invalidity. The invalidity or unenforceability of any provision or portion hereof shall not affect the validity or enforceability of the other provisions or portions hereof.

     9. Counterparts. This Agreement may be executed in counterparts, each of which shall be deemed an original and all of which together shall constitute one and the same instrument.

     10. Exclusivity. This Agreement is not intended to confer any rights upon any person other than the parties hereto and their respective successors and permitted assigns.

     11. Binding Effect. This Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective successors and assigns.

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     12. Governing Law. This Agreement shall be governed by and construed in accordance with the laws of the State of Illinois, without giving effect to the principles of conflicts of laws thereof.

     13. Successors and Assignment. No party hereto shall assign this Agreement or any rights or obligations hereunder, or subcontract any other party to perform such party’s obligations hereunder, without the prior written consent of the other party hereto, and any such attempted assignment or subcontracting without such prior written consent shall be void and of no force and effect.

     14. Duration and Termination. This Agreement is effective as of the Effective Time and unlimited as to its duration.

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     IN WITNESS WHEREOF, the Company and the Reinsurer have each executed this Agreement as of the date first written above.

CONTINENTAL ASSURANCE COMPANY
By:	/s/ Lawrence J. Boysen
	Name:	Lawrence J. Boysen
	Title:	Senior Vice President & Corporate Controller
SWISS RE LIFE & HEALTH AMERICA INC.
By:	/s/ W. Weldon Wilson
	Name:	W. Weldon Wilson
	Title:	Chief Executive Officer

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EXHIBIT A

CAC SECURITY TRUST AGREEMENT

          THIS SECURITY TRUST AGREEMENT (this “Agreement”) is made and entered into as of                      by and among CONTINENTAL ASSURANCE COMPANY, a stock insurance company organized under the laws of Illinois (the “Company”), SWISS RE LIFE & HEALTH AMERICA INC., a stock insurance company organized under the laws of Connecticut (the “Reinsurer”), and J.P. MORGAN TRUST COMPANY, N.A. (the “Trustee”).

RECITALS:

     WHEREAS, pursuant to that certain Asset and Stock Purchase Agreement, dated as of February 5, 2004 (the “Purchase Agreement”), by and between the Company and Reinsurer, Reinsurer agreed to purchase, among other things, the individual life insurance and annuity businesses and certain assets of the Company, and the capital stock of Valley Forge Life Insurance Company, a Pennsylvania insurance company, and CNA International Life Company SPC, Ltd., a segregated portfolio company organized and existing under the laws of the Cayman Islands;

     WHEREAS, pursuant to the Purchase Agreement, the Company and the Reinsurer entered into the CAC Life and Annuity Indemnity Reinsurance Agreement, dated as of April 30, 2004 (the “Reinsurance Agreement”), a copy of which is attached hereto as Exhibit A, pursuant to which the Company has ceded to the Reinsurer, and the Reinsurer has assumed from the Company, the Company’s individual life insurance and annuity business upon the terms and conditions set forth therein.

     WHEREAS, if the Reinsurer fails to meet certain ratings or risk based capital levels set forth in Article VI, Section 3, of the Reinsurance Agreement, the Reinsurer is required to establish a trust or a letter of credit for the sole benefit of the Company for the purpose of providing security to the Company for the Reinsurer’s performance under the Reinsurance Agreement in respect of the Reinsurer’s Obligations (as defined in the Reinsurance Agreement);

     WHEREAS, the Reinsurer has failed to meet either or both of the ratings and risk based capital levels and has elected to establish a trust and to deposit assets therein in accordance herewith;

     WHEREAS, the Trustee has agreed to act as Trustee hereunder and to hold such assets in trust in accordance with the terms of this Agreement; and

     WHEREAS, this Agreement is made for the sole use and benefit of the Company and for the purpose of setting forth the duties and powers of the Trustee with respect to the Trust Account (as hereinafter defined).

          NOW, THEREFORE, in consideration of the mutual promises and covenants set forth herein and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto, intending to be legally bound, hereby agree as

follows:

     Section 1 Defined Terms. Any capitalized term used but not defined herein shall have the meaning assigned to such term in the Reinsurance Agreement.

     Section 2 Establishment of Trust Account. Simultaneously with the execution and delivery of this Agreement, the Reinsurer, as grantor, is establishing a trust account (the “Trust Account”) with the Trustee for the sole use and benefit of the Company, as beneficiary, upon the terms and conditions hereinafter set forth. The parties agree that the trust created hereunder shall be treated as a “grantor trust” for federal income tax purposes, and the Reinsurer shall report all items of income, gain or loss with respect to the assets in the Trust Account on its federal income tax return. The Reinsurer hereby grants to the Company, as security for the payment and performance by the Reinsurer of the Reinsurer’s Obligations under the Reinsurance Agreement, a security interest in all of the Reinsurer’s right, title and interest in, to and under the Trust Account and under this Agreement, including all Permitted Assets (as defined in Section 6 below) and other investment property or assets now or at any time credited to or carried in the Trust Account (subject to Sections 5, 8, 9 and 17 hereof), and (subject to Section 10 hereof) all proceeds of any of the foregoing, in whatever form (collectively, the “Collateral”); provided, however, such security interest of the Company in any Permitted Asset, investment property or assets, or proceeds of any of the foregoing, that the Reinsurer has withdrawn, substituted for, reinvested or had paid over in accordance with Sections 5, 8, 9, 10 or 17 hereof, as applicable, shall terminate as of the date of such withdrawal, substitution, reinvestment or payment, as applicable. The Reinsurer hereby authorizes the Company to file such financing or continuation statements, or amendments thereto, as the Company may deem necessary to perfect and preserve the security interest granted hereby.

     Section 3 Initial Deposit. Within two (2) Business Days (as defined in the Purchase Agreement) after the execution of this Agreement by the Company, the Reinsurer and J.P. Morgan Trust Company, N.A. (or another trustee as mutually agreed to between the Reinsurer and the Company), the Reinsurer shall deposit with the Trustee Permitted Assets with an aggregate SAP (as hereinafter defined) book value equal to at least 100% of the Reinsurer’s Obligations as of [date of most recent calendar quarter-end preceding the date hereof for which statutory financial statements of the Company are available] (such amount being $                    ). The Reinsurer hereby certifies that as of the date of such deposit the aggregate SAP book value of the Permitted Assets so deposited shall equal at least 100% of the Obligations as of [date of most recent calendar quarter-end preceding the date hereof for which statutory financial statements of the Company are available]. For purposes of this Agreement, (i) “SAP” shall have the meaning set forth in the Purchase Agreement, (ii) “book value” shall be determined by reference to the books and records of the Reinsurer and (iii) the amount of the Obligations shall be determined by the Reinsurer in accordance with generally accepted actuarial standards and all applicable laws, rules and requirements for the filing of the Company’s statutory financial reports in the Company’s state of domicile.

     Section 4 The Reinsurer’s Continuing Obligation. Within thirty calendar days after the end of each calendar quarter beginning with the calendar quarter ended [date of end of calendar quarter in which this Agreement is dated], the Reinsurer shall (i) determine the aggregate amount of the Obligations as of the last day of such calendar quarter, (ii) determine the SAP book value of the Collateral in the Trust Account as of such calendar quarter end, (iii)

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deposit with the Trustee any additional Permitted Assets necessary so that the aggregate SAP book value of the Collateral in the Trust Account shall not be less than 100% of the Obligations as of such calendar quarter end, and (iv) provide to the Company a certificate signed by an authorized officer of the Reinsurer certifying the amounts described in (i), (ii) and (iii) and compliance therewith and including reasonable supporting detail of such computations. The Trustee is authorized to receive and accept whatever additional assets the Reinsurer from time to time may transfer or remit to the Trust Account, without any duty or obligation to determine or know whether such assets are Permitted Assets, and to hold and dispose of the same for the uses and purposes and in the manner and according to the provisions set forth in this Agreement. All such trust assets at all times shall be maintained in the Trust Account, which shall continuously be located within the United States of America. The Trustee shall have no duty or responsibility whatsoever for determining or confirming the adequacy of the assets in the Trust Account. The Company shall be entitled at any time and from time to time, by means of written notice to the Reinsurer, to object to the Reinsurer’s deposit, reinvestment or substitution of assets on the grounds such assets do not constitute Permitted Assets and the Reinsurer shall as soon as practicable thereafter substitute therefor assets which constitute Permitted Assets to the reasonable satisfaction of the Company.

     Section 5 Withdrawals from the Trust Account.

Withdrawals from the Trust Account shall be made pursuant to the provisions of this Section 5:

     (a) By the Reinsurer. Subject to Section 5(c), in the event that at any time the aggregate SAP book value of the Collateral in the Trust Account exceeds 100% of the aggregate amount of the Obligations as of the end of the immediately preceding calendar quarter, the Reinsurer shall be entitled to withdraw the excess from the Trust Account. The SAP book value of each asset in the Trust Account shall include, where applicable, all investment income and interest due and accrued on such assets. For purposes of this Agreement, SAP book value of the Collateral shall be as determined by the Reinsurer for purposes of its statutory financial statements filed with the Insurance Department of the state of domicile of the Reinsurer. The Trustee shall have no duty or responsibility whatsoever for determining such excess or such SAP book value. The parties agree, however, that the reinvestment of assets in the Trust Account in other assets in accordance with Section 9 hereof shall not be considered a withdrawal under this Section 5(a).

     (b) By the Company. Subject to Section 5(c), the Company shall be entitled to withdraw assets from the Trust Account having a market value equal to amounts required to pay or reimburse the Company for the Reinsurer’s failure to fulfill any or all of its Obligations, including but not limited to payment of any Policy Liabilities (a “Loss”) (the Trustee shall have no duty or responsibility whatsoever for determining the amount of such Loss or the market value of the assets withdrawn).

     (c) Procedure. Withdrawals from the Trust Account as permitted above may be made by the Reinsurer or the Company at any time and from time to time, provided that the withdrawing party (the “Withdrawing Party”) has provided ten Business Days’ written notice (the “Notice Period”) to the other party hereto (the “Non-Withdrawing Party”) consisting of the following (collectively, the “Withdrawal Notice”): (i) a statement of the Withdrawing Party’s intent to make such withdrawal, (ii) the amount of the withdrawal, (iii) the effective date of the

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withdrawal (the “Withdrawal Date,” which shall be at least one Business Day after the end of the Notice Period), and (iv) a certificate stating in reasonable specificity the reasons for the withdrawal. The Withdrawing Party shall certify to the Trustee in writing that the Withdrawal Notice has been given to the Non-Withdrawing Party as required and shall attach a copy of the Withdrawal Notice with such written certificate. No other statement or document need be presented to the Trustee to authorize a withdrawal from the Trust Account. Trustee shall obtain and retain a confirmation or receipt evidencing the delivery of the assets that are withdrawn pursuant to the instructions provided by the Withdrawing Party. In the event that the Company is the Withdrawing Party, during such ten Business Day period after the Company’s Withdrawal Notice, the Reinsurer may provide to the Company and the Trustee written directions as to which assets are to be withdrawn to satisfy the amount of the withdrawal. If the Reinsurer does not provide any such direction at least one Business Day prior to the Withdrawal Date, the Company shall provide written direction to the Trustee as to which assets are to be withdrawn. Upon receipt of the Withdrawing Party’s instructions and in the absence of receipt within the Notice Period by the Trustee of a written protest to the withdrawal by the Non-Withdrawing Party, the Trustee shall on the Withdrawal Date promptly take any and all necessary steps to transfer to the Withdrawing Party all right, title and interest in the assets being withdrawn, and to deliver the custody thereof to the Withdrawing Party. The Trustee shall be protected in relying upon any written demand of the Withdrawing Party for such withdrawal that contains the Withdrawal Notice and certification described in the second sentence of this Section 5(c). Furthermore, the Trustee shall have no duty or responsibility whatsoever to question the truth or validity of such demand from the Withdrawing Party or any notice of protest the Trustee may receive from the Non-Withdrawing Party (as provided for hereafter) or to determine that any amounts or assets withdrawn from the Trust Account pursuant to this Section 5 are correct or will be used and applied in a manner consistent with the terms of this Agreement. If either the Reinsurer or the Company protests such withdrawal within the Notice Period by written notice to the Trustee and the Non-Withdrawing Party, providing with reasonable specificity the reasons for such protest, and provided the Trustee has had a reasonable opportunity to act upon such notice before the assets have been withdrawn and delivered, the Trustee shall take no further action on the Withdrawal Notice (except to advise the Withdrawing Party of its receipt of the notice of protest from the Non-Withdrawing Party) until it has received (i) a final order, no longer subject to appeal, rendered in accordance with Section 18 hereof, directing the withdrawal of assets and identifying the specific assets that are to be the subject of the withdrawal or (ii) joint written instructions from the Reinsurer and the Company directing the withdrawal of assets and identifying the specific assets that are to be the subject of the withdrawal. The Trustee shall have no duty, responsibility or obligation whatsoever to participate in any dispute resolution process between the Company and the Reinsurer as provided in Section 18 hereof, unless requested by the Reinsurer or the Company, in which event the requesting party shall reimburse and indemnify Trustee for Trustee’s reasonable costs and expenses (including without limitation reasonable attorneys’ fees and expenses) in connection with such requested participation.

     Section 6 Permitted Assets.

     (a) Any assets deposited in the Trust Account shall consist only of “Permitted Assets” as hereinafter defined. “Permitted Assets” shall consist of those assets that constitute admitted assets under the Connecticut Insurance Code (disregarding, for this purpose, any concentration or aggregation limitations contained therein), except that for purposes hereof the following shall not constitute Permitted Assets: (i) investments of the types which would

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constitute admitted assets only pursuant to Section 38a-102a(a) of the Connecticut Insurance Code (the so-called “basket” provisions) and (ii) investments issued by a parent, subsidiary or Affiliate (as defined in the Purchase Agreement) of either of the Reinsurer or the Company; provided, however, if the Reinsurer re-domesticates from Connecticut to another state, (i) the references to the Connecticut Insurance Code in this Section 6 shall be read as references to the insurance code in the Reinsurer’s new state of domicile, and (ii) the cites to the “basket” provisions in this Section 6 shall be read as cites to the basket provisions under the insurance code in the Reinsurer’s new state of domicile.

     (b) Any deposit or investment direction by the Reinsurer (as provided for in Section 9 below) shall constitute a certification by the Reinsurer to the Trustee and the Company that the assets so deposited or to be purchased pursuant to such investment direction are Permitted Assets, and the Trustee shall have no duties, responsibilities or obligations whatsoever to take notice of, determine or confirm that such assets are Permitted Assets. Accordingly, neither the Reinsurer nor the Company shall hold the Trustee responsible or liable in any way whatsoever in the event that any assets in the Trust Account are not Permitted Assets.

     Section 7 Form of Title. Prior to depositing assets with the Trustee, and from time to time thereafter as required, the Reinsurer shall execute assignments, endorsements in blank or transfer legal title to the Trustee of all shares, obligations or any other assets requiring assignments, in order that the Company or the Trustee upon direction of the Company may whenever necessary negotiate any such assets or transfer such assets to the Company without the consent or signature from the Reinsurer or any Person. Any assets received by the Trustee which are not in such proper negotiable or transferable form shall not be accepted by the Trustee and shall be returned to the Reinsurer as unacceptable. In addition, the Trustee may hold assets of the Trust Account in bearer form or in its own name or that of a nominee.

     Section 8 Substitution. At any time and from time to time, the Reinsurer may substitute assets in the Trust Account provided that (i) the Reinsurer sends written notice of such substitution to the Trustee and the Company and (ii) the Reinsurer replaces any Permitted Assets, on or before the substitution, with new Permitted Assets having a then current SAP book value at least equal to then current SAP book value of the assets so substituted. The parties agree, however, that the reinvestment of Permitted Assets in the Trust Account in other Permitted Assets in accordance with Section 9 hereof shall not be considered a substitution under this Section 8. The Trustee shall be protected in relying upon such notice of the Reinsurer, and the Trustee shall have no duty, responsibility or obligation whatsoever to determine or confirm the SAP book value of the substituted assets or whether the substituted assets are Permitted Assets. Neither the Reinsurer nor the Company shall hold the Trustee responsible or liable in any way whatsoever in the event that new Permitted Assets have insufficient current SAP book value.

     Section 9 Investment Direction.

     (a) The responsibility for the investment and reinvestment of the assets in the Trust Account shall be that of the Reinsurer. Unless and until directed by the Reinsurer and consented to by the Trustee, the Trustee shall have no duty or obligation in respect of the investment or reinvestment of the assets held in the Trust Account or for giving advice in respect of their investment or reinvestment.

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     (b) The Trustee shall settle any trades of assets in the Trust Account as directed by the Reinsurer in accordance with the delivery and payment or the receipt and payment methods for settling institutional securities trades in the local market in which such purchases and sales are to settle, unless otherwise required by prevailing standards of the market in which the transaction occurs. If there is more than one standard method of settling institutional securities trades in a given market and instructions are consistent with one of such methods, the Trustee shall settle in accordance with such instructions.

     (c) The Trustee shall not be obligated or required to advance or expend its own funds in respect of the investing and reinvesting of assets in the Trust Account; however, if for any reason the Trustee shall have advanced any of its own funds in respect of the investment and reinvestment of assets in the Trust Account as provided herein, the Trustee shall have a security interest in the assets in the Trust Account to the extent of the amount of such advance and the Trustee shall have all the rights and remedies of a secured party under the New York Uniform Commercial Code. The Trustee shall charge the Trust Account for all assets purchased at the direction of the Reinsurer. Any losses or gains incurred from any investment shall be borne exclusively by the Trust Account. The Trustee shall not be liable for any loss due to changes in market rates or penalties for early redemption.

     Section 10 Dividends, Interest, Etc. All dividends, interest and other income resulting from the investment of the assets in the Trust Account shall be the property of the Reinsurer. To the extent that the Trustee shall collect and receive such income from the Trust Account, it shall pay over to the Reinsurer the amount of such income promptly upon the written direction of the Reinsurer; provided however, that the Trustee shall have no obligation with respect to the collection of any unpaid income. Notwithstanding the foregoing, while there is pending any withdrawal request by the Company hereunder, such amount of income shall be held by Trustee as part of the Trust Account until the final resolution of such withdrawal request.

     Section 11 Reports, Voting Rights. The Trustee will forward to the Reinsurer or its designee all proxies and proxy materials and corporate action materials that the Trustee receives, if any, relating to the assets in the Trust Account. The Reinsurer or its designee shall have the full and unqualified right to vote any assets in the Trust Account. The Trustee is authorized to open all mail directed to the Reinsurer, its designee or the Company received by the Trustee.

     Section 12 Maturing Assets. The Trustee will surrender for payment all maturing assets and assets called for redemption in the Trust Account and deposit the principal amount of the proceeds of any such payment received by the Trustee into the Trust Account.

     Section 13 Reports by Trustee.

     (a) The Trustee shall furnish to the Reinsurer and the Company a report listing all assets in the Trust Account upon its inception and thereafter as of the end of each calendar month. Such report shall be given as soon as practicable, but in no event later than fifteen calendar days after the end of each calendar month; provided that, in no event shall the Trustee have any obligation or duty to determine the SAP book value of such assets.

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     (b) The Trustee shall furnish to the Reinsurer and the Company notice of any deposits to or withdrawals from the Trust Account by depositing the notice in U.S. regular mail within two Business Days of the occurrence of such event specifying the assets so deposited or withdrawn.

     Section 14 Representations, Warranties and Covenants of the Reinsurer. The Reinsurer represents and warrants to the Company, and covenants for the benefit of the Company, as follows:

     (a) The Reinsurer is (and, for the past five years, has been) a stock insurance company organized under the laws of Connecticut. For the past five years, the chief executive office of the Reinsurer, within the meaning of section 9-307 of the Connecticut Uniform Commercial Code (“UCC”), has been (and, immediately following the date hereof, will be) located in the [                    ]. The Reinsurer shall not change its jurisdiction of organization or its chief executive office (within the meaning of section 9-307 of the UCC), except upon 30 days’ prior written notice to the Company. In the event that the Reinsurer changes its jurisdiction of organization or the location of its chief executive office, it will only change to a jurisdiction of organization or change the location of its chief executive office to a jurisdiction in the United States. The Reinsurer’s true corporate name, as reflected in its organization documents of record in the State of Connecticut, is (and, for the past five years, has been) that set forth in the preamble hereto.

     (b) The Reinsurer owns and will own its interest in the Collateral free and clear of any security interest in, or lien or adverse claim on, the Collateral. From and after the date hereof, the Reinsurer will not authorize the filing of any other financing statement with respect to the Collateral, nor authorize the granting of “control” (as defined in the UCC) over any of the Collateral to any Person other than the Company. From and after the date hereof, the Reinsurer will not grant any further security interest in, or lien on, the Collateral.

     (c) The Reinsurer will do, execute or otherwise authenticate, acknowledge and deliver, or cause to be done, executed or otherwise authenticated, acknowledged and delivered, such instruments of transfer or other records, and take such other steps or actions, as the Company may reasonably deem necessary to create, perfect or preserve the security interest granted to the Company by Section 2 hereof or to ensure that such security interest remains prior to any and all other security interests, liens or other interests of any other Person; and the Reinsurer hereby authorizes the Company, in the Reinsurer’s name or otherwise, to take, or cause to be taken, any of the foregoing steps or actions upon any failure by the Reinsurer to comply with any written request of the Company in respect of any matter subject to this Section 14(c).

     Section 15 Provisions Relating to Trustee.

     (a) The Trustee shall have no responsibility whatsoever to determine that any assets in the Trust Account are or continue to be Permitted Assets.

     (b) The Trustee may maintain the assets in book-entry form with, and utilize the services of, any Federal Reserve Bank, The Depository Trust Company or similar such depositories as appropriate, and such assets may be held in the name of a nominee maintained by the Trustee or any such entity.

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     (c) The Trustee shall (i) be a bank or trust company that is a member of the Federal Reserve System of the United States of America and shall not be an Affiliate of the Reinsurer or the Company and (ii) have a location such that the Reinsurer is able to comply with applicable law concerning location of the Reinsurer’s securities.

     (d) The Trustee shall be entitled to receive as compensation for its services hereunder an annual fee, computed and payable quarterly in arrears, at such rate as may be agreed from time to time in writing among the Reinsurer and the Trustee. The Reinsurer shall be solely responsible for and shall pay the fee of the Trustee and all reasonable expenses of the Trustee. The Trust Account shall not be utilized for the payment of such fees and expenses. In no event shall the Trustee be entitled to withdraw assets from the Trust Account for the purposes of paying itself compensation.

     (e) The Trustee shall be responsible for the safekeeping and administration of the Trust Account in accordance with provisions of this Agreement. The Trustee will use reasonable care in performing its obligations under this Agreement. The Trustee shall be liable and responsible for direct damages to the extent they result from Trustee’s negligence, willful misconduct or bad faith in performing its duties under this Agreement; provided, however, that under no circumstances will Trustee be liable for any indirect, consequential or special damages (including, without limitation, lost profits). The Reinsurer hereby indemnifies and holds the Trustee and its directors, officers, agents and employees (collectively, the “Indemnitees”) harmless from and against any and all claims, liabilities, losses, damages, fines, penalties, and expenses, including reasonable out-of-pocket, incidental expenses and legal fees (“Indemnifiable Losses”) that may be imposed on, incurred by, or asserted against, the Indemnitees or any of them for following any instructions or other directions provided solely by the Reinsurer upon which the Trustee is authorized to rely pursuant to the terms of this Agreement or as a result of any action or failure to act of the Reinsurer, provided the Trustee has not acted with gross negligence, engaged in willful misconduct or acted in bad faith. The Company hereby indemnifies and holds the Indemnitees harmless from and against any and all Indemnifiable Losses that may be imposed on, incurred by, or asserted against, the Indemnitees or any of them for following any instructions or other directions provided solely by the Company upon which the Trustee is authorized to rely pursuant to the terms of this Agreement or as a result of any action or failure to act of the Company, provided the Trustee has not acted with gross negligence, engaged in willful misconduct or acted in bad faith. Also, each of the Company and the Reinsurer hereby indemnifies and holds the Indemnitees harmless from and against any and all Indemnifiable Losses that may be imposed on, incurred by, or asserted against, the Indemnitees or any of them for following any instructions or other directions provided jointly by the Company and the Reinsurer upon which the Trustee is authorized to rely pursuant to the terms of this Agreement or as a result of any joint action or joint failure to act of the Company and the Reinsurer, provided the Trustee has not acted with gross negligence, engaged in willful misconduct or acted in bad faith, and provided further that solely between the Company and the Reinsurer, and without limitation on the Trustee’s ability to seek such indemnification from either the Company or the Reinsurer, the liability of each of the Reinsurer and the Company pursuant to this sentence shall be limited to fifty percent (50%) of the aggregate liability with respect to any such indemnification claim. In addition, and not in limitation of the indemnities provided above in this Section 15(e), the Reinsurer hereby indemnifies and holds harmless the Indemnitees from any Indemnifiable Losses that may be imposed on, incurred by, or asserted against the Indemnitees in connection with or arising out of Trustee’s performance under this Agreement, provided the Indemnitees have not acted with negligence, engaged in willful misconduct or acted in bad faith. The Reinsurer and the Company hereby acknowledge that the foregoing indemnities and other provisions of this Section 15 and

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elsewhere in this Agreement for the Trustee’s benefit shall survive the resignation or removal of the Trustee or the termination of this Agreement.

     (f) The Trustee is authorized to follow and rely upon all notices and instructions given by Persons named in incumbency certificates or letters of authorization furnished to the Trustee from time to time by the Reinsurer and the Company, respectively, and by any attorneys-in-fact acting under written authority furnished to the Trustee by the Reinsurer or the Company including, without limitation, notices and instructions given by letter, facsimile transmission or electronic media, if the Trustee believes in good faith to have been given by such Persons. The Trustee shall not incur any liability to any Person resulting from actions taken or not taken by the Trustee in reliance in good faith on such notices and instructions. The Trustee shall not incur any liability in executing or not taking action based on instructions (i) from any attorney-in-fact acting for or on behalf of the Company or the Reinsurer prior to receipt by it of notice of the revocations of the written authority of such attorney-in-fact or (ii) from any Person purporting to represent the Reinsurer or the Company named in an incumbency certificate or letter of authorization delivered hereunder prior to receipt by it of a more current certificate or letter.

     (g) The Trustee represents and warrants to the Company and the Reinsurer that it has not entered into, and covenants that it will not enter into, any agreement pursuant to which it agrees to comply with instructions originated by any Person with respect to the Trust Account, the Permitted Assets or any other assets from time to time credited to the Trust Account, except as provided in paragraph (f) of this Section 15.

     (h) The duties and obligations of the Trustee shall only be such as are specifically set forth in this Agreement, as it may from time to time be amended, and no implied duties or obligations shall be read into this Agreement against the Trustee, and the Trustee shall have no duties, obligations or responsibilities under the Purchase Agreement or the Reinsurance Agreement.

     (i) Whenever in the administration of the Trust Account created by this Agreement the Trustee shall deem it necessary or desirable that a matter be proved or established prior to taking, suffering or omitting any action hereunder, such matter (unless other evidence in respect thereof be herein specifically prescribed) may be deemed to be conclusively proved and established as to the Trustee by a written notification signed by or on behalf of the Reinsurer or the Company and delivered to the Trustee, and said written notification shall be full warrant to the Trustee for any action taken, suffered or omitted by it on the faith thereof.

     (j) The Trustee shall keep full and complete records of the administration of the Trust Account. Upon the written request of the Reinsurer or the Company, the Reinsurer and/or the Company may examine such records upon reasonable notice to the Trustee at any time during Trustee’s regular business hours by any Person duly authorized in writing by the Reinsurer and/or the Company.

     (k) The Trustee hereby accepts the trust herein created and declared upon the terms herein expressed. The Trustee may resign, by written resignation, effective not less than ninety calendar days after receipt thereof by the Reinsurer and the Company. The Reinsurer and the Company may upon mutual agreement remove the Trustee at any time, without assigning any cause therefor, by the delivery to the Trustee of a written notice of removal, effective not less than ninety calendar days after receipt by the Trustee of the notice; provided, however, that no such resignation

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or removal shall be effective until a successor trustee (i) has been appointed by the Reinsurer and the Company, and (ii) has accepted such appointment and all assets in the Trust Account have been duly transferred to such successor trustee. Upon such resignation or removal, the Reinsurer and the Company shall use reasonable efforts to ensure that a successor Trustee is appointed within a reasonable time of notification thereof. In case of the appointment of a successor trustee, all of the powers, rights and duties of the Trustee named herein shall survive and continue in the successor Trustee and every successor Trustee shall succeed to take and have all the estate, powers, rights and duties which belonged to or were held by its predecessor. In the case of the resignation or removal of a Trustee, the Reinsurer and the Company shall have the right to a final accounting with respect to the Trust Account.

     (l) In the event that any disagreement between the Reinsurer and the Company, or between any of them and any other Person, results in adverse claims or demands being made in connection with the Trust Account, the Trustee may refuse to comply with any claims or demands on it or refuse to take any other action hereunder, so long as such disagreement continues. In addition, the Trustee will refuse to take any action on withdrawal if so required by Section 5(c) hereof. The Trustee shall not be or become liable in any way or to any Person for its failure or refusal to act in accordance with this Section 15(l), and the Trustee shall be entitled to continue to refrain from acting until the Trustee shall have received: (i) a final order, no longer subject to appeal, rendered in accordance with Section 18 hereof directing the distribution of the Trust Account in such amounts and otherwise on such terms as are provided in such order, or (ii) a written agreement executed by the Reinsurer and the Company directing delivery of the assets in the Trust Account (and specifying the Person(s) to whom delivery shall be made and the date and amount of payment), in which event the Trustee shall disburse the Trust Account in accordance with such order or agreement.

     (m) Any corporation or association into which Trustee may be converted or merged, or with which it may be consolidated, or to which it may sell or transfer its corporate trust business and assets as a whole or substantially as a whole, or any corporation or association resulting from any such conversion, sale, merger, consolidation or transfer to which it is a party, shall be and become successor Trustee hereunder and vested with all of the assets in the Trust Account and all of the trusts, powers, discretions, immunities, privileges, obligations and all other matters as was its predecessor, without the execution or filing of any instrument or any further act, deed or conveyance on the part of the parties hereof, provided that written notice identifying such successor Trustee is promptly provided to the Reinsurer and the Company.

     (n) Except with respect to obligations relating to assets withdrawn by the Company pursuant to Section 5(b) hereof arising after the withdrawal, the Reinsurer agrees to assume any and all obligations imposed by any applicable law with respect to taxes on the payments from, or earnings or other income attributable to, the Trust Account, and to indemnify and hold the Trustee and the Company harmless from and against any such taxes, including any liability on account of any tax withholding obligation or any failure to withhold, and any additions from late payment, interests, penalties and other expenses that may be assessed against the Trustee or the Company with respect thereto. For purposes of any applicable tax withholding or reporting obligations, all earnings or other income attributable to the Trust Account shall be considered the currently reportable income of the Reinsurer. The Reinsurer shall be responsible for filing with the Trustee any form or other claim or evidence of exemption from tax withholding requirements, including two duly completed and executed Internal Revenue Service Forms W-9 and any updates or successor form thereto.

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     Section 16 Term. This Agreement shall be effective until one of the following events occurs:

     (a) The Reinsurer and the Company mutually agree to terminate the Agreement and provide written notice thereof to the Trustee.

     (b) The Reinsurer is assigned and maintains the financial strength rating of Standard & Poor’s Corporation or Moody’s Investors Service referred to in Article VI, Section 3, subparagraphs (a)(y)(i) or (a)(y)(ii) of the Reinsurance Agreement, respectively, and has statutory surplus in excess of the RBC Trigger, and written notice thereof is provided to the Trustee jointly by the Company and the Reinsurer.

     (c) The Reinsurance Agreement is terminated for any reason whatsoever, and written notice thereof is provided to the Trustee jointly by the Company and the Reinsurer.

     (d) All assets in the Trust Account are withdrawn in accordance with Section 5.

     Section 17 Termination. Upon the termination of this Agreement, the Trustee shall, with the Company’s written consent, transfer, pay over and deliver to the Reinsurer all of the assets of the Trust Account that may then be remaining in the Trust Account, in exchange for a written receipt from the Reinsurer, at which time all responsibility and liability of the Trustee with respect to such assets shall cease.

     Section 18 Dispute Resolution. The Reinsurer and the Company acknowledge and agree that all disputes between them arising under this Agreement shall be determined in accordance with Article XIII of the Reinsurance Agreement.

     Section 19 Miscellaneous.

     (a) Cooperation. Each party hereto shall cooperate with the other parties and, individually or collectively, shall promptly take such further action and promptly execute such further documents, certificates, instruments, statements, filings, conveyances, and agreements, as may be reasonably necessary to effectuate the purposes of this Agreement.

     (b) Entire Agreement; No Third Party Beneficiaries. Except as otherwise expressly provided herein, this Agreement (including the agreements, documents and instruments referred to herein) constitutes the entire agreement between and among the parties with respect to the transactions contemplated hereby and supersedes all prior arrangements or understandings with respect thereto, written or oral. Nothing in this Agreement, expressed or implied, is intended to confer upon any Person, other than the parties or their respective successors and permitted assigns, any rights, remedies, obligations, or liabilities under or by reason of this Agreement.

     (c) Amendments. To the extent permitted by applicable law, this Agreement may be amended by a subsequent writing signed by all the parties hereto.

     (d) Waivers. The failure of any party at any time or times to require performance of any provision hereof shall in no manner affect the right of such party at a later time to enforce the same or any other provision of this Agreement. No waiver of any condition or of the breach of any term contained in this Agreement in one or more instances shall be deemed to be or construed as a

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further or continuing waiver of such condition or breach or a waiver of any other condition or of the breach of any other term of this Agreement.

     (e) Assignment. No party hereto shall assign this Agreement or any rights or obligations hereunder, by operation of law or otherwise, without the prior written consent of the other parties hereto, and any such attempted assignment without such prior written consent shall be void and of no force and effect.

     (f) Notices. Any notice, request or other communication (other than communications relating solely to the assets in the Trust Account as distinguished from the exercise of rights hereunder) to be given by any party hereunder shall be in writing and shall be delivered personally, sent by registered or certified mail, postage prepaid or by overnight courier with written confirmation of delivery or by facsimile transmission with telephonic confirmation of error-free transmission. Any such notice shall be deemed given when so delivered personally or if sent by facsimile transmission (and immediately after transmission confirmed by telephone), if mailed, on the date shown on the receipt therefor, or if sent by overnight courier, on the date shown on the written confirmation of delivery. Such notices shall be given to the following address:

If to the Company:	Continental Assurance Company CNA Plaza Chicago, Illinois 60685-0001 Attention: Secretary Tel: (312) 822-1384 Fax: (312) 822-1297
With copies to:	Dewey Ballantine LLP
	1301 Avenue of the Americas
	New York, NY 10019
	Attention: James A. FitzPatrick, Jr. Jeff S. Liebmann
	Tel: (212) 259-8000
	Fax: (212) 259-6333
And to:	Continental Casualty Company CNA Plaza, Corporate Treasury Chicago, Illinois 60685-0001 Attention: Treasurer Tel: (312) 822-4637 Fax: (312) 822-4175

12

If to the Reinsurer:	Swiss Re Life & Health America Inc.
	175 King Street
	Armonk, New York 10504
	Attention: General Counsel
	Tel: (914) 828-8925
	Fax: (914) 828-7925
With a copy to:	David A. Massey
	Sutherland Asbill & Brennan LLP
	1275 Pennsylvania Avenue, NW
	Washington, DC 20004-2415
	Tel: (202) 383-0100
	Fax: (202) 637-3593
If to the Trustee:	J.P. Morgan Trust Company, N.A.
	c/o J. P. Morgan Chase Bank
	Three MetroTech 5th Floor
	Brooklyn, New York 11245
	Attention: William Cataldi
	Tel: 718-242-5283
	Fax: 718-254-5000

     Any party may by notice given in accordance with this Section 19(f) to the other party hereto designate another address or Person for receipt of notices hereunder.

     (g) Governing Law. Notwithstanding the place where this Agreement may be executed by any of the parties, and notwithstanding any other agreement among the parties, or any of them, with respect to the Trust Account, the parties expressly agree that this Agreement and the obligations of the parties with respect to the Trust Account shall in all respects be governed by, and construed in accordance with, the laws of the State of Illinois, without regard for any conflicts of laws principles.

     (h) Notice to Trustee. Except when otherwise expressly provided in this Agreement, any written notification to be delivered or furnished by the Reinsurer or the Company shall be sufficiently executed if executed in the name of such party by a duly authorized officer or agent of such party as may be designated in a resolution or letter of advice by the Reinsurer or the Company, respectively. Written notice of such designation by each of the Reinsurer and the Company shall be filed with the Trustee. The Trustee shall be protected in acting upon any written notification made by such officer or agent of the Reinsurer or the Company with respect to the authority conferred on such officer or agent.

     (i) Counterparts. This Agreement may be executed in counterparts, each of which shall be deemed to be an original, but all of which together shall constitute one and the same instrument.

     (j) Captions. The captions contained in this Agreement are for reference purposes only and are not part of this Agreement. All references herein to articles and sections shall be deemed references to such parts of this Agreement, unless the context shall otherwise require.

13

     (k) Interpretations.

     (i) For purposes of this Agreement, the words “hereof,” “herein,” “hereby” and other words of similar import refer to this Agreement as a whole unless otherwise indicated. Whenever the words “include,” “includes” or “including” are used in this Agreement, they shall be deemed to be followed by the words “without limitation.” Whenever the singular is used herein, the same shall include the plural, and whenever the plural is used herein, the same shall include the singular, where appropriate. All dollar references in this Agreement are to the currency of the United States.

     (ii) No uncertainty or ambiguity herein shall be construed or resolved against any party, whether under any rule of construction or otherwise. No party to this Agreement shall be considered the draftsman. The parties acknowledge and agree that this Agreement has been reviewed, negotiated and accepted by all parties and their attorneys and shall be construed and interpreted according to the ordinary meaning of the words used so as fairly to accomplish the purposes and intentions of all parties hereto.

     (l) Severability. Any term or provision of this Agreement that is invalid or unenforceable in any jurisdiction shall, as to that jurisdiction, be ineffective to the extent of such invalidity or unenforceability without rendering invalid or unenforceable the remaining terms and provisions of this Agreement or affecting the validity or enforceability of any of the terms or provisions of this Agreement in any other jurisdiction. If any provision of this Agreement is so broad as to be unenforceable, the provision shall be interpreted to be only so broad as is enforceable.

14

          IN WITNESS WHEREOF, each of the parties has caused this Agreement to be executed on its behalf on the day and year first above written.

CONTINENTAL ASSURANCE COMPANY
By:
	Name:
	Title:
By:
	Name:
	Title:
SWISS RE LIFE & HEALTH AMERICA INC.
By:
	Name:
	Title:
J.P. MORGAN TRUST COMPANY, N.A.
By:
	Name:
	Title:

15

Exhibit A

CAC Life and Annuity Indemnity Reinsurance Agreement

16

EXHIBIT B

RBC Trigger Adjustment Examples

1.	Assuming under current risk based capital requirements, the Company Action Level Risk Based Capital of the Reinsurer is $1 billion, the RBC Trigger under Section 3, Article VI of this Agreement would be $1.5 billion. In the event that the methodology established by the National Association of Insurance Commissioners (the “NAIC”) for measuring risk based capital were to be modified so that without any change in the financial position of the Reinsurer the designated Company Action Level Risk Based Capital for the Reinsurer is $1.2 billion, a 20% increase, the RBC Trigger would likewise increase by 20% to $1.8 billion (effectively, 150% of the new Company Action Level Risk Based Capital).
2.	Under current NAIC requirements, a Company Action Level RBC Plan would be required if the Reinsurer’s total adjusted capital were to fall to a level which is less than 100% of a benchmark known as company action level risk based capital (the “Current Benchmark”). If the NAIC were to modify its requirements so that a Company Action Level RBC Plan was to be required if the Reinsurer’s total adjusted capital were to fall below a level equal to 120% of the Current Benchmark, a 20% adjustment, then the RBC Trigger under Section 3 of Article VI of this Agreement would likewise be increased by 20% to 180% of the Current Benchmark (effectively, 150% of the new Company Action Level Risk Based Capital).
3.	The current regulations promulgated by the NAIC require the filing of a Company Action Level RBC Plan. The current regulations establish the topics and projections to be addressed in such plan, as well as the regulatory actions that may be taken in connection with such plan. If the NAIC modifies or replaces the regulations, and establishes new criteria and measurement methodologies for the assessment of insurer solvency risks, then the parties would agree to work in good faith to set the RBC Trigger at a level equal to 150% of the standard for filing plans and reviewing financial progress substantially similar to the current Company Action Level RBC Plan.

B-1

EXHIBIT C

TAX ELECTION

A. The parties will make a joint election, in accordance with Treas. Reg. 1.848-2(g)(8) (the “Regulation”), issued December 31, 1992, under Section 848 of the Internal Revenue Code of 1986 (the “Code”), and:

(1)	the party with the net positive consideration under this Agreement will capitalize specified policy acquisition expenses with respect to this Agreement for such taxable year without regard to the general deductions limitations of Section 848(c)(1) of the Code;
(2)	the election will take effect as of the Effective Time and will remain in effect for all subsequent years that this Agreement remains in effect; and
(3)	each party shall attach a schedule to its federal income tax return for its first taxable year ending after the election becomes effective that identifies the agreement (including this Agreement) for which joint elections have been made under the Regulation.

B. Pursuant to this joint election:

(1)	each party will exchange information pertaining to the amount of net consideration under this Agreement to assure consistency or as may otherwise be required by the Internal Revenue Service;
(2)	the Reinsurer will submit its calculation of the “net consideration”, as defined under Treas. Reg. 1.848-2(f), to the Company not later than May 1 for each and every tax year for which this Agreement is in effect;
(3)	the Company may challenge such calculation within ten (10) working days of receipt of the Reinsurer’s calculation; and
(4)	the parties will act in good faith to reach agreement as to the correct amount of net consideration whenever there is disagreement as to the amount of net consideration, as determined under Treas. Reg. 1.848-2(f).

C. The Company and the Reinsurer represent and warrant that they are subject to U.S. taxation under Subchapter L of Chapter 1 of the Code.

C-1

Agreed and Accepted:

CONTINENTAL ASSURANCE COMPANY
By:	/s/ Lawrence J. Boysen
	Name:	Lawrence J. Boysen
	Title:	Senior Vice President & Corporate Controller

SWISS RE LIFE & HEALTH AMERICA INC.
By:	/s/ W. Weldon Wilson
	Name:	W. Weldon Wilson
	Title:	Chief Executive Officer

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SCHEDULE A

Alan C. Smith — Agency Deferred Compensation Agreement

David S. Jeranian — Agency Deferred Compensation Agreement

Edward Schwarzer — Agency Deferred Compensation Agreement

Earnest T. Uyetake — Agency Deferred Compensation Agreement

Frank J. Crisona — Agency Deferred Compensation Agreement

Fred Sprague — Agency Deferred Compensation Agreement

George S. Ichikawa — Agency Deferred Compensation Agreement

Judd S. Sloane — Agency Deferred Compensation Agreement

L. Terry Lazarus — Agency Deferred Compensation Agreement

Morton Kleiner — Agency Deferred Compensation Agreement

Nancy M. Watt — Agency Deferred Compensation Agreement

Peter B. Diefendorf — Agency Deferred Compensation Agreement

Richard C. Wolff — Agency Deferred Compensation Agreement

Richard M. Rully — Agency Deferred Compensation Agreement

Robert E. Segal — Agency Deferred Compensation Agreement

Robert F. Denny — Agency Deferred Compensation Agreement

Robert K. Inouye — Agency Deferred Compensation Agreement

Stephen C. Harmelin — Agency Deferred Compensation Agreement

Terrence F. Sloane — Agency Deferred Compensation Agreement

Wendell H. Hughes — Agency Deferred Compensation Agreement

William P. Georgenton — Agency Deferred Compensation Agreement

IMO, LSR and MGA bonus program summaries are attached as part of Schedule A.

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SCHEDULE A

TO: CNA Managing General Agents (MGA’s)

From: Life Marketing

In response to feedback from our Managing General Agents we have completely revamped the 2004 CNA MGA Bonus Plan having eliminated the bonus pool and returning to a simplified traditional pay-out structure that is much more measurable and predictable. The new structure provides for attractive bonuses of 28% - 43% retroactive to dollar one.

After you have reviewed and compared the 2004 CNA MGA Bonus Plan I am confident that you will be pleased with its structure and earning potential for which it provides.

Should you have any questions, please feel free to contact John Swinger 630-719-5961 or myself.

Sincerely,

Ken Keating
VP Life Brokerage

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SCHEDULE A

Date:	December 18, 2003
To:	All IMOs
Subject:	IMO Bonus Schedule Unchanged in 2004

CNA is maintaining its strong IMO Bonus schedule in 2004, without any modification.

The schedule is as follows:

Annualized Premium	Bonus Percentage
$2,000,000		10.0%
3,000,000		12.5%
5,000,000		15.0%
7,500,000		17.5%
10,000,000		20.0%
12,500,000		22.5%
15,000,000		25.0%
17,500,000		27.5%
20,000,000		30.0%

Your total annualized premium at year-end will determine your final bonus level, but CNA pays bonuses on an as-earned basis throughout the year. All bonus percentages are retroactive to first dollar.

We appreciate the great business you’ve done with CNA in 2003 and look forward to another strong year in 2004. If you have any questions about the IMO bonus, please contact Julie Hince, 864-363-5402, Amy Whitehead, 720-201-1867, or me.

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SCHEDULE A

* PLEASE REVIEW AND SIGN *

I. INTRODUCTION

This document describes the compensation plan for the Life Sales Representative (LSR) of the CNA Life Sales Office (LSO) effective January 1, 2004. This Compensation Plan is not a contract and may be changed by CNA at any time without notice. The parameters used to calculate incentive compensation and the requirements for earning each component reflect the emphasis and importance CNA places on underlying new sales and current directives. These parameters and requirements are subject to change as business conditions and CNA’s emphasis change. CNA Life management will define any aspects of this plan that are or become subject to interpretation.

This document gives an overview of the plan with a brief explanation of the organization of the Life Sales Office. Included in this overview is an explanation of the general expectations of the Life Sales Representative.

This document explains the LSR plan, detailing each plan component. These components include all of the elements of the direct compensation package including personal production. This document also describes the administrative provisions of the plan including performance expectations, restrictions and Fringe Benefit salary calculation.

IMPORTANT NOTE:
CNA reserves the right to change or make exceptions to this document and its personnel policies, procedures and benefits, including those for retirees, at any time without notice. Neither this document nor company procedures nor communications are intended to be interpreted as a promise or guarantee of future or continued employment or as stating provisions and terms of employment. CNA and CNA employees recognize their mutual right to end their employment relationship at any time and acknowledge that such relationship is one of employment at will. While some of CNA’s contractual employee benefit plans are discussed in this document, it is important to remember that all rights and benefits under them are governed by legal documents, which are available in Employee Benefits-Home Office. Except with respect to employment at will, the policies and benefits described in this document may vary from state to state to conform to state law. No representative of CNA has authority to make any agreement contrary to the provisions of this note.

II. CNA LIFE SALES OFFICES — OVERVIEW

The primary purpose of the Life Sales Office is to grow, promote and develop a predictable and dependable flow of profitable premium revenue for Life Operations. Life Sales Office personnel will accomplish this through agent recruitment, appointment, and sales development. LSOs are staffed by a Manager (Regional Vice President), Sales & Marketing Coordinators, Estate & Business Planners and Life Sales Representatives.

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LSRs are charged with developing new business by cultivating relationships with CNA Property/Liability agencies, independent agencies, life agents, and financial planners to generate sources of new premium. These agents are contracted with CNA as Producers or General Agents and are paid commissions. Each LSR also is contracted with CNA as a Producer and may generate personal sales as determined appropriate by the LSO Manager based on corporate direction. LSR personal production earns overrides as well as commissions.

III.     LSR PLAN

          A. OBJECTIVES

This plan consists of incentives that are designed to motivate and compensate Life Sales Representatives for the following activities:

• Generating new business from agents in the CNA Property/Liability agencies and other sources

• Encouraging renewal business

• Building and developing relationships with administrative staff, branch staff, and agencies

          B. LSR PLAN COMPONENTS

This compensation plan is comprised of the following components:

• LSR Production Override

• LSR Production Bonus — Paid First Year Premium

IV.     LSR Production Overrides

LSR Production Overrides are intended to promote new sales of CNA’s products from a variety of sources. First year overrides are directly related to the amount of new business developed and are calculated as a percentage of first year paid premium. Renewal overrides are directly related to the amount of continuing business and are calculated as a percentage of renewal paid premium. First year override percentages are determined by the product sold and distribution structure. Please note that some business written under an Associate MGA schedule may not pay an override.

V.     LSR Production Bonus

The calculation of the LSR Production Bonus is predicated on two categories of premiums. Premiums for a production year from Eligible products (Eligible Premiums) are used to determine the thresholds in the chart below. The percentage associated with each threshold is then applied to premiums for the same production year from Bonusable products (Bonusable Premiums) to calculate the bonus. Life business written under GA+10, MaxPro +10, and GA+15 schedules is excluded from Eligible and Bonusable products. An incentive equal to a percentage of Bonusable first year paid premiums will be paid based on the

SA-5

following chart:

LSO Total Production Run-Rate

LSR’s FY Paid Premium*		$0-$24.9	$25-$29.9	$30-$34.9	$35+
$0	-     $200,000	0%	0%	0%	0%
$200,000	-     $249,000	1%	2%	3%	4%
$250,000	-     $299,999	2%	3%	4%	5%
$300,000	-     $349,999	3%	4%	5%	6%
$350,000	-     $399,999	5%	6%	7%	8%
$400,000	-     $449,999	6%	7%	8%	10%
$450,000	-     $499,999	7%	8%	10%	11%
$500,000	-     $549,999	8%	9%	11%	12%
$550,000	-     $599,999	9%	10%	12%	13%
$600,000	-     $999,999	10%	11%	13%	14%
$1,000,000	+	11%	12%	14%	15%

*Subject to exclusions

VI. PERSONAL PRODUCTION

A. Commission Payments

Producer commissions for personal production is paid through CNA’s commission system and is administered apart from all other compensation provisions described herein.

Although the LSR’s primary function is development of brokerage business, CNA does provide for the payment of commissions on a Producer commission schedule to the LSR for personally produced business. Personal production is a privilege granted by CNA and will only be permitted when it does not interfere with the LSR’s responsibilities as specified in the business plans and this document.

B. Bonus Payments

Any debit balance an LSR may owe will be first deducted from any bonus amounts payable to the LSR.

By accepting advanced bonus payments, the LSR agrees to pay back such bonus payments to the extent to which they do not meet the production goal(s) that such bonus was paid upon and advanced. Regardless of year to date production, an LSR’s cessation of employment with CNA for any reason whatsoever prior to the last day of a calendar year, makes the LSR ineligible for any bonus. If the LSR terminates before the end of a calendar year, all bonus amounts advanced in excess of earned per the bonus schedule are to be re-paid to CNA immediately.

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VII. ADMINISTRATION

A. CALCULATION AND PAYMENT PROCEDURES

          LSR Production Overrides are calculated and paid on a biweekly basis. These biweekly calculations reflect the production results for the production/processing period used by CNA’s corporate systems.

          The LSR Production Bonus advance is calculated quarterly. LSRs who achieve YTD pro rata production of $300,000 of Eligible first year paid life premium will be paid an advance, subject to the discretion of management. The advance will be 1% of Bonusable first year paid life premium. YTD pro rata requirements for the first three-quarters are $75,000/$150,000/$225,000 of Eligible first year paid life premium. Once an LSR has reached a total actual production level of $300,000, the bonus percentage shall increase to 3%.

          Production Bonus advances will be subject to recapture:

• For failure to meet the production level upon which they were based, or

• Upon termination prior to year-end, or

•  For unrecovered chargebacks (overpayments)

If questions arise, the Vice President of LSO Distribution along with Regional Vice President will make a determination whether to continue the advance and at what percentage rate.

Production Overrides are paid after the close of each biweekly production period through the CNA payroll system.

B. FIRST YEAR SUBSIDY

New LSRs may be eligible for subsidy during their first year. The subsidy payments will be based on a subsidy schedule selected by the LSO Manager when the LSR is hired. First year LSR’s earn the same overrides as other LSRs.

First year LSRs receiving a subsidy are not eligible for the LSR Production Bonus. First year LSRs may opt out of remaining subsidy payments to become eligible for the Production Bonus on a prospective basis.

The LSR and LSOM must sign the Life Sales Representative Subsidy Agreement prior to any subsidy payments being made. Such agreement details the terms of the subsidy. No subsidy is to be paid without such agreement being fully executed.

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C. JOB GRADE AND FUNCTIONAL JOB CODE

The entry-level LSR position is a job grade 220. The Functional Job Code is IX51005. The Sr. LSR position is a job grade 240. The Functional Job Code is IX51006.

D. PERFORMANCE EXPECTATIONS

          Performance expectations relating to production objectives, as specified in a business plan and other management objectives are established annually for each LSR. Performance expectations include but are not limited to a minimum production standard. This minimum production level will be monitored on a monthly basis.

Each LSR shall annually create a business plan for the upcoming calendar year. The business plan is to outline the LSR’s goals to contribute to the overall success of the business plan and goals of the Life Sales Office, the success of the LSO Distribution channel, and CNA Life Operations. The business plan shall be submitted to the LSOM by February 1 of each year for approval. The LSOM shall provide a copy of the approved LSR business plan to the Vice President of LSO Distribution by March 1. The Vice President of LSO Distribution has the sole authority to accept or reject for re-draft any LSR business plan. LSR’s are not eligible for bonus without having timely submitted a business plan to their LSOM and having an approved business plan on file with the Vice President of LSO Distribution no later than May 1.

If the LSR’s performance is determined to be unsatisfactory, in lieu of other action, the LSOM may establish a probationary corrective action plan which specifies terms of probation, reasons for probation, corrective actions and alternative actions. The LSR may be terminated at the end of the probationary period if terms of the corrective action plan are not met.

Regardless of any provisions in this document, there may be situations where, at CNA’s discretion, neither the Performance Improvement Program nor the probationary procedures would be appropriate and, thus, need not be utilized before immediately terminating an employee. Such situations may be determined by management, without notice, on an individual basis.

E. FRINGE BENEFITS

Each LSR will be eligible to participate in the company’s pension, savings, health, group life and disability benefit programs described in Benefits at CNA.

Benefits related to salary are determined by using the average total compensation paid in the immediate prior two calendar years.

New employees with less than two years earning history will usually have their coverage and costs determined by the level of any initial guarantee and/or first year subsidy schedule.

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Benefit levels and any associated payroll deductions for the following contributory and non-contributory benefits are based on the annual benefit salary:

-     Contributory Life
- -     Non-Contributory Life
- -     Short-Term Disability Benefits
- -     Long Term Disability Premiums
- -     Long Term Disability Benefits

Actual Earnings are used to determine contributions to the CNA Savings Plan and the CNA Retirement Plan.

Benefits requiring flat rate premiums are determined by the amount of coverage elected.

This benefit salary is effective each March 1^st and the benefits and costs remain constant for one full year.

F. TERMINATION OF EMPLOYMENT

In the event of termination, the LSR is entitled to receive production overrides and payment of incentives for the production period during which the termination occurred plus production overrides and payment of incentives for the next production period. In the event of termination due to retirement or death, production overrides and incentive payments will be paid as above and for an additional two production periods.

Note: This is not applicable to vested commissions for an LSR’s personal production, provided all terms of the agent contract are met.

Any debit balance the LSR has at time of termination is payable immediately to CNA. Such debit balance will be deducted until paid in full from any future payments of any kind due to the LSR. The LSR acknowledges that debit balances are subject to collection if not paid when requested/upon termination of employment. If an LSR terminates from CNA and seeks re-appointment as a representative of CNA, such re-appointment is contingent upon the outstanding debit having been paid in full.

Any customer information in which the LSR has come into contact with as an LSR will remain strictly confidential and may not be removed from CNA nor utilized by parties for the benefit of anyone other than CNA. CNA will not re-contract agents or agencies that were previously in an LSR’s hierarchy for six months following the LSR’s termination.

G. RESTRICTION ON OTHER PAYMENTS

The total compensation package for Life Sales Representatives is as described in this document.

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CNA recognizes the need to provide assistance to agents for sales involving non-CNA products. However, CNA requires the first right of refusal on all LSR production. CNA Life should be considered as the primary market in all situations where CNA maintains a competitive position.

Market access is limited to Financial Brokerage, Inc., unless authorized by the Vice President of LSO Distribution in advance and in writing. On any case placed through Financial Brokerage, Inc., any and all compensation from such outplaced case is the responsibility of the carrier providing the insurance that was successfully obtained. Compensation for such outplaced case will be handled in whatever manner the providing carrier uses, will not be included in the CNA payroll system (as such earnings are not derived from employment with CNA nor subject to CNA fringe benefits or tax treatment). It is probable that such compensation will be paid by the providing carrier and result in a 1099 to the LSR from that carrier for any portions of compensation due the LSR.

Failure to comply with these provisions may result in immediate termination of the LSR, at CNA’s discretion.

VIII. ACKNOWLEDGEMENT

Life Sales Representative

          Print Name:

          Signature:

          Date:

Regional Vice President, Life Sales Office

          Print Name:

          Signature:

          Date:

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December 2, 2003

2004 CNA MGA BONUS PLAN

The 2004 CNA Bonus Plan for MGAs is simple, predictable and very competitive. It’s a straightforward bonus structure based on paid life premium.

Eligible First-Year Paid Premium					Bonus Percentage
$	0	to	$	249,999		0.0	%
	250,000	to		499,999		28.0	%
	500,000	to		749,999		30.0	%
	750,000	to		999,999		32.0	%
	1,000,000	to		1,499,999		34.0	%
	1,500,000	to		1,999,999		34.5	%
	2,000,000	to		2,499,999		35.0	%
	2,500,000	to		2,999,999		35.5	%
	3,000,000	to		3,499,999		36.0	%
	3,500,000	to		3,999,999		36.5	%
	4,000,000	to		4,499,999		37.0	%
	4,500,000	to		4,999,999		37.5	%
	5,000,000	to		7,499,999		38.0	%
	7,500,000	to		9,999,999		39.0	%
	10,000,000	to		12,499,999		40.0	%
	12,500,000	to		14,999,999		41.0	%
	15,000,000	to		19,999,999		42.0	%
	20,000,000			+		43.0	%

Prorated bonuses for new MGAs
For MGAs who are new to CNA, we will prorate the initial qualifying level based on contract date. We will pay a 28% bonus to any MGA contracted during the second quarter of 2004 who produces at 75% of the bonus threshold level or $187,500. MGAs contracted in the third and fourth quarters who produce 50% or $125,000 will also earn a 28% bonus. Percentages higher than 28% will only be

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paid when actual production reaches $500,000 or more.

Simplified program
Our previous bonus plan was comprised of multiple bonuses. This one is much simpler, and it puts the focus on attracting and rewarding new production. The bonuses we’re discontinuing as of 12/31/03 include: the MGA Quarterly App Count (Apptivity) Bonus, the MGA Renewal App Count (Apptivity) Bonus, and the Partnership Plus Program.

Because we now have one big bonus program, instead of several smaller ones, we’re able to make the bonus payouts very attractive.

Placement rates
Policy placement rates will not be an official measurement for the bonus program; however, we will closely monitor placement rates because they have a major impact on profitability. If an MGA has poor placement rates, we will take necessary action, ranging from adjusting the bonus pay-out to termination of the MGA contract.

Monthly advances for consistent, high production
For MGAs with a strong production track record, we will advance bonus payments monthly. The advance rate will be in line with your general level of production. The rate may be adjusted up or down through the year if changes warrant it.

Caveats
CNA reserves the right to amend or eliminate this program at any time. Final interpretation of the terms of this bonus program is the prerogative of CNA sales management.

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SCHEDULE B

THIRD PARTY REINSURANCE AGREEMENTS

CAC Ceded Reinsurance Agreements:

Index No.	Name
2.	Automatic Non-Bulk Y.R.T. Non-Refund Agreement between CAC and Allianz Life Insurance Company of North America effective May 01, 1987 [Terminated for new business]
3.	Automatic Non-Bulk Coinsurance Non-Refund Agreement between CAC and Allianz Life Insurance Company of North America effective June 01, 1987 [Terminated for new business]
11.	CAC Reinsurance Agreement between CAC and American National Insurance Company effective November 01, 1963
14.	Automatic Coinsurance Agreement between CAC and Phoenix Home Life Mutual Insurance Company effective July 20, 1998 [Terminated for new business] [This contract was novated to ERC Life Reinsurance Corporation effective January 01, 2000. Scottish Re Group Limited acquired 95% of the outstanding capital stock of ERC Life Reinsurance Corporation on December 22, 2003.]
17.	CAC Reinsurance Agreement between CAC and American United Life Insurance Company of Indianapolis, IN effective June 01, 1970 [This business was 100% reinsured to Employers Reassurance Corporation]
18.	Automatic Reinsurance Agreement between CAC and American United Life Insurance Company of Indianapolis, IN effective June 01, 1978 [Terminated for new business] [This business was 100% reinsured to Employers Reassurance Corporation]
21.	Yearly Renewable Term Agreement between CAC and American United Life Insurance Company of Indianapolis, IN effective August 21, 1995 [This business was 100% reinsured to Employers Reassurance Corporation]
26.	Automatic Reinsurance Agreement between CAC and American United Life Insurance Company of Indianapolis, IN effective July 20, 1998 [This business was 100% reinsured to Employers Reassurance Corporation]
30.	Reinsurance Agreement between CAC and Business Men’s Assurance Company of America effective November 01, 1954 [Generali USA Life Reassurance Company now administers this business]
31.	Reinsurance Agreement between CAC and Business Men’s Assurance Company of America effective August 28, 1980 [Generali USA Life Reassurance Company now administers this business]
33.	Reinsurance Agreement between CAC and Business Men’s Assurance Company of America effective August 21, 1995 [Generali USA Life Reassurance Company now administers this business]
34.	Reinsurance Agreement between CAC and Cologne Life Insurance Company effective April 01, 1968 [Terminated for new business]
35.	Automatic Reinsurance Agreement between CAC and Cologne Life Insurance Company effective October 01, 1987 [Terminated for new business]
36.	Reinsurance Agreement between CAC and Cologne Life Insurance Company effective January 01, 1988
37.	Reinsurance Agreement between CAC and Crown Life Insurance Company effective July 01, 1977 [This contract was novated to The Canada Life Assurance Company effective January 01, 1999]

SB-1

Index No.	Name
38.	Automatic Pool Reinsurance Agreement between CAC and Crown Life Insurance Company effective April 01, 1982 [This contract was novated to The Canada Life Assurance Company effective January 01, 1999]
39.	Automatic Reinsurance Agreement between CAC and Crown Life Insurance Company effective January 01, 1983 [This contract was novated to The Canada Life Assurance Company effective January 01, 1999]
40.	Automatic Coinsurance Reinsurance Agreement between CAC and Crown Life Insurance Company effective September 01, 1983 [This contract was novated to The Canada Life Assurance Company effective January 01, 1999]
41.	Automatic YRT Reinsurance Agreement between CAC and Crown Life Insurance Company effective September 01, 1987 [Terminated for new business] [This contract was novated to The Canada Life Assurance Company effective January 01, 1999]
43.	Automatic Coinsurance Reinsurance Agreement between CAC and Crown Life Insurance Company effective October 01, 1987 [Terminated for new business] [This contract was novated to The Canada Life Assurance Company effective January 01, 1999]
45.	Automatic Pool Reinsurance Agreement between CAC and Crown Life Insurance Company effective January 01, 1989 [This contract was novated to The Canada Life Assurance Company effective January 01, 1999]
46.	Automatic Coinsurance Reinsurance Agreement between CAC and Employers Reassurance Corporation effective October 05, 1995
55.	Automatic Reinsurance Agreement between CAC and Employers Reassurance Corporation effective July 20, 1998
59.	Automatic/Facultative Agreement between CAC and Equitable Life Assurance Society of the United States effective January 01, 1977
60.	Automatic Pool Reinsurance Agreement between CAC and Equitable Life Assurance Society of the United States effective April 01, 1982
61.	Facultative Reinsurance Agreement between CAC and Equitable Life Assurance Society of the United States effective January 01, 1984
63.	Facultative Reinsurance Agreement between CAC and Frankona America Life Reassurance Company effective January 01, 1979 [The name of Frankona America Life Reassurance Company changed to ERC Life Reinsurance Corporation effective February 02, 1996. Scottish Re Group Limited acquired 95% of the outstanding capital stock of ERC Life Reinsurance Corporation on December 22, 2003.]
67.	Automatic YRT Self-Administered Reinsurance Agreement between CAC and Frankona America Life Reassurance Company effective August 21, 1995 [The name of Frankona America Life Reassurance Company changed to ERC Life Reinsurance Corporation effective February 02, 1996. Scottish Re Group Limited acquired 95% of the outstanding capital stock of ERC Life Reinsurance Corporation on December 22, 2003.]
70.	Automatic Coinsurance Agreement between CAC and General American Life Insurance Company effective September 01, 1987 [This contract was novated to Saint Louis Reinsurance Company effective January 01, 1994. The name of Saint Louis Reinsurance Company was later changed to RGA Reinsurance Company.]
71.	Automatic Reinsurance Agreement between CAC and General American Life Insurance Company effective September 01, 1987 [This contract was novated to Saint Louis Reinsurance Company effective January 01, 1994. The name of Saint Louis Reinsurance Company was later changed to RGA Reinsurance Company.]
73.	Automatic Agreement between CAC and General American Life Insurance Company effective July 05, 1991 [This contract was novated to Saint Louis Reinsurance Company effective January 01, 1994. The name of Saint Louis Reinsurance Company was later changed to RGA Reinsurance Company.]
75.	Automatic Reinsurance Agreement between CAC and Gerling Global Life Insurance Company (U.S. Branch) effective May 01, 1998 [Gerling Global Life Insurance Company (U.S. Branch) changed its name to Revios Reinsurance Canada Ltd. (U.S. Branch) effective October 13, 2003]

SB-2

Index No.	Name
76.	Automatic Reinsurance Agreement between CAC and Gerling Global Life Reinsurance Company effective July 20, 1998 [Gerling Global Life Reinsurance Company changed its name to Revios Reinsurance U.S. Inc. effective October 13, 2003]
78.	Facultative Reinsurance Agreement between CAC and Hamburg International Reinsurance Company effective November 01, 1981 [This contract was novated to HIR Life of America Reassurance Company effective January 01, 1989]
79.	Reinsurance Agreement between CAC and HIR Life of America Reassurance Company effective June 01, 1989
80.	Automatic Coinsurance Agreement between CAC and Hudson Life Reassurance Corporation effective January 01, 1982 [This contract was novated to Cologne Life Reinsurance Company effective January 01, 1997]
81.	Automatic Coinsurance Agreement between CAC and Hudson Life Reassurance Corporation effective January 01, 1982 [This contract was novated to Cologne Life Reinsurance Company effective January 01, 1997]
82.	Automatic Reinsurance Agreement between CAC and Hudson Life Reassurance Corporation effective September 01, 1983 [This contract was novated to Cologne Life Reinsurance Company effective January 01, 1997]
83.	Automatic Monthly Renewable Term Reinsurance Agreement Number 2053 between CAC and Hartford International Life Reassurance Company effective November 01, 1984 [This contract was novated to Cologne Life Reinsurance Company effective January 01, 1997]
88.	Reinsurance Agreement #6167-1 between CAC and Life Reassurance Corporation of America effective August 21, 1995 [Life Reassurance Corporation of America changed its name to Swiss Re Life & Health America Inc.]
89.	Reinsurance Agreement #6186-1 between CAC and Life Reassurance Corporation of America effective October 06, 1995 [Life Reassurance Corporation of America changed its name to Swiss Re Life & Health America Inc.]
97.	Automatic Reinsurance Agreement between CAC and Life Reassurance Corporation of America effective May 01, 1998 [Life Reassurance Corporation of America changed its name to Swiss Re Life & Health America Inc.]
99.	Automatic Reinsurance Agreement between CAC and Life Reassurance Corporation of America effective July 20, 1998 [Life Reassurance Corporation of America changed its name to Swiss Re Life & Health America Inc.]
104.	Facultative Reinsurance Agreement between CAC and Life Reassurance Corporation of America effective November 15, 1967 [Life Reassurance Corporation of America changed its name to Swiss Re Life & Health America Inc.]
105.	Automatic Reinsurance Agreement between CAC and Manufacturers Life Insurance Company effective April 01, 1981 [Terminated for new business]
106.	Automatic Coinsurance Reinsurance Agreement between CAC and Manufacturers Life Insurance Company effective August 15, 1981 [Terminated for new business]
107.	Automatic Pool Reinsurance Agreement between CAC and Manufacturers Life Insurance Company effective April 01, 1982 [Terminated for new business]
107-A.	Automatic Pool Reinsurance Agreement between CAC and Manufacturers Life Insurance Company effective January 01, 1989
108.	Facultative Reinsurance Agreement between CAC and Manufacturers Life Insurance Company effective August 01, 1982 [Terminated for new business]
109.	Facultative Yrt Reinsurance Agreement between CAC and Manufacturers Life Insurance Company effective November 01, 1984

SB-3

Index No.	Name
110.	Reinsurance Agreement between CAC and Manufacturers Life Insurance Company effective February 01, 1985
111.	Facultative Excess Reinsurance Agreement between CAC and Manufacturers Life Insurance Company effective July 01, 1988
113.	Reinsurance Agreement between CAC and Manufacturers Life Insurance Company effective October 01, 1990
115.	Automatic Reinsurance Agreement between CAC and Manulife Reinsurance Corporation (USA) effective May 01, 1998
118.	Facultative Reinsurance Agreement between CAC and Munich American Reassurance Company effective February 05, 1975
119.	Facultative Reinsurance Agreement on a Coinsurance Basis between CAC and Munich American Reassurance Company effective January 01, 1981
120.	Automatic Reinsurance Agreement on a Coinsurance Basis between CAC and Munich American Reassurance Company effective March 01, 1981
121.	Automatic Reinsurance Agreement between CAC and Munich American Reassurance Company effective April 01, 1982 [Terminated for new business]
122.	Automatic Reinsurance Agreement between CAC and Munich American Reassurance Company effective January 01, 1987 [Terminated for new business]
123.	Automatic Reinsurance Agreement between CAC and Munich American Reassurance Company effective May 01, 1987 [Terminated for new business]
125.	Automatic Reinsurance Agreement between CAC and Munich American Reassurance Company effective July 05, 1991
126.	Automatic Reinsurance Agreement between CAC and Munich American Reassurance Company effective September 01, 1991
129(b).	Automatic Reinsurance Agreement between CAC and Munich American Reassurance Company effective August 21, 1995
135.	Non-Refund Account Reinsurance Agreement between CAC and North American Life and Casualty Company effective May 01, 1974 [Terminated for new business] [North American Life and Casualty Company changed its name to Allianz Life Insurance Company of North America]
136.	Facultative Reinsurance Agreement between CAC and North American Reassurance Company effective January 01, 1964 [North American Reassurance Company changed its name to Swiss Re Life & Health America Inc.]
137.	Facultative Reinsurance Agreement between CAC and North American Reassurance Company effective November 01, 1963 [North American Reassurance Company changed its name to Swiss Re Life & Health America Inc.]
138.	Facultative Reinsurance Agreement between CAC and Security Benefit Life Insurance Company effective January 01, 1964 [This treaty was novated to North American Reassurance Company effective July 1, 1991. North American Reassurance Company changed its name to Swiss Re Life & Health America Inc.]
139(a).	Automatic Coinsurance Agreement between CAC and North American Reassurance Company effective August 01, 1977 [North American Reassurance Company changed its name to Swiss Re Life & Health America Inc.]
139(b).	Facultative Coinsurance Agreement between CAC and North American Reassurance Company effective August 01, 1979 [North American Reassurance Company changed its name to Swiss Re Life & Health America Inc.]

SB-4

Index No.	Name
140.	Facultative Reinsurance Agreement between CAC and North American Reassurance Company effective September 01, 1979 [Terminated for new business] [North American Reassurance Company changed its name to Swiss Re Life & Health America Inc.]
143.	Facultative Obligatory Agreement between CAC and NRG America Life Reassurance Corporation of Wilmington, Delaware effective June 01, 1981
144.	Facultative Reinsurance Agreement between CAC and Occidental Life Insurance Company of California effective January 01, 1972 [This contract was novated to AUSA Life Insurance Company effective January 01, 2001. AUSA Life Insurance Company later changed its name to Transamerica Financial Life Insurance Company]
145.	Life, Disability and Accidental Death Automatic Reinsurance Agreement between CAC and Occidental Life Insurance Company of California effective July 01, 1977 [This contract was novated to AUSA Life Insurance Company effective January 01, 2001. AUSA Life Insurance Company later changed its name to Transamerica Financial Life Insurance Company]
146.	Facultative Reinsurance Agreement between CAC and Optimum Re Insurance Company effective January 01, 1979
147.	Universal Life Automatic Reinsurance Agreement between CAC and Optimum Re Insurance Company effective January 01, 1986
148.	Universal Life Automatic Coinsurance Agreement between CAC and Optimum Re Insurance Company effective January 01, 1986 [Terminated for new business]
153.	Automatic Reinsurance Agreement No. 2082 between CAC and Phoenix Home Life Mutual Insurance Company effective August 21, 1995 [This contract was novated to ERC Life Reinsurance Corporation effective January 01, 2000. Scottish Re Group Limited acquired 95% of the outstanding capital stock of ERC Life Reinsurance Corporation on December 22, 2003.]
154.	Automatic Coinsurance Agreement No. 2183 between CAC and Phoenix Home Life Mutual Insurance Company effective October 06, 1995 [Terminated for new business] [This contract was novated to ERC Life Reinsurance Corporation effective January 01, 2000. Scottish Re Group Limited acquired 95% of the outstanding capital stock of ERC Life Reinsurance Corporation on December 22, 2003.]
161.	Reinsurance Agreement between CAC and Phoenix Home Life Mutual Insurance Company effective June 01, 1970 [This contract was novated to ERC Life Reinsurance Corporation effective January 01, 2000. Scottish Re Group Limited acquired 95% of the outstanding capital stock of ERC Life Reinsurance Corporation on December 22, 2003.]
162.	Reinsurance Agreement between CAC and Phoenix Home Life Mutual Insurance Company effective August 01, 1967
163.	Automatic Reinsurance Agreement No. 2825 between CAC and Phoenix Home Life Mutual Insurance Company effective July 20, 1998 [This contract was novated to ERC Life Reinsurance Corporation effective January 01, 2000. Scottish Re Group Limited acquired 95% of the outstanding capital stock of ERC Life Reinsurance Corporation on December 22, 2003.]
164.	Servicemen’s Group Life Insurance Conversion Pool Agreement between CAC and Prudential Life Insurance Company of America effective 09/29/1965
165.	Automatic Reinsurance Agreement between CAC and RGA Reinsurance Company effective October 06, 1995
168.	Automatic Reinsurance Agreement between CAC and RGA Reinsurance Company effective May 01, 1998
169.	Automatic Reinsurance Agreement between CAC and RGA Reinsurance Company effective July 20, 1998

SB-5

Index No.	Name
177.	Automatic and Facultative Yearly Renewable Term Reinsurance Agreement between CAC and Security Life of Denver Insurance Company effective October 01, 1990
178.	Yearly Renewable Term Reinsurance Agreement between CAC and Security Life of Denver Insurance Company effective July 05, 1991
183.	Automatic and Facultative Reinsurance Agreement Yearly Renewable Term between CAC and Security Life of Denver Insurance Company effective August 21, 1995
184.	Automatic and Facultative Coinsurance Agreement between CAC and Security Life of Denver Insurance Company effective October 06, 1995
190.	Automatic Pool Reinsurance Agreement between CAC and Storebrand-Norden International Reinsurance Company effective April 01, 1982 [Terminated for new business]
191.	Facultative Reinsurance Agreement between CAC and Sun Life Assurance Company effective June 15, 1982
192.	Automatic Reinsurance Agreement between CAC and Sun Life Assurance Company effective July 01, 1982
193.	Automatic Pool Reinsurance Agreement between CAC and Sun Life Assurance Company effective January 01, 1984
194.	Automatic YRT Reinsurance Agreement between CAC and Sun Life Assurance Company effective December 01, 1986 [Terminated for new business]
196.	Automatic Pool Reinsurance Agreement between CAC and Sun Life Assurance Company effective January 01, 1989
197.	Automatic Pool Reinsurance Agreement between CAC and Sun Life Assurance Company effective January 01, 1989
198.	Automatic Reinsurance Agreement between CAC and Swiss Re Life & Health effective May 01, 1998
200.	Reinsurance Agreement between CAC and The Lincoln National Life Insurance Company effective March 01, 1956 [This business was 100% reinsured to Swiss Re Life & Health America Inc.]
201.	Coinsurance Agreement between CAC and The Lincoln National Life Insurance Company effective April 01, 1977 [This business was 100% reinsured to Swiss Re Life & Health America Inc.]
202.	Reinsurance Agreement between CAC and The Lincoln National Life Insurance Company effective March 01, 1980 [This business was 100% reinsured to Swiss Re Life & Health America Inc.]
203.	Reinsurance Agreement between CAC and The Lincoln National Life Insurance Company effective April 01, 1982 [This business was 100% reinsured to Swiss Re Life & Health America Inc.]
204.	Automatic YRT Pool Agreement between CAC and The Lincoln National Life Insurance Company effective April 01, 1982 [This business was 100% reinsured to Swiss Re Life & Health America Inc.]
205.	Reinsurance Agreement between CAC and The Lincoln National Life Insurance Company effective April 01, 1982 [This business was 100% reinsured to Swiss Re Life & Health America Inc.]
209.	Coinsurance Agreement between CAC and The Lincoln National Life Insurance Company effective October 06, 1995 [This business was 100% reinsured to Swiss Re Life & Health America Inc.]

SB-6

Index No.	Name
220.	Automatic Reinsurance Agreement between CAC and The Lincoln National Life Insurance Company effective July 20, 1998 [This business was 100% reinsured to Swiss Re Life & Health America Inc.]
225.	Reinsurance Agreement between CAC and The Mercantile and General Life Reassurance Company of America effective April 25, 1993 [This business was 100% reinsured to Swiss Re Life & Health America Inc.]
229.	Automatic YRT Pool Agreement between CAC and Transamerica Occidental Life Insurance Company effective April 01, 1982 [This contract was novated to AUSA Life Insurance Company effective January 01, 2001. AUSA Life Insurance Company later changed its name to Transamerica Financial Life Insurance Company]
230.	Life, Disability and Accidental Death Facultative Reinsurance Agreement between CAC and Transamerica Occidental Life Insurance Company effective January 01, 1972 [Terminated for new business] [This contract was novated to AUSA Life Insurance Company effective January 01, 2001. AUSA Life Insurance Company later changed its name to Transamerica Financial Life Insurance Company]
231.	Automatic Reinsurance Agreement between CAC and Transamerica Occidental Life Insurance Company effective April 01, 1988 [This contract was novated to AUSA Life Insurance Company effective January 01, 2001. AUSA Life Insurance Company later changed its name to Transamerica Financial Life Insurance Company]
232.	Automatic Reinsurance Agreement between CAC and Transamerica Occidental Life Insurance Company effective October 01, 1990 [This contract was novated to AUSA Life Insurance Company effective January 01, 2001. AUSA Life Insurance Company later changed its name to Transamerica Financial Life Insurance Company]
234.	Automatic Reinsurance Agreement between CAC and Transamerica Occidental Life Insurance Company effective October 01, 1995 [This contract was novated to AUSA Life Insurance Company effective January 01, 2001. AUSA Life Insurance Company later changed its name to Transamerica Financial Life Insurance Company]
237.	Automatic Reinsurance Agreement between CAC and United States Life Insurance effective September 01, 1952
238.	Reinsurance Agreement IL008WYN01 between CAC and Urbaine Life Reinsurance Company effective April 01, 1983 [This business was 100% reinsured to National Security Life and Annuity Company effective January 04, 2002]
239.	Reinsurance Agreement IL008WYN02 between CAC and Urbaine Life Reinsurance Company effective July 01, 1985 [This business was 100% reinsured to National Security Life and Annuity Company effective January 04, 2002]
240.1.	Foreign National Business Automatic Yearly Renewable Term Life Reinsurance Agreement between CAC and Aggrippina Rueckversicherungs Aktiengesellschaft effective August 01, 1990 [This contract was novated to Converium Reinsurance Company (Germany) Ltd.]
244.	Automatic Reinsurance Agreement between CAC and American Phoenix Life and Reassurance Company effective February 13, 1999 [Terminated for new business] [This contract was novated to ERC Life Reinsurance Corporation effective January 01, 2000. Scottish Re Group Limited acquired 95% of the outstanding capital stock of ERC Life Reinsurance Corporation on December 22, 2003.]
245.	Automatic Reinsurance Agreement between CAC and American United Life Insurance Company effective April 01, 1999 [Terminated for new business] [This business was 100% reinsured to Employers Reassurance Corporation]
246.	Automatic Reinsurance Agreement between CAC and American United Life Insurance Company effective February 13, 1999 [Terminated for new business] This business was 100% reinsured to Employers Reassurance Corporation]
248.	Automatic Reinsurance Agreement between CAC and American United Life Insurance Company effective March 01, 2001 This business was 100% reinsured to Employers Reassurance Corporation]
252.	Life Reinsurance Agreement between CAC and Annuity & Life Reassurance America, Inc. effective November 22, 2000

SB-7

Index No.	Name
255.	Life Reinsurance Agreement between CAC and Annuity & Life Reassurance (Bermuda), Ltd. effective March 01, 2001 [this contract was novated to XL Life Ltd. Effective December 31, 2002]
259.	Automatic Reinsurance Agreement between CAC and Business Men’s Assurance Company of America effective November 22, 2000 [Generali USA Life Reassurance Company now administers this business]
262.	Automatic Reinsurance Agreement between CAC and Business Men’s Assurance Company of America effective March 01, 2001 [Generali USA Life Reassurance Company now administers this business]
265.	Automatic Reinsurance Agreement between CAC and Employers Reassurance Corporation effective April 01, 1999 [Terminated for new business]
266.	Automatic Reinsurance Agreement between CAC and Employers Reassurance Corporation effective October 07, 1999 [Terminated for new business]
271.	Automatic Reinsurance Agreement between CAC and Employers Reassurance Corporation effective March 01, 2001 [Terminated for new business]
276.	Automatic Reinsurance Agreement between CAC and Gerling Global Life Reinsurance Company effective October 07, 1999 [Terminated for new business] [Gerling Global Life Reinsurance Company changed its name to Revios Reinsurance U.S. Inc. effective October 13, 2003]
285.	Automatic Reinsurance Agreement between CAC and Life Reassurance Corporation of America effective February 13, 1999 [Life Reassurance Corporation of America changed its name to Swiss Re Life & Health America Inc.]
287.	Automatic Reinsurance Agreement between CAC and Life Reassurance Corporation of America effective April 01, 1999 [Life Reassurance Corporation of America changed its name to Swiss Re Life & Health America Inc.]
288.	Automatic Reinsurance Agreement between CAC and The Lincoln National Life Insurance Company effective April 01, 1999 [The business was 100% reinsured to Swiss Re Life & Health America Inc.]
289.	Automatic Reinsurance Agreement between CAC and The Lincoln National Life Insurance Company effective February 13, 1999 [Terminated for new business] [The business was 100% reinsured to Swiss Re Life & Health America Inc.]
293.	Automatic Reinsurance Agreement between CAC and Manulife Reinsurance Corporation (USA) effective February 13, 1999 [Terminated for new business]
294.	Automatic Reinsurance Agreement between CAC and Munich American Reassurance Company effective October 07, 1999
295.	Automatic Reinsurance Agreement between CAC and Munich American Reassurance Company effective October 07, 1999
298.	Automatic Reinsurance Agreement between CAC and RGA Reinsurance Company effective April 01, 1999
299.	Automatic Reinsurance Agreement between CAC and RGA Reinsurance Company effective 02/13/1999 (Amendment No. 1) [Terminated for new business]
302.	Automatic Reinsurance Agreement between CAC and RGA Reinsurance Company effective November 22, 2000
310.	Automatic Reinsurance Agreement between CAC and Scor Life U.S. Re Insurance Company effective November 22, 2000 [Terminated for new business effective January 1, 2004]
315.	Automatic Reinsurance Agreement between CAC and Security Life Of Denver Insurance Company effective October 01, 1998 [Terminated for new business]

SB-8

Index No.	Name
318.	Automatic Reinsurance Agreement between CAC and Swiss Re Life and Health America effective March 01, 2001
323.4.	Joint Marketing and Reinsurance Agreement between CAC and VFL and SCOR LIFE Reinsurance Company effective June 11, 2001 [Terminated for new business]
323.5.	Direct Marketing and Reinsurance Agreement between CAC and VFL and The Lincoln National Life Insurance Company effective February 24, 2000 [The business was 100% reinsured to Swiss Re Life & Health America Inc.]
328.	Automatic Reinsurance Agreement between CAC and Canada Life Assurance Company effective March 01, 2001
333.	Automatic Reinsurance Agreement between CAC and Gerling Global Life Reinsurance effective March 01, 2001 [Gerling Global Life Reinsurance Company changed its name to Revios Reinsurance U.S. Inc. effective October 13, 2003]
344.	Facultative Reinsurance Agreement between CAC and Allianz Life Insurance Company of North America effective January 01, 2001

CAC Unsigned Treaties:

None

SB-9

SCHEDULE C
Calculation of Profits

Calculation of Participating Profits

The following calculation shall be performed quarterly for the participating CAC policies with all amounts relating solely to the CAC participating policies being reinsured under this Agreement. Where line numbers are indicated, they refer to the line number of the Summary of Operations (page 4) of the 2002 National Association of Insurance Commissioners Life and Accident and Health Statement.

Calculation Details:
Add the following:
Premiums and Annuity Considerations (line 1)
Considerations for Supplementary Contracts (line 2)
Net Investment Income — This is to be the investment income on assets backing the statutory
reserves, but excluding investment income on surplus
Amortization of Interest maintenance reserve (line 4)
Commissions and Expense Allowances on reinsurance Ceded (line 6)
Reserve adjustments on reinsurance ceded (line 7)
Miscellaneous income (lines 8.1, 8.2 and 8.3)

Tax Rate x (Statutory Income — Taxable Income) [both calculated prior to policyholder dividends] Net realized capital gains (or subtract net losses) net of taxes, and net of amounts transferred to IMR (line 34)

Then subtract the following:

Death Benefits (line 10)
Matured Endowments (line 11)
Annuity Benefits (line 12)
Surrender Benefits and withdrawals for life contracts (line 15)
Interest and adjustments (line 17)
Payments on supplementary contracts (line 18)
Increase in aggregate reserves (line 19)
Commissions (line 21)
General Insurance Expense — $35 per policy per annum
Insurance taxes, licenses and fees — 2% of gross premiums
Increase in loading on deferred and uncollected premium (line 25)

The result is pre-tax statutory profits, before dividends, for the purpose of carrying out the calculation described in Article X, paragraph 2. Should the result be negative, the absolute value of the negative will be established as a loss carryforward, which will accrue interest at the Contract Interest Rate (as defined in the Purchase Agreement). Future profits will be charged against such loss carryforward and no profits will be remitted to the Company until such loss carryforward is eliminated.

SC-1

SCHEDULE D
Investment Principles

A. Purpose

1.	The purpose of these Investment Guidelines is to establish, authorize, and document the objectives, policies, procedures, and constraints for investing the assets supporting the par business (the liabilities) reinsured by Continental Assurance Company (CAC) to Swiss Re Life and Health America Inc. (the Company).
2.	On an overall basis, investment decisions will have as an objective full compliance with relevant provisions of the investment laws of the Company’s domiciliary state, and any other state to which it may be subject, and the Internal Revenue Code and Regulations.
3.	There is no substitute for acting prudently, which requires that investment personnel act always with an appropriate amount of care and in the best interests of both CAC and the Company in the management of the assets supporting the reinsured liabilities.

B. General Performance Objectives and Philosophy

1.	The portfolio will be managed based on the characteristics of the liabilities it is supporting while remaining within applicable legal, regulatory, and business constraints. The duration, convexity, and cash flows of the underlying liabilities are several of the many economic and business inputs which will be taken into consideration when making investment decisions.
2.	Portfolio liquidity will be maintained such that reasonably expected cash flow needs can be met.

C. Asset Classes Eligible for Investment

1. Investments of the Company shall be reasonably diversified to minimize the impact of a potential default. From time to time, and subject to this policy statement, the Company may invest in any or all of the following asset categories:

a.	bonds, debentures, mortgage-backed and asset-backed securities, notes or other debt instruments of governments, government agencies, or corporations;
b.	cash, money market securities issued by governments or corporations, money market funds or short-term investment pools as permitted statutorily
c.	private placements of agencies or corporations;

SD-1

d. derivative instruments including forwards, futures contracts, put options, call options, caps, collars, swaps, floors, swaptions, commitments to purchase mortgage-backed securities, and asset-backed securities;

(i) derivative instruments will only be used by the Company to hedge assets or liabilities or in allowed replication transactions;

e. with respect to any other asset class that is not specifically delineated herein, the portfolio manager shall ensure that any such investment complies with legal requirements and is appropriate given the nature of the underlying liabilities.

D. PORTFOLIO CONSTRAINTS (PERCENTAGES STATED REFER TO STATEMENT VALUE AS A PERCENT OF TOTAL ASSETS AND ARE CALCULATED AS ACQUISITION LIMITS)

1. Aggregate portfolio limits:

a.	minimum average credit quality of A;
b.	maximum of 15% per obligor in obligations (1) issued, assumed or guaranteed by any agency, political subdivision or instrumentality of any state which obligations are not general obligations thereof; and (2) issued, assumed or guaranteed by the International Bank for Reconstruction and Development, the Inter-American Development Bank, the Asian Development Bank, the International Finance Corporation and any other agency or entity engaged in similar activities and in which the government of the United States participates.
c.	subject to (b) above, maximum of 5% in any individual issuer, excluding(i) high yield securities (as such term is used in the Insurance Code of the State of Connecticut) and (ii) securities issued, assumed, guaranteed or insured by the United States, a state of the United States, a government sponsored enterprise of the United States, a government money market mutual fund, a class one money market mutual fund, a class one bond mutual fund and issues which are insured by a financial guaranty insurer with the highest generic rating issued by a nationally recognized statistical rating organization;
d.	maximum variance of portfolio effective duration of +/- 15% to the duration of the underlying liabilities;

2. Fixed income securities:

a. maximum of 10% held in asset-backed securities not collateralized with mortgage loans;

SD-2

a. maximum of 40% held in mortgage-backed ;

(i)	mortgage-backeds will be secured with first mortgages or conventional mortgages with a maximum 70% loan-to-value ratio, unless guaranteed by a government agency or a government sponsored enterprise;
(ii)	maximum of 5% held in any individual pool unless guaranteed by a government agency or a government sponsored enterprise;

c. industry concentrations (excluding securities issued, assumed, guaranteed or insured by the United States or a government sponsored enterprise of the United States);

(i) maximum 15% of holdings allowed in an industry group;

d. geographic concentrations (foreign)

(i) Maximum in foreign obligations and investments (1) up to 10% in any exempted country, and (2) up to 2% in any other foreign country and up to 15% in the aggregate in all such other foreign countries. The aggregate foreign obligations and investments shall not exceed 30%. All such foreign obligations and investments made within the limitation of this subsection shall also be subject to the percentage limitations prescribed elsewhere in these guidelines as applicable to such investment class.

e.	maximum of 10% held in private placements (excluding securities that qualify under Rule 144A under the Securities Act of 1933);
f.	maximum of 20% held in Rule 144A’s (securities that qualify under Rule 144A under the Securities Act of 1933);
g.	maximum of 1% in high yield obligations of any one institution and up to 10% in the aggregate in high yield obligations, all required to be registered under the Securities Act of 1933
h.	minimum credit quality of B on non-investment grade bonds at time of purchase.

3. Short-term securities:

a.	maximum of 100% held in securities maturing in 397 days or fewer, or in money market funds;
b.	commercial paper held must be rated A2/P2 or better.

SD-3

4. Derivative instruments:

a. derivatives used for hedging shall be limited as follows;

(i)	the aggregate statement value of options, swaptions, caps, floors and warrants purchased shall not exceed 7.5% of total assets;
(ii)	the aggregate statement value of options, swaptions, caps and floors written shall not exceed 3.0% of total assets;
(iii)	the aggregate potential exposure of collars, swaps, forwards and futures entered into and options, swaptions, caps and floors written shall not exceed 6.0% of total assets.

b. derivatives used for replication transactions shall be limited as follows;

(i)	the Company otherwise is authorized to invest its funds in the asset being replicated;
(ii)	the asset being replicated will be subject to all applicable provisions and limitations (including quantitative limits) as if the transaction constituted a direct investment in the asset being replicated;
(iii)	as a result of giving effect to the replication transaction, the aggregate statement value of all assets being replicated shall be limited to 10% of total assets.

Utilization of derivative instruments to require prior submission and approval of derivative use plan(s) in accordance with laws and regulations applicable to Swiss Re.

SD-4

EX-31.1

EXHIBIT 31.1

SARBANES-OXLEY ACT SECTION 302

CERTIFICATION OF CHIEF EXECUTIVE OFFICER

I, Thomas F. Motamed, certify that:

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

a)	Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b)	Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c)	Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d)	Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officers and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent function):

a)	All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
b)	Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Dated: August 3, 2009	By	/s/ Thomas F. Motamed
		Thomas F. Motamed
		Chief Executive Officer

EX-31.2

EXHIBIT 31.2

SARBANES-OXLEY ACT SECTION 302

CERTIFICATION OF CHIEF FINANCIAL OFFICER

I, D. Craig Mense, certify that:

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

a)	Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b)	Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c)	Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d)	Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officers and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent function):

a)	All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
b)	Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Dated: August 3, 2009	By	/s/ D. Craig Mense
		D. Craig Mense
		Chief Financial Officer

EX-32.1

EXHIBIT 32.1

Written Statement of the Chief Executive Officer
of CNA Financial Corporation
Pursuant to 18 U.S.C. § 1350
(As adopted by Section 906 of the Sarbanes-Oxley Act of 2002)

The undersigned, the Chief Executive Officer of CNA Financial Corporation (the Company), hereby certifies that, to his knowledge:

• the Company’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2009 filed on the date hereof with the Securities and Exchange Commission (the Report) fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

• the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Dated: August 3, 2009	/s/ Thomas F. Motamed
	Thomas F. Motamed
	Chief Executive Officer

The foregoing certification is being furnished solely pursuant to 18 U.S.C. § 1350 and is not being filed as part of the Report or as a separate disclosure document.

EX-32.2

EXHIBIT 32.2

Written Statement of the Chief Financial Officer
of CNA Financial Corporation
Pursuant to 18 U.S.C. § 1350
(As adopted by Section 906 of the Sarbanes-Oxley Act of 2002)

The undersigned, the Chief Financial Officer of CNA Financial Corporation (the Company), hereby certifies that, to his knowledge:

• the Company’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2009 filed on the date hereof with the Securities and Exchange Commission (the Report) fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

• the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Dated: August 3, 2009	/s/ D. Craig Mense
	D. Craig Mense
	Chief Financial Officer

The foregoing certification is being furnished solely pursuant to 18 U.S.C. § 1350 and is not being filed as part of the Report or as a separate disclosure document.