Quarterly Report for CNA Financial Corporation

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

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 periods that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

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

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

CNA FINANCIAL CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)

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

CNA FINANCIAL CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)

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

CNA FINANCIAL CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)

The Condensed Consolidated Financial Statements (Unaudited) include CNA Financial Corporation (CNAF) and its controlled subsidiaries, which include property-casualty insurance companies (principally Continental Casualty Company (CCC) and The Continental Insurance Company (CIC)) and life insurance companies (principally Continental Assurance Company (CAC), Valley Forge Life Insurance Company (VFL) and CNA Group Life Assurance Company (CNAGLAC)), collectively CNA or the Company. As of June 30, 2001, Loews Corporation (Loews) owned approximately 87% of the outstanding common stock of CNAF.

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 footnotes, 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 Annual Report to Shareholders for the year ended December 31, 2000 (incorporated by reference in Form 10-K filed with the Securities and Exchange Commission for the year ended December 31, 2000).

The interim financial data as of June 30, 2001 and 2000 and for the six months and three months ended June 30, 2001 and 2000 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 operating results 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.

Certain amounts applicable to prior periods have been reclassified to conform to presentation followed in 2001.

CNA FINANCIAL CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS, Continued
(UNAUDITED)

Net investment income and realized investment gains, net of participating policyholders’ and minority interests is composed of the following.

Net Investment Income and Realized Investment Gains, Net of Participating Policyholders’ and Minority Interests

On April 1, 2001 the Company adopted Emerging Issues Task Force (EITF) Issue No. 99-20, Recognition of Interest Income and Impairment on Purchased and Retained Beneficial Interests in Securitized Financial Assets (EITF 99-20). EITF 99-20 establishes how a transferor that retains an interest in securitized financial assets or an enterprise that purchases a beneficial interest in securitized financial assets should account for interest income and impairment. This issue did not have a significant impact on the results of operations or equity of the Company.

In the first quarter of 2001, the Company adopted the Financial Accounting Standards Board (FASB) Statement of Financial Accounting Standards No. 133, Accounting for Derivative Instruments and Hedging Activities and the Statement of Financial Accounting Standards No. 138, Accounting for Certain Derivative Instruments and Certain Hedging Activities (collectively referred to as SFAS 133). The Company’s initial adoption of SFAS 133 did not have a significant impact on the equity of the Company; however, adoption of SFAS 133 resulted in an after-tax decrease to first quarter 2001 earnings of $61 million. Of this transition amount, approximately $58 million related to investments and investment-related derivatives. Because the Company already carried its investment and investment-related derivatives at fair value through other comprehensive income, there was an equal and offsetting favorable adjustment of $58 million to stockholders’ equity (accumulated other comprehensive income). The remainder of the transition adjustment is attributable to collateralized debt obligation products that are derivatives under SFAS 133. See Note D for a complete discussion of the Company’s adoption of these accounting pronouncements.

CNA FINANCIAL CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS, Continued
(UNAUDITED)

Codification, as modified, resulted in an increase in statutory capital and surplus as of January 1, 2001 of $24 million, which primarily relates to deferred tax assets, partially offset by insurance-related assessments and pension-related liabilities.

Additionally, CNA’s property-casualty companies implemented a change, effective January 1, 2001, in the timing of recording written premiums for policies with future effective dates. This change was made in conjunction with changes required by Codification related to the recording of written premiums. The effect of this change was to reduce net written premiums by $118 million for the six months ended June 30, 2001. This change has no impact on net earned premiums or net income.

In June 2001, the FASB issued Statement of Financial Accounting Standards No. 141, Business Combinations (SFAS 141). SFAS 141 requires companies to use the purchase method of accounting for business combinations initiated after June 30, 2001 and prohibits the use of the pooling-of-interests method of accounting. CNA will adopt this standard for any future business combinations.

In June 2001, the FASB issued Statement of Financial Accounting Standards No. 142 Goodwill and Other Intangible Assets (SFAS 142). SFAS 142 changes the accounting for goodwill and indefinite-lived intangible assets from an amortization method to an impairment-only approach. Amortization of goodwill and indefinite-lived intangible assets, including goodwill recorded in past business combinations, will cease upon adoption of SFAS 142, which for CNA will be January 1, 2002. The Company is in the process of quantifying the impact this new standard will have on its operations and intangible assets.

(Loss) earnings per share applicable to common stock are based on weighted average outstanding shares, retroactively adjusted for all stock splits. The computation of (loss) earnings per share was as follows.

CNA FINANCIAL CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS, Continued
(UNAUDITED)

As discussed in Note B, effective in 2001, the Company accounts for derivatives and hedging in accordance with SFAS 133. A derivative is typically defined as an instrument whose value is “derived” from an underlying instrument, index or rate, has a notional amount, and can be net settled. Derivatives include, but are not limited to, the following types of investments: interest rate swaps, interest rate caps and floors, put and call options, warrants, swaptions, futures, forwards and commitments to purchase securities and combinations of the foregoing. Derivatives embedded within non-derivative instruments (such as call options embedded in convertible bonds) must be split from the host instrument and accounted for under SFAS 133 when the embedded derivative is not clearly and closely related to the host instrument. In addition, non-investment instruments, including certain types of insurance contracts that have historically not been considered derivatives can be derivatives or contain embedded derivatives under SFAS 133.

SFAS 133 requires that all derivatives be recorded in the balance sheet at fair value. If certain conditions are met, a derivative may be specifically designated as a hedge of exposures to changes in fair value, cash flows or foreign currency exchange rates. The accounting for changes in the fair value of a derivative depends on the intended use of the derivative and the nature of any hedge designation thereon. The Company’s accounting for changes in the fair value of general account derivatives is as follows.

Changes in the fair value of derivatives held in the separate accounts are reflected in separate account earnings. Because separate account investments are generally carried at fair value with changes therein reflected in separate account earnings, hedge accounting is generally not applicable to separate account derivatives.

CNA uses investment derivatives in the normal course of business, primarily 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. The Company’s principal objective under such market risk strategies is to achieve the desired reduction in economic risk, even if the position will not receive hedge accounting treatment. The Company may also use derivatives for purposes of income enhancement, primarily via the sale of covered call options.

CNA FINANCIAL CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS, Continued
(UNAUDITED)

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 which personnel are authorized to initiate derivative transactions. The policy prohibits the use of derivatives with a maturity greater than eighteen months, unless the derivative is matched with assets or liabilities having a longer maturity. 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. Also, the policy prohibits the use of borrowed funds, including funds obtained through repurchase transactions, to engage in derivative transactions.

Credit exposure associated with non-performance by the counterparties to derivative instruments is generally limited to the gross fair value of the asset related to the instruments recognized in the condensed consolidated balance sheets. The Company mitigates the risk of non-performance by using multiple counterparties and by monitoring their creditworthiness. The Company generally requires collateral from its derivative investment counterparties depending on the amount of the exposure and the credit rating of the counterparty.

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 active portfolio management, which includes rebalancing its existing portfolios or 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 in interest rates or unrealized gains, 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, variable rate debt and life insurance liabilities. Historically, the Company has used these types of instruments as hedges against specific assets or liabilities on an infrequent basis.

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 which derive their value from such securities. CNA 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. CNA uses derivatives in one of its separate accounts to mitigate equity price risk associated with its indexed group annuity contracts by purchasing Standard & Poor’s 500® (S&P 500®) index futures contracts in a notional amount equal to the contractholder liability, which is calculated using the S&P 500® rate of return.

Foreign exchange rate risk arises from the possibility that changes in foreign currency exchange rates will impact the value of financial instruments denominated in a foreign currency. The Company’s foreign transactions are primarily denominated in Canadian Dollars, British Pounds and Euros. The Company manages this risk via asset/liability matching and through the use of foreign currency futures and/or forwards. Historically, the Company has infrequently designated these types of instruments as hedges against assets or liabilities.

CNA FINANCIAL CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS, Continued
(UNAUDITED)

The contractual or notional amounts for derivatives are used to calculate the exchange of contractual payments under the agreements and are not representative of the potential for gain or loss on these instruments. Interest rates, equity prices and foreign currency exchange rates affect the fair value of derivatives. The fair values generally represent the estimated amounts that CNA would expect to receive or pay upon termination of the contracts at the reporting date. Dealer quotes are available for substantially all of CNA’s derivatives. For derivative instruments not actively traded, fair values are estimated using values obtained from independent pricing services, costs to settle or quoted market prices of comparable instruments.

A summary of the aggregate contractual or notional amounts and estimated fair values related to derivative financial instruments follows.

CNA FINANCIAL CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS, Continued
(UNAUDITED)

Immediately following adoption of SFAS 133 on January 1, 2001, the Company’s derivative holdings were as follows.

Collateralized debt obligations represent a credit enhancement product that is typically structured in the form of a swap. The Company has determined that this product is a derivative under SFAS 133. The Company is no longer writing this product. Options embedded in convertible debt securities are classified as fixed maturity securities in the Condensed Consolidated Balance Sheets, consistent with the host instruments.

As of the adoption date, the Company’s collar position related to its investment in Global Crossing Ltd. (Global Crossing) common stock was the only derivative position that has been designated as a hedge for accounting purposes. The nature of the transition adjustment related to this hedge was such that the $962 million unrealized gain that existed on the Global Crossing common stock when the hedge was established has been preserved in accumulated other comprehensive income. During the second quarter, the Company’s collar position related to Global Crossing common stock was terminated and the related stock was sold. See Note H for further discussion of this transaction.

The effectiveness of this hedge was measured based on changes in the intrinsic value of the collar in relation to changes in the fair value of the Global Crossing common stock. Changes in the time value component of the collar’s fair value were excluded from the hedge designation and measurement of effectiveness. Up to the date of the sale, the Global Crossing hedge was 100% effective. The change in the time value component of the collar was a pretax gain of $12 million and $33 million for the three months and six months ended June 30, 2001, and has

CNA FINANCIAL CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS, Continued
(UNAUDITED)

been recorded as a realized investment gain in the Condensed Consolidated Statements of Operations.

During the second quarter 2001, the Company entered into two additional fair value hedges that under SFAS 133 meet the criteria for hedge accounting treatment. First, as a hedge of a portion of its 10-year Treasury Note position, the Company acquired $515 million notional value of 10-year Treasury Futures. The ineffective portion of this hedge resulted in a realized investment gain of $0.8 million. Second, as a hedge against currency fluctuations related to the Canary Wharf plc common stock position, the Company entered into a £125 million British Pound currency forward contract. The ineffective portion of this hedge resulted in a realized investment loss of $0.3 million.

Four insurance subsidiaries of CNAF are defendants in a lawsuit arising out of policies allegedly issued to Liggett Group, Inc. (Liggett). The lawsuit was filed by Liggett and its current parent, Brooke Group Holding Inc., in the Delaware Superior Court, New Castle County, on January 26, 2000. The lawsuit, which involves numerous insurers, concerns coverage issues relating to a number of tobacco-related claims asserted against Liggett over the past 20 years. However, Liggett only began submitting claims for coverage under the policies in January 2000. CNA believes its coverage defenses are strong. Based on facts and circumstances currently known, management believes that the ultimate outcome of the pending litigation should not materially affect the financial condition, results of operations or cash flows of CNA.

In 1997, CNA Reinsurance Company Limited (CNA Re Ltd.) entered into an arrangement with IOA Global, Ltd. (IOA), an independent managing general agent based in Philadelphia, Pennsylvania, to develop and manage a book of accident and health coverages. Pursuant to this arrangement, IGI Underwriting Agencies, Ltd. (IGI), a personal accident reinsurance managing general underwriter, was appointed to underwrite and market the book under the supervision of IOA. Between April 1, 1997 and December 1, 1999, IGI underwrote a number of reinsurance arrangements with respect to personal accident insurance worldwide (the IGI Program). Under various arrangements, CNA Re Ltd. both assumed risks as a reinsurer and also ceded a substantial portion of those risks to other companies, including other CNA insurance subsidiaries and ultimately to a group of reinsurers participating in a reinsurance pool known as the Associated Accident and Health Reinsurance Underwriters (AAHRU) Facility. CNA’s Group Operations business unit participated as a pool member in the AAHRU Facility in varying percentages between 1997 and 1999.

CNA has undertaken a review of the IGI Program and, among other things, has determined that a small portion of the premiums assumed under the IGI Program related to United States workers’ compensation “carve-out” business. CNA is aware that a number of reinsurers with workers’ compensation carve-out insurance exposure have disavowed their obligations under various legal theories. If one or more such companies are successful in avoiding or reducing their liabilities, then it is likely that CNA’s liability will also be reduced. Moreover, based on

CNA FINANCIAL CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS, Continued
(UNAUDITED)

information known at this time, CNA reasonably believes it has strong grounds for avoiding a substantial portion of its United States workers’ compensation carve-out exposure through legal action.

As noted, CNA arranged substantial reinsurance protection to manage its exposures under the IGI Program. CNA believes it has valid and enforceable reinsurance contracts with the AAHRU Facility and other reinsurers with respect to the IGI Program, including the United States workers’ compensation carve-out business. It is likely that certain reinsurers will dispute their liabilities to CNA; however, the Company is unable to predict the extent of such potential disputes at this time. Legal actions could result, and the resolution of any such actions could take years.

Based on the Company’s review of the entire IGI Program, CNA has established reserves for its estimated exposure under the program and an estimate for recoverables from retrocessionaires.

The Company is pursuing a number of loss mitigation strategies. Although the results of these various actions to date support the recorded reserves, the estimate of ultimate losses is subject to considerable uncertainty. As a result of these uncertainties, the results of operations in future years may be adversely affected by potentially significant reserve additions. Management does not believe that any such future reserve additions will be material to the equity of the Company.

CNAF and its subsidiaries are also parties to other litigation arising in the ordinary course of business. The outcome of such other litigation will not, in the opinion of management, materially affect the financial position or results of operations of CNA.

CNA’s property-casualty insurance companies have potential exposures related to environmental pollution and other mass tort and asbestos claims. In the second quarter of 2001, CNA recorded $1.2 billion pretax in reserve strengthening relating to asbestos, environmental pollution and other mass tort exposures. This reserve strengthening for asbestos, environmental pollution and other mass tort claims was based on a management review of developments with respect to these exposures conducted in the second quarter, as well as a review of the results of CNA’s annual analysis of these claims.

Environmental pollution cleanup is the subject of both federal and state regulation. By some estimates, there are thousands of potential waste sites subject to cleanup. The insurance industry is involved in extensive litigation regarding coverage issues. Judicial interpretations in many cases have expanded the scope of coverage and liability beyond the original intent of the policies. The Comprehensive Environmental Response Compensation and Liability Act of 1980 (Superfund) and comparable state statutes (mini-Superfunds) govern the cleanup and restoration of toxic waste sites and formalize the concept of legal liability for cleanup and restoration by “Potentially Responsible Parties” (PRPs). Superfund and the mini-Superfunds establish mechanisms to pay for cleanup of waste sites if PRPs fail to do so, and to assign liability to PRPs. The extent of liability to be allocated to a PRP is dependent upon a variety of factors. Further, the number of waste sites subject to cleanup is unknown. To date, approximately 1,500 cleanup sites have been identified by the Environmental Protection Agency

CNA FINANCIAL CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS, Continued
(UNAUDITED)

(EPA) on its National Priorities List (NPL). State authorities have designated many cleanup sites as well.

Many policyholders have made claims against various CNA insurance subsidiaries for defense costs and indemnification in connection with environmental pollution matters. These claims relate to accident years 1989 and prior, which coincides with CNA’s adoption of the Simplified Commercial General Liability coverage form, which includes what is referred to in the industry as an "absolute pollution exclusion". CNA and the insurance industry are disputing coverage for many such claims. Key coverage issues include whether cleanup costs are considered damages under the policies, trigger of coverage, allocation of liability among triggered policies, applicability of pollution exclusions and owned property exclusions, the potential for joint and several liability and the definition of an occurrence. To date, courts have been inconsistent in their rulings on these issues.

A number of proposals to reform Superfund have been made by various parties. However, no reforms were enacted by Congress during 2000 or the first six months of 2001, and it is unclear what positions the Congress or the administration and what legislation, if any, will result in the future. If there is legislation, and in some circumstances even if there is no legislation, the federal role in environmental cleanup may be significantly reduced in favor of state action. Substantial changes in the federal statute or the activity of the EPA may cause states to reconsider their environmental cleanup statutes and regulations. There can be no meaningful prediction of the pattern of regulation that would result or the effect upon CNA's results of operations and/or financial position.

Due to the inherent uncertainties described above, including the inconsistency of court decisions, the number of waste sites subject to cleanup, and the standards for cleanup and liability, the ultimate liability of CNA for environmental pollution claims may vary substantially from the amount currently recorded.

As of June 30, 2001 and December 31, 2000, CNA carried approximately $680 million and $347 million of claim and claim adjustment expense reserves, net of reinsurance recoverables, for reported and unreported environmental pollution and other mass tort claims. Unfavorable environmental pollution and other mass tort net claim and claim adjustment expense reserve development for the three months ended June 30, 2001 and 2000 amounted to $449 million and $21 million. Unfavorable environmental pollution and other mass tort net claim and claim adjustment expense reserve development for the six months ended June 30, 2001 and 2000 amounted to $453 million and $21 million.

CNA’s property-casualty insurance subsidiaries also have exposure to asbestos claims. Estimation of asbestos claims and claim adjustment expense reserves involves many of the same limitations discussed above for environmental pollution claims, such as inconsistency of court decisions, specific policy provisions, allocation of liability among insurers and insureds, and additional factors such as missing policies and proof of coverage. Furthermore, estimation of asbestos claims is difficult due to, among other reasons, the proliferation of bankruptcy proceedings and attendant uncertainties, the targeting of a broader range of businesses and entities as defendants, the uncertainty as to which other insureds may be targeted in the future, and the uncertainties inherent in predicting the number of future claims.

As of June 30, 2001 and December 31, 2000, CNA carried approximately $1,271 million and $603 million of net claim and claim adjustment expense reserves, net of reinsurance

CNA FINANCIAL CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS, Continued
(UNAUDITED)

recoverables, for reported and unreported asbestos-related claims. Unfavorable asbestos net claim and claim adjustment expense reserve development for the three months ended June 30, 2001 and 2000 amounted to $748 million and $5 million. Unfavorable asbestos net claim and claim adjustment expense reserve development for the six months ended June 30, 2001 and 2000 amounted to $769 million and $31 million. The Company made asbestos payments of $126 million and $43 million in calendar year 2000 and the six months ended June 30, 2001 respectively on a net basis, excluding payments made in connection with the 1993 settlement of litigation related to Fibreboard Corporation. CNA has attempted to manage its asbestos exposures by aggressively resolving old accounts.

The reserve strengthening in the second quarter of 2001 for asbestos-related claims was based on a management review of developments with respect to these exposures conducted in the second quarter, as well as a review of the results of CNA’s annual analysis of these claims. This analysis indicated a significant increase in claim counts for asbestos-related claims. The factors that have led to the deterioration in claim counts include, among other things, intensive advertising campaigns by lawyers for asbestos claimants and the addition of new defendants such as the distributors and installers of asbestos containing products. New claim filings increased significantly in 2000 over 1999 and that trend continues thus far in 2001. The volume of new claims has caused the bankruptcies of numerous asbestos defendants. Those bankruptcies also may result in increased liability for remaining defendants under principles of joint and several liability.

In addition, some asbestos defendants have asserted that their claims for insurance are not subject to aggregate limits on coverage. CNA currently 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 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 not subject to aggregate limits or predict to what extent, if any, these attempts to assert "non-products" claims outside the products liability aggregate will succeed.

Due to the uncertainties created by volatility in claim numbers and settlement demands, the effect of bankruptcies, the extent to which non-impaired claimants can be precluded from making claims and the efforts by insureds to obtain coverage not subject to aggregate limits, the ultimate liability of CNA for asbestos claims may vary substantially from the amount currently recorded. Other variables that will influence CNA’s ultimate exposure to asbestos claims will be medical inflation trends, jury attitudes, the strategies of plaintiff attorneys to broaden the scope of defendants, the mix of asbestos-related diseases presented and the possibility of legislative reform. Adverse developments with respect to such matters discussed in this paragraph could have a material adverse effect on CNA’s results of operations and/or financial condition.

CNA FINANCIAL CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS, Continued
(UNAUDITED)

The results of operations and financial condition of CNA in future years may continue to be adversely affected by environmental pollution and other mass tort and asbestos claim and claim adjustment expenses. Management will continue to review and monitor these liabilities and make further adjustments, including further reserve strengthening as warranted.

The following table provides data related to CNA’s environmental pollution and other mass tort and asbestos claim and claim adjustment expense reserves.

During the second quarter of 2001, the Company noted the continued emergence of adverse loss experience across several lines of business related to prior years, which are discussed in further detail below. The Company completed a number of reserve studies during the second quarter of 2001 for many of its lines of business, including those in which these adverse trends were noted. In the area of asbestos and environmental pollution, the Company reviewed internal claims data as well as studies generated by external parties, including a significant industry analysis on asbestos, environmental pollution and other mass tort claims (“APMT”) published by an international rating agency. As a result of these various reviews, management concluded that ultimate losses, including losses for APMT, will be higher in the range of possible outcomes than previously estimated. The Company recorded $2.6 billion of pretax reserve strengthening associated with a change in estimate of prior year net loss and allocated loss adjustment expense reserves (“loss reserves”), including $1.2 billion pretax related to APMT. Concurrent with the Company’s review of loss reserves, the Company completed comprehensive studies of estimated premium receivable accruals on retrospectively rated insurance policies and involuntary market facilities. As a result, the Company recorded a $0.6 billion pretax charge related to retrospective premium and other premium accruals (“premium accruals”). The studies included the review of all such retrospective insurance policies and the current estimate of ultimate losses.

CNA FINANCIAL CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS, Continued
(UNAUDITED)

The net prior year loss reserve strengthening and related items comprising the amounts noted above are detailed in the following table.

$500 million of ceded losses reduced by $230 million of ceded premiums and $47 million of interest.

The adverse loss development excluding asbestos, environmental pollution and other mass tort (“non-APMT”) was the result of recent analyses of several businesses. The non-APMT reserve strengthening principally related to commercial insurance coverages including automobile liability and commercial multiple-peril, assumed reinsurance and healthcare related coverages. A brief summary of these lines of business and the associated reserve development is discussed below.

Approximately $600 million, excluding the impact of the corporate aggregate excess-of-loss reinsurance treaty, of the adverse loss development is a result of analyses of several coverages provided to commercial entities written by various segments of CNA. These analyses showed unexpected increases in the size of claims for several lines, including commercial automobile liability, general liability and the liability portion of commercial multiple-peril. In addition, the number of commercial automobile liability claims was higher than expected. Finally, several state-specific factors resulted in higher than anticipated losses, including developments associated with commercial automobile liability coverage in Ohio and general liability coverage provided to contractors in New York.

An analysis of CNA Re’s assumed reinsurance business showed that the paid and reported losses for recent accident years were higher than expectations and resulted in an increase of net reserves of approximately $560 million, excluding the impact of the corporate aggregate excess-of-loss reinsurance treaty. The estimated ultimate loss ratios for these recent accident years have been revised to reflect the paid and reported losses.

Approximately $320 million, excluding the impact of the corporate aggregate excess-of-loss reinsurance treaty, adverse loss development occurred in Specialty Operations and was caused by coverages provided to healthcare related entities. The level of paid and reported losses associated with coverages provided to national long-term care facilities were higher than expected. In addition, the average size of claims resulting from coverages provided to physicians and institutions providing healthcare related services increased more than expected.

CNA FINANCIAL CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS, Continued
(UNAUDITED)

In 1999, the Company entered into an aggregate excess-of-loss reinsurance treaty related to the 1999 through 2001 accident years covering substantially all of the Company’s property-casualty lines of business (the “Aggregate Cover”). The Company has two sections of coverage under the terms of the Aggregate Cover. These coverages attach at defined loss and allocated loss adjustment expense (collectively, “losses”) ratios for each accident year. Coverage under the first section of the Aggregate Cover, which is available for all accident years covered by the contract, has annual limits of $500 million of losses with an aggregate limit of $1 billion of losses for the three-year period. The ceded premium for each $500 million of limit is up to $230 million. The second section of the Aggregate Cover, which is available for accident year 2001 only, provides additional coverage of up to $510 million of losses for ceded premiums of $310 million. Additional premiums may be payable if the aggregate loss ratio for the three-year period exceeds certain thresholds.

In the first quarter of 2001, the Company triggered the coverage under the second section of the Aggregate Cover for the 2001 accident year. In the second quarter of 2001, the significant reserve additions fully utilized the limit on the 1999 accident year under the first section. Under the Aggregate Cover, interest expense on the funds withheld generally accrues at 8% per annum.

CNA FINANCIAL CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS, Continued
(UNAUDITED)

In 2001, the Company entered into a one-year aggregate excess-of-loss reinsurance treaty related to the 2001 accident year covering substantially all property-casualty lines of business in the Continental Casualty Company pool (the “CCC Cover”). Ceded premiums in the amount of $1.5 million were recorded in the second quarter for the CCC Cover. For the first six months, ceded premiums were $2.5 million. The loss protection provided by the CCC Cover has an aggregate limit of $750 million to $825 million of losses depending on CCC’s 2001 actual premium volume. The CCC Cover provides continuous coverage in excess of the second section of the Aggregate Cover discussed above.

The pretax benefit (loss) from the Aggregate Cover and the CCC Cover by operating segments was as follows.

CNA FINANCIAL CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS, Continued
(UNAUDITED)

As of April 30, 2001, CNAF replaced its $750 million revolving credit facility (the Prior Facility) with a new $500 million revolving credit facility (the New Facility). No loans were outstanding under either the Prior Facility or the New Facility at anytime during 2001. The Prior Facility was scheduled to expire on May 10, 2001. The New Facility is split into two parts, a $250 million component with a 364-day expiration date (with an option by CNAF to turn this part of the New Facility into a one-year term loan) and a $250 million component with a 3-year expiration date. The Company pays a facility fee to the lenders of the New Facility for having funds available for loans under both components. The facility fee on the 364-day component is 12.5 basis points (which is the same as the fee on the expiring revolver) while the fee on the 3-year component is 15 basis points.

In addition to the facility fees, if the Company borrows under the New Facility, the Company at its current debt rating will pay an interest rate on outstanding loans equal to the London Interbank Offering Rate (LIBOR) plus 50 basis points for the 364-day component and LIBOR plus 47.5 basis points for the 3-year component. If the Company’s debt ratings are down graded one level, the Company will pay an interest rate on the outstanding loans equal to the LIBOR plus 60 basis points for the 364-day component and LIBOR plus 57.5 basis points for the 3-year component.

If the Company has outstanding loans equaling more than 50% of the amounts available under the New Facility, the Company also will pay a utilization fee of 12.5 basis points on such loans.

CNA FINANCIAL CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS, Continued
(UNAUDITED)

The New Facility is used for general corporate purposes including support for the commercial paper program, which currently has $400 million of loans outstanding.

Following the announcement of second quarter 2001 earnings, the Company's commercial paper rating was placed under review by Standard & Poor's. During the period of this review, which is expected to be finalized by the end of third quarter 2001, the Company may redeem or hold its outstanding commercial paper loans as they mature using internal funds.

Comprehensive income is composed of all changes to stockholders’ equity, except those changes resulting from transactions with stockholders in their capacity as stockholders. The components of comprehensive income are shown below.

During the second quarter the Company sold its Global Crossing common stock and the related hedge resulting in a pretax realized gain of $962 million, which was previously reflected as an unrealized gain in accumulated other comprehensive income.

CNA FINANCIAL CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS, Continued
(UNAUDITED)

The Company’s reportable segments are strategic businesses that offer different types of products and services. The Company has seven operating segments: Agency Market Operations, Specialty Operations, CNA Re, Global Operations, Risk Management, Group Operations and Life Operations. In addition to these seven operating segments, certain other activities are reported in the Corporate and Other segment.

Corporate and Other segment results consist of interest expense on corporate borrowings, eBusiness expenses, certain run-off insurance operations, asbestos claims related to Fibreboard Corporation, financial guarantee insurance contracts and certain non-insurance operations.

All significant intersegment income and expense have been eliminated. Risk Management’s other revenues and expenses for 2001 and 2000 include revenues for services provided by RSKCo(SM) to other units within the Risk Management segment that are eliminated at the consolidated level. Such intrasegment revenue and expenses eliminated at the consolidated level were $38 million and $39 million for the three months ended June 30, 2001 and 2000 and $77 million and $80 million for the six months ended June 30, 2001 and 2000.

CNA FINANCIAL CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS, Continued
(UNAUDITED)

[Continued from above table, first column(s) repeated]


		Group			Life			Corporate			Elimi-
		Operations			Operations			and Other			nations			Total
Three months ended June 30, 2001
(In millions)
Net earned premiums		$	830		$	244		$	1		$	(13	)	$	1,603




Claims, benefits and expenses			853			353			6			(13	)		5,086




Restructuring and other related charges						17			31			—			55

	Underwriting loss		(23	)		(126	)		(36	)		—			(3,538	)




Net investment income			41			152			12			—			411




Other revenues			5			46			—			(42	)		152




Other expenses			1			32			59			(42	)		203




Non-insurance restructuring and other related charges			—			—			—			—			1

	Pretax operating (loss) income		22			40			(83	)		—			(3,179	)




Income tax benefit (expense)			(6	)		(13	)		22			—			1,110




Minority interest			—			—			—			—			(6	)

Net operating (loss) income, excluding realized investment gains			16			27			(61	)		—			(2,075	)




Realized investment gains (losses), net of tax, participating policyholders’ and minority interests			10			49			15			—			313




Cumulative effect of a change in accounting principle, net of tax			—			—			—			—			—

Net (loss) income		$	26		$	76		$	(46	)	$	—		$	(1,762	)

Receivables, net		$	1,723		$	674		$	50		$	—		$	15,098

Insurance reserves		$	2,702		$	8,045		$	1,707		$	—		$	41,908

CNA FINANCIAL CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS, Continued
(UNAUDITED)

[Continued from above table, first column(s) repeated]


		Group			Life			Corporate			Elimi-
Three months ended June 30, 2000		Operations			Operations			and Other			nations			Total
(In millions)
Net earned premiums		$	878		$	226		$	(3	)	$	(10	)	$	2,778




Claims, benefits and expenses			894			333			24			(10	)		3,121




Restructuring and other related charges			—			—			—			—			—

	Underwriting loss		(16	)		(107	)		(27	)		—			(343	)




Net investment income			40			153			3			—			598




Other revenues			13			52			12			(43	)		190




Other expenses			14			25			82			(43	)		222




Non-insurance restructuring and other related charges			—			—			—			—			—

	Pretax operating income (loss)		23			73			(94	)		—			223




Income tax (expense) benefit			(8	)		(24	)		37			—			(62	)




Minority interest			—			—			—			—			(7	)

Net operating income (loss), excluding realized investment gains			15			49			(57	)		—			154




Realized investment gains (losses), net of tax, participating policyholders’ and minority interests			11			(5	)		2			—			176




Cumulative effect of a change in accounting principle, net of tax			—			—			—			—			—

Net income (loss)		$	26		$	44		$	(55	)	$	—		$	330

Receivables, net		$	728		$	677		$	4,562		$	—		$	13,768

Insurance reserves		$	2,494		$	7,463		$	1,796		$	—		$	39,406

CNA FINANCIAL CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS, Continued
(UNAUDITED)

[Continued from above table, first column(s) repeated]


		Group			Life			Corporate			Elimi-
		Operations			Operations			and Other			nations			Total
Six months ended June 30, 2001
(In millions)
Net earned premiums		$	1,648		$	492		$	2		$	(27	)	$	4,134




Claims, benefits and expenses			1,697			728			37			(27	)		7,969




Restructuring and other related charges			—			17			37			—			61

	Underwriting loss		(49	)		(253	)		(72	)		—			(3,896	)




Net investment income			84			294			21			—			928




Other revenues			10			119			6			(83	)		345




Other expenses			3			55			114			(83	)		379




Non-insurance restructuring and other related charges			—			—			—			—			1

	Pretax operating (loss) income		42			105			(159	)		—			(3,003	)




Income tax benefit (expense)			(11	)		(36	)		43			—			1,059




Minority interest			—			—			—			—			(12	)

Net operating (loss) income, excluding realized investment gains			31			69			(116	)		—			(1,956	)




Realized investment gains (losses), net of tax, participating policyholders’ and minority interests			15			93			69			—			550




Cumulative effect of a change in accounting principle, net of tax			(1	)		(3	)		(4	)		—			(61	)

Net (loss) income		$	45		$	159		$	(51	)	$	—		$	(1,467	)

Receivables, net		$	1,723		$	674		$	51		$	—		$	15,098

Insurance reserves		$	2,702		$	8,045		$	1,707		$	—		$	41,908

CNA FINANCIAL CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS, Continued
(UNAUDITED)

[Continued from above table, first column(s) repeated]


		Group			Life			Corporate			Elimi-
		Operations			Operations			and Other			nations			Total
Six months ended June 30, 2000
(In millions)
Net earned premiums		$	1,760		$	438		$	(1	)	$	(21	)	$	5,548




Claims, benefits and expenses			1,797			650			55			(21	)		6,216




Restructuring and other related charges			—			—			—			—			—

	Underwriting loss		(37	)		(212	)		(56	)		—			(668	)




Net investment income			77			298			2			—			1,130




Other revenues			24			100			12			(88	)		346




Other expenses			27			49			143			(88	)		411




Non-insurance restructuring and other related charges			—			—			—			—			—

	Pretax operating income (loss)		37			137			(185	)		—			397




Income tax (expense) benefit			(12	)		(45	)		67			—			(110	)




Minority interest			—			—			—			—			(13	)

Net operating income (loss), excluding realized investment gains			25			92			(118	)		—			274




Realized investment gains (losses), net of tax, participating policyholders’ and minority interests			13			(13	)		(1	)		—			197




Cumulative effect of a change in accounting principle, net of tax			—			—			—			—			—

Net income (loss)		$	38		$	79		$	(119	)	$	—		$	471

Receivables, net		$	728		$	677		$	4,562		$	—		$	13,768

Insurance reserves		$	2,494		$	7,463		$	1,796		$	—		$	39,406

CNA FINANCIAL CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS, Continued
(UNAUDITED)

In the second quarter of 2001, the Company finalized and approved a restructuring plan related to its Information Technology operations (the IT Plan). The overall goal of the IT Plan is to improve technology for the underwriting function and throughout the Company, and to eliminate inefficiencies in the deployment of IT resources. These changes will facilitate a strong focus on enterprise-wide system initiatives. The IT Plan has two main components: 1) the reorganization of IT resources into the Technology Solutions Group with a structure based on centralized, functional roles; and 2) the implementation of an integrated technology roadmap that includes common architecture and platform standards that directly support the Company’s strategies.

In connection with the IT Plan, the Company has incurred $62 million, pretax, of restructuring and other related charges, primarily related to planned reductions in the workforce of approximately 260 positions (gross and net), and software and hardware asset write-offs. The Company does not expect to incur significant amounts of additional charges with respect to the IT Plan in any single future quarter and, as a result, does not intend to separately classify such expenses as restructuring and related charges when they occur.

The $62 million charge included approximately: $32 million of asset write-offs (primarily software and hardware), $29 million related to workforce reductions, and $1 million of other costs.

Approximately $37 million of restructuring and other related charges were incurred in the Corporate and Other segment. These costs include $14 million of asset write-offs, $22 million related to workforce reductions, and $1 million of other costs.

Approximately $17 million of restructuring and other related charges were incurred in Life Operations. These costs represent the write-off of software abandoned pursuant to the technology roadmap.

Agency Market Operations incurred approximately $4 million of restructuring and other related charges. These costs related almost entirely to the workforce reduction stemming from the centralization of IT resources.

Risk Management incurred approximately $2 million of restructuring and other related charges. Approximately $1 million of these costs related to the workforce reduction stemming from the centralization of IT resources, with the remaining $1 million primarily attributable to the write-off of hardware.

The remainder of the Company’s segments incurred restructuring and other related charges of $1 million or less. These costs related to workforce reductions stemming from the centralization of IT resources and from hardware write-offs.

Upon adoption of the IT Plan, an accrual of $30 million was established related to $29 million of workforce reductions and the $1 million of other costs. Approximately $6 million of this accrual has been paid through June 30, 2001, resulting in an ending accrual of $24 million.

CNA FINANCIAL CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS, Continued
(UNAUDITED)

Additionally, at December 31, 2000, an accrual of $7 million of lease termination costs remained related to the August 1998 restructuring. Approximately $3 million of these costs were paid during the six months, resulting in a remaining accrual of $4 million as of June 30, 2001.

The Company is currently negotiating the sale of certain subsidiaries and expects the sales to be completed prior to year-end 2001. The assets being held for disposition include the United Kingdom subsidiaries of CNA Re and certain other subsidiaries. The Company anticipates that it will realize losses in connection with those sales. In determining the anticipated loss from these sales, the Company estimated sales proceeds, transactional costs, lease termination costs, employee related costs and the cost of certain reinsurance transactions. The sale of the United Kingdom insurance subsidiary will be subject to regulatory approval. An after-tax realized loss of $320 million was recorded in connection with these planned dispositions.

Effective December 31, 2000, CNA completed a transaction with Munich American Reassurance Company (MARC), whereby MARC acquired CNA’s individual life reinsurance business (CNA Life Re) via an indemnity reinsurance agreement. CNA will continue to accept and retrocede business on existing CNA Life Re contracts until such time that CNA and MARC are able to execute novations of each of CNA Life Re’s assumed and retroceded reinsurance contracts.

MARC assumed approximately $294 million of liabilities (primarily future policy benefits and claim reserves) and approximately $209 million in assets (primarily uncollected premiums and deferred policy acquisition costs). The net gain from the reinsurance transaction, which is subject to certain post-closing adjustments, has been recorded as deferred revenue and will be recognized in income over the next 9 to 15 months as CNA Life Re’s assumed contracts are novated to MARC.

The CNA Life Re business contributed net earned premiums of $57 million and $106 million and pretax operating income of $6 million and $16 million for the three months and six months ended June 30, 2000.

CNA reimburses Loews, or pays directly to Loews employees, approximately $14 million annually for management fees, travel and related expenses, and expenses of investment facilities and services provided to CNA.

CNA and its eligible subsidiaries are included in the consolidated Federal income tax return of Loews and its eligible subsidiaries. During the first six months of 2001 CNA paid Loews $166 million for income taxes. During the first six months of 2000, CNA received a tax refund of $252 million from Loews.

CNA writes, at standard rates, a limited amount of insurance for Loews and its affiliates. Total premiums from Loews and its affiliates are less than $6 million on an annual basis.

CNA FINANCIAL CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS, Continued
(UNAUDITED)

CNA assumes the risk for a limited amount of insurance from R.V.I. Guaranty Company, Inc., a 50% owned affiliate. Written premiums assumed are less than $13 million on an annual basis.

CNA sponsors a stock ownership plan whereby the Company finances the purchase of Company stock by certain executive officers.

CNA FINANCIAL CORPORATION
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion highlights significant factors influencing the consolidated operations and financial condition of CNA. CNA is one of the largest insurance organizations in the United States and based on 2000 net written premiums, is the ninth largest property-casualty company and the 40th largest life insurance company.

Loews Corporation (Loews) owns approximately 87% of the outstanding common stock of CNA Financial Corporation (CNAF). The following discussion should be read in conjunction with the Condensed Consolidated Financial Statements and related Notes found on pages 1 to 28 and with CNAF's Annual Report to Shareholders for the year ended December 31, 2000.

CNA conducts its operations through seven operating segments. In addition to the seven operating segments, certain other activities are reported in the Corporate and Other segment. These operating segments reflect the way in which CNA distributes its products to the marketplace and the way in which it manages operations and makes business decisions. Agency Market Operations, Specialty Operations, CNA Re, Global Operations and Risk Management comprise the property-casualty segments.

The following table summarizes key components of operating results for the three months and six months ended June 30, 2001 and 2000.

CNA FINANCIAL CORPORATION
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS, Continued

The following table summarizes net operating (loss) income by segment for the three and six months ended June 30, 2001 and 2000.

Net operating loss was $2,075 million, or a loss of $11.32 a share, for the second quarter of 2001 as compared with net operating income of $154 million, or $0.84 a share, for the same period in 2000. The decline in net operating results was principally due to prior year reserve strengthening of $2.1 billion after-tax in the second quarter of 2001 related to a change in estimate of prior year net loss and allocated loss adjustment expense reserves and retrospective premium accruals and restructuring and other related charges of $36 million after-tax.

Net earned premiums decreased $1,175 million for the second quarter of 2001 as compared with the same period in 2000 mainly as a result of the change in estimate for retrospective premium accruals and increased ceded premiums related to corporate aggregate excess-of-loss reinsurance treaties.

Net operating loss was $1,956 million, or a loss of $10.67 a share, for the six month period ended June 30, 2001 as compared with net operating income of $274 million, or $1.49 a share, for the same period in 2000. The decline in net operating results was principally due to prior year reserve strengthening of $2.1 billion after-tax recorded in the second quarter of 2001 related to a change in estimate of prior year net loss and allocated loss adjustment expense reserves and retrospective premium accruals and the restructuring and other related charges of $40 million after-tax.

Net earned premiums decreased $1,414 million for the six month period ended June 30, 2001 as compared with the same period in 2000 mainly as a result of the change in estimate for retrospective premium accruals, increased ceded premiums related to corporate aggregate excess-of-loss reinsurance treaties and a decline in net earned premiums in Group Operations, including the reduction of earned premiums as a result of the sale of Life Reinsurance, CNA's individual life reinsurance business was sold via an indemnity reinsurance agreement on December 31, 2000. (See Note K to the Condensed Consolidated Financial Statements for a discussion of this transaction).

The second quarter net operating loss includes the following which are described in more detail on the following pages.

•

The Company recorded an after-tax charge of $2.1 billion ($3.2 billion pretax), or $11.34 per share, related to a change in estimate of prior year net loss and allocated loss adjustment expense reserves and retrospective premium accruals. This amount includes the impact of net reserve strengthening, the related increase in the accrual for insurance-related assessments and the ceded premiums and interest cost of the aggregate excess-of-loss reinsurance treaty that attached due to the reserve strengthening. Further details related to

CNA FINANCIAL CORPORATION
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS, Continued

		the reserve strengthening are discussed below and also in the individual segment discussions of operations.

•		In the second quarter, the Company continued to record ceded premium, ceded losses and interest related to corporate aggregate excess-of-loss reinsurance treaties in place for the 2001 accident year. In addition, the significant reserve additions noted above fully utilized the limit on the corporate aggregate excess-of-loss reinsurance treaty for the 1999 accident year therefore ceded premium, ceded losses and interest were recorded related to this treaty during the second quarter. Further details regarding the corporate aggregate reinsurance treaties are discussed below. The discussion in the Corporate Aggregate Reinsurance Treaties section below includes the amounts related to the 1999 accident year to provide an overview of the full impact of the aggregate reinsurance treaties. However, the amounts related to the 1999 accident year are included as part of the Second Quarter 2001 Reserve Strengthening section which is discussed in more detail below.

•		The Company recorded after-tax restructuring and other related charges of $36 million, or $0.20 per share, related to workforce reductions and asset write-offs resulting from changes in the Company’s information technology organization, which is discussed in more detail below.

During the second quarter of 2001, the Company noted the continued emergence of adverse loss experience across several lines of business related to prior years which are discussed in further detail below. The Company completed a number of reserve studies during the second quarter of 2001 for many of its lines of business, including those in which these adverse trends were noted. In the area of asbestos, environmental pollution and other mass tort claims (“APMT”), the Company reviewed internal claims data as well as studies generated by external parties, including a significant industry analysis of asbestos and environmental pollution exposures by an international rating agency. As a result of these various reviews, management concluded that ultimate losses, including losses for APMT, will be higher in the range of possible outcomes than previously estimated. The Company recorded $2.6 billion pretax to strengthen reserves ($1.7 billion after-tax) associated with a change in estimate of prior year net loss and allocated loss adjustment expense reserves (“loss reserves”), including $1.2 billion pretax ($0.8 billion after-tax) related to APMT.

CNA FINANCIAL CORPORATION
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS, Continued

The net reserve strengthening and related items comprising the amounts noted above are detailed by segment in the following table.

The non-APMT adverse loss development was the result of recent analyses of several businesses. The non-APMT reserve principally related to commercial insurance coverages including automobile liability and commercial multiple-peril, assumed reinsurance and healthcare related coverages. A brief summary of these lines of business and the associated reserve development is discussed below and in more detail in the discussion of the Company’s segments. The amount of reserve strengthening related to APMT is disclosed in each segment’s discussion on the following pages.

Concurrent with the Company’s review of loss reserves, the Company completed comprehensive studies of estimated premium receivable accruals on retrospectively rated insurance policies and involuntary market facilities. As a result, the Company recorded a $0.6 billion pretax ($0.4 billion after-tax) charge related to retrospective premium and other premium accruals (“premium accruals”). The studies included the review of all such retrospectively rated insurance policies and the current estimate of ultimate losses.

As a result of this review and changes in premiums associated with the change in estimates for loss reserves, the Company recorded a pretax reduction in premium accruals of $566 million. The effect on net earned premiums was $616 million offset by a reduction of accrued commissions of $50 million. Approximately $188 million of this amount resulted from a change in estimate in premiums related to involuntary market facilities, which had an offsetting impact on net losses, and therefore had no impact on the net operating results for the quarter. Accruals for ceded premiums related to other reinsurance treaties increased $83 million due to the reserve strengthening. The remainder of the decrease in premium accruals relates to the change in estimate of the amount of retrospective premium receivables as discussed above.

CNA FINANCIAL CORPORATION
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS, Continued

In 1999, the Company entered into an aggregate excess-of-loss reinsurance treaty related to the 1999 through 2001 accident years covering substantially all of the Company’s property-casualty lines of business (the “Aggregate Cover”). The Company has two sections of coverage under the terms of the Aggregate Cover. These coverages attach at defined loss and allocated loss adjustment expense (collectively, “losses”) ratios for each accident year. Coverage under the first section of the Aggregate Cover, which is available for all accident years covered by the contract, has annual limits of $500 million of losses with an aggregate limit of $1 billion of losses for the three year period. The ceded premiums for each $500 million of limit is up to $230 million. The second section of the Aggregate Cover, which is available for accident year 2001 only, provides additional coverage of up to $510 million of losses for ceded premiums of $310 million. Additional premiums may be payable if the aggregate loss ratio for the three-year period exceeds certain thresholds.

In 2001, the Company entered into a one-year aggregate excess-of-loss reinsurance treaty related to the 2001 accident year covering substantially all property-casualty lines of business in the Continental Casualty Company pool (the “CCC Cover”). Ceded premiums in the amount of $1.5 million were recorded in the second quarter of 2001 for the CCC Cover. For the first six months of 2001, ceded premiums were $2.5 million. The loss protection provided by the CCC Cover has an aggregate limit of $750 million to $825 million of losses depending on CCC’s 2001 actual premium volume. The CCC Cover provides continuous coverage in excess of the second section of the Aggregate Covers discussed above.

CNA FINANCIAL CORPORATION
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS, Continued

The pretax benefit (loss) from the Aggregate Cover and the CCC Cover by operating segment was as follows:

In connection with the IT Plan, the Company has incurred $62 million, pretax, of restructuring and other related charges, primarily related to planned reductions in the workforce of approximately 260 positions (gross and net), and software and hardware asset write-offs. See Note J of Notes to Condensed Consolidated Financial Statements for further details regarding this restructuring.

The IT Plan is not expected to result in decreased operating expense in the foreseeable future. This is because savings from the workforce reduction will be used to fund new technology-related initiatives.

As of June 30, 2001, an accrual of approximately $24 million exists related to the IT Plan. Approximately $23 million of the accrual relates to workforce reductions with the remainder relating to other costs. Approximately $18 million of this accrual is expected to be paid out during the remainder of 2001.

CNA FINANCIAL CORPORATION
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS, Continued

The following table summarizes the pretax effect of these costs on the Company’s operating segments. Because future savings from the restructuring will be used to fund corporate information technology initiatives, the majority of these costs were borne by the Corporate and Other segment.

The CNA property-casualty companies implemented a change, effective January 1, 2001, in the timing of recording written premiums for policies with future effective dates. This change was made in conjunction with statutorily required changes in recording written premiums. The change in timing of recording written premiums has no impact on net earned premiums or net income.

The following table presents the effect of the adjustments made to written premiums for the three and six months ending June 30, 2001 for each of the Company’s segments.

CNA FINANCIAL CORPORATION
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS, Continued

Second quarter net operating income declined by $840 million as compared with the prior year. The after-tax impact of the reserve strengthening on Agency Market Operations was $805 million, including $394 million for asbestos, environmental pollution and other mass tort claims. The remaining reserve strengthening related primarily to commercial multiple-peril, general liability and commercial automobile liability coverages. The strengthening was based upon detailed claim reviews, assessments of legal developments affecting these coverages and actuarial analyses completed in the second quarter. In response to the adverse trends indicated by these reviews, changes were made to more closely involve legal counsel on claims affected by these legal developments and to discontinue writing classes of business where adequate pricing cannot be achieved for the exposure.

In addition to the impact of the reserve strengthening, net operating income for the second quarter of 2001 decreased by $6 million related to the cost of the 2001 accident year corporate aggregate reinsurance treaties and $3 million of restructuring and other related charges. Apart from those charges, net operating income decreased $26 million for the second quarter of 2001 as compared with the same period of 2000 due primarily to decreased net investment income, principally as a result of a $32 million decline in limited partnership income,

CNA FINANCIAL CORPORATION
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS, Continued

and $16 million after-tax related to the non-recurring ceding commission included in the second quarter of 2000 related to the sale of Personal Insurance business to Allstate in 1999. These quarter-over-quarter declines were partially offset by improved current accident year underwriting results and adverse development in the prior year of $26 million after-tax, which for 2001 is included as part of the reserve strengthening.

The combined ratio declined 4.7 points to 107.0% for the three months ended June 30, 2001 as compared with 2000, and underwriting losses declined $44 million. The change in underwriting results and the combined ratio was driven by a decrease in the loss ratio, partially offset by increases in the expense and dividend ratios. The loss ratio decline of 6.1 points reflects adverse development in the prior year of $40 million, including $9 million for APMT, which for 2001 is included as part of the reserve strengthening, and earned rate achievement and re-underwriting efforts undertaken last year, partially offset by increased catastrophe losses of $8 million. The expense ratio increased 1.2 points due to the reduced net earned premiums base in the current quarter; however, operating expenses have decreased because of higher ceding commissions and lower acquisition expenses. These decreases more than offset the $24 million benefit of the non-recurring ceding commission included in the second quarter of 2000 related to the transfer of Personal Insurance to Allstate. The dividend ratio increased 0.2 points due to adverse development in dividend reserves in Commercial Insurance.

Net written premiums for Agency Market Operations in the second quarter of 2001 decreased $432 million over the prior year as a result of $233 million of ceded premiums related to the corporate aggregate reinsurance treaties, additional ceded premiums arising from the reserve strengthening and a change in estimate for involuntary market premium accruals. These declines were partially offset by higher premiums in the worker’s compensation, automobile, and package lines. Net earned premiums decreased $624 million in the second quarter of 2001 as compared with the same period in 2000. This decline is attributable to the declines noted above in net written premiums and an additional $100 million in adverse experience in retrospective premium accruals. The change in estimate related to retrospective premium receivables was based upon the Company's completion of comprehensive studies related to estimated premium receivable accruals on retrospectively rated insurance policies and involuntary market facilities. The studies included the review of all such retrospectively rated insurance policies and the current estimate of ultimate losses.

In addition to the impact of the reserve strengthening recorded in the second quarter, net operating income for the first six months of 2001 decreased by $8 million related to the cost of the 2001 accident year corporate aggregate reinsurance treaties and $3 million of restructuring and other related charges. Apart from those charges, net operating income for the first six months of 2001 decreased $25 million as compared with the same period in the prior year due primarily to decreased net investment income, principally as a result of a $34 million decline in limited partnership income, and $40 million related to the non-recurring ceding commission included in the first six months of 2000 related to the transfer of Personal Insurance business to Allstate in 1999. These declines for the first six months of 2001 as compared with the same period in the prior year were partially offset by improved current accident year underwriting results.

The combined ratio declined 3.4 points to 109.1% for the six months ended June 30, 2001 as compared with 2000, and underwriting losses declined $68 million. The change in underwriting results and the combined ratio was driven by a decrease in the loss ratio, partially offset by increases in the expense and dividend ratios. The loss ratio decline of 5.9 points reflects adverse development in the prior year for the second quarter, which for second quarter 2001 is included as part of the reserve strengthening, earned rate achievement and re-underwriting efforts undertaken last year which improved current year loss experience, most notably in worker’s compensation and package property lines within Commercial Insurance. The expense ratio increased 2.0 points due to the reduced net earned premiums base in the current quarter; however, operating expenses have decreased because of higher ceding commissions and lower acquisition expenses. These decreases more than offset the $61 million benefit of the non-recurring ceding commission included in 2000 related to the sale of Personal Insurance business to Allstate. The dividend ratio increased 0.5 points due to adverse development in dividend reserves in Commercial Insurance.

CNA FINANCIAL CORPORATION
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS, Continued

Net written premiums for Agency Market Operations for the six months ended June 30, 2001 decreased $581 million as compared with the prior year as a result of $257 million of ceded premiums related to the corporate aggregate reinsurance treaties, additional ceded premiums arising from the second quarter 2001 reserve strengthening and a change in estimate for involuntary market premium accruals, $84 million related to the adjustment in net written premiums (as previously discussed on page 35 of the Management Discussion and Analysis of Financial Conditions and Results of Operations (MD&A)). The declines were partially offset by higher premiums in commercial lines. Net earned premiums likewise decreased $726 million for the first six months of 2001 as compared with the same period in 2000. This decline is attributable to the declines noted above in net written premiums and an additional $100 million in adverse experience in retrospective premium accruals. The change in estimate related to retrospective premium receivables was based upon the Company's completion of comprehensive studies related to estimated premium receivable accruals on retrospectively rated insurance policies and involuntary market facilities. The studies included the review of all such retrospectively rated insurance policies and the current estimate of ultimate losses.

Commercial Insurance achieved an average rate increase of 16% for the second quarter of 2001 for the contracts that renewed during the period and had a retention rate of 70% for those contracts that were up for renewal.

Second quarter net operating income declined by $257 million as compared with the prior year. The after-tax impact of the reserve strengthening on Specialty Operations was $238 million. The reserve strengthening related primarily to medical malpractice and national-for-profit nursing home chains with exposure in Florida and Texas. The strengthening was necessitated by the continuing emergence of reported losses in excess

CNA FINANCIAL CORPORATION
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS, Continued

of our expectations and a thorough review of claim exposures by the new management team that was put in place during 2000. In response to these adverse trends, Specialty Operations withdrew from writing these coverages in certain states and have instituted major rate increases.

The combined ratio increased by 4.0 points to 106.7% for the second quarter of 2001 as compared with the same period in 2000 and underwriting results declined by $10 million. This decline is due to an increase in the loss ratio of 10.5 points as a result of favorable loss development in the retrospectively rated architects and engineers business taken in 2000 and the decreased use of reinsurance in the current year. Partially offsetting the increase in the loss ratio, was a 6.6 point decrease in the expense ratio. Operating expenses remained relatively flat, while the earned premiums base increased.

Net written premiums for Specialty Operations in the second quarter of 2001 increased $34 million over the prior year as a result of increased production in lawyers and architects and engineers products, price increases for small not-for-profit long term care facilities and decreased use of treaty reinsurance on the healthcare book, partially offset by $13 million of ceded premiums related to the corporate aggregate reinsurance treaties on accident year 2001. Net earned premiums increased $30 million primarily related to the same reasons noted above as well as the reduction of retrospective premium accruals taken in the second quarter of 2000 because of the favorable loss development in the retrospectively rated architects and engineers business noted above.

In addition to the impact of the reserve strengthening recorded in the second quarter, net operating income for the first six months of 2001 decreased by $2 million related to the cost of the 2001 accident year corporate aggregate reinsurance treaties and $1 million of restructuring and other related charges. Apart from those charges, net operating income for the first six months of 2001 decreased $27 million as compared with the same period in 2000 due primarily to the decline in underwriting results and decreased net investment income, principally as a result of a $12 million decline in limited partnership income.

The combined ratio increased by 6.9 points to 109.1% for the first six months of 2001 as compared with the same period in 2000 and underwriting results declined by $28 million. This decline is due to an increase in the loss ratio of 8.1 points as a result of favorable loss development taken in 2000 for the architects and engineers business and decreased use of reinsurance in the current year.

Net written premiums for Specialty Operations for the first six months of 2001 remained flat at $343 million as compared with the same period in 2000. Net written premiums increased due to the second quarter of 2001 production increases and the decreased use of reinsurance of $25 million, partially offset by $18 million related to the adjustment in net written premiums (as previously discussed on page 35 of the MD&A). Net earned premiums increased $12 million for the first six months of 2001 as compared with the same period in 2000 primarily related to the increased production and decreased use of reinsurance mentioned above and the reserve for retrospective premium increase taken in the second quarter of 2000, partially offset by $19 million of ceded premiums related to the corporate aggregate reinsurance treaties on accident year 2001.

CNA FINANCIAL CORPORATION
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS, Continued

The non-medical professional liability and financial products lines of business achieved an average of a seven percent rate increase for the second quarter of 2001 for the contracts that renewed during the period and had a retention rate of 85% for the second quarter of 2001 for those contracts that were up for renewal. The medical professional liability book achieved an average rate increase of 28% for the second quarter of 2001 for those contracts that renewed during the period and had a retention rate of 72% for the second quarter of 2001 for those contracts that were up for renewal.

The Company plans to dispose of the United Kingdom subsidiaries of CNA Re, and the disposition is expected to be completed by year end 2001 and will be subject to regulatory approval. Future writing of all U.S. domiciled business will be written from our operations in the U.S. European business will be handled through facilities the Company is exploring overseas. The Company cannot provide assurance that the United Kingdom subsidiaries of CNA Re will be sold. Refer to the investments section on the following pages for more information.

Second quarter net operating income declined by $393 million as compared with the prior year. The after-tax impact of the reserve strengthening on CNA Re was $384 million, including $37 million for asbestos, environmental pollution and other mass tort claims. The strengthening was based upon second quarter reviews that showed the emergence of higher than expected reported losses. The reserve strengthening relates to a number of lines, including excess of loss liability and professional liability in accident years 1997 to 2000. CNA Re has focused on charging the appropriate premium for the risk and has therefore continued to take significant underwriting and pricing actions. As a result, premium volume has decreased significantly.

In addition to the impact of the reserve strengthening, net operating income for the second quarter of 2001 decreased by $1 million related to the cost of the 2001 accident year corporate aggregate reinsurance treaties. Apart from those charges, net operating income decreased $8 million for the second quarter of 2001 as compared with the prior year due primarily to decreased net investment income, principally due to a $6 million decline in limited partnership income.

The combined ratio increased 5.1 points to 113.9% during the second quarter of 2001 as compared with the same period in 2000. An increase in the expense ratio partially offset by a decrease in the loss ratio led to the unfavorable change in the combined ratio. The expense ratio has increased due to a reduced net earned premium base in the current quarter. Overall, acquisition and underwriting expenses have decreased in the second quarter as compared with

CNA FINANCIAL CORPORATION
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS, Continued

the same period in 2000, but not at the same pace as the premium base reduction. The decrease in the loss ratio is primarily attributable to the improvement in current year loss experience, particularly in proportional property, property risk excess, and proportional motor liability lines of business.

Net written premiums for CNA Re for the second quarter of 2001 decreased $107 million over the prior year as a result of $34 million of ceded premiums related to the corporate aggregate reinsurance treaties and decisions made for 2001 not to renew contracts, including multi-year contracts, that management believed did not meet its underwriting profitability targets. These contracts included credit and bond, London market lineslip insurance and European casualty facultative lines of business. Net earned premiums decreased $126 million primarily related to the same reasons noted above.

In addition to the impact of the reserve charge recorded in the second quarter, net operating income for the first six months decreased by $1 million related to the cost of 2001 accident year corporate aggregate reinsurance treaties. Apart from those charges, net operating income decreased $11 million for the first six months of 2001 as compared with the same period in 2000 due to the decline in underwriting results and decreased net investment income, primarily from a $6 million decline in limited partnership income.

The combined ratio increased 5.5 points to 113.9% for the six months ended June 30, 2001 as compared with the same period in 2000 and underwriting results declined $4 million. Increases in both the loss and expense ratios led to the unfavorable change in the combined ratio. The increase in the loss ratio was principally the result of favorable loss development taken in 2000, which lowered the 2000 loss ratio. Acquisition and underwriting expenses have decreased for the first six months of 2001 compared with the same period in 2000; however, the expense ratio has increased due to a reduced net earned premium base in the current quarter.

Net written premiums for CNA Re decreased $286 million for the first six months of 2001 as compared with the same period in 2000 as a result of $35 million of ceded premiums related to the corporate aggregate reinsurance treaties and decisions made for 2001 not to renew contracts, including multi-year contracts, that management believed did not meet its underwriting profitability targets. Net earned premiums decreased $210 million for the first six months of 2001 as compared with the same period in 2000 primarily related to the same reasons noted above.

CNA FINANCIAL CORPORATION
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS, Continued

Second quarter net operating income declined by $137 million as compared with the prior year. The after-tax impact of the reserve strengthening on Global Operations was $87 million, including $25 million for asbestos, environmental pollution and other mass tort claims. The remaining reserve strengthening related to marine business as a result of a second quarter review which indicated an increase in large claim frequency in marine cargo and hull for accident years 1998 though 2000. In addition, Global Operations strengthened reserves related to higher than expected losses arising from high hazard commercial auto business. In response to these adverse trends, Global Operations has taken rate action and reduced exposure to unprofitable marine cargo and hull classes of business and exited the high hazard commercial auto business.

In addition to the impact of the reserve strengthening, net operating income for the second quarter of 2001 decreased by $1 million related to the cost of the 2001 accident year corporate aggregate reinsurance treaties. Apart from those charges, net operating income decreased $49 million for the second quarter of 2001 as compared with the prior year due primarily to writing off unrecoverable deferred acquisition costs and better aligning premium earnings patterns with the emergence of claims in the vehicle warranty line of business and a $3 million decline in limited partnership income.

The combined ratio increased 16.9 points to 129.3% for the second quarter of 2001 as compared with the same period in 2000 and underwriting results declined $46 million. These changes were primarily a result of the increase in the expense ratio, partially offset by a decrease in the loss ratio. The increase in the expense ratio was attributable to a $55 million increase in acquisition expenses primarily due to the write-off of unrecoverable deferred acquisition costs in the vehicle warranty line of business. The decrease in the loss ratio was attributable to adverse loss development in the vehicle warranty line of business that increased the 2000 loss ratio.

CNA FINANCIAL CORPORATION
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS, Continued

Net written premiums for Global Operations for the second quarter of 2001 increased $14 million as compared with the same period in 2000. Net written premiums increased primarily as a result of growth in the commercial casualty and property lines in the European operations and vehicle warranty and medical equipment contract lines, as well as production increases in surety lines. These increases were partially offset by $9 million of additional ceded premiums arising from the corporate aggregate reinsurance treaties, declines in the equipment maintenance warranty line of business and increased ceded premiums in the surety lines. Net earned premiums increased $7 million primarily related to the same reasons noted above.

In addition to the impact of the reserve strengthening recorded in the second quarter, net operating income for the first six months decreased by $2 million related to the cost of the 2001 accident year corporate aggregate reinsurance treaties and $1 million of restructuring charges and other related charges. Apart from those charges, net operating income decreased $51 million for the six month period of 2001 as compared with the same period in 2000 due primarily to writing off unrecoverable deferred acquisition costs and better aligning premium earnings patterns with the emergence of claims in the vehicle warranty line of business and lower net investment income, primarily due to a $3 million decline in limited partnership income.

The combined ratio increased 9.8 points to 115.6% for the first six months of 2001 as compared with the same period in 2000 and underwriting results declined $55 million. These changes were principally due to writing off unrecoverable deferred acquisition costs in the second quarter of 2001 for the vehicle warranty line of business.

Net written premiums for Global Operations for the six months ended June 30, 2001 increased $14 million as compared with the same period in 2000 as a result of growth in the commercial casualty and property lines in the European operations. These increases were partially offset by $9 million related to the adjustment in net written premiums (as previously discussed on page 35 of the MD&A), $15 million of ceded premiums related to the corporate aggregate reinsurance treaties, declines in the equipment maintenance warranty line of business and increased ceded premiums in the surety lines. Net earned premiums increased $18 million primarily related to the same reasons noted above.

Global Operations achieved 5% average rate increases across its businesses during the second quarter of 2001 for the contracts that renewed during the period. Retention rates were in the 82 percent range for those contracts which were up for renewal. Retention rates do not apply to the Surety and Warranty businesses.

CNA FINANCIAL CORPORATION
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS, Continued

Second quarter net operating income declined by $577 million as compared with the prior year. The after-tax impact of the reserve strengthening on Risk Management was $575 million, including $322 million for asbestos, environmental pollution and other mass tort claims. The remaining reserve strengthening related primarily to adverse experience in liability coverages and retrospective premium accruals. The change in estimate was driven by adverse indications in loss reserve and retrospective premium studies. Risk Management has continued to focus on re-underwriting the business with adequate price for the exposure and to achieve price increases in 2001.

In addition to the impact of the reserve strengthening, net operating income for the second quarter of 2001 decreased by $1 million related to the cost of the 2001 accident year corporate aggregate reinsurance treaties and $1 million of restructuring and other related charges. Apart from those charges, net operating income remained flat at $13 million in the second quarter of 2001 as compared with the prior year due to improved current year casualty underwriting results, adverse development taken in 2000 of $13 million after-tax, which for 2001 is included as part of the reserve strengthening, and increased earnings in RSKCo^SM. These quarter-over-quarter improvements were offset by higher catastrophe losses, primarily due to $10 million for the impact of Tropical Storm Allison, and decreased net investment income, principally due to a $8 million decline in limited partnership income.

The combined ratio declined 8.9 points to 112.3% for the second quarter of 2001 as compared with the same period in 2000 and underwriting losses declined $16 million. The decline in the combined ratio is due to decreases in the loss and expense ratios attributable to improved current year loss experience and acquisition expenses in the casualty line of business and

CNA FINANCIAL CORPORATION
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS, Continued

adverse development taken in 2000 of $23 million, including $11 million for APMT, which for 2001 is included as part of the reserve strengthening, partially offset by Tropical Storm Allison catastrophe losses in the property book.

Net written premiums for Risk Management decreased $166 million for the second quarter of 2001 as compared with the same period in 2000 as a result of $133 million of ceded premiums related to the corporate aggregate reinsurance treaties, a change in estimate for involuntary market premium accruals and a continued focus on re-underwriting the book of business. Net earned premiums decreased $433 million for the second quarter of 2001 as compared with the same period in 2000. This decline is attributable to the declines noted above and an additional $265 million in adverse experience in retrospective premium accruals. The change in estimate related to retrospective premium receivables was based upon the Company’s completion of comprehensive studies of estimated premium receivable accruals on retrospectively rated insurance policies and involuntary market facilities. The studies included the review of all such retrospectively rated insurance policies and the current estimate of ultimate losses.

In addition to the impact of the reserve strengthening recorded in the second quarter, net operating income for the first six months of 2001 decreased by $1 million related to the cost of the 2001 accident year corporate aggregate reinsurance treaties and $1 million of restructuring and other related charges. Apart from those charges, net operating income for the first six months of 2001 increased $8 million as compared with the same period in 2000 primarily due to improved current year casualty underwriting results, increased earnings in RSKCo^SM and adverse development taken in 2000 for the second quarter, which for second quarter 2001 is included as part of the reserve charge, partially offset by decreased net investment income, principally due to a $8 million decline in limited partnership income.

The combined ratio declined 7.6 points to 115.6% for the six months ended June 30, 2001 as compared with the same period in 2000 and underwriting losses declined by $27 million. Decreases in the loss and expense ratios were partially offset by an increase in the dividend ratio. The decreases in the loss and expense ratios are attributable to improved current year loss experience and acquisition expenses in the casualty line of business, partially offset by Tropical Storm Allison catastrophe losses in the property book.

Net written premiums for Risk Management decreased $171 million for the first six months of 2001 as compared with the same period in 2000 as a result of $137 million of ceded premiums related to the corporate aggregate reinsurance treaties, a change in estimate for involuntary market premium accruals and a continued focus on re-underwriting the book of business. Net earned premiums decreased $447 million for the first six months of 2001 as compared with the same period in 2000 attributable to $265 million in adverse experience in retrospective premium accruals recorded in the second quarter reserve strengthening as well as the declines as noted above.

CNA FINANCIAL CORPORATION
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS, Continued

Net earned premiums for Group Operations decreased $48 million, or 5%, to $830 million for the second quarter of 2001 as compared with the same period in 2000. Net earned premiums declined $57 million as a result of the sale of the Life Reinsurance business (Life Reinsurance) on December 31, 2000 and $31 million in the group reinsurance line of business primarily as a result of terminating unprofitable contracts with independent underwriting agencies that occurred in 2000. See Note K of the Condensed Consolidated Financial Statements for a discussion of the Life Reinsurance transaction. These declines were partially offset by increases of $20 million in Federal Markets, mainly due to the mailhandlers health benefit plan, and growth of $20 million in Group Benefits, particularly in the disability and group long-term care lines of business.

Net operating income increased by $1 million in the second quarter of 2001 as compared with the same period in 2000. This improvement is a result of exiting unprofitable lines of business in 2000 offset by the loss of income resulting from the sale of Life Reinsurance and a decline of $4 million in limited partnership income in 2001.

Net earned premiums for Group Operations decreased $112 million, or 6%, to $1,648 million for the six months ended June 30, 2001 as compared with the same period in 2000. Net earned premiums declined $106 million as a result of the sale of the Life Reinsurance and $82 million in group reinsurance line of business primarily as a result of terminating unprofitable contracts with independent underwriting agencies. These declines were partially offset by increases in Federal Markets of $37 million and growth in the first six months of 2001 of $39 million in Group Benefits, particularly in the disability and group long-term care lines of business.

Net operating income increased by $6 million for the first six months of 2001 as compared with the same period in 2000. This improvement is a result of exiting unprofitable lines of business which more than offset the sale of Life Reinsurance and a $5 million decline in limited partnership income.

CNA FINANCIAL CORPORATION
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS, Continued

Sales volume for Life Operations increased $348 million, or 52%, to $1,014 million for the second quarter of 2001 as compared with the same period in 2000. Sales volume increased primarily in guaranteed investment contracts sold to institutional customers and a growing in-force block of business in Long Term Care products. Net earned premiums increased $18 million, or 8%, to $244 million for the second quarter of 2001 as compared with the same period in 2000. This improvement is primarily attributable to improved sales of structured settlement annuities and Long Term Care products, partially offset by decreased annuity sales internationally.

Excluding restructuring charges, net operating income decreased $11 million, or 21%, to $38 million for the second quarter of 2001 as compared with the same period in 2000. This decrease was due to lower investment performance in the Index 500 product sold to institutions, decreased net investment income primarily due to a $5 million decline in limited partnership income, and increased mortality losses on universal life and term products. Sales volume for Life Operations decreased $60 million, or 4%, to $1,623 million for the six months ended June 30, 2001 as compared with the same period in 2000. Sales volume for the six month period decreased in variable annuities which was influenced in part by the decline in the stock market during the first quarter of 2001. These declines were partially offset by the sales improvements of the second quarter as discussed above. Net earned premiums increased $54 million, or 12%, to $492 million for the six months ended June 30, 2001 as compared with the same period in 2000. This improvement is primarily attributable to improved sales of structured settlement annuities and Long Term Care products.

Excluding restructuring charges, net operating income decreased $12 million, or 13%, to $80 million for the six months ended June 30, 2001 compared with the same period in 2000. This decrease relates primarily to decreased net investment income primarily due to a $13 million decline in limited partnership income.

CNA FINANCIAL CORPORATION
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS, Continued

In addition to the $10 million benefit from the reserve strengthening, net operating losses increased $14 million to $71 million for the second quarter of 2001 as compared with $57 million in the same period of 2000. This decrease was primarily attributable to $20 million in restructuring and other related charges.

In addition to the impact of the reserve strengthening, net operating losses increased $8 million to $126 million for the first six months of 2001 as compared with $118 million in the same period in 2000. Included in the six months ended June 30, 2001 was $23 million in restructuring and other related charges.

Many policyholders have made claims against various CNA insurance subsidiaries for defense costs and indemnification in connection with environmental pollution matters. These claims relate to accident years 1989 and prior, which coincides with CNA’s adoption of the Simplified Commercial General Liability coverage form, which includes what is referred to in the industry as an “absolute pollution exclusion”. CNA and the insurance industry are disputing coverage for many such claims. Key coverage issues include whether cleanup costs are considered damages under the policies, trigger of coverage, allocation of liability among triggered policies, applicability of pollution exclusions and owned property exclusions, the potential for joint and several liability and the definition of an occurrence. To date, courts have been inconsistent in their rulings on these issues.

As of June 30, 2001 and December 31, 2000, CNA carried approximately $1,271 million and $603 million of net claim and claim adjustment expense reserves, net of reinsurance recoverables, for reported and unreported asbestos-related claims. Unfavorable asbestos net claim and claim adjustment expense reserve development for the three months ended June 30, 2001 and 2000 amounted to $748 million and $5 million. Unfavorable asbestos net claim and claim adjustment expense reserve development for the six months ended June 30, 2001 and 2000 amounted to $769 million and $31 million. The Company made asbestos payment of $126 million and $43 million in calendar year 2000 and the six months ended June 30, 2001 respectively on a net basis, excluding payments made in connection with the 1993 settlement of litigation related to Fibreboard Corporation. CNA has attempted to manage its asbestos exposures by aggressively resolving old accounts.

In addition, some asbestos defendants have asserted that their claims for insurance are not subject to aggregate limits on coverage. CNA currently 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 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 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.

The components of net investment income for the three and six months ended June 30, 2001 and 2000 are presented in the following table.

During the first quarter of 2001, the Company reclassified equity method income from limited partnership investments. This income was previously classified in realized investment gains, net of participating policyholders’ and minority interests. Effective in 2001, equity method income from limited partnership investments is classified in net investment income, as shown in the preceding table. Income from limited partnership investments decreased $106 million and $126 million for the three and six month periods ended June 30, 2001 as compared with the same periods in 2000. During the three and six month periods ended June 30, 2000 market conditions allowed for very favorable investment results relative to investment strategies practiced by certain partnerships held. Investment results for the same periods in 2001 were, in general, less than expected. In addition, certain partnerships that were very successful during year 2000 have been dissolved and are no longer held. Also during the first quarter of 2001, the Company reclassified interest on funds withheld and other deposits. This

CNA FINANCIAL CORPORATION
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS, Continued

expense was previously classified in other operating expenses and is now classified in net investment income. Interest on funds withheld and other deposits was $86 million and $17 million for the second quarter of 2001 and 2000. Interest on funds withheld and other deposits was $122 million and $36 million for the first six months of 2001 and 2000.

The Company experienced lower net investment income for both the three and six months ended June 30, 2001 as compared with the same period in 2000 due primarily to decreases in limited partnership income as well as an increase in interest on funds withheld and other deposits, partially offset by an improved yield in the core bond portfolio. The bond segment of the investment portfolio yielded 6.5% in the first six months of 2001 as compared with 6.4% during the same period in 2000.

The components of net realized investment gains for the three and six months ended June 30, 2001 and 2000 are presented in the following table.

Net realized investment gains increased $137 million for the second quarter of 2001 compared with the same period in 2000. This increase is primarily a result of after-tax gains from the sale of Global Crossing Ltd common stock (Global Crossing) and its related hedge of $633 million as compared with $157 million in 2000. Partially offsetting these gains, were estimated losses of $320 million relating to the planned disposition of certain subsidiaries.

CNA FINANCIAL CORPORATION
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS, Continued

The estimated after-tax realized loss recorded in connection with the planned disposition of certain subsidiaries by segment is as follows:

Net realized investment gains increased $353 million for the first six months of 2001 compared with the same period in 2000. This increase is primarily a result of after-tax gains from the sale of Global Crossing and its related hedge of $647 million as compared with $166 million in the first six months of 2000 as well as gains of $55 million resulting from the sale of a New York real estate property and gains from the sale of fixed maturity security investments in the first quarter of 2001. These gains are partially offset by the estimated losses recorded for the planned dispositions described above.

A primary objective in the management of the fixed maturity portfolio is to maximize total return relative to underlying liabilities and respective liquidity needs. In achieving this goal, assets may be sold to take advantage of market conditions or other investment opportunities or credit and tax considerations. This activity will produce realized gains and losses depending on market conditions including interest rates.

Substantially all invested assets are marketable securities classified as available-for-sale in the accompanying financial statements. Accordingly, changes in fair value for these securities are reported in other comprehensive income.

CNA FINANCIAL CORPORATION
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS, Continued

The following table presents the carrying values of the Company’s investments at June 30, 2001 and December 31, 2000, and the change in unrealized gains (losses) of those securities included in other comprehensive income for the six months ended June 30, 2001.

The Company’s general and separate account investment portfolio consists primarily of publicly traded government bonds, asset-backed securities, mortgage-backed securities, municipal bonds and corporate bonds.

Investments in the general account had a total net unrealized gain of $384 million at June 30, 2001 compared with $1,310 million at December 31, 2000. The unrealized position at June 30, 2001 was composed of an unrealized gain of $90 million for fixed maturities, and an unrealized gain of $294 million for equity securities.

The Company’s investment policies for both the general and separate accounts emphasize high credit quality and diversification by industry, issuer and issue. Assets supporting interest rate sensitive liabilities are segmented within the general account to facilitate asset/liability duration management.

The general account portfolio consists primarily of high quality (rated BBB or higher) bonds, 91% and 93% of which were rated as investment grade at June 30, 2001 and December 31, 2000. The following table summarizes the ratings of CNA’s general account bond portfolio at carrying value.

CNA FINANCIAL CORPORATION
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS, Continued

At June 30, 2001 and December 31, 2000, approximately 97% and 98% of the general account portfolio were U.S. Government agencies or were rated by Standard & Poor’s (S&P) or Moody’s Investors Service. The remaining bonds were rated by other rating agencies, outside brokers or Company management.

Below investment grade bonds, as presented in the table above, are high yield securities rated below BBB by bond rating agencies, as well as other unrated securities that, in the opinion of management, are below investment-grade. High-yield securities generally involve a greater degree of risk than investment-grade securities. However, expected returns should compensate for the added risk. This risk is also considered in the interest rate assumptions for the underlying insurance products.

Included in CNA’s general account fixed maturity securities at June 30, 2001 are $5,785 million of asset-backed securities, at fair value, consisting of approximately 49% in collateralized mortgage obligations (CMOs), 23% in U.S. government agency issued pass-through certificates, 23% in corporate asset-backed obligations and 5% in corporate mortgage-backed pass-through certificates. The majority of CMOs held are actively traded in liquid markets and are priced by broker-dealers.

Short-term investments at June 30, 2001 and December 31, 2000 primarily consisted of commercial paper and money market funds. The components of the general account short-term investment portfolio are presented in the following table.

CNA invests in certain derivative financial instruments primarily to reduce its exposure to market risk (principally interest rate, equity price and foreign currency risk). CNA considers the

CNA FINANCIAL CORPORATION
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS, Continued

derivatives in its general account to be held for purposes other than trading. Derivative securities are recorded at fair value at the reporting date.

Most derivatives in separate accounts are held for trading purposes. The Company uses these derivatives to mitigate market risk by purchasing S&P 500^® index futures in a notional amount equal to the contract liability relating to Life Operations’ Index 500 guaranteed investment contract product.

Market risk is a broad term related to changes in the fair value of a financial instrument. Discussions herein regarding market risk focus on only one element of market risk-price risk. Price risk relates to changes in the level of prices due to changes in interest rates, equity prices, foreign exchange rates or other factors that relate to market volatility of the rate, index or price underlying the financial instrument. The Company’s primary market risk exposures are due to changes in interest rates, although the Company has certain exposures to changes in equity prices and foreign currency exchange rates. The fair value of the financial instruments are adversely affected when interest rates rise, equity markets decline and the dollar strengthens against foreign currency.

Active management of market risk is integral to the Company’s operations. The Company may use the following tools to manage its exposure to market risk within defined tolerance ranges: (1) change the character of future investments purchased or sold, (2) use derivatives to offset the market behavior of existing assets and liabilities or assets expected to be purchased and liabilities to be incurred, or (3) rebalance its existing asset and liability portfolios.

For purposes of this disclosure, market risk sensitive instruments are divided into two categories: (1) instruments entered into for trading purposes and (2) instruments entered into for purposes other than trading. The Company’s general account market risk sensitive instruments presented are classified as held for purposes other than trading.

CNA monitors its sensitivity to interest rate risk by evaluating the change in the value of financial assets and liabilities due to fluctuations in interest rates. The evaluation is performed by applying an instantaneous change in interest rates of varying magnitudes on a static balance sheet to determine the effect such a change in rates would have on the Company’s market value at risk and the resulting effect on stockholders’ equity. The analysis presents the sensitivity of the market value of the Company’s financial instruments to selected changes in market rates and prices. The range of change chosen reflects the Company’s view of changes which are reasonably possible over a one-year period. The selection of the range of values chosen to represent changes in interest rates should not be construed as the Company’s prediction of future market events, but rather an illustration of the impact of such events.

The sensitivity analysis estimates the decline in the market value of the Company’s interest sensitive assets and liabilities that were held on June 30, 2001 and December 31, 2000 due to instantaneous parallel increases in the period end yield curve of 100 and 150 basis points.

CNA FINANCIAL CORPORATION
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The sensitivity analysis also assumes an instantaneous 10% and 20% decline in the foreign currency exchange rates versus the United States dollar from their levels at June 30, 2001 and December 31, 2000, with all other variables held constant.

Equity price risk was measured assuming an instantaneous 10% and 25% decline in the S & P 500 Index (Index) from its level at June 30, 2001 and December 31, 2000, with all other variables held constant. The Company’s equity holdings were assumed to be highly and positively correlated with the Index. At June 30, 2001, a 10% and 25% decrease in the Index would result in a $456 million and $1,141 million decrease compared to $457 million and $1,042 million decrease at December 31, 2000, in the market rate of the Company’s equity investments.

Of these amounts, under the 10% and 25% scenarios, $173 million and $435 million at June 30, 2001 and $167 million and $418 million at December 31, 2000 pertained to decreases in the market value of the separate account investments. These decreases would substantially be offset by decreases in related separate account liabilities to customers. Similarly, increases in the market value of the separate account equity investments would also be offset by increases in the same related separate account liabilities by the same approximate amounts.

CNA FINANCIAL CORPORATION
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS, Continued

The following tables present the estimated effects on the market value of the Company’s financial instruments at June 30, 2001 and December 31, 2000, due to an increase in interest rates of 100 basis points, a decline of 10% in foreign currency exchange rates and a 10% decline in the Index.

CNA FINANCIAL CORPORATION
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS, Continued

The following tables present the estimated effects on the market value of the Company’s financial instruments at June 30, 2001 and December 31, 2000, due to an increase in interest rates of 150 basis points, a decline of 20% in foreign currency exchange rates and a 25% decline in the Index.

CNA FINANCIAL CORPORATION
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS, Continued

The principal operating cash flow sources of CNA’s property-casualty and life insurance subsidiaries are premiums and investment income. The primary operating cash flow uses are payments for claims, policy benefits and operating expenses.

For the six months ended June 30, 2001, net cash used in operating activities was $893 million as compared with $755 million for the same period in 2000. The decline related primarily to increased payments of income taxes, partially offset by decreased paid claims and claim adjustment expenses.

For the six months ended June 30, 2001, net cash inflows from investment activities was $1,171 million as compared with $1,142 million for the same period in 2000. Cash flows from investing activities were principally related to purchases and sales of invested assets, and were relatively consistent year over year.

CNA FINANCIAL CORPORATION
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS, Continued

For the six months ended June 30, 2001, net cash used in financing activities was $299 million as compared with $356 million for the same period in 2000. Cash flows from financing activities include proceeds from the issuance of debt or equity securities, outflows for dividends or repayment of debt and outlays to reacquire equity instruments. For the six months ended June 30, 2001, CNA reduced its commercial paper borrowings by $227 million, including reductions totaling $100 million in the second quarter.

CNA expects to commence a rights offering of its common stock in the third quarter of 2001 and expects to raise approximately $1 billion pursuant to the offering. The proceeds from the rights offering are expected to be used to increase the capital of the property-casualty insurance companies. CNA’s common shareholders of record on August 23, 2001 will receive rights for each common share they own that will entitle the holder of rights to purchase CNA common shares at a specified price. Loews Corporation, the holder of approximately 87% of CNA’s shares intends to exercise its rights to purchase common shares and to purchase any shares that are not subscribed for by other shareholders, subject to customary conditions. The number of shares of common stock that CNA will offer in the rights offering, the number of rights distributed in respect of each common share, the number of rights that will be required to purchase a common share, the exercise price per share and how long the rights offering will be open will be determined on or before the record date.

Effective January 30, 2001, the Company sold the 180 Maiden Lane, New York, facility. The sale of this property provided additional liquidity to the Company with net sale proceeds of $277 million.

As of April 30, 2001, CNAF replaced its $750 million revolving credit facility (the Prior Facility) with a new $500 million revolving credit facility (the New Facility). No loans were outstanding under either the Prior Facility or the New Facility at any time during 2001. The Prior Facility was scheduled to expire on May 10, 2001. The New Facility is split into two parts, a $250 million component with a 364-day expiration date (with an option by CNAF to turn this part of the New Facility into a one-year term loan) and a $250 million component with a 3-year expiration date. The Company pays a facility fee to the lenders of the New Facility for having funds available for loans under both components. The facility fee on the 364-day component is 12.5 basis points (which is the same as the fee on the expiring revolver) while the fee on the 3-year component is 15 basis points. The facility is subject to certain restrictive covenants.

If the Company has outstanding loans equaling more than 50% of the amounts available under the New Facility, the Company also will pay a utilization fee of 12.5 basis points on such loans.

CNA FINANCIAL CORPORATION
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS, Continued

The New Facility is used for general corporate purposes including support for the commercial paper program, which currently has $400 million of loans outstanding. There are currently no bank loans drawn under the facility.

Following the announcement of second quarter 2001 earnings, the Company’s commercial paper rating was placed under review by S&P. During the period of this review, which is expected to be finalized by the end of third quarter 2001, the Company may redeem or hold its outstanding commercial paper loans as they mature using internal funds.

The table below reflects ratings issued by A.M. Best, S&P, Moody’s and Fitch as of August 10, 2001 for the Continental Casualty Company (CCC) Pool, the Continental Insurance Company (CIC) Pool and the Continental Assurance Company (CAC) Pool. Also rated were CNAF’s senior debt and commercial paper and The Continental Corporation’s (Continental) senior debt.

On August 2, 2001 each of the four rating agencies A.M. Best, S&P, Moody’s and Fitch issued press releases specifying their rating action for each of the Pools, rated debt and commercial paper.

A.M. Best affirmed the ratings of the CCC and CAC pools at “A”, upgraded the CIC pool from “A-” to “A” and removed the negative outlook. A.M. Best initiated debt ratings for CNAF’s senior debt at BBB, CNAF’s commercial paper at AMB-2, and Continental’s senior debt at BBB-. S&P placed all of CNA’s rated entities, debt and commercial paper, with the exception of CNA Surety, on CreditWatch with negative implications pending a further review with CNA management. Moody’s placed the CCC Pool under review for possible downgrade and affirmed the ratings of the CIC and CAC Pools at A2 with stable and negative outlooks, respectively. Moody’s further affirmed CNAF’s commercial paper rating at P2 and placed the CNAF senior debt currently rated at Baa1 and Continental’s senior debt at Baa2 under review. Moody’s expects the review will take approximately one month and lead to either a confirmation or a one-notch downgrade. Fitch downgraded the rating of the CCC Pool from “A+” to “A” and changed the outlook from negative to stable. Fitch further affirmed the AA- rating of the CAC Pool with a stable outlook. Fitch further downgraded CNAF ’s senior debt rating from “BBB+” to “BBB” and moved the negative rating outlook to stable.

The Company’s intention to raise capital through the previously mentioned rights offering was communicated to the rating agencies and regulators and was considered by them in conjunction with their respective actions.

A.M. Best, S&P and Moody’s lowered the ratings associated with the separately rated London based entity, CNA Reinsurance Company Limited (CNA Re UK). Current ratings for CNA Re UK are as follows: A.M. Best: A- (under review with negative implications); S&P: BBB- (CreditWatch; negative); and Moody’s: Baa2 (under review; direction uncertain).

Agency ratings are not a recommendation to buy, sell or hold any security, and may be revised or withdrawn at any time by the issuing organization. Each agency’s rating should be evaluated independently of any other agency’s rating.

In the first quarter of 2001, the Company adopted the Financial Accounting Standards Board (FASB) Statement of Financial Accounting Standards No. 133, Accounting for Derivative

CNA FINANCIAL CORPORATION
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS, Continued

Instruments and Hedging Activities and the Statement of Financial Accounting Standards No. 138, Accounting for Certain Derivative Instruments and Certain Hedging Activities (collectively referred to as SFAS 133). The Company’s initial adoption of SFAS 133 did not have a significant impact on the equity of the Company; however, adoption of SFAS 133 resulted in an after-tax decrease to first quarter 2001 earnings of $61 million. Of this transition amount, approximately $58 million related to investments and investment-related derivatives. Because the Company already carried its investment and investment-related derivatives at fair value through other comprehensive income, there was an equal and offsetting favorable adjustment of $58 million to stockholders’ equity (accumulated other comprehensive income). The remainder of the transition adjustment is attributable to collateralized debt obligation products that are derivatives under SFAS 133. See Note D for a complete discussion of the Company’s adoption of these accounting pronouncements.

Effective January 1, 2001, the Company adopted the Codification of Statutory Accounting Principles (Codification) for preparing its statutory-basis financial statements. Codification is intended to standardize regulatory accounting and reporting to state insurance departments. However, statutory accounting principles will continue to be established by individual state laws and permitted practices. The states in which CNAF’s insurance subsidiaries conduct business required adoption of Codification (with certain modifications). The Company’s adoption of Codification, as modified, resulted in an increase in statutory capital and surplus as of January 1, 2001 of $24 million, which primarily relates to deferred tax assets, partially offset by insurance-related assessments and pension-related liabilities.

In June 2001, the FASB issued Statement of Financial Accounting Standards No. 142, Goodwill and Other Intangible Assets (SFAS 142). SFAS 142 changes the accounting for goodwill and indefinite-lived intangible assets from an amortization method to an impairment-only approach. Amortization of goodwill and indefinite-lived intangible assets, including goodwill recorded in past business combinations, will cease upon adoption of SFAS 142, which for CNA will be January 1, 2002. The Company is in the process of quantifying the impact this new standard will have on its operations and intangible assets.

This quarterly report includes a number of statements which relate to anticipated future events (forward-looking statements) rather than actual present conditions or historical events. You can identify forward-looking statements because generally they include words such as “believes”, “expects”, “intends”, “anticipates”, “estimates”, and similar expressions. Forward-looking

CNA FINANCIAL CORPORATION
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS, Continued

statements in this quarterly report include expected losses in the Company’s insurance business, including losses for asbestos, environmental pollution and other mass tort claims; the Company’s expectations to commence a rights offering, any terms of the rights offering and the participation by Loews Corporation in the rights offering; the Company’s expectations concerning its revenues, earnings, expenses and investment activities; expected cost savings and other results from the Company’s restructuring activities; and expected proceeds and terms of, and other matters concerning, the Company’s planned disposition of its U.K. reinsurance business. Forward-looking statements, by their nature, are subject to a variety of risks and uncertainties that could cause actual results to differ materially from the results expected in the forward-looking statement. Many of these risks and uncertainties cannot be controlled by the Company. Some examples of these risks and uncertainties are:

•		general economic and business conditions;

•		changes in financial markets such as fluctuations in interest rates, credit conditions and currency, commodity and stock prices;

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

•		regulatory initiatives and compliance with governmental regulations, judicial decisions and rulings;

•		the impact of competitive products, policies and pricing and the competitive environment in which the Company operates;

•		product and policy demand and market responses;

•		development of claims and the impact on loss reserves;

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

•		results of financing efforts;

•		changes in our composition of operation segments;

•		exposure to liabilities due to claims made by insured and others relating to asbestos remediation and health-based asbestos impairments, and exposure to liabilities for environmental pollution and other mass tort claims; the sufficiency of the Company’s loss reserves and the possibility of future increases in reserves;

•		limitations upon the Company’s ability to receive dividends from its insurance subsidiaries imposed by state regulatory agencies and minimum risk-based capital standards established by the National Association of Insurance Commissioners;

•		the possibility of downgrades in the Company’s ratings by ratings agencies and changes in rating agency policies and practices; and

•		the actual closing of contemplated transactions and agreements.

Any forward-looking statements made in this quarterly report are made by the Company as of the date of this report. The Company does not have any obligation to update or revise any forward-looking statement contained in this prospectus supplement and the accompanying prospectus, even if our expectations or any related facts or circumstances change.

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.

63 EX-10.12 3 c63821ex10-12.htm THREE YEAR CREDIT AGREEMENT Three Year Credit Agreement

CREDIT AGREEMENT dated as of April 30, 2001 among CNA FINANCIAL CORPORATION, a corporation organized under the laws of Delaware (the “Borrower”), the banks (each a “Bank” and, collectively, the “Banks”) listed on the signature pages hereof, and CITIBANK, N.A., a national banking association, as administrative agent (in such capacity, the “Administrative Agent”).

The Borrower has requested that the Lenders (as hereinafter defined) make loans to it in an aggregate principal amount not exceeding $250,000,000 at any one time outstanding for the general corporate purposes of the Borrower (including to support the Borrower's commercial paper program and to finance Acquisitions), and the Lenders are prepared to make such loans upon the terms and conditions hereof. Accordingly, the parties hereto agree as follows:

SECTION 1.01. Certain Defined Terms. As used in this Agreement, the following terms shall have the following meanings (such meanings to be equally applicable to both the singular and plural forms of the terms defined):

of any Insurance Subsidiary in respect of the repurchase of securities pursuant to Repurchase Agreements or the lending of securities pursuant to securities lending arrangements, in each case, entered into in the ordinary course of business).

SECTION 1.02. Computation of Time Periods. In this Agreement in the computation of periods of time from a specified date to a later specified date, the word “from” means “from and including” and the words “to” and “until” mean “to but excluding”.

SECTION 1.03. Accounting Terms. All accounting terms not specifically defined herein shall be construed in accordance with generally accepted accounting principles or statutory accounting principals, as the case may be, consistent with those applied in the preparation of the financial statements referred to in Section 4.01(e).

(a) Each Lender severally agrees, on the terms and conditions hereinafter set forth, to make Advances to the Borrower from time to time on any Business Day during the period from the Effective Date until the Commitment Termination Date in an aggregate amount not to exceed at any time outstanding the amount set opposite such Lender's name on Schedule I hereto or, if such Lender has entered into an Assignment and Acceptance, set forth for such Lender in the Register, as such amount may be reduced pursuant to Section 2.04(a) (such Lender's “Commitment”).

(b) Each Borrowing and each Conversion or Continuation thereof (i) shall (except as otherwise provided in Sections 2.08(f) and (g)) be in an aggregate amount not less than $10,000,000 or an integral multiple of $1,000,000 in excess thereof and (ii) shall consist of Advances of the same Type (and, if such Advances are Eurodollar Rate Advances, having the same Interest Period) made, Continued or Converted on the same day by the Lenders ratably according to their respective Commitments. Within the limits of each Lender's Commitment, the Borrower may from time to time borrow, prepay pursuant to Section 2.10(b) and reborrow under this Section 2.01.

(b) Anything in subsection (a) above to the contrary notwithstanding, the Borrower may select Eurodollar Rate Advances for any Borrowing only in an aggregate amount of $10,000,000 or an integral multiple of $1,000,000 in excess thereof.

(c) Each Notice of Borrowing shall be irrevocable and binding on the Borrower. In the case of any Borrowing which the related Notice of Borrowing specifies is to be comprised of Eurodollar Rate Advances, the Borrower shall indemnify each Lender against any loss, cost or expense (excluding loss of profit) reasonably incurred by such Lender as a result of any failure to make such Borrowing (including, without limitation, as a result of any failure to fulfill, on or before the date specified in such Notice of Borrowing, the applicable conditions set forth in Article 3) and the liquidation or reemployment of deposits or other funds acquired by such Lender to fund the Advance to be made by such Lender as part of such Borrowing. A certificate as to the amount of such losses, costs and expenses, submitted to the Borrower and the Administrative Agent by such Lender, shall be conclusive and binding for all purposes, absent manifest error.

(d) Unless the Administrative Agent shall have received notice from a Lender prior to the date of any Borrowing that such Lender will not make available to the Administrative Agent such Lender's ratable portion of such Borrowing, the Administrative Agent may assume that such Lender has made such portion available to the Administrative Agent on the date of such Borrowing in accordance with subsection (a) of this Section 2.02 and the Administrative Agent may, in reliance upon such assumption, make available to the Borrower on such date a corresponding amount. If and to the extent that such Lender shall not have so made such ratable portion available to the Administrative Agent, such Lender and the Borrower severally agree to repay to the Administrative Agent forthwith on demand (but without duplication) such corresponding amount together with interest thereon, for each day from the date such amount is made available to the Borrower until the date such amount is repaid to the Administrative Agent, at (i) in the case of the Borrower, the interest rate applicable at the time to Advances comprising such Borrowing and (ii) in the case of such Lender, the Federal Funds Rate. If such Lender shall repay to the Administrative Agent such corresponding amount, such amount so repaid shall constitute such Lender's Advance as part of such Borrowing for purposes of this Agreement (and such Advance shall be deemed to have been made by such Lender on the date on which such amount is so repaid to the Administrative Agent).

(e) The failure of any Lender to make the Advance to be made by it as part of any Borrowing shall not relieve the other Lenders of their obligations hereunder to make an Advance on the date of such Borrowing, and no Lender shall be responsible for the failure of any other Lender to make the Advance to be made by such other Lender on the date of any Borrowing.

(f) Notwithstanding anything in this Agreement to the contrary, no Lender whose Commitment Termination Date falls prior to the last day of any Interest Period for any Eurodollar Rate Advance (a “Terminating Lender”) shall participate in such Advance. Without limiting the generality of the foregoing, no Terminating Lender shall (i) participate in a Borrowing of any Eurodollar Rate Advance having an initial Interest Period ending after such Lender's Commitment Termination Date, (ii) have any outstanding Eurodollar Rate Advance Continued for a subsequent Interest Period if such subsequent Interest Period would end after such Lender's Commitment Termination Date or (iii) have any outstanding Base Rate Advance Converted into a Eurodollar Rate Advance if such Eurodollar Rate Advance would have an initial Interest Period ending after such Lender's Commitment Termination Date. If any Terminating Lender has outstanding a Eurodollar Rate Advance that cannot be Continued for a subsequent Interest Period pursuant to clause (ii) above or has outstanding a Base Rate Advance that cannot be Converted into a Eurodollar Rate Advance pursuant to clause (iii) above, such Lender's ratable share of such Eurodollar Rate Advance (in the case of said clause (ii)) shall be repaid by the Borrower on the last day of its then current Interest Period and such Lender's ratable share of such Base Rate Advance (in the case of said clause (iii)) shall be repaid by the Borrower on the day on which the Advances of Lenders unaffected by said clause (iii) are so Converted.

(a) Facility Fee. The Borrower agrees to pay to the Administrative Agent for the account of each Lender a facility fee (the “Facility Fee”) on the average daily amount (whether used or unused) of such Lender's Commitment from the date hereof (in the case of each Bank) and from the effective date specified in the Assignment and Acceptance pursuant to which it became a Lender (in the case of each such Lender) until the Commitment Termination Date of such Lender at a rate per annum equal to the Applicable Facility Fee Rate. The Facility Fee shall be payable quarterly in arrears on the last Business Day of each March, June, September and December and, for each Lender, on the Commitment Termination Date of such Lender.

(b) Utilization Fee. For each day on which the aggregate principal amount of Advances outstanding exceeds 50% of the aggregate Commitments, the Borrower agrees to pay to the Administrative Agent for the account of each Lender a utilization fee (the “Utilization Fee”) on the aggregate principal amount of the Advances of such Lender outstanding on such day at a rate per annum equal to the Applicable Utilization Fee Rate. The Utilization Fee will be payable in respect of each Advance on each date on which interest is payable on such Advance, as specified in Section 2.06(a) hereof.

(c) Administrative Agent's Fee. The Borrower agrees to pay to the Administrative Agent, for the Administrative Agent's own account, an administrative agency fee at the times and in the amounts heretofore agreed between the Borrower and the Administrative Agent.

(i) The Commitment of each Lender shall be automatically reduced to zero on the Commitment Termination Date of such Lender.

(ii) In addition, the Borrower shall have the right, upon at least three Business Days' notice to the Administrative Agent, to terminate in whole or reduce ratably in part the unused portions of the respective Commitments of the Lenders; provided that the aggregate amount of the Commitments of the Lenders shall not be reduced to an amount which is less than the aggregate principal amount of the Advances then outstanding; and provided further that each partial reduction shall be in an aggregate amount of $10,000,000 or an integral multiple of $1,000,000 in excess thereof. Once reduced or terminated, the Commitments may not be reinstated.

(i) The Borrower may, by notice to the Administrative Agent (which shall promptly notify the Lenders) not more than 60 days and not less than 45 days prior to each anniversary of the date hereof (each such date, an “Anniversary Date”), request that each Lender extend such Lender's Commitment Termination Date to the date falling one year after the Commitment Termination Date then in effect for such Lender hereunder (the “Existing Commitment Termination Date”).

(ii) Each Lender, acting in its sole and individual discretion, shall, by notice to the Administrative Agent given not more than 30 days immediately prior to such Anniversary Date but in any event no later than the date (the “Notice Date”) 20 days prior to such Anniversary Date, advise the Administrative Agent whether or not such Lender agrees to such extension (and each Lender that determines not to so extend its Commitment Termination Date (a “Non-Extending Lender”) shall notify the Administrative Agent (which shall notify the other Lenders) of such fact promptly after such determination (but in any event no later than the Notice Date) and any Lender that does not so advise the Administrative Agent on or before the Notice Date shall be deemed to be a Non-Extending Lender. The election of any Lender to agree to such extension shall not obligate any other Lender to so agree.

(iii) The Administrative Agent shall notify the Borrower of each Lender's determination under this Section 2.04(b) no later than the date 15 days prior to such Anniversary Date (or, if such date is not a Business Day, on the next preceding Business Day).

(iv) The Borrower shall have the right on or before any Existing Commitment Termination Date to replace each Non-Extending Lender with, and add as “Lenders” under this Agreement in place thereof, one or more Eligible Assignees (each, an “Additional Commitment Lender”) with the approval of the Administrative Agent (which approval shall not be unreasonably withheld), each of which Additional Commitment Lenders shall have entered into an agreement in form and substance satisfactory to the Borrower and the Administrative Agent pursuant to which such Additional Commitment Lender shall, effective as of the Existing Commitment Termination Date in effect for each Non-Extending Lender, undertake a Commitment (and, if any such Additional Commitment Lender is already a Lender, its Commitment shall be in addition to such Lender's Commitment hereunder on such date); provided that prior to replacing any Non-Extending Lender with any Additional Commitment Lender, the Borrower shall have given each Lender which has agreed to extend its Commitment Termination Date an opportunity to increase its Commitment by all or a portion of the Non-Extending Lenders' Commitments.

(v) If (and only if) the total of the Commitments of the Lenders that have agreed so to extend their Commitment Termination Date and the additional Commitments of the Additional Commitment Lenders shall be more than 50% of the aggregate amount of the Commitments in effect immediately prior to an Anniversary Date, then, effective as of the such Anniversary Date, the Commitment Termination Date of each Extending Lender and of each Additional Commitment Lender shall be extended to the date falling one year after the Existing Commitment Termination Date in effect for such Extending Lenders and such Additional Commitment Lenders (except that, if such date is not a Business Day, such Commitment Termination Date as so extended shall be the next preceding Business Day) and each Additional Commitment Lender shall thereupon become a “Lender” for all purposes of this Agreement.

(vi) Notwithstanding the foregoing, the extension of the Commitment Termination Date pursuant to this Section 2.04(b) shall be effective with respect to any Lender only if:

SECTION 2.05. Repayment. The Borrower shall repay the then unpaid principal amount of each Advance made by each Lender, and each Advance made by such Lender shall mature, on the Commitment Termination Date of such Lender.

(a) Ordinary Interest. The Borrower shall pay interest on the unpaid principal amount of each Advance made by each Lender, from the date of such Advance until such principal amount shall be paid in full, at the following rates per annum:

(b) Default Interest. Notwithstanding the foregoing, if any Event of Default shall have occurred and be continuing, the Borrower shall pay interest on:

SECTION 2.07. Additional Interest on Eurodollar Rate Advances. The Borrower shall pay to each Lender additional interest on the unpaid principal amount of each Eurodollar Rate Advance of such Lender, from the date of such Advance until such principal amount is paid in full, at an interest rate per annum equal at all times to the remainder obtained by subtracting (i) the Eurodollar Rate for each Interest Period for such Advance from (ii) the rate obtained by dividing such Eurodollar Rate by a percentage equal to 100% minus the Eurodollar Rate Reserve Percentage of such Lender for such Interest Period, payable on each date on which interest is payable on such Advance. Such additional interest shall be determined by such Lender and notified to the Borrower through the Administrative Agent.

(a) Each Reference Bank agrees, upon the request of the Administrative Agent, to furnish to the Administrative Agent timely information for the purpose of determining each Eurodollar Rate. If any one or more of the Reference Banks shall not furnish such timely information to the Administrative Agent for the purpose of determining any such interest rate, the Administrative Agent shall determine such interest rate on the basis of timely information furnished by the remaining Reference Banks (subject to the provisions set forth in the definition of “Eurodollar Rate” in Section 1.01 and to clause (c) below).

(b) The Administrative Agent shall give prompt notice to the Borrower and the Lenders of the applicable interest rates determined by the Administrative Agent for the purposes of Section 2.06.

(c) If (1) fewer than two Reference Banks furnish timely information to the Administrative Agent for determining the Eurodollar Rate for any Interest Period for any Eurodollar Rate Advances and (2) the relevant rates do not appear on Bloomberg Page BBAL,

(d) If, with respect to any Eurodollar Rate Advances, the Majority Lenders notify the Administrative Agent showing calculations in reasonable detail that the Eurodollar Rate for any Interest Period for such Advances will not adequately reflect the cost to such Majority Lenders of making, funding or maintaining their respective Eurodollar Rate Advances for such Interest Period, the Administrative Agent shall forthwith so notify the Borrower and the Lenders, whereupon:

(e) If the Borrower shall fail to select the duration of any Interest Period for any Eurodollar Rate Advances in accordance with the provisions contained in the definition of “Interest Period” in Section 1.01, the Administrative Agent will forthwith so notify the Borrower and the Lenders and such Advances will automatically, on the last day of the then existing Interest Period therefor, Convert into Base Rate Advances.

(f) On the date on which the aggregate unpaid principal amount of Eurodollar Rate Advances comprising any Borrowing shall be reduced, by payment or prepayment or otherwise, to less than $10,000,000, such Advances shall automatically Convert into Base Rate Advances.

(g) Upon the occurrence and during the continuance of any Event of Default, (x) each Eurodollar Rate Advance will automatically, on the last day of the then existing Interest Period therefor, Convert into a Base Rate Advance and (y) the obligation of the Lenders to make or Continue, or to Convert Advances into, Eurodollar Rate Advances shall be suspended.

(h) If the rating system of either Moody's or Standard & Poor's shall change, or if either such rating agency shall cease to be in the business of rating corporate debt obligations, the Borrower and the Administrative Agent (on behalf of the Lenders) shall negotiate in good faith to amend the references to specific ratings in this Agreement to reflect such changed rating system or the non-availability of ratings from such rating agency (provided that any such amendment to such specific ratings shall in no event be effective without the approval of the Majority Lenders).

(a) Optional Conversion. The Borrower may on any Business Day, upon notice given to the Administrative Agent not later than 12:00 P.M. (New York City time) on the third Business Day prior to the date of the proposed Conversion and subject to the provisions of Sections 2.08 and 2.12, Convert all or any portion of the outstanding Advances of one Type comprising part of the same Borrowing into Advances of the other Type; provided that (i) any Conversion of Base Rate Advances into Eurodollar Rate Advances shall be in an amount not less than the minimum amount specified in Section 2.02(b) and (ii) in the case of any such Conversion of a Eurodollar Rate Advance into a Base Rate Advance on a day other than the last day of an Interest Period therefor, the Borrower shall reimburse the Lenders in respect thereof pursuant to Section 8.04(c). Each such notice of a Conversion shall, within the restrictions specified above, specify (x) the date of such Conversion, (y) the Advances to be Converted, and (z) if such Conversion is into Eurodollar Rate Advances, the duration of the initial Interest Period for each such Advance. Each notice of Conversion shall be irrevocable and binding on the Borrower.

(b) Continuations. The Borrower may, on any Business Day, upon notice given to the Administrative Agent not later than 12:00 P.M. (New York City time) on the third Business Day prior to the date of the proposed Continuation and subject to the provisions of Sections 2.08 and 2.12, Continue all or any portion of the outstanding Eurodollar Rate Advances comprising part of the same Borrowing for one or more Interest Periods; provided that (i) Eurodollar Rate Advances so Continued and having the same Interest Period shall be in an amount not less than the minimum amount specified in Section 2.02(b) and (ii) in the case of any such Continuation on a day other than the last day of an Interest Period therefor, the Borrower shall reimburse the Lenders in respect thereof pursuant to Section 8.04(c). Each such notice of a Continuation shall, within the restrictions specified above, specify (x) the date of such Continuation, (y) the Eurodollar Rate Advances to be Continued and (y) the duration of the initial Interest Period (or Interest Periods) for the Eurodollar Rate Advances subject to such Continuation. Each notice of Continuation shall be irrevocable and binding on the Borrower.

(a) The Borrower shall have no right to prepay any principal amount of any Advances other than as provided in subsection (b) below.

(b) The Borrower may, on notice given not later than 12:00 P.M. (New York City time) on the second Business Day prior to the date of the proposed prepayment of Advances (in the case of an Eurodollar Rate Advances) or given not later than 12:00 P.M. (New York City time) on the Business Day of the proposed prepayment of Advances (in the case of Base Rate Advances), stating the proposed date and aggregate principal amount of the prepayment, and if such notice is given the Borrower shall, prepay the outstanding principal amounts of the Advances comprising part of the same Borrowing in whole or ratably in part, together with accrued interest to the date of such prepayment on the principal amount prepaid; provided, however, that (x) each partial prepayment shall be in an aggregate principal amount not less than $10,000,000 or integral multiples of $1,000,000 in excess thereof and (y) in the case of any such prepayment of a Eurodollar Rate Advance on a day other than the last day of an Interest Period therefor, the Borrower shall reimburse the Lenders in respect thereof pursuant to Section 8.04(c).

(a) If, due to either (i) the introduction of or any change (other than any change by way of imposition or increase of reserve requirements included in the Eurodollar Rate Reserve Percentage) in or in the interpretation of any law or regulation or (ii) the compliance with any guideline or request from any central bank or other governmental authority (whether or not having the force of law), there shall be any increase in the cost to any Lender of agreeing to make or making, funding or maintaining Eurodollar Rate Advances, then the Borrower shall from time to time, upon demand by such Lender (with a copy of such demand to the Administrative Agent), pay to the Administrative Agent for the account of such Lender additional amounts sufficient to compensate such Lender for such increased cost. A certificate as to the amount of such increased cost, submitted to the Borrower and the Administrative Agent by such Lender, shall be conclusive and binding for all purposes, absent manifest error.

(b) If any Lender determines that compliance with any law or regulation or any guideline or request from any central bank or other governmental authority (whether or not having the force of law) affects or would affect the amount of capital required or expected to be maintained by such Lender or any corporation controlling such Lender and that the amount of such capital is increased by or based upon the existence of such Lender's commitment to lend hereunder and other commitments of this type, then, upon demand by such Lender (with a copy of such demand to the Administrative Agent), the Borrower shall immediately pay to the Administrative Agent for the account of such Lender, from time to time as specified by such Lender, additional amounts sufficient to compensate such Lender or such corporation in the light of such circumstances, to the extent that such Lender reasonably determines such increase in capital to be allocable to the existence of such Lender's commitment to lend hereunder. A certificate as to such amounts submitted to the Borrower and the Administrative Agent by such Lender shall be conclusive and binding for all purposes, absent manifest error.

SECTION 2.12. Illegality. Notwithstanding any other provision of this Agreement, if any Lender shall notify the Administrative Agent that the introduction of or any change in or in the interpretation of any law or regulation makes it unlawful, or any central bank or other governmental authority asserts that it is unlawful, for such Lender or its Eurodollar Lending Office to perform its obligations hereunder to make or Continue Eurodollar Rate Advances or to fund or otherwise maintain Eurodollar Rate Advances hereunder, (i) the obligation of such Lender to make or Continue, or to Convert Advances into, Eurodollar Rate Advances shall be suspended until the Administrative Agent shall notify the Borrower and the Lenders that the circumstances causing such suspension no longer exist and (ii) each Eurodollar Rate Advance of such Lender shall convert into a Base Rate Advance at the end of the then current Interest Period for such Eurodollar Rate Advance.

(a) The Borrower shall make each payment hereunder without set-off or counterclaim not later than 12:00 P.M. (New York City time) on the day when due in U.S. dollars to the Administrative Agent at its address referred to in Section 8.02 in same day funds. The Administrative Agent will promptly thereafter cause to be distributed like funds relating to the payment of principal, interest, Facility Fee or Utilization Fee ratably (other than amounts payable pursuant to Section 2.02(c), 2.11, 2.14 or 8.04(c)) to the Lenders for the account of their respective Applicable Lending Offices, and like funds relating to the payment of any other amount payable to any Lender to such Lender for the account of its Applicable Lending Office, in each case to be applied in accordance with the terms of this Agreement. Upon its acceptance of an Assignment and Acceptance and recording of the information contained therein in the Register pursuant to Section 8.06(d), from and after the effective date specified in such Assignment and Acceptance, the Administrative Agent shall make all payments hereunder in respect of the interest assigned thereby to the Lender assignee thereunder, and the parties to such Assignment and Acceptance shall make all appropriate adjustments in such payments for periods prior to such effective date directly between themselves.

(b) All computations of interest based on Citibank's base rate shall be made by the Administrative Agent on the basis of a year of 365 or 366 days, as the case may be, for the actual number of days (including the first day but excluding the last day) occurring in the period for which such interest is payable. All computations of interest based on the Eurodollar Rate or the Federal Funds Rate and of the Facility Fee and the Utilization Fee shall be made by the Administrative Agent, and all computations of interest pursuant to Section 2.07 shall be made by a Lender, on the basis of a year of 360 days, for the actual number of days (including the first day but excluding the last day) occurring in the period for which such interest or fee is payable. Each determination by the Administrative Agent of an interest rate hereunder shall be conclusive and binding for all purposes, absent manifest error.

(c) Whenever any payment hereunder would be due on a day other than a Business Day, such due date shall be extended to the next succeeding Business Day, and any such extension of such due date shall in such case be included in the computation of payment of interest, Facility Fee or Utilization Fee, as the case may be; provided however that if such extension would cause payment of interest on or principal of Eurodollar Rate Advances to be made in the next following calendar month, such payment shall be made on the next preceding Business Day.

(d) Unless the Administrative Agent shall have received notice from the Borrower prior to the date on which any payment is due to the Lenders hereunder that the Borrower will not make such payment in full, the Administrative Agent may assume that the Borrower has made such payment in full to the Administrative Agent on such date and the Administrative Agent may, in reliance upon such assumption, cause to be distributed to each Lender on such due date an amount equal to the amount then due such Lender. If and to the extent that the Borrower shall not have so made such payment in full to the Administrative Agent, each Lender shall repay to the Administrative Agent forthwith on demand such amount distributed to such Lender together with interest thereon, for each day from the date such amount is distributed to such Lender until the date such Lender repays such amount to the Administrative Agent, at the Federal Funds Rate.

(a) Any and all payments by the Borrower hereunder shall be made, in accordance with Section 2.13, free and clear of and without deduction for any and all present or future taxes, levies, imposts, deductions, charges or withholdings, and all liabilities with respect thereto, excluding, in the case of each Lender and the Administrative Agent, taxes imposed on its income, and franchise taxes imposed on it, by the jurisdiction under the laws of which such Lender or the Administrative Agent (as the case may be) is organized or any political subdivision thereof and, in the case of each Lender, taxes imposed on its income, and franchise taxes imposed on it, by the jurisdiction of such Lender's Applicable Lending Office or any political subdivision thereof (all such non-excluded taxes, levies, imposts, deductions, charges, withholdings and liabilities being hereinafter referred to as “Taxes”). If the Borrower shall be required by law to deduct any Taxes from or in respect of any sum payable hereunder to any Lender or the Administrative Agent, (i) the sum payable shall be increased as may be necessary so that after making all required deductions (including deductions applicable to additional sums payable under this Section 2.14) such Lender or the Administrative Agent (as the case may be) receives an amount equal to the sum it would have received had no such deductions been made, (ii) the Borrower shall make such deductions and (iii) the Borrower shall pay the full amount deducted to the relevant taxation authority or other authority in accordance with applicable law.

(b) In addition, the Borrower agrees to pay any present or future stamp or documentary taxes or any other excise or property taxes, charges or similar levies which arise from any payment made hereunder or from the execution, delivery or registration of, or otherwise with respect to, this Agreement (hereinafter referred to as “Other Taxes”).

(c) The Borrower will indemnify each Lender and the Administrative Agent for the full amount of Taxes or Other Taxes (including, without limitation, any Taxes and Other Taxes imposed by any jurisdiction on amounts payable under this Section 2.14) paid by such Lender or the Administrative Agent (as the case may be) and any liability (including penalties, interest and expenses) arising therefrom or with respect thereto, whether or not such Taxes or Other Taxes were correctly or legally asserted. This indemnification shall be made within 30 days from the date such Lender or the Administrative Agent (as the case may be) makes written demand therefor. A certificate as to the amount of such Taxes and Other Taxes, submitted to the Borrower and the Administrative Agent by such Lender, shall be conclusive and binding (as between the Borrower, the Lenders and the Administrative Agent) for all purposes, absent manifest error.

(d) Within 30 days after the date of any payment of Taxes, the Borrower will furnish to the Administrative Agent, at its address referred to in Section 8.02, the original or a certified copy of a receipt evidencing payment thereof or other proof of payment of such Taxes reasonably satisfactory to the relevant Lender(s). If no Taxes are payable in respect of any payment hereunder, upon the request of the Administrative Agent the Borrower will furnish to the Administrative Agent, at such address, a statement to such effect with respect to each jurisdiction designated by the Administrative Agent.

(e) Each Lender organized under the laws of a jurisdiction outside the United States, on or prior to the date of its execution and delivery of this Agreement (in the case of each Bank) and on the date of the Assignment and Acceptance pursuant to which it becomes a Lender (in the case of each other Lender), and from time to time thereafter if requested in writing by the Borrower (but only so long as such Lender remains lawfully able to do so), shall provide the Borrower with Internal Revenue Service form W-8BEN or W-8ECI, as appropriate, or any successor form prescribed by the Internal Revenue Service, certifying that such Lender is entitled to benefits under an income tax treaty to which the United States is a party which reduces the rate of withholding tax on payments of interest or certifying that the income receivable pursuant to this Agreement is effectively connected with the conduct of a trade or business in the United States. If the form provided by a Lender at the time such Lender first becomes a party to this Agreement indicates a United States interest withholding tax rate in excess of zero, withholding tax at such rate shall be considered excluded from “Taxes” as defined in Section 2.15(a).

(f) For any period with respect to which a Lender has failed to provide the Borrower with the appropriate form described in Section 2.14(e) (other than if such failure is due to a change in law occurring subsequent to the date on which a form originally was required to be provided, or if such form otherwise is not required under the first sentence of subsection (e) above), such Lender shall not be entitled to indemnification under Section 2.14(a) or (c) with respect to Taxes imposed by the United States; provided however that should a Lender become subject to Taxes because of its failure to deliver a form required hereunder, the Borrower shall take such steps as the Lender shall reasonably request to assist the Lender to recover such Taxes.

(g) Any Lender claiming any additional amounts payable pursuant to this Section 2.14 shall use reasonable efforts (consistent with its internal policy and legal and regulatory restrictions) to change the jurisdiction of its Applicable Lending Office(s) if the making of such a change would avoid the need for, or reduce the amount of, any such additional amounts that may thereafter accrue and would not, in the reasonable judgment of such Lender, be otherwise disadvantageous to such Lender.

(a) Without limiting any of the obligations of the Borrower or the rights of the Lenders hereunder, if the Borrower shall fail to pay when due (whether at stated maturity, by acceleration or otherwise) any amount payable by it hereunder or under any Note each Lender may, without prior notice to the Borrower (which notice is expressly waived by it to the fullest extent permitted by applicable law), set off and appropriate and apply against such amount any and all deposits (general or special, time or demand, provisional or final, in any currency, matured or unmatured) and other obligations and liabilities at any time held or owing by such Lender or any branch or agency thereof to or for the credit or account of the Borrower. Each Lender shall promptly provide notice of such set-off to the Borrower, provided that failure by such Lender to provide such notice shall not give the Borrower any cause of action or right to damages or affect the validity of such set-off and application.

(b) If any Lender shall obtain any payment (whether voluntary, involuntary, through the exercise of any right of set-off, or otherwise) on account of the Advances made by it (other than pursuant to Section 2.02(c), 2.11, 2.14 or 8.04(c)) in excess of its ratable share of payments on account of the Advances obtained by all the Lenders, such Lender shall forthwith purchase from the other Lenders such participations in the Advances made by them as shall be necessary to cause such purchasing Lender to share the excess payment ratably with each of them; provided however that if all or any portion of such excess payment is thereafter recovered from such purchasing Lender, such purchase from each Lender shall be rescinded and such Lender shall repay to the purchasing Lender the purchase price to the extent of such recovery together with an amount equal to such Lender's ratable share (according to the proportion of (i) the amount of such Lender's required repayment to (ii) the total amount so recovered from the purchasing Lender) of any interest or other amount paid or payable by the purchasing Lender in respect of the total amount so recovered. The Borrower agrees that any Lender so purchasing a participation from another Lender pursuant to this Section 2.15 may, to the fullest extent permitted by law, exercise all its rights of payment (including the right of set-off) with respect to such participation as fully as if such Lender were the direct creditor of the Borrower in the amount of such participation.

SECTION 2.16. Right to Replace a Lender. If the Borrower is required to make any additional payment pursuant to Section 2.11 or 2.14 to any Lender or if any Lender's obligation to make or Continue, or to Convert Advances into, Eurodollar Rate Advances shall be suspended pursuant to Section 2.12 (in each case, such Lender being an “Affected Person”), the Borrower may elect, if such amounts continue to be charged or such suspension is still effective, to replace such Affected Person as a party to this Agreement; provided that, no Default or Event of Default shall have occurred and be continuing at the time of such replacement; and provided further that, concurrently with such replacement, (i) another financial institution which is an Eligible Assignee and is reasonably satisfactory to the Borrower and the Administrative Agent shall agree, as of such date, to purchase for cash the Advances of the Affected Person pursuant to an Assignment and Acceptance and to become a Lender for all purposes under this Agreement and to assume all obligations (including all outstanding Advances) of the Affected Person to be terminated as of such date and to comply with the requirements of Section 8.06 applicable to assignments, and (ii) the Borrower shall pay to such Affected Person in same day funds on the day of such replacement all interest, fees and other amounts then due and owing to such Affected Person by the Borrower hereunder to and including the date of termination, including without limitation payments due such Affected Person under Section 2.11 and 2.14.

SECTION 2.17. Evidence of Indebtedness. (a) Each Lender shall maintain in accordance with its usual practice an account or accounts evidencing the indebtedness of the Borrower to such Lender resulting from each Advance made by such Lender, including the amounts of principal and interest payable and paid to such Lender from time to time hereunder.

(b) The Administrative Agent shall maintain accounts in which it shall record (i) the date, amount, Type, interest rate and duration of Interest Period (if applicable) of each Advance made hereunder, (ii) the amount of any principal or interest due and payable or to become due and payable from the Borrower to each Lender hereunder and (iii) the amount of any sum received by the Administrative Agent hereunder for the account of the Lenders and each Lender's share thereof.

(c) The entries made in the accounts maintained pursuant to clause (a) or (b) of this Section 2.17 shall be prima facie evidence of the existence and amounts of the obligations recorded therein; provided that the failure of any Lender or the Administrative Agent to maintain such accounts or any error therein shall not in any manner affect the obligation of the Borrower to repay the Advances in accordance with the terms of this Agreement.

SECTION 3.01. Conditions Precedent to Initial Borrowing. The obligation of each Lender to make an Advance on the occasion of the initial Borrowing is subject to the condition precedent that the Administrative Agent shall have received the following, each (unless otherwise specified below) dated the Effective Date, in form and substance satisfactory to the Administrative Agent and (except for the items in clauses (a), (b), (c) and (d)) in sufficient copies for each Lender:

SECTION 3.02. Conditions Precedent to Each Borrowing. The obligation of each Lender to make an Advance on the occasion of each Borrowing (including the initial Borrowing) shall be subject to the further conditions precedent that on the date of such Borrowing the following statements shall be true (and each of the giving of the applicable Notice of Borrowing and the acceptance by the Borrower of the proceeds of such Borrowing shall constitute a representation and warranty by the Borrower that on the date of such Borrowing such statements are true):

SECTION 4.01. Representations and Warranties of the Borrower. The Borrower represents, warrants and agrees as follows:

SECTION 5.01. Covenants. During the term of this Agreement, unless the Required Lenders shall otherwise consent in writing:

SECTION 6.01. Events of Default. If any of the following events (“Events of Default”) shall occur and be continuing:

then, and in any such event, the Administrative Agent (i) shall at the request, or may with the consent, of the Majority Lenders, by notice to the Borrower, declare the obligation of each Lender to make Advances to be terminated, whereupon the same shall forthwith terminate, and (ii) shall at the request, or may with the consent, of the Majority Lenders, by notice to the Borrower, declare the Advances, all interest thereon and all other amounts payable under this Agreement to be forthwith due and payable, whereupon the Advances, all such interest and all such amounts shall become and be forthwith due and payable, without presentment, demand, protest or further notice of any kind, all of which are hereby expressly waived by the Borrower; provided, however, that in the event of an Event of Default with respect to the Borrower of the kind referred to in clause (e) above or with respect to any of CAC, CCC or CIC of the kind referred to in clause (f) above, (A) the obligation of each Lender to make Advances shall automatically be terminated and (B) the Advances, all such interest and all such amounts shall automatically become and be due and payable, without presentment, demand, protest or any notice of any kind, all of which are hereby expressly waived by the Borrower.

SECTION 7.01. Authorization and Action. Each Lender hereby appoints and authorizes the Administrative Agent to take such action as administrative agent on its behalf and to exercise such powers under this Agreement as are delegated to the Administrative Agent by the terms hereof, together with such powers as are reasonably incidental thereto. As to any matters not expressly provided for by this Agreement (including, without limitation, enforcement or collection of the Advances), the Administrative Agent shall not be required to exercise any discretion or take any action, but shall be required to act or to refrain from acting (and shall be fully protected in so acting or refraining from acting) upon the instructions of the Majority Lenders, and such instructions shall be binding upon all Lenders; provided, however, that the Administrative Agent shall not be required to take any action which exposes the Administrative Agent to personal liability or which is contrary to this Agreement or applicable law. The Administrative Agent agrees to give to each Lender prompt notice of each notice given to it by the Borrower pursuant to the terms of this Agreement.

SECTION 7.02. Administrative Agent's Reliance, Etc. Neither the Administrative Agent nor any of its directors, officers, agents or employees shall be liable to the Lenders for any action taken or omitted to be taken by it or them under or in connection with this Agreement, except for its or their own gross negligence or willful misconduct. Without limitation of the generality of the foregoing, the Administrative Agent: (i) may consult with legal counsel (including counsel for the Borrower), independent public accountants and other experts selected by it and shall not be liable to the Lenders for any action taken or omitted to be taken in good faith by it in accordance with the advice of such counsel, accountants or experts; (ii) makes no warranty or representation to any Lender and shall not be responsible to any Lender for any statements, warranties or representations (whether written or oral) made in or in connection with this Agreement; (iii) shall not have any duty to ascertain or to inquire as to the performance or observance of any of the terms, covenants or conditions of this Agreement on the part of the Borrower or to inspect the property (including the books and records) of the Borrower or any of its Subsidiaries; (iv) shall not be responsible to any Lender for the due execution, legality, validity, enforceability, genuineness, sufficiency or value of this Agreement or any other instrument or document furnished pursuant hereto; and (v) shall incur no liability to the Lenders under or in respect of this Agreement by acting upon any notice, consent, certificate or other instrument or writing (which may be by telecopier, telegram, cable or telex) believed by it to be genuine and signed or sent by the proper party or parties.

SECTION 7.03. Citibank and Affiliates. With respect to its Commitment and the Advances made by it, Citibank shall have the same rights and powers under this Agreement as any other Lender and may exercise the same as though it were not the Administrative Agent; and the term “Lender” or “Lenders” shall, unless otherwise expressly indicated, include Citibank in its individual capacity. Citibank and its Affiliates may accept deposits from, lend money to, act as trustee under indentures of, and generally engage in any kind of business with, the Borrower, any of its Subsidiaries and any Person who may do business with or own securities of the Borrower or any such Subsidiary, all as if Citibank were not the Administrative Agent and without any duty to account therefor to the Lenders.

SECTION 7.04. Lender Credit Decision. Each Lender acknowledges that it has, independently and without reliance upon the Administrative Agent or any other Lender and based on the financial statements referred to in Section 4.01 and such other documents and information as it has deemed appropriate, made its own credit analysis and decision to enter into this Agreement. Each Lender also acknowledges that it will, independently and without reliance upon the Administrative Agent or any other Lender and based on such documents and information as it shall deem appropriate at the time, continue to make its own credit decisions in taking or not taking action under this Agreement.

SECTION 7.05. Indemnification. The Lenders agree to indemnify the Administrative Agent (to the extent not reimbursed by the Borrower), ratably according to the respective amounts of their Commitments, from and against any and all liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses or disbursements of any kind or nature whatsoever which may be imposed on, incurred by, or asserted against the Administrative Agent in any way relating to or arising out of this Agreement or any action taken or omitted by the Administrative Agent under this Agreement, provided that no Lender shall be liable for any portion of such liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses or disbursements found in a final-non-appealable judgment by a court of competent jurisdiction to have resulted from the Administrative Agent's gross negligence or willful misconduct. Without limiting the foregoing, each Lender agrees to reimburse the Administrative Agent promptly upon demand for its ratable share of any out-of-pocket expenses (including counsel fees) incurred by the Administrative Agent in connection with the preparation, execution, delivery, administration, modification, amendment or enforcement (whether through negotiations, legal proceedings or otherwise) of, or legal advice in respect of rights or responsibilities under, this Agreement, to the extent that the Administrative Agent is not reimbursed for such expenses by the Borrower.

SECTION 7.06. Successor Administrative Agent. The Administrative Agent may resign at any time by giving written notice thereof to the Lenders and the Borrower and may be removed at any time with or without cause by the Majority Lenders. Upon any such resignation or removal, the Majority Lenders shall have the right to appoint a successor Administrative Agent that, unless a Default or Event of Default shall have occurred and then be continuing, is reasonably acceptable to the Borrower. If no successor Administrative Agent shall have been so appointed by the Majority Lenders, and shall have accepted such appointment, within 30 days after the retiring Administrative Agent's giving of notice of resignation or the Majority Lenders' removal of the retiring Administrative Agent, then the retiring Administrative Agent may, on behalf of the Lenders, appoint a successor Administrative Agent, which shall be a commercial bank organized under the laws of the United States of America or of any State thereof and having total assets of at least $1,000,000,000. Upon the acceptance of any appointment as Administrative Agent hereunder by a successor Administrative Agent, such successor Administrative Agent shall thereupon succeed to and become vested with all the rights, powers, privileges and duties of the retiring Administrative Agent, and the retiring Administrative Agent shall be discharged from its duties and obligations under this Agreement. After any retiring Administrative Agent's resignation or removal hereunder as Administrative Agent, the provisions of this Article 7 shall inure to its benefit as to any actions taken or omitted to be taken by it while it was Administrative Agent under this Agreement.

SECTION 7.07. Advisor, Sole Arranger and Book Manager, Syndication Agent and Documentation Agent.

The Advisor, Sole Arranger and Book Manager, the Syndication Agent and the Documentation Agent named on the cover page of this Agreement, in their capacities as such, shall have no obligation, responsibility or required performance hereunder and shall not become liable in any manner hereunder to any party hereto.

SECTION 8.01. Amendments, Etc. No amendment or waiver of any provision of this Agreement, nor consent to any departure by the Borrower therefrom, shall in any event be effective unless the same shall be in writing and signed by the Borrower and the Majority Lenders, and then such waiver or consent shall be effective only in the specific instance and for the specific purpose for which given; provided, however, that no amendment, waiver or consent shall, unless in writing and signed by all the Lenders, do any of the following: (a) increase or extend the Commitments of such Lenders, (b) reduce the principal of, or interest on, the Notes or any fees (other than the Administrative Agent's fee referred to in Section 2.03(c)) or other amounts payable hereunder, (c) postpone any date fixed for any payment of principal of, or interest on, the Advances or any fees (other than the Administrative Agent's fee referred to in Section 2.03(c)) or other amounts payable hereunder, (d) change the percentage of the Commitments or of the aggregate unpaid principal amount of the Advances, or the number of Lenders, which shall be required for the Lenders or any of them to take any action hereunder or (e) amend this Section 8.01; provided further that no amendment, waiver or consent shall, unless in writing and signed by the Administrative Agent in addition to the Lenders required above to take such action, affect the rights or duties of the Administrative Agent under this Agreement. This Agreement and the agreement referred to in Section 2.03(c) constitute the entire agreement of the parties with respect to the subject matter hereof and thereof.

SECTION 8.02. Notices, Etc. All notices and other communications provided for hereunder shall be in writing (including telecopier) and mailed, telecopied or delivered by hand:

or, as to the Borrower or the Administrative Agent, at such other address as shall be designated by such party in a written notice to the other parties and, as to each other party, at such other address as shall be designated by such party in a written notice to the Borrower and the Administrative Agent. All such notices and communications shall be deemed to have been duly given or made (i) in the case of hand deliveries, when delivered by hand, (ii) in the case of mailed notices, three Business Days after being deposited in the mail, postage prepaid, and (iii) in the case of telecopier notice, when transmitted and confirmed during normal business hours (or, if delivered after the close of normal business hours, at the beginning of business hours on the next Business Day), except that notices and communications to the Administrative Agent pursuant to Article 2 or 7 shall not be effective until received by the Administrative Agent.

SECTION 8.03. No Waiver; Remedies. No failure on the part of any Lender or the Administrative Agent to exercise, and no delay in exercising, any right hereunder shall operate as a waiver thereof; nor shall any single or partial exercise of any such right preclude any other or further exercise thereof or the exercise of any other right. The remedies herein provided are cumulative and not exclusive of any remedies provided by law.

(a) The Borrower agrees to pay and reimburse on demand all reasonable costs and expenses of the Administrative Agent and the Arranger in connection with the preparation, execution, delivery, administration, modification and amendment of this Agreement and the other documents to be delivered hereunder, including, without limitation, the reasonable fees and out-of-pocket expenses of counsel for the Administrative Agent with respect thereto and with respect to advising the Administrative Agent as to its rights and responsibilities under this Agreement. The Borrower further agrees to pay on demand all costs and expenses, if any (including, without limitation, reasonable counsel fees and expenses of the Administrative Agent and each of the Lenders), incurred by the Administrative Agent or any Lender in connection with the enforcement (whether through negotiations, legal proceedings or otherwise) of this Agreement and the other documents to be delivered hereunder, including, without limitation, reasonable counsel fees and expenses in connection with the enforcement of rights under this Section 8.04(a). Such reasonable fees and out-of-pocket expenses shall be reimbursed by the Borrower upon presentation to the Borrower of a statement of account, regardless of whether this Agreement is executed and delivered by the parties hereto or the transactions contemplated by this Agreement are consummated.

(b) The Borrower hereby agrees to indemnify the Administrative Agent, Salomon Smith Barney Inc., each Lender and each of their respective Affiliates and their respective officers, directors, employees, agents, advisors and representatives (each, an “Indemnified Party”) from and against any and all direct claims, damages, losses, liabilities and expenses (including, without limitation, reasonable fees and disbursements of counsel), joint or several, that may be incurred by or asserted or awarded against any Indemnified Party, in each case arising out of or in connection with or relating to any investigation, litigation or proceeding or the preparation of any defense with respect thereto arising out of or in connection with or relating to this Agreement or the transactions contemplated hereby or thereby or any use made or proposed to be made with the proceeds of the Advances, whether or not such investigation, litigation or proceeding is brought by the Borrower, any of its shareholders or creditors, an Indemnified Party or any other Person, or an Indemnified Party is otherwise a party thereto, and whether or not any of the conditions precedent set forth in Article 3 are satisfied or the other transactions contemplated by this Agreement are consummated, except to the extent such direct claim, damage, loss, liability or expense is found in a final, non-appealable judgment by a court of competent jurisdiction to have resulted from such Indemnified Party's gross negligence or willful misconduct.

The Borrower hereby further agrees that no Indemnified Party shall have any liability (whether direct or indirect, in contract, tort or otherwise) to the Borrower for or in connection with or relating to this Agreement or the transactions contemplated hereby or thereby or any use made or proposed to be made with the proceeds of the Advances, except to the extent such liability is found in a final, non-appealable judgment by a court of competent jurisdiction to have resulted from such Indemnified Party's gross negligence or willful misconduct.

(c) If any payment of principal of, or Conversion or Continuation of, any Eurodollar Rate Advance is made other than on the last day of an Interest Period for such Advance as a result of any optional or mandatory prepayment, acceleration of the maturity of the Advances pursuant to Section 6.01 or for any other reason, the Borrower shall pay to the Administrative Agent for the account of such Lender any amounts required to compensate such Lender for any additional losses, costs or expenses (other than loss of profit) which it may reasonably incur as a result of such payment, Continuation or Conversion and the liquidation or reemployment of deposits or other funds acquired by any Lender to fund or maintain such Advance. A certificate as to the amount of such losses, costs and expenses, submitted to the Borrower and the Administrative Agent by such Lender, shall be conclusive and binding for all purposes, absent manifest error.

SECTION 8.05. Binding Effect. This Agreement shall become effective when it shall have been executed by the Borrower and the Administrative Agent and when the Administrative Agent shall have been notified by each Bank that such Bank has executed it and thereafter shall be binding upon and inure to the benefit of the Borrower, the Administrative Agent and each Lender and their respective successors and permitted assigns, except that the Borrower shall not have the right to assign its rights hereunder or any interest herein without the prior written consent of the Lenders.

(a) Each Lender may, with notice to and the consent of the Administrative Agent and, unless an Event of Default shall have occurred and be continuing, the Borrower (such consents not to be unreasonably withheld), assign to one or more banks or other entities all or a portion of its rights and obligations under this Agreement (including, without limitation, all or a portion of its Commitment and the Advances owing to it); provided that:

Upon such execution, delivery, acceptance and recording, from and after the effective date specified in each Assignment and Acceptance, (x) the assignee thereunder shall be a party hereto and, to the extent that rights and obligations hereunder have been assigned to it pursuant to such Assignment and Acceptance, have the rights and obligations of a Lender hereunder and (y) the Lender assignor thereunder shall, to the extent that rights and obligations hereunder have been assigned by it pursuant to such Assignment and Acceptance, relinquish its rights and be released from its obligations under this Agreement (and, in the case of an Assignment and Acceptance covering all or the remaining portion of an assigning Lender's rights and obligations under this Agreement, such Lender shall cease to be a party hereto).

(b) By executing and delivering an Assignment and Acceptance, the Lender assignor thereunder and the assignee thereunder confirm to and agree with each other and the other parties hereto as follows: (i) other than as provided in such Assignment and Acceptance, such assigning Lender makes no representation or warranty and assumes no responsibility with respect to any statements, warranties or representations made in or in connection with this Agreement or the execution, legality, validity, enforceability, genuineness, sufficiency or value of this Agreement or any other instrument or document furnished pursuant hereto; (ii) such assigning Lender makes no representation or warranty and assumes no responsibility with respect to the financial condition of the Borrower or the performance or observance by the Borrower of any of its obligations under this Agreement or any other instrument or document furnished pursuant hereto; (iii) such assignee confirms that it has received a copy of this Agreement, together with copies of the financial statements referred to in Section 4.01 and such other documents and information as it has deemed appropriate to make its own credit analysis and decision to enter into such Assignment and Acceptance; (iv) such assignee will, independently and without reliance upon the Administrative Agent, such assigning Lender or any other Lender and based on such documents and information as it shall deem appropriate at the time, continue to make its own credit decisions in taking or not taking action under this Agreement; (v) such assignee confirms that it is an Eligible Assignee; (vi) such assignee appoints and authorizes the Administrative Agent to take such action as administrative agent on its behalf and to exercise such powers under this Agreement as are delegated to the Administrative Agent by the terms hereof, together with such powers as are reasonably incidental thereto; and (vii) such assignee agrees that it will perform in accordance with their terms all of the obligations which by the terms of this Agreement are required to be performed by it as a Lender.

(c) Upon its receipt of an Assignment and Acceptance executed by an assigning Lender and an assignee representing that it is an Eligible Assignee, the Administrative Agent shall, if such Assignment and Acceptance has been completed (and the Borrower and the Administrative Agent shall have consented to the relevant assignment) and is in substantially the form of Exhibit B hereto, (i) accept such Assignment and Acceptance, (ii) record the information contained therein in the Register and (iii) give prompt notice thereof to the Borrower.

(d) The Administrative Agent shall maintain at its address referred to in Section 8.02 a copy of each Assignment and Acceptance delivered to and accepted by it and a register for the recordation of the names and addresses of each of the Lenders and, with respect to Lenders, the Commitment of, and principal amount of the Advances owing to, each such Lender from time to time (the “Register”). The entries in the Register shall be conclusive and binding for all purposes, absent manifest error, and the Borrower, the Administrative Agent and the Lenders may treat each Person whose name is recorded in the Register as a Lender hereunder for the purposes of this Agreement. The Register shall be available for inspection by the Borrower or any Lender at any reasonable time and from time to time upon reasonable prior notice.

(e) Each Lender may sell participations to one or more Persons (excluding any Persons primarily engaged in the insurance or mutual fund business) in or to all or a portion of its rights and obligations under this Agreement (including, without limitation, all or a portion of its Commitment and the Advances owing to it); provided, however, that (i) such Lender's obligations under this Agreement (including, without limitation, its Commitment to the Borrower hereunder) shall remain unchanged, (ii) such Lender shall remain solely responsible to the other parties hereto for the performance of such obligations, (iii) the Borrower, the Administrative Agent and the other Lenders shall continue to deal solely and directly with such Lender in connection with such Lender's rights and obligations under this Agreement, (iv) in any proceeding under the Federal Bankruptcy Code in respect of the Borrower, such Lender shall remain and be, to the fullest extent permitted by law, the sole representative with respect to the rights and obligations held in the name of such Lender (whether such rights or obligations are for such Lender's own account or for the account of any participant) and (v) no participant under any such participation agreement shall have any right to approve any amendment or waiver of any provision of this Agreement, or to consent to any departure by the Borrower therefrom, except to the extent that any such amendment, waiver or consent would (x) reduce the principal of, or interest on, the Notes, in each case to the extent the same are subject to such participation, or (y) postpone any date fixed for the payment of principal of, or interest on, the Advances, in each case to the extent the same are subject to such participation.

(f) Any Lender may, in connection with any permitted assignment or participation or proposed assignment or participation pursuant to this Section 8.06 and subject to the provisions of Section 8.12, disclose to the assignee or participant or proposed assignee or participant any information relating to the Borrower or any of its Subsidiaries or Affiliates furnished to such Lender by or on behalf of the Borrower.

(g) Notwithstanding any other provision set forth in this Agreement, any Lender may at any time, without the consent of the Administrative Agent or the Borrower, create a security interest in all or any portion of its rights under this Agreement (including, without limitation, the Advances owing to it) in favor of any Federal Reserve Bank in accordance with Regulation A of the Board of Governors of the Federal Reserve System.

(h) Notwithstanding any other provision set forth in this Agreement, any Lender may at any time, without the consent of the Administrative Agent or the Borrower, assign to an Affiliate of such Lender (excluding any Affiliate of such Lender primarily engaged in the insurance or mutual fund business) all or any portion of its rights (but not its obligations) under this Agreement.

SECTION 8.07. Governing Law; Submission to Jurisdiction. This Agreement shall be governed by, and construed in accordance with, the law of the State of New York. The Borrower hereby submits to the nonexclusive jurisdiction of the United States District Court for the Southern District of New York and of any New York state court sitting in New York City for the purposes of all legal proceedings arising out of or relating to this Agreement or the transactions contemplated hereby. The Borrower irrevocably waives, to the fullest extent permitted by applicable law, any objection that it may now or hereafter have to the laying of the venue of any such proceeding brought in such a court and any claim that any such proceeding brought in such a court has been brought in an inconvenient forum.

SECTION 8.08. Severability. In case any provision in this Agreement shall be held to be invalid, illegal or unenforceable, such provision shall be severable from the rest of this Agreement, as the case may be, and the validity, legality and enforceability of the remaining provisions shall not in any way be affected or impaired thereby.

SECTION 8.09. Execution in Counterparts. This Agreement may be executed in any number of counterparts and by different parties hereto in separate counterparts, each of which when so executed shall be deemed to be an original and all of which taken together shall constitute one and the same agreement. Any counterpart hereof may be executed and delivered via telecopier, and each such counterpart so executed and delivered shall have the same force and effect as an originally executed and delivered counterpart hereof.

SECTION 8.10. Survival. The obligations of the Borrower under Sections 2.02(c), 2.07, 2.11, 2.14 and 8.04, and the obligations of the Lenders under Section 7.05, shall survive the repayment of the Advances and the termination of the Commitments. In addition, each representation and warranty made, or deemed to be made by any Notice of Borrowing, herein or pursuant hereto shall survive the making of such representation and warranty, and no Lender shall be deemed to have waived, by reason of making any Advance, any Default or Event of Default that may arise by reason of such representation or warranty proving to have been false or misleading, notwithstanding that such Lender or the Administrative Agent may have had notice or knowledge or reason to believe that such representation or warranty was false or misleading at the time such extension of credit was made.

SECTION 8.11. Waiver of Jury Trial. EACH OF THE BORROWER, THE ADMINISTRATIVE AGENT AND THE LENDERS HEREBY IRREVOCABLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY AND ALL RIGHT TO TRIAL BY JURY IN ANY LEGAL PROCEEDING ARISING OUT OF OR RELATING TO THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY.

SECTION 8.12. Confidentiality. Each Lender agrees to hold any confidential information which it may receive from the Borrower or any of its Subsidiaries or Affiliates pursuant to this Agreement in confidence and for use in connection with this Agreement, including without limitation, for use in connection with its rights and remedies hereunder, except for disclosure (a) to other Lenders and their respective Affiliates, (b) to legal counsel, accountants, and other professional advisors to such Lender, (c) to regulatory officials, (d) as requested pursuant to or as required by law, regulation, or legal process, (e) in connection with any legal proceeding to which such Lender is a party and (f) to a proposed assignee or participant permitted under Section 8.06 which shall have agreed in writing for the benefit of the Borrower and its Subsidiaries and Affiliates to keep such disclosed confidential information confidential in accordance with this Section.

SECTION 8.13. Nonliability of Lenders. The relationship between the Borrower and the Lenders and the Administrative Agent shall be solely that of borrower and lender. Neither the Administrative Agent nor any Lender shall have any fiduciary responsibilities to the Borrower. Neither the Administrative Agent nor any Lender undertakes any responsibility to the Borrower to review or inform the Borrower of any matter in connection with any phase of the Borrower's business or operations.

SECTION 8.14. Existing Credit Agreement. On the Effective Date, the commitment of each lender under the Existing Credit Agreement shall automatically terminate.

IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed by their respective officers thereunto duly authorized, as of the date first above written.

Citibank, N.A., as Administrative
Agent for the Lenders parties
to the Credit Agreement
referred to below
Two Penns Ways, Suite 200
New Castle, Delaware 19720
Attention: Lee Ocasil

The undersigned, CNA Financial Corporation (the “Borrower”), refers to the Three-Year Credit Agreement, dated as of April 30, 2001 (as from time to time amended, the “Credit Agreement”, the terms defined therein being used herein as therein defined), among the undersigned, certain Lenders parties thereto and Citibank, N.A., as Administrative Agent for said Lenders, and hereby gives you notice, irrevocably, pursuant to Section 2.02 of the Credit Agreement that the undersigned hereby requests a Borrowing under the Credit Agreement, and in that connection sets forth below the information relating to such Borrowing (the “Proposed Borrowing”) as required by Section 2.02(a) of the Credit Agreement:

The undersigned hereby certifies that the following statements are true on the date hereof, and will be true on the date of the Proposed Borrowing:

Reference is made to the Three-Year Credit Agreement dated as of April 30, 2001 (as from time to time amended, the “Credit Agreement”) among CNA Financial Corporation, a Delaware corporation (the “Borrower”), the Lenders (as defined in the Credit Agreement) and Citibank, N.A., as Administrative Agent for the Lenders (the “Administrative Agent”). Terms defined in the Credit Agreement are used herein with the same meaning.

_____________ (the “Assignor”) and _____________ (the “Assignee”) agree as follows:

1. The Assignor hereby sells and assigns to the Assignee, and the Assignee hereby purchases and assumes from the Assignor, that interest in and to all of the Assignor's rights and obligations under the Credit Agreement as of the date hereof which represents the percentage interest specified on Schedule 1 of all outstanding rights and obligations under the Credit Agreement, including, without limitation, such interest in the Assignor's Commitment and the Advances owing to the Assignor. After giving effect to such sale and assignment, the Assignee's Commitment and the amount of the Advances owing to the Assignee will be as set forth in Schedule 1.

2. The Assignor (i) represents and warrants that it is the legal and beneficial owner of the interest being assigned by it hereunder and that such interest is free and clear of any adverse claim; (ii) makes no representation or warranty and assumes no responsibility with respect to any statements, warranties or representations made in or in connection with the Credit Agreement or the execution, legality, validity, enforceability, genuineness, sufficiency or value of the Credit Agreement or any other instrument or document furnished pursuant thereto; and (iii) makes no representation or warranty and assumes no responsibility with respect to the financial condition of the Borrower or the performance or observance by the Borrower of any of its obligations under the Credit Agreement or any other instrument or document furnished pursuant thereto.

3. The Assignee (i) confirms that it has received a copy of the Credit Agreement, together with copies of the financial statements referred to in Section 4.01 thereof and such other documents and information as it has deemed appropriate to make its own credit analysis and decision to enter into this Assignment and Acceptance; (ii) agrees that it will, independently and without reliance upon the Administrative Agent, the Assignor or any other Lender and based on such documents and information as it shall deem appropriate at the time, continue to make its own credit decisions in taking or not taking action under the Credit Agreement; (iii) confirms that it is an Eligible Assignee; (iv) appoints and authorizes the Administrative Agent to take such action as administrative agent on its behalf and to exercise such powers under the Credit Agreement as are delegated to the Administrative Agent by the terms thereof, together with such powers as are reasonably incidental thereto; (v) agrees that it will perform in accordance with their terms all of the obligations which by the terms of the Credit Agreement are required to be performed by it as a Lender; [and] (vi) specifies as its Domestic Lending Office (and address for notices) and Eurodollar Lending Office the offices set forth beneath its name on the signature pages hereof [and (vii) attaches the forms prescribed by the Internal Revenue Service of the United States certifying as to the Assignee's status for purposes of determining exemption from United States withholding taxes with respect to all payments to be made to the Assignee under the Credit Agreement or such other documents as are necessary to indicate that all such payments are subject to such rates at a rate reduced by an applicable tax treaty].¹

¹ If the Assignee is organized under the laws of a jurisdiction outside the United States.

4. Following the execution of this Assignment and Acceptance by the Assignor and the Assignee and the consent of the Borrower, it will be delivered to the Administrative Agent for acceptance and recording by the Administrative Agent. The effective date of this Assignment and Acceptance shall be the date of acceptance thereof by the Administrative Agent, unless otherwise specified on Schedule 1 hereto (the “Effective Date”).

5. Upon such acceptance and recording by the Administrative Agent, as of the Effective Date, (i) the Assignee shall be a party to the Credit Agreement and, to the extent provided in this Assignment and Acceptance, have the rights and obligations of a Lender thereunder and (ii) the Assignor shall, to the extent provided in this Assignment and Acceptance, relinquish its rights and be released from its obligations under the Credit Agreement.

6. Upon such acceptance and recording by the Administrative Agent, from and after the Effective Date, the Administrative Agent shall make all payments under the Credit Agreement in respect of the interest assigned hereby (including, without limitation, all payments of principal, interest, Facility Fee and Utilization Fee with respect thereto) to the Assignee. The Assignor and Assignee shall make all appropriate adjustments in payments under the Credit Agreement for periods prior to the Effective Date directly between themselves.

7. This Assignment and Acceptance shall be governed by, and construed in accordance with, the law of the State of New York.

IN WITNESS WHEREOF, the parties hereto have caused this Assignment and Acceptance to be executed by their respective officers thereunto duly authorized, as of the date first above written, such execution being made on Schedule 1 hereto.

* This date should be no earlier than the date of acceptance by the Administrative Agent.

Citibank, N.A., as Administrative
Agent
Two Penns Way, Suite 200
New Castle, Delaware 19720

I have acted as counsel to CNA Financial Corporation (the “Borrower”) in connection with the Three-Year Credit Agreement (the “Credit Agreement”) dated as of April 30, 2001, among the Borrower, the lenders named therein and Citibank, N.A., as Administrative Agent, providing for loans to be made by said lenders to the Borrower in an aggregate principal amount not exceeding $250,000,000. Terms defined in the Credit Agreement are used in this opinion letter as defined therein. This opinion letter is being delivered pursuant to Section 3.01(d) of the Credit Agreement.

In rendering the opinion expressed below, I, or attorneys under my supervision, have examined the following agreements, instruments and other documents:

In my examination, I have assumed the genuineness of all signatures (other than those of the Borrower), the authenticity of all documents submitted to me as originals and the conformity with authentic original documents of all documents submitted to me as copies. When relevant facts were not independently established, I have relied upon certificates of governmental officials and appropriate representatives of the Borrower and upon representations made in or pursuant to the Credit Agreement.

In rendering the opinions expressed below, I have assumed, with respect to all of the documents referred to in this opinion letter, that (except, to the extent set forth in the opinions expressed below, as to the Borrower):

Based upon and subject to the foregoing and subject also to the comments and qualifications set forth below, and having considered such questions of law as I have deemed necessary as a basis for the opinions expressed below, I am of the opinion that:

The foregoing opinions are subject to the following comments and qualifications:

The foregoing opinions are limited to matters involving the Federal laws of the United States, the law of the State of New York and the General Corporation Law of the State of Delaware, and I do not express any opinion as to the laws of any other jurisdiction.

At the request of the Borrower, this opinion letter is, pursuant to Section 3.01(d) of the Credit Agreement, provided to you by me in my capacity as Counsel of the Borrower and may not be relied upon by any Person for any purpose other than in connection with the transactions contemplated by the Credit Agreement without, in each instance, my prior written consent.

To the Banks party to the
Credit Agreement referred to
below
Citibank, N.A., as Administrative
Agent
399 Park Avenue
New York, New York 10043

We have acted as special New York counsel to Citibank, N.A. (the “Administrative Agent”), as Administrative Agent, in connection with the Three-Year Credit Agreement dated as of April 30, 2001 (the “Credit Agreement”) among CNA Financial Corporation (the “Borrower”), the lenders named therein and the Administrative Agent, providing for loans to be made by said lenders to the Borrower in an aggregate principal amount not exceeding $250,000,000. Terms defined in the Credit Agreement are used herein as defined therein. This opinion is being delivered pursuant to Section 3.01(e) of the Credit Agreement.

In rendering the opinions expressed below, we have examined the Credit Agreement. In our examination, we have assumed the genuineness of all signatures, the authenticity of all documents submitted to us as originals and the conformity with authentic original documents of all documents submitted to us as copies.

In rendering the opinions expressed below, we have assumed, with respect to the Credit Agreement, that:

Based upon and subject to the foregoing and subject also to the comments and qualifications set forth below, and having considered such questions of law as we have deemed necessary as a basis for the opinions expressed below, we are of the opinion that the Credit Agreement constitutes the legal, valid and binding obligation of the Borrower, enforceable against the Borrower in accordance with its terms, except as may be limited by bankruptcy, insolvency, reorganization, moratorium or other similar laws relating to or affecting the rights of creditors generally and except as the enforceability of the Credit Agreement is subject to the application of general principles of equity (regardless of whether considered in a proceeding in equity or at law), including, without limitation, (a) the possible unavailability of specific performance, injunctive relief or any other equitable remedy and (b) concepts of materiality, reasonableness, good faith and fair dealing.

The foregoing opinions are subject to the following comments and qualifications:

The foregoing opinions are limited to matters involving the Federal laws of the United States and the law of the State of New York, and we do not express any opinion as to the laws of any other jurisdiction.

This opinion letter is, pursuant to Section 3.01(e) of the Credit Agreement, provided to you by us in our capacity as special New York counsel to the Administrative Agent and may not be relied upon by any Person for any purpose other than in connection with the transactions contemplated by the Credit Agreement without, in each instance, our prior written consent.

This Compliance Certificate is furnished pursuant to that certain Three-Year Credit Agreement dated as of April 30, 2001 (as amended, modified, renewed or extended from time to time, the “Agreement”) among the Borrower, the banks named therein, Salomon Smith Barney Inc., as Advisor, Sole Arranger and Book Manager, Fleet National Bank as Syndication Agent, The Chase Manhattan Bank, as Documentation Agent and Citibank, N.A., as Administrative Agent for the Lenders. Unless otherwise defined herein, capitalized terms used in this Compliance Certificate have the meanings ascribed thereto in the Agreement.

2. I have reviewed the terms of the Agreement and I have made, or have caused to be made under my supervision, a detailed review of the transactions and conditions of the Borrower and its Subsidiaries during the accounting period covered by the attached financial statements;

3. The examinations described in paragraph 2 did not disclose, and I have no knowledge of, the existence of any condition or event which constitutes a Default or an Event of Default during or at the end of the accounting period covered by the attached financial statements or as of the date of this Certificate, except as set forth below; and

4. Schedule I attached hereto sets forth financial data and computations evidencing the Borrower's compliance with certain covenants of the Agreement, all of which data and computations are true, complete and correct.

Described below are the exceptions, if any, to paragraph 3 by listing, in detail, the nature of the condition or event, the period during which it has existed and the action which the Borrower has taken, is taking, or proposes to take with respect to each such condition or event:

The foregoing certifications, together with the computations set forth in Schedule I hereto and the financial statements delivered with this Certificate in support hereof, are made and delivered this ___ day of_________, 20__.

EXECUTION COPY

Exhibit 10.13

U.S. $250,000,000

364-DAY CREDIT AGREEMENT

Dated as of April 30, 2001

Among

CNA FINANCIAL CORPORATION
as Borrower

THE BANKS NAMED HEREIN
as Banks

SALOMON SMITH BARNEY INC.
as Advisor, Sole Arranger and Book Manager

FLEET NATIONAL BANK
as Syndication Agent

THE CHASE MANHATTAN BANK
as Documentation Agent

and

CITIBANK, N.A.
as Administrative Agent

EX-10.13 4 c63821ex10-13.htm NO. 364-DAY CREDIT AGREEMENT No. 364-Day Credit Agreement

T A B L E O F C O N T E N T S

TABLE OF CONTENTS


ARTICLE 1 DEFINITIONS AND ACCOUNTING TERMS
	SECTION 1.01. Certain Defined Terms.
	SECTION 1.02. Computation of Time Periods.
	SECTION 1.03. Accounting Terms.
ARTICLE 2 AMOUNTS AND TERMS OF THE ADVANCES
	SECTION 2.01. The Advances.
	SECTION 2.02. Making the Advances.
	SECTION 2.03. Certain Fees.
	SECTION 2.04. Reduction and Extensions of the Commitments.
	SECTION 2.05. Repayment; Term-Out Option.
	SECTION 2.06. Interest.
	SECTION 2.07. Additional Interest on Eurodollar Rate Advances.
	SECTION 2.08. Interest Rate Determinations; Changes in Rating Systems.
	SECTION 2.09. Voluntary Conversion and Continuation of Advances.
	SECTION 2.10. Prepayments of Advances.
	SECTION 2.11. Increased Costs.
	SECTION 2.12. Illegality.
	SECTION 2.13. Payments and Computations.
	SECTION 2.14. Taxes.
	SECTION 2.15. Set-Off; Sharing of Payments, Etc.
	SECTION 2.16. Right to Replace a Lender.
	SECTION 2.17. Evidence of Indebtedness.
ARTICLE 3 CONDITIONS OF LENDING
	SECTION 3.01. Conditions Precedent to Initial Borrowing.
	SECTION 3.02. Conditions Precedent to Each Borrowing.
ARTICLE 4 REPRESENTATIONS AND WARRANTIES
	SECTION 4.01. Representations and Warranties of the Borrower.
ARTICLE 5 COVENANTS OF THE BORROWER
	SECTION 5.01. Covenants.
ARTICLE 6 EVENTS OF DEFAULT
	SECTION 6.01. Events of Default.
ARTICLE 7 THE ADMINISTRATIVE AGENT
	SECTION 7.01. Authorization and Action.
	SECTION 7.02. Administrative Agent's Reliance, Etc.
	SECTION 7.03. Citibank and Affiliates.
	SECTION 7.04. Lender Credit Decision.
	SECTION 7.05. Indemnification.
	SECTION 7.06. Successor Administrative Agent.
	SECTION 7.07. Advisor, Sole Arranger and Book Manager, Syndication Agent and Documentation Agent.
ARTICLE 8 MISCELLANEOUS
	SECTION 8.01. Amendments, Etc.
	SECTION 8.03. No Waiver; Remedies.
	SECTION 8.04. Costs, Expenses and Indemnification.
	SECTION 8.05. Binding Effect.
	SECTION 8.06. Assignments and Participations.
	SECTION 8.07. Governing Law; Submission to Jurisdiction.
	SECTION 8.08. Severability.
	SECTION 8.09. Execution in Counterparts.
	SECTION 8.10. Survival.
	SECTION 8.11. Waiver of Jury Trial.
	SECTION 8.12. Confidentiality.
	SECTION 8.13. Nonliability of Lenders.
	SECTION 8.14. Existing Credit Agreement.
SCHEDULES
SCHEDULE I - Banks and Commitments
	SCHEDULE II - Existing Liens
EXHIBITS
EXHIBIT A - Form of Notice of Borrowing
EXHIBIT B - Form of Assignment and Acceptance
EXHIBIT C - Form of Opinion of Counsel of the Borrower
EXHIBIT D - Form of Opinion of Special New York Counsel to the Administrative Agent
EXHIBIT E - Form of Compliance Certificate of Borrower
Three Year Credit Agreement
No. 364-Day Credit Agreement

ARTICLE 1
DEFINITIONS AND ACCOUNTING TERMS

“Acquisition” means any transaction, or any series of related transactions, consummated after the date of this Agreement, by which the Borrower and/or any of its Subsidiaries (i) acquires any Person or all or substantially all of the assets of any Person, whether through the purchase of assets, merger or otherwise, (ii) directly or indirectly acquires (in one transaction or as the most recent transaction in a series of transactions) control of at least a majority of Voting Stock of another Person or (iii) directly or indirectly acquires control of a 50% ownership interest in any partnership, joint venture or other entity, or of any general partnership (or equivalent) interest in any such entity.

“Administrative Questionnaire” means an administrative questionnaire in a form supplied by the Administrative Agent.

“Advance” means an advance by a Lender to the Borrower as part of a Borrowing and refers to a Base Rate Advance or a Eurodollar Rate Advance, and shall include each Term Loan.

“Affiliate” means, as to any Person, any other Person that, directly or indirectly, controls, is controlled by or is under common control with such Person.

“Aggregate Specified Indebtedness” means the aggregate Specified Indebtedness of the Borrower and its Subsidiaries determined on a Consolidated basis in accordance, subject to the provisos of the definition of Specified Indebtedness, with GAAP; provided that Qualifying SPV Indebtedness of all Qualifying SPVs (and Contingent Obligations of the Borrower and its Subsidiaries which are not Qualifying SPVs in respect of such Qualifying SPV Indebtedness) shall only be included in the calculation of Aggregate Specified Indebtedness at any time to the extent that it constitutes Qualifying SPV Net Indebtedness at such time.

“Annual Statement” means the annual statutory financial statement of any Insurance Subsidiary required to be filed with the insurance commissioner (or similar authority) of its jurisdiction of incorporation, which statement shall be in the form required by such Insurance Subsidiary's jurisdiction of incorporation or, if no specific form is so required, in the form of financial statements recommended by the NAIC to be used for filing annual statutory financial statements and shall contain the type of information recommended by the NAIC to be disclosed therein, together with all exhibits or schedules filed therewith.

“Applicable Facility Fee Rate” means, for any Rating Level Period, the rate set forth below opposite the reference to such Rating Level Period:

Rating Level Period	Applicable Facility Fee Rate
Rating Level 1 Period	0.075%
Rating Level 2 Period	0.100%
Rating Level 3 Period	0.125%
Rating Level 4 Period	0.150%
Rating Level 5 Period	0.200%

Each change in the Applicable Facility Fee Rate resulting from a Rating Level Change shall be effective on the effective date of such Rating Level Change.

“Applicable Lending Office” means, with respect to any Lender, such Lender's Domestic Lending Office in the case of a Base Rate Advance and such Lender's Eurodollar Lending Office in the case of a Eurodollar Rate Advance.

“Applicable Margin” means:

(a) for any Advance that is a Base Rate Advance, 0.000% per annum; and

(b) for any Advance that is a Eurodollar Rate Advance for any Rating Level Period, the rate set forth below opposite the reference to such Rating Level Period:

Rating Level Period	Applicable Margin (p.a.)
Rating Level 1 Period	0.350%
Rating Level 2 Period	0.400%
Rating Level 3 Period	0.500%
Rating Level 4 Period	0.600%
Rating Level 5 Period	0.800%

Each change in the Applicable Margin resulting from a Rating Level Change shall be effective on the effective date of such Rating Level Change.

“Applicable Utilization Fee Rate” means, for any Rating Level Period, the rate set forth below opposite the reference to such Rating Level Period:

Rating Level Period	Applicable Utilization Fee Rate
Rating Level 1 Period	0.125%
Rating Level 2 Period	0.125%
Rating Level 3 Period	0.125%
Rating Level 4 Period	0.125%
Rating Level 5 Period	0.125%

Each change in the Applicable Utilization Fee Rate resulting from a Rating Level Change shall be effective on the effective date of such Rating Level Change.

“Assignment and Acceptance” means an assignment and acceptance entered into by a Lender and an Eligible Assignee, and accepted by the Administrative Agent, in substantially the form of Exhibit B hereto.

“Base Rate” means, for any period, a fluctuating interest rate per annum in effect from time to time, which rate per annum shall at all times be equal to the highest of:

(a) the rate of interest announced publicly by Citibank in New York, New York from time to time as Citibank's base rate; and

(b) 1/2 of one percent per annum above the Federal Funds Rate for such period.

“Base Rate Advance” means an Advance which bears interest at rates based upon the Base Rate.

“Bloomberg Page BBAL” means the display designated as page “BBAL” on the Bloomberg Service or, if unavailable, such other page as may replace page “BBAL” on that service or such other service as may be nominated by the British Bankers' Association as the information vendor for the purpose of displaying British Bankers' Association Interest Settlement Rates for U.S. dollar deposits.

“Borrowing” means a borrowing consisting of simultaneous Advances of the same Type made by each of the Lenders pursuant to Section 2.01.

“Business Day” means a day of the year on which banks are not required or authorized to close in New York City and, if the applicable Business Day relates to any Eurodollar Rate Advance, on which dealings are carried on in the London interbank market.

“CAC” means Continental Assurance Company, an Illinois insurance company.

“Capitalized Lease” of a Person means any lease of Property by such Person as lessee which would be capitalized on a balance sheet of such Person prepared in accordance with GAAP.

“Capitalized Lease Obligations” of a Person means the amount of the obligations of such Person under Capitalized Leases which would be shown as a liability on a balance sheet of such Person prepared in accordance with GAAP.

“CCC” means Continental Casualty Company, an Illinois insurance company.

“Change in Control” means Loews shall cease to own beneficially and of record, free and clear of all Liens, other encumbrances, or voting agreements, restrictions or trusts of any kind at least 51% of the outstanding shares of capital stock of the Borrower on a fully diluted basis and shares representing the right to elect a majority of the directors of the Borrower; provided, however, that a Change in Control shall not be deemed to have occurred at any time (a) Loews owns more of the capital stock of the Borrower than any other Person (including Persons acting in concert with such Person), (b) Loews owns beneficially and of record, free and clear of all Liens, other encumbrances or voting agreements, restrictions or trusts of any kind at least 35% of the outstanding shares of capital stock of the Borrower on a fully diluted basis and (c) a majority of the members of the Borrower's Board of Directors are officers or designees of Loews or the Borrower or any Significant Subsidiary.

“Chase” means The Chase Manhattan Bank.

“CIC” means Continental Insurance Company, a New Hampshire insurance company.

“Citibank” means Citibank, N.A., a national banking association.

“Code” means the Internal Revenue Code of 1986, as amended from time to time.

“Commitment” has the meaning specified in Section 2.01(a).

“Commitment Termination Date” means April 29, 2002 or, in the case of any Lender whose Commitment is extended pursuant to Section 2.04(b), the date to which such Commitment is extended; provided in each case that if any such date is not a Business Day, the relevant Commitment Termination Date of such Lender shall be the immediately preceding Business Day. When the term “Commitment Termination Date” is used herein without reference to any particular Lender, such term shall, in such instance, be deemed to be a reference to the latest Commitment Termination Date of any of the Lenders then in effect hereunder.

“Consolidated” refers to the consolidation of accounts of the Borrower and its Subsidiaries in accordance with GAAP.

“Consolidated Net Worth” means, at any date of determination, the amount of consolidated common and preferred shareholders' equity of the Borrower and its Subsidiaries, determined as at such date in accordance with GAAP; provided, however, that unrealized appreciation and depreciation of securities which are classified as available for sale and are subject to FASB 115 shall be excluded when computing Consolidated Net Worth; provided further that for purposes of calculating Consolidated Net Worth, such calculation shall (a) include Qualifying SPV Net Asset Value of all Qualifying SPVs in lieu of Qualifying SPV Asset Value for such Qualifying SPVs and (b) subtract Qualifying SPV Net Indebtedness of all Qualifying SPVs in lieu of Qualifying SPV Indebtedness for such Qualifying SPVs.

“Contingent Obligation” of a Person means any agreement, undertaking or arrangement by which such Person assumes, guarantees, endorses, contingently agrees to purchase or provide funds for the payment of, or otherwise becomes or is contingently liable upon, the financial obligation or liability of any other Person, or agrees to maintain the net worth or working capital or other financial condition of any other Person, or otherwise assures any creditor of such other Person against loss, including, without limitation, any comfort letter, operating agreement, take-or-pay contract or application for a Letter of Credit, but excluding (a) the endorsement of instruments for deposit or collection in the ordinary course of business and (b) obligations incurred by any Insurance Subsidiary in the ordinary course of its financial guaranty or other business.

“Continuation”, “Continue” and “Continued” each refers to a continuation of Eurodollar Rate Advances from one Interest Period to the next Interest Period pursuant to Section 2.09(b).

“Controlled Group” means all members of a controlled group of corporations and all trades or businesses (whether or not incorporated) under common control which, together with the Borrower or any of its Subsidiaries, are treated as a single employer under Section 414 of the Code.

“Convert”, “Conversion” and “Converted” each refers to a conversion of Advances of one Type into Advances of the other Type pursuant to Section 2.08 or Section 2.09(a).

“Default” means an event that, with notice or lapse of time or both, would become an Event of Default.

“Domestic Lending Office” means, with respect to any Lender, the office of such Lender specified as its “Domestic Lending Office” in the Administrative Questionnaire of such Bank or in the Assignment and Acceptance pursuant to which it became a Lender, or such other office of such Lender as such Lender may from time to time specify to the Borrower and the Administrative Agent.

“Effective Date” means the earliest date as of which the conditions precedent to effectiveness set forth in Section 3.01 shall have been satisfied or waived.

“Eligible Assignee” means:

(a) a Lender and any Affiliate of such Lender (excluding any such Affiliate primarily engaged in the insurance or mutual fund business);

(b) a commercial bank organized under the laws of the United States, or any State thereof, and having total assets in excess of $1,000,000,000;

(c) a savings bank organized under the laws of the United States, or any State thereof, and having total assets in excess of $500,000,000;

(d) a commercial bank organized under the laws of any other country which is a member of the OECD or a political subdivision of any such country, and having total assets in excess of $1,000,000,000; and

(e) a finance company or other financial institution or fund (whether a corporation, partnership or other Person, but excluding any corporation, partnership or other Person primarily engaged in the insurance or mutual fund business) which is engaged in making, purchasing or otherwise investing in commercial loans in the ordinary course of its business, and having total assets in excess of $500,000,000.

“Environmental Law” means any federal, state or local governmental law, rule, regulation, order, writ, judgment, injunction or decree relating to pollution or protection of the environment or the treatment, storage, disposal, release, threatened release or handling of Hazardous Materials, including, without limitation, Comprehensive Environmental Response, Compensation and Liability Act of 1980, the Resource Conservation and Recovery Act, the Hazardous Materials Transportation Act, the Clean Water Act, the Toxic Substances Control Act, the Clean Air Act, the Safe Drinking Water Act, the Atomic Energy Act and the Federal Insecticide, Fungicide and Rodenticide Act, in each case, as amended from time to time.

“ERISA” means the Employee Retirement Income Security Act of 1974, as amended from time to time, and the regulations promulgated and rulings issued thereunder.

“Eurocurrency Liabilities” has the meaning assigned to that term in Regulation D of the Board of Governors of the Federal Reserve System, as in effect from time to time.

“Eurodollar Lending Office” means, with respect to any Lender, the office of such Lender specified as its “Eurodollar Lending Office” in the Administrative Questionnaire of such Lender or in the Assignment and Acceptance pursuant to which it became a Lender (or, if no such office is specified, its Domestic Lending Office), or such other office of such Lender as such Lender may from time to time specify to the Borrower and the Administrative Agent.

“Eurodollar Rate” means, for any Interest Period for each Eurodollar Rate Advance, the rate per annum (rounded upward, if necessary, to the nearest whole multiple of 1/16 of 1% per annum) appearing on Bloomberg Page BBAL as of 11:00 A.M. (London time) on the date (as to any Interest Period, the “Determination Date”) that is two Business Days before the first day of such Interest Period, as LIBOR for a period equal to such Interest Period. In the event that Bloomberg Page BBAL shall cease to report such LIBOR or, in the reasonable judgement of the Majority Lenders, shall cease to accurately reflect such LIBOR, then the “Eurodollar Rate” with respect to such Interest Period for such Eurodollar Rate Advance shall be the rate per annum equal to the average of the rate per annum at which deposits in U.S. dollars are offered by the principal office of each of the Reference Banks in London, England to leading banks in the London interbank market at 11:00 A.M. (London time) on the Determination Date in an amount substantially equal to such Reference Bank's Eurodollar Rate Advance comprising part of the related Borrowing and for a period equal to such Interest Period. The Eurodollar Rate for any Interest Period for each Eurodollar Rate Advance shall be determined by the Administrative Agent on the basis of the applicable rate appearing on Bloomberg Page BBAL as aforesaid (or the applicable rates furnished to and received by the Administrative Agent from the Reference Banks) on the Determination Date for such Interest Period, subject, however, to the provisions of Section 2.08.

“Eurodollar Rate Advance” means an Advance which bears interest at rates based upon the Eurodollar Rate.

“Eurodollar Rate Reserve Percentage” of any Lender for any Interest Period for any Eurodollar Rate Advance means the reserve percentage applicable during such Interest Period (or if more than one such percentage shall be so applicable, the daily average of such percentages for those days in such Interest Period during which any such percentage shall be so applicable) under regulations issued from time to time by the Board of Governors of the Federal Reserve System (or any successor) for determining the maximum reserve requirement (including, without limitation, any emergency, supplemental or other marginal reserve requirement) for such Lender with respect to liabilities or assets consisting of or including Eurocurrency Liabilities having a term equal to such Interest Period.

“Events of Default” has the meaning specified in Section 6.01.

“Exchange Act” means the Securities Exchange Act of 1934, as amended from time to time.

“Excluded Representations” means the representations and warranties set forth in clause (v) of Section 4.01(e) and in Section 4.01(f).

“Existing Credit Agreement” means the Amended and Restated Credit Agreement dated as of July 26, 1996 among the Borrower, the lenders party thereto and The First National Bank of Chicago, as administrative agent, as amended and/or restated through the date hereof.

“Existing Commitment Termination Date” has the meaning specified in Section 2.04(b)(i).

“Exposure” means, with respect to any Lender at any time, the sum of the outstanding principal amount of such Lender's Advances.

“Facility Fee” has the meaning specified in Section 2.03(a).

“Federal Funds Rate” means, for any period, a fluctuating interest rate per annum equal for each day during such period to the weighted average of the rates on overnight Federal funds transactions with members of the Federal Reserve System arranged by Federal funds brokers, as published for such day (or, if such day is not a Business Day, for the next preceding Business Day) by the Federal Reserve Bank of New York, or, if such rate is not so published for any day which is a Business Day, the average of the quotations for such day on such transactions received by the Administrative Agent from three Federal funds brokers of recognized standing selected by it.

“Fleet” means Fleet National Bank.

“GAAP” means generally accepted accounting principles in the United States of America as in effect from time to time.

“Governmental Authority” means the federal government, any state or other political subdivision thereof and any entity exercising executive, legislative, judicial, regulatory or administrative functions of or pertaining to government including, without limitation, any board of insurance, insurance department or insurance commissioner.

“Hazardous Materials” means (a) petroleum or petroleum products, natural or synthetic gas, asbestos in any form that is or could become friable, and radon gas, (b) any substances defined as or included in the definition of “hazardous substances”, “hazardous wastes”, “hazardous materials”, “extremely hazardous wastes”, “restricted hazardous wastes”, “toxic substances”, “toxic pollutants”, “contaminants” or “pollutants”, or words of similar meaning and regulatory effect, under any Environmental Law and (c) any other substance exposure to which is regulated under any Environmental Law.

“Hostile Acquisition” means an Acquisition that has not been approved by the board of directors of the target company prior to the commencement of a tender offer, proxy contest or the like in respect thereof.

“Indebtedness” of a Person means, without duplication, such Person's (a) obligations for borrowed money, (b) obligations representing the deferred purchase price of Property or services (excluding accounts payable arising in the ordinary course of such Person's business payable on terms customary in the trade), (c) obligations, whether or not assumed, secured by Liens or payable out of the proceeds or production from Property now or hereafter owned or acquired by such Person, (d) obligations which are evidenced by notes, acceptances, or similar instruments, (e) Capitalized Lease Obligations, (f) net Rate Hedging Obligations, (g) Contingent Obligations, (h) obligations for which such Person is obligated pursuant to or in respect of a Letter of Credit and (i) repurchase obligations or liabilities of such Person with respect to accounts, notes receivable or securities sold by such Person (but excluding the obligations of any Insurance Subsidiary in respect of the repurchase of securities pursuant to Repurchase Agreements or the lending of securities pursuant to securities lending arrangements, in each case, entered into in the ordinary course of business).

“Insurance Regulatory Authority” means, for the Borrower or any Insurance Subsidiary, the insurance department or similar administrative authority or agency located in the state in which the Borrower or such Insurance Subsidiary is domiciled.

“Insurance Subsidiary” means a Subsidiary of the Borrower which is engaged in any insurance business.

“Interest Period” means, with respect to any Eurodollar Rate Advance, the period beginning on the date such Eurodollar Rate Advance is made or Continued, or Converted from a Base Rate Advance, and ending on the last day of the period selected by the Borrower pursuant to the provisions below. The duration of each Interest Period shall be one, two, three or six months, as the Borrower may, upon notice received by the Administrative Agent not later than 12:00 P.M. (New York City time) on the third Business Day prior to the first day of such Interest Period, select; provided that:

(i) the Borrower may not select any Interest Period that ends after the Commitment Termination Date;

(ii) if an Interest Period in respect of a Term Loan would otherwise commence before and end after the Maturity Date, such Interest Period shall end on the Maturity Date;

(iii) each Interest Period that begins on the last Business Day of a calendar month (or on any day for which there is no numerically corresponding day in the appropriate subsequent calendar month) shall end on the last Business Day of the appropriate subsequent calendar month; and

(iv) whenever the last day of any Interest Period would otherwise occur on a day other than a Business Day, the last day of such Interest Period shall be extended to occur on the next succeeding Business Day, provided that, if such extension would cause the last day of such Interest Period to occur in the next following calendar month, the last day of such Interest Period shall occur on the next preceding Business Day.

“Invested Assets” means, as of the end of any calendar year, the sum of total investments, cash and cash equivalents, accrued investment income and receivables for securities sold, all calculated consistently with the calculation of such items in the audited consolidated balance sheet of the Borrower and its Subsidiaries for such calendar year.

“Lenders” means the Banks listed on the signature pages hereof and each Person that shall become a party hereto pursuant to Sections 8.06(a), (b) and (c).

“Letter of Credit” of a Person means a letter of credit or similar instrument which is issued upon the application of such Person or upon which such Person is an account party or for which such Person is in any way liable.

“LIBOR” means the rate at which deposits in U.S. dollars are offered to leading banks in the London interbank market.

“License” means any license, certificate of authority, permit or other authorization which is required to be obtained from the Governmental Authority in connection with the operation, ownership or transaction of insurance business.

“Lien” means any lien, security interest or other charge or encumbrance of any kind, or any other type of preferential arrangement having substantially the same effect as a lien, including, without limitation, the lien or retained security title of a conditional vendor.

“Loews” means Loews Corporation, a Delaware corporation.

“Majority Lenders” means, at any time, Lenders having Exposures and unused Commitments representing more than 50% of the sum of the total Exposures and unused Commitments at such time.

“Margin Stock” means margin stock within the meaning of Regulation U.

“Material Adverse Effect” means a material adverse effect on (i) the business, condition (financial or otherwise), results of operations or prospects of the Borrower and its Subsidiaries, taken as a whole, (ii) the legality, validity or enforceability of this Agreement or (iii) the ability of the Borrower to pay and perform its obligations hereunder.

“Maturity Date” has the meaning specified in Section 2.05(b).

“Moody's” means Moody's Investors Service, Inc. and its successors.

“Moody's Rating” means, at any time, the rating of the Borrower's unsecured, unguaranteed senior long-term debt obligations then outstanding most recently announced by Moody's.

“Multiemployer Plan” means a Plan maintained pursuant to a collective bargaining agreement or any other arrangement to which the Borrower or any member of the Controlled Group is a party to which more than one employer is obligated to make contributions.

“Municipal Bond” means direct obligations of, and obligations for which the timely payment of principal of and interest is fully and expressly guaranteed by, any state, local government, municipality or other political subdivision of any state of the United States of America.

“NAIC” means the National Association of Insurance Commissioners or any successor thereto, or in lieu thereof, any other association, agency or other organization performing advisory, coordination or other like functions among insurance departments, insurance commissions and similar Governmental Authorities of the various states of the United States of America toward the promotion of uniformity in the practices of such Governmental Authorities.

“Notice of Borrowing” has the meaning specified in Section 2.02(a).

“OECD” means the Organization for Economic Cooperation and Development.

“PBGC” means the Pension Benefit Guaranty Corporation or any successor.

“Permitted Securitization Transaction” shall mean any Securitization Transaction provided that the aggregate “capital”, facility limit or other principal equivalent amount of such Securitization Transactions which the Borrower and its Subsidiaries may enter into (measured in the case of revolving Securitization Transactions by the maximum capital, facility limit or other principal equivalent amount which may be outstanding at any time) shall not exceed at any time 10 percent of the Invested Assets of the Borrower and its Subsidiaries on a consolidated basis in accordance with GAAP as of the end of the preceding calendar year.

“Person” means an individual, partnership, corporation (including a business trust), limited liability company, joint stock company, trust, unincorporated association, joint venture or other entity, or a government or any political subdivision or agency thereof.

“Plan” means an employee pension benefit plan, as defined in Section 3(2) of ERISA, maintained, sponsored or contributed to by the Borrower or any of its Subsidiaries or, with respect to such a plan that is subject to Title IV of ERISA, by any member of the Controlled Group.

“Property” of a Person means any and all property, whether real, personal, tangible, intangible, or mixed, of such Person, or other assets owned, leased or operated by such Person.

“Qualifying SPV” means any Person which is formed by the Borrower as a special purpose entity for the primary purpose of holding Qualifying SPV Assets in the ordinary course of investment activities and issuing Indebtedness secured by such Qualifying SPV Assets.

“Qualifying SPV Asset Value” means the fair market value of all Qualifying SPV Assets.

“Qualifying SPV Assets” means Municipal Bonds and other financial assets which are owned by a Qualifying SPV.

“Qualifying SPV Indebtedness” means Indebtedness for borrowed money of all Qualifying SPVs.

“Qualifying SPV Net Asset Value” means, at any time of calculation, the excess, if any, at such time of (a) Qualifying SPV Asset Value over (b) Qualifying SPV Indebtedness.

“Qualifying SPV Net Indebtedness” means, at any time of calculation, the excess, if any, at such time of (a) Qualifying SPV Indebtedness over (b) Qualifying SPV Asset Value.

“Quarterly Statement” means the quarterly statutory financial statement of any Insurance Subsidiary required to be filed with the insurance commissioner (or similar authority) of its jurisdiction of incorporation, which statement shall be in the form required by such Insurance Subsidiary's jurisdiction of incorporation or, if no specific form is so required, in the form of financial statements recommended by the NAIC to be used for filing quarterly statutory financial statements and shall contain the type of information recommended by the NAIC to be disclosed therein, together with all exhibits or schedules filed therewith.

“Rate Hedging Obligations” of a Person means any and all obligations of such Person, whether absolute or contingent and howsoever and whensoever created, arising, evidenced or acquired (including all renewals, extensions and modifications thereof and substitutions therefor), under (a) any and all agreements, devices or arrangements designed to protect at least one of the parties thereto from the fluctuations of interest rates, exchange rates or forward rates applicable to such party's assets, liabilities or exchange transactions, including, but not limited to, dollar-denominated or cross-currency interest rate exchange agreements, forward currency exchange agreements, interest rate cap or collar protection agreements, forward rate currency or interest rate options, puts and warrants, and (b) any and all cancellations, buybacks, reversals, terminations or assignments of any of the foregoing.

“Rating Level Change” means a change in the Moody's Rating or the Standard & Poor's Rating (other than as a result of a change in the rating system of such rating agency) that results in the change from one Rating Level Period to another, which Rating Level Change shall be effective on the date on which the relevant change in such rating is first announced by Moody's or Standard & Poor's, as the case may be.

“Rating Level Period” means a Rating Level 1 Period, a Rating Level 2 Period, a Rating Level 3 Period, a Rating Level 4 Period or a Rating Level 5 Period; provided that:

(i) “Rating Level 1 Period” means a period during which the Moody's Rating is at or above A2 or the Standard & Poor's Rating is at or above A;

(ii) “Rating Level 2 Period” means a period that is not a Rating Level 1 Period during which the Moody's Rating is at or above A3 or the Standards & Poor's Rating is at or above A-;

(iii) “Rating Level 3 Period” means a period that is not a Rating Level 1 Period or a Rating Level 2 Period during which Moody's Rating is at or above Baa1 or the Standard & Poor's Rating is at or above BBB+;

(iv) “Rating Level 4 Period” means a period that is not a Rating Level 1 Period, a Rating Level 2 Period or a Rating Level 3 Period during which the Moody's Rating is at or above Baa2 or the Standard & Poor's Rating is at or above BBB; and

(v) “Rating Level 5 Period” means a period that is not a Rating Level 1 Period, a Rating Level 2 Period, a Rating level 3 Period or a Rating Level 4 Period, during which the Moody's Rating is at or above Baa3 and the Standard & Poor's Rating is at or above BBB-;

and provided further that if the Moody's Rating and the Standard & Poor's Rating differ by more than one rating level, then the Rating Level Period shall be one Rating Level Period higher than the Rating Level Period resulting from the application of the lower of such ratings (for which purpose Rating Level Period 1 is the highest Rating Level Period and Rating Level 5 is the lowest Rating Level Period).

“Receivables” means accounts receivable, premiums, reinsurance payments or other present or future rights to payment.

“Receivables Related Assets” shall mean in connection with any Securitization Transaction the collective reference to (a) any rights arising under the documentation governing or relating to such Receivables covered by such Securitization Transaction (including rights in respect of Liens securing such Receivables and other credit support in respect of such Receivables), (b) any proceeds of such Receivables and any lockboxes or accounts in which such proceeds are deposited, (c) spread accounts and other similar accounts (and any amounts on deposit therein) established in connection with such securitization or asset-backed financing and (d) any warranty, indemnity, dilution and other intercompany claim arising out of the documentation evidencing such securitization or asset-backed financing.

“Reference Banks” means the principal London offices of Citibank, Chase and Fleet.

“Register” has the meaning specified in Section 8.06(d).

“Regulations T, U and X” means Regulations T, U and X issued by the Board of Governors of the Federal Reserve System, as from time to time amended.

“Reportable Event” means a reportable event as defined in Section 4043 of ERISA and the regulations issued under such section, with respect to a Plan, excluding, however, such events as to which the PBGC has by regulation waived the requirement of Section 4043(a) of ERISA that it be notified within 30 days of the occurrence of such event, provided, however, that a failure to meet the minimum funding standard of Section 412 of the Code and of Section 302 of ERISA shall be a Reportable Event regardless of the issuance of any such waiver of the notice requirement in accordance with either Section 4043(a) of ERISA or Section 412(d) of the Code.

“Repurchase Agreements” means reverse repurchase arrangements with respect to securities and financial instruments.

“Responsible Officer” of the Borrower means the Chief Executive Officer, the Treasurer, the Secretary, any Executive Vice President, any Senior Vice President, any Group Vice President, any Vice President or any Director of the Borrower.

“SAP” means the accounting procedures and practices prescribed or permitted by the applicable Insurance Regulatory Authority.

“Securitization Transaction” means any transaction in which the Borrower or any of its Subsidiaries sells or otherwise transfers an interest in Receivables and Receivables Related Assets to (i) a special purpose entity that borrows against such Receivables and Receivables Related Assets or (ii) sells such Receivables and Receivables Related Assets to one or more third party purchasers.

“Significant Insurance Subsidiary” means any Significant Subsidiary which is an Insurance Subsidiary.

“Significant Subsidiary” of a Person means a “significant subsidiary” as defined in Rule 1-02(w) of Regulation S-X of the Securities and Exchange Commission (17 CFR Part 210). Unless otherwise expressly provided, all references herein to a “Significant Subsidiary” shall mean a Significant Subsidiary of the Borrower.

“Single Employer Plan” means a Plan subject to Title IV of ERISA maintained by the Borrower or any member of the Controlled Group for employees of the Borrower or any member of the Controlled Group, other than a Multiemployer Plan.

“Specified Indebtedness” means (a) Indebtedness for money borrowed and (b) Contingent Obligations in respect of Indebtedness for money borrowed, excluding such Contingent Obligations incurred by any Insurance Subsidiary in the ordinary course of its financial guaranty or other business; provided that there shall be included in any computation of Specified Indebtedness described in (b) the entire principal amount of the Contingent Obligation; provided further that Specified Indebtedness shall not include (i) Indebtedness for money borrowed or (ii) Contingent Obligations, in each case, incurred in connection with any Permitted Securitization Transaction.

“Standard & Poor's” means Standard & Poor's Ratings Service, presently a division of The McGraw-Hill Companies, Inc., and its successors.

“Standard & Poor's Rating” means, at any time, the rating of the Borrower's unsecured, unguaranteed senior long-term debt obligations then outstanding most recently announced by Standard & Poor's.

“Subsidiary” means, with respect to any Person, any corporation, partnership, limited liability company or other entity of which at least a majority of the securities or other ownership interests having by the terms thereof ordinary voting power to elect a majority of the board of directors or other persons performing similar functions of such corporation, partnership, limited liability company or other entity (irrespective of whether or not at the time securities or other ownership interests of any other class or classes of such corporation, partnership, limited liability company or other entity shall have or might have voting power by reason of the happening of any contingency) is at the time directly or indirectly owned or controlled by such Person or one or more Subsidiaries of such Person or by such Person and one or more Subsidiaries of such Person.

“Substantial Portion” means, with respect to the Property of the Borrower and its Subsidiaries, Property which represents more than 10% of the consolidated assets of the Borrower and its Subsidiaries as would be shown in the consolidated statements of the Borrowers and its Subsidiaries as at the beginning of the twelve-month period ending with the month in which such determination is made.

“Surplus as Regards Policyholders” means, with respect to any Insurance Subsidiary at any time, the surplus as regards policyholders of such Insurance Subsidiary, as determined in accordance with SAP as at the last day of the fiscal quarter of the Borrower ending on or most recently ended prior to such date.

“Term Loan” and “Term Loans” have the meanings specified in Section 2.05(b).

“Term-Out Option” means the right of the Borrower to convert outstanding Advances into Term Loans on and subject to the terms and conditions of Section 2.05(b).

“Termination Event” means, with respect to a Plan which is subject to Title IV of ERISA, (a) a Reportable Event, (b) the withdrawal of the Borrower or any other member of the Controlled Group from such Plan during a plan year in which the Borrower or any other member of the Controlled Group was a “substantial employer” as defined in Section 4001(a)(2) of ERISA or was deemed such under Section 4068(f) of ERISA, (c) the termination of such Plan, the filing of a notice of intent to terminate such Plan or the treatment of an amendment of such Plan as a termination under Section 4041 of ERISA or (d) the institution by the PBGC of proceedings to terminate such Plan, in each case which could reasonably be expected to have a Material Adverse Effect.

“Type” refers to whether an Advance is a Base Rate Advance or a Eurodollar Rate Advance.

“Unfunded Liabilities” means the amount (if any) by which the present value of all vested and unvested accrued benefits under a Single Employer Plan exceeds the fair market value of assets allocable to such benefits, all determined as of the then most recent valuation date for such Plans using the PBGC actuarial assumptions utilized for purposes of determining the current liability for purposes of such valuation.

“Utilization Fee” has the meaning specified in Section 2.03(b).

“Voting Stock” means, for any Person at any time, the outstanding securities of such Person entitled to vote generally in an election of directors of such Person.

“Wholly-Owned Subsidiary” of a Person means (a) any Subsidiary all of the outstanding voting securities of which (other than directors' qualifying shares) shall at the time be owned or controlled, directly or indirectly, by such Person or one or more Wholly-Owned Subsidiaries of such Person, or by such Person and one or more Wholly-Owned Subsidiaries of such Person, or (b) any partnership, association, joint venture or similar business organization 100% of the ownership interests having ordinary voting power of which shall at the time be so owned or controlled. Unless otherwise expressly provided, all references herein to a “Wholly-Owned Subsidiary” shall mean a Wholly-Owned Subsidiary of the Borrower.

ARTICLE 2
AMOUNTS AND TERMS OF THE ADVANCES

SECTION 2.01. The Advances.

SECTION 2.02. Making the Advances.

(a) (i) Each Borrowing shall be made on notice, given not later than 12:00 P.M. (New York City time) on the third Business Day prior to the date of such Borrowing (in the case of a Borrowing consisting of Eurodollar Rate Advances) or given not later than 12:00 P.M. (New York City time) on the Business Day of such Borrowing (in the case of a Borrowing consisting of Base Rate Advances), by the Borrower to the Administrative Agent, which shall give to each Lender prompt notice thereof.

(ii) Each such notice of a Borrowing (a “Notice of Borrowing”) shall be in writing in substantially the form of Exhibit A hereto, specifying therein the requested (i) date of such Borrowing, (ii) Type of Advances comprising such Borrowing, (iii) aggregate amount of such Borrowing, and (iv) in the case of a Borrowing consisting of Eurodollar Rate Advances, initial Interest Period for each such Advance.

(iii) Each Lender shall, before 1:00 P.M. (New York City time) on the date of such Borrowing, make available for the account of its Applicable Lending Office to the Administrative Agent at its address referred to in Section 8.02, in same day funds, such Lender's ratable portion of such Borrowing; provided that, with respect to a Borrowing of a Eurodollar Rate Advance, no Lender having a Commitment Termination Date prior to the last day of the initial Interest Period for such Eurodollar Rate Advance shall participate in such Borrowing.

(iv) After the Administrative Agent's receipt of such funds and upon fulfillment of the applicable conditions set forth in Article 3, the Administrative Agent will make such funds available to the Borrower at the Administrative Agent's aforesaid address.

SECTION 2.03. Certain Fees.

SECTION 2.04. Reduction and Extensions of the Commitments.

(a) Commitment Reductions.

(i) The Commitment of each Lender shall be automatically reduced to zero on the Commitment Termination Date of such Lender.

(b) Commitment Extensions.

(i) The Borrower may, by notice to the Administrative Agent (which shall promptly notify the Lenders) not more than 45 days and not less than 30 days prior to the Commitment Termination Date then in effect hereunder (the “Existing Commitment Termination Date”), request that each Lender extend such Lender's Commitment Termination Date for an additional 364 days from the Existing Commitment Termination Date.

(ii) Each Lender, acting in its sole and individual discretion, shall, by notice to the Administrative Agent given not more than 30 days immediately prior to the Existing Commitment Termination Date but in any event no later than the date (the “Notice Date”) 20 days prior to the Existing Commitment Termination Date, advise the Administrative Agent whether or not such Lender agrees to such extension (and each Lender that determines not to so extend its Commitment Termination Date (a “Non-Extending Lender”) shall notify the Administrative Agent (which shall notify the other Lenders) of such fact promptly after such determination (but in any event no later than the Notice Date) and any Lender that does not so advise the Administrative Agent on or before the Notice Date shall be deemed to be a Non-Extending Lender. The election of any Lender to agree to such extension shall not obligate any other Lender to so agree.

(iii) The Administrative Agent shall notify the Borrower of each Lender's determination under this Section 2.04(b) no later than the date 15 days prior to the Existing Commitment Termination Date (or, if such date is not a Business Day, on the next preceding Business Day).

(iv) The Borrower shall have the right on or before the Existing Commitment Termination Date to replace each Non-Extending Lender with, and add as “Lenders” under this Agreement in place thereof, one or more Eligible Assignees (each, an “Additional Commitment Lender”) with the approval of the Administrative Agent (which approval shall not be unreasonably withheld), each of which Additional Commitment Lenders shall have entered into an agreement in form and substance satisfactory to the Borrower and the Administrative Agent pursuant to which such Additional Commitment Lender shall, effective as of the Existing Commitment Termination Date, undertake a Commitment (and, if any such Additional Commitment Lender is already a Lender, its Commitment shall be in addition to such Lender's Commitment hereunder on such date); provided that prior to replacing any Non-Extending Lender with any Additional Commitment Lender, the Borrower shall have given each Lender which has agreed to extend its Commitment Termination Date an opportunity to increase its Commitment by all or a portion of the Non-Extending Lenders' Commitments.

(v) If (and only if) the total of the Commitments of the Lenders that have agreed so to extend their Commitment Termination Date and the additional Commitments of the Additional Commitment Lenders shall be more than 50% of the aggregate amount of the Commitments in effect immediately prior to the Existing Commitment Termination Date, then, effective as of the Existing Commitment Termination Date, the Commitment Termination Date of each Extending Lender and of each Additional Commitment Lender shall be extended to the date falling 364 days after the Existing Commitment Termination Date (except that, if such date is not a Business Day, such Commitment Termination Date as so extended shall be the next preceding Business Day) and each Additional Commitment Lender shall thereupon become a “Lender” for all purposes of this Agreement.

(vi) Notwithstanding the foregoing, the extension of the Commitment Termination Date pursuant to this Section 2.04(b) shall be effective with respect to any Lender only if:

(x) no Default or Event of Default shall have occurred and be continuing on the date of the notice requesting such extension or on the Existing Commitment Termination Date and the representations and warranties set forth in Section 4.01 shall be true and correct on and as of each of said dates as if made on and as of said dates; and

(y) the Borrower shall have paid in full all amounts owing to each Non-Extending Lender hereunder on or before the Commitment Termination Date of such Lender.

SECTION 2.05. Repayment; Term-Out Option.

(a) Repayment. Subject to the provisions of Section 2.05(b), the Borrower shall repay the then unpaid principal amount of each Advance made by each Lender, and each Advance made by such Lender shall mature, on the Commitment Termination Date of such Lender.

(b) Term-Out Option. If the Commitment Termination Date is not extended pursuant to Section 2.04(b), the Borrower may, by notice to the Administrative Agent not less than eight days prior to the Existing Commitment Termination Date, subject to the conditions set forth below in this Section 2.05(b), elect to convert the aggregate outstanding principal amount of the Advances of each Lender as of such Existing Commitment Termination Date to a term loan of such Lender in said amount (each, a “Term Loan” and collectively, the “Term Loans”). Each Term Loan shall bear interest, from and including such Existing Commitment Termination Date until the payment thereof in full, at the rates provided for in Section 2.06 and shall otherwise constitute an Advance for all purposes of this Agreement. The Borrower agrees to repay to the Administrative Agent for account of the Lenders the unpaid principal amount of the Term Loans on the date one year after such Existing Commitment Termination Date or, if such date is not a Business Day, the immediately preceding Business Day (the “Maturity Date”) (and any outstanding Note shall be deemed amended accordingly). Anything in this Section 2.05(b) to the contrary notwithstanding, any such conversion shall be subject to the conditions precedent that (i) no Default or Event of Default shall have occurred and be continuing on such Existing Commitment Termination Date and (ii) the representations and warranties made by the Borrower in Section 4.01 shall be true on and as of such Existing Commitment Termination Date with the same force and effect as if made on and as of such date (it being understood and agreed that any representation and warranty which by its terms is made as of a specified date shall be required to be true and correct only as of such specified date). Each notice of conversion delivered by the Borrower in accordance with this Section 2.05(b) shall constitute a certification by the Borrower to the effect set forth in the preceding sentence (both as of the date of such notice and, unless the Borrower, after delivery of such notice, otherwise notifies the Administrative Agent prior to such Existing Commitment Termination Date, as of such date).

SECTION 2.06. Interest.

(i) Base Rate Advances. While such Advance is a Base Rate Advance, a rate per annum equal to the Base Rate in effect from time to time plus the Applicable Margin for Base Rate Advances as in effect from time to time, payable quarterly in arrears on the last Business Day of each March, June, September and December and on the date such Base Rate Advance shall be Converted or paid in full.

(ii) Eurodollar Rate Advances. While such Advance is a Eurodollar Rate Advance, a rate per annum for each Interest Period for such Advance equal to the sum of the Eurodollar Rate for such Interest Period plus the Applicable Margin for Eurodollar Rate Advances as in effect from time to time, payable on the last day of such Interest Period and, if such Interest Period has a duration of more than three months, on each day which occurs at three-month intervals after the first day of such Interest Period, and on each date on which such Eurodollar Rate Advance shall be Continued, Converted or paid in full.

(b) Default Interest. Notwithstanding the foregoing, if any Event of Default shall have occurred and be continuing, the Borrower shall pay interest on:

(i) the unpaid principal amount of each Advance owing to each Lender, payable on demand (and in any event in arrears on the dates referred to in Section 2.06(a)(i) or (a)(ii) above), at a rate per annum equal at all times to two percent (2%) per annum above the rate per annum required to be paid on such Advance pursuant to said Section 2.06(a)(i) or (a)(ii), as applicable; provided that if such Event of Default shall be continuing at the end of any Interest Period for any Eurodollar Rate Advance, such Advance shall forthwith be Converted to a Base Rate Advance bearing interest as aforesaid in this Section 2.06(b)(i); and

(ii) the amount of any interest, fee or other amount payable hereunder that is not paid when due, from the date such amount shall be due until such amount shall be paid in full, payable on demand (and in any event in arrears on the date such amount shall be paid in full), at a rate per annum equal at all times to two percent (2%) per annum above the rate per annum required to be paid on Base Rate Advances pursuant to Section 2.06(a)(i) above.

SECTION 2.08. Interest Rate Determinations; Changes in Rating Systems.

(b) The Administrative Agent shall give prompt notice to the Borrower and the Lenders of the applicable interest rates determined by the Administrative Agent for the purposes of Section 2.06.

(i) the Administrative Agent shall forthwith notify the Borrower and the Lenders that the interest rate cannot be determined for such Eurodollar Rate Advances for such Interest Period,

(ii) each Eurodollar Rate Advance will automatically, on the last day of the then existing Interest Period therefor, Convert into a Base Rate Advance, and

(iii) the obligation of the Lenders to make or Continue, or to Convert Advances into, Eurodollar Rate Advances shall be suspended until the Administrative Agent shall notify the Borrower and the Lenders that the circumstances causing such suspension no longer exist.

(i) each Eurodollar Rate Advance will automatically, on the last day of the then existing Interest Period therefor, Convert into a Base Rate Advance, and

(ii) the obligation of the Lenders to make or Continue, or to Convert Advances into, Eurodollar Rate Advances shall be suspended until the Administrative Agent shall notify the Borrower and such Lenders that the circumstances causing such suspension no longer exist.

SECTION 2.09. Voluntary Conversion and Continuation of Advances.

SECTION 2.10. Prepayments of Advances.

(a) The Borrower shall have no right to prepay any principal amount of any Advances other than as provided in subsection (b) below.

SECTION 2.11. Increased Costs.

SECTION 2.13. Payments and Computations.

SECTION 2.14. Taxes.

SECTION 2.15. Set-Off; Sharing of Payments, Etc.

ARTICLE 3
CONDITIONS OF LENDING

(a) Certified copies of (x) the charter and by-laws of the Borrower, (y) the resolutions of the Board of Directors of the Borrower authorizing and approving this Agreement and the transactions contemplated hereby, and (z) all documents evidencing other necessary corporate action and governmental approvals, if any, with respect to this Agreement.

(b) A certificate of the Secretary or an Assistant Secretary of the Borrower certifying the names and true signatures of the officers of the Borrower authorized to sign this Agreement and the other documents to be delivered hereunder.

(c) A certificate from the Secretary of State of the State of Delaware dated a date reasonably close to the date hereof as to the good standing of and charter documents filed by the Borrower.

(d) A favorable opinion of Jonathan D. Kantor, Esq., in-house counsel to the Borrower, substantially in the form of Exhibit C hereto.

(e) A favorable opinion of Milbank, Tweed, Hadley & McCloy LLP, special New York counsel to the Administrative Agent, substantially in the form of Exhibit D hereto.

(f) A certificate of a Responsible Officer of the Borrower certifying that (i) no Default or Event of Default as of the date thereof has occurred and is continuing, and (ii) the representations and warranties contained in Section 4.01 are true and correct on and as of the date thereof as if made on and as of such date.

(g) Evidence of (x) the termination of the commitment of each lender and (y) the payment by the Borrower of all amounts whatsoever payable to each of the lenders, in each case under the Existing Credit Agreement.

(h) Such other approvals, opinions and documents relating to this Agreement and the transactions contemplated hereby as the Administrative Agent or any Lender may, through the Administrative Agent, reasonably request.

(a) the representations and warranties contained in Section 4.01 (not including, in the case of any Borrowing after the initial Borrowing, the Excluded Representations) are true and correct in all material respects on and as of the date of such Borrowing, before and after giving effect to such Borrowing and to the application of the proceeds therefrom, as though made on and as of such date; and

(b) No Event of Default or event, which, with the giving of notice or the passage of time or both, would be an Event of Default, has occurred and is continuing, or would result from such Borrowing or from the application of the proceeds.

ARTICLE 4
REPRESENTATIONS AND WARRANTIES

SECTION 4.01. Representations and Warranties of the Borrower. The Borrower represents, warrants and agrees as follows:

(a) The Borrower and each of its Significant Subsidiaries (i) is duly organized, validly existing and in good standing under the laws of its jurisdiction of organization, (ii) is duly qualified and in good standing as a foreign corporation in each other jurisdiction in which it owns or leases property or in which the conduct of its business requires it to so qualify or be licensed and where, in each case, failure so to qualify and be in good standing could have a Material Adverse Effect and (iii) has all requisite corporate power and authority to own or lease and operate its properties and to carry on its business as now conducted and as proposed to be conducted.

(b) The execution, delivery and performance by the Borrower of this Agreement are within the Borrower's corporate powers, have been duly authorized by all necessary corporate action, and do not (i) contravene the Borrower's charter, by-laws or other organizational documents, (ii) contravene any contractual restriction binding on the Borrower or (iii) violate any law, rule or regulation (including, without limitation, the Securities Act of 1933 and the Exchange Act and the regulations thereunder, and Regulations U and X issued by the Board of Governors of the Federal Reserve System, each as amended from time to time), or order, writ, judgment, injunction, decree, determination or award. The Borrower is not in violation of any such law, rule, regulation, order, writ, judgment, injunction, decree, determination or award or in breach of any contractual restriction binding upon it, except for such violation or breach which would not have a Material Adverse Effect.

(c) No authorization or approval or other action by, and no notice to or filing with, any governmental authority or regulatory body is required (other than those which have been obtained) for the due execution, delivery and performance by the Borrower of this Agreement.

(d) This Agreement is a legal, valid and binding obligation of the Borrower enforceable against the Borrower in accordance with their respective terms.

(e) (i) if available on or prior to the date hereof, the Borrower shall have heretofore furnished to each of the Lenders its unaudited Consolidated balance sheet and statements of earnings, equity and cash flows as at and for the three-month period ended March 31, 2001, and such financial statements fairly present, in all material respects, the Consolidated financial condition and results of operations of the Borrower and its Subsidiaries as at the date thereof and for such three-month period, all in accordance with GAAP (subject, in the case of such financial statements as at March 31, 2001, to normal year-end audit adjustments), (ii) the Borrower has heretofore furnished to each of the Lenders its audited Consolidated balance sheet and statements of earnings, equity and cash flows as at and for the fiscal year ended December 31, 2000, and such financial statements fairly present, in all material respects, the Consolidated financial condition and results of operations of the Borrower and its Subsidiaries as at the date thereof and for such fiscal year, all in accordance with GAAP; (iii) if available on or prior to the date hereof, the Borrower shall have heretofore furnished to each of the Lenders the Quarterly Statement as of March 31, 2001, of each of CAC, CCC and CIC, as filed, in each case, with the applicable Insurance Regulatory Authority, and such Statements present fairly, in all material respects, such condition and affairs as of such date, in accordance with SAP; (iv) the Borrower has heretofore furnished to each of the Lenders the Annual Statement of each of CAC, CCC and CIC for the fiscal year ended December 31, 2000, as filed, in each case, with the applicable Insurance Regulatory Authority, and such Annual Statements present fairly, in all material respects, the financial condition of CAC, CCC and CIC, as applicable, as at, and the results of operations for the fiscal year ended December 31, 2000, in accordance with SAP as in effect on December 31, 2000; and (v) since December 31, 2000, there has been no material adverse change in the business, condition (financial or otherwise) results of operations or prospects of the Borrower and its Subsidiaries, taken as a whole.

(f) Other than as disclosed in filings of the Borrower with the Securities and Exchange Commission, there is no action pending or threatened in writing or proceeding affecting the Borrower or any of its Subsidiaries before any court, governmental agency or arbitrator which (i) is reasonably likely to have a Material Adverse Effect or (ii) purports to affect this Agreement or the transactions contemplated hereby.

(g) The Borrower is not engaged in the business of extending credit for the purpose of purchasing or carrying Margin Stock, and no proceeds of any Advance will be used for the purpose, whether immediate, incidental or ultimate, of buying or carrying Margin Stock. The Borrower is, and after applying the proceeds of each Advance, will be in compliance with its obligations under Section 5.01(b). If requested by any Lender or the Administrative Agent, the Borrower will furnish to the Administrative Agent and each Lender a statement in conformity with the requirements of Federal Reserve Form U-1 referred to in Regulation U, the statements made in which shall be such, in the opinion of each Lender, as to permit the transactions contemplated hereby in accordance with Regulation U. No portion of any Advance under this Agreement shall be used by the Borrower in violation of Regulation T, Regulation U or Regulation X of the Board of Governors of the Federal Reserve System or any other Regulation of such Board, as in effect on the date or dates of such Advance and such use of proceeds.

(h) The Borrower is not an “investment company”, or a Person “controlled by” an “investment company”, as such terms are defined in the Investment Company Act of 1940, as amended.

(i) All information that has been made available by the Borrower or any of its representatives to the Administrative Agent or any Lender in connection with the negotiation of this Agreement was, on or as of the dates on which such information was made available, complete and correct in all material respects and did not contain any untrue statement of a material fact or omit to state a fact necessary to make the statements contained therein not misleading in light of the time and circumstances under which such statements were made. All financial projections that have been prepared by the Borrower and made available to the Administrative Agent or any Lender in connection with the negotiation of this Agreement have been prepared in good faith based upon reasonable assumptions. There is no fact known to the Borrower (other than matters of a general economic nature) that has had, or could reasonably be expected to have, a Material Adverse Effect and that has not been disclosed herein or in such other documents, certificates and statements furnished to the Lenders for use in connection with the transactions contemplated by this Agreement.

(j) Neither the Borrower nor any other member of the Controlled Group maintains, or is obligated to contribute to, any Multiemployer Plan or has incurred, or is reasonably expected to incur, any withdrawal liability to any Multiemployer Plan. Each Plan complies in all material respects with all applicable requirements of law and regulations, except where noncompliance would not have a Material Adverse Effect. Neither the Borrower nor any member of the Controlled Group has, with respect to any Plan, failed to make any material contribution or pay any material amount required under Section 412 of the Code or Section 302 of ERISA or the terms of such Plan. The Borrower has not engaged in any prohibited transaction (as defined in Section 4975 of the Code or Section 406 of ERISA) in connection with any Plan which may reasonably be expected to have a Material Adverse Effect. Within the last five years neither the Borrower nor any member of the Controlled Group has engaged in a transaction which resulted in a Single Employer Plan with an Unfunded Liability being transferred out of the Controlled Group. No Termination Event has occurred or is reasonably expected to occur with respect to any Plan which is subject to Title IV of ERISA.

(k) The Borrower and each of its Subsidiaries is in compliance with all laws, statutes, rules, regulations and orders binding on or applicable to the Borrower (including, without limitation, all Environmental Laws), its Subsidiaries and all of their respective properties, except to the extent failure to so comply could not (either individually or in the aggregate) reasonably be expected to have a Material Adverse Effect.

(l) There is no indenture, agreement or other contractual arrangement to which the Borrower or any Significant Subsidiary is a party that, directly or indirectly, prohibits or restrains, or has the effect of prohibiting or restraining, or imposing any condition upon, the declaration or payment of dividends or other distributions on any class of stock of any Subsidiary of the Borrower, other than such prohibitions, restraints and conditions which are disclosed in filings of the Borrower with the Securities and Exchange Commission.

ARTICLE 5
COVENANTS OF THE BORROWER

SECTION 5.01. Covenants. During the term of this Agreement, unless the Required Lenders shall otherwise consent in writing:

(a) Financial Reporting. The Borrower will furnish to the Lenders:

(i) As soon as practicable and in any event within 120 days after the close of each of its fiscal years, an audit report which is not qualified as to going concern or access or in any other material respect and which is certified by independent certified public accountants, acceptable to the Lenders, prepared in accordance with GAAP on a consolidated basis for itself and its Subsidiaries, including balance sheets as of the end of such period and related income and cash flow statements accompanied by a certificate of said accountants that, in the course of the examination necessary for their certification of the foregoing, they have obtained no knowledge of any Default or Event of Default in respect of Section 5.01(m) or (n), or if, in the opinion of such accountants, any Default or Event of Default in respect of Section 5.01(m) or (n) shall exist, stating the nature and status thereof.

(ii) As soon as practicable and in any event within 75 days after the close of each quarterly period (other than the fourth quarterly period) of each of its fiscal years, for itself and its Subsidiaries, a consolidated unaudited balance sheet as at the close of each such period and consolidated income and cash flow statements for the period from the beginning of such fiscal year to the end of such quarter, all certified by its chief financial officer.

(iii) Together with the financial statements required by clauses (i) and (ii), a compliance certificate in substantially the form of Exhibit E hereto signed by the chief financial officer of the Borrower showing the calculations necessary to determine compliance with the financial covenants contained in this Agreement and stating that no Default or Event of Default exists, or if any Default or Event of Default exists, stating the nature and status thereof.

(iv) Upon the earlier of (i) ten (10) days after the regulatory filing date or (ii) 75 days after the close of each of the first three fiscal quarters of each fiscal year of each Significant Insurance Subsidiary, copies of the Quarterly Statement of such Significant Insurance Subsidiary, certified by such officers as shall be required by SAP of such Significant Insurance Subsidiary, all such statements to be prepared in accordance with SAP consistently applied through the period reflected therein.

(v) Upon the earlier of (i) fifteen days after the regulatory filing date or (ii) 90 days after the close of each fiscal year of each Significant Insurance Subsidiary, copies of the Annual Statement of such Significant Insurance Subsidiary for such fiscal year, as certified by such officers as shall be required by SAP for such Significant Insurance Subsidiary and prepared on the NAIC annual statement blanks (or such other form as shall be required by the jurisdiction of incorporation of each such Insurance Subsidiary), all such statements to be prepared in accordance with SAP consistently applied throughout the periods reflected therein.

(vi) As soon as available and only to the extent such an audited statement is required to be prepared by any Governmental Authority, a copy of the audited annual statement of each of CCC and CAC on a consolidated basis and CIC on a combined basis (with the other Insurance Subsidiaries in the same insurance pool) for the preceding year, as certified by such officers as shall be required by SAP for such entities and prepared on the form as shall be required by the jurisdictions in which they are filed, all such statements to be prepared in accordance with SAP consistently applied throughout the periods reflected therein and to be certified by independent certified public accountants of recognized national standing reasonably acceptable to the Administrative Agent.

(vii) Within 150 days after the close of each of its fiscal years, annual statutory statements for the Borrower's Insurance Subsidiaries on a consolidated or combined basis, certified by such officers as shall be required by SAP, such statements to be prepared in accordance with SAP consistently applied throughout the periods reflected therein.

(viii) As soon as possible and in any event within 20 days after the Borrower knows that any Termination Event has occurred with respect to any Plan, a statement, signed by the chief financial officer of the Borrower, describing said Termination Event and the action which the Borrower proposes to take with respect thereto.

(ix) Promptly upon the filing thereof, copies of all registration statements and annual, quarterly, monthly or other regular reports which the Borrower or any of its Significant Insurance Subsidiaries files with the Securities and Exchange Commission or any securities exchange.

(x) Such other information (including, without limitation, non-financial information) as the Administrative Agent or any Lender may from time to time reasonably request.

(b) Use of Proceeds. The Borrower will, and will cause each Subsidiary to, use the proceeds of the Advances for general corporate purposes (including to support the commercial paper program of the Borrower and to finance Acquisitions); provided that the Borrower will not use any of the proceeds of any Advance for the purpose of financing a Hostile Acquisition; provided further that neither the Administrative Agent nor any Lender shall have any responsibility as to the use of any such proceeds.

(c) Certain Notices. The Borrower will give prompt notice in writing to the Administrative Agent and the Lenders of (i) the occurrence of any Default or Event of Default, (ii) any other development, financial or otherwise, relating specifically to the Borrower which could reasonably be expected to have a Material Adverse Effect, (iii) the receipt of any notice from any Governmental Authority of the expiration without renewal, revocation or suspension of, or the institution of any proceedings to revoke or suspend, any License now or hereafter held by any Significant Insurance Subsidiary which is required to conduct insurance business in compliance with all applicable laws and regulations, other than such expiration, revocation or suspension which, individually or in the aggregate, could not reasonably be expected to have a Material Adverse Effect, (iv) the receipt of any notice from any Governmental Authority of the institution of any disciplinary proceedings against or in respect of any Significant Insurance Subsidiary, or the issuance of any order, the taking of any action or any request for an extraordinary audit for cause by any Governmental Authority which, if adversely determined, could reasonably be expected to have a Material Adverse Effect, (v) any judicial or administrative order limiting or controlling the insurance business of any Significant Insurance Subsidiary (and not the insurance industry generally) which has been issued or adopted and which could reasonably be expected to have a Material Adverse Effect or (vi) any change in the rating of the unsecured, unguaranteed senior long-term debt obligations of the Borrower by Moody's or S&P.

(d) Conduct of Business. The Borrower will, and will cause each Significant Subsidiary to, do all things necessary (if applicable) to remain duly incorporated, validly existing and in good standing as a domestic corporation in its jurisdiction of incorporation and maintain all requisite authority to conduct its business in each jurisdiction in which its business is conducted except where such failure to remain in good standing or to maintain such authority may not reasonably be expected to have a Material Adverse Effect. The Borrower will cause each Significant Insurance Subsidiary to (a) carry on or otherwise be associated with the business of a licensed insurance carrier and (b) do all things necessary to renew, extend and continue in effect all Licenses which may at any time and from time to time be necessary for such Significant Insurance Subsidiary to operate its insurance business in compliance with all applicable laws and regulations; provided, however, that any such Significant Insurance Subsidiary may withdraw from one or more states as an admitted insurer, change the state of its domicile or fail to keep in effect any License if such withdrawal, change or failure is in the best interests of the Borrower and such Significant Insurance Subsidiary and could not reasonably be expected to have a Material Adverse Effect.

(e) Taxes. The Borrower will, and will cause each Subsidiary to, pay when due all material taxes, assessments and governmental charges and levies upon it or its income, profits or Property, except those which are being contested in good faith by appropriate proceedings and with respect to which adequate reserves have been set aside.

(f) Insurance. The Borrower will, and will cause each Significant Subsidiary to, maintain with financially sound and reputable insurance companies insurance on all or substantially all of its Property, or shall maintain self-insurance, in such amounts and covering such risks as is consistent with sound business practice for Persons in substantially the same industry as the Borrower or such Subsidiary, and the Borrower will furnish to any Lender upon request full information as to the insurance carried.

(g) Compliance with Laws. The Borrower will, and will cause each Subsidiary to, comply with all laws, rules, regulations, orders, writs, judgments, injunctions, decrees or awards to which it may be subject (including ERISA and applicable Environmental Laws), except where the failure to so comply could not reasonably be expected to have a Material Adverse Effect.

(h) Maintenance of Properties. The Borrower will, and will cause each Significant Subsidiary to, do all things necessary to maintain, preserve, protect and keep its Property in good repair, working order and condition, and make all necessary and proper repairs, renewals and replacements so that its business carried on in connection therewith may be properly conducted at all times, except where the failure to so maintain, preserve, protect and repair could not reasonably be expected to have a Material Adverse Effect.

(i) Inspection. The Borrower will, and will cause each Subsidiary to, permit the Administrative Agent and the Lenders (coordinated through the Administrative Agent), by their respective representatives and agents, to inspect any of the Property, corporate books and financial records of the Borrower and each Subsidiary, to examine and make copies of the books of accounts and other financial records of the Borrower and each Subsidiary, and to discuss the affairs, finances and accounts of the Borrower and each Subsidiary with, and to be advised as to the same by, their respective officers upon reasonable notice and at such reasonable times and intervals as the Lenders may designate.

(j) Merger. The Borrower will not, nor will it permit any Significant Subsidiary to, merge or consolidate with or into any other Person, except that (a) a Significant Subsidiary may merge into the Borrower or a Wholly Owned Subsidiary and (b) the Borrower or any Significant Subsidiary may merge or consolidate with any other Person provided that the Borrower or such Significant Subsidiary shall be the continuing or surviving corporation and, prior to and after giving effect to such merger or consolidation, no Default or Event of Default shall exist.

(k) Sale of Assets. The Borrower will not, nor will it permit any Subsidiary to, lease, sell or otherwise dispose of a Substantial Portion of Property of the Borrower and its Subsidiaries on a Consolidated basis to any other Person(s) in any twelve month period; provided, however, that Subsidiaries shall be permitted to sell assets for fair market value in arm's-length transactions (as determined, in transactions out of the ordinary course of business, by the Board of Directors of the selling Subsidiary acting in good faith).

(l) Liens. The Borrower will not, nor will it permit any Subsidiary to, create, incur, or suffer to exist any Lien in or on the Property of the Borrower or any of its Subsidiaries, except:

(i) Liens for taxes, assessments or governmental charges or levies on its Property if the same shall not at the time be delinquent or thereafter can be paid without penalty, or are not material and are paid promptly upon receipt of notice of nonpayment, or are being contested in good faith and by appropriate proceedings and for which adequate reserves in accordance with generally accepted principles of accounting shall have been set aside on its books;

(ii) Liens imposed by law, such as carriers', warehousemen's and mechanics' liens and other similar liens arising in the ordinary course of business which secure payment of obligations not more than 60 days past due or which are being contested in good faith by appropriate proceedings and for which adequate reserves shall have been set aside on its books;

(iii) Liens arising out of pledges or deposits under worker's compensation laws, unemployment insurance, old age pensions, or other social security or retirement benefits, or similar legislation, including, without limitation, statutory deposits under applicable insurance laws;

(iv) Utility easements, building restrictions and such other encumbrances or charges against real property as are of a nature generally existing with respect to properties of a similar character and which do not in any material way affect the marketability of the same or interfere with the use thereof in the business of the Borrower or the Subsidiaries;

(v) Liens existing on the Closing Date and, in the case of Liens upon Property of the Borrower, described in Schedule II hereto;

(vi) Liens upon the Property of Insurance Subsidiaries incurred in the ordinary course of their business;

(vii) Liens on Qualifying SPV Assets securing Qualifying SPV Indebtedness, which Qualifying SPV Assets shall have a fair market value not in excess of 25% of the fair market value of the Invested Assets of the Borrower and its Subsidiaries on a consolidated basis in accordance with GAAP as of the end of the preceding calendar year;

(viii) Liens on Receivables and Receivables Related Assets in connection with Permitted Securitization Transactions; and

(ix) Other Liens securing Indebtedness for borrowed money (including Qualifying SPV Indebtedness) not exceeding at any time $500,000,000 in aggregate principal amount.

(m) Consolidated Capitalization. The Borrower will maintain at all times a ratio of (a) Aggregate Specified Indebtedness to (b) the sum of (i) Aggregate Specified Indebtedness plus (ii) Consolidated Net Worth of not greater than 0.35 to 1.0.

(n) Insurance Company Surplus. The Borrower shall cause the combined Surplus as Regards Policyholders of CCC on a consolidated basis and CIC on a combined basis (with the other Insurance Subsidiaries in the same insurance pool) to be at all times at least equal to $4.5 billion.

(o) Limitation on Qualifying SPV Assets. The Borrower will not at any time permit the aggregate fair market value of all Qualifying SPV Assets at such time to exceed 25% of the fair market value of the Invested Assets of the Borrower and its Subsidiaries on a consolidated basis in accordance with GAAP as of the end of the preceding calendar year.

ARTICLE 6
EVENTS OF DEFAULT

SECTION 6.01. Events of Default. If any of the following events (“Events of Default”) shall occur and be continuing:

(a) The Borrower shall fail to pay any principal of any Advance when the same becomes due and payable; or the Borrower shall fail to pay any interest on any Advance or any Facility Fee or Utilization Fee or any other amount payable hereunder when due and such failure remains unremedied for three Business Days; or

(b) Any representation or warranty made by the Borrower herein or by the Borrower (or any of its officers) in connection with this Agreement shall prove to have been incorrect in any material respect when made or deemed made; or

(c) (i) The Borrower shall fail to perform or observe any term, covenant or agreement contained in Sections 5.01(b), (c)(i), (j), (k), (l), (m) or (n) or (ii) the Borrower shall fail to perform or observe any other term, covenant or agreement contained in this Agreement on its part to be performed or observed, and such failure remains unremedied for 30 days after notice thereof shall have been given to the Borrower by the Administrative Agent or the Administrative Agent on behalf of any Lender; or

(d) The Borrower or any of its Subsidiaries shall fail to pay any principal of any other Indebtedness of the Borrower which is outstanding in an aggregate principal amount of at least $20,000,000, or its equivalent in other currencies (in this clause (d) called “Material Indebtedness”), in the aggregate when the same becomes due and payable (whether at scheduled maturity, by required prepayment, acceleration, demand or otherwise); or any other event shall occur or condition shall exist under any agreement or instrument relating to any Material Indebtedness and shall continue after the applicable grace period, if any, specified in such agreement or instrument, if the effect of such event or condition is to accelerate, or to permit the acceleration of, the maturity of any Material Indebtedness, or to require the same to be prepaid or defeased (other than by a regularly required payment); or

(e) The Borrower or any of its Significant Subsidiaries shall generally not pay its debts as such debts become due, or shall admit in writing its inability to pay its debts generally, or shall make a general assignment for the benefit of creditors; or any proceeding shall be instituted by or against the Borrower or any of its Significant Subsidiaries seeking to adjudicate it a bankrupt or insolvent, or seeking liquidation, winding up, reorganization, arrangement, adjustment, protection, relief, or composition of it or its debts under any law relating to bankruptcy, insolvency or reorganization or relief of debtors, or seeking the entry of an order for relief or the appointment of a receiver, trustee, custodian or other similar official for it or for any substantial part of its property and, in the case of any such proceeding instituted against the Borrower or any of its Significant Subsidiaries, such proceeding shall remain undismissed or unstayed for a period of 60 days; or the Borrower or any of its Significant Subsidiaries shall take any corporate action to authorize any of the actions set forth above in this subsection (e) (provided that, for purposes of this subsection (e); or

(f) In connection with the actual or alleged insolvency of any of CAC, CCC or CIC or any other Insurance Subsidiary, any Insurance Regulatory Authority shall appoint a rehabilitator, receiver, custodian, trustee, conservator or liquidator or the like (collectively, a “conservator”) for CAC, CCC, CIC or such other Insurance Subsidiary, or cause possession of all or any substantial portion of the property of CAC, CCC, CIC or such other Insurance Subsidiary to be taken by any conservator (or any Insurance Regulatory Authority shall commence any action to effect any of the foregoing); or

(g) A Change in Control shall occur; or

(h) The Borrower or any of its Subsidiaries shall fail within 30 days to pay, bond or otherwise discharge any judgment or order for the payment of money, either singly or in the aggregate, in excess of $20,000,000, which is not stayed on appeal or otherwise being appropriately contested in good faith; or

(i) The Borrower shall terminate, or the PBGC shall institute proceedings under Title IV of ERISA to terminate, or to impose liability (other than for premiums under Section 4007 of ERISA) in respect of, or to cause a trustee to be appointed to administer, any Single Employer Plan having Unfunded Liabilities in excess of $20,000,000;

ARTICLE 7
THE ADMINISTRATIVE AGENT

SECTION 7.05. Indemnification The Lenders agree to indemnify the Administrative Agent (to the extent not reimbursed by the Borrower), ratably according to the respective amounts of their Commitments, from and against any and all liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses or disbursements of any kind or nature whatsoever which may be imposed on, incurred by, or asserted against the Administrative Agent in any way relating to or arising out of this Agreement or any action taken or omitted by the Administrative Agent under this Agreement, provided that no Lender shall be liable for any portion of such liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses or disbursements found in a final-non-appealable judgment by a court of competent jurisdiction to have resulted from the Administrative Agent's gross negligence or willful misconduct. Without limiting the foregoing, each Lender agrees to reimburse the Administrative Agent promptly upon demand for its ratable share of any out-of-pocket expenses (including counsel fees) incurred by the Administrative Agent in connection with the preparation, execution, delivery, administration, modification, amendment or enforcement (whether through negotiations, legal proceedings or otherwise) of, or legal advice in respect of rights or responsibilities under, this Agreement, to the extent that the Administrative Agent is not reimbursed for such expenses by the Borrower.

SECTION 7.07. Advisor, Sole Arranger and Book Manager, Syndication Agent and Documentation Agent.

ARTICLE 8
MISCELLANEOUS

SECTION 8.02. Notices, Etc. All notices and other communications provided for hereunder shall be in writing (including telecopier) and mailed, telecopied or delivered by hand:

(a) if to the Borrower:

CNA Financial Corporation
CNA Plaza
Chicago, Illinois 60685

Attention: Treasurer, 23 South

Telephone No.: 312-822-4161
Telecopier No.: 312-755-3692

(b) if to the Administrative Agent:

Citibank, N.A.
Two Penns Way, Suite 200
New Castle, Delaware 19720

Attention: Lee Ocasil

Telephone No.: 302-894-6065
Telecopier No.: 302-894-6120

SECTION 8.04. Costs, Expenses and Indemnification.

SECTION 8.06. Assignments and Participations.

(i) each such assignment shall be of a constant, and not a varying, percentage of all rights and obligations of the assigning Lender under this Agreement,

(ii) except in the case of an assignment by a Lender to one of its Affiliates or to another Lender, the amount of the Commitment of the assigning Lender being assigned pursuant to each such assignment (determined as of the date of the Assignment and Acceptance with respect to such assignment) shall in no event (unless the Borrower and the Administrative Agent otherwise agree) be less than the lesser of (x) such Lender's Commitment hereunder and (y) $10,000,000 or an integral multiple of $1,000,000 in excess thereof,

(iii) each such assignment shall be to an Eligible Assignee,

(iv) the parties to each such assignment shall execute and deliver to the Administrative Agent, for its acceptance and recording in the Register, an Assignment and Acceptance, and

(v) the parties to each such assignment (other than the Borrower) shall deliver to the Administrative Agent a processing and recordation fee of $3,000.

SECTION 8.14. Existing Credit Agreement. On the Effective Date, the commitment of each lender under the Existing Credit Agreement shall automatically terminate.

IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed by their respective officers thereunto duly authorized, as of the date first above written.

	Borrower

	CNA FINANCIAL CORPORATION

	By /s/ DONALD P. LOFE JR.
	Name: Donald P. Lofe Jr.
	Title: Group Vice President Corporate Finance

	Administrative Agent

	CITIBANK, N.A.,
	as Administrative Agent

	By
	Name:
	Title:

	Banks

	CITIBANK, N.A.

	By
	Name:
	Title:

	FLEET NATIONAL BANK


	By
	Name:
	Title:

	THE CHASE MANHATTAN BANK


	By
	Name:
	Title:

	BANK OF AMERICA, N.A.


	By
	Name:
	Title:

	BANK ONE NA


	By
	Name:
	Title:

	MELLON BANK, N.A.


	By
	Name:
	Title:

	WELLS FARGO BANK, NATIONAL ASSOCIATION


	By
	Name:
	Title:

	THE BANK OF TOKYO - MITSUBISHI, LTD.,
	CHICAGO BRANCH


	By
	Name:
	Title:

	THE NORTHERN TRUST COMPANY


	By
	Name:
	Title:

	WACHOVIA BANK, N.A.


	By
	Name:
	Title:

	FIRSTAR BANK, N.A.


	By
	Name:
	Title:

SCHEDULE I

Banks and Commitments

Bank	Commitment

Citibank, N.A.	$35,000,000
Fleet National Bank	$30,000,000
The Chase Manhattan Bank	$30,000,000
Bank of America	$22,500,000
Bank One, N.A.	$22,500,000
Mellon Bank, N.A.	$22,500,000
Wells Fargo Bank, N.A.	$22,500,000
Bank of Tokyo - Mitsubishi Ltd.	$17,500,000
Northern Trust Bank	$17,500,000
Wachovia Bank, N.A.	$17,500,000
Firstar Bank N.A.	$12,500,000
Total	$250,000,000

SCHEDULE II

Existing Liens

None

EXHIBIT A

NOTICE OF BORROWING

Citibank, N.A., as Administrative
Agent for the Lenders parties
to the Credit Agreement
referred to below
Two Penns Ways, Suite 200
New Castle, Delaware 19720
Attention: Lee Ocasil

[Date]

Ladies and Gentlemen:

The undersigned, CNA Financial Corporation (the “Borrower”), refers to the 364-Day Credit Agreement, dated as of April 30, 2001 (as from time to time amended, the “Credit Agreement”, the terms defined therein being used herein as therein defined), among the undersigned, certain Lenders parties thereto and Citibank, N.A., as Administrative Agent for said Lenders, and hereby gives you notice, irrevocably, pursuant to Section 2.02 of the Credit Agreement that the undersigned hereby requests a Borrowing under the Credit Agreement, and in that connection sets forth below the information relating to such Borrowing (the “Proposed Borrowing”) as required by Section 2.02(a) of the Credit Agreement:

(i) The Business Day of the Proposed Borrowing is ___________ __, _____.

(ii) The Type of Advances initially comprising the Proposed Borrowing is [Base Rate Advances] [Eurodollar Rate Advances].

(iii) The aggregate amount of the Proposed Borrowing is $___________.

[(iv) The initial Interest Period for each Advance made as part of the Proposed Borrowing is ______ month[s]]¹.

¹ For Eurodollar Rate Advances only.

The undersigned hereby certifies that the following statements are true on the date hereof, and will be true on the date of the Proposed Borrowing:

(a) the representations and warranties contained in Section 4.01 (not including, in the case of a Borrowing after the initial Borrowing, the Excluded Representations) are correct in all material respects, before and after giving effect to the Proposed Borrowing and to the application of the proceeds therefrom, as though made on and as of such date;

(b) no event has occurred and is continuing, or would result from such Proposed Borrowing or from the application of the proceeds therefrom, which constitutes an Event of Default or, to the best of the undersigned's knowledge, a Default.

	Very truly yours,

	CNA FINANCIAL CORPORATION

	By
	Title:

EXHIBIT B

ASSIGNMENT AND ACCEPTANCE

Dated ____________ __, _____

Reference is made to the 364-Day Credit Agreement dated as of April 30, 2001 (as from time to time amended, the “Credit Agreement”) among CNA Financial Corporation, a Delaware corporation (the “Borrower”), the Lenders (as defined in the Credit Agreement) and Citibank, N.A., as Administrative Agent for the Lenders (the “Administrative Agent”). Terms defined in the Credit Agreement are used herein with the same meaning.

_____________ (the “Assignor”) and _____________ (the “Assignee”) agree as follows:

¹ If the Assignee is organized under the laws of a jurisdiction outside the United States.

7. This Assignment and Acceptance shall be governed by, and construed in accordance with, the law of the State of New York.

SCHEDULE 1
to
ASSIGNMENT AND ACCEPTANCE

Percentage assigned to Assignee _______________%

Assignee's Commitment $______________

Aggregate outstanding principal

amount of Advances assigned $______________

Effective Date (if other than

date of acceptance by

Administrative Agent)*	__________ __, _____

	[NAME OF ASSIGNOR], as Assignor

	By
	Title:

	[NAME OF ASSIGNEE], as Assignee

	By:
	Title:

	Domestic Lending Office:

	Eurodollar Lending Office:

* This date should be no earlier than the date of acceptance by the Administrative Agent.

Accepted this ____ day

of _______, _____

CITIBANK, N.A., as
Administrative Agent

By_____________________
Title:

CONSENTED TO:

CNA FINANCIAL CORPORATION

By_____________________
Title:

EXHIBIT C

[Form of Opinion of Counsel of the Borrower]

[date]

To the Banks party to the
Credit Agreement referred to
below

Citibank, N.A., as Administrative
Agent
Two Penns Way, Suite 200
New Castle, Delaware 19720

Ladies and Gentlemen:

I have acted as counsel to CNA Financial Corporation (the “Borrower”) in connection with the 364-Day Credit Agreement (the “Credit Agreement”) dated as of April 30, 2001, among the Borrower, the lenders named therein and Citibank, N.A., as Administrative Agent, providing for loans to be made by said lenders to the Borrower in an aggregate principal amount not exceeding $250,000,000. Terms defined in the Credit Agreement are used in this opinion letter as defined therein. This opinion letter is being delivered pursuant to Section 3.01(d) of the Credit Agreement.

In rendering the opinion expressed below, I, or attorneys under my supervision, have examined the following agreements, instruments and other documents:

(a) the Credit Agreement; and

(b) such corporate records of the Borrower and such other documents as I have deemed necessary as a basis for the opinions expressed below.

(i) such documents have been duly authorized by, have been duly executed and delivered by, and constitute legal, valid, binding and enforceable obligations of, all of the parties to such documents;

(ii) all signatories to such documents have been duly authorized; and

(iii) all of the parties to such documents are duly organized and validly existing and have the power and authority (corporate or other) to execute, deliver and perform such documents.

1. The Borrower is a corporation duly organized, validly existing and in good standing under the laws of the State of Delaware.

2. The Borrower has all requisite corporate power to execute and deliver, and to perform its obligations and to incur liabilities under, the Credit Agreement.

3. The execution, delivery and performance by the Borrower of, and the incurrence by the Borrower of liabilities under, the Credit Agreement has been duly authorized by all necessary corporate action on the part of the Borrower.

4. The Credit Agreement has been duly executed and delivered by the Borrower.

5. The Credit Agreement constitutes the legal, valid and binding obligation of the Borrower, enforceable against the Borrower in accordance with its terms, except as may be limited by bankruptcy, insolvency, reorganization, moratorium or other similar laws relating to or affecting the rights of creditors generally and except as the enforceability of the Credit Agreement is subject to the application of general principles of equity (regardless of whether considered in a proceeding in equity or at law), including, without limitation, (a) the possible unavailability of specific performance, injunctive relief or any other equitable remedy and (b) concepts of materiality, reasonableness, good faith and fair dealing.

6. No authorization, approval or consent of, and no filing or registration with, any governmental or regulatory authority or agency of the United States of America or the State of New York is required on the part of the Borrower for the execution, delivery or performance by the Borrower of, or for the incurrence by the Borrower of any liabilities under, the Credit Agreement.

7. The execution, delivery and performance by the Borrower of, and the consummation by the Borrower of the transactions contemplated by, the Credit Agreement do not and will not (a) violate any provision of the charter or by-laws of the Borrower, (b) violate any applicable law, rule or regulation of the United States of America (including, without limitation, Regulations T, U and X issued by the Board of Governors of the Federal Reserve System, as amended) or the State of New York, (c) violate any order, writ, injunction or decree of any court or governmental authority or agency or any arbitral award applicable to the Borrower and its Subsidiaries of which I have knowledge (after due inquiry) or (d) result in a breach of, constitute a default under, require any consent under, or result in the acceleration or required prepayment of any indebtedness pursuant to the terms of, any agreement or instrument of which I have knowledge (after due inquiry) to which the Borrower and its Subsidiaries is a party or by which any of them is bound or to which any of them is subject, or result in the creation or imposition of any Lien upon any property of the Borrower pursuant to the terms of any such agreement or instrument.

8. Other than as disclosed in filings of the Borrower with the Securities and Exchange Commission, I have no knowledge (after due inquiry) of any legal or arbitral proceedings, or any proceedings by or before any governmental or regulatory authority or agency, now pending or threatened against or affecting the Borrower or any of its Subsidiaries or any of their respective Properties that, if adversely determined, could have a Material Adverse Effect.

9. The Borrower is not an “investment company”, or a Person “controlled by” an “investment company”, as such terms are defined in the Investment Company Act of 1940, as amended.

The foregoing opinions are subject to the following comments and qualifications:

(a) The enforceability of Section 8.04(b) of the Credit Agreement may be limited by laws limiting the enforceability of provisions exculpating or exempting a party from, or requiring indemnification of a party for, its own action or inaction, to the extent such action or inaction involves gross negligence, recklessness or willful or unlawful conduct.

(b) The enforceability of provisions in the Credit Agreement to the effect that terms may not be waived or modified except in writing may be limited under certain circumstances.

(c) I express no opinion as to (i) the effect of the laws of any jurisdiction in which any Lender is located (other than the State of New York) that limit the interest, fees or other charges such Lender may impose, (ii) Section 2.15 of the Credit Agreement, (iii) the second sentence of Section 8.07 of the Credit Agreement, insofar as such sentence relates to the subject matter jurisdiction of the United States District Court for the Southern District of New York to adjudicate any controversy related to the Credit Agreement, (iv) the waiver of inconvenient forum set forth in Section 8.07 of the Credit Agreement with respect to proceedings in the United States District Court for the Southern District of New York and (v) Section 8.08 of the Credit Agreement.

Very truly yours,

EXHIBIT D

[Form of Opinion of Special New York
Counsel to the Administrative Agent]

[date]

To the Banks party to the
Credit Agreement referred to
below
Citibank, N.A., as Administrative
Agent
399 Park Avenue

New York, New York 10043

Ladies and Gentlemen:

We have acted as special New York counsel to Citibank, N.A. (the “Administrative Agent”), as Administrative Agent, in connection with the 364-Day Credit Agreement dated as of April 30, 2001 (the “Credit Agreement”) among CNA Financial Corporation (the “Borrower”), the lenders named therein and the Administrative Agent, providing for loans to be made by said lenders to the Borrower in an aggregate principal amount not exceeding $250,000,000. Terms defined in the Credit Agreement are used herein as defined therein. This opinion is being delivered pursuant to Section 3.01(e) of the Credit Agreement.

In rendering the opinions expressed below, we have assumed, with respect to the Credit Agreement, that:

(i) the Credit Agreement has been duly authorized by, have been duly executed and delivered by, and (except to the extent set forth in the opinions below as to the Borrower) constitutes legal, valid, binding and enforceable obligations of, all of the parties thereto;

(ii) all signatories to the Credit Agreement have been duly authorized; and

(iii) all of the parties to the Credit Agreement are duly organized and validly existing and have the power and authority (corporate or other) to execute, deliver and perform the Credit Agreement.

The foregoing opinions are subject to the following comments and qualifications:

(b) The enforceability of provisions in the Credit Agreement to the effect that terms may not be waived or modified except in writing may be limited under certain circumstances.

(c) We express no opinion as to (i) the effect of the laws of any jurisdiction in which any Lender is located (other than the State of New York) that limit the interest, fees or other charges such Lender may impose, (ii) Section 2.15 of the Credit Agreement, (iii) the second sentence of Section 8.07 of the Credit Agreement, insofar as such sentence relates to the subject matter jurisdiction of the United States District Court for the Southern District of New York to adjudicate any controversy related to the Credit Agreement, (iv) the waiver of inconvenient forum set forth in Section 8.07 of the Credit Agreement with respect to proceedings in the United States District Court for the Southern District of New York and (v) Section 8.08 of the Credit Agreement.

Very truly yours,

WFC

[File No. 26653-37500]

EXHIBIT E

COMPLIANCE CERTIFICATE

To: The Lenders parties to the
Credit Agreement Described Below

This Compliance Certificate is furnished pursuant to that certain 364-Day Credit Agreement dated as of April 30, 2001 (as amended, modified, renewed or extended from time to time, the “Agreement”) among the Borrower, the banks named therein, Salomon Smith Barney Inc., as Advisor, Sole Arranger and Book Manager, Fleet National Bank as Syndication Agent, The Chase Manhattan Bank, as Documentation Agent and Citibank, N.A., as Administrative Agent for the Lenders. Unless otherwise defined herein, capitalized terms used in this Compliance Certificate have the meanings ascribed thereto in the Agreement.

THE UNDERSIGNED HEREBY CERTIFIES THAT:

1. I am the duly elected Chief Financial Officer of the Borrower;

SCHEDULE I TO COMPLIANCE CERTIFICATE

Schedule of Compliance as of [_____________] with
Provisions of Sections 5.01(m), 5.01(n) and 5.01(o) of
the Agreement

1.	Section 5.01(m) - Consolidated Capitalization

	A.		Aggregate Specified Indebtedness		$__________

	B.		Consolidated Capitalization

			(i)	Aggregate Specified Indebtedness	$__________

			(ii)	Consolidated Net Worth	$__________

			(iii)	Sum of (i) and (ii)	$__________

	C.		Ratio of A to B		____:1.0

	D.		Permitted Ratio		Not greater than 0.35:1.0

			Complies ____ Does Not Comply _____

2.	Section 5.01(n) - Insurance Company Surplus as Regards Policyholders

	A.		Surplus as Regards Policyholders of Continental Casualty Company (on a consolidated basis):		$__________

	B.		Surplus as Regards Policyholders of Continental Insurance Company (on a combined, without duplication, basis with the other Insurance Subsidiaries in the same insurance pool):		$__________

	C.		Total of A and B:		$__________

	D.		Minimum Combined Surplus as Regards Policyholders per Covenant		$4,500,000,000

			Complies ____ Does Not Comply _____

3.	Section 5.01(o) - Limitation on Qualifying SPV Assets

	A.		Aggregate Fair Market Value of Invested Assets of		$________
			Borrower and its Subsidiaries on a consolidated
			basis in accordance with GAAP as of the end of the
			preceding calendar year.

	B.		Aggregate Fair Market Value of Qualifying SPV Assets		$________

	C.		Ratio of B over A as a Percentage		_________%

	D.		Permitted Percentage		Not greater than 25%

		Complies ____ Does Not Comply _____


Delaware		36-6169860
(State or other jurisdiction of		(I.R.S. Employer
incorporation or organization)		Identification No.)









CNA Plaza
Chicago, Illinois		60685
(Address of principal executive offices)		(Zip Code)


Class		Outstanding at August 10, 2001

Common Stock, Par value $2.50		185,272,498


		PAGE NO.
PART I. FINANCIAL INFORMATION
















CONDENSED CONSOLIDATED FINANCIAL STATEMENTS:
















	CONDENSED CONSOLIDATED BALANCE SHEETS JUNE 30, 2001 (Unaudited) AND DECEMBER 31, 2000		1
















	CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited) FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2001 AND 2000		2
















	CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) FOR THE SIX MONTHS ENDED JUNE 30, 2001 AND 2000		3
















	NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) JUNE 30, 2001		4
















MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS			29
















PART II. OTHER INFORMATION
















ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K			63
















SIGNATURES			63


		Three Months						Six Months

		2001			2000			2001			2000
Period ended June 30
(In millions, except per share data)
Revenues:




	Net earned premiums	$	1,603		$	2,778		$	4,134		$	5,548




	Net investment income		411			598			928			1,130




	Realized investment gains, net of participating policyholders’ and minority interests		568			271			939			304




	Other revenues		152			190			345			346

Total revenues			2,734			3,837			6,346			7,328

Claims, Benefits and Expenses:




	Insurance claims and policyholders’ benefits		4,297			2,348			6,406			4,691




	Amortization of deferred acquisition costs		450			532			874			925




	Other operating expenses		501			415			984			911




	Restructuring and other related charges		56			—			62			—




	Interest		41			48			84			100

Total claims, benefits and expenses			5,345			3,343			8,410			6,627

(Loss) income before income tax, minority interest and cumulative effect of a change in accounting principle			(2,611	)		494			(2,064	)		701




Income tax benefit (expense)			855			(157	)		670			(217	)




Minority interest			(6	)		(7	)		(12	)		(13	)

(Loss) income before cumulative effect of a change in accounting principle			(1,762	)		330			(1,406	)		471




Cumulative effect of a change in accounting principle, net of tax of $33			—			—			(61	)		—

Net (loss) income		$	(1,762	)	$	330		$	(1,467	)	$	471

Basic and Diluted (Loss) Earnings Per Share:




	(Loss) income before cumulative effect of a change in accounting principle	$	(9.61	)	$	1.80		$	(7.66	)	$	2.56




	Cumulative effect of a change in accounting principle, net of tax		—			—			(0.34	)		—





Basic and diluted (loss) earnings per share available to common stockholders		$	(9.61	)	$	1.80		$	(8.00	)	$	2.56

Weighted average outstanding common stock and common stock equivalents			183.3			183.3			183.3			183.8


	Three Months						Six Months

	2001			2000			2001			2000
Period ended June 30
(In millions)
Fixed maturity securities	$	436		$	427		$	887		$	866




Short-term investments		37			53			79			91




Limited partnerships		(4	)		102			32			158




Other		(45	)		28			(41	)		41

Gross investment income		424			610			957			1,156




Investment expense		(13	)		(12	)		(29	)		(26	)

Net investment income	$	411		$	598		$	928		$	1,130

Realized investment gains, net of participating policyholders’ and minority interests	$	568		$	271		$	939		$	304


PART I. FINANCIAL INFORMATION
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS:
CONDENSED CONSOLIDATED BALANCE SHEETS
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
PART II. OTHER INFORMATION
	Item 6. Exhibits and Reports on Form 8-K
	SIGNATURES
Three Year Credit Agreement
No. 364-Day Credit Agreement


					(Unaudited)
					June 30,			December 31,
					2001			2000

(In millions, except share data)
Assets:




	Investments:




		Fixed maturity securities available-for-sale (amortized cost of $26,737 and $26,579)			$	26,854		$	26,652




		Equity securities available-for-sale (cost of $1,281 and $1,175)				1,575			2,412




		Mortgage loans and real estate (less accumulated depreciation of $1 and $1)				25			26




		Policy loans				194			193




		Other invested assets				1,359			1,116




		Short-term investments				5,882			4,723

			Total investments			35,889			35,122




	Cash and cash equivalents					142			163




	Receivables:




		Reinsurance				11,133			9,397




		Insurance				4,286			5,026




		Less allowance for doubtful accounts				(321	)		(321	)




	Accrued investment income					401			404




	Receivable for securities sold					993			424




	Deferred acquisition costs					2,464			2,418




	Prepaid reinsurance premiums					1,356			1,445




	Federal income taxes recoverable (includes $842 and $25 due from Loews)					850			15




	Deferred income taxes					879			503




	Property and equipment at cost (less accumulated depreciation of $794 and $802)					476			716




	Intangibles					297			317




	Other assets					2,342			2,152




	Separate account business					4,081			4,287

				Total assets	$	65,268		$	62,068

Liabilities and Stockholders’ Equity:




Liabilities:




	Insurance reserves:




		Claim and claim adjustment expense			$	29,507		$	26,962




		Unearned premiums				4,756			4,821




		Future policy benefits				7,055			6,669




		Policyholders’ funds				590			602




	Collateral on loaned securities and derivatives					2,407			1,308




	Payables for securities purchased					1,312			593




	Participating policyholders’ funds					110			131




	Debt					2,468			2,729




	Other liabilities					5,170			4,102




	Separate account business					4,081			4,287

			Total liabilities			57,456			52,204

Commitments and contingencies (Note E)
Minority interest						219			217




Stockholders’ equity:




	Common stock ($2.50 par value; 500,000,000 shares authorized; 185,525,907 shares issued; and 183,272,498 and 183,263,873 shares outstanding at June 30, 2001 and December 31, 2000)					464			464




	Additional paid-in capital					126			126




	Retained earnings					6,860			8,327




	Accumulated other comprehensive income					286			873




	Treasury stock, at cost					(70	)		(71	)

						7,666			9,719




	Notes receivable for the issuance of common stock					(73	)		(72	)

			Total stockholders’ equity			7,593			9,647

				Total liabilities and stockholders’ equity	$	65,268		$	62,068


					2001			2000
Six months ended June 30
(In millions)
Net Cash Flows used by Operating Activities:




	Net (loss) income				$	(1,467	)	$	471




	Adjustments to reconcile net (loss) income to net cash flows used by operating activities:




		Cumulative effect of change in accounting principle, net of tax				61			—




		Minority interest				12			13




		Deferred income tax provision				(83	)		162




		Net realized investment gains				(939	)		(304	)




		Equity method income				(32	)		(158	)




		Amortization of intangibles				11			10




		Amortization of bond discount				(124	)		(147	)




		Depreciation				72			80




		Changes in:




			Receivables, net			(996	)		(1,560	)




			Deferred acquisition costs			(51	)		(134	)




			Accrued investment income			3			23




			Federal income taxes recoverable/payable			(801	)		291




			Prepaid reinsurance premiums			89			(70	)




			Insurance reserves			2,889			308




			Other, net			463			260

				Total adjustments		574			(1,226	)

Net cash flows used by operating activities						(893	)		(755	)

Net Cash Flows from Investing Activities:




	Purchases of fixed maturity securities					(41,868	)		(17,261	)




	Proceeds from fixed maturity securities:




		Sales				30,076			19,772




		Maturities, calls and redemptions				11,964			1,133




	Purchases of equity securities					(752	)		(952	)




	Proceeds from sales of equity securities					1,652			1,249




	Change in short-term investments					(1,069	)		(3,127	)




	Change in collateral on loaned securities and derivatives					1,099			415




	Change in other investments					(210	)		—




	Purchases of property and equipment					(70	)		(79	)




	Sales of property and equipment					258			—




	Other, net					91			(8	)

Net cash flows from investing activities						1,171			1,142

Net Cash Flows used by Financing Activities:




	Dividends paid to preferred stockholders					—			(1	)




	Purchase of treasury stock					—			(30	)




	Receipts from investment contracts credited to policyholder account balances					2			3




	Return of policyholder account balances on investment contracts					(38	)		(72	)




	Principal payments on debt					(262	)		(110	)




	Proceeds from issuance of debt					—			4




	Redemption of preferred stock					—			(150	)




	Accrued interest on notes receivable for issuance of common stock					(1	)		—

Net cash flows used by financing activities						(299	)		(356	)

Net change in cash and cash equivalents						(21	)		31




Cash and cash equivalents, beginning of year						163			153

Cash and cash equivalents, end of period					$	142		$	184

Supplemental Disclosures of Cash Flow Information:




	Cash paid (received):




		Interest			$	83		$	75




		Federal income taxes				182			(235	)




	Non-cash transactions:




		Notes receivable for the issuance of common stock				—			(4	)


Nature of Hedge Designation		Derivative's Change in Fair Value Reflected In:

No hedge designation		Realized investment gains.




Fair value		Realized investment gains, along with the change in fair value of the hedged asset or liability.




Cash flow		Other comprehensive income, with subsequent reclassification to earnings when the hedged transaction, asset or liability impacts earnings.




Foreign currency		Consistent with fair value or cash flow above, depending on the nature of the hedging relationship.


		Contractual		Fair Value
		Notional
		Amount		Asset		(Liability)
June 30, 2001
(In millions)
General Account:




	Total return swaps	$	12	$	—	$	—




	Interest rate caps		500		1




	Futures sold, not yet purchased		543		—		—




	Forwards		177		—		(3	)




	Equity warrants		15		1		—




	Collateralized debt obligation liabilities		170		—		(15	)




	Options purchased		18		1		—




	Options written		1		—		—




	Options embedded in convertible debt securities		869		186		—

Total		$	2,305	$	189	$	(18	)

Separate Accounts:




	Futures purchased	$	969	$	4	$	—




	Futures sold, not yet purchased		7		—		—




	Commitments to purchase government and municipal securities		85		—		—




	Options purchased		77		—		—




	Options written		81		—		—

Total		$	1,219	$	4	$	—


	June 30, 2001						December 31, 2000

	Environmental						Environmental
	Pollution						Pollution
	and Other						and Other
	Mass Tort			Asbestos			Mass Tort			Asbestos

(In millions)
Gross reserves	$	902		$	1,627		$	493		$	848




Ceded reserves		(222	)		(356	)		(146	)		(245	)

Net reserves	$	680		$	1,271		$	347		$	603


		Direct		Assumed		Ceded		Net
Six months ended June 30
(In millions)
2001 Property-casualty		$	3,926	$	372	$	2,304	$	1,994




	Accident and health		1,754		137		139		1,752




	Life		608		119		339		388

Total earned premiums		$	6,288	$	628	$	2,782	$	4,134

2000 Property-casualty		$	4,019	$	903	$	1,700	$	3,222




	Accident and health		1,969		169		261		1,877




	Life		594		98		243		449

Total earned premiums		$	6,582	$	1,170	$	2,204	$	5,548


	Three		Six
	Months		Months
Period ended June 30, 2001
(In millions)
Ceded earned premium	$	418	$	460




Ceded loss and loss adjustment expense		683		722




Interest charges		53		59

Pretax benefit on operating results	$	212	$	203


		Agency												Risk
		Market			Specialty						Global			Manage-
		Operations			Operations			CNA Re			Operations			ment
Three months ended June 30, 2001
(In millions)
Net earned premiums		$	213		$	182		$	144		$	273		$	(271	)




Claims, benefits and expenses			1,478			562			755			470			622




Restructuring and other related charges			4			1			—			1			1

	Underwriting loss		(1,269	)		(381	)		(611	)		(198	)		(894	)




Net investment income			71			43			41			32			19




Other revenues			45			5			—			11			82




Other expenses			44			1			—			31			77




Non-insurance restructuring and other related charges			—			—			—			—			1

	Pretax operating (loss) income		(1,197	)		(334	)		(570	)		(186	)		(871	)




Income tax benefit (expense)			425			120			201			54			307




Minority interest			—			—			—			(6	)		—

Net operating (loss) income, excluding realized investment gains			(772	)		(214	)		(369	)		(138	)		(564	)




Realized investment gains (losses), net of tax, participating policyholders’ and minority interests			257			105			(227	)		17			87




Cumulative effect of a change in accounting principle, net of tax			—			—			—			—			—

Net (loss) income		$	(515	)	$	(109	)	$	(596	)	$	(121	)	$	(477	)

Receivables, net		$	5,266		$	1,283		$	2,126		$	813		$	3,163

Insurance reserves		$	12,815		$	4,059		$	4,902		$	2,715		$	4,963


For the Quarter Ended June 30, 2001			Agency
			Market			Specialty		Risk			Global						Corporate
(In millions)			Operations			Operations		Management			Operations			CNA Re			and Other			Total





Net reserve strengthening excluding the impact of the corporate aggregate excess-of-loss reinsurance treaty




	APMT		$	606		$	—	$	496		$	38		$	57		$	—		$	1,197




	Non-APMT			456			354		137			88			574			(15	)		1,594

		Total		1,062			354		633			126			631			(15	)		2,791




Pretax benefit from corporate aggregate excess-of-loss reinsurance treaty on accident year 1999				(150	)		—		(47	)		—			(26	)		—			(223	)**




Accrual for insurance-related assessments				36			—		12			—			—			—			48

	Net reserve strengthening and related accruals			948			354		598			126			605			(15	)		2,616




Change in estimate of premium accruals				333			12		293			(9	)		(13	)		—			616




Reduction of related commission accruals				(43	)		—		(7	)		—			—			—			(50	)

	Net premium and related accrual reductions			290			12		286			(9	)		(13	)		—			566




	Total pretax second quarter 2001 reserve strengthening and other related accruals		$	1,238		$	366	$	884		$	117		$	592		$	(15	)	$	3,182

	Total after-tax second quarter 2001 reserve strengthening and other related accruals		$	805		$	238	$	575		$	87		$	384		$	(10	)	$	2,079


		June 30,		December 31,
		2001		2000

(In millions)
Variable rate debt:




	Commercial Paper	$	400	$	627




	Credit facility – CNA Surety		75		100




Senior notes:




	7.250%, due March 1, 2003		133		133




	6.250%, due November 15, 2003		249		249




	6.500%, due April 15, 2005		491		491


	Three		Six
For the period ended June 30, 2001	Months		Months

(In millions)




Ceded earned premiums	$	418	$	460




Ceded losses		683		722




Interest charges		53		59

Pretax benefit on operating results	$	212	$	203


	Three and
For the period ended June 30, 2001	Six Months

(In millions)




Agency Market Operations	$	17




CNA Re		285




Global Operations		18

Total	$	320


						Six Months
						Ended
						June 30,
						2001
						Change in
						Unrealized
		June 30,		December 31,		Gains
General Account Investments		2001		2000		(Losses)

(In millions)




Fixed maturity securities:




	U.S. Treasury securities and obligations of government agencies	$	6,415	$	5,298	$	(94	)




	Asset-backed securities		5,785		7,623		(16	)




	Tax-exempt securities		2,095		3,349		(44	)




	Taxable securities		12,521		10,328		170




	Redeemable preferred stock		38		54		—

Total fixed maturity securities			26,854		26,652		16

Equity securities:




	Common stock		1,296		2,216		(933	)




	Non-redeemable preferred stock		279		196		(9	)

Total equity securities			1,575		2,412		(942	)




Short-term investments			5,882		4,723		—




Other investments			1,578		1,335		—

Total investments		$	35,889	$	35,122		(926	)

Separate account business and other							83

Change in unrealized gains (losses) reported in other comprehensive income						$	(843	)


						Increase (Decrease)

Market Risk Scenario 1			Market			Interest			Currency			Equity
June 30, 2001			Value			Rate Risk			Risk			Risk

(In millions)




Held for Other Than Trading Purposes:




General Account:




	Fixed maturity securities		$	26,854		$	(1,350	)	$	(61	)	$	(76	)




	Equity securities			1,575			—			(31	)		(153	)




	Short-term investments			5,882			(4	)		(1	)		(1	)




	Limited Partnerships			1,326			52			—			(54	)




	Other invested assets			253			—			—			—




	Interest rate caps			1			2			—			—




	Interest rate swaps			—			—			—			—




	Equity indexed futures			—			—			—			—




	Other derivative securities			(2	)		34			18			1

		Total general account		35,889			(1,266	)		(75	)		(283	)

Separate accounts:




	Fixed maturity securities			2,115			(114	)		—			—




	Equity securities			182			—			—			(18	)




	Short-term investments			116			—			—			—




	Other invested assets			499			—			—			(50	)




	Other derivative securities			—			—			—			—

		Total separate accounts		2,912			(114	)		—			(68	)

Total all securities held for other than trading purposes				38,801			(1,380	)		(75	)		(351	)

Held for Trading purposes:




Separate accounts:




	Fixed maturity securities			287			(7	)		—			(6	)




	Equity securities			10			—			—			(1	)




	Short-term investments			311			—			—			—




	Limited Partnerships			381			—			—			(3	)




	Equity indexed futures			—			2			—			(95	)




	Other derivative securities			—			—			—			—

Total all securities held for trading purposes				989			(5	)		—			(105	)

Total all securities				39,790			(1,385	)		(75	)		(456	)

Debt (carrying value)			$	2,468		$	(104	)	$	—		$	—


						Increase (Decrease)

Market Risk Scenario 2			Market			Interest			Currency			Equity
June 30, 2001			Value			Rate Risk			Risk			Risk

(In millions)




Held for Other Than Trading Purposes:




General Account:




	Fixed maturity securities		$	26,854		$	(1,992	)	$	(121	)	$	(189	)




	Equity securities			1,575			—			(61	)		(382	)




	Short-term investments			5,882			(5	)		(3	)		(1	)




	Limited Partnerships			1,326			78			—			(136	)




	Other invested assets			253			—			—			—




	Interest rate caps			1			4			—			—




	Interest rate swaps			—			—			—			—




	Equity indexed futures			—			—			—			—




	Other derivative securities			(2	)		51			35			2

		Total general account		35,889			(1,864	)		(150	)		(706	)

Separate accounts:




	Fixed maturity securities			2,115			(164	)		—			—




	Equity securities			182			—			—			(46	)




	Short-term investments			116			—			—			—




	Other invested assets			499			—			—			(125	)




	Other derivative securities			—			—			—			—

		Total separate accounts		2,912			(164	)		—			(171	)

Total all securities held for other than trading purposes				38,801			(2,028	)		(150	)		(877	)

Held for Trading purposes:




Separate accounts:




	Fixed maturity securities			287			(10	)		—			(16	)




	Equity securities			10			—			—			(3	)




	Short-term investments			311			—			—			(1	)




	Limited Partnerships			381			—			—			(6	)




	Equity indexed futures			—			3			—			(238	)




	Other derivative securities			—			—			—			—

Total all securities held for trading purposes				989			(7	)		—			(264	)

Total all securities				39,790			(2,035	)		(150	)		(1,141	)

Debt (carrying value)			$	2,468		$	(151	)	$	—		$	—


	Exhibit
Description of Exhibit	Number

Three Year Credit Agreement		10.12

No. 364-Day Credit Agreement		10.13


	CNA FINANCIAL CORPORATION









Date: August 14, 2001	By:	/s/ ROBERT V. DEUTSCH

		Robert V. Deutsch Executive Vice President and Chief Financial Officer

	WELLS FARGO BANK, NATIONAL ASSOCIATION

	By______________
	Name:
	Title:

	THE BANK OF TOKYO – MITSUBISHI, LTD.,
	CHICAGO BRANCH

	By______________
	Name:
	Title:

	Very truly yours,

	CNA FINANCIAL CORPORATION

	By_____________
	Title:

	[NAME OF ASSIGNEE], as Assignee

	By_______________
	Title:

	Domestic Lending Office:

	Eurodollar Lending Office:

1.	Section 5.01(m) - Consolidated Capitalization
	A. Aggregate Specified Indebtedness	$__________
	B. Consolidated Capitalization
	(i) Aggregate Specified Indebtedness	$__________
	(ii) Consolidated Net Worth	$__________
	(iii) Sum of (i) and (ii)	$__________
	C. Ratio of A to B	____:1.0
	D. Permitted Ratio	Not greater than 0.35:1.0
	Complies ____ Does Not Comply _____
2.	Section 5.01(n) - Insurance Company Surplus as Regards Policyholders
	A. Surplus as Regards Policyholders of Continental Casualty Company (on a consolidated basis):	$__________
	B. Surplus as Regards Policyholders of Continental Insurance Company (on a combined, without duplication, basis with the other Insurance Subsidiaries in the same insurance pool):	$__________
	C. Total of A and B:	$__________
	D. Minimum Combined Surplus as Regards Policyholders per Covenant	$4,500,000,000
	Complies ____ Does Not Comply _____

3.	Section 5.01(o) - Limitation on Qualifying SPV Assets

	A. Aggregate Fair Market Value of Invested Assets of Borrower and its Subsidiaries on a consolidated basis in accordance with GAAP as of the end of the preceding calendar year.	$________

	B. Aggregate Fair Market Value of Qualifying SPV Assets	$________

	C. Ratio of B over A as a Percentage	_________%

	D. Permitted Percentage	Not greater than 25%

	Complies ____ Does Not Comply _____