10-Q

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

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

For the quarterly period ended June 30, 2008

OR

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

For the transition period from                      to                     

Commission File Number 1-5823

CNA FINANCIAL CORPORATION

(Exact name of registrant as specified in its charter)

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

(312) 822-5000

(Registrant’s telephone number, including area code)

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

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

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

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes o No þ

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

Class	Outstanding at July 23, 2008
Common Stock, Par value$2.50	269,019,408

CNA Financial Corporation
Index

Item		Page
Number		Number
	PART I. Financial Information
1.	Condensed Consolidated Financial Statements (Unaudited):
	Condensed Consolidated Statements of Operations for the Three and Six months ended June 30, 2008 and 2007		3
	Condensed Consolidated Balance Sheets at June 30, 2008 and December 31, 2007		4
	Condensed Consolidated Statements of Cash Flows for the Six months ended June 30, 2008 and 2007		5
	Condensed Consolidated Statements of Stockholders’ Equity for the Six months ended June 30, 2008 and 2007		7
	Notes to Condensed Consolidated Financial Statements		8
2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations		41
3.	Quantitative and Qualitative Disclosures About Market Risk		68
4.	Controls and Procedures		69
	PART II. Other Information
1.	Legal Proceedings		70
4.	Submission of Matters to a Vote of Security Holders		70
6.	Exhibits		70

CNA Financial Corporation

Part I. Financial Information

Item 1. Condensed Consolidated Financial Statements

Condensed Consolidated Statements of Operations (Unaudited)

Period ended June 30	Three months						Six months
(In millions, except per share data)	2008			2007			2008			2007
Revenues
Net earned premiums	$	1,774		$	1,872		$	3,587		$	3,735
Net investment income		576			671			1,010			1,279
Realized investment losses, net of participating policyholders’ and minority interests		(111	)		(139	)		(162	)		(160	)
Other revenues		82			65			168			132
Total revenues		2,321			2,469			4,603			4,986
Claims, Benefits and Expenses
Insurance claims and policyholders’ benefits		1,472			1,473			2,861			2,921
Amortization of deferred acquisition costs		360			372			728			753
Other operating expenses		203			260			430			478
Interest		33			35			67			69
Total claims, benefits and expenses		2,068			2,140			4,086			4,221
Income before income tax and minority interest		253			329			517			765
Income tax expense		(62	)		(91	)		(126	)		(223	)
Minority interest		(12	)		(11	)		(24	)		(21	)
Income from continuing operations		179			227			367			521
Income (loss) from discontinued operations, net of income tax (expense) benefit of $0, $2, $0 and $1		2			(10	)		1			(8	)
Net income	$	181		$	217		$	368		$	513
Basic and Diluted Earnings Per Share
Income from continuing operations	$	0.66		$	0.84		$	1.36		$	1.92
Income (loss) from discontinued operations		0.01			(0.04	)		—			(0.03	)
Basic and diluted earnings per share available to common stockholders	$	0.67		$	0.80		$	1.36		$	1.89
Weighted average outstanding common stock and common stock equivalents
Basic		269.0			271.6			269.9			271.5
Diluted		269.1			271.9			270.0			271.8

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

3

CNA Financial Corporation

Condensed Consolidated Balance Sheets (Unaudited)

	June 30,			December 31,
(In millions, except share data)	2008			2007
Assets
Investments:
Fixed maturity securities at fair value (amortized cost of $31,991 and $34,388)	$	30,560		$	34,257
Equity securities at fair value (cost of $1,504 and $366)		1,419			568
Limited partnership investments		2,321			2,214
Other invested assets		9			73
Short term investments		5,064			4,677
Total investments		39,373			41,789
Cash		78			94
Reinsurance receivables (less allowance for uncollectible receivables of $445 and $461)		7,797			8,228
Insurance receivables (less allowance for doubtful accounts of $282 and $312)		2,002			1,972
Accrued investment income		324			330
Receivables for securities sold and collateral		767			142
Deferred acquisition costs		1,167			1,161
Prepaid reinsurance premiums		290			270
Deferred income taxes		1,805			1,198
Property and equipment at cost (less accumulated depreciation of $617 and $596)		402			378
Goodwill and other intangible assets		142			142
Other assets		583			579
Separate account business		451			476
Total assets	$	55,181		$	56,759
Liabilities and Stockholders’ Equity
Liabilities:
Insurance reserves:
Claim and claim adjustment expenses	$	28,202		$	28,588
Unearned premiums		3,645			3,598
Future policy benefits		7,325			7,106
Policyholders’ funds		582			930
Collateral on loaned securities and derivatives		—			63
Payables for securities purchased		489			353
Participating policyholders’ funds		34			45
Short term debt		200			350
Long term debt		1,807			1,807
Federal income taxes payable (includes $30 and $5 due to Loews Corporation)		24			2
Reinsurance balances payable		373			401
Other liabilities		2,305			2,505
Separate account business		451			476
Total liabilities		45,437			46,224
Commitments and contingencies (Notes D, G, H, and J)
Minority interest		398			385
Stockholders’ equity:
Common stock ($2.50 par value; 500,000,000 shares authorized; 273,040,243 shares issued; and 269,017,057 and 271,662,278 shares outstanding)		683			683
Additional paid-in capital		2,171			2,169
Retained earnings		7,572			7,285
Accumulated other comprehensive income (loss)		(921	)		103
Treasury stock (4,023,186 and 1,377,965 shares), at cost		(109	)		(39	)
		9,396			10,201
Notes receivable for the issuance of common stock		(50	)		(51	)
Total stockholders’ equity		9,346			10,150
Total liabilities and stockholders’ equity	$	55,181		$	56,759

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

4

CNA Financial Corporation

Condensed Consolidated Statements of Cash Flows (Unaudited)

Six months ended June 30	2008			2007
(In millions)
Cash Flows from Operating Activities:
Net income	$	368		$	513
Adjustments to reconcile net income to net cash flows provided by operating activities:
(Income) loss from discontinued operations		(1	)		8
Loss on disposal of property and equipment		—			3
Minority interest		24			21
Deferred income tax (benefit) provision		(44	)		7
Trading securities activity		351			(44	)
Realized investment losses, net of participating policyholders’ and minority interests		162			160
Undistributed losses (earnings) of equity method investees		36			(81	)
Net amortization of bond (discount) premium		(137	)		(132	)
Depreciation		36			28
Changes in:
Receivables, net		401			444
Accrued investment income		6			(13	)
Deferred acquisition costs		(6	)		(7	)
Prepaid reinsurance premiums		(20	)		(22	)
Federal income taxes recoverable/payable		22			(61	)
Insurance reserves		(148	)		(86	)
Reinsurance balances payable		(28	)		(11	)
Other assets		(23	)		21
Other liabilities		(190	)		(135	)
Other, net		1			(47	)
Total adjustments		442			53
Net cash flows provided by operating activities-continuing operations	$	810		$	566
Net cash flows provided (used) by operating activities-discontinued operations	$	2		$	(25	)
Net cash flows provided by operating activities-total	$	812		$	541
Cash Flows from Investing Activities:
Purchases of fixed maturity securities	$	(28,260	)	$	(33,938	)
Proceeds from fixed maturity securities:
Sales		26,260			31,598
Maturities, calls and redemptions		2,464			2,836
Purchases of equity securities		(133	)		(97	)
Proceeds from sales of equity securities		132			109
Change in short term investments		(430	)		(1,215	)
Change in collateral on loaned securities and derivatives		(63	)		248
Change in other investments		(153	)		(89	)
Purchases of property and equipment		(64	)		(87	)
Other, net		1			56
Net cash flows used by investing activities-continuing operations	$	(246	)	$	(579	)
Net cash flows provided by investing activities-discontinued operations	$	15		$	50
Net cash flows used by investing activities-total	$	(231	)	$	(529	)

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

5

Six months ended June 30	2008			2007
(In millions)
Cash Flows from Financing Activities:
Dividends paid to stockholders		(81	)		(27	)
Principal payments on debt		(150	)		—
Return of investment contract account balances		(299	)		(57	)
Receipts of investment contract account balances		2			1
Stock options exercised		1			17
Purchase of treasury stock		(70	)		—
Other, net		3			12
Net cash flows used by financing activities-continuing operations	$	(594	)	$	(54	)
Net cash flows provided by financing activities-discontinued operations	$	—		$	—
Net cash flows used by financing activities-total	$	(594	)	$	(54	)
Effect of foreign exchange rate changes on cash-continuing operations		(1	)		—
Net change in cash		(14	)		(42	)
Net cash transactions from continuing operations to discontinued operations		15			63
Net cash transactions from discontinued operations to continuing operations		(15	)		(63	)
Cash, beginning of year		101			124
Cash, end of period	$	87		$	82
Cash-continuing operations	$	78		$	80
Cash-discontinued operations		9			2
Cash-total	$	87		$	82

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

6

CNA Financial Corporation

Condensed Consolidated Statements of Stockholders’ Equity (Unaudited)

Six months ended June 30	2008			2007
(In millions)
Common Stock
Balance, beginning and end of period	$	683		$	683
Additional Paid-in Capital
Balance, beginning of period		2,169			2,166
Stock-based compensation		2			1
Balance, end of period		2,171			2,167
Retained Earnings
Balance, beginning of period		7,285			6,486
Adjustment to initially apply FASB Staff Position Technical Bulletin No. 85-4-1, Accounting for Life Settlement Contracts by Third-Party Investors, net of tax		—			38
Adjustment to initially apply FASB Interpretation No. 48, Accounting for Uncertainty in Income Taxes an interpretation of FASB No. 109		—			5
Adjusted balance, beginning of period		7,285			6,529
Dividends paid to stockholders		(81	)		(27	)
Net income		368			513
Balance, end of period		7,572			7,015
Accumulated Other Comprehensive Income
Balance, beginning of period		103			549
Other comprehensive loss		(1,024	)		(314	)
Balance, end of period		(921	)		235
Treasury Stock
Balance, beginning of period		(39	)		(58	)
Purchase of treasury stock		(70	)		—
Stock options exercised and other		—			19
Balance, end of period		(109	)		(39	)
Notes Receivable for the Issuance of Common Stock
Balance, beginning of period		(51	)		(58	)
Decrease in notes receivable for the issuance of common stock		1			8
Balance, end of period		(50	)		(50	)
Total Stockholders’ Equity	$	9,346		$	10,011

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

7

CNA Financial Corporation

Notes to Condensed Consolidated Financial Statements (Unaudited)

Note A. Basis of Presentation

The Condensed Consolidated Financial Statements (Unaudited) include the accounts of CNA Financial Corporation (CNAF) and its controlled subsidiaries. Collectively, CNAF and its subsidiaries are referred to as CNA or the Company. CNA’s property and casualty and the remaining life & group insurance operations are primarily conducted by Continental Casualty Company (CCC), The Continental Insurance Company (CIC) and Continental Assurance Company (CAC). Loews Corporation (Loews) owned approximately 90% of the outstanding common stock of CNAF as of June 30, 2008.

The accompanying Condensed Consolidated Financial Statements have been prepared in conformity with accounting principles generally accepted in the United States of America (GAAP). Certain financial information that is normally included in annual financial statements, including certain financial statement notes, prepared in accordance with GAAP, is not required for interim reporting purposes and has been condensed or omitted. These statements should be read in conjunction with the Consolidated Financial Statements and notes thereto included in CNAF’s Form 10-K filed with the Securities and Exchange Commission (SEC) for the year ended December 31, 2007, as amended by Form 10-K/A, which amended Part I, Item 1 of Form 10-K (Form 10-K). The preparation of Condensed Consolidated Financial Statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the Condensed Consolidated Financial Statements and the reported amounts of revenues and expenses during the reporting periods. Actual results may differ from those estimates.

The interim financial data as of June 30, 2008 and for the three and six months ended June 30, 2008 and 2007 is unaudited. However, in the opinion of management, the interim data includes all adjustments, consisting of normal recurring accruals, necessary for a fair statement of the Company’s results for the interim periods. The results of operations for the interim periods are not necessarily indicative of the results to be expected for the full year. All significant intercompany amounts have been eliminated.

Note B. Accounting Pronouncements

Financial Accounting Standards Board (FASB) Staff Position (FSP) FIN 39-1, Amendment of FASB Interpretation (FIN) No. 39
(FIN 39-1)

In April 2007, the FASB issued FIN 39-1, which amends FIN 39, Offsetting of Amounts Related to Certain Contracts (FIN 39), by permitting a reporting entity to offset fair value amounts recognized for the right to reclaim cash collateral or the obligation to return cash collateral against fair value amounts recognized for derivative instruments executed with the same counterparty under the same master netting arrangement that have been offset in the statement of financial position in accordance with FIN 39. Additionally, FIN 39-1 requires that a reporting entity shall not offset fair value amounts recognized for derivative instruments without offsetting fair value amounts recognized for the right to reclaim cash collateral or the obligation to return cash collateral.

The Company adopted FIN 39-1 in 2008, by electing to not offset cash collateral amounts recognized for derivative instruments under the same master netting arrangements and as a result will no longer offset fair value amounts recognized for derivative instruments. The Company presented the effect of adopting FIN 39-1 as a change in accounting principle through retrospective application. The effect on the Consolidated Balance Sheets as of June 30, 2008 and December 31, 2007 was an increase of $5 million and $27 million in Other invested assets and Other liabilities. The Company’s adoption of FIN 39-1 had no impact on the Company’s financial condition or results of operations as of or for the six months ended June 30, 2008.

8

Note C. Earnings Per Share

Earnings per share available to common stockholders is based on weighted average outstanding shares. Basic earnings per share excludes dilution and is computed by dividing net income attributable to common stockholders by the weighted average number of common shares outstanding for the period. Diluted earnings per share reflects the potential dilution that could occur if securities or other contracts to issue common stock were exercised or converted into common stock. Approximately 1 million shares, for the three and six months ended June 30, 2008, and approximately 300 thousand shares, for the three and six months ended June 30, 2007, attributable to exercises under stock-based employee compensation plans, were excluded from the calculation of diluted earnings per share because they were antidilutive.

The computation of earnings per share is as follows.

Earnings Per Share

Period ended June 30	Three Months				Six Months
(In millions, except per share amounts)	2008		2007		2008		2007
Income from continuing operations available to common stockholders	$	179	$	227	$	367	$	521
Weighted average outstanding common stock and common stock equivalents		269.0		271.6		269.9		271.5
Effect of dilutive securities, employee stock options and appreciation rights		0.1		0.3		0.1		0.3
Adjusted weighted average outstanding common stock and common stock equivalents assuming conversions		269.1		271.9		270.0		271.8
Basic and diluted earnings per share from continuing operations available to common stockholders	$	0.66	$	0.84	$	1.36	$	1.92
Dividends declared per common share	$	0.15	$	0.10	$	0.30	$	0.10

9

Note D. Investments

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

Net Investment Income

Period ended June 30	Three Months						Six Months
(In millions)	2008			2007			2008			2007
Fixed maturity securities	$	476		$	526		$	994		$	1,022
Short term investments		26			39			65			89
Limited partnerships		46			71			7			123
Equity securities		39			6			44			11
Income (loss) from trading portfolio (a)		(4	)		40			(81	)		43
Other		5			12			11			22
Gross investment income		588			694			1,040			1,310
Investment expense		(12	)		(23	)		(30	)		(31	)
Net investment income	$	576		$	671		$	1,010		$	1,279

(a) The change in net unrealized gains (losses) on trading securities included in net investment income was $(2) million and $(15) million for the three and six months ended June 30, 2008 and $1 million and $3 million for the three and six months ended June 30, 2007.

The components of realized investment results for available-for-sale securities are presented in the following table.

Realized Investment Gains (Losses)

Period ended June 30	Three Months						Six Months
(In millions)	2008			2007			2008			2007
Fixed maturity securities:
U.S. Government bonds	$	(46	)	$	(96	)	$	(14	)	$	(94	)
Corporate and other taxable bonds		(8	)		(50	)		(39	)		(25	)
Tax-exempt bonds		10			(42	)		50			(53	)
Asset-backed bonds		(118	)		(77	)		(157	)		(110	)
Redeemable preferred stock		4			(1	)		—			(1	)
Total fixed maturity securities		(158	)		(266	)		(160	)		(283	)
Equity securities		(14	)		11			(29	)		14
Derivative securities		56			115			12			107
Short term investments		5			—			7			—
Other		—			1			8			2
Realized investment losses, net of participating policyholders’ and minority interests	$	(111	)	$	(139	)	$	(162	)	$	(160	)

For the three months ended June 30, 2008, other-than-temporary impairment (OTTI) losses of $170 million were recorded primarily in the asset-backed bonds sector. This compared to OTTI losses for the three months ended June 30, 2007 of $176 million recorded primarily in the corporate and other taxable bonds, asset-backed bonds and U.S. Government bonds sectors. Realized investment losses for the six months ended June 30, 2008 included OTTI losses of $256 million, recorded primarily in the asset-backed bonds sector. This compared to OTTI losses for the six months ended June 30, 2007 of $263 million recorded primarily in the corporate and other taxable bonds, asset-backed bonds and U.S. Government bonds sectors. The OTTI losses for 2008 were primarily driven by credit issue related OTTI losses. These OTTI losses were driven mainly by credit market conditions and the continued disruption caused by issues surrounding the sub-prime residential mortgage (sub-prime) crisis.

10

The Company’s investment policies 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 following tables provide a summary of fixed maturity and equity securities investments. In 2008, the Company re-evaluated its classification of preferred stocks between redeemable and non-redeemable and determined that certain securities that were previously classified as redeemable preferred stock have characteristics similar to equities. These securities are presented as preferred stock securities included in Equity securities beginning with the June 30, 2008 Condensed Consolidated Balance Sheet.

Summary of Fixed Maturity and Equity Securities

	Cost or		Gross		Gross Unrealized Losses				Estimated
	Amortized		Unrealized		Less than		12 Months		Fair
June 30, 2008	Cost		Gains		12 Months		or Greater		Value
(In millions)
Fixed maturity securities available-for-sale:
U.S. Treasury securities and obligations of government agencies	$	597	$	92	$	1	$	1	$	687
Asset-backed securities		10,695		69		328		524		9,912
States, municipalities and political subdivisions — tax-exempt securities		7,153		46		255		111		6,833
Corporate bonds		9,690		170		389		144		9,327
Other debt securities		3,756		100		131		24		3,701
Redeemable preferred stock		49		1		1		—		49
Total fixed maturity securities available-for-sale		31,940		478		1,105		804		30,509
Total fixed maturity securities trading		51		—		—		—		51
Equity securities available-for-sale:
Common stock		247		210		9		1		447
Preferred stock		1,257		—		177		108		972
Total equity securities available-for-sale		1,504		210		186		109		1,419
Total	$	33,495	$	688	$	1,291	$	913	$	31,979

11

Summary of Fixed Maturity and Equity Securities

	Cost or		Gross		Gross Unrealized Losses				Estimated
	Amortized		Unrealized		Less than		12 Months		Fair
December 31, 2007	Cost		Gains		12 Months		or Greater		Value
(In millions)
Fixed maturity securities available-for-sale:
U.S. Treasury securities and obligations of government agencies	$	594	$	93	$	—	$	—	$	687
Asset-backed securities		11,776		39		223		183		11,409
States, municipalities and political subdivisions — tax-exempt securities		7,615		144		82		2		7,675
Corporate bonds		8,867		246		149		12		8,952
Other debt securities		4,143		208		48		4		4,299
Redeemable preferred stock		1,216		2		160		—		1,058
Total fixed maturity securities available-for-sale		34,211		732		662		201		34,080
Total fixed maturity securities trading		177		—		—		—		177
Equity securities available-for-sale:
Common stock		246		207		1		—		452
Preferred stock		120		7		11		—		116
Total equity securities available-for-sale		366		214		12		—		568
Total	$	34,754	$	946	$	674	$	201	$	34,825

12

The following table summarizes, for fixed income securities, preferred stocks and common stocks available-for-sale in an unrealized loss position at June 30, 2008 and December 31, 2007, the aggregate fair value and gross unrealized loss by length of time those securities have been continuously in an unrealized loss position.

Unrealized Loss Aging

	June 30, 2008				December 31, 2007
			Gross				Gross
	Estimated		Unrealized		Estimated		Unrealized
	Fair Value		Loss		Fair Value		Loss
(In millions)
Fixed income securities:
Investment grade:
0-6 months	$	11,981	$	628	$	4,771	$	228
7-12 months		2,543		431		1,584		193
13-24 months		1,477		346		690		57
Greater than 24 months		2,057		244		3,869		138
Total investment grade		18,058		1,649		10,914		616
Non-investment grade:
0-6 months		1,012		70		1,527		73
7-12 months		1,262		149		125		8
13-24 months		147		36		26		4
Greater than 24 months		8		4		9		2
Total non-investment grade		2,429		259		1,687		87
Total fixed income securities		20,487		1,908		12,601		703
Redeemable and non-redeemable preferred stocks:
0-6 months		127		14		893		143
7-12 months		745		237		104		28
13-24 months		96		35		—		—
Greater than 24 months		—		—		—		—
Total preferred stocks		968		286		997		171
Common stocks:
0-6 months		33		9		34		1
7-12 months		13		1		1		—
13-24 months		—		—		—		—
Greater than 24 months		3		—		3		—
Total common stocks		49		10		38		1
Total	$	21,504	$	2,204	$	13,636	$	875

At June 30, 2008, the fair value of the general account fixed maturities was $30,560 million, representing 78% of the total investment portfolio. The unrealized position associated with the fixed maturity portfolio included $1,909 million in gross unrealized losses, consisting of asset-backed securities which represented 45%, corporate bonds which represented 28%, tax-exempt bonds which represented 19%, and all other fixed maturity securities which represented 8%. The gross unrealized loss for any single issuer was no greater than 0.2% of the carrying value of the total general account fixed maturity portfolio. The total fixed maturity portfolio gross unrealized losses included 2,095 securities which were, in aggregate, approximately 9% below amortized cost.

Given the current facts and circumstances, the Company has determined that the securities presented in the above unrealized gain/loss tables were temporarily impaired when evaluated at June 30, 2008 or December 31, 2007, and therefore no related realized losses were recorded. A discussion of some of the factors reviewed in making that determination as of June 30, 2008 is presented below.

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Asset-Backed Securities

The unrealized losses on the Company’s investments in asset-backed securities were caused by a combination of factors related to the market disruption caused by credit concerns surrounding the sub-prime issue, but also extended into other asset-backed securities in the market and specifically in the Company’s portfolio.

The majority of the holdings in this category are collateralized mortgage obligations (CMOs) typically collateralized with prime residential mortgages and corporate asset-backed structured securities. The holdings in these sectors include 624 securities in a gross unrealized loss position aggregating $849 million. Of these securities in a gross unrealized loss position, 54% are rated AAA, 19% are rated AA, 23% are rated A and 4% are rated BBB or lower. The aggregate severity of the unrealized loss was approximately 10% of amortized cost. The contractual cash flows on the asset-backed structured securities are passed through, but may be structured into classes of preference. The structured securities held are generally secured by over collateralization or default protection provided by subordinated tranches. Within this category, securities subject to 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), are monitored for significant adverse changes in cash flow projections. If there are adverse changes in cash flows, the amount of accretable yield is prospectively adjusted and an OTTI loss is recognized. As of June 30, 2008, there was no adverse change in estimated cash flows noted for the securities in an unrealized loss position held subject to EITF 99-20, which have a gross unrealized loss of $214 million. The Company received $53 million of principal repayments on these securities consistent with the cash flow expectations. For the three and six months ended June 30, 2008, there were OTTI losses of $128 million and $179 million recorded on asset-backed securities, $118 million and $133 million of which related to specific EITF 99-20 securities for which the most recent evaluation did show an adverse change in cash flows.

The remainder of the holdings in this category includes mortgage-backed securities guaranteed by an agency of the U.S. Government. There were 186 agency mortgage-backed pass-through securities and 3 agency CMOs in an unrealized loss position aggregating $3 million as of June 30, 2008. The cumulative unrealized losses on these securities was approximately 4% of amortized cost. These securities do not tend to be influenced by the credit of the issuer but rather the characteristics and projected cash flows of the underlying collateral.

The Company believes the decline in fair value was primarily attributable to the market disruption caused by sub-prime related issues and other temporary market conditions and is not indicative of the quality of the underlying collateral. Because the Company has the ability and intent to hold these investments until an anticipated recovery of fair value, which may be maturity, the Company considers these investments to be temporarily impaired at June 30, 2008.

States, Municipalities and Political Subdivisions — Tax-Exempt Securities

The unrealized losses on the Company’s investments in municipal securities were caused primarily by changes in credit spreads, and to a lesser extent, changes in interest rates. The Company invests in municipal securities as an asset class for economic benefits of the returns on the class compared to like after-tax returns on alternative classes. The holdings in this category include 584 securities in a gross unrealized loss position aggregating $366 million with all of these unrealized losses related to investment grade securities (rated BBB- or higher) where the cash flows are supported by the credit of the issuer. The aggregate severity of the unrealized losses was approximately 7% of amortized cost. Because the Company has the ability and intent to hold these investments until an anticipated recovery of fair value, which may be maturity, the Company considers these investments to be temporarily impaired at June 30, 2008. For the three and six months ended June 30, 2008, there were no OTTI losses recorded on municipal securities.

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Corporate Bonds

The holdings in this category include 545 securities in a gross unrealized loss position aggregating $533 million. Of the unrealized losses in this category, 59% relate to securities rated as investment grade. The total holdings in this category are diversified across 11 industry sectors. The aggregate severity of the unrealized losses were approximately 8% of amortized cost. Within corporate bonds, the industry sectors with the largest gross unrealized losses were financial, consumer cyclical, communications and industrial, which as a percentage of total gross unrealized losses were approximately 39%, 21%, 11% and 8% at June 30, 2008. The decline in fair value was primarily attributable to deterioration in the broader credit markets that resulted in widening of credit spreads over risk free rates and macro conditions in certain sectors that the market viewed as out of favor. Because the decline was not related to specific credit quality issues, and because the Company has the ability and intent to hold these investments until an anticipated recovery of fair value, which may be maturity, the Company considers these investments to be temporarily impaired at June 30, 2008. For the three and six months ended June 30, 2008, there were OTTI losses of $22 million and $32 million recorded on corporate bonds.

Preferred Stock

The unrealized losses on the Company’s investments in preferred stock were caused by similar factors as those that affected the Company’s corporate bond portfolio. Approximately 70% of the gross unrealized losses in this category come from securities issued by financial institutions, 27% from government agency issued securities and 3% from utilities. The holdings in this category include 48 securities in a gross unrealized loss position aggregating $286 million. Of these securities in a gross unrealized loss position, 27% are rated AA, 39% are rated A, 29% are rated BBB and 5% are rated lower than BBB. The Company believes the holdings in this category have been adversely impacted by changes in short term interest rates and significant credit spread widening brought on by a combination of factors in the capital markets. Many of the securities in this category are related to the banking and mortgage industries and are experiencing what the Company believes to be temporarily depressed valuations. Because the Company has the ability and intent to hold these investments until an anticipated recovery of fair value, the Company considers these investments to be temporarily impaired at June 30, 2008. For the three and six months ended June 30, 2008, there were OTTI losses of $3 million and $8 million recorded on preferred stock.

Investment Commitments

As of June 30, 2008, the Company had committed approximately $528 million to future capital calls from various third-party limited partnership investments in exchange for an ownership interest in the related partnerships.

The Company invests in multiple bank loan participations as part of its overall investment strategy and has committed to additional future purchases and sales. The purchase and sale of these investments are recorded on the date that the legal agreements are finalized and cash settlement is made. As of June 30, 2008, the Company had commitments to purchase $47 million and sell $2 million of various bank loan participations. When loan participation purchases are settled and recorded they may contain both funded and unfunded amounts. An unfunded loan represents an obligation by the Company to provide additional amounts under the terms of the loan participation. The funded portions are reflected on the Condensed Consolidated Balance Sheets, while any unfunded amounts are not recorded until a draw is made under the loan facility. As of June 30, 2008, the Company had obligations on unfunded bank loan participations in the amount of $17 million.

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Note E. Derivative Financial Instruments

A summary of the recognized gains (losses) related to derivative financial instruments held at June 30, 2008 and 2007 follows.

Recognized Gains (Losses)

	Three Months						Six Months
Period ended June 30	2008			2007			2008			2007
(In millions)
General account
Without hedge designation
Swaps	$	26		$	115		$	4		$	108
Futures sold, not yet purchased		32			—			11			—
Currency forwards		1			—			—			(1	)
Commitments to purchase government and municipal securities (TBAs)		—			1			—			1
Equity warrants		(2	)		—			(2	)		—
Trading activities
Futures purchased		(6	)		32			(78	)		27
Futures sold, not yet purchased		1			1			1			1
Currency forwards		—			(1	)		1			(1	)
Total	$	52		$	148		$	(63	)	$	135

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

Derivative Financial Instruments

	Contractual/
	Notional		Estimated Fair Value
June 30, 2008	Amount		Asset		(Liability)
(In millions)
General account
Without hedge designation
Swaps	$	1,034	$	5	$	(72	)
Futures sold, not yet purchased		231		1		—
Currency forwards		14		—		—
Equity warrants		4		—		—
Trading activities
Futures purchased		339		—		—
Futures sold, not yet purchased		2		—		—
Total general account	$	1,624	$	6	$	(72	)

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Derivative Financial Instruments

	Contractual/
	Notional		Estimated Fair Value
December 31, 2007	Amount		Asset		(Liability)
(In millions)
General account
Without hedge designation
Swaps	$	1,605	$	62	$	(62	)
Equity warrants		4		2		—
Options embedded in convertible debt securities		3		—		—
Trading activities
Futures purchased		791		—		(4	)
Futures sold, not yet purchased		135		—		—
Currency forwards		44		2		(1	)
Total general account	$	2,582	$	66	$	(67	)

The Company does not offset its derivative positions against the fair value of the collateral provided or collateral received. The fair value of collateral provided, consisting primarily of cash, was $66 million and $64 million at June 30, 2008 and December 31, 2007. The fair value of collateral received, consisting primarily of cash, was $10 million at December 31, 2007. The Company held no collateral at June 30, 2008.

Options embedded in convertible debt securities are classified as Fixed maturity securities on the Condensed Consolidated Balance Sheets, consistent with the host instruments.

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Note F. Fair Value

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

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

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

Level 3 — Valuations derived from valuation techniques in which one or more significant inputs are unobservable.

The Company is responsible for the valuation process and seeks to obtain quoted market prices for all securities. When quoted market prices are not available, the Company uses a number of methodologies, including discounted cash flow models, prices from recently executed transactions of similar securities, or broker/dealer quotes utilizing market observable information to the extent possible to establish fair value estimates. In conjunction with modeling activities, the Company may use external data as inputs. The modeled inputs are consistent with observable market information, when available, or with the Company’s assumptions as to what market participants would use to value the securities. As further validation of the Company’s valuation process, the Company samples its past fair value estimates and compares the valuations to actual transactions executed in the market on similar dates.

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

								Total
								Assets/(Liabilities)
June 30, 2008	Level 1		Level 2		Level 3			at fair value
(In millions)
Assets
Fixed maturity securities	$	543	$	26,804	$	3,213		$	30,560
Equity securities		1,056		102		261			1,419
Derivative financial instruments, included in Other invested assets		—		—		5			5
Short term investments		2,053		3,011		—			5,064
Life settlement contracts, included in Other assets		—		—		118			118
Discontinued operations investments, included in Other assets		36		111		23			170
Separate account business		42		359		45			446
Total assets	$	3,730	$	30,387	$	3,665		$	37,782
Liabilities
Derivative financial instruments, included in Other liabilities	$	—	$	—	$	(72	)	$	(72	)
Total liabilities	$	—	$	—	$	(72	)	$	(72	)

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The table below presents a reconciliation for all assets and liabilities measured at fair value on a recurring basis using significant unobservable inputs (Level 3), and presents changes in unrealized gains or losses recorded in net income for the three months ended June 30, 2008 for Level 3 assets and liabilities.

							Net realized
							investment gains												Unrealized
				Net realized			(losses) and net												gains (losses)
				investment gains			change in												recorded in
				(losses) and net			unrealized												net income
				change in unrealized			appreciation			Purchases,									on level 3
				appreciation			(depreciation)			sales,									assets and
				(depreciation)			included in other			issuances			Net transfers			Balance at			liabilities
	Balance at			included in net			comprehensive			and			in (out) of			June 30,			held at June
Level 3	April 1, 2008			income*			income			settlements			level 3			2008			30, 2008*
(In millions)
Fixed maturity securities	$	2,245		$	(85	)	$	(55	)	$	89		$	1,019		$	3,213		$	(91	)
Equity securities		193			—			(2	)		48			22			261			(2	)
Derivative financial instruments, net		(82	)		23			—			(8	)		—			(67	)		15
Short term investments		85			—			—			—			(85	)		—			—
Life settlement contracts		118			12			—			(12	)		—			118			1
Discontinued operations investments		41			—			—			(1	)		(17	)		23			—
Separate account business		47			—			(4	)		2			—			45			—
Total	$	2,647		$	(50	)	$	(61	)	$	118		$	939		$	3,593		$	(77	)

The table below presents a reconciliation for all assets and liabilities measured at fair value on a recurring basis using significant unobservable inputs (Level 3), and presents changes in unrealized gains or losses recorded in net income for the six months ended June 30, 2008 for Level 3 assets and liabilities.

						Net realized
						investment gains												Unrealized
			Net realized			(losses) and net												gains (losses)
			investment gains			change in												recorded in
			(losses) and net			unrealized												net income
			change in unrealized			appreciation			Purchases,									on level 3
			appreciation			(depreciation)			sales,									assets and
	Balance at		(depreciation)			included other			issuances			Net transfers			Balance at			liabilities
	January 1,		included in net			comprehensive			and			in (out) of			June 30,			held at June
Level 3	2008		income*			income			settlements			level 3			2008			30, 2008*
(In millions)
Fixed maturity securities	$	2,684	$	(123	)	$	(270	)	$	84		$	838		$	3,213		$	(135	)
Equity securities		196		(2	)		(3	)		48			22			261			(4	)
Derivative financial instruments, net		2		1			—			(70	)		—			(67	)		(69	)
Short term investments		85		—			—			—			(85	)		—			—
Life settlement contracts		115		30			—			(27	)		—			118			5
Discontinued operations investments		42		—			—			(2	)		(17	)		23			—
Separate account business		30		—			(4	)		(1	)		20			45			—
Total	$	3,154	$	(94	)	$	(277	)	$	32		$	778		$	3,593		$	(203	)

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

Major Category of Assets and Liabilities	Consolidated Statement of Operations Line Items
Fixed maturity securities	Net investment income and Realized investment gains (losses)
Equity securities	Realized investment gains (losses)
Derivative financial instruments (Assets)	Realized investment gains (losses)
Life settlement contracts	Other revenues
Derivative financial instruments (Liabilities)	Realized investment gains (losses)

Securities transferred into Level 3 for the three and six months ended June 30, 2008 relate primarily to tax-exempt auction rate certificates, included within Fixed maturity securities. These were previously valued using observable prices for similar securities, but due to decreased market liquidity, fair value is determined by cash flow models using market observable and unobservable inputs.

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

Fixed Maturity Securities

Level 1 securities include highly liquid government bonds for which quoted market prices are available. The remaining fixed maturity securities are valued using pricing for similar securities, recently executed transactions, cash flow models with yield curves, broker/dealer quotes and other pricing models utilizing observable inputs. The valuation for most fixed income securities, excluding government bonds, is classified as Level 2. Securities within Level 2 include certain corporate bonds, municipal bonds, asset-backed securities, mortgage-backed pass-through securities and redeemable preferred stock. Securities are generally assigned to Level 3 in cases where broker/dealer quotes are significant inputs to the valuation and there is a lack of transparency as to whether these quotes are based on information that is observable in the marketplace. Level 3 securities include certain corporate bonds, asset-backed securities, municipal bonds and redeemable preferred stock.

Equity Securities

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

Level 3 securities include one equity security, which represents 68% of the total, in an entity which is not publicly traded and is valued based on a discounted cash flow analysis model, which is adjusted for the Company’s assumption regarding an inherent lack of liquidity in the security. The remaining non-redeemable preferred stocks and equity securities are primarily valued using inputs including broker/dealer quotes for which there is a lack of transparency as to whether these quotes are based on information that is observable in the marketplace.

Derivative Financial Instruments

Exchange traded derivatives are valued using quoted market prices and are classified within Level 1 of the fair value hierarchy. Over-the-counter (OTC) derivatives, principally credit default swaps, currency forwards and options, represent the present value of amounts estimated to be received from or paid to a marketplace participant in settlement of these instruments. They are valued using inputs including broker/dealer quotes and are classified within Level 3 of the valuation hierarchy due to a lack of transparency as to whether these quotes are based on information that is observable in the marketplace.

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Short Term Investments

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

Life Settlement Contracts

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

Discontinued Operations Investments

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

Separate Account Business

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

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Note G. Claim and Claim Adjustment Expense Reserves

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

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

Catastrophes are an inherent risk of the property and casualty insurance business and have contributed to material period-to-period fluctuations in the Company’s results of operations and/or equity. Catastrophe losses related to events occurring for the three and six months ended June 30, 2008, net of reinsurance, were $47 million and $100 million. Catastrophe losses in 2008 related primarily to storms, floods, and tornadoes. Catastrophe losses related to events occurring for the three and six months ended June 30, 2007, net of reinsurance, were $12 million and $44 million. Catastrophe losses in 2007 related primarily to tornadoes, floods and winter storms. There can be no assurance that CNA’s ultimate cost for catastrophes will not exceed current estimates.

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

A&E Reserves

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

A&E Reserves

	June 30, 2008						December 31, 2007
				Environmental						Environmental
(In millions)	Asbestos			Pollution			Asbestos			Pollution
Gross reserves	$	2,206		$	326		$	2,352		$	367
Ceded reserves		(977	)		(118	)		(1,030	)		(125	)
Net reserves	$	1,229		$	208		$	1,322		$	242

Asbestos

The Company recorded $6 million and $3 million of unfavorable asbestos-related net claim and claim adjustment expense reserve development for the six months ended June 30, 2008 and 2007. The Company paid asbestos-related claims, net of reinsurance recoveries, of $99 million and $89 million for the six months ended June 30, 2008 and 2007.

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

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

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

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

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

CNA issued Keasbey primary policies for 1970-1987 and excess policies for 1971-1978. CNA has paid an amount substantially equal to the policies’ aggregate limits for products and completed operations claims in the confirmed CNA policies. Claimants against Keasbey allege, among other things, that CNA owes coverage under sections of the policies not subject to the aggregate limits, an allegation CNA vigorously contests in the lawsuit. In the litigation, CNA and the claimants seek declaratory relief as to the interpretation of various policy provisions. On May 8, 2007, the Court in the first phase of the trial held that all of CNA’s primary policy products aggregates were exhausted and that past products liability claims could not be recharacterized as operations claims. The Court also found that while operations claims would not be subject to products aggregates, such claims could be made only against the policies in effect when the claimants were exposed to asbestos from Keasbey operations. These holdings limit CNA’s exposure to those instances where Keasbey used asbestos in operations between 1970 and 1987. Keasbey largely ceased using asbestos in its operations in the early 1970’s. CNA noticed an appeal to the Appellate Division to challenge certain aspects of the Court’s ruling. Other insurer parties to the litigation also filed separate notices of appeal to the Court’s ruling. The

23

appeal was fully briefed and was argued on December 6, 2007. Numerous legal issues remain to be resolved on appeal with respect to coverage that are critical to the final result, which cannot be predicted with any reliability. Accordingly, the extent of losses beyond any amounts that may be accrued are not readily determinable at this time.

CNA has insurance coverage disputes related to asbestos bodily injury claims against a bankrupt insured, Burns & Roe Enterprises, Inc. (Burns & Roe). These disputes are currently part of coverage litigation (stayed in view of the bankruptcy) and an adversary proceeding in In re: Burns & Roe Enterprises, Inc., pending in the U.S. Bankruptcy Court for the District of New Jersey, No. 00-41610. Burns & Roe provided engineering and related services in connection with construction projects. At the time of its bankruptcy filing, on December 4, 2000, Burns & Roe asserted that it faced approximately 11,000 claims alleging bodily injury resulting from exposure to asbestos as a result of construction projects in which Burns & Roe was involved. CNA allegedly provided primary liability coverage to Burns & Roe from 1956-1969 and 1971-1974, along with certain project-specific policies from 1964-1970. In September of 2007, CNA entered into an agreement with Burns & Roe, the Official Committee of Unsecured Creditors appointed by the Bankruptcy Court and the Future Claims Representative (the “Addendum”), which provides that claims allegedly covered by CNA policies will be adjudicated in the tort system, with any coverage disputes related to those claims to be decided in coverage litigation. With the approval of the Bankruptcy Court, Burns & Roe included the Addendum as part of its Fourth Amended Plan (the “Plan”), which was filed on June 9, 2008 and which will be the subject of a later confirmation hearing. With respect to both confirmation of the Plan and coverage issues, numerous factual and legal issues remain to be resolved that are critical to the final result, the outcome of which cannot be predicted with any reliability. These factors include, among others: (a) whether the Company has any further responsibility to compensate claimants against Burns & Roe under its policies and, if so, under which; (b) whether the Company’s responsibilities under its policies extend to a particular claimant’s entire claim or only to a limited percentage of the claim; (c) whether the Company’s responsibilities under its policies are limited by the occurrence limits or other provisions of the policies; (d) whether certain exclusions, including professional liability exclusions, in some of the Company’s policies apply to exclude certain claims; (e) the extent to which claimants can establish exposure to asbestos materials as to which Burns & Roe has any responsibility; (f) the legal theories which must be pursued by such claimants to establish the liability of Burns & Roe and whether such theories can, in fact, be established; (g) the diseases and damages alleged by such claimants; (h) the extent that any liability of Burns & Roe would be shared with other potentially responsible parties; (i) whether the Plan, which includes the Addendum, will be approved by the Bankruptcy Court in its current form; and (j) the impact of bankruptcy proceedings on claims and coverage issue resolution. Accordingly, the extent of losses beyond any amounts that may be accrued are not readily determinable at this time.

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

24

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

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

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

Environmental Pollution

The Company recorded $2 million and $1 million of unfavorable environmental pollution net claim and claim adjustment expense reserve development for the six months ended June 30, 2008 and 2007. The Company paid environmental pollution-related claims, net of reinsurance recoveries, of $36 million and $21 million for the six months ended June 30, 2008 and 2007.

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Net Prior Year Development

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

Three Month Comparison

Net Prior Year Development
Three months ended June 30, 2008

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

Net Prior Year Development
Three months ended June 30, 2007

							Corporate &
	Standard			Specialty			Other Non-
(In millions)	Lines			Lines			Core			Total
Pretax unfavorable (favorable) net prior year claim and allocated claim adjustment expense reserve development:
Core (Non-A&E)	$	(20	)	$	(14	)	$	8		$	(26	)
A&E		—			—			4			4
Pretax unfavorable (favorable) net prior year development before impact of premium development		(20	)		(14	)		12			(22	)
Pretax unfavorable (favorable) premium development		16			—			(5	)		11
Total pretax unfavorable (favorable) net prior year development	$	(4	)	$	(14	)	$	7		$	(11	)

2008 Net Prior Year Development

Standard Lines

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

Approximately $8 million of favorable premium development was recorded across several coverages and accident years due to additional premium processing on auditable policies and changes to ultimate premium

26

estimates. This favorable development was offset by additional unfavorable claim and allocated claim adjustment expense reserve development.

Corporate & Other Non-Core

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

2007 Net Prior Year Development

Standard Lines

Approximately $33 million of favorable claim and allocated claim adjustment expense reserve development was due to lower than anticipated frequency and severity on claims related to large property products, primarily in accident years 2005 and 2006. The change was driven by decreased incurred losses as a result of changes in individual case reserve estimates.

Additional unfavorable prior year reserve development was recorded in the workers’ compensation line of business as a result of continued claim cost inflation in older accident years, driven by increasing medical inflation and advances in medical care. Additional favorable development was recorded in the commercial automobile, monoline general liability and umbrella product lines. This favorable development was due to improved severity in recent accident years.

Approximately $14 million of unfavorable premium development was taken primarily as a result of favorable claim and allocated claim adjustment expense reserve development on large account retro policies relating to the automobile and general liability lines of business in accident years 2001 and subsequent. This favorable claim and allocated claim expense reserve development was due to lower than anticipated frequency and severity.

Specialty Lines

Approximately $9 million of favorable claim and allocated claim adjustment expense reserve development was recorded in the excess and surplus lines of business. This favorable development was primarily related to improved frequency and severity on excess general liability claims across several accident years.

Corporate & Other Non-Core

Approximately $6 million of unfavorable claim and allocated claim adjustment expense reserve development was related to commutation activity, a portion of which was offset by a release of a previously established allowance for uncollectible reinsurance.

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Six Month Comparison

Net Prior Year Development
Six months ended June 30, 2008

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

Net Prior Year Development
Six months ended June 30, 2007

							Corporate &
	Standard			Specialty			Other Non-
(In millions)	Lines			Lines			Core			Total
Pretax unfavorable (favorable) net prior year claim and allocated claim adjustment expense reserve development:
Core (Non-A&E)	$	(7	)	$	(7	)	$	8		$	(6	)
A&E		—			—			4			4
Pretax unfavorable (favorable) net prior year development before impact of premium development		(7	)		(7	)		12			(2	)
Pretax unfavorable (favorable) premium development		(10	)		(10	)		(3	)		(23	)
Total pretax unfavorable (favorable) net prior year development	$	(17	)	$	(17	)	$	9		$	(25	)

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2008 Net Prior Year Development

Standard Lines

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

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

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

Specialty Lines

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

Corporate & Other Non-Core

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

2007 Net Prior Year Development

Standard Lines

Approximately $42 million of favorable premium development was recorded primarily as a result of additional premium resulting from audits on recent policies related to workers’ compensation and general liability books of business. This was offset by $27 million of unfavorable claim and allocated claim adjustment expense reserve development related to this premium.

Approximately $16 million of unfavorable premium development was recorded due to a change in the estimate of the Company’s exposure related to its participation in involuntary pools. This unfavorable premium development was partially offset by $9 million of favorable claim and allocated claim adjustment expense reserve development.

The remaining net prior year development recorded relates primarily to the items included in the three month discussion.

Specialty Lines

Approximately $9 million of favorable premium development was recorded mainly as a result of additional premium resulting from audits on recent policies related primarily to general liability coverages. Unfavorable claim and allocated claim adjustment expense reserve development was recorded related to those premiums.

The remaining net prior year development recorded relates primarily to the items included in the three month discussion.

Corporate & Other Non-Core

The net prior year development recorded for the six months ended June 30, 2007 relates to the same reasons included in the three month discussion.

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Note H. Legal Proceedings and Contingent Liabilities

Insurance Brokerage Antitrust Litigation

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

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

Global Crossing Limited Litigation

CCC has been named as a defendant in an action brought by the bankruptcy estate of Global Crossing Limited (Global Crossing) in the United States Bankruptcy Court for the Southern District of New York, Global Crossing Estate Representative, for itself and as the Liquidating Trustee of the Global Crossing Liquidating Trust v. Gary Winnick, et al., Case No. 04 Civ. 2558 (GEL). In the complaint, plaintiff seeks unspecified monetary damages from CCC and the other defendants for alleged fraudulent transfers and alleged breaches of fiduciary duties arising from actions taken by Global Crossing while CCC was a shareholder of Global Crossing. The Court dismissed some of the claims against CCC as a matter of law. The remainder of the case is now in discovery. CCC believes it has meritorious defenses to the remaining claims in this action and intends to defend the case vigorously.

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

California Long Term Care Litigation

Shaffer v. Continental Casualty Company, et al., U.S. District Court, Central District of California, CV06-2235 RGK, is a class action on behalf of certain California individual long term health care policyholders, alleging that CCC and CNAF knowingly or negligently used unrealistic actuarial assumptions in pricing these policies. On January 8, 2008, CCC, CNAF and the plaintiffs entered into a binding agreement settling the case on a nationwide basis for the policy forms potentially affected by the allegations of the complaint. Following a fairness hearing, the Court entered an order approving the settlement. This order was appealed to the Ninth Circuit Court of Appeals. The Company believes it has meritorious defenses to this appeal and intends to defend the appeal vigorously. The agreement did not have a material impact on the Company’s results of operations, however it still remains subject to the favorable resolution of the appeal.

Asbestos and Environmental Pollution (A&E) Reserves

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

Other Litigation

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

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Note I. Benefit Plans

Pension and Postretirement Healthcare and Life Insurance Benefit Plans

CNAF and certain subsidiaries sponsor noncontributory pension plans typically covering full-time employees age 21 or over who have completed at least one year of service. In 2000, the CNA Retirement Plan was closed to new participants; instead, retirement benefits are provided to these employees under the Company’s savings plans. While the terms of the pension plans vary, benefits are generally based on years of credited service and the employee’s highest 60 consecutive months of compensation. CNA uses December 31 as the measurement date for all of its plans.

CNA’s funding policy for defined benefit pension plans is to make contributions in accordance with applicable governmental regulatory requirements with consideration of the funded status of the plans. The assets of the plans are invested primarily in corporate mortgage-backed securities, limited partnerships, equity securities, and short term investments.

CNA provides certain healthcare and life insurance benefits to eligible retired employees, their covered dependents and their beneficiaries. The funding for these plans is generally to pay covered expenses as they are incurred.

The components of net periodic benefit costs are presented in the following table.

Net Periodic Benefit Costs

Period ended June 30	Three Months						Six Months
(In millions)	2008			2007			2008			2007
Pension benefits
Service cost	$	4		$	5		$	10		$	12
Interest cost on projected benefit obligation		37			35			73			73
Expected return on plan assets		(44	)		(44	)		(89	)		(87	)
Prior service cost amortization		—			1			—			1
Actuarial loss		1			2			2			6
Net periodic pension (benefit) cost	$	(2	)	$	(1	)	$	(4	)	$	5
Postretirement benefits
Service cost	$	—		$	—		$	1		$	1
Interest cost on projected benefit obligation		2			3			4			5
Prior service cost amortization		(4	)		(4	)		(8	)		(9	)
Actuarial loss		1			—			1			1
Net periodic postretirement benefit	$	(1	)	$	(1	)	$	(2	)	$	(2	)

For the six months ended June 30, 2008, $13 million of contributions have been made to the pension plans and $5 million to the postretirement healthcare and life insurance benefit plans. CNA plans to contribute an additional $53 million to the pension plans and $6 million to the postretirement healthcare and life insurance benefit plans during the remainder of 2008.

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Note J. Operating Leases, Other Commitments and Contingencies, and Guarantees

Operating Leases

The Company is obligated to make future payments totaling approximately $237 million for non-cancelable operating leases primarily for office space, office and transportation equipment. Estimated future minimum payments under these contracts are as follows: $24 million in 2008; $44 million in 2009; $41 million in 2010; $35 million in 2011; $30 million in 2012; and $63 million in 2013 and beyond.

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

In the event that the other parties to the joint venture are unable to meet their commitments in funding the operations of this joint venture, the Company would be required to assume the obligation for the entire office building operating lease. The maximum potential future lease payments at June 30, 2008 that the Company could be required to pay under this guarantee are approximately $199 million. If CNA were required to assume the entire lease obligation, the Company would have the right to pursue reimbursement from the other shareholders and would have the right to all sublease revenues.

Other Commitments and Contingencies

In the normal course of business, CNA has provided letters of credit in favor of various unaffiliated insurance companies, regulatory authorities and other entities. At June 30, 2008 there were approximately $6 million of outstanding letters of credit.

The Company has entered into a limited number of guaranteed payment contracts, primarily relating to software and telecommunication services, amounting to approximately $16 million as of June 30, 2008. Estimated future minimum payments under these contracts are $15 million in 2008 and $1 million in 2009.

Guarantees

In the course of selling business entities and assets to third parties, the Company has agreed to indemnify purchasers for losses arising out of breaches of representation and warranties with respect to the business entities or assets being sold, including, in certain cases, losses arising from undisclosed liabilities or certain named litigation. Such indemnification provisions generally survive for periods ranging from nine months following the applicable closing date to the expiration of the relevant statutes of limitation. As of June 30, 2008, the aggregate amount of quantifiable indemnification agreements in effect for sales of business entities, assets and third party loans was $873 million.

In addition, the Company has agreed to provide indemnification to third party purchasers for certain losses associated with sold business entities or assets that are not limited by a contractual monetary amount. As of June 30, 2008, the Company had outstanding unlimited indemnifications in connection with the sales of certain of its business entities or assets that included tax liabilities arising prior to a purchaser’s ownership of an entity or asset, defects in title at the time of sale, employee claims arising prior to closing and in some cases losses arising from certain litigation and undisclosed liabilities. These indemnification agreements survive until the applicable statutes of limitation expire, or until the agreed upon contract terms expire. As of June 30, 2008 and December 31, 2007, the Company has recorded approximately $23 million and $27 million of liabilities related to these indemnification agreements.

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In connection with the issuance of preferred securities by CNA Surety Capital Trust I, CNA Surety issued a guarantee of $75 million to guarantee the payment by CNA Surety Capital Trust I of annual dividends of $1.5 million over 30 years and redemption of $30 million of preferred securities.

Note K. Comprehensive Income (Loss)

The components of comprehensive income (loss) are shown below.

Comprehensive Income (Loss)

Period ended June 30	Three Months						Six Months
(In millions)	2008			2007			2008			2007
Net income	$	181		$	217		$	368		$	513
Other comprehensive income (loss):
Change in unrealized gains (losses) on general account investments:
Holding gains (losses) arising during the period, net of tax (expense) benefit of $101, $174, $563 and $146		(188	)		(324	)		(1,041	)		(272	)
Reclassification adjustment for (gains) losses included in net income, net of tax expense (benefit) of ($15), $13, ($4) and $33		27			(27	)		7			(62	)
Net change in unrealized gains (losses) on general account investments, net of tax (expense) benefit of $86, $187, $559 and $179		(161	)		(351	)		(1,034	)		(334	)
Net change in unrealized gains (losses) on discontinued operations and other, net of tax (expense) benefit of $1, $1, $2 and $0		(4	)		(2	)		—			(1	)
Net change in foreign currency translation adjustment		2			12			(9	)		5
Net change related to pensions and postretirement benefits, net of tax (expense) benefit of $2, $0, $3 and ($1)		(1	)		(1	)		(3	)		3
Allocation to participating policyholders’ and minority interests		6			14			22			13
Other comprehensive income (loss), net of tax (expense) benefit of $89, $188, $564 and $178		(158	)		(328	)		(1,024	)		(314	)
Total comprehensive income (loss)	$	23		$	(111	)	$	(656	)	$	199

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Note L. Business Segments

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

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

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

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

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

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

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

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Three months ended										Corporate
June 30, 2007	Standard			Specialty			Life & Group			& Other
(In millions)	Lines			Lines			Non-Core			Non-Core			Eliminations			Total
Revenues:
Net earned premiums	$	842		$	870		$	157		$	4		$	(1	)	$	1,872
Net investment income		235			162			188			86			—			671
Other revenues		12			47			6			—			—			65
Total operating revenues		1,089			1,079			351			90			(1	)		2,608
Claims, benefits and expenses:
Net incurred claims and benefits		581			531			326			37			—			1,475
Policyholders’ dividends		(4	)		1			1			—			—			(2	)
Amortization of deferred acquisition costs		191			177			4			—			—			372
Other insurance related expenses		96			48			44			11			(1	)		198
Other expenses		14			39			8			36			—			97
Total claims, benefits and expenses		878			796			383			84			(1	)		2,140
Operating income (loss) from continuing operations before income tax and minority interest		211			283			(32	)		6			—			468
Income tax (expense) benefit on operating income (loss)		(65	)		(94	)		19			1			—			(139	)
Minority interest		—			(10	)		—			(1	)		—			(11	)
Net operating income (loss) from continuing operations		146			179			(13	)		6			—			318
Realized investment losses, net of participating policyholders’ and minority interests		(63	)		(35	)		(18	)		(23	)		—			(139	)
Income tax benefit on realized investment losses		21			12			6			9			—			48
Income (loss) from continuing operations	$	104		$	156		$	(25	)	$	(8	)	$	—		$	227

36

Six months ended										Corporate
June 30, 2008	Standard			Specialty			Life & Group			& Other
(In millions)	Lines			Lines			Non-Core			Non-Core			Eliminations			Total
Revenues:
Net earned premiums	$	1,551		$	1,732		$	306		$	—		$	(2	)	$	3,587
Net investment income		363			287			241			119			—			1,010
Other revenues		29			107			21			11			—			168
Total operating revenues		1,943			2,126			568			130			(2	)		4,765
Claims, benefits and expenses:
Net incurred claims and benefits		1,143			1,125			528			47			—			2,843
Policyholders’ dividends		7			8			3			—			—			18
Amortization of deferred acquisition costs		354			368			6			—			—			728
Other insurance related expenses		106			103			101			2			(2	)		310
Other expenses		24			92			10			61			—			187
Total claims, benefits and expenses		1,634			1,696			648			110			(2	)		4,086
Operating income (loss) from continuing operations before income tax and minority interest		309			430			(80	)		20			—			679
Income tax (expense) benefit on operating income (loss)		(90	)		(138	)		47			(3	)		—			(184	)
Minority interest		—			(23	)		—			(1	)		—			(24	)
Net operating income (loss) from continuing operations		219			269			(33	)		16			—			471
Realized investment losses, net of participating policyholders’ and minority interests		(76	)		(38	)		(23	)		(25	)		—			(162	)
Income tax benefit on realized investment losses		26			14			8			10			—			58
Income (loss) from continuing operations	$	169		$	245		$	(48	)	$	1		$	—		$	367
June 30, 2008 (In millions)
Reinsurance receivables	$	2,200		$	1,711		$	2,071		$	2,260		$	—		$	8,242
Insurance receivables	$	1,501		$	753		$	13		$	17		$	—		$	2,284
Insurance reserves:
Claim and claim adjustment expenses	$	11,976		$	8,520		$	2,972		$	4,734		$	—		$	28,202
Unearned premiums		1,533			1,945			164			5			(2	)		3,645
Future policy benefits		—			—			7,325			—			—			7,325
Policyholders’ funds		27			6			549			—			—			582
Deferred acquisition costs	$	318		$	370		$	479		$	—		$	—		$	1,167

37

Six months ended										Corporate
June 30, 2007	Standard			Specialty			Life & Group			& Other
(In millions)	Lines			Lines			Non-Core			Non-Core			Eliminations			Total
Revenues:
Net earned premiums	$	1,705		$	1,715		$	313		$	4		$	(2	)	$	3,735
Net investment income		455			311			349			164			—			1,279
Other revenues		23			89			18			2			—			132
Total operating revenues		2,183			2,115			680			170			(2	)		5,146
Claims, benefits and expenses:
Net incurred claims and benefits		1,174			1,074			599			71			—			2,918
Policyholders’ dividends		(1	)		4			—			—			—			3
Amortization of deferred acquisition costs		385			359			9			—			—			753
Other insurance related expenses		161			89			95			15			(2	)		358
Other expenses		24			81			17			67			—			189
Total claims, benefits and expenses		1,743			1,607			720			153			(2	)		4,221
Operating income (loss) from continuing operations before income tax and minority interest		440			508			(40	)		17			—			925
Income tax (expense) benefit on operating income (loss)		(140	)		(167	)		29			(1	)		—			(279	)
Minority interest		—			(20	)		—			(1	)		—			(21	)
Net operating income from continuing operations		300			321			(11	)		15			—			625
Realized investment losses, net of participating policyholders’ and minority interests		(87	)		(49	)		(17	)		(7	)		—			(160	)
Income tax benefit on realized investment losses		30			17			6			3			—			56
Income (loss) from continuing operations	$	243		$	289		$	(22	)	$	11		$	—		$	521
December 31, 2007 (In millions)
Reinsurance receivables	$	2,269		$	1,819		$	2,201		$	2,400		$	—		$	8,689
Insurance receivables	$	1,664		$	605		$	26		$	(11	)	$	—		$	2,284
Insurance reserves:
Claim and claim adjustment expenses	$	12,048		$	8,403		$	3,027		$	5,110		$	—		$	28,588
Unearned premiums		1,483			1,948			162			5			—			3,598
Future policy benefits		—			—			7,106			—			—			7,106
Policyholders’ funds		26			1			903			—			—			930
Deferred acquisition costs	$	311		$	365		$	485		$	—		$	—		$	1,161

38

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

Revenue by Line of Business

Period ended June 30	Three Months						Six Months
(In millions)	2008			2007			2008			2007
Standard Lines
Business Insurance	$	155		$	147		$	310		$	310
Commercial Insurance		767			879			1,557			1,786
Standard Lines revenue		922			1,026			1,867			2,096
Specialty Lines
U.S. Specialty Lines		640			658			1,287			1,320
Surety		120			117			235			227
Warranty		75			73			148			144
CNA Global		204			196			418			375
Specialty Lines revenue		1,039			1,044			2,088			2,066
Life & Group Non-Core
Life & Annuity		54			98			33			179
Health		242			219			480			452
Other		12			16			32			32
Life & Group Non-Core revenue		308			333			545			663
Corporate & Other Non-Core
CNA Re		15			25			32			72
Other		38			42			73			91
Corporate & Other Non-Core revenue		53			67			105			163
Eliminations		(1	)		(1	)		(2	)		(2	)
Total revenue	$	2,321		$	2,469		$	4,603		$	4,986

39

Note M. Discontinued Operations

CNA has discontinued operations, which consist of run-off insurance and reinsurance operations acquired in its merger with The Continental Corporation in 1995. As of June 30, 2008, the remaining run-off business is administered by Continental Reinsurance Corporation International, Ltd., a Bermuda subsidiary. The business consists of facultative property and casualty, treaty excess casualty and treaty pro-rata reinsurance with underlying exposure to a diverse, multi-line domestic and international book of business encompassing property, casualty and marine liabilities.

Results of the discontinued operations were as follows.

Discontinued Operations

Period ended June 30	Three Months					Six Months
(In millions)	2008		2007			2008		2007
Revenues:
Net investment income	$	2	$	3		$	4	$	9
Realized investment gains and other		1		4			2		2
Total revenues		3		7			6		11
Insurance related expenses		1		19			5		20
Income (loss) before income taxes		2		(12	)		1		(9	)
Income tax (expense) benefit		—		2			—		1
Income (loss) from discontinued operations, net of tax	$	2	$	(10	)	$	1	$	(8	)

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

Discontinued Operations

(In millions)	June 30, 2008		December 31, 2007
Assets:
Investments	$	170	$	185
Reinsurance receivables		6		1
Cash		9		7
Other assets		2		4
Total assets		187		197
Liabilities:
Insurance reserves		170		172
Other liabilities		11		2
Total liabilities		181		174
Net assets of discontinued operations	$	6	$	23

CNA’s accounting and reporting for discontinued operations is in accordance with APB Opinion No. 30, Reporting the Results of Operations — Reporting the Effects of Disposal of a Segment of a Business, and Extraordinary, Unusual and Infrequently Occurring Events and Transactions. At June 30, 2008 and December 31, 2007, the insurance reserves are net of discount of $79 million and $73 million. The income (loss) from discontinued operations reported above primarily represents the net investment income, realized investment gains and losses, foreign currency gains and losses, effects of the accretion of the loss reserve discount and re-estimation of the ultimate claim and claim adjustment expense reserve of the discontinued operations.

40

CNA Financial Corporation

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

Overview

The following discussion highlights significant factors impacting the consolidated operations and financial condition of CNA Financial Corporation (CNAF) and its subsidiaries (collectively CNA or the Company). References to “CNA,” “the Company,” “we,” “our,” “us” or like terms refer to the business of CNA and its subsidiaries. Based on 2006 statutory net written premiums, we are the seventh largest commercial insurance writer and the thirteenth largest property and casualty insurance organization in the United States of America.

The following discussion should be read in conjunction with the Condensed Consolidated Financial Statements in Item 1 of Part I of this Form 10-Q and Item 1A Risk Factors and Item 7 Management’s Discussion and Analysis of Financial Condition and Results of Operations, which are included in our Form 10-K filed with the Securities and Exchange Commission (SEC) for the year ended December 31, 2007, as amended by Form 10-K/A which amended Part I, Item 1 of Form 10-K (Form 10-K).

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

41

CONSOLIDATED OPERATIONS

Results of Operations

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

Period ended June 30	Three Months						Six Months
(In millions, except per share data)	2008			2007			2008			2007
Revenues
Net earned premiums	$	1,774		$	1,872		$	3,587		$	3,735
Net investment income		576			671			1,010			1,279
Other revenues		82			65			168			132
Total operating revenues		2,432			2,608			4,765			5,146
Claims, Benefits and Expenses
Net incurred claims and benefits		1,467			1,475			2,843			2,918
Policyholders’ dividends		5			(2	)		18			3
Amortization of deferred acquisition costs		360			372			728			753
Other insurance related expenses		149			198			310			358
Other expenses		87			97			187			189
Total claims, benefits and expenses		2,068			2,140			4,086			4,221
Operating income from continuing operations before income tax and minority interest		364			468			679			925
Income tax expense on operating income		(102	)		(139	)		(184	)		(279	)
Minority interest		(12	)		(11	)		(24	)		(21	)
Net operating income from continuing operations		250			318			471			625
Realized investment losses, net of participating policyholders’ and minority interests		(111	)		(139	)		(162	)		(160	)
Income tax benefit on realized investment losses		40			48			58			56
Income from continuing operations		179			227			367			521
Income (loss) from discontinued operations, net of income tax (expense) benefit of $0, $2, $0 and $1		2			(10	)		1			(8	)
Net income	$	181		$	217		$	368		$	513
Basic and Diluted Earnings Per Share
Income from continuing operations	$	0.66		$	0.84		$	1.36		$	1.92
Income (loss) from discontinued operations		0.01			(0.04	)		—			(0.03	)
Basic and diluted earnings per share available to common stockholders	$	0.67		$	0.80		$	1.36		$	1.89
Weighted average outstanding common stock and common stock equivalents
Basic		269.0			271.6			269.9			271.5
Diluted		269.1			271.9			270.0			271.8

42

Three Month Comparison

Net income decreased $36 million for the three months ended June 30, 2008 as compared with the same period in 2007. This decrease was primarily due to decreased net operating income partially offset by lower net realized investment losses.

Net operating income from continuing operations for the three months ended June 30, 2008 decreased $68 million as compared with the same period in 2007. This decrease was primarily due to lower net investment income, decreased current accident year underwriting results in our core Property & Casualty Operations and increased catastrophe losses, partially offset by lower expenses. Net investment income included a decline in trading portfolio results of $44 million, which was more than offset by a corresponding decrease in the policyholders’ funds reserves supported by the trading portfolio, which is included in Insurance claims and policyholders’ benefits on the Condensed Consolidated Statements of Operations included under Item 1. See the Investments section of this MD&A for further discussion of net investment income and net realized investment results.

Favorable net prior year development of $9 million was recorded for the three months ended June 30, 2008 related to our Standard Lines, Specialty Lines and Corporate & Other Non-core segments. This amount consisted of $3 million of favorable claim and allocated claim adjustment expense reserve development and $6 million of favorable premium development. Favorable net prior year development of $11 million was recorded for the three months ended June 30, 2007 related to our Standard Lines, Specialty Lines and Corporate & Other Non-core segments. This amount consisted of $22 million of favorable claim and allocated claim adjustment expense reserve development and $11 million of unfavorable premium development.

Net earned premiums decreased $98 million for the three months ended June 30, 2008 as compared with the same period in 2007, including a $74 million decrease related to Standard Lines and a $11 million decrease related to Specialty Lines. See the Segment Results section of this MD&A for further discussion.

Results from discontinued operations increased $12 million for the three months ended June 30, 2008 as compared to the same period in 2007. Results in 2007 were primarily driven by unfavorable net prior year development.

Six Month Comparison

Net income decreased $145 million for the six months ended June 30, 2008 as compared with the same period in 2007. This decrease was primarily due to decreased net operating income.

Net operating income from continuing operations for the six months ended June 30, 2008 decreased $154 million as compared with the same period in 2007. This decrease was primarily due to lower net investment income, decreased current accident year underwriting results in our core Property & Casualty Operations and increased catastrophe losses, partially offset by lower expenses. Net investment income included a decline in trading portfolio results of $124 million, a significant portion of which was offset by a corresponding decrease in the policyholders’ funds reserves supported by the trading portfolio. See the Investments section of this MD&A for further discussion of net investment income and net realized investment results.

Favorable net prior year development of $33 million was recorded for the six months ended June 30, 2008 related to our Standard Lines, Specialty Lines and Corporate & Other Non-core segments. This amount consisted of $16 million of favorable claim and allocated claim adjustment expense reserve development and $17 million of favorable premium development. Favorable net prior year development of $25 million was recorded for the six months ended June 30, 2007 related to our Standard Lines, Specialty Lines and Corporate & Other Non-core segments. This amount consisted of $2 million of favorable claim and allocated claim adjustment expense reserve development and $23 million of favorable premium development.

Net earned premiums decreased $148 million for the six months ended June 30, 2008 as compared with the same period in 2007, including a $154 million decrease related to Standard Lines and a $17 million increase related to Specialty Lines. See the Segment Results section of this MD&A for further discussion.

43

Results from discontinued operations increased $9 million for the six months ended June 30, 2008 as compared to the same period in 2007. Results in 2007 were primarily driven by unfavorable net prior year development.

Critical Accounting Estimates

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

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

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

• Insurance Reserves

• Reinsurance

• Valuation of Investments and Impairment of Securities

• Long Term Care Products

• Pension and Postretirement Benefit Obligations

• Legal Proceedings

Due to the inherent uncertainties involved with these types of judgments, actual results could differ significantly from estimates and may have a material adverse impact on our results of operations or equity. See the Critical Accounting Estimates section of our Management’s Discussion and Analysis of Financial Condition and Results of Operations included under Item 7 of our Form 10-K for further information.

44

SEGMENT RESULTS

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

STANDARD LINES

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

Results of Operations

Period ended June 30	Three Months						Six Months
(In millions)	2008			2007			2008			2007
Net written premiums	$	848		$	904		$	1,619		$	1,771
Net earned premiums		768			842			1,551			1,705
Net investment income		199			235			363			455
Net operating income		124			146			219			300
Net realized investment losses, after-tax		(39	)		(42	)		(50	)		(57	)
Net income		85			104			169			243
Ratios
Loss and loss adjustment expense		73.7	%		69.0	%		73.7	%		68.8	%
Expense		29.0			34.0			29.6			32.0
Dividend		0.5			(0.4	)		0.5			0.0
Combined		103.2	%		102.6	%		103.8	%		100.8	%

Three Month Comparison

Net written premiums for Standard Lines decreased $56 million for the three months ended June 30, 2008 as compared with the same period in 2007, primarily due to decreased production. The competitive market conditions are expected to put ongoing pressure on premium and income levels, and the expense ratio. Net earned premiums decreased $74 million for the three months ended June 30, 2008 as compared with the same period in 2007, consistent with the decreased premiums written.

Standard Lines averaged rate decreases of 6% for the three months ended June 30, 2008, as compared to decreases of 4% for the three months ended June 30, 2007 for the contracts that renewed during those periods. Retention rates of 80% and 81% were achieved for those contracts that were available for renewal in each period.

Net income decreased $19 million for the three months ended June 30, 2008 as compared with the same period in 2007. This decrease was primarily attributable to decreased net operating income.

Net operating income decreased $22 million for the three months ended June 30, 2008 as compared with the same period in 2007. This decrease was primarily driven by lower net investment income, higher catastrophe losses and decreased current accident year underwriting results. These decreases were partially offset by increased favorable net prior year development and lower expenses. The catastrophe losses were $29 million after-tax in the second quarter of 2008, as compared to $8 million after-tax in the second quarter of 2007.

45

The combined ratio increased 0.6 points for the three months ended June 30, 2008 as compared with the same period in 2007. The loss ratio increased 4.7 points primarily due to increased catastrophe losses and higher current accident year loss ratios related to the decline in rates, partially offset by increased favorable net prior year loss development.

The expense ratio decreased 5.0 points for the three months ended June 30, 2008 as compared with the same period in 2007. The decrease primarily related to favorable changes in estimates for insurance-related assessment liabilities.

The dividend ratio increased 0.9 points for the three months ended June 30, 2008 as compared with the same period in 2007. The 2007 results included favorable dividend development in the workers’ compensation line of business.

Favorable net prior year development of $23 million was recorded for the three months ended June 30, 2008, including $15 million of favorable claim and allocated claim adjustment expense reserve development and $8 million of favorable premium development. Favorable net prior year development of $4 million, including $20 million of favorable claim and allocated claim adjustment expense reserve development and $16 million of unfavorable premium development, was recorded for the three months ended June 30, 2007. Further information on Standard Lines net prior year development for the three months ended June 30, 2008 and 2007 is included in Note G of the Condensed Consolidated Financial Statements included under Item 1.

Six Month Comparison

Net written premiums for Standard Lines decreased $152 million and net earned premiums decreased $154 million for the six months ended June 30, 2008 as compared with the same period in 2007, due to the reasons discussed above in the three month comparison.

Standard Lines averaged rate decreases of 6% for the six months ended June 30, 2008, as compared to decreases of 4% for the six months ended June 30, 2007 for the contracts that renewed during those periods. Retention rates of 80% and 79% were achieved for those contracts that were available for renewal in each period.

Net income decreased $74 million for the six months ended June 30, 2008 as compared with the same period in 2007. This decrease was primarily attributable to decreased net operating income.

Net operating income decreased $81 million for the six months ended June 30, 2008 as compared with the same period in 2007. This decrease was primarily driven by lower net investment income, higher catastrophe losses and decreased current accident year underwriting results. These decreases were partially offset by increased favorable net prior year development and lower expenses. The catastrophe losses were $64 million after-tax for the six months ended June 30, 2008, as compared to $27 million after-tax in the same period of 2007.

The combined ratio increased 3.0 points for the six months ended June 30, 2008 as compared with the same period in 2007. The loss ratio increased 4.9 points primarily due to increased catastrophe losses and current accident year loss ratios related in part to the decline in rates, partially offset by increased favorable net prior year loss development as discussed below.

The expense ratio decreased 2.4 points for the six months ended June 30, 2008 as compared with the same period in 2007. The decrease primarily related to favorable changes in estimates for insurance-related assessment liabilities.

The dividend ratio increased 0.5 points for the three months ended June 30, 2008 as compared with the same period in 2007. The 2007 results included favorable dividend development in the workers’ compensation line of business.

Favorable net prior year development of $49 million was recorded for the six months ended June 30, 2008, including $50 million of favorable claim and allocated claim adjustment expense reserve development and $1 million of unfavorable premium development. Favorable net prior year development of $17 million, including $7 million of favorable claim and allocated claim adjustment expense reserve development and $10 million of favorable premium development, was recorded for the six months ended June 30, 2007. Further information on Standard Lines net prior year development for the six months ended June 30, 2008 and 2007 is included in Note G of the Condensed Consolidated Financial Statements included under Item 1.

46

The following table summarizes the gross and net carried reserves as of June 30, 2008 and December 31, 2007 for Standard Lines.

Gross and Net Carried
Claim and Claim Adjustment Expense Reserves

(In millions)	June 30, 2008		December 31, 2007
Gross Case Reserves	$	6,083	$	5,988
Gross IBNR Reserves		5,893		6,060
Total Gross Carried Claim and Claim Adjustment Expense Reserves	$	11,976	$	12,048
Net Case Reserves	$	4,863	$	4,750
Net IBNR Reserves		5,003		5,170
Total Net Carried Claim and Claim Adjustment Expense Reserves	$	9,866	$	9,920

47

SPECIALTY LINES

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

Results of Operations

Period ended June 30	Three Months						Six Months
(In millions)	2008			2007			2008			2007
Net written premiums	$	860		$	869		$	1,708		$	1,733
Net earned premiums		859			870			1,732			1,715
Net investment income		155			162			287			311
Net operating income		145			179			269			321
Net realized investment losses, after-tax		(19	)		(23	)		(24	)		(32	)
Net income		126			156			245			289
Ratios
Loss and loss adjustment expense		65.2	%		61.1	%		65.0	%		62.6	%
Expense		27.6			25.7			27.1			26.2
Dividend		0.1			0.2			0.5			0.2
Combined		92.9	%		87.0	%		92.6	%		89.0	%

Three Month Comparison

Net written premiums for Specialty Lines decreased $9 million for the three months ended June 30, 2008 as compared to the same period in 2007. Premiums written in 2008 were unfavorably impacted by decreased production as compared with the same period in 2007. The competitive market conditions are expected to put ongoing pressure on premium and income levels, and the expense ratio. This unfavorable impact was partially offset by decreased ceded premiums. Net earned premiums decreased $11 million for the three months ended June 30, 2008 as compared to the same period in 2007, consistent with the decrease in net written premiums.

Specialty Lines averaged rate decreases of 4% for the three months ended June 30, 2008 as compared to decreases of 3% for the three months ended June 30, 2007 for the contracts that renewed during those periods. Retention rates of 83% and 84% were achieved for those contracts that were available for renewal in each period.

Net income decreased $30 million for the three months ended June 30, 2008 as compared with the same period in 2007. This decrease was primarily attributable to lower net operating income.

Net operating income decreased $34 million for the three months ended June 30, 2008 as compared with the same period in 2007. This decrease was primarily driven by unfavorable net prior year development for the three months ended June 30, 2008 as compared to favorable net prior year development for the same period in 2007 and decreased current accident year underwriting results. The 2007 results included favorable experience and a change in estimate related to dealer profit commissions in the warranty line of business.

The combined ratio increased 5.9 points for the three months ended June 30, 2008 as compared with the same period in 2007. The loss ratio increased 4.1 points, primarily due to unfavorable net prior year development for the three months ended June 30, 2008 as compared to favorable net prior year development for the same period in 2007 and higher current accident year loss ratios primarily related to the decline in rates.

The expense ratio increased 1.9 points for the three months ended June 30, 2008 as compared with the same period in 2007. The 2007 results included a favorable change in estimate related to dealer profit commissions in the warranty line of business.

Unfavorable net prior year development of $2 million, including $1 million of unfavorable claim and allocated claim adjustment expense reserve development and $1 million of unfavorable premium development, was recorded for the three months ended June 30, 2008. Favorable claim and allocated claim adjustment expense reserve development of $14 million was recorded for the three months ended June 30, 2007. There was no premium development for the three months ended June 30, 2007.

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Six Month Comparison

Net written premiums for Specialty Lines decreased $25 million for the six months ended June 30, 2008 as compared to the same period in 2007. Premiums written in 2008 were unfavorably impacted by decreased production as compared with the same period in 2007. The competitive market conditions are expected to put ongoing pressure on premium and income levels, and the expense ratio. This unfavorable impact was partially offset by decreased ceded premiums. The U.S. Specialty Lines reinsurance structure was primarily quota share reinsurance through April 2007. We elected not to renew this coverage upon its expiration. With our current diversification in the previously reinsured lines of business and our management of the gross limits on the business written, we did not believe the cost of renewing the program was commensurate with its projected benefit. Net earned premiums increased $17 million for the six months ended June 30, 2008 as compared to the same period in 2007, which reflects the decreased use of reinsurance.

Specialty Lines averaged rate decreases of 4% for the six months ended June 30, 2008 as compared to decreases of 2% for the six months ended June 30, 2007 for the contracts that renewed during those periods. Retention rates of 84% were achieved for those contracts that were available for renewal in each period.

Net income decreased $44 million for the six months ended June 30, 2008 as compared with the same period in 2007. This decrease was primarily attributable to lower net operating income.

Net operating income decreased $52 million for the six months ended June 30, 2008 as compared with the same period in 2007. This decrease was primarily driven by less favorable net prior year development, lower net investment income and decreased current accident year underwriting results.

The combined ratio increased 3.6 points for the six months ended June 30, 2008 as compared with the same period in 2007. The loss ratio increased 2.4 points and the expense ratio increased 0.9 point primarily due to the reasons discussed in the three month comparison above.

Unfavorable claim and allocated claim adjustment expense reserve development of $18 million and $18 million of favorable premium development was recorded for the six months ended June 30, 2008, resulting in no net prior year development. Favorable net prior year development of $17 million, including $7 million of favorable claim and allocated claim adjustment expense reserve development and $10 million of favorable premium development, was recorded for the six months ended June 30, 2007.

The following table summarizes the gross and net carried reserves as of June 30, 2008 and December 31, 2007 for Specialty Lines.

Gross and Net Carried Claim and Claim Adjustment Expense Reserves

(In millions)	June 30, 2008		December 31, 2007
Gross Case Reserves	$	2,730	$	2,585
Gross IBNR Reserves		5,790		5,818
Total Gross Carried Claim and Claim Adjustment Expense Reserves	$	8,520	$	8,403
Net Case Reserves	$	2,231	$	2,090
Net IBNR Reserves		4,656		4,527
Total Net Carried Claim and Claim Adjustment Expense Reserves	$	6,887	$	6,617

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LIFE & GROUP NON-CORE

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

Results of Operations

Period ended June 30	Three Months						Six Months
(In millions)	2008			2007			2008			2007
Net earned premiums	$	149		$	157		$	306		$	313
Net investment income		157			188			241			349
Net operating loss		(30	)		(13	)		(33	)		(11	)
Net realized investment losses, after-tax		(4	)		(12	)		(15	)		(11	)
Net loss		(34	)		(25	)		(48	)		(22	)

Three Month Comparison

Net earned premiums for Life & Group Non-Core decreased $8 million for the three months ended June 30, 2008 as compared with the same period in 2007. The net earned premiums relate primarily to the group and individual long term care businesses.

Net results decreased $9 million for the three months ended June 30, 2008 as compared with the same period in 2007. The 2008 net results were impacted by adverse reserve development on our run-off participation in a reinsurance pool, adverse investment performance on a portion of our pension deposit business, and unfavorable long term care experience. In addition, net results for the second quarter of 2007 included favorable resolution of certain contingencies. Lower net realized investment losses partially offset these unfavorable impacts.

The decreased net investment income included a decline of trading portfolio results of $45 million, which was more than offset by a corresponding decrease in the policyholders’ funds reserves supported by the trading portfolio, which is included in Insurance claims and policyholders’ benefits on the Condensed Consolidated Statements of Operations included under Item 1. The trading portfolio supports the indexed group annuity portion of our pension deposit business. See the Investments section of this MD&A for further discussion of net investment income and net realized investment results.

Six Month Comparison

Net earned premiums for Life & Group Non-Core decreased $7 million for the six months ended June 30, 2008 as compared with the same period in 2007.

Net results decreased $26 million for the six months ended June 30, 2008 as compared with the same period in 2007. In addition to the unfavorable items discussed in the three month comparison, net results were also unfavorably impacted by higher net realized investment losses and lower net investment income. The decreased net investment income included a decline of trading portfolio results of $124 million, a significant portion of which was offset by a corresponding decrease in the policyholders’ fund reserves supported by the trading portfolio. The trading portfolio supports the indexed group annuity portion of our pension deposit business, which experienced a decline in net results of $8 million for the six months ended June 30, 2008 as compared with the same period in 2007.

During the first quarter of 2008, we decided to exit the indexed group annuity portion of our pension deposit business. This business had net results of $(5) million and $3 million for the six months ended June 30, 2008 and 2007. The related assets were $367 million and related liabilities were $341 million at June 30, 2008. We expect these liabilities to be settled with the policyholders during the remainder of 2008 with no material impact to results of operations.

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CORPORATE & OTHER NON-CORE

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

Results of Operations

Period ended June 30	Three Months						Six Months
(In millions)	2008			2007			2008			2007
Net investment income	$	65		$	86		$	119		$	164
Revenues		52			66			103			161
Net operating income		11			6			16			15
Net realized investment losses, after-tax		(9	)		(14	)		(15	)		(4	)
Net income (loss)		2			(8	)		1			11

Three Month Comparison

Revenues decreased $14 million for the three months ended June 30, 2008 as compared with the same period in 2007. Revenues were unfavorably impacted by lower net investment income, partially offset by improved net realized investment results. See the Investments section of this MD&A for further discussion of net investment income and net realized investment results.

Net results improved $10 million for the three months ended June 30, 2008 as compared with the same period in 2007. The 2007 results included current accident year losses related to certain mass torts. In addition, net income for the second quarter of 2008 included lower interest costs on corporate debt and $3 million related to the settlement of litigation brought by us against the issuer of a bond investment we previously held. These favorable impacts were partially offset by the decreased revenues as discussed above.

Unfavorable net prior year development of $12 million was recorded for the three months ended June 30, 2008, including $11 million of unfavorable net prior year claim and allocated claim adjustment expense reserve development and $1 million of unfavorable premium development. Unfavorable net prior year development of $7 million was recorded for the three months ended June 30, 2007, including $12 million of unfavorable net prior year claim and allocated claim adjustment expense reserve development and $5 million of favorable premium development.

Six Month Comparison

Revenues decreased $58 million for the six months ended June 30, 2008 as compared with the same period in 2007. Revenues were unfavorably impacted by lower net investment income and decreased net realized investment results. See the Investments section of this MD&A for further discussion of net investment income and net realized investment results.

Net income decreased $10 million for the six months ended June 30, 2008 as compared with the same period in 2007. The decrease in net income was primarily due to decreased revenues as discussed above. These unfavorable impacts were partly offset by the favorable items discussed in the three month comparison above.

Unfavorable net prior year claim and allocated claim adjustment expense reserve development of $16 million was recorded for the six months ended June 30, 2008. There was no premium development recorded for the six months ended June 30, 2008. Unfavorable net prior year development of $9 million was recorded for the six months ended June 30, 2007, including $12 million of unfavorable net prior year claim and allocated claim adjustment expense reserve development and $3 million of favorable premium development.

The following table summarizes the gross and net carried reserves as of June 30, 2008 and December 31, 2007 for Corporate & Other Non-Core.

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Gross and Net Carried
Claim and Claim Adjustment Expense Reserves

(In millions)	June 30, 2008		December 31, 2007
Gross Case Reserves	$	1,963	$	2,159
Gross IBNR Reserves		2,771		2,951
Total Gross Carried Claim and Claim Adjustment Expense Reserves	$	4,734	$	5,110
Net Case Reserves	$	1,209	$	1,328
Net IBNR Reserves		1,659		1,787
Total Net Carried Claim and Claim Adjustment Expense Reserves	$	2,868	$	3,115

A&E Reserves

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

Asbestos

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

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

We have also used coverage in place agreements to resolve large asbestos exposures. Coverage in place agreements are typically agreements between us and our policyholders identifying the policies and the terms for payment of asbestos related liabilities. Claim payments are contingent on presentation of adequate documentation showing exposure during the policy periods and other documentation supporting the demand for claim payment. Coverage in place agreements may have annual payment caps. Coverage in place agreements are evaluated based on claims filings trends and severities.

We categorize active asbestos accounts as large or small accounts. We define a large account as an active account with more than $100 thousand of cumulative paid losses. We have made resolving large accounts a significant management priority. Small accounts are defined as active accounts with $100 thousand or less of cumulative paid losses. Approximately 80% and 81% of our total active asbestos accounts are classified as small accounts at June 30, 2008 and December 31, 2007.

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

IBNR reserves relate to potential development on accounts that have not settled and potential future claims from unidentified policyholders.

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The tables below depict our overall pending asbestos accounts and associated reserves at June 30, 2008 and December 31, 2007.

Pending Asbestos Accounts and Associated Reserves

			Net Paid Losses		Net Asbestos		Percent of
	Number of		in 2008		Reserves		Asbestos
June 30, 2008	Policyholders		(In millions)		(In millions)		Net Reserves
Policyholders with settlement agreements
Structured settlements		14	$	15	$	130		11	%
Wellington		3		1		11		1
Coverage in place		37		19		91		7
Total with settlement agreements		54		35		232		19
Other policyholders with active accounts
Large asbestos accounts		235		42		213		17
Small asbestos accounts		952		18		86		7
Total other policyholders		1,187		60		299		24
Assumed reinsurance and pools		—		4		130		11
Unassigned IBNR		—		—		568		46
Total		1,241	$	99	$	1,229		100	%

Pending Asbestos Accounts and Associated Reserves

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

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

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

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

Environmental Pollution

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

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

We categorize active accounts as large or small accounts in the pollution area. We define a large account as an active account with more than $100 thousand cumulative paid losses. We have made closing large accounts a significant management priority. Small accounts are defined as active accounts with $100 thousand or less of cumulative paid losses. Approximately 73% of our total active pollution accounts are classified as small accounts as of June 30, 2008 and December 31, 2007.

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

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

The tables below depict our overall pending environmental pollution accounts and associated reserves at June 30, 2008 and December 31, 2007.

Pending Environmental Pollution Accounts and Associated Reserves

					Net
					Environmental		Percent of
			Net Paid		Pollution		Environmental
	Number of		Losses in 2008		Reserves		Pollution Net
June 30, 2008	Policyholders		(In millions)		(In millions)		Reserve
Policyholders with settlement agreements
Structured settlements		10	$	1	$	6		3	%
Coverage in place		18		3		15		7
Total with settlement agreements		28		4		21		10
Other policyholders with active accounts
Large pollution accounts		107		24		46		22
Small pollution accounts		288		7		35		17
Total other policyholders		395		31		81		39
Assumed reinsurance and pools		—		1		30		14
Unassigned IBNR		—		—		76		37
Total		423	$	36	$	208		100	%

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Pending Environmental Pollution Accounts and Associated Reserves

					Net		Percent of
			Net Paid Losses		Environmental		Environmental
	Number of		in 2007		Pollution Reserves		Pollution Net
December 31, 2007	Policyholders		(In millions)		(In millions)		Reserve
Policyholders with settlement agreements
Structured settlements		10	$	9	$	6		2	%
Coverage in place		18		8		14		6
Total with settlement agreements		28		17		20		8
Other policyholders with active accounts
Large pollution accounts		112		17		53		22
Small pollution accounts		298		9		42		17
Total other policyholders		410		26		95		39
Assumed reinsurance and pools		—		1		31		13
Unassigned IBNR		—		—		96		40
Total		438	$	44	$	242		100	%

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INVESTMENTS

Net Investment Income

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

Net Investment Income

Period ended June 30	Three Months						Six Months
(In millions)	2008			2007			2008			2007
Fixed maturity securities	$	476		$	526		$	994		$	1,022
Short term investments		26			39			65			89
Limited partnerships		46			71			7			123
Equity securities		39			6			44			11
Income (loss) from trading portfolio (a)		(4	)		40			(81	)		43
Other		5			12			11			22
Gross investment income		588			694			1,040			1,310
Investment expense		(12	)		(23	)		(30	)		(31	)
Net investment income	$	576		$	671		$	1,010		$	1,279

(a) The change in net unrealized gains (losses) on trading securities included in net investment income was $(2) million and $(15) million for the three and six months ended June 30, 2008 and $1 million and $3 million for the three and six months ended June 30, 2007.

Net investment income decreased by $95 million for the three months ended June 30, 2008 compared with the same period in 2007. This decrease was primarily driven by decreased results from the trading portfolio and limited partnerships. The decreased results from the trading portfolio were more than offset by a corresponding decrease in the policyholders’ funds reserves supported by the trading portfolio, which is included in Insurance claims and policyholders’ benefits on the Condensed Consolidated Statements of Operations.

Net investment income decreased by $269 million for the six months ended June 30, 2008 compared with the same period of 2007. The decrease was primarily driven by the same reasons discussed above in the three month comparison.

The bond segment of the investment portfolio yielded 5.7% and 5.8% for the six months ended June 30, 2008 and 2007.

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Net Realized Investment Gains (Losses)

The components of net realized investment results for available-for-sale securities are presented in the following table.

Period ended June 30	Three Months						Six Months
(In millions)	2008			2007			2008			2007
Fixed maturity securities:
U.S. Government bonds	$	(46	)	$	(96	)	$	(14	)	$	(94	)
Corporate and other taxable bonds		(8	)		(50	)		(39	)		(25	)
Tax-exempt bonds		10			(42	)		50			(53	)
Asset-backed bonds		(118	)		(77	)		(157	)		(110	)
Redeemable preferred stock		4			(1	)		—			(1	)
Total fixed maturity securities		(158	)		(266	)		(160	)		(283	)
Equity securities		(14	)		11			(29	)		14
Derivative securities		56			115			12			107
Short term investments		5			—			7			—
Other		—			1			8			2
Realized investment losses, net of participating policyholders’ and minority interests		(111	)		(139	)		(162	)		(160	)
Income tax benefit		40			48			58			56
Net realized investment losses, net of participating policyholders’ and minority interests	$	(71	)	$	(91	)	$	(104	)	$	(104	)

Net realized investment losses decreased by $20 million for the three months ended June 30, 2008 compared with the same period in 2007. Net realized investment losses were unchanged for the six months ended June 30, 2008 and 2007.

For the three months ended June 30, 2008, other-than-temporary impairment (OTTI) losses of $111 million, driven by credit issues, were recorded primarily within the asset-backed bonds sector. For the three months ended June 30, 2007, OTTI losses of $114 million were recorded primarily in the corporate and other taxable bonds, asset-backed bonds and U.S. Government bonds sectors.

For the six months ended June 30, 2008, OTTI losses of $166 million were recorded primarily in the asset-backed bonds sector. For the six months ended June 30, 2007, OTTI losses of $171 million were recorded primarily in the corporate and other taxable bonds, asset-backed bonds and U.S. Government bonds sectors.

The OTTI losses related to securities for which we did not assert an intent to hold until an anticipated recovery in value. The judgment as to whether an impairment is other-than-temporary incorporates many factors including the likelihood of a security recovering to cost, our intent and ability to hold the security until recovery, general market conditions, specific sector views and significant changes in expected cash flows. Our decision to record an OTTI loss is primarily based on whether the security’s fair value is likely to recover to its amortized cost in light of all of the factors considered over the expected holding period. Current factors and market conditions that contributed to recording impairments in 2008 included significant credit spread widening in fixed income sectors and market disruptions surrounding sub-prime residential mortgage concerns. In some instances, an OTTI loss was recorded because, in our judgment, recovery to cost is not likely.

A primary objective in the management of the fixed maturity and equity portfolios is to optimize return relative to underlying liabilities and respective liquidity needs. Our views on the current interest rate environment, tax regulations, asset class valuations, specific security issuer and broader industry segment conditions, and the domestic and global economic conditions, are some of the factors that enter into an investment decision. We also continually monitor exposure to issuers of securities held and broader industry sector exposures and may from time to time adjust such exposures based on our views of a specific issuer or industry sector.

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

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

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

Effective Durations

	June 30, 2008				December 31, 2007
			Effective Duration				Effective Duration
(In millions)	Fair Value		(In years)		Fair Value		(In years)
Segregated investments	$	9,066		10.6	$	9,211		10.7
Other interest sensitive investments		27,781		3.6		29,406		3.3
Total	$	36,847		5.3	$	38,617		5.1

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

We invest in certain derivative financial instruments primarily to reduce our exposure to market risk (principally interest rate, equity price and foreign currency risk) and credit risk (risk of nonperformance of underlying obligor). Derivative securities are recorded at fair value at the reporting date. We also use derivatives to mitigate market risk by purchasing Standard & Poor’s (S&P) 500 Index futures in a notional amount equal to the contract liability relating to Life & Group Non-Core indexed group annuity contracts. We provided collateral to satisfy margin deposits on exchange-traded derivatives totaling $24 million as of June 30, 2008. For over-the-counter derivative transactions we utilize International Swaps and Derivatives Association Master Agreements that specify certain limits over which collateral is exchanged. As of June 30, 2008, we provided $42 million of cash as collateral for over-the-counter derivative instruments.

We classify our fixed maturity and equity securities as either available-for-sale or trading, and as such, they are carried at fair value. The amortized cost of fixed maturity securities is adjusted for amortization of premiums and accretion of discounts to maturity, which is included in net investment income. Changes in fair value related to available-for-sale securities are reported as a component of other comprehensive income. Changes in fair value of trading securities are reported within net investment income. As of January 1, 2008, we adopted Statement of Financial Accounting Standard No. 157, Fair Value Measurement. See Note F of the Condensed Consolidated Financial Statements included under Item 1 for further information.

The following table provides further detail of gross realized investment gains and losses, which include OTTI losses, on available-for-sale fixed maturity and equity securities.

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Realized Investment Gains (Losses)

Period ended June 30	Three Months						Six Months
(In millions)	2008			2007			2008			2007
Net realized investment gains (losses) on fixed maturity securities and equity securities:
Fixed maturity securities:
Gross realized gains	$	83		$	45		$	200		$	143
Gross realized losses		(241	)		(311	)		(360	)		(426	)
Net realized investment losses on fixed maturity securities		(158	)		(266	)		(160	)		(283	)
Equity securities:
Gross realized gains		7			13			11			20
Gross realized losses		(21	)		(2	)		(40	)		(6	)
Net realized investment gains (losses) on equity securities		(14	)		11			(29	)		14
Net realized investment losses on fixed maturity and equity securities	$	(172	)	$	(255	)	$	(189	)	$	(269	)

The following table provides details of the largest realized investment losses from sales of securities aggregated by issuer including the fair value of the securities at date of sale, the amount of the loss recorded and the period of time that the securities had been in an unrealized loss position prior to sale. The period of time that the securities had been in an unrealized loss position prior to sale can vary due to the timing of individual security purchases. Also included is a narrative providing the industry sector along with the facts and circumstances giving rise to the loss.

Largest Realized Investment Losses from Securities Sold at a Loss

Six months ended June 30, 2008

	Fair				Months in
	Value at				Unrealized
	Date of		Loss		Loss Prior
Issuer Description and Discussion	Sale		On Sale		To Sale (a)
(In millions)
Various notes and bonds issued by the United States Treasury. Securities sold due to outlook on interest rates.	$	7,839	$	84		0-6
A provider of wireless and wire line communication services. Securities were sold to reduce exposure because the company announced a significant shortfall in operating results, causing significant credit deterioration which resulted in a rating downgrade.		38		16		7-12
A provider of electronic communications solutions. Company announced a decision to explore the sale of a struggling and major product unit creating uncertainty with respect to asset value relative to total debt. Securities were sold to reduce exposure.		61		7		7-12
Total	$	7,938	$	107

(a) Represents the range of consecutive months the various positions were in an unrealized loss prior to sale.

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Valuation and Impairment of Investments

The following table details the carrying value of our general account investments.

Carrying Value of General Account Investments

	June 30,					December 31,
(In millions)	2008		%			2007		%
Fixed maturity securities available-for-sale:
U.S. Treasury securities and obligations of government agencies	$	687		2	%	$	687		2	%
Asset-backed securities		9,912		25			11,409		27
States, municipalities and political subdivisions — tax-exempt securities		6,833		17			7,675		18
Corporate bonds		9,327		24			8,952		22
Other debt securities		3,701		9			4,299		10
Redeemable preferred stock		49		—			1,058		3
Total fixed maturity securities available-for-sale		30,509		77			34,080		82
Fixed maturity securities trading:
U.S. Treasury securities and obligations of government agencies		—		—			5		—
Asset-backed securities		18		—			31		—
Corporate bonds		29		—			123		—
Other debt securities		4		—			18		—
Total fixed maturity securities trading		51		—			177		—
Equity securities available-for-sale:
Common stock		447		1			452		1
Preferred stock		972		3			116		—
Total equity securities available-for-sale		1,419		4			568		1
Short term investments available-for-sale		5,014		13			4,497		11
Short term investments trading		50		—			180		1
Limited partnerships		2,321		6			2,214		5
Other investments		9		—			73		—
Total general account investments	$	39,373		100	%	$	41,789		100	%

A significant judgment in the valuation of investments is the determination of when an OTTI has occurred. We analyze securities on at least a quarterly basis. Part of this analysis is to monitor the length of time and severity of the decline below amortized cost for those securities in an unrealized loss position.

Investments in the general account had a net unrealized loss of $1,519 million at June 30, 2008 compared with a net unrealized gain of $74 million at December 31, 2007. The unrealized position at June 30, 2008 was comprised of a net unrealized loss of $1,431 million for fixed maturity securities, a net unrealized loss of $85 million for equity securities and a net unrealized loss of $3 million for short term investments. The unrealized position at December 31, 2007 was comprised of a net unrealized loss of $131 million for fixed maturity securities, a net unrealized gain of $202 million for equity securities and a net unrealized gain of $3 million for short term investments. See Note D of the Condensed Consolidated Financial Statements included under Item 1 for further detail on the unrealized position of our general account investment portfolio.

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The following table provides the composition of fixed maturity securities available-for-sale in a gross unrealized loss position at June 30, 2008 by maturity profile. Securities not due at a single date are allocated based on weighted average life.

Maturity Profile

	Percent of			Percent of
	Market			Unrealized
	Value			Loss
Due in one year or less		5	%		4	%
Due after one year through five years		23			14
Due after five years through ten years		26			31
Due after ten years		46			51
Total		100	%		100	%

Our non-investment grade fixed income securities available-for-sale at June 30, 2008 that were in a gross unrealized loss position had a fair value of $2,429 million. The following tables summarize the fair value and gross unrealized loss of non-investment grade securities categorized by the length of time those securities have been in a continuous unrealized loss position and further categorized by the severity of the unrealized loss position in 10% increments as of June 30, 2008 and December 31, 2007.

Unrealized Loss Aging for Non-investment Grade Securities

											Gross
June 30, 2008	Estimated		Fair Value as a Percentage of Amortized Cost								Unrealized
(In millions)	Fair Value		90-99%		80-89%		70-79%		<70%		Loss
Fixed income securities:
0-6 months	$	1,012	$	29	$	20	$	8	$	13	$	70
7-12 months		1,262		46		63		11		29		149
13-24 months		147		3		13		2		18		36
Greater than 24 months		8		—		1		—		3		4
Total non-investment grade	$	2,429	$	78	$	97	$	21	$	63	$	259

Unrealized Loss Aging for Non-investment Grade Securities

											Gross
December 31, 2007	Estimated		Fair Value as a Percentage of Amortized Cost								Unrealized
(In millions)	Fair Value		90-99%		80-89%		70-79%		<70%		Loss
Fixed income securities:
0-6 months	$	1,527	$	56	$	14	$	3	$	—	$	73
7-12 months		125		6		2		—		—		8
13-24 months		26		1		1		1		1		4
Greater than 24 months		9		1		1		—		—		2
Total non-investment grade	$	1,687	$	64	$	18	$	4	$	1	$	87

As part of the ongoing OTTI monitoring process, we evaluated the facts and circumstances based on available information for each of the non-investment grade securities and determined that the securities presented in the above tables were temporarily impaired when evaluated at June 30, 2008 or December 31, 2007. This determination was based on a number of factors that we regularly consider including, but not limited to: the issuers’ ability to meet current and future interest and principal payments, an evaluation of the issuers’ financial condition and near term prospects, our assessment of the sector outlook and estimates of the fair value of any underlying collateral. In all cases where a decline in value is judged to be temporary, we have the intent and ability to hold these securities for a period of time sufficient to recover the amortized cost of our investment through an anticipated recovery in the fair value of such securities or by holding the securities to maturity. In

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many cases, the securities held are matched to liabilities as part of ongoing asset/liability duration management. As such, we continually assess our ability to hold securities for a time sufficient to recover any temporary loss in value or until maturity. We believe we have sufficient levels of liquidity so as to not impact the asset/liability management process.

Our equity securities classified as available-for-sale as of June 30, 2008 that were in a gross unrealized loss position had a fair value of $982 million and gross unrealized losses of $295 million. Under the same process as followed for fixed maturity securities, we monitor the equity securities for other-than-temporary declines in value. In all cases where a decline in value is judged to be temporary, we have the intent and ability to hold these securities for a period of time sufficient to recover the cost of our investment through an anticipated recovery in the fair value of such securities.

Invested assets are exposed to various risks, such as interest rate and credit risk. Due to the level of risk associated with certain invested assets and the level of uncertainty related to changes in the value of these assets, it is possible that changes in these risks in the near term, including increases in interest rates and further credit spread widening, could have an adverse material impact on our results of operations or equity.

The general account portfolio consists primarily of high quality bonds, 88% and 89% of which were rated as investment grade (rated BBB- or higher) at June 30, 2008 and December 31, 2007. The following table summarizes the ratings of our general account bond portfolio at carrying value.

General Account Bond Ratings

	June 30,					December 31,
(In millions)	2008		%			2007		%
U.S. Government and affiliated agency securities	$	789		3	%	$	816		3	%
Other AAA rated		12,358		40			16,728		50
AA and A rated		8,038		26			6,326		19
BBB rated		5,809		19			5,713		17
Non-investment grade		3,517		12			3,616		11
Total	$	30,511		100	%	$	33,199		100	%

At June 30, 2008 and December 31, 2007, approximately 97% and 95% of the general account portfolio was issued by U.S. Government and affiliated agencies or was rated by S&P or Moody’s Investors Service (Moody’s). The remaining bonds were rated by other rating agencies or internally.

Non-investment grade bonds, as presented in the tables above, are primarily high-yield securities rated below BBB- by bond rating agencies, as well as other unrated securities that, according to our analysis, are below investment grade. 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.

The carrying value of securities that are either subject to trading restrictions or trade in illiquid private placement markets at June 30, 2008 was $491 million, which represents 1.2% of our total investment portfolio. These securities were in a net unrealized gain position of $168 million at June 30, 2008.

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Asset-Backed and Sub-prime Mortgage Exposure

Asset-Backed Distribution

																Percent			Percent
June 30, 2008	Security Type															of Total			of Total
(In millions)	MBS(a)			CMO(b)			ABS(c)			CDO(d)			Total			Security Type			Investments
U.S. Government Agencies	$	638		$	1,120		$	—		$	—		$	1,758			18	%		4	%
AAA		—			4,796			2,238			9			7,043			71			18
AA		—			150			329			29			508			5			1
A		—			8			131			116			255			2			1
BBB		—			1			278			7			286			3			1
Non-investment grade and equity tranches		—			5			61			14			80			1			—
Total Fair Value	$	638		$	6,080		$	3,037		$	175		$	9,930			100	%		25	%
Total Amortized Cost	$	650		$	6,416		$	3,297		$	351		$	10,714
Percent of total fair value by security type		6	%		61	%		31	%		2	%		100	%
Sub-prime (included above)
Fair Value	$	—		$	1		$	1,558		$	10		$	1,569			16	%		4	%
Amortized Cost	$	—		$	1		$	1,668		$	33		$	1,702			16	%		4	%
Alt-A (included above)
Fair Value	$	—		$	1,218		$	—		$	12		$	1,230			12	%		3	%
Amortized Cost	$	—		$	1,321		$	—		$	12		$	1,333			12	%		3	%

(a)	Mortgage-backed securities (MBS)
(b)	Collateralized mortgage obligations (CMO)
(c)	Asset-backed securities (ABS)
(d)	Collateralized debt obligations (CDO)

Included in our fixed maturity securities at June 30, 2008 were $9,930 million of asset-backed securities, at fair value, which represents 25% of total invested assets. Of the total asset-backed securities, 89% were U.S. Government Agency issued or AAA rated. The majority of our asset-backed securities are actively traded in liquid markets. Of the total invested assets, $1,569 million or 4% have exposure to sub-prime residential mortgage (sub-prime) collateral, as measured by the original deal structure, while 3% have exposure to Alternative A (Alt-A) collateral. Of the securities with sub-prime exposure, approximately 97% were rated investment grade, while over 99% of the Alt-A securities were rated investment grade. We believe that each of these securities would be rated investment grade even without the benefit of any applicable third-party guarantees. In addition to sub-prime exposure in fixed maturity securities, there is exposure of approximately $44 million through limited partnerships and credit default swaps.

All asset-backed securities in an unrealized loss position are reviewed as part of the ongoing OTTI process, which resulted in OTTI losses of $83 million and $117 million after-tax for the three and six months ended June 30, 2008. Included in these OTTI losses were $64 million and $93 million after-tax related to securities with sub-prime and Alt-A exposure. Our review of these securities includes an analysis of cash flow modeling under various default scenarios, the seniority of the specific tranche within the deal structure, the composition of the collateral and the actual default experience. Given current market conditions and the specific facts and circumstances related to our individual sub-prime and Alt-A exposures, we believe that all remaining unrealized losses are temporary in nature. Continued deterioration in these markets beyond our current expectations may cause us to reconsider and record additional OTTI losses.

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Federal National Mortgage Association and Federal Home Loan Mortgage Corporation

The aggregate amounts of our direct exposure at June 30, 2008, at amortized cost, of equity and debt securities of Federal National Mortgage Association (Fannie Mae) and Federal Home Loan Mortgage Corporation (Freddie Mac) are set forth below.

	June 30,
(In millions)	2008
Fannie Mae
Preferred stock	$	137
Senior bonds	$	16
Freddie Mac
Discount notes	$	846
Preferred stock	$	184
Senior bonds	$	67

Our entire holdings of Freddie Mac Discount notes had either matured or were disposed of, at or above amortized cost, subsequent to June 30, 2008.

Short Term Investments

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

	June 30,		December 31,
(In millions)	2008		2007
Short term investments available-for-sale:
Commercial paper	$	2,004	$	3,040
U.S. Treasury securities		1,207		577
Money market funds		263		72
Other, including collateral held related to securities lending		1,540		808
Total short term investments available-for-sale		5,014		4,497
Short term investments trading:
Commercial paper		—		35
Money market funds		49		139
Other		1		6
Total short term investments trading		50		180
Total short term investments	$	5,064	$	4,677

The fair value of collateral held related to securities lending, included in other short term investments, was $53 million at December 31, 2007. There was no collateral held at June 30, 2008.

LIQUIDITY AND CAPITAL RESOURCES

Cash Flows

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

For the six months ended June 30, 2008, net cash provided by operating activities was $812 million as compared with $541 million for the same period in 2007. Cash provided by operating activities was favorably impacted by increased net sales of trading securities to fund policyholders’ withdrawals of investment contract

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products issued by us and decreased tax and expense payments. Policyholders’ fund withdrawals are reflected as financing cash flows. Cash provided by operating activities was unfavorably impacted by decreased premium collections and increased loss payments.

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

For the six months ended June 30, 2008, net cash used by investing activities was $231 million as compared with $529 million for the same period in 2007. Cash flows used by investing activities related principally to purchases of fixed maturity securities. The cash flow from investing activities is impacted by various factors such as the anticipated payment of claims, financing activity, asset/liability management and individual security buy and sell decisions made in the normal course of portfolio management. Net cash flows provided by investing activities-discontinued operations for the six months ended June 30, 2007 included $64 million of cash proceeds related to the sale of a discontinued operations business.

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

For the six months ended June 30, 2008, net cash used by financing activities was $594 million as compared with $54 million for the same period in 2007. In January 2008, we repaid our $150 million 6.45% senior note. We also purchased outstanding shares of our common stock as discussed below. Additionally, the increase in cash used for financing activities is related to increased policyholders’ fund withdrawals in 2008 as compared to 2007, which are reflected as a Return of investment contract account balances on the Condensed Consolidated Statements of Cash Flows.

We believe that our present cash flows from operations, investing activities and financing activities, including cash dividends from CNAF subsidiaries, are sufficient to fund our working capital and debt obligation needs.

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

Dividends

On May 21, 2008, we paid a quarterly dividend of $0.15 per share, to shareholders of record on May 7, 2008. On July 23, 2008, our Board of Directors declared a quarterly dividend of $0.15 per share, payable August 20, 2008 to shareholders of record on August 6, 2008. The declaration and payment of future dividends to holders of our common stock will be at the discretion of our Board of Directors and will depend on many factors, including our earnings, financial condition, business needs, and regulatory constraints.

Share Repurchases

Our Board of Directors has approved an authorization to purchase, in the open market or through privately negotiated transactions, our outstanding common stock, as our management deems appropriate. For the six months ended June 30, 2008, we repurchased a total of 2,649,621 shares at an average price of $26.53 (including commission) per share. Share repurchases may continue. No shares of common stock were purchased during the second quarter of 2008 or for the year ended December 31, 2007.

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FORWARD-LOOKING STATEMENTS

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

• general economic and business conditions, including inflationary pressures on medical care costs, construction costs and other economic sectors that increase the severity of claims;

• changes in financial markets such as fluctuations in interest rates, long term periods of low interest rates, credit conditions and currency, commodity and stock prices, including the short and long-term effects of losses produced or threatened in relation to sub-prime residential mortgage-backed securities (sub-prime), including claims under directors and officers and errors and omissions coverages in connection with market disruptions recently experienced in relation to the sub-prime crisis in the U.S. economy;

• the effects of corporate bankruptcies and accounting errors on capital markets, and on the markets for directors and officers and errors and omissions coverages;

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

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

• effects upon insurance markets and upon industry business practices and relationships of current litigation, investigations and regulatory activity by the New York State Attorney General’s office and other authorities concerning contingent commission arrangements with brokers and bid solicitation activities;

• legal and regulatory activities with respect to certain non-traditional and finite-risk insurance products, and possible resulting changes in accounting and financial reporting in relation to such products, including our restatement of financial results in May of 2005 and our relationship with an affiliate, Accord Re Ltd., as disclosed in connection with that restatement;

• regulatory limitations, impositions and restrictions upon us, including the effects of assessments and other surcharges for guaranty funds and second-injury funds and other mandatory pooling arrangements;

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

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

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

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

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

• results of financing efforts, including the availability of bank credit facilities;

• changes in our composition of operating segments;

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

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

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

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

• the occurrence of epidemics;

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

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

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

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

• the level of success in integrating acquired businesses and operations, and in consolidating, or selling existing ones;

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

• the actual closing of contemplated transactions and agreements.

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

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CNA Financial Corporation

Item 3. Quantitative and Qualitative Disclosures About Market Risk

There were no material changes in our market risk components for the six months ended June 30, 2008. See the Quantitative and Qualitative Disclosures About Market Risk included in Item 7A of our Form 10-K filed with the Securities and Exchange Commission for the year ended December 31, 2007, as amended by Form 10-K/A which amended Part I, Item 1 for further information. Additional information related to portfolio duration is discussed in the Investments section of the Management’s Discussion and Analysis of Financial Condition and Results of Operations included in Part I, Item 2.

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CNA Financial Corporation

Item 4. Controls and Procedures

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

As of June 30, 2008, the Company’s management, including the Company’s Chief Executive Officer (CEO) and Chief Financial Officer (CFO), conducted an evaluation of the effectiveness of the Company’s disclosure controls and procedures (as such term is defined in Exchange Act Rules 13a-15(e) and 15d-15(e)). Based on this evaluation, the CEO and CFO have concluded that the Company’s disclosure controls and procedures are effective.

There has been no change in the Company’s internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the quarter ended June 30, 2008 that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.

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CNA Financial Corporation

Part II. Other Information

Item 1. Legal Proceedings

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

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

Set forth below is information relating to the 2008 Annual Meeting of Stockholders of the Registrant.

The annual meeting was called to order at 10:00 a.m., April 23, 2008. Represented at the meeting, in person or by proxy, were 265,104,710 shares constituting 98.53% of the issued and outstanding shares entitled to vote.

The following business was transacted:

1. Election of Directors

Over 94% of the votes cast for directors were voted for the election of the directors named below. The number of votes for and withheld with respect to each director is as follows:

	Votes For		Votes Withheld
Stephen W. Lilienthal		252,350,575		12,754,135
Paul J. Liska		251,560,988		13,543,722
Jose O. Montemayor		264,776,224		328,486
Don M. Randel		264,787,158		317,552
Joseph Rosenberg		251,432,150		13,672,560
Andrew H. Tisch		251,465,619		13,639,091
James S. Tisch		251,427,298		13,677,412
Marvin Zonis		264,669,878		434,832

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

2. Ratification of Appointment of Independent Registered Public Accounting Firm

Over 98% of the shares eligible to vote, voted to ratify the appointment of Deloitte & Touche LLP to serve as the independent registered public accounting firm for the Registrant for 2008. In addition, less than 1% of the shares eligible to vote either voted against the appointment or abstained. There were no broker non-votes.

	Votes For		Votes Against		Votes Abstained
Deloitte & Touche LLP		265,067,047		23,916		13,747

Item 6. Exhibits

(a) Exhibits

Description of Exhibit	Exhibit Number
Employment Agreement, dated as of May 22, 2008, by and between CNA Financial Corporation and Thomas F. Motamed		10.1
Second Amendment to Employment Agreement, dated as of April 7, 2008, by and between Continental Casualty Company and Michael Fusco		10.2
Certification of Chief Executive Officer		31.1
Certification of Chief Financial Officer		31.2

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CNA Financial Corporation

Part II. Other Information

Written Statement of the Chief Executive Officer of CNA Financial Corporation Pursuant to 18 U.S.C. Section 1350 (As adopted by Section 906 of the Sarbanes-Oxley Act of 2002)	32.1
Written Statement of the Chief Financial Officer of CNA Financial Corporation Pursuant to 18 U.S.C. Section 1350 (As adopted by Section 906 of the Sarbanes-Oxley Act of 2002)	32.2

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CNA Financial Corporation

Part II. Other Information

SIGNATURES

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

	CNA Financial Corporation
Dated: July 28, 2008	By	/s/ D. Craig Mense
		D. Craig Mense
		Executive Vice President and Chief Financial Officer

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EX-10.1

EXHIBIT 10.1

EMPLOYMENT AGREEMENT

          THIS EMPLOYMENT AGREEMENT (together with its Exhibits, this “Agreement”) is made as of the 22^nd day of May, 2008 (the “Signing Date”), by and between CNA Financial Corporation, a Delaware corporation (together with its successors and assigns, the “Company”), and Thomas F. Motamed (the “Executive”, and, together with the Company, a “Party”);

W I T N E S S E T H:

          WHEREAS, the Company wishes to employ the Executive as the Chairman of the Board, and as the Chief Executive Officer, of the Company and of its wholly-owned insurance subsidiaries (the “CNA Insurance Companies,” and together with the Company, the “CNA Companies”) following the expiration of certain non-compete and non-solicitation obligations to his current employer; and the Executive wishes to accept, as of the Commencement Date, and agrees to such employment under the terms and conditions set forth herein.

          NOW, THEREFORE, in consideration of the foregoing premises and the promises and covenants herein, the Parties agree as follows:

1.

Employment Term. The Company shall employ the Executive under this Agreement, and the Executive shall accept such employment, for the Term. The “Term” shall commence on Monday, June 8, 2009 or such other date as the Parties may agree upon in writing (the “Commencement Date”) and shall end on December 31, 2013, subject to annual renewals thereafter, if any, upon mutual written agreement by the Parties. Notwithstanding the foregoing, the Executive’s employment hereunder, and the Term, may be terminated at any time in accordance with Section 6 below.

2.

Duties of the Executive and Place of Business.

(a) Throughout the Term, the Executive shall serve as a member of the Company’s Board, as the Chairman of such Board, and as the Chief Executive Officer of the Company (if elected to such positions by the Board, as is the intention of the Parties). Throughout the Term, the Executive shall also serve as the Chairman of the Board, and the Chief Executive Officer, of each of the CNA Insurance Companies, and of such other Affiliates of the Company as the Parties may from time to time agree upon in writing. As the Chief Executive Officer of the Company, the Executive shall have all authorities, duties and responsibilities customarily exercised by an individual serving in that position at an entity of the size and nature of the Company (including, without limitation, responsibility for the day to day operations of the CNA Insurance Companies and for development and implementation of the CNA Insurance Companies’ business plans and strategies); shall be assigned no duties or responsibilities that are materially inconsistent with, or that materially impair his ability to discharge, the foregoing duties and responsibilities; shall have such additional duties and responsibilities, consistent with the foregoing, as may be from time to time reasonably be assigned to him by the Company’s Board; and shall report solely and directly to the Company’s Board. For purposes of this Agreement, “Affiliate” of a Person shall mean any Person that directly or indirectly controls, is controlled by, or is under common

	control with, such Person; “Board” shall mean, in the case of a corporation, the board of directors of such corporation and, in the case of any other entity, the corresponding governing Person; and “Person” shall mean any individual, corporation, partnership, limited liability company, joint venture, trust, estate, board, committee, agency, body, employee benefit plan, or other person or entity. Notwithstanding the foregoing, for all purposes of this Agreement (except Sections 6.3(b)(ii), 6.7(x), 7, 18(a), 24 and 25 and Exhibit A), the term Affiliate shall not include Loews Corporation or any of its direct or indirect subsidiaries (other than the Company and the Company’s subsidiaries).
(b)	Throughout the Term, the Executive: shall diligently and to the best of his abilities assume, perform, and discharge his duties and responsibilities hereunder as the Chairman of the Board, and the Chief Executive Officer, of the Company, and the CNA Insurance Companies; and shall devote substantially all of his business time and effort to the business and affairs of the Company and its subsidiaries. However, nothing in this Agreement or elsewhere shall preclude the Executive from: (i) engaging in civic, charitable or community services; (ii) devoting a reasonable amount of time to private investments and personal affairs; or (iii) serving, with the prior approval of the Company’s Board, on the boards of for-profit entities, so long as such activities or services do not interfere with the Executive’s responsibilities to the Company.
(c)	The Executive shall establish a residence in the Chicago metropolitan area not later than five (5) days following the Commencement Date and shall maintain such a residence during the Term. The Executive’s principal place of business shall be at the Company’s headquarters in Chicago. As soon as practicable following the Commencement Date, but no later than ten (10) days following the Commencement Date the Company shall pay the Executive $250,000 in recognition of the expense of establishing and maintaining a Chicago metropolitan area residence.

3. Compensation.

(a)	Beginning as of the Commencement Date, the Company shall pay the Executive for the period he is employed by the Company hereunder an annualized base salary of $1,000,000.00 (the “Base Salary”). The Base Salary shall be paid in accordance with the regular payroll practices applicable to senior executives of the Company generally, but no less frequently than monthly. At the discretion of the Company’s Board, or of the compensation committee of such Board (the “Committee”), the annualized Base Salary may be increased annually during the Term of the Agreement, beginning in calendar year 2010. The Base Salary shall not be decreased at any time, or for any purpose, during the Term (including, without limitation, for the purpose of determining benefits due under Section 6) without the Executive’s prior written consent.
(b)	(i)	For each calendar year (a “Performance Year”) that ends during the Term, the Executive shall be entitled to receive an annual incentive cash award (an “Annual Bonus”) under the CNA Financial Corporation 2000 Incentive Compensation Plan (the “Plan”) to the extent that the criteria set forth in this Section 3(b) are satisfied for such year.
	(ii)	For each full Performance Year during the Term, the Annual Bonus shall equal 1.2% of NOI (as described below) for such year; provided, however, that, for any such year, the Executive’s target Annual Bonus shall not be less than $2,500,000, and his maximum Annual Bonus shall not be more than $4,000,000.

	For purposes of this Agreement, “NOI” for any Performance Year or quarter shall mean the Company’s net income for such Performance Year or quarter, as adjusted in good faith by the Committee for such Performance Year or quarter for the purpose of determining annual bonuses for senior executives of the Company generally. For any Performance Year or quarter, NOI shall be determined on a basis that is no less favorable to the Executive than to other senior executive officers of the Company generally. The Committee may exercise negative discretion under the Plan to decrease or eliminate any portion of the Executive’s Annual Bonus for any Performance Year that exceeds his Annual Bonus target of $2,500,000.
(iii)	For the first Performance Year that ends during the Term, the Executive’s Annual Bonus shall equal 1.2% of the sum of (x) the Company’s NOI for each calendar quarter during such year that commences after the Commencement Date plus (y) a pro-rata portion of the Company’s NOI for the calendar quarter in which the Commencement Date occurs, such pro-rata portion to be determined by multiplying the Company’s NOI for such quarter by a fraction, the numerator of which is the number of calendar days during such quarter that the Executive is employed hereunder and the denominator of which is the number of calendar days in such quarter (the “Quarterly Proration Fraction”). The target Annual Bonus payment for such year, above which the Committee may exercise negative discretion, shall be determined by multiplying $2,500,000 times a fraction, the numerator of which is the number of calendar days during such year that the Executive is employed hereunder and the denominator of which is 365 (the “Yearly Proration Fraction”). The maximum Annual Bonus payment for such year shall be determined by multiplying $4,000,000 by the Yearly Proration Fraction.
(iv)	Annual Bonus payments shall be made to the Executive in cash no later than corresponding bonus payments are made to senior executive officers of the Company generally, and in no event later than 70 days after the end of the Performance Year to which they relate. In the event that the Company ceases to maintain an annual bonus program that is based on NOI and that is similar to the program in effect as of the Signing Date, a new program shall be established under which the Executive shall have an annual target bonus of at least $2,500,000.

(c) (i) The Executive shall be entitled to participate in the Company’s long term incentive cash award program, under the Plan, for each of the three-calendar-year performance periods (each, a “Performance Period”) that include any calendar year that begins or ends during the Term (each a “Covered Year”), but only to the extent provided in this Agreement. For each Covered Year in each such Performance Period, the Executive shall be entitled to receive a long term incentive cash award under the Plan (a “Long Term Bonus”) to the extent that the Company achieves performance objectives established by the Committee for such Covered Year, on terms and conditions consistent with this Agreement and no less favorable to the Executive than those applying to senior executive officers of the Company generally. For each Covered Year, and except to the extent otherwise provided in Section 3(c)(ii), the Executive’s target long term incentive cash award for each of the three Performance Periods that are then ongoing shall be eight and one-third percent (8-1/3%) of his annualized Base

Salary as in effect on the last day of such year, and his maximum long term incentive cash award shall be sixteen and two thirds percent (16-2/3%) of such annualized Base Salary. Except to the extent otherwise provided in Section 6, the Executive shall not be entitled to any Long Term Bonus for any calendar year that ends after the Termination Date (as defined below), except to the extent that the terms and conditions of corresponding awards to other senior executives generally provide for long term incentive award payments for such year in corresponding circumstances.

(ii)

Notwithstanding the foregoing, the Long Term Bonus that the Executive shall be entitled to receive with respect to the Covered Year during which the Commencement Date occurs shall, for each of the three Performance Periods that is then ongoing, be determined by multiplying the Long Term Bonus to which he would have been entitled under Section 3(c)(ii) had he participated in such Performance Period from the beginning of such Covered Year by a fraction: (i) the numerator of which is the sum of (a) the Company’s achievement of the applicable performance measure for each of the full calendar quarters in such Covered Year that began after the Commencement Date and (b) the Company’s achievement of the applicable performance measure for the calendar quarter in which the Commencement Date occurs multiplied by the Quarterly Proration Fraction, and (ii) the denominator of which is the actual performance for such Covered Year. With respect to each of such Performance Periods, the Executive’s target long term bonus for such Covered Year shall be eight and one-third percent (8-1/3%) of his annualized Base Salary as in effect on the last day of such year, and his maximum long term bonus shall be sixteen and two thirds percent (16-2/3 %) of such Base Salary, in each case as multiplied by the Yearly Proration Fraction.

(iii)

Long Term Bonus payments for each Covered Year and each Performance Period under this Section 3(c) shall be made in cash no later than the time(s) at which corresponding bonus payments are made to other senior executive officers of the Company generally. In the event that the long term bonus program that is in effect as of the Signing Date is discontinued with respect to any Covered Year, a new program shall be established under which the Executive has an aggregate target long term incentive cash bonus opportunity for such Covered Year, after taking into account all performance periods that are then ongoing (including performance periods that may be on-going under the former program), that equals at least 25 percent (25%) of his annualized Base Salary as in effect on the last day of the such Covered Year, and that is otherwise on terms and conditions not less favorable to the Executive than those that would have applied if the old program had remained in effect.

(d) During the Term, the Executive shall be granted stock appreciation rights (“SARs”) under the Plan at a rate of 80,000 SARs per calendar year (such number being subject to adjustment under Section 3(j) below). The initial grant shall be made on the Commencement Date and shall be pro-rated by multiplying 80,000 (such number being subject to adjustment under Section 3(j) below) by the Yearly Proration Fraction. Subsequent grants shall be made during the first quarter of each calendar year that commences during the Term and shall be made at a time, and on terms and conditions, that are consistent with this Agreement and otherwise no less favorable to the Executive than those that apply to corresponding grants to other senior executive officers of the

Company. Each of the SARs shall have an exercise price equal to the fair market value of a share of the Company’s common stock on the date of grant; shall have a term of ten years; shall be settled in stock (or, at the Company’s election, in cash); and shall vest, and hence become both exercisable and non-forfeitable, in equal annual installments on each of the first four anniversaries of the date of grant, provided that the Executive is employed by the Company on such date, except as otherwise provided in this Agreement. All rights with regard to unvested SARs shall, except to the extent otherwise provided in Section 6, terminate upon termination of the Executive’s employment with the Company. The annual grant of SARs to the Executive may be increased at the recommendation, and with the approval, of the Committee, subject to share availability.

(e) (i) On the Commencement Date, the Executive shall be granted restricted stock units (“RSUs”), each representing the right to receive one share of the Company’s common stock, having a value of $2,500,000, based upon the volume weighted average price during the ten (10) trading days immediately preceding the date of grant (the “VWAP”). Notwithstanding the foregoing, the Executive shall be granted RSUs under this Section 3(e)(i) with respect to no more than 100,000 shares (such number being subject to adjustment under Section 3(j), below); provided, however, that in no event shall the RSUs granted under this Section 3(e)(i) have a value, based on the VWAP, that is less than $2,000,000.

 (ii) Each calendar year during the Term, the Executive shall be granted RSUs having a value of $2,500,000 on the date of grant, based upon the VWAP. The first grant shall be made on the Commencement Date and shall be pro-rated (i.e., shall have a date of grant value equal to $2,500,000 times the Yearly Proration Fraction). The Company shall provide to the Executive a copy of the award documents that are to govern this first grant, as well as those that are to govern his initial grant of SARs and his grant of RSUs under Section 3(e)(i), no later than twenty-one (21) days prior to the Commencement Date. Subsequent grants of RSUs shall be made during the first quarter of each calendar year that commences during the Term and on the same date as SARs are granted to the Executive under Section 3(d), and shall be made on terms and conditions that are consistent with this Agreement and otherwise no less favorable to the Executive than those that apply to corresponding grants to other senior executive officers of the Company. Each grant shall be earned to the extent (and only to the extent) provided in the table below, where NOI shall have the same definition as under Section 3(b)(ii) above, and Budgeted NOI shall mean the Company’s budgeted net income as in effect at the time of the applicable grant, as later adjusted by the Committee in the same manner in which the Company adjusts net income to compute NOI, in each case with respect to the calendar year in which the grant is made.

	% of RSUs
NOI as a % of Budgeted NOI	Earned
less than 50%		0	%
50% - 100%		80	%
above 100%		100	%

 (iii) All RSUs granted pursuant to Section 3(e)(i), and all RSUs that have been earned pursuant to Section 3(e)(ii), shall vest (and thus become non-forfeitable)

	in equal installments on each of the first four anniversaries of the date of grant, provided that the Executive is employed by the Company on such date, except as otherwise provided in this Agreement. All RSUs shall be settled in stock promptly after vesting, but in no event more than thirty (30) days after vesting.
(iv)	All rights with regard to unvested RSUs (including RSUs that have not yet been earned) shall, except to the extent otherwise provided in Section 6, terminate upon termination of the Executive’s employment with the Company. The annual grant of RSUs to the Executive may be increased at the recommendation, and with the approval, of the Committee, subject to share availability.
(v)	Upon the Company’s payment of a cash dividend in respect of its outstanding Company common stock, the Executive shall be credited with dividend equivalents in respect of each RSU outstanding on the record date for such dividend. Such dividend equivalents shall be equal to the dividend paid on an outstanding share of common stock and shall be credited as of the dividend payment date until the respective outstanding RSU becomes vested, at which time such dividend equivalent right shall be paid to the Executive, without interest, in cash.

(f)	For purposes of determining the Executive’s entitlements under the CNA Savings & Capital Accumulation Plan (“S-CAP”), the CNA Supplemental Savings & Capital Accumulation Plan (“SES-CAP”), and their successors (collectively, the “Savings Plans”), the Executive’s pensionable earnings (e.g., both his “Compensation”, and his “Retirement Plan Compensation”, as defined under the SES-CAP) shall be deemed to include both his Base Salary when paid, and his Annual Bonus on the earlier of the date it is actually paid and the date it would have been paid in the absence of any elective deferral by the Executive, provided that the aggregate amount of salary and annual bonus deemed included for any full calendar year shall not exceed $3,500,000. With respect to the calendar year in which the Commencement Date occurs such amount shall be determined by multiplying $3,500,000 by the Yearly Proration Fraction.
(g)	Provided that the Executive is employed hereunder on December 31, 2013, (i) the Company shall pay $15,000 to the Executive in each succeeding January, commencing in January 2014, and ending with the payment made in January 2033, and (ii) the Company shall pay to the Executive within 30 days following termination of his employment hereunder a lump sum payment equal to $1,500,000 plus (if such employment ends after January 1, 2014) interest at a rate of 5% per annum from January 1, 2014 until the date of payment. The benefits provided under this Section 3(g) shall be in addition to any benefits to which the Executive becomes entitled under any current or future savings or retirement plan or arrangement of the Company or its Affiliates.
(h)	All payments due to the Executive under this Agreement shall be subject to withholding as required by law or as authorized by the Executive in writing.
(i)	It is the Parties’ intention that all payments, benefits and entitlements received by the Executive be provided in a manner that does not impose any additional taxes, interest or penalties on the Executive with respect to such payments, benefits and entitlements under Section 409A of the Code, and its implementing regulations (“Section 409A”). Each of the Parties has used, and will continue to use, its best reasonable efforts to avoid the imposition of such additional taxes, interest or penalties, and the Parties agree to work

	together in good faith to amend this Agreement, and to structure any payment, benefit or other entitlement received by the Executive, in a manner that avoids imposition of such additional taxes, interest or penalties while preserving the affected payment, benefit or entitlement to the extent practicable and maintaining the basic financial provisions of this Agreement. For purposes of this Agreement, “Code” shall mean the Internal Revenue Code of 1986, as amended, and any reference to a particular section of the Code shall include any provision that modifies, replaces or supersedes such section.
(j)	If any merger, consolidation, reorganization, recapitalization, spin-off, split-up, combination, exchange of securities, modification of securities, share split, reverse share split, share dividend, other distribution of securities or other property in respect of shares or other securities, or other change in corporate structure or capitalization affecting the rights or value of securities of any class that is to be subject to an SAR grant under Section 3(d), or an RSU grant under Section 3(e)(i) (but only to the extent that the 100,000 share cap applies), occurs (i) on or after the Signing Date and (ii) on or before the date that such grant is awarded, then appropriate adjustment(s) shall be made in the number and/or kind of securities to be subject to such grant, so as to avoid dilution or enlargement of the rights, economic opportunity and value intended to be represented by such grant.
(k)	The Committee, or the Company, shall structure and administer all awards to the Executive under Section 3(b), 3(c), 3(d) and 3(e) hereof in such a manner as to preserve deductibility under Section 162(m) of the Code, provided that the Executive’s rights hereunder are not adversely affected.

4.

Other Benefits. During the Term, the Executive shall be entitled to participate in all benefit and prerequisite plans, programs and arrangements of the Company and its Affiliates that are made available to senior executives of the Company generally, in each case on terms and conditions no less favorable to the Executive than those that apply to other senior executives of the Company generally. The Executive’s entitlement to participate in any such plan, program or arrangement shall, in each case, be subject to the terms and conditions of such plan, program or arrangement that apply to senior executives of the Company generally. For each calendar year that commences or ends during the Term, the Executive shall be entitled to reimbursement for tax return preparation, and for not more than one personal club membership if used primarily for business purposes. During the Term, the Executive shall be entitled to use the Company aircraft for personal use consistent with the Company’s practice for its Chief Executive Officer as in effect on the Signing Date and for a maximum of sixty (60) hours per calendar year (pro-rated for partial years), with imputed taxable income to the Executive for such personal use of the Company aircraft. If the Company adopts a paid time off policy during the term that is applicable to the Executive, he shall be deemed to have twenty (20) years of service at the Company as of the Commencement Date for all purposes under such policy and shall be treated no less favorably under such policy than any other senior executive of the Company.

5.

Expense Reimbursement.

(a) The Executive shall be entitled to prompt reimbursement by the Company for all reasonable and customary travel and other business expenses he incurs in connection with carrying out his duties under this Agreement, in accordance with the general travel and business reimbursement policies then applying to senior executives of the Company generally. The Executive shall report all such expenditures not less frequently than monthly, accompanied by adequate records and such other documentary evidence as

	required by the Company or by Federal or state tax statutes or regulations governing the substantiation of such expenditures.
(b)	As soon as practicable following the Commencement Date, the Company shall reimburse the Executive for all appropriately documented attorneys’ fees and other charges of counsel he incurred in entering into, and implementing, this Agreement, provided, however, that the amount reimbursed under this Section 5(b) shall not exceed $130,000.

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6.	Termination of Employment
6.1	Death and Disability

(a) In the event that the Executive’s employment hereunder terminates due to his death or Permanent Disability (as defined below), the Term shall expire, and he shall be entitled to the following:

(i)	Continued payment of the Base Salary, at the rate in effect as of the date his employment hereunder terminates (the “Termination Date”) and with payment at the times the Base Salary would have been paid in accordance with the Company’s normal payroll practices, for (x) in the case of termination due to death, ninety (90) days following the Termination Date or (y) in the case of termination due to Permanent Disability, through December 31, 2013 or, if the termination due to Permanent Disability is after December 31, 2013, through the end of the then scheduled Term; provided, however, that in the case of termination due to Permanent Disability, the Base Salary paid to the Executive for any month shall be offset by the amount of any gross periodic disability benefits (other than benefits attributable to his own unreimbursed contributions) that he receives during such month under any disability insurance plan or program of the Company or its Affiliates.
(ii)	A Pro-Rata Annual Bonus (as defined below), and a Pro-Rata Long Term Bonus (as defined below), for the calendar year of termination.
(iii)	Full vesting, as of the Termination Date, of all outstanding SARs, each such SAR to remain exercisable for at least the lesser of three years following the Termination Date and the remainder of its maximum stated term; full vesting, as of the Termination Date, of any outstanding RSU whose vesting is based solely on continued employment; full vesting of any outstanding RSU granted pursuant to Section 3(e)(ii) in the calendar year of termination or in the previous year, subject solely to satisfying the performance criteria governing such RSU; and full vesting, as of the Termination Date, of any other outstanding equity-based award (other than SARs and RSUs).
(iv)	In the event such termination of employment occurs prior to December 31, 2013, the payments described in Section 3(g)(i) and the lump sum payment described in Section 3(g)(ii), with the payments described in Section 3(g)(i) to be made at the times they would have been made if the Executive had been employed hereunder on December 31, 2013 and the lump sum payment described in Section 3(g)(ii) to be made within 30 days following the Termination Date.
(v)	The Executive and his dependents shall be entitled to continued participation for a period of thirty (30) months following the Termination Date (which shall be concurrent with any health care continuation benefits under COBRA), in all medical, dental, vision, prescription drug, hospitalization, life insurance, disability and other welfare benefit coverages and benefits in which they were participating as of such date, on terms and conditions that are no less favorable to them than those that applied as of such date.

(vi) The benefits described in Section 6.6 below.

(b)	For purposes of this Agreement, the term “Permanent Disability” shall mean that the Executive has been unable, due to physical or mental incapacity, to substantially perform his duties and responsibilities under this Agreement for 180 days out of any 270 consecutive days.
(c)	For purposes of this Agreement, “Pro-Rata Annual Bonus,” when used in respect of a Performance Year, shall mean an amount equal to 1.2% of the sum of (x) the Company’s NOI for each full calendar quarter during such year that ends on or before the Termination Date plus (y) in the event that the Termination Date is not the last calendar day of a calendar quarter, a pro-rata portion of the Company’s NOI for the calendar quarter in which the Termination Date occurs, such pro-rata portion to be determined by multiplying the Company’s NOI for such quarter by the Quarterly Proration Fraction. The Committee may exercise negative discretion with respect to amounts in excess of the target Pro-Rata Annual Bonus amount, which amount shall be determined by multiplying $2,500,000 times the Yearly Proration Fraction. The maximum Pro-Rata Annual Bonus shall be determined by multiplying $4,000,000 by the Yearly Proration Fraction. Any Pro-Rata Annual Bonus shall be paid as promptly as reasonably practicable after the last day of the calendar quarter in which the Termination Date occurs, but in no event more than thirty (30) days after such last day.
(d)	For purposes of this Agreement, “Pro-Rata Long Term Bonus”, when used in respect of a calendar year, shall mean the amount obtained by multiplying (x) the sum of the Long Term Bonuses that the Executive would have received for such year with respect to each performance period that is then ongoing if he had remained employed hereunder through the end of such year (assuming for this purpose that his annualized Base Salary at the end of such year would have been equal to his annualized Base Salary as of the Termination Date) times (y) the Yearly Proration Fraction. Each of the prorated amounts that constitute the Pro-Rata Long Term Bonus shall be paid on the date that the corresponding Long Term Bonus would have been paid if the Executive’s employment hereunder had not terminated.

5.2 Termination for Cause by the Company.

(a) The Company may terminate the Executive’s employment hereunder for Cause. Prior to any such termination of employment for Cause, the Company shall provide the Executive with written notice from the Company’s Board stating in reasonable detail the particular circumstances that constitute the grounds on which the termination for Cause is based (the “Cause Notice”). The Executive shall then be entitled to a hearing at a duly convened meeting of the Company’s Board, at which he may be accompanied by counsel of his choice, provided that he submits a request for a hearing within four (4) business days after he receives the Cause Notice. Within four (4) business days following such request the Board shall hold such hearing, which shall last no more than one (1) business day, and within four (4) business days following such hearing the Company’s Board shall give written notice to the Executive stating whether, in the judgment of at least two thirds of the members of the Company’s Board (other than the Executive), Cause for terminating his employment on the basis set forth in the original Cause Notice exists. Upon such notice from such Board, the Executive’s employment hereunder shall terminate for Cause, subject to de novo review of such Board’s determination, through arbitration in accordance with Section 24, if the Executive so chooses. For avoidance of

	doubt, the arbitrators shall have no right to order reinstatement of the Executive’s employment. The Company’s Board may suspend the Executive from his duties under this Agreement for up to 30 days following the delivery of any Cause Notice to the Executive, and no such suspension shall by itself constitute grounds for a Good Reason termination.
(b)	In the event that the Executive’s employment hereunder is terminated for Cause in accordance with Section 6.2(a), the Term shall expire and he shall be entitled only to the benefits described in Section 6.6 and, notwithstanding anything in this Agreement to the contrary, the Company shall have no further obligations under Section 19.
(c)	For purposes of this Agreement, “Cause” shall mean that: (i) the Executive is convicted of, or pleads guilty or nolo contendere to, a felony, (ii) the Executive engages in conduct that constitutes either (x) a material and willful breach of this Agreement, (y) willful, or reckless, material misconduct in the performance of the Executive’s duties under this Agreement, or (z) habitual neglect of the Executive’s material duties under this Agreement; provided, however, that: (x) in the case of clause (ii) only, such conduct has had a material adverse effect on the business or prospects of the CNA Companies and (y) for purposes of clauses (ii)(y) and (ii)(z), Cause shall not include any of the following: bad judgment, negligence, or any act or omission believed by the Executive in good faith to have been in or not opposed to the interest of the Company (without any intent by the Executive to gain, directly or indirectly, a profit to which he is not legally entitled).

5.3 Termination by the Company Without Cause / Termination by the Executive for Good Reason.

(a) In the event that the Executive’s employment hereunder is terminated during the Term (other than in accordance with Section 6.5) (x) by the Company other than for Permanent Disability in accordance with Section 6.1 or for Cause in accordance with Section 6.2 or (y) by the Executive with Good Reason in accordance with Section 6.3(b), the Term shall expire and he shall be entitled to the following (in lieu of separation payments under any other Company severance plan, policy or arrangement):

(i)	Separation payments at a rate of $312,500 per month, commencing with the month of termination, with such termination payments to be made in substantially equal installments, not less frequently than monthly, through December 31, 2013 (or, if Executive’s employment hereunder is terminated after December 31, 2013, through the end of the then scheduled Term); provided, however, that such payments shall be made for a period of no less than six (6) months following the Termination Date.
(ii)	The Executive and his dependents shall be entitled to continued participation, for a period of forty two (42) months following the Termination Date (which shall be concurrent with any health care continuation benefits under COBRA), in all medical, dental, vision, prescription drug, hospitalization, life insurance, disability and other welfare benefit coverages and benefits in which they were participating as of such date, on terms and conditions that are no less favorable to them than those that applied as of such date.
(iii)	The benefits described in Sections 6.1(a)(ii), 6.1(a)(iii), 6.1(a)(iv) and 6.6.

(b)	“Good Reason” shall mean the occurrence, at any time during the two (2) year period immediately prior to the Termination Date, of any of the following events, without the Executive’s prior written consent and without cure by the Company within thirty (30) days after the Executive gives notice of such event to the Company requesting cure, such notice to be given within ninety (90) days after the Executive learns that such event has occurred: (i) the assignment to the Executive of duties that are materially inconsistent with his position (including his status, offices, titles and reporting relationships), authority, duties or responsibilities, all as in effect on the Commencement Date, (ii) actions by the Company or its Affiliates that have resulted in a substantial diminution in his position, authority, duties or responsibilities as compared to his position, authority, duties or responsibilities at the Commencement Date; (iii) a substantial breach by the Company or any of its Affiliates of any material obligation to the Executive, under this Agreement or otherwise (e.g., a substantial failure to honor the terms of any material equity or long term incentive grant, or a material breach of Section 3(a), 3(b), 3(c), 3(d) or 3(e)); (iv) the Company requiring the Executive to be based at any office or location that is more than 50 miles from the Company’s headquarters in Chicago, Illinois, as of the Signing Date; (v) any failure to elect or appoint the Executive as a member of the Company’s Board, Chairman of such Board, and Chief Executive Officer of the Company, as of the Commencement Date, or to maintain him in such positions throughout the Term (provided, however, that the Executive need not be elected as, or maintained as, Chairman of the Company’s Board to the extent that doing so would be a violation of applicable law, or of applicable rules of the New York Stock Exchange or other self-regulatory organization to whose rules the Company is subject, and would result in material harm to the Company); or (vi) any failure of the Company to obtain the assumption in writing of its obligation to perform this Agreement by any successor to all or substantially all of the business or assets of the Company within fifteen (15) calendar days after a merger, consolidation, sale or similar transaction.
(c)	Upon termination of his employment hereunder in a termination governed by this Section 6.3, the Executive shall be entitled to the benefits described in Section 6.3(a) (except in the case of benefits described in Section 6.6), but only if he executes, and delivers to the Company within 21 days after the Termination Date (or such longer period as may reasonably be necessary if the Executive dies or becomes incapacitated, or if the Company has claimed that the termination is for Cause), a Release substantially in the form attached hereto as Exhibit A, which Release he does not revoke during the “Revocation Period” as defined in such Release.
(d)	For all purposes of this Agreement, if an Executive Presentment takes place on the Commencement Date, or within 15 days following the Commencement Date in the event of extraordinary circumstances, the failure by the Company to employ the Executive on or within 15 days following the Executive Presentment shall be treated as if the Executive had become employed hereunder on the date of the Executive Presentment and had been terminated 15 days later in a termination of employment to which Section 6.3(a) applies. Notwithstanding the foregoing and anything to the contrary in Section 1, if an Executive Presentment does not occur on June 8, 2009 (or such other date as the Parties may agree upon in writing in accordance with Section 1), then the Commencement Date shall be the date on which the Executive Presentment occurs. For purposes of this Agreement, an “Executive Presentment” shall be deemed to have occurred if (i) the Executive presents himself at the Company’s headquarters prepared to commence employment and perform his duties hereunder, (ii) the Executive is not subject to any injunction preventing him from performing his duties hereunder on the date that he presents himself, and (iii) the Executive has neither been convicted of, nor plead guilty to, any felony.

5.4 Voluntary Resignation by the Executive; Failure of Executive Presentment.

(a)	In the event that the Executive terminates his employment hereunder prior to the then-scheduled expiration of the Term on his own initiative, other than in a termination governed by Section 6.1 or 6.3, the Term shall expire and he shall be entitled only to the benefits described in Section 6.6 and, notwithstanding anything in this Agreement to the contrary, the Company shall have no further obligations under Section 19. A voluntary termination under this Section 6.4 shall not be deemed a breach of this Agreement. Promptly following any termination of the Executive’s employment that is governed by this Section 6.4(a), the Company shall represent that none of the events described in clauses (i) through (vi) of Section 6.3(b) have occurred.
(b)	If the Executive terminates his employment hereunder, in a termination governed by Section 6.4(a), at any time prior to the first anniversary of the Commencement Date, the Executive shall be required to promptly repay, on an after-tax basis, (i) all amounts previously paid by the Company to Executive pursuant to Section 2(c) or Section 5(b) and (ii) all amounts that the Company previously advanced pursuant to Section 19.
(c)	In the event that an Executive Presentment does not occur in accordance with Section 6.3(d), then (i) the Term shall not commence, (ii) the Executive shall not be entitled to any of the benefits described in Section 6.6, (iii) the Company shall have no further obligations under Section 19, and (iv) Executive shall be required to promptly repay, on an after-tax basis, (x) all amounts previously paid by the Company to Executive pursuant to Section 2(c) or Section 5(b) and (y) all amounts that the Company previously advanced pursuant to Section 19.

5.5

Expiration of Term. Upon the expiration of the Term on December 31, 2013 (or on such later expiration date as the Parties may have agreed upon in accordance with Section 1), the Executive’s employment with the Company hereunder shall terminate and the Executive shall be entitled to the benefits described in Sections 6.1(a)(ii) (but only if the Parties extend the Term beyond December 31, 2013 in accordance with Section 1), 6.1(a)(iii), 6.1(a)(iv) and 6.6.

5.6

Any Termination of Employment.

(a) Upon any termination of the Executive’s employment hereunder, he shall be entitled to:

(i)	Unpaid Base Salary through the Termination Date.
(ii)	The balance of any unpaid Annual Bonus in respect of any Performance Year that ended on or before the Termination Date, and the balance of any unpaid Long Term Bonus with respect to any Covered Year that ended on or before the Termination Date, in each case paid on the date that it would have been paid if the Executive’s employment hereunder had not terminated (or, if such date has already passed, as soon as practicable following the Termination Date).
(iii)	The right to exercise his vested SARs for at least the lesser of 90 days following the Termination Date and the balance of their maximum stated term.

(iv) Other or additional benefits in accordance with the then applicable terms of any applicable Company Arrangement, including, without limitation, Sections 3, 4, 5, 18, 19, 24 and 25 of this Agreement, and any equity award grant or agreement, provided that this shall not result in a duplication of benefits or payments to the Executive or his beneficiaries, as the case may be.

(b)	For purposes of this Agreement, “Company Arrangement” shall mean any plan, program, corporate governance document, policy, agreement or other arrangement of the Company or any of its Affiliates.
(c)	Upon any termination of his employment hereunder, the Executive shall be deemed to have resigned from all offices, and Board memberships, that he holds pursuant to this Agreement, and the Executive agrees to promptly execute any documents reasonably requested by the Company to evidence or effectuate such resignation.
(d)	Upon any termination of employment hereunder, Executive shall continue to be bound by the covenants set forth herein at Sections 7 through 15 subsequent to the date of such termination for such periods of time as provided for in said Sections respectively.

5.7 No Mitigation; No Offset. In the event of any termination of the Executive’s employment hereunder, the Executive shall be under no obligation to seek other employment or otherwise mitigate the obligations of the Company or its Affiliates under this Agreement or otherwise, and there shall be no offset against amounts or benefits due the Executive under this Agreement or otherwise on account of (x) any Claim that the Company or any of its Affiliates may have against him or (y) any remuneration or other benefit earned or received by the Executive after such termination. Any amounts due under this Section 6 are considered to be reasonable by the Company and are not in the nature of a penalty.

5.8 Section 409A. Notwithstanding any provision to the contrary in this Agreement or otherwise, no payment or distribution under this Agreement or otherwise that constitutes an item of “deferred compensation” under Section 409A and becomes payable by reason of the termination of the Executive’s employment hereunder shall be made to the Executive unless the termination of the Executive’s employment constitutes a “separation from service” (as such term is defined in Section 409A). In addition, no such payment or distribution of deferred compensation shall be made to the Executive prior to the earlier of (a) the expiration of the six (6) month period measured from the date of the Executive’s “separation from service” (as such term is defined in Section 409A), or (b) the date of the Executive’s death, if the Executive is deemed at the time of such separation from service to be a “specified employee” within the meaning of that term under Section 409A and if such delayed commencement is otherwise required to avoid “additional tax” under Section 409A(a)(2) of the Code. All payments and benefits that are delayed pursuant to the immediately preceding sentence shall be paid to the Executive in a lump sum upon expiration of such six (6) month period (or if earlier upon the Executive’s death), together with accrued interest for the period of delay at the rate of 5% per annum. Any separate payment or benefit under this Agreement or otherwise shall not be “deferred compensation” subject to Section 409A to the extent provided in the exceptions in Treasury Regulation 1.409A-1(b)(4) and (b)(9) and other applicable provisions of Treasury Regulation Section 1.409A-1 through A-6. Each individual installment payment that becomes payable under this Agreement, and each payment of Base Salary after a Termination Date, shall be a “separate payment” under Section 409A. The payment or reimbursement of any expense under this Agreement in one of the Executive’s taxable years shall not affect the payment or reimbursement of any expense in any other taxable year of the Executive. Any payment or reimbursement for expenses under this Agreement shall in any event

be made on or before the last day of the Executive’s taxable year following the taxable year in which the expense was incurred, and any such payment or reimbursement may not be liquidated or exchanged for any other benefit.

6. Confidentiality.

(a)

The Executive agrees that, during the Term and at all times thereafter, he shall not reveal or utilize Confidential Information (as defined in this Agreement) that he acquired during the course of or as a result of his employment with the Company and that relates to (x) the CNA Companies and any of their Affiliates or (y) the CNA Companies’ customers, employees, agents, brokers and vendors. The Executive acknowledges that all such Confidential Information is commercially valuable and is the property of the CNA Companies. Upon the termination of his employment hereunder, the Executive shall return all such Confidential Information to the Company, whether it exists in written, electronic, computerized or other form. Notwithstanding anything elsewhere to the contrary (including, without limitation, in Exhibit B), the Executive (a) may disclose Confidential Information (i) to the Company and its Affiliates, or to any authorized (or apparently authorized) agent or representative of any of them, (ii) in confidence to any attorney or accountant actually retained by Executive for the purpose of securing professional advice (but not the Company’s privileged information), or (iii) when required to do so by law or by a court, governmental agency, legislative body, arbitrator or other Person with jurisdiction to order him to divulge, disclose or make accessible such information, and (b) may disclose or use Confidential Information (i) with the Company’s prior written consent, (ii) in connection with performing his duties hereunder or (iii) in connection with any Proceeding under Section 15 or 24. In the event that the Executive is required to disclose any Confidential Information pursuant to clause (a)(iii) or (b)(iii)of the immediately preceding sentence, he shall (A) promptly give the Company advance notice that such disclosure may be made and (B) not oppose and affirmatively cooperate with the Company, at its reasonable request and sole expense, in seeking to protect the confidentiality of the Confidential Information. For purposes of this Agreement “Confidential Information” shall mean information, knowledge or data (whether or not a trade secret or protected by laws pertaining to intellectual property and including, without limitation, information relating to data, finances, marketing, pricing, profit margins, underwriting, claims, legal matters, loss control, marketing and business plans, renewals, software, processing, vendors, administrators, customers or prospective customers, products, brokers, agents and employees), other than information, knowledge or data that (x) has previously been disclosed to the public, or is in the public domain, other than as a result of the Executive’s breach of this Section 7, or (y) is known or generally available to the public or within any trade or industry of the Company or any of its Affiliates.

(b)

The Executive agrees to execute, as of the Commencement Date, a Confidentiality, Computer Responsibility and Professional Certification Agreement in the form attached hereto as Exhibit B; provided, however, that the Executive’s obligation to maintain confidentiality and return Company property will be governed by Section 7(a) and Section 12 of this Agreement, respectively. The Company shall supply to the Executive, no later than twenty-one (21) days prior to the Commencement Date, a copy of any additional document that he will be requested to sign, acknowledge, or otherwise accept, in connection with commencing employment hereunder.

8.	Competition. The Executive hereby agrees that, during the Term and for 24 months thereafter, he will not, directly or indirectly, perform services for, or otherwise have any involvement with (other than in connection with performing services hereunder), in each case, whether as an officer, director, partner, consultant, security holder, owner, employee, independent contractor or otherwise, any Person that competes (whether directly or indirectly) with the Company or its Affiliates in the Business in the United States, Europe, Canada, Argentina or any other country in which any of the CNA Companies is conducting business as of the Termination Date (any such Person, a “Competitor”); provided, however, that the Executive may in any event (x) own up to a 5% passive ownership interest in any public or private entity and (y) be employed by, or otherwise have material association with, any business that competes materially with the Company or its Affiliates in the Business if his employment or association is with a separately managed and operated division or Affiliate of such business that does not compete with the Company or its Affiliates in the Business and he has no business communication relating to the Business with employees of any division or Affiliate of such business that does compete with the Company or its Affiliates in the Business. For purposes of this Agreement, the term “Business” shall mean (a) any line of commercial property and casualty insurance or (b) any other revenue producing activity in which the Company or its Affiliates are involved as of the Termination Date; provided, however, that such other revenue producing activity constitutes at least 2.5% of the Company’s consolidated revenue in the year of, or the year immediately prior to, the Executive’s termination of employment. Upon the written request of the Executive, the Board will reasonably determine whether a business or other entity constitutes a “Competitor” for purposes of this Section 9; provided that the Board may require the Executive to provide such information as the Board determines to be necessary to make such determination; and provided, further that the current and continuing effectiveness of such determination may be conditioned upon the accuracy of such information, and upon such other factors as the Board may determine.
9.	Solicitation. The Executive agrees that, during the Term and for 36 months thereafter, he will not, directly or indirectly, solicit any individual (other than his own personal assistant) who is then an employee of the Company or any of its Affiliates to terminate such employee’s employment with the Company or its Affiliates or to accept employment elsewhere, other than in connection with terminating, or altering, the employment of such employee in connection with performing services hereunder.
10.	Non-interference. The Executive agrees that, during the Term and for 36 months thereafter, he will not, directly or indirectly, other than in connection with performing services hereunder and in the interest of the Company, solicit any Person that to his knowledge had a business relationship with the Company or its Affiliates at any time during the Term to terminate, or reduce, any such business relationship.
11.	Assistance with Claims. The Executive agrees that, during the Term and for a reasonable period thereafter, and for no less than 36 months thereafter, he will make himself available, on reasonable request, to assist the Company or any of its Affiliates in the prosecution or defense of any Claim that may be made or threatened by or against the Company or any of its Affiliates, and that relates to events, acts or omissions occurring during the Term, by meeting with representatives of the Company (including attorneys) and providing truthful and accurate information; provided, however, that he shall in no event be required to (i) waive any constitutional rights or privileges, (ii) cooperate in connection with a Claim brought by the Company against the Executive or a Claim brought by the Executive against the Company, or (iii) disclose confidential information of any third party which Executive is legally bound to maintain as confidential. The Executive agrees, unless precluded by law or, in the case of requests from governmental and quasi-governmental entities, reasonably advised to proceed otherwise by counsel, to promptly inform the

	Company in advance if he is requested (i) to testify or otherwise become involved in connection with any Claim against the interests of the Company or any of its Affiliates or (ii) to assist or participate in any investigation (whether governmental or private) of the Company or any of its Affiliates, whether or not a lawsuit has been filed against the Company or any of its Affiliates relating thereto. The Company agrees to promptly reimburse the Executive for any expenses he reasonably incurs in connection with his obligations under this Section 11, including, without limitation, transportation (and, for this purpose, the Executive shall be permitted to travel via Company aircraft if it is available, at no charge to the Executive), lodging, meal expenses, and attorney’s fees (and other charges of counsel). The Company agrees to make all reasonable efforts to minimize any inconvenience to the Executive that may be created by his obligations under this Section 11. Nothing in this Agreement or elsewhere is intended or shall be construed to prevent the Executive from cooperating fully with any governmental investigation or review. For purposes of this Agreement, “Claim” shall mean any claim, demand, request, investigation, dispute, controversy, threat, discovery request, or request for testimony or information.
12.	Return of Materials. The Executive shall, at any time upon the request of a duly authorized officer of the Company, and in any event promptly following the Termination Date, return and surrender to the Company all property of the Company, including but not limited to originals and all copies, regardless of medium, of property belonging to the Company created or obtained by the Executive as a result of or in the course of or in connection with his employment with the Company regardless of whether such items constitute proprietary information; provided, however, that the Executive shall be under no obligation to return written materials acquired from third parties that are generally available to the public. Notwithstanding anything to the contrary in this Agreement or elsewhere (including, without limitation, Exhibit B), the Executive shall be entitled to retain: (i) his home computer, (ii) papers and other materials of a personal nature, including, but not limited to, photographs, correspondence, personal diaries, calendars and Rolodexes, personal files and phone books (including information on personal and professional contacts in whatever form maintained), (iii) information relating to his compensation or to reimbursement of expenses, (iv) information that he reasonably believes may be needed for tax purposes, and (v) any other documents or information that relate to his personal entitlements or obligations.
13.	Non-Disparagement. The Executive agrees that he shall not make any public statement at any time after the Term that disparages the CNA Companies, or any of their officers or directors. The Company shall instruct its directors and officers not to make any public statement at any time after the Term that disparages the Executive. Notwithstanding the foregoing, nothing in this Agreement or elsewhere shall prevent any Person from (i) responding publicly to incorrect, disparaging or derogatory public statements to the extent reasonably necessary to correct or refute such public statements or (ii) making any truthful statement to the extent (y) reasonably necessary in connection with any litigation, arbitration or mediation or (z) required by law or by any court, arbitrator, mediator or administrative or legislative body (including any committee thereof) with apparent jurisdiction to order such Person to disclose or make accessible such information.
14.	Scope of Covenants.

(a) The Executive acknowledges that: (i) as a senior executive of the Company, he will have access to confidential information concerning the entire range of businesses in which the CNA Companies were and are engaged; (ii) that the CNA Companies’ businesses are conducted world-wide; and (iii) that the CNA Companies’ confidential information, if disclosed or utilized without its authorization, would irreparably harm the CNA Companies in: (1) obtaining renewals of existing customers; (2) selling new business; (3) maintaining and establishing existing and new relationships with employees, agents,

	brokers and vendors; and (4) other ways arising out of the conduct of the businesses in which the CNA Companies are engaged.
(b)	To protect such information and such existing and prospective relationships, and for other significant business reasons, the Executive agrees that it is reasonable and necessary that: (i) the scope of this Agreement be world-wide; (ii) its breadth include those segments of the entire insurance industry in which the CNA Companies conduct business; and (iii) the duration of the restrictions upon the Executive be as indicated herein.
(c)	The Executive acknowledges that the CNA Companies’ customer, employee and business relationships are long-standing, indeed, near permanent, and therefore are of great value to the CNA Companies. The Executive agrees that the provisions of Sections 7, 8, 9, 10, 12 and 13 of this Agreement, and the Company’s enforcement of them, are reasonably necessary to protect the CNA Companies’ legitimate business and property interests and relationships, especially those that he was responsible for developing or maintaining.
(d)	The Company shall not condition any compensation or other benefits provided under this Agreement on covenants that are more restrictive than those set forth in this Agreement.
(e)	If any one or more of the provisions contained in Sections 7, 8, 9, 10, 11, 12 or 13 shall be held to be excessively broad as to duration, geographic scope, activity or subject, such provisions shall be construed by limiting and reducing them so as to be enforceable to the maximum extent allowed by applicable law.

15.

Equitable Relief. Each Party agrees that any actual or threatened breach of the covenants set forth in Sections 7, 8, 9, 10, 12 or 13 above could cause the other Party irreparable harm. Therefore, in the event of any actual or threatened breach by either Party (the “Breaching Party”) of the provisions of Section 7, 8, 9, 10, 12 or 13 above, the other Party shall be entitled to seek, through arbitration in accordance with Section 24 or from any court with jurisdiction over the matter and the defendant(s), temporary, preliminary and/or permanent equitable/injunctive relief restraining the Breaching Party from violating such provisions and to seek, in addition, but solely through arbitration in accordance with Section 24, money damages, together with any and all other remedies available under applicable law.

16.

Change in Control. Upon the occurrence of any Change in Control, any unvested SARs and any earned but unvested RSUs held by the Executive shall become fully vested (i.e., non-forfeitable), and any SARs that are or become vested shall become exercisable. For purposes of this Agreement, “Change in Control” shall mean the occurrence of any of the following events: (i) any “person” or “group”, other than Loews Corporation and its Affiliates, is or becomes the “beneficial owner”, as such terms are used as of the Signing Date in Rule 13d-3 promulgated under the 1934 Act, of a percentage of the Voting Stock of the Company (measured either by number of securities or by number of votes entitled to be cast) that is greater than both (x) the percentage of the Voting Stock of the Company (thus measured) then held by Loews Corporation and its Affiliates and (y) 20%; (ii) the Company combines with another entity and is not the surviving entity; or (iii) all or substantially all of the assets or business of the Company is disposed of pursuant to a sale, merger, consolidation, liquidation or other transaction or series of transactions, unless the holders of Voting Stock of the Company immediately prior to such combination, transaction or series of transactions (collectively, a “Triggering Event”) own, directly or indirectly, by reason of their ownership of Voting Stock of the Company immediately prior to such Triggering Event, a majority of the Voting Stock (measured both by number of

securities and by voting power) of the entity, if any, that succeeds to all or substantially all of the assets and business of the Company. For purposes of this Agreement, “Voting Stock” shall mean issued and outstanding capital stock or other securities of any class or classes having general voting power, under ordinary circumstances in the absence of contingencies, to elect, in the case of a corporation, the directors of such corporation and, in the case of other entities, the corresponding governing person or body; and “1934 Act” shall mean the Securities Exchange Act of 1934, as amended.

17.

Representations.

(a)	The Executive represents and warrants to the Company that he (i) has the legal right to enter into this Agreement and to perform all of the obligations to be performed by him hereunder in accordance with its terms, (ii) is not a party to any agreement or understanding, written or oral, that would prevent him from entering into this Agreement or performing his obligations under it, and (iii) has not materially breached any of his fiduciary duties to his current employer or its Affiliates. The Executive represents and warrants to the Company that he is not a party to any non-compete or non-solicitation obligations with any Person, including his current employer, or its Affiliates, other than the “Restrictive Covenants” and obligations that have now expired. For purposes of this Agreement, “Restrictive Covenants” means the Executive’s non-compete, non-solicit and other obligations to his current employer and its Affiliates, including any restrictions on his activities violation of which could lead to loss of benefits, as provided in (x) the Restricted Stock Unit Agreements between the Executive and his current employer, dated March 3, 2005 (as amended), March 2, 2006, March 1, 2007, and March 12, 2008, and (y) the Performance Share Award Agreements between the Executive and his current employer, dated March 3, 2005 (as amended), March 2, 2006 (as amended), March 1, 2007, and March 12, 2008.
(b)	The Company represents and warrants that (i) it is fully authorized by action of its Board (and of any other Person or body whose action is required) to enter into this Agreement and to perform its obligations under it, (ii) the execution, delivery and performance of this Agreement by it does not violate any applicable law, regulation, order, judgment or decree, or any agreement, arrangement, plan or corporate governance document to which it is a party or by which it is bound and (iii) upon the execution and delivery of this Agreement by the Parties, this Agreement shall be its valid and binding obligation, enforceable against it in accordance with its terms, except to the extent that enforceability may be limited by applicable bankruptcy, insolvency or similar laws affecting the enforcement of creditors’ rights generally.
(c)	The Parties agree that there will be no contact prior to the Commencement Date between the Parties that violates the Restrictive Covenants. Notwithstanding anything in this Agreement to the contrary, the Executive agrees that he will not at any time violate the Restrictive Covenants or his fiduciary or other obligations to his current employer and its Affiliates and that he will not become a party to any agreement or understanding, written or oral, that would prevent him from entering into this Agreement or performing his obligations under it. The Executive agrees that if the Executive’s non-compete and non-solicit obligations under the Restrictive Covenants should expire earlier than the date set forth in the Restrictive Covenants (as in effect on the Signing Date), he will promptly inform the Company and he will cooperate with the Company to determine an earlier Commencement Date that is mutually agreeable to the Parties.

18. Indemnification, Advancement of Expenses, D&O Insurance.

(a)	If the Executive is made a party, is threatened to be made a party, or reasonably anticipates being made a party, to any Proceeding by reason of the fact that he is or was a director, officer, member, employee, agent, manager, trustee, consultant or representative of the Company or any of its Affiliates, or is or was serving at the request of the Company or any of its Affiliates, or in connection with his service hereunder, as a director, officer, member, employee, agent, manager, trustee, consultant or representative of another Person, or if any Claim is made, is threatened to be made, or is reasonably anticipated to be made, that arises out of or relates to the Executive’s service in any of the foregoing capacities, then the Executive shall promptly be indemnified and held harmless to the fullest extent permitted or authorized by the Certificate of Incorporation or Bylaws of the Company, or if greater, by applicable law, against any and all reasonable and appropriately documented costs, expenses, liabilities and losses (including, without limitation, attorneys’ and other professional fees and charges that are reasonably incurred, judgments, interest, expenses of investigation that are reasonably incurred, penalties, fines, ERISA excise taxes or penalties and reasonable amounts paid or to be paid in settlement) incurred or suffered by the Executive in connection therewith, and such indemnification shall continue as to the Executive even if he has ceased to be a director, officer, member, employee, agent, manager, trustee, consultant or representative of the Company or other Person and shall inure to the benefit of his heirs, executors and administrators. The Executive shall be entitled to prompt advancement of any and all appropriately documented costs and expenses (including, without limitation, attorneys’ and other professional fees and charges) reasonably incurred by him in connection with any such Proceeding or Claim, any such advancement to be made within 15 days after the Executive gives written notice, supported by reasonable documentation, requesting such advancement. Such notice shall include an undertaking by the Executive to repay the amounts advanced to the extent that he is ultimately determined not to be entitled to indemnification against such costs and expenses. Nothing in this Agreement or elsewhere shall operate to limit or extinguish any right to indemnification, advancement of expenses, or contribution that the Executive would otherwise have (including, without limitation, by agreement or under applicable law). For purposes of this Agreement, “Proceeding” shall mean any actual, threatened or reasonably anticipated action, suit or proceeding, whether civil, criminal, administrative, investigative, appellate, formal, informal or other.
(b)	Neither (i) the failure of the Company (including its Board, independent legal counsel or stockholders) to have made a determination prior to the commencement of any Proceeding concerning payment of amounts claimed by the Executive under Section 18(a) that indemnification of the Executive is proper because he has met the applicable standard of conduct, nor (ii) a determination by the Company (including its Board, independent legal counsel or stockholders) that the Executive has not met such applicable standard of conduct, shall create a presumption that the Executive has not met the applicable standard of conduct.
(c)	A directors’ and officers’ liability insurance policy (or policies) shall be kept in place, during the Term and for six years thereafter, to the extent that such coverage is then provided to any other current or former director or executive officer of the Company, providing coverage to the Executive that is no less favorable to him in any respect (including, without limitation, with respect to scope, exclusions, amounts, and

deductibles) than the coverage then being provided to any other present or former senior executive or director of the Company.

19.

Current Employer Disputes. The Executive shall be entitled to prompt advancement of, and indemnification against, any and all appropriately documented costs and expenses (including, without limitation, attorneys’ and other professional fees and charges) reasonably incurred by him in connection with any Proceeding or Claim (a “Covered Dispute”) that alleges or otherwise involves, as a material issue in such Covered Dispute, any Claim that the Executive breached any of the Restrictive Covenants or breached any of his fiduciary obligations to his current employer or its Affiliates, in each case resulting from his employment or services hereunder, or his agreement to become employed hereunder, or activities, if any, taken prior to the Commencement Date at the express request of the Company, any such advancement to be made within 15 days after the Executive gives written notice, supported by reasonable documentation, requesting such advancement. To the extent that the Executive’s current employer (or its Affiliates, if applicable) substantially and finally prevails with respect to any such Covered Dispute, the Executive shall promptly repay any amounts advanced under this Section 19 with respect to such Covered Dispute. For avoidance of doubt, the Company shall not be required to indemnify the Executive against any final judgment obtained by his current employer or any of its Affiliates with respect to any Covered Dispute in respect of which it has advanced expenses under this Section 19. The Executive shall have the right to counsel of his choice in connection with any Covered Dispute, subject to the Company’s consent (which shall not be unreasonably withheld or delayed). The Company shall have the right to resolve any Covered Dispute with respect to which it has advanced legal fees or expenses under this Section 19, provided, however, that the Executive’s rights and interests are not adversely affected by any such resolution.

20.

Severability. Each of the terms and provisions of this Agreement shall be deemed severable in whole and in part. To the extent that any provision or portion of this Agreement shall be determined to be invalid or unenforceable for any reason, in whole or in part, the remaining provisions of this Agreement shall remain in full force and effect so as to achieve the intentions of the Parties, as set forth in this Agreement, to the maximum extent possible.

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21. Assignment.

(a)	This Agreement shall be binding upon, and inure to the benefit of, the Parties and their respective successors, heirs (in the case of the Executive) and assigns.
(b)	No rights or obligations of the Company under this Agreement may be assigned or transferred by the Company except that such rights and obligations may be assigned or transferred pursuant to a merger, consolidation or other combination in which the Company is not the continuing entity, or a sale or liquidation of all or substantially all of the business and assets of the Company, provided that the assignee or transferee is the successor to all or substantially all of the business and assets of the Company and such assignee or transferee expressly assumes the liabilities, obligations and duties of the Company as set forth in this Agreement.
(c)	No rights or obligations of the Executive under this Agreement may be assigned or transferred by the Executive other than his rights to compensation and benefits, which may be transferred only by will or by operation of law. Notwithstanding the foregoing, the Executive shall be entitled, to the extent permitted under applicable law and applicable Company Arrangements, to select and change a beneficiary or beneficiaries to receive any compensation or benefit hereunder following the Executive’s death by giving written notice thereof to the Company. In the event of the Executive’s death or a judicial determination of his incompetence, references in this Agreement to the Executive shall be deemed, where appropriate, to refer to his beneficiary, estate or other legal representative. In the event that Executive dies before all payments he may be entitled to have been paid, all remaining payments shall be made to the beneficiary specifically designated by the Executive in writing prior to his death, or, if no such beneficiary was designated (or the Company is unable in good faith to determine the beneficiary designated), to his personal representative or estate.

22. Miscellaneous.

(a)	This Agreement shall be governed, interpreted, performed and enforced in accordance with its express terms, and otherwise in accordance with the laws of the State of Delaware (without regard to choice of law or conflict of laws principles), to the extent not displaced by federal law.
(b)	Except as otherwise expressly set forth herein, this Agreement contains the entire agreement of the Parties with regard to the subject matter hereof, and supersedes all prior agreements and understandings, written or oral, with respect to such subject matter.
(c)	No provision in this Agreement may be amended unless such amendment is set forth in a writing that expressly refers to the provision of this Agreement that is being amended and that is signed by the Executive and by an authorized officer of the Company. No waiver by any Person of any breach of any condition or provision contained in this Agreement shall be deemed a waiver of any similar or dissimilar condition or provision at the same or any prior or subsequent time. To be effective, any waiver must be set forth in a writing signed by the waiving Person and must specifically refer to the condition(s) or provision(s) of this Agreement being waived. In the event of any conflict between any provision of this Agreement and any provision of any Company Arrangement, the

	provisions of this Agreement shall control unless the Executive otherwise agrees in a writing that expressly refers to the provision of this Agreement whose control he is waiving.
(d)	Except as otherwise expressly set forth in this Agreement, the respective rights and obligations of the Parties (including, without limitation, those set forth in Sections 6 through 19 above and Sections 23 through 25 below) shall survive any termination of the Executive’s employment hereunder.
(e)	All numbers and headings contained in this Agreement are for reference only and are not intended to qualify, limit or otherwise affect the meaning or interpretation of any provision contained in this Agreement.

23. Notices. Any notice, consent, demand, request, or other communication given to a Person in connection with this Agreement shall be in writing and shall be deemed to have been given to such Person (x) when delivered personally to such Person or (y), provided that a written acknowledgment of receipt is obtained, five days after being sent by prepaid certified or registered mail, or two days after being sent by a nationally recognized overnight courier, to the address (if any) specified below for such Person (or to such other address as such Person shall have specified by ten days’ advance notice given in accordance with this Section 23) or (z) on the first business day after it is sent by facsimile to the facsimile number (if any) set forth below (or to such other facsimile number as shall have specified by ten days’ advance notice given in accordance with this Section 23), with a confirmatory copy sent by certified or registered mail or by overnight courier in accordance with this Section 23.

If to the Company:

CNA Financial Corporation
CNA Center
Chicago, IL 60685
Attn: Corporate Secretary
Fax: 312-817-0511

If to the Executive:

The address of his principal residence as it appears in the Company’s records, with a copy to him (during the Term) at his office in Chicago, and a copy to:

Morrison Cohen LLP.
909 Third Avenue
New York, NY 10022
Attn: Robert M. Sedgwick
Fax: 212-735-8708

If to beneficiary of the Executive:

The address most recently specified by the Executive or beneficiary.

24. Arbitration of All Disputes. Any Claim between the Executive and the Company or any of its Affiliates, including any Claim arising out of or relating to this Agreement, any other agreement or arrangement between the Executive and the Company or any of its Affiliates, the Executive’s

employment with the Company, or any termination thereof (a “Covered Claim”) shall (except to the extent otherwise provided in Section 15 with respect to certain requests for injunctive relief) be resolved by binding confidential arbitration, to be held in Chicago, Illinois, in accordance with the Commercial Arbitration Rules (and not the National Rules for Resolution of Employment Disputes) of the American Arbitration Association and this Section 24. Judgment upon the award rendered by the arbitrator(s) may be entered in any court having jurisdiction thereof. The Company shall advance to (or for the benefit of) the Executive (or his beneficiaries, as applicable), promptly upon written request, any appropriately documented costs or expenses (including, without limitation, attorneys’ fees and other charges of counsel) reasonably incurred by the Executive or his beneficiaries in connection with any Covered Claim, subject to prompt repayment to the extent that the Company (and its Affiliates, as applicable) are determined to have substantially prevailed with respect to such Covered Claim.

25.

Section 280G Gross-Up. In the event that any payment or benefit made or provided to or for the benefit of the Executive under this Agreement, or under any plan, agreement, program or arrangement of the Company, of any Person effecting a change in control of the Company, or any Affiliates of any of the foregoing (a “Payment”) is determined to be subject to any excise tax (“Excise Tax”) imposed by Section 4999 of the Code, or any comparable state or local tax provision, the Company shall pay to the Executive at or prior to the time any Excise Tax is payable with respect to such Payment (through withholding or otherwise), an additional amount which, after the imposition of all income, employment, excise and other taxes payable by the Executive thereon, is equal to the sum of (i) the Excise Tax on such Payment plus (ii) any penalty and interest assessments associated with such Excise Tax. The determination of whether any Payment is subject to the Excise Tax and, if so, the amount to be paid by the Company to the Executive and the time of payment pursuant to this Section 25 shall be made by an independent, nationally recognized United States public accounting firm (the “Auditor”) assuming in all cases taxation at the highest applicable marginal rates. The Auditor shall be selected by the Company (subject to the Executive’s approval, which shall not be unreasonably withheld or delayed), and shall be paid for by the Company. The Parties shall cooperate with each other in connection with any Proceeding or Claim relating to the existence or amount of any liability for any Excise Tax. The Company shall have the right to control the conduct of and to resolve and compromise any Claim or Proceeding subject to the remainder of this Section 25, and provided the Executive’s rights and interests are not adversely affected by any such resolution or compromise. All appropriately documented expenses relating to any such Proceeding or Claim (including any attorneys’ fees and other expenses associated therewith) reasonably incurred by the Executive shall be paid by the Company promptly upon demand by the Executive, and any such payment shall be grossed up for all taxes (assuming taxation at the highest applicable marginal rates) in the event that the Executive is subject to any income tax, employment tax or Excise Tax on it. All payments under this Section 25 shall be made within the time periods required by Treasury Regulation § 1.409A-3(i)(1)(v).

[Remainder of the page intentionally left blank.]

26.	Counterparts. This Agreement may be executed in one or more counterparts, each of which shall be deemed to be an original copy of this Agreement and all of which, when taken together, shall be deemed to constitute one and the same agreement. Signatures delivered by facsimile shall be deemed effective for all purposes.
	IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the Signing Date.

CNA FINANCIAL CORPORATION

By: /s/ Jonathan D. Kantor
Name: Jonathan D. Kantor
Title: Executive Vice-President

THOMAS F. MOTAMED

/s/ Thomas F. Motamed

EX-10.2

EXHIBIT 10.2

SECOND AMENDMENT TO EMPLOYMENT AGREEMENT

THIS SECOND AMENDMENT TO EMPLOYMENT AGREEMENT (the “Second Amendment”) is made and entered into as of the 7th day of April, 2008, by and between Continental Casualty Company, an Illinois insurance company (the “Company”) and Michael Fusco (“Executive”), as an amendment to that certain employment agreement between Executive and the Company dated as of April 1, 2004, as amended by that certain amendment to employment agreement (the “First Amendment”) between the parties hereto dated February 7, 2007 (said employment agreement as amended by the First Amendment the “Employment Agreement”):

WITNESSETH:

WHEREAS, the parties wish to further amend the Employment Agreement in certain respects to reflect certain changes in the terms and conditions of Executive’s employment as further provided hereinbelow;

NOW, THEREFORE, in consideration of the mutual covenants and agreements set forth below, it is covenanted and agreed by the Executive and the Company as follows:

1.	Section 1 of the Employment Agreement is hereby amended to read as follows:
	“Employment Term. The Company and Executive agree that the Company shall employ Executive to perform the duties of an Executive Vice President of the CNA insurance companies for the period commencing on the Effective Date and ending at close of business on June 30, 2008 (the “Term”). The covenants set forth in Sections 7, 8, 10, 11, 12, 13, and 14 shall survive the employment term of this Agreement.”
2.	Section 2 of the Employment Agreement is hereby amended to read as follows:
	“Duties of Executive. (a) Through April 30, 2008, Executive shall continue to perform the duties and responsibilities of an Executive Vice President and Chief Actuary Officer of the CNA insurance companies as defined and directed by the Company’s Chief Executive Officer (hereinafter “CEO”). From May 1, 2008 through June 30, 2008 Executive shall perform the duties and responsibilities of an Executive Vice President of the CNA insurance companies as defined and directed by the Company’s CEO. Executive shall report to the CEO. Executive may be elected to and shall serve as a member of the Board of Directors of one or more of the CNA insurance companies, and if so elected Executive agrees to serve on such boards in such capacity without additional compensation and Executive further agrees to resign any such position on such Boards upon the termination of his employment with the Company for any reason; provided that nothing in this Agreement shall require that the shareholders of any company elect Executive to its board of directors. After April 30, 2008, Executive shall no longer be a named executive officer of the Company.
	(b) Executive shall diligently and to the best of his abilities assume, perform, and discharge the duties and responsibilities of Executive Vice President and, as provided for in Subsection (a) of this Section 2, Chief Actuary Officer, as well as such other specific duties and responsibilities as the CEO shall assign or designate to Executive from time to time not inconsistent with Executive’s status. Executive shall devote substantially all of his working time to the performance of his duties as set forth herein and shall not, without the prior written consent of the CEO, accept other employment or render or perform other services, nor shall he have any direct or indirect ownership interest in any other business which is in competition with the business of the Company or the CNA insurance companies, other than in the form of publicly traded securities constituting less than five percent (5%) of the outstanding securities of a corporation (determined by vote or value) or limited partnership interests constituting less than five percent (5%) of the value of any such partnership. The foregoing shall not preclude Executive from engaging in charitable, professional, and personal investment activities, provided that, in the judgment of the CEO, such activities do not materially interfere with his performance of his duties and responsibilities hereunder. In addition, the foregoing shall not preclude Executive from spending a portion of his working time performing his duties from Executive’s office in New York during the term of this Agreement.”

3.	For purposes of the Employment Agreement, the expiration of Executive’s employment at close of business on June 30, 2008 as provided for in Section 1 of the Employment Agreement as amended hereby shall be treated as a termination by the Company without cause as provided for in Section 6.3 of the Employment Agreement as of close of business on said date of June 30, 2008 (the “Termination Date”). Accordingly, upon such Termination Date Executive shall be entitled to all severance and other benefits as provided for in subset (a) of said Section 6.3. The Company shall not terminate Executive’s employment pursuant to Section 6.3 of the Employment Agreement prior to close of business on June 30, 2008. The Company shall have no further obligations to Executive under this Agreement except as provided for in said Section 6.3(a) and in this Second Amendment.
4.	Any term or provision of the Employment Agreement to the contrary notwithstanding: (i) Executive shall not be subject to the terms and provisions of Section 9 of the Employment Agreement after June 30, 2008; (ii) Executive’s employment of Denise DeAngelis as his assistant after June 30, 2008 shall not constitute a breach of the terms and provisions of Section 10 of the Employment Agreement; (iii) Executive shall have no obligation to mitigate any loss or damages he might sustain as a result of the terms and provisions of this Second Amendment in order to receive all severance and other benefits provided for in subset (a) of Section 6.3 of the Employment Agreement, and there shall be no reduction or abridgement of such severance and other benefits as a result of Executive’s failure to so mitigate such loss or damages or of Executive’s receipt of payment from any person other than the Company or its affiliates for services rendered to such person by Executive after June 30, 2008; (iv) after June 30, 2008 Executive shall be entitled to receive outplacement services at the Company’s expense, commensurate with such services as are generally provided to senior executives pursuant to current Company policy; (v) the Company shall pay reasonable attorneys’ fees incurred by Executive in negotiating the terms of this Second Amendment; (vi) the Company shall provide preparation service for the Executive’s federal and state personal income tax returns for the calendar year 2008; and (vii) any unvested options granted to Executive under the Employment Agreement that are scheduled to vest on or prior to June 30, 2009, shall vest as scheduled, and any outstanding options for the Company’s common stock or for stock appreciation rights paid in the Company’s common stock (“SARs”) granted pursuant to the Employment Agreement which are vested as of June 30, 2008 and any outstanding options which vest after June 30, 2008, but on or prior to June 30, 2009, may be exercised by Executive on or before June 30, 2009.
5.	Except as otherwise expressly provided in this Second Amendment, all terms and provisions of the Employment Agreement remain in full force and effect.

IN WITNESS WHEREOF, the parties have entered into this Second Amendment effective as of the date set forth hereinabove.

CONTINENTAL CASUALTY COMPANY			MICHAEL FUSCO
By:	/s/ Thomas Pontarelli
Title:	Executive Vice President	/s/ Michael Fusco

EX-31.1

EXHIBIT 31.1

SARBANES-OXLEY ACT SECTION 302

CERTIFICATION OF CHIEF EXECUTIVE OFFICER

I, Stephen W. Lilienthal, certify that:

1.	I have reviewed this quarterly report on Form 10-Q of CNA Financial Corporation;
2.	Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.	Based on my knowledge, the financial statements and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4.	The registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a)	Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b)	Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c)	Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d)	Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officers and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent function):

a)	All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
b)	Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Dated: July 28, 2008	By	/s/ Stephen W. Lilienthal
		Stephen W. Lilienthal
		Chief Executive Officer

EX-31.2

EXHIBIT 31.2

SARBANES-OXLEY ACT SECTION 302

CERTIFICATION OF CHIEF FINANCIAL OFFICER

I, D. Craig Mense, certify that:

1.	I have reviewed this quarterly report on Form 10-Q of CNA Financial Corporation;
2.	Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.	Based on my knowledge, the financial statements and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4.	The registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a)	Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b)	Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c)	Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d)	Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officers and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent function):

a)	All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
b)	Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Dated: July 28, 2008	By	/s/ D. Craig Mense
		D. Craig Mense
		Chief Financial Officer

EX-32.1

EXHIBIT 32.1

Written Statement of the Chief Executive Officer
of CNA Financial Corporation
Pursuant to 18 U.S.C. § 1350
(As adopted by Section 906 of the Sarbanes-Oxley Act of 2002)

The undersigned, the Chief Executive Officer of CNA Financial Corporation (the Company), hereby certifies that, to his knowledge:

• the Company’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2008 filed on the date hereof with the Securities and Exchange Commission (the Report) fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

• the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Dated: July 28, 2008

/s/ Stephen W. Lilienthal  

Stephen W. Lilienthal 

Chief Executive Officer 

The foregoing certification is being furnished solely pursuant to 18 U.S.C. § 1350 and is not being filed as part of the Report or as a separate disclosure document.

EX-32.2

EXHIBIT 32.2

Written Statement of the Chief Financial Officer
of CNA Financial Corporation
Pursuant to 18 U.S.C. § 1350
(As adopted by Section 906 of the Sarbanes-Oxley Act of 2002)

The undersigned, the Chief Financial Officer of CNA Financial Corporation (the Company), hereby certifies that, to his knowledge:

• the Company’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2008 filed on the date hereof with the Securities and Exchange Commission (the Report) fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

• the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Dated: July 28, 2008

/s/ D. Craig Mense

D. Craig Mense

Chief Financial Officer

The foregoing certification is being furnished solely pursuant to 18 U.S.C. § 1350 and is not being filed as part of the Report or as a separate disclosure document.