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 March 31, 2009

OR

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

For the transition period from                      to                     

Commission File Number 1-5823

CNA FINANCIAL CORPORATION

(Exact name of registrant as specified in its charter)

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

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (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 April 30, 2009
Common Stock, Par value $2.50		269,024,408

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 months ended March 31, 2009 and 2008		3
		Condensed Consolidated Statements of Comprehensive Income for the Three months ended March 31, 2009 and 2008		4
		Condensed Consolidated Balance Sheets at March 31, 2009 and December 31, 2008		5
		Condensed Consolidated Statements of Cash Flows for the Three months ended March 31, 2009 and 2008		6
		Condensed Consolidated Statements of Equity for the Three months ended March 31, 2009 and 2008		8
		Notes to Condensed Consolidated Financial Statements		9
	2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations		41
	3.	Quantitative and Qualitative Disclosures About Market Risk		63
	4.	Controls and Procedures		64
PART II. Other Information
	1.	Legal Proceedings		65
	6.	Exhibits		66
EX-10.1
EX-10.2
EX-31.1
EX-31.2
EX-32.1
EX-32.2

CNA Financial Corporation (CNAF)

Part I. Financial Information

Item 1. Condensed Consolidated Financial Statements

Condensed Consolidated Statements of Operations (Unaudited)

Three months ended March 31	2009			2008
(In millions, except per share data)
Revenues
Net earned premiums	$	1,672		$	1,813
Net investment income		420			434
Realized investment losses, net of participating policyholders’ interests		(532	)		(51	)
Other revenues		78			86
Total revenues		1,638			2,282
Claims, Benefits and Expenses
Insurance claims and policyholders’ benefits		1,342			1,389
Amortization of deferred acquisition costs		349			368
Other operating expenses		251			227
Interest		31			34
Total claims, benefits and expenses		1,973			2,018
Income (loss) from continuing operations before income tax		(335	)		264
Income tax (expense) benefit		150			(64	)
Income (loss) from continuing operations		(185	)		200
Income (loss) from discontinued operations, net of income tax (expense) benefit of $0 and $0		—			(1	)
Net income (loss)		(185	)		199
Net income attributable to noncontrolling interests		(10	)		(12	)
Net income (loss) attributable to CNAF	$	(195	)	$	187
Income (Loss) Attributable to CNAF Common Stockholders
Income (loss) from continuing operations attributable to CNAF	$	(195	)	$	188
Less: Dividend on 2008 Senior Preferred		(31	)		—
Income (loss) from continuing operations attributable to CNAF common stockholders		(226	)		188
Income (loss) from discontinued operations attributable to CNAF common stockholders		—			(1	)
Income (loss) attributable to CNAF common stockholders	$	(226	)	$	187
Basic and Diluted Earnings (Loss) Per Share Attributable to CNAF Common Stockholders
Income (loss) from continuing operations attributable to CNAF common stockholders	$	(0.84	)	$	0.70
Income (loss) from discontinued operations attributable to CNAF common stockholders		—			(0.01	)
Basic and diluted earnings (loss) per share attributable to CNAF common stockholders	$	(0.84	)	$	0.69
Weighted Average Outstanding Common Stock and Common Stock Equivalents
Basic		269.0			270.7
Diluted		269.0			270.8

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

3

CNA Financial Corporation (CNAF)

Condensed Consolidated Statements of Comprehensive Income (Unaudited)

Three months ended March 31	2009			2008
(In millions)
Net income (loss)	$	(185	)	$	199
Other comprehensive income (loss), net of tax
Changes in:
Unrealized gains (losses) on investments		401			(873	)
Unrealized gains (losses) on discontinued operations and other		(2	)		4
Foreign currency translation adjustment		(8	)		(11	)
Pension and postretirement benefits		2			(2	)
Allocation to participating policyholders		—			14
Other comprehensive income (loss), net of tax		393			(868	)
Comprehensive income (loss)		208			(669	)
Net income attributable to noncontrolling interests		(10	)		(12	)
Other comprehensive (income) loss attributable to noncontrolling interests		(5	)		2
Total comprehensive income (loss) attributable to CNAF	$	193		$	(679	)

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

4

CNA Financial Corporation (CNAF)

Condensed Consolidated Balance Sheets (Unaudited)

	March 31,			December 31,
	2009			2008
(In millions, except share data)
Assets
Investments:
Fixed maturity securities at fair value (amortized cost of $33,189 and $34,155)	$	28,461		$	28,887
Equity securities at fair value (cost of $783 and $1,016)		726			871
Limited partnership investments		1,667			1,683
Other invested assets		11			28
Short term investments		4,583			3,534
Total investments		35,448			35,003
Cash		94			85
Reinsurance receivables (less allowance for uncollectible receivables of $365 and $366)		7,180			7,395
Insurance receivables (less allowance for doubtful accounts of $221 and $221)		1,810			1,818
Accrued investment income		387			356
Receivables for securities sold and collateral		285			402
Deferred acquisition costs		1,132			1,125
Prepaid reinsurance premiums		255			237
Federal income tax recoverable (includes $318 and $299 due from Loews Corporation)		315			294
Deferred income taxes		3,413			3,493
Property and equipment at cost (less accumulated depreciation of $550 and $641)		390			393
Goodwill and other intangible assets		141			141
Other assets		551			562
Separate account business		376			384
Total assets	$	51,777		$	51,688
Liabilities and Equity
Liabilities:
Insurance reserves:
Claim and claim adjustment expenses	$	27,243		$	27,593
Unearned premiums		3,461			3,406
Future policy benefits		7,634			7,529
Policyholders’ funds		253			243
Collateral on loaned securities and derivatives		41			6
Payables for securities purchased		198			12
Participating policyholders’ funds		21			20
Long term debt		2,058			2,058
Reinsurance balances payable		344			316
Other liabilities		2,659			2,824
Separate account business		376			384
Total liabilities		44,288			44,391
Commitments and contingencies (Notes D, E, G, H, and J)
Equity:
Preferred stock (12,500,000 shares authorized) 2008 Senior Preferred (no par value; $100,000 stated value; 12,500 shares issued; held by Loews Corporation)		1,250			1,250
Common stock ($2.50 par value; 500,000,000 shares authorized; 273,040,243 shares issued; and 269,024,408 shares outstanding)		683			683
Additional paid-in capital		2,175			2,174
Retained earnings		6,619			6,845
Accumulated other comprehensive loss		(3,536	)		(3,924	)
Treasury stock (4,015,835 shares), at cost		(109	)		(109	)
Notes receivable for the issuance of common stock		(30	)		(42	)
Total CNAF stockholders’ equity		7,052			6,877
Noncontrolling interests		437			420
Total equity		7,489			7,297
Total liabilities and equity	$	51,777		$	51,688

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

5

CNA Financial Corporation (CNAF)

Condensed Consolidated Statements of Cash Flows (Unaudited)

Three months ended March 31	2009			2008
(In millions)
Cash Flows from Operating Activities:
Net income (loss)	$	(185	)	$	199
Adjustments to reconcile net income (loss) to net cash flows provided by operating activities:
(Income) loss from discontinued operations		—			1
Deferred income tax benefit		(139	)		(21	)
Trading portfolio activity		(3	)		63
Realized investment losses, net of participating policyholders’ interests		532			51
Undistributed losses of equity method investees		104			70
Net amortization of bond discount		(58	)		(65	)
Depreciation		21			18
Changes in:
Receivables, net		223			158
Accrued investment income		(31	)		(28	)
Deferred acquisition costs		(7	)		3
Prepaid reinsurance premiums		(18	)		(22	)
Federal income taxes recoverable		(21	)		72
Insurance reserves		(139	)		(41	)
Reinsurance balances payable		28			(5	)
Other assets		8			(23	)
Other liabilities		(125	)		(131	)
Other, net		6			—
Total adjustments		381			100
Net cash flows provided by operating activities-continuing operations	$	196		$	299
Net cash flows provided (used) by operating activities-discontinued operations	$	(9	)	$	4
Net cash flows provided by operating activities-total	$	187		$	303
Cash Flows from Investing Activities:
Purchases of fixed maturity securities	$	(7,079	)	$	(11,231	)
Proceeds from fixed maturity securities:
Sales		7,046			10,262
Maturities, calls and redemptions		827			1,038
Purchases of equity securities		(134	)		(56	)
Proceeds from sales of equity securities		146			28
Change in short term investments		(1,041	)		(696	)
Change in collateral on loaned securities and derivatives		35			815
Change in other investments		55			(125	)
Purchases of property and equipment		(17	)		(32	)
Other, net		3			10
Net cash flows provided (used) by investing activities-continuing operations	$	(159	)	$	13
Net cash flows provided (used) by investing activities-discontinued operations	$	9		$	(2	)
Net cash flows provided (used) by investing activities-total	$	(150	)	$	11

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

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Three months ended March 31	2009			2008
(In millions)
Cash Flows from Financing Activities:
Dividends paid to common stockholders		—			(41	)
Dividends paid to Loews Corporation for 2008 Senior Preferred		(31	)		—
Principal payments on debt		—			(150	)
Return of investment contract account balances		(8	)		(14	)
Receipts on investment contract account balances		1			1
Purchase of treasury stock		—			(70	)
Other, net		12			1
Net cash flows used by financing activities-continuing operations	$	(26	)	$	(273	)
Net cash flows provided (used) by financing activities-discontinued operations	$	—		$	—
Net cash flows used by financing activities-total	$	(26	)	$	(273	)
Effect of foreign exchange rate changes on cash-continuing operations		(2	)		(1	)
Net change in cash		9			40
Cash, beginning of year		85			101
Cash, end of period	$	94		$	141
Cash-continuing operations	$	94		$	132
Cash-discontinued operations		—			9
Cash-total	$	94		$	141

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

7

CNA Financial Corporation (CNAF)

Condensed Consolidated Statements of Equity (Unaudited)

Three months ended March 31	2009			2008
(In millions)
Preferred Stock
Balance, beginning and end of period	$	1,250		$	—
Common Stock
Balance, beginning and end of period		683			683
Additional Paid-in Capital
Balance, beginning of period		2,174			2,169
Stock-based compensation and other		1			1
Balance, end of period		2,175			2,170
Retained Earnings
Balance, beginning of period		6,845			7,285
Dividends paid to common stockholders		—			(41	)
Dividends paid to Loews Corporation for 2008 Senior Preferred		(31	)		—
Net income (loss) attributable to CNAF		(195	)		187
Balance, end of period		6,619			7,431
Accumulated Other Comprehensive Income (Loss)
Balance, beginning of period		(3,924	)		103
Other comprehensive income (loss) attributable to CNAF		388			(866	)
Balance, end of period		(3,536	)		(763	)
Treasury Stock
Balance, beginning of period		(109	)		(39	)
Purchase of treasury stock		—			(70	)
Balance, end of period		(109	)		(109	)
Notes Receivable for the Issuance of Common Stock
Balance, beginning of period		(42	)		(51	)
(Increase) decrease in notes receivable for the issuance of common stock		12			(1	)
Balance, end of period		(30	)		(52	)
Total CNAF Stockholders’ Equity		7,052			9,360
Noncontrolling Interests
Balance, beginning of period		420			385
Net income		10			12
Other comprehensive income (loss)		5			(2	)
Other		2			—
Balance, end of period		437			395
Total Equity	$	7,489		$	9,755

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

8

CNA Financial Corporation

Notes to Condensed Consolidated Financial Statements (Unaudited)

Note A. Basis of Presentation

The Condensed Consolidated Financial Statements (Unaudited) include the accounts of CNA Financial Corporation (CNAF) and its controlled subsidiaries. Collectively, CNAF and its subsidiaries are referred to as CNA or the Company. CNA’s property and casualty and the remaining life & group insurance operations are primarily conducted by Continental Casualty Company (CCC), The Continental Insurance Company (CIC), Continental Assurance Company (CAC) and CNA Surety Corporation (CNA Surety). The Company owned approximately 62% of the outstanding common stock of CNA Surety as of March 31, 2009. Loews Corporation (Loews) owned approximately 90% of the outstanding common stock of CNAF as of March 31, 2009.

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

The interim financial data as of March 31, 2009 and for the three months ended March 31, 2009 and 2008 is unaudited. However, in the opinion of management, the interim data includes all adjustments, consisting of normal recurring accruals, necessary for a fair statement of the Company’s results for the interim periods. The results of operations for the interim periods are not necessarily indicative of the results to be expected for the full year. All significant intercompany amounts have been eliminated.

Note B. Accounting Pronouncements

Adopted in the first quarter of 2009

Statement of Financial Accounting Standard (SFAS) No. 160, Noncontrolling Interests in Consolidated Financial Statements — an amendment of Accounting Research Bulletin No. 51 (SFAS 160)

In December 2007, the Financial Accounting Standards Board (FASB) issued SFAS 160, which provides accounting and reporting standards for the noncontrolling interests in a subsidiary and for the deconsolidation of a subsidiary. It clarifies that an ownership interest in a subsidiary should be reported as equity in the consolidated financial statements. It also requires consolidated net income to be reported at amounts that include the amounts attributable to both the parent and the noncontrolling interest. The Company adopted SFAS 160 on January 1, 2009. The adoption of this standard had no impact on the Company’s financial condition or results of operations, but impacted the presentation of these amounts within the Condensed Consolidated Financial Statements.

SFAS No. 161, Disclosures about Derivative Instruments and Hedging Activities — an amendment of FASB Statement No. 133 (SFAS 161)

In March 2008, the FASB issued SFAS 161, which amends SFAS 133, Accounting for Derivative Instruments and Hedging Activities, and requires enhanced disclosures regarding the use of derivative instruments, how they

9

are accounted for and how they affect an entity’s financial position, financial performance and cash flows. The Company’s adoption of SFAS 161 on January 1, 2009 had no impact on its financial condition or results of operations. The Company has complied with the additional disclosure requirements in Note E.

FASB Staff Position (FSP) No. 157-2, Effective Date of FASB Statement No. 157 (FSP FAS 157-2)

In February 2008, the FASB issued FSP FAS 157-2, which delayed the effective date of SFAS No. 157, Fair Value Measurement (SFAS 157) for all non-recurring fair value measurements of nonfinancial assets and nonfinancial liabilities until the fiscal year beginning after November 15, 2008. The Company adopted the provisions of SFAS 157 as it relates to reporting units and indefinite-lived intangible assets measured at fair value for the purposes of goodwill and intangible asset impairment testing as of January 1, 2009. The adoption of these provisions had no impact on the Company’s financial condition or results of operations.

Recently issued accounting pronouncements to be adopted

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

In April 2009, the FASB issued FSP FAS 107-1 and APB 28-1, which amends FASB Statement No. 107, Disclosures about Fair Value of Financial Instruments, to require disclosures about fair value of financial instruments in interim as well as annual financial statements. FSP FAS 107-1 and APB 28-1 is effective for interim and fiscal periods beginning after June 15, 2009. The Company’s adoption of this standard will not impact the financial condition or results of operations of the Company.

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

In April 2009, the FASB issued FSP FAS 115-2 and FAS 124-2, which amends the criteria for the recognition of other-than-temporary impairment (OTTI) losses for debt securities and requires that credit losses be recognized in earnings and losses resulting from factors other than credit of the issuer be recognized in other comprehensive income. Prior to adoption, all OTTI losses are recorded in earnings in the period of recognition. This FSP also expands and increases the frequency of existing disclosures. FSP FAS 115-2 and FAS 124-2 is effective for interim and annual periods ending after June 15, 2009, and requires a cumulative effect adjustment of initially applying the FSP as an adjustment to the opening balance of retained earnings with a corresponding adjustment to accumulated other comprehensive income. The Company is currently assessing the impact FSP FAS 115-2 and FAS 124-2 will have on its financial condition and results of operations.

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

In April 2009, the FASB issued FSP FAS 157-4, which requires entities to assess whether certain factors exist that indicate that the volume and level of market activity for an asset or liability have decreased or that transactions are not orderly. If, after evaluating those factors, the evidence indicates there has been a significant decrease in the volume and level of activity in relation to normal market activity, observed transactional values or quoted prices may not be determinative of fair value and adjustment to the observed transactional values or quoted prices may be necessary to estimate fair value. FSP FAS 157-4 is effective for interim and annual periods ending after June 15, 2009. The Company is currently assessing the impact FSP FAS 157-4 will have on its financial condition and results of operations.

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Note C. Earnings (Loss) Per Share

Earnings (loss) per share attributable to CNAF’s common stockholders is based on weighted average outstanding shares. Basic earnings (loss) per share excludes dilution and is computed by dividing net income (loss) attributable to CNAF by the weighted average number of common shares outstanding for the period. Diluted earnings per share reflects the potential dilution that could occur if securities or other contracts to issue common stock were exercised or converted into common stock. As a result of the net loss for the three months ended March 31, 2009, no potential shares attributable to exercises under stock-based employee compensation plans were included in the calculation of loss per share as the effect would have been antidilutive.

For the three months ended March 31, 2008, 100 thousand potential shares attributable to exercises under stock-based employee compensation plans were included in the calculation of diluted earnings per share. For the three months ended March 31, 2008, less than 1 million potential shares attributable to exercises under stock-based employee compensation plans were not included in the calculation of diluted earnings per share because their effect was antidilutive.

The 2008 Senior Preferred Stock (2008 Senior Preferred) was issued in November 2008 and accrues cumulative dividends at an initial rate of 10% per year. If declared, dividends are payable quarterly and any dividends not declared or paid when due will be compounded quarterly. Dividends of $31 million on the 2008 Senior Preferred were declared and paid for the three months ended March 31, 2009.

No common stock dividends were declared or paid in the first quarter of 2009. Dividends of $0.15 per share of common stock were declared and paid in the first quarter of 2008.

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Note D. Investments

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

Net Investment Income

Three months ended March 31	2009			2008
(In millions)
Fixed maturity securities	$	475		$	518
Short term investments		10			39
Limited partnerships		(70	)		(39	)
Equity securities		14			5
Trading portfolio (a)		—			(77	)
Other		3			6
Gross investment income		432			452
Investment expense		(12	)		(18	)
Net investment income	$	420		$	434

(a) The change in net unrealized losses on trading securities included in net investment income was $13 million for the three months ended March 31, 2008. As of March 31, 2009, the Company no longer has a trading portfolio.

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

Realized Investment Gains (Losses)

Three months ended March 31	2009			2008
(In millions)
Net realized investment gains (losses):
Fixed maturity securities:
Gross realized gains:	$	104		$	117
Gross realized losses:
Other-than-temporary impairments		(395	)		(67	)
Transactions		(67	)		(52	)
Net realized investment losses on fixed maturity securities		(358	)		(2	)
Equity securities:
Gross realized gains:		4			4
Gross realized losses:
Other-than-temporary impairments		(219	)		(19	)
Transactions		(1	)		—
Net realized investment losses on equity securities		(216	)		(15	)
Derivatives		31			(44	)
Other		11			10
Net realized investment losses, net of participating policyholders’ interests	$	(532	)	$	(51	)

For the three months ended March 31, 2009, OTTI losses of $614 million were recorded primarily in the non-redeemable preferred securities, asset-backed bonds and corporate and other taxable bonds sectors. This compared to OTTI losses for the three months ended March 31, 2008 of $86 million recorded primarily in the asset-backed bond sector.

The OTTI losses for the three months ended March 31, 2009 were driven primarily by further deterioration in certain sectors of the investment portfolio, the continued disruption of the financial and credit markets and the Company’s change in outlook of economic conditions. These circumstances were evidenced by rating agency downgrades and deterioration of underlying collateral in certain asset-backed securities.

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

Significant judgment is required in the determination of whether an OTTI has occurred for an investment. The Company follows a consistent and systematic process for determining and recording an OTTI loss. The Company has established a committee responsible for the OTTI process. This committee, referred to as the Impairment Committee, is made up of three officers appointed by the Company’s Chief Financial Officer. The Impairment Committee is responsible for analyzing all securities in an unrealized loss position on at least a quarterly basis.

The Impairment Committee’s assessment of whether an OTTI loss has occurred incorporates both quantitative and qualitative information. The Impairment Committee considers a number of factors including, but not limited to: (a) the length of time and the extent to which the fair value has been less than amortized cost, (b) the financial condition and near term prospects of the issuer, (c) the intent and ability of the Company to retain its investment for a period of time sufficient to allow for an anticipated recovery in value, (d) whether the debtor is current on interest and principal payments and (e) general market conditions and industry or sector specific outlook.

As part of the Impairment Committee’s review of impaired asset-backed securities it also considers results and analysis of cash flow modeling. The focus of this analysis is on assessing the sufficiency and quality of the underlying collateral and timing of cash flows based on various scenario tests. This additional data provides the

13

Impairment Committee with additional context to evaluate current market conditions to determine if the impairment is temporary in nature.

For securities considered to be other-than-temporarily impaired, the security is adjusted to fair value and the resulting losses are recognized in Realized investment losses on the Condensed Consolidated Statements of Operations.

The Company’s assertion to hold until a recovery in value takes into account a view on the estimated recovery horizon which in some cases may include maturity. Given the prolonged nature of the current market downturn, the duration and severity of the unrealized losses has progressed well beyond historical norms. The Company will continue to monitor these unrealized losses and will assess all facts and circumstances as they become known which may result in changes to the conclusions reached based on current facts and circumstances and additional OTTI losses.

14

The following tables provide a summary of fixed maturity and equity securities investments.

Summary of Fixed Maturity and Equity Securities

	Cost or		Gross		Gross Unrealized Losses				Estimated
	Amortized		Unrealized		Less than		12 Months		Fair
March 31, 2009	Cost		Gains		12 Months		or Greater		Value
(In millions)
Fixed maturity securities available-for-sale:
U.S. Treasury securities and obligations of government agencies	$	1,056	$	62	$	21	$	—	$	1,097
Asset-backed securities		9,113		48		409		1,465		7,287
States, municipalities and political subdivisions — tax-exempt securities		9,268		119		186		730		8,471
Corporate and other taxable bonds		13,683		222		827		1,524		11,554
Redeemable preferred stock		69		1		12		6		52
Total fixed maturity securities available-for-sale		33,189		452		1,455		3,725		28,461
Equity securities available-for-sale:
Common stock		118		203		1		3		317
Preferred stock		665		—		4		252		409
Total equity securities available-for-sale		783		203		5		255		726
Total	$	33,972	$	655	$	1,460	$	3,980	$	29,187

Summary of Fixed Maturity and Equity Securities

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

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The following table summarizes, for available-for-sale fixed income securities, preferred stocks and common stocks, the aggregate fair value and gross unrealized loss by length of time those securities have been continuously in an unrealized loss position at March 31, 2009 and December 31, 2008.

Unrealized Loss Aging

	March 31, 2009				December 31, 2008
			Gross				Gross
	Estimated		Unrealized		Estimated		Unrealized
	Fair Value		Loss		Fair Value		Loss
(In millions)
Fixed income securities:
Investment grade:
0-6 months	$	3,324	$	257	$	6,749	$	681
7-11 months		5,313		821		6,159		1,591
12-24 months		6,752		2,561		3,549		1,803
Greater than 24 months		1,623		479		1,778		509
Total investment grade		17,012		4,118		18,235		4,584
Non-investment grade:
0-6 months		369		76		853		290
7-11 months		756		289		374		173
12-24 months		1,235		668		1,078		647
Greater than 24 months		9		11		12		7
Total non-investment grade		2,369		1,044		2,317		1,117
Total fixed income securities		19,381		5,162		20,552		5,701
Redeemable and non-redeemable preferred stocks:
0-6 months		34		12		39		26
7-11 months		7		4		43		12
12-24 months		312		258		497		324
Total preferred stocks		353		274		579		362
Common stocks:
0-6 months		4		1		5		1
7-11 months		1		—		—		—
12-24 months		9		3		9		3
Greater than 24 months		3		—		3		—
Total common stocks		17		4		17		4
Total	$	19,751	$	5,440	$	21,148	$	6,067

At March 31, 2009, the fair value of fixed maturity securities was $28,461 million, representing 80% of the total investment portfolio. The gross unrealized loss for any single issuer, other than those specific issuers discussed within the tax-exempt securities unrealized loss discussion below, was less than 0.3% of the carrying value of the total fixed maturity portfolio. The total fixed maturity portfolio gross unrealized losses included 2,103 securities which were, in aggregate, approximately 21% below amortized cost.

The gross unrealized losses on equity securities, consisting of common stocks and non-redeemable preferred stocks, were $260 million, including 150 securities which were, in aggregate, approximately 45% below cost.

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

Based on 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 March 31, 2009 and

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December 31, 2008, and therefore no related realized losses were recorded. A discussion of some of the factors reviewed in making that determination as of March 31, 2009 is presented below.

The market disruption that emerged in 2008 generally continued into the first quarter of 2009. While the government has initiated programs intended to stabilize and improve markets and the economy, the impact of these programs remains uncertain. Certain sectors of the financial markets began to show signs of improvement during the first quarter of 2009 while other sectors continued to lag. As a result, the Company incurred realized losses in its investment portfolio primarily driven by the continuing credit issues attributable to the asset-backed and financial sectors, which have adversely impacted its results of operations.

Asset-Backed Securities

The unrealized losses on the Company’s investments in asset-backed securities are due to a combination of factors related to the market disruption caused by credit concerns that began with the sub-prime issue, but then also extended into other collateral supporting securities in the Company’s portfolio.

The majority of the holdings in this category are collateralized mortgage obligations (CMOs), typically collateralized with prime residential mortgages, and corporate asset-backed structured securities (ABS). The holdings in these sectors include 471 securities in a gross unrealized loss position aggregating $1,873 million. The aggregate severity of the unrealized loss was approximately 25% 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 securities in this category are modeled in order to evaluate the risks of default on the performance of the underlying collateral. Within this analysis multiple factors are analyzed including probable risk of default, loss severity upon a default, payment delinquency, over collateralization and interest coverage triggers, credit support from lower-rated tranches and rating agency actions amongst others. Securities are modeled against base-case and reasonable stress scenarios of probable default activity, given current market conditions, and then analyzed for potential impact to the Company’s particular holdings. The structured securities held are generally secured by over collateralization or default protection provided by subordinated tranches. For the three months ended March 31, 2009, OTTI losses of $196 million were recorded on asset-backed securities. These losses were primarily attributable to adverse changes in the experience of certain underlying collateral and the resulting future expected default and recovery assumptions in the cash flow models.

The remainder of the holdings in this category includes mortgage-backed securities guaranteed by an agency of the U.S. Government. There were 195 agency mortgage-backed pass-through securities and 1 agency CMO in an unrealized loss position aggregating $1 million as of March 31, 2009. The cumulative unrealized losses on these securities were approximately 1% 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. For the three months ended March 31, 2009, there were no OTTI losses recorded for mortgage-backed securities guaranteed by an agency of the U.S. Government.

The following table summarizes asset-backed securities in an unrealized loss position by ratings distribution at March 31, 2009.

Gross Unrealized Losses by Ratings Distribution

March 31, 2009
(In millions)

					Gross
	Amortized		Estimated		Unrealized
Rating	Cost		Fair Value		Loss
AAA	$	5,541	$	4,519	$	1,022
AA		643		354		289
A		434		185		249
BBB		320		225		95
Non-investment grade		609		390		219
Total	$	7,547	$	5,673	$	1,874

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The Company believes the decline in fair value is primarily attributable to broader deteriorating market conditions, liquidity concerns and wider than historical bid/ask spreads brought about as a result of portfolio liquidations and is not indicative of the quality of the underlying collateral. 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 March 31, 2009.

States, Municipalities and Political Subdivisions — Tax-Exempt Securities

The unrealized losses on the Company’s investments in tax-exempt municipal securities are due to overall market conditions, changes in credit spreads, and to a lesser extent, changes in interest rates. Market conditions in the tax exempt sector have improved during the first quarter of 2009; however, yields continue to be higher than expected relative to after tax returns on alternative classes. The holdings in this category include 676 securities. The aggregate severity of the total unrealized losses was approximately 14% of amortized cost. The following table summarizes the ratings distribution of tax-exempt securities in an unrealized loss position at March 31, 2009.

Gross Unrealized Losses by Ratings Distribution

March 31, 2009
(In millions)

					Gross
	Amortized		Estimated		Unrealized
Rating	Cost		Fair Value		Loss
AAA	$	1,968	$	1,813	$	155
AA		2,494		2,294		200
A		1,113		904		209
BBB		907		555		352
Total	$	6,482	$	5,566	$	916

The portfolio consists primarily of special revenue and assessment bonds, representing 79% of the overall portfolio, followed by general obligation political subdivision bonds at 13%, and state general obligation bonds at 8%.

The largest exposures at March 31, 2009 as measured by unrealized losses were special revenue bonds issued by several states backed by tobacco settlement funds with unrealized losses of $332 million and several separate issues of Puerto Rico Sales Tax revenue bonds with unrealized losses of $104 million. All of these securities are investment grade.

Based on the Company’s current evaluation of these securities and its ability and intent to hold them until an anticipated recovery in value, the Company does not consider these to be other-than-temporarily impaired at March 31, 2009. For the three months ended March 31, 2009, there were no OTTI losses recorded for tax-exempt municipal securities.

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Corporate and Other Taxable Bonds

The holdings in this category include 754 securities in a gross unrealized loss position aggregating $2,351 million. The aggregate severity of the unrealized losses was approximately 24% of amortized cost.

The following tables summarize corporate and other taxable bonds in an unrealized loss position across industry sectors and by ratings distribution at March 31, 2009.

Gross Unrealized Losses by Industry Sector

March 31, 2009			Estimated		Gross
(In millions)	Amortized Cost		Fair Value		Unrealized Loss
Communications	$	1,498	$	1,230	$	268
Consumer, Cyclical		1,251		931		320
Consumer, Non-cyclical		971		810		161
Energy		1,061		880		181
Financial		2,345		1,495		850
Industrial		760		589		171
Utilities		1,171		952		219
Other		764		583		181
Total	$	9,821	$	7,470	$	2,351

Gross Unrealized Losses by Ratings Distribution

March 31, 2009
(In millions)

			Estimated		Gross
Rating	Amortized Cost		Fair Value		Unrealized Loss
AAA	$	130	$	102	$	28
AA		201		170		31
A		2,078		1,682		396
BBB		4,608		3,538		1,070
Non-investment grade		2,804		1,978		826
Total	$	9,821	$	7,470	$	2,351

The Company has invested in securities with characteristics of both debt and equity investments, often referred to as hybrid debt securities. Such securities are typically debt instruments issued with long or extendable maturity dates, may provide for the ability to defer interest payments without defaulting and are usually lower in the capital structure of the issuer than traditional bonds. The financial industry sector presented above includes hybrid debt securities with an aggregate fair value of $456 million and an aggregate amortized cost of $928 million.

The decline in fair value was primarily attributable to deterioration and volatility in the broader credit markets throughout 2008 that resulted in widening of credit spreads over risk free rates well beyond historical norms and macro conditions in certain sectors that the market viewed as out of favor. These conditions generally continued into 2009 but have improved slightly from the lows in 2008. The Company monitors the financial performance of the corporate bond issuers for potential factors that may cause a change in outlook and addresses securities that are deemed to be OTTI. Because these declines were not related to any issuer specific credit events, 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 March 31, 2009. For the three months ended March 31, 2009, OTTI losses of $190 million were recorded on corporate and other taxable bonds.

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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 83% of the gross unrealized losses in this category come from securities issued by financial institutions, 11% from utilities and 6% from entities in the communications sector. The holdings in this category include 27 securities in a gross unrealized loss position aggregating $274 million, with 93% of these unrealized losses attributable to non-redeemable preferred stocks. The following table summarizes preferred stocks by ratings distribution at March 31, 2009.

Gross Unrealized Losses by Ratings Distribution

March 31, 2009
(In millions)

			Estimated		Gross
Rating	Amortized Cost		Fair Value		Unrealized Loss
A	$	142	$	68	$	74
BBB		452		258		194
Non-investment grade		33		27		6
Total	$	627	$	353	$	274

The Company believes the holdings in this category have been adversely impacted by significant credit spread widening brought on by a combination of factors in the capital markets. The majority of securities in this category are related to the banking and mortgage industries and are experiencing what the Company believes to be temporarily depressed valuations. The Company monitors this sector for all relevant news and believes, given current facts and circumstances, the remaining issuers in this sector with unrealized losses will recover in value. 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 March 31, 2009. This evaluation was made on the basis that these securities possess characteristics similar to debt securities and maintain their ability to pay dividends. For the three months ended March 31, 2009, there were OTTI losses of $225 million recorded on preferred stock, including $188 million related to a major U.S. financial institution. The ratings of several preferred stock issues of this institution were downgraded to below investment grade during the first quarter of 2009.

Investment Commitments

As of March 31, 2009, the Company had committed approximately $277 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 March 31, 2009, the Company had commitments to purchase $2 million and sell $26 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 March 31, 2009, the Company had obligations on unfunded bank loan participations in the amount of $10 million.

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Note E. Derivative Financial Instruments

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

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

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

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

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

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

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

The Company will also use CDS to sell credit protection against a specified credit event. In selling credit protection, CDS are used to replicate fixed income securities when credit exposure to certain issuers is not available or when it is economically beneficial to transact in the derivative market compared to the cash market alternative. Credit risk includes both the default event risk and market value exposure due to fluctuations in credit spreads. In selling CDS protection, the Company receives a periodic premium in exchange for providing

21

credit protection on a single name reference obligation or a credit derivative index. If there is an event of default as defined by the CDS agreement, the Company is required to pay the counterparty the referenced notional amount of the CDS contract and in exchange the Company is entitled to receive the referenced defaulted security or the cash equivalent.

At March 31, 2009 and December 31, 2008, the Company had $116 million and $148 million notional value of outstanding CDS contracts where the Company sold credit protection. The maximum payment related to these CDS contracts was $116 million and $148 million assuming there was no residual value in the defaulted securities that the Company would receive as part of the contract terminations. The fair value of these contracts at March 31, 2009 and December 31, 2008 was a liability of $47 million and $43 million which represents the amount that the Company would have to pay at those dates to exit these derivative positions.

The tables below summarize CDS contracts where the Company sold credit protection as of March 31, 2009 and December 31, 2008. The largest single reference obligation at these dates represented 24% and 20% of the total notional value and was rated AAA.

Credit Ratings of Underlying Reference Obligations

	Fair Value of			Maximum Amount of		Weighted
March 31, 2009	Credit Default			Future Payments under		Average Years
(In millions)	Swaps			Credit Default Swaps		to Maturity
AAA/AA/A	$	(13	)	$	38		18.0
BBB		—			25		0.7
B		(1	)		8		3.9
CCC and lower		(33	)		45		4.2
Total	$	(47	)	$	116		8.0

Credit Ratings of Underlying Reference Obligations

	Fair Value of			Maximum Amount of		Weighted
December 31, 2008	Credit Default			Future Payments under		Average Years
(In millions)	Swaps			Credit Default Swaps		to Maturity
AAA/AA/A	$	(8	)	$	40		12.3
BBB		(4	)		55		3.1
B		(2	)		8		4.1
CCC and lower		(29	)		45		4.5
Total	$	(43	)	$	148		6.1

Credit exposure associated with non-performance by the counterparties to derivative instruments is generally limited to the uncollateralized fair value of the asset related to the instruments recognized on the Condensed Consolidated Balance Sheets. The Company attempts to mitigate the risk of non-performance by monitoring the creditworthiness of counterparties and diversifying derivatives to multiple counterparties. The Company generally requires that all over-the-counter derivative contracts be governed by an International Swaps and Derivatives Association (ISDA) Master Agreement, and exchanges collateral under the terms of these agreements with its derivative investment counterparties depending on the amount of the exposure and the credit rating of the counterparty. The Company does not offset its net derivative positions against the fair value of the collateral provided. The fair value of cash collateral provided by the Company was $41 million and $74 million at March 31, 2009 and December 31, 2008. The Company held no cash collateral as of March 31, 2009. The fair value of cash collateral received from counterparties was $6 million at December 31, 2008.

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

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

Recognized Gains (Losses)

Three months ended March 31	2009			2008
(In millions)
Without hedge designation
Interest rate swaps	$	21		$	(23	)
Credit default swaps — purchased protection		(9	)		16
Credit default swaps — sold protection		(6	)		(15	)
Futures sold, not yet purchased		14			(21	)
Currency forwards		—			(1	)
Options written		11			—
Trading activities
Futures purchased		—			(72	)
Currency forwards		—			1
Total	$	31		$	(115	)

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

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

Derivative Financial Instruments

	Contractual/
March 31, 2009	Notional		Estimated Fair Value
(In millions)	Amount		Asset		(Liability)
Without hedge designation
Interest rate swaps	$	1,000	$	—	$	(22	)
Credit default swaps — purchased protection		360		7		(1	)
Credit default swaps — sold protection		116		—		(47	)
Commitments to purchase government and municipal securities (TBAs)		156		—		—
Equity warrants		4		—		—
Total	$	1,636	$	7	$	(70	)

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Derivative Financial Instruments

	Contractual/
December 31, 2008	Notional		Estimated Fair Value
(In millions)	Amount		Asset		(Liability)
Without hedge designation
Interest rate swaps	$	900	$	—	$	(66	)
Credit default swaps — purchased protection		405		24		(2	)
Credit default swaps — sold protection		148		—		(43	)
Equity warrants		4		—		—
Total	$	1,457	$	24	$	(111	)

During the three months ended March 31, 2009, new derivative transactions entered into totaled approximately $6.1 billion in notional value while derivative termination activity totaled approximately $5.9 billion. The activity during the quarter was primarily attributable to interest rate swaps, interest rate futures and interest rate options.

Note F. Fair Value

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

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

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

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

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

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

								Total
								Assets/(Liabilities)
March 31, 2009	Level 1		Level 2		Level 3			at fair value
(In millions)
Assets
Fixed maturity securities	$	284	$	25,412	$	2,765		$	28,461
Equity securities		427		89		210			726
Derivative financial instruments, included in Other invested assets		—		—		7			7
Short term investments		3,687		896		—			4,583
Life settlement contracts, included in Other assets		—		—		127			127
Discontinued operations investments, included in Other liabilities		78		55		13			146
Separate account business		35		303		38			376
Total assets	$	4,511	$	26,755	$	3,160		$	34,426
Liabilities
Derivative financial instruments, included in Other liabilities	$	—	$	—	$	(70	)	$	(70	)
Total liabilities	$	—	$	—	$	(70	)	$	(70	)

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

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The 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 (loss) for the three months ended March 31, 2009 and 2008 for Level 3 assets and liabilities.

							Net realized											Unrealized
				Net realized			investment gains											gains (losses)
				investment gains			(losses) and net											recorded in
				(losses) and net			change in											net income
				change in			unrealized											on level 3
				unrealized			appreciation			Purchases,								assets and
				appreciation			(depreciation)			sales,								liabilities
	Balance at			(depreciation)			included in other			issuances					Balance at			held at
	January 1,			included in net			comprehensive			and			Net transfers		March 31,			March 31,
Level 3	2009			income*			income			settlements			into level 3		2009			2009*
(In millions)
Fixed maturity securities	$	2,492		$	(71	)	$	62		$	140		$	142	$	2,765		$	(75	)
Equity securities		210			—			—			—			—		210			—
Derivative financial instruments, net		(87	)		6			—			18			—		(63	)		24
Life settlement contracts		129			11			—			(13	)		—		127			2
Discontinued operations investments		15			—			(1	)		(1	)		—		13			—
Separate account business		38			—			1			(1	)		—		38			—
Total	$	2,797		$	(54	)	$	62		$	143		$	142	$	3,090		$	(49	)

						Net realized												Unrealized
			Net realized			investment gains												gains (losses)
			investment gains			(losses) and net												recorded in
			(losses) and net			change in												net income
			change in			unrealized												on level 3
			unrealized			appreciation			Purchases,									assets and
			appreciation			(depreciation)			sales,									liabilities
	Balance at		(depreciation)			included in other			issuances			Net transfers			Balance at			held at
	January 1,		included in net			comprehensive			and			into (out			March 31,			March 31,
Level 3	2008		income*			income			settlements			of) level 3			2008			2008*
(In millions)
Fixed maturity securities	$	2,684	$	(38	)	$	(215	)	$	(5	)	$	(181	)	$	2,245		$	(44	)
Equity securities		196		(2	)		(1	)		—			—			193			(2	)
Derivative financial instruments, net		2		(22	)		—			(62	)		—			(82	)		(84	)
Short term investments		85		—			—			—			—			85			—
Life settlement contracts		115		18			—			(15	)		—			118			4
Discontinued operations investments		42		—			—			(1	)		—			41			—
Separate account business		30		—			—			(3	)		20			47			—
Total	$	3,154	$	(44	)	$	(216	)	$	(86	)	$	(161	)	$	2,647		$	(126	)

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

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

Securities transferred into Level 3 for the three months ended March 31, 2009 relate primarily to structured securities with underlying auto loan collateral, included within Fixed maturity securities. These were previously valued using observable prices for similar securities, but due to decreased market activity, fair value is determined by cash flow models using market observable and unobservable inputs. Unobservable inputs include estimates of future cash flows and the maturity assumption.

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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. The Company reported catastrophe losses, net of reinsurance, of $13 million and $53 million for the three months ended March 31, 2009 and 2008 for events occurring in those periods. Catastrophe losses in the first quarter of 2009 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.

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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

	March 31, 2009						December 31, 2008
				Environmental						Environmental
	Asbestos			Pollution			Asbestos			Pollution
(In millions)
Gross reserves	$	2,020		$	376		$	2,112		$	392
Ceded reserves		(869	)		(128	)		(910	)		(130	)
Net reserves	$	1,151		$	248		$	1,202		$	262

Asbestos

There was no asbestos-related net claim and claim adjustment reserve development recorded for the three months ended March 31, 2009. The Company recorded $2 million of unfavorable asbestos-related net claim and claim adjustment expense reserve development for the three months ended March 31, 2008. The Company paid asbestos-related claims, net of reinsurance recoveries, of $51 million and $49 million for the three months ended March 31, 2009 and 2008.

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

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

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

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

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plan. On July 25, 2008, the District Court affirmed the Bankruptcy Court’s ruling. Several insurers have appealed that ruling to the Third Circuit Court of Appeals; that appeal is pending at this time.

CNA is engaged in insurance coverage litigation in New York State Court, filed in 2003, with a defendant class of underlying plaintiffs who have asbestos bodily injury claims against the former Robert A. Keasbey Company (Keasbey) (Continental Casualty Co. v. Employers Ins. of Wausau et al., No. 601037/03 (N.Y. County)). Keasbey, 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 December 30, 2008, a New York appellate court entered a unanimous decision in favor of CNA on multiple alternative grounds including findings that claims arising out of Keasbey’s asbestos insulating activities are included within the products hazard/completed operations coverage, which has been exhausted; and that the defendant claimant class is subject to the affirmative defenses that CNA may have had against Keasbey, barring all coverage claims. The parties have the right to seek further appellate review of the decision.

CNA has insurance coverage disputes related to asbestos bodily injury claims against a bankrupt insured, Burns & Roe Enterprises, Inc. (Burns & Roe). These disputes are currently part of coverage litigation (stayed in view of the bankruptcy) and an adversary proceeding in In re: Burns & Roe Enterprises, Inc., pending in the U.S. Bankruptcy Court for the District of New Jersey, No. 00-41610. Burns & Roe provided engineering and related services in connection with construction projects. At the time of its bankruptcy filing, on December 4, 2000, Burns & Roe asserted that it faced approximately 11,000 claims alleging bodily injury resulting from exposure to asbestos as a result of construction projects in which Burns & Roe was involved. CNA allegedly provided primary liability coverage to Burns & Roe from 1956-1969 and 1971-1974, along with certain project-specific policies from 1964-1970. In September of 2007, CNA entered into an agreement with Burns & Roe, the Official Committee of Unsecured Creditors appointed by the Bankruptcy Court and the Future Claims Representative (the “Addendum”), which provides that claims allegedly covered by CNA policies will be adjudicated in the tort system, with any coverage disputes related to those claims to be decided in coverage litigation. With the approval of the Bankruptcy Court, Burns & Roe included the Addendum as part of its Fourth Amended Plan (the “Plan”), which was confirmed on February 23, 2009. On March 5, 2009, Fireman’s Fund Insurance Co. filed a motion to clarify and modify the confirmation order. It is not possible to predict with any reliability when the Fourth Amended Plan will become effective or when the Trust created under the Fourth Amended Plan will begin processing asbestos claims. 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 any party will appeal the confirmation of the Plan, which includes the Addendum, and if so whether confirmation will be affirmed; and (j) the impact of bankruptcy proceedings on claims and coverage

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

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

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

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Environmental Pollution

There was no environmental pollution net claim and claim adjustment reserve development recorded for the three months ended March 31, 2009 or 2008. The Company paid environmental pollution-related claims, net of reinsurance recoveries, of $14 million and $19 million for the three months ended March 31, 2009 and 2008.

Net Prior Year Development

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

Net Prior Year Development
Three months ended March 31, 2009

							Corporate &
	Standard			Specialty			Other Non-
(In millions)	Lines			Lines			Core			Total
Pretax (favorable) unfavorable net prior year claim and allocated claim adjustment expense reserve development:
Core (Non-A&E)	$	(30	)	$	(41	)	$	1		$	(70	)
A&E		—			—			—			—
Pretax (favorable) unfavorable net prior year development before impact of premium development		(30	)		(41	)		1			(70	)
Pretax (favorable) unfavorable premium development		17			(2	)		(1	)		14
Total pretax (favorable) unfavorable net prior year development	$	(13	)	$	(43	)	$	—		$	(56	)

Net Prior Year Development
Three months ended March 31, 2008

							Corporate &
	Standard			Specialty			Other Non-
(In millions)	Lines			Lines			Core			Total
Pretax (favorable) unfavorable net prior year claim and allocated claim adjustment expense reserve development:
Core (Non-A&E)	$	(35	)	$	17		$	3		$	(15	)
A&E		—			—			2			2
Pretax (favorable) unfavorable net prior year development before impact of premium development		(35	)		17			5			(13	)
Pretax (favorable) unfavorable premium development		9			(19	)		(1	)		(11	)
Total pretax (favorable) unfavorable net prior year development	$	(26	)	$	(2	)	$	4		$	(24	)

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2009 Net Prior Year Development

Standard Lines

The favorable claim and allocated claim adjustment expense reserve development was primarily due to experience in property coverages, including $31 million resulting from favorable frequency and severity on claims relating to catastrophes in accident year 2008.

Specialty Lines

The favorable claim and allocated claim adjustment expense reserve development was primarily due to experience in liability coverages. This favorable development was the result of decreased frequency of large claims in accident years 2007 and prior.

An additional $7 million of favorable claim and allocated claim adjustment expense reserve development was a result of favorable outcomes on claims relating to catastrophes in accident years 2005 and 2008.

2008 Net Prior Year Development

Standard Lines

Approximately $20 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.

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.

Note H. Legal Proceedings and Contingent Liabilities

Insurance Brokerage Antitrust Litigation

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

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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 damages from CCC and the other defendants for alleged fraudulent transfers and alleged breaches of fiduciary duties arising from actions taken by Global Crossing while CCC was a shareholder of Global Crossing. The parties have executed a settlement agreement which provides for a dismissal with prejudice of all claims against CCC. The settlement is subject to entry by the Court of an order barring all claims against CCC under certain conditions and subject to certain limitations. The settlement approximates the amount accrued at March 31, 2009.

California Long Term Care Litigation

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

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

Net Periodic Cost (Benefit)

Three months ended March 31
(In millions)	2009			2008
Pension cost (benefit)
Service cost	$	5		$	6
Interest cost on projected benefit obligation		38			36
Expected return on plan assets		(36	)		(45	)
Actuarial loss amortization		6			1
Net periodic pension cost (benefit)	$	13		$	(2	)
Postretirement benefit
Service cost	$	1		$	1
Interest cost on projected benefit obligation		2			2
Prior service cost amortization		(4	)		(4	)
Net periodic postretirement benefit	$	(1	)	$	(1	)

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Note J. Commitments, Contingencies, and Guarantees

Commitments and Contingencies

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

In the event that the other parties to the joint venture are unable to meet their commitments in funding the operations of this joint venture, the Company would be required to assume the obligation for the entire office building operating lease. The Company does not believe it is likely that it will be required to do so. However, the maximum potential future lease payments at March 31, 2009 that the Company could be required to pay under this guarantee are approximately $126 million. If CNA were required to assume the entire lease obligation, the Company would have the right to pursue reimbursement from the other shareholders and the right to all sublease revenues.

In the normal course of business, CNA has provided letters of credit in favor of various unaffiliated insurance companies, regulatory authorities and other entities. At March 31, 2009, there were approximately $5 million of outstanding letters of credit.

The Company has entered into a limited number of guaranteed payment contracts, primarily relating to software and telecommunication services, amounting to approximately $18 million at March 31, 2009. Estimated future minimum payments under these contracts are $12 million in 2009, $3 million in 2010 and $3 million in 2011.

Guarantees

In the course of selling business entities and assets to third parties, the Company has agreed to indemnify purchasers for losses arising out of breaches of representation and warranties with respect to the business entities or assets being sold, including, in certain cases, losses arising from undisclosed liabilities or certain named litigation. Such indemnification provisions generally survive for periods ranging from nine months following the applicable closing date to the expiration of the relevant statutes of limitation. As of March 31, 2009, the aggregate amount of quantifiable indemnification agreements in effect for sales of business entities, assets and third party loans was $873 million.

In addition, the Company has agreed to provide indemnification to third party purchasers for certain losses associated with sold business entities or assets that are not limited by a contractual monetary amount. As of March 31, 2009, the Company had outstanding unlimited indemnifications in connection with the sales of certain of its business entities or assets that included tax liabilities arising prior to a purchaser’s ownership of an entity or asset, defects in title at the time of sale, employee claims arising prior to closing and in some cases losses arising from certain litigation and undisclosed liabilities. These indemnification agreements survive until the applicable statutes of limitation expire, or until the agreed upon contract terms expire.

As of March 31, 2009 and December 31, 2008, the Company has recorded liabilities of approximately $17 million and $22 million related to indemnification agreements and management believes that it is not likely that any future indemnity claims will be significantly greater than the amounts recorded.

CNAF has also guaranteed certain collateral obligations of a large national contractor’s letters of credit. As of March 31, 2009, these guarantees aggregated $4 million. Payment under these guarantees is reasonably possible based on various factors, including the underlying credit worthiness of the contractor. In connection with the issuance of preferred securities by CNA Surety Capital Trust I (Issuer Trust), CNA Surety has also guaranteed the dividend payments and redemption of the preferred securities issued by the

35

Issuer Trust. The maximum amount of undiscounted future payments the Company could make under the guarantee is approximately $66 million, consisting of annual dividend payments of approximately $1.4 million through April 2034 and the redemption value of $30 million. Because payment under the guarantee would only be required if the Company does not fulfill its obligations under the debentures held by the Issuer Trust, the Company has not recorded any additional liabilities related to this guarantee. There has been no change in the underlying assets of the trust and the Company does not believe that a payment is likely under this guarantee.

Note K. Business Segments

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

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

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

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

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

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

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Three months ended										Corporate
March 31, 2009	Standard			Specialty			Life & Group			& Other
(In millions)	Lines			Lines			Non-Core			Non-Core			Eliminations			Total
Revenues:
Net earned premiums	$	710		$	812		$	150		$	1		$	(1	)	$	1,672
Net investment income		120			108			159			33			—			420
Other revenues		13			57			6			2			—			78
Total operating revenues		843			977			315			36			(1	)		2,170
Claims, benefits and expenses:
Net incurred claims and benefits		510			499			305			21			—			1,335
Policyholders’ dividends		3			3			1			—			—			7
Amortization of deferred acquisition costs		166			177			6			—			—			349
Other insurance related expenses		76			59			46			1			(1	)		181
Other expenses		9			56			6			30			—			101
Total claims, benefits and expenses		764			794			364			52			(1	)		1,973
Operating income (loss) from continuing operations before income tax		79			183			(49	)		(16	)		—			197
Income tax (expense) benefit on operating income (loss)		(18	)		(53	)		27			7			—			(37	)
Net operating income attributable to noncontrolling interests		—			(11	)		—			—			—			(11	)
Net operating income (loss) from continuing operations attributable to CNAF		61			119			(22	)		(9	)		—			149
Realized investment losses, net of participating policyholders’ interests		(179	)		(116	)		(190	)		(47	)		—			(532	)
Income tax benefit on realized investment losses		62			41			66			18			—			187
Realized investment losses, after-tax, attributable to noncontrolling interests		—			1			—			—			—			1
Net realized investment losses attributable to CNAF		(117	)		(74	)		(124	)		(29	)		—			(344	)
Net income (loss) from continuing operations attributable to CNAF	$	(56	)	$	45		$	(146	)	$	(38	)	$	—		$	(195	)
March 31, 2009
(In millions)
Reinsurance receivables	$	2,199		$	1,455		$	1,876		$	2,015		$	—		$	7,545
Insurance receivables	$	1,269		$	755		$	4		$	3		$	—		$	2,031
Deferred acquisition costs	$	299		$	367		$	466		$	—		$	—		$	1,132
Insurance reserves:
Claim and claim adjustment expenses	$	11,893		$	8,290		$	2,857		$	4,203		$	—		$	27,243
Unearned premiums		1,415			1,885			159			4			(2	)		3,461
Future policy benefits		—			—			7,634			—			—			7,634
Policyholders’ funds		14			11			228			—			—			253

37

Three months ended										Corporate
March 31, 2008	Standard			Specialty			Life & Group			& Other
(In millions)	Lines			Lines			Non-Core			Non-Core			Eliminations			Total
Revenues:
Net earned premiums	$	783		$	873		$	157		$	1		$	(1	)	$	1,813
Net investment income		164			132			84			54			—			434
Other revenues		14			53			13			6			—			86
Total operating revenues		961			1,058			254			61			(1	)		2,333
Claims, benefits and expenses:
Net incurred claims and benefits		577			566			212			21			—			1,376
Policyholders’ dividends		4			7			2			—			—			13
Amortization of deferred acquisition costs		179			184			4			1			—			368
Other insurance related expenses		58			50			50			4			(1	)		161
Other expenses		12			51			5			32			—			100
Total claims, benefits and expenses		830			858			273			58			(1	)		2,018
Operating income (loss) from continuing operations before income tax		131			200			(19	)		3			—			315
Income tax (expense) benefit on operating income (loss)		(36	)		(64	)		16			2			—			(82	)
Net operating income attributable to noncontrolling interests		—			(12	)		—			—			—			(12	)
Net operating income (loss) from continuing operations attributable to CNAF		95			124			(3	)		5			—			221
Realized investment losses, net of participating policyholders’ interests		(16	)		(9	)		(17	)		(9	)		—			(51	)
Income tax benefit on realized investment losses		5			4			6			3			—			18
Realized investment (gains) losses, after-tax, attributable to noncontrolling interests		—			—			—			—			—			—
Net realized investment losses attributable to CNAF		(11	)		(5	)		(11	)		(6	)		—			(33	)
Net income (loss) from continuing operations attributable to CNAF	$	84		$	119		$	(14	)	$	(1	)	$	—		$	188
December 31, 2008
(In millions)
Reinsurance receivables	$	2,266		$	1,496		$	1,907		$	2,092		$	—		$	7,761
Insurance receivables	$	1,264		$	765		$	6		$	4		$	—		$	2,039
Deferred acquisition costs	$	293		$	360		$	472		$	—		$	—		$	1,125
Insurance reserves:
Claim and claim adjustment expenses	$	12,048		$	8,282		$	2,862		$	4,401		$	—		$	27,593
Unearned premiums		1,401			1,848			152			5			—			3,406
Future policy benefits		—			—			7,529			—			—			7,529
Policyholders’ funds		14			10			219			—			—			243

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’ interests.

Revenue by Line of Business

Three months ended March 31
(In millions)	2009			2008
Standard Lines
Business Insurance	$	130		$	155
Commercial Insurance		534			790
Standard Lines revenues		664			945
Specialty Lines
U.S. Specialty Lines		517			647
Surety		113			115
Warranty		52			73
CNA Global		179			214
Specialty Lines revenues		861			1,049
Life & Group Non-Core
Life & Annuity		24			(21	)
Health		97			238
Other		4			20
Life & Group Non-Core revenues		125			237
Corporate & Other Non-Core
CNA Re		—			17
Other		(11	)		35
Corporate & Other Non-Core revenues		(11	)		52
Eliminations		(1	)		(1	)
Total revenues	$	1,638		$	2,282

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Note L. Discontinued Operations

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

Results of the discontinued operations were as follows.

Discontinued Operations

Three months ended March 31
(In millions)	2009		2008
Revenues:
Net investment income	$	1	$	2
Realized investment gains (losses) and other		—		1
Total revenues		1		3
Insurance related expenses		1		4
Income (loss) before income taxes		—		(1	)
Income tax (expense) benefit		—		—
Income (loss) from discontinued operations, net of tax	$	—	$	(1	)

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

Discontinued Operations (In millions)	March 31, 2009			December 31, 2008
Assets:
Investments	$	146		$	157
Reinsurance receivables		6			6
Cash		—			—
Other assets		1			1
Total assets		153			164
Liabilities:
Insurance reserves		154			162
Other liabilities		7			8
Total liabilities		161			170
Net liabilities of discontinued operations	$	(8	)	$	(6	)

CNA’s accounting and reporting for discontinued operations is in accordance with APB Opinion No. 30, Reporting the Results of Operations — Reporting the Effects of Disposal of a Segment of a Business, and Extraordinary, Unusual and Infrequently Occurring Events and Transactions. At March 31, 2009 and December 31, 2008, the insurance reserves are net of discount of $74 million and $75 million. The net income (loss) from discontinued operations reported above primarily represents the net investment income, realized investment gains and losses, foreign currency transaction gains and losses, effects of the accretion of the loss reserve discount and re-estimation of the ultimate claim and claim adjustment expense of the discontinued operations.

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CNA Financial Corporation

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

Overview

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

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

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

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CONSOLIDATED OPERATIONS

Results of Operations

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

Three months ended March 31
(In millions, except per share data)	2009			2008
Revenues
Net earned premiums	$	1,672		$	1,813
Net investment income		420			434
Other revenues		78			86
Total operating revenues		2,170			2,333
Claims, benefits and expenses
Net incurred claims and benefits		1,335			1,376
Policyholders’ dividends		7			13
Amortization of deferred acquisition costs		349			368
Other insurance related expenses		181			161
Other expenses		101			100
Total claims, benefits and expenses		1,973			2,018
Operating income from continuing operations before income tax		197			315
Income tax expense on operating income		(37	)		(82	)
Net operating income attributable to noncontrolling interests		(11	)		(12	)
Net operating income from continuing operations attributable to CNAF		149			221
Realized investment losses, net of participating policyholders’ interests		(532	)		(51	)
Income tax benefit on realized investment losses		187			18
Realized investment losses, after-tax, attributable to noncontrolling interests		1			—
Net realized investment losses attributable to CNAF		(344	)		(33	)
Income (loss) from continuing operations attributable to CNAF		(195	)		188
Income (loss) from discontinued operations attributable to CNAF, net of income tax (expense) benefit of $0 and $0		—			(1	)
Net income (loss) attributable to CNAF	$	(195	)	$	187

Net results decreased $382 million for the three months ended March 31, 2009 as compared with the same period in 2008. This decrease was due to higher net realized investment losses and decreased net operating income driven by lower net investment income.

Net realized investment losses increased $311 million for the three months ended March 31, 2009 as compared with the same period in 2008. See the Investments section of this MD&A for further discussion of net realized investment results.

Net operating income decreased $72 million for the three months ended March 31, 2009 as compared with the same period in 2008. Net operating results for Standard and Specialty Lines decreased $39 million, while our Non-Core operations decreased $33 million. These decreases were primarily due to lower net investment income. Excluding trading portfolio losses of $77 million in 2008, net investment income declined $91 million. See the Investments section of this MD&A for further discussion of net investment income, including the impact of a trading portfolio loss of $77 million in 2008. Standard Lines and Specialty Lines current period underwriting results reflected lower losses and higher expenses as compared to the prior period.

Results for the three months ended March 31, 2009 included expense of $12 million related to our pension and postretirement plans, compared with a benefit of $3 million for the three months ended March 31, 2008. Based on our current assumptions and pension trust investment performance in 2008, our estimated expense for

42

pension and postretirement plans is approximately $50 million for the year ended December 31, 2009 as compared with a benefit of $14 million for the year ended December 31, 2008.

Favorable net prior year development of $56 million was recorded for the three months ended March 31, 2009 related to our Standard Lines, Specialty Lines and Corporate & Other Non-core segments. This amount reflected $70 million of favorable claim and allocated claim adjustment expense reserve development and $14 million of unfavorable premium development. Favorable net prior year development of $24 million was recorded for the three months ended March 31, 2008 related to our Standard Lines, Specialty Lines and Corporate & Other Non-core segments. This amount reflected $13 million of favorable claim and allocated claim adjustment expense reserve development and $11 million of favorable premium development. Further information on net prior year development for the three months ended March 31, 2009 and 2008 is included in Note G of the Condensed Consolidated Financial Statements included under Item 1.

Net earned premiums decreased $141 million for the three months ended March 31, 2009 as compared with the same period in 2008, including a $73 million decrease related to Standard Lines and a $61 million decrease related to Specialty Lines. See the Segment Results section of this MD&A for further discussion.

Critical Accounting Estimates

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

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

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

• Insurance Reserves

• Reinsurance

• Valuation of Investments and Impairment of Securities

• Long Term Care Products

• Pension and Postretirement Benefit Obligations

• Legal Proceedings

• Income Taxes

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

SEGMENT RESULTS

The following discusses the results of continuing operations for our operating segments. We utilize the net operating income financial measure to monitor our operations. Net operating income is calculated by excluding from net income (loss) attributable to CNAF the after-tax effects of 1) net realized investment gains or losses, 2) income or loss from discontinued operations and 3) any cumulative effects of changes in accounting principles. See further discussion regarding how we manage our business in Note K of the Condensed Consolidated Financial Statements included under Item 1. In evaluating the results of our Standard Lines and Specialty Lines

43

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

Three months ended March 31
(In millions)	2009			2008
Net written premiums	$	763		$	771
Net earned premiums		710			783
Net investment income		120			164
Net operating income		61			95
Net realized investment losses, after-tax		(117	)		(11	)
Net income (loss) attributable to CNAF		(56	)		84
Ratios
Loss and loss adjustment expense		71.8	%		73.7	%
Expense		34.0			30.2
Dividend		0.5			0.5
Combined		106.3	%		104.4	%

Net written premiums for Standard Lines decreased $8 million for the three months ended March 31, 2009 as compared with the same period in 2008. Despite higher retention and new business in the current year period, premiums written were unfavorably impacted by lower premium rates and general economic conditions resulting in decreased production, as compared with the first quarter of 2008, across both our Business and Commercial Insurance groups. The current economic conditions have led to decreased industry insured exposures, particularly in the construction industry with smaller payrolls and reduced sales levels. This, along with the competitive market conditions, may continue to put ongoing pressure on premium and income levels, and the expense ratio. Net earned premiums decreased $73 million for the three months ended March 31, 2009 as compared with the same period in 2008, consistent with the trend of lower net written premiums in 2008 as compared to 2007.

Standard Lines averaged rate decreases of 2% for the three months ended March 31, 2009, as compared to decreases of 6% for the three months ended March 31, 2008 for the contracts that renewed during those periods. Retention rates of 83% and 81% were achieved for those contracts that were available for renewal in each period.

Net results decreased $140 million for the three months ended March 31, 2009 as compared with the same period in 2008. This decrease was due to higher net realized investment losses and decreased net operating income. See the Investments section of this MD&A for further discussion of the net realized investment results and net investment income.

Net operating income decreased $34 million for the three months ended March 31, 2009 as compared with the same period in 2008. This decrease was primarily due to lower net investment income and decreased underwriting results.

The combined ratio increased 1.9 points for the three months ended March 31, 2009 as compared with the same period in 2008. The expense ratio increased 3.8 points for the three months ended March 31, 2009 as compared with the same period in 2008, primarily related to increased underwriting expenses and a lower net earned premium base. Underwriting expenses increased due to higher employee-related costs, including increased pension expense.

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The loss ratio improved 1.9 points primarily due to decreased catastrophe losses. Catastrophe losses were $12 million, or 1.7 points of the loss ratio, in the first quarter of 2009 as compared to $53 million, or 6.8 points of the loss ratio, in the first quarter of 2008. This favorability was partially offset by an increase in the current accident year loss ratio driven by a number of large property losses in the three months ended March 31, 2009, and the impact of decreased favorable net prior year development.

Favorable net prior year development of $13 million was recorded for the three months ended March 31, 2009, reflecting $30 million of favorable claim and allocated claim adjustment expense reserve development and $17 million of unfavorable premium development. Favorable net prior year development of $26 million, reflecting $35 million of favorable claim and allocated claim adjustment expense reserve development and $9 million of unfavorable premium development, was recorded for the three months ended March 31, 2008. Further information on Standard Lines net prior year development for the three months ended March 31, 2009 and 2008 is included in Note G of the Condensed Consolidated Financial Statements included under Item 1.

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

Gross and Net Carried
Claim and Claim Adjustment Expense Reserves

(In millions)	March 31, 2009		December 31, 2008
Gross Case Reserves	$	6,090	$	6,158
Gross IBNR Reserves		5,803		5,890
Total Gross Carried Claim and Claim Adjustment Expense Reserves	$	11,893	$	12,048
Net Case Reserves	$	4,886	$	4,995
Net IBNR Reserves		4,885		4,875
Total Net Carried Claim and Claim Adjustment Expense Reserves	$	9,771	$	9,870

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SPECIALTY LINES

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

Results of Operations

Three months ended March 31
(In millions)	2009			2008
Net written premiums	$	829		$	848
Net earned premiums		812			873
Net investment income		108			132
Net operating income		119			124
Net realized investment losses, after-tax		(74	)		(5	)
Net income attributable to CNAF		45			119
Ratios
Loss and loss adjustment expense		61.4	%		64.8	%
Expense		29.2			26.8
Dividend		0.4			0.8
Combined		91.0	%		92.4	%

Net written premiums for Specialty Lines decreased $19 million for the three months ended March 31, 2009 as compared with the same period in 2008. After adjusting for foreign exchange, net written premiums increased modestly, primarily due to increased production in CNA Global. Despite higher retention and new business in the current year period, premiums written were unfavorably impacted by foreign exchange and lower premium rates as compared with the first quarter of 2008. The current economic conditions have led to decreased industry insured exposures, particularly in the surety bond, architects, engineers and realtors professional liability marketplace. This, along with the competitive market conditions, may continue to put ongoing pressure on premium and income levels, and the expense ratio. Net earned premiums decreased $61 million for the three months ended March 31, 2009 as compared with the same period in 2008, consistent with the trend of lower net written premiums in 2008 as compared to 2007.

Specialty Lines averaged rate decreases of 2% for the three months ended March 31, 2009 as compared to decreases of 3% for the three months ended March 31, 2008 for the contracts that renewed during those periods. Retention rates of 86% and 84% were achieved for those contracts that were available for renewal in each period.

Net income decreased $74 million for the three months ended March 31, 2009 as compared with the same period in 2008. This decrease was primarily due to higher net realized investment losses. See the Investments section of this MD&A for further discussion of the net realized investment results and net investment income.

Net operating income decreased $5 million for the three months ended March 31, 2009 as compared with the same period in 2008. This decrease was primarily due to lower net investment income, partially offset by improved underwriting results.

The combined ratio improved 1.4 points for the three months ended March 31, 2009 as compared with the same period in 2008. The loss ratio improved 3.4 points, primarily due to increased favorable net prior year development for the three months ended March 31, 2009 as compared with the same period in 2008. This was partially offset by higher current accident year loss ratios recorded in several lines of business.

The expense ratio increased 2.4 points for the three months ended March 31, 2009 as compared with the same period in 2008. The increase primarily related to increased underwriting expenses and the lower net earned premium base. Underwriting expenses increased due to higher employee-related costs, including increased pension expense.

Favorable net prior year development of $43 million, reflecting $41 million of favorable claim and allocated claim adjustment expense reserve development and $2 million of favorable premium development, was recorded for the three months ended March 31, 2009. Favorable net prior year development of $2 million, reflecting $17 million of unfavorable claim and allocated claim adjustment expense reserve development and $19 million of favorable premium development, was recorded for the three months ended March 31, 2008.

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Further information on Specialty Lines net prior year development for the three months ended March 31, 2009 and 2008 is included in Note G of the Condensed Consolidated Financial Statements included under Item 1.

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

Gross and Net Carried
Claim and Claim Adjustment Expense Reserves

(In millions)	March 31, 2009		December 31, 2008
Gross Case Reserves	$	2,621	$	2,719
Gross IBNR Reserves		5,669		5,563
Total Gross Carried Claim and Claim Adjustment Expense Reserves	$	8,290	$	8,282
Net Case Reserves	$	2,095	$	2,149
Net IBNR Reserves		4,775		4,694
Total Net Carried Claim and Claim Adjustment Expense Reserves	$	6,870	$	6,843

LIFE & GROUP NON-CORE

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

Results of Operations

Three months ended March 31
(In millions)	2009			2008
Net earned premiums	$	150		$	157
Net investment income		159			84
Net operating loss		(22	)		(3	)
Net realized investment losses, after-tax		(124	)		(11	)
Net loss attributable to CNAF		(146	)		(14	)

Net earned premiums for Life & Group Non-Core decreased $7 million for the three months ended March 31, 2009 as compared with the same period in 2008. Net earned premiums relate primarily to the group and individual long term care businesses.

Net loss increased $132 million for the three months ended March 31, 2009 as compared with the same period in 2008. The increase in net loss was primarily due to increased net realized investment losses and adverse performance on our remaining pension deposit business. Certain of the separate account investment contracts related to our pension deposit business guarantee principal and a minimum rate of interest, for which we recorded an additional pretax liability of $13 million in Policyholders’ funds during the first quarter of 2009. Additionally, our long term care, payout annuity and life settlement contract business lines experienced favorable results in 2008.

Net investment income for the three months ended March 31, 2008 included trading portfolio losses of $76 million, which were substantially offset by a corresponding decrease in the policyholders’ funds reserves supported by the trading portfolio. The trading portfolio supported the indexed group annuity portion of our pension deposit business which was exited during 2008. That business had a net loss of $5 million during the three months ended March 31, 2008. See the Investments section of this MD&A for further discussion of net investment income and net realized investment results.

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CORPORATE & OTHER NON-CORE

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

Results of Operations

Three months ended March 31
(In millions)	2009			2008
Net investment income	$	33		$	54
Revenues		(12	)		51
Net operating income (loss)		(9	)		5
Net realized investment losses, after-tax		(29	)		(6	)
Net loss attributable to CNAF		(38	)		(1	)

Revenues decreased $63 million for the three months ended March 31, 2009 as compared with the same period in 2008. Revenues were unfavorably impacted by lower net investment income and higher net realized investment losses. See the Investments section of this MD&A for further discussion of net investment income and net realized investment results.

Net results decreased $37 million for the three months ended March 31, 2009 as compared with the same period in 2008. The decrease was primarily due to decreased revenues as discussed above.

There was $1 million of unfavorable claim and allocated claim adjustment expense reserve development and $1 million of favorable premium development, resulting in no net prior year development recorded for the three months ended March 31, 2009. Unfavorable net prior year development of $4 million was recorded for the three months ended March 31, 2008, reflecting $5 million of unfavorable claim and allocated claim adjustment expense reserve development and $1 million of favorable premium development.

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

Gross and Net Carried
Claim and Claim Adjustment Expense Reserves

(In millions)	March 31, 2009		December 31, 2008
Gross Case Reserves	$	1,727	$	1,823
Gross IBNR Reserves		2,476		2,578
Total Gross Carried Claim and Claim Adjustment Expense Reserves	$	4,203	$	4,401
Net Case Reserves	$	1,049	$	1,126
Net IBNR Reserves		1,526		1,561
Total Net Carried Claim and Claim Adjustment Expense Reserves	$	2,575	$	2,687

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.

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

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

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

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

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

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

Pending Asbestos Accounts and Associated Reserves

			Net Paid Losses		Net Asbestos		Percent of
	Number of		in 2009		Reserves		Asbestos
March 31, 2009	Policyholders		(In millions)		(In millions)		Net Reserves
Policyholders with settlement agreements
Structured settlements		18	$	9	$	124		11	%
Wellington		3		—		9		1
Coverage in place		38		6		115		10
Total with settlement agreements		59		15		248		22
Other policyholders with active accounts
Large asbestos accounts		240		23		220		19
Small asbestos accounts		984		8		84		7
Total other policyholders		1,224		31		304		26
Assumed reinsurance and pools		—		5		110		10
Unassigned IBNR		—		—		489		42
Total		1,283	$	51	$	1,151		100	%

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Pending Asbestos Accounts and Associated Reserves

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

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

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

Environmental Pollution

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

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

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

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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 March 31, 2009 and December 31, 2008.

Pending Environmental Pollution Accounts and Associated Reserves

					Net
					Environmental		Percent of
			Net Paid		Pollution		Environmental
	Number of		Losses in 2009		Reserves		Pollution Net
March 31, 2009	Policyholders		(In millions)		(In millions)		Reserve
Policyholders with settlement agreements
Structured settlements		13	$	5	$	5		2	%
Coverage in place		16		—		13		5
Total with settlement agreements		29		5		18		7
Other policyholders with active accounts
Large pollution accounts		114		4		45		18
Small pollution accounts		313		5		37		15
Total other policyholders		427		9		82		33
Assumed reinsurance and pools		—		—		27		11
Unassigned IBNR		—		—		121		49
Total		456	$	14	$	248		100	%

Pending Environmental Pollution Accounts and Associated Reserves

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

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INVESTMENTS

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

For more than a year, capital and credit markets have experienced severe levels of volatility, illiquidity, uncertainty and overall disruption. This market disruption generally continued into the first quarter of 2009. While the government has initiated programs intended to stabilize and improve markets and the economy, the impact of these programs remains uncertain. Certain sectors of the financial markets began to show signs of improvement during the first quarter of 2009 while other sectors continued to lag. As a result, we incurred realized losses in our investment portfolio, primarily driven by continuing credit issues attributable to the asset-backed and financial sectors, which have adversely impacted our results of operations.

Net Investment Income

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

Three months ended March 31
(In millions)	2009			2008
Fixed maturity securities	$	475		$	518
Short term investments		10			39
Limited partnerships		(70	)		(39	)
Equity securities		14			5
Trading portfolio (a)		—			(77	)
Other		3			6
Gross investment income		432			452
Investment expense		(12	)		(18	)
Net investment income	$	420		$	434

(a) The change in net unrealized losses on trading securities included in net investment income was $13 million for the three months ended March 31, 2008. As of March 31, 2009, we no longer had a trading portfolio.

Net investment income for the first quarter of 2009 decreased $14 million as compared with the same period in 2008. Excluding trading portfolio losses of $77 million in 2008, net investment income declined $91 million. This decrease was primarily driven by a decline in interest rates and higher losses from limited partnerships. Limited partnerships generally present greater volatility, higher illiquidity, and greater risk than fixed income investments. The trading portfolio losses were related to our indexed group annuity business and were substantially offset by a corresponding decrease in the policyholders’ funds reserves supported by the trading portfolio, which was included in Insurance claims and policyholders’ benefits on the Condensed Consolidated Statements of Operations. We exited the indexed group annuity business in 2008.

The bond segment of the fixed maturity investment portfolio provided an income yield of 5.1% and 5.9% for the three months ended March 31, 2009 and 2008.

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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.

Net Realized Investment Gains (Losses)

Three months ended March 31
(In millions)	2009			2008
Fixed maturity securities:
U.S. Treasury securities and obligations of government agencies	$	(21	)	$	32
Corporate and other taxable bonds		(173	)		(31	)
States, municipalities and political subdivisions — tax-exempt securities		37			40
Asset-backed securities		(192	)		(39	)
Redeemable preferred stock		(9	)		(4	)
Total fixed maturity securities		(358	)		(2	)
Equity securities		(216	)		(15	)
Derivative securities		31			(44	)
Short term investments		13			2
Other		(2	)		8
Realized investment losses, net of participating policyholders’ interests		(532	)		(51	)
Income tax benefit		187			18
Realized investment losses, after-tax, attributable to noncontrolling interests		1			—
Net realized investment losses attributable to CNAF	$	(344	)	$	(33	)

Net realized investment losses increased by $311 million for the three months ended March 31, 2009 compared with the same period in 2008. This increase was primarily driven by an increase in other-than-temporary impairment (OTTI) losses. Further information on our OTTI losses and impairment decision process is set forth in Note D of the Condensed Consolidated Financial Statements included under Item 1.

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

Three months ended March 31, 2009

	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.	$	2,870	$	31		0-6
Fixed income securities of a provider of wireless and wire line communication products. Economic conditions have caused a weakness in sales which have resulted in cash flow issues causing additional financial deterioration.		37		17		0-12+
	$	2,907	$	48

(a) Represents the range of consecutive months the various positions were in an unrealized loss prior to sale. 0-12+ means certain positions were less than 12 months, while others were greater than 12 months.

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Gross Unrealized Losses

The following tables summarize the fair value and gross unrealized loss of fixed income investment and non-investment grade securities categorized first by the length of time, as measured by the first date those securities have been in a continuous unrealized loss position, and then further categorized by the severity of the unrealized loss position as of March 31, 2009 and December 31, 2008.

Unrealized Loss Aging for Fixed Income Securities

	Fair Value as a Percentage of Amortized Cost
March 31, 2009	Estimated																Gross Unrealized
(In millions)	Fair Value		90-99%		80-89%		70-79%		60-69%		50-59%		40-49%		<40%		Loss
Investment grade:
0-6 months	$	3,324	$	85	$	77	$	26	$	35	$	—	$	3	$	31	$	257
7-11 months		5,313		184		185		173		118		98		50		13		821
12-24 months		6,752		112		262		437		363		645		311		431		2,561
Greater than 24 months		1,623		31		55		120		35		16		74		148		479
Total investment grade		17,012		412		579		756		551		759		438		623		4,118
Non-investment grade:
0-6 months		369		14		8		23		5		23		—		3		76
7-11 months		756		8		39		75		81		13		25		48		289
12-24 months		1,235		7		54		82		118		182		118		107		668
Greater than 24 months		9		—		—		—		—		—		2		9		11
Total non-investment grade		2,369		29		101		180		204		218		145		167		1,044
Total	$	19,381	$	441	$	680	$	936	$	755	$	977	$	583	$	790	$	5,162

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Unrealized Loss Aging for Fixed Income Securities

	Fair Value as a Percentage of Amortized Cost
December 31, 2008	Estimated																Gross Unrealized
(In millions)	Fair Value		90-99%		80-89%		70-79%		60-69%		50-59%		40-49%		<40%		Loss
Investment grade:
0-6 months	$	6,749	$	169	$	264	$	167	$	58	$	7	$	11	$	5	$	681
7-11 months		6,159		126		376		315		364		262		118		30		1,591
12-24 months		3,549		55		143		128		355		449		230		443		1,803
Greater than 24 months		1,778		27		67		151		68		52		8		136		509
Total investment grade		18,235		377		850		761		845		770		367		614		4,584
Non-investment grade:
0-6 months		853		10		47		93		50		44		16		30		290
7-11 months		374		1		20		43		40		33		19		17		173
12-24 months		1,078		3		30		83		193		94		203		41		647
Greater than 24 months		12		—		—		—		5		—		2		—		7
Total non-investment grade		2,317		14		97		219		288		171		240		88		1,117
Total	$	20,552	$	391	$	947	$	980	$	1,133	$	941	$	607	$	702	$	5,701

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

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. Non-investment grade securities generally involve a greater degree of risk than investment grade securities.

As part of the ongoing OTTI monitoring process, we evaluated the facts and circumstances based on available information for each of these securities and determined that the securities presented in the above tables were temporarily impaired when evaluated as of March 31, 2009 and December 31, 2008. 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 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. Further information on our unrealized losses by asset class and our considerations in determining that the securities were temporarily impaired at March 31, 2009 is included in Note D of the Condensed Consolidated Financial Statements included under Item 1.

Our fixed income portfolio consists primarily of high quality bonds, 90% and 91% of which were rated as investment grade (rated BBB- or higher) at March 31, 2009 and December 31, 2008. The following table summarizes the ratings of our fixed income bond portfolio at carrying value.

Fixed Income Bond Ratings

(In millions)	March 31, 2009		%			December 31, 2008		%
U.S. Government and affiliated agency securities	$	1,124		4	%	$	2,993		11	%
Other AAA rated		9,698		34			10,112		35
AA and A rated		9,366		33			8,166		28
BBB rated		5,348		19			5,000		17
Non-investment grade		2,873		10			2,569		9
Total	$	28,409		100	%	$	28,840		100	%

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

The carrying value of securities that are either subject to trading restrictions or trade in illiquid private placement markets at March 31, 2009 was $346 million, which represents 1.0% of our total investment portfolio. These securities were in a net unrealized gain position of $173 million at March 31, 2009.

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The following table provides the composition of fixed maturity securities available-for-sale in a gross unrealized loss position at March 31, 2009 by maturity profile. Securities not due at a single date are allocated based on weighted average life.

Maturity Profile

	Percent of			Percent of
	Fair Value			Unrealized Loss
Due in one year or less		9	%		9	%
Due after one year through five years		23			21
Due after five years through ten years		15			19
Due after ten years		53			51
Total		100	%		100	%

Duration

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

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

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

The effective durations of fixed 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

	March 31, 2009				December 31, 2008
			Effective Duration				Effective Duration
(In millions)	Fair Value		(In years)		Fair Value		(In years)
Segregated investments	$	8,072		10.0	$	8,168		9.9
Other interest sensitive investments		25,428		3.6		25,194		4.5
Total	$	33,500		5.2	$	33,362		5.8

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

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Asset-Backed Mortgage Exposure

Asset-Backed Distribution

											Percent			Percent
March 31, 2009	Security Type										of Total			of Total
(In millions)	MBS(a)		CMO(b)		ABS(c)		CDO(d)		Total		Security Type			Investments
U.S. Government Agencies	$	502	$	1,190	$	—	$	—	$	1,692		23	%		5	%
AAA		—		2,764		1,421		—		4,185		58			12
AA		—		192		169		8		369		5			1
A		—		107		78		14		199		3			1
BBB		—		114		200		1		315		4			1
Non-investment grade and equity tranches		—		455		68		4		527		7			1
Total Fair Value	$	502	$	4,822	$	1,936	$	27	$	7,287		100	%		21	%
Total Amortized Cost	$	492	$	5,772	$	2,693	$	156	$	9,113
Sub-prime (included above)
Fair Value	$	—	$	—	$	922	$	1	$	923		13	%		3	%
Amortized Cost	$	—	$	—	$	1,313	$	1	$	1,314		14	%		3	%
Alt-A (included above)
Fair Value	$	—	$	854	$	—	$	2	$	856		12	%		2	%
Amortized Cost	$	—	$	1,101	$	—	$	6	$	1,107		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 March 31, 2009 were $7,287 million of asset-backed securities, at fair value, which represented 21% of total invested assets. Of the total asset-backed securities, 81% were U.S. Government Agency issued or AAA rated. Of the total invested assets, $923 million or 3% have exposure to sub-prime residential mortgage (sub-prime) collateral, while $856 million or 2% have exposure to Alternative A residential mortgages that have lower than normal standards of loan documentation (Alt-A) collateral, as measured by the original deal structure. Of the securities with sub-prime exposure, approximately 93% were rated investment grade, while 79% 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 $30 million through limited partnerships and sold credit default swaps which provide the buyer protection against declines in sub-prime indices.

Included in the table above within the ABS and CDO security types are commercial mortgage-backed securities (CMBS), which had an aggregate fair value of $627 million and an aggregate amortized cost of $1,062 million at March 31, 2009. Of these holdings, 82% are rated AAA and 99% are rated investment grade. Most of our CMBS holdings are in the form of senior tranches of securitization, which benefit from significant credit support from subordinated tranches.

All asset-backed securities in an unrealized loss position are reviewed as part of the ongoing OTTI process, which resulted in OTTI losses of $127 million after-tax for the three months ended March 31, 2009. Included in this OTTI loss was $107 million after-tax related to securities with sub-prime and Alt-A exposure. These losses were primarily attributable to adverse changes in the experience of certain underlying collateral and the resulting future expected default and recovery assumptions in the cash flow models. 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, Alt-A and CMBS 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. See Note D of the Condensed Consolidated Financial Statements included under Item 1 for additional information related to unrealized losses on asset-backed securities.

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Short Term Investments

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

Short Term Investments

	March 31,		December 31,
(In millions)	2009		2008
Short term investments available-for-sale:
Commercial paper	$	1,164	$	563
U.S. Treasury securities		2,516		2,258
Money market funds		262		329
Other, including collateral held related to securities lending		641		384
Total short term investments	$	4,583	$	3,534

The fair value of cash collateral held related to securities lending, included in other short term investments, was $41 million at March 31, 2009. There was no cash collateral held at December 31, 2008.

LIQUIDITY AND CAPITAL RESOURCES

Cash Flows

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

For the three months ended March 31, 2009, net cash provided by operating activities was $187 million as compared with $303 million for the same period in 2008. Cash provided by operating activities was unfavorably impacted by decreased investment income and decreased premium collections in the first quarter of 2009 as compared with the same period in 2008.

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

For the three months ended March 31, 2009, net cash used by investing activities was $150 million as compared with $11 million provided by investing activities for the same period in 2008. Cash flows used by investing activities related principally to purchases of fixed maturity securities and short term investments. The cash flow from investing activities is impacted by various factors such as the anticipated payment of claims, financing activity, asset/liability management and individual security buy and sell decisions made in the normal course of portfolio management.

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

For the three months ended March 31, 2009, net cash used by financing activities was $26 million as compared with $273 million for the same period in 2008. Net cash used by financing activities in 2009 was primarily related to the payment of dividends on the 2008 Senior Preferred stock to Loews Corporation.

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Liquidity

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

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

• We have entered into several settlement agreements and assumed reinsurance contracts that require collateralization of future payment obligations and assumed reserves if our ratings or other specific criteria fall below certain thresholds. The ratings triggers are generally more than one level below our current ratings. A downgrade below our current ratings levels would also result in additional collateral requirements for derivative contracts for which we are in a liability position at any given point in time. The maximum potential collateralization requirements are approximately $90 million.

• As of March 31, 2009, our holding company held short term investments of $504 million. Our holding company’s ability to meet its debt service and other obligations is significantly dependent on receipt of dividends from our subsidiaries. The payment of dividends to us by our insurance subsidiaries without prior approval of the insurance department of each subsidiary’s domiciliary jurisdiction is limited by formula. Notwithstanding this limitation, we believe that our holding company has sufficient liquidity to fund our preferred stock dividend and debt service payments in 2009.

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

Accounting Pronouncements

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

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FORWARD-LOOKING STATEMENTS

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

• the occurrence of epidemics;

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

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

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

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

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

• the actual closing of contemplated transactions and agreements.

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

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CNA Financial Corporation

Item 3. Quantitative and Qualitative Disclosures About Market Risk

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

63

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 March 31, 2009, the Company’s management, including the Company’s Chief Executive Officer (CEO) and Chief Financial Officer (CFO), conducted an evaluation of the effectiveness of the Company’s disclosure controls and procedures (as such term is defined in Exchange Act Rules 13a-15(e) and 15d-15(e)). Based on this evaluation, the CEO and CFO have concluded that the Company’s disclosure controls and procedures are effective.

There has been no change in the Company’s internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the quarter ended March 31, 2009 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.

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CNA Financial Corporation
Part II. Other Information

Item 6. Exhibits

(a) Exhibits

Description of Exhibit	Exhibit Number
Employment Agreement, dated May 22, 2008, by and between CNA Financial Corporation and Thomas F. Motamed		10.1
Employment Agreement, dated April 7, 2008, by and between Continental Casualty Company and Larry A. Haefner		10.2
Certification of Chief Executive Officer		31.1
Certification of Chief Financial Officer		31.2
Written Statement of the Chief Executive Officer of CNA Financial Corporation Pursuant to 18 U.S.C. Section 1350 (As adopted by Section 906 of the Sarbanes-Oxley Act of 2002)		32.1
Written Statement of the Chief Financial Officer of CNA Financial Corporation Pursuant to 18 U.S.C. Section 1350 (As adopted by Section 906 of the Sarbanes-Oxley Act of 2002)		32.2

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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: May 4, 2009	By	/s/ D. Craig Mense
		D. Craig Mense
		Executive Vice President and
		Chief Financial Officer

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EX-10.1

EXHIBIT 10.1

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

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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

3

	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

4

	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

5

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

6

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.

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	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

8

	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.

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(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.

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(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.

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

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	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

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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.

6.2 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

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	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).

6.3 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):

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(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

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	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), but only if, except in the case of benefits described in Section 6.6, 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.

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6.4 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.

6.5 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.

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6.6 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.

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(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.

6.7

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.

6.8

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

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	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.
7.	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. (a) 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,

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	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

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	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

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	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.

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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.

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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.

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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

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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

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	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

28

	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.
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

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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.

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(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

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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

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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.]

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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

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EXHIBIT A

FORM OF RELEASE

          THIS RELEASE OF CLAIMS (this “Release”) is entered into as of                      [the date the Executive signs this Release following a termination without Cause or a resignation for Good Reason] (the “Release Date”), by and between Thomas F. Motamed (the “Executive”) and CNA Financial Corporation (the “Company”). Capitalized terms used but not defined herein shall have the meanings ascribed to such terms in the Employment Agreement by and between the Company and the Executive, dated as of May 22, 2008 (the “Employment Agreement”).

          1. Release.

               (a) The Executive, on behalf of himself and his beneficiaries, estate and legal representatives (collectively, with the Executive, the “Executive Releasors”) hereby releases, acquits and forever discharges the Company, its Affiliates, and each of their respective successors, assigns, officers, directors, and employees (collectively, the “Company Released Parties”) from any and all claims, causes of actions, demands, suits, costs, expenses and damages of whatsoever nature and kind, whether known or unknown, whether now existing or hereafter arising, at law or in equity, that any Executive Releasor may have, or may have had, or may hereafter have, and that are based in whole or in part on facts, whether or not now known, existing prior to the Release Date, and that arise out of or relate to the Executive’s employment with or services for the Company or its Affiliates, or the termination of such employment or services, other than claims arising under or preserved by Section 6 of the Employment Agreement.

               (b) The claims released by the Executive include, to the extent set forth in Section 1(a), any and all claims under federal, state or local laws pertaining to employment, including the Age Discrimination in Employment Act of 1967, as amended, Title VII of the Civil Rights Act of 1964, as amended, 42 U.S.C. Section 2000e et seq., the Fair Labor Standards Act as amended, 29 U.S.C. Section 201 et seq., the Americans with Disabilities Act, as amended, 42 U.S.C. Section 12101 et seq., the Reconstruction Era Civil Rights Act, as amended, 42 U.S.C. Section 1981 et seq., the Rehabilitation Act of 1973, as amended, 29 U.S.C. Section 701 et seq., the Family and Medical Leave Act of 1992, 29 U.S.C. Section 2601 et seq., and any and all state or local laws regarding employment discrimination and/or U.S. federal, state or local laws of any type or description regarding employment, including but not limited to any claims in any way arising from or derivative of the Executive’s employment with the Company or any of

35

its Affiliates or the termination of such employment, as well as any claims under state contract or tort law or otherwise.

               2. Representation by the Executive. The Executive represents that he has not been convicted of, or pleaded guilty to or nolo contendere to, any felony and has not engaged in conduct that constitutes Cause under the Employment Agreement.

               3. Incorporation of Specific Provisions. The following Sections of the Employment Agreement shall be deemed incorporated by reference in this Release and shall be treated as if set forth in full herein, except that references in them to this “Agreement” shall be deemed to be references to this “Release”: Sections 17(b), 20, 21(a), 21(c) (last sentence only), 22(a), 22(b), 22(c), 22(e), 23, 24, and 26.

               4. Review and Revocation Period. The Executive hereby represents that he has read this Release carefully and fully understands the terms hereof, and that he has been advised to consult with an attorney and has had the opportunity to consult with an attorney prior to signing this Release. The Executive acknowledges that he is executing this Release voluntarily and knowingly, without duress or coercion, and that he has not relied on any representations, promises or agreements of any kind, other than those set forth in this Release. The Executive further represents that he has had 21 days to review this Release. If the Executive has executed this Release in fewer than 21 days after its delivery, the Executive hereby acknowledges that his decision to execute this Release prior to the expiration of such 21-day period was entirely voluntary. The Executive may revoke his acceptance of this Release within seven days after he has signed it and delivered it to the Company (the “Revocation Period”) by sending written notice to the Company that the Executive wishes to revoke his acceptance of it and not be bound by it. If the Executive timely revokes this Release, the Company shall have no obligation to provide to the Executive the benefits described in Sections 6.3(a)(i) and 6.3(a)(ii) of the Employment Agreement. This Release shall become effective on the seventh (7^th) day after the Executive signs it unless revoked in accordance with the procedure set forth in the prior sentence. This Release shall be null and void if not countersigned by the Company, and delivered to the Executive, within seven (7) days after the expiration of the Revocation Period.

               IN WITNESS WHEREOF, the Parties have executed this Release as of the date and year first above written.

THOMAS F. MOTAMED

Date:

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EXHIBIT B

CONFIDENTIALITY, COMPUTER RESPONSIBILITY AND
PROFESSIONAL CERTIFICATION AGREEMENT

To protect the confidentiality of company information and the integrity of CNA’s business relationships, employees are required to comply with the following company policies concerning:

• Confidentiality

• Computer Responsibility

• Professional Conduct

CNA employees (collectively referred to as “CNA personnel” or “CNA”) are required to read and comply with this Agreement. CNA reserves the right to add or change the requirements contained in this Agreement.

I. CONFIDENTIALITY AGREEMENT

Background

Confidentiality is an extremely serious concern in today’s world because of the increasingly high value firms place on information and its critical importance to their competitive survival.

Agreement

I understand that during my employment with Continental Casualty Company I will have access to information from Continental Casualty Company, Continental Corporation, CNA Financial Corporation and their subsidiaries, affiliates, agents, policyholders, claimants, suppliers, vendors, licensers, any or all of which are referred to in the Agreement as “CNA.” I also understand that this information, whether technical or non-technical, is commercially valuable. It is referred to in the Agreement as “Confidential Information.”

Examples of Confidential Information include, but are not limited to all of the types of Confidential Information which I may develop or to which I may have access:

• Information of a business nature, such as marketing, underwriting, employee and customer data, sales and lists of customers, including future developments and planning concerning them.

• Computer/software programs and associated documentation and material which are proprietary to CNA or to which CNA is under an obligation to prevent disclosure.

• Information from CNA customers, vendors or suppliers which is confidential, proprietary or copyrighted.

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I hereby agree that:

1.	The Confidential Information shall remain the sole and exclusive property of CNA and I shall regard it as confidential and secret information.
2.	The Confidential Information is property to be considered to be the trade secrets of CNA because it involves processes and compilations of information which are secret, confidential and are not generally known to the public and which are the product of expenditures of time, effort, money and/or creative skills of CNA.
3.	The Confidential Information is furnished to me during my employment on a confidential and secret basis for the sole and exclusive use in pursuing my employment duties at CNA.
4.	I will not, during or after my employment with CNA, publish, disclose or otherwise divulge the Confidential Information to any person not specifically authorized by CNA to receive such information.
5.	I will not copy any Confidential Information for any purpose except with the express consent of a CNA official or the express written authorization of the third party owner.
6.	Upon termination of my employment at CNA, or at any other time at CNA’s request, I agree to return promptly to CNA all Confidential Information, including, but not limited to all manuals, letters, notes, notebooks, reports, formulae, computer programs, and associated documentation and material, memoranda, customer lists and all other materials and all copies of them relating in any way to CNA’s business, which in any way were obtained by me during my employment with CNA which are in my possession or under my control. I further agree that I will not make or retain copies of any of the above mentioned information and will so represent to CNA upon termination of my employment.
7.	I acknowledge that CNA would suffer irreparable harm for which both preliminary and final injunctive relief would be an appropriate remedy in addition to such other relief to which CNA may also be entitled.
8.	I acknowledge and agree that CNA employees in violation of this Agreement shall be liable for the costs of CNA’s efforts to enforce it, including reasonable attorney’s fees.

The Confidentiality Agreement will continue to be in effect after termination of my employment at CNA. If any provision of this Agreement is declared invalid or unenforceable with respect to a particular occurrence or circumstance or otherwise, that will not affect the validity and enforceability or applicability of any other provision of the Agreement.

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II. COMPUTER USER STATEMENT OF RESPONSIBILITY

Background

The information you will have access to in your employment or association with CNA is often protected by contract or Federal Law. CNA’s obligations are equally applicable to its employees. There are often significant penalties for disclosing protected information to parties not authorized in formal agreements to receive it. CNA takes its legal and contractual obligations to assure the confidentiality of all such protected information with the utmost seriousness. As an employee of CNA, you need to treat information with the same care and confidentiality that CNA, as a corporation, is bound by its formal contracts to employ.

Policy

CNA’s computers and communications resources, and all related computer programs and their products, may be used only for the purposes authorized and specified by CNA. Appropriate steps should be taken to see that these resources are protected from accidents, tampering and unauthorized use or modification. Questions regarding the appropriateness of planned usage of communications resources should be directed to CNA management or Information Security Services (e-mail address, IT Security Policy Support).

Computer Password Confidentiality

Computer passwords are confidential. If accidentally revealed, passwords should be changed immediately. CNA personnel are responsible for any actions taken by persons using their passwords.

CNA personnel must comply with all password standards including those covering structure and change frequency. Any possible or actual violation of data security or Systems Security Policy and Standards that you witness or become aware of must be reported immediately to management or Information Security Services (e-mail address, IT Security Policy Support).

Information stored on computer or removable media must be protected to prevent unauthorized access to or disclosure of that information. The appropriate level of information protection will vary by business organization. CNA personnel who have questions or who have not received specific instructions concerning these requirements should contact their manager or Information Security Services (e-mail address, IT Security Policy Support).

The Copyright Act

The Copyright Act is a Federal Law. It gives copyright owners of original works the exclusive right to and control of the copying, distribution and display of their copyrighted works as well as to the preparation of any derivative works. It is illegal to violate these rights.

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It is CNA policy to comply fully with the Copyright Act. CNA employees who violate the copyright or third party license restrictions in the course of their employment shall be subject to termination or other disciplinary action.

Any questions related to copyright or CNA’s policy regarding copyright should be directed to the Corporate Law Department.

Software

CNA software purchased or developed for use in connection with computers is proprietary and may not be copied without the owner’s permission. Each piece of software that CNA has purchased is covered by a written agreement with specific terms and conditions that address the confidentiality of the software. All terms and conditions, including copyright and liability notices and back up procedures that may apply to a software package must be followed. Any questions about the terms of the contract governing software you use should be directed to your manager or Systems Security.

CNA licensed software and services are not owned by CNA and may not be reproduced unless authorized by the software developer or vendor. CNA personnel or their agents discovered making, acquiring, or using unauthorized copies of computer software or documentation will be subject to disciplinary action or termination, as appropriate.

Introducing unauthorized software or utilities on CNA systems, adding software that is personally purchased or developed for non-CNA business to CNA storage devices, or executing this software on CNA computers is a violation of this policy.

Use of Information and Materials Obtained from On-line Services, Subscription Services, Electronic Bulletin Boards and the Internet

Copyrighted programs, documentation, images, text or music are protected by copyright law. Federal law protects processes and formulas embedded in programs. Downloading of copyrighted files, including e-mail, file transfer protocol and all network downloads is illegal. To prevent viruses, unauthorized downloading is prohibited. Authorized downloading requires controlled virus scans of the files and receiving volume, drive and directory members.

Use of information or materials obtained from an on-line service, subscription service or electronic bulletin board must comply with any requirements specified in the applicable license or copyright restrictions. These requirements often include limiting the number of copies made, deleting electronic copies from the user’s hard drive after a set period of time, prohibiting use of all or any part of the information or materials in another document and paying royalties.

Before including written materials obtained from any on-line service, subscription service or electronic bulletin board in a CNA publication, memorandum, software system or distributing

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the materials in any way to other CNA employees or third parties, care should be taken to make certain that CNA has appropriate authorization for such use. Contact your manager or Vendor Contract Administration if you need assistance interpreting a license agreement.

Authorization should not be assumed from the absence of any prohibition. Particular care should be taken for materials intended for broad publication or distribution.

Sharing of CNA Information and Materials

This section applies to all reports, documents, computer software, data and all other materials owned by or licensed to CNA (the “Proprietary Information”), and is in addition to the provisions of the Confidentiality agreement set forth on pages 1 and 2. Any works created by CNA employees in the course of their employment are owned by CNA.

In general, Proprietary Information should not be distributed to third parties. Because the Internet is neither private nor secure, every user is responsible for protecting the integrity of company information and resources. Proprietary, private or confidential corporate information, data or programs may not be exported or copied through the Internet. In general, CNA or third-party proprietary information should not be distributed to an electronic bulletin board unless such distribution furthers a clear business objective.

If Proprietary Information is transmitted, the user must determine whether the information is owned by CNA or licensed from a third party. If it is owned by CNA, then a proprietary rights notice should be included. The following are acceptable proprietary rights notices:

-”Copyright 199___CNA Financial Corporation and its subsidiaries and affiliates”

-”All rights reserved to CNA Financial Corporation and its subsidiaries and affiliates”

If the Proprietary Information is licensed by CNA from third parties, care should be taken to confirm that the proposed use and disclosure of that information is permitted under the applicable license agreement. Contact your manager or Vendor Contract Administration if you need assistance interpreting a license agreement.

As representatives of CNA, all personnel have a responsibility to conduct themselves in a businesslike manner, honoring all network rules, including, but not limited to:

-Avoiding defamatory or obscene language.
- -Respecting the privacy rights of others.
- -Refraining from mischievous or criminal conduct while on the Internet.

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Failure to comply with the Agreements stated in this policy represents a violation of CNA Information Systems Security Policy and Standards and may be grounds for disciplinary action or termination.

III. COMMITMENT TO PROFESSIONAL CONDUCT

Background

One of the obligations of all CNA employees is to be committed to high standards of ethical and professional conduct. CNA’s Our Commitment to Professional Conduct handbook (AG-129198) contains important information about CNA policies, values and expectations on the way we do business and alerts you to potential legal and ethical issues that you need to be aware of.

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EX-10.2

EXHIBIT 10.2

EMPLOYMENT AGREEMENT

          THIS EMPLOYMENT AGREEMENT (the “Agreement”) is made as of the 7^th day of April 2008 (the “Effective Date”), by and between Continental Casualty Company, an Illinois insurance company (the “Company”), and Larry A. Haefner (“Executive”);

WITNESSETH:

          WHEREAS, the Company wishes to employ Executive as Executive Vice President and Chief Actuary of the Company with senior management level responsibility in the capacity of Chief Actuary for the principal business units and subsidiaries of the Company, being hereinafter referred to as the “CNA insurance companies,” and Executive wishes to accept and agree to such employment under the terms and conditions set forth hereinbelow.

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

          1. Employment Term. The Company and Executive agree that the Company shall employ Executive to perform the duties of an Executive Vice President and Chief Actuary of the CNA insurance companies for the period commencing on Effective Date and ending on April 30, 2011, or such earlier date as of which Executive’s employment is terminated in accordance with Section 6 hereof (said period the “Term”). The covenants set forth in Sections 7, 8, 9, 10, 11, 12, 13, and 14 shall survive the employment term of this Agreement.

          2. Duties of Executive.

          (a) Executive shall perform the duties and responsibilities of an Executive Vice President and Chief Actuary [or successor title] of the CNA insurance companies as defined and directed by the Company’s Chief Executive Officer (hereinafter “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. Executive further agrees to resign any such position(s) on such Boards upon the termination of his employment with the Company for any reason; provided, however, that nothing in this Agreement shall require that any CNA

insurance companies elect Executive to its board of directors. Executive may also be elected as an executive officer of CNA Financial Corporation (“CNAF”), a publicly-traded company that is the indirect parent of the Company, and if so elected Executive agrees to serve in such capacity for the term of this Agreement or any portion thereof without additional compensation; provided, however, that nothing in this Agreement shall require that CNAF elect or maintain Executive in any such position.

          (b) Executive shall diligently and to the best of his abilities assume, perform, and discharge the duties and responsibilities of Executive Vice President and Chief Actuary , 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, the CNA insurance companies or CNAF, 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 the performance of his duties and responsibilities hereunder.

          3. Compensation.

          (a) During the Term, the Company shall pay to Executive for the period he is employed by the Company hereunder, an annual base salary of $500,000.00 (the “Base Compensation”). The Base Compensation shall be payable not less frequently than in monthly increments. At the discretion of the CEO and/or the Compensation Committee (the “Committee”) of CNAF’s Board of Directors, such salary rate may be increased annually during the term of the Agreement, beginning in 2009, based on market considerations, responsibilities and performance. In no event shall Executive’s Base Compensation be reduced to an amount that is less than the amount specified in this Section 3 (a) without Executive’s written consent, or to an amount that

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is less than the amount of Base Compensation that he was previously receiving under this Agreement without Executive’s written consent.

          (b) The Executive shall be eligible for an annual incentive cash award (“Bonus”) pursuant to the CNA Financial Corporation 2000 Incentive Compensation Plan (the “Plan”). Subject to the approval of the Committee, the Executive’s target Bonus opportunity thereunder shall not be less than the rate of one-hundred percent (100%) of his Base Compensation for each twelve month bonus period. In no event shall the target Bonus opportunity be reduced without the Executive’s written consent. The amount of the Bonus shall be based on the assessment by the CEO and/or the Committee of Executive’s performance, and shall be determined and payable in accordance with the terms of the Plan as set forth in the Plan documents; however, if Executive is a proxy-named officer, the amount of the Bonus shall be based on the Committee’s assessment in its sole discretion of Executive’s performance and the net operating income goals (or other applicable measures ) set annually by the Committee, and shall be determined and payable in accordance with the terms of the Plan, as set forth in the Plan documents. The Committee shall also have unlimited negative discretion under the Plan and this Agreement to decrease the amount of Executive’s Bonus for any year.

          (c) Subject to the approval of the Committee, Executive shall be eligible to receive a long-term Incentive cash award, in accordance with the terms of the Plan, as may be in effect during the Term or such other long term incentive plan as the Company may from time to time adopt for its senior officers. The Executive’s target long-term incentive cash award shall be twenty percent (20%) of his Base Compensation during any applicable three year performance period as determined by the Company and/or the Committee, beginning with the 2008 performance year and prorated for time of participation for that 2008 performance year; that is, (a) effective for the 2008 performance year of the 2006-2008 cycle, (b) effective for the 2008 and 2009 performance years of the 2007-2009 cycle and (c) effective for all covered years in each subsequent performance cycle. In no event shall the target award be reduced without the Executive’s written consent. Actual payout of the long-term incentive cash award may range from 0% to 200% of target, based on the Company’s overall business results and performance as determined by the Committee in its sole discretion.

          (d) Subject to the approval of the Committee, Executive shall be awarded a minimum grant of 10,000 stock appreciation rights paid in stock (“SARs”) of CNA Financial Corporation

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(“CNAF”) common stock or equivalent stock options annually, beginning with the 2009 performance year (awarded in February of 2009), during the term of Executive’s employment under this Agreement. Such annual grant may be increased at the recommendation of the CEO and upon approval of the Committee, subject to share availability. Executive’s rights with respect to shares awarded hereunder shall be subject to the terms of the Plan, share availability and approval by the Committee.

          (e) Executive shall be awarded a Signing Bonus (the “Signing Bonus”) in the amount of $400,000, less applicable withholding taxes, payable within first 45 days of the Effective Date. Executive shall also be awarded a special grant of 15,000 SARs of CNAF common stock on the later to occur of the first day of employment or the first date when both Executive and the Company have signed this Agreement, subject to Committee approval, and pursuant to the terms and conditions set forth in the attached Addendum (the “Addendum”), which is incorporated by reference into this Agreement. The Signing Bonus shall be subject to the terms and provisions of that certain New Hire Bonus Payback Agreement (“Payback Agreement”) of even date herewith between Executive and the Company.

          (f) For avoidance of doubt respecting awards to Executive under Section 3 (b), 3 (c), 3 (d), 3 (e) and 3 (f) hereof, the Committee shall retain such discretion as may be provided under the Plan to satisfy Section 162(m) of the Internal Revenue Code of 1986 (“Code”) or any successor provision. The Company will defer until the first tax year in which it reasonably anticipates, or should reasonably anticipate, that deductibility is not limited by said Section 162(m) the payment of all compensation to which Executive is entitled under this Agreement which the Company reasonably anticipates would be non-deductible under said Section 162(m) or any successor provision with respect to deductibility of executive compensation if paid in the tax year in which it would otherwise be payable. Subject to Section 162(m) of the Code and any other applicable laws or regulations as interpreted by the Company, deferred compensation may be credited to the Executive’s SES-CAP account and, if so credited, shall be subject to the terms thereof and of the Company’s SES-CAP Plan.

          (g) Executive’s pensionable earnings under the Savings & Capital Accumulation Plan (“S-CAP”) and the CNA Supplemental Savings & Capital Accumulation Plan (“SES-CAP”) will be calculated and payable as specified in the respective plan documents, as amended from time to time, and also subject to the requirements of any other applicable laws or regulations as

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interpreted by the Company. Any deferral elections available to Executive with respect to such pensionable earnings shall be made prior to the beginning of the year in which any amounts subject to such elections are earned.

          (h) All payments due under this Agreement shall be subject to withholding as required by law.

          4. Other Benefits. Executive shall be entitled to continue to participate in the various benefit plans, programs or arrangements established and maintained by the Company from time to time and applicable to senior executives of the Company such as, but not by way of limitation, medical benefits, dental benefits, life insurance, long-term disability insurance, both qualified and supplemental defined contribution plans, and to receive all fringe benefits made available to senior executives of the Company, including relocation assistance, club membership, and tax return preparation. Executive’s entitlement to participate in any such plan, program or arrangement shall in each case be subject to the terms and conditions of the Company’s policies with regard to such plans, programs or arrangements, as adjusted by the Company from time to time in its sole discretion. Executive shall not be eligible for paid time off (“PTO”) under the Company’s PTO policy. In the event of termination of employment, Executive’s available severance benefits shall be determined solely in accordance with Section 6 hereof.

          5. Expense Reimbursement. Executive shall continue to be entitled to reimbursement by the Company for all reasonable and customary travel and other business expenses incurred by Executive in carrying out his duties under this Agreement, in accordance with the general travel and business reimbursement policies adopted by the Company as adjusted from time to time. 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.

          6. Termination of Employment. If Executive’s employment with the Company shall terminate during the term of this Agreement, the following conditions set forth herein shall apply with respect to the Executive’s compensation and benefits hereunder. Either party may terminate Executive’s employment with the Company during the term of this Agreement by written notice to the other party, effective as of the date specified in such notice and Executive’s employment shall automatically terminate in the event of Executive’s death. Upon termination of

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Executive’s employment during or at the end of the term of this Agreement, the rights of the parties under this Agreement shall be determined pursuant to this Section 6. All payments to be made hereunder shall be made either to Executive or to his personal representatives, heirs or beneficiaries, as the case may be. In the event of Executive’s termination during the term of this Agreement, unless otherwise specified in this Agreement Executive’s rights, if any, under any of the Company’s defined contribution, incentive or other benefit plans of any nature shall be governed by the respective terms of such plans.

          6.1 Death and Disability. In the event of the death of Executive or, at the Company’s election, in the event of his Permanent Disability (as defined below) during the term of this Agreement, provided it has not already terminated, Executive’s employment shall terminate; provided, however, that:

          (a) The Company shall pay to Executive or his personal representatives, heirs or beneficiaries as the case may be, an amount equal to his: (i) unpaid Base Compensation and current year’s target Bonus prorated to the date of termination; (ii) any previous year’s unpaid Bonus based upon actual or discretionary payouts, if any; and (iii) unpaid cash entitlements, if any, earned by Executive or payable to his beneficiaries as of the date of termination which, pursuant to the terms of any applicable Company plan or program (which unpaid cash entitlements shall not include any unpaid Bonus or any unpaid long-term incentive cash awards or other awards under the Incentive Compensation Plan), accrued prior to the date of termination.

          (b) For purposes of this Agreement, the term “Permanent Disability” means a physical or mental condition of Executive which, as determined by the CEO based on and consistent with available medical information, is expected to continue beyond 26 weeks and which renders Executive incapable of performing any substantial portion of the services contemplated hereunder, with reasonable accommodation compatible with the fulfillment of his duties as described in Section 2 hereinabove.

          6.2 Termination for Cause by the Company. In the event that Executive shall engage in any conduct which the CEO in his sole discretion shall determine to be “Cause,” as defined herein, he shall be subject to termination forthwith. For purposes of this Agreement, Cause shall mean engaging in or committing: (i) any act which would constitute a felony or other act

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involving fraud, dishonesty, moral turpitude, unlawful conduct or breach of fiduciary duty; (ii) a substantial breach of any provision of this Agreement; (iii) willful or reckless material misconduct in the performance of the Executive’s duties; or (iv) the habitual neglect of duties; provided however, that, for purposes of clauses (iii) and (iv), Cause shall not include any one or more 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 was not legally entitled). If the Executive agrees to resign from his employment with the Company in lieu of being terminated for Cause, he may be deemed to have been terminated for Cause for purposes of this Agreement.

          Upon terminating the Executive for Cause, other than paying the Executive within 30 days of such termination his: (i) unpaid Base Compensation prorated to the date of termination and (ii) unpaid cash entitlements, if any, earned and accrued pursuant to the terms of any applicable Company plan or program (which unpaid cash entitlements shall not include any unpaid Bonus or any unpaid long-term incentive cash awards or other awards under the Incentive Compensation Plan) prior to the date of the date of termination, the Company shall have no further obligations whatsoever to Executive under this Agreement. In the event of termination for Cause, Executive agrees to continue to be bound by the covenants set forth herein at Sections 7 through 14 subsequent to the date of such termination, for such periods of time as provided for in said Sections respectively.

          6.3 Termination by the Company Without Cause/ Termination by Executive for Good Reason. In the event Executive’s employment is terminated by the Company “Without Cause” (as that term is defined hereinbelow), or in the event Executive terminates his employment for “Good Reason” (as that term is defined hereinbelow):

          (a) The Company shall pay to Executive severance consisting of an amount equal to the 12 months of the Executive’s Base Compensation and one (1) times Executive’s target Bonus, or the aggregate amount of unpaid Base Compensation due to Executive under this Agreement, whichever is greater, in effect at the time of termination. The severance shall be paid not less frequently than in equal monthly installments following such termination. The Company shall also pay the Executive (i) unpaid Base Compensation, prorated to the date of termination; (ii) current year’s Bonus, prorated to the date of termination, and payable following the end of the performance year based upon the Committee’s assessment of Executive’s performance; (ii) any

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previous year’s unpaid Bonus based upon actual or discretionary payouts, if any; and (iii) within 30 days of his termination, unpaid cash entitlements, if any, earned and accrued pursuant to the terms of any applicable Company plan or program prior to the date of the date of termination (which unpaid cash entitlements under this Section 6.3 (a) (ii) shall not include any unpaid Bonus or any unpaid long-term incentive cash awards or other awards under the Plan). Executive agrees to be bound by the covenants set forth herein prior to, as of and subsequent to the termination date. In addition, Executive shall continue to participate, at the active employee rates, in such health benefits plans in which he is enrolled throughout the term of the payments set forth in this Section 6.3 (a), up to a maximum of 12 months, with said period of participation to run concurrently with any period of COBRA coverage to which Executive may be entitled. To the extent such health benefit coverage extends beyond the aforesaid period of COBRA coverage, the difference between the premium paid by Executive for participation in such health benefit plans and the premium that would be payable by an employee receiving COBRA coverage shall constitute taxable income to Executive, and deferred compensation, subject to Section 409A of the Code, and Executive shall not receive any payment or other benefit in lieu of such coverage. Other than as set forth in this Section 6.3 (a), the Company shall have no further obligations to Executive under this Agreement in the event of a termination of Executive’s employment by the Company Without Cause or any termination of Executive’s employment by Executive.

          (b) “Good Reason” as set forth herein is defined as a reduction in the rate of Executive’s Base Compensation, annual incentive opportunity or long-term incentive cash target compensation, a required relocation of his personal residence to another geographical area outside of the geographical area where the Company’s home office is located without Executive’s consent, a change in Executive’s direct reporting relationship to the CEO or other involuntary loss of position as described herein (other than as a result of a termination by the Company for Cause) or a substantial diminution in Executive’s duties and responsibilities without Executive’s consent.

          (c) “Without Cause” as set forth herein is defined as a termination of the Executive’s employment by the Company for any reason not described in subsections 6.1 and 6.2.

          In the event of any termination of employment as described in this Section 6.3, Executive agrees to continue to be bound by the covenants set forth herein at Sections 7

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through 14 subsequent to the date of such termination for such periods of time as provided for in said Sections respectively. Any term or provision herein to the contrary notwithstanding, the timing and other conditions of any severance or other payments to be made under this Agreement shall be subject to the requirements of all applicable laws and regulations, whether or not they are in existence or in effect when this Agreement is executed by the parties hereto.

          6.4 Voluntary Resignation by Executive. In the event that Executive’s employment is voluntarily terminated by Executive other than pursuant to subsection 6.3 or as a direct result of his death or Permanent Disability (as described in subsection 6.1), the Company shall have no further obligations to Executive under this Agreement other than paying the Executive within 30 days of such termination his: (i) unpaid Base Compensation prorated to the date of termination and (ii) unpaid cash entitlements, if any, earned and accrued pursuant to the terms of any applicable Company plan or program (which unpaid cash entitlements shall not include any unpaid Bonus or any unpaid long-term incentive cash awards or other awards under the Plan) prior to the date of termination. In the event of termination of employment as described in this Section 6.4, Executive agrees to continue to be bound by the covenants set forth herein at Sections 7 through 14 subsequent to the date of such termination for such periods of time as provided for in said Sections respectively.

          6.5 Expiration of Agreement. Following April 30, 2011, if the Company and Executive have not mutually agreed to the terms of, and entered into a new agreement, Executive’s employment shall be one of employment at will, which may be terminated by either the Company or the Executive at any time. Such continued employment after April 30, 2011 shall be subject to the Company’s normal policies and procedures in effect during said period of continued employment.

          6.6 Other Benefits. In the event that Executive’s employment is terminated pursuant to Sections 6.1, 6.2 or 6.4 (a), Executive’s coverage under the Company’s short-term disability plan shall end on the date of termination of employment; (b) Executive’s coverage under the Company’s long-term disability plan shall end on the last day of the month in which termination of employment occurs; and (c) Executive’s coverage under the Company’s non-contributory and contributory life, dependent life and accidental death and dismemberment plans shall end on the last day of the month in which termination occurs. In the event that Executive’s employment is terminated pursuant to Section 6.3, the foregoing provisions of this Section 6.6 shall also apply,

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except that in such event Executive’s coverage under the Company’s contributory life, dependent life and contributory accidental death and dismemberment plans shall continue through the end of any applicable severance period upon payment of the applicable premium.

          6.7 Release. Executive acknowledges that the severance benefits set forth in Section 6 hereof provides significant additional benefits as compared to those available to the Company’s employees in general. As a condition precedent to receiving any payments or other benefits pursuant to Section 6 of this Agreement, Executive agrees to sign a full and complete release acceptable to the Company releasing the Company, its subsidiaries and affiliates and their directors, officers and employees of any and all claims, both known and unknown as of the date of Executive’s termination of employment with the Company. In the absence of Executive’s executing such a release in a form satisfactory to the Company, the Company shall have no obligation to Executive to make any payments or provide any other benefits as provided in said Section 6 or otherwise upon termination of Executive’s employment by the Company.

          6.8 Involuntary Termination Rule. Any term or provision of this Section 6 or elsewhere in the Agreement to the contrary, the following provisions shall apply to any payments to be made to Executive pursuant to Section 6.1 on termination by reason of Permanent Disability, Section 6.3 or Section 6.5(a) (collectively the “Payments”):

          (a) Each Payment to be made on a separate date shall be treated as a separate Payment for purposes of §409A of the Code.

          (b) The aggregate amount of all Payments, if any, payable after March 15 of the year following the year that includes the date of such involuntary termination (the “Termination Date”) but before the date that is six months after the Termination Date (increased by any other amounts of taxable compensation paid to the Executive during such period that would not have been paid but for such termination) shall not exceed two times the lesser of (i) Executive’s Base Compensation on the last day of the year immediately prior to the year that includes the Termination Date or (ii) the limit in effect under §401(a)(17) of the Code during the year that includes the Termination Date, as determined by the Company.

          (c) To the extent the Payments payable during the period described in subparagraph (b) above would otherwise exceed the limit of subparagraph (b), such Payments shall be reduced to the extent necessary to satisfy the requirement of subparagraph (b) as determined by the

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Company, and the amount by which the Payments are reduced will be paid to Executive in a lump sum, without interest, on the first business day that is six months after the Termination Date as determined by the Company. However, if Executive dies during such period, the limits of subparagraph (b) shall not apply to Payments to the Executive’s beneficiaries or estate.

          7. Confidentiality. Executive agrees that while he is employed by the Company, and at all times thereafter, Executive shall not reveal or utilize information, knowledge or data which is “confidential information” (as that term is defined hereinbelow) and learned during the course of or as a result of his employment which relates to: (a) the Company and/or any other business or entity in which the Company during the course of the Executive’s employment has directly or indirectly held a greater than a 10% equity interest, whether voting or non-voting; and (b) the Company’s customers, employees, agents, brokers and vendors. The Executive acknowledges that all such confidential information is commercially valuable and is the property of the Company. Upon the termination of his employment Executive shall return all confidential information and any copies thereof to the Company, whether it exists in written, electronic, computerized or other form.

          8. “Confidential Information” Defined. For purposes of this Agreement, “confidential information” includes all information, knowledge or data (whether or not a trade secret or protected by laws pertaining to intellectual property) not generally known outside the Company (unless as a result of a breach of any of the obligations imposed by this Agreement) concerning the business operations, performance and other information of the Company or other affiliated entities as described in Section 7 above. Such information may without limitation include information relating to data, finances, marketing, pricing, profit margins, underwriting, claims, loss control, marketing and business plans, renewals, software, processing, vendors, administrators, customers or prospective customers, products, brokers, agents and employees.

          9. Competition. Executive hereby agrees that, while he is employed by the Company, and for a period of 6 months following the date of his termination of employment with the Company for any reason, he will not, directly or indirectly, without the prior written approval of the CEO, enter into any business relationship (either as principal, agent, board member, officer, consultant, stockholder, employee or in any other capacity) with any business or other entity that at any relevant time is engaged in the business of insurance in direct or indirect competition

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with the Company or any of its affiliates (a “Competitor”); provided, however, that such prohibited activity shall not include the ownership of less than 5% of the outstanding securities of any publicly-traded corporation (determined by vote or value) regardless of the business of such corporation. Upon the written request of Executive, the CEO will determine whether a business or other entity constitutes a “Competitor” for purposes of this Section 9; provided that the CEO may require Executive to provide such information as the CEO determines to be necessary to make such determination, and further provided that the current and continuing effectiveness of such determination may be conditioned on the accuracy of such information, and on such other factors as the CEO may determine.

          10. Solicitation. Executive agrees that while he is employed by the Company, and for a period of 24 months following his termination of employment with the Company for any reason, he will not employ, offer to employ, engage as a consultant, or form an association with any person who is then, or who during the preceding one year was, an employee of the Company or any subsidiary or affiliate of the Company or any successor or purchaser of any portion thereof, nor will he assist any other person or entity in soliciting for employment or consultation any person who is then, or who during the preceding one year was, an employee of the Company or any subsidiary or affiliate of the Company or any successor or purchaser of any portion thereof.

          11. Non-interference. Executive agrees that while he is employed by the Company, and for a period of 24 months following his termination of employment with the Company for any reason, he will not disturb or attempt to disturb any business relationship or agreement between either the Company or any subsidiary or affiliate of the Company or any successor or purchaser of any portion thereof, and any other person or entity.

          12. Assistance with Claims. Executive agrees that, while he is employed by the Company, and for a reasonable period (not less than 60 months from the date of termination) thereafter, he will be available, on a reasonable basis, to assist the Company and its subsidiaries and affiliates in the prosecution or defense of any claims, suits, litigation, arbitrations, investigations, or other proceedings, whether pending or threatened (“Claims”) that may be made or threatened by or against the Company or any of its subsidiaries or affiliates. Executive agrees, unless precluded by law, to promptly inform the Company if he is requested (i) to testify or otherwise become involved in connection with any Claim against the Company or any subsidiary or affiliate or (ii) to assist or participate in any investigation (whether

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governmental or private) of the Company or any subsidiary or affiliate or any of their actions, whether or not a lawsuit has been filed against the Company or any of its subsidiaries or affiliates relating thereto. The Company agrees to provide reasonable compensation, including reasonable attorney’s fees, to Executive for such assistance provided during such period. Nothing in this Section 12 is intended or shall be construed to prevent Executive from cooperating fully with any governmental investigation or review as required by applicable law or regulation.

          13. Return of Materials. Executive shall, at any time upon the request of the Company, and in any event upon the termination of his employment with the Company for any reason, immediately return and surrender to the Company all originals and all copies, regardless of medium, of any property belonging to the Company created or obtained by Executive as a result of or in the course of or in connection with his employment with the Company, regardless of whether such materials constitute proprietary information, provided that Executive shall be under no obligation to return written materials acquired from third parties which are generally available to the public. Executive acknowledges that all such materials are, and will remain, the exclusive property of the Company.

          14. Scope of Covenants.

          (a) The Executive acknowledges that: (a) as a senior executive of the Company he has and will have access to confidential information concerning not only the business segments for which he may have been responsible (a non-exhaustive summary of which appears in the Company’s reports on Forms 10-K and 10-Q filed with the Securities and Exchange Commission), but the entire range of businesses in which the Company was engaged; (b) that the businesses segments for which he may have been responsible and the Company’s businesses are conducted nation-wide; and (c) that the Company’s confidential information, if disclosed or utilized without its authorization would irreparably harm the Company in: (i) obtaining renewals of existing customers; (ii) selling new business; (iii) maintaining and establishing existing and new relationships with employees, agents, brokers, vendors; and (iv) other ways arising out of the conduct of the businesses in which the Company and its affiliates are engaged.

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          (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: (a) the scope of this Agreement be national and international; (b) its breadth include the entire insurance industry; and (c) the duration of the restrictions upon the Executive be as indicated therein.

          (c) The Executive acknowledges that the Company’s customer, employee and business relationships are long-standing, near permanent and therefore are of critical value to the Company. The Executive agrees that neither any of the provisions in this Agreement nor any enforcement of it by the Company alters or will alter his ability to earn a livelihood for himself and his family, and further that both said provisions and said enforcement are reasonably necessary to protect the Company’s legitimate business and property interests and relationships, especially those which he was responsible for developing or maintaining. The Executive agrees that his actual or threatened breach of the covenants set forth in Sections 7 through 13 above would cause the Company irreparable harm and that the Company would be entitled to an injunction, in addition to whatever other remedies may be available, to restrain such actual or threatened breach. The Executive agrees that if bond is required in order for the Company to obtain such relief, such bond need only be in a nominal amount and that he shall reimburse the Company for all costs of any such suit, including the Company’s reasonable attorneys’ fees. The Executive consents to the filing of any such suit against him in any of the state or federal courts located in Illinois or any state in which Executive resides. He further agrees that in the event of such suit or any other action arising out of or relating to this Agreement, the parties shall be bound by and the court shall apply the internal laws of the State of Illinois, irrespective of rules regarding choice of law or conflicts of laws.

          (d) If he has not already done so, Executive agrees to be bound by and to execute the Company’s Confidentiality, Computer Responsibility and Professional Certification Agreement, a copy of which is attached hereto and incorporated by reference herein.

          (e) For purposes of Sections 7 through 14 hereof, the “Company” shall include all subsidiaries and affiliates of the Company and CNAF, as well as the Company.

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          15. Effect of Covenants. Nothing in Sections 7 through 14 shall be construed to limit or otherwise adversely affect any rights, remedies or options that the Company would possess in the absence of the provisions of such Sections.

          16. Revision. The parties hereto expressly agree that in the event that any of the provisions, covenants, warranties or agreements in this Agreement are held to be in any respect an unreasonable restriction upon Executive or are otherwise invalid, for whatsoever cause, then the court or arbitrator so holding is hereby authorized to (a) reduce the territory to which said covenant, warranty or agreement pertains, the period of time in which said covenant, warranty or agreement operates or the scope of activity to which said covenant, warranty or agreement pertains or (b) effect any other change to the extent necessary to render any of the restrictions contained in this Agreement enforceable.

          17. Severability. Each of the terms and provisions of this Agreement is to be deemed severable in whole or in part and, if any term or provision of the application thereof in any circumstances should be invalid, illegal or unenforceable, the remaining terms and provisions or the application thereof to circumstances other than those as to which it is held invalid, illegal or unenforceable, shall not be affected thereby and shall remain in full force and effect.

          18. Binding Agreement; Assignment. This Agreement shall be binding upon the parties hereto and their respective heirs, successors, personal representatives and assigns. The Company shall have the right to assign this Agreement to any successor in interest to the business, or any majority part thereof, of the Company or any joint venture or partnership to which the Company is a joint venturer or general partner which conducts substantially all of the Company’s business. Executive shall not assign any of his obligations or duties hereunder, and any such attempted assignment shall be null and void.

          19. Controlling Law; Jurisdiction. This Agreement shall be governed by, interpreted and construed according to the laws of the State of Illinois (without regard to choice of law or conflict of laws principles).

          20. Entire Agreement. Except for the Payback Agreement or as otherwise expressly set forth herein, this Agreement contains the entire agreement of the parties with regard to the

15

subject matter hereof, supersedes all prior agreements and understandings, written or oral, and may only be amended by an agreement in writing signed by the parties hereto.

          21. Additional Documents. Each party hereto shall, from time to time, upon request of the other party, execute any additional documents which shall reasonably be required to effectuate the intent and purposes of this Agreement.

          22. Incorporation. The introductory recitals hereof are incorporated in this Agreement and are binding upon the parties hereto.

          23. Failure to Enforce. The failure to enforce any of the provisions of this Agreement shall not be construed as a waiver of such provisions. Further, any express waiver by either party with respect to any breach of any provision hereunder by the other party shall not constitute a waiver of such party’s right to thereafter fully enforce each and every provision of this Agreement.

          24. Survival. Except as otherwise expressly provided herein, the obligations set forth in this Agreement shall survive the termination, for any reason whatsoever, of Executive’s employment with the Company, including without limitation Sections 7 through 13 of this Agreement.

          25. Headings. All numbers and headings contained herein are for reference only and are not intended to qualify, limit or otherwise affect the meaning or interpretation of any provision contained herein.

          26. Notices. Notices and all other communications provided for in this Agreement shall be in writing and shall be delivered personally or sent by registered or certified mail, return receipt requested, postage prepaid (provided that international mail shall be sent via overnight or two-day delivery), or sent by facsimile or prepaid overnight courier to the parties at the addresses set forth below (or such other addresses as shall be specified by the parties by like notice). Such notices, demands, claims and other communications shall be deemed given:

          (a) in the case of delivery by overnight service with guaranteed next day delivery, the next day or the day designated for delivery;

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          (b) in the case of certified or registered U.S. mail, five days after deposit in the U.S. mail; or

          (c) in the case of facsimile, the date upon which the transmitting party received confirmation of receipt by facsimile, telephone or otherwise;

provided, however, that in no event shall any such communications be deemed to be given later than the date they are actually received. Communications that are to be delivered by the U.S. mail or by overnight service or two-day delivery service are to be delivered to the addresses set forth below:

If to the Company:

CONTINENTAL CASUALTY COMPANY
333 S. Wabash
Chicago, IL 60604
Attn: Corporate Secretary

If to Executive:

Larry A. Haefner
90 Grandview Drive
Glastonbury, CT 06033

or to such other address as either party shall furnish to the other party in writing in accordance with the provisions of this Section 26.

          27. Gender. The masculine, feminine or neuter pronouns used herein shall be interpreted without regard to gender, and the use of the singular or plural shall be deemed to include the other whenever the context so requires.

          28. Arbitration of All Disputes. Except as otherwise provided hereinbelow, any controversy or claim arising out of or relating to this Agreement (or the breach thereof) shall be

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settled by final, binding and non-appealable arbitration in Chicago, Illinois by three arbitrators. Except as otherwise expressly provided in this Section 28, the arbitration shall be conducted in accordance with the rules of the American Arbitration Association (the “Association”) then in effect. One of the arbitrators shall be appointed by the Company, one shall be appointed by Executive, and the third shall be appointed by the first two arbitrators. If the first two arbitrators cannot agree on the third arbitrator within 30 days of the appointment of the second arbitrator, then the third arbitrator shall be appointed by the Association. This Section 28 shall not be applicable with respect to any subject matter or controversy or relating to the provisions of Sections 7 through 14 of this Agreement.

          IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the Effective Date.

CONTINENTAL CASUALTY COMPANY

By:	/s/ Thomas Pontarelli Thomas Pontarelli
Title:	Executive Vice President & Chief Administration Officer
/s/ Larry A. Haefner
Larry A. Haefner

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ADDENDUM TO

EMPLOYMENT AGREEMENT

GRANT OF STOCK APPRECIATION RIGHTS PAID IN STOCK

          THIS ADDENDUM to EMPLOYMENT AGREEMENT (the “Addendum”) is made as of even date with Employment Agreement to which it is attached and into which it is incorporated (the “Agreement”), by and between Continental Casualty Company, an Illinois insurance company (the “Company”), and Larry A. Haefner (the “Executive”);

WITNESSETH:

          WHEREAS, the Company and the Executive wish to enter into a written agreement setting forth the terms and conditions for the granting of certain stock appreciation rights paid in stock as set forth below;

          NOW, THEREFORE, in consideration of the foregoing premises in the Agreement and in this Addendum, the parties hereto agree as follows:

     1. Stock Appreciation Rights Paid in Stock. Upon execution of the Agreement and this Addendum by both parties and in the event of approval by the Compensation Committee (the “Committee”) of CNA Financial Corporation’s (“CNAF”) Board of Directors as provided herein, the Executive shall be granted 15,000 stock appreciation rights paid in stock (the “SARs”) of CNAF’s common stock. For purposes of considering such approval, the Company shall take up such consideration at the next scheduled meeting of said Committee. For purposes of this Agreement and Addendum and subject to Committee approval, the grant date shall be the later of the Executive’s first day of employment or the first date when both Executive and the Company have signed the Agreement (the “Grant Date”). The Executive’s right to the SARs pursuant to this provision shall accrue as described in the vesting period provision set forth at Section 3 below (the “Vesting Period”). The Executive may exercise such SARs at any time prior to the tenth anniversary of the date of execution of the Agreement. The Executive’s exercise of all SARs shall be performed in accordance with the terms of the CNA Financial

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Corporation 2000 Incentive Compensation Plan (the “Plan”). Executive’s rights with respect to all SARs that are the subject of this provision shall be governed by the terms of the Plan.

     2. Vesting Period. With respect to all SARs which are the subject of the rights described in the provisions set forth above, the Vesting Period shall begin on the Grant Date. The Vesting Period with respect to each installment shown on the schedule shall end on the Vesting Date applicable to such installment, so long as you are employed by Continental Casualty Company or an affiliate on such a date:

	VESTING DATE APPLICABLE TO
INSTALLMENT	INSTALLMENT
One quarter of total SARs determined as indicated in paragraph 1.	One year from the Date of Grant
One quarter of total SARs determined as indicated in paragraph 1.	Two years from the Date of Grant
One quarter of total SARs determined as indicated in paragraph 1.	Three years from the Date of Grant
One quarter of total SARs determined as indicated in paragraph 1.	Four years from the Date of Grant

          All SARs shall be subject to any restrictions imposed by the Securities Act of 1933 or the Securities Exchange Act of 1934, as amended or the rules thereto.

     3. Effective Date. Any term or provision contained in this Addendum to the contrary herein notwithstanding, the terms and provisions of this Addendum and all rights granted herein shall be subject to the provisions of the Plan and to the prior review and approval of the Committee.

     4. Application of IRC Section 162(m). In the event the Executive is or becomes a proxy-named executive or the Company in relation to the Executive is otherwise subject to the provisions of Section 162(m) of the Internal Revenue Code, the Company may defer the payment of all compensation to which Executive is entitled pursuant to this Addendum or the Agreement or otherwise take all measures, the Company reasonably deems necessary or advisable to comply with said Section 162(m) of the Internal Revenue Code or any successor

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provision with respect to deductibility of executive compensation. All deferred compensation will be credited to the Executive’s SES-CAP account and shall be subject to the terms thereof.

     5. Entire Agreement. Subject to the Employment Agreement (the “Agreement’) to which this Addendum is attached as an addendum thereunder, this Addendum, in conjunction with the Agreement in its entirety, contains the entire agreement of the parties with regard to the subject matter hereof, supersedes all prior agreements and understandings regarding such subject matter, whether written or oral, and may only be amended by an agreement in writing signed by the parties thereto.

     6. No Effect on Agreement; Primacy. Except as otherwise specifically set forth in this Addendum, all terms and conditions contained in the Agreement of which this Addendum is made part are and shall remain unmodified hereby. In the event any term or provision of this Addendum is in conflict or inconsistent with any term or provision of the Agreement, this Addendum shall prevail and take precedence.

          IN WITNESS WHEREOF, the parties hereto have executed this Addendum as of the date set forth hereinabove.

CONTINENTAL CASUALTY COMPANY		LARRY A. HAEFNER
By:	/s/ Thomas Pontarelli Thomas Pontarelli	/s/ Larry A. Haefner
Title:	Executive Vice President & Chief Administration Officer	April 7, 2008
		Signing Date

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EX-31.1

EXHIBIT 31.1

SARBANES-OXLEY ACT SECTION 302

CERTIFICATION OF CHIEF EXECUTIVE OFFICER

I, Thomas F. Motamed, certify that:

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

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

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

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

Dated: May 4, 2009	By	/s/ Thomas F. Motamed
		Thomas F. Motamed
		Chief Executive Officer

EX-31.2

EXHIBIT 31.2

SARBANES-OXLEY ACT SECTION 302

CERTIFICATION OF CHIEF FINANCIAL OFFICER

I, D. Craig Mense, certify that:

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

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

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

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

Dated: May 4, 2009	By	/s/ D. Craig Mense
		D. Craig Mense
		Chief Financial Officer

EX-32.1

EXHIBIT 32.1

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

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

• the Company’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2009 filed on the date hereof with the Securities and Exchange Commission (the Report) fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

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

Dated: May 4, 2009

/s/ Thomas F. Motamed

Thomas F. Motamed

Chief Executive Officer

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

EX-32.2

EXHIBIT 32.2

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

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

• the Company’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2009 filed on the date hereof with the Securities and Exchange Commission (the Report) fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

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

Dated: May 4, 2009

/s/ D. Craig Mense

D. Craig Mense

Chief Financial Officer

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