Fair Value

9 Months Ended

Sep. 30, 2011

Fair Value [Abstract]

Fair Value

3. 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.

The fair values of CNA's life settlement contracts are included in Other assets. Equity options purchased are included in Equity securities, and all other derivative assets are included in Receivables. Derivative liabilities are included in Payable to brokers. Assets and liabilities measured at fair value on a recurring basis are summarized in the tables below:

September 30, 2011	Level 1			Level 2			Level 3			Total
(In millions)
Fixed maturity securities:
Corporate and other bonds				$	20,280		$	619		$	20,899
States, municipalities and political subdivisions					9,355			182			9,537
Asset-backed:
Residential mortgage-backed					5,219			631			5,850
Commercial mortgage-backed					1,090			159			1,249
Other asset-backed					607			429			1,036
Total asset-backed	$	—			6,916			1,219			8,135
U.S. Treasury and obligations of government- sponsored enterprises		176			61						237
Foreign government		92			490						582
Redeemable preferred stock		3			54						57
Fixed maturities available-for-sale		271			37,156			2,020			39,447
Fixed maturities, trading					122			111			233
Total fixed maturities	$	271		$	37,278		$	2,131		$	39,680
Equity securities available-for-sale	$	179		$	116		$	32		$	327
Equity securities, trading		585						12			597
Total equity securities	$	764		$	116		$	44		$	924
Short term investments	$	5,276		$	566		$	6		$	5,848
Other invested assets					6			10			16
Receivables					56			4			60
Life settlement contracts								125			125
Separate account business		23			360			35			418
Payable to brokers		(179	)		(53	)		(32	)		(264	)

December 31, 2010	Level 1			Level 2			Level 3			Total
(In millions)
Fixed maturity securities:
Corporate and other bonds				$	20,412		$	624		$	21,036
States, municipalities and political subdivisions					7,623			266			7,889
Asset-backed:
Residential mortgage-backed					5,324			767			6,091
Commercial mortgage-backed					920			73			993
Other asset-backed					404			359			763
Total asset-backed	$	—			6,648			1,199			7,847
U.S. Treasury securities and obligations of government-sponsored enterprises		76			61						137
Foreign government		115			505						620
Redeemable preferred stock		3			48			3			54
Fixed maturities available-for-sale		194			35,297			2,092			37,583
Fixed maturities, trading					47			184			231
Total fixed maturities	$	194		$	35,344		$	2,276		$	37,814
Equity securities available-for-sale	$	288		$	126		$	26		$	440
Equity securities, trading		640						6			646
Total equity securities	$	928		$	126		$	32		$	1,086
Short term investments	$	6,079		$	974		$	27		$	7,080
Other invested assets								26			26
Receivables					74			2			76
Life settlement contracts								129			129
Separate account business		28			381			41			450
Payable to brokers		(328	)		(79	)		(23	)		(430	)
Discontinued operations investments, included in Other liabilities		11			60						71

The tables below present reconciliations for all assets and liabilities measured at fair value on a recurring basis using significant unobservable inputs (Level 3) for the three and nine months ended September 30, 2011 and 2010:

				Net Realized Gains (Losses) and Net Change in Unrealized Gains (Losses)														Transfers into Level 3		Transfers out of Level 3						Unrealized Gains (Losses) Recognized in Net Income on Level 3 Assets and  Liabilities Held at September 30
2011	Balance, July 1			Included in Net Income			Included in OCI			Purchases		Sales			Settlements								Balance, September 30
(In millions)
Fixed maturity securities:
Corporate and other bonds	$	812		$	(7	)	$	(3	)	$	113	$	(107	)	$	(47	)	$	12	$	(154	)	$	619		$	(10	)
States, municipalities and political subdivisions		179									3													182
Asset-backed:
Residential mortgage-backed		687			1			(5	)		73		(81	)		(13	)				(31	)		631
Commercial mortgage- backed		95						(7	)		76										(5	)		159
Other asset-backed		491			(5	)		(6	)		114		(105	)		(25	)		2		(37	)		429			(4	)
Total asset-backed		1,273			(4	)		(18	)		263		(186	)		(38	)		2		(73	)		1,219			(4	)
Fixed maturities available-for-sale		2,264			(11	)		(21	)		379		(293	)		(85	)		14		(227	)		2,020			(14	)
Fixed maturities, trading		114			(3	)																		111			(3	)
Total fixed maturities	$	2,378		$	(14	)	$	(21	)	$	379	$	(293	)	$	(85	)	$	14	$	(227	)	$	2,131		$	(17	)
Equity securities available-for-sale	$	36										$	(1	)						$	(3	)	$	32
Equity securities trading		16		$	(4	)																		12		$	(4	)
Total equity securities	$	52		$	(4	)	$	—		$	—	$	(1	)	$	—		$	—	$	(3	)	$	44		$	(4	)
Short term investments	$	6																					$	6
Other invested assets		10																						10
Life settlement contracts		129		$	11										$	(15	)							125		$	(1	)
Separate account business		37										$	(2	)										35
Derivative financial instruments, net		(37	)		(13	)	$	11								11								(28	)		(1	)

			Net Realized Gains (Losses) and Net Change in Unrealized Gains (Losses)						Purchases, Sales, Issuances and Settlements			Transfers into Level 3		Transfers out of Level 3						Unrealized Gains (Losses) Recognized in Net Income on Level 3 Assets and Liabilities Held at September 30
2010	Balance, July 1		Included in Net Income			Included in OCI											Balance, September 30
(In millions)
Fixed maturity securities:
Corporate and other bonds	$	718	$	1		$	18		$	(83	)			$	(54	)	$	600		$	(1	)
States, municipalities and political subdivisions		539					3			(84	)							458
Asset-backed:
Residential mortgage-backed		659		1			(9	)		(5	)							646
Commercial mortgage-backed		95					3								(20	)		78
Other asset-backed		306		(1	)		7			(66	)							246
Total asset-backed		1,060		—			1			(71	)	$	—		(20	)		970			—
Redeemable preferred stock		1																1
Fixed maturities available-for-sale		2,318		1			22			(238	)				(74	)		2,029			(1	)
Fixed maturities, trading		191		(2	)					(1	)							188			(2	)
Total fixed maturities	$	2,509	$	(1	)	$	22		$	(239	)	$	—	$	(74	)	$	2,217		$	(3	)
Equity securities available-for-sale	$	4	$	(3	)				$	15		$	6				$	22		$	(4	)
Short term investments		21								(8	)			$	(11	)		2
Other invested assets		—		2						26								28			2
Life settlement contracts		134		8						(6	)							136			4
Separate account business		37								4								41
Derivative financial instruments, net		4		(3	)	$	(15	)		1								(13	)

				Net Realized Gains (Losses) and Net Change in Unrealized Gains (Losses)														Transfers into Level 3		Transfers out of Level 3			Balance, September 30			Unrealized Gains (Losses) Recognized in Net Income on Level 3 Assets and Liabilities Held at September 30
2011	Balance, January 1			Included in Net Income			Included in OCI			Purchases		Sales			Settlements
(In millions)
Fixed maturity securities:
Corporate and other bonds	$	624		$	(5	)	$	(6	)	$	459	$	(157	)	$	(144	)	$	52	$	(204	)	$	619		$	(11	)
States, municipalities and political subdivisions		266									3					(87	)							182
Asset-backed:
Residential mortgage-backed		767			(11	)		9			170		(164	)		(54	)				(86	)		631			(15	)
Commercial mortgage- backed		73			3			11			81		(4	)							(5	)		159
Other asset-backed		359						(6	)		441		(236	)		(80	)		2		(51	)		429			(4	)
Total asset-backed		1,199			(8	)		14			692		(404	)		(134	)		2		(142	)		1,219			(19	)
Redeemable preferred stock		3			3			(3	)				(3	)
Fixed maturities available-for-sale		2,092			(10	)		5			1,154		(564	)		(365	)		54		(346	)		2,020			(30	)
Fixed maturities, trading		184			(1	)							(72	)										111			6
Total fixed maturities	$	2,276		$	(11	)	$	5		$	1,154	$	(636	)	$	(365	)	$	54	$	(346	)	$	2,131		$	(24	)
Equity securities available-for-sale	$	26		$	(2	)	$	(1	)	$	19	$	(12	)				$	5	$	(3	)	$	32		$	(3	)
Equity securities trading		6			(9	)					1								14					12			(9	)
Total equity securities	$	32		$	(11	)	$	(1	)	$	20	$	(12	)	$	—		$	19	$	(3	)	$	44		$	(12	)
Short term investments	$	27								$	12				$	(23	)			$	(10	)	$	6
Other invested assets		26		$	3							$	(19	)										10		$	1
Life settlement contracts		129			20											(24	)							125			2
Separate account business		41											(6	)										35
Derivative financial instruments, net		(21	)		(32	)	$	(5	)							30								(28	)		(1	)

				Net Realized Gains (Losses) and Net Change in Unrealized Gains (Losses)					Purchases, Sales, Issuances and Settlements			Transfers into Level 3		Transfers out of Level 3						Unrealized Gains (Losses) Recognized in Net Income on Level 3 Assets and Liabilities Held at September 30
2010	Balance, January 1			Included in Net Income			Included in OCI										Balance, September 30
(In millions)
Fixed maturity securities:
Corporate and other bonds	$	609		$	10		$	56	$	29		$	23	$	(127	)	$	600		$	(2	)
States, municipalities and political subdivisions		756						9		(307	)							458
Asset-backed:
Residential mortgage-backed		629			(7	)		20		50					(46	)		646			(10	)
Commercial mortgage- backed		123			(1	)		1		6			7		(58	)		78			(2	)
Other asset-backed		348			3			29		(89	)				(45	)		246			(1	)
Total asset-backed		1,100			(5	)		50		(33	)		7		(149	)		970			(13	)
Redeemable preferred stock		2			6					(7	)							1
Fixed maturities available-for-sale		2,467			11			115		(318	)		30		(276	)		2,029			(15	)
Fixed maturities, trading		197			6					(15	)							188			5
Total fixed maturities	$	2,664		$	17		$	115	$	(333	)	$	30	$	(276	)	$	2,217		$	(10	)
Equity securities available-for-sale	$	11		$	(4	)			$	14		$	8	$	(7	)	$	22		$	(5	)
Short term investments		—								12			1		(11	)		2
Other invested assets		—			2					26								28			2
Life settlement contracts		130			25					(19	)							136			11
Separate account business		38								3								41
Discontinued operations investments		16					$	1		(2	)				(15	)		—
Derivative financial instruments, net		(48	)		(18	)		27		26								(13	)

Net realized and unrealized gains and losses are reported in Net income as follows:

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

Securities shown in the Level 3 tables may be transferred in or out of Level 3 based on the availability of observable market information used to verify pricing sources or used in pricing models. The availability of observable market information varies based on market conditions and trading volume and may cause securities to move in and out of Level 3 from reporting period to reporting period. There were no significant transfers between Level 1 and Level 2 during the three or nine months ended September 30, 2011. The Company's policy is to recognize transfers between levels at the beginning of quarterly reporting periods.

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

Fixed Maturity Securities

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

Equity Securities

Level 1 securities include publicly traded securities valued using quoted market prices. Level 2 securities are primarily non-redeemable preferred stocks and common stocks valued using pricing for similar securities, recently executed transactions, broker/dealer quotes and other pricing models utilizing observable inputs. Level 3 securities are priced using internal models with inputs that are not market observable.

Derivative Financial Instruments

Exchange traded derivatives are valued using quoted market prices and are classified within Level 1 of the fair value hierarchy. Level 2 derivatives include currency forwards valued using observable market forward rates. Over-the-counter derivatives, principally interest rate swaps, total return swaps, commodity swaps, credit default swaps, equity warrants and options, are valued using inputs including broker/dealer quotes and are classified within Level 2 or Level 3 of the valuation hierarchy, depending on the amount of transparency as to whether these quotes are based on information that is observable in the marketplace.

Short Term Investments

The valuation of securities that are actively traded or have quoted prices are classified as Level 1. These securities include money market funds and treasury bills. Level 2 primarily includes commercial paper, for which all inputs are observable. Level 3 securities include fixed maturity securities purchased within one year of maturity where broker/dealer quotes are significant inputs to the valuation and there is a lack of transparency to the market inputs used.

Life Settlement Contracts

The fair values of life settlement contracts are determined as the present value of the anticipated death benefits less anticipated premium payments based on contract terms that are distinct for each insured, as well as CNA's own assumptions for mortality, premium expense, and the rate of return that a buyer would require on the contracts, as no comparable market pricing data is available.

Separate Account Business

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

Financial Assets and Liabilities Not Measured at Fair Value

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

	September 30, 2011				December 31, 2010
	Carrying Amount		Estimated Fair Value		Carrying Amount		Estimated Fair Value
(In millions)
Financial assets:
Other invested assets	$	204	$	214	$	87	$	86
Financial liabilities:
Premium deposits and annuity contracts	$	108	$	110	$	104	$	105
Short term debt		1,206		1,210		647		662
Long term debt		8,026		8,633		8,830		9,243

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

The fair values of Other invested assets were based on the present value of the expected future cash flows discounted at the current interest rate for similar financial instruments.

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

Fair value of debt was based on observable quoted market prices when available. When quoted market prices were not available, the fair value for debt was based on quoted market prices of comparable instruments adjusted for differences between the quoted instruments and the instruments being valued or is estimated using discounted cash flow analyses, based on current incremental borrowing rates for similar types of borrowing arrangements.