Fair Value

3 Months Ended

Mar. 31, 2012

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 type of financial instruments being measured and the methodologies and inputs used at March 31, 2012 were consistent with those disclosed in the Annual Report on Form 10-K for the year ended December 31, 2011.

Prices may fall within Level 1, 2 or 3 depending upon the methodologies and inputs used to estimate fair value for each specific security. In general, the Company seeks to price securities using third party pricing services. Securities not priced by pricing services are submitted to independent brokers for valuation and, if those are not available, internally developed pricing models are used to value assets using methodologies and inputs the Company believes market participants would use to value the assets.

The Company performs control procedures over information obtained from pricing services and brokers to ensure prices received represent a reasonable estimate of fair value and to confirm representations regarding whether inputs are observable or unobservable. Procedures include (i) the review of pricing service or broker pricing methodologies, (ii) back-testing, where past fair value estimates are compared to actual transactions executed in the market on similar dates, (iii) exception reporting, where changes in price, period-over-period, are reviewed and challenged with the pricing service or broker based on exception criteria, (iv) detailed analyses, where the Company independently validates information regarding inputs and assumptions for individual securities and (v) pricing validation, where prices received are compared to prices independently estimated by the Company.

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:

March 31, 2012	Level 1			Level 2			Level 3			Total
(In millions)
Fixed maturity securities:
Corporate and other bonds				$	20,791		$	485		$	21,276
States, municipalities and political subdivisions					10,010			173			10,183
Asset-backed:
Residential mortgage-backed					5,547			447			5,994
Commercial mortgage-backed					1,224			105			1,329
Other asset-backed					655			384			1,039
Total asset-backed	$	—			7,426			936			8,362
U.S. Treasury and obligations of government-sponsored enterprises		194			42						236
Foreign government		124			531						655
Redeemable preferred stock		5			55			53			113
Fixed maturities available-for-sale		323			38,855			1,647			40,825
Fixed maturities, trading		208			39			101			348
Total fixed maturities	$	531		$	38,894		$	1,748		$	41,173
Equity securities available-for-sale	$	115		$	109		$	74		$	298
Equity securities, trading		715			2			11			728
Total equity securities	$	830		$	111		$	85		$	1,026
Short term investments	$	4,717		$	583					$	5,300
Other invested assets							$	11			11
Receivables					81			4			85
Life settlement contracts								115			115
Separate account business		5			393			4			402
Payable to brokers		(254	)		(16	)		(12	)		(282	)

December 31, 2011	Level 1			Level 2			Level 3			Total
(In millions)
Fixed maturity securities:
Corporate and other bonds				$	20,396		$	482		$	20,878
States, municipalities and political subdivisions					9,611			171			9,782
Asset-backed:
Residential mortgage-backed					5,323			452			5,775
Commercial mortgage-backed					1,295			59			1,354
Other asset-backed					612			343			955
Total asset-backed	$	—			7,230			854			8,084
U.S. Treasury and obligations of government-sponsored enterprises		451			42						493
Foreign government		92			544						636
Redeemable preferred stock		5			53						58
Fixed maturities available-for-sale		548			37,876			1,507			39,931
Fixed maturities, trading					8			101			109
Total fixed maturities	$	548		$	37,884		$	1,608		$	40,040
Equity securities available-for-sale	$	124		$	113		$	67		$	304
Equity securities, trading		609						14			623
Total equity securities	$	733		$	113		$	81		$	927
Short term investments	$	4,570		$	508		$	27		$	5,105
Other invested assets								11			11
Receivables					79			8			87
Life settlement contracts								117			117
Separate account business		21			373			23			417
Payable to brokers		(32	)		(20	)		(23	)		(75	)

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 months ended March 31, 2012 and 2011:

				Net Realized Gains (Losses) and Net Change in Unrealized Gains (Losses)																						Unrealized Gains (Losses) Recognized in Net Income on Level 3 Assets and
2012	Balance, January 1			Included in Net Income			Included in OCI			Purchases		Sales			Settlements			Transfers into Level 3		Transfers out of Level 3			Balance, March 31			Liabilities Held at March 31
(In millions)
Fixed maturity securities:
Corporate and other bonds	$	482		$	3		$	4		$	78	$	(86	)	$	(19	)	$	33	$	(10	)	$	485
States, municipalities and political subdivisions		171						2																173
Asset-backed:
Residential mortgage-backed		452			1			(4	)		38					(7	)				(33	)		447
Commercial mortgage-backed		59						4			42													105
Other asset-backed		343			4			4			176		(77	)		(25	)				(41	)		384
Total asset-backed		854			5			4			256		(77	)		(32	)		—		(74	)		936
Redeemable preferred stock		—									53													53
Fixed maturities available-for-sale		1,507			8			10			387		(163	)		(51	)		33		(84	)		1,647
Fixed maturities, trading		101			(7	)					7													101		$	(7	)
Total fixed maturities	$	1,608		$	1		$	10		$	394	$	(163	)	$	(51	)	$	33	$	(84	)	$	1,748		$	(7	)
Equity securities available-for-sale	$	67					$	(3	)	$	11	$	(1	)									$	74		$	(2	)
Equity securities trading		14		$	(3	)																		11			(3	)
Total equity securities	$	81		$	(3	)	$	(3	)	$	11	$	(1	)	$	—		$	—	$	—		$	85		$	(5	)
Short term investments	$	27								$	12				$	(39	)						$	—
Other invested assets		11																						11
Life settlement contracts		117		$	3											(5	)							115		$	(1	)
Separate account business		23										$	(19	)										4
Derivative financial instruments, net		(15	)		(6	)	$	13			1		(5	)		4								(8	)		1

				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
2011	Balance, January 1			Included in Net  Income			Included in OCI			Purchases		Sales			Settlements								Balance, March 31			Held at March 31
(In millions)
Fixed maturity securities:
Corporate and other bonds	$	624		$	4		$	(5	)	$	41	$	(20	)	$	(27	)	$	9	$	(50	)	$	576
States, municipalities and political subdivisions		266						1								(79	)							188
Asset-backed:
Residential mortgage-backed		767			1			2			47		(26	)		(22	)				(31	)		738
Commercial mortgage- backed		73			3			16					(4	)										88
Other asset-backed		359			4						200		(87	)		(31	)							445
Total asset-backed		1,199			8			18			247		(117	)		(53	)		—		(31	)		1,271
Redeemable preferred stock		3			3			(3	)				(3	)										—
Fixed maturities available-for-sale		2,092			15			11			288		(140	)		(159	)		9		(81	)		2,035
Fixed maturities, trading		184			1						1		(4	)										182
Total fixed maturities	$	2,276		$	16		$	11		$	289	$	(144	)	$	(159	)	$	9	$	(81	)	$	2,217		$	—
Equity securities available-for-sale	$	26		$	(1	)	$	(1	)	$	15	$	(9	)									$	30		$	(3	)
Equity securities, trading		6																						6
Total equity securities	$	32		$	(1	)	$	(1	)	$	15	$	(9	)	$	—		$	—	$	—		$	36		$	(3	)
Short term investments	$	27								$	12				$	(2	)			$	(10	)	$	27
Other invested assets		26		$	2							$	(19	)										9		$	1
Life settlement contracts		129			3											(5	)							127			(1	)
Separate account business		41											(2	)										39
Derivative financial instruments, net		(21	)		(8	)	$	(15	)							8								(36	)

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 determine the fair value of the security. 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 transfers between Level 1 and Level 2 during the three months ended March 31, 2012 and 2011. The Company's policy is to recognize transfers between levels at the beginning of quarterly reporting periods.

Significant Unobservable Inputs

The table below presents quantitative information about the significant unobservable inputs utilized by the Company in the fair value measurements of Level 3 assets. Valuations for assets and liabilities not presented in the table below are primarily based on broker/dealer quotes for which there is a lack of transparency as to inputs used to develop the valuations. The quantitative detail of unobservable inputs from these broker quotes is neither provided nor reasonably available to the Company.

March 31, 2012	Fair Value		Valuation Technique(s)	Unobservable Input(s)	Range (Weighted Average)
(In millions)
Assets
Fixed maturity securities	$	204	Discounted cash flow	Expected call date assumption	0.5- 5.5 years (2.2 years)
		53	Market approach	Private offering price	$26.5 million per unit
Equity securities		69	Market approach	Private offering price	$0.10 - $4,023 per share ($211.01 per share)
Life settlement contracts		115	Discounted cash flow	Discount rate risk premium Mortality assumption	9% 65% - 928% (181%)

For fixed maturity securities, an increase to the expected call date assumption or decrease in the private offering price would result in a lower fair value measurement. For equity securities, an increase in the private offering price would result in a higher fair value measurement. For life settlement contracts, an increase in the discount rate risk premium or decrease in the mortality assumption would result in a lower fair value measurement.

Financial Assets and Liabilities Not Measured at Fair Value

The methods and assumptions used to estimate the fair value for financial assets and liabilities not measured at fair value were consistent with those disclosed in the Annual Report on Form 10-K for the year ended December 31, 2011.

The carrying amount, estimated fair value and the level of the fair value hierarchy 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 tables below. The carrying amounts reported on the Consolidated Condensed Balance Sheets for cash and short term investments not carried at fair value and certain other assets and liabilities approximate fair value due to the short term nature of these items.

	Carrying		Estimated Fair Value
March 31, 2012	Amount		Level 1	Level 2		Level 3		Total
(In millions)
Financial Assets:
Other invested assets, primarily mortgage loans	$	281				$	295	$	295
Financial Liabilities:
Premium deposits and annuity contracts		108					112		112
Short term debt		88		$	84		5		89
Long term debt		8,954			9,457		208		9,665

December 31, 2011	Carrying Amount		Estimated Fair Value
(In millions)
Financial assets:
Other invested assets, primarily mortgage loans	$	234	$	247
Financial liabilities:
Premium deposits and annuity contracts		109		114
Short term debt		88		90
Long term debt		8,913		9,533