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CNA FINANCIAL CORPORATION
(Exact name of registrant as specified in its charter)

(312) 822-5000
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:

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.

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S–K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10–K or any amendment to this Form 10–K. [ü ]

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Act).

As of February 23, 2004, 223,617,337 shares of common stock were outstanding. The aggregate market value of the common stock of CNA Financial Corporation held by non–affiliates of the registrant as of June 30, 2003 was approximately $548 million based on the closing price of $24.60 per share of the common stock on the New York Stock Exchange on June 30, 2003.

Portions of the CNA Financial Corporation Proxy Statement prepared for the 2004 annual meeting of shareholders, pursuant to Regulation 14A, are incorporated by reference into Part III of this Report.


Item					Page
Number					Number

				PART I
	1.	Business				3
	2.	Properties				10
	3.	Legal Proceedings				11
	4.	Submission of Matters to a Vote of Security Holders				11
			PART II
	5.	Market for the Registrant’s Common Stock and Related Stockholder Matters				12
	6.	Selected Financial Data				14
	7.	Management’s Discussion and Analysis of Financial Condition and Results of Operations				15
	7A.	Quantitative and Qualitative Disclosures about Market Risk				99
	8.	Financial Statements and Supplementary Data				104
	9.	Changes in and Disagreements with Accountants on Accounting and Financial Disclosure				193
	9A.	Controls and Procedures				193
			PART III
	10.	Directors and Executive Officers of the Registrant				194
	11.	Executive Compensation				194
	12.	Security Ownership of Certain Beneficial Owners and Management				195
	13.	Certain Relationships and Related Transactions				195
	14.	Principal Accounting Fees and Services				195
			PART IV
	15.	Financial Statements, Schedules, Exhibits and Reports on Form 8-K				196

CNA Financial Corporation (CNAF) was incorporated in 1967 and is an insurance holding company whose primary subsidiaries consist of property and casualty and life and group insurance companies. Collectively, CNAF and its subsidiaries are referred to as CNA or the Company. CNA’s property and casualty insurance operations are conducted by Continental Casualty Company (CCC), incorporated in 1897, and its affiliates, and The Continental Insurance Company (CIC), organized in 1853, and its affiliates. CIC became an affiliate of the Company in 1995 as a result of the acquisition of The Continental Corporation (Continental).

CNA serves a wide variety of customers, including small, medium and large businesses; insurance companies; associations; professionals; and groups and individuals with a broad range of insurance and risk management products and services.

Insurance products include property and casualty coverages; life, accident and health insurance; and retirement products and annuities. CNA services include risk management, information services, and claims administration. CNA products and services are marketed through independent agents, brokers, managing general agents and direct sales.

During 2003, CNA completed a strategic review of its operations and decided to concentrate efforts on its property and casualty business. As a result of this review, and the 2003 charges of $1,849 million after-tax ($2,845 million pretax) related to unfavorable net prior year development and a $396 million after-tax ($610 million pretax) increase in the provision for reinsurance and insurance receivables, a capital plan was developed to replenish statutory capital of the property and casualty subsidiaries adversely impacted by these charges. A summary of the capital plan, related actions, and other significant 2003 business decisions is discussed below:

The capital plan consists of the sale in November of 2003 of $750 million of a new series of CNA convertible preferred stock to Loews Corporation (Loews), the 90% owner of CNA’s outstanding shares, and a commitment from Loews for additional capital support of up to $500 million by February 27, 2004 through the purchase of surplus notes of CCC, CNA’s principal insurance subsidiary, in the event certain additions to CCC’s statutory capital were not achieved through asset sales. In addition, Loews committed up to an additional $150 million by March 31, 2004, in a form to be determined, to support the statutory capital of CCC in the event of additional shortfalls in relation to business and asset sales.

On December 31, 2003, CNA completed the sale of the majority of its Group Benefits business to Hartford Financial Services Group, Inc. (Hartford). The business sold included group life and accident, short and long term disability and certain other products. CNA’s group long term care and specialty medical businesses were excluded from the sale. Consideration from the sale was approximately $530 million, of which $485 million was received on December 31, 2003, resulting in an after-tax realized investment loss on the sale of $130 million during 2003. See Note P of the Consolidated Financial Statements included under Item 8 for further information.

In February of 2004, CNA entered into a definitive agreement to sell its individual life insurance business to Swiss Re Life & Health America Inc. (Swiss Re) for approximately $690 million. The business sold includes term, universal and permanent life insurance policies and individual annuity products. The transaction is expected to be completed on or before March 31, 2004, subject to certain customary closing

conditions and regulatory approvals. See Note T of the Consolidated Financial Statements included under Item 8 for further information.

After consideration of the increase in CCC’s statutory surplus resulting from the sale of the Group Benefits business, Loews purchased $46 million of CCC surplus notes in February of 2004, pursuant to the capital plan. In addition, the sale of CNA’s individual life business is expected to result in an addition to CCC’s statutory surplus in excess of $400 million. However, the sale of the individual life business was not consummated by February 26, 2004. As a result, Loews purchased $300 million of additional CCC surplus notes in February of 2004. Following the consummation of the individual life sale, CNA plans to seek approval from the insurance regulatory authority for the repayment of the surplus notes purchased in relation to such sale, although no assurance can be given that sale of the individual life business will be consummated or that the regulatory approval will be obtained.

In addition to the asset sales described above, and as part of the decision to focus on its property and casualty business, CNA withdrew from the assumed reinsurance business during 2003. In October of 2003, the Company entered into an agreement to sell the renewal rights for most of the treaty business of CNA Re to Folksamerica Reinsurance Company (Folksamerica). Under the terms of the transaction, Folksamerica will compensate CNA based upon the amount of premiums renewed by Folksamerica over the next two contract renewals. CNA will manage the run-off of its retained liabilities.

The Group Operations business, individual life and annuity insurance business and CNA Re absorbed approximately $150 million of the total shared corporate overhead expenses that are allocated to all of CNA’s businesses. The Company expects that the 2004 consolidated net results will include an approximate $50 million after-tax loss for these three businesses, primarily due to these corporate overhead expenses. The 2003 expense initiative, discussed below did not contemplate the sale or exit of these businesses, and therefore the savings from this initiative will be partially offset by these expenses. The Company is evaluating its corporate expense structure and anticipates taking actions in 2004 that will reduce these expenses.

The primary components of the expense initiative are a reduction of the workforce by approximately five percent, lower commissions and other acquisition costs, principally related to workers compensation, and reduced spending in other areas. As of December 31, 2003, the Company has achieved the targeted workforce reduction and approximately $28 million of associated severance and related costs have been recorded in 2003. Actions related to the commission and other acquisition expenses began in 2003 and will continue through 2004.

During February of 2004, CNA announced the decision to cease sales to new customers in its structured settlement and institutional markets businesses. Also, during 2003, CNA ceased sales to new customers in the individual and group long term care businesses. CNA will continue to accept new deposits and premiums only from existing customers for the institutional markets business and will service its existing commitments on all businesses in which new sales were ceased. These businesses will be managed as a run-off operation. CCC will provide credit enhancement to Continental Assurance (CAC) for certain of CAC’s investment and specialty medical products.

The property and casualty and life and health insurance industries are highly competitive both as to rate and service. CNA’s consolidated property and casualty subsidiaries compete not only with other stock insurance companies, but also with mutual insurance companies, reinsurance companies and other entities for both producers and customers. CNA must continuously allocate resources to refine and improve its insurance products and services.

Rates among insurers vary according to the types of insurers and methods of operation. CNA competes for business not only on the basis of rate, but also on the basis of availability of coverage desired by customers, ratings and quality of service, including claim adjustment services.

There are approximately 2,400 individual companies that sell property and casualty insurance and approximately 1,000 individual companies selling life and health insurance in the United States. CNA’s consolidated property and casualty subsidiaries ranked as the eleventh largest property and casualty insurance organization in the United States based upon 2002 statutory net written premiums.

The commercial property and casualty markets continue to realize significant rate increases, indicative of a hard market, while simultaneously using more strict underwriting criteria and requiring higher retention amounts for policyholders to further mitigate risk. The markets focus on underwriting profitability and the heightened perception of risk indicate the hard market will likely continue at a reduced level into 2004.

The insurance industry is subject to comprehensive and detailed regulation and supervision throughout the United States. Each state has established supervisory agencies with broad administrative powers relative to licensing insurers and agents, approving policy forms, establishing reserve requirements, fixing minimum interest rates for accumulation of surrender values and maximum interest rates of policy loans, prescribing the form and content of statutory financial reports and regulating solvency and the type and amount of investments permitted. Such regulatory powers also extend to premium rate regulations, which require that rates not be excessive, inadequate or unfairly discriminatory. In addition to regulation of dividends by insurance subsidiaries, intercompany transfers of assets may be subject to prior notice or approval by the state insurance regulators, depending on the size of such transfers and payments in relation to the financial position of the insurance affiliates making the transfer or payment.

Insurers are also required by the states to provide coverage to insureds who would not otherwise be considered eligible by the insurers. Each state dictates the types of insurance and the level of coverage that must be provided to such involuntary risks. CNA’s share of these involuntary risks is mandatory and generally a function of its respective share of the voluntary market by line of insurance in each state.

Insurance companies are subject to state guaranty fund and other insurance-related assessments. Guaranty fund and other insurance-related assessments are levied by the state departments of insurance to cover claims of insolvent insurers.

Reform of the U.S. tort liability system is another issue facing the insurance industry. Over the last decade, many states have passed some type of reform, but more recently, a number of state courts have modified or overturned these reforms. Additionally, new causes of action and theories of damages continue to be proposed in state court actions or by legislatures. Continued unpredictability in the law means that insurance underwriting and rating is expected to continue to be difficult in commercial lines, professional liability and some specialty coverages.

Although the Federal Government and its regulatory agencies do not directly regulate the business of insurance, federal legislative and regulatory initiatives can impact the insurance industry in a variety of ways. These initiatives and legislation include tort reform proposals; class action reform proposals; proposals to establish a privately financed trust to process asbestos bodily injury claims; proposals to overhaul the Superfund hazardous waste removal and liability statutes and various tax proposals affecting insurance companies. In 1999, Congress passed the Financial Services Modernization or “Gramm-Leach-Bliley” Act (GLB Act), which repealed portions of the Glass-Steagall Act and enabled closer

relationships between banks and insurers. Although “functional regulation” was preserved by the GLB Act for state oversight of insurance, additional financial services modernization legislation could include provisions for an alternate federal system of regulation for insurance companies.

CNAF’s domestic insurance subsidiaries are subject to risk-based capital requirements. Risk-based capital is a method developed by the National Association of Insurance Commissioners (NAIC) to determine the minimum amount of statutory capital appropriate for an insurance company to support its overall business operations in consideration of its size and risk profile. The formula for determining the risk-based capital requirements specifies various factors, weighted based on the perceived degree of risk, which are applied to certain financial balances and financial activity. The adequacy of a company’s actual capital is evaluated by a comparison to the risk-based capital requirements, as determined by the formula. Companies below minimum risk-based capital requirements are classified within certain levels, each of which determines a specified level of regulatory attention applicable to a company. As of December 31, 2003 and 2002, all of CNAF’s domestic insurance subsidiaries exceeded the minimum risk-based capital requirements.

Subsidiaries with insurance operations outside the United States are also subject to regulation in the countries in which they operate. CNA has operations in the United Kingdom, Canada, and other countries. Information related to regulation is set forth in the Management’s Discussion and Analysis (MD&A) included under Item 7.

Information related to terrorism insurance is set forth in the MD&A included under Item 7.

Information on CNA’s reinsurance activities is set forth in the MD&A included under Item 7 and in Note H of the Consolidated Financial Statements included under Item 8.

As of December 31, 2003, CNA had approximately 12,100 full-time equivalent (FTE) employees and has experienced satisfactory labor relations. CNA has never had work stoppages due to labor disputes.

In the second quarter of 2003, the Company announced a $200 million expense reduction initiative. One of the primary components of the initiative was a reduction of the workforce by approximately five percent. As of December 31, 2003, the Company has achieved the targeted workforce reduction.

During 2001, CNA announced two restructuring plans, which included FTE reductions of approximately 1,650 positions. See the MD&A included under Item 7 and Note O of the Consolidated Financial Statements included under Item 8 for further discussion regarding the expense reduction initiatives and the restructuring plans.

CNA has comprehensive benefit plans for substantially all of its employees, including retirement plans, savings plans, disability programs, group life programs and group healthcare programs. See Note J of the Consolidated Financial Statements included under Item 8 for further discussion of CNA’s benefit plans.

In 2003, CNA conducted its operations through five operating segments: Standard Lines, Specialty Lines, CNA Re, Group Operations and Life Operations. These segments are managed separately because of differences in their product lines and markets. In addition to these five operating segments, certain other activities are managed and reported in the Corporate and Other segment. Discussions of each segment including the products offered, the customers served and the distribution channels used are set forth in the MD&A included under Item 7 and in Note N of the Consolidated Financial Statements included under Item 8.


Years ended December 31		2003			2002			2001
(In millions, except ratio information)
Trade Ratios – GAAP basis (a)
	Loss and loss adjustment expense ratio		107.1	%		79.4	%		125.2	%
	Expense ratio		42.2			29.3			36.7
	Dividend ratio		1.4			0.9			1.5

	Combined ratio		150.7	%		109.6	%		163.4	%

Trade Ratios – Statutory basis (a)
	Loss and loss adjustment expense ratio		112.7	%		79.2	%		126.2	%
	Expense ratio		32.8			30.1			32.3
	Dividend ratio		1.1			1.0			1.7

	Combined Ratio		146.6	%		110.3	%		160.2	%

Individual Life and Group Life Insurance Inforce
	Individual life (b)	$	330,805		$	345,272		$	426,822
	Group life		58,163			92,479			70,910

Total		$	388,968		$	437,751		$	497,732

Other Data – Statutory basis (c)
	Property and casualty companies’ capital and surplus (d)	$	6,170		$	6,836		$	6,241
	Life and group companies’ capital and surplus		707			1,645			1,752
	Property and casualty companies’ written premiums to surplus ratio		1.1	%		1.3	%		1.3	%
	Life companies’ capital and surplus-percent to total liabilities		13.0	%		21.0	%		25.3	%
	Participating policyholders-percent of gross life insurance inforce		0.5	%		0.4	%		0.4	%

(a)

Trade ratios reflect the results of CNA’s property and casualty insurance subsidiaries. Trade ratios are industry measures of property and casualty underwriting results. The loss and loss adjustment expense ratio is the percentage of net incurred claim and claim adjustment expenses to net earned premiums. The primary difference in this ratio between accounting principles generally accepted in the United States of America (GAAP) and statutory accounting practices (SAP) is related to the treatment of active life reserves (ALR) related to long term care insurance products written in property and casualty insurance subsidiaries. For GAAP, ALR is classified as claim and claim adjustment expense reserves whereas for SAP, ALR is classified as unearned premium reserves. The expense ratio, using amounts determined in accordance with GAAP, is the percentage of underwriting and acquisition expenses (including the amortization of deferred acquisition expenses) to net earned premiums. The expense ratio, using amounts determined in accordance with SAP, is the percentage of acquisition and underwriting expenses (with no deferral of acquisition expenses) to net written premiums. The dividend ratio, using amounts determined in accordance with GAAP, is the ratio of dividends incurred to net earned premiums. The dividend ratio, using amounts determined in accordance with SAP, is the ratio of dividends paid to net earned premiums. The combined ratio is the sum of the loss and loss adjustment expense, expense and dividend ratios.

(b)

Lapse ratios for individual life insurance, as measured by surrenders and withdrawals as a percentage of average ordinary life insurance inforce, were 11.9%, 34.7%, and 8.7% in 2003, 2002 and 2001. (The 2002 lapse ratio includes the novation of CNA’s individual life reinsurance business. Excluding the novation, the 2002 lapse ratio was 7.6%.

(c)

Other data is determined in accordance with SAP. Life and group statutory capital and surplus as a percent of total liabilities is determined after excluding separate account liabilities and reclassifying the statutorily required Asset Valuation Reserve to surplus.

(d)

Surplus includes the property and casualty companies’ equity ownership of the life insurance subsidiaries in 2003, and the ownership of life and group insurance subsidiaries in 2002 and 2001. See Note P of the Consolidated Financial Statements included under Item 8 for further details.

The following table displays the distribution of gross written premiums for CNA’s operations by geographic concentration:

(a)

No other individual state, country or political subdivision accounts for more than 3.0% of gross written premiums.

Approximately 3.2%, 3.5% and 4.8% of CNA’s gross written premiums were derived from outside of the United States for the years ended December 31, 2003, 2002 and 2001. Gross written premiums from the United Kingdom were approximately 1.8%, 1.7%, and 3.3% of CNA’s premiums for the years ended December 31, 2003, 2002 and 2001. Premiums from any individual foreign country excluding the United Kingdom were not significant.

The following loss reserve development table illustrates the change over time of reserves established for property and casualty claim and claim adjustment expenses at the end of the preceding ten calendar years for CNA’s property and casualty insurance operations. The first section shows the reserves as originally reported at the end of the stated year. The second section, reading down, shows the cumulative amounts paid as of the end of successive years with respect to the originally reported reserve liability. The third section, reading down, shows re-estimates of the originally recorded reserves as of the end of each successive year, which is the result of the Company’s property and casualty insurance subsidiaries’ expanded awareness of additional facts and circumstances that pertain to the unsettled claims. The last section compares the latest re-estimated reserves to the reserves originally established, and indicates whether the original reserves were adequate or inadequate to cover the estimated costs of unsettled claims.

The loss reserve development table for property and casualty companies is cumulative and, therefore, ending balances should not be added since the amount at the end of each calendar year includes activity for both the current and prior years.


Calendar Year Ended		1993 (a)			1994 (a)			1995 (b)			1996			1997			1998			1999 (c)			2000			2001 (d)			2002 (e)			2003 (f)
(In millions)
Originally reported gross reserves for unpaid claim and claim adjustment expenses		$	20,812		$	21,639		$	31,044		$	29,357		$	28,533		$	28,317		$	26,631		$	26,408		$	29,551		$	25,648		$	31,282
Originally reported ceded recoverable			2,491			2,705			6,089			5,660			5,326			5,424			6,273			7,568			11,798			10,583			13,997

Originally reported net reserves for unpaid claim and claim adjustment expenses		$	18,321		$	18,934		$	24,955		$	23,697		$	23,207		$	22,893		$	20,358		$	18,840		$	17,753		$	15,065		$	17,285

Cumulative net paid as of:
	One year later	$	3,629		$	3,656		$	6,510		$	5,851		$	5,954		$	7,321		$	6,546		$	7,686		$	5,981		$	5,373		$	–
	Two years later		6,143			7,087			10,485			9,796			11,394			12,241			11,935			11,988			10,355			–			–
	Three years later		8,764			9,195			13,363			13,602			14,423			16,020			15,247			15,291			–			–			–
	Four years later		10,318			10,624			16,271			15,793			17,042			18,271			18,136			–			–			–			–
	Five years later		11,378			12,577			17,947			17,736			18,568			20,779			–			–			–			–			–
	Six years later		13,100			13,472			19,465			18,878			20,573			–			–			–			–			–			–
	Seven years later		13,848			14,394			20,410			20,828			–			–			–			–			–			–			–
	Eight years later		14,615			15,024			22,237			–			–			–			–			–			–			–			–
	Nine years later		15,161			15,602			–			–			–			–			–			–			–			–			–
	Ten years later		15,675			–			–			–			–			–			–			–			–			–			–
Net reserves re-estimated as of:
	End of initial year	$	18,321		$	18,934		$	24,955		$	23,697		$	23,207		$	22,893		$	20,358		$	18,840		$	17,753		$	15,065		$	17,285
	One year later		18,250			18,922			24,864			23,441			23,470			23,920			20,785			21,306			17,805			17,496			–
	Two years later		18,125			18,500			24,294			23,102			23,717			23,774			22,903			21,377			20,368			–			–
	Three years later		17,868			18,088			23,814			23,270			23,414			25,724			22,780			23,890			–			–			–
	Four years later		17,511			17,354			24,092			22,977			24,751			25,407			25,293			–			–			–			–
	Five years later		17,082			17,506			23,854			24,105			24,330			27,456			–			–			–			–			–
	Six years later		17,176			17,248			24,883			23,736			26,037			–			–			–			–			–			–
	Seven years later		17,017			17,751			24,631			25,250			–			–			–			–			–			–			–
	Eight years later		17,500			17,650			26,023			–			–			–			–			–			–			–			–
	Nine years later		17,443			18,193			–			–			–			–			–			–			–			–			–
	Ten years later		17,926			–			–			–			–			–			–			–			–			–			–

Total net (deficiency) redundancy		$	395		$	741		$	(1,068	)	$	(1,553	)	$	(2,830	)	$	(4,563	)	$	(4,935	)	$	(5,050	)	$	(2,615	)	$	(2,431	)	$	–

Reconciliation to gross re-estimated reserves:
	Net reserves re-estimated	$	17,926		$	18,193		$	26,023		$	25,250		$	26,037		$	27,456		$	25,293		$	23,890		$	20,368		$	17,496		$	–
	Re-estimated ceded recoverable		2,725			3,030			8,367			7,526			6,828			7,163			9,411			10,406			16,037			15,093			–

	Total gross re-estimated reserves	$	20,651		$	21,223		$	34,390		$	32,776		$	32,865		$	34,619		$	34,704		$	34,296		$	36,405		$	32,589		$	–

Net (deficiency) redundancy related to:
	Asbestos claims	$	(2,106	)	$	(2,073	)	$	(2,301	)	$	(2,402	)	$	(2,300	)	$	(2,056	)	$	(1,480	)	$	(1,414	)	$	(642	)	$	(642	)	$	–
	Environmental and mass tort claims		(909	)		(743	)		(785	)		(729	)		(751	)		(530	)		(629	)		(617	)		(153	)		(153	)		–

	Total asbestos and environmental		(3,015	)		(2,816	)		(3,086	)		(3,131	)		(3,051	)		(2,586	)		(2,109	)		(2,031	)		(795	)		(795	)		–
	Other claims		3,410			3,557			2,018			1,578			221			(1,977	)		(2,826	)		(3,019	)		(1,820	)		(1,636	)		–

Total net (deficiency) redundancy		$	395		$	741		$	(1,068	)	$	(1,553	)	$	(2,830	)	$	(4,563	)	$	(4,935	)	$	(5,050	)	$	(2,615	)	$	(2,431	)	$	–

(a)

Reflects reserves of CNA’s property and casualty insurance subsidiaries, excluding CIC reserves, which were acquired on May 10, 1995 (the Acquisition Date). Accordingly, the reserve development (net reserves recorded at the end of the year, as initially estimated, less net reserves re-estimated as of subsequent years) does not include CIC.

(b)

Includes CIC gross reserves of $9,713 million and net reserves of $6,063 million acquired on the Acquisition Date and subsequent development thereon.

(c)

Ceded recoverable includes reserves transferred under retroactive reinsurance agreements of $784 million as of December 31, 1999.

(d)

Effective January 1, 2001, CNA established a new life insurance company, CNAGLA. Further, on January 1, 2001 approximately $1,055 million of reserves were transferred from CCC to CNAGLA.

(e)

Effective October 31, 2002, CNA sold CNA Reinsurance Company Limited (CNA Re U.K.). As a result of the sale, net reserves were reduced by approximately $1,316 million. See Note P of the Consolidated Financial Statements included under Item 8 for further discussion of the sale.

(f)

Effective December 31, 2003, CNA sold CNAGLA. As a result of the sale, net reserves were reduced by approximately $1,309 million. See Note P of the Consolidated Financial Statements included under Item 8 for further discussion of the sale.

Additional information as to CNA’s property and casualty claim and claim adjustment expense reserves and reserve development is set forth in the MD&A included under Item 7 and in Notes A and F of the Consolidated Financial Statements included under Item 8.

Information on the Company’s investments is set forth in the MD&A included under Item 7 and in Notes A, B, C and D of the Consolidated Financial Statements included under Item 8.

CNA files annual, quarterly and current reports, proxy statements and other documents with the Securities and Exchange Commission (SEC) under the Securities Exchange Act of 1934 (Exchange Act). The public may read and copy any materials that CNA files with the SEC at the SEC’s Public Reference Room at 450 Fifth Street, NW, Washington, DC 20549. The public may obtain information on the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330. Also, the SEC maintains an Internet site that contains reports, proxy and information statements, and other information regarding issuers, including CNA, that file electronically with the SEC. The public can obtain any documents that CNA files with the SEC at http://www.sec.gov.

CNA also makes available free of charge on or through its internet website (http://www.cna.com) CNA’s Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Exchange Act as soon as reasonably practicable after CNA electronically files such material with, or furnishes it to, the SEC. Copies of these reports may also be obtained, free of charge, upon written request to: CNA Financial Corporation, CNA Plaza, 43 South, Chicago, IL 60685, Attn. Jonathan D. Kantor, Executive Vice President, General Council and Secretary.

The Charter of the Audit Committee of CNAF’s Board of Directors, its Corporate Governance Guidelines and its Code of Business Conduct & Ethics will also be available on CNA’s internet website and in printed form to any shareholder of CNAF who requests them.

CNA Plaza, owned by CAC, serves as the home office for CNAF and its subsidiaries. CNAF’s subsidiaries own or lease office space in various cities throughout the United States and in other

countries. The following table sets forth certain information with respect to the principal office buildings owned or leased by CNAF’s subsidiaries:


	Amount (Square
	Feet) of Building
	Owned and Occupied
	or Leased and
Location	Occupied by CNA	Principal Usage

CNA Plaza 333 S. Wabash, Chicago, Illinois	1,144,378(a)	Principal executive offices of CNAF
100 CNA Drive, Nashville, Tennessee (c)	251,363(a)	Life insurance offices
2405 Lucien Way, Maitland, Florida	178,744(b)	Property and casualty insurance offices
3500 Lacey Road, Downers Grove, Illinois	168,793(b)	Property and casualty insurance offices
40 Wall Street, New York, New York	168,723(b)	Property and casualty insurance offices
600 N. Pearl Street, Dallas, Texas	115,666(b)	Property and casualty insurance offices
675 Placentia Avenue, Brea, California	113,133(b)	Property and casualty insurance offices
1100 Cornwall Road, Monmouth Junction, New Jersey	112,926(b)	Property and casualty insurance offices
1111 E. Broad Street, Columbus, Ohio	110,411(b)	Property and casualty insurance offices

(c)

Will be sold as part of the February of 2004 sale of the individual life business.

Information on CNA’s legal proceedings is set forth in Note F and G of the Consolidated Financial Statements included under Item 8.

ITEM 5. MARKET FOR THE REGISTRANT’S COMMON STOCK AND RELATED STOCKHOLDER MATTERS

CNAF’s common stock is listed on the New York Stock Exchange, the Chicago Stock Exchange and the Pacific Exchange, and is traded on the Philadelphia Stock Exchange under the symbol CNA.

As of February 23, 2004, CNAF had 223,617,337 shares of common stock outstanding. Approximately 90% of CNAF’s outstanding common stock is owned by Loews. CNAF had 2,356 stockholders of record as of February 23, 2004 according to the records maintained by the Company’s transfer agent.

On November 24, 2003, CNAF sold $750 million of its participating convertible preferred stock, designated Series I (Series I Issue), to Loews. The Series I Issue has terms that make it economically equivalent to CNAF’s common stock. The preferred shares will convert into 32,327,015 shares of CNAF common stock, utilizing a conversion price per share of common stock that was based on average market prices of CNAF common stock from November 17, 2003 through November 21, 2003. The terms of the Series I Issue were approved by a special committee of independent members of CNAF’s Board of Directors. Upon conversion, Loews will own approximately 91% of CNAF’s outstanding common stock of approximately 255.9 million shares. Conversion will take place when the Company satisfies applicable stock exchange requirements. The proceeds from the Series I Issue were applied by CNAF to increase the statutory surplus of CNAF’s principal insurance subsidiary, CCC. The issuance of the Series I Issue was exempt from registration under Section 4(2) of the Securities Act of 1933.

During 2002, CNAF sold $750 million of a new issue of preferred stock, designated Series H Cumulative Preferred Issue (Series H Issue), to Loews. The terms of the Series H Issue were approved by a special committee of independent members of CNAF’s Board of Directors.

The Series H Issue accrues cumulative dividends at an initial rate of 8% per year, compounded annually. It will be adjusted quarterly to a rate equal to 400 basis points above the ten-year U.S. Treasury rate beginning with the quarterly dividend after the first triggering event to occur of either (i) an increase by two intermediate rating levels of the financial strength rating of CCC from its rating at the time of issuance by any of A.M. Best Company, Standard & Poor’s or Moody’s Investor Services or (ii) one year following an increase by one intermediate rating level of the financial strength rating of CCC by any one of those rating agencies. Accrued but unpaid cumulative dividends cannot be paid on the Series H Issue unless and until one of the two triggering events described above has occurred. Beginning with the quarter following an increase of one intermediate rating level in CCC’s financial strength rating, however, current (but not accrued cumulative) quarterly dividends can be paid. As of December 31, 2003, the Company has $62 million of undeclared but accumulated dividends.

The Series H Issue is senior to CNAF’s common stock and Series I Issue as to the payment of dividends and amounts payable upon any liquidation, dissolution or winding up. No dividends may be declared on CNAF’s common stock until all cumulative dividends on the Series H Issue have been paid. CNAF may not issue any equity securities ranking senior to or on par with the Series H Issue without the consent of a majority of its stockholders. The Series H Issue is non-voting and is not convertible into any other securities of CNAF. It may be redeemed only upon the mutual agreement of CNAF and a majority of the stockholders of the preferred stock. The issuance of the Series H Issue was exempt from registration under Section 4(2) of the Securities Act of 1933.

Of the proceeds of the Series H Issue, $250 million was used to prepay a bank term loan due in April of 2003 and $250 million was contributed to CCC to increase its statutory surplus. The remaining proceeds were used to repay other debt of CNAF and Continental, which matured in 2003 and for other general corporate purposes.

The table below shows the high and low closing sales prices for CNAF’s common stock based on the New York Stock Exchange Composite Transactions.

No dividends have been paid on CNAF’s common stock in 2003 or 2002. CNAF’s ability to pay dividends is influenced, in part, by dividend restrictions of its principal operating insurance subsidiaries as described in the MD&A included under Item 7 and in Note L to the Consolidated Financial Statements included under Item 8.


As of and for the Years Ended December 31	2003			2002			2001			2000		1999
(In millions, except per share data and ratios)
Results of Operations:
Revenues	$	11,716		$	12,286		$	13,089		$	15,408	$	16,294

(Loss) income from continuing operations	$	(1,433	)	$	247		$	(1,592	)	$	1,177	$	1
(Loss) income from discontinued operations, net of tax		–			(35	)		11			5		4
Cumulative effects of changes in accounting principles, net of tax		–			(57	)		(61	)		–		(177	)

Net (loss) income	$	(1,433	)	$	155		$	(1,642	)	$	1,182	$	(172	)

(Loss) earnings per Share:
(Loss) income from continuing operations	$	(6.58	)	$	1.10		$	(8.20	)	$	6.40	$	(0.06	)
(Loss) income from discontinued operations, net of tax		–			(0.16	)		0.06			0.03		0.02
Cumulative effects of changes in accounting principles, net of tax		–			(0.26	)		(0.32	)		–		(0.96	)

(Loss) earnings per share available to common stockholders	$	(6.58	)	$	0.68		$	(8.46	)	$	6.43	$	(1.00	)

Financial Condition:
Total investments	$	38,100		$	35,293		$	35,826		$	36,059	$	36,935
Total assets		68,503			61,731			65,723			62,785		62,390
Insurance reserves		45,383			40,179			43,623			39,054		39,271
Long and short term debt		1,904			2,292			2,567			2,729		2,881
Stockholders’ equity		8,952			9,401			8,122			9,400		8,723
Book value per share	$	31.80		$	38.68		$	36.33		$	51.29	$	46.42
Statutory Surplus:
Property and casualty companies (a)	$	6,170		$	6,836		$	6,241		$	8,373	$	8,679
Life and group insurance companies		707			1,645			1,752			1,274		1,222

(a)

ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

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). CNA is one of the largest insurance organizations in the United States and based on 2002 statutory net written premiums, is the eleventh largest property and casualty company.

Loews Corporation (Loews) owned approximately 90% of the outstanding common stock and 100% of the Series H and Series I preferred stock of CNAF as of December 31, 2003. The following discussion should be read in conjunction with Item 6. Selected Financial Data and Item 8. Financial Statements and Supplementary Data.

Management’s discussion and analysis of financial condition and results of operations is comprised of the following sections:


		Page No.

Consolidated Operations			16
Net Prior Year Development			21
Critical Accounting Estimates			24
Reserves – Estimates and Uncertainties			26
Reinsurance			29
World Trade Center Event			32
Terrorism Insurance			33
Restructuring			34
Non-GAAP Financial Measures			37
Segment Results			40
	Standard Lines		40
	Specialty Lines		47
	CNA Re		53
	Group Operations		57
	Life Operations		59
	Corporate and Other		61
Asbestos and Environmental Pollution and Mass Tort (APMT) Reserves			63
Investments			74
	Net Investment Income		74
	Net Realized Investment Gains (Losses)		75
	Valuation and Impairment of Investments		78
Liquidity and Capital Resources			86
	Cash Flows		86
	Debt		87
	Related Parties		88
	Commitments, Contingencies, and Guarantees		89
	Regulatory Matters		91
	Ratings		91
	Dividends from Subsidiaries		93
	Loews		93
Accounting Pronouncements			95
Forward-Looking Statements			96

During 2003, CNA conducted its operations through five operating segments: Standard Lines, Specialty Lines and CNA Re (which comprise the property and casualty segments), Group Operations and Life Operations. In addition to these five operating segments, certain other activities are reported in the Corporate and Other segment. These operating segments reflected the way CNA managed its operations and business decisions.

During 2003, CNA completed a strategic review of its operations and decided to concentrate efforts on its property and casualty business. As a result of this review, and the 2003 charges of $1,849 million after-tax ($2,845 million pretax) related to unfavorable net prior year development and a $396 million after-tax ($610 pretax) increase in the provision for reinsurance and insurance receivables, a capital plan was developed to replenish statutory capital of the

property and casualty subsidiaries adversely impacted by these charges. A summary of the capital plan, related actions, and other significant 2003 business decisions is discussed below:

The capital plan consists of the sale in November of 2003 of $750 million of a new series of CNA convertible preferred stock to Loews, and a commitment from Loews for additional capital support of up to $500 million by February 27, 2004 through the purchase of surplus notes of Continental Casualty Company (CCC), CNA’s principal insurance subsidiary, in the event certain additions to CCC’s statutory capital were not achieved through asset sales. In addition, Loews committed up to an additional $150 million by March 31, 2004, in a form to be determined, to support the statutory capital of CCC in the event of additional shortfalls in relation to business and asset sales.

In February of 2004, CNA announced the decision to cease sales to new customers in its structured settlement and institutional markets businesses. Also, during 2003, CNA ceased sales to new customers in the individual and group long term care businesses. CNA will continue to accept new deposits and premiums only from existing customers for the institutional markets business and will service its existing commitments on all businesses in which new sales were ceased. These businesses will be managed as a run-off operation.

Throughout this MD&A, the 2003 results of operations include discussion and results for all of CNA’s businesses, including those sold or exited as described above.

The following tables provide information about CNA’s historical results of operations for the retained and sold businesses.

(a)		Includes the Group Benefits business sold to Hartford on December 31, 2003 and the February of 2004 definitive agreement to sell the individual life business to Swiss Re.

(b)		CNA Re is in run-off.

The following table includes the consolidated results of operations. For more detailed components of CNA’s business operations, see the segment discussions within this MD&A.


Years ended December 31		2003			2002			2001
(In millions, except per share data)
Revenues
	Net earned premiums	$	9,214		$	10,213		$	9,288
	Net investment income		1,647			1,730			1,856
	Realized investment gains (losses), net of participating policyholders’ and minority interests		460			(252	)		1,262
	Other revenues		395			595			683

Total revenues			11,716			12,286			13,089

Claims, benefits and expenses
	Insurance claims and policyholders’ benefits		9,916			8,392			11,279
	Amortization of deferred acquisition costs		1,965			1,791			1,804
	Other operating expenses		2,057			1,649			1,913
	Restructuring and other related charges		–			(37	)		251
	Interest		130			150			157

Total claims, benefits and expenses			14,068			11,945			15,404

(Loss) income from continuing operations before income tax and minority interest			(2,352	)		341			(2,315	)
Income tax benefit (expense)			913			(68	)		744
Minority interest			6			(26	)		(21	)

(Loss) income from continuing operations			(1,433	)		247			(1,592	)
(Loss) income from discontinued operations, net of tax of $0, $9 and $2			–			(35	)		11

(Loss) income before cumulative effects of changes in accounting principles			(1,433	)		212			(1,581	)
Cumulative effects of changes in accounting principles, net of tax of $0, $7, and $33			–			(57	)		(61	)

Net (loss) income		$	(1,433	)	$	155		$	(1,642	)

Basic and diluted (loss) earnings per share:
	(Loss) income from continuing operations	$	(6.58	)	$	1.10		$	(8.20	)
	(Loss) income from discontinued operations, net of tax		–			(0.16	)		0.06

(Loss) income before cumulative effects of changes in accounting principles			(6.58	)		0.94			(8.14	)
Cumulative effects of changes in accounting principles, net of tax			–			(0.26	)		(0.32	)

Basic and diluted (loss) earnings per share available to common stockholders		$	(6.58	)	$	0.68		$	(8.46	)

Weighted average outstanding common stock and common stock equivalents			227.0			223.6			194.0

Net results decreased $1,588 million in 2003 as compared with 2002. The decline in net results was due primarily to increased unfavorable net prior year development of $1,837 million after-tax ($2,826 million pretax), a $55 million after-tax ($84 million pretax) increase in catastrophe losses, a $65 million after-tax ($100 million pretax) increase in unallocated loss adjustment expense (ULAE) reserves, and a $27 million after-tax ($42 million pretax) increase in dividend development. In addition, net results in 2003 included a $396 million after-tax ($610 million pretax) increase in the bad debt provision for insurance and reinsurance receivables, a $69 million after-tax ($104 million pretax) increase in insurance related assessments, and increased interest expense of $90 million after-tax ($137 million pretax) related to

additional cessions to the corporate aggregate and other reinsurance treaties. These items were partially offset by a $434 million after-tax ($712 million pretax) increase in net realized investment results and increased limited partnership income of $165 million after-tax ($254 million pretax). Net income in 2002 also included a $35 million after-tax ($44 million pretax) loss from discontinued operations and a $57 million after-tax ($64 million pretax) charge for the cumulative effect of a change in accounting principle.

Net unfavorable prior year development of $2,952 million, including $2,409 million of unfavorable claim and claim adjustment expense reserve development and $543 million of unfavorable premium development, was recorded in 2003. Net unfavorable prior year development of $126 million, including $35 million of unfavorable claim and claim adjustment expense reserve development and $91 million of unfavorable premium development, was recorded in 2002.

Net realized investment results increased $434 million after-tax in 2003 as compared with 2002. This change was due primarily to $209 million after-tax reduction in impairment losses for other-than-temporary declines in market values for fixed maturity and equity securities and increased realized results related to fixed maturity and derivative securities. These increases were partially offset by the $130 million after-tax ($176 million pretax) loss on the sale of the Group Benefits business. See the Investments section of this MD&A for further details.

The loss from discontinued operations of $35 million after-tax in 2002 related to the results of CNA Vida, CNA’s Chilean-based life insurer, which was sold during 2002.

The cumulative effect of a change in accounting principle in 2002 related to the adoption of Statement of Financial Accounting Standards No. 142, Goodwill and Other Intangible Assets (SFAS 142). During 2002, the Company completed its initial goodwill impairment testing and recorded a $57 million after-tax ($64 million pretax) impairment charge. The impairment charge consisted of a $48 million after-tax ($51 million pretax) charge in Specialty Lines, an $8 million after-tax ($12 million pretax) charge in Life Operations, and a $1 million after-tax ($1 million pretax) charge in Corporate and Other. Net earned premiums decreased $999 million in 2003 as compared with the same period in 2002. The decrease in net earned premiums was due primarily to the July 1, 2002 transfer of the National Postal Mail Handlers Union group benefits plan (the Mail Handlers Plan) to First Health Corporation. Net earned premiums for the Mail Handlers Plan were $1,151 in 2002. Net earned premium was also impacted by increased ceded premiums to corporate aggregate and other reinsurance treaties resulting from unfavorable net prior year development recorded in 2003. Partially offsetting these adverse premium items were rate increases, increased retention, and new business, primarily in Standard Lines and Specialty Lines.

Net income in 2002 was $155 million, as compared with a net loss of $1,642 million for 2001. Net results improved in 2002 primarily due to decreased unfavorable net prior year development of $2,181 million after-tax ($3,356 million pretax), improved underwriting results in the property and casualty segments, improved results in Life and Group Operations and a $24 million after-tax reduction ($40 million pretax) of the accrual for restructuring and other related charges. Net results in 2001 were also adversely effected by the estimated losses related to the September 11, 2001 World Trade Center Disaster and related events (WTC event) of $304 million after-tax ($468 million pretax) and restructuring and other related charges of $165 million after-tax ($251 million pretax). The improvement in the net results in 2002 was partially offset by lower net investment income, net reserve strengthening for individual long term care in Life Operations of $23 million after-tax ($35 million pretax) recorded in 2002 and decreased net realized investment results of $965 million after-tax ($1,514 million pretax).

Unfavorable net prior year development of $126 million, including $35 million of unfavorable claim and claim adjustment expense reserve development and $91 million of unfavorable premium development, was recorded in 2002. Unfavorable net prior year development of $3,482 million, including $2,464 million of unfavorable claim and claim adjustment expense reserve development and $1,018 million of unfavorable premium development, was recorded in 2001.

Net realized investment losses increased $965 million in 2002 as compared with 2001 due primarily to significant realized gains from equity securities in 2001 and increased investment write-downs of fixed maturity and equity securities across various market sectors in 2002. See the Investments section of the MD&A for further details. Loss from discontinued operations, net of tax, of $35 million for 2002 and income from discontinued operations, net of tax, of $11 million for 2001 was related to the results of CNA Vida, CNA’s Chilean-based life insurer, which was sold during 2002.

Net income for 2002 includes a charge of $57 million, net of tax, for the cumulative effect of a change in accounting principle related to the adoption of Statement of Financial Accounting Standards No. 142 Goodwill and Other Intangible Assets (SFAS 142). Net income for 2001 includes a charge of $61 million, net of tax, for the cumulative effect of a change in accounting principle related to the adoption of Statement of Financial Accounting Standards No. 133 Accounting for Derivative Instruments and Hedging Activities (SFAS 133).

Net earned premiums increased $925 million in 2002 as compared with 2001. The increase in net earned premiums was primarily attributable to decreased ceded premiums related to corporate aggregate and other reinsurance treaties, strong rate increases, increased new business and decreased unfavorable premium development. The 2001 unfavorable net prior year premium development was primarily due to a change in estimate for retrospective premium accruals and a change in estimate for involuntary market premium accruals. Partially offsetting the improvements in net earned premiums was the transfer of the National Postal Mail Handlers Union (the Mail Handlers Plan) in 2002 and decreased net earned premiums in CNA Re resulting from the 2001 decision to cease writing new and renewal business at CNA Reinsurance Company Limited (CNA Re U.K.). Net earned premium for the Mail Handlers Plan was $1,151 million in 2002 as compared with $2,218 million in 2001.

A significant component of the results of operations for the years ended December 31, 2003, 2002, and 2001 has been unfavorable net prior year development recorded for the property and casualty operations, including corporate and other. Changes in estimates of claim and allocated claim adjustment expense reserves and premium accruals for net prior accident years are defined as net prior year development within this MD&A. These changes can be favorable or unfavorable. The following tables summarize net prior year development by segment for property and casualty and corporate and other segments. The net prior year development was recorded for APMT and for various other property and casualty coverages (core).

The following table summarizes the pretax 2003 net prior year development by segment.


			Standard			Specialty						Corporate
			Lines			Lines			CNA Re			and Other			Total
(In millions)
Pretax unfavorable net prior year claim and allocated claim adjustment expense development excluding the impact of the corporate aggregate reinsurance treaties:
	Core (Non-APMT)		$	1,390		$	454		$	220		$	86		$	2,150
	APMT			–			–			–			795			795

		Total		1,390			454			220			881			2,945
Ceded losses related to corporate aggregate reinsurance treaties				(485	)		(56	)		(102	)		–			(643	)

Pretax unfavorable net prior year development before impact of premium development				905			398			118			881			2,302

	Unfavorable (favorable) premium development, excluding impact of corporate aggregate reinsurance treaties			218			–			(26	)		(7	)		185
	Ceded premiums related to corporate aggregate reinsurance treaties			269			31			57			1			358

		Total premium development		487			31			31			(6	)		543

Total 2003 unfavorable net prior year development (pretax)			$	1,392		$	429		$	149		$	875		$	2,845

Total 2003 unfavorable net prior year development (after-tax)			$	905		$	279		$	97		$	568		$	1,849

The following table summarizes the pretax 2002 net prior year development by segment.


			Standard			Specialty						Corporate
			Lines			Lines			CNA Re			and Other			Total
(In millions)
Pretax unfavorable (favorable) net prior year claim and allocated claim adjustment expense development excluding the impact of the corporate aggregate reinsurance treaties:
	Core (Non-APMT)		$	(221	)	$	123		$	179		$	23		$	104
	APMT			–			–			–			–			–

		Total		(221	)		123			179			23			104
Ceded losses related to corporate aggregate reinsurance treaties				–			(55	)		(93	)		–			(148	)

Pretax (favorable) unfavorable net prior year development before impact of premium development				(221	)		68			86			23			(44	)

	Unfavorable (favorable) premium development, excluding impact of corporate aggregate reinsurance treaties			67			30			(104	)		(3	)		(10	)
	Ceded premiums related to corporate aggregate reinsurance treaties			–			39			61			1			101

		Total premium development		67			69			(43	)		(2	)		91

Total 2002 unfavorable (favorable) net prior year development (pretax)			$	(154	)	$	137		$	43		$	21		$	47

Total 2002 unfavorable (favorable) net prior year development (after-tax)			$	(100	)	$	89		$	28		$	14		$	31

The following table summarizes the pretax 2001 net prior year development by segment.


			Standard			Specialty					Corporate
			Lines			Lines		CNA Re			and Other		Total
(In millions)
Pretax unfavorable net prior year claim and allocated claim adjustment expense development excluding the impact of the corporate aggregate reinsurance treaties:
	Core (Non-APMT)		$	347		$	415	$	816		$	72	$	1,650
	APMT			–			–		–			1,241		1,241

		Total		347			415		816			1,313		2,891
Ceded losses related to corporate aggregate reinsurance treaties				(443	)		–		(57	)		–		(500	)

Pretax unfavorable (favorable) net prior year development before impact of premium development				(96	)		415		759			1,313		2,391

	Unfavorable (favorable) premium development, excluding impact of corporate aggregate reinsurance treaties			785			38		(44	)		9		788
	Ceded premiums related to corporate aggregate reinsurance treaties			205			–		25			–		230

		Total premium development		990			38		(19	)		9		1,018

Total 2001 unfavorable net prior year development (pretax)			$	894		$	453	$	740		$	1,322	$	3,409

Total 2001 unfavorable net prior year development (after-tax)			$	581		$	294	$	481		$	859	$	2,215

The preparation of the consolidated financial statements in conformity with accounting principles generally accepted in the United States of America (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 consolidated financial statements and the amounts of revenues and expenses reported during the period. Actual results may differ from those estimates.

CNA’s Consolidated Financial Statements and accompanying notes have been prepared in accordance with GAAP applied on a consistent basis. CNA continually evaluates the accounting policies and estimates used to prepare the Consolidated Financial Statements. In general, management’s 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 discussed below are considered by management to be critical to an understanding of CNA’s Consolidated Financial Statements as their application places the most significant demands on management’s judgment. Note A of the Consolidated Financial Statements included under Item 8 should be read in conjunction with this section to assist with obtaining an understanding of the underlying accounting policies related to these estimates. Due to the inherent uncertainties involved with this type of judgment, actual results could differ significantly from estimates and have a material adverse impact on the Company’s results of operations or equity.

Insurance reserves are established for both short and long-duration insurance contracts. Short-duration contracts are primarily related to property and casualty insurance policies where the reserving process is based on actuarial estimates of the amount of loss, including amounts for known and unknown claims. Long-duration contracts typically include traditional life insurance and long term care products and are estimated using actuarial estimates about mortality and morbidity, as well as assumptions about expected investment returns. Workers compensation lifetime claim reserves and accident and health disability claim reserves are calculated using mortality and morbidity assumptions based on Company and industry experience, and are discounted at interest rates that range from 3.5% to 6.5% at December 31, 2003. The reserve for unearned premiums on property and casualty and accident and health contracts represents the portion of premiums written to the unexpired terms of coverage. The inherent risks associated with the reserving process are discussed in Reserves – Estimates and Uncertainties section below.

Amounts recoverable from reinsurers are estimated in a manner consistent with claim and claim adjustment expense reserves or future policy benefits reserves and are reported as receivables in the Consolidated Balance Sheets. The ceding of insurance does not discharge the primary liability of the Company. An estimated allowance for doubtful accounts is recorded on the basis of periodic evaluations of balances due from reinsurers, reinsurer solvency, management’s experience and current economic conditions. Further information on reinsurance is provided in the Reinsurance section below.

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

The Company’s investment portfolio is subject to market declines below book value that may be other-than-temporary. The Company has an Impairment Committee (the Committee), which reviews the investment portfolio on a quarterly basis, with ongoing analysis as new information becomes available. Any decline that is determined to be other-than-temporary is recorded as an impairment loss in the results of operations in the period in which the determination occurred. Further information on the Company’s investments is provided in the Investments section below.

The Company’s reserves and deferred acquisition costs for its individual long term care product offerings are based on certain assumptions including morbidity, policy persistency and interest rates. Actual experience may differ from these assumptions. The recoverability of deferred acquisition costs and the adequacy of the reserves are contingent on actual experience related to these key assumptions and other factors including potential future premium increases and future health care cost trends. The results of operations and/or equity may be materially, adversely affected if actual experience varies significantly from these assumptions. For further information, see the Life Operations section below.

The Company is involved in various legal proceedings that have arisen during the ordinary course of business. The Company evaluates the facts and circumstances of each situation, and when the Company determines it necessary, a liability is estimated and recorded. Further information on the Company’s legal proceedings and related contingent liabilities is provided in Note F and G of the Consolidated Financial Statements included under Item 8.

CNAF has made loans through a credit facility provided to a national contractor to whom CNA Surety Corporation (CNA Surety) provides significant amounts of surety bond insurance coverage. As of December 31, 2003, the Company has credit exposure of $55 million under the credit facility, net of a participation by Loews, in the amount of $25 million. The credit facility was established to help the contractor meet its liquidity needs. The contractor has initiated restructuring efforts to reduce costs and improve cash flow and is attempting to develop additional sources of funds. Based on the contractor’s restructuring efforts to date, the Company estimates that amounts due under the credit facility are collectible. Therefore, no valuation allowance has been established. Further information on this credit agreement is provided in the Liquidity and Capital Resources section below.

The Company maintains reserves to cover its estimated ultimate unpaid liability for claim and claim adjustment expenses and future policy benefits, including the estimated cost of the claims adjudication process, for claims that have been reported but not yet settled and claims that have been incurred but not reported. Claim and claim adjustment expense and future policy benefit reserves are reflected as liabilities on the Consolidated Balance Sheets under the heading “Insurance Reserves.” 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.

The level of Insurance Reserves maintained by the Company represents management’s best estimate, as of a particular point in time, of what the ultimate settlement and administration of claims will cost based on its assessment of facts and circumstances known at that time. Insurance Reserves are not an exact calculation of liability but instead are complex estimates that are derived by the Company, generally utilizing a variety of actuarial reserve estimation techniques, from numerous assumptions and expectations about future events, both internal and external, many of which are highly uncertain.

Among the many uncertain future events about which the Company makes assumptions and estimates, many of which have become increasingly unpredictable, are claims severity, frequency of claims, mortality, morbidity, expected interest rates, inflation, claims handling and case reserving policies and procedures, underwriting and pricing policies, changes in the legal and regulatory environment and the lag time between the occurrence of an insured event and the time it is ultimately settled, referred to in the insurance industry as the “tail.” These factors must be individually considered in relation to the Company’s evaluation of each type of business. Many of these uncertainties are not precisely quantifiable, particularly on a prospective basis, and require significant management judgment.

Given the factors described above, it is not possible to quantify precisely the ultimate exposure represented by claims and related litigation. As a result, the Company regularly reviews the adequacy of its reserves and reassesses its reserve estimates as historical loss experience develops, additional claims are reported and settled and additional information becomes available in subsequent periods.

In addition, the Company is subject to the uncertain effects of emerging or potential claims and coverage issues that arise as industry practices and legal, judicial, social and other environmental conditions change. These issues have had, and may continue to have, a negative effect on the Company’s business by either extending coverage beyond the original underwriting intent or by increasing the number or size of claims. Recent examples of emerging or potential claims and coverage issues include:

•

increases in the number and size of water damage claims, including those related to expenses for testing and remediation of mold conditions;

•

increases in the number and size of claims relating to injuries from medical products, and exposure to lead;

•

the effects of accounting and financial reporting scandals and other major corporate governance failures, which have resulted in an increase in the number and size of claims, including director and officer and errors and omissions insurance claims;

•

increases in the number of construction defect claims, including claims for a broad range of additional insured endorsements on policies; and

The impact of these and other unforeseen emerging or potential claims and coverage issues is difficult to predict and could materially adversely affect the adequacy of the Company’s claim and claim adjustment expense reserves and could lead to future reserve additions. See the Segment Results sections of this MD&A for a discussion of changes in reserve estimates and the impact on the Company’s results of operations.

The Company’s experience has been that establishing reserves for casualty coverages relating to APMT claim and claim adjustment expenses is subject to uncertainties that are greater than those presented by other claims. Estimating the ultimate cost of both reported and unreported APMT claims is subject to a higher degree of variability due to a number of additional factors, including among others:

•

coverage issues, including whether certain costs are covered under the policies and whether policy limits apply;

•

changes in the volume of asbestos and environmental pollution and mass tort claims which cannot now be anticipated;

•

continued increase in mass tort claims relating to silica and silica-containing products;

•

the impact of the exhaustion of primary limits and the resulting increase in claims on any umbrella or excess policies the Company has issued;

•

the Company’s ability to recover reinsurance for asbestos and environmental pollution and mass tort claims.

It is also not possible to predict changes in the legal and legislative environment and the impact on the future development of APMT claims. This development will be affected by future court decisions and interpretations, as well as changes in applicable legislation. It is difficult to predict the ultimate outcome of large coverage disputes until settlement negotiations near completion and significant legal questions are resolved or, failing settlement, until the dispute is adjudicated. This is particularly the case with policyholders in bankruptcy where negotiations often involve a large number of claimants and other parties and require court approval to be effective. A further uncertainty exists as to whether a national privately financed trust to replace litigation of asbestos claims with payments to claimants from the trust will be established and approved through federal legislation, and, if established and approved, whether it will contain funding requirements in excess of the Company’s carried loss reserves.

Due to the factors described above, among others, establishing reserves for APMT claim and claim adjustment expenses is subject to uncertainties that are greater than those presented by other claims. Traditional actuarial methods and techniques employed to estimate the ultimate cost of claims for more traditional property and casualty exposures are less precise in estimating claim and claim adjustment reserves for APMT, particularly in an environment of emerging or potential claims and coverage issues that arise from industry practices and legal, judicial and social conditions. Therefore, these traditional actuarial methods and techniques are necessarily supplemented with additional estimating techniques and methodologies, many of which involve significant judgments that are required of management. Due to the inherent uncertainties in estimating reserves for APMT claim and claim adjustment expenses and the degree of variability due to, among other things, the factors described above, the Company may be required to record material changes in its claim and claim adjustment expense reserves in the future, should new information become available or other developments emerge. See the Asbestos and Environmental Pollution and Mass Tort Reserves section of this MD&A for additional information relating to APMT claims and reserves.

The Company’s recorded Insurance Reserves, including APMT reserves, reflect management’s best estimate as of a particular point in time based upon known facts, current law and management’s judgment. In light of the many uncertainties associated with establishing the estimates and making the assumptions necessary to establish reserve levels, the Company reviews its reserve estimates on a regular basis and makes adjustments in the period that the need for such adjustments is determined. These reviews have resulted in the Company identifying information and trends that have caused the Company to increase its reserves in prior periods and could lead to the identification of a need for additional material increases in claim and claim adjustment expense reserves, which could materially adversely affect the Company’s results of operations, equity, business, insurer financial strength and debt ratings (see the Ratings section of this MD&A).

The following table presents estimated volatility in carried claim and claim adjustment expense reserves for the property and casualty and corporate and other segments.

The estimated volatility noted above does not represent a range around the actuarial point estimate of the Company’s gross loss reserves, and it does not represent the range of all possible outcomes. The volatility represents an estimate of the inherent volatility associated with estimating loss reserves for the specific type of business written by each segment. The primary characteristics influencing the estimated level of volatility are the length of the claim settlement period, changes in medical and other claim costs, changes in the level of litigation or other dispute resolution processes, changes in the legal environment and the potential for different types of injuries emerging. Ceded reinsurance arrangements may reduce the volatility. Since ceded reinsurance arrangements vary by year, volatility in gross reserves may not result in comparable impacts to underwriting income or equity.

CNA assumes and cedes reinsurance to other insurers, reinsurers and members of various reinsurance pools and associations. CNA utilizes reinsurance arrangements to limit its maximum loss, provide greater diversification of risk, minimize exposures on larger risks and to exit certain lines of business.

Property and casualty reinsurance coverages are tailored to the specific risk characteristics of each product line and CNA’s retained amount varies by type of coverage. Treaty reinsurance is purchased to protect specific lines of business such as property, worker’s compensation, and professional liability. Corporate catastrophe reinsurance is also purchased for property and worker’s compensation exposure. Most treaty reinsurance is purchased on an excess of loss basis. CNA also utilizes facultative reinsurance in certain lines.

CNA’s ceded life reinsurance includes utilization of coinsurance, yearly renewable term and facultative programs. A majority of the reinsurance utilized by the Company’s life insurance operations relates to term life insurance policies. Term life insurance policies issued from 1994 onward are generally ceded at 60-90% of the face value. Universal life policies issued from 1998 onward are generally ceded at 75% of the face value.

The Company’s overall reinsurance program includes certain property and casualty contracts, such as the corporate aggregate reinsurance treaties discussed in more detail later in this section, that are entered into and accounted for on a “funds withheld” basis. Under the funds withheld basis, the Company records the cash remitted to the reinsurer for the reinsurer’s margin, or cost of the reinsurance contract, as ceded premiums. The remainder of the premiums ceded under the reinsurance contract not remitted in cash is recorded as funds withheld liabilities. The Company is required to increase the funds withheld balance at stated interest crediting rates applied to the funds withheld balance or as otherwise specified under the

terms of the contract. The funds withheld liability is reduced by any cumulative claim payments made by the Company in excess of the Company’s retention under the reinsurance contract. If the funds withheld liability is exhausted, interest crediting will cease and additional claim payments are recoverable from the reinsurer. The funds withheld liability is recorded in reinsurance balances payable in the Consolidated Balance Sheets.

Interest cost on these contracts is credited during all periods in which a funds withheld liability exists. Interest cost, which is included in other net investment income, was $344 million, $239 million and $241 million in 2003, 2002 and 2001. The amount subject to interest crediting rates on such contracts was $2,789 million and $2,766 million at December 31, 2003 and 2002. Certain funds withheld reinsurance contracts, including the corporate aggregate reinsurance treaties, require interest on additional premiums arising from ceded losses as if those premiums were payable at the inception of the contract. The amount of retroactive interest, included in the totals above, was $147 million, $10 million and $47 million in 2003, 2002 and 2001. The amount subject to interest crediting on these funds withheld contracts will vary over time based on a number of factors, including the timing of loss payments and ultimate gross losses incurred. The Company expects that it will continue to incur significant interest costs on these contracts for several years.

The ceding of insurance does not discharge the primary liability of the Company. Therefore, a credit exposure exists with respect to property and casualty and life reinsurance ceded to the extent that any reinsurer is unable to meet the obligations or to the extent that the reinsurer disputes the liabilities assumed under reinsurance agreements.

The Company has established an allowance for doubtful accounts to provide for estimated uncollectible reinsurance receivables. The allowance for doubtful accounts was $573 million and $196 million at December 31, 2003 and 2002. The reserve increased by $377 million during 2003 in recognition of deterioration of the financial strength ratings of several reinsurers, including Trenwick Group Ltd. and Commercial Risk Reinsurance Company Ltd. In addition, in the third quarter of 2003, the Company updated its reinsurance bad debt model based on recently published studies of reinsurer insolvencies. While the Company believes the allowance for doubtful accounts is adequate based on current collateral and information currently available on the financial stability of reinsurers, failure of reinsurers to meet their obligations could have a material adverse impact on CNA’s results of operations and/or equity.

The Company attempts to mitigate its credit risk related to reinsurance by entering into reinsurance arrangements only with reinsurers that have credit ratings above certain levels and by obtaining substantial amounts of collateral. The primary methods of obtaining collateral are through reinsurance trusts, letters of credit and funds withheld balances. Such collateral was approximately $5,255 million and $4,754 million at December 31, 2003 and 2002.

In certain circumstances, including significant deterioration of a reinsurer’s financial strength ratings, the Company may engage in commutation discussions with individual reinsurers. The outcome of such discussions may result in a lump sum settlement that is less than the recorded receivable, net of any applicable allowance for doubtful accounts. Losses arising from commutations could have an adverse material impact on the Company’s results of operations or equity.

The Company has reinsurance receivables from several reinsurers who have recently experienced multiple downgrades of their financial strength ratings, have announced that they will no longer accept new business and are placing their books of business into run-off. One of the Company’s principal credit exposures from these recent events arises from reinsurance receivables from Gerling Global (Gerling).

In 2003, the Company commuted all remaining ceded and assumed reinsurance contracts with four Gerling entities. The commutations resulted in a pretax loss of $109 million, which was net of a previously established allowance for doubtful accounts of $47 million. The Company has no further exposure to the Gerling companies that are in run-off. The Company estimates that these commutations will reduce pretax interest expense related to these treaties by approximately $11 million in 2004.

Amounts receivable from reinsurers were $16,254 million and $12,696 million at December 31, 2003 and 2002. Of these amounts, $813 million and $957 million were billed to reinsurers as of December 31, 2003 and 2002, as reinsurance contracts generally require payment of claims by the ceding company before the amount can be billed to the reinsurer. The remaining receivable relates to the estimated case and incurred but not reported (IBNR) reserves and future policyholder benefits ceded under reinsurance contracts.

CNA’s largest recoverables from a single reinsurer at December 31, 2003, including prepaid reinsurance premiums, were approximately $2,533 million, $2,033 million, $1,172 million, $977 million, $760 million, and $629 million from subsidiaries of The Allstate Corporation (Allstate), subsidiaries of Hannover Reinsurance (Ireland) Ltd., Hartford Life Group Insurance Company, American Reinsurance Company, European Reinsurance Company of Zurich and subsidiaries of the Berkshire Hathaway Group.

For 2002, the Company entered into a corporate aggregate reinsurance treaty covering substantially all of the Company’s property and casualty lines of business (the 2002 Cover). Ceded premium related to the reinsurer’s margin of $10 million was recorded in 2002. No losses were ceded during 2002 under this contract, and the 2002 Cover was commuted as of December 31, 2002.

The Company has an aggregate reinsurance treaty related to the 1999 through 2001 accident years that covers substantially all of the Company’s property and casualty lines of business (the Aggregate Cover). The Aggregate Cover provides for two sections of coverage. These coverages attach at defined loss ratios for each accident year. Coverage under the first section of the Aggregate Cover, which is available for all accident years covered by the treaty, has a $500 million limit per accident year of ceded losses and an aggregate limit of $1 billion of ceded losses for the three accident years. The ceded premiums associated with the first section are a percentage of ceded losses and for each $500 million of limit the ceded premium is $230 million. The second section of the Aggregate Cover, which only relates to accident year 2001, provides additional coverage of up to $510 million of ceded losses for a maximum ceded premium of $310 million. Under the Aggregate Cover, interest charges on the funds withheld liability accrue at 8% per annum. The aggregate loss ratio for the three-year period has exceeded certain thresholds which requires additional premiums to be paid and an increase in the rate at which interest charges are accrued. This rate will increase to 8.25% per annum commencing in 2006.

During 2003, as a result of the unfavorable net prior year development recorded related to accident years 2000 and 2001, the $500 million limit related to the 2000 and 2001 accident years under the first section was fully utilized and losses of $500 million were ceded under the first section of the Aggregate Cover. In 2001, as a result of reserve additions including those related to accident year 1999, the $500 million limit related to the 1999 accident year under the first section was fully utilized and losses of $510 million were ceded under the second section as a result of losses related to the WTC event. The aggregate limits for the Aggregate Cover have been fully utilized.

In 2001, the Company entered into a one-year aggregate reinsurance treaty related to the 2001 accident year covering substantially all property and casualty lines of business in the Continental Casualty Company pool (the CCC Cover). The loss protection provided by the CCC Cover has an aggregate limit of approximately $761 million of ceded losses. The ceded premiums are a percentage of ceded losses. The ceded premium related to full utilization of the $761 million of limit is $456 million. The CCC Cover provides continuous coverage in excess of the second section of the Aggregate Cover discussed above. During 2003, the CCC Cover was fully utilized. Under the CCC Cover, interest charges on the funds withheld generally accrue at 8% per annum. The interest rate increases to 10% per annum if the aggregate loss ratio exceeds certain thresholds. If the aggregate loss ratio would exceed these certain thresholds, then additional interest charges on funds withheld would be approximately $27 million in 2004.

During the third quarter of 2001, the Company recorded estimated incurred losses of $468 million pretax, net of reinsurance, related to the WTC event. The loss estimate was based on a total industry loss of

$50 billion and included all lines of insurance. This estimate took into account CNA’s substantial reinsurance agreements, including its catastrophe reinsurance program and corporate reinsurance programs. The Company has closely monitored reported losses as well as the collection of reinsurance on WTC event claims. During both 2003 and 2002, the Company reduced the reserves related to the WTC event in both the property and casualty and group and life segments. See the segment discussions of this MD&A for further information. As of December 31, 2003, the Company believes its remaining recorded reserves, net of reinsurance, for the WTC event are adequate.

The WTC event and related items comprising the amounts noted above are detailed by segment in the following table.

Pretax impact of the WTC event before corporate aggregate reinsurance treaties. The pretax net impact includes $85 million of reinstatement and additional premiums.

CNA and the insurance industry incurred substantial losses related to the WTC event. For the most part, the industry was able to absorb the loss of capital from these losses, but the capacity to withstand the effect of any additional terrorism events was significantly diminished.

The Terrorism Risk Insurance Act of 2002 (the Act) established a program within the Department of the Treasury under which the federal government will share the risk of loss by commercial property and casualty insurers arising from future terrorist attacks. The Act expires on December 31, 2005. Each participating insurance company must pay a deductible, ranging from 7% of direct earned premiums from commercial insurance lines in 2003 to 15% in 2005, before federal government assistance becomes available. For losses in excess of a company’s deductible, the federal government will cover 90% of the excess losses, while companies retain the remaining 10%. Losses covered by the program will be capped annually at $100 billion; above this amount, insurers are not liable for covered losses and Congress is to determine the procedures for and the source of any payments. Amounts paid by the federal government under the program over certain phased limits are to be recouped by the Department of the Treasury through policy surcharges, which cannot exceed 3% of annual premium.

The Company is required to participate in the program, but it does not cover life or health insurance products. State law limitations applying to premiums and policies for terrorism coverage are not generally affected under the program. The Act requires insurers to offer terrorism coverage through 2004. The Secretary of the Department of the Treasury has discretion to extend this offer requirement until December 31, 2005.

While the Act provides the property and casualty industry with an increased ability to withstand the effect of a terrorist event through 2005, given the unpredictability of the nature, targets, severity or frequency of potential terrorist events, the Company’s results of operations or equity could nevertheless be materially adversely impacted by them. The Company is attempting to mitigate this exposure through its underwriting practices, policy terms and conditions (where applicable) and the use of reinsurance. In addition, under state laws, the Company is generally prohibited from excluding terrorism exposure from its primary workers compensation, individual life and group life and health policies. In those states that mandate property insurance coverage of damage from fire following a loss, the Company is also prohibited from excluding terrorism exposure under such coverage.

Reinsurers’ obligations for terrorism-related losses under reinsurance agreements are not covered by the Act. The Company’s assumed reinsurance arrangements, beginning with the January 1, 2002 renewal period, either exclude terrorism coverage or significantly limit the level of coverage.

In 2001, the Company finalized and approved two separate restructuring plans. The first plan related to the Company’s Information Technology operations (the IT Plan). The second plan related to restructuring the property and casualty segments and Life Operations, discontinuation of the variable life and annuity business and consolidation of real estate locations (the 2001 Plan).

The overall goal of the IT Plan was to improve technology for the underwriting function and throughout the Company and to eliminate inefficiencies in the deployment of IT resources. The changes facilitated a strong focus on enterprise-wide system initiatives. The IT Plan had two main components, which included the reorganization of IT resources into the Technology and Operations Group with a structure based on centralized, functional roles and the implementation of an integrated technology roadmap that included common architecture and platform standards that directly support the Company’s strategies.

As summarized in the following table, during 2001, the Company incurred $62 million pretax, or $40 million after-tax, of restructuring and other related charges for the IT Plan. During 2002, $4 million pretax, or $3 million after-tax, of this accrual was reduced. No restructuring and other related charges related to the IT Plan were incurred in 2003.

In connection with the IT Plan, after the write-off of impaired assets, the Company accrued $30 million of restructuring and other related charges in 2001 (the IT Plan Initial Accrual). These charges primarily

related to $29 million of workforce reductions of approximately 260 positions gross and net and $1 million of other costs.

The following table summarizes the IT Plan Initial Accrual and the activity in that accrual during 2001, 2002 and 2003.

The remaining accrual relating to employee termination and related benefit costs is expected to be paid through 2004.

The overall goal of the 2001 Plan was to create a simplified and leaner organization for customers and business partners. The major components of the plan included a reduction in the number of strategic business units (SBUs) in the property and casualty operations, changes in the strategic focus of the Life Operations and Group Operations and consolidation of real estate locations. The reduction in the number of property and casualty SBUs resulted in consolidation of SBU functions, including underwriting, claims, marketing and finance. The strategic changes in Group Operations included a decision to discontinue the variable life and annuity business.

As summarized in the following table, during 2001, the Company incurred $189 million pretax, or $125 million after-tax, of restructuring and other related charges for the 2001 Plan. During 2002, $32 million pretax, or $21 million after-tax, of this accrual was reduced. No restructuring and other related charges related to the 2001 Plan were incurred in 2003.

All lease termination costs and impaired asset charges, except lease termination costs incurred by operations in the United Kingdom and software write-offs incurred by Life Operations, were charged to the Corporate and Other segment because office closure and consolidation decisions were not within the control of the other segments affected. Lease termination costs incurred in the United Kingdom relate solely to the operations of CNA Re. All other charges were recorded in the segment benefiting from the services or existence of an employee or an asset.

In connection with the 2001 Plan, the Company accrued $189 million of these restructuring and other related charges (the 2001 Plan Initial Accrual). These charges include employee termination and related benefit costs, lease termination costs, impaired asset charges and other costs.

The following tables summarize the 2001 Plan Initial Accrual and the activity in that accrual during 2001, 2002 and 2003 by type of restructuring cost and by segment.


Delaware (State or other jurisdiction of incorporation or organization)		36-6169860 (I.R.S. Employer Identification No.)

CNA Plaza Chicago, Illinois (Address of principal executive offices)		60685 (Zip Code)


Title of each class		Name of each exchange on which registered

Common Stock with a par value of $2.50 per share		New York Stock Exchange Chicago Stock Exchange Pacific Exchange


PART I
	ITEM 1. BUSINESS
	ITEM 2. PROPERTIES
	ITEM 3. LEGAL PROCEEDINGS
	ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
PART II
	ITEM 5. MARKET FOR THE REGISTRANT’S COMMON STOCK AND RELATED STOCKHOLDER MATTERS
	ITEM 6. SELECTED FINANCIAL DATA
	ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
	ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
	ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
	ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
	ITEM 9A. CONTROLS AND PROCEDURES
PART III
	ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
	ITEM 11. EXECUTIVE COMPENSATION
	ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
	ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
	ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES
PART IV
ITEM 15. FINANCIAL STATEMENTS, SCHEDULES, EXHIBITS AND REPORTS ON FORM 8-K
SIGNATURES
By-Laws
General Release and Full and Settlement Agreement
Capital Support Agreement
Primary Subsidiaries
Independent Auditors' Consent
Certification
Certification
Certification
Certification


	Percent of Total

Years ended December 31	2003			2002			2001

Illinois		9.3	%		9.1	%		8.3	%
California		8.5			7.7			6.8
New York		7.3			7.2			7.9
Florida		7.6			6.7			6.2
Texas		5.7			6.2			5.8
New Jersey		4.5			4.6			4.4
Pennsylvania		4.2			4.5			4.3
Massachusetts		3.1			2.8			2.6
All other states, countries or political subdivisions (a)		49.8			51.2			53.7

Total		100.0	%		100.0	%		100.0	%


		2003				2002

		High		Low		High		Low

Quarter:
	Fourth	$	24.50	$	18.57	$	28.35	$	22.95
	Third		25.65		20.87		28.60		21.45
	Second		26.50		22.26		30.99		25.74
	First		27.35		21.21		30.60		27.00

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	Standard			Specialty					Group			Life		Corporate
Consolidated Net (Loss) Income	Lines			Lines			CNA Re		Operations			Operations		and Other			Total
(Year ended December 31, 2003)
Net results of businesses not sold	$	(737	)	$	(17	)	$	23	$	47		$	25	$	(739	)	$	(1,398	)
Net results of businesses sold (a)		–			–			–		(78	)		43		–			(35	)

Total consolidated net (loss) income	$	(737	)	$	(17	)	$	23	$	(31	)	$	68	$	(739	)	$	(1,433	)


	Gross
	Carried		Estimated
	Loss		Volatility in
December 31, 2003	Reserves		Reserves
(In millions)
Standard Lines	$	12,983		+/-7	%
Specialty Lines		6,470		+/-7	%
CNA Re		2,288		+/-10	%
Corporate and Other		7,046		+/-25	%


Year ended December 31	2003			2002			2001
(In millions)
Ceded earned premium	$	(258	)	$	–		$	(543	)
Ceded claim and claim adjustment expenses		500			–			1,010
Interest charges		(147	)		(51	)		(81	)

Pretax (expense) benefit	$	95		$	(51	)	$	386


					Pretax
					Corporate
					Aggregate		Total		Total
			Pretax		Reinsurance		Pretax		After-tax
For the year ended December 31, 2001	Gross Losses		Net Impact*		Benefit		Impact		Impact
(In millions)
Standard Lines	$	375	$	185	$	108	$	77	$	50
Specialty Lines		214		30		12		18		12
CNA Re		662		410		139		271		176
Group Operations		235		53		–		53		35
Life Operations		75		22		–		22		14
Corporate and Other		87		27		–		27		17

Total	$	1,648	$	727	$	259	$	468	$	304


	Employee
	Termination		Impaired
	and Related		Asset		Other
	Benefit Costs		Charges		Costs		Total
(In millions)
Standard Lines	$	5	$	1	$	–	$	6
Specialty Lines		2		–		–		2
Life Operations		–		17		–		17
Corporate and Other		22		14		1		37

Total	$	29	$	32	$	1	$	62


	Employee
	Termination		Lease		Impaired
	and Related		Termination		Asset		Other
	Benefit Costs		Costs		Charges		Costs		Total
(In millions)
Standard Lines	$	40	$	–	$	–	$	–	$	40
Specialty Lines		7		–		–		–		7
CNA Re		2		4		–		–		6
Group Operations		7		–		–		35		42
Life Operations		3		–		9		–		12
Corporate and Other		9		52		21		–		82

Total	$	68	$	56	$	30	$	35	$	189