UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

FORM 10-K

Commission File Number 1-5823

CNA FINANCIAL CORPORATION

(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.

     Yesü        No....

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).

     Yesü        No....

As of March 14, 2003, 223,608,868February 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 28, 200230, 2003 was approximately $592$548 million based on the closing price of $26.50$24.60 per share of the common stock on the New York Stock Exchange on June 28, 2002.30, 2003.

DOCUMENTS INCORPORATED
BY REFERENCE:

Portions of the CNA Financial Corporation Proxy Statement prepared for the 20032004 annual meeting of shareholders, pursuant to Regulation 14A, are incorporated by reference into Part III of this Report.

PART I

ITEM 1. BUSINESS

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. Life and group insurance operations are conducted by Continental Assurance Company (CAC), incorporated in 1911, and its affiliates, Valley Forge Life Insurance Company (VFL), incorporated in 1956, and CNA Group Life Assurance Company (CNAGLA), incorporated in 2000. CIC became an affiliate of the Company in 1995 as a result of the acquisition of The Continental Corporation (Continental). The principal business of Continental is the ownership of a group of property and casualty insurance companies, mainly CIC and its affiliates.

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; and property and casualty reinsurance.annuities. CNA services include risk management, information services, healthcare claims management, 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

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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.

Competition

The property and casualty and life and health insurance industry isindustries are highly competitive both as to rate and service. CNAF’sCNA’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. CNAFCNA must continuously allocate resources to refine and improve its insurance and reinsurance products and services.

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Rates among insurers vary according to the types of insurers and methods of operation. CNAFCNA 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. CNAF’sCNA’s consolidated property and casualty subsidiaries ranked as the nintheleventh largest property and casualty insurance organization in the United States based upon 20012002 statutory net written premiums. CNA Re, the Company’s principal property and casualty assumed reinsurance operation, ranked as the 14th largest property and casualty reinsurance organization in the United States based upon 2001 statutory net written premiums.

There are approximately 990 companies selling life and heath insurance in the United States. CNA’s consolidated life insurance companies are ranked as the 51st largest life-health insurance organization in the United States based on 2001 statutory net written premiums.

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The commercial property and casualty markets continue to realize significant rate increases, indicative of a hard market, while simultaneously using strictermore 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 wellat a reduced level into 2003. The reinsurance markets are also experiencing rate increases, however, not to the extent experienced by the direct commercial markets.2004.

Regulation

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 payments.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 businessindustry 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

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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.

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CNA and the insurance industry incurred substantial losses related to the September 11, 2001 World Trade Center disaster and related events. For the most part, the Company believes 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.

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 amount of 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 results,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, 20022003 and 2001,2002, 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.

Terrorism Insurance

On November 26, 2002, the President of the United States of America, George W. Bush, signed into law the Terrorism Risk Insurance Act of 2002 (the Act), which establishes a program within the Department of the Treasury under which the Federal Government will share the risk of loss from future terrorist attacks with theInformation related to terrorism insurance industry. The Act terminates on December 31, 2005. Each participating insurance company must pay a deductible before Federal Government assistance becomes available. This deductible is based on a percentage of direct earned premiums for commercial insurance lines from the previous calendar year, and rises from 1% from date of enactment to December 31, 2002 (the Transition Period) to 7% during the first subsequent calendar year, 10% in year two and 15% in year three. 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.

Insurance companies providing commercial property and casualty insurance are required to participateset forth 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 affectedMD&A included under the program, but they are pre-empted in relation to prior approval requirements for rates and forms. The Act has policyholder notice requirements in order for insurers to be reimbursed for terrorism-related losses and, from the date of enactment until December 31, 2004, a mandatory offer requirement for terrorism coverage, although it may be rejected by insureds. The Secretary of the Department of the Treasury has discretion to extend this offer requirement until December 31, 2005.

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While the Act provides the property and casualty industry with an increased ability to withstand the effect of a terrorist event during the next three years, 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, and is also prohibited from excluding coverage for fire losses following a terrorist event in a number of states.

Reinsurers’ obligations for terrorism-related losses under reinsurance agreements are not covered by the Act. The Company’s current reinsurance arrangements either exclude terrorism coverage or significantly limit the level of coverage.Item 7.

Reinsurance

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

Employee Relations

As of December 31, 2002,2003, CNA had approximately 15,50012,100 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.

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Business Segments

In 2003, CNA conductsconducted 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.

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Supplementary Insurance Data

The following table sets forth supplementary insurance data:

Supplementary Insurance Data

(a)		Restated to reflect an adjustment to the Company’s historical accounting for CNA’s investment in life settlement contracts and the related revenue recognition. See Note T of the Consolidated Financial Statements included under Item 8 for further discussion.
(b)		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 lossclaim and lossclaim 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 principlespractices (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(including the amortization of deferred acquisition expensesexpenses) 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.

(c)(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 12.7% in 2002, 2001 and 2000.2001. (The 2002 lapse ratio includes the novation of CNA'sCNA’s individual life reinsurance business. Excluding the novation, the 2002 lapse ratio was 7.6%. See Note P of the Consolidated Financial Statements included under Item 8 for further discussion.)

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(d)(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.

(e)(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.subsidiaries in 2002 and 2001. See Note P of the Consolidated Financial Statements included under Item 8 for further details.

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

Gross Written Premiums

(a)

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

Approximately 3.5%3.2%, 4.8%3.5% and 8.2%4.8% of CNA’s gross written premiums were derived from outside of the United States for the years ended December 31, 2003, 2002 2001 and 2000.2001. 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 which is stated in the table above, were not significant.

Property and Casualty Claim and Claim Adjustment Expenses

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.

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Schedule of Loss Reserve Development

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(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.

Investments

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.

Available Information

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 Internetinternet 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.

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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.

ITEM 2. PROPERTIES

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

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

(a)		Represents property owned by CNAF or its subsidiaries.

(b)

Represents property leased by CNAF or its subsidiaries.

(c)

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

ITEM 3. LEGAL PROCEEDINGS

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

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

None.

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PART II

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

CNA’sCNAF’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 March 14, 2003, CNAFebruary 23, 2004, CNAF had 223,608,868223,617,337 shares of common stock outstanding. Approximately 90% of CNA’sCNAF’s outstanding common stock is owned by Loews Corporation (Loews). CNALoews. CNAF had 2,4072,356 stockholders of record as of March 14, 2003February 23, 2004 according to the records maintained by the Company’s transfer agent.

On December 19,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 (Preferred(Series H Issue), to Loews. The terms of the PreferredSeries H Issue were approved by a special committee of independent members of CNAF’s Board of Directors.

The PreferredSeries 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 ratingsrating levels of the financial strength rating of CCC from its current 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 ratingsrating 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 PreferredSeries 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 ratingsrating 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 PreferredSeries 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 PreferredSeries H Issue have been paid. CNAF may not issue any equity securities ranking senior to or on par with the PreferredSeries H Issue without the consent of a majority of its stockholders. The PreferredSeries 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 Preferredissuance of the Series H Issue iswas exempt from registration under Section 4(2) of the Securities Act of 1933.

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Of the proceeds of the PreferredSeries 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 improveincrease its statutory surplus. It is expected that theThe remaining proceeds will bewere used to repay other debt of CNAF and The Continental, Corporation, a controlled subsidiary, maturingwhich matured in 2003 and used for other general corporate purposes.

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

Common Stock Information