UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

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

For the quarterly period ended March 31, 2009

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

For the transition period from                      to                     

CNA FINANCIAL CORPORATION

(Exact name of registrant as specified in its charter)

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

333 S. Wabash
Chicago, Illinois		60604
(Address of principal executive offices)		(Zip Code)

(312) 822-5000
(Registrant’s telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes þ No o

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

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer þ		Accelerated filer o		Non-accelerated filer o (Do not check if a smaller reporting company)		Smaller reporting company o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No þ

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.

Class		Outstanding at April 30, 2009
Common Stock, Par value $2.50			269,024,408

 

 

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

CNA Financial Corporation (CNAF)

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

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

CNA Financial Corporation (CNAF)

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

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

CNA Financial Corporation (CNAF)

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

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

CNA Financial Corporation (CNAF)

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

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

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

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

CNA Financial Corporation (CNAF)

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

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

CNA Financial Corporation

Note A. Basis of Presentation

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

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

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

Note B. Accounting Pronouncements

Adopted in the first quarter of 2009

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

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

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

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

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

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

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

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

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

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

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

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

Note C. Earnings (Loss) Per Share

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

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

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

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

Note D. Investments

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

Net Investment Income

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

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

Realized Investment Gains (Losses)

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

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

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

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

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

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

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

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

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

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

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

Summary of Fixed Maturity and Equity Securities

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

Summary of Fixed Maturity and Equity Securities

		Cost or				Gross				Gross Unrealized Losses								Estimated
		Amortized				Unrealized				Less than				12 Months				Fair
December 31, 2008		Cost				Gains				12 Months				or Greater				Value
(In millions)
Fixed maturity securities available-for-sale:
U.S. Treasury securities and obligations of government agencies		$	2,862			$	69			$	1			$	—			$	2,930
Asset-backed securities			9,670				24				961				969				7,764
States, municipalities and political subdivisions — tax-exempt securities			8,557				90				609				623				7,415
Corporate and other taxable bonds			12,993				275				1,164				1,374				10,730
Redeemable preferred stock			72				1				23				3				47
Total fixed maturity securities available-for-sale			34,154				459				2,758				2,969				28,886
Total fixed maturity securities trading			1				—				—				—				1
Equity securities available-for-sale:
Common stock			134				190				1				3				320
Preferred stock			882				5				15				321				551
Total equity securities available-for-sale			1,016				195				16				324				871
Total		$	35,171			$	654			$	2,774			$	3,293			$	29,758

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

Unrealized Loss Aging

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

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

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

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

Based on current facts and circumstances, the Company has determined that the securities presented in the above unrealized gain/loss tables were temporarily impaired when evaluated at March 31, 2009 and

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

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

Asset-Backed Securities

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

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

The remainder of the holdings in this category includes mortgage-backed securities guaranteed by an agency of the U.S. Government. There were 195 agency mortgage-backed pass-through securities and 1 agency CMO in an unrealized loss position aggregating $1 million as of March 31, 2009. The cumulative unrealized losses on these securities were approximately 1% of amortized cost. These securities do not tend to be influenced by the credit of the issuer but rather the characteristics and projected cash flows of the underlying collateral. For the three months ended March 31, 2009, there were no OTTI losses recorded for mortgage-backed securities guaranteed by an agency of the U.S. Government.

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

Gross Unrealized Losses by Ratings Distribution

March 31, 2009
(In millions)

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

The Company believes the decline in fair value is primarily attributable to broader deteriorating market conditions, liquidity concerns and wider than historical bid/ask spreads brought about as a result of portfolio liquidations and is not indicative of the quality of the underlying collateral. Because the Company has the ability and intent to hold these investments until an anticipated recovery of fair value, which may be maturity, the Company considers these investments to be temporarily impaired at March 31, 2009.

States, Municipalities and Political Subdivisions — Tax-Exempt Securities

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

Gross Unrealized Losses by Ratings Distribution

March 31, 2009
(In millions)

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

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

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

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

Corporate and Other Taxable Bonds

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

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

Gross Unrealized Losses by Industry Sector

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

Gross Unrealized Losses by Ratings Distribution

March 31, 2009
(In millions)

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

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

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

Preferred Stock

The unrealized losses on the Company’s investments in preferred stock were caused by similar factors as those that affected the Company’s corporate bond portfolio. Approximately 83% of the gross unrealized losses in this category come from securities issued by financial institutions, 11% from utilities and 6% from entities in the communications sector. The holdings in this category include 27 securities in a gross unrealized loss position aggregating $274 million, with 93% of these unrealized losses attributable to non-redeemable preferred stocks. The following table summarizes preferred stocks by ratings distribution at March 31, 2009.

Gross Unrealized Losses by Ratings Distribution

March 31, 2009
(In millions)

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

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

Investment Commitments

As of March 31, 2009, the Company had committed approximately $277 million to future capital calls from various third-party limited partnership investments in exchange for an ownership interest in the related partnerships.

The Company invests in multiple bank loan participations as part of its overall investment strategy and has committed to additional future purchases and sales. The purchase and sale of these investments are recorded on the date that the legal agreements are finalized and cash settlement is made. As of March 31, 2009, the Company had commitments to purchase $2 million and sell $26 million of various bank loan participations. When loan participation purchases are settled and recorded they may contain both funded and unfunded amounts. An unfunded loan represents an obligation by the Company to provide additional amounts under the terms of the loan participation. The funded portions are reflected on the Condensed Consolidated Balance Sheets, while any unfunded amounts are not recorded until a draw is made under the loan facility. As of March 31, 2009, the Company had obligations on unfunded bank loan participations in the amount of $10 million.

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

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

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

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

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

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

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

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

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

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

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

Credit Ratings of Underlying Reference Obligations

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

Credit Ratings of Underlying Reference Obligations

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