CNA FINANCIAL CORP - 10-Q Quarterly Report

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 is an accelerated filer (as defined in Rule 12b-2 of the Act).
Yes þ No o

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


Item			Page
Number			Number

		PART I. Financial Information
	1.	Condensed Consolidated Financial Statements (Unaudited):
		Condensed Consolidated Balance Sheets at September 30, 2003 and at December 31, 2002		3
		Condensed Consolidated Statements of Operations for the Three and Nine Months Ended September 30, 2003 and 2002 (Restated)		4
		Condensed Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2003 and 2002 (Restated)		5
		Notes to Condensed Consolidated Financial Statements		6
	2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations		46
	3.	Quantitative and Qualitative Disclosures about Market Risk		109
	4.	Disclosure Controls and Procedures		114
		PART II. Other Information
	1.	Legal Proceedings		115
	6.	Exhibits and Reports on Form 8-K		115
		Signatures		116

CNA FINANCIAL CORPORATION
PART I. FINANCIAL INFORMATION
ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)


					September 30,			December 31,
					2003			2002

(In millions, except share data)
Assets
	Investments:
		Fixed maturity securities available-for-sale, at fair value (amortized cost of $27,434 and $25,533)			$	28,747		$	26,275
		Equity securities available-for-sale, at fair value (cost of $360 and $519)				575			666
		Mortgage loans and real estate (less accumulated depreciation of $10 and $55)				27			57
		Policy loans				178			180
		Limited partnership investments				1,213			1,060
		Other invested assets				18			47
		Short-term investments, cost approximates fair value				7,044			7,008

			Total investments			37,802			35,293
	Cash					178			126
	Reinsurance receivables (less allowance for doubtful accounts of $548 and $196)					14,569			12,500
	Insurance receivables (less allowance for doubtful accounts of $399 and $156)					2,767			3,007
	Accrued investment income					364			300
	Receivables for securities sold					1,222			455
	Deferred acquisition costs					2,662			2,551
	Prepaid reinsurance premiums					1,388			1,345
	Federal income taxes recoverable (includes $696 and $0 due from Loews Corporation)					719			—
	Deferred income taxes					496			723
	Property and equipment at cost (less accumulated depreciation of $777 and $771)					338			369
	Goodwill and other intangible assets					172			174
	Other assets					1,640			1,785
	Separate account business					3,533			3,103

				Total assets	$	67,850		$	61,731

Liabilities and Stockholders’ Equity
Liabilities:
	Insurance reserves:
		Claim and claim adjustment expense			$	32,264		$	27,370
		Unearned premiums				5,237			4,820
		Future policy benefits				7,949			7,409
		Policyholders’ funds				603			580
	Collateral on loaned securities and derivatives					881			552
	Payables for securities purchased					847			464
	Participating policyholders’ funds					121			119
	Short term debt					512			420
	Long term debt					1,641			1,872
	Reinsurance balances payable					3,286			2,763
	Federal income taxes payable (includes $0 and $13 due to Loews Corporation)					—			29
	Other liabilities					2,530			2,573
	Separate account business					3,533			3,103

			Total liabilities			59,404			52,074

Commitments and contingencies (Notes F, G, I, L and M)
Minority interest						245			256
Stockholders’ equity:
	Preferred stock (Series H, no par value; $100,000 stated value; 12,500,000 shares authorized; 7,500 shares issued and outstanding, held by Loews Corporation)					750			750
	Common stock ($2.50 par value; 500,000,000 shares authorized; 225,850,270 shares issued; and 223,617,337 and 223,608,868 shares outstanding)					565			565
	Additional paid-in capital					1,031			1,031
	Retained earnings					4,986			6,593
	Accumulated other comprehensive income					1,013			604
	Treasury stock (2,232,933 and 2,241,402 shares), at cost					(69	)		(70	)

						8,276			9,473
	Notes receivable for the issuance of common stock					(75	)		(72	)

			Total stockholders’ equity			8,201			9,401

				Total liabilities and stockholders’ equity	$	67,850		$	61,731

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

CNA FINANCIAL CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)


		Three months						Nine months

Period ended September 30		2003			2002			2003			2002

(In millions, except per share data)					Restated (a)						Restated (a)
Revenues
	Net earned premiums	$	2,126		$	2,262		$	6,704		$	7,925
	Net investment income		352			364			1,211			1,292
	Realized investment gains (losses), net of participating policyholders’ and minority interests		164			24			466			(137	)
	Other revenues		83			137			288			465

Total revenues			2,725			2,787			8,669			9,545

Claims, Benefits and Expenses
	Insurance claims and policyholders’ benefits		4,032			1,850			7,969			6,542
	Amortization of deferred acquisition costs		495			448			1,434			1,350
	Other operating expenses		945			375			1,765			1,258
	Interest		33			37			100			112

Total claims, benefits and expenses			5,505			2,710			11,268			9,262

(Loss) income from continuing operations before income tax and minority interest			(2,780	)		77			(2,599	)		283
Income tax benefit (expense)			1,006			(22	)		983			(75	)
Minority interest			14			(1	)		9			(11	)

(Loss) income from continuing operations			(1,760	)		54			(1,607	)		197
Loss from discontinued operations, net of tax of $9			—			—			—			(35	)

(Loss) income before cumulative effect of a change in accounting principle			(1,760	)		54			(1,607	)		162
Cumulative effect of a change in accounting principle, net of tax of $7			—			—			—			(57	)

Net (loss) income		$	(1,760	)	$	54		$	(1,607	)	$	105

Basic and Diluted (Loss) Earnings Per Share
	(Loss) income from continuing operations	$	(7.94	)	$	0.24		$	(7.39	)	$	0.89
	Loss from discontinued operations, net of tax		—			—			—			(0.16	)

	(Loss) income before cumulative effect of a change in accounting principle		(7.94	)		0.24			(7.39	)		0.73
	Cumulative effect of a change in accounting principle, net of tax		—			—			—			(0.26	)

Basic and diluted (loss) earnings per share available to common stockholders		$	(7.94	)	$	0.24		$	(7.39	)	$	0.47

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

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

CNA FINANCIAL CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)


Nine months ended September 30					2003			2002

(In millions)								Restated (a)
Cash Flows from Operating Activities
	Net (loss) income				$	(1,607	)	$	105
	Adjustments to reconcile net (loss) income to net cash flows provided by operating activities:
		Cumulative effect of a change in accounting principle, net of tax				—			57
		Change in bad debt provision for insurance and reinsurance receivables				596			20
		Minority interest				(9	)		11
		Loss on disposal of property and equipment				30			17
		Deferred income tax provision				—			(33	)
		Realized investment (gains) losses, net of participating policyholders’ and minority interests				(466	)		137
		Realized loss on disposition of discontinued operations, net of tax				—			37
		Equity method (income) loss				(157	)		24
		Amortization of bond discount				(47	)		(98	)
		Depreciation				66			74
		Changes in:
			Receivables			(2,424	)		627
			Deferred acquisition costs			(128	)		(130	)
			Accrued investment income			(64	)		2
			Federal income taxes recoverable/payable			(751	)		713
			Prepaid reinsurance premiums			(43	)		(196	)
			Reinsurance balances payable			523			309
			Insurance reserves			5,880			(664	)
			Other, net			83			(206	)
				Total adjustments		3,089			701

Net cash flows provided by operating activities						1,482			806

Cash Flows from Investing Activities
	Purchases of fixed maturity securities					(48,158	)		(49,577	)
	Proceeds from fixed maturity securities:
		Sales				41,330			48,195
		Maturities, calls and redemptions				5,011			2,025
	Purchases of equity securities					(229	)		(646	)
	Proceeds from sales of equity securities					416			816
	Change in short-term investments					17			(1,394	)
	Change in collateral on loaned securities and derivatives					328			84
	Change in other investments					111			(146	)
	Purchases of property and equipment					(68	)		(61	)
	Dispositions					(46	)		76
	Other, net					18			(7	)

Net cash flows used by investing activities						(1,270	)		(635	)

Net Cash Flows from Financing Activities
	Principal payments on debt					(138	)		(84	)
	Return of policyholder account balances on investment contracts					(18	)		(36	)
	Other					(4	)		66

Net cash flows used by financing activities						(160	)		(54	)

Net change in cash and cash equivalents						52			117
Cash and cash equivalents, beginning of period						126			142

Cash and cash equivalents, end of period<


þ		QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
		SECURITIES EXCHANGE ACT OF 1934
		For the Quarterly Period Ended September 30, 2003
		OR
o		TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
		SECURITIES EXCHANGE ACT OF 1934
		For the transition period from to


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

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


Class	Outstanding at November 1, 2003

Common Stock, Par value $2.50		223,617,337


PART I. FINANCIAL INFORMATION
	1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
	CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
	CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
	NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
	ITEM 2. MANAGEMENT'S DISCUSSINO AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
	ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
	ITEM 4. DISCLOSURE CONTROLS AND PROCEDURES
PART II. OTHER INFORMATION
	Item 1. Legal Proceedings
	Item 6. Exhibits and Reports on Form 8-K
	SIGNATURES
302 Certification of Chief Executive Officer
302 Certification of Chief Financial Officer
906 Certification of Chief Executive Officer
906 Certification of Chief Financial Officer

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