SCHEDULE II. CONDENSED FINANCIAL INFORMATION OF REGISTRANT (PARENT COMPANY)

CNA Financial Corporation

Statements of Operations and Comprehensive Income



Years ended December 31
(In millions)	2012			2011			2010
Revenues
Net investment income	$	1		$	1		$	4
Net realized investment gains (losses)	4			(9		)	(1		)
Other income	9			40			96
Total revenues	14			32			99
Expenses
Administrative and general	1			3			5
Interest	164			167			148
Total expenses	165			170			153
Loss from operations before income taxes and equity in net income of subsidiaries	(151		)	(138		)	(54		)
Income tax benefit	144			46			19
Loss before equity in net income of subsidiaries	(7		)	(92		)	(35		)
Equity in net income of subsidiaries	635			704			726
Net income	628			612			691
Equity in other comprehensive income of subsidiaries	351			143			649
Total Comprehensive Income	$	979		$	755		$	1,340

See accompanying Notes to Condensed Financial Information as well as the Consolidated Financial Statements and accompanying Notes.

CNA Financial Corporation

Balance Sheets



December 31
(In millions, except share data)	2012			2011
Assets
Investment in subsidiaries	$	14,427		$	13,495
Fixed maturity securities available-for-sale, at fair value (amortized cost of $2 and $2)	2			2
Short term investments	448			292
Amounts due from subsidiaries	2			—
Surplus note due from subsidiary	—			250
Other assets	5			18
Total assets	$	14,884		$	14,057
Liabilities and equity
Liabilities:
Short term debt	$	3		$	3
Long term debt	2,527			2,525
Other liabilities	40			41
Total liabilities	2,570			2,569
Equity:
Common stock ($2.50 par value; 500,000,000 shares authorized; 273,040,243 shares issued; 269,399,390 and 269,274,900 shares outstanding)	683			683
Additional paid-in capital	2,146			2,141
Retained earnings	8,774			8,308
Accumulated other comprehensive income	831			480
Treasury stock (3,640,853 and 3,765,343 shares), at cost	(99		)	(102		)
Notes receivable for the issuance of common stock	(21		)	(22		)
Total equity	12,314			11,488
Total liabilities and equity	$	14,884		$	14,057

See accompanying Notes to Condensed Financial Information as well as the Consolidated Financial Statements and accompanying Notes.

CNA Financial Corporation

Statements of Cash Flows



Years ended December 31
(In millions)	2012			2011			2010
Cash Flows from Operating Activities
Net income	$	628		$	612		$	691
Adjustments to reconcile net income to net cash flows provided (used) by operating activities:
Equity in net income of subsidiaries	(635		)	(704		)	(726		)
Dividends received from subsidiaries	450			—			1
Net realized investment (gains) losses	(4		)	9			1
Other, net	19			55			85
Total adjustments	(170		)	(640		)	(639		)
Net cash flows provided (used) by operating activities	$	458		$	(28	)	$	52
Cash Flows from Investing Activities
Proceeds from fixed maturity securities	$	1		$	1		$	(2	)
Change in short term investments	(156		)	(77		)	181
Capital contributions to subsidiaries	(399		)	(38		)	(6		)
Return of capital from subsidiaries	—			6			—
Repayment of surplus note by subsidiary	250			250			500
Other, net	4			1			—
Net cash flows provided (used) by investing activities	$	(300	)	$	143		$	673
Cash Flows from Financing Activities
Dividends paid to common stockholders	$	(162	)	$	(108	)	$	—
Dividends paid to Loews for 2008 Senior Preferred	—			—			(76		)
Payment to redeem 2008 Senior Preferred	—			—			(1,000		)
Proceeds from the issuance of debt	—			396			495
Repayment of debt	—			(409		)	(150		)
Stock options exercised	1			5			3
Other, net	3			1			3
Net cash flows used by financing activities	$	(158	)	$	(115	)	$	(725	)
Net change in cash	$	—		$	—		$	—
Cash, beginning of year	—			—			—
Cash, end of year	$	—		$	—		$	—

See accompanying Notes to Condensed Financial Information as well as the Consolidated Financial Statements and accompanying Notes.

Notes to Condensed Financial Information

A. Basis of Presentation

The condensed financial information of CNA Financial Corporation (CNAF or the Parent Company) should be read in conjunction with the Consolidated Financial Statements and Notes thereto included in Item 8 of this Form 10-K. CNAF’s subsidiaries are accounted for using the equity method of accounting. Equity in net income of these subsidiaries is presented on the Condensed Statements of Operations as Equity in net income of subsidiaries. Loews owned approximately 90% of the outstanding common stock of CNAF as of December 31, 2012.

B. Commitments, Contingencies and Guarantees

In the normal course of business, CNAF guarantees the indebtedness of certain of its subsidiaries to the debt maturity or payoff, whichever comes first. These guarantees arise in the normal course of business and are given to induce a lender to enter into an agreement with CNAF’s subsidiaries. CNAF would be required to remit prompt and complete payment when due, should the primary obligor default. The maximum potential amount of future payments that CNAF could be required to pay under these guarantees are approximately $10 million at December 31, 2012. The Parent Company does not believe that a payable is likely under these guarantees.

In the course of selling business entities and assets to third parties, CNAF has agreed to indemnify purchasers for losses arising out of breaches of representation and warranties with respect to the business entities or assets being sold, including, in certain cases, losses arising from undisclosed liabilities or certain named litigation. Such indemnification provisions generally survive for periods ranging from nine months following the applicable closing date to the expiration of the relevant statutes of limitation. As of December 31, 2012, the aggregate amount of quantifiable indemnification agreements in effect for sales of business entities, assets and third party loans was $257 million.

In addition, CNAF has agreed to provide indemnification to third party purchasers for certain losses associated with sold business entities or assets that are not limited by a contractual monetary amount. As of December 31, 2012, CNAF had outstanding unlimited indemnifications in connection with the sales of certain of its business entities or assets that included tax liabilities arising prior to a purchaser’s ownership of an entity or asset, defects in title at the time of sale, employee claims arising prior to closing and in some cases losses arising from certain litigation and undisclosed liabilities. These indemnification agreements survive until the applicable statutes of limitation expire, or until the agreed upon contract terms expire. As of December 31, 2012, CNAF has no recorded liabilities related to indemnification agreements. The Parent Company does not believe that any indemnity claim payments are likely.

In the normal course of business, CNAF has provided guarantees to holders of structured settlement annuities (SSA) provided by certain of its subsidiaries, which expire through 2120. CNAF would be required to remit SSA payments due to claimants if the primary obligor failed to perform on these contracts. The maximum potential amount of future payments that CNAF could be required to pay under these guarantees are approximately $1.9 billion at December 31, 2012. The Parent Company does not believe that a payable is likely under these guarantees.