UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

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

For the quarterly period ended March 31, 2012

OR

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

For the transition period from _____ to _____

Commission File Number 1-5823

CNA FINANCIAL CORPORATION

(Exact name of registrant as specified in its charter)

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

333 S. Wabash Chicago, Illinois (Address of principal executive offices)		60604 (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 R No £

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 (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

Yes R No £

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.

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

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

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 27, 2012
Common Stock, Par value $2.50		269,359,109

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Item Number	PART I. Financial Information	Page Number
1.	Condensed Consolidated Financial Statements (Unaudited):
	Condensed Consolidated Statements of Operations for the Three months ended March 31, 2012 and 2011	3
	Condensed Consolidated Statements of Comprehensive Income for the Three months ended March 31, 2012 and 2011	4
	Condensed Consolidated Balance Sheets at March 31, 2012 and December 31, 2011	5
	Condensed Consolidated Statements of Cash Flows for the Three months ended March 31, 2012 and 2011	6
	Condensed Consolidated Statements of Equity for the Three months ended March 31, 2012 and 2011	8
	Notes to Condensed Consolidated Financial Statements	9
2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	39
3.	Quantitative and Qualitative Disclosures About Market Risk	58
4.	Controls and Procedures	58
	PART II. Other Information
1.	Legal Proceedings	59
4.	Mine Safety Disclosures	59
6.	Exhibits	59

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Part I. Financial Information

Item 1. Condensed Consolidated Financial Statements

CNA Financial Corporation

Condensed Consolidated Statements of Operations (Unaudited)

Three months ended March 31
(In millions, except per share data)	2012				2011
Revenues
Net earned premiums	$	1,649			$	1,615
Net investment income	648				620
Net realized investment gains (losses), net of participating policyholders’ interests:
Other-than-temporary impairment losses	(15		)		(20		)
Portion of other-than-temporary impairments recognized in Other comprehensive income	(12		)		(21		)
Net other-than-temporary impairment losses recognized in earnings	(27		)		(41		)
Other net realized investment gains	63				54
Net realized investment gains, net of participating policyholders’ interests	36				13
Other revenues	68				67
Total revenues	2,401				2,315
Claims, Benefits and Expenses
Insurance claims and policyholders’ benefits	1,381				1,364
Amortization of deferred acquisition costs	295				297
Other operating expenses	319				277
Interest	42				46
Total claims, benefits and expenses	2,037				1,984
Income from continuing operations before income tax	364				331
Income tax expense	(114		)		(101		)
Income from continuing operations	250				230
Loss from discontinued operations, net of income tax benefit of - and $0	—				(1		)
Net income	250				229
Net (income) loss attributable to noncontrolling interests	—				(9		)
Net income attributable to CNA	$	250			$	220
Income Attributable to CNA Common Stockholders
Income from continuing operations attributable to CNA common stockholders	$	250			$	221
Income (loss) from discontinued operations attributable to CNA common stockholders	—				(1		)
Income attributable to CNA common stockholders	$	250			$	220
Basic and Diluted Earnings Per Share Attributable to CNA Common Stockholders
Income from continuing operations attributable to CNA common stockholders	$	0.93			$	0.82
Loss from discontinued operations attributable to CNA common stockholders	—				—
Basic and diluted earnings per share attributable to CNA common stockholders	$	0.93			$	0.82
Dividends per share	$	0.15			$	0.10
Weighted Average Outstanding Common Stock and Common Stock Equivalents
Basic	269.3				269.2
Diluted	269.7				269.5

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

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CNA Financial Corporation

Condensed Consolidated Statements of Comprehensive Income (Unaudited)

Three months ended March 31
(In millions)	2012				2011
Other Comprehensive Income, Net of Tax
Changes in:
Net unrealized gains on investments with other-than-temporary impairments	$	40			$	38
Net unrealized gains on other investments	218				22
Net unrealized gains on investments	258				60
Foreign currency translation adjustment	21				25
Pension and postretirement benefits	6				1
Net unrealized gains on discontinued operations and other	—				1
Allocation to participating policyholders	(1		)		—
Other comprehensive income, net of tax	284				87
Net income	250				229
Comprehensive income	534				316
Change in:
Net unrealized (gains) losses on investments attributable to noncontrolling interests	—				2
Other comprehensive (income) loss attributable to noncontrolling interests	—				2
Net (income) loss attributable to noncontrolling interests	—				(9		)
Comprehensive (income) loss attributable to noncontrolling interests	—				(7		)
Total comprehensive income attributable to CNA	$	534			$	309

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

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CNA Financial Corporation

Condensed Consolidated Balance Sheets (Unaudited)

	March 31, 2012				December 31, 2011
(In millions, except share data)
Assets
Investments:
Fixed maturity securities at fair value (amortized cost of $37,810 and $37,345)	$	40,837			$	39,937
Equity securities at fair value (cost of $278 and $288)	298				304
Limited partnership investments	2,400				2,245
Other invested assets	11				12
Mortgage loans	281				234
Short term investments	1,638				1,641
Total investments	45,465				44,373
Cash	59				75
Reinsurance receivables (less allowance for uncollectible receivables of $91 and $91)	5,898				6,001
Insurance receivables (less allowance for uncollectible receivables of $113 and $112)	1,664				1,614
Accrued investment income	478				436
Deferred acquisition costs	576				552
Deferred income taxes	201				415
Property and equipment at cost (less accumulated depreciation of $425 and $420)	307				309
Goodwill and other intangible assets	139				139
Other assets (includes $12 and $130 due from Loews Corporation)	818				779
Separate account business	402				417
Total assets	$	56,007			$	55,110
Liabilities and Equity
Liabilities:
Insurance reserves:
Claim and claim adjustment expenses	$	24,203			$	24,303
Unearned premiums	3,383				3,250
Future policy benefits	9,959				9,810
Policyholders’ funds	169				191
Participating policyholders’ funds	68				68
Short term debt	83				83
Long term debt	2,526				2,525
Other liabilities	3,233				2,975
Separate account business	402				417
Total liabilities	44,026				43,622
Commitments and contingencies (Notes C, G and I)
Equity:
Common stock ($2.50 par value; 500,000,000 shares authorized; 273,040,243 shares issued; 269,356,268 and 269,274,900 shares outstanding)	683				683
Additional paid-in capital	2,140				2,141
Retained earnings	8,517				8,308
Accumulated other comprehensive income	764				480
Treasury stock (3,683,975 and 3,765,343 shares), at cost	(100		)		(102		)
Notes receivable for the issuance of common stock	(23		)		(22		)
Total CNA stockholders’ equity	11,981				11,488
Total liabilities and equity	$	56,007			$	55,110

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

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CNA Financial Corporation

Condensed Consolidated Statements of Cash Flows (Unaudited)

Three months ended March 31
(In millions)	2012				2011
Cash Flows from Operating Activities
Net income	$	250			$	229
Adjustments to reconcile net income to net cash flows provided by operating activities:
Loss from discontinued operations	—				1
Loss on disposal of property and equipment	1				9
Deferred income tax expense	73				89
Trading portfolio activity	(6		)		6
Net realized investment gains, net of participating policyholders’ interests	(36		)		(13		)
Equity method investees	(69		)		(104		)
Amortization of investments	(23		)		(21		)
Depreciation	20				19
Changes in:
Receivables, net	53				71
Accrued investment income	(42		)		(44		)
Deferred acquisition costs	(15		)		(15		)
Insurance reserves	99				45
Other assets	73				(4		)
Other liabilities	(67		)		(155		)
Other, net	1				1
Total adjustments	62				(115		)
Net cash flows provided by operating activities-continuing operations	$	312			$	114
Net cash flows used by operating activities-discontinued operations	$	—			$	(2	)
Net cash flows provided by operating activities-total	$	312			$	112
Cash Flows from Investing Activities
Purchases of fixed maturity securities	$	(2,842	)		$	(3,480	)
Proceeds from fixed maturity securities:
Sales	1,929				1,881
Maturities, calls and redemptions	683				965
Purchases of equity securities	(12		)		(34		)
Proceeds from sales of equity securities	19				128
Origination of mortgage loans	(48		)		(31		)
Change in short term investments	(8		)		548
Change in other investments	10				(43		)
Purchases of property and equipment	(22		)		(11		)
Other, net	4				1
Net cash flows used by investing activities-continuing operations	$	(287	)		$	(76	)
Net cash flows provided by investing activities-discontinued operations	$	—			$	2
Net cash flows used by investing activities-total	$	(287	)		$	(74	)

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

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Three months ended March 31
(In millions)	2012				2011
Cash Flows from Financing Activities
Dividends paid to common stockholders	$	(41	)		$	(27	)
Proceeds from the issuance of debt	—				396
Repayment of debt	—				(409		)
Stock options exercised	—				6
Other, net	(1		)		(2		)
Net cash flows used by financing activities-continuing operations	$	(42	)		$	(36	)
Net cash flows provided (used) by financing activities-discontinued operations	$	—			$	—
Net cash flows used by financing activities-total	$	(42	)		$	(36	)
Effect of foreign exchange rate changes on cash	$	1			$	2
Net change in cash	$	(16	)		$	4
Cash, beginning of year	75				77
Cash, end of period	$	59			$	81
Cash-continuing operations	$	59			$	81
Cash-discontinued operations	—				—
Cash-total	$	59			$	81

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

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CNA Financial Corporation

Condensed Consolidated Statements of Equity (Unaudited)

Three months ended March 31
(In millions)	2012				2011
Common Stock
Balance, beginning of period	$	683			$	683
Balance, end of period	683				683
Additional Paid-in Capital
Balance, beginning of period, as previously reported	2,146				2,200
Cumulative effect adjustment from accounting change for deferred acquisition costs, net of tax	(5		)		—
Balance, beginning of period, as adjusted	2,141				2,200
Stock-based compensation	(1		)		(1		)
Other	—				(1		)
Balance, end of period	2,140				2,198
Retained Earnings
Balance, beginning of period, as previously reported	8,382				7,876
Cumulative effect adjustment from accounting change for deferred acquisition costs, net of tax	(74		)		(72		)
Balance, beginning of period, as adjusted	8,308				7,804
Dividends paid to common stockholders	(41		)		(27		)
Net income attributable to CNA	250				220
Balance, end of period	8,517				7,997
Accumulated Other Comprehensive Income
Balance, beginning of period, as previously reported	470				326
Cumulative effect adjustment from accounting change for deferred acquisition costs, net of tax	10				—
Balance, beginning of period, as adjusted	480				326
Other comprehensive income attributable to CNA	284				89
Balance, end of period	764				415
Treasury Stock
Balance, beginning of period	(102		)		(105		)
Stock-based compensation	2				4
Balance, end of period	(100		)		(101		)
Notes Receivable for the Issuance of Common Stock
Balance, beginning of period	(22		)		(26		)
(Increase) decrease in notes receivable for the issuance of common stock	(1		)		1
Balance, end of period	(23		)		(25		)
Total CNA Stockholders’ Equity	11,981				11,167
Noncontrolling Interests
Balance, beginning of period, as previously reported	—				570
Cumulative effect adjustment from accounting change for deferred acquisition costs, net of tax	—				(7		)
Balance, beginning of period, as adjusted	—				563
Net income	—				9
Other comprehensive income (loss)	—				(2		)
Other	—				3
Balance, end of period	—				573
Total Equity	$	11,981			$	11,740

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

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Notes to Condensed Consolidated Financial Statements (Unaudited)

Note A. General

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 controlled subsidiaries are referred to as CNA or the Company. CNA’s property and casualty and remaining life and group insurance operations are primarily conducted by Continental Casualty Company (CCC), The Continental Insurance Company, Western Surety Company and Continental Assurance Corporation. Loews Corporation (Loews) owned approximately 90% of the outstanding common stock of CNAF as of March 31, 2012.

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 Annual Report on Form 10-K filed with the Securities and Exchange Commission (SEC) for the year ended December 31, 2011, including the summary of significant accounting policies in Note A. 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, 2012 and for the three months ended March 31, 2012 and 2011 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. Intercompany amounts have been eliminated.

Hardy Underwriting Bermuda Limited (Hardy)

On March 21, 2012, CNA announced an agreement to acquire Hardy, a specialized Lloyd’s underwriter, in a cash acquisition for approximately $227 million. Hardy underwrote approximately $430 million in gross written premium in 2011. Subject to regulatory approvals and other conditions, the acquisition is expected to be completed during the second quarter of 2012. As of March 31, 2012, $230 million of the Company's short-term investments were held in escrow in British pounds to fund the acquisition.

Noncontrolling Interests

Net income attributable to noncontrolling interests for the three months ended March 31, 2011 represented the noncontrolling interests in CNA Surety Corporation (Surety) and First Insurance Company of Hawaii (FICOH). On June 10, 2011, CNA completed the acquisition of the noncontrolling interest of Surety and on November 29, 2011, CNA completed the sale of its 50% ownership interest in FICOH.

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Accounting for Costs Associated with Acquiring or Renewing Insurance Contracts

In October 2010, the Financial Accounting Standards Board issued updated accounting guidance which limits the capitalization of costs incurred to acquire or renew insurance contracts to those that are incremental direct costs of successful contract acquisitions. The previous guidance allowed the capitalization of acquisition costs that vary with and are primarily related to the acquisition of new and renewal insurance contracts, whether the costs related to successful or unsuccessful efforts.

As of January 1, 2012, the Company adopted the updated accounting guidance prospectively as of January 1, 2004, the earliest date practicable. Due to the lack of available historical data related to certain accident and health contracts issued prior to January 1, 2004, a full retrospective application of the change in accounting guidance was impracticable. Acquisition costs capitalized prior to January 1, 2004 will continue to be accounted for under the previous accounting guidance and will be amortized over the premium-paying period of the related policies using assumptions consistent with those used for computing future policy benefit reserves for such contracts.

For the three month period ended March 31, 2012, the adoption of the new accounting guidance resulted in an approximate $2 million decrease in Net income attributable to CNA and a $0.01 decrease in Basic and diluted earnings per share attributable to CNA common stockholders.

The Company has adjusted its previously reported financial information included herein to reflect the change in accounting guidance for deferred acquisition costs. The impacts of adopting the new accounting standard on the Company's Condensed Consolidated Balance Sheet as of December 31, 2011 were a $106 million decrease in Deferred acquisition costs and a $37 million increase in Deferred income taxes. The impacts to Accumulated other comprehensive income (AOCI) and Additional paid-in capital (APIC) were the result of the indirect effects of the Company's adoption of this guidance on Shadow Adjustments, as further discussed in Note C, and the Company's acquisition of the noncontrolling interest of Surety as discussed above.

The impacts on the Company's Condensed Consolidated Statement of Operations for the three month period ended March 31, 2011 were a $48 million decrease in Amortization of deferred acquisition costs, a $52 million increase in Other operating expenses, and a $1 million decrease in Income tax expense, resulting in a $3 million decrease in Net income attributable to CNA, and a $0.01 decrease in Basic and diluted earnings per share attributable to CNA common stockholders. There were no changes to net cash flows from operating, investing or financing activities for the comparative period presented as a result of the adoption of the new accounting standard.

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Note B. Earnings Per Share

Earnings per share attributable to the Company's common stockholders is based on the weighted average number of outstanding common shares. Basic earnings (loss) per share excludes the impact of dilutive securities and is computed by dividing net income (loss) attributable to CNA by the weighted average number of common shares outstanding for the period. Diluted earnings (loss) 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.

For the three months ended March 31, 2012 and 2011, approximately 339 thousand and 272 thousand potential shares attributable to exercises under stock-based employee compensation plans were included in the calculation of diluted earnings per share. For those same periods, approximately 668 thousand and 1.0 million potential shares attributable to exercises under stock-based employee compensation plans were not included in the calculation of diluted earnings per share because the effect would have been antidilutive.

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Note C. Investments

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

Net Investment Income

Three months ended March 31
(In millions)	2012				2011
Fixed maturity securities	$	516			$	506
Short term investments	1				2
Limited partnership investments	130				114
Equity securities	4				6
Mortgage loans	3				2
Trading portfolio (a)	7				3
Other	1				2
Gross investment income	662				635
Investment expense	(14		)		(15		)
Net investment income	$	648			$	620

___________________

(a)	There were no net unrealized gains (losses) related to changes in fair value of trading securities still held included in net investment income for the three months ended March 31, 2012 or 2011.

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

Net Realized Investment Gains (Losses)

Three months ended March 31
(In millions)	2012				2011
Net realized investment gains (losses):
Fixed maturity securities:
Gross realized gains	$	69			$	88
Gross realized losses	(39		)		(68		)
Net realized investment gains (losses) on fixed maturity securities	30				20
Equity securities:
Gross realized gains	3				5
Gross realized losses	(2		)		(5		)
Net realized investment gains (losses) on equity securities	1				—
Derivatives	(1		)		(1		)
Short term investments and other (a) (b)	6				(6		)
Net realized investment gains (losses), net of participating policyholders’ interests	$	36			$	13

____________________

(a)	There were no net unrealized gains (losses) included in the three months ended March 31, 2012 and $1 million of net unrealized gains included in the three months ended March 31, 2011 related to changes in fair value of securities for which the fair value option has been elected.

(b)	The three months ended March 31, 2011 includes a $9 million loss related to the early extinguishment of $400 million of senior notes originally due August 15, 2011.

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The components of net other-than-temporary impairment (OTTI) losses recognized in earnings by asset type are summarized in the following table.

Three months ended March 31
(In millions)	2012				2011
Fixed maturity securities available-for-sale:
Corporate and other bonds	$	10			$	9
Asset-backed:
Residential mortgage-backed	14				28
Total asset-backed	14				28
U.S. Treasury and obligation of government-sponsored enterprises	1				—
Total fixed maturity securities available-for-sale	25				37
Equity securities available-for-sale:
Common stock	2				3
Preferred stock	—				1
Total equity securities available-for-sale	2				4
Net OTTI losses recognized in earnings	$	27			$	41

A security is impaired if the fair value of the security is less than its cost adjusted for accretion, amortization and previously recorded OTTI losses, otherwise defined as an unrealized loss. When a security 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 loss has occurred for a security. 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 evaluating 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. Fixed maturity securities that the Company intends to sell, or it more likely than not will be required to sell before recovery of amortized cost, are considered to be other-than-temporarily impaired and the entire difference between the amortized cost basis and fair value of the security is recognized as an OTTI loss in earnings. The remaining fixed maturity securities in an unrealized loss position are evaluated to determine if a credit loss exists. The factors considered by the Impairment Committee include (a) the financial condition and near term prospects of the issuer, (b) whether the debtor is current on interest and principal payments, (c) credit ratings of the securities and (d) general market conditions and industry or sector specific outlook. The Company also considers results and analysis of cash flow modeling for asset-backed securities, and when appropriate, other fixed maturity securities. The focus of the analysis for asset-backed securities is on assessing the sufficiency and quality of underlying collateral and timing of cash flows based on scenario tests. If the present value of the modeled expected cash flows equals or exceeds the amortized cost of a security, no credit loss is judged to exist and the asset-backed security is deemed to be temporarily impaired. If the present value of the expected cash flows is less than amortized cost, the security is judged to be other-than-temporarily impaired for credit reasons and that shortfall, referred to as the credit component, is recognized as an OTTI loss in earnings. The difference between the adjusted amortized cost basis and fair value, referred to as the non-credit component, is recognized as OTTI in Other comprehensive income. In subsequent reporting periods, a change in intent to sell or further credit impairment on a security whose fair value has not deteriorated will cause the non-credit component originally recorded as OTTI in Other comprehensive income to be recognized as an OTTI loss in earnings.

The Company performs the discounted cash flow analysis using stressed scenarios to determine future expectations regarding recoverability. For asset-backed securities, significant assumptions enter into these cash flow projections including delinquency rates, probable risk of default, loss severity upon a default, over collateralization and interest coverage triggers, and credit support from lower level tranches.

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The Company applies the same impairment model as described above for the majority of non-redeemable preferred stock securities on the basis that these securities possess characteristics similar to debt securities and that the issuers maintain their ability to pay dividends. For all other equity securities, in determining whether the security is other-than-temporarily impaired, 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 and (d) general market conditions and industry or sector specific outlook.

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

Summary of Fixed Maturity and Equity Securities

March 31, 2012	Cost or Amortized Cost				Gross Unrealized Gains				Gross Unrealized Losses				Estimated Fair Value				Unrealized OTTI Losses (Gains)
(In millions)
Fixed maturity securities available-for-sale:
Corporate and other bonds	$	19,324			$	2,013			$	61			$	21,276			$	—
States, municipalities and political subdivisions	9,234				1,042				93				10,183				—
Asset-backed:
Residential mortgage-backed	5,958				175				139				5,994				37
Commercial mortgage-backed	1,297				68				36				1,329				(2		)
Other asset-backed	1,022				18				1				1,039				—
Total asset-backed	8,277				261				176				8,362				35
U.S. Treasury and obligations of government-sponsored enterprises	224				12				—				236				—
Foreign government	634				21				—				655				—
Redeemable preferred stock	105				8				—				113				—
Total fixed maturity securities available-for-sale	37,798				3,357				330				40,825				$	35
Total fixed maturity securities trading	12				—				—				12
Equity securities available-for-sale:
Common stock	32				17				1				48
Preferred stock	246				4				—				250
Total equity securities available-for-sale	278				21				1				298
Total	$	38,088			$	3,378			$	331			$	41,135

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December 31, 2011	Cost or Amortized Cost				Gross Unrealized Gains				Gross Unrealized Losses				Estimated Fair Value				Unrealized OTTI Losses (Gains)
(In millions)
Fixed maturity securities available-for-sale:
Corporate and other bonds	$	19,086			$	1,946			$	154			$	20,878			$	—
States, municipalities and political subdivisions	9,018				900				136				9,782				—
Asset-backed:
Residential mortgage-backed	5,786				172				183				5,775				99
Commercial mortgage-backed	1,365				48				59				1,354				(2		)
Other asset-backed	946				13				4				955				—
Total asset-backed	8,097				233				246				8,084				97
U.S. Treasury and obligations of government-sponsored enterprises	479				14				—				493				—
Foreign government	608				28				—				636				—
Redeemable preferred stock	51				7				—				58				—
Total fixed maturity securities available-for-sale	37,339				3,128				536				39,931				$	97
Total fixed maturity securities trading	6				—				—				6
Equity securities available-for-sale:
Common stock	30				17				—				47
Preferred stock	258				4				5				257
Total equity securities available-for-sale	288				21				5				304
Total	$	37,633			$	3,149			$	541			$	40,241

The net unrealized gains on investments included in the tables above are recorded as a component of AOCI. When presented in AOCI, these amounts are net of tax and any required Shadow Adjustments. At March 31, 2012 and December 31, 2011, the net unrealized gains on investments included in AOCI were net of Shadow Adjustments of $751 million and $723 million. To the extent that unrealized gains on fixed income securities supporting certain products within the Life & Group Non-Core segment would result in a premium deficiency if realized, a related decrease in Deferred acquisition costs and/or increase in Insurance reserves are recorded, net of tax, as a reduction through Other comprehensive income (Shadow Adjustments).

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The following tables summarize the estimated fair value and gross unrealized losses of available-for-sale fixed maturity and equity securities in a gross unrealized loss position by the length of time in which the securities have continuously been in that position.

Securities in a Gross Unrealized Loss Position

	Less than 12 Months								12 Months or Longer								Total
March 31, 2012	Estimated Fair Value				Gross Unrealized Losses				Estimated Fair Value				Gross Unrealized Losses				Estimated Fair Value				Gross Unrealized Losses
(In millions)
Fixed maturity securities available-for-sale:
Corporate and other bonds	$	1,635			$	43			$	124			$	18			$	1,759			$	61
States, municipalities and political subdivisions	385				8				460				85				845				93
Asset-backed:
Residential mortgage-backed	882				39				1,026				100				1,908				139
Commercial mortgage-backed	219				18				122				18				341				36
Other asset-backed	297				1				—				—				297				1
Total asset-backed	1,398				58				1,148				118				2,546				176
Total fixed maturity securities available-for-sale	3,418				109				1,732				221				5,150				330
Equity securities available-for-sale:
Common stock	4				1				—				—				4				1
Total equity securities available-for-sale	4				1				—				—				4				1
Total	$	3,422			$	110			$	1,732			$	221			$	5,154			$	331

	Less than 12 Months								12 Months or Longer								Total
December 31, 2011	Estimated Fair Value				Gross Unrealized Losses				Estimated Fair Value				Gross Unrealized Losses				Estimated Fair Value				Gross Unrealized Losses
(In millions)
Fixed maturity securities available-for-sale:
Corporate and other bonds	$	2,552			$	126			$	159			$	28			$	2,711			$	154
States, municipalities and political subdivisions	67				1				721				135				788				136
Asset-backed:
Residential mortgage-backed	719				36				874				147				1,593				183
Commercial mortgage-backed	431				39				169				20				600				59
Other asset-backed	389				4				—				—				389				4
Total asset-backed	1,539				79				1,043				167				2,582				246
Total fixed maturity securities available-for-sale	4,158				206				1,923				330				6,081				536
Equity securities available-for-sale:
Preferred stock	117				5				—				—				117				5
Total equity securities available-for-sale	117				5				—				—				117				5
Total	$	4,275			$	211			$	1,923			$	330			$	6,198			$	541

The amount of pretax net realized gains on available-for-sale securities reclassified out of AOCI into earnings was $32 million and $21 million for the three months ended March 31, 2012 and 2011.

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The following table summarizes the activity for the three months ended March 31, 2012 and 2011 related to the pretax credit loss component reflected in Retained earnings on fixed maturity securities still held at March 31, 2012 and 2011 for which a portion of an OTTI loss was recognized in Other comprehensive income (loss).

(In millions)	2012				2011
Beginning balance of credit losses on fixed maturity securities	$	92			$	141
Additional credit losses for securities for which an OTTI loss was previously recognized	11				10
Credit losses for securities for which an OTTI loss was not previously recognized	1				1
Reductions for securities sold during the period	(4		)		(25		)
Reductions for securities the Company intends to sell or more likely than not will be required to sell	—				(14		)
Ending balance of credit losses on fixed maturity securities	$	100			$	113

Based on current facts and circumstances, the Company has determined that no additional OTTI losses related to the securities in an unrealized loss position presented in the March 31, 2012 Securities in a Gross Unrealized Loss Position table above are required to be recorded. A discussion of some of the factors reviewed in making that determination is presented below.

The classification between investment grade and non-investment grade presented in the discussion below is based on a ratings methodology that takes into account ratings from two major providers, Standard & Poor's and Moody's Investor Services, Inc. in that order of preference. If a security is not rated by these providers, the Company formulates an internal rating.

States, Municipalities and Political Subdivisions

The unrealized losses on the Company's investments in this category are primarily due to market conditions for zero coupon bonds, particularly for those with maturity dates that exceed 20 years. Yields for these securities continue to be higher than historical norms relative to after-tax returns on similar fixed income securities. Securities that comprise 88% of the gross unrealized losses in this category are rated AA or higher.

The largest exposures at March 31, 2012 as measured by gross unrealized losses were several separate issues of Puerto Rico sales tax revenue bonds with gross unrealized losses of $63 million. All of these securities are rated investment grade.

The Company has no current intent to sell these securities, nor is it more likely than not that it will be required to sell prior to recovery of amortized cost. Additionally, the Company believes that the unrealized losses on these securities were not due to factors regarding the ultimate collection of principal and interest; accordingly, the Company has determined that there are no additional OTTI losses to be recorded at March 31, 2012.

Asset-Backed Securities

The fair value of total asset-backed holdings at March 31, 2012 was $8,362 million which was comprised of 2,027 different securities. The fair value of these securities tends to be influenced by the characteristics and projected cash flows of the underlying collateral rather than the credit of the issuer. Each security has deal-specific tranche structures, credit support that results from the unique deal structure, particular collateral characteristics and other distinct security terms. As a result, seemingly common factors such as delinquency rates and collateral performance affect each security differently. Of these securities, 104 had underlying collateral that was either considered sub-prime or Alt-A in nature. The exposure to sub-prime residential mortgage (sub-prime) collateral and Alternative A residential mortgages that have lower than normal standards of loan documentation (Alt-A) collateral is measured by the original deal structure.

The gross unrealized losses on residential mortgage-backed securities included $42 million related to securities guaranteed by a U.S. government agency or sponsored enterprise and $97 million related to non-agency structured securities. Non-agency structured securities included 112 securities that had at least one trade lot in a gross unrealized loss position and the aggregate severity of the gross unrealized loss was approximately 8% of amortized cost.

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Commercial mortgage-backed securities included 43 securities that had at least one trade lot in a gross unrealized loss position. The aggregate severity of the gross unrealized loss was approximately 10% of amortized cost.

The following table summarizes asset-backed securities in a gross unrealized loss position by ratings distribution at March 31, 2012.

Gross Unrealized Losses by Ratings Distribution

March 31, 2012	Amortized Cost				Estimated Fair Value				Gross Unrealized Losses
(In millions)
U.S. Government, Government Agencies, and Government-Sponsored Enterprises	$	852			$	810			$	42
AAA	246				239				7
AA	226				215				11
A	294				286				8
BBB	209				193				16
Non-investment grade	895				803				92
Total	$	2,722			$	2,546			$	176

The Company believes the unrealized losses are primarily attributable to broader economic conditions, changes in interest rates, wider than historical bid/ask spreads, and uncertainty with regard to the timing and amount of ultimate collateral realization, but are not indicative of the ultimate collectibility of the current carrying values of the securities. The Company has no current intent to sell these securities, nor is it more likely than not that it will be required to sell prior to recovery of amortized cost; accordingly, the Company has determined that there are no additional OTTI losses to be recorded at March 31, 2012.

Contractual Maturity

The following table summarizes available-for-sale fixed maturity securities by contractual maturity at March 31, 2012 and December 31, 2011. Actual maturities may differ from contractual maturities because certain securities may be called or prepaid with or without call or prepayment penalties. Securities not due at a single date are allocated based on weighted average life.

Contractual Maturity

	March 31, 2012								December 31, 2011
(In millions)	Cost or Amortized Cost				Estimated Fair Value				Cost or Amortized Cost				Estimated Fair Value
Due in one year or less	$	1,842			$	1,855			$	1,802			$	1,812
Due after one year through five years	13,003				13,573				13,110				13,537
Due after five years through ten years	8,713				9,326				8,410				8,890
Due after ten years	14,240				16,071				14,017				15,692
Total	$	37,798			$	40,825			$	37,339			$	39,931

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Investment Commitments

As of March 31, 2012, the Company had committed approximately $122 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 various privately placed debt securities, including bank loans, as part of its overall investment strategy and has committed to additional future purchases, sales and funding. The purchase and sale of these investments are recorded on the date that the legal agreements are finalized and cash settlements are made. As of March 31, 2012, the Company had commitments to purchase $151 million and sell $127 million of such investments. The Company has an obligation to fund additional amounts under the terms of current loan participations that may not be recorded until a draw is made. As of March 31, 2012, the Company had obligations on unfunded bank loan participations in the amount of $5 million.

As of March 31, 2012, the Company had mortgage loan commitments of $28 million representing signed loan applications received and accepted. The mortgage loans are recorded once funded.

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Note D. Derivative Financial Instruments

A summary of the recognized gains (losses) related to derivative financial instruments follows.

Recognized Gains (Losses)

Three months ended March 31
(In millions)	2012				2011
Without hedge designation
Currency forwards	$	(1	)		$	(1	)
Total without hedge designation	(1		)		(1		)
Trading activities
Futures sold, not yet purchased	1				—
Total	$	—			$	(1	)

A summary of the aggregate contractual or notional amounts and gross estimated fair values related to derivative financial instruments reported as Other invested assets or Other liabilities on the Condensed Consolidated Balance Sheets follows. The contractual or notional amounts for derivatives are used to calculate the exchange of contractual payments under the agreements and may not be representative of the potential for gain or loss on these instruments.

Derivative Financial Instruments

March 31, 2012	Contractual/ Notional Amount				Estimated Fair Value
(In millions)					Asset				(Liability)
Without hedge designation
Credit default swaps - purchased protection	$	20			$	—			$	(1	)
Currency forwards	33				—				(1		)
Equity warrants	4				—				—
Total	$	57			$	—			$	(2	)

December 31, 2011	Contractual/ Notional Amount				Estimated Fair Value
(In millions)					Asset				(Liability)
Without hedge designation
Credit default swaps - purchased protection	$	20			$	—			$	(1	)
Currency forwards	22				1				—
Equity warrants	4				—				—
Total	$	46			$	1			$	(1	)

During the three months ended March 31, 2012, new derivative transactions entered into totaled $332 million in notional value while derivative termination activity totaled $321 million. During the three months ended March 31, 2011, new derivative transactions entered into totaled approximately $341 million in notional value while derivative termination activity totaled approximately $349 million. This activity was primarily attributable to interest rate futures and foreign currency forwards for both periods.

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Note E. Fair Value

Fair value is the price that would be received upon sale of an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The following fair value hierarchy is used in selecting inputs, with the highest priority given to Level 1, as these are the most transparent or reliable.

Level 1 - Quoted prices for identical instruments in active markets.

Level 2 - Quoted prices for similar instruments in active markets; quoted prices for identical or similar instruments in markets that are not active; and model-derived valuations in which all significant inputs are observable in active markets.

Level 3 - Valuations derived from valuation techniques in which one or more significant inputs are not observable.

Prices may fall within Level 1, 2 or 3 depending upon the methodologies and inputs used to estimate fair value for each specific security. Prices are determined by a dedicated group within the Investments and Treasury organization, who ultimately report to the Company's Chief Financial Officer. This group is responsible for valuation policies and procedures. In general the Company seeks to price securities using third-party pricing services. Securities not priced by pricing services are submitted to independent brokers for valuation and, if those are not available, internally developed pricing models are used to value assets using methodologies and inputs the Company believes market participants would use to value the assets.

The Company performs control procedures over information obtained from pricing services and brokers to ensure prices received represent a reasonable estimate of fair value and to confirm representations regarding whether inputs are observable or unobservable. Procedures include i) the review of pricing service or broker pricing methodologies, ii) back-testing, where past fair value estimates are compared to actual transactions executed in the market on similar dates, iii) exception reporting, where changes in price, period-over-period, are reviewed and challenged with the pricing service or broker based on exception criteria, iv) deep dives, where the Company independently validates detailed information regarding inputs and assumptions for individual securities and v) pricing validation, where prices received are compared to prices independently estimated by the Company.

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Assets and Liabilities Measured at Fair Value

Assets and liabilities measured at fair value on a recurring basis are summarized below.

March 31, 2012													Total Assets/(Liabilities) at Fair Value
(In millions)	Level 1				Level 2				Level 3
Assets
Fixed maturity securities:
Corporate and other bonds	$	—			$	20,802			$	486			$	21,288
States, municipalities and political subdivisions	—				10,010				173				10,183
Asset-backed:
Residential mortgage-backed	—				5,547				447				5,994
Commercial mortgage-backed	—				1,224				105				1,329
Other asset-backed	—				655				384				1,039
Total asset-backed	—				7,426				936				8,362
U.S. Treasury and obligations of government-sponsored enterprises	194				42				—				236
Foreign government	124				531				—				655
Redeemable preferred stock	5				55				53				113
Total fixed maturity securities	323				38,866				1,648				40,837
Equity securities	115				109				74				298
Derivative and other financial instruments, included in Other invested assets	—				—				11				11
Short term investments	797				583				—				1,380
Life settlement contracts, included in Other assets	—				—				115				115
Separate account business	5				393				4				402
Total assets	$	1,240			$	39,951			$	1,852			$	43,043
Liabilities
Derivative financial instruments, included in Other liabilities	$	—			$	(1	)		$	(1	)		$	(2	)
Total liabilities	$	—			$	(1	)		$	(1	)		$	(2	)

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December 31, 2011													Total Assets/(Liabilities) at Fair Value
(In millions)	Level 1				Level 2				Level 3
Assets
Fixed maturity securities:
Corporate and other bonds	$	—			$	20,402			$	482			$	20,884
States, municipalities and political subdivisions	—				9,611				171				9,782
Asset-backed:
Residential mortgage-backed	—				5,323				452				5,775
Commercial mortgage-backed	—				1,295				59				1,354
Other asset-backed	—				612				343				955
Total asset-backed	—				7,230				854				8,084
U.S. Treasury and obligations of government-sponsored enterprises	451				42				—				493
Foreign government	92				544				—				636
Redeemable preferred stock	5				53				—				58
Total fixed maturity securities	548				37,882				1,507				39,937
Equity securities	124				113				67				304
Derivative and other financial instruments, included in Other invested assets	—				1				11				12
Short term investments	1,106				508				27				1,641
Life settlement contracts, included in Other assets	—				—				117				117
Separate account business	21				373				23				417
Total assets	$	1,799			$	38,877			$	1,752			$	42,428
Liabilities
Derivative financial instruments, included in Other liabilities	$	—			$	—			$	(1	)		$	(1	)
Total liabilities	$	—			$	—			$	(1	)		$	(1	)

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The tables below present a reconciliation for all assets and liabilities measured at fair value on a recurring basis using significant unobservable inputs (Level 3) for the three months ended March 31, 2012 and 2011.

Level 3 (In millions)	Balance at January 1, 2012				Net realized investment gains (losses) and net change in unrealized appreciation (depreciation) included in net income (loss)*				Net change in unrealized appreciation (depreciation) included in other comprehensive income (loss)				Purchases				Sales				Settlements				Transfers into Level 3				Transfers out of Level 3				Balance at March 31, 2012				Unrealized gains (losses) on Level 3 assets and liabilities held at March 31, 2012 recognized in net income (loss)*
Fixed maturity securities:
Corporate and other bonds	$	482			$	3			$	4			$	79			$	(86	)		$	(19	)		$	33			$	(10	)		$	486			$	—
States, municipalities and political subdivisions	171				—				2				—				—				—				—				—				173				—
Asset-backed:
Residential mortgage-backed	452				1				(4		)		38				—				(7		)		—				(33		)		447				—
Commercial mortgage-backed	59				—				4				42				—				—				—				—				105				—
Other asset-backed	343				4				4				176				(77		)		(25		)		—				(41		)		384				—
Total asset-backed	854				5				4				256				(77		)		(32		)		—				(74		)		936				—
Redeemable preferred stock	—				—				—				53				—				—				—				—				53				—
Total fixed maturity securities	1,507				8				10				388				(163		)		(51		)		33				(84		)		1,648				—
Equity securities	67				—				(3		)		11				(1		)		—				—				—				74				(2		)
Derivative and other financial instruments, net	10				—				—				—				—				—				—				—				10				—
Short term investments	27				—				—				12				—				(39		)		—				—				—				—
Life settlement contracts	117				3				—				—				—				(5		)		—				—				115				(1		)
Separate account business	23				—				—				—				(19		)		—				—				—				4				—
Total	$	1,751			$	11			$	7			$	411			$	(183	)		$	(95	)		$	33			$	(84	)		$	1,851			$	(3	)

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Level 3 (In millions)	Balance at January 1, 2011				Net realized investment gains (losses) and net change in unrealized appreciation (depreciation) included in net income (loss)*				Net change in unrealized appreciation (depreciation) included in other comprehensive income (loss)				Purchases				Sales				Settlements				Transfers into Level 3				Transfers out of Level 3				Balance at March 31, 2011				Unrealized gains (losses) on Level 3 assets and liabilities held at March 31, 2011 recognized in net income (loss)*
Fixed maturity securities:
Corporate and other bonds	$	624			$	4			$	(5	)		$	42			$	(20	)		$	(27	)		$	9			$	(50	)		$	577			$	—
States, municipalities and political subdivisions	266				—				1				—				—				(79		)		—				—				188				—
Asset-backed:																																					—
Residential mortgage-backed	767				1				2				47				(26		)		(22		)		—				(31		)		738				—
Commercial mortgage-backed	73				3				16				—				(4		)		—				—				—				88				—
Other asset-backed	359				4				—				200				(87		)		(31		)		—				—				445				—
Total asset-backed	1,199				8				18				247				(117		)		(53		)		—				(31		)		1,271				—
Redeemable preferred stock	3				3				(3		)		—				(3		)		—				—				—				—				—
Total fixed maturity securities	2,092				15				11				289				(140		)		(159		)		9				(81		)		2,036				—
Equity securities	26				(1		)		(1		)		15				(9		)		—				—				—				30				(3		)
Derivative and other financial instruments, net	25				2				—				—				(19		)		—				—				—				8				1
Short term investments	27				—				—				12				—				(2		)		—				(10		)		27				—
Life settlement contracts	129				3				—				—				—				(5		)		—				—				127				(1		)
Separate account business	41				—				—				—				(2		)		—				—				—				39				—
Total	$	2,340			$	19			$	10			$	316			$	(170	)		$	(166	)		$	9			$	(91	)		$	2,267			$	(3	)

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* Net realized and unrealized gains and losses shown above are reported in Net income (loss) as follows:

Major Category of Assets and Liabilities		Consolidated Statements of Operations Line Items
Fixed maturity securities available-for-sale		Net realized investment gains (losses)
Fixed maturity securities trading		Net investment income
Equity securities		Net realized investment gains (losses)
Derivative financial instruments held in a trading portfolio		Net investment income
Derivative financial instruments not held in a trading portfolio and fair value option financial instruments		Net realized investment gains (losses)
Life settlement contracts		Other revenues

Securities shown in the Level 3 tables on the previous pages may be transferred in or out of Level 3 based on the availability of observable market information used to determine the fair value of the security. The availability of observable market information varies based on market conditions and trading volume and may cause securities to move in and out of Level 3 from reporting period to reporting period. There were no transfers between Level 1 and Level 2 during the three months ended March 31, 2012 or 2011. The Company's policy is to recognize transfers between levels at the beginning of quarterly reporting periods.

Valuation Methodologies and Inputs

The following section describes the valuation methodologies and relevant inputs used to measure different financial instruments at fair value, including an indication of the level in the fair value hierarchy in which the instruments are generally classified.

Fixed Maturity Securities

Fixed maturity securities are valued using methodologies that model information generated by market transactions involving identical or comparable assets, as well as discounted cash flow methodologies. Common inputs include: prices from recently executed transactions of similar securities, broker/dealer quotes, benchmark yields, spreads off benchmark yields, interest rates, and U.S. Treasury or swap curves. Specifically for asset-backed securities, key inputs include prepayment and default projections based on past performance of the underlying collateral and current market data.

Level 1 securities include highly liquid U.S. and foreign government bonds, and redeemable preferred stock, valued using quoted market prices. Level 2 securities include most other fixed maturity securities as the significant inputs are observable in the marketplace. Securities are generally assigned to Level 3 in cases where broker/dealer quotes are significant inputs to the valuation and there is a lack of transparency as to whether these quotes are based on information that is observable in the marketplace. Level 3 securities also include tax-exempt auction rate certificates and private placement debt securities. Fair value of auction rate securities is determined utilizing a pricing model with three primary inputs. The interest rate and spread inputs are observable from like instruments while the expected call date assumption is unobservable due to the uncertain nature of principal prepayments prior to maturity. Fair value of private placement debt securities is determined using internal models with inputs that are not market observable.

Equity Securities

Level 1 equity securities include publicly traded securities valued using quoted market prices. Level 2 securities are primarily non-redeemable preferred stocks and common stocks valued using pricing for similar securities, recently executed transactions, broker/dealer quotes and other pricing models utilizing market observable inputs. Level 3 securities are priced using internal models with inputs that are not market observable.

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Derivative and Other Financial Instruments

Exchange traded derivatives, primarily futures, are valued using quoted market prices and are classified within Level 1 of the fair value hierarchy. Level 2 derivatives primarily include currency forwards valued using observable market forward rates. Over-the-counter derivatives, principally interest rate swaps, total return swaps, credit default swaps, equity warrants and options, are valued using inputs including broker/dealer quotes and are classified within Level 3 of the valuation hierarchy due to a lack of transparency as to whether these quotes are based on information that is observable in the marketplace. Other financial instruments consist of Level 3 securities for which the fair value option has been elected which contain embedded derivatives and are priced using either broker/dealer quotes or internal models with inputs that are not market observable.

Short Term Investments

The valuation of securities that are actively traded or have quoted prices are classified as Level 1. These securities include money market funds and treasury bills. Level 2 primarily includes commercial paper, for which all inputs are market observable. Fixed maturity securities purchased within one year of maturity are classified consistent with fixed maturity securities discussed above. Short term investments as presented in the tables above differ from the amounts presented on the Condensed Consolidated Balance Sheets because certain short term investments, such as time deposits, are not measured at fair value.

Life Settlement Contracts

The fair values of life settlement contracts are determined as the present value of the anticipated death benefits less anticipated premium payments based on contract terms that are distinct for each insured, as well as the Company's own assumptions for mortality, premium expense, and the rate of return that a buyer would require on the contracts, as no comparable market pricing data is available.

Separate Account Business

Separate account business includes fixed maturity securities, equities and short term investments. The valuation methodologies and inputs for these asset types have been described above.

Significant Unobservable Inputs

The table below presents quantitative information about the significant unobservable inputs utilized by the Company in the fair value measurements of Level 3 assets. Valuations for assets and liabilities not presented in the table below are primarily based on broker/dealer quotes for which there is a lack of transparency as to inputs used to develop the valuations. The quantitative detail of these unobservable inputs is neither provided nor reasonably available to the Company.

(In millions, except per share data)	Fair Value at March 31, 2012				Valuation Technique(s)		Unobservable Input(s)		Range  (Weighted Average)
Assets
Fixed maturity securities	$	204			Discounted cash flow		Expected call date assumption		0.5 - 5.5 years (2.2 years)
	$	53			Market approach		Private offering price		$26.5 million per unit
Equity securities	$	69			Market approach		Private offering price		$0.10 - $4,023 per share ($211.01 per share)
Life settlement contracts	$	115			Discounted cash flow		Discount rate risk premium Mortality assumption		9% 65% - 928% (181%)

For fixed maturity securities, an increase to the expected call date assumption or decrease in the private offering price would result in a lower fair value measurement. For equity securities, an increase in the private offering price would result in a higher fair value measurement. For life settlement contracts, an increase in the discount rate risk premium or decrease in the mortality assumption would result in a lower fair value measurement.

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Financial Assets and Liabilities Not Measured at Fair Value

The carrying amount and estimated fair value of the Company's financial instrument assets and liabilities which are not measured at fair value on the Condensed Consolidated Balance Sheets are listed in the tables below.

March 31, 2012	Carrying Amount				Estimated Fair Value
(In millions)					Level 1				Level 2				Level 3				Total
Financial assets
Notes receivable for the issuance of common stock	$	23			$	—			$	—			$	23			$	23
Mortgage loans	281				—				—				295				295
Financial liabilities
Premium deposits and annuity contracts	$	108			$	—			$	—			$	112			$	112
Short term debt	83				—				84				—				84
Long term debt	2,526				—				2,794				—				2,794

December 31, 2011	Carrying Amount				Estimated Fair Value
(In millions)
Financial assets
Notes receivable for the issuance of common stock	$	22			$	22
Mortgage loans	234				247
Financial liabilities
Premium deposits and annuity contracts	$	109			$	114
Short term debt	83				84
Long term debt	2,525				2,679

The following methods and assumptions were used to estimate the fair value of these financial assets and liabilities.

The fair values of Notes receivable for the issuance of common stock were estimated using discounted cash flows utilizing interest rates currently offered for obligations securitized with similar collateral, adjusted for specific note receivable risk.

The fair values of Mortgage loans were based on the present value of the expected future cash flows discounted at the current interest rate for origination of similar quality loans, adjusted for specific loan risk.

Premium deposits and annuity contracts were valued based on cash surrender values, estimated fair values or policyholder liabilities, net of amounts ceded related to sold business.

The Company's senior notes and debentures were valued based on observable market prices. The fair value for other debt was estimated using discounted cash flows based on current incremental borrowing rates for similar borrowing arrangements.

The carrying amounts reported on the Condensed Consolidated Balance Sheets for Cash, Short term investments not carried at fair value, Accrued investment income and certain other assets and other liabilities approximate fair value due to the short term nature of these items. These assets and liabilities are not listed in the tables above.

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Note F. Claim and Claim Adjustment Expense Reserves

The Company's property and casualty insurance claim and claim adjustment expense reserves represent the estimated amounts necessary to resolve all outstanding claims, including IBNR claims as of the reporting date. The Company's reserve projections are based primarily on detailed analysis of the facts in each case, the Company's experience with similar cases and various historical development patterns. Consideration is given to such historical patterns as field reserving trends and claims settlement practices, loss payments, pending levels of unpaid claims and product mix, as well as court decisions, economic conditions including inflation, and public attitudes. All of these factors can affect the estimation of claim and claim adjustment expense reserves.

Establishing claim and claim adjustment expense reserves, including claim and claim adjustment expense reserves for catastrophic events that have occurred, is an estimation process. Many factors can ultimately affect the final settlement of a claim and, therefore, the necessary reserve. Changes in the law, results of litigation, medical costs, the cost of repair materials and labor rates can all affect ultimate claim costs. In addition, time can be a critical part of reserving determinations since the longer the span between the incidence of a loss and the payment or settlement of the claim, the more variable the ultimate settlement amount can be. Accordingly, short-tail claims, such as property damage claims, tend to be more reasonably estimable than long-tail claims, such as workers' compensation, general liability and professional liability claims. Adjustments to prior year reserve estimates, if necessary, are reflected in the results of operations in the period that the need for such adjustments is determined. There can be no assurance that the Company's ultimate cost for insurance losses will not exceed current estimates.

Catastrophes are an inherent risk of the property and casualty insurance business and have contributed to material period-to-period fluctuations in the Company's results of operations and/or equity. The Company reported catastrophe losses, net of reinsurance, of $28 million and $55 million for the three months ended March 31, 2012 and 2011. Catastrophe losses in the first quarter of 2012 related primarily to U.S. storms.

Net Prior Year Development

The following tables and discussion include the net prior year development recorded for CNA Specialty, CNA Commercial and Corporate & Other Non-Core. Favorable net prior year development of $1 million was recorded in the Life & Group Non-Core segment for the three months ended March 31, 2012, compared to unfavorable net prior year development of $7 million for the same period in 2011.

Net Prior Year Development

Three months ended March 31, 2012
(In millions)	CNA Specialty				CNA Commercial				Corporate & Other Non-Core				Total
Pretax (favorable) unfavorable net prior year claim and allocated claim adjustment expense reserve development	$	(6	)		$	(14	)		$	2			$	(18	)
Pretax (favorable) unfavorable premium development	(9		)		(17		)		1				(25		)
Total pretax (favorable) unfavorable net prior year development	$	(15	)		$	(31	)		$	3			$	(43	)

Three months ended March 31, 2011
(In millions)	CNA Specialty				CNA Commercial				Corporate & Other Non-Core				Total
Pretax (favorable) unfavorable net prior year claim and allocated claim adjustment expense reserve development	$	(15	)		$	(7	)		$	3			$	(19	)
Pretax (favorable) unfavorable premium development	(7		)		(8		)		(1		)		(16		)
Total pretax (favorable) unfavorable net prior year development	$	(22	)		$	(15	)		$	2			$	(35	)

For the three months ended March 31, 2012, favorable premium development was recorded for CNA Commercial primarily due to premium adjustments on auditable policies arising from increased exposures.

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CNA Specialty

The following table provides further detail of the net prior year claim and allocated claim adjustment expense reserve development (development) recorded for the CNA Specialty segment for the three months ended March 31, 2012 and 2011.

Three months ended March 31
(In millions)	2012				2011
Pretax (favorable) unfavorable net prior year claim and allocated claim adjustment expense reserve development:
Medical Professional Liability	$	(6	)		$	(14	)
Other Professional Liability	4				6
Surety	1				—
Warranty	(1		)		(10		)
Other	(4		)		3
Total pretax (favorable) unfavorable net prior year claim and allocated claim adjustment expense reserve development	$	(6	)		$	(15	)

2012

Favorable development for medical professional liability was primarily due to reductions in the estimated frequency of large losses in accident years 2008 and prior.

2011

Favorable development for medical professional liability was primarily due to favorable loss emergence in aging services, physicians and excess institutions in accident years 2007 and prior.

Favorable development in warranty was driven by favorable policy year experience on an aggregate stop loss treaty covering the Company's non-insurance warranty subsidiary.

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CNA Commercial

The following table provides further detail of development recorded for the CNA Commercial segment for the three months ended March 31, 2012 and 2011.

Three months ended March 31
(In millions)	2012				2011
Pretax (favorable) unfavorable net prior year claim and allocated claim adjustment expense reserve development:
Commercial Auto	$	—			$	10
General Liability	8				22
Workers' Compensation	(19		)		8
Property and Other	(3		)		(47		)
Total pretax (favorable) unfavorable net prior year claim and allocated claim adjustment expense reserve development	$	(14	)		$	(7	)

2012

Overall, favorable development for workers compensation reflects favorable experience in accident years 2001 and prior. Unfavorable development was recorded for accident year 2010 related to increased medical severity.

2011

Favorable development for property and marine coverages was due to lower than expected frequency in commercial multi-peril coverages primarily in accident year 2010 and a favorable settlement on an individual claim in accident year 2003 in the equipment breakdown book.

The unfavorable development in the general liability coverages was primarily due to two large claim outcomes on umbrella claims in accident year 2001.

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Note G. Legal Proceedings and Contingent Liabilities

Insurance Brokerage Antitrust Litigation

In August 2005, CNAF and certain insurance subsidiaries were joined as defendants, along with other insurers and brokers, in multidistrict litigation pending in the United States District Court for the District of New Jersey, In re Insurance Brokerage Antitrust Litigation, Civil No. 04-5184 (GEB). The plaintiffs' consolidated class action complaint alleged bid rigging and improprieties in the payment of contingent commissions in connection with the sale of insurance. After various motions and preliminary court rulings providing for further proceedings, plaintiffs and various defendants, including CNAF and its named insurance subsidiaries, executed final settlement documents and the plaintiffs filed a motion for preliminary approval of the settlement in May 2011, which was ultimately approved by the Court in March 2012. In April 2012, objectors to the settlement filed notices of appeal. As currently structured, the settlement will not have a material impact on the Company's results of operations. In addition, the Company does not believe it has any material ongoing exposure relating to this matter.

Other Litigation

The Company is also a party to routine litigation incidental to its business, which, based on the facts and circumstances currently known, is not material to the business or financial condition of the Company.

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Note H. Benefit Plans

The components of net periodic cost (benefit) are presented in the following table.

Net Periodic Cost (Benefit)

Three months ended March 31
(In millions)		2012				2011
Pension cost
Service cost		$	3			$	4
Interest cost on projected benefit obligation		34				37
Expected return on plan assets		(43		)		(43		)
Amortization of net actuarial loss		10				6
Net periodic pension cost		$	4			$	4
Postretirement benefit
Interest cost on projected benefit obligation		$	—			$	1
Amortization of prior service credit		(4		)		(5		)
Amortization of net actuarial loss		—				1
Net periodic postretirement benefit		$	(4	)		$	(3	)

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Note I. Commitments, Contingencies, and Guarantees

Commitments and Contingencies

The Company holds an investment in a real estate joint venture. In the normal course of business, the Company, on a joint and several basis with other unrelated insurance company shareholders, has committed to continue funding the operating deficits of this joint venture. Additionally, the Company and the other unrelated shareholders, on a joint and several basis, have guaranteed an operating lease for an office building, which expires in 2016. The guarantee of the operating lease is a parallel guarantee to the commitment to fund operating deficits; consequently, the separate guarantee to the lessor is not expected to be triggered as long as the joint venture continues to be funded by its shareholders which provide liquidity to make its annual lease payments.

In the event that the other parties to the joint venture are unable to meet their commitments in funding the operations of this joint venture, the Company would be required to assume the obligation for the entire office building operating lease. The Company does not believe it is likely that it will be required to do so. However, the maximum potential future lease payments and other related costs at March 31, 2012 that the Company could be required to pay under this guarantee, in excess of amounts already recorded, were approximately $134 million. If the Company were required to assume the entire lease obligation, the Company would have the right to pursue reimbursement from the other shareholders and the right to all sublease revenues.

The Company has entered into a limited number of contracts with minimum payments, primarily related to outsourced services and software. Estimated future minimum payments under these contracts, which amounted to approximately $17 million at March 31, 2012, were $8 million in 2012, $3 million in 2013, and $6 million thereafter.

Guarantees

In the course of selling business entities and assets to third parties, the Company 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 March 31, 2012, the aggregate amount of quantifiable indemnification agreements in effect for sales of business entities, assets and third party loans was $763 million.

In addition, the Company 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 March 31, 2012, the Company 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 March 31, 2012 and December 31, 2011, the Company had recorded liabilities of approximately $15 million related to indemnification agreements and management believes that it is not likely that any future indemnity claims will be significantly greater than the amounts recorded.

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Note J. Business Segments

The Company's core property and casualty commercial insurance operations are reported in two business segments: CNA Specialty and CNA Commercial. The Company's non-core operations are managed in two segments: Life & Group Non-Core and Corporate & Other Non-Core.

The accounting policies of the segments are the same as those described in Note A of the Consolidated Financial Statements within CNAF's Annual Report on Form 10-K for the year ended December 31, 2011, other than the accounting for deferred acquisition costs, as further discussed in Note A herein. The Company manages most of its assets on a legal entity basis, while segment operations are conducted across legal entities. As such, only insurance and reinsurance receivables, insurance reserves and deferred acquisition costs are readily identifiable by individual segment. Distinct investment portfolios are not maintained for each individual segment; accordingly, allocation of assets to each segment is not performed. Therefore, net investment income and realized investment gains or losses are allocated primarily based on each segment's net carried insurance reserves, as adjusted. All significant intersegment income and expense has been eliminated. Income taxes have been allocated on the basis of the taxable income of the segments.

In the following tables, certain financial measures are presented to provide information used by management to monitor the Company's operating performance. Management utilizes these financial measures to monitor the Company's insurance operations and investment portfolio. Net operating income, which is derived from certain income statement amounts, is used by management to monitor performance of the Company's insurance operations. The Company's investment portfolio is monitored by management through analysis of various factors including unrealized gains and losses on securities, portfolio duration and exposure to market and credit risk. Based on such analyses, the Company may recognize an OTTI loss on an investment security in accordance with its policy, or sell a security, which may produce realized gains and losses.

Net operating income (loss) is calculated by excluding from net income (loss) attributable to CNA the after-tax effects of 1) net realized investment gains or losses, 2) income or loss from discontinued operations and 3) any cumulative effects of changes in accounting guidance. The calculation of net operating income excludes net realized investment gains or losses because net realized investment gains or losses are largely discretionary, except for some losses related to OTTI, and are generally driven by economic factors that are not necessarily consistent with key drivers of underwriting performance, and are therefore not considered an indication of trends in insurance operations.

The significant components of the Company's continuing operations and selected balance sheet items are presented in the following tables.

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Three months ended
March 31, 2012	CNA Specialty				CNA Commercial				Life & Group Non-Core				Corporate & Other Non-Core
(In millions)																	Eliminations				Total
Operating revenues
Net earned premiums	$	706			$	803			$	141			$	(1	)		$	—			$	1,649
Net investment income	175				265				198				10				—				648
Other revenues	56				9				(2		)		5				—				68
Total operating revenues	937				1,077				337				14				—				2,365
Claims, Benefits and Expenses
Net incurred claims and benefits	468				567				336				7				—				1,378
Policyholders’ dividends	(2		)		3				2				—				—				3
Amortization of deferred acquisition costs	148				139				8				—				—				295
Other insurance related expenses	72				144				35				(1		)		—				250
Other expenses	50				7				6				48				—				111
Total claims, benefits and expenses	736				860				387				54				—				2,037
Operating income (loss) from continuing operations before income tax	201				217				(50		)		(40		)		—				328
Income tax (expense) benefit on operating income (loss)	(69		)		(78		)		31				14				—				(102		)
Net operating income (loss) from continuing operations attributable to CNA	132				139				(19		)		(26		)		—				226
Net realized investment gains (losses), net of participating policyholders’ interests	8				11				13				4				—				36
Income tax (expense) benefit on net realized investment gains (losses)	(2		)		(4		)		(5		)		(1		)		—				(12		)
Net realized investment gains (losses) attributable to CNA	6				7				8				3				—				24
Net income (loss) from continuing operations attributable to CNA	$	138			$	146			$	(11	)		$	(23	)		$	—			$	250

March 31, 2012
(In millions)
Reinsurance receivables	$	863			$	1,159			$	1,359			$	2,608			$	—			$	5,989
Insurance receivables	$	679			$	1,086			$	8			$	4			$	—			$	1,777
Deferred acquisition costs	$	311			$	265			$	—			$	—			$	—			$	576
Insurance reserves
Claim and claim adjustment expenses	$	6,920			$	11,422			$	2,875			$	2,986			$	—			$	24,203
Unearned premiums	1,705				1,529				150				—				(1		)		3,383
Future policy benefits	—				—				9,959				—				—				9,959
Policyholders’ funds	12				13				144				—				—				169

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Three months ended
March 31, 2011	CNA Specialty				CNA Commercial				Life & Group Non-Core				Corporate & Other Non-Core								Total
(In millions)																	Eliminations
Operating revenues
Net earned premiums	$	669			$	802			$	144			$	1			$	(1	)		$	1,615
Net investment income	160				261				188				11				—				620
Other revenues	54		</