CNA FINANCIAL CORP – 10-Q – Management's Discussion and Analysis (MD&A) of Financial Conditions and Results of Operations

OVERVIEW

The following discussion highlights significant factors affecting the Company.
References to "we," "our," "us" or like terms refer to the business of CNA.

The following discussion should be read in conjunction with the Condensed
Consolidated Financial Statements included under Part I, Item 1 of this Form
10-Q and Item 1A Risk Factors and Item 7 Management's Discussion and Analysis of
Financial Condition and Results of Operations, which are included in our Annual
Report on Form 10-K filed with the Securities and Exchange Commission for the
year ended December 31, 2022.

We utilize the core income (loss) financial measure to monitor our operations.
Core income (loss) is calculated by excluding from net income (loss) the
after-tax effects of net investment gains or losses. The calculation of core
income (loss) excludes net investment gains or losses because net investment
gains or losses are generally driven by economic factors that are not
necessarily reflective of our primary operations. Management monitors core
income (loss) for each business segment to assess segment performance.
Presentation of consolidated core income (loss) is deemed to be a non-GAAP
financial measure and management believes some investors may find this measure
useful to evaluate our primary operations. See further discussion regarding how
we manage our business in Note J to the Condensed Consolidated Financial
Statements included under Part I, Item 1. For reconciliations of non-GAAP
measures to the most comparable GAAP measures and other information, please
refer herein and/or to CNA's most recent Annual Report on Form 10-K on file with
the Securities and Exchange Commission.

In evaluating the results of our Specialty, Commercial and International
segments, we utilize the loss ratio, the underlying loss ratio, the expense
ratio, the dividend ratio, the combined ratio and the underlying combined ratio.
These ratios are calculated using GAAP financial results. The loss ratio is the
percentage of net incurred claim and claim adjustment expenses to net earned
premiums. The underlying loss ratio excludes the impact of catastrophe losses
and development-related items from the loss ratio. Development-related items
represents net prior year loss reserve and premium development, and includes the
effects of interest accretion and change in allowance for uncollectible
reinsurance and deductible amounts. The expense ratio is the percentage of
insurance underwriting and acquisition expenses, including the amortization of
deferred acquisition costs, to net earned premiums. The dividend ratio is the
ratio of policyholders' dividends incurred to net earned premiums. The combined
ratio is the sum of the loss, expense and dividend ratios. The underlying
combined ratio is the sum of the underlying loss ratio, the expense ratio and
the dividend ratio. In addition, we also utilize renewal premium change, rate,
retention and new business in evaluating operating trends. Renewal premium
change represents the estimated change in average premium on policies that
renew, including rate and exposure changes. Rate represents the average change
in price on policies that renew excluding exposure change. For certain products
within Small Business, where quantifiable, rate includes the influence of new
business as well. Exposure represents the measure of risk used in the pricing of
the insurance product. The change in exposure represents the change in premium
dollars on policies that renew as a result of the change in risk of the policy.
Retention represents the percentage of premium dollars renewed, excluding rate
and exposure changes, in comparison to the expiring premium dollars from
policies available to renew. New business represents premiums from policies
written with new customers and additional policies written with existing
customers. Gross written premiums, excluding third-party captives, excludes
business which is ceded to third-party captives, including business related to
large warranty programs. We use underwriting gain (loss), calculated using GAAP
financial results, to monitor our insurance operations. Underwriting gain (loss)
is pretax and is calculated as net earned premiums less total insurance
expenses, which includes insurance claims and policyholders' benefits,
amortization of deferred acquisition costs and other insurance related expenses.

Changes in estimates of claim and claim adjustment expense reserves, net of
reinsurance, for prior years are defined as net prior year loss reserve
development within this MD&A. These changes can be favorable or unfavorable. Net
prior year loss reserve development does not include the effect of any related
acquisition expenses. Further information on our reserves is provided in Note E
to the Condensed Consolidated Financial Statements included under Part I, Item
1.

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CRITICAL ACCOUNTING ESTIMATES

The preparation of the Condensed Consolidated Financial Statements in conformity
with GAAP requires us 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 amount of revenues and expenses reported during the period. Actual results
may differ from those estimates.

Our Condensed Consolidated Financial Statements and accompanying notes have been
prepared in accordance with GAAP applied on a consistent basis. We continually
evaluate the accounting policies and estimates used to prepare the Condensed
Consolidated Financial Statements. In general, our estimates are based on
historical experience, evaluation of current trends, information from
third-party professionals and various other assumptions that are believed to be
reasonable under the known facts and circumstances.

The accounting estimates discussed below are considered by us to be critical to
an understanding of our Condensed Consolidated Financial Statements as their
application places the most significant demands on our judgment:

•Insurance Reserves

•Long Term Care Reserves

•Reinsurance and Insurance Receivables

•Valuation of Investments and Impairment of Securities

•Income Taxes

Due to the inherent uncertainties involved with these types of judgments, actual
results could differ significantly from our estimates and may have a material
adverse impact on our results of operations, financial condition, equity,
business, and insurer financial strength and corporate debt ratings.

See the Critical Accounting Estimates section of our Management's Discussion and
Analysis of Financial Condition and Results of Operations included under Item 7
of our Annual Report on Form 10-K for the year ended December 31, 2022 for
further information on the accounting estimates related to Reinsurance and
Insurance Receivables, Valuation of Investments and Impairment of Securities and
Income Taxes.

The information presented below restates in their entirety, as a result of the
adoption of ASU 2018-12 and its impact on long term care reserves, the
accounting estimates related to Insurance Reserves and Long Term Care Reserves
included under the Critical Accounting Estimates section of our Management's
Discussion and Analysis of Financial Condition and Results of Operations
included under Item 7 of our Annual Report on Form 10-K for the year ended
December 31, 2022. Further information on the long term care reserving process
under the new guidance is included in Note A and Note F to the Condensed
Consolidated Financial Statements included under Part I, Item I.

Insurance Reserves

Insurance reserves are established for both short and long-duration insurance
contracts. Short-duration contracts are primarily related to property and
casualty insurance policies where the reserving process is based on actuarial
estimates of the amount of loss, including amounts for known and unknown claims.
Long-duration contracts are primarily related to long term care policies and the
reserves are recorded as Future policy benefits reserves as discussed below. The
reserve for unearned premiums represents the portion of premiums written related
to the unexpired terms of coverage. The reserving process is discussed in
further detail in the Reserves - Estimates and Uncertainties section of our
Annual Report on Form 10-K for the year ended December 31, 2022.

Long Term Care Reserves

Future policy benefits reserves for our long term care policies are based on
certain assumptions, including morbidity, persistency (inclusive of mortality),
future premium rate increases, and expenses. The adequacy of the reserves is
contingent upon actual experience and our future expectations related to these
key assumptions. If actual or expected future experience differs from these
assumptions, the reserves may not be adequate, requiring us to increase
reserves. The reserves are discounted using upper-medium grade fixed income
instrument yields as of each reporting date. In addition, we may not receive
regulatory approval for the level of premium rate increases we request.

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These changes to our reserves could materially adversely impact our results of
operations, financial condition and equity.

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