Good day everyone and welcome to the CNA Financial Corporation's Second Quarter 2008 Earnings Conference Call. Today's call is being recorded. At this time, I would like to turn the conference over to Ms. Nancy Bufalino. Please go ahead.

Thank you, Patrick, and good morning. Welcome to CNA's second quarter 2008 conference call. With us this morning to discuss our financial results are; Steve Lilienthal, Chairman and CEO; Craig Mense, CFO; and Jim Lewis, President and CEO of P&C Operations. Hopefully everyone get an opportunity to review the press release and financial supplements, which were released earlier this morning and can be found on the CNA website at www.cna.com. Before we get started, I'd like to advise everyone that during today's call there may be forward-looking statements made and references to non-GAAP financial measures. Please see the section of the earnings release available on CNA's website for further clarification of both. In addition, the forward-looking statements speak only as of today, July 28, 2008. CNA expressly disclaims any obligation to update or revise any forward-looking statements made during this call. This call is being recorded and webcast. During the next week, the call may be accessed again on CNA's website. Following the conclusion of today's remarks by senior management, we will be happy to take questions from the investment community. And with that, I will turn the call over to CNA's Chairman and CEO, Steve Lilienthal.

Thank you, Nancy, and good morning, everybody. Thanks for joining us today. In the second quarter CNA continue to move forward diligently and intelligently in the phase of very difficult insurance financial market, not to mention the issues presented by sluggish economy. Consistent what we said, we would do when you change market again the soften our actions are matched by words. We remain committed to underwriting discipline. Retention of existing profitable business is a priority as provided better margin than reckless perceive to new business. Accordingly, our retentions have persisted in low 80s. Since 2006, and new businesses is percentage of total production has come down incrementally is now about 70% exactly were we said it would be. We continue to adjust and optimize our portfolio, as market conditions grow rather than attempt to simply maintain market share. This approach is evident in our investments in the so called standard specialty hybrid products such as; property, and the marine, boiler and machinery excess and surplus lines in a row [ph]. This is an addition to middle market segmentation initiatives and standard and specialty cross sell initiatives, which we have mentioned in previous calls, as well as strategic expansion of our specialty products. We have managed, enhanced and build upon our distribution outreach, market excess primarily through preferred distributors, agents, and brokers who support our strategies, and with whom we've had a winning track record. We have a very balanced multi-channel distribution network, which protects us from becoming overly dependant on any single channel, and allows us to optimize our segmentation and penetration strategies, as well as understand the total costs to serve our distribution network. We're committed to adjusting and managing our expense structure to manage our business side. And we've shown an ability and willingness to do so…

Thanks Steve. Good morning, everyone. I'm pleased to share our second quarter results. Net operating income of $250 million reflects solid underlying operating performance in a challenging environment. Second quarter operating ROE was 9.8%, an improvement from the first quarter, but still slightly below our target range at this stage of the cycle. Book value per share was $34.74 at the end of the second quarter, relatively unchanged from the first quarter. Our first quarter dividend payment had an adverse change in unrealized investment gains and losses, which was mainly driven by a credit market condition slightly exceeded net income. Our core property casualty operations delivered solid performance was measured by combined and expense ratios. Our balance sheet is strong. Operating cash flow is positive, and we enjoy our relatively low level of financial leverage and a high degree of liquidity in our investment portfolio. Our financial flexibility continues to improve as measured by additional debt capacity and holding company liquidity, where we have now accumulated over $715 million of cash and short-term investments. During the first six months, we moved approximately $700 million from the insurance subsidiaries through dividends and other capital transactions to the holding company. Finally, we are pleased to continue to return capitals to our shareholders via our quarterly dividend of $0.15 per share. Now I'd like to give your bit more detail on financials. For the second quarter, net operating income from continuing operations was $250 million or $0.93 per diluted share, compared with $318 million or $01.17 per diluted share in the prior year period. Net income for the quarter was includes the impact of realized investment gains and losses, as well as discontinued operations was $181 million or $0.67 per diluted share compared with $217 million or $0.80 per diluted share last year.…

Thanks, Craig, and good morning, everyone. Property and Casualty operation continues to hold a steady profitable course. You've heard us talk about focused underwriting and the controls we have in place for navigate in the market cycle. These strengths we're clearly seen in the second quarter as measured by 10 consecutive quarter with sub-100 combined ratio. We continue to optimize our portfolio by selective growth segment and sub-segment our book of business, focused on better driven decision-making, work close to with our distributors to be their go through the market and chosen classes, cross sell to get a bigger piece of each customers' insurance dollar and aggressively managed our expenses. Market conditions are challenging very much so in sub-segments and worst mistake is trying to win in the wrong way and aim for it later. I'll prefer our course focused in... on the opportunities, we are moving around the issues and coming out even stronger on the other end. Now let's turn to a few of our key operating metrics. Property and casualty operations net written premium volume decreased 4% for the quarter and 5% year-to-date. Standard Lines was down approximately 6% for the quarter and 9% year-to-date. For our Specialty Lines were essentially flat for the quarter and year-to-date. Giving the current environment, we do expect downward pressure on the top line. And we also expect the pressure to be the greatest on Standard Lines. As I have said before, while we pay attention to the top line, we are not top line driven. The key issues for us are the quality of our portfolio and whether we're maximized in our risk adjusted returns. In Specialty Lines the numbers speak to are focused on portfolio optimization. I'm also encouraged by the progress that we're making in Standard Lines. I…

Thank you, sir. [Operator Instructions]. We'll take our first question from Jay Cohen with Merrill Lynch.

Yes, thank you, and good morning. I've got number of questions. First is the transaction between CCC and the holding company on the surplus, I guess mostly through dividend. What was the rationale from moving that much money up to the holding company?

Jay, it's Craig. With just the desired to really optimize the liquidity at the holding company and improve our financial flexibility.

Okay. You didn't need approval to get that, right?

We actually did speak approval of the transaction. The majority of the money move was actually of stock redemption transaction, and we did get approval from state regulators to do it.

Okay. Secondly, I remember in the first quarter you had bought back some stock as I recall, I didn't notice any in the second quarter, could you confirm that and what you're thinking about that as a form of giving money back to shareholders, given the valuation?

I could confirm we did not. We bought back 70 million of the stock in the first quarter. We did not buyback any stock in this second quarter. And I will tell you that really our thinking here is that given... you know, what you call it prudence or conservatism or whatever, we've just decided that it's given the financial markets, and given we're also facing storm season, it was why to accumulate cash at present, and we can decide later when and how to put it to use.

Okay, fair. Two other points unrelated, on the life non-core business you had mentioned some adverse experience in the long term care business, if you could quantify and discuss what's happening there and how do we get comfort that, that won't be a continuing drag on earnings.

The long term care, claim impacts with that $7 million after-tax in the quarter. And that was a... this quarter we had a little higher than usual claim, and that's $7 million after-tax on pretax incurred claims of about $106 million for the quarter in long term care. And last year second quarter of '07 it was a very low, unusually low number. So I don't think it's only been a couple of months, and we don't see anything that will suggest a long term trend, but let's see.

Okay. And then a last question, you guys in the property/casualty operations, you break out sort of other revenues and other costs. We kind of just take the difference and call that other, but that number, that difference, was a lot better than it have been running. And I am wondering if there's anything unusual flowing through there?

Not unusual, but it's really our non-insurance revenue, which really relates to warranty operations. So it's really their earnings and income from... majority of it is from our warranty operations.

Okay just so happened, good quarter this quarter?

You know, that's been have a good year and it's kind of... it has been a very good little business for us for a while.

Okay. That's all I got. Thanks a lot.

You're welcome.

We'll take our next question from Bob Glasspiegel with Langen McAlenney.

Good morning. I was very interested on your recruitment of Mr. Tom Motamed and it's very unusual of this one year sabbatical, I guess to recharge his batteries as the non-compete work its way through. Is there been any negotiations with Chubb to accelerate that and will that be have interest?

We certainly would not add any comments on that and Tom's 12 month period is not sabbatical, it is a... it comes about by virtue of some very strong non-compete.

Right.

That he had with Chubb and we were mindful of them when we recruited him, and we were mindful of them when we've hired him. And they reminded us of them and we run [ph] agreement that how things would be. And we look at this Bob, as a very orderly logical high quality transition. And there was no issue here with respect to any breach in stewardship [ph]. It was the ability to get a very, very high quality individual and the timing of it worked out just fine.

Well I understood, so you say you don't have any desire to accelerate the process from year-end?

No, the process is with the process is. We hire a guy with a 12 month non-compete, and it was very firm non-compete. And we respect that as we'd effectively respected, if the situation reverse.

Understood. What's the size of your long term capital... of your long term care book?

I'm sorry, say it again Bob.

What's the size of our long term care book currently?

Long term care book is about $5 billion in reserve.

And premium?

And premium it was a little over $100 million this quarter.

Okay, it's scaling down slowly?

It's scaling down, well we should say the revenue is scaling down slowly...

Right.

But the reserves we will continue to grow over some period of time, very long pay out on the reserve.

Understood. And the dividend to the parent was $700 million, did you say, I didn't get the exact number?

I said we move $700 million from the insurance sub to the parent.

Okay. And last question. Could you remind me what your buyback factors in, is it to grow book value long term returns, what drives the buyback valuation parameters?

WhatI said in the past drove buyback parameter is just really the value, the relative value of the stock at certain point in time. But, what also was a factor obviously is our desire to accumulate cash, which is very precious commodity at present. And so, we are really looking for the, how we could return the debt value for shareholders over the long term.

Okay. I have more, but I'll go back in the queue.

We'll take our next question from William Wilt with Morgan Stanley.

Hi, good morning. Few questions, the... I am looking a page 4 of the press release there, exiting your loss ratios measured overtime. The specialty loss ratio on a gross basis the accident year '07 to accident year '08 deteriorated by about 360 basis points. The net loss ratio by far or less I think only 110 basis points. So I was curious if there was... if you could add some color on why the net specialty loss the ratio showed far or less deterioration than the gross. It didn't look like caps or reserved development from this side?

No. This is Jim Lewis. What's driving that is within our specialty portfolio. We do have a large cell phone captive that shows up... in gross premium it doesn't show up in the net. And then as you look at the overall loss ratio itself, the accident year loss ratio for that particular program did increase. But, from a net perspective the overall impact was really 0.1.

Okay. And I am sorry, that was what kind of program?

It's a cell phone; it's a captive program for cell phones.

Okay. It shows up in the gross, not in guidance. Okay, the... thanks for that, the acquisition expense ratio decreased a numbers. It was in Standard Lines, the acquisition expense ratio decreased pretty meaningfully from the year... earlier period, so I was going to ask, for some color behind that?

Yeah, on the acquisition expense we did get a benefit from some guarantee funds. There were some rate changes there, that had went up the previous year that actually went down this year. And that was the kind of the biggest driver of the change, desire from the fact outside of that we are still seeing pressure on overall commissions. And I think we'll probably still can see continue to see pressure in the future on that piece especially of the hurricanes [ph] that occurred in New York, have any positive translates. But what's driving the favorable results is really the guarantee funds, and also secondary [ph] funds.

Okay, great. And then I'll squeeze in a quick third one. The Fannie Mae, the Freddie Mac preferred stock of current valuation of $321 million. Can you just... how has that changed overtime for instance, what was that a quarter ago or two quarters ago?

Are you talking about the amount sells?

The amount, yeah the amount held the caring value of that. How has that changed?

The amount held is approximately about the same. We haven't really added or track actually down a little bit in terms of book. The market value declined at the quarter about... let's say about 25%, from where they were past and since the quarter they've fluctuated some, the fair values have gone down a little bit more, but then rebounded.

Got it. Thanks for that, I'll requeue.

[Operator Instructions]. We'll go next to Dan Johnson with Citadel.

Great. I want to talk a little bit about the LP performance in the quarter. I know you referenced had tough comparisons a year ago. But, the numbers were still pretty good especially compared to the first quarter. Can you give us a little more detail about what sort of underlying fund performance you saw and whether not you thought there is any outliers till the upward or the downside? Thank you.

Dan, there weren't any outlier for the downside. And as we've said before I think you actually were characterized, many people look at these alternative investment even though we call them healthy if so they are very much like hedge funds, and they cover a multitude of strategies, and overall performance was... they all rebounded very solidly from nothing, I mean there was not anything unusual in the quarter from LPs.

Okay. And then just on the loss cost environment. And I realized you in a lot of lines and lot of geographic, so it's really hard to generalize. But, can you tell us what we're seeing as you through ex-Cat let's say, try to look through the loss cost environment that were in with there certainly been through a couple of years of pretty benign losses in general, is that environment persisting, is it normalizing to history or how would you describe that?

All right. I'm sorry.

Okay. This is Larry Haefner, and I would characterize that it's still fairly benign. I mean we're still seeing favorable frequency trends, severity is still fairly modest. We haven't been impacted like some of the... I think trend sets that maybe personal line letters have seen in terms of severity. So we feel very comfortable with the environment is it that there is not adverse trends from whole hedging the last several years.

Thank you very much.

[Operator Instructions]. We have a follow-up question from William Wilt with Morgan Stanley.

Well thanks for that. I guess following up on the last question on loss cost trends, another large commercial later this quarter commented that they had not seen, I guess with reference to commercial property specifically had not seen any notable ramp up in cost of raw materials. cement, steel, plastics presumably all the stuff that goes into building or repairing a building, I take it from your comments the same would be true and if that true, why do you think that is? It would seem from the outsider's perspective that you would have begun to see some inflationary pressures in those areas. So any thoughts on not would be appreciated?

Yes. We really haven't seen a drive up in severity from building material costs. I am not sure, I don't know but certainly thinks like copper costs have gone up significantly. The flipside of it, it's been a pretty benign rebuilding environment from a Cat perspective over the last couple of years; and compared to the rebuilding in Florida and the Golf Coast after 2004, 2005 that maybe leaving some of that pressure on a broader basis.

Okay. Thanks for that. And I will ask one other broad question if I may, I think in couple of folks maybe see with the outside and Jim referenced use of term hybrid a couple of times in describing a new strategy. I apologize if I have missed something or maybe asking is it just a retrace perhaps you've already going over, but I missed the reference to a hybrid strategy, reference boiler machinery and some other coverages and maybe just taking and step back and describing that would be helpful for me anyway?

Yes, this is Jim Lewis. As we look at that standard specialty hybrid strategy, since there is a pressure in the middle market, and that seems to be one of the most competitive areas right now in the marketplace. And we've talked a lot in the past about the sub-segmentation and segmentation that we're doing. We really optimize that part of the portfolio. There are also some still better performing or high performing ROE businesses that are in the Standard Lines, but we actually created more lines, Specialty Lines of business. And that's in the marine, which is a very strong high performing ROE business for us and it's about $100 million book of business. We're investing our resources within the marine specialist then also products to really attack that market. We've actually see the opportunity to take that book from $100 million to $150 million. We've got a very solid performance, the book of business, which is about $100 million. It does complement what we're doing on the marine and also the property part of our portfolio. We are making investments to grow that piece of the portfolio. And in umbrella business is about $200 million book of business for us. We've got dedicated umbrella specialist throughout the marketplace, and we see significant opportunities to grow the monoline part of that portfolio. Property which is about $300 million book for us; we think there is excellent opportunities to grow that part of the portfolio. And then our excess and surplus lines, excess and surplus lines for us is $180 million book of business, and we see opportunities to really grow from a program standpoint and also on an individual risk perspective over than our excess and surplus lines. So these are operations that are within Standard, but in reality because of the dedicated resources that we line up behind them whether it's the underwriting risk control or claim that we really treat these more or like specialty businesses, and from ROE standpoint they perform in that fashion.

Thanks for that.

Yes, Bill if I could just a follow-up on Jim's point, when you add up those five product lines that we talked and deliberately wanted to draw attention to these lines because, it gives more accretives for the whole area of diversification and our ability to shift at up just a totally on differentiated lines. You know, there is a limited number of players in the large property, the marine, umbrella, E&S and boiler, that as up to $1 billion in terms of investment, you may know all those numbers off, as we stand right now, that's about 1 billion bucks. You know, we add to a robust construction portfolio that's up in the 8, 900 range, you got lower end of the middle market and some segmentation going on down here and targeted classes you pick up are another couple of hundred million. You know, buck [ph] that up against the specialty business and you got a lot areas, so we can actually grow and shift this company into in order to offset the pressures that are on, the really truly undifferentiated product areas. When we talk about hybrid specialty, although embedded in the standard area, these had this differentiation from a product standpoint as I mentioned limited players, Jim touched on services both on a risk control and a claim standpoint. The distribution often is differentiated and one of the additional benefits as we have flexibility of form and rate on this, so we can actually move around with a little bit more fluidity, then we can, then we could have on some of the Standard Lines that are really structured to form, file forms and rate. So we think... let's we keep talking about portfolio optimization and shifting, and this is just one of the areas and one of the major areas that we can actually take advantage of that portfolio, and they ran a good spot right now. And we are making accurate investments in terms of taking these things forward, so lot of good stuff going on here.

Great perspective. Thank you.

We have a follow-up question from Bob Glasspiegel with Langen McAlenney.

How should we think about a recession impacting the calculus of your strategy, I reviewed to see a surety results which seemed pretty good, no impact from the Chubb impact of a big reserve hit. But, are there any business lines, workers' comp I know you cut-back, obviously that can get impacted by recession, but what you'll be thinking in terms of your business lines?

Bob, you know Bob, I would I think you hit on probably the principle areas that I would be concern down. It would be the workers' comp portfolio associated with our construction of course, I think with the slowdown in the housing industry or some other commercial construction, which hasn't felt as bad as the housing industry, what we're concerned about there is the drop in rates that number the phase have put reforms in place and put anticipatory rate reductions. They reformed their benefit levels and put anticipatory rate reductions in place that may or may not workout and then see unemployment moving up, you will see payrolls drop and that could be an issue too. So the good news is that we are not so loaded up in anyone part of that marketplace, and we have shrunk or our workers' comp go significantly from by all of it. I think we've cut it by 40% over the last several years. So we are spread out enough that while we certainly will feel, we're spread out enough that is not... I don't think it's kind of cusmic [ph] to us. And you've heard Larry Haefner mention before that we haven't seen a real run away in terms of the loss cost in some other areas that we are contribute to itself. So we we're respectful, we were mindful. I mentioned it in my opening remark, you know that we've got the insurance market is tough, the financial market is tough and the economy is not making it any easier. So I come back to our ability to move and shift the other product lines that I mentioned to you that are looking to grow. And not a sensitive to some other recessionary influences that you might see on work comp or if we had a heavy manufacturing book a lot of product liability that runs through, I'd be more concerned. But, let's say we down play the comp. We're not a big manufacturing player and the alternative product lines and our specialty business is not though dependent on payroll and sales as those are.

I think the other piece of that several years ago comp was getting up to about 25% of our books. It's now down to 12% of our books. So we have comp at a very manageable level and at the same time as we kind of shifted the profile of the book from larger accounts to the smaller and middle market and small business, I think that also helps the insulators [ph]. Incidentally that small business part of comp is the most profitable part of our overall word comp book.

Thank you very much.

And we have no additional questions at this time. I would now like to turn the call back over to Ms. Bufalino for any closing remarks.

Thank you, Patrick. And thank you all for joining us today. A taped replay of today's conference call be available for one week immediately following this call until August 4th. Please see the earnings release for replay details. We appreciate your participation in today's call, and thank you again for joining us.