==============================================================================

                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549


                                  FORM 10-K


[X]             ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
                       THE SECURITIES EXCHANGE ACT OF 1934


For the Fiscal Year Ended December 31, 2001


                                       OR


[ ]             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 1-6541


                               LOEWS CORPORATION
             (Exact name of registrant as specified in its charter)


           Delaware                                            13-2646102
(State or other jurisdiction of                             (I.R.S. Employer
incorporation or organization)                             Identification No.)



                 667 Madison Avenue, New York, N.Y. 10021-8087
               (Address of principal executive offices) (Zip Code)


                                 (212) 521-2000
              (Registrant's telephone number, including area code)

           Securities registered pursuant to Section 12(b) of the Act:

                                                      Name of each exchange on
         Title of each class                               which registered
         -------------------                          ------------------------

Loews Common Stock, par value $1.00 per share          New York Stock Exchange
Carolina Group Stock, par value $.01 per share         New York Stock Exchange
3 1/8% Exchangeable Subordinated Notes Due 2007        New York Stock Exchange

        Securities registered pursuant to Section 12(g) of the Act: None

  Indicate by check mark if disclosure of delinquent filers pursuant to Item 
405 of Regulation S-K is not contained herein, and will not be contained, to 
the best of registrant's knowledge, in definitive proxy or information 
statements incorporated by reference in Part III of this Form 10-K or any 
amendment to this Form 10-K [ ].

  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   X                          No 
                          -----                           -----

  As of March 1, 2002, 191,135,800 shares of Loews Common Stock and 40,250,000 
shares of Carolina Group tracking stock were outstanding. The aggregate market 
value of voting stock held by non-affiliates was approximately $8,455,154,000 
for Loews Common Stock and $1,202,267,000 for Carolina Group Stock.

                        Documents Incorporated by Reference:

  Portions of the definitive Loews Corporation Notice of Annual Meeting of 
Stockholders and Proxy Statement intended to be filed by Registrant with the 
Commission prior to April 30, 2002 are incorporated by reference into Part 
III.

==============================================================================

                                     1

                                LOEWS CORPORATION

                             INDEX TO ANNUAL REPORT ON
                              FORM 10-K FILED WITH THE
                         SECURITIES AND EXCHANGE COMMISSION

                        For the Year Ended December 31, 2001

<TABLE>
<CAPTION>

Item                                                                      Page
 No.                                PART I                                 No.
----                                                                      ----
 <s>  <c>                                                                  <c>
  1   BUSINESS ..........................................................    3
        Issuance Of Carolina Group Tracking Stock .......................    3
        CNA Financial Corporation .......................................    4
        Lorillard, Inc. .................................................   13
        Loews Hotels Holding Corporation ................................   19
        Diamond Offshore Drilling, Inc. .................................   20
        Bulova Corporation ..............................................   22
        Other Interests .................................................   23
  2   PROPERTIES ........................................................   23
  3   LEGAL PROCEEDINGS .................................................   24
  4   SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS ...............   35
      EXECUTIVE OFFICERS OF THE REGISTRANT ..............................   36


                                    PART II

  5   MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER
       MATTERS ..........................................................   37
  6   SELECTED FINANCIAL DATA ...........................................   38
  7   MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
       RESULTS OF OPERATIONS ............................................   39
  7A  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK ........   69
  8   FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA .......................   71
  9   CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
       FINANCIAL DISCLOSURE .............................................  129


                                    PART III

      Information called for by Part III has been omitted as Registrant
      intends to file with the Securities and Exchange Commission not later
      than 120 days after the close of its fiscal year a definitive Proxy
      Statement pursuant to Regulation 14A.

                                    PART IV

 14   EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K ...  129

</TABLE>


                                     2


                                    PART I


Item 1. Business.

  Loews Corporation is a holding company. Its subsidiaries are engaged in the 
following lines of business: property, casualty and life insurance (CNA 
Financial Corporation, an 89% owned subsidiary); the production and sale of 
cigarettes (Lorillard, Inc., a wholly owned subsidiary); the operation of 
hotels (Loews Hotels Holding Corporation, a wholly owned subsidiary); the 
operation of offshore oil and gas drilling rigs (Diamond Offshore Drilling, 
Inc., a 53% owned subsidiary); and the distribution and sale of watches and 
clocks (Bulova Corporation, a 97% owned subsidiary).

  Unless the context otherwise requires, the terms "Company" and "Registrant" 
as used herein mean Loews Corporation excluding its subsidiaries.

  Information relating to the major business segments from which the Company's 
consolidated revenues and income are derived is contained in Note 18 of the 
Notes to Consolidated Financial Statements, included in Item 8.

ISSUANCE OF CAROLINA GROUP TRACKING STOCK

  On January 4, 2002 the shareholders of Loews Corporation authorized and 
approved the creation of a new class of common stock of the Company, called 
Carolina Group stock, and on February 6, 2002 in an initial public offering 
the Company issued 40,250,000 shares of Carolina Group stock. See Note 19 of 
the Notes to Consolidated Financial Statements, included in Item 8.

  The Carolina Group stock, commonly called a tracking stock, is intended to 
reflect the economic performance of a defined group of assets and liabilities 
of the Company referred to as the Carolina Group. The Company has attributed 
the following assets and liabilities to the Carolina Group:

  (a) The Company's 100% stock ownership interest in Lorillard, Inc.;

  (b) $2.5 billion of notional, intergroup debt owed by the Carolina Group to 
the Loews Group, bearing interest at the annual rate of 8.0% and, subject to 
optional prepayment, due December 31, 2021; 

  (c) any and all liabilities, costs and expenses of the Company and 
Lorillard, Inc. and the subsidiaries and predecessors of Lorillard, Inc., 
arising out of or related to tobacco or otherwise arising out of the past, 
present or future business of Lorillard, Inc. or its subsidiaries or 
predecessors, or claims arising out of or related to the sale of any 
businesses previously sold by Lorillard, Inc. or its subsidiaries or 
predecessors, in each case, whether grounded in tort, contract, statute or 
otherwise, whether pending or asserted in the future;

  (d) all net income or net losses arising from the assets and liabilities 
that are reflected in the Carolina Group and all net proceeds from any 
disposition of those assets, in each case, after deductions to reflect 
dividends paid to holders of Carolina Group stock or credited to the Loews 
Group in respect of its intergroup interest; and

  (e) any acquisitions or investments made from assets reflected in the 
Carolina Group.

  As of March 1, 2002 holders of Carolina Group stock have an approximately 
23.17% economic interest in the Carolina Group.

  The Loews Group consists of all of the Company's assets and liabilities 
other than the 23.17% economic interest in the Carolina Group represented by 
the outstanding Carolina Group stock, and includes as an asset the notional 
intergroup debt of the Carolina Group referred to above.

  The creation of the Carolina Group and the issuance of Carolina Group stock 
does not change the Company's ownership of Lorillard, Inc. or Lorillard, 
Inc.'s status as a separate legal entity. The Carolina Group and the Loews 
Group are notional groups that are intended to reflect the performance of the 
defined sets of assets and liabilities of each such group as described above. 
The Carolina Group and the Loews Group are not separate legal entities and the 
attribution of assets and liabilities of the Company to the Loews Group or the 
Carolina Group does not affect title to the assets or responsibility for the 
liabilities so attributed. 

  Holders of the Company's common stock and of Carolina Group stock are 
shareholders of Loews Corporation and are subject to the risks related to an 
equity investment in Loews Corporation.

                                     3

                            CNA FINANCIAL CORPORATION

  CNA Financial Corporation (together with its subsidiaries, "CNA") was 
incorporated in 1967 and is an insurance holding company whose primary 
subsidiaries consist of property-casualty and life insurance companies. CNA's 
property-casualty insurance operations are conducted by Continental Casualty 
Company ("CCC"), incorporated in 1897, and its affiliates, and The Continental 
Insurance Company ("CIC"), organized in 1853, and its affiliates. Life 
insurance operations are conducted by Continental Assurance Company ("CAC"), 
incorporated in 1911, and its affiliates and CNA Group Life Assurance Company 
("CNAGLAC"), incorporated in 2000. CIC became an affiliate of CNA in 1995 as a 
result of the acquisition of The Continental Corporation ("Continental"). 
CNA's principal market is the United States with a continued focus on 
expanding globally to serve those with growing worldwide interests. CNA 
accounted for 68.00%, 73.07% and 76.39% of the Company's consolidated total 
revenue for the years ended December 31, 2001, 2000 and 1999, respectively.

  CNA conducts its operations through five operating groups: Standard Lines, 
Specialty Lines and CNA Re (these groups comprise the Company's Property-
Casualty segment); Group Operations and Life Operations. In addition to these 
five operating segments, certain other activities are reported in the Other 
Insurance segment.

  CNA underwent significant management changes, strategic realignment and 
restructuring in the second half of 2001. These management changes as well as 
the strategic realignment and restructuring have changed the way CNA manages 
its operations and makes business decisions; and therefore, necessitated a 
change in CNA's reportable segments.

  The changes made to CNA's reportable segments were as follows: (i) 
Commercial Insurance and CNA Excess & Select (formerly included in Agency 
Market Operations) and Risk Management Operations, were combined into Standard 
Lines; (ii) CNA Pro, CNA HealthPro, CNA Guaranty and Credit (formerly included 
in Specialty Operations), and Global Operations, were combined into Specialty 
Lines; (iii) losses and expenses related to the centralized adjusting and 
settlement of environmental pollution and other mass tort and asbestos 
("APMT") claims previously included in Commercial Insurance, CNA Excess & 
Select, Risk Management and Global Operations are now included in the Other 
Insurance segment; and (iv) Personal Insurance, CNA UniSource, agriculture and 
entertainment insurance and other financial lines were moved from the various 
property-casualty segments to the Other Insurance segment. CNA Re, Group 
Operations, and Life Operations remain the same. A more detailed description 
of each segment follows.

Property-Casualty Operations

Standard Lines

  Standard Lines builds on CNA's relationship with the independent agency 
distribution system and network of brokers to market a broad range of 
property-casualty insurance products and services to small, mid-size and large 
businesses. Also, Standard Lines, primarily through RSKCo, provides total risk 
management services relating to claim services, loss control, cost management 
and information services to the commercial insurance marketplace.

  Standard Lines includes Property and Casualty, Excess & Surplus and RSKCo.

Property and Casualty ("P&C"): P&C provides standard property-casualty 
insurance products such as workers' compensation, general and product 
liability, property and commercial auto coverages through traditional and 
innovative advanced financial risk products to a wide range of businesses. The 
majority of P&C customers are small- and middle-market businesses, with less 
than $1 million in annual insurance premiums. Most insurance programs are 
provided on a guaranteed cost basis; however, P&C has the capability to offer 
specialized, loss-sensitive insurance programs to those risks viewed as higher 
risk and less predictable in exposure. The target market for these specialized 
programs are large accounts within the Fortune 1000 businesses. 

  P&C has begun streamlining its field structure from 169 branch locations to 
five regions consisting of 68 branch locations in 63 cities.  Each branch 
provides the marketing, underwriting and risk control expertise on the entire 
portfolio of products. In addition, these branches provide claim services 
through the same regional structure. These branches focus on the total claims 
outcome through specialized claims handling and timely claims reporting. A 
centralized processing center for small- and middle-market customers located 
in Maitland, Florida, handles policy processing and accounting, and also acts 
as a call center for all branches to optimize customer service. The branches 
and service centers are all located in the United States.

  Excess & Surplus ("E&S"): E&S provides specialized insurance and other 
financial products for selected commercial risks on both an individual 
customer or program basis. Risks insured by E&S are generally viewed as higher 
risk and less predictable in exposure than those covered by standard insurance 
markets. E&S's products are distributed throughout the United States through 
specialist producers, program agents, and P&C's agents and brokers. E&S has 
specialized

                                     4

underwriting and claims resources in Chicago, New York City, Denver and 
Columbus.

  RSKCo operates within the same regionalized organization as P&C and provides 
claim, loss control and related services.

Specialty Lines

  Specialty Lines provides professional, financial and specialty property-
casualty products and services through a network of brokers, managing general 
agencies and independent agencies. Specialty Lines clients include architects, 
engineers, lawyers, health care professionals, financial intermediaries and 
corporate directors and officers. Product offerings also include surety & 
fidelity bonds, ocean marine insurance and vehicle and equipment warranty 
services.

  Specialty Lines is composed of the following businesses: CNA Pro, CNA 
HealthPro, CNA Guaranty and Credit, Surety, CNA Global and Warranty.

  CNA Pro: CNA Pro is one of the largest providers of management and 
professional liability insurance and risk management services in the United 
States. Products include errors and omissions insurance for professional 
firms. CNA Pro offers directors and officers, errors and omissions, employment 
practices liability, fiduciary and fidelity coverages. CNA Pro is the largest 
insurer of architects and engineers, realtors and non-Big Five accounting 
firms and is a significant underwriter of law firms.

  CNA HealthPro: CNA HealthPro offers insurance products to serve the health 
care delivery system. Key customer segments include allied health care 
providers, dental professionals and mid-size and large health care facilities 
and delivery systems. Additionally, CNA HealthPro offers risk management 
consulting services. In addition, Caronia Corporation, an affiliate of CNA 
HealthPro, provides third-party claims administration for healthcare providers 
and facilities.

  CNA Guaranty and Credit: CNA Guaranty and Credit provides credit insurance 
on short-term trade receivables for domestic and international clients. 
Products are distributed through captive agents. CNA Guaranty provides 
reinsurance to insurers who provide financial guarantees to issuers of asset-
backed securities, money market funds and investment grade corporate debt 
securities. The Guaranty business underwritten by CNA's insurance affiliates 
is currently in run-off, which will be a multi-year process.

  Surety: Surety consists primarily of CNA Surety Corporation ("CNA Surety"), 
and its insurance subsidiaries. CNA Surety is traded on the New York Stock 
Exchange (SUR). CNA Surety provides surety and fidelity bonds in all 50 states 
through a combined network of approximately 35,000 independent agencies. CNA 
owns approximately 64% of CNA Surety.

  CNA Global consists of Marine and Global Standard Lines.

  Marine: Marine serves domestic and global ocean marine needs, with markets 
extending across North America, Europe and throughout the world. Marine offers 
hull, cargo, primary and excess marine liability, marine claims and recovery 
products and services. Business is sold through national brokers, regional 
marine specialty brokers and independent agencies.

  Global Standard Lines: Global Standard Lines is responsible for coordinating 
and managing the direct business of the foreign property-casualty operations 
of CNA. Global Standard Lines provides United States-based customers expanding 
their operations overseas with a single source for their commercial insurance 
needs. Global Standard Lines currently oversees operations in Hawaii, Europe, 
Latin America, Canada and Asia.

  Warranty: Warranty provides vehicle warranty services that protect 
individuals and businesses from the financial burden associated with 
breakdown, under-performance or maintenance of a product. Products are 
distributed via a sales force employed or contracted through a program 
administrator. Warranty consists primarily of CNA National Warranty 
Corporation, which sells vehicle warranty services in the United States and 
Canada.

CNA Re

  CNA Re operates globally as a reinsurer in the broker market for treaty 
products and in the direct market for facultative products.

  CNA Re's operations also include the business of CNA Reinsurance Company 
Limited ("CNA Re U.K."), a United Kingdom reinsurance company. As of the third 
quarter of 2001, CNA Re's U.K. subsidiaries have ceased new

                                     5

underwriting activities. CNA plans to dispose of the United Kingdom 
subsidiaries of CNA Re, with the intent of completing the disposition in 2002. 
Such a disposition is subject to regulatory approval. See "Management's 
Discussion and Analysis - Investments" included in Item 7 for additional 
information.

  CNA Re markets products in the following treaty business segments: standard 
lines, surplus lines, global catastrophe, specialty lines and financial 
reinsurance. In addition, CNA Re markets property and casualty facultative 
products directly to clients through its facultative offices, as well as 
through smartfac.com, CNA Re's online facultative submission site.

Group Operations

  Group Operations provides group life and health insurance products and 
services to employers, affinity groups and other entities that purchase 
insurance as a group. Products include group term life insurance, short-term 
and long-term disability, statutory disability, long-term care and accident 
products. Group Operations also provides health insurance to federal 
employees.

  Group Operations is composed of three principal groups: Group Benefits, 
Group Reinsurance and Federal Markets.

  Group Operations also assumes reinsurance from unaffiliated entities on 
group life, accident and health products, as well as excess medical risk 
coverages for self-funded employers.

  Group Operations is the second largest provider of health insurance benefits 
to federal employees, retirees and their families, insuring nearly one million 
members under the Mail Handlers Benefit Plan offered through the Federal 
Employees Health Benefit Plan.

Life Operations

  Life Operations provides financial protection to individuals through a full 
product line of term life insurance, universal life insurance, long-term care 
insurance, annuities and other products. Life Operations also provides 
retirement services products to institutions in the form of various investment 
products and administration services. Life Operations has several distribution 
relationships and partnerships including managing general agencies, other 
independent agencies working with CNA life sales offices, a network of brokers 
and dealers and various other independent insurance consultants.

  Life Operations is composed of four principal groups: Individual Life, 
Retirement Services, Long Term Care and Other Operations.

  Individual Life: Individual Life primarily offers level premium term life 
insurance, universal life insurance and related products.

  Retirement Services: Retirement Services markets annuities and investment 
products and services to both retail and institutional customers.

  Long Term Care: Long Term Care products provide reimbursement for covered 
nursing home and home health care expenses incurred due to physical or mental 
disability.

  Other Operations: Other Operations businesses include operations in certain 
international markets and viatical settlements. Consistent with Life 
Operations business strategy to sharpen its focus on insurance products and 
services, CNA has decided to cease purchasing new viatical policies 
indefinitely.

Other

  The Other Insurance segment is principally comprised of Personal Insurance, 
losses and expenses related to the centralized adjusting and settlement of 
APMT claims, certain run-off insurance operations and other operations.

  On October 1, 1999, certain CNA subsidiaries completed a transaction with 
The Allstate Corporation ("Allstate") to transfer substantially all of CNA's 
Personal Insurance lines of business. See Note 12 of the Notes to Consolidated 
Financial Statements included in Item 8 for discussion of the Personal 
Insurance transaction.

  APMT consists of the losses and expenses related to the centralized 
adjusting and settlement of APMT claims that were formerly included in the 
property-casualty segments. See Note 7 of the Notes to Consolidated Financial 
Statements included in Item 8 for a discussion of APMT reserves.

                                     6

  Run-off insurance operations consists of entertainment insurance, 
agriculture insurance and other financial lines as well as the direct 
financial guarantee business underwritten by CNA's insurance affiliates and 
other insurance run-off operations.

  Other operations include CNA's interest expense on corporate borrowings, 
asbestos claims related to Fibreboard Corporation, eBusiness initiatives, CNA 
UniSource and inter-company eliminations. CNA UniSource provides human 
resources, information technology, payroll processing and professional 
employer organization services.

Supplementary Insurance Data

  The following table sets forth supplementary insurance data:


<TABLE>
<CAPTION>
Year Ended December 31                          2001         2000        1999
------------------------------------------------------------------------------
(In millions of dollars, except ratio information)

<s>                                       <c>          <c>         <c>
Trade Ratios - GAAP basis (a):
  Loss ratio ..........................        125.2%        81.1%       87.1% 
  Expense ratio .......................         36.7         30.4        32.4
  Combined ratio (before policyholder 
   dividends) .........................        161.9        111.5       119.5
  Policyholder dividend ratio .........          1.5           .9          .3
  
Trade Ratios - Statutory basis (a):
  Loss ratio ..........................        126.3%        80.4%       87.3%
  Expense ratio .......................         32.3         33.3        33.5
  Combined ratio (before policyholder
   dividends) .........................        158.6        113.7       120.8
  Policyholder dividend ratio .........          1.7          1.2          .3

Gross Life Insurance In-Force: 
  Life (b) ............................   $426,822.0   $462,799.0  $394,743.0
  Group ...............................     70,910.0     71,982.0    75,247.0
------------------------------------------------------------------------------
                                          $497,732.0   $534,781.0  $469,990.0
==============================================================================

Other Data - Statutory basis (c):
  Property-casualty capital and
   surplus* ...........................   $  6,225.0  $  8,373.0   $  8,679.0
  Life capital and surplus ............      1,752.0     1,274.0      1,222.0
  Property-casualty written premium to
   surplus ratio ......................          1.3         1.1          1.0
  Life capital and surplus-percent of
   total liabilities ..................         25.3%       24.5%        21.9%
  Participating policyholders-percent
   of gross life insurance in force ...           .4%         .4%          .5%

* Surplus includes the property-casualty companies' equity ownership of the 
life insurance subsidiaries.
</TABLE>


----------------
  (a) Trade ratios reflect the results of CNA's property-casualty insurance 
subsidiaries. Trade ratios are industry measures of property-casualty 
underwriting results. The loss ratio is the percentage of incurred claim and 
claim adjustment expenses to premiums earned. The primary difference in this 
ratio between statutory accounting principles ("SAP") and accounting 
principles generally accepted in the United States of America ("GAAP") is 
related primarily to the treatment of active life reserves ("ALR") related to 
long-term care insurance products written in property-casualty insurance 
subsidiaries. For GAAP, ALR are classified as loss reserves whereas for SAP, 
ALR are classified as unearned premium reserves. The expense ratio, using 
amounts determined in accordance with GAAP, is the percentage of underwriting 
expenses, including the amortization of deferred acquisition costs, to 
premiums earned. The expense ratio, using amounts determined in accordance 
with SAP, is the percentage of underwriting expenses (with no deferral of 
acquisition costs) to premiums written. The combined ratio (before 
policyholder dividends) is the sum of the loss and expense ratios. The 
policyholder dividend ratio using amounts determined in accordance with GAAP, 
is the ratio of dividends incurred to premiums earned. The policyholder 
dividend ratio, using amounts determined in accordance with SAP, is the ratio 
of dividends paid to premiums earned. 

  (b) Lapse ratios for individual life insurance, as measured by surrenders 
and withdrawals as a percentage of average ordinary life insurance in-force, 
were 8.7%, 12.7% and 10.9% in 2001, 2000 and 1999, respectively.

  (c) Other data is determined in accordance with SAP. Life statutory capital 
and surplus as a percent of total liabilities is determined after excluding 
Separate Account liabilities and reclassifying the statutorily required Asset 
Valuation Reserve to surplus.

                                     7

  The following table displays the distribution of gross written premiums for 
CNA's operations: 


<TABLE>
<CAPTION>

Year Ended December 31                        2001         2000         1999
------------------------------------------------------------------------------

<s>                                          <c>          <c>          <c>  
Illinois ...............................       8.3%         9.2%         8.6%
New York ...............................       7.9          7.3          7.4
California .............................       6.8          6.0          7.1
Florida ................................       6.2          4.8          4.6
Texas ..................................       5.8          4.7          5.4
New Jersey .............................       4.4          3.4          3.5
Pennsylvania ...........................       4.3          3.8          4.1
Maryland ...............................       2.4          5.6          4.5
United Kingdom .........................       3.3          5.3          5.8
All other states, countries or political
 subdivisions (a) ......................      50.6         49.9         49.0
------------------------------------------------------------------------------
                                             100.0%       100.0%       100.0%
==============================================================================
</TABLE>

---------------
  (a) No other individual state, country or political subdivision accounts for 
more than 3.0% of gross written premium.

  Approximately 4.8%, 8.2% and 7.6% of CNA's gross written premiums are 
derived from outside of the United States for the years ended December 31, 
2001, 2000 and 1999. Premiums from any individual foreign country excluding 
the United Kingdom, which is stated in the table above, were not significant.

Property-Casualty Claim and Claim Adjustment Expenses

  The following loss reserve development table illustrates the change over 
time of reserves established for property-casualty claims and claim adjustment 
expenses at the end of the preceding ten calendar years for CNA's property-
casualty operations. The first section shows the reserves as originally 
reported at the end of the stated year. The second section, reading down, 
shows the cumulative amounts paid as of the end of successive years with 
respect to the originally reported reserve liability. The third section, 
reading down, shows re-estimates of the originally recorded reserve as of the 
end of each successive year which is the result of CNA's property-casualty 
insurance subsidiaries' expanded awareness of additional facts and 
circumstances that pertain to the unsettled claims. The last section compares 
the latest re-estimated reserves to the reserves originally established, and 
indicates whether the original reserves were adequate or inadequate to cover 
the estimated costs of unsettled claims. This table is cumulative and, 
therefore, ending balances should not be added since the amount at the end of 
each calendar year includes activity for both the current and prior years.

                                     8


<TABLE>
<CAPTION>

                                          Schedule of Property-Casualty Loss Reserve Development
-----------------------------------------------------------------------------------------------------------
Year Ended December 31     1991    1992    1993   1994     1995   1996    1997   1998   1999   2000    2001
                             (a)     (a)     (a)    (a)      (b)                          (c)            (d)
-----------------------------------------------------------------------------------------------------------
(In millions of dollars)

<s>                       <c>     <c>     <c>     <c>    <c>    <c>     <c>    <c>    <c>     <c>    <c>
Originally reported 
 gross reserves for
 unpaid claim and
 claim expenses  ......                   20,812 21,639  31,044 29,357 28,533  28,317 26,631 26,408 $29,551
Originally reported
 ceded recoverable .....                   2,491  2,705   6,089  5,660  5,326   5,424  6,273  7,568  11,798
-----------------------------------------------------------------------------------------------------------
Originally reported net
 reserves for
 unpaid claim and
 claim expenses .......   14,415  17,167 18,321 18,934  24,955 23,697 23,207  22,893 20,358  18,840  17,753
Cumulative-net paid as
 of:
  One year later ......    3,411   3,706  3,629  3,656   6,510  5,851  5,954   7,321  6,546   7,686       -
  Two years later .....    6,024   6,354  6,143  7,087  10,485  9,796 11,394  12,241 11,935       -       -
  Three years later ...    7,946   8,121  8,764  9,195  13,363 13,602 14,423  16,020      -       -       -
  Four years later ....    9,218  10,241 10,318 10,624  16,271 15,793 17,042       -      -       -       -
  Five years later ....   10,950  11,461 11,378 12,577  17,947 17,736      -       -      -       -       -
  Six years later .....   11,951  12,308 13,100 13,472  19,465      -      -       -      -       -       -
  Seven years later ...   12,639  13,974 13,848 14,394       -      -      -       -      -       -       -
  Eight years later ...   14,271  14,640 14,615      -       -      -      -       -      -       -       -
  Nine years later ....   14,873  15,319      -      -       -      -      -       -      -       -       -
  Ten years later .....   15,476       -      -      -       -      -      -       -      -       -       -
Net reserves 
 re-estimated as of:
  End of initial year .   14,415  17,167 18,321 18,934  24,955 23,697 23,207  22,893 20,358  18,840  17,753
  One year later ......   16,032  17,757 18,250 18,922  24,864 23,441 23,470  23,920 20,785  21,306       -
  Two years later .....   16,810  17,728 18,125 18,500  24,294 23,102 23,717  23,774 22,903       -       -
  Three years later ...   16,944  17,823 17,868 18,088  23,814 23,270 23,414  25,724      -       -       -
  Four years later ....   17,376  17,765 17,511 17,354  24,092 22,977 24,751       -      -       -       -
  Five years later ....   17,329  17,560 17,082 17,506  23,854 24,105      -       -      -       -       -
  Six years later .....   17,293  17,285 17,176 17,248  24,883      -      -       -      -       -       -
  Seven years later ...   17,069  17,398 17,017 17,751       -      -      -       -      -       -       -
  Eight years later ...   17,189  17,354 17,500      -       -      -      -       -      -       -       -
  Nine years later ....   17,174  17,834      -      -       -      -      -       -      -       -       -
  Ten years later .....   17,679       -      -      -       -      -      -       -      -       -       -
-----------------------------------------------------------------------------------------------------------
Total net (deficiency)
 redundancy ...........   (3,264)   (667)   821  1,183      72   (408)(1,544) (2,831)(2,545) (2,466)      -
===========================================================================================================
Reconciliation to
 gross re-estimated
 reserves:
   Net reserves
    re-estimated ......   17,679  17,834 17,500 17,751  24,883 24,105 24,751  25,724 22,903  21,306       -
   Re-estimated ceded
    recoverable .......                   1,888  2,201   6,191  5,434  4,805   4,925  6,810   8,185       -
-----------------------------------------------------------------------------------------------------------
Total gross
 re-estimated reserves    17,679  17,834 19,388 19,952  31,074 29,539 29,556  30,649 29,713  29,491       -
===========================================================================================================
Net (deficiency)
 redundancy related to:
  Asbestos claims .....   (3,754) (2,068)(1,469)(1,435) (1,662)(1,763)(1,660) (1,416)  (837)   (772)      -
  Environmental claims    (1,272) (1,230)  (787)  (619)   (656)  (600)  (617)   (395)  (487)   (473)      -
-----------------------------------------------------------------------------------------------------------
  Total asbestos and
   environmental ......   (5,026) (3,298)(2,256)(2,054) (2,318)(2,363)(2,277) (1,811)(1,324) (1,245)      -
  Other claims ........    1,762   2,631  3,077  3,237   2,390  1,955    733  (1,020)(1,221) (1,221)      -
-----------------------------------------------------------------------------------------------------------
Total net (deficiency)
 redundancy ...........   (3,264)   (667)   821  1,183      72   (408)(1,544) (2,831)(2,545) (2,466)      -
===========================================================================================================
</TABLE>

----------------
  (a) Reflects reserves of CNA's property and casualty insurance subsidiaries, 
excluding Continental reserves which were acquired on May 10, 1995. 
Accordingly, the reserve development (net reserves recorded at the end of the 
year, as initially estimated, less net reserves re-estimated as of subsequent 
years) does not include Continental.
  (b) Includes Continental gross reserves of $9,713 million and net reserves 
of $6,063 million acquired on May 10, 1995 and subsequent development thereon.
  (c) Ceded recoverable includes reserves transferred under retroactive 
reinsurance agreements of $784 million, as of December 31, 1999.
  (d) Effective January 1, 2001, CNA established a new life insurance company, 
CNAGLAC. Further, on January 1, 2001 approximately $1,055 million of reserves 
were transferred from CCC to CNAGLAC.

  See Notes 1 and 7 of the Notes to Consolidated Financial Statements, 
included in Item 8, for information regarding property-casualty claim and 
claim adjustment expenses including reserve development for asbestos and 
environmental claims.

                                     9

                                 INVESTMENTS

  See Notes 2, 3 and 4 of the Notes to Consolidated Financial Statements, 
incorporated by reference in Item 8, for information regarding the investment 
portfolio.

  Additional information as to the Company's investments is set forth in Item 
7, Management's Discussion and Analysis of Financial Condition and Results of 
Operations, and is incorporated by reference.
 
                                    OTHER

  Competition: CNA competes with a large number of stock and mutual insurance 
and reinsurance companies and other entities for both producers and customers 
and must continuously allocate resources to refine and improve its insurance 
and reinsurance products and services.

  There are approximately 2,450 individual companies that sell property-
casualty insurance in the United States. CNA's consolidated property-casualty 
subsidiaries ranked as the ninth largest property-casualty insurance 
organization in the United States based upon 2000 statutory net written 
premiums. CNA Re ranked as the 14th largest property-casualty reinsurance 
organization in the United States, based upon 2000 statutory net written 
premiums, which are significantly higher than net written premiums in 2001.

  There are approximately 1,010 companies selling life insurance in the United 
States. CNA is ranked as the 40th largest life-health insurance organization 
in the United States based on 2000 consolidated statutory premiums written.

  Dividends by Insurance Subsidiaries: The payment of dividends to CNA by its 
subsidiaries without prior approval of the affiliates' domiciliary state 
insurance commissioners is limited by formula. This formula varies by state. 
The formula used by the majority of states provides that the greater of 10% of 
prior year statutory surplus or prior year statutory net income, less the 
aggregate of all dividends paid during the 12 months prior to the date of 
payment is available to be paid as a dividend to the parent company.

  Dividends from the CCC Pool are subject to the insurance holding company 
laws of the State of Illinois, the domiciliary state of CCC. Under these laws, 
ordinary dividends, or dividends that do not require prior approval of the 
Illinois Department of Insurance (the "Department") may be paid only from 
earned surplus, which is calculated by removing unrealized gains (which under 
statutory accounting includes cumulative earnings of CCC's subsidiaries) from 
unassigned surplus. As of December 31, 2001, CCC is in a negative earned 
surplus position. In February of 2002, the Department approved an 
extraordinary dividend of $117 million to be used to fund CNA's 2002 debt 
service requirements. Until CCC is in a positive earned surplus position, all 
dividends require prior approval of the Illinois Insurance Department.

  In addition, by agreement with the New Hampshire Insurance Department, as 
well as certain other state insurance departments, dividend payments for The 
Continental Insurance Company Pool are restricted to internal and external 
debt service requirements through September 2003 up to a maximum of $85 
million annually, without the prior approval of the New Hampshire Insurance 
Department.

  Regulation: The insurance industry is subject to comprehensive and detailed 
regulation and supervision throughout the United States. Each state has 
established supervisory agencies with broad administrative powers relative to 
licensing insurers and agents, approving policy forms, establishing reserve 
requirements, fixing minimum interest rates for accumulation of surrender 
values and maximum interest rates of policy loans, prescribing the form and 
content of statutory financial reports and regulating solvency and the type 
and amount of investments permitted. Such regulatory powers also extend to 
premium rate regulations, which require that rates not be excessive, 
inadequate or unfairly discriminatory. In addition to regulation of dividends 
by insurance subsidiaries discussed above, intercompany transfers of assets 
may be subject to prior notice or approval by the state insurance regulator, 
depending on the size of such transfers and payments in relation to the 
financial position of the insurance affiliates making the transfer or 
payments.

  Insurers are also required by the states to provide coverage to insureds who 
would not otherwise be considered eligible by the insurers. Each state 
dictates the types of insurance and the level of coverage that must be 
provided to such involuntary risks. CNA's share of these involuntary risks is 
mandatory and generally a function of its respective share of the voluntary 
market by line of insurance in each state. 

  Insurance companies are subject to state guaranty fund and other insurance-
related assessments. Guaranty fund and other insurance-related assessments are 
levied by the state departments of insurance to cover claims of insolvent 
insurers.

  Reform of the U.S. tort liability system is another issue facing the 
insurance industry. Over the last decade, many states have passed some type of 
reform, but more recently, a number of state courts have modified or 
overturned these

                                     10

reforms. Additionally, new causes of action and theories of damages continue 
to be proposed in state court actions or by legislatures. Continued 
unpredictability in the law means that insurance underwriting and rating is 
expected to be difficult in commercial lines, professional liability and some 
specialty coverages.

  Although the federal government and its regulatory agencies do not directly 
regulate the business of insurance, federal legislative and regulatory 
initiatives can impact the insurance business in a variety of ways. These 
initiatives and legislation include tort reform proposals; proposals to 
overhaul the Superfund hazardous waste removal and liability statute; 
additional financial services modernization legislation, which could include 
provisions to have an alternate federal system of regulation for insurance 
companies; and various tax proposals affecting insurance companies.

  CNA's domestic insurance subsidiaries are subject to risk-based capital 
requirements. Risk-based capital is a method developed by the National 
Association of Insurance Commissioners ("NAIC") to determine the minimum 
amount of statutory capital appropriate for an insurance company to support 
its overall business operations in consideration of its size and risk profile. 
The formula for determining the amount of risk-based capital specifies various 
factors, weighted based on the perceived degree of risk, that are applied to 
certain financial balances and financial activity. The adequacy of a company's 
actual capital is evaluated by a comparison to the risk-based capital results, 
as determined by the formula. Companies below minimum risk-based capital 
requirements are classified within certain levels, each of which requires 
specified corrective action. As of December 31, 2001 and 2000, all of CNA's 
domestic insurance subsidiaries exceeded the minimum risk-based capital 
requirements.

  CNA Re's principal United Kingdom operations are contained in CNA 
Reinsurance Company Ltd. The statutory surplus of CNA Reinsurance Company Ltd. 
is below the required regulatory minimum surplus level at December 31, 2001.

  Subsidiaries with insurance operations outside the United States are also 
subject to regulation in the countries in which they operate.

  Reinsurance:  See Notes 1 and 15 of the Notes to Consolidated Financial 
Statements, included in Item 8, for information related to CNA's reinsurance 
activities.

                                     11

  Properties: CNA Plaza serves as the executive office for CNA and its 
insurance subsidiaries. An adjacent building (located at 55 E. Jackson Blvd.), 
jointly owned by Continental Casualty Company and Continental Assurance 
Company, is partially situated on grounds under leases expiring in 2058. 
Approximately 45% of the adjacent building is rented to non-affiliates. CNA 
leases office space in various cities throughout the United States and in 
other countries. The following table sets forth certain information with 
respect to the principal office buildings owned or leased by CNA:

<TABLE>
<CAPTION>


                                  Size 
 Location                     (square feet)                         Principal Usage 
------------------------------------------------------------------------------------------------
<s>                             <c>                    <c>
Owned:
  CNA Plaza                     1,144,378              Principal Executive Offices of CNA 
  333 S. Wabash                                        
  Chicago, Illinois                                     

  55 E. Jackson Blvd.             440,292              Principal Executive Offices of CNA
  Chicago, Illinois

  100 CNA Drive                   251,363              Life Insurance Offices
  Nashville, Tennessee

  1111 E. Broad St.               225,470              Property-Casualty Insurance Offices
  Columbus, Ohio                                      

  1110 Ward Avenue                186,687              Property-Casualty Insurance Offices
  Honolulu, Hawaii

Leased:
  40 Wall Street                  199,238              Property-Casualty Insurance Offices
  New York, New York 

  2405 Lucien Way                 178,744              Property-Casualty Insurance Offices
  Maitland, Florida

  3500 Lacey Road                 168,793              Property-Casualty Insurance Offices
  Downers Grove, Illinois 

  333 Glen Street                 164,032              Property-Casualty Insurance Offices
  Glens Falls, New York                                

  1100 Cornwall Road              147,884              Property-Casualty Insurance Offices
  Monmouth Junction, New Jersey

  600 North Pearl Street          139,151              Property-Casualty Insurance Offices
  Dallas, Texas 
</TABLE>


                                     12

                                LORILLARD, INC.

  The Company's wholly owned subsidiary, Lorillard, Inc. ("Lorillard"), is 
engaged, through its subsidiaries, in the production and sale of cigarettes. 
The principal cigarette brand names of Lorillard are Newport, Kent, True, 
Maverick and Old Gold. Lorillard's largest selling brand is Newport, which 
accounted for approximately 85% of Lorillard's sales in 2001.

  Substantially all of Lorillard's sales are in the United States. Lorillard's 
major trademarks outside of the United States were sold in 1977. Lorillard 
accounted for 23.32%, 20.43% and 18.96% of the Company's consolidated total 
revenue for the years ended December 31, 2001, 2000 and 1999, respectively.

  For a number of years Lorillard and other cigarette manufacturers have been 
faced with a number of factors which adversely affect Lorillard's business, 
including: lawsuits against tobacco manufacturers by private plaintiffs and 
governmental agencies, some of which have resulted in substantial jury 
verdicts; enacted and proposed legislation and regulation intended to 
discourage and restrict the marketing and smoking of cigarettes; and an 
overall decline in the social acceptability of smoking; coupled with increased 
pressure from anti-tobacco groups.

  See Item 3 of this Report for information with respect to litigation against 
Lorillard including litigation seeking substantial compensatory and punitive 
damages for adverse health effects claimed to have resulted from the use of 
cigarettes and smokeless tobacco, and from exposure to tobacco smoke, and 
claims brought by cigarette wholesalers and others alleging violations of 
antitrust laws.

  On November 23, 1998, Lorillard, Philip Morris, R.J. Reynolds, Brown & 
Williamson and other manufacturers of tobacco products entered into a Master 
Settlement Agreement (the "MSA") with 46 states, the District of Columbia, the 
Commonwealth of Puerto Rico, Guam, the U.S. Virgin Islands, American Samoa and 
the Commonwealth of the Northern Mariana Islands (collectively, the "Settling 
States") to settle the asserted and unasserted health care cost recovery and 
certain other claims of those states and territories. Lorillard and the other 
major U.S. tobacco manufacturers had previously settled similar claims brought 
by Florida, Texas, Minnesota and Mississippi (together with the MSA, the 
"State Settlement Agreements").

  Annual payments under the State Settlement Agreements are expected to be in 
excess of $1.0 billion in future years. The State Settlement Agreements and 
certain ancillary agreements are included as exhibits to this Report (Exhibits 
10.06 through 10.21) and are incorporated by reference thereto. See also 

Management's Discussion and Analysis - Results of Operations, included in Item 
7.

  In addition, pursuant to the terms of the MSA, Lorillard and other industry 
participants agreed to various restrictions and limitations regarding the 
advertising, promotion and marketing of tobacco products in the United States.

  Legislation and Regulation: Federal Legislation - The Federal Comprehensive 
Smoking Education Act, which became effective in 1985, requires the use on 
cigarette packaging and advertising of one of the following four warning 
statements, on a rotating basis: (1) "SURGEON GENERAL'S WARNING: Smoking 
Causes Lung Cancer, Heart Disease, Emphysema, And May Complicate Pregnancy." 
(2) "SURGEON GENERAL'S WARNING: Quitting Smoking Now Greatly Reduces Serious 
Risks to Your Health." (3) "SURGEON GENERAL'S WARNING: Smoking By Pregnant 
Women May Result in Fetal Injury, Premature Birth, and Low Birth Weight." (4) 
"SURGEON GENERAL'S WARNING: Cigarette Smoke Contains Carbon Monoxide." This 
law also requires that each person who manufactures, packages or imports 
cigarettes shall annually provide to the Secretary of Health and Human
Services a list of the ingredients added to tobacco in the manufacture of 
cigarettes. This list of ingredients may be submitted in a manner which does 
not identify the company which uses the ingredients or the brand of cigarettes 
which contain the ingredients. 

  Prior to the effective date of the Federal Comprehensive Smoking Education 
Act, federal law had, since 1965, required that cigarette packaging bear a 
warning statement which from 1970 to 1985 was as follows: "Warning: The 
Surgeon General Has Determined That Cigarette Smoking Is Dangerous To Your 
Health." In addition, in 1972 Lorillard and other cigarette manufacturers 
agreed, pursuant to consent orders entered into with the Federal Trade 
Commission (the "FTC"), to include this health warning statement in print 
advertising, on billboards and on certain categories of point-of-sale display 
materials relating to cigarettes. Furthermore, advertising of cigarettes has 
been prohibited on radio and television since 1971. 

  From time to time, bills have been introduced in Congress, among other 
things, to end or limit the price supports for leaf tobacco; to prohibit all 
tobacco advertising and promotion; to require new health warnings on cigarette 
packages and advertising; to authorize the establishment of various anti-
smoking education programs; to provide that current federal law should not be 
construed to relieve any person of liability under common or state law; to 
permit state and local governments to restrict the sale and distribution of 
cigarettes; concerning the placement of advertising of tobacco

                                     13

products; to provide that cigarette advertising not be deductible as a 
business expense; to prohibit the mailing of unsolicited samples of cigarettes 
and otherwise to restrict the sale or distribution of cigarettes; to impose an 
additional, or to increase existing, excise taxes on cigarettes; to require 
that cigarettes be manufactured in a manner that will cause them, under 
certain circumstances, to be self-extinguishing; and to subject cigarettes to 
regulation in various ways by the U.S. Department of Health and Human Services 
or other regulatory agencies, including regulation by the FDA under the Food, 
Drug and Cosmetics Act.

  In 1995, Congress passed legislation prohibiting the sale of cigarettes by 
vending machines on certain federal property, and the General Services 
Administration has published implementing regulations. In January 1996, the 
Substance Abuse and Mental Health Services Administration issued final 
regulations implementing a 1992 law (Section 1926 of the Public Health Service 
Act), which requires the states to enforce their tobacco sales minimum age 
laws as a condition of receiving federal substance abuse block grants.

  Food and Drug Administration Regulation of Tobacco Products - In 1996, the 
FDA published regulations (the "FDA Regulations") which would have severely 
restricted cigarette advertising and promotion and limited the manner in which 
tobacco products could be sold. In enacting the FDA Regulations, the FDA 
determined that nicotine is a drug and that cigarettes are a nicotine delivery 
system and, accordingly, subject to FDA regulatory authority as medical 
devices. The FDA premised its regulations on the need to reduce smoking by 
under age youth and young adults. The FDA Regulations included the following: 

(i)   Regulations regarding minimum sales age. These regulations would have 
made unlawful the sale of cigarettes to anyone under age 18. These regulations 
would have also required proof of age to be demanded from any person under age 
27 who attempts to purchase cigarettes.

(ii)  Regulations regarding advertising and billboards, vending machines, 
self-service displays, sampling premiums, and package labels. These 
regulations would have limited all cigarette advertising to black and white, 
text only format in most publications and outdoor advertising such as 
billboards. The regulations also would have prohibited billboards advertising 
cigarettes within 1,000 feet of a school or playground, required that the 
established name for the product ("Cigarettes") and an intended use statement 
("Nicotine - Delivery Device For Persons 18 or Older") be included on all 
cigarette packages and advertising, banned vending machine sales, product 
sampling, and the use of cigarette brand names, logos and trademarks on 
premium items, and prohibited the furnishing of any premium item in 
consideration for the purchase of cigarettes or the redemption of proofs-of-
purchase coupons. 

(iii) Regulations which would have prohibited use of cigarette brand names to 
sponsor sporting and cultural events and required cigarette manufacturers to 
comply with certain stringent FDA regulations (known as "good manufacturing 
practices") governing the manufacture and distribution of medical devices. 

  Lorillard and other cigarette manufacturers filed a lawsuit in the U.S. 
District Court in North Carolina challenging the FDA's assertion of 
jurisdiction over cigarettes. Lower court rulings in this litigation were 
appealed to the U.S. Supreme Court which, on March 21, 2000, held that 
Congress did not give the FDA authority to regulate tobacco products under the 
Federal Food, Drug and Cosmetic Act and, accordingly, the FDA's assertion of 
jurisdiction over tobacco products was impermissible under that Act. Since the 
Supreme Court decision, various proposals have been made for federal and state 
legislation to regulate cigarette manufacturers.

  In September of 2000, former President Clinton appointed a Presidential 
commission to collect information and make recommendations regarding changes 
in the tobacco farming economy. In May of 2001, the commission issued a final 
report recommending, among other things, that "Congress authorize the FDA to 
establish fair and equitable regulatory mechanisms over the manufacture, sale, 
marketing, distribution and labeling of tobacco products." In addition, the 
final report recommended a $0.17 increase in the federal excise tax on each 
pack of cigarettes sold in the United States to fund various of the report's 
recommendations. Lorillard cannot predict the ultimate outcome of the 
commission's recommendations.

  Congressional advocates of FDA regulation have introduced legislation that 
would give the FDA authority to regulate the manufacture, sale, distribution 
and labeling of tobacco products to protect public health for consideration by 
the 107th Congress. Lorillard cannot predict the ultimate outcome of this 
proposal. In addition, in December of 1999, the FDA requested the Institute of 
Medicine, a private, non-profit organization which advises the federal 
government on medical issues, to convene a committee of experts to formulate 
scientific methods and standards for the assessment of potential reduced-
exposure products ("PREPs"), including conventional and alternative 
cigarettes.

  On February 22, 2001, the committee issued a draft report recommending that 
Congress enact legislation enabling a suitable agency to regulate tobacco-
related products that purport to reduce exposure to one or more tobacco 
toxicants or

                                     14

to reduce risk of disease, and to implement other policies designed to reduce 
the harm from tobacco use. The report recommended regulation of all tobacco 
products, including PREPS. Lorillard cannot predict the ultimate outcome of 
the recommendations provided in the committee's report.

  Environmental Tobacco Smoke - Studies and reports with respect to the 
alleged health risk to nonsmokers of environmental tobacco smoke ("ETS") have 
received significant publicity. In 1986, the Surgeon General of the United 
States and the National Academy of Sciences reported that ETS exposes 
nonsmokers to an increased risk of lung cancer and respiratory illness. In 
January of 1993, the United States Environmental Protection Agency released a 
report (the "EPA Risk Assessment") concluding that ETS is a human lung 
carcinogen in adults, and causes respiratory effects in children, including 
increased risk of lower respiratory tract infections, increased prevalence of 
fluid in the middle ear and additional episodes and increased severity and 
frequency of asthma. Many scientific papers on ETS have been published since 
the EPA report, with variable conclusions.

  In recent years, many federal, state, local and municipal governments and 
agencies, as well as private businesses, have adopted legislation, regulations 
or policies which prohibit or restrict, or are intended to discourage, 
smoking, including legislation, regulations or policies prohibiting or 
restricting smoking in various places such as public buildings and facilities, 
stores and restaurants and on airline flights and in the workplace. This trend 
has increased significantly since the release of the EPA Risk Assessment. 
Additional laws, regulations and policies intended to prohibit, restrict or 
discourage smoking are being proposed or considered by various federal, state 
and local governments, agencies and private businesses with increasing 
frequency. In July of 1998, a federal judge struck down the lung cancer 
related portions of the EPA's scientific risk assessment in an opinion which 
is currently on appeal.

  In September of 1997, the California Environmental Protection Agency 
released a report (the "Cal/EPA Report"), concluding that ETS causes specified 
development, respiratory, carcinogenic, and cardiovascular effects including 
lung and nasal sinus cancer, heart disease, sudden infant death syndrome, 
respiratory infections and asthma induction and exacerbation in children. The 
Cal/EPA Report was subsequently released as a monograph by the National Cancer 
Institute in November of 1999. In May of 2000, the Department of Health and 
Human Service's National Toxicology Program listed ETS as "known to be a human 
carcinogen." Various public health organizations have also issued statements 
on environmental tobacco smoke and its health effects.

  The California Air Resources Board is in the early stages of the process of 
determining whether to identify ETS as a toxic air contaminant, or "TAC," 
under the Toxic Air Contaminant Identification and Control Act, referred to as 
the "Tanner Act." The Children's Environmental Health Protection Act amended 
the Tanner Act to require a review of TACs for the purpose of ensuring 
adequate protection of children's health, and to tighten existing controls as 
needed. If California, on the basis of its assessments of risk and exposure, 
identifies ETS as a TAC, California could initiate the control phase of the 
Tanner Act, which involves adoption of measures to reduce or eliminate 
emissions. These measures could include further restrictions regarding venues 
where smoking is permitted or controls on product emissions.

  Ingredient Disclosure - On August 2, 1996, the Commonwealth of Massachusetts 
enacted legislation requiring each manufacturer of cigarettes and smokeless 
tobacco sold in Massachusetts to submit to the Department of Public Health 
("DPH") an annual report, beginning in 1997, (1) identifying for each brand 
sold certain "added constituents," and (2) providing nicotine yield ratings 
and other information for certain brands based on regulations promulgated by 
the DPH. The legislation provides for the public release of this information, 
which includes trade secret ingredients used in cigarettes.

  In 1996, several cigarette and smokeless tobacco manufacturers filed suit in 
federal district court in Boston challenging the legislation. On December 10, 
1997, the court issued a preliminary injunction, enjoining the required 
submission of ingredient data to the DPH. The requirement to submit the 
nicotine yield ratings and other information was not enjoined, and the 
cigarette and smokeless tobacco manufacturers submitted their data to the DPH 
on December 15, 1997 and again on each December 1 since 1998. The district 
court ruled on September 7, 2000 that the Massachusetts law and its 
implementing regulations were unconstitutional as to the required submission 
of ingredient data. The Commonwealth of Massachusetts appealed to the U.S. 
Circuit Court for the First Circuit, and a three-judge panel of the First 
Circuit reversed the district court's ruling on October 16, 2001. The 
cigarette and smokeless tobacco manufacturers filed petitions for an en banc 
rehearing on October 30, 2001 and the First Circuit subsequently granted the 
petitions. Oral argument on the rehearing occurred on January 7, 2002. The 
panel has not yet issued its decision.

  Any impact on Lorillard from the legislation and its implementing 
regulations cannot now be predicted.

  Other similar laws and regulations have been enacted or considered by other 
state governments, and could have a material adverse effect on the financial 
condition and results of operations of Lorillard and the Company if 
implemented without adequate provisions to protect the manufacturers' trade 
secrets from being disclosed. The State of Texas has implemented legislation 
similar to the Massachusetts measure described above. However, the Texas 
legislation does not

                                     15

allow for the public release of trade secret information.

  Fire-Safety Standards - In August of 2000, New York State enacted 
legislation that requires the State's Office of Fire Prevention and Control to 
promulgate by January 1, 2003 fire-safety standards for cigarettes sold in New 
York. The legislation requires that cigarettes sold in New York meet ignition 
propensity performance standards established by the Office of Fire Prevention 
and Control. All cigarettes sold in New York will be required to meet the 
established standards within 180 days after the standards are promulgated. 
Lorillard cannot predict the impact of this law on its business until the 
standards are published. Similar legislation is being considered in other 
states and localities and at the federal level.

  Advertising and Sales Promotion: Lorillard advertises its products to adult 
smokers in magazines, newspapers, direct mail and point-of-sale display 
materials. In addition, Lorillard promotes its cigarette brands to adult 
smokers through distribution of store coupons, retail price promotions, and 
personal contact with distributors and retailers. Lorillard believes that it 
conducts these activities in accordance with the terms of the MSA and other 
applicable restrictions.

  As a general matter, Lorillard allocates its marketing expenditures among 
brands on the basis of marketplace opportunity and profitable return. In 
particular, Lorillard focuses its marketing efforts on the premium segment of 
the U.S. cigarette industry, with a specific focus on Newport.

  Advertising of tobacco products through television and radio has been 
prohibited since 1971. In addition, advertising and promotion activities by 
Lorillard and other major tobacco manufacturers have been severely restricted 
by the State Settlement Agreements and could be further restricted by proposed 
federal, state and local laws and regulations. Pursuant to the MSA, Lorillard 
and the other major tobacco product manufacturers have agreed to various 
restrictions and limitations regarding the advertising, promotion and 
marketing of tobacco products in the United States. Among other things, the 
MSA prohibits the targeting of youth in the advertising, promotion or 
marketing of tobacco products; bans the use of cartoon characters in all 
tobacco advertising and promotion; limits each tobacco manufacturer to one 
event sponsorship during any twelve-month period, which may not include major 
team sports or events in which the intended audience includes a significant 
percentage of youth; bans all outdoor advertising of tobacco products with the 
exception of small signs at retail establishments that sell tobacco products; 
bans tobacco manufacturers from offering or selling apparel and other 
merchandise that bears a tobacco brand name, subject to specified exceptions; 
prohibits the distribution of free samples of tobacco products except within 
adult-only facilities; prohibits payments for tobacco product placement in 
various media; and bans gift offers based on the purchase of tobacco products 
without sufficient proof that the intended gift recipient is an adult.

  Many states, cities and counties have enacted legislation or regulations 
further restricting tobacco advertising.

  There may be additional state and federal legislative and regulatory 
initiatives relating to the advertising and sales promotion of cigarettes in 
the future. Lorillard cannot predict the impact of such initiatives on its 
marketing and sales efforts.

  Lorillard has funded and plans to continue to fund a Youth Smoking 
Prevention Program, which is designed to discourage youth from smoking. The 
program addresses not only youth, but also parents and, through the "We Card" 
program, retailers, to prevent purchase of cigarettes by underage purchasers. 
In accordance with the MSA, Lorillard has determined not to advertise its 
cigarettes in magazines with large readership among people under the age of 
18.

  Introduction of new brands, brand extensions and packings require the 
expenditures of substantial sums for advertising and sales promotion, with no 
assurance of consumer acceptance. The advertising media presently used by 
Lorillard includes magazines, newspapers, direct mail and point-of-sale 
display materials. Sales promotion activities are conducted by distribution of 
store coupons, point-of-sale display advertising, advertising of promotions in 
print media, and personal contact with distributors, retailers and consumers.

  Distribution Methods: Lorillard sells its products primarily to 
distributors, who in turn service retail outlets; chain store organizations; 
and government agencies, including the U.S. Armed Forces. Upon completion of 
the manufacturing process, Lorillard ships cigarettes to public distributing 
warehouse facilities for rapid order fulfillment to wholesalers and other 
direct buying customers. Lorillard retains a portion of its manufactured 
cigarettes at its Greensboro central distribution center and Greensboro cold-
storage facility for future finished goods replenishment.

  As of December 31, 2001, Lorillard had approximately 799 direct buying 
customers servicing more than 400,000 retail accounts. Lorillard does not sell 
cigarettes directly to consumers. During 2001, 2000 and 1999, sales made by 
Lorillard to McLane Company, Inc., a wholesale distributor wholly owned by 
Wal-Mart Stores, Inc., comprised 15%, 15% and 13%, respectively, of 
Lorillard's revenues. No other customer accounted for more than 10% of 2001, 
2000 or 1999 sales. Lorillard does not have any backlog orders.

                                     16

  Most of Lorillard's customers buy cigarettes on a next-day-delivery basis. 
Approximately 90% of Lorillard's customers purchase cigarettes using 
electronic funds transfer, which provides immediate payment to Lorillard.

  Lorillard's sales personnel monitor inventories, work with retailers on 
displays and signs, and enter into promotional arrangements with retailers 
from time to time.

  Raw Materials and Manufacturing: In its production of cigarettes, Lorillard 
uses domestic burley tobacco, flue-cured leaf tobacco grown in the United 
States and abroad, and aromatic tobacco grown primarily in Turkey and other 
Near Eastern countries. A domestic supplier manufactures all of Lorillard's 
reconstituted tobacco.

  Lorillard purchases more than 90% of its domestic leaf tobacco from Dimon 
International, Inc. Lorillard directs Dimon in the purchase of tobacco 
according to Lorillard's specifications for quality, grade, yield, chemistry, 
particle size, moisture content and other characteristics. Dimon purchases and 
processes the whole leaf and then dries and bundles it for shipment to and 
storage at Lorillard's Danville facility.

  Dimon historically has procured most of Lorillard's leaf tobacco 
requirements through commission buyers at tobacco auctions. However, the 
tobacco industry is currently shifting to direct contract purchasing from 
tobacco farmers. Dimon has stated in its public filings that it believes it is 
well prepared to participate in direct contracting with tobacco farmers in the 
United States and that it does not expect any material economic effect from 
the progressive shift from the auction system to direct contract buying. 
Lorillard entered into a new contract with Dimon to reflect the transition 
from auction to direct contract purchasing.

  In the event that Dimon becomes unwilling or unable to supply leaf tobacco 
to Lorillard, Lorillard believes that it can readily obtain high-quality leaf 
tobacco from well-established, alternative industry sources, including 
Standard Commercial Corporation and Universal Corporation.

  Due to the varying size and quality of annual crops and other economic 
factors, including U.S. tobacco production controls, tobacco prices have 
historically fluctuated. The U.S. price supports that accompany production 
controls have inflated the market price of tobacco. In addition, the 
transition in tobacco purchasing from auction markets to direct farmer 
contracting may increase the market price of domestically grown tobacco. 
However, Lorillard does not believe that this increase, if any, will have a 
material effect on its business. Over the past five years, prices paid by 
Lorillard for tobacco have risen less than the U.S. rate of inflation, as 
measured by the U.S. Consumer Price Index.

  Lorillard stores its tobacco in 29 storage warehouses on its 130 acre 
Danville facility. To protect against loss, amounts of all types and grades of 
tobacco are stored in each warehouse. Because the process of aging tobacco 
normally requires approximately two years, Lorillard maintains large 
quantities of leaf tobacco at all times. Lorillard believes its current 
tobacco supplies are adequately balanced for its present production 
requirements. If necessary, Lorillard can purchase aged tobacco in the open 
markets to supplement existing inventories.

  Lorillard produces cigarettes at its Greensboro manufacturing plant, which 
has a production capacity of approximately 193 million cigarettes per day and 
approximately 55 billion cigarettes per year. Through various automated 
systems and sensors, Lorillard actively monitors all phases of production to 
promote quality and compliance with applicable regulations.

  Prices: Lorillard believes that the volume of U.S. cigarette sales is 
sensitive to price changes. Changes in pricing by Lorillard or other cigarette 
manufacturers could have an adverse impact on Lorillard's volume of units 
sold, which in turn could have an adverse impact on Lorillard's profits and 
earnings. Lorillard makes independent pricing decisions based on a number of 
factors. Lorillard cannot predict the potential adverse impact of price 
changes on industry volume or Lorillard volume, on the mix between premium and 
discount sales, on Lorillard's market share or on Lorillard's profits and 
earnings. During 2001, Lorillard increased its net wholesale price of its 
cigarettes by an aggregate of $13.58 per thousand cigarettes ($0.27 per pack 
of 20 cigarettes).

  Taxes: On January 1, 2002, the federal excise tax on cigarettes increased by 
$2.50 per thousand cigarettes. Federal excise taxes included in the price of 
cigarettes are $19.50 per thousand cigarettes ($0.39 per pack of 20 
cigarettes). State excise taxes, which are levied upon and paid by the 
distributors, are also in effect in the fifty states, the District of Columbia 
and many municipalities. Various states have proposed, and certain states have 
recently passed, increases in their state tobacco excise taxes. The state 
taxes generally range from $.025 to $1.425 per package of twenty cigarettes.

  Properties: Lorillard's manufacturing facility is located on approximately 
80 acres in Greensboro, North Carolina. This 942,600 square-foot plant 
contains modern high speed cigarette manufacturing machinery. The Greensboro 
facility also includes a warehouse with shipping and receiving areas totaling 
54,800 square feet. In addition, Lorillard owns tobacco receiving and storage 
facilities totaling approximately 1,500,000 square feet in Danville, Virginia.

                                     17

  Lorillard's executive offices are located in a 130,000 square-foot, four-
story office building in Greensboro, North Carolina. Its 79,000 square-foot 
research facility is also located in Greensboro.

  Lorillard's principal properties are owned in fee. With minor exceptions, 
Lorillard owns all of the machinery used by it. Lorillard believes that its 
properties and machinery are in generally good condition.

  Lorillard leases sales offices in major cities throughout the United States, 
a cold-storage facility in Greensboro and warehousing space in 34 public 
distributing warehouses located throughout the United States.

  Competition: Lorillard sells its cigarette products in the United States, 
Puerto Rico and certain U.S. territories. Though the domestic U.S. market is 
highly competitive, Lorillard believes its ability to compete even more 
effectively has been restrained by the Philip Morris Retail Leaders program. 
Competition is primarily based on a brand's price, positioning, consumer 
loyalty, retail display, promotion, quality and taste. Lorillard's principal 
competitors are the three other major U.S. cigarette manufacturers, Philip 
Morris, R.J. Reynolds and Brown & Williamson. Lorillard's 9.5% market share of 
the 2001 U.S. cigarette industry was fourth highest overall. Philip Morris, 
R.J. Reynolds and Brown & Williamson accounted for approximately 50.9%, 22.3% 
and 10.9%, respectively, of wholesale shipments in 2001. Among the four major 
manufacturers, Lorillard ranked third behind Philip Morris and R.J. Reynolds 
with an 11.8% share of the premium segment in 2001. Premium cigarette sales 
accounted for 92.4% of Lorillard's total units shipped in 2001.

  The following table sets forth cigarette sales data provided by the industry 
and by Lorillard to Management Science Associates. For reporting purposes, 
unit sales by small manufacturers, selling super price discounted brands, many 
of whom are not currently affected to a significant degree by payment 
obligations under the State Settlement Agreements are estimated by Management 
Science Associates. The table below indicates the relative position of 
Lorillard in the industry. The years 2000 and 2001 have been restated to 
reflect Management Science Associates' estimates for the small manufacturers' 
shipments.


<TABLE>
<CAPTION>
                                          Industry     Lorillard    Lorillard
            Calendar Year                   (000)        (000)     to Industry
-----------------------------------------------------------------------------
<s>                                      <c>           <c>            <c>
2001 ...............................     406,952,000   38,463,000      9.5%
2000 ...............................     420,261,000   41,157,000      9.8%
1999 ...............................     419,455,000   44,257,000     10.6%
</TABLE>


----------------
  Management Science Associates divides the cigarette market into two price 
segments, the premium price segment and the discount or reduced price segment. 
According to Management Science Associates, the discount segment share of 
market decreased from approximately 26.4% in 2000 to 26.1% in 2001. Virtually 
all of Lorillard's sales are in the full price segment where Lorillard's share 
amounted to approximately 11.8% in 2001 and 11.6% in 2000, as reported by 
Management Science Associates.

                                     18

                        LOEWS HOTELS HOLDING CORPORATION

  The subsidiaries of Loews Hotels Holding Corporation ("Loews Hotels"), a 
wholly owned subsidiary of the Company, presently operate the following 17 
hotels. Loews Hotels accounted for 1.66%, 1.59% and 1.64% of the Company's 
consolidated total revenue for the years ended December 31, 2001, 2000 and 
1999, respectively.


<TABLE>
<CAPTION>
                                     Number of
   Name and Location                  Rooms                     Owned, Leased or Managed
------------------------------------------------------------------------------------------------
<s>                                   <c>                  <c>
Loews Annapolis                          220               Owned
 Annapolis, Maryland

Loews Coronado Bay Resort                440               Land lease expiring 2034
 San Diego, California

Loews Giorgio                            185               Owned
 Denver, Colorado

Hard Rock Hotel,                         650               Management contract (2)
 at Universal Orlando, a Loews Hotel
 Orlando, Florida

House of Blues, a Loews Hotel            370               Management contract expiring 2005 (1)
 Chicago, Illinois

The Jefferson, a Loews Hotel             100               Management contract expiring 2010 (1)
 Washington, D.C.

Loews Le Concorde                        405               Land lease expiring 2069
 Quebec City, Canada

Loews L'Enfant Plaza                     370               Management contract expiring 2003 (1)
 Washington, D.C.

Loews Miami Beach Hotel                  790               Land lease expiring 2096
 Miami Beach, Florida

The Metropolitan Hotel                   720               Owned
 New York, New York

Loews Philadelphia Hotel                 585               Owned
 Philadelphia, Pennsylvania

The Portofino Bay Hotel,                 750               Management contract (2)
 at Universal Orlando, a Loews Hotel
 Orlando, Florida 

The Regency, a Loews Hotel               350               Land lease expiring 2013, with
 New York, New York                                        renewal option for 47 years

Loews Santa Monica Beach                 340               Management contract expiring 2018,
 Santa Monica, California                                  with renewal option for 5 years (1)

Loews Vanderbilt Plaza                   340               Owned
 Nashville, Tennessee

Loews Ventana Canyon Resort              400               Management contract expiring 2004,
 Tucson, Arizona                                           with renewal options for 10 years (1)

Loews Hotel Vogue                        140               Owned
 Montreal, Canada

</TABLE>


                                     19

--------------
(1) These management contracts are subject to termination rights.
(2) A Loews Hotels subsidiary is a 50% owner of the property through a joint 
    venture, discussed below.

  Hotels at Universal Orlando: Loews Hotels has a 50% interest in a joint 
venture with Universal Studios and the Rank Group to develop and construct 
three hotels having an aggregate of approximately 2,400 rooms at the Universal 
Orlando theme park in Florida. The hotels will be constructed on land leased 
by the joint venture from the resort's owners and will be operated by Loews 
Hotels pursuant to a management contract. The first hotel, the Portofino Bay 
Hotel, opened in the fall of 1999. The second hotel, the Hard Rock Hotel, a 
650 room hotel opened in January 2001. The third hotel, the 1,000 room Royal 
Pacific is scheduled to open in 2002.

  The hotels which are operated by Loews Hotels contain shops, a variety of 
restaurants and lounges, and some contain parking facilities, swimming pools, 
tennis courts and access to golf courses.

  The hotels owned by Loews Hotels are subject to mortgage indebtedness 
aggregating approximately $147.2 million at December 31, 2001 with interest 
rates ranging from 3.9% to 9.1% and maturing between 2002 and 2028. In 
addition, certain hotels are held under leases which are subject to formula 
derived rental increases, with rentals aggregating approximately $7.7 million 
for the year ended December 31, 2001.

  Competition from other hotels, motor hotels and inns, including facilities 
owned by local interests and by national and international chains, is vigorous 
in all areas in which Loews Hotels operates. The demand for hotel rooms in 
many areas is seasonal and dependent on general and local economic conditions. 
Loews Hotels properties also compete with facilities offering similar services 
in locations other than those in which its hotels are located. Competition 
among luxury hotels is based primarily on location and service. Competition 
among resort and commercial hotels is based on price as well as location and 
service. Because of the competitive nature of the industry, hotels must 
continually make expenditures for updating, refurnishing and repairs and 
maintenance, in order to prevent competitive obsolescence. 

                         DIAMOND OFFSHORE DRILLING, INC.

  Diamond Offshore Drilling Inc. ("Diamond Offshore"), is engaged, through its 
subsidiaries, in the business of owning and operating drilling rigs that are 
used primarily in the drilling of offshore oil and gas wells on a contract 
basis for companies engaged in exploration and production of hydrocarbons. 
Diamond Offshore operates 45 offshore rigs. Diamond Offshore accounted for 
4.85%, 3.40% and 3.95% of the Company's consolidated total revenue for the 
years ended December 31, 2001, 2000 and 1999, respectively. 

  Drilling Units and Equipment: Diamond Offshore currently owns and operates 
45 mobile offshore drilling rigs (30 semisubmersible rigs, 14 jack-up rigs and 
one drillship) and related equipment. Offshore rigs are mobile units that can 
be relocated via either self propulsion or the use of tugs enabling them to be 
repositioned based on market demand.

  Semisubmersible rigs are supported by large pontoons and are partially 
submerged during drilling for greater stability. They are generally designed 
for deep water depths of up to 5,000 feet. Semisubmersibles are typically 
anchored in position and remain stable for drilling in the semi-submerged 
floating position due in part to their wave transparency characteristics at 
the water line. Semisubmersibles can also be held in position through the use 
of a computer controlled thruster (dynamic-positioning) system to maintain the 
rig's position over a drillsite. Diamond Offshore has three such 
semisubmersible rigs. These semisubmersibles are larger than many other 
semisubmersibles, are capable of working in deep water or harsh environments, 
and have other advanced features. Diamond Offshore's 30 semisubmersible rigs 
are currently located as follows: 16 in the Gulf of Mexico, four in Brazil, 
three in the North Sea and two in Australia, with the remaining rigs located 
in various foreign markets.

  Jack-up rigs stand on the ocean floor with their drilling platforms "jacked 
up" on support legs above the water. They are used extensively for drilling in 
water depths from 20 feet to 350 feet. Seven of Diamond Offshore's jack-up 
rigs are cantilevered rigs capable of over platform development drilling and 
workover as well as exploratory drilling. Of Diamond Offshore's 14 jack-up 
rigs, 12 are currently located in the Gulf of Mexico.

  Diamond Offshore's drillship is self-propelled and designed to drill in deep 
water. Shaped like a conventional vessel, it is the most mobile of the major 
rig types. Diamond Offshore's drillship has dynamic-positioning capabilities 
and is currently operating in Brazil.

  Markets: Diamond Offshore's principal markets for its offshore contract 
drilling services are the Gulf of Mexico, Europe, including principally the 
U.K. sector of the North Sea, South America, Africa, and Australia/Southeast 
Asia. Diamond Offshore actively markets its rigs worldwide.

                                     20

  Diamond Offshore contracts to provide offshore drilling services vary in 
their terms and provisions. Diamond Offshore often obtains its contracts 
through competitive bidding, although it is not unusual for Diamond Offshore 
to be awarded drilling contracts without competitive bidding. Drilling 
contracts generally provide for a basic drilling rate on a fixed dayrate basis 
regardless of whether such drilling results in a productive well. Drilling 
contracts may also provide for lower rates during periods when the rig is 
being moved or when drilling operations are interrupted or restricted by 
equipment breakdowns, adverse weather or water conditions or other conditions 
beyond the control of Diamond Offshore. Under dayrate contracts, Diamond 
Offshore generally pays the operating expenses of the rig, including wages and 
the cost of incidental supplies. Dayrate contracts have historically accounted 
for a substantial portion of Diamond Offshore's revenues. In addition, Diamond 
Offshore has worked some of its rigs under dayrate contracts pursuant to which 
the customer also agrees to pay Diamond Offshore an incentive bonus based upon 
performance.

  A dayrate drilling contract generally extends over a period of time covering 
either the drilling of a single well, a group of wells (a "well-to-well 
contract") or a stated term (a "term contract") and may be terminated by the 
customer in the event the drilling unit is destroyed or lost or if drilling 
operations are suspended for a specified period of time as a result of a 
breakdown of equipment or, in some cases, due to other events beyond the 
control of either party. In addition, certain of Diamond Offshore's contracts 
permit the customer to terminate the contract early by giving notice and in 
some circumstances may require the payment of an early termination fee by the 
customer. The contract term in many instances may be extended by the customer 
exercising options for the drilling of additional wells at fixed or mutually 
agreed terms, including dayrates.

  The duration of offshore drilling contracts is generally determined by 
market demand and the respective management strategies of the offshore 
drilling contractor and its customers. In periods of rising demand for 
offshore rigs, contractors typically prefer well-to-well contracts that allow 
contractors to profit from increasing dayrates. In contrast, during these 
periods customers with reasonably definite drilling programs typically prefer 
longer term contracts to maintain dayrate prices at a consistent level. 
Conversely, in periods of decreasing demand for offshore rigs, contractors 
generally prefer longer term contracts to preserve dayrates at existing levels 
and ensure utilization, while customers prefer well-to-well contracts that 
allow them to obtain the benefit of lower dayrates. In general, Diamond 
Offshore seeks to have a foundation of long-term contracts with a reasonable 
balance of single well, well-to-well and short-term contracts to minimize the 
downside impact of a decline in the market while still participating in the 
benefit of increasing dayrates in a rising market.

  Customers: Diamond Offshore provides offshore drilling services to a 
customer base that includes major and independent oil and gas companies and 
government-owned oil companies. Several customers have accounted for 10.0% or 
more of Diamond Offshore's annual consolidated revenues, although the specific 
customers may vary from year to year. During 2001, Diamond Offshore performed 
services for 43 different customers with BP and Petrobraspetroleo Brasileiro 
SA ("Petrobras") accounting for 22.0% and 17.9% of Diamond Offshore's annual 
total consolidated revenues, respectively. During 2000, Diamond Offshore 
performed services for approximately 50 different customers with Petrobras and 
BP accounting for 25.4% and 20.0% of Diamond Offshore's annual total 
consolidated revenues, respectively. During 1999, Diamond Offshore performed 
services for approximately 45 different customers with Petrobras and Shell 
companies (including domestic and foreign affiliates) accounting for 15.5% and 
14.5% of Diamond Offshore's annual total consolidated revenues, respectively. 
During periods of low demand for offshore drilling rigs, the loss of a single 
significant customer could have a material adverse effect on Diamond 
Offshore's results of operations.

  Competition: The contract drilling industry is highly competitive. Customers 
often award contracts on a competitive bid basis, and although a customer 
selecting a rig may consider, among other things, a contractor's safety 
record, crew quality, rig location, and quality of service and equipment, the 
historical oversupply of rigs has created an intensely competitive market in 
which price is the primary factor in determining the selection of a drilling 
contractor. In periods of increased drilling activity, rig availability has, 
in some cases, also become a consideration, particularly with respect to 
technologically advanced units. Diamond Offshore believes that competition for 
drilling contracts will continue to be intense in the foreseeable future. 
Contractors are also able to adjust localized supply and demand imbalances by 
moving rigs from areas of low utilization and dayrates to areas of greater 
activity and relatively higher dayrates. Such movements, reactivations or a 
decrease in drilling activity in any major market could depress dayrates and 
could adversely affect utilization of Diamond Offshore's rigs.

  Governmental Regulation: Diamond Offshore's operations are subject to 
numerous federal, state and local laws and regulations that relate directly or 
indirectly to its operations, including certain regulations controlling the 
discharge of materials into the environment, requiring removal and clean-up 
under certain circumstances, or otherwise relating to the protection of the 
environment. For example, Diamond Offshore may be liable for damages and costs 
incurred in connection with oil spills for which it is held responsible. Laws 
and regulations protecting the environment have become increasingly stringent 
in recent years and may in certain circumstances impose "strict liability" 
rendering a company liable for environmental damage without regard to 
negligence or fault on the part of such company. Liability under such laws and 
regulations may result from either governmental or citizen prosecution. Such 
laws and regulations may expose

                                     21

Diamond Offshore to liability for the conduct of or conditions caused by 
others, or for acts of Diamond Offshore that were in compliance with all 
applicable laws at the time such acts were performed. The application of these 
requirements or the adoption of new requirements could have a material adverse 
effect on Diamond Offshore.

  The United States Oil Pollution Act of 1990 ("OPA '90"), and similar 
legislation enacted in Texas, Louisiana and other coastal states addresses oil 
spill prevention and control and significantly expands liability exposure 
across all segments of the oil and gas industry. OPA '90, such similar 
legislation and related regulations impose a variety of obligations on Diamond 
Offshore related to the prevention of oil spills and liability for damages 
resulting from such spills. OPA '90 imposes strict and, with limited 
exceptions, joint and several liability upon each responsible party for oil 
removal costs and a variety of public and private damages. 

  Indemnification and Insurance: Diamond Offshore's operations are subject to 
hazards inherent in the drilling of oil and gas wells such as blowouts, 
reservoir damage, loss of production, loss of well control, cratering or 
fires, the occurrence of which could result in the suspension of drilling 
operations, injury to or death of rig and other personnel and damage to or 
destruction of Diamond Offshore's, Diamond Offshore's customers' or a third 
party's property or equipment. Damage to the environment could also result 
from Diamond Offshore's operations, particularly through oil spillage or 
uncontrolled fires. In addition, offshore drilling operations are subject to 
perils peculiar to marine operations, including capsizing, grounding, 
collision and loss or damage from severe weather. Diamond Offshore has 
insurance coverage and contractual indemnification for certain risks, but 
there can be no assurance that such coverage or indemnification will 
adequately cover Diamond Offshore's loss or liability in many circumstances or 
that Diamond Offshore will continue to carry such insurance or receive such 
indemnification.

  In September of 2001, Diamond Offshore's Hull and Machinery insurance 
underwriters notified Diamond Offshore that war risk coverage would be 
canceled in its physical damage policies unless Diamond Offshore paid 
significant additional insurance premiums for such coverage. In order to avoid 
incurring the additional costs, Diamond Offshore has permitted such coverage 
to terminate and expects to self-insure against physical damage war risk to 
the extent it is required to do so in the future. Most of Diamond Offshore's 
drilling contracts did not require Diamond Offshore to carry physical damage 
war risk insurance. Four drilling contracts did contain a requirement for such 
coverage and have been amended to permit Diamond Offshore to self-insure 
against such risks.

  Properties: Diamond Offshore owns an eight-story office building located in 
Houston, Texas containing approximately 182,000 net rentable square feet, 
which is used for its corporate headquarters. Diamond Offshore also owns an 
18,000 square foot building and 20 acres of land in New Iberia, Louisiana for 
its offshore drilling warehouse and storage facility, and a 13,000 square foot 
building and five acres of land in Aberdeen, Scotland for its North Sea 
operations. In addition, Diamond Offshore leases various office, warehouse and 
storage facilities in Louisiana, Australia, Brazil, Indonesia, Scotland, 
Vietnam and Singapore to support its offshore drilling operations.

                               BULOVA CORPORATION

  Bulova Corporation ("Bulova") is engaged in the distribution and sale of 
watches, clocks and timepiece parts for consumer use. Bulova accounted for 
.75%, .75% and .65% of the Company's consolidated total revenue for the years 
ended December 31, 2001, 2000 and 1999, respectively.

  In September of 2001, Bulova expanded its product line when it acquired the 
Wittnauer watch and clock trademarks, related inventory and receivables, from 
Wittnauer International Inc. and Wittnauer Worldwide, L.P., and their 
affiliates.

  Bulova's principal watch brands are Bulova, Wittnauer, Caravelle and 
Accutron. Clocks are principally sold under the Bulova brand name. All watches 
and clocks are purchased from foreign suppliers. Bulova's principal markets 
are the United States, Canada and Mexico. In most other areas of the world 
Bulova has appointed licensees who market watches under Bulova's trademarks in 
return for a royalty. The business is seasonal, with the greatest sales coming 
in the third and fourth quarters in expectation of the holiday selling season. 
The business is intensely competitive. The principal methods of competition 
are price, styling, product availability, aftersale service, warranty and 
product performance. 

  Properties: Bulova owns an 80,000 square foot plant in Woodside, New York 
which is used for its principal executive and sales office, watch 
distribution, service and warehouse purposes, and also owns a 91,000 square 
foot plant in Brooklyn, New York for clock service and warehouse purposes. In 
addition, Bulova leases a 31,000 square foot plant in Toronto, Canada for 
watch and clock sales and service and leases approximately 5,400 square feet 
of office space in Mexico, Federal District.

                                     22

                                 OTHER INTERESTS

  A subsidiary of the Company, Majestic Shipping Corporation ("Majestic"), 
owns a 49% common stock interest in Hellespont Shipping Corporation 
("Hellespont"). Hellespont is engaged in the business of owning and operating 
five large crude oil tankers that are used primarily to transport crude oil 
from the Persian Gulf to a limited number of ports in the Far East, Northern 
Europe and the United States.

 For information with respect to agreements entered into by Majestic for the 
newbuilding of up to four ships, see Item 7, Management's Discussion and 
Analysis of Financial Condition and Results of Operations - Liquidity and 
Capital Resources.

                               EMPLOYEE RELATIONS

  The Company, inclusive of its operating subsidiaries as described below, 
employed approximately 27,820 persons at December 31, 2001 and considers its 
employee relations to be satisfactory.

  Lorillard employed approximately 3,300 persons at December 31, 2001. 
Approximately 1,230 of these employees are represented by labor unions covered 
by three collective bargaining agreements. Two of the collective bargaining 
agreements expire in April of 2002; the third agreement expires in March of 
2003.

  Lorillard has collective bargaining agreements covering hourly rated 
production and service employees at various Lorillard plants with the Tobacco 
Workers International Union, the International Brotherhood of Firemen and 
Oilers, and the International Association of Machinists. Lorillard has 
experienced satisfactory labor relations and provides a retirement plan, a 
deferred profit sharing plan, and other benefits for its hourly paid employees 
who are represented by the foregoing unions. In addition, Lorillard provides 
to its salaried employees a retirement plan, group life, disability and health 
insurance program and a savings plan. 

  Loews Hotels employed approximately 2,380 persons at December 31, 2001, 
approximately 900 of whom are union members covered under collective 
bargaining agreements. Loews Hotels has experienced satisfactory labor 
relations and provides comprehensive benefit plans for its hourly paid 
employees.

  The Company maintains a retirement plan, group life, disability and health 
insurance program and a savings plan for salaried employees. Loews Hotels 
salaried employees also participate in these benefit plans. 

  CNA employed approximately 17,270 full-time equivalent employees at December 
31, 2001 and has experienced satisfactory labor relations. During 2001, CNA 
announced two restructuring plans, which included a reduction of 2,100 
positions. CNA and its subsidiaries have comprehensive benefit plans for 
substantially all of their employees, including retirement plans, savings 
plans, disability programs, group life programs and group health care 
programs.

  Diamond Offshore employed approximately 4,100 persons at December 31, 2001 
(including international crews furnished through labor contractors), 
approximately 40 of whom are union members. Diamond Offshore has experienced 
satisfactory labor relations and provides comprehensive benefit plans for its 
employees.

  Bulova and its subsidiaries employed approximately 520 persons at December 
31, 2001, approximately 190 of whom are union members. Bulova and its 
subsidiaries have experienced satisfactory labor relations. Bulova has 
comprehensive benefit plans for substantially all employees.


I
tem 2. Properties.

  Information relating to the properties of Registrant and its subsidiaries is 
contained under Item 1.

                                     23


Item 3. Legal Proceedings.

  1. CNA is involved in various lawsuits involving environmental pollution 
claims and litigation with Fibreboard Corporation. Information involving such 
lawsuits is incorporated by reference to Notes 7 and 17 of the Notes to 
Consolidated Financial Statements included in Item 8.

NON-INSURANCE

  The following information supplements the description of tobacco litigation 
contained in Note 17 of the Notes to Consolidated Financial Statements 
included in Item 8, which is incorporated herein by reference.

Tobacco Litigation
------------------

  Approximately 4,675 product liability cases are pending against cigarette 
manufacturers in the United States; Lorillard is a defendant in approximately 
4,275 of these cases. Lawsuits continue to be filed against Lorillard and 
other manufacturers of tobacco products. Some of the lawsuits also name the 
Company as a defendant. In certain of these and other cases, Lorillard has 
agreed, in accordance with the law of the applicable jurisdiction, to pay the 
cost of defense and to indemnify certain defendants who are not manufacturers 
of cigarettes, such as sellers of tobacco products, advertisers and others. 
Among the 4,675 product liability cases, are approximately 1,250 cases pending 
in a West Virginia court. Another group of approximately 2,835 cases has been 
brought by flight attendants alleging injury from exposure to environmental 
tobacco smoke in the cabins of aircraft. Lorillard is a defendant in all of 
the flight attendant suits and is a defendant in most of the cases pending in 
West Virginia. 

  Excluding the flight attendant and West Virginia suits, approximately 575 
product liability cases are pending against U.S. cigarette manufacturers. Of 
these 575 cases, Lorillard is a defendant in approximately 260 cases. The 
Company is a defendant in approximately 45 of these actions, although it has 
not received service of process in approximately 10 of them. 

  Tobacco litigation includes various types of claims. In these actions, 
plaintiffs claim substantial compensatory, statutory and punitive damages, as 
well as equitable and injunctive relief, in amounts ranging into the billions 
of dollars. These claims are based on a number of legal theories including, 
among other theories, theories of negligence, fraud, misrepresentation, strict 
liability, breach of warranty, enterprise liability (including claims asserted 
under the Racketeering Influenced and Corrupt Organizations Act), civil 
conspiracy, intentional infliction of harm, violation of consumer protection 
statutes, violation of antitrust statutes, and failure to warn of the harmful 
and/or addictive nature of tobacco products. 

  In addition to the above, claims have been brought against Lorillard seeking 
damages resulting from alleged exposure to asbestos fibers which were 
incorporated into filter material used in one brand of cigarettes manufactured 
by Lorillard for a limited period of time, ending more than 40 years ago. 
These cases are generally referred to as "filter cases." Approximately 25 30 
filter cases are pending against Lorillard. 

CONVENTIONAL PRODUCT LIABILITY CASES -

  Conventional product liability cases are cases in which individuals allege 
they or their decedents have been injured due to smoking cigarettes, due to 
exposure to environmental tobacco smoke, due to use of smokeless tobacco 
products, or due to cigarette or nicotine dependence or addiction. Plaintiffs 
in most conventional product liability cases seek unspecified amounts in 
compensatory damages and punitive damages. Lorillard is a defendant in 
approximately 1,300 of these cases. This total includes approximately 1,150 
cases pending in West Virginia that are part of a consolidated proceeding. 
Additional cases are pending against other cigarette manufacturers. The 
Company is a defendant in seven of the cases filed by individuals, although 
four of the cases have not been served on the Company. The Company is not a 
defendant in any of the conventional product liability cases pending in West 
Virginia. 

FLIGHT ATTENDANT CASES - 

  There are approximately 2,835 cases pending in the Circuit Court of Dade 
County, Florida against Lorillard and three other U.S. cigarette manufacturers 
in which the plaintiffs are present or former flight attendants, or the 
estates of deceased flight attendants, who allege injury as a result of 
exposure to environmental tobacco smoke in aircraft cabins. The Company is not 
a defendant in any of the flight attendant cases. 

CLASS ACTION CASES - 

  Certain cases have been filed against cigarette manufacturers, including 
Lorillard, in which plaintiffs purport to seek class certification on behalf 
of groups of cigarette smokers. Lorillard is a defendant in approximately 25 
of these cases,

                                     24

six of which also name the Company as a defendant. Two cases that name both 
the Company and Lorillard as defendants have not been served on any of the 
parties. Neither Lorillard nor the Company are defendants in approximately 20 
additional class action cases pending against other cigarette manufacturers, 
many of which assert claims on behalf of smokers of "light" cigarettes. Most 
of the suits in which Lorillard or the Company is a defendant seek class 
certification on behalf of residents of the states in which the purported 
class action cases have been filed, although some suits seek class 
certification on behalf of residents of multiple states. Plaintiffs in all but 
two of the purported class action cases seek class certification on behalf of 
individuals who smoked cigarettes or were exposed to environmental tobacco 
smoke. In one of the two remaining purported class action cases, plaintiffs 
seek class certification on behalf of individuals who paid insurance premiums. 
Plaintiffs in the other remaining suit seek class certification on behalf of 
U.S. residents under the age of 22 who purchased cigarettes as minors and who 
do not have personal injury claims. Verdicts have been returned in two of the 
cases listed below, Engle v. R.J. Reynolds Tobacco Co., et al. and Blankenship 
v. American Tobacco Company, et al. Trial proceedings are underway in the case 
of Scott v. The American Tobacco Company, et al. The remaining cases below are 
in the pre-trial, discovery stage. Plaintiffs in a few of the reimbursement 
cases, which are discussed below, also seek certification of such cases as 
class actions.

  Engle v. R.J. Reynolds Tobacco Co., et al. (Circuit Court, Dade County, 
Florida, filed May 5, 1994).

  Norton v. RJR Nabisco Holdings Corporation, et al. (Superior Court, Madison 
County, Indiana, filed May 3, 1996). The Company is a defendant in the case.

  Scott v. The American Tobacco Company, et al. (District Court, Orleans 
Parish, Louisiana, filed May 24, 1996). During February of 2002, the Fourth 
District of the Louisiana Court of Appeals granted in part defendants' writ 
application and ordered the removal of one of the jurors. The time for 
defendants to seek further appellate review of the issue has not expired.

  Perry v. The American Tobacco Company, et al. (U.S. District Court, Eastern 
District, Tennessee, filed September 30, 1996). Plaintiffs seek class 
certification on behalf of Tennessee residents who have paid medical insurance 
premiums to a Blue Cross and Blue Shield organization. The court granted 
defendants' motion to dismiss the case and entered final judgment in their 
favor. Plaintiffs have noticed an appeal from the final judgment to the U.S. 
Court of Appeals for the Sixth Circuit. 

  Connor v. The American Tobacco Company, et al. (Second Judicial District 
Court, Bernalillo County, New Mexico, filed October 10, 1996).

  Blankenship v. American Tobacco Company, et al. (Circuit Court, County, West 
Virginia, filed January 31, 1997). This matter was transferred from the 
Circuit Court of Kanawha County, West Virginia to a coordinated proceeding 
pending before the Circuit Court of Ohio County, West Virginia. 

  Muncy v. Philip Morris Incorporated, et al. (Circuit Court, Ohio County, 
West Virginia, filed February 4, 1997). This matter was transferred from the 
Circuit Court of McDowell County, West Virginia to a coordinated proceeding 
pending before the Circuit Court of Ohio County, West Virginia.

  Cole v. The Tobacco Institute, Inc., et al. (U.S. District Court, Eastern 
District, Texas, Texarkana Division, filed May 5, 1997). During 2000, the 
court dismissed the suit and entered final judgment in favor of the 
defendants. Plaintiffs noticed an appeal from the judgment to the U.S. Court 
of Appeals for the Fifth Circuit. During 2001, the Court of Appeals affirmed 
the final judgment. As of March 1, 2002, the deadline for plaintiffs to file a 
petition for writ of certiorari with the U.S. Supreme Court had not expired. 

  Anderson v. The American Tobacco Company, Inc., et al. (U.S. District Court, 
Eastern District, Tennessee, filed May 23, 1997). The Company is a defendant 
in the case.

  Brown v. The American Tobacco Company, Inc., et al. (Superior Court, San 
Diego County, California, filed June 10, 1997).

  Mahoney v. R.J. Reynolds Tobacco Company, et al. (U.S. District Court, 
Southern District, Iowa, filed June 20, 1997). During 2001, the court denied 
plaintiffs' motion for class certification. The U.S. Court of Appeals for the 
Eighth Circuit declined to review the denial of the class certification motion 
at this stage of the case. 

  Nwanze v. Philip Morris Companies Inc., et al. (U.S. District Court, 
Southern District, New York, filed September 29, 1997). The Company is a 
defendant in the case. The court denied plaintiffs' motion for class 
certification. During 2000, the court granted defendants' motion to dismiss 
the complaint and entered final judgment in their favor. Plaintiffs noticed an 
appeal from the judgment to the U.S. Court of Appeals for the Second Circuit. 
The Second Circuit affirmed the trial court's final judgment during 2001 and 
denied plaintiffs' motion for reconsideration of the ruling. The U.S. Supreme 

                                     25

Court denied plaintiffs' petition for writ of certiorari during 2001. The U.S. 
Supreme Court has not ruled on plaintiffs' motion for reconsideration of the 
ruling denying their petition for writ of certiorari. 

  Badillo v. American Tobacco Company, et al. (U.S. District Court, Nevada, 
filed October 8, 1997). The Company is a defendant in the case. During 2001, 
the court denied plaintiffs' motion for class certification. Plaintiffs have 
asked the U.S. Court of Appeals for the Ninth Circuit to review the class 
certification decision. The Ninth Circuit has issued an order to show cause 
why the appeal should not be dismissed. 

  Young v. The American Tobacco Company, et al. (Civil District Court, Orleans 
Parish, Louisiana, filed November 12, 1997). The Company is a defendant in the 
case.

  Jackson v. Philip Morris Incorporated, et al. (U.S. District Court, Central 
District, Utah, filed on or about February 13, 1998). 

  Parsons v. AC&S, et al. (Circuit Court, Ohio County, West Virginia, filed 
February 27, 1998). This matter was transferred from the Circuit Court of 
Kanawha County, West Virginia to a coordinated proceeding pending before the 
Circuit Court of Ohio County, West Virginia.

  Daniels v. Philip Morris Companies, Inc., et al. (Superior Court, San Diego 
County, California, filed April 2, 1998).

  Christensen v. Philip Morris Companies, Inc., et al. (U.S. District Court, 
Nevada, filed April 3, 1998). The Company is a defendant in the case. To date, 
none of the defendants have received service of process. During 2001, the 
court denied plaintiffs' motion for class certification. Plaintiffs have asked 
the U.S. Court of Appeals for the Ninth Circuit to review the class 
certification decision. The Ninth Circuit has issued an order to show cause 
why the appeal should not be dismissed.

  Cleary v. Philip Morris Incorporated, et al. (Circuit Court, Cook County, 
Illinois, filed June 5, 1998).

  Creekmore v. Brown & Williamson Tobacco Corporation, et al. (Superior Court, 
Buncombe County, North Carolina, filed July 31, 1998).

  Cypret v. The American Tobacco Company, Inc., et al. (Circuit Court, Jackson 
County, Missouri, filed December 22, 1998). The Company is a defendant in the 
case.

  Simon v. Philip Morris Incorporated, et al. (U.S. District Court, Eastern 
District, New York, filed April 9, 1999). During 2000, the court denied 
plaintiffs' motion for class certification but the court stated that it would 
"entertain a prompt motion for certification in Simon II." The court further 
stated that "Simon II should be triable without appreciable delay should it be 
certified." To date, a trial date has not been set in this matter. This matter 
also is a part of the litigation described under the heading "Eastern District 
of New York Litigation" in Note 17 of the Notes to Consolidated Financial 
Statements, included in Item 8.

  Julian v. Philip Morris Companies Inc., et al. (Circuit Court, Montgomery 
County, Alabama, filed April 14, 1999).

  Decie v. The American Tobacco Company, et al. (U.S. District Court, Eastern 
District, New York, filed April 21, 2000). This matter also is a part of the 
litigation described under the heading "Eastern District of New York 
Litigation" in Note 17 of the Notes to Consolidated Financial Statements, 
included in Item 8.

  Ebert v. Philip Morris Incorporated, et al. (U.S. District Court, Eastern 
District, New York, filed August 9, 2000). The Company is named as a defendant 
in this matter. To date, none of the defendants have received service of 
process. This matter also is a part of the litigation described under the 
heading "Eastern District of New York Litigation" in Note 17 of the Notes to 
Consolidated Financial Statements, included in Item 8.

  Vandermeulen v. Philip Morris Companies, Inc., et al. (Circuit Court, Wayne 
County, Michigan, filed September 18, 2000). 

  Sims v. Philip Morris, Inc., et al. (U.S. District Court, District of 
Columbia, filed May 23, 2001). 

  Johnson v. Newport Lorillard, et al. (U.S. District Court, Southern 
District, New York, filed October 31, 2001). 

  Lowe v. Philip Morris, Incorporated, et al. (U.S. District Court, Oregon, 
filed November 19, 2001). 

  Trivisonno v. Philip Morris, Incorporated, et al. (Court of Common Pleas, 
Cuyahoga County, Ohio, filed on or about January 14, 2002). As of March 1, 
2002, Lorillard had not received service of process of this matter. The 
complaint

                                     26

asserts a mixture of product liability claims and claims contending that the 
Master Settlement Agreement violated various Ohio consumer protection 
statutes. 

REIMBURSEMENT CASES -

  Approximately 50 cases are pending that are comprised of cases brought by 
the U.S. federal government, county governments, city governments, unions, 
American Indian tribes, hospitals or hospital districts, private companies and 
foreign governments filing suit in U.S. courts, in which plaintiffs seek 
recovery of funds allegedly expended by them to provide health care to 
individuals with injuries or other health effects allegedly caused by use of 
tobacco products or exposure to cigarette smoke. These cases are based on, 
among other things, equitable claims, including injunctive relief, indemnity, 
restitution, unjust enrichment and public nuisance, and claims based on 
antitrust laws and state consumer protection acts. Plaintiffs in some of these 
actions seek certification as class actions. Plaintiffs seek damages in each 
case that range from unspecified amounts to the billions of dollars. Most 
plaintiffs seek punitive damages and some seek treble damages. Plaintiffs in 
some of the cases seek medical monitoring. Lorillard is named as a defendant 
in all of the reimbursement cases except for a few of those filed in U.S. 
courts by foreign governments. The Company is named as a defendant in 
approximately 30 of the pending reimbursement cases, although it has not 
received service of four of these matters. 

  U.S. Federal Government Action - The U.S. federal government filed a 
reimbursement suit on September 22, 1999 in the U.S. District Court for the 
District of Columbia against Lorillard, other U.S. cigarette manufacturers, 
some parent companies and two trade associations. The Company is not a 
defendant in this action.

  U.S. Local Governmental Reimbursement Cases - Four suits filed by local 
governmental entities are pending against cigarette manufacturers. Lorillard 
is a defendant in each of the pending matters. The Company is named as a 
defendant in two of the matters but has not received service of process of one 
of them. 

  County of Cook v. Philip Morris, Incorporated, et al. (Circuit Court, Cook 
County, Illinois, filed April 18, 1997). During 2001, the court granted 
defendants' motion to dismiss the complaint and entered final judgment in 
their favor. Plaintiff has noticed an appeal from the final judgment to the 
Appellate Court of Illinois, First Judicial District. Defendants have noticed 
a cross-appeal. 

  City of St. Louis, et al. v. The American Tobacco Company, Inc., et al. 
(Circuit Court, City of St. Louis, Missouri, filed November 25, 1998). The 
Company is a defendant in the case. Several Missouri hospitals also are 
plaintiffs in the suit. The Missouri Supreme Court has issued a ruling that 
the MSA does not impair or impede plaintiffs' ability to protect their 
interests and that the MSA does not release their claims.

  St. Louis County, Missouri v. American Tobacco Company, Inc., et al. 
(Circuit Court, City of St. Louis, Missouri, filed December 3, 1998). The 
Company is a defendant in the case but has not received service of process to 
date. 

  County of Wayne v. Philip Morris Incorporated, et al. (U.S. District Court, 
Eastern District, Michigan, filed December 6, 1999. The Michigan Supreme 
Court, in response to questions certified to it by the trial court, issued an 
opinion during January of 2002 that the Michigan Attorney General had the 
authority to release plaintiff's claims in the MSA. 

  Reimbursement Cases filed by Foreign Governments in U.S. Courts - Cases have 
been brought in U.S. courts by thirteen nations, 11 Brazilian states, 11 
Brazilian cities and one Canadian province. Both the Company and Lorillard are 
named as defendants in most of the cases. The Company has not received service 
of process of the cases filed by two of the nations and by one of the 
Brazilian states.

  The Republic of Bolivia v. Philip Morris Companies, Inc., et al. (U.S. 
District Court, District of Columbia, filed on January 20, 1999). The U.S. 
District Court for the Southern District of Texas transferred this matter sua 
sponte to the U.S. District Court for the District of Columbia. The Company is 
a defendant in the case. Defendants' motion to transfer this matter to the 
United States Panel on Multi-District Litigation has been granted.

  Republic of Venezuela v. Philip Morris Companies, et al. (Circuit Court, 
Dade County, Florida, filed January 27, 1999). The Company is a defendant in 
the case but has not received service of process to date. During 2001, the 
court granted defendants' motion for judgment on the pleadings and entered 
final judgment in their favor. Plaintiff has noticed an appeal to the Florida 
Third District Court of Appeal. 

  State of Rio de Janeiro of The Federative Republic of Brazil v. Philip 
Morris Companies, Inc., et al. (District Court, Angelina County, Texas, filed 
July 12, 1999). The Company is a defendant in the case.

  The State of Mato Grosso do Sul, Brazil v. Philip Morris Companies, Inc., et 
al. (U.S. District Court, District of Columbia, filed July 19, 2000). The 
Company is a defendant in the case. The case has been transferred to the 
Multi-

                                     27

District Litigation Panel pending in the U.S. District Court for the District 
of Columbia.

  The Russian Federation v. Philip Morris Companies, Inc., et al. (U.S. 
District Court, Southern District, Florida, filed August 25, 2000). The 
Company is a defendant in the case. The case has been transferred to the 
Multi-District Litigation Panel pending in the U.S. District Court for the 
District of Columbia.

  The Republic of Honduras v. Philip Morris Companies, Inc., et al. (U.S. 
District Court, Southern District, Florida, filed September 29, 2000). The 
Company is a defendant in the case, although it has not received service of 
process to date. Defendants have transferred the case to the Multi-District 
Litigation Panel pending in the U.S. District Court for the District of 
Columbia.

  The State of Tocantins, Brazil v. The Brooke Group, Ltd. Inc., et al. (U.S. 
District Court, Southern District, Florida, filed October 1, 2000). The 
Company is a defendant in the case. Defendants have transferred the case to 
the Multi-District Litigation Panel pending in the U.S. District Court for the 
District of Columbia.

  The State of Piaui, Brazil v. Philip Morris Companies, Inc., et al. (U.S. 
District Court, Southern District, Florida, filed December 13, 2000). The 
Company is a defendant in the case. Defendants have transferred the case to 
the Multi-District Litigation Panel pending in the U.S. District Court for the 
District of Columbia.

  The Republic of Tajikistan v. The Brooke Group Ltd. Inc., et al., (U.S. 
District Court, Southern District, Florida, filed January 22, 2001). The 
Company is a defendant in the case. Defendants have transferred the case to 
the Multi-District Litigation Panel pending in the U.S. District Court for the 
District of Columbia.

  The Republic of Belize v. Philip Morris Companies, Inc., et al. (U.S. 
District Court, Southern District, Florida, filed April 5, 2001). The Company 
is a defendant in the case. Defendants have transferred the case to the Multi-
District Litigation Panel pending in the U.S. District Court for the District 
of Columbia. 

  City of Belford Roxo, Brazil v. Philip Morris Companies, Inc., et al. (U.S. 
District Court, Southern District, Florida, filed May 8, 2001). The Company is 
a defendant in the case. Defendants have transferred the case to the Multi-
District Litigation Panel pending in the U.S. District Court for the District 
of Columbia. 

  City of Belo Horizonte, Brazil v. Philip Morris Companies, Inc., et al. 
(U.S. District Court, Southern District, Florida, filed May 8, 2001). The 
Company is a defendant in the case. Defendants have transferred the case to 
the Multi-District Litigation Panel pending in the U.S. District Court for the 
District of Columbia. 

  City of Carapicuiba, Brazil v. Philip Morris Companies, Inc., et al. (U.S. 
District Court, Southern District, Florida, filed May 8, 2001). The Company is 
a defendant in the case. Defendants have transferred the case to the Multi-
District Litigation Panel pending in the U.S. District Court for the District 
of Columbia. 

  City of Duque de Caxias, Brazil v. Philip Morris Companies, Inc., et al. 
(U.S. District Court, Southern District, Florida, filed May 8, 2001). The 
Company is a defendant in the case. Defendants have transferred the case to 
the Multi-District Litigation Panel pending in the U.S. District Court for the 
District of Columbia. 

  City of Joao Pessoa, Brazil v. Philip Morris Companies, Inc., et al. (U.S. 
District Court, Southern District, Florida, filed May 8, 2001). The Company is 
a defendant in the case. Defendants have transferred the case to the Multi-
District Litigation Panel pending in the U.S. District Court for the District 
of Columbia. 

  City of Jundiai, Brazil v. Philip Morris Companies, Inc., et al. (U.S. 
District Court, Southern District, Florida, filed May 8, 2001). The Company is 
a defendant in the case. Defendants have transferred the case to the Multi-
District Litigation Panel pending in the U.S. District Court for the District 
of Columbia. 

  City of Mage, Brazil v. Philip Morris Companies, Inc., et al. (U.S. District 
Court, Southern District, Florida, filed May 8, 2001). The Company is a 
defendant in the case. Defendants have transferred the case to the Multi-
District Litigation Panel pending in the U.S. District Court for the District 
of Columbia. 

  City of Nilopolis - RJ, Brazil v. Philip Morris Companies, Inc., et al. 
(U.S. District Court, Southern District, Florida, filed May 8, 2001). The 
Company is a defendant in the case. Defendants have transferred the case to 
the Multi-District Litigation Panel pending in the U.S. District Court for the 
District of Columbia. 

  City of Nova Iguacu, Brazil v. Philip Morris Companies, Inc., et al. (U.S. 
District Court, Southern District, Florida, filed May 8, 2001). The Company is 
a defendant in the case. Defendants have transferred the case to the Multi-
District Litigation Panel pending in the U.S. District Court for the District 
of Columbia. 

                                     28

  City of Rio de Janeiro, Brazil v. Philip Morris Companies, Inc., et al. 
(U.S. District Court, Southern District, Florida, filed May 8, 2001). The 
Company is a defendant in the case. Defendants have transferred the case to 
the Multi-District Litigation Panel pending in the U.S. District Court for the 
District of Columbia. 

  City of Sao Bernardo do Carmpo, Brazil v. Philip Morris Companies, Inc., et 
al. (U.S. District Court, Southern District, Florida, filed May 8, 2001). The 
Company is a defendant in the case. Defendants have transferred the case to 
the Multi-District Litigation Panel pending in the U.S. District Court for the 
District of Columbia. 

  State of Para, Brazil v. Philip Morris Companies, Inc., et al. (U.S. 
District Court, Southern District, Florida, filed May 8, 2001). The Company is 
a defendant in the case. Defendants have transferred the case to the Multi-
District Litigation Panel pending in the U.S. District Court for the District 
of Columbia. 

  State of Parana, Brazil v. Philip Morris Companies, Inc., et al. (U.S. 
District Court, Southern District, Florida, filed May 8, 2001). The Company is 
a defendant in the case. Defendants have transferred the case to the Multi-
District Litigation Panel pending in the U.S. District Court for the District 
of Columbia. 

  State of Rondonia, Brazil v. Philip Morris Companies, Inc., et al. (U.S. 
District Court, Southern District, Florida, filed May 8, 2001). The Company is 
a defendant in the case. Defendants have transferred the case to the Multi-
District Litigation Panel pending in the U.S. District Court for the District 
of Columbia. 

  State of Pernambuco, Brazil v. Philip Morris Companies, Inc., et al. (U.S. 
District Court, Southern District, Florida, filed December 28, 2001). The 
Company is a defendant in the case. As of March 1, 2002, neither Lorillard nor 
the Company had received service of process of the complaint in this matter. 
Defendants have conditionally transferred the case to the Multi-District 
Litigation Panel pending in the U.S. District Court for the District of 
Columbia. 

  Private Citizens' Reimbursement Cases - Two suits are pending in which 
plaintiffs are private citizens. The Company is named as a defendant in one of 
these actions. 

  Mason v. The American Tobacco Company, et al. (filed in U.S. District Court, 
Northern District, Texas; transferred to U.S. District Court, Eastern 
District, New York, filed December 23, 1997). The suit is on behalf of 
taxpayers of the U.S. as to funds expended by the Medicaid program. During 
2000, the U.S. District Court for the Northern District of Texas granted 
plaintiffs' motion to transfer the case to the U.S. District Court for the 
Eastern District of New York. Defendants' motion to transfer the case to the 
U.S. District Court for the District of Columbia has been denied. This matter 
also is a part of the litigation described under the heading "Eastern District 
of New York Litigation" in Note 17 of the Notes to Consolidated Financial 
Statements, included in Item 8.

  Temple v. The State of Tennessee, et al. (U.S. District Court, Middle 
District, Tennessee, filed as individual smoking and health case on February 
7, 2000; amended complaint filed in order to expand plaintiffs' claims, 
September 11, 2000). Plaintiffs contend that defendant the State of Tennessee 
has no standing to recover the finds paid to it as compensation for the monies 
it has paid through its TennCare program for individuals allegedly injured by 
a smoking-related disease. Plaintiffs further seek a declaration that the MSA 
is unconstitutional. Plaintiffs' amended complaint also includes claims for 
class certification on behalf of Tennessee smokers. The Company was named as a 
defendant in the amended complaint but has not received service of process to 
date. 

  Reimbursement Cases by American Indian Tribes - American Indian tribes are 
the plaintiffs in four pending reimbursement suits. Three of the four cases 
have been filed in tribal courts. Lorillard is a defendant in each of the 
cases. The Company is not named as a defendant in any of the pending tribal 
cases. One of the four cases is pending before a federal court of appeals 
following plaintiffs' appeal from an order that granted defendants' motion to 
dismiss the complaint. 

  Crow Creek Sioux Tribe v. The American Tobacco Company, et al. (Tribal 
Court, Crow Creek Sioux Tribe, filed September 14, 1997).

  The Standing Rock Sioux Tribe v. The American Tobacco Company, et al. 
(Tribal Court, Standing Rock Sioux Tribe, Standing Rock Sioux Indian 
Reservation, filed May 8, 1998). Plaintiff voluntarily dismissed the case 
during February of 2002. 

  The Sisseton-Wahpeton Sioux Tribe v. The American Tobacco Company, et al. 
(Tribal Court, Sisseton-Wahpeton Sioux Tribe, Sisseton-Wahpeton Sioux Indian 
Reservation, filed May 12, 1998).

  The Navajo Nation v. Philip Morris Incorporated, et al. (District Court, 
Navajo Nation, Judicial District of Window Rock, Arizona, filed August 12, 
1999).

                                     29

  The Alabama Coushatta Tribe of Texas v. American Tobacco Company, et al. 
(U.S. District Court, Eastern District, Texas, filed August 30, 2000). During 
2001, the court granted defendants' motion to dismiss the complaint and 
entered final judgment in their favor. Plaintiff has noticed an appeal from 
the final judgment to the U.S. Court of Appeals for the Fifth Circuit. 

  Reimbursement Cases by Private Companies and Health Plans or Hospitals and 
Hospital Districts - As of March 1, 2002, one case was pending against 
cigarette manufacturers in which the plaintiff is a not-for-profit insurance 
company. Lorillard is a defendant in the pending case. The Company is not a 
defendant in this matter. In addition, two cases are pending in which 
plaintiffs are hospitals or hospital districts. Lorillard is named as a 
defendant in both such cases. The Company is not named as a defendant in 
either of the cases filed by hospitals or hospital districts. In one 
additional suit, a city governmental entity and several hospitals or hospital 
districts are plaintiffs. The Company is a defendant in this case.

  Group Health Plan, Inc., et al. v. Philip Morris Incorporated, et al. (U.S. 
District Court, Minnesota, filed March 11, 1998). During January of 2002, the 
court entered an order granting defendants' motion for summary judgment. 
Plaintiffs have noticed an appeal to the U.S. Court of Appeals for the Eighth 
Circuit from the order that granted the motion for summary judgment.

  Blue Cross and Blue Shield of New Jersey, Inc., et al. v. Philip Morris, 
Incorporated, et al. (U.S. District Court, Eastern District, New York, filed 
April 29, 1998). During 2000, the court severed the claims of one of the plan 
plaintiffs, Empire Blue and Blue Shield ("Empire"), from those of the other 
claimants. On June 4, 2001, the jury returned a verdict awarding damages 
against the defendants, including Lorillard. In its June 4, 2001 verdict, the 
jury found in favor of the defendants on some of Empire's claims. One of the 
jury's findings precluded it from considering Empire's claims for punitive 
damages. The jury found in favor of Empire on certain other of plaintiff's 
claims. As a result of these findings, Empire is entitled to an award of 
approximately $17.8 million in total actual damages, including approximately 
$1.5 attributable to Lorillard. The court denied plaintiff's post-verdict 
application for trebling of the damages awarded by the jury. On November 1, 
2001, the court entered a final judgment that reflects the jury's verdict. In 
the final judgment, Empire was awarded approximately $1.5 million in actual 
damages and approximately fifty-five thousand dollars in pre-judgment interest 
for a total award against Lorillard of approximately $1.6 million. The 
defendants, including Lorillard, have noticed an appeal from the final 
judgment to the United States Court of Appeals for the Second Circuit. 
Plaintiff's counsel has sought an award of $39.0 million in attorneys' fees. 
During February of 2002, the court entered an order awarding plaintiffs' 
counsel approximately $37.8 million in fees. As of March 1, 2002, the deadline 
for defendants to seek appellate review of this ruling had not expired. This 
matter also is a part of the litigation described under the heading "Eastern 
District of New York Litigation" in Note 17 of the Notes to Consolidated 
Financial Statements, included in Item 8.

  A.O. Fox Memorial Hospital, et al. v. The American Tobacco Company, et al. 
(Supreme Court, Nassau County, New York, filed March 30, 2000). Plaintiffs are 
approximately 175 New York hospitals. During 2001, the court granted 
defendants' motion to dismiss the complaint and entered final judgment in 
their favor. Plaintiffs have noticed an appeal from the final judgment to the 
Appellate Division of the Supreme Court of New York, Second Judicial 
Department. 

  County of McHenry, Randolph Hospital District, et al. v. Philip Morris, 
Inc., et al. (Circuit Court, Cook County, Illinois, filed July 13, 2000).

  Betriebskrankenkasse aktiv, et al. v. Philip Morris, Inc., et al. (U.S. 
District Court, Eastern District, New York, filed September 8, 2000). 
Plaintiffs were eight private, not-for-profit German health insurance 
providers. Plaintiffs voluntarily dismissed the case during February of 2002. 

  Reimbursement Cases by Labor Unions - Seven reimbursement cases are pending 
in various federal or state courts in which the plaintiffs are labor unions, 
their trustees or their trust funds. Lorillard is a defendant in each of these 
suits. The Company is a defendant in two of the pending suits.

  Central Laborers Welfare Fund, et al. v. Philip Morris, Inc., et al. 
(Circuit Court, Madison County, Illinois, filed on or about June 9, 1997).

  Operating Engineers Local 12 Health and Welfare Trust, et al. v. American 
Tobacco Company, et al. (Superior Court, Los Angeles County, California, filed 
September 16, 1997). The case was transferred to a coordinated proceeding 
before the Superior Court of San Diego County, California. During 2000, 
plaintiffs voluntarily dismissed the case with prejudice. Plaintiffs 
subsequently noticed an appeal to the California Court of Appeal. In their 
notice of appeal, plaintiffs stated they voluntarily dismissed the case due to 
the limitations the trial court's pre-trial rulings placed on their claims. 
During 2001, the California Court of Appeal affirmed the trial court's final 
judgment and interlocutory rulings. During 2002, the California Supreme Court 
agreed to consider plaintiffs' appeal. 

                                     30

  National Asbestos Workers, et al. v. Philip Morris Incorporated, et al. 
(U.S. District Court, Eastern District, New York, filed February 27, 1998). 
The Company is a defendant in the case. This matter also is a part of the 
litigation described under the heading "Eastern District of New York 
Litigation" in Note 17 of the Notes to Consolidated Financial Statements, 
included in Item 8.

  Service Employees International Union Health & Welfare Fund, et al. v. 
Philip Morris, Inc., et al. (U.S. District Court, District of Columbia, filed 
March 19, 1998). During 2001, the U.S. Court of Appeals for the District of 
Columbia issued a ruling that the trial court erred in not granting in its 
entirety defendants' motion to dismiss the complaint and remanded the case to 
the trial court for further proceedings. An order dismissing the action has 
not been entered to date.

  S.E.I.U. v. Philip Morris, Inc., et al. (U.S. District Court, District of 
Columbia, filed June 22, 1998). To date, none of the defendants have received 
service of process. During 2001, the U.S. Court of Appeals for the District of 
Columbia issued a ruling that the trial court erred in not granting in its 
entirety defendants' motion to dismiss the complaint and remanded the case to 
the trial court for further proceedings. An order dismissing the action has 
not been entered to date.

  Holland, et al., Trustees of United Mine Workers v. Philip Morris 
Incorporated, et al. (U.S. District Court, District of Columbia, filed July 9, 
1998). During 2001, the U.S. Court of Appeals for the District of Columbia 
issued a ruling that the trial court erred in not granting in its entirety 
defendants' motion to dismiss the complaint and remanded the case to the trial 
court for further proceedings. An order dismissing the action has not been 
entered to date. 

  Bergeron, et al. v. Philip Morris Incorporated, et al. (U.S. District Court, 
Eastern District, New York, filed September 29, 1999). The Company is a 
defendant in the case. Plaintiffs are the trustees of the Massachusetts State 
Carpenters Health Benefits Fund. This matter also is a part of the litigation 
described under the heading "Eastern District of New York Litigation" in Note 
17 of the Notes to Consolidated Financial Statements, included in Item 8.

  Sheet Metal Workers Trust Fund, et al. v. Philip Morris, Inc., et al. (U.S. 
District Court, District of Columbia, filed August 31, 1999). During 2001, the 
U.S. Court of Appeals for the District of Columbia issued a ruling that the 
trial court erred in not granting in its entirety defendants' motion to 
dismiss the complaint and remanded the case to the trial court for further 
proceedings. An order dismissing the action has not been entered to date.

  Post-MSA Cases - In addition to the reimbursement cases, some suits have 
been filed contesting, in various methods, the 1998 Master Settlement 
Agreement (the "MSA"). Certain other actions have been filed in which 
plaintiffs seek to intervene in cases governed by the MSA in order to achieve 
a different distribution of the funds allocated by the MSA to the respective 
states. Several of these cases have been dismissed in recent years, either 
voluntarily by the plaintiffs or on defendants' adversarial motion. Lorillard 
is a defendant in one such pending case. The Company is not a party to the 
pending post-MSA case.

CONTRIBUTION CLAIMS -

  In addition to the foregoing cases, approximately 15 cases are pending in 
which private companies seek recovery of funds expended by them to individuals 
whose asbestos disease or illness was alleged to have been caused in whole or 
in part by smoking-related illnesses. Lorillard is named as a defendant in 
each action, although it has not received service of process in one of the 
cases. The Company is named as a defendant in four of the cases but has not 
received service of process in two of them. 

  Raymark Industries v. R.J. Reynolds Tobacco Company, et al. (Circuit Court, 
Duval County, Florida, filed September 15, 1997). The Company is a defendant 
in the case but has not received service of process to date.

  Fibreboard Corporation and Owens-Corning v. The American Tobacco Company, et 
al. (Superior Court, Alameda County, California, filed December 11, 1997). 

  Keene Creditors Trust v. Brown & Williamson Tobacco Corporation, et al. 
(Supreme Court, New York County, New York, filed December 19, 1997). The 
Company is a defendant in the case.

  Raymark Industries v. R.J. Reynolds Tobacco Co., et al. (Circuit Court, 
Duval County, Florida, filed December 31, 1997). To date, none of the 
defendants have received service of process.

  Raymark Industries v. The American Tobacco Company, et al. (U.S. District 
Court, Eastern District, New York, filed January 30, 1998). This matter also 
is a part of the litigation described under the heading "Eastern District of 
New York Litigation" in Note 17 of the Notes to Consolidated Financial 
Statements, included in Item 8.

  Owens Corning v. R.J. Reynolds Tobacco Company, et al., (Circuit Court, 
Jefferson County, Mississippi, filed August 21, 1998). The Company is a 
defendant in the case. Owens Corning and several individual plaintiffs 
asserted claims in

                                     31

the suit. During 2000, the court granted defendants' motion to sever Owens 
Corning's from those of the individual plaintiffs. During 2001, the court 
granted defendants' motion for summary judgment as to Owens Corning's claims 
and entered final judgment in favor of the defendants. Owens Corning has 
noticed an appeal from the final judgment to the Mississippi Supreme Court. 

  UNR Asbestos-Disease Claims Trust v. Brown & Williamson Tobacco Corporation, 
et al. (Supreme Court, New York County, New York, filed March 12, 1999). The 
Company is a defendant in the case but has not received service of process.

  Combustion Engineering, Inc., et al. v. RJR Nabisco, Inc., et al. (Circuit 
Court, Jefferson County, Mississippi, filed December 18, 2000). 

  Gasket Holdings, Inc., et al. v. RJR Nabisco, Inc., et al. (Circuit Court, 
Jefferson County, Mississippi, filed December 18, 2000). 

  Kaiser Aluminum & Chemical Corporation, et al. v. RJR Nabisco, Inc., et al. 
(Circuit Court, Jefferson County, Mississippi, filed December 18, 2000). 

  T&N, Ltd., et al. v. RJR Nabisco, Inc., et al. (Circuit Court, Jefferson 
County, Mississippi, filed December 18, 2000). 

  Gasket Holdings, Inc., et al. v. RJR Nabisco, Inc., et al. (Chancery Court, 
Claiborne County, Mississippi, filed April 18, 2001). 

  W.R. Grace & Co. Conn, et al. v. RJR Nabisco, Inc., et al. (Circuit Court, 
Jefferson County, Mississippi, filed April 24, 2001). 

FILTER CASES -

  A number of cases have been filed against Lorillard seeking damages for 
cancer and other health effects claimed to have resulted from exposure to 
asbestos fibers which were incorporated, for a limited period of time, ending 
more than 40 years ago, into the filter material used in one of the brands of 
cigarettes manufactured by Lorillard. Approximately 30 filter cases are 
pending in federal and state courts against Lorillard. The Company is not a 
defendant in any of the pending filter cases.

  In certain of these cases, the manufacturer and supplier of the filter 
material, Hollingsworth & Vose Company, also is a defendant. In addition, two 
matters are pending against Hollingsworth & Vose Company in which Lorillard is 
not a party. Lorillard has agreed to indemnify Hollingsworth & Vose Company 
with respect to these matters, including the two cases in which Lorillard is 
not named as a defendant.

TOBACCO-RELATED ANTITRUST CASES -

  Wholesalers and Direct Purchaser Suits - Lorillard and other domestic and 
international cigarette manufacturers and their parent companies, including 
the Company, were named as defendants in nine separate federal court actions 
brought by tobacco product wholesalers for violations of U.S. antitrust laws 
and international law. The complaints allege that defendants conspired to fix 
the price of cigarettes to wholesalers since 1993 in violation of the Sherman 
Act. These actions seek certification of a class including all domestic and 
international wholesalers similarly affected by such alleged conduct, and 
damages, injunctive relief and attorneys' fees. These actions were 
consolidated for pre-trial purposes in the U.S. District Court for the 
Northern District of Georgia. The Court has granted class certification for a 
four-year class (beginning in 1996 and ending in 2000) of domestic direct 
purchasers. In February of 2002, Lorillard and the other defendants filed 
motions for summary judgment seeking to dismiss the actions in their entirety. 
The Company has been voluntarily dismissed without prejudice from all direct 
purchaser cases. 

  The following suits filed by wholesalers and other direct purchasers of 
cigarettes have been served:

  The case of Amsterdam Tobacco Company, et al. v. Philip Morris Companies, 
Inc., et al. (U.S. District Court, District of Columbia, filed March 6, 2000). 
The case has been transferred to a Multi-District Litigation Proceeding 
pending in the U.S. District Court for the Northern District of Georgia. The 
court has entered the parties' stipulation dismissing the Company from the 
case without prejudice. The case continues as to Lorillard.

  The case of I. Goldschlack Company v. Philip Morris Companies, Inc., et al. 
(U.S. District Court, Eastern District, Pennsylvania, filed March 9, 2000). 
The case has been transferred to a Multi-District Litigation Proceeding 
pending in the U.S. District Court for the Northern District of Georgia. The 
court has entered the parties' stipulation dismissing the Company from the 
case without prejudice. The case continues as to Lorillard.

                                     32

  The case of Suwanee Swifty Stores, Inc., et al. v. Philip Morris Companies, 
Inc., et al. (U.S. District Court, Northern District, Georgia, filed March 14, 
2000). The case has been transferred to a Multi-District Litigation Proceeding 
pending in the U.S. District Court for the Northern District of Georgia. The 
court has entered the parties' stipulation dismissing the Company from the 
case without prejudice. The case continues as to Lorillard.

  The case of Holiday Markets, Inc., et al. v. Philip Morris Companies, Inc., 
et al. (U.S. District Court, Northern District, Georgia, filed March 17, 
2000). The case has been transferred to a Multi-District Litigation Proceeding 
pending in the U.S. District Court for the Northern District of Georgia. The 
court has entered the parties' stipulation dismissing the Company from the 
case without prejudice. The case continues as to Lorillard.

  The case of Marcus Distributors v. Philip Morris Companies, Inc., et al. 
(U.S. District Court, Southern District, Illinois, filed April 25, 2000). The 
court has approved the plaintiffs' motion to voluntarily dismiss the case 
without prejudice. The case has been transferred to a Multi-District 
Litigation Proceeding pending in the U.S. District Court for the Northern 
District of Georgia. The case continues as to Lorillard.

  The case of Hartz Foods v. Philip Morris Companies, Inc., et al. (U.S. 
District Court, District of Columbia, filed May 10, 2000). The Company was 
initially named a defendant, but Plaintiff did not serve the Company. The case 
has been transferred to a Multi-District Litigation Proceeding pending in the 
U.S. District Court for the Northern District of Georgia. The case continues 
as to Lorillard.

  In the case of Buffalo Tobacco Products, et al. v. Philip Morris Companies, 
Inc., et al. (U.S. District Court, District of Columbia, filed February 8, 
2000), the court entered an order granting the parties' stipulation dismissing 
the Company without prejudice. The case has been transferred to a Multi-
District Litigation Proceeding pending in the U.S. District Court for the 
Northern District of Georgia. The case continues as to Lorillard.

  In the case of Rog-Glo Ltd. v. R.J. Reynolds Tobacco Company, et al. (U.S. 
District Court, Southern District, New York, filed February 8, 2000), 
plaintiff voluntarily dismissed the case without prejudice.

  In the case of Williamson Oil Company Inc. v. Philip Morris Companies, Inc., 
et al. (U.S. District Court, Northern District, Georgia, filed February 28, 
2000), the court has entered the parties' stipulation dismissing the Company 
from the case without prejudice. The case has been transferred to a Multi-
District Litigation Proceeding pending in the U.S. District Court for the 
Northern District of Georgia. The case continues as to Lorillard.

  The Company and Lorillard were named as defendants in nine direct purchaser 
suits alleging price-fixing in connection with the sale of cigarettes and 
purporting to represent a class of indirect purchasers. The court has granted 
the motion of one of the plaintiffs to voluntary dismiss its complaint. The 
remaining direct purchaser actions were transferred by the Judicial Panel on 
Multi-District Litigation to the U.S. District Court for the Northern District 
of Georgia. Plaintiffs subsequently filed a single amended complaint that 
consolidated the claims of the plaintiffs in the transferred cases into a 
single class action. The amended complaint names Lorillard but not the Company 
as a defendant, and the Company has been voluntarily dismissed from the 
action. The case continues as to Lorillard. The court certified a four-year 
class of direct purchasers. Pre-trial discovery has been completed. 
Defendants' filed motions for summary judgment seeking to dismiss the action 
in its entirety.

  Indirect Purchaser Suits - Approximately 30 suits are pending in various 
state courts alleging violations of state antitrust laws which permit indirect 
purchasers, such as retailers and consumers, to sue under price fixing or 
consumer fraud statutes. Approximately 18 states permit such suits. Lorillard 
is a defendant in all but one of these indirect purchaser cases. Two indirect 
purchaser suits, in Arizona and New York, have been dismissed in their 
entirety. The Company was also named as a defendant in most of these indirect 
purchaser cases but has been voluntarily dismissed without prejudice from all 
of them. 

  The case of Smith v. Philip Morris Companies, Inc., et al. (District Court, 
Seward County, Kansas, filed February 7, 2000). The Company has been dismissed 
as a defendant in the case. The case continues as to Lorillard. The court 
denied defendants' motion to dismiss. The court granted certification of a 
class of consumers and pre-trial discovery is ongoing.

  The case of Nierman v. Philip Morris Companies, Inc., et al. (Supreme Court, 
New York County, New York, filed March 6, 2000). The court dismissed the case 
in its entirety as to all defendants.

  The case of Sylvester v. Philip Morris Companies, Inc., et al. (Supreme 
Court, New York County, New York, filed March 8, 2000). The court dismissed 
the case in its entirety as to all defendants.

  The case of Taylor v. Philip Morris Companies, et al. (Superior Court, 
Cumberland County, Maine, filed March 24, 2000). The court has approved the 
parties' stipulation dismissing the Company from the case without prejudice. 
The case

                                     33

continues as to Lorillard. The court denied defendants' motion to dismiss.

  The case of Belch v. R.J. Reynolds Tobacco Company, et al. (Superior Court, 
Alameda County, California, filed April 11, 2000). The Company was named as a 
defendant in the case but is no longer a party to the suit. The case continues 
as to Lorillard. The case has been assigned to a coordinated proceeding in the 
Superior Court of Alameda County, California.

  The case of Belmonte v. R.J. Reynolds Tobacco Company, et al. (Superior 
Court, Alameda County, California, filed April 11, 2000). The Company was 
named as a defendant in the case but is no longer a party to the suit. The 
case continues as to Lorillard. The case has been assigned to a coordinated 
proceeding in the Superior Court of Alameda County, California.

  The case of Shafer v. Philip Morris Companies, Inc., et al. (District Court, 
South Central Judicial District, Morton County, North Dakota, filed April 18, 
2000). The Company was a defendant in the case. The court has entered an order 
approving plaintiff's motion voluntarily dismissing the Company without 
prejudice from the case. The court has entered final judgment in favor of the 
Company reflecting the dismissal order. The case continues as to Lorillard.

  The case of Swanson v. Philip Morris Companies, Inc., et al. (Circuit Court, 
Hughes County, South Dakota, filed April 18, 2000). The court has approved the 
parties' stipulation dismissing the Company from the case without prejudice. 
The case continues as to Lorillard.

  The case of Kissel v. Philip Morris Companies, Inc., et al. (Circuit Court, 
Brooke County, West Virginia, filed May 2, 2000). The court has approved the 
parties' stipulation dismissing the Company from the case without prejudice. 
The case continues as to Lorillard. The court denied defendants' motion to 
dismiss.

  The case of Cusatis v. Philip Morris Companies, Inc., et al. (Circuit Court, 
Milwaukee County, Wisconsin, filed May 5, 2000). The court has entered an 
order granting plaintiff's motion to voluntarily dismiss the Company from the 
case without prejudice. The case continues as to Lorillard.

  The case of Barnes v. Philip Morris Companies, Inc., et al. (Superior Court, 
District of Columbia, filed May 11, 2000). The court has entered an order 
granting plaintiff's motion to voluntarily dismiss the Company from the case 
without prejudice. The case continues as to Lorillard.

  The case of Aguayo v. R.J. Reynolds Tobacco Company, et al. (Superior Court, 
Alameda County, California, filed May 15, 2000). The Company was named as a 
defendant in the case but is no longer a party to the suit. The case continues 
as to Lorillard. The case has been assigned to a coordinated proceeding in the 
Superior Court of Alameda County, California.

  The case of Campe v. R.J. Reynolds Tobacco Company, et al. (Superior Court, 
Alameda County, California, filed May 15, 2000). The Company was named as a 
defendant in the case but is no longer a party to the suit. The case continues 
as to Lorillard. The case has been assigned to a coordinated proceeding in the 
Superior Court of Alameda County, California.

  The case of Phillips v. R.J. Reynolds Tobacco Company, et al. (Superior 
Court, Alameda County, California, filed May 15, 2000). The Company was named 
as a defendant in the case but is no longer a party to the suit. The case 
continues as to Lorillard. The case has been assigned to a coordinated 
proceeding in the Superior Court of Alameda County, California.

  The case of Lau v. R.J. Reynolds Tobacco Company, et al. (Superior Court, 
Alameda County, California, filed May 25, 2000). The Company was named as a 
defendant in the case but is no longer a party to the suit. The case continues 
as to Lorillard. The case has been assigned to a coordinated proceeding in the 
Superior Court of Alameda County, California. 

  The case of Unruh v. R.J. Reynolds Tobacco Company, et al. (Second Judicial 
District Court, Washoe County, Nevada, filed June 9, 2000). The Company is not 
named as a defendant in this matter. The case continues as to Lorillard. The 
complaint was amended and the case was renamed Pooler v. R.J. Reynolds Tobacco 
Co., et al. The court denied defendants' motion to dismiss.

  The case of Baker v. R.J. Reynolds Tobacco Company, et al. (Superior Court, 
Alameda County, California, filed June 15, 2000). The Company was named as a 
defendant in the case but is no longer a party to the suit. The case continues 
as to Lorillard. The case has been assigned to a coordinated proceeding in the 
Superior Court of Alameda County, California. 

                                     34

  The case of In re Cigarette Antitrust Cases, (Judicial Counsel Coordination 
Proceeding 4114, Superior Court of Alameda County, California). Approximately 
twenty indirect purchaser suits under California state law were filed in state 
courts in various California counties. The Company and Lorillard were named as 
defendants in each of the cases. The actions were subsequently transferred for 
coordination to the Superior Court for Alameda County, California. Plaintiffs 
have filed a single amended class action complaint with each of the plaintiffs 
who brought the original complaints named as plaintiffs. The amended complaint 
names Lorillard as a defendant but did not name the Company, which plaintiffs 
had dismissed from each of the underlying suits. The case continues as to 
Lorillard.

  In the case of Brownstein v. Philip Morris Companies, Inc., et al. (Circuit 
Court, Broward County, Florida, filed February 8, 2000), the court has entered 
a stipulation dismissing the Company from the case without prejudice. The case 
continues as to Lorillard.

  In the case of Del Serrone v. Philip Morris Companies, Inc., et al. (Circuit 
Court, Wayne County, Michigan, filed February 8, 2000), the court has entered 
a stipulation dismissing the Company from the case without prejudice. The case 
continues as to Lorillard. The court denied defendants' motion to dismiss. 
Pre-trial discovery has been completed. Class certification proceedings 
pending and defendants' have filed motions for summary judgment. 

  In the case of Gray v. Philip Morris Companies, Inc., et al. (Superior 
Court, Pima County, Arizona, filed February 11, 2000), the court dismissed the 
case in its entirety as to all defendants. The case is on appeal.

  In the case of Lennon v. Philip Morris Companies, Inc., et al. (Supreme 
Court, New York County, New York, filed February 9, 2000), the court dismissed 
the case in its entirety as to all defendants.

  In the case of Ludke v. Philip Morris Companies, Inc., et al. (District 
Court, Hennepin County, Minnesota, filed February 14, 2000), the court has 
entered the parties' stipulation dismissing the Company from the case without 
prejudice. The case continues as to Lorillard. The court granted defendants' 
motion to dismiss claims under Minnesota's consumer fraud statute and 
deceptive trade practices statute. The claim under Minnesota's state antitrust 
statute remains. The court denied class certification.

  In the case of Romero v. Philip Morris Companies, Inc., et al. (U.S. 
District Court, New Mexico, filed February 9, 2000), the court has entered the 
parties' stipulation dismissing the Company from the case without prejudice. 
The case continues as to Lorillard. The court dismissed the claim under New 
Mexico's deceptive trade practices statute. The claim under New Mexico's state 
antitrust statute remains.

  In the case of Withers v. Philip Morris Companies, Inc., et al. (Circuit 
Court, Jefferson County, Tennessee, filed February 9, 2000), plaintiffs 
voluntarily dismissed the case against all defendants without prejudice when 
the named plaintiff died. The plaintiffs refiled the case, but did not name 
Lorillard or the Company as a defendant.

  Tobacco Growers Suit - DeLoach v. Philip Morris Inc., et al. (U.S. District 
Court, Middle District of North Carolina, filed February 16, 2000). Lorillard 
is named as a defendant in a lawsuit that, after several amendments, alleges 
only antitrust violations. The other major domestic tobacco companies are also 
presently named as defendants, and the plaintiffs have now added the major 
leaf buyers as defendants. This case was originally filed in U.S. District 
Court, District of Columbia, and transferred to a North Carolina federal court 
upon motion by the defendants. Plaintiffs seek certification of a class 
including all tobacco growers and quota holders (the licenses that a farmer 
must either own or rent to sell the crop), who sold tobacco or held quota 
under the federal tobacco leaf price support program since February of 1996. 
The plaintiffs' claims relate to the conduct of the companies in the purchase 
of tobacco through the auction system under the federal program. The suit 
seeks an unspecified amount of actual damages, trebled under the antitrust 
laws, and injunctive relief. 


Item 4. Submission of Matters to a Vote of Security Holders.

  Set forth below is information relating to the 2002 Special Meeting of 
Shareholders of the Company.

  The special meeting was called to order at 11:00 A.M., January 4, 2002. 
Represented at the meeting, in person or by proxy, were 165,334,181 shares, 
approximately 86.3% of the issued and outstanding shares entitled to vote.

  The following business was transacted:

Approval of an amendment to the Company's Certificate of Incorporation 
-----------------------------------------------------------------------
creating Carolina Group Stock
-----------------------------

  Approved - 127,671,823 shares voted to approve an amendment to the Company's 
Certificate of Incorporation by which the Company's Carolina Group Stock was 
created. 35,760,806 shares voted against, and 1,901,552 shares abstained.

                                     35

Approval of the Carolina Group 2002 Stock Option Plan
-----------------------------------------------------

  Approved - 116,458,210 shares voted to approve the adoption of the Carolina 
Group 2002 Stock Option Plan. 47,253,405 shares voted against, and 1,622,565 
shares abstained. In addition, there was one share as to which brokers 
indicated that they did not have authority to vote.


<TABLE>
<CAPTION>

                    EXECUTIVE OFFICERS OF THE REGISTRANT

                                                                        First
                                                                        Became
      Name                    Position and Offices Held       Age      Officer
------------------------------------------------------------------------------
<s>                         <c>                                <c>        <c>
Susan Becker ............   Vice President-Tax                 41         2002
Jason Boxer .............   Vice President-Real Estate         31         2001
Gary W. Garson ..........   Vice President and                 55         1988
                             Assistant Secretary              
Barry Hirsch ............   Senior Vice President and          68         1971
                             Secretary                        
Herbert C. Hofmann ......   Senior Vice President              59         1979
Peter W. Keegan .........   Senior Vice President and          57         1997
                             Chief Financial Officer          
John J. Kenny ...........   Treasurer                          64         1991
Guy A. Kwan .............   Controller                         59         1987
Alan Momeyer ............   Vice President-Human Resources     54         1996
Richard E. Piluso .......   Vice President-Internal Audit      63         1990
Arthur L. Rebell ........   Senior Vice President and          60         1998
                             Chief Investment Officer
Andrew H. Tisch .........   Office of the President and        52         1985
                             Chairman of the Executive
                             Committee                        
James S. Tisch ..........   Office of the President,           49         1981
                             President and Chief Executive
                             Officer
Jonathan M. Tisch .......   Office of the President            48         1987
Laurence A. Tisch .......   Co-Chairman of the Board           79         1959
Preston R. Tisch ........   Co-Chairman of the Board           75         1960
</TABLE>


  Laurence A. Tisch and Preston R. Tisch are brothers. Andrew H. Tisch and 
James S. Tisch are sons of Laurence A. Tisch and Jonathan M. Tisch is a son of 
Preston R. Tisch. None of the other officers or directors of Registrant is 
related to any other.

  All executive officers of Registrant, except Jason Boxer and Arthur L. 
Rebell, have been engaged actively and continuously in the business of 
Registrant for more than the past five years. Prior to being named Vice 
President - Real Estate in February 2001, Jason Boxer served in various 
capacities within the Registrant's real estate department since 1998. Prior 
thereto, he had been an associate attorney with the law firm of Battle Fowler, 
LLP since 1995. Arthur L. Rebell has been a senior vice president of the 
Company since June of 1998. Prior to joining Loews, during 1997 and 1998 he 
was an associate professor of Mergers and Acquisitions at New York University, 
a Managing Director of Highview Capital and a Partner in Strategic Investors. 
Prior to that he was a Managing Director of Schroders. Prior to being named 
Vice President-Tax in 2002, Susan Becker held various positions in 
Registrant's tax department, most recently as an Assistant Vice President.

  Officers are elected and hold office until their successors are elected and 
qualified, and are subject to removal by the Board of Directors.

                                     36


                                     PART II


Item 5. Market for the Registrant's Common Stock and Related Stockholder
        Matters.

Price Range of Common Stock*

  Loews Corporation's common stock is listed on the New York Stock Exchange. 
The following table sets forth the reported consolidated tape high and low 
sales prices in each calendar quarter of 2001 and 2000:


<TABLE>
<CAPTION>
                                      2001                         2000
                              ------------------------------------------------
                               High           Low           High          Low
------------------------------------------------------------------------------
<s>                           <c>           <c>            <c>          <c>   
First Quarter ............    $59.95        $44.00        $ 30.56       $19.13
Second Quarter ...........     72.50         56.51          34.06        24.63
Third Quarter ............     63.82         41.05          44.38        29.81
Fourth Quarter ...........     58.00         44.55          52.47        37.25
</TABLE>


Dividend Information*

  The Company has paid quarterly cash dividends on its common stock in each 
year since 1967. Regular dividends of $.13 per share of common stock were paid 
in each calendar quarter of 2000 and in the first calendar quarter of 2001. 
The Company increased its dividend to $.15 per share beginning in the second 
calendar quarter of 2001.

Approximate Number of Equity Security Holders

  The Company has approximately 2,100 holders of record of Loews Common Stock 
and 5 holders of record of Carolina Group stock.

* Per share amounts have been adjusted to give retroactive effect to the two-
for-one stock split effective March 21, 2001.

                                     37


Item 6. Selected Financial Data.


<TABLE>
<CAPTION>


Year Ended December 31                 2001         2000          1999         1998         1997
------------------------------------------------------------------------------------------------
(In millions, except per share data)


<s>                               <c>          <c>          <c>           <c>         <c>
Results of Operations:
Revenues(1)  . . . . . . . . . .  $19,417.2    $21,251.2    $21,442.7     $21,296.0   $20,266.6
(Loss) income before taxes,
  minority interest and
  cumulative effect of 
  accounting changes-net . . . .  $  (813.1)   $ 3,205.9    $   944.2     $ 1,077.4   $ 1,593.2
(Loss) income before cumulative
  effect of accounting changes .  $  (535.8)   $ 1,876.7    $   521.1     $   464.8   $   793.6
Cumulative effect of changes in
  accounting principles-net  . .      (53.3)                   (157.9)
------------------------------------------------------------------------------------------------
Net (loss) income  . . . . . . .  $  (589.1)   $ 1,876.7    $   363.2     $   464.8   $   793.6
================================================================================================ 

(Loss) Income Per Share (2):

(Loss) income before cumulative
  effect of accounting changes .  $   (2.75)   $    9.44    $    2.40     $    2.03   $    3.45
Cumulative effect of changes in
  accounting principles-net  . .       (.27)                     (.73)
------------------------------------------------------------------------------------------------
Net (loss) income  . . . . . . .  $   (3.02)   $    9.44    $    1.67     $    2.03   $    3.45
================================================================================================

Financial Position:

Investments  . . . . . . . . . .  $41,159.1    $41,332.7    $40,633.0    $ 42,705.2   $41,619.1
Total assets . . . . . . . . . .   75,251.1     71,841.5     69,463.7      70,979.4    69,983.1
Long-term debt . . . . . . . . .    5,920.3      6,040.0      5,706.3       5,966.7     5,752.6
Shareholders' equity . . . . . .    9,649.3     11,191.1      9,977.7      10,201.2     9,665.1
Cash dividends per share (2) . .        .58          .50          .50           .50         .50
Book value per share (2) . . . .      50.39        56.74        47.75         45.31       42.02
Shares of common stock
  Outstanding (2). . . . . . . .      191.5        197.2        209.0         225.2       230.0
------------------------------------------------------------------------------------------------

(1)  Certain amounts applicable to prior periods have been reclassified to conform to the 
     presentation followed in 2001.

(2)  Share and per share amounts have been adjusted to give retroactive effect to the two-for-
     one stock split effective March 21, 2001.
</TABLE>


                                     38



Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations.


OVERVIEW

Loews Corporation reported a loss for the year ended 2001 of $589.1 million or 
$3.02 per share, compared to net income of $1,876.7 million or $9.44 per share 
in 2000. The net loss was primarily attributable to CNA's second quarter 
reserve charge of $1.8 billion and losses of $264.6 million at CNA related to 
the World Trade Center attack and related events, as well as the fourth 
quarter restructuring and other charges at CNA, and a charge of $121.0 million 
after-taxes at Lorillard in the second quarter related to the agreement with 
the Engle class.

The net loss in 2001 includes net investment gains of $792.2 million or $4.06 
per share compared to gains of $577.1 million or $2.90 per share in the prior 
year. The net loss also includes a charge for an accounting change of $53.3 
million or $.27 per share, related to the adoption by CNA of a new accounting 
standard for derivative instruments.

Net operating income (loss) is calculated by deducting net investment gains or 
losses (investment gains or losses after deduction of related income taxes and 
minority interests) and the cumulative effect of a change in accounting 
principle, net of tax and minority interest, from net income (loss). Analysts 
following our stock have advised us that such information is meaningful in 
assisting them in measuring the performance of our insurance subsidiaries. In 
addition, it is used in management's discussion of the results of operations 
for the insurance related segments due to the significance of the amount of 
net investment gains or losses. Net operating income (loss) is also a common 
measure throughout the insurance industry. Net realized investment gains are 
excluded from this operating measure because investment gains or losses 
related to CNA's available-for-sale investment portfolio are largely 
discretionary, are generally driven by economic factors that are not 
necessarily consistent with key drivers of underwriting performance, and are 
therefore not an indication of trends in operations.

Net income for the quarter ended December 31, 2001 was $188.1 million or $.98 
per share, compared to $502.9 million or $2.55 per share in 2000. Net 
investment gains amounted to $236.7 million in the fourth quarter of 2001, 
compared to gains of $172.6 million in the fourth quarter of 2000.

Net operating loss, which excludes net investment gains and losses, for the 
fourth quarter was $48.6 million or $.26 per share, compared to net operating 
income of $330.3 million or $1.67 per share in 2000. The lower results in the 
current quarter are primarily due to charges of $110.8, $46.1 and $61.2 
million, after-taxes and minority interest, at CNA related to restructuring 
and other related charges, Enron related losses, and reserve strengthening 
primarily for the current accident year, respectively.

Revenues for the year ended 2001 were $19.4 billion, compared to $21.3 billion 
in 2000. Revenues for the year ended 2001 declined due primarily to lower 
earned premiums for CNA's Property-Casualty business.

At year end 2001, Loews Corporation had a book value of $50.39 per share 
compared to $56.74 per share in 2000.

Issuance Of Carolina Group Tracking Stock

On January 4, 2002 the shareholders of Loews Corporation authorized and 
approved the creation of a new class of common stock of the Company, called 
Carolina Group stock and on February 6, 2002 in an initial public offering the 
Company issued 40.3 million shares of Carolina Group stock.

The Carolina Group stock, commonly called a tracking stock, is intended to 
reflect the economic performance of a defined group of assets and liabilities 
of the Company referred to as the Carolina Group. The Company has attributed 
the following assets and liabilities to the Carolina Group:

  (a) The Company's 100% stock ownership interest in Lorillard, Inc.;

  (b) $2.5 billion of notional, intergroup debt owed by the Carolina Group to 
the Loews Group, bearing interest at the annual rate of 8.0% and, subject to 
optional prepayment, due December 31, 2021; 

  (c) any and all liabilities, costs and expenses of the Company and 
Lorillard, Inc. and the subsidiaries and predecessors of Lorillard, Inc., 
arising out of or related to tobacco or otherwise arising out of the past, 
present or future business of Lorillard, Inc. or its subsidiaries or 
predecessors, or claims arising out of or related to the sale of any 
businesses previously sold by Lorillard, Inc. or its subsidiaries or 
predecessors, in each case, whether grounded in tort, contract, statute or 
otherwise, whether pending or asserted in the future;

  (d) all net income or net losses arising from the assets and liabilities 
that are reflected in the Carolina Group and all net proceeds from any 
disposition of those assets, in each case, after deductions to reflect 
dividends paid to holders of Carolina Group stock or credited to the Loews 
Group in respect of its intergroup interest; and

  (e) any acquisitions or investments made from assets reflected in the 
Carolina Group.

Holders of Carolina Group stock have an approximately 23.17% economic interest 
in the Carolina Group.

The Loews Group consists of all of the Company's assets and liabilities other 
than the 23.17% economic interest in the Carolina Group represented by the 
outstanding Carolina Group stock, and includes as an asset the notional 
intergroup debt of the Carolina Group referred to above.

The creation of the Carolina Group and the issuance of Carolina Group stock 
does not change the Company's ownership of Lorillard, Inc. or Lorillard, 
Inc.'s status as a separate legal entity. The Carolina Group and the Loews 
Group are notional groups that are intended to reflect the performance of the 
defined sets of assets and liabilities

                                     39

of each such group as described above. The Carolina Group and the Loews Group 
are not separate legal entities and the attribution of assets and liabilities 
to the Loews Group or the Carolina Group does not affect title to the assets 
or responsibility for the liabilities.

Holders of the Company's common stock and of Carolina Group stock are 
shareholders of Loews Corporation and are subject to the risks related to an 
equity investment in Loews Corporation.



RESULTS OF OPERATIONS BY BUSINESS SEGMENT

CNA

Insurance operations are conducted by subsidiaries of CNA Financial 
Corporation ("CNA"). CNA is an 89% owned subsidiary of the Company.

CNA underwent significant management changes, strategic realignment and 
restructuring in the second half of 2001. These management changes as well as 
the strategic realignment and restructuring have changed the way CNA manages 
its operations and makes business decisions; and therefore, necessitated a 
change in CNA's reportable segments.

The changes made to CNA's reportable segments were as follows: (i) Commercial 
Insurance and CNA Excess & Select (formerly included in Agency Market 
Operations) and Risk Management Operations, were combined into Standard Lines; 
(ii) CNA Pro, CNA HealthPro, CNA Guaranty and Credit (formerly included in 
Specialty Operations) and Global Operations were combined into Specialty 
Lines; (iii) losses and expenses related to the centralized adjusting and 
settlement of environmental pollution and other mass tort and asbestos 
("APMT") claims previously included in Commercial Insurance, CNA Excess & 
Select, Risk Management and Global Operations are now included in the Other 
Insurance segment; and (iv) Personal Insurance, CNA UniSource, agriculture 
insurance, entertainment insurance and other financial lines were moved from 
the various property-casualty segments to the Other Insurance segment. CNA Re, 
Group Operations and Life Operations are unchanged from the prior segment 
presentation.

CNA now conducts its operations through five operating groups: Standard Lines, 
Specialty Lines and CNA Re (these groups comprise the Company's Property-
Casualty segment); Group Operations and Life Operations. In addition to these 
five operating segments, certain other activities are reported in the Other 
Insurance segment. These segments reflect the way CNA manages its operations 
and makes business decisions. Segment disclosures of prior periods have been 
modified to conform with the current year presentation.

World Trade Center Event

During the third quarter of 2001, CNA experienced a severe catastrophe loss 
estimated at $468.0 million pretax, net of reinsurance, related to the 
September 11, 2001 World Trade Center disaster and related events ("WTC 
event"). The loss estimate is based on a total industry loss of $50.0 billion 
and includes all lines of insurance. The current estimate takes into account 
CNA's substantial reinsurance agreements, including its catastrophe 
reinsurance program and corporate reinsurance programs. These loss estimates 
are subject to considerable uncertainty. Subsequent developments on claims 
arising out of the WTC event, as well as the collectibility of reinsurance 
recoverables, could result in an increase in the total estimated net loss, 
which could be material to CNA's results of operations.

The following table provides management's estimate of losses related to the 
WTC event on a gross basis (before reinsurance) and a net basis (after 
reinsurance) on CNA's operating segments:


<TABLE>
<CAPTION>

                                                                                        Net of
                                                                                          Tax
                                                     Pretax    Aggregate    Total         and
                                            Gross     Net      Reinsurance  Pretax      Minority
Year Ended December 31, 2001               Losses   Impact (a)   Benefit    Impact      Interest
------------------------------------------------------------------------------------------------
(In millions)

<s>                                       <c>       <c>        <c>          <c>         <c>

Standard Lines                           $  375.0   $ 185.0     $108.0      $ 77.0       $ 44.0
Specialty Lines                             214.0      30.0       12.0        18.0         11.0
CNA Re                                      662.0     410.0      139.0       271.0        154.0
------------------------------------------------------------------------------------------------
Total Property and Casualty               1,251.0     625.0      259.0       366.0        209.0
Group Operations                            322.0      80.0                   80.0         46.0
Life Operations                              75.0      22.0                   22.0         12.0
------------------------------------------------------------------------------------------------

Total                                    $1,648.0   $ 727.0     $259.0      $468.0       $267.0
================================================================================================

(a) Pretax impact of the WTC event before the corporate aggregate reinsurance treaties. The net 
    impact includes $85.0 of reinstatement and additional premiums.
</TABLE>


                                     40

Second Quarter 2001 Prior Year Reserve Strengthening

During the second quarter of 2001, CNA noted the continued emergence of 
adverse loss experience across several lines of business related to prior 
years that are discussed in further detail below. CNA completed a number of 
reserve studies during the second quarter of 2001 for many of its lines of 
business, including those in which these adverse trends were noted. With 
respect to APMT reserves, CNA reviewed internal claims data as well as studies 
generated by external parties, including a significant industry analysis of 
asbestos and environmental pollution exposures by an international rating 
agency. As a result of these various reviews, management concluded that 
ultimate losses, including losses for APMT claims, would be higher in the 
range of possible outcomes than previously estimated. CNA recorded charges of 
$2.6 billion ($1.5 billion after-tax and minority interest), net of the 
related corporate aggregate reinsurance treaty benefit, to strengthen reserves 
associated with a change in estimate of prior year net loss reserves, 
including $1.2 billion pretax ($.7 billion after-tax and minority interest) 
related to APMT.

The second quarter 2001 reserve strengthening and related items comprising the 
amounts noted above are detailed by segment in the following table:


<TABLE>
<CAPTION>

                                             Standard   Specialty              Other
Year Ended December 31, 2001                   Lines      Lines    CNA Re   Insurance    Total
------------------------------------------------------------------------------------------------
(In millions)

<s>                                         <c>       <c>        <c>       <c>         <c>
Net reserve strengthening excluding
 the impact of the corporate aggregate
 reinsurance treaty:
  APMT                                                           $  57.0   $ 1,140.0  $1,197.0
  Non-APMT                                 $ 523.0    $407.0       574.0        90.0   1,594.0
------------------------------------------------------------------------------------------------

Total                                        523.0     407.0       631.0     1,230.0   2,791.0
Pretax benefit from corporate aggregate
 reinsurance treaty on accident year 1999   (197.0)                (26.0)               (223.0)*
Accrual for insurance-related assessments     48.0                                        48.0
------------------------------------------------------------------------------------------------

Net reserve strengthening and related
 accruals                                    374.0     407.0       605.0     1,230.0   2,616.0
------------------------------------------------------------------------------------------------

Change in estimate of premium accruals       629.0       3.0       (13.0)       (3.0)    616.0
Reduction of related commission accruals     (50.0)                                      (50.0)
------------------------------------------------------------------------------------------------

Net premium and related accrual reductions   579.0       3.0       (13.0)       (3.0)    566.0
------------------------------------------------------------------------------------------------

Total pretax second quarter 2001 reserve
 strengthening and other related accruals  $ 953.0    $410.0     $ 592.0   $ 1,227.0  $3,182.0
================================================================================================

Total after-tax and minority interest
 second quarter 2001 reserve strengthening
 and other related accruals                $ 539.0    $241.0     $ 334.0   $   695.0  $1,809.0
================================================================================================
* $500.0 of ceded losses reduced by $230.0 of ceded premiums and $47.0 of interest charges.

</TABLE>

The non-APMT adverse loss development was the result of recent analyses of 
several lines of business. This development related principally to commercial 
insurance coverages including automobile liability and multiple-peril, as well 
as assumed reinsurance and health care-related coverages. A brief summary of 
these lines of business and the associated reserve development is discussed 
below and in more detail in the discussion of CNA's segments.

Approximately $600.0 million of the adverse loss development, excluding the 
impact of the corporate aggregate reinsurance treaty, is a result of analyses 
of several coverages provided to commercial entities written by various 
segments of CNA. These analyses showed unexpected increases in the size of 
claims for several lines, including commercial automobile liability, general 
liability and the liability portion of commercial multiple-peril. In addition, 
the number of commercial automobile liability claims was higher than expected. 
Finally, several state-specific factors resulted in higher than anticipated 
losses, including developments associated with commercial automobile liability 
coverage in Ohio and general liability coverage provided to contractors in New 
York.

An analysis of CNA Re's assumed reinsurance business showed that the paid and 
reported losses for recent accident years were higher than expectations and 
resulted in an increase of net reserves of approximately $560.0 million, 
excluding the impact of the corporate aggregate reinsurance treaty. The 
estimated ultimate loss ratios for these recent accident years have been 
revised to reflect the paid and reported losses.

Approximately $320.0 million of adverse loss development, excluding the impact 
of the corporate aggregate reinsurance treaty, occurred in

                                     41

Specialty Lines and was caused by coverages provided to health care-related 
entities. The level of paid and reported losses associated with coverages 
provided to national long-term care facilities was higher than expected. In 
addition, the average size of claims resulting from coverages provided to 
physicians and institutions providing health care-related services increased 
more than expected.

Concurrent with CNA's review of loss reserves, CNA completed comprehensive 
studies of estimated premium receivable accruals on retrospectively rated 
insurance policies and involuntary market facilities. As a result, CNA 
recorded a $.6 billion pretax ($.3 billion after-tax and minority interest) 
charge related to retrospective premium and other premium accruals ("premium 
accruals"). The studies included the review of all such retrospectively rated 
insurance policies and the current estimate of ultimate losses.

As a result of this review and changes in premiums associated with the change 
in estimates for loss reserves, CNA recorded a pretax reduction in premium 
accruals of $566.0 million. The effect on net earned premiums was $616.0 
million offset by a reduction of accrued commissions of $50.0 million. 
Approximately $188.0 million of this amount resulted from a change in estimate 
in premiums related to involuntary market facilities, which had an offsetting 
impact on net losses and therefore had no impact on the net operating results 
for the year. Accruals for ceded premiums related to other reinsurance 
treaties increased $83.0 million due to the reserve strengthening. The 
remainder of the decrease in premium accruals relates to the change in 
estimate of the amount of retrospective premium receivables as discussed 
above.

Aggregate Reinsurance Treaties

In 1999, CNA entered into an aggregate reinsurance treaty related to the 1999 
through 2001 accident years covering substantially all of CNA's property-
casualty lines of business (the "Aggregate Cover"). CNA has two sections of 
coverage under the terms of the Aggregate Cover. These coverages attach at 
defined loss and allocated loss adjustment expense (collectively, "losses") 
ratios for each accident year. Coverage under the first section of the 
Aggregate Cover, which is available for all accident years covered by the 
contract, has annual limits of $500.0 million of ceded losses with an 
aggregate limit of $1.0 billion of ceded losses for the three-year period. The 
ceded premiums are a percentage of ceded losses and for each $500.0 million of 
limit the premium is $230.0 million. The second section of the Aggregate 
Cover, which is only available for accident year 2001, provides additional 
coverage of up to $510.0 million of ceded losses for a maximum ceded premium 
of $310.0 million. Under the Aggregate Cover, interest charges on the funds 
withheld accrue at 8.0% per annum. If the aggregate loss ratio for the three-
year period exceeds certain thresholds, additional premiums may be payable and 
the rate at which interest charges are accrued would increase to 8.3% per 
annum. 

The coverage under the second section of the Aggregate Cover was triggered for 
the 2001 accident year. As a result of losses related to the WTC event, the 
limit under this section was exhausted. Additionally, as a result of the 
significant reserve additions recorded during 2001, the $500.0 million limit 
on the 1999 accident year under the first section was also fully utilized. No 
losses have been ceded to the remaining $500.0 million of limit on accident 
years 2000 and 2001 under the first section.

In 2001, CNA entered into a one-year aggregate reinsurance treaty related to 
the 2001 accident year covering substantially all property-casualty lines of 
business in the Continental Casualty Company pool (the "CCC Cover"). The loss 
protection provided by the CCC Cover has an aggregate limit of approximately 
$760.0 million of ceded losses. The CCC Cover provides continuous coverage in 
excess of the second section of the Aggregate Cover discussed above. Under the 
CCC Cover, interest charges on the funds withheld generally accrue at 8.0% per 
annum. The interest rate increases to 10.0% per annum if the aggregate loss 
ratio exceeds certain thresholds. 

The impact of the Aggregate and CCC Cover on pretax operating results for the 
year ended December 31, 2001, was as follows:


<TABLE>
<CAPTION>

                                               Aggregate     CCC
                                                 Cover       Cover     Total
------------------------------------------------------------------------------
(In millions)
<s>                                            <c>         <c>       <c>
Ceded earned premiums                          $ (543.0)   $(260.0)  $ (803.0)
Ceded losses                                    1,010.0      470.0    1,480.0
Interest charges                                  (81.0)     (20.0)    (101.0)
------------------------------------------------------------------------------
Pretax benefit on operating results            $  386.0    $ 190.0   $  576.0
==============================================================================
</TABLE>


                                     42

The pretax benefit from the Aggregate Cover and CCC Cover by operating segment 
on estimated losses related to the second quarter 2001 reserve strengthening, 
the WTC event and Core operations for the year ended December 31, 2001, was as 
follows:


<TABLE>
<CAPTION>

                                        Second
                                     Quarter 2001
                                        Reserve      WTC     Core
                                     Strengthening  Event  Operations   Total
------------------------------------------------------------------------------
(Amounts in millions)

<s>                                     <c>         <c>       <c>      <c>
Standard Lines                          $197.0      $108.0    $76.0    $381.0
Specialty Lines                                       12.0     21.0      33.0
CNA Re                                    26.0       139.0     (3.0)    162.0
------------------------------------------------------------------------------

Pretax benefit on operating results     $223.0      $259.0    $94.0    $576.0
==============================================================================
</TABLE>


2001 Restructuring

In 2001, CNA finalized and approved two separate restructuring plans. The 
first plan, which related to CNA's Information Technology operations (the "IT 
Plan"), was approved in June of 2001. The second plan, which principally 
relates to restructuring the Property-Casualty segments and Life Operations, 
discontinuation of variable life and annuity business and consolidation of 
real estate locations (the "2001 Plan"), was approved in December of 2001.

IT Plan

The overall goal of the IT Plan was to improve technology for the underwriting 
function throughout CNA and to eliminate inefficiencies in the deployment of 
IT resources. The changes facilitate a strong focus on enterprise-wide system 
initiatives. The IT Plan had two main components, which include the 
reorganization of IT resources into the Technology and Operations Group with a 
structure based on centralized, functional roles and the implementation of an 
integrated technology roadmap that includes common architecture and platform 
standards that directly support CNA's strategies.

As summarized in the following table, CNA incurred $62.0 million, pretax, of 
restructuring and other related charges in 2001 for the IT Plan. CNA does not 
expect to incur significant amounts of additional charges with respect to the 
IT Plan in any future period and, as a result, does not intend to separately 
classify such expenses as restructuring and other related charges when they 
occur.

IT Plan charges by segment for the year ended December 31, 2001, are as 
follows:



<TABLE>
<CAPTION>

                                        Employee
                                      Termination   Impaired
                                      and Related     Asset    Other
                                     Benefit Costs   Charges   Costs    Total
------------------------------------------------------------------------------
(In millions)

<s>                                     <c>           <c>       <c>      <c>
Standard Lines                          $ 5.0         $ 1.0              $ 6.0
Specialty Lines                           2.0                              2.0
------------------------------------------------------------------------------
Total Property-Casualty                   7.0           1.0                8.0
Life Operations                                        17.0               17.0
Other Insurance                          22.0          14.0     $1.0      37.0
------------------------------------------------------------------------------

Total                                   $29.0         $32.0     $1.0     $62.0
==============================================================================
</TABLE>


                                     43

In connection with the IT Plan after the write-off of impaired assets, CNA 
accrued $30.0 million of restructuring and other related charges in 2001 (the 
"IT Plan Initial Accrual"). These charges primarily related to $29.0 million 
of workforce reductions of approximately 260 positions gross and 249 positions 
net and $1.0 million of other costs.

The following table summarizes the IT Plan Initial Accrual and the activity in 
that accrual during 2001. Approximately $8.0 million of the remaining accrual 
is expected to be paid out during 2002.


<TABLE>
<CAPTION>

                                        Employee
                                      Termination   Impaired
                                      and Related     Asset    Other
                                     Benefit Costs   Charges   Costs    Total
------------------------------------------------------------------------------
(In millions)

<s>                                     <c>         <c>       <c>      <c>
Initial accrual                         $29.0       $ 32.0    $1.0    $ 62.0
Cost that did not require cash                       (32.0)            (32.0)
Payments charged against liability      (19.0)                         (19.0)
------------------------------------------------------------------------------
Accrued costs                           $10.0                 $1.0     $11.0
==============================================================================
</TABLE>


Through December 31, 2001, approximately 249 employees were released due to 
the IT Plan, nearly all of whom were technology support staff.

The IT Plan is not expected to result in decreased operating expense in the 
foreseeable future. This is because savings from the workforce reduction will 
be offset by new technology-related initiatives.

2001 Plan

The overall goal of the 2001 Plan is to create a simplified and leaner 
organization for customers and business partners. The major components of the 
plan include a reduction in the number of strategic business units ("SBUs") in 
the property-casualty operations, changes in the strategic focus of the Life 
Operations and consolidation of real estate locations. The reduction in the 
number of property-casualty SBUs resulted in consolidation of SBU functions, 
including underwriting, claims, marketing and finance. The strategic changes 
in Life Operations include a decision to discontinue the variable life and 
annuity business.

As summarized in the following table, CNA incurred $189.0 million, pretax, of 
restructuring and other related charges for the 2001 Plan. CNA does not expect 
to incur significant amounts of additional charges with respect to the 2001 
Plan in any future period and, as a result, does not intend to separately 
classify such expenses as restructuring and other related charges when they 
occur.

2001 Plan charges by segment for the year ended December 31, 2001, are as 
follows:


<TABLE>
<CAPTION>

                        Employee
                       Termination       Lease     Impaired
                       and Related    Termination    Asset    Other
                      Benefit Costs      Costs      Charges   Costs    Total
------------------------------------------------------------------------------
(In millions)

<s>                     <c>            <c>          <c>       <c>      <c>
Standard Lines          $40.0                                          $ 40.0
Specialty Lines           7.0          $ 4.0                              7.0
CNA Re                    2.0                                             6.0
------------------------------------------------------------------------------
Total Property-
 Casualty                49.0            4.0                             53.0
Group Operations          1.0                                             1.0
Life Operations           9.0                      $ 9.0      $35.0      53.0
Other Insurance           9.0           52.0        21.0                 82.0
------------------------------------------------------------------------------

Total                   $68.0          $56.0       $30.0      $35.0    $189.0
==============================================================================
</TABLE>


                                     44

All lease termination costs and impaired asset charges, except lease 
termination costs incurred by operations in the United Kingdom and software 
write-offs incurred by Life Operations, were charged to the Other Insurance 
segment because office closure and consolidation decisions were not within the 
control of the other segments affected. Lease termination costs incurred in 
the United Kingdom relate solely to the operations of CNA Re. All other 
charges were recorded in the segment benefiting from the services or existence 
of the employee or asset.

The 2001 Plan charges incurred by Standard Lines were $40.0 million, related 
entirely to employee termination and related benefit costs for planned 
reductions in the workforce of 1,063 positions, gross and net, of which $27.0 
million related to severance and outplacement costs and $13.0 million related 
to other salary costs. Through December 31, 2001, approximately 510 employees 
were released due to the 2001 Plan. Approximately 272 of these employees were 
administrative, technology or financial support staff; approximately 164 of 
these employees were underwriters, claim adjusters and related insurance 
services staff; and approximately 74 of these employees were in various other 
positions.

The 2001 Plan charges incurred by Specialty Lines were $7.0 million, related 
entirely to employee termination and related benefit costs for planned 
reductions in the workforce of 177 positions, gross and net, of which $5.0 
million related to severance and outplacement costs and $2.0 million related 
to other salary costs. Through December 31, 2001, approximately 107 employees 
were released due to the 2001 Plan. Approximately 47 of these employees were 
administrative, technology or financial support staff; approximately 45 of 
these employees were underwriters, claim adjusters, and related insurance 
services staff; and approximately 15 of these employees were in various 
positions.

The 2001 Plan charges incurred by CNA Re were $6.0 million. Costs related to 
employee termination and related benefit costs for planned reductions in the 
workforce of 33 positions, gross and net, amounted to $2.0 million, all of 
which related to severance and outplacement costs. Through December 31, 2001 
no employees in CNA Re were released due to the 2001 Plan. The remaining $4.0 
million of charges incurred by CNA Re related to lease termination costs.

The 2001 Plan charges incurred by Group Operations were $1.0 million, related 
entirely to employee termination and related benefit costs for planned 
reductions in the workforce of 38 positions, gross and net. Through December 
31, 2001 no employees in Group Operations were released due to the 2001 Plan.

The 2001 Plan charges incurred by Life Operations were $53.0 million. Costs 
related to employee termination and related benefit costs for planned 
reductions in the workforce of 356 positions, gross and net, amounted to $9.0 
million, of which $8.0 million related to severance and outplacement costs and 
$1.0 million related to other salary costs. Through December 31, 2001, 
approximately seven positions were released due to the 2001 Plan which were 
primarily administrative, technology and financial support staff positions. 
Life Operations incurred $9.0 million of impaired asset charges related to 
software. Other costs of $35.0 million in Life Operations relate to a write-
off of deferred acquisition costs on in-force variable life and annuity 
contracts as CNA believes that the decision to discontinue these products will 
negatively impact the persistency of the business.

The 2001 Plan charges incurred by the Other Insurance segment were $82.0 
million. Costs related to employee termination and related benefit costs for 
planned reductions in the workforce of 194 positions, gross and net, amounted 
to $9.0 million, of which $6.0 million related to severance and outplacement 
costs and $3.0 million related to other salary costs. Through December 31, 
2001, 129 employees were released due to the 2001 Plan. Approximately 114 of 
these employees were administrative, technology or financial support staff; 
and approximately 15 of these employees were in various other positions. The 
Other Insurance segment also incurred $73.0 million of lease termination and 
asset impairment charges related to office closure and consolidation decisions 
not within the control of the other segments affected.

In connection with the 2001 Plan, CNA accrued $189.0 million of these 
restructuring and other related charges (the "2001 Plan Initial Accrual"). 
These charges include employee termination and related benefit costs, lease 
termination costs, impaired asset charges and other costs. The following table 
summarizes the 2001 Plan Initial Accrual and the activity in that accrual 
during 2001. Approximately $94.0 million of the remaining accrual is expected 
to be paid out during 2002.

                                     45


<TABLE>
<CAPTION>

                        Employee
                       Termination       Lease     Impaired
                       and Related    Termination    Asset    Other
                      Benefit Costs      Costs      Charges   Costs    Total
------------------------------------------------------------------------------
(In millions)

<s>                     <c>             <c>         <c>       <c>     <c>
Initial accrual         $68.0           $ 56.0      $ 30.0    $ 35.0  $ 189.0
Cost that did not
 require cash                                                  (35.0)   (35.0)
Payments charged
 against liability       (2.0)                                           (2.0)
------------------------------------------------------------------------------

Accrued costs           $66.0            $56.0      $ 30.0            $ 152.0
==============================================================================
</TABLE>


The majority of the positions impacted by the restructuring that were not 
released by December 31, 2001 are expected to be released in the first quarter 
of 2002. The real estate consolidation will occur throughout 2002, however the 
full level of savings from the consolidation will not be realized until the 
fourth quarter. Management anticipates that the restructuring activities in 
2001 will result in cost savings of approximately $100.0 million in 2002.

Additionally, at December 31, 2000, an accrual of $7.0 million for lease 
termination costs remained related to the August 1998 restructuring ("1998 
Plan"). Approximately $6.0 million of these costs were paid in 2001, resulting 
in a remaining accrual of $1.0 million at December 31, 2001. No restructuring 
and other related charges related to the 1998 Plan were incurred during 2001 
or 2000. Restructuring and other related charges for the 1998 Plan amounted to 
$83.0 million in 1999.

Terrorism Exposure

CNA and the insurance industry incurred substantial losses related to the 
tragic events of September 11, 2001. For the most part, CNA believes the 
industry was able to absorb the loss of capital from these losses, but the 
capacity to withstand the effect of any additional terrorism events was 
significantly diminished. The public debate following September 11 centered on 
the role, if any, the U.S. federal government should play in providing a 
"terrorism backstop" for the industry. Several legislative proposals were 
introduced, but as yet, Congress has not enacted any of the proposed 
solutions.

Without any federal backstop in place, CNA's businesses are exposed to losses 
arising from terrorism events. CNA is attempting to mitigate this exposure 
through its underwriting practices, policy terms and conditions, and use of 
reinsurance.

While the unexpired portion of CNA's current reinsurance program generally 
provides coverage for terrorism events, CNA expects that future property-
casualty and certain group life and accident reinsurance renewals will either 
exclude coverage or be significantly limited with respect to terrorism events. 
CNA does not expect any terrorism exclusion to be included in future 
individual life reinsurance renewals.

CNA is generally including a terrorism exclusion or sub-limit in its primary 
and reinsurance assumed policy forms and contracts for large property risks in 
selected geographic areas. General liability and commercial auto policies for 
large commercial customers also generally exclude terrorism where permissible 
by law. The primary property and casualty policy forms applicable to new and 
renewal policies for small and middle market commercial customers will 
generally include a terrorism exclusion; however, these policy forms have not 
yet been approved in all states. CNA is generally prohibited, from excluding 
terrorism exposure from its primary workers' compensation, individual life and 
group life and health policies.

2002 Reinsurance Considerations

In addition to the terrorism coverage issues discussed, CNA expects other 
significant changes related to the reinsurance environment in 2002. Due to the 
significant increase in reinsurance costs for several lines of insurance, CNA 
expects to purchase less reinsurance protection in 2002 than in 2001. The 
amount of reinsurance purchased has a direct impact on the level of gross and 
net exposure that CNA is willing to underwrite in certain lines. For example, 
the net retention on a substantial portion of Standard Lines' workers' 
compensation exposure will generally increase from $500,000 per each loss 
occurrence in 2001 to $10.0 million per each loss occurrence in 2002. CNA 
expects to retain approximately $60.0 million more premium in 2002 as a result 
of this increase in retention in workers' compensation exposure. Other 
property-casualty exposures expected to be significantly impacted by changes 
in the level, cost and availability of reinsurance purchased in 2002 include, 
but are not limited to, surety, workers' compensation, catastrophe and 
professional liability. CNA has purchased less finite reinsurance in 2002 than 
in prior years. 

The reduced level of reinsurance purchased in 2002 will likely increase the 
volatility of reported losses; however, CNA will also retain more premium than 
in prior years.

CNA is currently finalizing its aggregate reinsurance protection for 2002 for 
a substantial portion of its property-casualty business. The reinsurance 
protection will be handled on a funds withheld basis.

                                     46

Property-Casualty

CNA conducts its property-casualty operations through the following operating 
segments: Standard Lines, Specialty Lines, and CNA Re.

The following table summarizes key components of the Property-Casualty segment 
operating results for the years ended December 31, 2001, 2000 and 1999.

<TABLE>
<CAPTION>

Year Ended December 31                            2001       2000      1999
------------------------------------------------------------------------------
(In millions)

<s>                                          <c>          <c>       <c>
Net earned premiums                          $ 5,010.0    $6,927.0  $ 7,359.0
Underwriting loss                             (3,122.0)     (672.0)  (1,147.0)
Net operating (loss) income                   (1,249.1)      412.6      111.3

Ratios:
 Loss and loss adjustment expense ratio          114.6%       77.0%      83.0%
 Expense ratio                                    45.4        31.5       32.2
 Dividend ratio                                    2.3         1.2         .4
------------------------------------------------------------------------------

 Combined ratio                                  162.3%      109.7%     115.6%
==============================================================================

2001 adjusted ratios*

 Loss and loss adjustment expense ratio           77.8%
 Expense ratio                                    35.3
 Dividend ratio                                    1.8
-------------------------------------------------------

 Combined ratio                                  114.9%
=======================================================

Adjusted underwriting loss*                  $  (946.0)
=======================================================
</TABLE>


*The adjusted results exclude the impact of the second quarter 2001 reserve 
 strengthening, the WTC event, corporate aggregate reinsurance treaties and 
 restructuring and other related charges.

2001 Compared with 2000

The net operating loss for the Property-Casualty segment was $1,249.1 million 
in 2001 as compared with net operating income of $412.6 million in 2000. The 
decline in net operating results was principally due to prior year reserve 
strengthening of $1,113.7 million recorded in the second quarter of 2001 
related to a change in estimate of prior year net loss reserves and 
retrospective premium accruals, net of the related corporate aggregate 
reinsurance treaty benefit; estimated losses related to the WTC event of 
$209.0 million, net of the related corporate aggregate reinsurance treaty 
benefit, and restructuring and other related charges of $36.8 million recorded 
in 2001. In addition, net operating results for 2001 decreased $97.1 million 
due to a decline in investment income from limited partnerships and $61.2 
million for reserve strengthening primarily for the current accident year, in 
the London-based primary commercial and marine operations. Net operating 
income also decreased $46.1 million related to the recent bankruptcy filing by 
certain Enron entities recorded in the fourth quarter of 2001. These declines 
were partially offset by lower prior year adverse loss reserve development 
(excluding the second quarter 2001 reserve development) and a $52.5 million 
benefit related to corporate aggregate reinsurance treaties for core 
operations. Net operating results in 2000 benefited from a change in estimate 
for certain insurance-related assessments of $52.0 million in 2000.

Net operating results also decreased due to a $141.8 million after-tax charge 
to strengthen prior underwriting year loss reserves for CNA Reinsurance 
Company Limited ("CNA Re U.K."). There was no tax benefit related to this 
charge due to the inability to recover further tax benefits related to the 
underwriting losses of CNA Re U.K. During the fourth quarter, CNA updated its 
impairment analysis of subsidiaries held for sale, including the United 
Kingdom subsidiaries of CNA Re. The updated impairment analysis indicated that 
the $248.0 million after-tax and minority interest realized loss recorded in 
the second quarter of 2001 should be reduced by $141.8 million, primarily 
because the net assets of CNA Re U.K. had been significantly diminished by its 
operating losses in the second half of 2001. In addition, CNA updated its 
estimate of disposal costs, including anticipated capital contributions, to 
reflect changes in the planned structure of the anticipated sale. The sale of 
the United Kingdom insurance subsidiaries will be subject to regulatory 
approval and all sales are expected to be completed in 2002.

Based upon the significance of the charges related to the second quarter 2001 
reserve strengthening, WTC event, corporate aggregate reinsurance treaties, 
and restructuring and other related charges, these items are discussed in the 
aggregate in the preceding sections. The following discussion compares 
underwriting results and ratios excluding the effect of these items. The 
adjusted combined ratio increased 5.2 points in 2001 as compared with 2000 and 
the adjusted underwriting results for the  Property-Casualty segment declined 
$274.0 million. The adjusted loss ratio increased 0.8 points as a result of 
the reduced net earned premiums base, losses related to Enron, favorable loss 
development recorded in 2000 for the architects and engineers business not 
present in 2001, declined underwriting results in global and marine lines 
related to current accident year reserve strengthening as discussed above, and 
the prior underwriting year reserve strengthening of CNA Re U.K. These 
declines were partially offset by improved underwriting results across most 
standard lines,

                                     47

particularly the automobile and packages lines, due to earned rate achievement 
and re-underwriting efforts undertaken last year, and lower prior year adverse 
loss development (excluding the second quarter 2001 reserve strengthening). 
The increase in the adjusted expense ratio of 3.8 points was primarily 
attributable to the decrease in the net earned premium base, the write-off of 
unrecoverable deferred acquisition costs in the vehicle warranty line of 
business, an increase in the accrual for guaranty fund assessments related to 
the Reliance insolvency, and the decreased impact of the change in estimate 
for certain insurance-related assessments. The adjusted dividend ratio 
increased 0.6 points primarily due to adverse development in dividend reserves 
in Standard Lines in 2001 compared with favorable development taken in 2000.

Net earned premiums for the Property-Casualty segment decreased $1,917.0 
million for 2001 compared with 2000. This decline was comprised of decreases 
in Standard Lines of $1,516.0 million and CNA Re of $448.0 million, partially 
offset by increased net earned premiums for Specialty Lines of $47.0 million.

Net earned premiums for Standard Lines decreased primarily as a result of 
$564.0 million of ceded premiums related to the corporate aggregate 
reinsurance treaties, additional ceded premiums other than the corporate 
aggregate reinsurance treaties, increased adverse premium development 
excluding the second quarter 2001 reserve strengthening, a change in estimate 
for involuntary market premium accruals and additional adverse experience in 
retrospective premium accruals. The change in estimate related to 
retrospective premium receivables was based upon CNA's completion of 
comprehensive studies related to estimated premium receivable accruals on 
retrospectively rated insurance policies and involuntary market facilities. 
The studies included the review of all such retrospectively rated insurance 
policies and the current estimate of ultimate losses.

Net earned premiums for CNA Re decreased as a result of $161.0 million of 
ceded premiums related to the corporate aggregate reinsurance treaties. In 
addition, premiums decreased as a result of the announced intention to sell 
the United Kingdom insurance subsidiaries. These declines were partially 
offset by reinstatement and additional premiums of $89.0 million related to 
the WTC event.

Net earned premiums for Specialty Lines increased due to increases in the law 
firms, the long-term care and architects and engineers products as well as 
increased rate achievement in Europe, primarily in property lines, the reserve 
for retrospective premium increase recorded in 2000 and decreased ceded 
premiums related to reinsurance for the medical professional liability line of 
business. Partially offsetting these improvements was $77.0 million in 
additional ceded premiums related to the corporate aggregate reinsurance 
treaties, declines in the warranty line of business and adverse experience in 
retrospective premium accruals recorded in the second quarter of 2001 reserve 
strengthening.

2000 Compared with 1999

Net operating income improved $301.3 million for 2000 as compared with 1999. 
The net operating income improvements were primarily driven by improved 
underwriting results partially offset by decreased investment income. In 
addition, net operating income in both 2000 and 1999 benefited from a change 
in estimate for certain insurance-related assessments resulting from 
regulatory changes in the basis on which certain of these assessments are 
calculated. The after-tax impact of this change was $52.0 million in 2000 and 
$43.7 million in 1999.

Underwriting results improved $475.0 million for 2000 as compared with 1999. 
The combined ratio decreased 5.9 points for the Property-Casualty segment for 
2000 as compared with 1999. This decrease reflects an improvement in the loss 
ratio of 6.0 points which is primarily attributable to significant rate 
increases across the entire book of business, favorable catastrophe 
experience, reduced prior year reserve strengthening and the increased use of 
reinsurance. Catastrophe losses for 2000 improved by $195.0 million for the  
Property-Casualty segment. In addition to the decrease in the loss ratio, 
there was a decrease of 0.7 points in the expense ratio to 31.5% due 
principally to the absence of restructuring-related charges that occurred in 
1999 but did not recur in 2000. The dividend ratio increased 0.8 points 
relating to reduced favorable development in dividend reserves for Standard 
Lines in 2000 as compared to 1999.

Net earned premiums for the Property-Casualty segment decreased $432.0 million 
in 2000 as compared with 1999. This decline in net earned premiums was 
comprised of decreases in Standard Lines of $271.0 million, Specialty Lines of 
$74.0 million and CNA Re of $87.0 million. 

The decrease in net earned premiums in Standard Lines was primarily 
attributable to continued efforts to re-underwrite business and obtain 
adequate rates for exposure underwritten and increased use of reinsurance. The 
net earned premiums decline for Specialty Lines was related principally to (i) 
active decisions to renew only those accounts which meet current underwriting 
guidelines supporting the ongoing commitment to underwriting discipline, (ii) 
an increase in the retrospective return premium relating to favorable loss 
experience in the retrospectively rated architects' and engineers' business, 
and (iii) a $30.0 million decline due to the increased use of reinsurance for 
the medical professional liability lines of CNA HealthPro. These declines were 
partially offset by growth in the commercial casualty and property lines in 
the European operations, as well as growth in the commercial warranty and 
surety lines.

CNA Re experienced a decrease in net earned premiums that reflects decisions 
not to renew contracts that management believed did not meet profitability 
targets, partially offset by modest rate increases. 

                                     48

Group

Group Operations provides group life and health insurance products and 
services to employers, affinity groups and other entities that purchase 
insurance as a group. Group Operations also provides health insurance to 
federal employees, as well as life and health reinsurance.

2001 Compared with 2000

Net operating income decreased by $32.0 million in 2001 as compared with 2000. 
This decrease is related primarily to estimated losses of $45.3 million after-
tax and minority interest as a result of the WTC event. Net operating income 
also declined $20.1 million as a result of the sale of Life Reinsurance and 
$11.4 million due to a decline in limited partnership income. Life Reinsurance 
contributed net operating income of $19.0 million in 2000. Partially 
offsetting these declines were improvements as a result of exiting 
unprofitable lines of approximately $35.0 million, and increased income in 
other product lines, primarily the disability and group long-term care lines 
of $10.0 million.

Net earned premiums for Group Operations decreased $217.0 million in 2001 as 
compared with 2000. Net earned premiums declined $228.0 million as a result of 
the sale of Life Reinsurance and $163.0 million in Group Reinsurance  
primarily as a result of terminating unprofitable contracts with independent 
underwriting agencies in 2000. These declines were partially offset by 
increases in Federal Markets of $116.0 million due to increased medical cost 
trends and growth in Group Benefits of $58.0 million, particularly in the 
disability and group long term care lines of business.

Group Operations achieved rate increases in 2001 that averaged approximately 
4.0% for the disability line of business. Premium persistency rates were in 
the mid 80 percent range. For the group life line of business, rate increases 
averaged 1.0% to 2.0%. Premium persistency rates were in the lower 80% range.

2000 Compared with 1999

Net operating income increased $44.5 million in 2000 as compared with 1999. 
This increase relates to a $20.9 million improvement in Federal Markets due to 
the 1999 exit of unprofitable medical lines, a $29.5 million improvement in 
Group Reinsurance, a $3.5 million improvement in Life Reinsurance and a $6.1 
million increase in limited partnership income. These improvements were 
partially offset by a $15.7 million decline in Group Benefits due to favorable 
1999 loss experience in the group life line of business. The improvement 
associated with Group Reinsurance relates to adverse experience and loss 
development for the personal accident business recorded in 1999, which 
exceeded $6.0 million of exit costs incurred from the Management Services 
Organization ("MSO") business and $11.0 million of adverse development on the 
medical stop loss business in 2000. The decision to shut down the MSO business 
was based on lack of demand as providers were backing away from risk 
contracting.

Net earned premiums for Group Operations in 2000 increased $104.0 million as 
compared with 1999. This increase was principally a result of a $41.0 million 
increase in Group Benefits, primarily related to the group life line of 
business; a $35.0 million increase in Life Reinsurance; an $18.0 million 
increase in Group Reinsurance, and a $10.0 million increase in Federal 
Markets. The increases in Group Benefits and Life Reinsurance relate to new 
business production.

Life

Life Operations provides financial protection to individuals through a full 
product line of term life insurance, universal life insurance, long term care 
insurance, annuities and other products. Life Operations also provides 
retirement services products to institutions in the form of various investment 
products and administration services.

2001 Compared with 2000

Net operating income decreased by $98.5 million in 2001 as compared with 2000. 
This decrease relates primarily to restructuring and other related charges of 
$39.4 million, decreased net investment income from limited partnerships of 
$19.3 million, estimated losses related to the WTC event of $12.3 million and 
adverse mortality in the viatical settlement business of $8.8 million. 
Included in the restructuring and other related charges was a $20.1 million 
write-off of deferred acquisition costs on in-force variable life and annuity 
contracts, as CNA believes that its decision to discontinue these products 
will negatively impact the persistency of the business.

Sales volume for Life Operations decreased by $167.0 million in 2001 as 
compared with 2000. This decline was driven primarily by declines in the sales 
of variable annuities and as a result of the decision to cease purchasing new 
viatical policies. These declines were partially offset by increased renewals 
and increased new sales in Long Term Care products. Net earned premiums 
increased $78.0 million in 2001 as compared with 2000. This improvement is 
attributable primarily to improved sales of structured settlements because of 
favorable pricing conditions and Long Term Care products, partially offset by 
a decrease in new Individual Life business.

2000 Compared with 1999

Net operating income increased $31.1 million in 2000 as compared with 1999. 
The increase was attributable principally to increased earnings in the Index 
500 product, the continued growth of Individual Life insurance in-force, 
favorable investment results in Individual Life and the Retirement Services 
and increased income from limited partnerships of $7.8 million.

Sales volume for Life Operations declined $478.0 million in 2000 as compared 
with 1999. Sales volume decreased because of a reduction in Retirement 
Services' products sold to institutions. These products tend to be "large 
case" institutional markets' sales, which can be sporadic, opportunistic and 
sensitive to independent agency ratings. Despite the overall decline, Life 
Operations' competitively priced product portfolio enabled most of its 
businesses to experience growth in 2000. Individual Life and Long Term Care 
products had an increasing base of direct premiums, and variable investment 
contracts experienced growth of $270.0 million to reach an annual sales level 
of $380.0 million in 2000. Net earned premiums declined $60.0 million in 2000 
as compared with 1999. This decline was attributable primarily to sales 
declines in structured settlements and single premium group annuities due to a 
competitive pricing environment.

                                     49

These declines were partially offset by a growing in-force block of Long Term 
Care and annuity products.

Other Insurance

The Other insurance segment contains CNA's corporate interest expense, certain 
run-off insurance operations, including Personal Insurance, losses and 
expenses related to the centralized adjusting and settlement of APMT claims, 
direct financial guarantee business underwritten by CNA's insurance 
affiliates, certain non-insurance operations, including eBusiness initiatives 
and CNA UniSource, and eliminations.

2001 Compared with 2000

Net operating results declined $777.5 million in 2001 as compared with 2000. 
The after-tax impact of the second quarter 2001 reserve strengthening on the 
Other Insurance segment was $695.2 million, including $644.7 million for APMT. 
See the following Environmental Pollution and Other Mass Tort and Asbestos 
Reserves section for a discussion of this charge. Net operating income for 
2001 also decreased by $67.4 million for restructuring and other related 
charges, $39.0 million for the non-recurring ceding commission included in 
2000 results related to the transfer of the Personal Insurance business to 
Allstate in 1999, $30.6 million related to increased eBusiness initiatives in 
2001, and $12.3 million due to decreased limited partnership income. These 
declines were partially offset by lower interest expense on corporate 
borrowings in 2001 as compared with 2000 and a non-recurring favorable 
adjustment of expense recoveries under a service contract related to Personal 
Insurance.

Total operating revenues, excluding eliminations, decreased $104.0 million in 
2001 as compared with 2000. This decline was due to a decrease in net 
investment income and net earned premiums from run-off insurance operations, 
particularly the entertainment and agriculture insurance lines. 

2000 Compared with 1999

Net operating results improved $165.9 million for 2000 as compared with 1999. 
This improvement is due to lower adverse development related to asbestos 
claims in 2000 as compared with 1999 and improvements in Personal Insurance, 
including $45.0 million for non-recurring ceding commission in 2000 as 
compared with $33.0 million in 1999, partially offset by expenses for CNA's 
eBusiness initiatives.

Total operating revenues, excluding eliminations, decreased $1,578.0 million 
in 2000 as compared with 1999. This decline is driven primarily by a $1,421.0 
million decrease in net earned premiums attributable primarily to the sale of 
Personal Insurance to Allstate in 1999. Net earned premiums for 1999 included 
$1,354.0 million of premiums related to Personal Insurance. The remaining 
decline in net earned premiums was primarily a result of CNA exiting the 
entertainment insurance and other financial lines of business. Additionally, 
operating revenues declined as a result of decreased net investment income.

Environmental Pollution and Other Mass Tort and Asbestos Reserves

CNA's property-casualty insurance subsidiaries have potential exposures 
related to APMT claims.

Environmental pollution cleanup is the subject of both federal and state 
regulation. By some estimates, there are thousands of potential waste sites 
subject to cleanup. The insurance industry is involved in extensive litigation 
regarding coverage issues. Judicial interpretations in many cases have 
expanded the scope of coverage and liability beyond the original intent of the 
policies. The Comprehensive Environmental Response Compensation and Liability 
Act of 1980 ("Superfund") and comparable state statutes ("mini-Superfunds") 
govern the cleanup and restoration of toxic waste sites and formalize the 
concept of legal liability for cleanup and restoration by "Potentially 
Responsible Parties" ("PRPs"). Superfund and the mini-Superfunds establish 
mechanisms to pay for cleanup of waste sites if PRPs fail to do so, and to 
assign liability to PRPs. The extent of liability to be allocated to a PRP is 
dependent upon a variety of factors. Further, the number of waste sites 
subject to cleanup is unknown. To date, approximately 1,500 cleanup sites have 
been identified by the Environmental Protection Agency ("EPA") and included on 
its National Priorities List ("NPL"). State authorities have designated many 
cleanup sites as well.

Many policyholders have made claims against various CNA insurance subsidiaries 
for defense costs and indemnification in connection with environmental 
pollution matters. These claims relate to accident years 1989 and prior, which 
coincides with CNA's adoption of the Simplified Commercial General Liability 
coverage form, which includes what is referred to in the industry as an 
"absolute pollution exclusion." CNA and the insurance industry are disputing 
coverage for many such claims. Key coverage issues include whether cleanup 
costs are considered damages under the policies, trigger of coverage, 
allocation of liability among triggered policies, applicability of pollution 
exclusions and owned property exclusions, the potential for joint and several 
liability and the definition of an occurrence. To date, courts have been 
inconsistent in their rulings on these issues.

A number of proposals to reform Superfund have been made by various parties. 
However, no reforms were enacted by Congress during 2001, and it is unclear 
what positions Congress or the administration will take and what legislation, 
if any, will result in the future. If there is legislation, and in some 
circumstances even if there is no legislation, the federal role in 
environmental cleanup may be significantly reduced in favor of state action. 
Substantial changes in the federal statute or the activity of the EPA may 
cause states to reconsider their environmental cleanup statutes and 
regulations. There can be no meaningful prediction of the pattern of 
regulation that would result or the effect upon CNA's results of operations 
and/or financial position.

Due to the inherent uncertainties described above, including the inconsistency 
of court decisions, the number of waste sites subject to cleanup, and the 
standards for cleanup and liability, the ultimate liability of CNA for 
environmental pollution claims may vary substantially from the amount 
currently recorded.

                                     50

As of December 31, 2001 and 2000, CNA carried approximately $617.0 and $347.0 
million of claim and claim adjustment expense reserves, net of reinsurance 
recoverables, for reported and unreported environmental pollution and other 
mass tort claims. Unfavorable environmental pollution and other mass tort net 
claim and claim adjustment expense reserve development for the year ended 
December 31, 2001 and 2000 amounted to $473.0 and $17.0 million. Favorable 
environmental pollution and other mass tort net claim and claim adjustment 
expense reserve development for the year ended December 31, 1999 amounted to 
$84.0 million. The Company made environmental pollution-related claim payments 
and other mass tort-related claim payments, net of reinsurance recoveries, of 
$203.0, $135.0 and $236.0 million during the years ended December 31, 2001, 
2000 and 1999, respectively.

The reserve development during 2001 for environmental pollution and other mass 
tort reserves was due to reviews completed during the year, which indicated 
that paid and reported losses were higher than expectations based on prior 
reviews. Factors that have led to this development include a number of 
declaratory judgments filed this year due to an increasingly favorable legal 
environment for policyholders in certain courts and other unfavorable 
decisions regarding cleanup issues.

CNA's property-casualty insurance subsidiaries also have exposure to asbestos-
related claims. Estimation of asbestos-related claim and claim adjustment 
expense reserves involves many of the same limitations discussed above for 
environmental pollution claims, such as inconsistency of court decisions, 
specific policy provisions, allocation of liability among insurers and 
insureds, and additional factors such as missing policies and proof of 
coverage. Furthermore, estimation of asbestos-related claims is difficult due 
to, among other reasons, the proliferation of bankruptcy proceedings and 
attendant uncertainties, the targeting of a broader range of businesses and 
entities as defendants, the uncertainty as to which other insureds may be 
targeted in the future and the uncertainties inherent in predicting the number 
of future claims.

As of December 31, 2001 and 2000, CNA carried approximately $1,204.0 and 
$603.0 million of net claim and claim adjustment expense reserves, net of 
reinsurance recoverables, for reported and unreported asbestos-related claims. 
Unfavorable asbestos-related net claim and claim adjustment expense reserve 
development for the years ended December 31, 2001, 2000 and 1999 amounted to 
$772.0, $65.0 and $560.0 million, respectively. CNA made asbestos-related 
claim payments, net of reinsurance, of $171.0, $126.0 and $161.0 million 
during the years ended December 31, 2001, 2000 and 1999, respectively, 
excluding payments made in connection with the 1993 settlement of litigation 
related to Fibreboard Corporation. CNA has attempted to manage its asbestos-
related exposures by aggressively resolving old accounts.

The reserve development during 2001 for asbestos-related claims was based on a 
management review of developments with respect to these exposures conducted 
during the year. This analysis indicated a significant increase in claim 
counts for asbestos-related claims. The factors that have led to the 
deterioration in claim counts include, among other things, intensive 
advertising campaigns by lawyers for asbestos claimants and the addition of 
new defendants such as the distributors and installers of products containing 
asbestos. New claim filings increased significantly in 2000 over 1999 and that 
trend continued during 2001. The volume of new claims has caused the 
bankruptcies of numerous asbestos defendants. Those bankruptcies also may 
result in increased liability for remaining defendants under principles of 
joint and several liability.

In addition, some asbestos-related defendants have asserted that their claims 
for insurance are not subject to aggregate limits on coverage. CNA currently 
has such claims from a number of insureds. Some of these claims involve 
insureds facing exhaustion of products liability aggregate limits in their 
policies, who have asserted that their asbestos-related claims fall within so-
called "non-products" liability coverage contained within their policies 
rather than products liability coverage, and that the claimed "non-products" 
coverage is not subject to any aggregate limit. It is difficult to predict the 
ultimate size of any of the claims for coverage not subject to aggregate 
limits or predict to what extent, if any, the attempts to assert "non-
products" claims outside the products liability aggregate will succeed.

Due to the uncertainties created by volatility in claim numbers and settlement 
demands, the effect of bankruptcies, the extent to which non-impaired 
claimants can be precluded from making claims and the efforts by insureds to 
obtain coverage not subject to aggregate limits, the ultimate liability of CNA 
for asbestos-related claims may vary substantially from the amount currently 
recorded. Other variables that will influence CNA's ultimate exposure to 
asbestos-related claims include medical inflation trends, jury attitudes, the 
strategies of plaintiff attorneys to broaden the scope of defendants, the mix 
of asbestos-related diseases presented and the possibility of legislative 
reform. Adverse developments with respect to such matters discussed herein 
could have a material adverse effect on CNA's results of operations and/or 
financial condition.

The results of operations and financial condition of CNA in future years may 
continue to be adversely affected by environmental pollution and other mass 
tort and asbestos claim and claim adjustment expenses. Management will 
continue to review and monitor these liabilities and make further adjustments, 
including further reserve strengthening as warranted.

                                     51

Lorillard

Lorillard, Inc. and subsidiaries ("Lorillard"). Lorillard, Inc. is a wholly 
owned subsidiary of the Company.

2001 Compared with 2000

Revenues increased by $186.1 million, or 4.3% and net income decreased $81.7 
million, or 10.8%, respectively, in 2001 as compared to 2000.

Net sales increased due to higher average unit prices which would have 
resulted in an aggregate increase of approximately $543.5 million, or 12.8%, 
partially offset by a decrease of approximately $336.0 million, or 7.9%, 
reflecting lower unit sales volume for 2001 as compared to 2000. During 2001, 
Lorillard increased its net wholesale price of cigarettes by an average of 
$13.58 per thousand cigarettes ($.27 per pack of 20 cigarettes), or 12.8%. 
Federal excise taxes are included in the price of cigarettes and have remained 
constant at $17.00 per thousand units, or $.34 per pack of 20 cigarettes. On 
January 1, 2002, the federal excise tax on cigarettes increased by $2.50 per 
thousand cigarettes ($0.05 per pack of 20 cigarettes). All of the states also 
levy excise taxes on cigarettes. Various states have proposed, and certain 
states have recently passed, increases in their state tobacco excise taxes. 
Such actions may adversely affect Lorillard's volume, operating revenues and 
operating income.

Lorillard's overall unit sales volume decreased by 6.5% in 2001, as compared 
to 2000. Newport's unit sales volume increased by .04% for 2001, primarily as 
a result of the introduction of the Newport Medium line extension and 
strengthened promotional support, as compared to 2000. The decrease in 
Lorillard's overall unit sales volume reflects lower unit sales of its 
Maverick and Old Gold brands in the discount market segment due primarily to 
increased competition in the discount segment and continued limitations 
imposed by Philip Morris's merchandising arrangements and general competitive 
conditions. Overall, industry unit sales volume decreased by 3.2% for the year 
ended December 31, 2001.

Lorillard's share of wholesale cigarette shipments was 9.5% in 2001, as 
compared to 9.8% for 2000. Newport, a premium brand, accounted for 
approximately 85% of Lorillard's unit sales for the year ended December 31, 
2001 compared to 79% in 2000. Newport's market share of the premium segment 
was 10.9% for the year ended December 31, 2001 compared to 10.5% in 2000.

Lorillard recorded pretax charges of $1,140.4 and $1,076.5 million ($694.2 and 
$642.3 million after-taxes), for the years ended December 31, 2001 and 2000, 
respectively, to accrue its obligations under various settlement agreements. 
Lorillard's portion of ongoing adjusted payments and legal fees is based on 
its share of domestic cigarette shipments in the year preceding that in which 
the payment is due. Accordingly, Lorillard records its portions of ongoing 
settlement payments as part of cost of manufactured products sold as the 
related sales occur. Funds required for the industry payment obligations have 
been provided by Lorillard's operating activities. See Note 17 of the Notes to 
Consolidated Financial Statements.

The State Settlement Agreements impose a stream of future payment obligations 
on Lorillard and the other major U.S. cigarette manufacturers and the Master 
Settlement Agreement places significant restrictions on their ability to 
market and sell cigarettes. The Company believes that the implementation of 
the State Settlement Agreements will materially adversely affect its 
consolidated results of operations and cash flows in future periods. The 
degree of the adverse impact will depend, among other things, on the rates of 
decline in U.S. cigarette sales in the premium and discount segments, 
Lorillard's share of the domestic premium and discount segments, and the 
effect of any resulting cost advantage of manufacturers not subject to the 
State Settlement Agreements.

Net income declined for the year ended December 31, 2001, due to a charge of 
$121.0 million (net of taxes) to record the effect of the Engle agreement 
discussed in Liquidity and Capital Resources. Excluding this charge, net 
income would have increased by $39.3 million, or 5.2%, for the year ended 
December 31, 2001, as compared to 2000. This increase in net income was 
primarily due to the impact of wholesale price increases, partially offset by 
lower unit sales volume and increased sales promotional expenses, mostly in 
the form of coupons and other discounts provided to retailers and passed 
through to the consumer.

In accordance with industry practice, promotional support in the form of 
coupons and other discounts is recorded as an expense under "Other operating 
expenses" rather than reducing net sales. In the first quarter of 2002, 
Lorillard will be required to adopt the provisions of the FASB's Emerging 
Issues Task Force Issues No. 00-14, "Accounting for Certain Sales Incentives," 
and No. 00-25, "Vendor Income Statement Characterization of Consideration from 
a Vendor to a Retailer." As a result of both issues, promotional expenses 
historically included in other operating expenses will be reclassified to cost 
of manufactured products sold, or as reductions of net sales. Beginning with 
the first quarter of 2002, prior period amounts will be reclassified for 
comparative purposes.

2000 Compared with 1999

Revenues and net income increased by $277.9 and $102.0 million, or 6.8% and 
15.6%, respectively, in 2000 as compared to 1999.

Net sales increased as compared to 1999, by approximately $550.3 million, or 
13.8%, due to higher average unit prices, including $200.1 million from the 
increase in federal excise tax, partially offset by a decrease of 
approximately $307.8 million, or 7.7%, reflecting lower unit sales volume in 
2000. Net investment income contributed $35.9 million to the increased 
revenues.

During 2000, Lorillard increased the wholesale price of its cigarettes by an 
aggregate of $16.50 per thousand cigarettes ($0.33 per pack of 20 cigarettes). 
Federal excise taxes included in the price of cigarettes are $17.00 per 
thousand cigarettes ($0.34 per pack of 20 cigarettes).

Net income increased due primarily to the increased revenues discussed above, 
partially offset by the charges for tobacco litigation settlements and higher 
legal expenses. Net income for the years ended

                                     52

December 31, 2000 and 1999 includes pretax charges of $1,076.5 and $1,065.8 
million ($642.3 and $637.3 million after-taxes), respectively, related to the 
settlement of tobacco litigation. Lorillard's portion of ongoing adjusted 
payments and legal fees is based on its share of domestic cigarette shipments 
in the year preceding that in which the payment is due. Accordingly, Lorillard 
records its portions of ongoing settlement payments as part of cost of 
manufactured products sold as the related sales occur. Funds required to meet 
the industry payment obligations have been provided by Lorillard's operating 
activities.

Lorillard's overall unit sales volume decreased by 7.0% as compared to 1999. 
Newport, a full price brand, which accounted for approximately 79% of 
Lorillard's unit sales in 2000, increased by 1.5% as compared to 1999. 
Newport's increase in unit sales volume reflects increased promotional 
activities to the extent practicable in light of existing limitations due to 
competitive conditions. The decrease in Lorillard's overall unit sales volume 
reflects lower unit sales of its Maverick and Old Gold brands in the discount 
market segment. Discount brand sales have remained relatively constant at 
26.3%, 26.4% and 26.2% as a percentage of industry sales for 2000, 1999 and 
1998, respectively.

Newport's market share increased 0.1% to 7.7% in 2000, as compared to 7.6% in 
1999. Overall industry unit sales volume is up by .02% in 2000, as compared to 
1999.

Loews Hotels

Loews Hotels Holding Corporation and subsidiaries ("Loews Hotels"). Loews 
Hotels Holding Corporation is a wholly owned subsidiary of the Company.

2001 Compared with 2000

Revenues and net income decreased by $16.7 and $7.3 million, or 4.9% and 
27.2%, respectively, in 2001 compared to 2000.

Revenues decreased primarily due to lower occupancy rates and lower average 
room rates, partially offset by the addition of the Philadelphia hotel, which 
commenced operations in spring of 2000. The decline in revenues reflects the 
continued economic weakness and the impact that the September 11, 2001 World 
Trade Center attack had on the travel industry. Net income decreased due 
primarily to lower revenues and increased depreciation expenses related to the 
Philadelphia hotel, partially offset by lower advertising and administrative 
expenses and lower pre-opening costs.

2000 Compared with 1999

Revenues and income before cumulative effect of changes in accounting 
principles decreased by $13.4 and $43.7 million, or 3.8% and 62.0%, 
respectively, in 2000 as compared to 1999. Included in 1999 is a gain of $85.1 
million ($52.0 million after-taxes) from the sale of two franchised 
properties. Excluding this gain, revenues and income before cumulative effect 
of changes in accounting principles increased by $71.7 and $8.3 million, 
respectively.

Revenues and income before cumulative effect of changes in accounting 
principles increased due primarily to increased overall average room rates and 
the addition of two luxury properties to the Loews Hotels portfolio, 
offsetting the 1999 sale of the two franchised properties. Overall occupancy 
rates remained at approximately 78%, essentially unchanged from 1999. Income 
also benefited from improved operating results of an unconsolidated joint 
venture whose operations commenced in 1999.

Diamond Offshore

Diamond Offshore Drilling, Inc. and subsidiaries ("Diamond Offshore"). Diamond 
Offshore Drilling, Inc. is a 53% owned subsidiary of the Company.

2001 Compared with 2000

Revenues increased by $218.7 million, or 30.2%, and net income increased by 
$39.0 million, in 2001 as compared to 2000. Revenues and net income included a 
gain from the sale of a drilling rig of $13.9 and $4.7 million, respectively, 
for the year ended December 31, 2000.

Revenues from high specification floaters and other semisubmersible rigs 
increased by $179.3 million, or 24.8%, in 2001 as compared to 2000. These 
increases reflect higher utilization ($23.6 million) and dayrates ($94.2 
million) for 2001 as compared 2000. Revenue generated by the Ocean Confidence, 
which began a five-year drilling program in the Gulf of Mexico on January 5, 
2001 after completion of a conversion to a high specification semisubmersible 
drilling unit ($61.5 million), also contributed to the increase in revenues.

Revenues from jack-up rigs increased by $55.6 million, or 7.7%, due primarily 
to increased dayrates ($63.6 million) for 2001, partially offset by lower 
utilization in 2001.

                                     53

Net income increased due primarily to the increased revenues discussed above, 
partially offset by increased interest and depreciation expenses. Depreciation 
expenses increased in 2001 primarily due to the Ocean Confidence, which 
completed its conversion from an accommodation vessel to a high specification 
semisubmersible drilling unit and commenced operations in January 2001. 
Interest expense increased due also to the Ocean Confidence as a result of 
less interest capitalized.

2000 Compared with 1999

Revenues and net income decreased by $123.3 and $40.7 million, or 14.6% and 
56.0%, respectively, in 2000 as compared to 1999.

Revenues decreased due principally to lower operating dayrates ($143.9 
million) and reduced utilization ($50.6 million) for Diamond Offshore's 
semisubmersible rigs, partially offset by increased utilization ($35.1 
million) and higher dayrates ($26.4 million) for jack-up rigs during 2000, as 
compared to 1999. Revenues also declined by $17.1 million due to the sale of a 
jack-up rig and $6.0 million due to the mobilization of rigs to new markets 
during 2000. These declines were partially offset by increased investment 
income ($14.5 million) and a gain from the sale of a drilling rig of $13.9 
million ($4.7 million after-taxes and minority interest) in 2000.

Net income declined due primarily to the lower revenues discussed above and 
the fact that contract drilling costs remained relatively unchanged. Operating 
expenses generally are not affected by changes in dayrates, nor are they 
significantly affected by fluctuations in utilization. For instance, if a rig 
is to be idle for a short period of time, Diamond Offshore realizes few 
decreases in operating expenses since the rig is typically maintained in a 
prepared state with a full crew. In addition, when a rig is idle, Diamond 
Offshore is responsible for certain operating expenses such as rig fuel and 
supply boat costs, which are typically charged to the operator under drilling 
contracts. However, if the rig is to be idle for an extended period of time, 
Diamond Offshore may reduce the size of a rig's crew and take steps to "cold 
stack" the rig, which lowers expenses and partially offsets the impact on 
operating income.

Bulova

Bulova Corporation and subsidiaries ("Bulova"). Bulova Corporation is a 97% 
owned subsidiary of the Company.

2001 Compared with 2000

Revenues and net income decreased by $14.0 and $4.9 million, or 8.7% and 
32.7%, respectively, in 2001 compared to 2000. Revenues and net income 
decreased due primarily to royalty income of $5.5 and $3.0 million, 
respectively, reported in 2000 related to the settlement of a contract 
dispute. The remaining decline in revenues for 2001 reflects lower watch and 
clock unit sales volume due primarily to the continued economic downturn, 
partially offset by higher watch unit prices.

Net income decreased due to the lower revenues and costs incurred during 
business process reengineering of Bulova's information systems, partially 
offset by improved gross margins attributable to Bulova's product sales mix.

2000 Compared with 1999

Revenues and net income increased by $21.4 and $.9 million, or 15.4% and 6.4%, 
respectively, in 2000 as compared to 1999.

Revenues increased due to an increase in royalty income of $5.5 million from 
the settlement of a contract dispute, and higher watch unit sales volume. 
These increases were partially offset by lower watch prices and lower clock 
unit sales in 2000, as compared to 1999. Watch prices declined due primarily 
to a change in sales mix.

Net income increased due primarily to the higher revenues discussed above, 
partially offset by increased brand support and advertising expenses, and a 
lower effective income tax rate in 1999 due to a valuation allowance 
adjustment related to prior years.

Corporate

Corporate operations consist primarily of investment income, including 
investment gains (losses) from non-insurance subsidiaries, as well as equity 
earnings from a shipping joint venture, corporate interest expenses and other 
corporate administrative costs.

The components of investment gains (losses) included in Corporate operations 
are as follows:


<TABLE>
<CAPTION>

Year ended December 31                         2001          2000        1999
------------------------------------------------------------------------------
(In millions)

<s>                                           <c>         <c>         <c>
Derivative instruments (a)                    $18.2       $(146.5)    $(424.1)
Equity securities, including short
 positions (a)                                 69.1         125.1       (56.5)
Short-term investments                         28.5          (3.3)        9.4
Other                                          12.6          17.3        (1.6)
------------------------------------------------------------------------------
                                              128.4          (7.4)     (472.8)
Income tax (expense) benefit                  (45.0)          2.6       172.1
Minority interest                              (8.3)
------------------------------------------------------------------------------
Net gain (loss)                               $75.1       $  (4.8)    $(300.7)
==============================================================================
</TABLE>


(a) Includes losses on short sales, equity index futures and options 
    aggregating $533.6 for the year ended December 31, 1999. Substantially all 
    of the index short positions were closed during the second quarter of 
    2000. See "Quantitative and Qualitative Disclosures About Market Risk."

2001 Compared with 2000

Exclusive of investment gains (losses), revenues decreased $19.1 million and 
net loss increased $3.0 million, or 11.5% and 21.1%, respectively, in 2001 
compared to 2000, due primarily to lower investment income. This change was 
partially offset by increased operating results from a shipping joint venture 
reflecting increased demand and charter rates in the crude oil tanker markets.

2000 Compared with 1999

Exclusive of investment gains (losses), revenues increased by $42.7 million 
and net loss decreased by $15.9 million, or 34.7% and 52.0%, respectively, due 
to higher investment income reflecting an increased base of invested assets, 
and improved results from a shipping joint venture, partially offset by 
increased administrative and interest expenses.

                                     54

LIQUIDITY AND CAPITAL RESOURCES

CNA

The principal operating cash flow sources of CNA's property-casualty and life 
insurance subsidiaries are premiums and investment income. The primary 
operating cash flow uses are payments for claims, policy benefits and 
operating expenses.

For the year ended December 31, 2001, net cash used for operating activities 
was $599.0 million as compared with net cash used of $1,345.5 and $2,823.0 
million in 2000 and 1999, respectively. The improvement related primarily to 
decreased paid claims. The improvement in 2000 relates primarily to 
significant payments in 1999 for (i) $1.1 billion in cash to Allstate in 
connection with the transaction involving CNA's Personal Insurance business 
and (ii) $1.1 billion of claim payments from escrow pursuant to the Fibreboard 
settlement. See Note 12 of the Notes to Consolidated Financial Statements for 
discussion of the Personal Insurance transaction. Excluding these significant, 
non-recurring transactions from 1999, CNA's 2000 cash outflow from operations 
declined by approximately $600.0 million to an outflow of approximately $1.4 
billion. The operating cash flows forgone in 2000 due to the transfer of 
Personal Insurance in 1999 was approximately $250.0 million. The remainder of 
the decline related primarily to increased payments of claims and decreased 
receipts of premiums.

Cash flows from investing activities include purchases and sales of financial 
instruments, as well as the purchase and sale of land, buildings, equipment 
and other assets not generally held for resale.

For the year ended December 31, 2001, net cash used for investment activities 
was $205.1 million as compared with net cash inflows of $1,842.0 million in 
2000. Cash flows for investing activities were related principally to 
increased net purchases of invested assets related to investing $1.0 billion 
of proceeds from the common stock rights offering completed in the third 
quarter of 2001.

For the year ended December 31, 2000, net cash inflows from investment 
activities were $1,842.0 million as compared with $3,317.0 million in 1999. 
Cash flows from investing activities were particularly high in 1999 due to 
sales of investments to fund the outflows related to the Personal Insurance 
transaction and Fibreboard claim payments.

Cash flows from financing activities include proceeds from the issuance of 
debt or equity securities, outflows for dividends or repayment of debt and 
outlays to reacquire equity instruments. For the year ended December 31, 2001, 
net cash provided from financing activities was $783.0 million as compared 
with $487.0 million of net cash used in 2000. CNA completed a common stock 
rights offering on September 26, 2001, successfully raising $1.0 billion (40.3 
million shares sold at $25 per share). Loews purchased 38.3 million shares 
issued in connection with the rights offering for $957.1 million, and an 
additional .8 million shares in the open market, increasing its ownership 
percentage of CNA to 89%. Additionally, CNA borrowed $500.0 million against 
its bank credit facility. Partially offsetting these cash inflows were 
reductions to CNA's commercial paper borrowings of $627.0 million.

For the year ended December 31, 2000, net cash used for financing activities 
was $487.0 million as compared with $558.0 million in 1999. During 2000 and 
1999, cash flows for financing activities included the repurchase of preferred 
and common equity instruments, the retirement or repurchase of senior debt 
securities and mortgages, the repayment of bank loans and the payment of 
preferred dividends.

CNA is closely managing the cash flows related to claims and reinsurance 
recoverables from the WTC event. It is anticipated that significant claim 
payments will be made prior to receipt of the corresponding reinsurance 
recoverables. CNA does not anticipate any liquidity problems resulting from 
these payments. As of March 1, 2002, CNA has paid $273.0 million in claims and 
recovered $90.0 million from reinsurers.

CNA's estimated gross pretax losses for the WTC event were $1,648.0 million, 
($937.2 million after-tax and minority interest). Net pretax losses before the 
effect of the corporate aggregate reinsurance treaties were $727.0 million. 
Approximately 41.0%, 40.0% and 17.0% of the reinsurance recoverables on the 
estimated losses related to the WTC event are from companies with S&P ratings 
of AAA, AA or A, respectively.

Effective January 30, 2001, CNA sold the 180 Maiden Lane, New York, facility. 
The sale of this property provided additional liquidity to CNA with net sale 
proceeds of $264.0 million.

During 2001, CNA discontinued its commercial paper program and repaid all 
loans outstanding under the program. The funds used to retire the outstanding 
commercial paper debt were obtained through the draw down of the full amount 
available under CNA's $500.0 million revolving credit facility. The facility 
is composed of two parts: a $250.0 million component with a 364-day expiration 
date (with an option to convert into a one-year term loan) and a $250.0 
million component with a three-year expiration date.

CNA pays a facility fee to the lenders for having funds available for loans 
under both components of the facility; the fee varies based on the long-term 
debt ratings of CNA. At December 31, 2001 the facility fee on the 364-day 
component was 15 basis points and the facility fee on the three-year component 
was 17.5 basis points.

In addition to the facility fees, CNA pays interest on outstanding 
debt/borrowings under the facility based on a rate determined using the long-
term debt ratings of CNA. The current interest rate is equal to the London 
Interbank Offering Rate ("LIBOR") plus 60 basis points for the 364-day 
component and LIBOR plus 57.5 basis points for the

                                     55

three-year component. Further, if CNA has outstanding loans greater than 50% 
of the amounts available under the facility, CNA also pays a utilization fee 
of 12.5 basis points on such loans.

A Moody's downgrade of the CNA senior debt rating from Baa2 to Baa3 would 
increase the facility fee on the 364-day component of the facility from 15 
basis points to 20 basis points, and the facility fee on the three-year 
component would increase from 17.5 basis points to 25 basis points. The 
applicable interest rate on the 364-day component would increase from LIBOR 
plus 60 basis points to LIBOR plus 80 basis points and the applicable interest 
rate on the three-year component would increase from LIBOR plus 57.5 basis 
points to LIBOR plus 75 basis points. The utilization fee would remain 
unchanged on both components at 12.5 basis points.

The $500.0 million revolving credit facility replaced CNA's $750.0 million 
revolving credit facility (the "Prior Facility"), which was scheduled to 
expire on May 10, 2001. No loans were outstanding under the Prior Facility 
anytime during 2001. To offset the variable rate characteristics of the Prior 
Facility and the interest rate risk associated with periodically reissuing 
commercial paper, in 1999 and 2000 CNA entered into interest rate swap 
agreements with several banks. These agreements required CNA to pay interest 
at a fixed rate in exchange for the receipt of the three-month LIBOR. The 
effect of the interest rate swap agreements was to decrease interest expense 
by approximately $2.0 million for the year ended December 31, 2000 and 
increase interest expense by $4.0 million for the year ended December 31, 
1999.

The terms of CNA's credit facility requires CNA to maintain certain financial 
ratios and combined property-casualty company statutory surplus levels. At 
December 31, 2001 and 2000, CNA was in compliance with all restrictive debt 
covenants.

Following the announcement of second quarter 2001 earnings, CNA's commercial 
paper rating was placed under review by S&P. During the review period, CNA, 
through an affiliated company held varying amounts of its commercial paper 
with the intent to put it back into the market after the review was completed. 
On October 10, 2001, S&P lowered CNA's commercial paper rating from A2 to A3, 
and maintained the CreditWatch Negative status. On December 28, 2001, Moody's 
lowered the long-term debt rating from Baa1 to Baa2 and affirmed the P2 short-
term debt rating.

The commercial paper rating downgrade, the impacts of the WTC event and an 
overall decline in the market made it difficult to maintain a commercial paper 
program. Following consultation with CNA's commercial and investment bankers, 
management determined that the most economical way to replace the commercial 
paper was to draw on the revolving bank credit facility.

In the normal course of business, CNA has obtained letters of credit in favor 
of various unaffiliated insurance companies, regulatory authorities and other 
entities. At December 31, 2001 there were approximately $270.0 million of 
outstanding letters of credit, of which approximately $30.0 million are 
collateralized with cash and securities.

CNA has committed approximately $152.0 million to future capital calls from 
various third party limited partnership investments in exchange for an 
ownership interest in the related partnerships.

CNA has a commitment to purchase a $100.0 million floating rate note issued by 
the Californian Earthquake Authority in the event California earthquake 
related insurance losses exceed $4.9 billion prior to December 31, 2002.

CNA has entered into a limited number of guaranteed payment contracts. These 
relate primarily to telecom service contracts and amount to payments of 
approximately $41.0 million guaranteed for 2002 through 2005. Additionally, 
CNA is obligated to future payments totaling $596.0 million for non-cancelable 
operating leases expiring from 2002 through 2014 primarily for office space, 
data processing, office and transportation equipment.

Ratings have become an increasingly important factor in establishing the 
competitive position of insurance companies. CNA's insurance company 
subsidiaries are rated by major rating agencies, and these ratings reflect the 
rating agency's opinion of the insurance company's financial strength, 
operating performance, strategic position and ability to meet its obligations 
to policyholders. Agency ratings are not a recommendation to buy, sell or hold 
any security, and may be revised or withdrawn at any time by the issuing 
organization. Each agency's rating should be evaluated independently of any 
other agency's rating.

The table below reflects ratings issued by A.M. Best, S&P, Moody's and Fitch 
as of February 13, 2002 for the Continental Casualty Company ("CCC") Pool, the 
Continental Insurance Company ("CIC") Pool and the Continental Assurance 
Company ("CAC") Pool. Also rated were CNA's senior debt and commercial paper 
and The Continental Corporation's ("Continental") senior debt.


<TABLE>
<CAPTION>

                                                                           Debt Ratings
                                                            ------------------------------------
                               Insurance Ratings                    CNA              
                         -------------------------------    -----------------------  Continental
                               Financial Strength             
                         -------------------------------      Senior    Commercial     Senior
                         CCC Pool   CAC Pool   CIC Pool        Debt       Paper         Debt
------------------------------------------------------------------------------------------------

<s>                        <c>    <c>            <c>            <c>       <c>           <c>
A.M. Best                   A          A          A             BBB       AMB-2         BBB-
Fitch                       A          AA-        NR            BBB       NR            NR
Moody's                     A3    A2 (Negative)*  A3            Baa2      P2            Baa3
S&P                         A-         A+         A-            BBB-      A3            BBB-
------------------------------------------------------------------------------------------------
NR = Not Rated
* CAC and Valley Forge Life Insurance Company ("VFL") are rated separately by Moody's and both 
  have an A2 rating.
</TABLE>


                                     56

On February 13, 2002, Fitch removed the rating watch negative status and 
affirmed the insurance financial strength rating of CCC and the senior debt 
rating of CNA. On September 24, 2001, following the WTC event, Fitch affirmed 
the ratings of CAC and placed CCC under review.

On February 1, 2002 S&P affirmed the debt and financial strength ratings of 
CNA and the CNA insurance companies. The outlook was changed from CreditWatch 
Negative to stable. This action occurred after management's discussions with 
S&P in early January of 2002, and upon completion of their evaluation of 
additional information provided to them with respect to the WTC event reserve 
estimate (including additional sensitivity analyses of the reserve estimates) 
and other capital adequacy analyses. Additionally, CNA and S&P-London have 
agreed to a guarantee of the Continental Insurance Company of Europe 
("CIE")/Maritime Insurance Co., Ltd. liabilities by CCC in order to maintain 
their present rating of "A-". This matter is expected to be concluded by the 
second quarter of 2002, as the guarantee requires the approval of the Illinois 
Department of Insurance (the "Department").

On December 28, 2001, Moody's lowered the insurance financial strength rating 
of the CCC Pool to A3 (stable). In addition, Moody's lowered the CNA long-term 
debt and preferred stock ratings to Baa2 and Ba1, and the Continental senior 
debt rating to Baa3. The previously affirmed ratings of CIC, CAC and 
commercial paper remained unchanged with the rating action. These rating 
actions concluded the review begun on August 2, 2001 in connection with the 
second quarter 2001 reserve strengthening. In light of subsequent events, 
management further discussed with Moody's the WTC event and the fourth quarter 
restructuring charge. All of these items were contemplated in their current 
rating opinion and outlook.

CNA held $275.0 million of Continental preferred shares. The $29.0 million 
annual Continental preferred share dividend was funded by CIC. Although the 
capital position of the CIC Pool remains strong, CIC's ability to dividend 
funds to its parent, Continental, is limited by regulatory constraints. In 
order to alleviate intercompany dividend requirements, the Continental 
preferred stock has been converted to Continental common stock in the fourth 
quarter of 2001.

CNA's ability to pay dividends and other credit obligations is significantly 
dependent on receipt of dividends from its subsidiaries. The payment of 
dividends to CNA by its insurance subsidiaries without prior approval of the 
insurance department of each subsidiary's domiciliary jurisdiction is limited 
by formula. Dividends in excess of these amounts are subject to prior approval 
of the respective state insurance departments.

Dividends from the CCC Pool are subject to the insurance holding company laws 
of the State of Illinois, the domiciliary state of CCC. Under these laws, 
ordinary dividends, or dividends that do not require prior approval of the 
Department, may be paid only from earned surplus, which is calculated by 
removing unrealized gains (which under statutory accounting includes 
cumulative earnings of CCC's subsidiaries) from unassigned surplus. As of 
December 31, 2001, CCC is in a negative earned surplus position. In February 
of 2002, the Department approved an extraordinary dividend in the amount of 
$117.0 million to be used to fund CNA's 2002 debt service requirements. Until 
CCC is in a positive earned surplus position, all dividends require prior 
approval of the Department.

In addition, by agreement with the New Hampshire Insurance Department, as well 
as certain other state insurance departments, dividend payments for the CIC 
Pool are restricted to internal and external debt service requirements through 
September 2003 up to a maximum of $85.0 million annually, without the prior 
approval of the New Hampshire Insurance Department.

Lorillard

Lorillard and other cigarette manufacturers continue to be confronted with 
substantial litigation and regulatory issues. Lawsuits continue to be filed 
against Lorillard and other manufacturers of tobacco products. Approximately 
4,675 product liability cases are pending against cigarette manufacturers in 
the United States. Of these, approximately 1,250 cases are pending in a West 
Virginia court, and approximately 2,850 cases are brought by flight attendants 
alleging injury from exposure to environmental tobacco smoke in the cabins of 
aircraft. Lorillard is a defendant in all of the flight attendant suits served 
to date and is a defendant in most of the cases pending in West Virginia.

On July 14, 2000, the jury in Engle v. R.J. Reynolds Tobacco Co., et al. 
awarded a total of $145.0 billion in punitive damages against all defendants, 
including $16.3 billion against Lorillard. The judgment also provides that the 
jury's awards bear interest at the rate of 10% per year. Lorillard remains of 
the view that the Engle case should not have been certified as a class action. 
That certification is inconsistent with the majority of federal and state 
court decisions which have held that mass smoking and health claims are 
inappropriate for class treatment. Lorillard has challenged class 
certification, as well as other numerous legal errors that it believes 
occurred during the trial. The Company and Lorillard believe that an appeal of 
these issues on the merits should prevail.

Lorillard noticed an appeal from the final judgment to the Third District of 
the Florida Court of Appeal and posted its appellate bond in the amount of 
$100.0 million pursuant to Florida legislation limiting the amount of an 
appellate bond required to be posted in order to stay execution of a judgment 
for punitive damages in a certified class action. While Lorillard believes 
this legislation is valid and that any challenges to the possible application 
or constitutionality of this legislation would fail, during May of 2001, 
Lorillard and two other defendants jointly contributed a total of $709.0 
million to a fund that will not be recoverable by them even if challenges to 
the judgment are resolved in favor of the defendants. As a result, the class 
has agreed to a stay of execution on its punitive damages judgment until 
appellate review is completed, including any review by the U.S. Supreme Court. 
However, if Lorillard, Inc.'s balance sheet net worth (as determined in 
accordance

                                     57

with generally accepted accounting principles in effect as of July 14, 2000) 
falls below $921.2 million, the stay pursuant to the agreement would terminate 
and the class would be free to challenge the separate stay granted in favor of 
Lorillard pursuant to Florida legislation. The Florida legislation limits to 
$100.0 million the amount of an appellate bond required to be posted in order 
to stay execution of a judgment for punitive damages in a certified class 
action. Lorillard contributed a total of $200.0 million to this fund, which 
included the $100.0 million that was initially posted as its appellate bond. 
Accordingly, results of operations for the year ended December 31, 2001, 
include Lorillard's second quarter pretax charge of $200.0 million.

The terms of the State Settlement Agreements (see Note 17 of the Notes to 
Consolidated Financial Statements) require significant payments to be made to 
the Settling States which began in 1998 and continue in perpetuity. Lorillard 
expects the cash payment to be made under the State Settlement Agreements in 
2001 to be approximately $1.1 billion. See Note 17 of the Notes to 
Consolidated Financial Statements for additional information regarding this 
settlement and other litigation matters. 

The principal source of liquidity for Lorillard's business and operating needs 
is internally generated funds from its operations. Lorillard generated net 
cash flow from operations of approximately $709.7 million for the year ended 
December 31, 2001, compared to $550.4 million for the prior year. The 
increased cash flow in 2001 reflects timing differences related to the cash 
payments for estimated taxes partially offset by the lower net income and 
additional cash payments related to the Engle agreement. Lorillard believes 
that cash flows from operating activities will be sufficient for the 
foreseeable future to enable it to meet its obligations under the State 
Settlement Agreements and to fund its capital expenditures. Lorillard cannot 
predict its cash requirements related to any future settlements or judgments, 
including cash required to bond any appeals, if necessary, and can make no 
assurance that it will be able to meet all of those requirements.

Loews Hotels

In 2001, Loews Hotels, with its partners, opened a second hotel at Universal 
Orlando in Florida and is developing a third hotel which is scheduled to open 
in 2002. Capital expenditures in relation to these hotel projects are being 
funded by a combination of equity from Loews Hotels and its partners, and 
mortgages.

Funds from operations continue to exceed operating requirements. Funds for 
other capital expenditures and working capital requirements are expected to be 
provided from existing cash balances and operations.

Diamond Offshore

There has historically been a strong correlation between the price of oil and 
natural gas and the demand for offshore drilling services. As natural gas 
prices started to decline during the third quarter of 2001, demand for Diamond 
Offshore's jack-up fleet in the Gulf of Mexico began to soften. Although 
Diamond Offshore has maintained jack-up fleet utilization higher than the 
industry average, operating dayrates earned by the fleet have deteriorated. 
Utilization of Diamond Offshore's intermediate semisubmersible fleet in the 
Gulf of Mexico, which had begun to improve during mid-year 2001, declined 
again during the fourth quarter. Contract renewal dayrates for these rigs have 
also been lower.

Utilization for Diamond Offshore's high specification floaters has remained 
strong throughout 2001. However, towards the end of the year, some deep-water 
capacity has become available in the market, and dayrates have declined 
slightly. In the international markets, demand has been strong and dayrates 
have remained at high levels. Diamond Offshore believes that continued 
strength in both high specification and international markets will depend, in 
large part, on product prices remaining at current levels. Significant 
relocations of drilling rigs from the weaker Gulf of Mexico to international 
markets could also lower dayrates in non-U.S. markets.

At December 31, 2001, cash and marketable securities totaled $1.1 billion, up 
from $862.1 million at December 31, 2000. Cash provided by operating 
activities for the year ended December 31, 2001 increased by $177.5 million to 
$374.0 million, as compared to 2000. The increase in cash flow was primarily 
due to improved results of operations in 2001.

On April 6, 2001, Diamond Offshore redeemed all of its outstanding 3.75% 
Convertible Subordinated Notes (the "Notes") in accordance with the indenture 
under which the Notes were issued. Prior to April 6, 2001, $12.4 million 
principal amount of the Notes had been converted into 307,071 shares of 
Diamond Offshore's common stock at the stated conversion price of $40.50 per 
share. The remaining $387.6 million principal amount of the Notes was redeemed 
at 102.08% of the principal amount, plus accrued interest, for a total cash 
payment of $397.7 million.

On April 11, 2001, Diamond Offshore issued $460.0 million principal amount of 
1.5% convertible senior debentures (the "1.5% Debentures") due April 15, 2031. 
The 1.5% Debentures are convertible into shares of Diamond Offshore's common 
stock at an initial conversion rate of 20.3978 shares per each $1,000 
principal amount, subject to adjustment in certain circumstances. Upon 
conversion, Diamond Offshore has the right to deliver cash in lieu of shares 
of its common stock. The transaction resulted in net proceeds of approximately 
$449.1 million. 

During 2001, Diamond Offshore purchased 1,403,900 shares of its common stock 
at an aggregate cost of $37.8 million. Depending on market conditions, Diamond 
Offshore may, from time to time, purchase shares of its common stock in the 
open market.

During the year ended December 31, 2001, Diamond Offshore expended $160.4 
million, including capitalized interest expense, for rig upgrades. These 
expenditures were primarily for the deepwater upgrades of the Ocean Baroness 
($114.3 million) and the Ocean

                                     58

Rover ($20.7 million). Included in this amount was $12.6 million for 
accommodation and stability enhancement upgrades of the Ocean Nomad which were 
completed in April 2001. In addition, the pre-fabrication of equipment 
required for the upgrade of six of Diamond Offshore's jack-up rigs accounted 
for $7.2 million of 2001 rig upgrade expenditures. Diamond Offshore expects to 
spend approximately $275.0 million for rig upgrade capital expenditures during 
2002 which are primarily costs associated with upgrades of the Ocean Rover and 
six jack-up rigs. Approximately $34.0 million of this amount is expected to be 
used for the completion of the Ocean Baroness upgrade.

The significant upgrade of Diamond Offshore's semisubmersible, the Ocean 
Baroness, to high specification capabilities will be completed in early 2002. 
The approximate cost of the upgrade was $170.0 million. In January 2002, the 
Ocean Rover arrived at a shipyard in Singapore for a major upgrade to water 
depths and specifications similar to the enhanced Ocean Baroness. The 
estimated cost of this upgrade is approximately $200.0 million with 
approximately $140.0 million to be spent in 2002. The upgrade is expected to 
take approximately 19 months to complete with delivery estimated to occur in 
the third quarter of 2003.

Diamond Offshore also plans to spend approximately $93.0 million over the next 
two years to upgrade six of its jack-up rigs. The equipment necessary for 
these upgrades will be pre-fabricated and installation is planned to occur 
during idle time or scheduled surveys to minimize downtime. Diamond Offshore 
expects to finance these upgrades through the use of existing cash balances or 
internally generated funds.

During the year ended December 31, 2001, Diamond Offshore expended $108.2 
million for its continuing rig enhancement program and other corporate 
requirements. Diamond Offshore has budgeted $107.1 million for 2002 capital 
expenditures associated with these items.

Cash required to meet Diamond Offshore's capital commitments is determined by 
evaluating rig upgrades to meet specific customer requirements and by 
evaluating Diamond Offshore's continuing rig enhancement program, including 
water depth and drilling capability upgrades. It is management's opinion that 
operating cash flows and Diamond Offshore's cash reserves will be sufficient 
to meet these capital commitments; however, periodic assessments will be made 
based on industry conditions. In addition, Diamond Offshore may, from time to 
time, issue debt or equity securities, or a combination thereof, to finance 
capital expenditures, the acquisition of assets and businesses, or for general 
corporate purposes. Diamond Offshore's ability to effect any such issuance 
will be dependent on its results of operations, its current financial and 
market conditions, and other factors beyond its control.

Bulova

For the year ended December 31, 2001, net cash provided for operating 
activities was $15.9 million as compared with net cash used of $15.9 million 
in 2000. Bulova's cash and cash equivalents, and investments amounted to $18.9 
million at December 31, 2001, compared to $16.9 million in 2000. The increase 
in net cash flow is primarily the result of a decrease in inventory purchases 
and a higher collection of accounts receivables as compared to the prior year, 
partially offset by a change in the timing of accounts payable and accrued 
expenses. Funds for capital expenditures and working capital requirements are 
expected to be provided from operations and existing cash balances. No 
material capital expenditures are anticipated during 2002.

Majestic Shipping

Subsidiaries of Majestic Shipping Corporation ("Majestic"), a wholly owned 
subsidiary of the Company, entered into agreements with a Korean shipyard for 
the new building of four 442,500 deadweight ton, ultra-large crude carrying 
ships ("ULCCs"). Hellespont Shipping Corporation ("Hellespont"), a 49% owned 
subsidiary of Majestic, also entered into agreements with another Korean 
shipyard for the new building of four 303,000 deadweight ton, very large crude 
carrying ships ("VLCCs"). In 2001, Hellespont sold its contracts for 
construction of four supertankers. The gain on the transaction was not 
material. The total cost of the four remaining ships to be purchased by the 
subsidiaries of Majestic is estimated to amount to approximately $360.0 
million. The financing for these ships will be provided through equity 
contributions by the Company and bank debt guaranteed by Majestic. The Company 
has agreed to provide credit support for Majestic's bank debt by making 
available to the borrowers limited operating cash flow credit facilities.

Parent Company

During 2001, the Company purchased 5,746,600 shares of its outstanding Common 
Stock at an aggregate cost of $282.2 million. Depending on market conditions, 
the Company from time to time purchases shares of its, and its subsidiaries', 
outstanding common stock in the open market or otherwise.

In September of 2001, the Company paid $957.1 million to purchase 38.3 million 
shares of CNA common stock at $25 per share in connection with a rights 
offering. The Company purchased an additional 836,500 shares of CNA common 
stock for $21.6 million. As result, the Company's ownership percentage of CNA 
increased to 89%.

On February 6, 2002, the Company sold 40.3 million shares of a new class of 
its common stock referred to as "Carolina Group" stock for net proceeds of 
$1.1 billion. Proceeds from this sale have been allocated to the Loews Group 
and will be used for general corporate purposes.

The Company continues to pursue conservative financial strategies while 
seeking opportunities for responsible growth. These include the expansion of 
existing businesses, full or partial acquisitions and dispositions, and 
opportunities for efficiencies and economies of scale.

                                     59

INVESTMENTS

Investment activities of non-insurance companies include investments in fixed 
income securities, equity securities including short sales, derivative 
instruments and short-term investments, and are carried at fair value. Equity 
securities, which are considered part of the Company's trading portfolio, 
short sales and derivative instruments are marked to market and reported as 
investment gains or losses in the Consolidated Statements of Operations.

The Company enters into short sales and invests in certain derivative 
instruments for a number of purposes, including: (i) asset and liability 
management activities, (ii) income enhancements for its portfolio management 
strategy, and (iii) to benefit from anticipated future movements in the 
underlying markets. If such movements do not occur as anticipated, then 
significant losses may occur.

Monitoring procedures include senior management review of daily detailed 
reports of existing positions and valuation fluctuations to ensure that open 
positions are consistent with the Company's portfolio strategy.

The credit exposure associated with these instruments is generally limited to 
the positive market value of the instruments and will vary based on changes in 
market prices. The Company enters into these transactions with large financial 
institutions and considers the risk of nonperformance to be remote.

The Company does not believe that any of the derivative instruments utilized 
by it are unusually complex, nor do these instruments contain embedded 
leverage features which would expose the Company to a higher degree of risk. 
See "Results of Operations," "Quantitative and Qualitative Disclosures about 
Market Risk" and Note 4 of the Notes to Consolidated Financial Statements for 
additional information with respect to derivative instruments, including 
recognized gains and losses on these instruments.

Insurance

The components of CNA's net investment income for the years ended December 31, 
2001, 2000 and 1999 are presented in the following table.


<TABLE>
<CAPTION>

Year Ended December 31                            2001       2000        1999
------------------------------------------------------------------------------
(In millions)

<s>                                           <c>         <c>        <c>
Fixed maturity securities:
  Bonds:
   Taxable                                    $1,742.0    $1,549.0   $1,509.0
   Tax-exempt                                    112.0       216.0      267.0
  Redeemable preferred stocks                      1.0         1.0
Limited Partnerships                              47.0       293.0      115.0
Equity securities                                 39.0        52.0       36.0
Mortgage loans and real estate                     2.0         4.0        4.0
Policy loans                                      12.0        12.0       11.0
Short-term investments                           135.0       201.0      188.0
Securities lending transactions, net              29.0        22.0       25.0
Other, including interest on funds withheld
 and other deposits                             (164.0)      (16.0)      80.0
------------------------------------------------------------------------------
Gross investment income                        1,955.0     2,334.0    2,235.0
Investment expense                               (58.0)      (48.0)     (41.0)
------------------------------------------------------------------------------

Net investment income                         $1,897.0    $2,286.0   $2,194.0
==============================================================================
</TABLE>


During 2001, CNA reclassified equity method income from limited partnership 
investments. Effective in 2001, equity method income from limited partnership 
investments is classified in net investment income and amounts in 2000 and 
1999 have been reclassified to conform to the new presentation. This income 
was previously classified in realized investment gains, net of participating 
policyholders' and minority interests. Income from limited partnership 
investments decreased $246.0 million for 2001 compared with 2000 and increased 
$178.0 million for 2000 compared with 1999. During 2000 market conditions 
allowed for favorable investment results relative to the investment strategies 
of certain limited partnership investments. In addition, certain partnerships 
that were very successful during 2000 have been dissolved. Investment results 
for the same periods in 2001 were, in general, less than expected.

CNA's reinsurance program includes certain property-casualty contracts, such 
as the corporate aggregate treaties, that are entered into and accounted for 
on a funds withheld basis. Under these contracts, CNA records a funds withheld 
liability for substantially all of the ceded premiums. The reinsurance 
contract requires CNA to increase the funds withheld balance at a defined 
interest-crediting rate. The funds withheld liability is reduced by any 
cumulative claim payments made by CNA in excess of CNA's retention under the 
reinsurance contract. If the funds withheld liability is exhausted, additional 
claim payments are recoverable from the reinsurer.

                                     60

During 2001, CNA reclassified interest on funds withheld and other deposits. 
This expense was previously classified in other operating expenses and is now 
classified in net investment income. Interest on funds withheld and other 
deposits was $241.0 million in 2001, $87.0 million in 2000 and $22.0 million 
in 1999.

The amount subject to interest crediting rates on such contracts was $2,724.0 
million and $522.0 million at December 31, 2001 and 2000.

CNA experienced lower net investment income in 2001 as compared with 2000 due 
primarily to the decrease in limited partnership income as well as the 
increase in interest on funds withheld and other deposits. Net investment 
income increased in 2000 as compared with 1999 principally as a result of an 
increase in limited partnership income, partially offset by an increase in 
interest expense on funds withheld and other deposits. The bond segment of the 
investment portfolio yielded 6.4% in 2001, 6.7% in 2000 and 6.1% in 1999.

 The components of CNA's net investment gains (losses) for the years ended 
December 31, 2001, 2000 and 1999 are presented in the following table:


<TABLE>
<CAPTION>

Year Ended December 31                            2001       2000        1999
------------------------------------------------------------------------------
(In millions)

<s>                                           <c>         <c>         <c>
Investment gains (losses):
Fixed maturity securities:
  U.S. Government bonds                       $  233.4   $   95.8     $(177.3)
  Corporate and other taxable bonds               (3.8)    (171.1)      (78.0)
  Tax-exempt bonds                                53.9       13.2       (44.5)
  Asset-backed bonds                              75.6      (65.0)      (13.0)
  Redeemable Preferred Stock                     (21.5)      (3.2)        1.3
------------------------------------------------------------------------------

Total fixed maturity securities                  337.6     (130.3)     (311.5)
Equity securities                              1,096.4    1,116.0       366.3
Derivative securities                             (5.0)      10.5        38.6
Other invested assets                           (163.7)      32.3       105.9
------------------------------------------------------------------------------

Total realized investment gains                1,265.3    1,028.5       199.3
Income tax expense                              (446.2)    (358.5)      (82.6)
Minority interest                               (102.0)     (88.1)      (16.8)
------------------------------------------------------------------------------

Net investment gains                          $  717.1   $  581.9     $  99.9
==============================================================================
</TABLE>


Net realized investment gains increased $135.2 million in 2001 as compared 
with 2000. This increase was due primarily to gains (after-tax and minority 
interest) from the sale of Global Crossing Ltd. common stock ("Global 
Crossing") and its related hedge of $566.0 million in 2001 as compared with 
$274.0 million in 2000, as well as gains of $47.9 million resulting from the 
sale of a New York real estate property and gains from the sale of fixed 
maturity security investments. The gains from Global Crossing reported in 2001 
are from recognition of hedge arrangements that were entered into in March of 
2000. This improvement was partially offset by estimated losses recorded for 
the planned dispositions of certain operations, principally CNA Re's U.K. 
subsidiaries described in more detail below as well as decreases in gains from 
the sale of Canary Wharf Group plc common stock ("Canary Wharf") of $30.0 
million (after-tax and minority interest) in 2001 as compared with $251.0 
million in 2000.

During the second quarter of 2001, CNA announced its intention to sell certain 
subsidiaries. The assets being held for disposition include the U.K. 
subsidiaries of CNA Re and certain other subsidiaries. Based upon the 
impairment analyses, CNA anticipated that it would realize losses in 
connection with those planned sales. In determining the anticipated loss from 
these sales, CNA estimated the net realizable value of each subsidiary being 
held for sale. An estimated realized loss of $278.4 million (after-tax and 
minority interest) was initially recorded in the second quarter of 2001 in 
connection with these planned dispositions.

CNA completed the sale of certain subsidiaries during the fourth quarter of 
2001 and updated its impairment analyses of subsidiaries still held for sale, 
including the United Kingdom subsidiaries of CNA Re. The subsidiaries sold 
resulted in realized losses of $33.1 million (after-tax and minority 
interest), all of which was previously recognized as part of the initial 
impairment loss recorded in the second quarter. The updated impairment 
analyses indicated that the $278.4 million realized loss (after-tax and 
minority interest) recorded in the second quarter of 2001 should be reduced, 
primarily because the net assets of CNA Re U.K. had been significantly 
diminished by its operating losses in the second half of 2001. In addition, 
CNA updated its estimate of disposal costs, including anticipated capital 
contributions, to reflect changes in the planned structure of the anticipated 
sale. These updated impairment analyses reduced the realized loss by $153.4 
million (after-tax and minority interest), including $141.8

                                     61

million related to the U.K. subsidiaries of CNA Re. The anticipated sale of 
the U.K. insurance subsidiaries will be subject to regulatory approval and all 
anticipated sales are expected to be completed in 2002.

Net realized investment gains increased $482.0 million in 2000 as compared 
with 1999. This increase is related principally to realized gains from Global 
Crossing and Canary Wharf. The increase in net realized gains for 2000 as 
compared with 1999 was $149.0 million for Global Crossing and $182.0 million 
for Canary Wharf. Additionally, a favorable change in market conditions 
contributed to the results for the bond sector.

A primary objective in the management of the fixed maturity portfolio is to 
maximize total return relative to underlying liabilities and respective 
liquidity needs. In achieving this goal, assets may be sold to take advantage 
of market conditions or other investment opportunities or credit and tax 
considerations. This activity will produce realized gains and losses.

CNA classifies its fixed maturity securities (bonds and redeemable preferred 
stocks) and its equity securities as available-for-sale, and as such, they are 
carried at fair value. The amortized cost of fixed maturity securities is 
adjusted for amortization of premiums and accretion of discounts to maturity, 
which are included in net investment income. Changes in fair value are 
reported as a component of other comprehensive income. Investments are written 
down to estimated fair value and losses are recognized in income when a 
decline in value is determined to be other than temporary.

For asset-backed securities included in fixed maturity securities, CNA 
recognizes income using a constant effective yield based on anticipated 
prepayments and the estimated economic life of the securities. When estimates 
of prepayments change, the effective yield is recalculated to reflect actual 
payments to date and anticipated future payments. The net investment in the 
securities is adjusted to the amount that would have existed had the new 
effective yield been applied since the acquisition of the securities. Such 
adjustments are reflected in net investment income.

Mortgage loans are carried at unpaid principal balances, including unamortized 
premium or discount. Real estate is carried at depreciated cost. Policy loans 
are carried at unpaid balances. Short-term investments are carried at 
amortized cost, which approximates fair value.

Other invested assets include investments in limited partnerships and certain 
derivative securities. CNA's limited partnership investments are recorded at 
fair value and typically reflect a reporting lag of up to three months. Fair 
value represents CNA's equity in the partnership's net assets as determined by 
the General Partner.

Limited partnerships are a small portion of CNA's overall investment 
portfolio. The majority of the limited partnerships invest in a substantial 
number of securities that are readily marketable. CNA is a passive investor 
and does not have influence over the management of these partnerships that 
operate according to established guidelines and strategies. These strategies 
may include the use of leverage and hedging techniques that potentially 
introduce more volatility and risk to the partnerships.

Investments in derivative securities are carried at fair value with changes in 
fair value reported as a component of realized gains or losses or other 
comprehensive income, depending on its hedge designation.

                                     62

The following table details the carrying value of CNA's general and separate 
account investment portfolios as of the end of each of the last two years.


<TABLE>
<CAPTION>

General and Separate Account Investments

December 31                                 2001     %            2000    %
------------------------------------------------------------------------------
(In millions of dollars)

<s>                                    <c>         <c>       <c>       <c>
General account investments

Fixed maturity securities:
  Bonds:
    Taxable                            $26,396.0    74.0%    $23,249.0   64.0%
    Tax-exempt                           2,720.0     8.0       3,349.0    9.0
  Redeemable preferred stocks               48.0                  54.0
Equity securities:
  Common stocks                            996.0     3.0       2,216.0    6.0
  Non-redeemable preferred stocks          342.0     1.0         196.0    1.0
Mortgage loans and real estate              35.0                  26.0
Policy loans                               194.0                 193.0    1.0
Other invested assets                    1,355.0     4.0       1,116.0    3.0
Short-term investments                   3,740.0    10.0       5,660.0   16.0
------------------------------------------------------------------------------

Total general account investments      $35,826.0   100.0%    $36,059.0  100.0%
==============================================================================

Separate account investments

Fixed maturity securities:
  Taxable bonds                         $2,347.0    62.0%    $ 2,703.0   65.0%
Equity securities:
  Common stocks                            149.0     4.0         212.0    5.0
  Non-redeemable preferred stocks           12.0                   3.0
Other invested assets                      876.0    23.0         849.0   20.0
Short-term investments                     394.0    11.0         407.0   10.0
------------------------------------------------------------------------------

Total separate account investments      $3,778.0   100.0%     $4,174.0  100.0%
==============================================================================
</TABLE>


Total separate accounts investments at fair value were approximately $3.7 and 
$4.1 billion at December 31, 2001 and 2000, respectively, with taxable fixed 
maturities representing approximately 62.0% and 65.0% of the totals, 
respectively. Approximately 53.0% and 57.0% of separate accounts investments 
at December 31, 2001 and 2000, respectively, are used to fund guaranteed 
investment contracts for which Continental Assurance Company and Valley Forge 
Life Insurance Company guarantee principal and a specified return to the 
contract holders (guaranteed investment contracts). The duration of fixed 
maturity securities included in the guaranteed investment contract portfolio 
is matched approximately with the corresponding payout pattern of the 
liabilities of the guaranteed investment contracts.

CNA's investment policies for both the general and separate accounts 
portfolios emphasize high credit quality and diversification by industry, 
issuer and issue. Assets supporting interest rate sensitive liabilities are 
segmented within the general account to facilitate asset/liability duration 
management.

The general account portfolio consists primarily of high quality (rated BBB or 
higher) bonds, 92.0% and 93.0% of which are rated as investment-grade at 
December 31, 2001 and 2000, respectively.

                                     63

The following table summarizes the ratings of CNA's general account fixed 
maturity bond portfolio at fair value:


<TABLE>
<CAPTION>

December 31                                                  2001                     2000
------------------------------------------------------------------------------------------------
(In millions of dollars)

<s>                                                 <c>          <c>          <c>          <c>
U.S. government and affiliated agency securities    $ 5,715.0    19.6%        $ 8,689.0    32.7%
Other AAA rated                                       9,204.0    31.6           7,120.0    26.8
AA and A rated                                        6,127.0    21.0           5,954.0    22.4
BBB rated                                             5,583.0    19.2           3,066.0    11.5
Below investment-grade                                2,487.0     8.6           1,769.0     6.6
------------------------------------------------------------------------------------------------
Total                                               $29,116.0   100.0%        $26,598.0   100.0%
================================================================================================

The following table summarizes the bond ratings of the investments supporting CNA's separate 
accounts products which guarantee principal and a specified rate of interest:

December 31                                                  2001                     2000
------------------------------------------------------------------------------------------------
(In millions of dollars)

<s>                                                 <c>          <c>          <c>          <c>
U.S. government and affiliated agency securities    $   214.0    10.5%        $   224.0     9.8%
Other AAA rated                                       1,017.0    49.9           1,248.0    54.5
AA and A rated                                          310.0    15.2             374.0    16.3
BBB rated                                               421.0    20.6             397.0    17.3
Below investment-grade                                   77.0     3.8              49.0     2.1
------------------------------------------------------------------------------------------------
Total                                               $ 2,039.0   100.0%        $ 2,292.0   100.0%
================================================================================================
</TABLE>


At December 31, 2001 and 2000, approximately 98.0% of the general account bond 
portfolio, was U.S. government agency securities or was rated by Standard & 
Poor's or Moody's Investors Service. Approximately 100.0% and 99.0% of the 
guaranteed investment contract portfolio bonds were U.S. government agency 
securities or were rated by S & P or Moody's Investors Service at December 31, 
2001 and 2000. The remaining bonds were rated by other rating agencies, 
outside brokers or CNA's management.

High yield securities are bonds rated as below investment-grade (below BBB) by 
bond rating agencies and other unrated securities that, in the opinion of 
management, are below investment grade. High yield securities generally 
involve a greater degree of risk than investment-grade securities. However, 
expected returns should compensate for the added risk. This risk is also 
considered in the interest rate assumptions in the underlying insurance 
products.

CNA's concentration in high yield bonds was approximately 8.0% and 6.6% of the 
general account portfolio and 4.0% and 2.1% of the guaranteed investment 
contract portion of CNA's separate account bond portfolio as of December 31, 
2001 and 2000, respectively. 

Included in CNA's general account fixed maturity securities at December 31, 
2001 are $7,723.0 million of asset-backed securities, at fair value, 
consisting of approximately 69.0% in collateralized mortgage obligations 
("CMOs"), 14.0% in corporate asset-backed obligations, 13.0% in U.S. 
government agency issued pass-through certificates, and 4.0% in corporate 
mortgage-backed pass-through certificates. The majority of CMOs held are 
actively traded in liquid markets and are priced by broker-dealers.

At December 31, 2001 and 2000, short-term investments consisted primarily of 
commercial paper and money market funds.

CNA invests in certain derivative financial instruments primarily to reduce 
its exposure to market risk (principally interest rate, equity price and 
foreign currency risk). CNA considers the derivatives in its general account 
to be held for purposes other than trading. Derivative securities are recorded 
at fair value at the reporting date.

Most derivatives in separate accounts are held for hedging purposes. CNA uses 
these derivatives to mitigate market risk by purchasing Standard and Poor's 
500 index futures contracts in a notional amount equal to the contract 
liability relating to Life Operations' Index 500 guaranteed investment 
contract product.

                                     64

ACCOUNTING STANDARDS

In June 2001, the Financial Accounting Standards Board ("FASB") issued 
Statement of Financial Accounting Standards ("SFAS") No. 142, "Goodwill and 
Other Intangible Assets." SFAS No. 142 changes the accounting for goodwill and 
intangible assets with indefinite lives from an amortization method to an 
impairment-only approach. Amortization of goodwill and intangible assets with 
indefinite lives, including goodwill recorded in past business combinations, 
will cease upon adoption of SFAS No. 142, which for the Company will be 
January 1, 2002. The transition adjustment resulting from adoption must be 
reported in net income as the cumulative effect of a change in accounting 
principle. In accordance with the transition guidance provided in SFAS No. 
142, the Company is in the process of completing goodwill and indefinite-lived 
intangible asset impairment tests that will be finalized by June 30, 2002. 
Amortization of goodwill and intangible assets amounted to $22.2, $27.2 and 
$30.5 million for the years ended December 31, 2001, 2000 and 1999, 
respectively.

In June 2001, the FASB issued SFAS No. 143, "Accounting for Asset Retirement 
Obligations." SFAS No. 143 applies to the accounting and reporting obligations 
associated with the retirement of tangible long-lived assets and the 
associated asset retirement costs. This Statement applies to legal obligations 
associated with the retirement of long-lived assets that result from the 
acquisition, construction, development and/or the normal operation of a long-
lived asset, except for certain obligations of lessees. Adoption of this 
Statement is required for fiscal years beginning after June 15, 2002. Adoption 
of these provisions will not have a material impact on the financial position 
or results of operations of the Company.

In August 2001, the FASB issued SFAS No. 144, "Accounting for the Impairment 
or Disposal of Long-Lived Assets." SFAS No. 144 essentially applies one 
accounting model for long-lived assets to be disposed of by sale, whether 
previously held and used or newly acquired, and broadens the presentation of 
discontinued operations to include more disposal transactions. Adoption of 
this Statement is required for fiscal years beginning after December 15, 2001. 
Adoption of these provisions will not have a material impact on the financial 
position or results of operations of the Company.

In 2002, the Company is required to implement the provisions of the FASB's 
Emerging Issues Task Force ("EITF") Issue No. 00-14, "Accounting for Certain 
Sales Incentives" and EITF Issue No. 00-25, "Vendor Income Statement 
Characterization of Consideration from a Vendor to a Retailer." EITF Issue No. 
00-14 addresses the recognition, measurement, and income statement 
characterization of sales incentives, including rebates, coupons and free 
products or services, offered voluntarily by a vendor without charge to the 
customer that can be used in, or that are exercisable by a customer as a 
result of, a single exchange transaction. EITF Issue No. 00-25 addresses 
whether consideration from a vendor to a reseller of the vendor's products is 
(i) an adjustment of the selling prices of the vendor's products and, 
therefore, should be deducted from revenue when recognized in the vendor's 
income statement or (ii) a cost incurred by the vendor for assets or services 
received from the reseller and, therefore, should be included as a cost or an 
expense when recognized in the vendor's income statement. As a result of both 
issues, promotional expenses historically included in other operating expenses 
will be reclassified to cost of manufactured products sold, or as reductions 
of revenues from manufactured products. Prior period amounts will be 
reclassified for comparative purposes. Adoption of these provisions will not 
have a material impact on the financial position or results of operations of 
the Company.

                                     65

FORWARD-LOOKING STATEMENTS

Certain statements made or incorporated by reference by the Company in this 
Report are "forward-looking" statements within the meaning of the federal 
securities laws. Forward-looking statements include, without limitation, any 
statement that may project, indicate or imply future results, events, 
performance or achievements, and may contain the words "expect", "intend", 
"plan", "anticipate", "estimate", "believe", "will be", "will continue", "will 
likely result", and similar expressions. Statements in this report that 
contain forward-looking statements include, but are not limited to, statements 
regarding CNA's insurance business relating to asbestos, pollution and mass 
tort claims, expected cost savings and other results from restructuring 
activities; statements regarding insurance reserves and statements regarding 
planned disposition of certain businesses; statements regarding litigation and 
developments affecting Lorillard's tobacco business including, among other 
things statements regarding claims, litigation and settlement, and statements 
regarding regulation of the industry; statements regarding Diamond Offshore's 
business including, without limitation, statements with respect to 
expenditures for rig conversion and upgrade, and oil and gas price levels, 
exploration and production activity.

Such statements inherently are subject to a variety of risks and uncertainties 
that could cause actual results to differ materially from those anticipated or 
projected. Such risks and uncertainties include, among others, the impact of 
competitive products, policies and pricing; product and policy availability 
and demand and market responses, including the effect of the absence of 
applicable terrorism legislation on coverages; development of claims and the 
effect on loss reserves; exposure to liabilities due to claims made by insured 
and others relating to asbestos remediation and health-based asbestos 
impairments, and exposure to liabilities for environmental pollution and other 
mass tort claims; the sufficiency of CNA's loss reserves and the possibility 
of future increases in reserves; the performance of reinsurance companies 
under reinsurance contracts; the effects of the Enron bankruptcy on energy and 
capital markets, and on the markets for directors & officers and errors & 
omissions coverages; limitations upon CNA's ability to receive dividends from 
its insurance subsidiaries imposed by state regulatory agencies; regulatory 
limitations and restrictions upon CNA and its insurance subsidiaries 
generally; judicial decisions and rulings; the possibility of downgrades in 
CNA's ratings by ratings agencies and changes in rating agency policies and 
practices, and the results of financing efforts.

The tobacco industry continues to be subject to health concerns relating to 
the use of tobacco products and exposure to environmental tobacco smoke, 
legislation, including actual and potential excise tax increases, increasing 
marketing and regulatory restrictions, governmental regulation, privately 
imposed smoking restrictions, litigation, including risks associated with 
adverse jury and judicial determinations, courts reaching conclusions at 
variance with the general understandings of applicable law, bonding 
requirements and the absence of adequate appellate remedies to get timely 
relief from any of the foregoing, and the effects of price increases related 
to concluded tobacco litigation settlements and excise tax increases on 
consumption rates.

In addition to the factors noted above, all aspects of the operations of the 
Company and its subsidiaries are affected by the impact of general economic 
and business conditions, changes in financial markets (interest rate, credit, 
currency, commodities and equities) or in the value of specific investments; 
changes in domestic and foreign political, social and economic conditions, the 
economic effects of the September 11, 2001 terrorist attacks, the impact of 
judicial rulings and jury verdicts, regulatory initiatives and compliance with 
governmental regulations and various other matters, many of which are beyond 
the control of the Company and its subsidiaries.

Developments in any of these areas, which are more fully described elsewhere 
in this Report could cause the Company's results to differ materially from 
results that have been or may be anticipated or projected by or on behalf of 
the Company and its subsidiaries. These forward-looking statements speak only 
as of the date of this Report. The Company expressly disclaims any obligation 
or undertaking to release publicly any updates or revisions to any forward-
looking statement contained herein to reflect any change in the Company's 
expectations with regard thereto or any change in events, conditions or 
circumstances on which any statement is based.

SUPPLEMENTAL FINANCIAL INFORMATION

The following supplemental condensed financial information reflects the 
financial position, results of operations and cash flows of Loews Corporation 
with its investments in CNA and Diamond Offshore accounted for on an equity 
basis rather than as consolidated subsidiaries. It does not purport to present 
the financial position, results of operations and cash flows of the Company 
in accordance with generally accepted accounting principles because it does 
not comply with SFAS No. 94, "Consolidation of All Majority-Owned 
Subsidiaries." Management believes, however, that this disaggregated financial 
data enhances an understanding of the consolidated financial statements by 
providing users with a format that management uses in assessing the Company.

                                     66


<TABLE>
<CAPTION>

Condensed Balance Sheet Information


Loews Corporation and Subsidiaries
(Including CNA and Diamond Offshore on the Equity Method)

December 31                                               2001           2000
------------------------------------------------------------------------------
(In millions)

Assets:

<s>                                                  <c>            <c>
Current assets                                       $ 1,537.2      $   579.7
Investments, primarily short-term instruments          4,202.8        4,417.1
------------------------------------------------------------------------------

Total current assets and investments in securities     5,740.0        4,996.8
Investment in CNA                                      7,408.0        8,407.1
Investment in Diamond Offshore                         1,033.5          975.8
Other assets                                           1,078.9        1,119.4
------------------------------------------------------------------------------

Total assets                                         $15,260.4      $15,499.1
==============================================================================

Liabilities and Shareholders' Equity:


Current liabilities                                  $ 2,365.7      $ 1,543.3
Securities sold under agreements to repurchase           480.4
Long-term debt, less current maturities 
 and unamortized discount                              2,427.6        2,450.8
Other liabilities                                        337.4          313.9
------------------------------------------------------------------------------

Total liabilities                                      5,611.1        4,308.0
Shareholders' equity                                   9,649.3       11,191.1
------------------------------------------------------------------------------

Total liabilities and shareholders' equity           $15,260.4      $15,499.1
==============================================================================
</TABLE>


Condensed Statements of Operations Information


Loews Corporation and Subsidiaries
(Including CNA and Diamond Offshore on the Equity Method)


<TABLE>
<CAPTION>

Year Ended December 31                       2001          2000          1999
------------------------------------------------------------------------------
(In millions)

Revenues:

<s>                                      <c>           <c>           <c>
Manufactured products and other          $4,947.6      $4,751.5      $4,485.9
Investment income                           199.1         258.5         198.1
Investment gains (losses)                   101.2          (7.4)       (461.7)
------------------------------------------------------------------------------

Total                                     5,247.9       5,002.6       4,222.3
------------------------------------------------------------------------------

Expenses:

Cost of manufactured products sold
 and other                                3,890.9       3,593.5       3,374.0
Interest                                    136.6         140.3         143.4
Income tax expense                          470.1         492.1         299.7
------------------------------------------------------------------------------

Total                                     4,497.6       4,225.9       3,817.1
------------------------------------------------------------------------------

Income from operations                      750.3         776.7         405.2
Equity in (loss) income of:
  CNA                                    (1,366.5)      1,068.0          43.2
  Diamond Offshore                           80.4          32.0          72.7
------------------------------------------------------------------------------

(Loss) income before cumulative
 effect of changes in accounting
 principles                                (535.8)      1,876.7         521.1
Cumulative effect of changes
 in accounting principles-net               (53.3)                     (157.9)
------------------------------------------------------------------------------

Net (loss) income                        $ (589.1)     $1,876.7      $  363.2
==============================================================================
</TABLE>


                                     67

Condensed Statements of Cash Flow Information


Loews Corporation and Subsidiaries
(Including CNA and Diamond Offshore on the Equity Method)


<TABLE>
<CAPTION>

Year Ended December 31                       2001          2000          1999
------------------------------------------------------------------------------
(In millions)

Operating Activities:

<s>                                      <c>           <c>            <c>
Net (loss) income                        $ (589.1)     $1,876.7       $ 363.2
Adjustments to reconcile net (loss)
 income to net cash provided by
 operating activities:
   Undistributed loss (earnings)
    of CNA and Diamond Offshore           1,321.2     (1,064.9)         (75.4)
   Cumulative effect of changes
    in accounting principles                 53.3                       157.9
   Investment (gains) losses               (101.2)         7.4          461.7
   Other                                    (48.5)        12.5          (23.8)
Changes in assets and liabilities-net       186.7        (88.0)        (376.3)
------------------------------------------------------------------------------

Total                                       822.4        743.7          507.3
------------------------------------------------------------------------------

Investing Activities:

Net decrease in short-term investments      243.6        193.2          242.9
Securities sold under agreements
 to repurchase                              480.4       (347.8)        (101.9)
Purchases of CNA common stock              (978.7)                     (107.0)
Redemption of CNA preferred stock                                       200.0
Other                                      (155.7)      (198.1)         (62.0)
------------------------------------------------------------------------------

Total                                      (410.4)      (352.7)         172.0
------------------------------------------------------------------------------

Financing Activities:

Dividends paid to shareholders             (112.5)       (99.7)        (108.9)
(Decrease) increase in long-term debt-net   (18.2)        26.1           20.5
Purchases of treasury shares               (282.2)      (305.7)        (601.6)
Issuance of common stock                       .4
------------------------------------------------------------------------------

Total                                      (412.5)      (379.3)        (690.0)
------------------------------------------------------------------------------

Net change in cash                            (.5)        11.7          (10.7)
Cash, beginning of year                      21.6          9.9           20.6
------------------------------------------------------------------------------

Cash, end of year                        $   21.1    $    21.6        $   9.9
==============================================================================
</TABLE>


                                     68

7A. Quantitative and Qualitative Disclosures About Market Risk.


The Company is a large diversified financial services company. As such, it and 
its subsidiaries have significant amounts of financial instruments that 
involve market risk. The Company's measure of market risk exposure represents 
an estimate of the change in fair value of its financial instruments. Changes 
in the trading portfolio would be recognized as investment gains (losses) in 
the Consolidated Statements of Operations. Market risk exposure is presented 
for each class of financial instrument held by the Company at December 31, 
assuming immediate adverse market movements of the magnitude described below. 
The Company believes that the various rates of adverse market movements 
represent a measure of exposure to loss under hypothetically assumed adverse 
conditions. The estimated market risk exposure represents the hypothetical 
loss to future earnings and does not represent the maximum possible loss nor 
any expected actual loss, even under adverse conditions, because actual 
adverse fluctuations would likely differ. In addition, since the Company's 
investment portfolio is subject to change based on its portfolio management 
strategy as well as in response to changes in the market, these estimates are 
not necessarily indicative of the actual results which may occur.

Exposure to market risk is managed and monitored by senior management. Senior 
management approves the overall investment strategy employed by the Company 
and has responsibility to ensure that the investment positions are consistent 
with that strategy and the level of risk acceptable to it. The Company may 
manage risk by buying or selling instruments or entering into offsetting 
positions.

Equity Price Risk - The Company has exposure to equity price risk as a result 
of its investment in equity securities and equity derivatives. Equity price 
risk results from changes in the level or volatility of equity prices which 
affect the value of equity securities or instruments that derive their value 
from such securities or indexes. Equity price risk was measured assuming an 
instantaneous 25% change in the underlying reference price or index from its 
level at December 31, 2001 and 2000, with all other variables held constant.

Interest Rate Risk - The Company has exposure to interest rate risk arising 
from changes in the level or volatility of interest rates. The Company 
attempts to mitigate its exposure to interest rate risk by utilizing 
instruments such as interest rate swaps, interest rate caps, commitments to 
purchase securities, options, futures and forwards. The Company monitors its 
sensitivity to interest rate risk by evaluating the change in the value of its 
financial assets and liabilities due to fluctuations in interest rates. The 
evaluation is performed by applying an instantaneous change in interest rates 
by varying magnitudes on a static balance sheet to determine the effect such a 
change in rates would have on the recorded market value of the Company's 
investments and the resulting effect on shareholders' equity. The analysis 
presents the sensitivity of the market value of the Company's financial 
instruments to selected changes in market rates and prices which the Company 
believes are reasonably possible over a one-year period.

The sensitivity analysis estimates the change in the market value of the 
Company's interest sensitive assets and liabilities that were held on December 
31, 2001 and 2000 due to instantaneous parallel shifts in the yield curve of 
100 basis points, with all other variables held constant.

The interest rates on certain types of assets and liabilities may fluctuate in 
advance of changes in market interest rates, while interest rates on other 
types may lag behind changes in market rates. Accordingly the analysis may not 
be indicative of, is not intended to provide, and does not provide a precise 
forecast of the effect of changes of market interest rates on the Company's 
earnings or shareholders' equity. Further, the computations do not contemplate 
any actions the Company could undertake in response to changes in interest 
rates.

The Company's long-term debt, including interest rate swap agreements, as of 
December 31, 2001 and 2000 is denominated in U.S. Dollars. The Company's debt 
has been primarily issued at fixed rates, and as such, interest expense would 
not be impacted by interest rate shifts. The impact of a 100 basis point 
increase in interest rates on fixed rate debt would result in a decrease in 
market value of $395.0 and $352.0 million, respectively. A 100 basis point 
decrease would result in an increase in market value of $464.6 and $398.8 
million, respectively.

Foreign Exchange Rate Risk - Foreign exchange rate risk arises from the 
possibility that changes in foreign currency exchange rates will impact the 
value of financial instruments. The Company has foreign exchange rate exposure 
when it buys or sells foreign currencies or financial instruments denominated 
in a foreign currency. This exposure is mitigated by the Company's 
asset/liability matching strategy and through the use of futures for those 
instruments which are not matched. The Company's foreign transactions are 
primarily denominated in Canadian Dollars, British Pounds and the European 
Monetary Unit. The sensitivity analysis also assumes an instantaneous 20% 
change in the foreign currency exchange rates versus the U.S. Dollar from 
their levels at December 31, 2001 and 2000, with all other variables held 
constant.

Commodity Price Risk - The Company has exposure to commodity price risk as a 
result of its investments in gold options. Commodity price risk results from 
changes in the level or volatility of commodity prices that impact instruments 
which derive their value from such commodities. Commodity price risk was 
measured assuming an instantaneous change of 20% from their levels at December 
31, 2001 and 2000.

                                     69

The following tables present the Company's market risk by category (equity 
markets, interest rates, foreign currency exchange rates and commodity prices) 
on the basis of those entered into for trading purposes and other than trading 
purposes.


<TABLE>
<CAPTION>
Trading portfolio:

Category of risk exposure:                  Fair Value Asset (Liability)        Market Risk
------------------------------------------------------------------------------------------------
December 31                                      2001        2000            2001          2000
------------------------------------------------------------------------------------------------
(In millions)

<s>                                           <c>         <c>              <c>         <c>

Equity markets (1):
  Equity securities                           $ 290.1     $ 248.2          $(73.0)     $ (62.0)
  Options - purchased                            17.5        22.7             6.0          4.0
          - written                              (7.8)      (17.5)           (3.0)        (3.0)
  Index futures - long                                                       (2.0)
                - short                                                                    1.0
  Short sales                                  (193.4)     (201.1)           48.0         50.0
  Separate accounts - Equity securities (a)      11.7         2.7            (2.0)        (1.0)
                    - Other invested assets     342.1       404.3            (6.0)        (7.0)
Interest rate (2):
  Options on government securities - short       (2.5)                       (2.0)
  Futures - long                                                            (75.0)        17.0
          - short                                                            16.0        (52.0)
  Separate accounts - Fixed maturity
   securities                                   308.4       410.1            (5.0)        19.0
Gold Options (3) - purchased                      2.6        11.8            (3.0)       (12.0)
                 - written                        (.4)
-----------------------------------------------------------------------------------------------

Note: The calculation of estimated market risk exposure is based on assumed adverse changes in 
      the underlying reference price or index of (1) a decrease in equity prices of 25%, (2) an 
      increase in interest rates of 100 basis points at December 31, 2001 and a decrease in 
      interest rates of 100 basis points at December 31, 2000 and (3) an increase in gold prices 
      of 20%. Adverse changes on options which differ from those presented above would not 
      necessarily result in a proportionate change to the estimated market risk exposure.

(a) In addition, the Separate accounts carry positions in equity index futures. A decrease in
    equity prices of 25% would result in market risk amounting to $(217.0) and $(245.0) at 
    December 31, 2001 and 2000, respectively. This market risk would be offset by decreases in 
    liabilities to customers under variable insurance contracts.
</TABLE>



<TABLE>
<CAPTION>
Other than trading portfolio:


Category of risk exposure:                  Fair Value Asset (Liability)        Market Risk
------------------------------------------------------------------------------------------------
December 31                                      2001        2000            2001          2000
------------------------------------------------------------------------------------------------
(In millions)

<s>                                           <c>         <c>              <c>         <c>

Equity markets (1):
  Equity securities:
    General accounts (a)                      $1,338.4    $ 2,411.6        $ (322.0)   $(456.0)
    Separate accounts                            148.6        212.4           (37.0)     (53.0)
  Other invested assets                        1,306.9      1,333.0          (134.0)    (112.0)
  Separate accounts - Other invested assets      533.0        443.4          (133.0)    (111.0)
Interest rate (2): 
  Fixed maturities (a) (b)                    31,191.0     27,244.3        (1,560.0)  (1,458.0)
  Short-term investments (a)                   6,734.8     10,037.4            (1.0)      (4.0)
  Other derivative instruments                    16.3           .7           (19.0)       1.0
  Separate accounts (a):
    Fixed maturities                           2,038.8      2,292.5          (120.0)    (118.0)
    Short-term investments                        98.0        177.0
  Long-term debt                              (5,399.0)    (5,747.0)
------------------------------------------------------------------------------------------------

Note: The calculation of estimated market risk exposure is based on assumed adverse changes in 
      the underlying reference price or index of (1) a decrease in equity prices of 25% and (2) 
      an increase in interest rates of 100 basis points.


(a) Certain securities are denominated in foreign currencies. An assumed 20% decline in the 
    underlying exchange rates would result in an aggregate foreign currency exchange rate risk 
    of $(114.0) and $(581.0) at December 31, 2001 and 2000, respectively.

(b) Certain fixed maturities positions include options embedded in convertible debt securities. 
    A decrease in underlying equity prices of 25% would result in market risk amounting to 
    $(50.0) and $(56.0) at December 31, 2001 and 2000, respectively.
</TABLE>


                                     70


Item 8. Financial Statements and Supplementary Data.

Consolidated Balance Sheets


<TABLE>
<CAPTION>
------------------------------------------------------------------------------
Assets:
------------------------------------------------------------------------------

December 31                                            2001              2000
------------------------------------------------------------------------------
(Dollar amounts in millions)

<s>                                               <c>               <c>
Investments (Notes 1, 2, 3 and 4):

  Fixed maturities, amortized cost of 
   $31,004.1 and $27,167.5                        $31,191.0         $27,244.3

  Equity securities, cost of $1,457.3 
   and $1,462.5                                     1,646.0           2,682.5

  Other investments                                 1,587.3           1,368.5

  Short-term investments                            6,734.8          10,037.4
------------------------------------------------------------------------------

Total investments                                  41,159.1          41,332.7

Cash                                                  181.3             195.2

Receivables-net (Notes 1 and 5)                    19,452.8          15,301.6

Property, plant and equipment-net
 (Notes 1 and 6)                                    3,075.3           3,206.3

Deferred income taxes (Note 9)                        607.0             404.0

Goodwill and other intangible assets-net (Note 1)     323.8             378.7

Other assets (Notes 1, 12, 14 and 15)               4,229.8           4,291.3

Deferred acquisition costs of insurance
 subsidiaries (Note 1)                              2,423.9           2,417.8

Separate account business (Notes 1 and 3)           3,798.1           4,313.9
------------------------------------------------------------------------------

Total assets                                     $ 75,251.1        $ 71,841.5
==============================================================================
</TABLE>

See Notes to Consolidated Financial Statements.

                                     71

Consolidated Balance Sheets


<TABLE>
<CAPTION>
------------------------------------------------------------------------------
Liabilities and Shareholders' Equity:
------------------------------------------------------------------------------

December 31                                            2001              2000
------------------------------------------------------------------------------
(Dollar amounts in millions)

<s>                                               <c>               <c>
Insurance reserves (Notes 1 and 7):

  Claim and claim adjustment expense              $31,266.2         $26,962.7
  Future policy benefits                            7,306.4           6,669.5
  Unearned premiums                                 4,505.3           4,820.6
  Policyholders' funds                                546.0             601.5
------------------------------------------------------------------------------

Total insurance reserves                           43,623.9          39,054.3
Payable for securities purchased (Note 4)           1,365.6             971.4
Securities sold under agreements to repurchase
 (Notes 1 and 2)                                    1,602.4           2,245.5
Long-term debt, less unamortized discounts
 (Notes 3 and 10)                                   5,920.3           6,040.0
Reinsurance balances payable                        2,722.9           1,381.2
Other liabilities (Notes 1, 3 and 14)               4,595.2           4,436.2
Separate account business (Notes 1 and 3)           3,798.1           4,313.9
------------------------------------------------------------------------------

Total liabilities                                  63,628.4          58,442.5
------------------------------------------------------------------------------

Minority interest                                   1,973.4           2,207.9
------------------------------------------------------------------------------

Commitments and contingent liabilities
  (Notes 1, 2, 4, 7, 8, 9, 10, 12, 13, 14,
    15 and 17)  

Shareholders' equity (Notes 1, 2, 10 and 11):
  Common stock, $1 par value:
    Authorized - 600,000,000 and 400,000,000
     shares
    Issued and outstanding - 191,493,300
     and 98,614,000 shares                            191.5              98.6
  Additional paid-in capital                           48.2             144.2
  Earnings retained in the business                 9,214.9          10,191.6
  Accumulated other comprehensive income              194.7             756.7
------------------------------------------------------------------------------

Total shareholders' equity                          9,649.3          11,191.1
------------------------------------------------------------------------------

Total liabilities and shareholders' equity        $75,251.1         $71,841.5
==============================================================================
</TABLE>



                                     72

Consolidated Statements of Operations


<TABLE>
<CAPTION>

Year Ended December 31                           2001        2000        1999
------------------------------------------------------------------------------
(In millions, except per share data)

<s>                                         <c>        <c>          <c>

Revenues (Note 1):

Insurance premiums (Note 15)                $ 9,361.4   $11,471.7   $13,276.7
Investment income, net of expenses (Note 2)   2,144.9     2,593.8     2,425.3
Investment gains (losses) (Note 2)            1,393.7     1,021.1      (273.5)
Manufactured products (including excise
 taxes of $618.1, $667.9 and $512.6)          4,584.1     4,383.6     4,125.3
Other                                         1,933.1     1,781.0     1,888.9
------------------------------------------------------------------------------

Total                                        19,417.2    21,251.2    21,442.7
------------------------------------------------------------------------------

Expenses (Note 1):

Insurance claims and policyholders'
 benefits (Notes 7 and 15)                   11,382.8     9,830.8    11,890.3
Amortization of deferred acquisition
 costs                                        1,803.9     1,879.8     2,142.6
Cost of manufactured products sold (Note 17)  2,237.1     2,251.1     2,116.4
Other operating expenses                      4,223.5     3,726.7     3,911.9
Restructuring and other related
 charges (Note 13)                              251.0                    83.0
Interest                                        332.0       356.9       354.3
------------------------------------------------------------------------------

Total                                        20,230.3    18,045.3    20,498.5
------------------------------------------------------------------------------

                                               (813.1)    3,205.9       944.2
------------------------------------------------------------------------------

Income tax (benefit) expense (Note 9)          (175.4)    1,106.9       305.5
Minority interest                              (101.9)      222.3       117.6
------------------------------------------------------------------------------

Total                                          (277.3)    1,329.2       423.1
------------------------------------------------------------------------------

(Loss) income before cumulative effect of
 changes in accounting principles              (535.8)    1,876.7       521.1
Cumulative effect of changes in accounting
 principles-net (Note 1)                        (53.3)                 (157.9)
------------------------------------------------------------------------------

Net (loss) income                            $ (589.1)  $ 1,876.7      $363.2
==============================================================================

Net (loss) income per share (Note 11):
 (Loss) income before cumulative effect
  of changes in accounting principles          $(2.75)      $9.44       $2.40

 Cumulative effect of changes in 
  accounting principles-net                      (.27)                   (.73)
------------------------------------------------------------------------------

Net (loss) income                              $(3.02)      $9.44      $ 1.67
==============================================================================
</TABLE>

See Notes to Consolidated Financial Statements.

                                     73

CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY


<TABLE>
<CAPTION>

                                                              Earnings   Accumulated   Common
                                                  Additional  Retained     Other        Stock
                             Comprehensive Common   Paid-in    in the   Comprehensive  Held in
                                 Income     Stock   Capital   Business    Income      Treasury
------------------------------------------------------------------------------------------------
(In millions, except per share data)

<s>                           <c>          <c>     <c>        <c>        <c>          <c>
Balance, December
 31, 1998                                  $112.6   $162.3    $ 9,033.5  $  892.8
Comprehensive income:
 Net income                   $   363.2                           363.2
 Other comprehensive
  income (Note 11)                123.8                                     123.8
                              ---------
 Comprehensive income         $   487.0
                              =========
Dividends paid, $.50
 per share                                                       (108.9)
Purchases of common stock                                                              $ (601.6)
Retirement of treasury stock                 (8.1)   (11.6)      (581.9)                  601.6
------------------------------------------------------------------------------------------------

Balance, December
 31, 1999                                   104.5    150.7      8,705.9   1,016.6
Comprehensive income:
 Net income                   $ 1,876.7                         1,876.7
 Other comprehensive 
 losses (Note 11)                (259.9)                                   (259.9)
                              ---------
 Comprehensive income         $ 1,616.8
                              =========
Dividends paid, $.50
 per share                                                        (99.7)
Purchases of common stock                                                               (305.7)
Retirement of treasury stock                 (5.9)    (8.5)      (291.3)                 305.7
Equity in certain transactions
 of subsidiary companies                               2.0
------------------------------------------------------------------------------------------------

Balance, December
 31, 2000                                    98.6    144.2      10,191.6    756.7
Comprehensive loss:
 Net loss                     $  (589.1)                          (589.1)
 Other comprehensive
  losses (Note 11)               (562.0)                                   (562.0)
                              ----------
 Comprehensive losses         $(1,151.1)
                              ==========
Two-for-one stock split                      98.6    (98.6)
Dividends paid, $.58 per share                                    (112.5)
Issuance of common stock                                .4
Purchases of common stock                                                                (282.2)
Retirement of treasury stock                 (5.7)    (1.4)       (275.1)                 282.2
Equity in certain transactions
 of subsidiary companies                               3.6
------------------------------------------------------------------------------------------------

Balance, December 31, 2001                $ 191.5   $ 48.2     $ 9,214.9      $194.7
================================================================================================
</TABLE>

See Notes to Consolidated Financial Statements.

                                     74

Consolidated Statements of Cash Flows


<TABLE>
<CAPTION>

Year Ended December 31                           2001       2000        1999
------------------------------------------------------------------------------
(In millions)

<s>                                         <c>         <c>         <c>

Operating Activities:

Net (loss) income                           $  (589.1) $ 1,876.7    $   363.2
Adjustments to reconcile net (loss)
 income to net cash used by operating
 activities:
  Cumulative effect of changes in
   accounting principles                         53.3                   157.9
  Investment (gains) losses                  (1,393.7)  (1,021.1)       273.5
  Provision for minority interest              (101.9)     222.3        117.6
  Amortization of investments                  (316.0)    (370.5)      (301.2)
  Depreciation and amortization                 374.7      356.6        395.3
  Provision for deferred income taxes            76.4      532.7        153.5
  Other non-cash items                           11.7     (275.1)        (1.8)
Changes in assets and liabilities-net:
  Reinsurance receivables                    (4,426.1)  (1,729.2)       615.9
  Other receivables                             403.1       74.1       (602.8)
  Prepaid reinsurance premiums                  224.6       10.7       (152.1)
  Deferred acquisition costs                    (17.3)    (132.2)      (220.8)
  Insurance reserves and claims               4,615.8     (127.6)    (1,192.9)
  Reinsurance balances payable                1,341.8      717.1        215.9
  Other liabilities                              55.5     (269.9)       418.8
  Trading securities                            312.5     (157.5)      (759.0)
  Transfer of business-reinsurance                         (41.3)    (1,149.2)
  Other-net                                     (86.4)    (104.6)      (289.1)
------------------------------------------------------------------------------
                                                538.9     (438.8)    (1,957.3)
------------------------------------------------------------------------------

Investing Activities:

Purchases of fixed maturities               (75,150.6) (60,838.3)   (58,532.7)
Proceeds from sales of fixed maturities      67,877.4   58,345.0     57,211.8
Proceeds from maturities of fixed maturities  3,929.7    4,222.3      2,995.5
Purchases of equity securities               (1,287.2)  (1,858.0)    (1,575.4)
Proceeds from sales of equity securities      2,325.2    2,941.6      1,803.4
Purchases of property and equipment            (502.5)    (667.2)      (708.2)
Proceeds from sales of property and 
 equipment                                      278.4       36.1         99.4
Securities sold under agreements to
 repurchase                                    (643.1)    (776.8)       791.8
Change in short-term investments              3,412.6     (687.3)       783.3
Change in other investments                    (175.9)     272.2         59.5
------------------------------------------------------------------------------
                                                 64.0      989.6      2,928.4
------------------------------------------------------------------------------
</TABLE>


                                     75

Consolidated Statements of Cash Flows


<TABLE>
<CAPTION>

Year Ended December 31                            2001        2000       1999
------------------------------------------------------------------------------
(In millions)

<s>                                           <c>         <c>         <c>

Financing Activities:

Dividends paid to shareholders                $ (112.5)    $ (99.7)   $(108.9)
Dividends paid to minority interests             (31.5)      (33.5)     (40.1)
Purchases of treasury shares                    (282.2)     (305.7)    (601.6)
Purchases of treasury shares by subsidiaries     (37.8)     (127.9)
Redemption of preferred stock by subsidiary                 (150.0)
Issuance of common stock                            .4
Issuance of common stock by subsidiary            49.2
Principal payments on long-term debt          (1,138.2)     (166.6)    (478.1)
Issuance of long-term debt                     1,000.1       476.9      225.1
Receipts credited to policyholders                 1.7         4.8        7.0
Withdrawals of policyholder account balances     (66.0)     (137.8)     (78.0)
------------------------------------------------------------------------------
                                                (616.8)     (539.5)  (1,074.6)
------------------------------------------------------------------------------

Net change in cash                               (13.9)       11.3     (103.5)
Cash, beginning of year                          195.2       183.9      287.4
-----------------------------------------------------------------------------

Cash, end of year                              $ 181.3      $195.2     $183.9
==============================================================================
</TABLE>

See Notes to Consolidated Financial Statements.

                                     76


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in millions, except per share data)

Note 1.	 Summary of Significant Accounting Policies

Principles of consolidation - The consolidated financial statements include 
all significant subsidiaries and all material intercompany accounts and 
transactions have been eliminated. Unless the context otherwise requires, the 
term "Company" means Loews Corporation and its consolidated subsidiaries. The 
equity method of accounting is used for investments in associated companies in 
which the Company generally has an interest of 20% to 50%.

Accounting estimates - The preparation of financial statements in conformity 
with accounting principles generally accepted in the United States of America 
("GAAP") requires management to make estimates and assumptions that affect the 
amounts reported in the consolidated financial statements and the related 
notes. Actual results could differ from those estimates.

Accounting changes - In the first quarter of 2001, the Company adopted the 
Financial Accounting Standards Board ("FASB") Statement of Financial 
Accounting Standards ("SFAS") No. 133, "Accounting for Derivative Instruments 
and Hedging Activities" and SFAS No. 138, "Accounting for Certain Derivative 
Instruments and Certain Hedging Activities" (collectively referred to as SFAS 
No. 133). The initial adoption of SFAS No. 133 did not have a significant 
impact on the equity of the Company; however, adoption of SFAS No. 133 
resulted in a charge to 2001 earnings of $53.3, net of income taxes and 
minority interest of $33.0 and $8.0, respectively, to reflect the change in 
accounting principle. Of this transition amount, approximately $50.5, net of 
income taxes and minority interest, related to CNA Financial Corporation's 
("CNA"), an 89% owned subsidiary, investments and investment-related 
derivatives. Because CNA already carried its investment and investment-related 
derivatives at fair value through other comprehensive income, there was an 
equal and offsetting favorable adjustment of $50.5 to shareholders' equity 
(accumulated other comprehensive income). The remainder of the transition 
adjustment is attributable to collateralized debt obligation products that are 
derivatives under SFAS No. 133. See Note 4 for a complete discussion of the 
Company's adoption of these accounting pronouncements.

On April 1, 2001 the Company adopted the FASB's Emerging Issues Task Force 
("EITF") Issue No. 99-20, "Recognition of Interest Income and Impairment on 
Purchased and Retained Beneficial Interests in Securitized Financial Assets." 
EITF Issue No. 99-20 establishes how a transferor that retains an interest in 
securitized financial assets or an enterprise that purchases a beneficial 
interest in securitized financial assets should account for interest income 
and impairment. The adoption of EITF 99-20 did not have a significant impact 
on the results of operations or equity of the Company.

In June 2001, the FASB issued SFAS No. 141, "Business Combinations". SFAS No. 
141 requires companies to use the purchase method of accounting for business 
combinations initiated after June 30, 2001 and prohibits the use of the 
pooling-of-interests method of accounting. The Company has adopted this 
standard for all business combinations subsequent to June 30, 2001.

In September 2000, the FASB issued SFAS No. 140, "Accounting for Transfers and 
Servicing of Financial Assets and Extinguishments of Liabilities". SFAS No. 
140 replaces SFAS No. 125, "Accounting for Transfers and Servicing of 
Financial Assets and Extinguishments of Liabilities". SFAS No. 140 revises the 
standards for accounting for securitizations and other transfers of financial 
assets and collateral and requires certain disclosures. The adoption of SFAS 
No. 140 did not have a significant impact on the results of operations or 
equity of the Company.

Effective January 1, 1999, the Company adopted SOP 97-3, "Accounting by 
Insurance and Other Enterprises for Insurance-Related Assessments," and SOP 
98-5, "Reporting on the Costs of Start-Up Activities." SOP 97-3 requires 
insurance companies to recognize liabilities for insurance-related assessments 
when an assessment is probable, when it can be reasonably estimated, and when 
the event obligating an entity to pay an imposed or probable assessment has 
occurred on or before the date of the financial statements.

SOP 98-5 requires costs of start-up activities and organization costs, as 
defined, to be expensed as incurred. The Company had previously deferred 
recognition of these costs and amortized them over a period following the 
completion of the start-up activities. 

The pro forma effect of adoption on reported results for prior periods is not 
significant.

The cumulative effect of these accounting changes resulted in a charge 
effective January 1, 1999, as follows:


<TABLE>
<CAPTION>

<s>                                                                     <c>
Accounting by Insurance and Other Enterprises for
 Insurance-Related Assessments (net of income taxes 
 and minority interest of $95.4 and $26.5)                              $150.8
Costs of Start-Up Activities (net of income taxes of $3.8)                 7.1
                                                                        ------
                                                                        $157.9
                                                                        ======
</TABLE>


Investments - Investments in securities, which are held principally by 
insurance subsidiaries of CNA are carried as follows:

The Company classifies fixed maturity securities (bonds and redeemable 
preferred stocks) and its equity securities held by insurance subsidiaries as 
available-for-sale, and are carried at fair value. Changes in fair value are 
recorded as a component of accumulated

                                     77

other comprehensive income in shareholders' equity, net of applicable deferred 
income taxes and participating policyholders' and minority interest. The 
amortized cost of fixed maturity securities is adjusted for amortization of 
premiums and accretion of discounts to maturity, which are included in net 
investment income. Investments are written down to estimated fair values and 
losses are recognized in income when a decline in value is determined to be 
other than temporary.

For asset-backed securities included in fixed maturity securities, the Company 
recognizes income using a constant effective yield based on anticipated 
prepayments and the estimated economic life of the securities. When estimates 
of prepayments change, the effective yield is recalculated to reflect actual 
payments to date and anticipated future payments. The net investment in the 
securities is adjusted to the amount that would have existed had the new 
effective yield been applied since the acquisition of the securities. Such 
adjustments are reflected in net investment income.

Equity securities in the parent company's investment portfolio are classified 
as trading securities in order to reflect the Company's investment philosophy. 
These investments are carried at fair value with the net unrealized gain or 
loss included in the Consolidated Statements of Operations.

Short-term investments consist primarily of U.S. government securities, 
repurchase agreements and commercial paper. These investments are generally 
carried at fair value, which approximates amortized cost.

All securities transactions are recorded on the trade date. The cost of 
securities sold is determined by the identified certificate method. 
Investments are written down to estimated fair values, and losses are charged 
to income when a decline in value is considered to be other than temporary.

Other invested assets include investments in limited partnerships and certain 
derivative securities. CNA's limited partnership investments are recorded at 
fair value and typically reflect a reporting lag of up to three months. Fair 
value represents CNA's equity in the partnership's net assets as determined by 
the General Partner.

Limited partnerships are a small portion of CNA's overall investment 
portfolio. The majority of the limited partnerships invest in a substantial 
number of securities that are readily marketable. CNA is a passive investor 
and does not have influence over the management of these partnerships that 
operate according to established guidelines and strategies. These strategies 
may include the use of leverage and hedging techniques that potentially 
introduce more volatility and risk to the partnerships.

Investments in derivative securities are carried at fair value with changes in 
fair value reported as a component of realized gains or losses or other 
comprehensive income, depending on its hedge designation.

Derivative financial investments - Effective January 1, 2001, the Company 
accounts for derivative instruments and hedging activities in accordance with 
SFAS No. 133. A derivative is typically defined as an instrument whose value 
is "derived" from an underlying instrument, index or rate, has a notional 
amount, requires no or little initial investment, and can be net settled. 
Derivatives include, but are not limited to, the following types of 
investments: interest rate swaps, interest rate caps and floors, put and call 
options, warrants, futures, forwards and commitments to purchase securities 
and combinations of the foregoing. Derivatives embedded within non-derivative 
instruments (such as call options embedded in convertible bonds) must be split 
from the host instrument and accounted for in accordance with SFAS No. 133 
when the embedded derivative is not clearly and closely related to the host 
instrument. In addition, non-investment instruments, including certain types 
of insurance contracts that have historically not been considered derivatives, 
may be derivatives or contain embedded derivatives under SFAS No. 133.

SFAS No. 133 requires that all derivative instruments be recorded in the 
balance sheet at fair value. If certain conditions are met, a derivative may 
be specifically designated as a hedge of exposures to changes in fair value, 
cash flows or foreign currency exchange rates. The accounting for changes in 
the fair value of a derivative instrument depends on the intended use of the 
derivative and the nature of any hedge designation thereon. The Company's 
accounting for changes in the fair value of derivative instruments is as 
follows:


<TABLE>
<CAPTION>

                                                 Derivative's Change in Fair Value
          Nature of Hedge Designation            Reflected in:
          ---------------------------            -------------------------------------

          <s>                                    <c>
          No hedge designation                   Realized investment gains (losses).

          Fair value                             Realized investment gains (losses),
                                                 along with the change in fair value
                                                 of the hedged asset or liability.

          Cash flow                              Other comprehensive income (loss),
                                                 with subsequent reclassification to
                                                 earnings when the hedged transaction,
                                                 asset or liability impacts earnings.

          Foreign currency                       Consistent with fair value or cash 
                                                 flow above, depending on the nature
                                                 of the hedging relationship.
</TABLE>


Changes in the fair value of derivatives held in CNA's separate accounts are 
reflected in separate account earnings. Because separate account investments 
are generally carried at fair value with changes therein reflected in separate 
account earnings, hedge accounting is generally not applicable to separate 
account derivatives.

Securities sold under agreements to repurchase - The Company lends securities 
to unrelated parties, primarily major brokerage firms. Borrowers of these 
securities must deposit collateral with the Company of at least 102% of the 
fair value of the securities loaned, if the

                                     78

collateral is cash or securities. The Company maintains effective control over 
all loaned securities and, therefore, continues to report such securities as 
fixed maturity securities in the Consolidated Balance Sheets. Cash collateral 
received on these transactions is invested in short-term investments with an 
offsetting liability recognized for the obligation to return the collateral. 
The fair value of collateral held and included in short-term investments was 
$1,591.5 and $1,822.0 at December 31, 2001 and 2000, respectively. Non-cash 
collateral, such as securities or letters of credit, received by the Company 
are not reflected as assets of the Company as there exists no right to sell or 
repledge the collateral. The fair value of non-cash collateral was $413.0 and 
$391.0 at December 31, 2001 and 2000.

Insurance Operations - Insurance premiums - Insurance premiums on property-
casualty, and accident and health insurance contracts are earned ratably over 
the duration of the policies after deductions for ceded insurance. The reserve 
for unearned premium on these contracts represents the portion of premiums 
written relating to the unexpired terms of coverage.

Property-casualty contracts that are retrospectively rated contain provisions 
that result in an adjustment to the initial policy premium depending on the 
contract provisions and loss experience of the insured during the experience 
period. For such contracts, CNA estimates the amount of ultimate premiums that 
CNA may earn upon completion of the experience period and recognizes either an 
asset or a liability for the difference between the initial policy premium and 
the estimated ultimate premium. CNA adjusts such estimated ultimate premium 
amounts during the course of the experience period based on actual results to 
date. The resulting adjustment is recorded as either a reduction of or an 
increase to the earned premium for the period.

Revenues on interest sensitive contracts are comprised of contract charges and 
fees, which are recognized over the coverage period. Premiums for other life 
insurance products and annuities are recognized as revenue when due, after 
deductions for ceded insurance premiums.

Claim and claim adjustment expense reserves - Claim and claim adjustment 
expense reserves, except reserves for structured settlements, workers' 
compensation lifetime claims and accident and health disability claims, are 
not discounted and are based on (i) case basis estimates for losses reported 
on direct business, adjusted in the aggregate for ultimate loss expectations, 
(ii) estimates of incurred but not reported losses ("IBNR"), (iii) estimates 
of losses on assumed reinsurance, (iv) estimates of future expenses to be 
incurred in settlement of claims, and (v) estimates of salvage and subrogation 
recoveries. Management considers current conditions and trends as well as past 
company and industry experience in establishing these estimates. The effects 
of inflation, which can be significant, are implicitly considered in the 
reserving process and are part of the recorded reserve balance. Reinsurance 
receivables are reported as an asset in the Consolidated Balance Sheets.

Structured settlements have been negotiated for certain property-casualty 
insurance claims. Structured settlements are agreements to provide fixed 
periodic payments to claimants. Certain structured settlements are funded by 
annuities purchased from CNA's life insurance subsidiary for which the related 
annuity obligations are recorded in future policy benefits reserves. 
Obligations for structured settlements not funded by annuities are included in 
claim and claim adjustment expense reserves and carried at present values 
determined using interest rates ranging from 6.0% to 7.5%. At December 31, 
2001 and 2000, the discounted reserves for unfunded structured settlements 
were $887.0 and $884.0, respectively (net of discounts of $1,478.0 and 
$1,473.0, respectively).

Workers' compensation lifetime claim reserves and accident and health 
disability claim reserves are calculated using mortality and morbidity 
assumptions based on CNA's and industry experience, and are discounted at 
interest rates allowed by insurance regulators that range from 3.5% to 6.5%. 
At December 31, 2001 and 2000, such discounted reserves totaled $2,384.0 and 
$2,205.0, respectively (net of discounts of $978.0 and $940.0, respectively).

Future policy benefits reserves - Reserves for traditional life insurance 
products (whole and term life products) and long-term care products are 
computed using the net level premium method, which incorporates actuarial 
assumptions as to interest rates, mortality, morbidity, withdrawals and 
expenses. Actuarial assumptions generally vary by plan, age at issue and 
policy duration and include a margin for adverse deviation. Interest rates 
range from 3.0% to 9.0%, and mortality, morbidity and withdrawal assumptions 
are based on CNA and industry experience prevailing at the time of issue. 
Expense assumptions include the estimated effects of inflation and expenses to 
be incurred beyond the premium paying period. Reserves for interest sensitive 
contracts are equal to the account balances that accrue to the benefit of the 
policyholders. Interest crediting rates ranged from 4.3% to 6.5% for the three 
years ended December 31, 2001.

Guaranty fund and other insurance-related assessments - Effective January 1, 
1999, in accordance with SOP 97-3, CNA records liabilities for guaranty fund 
and other insurance-related assessments when an assessment is probable, when 
it can be reasonably estimated, and when the event obligating the entity to 
pay an imposed or probable assessment has occurred on or before the date of 
the financial statements. Liabilities for guaranty funds and other insurance-
related assessments are not discounted or recorded net of premium taxes. These 
liabilities are included as part of other liabilities in the Consolidated 
Balance Sheets.

Reinsurance - Amounts recoverable from reinsurers are estimated in a manner 
consistent with claim and claim adjustment expense reserves or future policy 
benefits reserves and are reported as a receivable in the Consolidated Balance 
Sheets. An estimated allowance for doubtful accounts is recorded on the basis 
of periodic evaluations of balances due from reinsurers, reinsurer solvency, 
management's experience and current economic conditions.

                                     79

Reinsurance contracts that do not meet the criteria for risk transfer are 
recorded using the deposit method of accounting, which requires that premium 
paid or received by the ceding company or assuming company be accounted for as 
a deposit asset or liability. CNA primarily records these deposits as 
reinsurance receivables for ceded recoverables and other liabilities for 
assumed liabilities.

Income or reinsurance contracts that do not meet the criteria for risk 
transfer is recognized using a constant effective yield based on the 
anticipated timing of payments and the remaining life of the contract. When 
the estimate of timing of payments changes, the effective yield is 
recalculated to reflect actual payments to date and the estimated timing of 
future payments. The deposit asset or liability is adjusted to the amount that 
would have existed had the new effective yield been applied since the 
inception of the contract. This adjustment is reflected in other revenue or 
other operating expense as appropriate.

Deferred acquisition costs - Costs including commissions, premium taxes, and 
certain underwriting and policy issuance costs that vary with and are related 
primarily to the acquisition of property-casualty insurance business are 
deferred and amortized ratably over the period the related premiums are 
earned. Anticipated investment income is considered in the determination of 
the recoverability of deferred acquisition costs.

The excess of first year commissions over renewal commissions, and other first 
year costs of acquiring life insurance business such as agency and policy 
issuance expenses, that vary with and are related primarily to the production 
of new and renewal business, have been deferred and are amortized with 
interest over the expected life of the related contracts. As an offset to 
this, the excess of first year costs over renewal ceded expense allowances 
that also vary with and are related primarily to the production of new and 
renewal business, have been amortized with interest over the expected life of 
the related contracts.

Acquisition costs related to non-participating traditional life insurance and  
accident and health insurance are being amortized over the premium-paying 
period of the related policies using assumptions consistent with those used 
for computing future policy benefits reserves for such contracts. Assumptions 
as to anticipated premiums are made at the date of policy issuance or 
acquisition and are consistently applied during the lives of the contracts. 
Deviations from estimated experience are included in operations when they 
occur. For these contracts, the amortization period is typically the estimated 
life of the policy.

For universal life and cash value annuity contracts, the amortization of 
deferred acquisition costs is recorded in proportion to the present value of 
estimated gross margins or profits. The gross margins or profits result from 
actual earned interest minus actual credited interest, actual costs of 
insurance ("mortality") charges minus expected mortality, actual expense 
charges minus maintenance expenses and surrender charges. Amortization 
interest rates are based on rates in effect at the inception or acquisition of 
the contracts. Actual gross margins or profits can vary from CNA's estimates 
resulting in increases or decreases in the rate of amortization. When 
appropriate, CNA revises its assumptions of the estimated gross margins or 
profits of these contracts, and the cumulative amortization is re-estimated 
and adjusted through current operations. To the extent that unrealized gains 
or losses on available-for-sale securities would result in an adjustment of 
deferred acquisition costs had they actually been realized, an adjustment is 
recorded to deferred acquisition costs and to unrealized investment gains or 
losses.

Acquisition costs deferred are recorded net of ceding commissions and other 
ceded acquisition costs. CNA periodically evaluates deferred acquisition costs 
for recoverability; adjustments, if necessary, are recorded in current 
operations.

Investments in life settlement contracts and related revenue recognition - CNA 
has purchased life insurance policies in the form of life settlement 
contracts. Under a life settlement contract, CNA purchases an in-force life 
insurance contract at a substantial discount from the face value of the 
policy. The carrying value of each contract is determined at the end of each 
reporting period as the present value of expected proceeds reduced by the 
present value of future premiums based upon actuarial models that incorporate 
mortality and interest rate assumptions. The carrying values of these 
contracts are included in other assets with adjustments to increase the 
carrying values reflected as other revenues. Mortality and interest rate 
assumptions are reviewed periodically and adjusted if deemed necessary.

Separate account business - CNA's life insurance subsidiaries, Continental 
Assurance Company ("CAC") and Valley Forge Life Insurance Company ("VFL"), 
write investment and annuity contracts. The supporting assets and liabilities 
of certain of these contracts are legally segregated and reported in the 
accompanying Consolidated Balance Sheets as assets and liabilities of separate 
account business. CAC and VFL guarantee principal and a specified return to 
the contract holders on approximately 53% and 57% of the separate account 
business at December 31, 2001 and 2000, respectively. Substantially all assets 
of the separate account business are carried at fair value. Separate account 
liabilities are carried at contract values.

Statutory accounting practices - CNA's insurance subsidiaries are domiciled in 
various jurisdictions. These subsidiaries prepare statutory financial 
statements in accordance with accounting practices prescribed or permitted by 
their respective jurisdiction's insurance regulators. Prescribed statutory 
accounting practices are set forth in a variety of publications of the 
National Association of Insurance Commissioners ("NAIC"), as well as state 
laws, regulations and general administrative rules. CNA's insurance 
subsidiaries follow two significant permitted accounting practices related to 
discounting of certain non-tabular workers' compensation claims and the phase 
in from valuing at par to a market valuation method for recording an 
affiliated promissory note between CCC ("lender") and Viaticus, Inc. 

                                     80

("borrower"), a wholly owned subsidiary of CNA.

The impact of the permitted practice related to discounting of certain non-
tabular workers' compensation claims was to increase statutory surplus by 
approximately $47.0, $71.0 and $95.0 at December 31, 2001, 2000 and 1999, 
respectively. This practice was followed by an acquired company, and CNA 
received permission to eliminate the effect of the permitted practice after a 
10-year period, which ends in 2003.

CCC has filed for approval with the Illinois Department of Insurance (the 
"Department") the affiliated promissory note between CCC and Viaticus, Inc. 
Review of this note is still ongoing by the Department and formal approval has 
yet to be received. Therefore, the Department has granted a permitted practice 
that expires on June 30, 2002 to carry this note at a value of approximately 
$449.0 as of December 31, 2001. The par value of this note at December 31, 
2001 was approximately $464.0. CNA does not believe that the outcome of the 
Department's review will have a material impact on CCC's results of operations 
or financial position.

CNA's domestic insurance subsidiaries are subject to risk-based capital 
requirements. Risk-based capital is a method developed by the NAIC to 
determine the minimum amount of statutory capital appropriate for an insurance 
company to support its overall business operations in consideration of its 
size and risk profile. The formulas for determining the amount of risk-based 
capital specifies various factors, weighted based on the perceived degree of 
risk, that are applied to certain financial balances and financial activity. 
The adequacy of a company's actual capital is evaluated by a comparison to the 
risk-based capital results, as determined by the formulas. Companies below 
minimum risk-based capital requirements are classified within certain levels, 
each of which requires specified corrective action. As of December 31, 2001 
and 2000, all of CNA's domestic insurance subsidiaries exceeded the minimum 
risk-based capital requirements.

Statutory capital and surplus - Combined statutory capital and surplus and net 
(loss) income, determined in accordance with accounting practices prescribed 
or permitted by the regulations and statutes of various insurance regulators, 
for property and casualty and life insurance subsidiaries, are as follows:


<TABLE>
<CAPTION>


                                        Statutory Capital
                                           and Surplus             Statutory Net Income (Loss)
                                     -----------------------------------------------------------
                                           December 31               Year Ended December 31
                                     -----------------------------------------------------------
(Unaudited)                               2001         2000         2001         2000      1999
------------------------------------------------------------------------------------------------

<s>                           <c>       <c>        <c>        <c>       <c>
Property and casualty companies*     $ 6,225.0    $ 8,373.0    $(1,650.0)    $1,067.0    $ 361.0
Life insurance companies               1,752.0      1,274.0         56.0        (47.0)      77.0
------------------------------------------------------------------------------------------------

*Surplus includes the property and casualty companies' equity ownership of the life insurance 
subsidiaries.
</TABLE>


At December 31, 2001 and 2000, CNA maintained statutory deposits of cash and 
securities, with carrying values of approximately $2,000.0 and $1,900.0, 
respectively, under requirements of regulatory authorities.

Cash and securities with carrying values of approximately $30.0 and $41.0 were 
deposited with financial institutions as collateral for letters of credit at 
December 31, 2001 and 2000. See Note 17 of the Notes to Consolidated Financial 
Statements.

Tobacco product inventories - These inventories, aggregating $285.7 and $269.3 
at December 31, 2001 and 2000, respectively, are stated at the lower of cost 
or market, using the last-in, first-out (LIFO) method and primarily consist of 
leaf tobacco. If the average cost method of accounting had been used for 
tobacco inventories instead of the LIFO method, such inventories would have 
been $210.2 and $205.7 higher at December 31, 2001 and 2000, respectively.

Watch and clock inventories - These inventories, aggregating $48.8 and $56.1 
at December 31, 2001 and 2000, respectively, are stated at the lower of cost 
or market, using the first-in, first-out (FIFO) method.

Goodwill and other intangible assets - Goodwill, representing the excess of 
purchase price over fair value of the net assets of acquired entities, is 
generally amortized on a straight-line basis over the period of expected 
benefit ranging from 15 to 30 years. Other intangible assets are amortized on 
a straight-line basis over their estimated economic lives. Accumulated 
amortization at December 31, 2001 and 2000 was $464.2 and $442.0, 
respectively. Intangible assets are periodically reviewed to determine whether 
an impairment in value has occurred.

Property, plant and equipment - Property, plant and equipment is carried at 
cost less accumulated depreciation. Depreciation is computed principally by 
the straight-line method over the estimated useful lives of the various 
classes of properties. Leaseholds and leasehold improvements are depreciated 
or amortized over the terms of the related leases (including optional renewal 
periods where appropriate) or the estimated lives of improvements, if less 
than the lease term.

The principal service lives used in computing provisions for depreciation are 
as follows:


<TABLE>
<CAPTION>

                                                              Years
                                                            --------

          <s>                                               <c>
          Buildings and building equipment                        40
          Building fixtures                                 10 to 20
          Machinery and equipment                            5 to 12
          Hotel equipment                                    4 to 12
          Offshore drilling equipment                       10 to 25
</TABLE>


                                     81

Impairment of long-lived assets - The Company reviews its long-lived assets 
for impairment when changes in circumstances indicate that the carrying amount 
of an asset may not be recoverable. Long-lived assets and certain intangibles, 
under certain circumstances, are reported at the lower of carrying amount or 
fair value. Assets to be disposed of and assets not expected to provide any 
future service potential to the Company are recorded at the lower of carrying 
amount or fair value less cost to sell.

Supplementary cash flow information - Cash payments made for interest on long-
term debt, including capitalized interest and commitment fees, amounted to 
approximately $312.3, $361.3 and $336.9 for the years ended December 31, 2001, 
2000 and 1999, respectively. Cash payments made for federal, foreign, state 
and local income taxes, net of refunds, amounted to approximately $420.7, 
$227.9 and $205.2 for the years ended December 31, 2001, 2000 and 1999, 
respectively. In 1999, CNA exchanged its interest in Canary Wharf Limited 
Partnership into the common stock of Canary Wharf Group, plc. valued at 
approximately $539.0.

Accounting pronouncements - In 2002, the Company is required to implement the 
provisions of EITF Issue No. 00-14, "Accounting for Certain Sales Incentives" 
and EITF Issue No. 00-25, "Vendor Income Statement Characterization of 
Consideration from a Vendor to a Retailer." EITF Issue No. 00-14 addresses the 
recognition, measurement, and income statement characterization of sales 
incentives, including rebates, coupons and free products or services, offered 
voluntarily by a vendor without charge to the customer that can be used in, or 
that are exercisable by a customer as a result of, a single exchange 
transaction. EITF Issue No. 00-25 addresses whether consideration from a 
vendor to a reseller of the vendor's products is (i) an adjustment of the 
selling prices of the vendor's products and, therefore, should be deducted 
from revenue when recognized in the vendor's income statement or (ii) a cost 
incurred by the vendor for assets or services received from the reseller and, 
therefore, should be included as a cost or an expense when recognized in the 
vendor's income statement. As a result of both issues, promotional expenses 
historically included in other operating expenses will be reclassified to cost 
of manufactured products sold, or as reductions of revenues from manufactured 
products. Prior period amounts will be reclassified for comparative purposes. 
Adoption of these provisions will not have a material impact on the financial 
position or results of operations of the Company.

In June 2001, the FASB issued SFAS No. 142, "Goodwill and Other Intangible 
Assets." SFAS No. 142 changes the accounting for goodwill and intangible 
assets with indefinite lives from an amortization method to an impairment-only 
approach. Amortization of goodwill and intangible assets with indefinite 
lives, including goodwill recorded in past business combinations, will cease 
upon adoption of SFAS No. 142, which for the Company will be January 1, 2002. 
Amortization of goodwill and intangible assets amounted to $22.2, $27.2 and 
$30.5 for the years ended December 31, 2001, 2000 and 1999, respectively. 
Additionally, in accordance with the transition guidance provided in SFAS No. 
142, the Company will complete goodwill and other acquired intangible asset 
impairment tests by June 30, 2002. Any resulting asset impairments will be 
recorded as a cumulative effect of a change in accounting principle as of 
January 1, 2002. 

In June 2001, the FASB issued SFAS No. 143, "Accounting for Asset Retirement 
Obligations." SFAS No. 143 applies to the accounting and reporting obligations 
associated with the retirement of tangible long-lived assets and the 
associated asset retirement costs. This Statement applies to legal obligations 
associated with the retirement of long-lived assets that result from the 
acquisition, construction, development and/or the normal operation of a long-
lived asset, except for certain obligations of lessees. Adoption of this 
Statement is required for fiscal years beginning after June 15, 2002. Adoption 
of these provisions will not have a material impact on the financial position 
or results of operations of the Company.

In August 2001, the FASB issued SFAS No. 144, "Accounting for the Impairment 
or Disposal of Long-Lived Assets." SFAS No. 144 essentially applies one 
accounting model for long-lived assets to be disposed of by sale, whether 
previously held and used or newly acquired, and broadens the presentation of 
discontinued operations to include more disposal transactions. Adoption of 
this Statement is required for fiscal years beginning after December 15, 2001. 
Adoption of these provisions will not have a material impact on the financial 
position or results of operations of the Company.

Reclassification - Certain amounts applicable to prior periods have been 
reclassified to conform to the classifications followed in 2001. During 2001, 
the Company reclassified equity method income from limited partnership 
investments. This income was previously classified in realized investment 
gains and is now classified in net investment income.

                                     82

Note 2. Investments


<TABLE>
<CAPTION>

Year Ended December 31                           2001        2000        1999
------------------------------------------------------------------------------

Investment income consisted of:

<s>                                         <c>         <c>         <c>
Fixed maturity securities                   $ 1,880.2   $ 1,798.0   $ 1,814.8
Short-term investments                          299.9       420.2       362.4
Other                                            36.7       425.8       306.3
------------------------------------------------------------------------------
Total investment income                       2,216.8     2,644.0     2,483.5
Investment expenses                             (71.9)      (50.2)      (58.2)
------------------------------------------------------------------------------
Investment income-net                       $ 2,144.9   $ 2,593.8   $ 2,425.3
==============================================================================

Investment gains (losses) are as follows:

Trading securities:
  Derivative instruments (a)                $    18.2   $  (135.9)  $  (385.1)
  Equity securities, including short
   positions (a)                                 62.7       131.2       (47.0)
------------------------------------------------------------------------------
                                                 80.9        (4.7)     (432.1)

Other than trading: 
  Fixed maturities                              350.1      (113.0)     (313.1)
  Equity securities (b)                       1,102.8     1,109.9       356.7
  Short-term investments                         26.5        (2.4)       19.5
  Other, including guaranteed separate
   account business (c)                        (166.6)       31.3        95.5
------------------------------------------------------------------------------
Investment gains (losses)                     1,393.7     1,021.1      (273.5)
Income tax (expense) benefit                   (491.1)     (356.0)       89.5
Minority interest                              (110.4)      (88.0)      (16.8)
------------------------------------------------------------------------------
Investment gains (losses)-net               $   792.2   $   577.1   $  (200.8)
------------------------------------------------------------------------------

(a) Includes losses on short sales, equity index futures and options 
    aggregating $533.6 for the year ended December 31, 1999. Substantially all 
    of the index short positions were closed during the second quarter of 
    2000.
(b) Includes gains on sales of Global Crossing Ltd. ("Global Crossing") common
    stock of $962.0, $484.9 and $222.1 for the years ended December 31, 2001,
    2000 and 1999, respectively, and gains on sales of Canary Wharf of $51.7,
    $443.9 and $121.9 for the years ended December 31, 2001, 2000 and 1999,
    respectively. In March of 2000, the Company entered into a hedge
    arrangement related to its Global Crossing stock. The unrealized
    appreciation on the stock that was preserved by the hedge was reflected as
    an unrealized gain in accumulated other comprehensive income at December
    31, 2000. The hedge agreements were closed out in 2001 resulting in the
    realized gain of $962 million.
(c) Includes losses of $136.6 (after-tax and minority interest) related to
    the planned disposition of certain subsidiary operations, principally the
    U.K. subsidiaries of CNA Re, for the year ended December 31,
    2001.
</TABLE>


The carrying value of investments (other than equity securities) that did not 
produce income for the last twelve months is $186.0 at December 31, 2001.

Investment gains of $2,383.2, $1,826.3 and $854.0 and losses of $903.8, $831.8 
and $790.9 were realized on securities available for sale for the years ended 
December 31, 2001, 2000 and 1999, respectively. Investment gains (losses) in 
2001, 2000 and 1999 also include $18.2 of net unrealized gains, and $16.5 and 
$306.4 of net unrealized losses on equity securities in the Company's trading 
portfolio.

                                     83

The amortized cost and market values of securities are as follows:


<TABLE>
<CAPTION>

                                                                       Unrealized        
                                                       Amortized  ------------------     Market
December 31, 2001                                         Cost       Gains    Losses      Value
------------------------------------------------------------------------------------------------

<s>                                                    <c>         <c>        <c>       <c>
U.S. government and obligations of 
 government agencies                                   $ 7,005.4   $  113.7   $ 41.5    $7,077.6 
Asset-backed                                             7,602.9      139.1     18.9     7,723.1
States, municipalities and political
 subdivisions-tax exempt                                 2,748.4       19.1     47.5     2,720.0
Corporate                                                9,741.4      277.4    259.4     9,759.4
Other debt                                               3,857.9      172.1    167.1     3,862.9
Redeemable preferred stocks                                 48.1         .6       .7        48.0
------------------------------------------------------------------------------------------------
Total fixed maturities available for sale               31,004.1      722.0    535.1    31,191.0
Equity securities available for sale                     1,168.0      343.8    173.3     1,338.5
Equity securities, trading portfolio                       289.3       44.0     25.8       307.5
Short-term investments available for sale                6,753.3        1.3     19.8     6,734.8
------------------------------------------------------------------------------------------------
                                                       $39,214.7    1,111.1    754.0    39,571.8
================================================================================================

December 31, 2000
------------------------------------------------------------------------------------------------

U.S. government and obligations of
 government agencies                                   $ 5,666.1   $  202.9   $  2.9   $ 5,866.1
Asset-backed                                             7,548.5       99.8     25.2     7,623.1
States, municipalities and political
 subdivisions-tax exempt                                 3,279.3       79.2      9.1     3,349.4
Corporate                                                7,262.4      149.2    344.0     7,067.6
Other debt                                               3,357.2       62.5    135.3     3,284.4
Redeemable preferred stocks                                 54.0         .2       .5        53.7
------------------------------------------------------------------------------------------------
Total fixed maturities available for sale               27,167.5      593.8    517.0    27,244.3
Equity securities available for sale                     1,175.1    1,400.1    163.6     2,411.6
Equity securities, trading portfolio                       287.4       58.3     74.8       270.9
Short-term investments available for sale               10,037.8         .6      1.0    10,037.4
------------------------------------------------------------------------------------------------
                                                       $38,667.8   $2,052.8  $ 756.4   $39,964.2
================================================================================================
</TABLE>


The amortized cost and market value of fixed maturities at December 31, 2001 
and 2000 are shown below by contractual maturity. Actual maturities may differ 
from contractual maturities because securities may be called or prepaid with 
or without call or prepayment penalties.


<TABLE>
<CAPTION>

                                                         2001                      2000
                                              --------------------------------------------------
                                               Amortized       Market    Amortized      Market
December 31                                       Cost         Value        Cost        Value
------------------------------------------------------------------------------------------------

<s>                                            <c>          <c>          <c>          <c>
Due in one year or less                        $   331.5    $   367.0    $ 1,217.4    $ 1,209.4
Due after one year through five years            6,865.0      6,831.2      5,049.8      5,015.4
Due after five years through ten years           9,662.2      9,667.1      7,241.0      7,138.7
Due after ten years                              6,542.5      6,602.6      6,110.8      6,257.7
Asset-backed securities not due at a
 single maturity date                            7,602.9      7,723.1      7,548.5      7,623.1
------------------------------------------------------------------------------------------------
                                               $31,004.1    $31,191.0    $27,167.5    $27,244.3
================================================================================================
</TABLE>


                                     84

Note 3. Fair Value of Financial Instruments


<TABLE>
<CAPTION>

                                                         2001                      2000
                                              --------------------------------------------------
                                               Carrying    Estimated    Carrying    Estimated
December 31                                     Amount    Fair Value     Amount    Fair Value
------------------------------------------------------------------------------------------------

<s>                                            <c>          <c>          <c>          <c>
Financial assets:
  Other investments                            $1,580.0     $ 1,572.0    $1,363.0     $1,351.0
  Separate account business:
    Fixed maturities securities                 2,347.0       2,347.0     2,703.0      2,703.0
    Equity securities                             161.0         161.0       215.0        215.0
    Other                                         876.0         876.0       849.0        849.0
Financial liabilities:
  Premium deposits and annuity contracts        1,465.0       1,395.0     1,486.0      1,419.0
  Long-term debt                                5,882.4       5,399.0     6,000.0      5,747.0
  Collateralized debt obligation                   38.0          38.0
  Financial guarantee contracts                    98.0          96.0       150.0        128.0
  Separate account business:
    Guaranteed investment contracts               469.0         492.0       882.0        880.0
    Variable separate accounts                  1,146.0       1,146.0     1,387.0      1,387.0
    Other                                         622.0         622.0       623.0        623.0
------------------------------------------------------------------------------------------------
</TABLE>


In cases where quoted market prices are not available, fair values are 
estimated using present value or other valuation techniques. These techniques 
are significantly affected by management's assumptions, including discount 
rates and estimates of future cash flows. The estimates presented herein are 
not necessarily indicative of the amounts that the Company could realize in a 
current market exchange. The amounts reported in the Consolidated Balance 
Sheet for fixed maturities securities, equity securities, derivative 
instruments, short-term investments and securities sold under agreements to 
repurchase are at fair value. As such, these financial instruments are not 
shown in the table above. See Note 4 for the value of derivative instruments. 
Since the disclosure excludes certain financial instruments and nonfinancial 
instruments such as real estate and insurance reserves, the aggregate fair 
value amounts cannot be summed to determine the underlying economic value of 
the Company.

The following methods and assumptions were used by the Company in estimating 
its fair value disclosures for financial instruments:

Fixed maturity securities and equity securities were based on quoted market 
prices, where available. For securities not actively traded, fair values were 
estimated using values obtained from independent pricing services or quoted 
market prices of comparable instruments.

Other investments consist of mortgage loans and notes receivable, policy 
loans, investments in limited partnerships and various miscellaneous assets. 
Valuation techniques to determine fair value of other investments and other 
separate account assets consisted of discounting cash flows and obtaining 
quoted market prices of the investments, comparable instruments, or underlying 
assets of the investments.

Premium deposits and annuity contracts were valued based on cash surrender 
values and the outstanding fund balances.

The fair value of the liability for financial guarantee contracts were 
estimated on discounted cash flows utilizing interest rates currently being 
offered for similar contracts.

The fair value of guaranteed investment contracts of the separate accounts 
business were estimated using discounted cash flow calculations, based on 
interest rates currently being offered for similar contracts with similar 
maturities. The fair value of the liabilities for variable separate account 
business was based on the quoted market values of the underlying assets of 
each variable separate account. The fair value of other separate account 
business liabilities approximates carrying value because of their short-term 
nature.

Fair value of long-term debt was based on quoted market prices when available. 
The fair value for other long-term debt was based on quoted market prices of 
comparable instruments adjusted for differences between the quoted instruments 
and the instruments being valued or is estimated using discounted cash flow 
analyses, based on current incremental borrowing rates for similar types of 
borrowing arrangements.

The fair values of collateralized debt obligation liability contracts are 
determined largely based on management's estimates using default probabilities 
of the debt securities underlying the contract, which are obtained from a 
rating agency, and the term of the contract.

                                     85

Note 4.	Derivative Financial Instruments

The Company invests in certain derivative instruments for a number of 
purposes, including: (i) for its asset and liability management activities, 
(ii) for income enhancements for its portfolio management strategy, and (iii) 
to benefit from anticipated future movements in the underlying markets. If 
such movements do not occur as anticipated, then significant losses may occur.

Monitoring procedures include senior management review of daily detailed 
reports of existing positions and valuation fluctuations to ensure that open 
positions are consistent with the Company's portfolio strategy.

The Company does not believe that any of the derivative instruments utilized 
by it are unusually complex, nor do these instruments contain embedded 
leverage features which would expose the Company to a higher degree of risk.

CNA invests in derivative financial instruments in the normal course of 
business, primarily to reduce its exposure to market risk (principally 
interest rate risk, equity stock price risk and foreign currency risk) 
stemming from various assets and liabilities. CNA's principal objective under 
such market risk strategies is to achieve the desired reduction in economic 
risk, even if the position will not receive hedge accounting treatment. CNA 
may also use derivatives for purposes of income enhancement, primarily via the 
sale of covered call options.

CNA's use of derivatives is limited by statutes and regulations promulgated by 
the various regulatory bodies to which it is subject, and by its own 
derivative policy. The derivative policy limits authorization to initiate 
derivative transactions to certain personnel. The policy generally prohibits 
the use of derivatives with a maturity greater than eighteen months, unless 
the derivative is matched with assets or liabilities having a longer maturity. 
The policy also prohibits the use of derivatives containing greater than one-
to-one leverage with respect to changes in the underlying price, rate or 
index. Also, the policy prohibits the use of borrowed funds, including funds 
obtained through repurchase transactions, to engage in derivative 
transactions.

Credit exposure associated with non-performance by the counterparties to 
derivative instruments is generally limited to the gross fair value of the 
asset related to the instruments recognized in the Consolidated Balance 
Sheets. The Company mitigates the risk of non-performance by using multiple 
counterparties and by monitoring their creditworthiness. The Company generally 
requires collateral from its derivative investment counterparties depending on 
the amount of the exposure and the credit rating of the counterparty.

The Company has exposure to economic losses due to interest rate risk arising 
from changes in the level of, or volatility of, interest rates. The Company 
attempts to mitigate its exposure to interest rate risk through active 
portfolio management, which includes rebalancing its existing portfolios of 
assets and liabilities, as well as changing the characteristics of investments 
to be purchased or sold in the future. In addition, various derivative 
financial instruments are used to modify the interest rate risk exposures of 
certain assets and liabilities. These strategies include the use of interest 
rate swaps, interest rate caps and floors, options, futures, forwards, and 
commitments to purchase securities. These instruments are generally used to 
lock interest rates or unrealized gains, to shorten or lengthen durations of 
fixed maturity securities or investment contracts, or to hedge (on an economic 
basis) interest rate risks associated with investments, variable rate debt and 
life insurance liabilities. The Company has used these types of instruments as 
hedges against specific assets or liabilities on an infrequent basis.

The Company is exposed to equity price risk as a result of its investment in 
equity securities and equity derivatives. Equity price risk results from 
changes in the level or volatility of equity prices, which affect the value of 
equity securities, or instruments that derive their value from such 
securities. The Company attempts to mitigate its exposure to such risks by 
limiting its investment in any one security or index. The Company may also 
manage this risk by utilizing instruments such as options, swaps, futures and 
collars to protect appreciation in securities held. CNA uses derivatives in 
one of its separate accounts to mitigate equity price risk associated with its 
indexed group annuity contracts by purchasing Standard & Poor's 500 ("S&P 
500") index futures contracts in a notional amount equal to the contract 
holder liability, which is calculated using the S&P 500 rate of return.

Foreign exchange rate risk arises from the possibility that changes in foreign 
currency exchange rates will impact the fair value of financial instruments 
denominated in a foreign currency. The Company's foreign transactions are 
primarily denominated in Canadian Dollars, British Pounds and the European 
Monetary Unit. The Company manages this risk via asset/liability matching and 
through the use of foreign currency futures and forwards. The Company has 
infrequently designated these types of instruments as hedges against specific 
assets or liabilities.

The contractual or notional amounts for derivatives are used to calculate the 
exchange of contractual payments under the agreements and are not 
representative of the potential for gain or loss on these instruments. 
Interest rates, equity prices and foreign currency exchange rates affect the 
fair value of derivatives. The fair values generally represent the estimated 
amounts that the Company would expect to receive or pay upon termination of 
the contracts at the reporting date. Dealer quotes are available for 
substantially all of the Company's derivatives. For derivative instruments not 
actively traded, fair values are estimated using values obtained from 
independent pricing services, costs to settle or quoted market prices of 
comparable instruments.

                                     86


<TABLE>
<CAPTION>

                                                             Contractual/ Fair Value  Recognized
                                                               Notional      Asset       (Loss)
December 31, 2001                                                Value    (Liability)     Gain
------------------------------------------------------------------------------------------------

<s>                                                             <c>         <c>       <c>
Equity markets:
  Options 
    Purchased                                                   $  145.5    $  17.8    $  126.8
    Written                                                        161.1       (7.8)       24.4
  Index futures - long                                               7.8                    (.6)
  Equity warrants                                                   14.8         .7        (2.6)
  Options embedded in convertible debt securities                  803.0      188.7         9.9
  Separate accounts - options purchased                             65.4        1.0        (1.3)
                    - options written                               69.6        (.2)        2.4
                    - equity index futures-long                    867.6                 (157.3)
                    - euro dollar futures                           16.2                     .1
Currency forwards - long                                                                  (16.1)
                  - short                                          182.7       (1.5)       (5.2)
Interest rate risk: 
  Commitments to purchase government and 
   municipal securities                                            213.0       16.0        16.0
  Interest rate swaps                                              600.1         .7          .7
  Interest rate caps                                               500.0        1.6         1.5
  Collateralized debt obligation liabilities                       170.0      (38.0)        5.0
  Options on government securities - short                         255.0       (2.5)       12.2
  Futures - long                                                   947.2                   11.1
          - short                                                  217.0                  (19.0)
  Separate accounts - commitments to purchase
                      government and municipal securities           17.0        (.5)       (1.8)
                    - futures-short                                  9.8                   (1.0)
Commodities:
  Gold options - purchased                                         122.3        2.6         (.9)
               - written                                            73.5        (.4)        2.3
Other                                                                4.4                     .1
------------------------------------------------------------------------------------------------
Total                                                           $5,463.0     $178.2     $   6.7
================================================================================================
</TABLE>


                                     87


<TABLE>
<CAPTION>

                                                             Contractual/ Fair Value  Recognized
                                                               Notional      Asset       (Loss)
December 31, 2000                                                Value    (Liability)     Gain
------------------------------------------------------------------------------------------------

<s>                                                             <c>         <c>       <c>
Equity markets:
  Options
   Purchased - Global Crossing                                  $ 1,000.0   $ 664.0
             - other                                                173.0      23.7   $ (166.3)
   Written - Global Crossing                                      1,256.0      (1.0)
           - other                                                  269.6     (17.5)      39.8
  Index futures - long                                                                    (2.7)
                - short                                               2.3                   .8
  Equity warrants                                                    10.0(a)    4.0
  Options embedded in convertible debt securities                   845.0(a)  231.0
  Separate accounts - options purchased                             110.0        .3       (2.0)
                    - options written                               118.0      (1.0)       4.0
                    - equity index futures-long                     996.0               (172.0)
Interest rate risk:
  Commitments to purchase government and
   municipal securities                                                                    5.0
  Interest rate swaps                                               50.0       (1.4)      12.0
  Interest rate caps                                               500.0        1.0       (3.0)
  Collateralized debt obligation liabilities                       170.0(a)   (18.0) 
  Futures - long                                                   229.0                   7.9
          - short                                                  806.2                 (25.8)
  Foreign currency forwards                                         13.0                  44.3
  Separate accounts - commitments to purchase 
   government and municipal securities                             111.0        1.0        4.0
                    - futures-short                                 76.0                  (4.0)
Commodities:
  Oil:
    Swaps                                                                                 (2.1)
    Options                                                                                2.8
  Gold Options - purchased                                         232.5       11.8        2.4
               - written                                                                  (5.2)
Other                                                                3.6                   1.9
------------------------------------------------------------------------------------------------
Total                                                          $ 6,971.2    $ 897.9   $ (258.2)
================================================================================================

(a) As of January 1, 2001

</TABLE>


                                     88



<TABLE>
<CAPTION>

                                                             Contractual/ Fair Value  Recognized
                                                               Notional      Asset       (Loss)
December 31, 1999                                                Value    (Liability)     Gain
------------------------------------------------------------------------------------------------

<s>                                                             <c>         <c>       <c>
Equity markets:
  Options - purchased                                           $ 5,279.3   $ 188.9   $ (562.9)
          - written                                               1,097.1     (25.8)      42.1
  Index futures - long                                              204.1                 72.3
                - short                                              22.1                (16.7)
Interest rate risk:
  Commitments to purchase government and 
   municipal securities                                             127.0      (1.0)      (1.0)
  Interest rate caps                                                500.0       4.0        4.0
  Futures - long                                                    151.4                 (3.6)
          - short                                                   560.1                 15.1
  Foreign currency forwards                                         591.0       9.0       21.0
Commodities:
  Oil:
    Swaps                                                             6.4        .2         .6
    Options                                                          33.0       (.7)        .4
    Energy purchase obligations                                                           10.3
  Gold Options - purchased                                          434.5      15.6        5.5
               - written                                            242.9      (5.2)       6.1
Other                                                                94.9       2.9       21.7
------------------------------------------------------------------------------------------------
Total                                                           $ 9,343.8   $ 187.9   $ (385.1)
================================================================================================

</TABLE>


Collateralized debt obligation liabilities ("CDOs") represent a credit 
enhancement product that is typically structured in the form of a swap. CNA 
has determined that this product is a derivative under SFAS No. 133. Changes 
in the estimated fair value of CDOs, like other derivative financial 
instruments with no hedge designation, are recorded in realized gains or 
losses as appropriate, while reported claims incurred on these instruments are 
recorded in other expense. CNA incurred approximately $25.0 and $13.0 in 
claims on these products for the years ended December 31, 2001 and 2000, 
respectively. There were no claims on these products during 1999. CNA is no 
longer writing this product.

Options embedded in convertible debt securities are classified as fixed 
maturity securities in the Consolidated Balance Sheets, consistent with the 
host instruments.

Fair Value Hedges

As of the adoption date of SFAS No. 133, CNA's collar position related to its 
investment in Global Crossing common stock was the only derivative position 
that had been designated as a hedge for accounting purposes. In March of 2000, 
the Company entered into a hedge arrangement related to its Global Crossing 
stock. The unrealized appreciation on the stock that was preserved by the 
hedge was reflected as an unrealized gain in accumulated other comprehensive 
income at December 31, 2000. The hedge agreements were closed out in 2001 
resulting in the realized gain of $962 million.

The effectiveness of this hedge was measured based on changes in the intrinsic 
value of the collar in relation to changes in the fair value of Global 
Crossing common stock. Changes in the time value component of the collar's 
fair value were excluded from the hedge designation and measurement of 
effectiveness. Up to the date of the sale, the Global Crossing hedge was 100% 
effective. The change in the time value component of the collar was a pretax 
gain of $33.0 for the year ended December 31, 2001, and has been recorded as a 
realized investment gain in the Consolidated Statements of Operations.

CNA's other hedging activities involve primarily hedging risk exposures to 
interest rate and foreign currency risks. The ineffective portion of the fair 
value hedges that under SFAS No. 133 meet the criteria for hedge accounting 
was approximately $0.6 for the year ended December 31, 2001.

The Company also enters into short sales as part of its portfolio management 
strategy. Short sales are commitments to sell a financial instrument not owned 
at the time of sale, usually done in anticipation of a price decline. These 
sales resulted in proceeds of $183.7 and $224.7 with fair value liabilities of 
$193.4 and $201.1 at December 31, 2001 and 2000, respectively. These positions 
are marked to market and investment gains or losses are included in the 
Consolidated Statements of Operations.

                                     89

Note 5. Receivables


<TABLE>
<CAPTION>

December 31                                                 2001         2000
------------------------------------------------------------------------------

<s>                                                    <c>          <c>
Reinsurance                                            $13,823.4    $ 9,397.3
Other insurance                                          4,006.4      5,026.3
Security sales                                             648.1        470.5
Accrued investment income                                  398.3        424.3
Federal income taxes                                       586.6
Other                                                      353.7        331.9
------------------------------------------------------------------------------
Total                                                   19,816.5     15,650.3
Less allowance for doubtful accounts
 and cash discounts                                        363.7        348.7
------------------------------------------------------------------------------
Receivables-net                                        $19,452.8    $15,301.6
==============================================================================
</TABLE>


Reinsurance receivables have increased by $4,426.1 during 2001 primarily due 
to $1,480.0 related to corporate aggregate reinsurance treaties, $663.0 
related to the second quarter of 2001 reserve adjustment (excluding corporate 
aggregate reinsurance) and $921.0 related to the estimated loss reserves for 
the WTC event (excluding corporate aggregate reinsurance).

Note 6. Property, Plant and Equipment


<TABLE>
<CAPTION>

December 31                                                                 2001        2000
------------------------------------------------------------------------------------------------

<s>                                                                       <c>          <c>
Land                                                                      $  126.5     $  128.8
Buildings and building equipment                                             591.0        831.5
Offshore drilling rigs and equipment                                       2,948.4      2,682.9
Machinery and equipment                                                    1,407.4      1,381.3
Leaseholds and leasehold improvements                                        149.7        123.2
-----------------------------------------------------------------------------------------------
Total, at cost                                                             5,223.0      5,147.7
Less accumulated depreciation and amortization                             2,147.7      1,941.4
------------------------------------------------------------------------------------------------
Property, plant and equipment-net                                         $3,075.3     $3,206.3
================================================================================================
</TABLE>


Depreciation and amortization expense, including amortization of intangibles, 
and capital expenditures, are as follows:


<TABLE>
<CAPTION>

Year Ended December 31                   2001                 2000                  1999
------------------------------------------------------------------------------------------------
                                  Depr. &    Capital   Depr. &    Capital    Depr. &    Capital
                                   Amort.    Expend.    Amort.     Expend.    Amort.    Expend.
------------------------------------------------------------------------------------------------

<s>                              <c>        <c>        <c>        <c>        <c>        <c>
CNA Financial                    $ 138.4    $ 124.0    $ 151.0    $ 151.8    $ 199.5    $ 250.2 
Lorillard                           27.4       41.2       25.0       30.1       23.9       20.7
Loews Hotels                        28.4       14.2       24.8      129.1       19.8      110.1
Diamond Offshore                   175.3      268.6      148.8      323.9      145.3      324.1
Bulova                                .9        1.9         .9        1.1         .7         .7
Corporate                            4.3       52.6        6.1       31.2        6.1        2.4
------------------------------------------------------------------------------------------------
Total                            $ 374.7    $ 502.5    $ 356.6    $ 667.2    $ 395.3    $ 708.2
================================================================================================
</TABLE>


In January 2001, CNA sold the 180 Maiden Lane, New York, facility for net 
sales proceeds of $264.0, resulting in a gain of $47.9 (after-tax and minority 
interest).

In January 2000, Diamond Offshore sold a jack-up drilling rig for $32.0 
resulting in a gain of $13.9 ($4.7 after-tax and minority interest).

In December 1999, Loews Hotels sold two franchised hotel properties with net 
book values of $9.0. Gain on these sales amounted to $85.1 ($52.0 after taxes) 
for the year ended December 31, 1999.

                                     90

Note 7.	Claim and Claim Adjustment Expense Reserves

CNA's property-casualty insurance claim and claim adjustment expense reserves 
represent the estimated amounts necessary to settle all outstanding claims, 
including claims that are incurred but not reported, as of the reporting date. 
CNA's reserve projections are based primarily on detailed analysis of the 
facts in each case, CNA'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 and public attitudes. All of these factors can affect the 
estimation of reserves.

Establishing loss reserves, including loss 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 general liability and professional 
liability claims. Adjustments to prior year reserve estimates, if necessary, 
are reflected in operating results in the period that the need for such 
adjustments is determined.

Catastrophes are an inherent risk of the property-casualty insurance business 
and have contributed to material period-to-period fluctuations in the 
Company's results of operations and financial position. The level of 
catastrophe losses experienced in any period cannot be predicted and can be 
material to the results of operations and/or financial position of the 
Company.

During 2001, CNA experienced a severe catastrophe loss estimated at $468.0 
pretax, net of reinsurance, related to the WTC event. The loss estimate is 
based on a total industry loss of $50,000.0 and includes all lines of 
insurance, including assumed reinsurance. The current estimate takes into 
account CNA's substantial ceded reinsurance agreements, including its 
catastrophe reinsurance program and corporate reinsurance programs. These loss 
estimates are subject to considerable uncertainty. Subsequent developments on 
claims arising from the WTC event, as well as the collectibility of 
reinsurance recoverables, could result in changes in the total estimated net 
loss, which could be material to the Company's results of operations.

The following table provides management's estimate of pretax losses related to 
the WTC event on a gross basis (before reinsurance) and a net basis (after 
reinsurance) by line of business for the year ended December 31, 2001:


<TABLE>
<CAPTION>

------------------------------------------------------------------------------
                                                           Gross        Net
                                                           Basis       Basis
------------------------------------------------------------------------------

<s>                                                      <c>          <c>
Property-casualty assumed reinsurance                    $  662.0     $ 465.0
Property                                                    282.0       159.0
Workers' compensation                                       112.0        25.0
Airline hull                                                194.0         6.0
Commercial auto                                               1.0         1.0
------------------------------------------------------------------------------

Total Property-Casualty                                   1,251.0       656.0
------------------------------------------------------------------------------

Group                                                       322.0        60.0
Life                                                         75.0        22.0
------------------------------------------------------------------------------

Total Group and Life                                        397.0        82.0
------------------------------------------------------------------------------

Total loss before items below                            $1,648.0       738.0
=================================================================

Corporate aggregate reinsurance                                        (259.0)
Reinstatement and additional premiums and other                         (11.0)
------------------------------------------------------------------------------

Net                                                                   $ 468.0
==============================================================================
</TABLE>


                                     91

The table below provides a reconciliation between beginning and ending claim 
and claim adjustment expense reserves for 2001, 2000 and 1999:


<TABLE>
<CAPTION>

Year Ended December 31                                         2001          2000          1999
------------------------------------------------------------------------------------------------

<s>                                                       <c>           <c>           <c>

Reserves at beginning of year:
  Gross                                                   $26,408.0     $26,631.0     $28,317.0
  Ceded                                                     7,568.0       6,273.0       5,424.0
------------------------------------------------------------------------------------------------
Net reserves at beginning of year                          18,840.0      20,358.0      22,893.0
------------------------------------------------------------------------------------------------

Net reserves transferred under retroactive
 reinsurance agreements                                                                (1,024.0)
Net reserves transferred to CNA Group Life
 Assurance Company (a)                                     (1,055.0)
------------------------------------------------------------------------------------------------
Total net adjustments                                      (1,055.0)                   (1,024.0)
------------------------------------------------------------------------------------------------

Net incurred claim and claim adjustment expenses:
  Provision for insured events of current year              7,192.0       6,331.0       7,287.0
  Increase in provision for insured events of prior years   2,466.0         427.0       1,027.0
  Amortization of discount                                    107.0         158.0         139.0
------------------------------------------------------------------------------------------------
Total net incurred                                          9,765.0       6,916.0       8,453.0
------------------------------------------------------------------------------------------------

Net payments attributable to:
  Current year events                                       2,111.0       1,888.0       2,744.0
  Prior year events                                         7,936.0       6,916.0       7,460.0
  Reinsurance recoverable against net reserves
   transferred under retroactive reinsurance
   agreements (see Note 12)                                  (250.0)       (370.0)       (240.0)
------------------------------------------------------------------------------------------------
Total net payments                                          9,797.0       8,434.0       9,964.0
------------------------------------------------------------------------------------------------

Net reserves at end of year                                17,753.0      18,840.0      20,358.0
Ceded reserves at end of year                              11,798.0       7,568.0       6,273.0
------------------------------------------------------------------------------------------------
Gross reserves at end of year (b)                         $29,551.0     $26,408.0     $26,631.0
================================================================================================

(a) Effective January 1, 2001, CNA established a new life insurance 
    company, CNAGLAC. Approximately $1,055.0 of accident and health reserves
    were transferred from CCC to CNAGLAC on January 1, 2001.
(b) Excludes life claim and claim adjustment expense reserves of $1,715.2,
    $554.7 and $724.9 as of December 31, 2001, 2000 and 1999, respectively, 
    included in the Consolidated Balance Sheets.
</TABLE>


The increase (decrease) in provision for insured events of prior years 
(reserve development), is comprised of the following components:


<TABLE>
<CAPTION>

Year Ended December 31                             2001     2000        1999
------------------------------------------------------------------------------

<s>                                            <c>        <c>        <c>
Environmental pollution and other mass tort    $  473.0   $ 17.0     $  (84.0)
Asbestos                                          772.0     65.0        560.0
Other                                           1,221.0    345.0        551.0
------------------------------------------------------------------------------
Total                                          $2,466.0   $427.0     $1,027.0
==============================================================================
</TABLE>


Environmental Pollution and Other Mass Tort and Asbestos Reserves

CNA's property-casualty insurance subsidiaries have potential exposures 
related to environmental pollution and other mass tort and asbestos claims.

The following table provides data related to CNA's environmental pollution, 
other mass tort and asbestos claim and claim adjustment expense reserves:


<TABLE>
<CAPTION>

December 31                                          2001                        2000
------------------------------------------------------------------------------------------------

                                          Environmental               Environmental
                                          Pollution and               Pollution and
                                           Other Mass                  Other Mass
                                              Tort        Asbestos        Tort         Asbestos
------------------------------------------------------------------------------------------------

<s>                                        <c>            <c>           <c>            <c>
Gross reserves                             $ 820.0        $1,590.0      $ 493.0        $ 848.0
Less ceded reserves                         (203.0)         (386.0)      (146.0)        (245.0)
------------------------------------------------------------------------------------------------
Net reserves                               $ 617.0        $1,204.0      $ 347.0        $ 603.0
================================================================================================
</TABLE>


                                     92

Environmental pollution cleanup is the subject of both federal and state 
regulation. By some estimates, there are thousands of potential waste sites 
subject to cleanup. The insurance industry is involved in extensive litigation 
regarding coverage issues. Judicial interpretations in many cases have 
expanded the scope of coverage and liability beyond the original intent of the 
policies. The Comprehensive Environmental Response Compensation and Liability 
Act of 1980 ("Superfund") and comparable state statutes ("mini-Superfunds") 
govern the cleanup and restoration of toxic waste sites and formalize the 
concept of legal liability for cleanup and restoration by Potentially 
Responsible Parties ("PRPs"). Superfund and the mini-Superfunds establish 
mechanisms to pay for cleanup of waste sites if PRPs fail to do so, and to 
assign liability to PRPs. The extent of liability to be allocated to a PRP is 
dependent upon a variety of factors. Further, the number of waste sites 
subject to cleanup is unknown. To date, approximately 1,500 cleanup sites have 
been identified by the Environmental Protection Agency ("EPA") and included on 
its National Priorities List. State authorities have designated many cleanup 
sites as well.

Many policyholders have made claims against various CNA insurance subsidiaries 
for defense costs and indemnification in connection with environmental 
pollution matters. These claims relate to accident years 1989 and prior, which 
coincides with CNA's adoption of the Simplified Commercial General Liability 
coverage form, which includes what is referred to in the industry as an 
"absolute pollution exclusion." CNA and the insurance industry are disputing 
coverage for many such claims. Key coverage issues include whether cleanup 
costs are considered damages under the policies, trigger of coverage, 
allocation of liability among triggered policies, applicability of pollution 
exclusions and owned property exclusions, the potential for joint and several 
liability and the definition of an occurrence. To date, courts have been 
inconsistent in their rulings on these issues.

A number of proposals to reform Superfund have been made by various parties. 
However, no reforms were enacted by Congress during 2001, and it is unclear 
what positions Congress or the administration will take and what legislation, 
if any, will result in the future. If there is legislation, and in some 
circumstances even if there is no legislation, the federal role in 
environmental cleanup may be significantly reduced in favor of state action. 
Substantial changes in the federal statute or the activity of the EPA may 
cause states to reconsider their environmental cleanup statutes and 
regulations. There can be no meaningful prediction of the pattern of 
regulation that would result or the effect upon the Company's results of 
operations and/or financial position.

Due to the inherent uncertainties described above, including the inconsistency 
of court decisions, the number of waste sites subject to cleanup, and the 
standards for cleanup and liability, the ultimate liability of CNA for 
environmental pollution claims may vary substantially from the amount 
currently recorded.

As of December 31, 2001 and 2000, CNA carried approximately $617.0 and $347.0 
of claim and claim adjustment expense reserves, net of reinsurance 
recoverables, for reported and unreported environmental pollution and other 
mass tort claims. Unfavorable environmental pollution and other mass tort net 
claim and claim adjustment expense reserve development for the years ended 
December 31, 2001 and 2000 amounted to $473.0 and $17.0. Favorable 
environmental pollution and other mass tort net claim and claim adjustment 
expense reserve development for the year ended December 31, 1999 amounted to 
$84.0. CNA made environmental pollution-related claim payments and other mass 
tort-related claim payments, net of reinsurance recoveries, of $203.0, $135.0 
and $236.0 during the years ended December 31, 2001, 2000 and 1999.

The reserve development during 2001 for environmental pollution and other mass 
tort reserves is due to reviews completed during the year, which indicated 
that paid and reported losses were higher than expectations based on prior 
reviews.  Factors that have led to this development include a number of 
declaratory judgments filed this year due to an increasingly favorable legal 
environment for policyholders in certain courts and other unfavorable 
decisions regarding cleanup issues.

CNA's property-casualty insurance subsidiaries also have exposure to asbestos-
related claims. Estimation of asbestos-related claim and claim adjustment 
expense reserves involves many of the same limitations discussed above for 
environmental pollution claims, such as inconsistency of court decisions, 
specific policy provisions, allocation of liability among insurers and 
insureds, and additional factors such as missing policies and proof of 
coverage. Furthermore, estimation of asbestos-related claims is difficult due 
to, among other reasons, the proliferation of bankruptcy proceedings and 
attendant uncertainties, the targeting of a broader range of businesses and 
entities as defendants, the uncertainty as to which other insureds may be 
targeted in the future and the uncertainties inherent in predicting the number 
of future claims.

As of December 31, 2001 and 2000, CNA carried approximately $1,204.0 and 
$603.0 of net claim and claim adjustment expense reserves, net of reinsurance 
recoverables, for reported and unreported asbestos-related claims. Unfavorable 
asbestos-related net claim and claim adjustment expense reserve development 
for the years ended December 31, 2001, 2000 and 1999 amounted to $772.0, $65.0 
and $560.0. CNA made asbestos-related claim payments, net of reinsurance, of 
$171.0, $126.0 and $161.0 during the years ended December 31, 2001, 2000 and 
1999, excluding payments made in connection with the 1993 settlement of 
litigation related to Fibreboard Corporation. CNA has attempted to manage its 
asbestos-related exposures by aggressively resolving old accounts.

The reserve development during 2001 for asbestos-related claims was based on a 
management review of developments with respect to these exposures conducted 
during the year. This analysis indicated a significant increase in claim 
counts for asbestos-related claims. The factors that have led to the 
deterioration in claim counts include, among other things, intensive 
advertising campaigns by lawyers for asbestos claimants and the addition of 
new defendants such as the distributors and installers of products containing 
asbestos. New claim filings increased significantly in 2000 over 1999, and 
that trend continued during 2001. The volume of new claims has caused the 
bankruptcies of numerous asbestos defendants. Those bankruptcies also may 
result in increased liability for

                                     93

remaining defendants under principles of joint and several liability.

In addition, some asbestos-related defendants have asserted that their claims 
for insurance are not subject to aggregate limits on coverage. CNA currently 
has such claims from a number of insureds. Some of these claims involve 
insureds facing exhaustion of products liability aggregate limits in their 
policies, who have asserted that their asbestos-related claims fall within so-
called "non-products" liability coverage contained within their policies 
rather than products liability coverage, and that the claimed "non-products" 
coverage is not subject to any aggregate limit. It is difficult to predict the 
ultimate size of any of the claims for coverage not subject to aggregate 
limits or predict to what extent, if any, the attempts to assert "non-
products" claims outside the products liability aggregate will succeed.

Due to the uncertainties created by volatility in claim numbers and settlement 
demands, the effect of bankruptcies, the extent to which non-impaired 
claimants can be precluded from making claims and the efforts by insureds to 
obtain coverage not subject to aggregate limits, the ultimate liability of CNA 
for asbestos-related claims may vary substantially from the amount currently 
recorded. Other variables that will influence CNA's ultimate exposure to 
asbestos-related claims includes medical inflation trends, jury attitudes, the 
strategies of plaintiff attorneys to broaden the scope of defendants, the mix 
of asbestos-related diseases presented and the possibility of legislative 
reform. Adverse developments with respect to such matters discussed herein 
could have a material adverse effect on the Company's results of operations 
and/or financial condition.

The results of operations and financial condition of the Company in future 
years may continue to be adversely affected by environmental pollution and 
other mass tort and asbestos claim and claim adjustment expenses. Management 
will continue to review and monitor these liabilities and make further 
adjustments, including further reserve strengthening as warranted.

Other Reserves

Unfavorable net claim and claim adjustment expense reserve development for 
other reserves in 2001 of $1,221.0 resulted from several coverages provided to 
commercial entities underwritten by several segments of CNA.

Approximately $230.0 of the adverse loss development is a result of several 
coverages provided to commercial entities. Reserve analyses performed during 
2001 showed unexpected increases in the size of claims for several lines, 
including commercial automobile liability, general liability and the liability 
portion of commercial multiple-peril coverages. In addition, the number of 
commercial automobile liability claims was higher than expected and several 
state-specific factors resulted in higher than anticipated losses, including 
developments associated with commercial automobile liability coverage in Ohio 
and general liability coverage provided to contractors in New York.

An analysis of assumed reinsurance business showed that the paid and reported 
losses for recent accident years were higher than expectations, which resulted 
in management recording net unfavorable development on prior year reserves of 
approximately $690.0.

Approximately $300.0 of adverse loss development was due to adverse experience 
in all other lines, primarily in coverages provided to health care-related 
entities. The level of paid and reported losses associated with coverages 
provided to national long-term care facilities were higher than expected. In 
addition, the average size of claims resulting from coverages provided to 
physicians and institutions providing health care-related services increased 
more than expected.

Unfavorable net claim and claim adjustment expense reserve development for 
other reserves in 2000 of $345.0 was due to unfavorable loss experience in 
standard commercial lines, assumed reinsurance and accident and health lines. 
These unfavorable changes were partially offset by favorable development in 
non-medical professional liability and other casualty lines. The unfavorable 
development in standard commercial lines can be attributed to adverse claim 
experience for recent accident years in the commercial auto liability, 
commercial multiple-peril and workers' compensation lines of business. The 
unfavorable development in the assumed reinsurance and accident and health 
lines also resulted from adverse claims experience.

Unfavorable net claim and claim adjustment expense reserve development for 
other reserves in 1999 of $551.0 was due to unfavorable loss development of 
approximately $540.0 for standard commercial lines, approximately $60.0 for 
medical malpractice and approximately $70.0 for accident and health. These 
unfavorable changes were partially offset by favorable development of 
approximately $120.0 in non-medical professional liability and assumed 
reinsurance on older accident years. The unfavorable development in standard 
commercial lines was due to commercial automobile liability and workers' 
compensation losses being higher than expected in recent accident years. In 
addition, the number of claims reported for commercial multiple-peril 
liability claims from older accident years did not decrease as much as 
expected. The unfavorable development for medical malpractice was also due to 
losses being higher than expected for recent accident years. The accident and 
health unfavorable development was due to higher than expected claim reporting 
on assumed personal accident coverage in recent accident years.

CNA also has exposure to construction defect losses, principally in its 
general liability and commercial multiple-peril lines. This exposure relates 
to claims involving property damage alleging loss of use, damage, destruction 
or deterioration of land, buildings and other structures involving new 
construction or major rehabilitation of real property. Many of these claims 
involve multiple defects and multiple defendants. The majority of losses have 
been concentrated in a limited number of states, including California. CNA has 
taken several underwriting actions to mitigate this exposure in the future. 
Estimation of construction defect losses is subject to a high level of 
uncertainty due to the long period of time between the accident date and the 

                                     94

reporting of the claim, emerging case law, changing regulatory rules and the 
allocation of damages to the multiple defendants. Due to the inherent 
uncertainties noted above, the ultimate liability for construction defect 
claims may vary substantially from the amount currently recorded.

Financial Guarantee Reserves

CNA, through reinsurance assumed contracts, provides financial guarantees to 
issuers of asset-backed securities, motion picture finance and money market 
funds. Premiums are received throughout the exposure period and are recognized 
as revenue in proportion to the underlying risk insured. In addition, through 
August 1, 1989, CNA's property-casualty subsidiaries wrote financial guarantee 
insurance in the form of surety bonds and also insured equity policies. These 
bonds represented primarily industrial development bond guarantees and, in the 
case of insured equity policies, typically extended in initial terms from 10 
to 13 years. For these guarantees and policies, CNA received an advance 
premium that is recognized over the exposure period and in proportion to the 
underlying risk insured.

As of December 31, 2001 and 2000, gross exposure on assumed financial 
guarantee insurance contracts, credit enhancement products, financial 
guarantee surety bonds and insured equity policies was approximately $82.0 and 
$335.0. The degree of risk to CNA related to this exposure is substantially 
reduced through reinsurance, diversification of exposures and collateral 
requirements. In addition, security interests in improved real estate are also 
commonly obtained on these risks. Approximately 26% and 29% of the risks were 
ceded to reinsurers at December 31, 2001 and 2000. Total exposure, net of 
reinsurance, amounted to $61.0 and $237.0 as of December 31, 2001 and 2000. At 
December 31, 2001 and 2000, collateral consisting of letters of credit, cash 
reserves and debt service reserves amounted to $6.0 and $7.0.

Gross unearned premium reserves for these contracts were $2.0 and $11.0 at 
December 31, 2001 and 2000. Gross claim and claim adjustment expense reserves 
totaled $103.0 and $127.0 as of December 31, 2001 and 2000.

Note 8. Leases

The Company's hotels in some instances are constructed on leased land. Other 
leases cover office facilities, computer and transportation equipment. Rent 
expense amounted to $108.8, $93.7 and $94.0 for the years ended December 31, 
2001, 2000 and 1999. The table below presents the future minimum lease 
payments to be made under non-cancelable operating leases along with lease and 
sublease minimum receipts to be received on owned and leased properties.


<TABLE>
<CAPTION>

                                                                 Future Minimum   Future Minimum
Year Ended December 31                                           Lease Payments   Lease Receipts
------------------------------------------------------------------------------------------------

<s>                                                                    <c>             <c>
2002                                                                   $130.0          $  26.4
2003                                                                    108.5             17.9
2004                                                                     88.6             14.5
2005                                                                     78.5             10.0
2006                                                                     60.9              9.3
Thereafter                                                              279.2             41.4
------------------------------------------------------------------------------------------------
Total                                                                  $745.7           $119.5
================================================================================================
</TABLE>


Note 9. Income Taxes


<TABLE>
<CAPTION>

Year Ended December 31                                         2001         2000           1999
------------------------------------------------------------------------------------------------

<s>                                                         <c>           <c>           <c>
Income tax (benefit) expense:
  Federal:
    Current                                                 $(358.2)    $  489.5         $ 17.2
    Deferred                                                   90.9        536.1          180.0
  State and city:
    Current                                                    91.9         83.2          133.7
    Deferred                                                  (14.5)        (3.4)         (26.5)
  Foreign                                                      14.5          1.5            1.1
------------------------------------------------------------------------------------------------
Total                                                       $(175.4)    $1,106.9         $305.5
===============================================================================================
</TABLE>


                                     95


<TABLE>
<CAPTION>

Deferred tax assets (liabilities) are as follows:

December 31                                                 2001         2000
------------------------------------------------------------------------------

<s>                                                      <c>          <c>
Insurance reserves:
  Property and casualty claim reserves                   $ 697.3      $ 864.1
  Unearned premium reserves                                331.9        294.2
  Life reserve differences                                 231.2        187.4
  Others                                                    18.4         20.9
Deferred acquisition costs                                (743.2)      (762.9)
Postretirement benefits other than pensions                176.4        197.4
Property, plant and equipment                             (347.7)      (243.7)
Investments                                               (141.5)       (89.2)
Foreign affiliates related                                  69.3        110.0
Tobacco litigation settlements                             373.4        286.0
Unrealized appreciation                                   (142.1)      (472.6)
Accrued assessments and guarantees                          52.6         43.1
Receivables                                                100.4         82.5
Restructuring costs                                         43.9         20.0
AMT credit carried forward                                  40.0 
Other-net                                                 (153.3)      (133.2)
------------------------------------------------------------------------------
Deferred tax assets-net                                  $ 607.0      $ 404.0
==============================================================================
</TABLE>


Gross deferred tax assets amounted to $2,604.7 and $2,484.7 and liabilities 
amounted to $1,997.7 and $2,080.7 for the years ended December 31, 2001 and 
2000, respectively.

The Company has a history of profitability and as such, management believes it 
is more likely than not that the net deferred tax assets will be realized. The 
Company expects to fully utilize its 2001 net operating loss carrybacks.

Total income tax (benefit) expense for the years ended December 31, 2001, 2000 
and 1999, was different than the amounts of $(284.6), $1,122.1 and $330.5, 
computed by applying the statutory U.S. federal income tax rate of 35% to 
income before income taxes and minority interest for each of the years.

A reconciliation between the statutory federal income tax rate and the 
Company's effective income tax rate as a percentage of income (loss) before 
income tax (benefit) expense and minority interest is as follows:


<TABLE>
<CAPTION>

Year Ended December 31                                                  2001     2000    1999
------------------------------------------------------------------------------------------------

<s>                                                                      <c>       <c>     <c>
Statutory rate                                                           (35)%     35%     35%
(Decrease) increase in income tax rate resulting from:
  Exempt interest and dividends received deduction                        (5)      (2)     (9)
  Foreign net operating loss carryforward                                 11
  State and city income taxes                                              6        2       7
  Other                                                                    1               (1)
------------------------------------------------------------------------------------------------
Effective income tax rate                                                (22)%     35%     32%
================================================================================================
</TABLE>


Foreign net operating loss carryforwards reflected above pertain to those 
foreign subsidiaries for which no tax benefit is expected to be realized.

The Company has entered into a separate tax allocation agreement with CNA, a 
majority-owned subsidiary in which its ownership exceeds 80% (the 
"Subsidiary"). The agreement provides that the Company will (i) pay to the 
Subsidiary the amount, if any, by which the Company's consolidated federal 
income tax is reduced by virtue of inclusion of the Subsidiary in the 
Company's return, or (ii) be paid by the Subsidiary an amount, if any, equal 
to the federal income tax that would have been payable by the Subsidiary if it 
had filed a separate consolidated return.

Under this agreement, CNA will receive approximately $908.0 for 2001. In 2000 
and 1999, CNA paid $64.0 and received $288.0, respectively. The agreement 
may be canceled by either of the parties upon thirty days' written notice.

The Company's federal income tax returns have been examined through 1997 and 
settled through 1994. Years 1998 through 2000 are currently under examination. 
While tax liabilities for subsequent years are subject to audit and final 
determination, in the opinion of management the amount accrued in the 
Consolidated Balance Sheet is believed to be adequate to cover any additional 
assessments which may be made by federal, state and local tax authorities and 
should not have a material effect on the financial condition or results of 
operations of the Company.

                                     96

Note 10. Long-Term Debt


<TABLE>
<CAPTION>

                                                Unamortized         Current
December 31, 2001                      Principal Discount   Net    Maturities
------------------------------------------------------------------------------

<s>                                     <c>        <c>     <c>         <c>
Loews Corporation                       $2,325.0   $31.4   $2,293.6
CNA                                      2,578.5    11.6    2,566.9    $329.1
Diamond Offshore                           931.1    18.5      912.6      10.4
Other                                      147.2              147.2      13.1
------------------------------------------------------------------------------
Total                                   $5,981.8   $61.5   $5,920.3    $352.6
==============================================================================
</TABLE>



<TABLE>
<CAPTION>

December 31                                                                   2001         2000
------------------------------------------------------------------------------------------------

<s>                                                                       <c>          <c>
Loews Corporation (Parent Company):
Senior:
6.8% notes due 2006 (effective interest rate of 6.8%)
 (authorized, $300)                                                       $  300.0     $  300.0
8.9% debentures due 2011 (effective interest rate of 9.0%)
 (authorized, $175)                                                          175.0        175.0
7.6% notes due 2023 (effective interest rate of 7.8%)
 (authorized, $300) (a)                                                      300.0        300.0
7.0% notes due 2023 (effective interest rate of 7.2%)
 (authorized, $400) (b)                                                      400.0        400.0
Subordinated:
3.1% exchangeable subordinated notes due 2007 (effective interest
 rate of 3.4%) (authorized, $1,150) (c)                                    1,150.0      1,150.0
CNA Financial Corporation:
Senior:
6.3% notes due 2003 (effective interest rate of 6.4%)
 (authorized, $250)                                                          250.0        250.0
7.3% notes due 2003 (effective interest rate of 7.8%)
 (authorized, $150)                                                          134.0        134.0
6.5% notes due 2005 (effective interest rate of 6.6%)
 (authorized, $500)                                                          492.8        492.8
6.8% notes due 2006 (effective interest rate of 6.8%)
 (authorized, $250)                                                          250.0        250.0
6.5% notes due 2008 (effective interest rate of 6.6%)
 (authorized, $150)                                                          150.0        150.0
6.6% notes due 2008 (effective interest rate of 6.7%)
 (authorized, $200)                                                          200.0        200.0
8.4% notes due 2012 (effective interest rate of 8.6%)
 (authorized, $100)                                                           69.6         69.6
7.0% notes due 2018 (effective interest rate of 7.1%)
 (authorized, $150)                                                          150.0        150.0
7.3% debentures due 2023 (effective interest rate of 7.3%)
 (authorized, $250)                                                          243.0        243.0
Commercial Paper (weighted average yield of 7.2%)                                         627.1
Revolving credit facility due 2002 through 2004
 (effective interest rate of 3.1%)                                           500.0
Revolving credit facility due 2002
 (effective interest rate of 2.5% and 7.0%)                                   75.0        100.0
Other senior debt (effective interest rates approximate 7.9% and 7.9%)        64.1         75.6
Diamond Offshore Drilling, Inc.:
Senior:
Zero coupon convertible debentures due 2020, net of discount
 of $380.3 and $394.8 (effective interest rate of 3.6%) (d)                  424.7        410.2
1.5% convertible senior debentures due 2031
 (effective interest rate of 1.6%) (authorized $460) (e)                     460.0 
Subordinated:
3.8% convertible subordinated notes due 2007
 (effective interest rate of 3.9%) (authorized, $400)                                     400.0
Other subordinated debt due 2005 (effective interest rate of 7.1%)            46.4         56.1
Other senior debt, principally mortgages
 (effective interest rates approximate 6.4% and 8.5%)                        147.2        166.2
------------------------------------------------------------------------------------------------
                                                                           5,981.8      6,099.6
Less unamortized discount                                                     61.5         59.6
------------------------------------------------------------------------------------------------
Long-term debt, less unamortized discount                                 $5,920.3     $6,040.0
================================================================================================

(a) Redeemable in whole or in part at June 1, 2003 at 103.8%, and decreasing percentages 
    thereafter.
(b) Redeemable in whole or in part at October 15, 2003 at 102.4%, and decreasing percentages
    thereafter.
(c) The notes are exchangeable into 15.376 shares of Diamond Offshore's common stock per one
    thousand dollars principal amount of notes, at a price of $65.04 per share. Redeemable
    in whole or in part at September 15, 2002 at 101.6%, and decreasing percentages thereafter.
(d) The debentures are convertible into Diamond Offshore's common stock at the rate of 8.6075
    shares per one thousand dollars principal amount, subject to adjustment. Each debenture
    will be purchased by Diamond Offshore at the option of the holder on the fifth, tenth and
    fifteenth anniversaries of issuance at the accreted value through the date of repurchase.
    Diamond Offshore, at its option, may elect to pay the purchase price in cash or
    shares of common stock, or in certain combinations thereof. The debentures are redeemable
    at the option of Diamond Offshore at any time after June 6, 2005, at prices which reflect a
    yield of 3.5% to the holder.
(e) The Debentures are convertible into Diamond Offshore's common stock at an initial conversion
    rate of 20.3978 shares per one thousand dollars principal amount, subject to adjustment
    in certain circumstances. Upon conversion, Diamond Offshore has the right to deliver cash 
    in lieu of shares of its common stock. Diamond Offshore may redeem all or a portion of the
    Debentures at any time on or after April 15, 2008 at a price equal to 100% of the principal
    amount.
</TABLE>


                                     97

On April 6, 2001, Diamond Offshore redeemed all of its outstanding 3.75% 
Convertible Subordinated Notes (the "Notes") in accordance with the indenture 
under which the Notes were issued. Prior to April 6, 2001, $12.4 principal 
amount of the Notes had been converted into 307,071 shares of Diamond 
Offshore's common stock at the stated conversion price of $40.50 per share. 
The remaining $387.6 principal amount of the Notes was redeemed at 102.1% of 
the principal amount, plus accrued interest, for a total cash payment of 
$397.7.

On April 11, 2001, Diamond Offshore issued $460.0 principal amount of 1.5% 
convertible senior debentures (the "1.5% Debentures") due April 15, 2031. The 
transaction resulted in net proceeds of approximately $449.1. Diamond Offshore 
will pay contingent interest to holders of the 1.5% Debentures during any six-
month period commencing after April 15, 2008 if the average market price of a 
1.5% Debenture for a measurement period preceding that six-month period equals 
120% or more of the principal amount of such 1.5% Debenture and Diamond 
Offshore pays a regular cash dividend during the six-month period. The 
contingent interest payable per one thousand dollars principal amount of 1.5% 
Debentures in respect of any quarterly period will equal 50% of regular cash 
dividends paid by Diamond Offshore per share on its common stock during that 
quarterly period multiplied by the conversion rate.

During 2001, CNA discontinued its commercial paper program and repaid all 
loans outstanding under the program. The weighted average interest rate on 
commercial paper was 7.2% at December 31, 2000. The funds used to retire the 
outstanding commercial paper debt were obtained through the draw down of the 
full amount available under CNA's $500.0 revolving credit facility. The 
facility is composed of two parts: a $250.0 component with a 364-day 
expiration date (with an option enabling CNA to convert borrowings into a one-
year term loan) and a $250.0 component with a three-year expiration date.

CNA pays a facility fee to the lenders for having funds available for loans 
under both components of the facility. The fee varies based on the long-term 
debt ratings of CNA. At December 31, 2001, the facility fee on the 364-day 
component was 15 basis points and the facility fee on the three-year component 
was 17.5 basis points.

In addition to the facility fees, CNA pays interest on any outstanding 
debt/borrowings under the facility based on a rate determined using the long-
term debt ratings of CNA. The interest rate is equal to the London Interbank 
Offering Rate ("LIBOR") plus 60 basis points for the 364-day component and 
LIBOR plus 57.5 basis points for the three-year component. Further, if CNA has 
outstanding loans greater than 50% of the amounts available under the 
facility, CNA also will pay a utilization fee of 12.5 basis points on such 
loans. At December 31, 2001, the weighted average interest rate on the 
borrowings under the facility, including facility and utilization fees, was 
3.1%.

A Moody's Investors Service ("Moody's") downgrade of the CNA senior debt 
rating from Baa2 to Baa3 would increase the facility fee on the 364-day 
component of the facility from 15 basis points to 20 basis points, and the 
facility fee on the three-year component would increase from 17.5 basis points 
to 25 basis points. The applicable margin on the 364-day component would 
increase from LIBOR plus 60 basis points to LIBOR plus 80 basis points and the 
applicable margin on the three-year component would increase from LIBOR plus 
57.5 basis points to LIBOR plus 75 basis points. The utilization fee would 
remain unchanged on both components at 12.5 basis points.

The $500.0 revolving credit facility replaced CNA's $750.0 revolving credit 
facility (the "Prior Facility"), which was scheduled to expire on May 10, 
2001. No loans were outstanding under the Prior Facility anytime during 2001. 
To offset the variable rate characteristics of the Prior Facility and the 
interest rate risk associated with periodically reissuing commercial paper, in 
1999 and 2000, CNA entered into interest rate swap agreements with several 
banks. These agreements required CNA to pay interest at a fixed rate, in 
exchange for the receipt of the three month LIBOR. The effect of the interest 
rate swap agreements decreased interest expense by approximately $2.0 for the 
year ended December 31, 2000 and increased interest expense by approximately 
$4.0 for the year ended December 31, 1999.

The combined weighted average interest rate of all short-term debt, including 
facility fees and commercial paper borrowings of CNA was 7.4% at December 31, 
2000.

CNA Surety Corporation ("CNA Surety"), a 64% owned subsidiary of CNA, has a 
$130.0 revolving credit facility that expires on September 30, 2002. The 
interest rate on facility borrowings is based on LIBOR plus 20 basis points. 
Additionally, there is an annual facility fee of 10 basis points on the entire 
facility. The weighted average interest rate on the borrowings under this 
facility, including facility fees, was 2.6% and 7.0% at December 31, 2001 and 
2000.

The terms of both CNA and CNA Surety's credit facilities require the 
respective company to maintain certain financial ratios and combined property-
casualty company statutory surplus levels. At December 31, 2001 and 2000, both 
CNA and CNA Surety were in compliance with all restrictive debt covenants.

The aggregate of long-term debt maturing in each of the next five years is 
approximately as follows: $352.6 in 2002, $388.6 in 2003, $256.0 in 2004, 
$554.0 in 2005 and $605.5 in 2006.

Payment of dividends by insurance subsidiaries of CNA without prior 
regulatory approval is limited to certain formula-derived amounts. 
Dividends in excess of these amounts are subject to prior approval by the 
respective state insurance departments.

Dividends from the CCC Pool are subject to the insurance holding company laws 
of the State of Illinois, the domiciliary state of CCC. Under these laws, 
ordinary dividends, or dividends that do not require prior approval of the 
Department, may be paid only from earned surplus, which is calculated by 
removing unrealized gains (which under statutory accounting includes 
cumulative earnings of CCC's subsidiaries) from unassigned surplus.

                                     98

As of December 31, 2001, CCC is in a negative earned surplus position. In 
February 2002, the Department approved an extraordinary dividend in the amount 
of $117.0 to be used to fund CNA's 2002 debt service requirements. Until CCC 
is in a positive earned surplus position, all dividends require prior approval 
of the Department.

In addition, by agreement with the New Hampshire Insurance Department, as well 
as certain other state insurance departments, dividend payments for the CIC 
Pool are restricted to internal and external debt service requirements through 
September 2003 up to a maximum of $85.0 annually, without the prior approval 
of the New Hampshire Insurance Department.

Note 11.  Shareholders' Equity and Earnings Per Share

In addition to its common stock, the Company has authorized 100,000,000 shares 
of preferred stock, $.10 par value.

On February 20, 2001, The Board of Directors declared a two-for-one stock 
split by way of a stock dividend, effective March 21, 2001. Accordingly, 
certain share and per share data has been restated to retroactively effect the 
stock split.

Companies with complex capital structures are required to present basic and 
diluted income (loss) per share. Basic income (loss) per share excludes 
dilution and is computed by dividing net income (loss) by the weighted 
average number of common shares outstanding for the period. Diluted income 
(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. Income (loss) per common share assuming 
dilution, is not presented because the impact of securities that could 
potentially dilute basic income (loss) per share would have been 
antidilutive or insignificant for the periods presented.

Basic income (loss) per share is based on the weighted average number of 
shares outstanding during each year (195,328,041, 198,732,827 and 217,066,741 
for the years ended December 31, 2001, 2000 and 1999, respectively).

The components of accumulated other comprehensive income (loss) are as 
follows:



<TABLE>
<CAPTION>

                                                                                     Accumulated
                                                                                         Other
                                                Unrealized                 Minimum Comprehensive
                                              Gains (Losses)  Foreign      Pension       Income
                                              on Investments  Currency    Liability      (Loss)
------------------------------------------------------------------------------------------------

<s>                                               <c>          <c>        <c>          <c>
Balance, December 31, 1998                        $  838.8     $ 59.6     $  (5.6)     $  892.8
Unrealized holding gains, net of tax of $250.8       381.1                                381.1
Adjustment for items included in net income,
 net of tax of $138.8                               (224.2)                              (224.2)
Foreign currency translation adjustment, net 
 of tax of $.1                                                  (35.1)                    (35.1)
Minimum pension liability adjustment, net of 
 tax of $1.1                                                                  2.0           2.0
------------------------------------------------------------------------------------------------
Balance, December 31, 1999                           995.7       24.5        (3.6)      1,016.6
Unrealized holding gains, net of tax of $149.4       271.4                                271.4
Adjustment for items included in net income, 
 net of tax of $312.9                               (506.8)                              (506.8)
Foreign currency translation adjustment, net 
 of tax of $.9                                                  (24.2)                    (24.2)
Minimum pension liability adjustment, net of 
 tax of $.2                                                                   (.3)          (.3)
------------------------------------------------------------------------------------------------
Balance, December 31, 2000                           760.3         .3        (3.9)        756.7
Unrealized holding losses, net of tax
 of $.8                                               (1.8)                                (1.8)
Adjustment for items included in net loss, net 
 of tax of $367.3                                   (595.8)                              (595.8)
Foreign currency translation adjustment, net 
 of tax of $.4                                                    4.7                       4.7
Minimum pension liability adjustment, net of
 tax of $13.0                                                               (19.6)        (19.6)
	Cumulative effect of changes in accounting
 principles, net of tax of $31.0                      50.5                                 50.5
------------------------------------------------------------------------------------------------
Balance, December 31, 2001                          $213.2       $5.0      $(23.5)       $194.7
================================================================================================
</TABLE>


                                     99

Note 12. Significant Transactions

Dispositions and Planned Dispositions of Certain Subsidiaries

During the second quarter of 2001, CNA announced its intention to sell certain 
subsidiaries. The assets being held for disposition include the United Kingdom 
subsidiaries of CNA Re and certain other subsidiaries. Based upon impairment 
analyses, CNA anticipated that it would realize losses in connection with 
those planned sales. In determining the anticipated loss from these planned 
dispositions, CNA estimated the net realizable value of each subsidiary held 
for sale. An estimated realized loss of $278.4 (after-tax and minority 
interest) was initially recorded in the second quarter of 2001 in connection 
with these planned dispositions. This loss is reported in other investment 
losses.

CNA completed the sale of certain subsidiaries during the fourth quarter of 
2001 and updated its impairment analyses of subsidiaries still held for sale, 
including the United Kingdom subsidiaries of CNA Re. The subsidiaries sold 
resulted in realized losses of $33.1 (after-tax and minority interest), all of 
which was previously recognized as part of the initial impairment loss 
recorded during the second quarter of 2001. The updated impairment analyses 
performed in the fourth quarter of 2001 indicated that the $278.4 loss (after-
tax and minority interest) recorded in the second quarter of 2001 should be 
reduced, primarily because the net assets of the United Kingdom subsidiaries 
of CNA Re had been significantly diminished by their operating losses in the 
second half of 2001. In addition, CNA also updated its estimate of disposal 
costs, including anticipated capital contributions, to reflect changes in the 
planned structure of the anticipated sale. These updated impairment analyses 
reduced the realized loss by $153.4 (after-tax and minority interest), 
including $141.8 related to the United Kingdom subsidiaries of CNA Re. The 
anticipated sale of the United Kingdom insurance subsidiaries will be subject 
to regulatory approval and all sales are expected to be completed in 2002.

CNA Re's principal United Kingdom operations are contained in CNA Reinsurance 
Company Ltd. The statutory surplus of CNA Reinsurance Company Ltd. is below 
the required regulatory minimum surplus level at December 31, 2001. CNA is 
currently pursuing the sale of the United Kingdom subsidiaries of CNA Re and 
CNA anticipates that additional capital contributions will be made in 
connection with the planned sale.

The subsidiaries held for sale (including those sold in the second half of 
2001), consisting primarily of the United Kingdom subsidiaries of CNA Re, 
contributed revenues of approximately $419.0 and net operating losses of 
$337.8 (after-tax and minority interest) for the year ended December 31, 2001. 
The assets and liabilities of these subsidiaries were approximately $2,622.0 
and $2,617.0 as of December 31, 2001.

Individual Life Reinsurance Transaction

Effective December 31, 2000, CNA completed a transaction with Munich American 
Reassurance Company ("MARC"), whereby MARC acquired CNA's individual life 
reinsurance business ("CNA Life Re") via an indemnity reinsurance agreement. 
CNA will continue to accept and retrocede business on existing CNA Life Re 
contracts until such time that CNA and MARC are able to execute novations of 
each of CNA Life Re's assumed and retroceded reinsurance contracts.

MARC assumed approximately $294.0 of liabilities (primarily future policy 
benefits and claim reserves) and approximately $209.0 in assets (primarily 
uncollected premiums and deferred acquisition costs). The net gain from the 
reinsurance transaction, which is subject to certain post-closing adjustments, 
has been recorded as deferred revenue, and will be recognized in income over 
the next six months as CNA Life Re's assumed contracts are novated to MARC.

The CNA Life Re business contributed net earned premiums of $229.0 and $194.0, 
and net operating income of $22.0 and $18.0 for the years ended December 31, 
2000 and 1999, respectively.

Personal Insurance Transaction

On October 1, 1999, certain subsidiaries of CNA completed a transaction with 
The Allstate Corporation ("Allstate"), whereby CNA's Personal Insurance lines 
of business and related employees were transferred to Allstate. Approximately 
$1,100.0 of cash and $1,100.0 of additional assets (primarily premium 
receivables and deferred acquisition costs) were transferred to Allstate, and 
Allstate assumed $2,200.0 of claim and claim adjustment expense reserves and 
unearned premium reserves. Additionally, CNA received $140.0 in cash which 
consisted of (i) $120.0 in ceding commission for the reinsurance of the CNA 
personal insurance business by Allstate, and (ii) $20.0 for an option 
exercisable during 2002 to purchase 100% of the common stock of five CNA 
insurance subsidiaries at a price equal to the GAAP carrying value as of the 
exercise date. Also, CNA invested $75.0 in a 10-year equity-linked note issued 
by Allstate.

As of December 10, 2001, Allstate and CNA agreed to modify a number of the 
original terms of the transaction. This modified agreement is pending 
regulatory approval. The following is an overview of the significant 
modifications to the terms of the original agreement:

(a) CNA has substituted subsidiaries for the originally named subsidiaries and 
    extended the purchase option period for the substituted subsidiaries 
    through 2004. CNA has compensated Allstate for the postponement of its 
    right to exercise the option due to the substitution of companies in the 
    amount of $6.0, reducing the original payment from Allstate of $20.0 to 
    approximately $14.0. The $14.0 will continue to be deferred and will not 
    be recognized until Allstate exercises its option, at which time it will 
    be recorded as a realized gain.

                                     100

(b) The $75.0 10-year equity-linked note issued by Allstate in October 1999 
    will be redeemed by Allstate at par plus accrued interest.

CNA will continue to write new and renewal personal insurance policies and to 
reinsure this business with Allstate companies until such time as Allstate 
exercises its option to buy the CNA subsidiaries. CNA continues to have 
primary liability on policies reinsured by Allstate. Through 2005, CNA will 
continue to receive a royalty fee based on the volume of personal insurance 
business sold through CNA agents using the terms of the original agreement.

CNA also shares in any reserve development related to claim and claim 
adjustment expense reserves transferred to Allstate at the transaction date. 
Under the reserve development sharing agreement, 80% of any favorable or 
unfavorable reserve development up to $40.0 and 90% of any favorable or 
unfavorable reserve development in excess of $40.0 inures to CNA. CNA's 
obligation with respect to unallocated loss adjustment expense reserves was 
settled at the transaction date and is therefore not subject to the reserve 
sharing arrangement.

The retroactive portion of the reinsurance transaction, consisting primarily 
of the cession of claim and claim adjustment expense reserves approximating 
$1,000.0, was not recognized as reinsurance because the criteria for risk 
transfer were not met for this portion of the transaction. The related 
consideration paid was recorded as a deposit and is included in reinsurance 
receivables in the Consolidated Balance Sheets. The prospective portion of the 
transaction, which as of the transaction date consisted primarily of the 
cession of $1,100.0 of unearned premium reserves, has been recorded as 
reinsurance. The related consideration paid was recorded as prepaid 
reinsurance premiums. Premiums ceded after the transaction date follows this 
same treatment.

CNA recognized a realized loss of approximately $39.0 (after-tax and minority 
interest) in 1999 related to the transaction, consisting primarily of the 
accrual of lease obligations and the write-down of assets that related 
specifically to the Personal Insurance lines of business. The $120.0 ceding 
commission related to the prospective portion of the transaction has been 
recognized in proportion to the recognition of the unearned premium reserve to 
which it relates. Ceding commission earned was $69.0 and $51.0 in 2000 and 
1999. Royalty fees earned in 2001, 2000 and 1999 were approximately $26.0, 
$27.0 and $7.0.

The Personal Insurance lines transferred to Allstate contributed net earned 
premiums of $1,354.0 and pretax operating income of $89.0 for the year ended 
December 31, 1999.

Note 13. Restructuring and Other Related Charges

In 2001, CNA finalized and approved two separate restructuring plans. The 
first plan, which related to CNA's Information Technology operations (the "IT 
Plan"), was approved in June of 2001. The second plan relates to restructuring 
the Property-Casualty segment and Life Operations, discontinuation of variable 
life and annuity business and consolidation of real estate locations (the 
"2001 Plan"), was approved in December of 2001.

IT Plan

The overall goal of the IT Plan was to improve technology for the underwriting 
function and throughout CNA and to eliminate inefficiencies in the deployment 
of IT resources. The changes facilitate a strong focus on enterprise-wide 
system initiatives. The IT Plan had two main components, which include the 
reorganization of IT resources into the Technology and Operations Group with a 
structure based on centralized, functional roles and the implementation of an 
integrated technology roadmap that includes common architecture and platform 
standards that directly support CNA's strategies.

As summarized in the following table, CNA incurred $62.0 of pretax 
restructuring and other related charges for the IT Plan. CNA does not expect 
to incur significant amounts of additional charges with respect to the IT Plan 
in any future period and, as a result, does not intend to separately classify 
such expenses as restructuring and related charges when they occur.


<TABLE>
<CAPTION>

                                         Employee
                                       Termination  Impaired
                                       and Related    Asset    Other
                                      Benefit Costs  Charges   Costs    Total
------------------------------------------------------------------------------

<s>                                       <c>         <c>      <c>      <c>
Standard Lines                            $ 5.0       $ 1.0             $ 6.0
Specialty Lines                             2.0                           2.0
------------------------------------------------------------------------------

Total Property-Casualty                     7.0         1.0               8.0
Life Operations                                        17.0              17.0
Other Insurance                            22.0        14.0     $1.0     37.0
------------------------------------------------------------------------------
Total                                     $29.0       $32.0     $1.0    $62.0
==============================================================================
</TABLE>


                                     101

In connection with the IT Plan, after the write-off of impaired assets, CNA 
accrued $30.0 of restructuring and other related charges in 2001 (the "IT Plan 
Initial Accrual"). These charges primarily related to $29.0 of workforce 
reductions of approximately 260 positions gross and 249 positions net and $1.0 
of other costs. 

The following table summarizes the IT Plan Initial Accrual and the activity in 
that accrual during 2001:


<TABLE>
<CAPTION>

                                        Employee
                                       Termination  Impaired
                                       and Related    Asset    Other
                                      Benefit Costs  Charges   Costs    Total
------------------------------------------------------------------------------

<c>                                       <s>       <s>       <s>      <s>
IT Plan Initial Accrual                   $ 29.0    $ 32.0    $ 1.0    $ 62.0
Costs that did not require cash                      (32.0)             (32.0)
Payments charged against liability         (19.0)                       (19.0)
------------------------------------------------------------------------------

Accrued costs                              $10.0              $ 1.0    $ 11.0
==============================================================================
</TABLE>


Through December 31, 2001, 249 employees were released due to the IT Plan, 
nearly all of whom were technology support staff. 

2001 Plan

The overall goal of the 2001 Plan is to create a simplified and leaner 
organization for customers and business partners. The major components of the 
lan include a reduction in the number of strategic business units ("SBUs") in 
the property-casualty operations, changes in the strategic focus of the Life 
Operations and consolidation of real estate locations. The reduction in the 
number of property-casualty SBUs resulted in consolidation of SBU functions, 
including underwriting, claims, marketing and finance. The strategic changes 
in Life Operations include a decision to discontinue the variable life and 
annuity business.

As summarized in the following table, CNA incurred $189.0 of pretax 
restructuring and other related charges in 2001. CNA does not expect to incur 
significant amounts of additional charges with respect to the 2001 Plan in any 
future period and, as a result, does not intend to separately classify such 
expenses as restructuring and related charges when they occur.


<TABLE>
<CAPTION>

                                                Employee
                                              Termination   Lease    Impaired
                                              and Related Termination  Asset    Other
                                             Benefit Costs  Costs     Charges   Costs     Total
------------------------------------------------------------------------------------------------

<s>                                              <c>        <c>        <c>      <c>      <c>
Standard Lines                                   $ 40.0                                  $ 40.0
Specialty Lines                                     7.0                                     7.0
CNA Re                                              2.0     $ 4.0                           6.0
------------------------------------------------------------------------------------------------

Total Property-Casualty                            49.0       4.0                          53.0
Group Operations                                    1.0                                     1.0
Life Operations                                     9.0                $ 9.0    $35.0      53.0
Other Insurance                                     9.0      52.0       21.0               82.0
------------------------------------------------------------------------------------------------

Total                                            $ 68.0     $56.0      $30.0    $35.0    $189.0
================================================================================================
</TABLE>


All lease termination costs and impaired asset charges, except lease 
termination costs incurred by operations in the United Kingdom and software 
write-offs incurred by Life Operations, were charged to the Other Insurance 
segment because office closure and consolidation decisions were not within the 
control of the other segments affected. Lease termination costs incurred in 
the United Kingdom relate solely to the operations of CNA Re. All other 
charges were recorded in the segment benefiting from the services or existence 
of an employee or an asset.

The 2001 Plan charges incurred by Standard Lines were $40.0, related entirely 
to employee termination and related benefit costs for planned reductions in 
the workforce of 1,063 positions, gross and net, of which $27.0 related to 
severance and outplacement costs and $13.0 related to other salary costs. 
Through December 31, 2001, approximately 510 employees were released due to 
the 2001 Plan. Approximately 272 of these employees were administrative, 
technology or financial support staff; approximately 164 of these employees 
were underwriters, claim adjusters and related insurance services staff; and 
approximately 74 employees were in various other positions.

The 2001 Plan charges incurred by Specialty Lines were $7.0, related entirely 
to employee termination and related benefit costs for planned reductions in 
the workforce of 177 positions, gross and net, of which $5.0 related to 
severance and outplacement costs and $2.0 related to other salary costs. 
Through December 31, 2001, approximately 107 employees were released due to 
the 2001 Plan. Approximately 47 of these employees were administrative, 
technology or financial support staff; approximately 45 of these employees 
were underwriters, claim adjusters and related insurance services staff; and 
approximately 15 of these employees were in various other positions.

                                     102

The 2001 Plan charges incurred by CNA Re were $6.0. Costs related to employee 
termination and benefit costs for planned reductions in the workforce of 33 
positions, gross and net, amounted to $2.0, all of which related to severance 
and outplacement costs. Through December 31, 2001 no employees in CNA Re were 
released due to the 2001 Plan. The remaining $4.0 of charges incurred by CNA 
Re related to lease termination costs.

The 2001 Plan charges incurred by Group Operations were $1.0, related entirely 
to employee termination and related benefit costs for planned reductions in 
the workforce of 38 positions, gross and net. Through December 31, 2001, no 
employees in Group Operations were released due to the 2001 Plan.

The 2001 Plan charges incurred by Life Operations were $53.0. Costs related to 
employee termination and related benefit costs for planned reductions in 
workforce of 356 positions, gross and net, amounted to $9.0, of which $8.0 
related to severance and outplacement costs and $1.0 related to other salary 
costs. Through December 31, 2001, seven employees were released due to the 
2001 Plan, which were primarily administration, technology, and financial 
support staff positions. Life Operations incurred $9.0 of impaired asset 
charges related to software. Other costs of $35.0 in Life Operations related 
to a write-off of deferred acquisition costs on in-force variable life and 
annuity contracts, as CNA believes that the decision to discontinue these 
products will negatively impact the persistency of the business.

The 2001 Plan charges incurred by the Other Insurance segment were $82.0. 
Costs related to employee termination and related benefit costs for planned 
reductions in workforce of 194 positions, gross and net, amounted to $9.0, of 
which $6.0 related to severance and outplacement costs and $3.0 related to 
other salary costs. Through December 31, 2001, 129 employees were released due 
to the 2001 Plan. Approximately 114 of these employees were administrative, 
technology or financial support staff and approximately 15 of these employees 
were in other positions. The Other Insurance segment also incurred $73.0 of 
lease termination and asset impairment charges related to office closure and 
consolidation decisions not within the control of the other segments affected.

In connection with the 2001 Plan, CNA accrued $189.0 of these restructuring 
and other related charges (the "2001 Plan Initial Accrual"). These charges 
include employee termination and related benefit costs, lease termination 
costs, impaired asset charges and other costs.

The following table summarizes the 2001 Plan Initial Accrual and the activity 
in that accrual during 2001:


<TABLE>
<CAPTION>


                                                Employee
                                              Termination   Lease    Impaired
                                              and Related Termination  Asset    Other
                                             Benefit Costs  Costs     Charges   Costs     Total
------------------------------------------------------------------------------------------------

<s>                                             <c>         <c>         <c>      <c>      <c>
2001 Plan Initial Accrual                       $ 68.0      $ 56.0    $ 30.0   $ 35.0   $ 189.0
Cost that did not require cash                                                  (35.0)    (35.0)
Payments charged against liability                (2.0)                                    (2.0)
------------------------------------------------------------------------------------------------

Accrued costs                                   $ 66.0      $ 56.0    $ 30.0            $ 152.0
================================================================================================
</TABLE>


Additionally, at December 31, 2000, an accrual of $7.0 for lease termination 
costs remained related to the August 1998 restructuring ("1998 Plan"). 
Approximately $6.0 of these costs were paid in 2001, resulting in a remaining 
accrual of $1.0 at December 31, 2001. No restructuring and other related 
charges were incurred for the 1998 Plan during 2001 or 2000. Restructuring and 
other related charges for the 1998 Plan amounted to $83.0 in 1999.

Note 14. Benefit Plans

Pension Plans - The Company has several non-contributory defined benefit plans 
for eligible employees. The benefits for certain plans which cover salaried 
employees and certain union employees are based on formulas which include, 
among others, years of service and average pay. The benefits for one plan 
which covers union workers under various union contracts and certain salaried 
employees are based on years of service multiplied by a stated amount. 
Benefits for another plan are determined annually based on a specified 
percentage of annual earnings (based on the participant's age) and a specified 
interest rate (which is established annually for all participants) applied to 
accrued balances.

The Company's funding policy is to make contributions in accordance with 
applicable governmental regulatory requirements. The assets of the plans are 
invested primarily in interest-bearing obligations and for one plan with an 
insurance subsidiary of CNA, in its separate account business.

Other Postretirement Benefit Plans - The Company has several postretirement 
benefit plans covering eligible employees and retirees. Participants generally 
become eligible after reaching age 55 with required years of service. Actual 
requirements for coverage vary by plan. Benefits for retirees who were covered 
by bargaining units vary by each unit and contract. Benefits for certain 
retirees are in the form of a Company health care account.

Benefits for retirees reaching age 65 are generally integrated with Medicare. 
Other retirees, based on plan provisions, must use Medicare 

                                     103

as their primary coverage, with the Company reimbursing a portion of the 
unpaid amount; or are reimbursed for the Medicare Part B premium or have no 
Company coverage. The benefits provided by the Company are basically health 
and, for certain retirees, life insurance type benefits.

The Company does not fund any of these benefit plans and accrues 
postretirement benefits during the active service of those employees who would 
become eligible for such benefits when they retire.

In 2000, CNA recorded pretax curtailment charges of approximately $13.0 
related to employee's elections regarding participation in a defined benefit 
pension plan. This change resulted in a reduction of the pension benefit 
obligation of $37.0.

In 1999, CNA recorded pretax curtailment and other related charges of 
approximately $8.0 related to the transfer of personal lines insurance 
business to Allstate as discussed in Note 12. This transaction resulted in a 
reduction of the pension and postretirement benefit obligations of $44.0 and 
$2.0, respectively.

In 1999, CNA amended certain plans to change, among other things, early 
retirement eligibility and the level of employer contributions. These actions 
resulted in a reduction in pension and postretirement benefit obligations of 
approximately $10.0 and $48.0, respectively.

The weighted average rates used in the actuarial assumptions were:


<TABLE>
<CAPTION>

                                      Pension Benefits             Other Postretirement Benefits
                         ---------------------------------------   -----------------------------

Year Ended December 31          2001          2000          1999      2001   2000          1999
------------------------------------------------------------------------------------------------

<s>                      <c>           <c>           <c>               <c>    <c>   <c>
Discount rate                    7.3%          7.5%  7.8% to 8.0%      7.3%   7.5%  7.8% to 8.0%
Expected return
 on plan assets          7.5% to 9.0%  7.8% to 8.0%  6.8% to 8.0%
Rate of compensation
 increase                5.3% to 5.8%  5.5% to 5.8%  5.5% to 5.7%
------------------------------------------------------------------------------------------------
</TABLE>


Net periodic benefit cost components:


<TABLE>
<CAPTION>

                                             Pension Benefits      Other Postretirement Benefits
                                       --------------------------  -----------------------------
Year Ended December 31                     2001      2000     1999       2001     2000     1999
------------------------------------------------------------------------------------------------

<s>                                     <c>       <c>       <c>        <c>      <c>      <c>
Service cost                            $  51.4   $  45.1   $ 79.6     $  9.5   $ 10.1   $ 14.8
Interest cost                             195.2     187.4    180.9       33.8     33.0     31.4
Expected return on plan assets           (194.5)   (172.2)  (145.3)
Amortization of unrecognized net asset       .5       5.6      5.6
Amortization of unrecognized 
 net loss (gain)                            2.8       2.5     11.9       (2.7)    (4.4)    (3.4)
Amortization of unrecognized prior
 service cost                               7.6       7.7      9.9      (17.8)   (17.6)   (14.3)
Curtailment loss                            2.8      12.9      8.0
Special termination benefit                 1.7
------------------------------------------------------------------------------------------------
Net periodic benefit cost               $  67.5   $  89.0   $150.6     $ 22.8   $ 21.1   $ 28.5
================================================================================================
</TABLE>


For measurement purposes, a trend rate for covered costs from 4.0% to 9.0% 
pre-65 and 11.0% post-65, was used. These trend rates are expected to decrease 
gradually to an ultimate rate of 4.0% to 5.0% at a rate of .5% per annum. The 
health care cost trend rate assumption has a significant effect on the amount 
of the benefit obligation and periodic cost reported. An increase (or 
decrease) in the assumed health care cost trend rate of 1% would increase (or 
decrease) the postretirement benefit obligation as of December 31, 2001 by 
$24.8 (or $22.9) and the total of service and interest cost components of 
net periodic postretirement benefit cost for 2001 by $1.9 (or $2.0).

The projected benefit obligation, accumulated benefit obligation and fair 
value of plan assets for pension plans with an accumulated benefit obligation 
in excess of plan assets were $2,202.2, $1,938.3 and $1,951.7, respectively, 
at December 31, 2001 and $2,019.4, $1,788.4 and $1,779.4, respectively, at 
December 31, 2000.

                                     104

The following provides a reconciliation of benefit obligations:


<TABLE>
<CAPTION>

                                                                                     Other
                                                              Pension            Postretirement
                                                              Benefits              Benefits
                                                      ------------------------------------------
                                                          2001         2000      2001      2000
------------------------------------------------------------------------------------------------

<s>                                                   <c>         <c>         <c>       <c>
Change in benefit obligation:
Benefit obligation at January 1                       $ 2,668.2   $ 2,533.0   $ 458.6   $ 411.9
Service cost                                               51.4        45.1       9.5      10.1
Interest cost                                             195.2       187.4      33.8      33.0
Plan participants' contributions                                                  9.8       8.0
Amendments                                                              4.6       (.7)     (2.8)
Actuarial loss                                            156.1       108.2      43.3      38.6
Benefits paid from plan assets                           (185.6)     (173.1)    (43.5)    (40.2)
Curtailment                                                (1.3)      (37.0)     (7.0)
Special termination benefits                                1.7
------------------------------------------------------------------------------------------------
Benefit obligation at December 31                       2,885.7     2,668.2     503.8     458.6
------------------------------------------------------------------------------------------------

Change in plan assets:
Fair value of plan assets at January 1                  2,481.1     2,104.9
Actual return on plan assets                              213.6       310.4
Company contributions                                     214.5       238.9      33.7      32.2
Plan participants' contributions                                                  9.8       8.0
Benefits paid from plan assets                           (185.6)     (173.1)    (43.5)    (40.2)
------------------------------------------------------------------------------------------------
Fair value of plan assets at December 31                2,723.6     2,481.1
------------------------------------------------------------------------------------------------

Benefit obligation over plan assets                      (162.1)     (187.1)   (503.8)   (458.6)
Unrecognized net actuarial loss (gain)                    319.7       188.6      33.6      (5.5)
Unrecognized prior service cost (benefit)                  42.1        50.7    (105.7)   (126.3)
Unrecognized net obligation                                              .4
------------------------------------------------------------------------------------------------
Accrued benefit cost                                   $  199.7     $  52.6   $(575.9)  $(590.4)
================================================================================================

Amounts recognized in the Consolidated 
 Balance Sheets consist of:
Prepaid benefit cost                                   $  278.4     $ 147.0
Accrued benefit liability                                (104.0)     (100.6) $ (575.9)  $(590.4)
Intangible asset                                             .2          .2
Accumulated other comprehensive income                     25.1         6.0
------------------------------------------------------------------------------------------------
Net amount recognized                                  $  199.7     $  52.6  $ (575.9)  $(590.4)
================================================================================================
</TABLE>


Savings Plans - The Company and its subsidiaries have several contributory 
savings plans which allow employees to make regular contributions based upon a 
percentage of their salaries. Matching contributions are made up to specified 
percentages of employees' contributions. The contributions by the Company and 
its subsidiaries to these plans amounted to $67.2, $61.6 and $39.6 for the 
years ended December 31, 2001, 2000 and 1999, respectively.

Stock Option Plans - In 2000, shareholders approved the Loews Corporation 2000 
Stock Option Plan (the "Plan"). The aggregate number of shares of Common Stock 
for which options may be granted under the Plan is 2,000,000; and the maximum 
number of shares of Common Stock with respect to which options may be granted 
to any individual in any calendar year is 400,000. The exercise price per 
share may not be less than the fair market value of the Common Stock on the 
date of grant. Generally, options vest ratably over a four-year period and 
expire in ten years. The Company has elected to follow Accounting Principles 
Board Opinion ("APB") No. 25, "Accounting for Stock Issued to Employees" and 
related interpretations in accounting for its employee stock options and 
awards. Under APB No. 25, no compensation expense is recognized when the 
exercise prices of options equals the fair value (market price) of the 
underlying stock on the date of grant.

                                     105

A summary of the Company's stock option transactions follows:


<TABLE>
<CAPTION>

                                                           2001                    2000
                                                   ---------------------------------------------

                                                                Weighted                Weighted
                                                                 Average                 Average
                                                   Number of    Exercise   Number of    Exercise
                                                     Shares       Price      Shares      Price
------------------------------------------------------------------------------------------------

<s>                                                 <c>         <c>         <c>         <c>
Options outstanding, January 1                       264,000     $30.140
   Granted                                           284,800      46.918    264,000     $30.140
   Exercised                                         (11,900)     30.140
   Canceled                                           (1,200)     55.860
------------------------------------------------------------               ---------

Options outstanding, December 31                     535,700     $39.002    264,000     $30.140
================================================================================================

Options exercisable, December 31                      66,850     $32.776
================================================================================================

Shares available for grant, December 31            1,452,400               1,736,000
================================================================================================
</TABLE>


The following table summarizes information about the Company's stock options 
outstanding at December 31, 2001:


<TABLE>
<CAPTION>

                                        Options Outstanding              Options Exercisable
                             ------------------------------------     -------------------------
                                             Weighted
                                 Number       Average    Weighted        Number        Weighted
                             Outstanding at  Remaining   Average      Exercisable at   Average
                               December 31, Contractual  Exercise      December 31,    Exercise
Range of exercise prices          2001          Life      Price           2001          Price
-----------------------------------------------------------------------------------------------

<s>                             <c>             <c>      <c>             <c>           <c>
$30.14                          252,100         7.9      $30.140         58,750        $30.140
$46.705                         270,600         8.9       46.705          2,100         46.705
$45.14 - $63.42                  13,000         9.0       50.526          6,000         53.716
</TABLE>


SFAS No. 123, "Accounting for Stock-Based Compensation," requires the Company 
to disclose pro forma information regarding option grants made to its 
employees. SFAS No. 123 specifies certain valuation techniques that produce 
estimated compensation charges for purposes of valuing stock option grants. 
These amounts have not been included in the Company's Consolidated Statements 
of Operations, because APB No. 25 specifies that no compensation charge 
arises when the price of the employees' stock options equal the market 
value of the underlying stock at the grant date. Several of the Company's 
subsidiaries also maintain their own stock option plans. The pro forma 
effect of applying SFAS No. 123 includes the Company's share of expense 
related to the subsidiaries' plans as well. The Company's pro forma net 
(loss) income for the years ended December 31, 2001 and 2000, was $(591.5) 
and $1,875.2 or $(3.03) and $9.44 per share, respectively.

The fair value of granted options was estimated at the grant date using the 
Black-Scholes option pricing model. The weighted average fair value per 
share of options granted during 2001 and 2000 was $16.90 and $10.73, 
respectively. The following weighted average assumptions were used for the 
years ended December 31, 2001 and 2000: risk free interest rate of 5.3% and 
6.7%; expected dividend yield of 1.1% and 1.6%; expected option life of 5 
years; and expected stock price volatility of 35.2% and 33.4%, respectively.

Note 15. Reinsurance

CNA assumes and cedes reinsurance with other insurers and reinsurers and 
members of various reinsurance pools and associations. CNA utilizes 
reinsurance arrangements to limit its maximum loss, provide greater 
diversification of risk, minimize exposures on larger risks and to exit 
certain lines of business. Reinsurance coverages are tailored to the specific 
risk characteristics of each product line and CNA's retained amount varies by 
type of coverage. Generally, property risks are reinsured on an excess of 
loss, per risk basis. Liability coverages are generally reinsured on a quota 
share basis in excess of CNA's retained risk. CNA's life reinsurance includes 
utilization of coinsurance, yearly renewable term and facultative programs. A 
majority of the reinsurance utilized by CNA's life insurance operations 
relates to term life insurance policies. Term life insurance policies issued 
from 1994 onward are generally ceded at 60% to 90% of the face value from 
first dollar. Universal Life policies issued from 1998 onward are generally 
ceded at 75% of the face value from first dollar.

CNA's overall reinsurance program includes certain property-casualty 
contracts, such as the corporate aggregate treaties discussed in more detail 
later in this section, that are entered into and accounted for on a "funds 
withheld" basis. Under these contracts, CNA records a funds

                                     106

withheld liability, which is included in reinsurance balances payable for 
substantially all of the ceded premiums. These reinsurance contracts require 
CNA to increase the funds withheld balance at stated interest crediting rates. 
The funds withheld liability is reduced by any cumulative claim payments made 
by CNA in excess of CNA's retention under the reinsurance contract. If the 
funds withheld liability is exhausted, additional claim payments are 
recoverable from the reinsurer.

Interest cost on these contracts, which is included in other net investment 
income, was $241.0, $87.0 and $22.0 in 2001, 2000 and 1999. The amount subject 
to interest crediting rates on such contracts was $2,724.0 and $522.0 at 
December 31, 2001 and 2000.

The ceding of insurance does not discharge the primary liability of CNA. 
Therefore, a credit exposure exists with respect to property, liability and 
life reinsurance ceded to the extent that any reinsurer is unable to meet the 
obligations assumed under reinsurance agreements.

Amounts receivable from reinsurers were $13,823.4 and $9,397.3 at December 31, 
2001 and 2000. Of these amounts, $838.0 and $821.0 were billed to reinsurers 
as of December 31, 2001 and 2000, as reinsurance contracts generally require 
payment of claims by the ceding company before the amount can be billed to the 
reinsurer. The remaining receivable relates to the estimated case and IBNR 
reserves and future policyholder benefits ceded under reinsurance contracts.

CNA attempts to mitigate its credit risk related to reinsurance by entering 
into reinsurance arrangements only with reinsurers that have credit ratings 
above certain levels and by obtaining substantial amounts of collateral. The 
primary methods of obtaining collateral are through reinsurance trusts, 
letters of credit and funds withheld balances. Such collateral was 
approximately $3,677.0 and $1,566.0 at December 31, 2001 and 2000. The 
allowance for doubtful accounts related to reinsurance receivables was $170.0 
and $179.0 at December 31, 2001 and 2000.

CNA's largest recoverables from a single reinsurer, including prepaid 
reinsurance premiums, were approximately $1,487.0, $1,374.0, $889.0 and $463.0 
at December 31, 2001 from Hannover Reinsurance (Ireland) Ltd., Allstate 
Insurance Corporation, American Reinsurance Company, and European Reinsurance 
Company of Zurich.

Insurance claims and policyholders' benefits reported in the Consolidated 
Statements of Operations are net of reinsurance recoveries of $7,288.0, 
$4,863.0 and $3,224.0 for the years ended December 31, 2001, 2000 and 1999.

Life premiums are primarily from long duration contracts, and property-
casualty premiums and accident and health premiums are primarily from short 
duration contracts.

The effects of reinsurance on earned premiums are as follows:


<TABLE>
<CAPTION>

                                                    Direct     Assumed      Ceded         Net
------------------------------------------------------------------------------------------------

Year Ended December 31, 2001

<s>                                                <c>         <c>         <c>        <c>
Property-casualty                                 $ 8,708.0    $1,228.0    $4,983.0   $ 4,953.0
Accident and health                                 3,644.0       176.0       136.0     3,684.0
Life                                                1,256.0       217.0       745.0       728.0
------------------------------------------------------------------------------------------------
Total                                             $13,608.0    $1,621.0    $5,864.0   $ 9,365.0
================================================================================================

Year Ended December 31, 2000

Property-casualty                                 $ 8,389.0    $1,955.0    $3,421.0   $ 6,923.0
Accident and health                                 3,644.0       484.0       487.0     3,641.0
Life                                                1,227.0       220.0       537.0       910.0
------------------------------------------------------------------------------------------------
Total                                             $13,260.0    $2,659.0    $4,445.0   $11,474.0
================================================================================================

Year Ended December 31, 1999

Property-casualty                                 $ 9,158.0    $1,816.0    $2,199.0   $ 8,775.0
Accident and health                                 3,730.0       198.0       397.0     3,531.0
Life                                                1,174.0       222.0       420.0       976.0
------------------------------------------------------------------------------------------------
Total                                             $14,062.0    $2,236.0    $3,016.0   $13,282.0
================================================================================================
</TABLE>


                                     107

In 1999, CNA entered into an aggregate reinsurance treaty related to the 1999 
through 2001 accident years covering substantially all of CNA's property-
casualty lines of business (the "Aggregate Cover"). CNA has two sections of 
coverage under the terms of the Aggregate Cover. These coverages attach at 
defined loss and allocated loss adjustment expense (collectively, "losses") 
ratios for each accident year. Coverage under the first section of the 
Aggregate Cover, which is available for all accident years covered by the 
contract, has annual limits of $500.0 of ceded losses with an aggregate limit 
of $1,000.0 of ceded losses for the three-year period. The ceded premiums are 
a percentage of ceded losses and for each $500.0 of limit the ceded premium is 
$230.0. The second section of the Aggregate Cover, which is only available for 
accident year 2001, provides additional coverage of up to $510.0 of ceded 
losses for a maximum ceded premium of $310.0. Under the Aggregate Cover, 
interest charges on the funds withheld accrue at 8.0% per annum. If the 
aggregate loss ratio for the three-year period exceeds certain thresholds, 
additional premiums may be payable and the rate at which interest charges are 
accrued would increase to 8.3% per annum.

The coverage under the second section of the Aggregate Cover was triggered for 
the 2001 accident year. As a result of losses related to the WTC event, the 
limit under this section was exhausted. Additionally, as a result of the 
significant reserve additions recorded during 2001, the $500.0 limit on the 
1999 accident year under the first section was also fully utilized. No losses 
have been ceded to the remaining $500.0 of limit on accident years 2000 and 
2001 under the first section.

The impact of the Aggregate Cover for the year ended December 31, 2001 was as 
follows:


<TABLE>
<CAPTION>

<s>                                                                  <c>
Ceded earned premiums                                                $ (543.0)
Ceded claim and claim adjustment expenses                             1,010.0
Interest charges                                                        (81.0)
------------------------------------------------------------------------------
Pretax benefit on operating results                                  $  386.0
==============================================================================
</TABLE>


In 2001, CNA entered into a one-year aggregate reinsurance treaty related to 
the 2001 accident year covering substantially all property-casualty lines of 
business in the Continental Casualty Company Pool (the "CCC Cover"). The loss 
protection provided by the CCC Cover has an aggregate limit of approximately 
$760.0 of ceded losses. The CCC Cover provides continuous coverage in excess 
of the second section of the Aggregate Cover discussed above. Under the CCC 
Cover, interest charges on the funds withheld generally accrue at 8.0% per 
annum. The interest rate increases to 10.0% per annum if the aggregate loss 
ratio exceeds certain thresholds. 

The impact of the CCC Cover for the year ended December 31, 2001 was as 
follows:


<TABLE>
<CAPTION>

<s>                                                                   <c>
Ceded earned premiums                                                 $(260.0)
Ceded claim and claim adjustment expenses                               470.0
Interest charges                                                        (20.0)
------------------------------------------------------------------------------
Pretax benefit on operating results                                   $ 190.0
==============================================================================
</TABLE>


Note 16. Quarterly Financial Data (Unaudited)


<TABLE>
<CAPTION>

2001 Quarter Ended                                 Dec. 31    Sept. 30      June 30    March 31
------------------------------------------------------------------------------------------------

<s>                                               <c>         <c>         <c>          <c>
Total revenues                                    $5,153.8    $4,840.9    $ 4,318.5    $5,104.0
Income (loss) before cumulative effect
 of changes in accounting principles                 188.1       165.7     (1,415.2)      525.6
Per share                                              .98         .85        (7.18)       2.67
Net income (loss)                                    188.1       165.7     (1,415.2)      472.3
Per share                                              .98         .85        (7.18)       2.40

2000 Quarter Ended                                 Dec. 31    Sept. 30      June 30    March 31
------------------------------------------------------------------------------------------------

Total revenues                                    $5,524.2    $5,757.3    $ 5,314.0    $4,655.7
Net income                                           502.9       679.6        510.6       183.6
Per share                                             2.55        3.45         2.59         .90
------------------------------------------------------------------------------------------------
</TABLE>


                                     108

Note 17.	Legal Proceedings and Contingent Liabilities

INSURANCE RELATED

Tobacco Litigation -  Four CNA insurance subsidiaries are defendants in a 
lawsuit arising out of policies allegedly issued to Liggett Group, Inc. 
("Liggett"). The lawsuit was filed by Liggett and its current parent, Brooke 
Group Holding Inc., in the Delaware Superior Court, New Castle County, on 
January 26, 2000. The lawsuit, which involves numerous insurers, concerns 
coverage issues relating to over 1,000 tobacco-related claims asserted against 
Liggett over the past 20 years. However, Liggett only began submitting claims 
for coverage under the policies in January 2000. The trial court granted the 
CNA insurance subsidiaries' summary judgment motions asserting that they have 
no duty to defend or to indemnify as to a number of representative lawsuits. 
The Delaware Supreme Court has accepted an appeal of these rulings. CNA 
believes its coverage defenses are strong; and therefore, based on facts and 
circumstances currently known, management believes that the ultimate outcome 
of the pending litigation will not materially affect the results of operations 
and/or financial position of CNA.

IGI Contingency

In 1997, CNA Reinsurance Company Limited ("CNA Re Ltd.") entered into an 
arrangement with IOA Global, Ltd. ("IOA"), an independent managing general 
agent based in Philadelphia, Pennsylvania, to develop and manage a book of 
accident and health coverages. Pursuant to this arrangement, IGI Underwriting 
Agencies, Ltd. ("IGI"), a personal accident reinsurance managing general 
underwriter, was appointed to underwrite and market the book under the 
supervision of IOA. Between April 1, 1997 and December 1, 1999, IGI underwrote 
a number of reinsurance arrangements with respect to personal accident 
insurance worldwide (the "IGI Program"). Under various arrangements, CNA Re 
Ltd. both assumed risks as a reinsurer and also ceded a substantial portion of 
those risks to other companies, including other CNA insurance subsidiaries and 
ultimately to a group of reinsurers participating in a reinsurance pool known 
as the Associated Accident and Health Reinsurance Underwriters ("AAHRU") 
Facility. CNA's Group Operations business unit participated as a pool member 
in the AAHRU Facility in varying percentages between 1997 and 1999.

CNA has determined that a small portion of the premiums assumed under the IGI 
Program related to United States workers' compensation "carve-out" business. 
CNA is aware that a number of reinsurers with workers' compensation carve-out 
insurance exposure have disavowed their obligations under various legal 
theories. If one or more such companies are successful in avoiding or reducing 
their liabilities, then it is likely that CNA's liability will also be 
reduced. Moreover, based on information known at this time, CNA reasonably 
believes it has strong grounds for avoiding a substantial portion of its 
United States workers' compensation carve-out exposure through legal action.

As noted, CNA arranged substantial reinsurance protection to manage its 
exposures under the IGI Program. CNA believes it has valid and enforceable 
reinsurance contracts with the AAHRU Facility and other reinsurers with 
respect to the IGI Program, including the United States workers' compensation 
carve-out business. However, certain reinsurers dispute their liabilities to 
CNA, and CNA has commenced arbitration proceedings against such reinsurers.

CNA has established reserves for its estimated exposure under the program and 
an estimate for recoverables from retrocessionaires.

CNA is pursuing a number of loss mitigation strategies. Although the results 
of these various actions to date support the recorded reserves, the estimate 
of ultimate losses is subject to considerable uncertainty. As a result of 
these uncertainties, the results of operations in future years may be 
adversely affected by potentially significant reserve additions. Management 
does not believe that any such reserve additions will be material to the 
equity of CNA.

Other Contingencies

In the normal course of business, CNA has obtained letters of credit in favor 
of various unaffiliated insurance companies, regulatory authorities and other 
entities. At December 31, 2001 there were approximately $270.0 of outstanding 
letters of credit.

CNA has committed approximately $152.0 to future capital calls from various 
third party limited partnership investments in exchange for an ownership 
interest in the related partnerships. 

CNA has a commitment to purchase a $100.0 floating rate note issued by the 
Californian Earthquake Authority in the event California earthquake related 
insurance losses exceed $4,900.0 prior to December 31, 2002.

CNA has entered into a limited number of guaranteed payment contracts 
primarily relating to telecommunication services amounting to approximately 
$41.0. Estimated future minimum purchases under these contracts are as 
follows: $14.0 in 2002; $14.0 in 2003; $10.0 in 2004; and $3.0 in 2005.

TOBACCO RELATED

Approximately 4,675 product liability cases are pending against cigarette 
manufacturers in the United States; Lorillard is a defendant in approximately 
4,275 of these cases. Lawsuits continue to be filed against Lorillard and 
other manufacturers of tobacco products. Some of the lawsuits also name the 
Company as a defendant. Among the 4,675 product liability cases, approximately 
1,250 cases are pending in a West Virginia court. Another group of 
approximately 2,835 cases has been brought by flight attendants alleging 
injury from exposure to environmental tobacco smoke in the cabins of aircraft. 
Lorillard is a defendant in all of the flight attendant suits and is a 
defendant in most of the cases pending in West Virginia. 

Excluding the flight attendant and West Virginia suits, approximately 575 
product liability cases are pending against U.S. cigarette

                                     108

manufacturers. Of these 575 cases, Lorillard is a defendant in approximately 
275 cases. The Company is a defendant in approximately 45 of these actions, 
although it has not received service of process in approximately 10 of them.

Tobacco litigation includes various types of claims. In these actions, 
plaintiffs claim substantial compensatory, statutory and punitive damages, as 
well as equitable and injunctive relief, in amounts ranging into the billions 
of dollars. These claims are based on a number of legal theories including, 
among other theories, theories of negligence, fraud, misrepresentation, strict 
liability, breach of warranty, enterprise liability (including claims asserted 
under the Racketeering Influenced and Corrupt Organizations Act), civil 
conspiracy, intentional infliction of harm, violation of consumer protection 
statutes, violation of antitrust statutes, and failure to warn of the harmful 
and/or addictive nature of tobacco products.

Some cases have been brought by individual plaintiffs who allege cancer and/or 
other health effects resulting from an individual's use of cigarettes and/or 
smokeless tobacco products, addiction to smoking or exposure to environmental 
tobacco smoke. These cases are generally referred to as "conventional product 
liability cases." In other cases, plaintiffs have brought claims as purported 
class actions on behalf of large numbers of individuals for damages allegedly 
caused by smoking. These cases are generally referred to as "purported class 
action cases." In other cases, plaintiffs are U.S. and foreign governmental 
entities or entities such as labor unions, private companies, hospitals or 
hospital districts, American Indian tribes, or private citizens suing on 
behalf of taxpayers. Plaintiffs in these cases seek reimbursement of health 
care costs allegedly incurred as a result of smoking, as well as other alleged 
damages. These cases are generally referred to as "reimbursement cases." In 
addition, there are claims for contribution and/or indemnity in relation to 
asbestos claims filed by asbestos manufacturers or the insurers of asbestos 
manufacturers. These cases are generally referred to as "claims for 
contribution."

In addition to the above, claims have been brought against Lorillard seeking 
damages resulting from alleged exposure to asbestos fibers which were 
incorporated into filter material used in one brand of cigarettes manufactured 
by Lorillard for a limited period of time, ending more than 40 years ago. 
These cases are generally referred to as "filter cases." Approximately 30 
filter cases are pending against Lorillard. 

SIGNIFICANT RECENT DEVELOPMENTS - During December of 2001, the Florida Third 
District Court of Appeal denied defendants' motion for rehearing, for 
rehearing en banc, and for certification to the Florida Supreme Court of a 
ruling by the trial court from October of 2000 in the product liability 
litigation relating to present or former flight attendants. The October of 
2000 decision may be construed to hold that the flight attendants are not 
required to prove the substantive liability elements of their claims for 
negligence, strict liability and breach of implied warranty in order to 
recover damages. During January of 2002, the defendants, which include 
Lorillard, filed a notice to invoke the discretionary jurisdiction of the 
Florida Supreme Court in order to seek review of the trial court's October of 
2000 ruling and the orders by the Florida Third District Court of Appeal that 
affirmed the October of 2000 decision.

During November of 2001, a jury in the Circuit Court of Ohio County, West 
Virginia returned a verdict in favor of the defendants, including Lorillard, 
in the case of Blankenship v. American Tobacco Company, et al. (Circuit Court, 
Ohio County, West Virginia, filed January 31, 1997), a class action case. The 
court has denied plaintiffs' motion for new trial. The time for plaintiffs to 
appeal has not expired. 

During November of 2001, the California Court of Appeal, First Appellate 
District, affirmed the trial court's final judgment in favor of the plaintiff 
in the case of Henley v. Philip Morris Inc., a conventional product liability 
case. During 1999, a jury in the Superior Court of California, San Francisco 
County, found in favor of plaintiff at trial and awarded her $1.5 in actual 
damages and $50.0 in punitive damages. The trial court subsequently reduced 
the punitive damages award to $25.0. Philip Morris has filed a petition for 
review with the California Supreme Court. The California Supreme Court has 
accepted the case for review. Neither the Company nor Lorillard is a defendant 
in this matter.

On October 5, 2001, a jury returned a verdict in favor of the defendants in 
Tompkin v. The American Tobacco Company, et al., a conventional product 
liability case in the United States District Court for the Northern District 
of Ohio. Lorillard was a defendant in the case. The court has denied 
plaintiff's motion for new trial and entered final judgment in favor of the 
defendants. Plaintiff has noticed an appeal from the judgment to the U.S. 
Court of Appeals for the Sixth Circuit.

On June 6, 2001, a jury awarded $5.5 in compensatory damages and $3,000.0 in 
punitive damages to the plaintiff in Boeken v. Philip Morris, Inc., a 
conventional product liability case in the Superior Court of Los Angeles 
County, California. The court ruled that it would grant in part Philip 
Morris's motion for a new trial and hold a new trial limited to plaintiff's 
punitive damages claim if plaintiff did not consent to a reduction of the 
award to $100.0. Plaintiff accepted the reduced award and the trial court 
entered an amended judgment awarding plaintiff $100.0 in punitive damages. 
Philip Morris has noticed an appeal from the amended judgment to the 
California Court of Appeals. Neither the Company nor Lorillard was a defendant 
in this matter. 

On June 4, 2001, the jury in the case of Blue Cross and Blue Shield of New 
Jersey, Inc., et al. v. Philip Morris, Incorporated, et al., a health plan 
reimbursement case pending in the U.S. District Court for the Eastern District 
of New York, returned a verdict awarding damages against the defendants, 
including Lorillard. In this trial, the jury heard evidence as to the claims 
of only one of the plan plaintiffs, Empire Blue Cross and Blue Shield, 
referred to as Empire. In its June 4, 2001 verdict, the jury found in favor of
the defendants on some of Empire's claims, one of which findings precluded the 
jury from considering Empire's claims for punitive damages. The jury found in 
favor of Empire on certain other of plaintiff's claims. As a result of these

                                     110

findings, Empire is entitled to an award of approximately $17.8 in total 
actual damages, including approximately $1.5 attributable to Lorillard. The 
court denied plaintiff's post-verdict application for trebling of the damages 
awarded by the jury. On November 1, 2001, the court entered a final judgment 
that reflects the jury's verdict. In the final judgment, Empire was awarded 
approximately $1.5 in actual damages and approximately fifty-five thousand 
dollars in pre-judgment interest for a total award against Lorillard of 
approximately $1.6. The defendants, including Lorillard, have noticed an 
appeal from the final judgment to the United States Court of Appeals for the 
Second Circuit. Plaintiff's counsel has sought an award of $39.0 in attorneys' 
fees. This matter also is a part of the litigation described under the heading 
"Eastern District of New York Litigation" discussed below.

SETTLEMENT OF STATE REIMBURSEMENT CASES - On November 23, 1998, Lorillard, 
Philip Morris Incorporated, Brown & Williamson Tobacco Corporation and R.J. 
Reynolds Tobacco Company, the "Original Participating Manufacturers," entered 
into a Master Settlement Agreement with 46 states, the District of Columbia, 
the Commonwealth of Puerto Rico, Guam, the U.S. Virgin Islands, American Samoa 
and the Commonwealth of the Northern Mariana Islands to settle the asserted 
and unasserted health care cost recovery and certain other claims of those 
states. These settling entities are generally referred to as the "Settling 
States." The Original Participating Manufacturers had previously settled 
similar claims brought by Mississippi, Florida, Texas and Minnesota, which 
together with the Master Settlement Agreement are generally referred to as the 
"State Settlement Agreements."

The State Settlement Agreements provide that the agreements are not 
admissions, concessions or evidence of any liability or wrongdoing on the part 
of any party, and were entered into by Lorillard and the other participating 
manufacturers to avoid the further expense, inconvenience, burden and 
uncertainty of litigation.

The State Settlement Agreements also include provisions relating to 
significant advertising and marketing restrictions, public disclosure of 
certain industry documents, limitations on challenges to tobacco control and 
underage use laws, and other provisions.

In addition, as part of the Master Settlement Agreement, the Original 
Participating Manufacturers committed to work cooperatively with the tobacco 
growing community to address concerns about the potential adverse economic 
impact on that community. On January 21, 1999, the Original Participating 
Manufacturers reached an agreement to establish a $5,150.0 trust fund payable 
between 1999 and 2010 to compensate the tobacco growing communities in 14 
states. Payments to the trust fund are to be allocated among the Original 
Participating Manufacturers according to their relative market share of 
domestic cigarette shipments, except that Philip Morris paid more than its 
market share in 1999 but will have its payment obligations reduced in 2009 and 
2010 to make up for the overpayment. Of the total $5,150.0, a total of $989.0 
was paid in 1999, 2000 and 2001, $79.9 of which was paid by Lorillard. 
Lorillard believes its remaining payments under the agreement will total 
approximately $435.0. All payments will be adjusted for inflation, changes in 
the unit volume of domestic cigarette shipments, and the effect of new 
increases in state or federal excise taxes on tobacco products that benefit 
the tobacco growing community.

Lorillard believes that the State Settlement Agreements will materially 
adversely affect its cash flows and operating income in future years. The 
degree of the adverse impact will depend, among other things, on the rates of 
decline in U.S. cigarette sales in the premium price and discount price 
segments, Lorillard's share of the domestic premium price and discount price 
cigarette segments, and the effect of any resulting cost advantage of 
manufacturers not subject to significant payment obligations under the State 
Settlement Agreements. Almost all domestic manufacturers have agreed to become 
subject to the terms of the Master Settlement Agreement. 

Lorillard recorded pretax charges of $1,140.4, $1,076.5 and $1,065.8 for the 
years ended December 31, 2001, 2000 and 1999, respectively, to account for its 
obligations under the State Settlement Agreements. Lorillard's portion of 
ongoing adjusted payments and legal fees is based on its share of domestic 
cigarette shipments in the year preceding that in which the payment is due. 
Accordingly, Lorillard records its portions of ongoing settlement payments as 
part of cost of manufactured products sold as the related sales occur.

CONVENTIONAL PRODUCT LIABILITY CASES - Conventional product liability cases 
are cases in which individuals allege they or their decedents have been 
injured due to smoking cigarettes, due to exposure to environmental tobacco 
smoke, due to use of smokeless tobacco products, or due to cigarette or 
nicotine dependence or addiction. Plaintiffs in most conventional product 
liability cases seek unspecified amounts in compensatory damages and punitive 
damages. Lorillard is a defendant in approximately 1,300 of these cases. This 
total includes approximately 1,150 cases pending in West Virginia that are 
part of a consolidated proceeding. Additional cases are pending against other 
cigarette manufacturers. The Company is a defendant in seven of the cases 
filed by individuals, although four of the cases have not been served on the 
Company. The Company is not a defendant in any of the conventional product 
liability cases pending in West Virginia.

Since January 1, 2000, 13 cases filed by individual plaintiffs have been 
tried. Lorillard was a defendant in three of the 13 cases, and juries returned 
verdicts in favor of the defendants in each of these three matters. The 
Company was not a defendant in any of the 13 conventional product liability 
cases tried since January 1, 2000. Trial is proceeding in one matter filed by 
individuals. Neither Lorillard nor the Company were defendants in this matter.

Lorillard was not a defendant in ten of the individual cases tried since 
January 1, 2000. Juries have returned verdicts in favor of the defendants in 
four of the cases. In a fifth case, a court granted the defendant's motion for 
directed verdict. Five cases have been decided in plaintiffs' favor. Due to 
various factors, including the filing of

                                     111

appeals, plaintiffs have not been able to execute on any of the judgments 
reflecting the adverse verdicts. In a 2002 case, a Kansas jury awarded a 
plaintiff $0.2 in actual damages and found that plaintiff had presented 
evidence that entitles him to recover an award for punitive damages. The 
determination of the punitive damages award will be decided by the court at a 
later date. No challenges to this verdict have been filed to date. In 2001, a 
Florida jury awarded a plaintiff $0.17 in actual damages but declined to award 
punitive damages. The court has not ruled to date on the defendant's post-
trial motions. During 2001, a California jury awarded a plaintiff 
approximately $5.5 in actual damages and $3,000.0 in punitive damages, 
although the court subsequently reduced the punitive damages award to $100.0. 
The defendant has noticed an appeal from the final judgment. During 2000, a 
California jury awarded plaintiffs $21.5. The defendants have noticed an 
appeal from the final judgment. During 2000, a Florida jury awarded a 
plaintiff $0.2 in actual damages but it declined to award punitive damages. 
The trial court subsequently granted the defendant's post-trial motion and 
entered a final judgment in favor of the defendant. The plaintiff has noticed 
an appeal.

Appeals also are pending in two cases in which adverse verdicts were returned 
prior to January 1, 2000. Neither Lorillard nor the Company are defendants in 
either of these matters. In one of these matters, the California Supreme Court 
issued a ruling during January of 2002 that accepted for review the 
defendant's appeal from a 1999 judgment by a California court that reflects an 
award to a plaintiff of $26.5. The California Court of Appeal, in rulings 
issued during 2001, affirmed this judgment and subsequently denied the 
defendant's motion for rehearing. In the second of these matters, the Oregon 
Court of Appeals, during October of 2001, took under advisement the appeal 
from the judgment reflecting an award to an Oregon plaintiff of $32.8.

During 2001, another cigarette manufacturer, Brown & Williamson Tobacco 
Corporation, paid $1.1 in damages and interest to a former smoker and his 
spouse for injuries incurred as a result of smoking. Carter v. Brown & 
Williamson Tobacco Corporation (Circuit Court, Duval County, Florida, filed 
February 10, 1995). In the 1996 trial of that case, the jury awarded 
plaintiffs a total of $0.8 in damages. Plaintiffs did not seek punitive 
damages. In 1998, the Florida Court of Appeal reversed the judgment, holding 
that plaintiffs' claims were barred by the statute of limitations. The Florida 
Supreme Court, however, reinstated the jury's damages award during 2000 and 
denied Brown & Williamson's motion for rehearing during 2001. Brown & 
Williamson's motion to stay the mandate pending the resolution of its petition 
for writ of certiorari to the U.S. Supreme Court was denied. Brown & 
Williamson therefore paid approximately $1.1 in damages and interest to the 
plaintiffs during 2001. Brown & Williamson subsequently filed a petition for 
writ of certiorari with the U.S. Supreme Court. On June 29, 2001, the U.S. 
Supreme Court declined to accept for review the petition for writ of 
certiorari. Lorillard was not a defendant in this matter.

Some cases against U.S. cigarette manufacturers and manufacturers of smokeless 
tobacco products are scheduled for trial during 2002 and beyond. These trials 
include a consolidated trial of the cases brought by approximately 1,250 West 
Virginia smokers or users of smokeless tobacco products that is scheduled to 
begin during September of 2002. Lorillard is a defendant in some of the cases 
set for trial, including the consolidated West Virginia trial. The trial dates 
are subject to change.

The California Supreme Court is reviewing decisions by the California Court of 
Appeals as to whether a California statute bars claims against cigarette 
manufacturers if the claims accrued between 1988 and 1998. The California 
Attorney General has filed an amicus brief with the Supreme Court that 
supports the position of the plaintiffs in these suits.

Flight Attendant Cases - There are approximately 2,835 cases pending in the 
Circuit Court of Dade County, Florida against Lorillard and three other U.S. 
cigarette manufacturers in which the plaintiffs are present or former flight 
attendants, or the estates of deceased flight attendants, who allege injury as 
a result of exposure to environmental tobacco smoke in aircraft cabins. The 
Company is not a defendant in any of the flight attendant cases.

The suits were filed as a result of a settlement agreement on October 10, 1997 
by the parties to Broin v. Philip Morris Companies, Inc., et al. (Circuit 
Court, Dade County, Florida, filed October 31, 1991), a class action brought 
on behalf of flight attendants claiming injury as a result of exposure to 
environmental tobacco smoke. The settlement agreement was approved by the 
trial court on February 3, 1998. Pursuant to the settlement agreement, among 
other things, Lorillard and three other U.S. cigarette manufacturers paid 
approximately $300.0 to create and endow a research institute to study 
diseases associated with cigarette smoke. In addition, the settlement 
agreement permitted the plaintiff class members to file individual suits. 
These individuals may not seek punitive damages for injuries that arose prior 
to January 15, 1997. 

During October of 2000, the Circuit Court of Dade County, Florida entered an 
order that may be construed to hold that the flight attendants are not 
required to prove the substantive liability elements of their claims for 
negligence, strict liability and breach of implied warranty in order to 
recover damages. The court further ruled that the trials of these suits are to 
address whether the plaintiffs' alleged injuries were caused by their exposure 
to environmental tobacco smoke and, if so, the amount of damages to be 
awarded. It is not clear how the trial judges will apply this order. The 
Florida Third District Court of Appeal dismissed as premature defendants' 
appeal from the October of 2000 decision. The Court of Appeal denied 
defendants' motion for rehearing and for rehearing en banc or, in the 
alternative, for certification of the October of 2000 ruling to the Florida 
Supreme Court. During January of 2002, the defendants, which include 
Lorillard, filed a notice to invoke the discretionary jurisdiction of the 
Florida Supreme Court in order to seek review of the trial court's

                                     112

October of 2000 ruling and the orders by the Florida Third District Court of 
Appeal that affirmed the October of 2000 decision.

Trial has been held in one of the flight attendant cases. On April 5, 2001, a 
jury in the Circuit Court of Dade County, Florida returned a verdict in favor 
of Lorillard and the other defendants in the case of Fontana v. Philip Morris 
Incorporated, et al. The court has entered final judgment in favor of the 
defendants and has denied plaintiff's post-trial motions. Plaintiff has 
noticed an appeal to the Florida Third District Court of Appeal.

Additional flight attendant cases are set for trial. Approximately 15 such 
cases are scheduled for trial between April and October of 2002.

CLASS ACTION CASES - Certain cases have been filed against cigarette 
manufacturers, including Lorillard, in which plaintiffs purport to seek class 
certification on behalf of groups of cigarette smokers. Lorillard is a 
defendant in approximately 25 of these cases, six of which also name the 
Company as a defendant. Two cases that name both the Company and Lorillard as 
defendants have not been served on any of the parties. Neither Lorillard nor 
the Company are defendants in approximately 20 additional class action cases 
pending against other cigarette manufacturers, many of which assert claims on 
behalf of smokers of "light" cigarettes. As discussed under "Significant 
Recent Developments," a verdict was returned in favor of defendants in one of 
those matters, Blankenship v. American Tobacco Company, et al. during November 
of 2001. Trial proceedings are underway in the case of Scott v. The American 
Tobacco Company, et al. The remaining cases that are pending before trial 
courts are in the pre-trial, discovery stage. Most of the suits in which 
Lorillard or the Company were defendants seek class certification on behalf of 
residents of the states in which the purported class action cases have been 
filed, although some suits seek class certification on behalf of residents of 
multiple states. Plaintiffs in all but two of the purported class action cases 
seek class certification on behalf of individuals who smoked cigarettes or 
were exposed to environmental tobacco smoke. In one of the two remaining 
purported class action cases, plaintiffs seek class certification on behalf of 
individuals who paid insurance premiums. Plaintiffs in the other remaining 
suit seek class certification on behalf of U.S. residents under the age of 22 
who purchased cigarettes as minors and who do not have personal injury claims. 
Plaintiffs in a few of the reimbursement cases, which are discussed below, 
also seek certification of such cases as class actions.

Various courts have ruled on motions for class certification in smoking and 
health-related cases. In 12 state court cases, which were pending in five 
states and the District of Columbia, courts have denied plaintiffs' class 
certification motions. In another 15 cases, cigarette manufacturers have 
defeated motions for class certification before either federal trial courts or 
courts of appeal from cases pending in 13 states and the Commonwealth of 
Puerto Rico. The denial of class certification in a New York federal court 
case, however, was due to the court's interest in preserving judicial 
resources for a potentially broader class certification ruling in In re Simon 
(II) Litigation, which is discussed below. In six cases in which Lorillard is 
a defendant, plaintiffs' motions for class certification have been granted and 
appeals either have been rejected at the interlocutory stage, or, in one case, 
plaintiffs' claims were resolved through a settlement agreement. These six 
cases are Broin (which is the matter concluded by a settlement agreement and 
discussed under "Conventional Product Liability Cases -- Flight Attendant 
Cases"), Engle, Blankenship, Scott, Daniels and Brown. In addition to these 
six cases, motions for class certification have been granted in as many as 
five of the "light" cigarette cases. Neither Lorillard nor the Company are 
defendants in these matters.


Theories of liability asserted in the purported class action cases include a 
broad range of product liability theories, including those based on consumer 
protection statutes and fraud and misrepresentation. Plaintiffs seek damages 
in each case that range from unspecified amounts to the billions of dollars. 
Most plaintiffs seek punitive damages and some seek treble damages. Plaintiffs 
in many of the cases seek medical monitoring. Plaintiffs in some of the 
purported class action cases are represented by a well-funded and coordinated 
consortium of law firms throughout the United States. 

The Engle Case - Trial began during July of 1998 in the case of Engle v. R.J. 
Reynolds Tobacco Co., et al. (Circuit Court, Dade County, Florida, filed May 
5, 1994). The trial court, as amended by the Florida Court of Appeal, granted 
class certification on behalf of Florida residents and citizens, and survivors 
of such individuals, who have been injured or have died from medical 
conditions allegedly caused by their addiction to cigarettes containing 
nicotine. 

The case is being tried in three phases. The first phase began during July of 
1998 and involved consideration of certain issues claimed to be common to the 
members of the class and their asserted causes of action. 

On July 7, 1999, the jury returned a verdict against defendants, including 
Lorillard, at the conclusion of the first phase. The jury found, among other 
things, that cigarette smoking is addictive and causes lung cancer and a 
variety of other diseases, that the defendants concealed information about the 
health risks of smoking, and that defendants' conduct rose to a level that 
would permit a potential award or entitlement to punitive damages. The verdict 
permitted the trial to proceed to a second phase. The jury was not asked to 
award damages in the Phase One verdict. 

By order dated July 30, 1999 and supplemented on August 2, 1999, together, the 
"Punitive Damages Order," the trial judge amended the trial plan with respect 
to the manner of determining punitive damages. The Punitive Damages Order 
provided that the jury would determine punitive damages, if any, on a lump-sum 
dollar amount basis for the entire qualified class. The Third District of the 
Florida Court of Appeal rejected as premature defendants' appeals from the 
Punitive Damages Order, and the Florida Supreme Court declined to review the 
Punitive Damages Order at that time. 

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The first portion of Phase Two of the trial began on November 1, 1999 before 
the same jury that returned the verdict in Phase One. In the first part of 
Phase Two, the jury determined issues of specific causation, reliance, 
affirmative defenses, and other individual-specific issues related to the 
claims of three named plaintiffs and their entitlement to damages, if any. 

On April 7, 2000, the jury found in favor of the three plaintiffs and awarded 
them a total of $12.5 in economic damages, pain and suffering damages and 
damages for loss of consortium. After awarding damages to one of the three 
plaintiffs, the jury appeared to find that his claims were barred by the 
statute of limitations. The final judgment entered by the trial court on 
November 6, 2000 reflected the damages award, and held that only a portion of 
this plaintiff's claims were barred by the statute of limitations. 

The second part of Phase Two of the trial began on May 22, 2000 and was heard 
by the same jury that heard the trial's prior phases and considered evidence 
as to the punitive damages to be awarded to the class. On July 14, 2000, the 
jury awarded approximately $145,000.0 in punitive damages against all 
defendants, including $16,250.0 against Lorillard. 

On November 6, 2000, the Circuit Court of Dade County, Florida, entered a 
final judgment in favor of the plaintiffs. The judgment also provides that the 
jury's awards bear interest at the rate of 10% per year. The court's final 
judgment denied various of defendants' post-trial motions, which included a 
motion for new trial and a motion seeking reduction of the punitive damages 
award. Lorillard has noticed an appeal from the final judgment to the Florida 
Third District Court of Appeal and has posted its appellate bond in the amount 
of $100.0 pursuant to Florida legislation enacted in May of 2000 limiting the 
amount of an appellate bond required to be posted in order to stay execution 
of a judgment for punitive damages in a certified class action. While 
Lorillard believes this legislation is valid and that any challenges to the 
possible application or constitutionality of this legislation would fail, 
during May of 2001, Lorillard and two other defendants jointly contributed a 
total of $709.0 to a fund (held for the benefit of the Engle plaintiffs) that 
will not be recoverable by them even if challenges to the judgment are 
resolved in favor of the defendants. As a result, the class has agreed to a 
stay of execution, referred to as the Engle agreement, on its punitive damages 
judgment until appellate review is completed, including any review by the U.S. 
Supreme Court. Lorillard contributed a total of $200.0 to this fund, which 
included the $100.0 that was posted as collateral for its appellate bond. 
Accordingly, Lorillard has recorded a pretax charge of $200.0 in the year 
ended December 31, 2001. 

In the event that Lorillard, Inc.'s balance sheet net worth falls below $921.2 
(as determined in accordance with generally accepted accounting principles in 
effect as of July 14, 2000), the stay granted in favor of Lorillard in the 
Engle agreement would terminate and the class would be free to challenge the 
Florida legislation.

In addition, the Engle agreement requires Lorillard to obtain the written 
consent of class counsel or the court prior to selling any trademark of or 
formula comprising a cigarette brand having a U.S. market share of 0.5% or 
more during the preceding calendar year. The Engle agreement also requires 
Lorillard to obtain the written consent of the Engle class counsel or the 
court to license to a third party the right to manufacture or sell such a 
cigarette brand unless the cigarettes to be manufactured under the license 
will be sold by Lorillard. 

Now that the jury has awarded punitive damages and final judgment has been 
entered, Lorillard believes that it is unclear how the Punitive Damages Order 
will be implemented. The Punitive Damages Order provides that the lump-sum 
punitive damages amount, if any, will be allocated equally to each class 
member and acknowledges that the actual size of the class will not be known 
until the last case has withstood appeal, i.e., the punitive damages amount, 
if any, determined for the entire qualified class, would be divided equally 
among those plaintiffs who are ultimately successful. The Punitive Damages 
Order does not address whether defendants would be required to pay the 
punitive damages award, if any, prior to a determination of claims of all 
class members, which is Phase Three of the trial plan, a process that could 
take years to conclude. The final judgment entered by the court on November 6, 
2000 directs that the amounts awarded by the jury are to be paid immediately. 
Phase Three would address potentially hundreds of thousands of other class 
members' claims, including issues of specific causation, reliance, affirmative 
defenses and other individual-specific issues regarding entitlement to 
damages, in individual trials before separate juries. 

Lorillard has been named in six separate lawsuits that are pending in the 
Florida courts in which the plaintiffs claim that they are members of the 
Engle class, that all liability issues associated with their claims were 
resolved in the earlier phases of the Engle proceedings, and that trials on 
their claims should proceed immediately. Lorillard is opposing trials of these 
actions on the grounds that they should be considered during Phase Three of 
the Engle case and should be stayed while the Engle appeal is proceeding. 

Lorillard remains of the view that the Engle case should not have been 
certified as a class action. Lorillard believes that class certification in 
the Engle case is inconsistent with the majority of federal and state court 
decisions which have held that mass smoking and health claims are 
inappropriate for class treatment. Lorillard has challenged the class 
certification, as well as numerous other legal errors that it believes 
occurred during the trial. Lorillard believes that an appeal of these issues 
on the merits should prevail. 

Other Class Action Cases - On November 14, 2001, a jury in the Circuit Court 
of Ohio County, West Virginia returned a verdict in favor of the defendants, 
including Lorillard, in the case of Blankenship v. American Tobacco Company, 
et al. (Circuit Court, Ohio County, West Virginia, filed January 31, 1997). 
The court has denied plaintiffs' motion for new trial. The time for plaintiffs 
to appeal has not expired. During 2000, the court granted plaintiffs' motion 
for class certification.

                                     114

The court ruled that the class consisted of West Virginia residents who were 
cigarette smokers on or after January 31, 1995; who had a minimum of a five 
pack-year smoking history as of December 4, 2000; who had not been diagnosed 
with certain medical conditions; and who had not received health care funded 
by the State of West Virginia. The West Virginia Supreme Court of Appeals 
declined to review defendants' petition for a writ of prohibition against the 
class certification ruling. Plaintiffs sought the creation of a fund, the 
purpose of which would be to pay for class members to receive medical 
monitoring for chronic obstructive pulmonary disease, emphysema and lung 
cancer. Lorillard was a defendant in the case. 

Jury selection began during June of 2001 in the case of Scott v. The American 
Tobacco Company, et al. (District Court, Orleans Parish, Louisiana, filed May 
24, 1996). A twelve-member jury and ten alternate jurors were selected, but 
the Louisiana Court of Appeals and the Louisiana Court of Appeals, in response 
to writ applications initiated by the defendants, excused a total of nine 
jurors or alternate jurors. The Supreme Court directed the trial court to re-
open the jury selection process in order to select additional jurors. In their 
writ applications, defendants contended that several selected jurors had 
family members who were potential members of the class certified by the trial 
court, and that the selected jury was biased against the defendants. Nine new 
alternate jurors were selected by the court in proceedings that concluded 
during December of 2001. Defendants subsequently filed an application for 
supervisory writ with the Fourth District of Louisiana Court of Appeals 
regarding errors in the jury selection process. Defendants contend that some 
of the newly selected alternate jurors have family members that could benefit 
from an award to the class certified by the court, and that these jurors have 
indicated that they want their family members to receive the relief plaintiffs 
are requesting. The court has not announced when the jury as finally 
constituted would begin hearing evidence in the trial. The trial court has 
certified a class comprised of residents of the State of Louisiana who desire 
to participate in medical monitoring or smoking cessation programs and who 
began smoking prior to September 1, 1988, or who began smoking prior to May 
24, 1996 and allege that defendants undermined compliance with the warnings on 
cigarette packages. Lorillard is a defendant in the case. 

During December of 2000, the Superior Court of San Diego County, California 
issued an order in the case of Daniels v. Philip Morris, Incorporated, et al. 
that granted plaintiffs' motion for class certification on behalf of 
California residents who, while minors, smoked at least one cigarette between 
April 1994 and December 31, 1999. Trial in this matter is scheduled to begin 
during July of 2002. Lorillard is a defendant in the case. 

During April of 2001, the Superior Court of San Diego County, California in 
the case of Brown v. The American Tobacco Company, Inc., et al., granted in 
part plaintiff's motion for class certification and certified a class 
comprised of adult residents of California who smoked at least one of 
defendants' cigarettes during the applicable time period and who were exposed 
to defendants' marketing and advertising activities in California. 
Certification was granted as to plaintiff's claims that defendants violated 
California Business and Professions Code sections 17200 and 17500. The court 
subsequently defined the applicable class period for plaintiff's claims, 
pursuant to a stipulation submitted by the parties, as June 10, 1993 through 
April 23, 2001. Trial is scheduled to begin during October of 2002. Lorillard 
is a defendant in the case. 

REIMBURSEMENT CASES - In addition to the cases settled by the State Settlement 
Agreements described above, approximately 50 other suits are pending, 
comprised of cases brought by the U.S. federal government, county governments, 
city governments, unions, American Indian tribes, hospitals or hospital 
districts, private companies and foreign governments filing suit in U.S. 
courts, in which plaintiffs seek recovery of funds allegedly expended by them 
to provide health care to individuals with injuries or other health effects 
allegedly caused by use of tobacco products or exposure to cigarette smoke. 
These cases are based on, among other things, equitable claims, including 
injunctive relief, indemnity, restitution, unjust enrichment and public 
nuisance, and claims based on antitrust laws and state consumer protection 
acts. Plaintiffs in some of these actions seek certification as class actions. 
Plaintiffs seek damages in each case that range from unspecified amounts to 
the billions of dollars. Most plaintiffs seek punitive damages and some seek 
treble damages. Plaintiffs in some of the cases seek medical monitoring. 
Lorillard is named as a defendant in all of the reimbursement cases except for 
a few of those filed in U.S. courts by foreign governments. The Company is 
named as a defendant in approximately 30 of the pending reimbursement cases, 
although it has not received service of four of these matters. 

U.S. Federal Government Action - The U.S. federal government filed a 
reimbursement suit on September 22, 1999 in the U.S. District Court for the 
District of Columbia against Lorillard, other U.S. cigarette manufacturers, 
some parent companies and two trade associations. The Company is not a 
defendant in this action. Plaintiff asserted claims under the Medical Care 
Recovery Act, the Medicare as Secondary Payer provisions of the Social 
Security Act, and the Racketeer Influenced and Corrupt Organizations Act. The 
government alleges in the complaint that it has incurred costs of more than 
$20,000.0 annually in providing health care costs under several federal 
programs, including Medicare, military and veterans' benefits programs, and 
the Federal Employee Health Benefits Program. The federal government seeks to 
recover an unspecified amount of health care costs, and various types of other 
relief, including disgorgement of profits, injunctive relief and declaratory 
relief that defendants are liable for the government's future costs of 
providing health care resulting from the defendants' alleged wrongful conduct.

During September of 2000, the court granted in part and denied in part 
defendants' motion to dismiss the complaint. The court dismissed plaintiff's 
claims asserted under the Medical Care Recovery Act as well as those under the 
Medicare as Secondary Payer provisions of the

                                     115

Social Security Act. The court denied the motion as to plaintiff's claims 
under the Racketeering Influenced and Corrupt Organizations Act. Plaintiff 
sought modification of the trial court's order as it related to the dismissal 
of the Medical Care Recovery Act claim. In an amended complaint filed during 
February of 2001, plaintiff attempted to replead the Medicare as Secondary 
Payer claim. In a July of 2001 decision, the court reaffirmed its dismissal of 
the Medical Care Recovery Act claims. The court also dismissed plaintiff's 
reasserted claims under the Medicare as Secondary Payer Act. Trial in this 
matter is scheduled to begin during June of 2003. The court has denied a 
motion for intervention and a proposed complaint in intervention filed by the 
Cherokee Nation Tribe on behalf of a purported nationwide class of American 
Indian tribes.

In June of 2001, the government invited defendants in the lawsuit, including 
Lorillard, to meet to discuss the possibility of a settlement of the 
government's case. Lorillard participated in one such meeting and no further 
meetings are scheduled. 

Reimbursement Cases filed by Foreign Governments in U.S. Courts - Cases have 
been brought in U.S. courts by 13 nations, 11 Brazilian states, 11 Brazilian 
cities and one Canadian province. Both the Company and Lorillard are named as 
defendants in most of the cases. The Company has not received service of 
process of the cases filed by two of the nations and by one of the Brazilian 
states. Four of the cases have been voluntarily dismissed. During 2001, a 
federal court of appeal affirmed orders dismissing three of the cases, and the 
U.S. Supreme Court denied plaintiffs' petitions for writ of certiorari. During 
2001, a Florida court dismissed two of the suits, and the plaintiff in one of 
the two actions has noticed an appeal. In addition, Lorillard and the Company 
were dismissed from three suits that remain pending against other defendants.

In 1977, Lorillard sold substantially all of its trademarks outside of the 
United States and the international business associated with those brands. 
Performance by Lorillard of obligations under the 1977 agreement reflecting 
the sale was guaranteed by the Company. Lorillard and the Company have 
received notice from Brown & Williamson Tobacco Corporation, which claims to 
be a successor to the purchaser, that indemnity will be sought under certain 
indemnification provisions of the 1977 agreement with respect to suits brought 
by various of the foregoing foreign jurisdictions, and in certain cases 
brought in foreign countries by individuals concerning periods prior to June 
1977 and during portions of 1978. 

Reimbursement Cases by American Indian Tribes - American Indian tribes are the 
plaintiffs in four pending reimbursement suits. Most of these cases have been 
filed in tribal courts. Lorillard is a defendant in each of the cases. The 
Company is not named as a defendant in any of the pending tribal cases. One of 
the four cases is pending before a federal court of appeals following 
plaintiffs' appeal from an order that granted defendants' motion to dismiss 
the complaint. The remaining three cases are in the pre-trial, discovery 
stage.

Reimbursement Cases by Private Companies and Health Plans or Hospitals and 
Hospital Districts - As of March 1, 2002, one case was pending against 
cigarette manufacturers in which the plaintiff is a not-for-profit insurance 
company. Lorillard is a defendant in the pending case. The Company is not a 
defendant in this matter.

On June 4, 2001, trial concluded in the case of Blue Cross and Blue Shield of 
New Jersey as to certain of the claims asserted by one of the plan plaintiffs, 
Empire Blue Cross and Blue Shield. For a discussion of this case, see 
"Significant Recent Developments."

In addition, one case is pending in which the plaintiff is a group of Illinois 
hospital districts. Another suit filed by a group of New York hospitals or 
hospital districts was dismissed by the court during December of 2001, and the 
plaintiffs have noticed an appeal. Lorillard is named as a defendant in both 
such cases. The Company is not named as a defendant in either of the cases 
filed by hospitals or hospital districts. In one additional suit, a city 
governmental entity and several hospitals or hospital districts are 
plaintiffs. The Company is a defendant in this case. 

Reimbursement Cases by Labor Unions - Seven reimbursement cases are pending in 
various federal or state courts in which the plaintiffs are labor unions, 
their trustees or their trust funds. Lorillard is a defendant in each of these 
suits. The Company is a defendant in two of the pending suits. Approximately 
75 union cases have been dismissed in recent years. Some of these cases were 
dismissed voluntarily, while others were dismissed as a result of defendants' 
motions. Appeals were sought from some of these dismissal rulings and 
defendants have prevailed in each of these appeals. The Second, Third, Fifth, 
Seventh, Eighth, Ninth and Eleventh Circuit Courts of Appeal have found in 
favor of the defendants in each of the appeals from dismissal orders entered 
by the federal trial courts that were submitted to them, and the U.S. Supreme 
Court has denied petitions for writ of certiorari that sought review of some 
of these decisions. During 2001, an intermediate California court of appeal 
affirmed the final judgment entered in favor of the defendants in a union case 
pending in the state. The plaintiffs have sought review of the case by the 
California Supreme Court. In addition, the Circuit Court of Appeals for the 
District of Columbia entered a ruling in 2001 that reversed a decision by a 
district court refusing to dismiss a union case. Several cases pending in 
state courts also have been dismissed. 

Eastern District Of New York Litigation - On April 18, 2000, a federal judge 
in the Eastern District of New York issued an order that consolidates, for 
settlement purposes only, ten pending cases involving Lorillard as well as 
other industry defendants. These cases include three contribution cases 
(Falise v. The American Tobacco Company, et al., H.K. Porter Company, Inc. v. 
The American Tobacco Company, Inc., et al. and Raymark Industries, Inc. v. The 
American Tobacco Company, Inc., et al.), two union cases (Bergeron, et al. v. 
Philip Morris, Inc., et al. and The National Asbestos Workers Medical Fund, et 
al. v. Philip Morris Incorporated, et al.), one private company case (Blue 
Cross and Blue Shield of New Jersey, Inc., et al. v. Philip

                                     116

Morris Incorporated, et al.), two smoking and health class actions that have 
been served on defendants (Decie v. The American Tobacco Company, Inc., et al. 
and Simon v. Philip Morris Incorporated, et al.), one smoking and health class 
action in which none of the defendants has received service of process (Ebert 
v. Philip Morris Incorporated, et al.) and one case that contains elements of 
both a smoking and health class action and a private citizen reimbursement 
case (Mason v. The American Tobacco Company, Inc., et al.). The Falise and 
H.K. Porter cases have been voluntarily dismissed. The judge's order invited 
the federal government to join in the settlement discussions. On July 31, 
2000, the federal judge orally proposed the formation of a national punitive 
damages class action for the purposes of settlement. Pursuant to the judge's 
proposal, Lorillard entered into discussions with a committee of counsel 
representing a broad-based group of plaintiffs in an effort to arrive at a 
comprehensive settlement of all exemplary and punitive damage claims, 
including claims involved in the Engle class action in Florida described 
above. The parties were unable to reach an understanding and the negotiations 
were suspended in late 2000. 

The federal judge directed that a combined suit be filed encompassing all of 
the claims pending before him that name cigarette manufacturers as defendants. 
This matter is styled In re Simon (II) Litigation (U.S. District Court, 
Eastern District, New York, filed September 6, 2000). The Company and 
Lorillard are defendants in this proceeding. In a November of 2000 ruling, the 
court stated that Simon II should be triable without appreciable delay should 
it be certified. During March of 2001, the court heard argument of plaintiffs' 
motion for class certification, plaintiffs' motion for appointment of class 
counsel, and defendants' motion to dismiss the complaint. During December of 
2001, the plaintiffs proposed to the court that a test case comprising the 
claims of 15 individual plaintiffs be tried. Plaintiffs were directed to file 
a complaint during January of 2002 that asserts claims on behalf of a group of 
individuals. On January 31, 2002, a complaint on behalf of 13 individual 
smokers, or the estates of deceased smokers, was filed. Lorillard is named as 
a defendant in this suit. The Company is not named as a defendant. A trial 
date of this case has not been scheduled.

Trial was held in two of the matters during 2001. During January of 2001, the 
court declared a mistrial in the case of Falise v. The American Tobacco 
Company, et al., a contribution case. The plaintiffs, who were the trustees of 
the Johns Manville Trust, voluntarily dismissed the case during 2001 and 
relinquished their right to seek a re-trial. During June of 2001, a verdict 
was returned in the case of Blue Cross and Blue Shield of New Jersey (trial 
was limited to the claims of only one plan plaintiff), a reimbursement case 
described above. Following conclusion of the Blue Cross trial, the U.S. 
District Judge stayed the claims asserted in the suit by the other plan 
plaintiffs pending resolution of defendants' appeal. The U.S. District Judge 
also stayed several of the cases involving cigarette manufacturers pending 
before the judge.

CONTRIBUTION CLAIMS - In addition to the foregoing cases, approximately 15 
cases are pending in which private companies seek recovery of funds expended 
by them to individuals whose asbestos disease or illness was alleged to have 
been caused in whole or in part by smoking-related illnesses. Lorillard is 
named as a defendant in each action, although it has not received service of 
process in one of the cases. The Company is named as a defendant in three of 
the cases but has not received service of process in one of them. As noted 
under "Eastern District of New York Litigation," plaintiffs in the Falise case 
dismissed their suit against all defendants and gave up their right to file 
suit again in the future. The remaining cases are in the pre-trial, discovery 
stage.

FILTER CASES - A number of cases have been filed against Lorillard seeking 
damages for cancer and other health effects claimed to have resulted from 
exposure to asbestos fibers which were incorporated, for a limited period of 
time, ending more than 40 years ago, into the filter material used in one of 
the brands of cigarettes manufactured by Lorillard. Approximately 30 filter 
cases are pending in federal and state courts against Lorillard. In certain of 
these cases, the manufacturer and supplier of the filter material, 
Hollingsworth & Vose Company, also is a defendant. In addition, two matters 
are pending against Hollingsworth & Vose Company in which Lorillard is not a 
party. Lorillard has agreed to indemnify Hollingsworth & Vose Company with 
respect to these matters, including the two cases in which Lorillard is not 
named as a defendant. The Company is not a defendant in any of the pending 
filter cases. Allegations of liability include negligence, strict liability, 
fraud, misrepresentation and breach of warranty. Plaintiffs in most of these 
cases seek unspecified amounts in compensatory and punitive damages.

Trials have been held in 15 such cases. Five such trials have been held since 
January 1, 1999. Juries have returned verdicts in favor of Lorillard in 11 of 
the 15 trials. Four verdicts have been returned in plaintiffs' favor. In a 
1995 trial, a California jury awarded plaintiffs approximately $1.2 in actual 
damages and approximately $0.7 in punitive damages. In a 1996 trial, another 
California jury awarded plaintiff approximately $0.1 in actual damages. In a 
1999 trial, a Maryland jury awarded plaintiff approximately $2.2 in actual 
damages. In a 2000 trial, a California jury awarded plaintiffs $1.1 in actual 
damages and the case was settled prior to a determination of punitive damages.

TOBACCO-RELATED ANTITRUST CASES - Wholesalers and Direct Purchaser Suits - 
Lorillard and other domestic and international cigarette manufacturers and 
their parent companies, including the Company, were named as defendants in 
nine separate federal court actions brought by tobacco product wholesalers for 
violations of U.S. antitrust laws and international law. The complaints allege 
that defendants conspired to fix the price of cigarettes to wholesalers since 
1993 in violation of the Sherman Act. These actions seek certification of a 
class including all domestic and international wholesalers similarly affected 
by such alleged conduct, and damages, injunctive relief and attorneys' fees. 
These actions were consolidated for pre-trial purposes in the U.S. District 
Court for the Northern District of Georgia. The Court has granted class 
certification for a four-year class (beginning in 1996 and ending in 2000) of 
domestic direct purchasers. In February 2002, Lorillard and the other 
defendants filed motions for summary judgment seeking to dismiss the actions 
in their entirety. The Company has been voluntarily dismissed without 
prejudice from all direct purchaser cases.

                                     117

Indirect Purchaser Suits - Approximately 30 suits are pending in various state 
courts alleging violations of state antitrust laws which permit indirect 
purchasers, such as retailers and consumers, to sue under price fixing or 
consumer fraud statutes. Approximately 18 states permit such suits. Lorillard 
is a defendant in all but one of these indirect purchaser cases. Two indirect 
purchaser suits, in Arizona and New York, have been dismissed in their 
entirety. While one court has granted plaintiffs motion to certify a class of 
consumers in one of these cases, another court has refused to do so, and other 
motions seeking class certification have been deferred by other courts pending 
resolution of the federal case discussed above. The Company was also named as 
a defendant in most of these indirect purchaser cases but has been voluntarily 
dismissed without prejudice from all of them. 

Tobacco Growers Suit - DeLoach v. Philip Morris Inc., et al. (U.S. District 
Court, Middle District of North Carolina, filed February 16, 2000). Lorillard 
is named as a defendant in a lawsuit that, after several amendments, alleges 
only antitrust violations. The other major domestic tobacco companies are also 
presently named as defendants, and the plaintiffs have now added the major 
leaf buyers as defendants. This case was originally filed in U.S. District 
Court, District of Columbia, and transferred to a North Carolina federal court 
upon motion by the defendants. Plaintiffs seek certification of a class 
including all tobacco growers and quota holders (the licenses that a farmer 
must either own or rent to sell the crop), who sold tobacco or held quota 
under the federal tobacco leaf price support program since February of 1996. 
The plaintiffs' claims relate to the conduct of the companies in the purchase 
of tobacco through the auction system under the federal program. The suit 
seeks an unspecified amount of actual damages, trebled under the antitrust 
laws, and injunctive relief. 

                               * * * *

Lorillard believes that it has valid defenses to the cases pending against it. 
Lorillard also believes it has valid bases for appeal of the adverse verdicts 
against it. To the extent the Company is a defendant in any of the lawsuits 
discussed above, the Company believes that it is not a proper defendant in 
these matters and has moved or will move for dismissal of such claims against 
it. Lorillard will continue to maintain a vigorous defense in all such 
litigation. Lorillard may enter into discussions in an attempt to settle 
particular cases if it believes it is appropriate to do so. 

While Lorillard intends to defend vigorously all smoking and health related 
litigation which may be brought against it, it is not possible to predict the 
outcome of any of this litigation. Litigation is subject to many 
uncertainties, and it is possible that some of these actions could be decided 
unfavorably. 

In addition, adverse developments in relation to smoking and health, including 
the release in 1998 of industry documents, have received widespread media 
attention. These developments may reflect adversely on the tobacco industry 
and, together with adverse outcomes in pending cases, could have adverse 
effects on the ability of Lorillard to prevail in smoking and health 
litigation and could prompt the filing of additional litigation. 

Except for the impact of the State Settlement Agreements as described above, 
Lorillard is unable to make a meaningful estimate of the amount or range of 
loss that could result from an unfavorable outcome of pending litigation. It 
is possible that the Company's results of operations or cash flows in a 
particular quarterly or annual period or its financial position could be 
materially affected by an unfavorable outcome of certain pending litigation. 

OTHER TOBACCO-RELATED LITIGATION

Cigarette Smuggling Litigation - Lorillard and other domestic cigarette 
manufacturers and their parent companies, including the Company, were named as 
defendants in cases filed in a Florida court by the Republic of Ecuador, the 
Republic of Honduras and the Republic of Belize. Plaintiffs alleged that the 
defendants evaded cigarette taxation by engaging in a scheme to smuggle 
cigarettes into each nation. Plaintiffs contended defendants sold cigarettes 
to distributors who in turn sold the cigarettes to smugglers. Plaintiffs seek 
unspecified amounts in actual damages, treble damages, punitive damages and 
equitable relief in each of the three suits. Lorillard and the Company 
received service of process in each of the three suits but amended complaints 
filed in each of the three cases during December of 2001 dropped claims 
against both Lorillard and the Company. While each of the three matters 
remains pending against other defendants, neither Lorillard nor the Company is 
a party to the actions. 

Cigarette Advertising Suit - On June 28, 2001, the U.S. Supreme Court voided 
in large part a Massachusetts law that placed restrictions on cigarette 
advertising and promotional practices. The Court held that the Federal 
Cigarette Labeling and Advertising Act preempts many of Massachusetts' 
regulations governing outdoor and point-of-sale cigarette advertising. The 
Court also ruled that Massachusetts' outdoor and point-of-sale advertising 
regulations relating to smokeless tobacco and cigars violate the First 
Amendment and are unconstitutional. However, the Court held that the 
prohibition of self-service promotional displays relating to cigarettes, 
cigars and smokeless tobacco products is constitutional. Such regulations 
include those designed to prevent the sale of cigarettes to minors or to 
regulate conduct as it relates to the sale or use of cigarettes. 

OTHER LITIGATION

The Company and its subsidiaries are also parties to other litigation arising 
in the ordinary course of business. The outcome of this other litigation will 
not, in the opinion of management, materially affect the Company's results of 
operations or equity.

                                     118

Note 18. Business Segments

Loews Corporation is a holding company. Its subsidiaries are engaged in the 
following lines of business: property, casualty and life insurance (CNA 
Financial Corporation, an 89% owned subsidiary); the production and sale of 
cigarettes (Lorillard, Inc., a wholly owned subsidiary); the operation of 
hotels (Loews Hotels Holding Corporation, a wholly owned subsidiary); the 
operation of offshore oil and gas drilling rigs (Diamond Offshore Drilling, 
Inc., a 53% owned subsidiary); and the distribution and sale of watches and 
clocks (Bulova Corporation, a 97% owned subsidiary). Each operating entity is 
responsible for the operation of its specialized business and is headed by a 
chief executive officer having the duties and authority commensurate with that 
position.

CNA's insurance products include property and casualty coverages; life, 
accident and health insurance; and retirement products and annuities. CNA's 
services include risk management, information services, health care management 
and claims administration. CNA's products and services are marketed through 
agents, brokers, managing general agents and direct sales.

Lorillard's principal products are marketed under the brand names of Newport, 
Kent, True, Maverick and Old Gold with substantially all of its sales in the 
United States.

Loews Hotels owns and/or operates 17 hotels, 15 of which are in the United 
States and two are in Canada. There is also a property in the United States 
under development with an opening date scheduled in 2002.

Diamond Offshore's business primarily consists of operating 45 offshore 
drilling rigs that are chartered on a contract basis for fixed terms by 
companies engaged in exploration and production of hydrocarbons. Offshore rigs 
are mobile units that can be relocated based on market demand. As of December 
31, 2001, 28 of these rigs were located in the Gulf of Mexico, 5 were located 
in Brazil and the remaining 12 were located in various foreign markets.

Bulova distributes and sells watches and clocks under the brand names of 
Bulova, Wittnauer, Caravelle and Accutron with substantially all of its sales 
in the United States and Canada. All watches and clocks are purchased from 
foreign suppliers.

The accounting policies of the segments are the same as those described in the 
summary of significant accounting policies. In addition, CNA does not maintain 
a distinct investment portfolio for each of its insurance segments, and 
accordingly, allocation of assets to each segment is not performed. Therefore, 
investment income and investment gains (losses) are allocated based on each 
segment's carried insurance reserves, as adjusted.

The following tables set forth the Company's consolidated revenues, income and 
assets by business segment:


<TABLE>
<CAPTION>

Year Ended December 31                                         2001          2000          1999
------------------------------------------------------------------------------------------------

Revenues (a):

<s>                                                      <c>           <c>           <c>
CNA Financial:
 Property-Casualty                                       $  7,337.5    $  9,604.7    $  9,250.5
 Life                                                       1,959.9       1,701.0       1,577.8
 Group (b)                                                  3,688.4       3,949.4       3,747.3
 Other                                                        217.0         272.5       1,804.8
------------------------------------------------------------------------------------------------
Total CNA Financial                                        13,202.8      15,527.6      16,380.4
Lorillard                                                   4,528.5       4,342.4       4,064.5
Loews Hotels (c)                                              321.8         338.5         351.9
Diamond Offshore (d)                                          942.3         723.6         846.9
Bulova (e)                                                    146.1         160.1         138.7
Corporate                                                     275.7         159.0        (339.7)
------------------------------------------------------------------------------------------------
Total                                                     $19,417.2     $21,251.2     $21,442.7
================================================================================================
</TABLE>


                                     119


<TABLE>
<CAPTION>

Year Ended December 31                                         2001          2000          1999
------------------------------------------------------------------------------------------------

(Loss) income before taxes and minority interest and cumulative effect of changes in accounting 
principles (a)(f):

<s>                                                       <c>           <c>           <c>
CNA Financial:
 Property-Casualty                                        $(1,260.6)    $ 1,550.4     $   323.3
 Life                                                         287.6         285.8         178.0
 Group                                                         53.4         134.2         (10.1)
 Other                                                     (1,369.7)       (141.5)       (490.5)
------------------------------------------------------------------------------------------------
Total CNA Financial                                        (2,289.3)      1,828.9            .7
Lorillard                                                   1,104.3       1,223.9       1,079.6
Loews Hotels (c)                                               29.8          47.6         112.5
Diamond Offshore (d)                                          228.1         107.7         238.0
Bulova (e)                                                     17.8          27.1          20.8
Corporate                                                      96.2         (29.3)       (507.4)
------------------------------------------------------------------------------------------------
Total                                                     $  (813.1)    $ 3,205.9     $   944.2
================================================================================================

Net (loss) income (a)(f):

CNA Financial:
 Property-Casualty                                        $  (740.3)    $   898.3     $   206.4
 Life                                                         164.3         166.0          97.5
 Group                                                         34.7          78.8          (1.5)
 Other                                                       (825.2)        (75.1)       (259.2)
------------------------------------------------------------------------------------------------
Total CNA Financial                                        (1,366.5)      1,068.0          43.2
Lorillard                                                     672.2         753.9         651.9
Loews Hotels (c)                                               19.5          26.8          70.5
Diamond Offshore (d)                                           71.0          32.0          72.7
Bulova (e)                                                     10.1          15.0          14.1
Corporate                                                      57.9         (19.0)       (331.3)
------------------------------------------------------------------------------------------------
                                                             (535.8)      1,876.7         521.1
Cumulative effect of changes in accounting principles         (53.3)                     (157.9)
------------------------------------------------------------------------------------------------
Total                                                     $  (589.1)    $ 1,876.7     $   363.2
================================================================================================
</TABLE>



<TABLE>
<CAPTION>

                                 Investments             Receivables            Total Assets
                          ----------------------------------------------------------------------

December 31                    2001        2000        2001        2000        2001        2000
------------------------------------------------------------------------------------------------

<s>                       <c>         <c>         <c>         <c>         <c>         <c>
CNA Financial             $35,826.3   $36,059.4   $18,917.4   $14,945.1   $65,914.1   $63,001.6
Lorillard                   1,628.9     1,640.9        45.9        68.4     2,769.4     2,671.8
Loews Hotels                   98.5        96.5        26.6        42.2       617.9       639.1
Diamond Offshore            1,129.6       851.8       193.7       153.5     3,551.9     3,122.5
Bulova                         13.5        12.5        77.4        70.7       194.5       186.7
Corporate and eliminations  2,462.3     2,671.6       191.8        21.7     2,203.3     2,219.8
------------------------------------------------------------------------------------------------
Total                     $41,159.1   $41,332.7   $19,452.8   $15,301.6   $75,251.1   $71,841.5
================================================================================================
</TABLE>


                                     120


<TABLE>
<CAPTION>

(a)	Investment gains (losses) included in Revenues, Pretax (loss) income and Net (loss) income 
are as follows:

Year Ended December 31                                           2001         2000         1999
------------------------------------------------------------------------------------------------

Revenues and pretax (loss) income:

<s>                                                          <c>          <c>          <c>
CNA Financial:
 Property-Casualty                                           $  883.5     $  860.1     $  170.7
 Life                                                           188.2         12.8        (42.8)
 Group                                                           40.9         62.2         (1.2)
 Other                                                          152.7         93.4         72.6
------------------------------------------------------------------------------------------------
Total CNA Financial                                           1,265.3      1,028.5        199.3
Corporate and other                                             128.4         (7.4)      (472.8)
------------------------------------------------------------------------------------------------
                                                             $1,393.7     $1,021.1      $(273.5)
================================================================================================

Net (loss) income:

CNA Financial:
 Property-casualty                                           $  508.8     $  485.7      $  95.1
 Life                                                           105.2          8.4        (29.0)
 Group                                                           23.0         35.1          (.7)
 Other                                                           80.1         52.7         34.5
------------------------------------------------------------------------------------------------
Total CNA Financial                                             717.1        581.9         99.9
Corporate and other                                              75.1         (4.8)      (300.7)
------------------------------------------------------------------------------------------------
                                                               $792.2       $577.1      $(200.8)
================================================================================================

(b) Includes $2,218.0, $2,100.0 and $2,100.0 under contracts covering U.S. 
    government employees and their dependents for the respective periods.
(c) Includes gain from the sale of hotel properties of $85.1 ($52.0 after 
    taxes) for the year ended December 31, 1999.
(d)	 Includes a gain from the sale of a drilling rig of $13.9 ($4.7 after taxes 
    and minority interest) for the year ended December 31, 2000.
(e)	 Includes a gain of $5.5 from settlement of a contract dispute ($3.0 after 
    taxes and minority interest) for the year ended December 31, 2000.
(f)	 Income taxes and interest expense are as follows:
</TABLE>



<TABLE>
<CAPTION>

                                             2001                2000                1999
                                      ----------------------------------------------------------
                                        Income   Interest  Income    Interest  Income   Interest
Year Ended December 31                   Taxes   Expense    Taxes    Expense    Taxes    Expense
------------------------------------------------------------------------------------------------

<s>                                   <c>         <c>      <c>       <c>      <c>        <c> 
CNA Financial:
  Property-Casualty                   $ (415.5)   $  5.5   $ 557.8   $ 17.2   $ (44.3)   $ 13.4
  Life                                    99.1      25.8      94.6       .1      64.1       3.3
  Group                                   13.8        .2      43.6       .3      (8.3)       .2
  Other                                 (435.7)    125.9    (122.2)   188.7     (95.5)    184.8
------------------------------------------------------------------------------------------------
Total CNA Financial                     (738.3)    157.4     573.8    206.3     (84.0)    201.7
Lorillard                                432.1        .7     469.8      1.5     427.7      14.9
Loews Hotels                              10.3      15.2      20.8     11.2      42.0       2.2
Diamond Offshore                          83.2      38.1      41.0     10.3      89.8       9.2
Bulova                                     7.3                11.6                6.1
Corporate                                 30.0     120.6     (10.1)   127.6    (176.1)    126.3
------------------------------------------------------------------------------------------------
Total                                 $ (175.4)   $332.0  $1,106.9   $356.9   $ 305.5    $354.3
================================================================================================
</TABLE>


                                     121

Note 19. Subsequent Event

On February 6, 2002, the Company sold 40,250,000 shares of a new class of its 
common stock, referred to as "Carolina Group" stock, for net proceeds of 
$1,070.5. This stock is designed to track the performance of the Carolina 
Group, which will initially consist of: the Company's ownership interest in 
its wholly owned subsidiary, Lorillard, Inc.; $2,500.0 of notional, intergroup 
debt owed by the Carolina Group to the Loews Group, bearing interest at the 
annual rate of 8.0% and, subject to optional prepayment, due December 31, 
2021; and any and all liabilities, costs and expenses of Loews Corporation and 
Lorillard, Inc. arising out of the past, present or future business of 
Lorillard, Inc. The assets and liabilities of the Carolina Group also include 
all net income or net losses from the assets and liabilities attributed to the 
Carolina Group. Each outstanding share of Carolina Group stock has 1/10 of a 
vote per share. Holders of Carolina Group stock are common stockholders of 
Loews Corporation.

The issuance of Carolina Group stock has resulted in a two class common stock 
structure for Loews Corporation. The outstanding Carolina Group stock 
represents a 23.17% economic interest in the performance of the Carolina 
Group. The Loews Group consists of all Loews's assets and liabilities other 
than the ownership interest represented by the outstanding Carolina Group 
stock, and will include as an asset the notional, intergroup debt of the 
Carolina Group.

Consolidating financial statements of Loews Corporation for the years ended 
December 31, 2001, 2000 and 1999 follows:


<TABLE>
<CAPTION>

CONSOLIDATING STATEMENTS OF OPERATIONS


                                                                   Adjustments      Consolidated
                                          Carolina     Loews          and               Loews
Year Ended December 31, 2001               Group       Group      Eliminations       Corporation
------------------------------------------------------------------------------------------------

<s>                                       <c>       <c>           <c>                 <c>
Revenues:
Insurance premiums                                  $ 9,361.4                         $ 9,361.4
Investment income, net of expenses        $   79.9    2,065.0                           2,144.9
Investment gains                               1.1    1,392.6                           1,393.7
Manufactured products                      4,441.3      142.8                           4,584.1
Other                                          7.3    1,925.8                           1,933.1
------------------------------------------------------------------------------------------------
Total                                      4,529.6   14,887.6                          19,417.2
------------------------------------------------------------------------------------------------

Expenses:
Insurance claims and
 policyholders' benefits                             11,382.8                          11,382.8
Amortization of deferred
 acquisition costs                                    1,803.9                           1,803.9
Cost of manufactured products sold         2,168.9       68.2                           2,237.1
Other operating expenses (a)               1,255.0    2,968.5                           4,223.5
Restructuring and other related charges                 251.0                             251.0
Interest                                        .7      331.3                             332.0
------------------------------------------------------------------------------------------------
Total                                      3,424.6   16,805.7                          20,230.3
------------------------------------------------------------------------------------------------
                                           1,105.0   (1,918.1)                           (813.1)
------------------------------------------------------------------------------------------------

Income tax (benefit) expense                 432.3     (607.7)                           (175.4)
Minority interest                                      (101.9)                           (101.9)
------------------------------------------------------------------------------------------------
Total                                        432.3     (709.6)                           (277.3)
------------------------------------------------------------------------------------------------

Income (loss) from operations                672.7   (1,208.5)                           (535.8)
Equity in earnings of the Carolina Group                672.7     $(672.7) (b)
------------------------------------------------------------------------------------------------
Income (loss) before cumulative effect of 
  changes in accounting principles           672.7     (535.8)     (672.7)               (535.8)
Cumulative effect of changes in accounting 
  principles - net                                      (53.3)                            (53.3)
------------------------------------------------------------------------------------------------

Net income (loss)                         $ 672.7   $  (589.1)    $(672.7)            $  (589.1)
================================================================================================

(a) Includes $2.6 of expenses allocated by the Carolina Group to the Loews Group for computer
    related charges and $0.2 of expenses allocated by Loews Group to the Carolina Group for
    services provided pursuant to a services agreement, which eliminate in these consolidating
    statements.
(b) To eliminate the Loews Group's intergroup interest in the earnings of the Carolina.
</TABLE>


                                     122


<TABLE>
<CAPTION>

CONSOLIDATING STATEMENTS OF OPERATIONS


                                                                   Adjustments      Consolidated
                                          Carolina     Loews          and               Loews
Year Ended December 31, 2000               Group       Group      Eliminations       Corporation
------------------------------------------------------------------------------------------------

<s>                                       <c>       <c>           <c>                 <c>
Revenues:
Insurance premiums                                  $11,471.7                         $11,471.7
Investment income, net of expenses        $  101.7    2,492.1                           2,593.8
Investment (losses) gains                     (0.6)   1,021.7                           1,021.1
Manufactured products                      4,233.8      149.8                           4,383.6
Other                                          6.9    1,774.1                           1,781.0
------------------------------------------------------------------------------------------------
Total                                      4,341.8   16,909.4                          21,251.2
------------------------------------------------------------------------------------------------

Expenses: 
Insurance claims and policyholders'
 benefits                                             9,830.8                           9,830.8
Amortization of deferred
 acquisition costs                                    1,879.8                           1,879.8
Cost of manufactured products sold         2,178.2       72.9                           2,251.1
Other operating expenses (a)                 939.8    2,786.9                           3,726.7
Interest                                       1.5      355.4                             356.9
------------------------------------------------------------------------------------------------
Total                                      3,119.5   14,925.8                          18,045.3
------------------------------------------------------------------------------------------------
                                           1,222.3    1,983.6                           3,205.9
------------------------------------------------------------------------------------------------

Income taxes                                 469.5      637.4                           1,106.9
Minority interest                                       222.3                             222.3
------------------------------------------------------------------------------------------------
Total                                        469.5      859.7                           1,329.2
------------------------------------------------------------------------------------------------

Income from operations                       752.8    1,123.9                           1,876.7
Equity in earnings of the Carolina Group                752.8     $(752.8) (b)
------------------------------------------------------------------------------------------------

Net income                                $  752.8   $1,876.7     $(752.8)             $1,876.7
================================================================================================

(a) Includes $2.6 of expenses allocated by the Carolina Group to the Loews Group for computer
    related charges and $0.2 of expenses allocated by the Loews Group to the Carolina Group for
    services provided pursuant to a services agreement, which eliminate in these consolidating
    statements.
(b) To eliminate the Loews Group's intergroup interest in the earnings of the Carolina Group.
</TABLE>


                                     123


<TABLE>
<CAPTION>

CONSOLIDATING STATEMENT OF OPERATIONS


                                                                   Adjustments      Consolidated
                                          Carolina     Loews          and               Loews
Year Ended December 31, 1999               Group       Group      Eliminations       Corporation
------------------------------------------------------------------------------------------------

<s>                                       <c>       <c>           <c>                 <c>
Revenues:
Insurance premiums                                  $13,276.7                         $13,276.7
Investment income, net of expenses       $   65.7     2,359.6                           2,425.3
Investment (losses) gains                     1.0      (274.5)                           (273.5)
Manufactured products                     3,991.3       134.0                           4,125.3
Other                                         6.5     1,882.4                           1,888.9
------------------------------------------------------------------------------------------------
Total                                     4,064.5    17,378.2                          21,442.7
------------------------------------------------------------------------------------------------

Expenses:
Insurance claims and policyholders'
 benefits                                            11,890.3                          11,890.3
Amortization of deferred
 acquisition costs                                    2,142.6                           2,142.6
Cost of manufactured products sold        2,050.5        65.9                           2,116.4
Other operating expenses (a)                919.7     2,992.2                           3,911.9
Restructuring and other related charges                  83.0                              83.0
Interest                                     14.9       339.4                             354.3
------------------------------------------------------------------------------------------------
Total                                     2,985.1    17,513.4                          20,498.5
------------------------------------------------------------------------------------------------
                                          1,079.4      (135.2)                            944.2
------------------------------------------------------------------------------------------------

Income tax (benefit) expense                427.6      (122.1)                            305.5
Minority interest                                       117.6                             117.6
------------------------------------------------------------------------------------------------
Total                                       427.6        (4.5)                            423.1
------------------------------------------------------------------------------------------------

Income (loss) from operations               651.8      (130.7)                            521.1
Equity in earnings of the Carolina Group                651.8     $(651.8) (b)
------------------------------------------------------------------------------------------------
Income before cumulative effect of
 changes in accounting principles           651.8       521.1      (651.8)                521.1
Cumulative effect of changes in accounting
 principles - net                                      (157.9)                           (157.9)
------------------------------------------------------------------------------------------------

Net income                               $  651.8   $   363.2     $(651.8)            $   363.2
================================================================================================

(a) Includes $2.9 of expenses allocated by the Carolina Group to the Loews Group for computer
    related charges and $0.1 of expenses allocated by the Loews Group to the Carolina Group
    for services provided pursuant to a services agreement, which eliminate in these 
    consolidating statements.
(b) To eliminate the Loews Group's intergroup interest in the earnings of the Carolina Group.
</TABLE>


                                     124


<TABLE>
<CAPTION>

CONSOLIDATING BALANCE SHEET


                                                                   Adjustments      Consolidated
                                          Carolina     Loews          and               Loews
December 31, 2001                          Group       Group      Eliminations       Corporation
------------------------------------------------------------------------------------------------

<s>                                        <c>       <c>           <c>                 <c>
Assets:

Investments                               $1,628.9  $39,530.2                         $41,159.1
Cash                                           1.7      179.6                             181.3
Receivables-net                               45.9   19,406.9                          19,452.8
Property, plant and equipment-net            181.2    2,894.1                           3,075.3
Deferred income taxes                        426.6      180.4                             607.0
Goodwill and other intangible
 assets-net                                             323.8                             323.8
Other assets                                 485.1    3,744.7                           4,229.8
Investment in combined attributed
 net assets of the Carolina Group                     1,274.5     $(1,274.5) (a)
Deferred acquisition costs of insurance 
   subsidiaries                                       2,423.9                           2,423.9
Separate account business                             3,798.1                           3,798.1
------------------------------------------------------------------------------------------------
Total assets                              $2,769.4  $73,756.2     $(1,274.5)          $75,251.1
================================================================================================

Liabilities and Shareholders' Equity:

Insurance reserves                                  $43,623.9                         $43,623.9
Payable for securities purchased                      1,365.6                           1,365.6
Securities sold under agreements
 to repurchase                                        1,602.4                           1,602.4
Long-term debt, less unamortized
 discounts                                            5,920.3                           5,920.3
Reinsurance balances payable                          2,722.9                           2,722.9
Other liabilities                         $1,494.9    3,100.3                           4,595.2
Separate account business                             3,798.1                           3,798.1
------------------------------------------------------------------------------------------------
Total liabilities                          1,494.9   62,133.5                          63,628.4
------------------------------------------------------------------------------------------------

Minority interest                                     1,973.4                           1,973.4
------------------------------------------------------------------------------------------------

Shareholders' equity:
 Common stock, $1 par value                                       $   191.5  (b)          191.5
 Additional paid-in capital                                            48.2  (b)           48.2
 Earnings retained in the business                                  9,214.9  (b)        9,214.9
 Accumulated other comprehensive
  income                                                              194.7  (b)          194.7
 Combined attributed net assets            1,274.5    9,649.3     (10,923.8) (b)
------------------------------------------------------------------------------------------------
Total shareholders' equity                 1,274.5    9,649.3      (1,274.5)            9,649.3
------------------------------------------------------------------------------------------------

Total liabilities and shareholders'
 equity                                   $2,769.4  $73,756.2     $(1,274.5)          $75,251.1
================================================================================================

(a) To eliminate the Loews Group's 100% equity interest in the combined attributed net assets of 
    the Carolina Group.
(b) To eliminate the combined attributed net assets of the Carolina Group and the Loews Group, 
    and to record the Loews Corporation consolidated equity accounts at the balance sheet date.
</TABLE>

	
                                     125


<TABLE>
<CAPTION>

CONSOLIDATING BALANCE SHEET

                                                                   Adjustments      Consolidated
                                          Carolina     Loews          and               Loews
December 31, 2000                          Group       Group      Eliminations       Corporation
------------------------------------------------------------------------------------------------

<s>                                        <c>       <c>           <c>                 <c>
Assets:

Investments                               $1,640.9  $39,691.8                         $41,332.7
Cash                                           1.4      193.8                             195.2
Receivables-net                               68.4   15,233.2                          15,301.6
Property, plant and equipment-net            199.5    3,006.8                           3,206.3
Deferred income taxes                        344.8       59.2                             404.0
Goodwill and other intangible
 assets-net                                    0.6      378.1                             378.7
Other assets                                 416.2    3,875.1                           4,291.3
Investment in combined attributed
 net assets of the Carolina Group                     1,376.8     $(1,376.8) (a)
Deferred acquisition costs of
 insurance subsidiaries                               2,417.8                           2,417.8
Separate account business                             4,313.9                           4,313.9
------------------------------------------------------------------------------------------------
Total assets                              $2,671.8  $70,546.5     $(1,376.8)          $71,841.5
================================================================================================

Liabilities and Shareholders' Equity:

Insurance reserves                                  $39,054.3                         $39,054.3
Payable for securities purchased                        971.4                             971.4
Securities sold under agreements
 to repurchase                                        2,245.5                           2,245.5
Long-term debt, less unamortized
 discounts                                $    4.0    6,036.0                           6,040.0
Reinsurance balances payable                          1,381.2                           1,381.2
Other liabilities                          1,291.0    3,145.2                           4,436.2
Separate account business                             4,313.9                           4,313.9
------------------------------------------------------------------------------------------------
Total liabilities                          1,295.0   57,147.5                          58,442.5
------------------------------------------------------------------------------------------------

Minority interest                                     2,207.9                           2,207.9
------------------------------------------------------------------------------------------------

Shareholders' equity:
 Common stock, $1 par value                                      $     98.6  (b)           98.6
 Additional paid-in capital                                           144.2  (b)          144.2
 Earnings retained in the business                                 10,191.6  (b)       10,191.6
 Accumulated other comprehensive
  income                                                              756.7  (b)          756.7
 Combined attributed net assets            1,376.8   11,191.1     (12,567.9) (b)
------------------------------------------------------------------------------------------------

Total shareholders' equity                 1,376.8   11,191.1      (1,376.8)           11,191.1
------------------------------------------------------------------------------------------------

Total liabilities and shareholders'
 equity                                   $2,671.8  $70,546.5     $(1,376.8)          $71,841.5
================================================================================================

(a) To eliminate the Loews Group's 100% equity interest in the combined attributed net assets of 
    the Carolina Group.
(b) To eliminate the combined attributed net assets of the Carolina Group and the Loews Group, 
    and to record the Loews Corporation consolidated equity accounts at the balance sheet date.
</TABLE>


                                     126


<TABLE>
<CAPTION>

CONSOLIDATING STATEMENT OF CASH FLOWS


                                                                   Adjustments      Consolidated
                                          Carolina     Loews          and               Loews
Year Ended December 31, 2001               Group       Group      Eliminations       Corporation
------------------------------------------------------------------------------------------------

<s>                                       <c>       <c>           <c>                 <c>
Net cash provided (used) by
 operating activities                     $ 709.7   $   579.2     $ (750.0)           $   538.9
------------------------------------------------------------------------------------------------

Investing activities:
 Purchases of property and equipment        (41.2)     (461.3)                           (502.5)
 Proceeds from sales of property
  and equipment                               9.1       269.3                             278.4
 Change in short-term investments            72.7     3,339.9                           3,412.6
 Other investing activities                          (3,124.5)                         (3,124.5)
------------------------------------------------------------------------------------------------
                                             40.6        23.4                              64.0
------------------------------------------------------------------------------------------------

Financing activities:
 Dividends paid to shareholders            (750.0)     (112.5)       750.0               (112.5)
 Other financing activities                            (504.3)                           (504.3)
------------------------------------------------------------------------------------------------
                                           (750.0)     (616.8)       750.0               (616.8)
------------------------------------------------------------------------------------------------

Net change in cash                            0.3       (14.2)                            (13.9)
Cash, beginning of year                       1.4       193.8                             195.2
------------------------------------------------------------------------------------------------

Cash, end of year                         $   1.7    $  179.6                         $   181.3
================================================================================================
</TABLE>




<TABLE>
<CAPTION>

Year Ended December 31, 2000
------------------------------------------------------------------------------------------------

<s>                                       <c>       <c>           <c>                  <c>
Net cash provided (used) by
 operating activities                     $ 550.4   $ (689.2)     $(300.0)             $ (438.8)
------------------------------------------------------------------------------------------------

Investing activities:
 Purchases of property and equipment        (30.1)    (637.1)                            (667.2)
 Proceeds from sales of property
  and equipment                               1.4       34.7                               36.1
 Change in short-term investments          (222.2)    (465.1)                            (687.3)
 Other investing activities                          2,308.0                            2,308.0
------------------------------------------------------------------------------------------------
                                           (250.9)   1,240.5                              989.6
------------------------------------------------------------------------------------------------

Financing activities:
 Dividends paid to shareholders            (300.0)     (99.7)       300.0                 (99.7)
 Other financing activities                  (0.1)    (439.7)                            (439.8)
------------------------------------------------------------------------------------------------
                                           (300.1)    (539.4)       300.0                (539.5)
------------------------------------------------------------------------------------------------

Net change in cash                           (0.6)      11.9                               11.3
Cash, beginning of year                       2.0      181.9                              183.9
------------------------------------------------------------------------------------------------

Cash, end of year                         $   1.4    $ 193.8                           $  195.2
================================================================================================
</TABLE>


                                     127


<TABLE>
<CAPTION>

CONSOLIDATING STATEMENT OF CASH FLOWS


                                                                   Adjustments      Consolidated
                                          Carolina     Loews          and               Loews
Year Ended December 31, 1999               Group       Group      Eliminations       Corporation
------------------------------------------------------------------------------------------------

<s>                                       <c>       <c>           <c>                 <c>
Net cash provided (used) by
 operating activities                     $1,024.9  $(2,682.2)    $(300.0)            $(1,957.3)
------------------------------------------------------------------------------------------------

Investing activities:
 Purchases of property and equipment         (20.7)    (687.5)                           (708.2)
 Proceeds from sales of property
  and equipment                                2.2       97.2                              99.4
 Change in short-term investments           (706.1)   1,489.4                             783.3
 Other investing activities                           2,753.9                           2,753.9
------------------------------------------------------------------------------------------------
                                            (724.6)   3,653.0                           2,928.4
------------------------------------------------------------------------------------------------

Financing activities:
 Dividends paid to shareholders             (300.0)    (108.9)      300.0                (108.9)
 Other financing activities                   (0.1)    (965.6)                           (965.7)
------------------------------------------------------------------------------------------------
                                            (300.1)  (1,074.5)      300.0              (1,074.6)
------------------------------------------------------------------------------------------------

Net change in cash                             0.2     (103.7)                           (103.5)
Cash, beginning of year                        1.8      285.6                             287.4
------------------------------------------------------------------------------------------------

Cash, end of year                         $    2.0  $   181.9                            $183.9
================================================================================================
</TABLE>


                                     128

                                    * * *


I
tem 9. Changes in and Disagreements with Accountants on Accounting and
         Financial Disclosure.

  None.


                                    PART III

  Information called for by Part III has been omitted as Registrant intends to 
file with the Securities and Exchange Commission not later than 120 days after 
the close of its fiscal year a definitive Proxy Statement pursuant to 
Regulation 14A.


                                    PART IV


Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K.

  (a) 1. Financial Statements:

  The financial statements appear above under Item 8. The following additional 
financial data should be read in conjunction with those financial statements. 
Schedules not included with these additional financial data have been omitted 
because they are not applicable or the required information is shown in the 
consolidated financial statements or notes to consolidated financial 
statements.


<TABLE>
<CAPTION>
                                                                         Page
      2. Financial Statement Schedules:                                 Number
                                                                        ------

<s>                                                                      <c>
Independent Auditors' Report .........................................    L-1
Loews Corporation and Subsidiaries:
  Schedule I-Condensed financial information of Registrant for the
   years ended December 31, 2001, 2000 and 1999 ......................    L-2
  Schedule II-Valuation and qualifying accounts for the years ended
   December 31, 2001, 2000 and 1999 ..................................    L-6 
  Schedule V-Supplemental information concerning property-casualty
   insurance operations for the years ended December 31, 2001, 2000
   and 1999 ..........................................................    L-7

      3. Exhibits:
<CAPTION>

                                                                       Exhibit
                                Description                            Number
                                -----------                            -------
<s>                                                                      <c>

  (3) Articles of Incorporation and By-Laws

      Restated Certificate of Incorporation of the Registrant,
      dated October 20, 1987 .........................................   3.01*

      Certificate of Amendment of Certificate of Incorporation
      of Registrant, dated May 16, 1996 ..............................   3.02*

      Certificate of Amendment of Certificate of Incorporation
      of Registrant, dated May 8, 2001 ...............................   3.03*

      Certificate of Amendment of Certificate of Incorporation
      of Registrant, dated January 30, 2002 ..........................   3.04*

      By-Laws of the Registrant as amended through February 20, 2001,
      incorporated herein by reference to Exhibit 3.02 to Registrant's 
      Report on Form 10-K for the year ended December 31, 2000 .......   3.05

<CAPTION>

                                                                       Exhibit
                                Description                            Number
                                -----------                            -------
<s>                                                                      <c>

  (4) Instruments Defining the Rights of Security Holders, Including
      Indentures

      The Registrant hereby agrees to furnish to the Commission upon
      request copies of instruments with respect to long-term debt,
      pursuant to Item 601(b)(4)(iii) of Regulation S-K.

                                     129

<CAPTION>

                                                                       Exhibit
                                Description                            Number
                                -----------                            -------
<s>                                                                      <c>
 (10) Material Contracts

      Employment Agreement between Registrant and Laurence A. Tisch
      dated March 1, 1971 as amended through January 1, 2001, 
      incorporated herein by reference to Exhibit 10.1 to Registrant's
      Report on Form 10-K for the year ended December 31, 2000 .......  10.01

      Employment Agreement between Registrant and Preston R. Tisch
      dated as of March 1, 1988 as amended through January 1, 2001,
      incorporated herein by reference to Exhibit 10.2 to Registrant's
      Report on Form 10-K for the year ended December 31, 2000 .......  10.02

      Continuing Service Agreement between a subsidiary of Registrant
      and Edward J. Noha, dated February 27, 1991, incorporated 
      herein by reference to Exhibit 10.04 to Registrant's Report on 
      Form 10-K for the year ended December 31, 1990 .................  10.03

      Loews Corporation Deferred Compensation Plan as amended and
      restated as of December 31, 1995, incorporated herein by 
      reference to Exhibit 10.05 to Registrant's Report on Form 10-K 
      for the year ended December 31, 1996 ...........................  10.04

      Incentive Compensation Plan, incorporated herein by reference to
      Exhibit 10.15 to Registrant's Report on Form 10-K for the year 
      ended December 31, 1996 ........................................  10.05

      Comprehensive Settlement Agreement and Release with the State of
      Florida to settle and resolve with finality all present and 
      future economic claims by the State and its subdivisions 
      relating to the use of or exposure to tobacco products, 
      incorporated herein by reference to Exhibit 10 to 
      Registrant's Report on Form 8-K filed September 5, 1997 ........  10.06

      Comprehensive Settlement Agreement and Release with the State
      of Texas to settle and resolve with finality all present and 
      future economic claims by the State and its subdivisions 
      relating to the use of or exposure to tobacco products, 
      incorporated herein by reference to Exhibit 10 to Registrant's 
      Report on Form 8-K filed February 3, 1998 ......................  10.07

      State of Minnesota Settlement Agreement and Stipulation for
      Entry of Consent Judgment to settle and resolve with finality 
      all claims of the State of Minnesota relating to the subject 
      matter of this action which have been or could have been 
      asserted by the State, incorporated herein by reference 
      to Exhibit 10.1 to Registrant's Report on Form 10-Q for the 
      quarter ended March 31, 1998 ...................................  10.08

      State of Minnesota Consent Judgment relating to the settlement
      of tobacco litigation, incorporated herein by reference to 
      Exhibit 10.2 to Registrant's Report on Form 10-Q for the 
      quarter ended March 31, 1998 ...................................  10.09

<CAPTION>

                                                                       Exhibit
                                Description                            Number
                                -----------                            -------
<s>                                                                      <c>
      State of Minnesota Settlement Agreement and Release relating 
      to the settlement of tobacco litigation, incorporated herein 
      by reference to Exhibit 10.3 to Registrant's Report on Form 
      10-Q for the quarter ended March 31, 1998 ......................  10.10

      Agreement to Pay State of Minnesota Attorneys' Fees and Costs
      relating to the settlement of tobacco litigation, incorporated
      herein by reference to Exhibit 10.4 to Registrant's Report on
      Form 10-Q for the quarter ended March 31, 1998 .................  10.11

      Agreement to Pay Blue Cross and Blue Shield of Minnesota
      Attorneys' Fees and Costs relating to the settlement of
      tobacco litigation, incorporated herein by reference to 
      Exhibit 10.5 to Registrant's Report on Form 10-Q for the 
      quarter ended March 31, 1998 ...................................  10.12

      State of Minnesota State Escrow Agreement relating to the
      settlement of tobacco litigation, incorporated herein by
      reference to Exhibit 10.6 to Registrant's Report on Form 10-Q 
      for the quarter ended March 31, 1998 ...........................  10.13

                                     130

<CAPTION>

                                                                       Exhibit
                                Description                            Number
                                -----------                            -------
<s>                                                                      <c>
      Stipulation of Amendment to Settlement Agreement and For Entry
      of Agreed Order, dated July 2, 1998, regarding the settlement
      of the State of Mississippi health care cost recovery action,
      incorporated herein by reference to Exhibit 10.1 to 
      Registrant's Report on Form 10-Q for the quarter ended June
      30, 1998 .......................................................  10.14

      Mississippi Fee Payment Agreement, dated July 2, 1998, 
      regarding the payment of attorneys' fees, incorporated herein 
      by reference to Exhibit 10.2 to Registrant's Report on Form 
      10-Q for the quarter ended June 30, 1998 .......................  10.15

      Mississippi MFN Escrow Agreement, dated July 2, 1998,
      incorporated herein by reference to Exhibit 10.3 to 
      Registrant's Report on Form 10-Q for the quarter ended June 
      30, 1998 .......................................................  10.16

      Stipulation of Amendment to Settlement Agreement and For Entry
      of Consent Decree, dated July 24, 1998, regarding the 
      settlement of the Texas health care cost recovery action, 
      incorporated herein by reference to Exhibit 10.4 to 
      Registrant's Report on Form 10-Q for the quarter ended June 
      30, 1998 .......................................................  10.17

      Texas Fee Payment Agreement, dated July 24, 1998, regarding 
      the payment of attorneys' fees, incorporated herein by 
      reference to Exhibit 10.5 to Registrant's Report on Form 10-Q 
      for the quarter ended June 30, 1998 ............................  10.18

      Stipulation of Amendment to Settlement Agreement and For Entry
      of Consent Decree, dated September 11, 1998, regarding the
      settlement of the Florida health care cost recovery action,
      incorporated herein by reference to Exhibit 10.1 to Registrant's
      Report on Form 10-Q for the quarter ended September 30, 1998 ...  10.19

      Florida Fee Payment Agreement, dated September 11, 1998,
      regarding the payment of attorneys' fees, incorporated herein 
      by reference to Exhibit 10.2 to Registrant's Report on Form
      10-Q for the quarter ended September 30, 1998 ..................  10.20

      Master Settlement Agreement with 46 states, the District of
      Columbia, the Commonwealth of Puerto Rico, Guam, the U.S. 
      Virgin Islands, American Samoa and the Northern Marianas to 
      settle the asserted and unasserted health care cost recovery
      and certain other claims of those states, incorporated herein
      by reference to Exhibit 10 to Registrant's Report on Form 8-K
      filed November 25, 1998 ........................................  10.21

      Employment Agreement dated as of January 1, 1999 between
      Registrant and Andrew H. Tisch is incorporated herein by
      reference to Exhibit 10.31 to Registrant's Report on Form 10-K
      for the year ended December 31, 1998 and an amendment dated
      January 1, 2002 is filed herewith ..............................  10.22*

      Employment Agreement dated as of January 1, 1999 between
      Registrant and James S. Tisch is incorporated herein by
      reference to Exhibit 10.32 to Registrant's Report on Form 10-K
      for the year ended December 31, 1998 and an amendment dated
      January 1, 2002 is filed herewith ..............................  10.23*

      Employment Agreement dated as of January 1, 1999 between
      Registrant and Jonathan M. Tisch is incorporated herein by
      reference to Exhibit 10.33 to Registrant's Report on Form 10-K
      for the year ended December 31, 1998 and an amendment dated
      January 1, 2002 is filed herewith ..............................  10.24*

      Supplemental Retirement Agreement dated September 21, 1999
      between Registrant and Arthur Rebell is incorporated herein 
      by reference to Exhibit 10.28 to Registrant's Report on Form 
      10-K for the year ended December 31, 1999.......................  10.25

      Loews Corporation 2000 Stock Option Plan is incorporated herein
      by reference to Exhibit A to Registrant's Definitive Proxy
      Statement filed on March 29, 2000 ..............................  10.26

                                   131

<CAPTION>

                                                                       Exhibit
                                Description                            Number
                                -----------                            -------
<s>                                                                      <c>

      First Amendment to Supplemental Retirement Agreement dated 
      March 24, 2000 between Registrant and Arthur L. Rebell is 
      incorporated herein by reference to Exhibit 10.2 to 
      Registrant's Report on Form 10-Q for the quarter ended 
      March 31, 2000 .................................................  10.27

      Second Amendment to Supplemental Retirement Agreement dated 
      March 28, 2001 between Registrant and Arthur L. Rebell .........  10.28*

      Carolina Group 2002 Stock Option Plan ..........................  10.29*

      Supplemental Retirement Agreement dated January 1, 2002 
      between Registrant and Andrew H. Tisch .........................  10.30*

      Supplemental Retirement Agreement dated January 1, 2002 
      between Registrant and James S. Tisch ..........................  10.31*

      Supplemental Retirement Agreement dated Januaury 1, 2002
      between Registrant and Jonathan M. Tisch .......................  10.32*

      Third Amendment to Supplemental Retirement Agreement dated 
      February 28, 2002 between Registrant and Arthur L. Rebell ......  10.33*

 (21) Subsidiaries of the Registrant

      List of subsidiaries of Registrant .............................  21.01*

 (23) Consents of Experts and Counsel

      Consent of Deloitte & Touche LLP ...............................  23.01*

</TABLE>


* Filed herewith

  (b) Reports on Form 8-K - On October 17, 2001 Registrant filed a report on 
Form 8-K regarding a preliminary proxy statement to create the Carolina Group 
tracking stock to reflect the performance of Lorillard, Inc., its wholly owned 
subsidiary.

  On December 5, 2001 Registrant filed a report on Form 8-K regarding its 
subsidiary, CNA Financial Corporation issuing a press release that CNA will 
record fourth quarter charges relating to restructuring of its Property-
Casualty and Life Operations, discontinuation of variable life and annuity 
business and consolidation of real estate locations and related corporate 
staff reductions. A second report release announced CNA's estimate for 
potential losses associated with recent filing by bankrupt Enron entities. 

                                       132


                                  SIGNATURES

  Pursuant to the requirements of Section 13 or 15(d) of the Securities 
Exchange Act of 1934, the Registrant has duly caused this report to be signed 
on its behalf by the undersigned, thereunto duly authorized.

                                             LOEWS CORPORATION



Dated: March 8, 2002                         By       /s/ Peter W. Keegan
                                               -------------------------------
                                                 (Peter W. Keegan, Senior Vice
                                                 President and Chief Financial
                                                 Officer)
             
  Pursuant to the requirements of the Securities Exchange Act of 1934, this 
report has been signed below by the following persons on behalf of the 
Registrant and in the capacities and on the dates indicated.



Dated: March 8, 2002                         By      /s/ James S. Tisch
                                               -------------------------------
                                                 (James S. Tisch, President
                                                 and Chief Executive Officer)


Dated: March 8, 2002                         By       /s/ Peter W. Keegan  
                                               -------------------------------
                                                 (Peter W. Keegan, Senior Vice
                                                 President and Chief Financial
                                                 Officer)
             

Dated: March 8, 2002                         By         /s/ Guy A. Kwan 
                                               -------------------------------
                                                   (Guy A. Kwan, Controller)


Dated: March 8, 2002                         By       /s/ Joseph L. Bower
                                               -------------------------------
                                                 (Joseph L. Bower, Director)


Dated: March 8, 2002                         By        /s/ John Brademas 
                                               -------------------------------


                                                    (John Brademas, Director)


Dated: March 8, 2002                         By        /s/ Paul Fribourg
                                               -------------------------------
                                                   (Paul Fribourg, Director)


Dated: March 8, 2002                         By        /s/ Bernard Myerson
                                               -------------------------------
                                                   (Bernard Myerson, Director)

                                     133

Dated: March 8, 2002                         By        /s/ Edward J. Noha
                                               -------------------------------
                                                   (Edward J. Noha, Director)


Dated: March 8, 2002                         By        /s/ Michael F. Price
                                                ------------------------------
                                                 (Michael F. Price, Director)


Dated: March 8, 2002                         By       /s/ Gloria R. Scott
                                               -------------------------------
                                                   (Gloria R. Scott, Director)


Dated: March 8, 2002                         By       /s/ Andrew H. Tisch
                                               -------------------------------
                                                  (Andrew H. Tisch, Director)


Dated: March 8, 2002                         By     /s/ Jonathan M. Tisch
                                               -------------------------------
                                                 (Jonathan M. Tisch, Director)


Dated: March 8, 2002                         By     /s/ Laurence A. Tisch
                                               -------------------------------
                                                (Laurence A. Tisch, Director)


Dated: March 8, 2002                         By      /s/ Preston R. Tisch
                                               -------------------------------
                                                 (Preston R. Tisch, Director)


Dated: March 8, 2002                         By         /s/ Fred Wilpon
                                               -------------------------------
                                                    (Fred Wilpon, Director)

                                     134


                         INDEPENDENT AUDITORS' REPORT


To the Board of Directors and Shareholders of Loews Corporation:

We have audited the accompanying consolidated balance sheets of Loews 
Corporation and its subsidiaries as of December 31, 2001 and 2000, and the 
related consolidated statements of operations, shareholders' equity and cash 
flows for each of the three years in the period ended December 31, 2001. Our 
audits also included the financial statement schedules listed in the Index at 

Item 14(a)2. These financial statements and financial statement schedules are 
the responsibility of the Company's management. Our responsibility is to 
express an opinion on these financial statements and financial statement 
schedules based on our audits.

We conducted our audits in accordance with auditing standards generally 
accepted in the United States of America. Those standards require that we plan 
and perform the audit to obtain reasonable assurance about whether the 
financial statements are free of material misstatement. An audit includes 
examining, on a test basis, evidence supporting the amounts and disclosures in 
the financial statements. An audit also includes assessing the accounting 
principles used and significant estimates made by management, as well as 
evaluating the overall financial statement presentation. We believe that our 
audits provide a reasonable basis for our opinion.

In our opinion, such consolidated financial statements present fairly, in all 
material respects, the financial position of Loews Corporation and its 
subsidiaries at December 31, 2001 and 2000 and the results of their operations 
and their cash flows for each of the three years in the period ended December 
31, 2001 in conformity with accounting principles generally accepted in the 
United States of America. Also, in our opinion, such financial statement 
schedules, when considered in relation to the basic consolidated financial 
statements taken as a whole, present fairly in all material respects the 
information set forth therein.

As discussed in Note 1 to the consolidated financial statements, in 2001 the 
Company changed its method of accounting for derivative instruments and 
hedging activities.






Deloitte & Touche LLP
New York, New York
February 14, 2002


                                     L-1

                                                                    SCHEDULE I


                Condensed Financial Information of Registrant

                             LOEWS CORPORATION

                              BALANCE SHEETS

                                  ASSETS



<TABLE>
<CAPTION>

December 31                                                  2001         2000
------------------------------------------------------------------------------
(In millions)

<s>                                                     <c>          <c>
Current assets, principally investment in short-term
 instruments .......................................    $ 2,290.9    $ 2,430.2
Investments in securities ..........................        985.3        280.7
Investments in capital stocks of subsidiaries, at
 equity ............................................     10,180.1     11,095.4
Other assets .......................................         30.5        273.8
------------------------------------------------------------------------------

     Total assets ..................................    $13,486.8    $14,080.1
==============================================================================

<CAPTION>
LIABILITIES AND SHAREHOLDERS' EQUITY

<s>                                                     <c>            <c>
Accounts payable and accrued liabilities ...........    $   475.7    $   376.7
Securities sold under agreements to repurchase .....        480.4             
Long-term debt, less current maturities (a) ........      2,293.6      2,291.0
Deferred income tax and other ......................        587.8        221.3
------------------------------------------------------------------------------

     Total liabilities .............................      3,837.5      2,889.0
Shareholders' equity ...............................      9,649.3     11,191.1
------------------------------------------------------------------------------

     Total liabilities and shareholders' equity ....    $13,486.8    $14,080.1
==============================================================================
</TABLE>


                                     L-2

                                                                    SCHEDULE I
                                                                   (Continued)


               Condensed Financial Information of Registrant

                             LOEWS CORPORATION

                          STATEMENTS OF OPERATIONS



<TABLE>
<CAPTION>

Year Ended December 31                        2001          2000         1999
------------------------------------------------------------------------------
(In millions)
                                                      
<s>                                        <c>           <c>          <c>
Revenues:
  Equity in (losses) income of
   subsidiaries (b) ....................   $ (528.3)    $1,905.9      $ 867.2
  Investment gains (losses) ............      100.6         (6.6)      (462.6)
  Interest and other ...................      118.1        149.8        126.3
------------------------------------------------------------------------------

     Total .............................     (309.6)     2,049.1        530.9
------------------------------------------------------------------------------

Expenses:
  Administrative .......................       54.8         53.7         40.4
  Interest .............................      133.8        128.2        125.9
------------------------------------------------------------------------------

     Total .............................      188.6        181.9        166.3
------------------------------------------------------------------------------

                                             (498.2)     1,867.2        364.6
Income tax (benefit) expense (c) .......       37.6         (9.5)      (156.5)
------------------------------------------------------------------------------
(Loss) income before cumulative effect 
 of changes in accounting principles ...     (535.8)     1,876.7        521.1
Cumulative effect of changes in
 accounting principles-net .............      (53.3)                   (157.9)
------------------------------------------------------------------------------

Net (loss) income ......................   $ (589.1)    $1,876.7      $ 363.2
==============================================================================
</TABLE>


                                     L-3

                                                                    SCHEDULE I
                                                                   (Continued)


                Condensed Financial Information of Registrant

                              LOEWS CORPORATION

                           STATEMENTS OF CASH FLOWS



<TABLE>
<CAPTION>

Year Ended December 31                        2001        2000           1999
------------------------------------------------------------------------------
(In millions)

<s>                                       <c>        <c>            <c>
Operating Activities:
  Net (loss) income ..................... $ (589.1)  $  1,876.7       $  363.2
  Adjustments to reconcile net (loss)
   income to net cash provided (used) by
   operating activities:
    Cumulative effect of changes in 
     accounting principles ..............     53.3                      157.9
    Undistributed losses (earnings) of
     affiliates .........................  1,360.9    (1,556.2)        (498.8)
    Investment (gains) losses ...........   (100.6)        6.6          462.6
    Provision for deferred income taxes .      1.6        12.5          119.0
  Changes in assets and liabilities-net:
    Receivables .........................   (190.2)       37.3          (17.7)
    Accounts payable and accrued
     liabilities ........................     (4.6)       (3.5)           6.0
    Federal income taxes ................   (104.3)      411.3          (46.1)
    Trading securities ..................    340.5      (157.4)        (759.0)
    Other-net ...........................      3.0        (5.2)           5.0
------------------------------------------------------------------------------

                                             770.5       622.1         (207.9)
------------------------------------------------------------------------------

Investing Activities:
  Investments in and advances to
   subsidiaries .........................   (101.0)     (281.5)        (293.6)
  Reduction of investments and advances
   to subsidiaries ......................     26.7        41.4          208.5
  Net decrease in short-term investments,
   primarily U.S. government securities .    202.3       353.3        1,057.6
  Securities sold under agreements to
   repurchase ...........................    480.4      (347.8)        (101.9)
  Purchases of CNA common stock .........   (978.7)
  Change in other investments ...........     (1.2)       17.7           15.2
------------------------------------------------------------------------------

                                            (371.5)     (216.9)         885.8
------------------------------------------------------------------------------


Financing Activities:
  Dividends paid to shareholders ........   (112.5)      (99.7)        (108.9)
  Purchases of treasury shares ..........   (282.2)     (305.7)        (601.6)
  Issuance of common stock ..............       .4
------------------------------------------------------------------------------
                                            (394.3)     (405.4)        (710.5)
------------------------------------------------------------------------------

Net change in cash ......................      4.7         (.2)         (32.6)
Cash, beginning of year .................     10.2        10.4           43.0
------------------------------------------------------------------------------

Cash, end of year ....................... $   14.9   $    10.2       $   10.4
==============================================================================
</TABLE>


                                     L-4

                                                                    SCHEDULE I
                                                                   (Continued)


                 Condensed Financial Information of Registrant

--------------
Notes:

  (a) Long-term debt consisted of:


<TABLE>
<CAPTION>

December 31                                                 2001          2000
------------------------------------------------------------------------------

<s>                                                     <c>          <c>
6.8% notes due 2006 (effective interest rate
 of 6.8%) (authorized, $300) ................           $  300.0      $  300.0
3.1% exchangeable subordinated notes due 2007
 (effective interest rate of 3.4%) 
 (authorized $1,150) (1) ....................            1,150.0       1,150.0
8.9% debentures due 2011 (effective interest
 rate of 9.0%) (authorized, $175) ...........              175.0         175.0
7.6% notes due 2023 (effective interest rate
 of 7.8%) (authorized, $300) (2) ............              300.0         300.0
7% notes due 2023 (effective interest rate of
 7.2%) (authorized, $400) (3) ...............              400.0         400.0
------------------------------------------------------------------------------

                                                         2,325.0       2,325.0
Less unamortized discount ...................               31.4          34.0
------------------------------------------------------------------------------

                                                       $ 2,293.6     $ 2,291.0
==============================================================================

      (1) Redeemable in whole or in part at September 15, 2002, at 101.6%, and
          decreasing percentages thereafter. The notes are exchangeable into
          15.376 shares of Diamond Offshore's common stock per $1,000
          principal amount of notes, at a price of $65.04 per share.
      (2) Redeemable in whole or in part at June 1, 2003 at 103.8%, and
          decreasing percentages thereafter.
      (3) Redeemable in whole or in part at October 15, 2003 at 102.4%, and
          decreasing percentages thereafter.
</TABLE>


  (b) Cash dividends paid to the Company by affiliates amounted to $807.1, 
$356.7 and $368.4 for the years ended December 31, 2001, 2000 and 1999, 
respectively.

  (c) The Company is included in a consolidated federal income tax return with 
certain of its subsidiaries and, accordingly, participates in the allocation 
of certain components of the consolidated provision for federal income taxes. 
Such taxes are generally allocated on a separate return bases.

  The Company has entered into a separate tax allocation agreement with CNA, a 
majority-owned subsidiary in which its ownership exceeds 80% (the 
"Subsidiary"). The agreement provides that the Company will (i) pay to the 
Subsidiary the amount, if any, by which the Company's consolidated federal 
income tax is reduced by virtue of inclusion of the Subsidiary in the 
Company's return, or (ii) be paid by the Subsidiary an amount, if any, equal 
to the federal income tax which would have been payable by the Subsidiary if 
it had filed a separate consolidated return.

  Under these agreements, CNA will receive approximately $908.0 for 2001. In 
2000 and 1999, CNA paid $64.0 and received $288.0, respectively. The agreement 
may be canceled by either of the parties upon thirty days' written notice. See 
Note 9 of the Notes to Consolidated Financial Statements of Loews Corporation 
and subsidiaries included in Item 8.

                                     L-5

                                                                   SCHEDULE II

                        LOEWS CORPORATION AND SUBSIDIARIES

                         Valuation and Qualifying Accounts



<TABLE>
<CAPTION>
     Column A           Column B          Column C        Column D    Column E
     --------           --------          --------        --------    --------
                                          Additions
                                   ----------------------
                       Balance at  Charged to   Charged             Balance at
                       Beginning   Costs and    to Other                End of
    Description        of Period   Expenses     Accounts  Deductions    Period
------------------------------------------------------------------------------
                                            (In millions)
<CAPTION>

                                For the Year Ended December 31, 2001

<s>                     <c>          <c>                    <c>         <c>
Deducted from assets:
 Allowance for
  discounts .........   $    2.7     $1746.1                 $1746.7(1)   $  
2.1
 Allowance for
  doubtful accounts        345.7       50.5                   34.7       361.5
                        ------------------------------------------------------

     Total ..........   $  348.4     $224.6                 $209.4      $363.6
                        ======================================================
<CAPTION>

                                For the Year Ended December 31, 2000

<s>                     <c>          <c>                    <c>         <c>
Deducted from assets:
 Allowance for
  discounts .........   $    2.7     $165.4                 $165.4(1)   $  2.7
 Allowance for
  doubtful accounts        334.1       19.5                    7.9       345.7
                        ------------------------------------------------------

     Total ..........   $  336.8     $184.9                 $173.3      $348.4
                        ======================================================
<CAPTION>
                                For the Year Ended December 31, 1999

<s>                     <c>          <c>        <c>         <c>         <c>
Deducted from assets:
 Allowance for
  discounts .........   $    1.6     $156.8                 $155.7(1)   $  2.7
 Allowance for            
  doubtful accounts        342.2       13.2                   21.3       334.1
                        ------------------------------------------------------

     Total ..........   $  343.8     $170.0                 $177.0      $336.8 
                        ======================================================

--------------
Notes: (1) Discounts allowed.
</TABLE>


                                     L-6

                                                                    SCHEDULE V

                      LOEWS CORPORATION AND SUBSIDIARIES

   Supplemental Information Concerning Property-Casualty Insurance Operations



<TABLE>
<CAPTION>

Consolidated Property-Casualty Entities
------------------------------------------------------------------------------

Year Ended December 31                           2001         2000        1999
------------------------------------------------------------------------------
(In millions)
                                                                     
<s>                                           <c>          <c>         <c>
Deferred policy acquisition costs ....        $ 1,103      $ 1,121     
Reserves for unpaid claim and claim
 adjustment expenses .................         29,551       26,408      
Discount deducted from claim and 
 claim adjustment expenses reserves
 above (based on interest rates 
 ranging from 3.5% to 7.5%) ..........          2,456        2,413      
Unearned premiums ....................          4,505        4,821      
Net earned premiums ..................          7,598        8,847     $ 9,964
Net investment income ................          1,260        1,740       1,725
Incurred claim and claim adjustment 
 expenses related to current year ....          7,192        6,331       7,287
Incurred claim and claim adjustment
 expenses related to prior years .....          2,466          427       1,027
Amortization of deferred acquisition
 costs ...............................          1,748        1,729       2,005
Paid claim and claim expenses ........          9,797        8,434       9,964
Net written premiums .................          8,014        8,640       8,941
</TABLE>


                                     L-7






                                                                    Exhibit 3.01


                    RESTATED CERTIFICATE OF INCORPORATION

                                     OF

                              LOEWS CORPORATION



          It is hereby certified that:

          1.  (a)  The present name of the corporation (hereinafter called the

"Corporation") is Loews Corporation.

               (b)  The name under which the Corporation was originally

incorporated is Loew's Corporation; and the date of filing the original

certificate of incorporation of the Corporation with the Secretary of State of

the State of Delaware is November 12, 1969.

          2.  The provisions of the certificate of incorporation of the

Corporation as heretofore amended and/or supplemented, are hereby restated and

integrated into the single instrument which is hereinafter set forth, and which

is entitled Restated Certificate of Incorporation of Loews Corporation, without

further amendment and without any discrepancy between the provisions of the

Certificate of Incorporation as heretofore amended and supplemented and the

provisions of the said single instrument hereinafter set forth.

          3.  The Board of Directors of the Corporation has duly adopted this

Restated Certificate of Incorporation pursuant to the provisions of Section 245

of the General Corporation Law of the State of Delaware in the form hereinafter

set
 forth:











                                      1

                       RESTATED CERTIFICATE OF INCORPORATION

                                        OF

                                 LOEWS CORPORATION



          FIRST: Name.  The name of the corporation (the "Corporation") is:
                 ----
                                LOEWS CORPORATION

          SECOND: Registered Office and Agent.  The registered office of the
                  ---------------------------
Corporation is 229 South State Street, City of Dover, County of Kent, State of

Delaware.  The name of its registered agent at such address is UNITED STATES

CORPORATION COMPANY.

          THIRD:  The nature of the business or purposes of the Corporation

are as follows:

            (1)  to buy, manufacture, sell and otherwise deal in tobacco and
          tobacco products in any and all forms.

            (2)  to carry on the business of theatre proprietors, managers and
          directors, and in particular, to provide for the production,
          presentation and performance of motion pictures, operas, stage
          plays, musical comedies, sporting events, radio and television
          programs of all types and description, and other forms of amusement
          including amusement parks, carnivals and circuses, and in connection
          therewith, to own, operate, control, buy, rent, sell, lease,
          sublease, mortgage, or otherwise acquire or dispose of theatres and
          other places of entertainment and any and all rights and privileges
          therein, and real property for the purpose of erecting and operating
          theatres and other

                                      2

          places of entertainment, and to own, control, buy, sell, rent,
          lease, sublease, mortgage or otherwise acquire or dispose of all
          forms of personal property necessary or incidental to the operation
          and control of theatres and other places of entertainment.

            (3)  to purchase and otherwise acquire, own, build, lease (either
          as lessor or lessee), erect, construct, alter, repair, improve,
          furnish, equip, hold, occupy, maintain, manage, operate, sell, or
          dispose of hotels, motels, apartment hotels, inns, taverns, lodging
          houses, hostelries, boardinghouses, apartment houses, restaurants,
          cafes, bars, cafeterias, garages, and the furniture, furnishings,
          fixtures and equipment thereof; to engage in and carry on the
          business of hotel keepers, innkeepers, apartment housekeepers,
          hostelers, restauranteurs, cafe keepers, cafeteria keepers,
          garagemen, and also the business of tobacconists, confectioners,
          dealers in provisions, barbers, hairdressers, manicurists,
          druggists, florists, stationers, news agents and news, magazine and
          book dealers; to buy, sell, rent and let for hire automobiles and
          other means of transportation; the buying and selling of wines,
          liquors and all other beverages of alcoholic and nonalcoholic
          contents; to provide and conduct apartments, accommodations, eating
          places, newspaper rooms, reading and writing rooms, rest rooms,
          dressing rooms, baths, swimming pools, telephone and other
          conveniences for the use of the public, and to do every act and
          thing necessary, convenient or desirable for the furnishing of
          guests, lodgers, tenants, travelers, and all others who may be
          received by the corporation, with food, drink, lodging,
          entertainment and such other services as are commonly rendered as a
          part of or in connection with, or as incidental to, any of the
          businesses hereinbefore mentioned; to procure all necessary permits
          or licenses from municipal or other authorities for the erection and
          operation of any of the foregoing businesses and to maintain all
          conveniences necessary thereto, including, but without limitation,
          elevators, heating, lighting and air conditioning and other
          refrigerating

                                      3

          apparatus; and to give or grant to others the right, privilege or
          license to engage in any kind of business on premises owned, leased
          or managed by it.

            (4)  to manufacture, process, purchase, sell and generally to
          trade and deal in and with goods, wares and merchandise of every
          kind, nature and description, and to engage and participate in any
          mercantile, industrial or trading business of any kind or character
          whatsoever.

            (5)  to purchase, acquire, own, hold, use, lease (either as lessor
          or lessee), grant, sell, exchange, sub-divide, mortgage, convey in
          trust, manage, improve, construct, operate and generally deal in any
          and all real estate, improved and unimproved, stores, office
          buildings, dwelling houses, apartment houses, hotels, theatres,
          manufacturing plants and other buildings, and any and all other
          property of every kind or description, real, personal and mixed, and
          wheresoever situated, either in California, other states of the
          United States, the District of Columbia, territories and colonies of
          the United States, or foreign countries.

            (6)  to engage in any lawful act or activity for which
          corporations may be organized under the General Corporation Law of
          the State of Delaware.

          FOURTH:  The total number of shares of all classes of stock which

the Corporation shall have authority to issue is 225,000,000 shares, consisting

of 200,000,000 shares of Common Stock of the par value of $1.00 per share and

25,000,000 shares of Preferred Stock of the par value of $.10 per share.

          The Board of Directors is hereby authorized to issue the Preferred

Stock, from time to time, in one or

                                      4

more series, on such terms and conditions as it may deem advisable and to fix by

resolution the designation of each series and the powers, preferences, and

relative, participating, optional or other special rights of the shares of each

series, and the qualifications, limitations or restrictions thereof, to the full

extent now or hereafter permitted by law.  The authority of the Board of

Directors with respect to each such series shall include, but not be limited to,

determination of the following:

            (a)  the designation and number of shares comprising such series;

            (b)  the dividends, if any, which shall be payable on the shares
          of such series and any preferences and other terms and conditions
          applicable thereto;

            (c)  any rights and preferences of the holders of the shares of
          such series upon the liquidation, dissolution, or winding up of the
          affairs of, or upon any distribution of the assets of, the
          Corporation;

            (d)  the full, limited or special voting rights, if any, of the
          shares of such series, in addition to voting rights provided by law,
          and the terms and conditions applicable thereto;

            (e)  any provision with respect to the conversion of the shares of
          such series into, or the exchange of such shares for, shares of any
          other class or classes, or of any other series of any class, of the
          capital stock of the Corporation and/or any other property or cash,
          and the terms and conditions applicable to any such conversion or
          exchange;

                                      5

            (f)  any provision with respect to the redemption, purchase, or
          retirement of such shares and the terms and conditions applicable
          thereto;

            (g)  any provision with respect to the issuance of additional
          shares of such series or of any other class or series on a parity
          with or superior to the shares of such series; and

            (h)  any other relative, participating, optional or special
          powers, preferences, or rights of, and any other qualifications,
          limitations, or restrictions with respect to, the shares of such
          series as the Board of Directors may deem advisable.

          FIFTH: Any director or any officer of the Corporation elected or 

appointed by the stockholders of the Corporation or by the Board of Directors

may be removed at any time in such manner as shall be provided in the By-laws of

the Corporation.

          SIXTH: In furtherance of and not in limitation of the powers

conferred by statute, the Board of Directors is expressly authorized:

          To make, alter or repeal the By-laws of the Corporation. 

          By resolution passed by a majority of the whole Board, to designate
          one or more committees, each committee to consist of two or more
          directors of the Corporation, which, to the extent provided in the
          resolution or in the By-laws of the Corporation, shall have and may
          exercise the powers of the Board of Directors in the management of
          the business and affairs of the Corporation and may authorize the
          seal of the Corporation to be affixed to all papers which may
          require it.  Such committee or committees shall have such name or
          names as may be stated in the By-laws of the Corporation or as may
          be determined from time to time by resolution adopted by the Board
          of Directors.

                                      6

          SEVENTH: The principal office of the Corporation shall be located at

such place, whether within or without the State of Delaware, as may be provided

in the By-laws.

          EIGHTH: Unless contrary to statute, the books of the Corporation may

be kept outside of the State of Delaware at such place or places as may from

time to time be designated by the Board of Directors or in the By-laws of the

Corporation.

          NINTH: The Corporation reserves the right to amend, alter, change or

repeal any provision contained in this Certificate of Incorporation, in the

manner now or hereafter prescribed by statute, and all rights conferred upon

stockholders herein are granted subject to this reservation.

          TENTH: No director shall be personally liable to the Corporation or

its stockholders for monetary damages for any breach of fiduciary duty by such

director as a director, except (i) for any breach of the director's duty of

loyalty to the Corporation or its stockholders, (ii) for acts or omissions not

in good faith or which involve intentional misconduct or a knowing violation of

law, (iii) pursuant to Section 174 of the Delaware General Corporation Law, or

(iv) for any transaction from which the director derived an improper personal

benefit.

          Any repeal or modification of this Article Tenth shall not increase

the personal liability of any

                                      7

director for any occurrence taking place prior to such repeal or modification,

or otherwise adversely affect any right or benefit of a director existing at the

time of such repeal or modification.

          The provisions of this Article Tenth shall not be deemed to limit or

preclude indemnification of a director by the Corporation for any liability

which has not been limited by the provisions of this Article Tenth.

                  Signed and attested to on October 20, 1987.



                                              /s/ Barry Hirsch
                                              ----------------------------------
                                          Barry Hirsch
                                           Sr. Vice President
Attest:



/s/ Gary W. Garson
----------------------------------
Gary W. Garson
Asst. Secretary

                                      8


                                                                    Exhibit 3.02


            CERTIFICATE OF AMENDMENT OF CERTIFICATE OF INCORPORATION

                                       OF

                                LOEWS CORPORATION





It is hereby certified that:

        1.  The name of the Corporation (hereinafter called the "Corporation")
is Loews Corporation.

        2.  The certificate of incorporation of the Corporation is hereby
amended by striking out the first sentence of Article FOURTH thereof and by
substituting in lieu of said sentence the following new sentence:

              "FOURTH: The total number of shares of all classes of
            stock which the Corporation shall have authority to
            issue is 500,000,000 shares, consisting of 400,000,000
            shares of Common Stock of the par value of $1.00 per
            share and 100,000,000 shares of Preferred Stock of the
            par value of $.10 per share."

        3.  The amendment of the Certificate of Incorporation herein certified
has been duly adopted in accordance with the provisions of Section 242 of the
General Corporation Law of the State of Delaware.


Signed and attested to on May 16, 1996.





ATTEST:




/s/ Gary W. Garson                            /s/ Barry Hirsch
---------------------                         ----------------------
Gary W. Garson                                Barry Hirsch
Assistant Secretary                           Senior Vice President
                                              Loews Corporation







                                                                  Exhibit 3.03



          CERTIFICATE OF AMENDMENT OF CERTIFICATE OF INCORPORATION

                                     OF

                              LOEWS CORPORATION



It is hereby certified that:

     1.  The name of the Corporation (hereinafter called the "Corporation") is
Loews Corporation.

     2.  The certificate of incorporation of the Corporation is hereby amended
by striking out the first sentence of Article FOURTH thereof and by 
substituting in lieu of said sentence the following new sentence:

             "FOURTH:  The total number of shares of all classes of stock 
     which the Corporation shall have authority to issue is 700,000,000     
     shares, consisting of 600,000,000 shares of Common Stock of the par value
     of $1.00 per share and 100,000,000 shares of Preferred Stock of the par
     value of $.10 per share."

     3.  The amendment of the Certificate of Incorporation herein certified 
has been duly adopted in accordance with the provisions of Section 242 of the 
General Corporation Law of the State of Delaware.


Signed and attested to on May 8, 2001.



                                                /s/ Barry Hirsch
                                            ---------------------------
                                                    Barry Hirsch
                                                Senior Vice President
                                                  Loews Corporation


ATTEST:

     /s/ Gary W. Garson
-----------------------------
         Gary W. Garson
       Assistant Secretary







                                                                  Exhibit 3.04

                      Certificate of Amendment of the
         Restated Certificate of Incorporation of Loews Corporation
         under Section 242 of the Delaware General Corporation Law


   Pursuant to Section 242 of the General Corporation Law of the State of 
Delaware, Loews Corporation, a corporation organized and existing under and by
virtue of the General Corporation Law of the State of Delaware (the 
"Corporation"), DOES HEREBY CERTIFY:

     First:   The Board of Directors of the Corporation adopted resolutions 
              proposing and declaring advisable an amendment to the Restated 
              Certificate of Incorporation to establish a new class of common 
              stock, Carolina Group stock, having the number, designation, 
              relative rights, preferences, and limitations as set forth 
              herein.

     Second:  To effect the foregoing, Article FOURTH of the Restated 
              Certificate of Incorporation of the Corporation is hereby 
              amended as set forth in Exhibit A hereto.

     Third:   At a meeting of stockholders of the Corporation duly held on 
              January 4, 2002, a majority of the outstanding stock of the 
              Corporation entitled to vote voted to approve the foregoing 
              amendment in accordance with the provisions of the Restated 

              Certificate of Incorporation of the Corporation and the
 General 
              Corporation Law of the State of Delaware.

     Fourth:  Said amendment was duly adopted in accordance with Section 242 
              of the General Corporation Law of the State of Delaware.
 
   IN WITNESS WHEREOF, Loews Corporation has caused this certificate to be 
signed by Barry Hirsch, its Senior Vice President, General Counsel and 
Secretary, this 30th day of January, 2002.


                                            LOEWS CORPORATION



                                            By: /s/  Barry Hirsch	
                                                -------------------
                                                Name:	Barry Hirsch
                                                Title:	Senior Vice President,
                                                General Counsel and Secretary


                                                                     Exhibit A

                                  Article Fourth

     Article Fourth is hereby amended to read in its entirety as follows:

     Fourth:  The total number of shares of all classes of stock which the 
Corporation shall have authority to issue is 1,300,000,000 shares, consisting 
of 100,000,000 shares of Preferred Stock, par value $.10 per share ("Preferred 
Stock") and 1,200,000,000 common shares, of which 600,000,000 shall be Loews 
common stock having a par value of $1.00 per share ("Loews common stock") and 
600,000,000 shall be Carolina Group stock having a par value of $0.01 per 
share ("Carolina Group stock").

Part A:  Preferred Stock

     The Board of Directors is hereby authorized to issue the Preferred Stock,
from time to time, in one or more series, on such terms and conditions as it 
may deem advisable and to fix by resolution the designation of each series and
the powers, preferences, and relative, participating, optional or other 
special rights of the shares of each series, and the qualifications, 
limitations or restrictions thereof, to the full extent now or hereafter 
permitted by law. The authority of the Board of Directors with respect to each
such series shall include, but not be limited to, determination of the 
following:

     (a)  the designation and number of shares comprising such series;

     (b)  the dividends, if any, which shall be payable on the shares of such 
          series and any preferences and other terms and conditions applicable
          thereto;

     (c)  any rights and preferences of the holders of the shares of such 
          series upon the liquidation, dissolution, or winding up of the 
          affairs of, or upon any distribution of the assets of, the 
          Corporation;

     (d)  the full, limited or special voting rights, if any, of the shares of
          such series, in addition to voting rights provided by law, and the
          terms and conditions applicable thereto;

     (e)  any provision with respect to the conversion of the shares of such 
          series into, or the exchange of such shares for, shares of any other
          class or classes, or of any other series of any class, of the 
          capital stock of the Corporation and/or any other property or cash,
          and the terms and conditions applicable to any such conversion or 
          exchange;

     (f)  any provision with respect to the redemption, purchase, or 
          retirement of such shares and the terms and conditions applicable
          thereto; 

     (g)  any provision with respect to the issuance of additional shares of 
          such series or of any other class or series on a parity with or
          superior to the shares of such series; and 

                                       1
     (h)  any other relative, participating, optional or special powers, 
          preferences, or rights of, and any other qualifications, 
          limitations, or restrictions with respect to, the shares of such 
          series as the Board of Directors may deem advisable.

Part B:  Loews common stock and Carolina Group stock

     1.   Voting Rights.
          -------------

     (a)  Subject to paragraph 1(c) of this Part B of this Article Fourth, 
holders of Loews common stock shall be entitled to one vote for each share of 
such stock held and holders of Carolina Group stock shall be entitled to 1/10 
of a vote for each share of such stock held on all matters presented to such 
shareholders.

     (b)  Except as may otherwise be required by the laws of the State of 
Delaware or, with respect to additional or special voting rights (which may 
include, without limitation, rights of any holders of any class or series to 
elect one or more directors voting separately as a class) of any class or 
series of Preferred Stock or any other class of common shares in this 
Certificate of Incorporation as the same may be amended from time to time, the
holders of shares of Loews common stock, the holders of shares of Carolina 
Group stock, the holders of shares of each other class of common shares, if 
any, entitled to vote thereon, and the holders of shares of each class or 
series of Preferred Stock, if any, entitled to vote thereon, shall vote as one
class with respect to all matters to be voted on by shareholders of the 
Corporation, and no separate vote or consent of the holders of shares of Loews
common stock, the holders of shares of Carolina Group stock or the holders of 
shares of any such class of common shares or any such class or series of 
Preferred Stock shall be required for the approval of any such matter.

     (c)  If the Corporation shall in any manner subdivide (by stock split or 
otherwise) or combine (by reverse stock split or otherwise) the outstanding 
shares of Loews common stock or Carolina Group stock, or pay a stock dividend 
in shares of any class to holders of that class, the per share voting rights 
of Carolina Group stock specified in paragraph 1(a) of Part B of this Article 
Fourth shall be appropriately adjusted so as to avoid any dilution in the 
aggregate voting rights of any one class relative to the other class.

     2.   Dividends.
          ---------

     (a)  Dividends on Loews common stock. Dividends on Loews common stock may
be declared and paid only to the extent of (i) the assets of the Corporation 
legally available therefor minus (ii) the Carolina Group Available Dividend 
Amount (such amount available for the payment of dividends on Loews common 
stock is referred to in this Part B of this Article Fourth as the "Loews Group 
Available Dividend Amount").

     (b)  Dividends on Carolina Group stock. Dividends on Carolina Group stock
may be declared and paid only out of the lesser of (i) the assets of the 
Corporation legally available therefor, and (ii) the Carolina Group Available 
Dividend Amount. Concurrently with the payment of any dividend on shares of 
Carolina Group stock, at the election of the Board of Directors, either (x) 
the Loews Group shall receive from the Carolina Group an aggregate payment of 
the same kind of cash and/or property that is the subject of such dividend, 
which payment shall be equal to the excess, if any, of (i) the quotient 
obtained by dividing (A) the

                                       2

aggregate amount of such dividend, as determined by the Board of Directors, by 
(B) the Carolina Group Allocation Fraction, over (ii) the aggregate amount of 
such dividend, as so determined, or (y) the Carolina Group Allocation Fraction 
will be adjusted as described in paragraph 8 of this Part B of this Article 
Fourth. The payment to be made to the Loews Group pursuant to the preceding 
sentence may, at the discretion of the Board of Directors, be reflected by an 
allocation or by a direct transfer of cash or other property.

     (c) Discrimination between or among classes of common shares. The Board 
of Directors, subject to the provisions of paragraphs 2(a) and 2(b) of this 
Part B of this Article Fourth, shall have the sole authority and discretion to
declare and pay dividends (or to refrain from declaring or paying the same) 
exclusively to the holders of Loews common stock, exclusively to the holders 
of Carolina Group stock, exclusively to the holders of any other class of 
common shares or to the holders of any two or more of such classes in equal or
unequal amounts, notwithstanding the relationship between the Loews Group 
Available Dividend Amount and the Carolina Group Available Dividend Amount, 
the respective amounts of prior dividends declared on, or the liquidation 
rights of, Loews common stock or Carolina Group stock, or any other factor.

     3.   Share Distributions.
          -------------------

     Subject to the provisions of paragraph 4 of Part B of this Article 
Fourth, the Corporation may declare and pay a distribution consisting of 
shares of Loews common stock, Carolina Group stock or any other securities of 
the Corporation or any other Person (hereinafter sometimes called a "share 
distribution") to holders of Loews common stock or Carolina Group stock only 
in accordance with this paragraph 3 of this Part B of this Article Fourth.

     (a)  Distributions on Loews common stock or Carolina Group stock. The 
Corporation may declare and pay a share distribution to holders of Loews 
common stock, Carolina Group stock or any other class of common shares 
consisting of any securities of the Corporation, any Subsidiary of the 
Corporation, or any other Person, including, without limitation, a share 
distribution consisting of shares of any class or series of Preferred Stock or
shares of Loews common stock, Carolina Group stock or any other class of 
common shares (or Convertible Securities convertible into or exercisable or 
exchangeable for shares of any class or series of Preferred Stock or shares of
Loews common stock, Carolina Group stock or any other class of common shares). 
However, securities of a group may be distributed to holders of another group 
only for consideration.

     Concurrently with the making of any share distribution with respect to 
Carolina Group stock, at the election of the Board of Directors, either (x) 
the Loews Group shall receive from the Carolina Group an aggregate payment of 
the same kind of property that is the subject of such distribution, which 
payment shall be equal to the excess, if any, of (i) the quotient obtained by 
dividing (A) the aggregate amount of such distribution, as determined by the 
Board of Directors, by (B) the Carolina Group Allocation Fraction, over (ii) 
the aggregate amount of such distribution, as so determined, or (y) the 
Carolina Group Allocation Fraction shall be adjusted as described in paragraph
8 of this Part B of this Article Fourth. Any payment to be made to the Loews 
Group pursuant to the preceding sentence may, at the discretion of the Board 
of Directors, be reflected by an allocation or by a direct transfer of cash or
other property.

                                       3

     (b)  Discrimination between or among classes of common shares. The Board 
of Directors, subject to the foregoing provisions of this paragraph 3 of this 
Part B of this Article Fourth, shall have the sole authority and discretion to 
declare and pay (or to refrain from declaring or paying) share distributions 
exclusively to holders of Loews common stock, exclusively to holders of 
Carolina Group stock, exclusively to the holders of any other class of common 
shares or to holders of any two or more of such classes in equal or unequal 
amounts, notwithstanding the relationship between the Loews Group Available 
Dividend Amount, the Carolina Group Available Dividend Amount, the respective 
amounts of prior share distributions declared on, or the liquidation rights 
of, Loews common stock or Carolina Group stock, or any other factor.

     4.   Exchange of Carolina Group stock.
          --------------------------------

     (a)  Exchange at option of Board of Directors following the occurrence of 
tax events. At any time following the occurrence of a Tax Event, the Board of 
Directors, in its sole discretion, may effect a Board Required Exchange by 
declaring that all of the outstanding shares of Carolina Group stock shall be 
exchanged for (i) fully paid and nonassessable shares of Loews common stock in
accordance with the Tax Event Equity Exchange Rate or (ii) cash, in accordance
with the Tax Event Cash Exchange Rate.

     (b)  Exchange at option of Board of Directors following the second 
anniversary of the Initial Issuance Date. Following the second anniversary of 
the Initial Issuance Date until the 90th day following the occurrence of a 
Significant Transaction, the Board of Directors, in its sole discretion, may 
effect a Board Required Exchange by declaring that all of the outstanding 
shares of Carolina Group stock shall be exchanged for (i) fully paid and 
nonassessable shares of Loews common stock in accordance with the Regular 
Equity Exchange Rate or (ii) cash in accordance with the Regular Cash Exchange
Rate.

     (c)  Exchange for stock of Qualifying Subsidiaries at option of Board of 
Directors. At any time following the Initial Issuance Date, so long as all of 
the assets and liabilities included in the Carolina Group are held, directly 
or indirectly, by one or more Qualifying Subsidiaries of the Corporation that 
hold no other material assets or liabilities (the "Carolina Group 
Subsidiaries"), the Board of Directors may, in its sole discretion, subject to 
the availability of assets of the Corporation legally available therefor, 
effect a Board Required Exchange by exchanging, on a pro rata basis, all of 
the outstanding shares of Carolina Group stock in exchange for an aggregate 
number of outstanding fully paid and nonassessable shares of common stock of 
such Carolina Group Subsidiary or Subsidiaries as set forth in Section 4(h) of 
this Part B of this Article Fourth, provided that no such exchange may occur 
unless the exchange is tax free to the holders of Carolina Group stock (except
with respect to any cash received by such holders in lieu of fractional 
shares).

     (d)  Exchange, redemption and/or dividend in connection with certain 
Significant Transactions. In the event of a Disposition, other than a Carolina
Group Related Business Transaction, in a transaction or series of related 
transactions of all or substantially all of the assets (as defined below) of 
the Carolina Group to any Person(s) or group(s) of which the Corporation is 
not a majority owner (whether by merger, consolidation, sale of assets or 
stock, liquidation, dissolution, winding up or otherwise) (a "Significant 
Transaction"), effective upon

                                       4

the consummation of such Disposition, the Corporation may take one of the 
actions set forth in clauses (i) through (iii) below (each such action, a 
"Significant Transaction Exchange") on or prior to the 90th day following the 
consummation of the Significant Transaction; provided, however, that if the 
Corporation has received any Net Proceeds from the Disposition, and the 
Corporation has determined not to retain all such amounts as Loews Tobacco 
Contingency Reserves, the Corporation must effect one of the actions set forth
in clauses (i) through (iii) below on or prior to the 90th calendar day 
following the consummation of the Significant Transaction, which action will 
be selected in the sole discretion of the Board of Directors:

          (i)   exchange all outstanding shares of Carolina Group stock, at
    the sole discretion of the Board of Directors, for fully paid and 
    nonassessable shares of Loews common stock at the Regular Equity 
    Exchange Rate;

          (ii)  (x) subject to the limitations described in paragraph 2(b) of 
    this Part B of this Article Fourth and to the other provisions described 
    in this paragraph 4(d) of this Part B of this Article Fourth, declare and 
    pay a dividend in cash and/or in securities (other than Loews common 
    stock) or other property (determined as provided below) to holders of the 
    outstanding shares of Carolina Group stock equally on a share-for-share 
    basis in an aggregate amount equal to the Carolina Group Aggregate 
    Distributable Amount of such Significant Transaction; or (y) provided 
    that there are assets of the Corporation legally available therefor and 
    to the extent the Carolina Group Available Dividend Amount would have 
    been sufficient to pay a dividend in lieu thereof as described in clause 
    (x) of this paragraph 4(d) of this Part B of this Article Fourth, then 
    (A) if such Significant Transaction involves the Disposition of all (not 
    merely substantially all) of the assets of the Carolina Group, redeem all 
    outstanding shares of Carolina Group stock in exchange for cash and/or 
    securities (other than Loews common stock) or other property (determined 
    as provided below) in an aggregate amount equal to the Carolina Group Net 
    Proceeds; or (B) if such Significant Transaction involves the Disposition 
    of substantially all (but not all) of the assets of the Carolina Group, 
    apply an aggregate amount of cash and/or securities (other than Loews 
    common stock) or other property (determined as provided below) equal to 
    the Carolina Group Net Proceeds to the redemption of outstanding shares 
    of Carolina Group stock, the number of shares to be redeemed to equal the 
    lesser of (1) the whole number nearest the number determined by dividing 
    the aggregate amount so allocated to the redemption of Carolina Group 
    stock by the average Market Value of one share of Carolina Group stock 
    during the 20-Trading Day period ending on the 5th Trading Day 
    immediately preceding the date of a public announcement that a definitive 
    agreement has been signed for such Disposition, and (2) the number of 
    shares of Carolina Group stock outstanding; or

          (iii) subject to the limitations described in paragraph 2(b) of this
    Part B of this Article Fourth and to the other provisions described in 
    this paragraph 4(d) of this Part B of this Article Fourth, combine the 
    issuance of shares of Loews common stock in exchange for shares of 
    Carolina Group stock with the payment of a dividend on or the redemption 
    of shares of Carolina Group stock for cash and/or other securities (other 
    than Loews common stock) or other property as described below.

                                       5

     In the event that the Board of Directors elects the option described in 
clause (iii) of the preceding paragraph, the outstanding shares of Carolina 
Group stock exchanged for fully paid and nonassessable shares of Loews common 
stock shall be exchanged at the Regular Equity Exchange Rate and a dividend 
shall be paid on all the remaining shares of Carolina Group stock equally on a
share-for-share basis, or some or all of the remaining outstanding shares of 
Carolina Group stock shall be redeemed for cash and/or other securities (other 
than Loews common stock) or other property, as follows:  the aggregate amount 
of such dividend, in the case of a dividend, shall equal (A) an amount equal 
to the total Carolina Group Aggregate Distributable Amount multiplied by (B) 
one minus a fraction, the numerator of which shall be the number of shares of 
Carolina Group stock exchanged for shares of Loews common stock and the 
denominator of which shall be the total number of outstanding shares of 
Carolina Group stock prior to such exchange; the portion of the Carolina Group
Net Proceeds to be applied to such a redemption, in the case of a redemption, 
shall equal (A) an amount equal to the total Carolina Group Net Proceeds 
multiplied by (B) one minus a fraction, the numerator of which shall be the 
number of shares of Carolina Group stock exchanged for shares of Loews common 
stock and the denominator of which shall be the total number of outstanding 
shares of Carolina Group stock prior to such exchange. In the event of a 
redemption, if the Significant Transaction involves the Disposition of all 
(not merely substantially all) of the assets of the Carolina Group, then all 
remaining outstanding shares of Carolina Group stock will be redeemed in 
exchange for cash and/or securities (other than Loews common stock) or other 
property in an aggregate amount equal to the portion of the Carolina Group Net 
Proceeds to be applied to the redemption. In the event of a redemption, if the 
Significant Transaction involves the Disposition of substantially all (but not 
all) of the assets of the Carolina Group, then the portion of the Carolina 
Group Net Proceeds to be applied to the exchange will be used to redeem a 
number of shares equal to the lesser of (1) the whole number nearest the 
number determined by dividing the aggregate amount so allocated to the 
redemption of Carolina Group stock by the average Market Value of one share of 
Carolina Group stock during the 20-Trading Day period ending on the 5th 
Trading Day immediately preceding the date of a public announcement that a 
definitive agreement has been signed for such Disposition, and (2) the number 
of shares of Carolina Group stock outstanding.

     Notwithstanding the foregoing, the Corporation shall be under no 
obligation to effect any of the actions described in clauses (i) through (iii) 
above that it might otherwise be required to effect (x) if the underlying 
Significant Transaction is conditioned upon the affirmative vote of a majority 
of the holders of Carolina Group stock, voting as a separate class, (y) in 
connection with a spin-off or similar disposition of the Carolina Group to the 
holders of Carolina Group stock and to the Loews Group in respect of its 
intergroup interest in the Carolina Group, if any, including any such 
disposition that is made in connection with a Board Required Exchange, or (z) 
in connection with the liquidation, dissolution or winding up of the 
Corporation, whether voluntary or involuntary.

     (e)  Incremental dividend/final redemption in connection with certain 
Significant Transactions. In the event of a Significant Transaction, if, on 
the 91st day following consummation of the Significant Transaction, the 
Corporation has not redeemed all of the outstanding shares of Carolina Group 
stock and either (x) Lorillard, Inc. has not distributed to the Corporation 
100% of the Net Proceeds, or (y) the Corporation has received from Lorillard, 
Inc. some or all of the Net Proceeds but has determined to retain some or all 
of such Net Proceeds as Loews Tobacco Contingency Reserves (the "Trigger 
Event"), the following principles will 

                                       6

govern: Each time, following the Trigger Event, that the Corporation receives 
any distributions from Lorillard, Inc. (each such distribution, a "Lorillard 
Dividend"), the Corporation shall be required to pay a dividend in cash and/or 
in securities (other than Loews common stock) or other property to holders of 
the outstanding shares of Carolina Group stock equally on a share-for-share 
basis in an aggregate amount equal to the Carolina Group Incremental Dividend 
(less any increase in Carolina Group Tobacco Contingency Reserves made in 
connection with any new Lorillard Dividend). If, and when, the Corporation 
determines that it can release some or all of the Loews Tobacco Contingency 
Reserves (such released amounts, "Released Reserves"), the Corporation is 
required promptly to pay a dividend in cash and/or in securities (other than 
Loews common stock) or other property to holders of the outstanding shares of 
Carolina Group stock equally on a share-for-share basis in an aggregate amount 
equal to the Carolina Group Released Reserves. In no event will the 
Corporation be required to make dividend payments pursuant to this paragraph 
4(e) of this Part B of this Article Fourth more frequently than once per 
fiscal quarter. Any unpaid amounts in any fiscal quarter will be accumulated 
for payment in the next fiscal quarter. Notwithstanding the foregoing, and 
whether or not the conditions set forth in clause (x) or (y) of the first 
sentence of this paragraph 4(e) of this Part B of this Article Fourth are 
satisfied, at any time after (i) the Corporation has received 100% of the Net 
Proceeds from the Disposition giving rise to the Significant Transaction 
Exchange, (ii) there are no remaining Loews Tobacco Contingency Reserves, and 
(iii) the remaining assets of the Carolina Group consist solely of cash and/or 
cash equivalents, such amount, the "Final Cash Amount," Loews may redeem all 
of the outstanding shares of Carolina Group stock for the greater of (x) the 
Carolina Group Allocated Portion of the Final Cash Amount, divided equally 
among the outstanding shares of Carolina Group stock, and (y) $.001 per share 
of Carolina Group stock.

     (f)  Consummation; convertible securities. For purposes of this paragraph 
4 of this Part B of this Article Fourth, in the case of a Significant 
Transaction involving a Disposition of assets in a series of related 
transactions, such Disposition shall not be deemed to have been consummated 
until the consummation of the last of such transactions. Any exchange 
described in this paragraph 4 of this Part B of this Article Fourth shall be 
effected in accordance with the applicable provisions set forth in paragraph 5
of this Part B of this Article Fourth. In the event that, at the time of any 
Significant Transaction, there are outstanding any Convertible Securities 
convertible into or exercisable for shares of Carolina Group stock that would 
give the holders rights to receive any dividend or exchange consideration 
related to the Significant Transaction upon exercise, conversion or otherwise, 
or would adjust as a result of such dividend or exchange to give the holder 
equivalent economic rights, then the shares of Carolina Group stock underlying 
such Convertible Securities will be taken into account for purposes of 
determining the terms of any dividend payment or exchange effected in lieu of 
a Significant Transaction Exchange.

     (g)  Payment to Loews Group. Concurrently with the payment of any 
dividend to holders of Carolina Group stock referred to in paragraph 4(d) or 
4(e) of this Part B of this Article Fourth, at the election of the Board of 
Directors, either (A) the Loews Group shall receive from the Carolina Group an
aggregate payment of the same kind of property that is the subject of such 
dividend, which payment shall be equal to the excess of (i) the quotient 
obtained by dividing (x) the aggregate amount of such dividend, as determined 
by the Board of Directors, by (y) the Carolina Group Allocation Fraction, over
(ii) the aggregate amount of such dividend, as so determined, or (B) the 
Carolina Group Allocation Fraction will be adjusted as described in

                                       7

paragraph 8 of this Part B of this Article Fourth. Any payment to be made to 
the Loews Group pursuant to the preceding sentence may, at the discretion of 
the Board of Directors, be reflected by an allocation or by a direct transfer 
of cash or other property.

     (h)  Exchange rates. For purposes of this paragraph 4 of this Part B of 
this Article Fourth:

     The term "Tax Event Equity Exchange Rate" shall mean the number of 
Exchange Shares for which each share of Carolina Group stock shall be 
exchangeable pursuant to a Board Required Exchange, determined as follows: 
Each share of Carolina Group stock shall be exchangeable for such number of 
shares of Loews common stock (calculated to the nearest 1/10,000), subject to 
paragraph 5 below, equal to 100% of the ratio of the Average Market Price Per 
Share of such Carolina Group stock to the Average Market Price Per Share of 
Loews common stock. For purposes of computing the Tax Event Equity Exchange 
Rate, the "Average Market Price Per Share" of Loews common stock or Carolina 
Group stock, as the case may be, shall mean the average of the daily Market 
Value per share for such Loews common stock or Carolina Group stock for the 20
consecutive Trading Days ending on the 5th Trading Day prior to the date an 
Exchange Notice is mailed.

     The term "Tax Event Cash Exchange Rate" shall mean such amount of cash 
for which each share of Carolina Group stock shall be exchangeable pursuant to 
a Board Required Exchange, determined as follows: Each share of Carolina Group 
stock shall be exchangeable for such amount of cash (calculated to the nearest 
$.01), subject to paragraph 5 below, equal to 105% of the Average Market Price 
Per Share of such Carolina Group stock. For purposes of computing the Tax 
Event Cash Exchange Rate, the "Average Market Price Per Share" of Carolina 
Group stock, as the case may be, shall mean the average of the daily Market 
Value per share for such Carolina Group stock for the 20 consecutive Trading 
Days ending on the 5th Trading Day prior to the date an Exchange Notice is 
mailed.

     The term "Regular Equity Exchange Rate" shall mean the number of Exchange 
Shares for which each share of Carolina Group stock shall be exchangeable 
pursuant to a Board Required Exchange or a Significant Transaction Exchange, 
determined as follows:  If the shares of Carolina Group stock are to be 
exchanged for shares of Loews common stock, each share of Carolina Group stock
shall be exchangeable for such number of shares of Loews common stock 
(calculated to the nearest 1/10,000), subject to paragraph 5 below, equal to 
115% of the ratio of the Average Market Price Per Share of such Carolina Group 
stock to the Average Market Price Per Share of Loews common stock. For 
purposes of computing the Regular Equity Exchange Rate, the "Average Market 
Price Per Share" of Loews common stock or Carolina Group stock, as the case 
may be, shall mean (i) in the case of a Board Required Exchange, the average 
of the daily Market Value per share for such Loews common stock or Carolina 
Group stock for the 20 consecutive Trading Days ending on the 5th Trading Day 
prior to the date an Exchange Notice is mailed, or (ii) in the case of a 
Significant Transaction Exchange, the average of the daily Market Value per 
share for such Loews common stock or Carolina Group stock for the 20 
consecutive Trading Days ending on the 5th Trading Day immediately preceding 
the date of a public announcement that a definitive agreement has been signed 
for the Disposition giving rise to the Significant Transaction Exchange.

                                       8

     The term "Regular Cash Exchange Rate" shall mean such amount of cash for 
which each share of Carolina Group stock shall be exchangeable pursuant to a 
Board Required Exchange, determined as follows:  If the shares of Carolina 
Group stock are to be exchanged for cash, each share of Carolina Group stock 
shall be exchangeable for such amount of cash (calculated to the nearest 
$.01), subject to paragraph 5 below, equal to 120% of the Average Market Price 
Per Share of such Carolina Group stock. For purposes of computing the Regular 
Cash Exchange Rate, the "Average Market Price Per Share" of Carolina Group, as 
the case may be, shall mean the average of the daily Market Value per share 
for such Carolina Group stock for the 20 consecutive Trading Days ending on 
the 5th Trading Day prior to the date an Exchange Notice is mailed.

     If the shares of Carolina Group stock are to be exchanged for shares of 
one or more Carolina Group Subsidiaries, such shares of Carolina Group stock 
shall be exchanged, on a pro rata basis, for an aggregate number of 
outstanding fully paid and nonassessable shares of common stock of each such 
Carolina Group Subsidiary equal to the number of outstanding shares of common 
stock of such Subsidiary held by the Corporation multiplied by the Carolina 
Group Allocation Fraction and, if the Board of Directors so determines, the 
remaining shares of such Subsidiary shall be distributed on a pro rata basis 
to the holders of shares of Loews common stock (or shares of Loews common 
stock shall be exchanged for such remaining shares of such Subsidiary); 
provided that no such distribution (or mandatory exchange) may occur unless 
the distribution (or mandatory exchange) is tax free to the holders of Loews 
common stock (except with respect to any cash received by such holders in lieu
of fractional shares). If at the time of such an exchange for shares of one or 
more Carolina Group Subsidiaries, there are outstanding any Convertible 
Securities convertible into or exercisable for shares of Carolina Group stock 
that would become exercisable or convertible for shares of one or more 
Carolina Group Subsidiaries as a result of such exchange, and the obligation 
to issue such shares under such options, warrants, convertible securities or 
similar rights is not assumed or otherwise provided for by one or more 
Carolina Group Subsidiaries, then the shares of Carolina Group stock 
underlying such Convertible Securities will be taken into account for purposes 
of determining the Carolina Group Allocation Fraction for such exchange.

     The phrase "substantially all of the assets" of the Carolina Group as of 
any date shall mean a portion of such assets that represents at least 80% of 
the Fair Value of the assets attributed to the Carolina Group as of such date.

     The term "Exchange Shares" shall mean the shares of Loews common stock or 
shares of one or more Carolina Group Subsidiaries, as the case may be, into 
which shares of Carolina Group stock may be exchanged pursuant to a Board 
Required Exchange or a Significant Transaction Exchange.

     5.   Certain Procedures Relating to Exchanges.
          ----------------------------------------

    (a)   The Board of Directors may, in its sole discretion, elect to issue 
fractional Exchange Shares in connection with an exchange or to make a cash 
payment in lieu of fractional shares, as described below. If the Board of 
Directors elects not to issue fractional Exchange Shares, then no such 
fractional shares shall be issued in connection with the exchange of shares of 
Carolina Group stock into Exchange Shares, and, in lieu thereof, each holder 
of Carolina 

                                       9

Group stock who would otherwise be entitled to a fractional interest of an 
Exchange Share shall, upon surrender of such holder's certificate or 
certificates representing shares of Carolina Group stock, receive a cash 
payment (without interest) (the "Fractional Payment") equal to (i) in the case 
of an exchange for shares of Loews common stock, the product resulting from 
multiplying (A) the fraction of a share of Loews common stock to which such 
holder would otherwise have been entitled by (B) the Average Market Price Per 
Share of Loews common stock on the Exchange Date, or (ii) in the case of an 
exchange for shares of one or more Carolina Group Subsidiaries, such value as 
is determined by the Board of Directors.

    (b)   No adjustments in respect of dividends shall be made upon the 
exchange of any shares of Carolina Group stock; provided, however, that, if 
the Exchange Date with respect to Carolina Group stock shall be subsequent to 
the record date for the payment of a dividend or other distribution thereon or
with respect thereto but prior to the payment or distribution thereof, the 
registered holders of such shares at the close of business on such record date 
shall be entitled to receive the dividend or other distribution payable on 
such shares on the date set for payment of such dividend or other 
distribution, notwithstanding the exchange of such shares or the Corporation's
default in payment of the dividend or distribution due on such date.

    (c)   At such time or times as the Corporation exercises its right to 
cause a Board Required Exchange, and at the time of any Significant 
Transaction Exchange, the Corporation shall give notice of such exchange to 
the holders of Carolina Group stock whose shares are to be exchanged, by 
mailing by first-class mail a notice of such exchange (an "Exchange Notice"), 
in the case of an exchange at the discretion of the Board of Directors, not 
less than 30 nor more than 60 days prior to the date fixed for such exchange 
(the "Exchange Date"), and, in the case of any other required exchange, as 
soon as practicable before or after the Exchange Date, in either case, to 
their last addresses as they appear upon the Corporation's books. Each such 
Exchange Notice shall specify the Exchange Date and the exchange rate 
applicable to such exchange, and may be conditioned on or otherwise subject to 
such terms as the Board of Directors may determine.

    (d)   In the case of certificated shares, before any holder of shares of 
Carolina Group stock shall be entitled to receive certificates representing 
such Exchange Shares, such holder must surrender, at such office as the 
Corporation shall specify, certificates for such shares of Carolina Group 
stock duly endorsed to the Corporation or in blank or accompanied by proper 
instruments of transfer to the Corporation or in blank, unless the Corporation 
shall waive such requirement. The Corporation shall, as soon as practicable 
after such surrender of certificates representing such shares of Carolina 
Group stock, issue and deliver, at the office of the transfer agent for the 
Exchange Shares, to the holder for whose account such shares of Carolina Group 
stock were so surrendered, or to such holder's nominee or nominees, 
certificates representing the number of Exchange Shares to which such holder 
shall be entitled, together with the Fractional Payment, if any.

    (e)   From and after any Exchange Date, all rights of a holder of shares 
of Carolina Group stock shall cease except for the right, upon surrender of 
the certificates representing such shares of Carolina Group stock, to receive 
certificates representing Exchange Shares together with a Fractional Payment, 
if any, as described in paragraphs 5(a) and 5(d) of this Part B of this 
Article fourth and rights to dividends as described in paragraph 5(b) of this 
Part B of this Article

                                       10

Fourth. No holder of a certificate that immediately prior to the applicable 
Exchange Date represented shares of Carolina Group stock shall be entitled to 
receive any dividend or other distribution with respect to Exchange Shares 
until surrender of such holder's certificate for a certificate or certificates
representing Exchange Shares. Upon surrender, the holder shall receive the 
amount of any dividends or other distributions (without interest) that were 
payable with respect to a record date after the Exchange Date, but that were 
not paid by reason of the foregoing with respect to the number of Exchange 
Shares represented by the certificate or certificates issued upon such 
surrender. From and after an Exchange Date applicable to Carolina Group stock, 
the Corporation shall, however, be entitled to treat certificates for Carolina 
Group stock that have not yet been surrendered for exchange as evidencing the 
ownership of the number of Exchange Shares for which the shares of Carolina 
Group stock represented by such certificates have been exchanged, 
notwithstanding the failure to surrender such certificates.

    (f)   If any certificate for Exchange Shares is to be issued in a name 
other than that in which the certificate representing shares of Carolina Group 
stock surrendered in exchange therefor is registered, it shall be a condition 
of such issuance that the person requesting the issuance pays any transfer or 
other taxes required by reason of the issuance of certificates for such 
Exchange Shares in a name other than that of the record holder of the 
certificate surrendered, or establishes, to the satisfaction of the 
Corporation or its agent, that such tax has been paid or is not applicable. 
Under no circumstances shall the Corporation be liable to a holder of shares 
of Carolina Group stock for any Exchange Shares or dividends or distributions 
thereon delivered to a public official pursuant to any applicable abandoned 
property, escheat or similar law.

    (g)   At the time an Exchange Notice is delivered with respect to any 
shares of Carolina Group stock, or at the time of the Exchange Date, if 
earlier, the Corporation shall have reserved and kept available, solely for 
the purpose of issuance upon exchange of the outstanding shares of Carolina 
Group stock, such number of Exchange Shares as shall be issuable upon the 
exchange of the number of shares of Carolina Group stock specified or to be 
specified in the applicable Exchange Notice, provided that the Corporation 
shall not under any circumstances be precluded from satisfying its obligation 
in respect of the exchange of the outstanding shares of Carolina Group stock 
by delivery of purchased Exchange Shares that are held in the treasury of the 
Corporation.

    (h)   The Board of Directors may adjust the foregoing procedures as may be 
appropriate to reflect any ownership of shares through book-entry accounts or 
otherwise in non-certificated form.

    (i)   The Corporation will effect any dividend, exchange or redemption on 
a pro rata basis with respect to each holder of record of Carolina Group 
stock.

     6.   Liquidation.
          -----------
    In the event of a liquidation, dissolution or winding up of the 
Corporation, whether voluntary or involuntary, after payment or provision for 
payment of the debts and other liabilities of the Corporation and subject to 
the prior payment in full of the preferential amounts to which any class or 
series of Preferred Stock is entitled, (a) the holders of the shares of Loews 
common
                                       11

stock shall share in the aggregate in a percentage of the funds of the 
Corporation remaining for distribution to its common shareholders equal to 
100% multiplied by the average daily ratio (expressed as a decimal) of X/Z for 
the 20-Trading Day period ending on the fifth Trading Day immediately prior to 
the date of the public announcement of such liquidation, dissolution or 
winding up of the Corporation, (b) the holders of the shares of Carolina Group 
stock shall share in the aggregate in a percentage of the funds of the 
Corporation remaining for distribution to its common shareholders equal to 
100% multiplied by the average daily ratio (expressed as a decimal) of W/Z for 
such 20-Trading Day period, and (c) if applicable, the holders of the shares 
of any other class of common shares of the Corporation (other than Loews 
common stock or Carolina Group stock), on the basis that may be set forth in 
this Certificate of Incorporation with respect to any such shares, shall share 
in the aggregate in a percentage of the funds of the Corporation remaining for 
distribution to its common shareholders equal to 100% multiplied by the 
average daily ratio (expressed as a decimal) of V/Z for such 20-Trading Day 
period, where X is the aggregate Market Capitalization of the Loews common 
stock, W is the aggregate Market Capitalization of the Carolina Group stock, V
is the aggregate Market Capitalization, if applicable, of any other class of 
common shares (other than Loews common stock and Carolina Group stock), and Z 
is the aggregate Market Capitalization of (i) the Loews common stock, (ii) the 
Carolina Group stock and (iii) any other class of common shares of the 
Corporation (other than Loews common stock and Carolina Group stock). Neither 
the consolidation or merger of the Corporation with or into any other 
corporation or corporations nor the sale, transfer or lease of all or 
substantially all of the assets of the Corporation shall itself be deemed to 
be a liquidation, dissolution or winding up of the Corporation within the 
meaning of this paragraph 6 of this Part B of this Article Fourth. 
Notwithstanding the foregoing, any transaction or series of related 
transactions that results in all of the assets and liabilities included in the
Carolina Group being held by one or more Carolina Group Subsidiaries, and the 
distribution of some or all of the shares of such Carolina Group Subsidiaries 
(and no other material assets or liabilities) to the holders of the 
outstanding Carolina Group stock shall not constitute a voluntary or 
involuntary liquidation, dissolution or winding up of the Corporation for 
purposes of this paragraph 6 of this Part B of this Article Fourth, but shall 
be subject to paragraph 4 of this Part B of this Article Fourth.

    7.  Determinations by the Board of Directors.
        ----------------------------------------

    Any determinations made by the Board of Directors under any provision of 
this Part B of this Article Fourth shall be final and binding on all 
shareholders of the Corporation, except as may otherwise be required by law. 
The Corporation shall prepare a statement of any determination by the Board of 
Directors, respecting the fair market value of any properties, assets or 
securities, and shall file such statement with the Secretary of the 
Corporation.

    8.  Adjustment of the Carolina Group Allocation Fraction.
        ----------------------------------------------------

   (a)  The denominator of the Carolina Group Allocation Fraction shall be 
adjusted from time to time as deemed appropriate by the Board of Directors (i) 
to reflect subdivisions (by stock split or otherwise) and combinations (by 
reverse stock split or otherwise) of Carolina Group stock and stock dividends 
payable in shares of Carolina Group stock, (ii) to reflect the fair market 
value of contributions or allocations by the Corporation of cash or property 
or other assets or liabilities from the Loews Group to the Carolina Group (or 
vice versa), or of cash or 

                                       12

property or other assets or liabilities of the Loews Group to, or for the 
benefit of, employees of businesses attributed to the Carolina Group in 
connection with employee benefit plans or arrangements of the Corporation or 
any of its subsidiaries (or vice versa), (iii) to reflect the number of shares 
of capital stock of the Corporation contributed to, or for the benefit of, 
employees of businesses attributed to the Carolina Group in connection with 
benefit plans or arrangements of the Corporation or any of its Subsidiaries, 
(iv) to reflect repurchases by the Corporation of shares of Carolina Group 
stock for the account of the Loews Group or the Carolina Group, (v) to reflect 
issuances of Carolina Group stock for the account of the Carolina Group or the 
Loews Group, (vi) to reflect dividends or other distributions to holders of 
the Carolina Group stock to the extent a pro rata payment is not made to the 
Loews Group, and (vii) under such other circumstances as the Board of 
Directors determines appropriate to reflect the economic substance of any 
other event or circumstance, provided that, in each case, the adjustment shall 
be made in a manner that the Board of Directors determines is fair and 
equitable to holders of Loews common stock and Carolina Group stock (and 
intended to reflect the relative deemed economic ownership interest, if any, 
of the Loews Group in the Carolina Group). Any adjustment made by the Board of 
Directors pursuant to the preceding sentence shall, subject to the foregoing, 
be at the sole discretion of the Board of Directors, and all such 
determinations shall be final and binding on all shareholders of the 
Corporation. For purposes of this paragraph 8 of this Part B of this Article 
Fourth, the consideration paid by the Loews Group to acquire any assets or 
other property contributed or allocated to the Carolina Group shall be 
presumed to be the "fair market value" as of its acquisition.

    (b)  Without duplication of any adjustment pursuant to paragraph 8(a) of 
this Part B of this Article Fourth, in the event that the Corporation shall 
issue shares of Carolina Group stock for the account of the Carolina Group, 
then the denominator of the Carolina Group Allocation Fraction shall be 
increased by the number of shares of Carolina Group stock so issued.

    (c)  Without duplication of any adjustment pursuant to paragraph 8(a) of 
this Part B of this Article Fourth, if, in connection with any share issuance 
described in paragraph 8(b) of this Part B of this Article Fourth, or 
otherwise, the Corporation contributes or allocates cash or other property or 
assets from the Loews Group to the Carolina Group, the denominator of the 
Carolina Group Allocation Fraction shall be increased (or further increased) 
by an amount obtained by dividing (i) the fair market value of such cash, 
property or assets (as determined by the Board of Directors) by (ii) the net 
per share offering price of the Carolina Group stock.

     9.  Certain Definitions.
         -------------------

     Unless the context otherwise requires, the terms defined in this 
paragraph 9 of this Part B of this Article Fourth shall have, for all purposes 
of this Part B of this Article Fourth, the meanings herein specified:

     "Board Required Exchange" shall mean any exchange effected pursuant to 
paragraph 4(a), 4(b) or 4(c) of this Part B of this Article Fourth.

     "Carolina Group" shall mean, as of any date that any shares of Carolina 
Group stock have been issued and continue to be outstanding, without 
duplication, the direct or indirect interest of the Corporation (either itself
or through direct or indirect subsidiaries, affiliates, joint ventures or

                                          13

other investments, or any of their predecessors or successors) in, and the 
direct or indirect liability of the Corporation (or any such subsidiary, 
affiliate, joint venture or other investment) for:

          (a)  Lorillard, Inc.,

          (b)  any dividend or distribution paid by Lorillard, Inc. following
    the Initial Issuance Date,

          (c)  all assets, liabilities and businesses acquired by a member of 
    the Carolina Group or acquired by the Corporation or any of its 
    Subsidiaries for the account of, or contributed, allocated or otherwise 
    transferred to, the Carolina Group (including the net proceeds of any new 
    issuance for the account of the Carolina Group of any new shares of 
    Carolina Group stock or Convertible Securities), in each case, after the 
    Initial Issuance Date and as determined by the Board of Directors in 
    accordance with the provisions of this Part B of this Article Fourth,

          (d)  all net income or net losses arising after the Initial Issuance 
    Date from the assets and liabilities that are reflected in the Carolina 
    Group and the proceeds of any Disposition of any such assets following 
    the Initial Issuance Date,

          (e)  notional, intergroup debt owed from the Carolina Group to the 
    Loews Group, in an amount and with terms to be determined by the Board of 
    Directors prior to the Initial Issuance Date, and

          (f)  any and all liabilities, costs and expenses of the Corporation 
    and Lorillard, Inc. and the subsidiaries and predecessors of Lorillard, 
    Inc., arising out of or related to tobacco or otherwise arising out of 
    the past, present or future business of Lorillard, Inc. or its 
    subsidiaries or predecessors, or claims arising out of or related to the 
    sale of any businesses previously sold by Lorillard, Inc. or its 
    subsidiaries or predecessors, in each case, whether grounded in tort, 
    contract, statute or otherwise, whether pending or asserted in the 
    future.

    Notwithstanding the foregoing, the Carolina Group shall not include (1) 
any assets, liabilities or businesses disposed of after the Initial Issuance 
Date or (2) any assets, liabilities or businesses allocated to the Loews Group 
or otherwise distributed, paid or transferred from the Carolina Group, whether 
to the Loews Group, to holders of shares of Carolina Group stock or otherwise, 
in each case after the Initial Issuance Date and as determined by the Board of 
Directors in accordance with the provisions of this Part B of this Article 
Fourth. Accordingly, the assets of the Carolina Group shall be reduced by, 
among other things, (x) payments of dividends or distributions to holders of 
Carolina Group stock or to the Loews Group in respect of its interest in the 
Carolina Group in connection with any such dividend or distribution, (y) 
payments of interest or principal on the notional, intergroup debt owed to the 
Loews Group, and (z) payments in respect of any costs, expenses or other 
liabilities allocated to the Carolina Group.

    "Carolina Group Aggregate Distributable Amount" shall mean the Carolina 
Group Allocated Portion of the excess of (1) the Net Proceeds received by the 
Corporation over (2) the Loews Tobacco Contingency Reserves.

                                       14

    "Carolina Group Allocated Portion" shall mean, with respect to the 
Carolina Group as a whole, or any dividend, distribution, payment, 
consideration or other amount or allocation requiring apportionment between 
the holders of Carolina Group stock (other than the Corporation and its 
Subsidiaries), on the one hand, and the Loews Group, on the other hand, the 
following:  (a) in the case of the Carolina Group as a whole, the proportion 
of such Group represented by the Carolina Group Allocation Fraction, and (b) 
in the case of any other amount or allocation, the product of (i) such amount 
or allocation and (ii) the Carolina Group Allocation Fraction.

    "Carolina Group Allocation Fraction" shall mean, as of any date of 
determination, a fraction, the numerator of which shall be the number of 
shares of Carolina Group stock outstanding on such date and the denominator of 
which shall be a number initially determined by the Board of Directors, in its 
sole discretion, prior to the Initial Issuance Date, subject to adjustment 
from time to time as described in this Part B of this Article Fourth, provided 
that such fraction shall in no event be greater than one. If the holders of 
any securities of the Corporation or any other Person that are convertible 
into or exercisable or exchangeable for shares of Carolina Group stock are 
entitled to participate in any dividend or other distribution with respect to 
the Carolina Group stock, such shares so issuable upon such conversion, 
exercise or exchange shall be taken into account in calculating the Carolina 
Group Allocation Fraction and any amount payable to the Loews Group in such 
manner as the Board of Directors determines to be appropriate.

    "Carolina Group Available Dividend Amount" shall mean, as of any date, the 
Carolina Group Allocated Portion of (1) the excess of (a) the amount by which 
the total assets of the Carolina Group exceed the total liabilities of the 
Carolina Group as of such date over (b) the sum of (i) the par value of all 
issued shares of Carolina Group stock and each class or series of Preferred 
Stock attributed to the Carolina Group, (ii) the amount of the consideration 
received for any shares of Preferred Stock attributed to the Carolina Group 
without par value that have been issued, except such part of the consideration 
therefor as may have been allocated to surplus in a manner permitted by law, 
and (iii) any amount not included in subclauses (i) and (ii) above that the 
Corporation (by appropriate action of the Board of Directors) has transferred 
to stated capital specifically in respect of Carolina Group stock, minus (c) 
all reductions from such sums set forth in clauses (i), (ii) and (iii) above 
as have been effected in a manner permitted by law, or (2) in case there shall 
be no excess under clause (1), the net profits of the Carolina Group for the 
fiscal year in which the dividend is declared and/or the preceding fiscal 
year; provided, however, that, in the event that the law governing the 
Corporation changes from that governing the Corporation on the date the 
adoption of the Amendment to this Certificate of Incorporation pursuant to 
which the Carolina Group stock was authorized (whether because of amendment of 
the applicable law or because of a change in the jurisdiction of incorporation 
of the Corporation through merger or otherwise), the Carolina Group Available 
Dividend Amount shall mean the amount of dividends, as determined by the Board 
of Directors, that could be paid by a Corporation (governed under such 
applicable law) having the assets and liabilities of the Carolina Group, an 
amount of outstanding common stock (and having an aggregate par value) equal 
to the amount (and aggregate par value) of the outstanding Carolina Group 
stock and of each class or series of Preferred Stock attributed to the 
Carolina Group and having an amount of earnings or loss or other relevant 
corporate attributes as reasonably determined by the Board of Directors in 
light of all factors deemed relevant by the Board of Directors.

                                       15

    "Carolina Group Incremental Dividend" shall mean, as of any date, with 
respect to any Lorillard Dividend, an amount equal to the Carolina Group 
Allocated Portion of the Lorillard Dividend.

    "Carolina Group Net Proceeds" shall mean, as of any date, with respect to 
any Disposition of any of the assets of the Carolina Group, an amount, if any,
equal to the Carolina Group Allocated Portion of the Net Proceeds.

    "Carolina Group Related Business Transaction" shall mean any Disposition 
of all or substantially all the assets attributed to the Carolina Group in a 
transaction or series of related transactions that results in the Corporation 
or one or more of its Subsidiaries receiving in consideration of such assets 
primarily equity securities (including, without limitation, capital stock, 
debt securities convertible into or exchangeable for equity securities or 
interests in a general or limited partnership or limited liability company, 
without regard to the voting power or other management or governance rights 
associated therewith) of any entity that (a) acquires such properties or 
assets or succeeds (by merger, formation of a joint venture or otherwise) to 
the business conducted with such properties or assets or controls such 
acquiror or successor, and (b) which the Board of Directors determines is 
primarily engaged or proposes to engage primarily in one or more businesses 
similar or complementary to the businesses conducted by the Carolina Group 
prior to such Disposition.

    "Carolina Group Released Reserves" shall mean, as of any date, with 
respect to any Released Reserves, an amount equal to the Carolina Group 
Allocated Portion of the Released Reserves.

    "Carolina Group Tobacco Contingency Reserves" shall mean, as of any date, 
with respect to any Loews Tobacco Contingency Reserves, an amount equal to the
Carolina Group Allocated Portion of the Loews Tobacco Contingency Reserves.

    "Convertible Securities" shall mean any securities of the Corporation or 
any Subsidiary of the Corporation that are convertible into, exchangeable for 
or evidence the right to purchase any shares of Loews common stock or Carolina 
Group stock, whether upon conversion, exercise or exchange, or pursuant to 
anti-dilution provisions of such securities or otherwise.

    "Disposition" shall mean the sale, transfer, assignment or other 
disposition (whether by merger, consolidation, sale or contribution of assets 
or stock, or otherwise) by the Corporation or Lorillard, Inc. (or their 
respective successors) of any of its respective Subsidiaries or properties or 
assets. Disposition shall not include a merger, consolidation, exchange of 
shares or other business combination transaction involving the Corporation or 
Lorillard, Inc. or Lorillard Tobacco Company in which the Corporation or 
Lorillard, Inc. or Lorillard Tobacco Company (or their respective successors) 
continues, immediately following such transaction, to hold the same, direct 
and indirect, interest in the business, assets and liabilities comprising the 
Carolina Group that it held immediately prior to such transaction (other than 
as a result of any action by any Person included in the Carolina Group).

"Fair Value" shall mean, in the case of equity securities or debt securities 
of a class that has previously been publicly traded for a period of at least 
three months, the Market Value

                                       16

thereof (if such Market Value, as so defined, can be determined) or, in the 
case of an equity security or debt security that has not been publicly traded 
for at least such period, means the fair value per share of stock or per other 
unit of such other security, on a fully distributed basis, as determined by an 
independent investment banking firm experienced in the valuation of securities 
selected in good faith by the Board of Directors; provided, however, that, in 
the case of property other than securities, the "Fair Value" thereof shall be 
determined in good faith by the Board of Directors based upon such appraisals 
or valuation reports of such independent experts as the Board of Directors 
shall in good faith determine to be appropriate in accordance with good 
business practice. Any such determination of Fair Value shall be described in 
a statement filed with the records of the actions of the Board of Directors.

    "Fixed Tobacco-Related Liabilities" shall mean noncontingent tobacco-
related costs or liabilities in fixed and determinable amounts directly 
arising from (a) a final and nonappealable award or order of a court of 
competent jurisdiction or (b) a contractual obligation.

    "Group" shall mean the Loews Group or the Carolina Group.

    "Initial Issuance Date" shall mean the date of first issuance of any 
shares of Carolina Group stock.

    "Loews Group" shall mean, as of any date, the interest of the Corporation 
in all of the businesses in which the Corporation is or has been engaged, 
directly or indirectly (either itself or through direct or indirect 
subsidiaries, affiliates, joint ventures or other investments or any of their 
predecessors or successors), and the respective assets and liabilities of the 
Corporation therein, other than the Carolina Group Allocated Portion of the 
Carolina Group.

    "Loews Tobacco Contingency Reserves" shall mean an amount retained by the 
Corporation, which the Board of Directors from time to time determines in good 
faith should be retained for tobacco-related contingencies or other tobacco-
related costs or liabilities of any kind (by way of contract, tort, indemnity, 
guarantee or otherwise), whether or not any such contingency, cost or 
liability would be deductible as a cost or expense or would qualify for 
treatment as a reserve under generally accepted accounting principles, in each 
case, other than any Fixed Tobacco-Related Liabilities.

    "Market Capitalization" of any class or series of capital stock of the 
Corporation on any Trading Day shall mean the product of (a) the Market Value 
of one share of such class or series on such Trading Day and (b) the number of 
shares of such class or series outstanding on such Trading Day.

    "Market Value" of any class or series of capital stock of the Corporation 
on any day shall mean the average of the daily closing price of a share of 
such class or series on such day (if such day is a Trading Day, and, if such 
day is not a Trading Day, on the Trading Day immediately preceding such day) 
on the New York Stock Exchange or, if the shares of such class or series are 
not quoted on the New York Stock Exchange on such Trading Day, on the Nasdaq 
National Market, or, if the shares of such class or series are not quoted on 
the Nasdaq National Market on such Trading Day, the average of the closing bid 
and asked prices of a share of such class or series in the over-the-counter 
market on such Trading Day as furnished by any New York Stock 

                                       17

Exchange member firm selected from time to time by the Corporation, or, if 
such closing bid and asked prices are not made available by any such New York 
Stock Exchange member firm on such Trading Day (including, without limitation, 
because such securities are not publicly held), the market value of a share of 
such class or series as determined by the Board of Directors; provided that, 
for purposes of determining the ratios set forth in paragraph 6 of this Part B 
of this Article Fourth, (a) the "Market Value" of any share of Loews common 
stock or Carolina Group stock on any day prior to the "ex" date or any similar 
date for any dividend or distribution paid or to be paid with respect to Loews 
common stock or Carolina Group stock, as applicable, shall be reduced by the 
fair market value of the per share amount of such dividend or distribution as 
determined by the Board of Directors, and (b) the "Market Value" of any share 
of Loews common stock or any share of Carolina Group stock on any day prior to 
(i) the effective date of any subdivision (by stock split or otherwise) or 
combination (by reverse stock split or otherwise) of outstanding shares of 
Loews common stock or Carolina Group stock, as applicable, or (ii) the "ex" 
date or any similar date for any dividend or distribution with respect to the 
Loews common stock or Carolina Group stock in shares of Loews common stock or 
Carolina Group stock, as applicable, shall be appropriately adjusted to 
reflect such subdivision, combination, dividend or distribution.

    "Net Proceeds" shall mean, as of any date, with respect to any Disposition
of any of the assets of the Carolina Group, an amount, if any, equal to the 
gross proceeds of such Disposition after any payment of, or reasonable 
provision for, (without duplication) (a) any taxes payable by the Corporation 
or any other member of the Loews Group in respect of such Disposition or in 
respect of any mandatory dividend or redemption resulting from such 
Disposition (or that would have been payable but for the utilization of tax 
benefits attributable to the Loews Group), (b) any transaction costs borne by 
the Loews Group in connection with such Disposition, including, without 
limitation, any legal, investment banking and accounting fees and expenses 
borne by the Loews Group in connection with such Disposition, (c) any Fixed 
Tobacco-Related Liabilities, (d) any liabilities and other obligations 
(contingent or otherwise) of the Carolina Group (other than tobacco-related 
contingencies or other tobacco-related costs or liabilities of any kind (by 
way of contract, tort, indemnity, guarantee or otherwise) which are not Fixed 
Tobacco-Related Liabilities, whether or not any such contingency, cost or 
liability would be deductible as a cost or expense or would qualify for 
treatment as a reserve under generally accepted accounting principles), 
including, without limitation, any indemnity or guarantee obligations incurred 
by the Loews Group in connection with the Disposition or any liabilities 
assumed by the Loews Group for future purchase price adjustments, (e) any 
preferential amounts, accumulated and unpaid dividends and other obligations 
in respect of Preferred Stock attributed to the Carolina Group and (f) 
repayment of any notional, intergroup debt owed by the Carolina Group to the 
Loews Group. To the extent the proceeds of any Disposition include any 
securities (other than Loews common stock) or other property other than cash, 
the Board of Directors shall determine the value of such securities or 
property; provided that the value of any marketable securities included in 
such proceeds shall be the average of the daily Market Value of such 
securities for the 20-Trading Day period ending on the 5th Trading Day 
immediately preceding the date of a public announcement that a definitive 
agreement has been signed for such Disposition.

    "Person" shall mean any individual, corporation, partnership, limited 
liability company, joint venture, association, joint stock company, trust, 
unincorporated organization, government

                                        18

or agency or political subdivision thereof, or other entity, whether acting in 
an individual, fiduciary or other capacity.

    "Qualifying Subsidiary" of a Person shall mean a Subsidiary of such Person 
in which such Person's ownership and voting interest is sufficient to satisfy 
the ownership and voting requirements of the Internal Revenue Code of 1986, as 
amended, and the regulations thereunder, for a distribution of such Person's 
interest in such Subsidiary to the holders of Carolina Group stock and, in the 
event that the Carolina Group Allocation Fraction is less than one, the 
holders of Loews common stock (or any such securities into which the Carolina 
Group stock or the Loews common stock may have been converted, reclassified or 
changed or for which they may have been exchanged), as the case may be, to be 
tax free to such holders.

    "Subsidiary" shall mean, with respect to any Person, any corporation, 
limited liability company or partnership 50% or more of whose outstanding 
voting securities or membership or partnership interests, as the case may be, 
are, directly or indirectly, owned by such Person.

    "Tax Event" shall mean receipt by the Corporation of an opinion of tax 
counsel of the Corporation's choice, to the effect that, as a result of any 
amendment to, clarification of, or change (including a prospective change) in, 
the laws (or any interpretation or application of the laws) of the United 
States or any political subdivision or taxing authority thereof or therein 
(including enactment of any legislation and the publication of any judicial or 
regulatory decision, determination or pronouncement), which amendment, 
clarification or change is effective, announced, released, promulgated or 
issued on or after the date of initial issuance of the Carolina Group stock, 
regardless of whether such amendment, clarification or change is issued to or 
in connection with a proceeding involving the Corporation, the Loews Group or 
the Carolina Group and whether or not subject to appeal, there is more than an 
insubstantial risk that:

          (i)   for tax purposes, any issuance of Carolina Group stock would 
    be treated as a sale or other taxable disposition by the Corporation or 
    any of its Subsidiaries of any of the assets, operations or relevant 
    subsidiaries to which the Carolina Group stock relates,

          (ii)  the existence of the Carolina Group stock would subject the 
    Corporation, its Subsidiaries or affiliates, or any of their respective 
    successors or shareholders to the imposition of tax or to other adverse 
    tax consequences, or

         (iii)  for tax purposes, either Loews common stock or Carolina Group 
    stock is not or, at any time in the future, would not be treated solely 
    as common stock of the Corporation.

    "Trading Day" shall mean each weekday other than any day on which any 
relevant class or series of capital stock of the Corporation is not available 
for trading on the New York Stock Exchange or the Nasdaq National Market or in 
the over-the-counter market.

                                       19

	



                                                                 Exhibit 10.22
                                    [LOGO]

                                     LOEWS
                                  CORPORATION

                              As of January 1, 2002


Mr. Andrew H. Tisch
667 Madison Avenue
New York, New York  10021


Dear Mr. Tisch:

  Reference is made to your Employment Agreement with Loews Corporation (the 
"Company"), dated January 1, 1999 (the "Employment Agreement").

  This will confirm our agreement that the Employment Agreement is amended as 
follows:

  1.  Term of Employment.  The period of your employment under and pursuant to
      ------------------
the Employment Agreement is hereby extended for an additional period through 
and including December 31, 2002 upon all the terms, conditions and provisions 
of the Employment Agreement, as hereby amended.

  2.  Compensation.  You shall be paid as basic compensation (the "Basic 
      ------------
Compensation") for your services to the Company and its subsidiaries under and 
pursuant to the Employment Agreement a salary at the rate of Nine Hundred 
Thousand ($900,000) Dollars per annum for the extension period January 1, 2002 
through December 31, 2002. Basic Compensation shall be payable in accordance 
with the Company's customary payroll practices as in effect from time to time, 
and shall be subject to such increases as the Board of Directors of the 
Company, in its sole discretion, may from time to time determine.

  3.  Incentive
 Compensation Plan.  In addition to receipt of Basic 
      ---------------------------
Compensation under the Employment Agreement, you shall participate in the 
Incentive Compensation Plan for Executive Officers of the Company (the 
"Compensation Plan") and shall be eligible to receive incentive compensation 
under the Compensation Plan as may be awarded in accordance with its terms.

  4.  Other Compensation.  The compensation provided pursuant to this Letter
      ------------------
Agreement shall be exclusive of compensation and fees, if any, to which you 
may be entitled as an officer or director of a subsidiary of the Company.

  Except as herein modified or amended, the Employment Agreement shall remain 
in full force and effect.


  If the foregoing is in accordance with your understanding, would you please 
sign the enclosed duplicate copy of this Letter Agreement at the place 
indicated below and return the same to us for our records.


                                 Very truly yours,

                                 LOEWS CORPORATION



                                 By:    /s/ Barry Hirsch
                                    ---------------------------
                                           Barry Hirsch
                                       Senior Vice President


ACCEPTED AND AGREED TO:


    /s/ Andrew H. Tisch
--------------------------
     Andrew H. Tisch







































                                     2




                                                                 Exhibit 10.23
                                    [LOGO]

                                     LOEWS
                                  CORPORATION

                              As of January 1, 2002


Mr. James S. Tisch
667 Madison Avenue
New York, New York  10021


Dear Mr. Tisch:

  Reference is made to your Employment Agreement with Loews Corporation (the 
"Company"), dated January 1, 1999 (the "Employment Agreement").

  This will confirm our agreement that the Employment Agreement is amended as 
follows:

  1.  Term of Employment.  The period of your employment under and pursuant to
      ------------------
the Employment Agreement is hereby extended for an additional period through 
and including December 31, 2002 upon all the terms, conditions and provisions 
of the Employment Agreement, as hereby amended.

  2.  Compensation.  You shall be paid as basic compensation (the "Basic 
      ------------
Compensation") for your services to the Company and its subsidiaries under and 
pursuant to the Employment Agreement a salary at the rate of Nine Hundred 
Thousand ($900,000) Dollars per annum for the extension period January 1, 2002 
through December 31, 2002. Basic Compensation shall be payable in accordance 
with the Company's customary payroll practices as in effect from time to time, 
and shall be subject to such increases as the Board of Directors of the 
Company, in its sole discretion, may from time to time determine.

  3.  Incentive
 Compensation Plan.  In addition to receipt of Basic 
      ---------------------------
Compensation under the Employment Agreement, you shall participate in the 
Incentive Compensation Plan for Executive Officers of the Company (the 
"Compensation Plan") and shall be eligible to receive incentive compensation 
under the Compensation Plan as may be awarded in accordance with its terms.

  4.  Other Compensation.  The compensation provided pursuant to this Letter
      ------------------
Agreement shall be exclusive of compensation and fees, if any, to which you 
may be entitled as an officer or director of a subsidiary of the Company.

  Except as herein modified or amended, the Employment Agreement shall remain 
in full force and effect.


  If the foregoing is in accordance with your understanding, would you please 
sign the enclosed duplicate copy of this Letter Agreement at the place 
indicated below and return the same to us for our records.


                                 Very truly yours,

                                 LOEWS CORPORATION



                                 By:    /s/ Barry Hirsch
                                    ---------------------------
                                           Barry Hirsch
                                       Senior Vice President


ACCEPTED AND AGREED TO:


    /s/ James S. Tisch
--------------------------
      James S. Tisch







































                                     2




                                                                 Exhibit 10.24
                                    [LOGO]

                                     LOEWS
                                  CORPORATION

                              As of January 1, 2002


Mr. Jonathan M. Tisch
667 Madison Avenue
New York, New York  10021


Dear Mr. Tisch:

  Reference is made to your Employment Agreement with Loews Corporation (the 
"Company"), dated January 1, 1999 (the "Employment Agreement").

  This will confirm our agreement that the Employment Agreement is amended as 
follows:

  1.  Term of Employment.  The period of your employment under and pursuant to
      ------------------
the Employment Agreement is hereby extended for an additional period through 
and including December 31, 2002 upon all the terms, conditions and provisions 
of the Employment Agreement, as hereby amended.

  2.  Compensation.  You shall be paid as basic compensation (the "Basic 
      ------------
Compensation") for your services to the Company and its subsidiaries under and 
pursuant to the Employment Agreement a salary at the rate of Nine Hundred 
Thousand ($900,000) Dollars per annum for the extension period January 1, 2002 
through December 31, 2002. Basic Compensation shall be payable in accordance 
with the Company's customary payroll practices as in effect from time to time, 
and shall be subject to such increases as the Board of Directors of the 
Company, in its sole discretion, may from time to time determine.

  3.  Incentive
 Compensation Plan.  In addition to receipt of Basic 
      ---------------------------
Compensation under the Employment Agreement, you shall participate in the 
Incentive Compensation Plan for Executive Officers of the Company (the 
"Compensation Plan") and shall be eligible to receive incentive compensation 
under the Compensation Plan as may be awarded in accordance with its terms. 

  4.  Other Compensation.  The compensation provided pursuant to this Letter 
      ------------------
Agreement shall be exclusive of compensation and fees, if any, to which you 
may be entitled as an officer or director of a subsidiary of the Company.

  Except as herein modified or amended, the Employment Agreement shall remain 
in full force and effect.


  If the foregoing is in accordance with your understanding, would you please 
sign the enclosed duplicate copy of this Letter Agreement at the place 
indicated below and return the same to us for our records.


                                 Very truly yours,

                                 LOEWS CORPORATION



                                 By:    /s/ Barry Hirsch
                                    ---------------------------
                                           Barry Hirsch
                                       Senior Vice President


ACCEPTED AND AGREED TO:


  /s/ Jonathan M. Tisch
--------------------------
    Jonathan M. Tisch







































                                     2




                                                                 Exhibit 10.28

              SECOND AMENDMENT TO SUPPLEMENTAL RETIREMENT AGREEMENT
              -----------------------------------------------------


    This shall constitute the Second Amendment, made as of March 28, 2001, to 
that Supplemental Retirement Agreement made on September 21, 1999 as amended 
by the First Amendment thereto, (the "Agreement") between Loews Corporation 
(the "Company") and Arthur Rebell (the "Executive").


                             W I T N E S S E T H:
                             --------------------

    WHEREAS, the Executive is currently serving as an executive employee of 
the Company, and the Company and the Executive desire that the Executive's 
retirement benefits be supplemented on the terms and conditions set forth 
herein.

    NOW THEREFORE, the parties agree as follows:

    Paragraph 1 of the Agreement is hereby amended by adding the following new 
clause (f):

    "(f)  Effective as of December 31, 2000 the Account shall be   
    credited in an additional amount of $150,000, and such 
    $150,000 amount shall be eligible for the Pay-Based Credit for 
    calendar year 2000."

    IN WITNESS WHEREOF, the parties hereto have caused these presents to be 
duly executed as of the day and year first above written.


         	                                   LOEWS CORPORATION


                                            By:  /s/ James S. Tisch
                                                ---------------------
                                                James S. Tisch
                                                President

Accepted and Agreed to:

  /s/ Arthur Rebell
----------------------
The Executive




 




                                                                 Exhibit 10.29

                                 CAROLINA GROUP
                             2002 STOCK OPTION PLAN

                                   SECTION 1

                                   GENERAL


   1.1 Purpose. The Carolina Group 2002 Stock Option Plan (the "Plan") has
       -------
been established by Loews Corporation (the "Company") to (i) attract and 
retain persons eligible to participate in the Plan, (ii) motivate 
Participants, by means of appropriate incentives, to achieve long-term goals 
of the Carolina Group, and reward Participants for achievement of those goals, 
and (iii) provide incentive compensation opportunities that are competitive 
with those of other similar companies, and thereby promote the financial 
interest of Lorillard, Inc. and its subsidiaries and any companies attributed 
to the Carolina Group in the future.

   1.2 Operation and Administration. The operation and administration of the 
       ----------------------------
Plan shall be subject to the provisions of Section 3 (relating to operation 
and administration). Capitalized terms in the Plan shall be defined as set 
forth in the Plan (including the definition provisions of Section 6 of the 
Plan).

                                   SECTION 2

                                    OPTIONS

   2.1 Option Grant. The Committee may grant Options in accordance with this 
       ------------
Section 2.

   2.2 Definitions. The grant of an "Option" permits the Participant to 
       -----------
purchase shares of Stock at an Exercise Price established
 by the Committee. 
Any Option granted under the Plan may be either an incentive stock option (an 
"ISO") or a non-qualified option (an "NQO"), as determined in the discretion 
of the Committee. An "ISO" is an Option that is intended to be an "incentive 
stock option" described in section 422(b) of the Code and does in fact satisfy 
the requirements of that section. An "NQO" is an Option that is not intended 
to be an "incentive stock option" as that term is described in section 422(b) 
of the Code, or that fails to satisfy the requirements of that section.

   2.3 Exercise Price. The "Exercise Price" of each Option granted under this 
       --------------
Section 2 shall be established by the Committee or shall be determined by a 
method established by the Committee at the time the Option is granted; except 
that the Exercise Price shall not be less than 100% of the Fair Market Value 
of a share of Stock on the date of grant (or, if greater, the par value of a 
share of Stock).

   2.4 Vesting and Exercise. An Option shall be exercisable in accordance with 
       --------------------
such terms and conditions and during such periods as may be established by the 
Committee.



      (a) Unless otherwise provided by the Committee at the time of grant or 
   thereafter, each Option shall vest and become exercisable in four equal 
   annual installments beginning on the first anniversary of the date of 
   grant, and shall thereafter remain exercisable during the Option Term.

      (b) Unless otherwise provided by the Committee at the time of grant or 
   thereafter, the Option Term of each Option shall end on the earliest of 
   (1) the date on which such Option has been exercised in full, (2) the 
   date on which the Participant experiences a Termination for Cause or a 
   voluntary Termination, (3) the one-year anniversary of the date on which 
   the Participant experiences a Termination due to death or Disability, 
   (4) the three-year anniversary of the date on which the Participant 
   experiences a Termination due to such person's Retirement, and (5) the 
   90th day after the Participant experiences a Termination for any other 
   reason; provided, that in no event may the Option Term exceed ten (10) 
           --------
   years from the date of grant of the Option. Except as otherwise 
   determined by the Committee at the time of grant or thereafter, upon the 
   occurrence of a Termination of a Participant for any reason, the Option 
   Term of all outstanding Options held by the Participant that are     
   unvested as of the date of such Termination shall thereupon end and such 
   unvested Options shall be forfeited immediately; provided, however, that 
                                                    --------  -------
   the Committee may, in its sole discretion, accelerate the vesting of any 
   Option and/or extend the exercise period of any Option (but not beyond 
   the ten-year anniversary of the grant date).

      (c) An Option may be exercised and the underlying shares purchased in 
   accordance with this Section 2 at any time after the Option with respect to 
   those shares vests and before the expiration of the Option Term. To 
   exercise an Option, the Participant shall give written notice to the 
   Company stating the number of shares with respect to which the Option is 
   being exercised.

      (d) The full Exercise Price for shares of Stock purchased upon the 
   exercise of any Option shall be paid at the time of such exercise (except 
   that, in the case of an exercise arrangement approved by the Committee and 
   described in the last sentence of this paragraph (d), payment may be made 
   as soon as practicable after the exercise). The Exercise Price shall be 
   payable by check, or such other instrument as the Committee may accept. The 
   Committee may permit a Participant to elect to pay the Exercise Price upon 
   the exercise of an Option by irrevocably authorizing a third party to sell 
   shares of Stock (or a sufficient portion of the shares) acquired upon 
   exercise of the Option and remit to the Company a sufficient portion of the 
   sale proceeds to pay the entire Exercise Price and any tax withholding 
   resulting from such exercise. In the case of any ISO such permission must 
   be provided for at the time of grant and set forth in an Option 
   Certificate. In addition, if approved by the Committee, payment, in full or 
   in part, may also be made in the form of unrestricted Mature Shares, based 
   on the Fair Market Value of the Mature Shares on the date the Option is 
   exercised; provided, however, that, in the case of an ISO the right to make 
              --------  -------
   a payment in such Mature Shares may be authorized only at the time the 
   Option is granted.

                                     -2-

                                   SECTION 3

                         OPERATION AND ADMINISTRATION


   3.1 Effective Date. The Plan shall be effective as of January 31, 2002 (the 
       --------------
"Effective Date"). The Plan shall be unlimited in duration and, in the event 
of Plan termination, shall remain in effect as long as any Options under it 
are outstanding.

   3.2 Shares Subject to Plan. The shares of Stock for which Options may be 
       ----------------------
granted under the Plan shall be subject to the following:

      (a) The shares of Stock with respect to which Options may be granted 
   under the Plan shall be shares currently authorized but unissued or 
   currently held or subsequently acquired by the Company as treasury shares, 
   including shares purchased in the open market or in private transactions.

      (b) Subject to the following provisions of this subsection 3.2, the 
   maximum number of shares of Stock that may be delivered to Participants and 
   their beneficiaries under the Plan shall be 1,500,000 shares of Stock.

      (c) To the extent any shares of Stock covered by an Option are not 
   delivered to a Participant or beneficiary because the Option is forfeited 
   or canceled, or the shares of Stock are used to pay the Exercise Price or 
   satisfy the applicable tax withholding obligation, such shares shall not be
   deemed to have been delivered for purposes of determining the maximum 
   number of shares of Stock available for delivery under the Plan.

      (d) Subject to paragraph 3.2(e), the maximum number of shares that may 
   be covered by Options granted to any one individual during any one calendar
   year period shall be 200,000 shares.

      (e) In the event of a corporate transaction involving the Stock and/or
   the Company (including, without limitation, any stock dividend, stock
   split, extraordinary cash dividend, recapitalization, reorganization,
   merger, consolidation, split-up, spin-off, combination or exchange of
   shares), the Committee may make adjustments to preserve the benefits or
   potential benefits of the Plan and outstanding Options. Action by the 
   Committee may include: (i) adjustment of the number and kind of shares 
   which may be delivered under the Plan; (ii) adjustment of the number and
   kind of shares referred to in Section 3.2(d); (iii) adjustment of the 
   number and kind of shares subject to outstanding Options; (iv) adjustment
   of the Exercise Price of outstanding Options; (v) settlement in cash or 
   Stock in an amount equal to the excess of the value of the Stock subject to
   such Option over the aggregate Exercise Price (as determined by the
   Committee) of such Options; and (vi) any other adjustments that the
   Committee determines to be equitable.

                                     -3-

   3.3 General Restrictions. Delivery of shares of Stock or other amounts 
       --------------------
under the Plan shall be subject to the following:

      (a) Notwithstanding any other provision of the Plan, the Company shall 
   have no liability to deliver any shares of Stock under the Plan or make any
   other distribution of benefits under the Plan unless such delivery or
   distribution would comply with all applicable laws (including, without
   limitation, the requirements of the Securities Act of 1933), and the
   applicable requirements of any securities exchange or similar entity

      (b) To the extent that the Plan provides for issuance of stock 
   certificates to reflect the issuance of shares of Stock, the issuance may
   be effected on a non-certificated basis, to the extent not prohibited by
   applicable law or the applicable rules of any stock exchange.

   3.4 Tax Withholding. All distributions under the Plan are subject to 
       ---------------
withholding of all applicable taxes, and the delivery of any shares or other 
benefits under the Plan shall be conditioned on satisfaction of the applicable 
withholding obligations. The Committee, in its discretion, and subject to such 
requirements as the Committee may impose prior to the occurrence of such 
withholding, may permit such withholding obligations to be satisfied through 
cash payment by the Participant, through the surrender of shares of Stock 
which the Participant already owns, or through the surrender of shares of 
Stock to which the Participant is otherwise entitled under the Plan; provided 
                                                                     --------
that surrender of shares may be used only to satisfy the minimum withholding 
required by law.

   3.5 Grant and Use of Options. In the discretion of the Committee, more than
       ------------------------
one Option may be granted to a Participant. Options may be granted as 
alternatives to or replacements of Options granted or outstanding under the 
Plan. Subject to the overall limitation on the number of shares of Stock that 
may be delivered under the Plan, the Committee may use available shares of 
Stock as the form of payment for compensation, grants or rights earned or due 
under any other compensation plans or arrangements of Lorillard, Inc. or its 
subsidiaries or any company attributed to the Carolina Group in the future, 
including the plans and arrangements of such entities assumed in business 
combinations. Notwithstanding the foregoing, the assumption by the Company of 
options in connection with the acquisition of a business or other entity and 
the conversion of such options into options to acquire Stock shall not be 
treated as a new grant of Options under the Plan unless specifically so 
provided by the Committee.

   3.6 Settlement of Options. The Committee may from time to time establish 
       ---------------------
procedures pursuant to which a Participant may elect to defer, until a time or 
times later than the exercise of an Option, receipt of all or a portion of the 
shares of Stock subject to such Option and/or to receive cash at such later 
time or times in lieu of such deferred shares, all on such terms and 
conditions as the Committee shall determine. If any such deferrals are 
permitted, then a Participant who elects such deferral shall not have any 
rights as a stockholder with respect to such deferred shares unless and until 
shares are actually delivered to the Participant with respect thereto, except 
to the extent otherwise determined by the Committee.

   3.7 Other Plans. Amounts payable under this Plan shall not be taken into 
       -----------
account as compensation for purposes of any other employee benefit plan or 
program of the Company or 

                                     -4-

any of its Subsidiaries, except to the extent otherwise provided by such plans 
or programs, or by an agreement between the affected Participant and the 
Company or Lorillard, Inc. or its subsidiaries or any company attributed to 
the Carolina Group in the future.

   3.8 Heirs and Successors. The terms of the Plan shall be binding upon, and 
       --------------------
inure to the benefit of, the Company and its successors and assigns, and upon 
any person acquiring, whether by merger, consolidation, purchase of assets or 
otherwise, all or substantially all of the Company's assets and business.

   3.9 Transferability. Options granted under the Plan are not transferable 
       ---------------
except (i) as designated by the Participant by will or by the laws of descent 
and distribution or (ii) in the case of an NQO, as otherwise expressly 
permitted by the Committee including, if so permitted, pursuant to a transfer 
to such Participant's immediate family, whether directly or indirectly or by 
means of a trust or partnership or otherwise. If any rights exercisable by a 
Participant or benefits deliverable to a Participant under any Option 
Certificate under the Plan have not been exercised or delivered, respectively, 
at the time of the Participant's death, such rights shall be exercisable by 
the Designated Beneficiary, and such benefits shall be delivered to the 
Designated Beneficiary, in accordance with the provisions of the applicable 
terms of the Option Certificate and the Plan. The "Designated Beneficiary" 
shall be the beneficiary or beneficiaries designated by the Participant to 
receive benefits under the group term life insurance plan of Lorillard, Inc. 
or any of its subsidiaries or any company attributed to the Carolina Group in 
the future or such other person or persons as the Participant may designate by 
notice to the Company. If a deceased Participant fails to have designated a 
beneficiary, or if the Designated Beneficiary does not survive the 
Participant, any rights that would have been exercisable by the Participant 
and any benefits distributable to the Participant shall be exercised by or 
distributed to the legal representative of the estate of the Participant. If a 
deceased Participant designates a beneficiary and the Designated Beneficiary 
survives the Participant but dies before the Designated Beneficiary's exercise 
of all rights under the Option Certificate or before the complete distribution 
of benefits to the Designated Beneficiary under the Option Certificate, then 
any rights that would have been exercisable by the Designated Beneficiary 
shall be exercised by the legal representative of the estate of the Designated 
Beneficiary, and any benefits distributable to the Designated Beneficiary 
shall be distributed to the legal representative of the estate of the 
Designated Beneficiary. All Options shall be exercisable, subject to the terms 
of this Plan, only by the Participant or any person to whom such Option is 
transferred pursuant to this paragraph, it being understood that the term 
Participant shall include such transferee for purposes of the exercise 
provisions contained herein.

   3.10 Notices. Any written notices provided for in the Plan or under any 
        -------
Option Certificate shall be in writing and shall be deemed sufficiently given 
if either hand delivered or if sent by confirmed fax or overnight courier, or 
by postage paid first class mail. Notice and communications shall be effective 
when actually received by the addressee. Notices shall be directed, if to the 
Participant, at the Participant's address indicated in the Option Certificate, 
or if to the Company, at the Company's principal executive office to the 
attention of the Company's Secretary.

   3.11 Action by Company. Any action required or permitted to be taken by the
        -----------------
Company shall be by resolution of the Board, or by action of one or more 
members of the Board

                                     -5-

 (including a committee of the Board) who are duly authorized to act for the 
Board, or by a duly authorized officer of the Company.
                                           
   3.12 Limitation of Implied Rights.
        ----------------------------

      (a) Neither a Participant nor any other person shall, by reason of 
participation in the Plan, acquire any right in or title to any assets, funds 
or property of the Company whatsoever, including, without limitation, any 
specific funds, assets, or other property which the Company, in its sole 
discretion, may set aside in anticipation of a liability under the Plan. A 
Participant shall have only a contractual right to the amounts, if any, 
payable under the Plan, unsecured by any assets of the Company, and nothing 
contained in the Plan shall constitute a guarantee that the assets of the 
Company shall be sufficient to pay any benefits to any person.

      (b) The Plan does not constitute a contract of employment, and selection 
as a Participant will not give any Participant the right to be retained in the 
employ of, or as a director or consultant to, the Company or any Subsidiary, 
nor any right or claim to any benefit under the Plan, unless such right or 
claim has specifically accrued under the terms of the Plan. 

   3.13 Gender and Number. Where the context admits, words in any gender shall
        -----------------
include any other gender, words in the singular shall include the plural and 
the plural shall include the singular.

   3.14 Laws Applicable to Construction. The interpretation, performance and
        -------------------------------
enforcement of this Plan and all Option Certificates shall be governed by the 
laws of the State of Delaware without reference to principles of conflict of 
laws, as applied to contracts executed in and performed wholly within the 
State of Delaware.

   3.15 Evidence. Evidence required of anyone under the Plan may be by 
        --------
certificate, affidavit, document or other information which the person acting 
on it considers pertinent and reliable, and signed, made or presented by the 
proper party or parties.

                                   SECTION 4

                                   COMMITTEE


   4.1 Administration. The authority to control and manage the operation and
       --------------
administration of the Plan shall be vested in the Compensation Committee of 
the Board or such other committee of the Board as the Board may from time to 
time designate (the "Committee") in accordance with this Section 4. In 
addition, the Board may exercise any power given to the Committee under the 
Plan.


   4.2 Powers of Committee. The Committee's administration of the Plan shall
       -------------------
be subject to the following:

      (a) Subject to the provisions of the Plan, the Committee will have the
   authority and discretion to select from among the Eligible Grantees those
   persons who shall receive Options, to determine the grant date of, the 
   number of shares subject to and

                                     -6-

   the Exercise Price of those Options, to establish all other terms and 
   conditions of such Options, and (subject to the restrictions imposed by 
   Section 5) to cancel or suspend Options.

      (b) The Committee will have the authority and discretion to interpret
   the Plan, to establish, amend, and rescind any rules and regulations 
   relating to the Plan, and to make all other determinations that may be
   necessary or advisable for the administration of the Plan.

      (c) Any interpretation of the Plan by the Committee and any decision 
   made by it under the Plan is final and binding on all persons.

      (d) In controlling and managing the operation and administration of the
   Plan, the Committee shall take action in a manner that conforms to the
   charter and by-laws of the Company, and applicable state corporate law.
                                            
   4.3 Delegation by Committee. Except to the extent prohibited by applicable
       -----------------------
law or the applicable rules of a stock exchange, the Committee may allocate 
all or any portion of its responsibilities and powers to any one or more of 
its members and may delegate all or any part of its responsibilities and 
powers to any person or persons selected by it. Any such allocation or 
delegation may be revoked by the Committee at any time.
	
   4.4 Information to be Furnished to Committee. The Company and Subsidiaries
       ----------------------------------------
shall furnish the Committee with such data and information as it determines 
may be required for it to discharge its duties. The records of the Company and 
Subsidiaries as to an employee's or Participant's employment, engagement, 
Termination, leave of absence, reemployment and compensation shall be 
conclusive on all persons unless determined to be incorrect. Participants and
other persons eligible for benefits under the Plan must furnish the Committee 
such evidence, data or information as the Committee considers desirable to 
carry out the terms of the Plan.


                                    SECTION 5
 
                            AMENDMENT AND TERMINATION


  The Board may, at any time, amend or terminate the Plan; provided that no 
                                                           --------
amendment or termination may, in the absence of written consent to the change 
by the affected Participant (or, if the Participant is not then living, the 
affected beneficiary), adversely affect the rights of any Participant or 
beneficiary under any Option granted under the Plan prior to the date such 
amendment is adopted by the Board; and further provided that adjustments 
                                       ------- --------
pursuant to paragraph 3.2(e) shall not be subject to the foregoing limitations 
of this Section 5.

                                     -7-

                                  SECTION 6

                                DEFINED TERMS


  In addition to the other definitions contained herein, the following 
definitions shall apply:

      (a) Board. The term "Board" means the Board of Directors of the Company.

      (b) Carolina Group. The term "Carolina Group" shall have the meaning set
  forth in the Company's Restated Certificate of Incorporation, as amended
  from time to time.

      (c) Cause. The term "Cause" shall have the meaning set forth in the
  employment or engagement agreement between a Participant and Lorillard, Inc.
  or its subsidiaries or any company attributed to the Carolina Group in the
  future, if such an agreement exists and contains a definition of Cause;
  otherwise Cause shall mean (1) conviction of the Participant for committing
  a felony under Federal law or the law of the state in which such action
  occurred, (2) dishonesty in the course of fulfilling a Participant's
  employment, engagement or directorial duties, (3) willful and deliberate
  failure on the part of a Participant to perform the Participant's
  employment, engagement or directorial duties in any material respect or (4)
  such other events as shall be determined in good faith by the Committee. The
  Committee shall, unless otherwise provided in the Option Certificate or an
  employment agreement with the Participant, have the sole discretion to
  determine whether Cause exists, and its determination shall be final.

      (d) Code. The term "Code" means the Internal Revenue Code of 1986, as
  amended. A reference to any provision of the Code shall include reference to
  any successor provision of the Code.
                                          
      (e) Committee. The term "Committee" shall have the meaning set forth in
  Section 4.1.

      (f) Company. The term "Company" shall have the meaning set forth in
  Section 1.1.

      (g) Designated Beneficiary. The term "Designated Beneficiary" shall have
  the meaning set forth in Section 3.9.

      (h) Disability. The term "Disability" shall mean, unless otherwise
  provided by the Committee, (1) "Disability" as defined in any individual
  Option Certificate to which the Participant is a party, or (2) if there is
  no such Option Certificate or it does not define "Disability," permanent and
  total disability as determined under the long-term disability plan of
  Lorillard, Inc. or any of its subsidiaries or any company attributed to the
  Carolina Group in the future applicable to the Participant.

                                     -8-

      (i) Effective Date. The term "Effective Date" shall have the meaning set
  forth in Section 3.1.

      (j) Eligible Grantee. The term "Eligible Grantee" shall mean any
  individual who is employed on a full-time or part-time basis by, or who
  serves as a consultant to, Lorillard, Inc. or any of its subsidiaries or any
  company attributed to the Carolina Group in the future and any non-employee
  director of Lorillard, Inc. or any of its subsidiaries or any company
  attributed to the Carolina Group in the future. An Option may be granted to
  an individual in connection with such individual's hiring or engagement
  prior to the date the individual first performs services for Lorillard, Inc.
  or any of its subsidiaries or any company attributed to the Carolina Group
  in the future; provided that the individual will be an Eligible Grantee upon
                 --------
  his hiring or engagement; and further provided that such Options shall not
                                ------- --------
  become vested prior to the date the individual first performs such services

      (k) Exercise Price. The term "Exercise Price" shall have the meaning set
  forth in Section 2.3.

      (l) Fair Market Value. The "Fair Market Value" of a share of Stock shall
  be, as of any given date, the mean between the highest and lowest reported
  sales prices during normal trading hours on the immediately preceding date
  (or, if there are no reported sales on such immediately preceding date, on
  the last date prior to such date on which there were sales) of the Stock on
  the New York Stock Exchange Composite Tape or, if not listed on such
  exchange, on any other national securities exchange on which the Stock is
  listed or on NASDAQ. If there is no regular public trading market for such
  Stock, the Fair Market Value of the Stock shall be determined by the
  Committee in good faith.

      (m) ISO. The term "ISO" shall have the meaning set forth in Section 2.2.

 	     (n) Mature Shares. The term "Mature Shares" shall mean shares of Stock
  that have been owned by the Participant in question for at least six months

      (o) NQO. The term "NQO" shall have the meaning set forth in Section 2.2.

      (p) Option. The term "Option" shall have the meaning set forth in
  Section 2.2.

      (q) Option Certificate. The term "Option Certificate" shall mean a
  written Option certificate setting forth the terms and conditions of an
  Option, in such form as the Committee may from time to time prescribe.

      (r) Option Term. The term "Option Term" shall mean the period beginning
  on the date of grant of an Option and ending on the date the Option expires
  pursuant to the Plan and the relevant Option Certificate.

                                    -9-

      (s) Plan. The term "Plan" shall have the meaning set forth in Section
  1.1.

      (t) Retirement. The term "Retirement" shall mean retirement from active
  employment with Lorillard, Inc. or its subsidiaries or any company
  attributed to the Carolina Group in the future pursuant to any retirement
  plan or program of Lorillard, Inc. or its subsidiaries or any company
  attributed to the Carolina Group in the future in which the Participant
  participates. A Termination by a consultant or non-employee director shall
  in no event be considered a Retirement.

      (u) Stock. The term "Stock" shall mean shares of Carolina Group stock,
  par value, $0.01 per share, of the Company.

      (v) Subsidiary. The term "Subsidiary" means any business or entity in
  which at any relevant time the Company holds at least a 50% equity (voting
  or non-voting) interest.

      (w) Termination. A Participant shall be considered to have experienced a
  Termination if he or she ceases, for any reason, to be an employee,
  consultant or non-employee director of Lorillard, Inc. or any of its
  subsidiaries or any company attributed to the Carolina Group in the future,
  including, without limitation, as a result of the fact that the entity by
  which he or she is employed or engaged or of which he or she is a director
  has ceased to be affiliated with Lorillard, Inc. or its subsidiaries or any
  company attributed to the Carolina Group in the future.

                                    -10-





                                                                 Exhibit 10.30

                      SUPPLEMENTAL RETIREMENT AGREEMENT
                      ---------------------------------


  This SUPPLEMENTAL RETIREMENT AGREEMENT made as of the first day of January, 
2002 between LOEWS CORPORATION (the "Company") and ANDREW H. TISCH (the 
"Executive").

                             W I T N E S S E T H:

  WHEREAS, the Executive is currently serving as an executive officer of the 
Company.

  WHEREAS, the Company and the Executive desire that the executive retirement 
benefits be supplemented on the terms and conditions hereinafter set forth.

  NOW, THEREFORE, the Company and the Executive agree as follows:

  1.  In connection with the Executive's employment with the Company and to 
provide supplemental retirement benefits to the Executive in addition to the 
Executive's compensation and other benefits, the Company hereby established an 
unfunded account (the "Supplemental Retirement Account") within the Loews 
Corporation Benefit Equalization Plan ("BEP") which shall be credited as 
follows:

  (a)   The Supplemental Retirement Account shall be credited with an initial
        balance of $250,000, effective January 1, 2002 (the "2002 Amount").

  (b)   On December 31, 2002 the 2002 Amount credited to the Executive's 
        Supplemental Retirement Account shall be credited with the Pay-Based 
        Credit which would have been credited
 under Section 3.2 of the Loews 
        Corporation Cash Balance Plan (the "Plan") if the definition of 
        "Compensation" under Section 1.9 of the Plan had not included the 
        second sentence thereof.

  (c)   On December 31, 2002 and each December 31 thereafter which precedes
        the Executive's retirement under the BEP, the Executive's Supplemental
        Retirement Account shall be credited with the Interest Credit which 
        would have been credited under Section 3.3 of the Plan.

  2.  The Executive shall become vested in the Supplemental Retirement Account
as of December 31, 2002. At retirement under the BEP, the amount in the 
Supplemental Retirement Account shall be converted into an actuarially 
equivalent annuity, payable at the election of the Executive in the form of a 
single life annuity, a joint and survivor annuity, or a ten-year certain 
annuity payable monthly as defined in the Plan. Such election shall be 
independent of any election made under the Plan or under the regular BEP 
provisions. For purposes of this Agreement, the term "actuarial equivalent" 
shall have the meaning ascribed to it in Section 1.3 of the Plan



  3.  In lieu of the benefits provided under paragraph 2 above, the Executive
may request (at least one year prior to retirement) to receive the accumulated 
balance in the Executive's Supplemental Retirement Account in a lump sum upon 
retirement, provided that such request is approved by the Board of Directors 
of the Company.

  4.  If the Executive should die before payments have commenced under
paragraph 2 or 3, in lieu of the benefits due under paragraph 2 or 3, as 
applicable, the accumulated balance in the Supplemental Retirement Account 
shall be paid as soon as practicable after the Executive's death to his 
designated beneficiary under the Plan at such time.

  5.  This Agreement provides an additional benefit to the Executive from the 
BEP, over and above the amounts payable under the regular provision of the 
BEP. Accordingly, the contribution to the Executive's Supplemental Retirement 
Account hereto shall not be deemed "Compensation" in determining benefits 
under the BEP and benefits hereunder shall not be deducted from the "Equalized 
Benefit" under the BEP. This Supplemental Retirement Account shall not affect 
the amounts payable under the Plan and BEP by virtue of the application of 
Exhibit II of the Plan.

  6.  This Agreement sets forth the entire understanding between the Company
and the Executive with respect to the Supplemental Retirement Benefits which 
are the subject matter hereof and supercedes all prior understandings and 
agreements with respect thereto. No change, termination or waiver of any of 
the provisions hereof shall be binding unless in writing signed by the party 
against whom the same is sought to be enforced. This Agreement is governed by 
and shall be construed in accordance with the laws of the State of New York, 
without giving effect to principles of conflicts of law.

  IN WITNESS WHEREOF, the parties have executed this Agreement as of the date 
first above written.

                                 LOEWS CORPORATION



                                 By:          /s/ Barry Hirsch
                                     -----------------------------------



                                             /s/ Andrew H. Tisch
                                     -----------------------------------
                                               ANDREW H. TISCH













                                     -2-


                                                                 Exhibit 10.31

                      SUPPLEMENTAL RETIREMENT AGREEMENT
                      ---------------------------------


  This SUPPLEMENTAL RETIREMENT AGREEMENT made as of the first day of January, 
2002 between LOEWS CORPORATION (the "Company") and JAMES S. TISCH (the 
"Executive").

                             W I T N E S S E T H:

  WHEREAS, the Executive is currently serving as an executive officer of the 
Company.

  WHEREAS, the Company and the Executive desire that the executive retirement 
benefits be supplemented on the terms and conditions hereinafter set forth.

  NOW, THEREFORE, the Company and the Executive agree as follows:

  1.  In connection with the Executive's employment with the Company and to 
provide supplemental retirement benefits to the Executive in addition to the 
Executive's compensation and other benefits, the Company hereby established an 
unfunded account (the "Supplemental Retirement Account") within the Loews 
Corporation Benefit Equalization Plan ("BEP") which shall be credited as 
follows:

  (a)   The Supplemental Retirement Account shall be credited with an initial
        balance of $250,000, effective January 1, 2002 (the "2002 Amount").

  (b)   On December 31, 2002 the 2002 Amount credited to the Executive's 
        Supplemental Retirement Account shall be credited with the Pay-Based 
        Credit which would have been credited under
 Section 3.2 of the Loews 
        Corporation Cash Balance Plan (the "Plan") if the definition of 
        "Compensation" under Section 1.9 of the Plan had not included the 
        second sentence thereof.

  (c)   On December 31, 2002 and each December 31 thereafter which precedes
        the Executive's retirement under the BEP, the Executive's Supplemental
        Retirement Account shall be credited with the Interest Credit which 
        would have been credited under Section 3.3 of the Plan.

  2.  The Executive shall become vested in the Supplemental Retirement Account
as of December 31, 2002. At retirement under the BEP, the amount in the 
Supplemental Retirement Account shall be converted into an actuarially 
equivalent annuity, payable at the election of the Executive in the form of a 
single life annuity, a joint and survivor annuity, or a ten-year certain 
annuity payable monthly as defined in the Plan. Such election shall be 
independent of any election made under the Plan or under the regular BEP 
provisions. For purposes of this Agreement, the term "actuarial equivalent" 
shall have the meaning ascribed to it in Section 1.3 of the Plan



  3.  In lieu of the benefits provided under paragraph 2 above, the Executive
may request (at least one year prior to retirement) to receive the accumulated 
balance in the Executive's Supplemental Retirement Account in a lump sum upon 
retirement, provided that such request is approved by the Board of Directors 
of the Company.

  4.  If the Executive should die before payments have commenced under
paragraph 2 or 3, in lieu of the benefits due under paragraph 2 or 3, as 
applicable, the accumulated balance in the Supplemental Retirement Account 
shall be paid as soon as practicable after the Executive's death to his 
designated beneficiary under the Plan at such time.

  5.  This Agreement provides an additional benefit to the Executive from the 
BEP, over and above the amounts payable under the regular provision of the 
BEP. Accordingly, the contribution to the Executive's Supplemental Retirement 
Account hereto shall not be deemed "Compensation" in determining benefits 
under the BEP and benefits hereunder shall not be deducted from the "Equalized 
Benefit" under the BEP. This Supplemental Retirement Account shall not affect 
the amounts payable under the Plan and BEP by virtue of the application of 
Exhibit II of the Plan.

  6.  This Agreement sets forth the entire understanding between the Company
and the Executive with respect to the Supplemental Retirement Benefits which 
are the subject matter hereof and supercedes all prior understandings and 
agreements with respect thereto. No change, termination or waiver of any of 
the provisions hereof shall be binding unless in writing signed by the party 
against whom the same is sought to be enforced. This Agreement is governed by 
and shall be construed in accordance with the laws of the State of New York, 
without giving effect to principles of conflicts of law.

  IN WITNESS WHEREOF, the parties have executed this Agreement as of the date 
first above written.

                                 LOEWS CORPORATION



                                 By:          /s/ Barry Hirsch
                                     -----------------------------------



                                             /s/ James S. Tisch
                                     -----------------------------------
                                               JAMES S. TISCH













                                     -2-


                                                                 Exhibit 10.32

                      SUPPLEMENTAL RETIREMENT AGREEMENT
                      ---------------------------------


  This SUPPLEMENTAL RETIREMENT AGREEMENT made as of the first day of January, 
2002 between LOEWS CORPORATION (the "Company") and JONATHAN M. TISCH (the 
"Executive").

                             W I T N E S S E T H:

  WHEREAS, the Executive is currently serving as an executive officer of the 
Company.

  WHEREAS, the Company and the Executive desire that the executive retirement 
benefits be supplemented on the terms and conditions hereinafter set forth.

  NOW, THEREFORE, the Company and the Executive agree as follows:

  1.  In connection with the Executive's employment with the Company and to 
provide supplemental retirement benefits to the Executive in addition to the 
Executive's compensation and other benefits, the Company hereby established an 
unfunded account (the "Supplemental Retirement Account") within the Loews 
Corporation Benefit Equalization Plan ("BEP") which shall be credited as 
follows:

  (a)   The Supplemental Retirement Account shall be credited with an initial
        balance of $250,000, effective January 1, 2002 (the "2002 Amount").

  (b)   On December 31, 2002 the 2002 Amount credited to the Executive's 
        Supplemental Retirement Account shall be credited with the Pay-Based 
        Credit which would have been credited
 under Section 3.2 of the Loews 
        Corporation Cash Balance Plan (the "Plan") if the definition of 
        "Compensation" under Section 1.9 of the Plan had not included the 
        second sentence thereof.

  (c)   On December 31, 2002 and each December 31 thereafter which precedes
        the Executive's retirement under the BEP, the Executive's Supplemental
        Retirement Account shall be credited with the Interest Credit which 
        would have been credited under Section 3.3 of the Plan.

  2.  The Executive shall become vested in the Supplemental Retirement Account
as of December 31, 2002. At retirement under the BEP, the amount in the 
Supplemental Retirement Account shall be converted into an actuarially 
equivalent annuity, payable at the election of the Executive in the form of a 
single life annuity, a joint and survivor annuity, or a ten-year certain 
annuity payable monthly as defined in the Plan. Such election shall be 
independent of any election made under the Plan or under the regular BEP 
provisions. For purposes of this Agreement, the term "actuarial equivalent" 
shall have the meaning ascribed to it in Section 1.3 of the Plan



  3.  In lieu of the benefits provided under paragraph 2 above, the Executive
may request (at least one year prior to retirement) to receive the accumulated 
balance in the Executive's Supplemental Retirement Account in a lump sum upon 
retirement, provided that such request is approved by the Board of Directors 
of the Company.

  4.  If the Executive should die before payments have commenced under
paragraph 2 or 3, in lieu of the benefits due under paragraph 2 or 3, as 
applicable, the accumulated balance in the Supplemental Retirement Account 
shall be paid as soon as practicable after the Executive's death to his 
designated beneficiary under the Plan at such time.

  5.  This Agreement provides an additional benefit to the Executive from the 
BEP, over and above the amounts payable under the regular provision of the 
BEP. Accordingly, the contribution to the Executive's Supplemental Retirement 
Account hereto shall not be deemed "Compensation" in determining benefits 
under the BEP and benefits hereunder shall not be deducted from the "Equalized 
Benefit" under the BEP. This Supplemental Retirement Account shall not affect 
the amounts payable under the Plan and BEP by virtue of the application of 
Exhibit II of the Plan.

  6.  This Agreement sets forth the entire understanding between the Company
and the Executive with respect to the Supplemental Retirement Benefits which 
are the subject matter hereof and supercedes all prior understandings and 
agreements with respect thereto. No change, termination or waiver of any of 
the provisions hereof shall be binding unless in writing signed by the party 
against whom the same is sought to be enforced. This Agreement is governed by 
and shall be construed in accordance with the laws of the State of New York, 
without giving effect to principles of conflicts of law.

  IN WITNESS WHEREOF, the parties have executed this Agreement as of the date 
first above written.

                                 LOEWS CORPORATION



                                 By:          /s/ Barry Hirsch
                                     -----------------------------------



                                             /s/ Jonathan M. Tisch
                                     -----------------------------------
                                               JONATHAN M. TISCH













                                     -2-


                                                                 Exhibit 10.33

            THIRD AMENDMENT TO SUPPLEMENTAL RETIREMENT AGREEMENT
            ----------------------------------------------------

    This shall constitute the Third Amendment, made as of February 28, 2002, 
to that Supplemental Retirement Agreement made on September 21, 1999 as 
amended (the "Agreement") between Loews Corporation (the "Company") and Arthur 
Rebell (the "Executive").


                             W I T N E S S E T H:
                             -------------------

    WHEREAS, the Executive is currently serving as an executive employee of 
the Company, and the Company and the Executive desire that the Executive's 
retirement benefits be supplemented on the terms and conditions set forth 
herein.

    NOW THEREFORE, the parties agree as follows:

    Paragraph 1 of the Agreement is hereby amended by adding the following new 
clause (g):

    "(g)  Effective as of December 31, 2001 the Account shall be credited in 
    an additional amount of $1,200,000, and such $1,200,000 amount shall be 
    eligible for the Pay-Based Credit for calendar year 2001."

    IN WITNESS WHEREOF, the parties hereto have caused these presents to be  
duly executed as of the day and year first above written.


                                            	LOEWS CORPORATION


                                            By:  /s/ James S. Tisch
                                                ---------------------
                                                James S. Tisch
                                                President

Accepted and Agreed to:

  /s/ Arthur Rebell
----------------------
The Executive








                                                                 Exhibit 21.01

                                LOEWS CORPORATION

                          Subsidiaries of the Registrant

                                December 31, 2001

<TABLE>
<CAPTION>

                                            Organized Under
          Name of Subsidiary                    Laws of        Business Names
          ------------------                ---------------   ----------------

<s>                                         <c>               <c>
CNA Financial Corporation .............     Delaware      )
 Continental Casualty Company .........     Illinois      )
  Continental Assurance Company .......     Illinois      )
  CNA Group Life Assurance Company ....     Illinois      )
  National Fire Insurance Company of                      )
   Hartford ...........................     Connecticut   )    
  American Casualty Company of                            )
   Reading, Pennsylvania ..............     Pennsylvania  )   CNA Insurance
  CNA Surety Corporation ..............     Delaware      ) 
 The Continental Corporation ..........     New York      )
  The Buckeye Union Insurance Company .     Ohio          )
  Firemen's Insurance Company of                          )
   Newark, New Jersey .................     New Jersey    )
  The Continental Insurance Company ...     New Hampshire )
  Continental Insurance Company of                        )
   New Jersey .........................     New Jersey    )

Lorillard, Inc. .......................     Delaware      )   Lorillard
 Lorillard Tobacco Company ............     Delaware      )

Diamond Offshore Drilling, Inc. .......     Delaware          Diamond Offshore
</TABLE>


  The names of certain subsidiaries which, if considered as a single 
subsidiary, would not constitute a "significant subsidiary" as defined in 
Regulation S-X, have been omitted.






                                                                 Exhibit 23.01


INDEPENDENT AUDITORS' CONSENT



We consent to the incorporation by reference in Registration Statement No. 
333-33616 of Loews Corporation on Form S-8 of our report dated February 14, 
2002, appearing in this Annual Report on Form 10-K of Loews Corporation for 
the year ended December 31, 2001.




DELOITTE & TOUCHE LLP
New York, New York
March 5, 2002