PART II ITEM 7 Management’s Discussion and Analysis of Financial Condition and Results of Operations the line of credit agreement, the Company has an additional $5.3 billion of borrowing capacity in addition to the $5.2 billion of debt outstanding. life and health insurance companies. The RBC rules recommend a minimum level of capital depending on the types and quality of investments held, the types of business written and the types of liabilities incurred. If the ratio of the insurer’s adjusted surplus to its risk-based capital falls below statutory required minimums, the insurer could be subject to regulatory actions ranging from increased scrutiny to conservatorship. In addition, various non-U.S. jurisdictions prescribe minimum surplus requirements that are based upon solvency, liquidity and reserve coverage measures. During 2012, the Company’s HMOs and life and health insurance subsidiaries, as well as non-U.S. insurance subsidiaries, were compliant with applicable RBC and non-U.S. surplus rules. The Company maintains a capital management strategy to permanently invest the earnings for certain of its foreign operations overseas. During the first quarter of 2012 the Company expanded this strategy to its China and Indonesia operations. As of December 31, 2012 the Company’s cash and cash equivalents in its foreign operations were $768 million, and permanently reinvested earnings were approximately $628 million. Repatriation of foreign cash via a dividend of these permanently reinvested earnings would result in a charge for the incremental U.S. taxes due on the repatriation. Because of the size, strength and diversity of earnings from domestic sources, management does not believe this global capital management strategy materially limits the Company’s ability to meet its liquidity and capital needs in the United States. Though the Company believes it has adequate sources of liquidity, continued significant disruption or volatility in the capital and credit markets could affect the Company’s ability to access those markets for additional borrowings or increase costs associated with borrowing funds. Solvency II.  Cigna’s businesses in the European Union will be subject to the directive on insurance regulation and solvency requirements known as Solvency II. This directive will impose economic risk-based solvency requirements and supervisory rules and is expected to become effective in January 2014, although certain regulators are requiring companies to demonstrate technical capability and comply with increased capital levels in advance of the effective date. Cigna’s European insurance companies are capitalized at levels consistent with projected Solvency II requirements and in compliance with anticipated technical capability requirements. Solvency regulation.  Many states have adopted some form of the National Association of Insurance Commissioners (‘‘NAIC’’) model solvency-related laws and risk-based capital rules (‘‘RBC rules’’) for The Company is contingently liable for various contractual obligations entered into in the ordinary course of business. The maturities of the Company’s primary contractual cash obligations, as of December 31, 2012, are estimated to be as follows: Guarantees and Contractual Obligations As discussed further in Note 25 to the Consolidated Financial Statements, effective February 4, 2013, the Company entered into a reinsurance agreement for its GMDB and GMIB businesses. The reinsurance premium due to Berkshire of $2.2 billion is not included in the contractual obligations table presented above. In addition, the expected future cash flows for GMDB and GMIB contracts included in the table above do not consider this reinsurance arrangement. On-Balance Sheet: Insurance liabilities.  Contractual cash obligations for insurance liabilities, excluding unearned premiums and fees, represent estimated net benefit payments for health, life and disability insurance policies and annuity contracts. Recorded contractholder deposit funds reflect current fund balances primarily from universal life customers. Contractual cash obligations for these universal life contracts are estimated by projecting future payments using assumptions for lapse, withdrawal and mortality. These projected future payments include estimated future interest crediting on GLYPH<127> 54 CIGNA CORPORATION -  2012 Form  10-K (In millions, on an undiscounted basis) Total Less than 1 year 1-3 years 4-5 years After 5 years On-Balance Sheet: Insurance liabilities: Contractholder deposit funds $ 7,104 $ 677 $ 938 $ 817 $ 4,672 Future policy benefits 11,489 486 1,153 1,083 8,767 Global Health Care medical claims payable 1,864 1,796 29 9 30 Unpaid claims and claims expenses 4,379 1,321 857 590 1,611 Short-term debt 200 200 - - - Long-term debt 8,955 269 549 1,352 6,785 Other long-term liabilities 1,037 433 166 111 327 Off-Balance Sheet: Purchase obligations 871 393 289 120 69 Operating leases 570 116 190 108 156 TOTAL $ 36,469 $ 5,691 $ 4,171 $ 4,190 $ 22,417