98 CIGNA CORPORATION -  2012 Form  10-K As noted in the tables above, total gains and losses included in shareholders’ net income are reflected in the following captions in the Consolidated Statements of Income: reinsurance arrangements when annuitants lapse, die, elect their benefit, or reach the age after which the right to elect their benefit expires. Under FASB’s guidance for fair value measurements, the Company’s GMIB assets and liabilities are expected to be volatile in future periods because the underlying capital markets assumptions will be based largely on market observable inputs at the close of each reporting period including interest rates and market implied volatilities. Beginning in February 2011, the Company implemented a dynamic equity hedge program to reduce a portion of the equity market exposures related to GMIB contracts (‘‘GMIB equity hedge program’’) by entering into exchange-traded futures contracts. The Company also entered into a dynamic interest rate hedge program that reduces a portion of the interest rate exposure related to GMIB contracts (‘‘GMIB growth interest rate hedge program’’) using LIBOR swap contracts and exchange-traded treasury futures contracts. In June 2012, the GMIB equity hedge program was expanded. These hedges were terminated after February 4, 2013 as a result of the reinsurance agreement for the remaining 45% of the risk. See Notes 25 and 13 for further information. GMIB fair value gains of $41 million for 2012 were primarily due to the effect of increases in underlying account values due to favorable equity markets, updates in the claim exposure calculation based on a review of actual claim amounts compared to projected values in the fair value model and a reduction in the annuitization rates. These favorable effects were partially offset by a reduction in lapse rates and general declines in interest rates. GMIB fair value losses of $234 million for 2011 were primarily due to a decline in both the interest rate used for projecting claim exposure (7-year Treasury rates) and the rate used for projecting market returns and discounting (LIBOR swap curve). Because GMIB reinsurance arrangements remain in effect at the reporting date, the Company has reflected the total gain or loss for the period as the total gain or loss included in income attributable to instruments still held at the reporting date. However, the Company reduces the GMIB assets and liabilities resulting from these Transfers into or out of the Level 3 category occur when unobservable inputs, such as the Company’s best estimate of what a market participant would use to determine a current transaction price, become more or less significant to the fair value measurement. For the years ended December 31, 2012 and 2011, transfer activity between Level 3 and Level 2 primarily reflects changes in the level of unobservable inputs used to value certain public and private corporate bonds, principally related to liquidity of the securities and credit risk of the issuers. Reclassifications impacting Level 3 financial instruments are reported as transfers into or out of the Level 3 category as of the beginning of the quarter in which the transfer occurs. Therefore gains and losses in income only reflect activity for the quarters the instrument was classified in Level 3. In the tables above, gains and losses included in other comprehensive income are reflected in Net unrealized appreciation (depreciation) on securities in the Consolidated Statements of Other Comprehensive Income. Realized investment gains (losses) and net investment income for amounts related to fixed maturities and equity securities; and GLYPH<127> GMIB fair value (gain) loss for amounts related to GMIB assets and liabilities. GLYPH<127> (1) Amounts do not accrue to shareholders. Fixed Maturities & (In millions) Equity Securities GMIB Assets GMIB Liabilities GMIB Net Balance at January 1, 2011 $ 933 $ 480 $ (903) $ (423) Gains (losses) included in shareholders’ net income: GMIB fair value gain/(loss) - 270 (504) (234) Other 10 - - - Total gains (losses) included in shareholders’ net income 10 270 (504) (234) Gains included in other comprehensive income 7 - - - Gains required to adjust future policy benefits for settlement annuities  (1) 41 - - - Purchases, issuances, settlements: Purchases 129 - - - Sales (20) - - - Settlements (61) (38) 74 36 Total purchases, sales, and settlements 48 (38) 74 36 Transfers into/(out of) Level 3: Transfers into Level 3 81 - - - Transfers out of Level 3 (118) - - - Total transfers into/(out of) Level 3 (37) - - - Balance at December 31, 2011 $ 1,002 $ 712 $ (1,333) $ (621) Total gains (losses) included in shareholders’ net income attributable to instruments held at the reporting date $ 6 $ 270 $ (504) $ (234) PART II ITEM 8 Financial Statements and Supplementary Data