PART II ITEM 8 Financial Statements and Supplementary Data E. Short-Term Investments and Cash Equivalents F. Concentration of Risk Derivative Financial Instruments NOTE 13 Derivative instruments associated with the Company’s Run-off Reinsurance segment. Guaranteed Minimum Income Benefits (GMIB) The following table provides the effect of these derivative instruments on the financial statements for the indicated periods: Purpose. The Company has written reinsurance contracts with issuers of variable annuity contracts that provide annuitants with certain guarantees of minimum income benefits resulting from the level of Volume of activity. The potential undiscounted future payments for the written options (GMIB liability, as defined in Note 24) was $1,065 million as of December 31, 2012 and $1,244 million as of December 31, 2011. The potential undiscounted future receipts for the purchased options (GMIB asset) was $586 million as of December 31, 2012 and $684 million as of December 31, 2011. Cash flows. Under the terms of these written and purchased contracts, the Company periodically receives and pays fees based on either contractholders’ account values or their deposits increased at a contractual rate. The Company will also pay and receive cash depending on changes in account values and interest rates when contractholders first elect to receive minimum income payments. These cash flows are reported in operating activities. Collateral and termination features. The Company routinely monitors exposure to credit risk associated with derivatives and diversifies the portfolio among approved dealers of high credit quality to minimize this risk. Certain of the Company’s over-the-counter derivative instruments contain provisions requiring either the Company or the counterparty to post collateral or demand immediate payment depending on the amount of the net liability position and predefined financial strength or credit rating thresholds. Collateral posting requirements vary by counterparty. The net liability positions of these derivatives were not material as of December 31, 2012 or 2011. Accounting policy. The Company accounts for these GMIB liabilities and assets as written and purchased options at fair value because cash flows are affected by equity markets and interest rates, but are without significant life insurance risk and are settled in lump sum payments. These derivatives are not designated as hedges and their fair values are reported in other liabilities (GMIB liability) and other assets (GMIB asset), with changes in fair value reported in GMIB fair value (gain) loss. The Company has written and purchased reinsurance contracts under its Run-off Reinsurance segment that are accounted for as free standing derivatives. The Company also uses derivative financial instruments to manage the equity, foreign currency, and certain interest rate risk exposures of its Run-off Reinsurance segment. In addition, the Company uses derivative financial instruments to manage the characteristics of investment assets to meet the varying demands of the related insurance and contractholder liabilities. See Note 2 for information on the Company’s accounting policy for derivative financial instruments. Derivatives in the Company’s separate accounts are excluded from the following discussion because associated gains and losses generally accrue directly to separate account policyholders. variable annuity account values compared with a contractually guaranteed amount (‘‘GMIB liabilities’’). According to the contractual terms of the written reinsurance contracts, payment by the Company depends on the actual account value in the underlying mutual funds and the level of interest rates when the contractholders elect to receive minimum income payments. The Company has purchased retrocessional coverage for 55% of these contracts to reduce a portion of the risks assumed (‘‘GMIB assets’’). Effective February 4, 2013, the Company reinsured the remainder of the exposures on these contracts. See Note 25 for additional information. Short-term investments and cash equivalents included corporate securities of $1.1 billion, federal government securities of $167 million and money market funds of $217 million as of December 31, 2012. The Company’s short-term investments and cash equivalents as of December 31, 2011 included corporate securities of $4.1 billion, federal government securities of $164 million and money As of December 31, 2012 and 2011, the Company did not have a concentration of investments in a single issuer or borrower exceeding 10% of shareholders’ equity. market funds of $40 million. The decrease during 2012 is primarily due to funds used to acquire HealthSpring. See Note 3 for further information. Fair Value Effect on the Financial Statements  (In millions) 106 CIGNA CORPORATION -  2012 Form  10-K Other Assets, Accounts Payable, Accrued Expenses including other intangibles and Other Liabilities GMIB Fair Value (Gain) Loss As of December 31, As of December 31, For the years ended December 31, Instrument 2012 2011 2012 2011 2012 2011 Written options (GMIB liability) $ 1,170 $ 1,333 $ (96) $ 504 Purchased options (GMIB asset) $ 622 $ 712 55 (270) TOTAL $ 622 $ 712 $ 1,170 $ 1,333 $ (41) $ 234