Pending Acquisition In December 2003, we reached a definitive agreement to purchase Ochsner Health Plan from Ochsner Clinic Foundation having approximately 152,000 Commercial medical members, primarily in fully insured large group accounts, and approximately 36,000 members in the Medicare+Choice program.
This transaction, which is subject to state regulatory approval, is expected to close in the second quarter of 2004.
Critical Accounting Policies and Estimates The discussion and analysis of our financial condition and results of operations is based upon our consolidated financial statements and accompanying notes, which have been prepared in accordance with accounting principles generally accepted in the United States of America.
The preparation of these financial statements and accompanying notes requires us to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes.
We continuously evaluate our estimates and those critical accounting policies related primarily to medical cost and revenue recognition as well as accounting for impairments related to our investment securities, goodwill, and long-lived assets.
These estimates are based on knowledge of current events and anticipated future events, and accordingly, actual results ultimately may differ from those estimates.
We believe the following critical accounting policies involve the most significant judgments and estimates used in the preparation of our consolidated financial statements.
Medical Expense Recognition Medical expenses are recognized in the period in which services are provided and include an estimate of the cost of services which have been incurred but not yet reported, or IBNR.
IBNR represents a substantial portion of our medical and other expenses payable as follows:
## Table 0 ##
Estimating IBNR is complex, involves a significant amount of judgment and represents a material portion of our medical and other expenses payable.
Accordingly, it represents a critical accounting estimate.
Changes in this estimate can materially affect, either favorably or unfavorably, our results from operations and overall financial position.
For example, a 100 basis point, or 1 percent, change in the estimate of our medical and other expenses payable at December 31, 2003, which represents approximately 40% of total liabilities, would require an adjustment of approximately $13 million in a future period in which a revision in the estimate became known.
We develop our estimate for IBNR using actuarial methodologies and assumptions, primarily based upon historical claim payment and claim receipt patterns, as well as historical medical cost trends.
Depending on the period for which incurred claims are estimated, we apply a different method in determining our estimate.
For periods prior to the most recent three months, the key assumption used in estimating our IBNR is that the completion factor pattern remains consistent over a rolling 12-month period after adjusting for known changes in claim inventory levels or known changes in claim payment processes.
The completion factor is a calculation of the percentage of claims incurred during a given period that have historically been adjudicated as of the reporting period.
For the most recent three months, the incurred claims are estimated primarily from a trend analysis based upon per member per month claims trends developed from our historical experience in the preceding months, adjusted for known changes in estimates of recent hospital and drug utilization data, provider contracting changes, changes in benefit levels, product mix, and weekday seasonality.
expected to be higher than the otherwise estimated value of such claims at the time of the estimate.
Therefore, in many situations, the claim amounts ultimately settled will be less than the estimate that satisfies the actuarial standards of practice.
IBNR established in connection with our TRICARE contracts is typically more difficult to estimate than with our other operations, as a result of having more variables which impact the estimate.
Such variables include continual changes in the number of eligible beneficiaries, changes in the utilization of military treatment facilities and changes in levels of benefits versus the original contract provisions.
Many of these variables are impacted significantly by an increase or decrease in military activity involving the United States armed forces.
Our TRICARE contracts contain risk-sharing provisions with the Department of Defense and with subcontractors, which effectively limit profits and losses when actual claim experience varies from the medical claim amounts included in our annual bids.
Additionally, other factors impacting medical claims expenses such as changes in the number of eligible beneficiaries and changes in the level of usage of military treatment facilities result in equitable revenue adjustments through the change order and bid price adjustment process.
As a result of the above contract provisions, the impact of changes in estimates for prior year TRICARE medical claims payable on our results of operations is reduced substantially, whether positive or negative.
The following table provides a reconciliation of changes in medical and other expenses payable for the years ended December 31, 2003, 2002 and 2001:
## Table 1 ##
Amounts incurred related to prior years vary from previously estimated liabilities as the claims are ultimately settled.
Negative amounts reported for incurred related to prior years result from claims being ultimately settled for amounts less than originally estimated (favorable development).
Positive amounts reported for incurred related to prior years result from claims ultimately being settled for amounts greater than originally estimated (unfavorable development).
As summarized in the previous table, claim reserve balances at December 31, 2000 ultimately settled during 2001 for $23.4 million less than the amounts originally estimated, representing 0.3% of medical claim expenses recorded in 2000.
During 2002, claim reserve balances at December 31, 2001 ultimately settled for $12.3 million more than the amounts originally estimated, representing 0.1% of medical claim expenses recorded in 2001.
This $35.7 million increase in the amounts incurred related to prior years was substantially all attributable to our TRICARE operations and resulted primarily from enhanced benefits enacted for TRICARE beneficiaries as a result of Congressional legislation, the impact of which was not fully determinable at December 31, 2001.
As these additional medical expenses were recognized during 2002, we also recognized and received commensurate revenues from the Department of Defense as a result of change orders and bid price adjustments, or BPAs.
Humana Inc.  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued) During the first quarter of 2006, we sold CorSolutions Medical, Inc. , a disease management venture capital investment classified as a redeemable preferred stock in the previous table, for cash proceeds of $65.9 million, resulting in a realized gain of $52.3 million ($32.6 million after tax).
Investment securities classified as long-term assets were as follows at December 31, 2005 and 2004:
## Table 2 ##
Long-term investment securities with a fair value of $93.5 million at December 31, 2005 and $95.4 million at December 31, 2004 were on deposit at financial institutions in certain states pursuant to the respective states’ insurance regulations.
Gross unrealized losses and fair value aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position were as follows at December 31, 2005 and 2004:
## Table 3 ##
Benefit Expense Recognition Benefit expenses are recognized in the period in which services are provided and include an estimate of the cost of services which have been incurred but not yet reported, or IBNR.
IBNR represents a substantial portion of our benefits payable as follows:
## Table 4 ##
Military services benefits payable primarily consists of our estimate of incurred healthcare services provided to beneficiaries which are in turn reimbursed by the federal government as more fully described in Note 2 to the consolidated financial statements included in Item 8.
—Financial Statements and Supplementary Data.
This amount is generally offset by a corresponding receivable due from the federal government, as more fullydescribed beginning on page 56.
Estimating IBNR is complex and involves a significant amount of judgment.
Changes in this estimate can materially affect, either favorably or unfavorably, our results of operations and overall financial position.
Accordingly, it represents a critical accounting estimate.
Most benefit claims are paid within a few months of the member receiving service from a physician or other health care provider.
As a result, these liabilities generally are described as having a “short-tail”.
As such, we expect that substantially all of the December 31, 2010 estimate of benefits payable will be known and paid during 2011.
Our reserving practice is to consistently recognize the actuarial best point estimate within a level of confidence required by actuarial standards.
Actuarial standards of practice generally require a level of confidence such that the liabilities established for IBNR have a greater probability of being adequate versus being insufficient, or such that the liabilities established for IBNR are sufficient to cover obligations under an assumption of moderately adverse conditions.
Adverse conditions are situations in which the actual claims are expected to be higher than the otherwise estimated value of such claims at the time of the estimate.
Therefore, in many situations, the claim amounts ultimately settled will be less than the estimate that satisfies the actuarial standards of practice.
We develop our estimate for IBNR using actuarial methodologies and assumptions, primarily based upon historical claim experience.
Depending on the period for which incurred claims are estimated, we apply a different method in determining our estimate.
For periods prior to the most recent three months, the key assumption used in estimating our IBNR is that the completion factor pattern remains consistent over a rolling 12-month period after adjusting for known changes in claim inventory levels and known changes in claim payment processes.
Completion factors result from the calculation of the percentage of claims incurred during a given period that have historically been adjudicated as of the reporting period.
For the most recent three months, the incurred claims are estimated primarily from a trend analysis based upon per member per month claims trends developed from our historical experience in the preceding months, adjusted for known changes in estimates of recent hospital and drug utilization data, provider contracting changes, changes in benefit levels, changes in member cost sharing, changes in medical management processes, product mix, and weekday seasonality
?
lower 2008 storage margins related to storage risk management positions and the impact of changes in natural gas prices on these positions; and ?
fewer opportunities to optimize storage capacity due to the significant decline in natural gas prices in the second half of 2008; o a decrease of $9.7 million in physical storage margins due to a lower of cost or market write-down on natural gas inventory; and o a decrease of $2.1 million due to colder than anticipated weather and market conditions that increased the supply cost of managing our peaking and load-following services and provided fewer opportunities to increase margins through optimization activities, primarily in the first quarter of 2008; partially offset by o an increase of $15.8 million from changes in the unrealized fair value of derivative instruments associated with storage and marketing activities and improved marketing margins, which benefited from price movements and optimization activities.
Operating costs decreased primarily due to lower employee-related costs and depreciation expense.2007 vs.  2006 - Net margin decreased primarily due to: ?
a decrease of $22.0 million in transportation margins, net of hedging activities, associated with changes in the unrealized fair value of derivative instruments and the impact of a force majeure event on the Cheyenne Plains Gas Pipeline, as more fully described below; ?
a decrease of $5.0 million in retail activities from lower physical margins due to market conditions and increased competition; ?
a decrease of $4.3 million in financial trading margins that was partially offset by ?
an increase of $4.9 million in storage and marketing margins, net of hedging activities, related to: o an increase in physical storage margins, net of hedging activity, due to higher realized seasonal storage spreads and optimization activities; partially offset by o a decrease in marketing margins; and o a net increase in the cost associated with managing our peaking and load following services, slightly offset by higher demand fees collected for these services.
In September 2007, a portion of the volume contracted under our firm transportation agreement with Cheyenne Plains Gas Pipeline Company was curtailed due to a fire at a Cheyenne Plains pipeline compressor station.
The fire damaged a significant amount of instrumentation and electrical wiring, causing Cheyenne Plains Gas Pipeline Company to declare a force majeure event on the pipeline.
This firm commitment was hedged in accordance with Statement 133.
The discontinuance of fair value hedge accounting on the portion of the firm commitment that was impacted by the force majeure event resulted in a loss of approximately $5.5 million that was recognized in the third quarter of 2007, of which $2.4 million of insurance proceeds were recovered and recognized in the first quarter of 2008.
Cheyenne Plains Gas Pipeline Company resumed full operations in November 2007.
Operating costs decreased primarily due to decreased legal and employee-related costs, and reduced ad-valorem tax expense.
Selected Operating Information - The following table sets forth certain selected operating information for our Energy Services segment for the periods indicated.

Tables referenced above, in order (Table 0 first):
<table><tr><td></td><td> December 31, 2003 </td><td>Percentage of Total</td><td> December 31, 2002 </td><td> Percentage of Total </td></tr><tr><td></td><td colspan="4"> (dollars in thousands)</td></tr><tr><td>IBNR</td><td>$1,034,858</td><td>81.3%</td><td>$863,432</td><td>75.6%</td></tr><tr><td>Reported claims in process</td><td>183,962</td><td>14.5%</td><td>197,722</td><td>17.3%</td></tr><tr><td>Pharmacy and other medical expenses payable</td><td>53,336</td><td>4.2%</td><td>80,977</td><td>7.1%</td></tr><tr><td>Total medical and other expenses payable</td><td>$1,272,156</td><td>100.0%</td><td>$1,142,131</td><td>100.0%</td></tr></table>
<table><tr><td></td><td>2003</td><td>2002</td><td>2001</td></tr><tr><td></td><td colspan="3">(in thousands)</td></tr><tr><td>Balances at January 1</td><td>$1,142,131</td><td>$1,086,386</td><td>$1,181,027</td></tr><tr><td>Acquisitions</td><td>—</td><td>—</td><td>85,052</td></tr><tr><td>Incurred related to:</td><td></td><td></td><td></td></tr><tr><td>Current year</td><td>9,955,491</td><td>9,125,915</td><td>8,303,256</td></tr><tr><td>Prior years</td><td>-76,070</td><td>12,281</td><td>-23,412</td></tr><tr><td>Total incurred</td><td>9,879,421</td><td>9,138,196</td><td>8,279,844</td></tr><tr><td>Paid related to:</td><td></td><td></td><td></td></tr><tr><td>Current year</td><td>-8,710,393</td><td>-8,002,610</td><td>-7,291,541</td></tr><tr><td>Prior years</td><td>-1,039,003</td><td>-1,079,841</td><td>-1,167,996</td></tr><tr><td>Total paid</td><td>-9,749,396</td><td>-9,082,451</td><td>-8,459,537</td></tr><tr><td>Balances at December 31</td><td>$1,272,156</td><td>$1,142,131</td><td>$1,086,386</td></tr></table>
<table><tr><td></td><td colspan="4"> 2005</td><td colspan="4"> 2004</td></tr><tr><td></td><td> Amortized Cost</td><td> Gross Unrealized Gains</td><td>Gross Unrealized Losses</td><td> Fair Value</td><td> Amortized Cost</td><td> Gross Unrealized Gains</td><td>Gross Unrealized Losses</td><td> Fair Value</td></tr><tr><td></td><td colspan="8"> (in thousands)</td></tr><tr><td>U.S. Government obligations</td><td>$174,397</td><td>$36</td><td>$-2,542</td><td>$171,891</td><td>$146,221</td><td>$514</td><td>$-901</td><td>$145,834</td></tr><tr><td>Tax exempt municipal securities</td><td>96,875</td><td>119</td><td>-1,123</td><td>95,871</td><td>69,529</td><td>686</td><td>-271</td><td>69,944</td></tr><tr><td>Corporate and other securities</td><td>73,562</td><td>88</td><td>-617</td><td>73,033</td><td>69,514</td><td>1,077</td><td>-143</td><td>70,448</td></tr><tr><td>Mortgage-backed securities</td><td>11,104</td><td>—</td><td>-206</td><td>10,898</td><td>14,258</td><td>143</td><td>-37</td><td>14,364</td></tr><tr><td>Redeemable preferred stocks</td><td>14,552</td><td>23,728</td><td>-49</td><td>38,231</td><td>31,348</td><td>12,767</td><td>-36</td><td>44,079</td></tr><tr><td>Debt securities</td><td>370,490</td><td>23,971</td><td>-4,537</td><td>389,924</td><td>330,870</td><td>15,187</td><td>-1,388</td><td>344,669</td></tr><tr><td>Non-redeemable preferred stocks</td><td>—</td><td>—</td><td>—</td><td>—</td><td>2,491</td><td>24</td><td>—</td><td>2,515</td></tr><tr><td>Common stocks</td><td>1,111</td><td>—</td><td>—</td><td>1,111</td><td>1,281</td><td>—</td><td>—</td><td>1,281</td></tr><tr><td>Equity securities</td><td>1,111</td><td>—</td><td>—</td><td>1,111</td><td>3,772</td><td>24</td><td>—</td><td>3,796</td></tr><tr><td>Long-term investment securities</td><td>$371,601</td><td>$23,971</td><td>$-4,537</td><td>$391,035</td><td>$334,642</td><td>$15,211</td><td>$-1,388</td><td>$348,465</td></tr></table>
<table><tr><td></td><td colspan="2">Less than 12 months</td><td colspan="2">12 months or more</td><td colspan="2">Total</td></tr><tr><td> 2005</td><td> Fair Value</td><td>Unrealized Losses</td><td> Fair Value</td><td>Unrealized Losses</td><td> Fair Value</td><td>Unrealized Losses</td></tr><tr><td></td><td colspan="6">(in thousands)</td></tr><tr><td>U.S. Government obligations</td><td>$611,683</td><td>$-3,790</td><td>$272,176</td><td>$-8,481</td><td>$883,859</td><td>$-12,271</td></tr><tr><td>Tax exempt municipal securities</td><td>470,477</td><td>-4,846</td><td>258,825</td><td>-7,914</td><td>729,302</td><td>-12,760</td></tr><tr><td>Corporate and other securities</td><td>248,016</td><td>-4,932</td><td>131,166</td><td>-4,867</td><td>379,182</td><td>-9,799</td></tr><tr><td>Mortgage-backed securities</td><td>51,921</td><td>-742</td><td>36,987</td><td>-2,225</td><td>88,908</td><td>-2,967</td></tr><tr><td>Redeemable preferred stocks</td><td>—</td><td>—</td><td>6,862</td><td>-338</td><td>6,862</td><td>-338</td></tr><tr><td>Debt securities</td><td>1,382,097</td><td>-14,310</td><td>706,016</td><td>-23,825</td><td>2,088,113</td><td>-38,135</td></tr><tr><td>Non-redeemable preferred stocks</td><td>4,409</td><td>-37</td><td>5,477</td><td>-206</td><td>9,886</td><td>-243</td></tr><tr><td>Total investment securities</td><td>$1,386,506</td><td>$-14,347</td><td>$711,493</td><td>$-24,031</td><td>$2,097,999</td><td>$-38,378</td></tr><tr><td></td><td colspan="2">Less than 12 months</td><td colspan="2">12 months or more</td><td colspan="2">Total</td></tr><tr><td> 2004</td><td> Fair Value</td><td>Unrealized Losses</td><td> Fair Value</td><td>Unrealized Losses</td><td> Fair Value</td><td>Unrealized Losses</td></tr><tr><td></td><td colspan="6">(in thousands)</td></tr><tr><td>U.S. Government obligations</td><td>$486,209</td><td>$-3,717</td><td>$4,351</td><td>$-136</td><td>$490,560</td><td>$-3,853</td></tr><tr><td>Tax exempt municipal securities</td><td>316,913</td><td>-3,346</td><td>26,869</td><td>-647</td><td>343,782</td><td>-3,993</td></tr><tr><td>Corporate and other securities</td><td>171,048</td><td>-1,846</td><td>32,719</td><td>-1,418</td><td>203,767</td><td>-3,264</td></tr><tr><td>Mortgage-backed securities</td><td>28,865</td><td>-430</td><td>16,581</td><td>-753</td><td>45,446</td><td>-1,183</td></tr><tr><td>Redeemable preferred stocks</td><td>6,266</td><td>-158</td><td>1,238</td><td>-12</td><td>7,504</td><td>-170</td></tr><tr><td>Debt securities</td><td>1,009,301</td><td>-9,497</td><td>81,758</td><td>-2,966</td><td>1,091,059</td><td>-12,463</td></tr><tr><td>Non-redeemable preferred stocks</td><td>8,455</td><td>-240</td><td>10,789</td><td>-329</td><td>19,244</td><td>-569</td></tr><tr><td>Total investment securities</td><td>$1,017,756</td><td>$-9,737</td><td>$92,547</td><td>$-3,295</td><td>$1,110,303</td><td>$-13,032</td></tr></table>
<table><tr><td></td><td> December 31, 2010</td><td>Percentage of Total</td><td> December 31, 2009</td><td> Percentage of Total</td></tr><tr><td></td><td colspan="4"> (dollars in thousands)</td></tr><tr><td>IBNR</td><td>$2,051,227</td><td>59.1%</td><td>$1,902,700</td><td>59.0%</td></tr><tr><td>Reported claims in process</td><td>136,803</td><td>3.9%</td><td>357,718</td><td>11.1%</td></tr><tr><td>Other benefits payable</td><td>1,026,096</td><td>29.6%</td><td>682,961</td><td>21.2%</td></tr><tr><td>Benefits payable, excluding military services</td><td>3,214,126</td><td>92.6%</td><td>2,943,379</td><td>91.3%</td></tr><tr><td>Military services benefits payable</td><td>255,180</td><td>7.4%</td><td>279,195</td><td>8.7%</td></tr><tr><td>Total benefits payable</td><td>$3,469,306</td><td>100.0%</td><td>$3,222,574</td><td>100.0%</td></tr></table>

Question: Which year is Gross Unrealized Losses for Mortgage-backed securities lower?
Answer: 2005