Financial Guarantee Insurance Contracts (Tables)

3 Months Ended

Mar. 31, 2014

Summary of Gross Premium Receivable Roll-Forward (Direct and Assumed Contracts)

Below is the gross premium receivable roll-forward (direct and assumed contracts) for the affected periods:



	Successor Ambac			Predecessor Ambac
	Period from January 1 through March 31, 2014			Period from January 1 through March 31, 2013
Beginning premium receivable	$	1,453,021		$	1,620,621
Premium receipts	(33,128		)	(35,115		)
Adjustments for changes in expected life of homogeneous pools and actual changes to contractual cash flows	(15,062		)	(14,524		)
Accretion of premium receivable discount	10,370			11,190
Uncollectible premiums	(1,074		)	(201		)
Other adjustments (including foreign exchange)	3,987			(38,873		)
Ending premium receivable	$	1,418,114		$	1,543,098

Effect of Reinsurance on Premiums Written and Earned

The effect of reinsurance on premiums written and earned was as follows:



	Successor Ambac					Predecessor Ambac
	Three months ended March 31, 2014					Three months ended March 31, 2013
	Written			Earned		Written			Earned
Direct	$	(5,766	)	$	86,183	$	(3,530	)	$	107,079
Assumed	—			68		—			24
Ceded	456			3,704		(1,014		)	6,847
Net premiums	$	(6,222	)	$	82,547	$	(2,516	)	$	100,256

Summarized Future Gross Undiscounted Premiums Expected to be Collected and Future Expected Premiums Earned, Net of Reinsurance

The table below summarizes the future gross undiscounted premiums to be collected, and future premiums earned, net of reinsurance by Successor Ambac at March 31, 2014:



	Future premiums to be collected ⁽¹⁾		Future expected premiums to be earned, net of reinsurance ⁽¹⁾
	Future premiums to be collected ⁽¹⁾
Three months ended:
June 30, 2014	$	30,303	$	46,925
September 30, 2014	34,189		45,450
December 31, 2014	31,942		44,000
Twelve months ended:
December 31, 2015	127,738		164,127
December 31, 2016	121,100		151,279
December 31, 2017	114,752		140,766
December 31, 2018	109,588		131,819
Five years ended:
December 31, 2023	488,119		548,548
December 31, 2028	373,791		375,657
December 31, 2033	250,704		225,360
December 31, 2038	120,724		101,581
December 31, 2043	41,501		34,429
December 31, 2048	12,595		12,126
December 31, 2053	2,262		3,334
December 31, 2058	31		83
Total	$	1,859,339	$	2,025,484

(1)

Future premiums to be collected relates to the discounted premium receivable asset recorded on Ambac's balance sheet. Future premiums to be earned, net of reinsurance relate to the unearned premium liability and deferred ceded premium asset recorded on Ambac’s balance sheet. The use of contractual lives for many bond types which do not have homogeneous pools of underlying collateral is required in the calculation of the premium receivable as described above, which results in a higher premium receivable balance than if expected lives were considered. If installment paying policies are retired early, premiums reflected in the premium receivable asset and amounts reported in the above table for such policies may not be collected in the future.

Summary of Loss Reserve Roll-Forward, Net of Subrogation Recoverable and Reinsurance

Below is the loss reserve roll-forward, net of subrogation recoverable and reinsurance, for the affected periods:



	Successor Ambac			Predecessor Ambac
	Period from January 1 through March 31, 2014			Period from January 1 through March 31, 2013
Beginning loss and loss expense reserves, net of subrogation recoverable, gross of reinsurance	$	5,470,234		$	6,122,140
Less reinsurance on loss and loss expense reserves	122,357			147,409
Beginning balance of loss and loss expense reserves, net of subrogation recoverable and reinsurance	$	5,347,877		$	5,974,731
Changes in the loss and loss expense reserves due to:
Current year:
Establishment of new loss and loss expense reserves, gross of RMBS subrogation and net of reinsurance	151			4,083
Claim and loss expense payments, net of subrogation and reinsurance	—			(58		)
Establishment of RMBS subrogation recoveries, net of reinsurance	—			(188		)
Total current year	151			3,837
Prior years:
Change in previously established loss and loss expense reserves, gross of RMBS subrogation and net of reinsurance	(117,692		)	(129,090		)
Claim and loss expense (payments)recoveries, net of subrogation and reinsurance	(9,375		)	12,365
Change in previously established RMBS subrogation recoveries, net of reinsurance	(18,331		)	34,617
Total prior years	(145,398		)	(82,108		)
Net change in loss and loss expense reserves	(145,247		)	(78,271		)
Ending loss and loss expense reserves, net of subrogation recoverable and reinsurance	$	5,202,630		$	5,896,460
Add reinsurance on loss and loss expense reserves	111,303			148,749
Ending loss and loss expense reserves, net of subrogation recoverable, gross of reinsurance	$	5,313,933		$	6,045,209

Summary of Information Related to Policies Currently Included in Ambac's Loss Reserves or Subrogation Recoverable

The tables below summarize information related to policies currently included in Ambac’s loss reserves or subrogation recoverable at March 31, 2014 and December 31, 2013. The weighted average risk-free rate used to discount loss reserves at March 31, 2014 and December 31, 2013 was 2.9% and 3.2%, respectively.

Successor Ambac – Surveillance Categories (at March 31, 2014)



	I/SL			IA			II			III			IV			V			Total
Number of policies	27			29			66			70			171			1			364
Remaining weighted-average contract period (in years)	12			13			16			19			11			6			14
Gross insured contractual payments outstanding:
Principal	$	760,825		$	964,929		$	4,057,893		$	5,232,627		$	10,993,947		$	47		$	22,010,268
Interest	415,417			485,353			2,765,425			2,168,384			2,460,360			19			8,294,958
Total	$	1,176,242		$	1,450,282		$	6,823,318		$	7,401,011		$	13,454,307		$	66		$	30,305,226
Gross undiscounted claim liability	$	5,408		$	17,697		$	245,484		$	2,616,809		$	7,861,495		$	62		$	10,746,955
Discount, gross claim liability	(747		)	(1,456		)	(29,272		)	(1,006,627		)	(1,027,085		)	(3		)	(2,065,190		)
Gross claim liability before all subrogation and before reinsurance	$	4,661		$	16,241		$	216,212		$	1,610,182		$	6,834,410		$	59		$	8,681,765
Less:
Gross RMBS subrogation⁽¹⁾	—			—			—			(2,513		)	(2,232,718		)	—			(2,235,231		)
Discount, RMBS subrogation	—			—			—			9			10,927			—			10,936
Discounted RMBS subrogation, before reinsurance	—			—			—			(2,504		)	(2,221,791		)	—			(2,224,295		)
Less:
Gross other subrogation⁽²⁾	—			—			(22,213		)	(117,755		)	(695,971		)	—			(835,939		)
Discount, other subrogation	—			—			9,694			33,024			45,005			—			87,723
Discounted other subrogation, before reinsurance	—			—			(12,519		)	(84,731		)	(650,966		)	—			(748,216		)
Gross claim liability, net of all subrogation and discounts, before reinsurance	$	4,661		$	16,241		$	203,693		$	1,522,947		$	3,961,653		$	59		$	5,709,254
Less: Unearned premium reserves	(3,195		)	(9,270		)	(108,203		)	(275,241		)	(99,097		)	—			(495,006		)
Plus: Loss adjustment expenses reserves	—			11			2,275			1,462			95,937			—			99,685
Claim liability reported on Balance Sheet, before reinsurance^{(3) (4)}	$	1,466		$	6,982		$	97,765		$	1,249,168		$	3,958,493		$	59		$	5,313,933
Reinsurance recoverable reported on Balance Sheet	$	55		$	872		$	2,795		$	110,712		$	(2,992	)	$	—		$	111,442


(1)	RMBS subrogation represents Ambac’s estimate of subrogation recoveries from RMBS transaction sponsors for representation and warranty breaches.


(2)	Other subrogation represents subrogation, including subrogation from RMBS transactions, other than subrogation as defined in (1) above.


(3)	Claim liability reported on the Balance Sheet, before reinsurance includes unpaid claims of $3,962,531.


(4)	Claim liability reported on the Balance Sheet, before reinsurance is included in the Consolidated Balance Sheets as follows:



Losses and loss expense reserve (net of potential subrogation recoveries of $1,803,582)	$	5,826,168
Subrogation recoverable (includes gross potential recovery of $1,168,929)	(512,235		)
	$	5,313,933

Successor Ambac – Surveillance Categories (at December 31, 2013)



	I/SL			IA			II			III			IV			V			Total
Number of policies	18			23			52			76			169			1			339
Remaining weighted-average contract period (in years)	13			19			17			19			11			6			14
Gross insured contractual payments outstanding:
Principal	$	834,708		$	1,125,284		$	3,464,420		$	5,597,387		$	11,184,943		$	47		$	22,206,789
Interest	506,903			871,751			2,130,271			2,331,222			2,556,968			18			8,397,133
Total	$	1,341,611		$	1,997,035		$	5,594,691		$	7,928,609		$	13,741,911		$	65		$	30,603,922
Gross undiscounted claim liability	$	7,447		$	54,398		$	221,321		$	3,029,891		$	7,963,137		$	65		$	11,276,259
Discount, gross claim liability	(1,225		)	(6,726		)	(32,630		)	(1,299,032		)	(1,112,829		)	(6		)	(2,452,448		)
Gross claim liability before all subrogation and before reinsurance	$	6,222		$	47,672		$	188,691		$	1,730,859		$	6,850,308		$	59		$	8,823,811
Less:
Gross RMBS subrogation⁽¹⁾	—			—			—			(4,516		)	(2,211,333		)	—			(2,215,849		)
Discount, RMBS subrogation	—			—			—			15			9,236			—			9,251
Discounted RMBS subrogation, before reinsurance	—			—			—			(4,501		)	(2,202,097		)	—			(2,206,598		)
Less:
Gross other subrogation⁽²⁾	—			—			(20,367		)	(116,145		)	(710,187		)	—			(846,699		)
Discount, other subrogation	—			—			9,522			36,125			45,666			—			91,313
Discounted other subrogation, before reinsurance	—			—			(10,845		)	(80,020		)	(664,521		)	—			(755,386		)
Gross claim liability, net of all subrogation and discounts, before reinsurance	$	6,222		$	47,672		$	177,846		$	1,646,338		$	3,983,690		$	59		$	5,861,827
Less: Unearned premium reserves	(4,060		)	(22,901		)	(95,550		)	(280,245		)	(100,228		)	—			(502,984		)
Plus: Loss adjustment expenses reserves	—			11			2,257			$	1,658		107,465			—			111,391
Claim liability reported on Balance Sheet, before reinsurance^{(3) (4)}	$	2,162		$	24,782		$	84,553		$	1,367,751		$	3,990,927		$	59		$	5,470,234
Reinsurance recoverable reported on Balance Sheet	$	146		$	2,271		$	2,273		$	119,795		$	(3,236	)	$	—		$	121,249


(1)	RMBS subrogation represents Ambac’s estimate of subrogation recoveries from RMBS transaction sponsors for representation and warranty breaches.


(2)	Other subrogation represents subrogation, including subrogation from RMBS transactions, other than subrogation as defined in (1) above.


(3)	Claim liability reported on the Balance Sheet, before reinsurance includes unpaid claims of $3,904,315.


(4)	Claim liability reported on the Balance Sheet, before reinsurance is included in the Consolidated Balance Sheets as follows:



Losses and loss expense reserve (net of potential subrogation recoveries of $1,797,805)	$	5,968,712
Subrogation recoverable (includes gross potential recovery of $1,164,179)	(498,478		)
	$	5,470,234

Summary of Balance of Subrogation Recoveries and Related Claim Liabilities, by Estimation Approach

The balance of RMBS subrogation recoveries and the related claim liabilities, by estimation approach, at March 31, 2014 and December 31, 2013, are as follows:



	Successor Ambac - March 31, 2014
		Gross loss reserve before subrogation recoveries ⁽¹⁾		Subrogation recoveries ^{(2) (3)}			Gross loss reserve after subrogation recoveries
Approach	Count	Gross loss reserve before subrogation recoveries ⁽¹⁾		Subrogation recoveries ^{(2) (3)}			Gross loss reserve after subrogation recoveries
Adverse samples	27	$	2,009,647	$	(1,218,681	)	$	790,966
Random samples	21	1,076,695		(1,005,614		)	71,081
Totals	48	$	3,086,342	$	(2,224,295	)	$	862,047



	Successor Ambac - December 31, 2013
		Gross loss reserve before subrogation recoveries ⁽¹⁾		Subrogation recoveries ^(2) (3)			Gross loss reserve after subrogation recoveries
Approach	Count	Gross loss reserve before subrogation recoveries ⁽¹⁾		Subrogation recoveries ^(2) (3)			Gross loss reserve after subrogation recoveries
Adverse samples	27	$	2,084,911	$	(1,252,773	)	$	832,138
Random samples	21	1,078,861		(953,825		)	125,036
Totals	48	$	3,163,772	$	(2,206,598	)	$	957,174


(1)	Includes unpaid claims on policies allocated to the Segregated Account.

(2)

The amount of recorded subrogation recoveries related to each securitization is limited to ever-to-date paid and unpaid losses plus projected losses for each policy. To the extent significant losses have been paid but not yet recovered, the recorded amount of RMBS subrogation recoveries may exceed the unpaid claims in addition to the expected future claims for a given policy. The net cash inflow for these policies is recorded as a “Subrogation recoverable” asset. For those transactions where the subrogation recovery is less than the sum of unpaid claims and the expected future claims, the net cash outflow for these policies is recorded as a “Losses and loss expense reserve” liability.

(3)

The sponsor’s repurchase obligation may differ depending on the terms of the particular transaction and the status of the specific loan, such as whether it is performing or has been liquidated or charged off. The estimated subrogation recovery for these transactions is based primarily on loan level data provided through trustee reports received in the normal course of our surveillance activities or provided by the sponsor. While this data may not include all the components of the sponsor’s contractual repurchase obligation we believe it is the best information available to estimate the subrogation recovery.

Summary of Rollforward of RMBS Subrogation, by Estimation Approach

Below is the rollforward of RMBS subrogation, by estimation approach, for the affected periods:



	Random sample		Number of transactions	Adverse sample			Number of transactions	Total
Successor Ambac:
Rollforward:
Discounted RMBS subrogation (gross of reinsurance) at January 1, 2014	$	953,825	21	$	1,252,773		27	$	2,206,598
Changes recognized in 2014:
Additional transactions reviewed	—		n/a	—			n/a	—
Additional adverse sample loans reviewed	—		n/a	—			n/a	—
Adverse loans repurchased by the sponsor	—		n/a	—			n/a	—
Impact of Sponsor Actions ⁽¹⁾	—		n/a	—			n/a	—
All other changes ⁽²⁾	51,789		n/a	(34,092		)	n/a	17,697
Discounted RMBS subrogation (gross of reinsurance) at March 31, 2014	$	1,005,614	21	$	1,218,681		27	$	2,224,295



	Random sample			Number of transactions		Adverse sample		Number of transactions	Total
Predecessor Ambac
Discounted RMBS subrogation (gross of reinsurance) at January 1, 2013	$	1,080,408		22		$	1,442,817	27	$	2,523,225
Changes recognized in 2013:
Additional transactions reviewed	—			n/a		—		n/a	—
Additional adverse sample loans reviewed	—			n/a		—		n/a	—
Adverse loans repurchased by the sponsor	—			n/a		—		n/a	—
Impact of sponsor actions ⁽¹⁾	(54,195		)	(2	)	—		n/a	(54,195		)
All other changes ⁽²⁾	(22,570		)	n/a		40,909		2	18,339
Discounted RMBS subrogation (gross of reinsurance) at March 31, 2013	$	1,003,643		20		$	1,483,726	29	$	2,487,369


(1)	Sponsor actions include loan repurchases, direct payments to Ambac, and other contributions from sponsors.

(2)

Other changes which may impact RMBS subrogation recoveries include changes in actual or projected collateral performance, changes in the creditworthiness of a sponsor, and/or the projected timing of recoveries. For the three months ended March 31, 2013, Predecessor Ambac added 2 transactions to the Adverse Sample population; however, the impacts on RMBS subrogation disclosed in the Adverse Sample column relate to those, as well as other transactions.

Insurance Intangible Asset [Member]

Insurance [Line Items]

Schedule of Finite-Lived Intangible Assets, Future Amortization Expense [Table Text Block]

The estimated future amortization expense for the insurance intangible asset is as follows:



2014	$	98,796
2015	119,906
2016	109,388
2017	100,904
2018	94,857
Thereafter	1,046,219

- Definition

Tabular disclosure of insured financial obligations with credit deterioration related to the claim liability on financial guarantee insurance contracts as of the end of each annual and interim reporting period detailing, at a minimum, the following for each surveillance category or grouping used to track and monitor the entity's insured financial obligations: (1) number of issued and outstanding financial guarantee insurance contracts; (2) remaining weighted average contract period; (3) insured contractual payments outstanding, segregating principal and interest; (4) gross claim liability; (5) gross potential recoveries; (6) net discount of both the claim liability and potential recoveries; (7) net claim liability; (8) reinsurance recoverable; and (9) unearned premium revenue.

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