Fair Value Measurements (Tables)

3 Months Ended

Mar. 31, 2014

Fair Value Disclosures [Abstract]

Summary of Carrying Amount and Fair Value of Ambac's Financial Assets and Liabilities

The following table sets forth the carrying amount and fair value of Ambac’s financial assets and liabilities as of March 31, 2014 and December 31, 2013, including the level within the fair value hierarchy at which fair value measurements are categorized. As required by the Fair Value Measurement Topic of the ASC financial assets and liabilities are classified in their entirety based on the lowest level of input that is significant to the fair value measurement.

	Successor Ambac
	Carrying Amount			Total Fair Value			Fair Value Measurements Categorized as:
							Level 1		Level 2			Level 3
March 31, 2014
Financial assets:
Fixed income securities:
Municipal obligations	$	1,185,288		$	1,185,288		$	—	$	1,185,288		$	—
Corporate obligations	1,647,584			1,647,584			—		1,644,028			3,556
Foreign obligations	142,044			142,044			—		142,044			—
U.S. government obligations	106,958			106,958			106,958		—			—
U.S. agency obligations	31,825			31,825			—		31,825			—
Residential mortgage-backed securities	1,655,658			1,655,658			—		1,655,658			—
Collateralized debt obligations	177,339			177,339			—		177,339			—
Other asset-backed securities	1,221,993			1,221,993			—		1,158,626			63,367
Fixed income securities, pledged as collateral:
U.S. government obligations	125,123			125,123			125,123		—			—
Short term investments	215,103			215,103			211,486		3,617			—
Other investments	240,530			240,530			—		240,430			100
Cash	31,700			31,700			31,700		—			—
Loans	6,250			6,402			—		—			6,402
Derivative assets:
Interest rate swaps—asset position	83,693			83,693			—		83,693			—
Interest rate swaps—liability position	(2,212		)	(2,212		)	—		(2,212		)	—
Futures contracts	430			430			430		—			—
Other assets	13,122			13,122			—		—			13,122
Variable interest entity assets:
Fixed income securities:
Corporate obligations	2,546,762			2,546,762			—		—			2,546,762
Restricted cash	8,552			8,552			8,552		—			—
Loans	13,269,452			13,269,452			—		—			13,269,452
Total financial assets	$	22,707,194		$	22,707,346		$	484,249	$	6,320,336		$	15,902,761
Financial liabilities:
Obligations under investment agreements	$	359,993		$	362,488		$	—	$	—		$	362,488
Long term debt, including accrued interest	1,288,483			1,317,986			—		—			1,317,986
Derivative liabilities:
Credit derivatives	87,715			87,715			—		—			87,715
Interest rate swaps—asset position	(50,863		)	(50,863		)	—		(50,863		)	—
Interest rate swaps—liability position	263,839			263,839			—		149,072			114,767
Other contracts	149			149			—		149			—
Liabilities for net financial guarantees written (1)	4,339,829			5,683,120			—		—			5,683,120
Variable interest entity liabilities:
Long-term debt	13,878,577			13,878,577			—		12,594,183			1,284,394
Derivative liabilities:
Interest rate swaps—liability position	1,758,626			1,758,626			—		1,758,626			—
Currency swaps—liability position	86,064			86,064			—		86,064			—
Total financial liabilities	$	22,012,412		$	23,387,701		$	—	$	14,537,231		$	8,850,470

(1) The carrying value of net financial guarantees written includes the following balance sheet items: Premium receivables; Reinsurance recoverable on paid and unpaid losses; Deferred ceded premium; Subrogation recoverable; Insurance intangible asset; Unearned premiums; Losses and loss expense reserve; Ceded premiums payable, premiums taxes payable and other deferred fees recorded in Other liabilities.

	Successor Ambac
	Carrying Amount			Total Fair Value			Fair Value Measurements Categorized as:
							Level 1		Level 2			Level 3
December 31, 2013
Financial assets:
Fixed income securities:
Municipal obligations	$	1,377,723		$	1,377,723		$	—	$	1,377,723		$	—
Corporate obligations	1,489,369			1,489,369			—		1,485,867			3,502
Foreign obligations	124,877			124,877			—		124,877			—
U.S. government obligations	126,248			126,248			126,248		—			—
U.S. agency obligations	32,154			32,154			—		31,946			208
Residential mortgage-backed securities	1,558,625			1,558,625			—		1,558,625			—
Collateralized debt obligations	183,872			183,872			—		183,872			—
Other asset-backed securities	992,448			992,448			—		928,375			64,073
Fixed income securities, pledged as collateral:
U.S. government obligations	126,223			126,223			126,223		—			—
Short term investments	271,119			271,119			267,612		3,507			—
Other investments	241,069			241,069			—		240,969			100
Cash	77,370			77,370			77,370		—			—
Loans	6,179			6,238			—		—			6,238
Derivative assets:
Interest rate swaps—asset position	76,631			76,631			—		76,631			—
Interest rate swaps—liability position	(1,257		)	(1,257		)	—		(1,257		)	—
Futures contracts	2,337			2,337			2,337		—			—
Other assets	13,384			13,384			—		—			13,384
Variable interest entity assets:
Fixed income securities:
Corporate obligations	2,475,182			2,475,182			—		—			2,475,182
Restricted cash	17,498			17,498			17,498		—			—
Loans	13,398,895			13,398,895			—		—			13,398,895
Total financial assets	$	22,589,946		$	22,590,005		$	617,288	$	6,011,135		$	15,961,582
Financial liabilities:
Obligations under investment agreements	$	359,070		$	360,506		$	—	$	—		$	360,506
Long term debt, including accrued interest	1,256,602			1,215,029			—		—			1,215,029
Derivative liabilities:
Credit derivatives	94,322			94,322			—		—			94,322
Interest rate swaps—asset position	(55,619		)	(55,619		)	—		(55,619		)	—
Interest rate swaps—liability position	215,030			215,030			—		122,418			92,612
Other contracts	165			165			—		165			—
Liabilities for net financial guarantees written	4,509,539			4,876,617			—		—			4,876,617
Variable interest entity liabilities:
Long-term debt	14,091,753			14,091,753			—		12,577,148			1,514,605
Derivative liabilities:
Interest rate swaps—liability position	1,680,834			1,680,834			—		1,680,834			—
Currency swaps—liability position	91,472			91,472			—		91,472			—
Total financial liabilities	$	22,243,168		$	22,570,109		$	—	$	14,416,418		$	8,153,691

Information about Valuation Inputs for Variable Interest Entity Assets and Liabilities Classified as Level 3

Information about the above described model inputs used to determine the fair value of each class of credit derivatives, including the CVA as a percentage of the gross mark-to-market liability before considering Ambac credit risk (“CVA percentage”), as of March 31, 2014 and December 31, 2013 is summarized below:

Successor Ambac - As of March 31, 2014	CLOs			Other (1)
Notional outstanding	$	1,101,199		$	1,331,019
Weighted average reference obligation price	98.3			87.5
Weighted average life (WAL) in years	2.0			5.2
Weighted average credit rating	AA			BBB
Weighted average relative change ratio	35.3		%	42.8		%
CVA percentage	11.51		%	26.08		%
Fair value of derivative liabilities	$	(5,847	)	$	(80,182	)

Successor Ambac - As of December 31, 2013
	CLOs			Other (1)
Notional outstanding	$	1,337,737		$	1,291,371
Weighted average reference obligation price	98.0			85.7
Weighted average life (WAL) in years	2.1			5.4
Weighted average credit rating	AA			BBB-
Weighted average relative change ratio	35.3		%	43.1		%
CVA percentage	13.67		%	30.70		%
Fair value of derivative liabilities	$	(7,993	)	$	(84,780	)

(1) Excludes contracts for which fair values are based on credit derivative quotes rather than reference obligation quotes. Such contracts have a combined notional outstanding of $58,920, WAL of 1.9 years and liability fair value of $(1,686) as of March 31, 2014. Other inputs to the valuation of these transactions at March 31, 2014 include weighted average quotes of 4% of notional, weighted average rating of A and Ambac CVA percentage of 6.7%. As of December 31, 2013, these contracts had a combined notional outstanding of $146,995, WAL of 1.0 years and liability fair value of $(1,549). Other inputs to the valuation of these transactions at December 31, 2013 include weighted average quotes of 1% of notional, weighted average rating of A+ and Ambac CVA percentage of 8.7%.

Summary of Changes in Level 3 Fair Value Category

The following tables present the changes in the Level 3 fair value category for the periods presented in 2014 and 2013. Ambac classifies financial instruments in Level 3 of the fair value hierarchy when there is reliance on at least one significant unobservable input to the valuation model. In addition to these unobservable inputs, the valuation models for Level 3 financial instruments typically also rely on a number of inputs that are readily observable either directly or indirectly. Thus, the gains and losses presented below include changes in the fair value related to both observable and unobservable inputs.

Level-3 financial assets and liabilities accounted for at fair value

										VIE Assets and Liabilities
Successor Ambac - Three Months Ended March 31, 2014	Investments			Other assets			Derivatives			Investments		Loans			Long-term debt			Total
Balance, beginning of period	$	67,783		$	13,384		$	(186,934	)	$	2,475,182	$	13,398,895		$	(1,514,605	)	$	14,253,705
Additions of VIEs consolidated	—			—			—			—		—			—			—
Total gains/(losses) realized and unrealized:
Included in earnings	419			(262		)	(14,249		)	55,745		321,847			(190,962		)	172,538
Included in other comprehensive income	(217		)	—			—			15,835		79,802			(8,621		)	86,799
Purchases	—			—			—			—		70,000			—			70,000
Issuances	—			—			—			—		—			—			—
Sales	—			—			—			—		—			—			—
Settlements	(854		)	—			(1,299		)	—		(601,092		)	429,794			(173,451		)
Transfers in Level 3	—			—			—			—		—			—			—
Transfers out of Level 3	(208		)	—			—			—		—			—			(208		)
Balance, end of period	$	66,923		$	13,122		$	(202,482	)	$	2,546,762	$	13,269,452		$	(1,284,394	)	$	14,409,383
The amount of total gains/(losses) included in earnings attributable to the change in unrealized gains or losses relating to assets and liabilities still held at the reporting date	$	—		$	(262	)	$	(15,024	)	$	55,745	$	316,714		$	(187,824	)	$	169,349

										VIE Assets and Liabilities
Predecessor Ambac - Three Months Ended March 31, 2013	Investments			Other assets			Derivatives			Investments			Loans			Long-term debt			Total
Balance, beginning of period	$	60,402		$	14,557		$	(322,337	)	$	2,261,294		$	15,359,073		$	(2,956,501	)	$	14,416,488
Additions of VIEs consolidated	—			—			—			—			—			—			—
Total gains/(losses) realized and unrealized:
Included in earnings	(23		)	(327		)	(3,162		)	297,294			400,456			(127,393		)	566,845
Included in other comprehensive income	698			—			—			(143,981		)	(955,455		)	193,905			(904,833		)
Purchases	—			—			—			—			—			—			—
Issuances	—			—			—			—			—			—			—
Sales	—			—			—			—			—			—			—
Settlements	(3,286		)	—			(3,190		)	—			(687,263		)	4,864			(688,875		)
Transfers in Level 3	—			—			—			—			—			—			—
Transfers out of Level 3	—			—			—			—			—			974,536			974,536
Balance, end of period	$	57,791		$	14,230		$	(328,689	)	$	2,414,607		$	14,116,811		$	(1,910,589	)	$	14,364,161
The amount of total gains/(losses) included in earnings attributable to the change in unrealized gains or losses relating to assets and liabilities still held at the reporting date	$	—		$	(327	)	$	(5,684	)	$	297,294		$	400,456		$	(127,393	)	$	564,346

The tables below provide roll-forward information by class of investments and derivatives measured using significant unobservable inputs.

Level-3 Investments by class

Successor Ambac - Three Months Ended March 31, 2014	Collateralized Debt Obligations		Other Asset Backed Securities			Corporate Obligations			U.S. Agency Obligations			Total Investments
Balance, beginning of period	$	—	$	64,073		$	3,502		$	208		$	67,783
Total gains/(losses) realized and unrealized:
Included in earnings	—		443			(24		)	—			419
Included in other comprehensive income	—		(295		)	78			—			(217		)
Purchases	—		—			—			—			—
Issuances	—		—			—			—			—
Sales	—		—			—			—			—
Settlements			(854		)	—			—			(854		)
Transfers in Level 3	—		—			—			—			—
Transfers out of Level 3	—		—			—			(208		)	(208		)
Balance, end of period	$	—	$	63,367		$	3,556		$	—		$	66,923
The amount of total gains/(losses) included in earnings attributable to the change in unrealized gains or losses relating to assets and liabilities still held at the reporting date	$	—	$	—		$	—		$	—		$	—

Predecessor Ambac - Three Months Ended March 31, 2013	Collateralized Debt Obligations			Other Asset Backed Securities			Corporate Obligations			U.S. Agency Obligations		Total Investments
Balance, beginning of period	$	6,482		$	50,264		$	3,656		$	—	$	60,402
Total gains/(losses) realized and unrealized:
Included in earnings	(3		)	—			(20		)	—		(23		)
Included in other comprehensive income	113			569			16			—		698
Purchases	—			—			—			—		—
Issuances	—			—			—			—		—
Sales	—			—			—			—		—
Settlements	(2,687		)	(599		)	—			—		(3,286		)
Transfers in Level 3	—			—			—			—		—
Transfers out of Level 3	—			—			—			—		—
Balance, end of period	$	3,905		$	50,234		$	3,652		$	—	$	57,791
The amount of total gains/(losses) included in earnings attributable to the change in unrealized gains or losses relating to assets and liabilities still held at the reporting date	$	—		$	—		$	—		$	—	$	—

Level-3 Derivatives by class

Successor Ambac - Three Months Ended March 31, 2014	Interest Rate Swaps			Credit Derivatives			Total Derivatives
Balance, beginning of period	$	(92,612	)	$	(94,322	)	$	(186,934	)
Additions of VIEs consolidated	—			—			—
Total gains/(losses) realized and unrealized:
Included in earnings	(21,631		)	7,382			(14,249		)
Included in other comprehensive income	—			—			—
Purchases	—			—			—
Issuances	—			—			—
Sales	—			—			—
Settlements	(524		)	(775		)	(1,299		)
Transfers in Level 3	—			—			—
Transfers out of Level 3	—			—			—
Deconsolidation of VIEs	—			—			—
Balance, end of period	$	(114,767	)	$	(87,715	)	$	(202,482	)
The amount of total gains/(losses) included in earnings attributable to the change in unrealized gains or losses relating to assets and liabilities still held at the reporting date	$	(21,631	)	$	6,607		$	(15,024	)

Predecessor Ambac - Three months ended March 31, 2013	Interest Rate Swaps			Credit Derivatives			Total Derivatives
Balance, beginning of period	$	(108,752	)	$	(213,585	)	$	(322,337	)
Additions of VIEs for consolidated	—			—			—
Total gains/(losses) realized and unrealized:
Included in earnings	(15,949		)	12,787			(3,162		)
Included in other comprehensive income	—			—			—
Purchases	—			—			—
Issuances	—			—			—
Sales	—			—			—
Settlements	(681		)	(2,509		)	(3,190		)
Transfers in Level 3	—			—			—
Transfers out of Level 3	—			—			—
Deconsolidation of VIEs	—			—			—
Balance, end of period	$	(125,382	)	$	(203,307	)	$	(328,689	)
The amount of total gains/(losses) included in earnings attributable to the change in unrealized gains or losses relating to assets and liabilities still held at the reporting date	$	(15,949	)	$	10,265		$	(5,684	)

Summary of Gains and Losses (Realized and Unrealized) Relating to Level 3 Assets and Liabilities Included in Earnings

Gains and losses (realized and unrealized) relating to Level 3 assets and liabilities included in earnings for the affected periods are reported as follows:

	Net investment income			Realized gains or (losses) and other settlements on credit derivative contracts		Unrealized gains or (losses) on credit derivative contracts		Derivative products revenues (interest rate swaps)			(Loss) income on variable interest entities		Other income
Successor Ambac:
Three Months Ended March 31, 2014
Total gains or losses included in earnings for the period	$	419		$	775	$	6,607	$	(21,631	)	$	186,630	$	(262	)
Changes in unrealized gains or losses relating to the assets and liabilities still held at the reporting date	—			—		6,607		(21,631		)	184,635		(262		)
Predecessor Ambac:
Three Months Ended March 31, 2013
Total gains or losses included in earnings for the period	$	(23	)	$	2,509	$	10,278	$	(15,949	)	$	570,357	$	(327	)
Changes in unrealized gains or losses relating to the assets and liabilities still held at the reporting date	—			—		10,266		(15,949		)	570,357		(327		)