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Financial Guarantee Insurance Contracts
 12 Months Ended
Dec. 31, 2014
Insurance [Abstract]  
Financial Guarantee Insurance Contracts
FINANCIAL GUARANTEE INSURANCE CONTRACTS
Amounts presented in this Note relate only to Ambac’s non-derivative insurance business for insurance policies issued to beneficiaries, including VIEs, for which we do not consolidate the VIE.
Net Premiums Earned:
Below is the gross premium receivable roll-forward (direct and assumed contracts) for the affected periods:
 
Successor Ambac
 
 
Predecessor Ambac
 

 
Period from May 1
 
 
Period from January 1
 
 
 
Year Ended
 
through
 
 
through
 
Year Ended
 
December 31, 2014
 
December 31, 2013
 
 
April 30, 2013
 
December 31, 2012
Beginning premium receivable
$
1,453,021

 
$
1,531,631

 
 
$
1,620,621

 
$
2,028,479

Premium receipts
(126,497
)
 
(82,071
)
 
 
(48,296
)
 
(155,626
)
Adjustments for changes in expected and contractual cash flows
(322,443
)
 
(91,241
)
 
 
(28,237
)
 
(299,906
)
Accretion of premium receivable discount
36,651

 
26,184

 
 
14,740

 
50,407

Deconsolidation of certain VIEs
—

 
45,883

 
 
—

 
—

Uncollectable premiums
(2,518
)
 
(15,262
)
 
 
(634
)
 
(28,031
)
Other adjustments (including foreign exchange)
(37,607
)
 
37,897

 
 
(26,563
)
 
25,298

Ending premium receivable
$
1,000,607

 
$
1,453,021

 
 
$
1,531,631

 
$
1,620,621


Generally, the priority for the payment of financial guarantee premiums to Ambac, as required by the bond indentures of the insured obligations, is very senior in the waterfall. Additionally, in connection with the allocation of certain liabilities to the Segregated Account, trustees are required under the Segregated Account Rehabilitation Plan and related court orders to continue to pay installment premiums, notwithstanding the Segregated Account Rehabilitation Proceedings. In evaluating the credit quality of the premium receivables, management evaluates the transaction waterfall structures and the internal ratings of the transactions underlying the premium receivables. As of December 31, 2014 and 2013, approximately 32% and 44% of the premium receivables related to transactions with non-investment grade internal ratings, comprised mainly of non-investment grade RMBS, student loan transactions and a certain asset-backed transaction, which comprised 7%, 8%, and 0% of the total premium receivables at December 31, 2014 and 7%, 7% and 17% of the total premium receivables at December 31, 2013, respectively. At December 31, 2014 and 2013, $17,780 and $15,262 respectively, of premium receivables were deemed uncollectable. Past due premiums on policies insuring non-investment grade obligations amounted to less than $500 at December 31, 2014.
The effect of reinsurance on premiums written and earned was as follows:
 
Successor Ambac
 
Year Ended
 
 
Period from May 1 through
 
December 31, 2014
 
 
December 31, 2013
 
Written
 
Earned
 
 
Written
 
Earned
Direct
$
(288,310
)
 
$
261,634

 
 
$
(80,309
)
 
$
226,326

Assumed
—

 
137

 
 
—

 
65

Ceded
(6,842
)
 
15,411

 
 
(7,810
)
 
12,873

Net premiums
$
(281,468
)
 
$
246,360

 
 
$
(72,499
)
 
$
213,518


 
Predecessor Ambac
 
Period from January 1 through
 
 
Year Ended
 
April 30, 2013
 
 
December 31, 2012
 
Written
 
Earned
 
 
Written
 
Earned
Direct
$
(14,125
)
 
$
138,468

 
 
$
(277,508
)
 
$
434,488

Assumed
—

 
32

 
 
—

 
155

Ceded
(1,098
)
 
8,500

 
 
(23,371
)
 
20,039

Net premiums
$
(13,027
)
 
$
130,000

 
 
$
(254,137
)
 
$
414,604


Successor Ambac’s accelerated premium revenue for retired obligations for the year ended December 31, 2014 and the eight months ended December 31, 2013 were $29,964 and $56,541, respectively. Predecessor Ambac’s accelerated premium revenue for retired obligations for the four months ended April 30, 2013 and for the year ended December 31, 2012 were $36,433 and $127,628, respectively.
The table below summarizes the future gross undiscounted premiums to be collected and future premiums earned, net of reinsurance at December 31, 2014:
 
Future premiums
to be collected (1)
 
Future
premiums to
be earned net of
reinsurance (1)
Three months ended:
 
 
 
March 31, 2015
$
25,413

 
$
38,161

June 30, 2015
22,681

 
37,272

September 30, 2015
23,415

 
35,279

December 31, 2015
22,739

 
33,840

Twelve months ended:
 
 
 
December 31, 2016
87,454

 
125,754

December 31, 2017
81,156

 
113,937

December 31, 2018
76,245

 
105,115

December 31, 2019
72,404

 
97,864

Five years ended:
 
 
 
December 31, 2024
320,870

 
401,094

December 31, 2029
267,513

 
282,294

December 31, 2034
194,711

 
175,689

December 31, 2039
76,970

 
69,030

December 31, 2044
24,577

 
23,197

December 31, 2049
9,570

 
9,797

December 31, 2054
1,244

 
2,184

December 31, 2059
5

 
2

Total
$
1,306,967

 
$
1,550,509

(1)
Future premiums to be collected is undiscounted and 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 Note 2. Basis of Presentation and Significant Accounting Principles, results in a different premium receivable balance than if expected lives were considered. If installment paying policies are retired or prepay 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. Future premiums to be earned also considers the use of contractual lives for many bond types which do not have homogeneous pools of underlying collateral, which results in higher unearned premium than if expected lives were considered. If those bonds types are retired early, premium earnings may be negative in the period of call or refinancing.
Loss and Loss Expense Reserves:
A loss reserve is recorded on the balance sheet on a policy-by-policy basis as further described in Note 2. Basis of Presentation and Significant Accounting Policies. Below are the components of the Loss and loss expense reserves liability and the Subrogation recoverable asset at December 31, 2014 and 2013:
 
Unpaid Claims
 
Present Value of Expected
Net Cash Flows
 
 
 
 
Balance Sheet Line Item
Claims
 
Accrued
Interest
 
Claims and
Loss Expenses
 
Recoveries
 
Unearned
Premium
Revenue
 
Gross Loss and
Loss Expense
Reserves
December 31, 2014:
 
 
 
 
 
 
 
 
 
 
 
Loss and loss expense reserves
$
2,172,041

 
$
234,802

 
$
3,792,133

 
$
(1,205,621
)
 
$
(241,348
)
 
$
4,752,007

Subrogation recoverable
772,948

 
94,425

 
197,751

 
(2,018,398
)
 
—

 
(953,274
)
Totals
$
2,944,989

 
$
329,227

 
$
3,989,884

 
$
(3,224,019
)
 
$
(241,348
)
 
$
3,798,733

 
 
 
 
 
 
 
 
 
 
 
 
December 31, 2013:
 
 
 
 
 
 
 
 
 
 
 
Loss and loss expense reserves
$
3,374,224

 
$
—

 
$
4,895,277

 
$
(1,797,805
)
 
$
(502,984
)
 
$
5,968,712

Subrogation recoverable
530,091

 
—

 
135,610

 
(1,164,179
)
 
—

 
(498,478
)
Totals
$
3,904,315

 
$
—

 
$
5,030,887

 
$
(2,961,984
)
 
$
(502,984
)
 
$
5,470,234


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

 
Period from May 1
 
 
Period from January 1
 
 
 
Year Ended
 
through
 
 
through
 
Year Ended
 
December 31, 2014
 
December 31, 2013
 
 
April 30, 2013
 
December 31, 2012
Beginning gross loss and loss expense reserves
$
5,470,234

 
$
5,572,672

 
 
$
6,122,140

 
$
6,384,260

Less reinsurance on loss and loss expense reserves
122,357

 
138,155

 
 
$
147,409

 
$
153,480

Beginning balance of net loss and loss expense reserves
$
5,347,877

 
$
5,434,517

 
 
$
5,974,731

 
$
6,230,780

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
309

 
97,342

 
 
2,748

 
464,058

Claim and loss expense payments, net of subrogation and reinsurance
(17
)
 
(442
)
 
 
(58
)
 
(20,765
)
Establishment of RMBS subrogation recoveries, net of reinsurance
—

 
(315
)
 
 
(159
)
 
—

Total current year
292

 
96,585

 
 
2,531

 
443,293

Prior years:
 
 
 
 
 
 
 
 
Change in previously established loss and loss expense reserves, gross of RMBS subrogation and net of reinsurance
(269,606
)
 
(514,728
)
 
 
(52,642
)
 
72,700

Claim and loss expense (payments) recoveries, net of subrogation and reinsurance
(1,067,321
)
 
59,184

 
 
20,902

 
(944,860
)
(Increase) decrease in previously established RMBS subrogation recoveries, net of reinsurance
(312,864
)
 
272,319

 
 
(12,596
)
 
172,818

Total prior years
(1,649,791
)
 
(183,225
)
 
 
(44,336
)
 
(699,342
)
Net change in net loss and loss expense reserves
(1,649,499
)
 
(86,640
)
 
 
(41,805
)
 
(256,049
)
Net consolidation of certain VIEs
—

 
—

 
 
(498,409
)
 
—

Ending net loss and loss expense reserves
$
3,698,378

 
$
5,347,877

 
 
$
5,434,517

 
$
5,974,731

Add reinsurance on loss and loss expense reserves (1)
100,355

 
122,357

 
 
138,155

 
147,409

Ending gross loss and loss expense reserves
$
3,798,733

 
$
5,470,234

 
 
$
5,572,672

 
$
6,122,140


(1)
Reinsurance recoverable reported on the Balance Sheet also includes reinsurance recoverables of previously presented loss and loss expenses of $(517), $(1,108), $1,879, and, $675 as of December 31, 2014, December 31, 2013, April 30, 2013 and December 31, 2012, respectively.
The positive development in loss and loss expense reserves for Successor Ambac established in prior years for the year ended December 31, 2014 was primarily due to improved performance in all sectors, including RMBS, Student Loans, international, municipal and other structured finance, partially offset by the addition of accrued interest on Deferred Amounts pursuant to the amended Segregated Account Rehabilitation Plan. The positive development in loss and loss expense reserves for Successor Ambac established in prior years for the eight months ended December 31, 2013 was primarily due to improved performance of the Student Loan and RMBS portfolios. The positive development in loss and loss expense reserves for Predecessor Ambac established in prior years for the four months ended April 30, 2013 was primarily due to improved performance of the RMBS portfolio offset by deterioration in certain Public Finance and Ambac UK credits. For the year ended December 31, 2012, the adverse development in loss reserves established in prior years was primarily due to projected deterioration of collateral supporting structured finance policies, including RMBS and Student Loan exposures, which resulted in greater expected ultimate losses and lower expected subrogation recoveries related to representation and warranty breaches on insured RMBS securitizations.
The net change in net loss and loss expense reserves are included in losses and loss expenses in the Consolidated Statement of Total Comprehensive Income. For Successor Ambac, reinsurance recoveries of losses included in losses and loss expenses in the Consolidated Statements of Total Comprehensive Income (Loss) were an expense of $21,164 and $14,106 for the year ended December 31, 2014 and the eight months ended December 31, 2013, respectively. For Predecessor Ambac, reinsurance recoveries of losses included in losses and loss expenses in the Consolidated Statements of Total Comprehensive Income (Loss) were a benefit of $3,889 for the four months ended April 30, 2013 and a benefit of $6,996 for the year ended December 31, 2012.
The tables below summarize information related to policies currently included in Ambac’s loss and loss expense reserves or subrogation recoverable at December 31, 2014 and 2013. Net par exposures include capital appreciation bonds which are reported at the par amount at the time of issuance of the insurance policy. The weighted average risk-free rate used to discount loss reserves at December 31, 2014 and 2013 was 2.3% and 3.2%, respectively.
Surveillance Categories as of December 31, 2014
 
I/SL
 
IA
 
II
 
III
 
IV
 
V
 
Total
Number of policies
36

 
26

 
33

 
69

 
160

 
1

 
325

Remaining weighted-average contract period (in years)
8

 
12

 
15

 
21

 
12

 
6

 
16

Gross insured contractual payments outstanding:
 
 
 
 
 
 
 
 
 
 
 
 
 
Principal
$
1,026,513

 
$
519,291

 
$
3,091,744

 
$
3,792,559

 
$
9,892,760

 
$
47

 
$
18,322,914

Interest
418,746

 
212,296

 
1,878,770

 
2,765,537

 
1,979,627

 
19

 
7,254,995

Total
$
1,445,259

 
$
731,587

 
$
4,970,514

 
$
6,558,096

 
$
11,872,387

 
$
66

 
$
25,577,909

Gross undiscounted claim liability (1)
$
16,360

 
$
11,525

 
$
155,488

 
$
2,040,402

 
$
6,456,139

 
$
60

 
$
8,679,974

Discount, gross claim liability
(1,147
)
 
(937
)
 
(16,438
)
 
(716,812
)
 
(774,611
)
 
(3
)
 
(1,509,948
)
Gross claim liability before all subrogation and before reinsurance
$
15,213

 
$
10,588

 
$
139,050

 
$
1,323,590

 
$
5,681,528

 
$
57

 
$
7,170,026

Less:
 
 
 
 
 
 
 
 
 
 
 
 
 
Gross RMBS subrogation (2)
—

 
—

 
—

 
—

 
(2,541,219
)
 
—

 
(2,541,219
)
Discount, RMBS subrogation
—

 
—

 
—

 
—

 
17,679

 
—

 
17,679

Discounted RMBS subrogation, before reinsurance
—

 
—

 
—

 
—

 
(2,523,540
)
 
—

 
(2,523,540
)
Less:
 
 
 
 
 
 
 
 
 
 
 
 
 
Gross other subrogation (3)
—

 
—

 
(18,034
)
 
(127,143
)
 
(647,110
)
 
—

 
(792,287
)
Discount, other subrogation
—

 
—

 
6,069

 
36,779

 
48,960

 
—

 
91,808

Discounted other subrogation, before reinsurance
—

 
—

 
(11,965
)
 
(90,364
)
 
(598,150
)
 
—

 
(700,479
)
Gross claim liability, net of all subrogation and discounts, before reinsurance
$
15,213

 
$
10,588

 
$
127,085

 
$
1,233,226

 
$
2,559,838

 
$
57

 
$
3,946,007

Less: Unearned premium revenue
(10,945
)
 
(3,432
)
 
(73,749
)
 
(88,332
)
 
(64,890
)
 
—

 
(241,348
)
Plus: Loss expense reserves
3

 
1,303

 
1,968

 
6,470

 
84,330

 
—

 
94,074

Gross loss and loss expense reserves
$
4,271

 
$
8,459

 
$
55,304

 
$
1,151,364

 
$
2,579,278

 
$
57

 
$
3,798,733

Reinsurance recoverable reported on Balance Sheet (4)
$
73

 
$
890

 
$
1,355

 
$
110,957

 
$
(13,437
)
 
$
—

 
$
99,838

 
(1)
Gross undiscounted claim liability includes unpaid claims, including accrued interest on Deferred Amounts, on policies allocated to the Segregated Account and Ambac's estimate of expected future claims.
(2)
RMBS subrogation represents Ambac’s probability-weighted estimate of subrogation recoveries from RMBS transaction sponsors for representation and warranty ("R&W") breaches.
(3)
Other subrogation primarily represents subrogation-related to excess spread or other contractual cash flows on structured finance transactions including RMBS.
(4)
Reinsurance recoverable reported on Balance Sheet includes reinsurance recoverables of $100,355 related to future loss and loss expenses and $(517) related to previously presented loss and loss expenses.
Surveillance Categories as of 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 (1)
$
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 (2)
—

 
—

 
—

 
(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 (3)
—

 
—

 
(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 revenue
(4,060
)
 
(22,901
)
 
(95,550
)
 
(280,245
)
 
(100,228
)
 
—

 
(502,984
)
Plus: Loss expense reserves
—

 
11

 
2,257

 
1,658

 
107,465

 
—

 
111,391

Gross loss and loss expense reserves
$
2,162

 
$
24,782

 
$
84,553

 
$
1,367,751

 
$
3,990,927

 
$
59

 
$
5,470,234

Reinsurance recoverable reported on Balance Sheet (4)
$
146

 
$
2,271

 
$
2,273

 
$
119,795

 
$
(3,236
)
 
$
—

 
$
121,249

(1)
Gross undiscounted claim liability includes unpaid claims, including accrued interest on Deferred Amounts, on policies allocated to the Segregated Account and Ambac's estimate of expected future claims.
(2)
RMBS subrogation represents Ambac’s probability-weighted estimate of subrogation recoveries from RMBS transaction sponsors for R&W breaches.
(3)
Other subrogation primarily represents subrogation related to excess spread or other contractual cash flows on structure finance transactions, including RMBS.
(4)
Reinsurance recoverable reported on Balance Sheet includes reinsurance recoverables of $122,357 related to future loss and loss expenses and $(1,108) related to previously presented loss and loss expenses.
Ambac records estimated subrogation recoveries for breaches of representations and warranties (R&W) by sponsors of certain RMBS transactions. Prior to the June 30, 2014 reporting period, Ambac utilized the Adverse and Random Sample approaches to estimate R&W subrogation recoveries for certain RMBS transactions. For a discussion of these subrogation recovery approaches, see Note 2 - Basis Of Presentation And Significant Accounting Policies. Beginning with the June 30, 2014 reporting period, as a result of gaining further access to loan files, the Random Sample approach has been utilized for all transactions which were previously evaluated using the Adverse Sample approach.
Ambac has recorded RMBS subrogation recoveries of $2,523,540, ($2,496,515 net of reinsurance) and $2,206,598, ($2,183,652 net of reinsurance) at December 31, 2014 and 2013, respectively. The balance of RMBS subrogation recoveries and the related claim liabilities, by estimation approach, at December 31, 2014 and 2013, are as follows:
Approach
Gross loss
reserves before
subrogation
recoveries (1)
 
Subrogation
recoveries (2)(3)
 
Gross loss
reserves after
subrogation
recoveries
December 31, 2014:
 
 
 
 
 
Random samples (4)
$
1,897,426

 
$
(2,523,540
)
 
$
(626,114
)
Totals
$
1,897,426

 
(2,523,540
)
 
$
(626,114
)
 
 
 
 
 
 
December 31, 2013:
 
 
 
 
 
Adverse samples
$
2,084,911

 
(1,252,773
)
 
$
832,138

Random samples (4)
1,078,861

 
(953,825
)
 
125,036

Totals
$
3,163,772

 
(2,206,598
)
 
$
957,174

(1)
Includes unpaid RMBS claims, including accrued interest on Deferred Amounts, 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 the present value of expected cash flows for each policy. To the extent losses have been paid but not yet fully recovered, the recorded amount of RMBS subrogation recoveries may exceed the sum of the unpaid claims and the present value of expected cash flows 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 present value of expected cash flows, the net cash outflow for these policies is recorded as a “Loss and loss expense reserves” 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.
(4)
From time to time R&W subrogation may include estimates of potential sponsor settlements that are currently in negotiation, but have not been subject to a sampling approach. However, such estimates are not material to Ambac’s financial results and therefore are included in the Random Sample section of this table.
Below is the rollforward of RMBS subrogation, by estimation approach, for the affected periods:
 
Random
sample
 
Adverse
sample
 
Total
Successor Ambac:
 
 
 
 
 
Discounted RMBS subrogation (gross of reinsurance) at January 1, 2014
$
953,825

 
$
1,252,773

 
$
2,206,598

Changes recognized in 2014:
 
 
 
 
 
Additional transactions reviewed
24,565

 
—

 
24,565

Changes in estimation approach (1)
1,417,556

 
(1,218,681
)
 
198,875

Impact of sponsor actions (2)
(146,270
)
 
—

 
(146,270
)
All other changes (3)
273,864

 
(34,092
)
 
239,772

Discounted RMBS subrogation (gross of reinsurance) at December 31, 2014
$
2,523,540

 
$
—

 
$
2,523,540

 
 
 
 
 
 
Successor Ambac:
 
 
 
 
 
Discounted RMBS subrogation (gross of reinsurance) at May 1, 2013
$
1,004,252

 
$
1,478,666

 
$
2,482,918

Changes recognized through December 31, 2013:
 
 
 
 
 
Additional transactions reviewed
2,451

 
—

 
2,451

Changes in estimation approach (1)
—

 
—

 
—

Adverse loans repurchased by the sponsor
—

 
—

 
—

Impact of sponsor actions (2)
—

 
98

 
98

All other changes (3)
(52,878
)
 
(225,991
)
 
(278,869
)
Discounted RMBS subrogation (gross of reinsurance) at December 31, 2013
$
953,825

 
$
1,252,773

 
$
2,206,598

 
 
 
 
 
 
Predecessor Ambac
 
 
 
 
 
Discounted RMBS subrogation (gross of reinsurance) at January 1, 2013
$
1,080,408

 
$
1,442,817

 
$
2,523,225

Changes recognized through April 30, 2013:
 
 
 
 
 
Additional transactions reviewed
—

 
—

 
—

Changes in estimation approach (1)
—

 
—

 
—

Adverse loans repurchased by the sponsor
—

 
—

 
—

Impact of sponsor actions (2)
(54,195
)
 
—

 
(54,195
)
All other changes (3)
(21,961
)
 
35,849

 
13,888

Discounted RMBS subrogation (gross of reinsurance) at April 30, 2013
$
1,004,252

 
$
1,478,666

 
$
2,482,918

 
 
 
 
 
 
Predecessor Ambac:
 
 
 
 
 
Discounted RMBS subrogation (gross of reinsurance) at January 1, 2012
$
1,262,794

 
$
1,457,472

 
$
2,720,266

Changes recognized in 2012:
 
 
 
 
 
Additional transactions reviewed
54,467

 
(35,486
)
 
18,981

Changes in estimation approach (1)
—

 
—

 
—

Adverse loans repurchased by the sponsor
—

 
35

 
35

Impact of sponsor actions (2)
—

 
—

 
—

All other changes (3)
(236,853
)
 
20,796

 
(216,057
)
Discounted RMBS subrogation (gross of reinsurance) at December 31, 2012
$
1,080,408

 
$
1,442,817

 
$
2,523,225

(1)
Represents estimated subrogation for those transactions previously evaluated using the Adverse Sample approach, which are evaluated using a Random Sample approach beginning June 30, 2014. The amounts shown in the Random and Adverse Sample columns are different as a result of the differences in estimation approaches.
(2)
Sponsor actions include loan repurchases, direct payments to Ambac and other contributions from sponsors.
(3)
All 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. All other changes may also include estimates of potential sponsor settlements that are currently in negotiation but have not been subject to a sampling approach. However, such estimates are not material to Ambac’s financial results and therefore are included in the Random Sample column of this table.
Assumed Reinsurance:
Assumed par outstanding was $245,900 and $248,225 at December 31, 2014 and 2013, respectively. On March 24, 2010, all assumed reinsurance agreements with third parties were allocated to the Segregated Account, which will not allow for cancellations without the approval of the Rehabilitator.
Ceded Reinsurance:
Ambac Assurance has reinsurance in place pursuant to surplus share treaty and facultative reinsurance agreements. The reinsurance of risk does not relieve Ambac Assurance of its original liability to its policyholders. In the event that any of Ambac Assurance’s reinsurers are unable to meet their obligations under reinsurance contracts, Ambac Assurance would, nonetheless, be liable to its policyholders for the full amount of its policy.
Ambac Assurance’s reinsurance assets, including deferred ceded premiums and reinsurance recoverables on losses amounted to $223,114 at December 31, 2014. Credit exposure existed at December 31, 2014 with respect to reinsurance recoverables to the extent that any reinsurer may not be able to reimburse Ambac Assurance under the terms of these reinsurance arrangements. At December 31, 2014, there were ceded reinsurance balances payable of $60,436 offsetting this credit exposure.
To minimize its credit exposure to losses from reinsurer insolvencies, Ambac Assurance (i) is entitled to receive collateral from its reinsurance counterparties in certain reinsurance contracts; and (ii) has certain cancellation rights that can be exercised by Ambac Assurance in the event of rating agency downgrades of a reinsurer (among other events and circumstances). Ambac Assurance held letters of credit and collateral amounting to $141,337 from its reinsurers at December 31, 2014. As of December 31, 2014, the aggregate amount of insured par ceded by Ambac Assurance to reinsurers under reinsurance agreements was $14,954,444 with the largest reinsurer accounting for $13,365,743 or 8.4% of gross par outstanding at December 31, 2014. The following table represents the percentage ceded to reinsurers and reinsurance recoverable at December 31, 2014 and its rating levels as of February 25, 2015:
Reinsurers
Moody’s
Rating
 
Moody’s
Outlook
 
Percentage
ceded Par
 
Net unsecured
reinsurance
recoverable(1)
Assured Guaranty Re Ltd
Baa1
 
Negative
 
89.4%
 
$
37,553

Sompo Japan Nipponkoa Holdings, Inc.
A1
 
Stable
 
6.1
 
—

Assured Guaranty Corporation
A3
 
Negative
 
4.5
 
4,388

Total
 
 
 
 
100%
 
$
41,941

(1)
Represents reinsurance recoverables on paid and unpaid losses and deferred ceded premiums, net of ceded premium payables due to reinsurers, letters of credit, and collateral posted for the benefit of Ambac Assurance.
Insurance intangible asset:
The insurance intangible amortization expense is included in insurance intangible amortization on the Consolidated Statements of Total Comprehensive Income (Loss) for Successor Ambac. For the year ended December 31, 2014 and the eight months ending December 31, 2013, the insurance intangible amortization expense was $151,830 and $99,658, respectively. As of December 31, 2014 and 2013, the gross carrying value of the insurance intangible asset was $1,660,125 and $1,698,732, respectively. Accumulated amortization of the insurance intangible asset was $249,205 and $100,767, as of December 31, 2014 and 2013, respectively, resulting in a net insurance intangible asset of $1,410,920 and $1,597,965, respectively.
The estimated future amortization expense for the net insurance intangible asset is as follows:
2015
$
122,675

2016
108,582

2017
99,446

2018
92,078

2019
85,356

Thereafter
902,783