Fair Value Measurements (Tables)

12 Months Ended

Dec. 31, 2015

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 December 31, 2015 and 2014, 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.



	Carrying Amount			Total Fair Value			Fair Value Measurements Categorized as:
							Level 1		Level 2			Level 3
December 31, 2015:
Financial assets:
Fixed income securities:
Municipal obligations	$	420,770		$	420,770		$	—	$	420,770		$	—
Corporate obligations	1,593,669			1,593,669			—		1,593,669			—
Foreign obligations	96,306			96,306			87,808		8,498			—
U.S. government obligations	26,687			26,687			26,687		—			—
U.S. agency obligations	4,212			4,212			—		4,212			—
Residential mortgage-backed securities	1,977,338			1,977,338			—		1,488,454			488,884
Collateralized debt obligations	84,267			84,267			—		84,267			—
Other asset-backed securities	840,527			840,527			—		840,527			—
Fixed income securities, pledged as collateral:
U.S. government obligations	64,555			64,555			64,555		—			—
Short term investments	225,789			225,789			197,398		28,391			—
Other investments	310,600			298,095			—		285,261			12,834
Cash and cash equivalents	35,744			35,744			35,744		—			—
Loans	5,206			5,128			—		—			5,128
Derivative assets:
Credit derivatives	—			—			—		—			—
Interest rate swaps—asset position	84,886			84,886			—		21,848			63,038
Interest rate swaps—liability position	—			—			—		—			—
Futures contracts	109			109			109		—			—
Other assets	8,696			8,696			—		—			8,696
Variable interest entity assets:
Fixed income securities:
Corporate obligations	2,588,556			2,588,556			—		—			2,588,556
Restricted cash	5,822			5,822			5,822		—			—
Loans	11,690,324			11,690,324			—		—			11,690,324
Total financial assets	$	20,064,063		$	20,051,480		$	418,123	$	4,775,897		$	14,857,460
Financial liabilities:
Obligations under investment agreements	$	100,358		$	101,400		$	—	$	—		$	101,400
Long term debt, including accrued interest	1,481,045			1,235,721			—		132,837			1,102,884
Derivative liabilities:
Credit derivatives	34,543			34,543			—		—			34,543
Interest rate swaps—asset position	(52,128		)	(52,128		)	—		(52,128		)	—
Interest rate swaps—liability position	370,943			370,943			—		243,256			127,687
Futures contracts	—			—			—		—			—
Liabilities for net financial guarantees written ⁽¹⁾	1,990,831			2,325,859			—		—			2,325,859
Variable interest entity liabilities:
Long-term debt	12,327,960			12,327,960			—		9,147,790			3,180,170
Derivative liabilities:
Interest rate swaps—liability position	1,965,265			1,965,265			—		1,965,265			—
Currency swaps—liability position	(36,862		)	(36,862		)	—		(36,862		)	—
Total financial liabilities	$	18,181,955		$	18,272,701		$	—	$	11,400,158		$	6,872,543

(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; Loss and loss expense reserves; Ceded premiums payable, premiums taxes payable and other deferred fees recorded in Other liabilities.



	Carrying Amount			Total Fair Value			Fair Value Measurements Categorized as:
							Level 1		Level 2			Level 3
December 31, 2014:
Financial assets:
Fixed income securities:
Municipal obligations	$	525,792		$	525,792		$	—	$	525,792		$	—
Corporate obligations	1,385,594			1,385,594			—		1,381,786			3,808
Foreign obligations	127,757			127,757			117,282		10,475			—
U.S. government obligations	42,979			42,979			42,979		—			—
U.S. agency obligations	29,486			29,486			—		29,486			—
Residential mortgage-backed securities	1,710,955			1,710,955			—		1,516,562			194,393
Collateralized debt obligations	21,122			21,122			—		21,122			—
Other asset-backed securities	882,001			882,001			—		882,001			—
Fixed income securities, pledged as collateral:
U.S. government obligations	64,267			64,267			64,267		—			—
Short term investments	360,065			360,065			359,565		500			—
Other investments	357,016			349,468			—		336,013			13,455
Cash and cash equivalents	73,903			73,903			73,903		—			—
Loans	5,714			5,634			—		—			5,634
Derivative assets:
Credit derivatives	2,043			2,043			—		—			2,043
Interest rate swaps—asset position	106,974			106,974			—		106,974			—
Interest rate swaps—liability position	—			—			—		—			—
Futures contracts	—			—			—		—			—
Other assets	12,036			12,036			—		—			12,036
Variable interest entity assets:
Fixed income securities:
Corporate obligations	2,743,050			2,743,050			—		—			2,743,050
Restricted cash	7,708			7,708			7,708		—			—
Loans	12,371,177			12,371,177			—		—			12,371,177
Total financial assets	$	20,829,639		$	20,822,011		$	665,704	$	4,810,711		$	15,345,596
Financial liabilities:
Obligations under investment agreements	$	160,079		$	161,821		$	—	$	—		$	161,821
Long term debt, including accrued interest	1,273,805			1,379,864			—		—			1,379,864
Derivative liabilities:
Credit derivatives	75,502			75,502			—		—			75,502
Interest rate swaps—asset position	(54,666		)	(54,666		)	—		(54,666		)	—
Interest rate swaps—liability position	385,546			385,546			—		243,659			141,887
Futures contracts	562			562			562		—			—
Other contracts	—			—			—		—			—
Liabilities for net financial guarantees written ⁽¹⁾	2,923,652			4,539,000			—		—			4,539,000
Variable interest entity liabilities:
Long-term debt	12,882,076			12,882,076			—		11,618,412			1,263,664
Derivative liabilities:
Interest rate swaps—liability position	2,133,268			2,133,268			—		2,133,268			—
Currency swaps—liability position	66,895			66,895			—		66,895			—
Total financial liabilities	$	19,846,719		$	21,569,868		$	562	$	14,007,568		$	7,561,738

(1)

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 December 31, 2015 and 2014 is summarized below:



	December 31, 2015						December 31, 2014
	CLOs			Other ⁽¹⁾			CLOs			Other (1)
Notional outstanding	$	295,253		$	617,148		$	549,923		$	921,036
Weighted average reference obligation price	98.4			85.2			98.9			86.8
Weighted average life (WAL) in years	1.1			6.1			1.8			5.7
Weighted average credit rating	AA			BBB+			AA			BBB-
Weighted average relative change ratio	36.3		%	33.3		%	35.9		%	49.0		%
CVA percentage	8.34		%	23.34		%	5.40		%	15.82		%
Fair value of derivative liabilities	$	1,837		$	32,697		$	2,027		$	71,104

(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 $58,482, WAL of 0.2 years and liability fair value of $9 as of December 31, 2015. Other inputs to the valuation of these transactions at December 31, 2015 include weighted average quotes of less than 1% of notional, weighted average rating of A+ and Ambac CVA percentage of 0.09%. As of December 31, 2014, these contracts had a combined notional outstanding of $58,800, WAL of 1.2 years and liability fair value of $328. Other inputs to the valuation of these transactions at December 31, 2014 include weighted average quotes of 1% of notional, weighted average rating of A and Ambac CVA percentage of 2.2%.

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 2015 and 2014. 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 - Year Ended December 31, 2015	Investments			Other assets			Derivatives			Investments			Loans			Long-term debt			Total
Balance, beginning of period	$	198,201		$	12,036		$	(215,346	)	$	2,743,050		$	12,371,177		$	(1,263,664	)	$	13,845,454
Total gains/(losses) realized and unrealized:
Included in earnings	30,083			(1,635		)	16,571			(7,263		)	569,617			(1,152,681		)	(545,308		)
Included in other comprehensive income	(73,559		)	—			—			(147,231		)	(612,941		)	93,812			(739,919		)
Purchases	359,193			—			—			—			—			—			359,193
Issuances	—			—			—			—			—			—			—
Sales	—			—			—			—			—			—			—
Settlements	(25,034		)	(1,705		)	11,365			—			(312,406		)	(17,085		)	(344,865		)
Transfers in Level 3	—			—			88,218			—			—			(840,552		)	(752,334		)
Transfers out of Level 3	—			—			—			—			—			—			—
Deconsolidation of VIEs	—			—			—			—			(325,123		)	—			(325,123		)
Balance, end of period	$	488,884		$	8,696		$	(99,192	)	$	2,588,556		$	11,690,324		$	(3,180,170	)	$	11,497,098
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	$	—		$	(1,635	)	$	(25,980	)	$	(7,263	)	$	589,634		$	(1,161,991	)	$	(607,235	)



										VIE Assets and Liabilities
Successor Ambac - Year Ended December 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
Total gains/(losses) realized and unrealized:
Included in earnings	11,057			(1,348		)	(45,392		)	429,113			1,118,084			(290,457		)	1,221,057
Included in other comprehensive income	(541		)	—			—			(161,245		)	(726,827		)	66,515			(822,098		)
Purchases	54,013			—			—			—			70,000			—			124,013
Issuances	—			—			—			—			—			—			—
Sales	(59,878		)	—			—			—			—			—			(59,878		)
Settlements	(62,266		)	—			16,980			—			(792,186		)	433,896			(403,576		)
Transfers into Level 3	188,241			—			—			—			—			—			188,241
Transfers out of Level 3	(208		)	—			—			—			—			4,096			3,888
Deconsolidations of VIEs	—			—			—			—			(696,789		)	36,891			(659,898		)
Balance, end of period	$	198,201		$	12,036		$	(215,346	)	$	2,743,050		$	12,371,177		$	(1,263,664	)	$	13,845,454
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	$	—		$	(1,348	)	$	(53,509	)	$	429,113		$	1,119,219		$	(286,405	)	$	1,207,070



										VIE Assets and Liabilities
Successor Ambac – Period from May 1 through December 31, 2013	Investments			Other assets			Derivatives			Investments			Loans			Long-term debt			Total
Balance, beginning of period	$	69,412		$	14,061		$	(415,360	)	$	2,500,565		$	14,752,053		$	(1,750,372	)	$	15,170,359
Total gains/(losses) realized and unrealized:
Included in earnings	1,870			(677		)	217,666			(178,322		)	(455,231		)	(2,490		)	(417,184		)
Included in other comprehensive income	7,184			—			—			152,939			873,986			(79,063		)	955,046
Purchases	—			—			—			—			—			—			—
Issuances	—			—			—			—			—			—			—
Sales	(4,528		)	—			—			—			—			—			(4,528		)
Settlements	(6,428		)	—			10,760			—			(219,909		)	173,196			(42,381		)
Transfers into Level 3	273			—			—			—			—			(220,922		)	(220,649		)
Transfers out of Level 3	—			—			—			—			—			365,046			365,046
Deconsolidation of VIEs	—			—			—			—			(1,552,004		)	—			(1,552,004		)
Balance, end of period	$	67,783		$	13,384		$	(186,934	)	$	2,475,182		$	13,398,895		$	(1,514,605	)	$	14,253,705
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	$	—		$	(677	)	$	91,436		$	(178,322	)	$	(475,152	)	$	(2,490	)	$	(565,205	)



										VIE Assets and Liabilities
Predecessor Ambac – Period from January 1 through Apri2l 30, 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	—			—			—			—			—			(409,300		)	(409,300		)
Total gains/(losses) realized and unrealized:
Included in earnings	(33		)	(496		)	(88,546		)	328,768			956,402			(138,914		)	1,057,181
Included in other comprehensive income	12,329			—			—			(89,497		)	(849,833		)	150,987			(776,014		)
Purchases	—			—			—			—			—			—			—
Issuances	—			—			—			—			—			—			—
Sales	—			—			—			—			—			—			—
Settlements	(3,286		)	—			(4,477		)	—			(713,589		)	4,864			(716,488		)
Transfers into Level 3	—			—			—			—			—			—			—
Transfers out of Level 3	—			—			—			—			—			1,598,492			1,598,492
Balance, end of period	$	69,412		$	14,061		$	(415,360	)	$	2,500,565		$	14,752,053		$	(1,750,372	)	$	15,170,359
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	$	—		$	(496	)	$	(92,002	)	$	328,768		$	956,402		$	(138,914	)	$	1,053,758

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 - Year Ended December 31, 2015	Collateralized Debt Obligations		Other Asset Backed Securities		Corporate Obligations			U.S. Agency Obligations		Non-Agency RMBS			Total Investments
Balance, beginning of period	$	—	$	—	$	3,808		$	—	$	194,393		$	198,201
Total gains/(losses) realized and unrealized:
Included in earnings	—		—		(19		)	—		30,102			30,083
Included in other comprehensive income	—		—		(286		)	—		(73,273		)	(73,559		)
Purchases	—		—		—			—		359,193			359,193
Issuances	—		—		—			—		—			—
Sales	—		—		—			—		—			—
Settlements	—		—		(3,503		)	—		(21,531		)	(25,034		)
Transfers in Level 3	—		—		—			—		—			—
Transfers out of Level 3	—		—		—			—		—			—
Balance, end of period	$	—	$	—	$	—		$	—	$	488,884		$	488,884
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	$	—	$	—	$	—		$	—	$	—		$	—



Successor Ambac - Year Ended December 31, 2014	Collateralized Debt Obligations		Other Asset Backed Securities			Corporate Obligations			U.S. Agency Obligations			Non-Agency RMBS			Total Investments
Balance, beginning of period	$	—	$	64,073		$	3,502		$	208		$	—		$	67,783
Total gains/(losses) realized and unrealized:
Included in earnings	—		6,994			(97		)	—			4,160			11,057
Included in other comprehensive income	—		(8,182		)	403			—			7,238			(541		)
Purchases	—		—			—			—			54,013			54,013
Issuances	—		—			—			—			—			—
Sales	—		(59,878		)	—			—			—			(59,878		)
Settlements	—		(3,007		)	—			—			(59,259		)	(62,266		)
Transfers into Level 3	—		—			—			—			188,241			188,241
Transfers out of Level 3	—		—			—			(208		)	—			(208		)
Balance, end of period	$	—	$	—		$	3,808		$	—		$	194,393		$	198,201
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	$	—	$	—		$	—		$	—		$	—		$	—



Successor Ambac - Period from May 1 through December 31, 2013	Collateralized Debt Obligations			Other Asset Backed Securities			Corporate Obligations			U.S. Agency Obligations			Total Investments
Balance, beginning of period	$	3,949		$	61,782		$	3,681		$	—		$	69,412
Total gains/(losses) realized and unrealized:
Included in earnings	25			1,912			(62		)	(5		)	1,870
Included in other comprehensive income	(19		)	7,315			(117		)	5			7,184
Purchases	—			—			—			—			—
Issuances	—			—			—			—			—
Sales	—			(4,528		)	—			—			(4,528		)
Settlements	(3,955		)	(2,408		)	—			(65		)	(6,428		)
Transfers into Level 3	—			—			—			273			273
Transfers out of Level 3	—			—			—			—			—
Balance, end of period	$	—		$	64,073		$	3,502		$	208		$	67,783
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 – Period from January 1 through April 30, 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
Additions of VIEs consolidated	—			—			—			—		—
Total gains/(losses) realized and unrealized:
Included in earnings	(6		)	—			(27		)	—		(33		)
Included in other comprehensive income	160			12,117			52			—		12,329
Purchases	—			—			—			—		—
Issuances	—			—			—			—		—
Sales	—			—			—			—		—
Settlements	(2,687		)	(599		)	—			—		(3,286		)
Transfers into Level 3	—			—			—			—		—
Transfers out of Level 3	—			—			—			—		—
Balance, end of period	$	3,949		$	61,782		$	3,681		$	—	$	69,412
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 - Year Ended December 31, 2015									Successor Ambac - Year Ended December 31, 2014
	Interest Rate Swaps			Credit Derivatives			Total Derivatives			Interest Rate Swaps			Credit Derivatives			Total Derivatives
Balance, beginning of period	$	(141,887	)	$	(73,459	)	$	(215,346	)	$	(92,612	)	$	(94,322	)	$	(186,934	)
Total gains/(losses) realized and unrealized:
Included in earnings	(25,130		)	41,701			16,571			(69,298		)	23,906			(45,392		)
Included in other comprehensive income	—			—			—			—			—			—
Purchases	—			—			—			—			—			—
Issuances	—			—			—			—			—			—
Sales	—			—			—			—			—			—
Settlements	14,150			(2,785		)	11,365			20,023			(3,043		)	16,980
Transfers in Level 3	88,218			—			88,218			—			—			—
Transfers out of Level 3	—			—			—			—			—			—
Balance, end of period	$	(64,649	)	$	(34,543	)	$	(99,192	)	$	(141,887	)	$	(73,459	)	$	(215,346	)
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	$	(25,130	)	$	(850	)	$	(25,980	)	$	(69,298	)	$	15,789		$	(53,509	)



	Successor Ambac – Period from May 1 through December 31, 2013									Predecessor Ambac – Period from January 1 through April 30, 2013
	Interest Rate Swaps			Credit Derivatives			Total Derivatives			Interest Rate Swaps			Credit Derivatives			Total Derivatives
Balance, beginning of period	$	(137,947	)	$	(277,413	)	$	(415,360	)	$	(108,752	)	$	(213,585	)	$	(322,337	)
Total gains/(losses) realized and unrealized:
Included in earnings	24,797			192,869			217,666			(28,162		)	(60,384		)	(88,546		)
Included in other comprehensive income	—			—			—			—			—			—
Purchases	—			—			—			—			—			—
Issuances	—			—			—			—			—			—
Sales	—			—			—			—			—			—
Settlements	20,538			(9,778		)	10,760			(1,033		)	(3,444		)	(4,477		)
Transfers into Level 3	—			—			—			—			—			—
Transfers out of Level 3	—			—			—			—			—			—
Balance, end of period	$	(92,612	)	$	(94,322	)	$	(186,934	)	$	(137,947	)	$	(277,413	)	$	(415,360	)
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	$	24,797		$	66,639		$	91,436		$	(28,162	)	$	(63,840	)	$	(92,002	)

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)			Income (loss) on variable interest entities			Other income or (loss)
Successor Ambac:
Year Ended December 31, 2015
Total gains or losses included in earnings for the period	30,083			2,785		38,916			(25,130		)	(590,327		)	(1,635		)
Changes in unrealized gains or losses relating to the assets and liabilities still held at the reporting date	—			—		(850		)	(25,130		)	(579,620		)	(1,635		)

Year Ended December 31, 2014
Total gains or losses included in earnings for the period	$	11,057		$	3,043	$	20,863		$	(69,298	)	$	1,256,740		$	(1,348	)
Changes in unrealized gains or losses relating to the assets and liabilities still held at the reporting date	—			—		15,789			(69,298		)	1,261,927			(1,348		)

Period from May 1 through December 31, 2013
Total gains or losses included in earnings for the period	$	1,870		$	9,778	$	183,091		$	24,797		$	(636,043	)	$	(677	)
Changes in unrealized gains or losses relating to the assets and liabilities still held at the reporting date	—			—		66,639			24,797			(655,964		)	(677		)

Predecessor Ambac:
Period from January 1 through April 30, 2013
Total gains or losses included in earnings for the period	$	(33	)	$	3,444	$	(63,828	)	$	(28,162	)	$	1,146,256		$	(496	)
Changes in unrealized gains or losses relating to the assets and liabilities still held at the reporting date	—			—		(63,840		)	(28,162		)	1,146,256			(496		)