Fair Value Measurements (Tables)

3 Months Ended

Mar. 31, 2016

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, 2016 and December 31, 2015, 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:
March 31, 2016:							Level 1		Level 2			Level 3
Financial assets:
Fixed income securities:
Municipal obligations	$	385,830		$	385,830		$	—	$	385,830		$	—
Corporate obligations	1,646,304			1,646,304			—		1,646,304			—
Foreign obligations	96,641			96,641			82,490		14,151			—
U.S. government obligations	33,449			33,449			33,449		—			—
U.S. agency obligations	4,186			4,186			—		4,186			—
Residential mortgage-backed securities	2,274,055			2,274,055			—		1,634,351			639,704
Collateralized debt obligations	99,341			99,341			—		99,341			—
Other asset-backed securities	1,110,455			1,110,455			—		1,038,669			71,786
Fixed income securities, pledged as collateral:
U.S. government obligations	64,918			64,918			64,918		—			—
Short term investments	436,760			436,760			431,077		5,683			—
Other investments ⁽²⁾	320,847			304,180			47,673		—			9,804
Cash and cash equivalents	29,142			29,142			29,142		—			—
Loans	5,109			5,082			—		—			5,082
Derivative assets:
Credit derivatives	—			—			—		—			—
Interest rate swaps—asset position	97,559			97,559			—		23,012			74,547
Interest rate swaps—liability position	—			—			—		—			—
Futures contracts	—			—			—		—			—
Other assets	8,411			8,411			—		—			8,411
Variable interest entity assets:
Fixed income securities:
Corporate obligations	2,622,724			2,622,724			—		—			2,622,724
Restricted cash	5,642			5,642			5,642		—			—
Loans	11,516,242			11,516,242			—		—			11,516,242
Total financial assets	$	20,757,615		$	20,740,921		$	694,391	$	4,851,527		$	14,948,300
Financial liabilities:
Obligations under investment agreements	$	100,358		$	101,335		$	—	$	—		$	101,335
Long term debt, including accrued interest	1,486,956			1,350,614			—		123,519			1,227,095
Derivative liabilities:
Credit derivatives	21,929			21,929			—		—			21,929
Interest rate swaps—asset position	(79,168		)	(79,168		)	—		(79,168		)	—
Interest rate swaps—liability position	465,453			465,453			—		302,941			162,512
Futures contracts	117			117			117		—			—
Liabilities for net financial guarantees written ⁽¹⁾	2,857,709			3,925,664			—		—			3,925,664
Variable interest entity liabilities:
Long-term debt	11,998,561			11,998,561			—		9,210,145			2,788,416
Derivative liabilities:
Interest rate swaps—liability position	2,123,608			2,123,608			—		2,123,608			—
Currency swaps—asset position	(48,801		)	(48,801		)	—		(48,801		)	—
Total financial liabilities	$	18,926,722		$	19,859,312		$	117	$	11,632,244		$	8,226,951



	Carrying Amount			Total Fair Value			Fair Value Measurements Categorized as:
December 31, 2015:							Level 1		Level 2			Level 3
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 ⁽²⁾	310,600			298,095			45,745		—			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		$	463,868	$	4,490,636		$	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	—			—			—		—			—
Other contracts	—			—			—		—			—
Liabilities for net financial guarantees written ⁽¹⁾	2,033,484			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	$	18,224,608		$	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.


(2)	Excluded from the fair value measurement categories in the table above are investments funds of $246,703 and $239,516 as of March 31, 2016 and December 31, 2015, respectively, which are measured using NAV per share as a practical expedient.

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, 2016 and December 31, 2015 is summarized below:



	March 31, 2016:						December 31, 2015:
	CLOs			Other			CLOs			Other ⁽¹⁾
Notional outstanding	$	284,411		$	648,653		$	295,253		$	617,148
Weighted average reference obligation price	98.9			90.3			98.4			85.2
Weighted average life (WAL) in years	0.9			5.9			1.1			6.1
Weighted average credit rating	AA			BBB+			AA			BBB+
Weighted average relative change ratio	36.3		%	33.3		%	36.3		%	33.3		%
CVA percentage	6.50		%	17.87		%	8.34		%	23.34		%
Fair value of derivative liabilities	$	1,064		$	20,865		$	1,837		$	32,697

(1)

Excludes contract for which fair values are based on credit derivative quotes rather than reference obligations quotes. As of December 31, 2015, these contracts had a combined notional outstanding of $58,482, WAL of 0.2 years and liability fair value of $9. 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%.

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 2016 and 2015. 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
	Investments			Other assets			Derivatives			Investments			Loans			Long-term debt			Total
Three Months Ended March 31, 2016:
Balance, beginning of period	$	488,884		$	8,696		$	(99,192	)	$	2,588,556		$	11,690,324		$	(3,180,170	)	$	11,497,098
Total gains/(losses) realized and unrealized:
Included in earnings	12,403			(285		)	(7,983		)	93,267			160,541			(1,952		)	255,991
Included in other comprehensive income	28,019			—			—			(59,100		)	(268,402		)	72,860			(226,623		)
Purchases	91,875			—			—			—			—			—			91,875
Issuances	—			—			—			—			—			—			—
Sales	—			—			—			—			—			—			—
Settlements	(4,246		)	—			(2,719		)	—			(66,222		)	106,197			33,010
Transfers into Level 3	94,555			—			—			—			—			—			94,555
Transfers out of Level 3	—			—			—			—			—			214,649			214,649
Deconsolidation of VIEs	—			—			—			—			—			—			—
Balance, end of period	$	711,490		$	8,411		$	(109,894	)	$	2,622,723		$	11,516,241		$	(2,788,416	)	$	11,960,555
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	$	—		$	(285	)	$	(8,245	)	$	93,267		$	160,541		$	(1,952	)	$	243,326

Three Months Ended March 31, 2015:
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	5,729			(295		)	(13,921		)	92,120			1,110,927			(839,998		)	354,562
Included in other comprehensive income	(5,706		)	—			—			(130,513		)	(562,621		)	67,625			(631,215		)
Purchases	84,504			—			—			—			—			—			84,504
Issuances	—			—			—			—			—			—			—
Sales	—			—			—			—			—			—			—
Settlements	(19,996		)	(1,705		)	(934		)	—			(130,282		)	3,938			(148,979		)
Transfers into Level 3	—			—			—			—			—			—			—
Transfers out of Level 3	—			—			—			—			—			—			—
Balance, end of period	$	262,732		$	10,036		$	(230,201	)	$	2,704,657		$	12,789,201		$	(2,032,099	)	$	13,504,326
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	$	—		$	(295	)	$	(14,364	)	$	92,120		$	1,110,927		$	(839,998	)	$	348,390

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



Level 3 - Investments by Class:
	Other Asset Backed Securities			Corporate Obligations			Non-Agency RMBS			Total Investments
Three Months Ended March 31, 2016:
Balance, beginning of period	$	—		$	—		$	488,884		$	488,884
Total gains/(losses) realized and unrealized:
Included in earnings	289			—			12,114			12,403
Included in other comprehensive income	1,045			—			26,974			28,019
Purchases	—			—			91,875			91,875
Issuances	—			—			—			—
Sales	—			—			—			—
Settlements	(255		)	—			(3,991		)	(4,246		)
Transfers into Level 3	70,707			—			23,848			94,555
Transfers out of Level 3	—			—			—			—
Balance, end of period	$	71,786		$	—		$	639,704		$	711,490
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	$	—		$	—		$	—		$	—

Three Months Ended March 31, 2015:
Balance, beginning of period	$	—		$	3,808		$	194,393		$	198,201
Total gains/(losses) realized and unrealized:
Included in earnings	—			(19		)	5,748			5,729
Included in other comprehensive income	—			(286		)	(5,420		)	(5,706		)
Purchases	—			—			84,504			84,504
Issuances	—			—			—			—
Sales	—			—			—			—
Settlements	—			(3,503		)	(16,493		)	(19,996		)
Transfers into Level 3	—			—			—			—
Transfers out of Level 3	—			—			—			—
Balance, end of period	$	—		$	—		$	262,732		$	262,732
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:
	Three Months Ended March 31, 2016:									Three Months Ended March 31, 2015:
	Interest Rate Swaps			Credit Derivatives			Total Derivatives			Interest Rate Swaps			Credit Derivatives			Total Derivatives

Balance, beginning of period	$	(64,649	)	$	(34,543	)	$	(99,192	)	$	(141,887	)	$	(73,459	)	$	(215,346	)
Total gains/(losses) realized and unrealized:
Included in earnings	(20,849		)	12,866			(7,983		)	(11,422		)	(2,499		)	(13,921		)
Included in other comprehensive income	—			—			—			—			—			—
Purchases	—			—			—			—			—			—
Issuances	—			—			—			—			—			—
Sales	—			—			—			—			—			—
Settlements	(2,467		)	(252		)	(2,719		)	(515		)	(419		)	(934		)
Transfers into Level 3	—			—			—			—			—			—
Transfers out of Level 3	—			—			—			—			—			—
Balance, end of period	$	(87,965	)	$	(21,929	)	$	(109,894	)	$	(153,824	)	$	(76,377	)	$	(230,201	)
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	$	(20,849	)	$	12,604		$	(8,245	)	$	(11,422	)	$	(2,942	)	$	(14,364	)

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)
Three Months Ended March 31, 2016:
Total gains or losses included in earnings for the period	$	12,403	$	252	$	12,614		$	(20,849	)	$	251,856	$	(285	)
Changes in unrealized gains or losses relating to the assets and liabilities still held at the reporting date	—		—		12,604			(20,849		)	251,856		(285		)

Three Months Ended March 31, 2015:
Total gains or losses included in earnings for the period	$	5,729	$	419	$	(2,918	)	$	(11,422	)	$	363,049	$	(295	)
Changes in unrealized gains or losses relating to the assets and liabilities still held at the reporting date	—		—		(2,942		)	(11,422		)	363,049		(295		)