Fair Value Measurements (Tables)

6 Months Ended

Jun. 30, 2017

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 June 30, 2017 and December 31, 2016, 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:
June 30, 2017:							Level 1		Level 2			Level 3
Financial assets:
Fixed income securities:
Municipal obligations	$	661,506		$	661,506		$	—	$	661,506		$	—
Corporate obligations	1,500,413			1,500,413			—		1,500,413			—
Foreign obligations	29,746			29,746			28,802		944			—
U.S. government obligations	41,633			41,633			41,633		—			—
Residential mortgage-backed securities	2,299,528			2,299,528			—		1,599,212			700,316
Collateralized debt obligations	125,106			125,106			—		125,106			—
Other asset-backed securities	660,263			660,263			—		594,897			65,366
Fixed income securities, pledged as collateral:
U.S. government obligations	64,928			64,928			64,928		—			—
Short term investments	504,006			504,006			402,296		101,710			—
Other investments (2)	452,032			436,187			89,753		—			16,573
Cash and cash equivalents	54,238			54,238			26,300		27,938			—
Loans	10,125			10,170			—		—			10,170
Derivative assets:
Interest rate swaps—asset position	75,936			75,936			—		14,201			61,735
Futures contracts	3,111			3,111			3,111		—			—
Other assets	6,691			6,691			—		—			6,691
Variable interest entity assets:
Fixed income securities:
Corporate obligations	2,722,316			2,722,316			—		—			2,722,316
Restricted cash	5,015			5,015			5,015		—			—
Loans	11,301,298			11,301,298			—		—			11,301,298
Derivative assets:
Currency swaps-asset position	65,507			65,507			—		65,507			—
Total financial assets	$	20,583,398		$	20,567,598		$	661,838	$	4,691,434		$	14,884,465
Financial liabilities:
Long term debt, including accrued interest	$	1,386,124		$	1,371,102		$	—	$	1,042,366		$	328,736
Derivative liabilities:
Credit derivatives	9,006			9,006			—		—			9,006
Interest rate swaps—asset position	(731		)	(731		)	—		(731		)	—
Interest rate swaps—liability position	83,274			83,274			—		83,274			—
Futures contracts	—			—			—		—			—
Liabilities for net financial guarantees written (1)	3,212,581			5,214,437			—		—			5,214,437
Variable interest entity liabilities:
Long-term debt	11,902,682			11,902,682			—		9,098,464			2,804,218
Derivative liabilities:
Interest rate swaps—liability position	2,064,071			2,064,071			—		2,064,071			—
Total financial liabilities	$	18,657,007		$	20,643,841		$	—	$	12,287,444		$	8,356,397

	Carrying Amount			Total Fair Value			Fair Value Measurements Categorized as:
December 31, 2016:							Level 1		Level 2			Level 3
Financial assets:
Fixed income securities:
Municipal obligations	$	374,368		$	374,368		$	—	$	374,368		$	—
Corporate obligations	1,802,165			1,802,165			—		1,802,165			—
Foreign obligations	43,135			43,135			42,212		923			—
U.S. government obligations	36,186			36,186			36,186		—			—
U.S. agency obligations	4,060			4,060			—		4,060			—
Residential mortgage-backed securities	2,351,595			2,351,595			—		1,654,882			696,713
Collateralized debt obligations	113,923			113,923			—		113,923			—
Other asset-backed securities	828,783			828,783			—		762,793			65,990
Fixed income securities, pledged as collateral:
U.S. government obligations	64,905			64,905			64,905		—			—
Short term investments	430,788			430,788			371,367		59,421			—
Other investments (2)	450,307			435,237			83,791		—			14,934
Cash and cash equivalents	91,025			91,025			46,587		44,438			—
Loans	4,160			4,066			—		—			4,066
Derivative assets:
Interest rate swaps—asset position	77,206			77,206			—		16,950			60,256
Futures contracts	536			536			536		—			—
Other assets	7,382			7,382			—		—			7,382
Variable interest entity assets:
Fixed income securities:
Corporate obligations	2,622,566			2,622,566			—		—			2,622,566
Restricted cash	4,873			4,873			4,873		—			—
Loans	10,658,963			10,658,963			—		—			10,658,963
Derivative assets:
Currency swaps—asset position	80,407			80,407			—		80,407			—
Total financial assets	$	20,047,333		$	20,032,169		$	650,457	$	4,914,330		$	14,130,870
Financial liabilities:
Obligations under investment agreements	$	82,358		$	82,333		$	—	$	—		$	82,333
Long term debt, including accrued interest	1,536,352			1,494,340			—		1,147,728			346,612
Derivative liabilities:
Credit derivatives	15,349			15,349			—		—			15,349
Interest rate swaps—asset position	(61,839		)	(61,839		)	—		(61,839		)	—
Interest rate swaps—liability position	365,776			365,776			—		220,587			145,189
Liabilities for net financial guarantees written (1)	3,009,943			4,490,070			—		—			4,490,070
Variable interest entity liabilities:
Long-term debt	11,155,936			11,155,936			—		8,573,716			2,582,220
Derivative liabilities:
Interest rate swaps—liability position	2,078,601			2,078,601			—		2,078,601			—
Total financial liabilities	$	18,182,476		$	19,620,566		$	—	$	11,958,793		$	7,661,773

(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 investment funds of $329,861 and $336,513 as of June 30, 2017 and December 31, 2016, 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 credit derivatives, including the CVA as a percentage of the gross mark-to-market liability before considering Ambac credit risk (“CVA percentage”), as of June 30, 2017 and December 31, 2016 is summarized below:

	June 30, 2017				December 31, 2016
Notional outstanding		$	455,792		$	737,380
Weighted average reference obligation price		94.0			93.5
Weighted average life (WAL) in years		5.7			5.2
Weighted average credit rating		A-			A-
Weighted average relative change ratio		29.5		%	31.6		%
CVA percentage		13.31		%	11.14		%
Fair value of derivative liabilities		$	9,006		$	15,349

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 2017 and 2016. 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 June 30, 2017:
Balance, beginning of period	$	721,624		$	7,039		$	(102,588	)	$	2,663,719		$	11,015,305		$	(2,716,642	)	$	11,588,457
Total gains/(losses) realized and unrealized:
Included in earnings	16,479			(348		)	54,115			(26,259		)	32,198			14,100			90,285
Included in other comprehensive income	10,812			—			—			100,783			402,842			(102,138		)	412,299
Purchases	25,930			—			—			—			—			—			25,930
Settlements	(9,163		)	—			101,202			(15,927		)	(149,047		)	462			(72,473		)
Balance, end of period	$	765,682		$	6,691		$	52,729		$	2,722,316		$	11,301,298		$	(2,804,218	)	$	12,044,498
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	$	—		$	(348	)	$	4,240		$	(26,259	)	$	32,198		$	14,100		$	23,931
Three Months Ended June 30, 2016:
Balance, beginning of period	$	711,490		$	8,411		$	(109,894	)	$	2,622,723		$	11,516,241		$	(2,788,416	)	$	11,960,555
Total gains/(losses) realized and unrealized:
Included in earnings	14,616			276			(3,047		)	171,325			516,091			(332,605		)	366,656
Included in other comprehensive income	(4,783		)	—			—			(216,755		)	(895,557		)	233,100			(883,995		)
Purchases	17			—			—			—			—			—			17
Settlements	(4,913		)	—			8,909			—			(62,003		)	106,663			48,656
Transfers into Level 3	6,243			—			—			—			—			—			6,243
Transfers out of Level 3	—			—			—			—			—			523,249			523,249
Balance, end of period	$	722,670		$	8,687		$	(104,032	)	$	2,577,293		$	11,074,772		$	(2,258,009	)	$	12,021,381
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	$	—		$	276		$	(3,280	)	$	171,325		$	516,091		$	(332,605	)	$	351,807

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
Six Months Ended June 30, 2017:
Balance, beginning of period	$	762,703		$	7,382		$	(100,282	)	$	2,622,566		$	10,658,963		$	(2,582,220	)	$	11,369,112
Total gains/(losses) realized and unrealized:
Included in earnings	26,298			(691		)	51,298			(31,454		)	378,390			(80,307		)	343,534
Included in other comprehensive income	17,097			—			—			147,131			586,391			(148,394		)	602,225
Purchases	35,781			—			—			—			—			—			35,781
Sales	(79,319		)	—			—			—			—			—			(79,319		)
Settlements	(18,956		)	—			101,713			(15,927		)	(322,446		)	6,703			(248,913		)
Transfers into Level 3	22,078			—			—			—			—			—			22,078
Balance, end of period	$	765,682		$	6,691		$	52,729		$	2,722,316		$	11,301,298		$	(2,804,218	)	$	12,044,498
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	$	—		$	(691	)	$	3,914		$	(31,454	)	$	378,390		$	(80,307	)	$	269,852
Six Months Ended June 30, 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	27,019			(9		)	(11,030		)	264,592			676,632			(334,557		)	622,647
Included in other comprehensive income	23,236			—			—			(275,855		)	(1,163,959		)	305,960			(1,110,618		)
Purchases	91,892			—			—			—			—			—			91,892
Issuances	—			—			—			—			—			—			—
Sales	—			—			—			—			—			—			—
Settlements	(9,159		)	—			6,190			—			(128,225		)	212,860			81,666
Transfers in Level 3	100,798			—			—			—			—			—			100,798
Transfers out of Level 3	—			—			—			—			—			737,898			737,898
Balance, end of period	$	722,670		$	8,687		$	(104,032	)	$	2,577,293		$	11,074,772		$	(2,258,009	)	$	12,021,381
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	$	—		$	(9	)	$	(11,525	)	$	264,592		$	676,632		$	(334,557	)	$	595,133

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

Level 3 - Investments by Class:
	Three Months Ended June 30, 2017									Three Months Ended June 30, 2016
	Other Asset Backed Securities			Non-Agency RMBS			Total Investments			Other Asset Backed Securities			Non-Agency RMBS			Total Investments
Balance, beginning of period	$	65,807		$	655,817		$	721,624		$	71,786		$	639,704		$	711,490
Total gains/(losses) realized and unrealized:
Included in earnings	356			16,123			16,479			272			14,344			14,616
Included in other comprehensive income	(555		)	11,367			10,812			20			(4,803		)	(4,783		)
Purchases	—			25,930			25,930			—			17			17
Settlements	(242		)	(8,921		)	(9,163		)	(258		)	(4,655		)	(4,913		)
Transfers into Level 3	—			—			—			—			6,243			6,243
Balance, end of period	$	65,366		$	700,316		$	765,682		$	71,820		$	650,850		$	722,670
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 - Investments by Class:
	Six Months Ended June 30, 2017									Six Months Ended June 30, 2016
	Other Asset Backed Securities			Non-Agency RMBS			Total Investments			Other Asset Backed Securities			Non-Agency RMBS			Total Investments
Balance, beginning of period	$	65,990		$	696,713		$	762,703		$	—		$	488,884		$	488,884
Total gains/(losses) realized and unrealized:
Included in earnings	709			25,589			26,298			561			26,458			27,019
Included in other comprehensive income	(834		)	17,931			17,097			1,065			22,171			23,236
Purchases	—			35,781			35,781			—			91,892			91,892
Sales	—			(79,319		)	(79,319		)	—			—			—
Settlements	(499		)	(18,457		)	(18,956		)	(513		)	(8,646		)	(9,159		)
Transfers into Level 3	—			22,078			22,078			70,707			30,091			100,798
Balance, end of period	65,366			700,316			765,682			71,820			650,850			722,670
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 June 30, 2017									Three Months Ended June 30, 2016
	Interest Rate Swaps			Credit Derivatives			Total Derivatives			Interest Rate Swaps			Credit Derivatives			Total Derivatives
Balance, beginning of period	$	(88,092	)	$	(14,496	)	$	(102,588	)	$	(87,965	)	$	(21,929	)	$	(109,894	)
Total gains/(losses) realized and unrealized:
Included in earnings	47,491			6,624			54,115			(7,002		)	3,955			(3,047		)
Included in other comprehensive income	—			—			—			—			—			—
Purchases	—			—			—			—			—			—
Sales	—			—			—			—			—			—
Settlements	102,336			(1,134		)	101,202			9,142			(233		)	8,909
Balance, end of period	$	61,735		$	(9,006	)	$	52,729		$	(85,825	)	$	(18,207	)	$	(104,032	)
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	$	4,049		$	191		$	4,240		$	(7,002	)	$	3,722		$	(3,280	)

Level 3 - Derivatives by Class:
	Six Months Ended June 30, 2017:									Six Months Ended June 30, 2016:
	Interest Rate Swaps			Credit Derivatives			Total Derivatives			Interest Rate Swaps			Credit Derivatives			Total Derivatives
Balance, beginning of period	$	(84,933	)	$	(15,349	)	$	(100,282	)	$	(64,649	)	$	(34,543	)	$	(99,192	)
Total gains/(losses) realized and unrealized:
Included in earnings	43,622			7,676			51,298			(27,851		)	16,821			(11,030		)
Included in other comprehensive income	—			—			—			—			—			—
Purchases	—			—			—			—			—			—
Sales	—			—			—			—			—			—
Settlements	103,046			(1,333		)	101,713			6,675			(485		)	6,190
Transfers into Level 3	—			—			—			—			—			—
Transfers out of Level 3	—			—			—			—			—			—
Balance, end of period	$	61,735		$	(9,006	)	$	52,729		$	(85,825	)	$	(18,207	)	$	(104,032	)
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	$	3,863		$	51		$	3,914		$	(27,851	)	$	16,336		$	(11,515	)

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 June 30, 2017:
Total gains or losses included in earnings for the period	$	16,479	$	1,134	$	5,490	$	47,491		$	20,039	$	(348	)
Changes in unrealized gains or losses relating to the assets and liabilities still held at the reporting date	—		—		191		4,049			20,039		(348		)
Three Months Ended June 30, 2016:
Total gains or losses included in earnings for the period	$	14,616	$	233	$	3,722	$	(7,002	)	$	354,811	$	276
Changes in unrealized gains or losses relating to the assets and liabilities still held at the reporting date	—		—		3,722		(7,002		)	354,811		276
Six Months Ended June 30, 2017:
Total gains or losses included in earnings for the period	$	26,298	$	1,333	$	6,343	$	43,622		$	266,629	$	(691	)
Changes in unrealized gains or losses relating to the assets and liabilities still held at the reporting date	—		—		51		3,863			266,629		(691		)
Six Months Ended June 30, 2016:
Total gains or losses included in earnings for the period	$	27,019	$	485	$	16,336	$	(27,851	)	$	606,667	$	(9	)
Changes in unrealized gains or losses relating to the assets and liabilities still held at the reporting date	—		—		16,326		(27,851		)	606,667		(9		)