7. 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:



Year Ended December 31,	2017			2016			2015
Beginning premium receivable	$	661,337		$	831,575		$	1,000,607
Premium receipts	(81,597		)	(77,038		)	(108,029		)
Adjustments for changes in expected and contractual cash flows	(30,334		)	(78,528		)	(64,740		)
Accretion of premium receivable discount	16,162			18,637			24,628
Changes to uncollectable premiums	(141		)	6,054			2,540
Other adjustments (including foreign exchange)	20,885			(39,363		)	(23,431		)
Ending premium receivable ⁽¹⁾	$	586,312		$	661,337		$	831,575


(1)	Gross premium receivable includes premiums to be received in foreign denominated currencies most notably in British Pounds and Euros. At December 31, 2017, 2016 and 2015 premium receivables include British Pounds of $151,852 (£112,342), $177,878 (£144,393) and $226,994 (£154,135), respectively, and Euros of $36,001 (£29,976), $34,866 (€33,108) and $43,451 (€40,014), respectively.

In structured finance transactions, the priority for the payment of financial guarantee premiums to Ambac, as required by bond indentures of insured structured finance obligations, is generally senior in the waterfall. Additionally, trustees and other parties are required under the Second Amended Plan of Rehabilitation 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. Uncollectable premiums are determined on a policy basis and utilize a combination of historical premium collection data in addition to cash flow analysis to determine if an impairment in the related policy's premium receivables exist. At December 31, 2017 and 2016, $9,331 and $9,186 respectively, of premium receivables were deemed uncollectable. As of December 31, 2017 and 2016, approximately 22% and 25%, respectively, of the premium receivables relate to transactions with non-investment grade internal ratings, comprised mainly of structured finance transactions, which comprised 16% and 16% of total premium receivables at December 31, 2017 and 2016, respectively. Past due premiums on policies insuring non-investment grade obligations amounted to less than $500 at December 31, 2017.

The effect of reinsurance on premiums written and earned was as follows:



	2017					2016					2015
Year Ended December 31,	Written			Earned		Written			Earned		Written			Earned
Direct	$	(14,313	)	$	190,496	$	(53,837	)	$	215,564	$	(37,572	)	$	336,025
Assumed	—			106		—			85		—			87
Ceded	(2,104		)	15,325		(8,772		)	18,362		(3,001		)	23,517
Net premiums	$	(12,209	)	$	175,277	$	(45,065	)	$	197,287	$	(34,571	)	$	312,595

Ambac’s accelerated premium revenue for retired obligations for the years ended December 31, 2017, 2016 and 2015, was $64,494, $52,416 and $137,400, respectively.

The following table summarizes net premiums earned by location of risk:



Year Ended December 31,	2017		2016		2015
United States	$	134,099	$	168,646	$	229,658
United Kingdom	32,928		24,470		68,799
Other international	8,250		4,171		14,138
Total	$	175,277	$	197,287	$	312,595

The table below summarizes the future gross undiscounted premiums to be collected and future premiums earned, net of reinsurance at December 31, 2017:



	Future Premiums to be Collected ⁽¹⁾		Future Premiums to be Earned Net of Reinsurance ⁽¹⁾
Three months ended:
March 31, 2018	$	16,923	$	17,561
June 30, 2018	13,801		17,294
September 30, 2018	14,779		16,604
December 31, 2018	13,282		16,150
Twelve months ended:
December 31, 2019	55,203		61,368
December 31, 2020	52,282		57,263
December 31, 2021	45,848		52,149
December 31, 2022	43,678		48,447
Five years ended:
December 31, 2027	193,190		197,446
December 31, 2032	150,385		131,682
December 31, 2037	82,597		72,520
December 31, 2042	29,169		24,833
December 31, 2047	13,599		12,694
December 31, 2052	3,586		4,651
December 31, 2057	92		298
Total	$	728,414	$	730,960

(1)

Future premiums to be collected are undiscounted and are used to derive the discounted premium receivable asset recorded on Ambac's balance sheet. Future premiums to be earned, net of reinsurance relate to the unearned premiums 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 further described in Note 2. Basis of Presentation and Significant Accounting Policies. This 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. 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 may result in different 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, 2017 and 2016:



	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, 2017:
Loss and loss expense reserves	$	2,411,632	$	667,988	$	2,855,010	$	(1,054,113	)	$	(135,502	)	$	4,745,015
Subrogation recoverable	615,391		171,755		102,171		(1,520,530		)	—			(631,213		)
Totals	$	3,027,023	$	839,743	$	2,957,181	$	(2,574,643	)	$	(135,502	)	$	4,113,802

December 31, 2016:
Loss and loss expense reserves	$	2,411,105	$	529,703	$	2,681,198	$	(1,098,096	)	$	(143,141	)	$	4,380,769
Subrogation recoverable	583,042		132,139		68,419		(1,468,331		)	—			(684,731		)
Totals	$	2,994,147	$	661,842	$	2,749,617	$	(2,566,427	)	$	(143,141	)	$	3,696,038

Below is the loss and loss expense reserve roll-forward, net of subrogation recoverable and reinsurance, for the affected periods.



Year Ended December 31,	2017		2016			2015
Beginning gross loss and loss expense reserves	$	3,696,038	$	2,858,813		$	3,798,733
Reinsurance recoverable	30,767		44,059			100,355
Beginning balance of net loss and loss expense reserves	$	3,665,271	$	2,814,754		$	3,698,378
Losses and loss expenses (benefit) incurred:
Current year	5,691		6,675			1,183
Prior years	507,495		(18,164		)	(769,890		)
Total ⁽¹⁾⁽²⁾	513,186		(11,489		)	(768,707		)
Loss and loss expenses (recovered) paid:
Current year	825		5,371			—
Prior years	133,427		(944,955		)	90,086
Total	134,252		(939,584		)	90,086
Foreign exchange effect	28,939		(77,578		)	(24,831		)
Ending net loss and loss expense reserves	$	4,073,144	$	3,665,271		$	2,814,754
Reinsurance recoverable ⁽³⁾	40,658		30,767			44,059
Ending gross loss and loss expense reserves ⁽⁴⁾	$	4,113,802	$	3,696,038		$	2,858,813


(1)	Total losses and loss expenses (benefit) includes $(20,348), $5,421 and $47,085 for the years ended December 31, 2017, 2016 and 2015, respectively, related to ceded reinsurance.


(2)	Ambac records the impact of estimated recoveries related to securitized loans in RMBS transactions that breached certain R&Ws within losses and loss expenses (benefit). The losses and loss expense (benefit) incurred associated with changes in estimated representation and warranties for the year ended December 31, 2017, 2016 and 2015 was $72,003, $(71,369) and $(303,633), respectively.


(3)	Represents reinsurance recoverable on future loss and loss expenses. Additionally, the Balance Sheet line "Reinsurance recoverable on paid and unpaid losses" includes reinsurance recoverables (payables) of $339, $(349) and $(60) as of December 31, 2017, 2016 and 2015, respectively, related to previously presented loss and loss expenses and subrogation.


(4)	Includes Euro denominated gross loss and loss expense reserves of $21,116 (€17,582), $21,375 (€20,297) and $19,019 (€17,515) at December 31, 2017, 2016 and 2015, respectively.

For 2017, the net adverse development in prior years was primarily the result of negative development in certain public finance transactions, including Puerto Rico, and interest accrued on Deferred Amounts partially offset by positive developments in certain Ambac UK transactions, including a benefit related to a confidential settlement of litigation brought by Ambac UK in the name of Ballantyne Re plc ("Ballantyne").


•	Puerto Rico

Ambac has exposure to the Commonwealth of Puerto Rico (the "Commonwealth") and its instrumentalities across several different issuing entities. Each has its own credit risk profile attributable to discrete revenue sources, direct general obligation pledges and general obligation guarantees. The Commonwealth of Puerto Rico and certain of its instrumentalities have and will continue to default on debt service payments, including payments owed on bonds insured by Ambac Assurance. Ambac Assurance may be required to make significant amounts of policy payments over the next several years, the recoverability of which is subject to great uncertainty, which may lead to material permanent losses. Our exposure to Puerto Rico is impacted by the amount of monies available for debt service, which is in turn affected by variability in economic growth, tax revenues, essential services expense as well as federal funding of Commonwealth needs. In addition, our exposure to Puerto Rico is impacted by the significant damage to the Commonwealth that was inflicted by Hurricane Maria, which made landfall on September 20, 2017, as well as Hurricane Irma, which passed just north of the island on September 6, 2017. The longer term recovery of the economy of the Commonwealth and its essential infrastructure will likely be highly dependent on the amount, timing and effectiveness of Federal aid.

Substantial uncertainty also exists with respect to the ultimate outcome for creditors in Puerto Rico due to legislation enacted by the Commonwealth and the United States, including PROMESA, as well as actions taken in reliance on such laws, including Title III filings. Ambac Assurance is involved in multiple litigations relating to such actions and other issues and may not be successful in pursuing claims or protecting its interests. Ambac Assurance is also participating in a mediation process with respect to potential debt restructurings. Mediation may not be productive or may not resolve Ambac Assurance's claims in a manner that avoids significant losses. It is possible that certain restructuring process solutions, together with associated legislation, budgetary, and/or public policy proposals could be adopted and could significantly or further impair our exposures.

While our reserving scenarios reflect a wide range of possible outcomes reflecting the significant uncertainty regarding future developments and outcomes, given our exposure to Puerto Rico and the economic, fiscal, legal and political uncertainties associated therewith as well as the uncertainties emanating from the damage caused by hurricanes Maria and Irma, our loss reserves may ultimately prove to be insufficient to cover our losses, potentially by a material amount, and may be subject to material volatility.

Ambac has considered these developments and other factors in evaluating its Puerto Rico loss reserves. During the year ended December 31, 2017, Ambac had incurred losses associated with its Domestic Public Finance insured portfolio of $476,303, which was significantly impacted by the continued uncertainty and volatility of the situation in Puerto Rico. While management believes its reserves are adequate to cover losses in its Public Finance insured portfolio, there can be no assurance that Ambac may not incur additional losses in the future, particularly given the developing economic, political, and legal circumstances in Puerto Rico. Such additional losses may have a material adverse effect on Ambac’s results of operations and financial condition. For public finance credits, including Puerto Rico, as well as other issuers, for which Ambac has an estimate of expected loss at December 31, 2017, the possible increase in loss reserves under stress or other adverse conditions and circumstances was estimated to be approximately $1,500,000. However, there can be no assurance that losses may not exceed such amount.


•	Ballantyne Litigation

On March 25, 2017, Ambac UK agreed in principle to a confidential settlement of litigation brought by Ambac UK in the name of Ballantyne against J.P. Morgan Investment Management Inc. ("JPMIM") relating to the management of Ballantyne’s investment accounts, which were funded with the proceeds of notes issued in 2006 in connection with a structured reinsurance transaction and guaranteed in part by Ambac UK. On April 11, 2017, Ambac UK, Ballantyne and JPMIM signed a settlement agreement. Pursuant to the settlement, Ballantyne received a payment of $325,600 from JPMIM in return for releases of all claims by Ballantyne and Ambac UK. As a result of the settlement, Ambac recognized an incremental benefit through a reduction in losses and loss expenses of approximately $91,600 in the first quarter of 2017. Ambac had previously included an estimated benefit through a reduction of loss and loss expense reserves of approximately $53,000 related to our probability weighted estimate of the value of the litigation. The total $144,600 benefit recognized from the settlement of the litigation will reduce the ultimate Ballantyne claims Ambac UK is expecting to pay and not result in a direct cash payment to Ambac UK.

For 2016, the net positive development in prior years was primarily the result of lower projected losses in the RMBS portfolio due to improved deal performance and higher representation and warranty subrogation recoveries, and the impact of executed commutations in the student loan portfolio. This is partially offset by negative development in Puerto Rico, the adverse impact of foreign currency rate movements on the Ambac UK portfolio and interest accrued on Deferred Amounts.

For 2015, the net positive development in prior years was primarily due to increases in our estimate of RMBS R&W recoveries as a result of continuous efforts and ongoing assessments of the value of our claims, as well as declines in interest rates on RMBS, student loans and Ambac UK credits, reduced claims expectations for an Ambac UK transaction resulting from proactive remediation efforts and the impact of executed commutations in the student loan portfolio. This was partially offset by negative development in Puerto Rico, the adverse impact of foreign currency rate movements on the Ambac UK portfolio and interest accrued on Deferred Amounts.

The tables below summarize information related to policies currently included in Ambac’s loss and loss expense reserves or subrogation recoverable at December 31, 2017 and 2016. Gross par exposures include capital appreciation bonds which are reported at the par amount at the time of issuance of the insurance policy as opposed to the current accreted value of the bond. The weighted average risk-free rate used to discount loss reserves at December 31, 2017 and 2016 was 2.5% and 2.7%, respectively.



	Surveillance Categories as of December 31, 2017
	I			IA			II			III			IV			V			Total
Number of policies	26			20			26			22			179			4			277
Remaining weighted-average contract period (in years) ⁽¹⁾	10			23			10			24			13			4			17
Gross insured contractual payments outstanding:
Principal	$	1,046,267		$	531,190		$	1,199,909		$	1,998,861		$	6,862,281		$	48,562		$	11,687,070
Interest	531,657			584,098			413,045			7,182,715			2,469,765			16,332			11,197,612
Total	$	1,577,924		$	1,115,288		$	1,612,954		$	9,181,576		$	9,332,046		$	64,894		$	22,884,682
Gross undiscounted claim liability ⁽²⁾	$	4,434		$	56,659		$	77,289		$	1,412,976		$	6,409,340		$	64,863		$	8,025,561
Discount, gross claim liability	(465		)	(13,095		)	(12,250		)	(643,897		)	(616,559		)	(4,739		)	(1,291,005		)
Gross claim liability before all subrogation and before reinsurance	$	3,969		$	43,564		$	65,039		$	769,079		$	5,792,781		$	60,124		$	6,734,556
Less:
Gross RMBS subrogation⁽³⁾	—			—			—			—			(1,857,502		)	—			(1,857,502		)
Discount, RMBS subrogation	—			—			—			—			23,115			—			23,115
Discounted RMBS subrogation, before reinsurance	—			—			—			—			(1,834,387		)	—			(1,834,387		)
Less:
Gross other subrogation⁽⁴⁾	—			(7,990		)	(9,371		)	(53,070		)	(743,456		)	(13,191		)	(827,078		)
Discount, other subrogation	—			5,169			2,550			8,349			67,045			3,709			86,822
Discounted other subrogation, before reinsurance	—			(2,821		)	(6,821		)	(44,721		)	(676,411		)	(9,482		)	(740,256		)
Gross claim liability, net of all subrogation and discounts, before reinsurance	$	3,969		$	40,743		$	58,218		$	724,358		$	3,281,983		$	50,642		$	4,159,913
Less: Unearned premium revenue	(2,126		)	(9,990		)	(12,238		)	(46,086		)	(64,786		)	(276		)	(135,502		)
Plus: Loss expense reserves	16,116			3,242			665			13,331			56,037			—			89,391
Gross loss and loss expense reserves	$	17,959		$	33,995		$	46,645		$	691,603		$	3,273,234		$	50,366		$	4,113,802
Reinsurance recoverable reported on Balance Sheet ⁽⁵⁾	$	202		$	4,894		$	9,424		$	38,465		$	(11,988	)	$	—		$	40,997


(1)	Remaining weighted-average contract period is weighted based on projected gross claims over the lives of the respective policies.


(2)	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.


(3)	RMBS subrogation represents Ambac’s estimate of subrogation recoveries from RMBS transaction sponsors for representation and warranty ("R&W") breaches.


(4)	Other subrogation represents subrogation related to excess spread and other contractual cash flows on public finance and structured finance transactions including RMBS.


(5)	Reinsurance recoverable reported on Balance Sheet includes reinsurance recoverables of $40,658 related to future loss and loss expenses and $339 related to presented loss and loss expenses and subrogation.



	Surveillance Categories as of December 31, 2016
	I			IA			II			III			IV			V			Total
Number of policies	19			22			26			43			169			3			282
Remaining weighted-average contract period (in years) ⁽¹⁾	9			8			30			17			14			5			16
Gross insured contractual payments outstanding:
Principal	$	918,456		$	733,036		$	1,992,543		$	1,779,889		$	7,926,991		$	49,247		$	13,400,162
Interest	345,802			199,631			7,080,969			1,110,051			2,275,421			14,185			11,026,059
Total	$	1,264,258		$	932,667		$	9,073,512		$	2,889,940		$	10,202,412		$	63,432		$	24,426,221
Gross undiscounted claim liability ⁽²⁾	$	3,439		$	21,175		$	547,550		$	861,455		$	6,139,060		$	63,431		$	7,636,110
Discount, gross claim liability	(314		)	(1,243		)	(331,234		)	(256,108		)	(710,608		)	(5,859		)	(1,305,366		)
Gross claim liability before all subrogation and before reinsurance	$	3,125		$	19,932		$	216,316		$	605,347		$	5,428,452		$	57,572		$	6,330,744
Less:
Gross RMBS subrogation ⁽³⁾	—			—			—			—			(1,926,165		)	—			(1,926,165		)
Discount, RMBS subrogation	—			—			—			—			19,130			—			19,130
Discounted RMBS subrogation, before reinsurance	—			—			—			—			(1,907,035		)	—			(1,907,035		)
Less:
Gross other subrogation ⁽⁴⁾	—			—			(14,529		)	(118,272		)	(593,919		)	(12,751		)	(739,471		)
Discount, other subrogation	—			—			6,526			13,426			56,273			3,854			80,079
Discounted other subrogation, before reinsurance	—			—			(8,003		)	(104,846		)	(537,646		)	(8,897		)	(659,392		)
Gross claim liability, net of all subrogation and discounts, before reinsurance	$	3,125		$	19,932		$	208,313		$	500,501		$	2,983,771		$	48,675		$	3,764,317
Less: Unearned premium revenue	(2,394		)	(1,807		)	(49,578		)	(31,785		)	(57,194		)	(383		)	(143,141		)
Plus: Loss expense reserves	6,621			339			777			11,036			56,089			—			74,862
Gross loss and loss expense reserves	$	7,352		$	18,464		$	159,512		$	479,752		$	2,982,666		$	48,292		$	3,696,038
Reinsurance recoverable reported on Balance Sheet⁽⁵⁾	$	120		$	6,063		$	2,737		$	39,352		$	(17,854	)	$	—		$	30,418


(1)	Remaining weighted-average contract period is weighted based on projected gross claims over the lives of the respective policies.


(2)	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.


(3)	RMBS subrogation represents Ambac’s estimate of subrogation recoveries from RMBS transaction sponsors for R&W breaches.


(4)	Other subrogation represents subrogation related to excess spread and other contractual cash flows on public finance and structured finance transactions, including RMBS.


(5)	Reinsurance recoverable reported on Balance Sheet includes reinsurance recoverables of $30,767 related to future loss and loss expenses and $(349) related to presented loss and loss expenses and subrogation.

Representation and Warranty Recoveries:

Ambac records estimated subrogation recoveries for breaches of R&Ws by sponsors of certain RMBS transactions. For a discussion of the approach utilized to estimate R&W subrogation recoveries, see Note 2. Basis of Presentation and Significant Accounting Policies. R&W subrogation may include estimates of potential sponsor settlements, 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 below table.

Ambac has recorded R&W subrogation recoveries of $1,834,387, ($1,806,736 net of reinsurance) and $1,907,035, ($1,878,740 net of reinsurance) at December 31, 2017 and 2016, respectively. The balance of R&W subrogation recoveries and the related loss reserves at December 31, 2017 and 2016, are as follows:



	Gross loss reserves before subrogation recoveries ⁽¹⁾		Subrogation recoveries ⁽²⁾⁽³⁾			Gross loss reserves after subrogation recoveries
At December 31, 2017	$	1,366,483	$	(1,834,387	)	$	(467,904	)

At December 31, 2016	$	1,351,640	$	(1,907,035	)	$	(555,395	)


(1)	Amount represents gross loss reserves for policies that have established a representation and warranty subrogation recovery. 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 future cash flows for each policy. To the extent losses have been paid but not yet fully recovered, the recorded amount of R&W 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.

Below is the rollforward of R&W subrogation for the affected periods:



Year ended December 31,	2017			2016			2015
Discounted RMBS subrogation (gross of reinsurance) at beginning of year	$	1,907,035		$	2,829,575		$	2,523,540
Impact of sponsor actions ⁽¹⁾	—			(995,000		)	—
All other changes ⁽²⁾	(72,648		)	72,460			306,035
Discounted RMBS subrogation (gross of reinsurance) at end of year	$	1,834,387		$	1,907,035		$	2,829,575

(1)

Sponsor actions include loan repurchases, direct payments to Ambac and other contributions from sponsors. In January 2016, Ambac Assurance settled its RMBS-related disputes and litigation against JP Morgan Chase & Co. and certain of its affiliates (collectively "JP Morgan"). Pursuant to the settlement, JP Morgan paid Ambac Assurance $995,000 in cash in return for releases of all of Ambac Assurance's claims against JP Morgan arising from certain RMBS transactions insured by Ambac Assurance. Ambac Assurance also agreed to withdraw its objections to JP Morgan's global RMBS settlement with RMBS trustees.

(2)

All other changes which may impact R&W 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 may not have been subject to a sampling approach or have been executed but the settlement amounts have not yet been received. Those that have not been subject to a sampling approach are not material to Ambac’s financial results and therefore are included in this table.

Assumed Reinsurance:

Assumed par outstanding was $219,100 and $243,700 at December 31, 2017 and 2016, respectively.

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 $93,192 at December 31, 2017. Credit exposure existed at December 31, 2017 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, 2017, there were ceded reinsurance balances payable of $37,876 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 $115,561 from its reinsurers at December 31, 2017. As of December 31, 2017, the aggregate amount of insured par ceded by Ambac Assurance to reinsurers under reinsurance agreements was $4,424,000 with the largest reinsurer accounting for $3,668,000 or 5.5% of gross par outstanding at December 31, 2017. The following table represents the percentage ceded to reinsurers and reinsurance recoverable at December 31, 2017 and its rating levels obtained from each reinsurers website as of February 27, 2018:



Reinsurers	Moody’s Rating	Percentage Ceded Par	Net Unsecured Reinsurance Recoverable⁽¹⁾
Assured Guaranty Re Ltd	NR	82.9%	$	—
Assured Guaranty Corporation	A3	9.2	—
Sompo Japan Nipponkoa Insurance, Inc.	A1	7.9	—
Total		100%	$	—


(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 the years ended December 31, 2017, 2016 and 2015, the insurance intangible amortization expense was $150,854, $174,608 and $169,557, respectively. As of December 31, 2017 and 2016, the gross carrying value of the insurance intangible asset was $1,581,156 and $1,534,419, respectively. Accumulated amortization of the insurance intangible asset was $734,183 and $572,339, as of December 31, 2017 and 2016, respectively, resulting in a net insurance intangible asset of $846,973 and $962,080, respectively.

The estimated future amortization expense for the net insurance intangible asset is as follows:



Future Insurance Intangible Amortization ⁽¹⁾
2018		2019		2020		2021		2022		Thereafter
$	76,638	$	69,082	$	63,892	$	58,207	$	53,908	$	525,246

(1)

The insurance intangible asset will be amortized using a level yield method based on par exposure of the related financial guarantee insurance or reinsurance contracts as described in Note 2. Basis of Presentation and Significant Accounting Policies. As exposures are called or prepay, amortization of the insurance intangible asset will be recognized earlier and the timing will differ from the amounts provided in the table above.