Financial Guarantee Insurance Contracts (Tables)

3 Months Ended

Mar. 31, 2018

Schedule of Loss And Loss Expense Reserves And Subrogation Recoverable Table [Table Text Block]

Below are the components of the Loss and loss expense reserves liability and the Subrogation recoverable asset at March 31, 2018 and December 31, 2017:



	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
March 31, 2018:
Loss and loss expense reserves	$	—	$	—	$	2,592,778	$	(324,936	)	$	(128,741	)	$	2,139,101
Subrogation recoverable	—		—		275,425		(2,170,203		)	—			(1,894,778		)
Totals	$	—	$	—	$	2,868,203	$	(2,495,139	)	$	(128,741	)	$	244,323

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

Summary of Gross Premium Receivable Roll-Forward (Direct and Assumed Contracts)

Below is the gross premium receivable roll-forward for the affected periods:



	Three Months Ended March 31,
	2018			2017
Beginning premium receivable	$	586,312		$	661,337
Premium receipts	(15,381		)	(17,978		)
Adjustments for changes in expected and contractual cash flows	(1,289		)	1,352
Accretion of premium receivable discount	3,846			4,244
Changes to uncollectable premiums	604			(12		)
Other adjustments (including foreign exchange)	6,615			3,734
Ending premium receivable⁽¹⁾	$	580,707		$	652,677


(1)	Gross premium receivable includes premiums to be received in foreign denominated currencies most notably in British Pounds and Euros. At March 31, 2018 and 2017, premium receivables include British Pounds of $163,926 (£116,815) and $185,204 (£147,726), respectively, and Euros of $36,679 (€29,767) and $34,908 (€32,671), respectively.

Effect of Reinsurance on Premiums Written and Earned

The effect of reinsurance on premiums written and earned for the respective periods was as follows:



	Three Months Ended March 31,
	2018					2017
	Written			Earned		Written			Earned
Direct	$	4,261		$	32,609	$	5,584		$	52,065
Assumed	—			19		—			21
Ceded	(819		)	1,745		(1,815		)	4,473
Net premiums	$	5,080		$	30,883	$	7,399		$	47,613

Schedule of Revenue from External Customers Attributed to Foreign Countries by Geographic Area [Table Text Block]

The following table summarizes net premiums earned by location of risk for the respective periods:



	Three Months Ended March 31,
	2018		2017
United States	$	24,718	$	40,621
United Kingdom	4,856		5,263
Other international	1,309		1,729
Total	$	30,883	$	47,613

Summarized Future Gross Undiscounted Premiums Expected to be Collected and Future Expected Premiums Earned, Net of Reinsurance

The table below summarizes the future gross undiscounted premiums to be collected and future premiums earned, net of reinsurance at March 31, 2018:



	Future Premiums to be Collected ⁽¹⁾		Future Premiums to be Earned Net of Reinsurance ⁽¹⁾
Three months ended:
June 30, 2018	$	14,957	$	17,037
September 30, 2018	14,771		16,388
December 31, 2018	12,947		15,946
Twelve months ended:
December 31, 2019	55,142		60,697
December 31, 2020	52,344		56,759
December 31, 2021	45,913		51,792
December 31, 2022	43,923		48,292
Five years ended:
December 31, 2027	195,614		196,972
December 31, 2032	153,584		132,598
December 31, 2037	85,689		73,307
December 31, 2042	31,028		25,070
December 31, 2047	14,425		12,798
December 31, 2052	3,620		4,656
December 31, 2057	92		297
Total	$	724,049	$	712,609

(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 in the Notes to Consolidated Financial Statements included in Ambac's Annual Report on Form 10-K for the year ended December 31, 2017. 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.

Summary of Loss Reserve Roll-Forward, Net of Subrogation Recoverable and Reinsurance

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



	Three Months Ended March 31,
	2018			2017
Beginning gross loss and loss expense reserves	$	4,113,802		$	3,696,038
Reinsurance recoverable	40,658			30,767
Beginning balance of net loss and loss expense reserves	4,073,144			3,665,271
Losses and loss expenses (benefit):
Current year	778			1,543
Prior year	(248,173		)	133,468
Total ^{(1) (2) (3)}	(247,395		)	135,011
Loss and loss expenses (recovered) paid:
Current year	—			696
Prior year ⁽³⁾	3,631,177			9,749
Total	3,631,177			10,445
Foreign exchange effect	11,016			5,827
Ending net loss and loss expense reserves	205,588			3,795,664
Reinsurance recoverable ⁽⁴⁾	38,735			34,691
Ending gross loss and loss expense reserves⁽⁵⁾	$	244,323		$	3,830,355


(1)	Total losses and loss expenses (benefit) includes $1,354 and $(4,112) for the three months ended March 31, 2018 and 2017, 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 three months ended March 31, 2018 and 2017 was $800 and $13,797, respectively.


(3)	On February 12, 2018, Deferred Amounts and Interest Accrued on Deferred Amounts in the amount of $3,000,158 and $856,834, respectively were settled in connection with the Rehabilitation Exit Transactions. 2018 includes a $288,204 loss and loss expense benefit on these settled Deferred Amounts.


(4)	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 $90 and $(418) as of March 31, 2018 and 2017, respectively, related to previously presented loss and loss expenses and subrogation.


(5)	Includes Euro denominated gross loss and loss expense reserves of $21,398 (€17,366) and $20,984 (€19,639) at March 31, 2018 and 2017, respectively.

Summary of Information Related to Policies Currently Included in Ambac's Loss Reserves or Subrogation Recoverable

For 2017, the net adverse development in prior years was primarily driven by certain public finance transactions, primarily Puerto Rico, and interest accrued on Deferred Amounts partially offset by positive development in certain Ambac UK transactions, primarily Ballantyne. 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. The total benefit recognized from the settlement of the litigation will reduce the ultimate Ballantyne claims Ambac UK is expecting to pay and did not result in a direct cash payment to Ambac UK.

The tables below summarize information related to policies currently included in Ambac’s loss and loss expense reserves or subrogation recoverable at March 31, 2018 and December 31, 2017. 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 March 31, 2018 and December 31, 2017 was 2.8% and 2.5%, respectively.



Surveillance Categories as of March 31, 2018
	I			IA			II			III			IV			V			Total
Number of policies	25			26			15			23			157			4			250
Remaining weighted-average contract period (in years) ⁽¹⁾	10			22			10			23			12			4			16
Gross insured contractual payments outstanding:
Principal	$	967,427		$	576,858		$	642,281		$	2,013,845		$	6,350,960		$	48,562		$	10,599,933
Interest	500,680			601,901			243,259			7,195,260			2,359,913			16,332			10,917,345
Total	$	1,468,107		$	1,178,759		$	885,540		$	9,209,105		$	8,710,873		$	64,894		$	21,517,278
Gross undiscounted claim liability	$	4,264		$	56,682		$	59,584		$	1,449,879		$	2,543,988		$	64,861		$	4,179,258
Discount, gross claim liability	(514		)	(13,866		)	(9,724		)	(693,598		)	(675,210		)	(5,113		)	(1,398,025		)
Gross claim liability before all subrogation and before reinsurance	3,750			42,816			49,860			756,281			1,868,778			59,748			2,781,233
Less:
Gross RMBS subrogation⁽²⁾	—			—			—			—			(1,861,894		)	—			(1,861,894		)
Discount, RMBS subrogation	—			—			—			—			28,384			—			28,384
Discounted RMBS subrogation, before reinsurance	—			—			—			—			(1,833,510		)	—			(1,833,510		)
Less:
Gross other subrogation⁽³⁾	—			(8,604		)	(4		)	(53,703		)	(675,089		)	(13,138		)	(750,538		)
Discount, other subrogation	—			5,810			—			9,497			69,630			3,972			88,909
Discounted other subrogation, before reinsurance	—			(2,794		)	(4		)	(44,206		)	(605,459		)	(9,166		)	(661,629		)
Gross claim liability, net of all subrogation and discounts, before reinsurance	3,750			40,022			49,856			712,075			(570,191		)	50,582			286,094
Less: Unearned premium revenue	(1,586		)	(10,092		)	(9,810		)	(44,754		)	(62,241		)	(258		)	(128,741		)
Plus: Loss expense reserves	16,141			3,082			582			11,146			56,019			—			86,970
Gross loss and loss expense reserves	$	18,305		$	33,012		$	40,628		$	678,467		$	(576,413	)	$	50,324		$	244,323
Reinsurance recoverable reported on Balance Sheet ⁽⁴⁾	$	238		$	4,448		$	8,368		$	38,603		$	(12,832	)	$	—		$	38,825


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


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


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


(4)	Reinsurance recoverable reported on the Balance Sheet includes reinsurance recoverables of $38,735 related to future loss and loss expenses and $90 related to presented loss and loss expenses and subrogation.



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 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.

Summary of Balance of Subrogation Recoveries and Related Claim Liabilities, by Estimation Approach

The balance of R&W subrogation recoveries and the related loss reserves at March 31, 2018 and December 31, 2017, are as follows:



	Gross Loss Reserves Before Subrogation Recoveries ⁽¹⁾		Subrogation Recoveries ⁽²⁾⁽³⁾			Gross Loss Reserves After Subrogation Recoveries
At March 31, 2018	$	171,999	$	(1,833,510	)	$	(1,661,511	)

At December 31, 2017	$	1,366,483	$	(1,834,387	)	$	(467,904	)


(1)	Amount represents gross loss reserves for policies that have established a representation and warranty subrogation recovery. December 31, 2017 includes unpaid RMBS claims (including accrued interest on Deferred Amounts) on policies allocated to the Segregated Account, such balances have been settled via the Rehabilitation Exit Transactions.

(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 out 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.

Summary of Rollforward of RMBS Subrogation, by Estimation Approach

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



	Three Months Ended March 31,
	2018			2017
Discounted R&W subrogation (gross of reinsurance) at beginning of period	$	1,834,387		$	1,907,035
Changes recognized during the period:
All other changes ⁽¹⁾	(877		)	(14,061		)
Discounted R&W subrogation (gross of reinsurance) at end of period	$	1,833,510		$	1,892,974

(1)

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. 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.

Insurance Intangible Asset [Member]

Insurance [Line Items]

Schedule of Finite-Lived Intangible Assets, Future Amortization Expense [Table Text Block]

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



	2018		2019		2020		2021		2022		Thereafter
Amortization expense ⁽¹⁾	$	55,687	$	68,517	$	63,475	$	57,891	$	53,816	$	533,654


(1)	Future amortization considers the use of contractual lives for many bond types which do not have homogeneous pools of underlying collateral. Actual maturities will differ from contractual maturities because borrowers may have the right to call or prepay certain obligations. If those bonds types are retired early, amortization expense may differ in the period of call or refinancing.