Fair Value Measurements (Tables)

3 Months Ended

Mar. 31, 2018

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, 2018 and December 31, 2017, 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, 2018:	Carrying Amount			Total Fair Value			Level 1		Level 2			Level 3
Financial assets:
Fixed income securities:
Municipal obligations	$	855,387		$	855,387		$	—	$	855,387		$	—
Corporate obligations	1,438,993			1,438,993			450		1,438,543			—
Foreign obligations	26,395			26,395			25,492		903			—
U.S. government obligations	87,261			87,261			87,261		—			—
Residential mortgage-backed securities	823,296			823,296			—		817,987			5,309
Collateralized debt obligations	50,958			50,958			—		50,958			—
Other asset-backed securities	589,648			589,648			—		517,327			72,321
Fixed income securities, pledged as collateral:
U.S. government obligations	84,240			84,240			84,240		—			—
Short term investments	321,119			321,119			269,171		51,948			—
Other investments ⁽¹⁾	419,896			402,072			57,535		—			18,385
Cash and cash equivalents	38,485			38,485			35,033		3,452			—
Loans	10,643			12,042			—		—			12,042
Derivative assets:
Interest rate swaps—asset position	60,198			60,198			—		9,272			50,926
Interest rate swaps—liability position	(2		)	(2		)	—		(2		)	—
Other assets	5,621			5,621			—		—			5,621
Variable interest entity assets:
Fixed income securities:
Corporate obligations	2,955,763			2,955,763			—		—			2,955,763
Restricted cash	1,134			1,134			1,134		—			—
Loans	11,558,331			11,558,331			—		—			11,558,331
Derivative assets:
Currency swaps-asset position	46,260			46,260			—		46,260			—
Total financial assets	$	19,289,386		$	19,272,961		$	476,076	$	3,792,035		$	14,678,698
Financial liabilities:
Long term debt, including accrued interest	$	3,201,931		$	3,265,029		$	—	$	2,651,952		$	613,077
Derivative liabilities:
Credit derivatives	1,018			1,018			—		—			1,018
Interest rate swaps—liability position	70,566			70,566			—		70,566			—
Liabilities for net financial guarantees written⁽²⁾	(432,722		)	900,880			—		—			900,880
Variable interest entity liabilities:
Long-term debt	12,270,124			12,270,124			—		9,573,607			2,696,517
Derivative liabilities:
Interest rate swaps—liability position	2,155,456			2,155,456			—		2,155,456			—
Total financial liabilities	$	17,266,373		$	18,663,073		$	—	$	14,451,581		$	4,211,492



	Carrying Amount			Total Fair Value			Fair Value Measurements Categorized as:
December 31, 2017:	Carrying Amount			Total Fair Value			Level 1		Level 2			Level 3
Financial assets:
Fixed income securities:
Municipal obligations	$	779,834		$	779,834		$	—	$	779,834		$	—
Corporate obligations	860,075			860,075			450		859,625			—
Foreign obligations	26,543			26,543			25,615		928			—
U.S. government obligations	85,408			85,408			85,408		—			—
Residential mortgage-backed securities	2,251,333			2,251,333			—		1,515,316			736,017
Collateralized debt obligations	51,037			51,037			—		51,037			—
Other asset-backed securities	597,942			597,942			—		525,402			72,540
Fixed income securities, pledged as collateral:
U.S. government obligations	99,719			99,719			99,719		—			—
Short term investments	557,270			557,270			389,299		167,971			—
Other investments ⁽¹⁾	431,630			413,977			56,498		29,750			17,288
Cash and cash equivalents	623,703			623,703			615,073		8,630			—
Loans	10,358			10,284			—		—			10,284
Derivative assets:
Interest rate swaps—asset position	73,199			73,199			—		11,825			61,374
Other assets	5,979			5,979			—		—			5,979
Variable interest entity assets:
Fixed income securities:
Corporate obligations	2,914,145			2,914,145			—		—			2,914,145
Restricted cash	978			978			978		—			—
Loans	11,529,384			11,529,384			—		—			11,529,384
Derivative assets:
Currency swaps—asset position	54,877			54,877			—		54,877			—
Total financial assets	$	20,853,695		$	20,835,968		$	1,173,321	$	4,005,195		$	15,347,011
Financial liabilities:
Long term debt, including accrued interest	$	1,428,680		$	1,369,499		$	—	$	1,046,511		$	322,988
Derivative liabilities:
Credit derivatives	566			566			—		—			566
Interest rate swaps—asset position	(627		)	(627		)	—		(627		)	—
Interest rate swaps—liability position	81,495			81,495			—		81,495			—
Futures contracts	1,348			1,348			1,348		—			—
Liabilities for net financial guarantees written ⁽²⁾	3,435,438			4,842,402			—		—			4,842,402
Variable interest entity liabilities:
Long-term debt	12,160,544			12,160,544			—		9,402,856			2,757,688
Derivative liabilities:
Interest rate swaps—liability position	2,205,264			2,205,264			—		2,205,264			—
Total financial liabilities	$	19,312,708		$	20,660,491		$	1,348	$	12,735,499		$	7,923,644


(1)	Excluded from the fair value measurement categories in the table above are investment funds of $326,152 and $310,441 as of March 31, 2018 and December 31, 2017, 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 March 31, 2018 and December 31, 2017 is summarized below:



	March 31, 2018				December 31, 2017
Number of CDS transactions		2			2
Notional outstanding		$	330,656		$	325,890
Weighted average reference obligation price		98.6			99.3
Weighted average life (WAL) in years		6.3			6.5
Weighted average credit rating		A			A
Weighted average relative change ratio		23.4		%	23.6		%
CVA percentage		9.25		%	9.64		%
Fair value of derivative liabilities		$	1,018		$	566

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 2018 and 2017. 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, 2018:
Balance, beginning of period	$	808,557		$	5,979		$	60,808		$	2,914,145		$	11,529,384		$	(2,757,688	)	$	12,561,185
Total gains/(losses) realized and unrealized:
Included in earnings	35,184			(358		)	(9,375		)	(69,026		)	(202,588		)	159,985			(86,178		)
Included in other comprehensive income	(52,508		)	—			—			110,644			423,892			(103,877		)	378,151
Purchases	—			—			—			—			—			—			—
Issuances	—			—			—			—			—			—			—
Sales	—			—			—			—			—			—			—
Settlements	(713,603		)	—			(1,525		)	—			(192,357		)	5,064			(902,421		)
Transfers into Level 3	—			—			—			—			—			—			—
Transfers out of Level 3	—			—			—			—			—			—			—
Balance, end of period	$	77,630		$	5,621		$	49,908		$	2,955,763		$	11,558,331		$	(2,696,516	)	$	11,950,737
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	$	—		$	(358	)	$	(9,481	)	$	(69,026	)	$	(202,588	)	$	159,985		$	(121,468	)

Three Months Ended March 31, 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	9,819			(343		)	(2,817		)	(5,195		)	346,192			(94,407		)	253,249
Included in other comprehensive income	6,285			—			—			46,348			183,549			(46,257		)	189,925
Purchases	9,851			—			—			—			—			—			9,851
Issuances	—			—			—			—			—			—			—
Sales	(79,319		)	—			—			—			—			—			(79,319		)
Settlements	(9,793		)	—			511			—			(173,399		)	6,242			(176,439		)
Transfers into Level 3	22,078			—			—			—			—			—			22,078
Transfers out of Level 3	—			—			—			—			—			—			—
Balance, end of period	$	721,624		$	7,039		$	(102,588	)	$	2,663,719		$	11,015,305		$	(2,716,642	)	$	11,588,457
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	$	—		$	(343	)	$	(3,017	)	$	(5,195	)	$	346,192		$	(94,407	)	$	243,230

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 March 31, 2018									Three Months Ended March 31, 2017
	Other Asset Backed Securities			Non-Agency RMBS			Total Investments			Other Asset Backed Securities			Non-Agency RMBS			Total Investments
Balance, beginning of period	$	72,540		$	736,017		$	808,557		$	65,990		$	696,713		$	762,703
Total gains/(losses) realized and unrealized:
Included in earnings	457			34,727			35,184			353			9,466			9,819
Included in other comprehensive income	(370		)	(52,138		)	(52,508		)	(279		)	6,564			6,285
Purchases	—			—			—			—			9,851			9,851
Issuances	—			—			—			—			—			—
Sales	—			—			—			—			(79,319		)	(79,319		)
Settlements	(306		)	(713,297		)	(713,603		)	(257		)	(9,536		)	(9,793		)
Transfers into Level 3	—			—			—			—			22,078			22,078
Transfers out of Level 3	—			—			—			—			—			—
Balance, end of period	$	72,321		$	5,309		$	77,630		$	65,807		$	655,817		$	721,624
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, 2018									Three Months Ended March 31, 2017
	Interest Rate Swaps			Credit Derivatives			Total Derivatives			Interest Rate Swaps			Credit Derivatives			Total Derivatives
Balance, beginning of period	$	61,374		$	(566	)	$	60,808		$	(84,933	)	$	(15,349	)	$	(100,282	)
Total gains/(losses) realized and unrealized:
Included in earnings	(9,029		)	(346		)	(9,375		)	(3,869		)	1,052			(2,817		)
Included in other comprehensive income	—			—			—			—			—			—
Purchases	—			—			—			—			—			—
Issuances	—			—			—			—			—			—
Sales	—			—			—			—			—			—
Settlements	(1,419		)	(106		)	(1,525		)	710			(199		)	511
Transfers into Level 3	—			—			—			—			—			—
Transfers out of Level 3	—			—			—			—			—			—
Balance, end of period	$	50,926		$	(1,018	)	$	49,908		$	(88,092	)	$	(14,496	)	$	(102,588	)
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	$	(9,029	)	$	(452	)	$	(9,481	)	$	(3,869	)	$	852		$	(3,017	)

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, 2018:
Total gains or losses included in earnings for the period	$	35,184	$	—	$	(452	)	$	(9,029	)	$	(111,629	)	$	(358	)
Changes in unrealized gains or losses relating to the assets and liabilities still held at the reporting date	—		—		(452		)	(9,029		)	(111,629		)	(358		)

Three Months Ended March 31, 2017:
Total gains or losses included in earnings for the period	$	9,819	$	199	$	853		$	(3,869	)	$	246,590		$	(343	)
Changes in unrealized gains or losses relating to the assets and liabilities still held at the reporting date	—		—		852			(3,869		)	246,590			(343		)