Fair Value Measurements (Tables)

6 Months Ended

Jun. 30, 2018

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, 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:
June 30, 2018:							Level 1		Level 2			Level 3
Financial assets:
Fixed income securities:
Municipal obligations	$	899,122		$	899,122		$	—	$	899,122		$	—
Corporate obligations	1,350,787			1,350,787			450		1,350,337			—
Foreign obligations	25,442			25,442			24,346		1,096			—
U.S. government obligations	82,413			82,413			82,413		—			—
Residential mortgage-backed securities	512,309			512,309			—		512,309			—
Collateralized debt obligations	65,457			65,457			—		65,457			—
Other asset-backed securities	579,397			579,397			—		510,595			68,802
Fixed income securities, pledged as collateral:
U.S. government obligations	84,641			84,641			84,641		—			—
Short term investments	393,447			393,447			314,070		79,377			—
Other investments (1)	394,396			378,471			59,834		—			21,571
Cash and cash equivalents	44,398			44,398			23,993		20,405			—
Loans	10,007			12,039			—		—			12,039
Derivative assets:
Interest rate swaps—asset position	56,147			56,147			—		9,208			46,939
Interest rate swaps—liability position	(161		)	(161		)	—		(161		)	—
Futures contracts	524			524			524		—			—
Other assets	5,255			5,255			—		—			5,255
Variable interest entity assets:
Fixed income securities: Corporate obligations	2,756,924			2,756,924			—		—			2,756,924
Restricted cash	1,052			1,052			1,052		—			—
Loans	10,751,199			10,751,199			—		—			10,751,199
Derivative assets: Currency swaps-asset position	60,403			60,403			—		60,403			—
Total financial assets	$	17,988,518		$	17,974,625		$	506,682	$	3,508,148		$	13,662,729
Financial liabilities:
Long term debt, including accrued interest	$	3,033,947		$	3,147,361		$	—	$	2,733,359		$	414,002
Derivative liabilities:
Credit derivatives	1,326			1,326			—		—			1,326
Interest rate swaps—asset position	—			—			—					—
Interest rate swaps—liability position	66,322			66,322			—		66,322			—
Liabilities for net financial guarantees written (2)	(463,146		)	1,022,545			—		—			1,022,545
Variable interest entity liabilities:
Long-term debt	11,454,746			11,454,746			—		8,937,108			2,517,638
Derivative liabilities: Interest rate swaps—liability position	1,992,227			1,992,227			—		1,992,227			—
Total financial liabilities	$	16,085,422		$	17,684,527		$	—	$	13,729,016		$	3,955,511

	Carrying Amount			Total Fair Value			Fair Value Measurements Categorized as:
December 31, 2017:							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 $297,066 and $310,441 as of June 30, 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 June 30, 2018 and December 31, 2017 is summarized below:

	June 30, 2018				December 31, 2017
Number of CDS transactions		2			2
Notional outstanding		$	311,237		$	325,890
Weighted average reference obligation price		98.1			99.3
Weighted average life (WAL) in years		6.1			6.5
Weighted average credit rating		A			A
Weighted average relative change ratio		23.4		%	23.6		%
CVA percentage		8.06		%	9.64		%
Fair value of derivative liabilities		$	1,326		$	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 June 30, 2018:
Balance, beginning of period	$	77,630		$	5,621		$	49,908		$	2,955,763		$	11,558,331		$	(2,696,516	)	$	11,950,737
Total gains/(losses) realized and unrealized:
Included in earnings	282			(366		)	(2,682		)	(4,137		)	27,466			17,228			37,791
Included in other comprehensive income	(3,514		)	—			—			(177,107		)	(672,595		)	161,650			(691,566		)
Purchases	—			—			—			—			—			—			—
Sales	—			—			—			—			—			—			—
Settlements	(287		)	—			(1,613		)	(17,595		)	(162,003		)	—			(181,498		)
Transfers out of Level 3	(5,309		)	—			—			—			—			—			(5,309		)
Balance, end of period	$	68,802		$	5,255		$	45,613		$	2,756,924		$	10,751,199		$	(2,517,638	)	$	11,110,155
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	$	—		$	(366	)	$	(2,773	)	$	(4,137	)	$	27,466		$	17,228		$	37,418
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
Sales	—			—			—			—			—			—			—
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

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, 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	35,466			(724		)	(12,057		)	(73,163		)	(175,122		)	177,213			(48,387		)
Included in other comprehensive income	(56,022		)	—			—			(66,463		)	(248,703		)	57,773			(313,415		)
Purchases	—			—			—			—			—			—			—
Sales	—			—			—			—			—			—			—
Settlements	(713,890		)	—			(3,138		)	(17,595		)	(354,360		)	5,064			(1,083,919		)
Transfers out of Level 3	(5,309		)	—			—			—			—			—			(5,309		)
Balance, end of period	$	68,802		$	5,255		$	45,613		$	2,756,924		$	10,751,199		$	(2,517,638	)	$	11,110,155
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	$	—		$	(724	)	$	(12,254	)	$	(73,163	)	$	(175,122	)	$	177,213		$	(84,050	)
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 in 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

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, 2018									Three Months Ended June 30, 2017
	Other Asset Backed Securities			Non-Agency RMBS			Total Investments			Other Asset Backed Securities			Non-Agency RMBS			Total Investments
Balance, beginning of period	$	72,321		$	5,309		$	77,630		$	65,807		$	655,817		$	721,624
Total gains/(losses) realized and unrealized:
Included in earnings	282			—			282			356			16,123			16,479
Included in other comprehensive income	(3,514		)	—			(3,514		)	(555		)	11,367			10,812
Purchases	—			—			—			—			25,930			25,930
Sales	—			—			—			—			—			—
Settlements	(287		)	—			(287		)	(242		)	(8,921		)	(9,163		)
Transfers out of Level 3	—			(5,309		)	(5,309		)	—			—			—
Balance, end of period	$	68,802		$	—		$	68,802		$	65,366		$	700,316		$	765,682
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, 2018									Six Months Ended June 30, 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	739			34,727			35,466			709			25,589			26,298
Included in other comprehensive income	(3,884		)	(52,138		)	(56,022		)	(834		)	17,931			17,097
Purchases	—			—			—			—			35,781			35,781
Sales	—			—			—			—			(79,319		)	(79,319		)
Settlements	(593		)	(713,297		)	(713,890		)	(499		)	(18,457		)	(18,956		)
Transfers into Level 3	—			—			—			—			22,078			22,078
Transfers out of Level 3	—			(5,309		)	(5,309		)	—			—			—
Balance, end of period	68,802			—			68,802			65,366			700,316			765,682
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, 2018									Three Months Ended June 30, 2017
	Interest Rate Swaps			Credit Derivatives			Total Derivatives			Interest Rate Swaps			Credit Derivatives			Total Derivatives
Balance, beginning of period	$	50,926		$	(1,018	)	$	49,908		$	(88,092	)	$	(14,496	)	$	(102,588	)
Total gains/(losses) realized and unrealized:
Included in earnings	(2,465		)	(217		)	(2,682		)	47,491			6,624			54,115
Included in other comprehensive income	—			—			—			—			—			—
Purchases	—			—			—			—			—			—
Sales	—			—			—			—			—			—
Settlements	(1,522		)	(91		)	(1,613		)	102,336			(1,134		)	101,202
Balance, end of period	$	46,939		$	(1,326	)	$	45,613		$	61,735		$	(9,006	)	$	52,729
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	$	(2,465	)	$	(308	)	$	(2,773	)	$	4,049		$	191		$	4,240

Level 3 - Derivatives by Class:
	Six Months Ended June 30, 2018									Six Months Ended June 30, 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	(11,494		)	(563		)	(12,057		)	43,622			7,676			51,298
Included in other comprehensive income	—			—			—			—			—			—
Purchases	—			—			—			—			—			—
Sales	—			—			—			—			—			—
Settlements	(2,941		)	(197		)	(3,138		)	103,046			(1,333		)	101,713
Balance, end of period	$	46,939		$	(1,326	)	$	45,613		$	61,735		$	(9,006	)	$	52,729
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	$	(11,494	)	$	(760	)	$	(12,254	)	$	3,863		$	51		$	3,914

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, 2018:
Total gains or losses included in earnings for the period	$	282	$	91	$	(308	)	$	(2,465	)	$	40,557		$	(366	)
Changes in unrealized gains or losses relating to the assets and liabilities still held at the reporting date	—		—		(308		)	(2,465		)	40,557			(366		)
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		)
Six Months Ended June 30, 2018:
Total gains or losses included in earnings for the period	$	35,466	$	197	$	(760	)	$	(11,494	)	$	(71,072	)	$	(724	)
Changes in unrealized gains or losses relating to the assets and liabilities still held at the reporting date	—		—		(760		)	(11,494		)	(71,072		)	(724		)
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		)