Fair Value Measurements (Tables)

6 Months Ended

Jun. 30, 2019

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, 2019 and December 31, 2018, 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, 2019:							Level 1		Level 2			Level 3
Financial assets:
Fixed income securities:
Municipal obligations	$	342,673		$	342,673		$	—	$	342,673		$	—
Corporate obligations	1,400,659			1,400,659			—		1,400,659			—
Foreign obligations	30,743			30,743			30,324		419			—
U.S. government obligations	96,806			96,806			96,806		—			—
Residential mortgage-backed securities	252,260			252,260			—		252,260			—
Collateralized debt obligations	136,153			136,153			—		136,153			—
Other asset-backed securities	344,883			344,883			—		270,565			74,318
Fixed income securities, pledged as collateral:
U.S. government obligations	84,418			84,418			84,418		—			—
Short term investments	772,299			772,299			739,762		32,537			—
Other investments (1)	469,438			443,791			129,689		—			17,228
Cash, cash equivalents and restricted cash	17,514			17,514			12,028		5,486			—
Derivative assets:
Interest rate swaps—asset position	72,156			72,156			—		9,025			63,131
Futures contracts	220			220			220		—			—
Other assets - equity in sponsored VIE	3,771			3,771			—		—			3,771
Other assets-Loans	9,760			12,233			—		—			12,233
Variable interest entity assets:
Fixed income securities: Corporate obligations	2,881,889			2,881,889			—		—			2,881,889
Fixed income securities: Municipal obligations	256,825			256,825			—		256,825			—
Restricted cash	28,500			28,500			28,500		—			—
Loans	4,288,572			4,288,572			—		—			4,288,572
Derivative assets: Currency swaps-asset position	62,941			62,941			—		62,941			—
Total financial assets	$	11,552,480		$	11,529,306		$	1,121,747	$	2,769,543		$	7,341,142
Financial liabilities:
Long term debt, including accrued interest	$	3,353,716		$	3,348,262		$	—	$	2,960,079		$	388,183
Derivative liabilities:
Credit derivatives	861			861			—		—			861
Interest rate swaps—asset position	(239		)	(239		)	—		(239		)	—
Interest rate swaps—liability position	87,623			87,623			—		87,623			—
Liabilities for net financial guarantees written (2)	(861,263		)	319,384			—		—			319,384
Variable interest entity liabilities:
Long-term debt (includes $5,308,724 carried at fair value)	5,648,083			5,702,129			—		5,471,514			230,615
Derivative liabilities: Interest rate swaps—liability position	1,818,273			1,818,273			—		1,818,273			—
Total financial liabilities	$	10,047,054		$	11,276,293		$	—	$	10,337,250		$	939,043

	Carrying Amount			Total Fair Value		Fair Value Measurements Categorized as:
December 31, 2018:						Level 1		Level 2		Level 3
Financial assets:
Fixed income securities:
Municipal obligations	$	879,919		$	879,919	$	—	$	879,919	$	—
Corporate obligations	1,278,122			1,278,122		—		1,278,122		—
Foreign obligations	30,834			30,834		29,922		912		—
U.S. government obligations	94,394			94,394		94,394		—		—
Residential mortgage-backed securities	258,607			258,607		—		258,607		—
Collateralized debt obligations	131,356			131,356		—		131,356		—
Other asset-backed securities	442,443			442,443		—		370,372		72,071
Short term investments	430,331			430,331		304,880		125,451		—
Other investments (1)	391,217			367,315		71,108		—		16,266
Cash and cash equivalents	82,494			82,494		52,661		29,833		—
Derivative assets:
Interest rate swaps—asset position	59,468			59,468		—		12,008		47,460
Other assets - equity in sponsored VIE	4,516			4,516		—		—		4,516
Other assets-loans	9,913			11,620		—		—		11,620
Variable interest entity assets:
Fixed income securities: Corporate obligations	2,737,286			2,737,286		—		—		2,737,286
Restricted cash	999			999		999		—		—
Loans	4,287,664			4,287,664		—		—		4,287,664
Derivative assets: Currency swaps—asset position	66,302			66,302		—		66,302		—
Total financial assets	$	11,185,865		$	11,163,670	$	553,964	$	3,152,882	$	7,176,883
Financial liabilities:
Long term debt, including accrued interest	$	3,304,737		$	3,259,966	$	—	$	2,909,272	$	350,694
Derivative liabilities:
Credit derivatives	1,459			1,459		—		—		1,459
Interest rate swaps—liability position	71,861			71,861		—		71,861		—
Futures contracts	3,379			3,379		3,379		—
Liabilities for net financial guarantees written (2)	(718,388		)	558,824		—		—		558,824
Variable interest entity liabilities:
Long-term debt	5,268,596			5,268,596		—		5,051,504		217,092
Derivative liabilities: Interest rate swaps—liability position	1,712,062			1,712,062		—		1,712,062		—
Total financial liabilities	$	9,643,706		$	10,876,147	$	3,379	$	9,744,699	$	1,128,069

(1) Excluded from the fair value measurement categories in the table above are investment funds of $296,874 and $279,941 as of June 30, 2019 and December 31, 2018, respectively, which are measured using NAV as a practical expedient.

(2)

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.

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 2019 and 2018. 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(1)			Derivatives			Investments			Loans			Long-term Debt			Total
Three Months Ended June 30, 2019:
Balance, beginning of period	$	71,855		$	4,148		$	53,034		$	2,858,404		$	4,375,761		$	(224,447	)	$	7,138,755
Total gains/(losses) realized and unrealized:
Included in earnings	388			(377		)	10,366			108,556			85,681			(11,550		)	193,064
Included in other comprehensive income	2,385			—			—			(67,887		)	(102,465		)	5,382			(162,585		)
Purchases	—			—			—			—			—			—			—
Issuances	—			—			—			—			—			—			—
Sales	—			—			—			—			—			—			—
Settlements	(310		)	—			(1,130		)	(17,184		)	(70,405		)	—			(89,029		)
Balance, end of period	$	74,318		$	3,771		$	62,270		$	2,881,889		$	4,288,572		$	(230,615	)	$	7,080,205
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	$	—		$	(377	)	$	10,270		$	108,556		$	85,681		$	(11,550	)	$	192,580
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	—			—			—			—			—			—			—
Issuances	—			—			—			—			—			—			—
Sales	—			—			—			—			—			—			—
Settlements	(287		)	—			(1,613		)	(17,595		)	(162,003		)	—			(181,498		)
Transfers into 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

(1) Other assets carried at fair value and classified as Level 3 relate to an equity interest in an Ambac sponsored VIE.

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, 2019:
Balance, beginning of period	$	72,071		$	4,516		$	46,001		$	2,737,286		$	4,287,664		$	(217,092	)	$	6,930,446
Total gains/(losses) realized and unrealized:
Included in earnings	771			(745		)	18,553			175,475			173,962			(14,603		)	353,413
Included in other comprehensive income	2,114			—			—			(13,688		)	(17,404		)	1,080			(27,898		)
Purchases	—			—			—			—			—			—			—
Issuances	—			—			—			—			—			—			—
Sales	—			—			—			—			—			—			—
Settlements	(638		)	—			(2,284		)	(17,184		)	(155,650		)	—			(175,756		)
Balance, end of period	$	74,318		$	3,771		$	62,270		$	2,881,889		$	4,288,572		$	(230,615	)	$	7,080,205
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	$	—		$	(745	)	$	18,366		$	175,475		$	173,962		$	(14,603	)	$	352,455
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	—			—			—			—			—			—			—
Issuances	—			—			—			—			—			—			—
Sales	—			—			—			—			—			—			—
Settlements	(713,890		)	—			(3,138		)	(17,595		)	(354,360		)	5,064			(1,083,919		)
Transfers into 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	)

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, 2019								Three Months Ended June 30, 2018
	Other Asset Backed Securities			Non-Agency RMBS		Total Investments			Other Asset Backed Securities			Non-Agency RMBS			Total Investments
Balance, beginning of period	$	71,855		$	—	$	71,855		$	72,321		$	5,309		$	77,630
Total gains/(losses) realized and unrealized:
Included in earnings	388			—		388			282			—			282
Included in other comprehensive income	2,385			—		2,385			(3,514		)	—			(3,514		)
Purchases	—			—		—			—			—			—
Issuances	—			—		—			—			—			—
Sales	—			—		—			—			—			—
Settlements	(310		)	—		(310		)	(287		)	—			(287		)
Transfers into Level 3	—			—		—			—			(5,309		)	(5,309		)
Balance, end of period	$	74,318		$	—	$	74,318		$	68,802		$	—		$	68,802
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, 2019								Six Months Ended June 30, 2018
	Other Asset Backed Securities			Non-Agency RMBS		Total Investments			Other Asset Backed Securities			Non-Agency RMBS			Total Investments
Balance, beginning of period	$	72,071		$	—	$	72,071		$	72,540		$	736,017		$	808,557
Total gains/(losses) realized and unrealized:
Included in earnings	771			—		771			739			34,727			35,466
Included in other comprehensive income	2,114			—		2,114			(3,884		)	(52,138		)	(56,022		)
Purchases	—			—		—			—			—			—
Issuances	—			—		—			—			—			—
Sales	—			—		—			—			—			—
Settlements	(638		)	—		(638		)	(593		)	(713,297		)	(713,890		)
Transfers out of Level 3	—			—		—			—			(5,309		)	(5,309		)
Balance, end of period	$	74,318		$	—	$	74,318		$	68,802		$	—		$	68,802
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, 2019									Three Months Ended June 30, 2018
	Interest Rate Swaps			Credit Derivatives			Total Derivatives			Interest Rate Swaps			Credit Derivatives			Total Derivatives
Balance, beginning of period	$	54,111		$	(1,077	)	$	53,034		$	50,926		$	(1,018	)	$	49,908
Total gains/(losses) realized and unrealized:
Included in earnings	10,056			310			10,366			(2,465		)	(217		)	(2,682		)
Included in other comprehensive income	—			—			—			—			—			—
Purchases	—			—			—			—			—			—
Issuances	—			—			—			—			—			—
Sales	—			—			—			—			—			—
Settlements	(1,036		)	(94		)	(1,130		)	(1,522		)	(91		)	(1,613		)
Balance, end of period	$	63,131		$	(861	)	$	62,270		$	46,939		$	(1,326	)	$	45,613
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	$	10,056		$	214		$	10,270		$	(2,465	)	$	(308	)	$	(2,773	)

Level 3 - Derivatives by Class:
	Six Months Ended June 30, 2019									Six Months Ended June 30, 2018
	Interest Rate Swaps			Credit Derivatives			Total Derivatives			Interest Rate Swaps			Credit Derivatives			Total Derivatives
Balance, beginning of period	$	47,460		$	(1,459	)	$	46,001		$	61,374		$	(566	)	$	60,808
Total gains/(losses) realized and unrealized:
Included in earnings	17,770			783			18,553			(11,494		)	(563		)	(12,057		)
Included in other comprehensive income	—			—			—			—			—			—
Purchases	—			—			—			—			—			—
Issuances	—			—			—			—			—			—
Sales	—			—			—			—			—			—
Settlements	(2,099		)	(185		)	(2,284		)	(2,941		)	(197		)	(3,138		)
Balance, end of period	$	63,131		$	(861	)	$	62,270		$	46,939		$	(1,326	)	$	45,613
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	$	17,770		$	596		$	18,366		$	(11,494	)	$	(760	)	$	(12,254	)

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		Net Gains (Losses) on Derivative Contracts			Income (Loss) on Variable Interest Entities			Other Income or (Loss)
Three Months Ended June 30, 2019:
Total gains or losses included in earnings for the period	$	388	$	10,366		$	182,687		$	(377	)
Changes in unrealized gains or losses relating to the assets and liabilities still held at the reporting date	—		10,270			182,687			(377		)
Three Months Ended June 30, 2018:
Total gains or losses included in earnings for the period	$	282	$	(2,682	)	$	40,557		$	(366	)
Changes in unrealized gains or losses relating to the assets and liabilities still held at the reporting date	—		(2,773		)	40,557			(366		)
Six Months Ended June 30, 2019:
Total gains or losses included in earnings for the period	$	771	$	18,553		$	334,834		$	(745	)
Changes in unrealized gains or losses relating to the assets and liabilities still held at the reporting date	—		18,366			334,834			(745		)
Six Months Ended June 30, 2018:
Total gains or losses included in earnings for the period	$	35,466	$	(12,057	)	$	(71,072	)	$	(724	)
Changes in unrealized gains or losses relating to the assets and liabilities still held at the reporting date	—		(12,254		)	(71,072		)	(724		)