Employment Benefit Plans (Notes)

12 Months Ended

Dec. 31, 2019

Share-based Compensation Arrangement by Share-based Payment Award, Options, Outstanding, Weighted Average Exercise Price [Abstract]

Compensation and Employee Benefit Plans [Text Block]

15. EMPLOYMENT BENEFIT PLANS

Postretirement Health Care and Other Benefits

Ambac provides postretirement and postemployment / severance benefits, including health and life benefits for certain employees who meet certain age and service requirements. None of the plans are currently funded. Postretirement and postemployment benefits expenses, including severance benefits paid, were $3, $1 and $5 for the years ended December 31, 2019, 2018 and 2017, respectively.

Effective August 1, 2005, new employees were not eligible for postretirement benefits. The current postretirement benefit requires retirees to purchase their own medical insurance policy with a portion of their premium being reimbursed by Ambac. The unfunded accumulated postretirement benefit obligation was $8 as of December 31, 2019. The assumed health care cost trend rates range from 5.3% in 2020, decreasing ratably to 4.5% in 2028. Increasing the assumed health care cost trend rate by one

percentage point in each future year would increase the accumulated postretirement benefit obligation at December 31, 2019, by less than a million dollars and the 2019 benefit expense by less than a million dollars. Decreasing the assumed health care cost trend rate by one percentage point in each future year would decrease the accumulated postretirement benefit obligation at December 31, 2019 by less than a million dollars and the 2019 benefit expense by less than a million dollars.

The following table sets forth projected benefit payments from Ambac’s postretirement plan over the next ten years for current retirees:

2020	$	—
2021	—
2022	—
2023	—
2024	1
2025-2029	3
Total	$	5

The discount rate used in determining the projected benefit obligations for the postretirement plan is selected by reference to a pension liability index with similar duration to that of the benefit plan. The rates used for the projected plan benefit obligations at the measurement date for December 31, 2019 and 2018, were 3.00% and 4.00%, respectively.

Savings Incentive Plan

Substantially all employees of Ambac Assurance are covered by a defined contribution plan (the “Savings Incentive Plan”). Ambac Assurance makes employer matching contributions equal 100% of the employees’ contributions, up to 3% of such participants’ compensation, as defined in the plan, plus 50% of contributions up to an additional 2% of compensation, subject to limits set by the Internal Revenue Code. The total cost of the Savings Incentive Plan was $1, $1 and $1 for the years December 31, 2019, 2018 and 2017, respectively.

Incentive Compensation - Stock Units and Cash

Incentive compensation is a key component of our compensation strategy. Our incentive compensation awards generally have two components: short term incentive compensation awards ("STIP") and long term incentive plan awards ("LTIP"). Annual decisions with regard to incentive compensation are generally made in the first quarter of each year and are based on Company performance and individual and business unit performance of the previous year. For all employees, an allocation of incentive compensation is made between STIP and LTIP awards.

Employees, directors and consultants of Ambac are eligible to participate in Ambac’s 2013 Incentive Compensation Plan (“2013 Plan”) subject to the discretion of the compensation committee of Ambac’s Board of Directors. The 2013 Plan provides for incentives and rewards that are valued or determined by reference to Ambac common stock as currently traded on the New York Stock Exchange. There are 4,000,000 shares of Ambac’s common stock authorized for awards under the 2013 Plan of which 1,383,489 shares are available for future grant as of December 31, 2019. Shares available for future grant are reduced by the maximum number of shares that could be issued pursuant to granted performance awards. The number of shares available for future issuance considering the target number of shares instead of the maximum number of shares related to performance awards is 2,079,181.

In March 2014, Ambac developed the LTIP as a sub-plan of the 2013 Plan. The LTIP is intended to be an annual program that allows for both cash and equity performance awards to certain US employees.

In 2015, Ambac UK 's Board of Directors adopted a long term incentive plan which provides cash based performance awards to Ambac UK employees. Cash based compensation expense related to performance awards granted to Ambac UK employees was $5, $1 and $2 for the years ended December 31, 2019, 2018 and 2017, respectively.

The amount of stock-based compensation expense and corresponding after-tax expense are as follows:

Year Ended December 31,	2019		2018		2017
Stock options	$	—	$	—	$	—
Restricted stock units	4		6		2
Performance awards (1) (2)	8		6		3
Total stock-based compensation	$	12	$	12	$	4
Total stock-based compensation (after-tax)	$	12	$	12	$	4

(1) Represents expense related to performance stock unit portion of performance awards. Certain performance awards are in the form of cash. Cash based compensation expense related to performance awards granted to US employees was $0, $1 and $2 for the years ended December 31, 2019, 2018 and 2017, respectively.

(2) A performance award issued to Ambac's former Chief Executive Officer in the form of performance stock units was expensed during 2018.

Stock Options

Stock options were awarded in 2013 to directors that had an expiry term of seven years from the grant date, subject to earlier expiration upon the recipient's departure from the Company. The Company intends to use Treasury shares first and then, if necessary, issue new shares to satisfy stock option exercises.

A summary of stock option activity for 2019 is as follows:

	Shares	Weighted Average Exercise Price		Aggregate Intrinsic Value		Weighted Average Remaining Contractual Life (in years)
Outstanding at beginning of period	16,667	$	20.63
Granted	—	—
Exercised	—	—
Forfeited or expired	—	—
Outstanding at end of period	16,667	$	20.63	$	—	0.97
Exercisable	16,667	$	20.63	$	—	0.97

All stock options granted were fully vested as of December 31, 2019. Total unrecognized compensation costs related to unvested stock options granted were $0 as of December 31, 2019. No stock options were exercised during the years ended December 31, 2019, 2018 and 2017, respectively.

Restricted Stock Units (“RSUs”)

RSUs have been awarded to certain employees for a portion of their STIP compensation, LTIP compensation and special awards for exceptional performance. Generally, the STIP and special awards vest upon grant, but settlement is deferred (other than for employment tax withholdings) into two equal installments generally on the first and second anniversary date of the grant. The LTIP awards generally vest in equal installments over a three year period. Such vesting is expressly conditioned upon the respective employees continued service with Ambac through the applicable vesting date.

RSUs are awarded annually to directors and vest on the last day of April of the following year. These RSUs will not settle until the respective director’s termination from the board of directors or, if earlier, upon a change in control. All RSUs provide for accelerated vesting upon a change in control, death or disability or involuntary removal other than for cause (not including removal pursuant to a shareholder vote at a regularly scheduled annual meeting of shareholders). Upon termination (other than for cause), the unvested RSUs shall partially vest as of the date of such termination in an amount equal to the number of then outstanding unvested RSUs multiplied by a fraction, the numerator of which shall be the number of calendar days which have lapsed since the grant date and the denominator of which shall be the total number of calendar days of the original vesting period.

As of December 31, 2019, 702,579 RSUs remained outstanding, of which (i) 248,942 units required future service as a condition to the delivery of the underlying shares of common stock and (ii)

453,637 units do not require future service and are deferred for future settlement. As of December 31, 2018, 645,028 RSUs remained outstanding, of which (i) 209,093 units required future service as a condition to the delivery of the underlying shares of common stock,and (ii) 435,935 units did not require future service and were deferred for future settlement.

A summary of RSU activity for 2019 is as follows:

	Shares		Weighted Average Grant Date Fair Value
Outstanding at beginning of period	645,028		$	17.17
Granted	248,861		19.75
Delivered or returned to plan (1)	(189,832	)	16.76
Forfeited	(1,478	)	20.11
Outstanding at end of period	702,579		$	18.19

(1) When restricted stock unit awards issued by Ambac become taxable compensation to employees, shares may be withheld to cover the employee’s withholding taxes. For the year ended December 31, 2019, Ambac purchased 72,977 of shares from employees that settled restricted stock units to meet the required tax withholdings.

Ambac’s closing share price on the grant date was used to estimate the fair value of the service condition based RSU on the grant date. The weighted average grant date fair value of RSUs granted during 2019, 2018 and 2017 was $19.75, $16.35 and $20.22, respectively. As of December 31, 2019, there was $2 of total unrecognized compensation costs related to unvested RSUs granted. These costs are expected to be recognized over a weighted average period of 1.7 years. The fair value for RSUs vested and delivered during the year ended December 31, 2019, 2018 and 2017 was $4, $1 and $3, respectively.

Performance Stock Awards ("PSUs")

Performance awards granted vest in 3 years and actual awards will be based on performance at both AFG and Ambac Assurance. Actual awards can payout 0% to 220% of the number of units granted. Under currently outstanding award agreements, performance will be evaluated as follows:

• AFG performance will be evaluated relative to cumulative earnings before interest, taxes, depreciation and amortization over the vesting period (exclusive of Ambac Assurance and its subsidiaries' earnings), which is intended to reward participants for generating pre-tax income.

• Ambac Assurance performance will be evaluated according to changes in Ambac Assurance's assets relative to its insurance and financial obligations, which is intended to reward participants for increases in the relative value of Ambac Assurance, as well as reductions in watch list and adversely classified credits, which is intended to reward participants for de-risking the insured portfolio.

• In 2019, a relative Total Shareholder Return modifier was added as an additional metric with respect to the LTIP award payouts. The modifier will cause the payout at the end of the performance period to be increased or decreased by 10% if AFG's stock performance compared to a peer group is at or

above the 75th percentile or at or below the 25th percentile, respectively.

These performance metrics are subject to change by the Compensation Committee of the Board of Directors as Ambac's business evolves.

Other than voluntary termination or involuntary termination for cause, and provided that the participant meets certain minimum service requirements, the performance awards are subject to either partial or accelerated vesting. The current performance awards shall be settled within 75 days after the end of the performance period, including those with partial or accelerated vesting.

In 2015, a performance award was granted to the former Chief Executive Officer. This award vested on February 12, 2018, upon the emergence of the Segregated Account from rehabilitation.

A summary of PSU activity for 2019 is as follows:

	Shares		Weighted Average Grant Date Fair Value
Outstanding at beginning of period	516,999		$	17.02
Granted (1)	230,391		19.17
Delivered (2)	(166,353	)	15.52
Forfeited (1)	(8,151	)	18.11
Performance adjustment (3)	77,326		15.52
Outstanding at end of period	650,212		$	17.98

(1) Represents performance share units at 100% of units granted for LTIP Awards.

(2) Reflects the number of performance shares attributable to the performance goals attained over the completed performance period and for which service conditions have been met. When performance stock unit awards issued by Ambac become taxable compensation to employees, shares may be withheld to cover the employee’s withholding taxes. For the year ended December 31, 2019, Ambac purchased 64,086 of shares from employees that settled performance based restricted stock units to meet the required tax withholdings.

(3) Represents the increase (decrease) in shares issued for awards granted in 2016 based upon the attainment of performance metrics at the end of the performance period.

As of December 31, 2019, there was $6 of total unrecognized compensation costs related to the PSU portion of unvested performance awards, which are expected to be recognized over a weighted average period of 1.6 years.