Fair Value Measurements (Tables)

12 Months Ended

Dec. 31, 2019

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 December 31, 2019 and 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:
	Carrying Amount			Total Fair Value		Level 1		Level 2		Level 3
December 31, 2019:
Financial assets:
Fixed income securities:
Municipal obligations	$	215		$	215	$	—	$	215	$	—
Corporate obligations	1,430			1,430		—		1,430		—
Foreign obligations	44			44		44		—		—
U.S. government obligations	156			156		156		—		—
Residential mortgage-backed securities	248			248		—		248		—
Commercial mortgage-backed securities	50			50		—		50		—
Collateralized debt obligations	146			146		—		146		—
Other asset-backed securities	287			287		—		215		72
Fixed income securities, pledged as collateral:
Short-term	85			85		85		—		—
Short term investments	653			653		598		55		—
Other investments ⁽¹⁾	478			493		136		—		61
Cash, cash equivalents and restricted cash	79			79		70		9		—
Derivative assets:
Interest rate swaps—asset position	75			75		—		8		67
Other assets - equity in sponsored VIE	3			3		—		—		3
Other assets-Loans	10			13		—		—		13
Variable interest entity assets:
Fixed income securities: Corporate obligations	2,957			2,957		—		—		2,957
Fixed income securities: Municipal obligations	164			164		—		164		—
Restricted cash	2			2		2		—		—
Loans	3,108			3,108		—		—		3,108
Derivative assets:
Currency swaps-asset position	52			52		—		52		—
Total financial assets	$	10,242		$	10,260	$	1,091	$	2,593	$	6,281
Financial liabilities:
Long term debt, including accrued interest	$	3,262		$	3,274	$	—	$	2,829	$	445
Derivative liabilities:
Interest rate swaps—liability position	89			89		—		89		—
Liabilities for net financial guarantees written ⁽²⁾	(863		)	284		—		—		284
Variable interest entity liabilities:
Long-term debt (includes $4,351 at fair value)	4,554			4,567		—		4,408		159
Derivative liabilities:
Interest rate swaps—liability position	1,657			1,657		—		1,657		—
Total financial liabilities	$	8,699		$	9,872	$	—	$	8,983	$	889



	Carrying Amount			Total Fair Value		Fair Value Measurements Categorized as:
	Carrying Amount			Total Fair Value		Level 1		Level 2		Level 3
December 31, 2018:
Financial assets:
Fixed income securities:
Municipal obligations	$	880		$	880	$	—	$	880	$	—
Corporate obligations	1,278			1,278		—		1,278		—
Foreign obligations	31			31		30		1		—
U.S. government obligations	94			94		94		—		—
Residential mortgage-backed securities	259			259		—		259		—
Collateralized debt obligations	131			131		—		131		—
Other asset-backed securities	442			442		—		370		72
Short term investments	430			430		305		125		—
Other investments ⁽¹⁾	391			367		71		—		16
Cash and cash equivalents and restricted cash	82			82		53		30		—
Derivative assets:
Interest rate swaps—asset position	59			59		—		12		47
Other assets - equity in sponsored VIE	5			5		—		—		5
Other assets-loans	10			12		—		—		12
Variable interest entity assets:
Fixed income securities: Corporate obligations	2,737			2,737		—		—		2,737
Restricted cash	1			1		1		—		—
Loans	4,288			4,288		—		—		4,288
Derivative assets; Currency swaps-asset position	66			66		—		66		—
Total financial assets	$	11,186		$	11,164	$	554	$	3,153	$	7,177
Financial liabilities:
Long term debt, including accrued interest	$	3,305		$	3,260	$	—	$	2,909	$	351
Derivative liabilities:
Credit derivatives	1			1		—		—		1
Interest rate swaps—liability position	72			72		—		72		—
Futures contracts	3			3		3		—
Liabilities for net financial guarantees written ⁽²⁾	(718		)	559		—		—		559
Variable interest entity liabilities:
Long-term debt (includes $5,269 at fair value)	5,269			5,269		—		5,052		217
Derivative liabilities:
Interest rate swaps—liability position	1,712			1,712		—		1,712		—
Total financial liabilities	$	9,644		$	10,876	3		9,745		1,128


(1)	Excluded from the fair value measurement categories in the table above are investment funds of $296 and $280 as of December 31, 2019 and 2018, respectively, which are measured using NAV per share 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, 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
Year Ended December 31, 2019	Investments			Other Assets ⁽¹⁾			Derivatives			Investments			Loans			Long-term Debt			Total
Balance, beginning of period	$	72		$	5		$	46		$	2,737		$	4,288		$	(217	)	$	6,930
Total gains/(losses) realized and unrealized:
Included in earnings	2			(2		)	25			138			287			(15		)	436
Included in other comprehensive income	—			—			—			116			74			8			199
Purchases	—			—			—			—			—			—			—
Issuances	—			—			—			—			—			—			—
Sales	—			—			—			—			—			—			—
Settlements	(2		)	—			(5		)	(35		)	(690		)	—			(731		)
Transfers into Level 3	—			—			—			—			—			—			—
Transfers out of Level 3	—			—			—			—			—			—			—
Deconsolidation of VIEs	—			—			—			—			(851		)	223			(627		)
Balance, end of period	$	72		$	3		$	66		$	2,957		$	3,108		$	—		$	6,207
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	)	$	25		$	138		$	215		$	—		$	376


(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
Year Ended December 31, 2018	Investments			Other Assets			Derivatives			Investments			Loans			Long-term Debt			Total
Balance, beginning of period	$	809		$	6		$	61		$	2,914		$	11,529		$	(2,758	)	$	12,561
Total gains/(losses) realized and unrealized:
Included in earnings	36			(1		)	(9		)	16			(201		)	189			30
Included in other comprehensive income	(53		)	—			—			(158		)	(470		)	91			(590		)
Purchases	—			—			—			—			—			—			—
Issuances	—			—			—			—			—			—			—
Sales	—			—			—			—			—			—			—
Settlements	(714		)	—			(6		)	(35		)	(624		)	23			(1,356		)
Transfers out of Level 3	(5		)	—			—			—			—			—			(5		)
Deconsolidations of VIEs	—			—			—			—			(5,946		)	2,237			(3,709		)
Balance, end of period	$	72		$	5		$	46		$	2,737		$	4,288		$	(217	)	$	6,930
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	$	—		$	(1	)	$	(10	)	$	16		$	(63	)	$	47		$	(11	)



Level-3 Financial Assets and Liabilities Accounted for at Fair Value
										VIE Assets and Liabilities
Year Ended December 31, 2017	Investments			Other Assets			Derivatives			Investments			Loans			Long-term Debt			Total
Balance, beginning of period	$	763		$	7		$	(100	)	$	2,623		$	10,659		$	(2,582	)	$	11,369
Total gains/(losses) realized and unrealized:
Included in earnings	65			(1		)	63			71			550			35			783
Included in other comprehensive income	6			—			—			253			1,004			(254		)	1,010
Purchases	36			—			—			—			—			—			36
Issuances	—			—			—			—			—			—			—
Sales	(79		)	—			—			—			—			—			(79		)
Settlements	(30		)	—			98			(33		)	(684		)	44			(605		)
Transfers into Level 3	48			—			—			—			—			—			48
Balance, end of period	$	809		$	6		$	61		$	2,914		$	11,529		$	(2,758	)	$	12,561
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	$	—		$	(1	)	$	9		$	71		$	547		$	37		$	662

The tables below provide roll-forward information by class of investments and derivatives measured using significant unobservable inputs.



Level-3 Investments by Class
	2019								2018
Year Ended December 31,	Other Asset Backed Securities			Non-Agency RMBS		Total Investments			Other Asset Backed Securities			Non-Agency RMBS			Total Investments
Balance, beginning of period	$	72		$	—	$	72		$	73		$	736		$	809
Total gains/(losses) realized and unrealized:
Included in earnings	2			—		2			1			35			36
Included in other comprehensive income	—			—		—			(1		)	(52		)	(53		)
Purchases	—			—		—			—			—			—
Issuances	—			—		—			—			—			—
Sales	—			—		—			—			—			—
Settlements	(2		)	—		(2		)	(1		)	(713		)	(714		)
Transfers out of Level 3	—			—		—			—			(5		)	(5		)
Balance, end of period	$	72		$	—	$	72		$	72		$	—		$	72
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
Year Ended December 31, 2017	Other Asset Backed Securities			Non-Agency RMBS			Total Investments
Balance, beginning of period	$	66		$	697		$	763
Total gains/(losses) realized and unrealized:
Included in earnings	1			64			65
Included in other comprehensive income	6			—			6
Purchases	—			36			36
Issuances	—			—			—
Sales	—			(79		)	(79		)
Settlements	(1		)	(29		)	(30		)
Transfers into Level 3	—			48			48
Balance, end of period	$	73		$	736		$	809
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
	2019									2018
Year Ended December 31,	Interest Rate Swaps			Credit Derivatives			Total Derivatives			Interest Rate Swaps			Credit Derivatives			Total Derivatives
Balance, beginning of period	$	47		$	(1	)	$	46		$	61		$	(1	)	$	61
Total gains/(losses) realized and unrealized:
Included in earnings	24			2			25			(9		)	(1		)	(9		)
Purchases	—			—			—			—			—			—
Issuances	—			—			—			—			—			—
Sales	—			—			—			—			—			—
Settlements	(4		)	—			(5		)	(5		)	—			(6		)
Balance, end of period	$	67		$	—		$	66		$	47		$	(1	)	$	46
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	$	24		$	1		$	25		$	(9	)	$	(1	)	$	(10	)



Level-3 Derivatives by Class
Year Ended December 31, 2017	Interest Rate Swaps			Credit Derivatives			Total Derivatives
Balance, beginning of period	$	(85	)	$	(15	)	$	(100	)
Total gains/(losses) realized and unrealized:
Included in earnings	46			16			63
Purchases	—			—			—
Issuances	—			—			—
Sales	—			—			—
Settlements	100			(2		)	98
Balance, end of period	$	61		$	(1	)	$	61
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	$	7		$	2		$	9

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 (Expense)
Year Ended December 31, 2019
Total gains (losses) included in earnings for the period	$	2	$	25		$	410	$	(2	)
Changes in unrealized gains (losses) relating to financial instruments still held at the reporting date	—		25			353		(2		)

Year Ended December 31, 2018
Total gains (losses) included in earnings for the period	$	36	$	(9	)	$	4	$	(1	)
Changes in unrealized gains (losses) relating to financial instruments still held at the reporting date	—		(10		)	—		(1		)

Year Ended December 31, 2017
Total gains (losses) included in earnings for the period	$	65	$	63		$	656	$	(1	)
Changes in unrealized gains (losses) relating to financial instruments still held at the reporting date	—		9			655		(1		)