Fair Value Measurements (Tables)

3 Months Ended

Mar. 31, 2020

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, 2020 and December 31, 2019, 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, 2020:	Carrying Amount			Total Fair Value			Level 1		Level 2			Level 3
Financial assets:
Fixed income securities:
Municipal obligations	$	218		$	218		$	—	$	218		$	—
Corporate obligations	1,261			1,261			—		1,261			—
Foreign obligations	42			42			42		—			—
U.S. government obligations	177			177			177		—			—
Residential mortgage-backed securities	203			203			—		203			—
Commercial mortgage-backed securities	51			51			—		51			—
Collateralized debt obligations	132			132			—		132			—
Other asset-backed securities	283			283			—		217			66
Fixed income securities, pledged as collateral:
Short-term	85			85			85		—			—
Short term investments	586			586			528		57			—
Other investments ⁽¹⁾	363			345			84		—			30
Cash, cash equivalents and restricted cash	89			89			86		3			—
Derivative assets:
Credit derivatives	—			—			—
Interest rate swaps—asset position	89			89			—		10			79
Interest rate swaps—liability position	(1		)	(1		)	—		(1		)	—
Other assets - equity in sponsored VIE	3			3			—		—			3
Other assets-Loans	10			11			—		—			11
Variable interest entity assets:
Fixed income securities: Corporate obligations	2,806			2,806			—		—			2,806
Fixed income securities: Municipal obligations	122			122			—		122			—
Restricted cash	2			2			2		—			—
Loans	2,932			2,932			—		—			2,932
Derivative assets: Currency swaps-asset position	62			62			—		62			—
Total financial assets	$	9,513		$	9,498		$	1,004	$	2,335		$	5,927
Financial liabilities:
Long term debt, including accrued interest	$	3,217		$	2,924		$	—	$	2,584		$	341
Derivative liabilities:
Credit derivatives	2			2			—		—			2
Interest rate swaps—asset position	(1		)	(1		)	—		(1		)	—
Interest rate swaps—liability position	136			136			—		136			—
Liabilities for net financial guarantees written ⁽²⁾	(763		)	1,057			—		—			1,057
Variable interest entity liabilities:
Long-term debt (includes $4,092 at fair value)	4,263			4,274			—		4,115			158
Derivative liabilities: Interest rate swaps—liability position	1,610			1,610			—		1,610			—
Total financial liabilities	$	8,464		$	10,001		$	—	$	8,444		$	1,558



	Carrying Amount			Total Fair Value		Fair Value Measurements Categorized as:
December 31, 2019:	Carrying Amount			Total Fair Value		Level 1		Level 2		Level 3
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 and 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	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


(1)	Excluded from the fair value measurement categories in the table above are investment funds of $232 and $296 as of March 31, 2020 and December 31, 2019, 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 2020 and 2019. 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 March 31, 2020:
Balance, beginning of period	$	72		$	3	$	66		$	2,957		$	3,108		$	—		$	6,207
Total gains/(losses) realized and unrealized:
Included in earnings	—			—		12			30			88			—			130
Included in other comprehensive income	(6		)	—		—			(181		)	(190		)	—			(377		)
Purchases	—			—		—			—			—			—			—
Issuances	—			—		—			—			—			—			—
Sales	—			—		—			—			—			—			—
Settlements	—			—		(1		)	—			(74		)	—			(76		)
Balance, end of period	$	66		$	3	$	77		$	2,806		$	2,932		$	—		$	5,884
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	$	—		$	—	$	12		$	30		$	88		$	—		$	129
The amount of total gains/(losses) included in other comprehensive income attributable to the change in unrealized gains or losses relating to assets and liabilities still held at the reporting date	$	(6	)	$	—	$	—		$	(181	)	$	(190	)	$	—		$	(377	)

Three Months Ended March 31, 2019:
Balance, beginning of period	$	72		$	5	$	46		$	2,737		$	4,288		$	(217	)	$	6,930
Total gains/(losses) realized and unrealized:
Included in earnings	—			—		8			67			88			(3		)	160
Included in other comprehensive income	—			—		—			54			85			(4		)	135
Purchases	—			—		—			—			—			—			—
Issuances	—			—		—			—			—			—			—
Sales	—			—		—			—			—			—			—
Settlements	—			—		(1		)	—			(85		)	—			(87		)
Balance, end of period	$	72		$	4	$	53		$	2,858		$	4,376		$	(224	)	$	7,139
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	$	—		$	—	$	8		$	67		$	88		$	3		$	166


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

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,
Other Asset Backed Securities	2020			2019
Balance, beginning of period	$	72		$	72
Total gains/(losses) realized and unrealized:
Included in earnings	—			—
Included in other comprehensive income	(6		)	—
Purchases	—			—
Issuances	—			—
Sales	—			—
Settlements	—			—
Balance, end of period	$	66		$	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	$	—		$	—
The amount of total gains/(losses) included in other comprehensive income attributable to the change in unrealized gains or losses relating to assets and liabilities still held at the reporting date	(6		)



Level 3 - Derivatives by Class:
	Three Months Ended March 31, 2020									Three Months Ended March 31, 2019
	Interest Rate Swaps			Credit Derivatives			Total Derivatives			Interest Rate Swaps			Credit Derivatives			Total Derivatives
Balance, beginning of period	$	67		$	—		$	66		$	47		$	(1	)	$	46
Total gains/(losses) realized and unrealized:
Included in earnings	13			(1		)	12			8			—			8
Included in other comprehensive income	—			—			—			—			—			—
Purchases	—			—			—			—			—			—
Issuances	—			—			—			—			—			—
Sales	—			—			—			—			—			—
Settlements	(1		)	—			(1		)	(1		)	—			(1		)
Balance, end of period	$	79		$	(2	)	$	77		$	54		$	(1	)	$	53
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	$	13		$	(2	)	$	12		$	8		$	—		$	8

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 March 31, 2020:
Total gains or losses included in earnings for the period	$	—	$	12	$	118	$	—
Changes in unrealized gains or losses included in earnings relating to the assets and liabilities still held at the reporting date	—		12		118		—

Three Months Ended March 31, 2019:
Total gains or losses included in earnings for the period	$	—	$	8	$	152	$	—
Changes in unrealized gains or losses included in earnings relating to the assets and liabilities still held at the reporting date	—		8		152		—