Fair Value Measurements (Tables)

6 Months Ended

Jun. 30, 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 June 30, 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:
June 30, 2020:	Carrying Amount			Total Fair Value		Level 1		Level 2		Level 3
Financial assets:
Fixed income securities:
Municipal obligations	$	330		$	330	$	—	$	330	$	—
Corporate obligations	1,037			1,037		2		1,035		—
Foreign obligations	75			75		75		—		—
U.S. government obligations	123			123		123		—		—
Residential mortgage-backed securities	291			291		—		291		—
Collateralized debt obligations	73			73		—		73		—
Other asset-backed securities	288			288		—		222		66
Fixed income securities, pledged as collateral:
Short-term	155			155		155		—		—
Short term investments	692			692		636		56		—
Other investments ⁽¹⁾	401			387		53		—		35
Cash, cash equivalents and restricted cash	32			32		28		5		—
Derivative assets:
Interest rate swaps—asset position	97			97		—		10		87
Other assets - equity in sponsored VIE	2			2		—		—		2
Other assets-Loans	9			11		—		—		11
Variable interest entity assets:
Fixed income securities: Corporate obligations	2,907			2,907		—		—		2,907
Fixed income securities: Municipal obligations	134			134		—		134		—
Restricted cash	2			2		2		—		—
Loans	2,787			2,787		—		—		2,787
Derivative assets: Currency swaps-asset position	61			61		—		61		—
Total financial assets	$	9,497		$	9,485	$	1,074	$	2,217	$	5,895
Financial liabilities:
Long term debt, including accrued interest	$	3,223		$	2,976	$	—	$	2,603	$	372
Derivative liabilities:
Credit derivatives	1			1		—		—		1
Interest rate swaps—liability position	133			133		—		133		—
Liabilities for net financial guarantees written ⁽²⁾	(756		)	417		—		—		417
Variable interest entity liabilities:
Long-term debt (includes $3,953 at fair value)	4,125			4,136		—		3,977		160
Derivative liabilities: Interest rate swaps—liability position	1,709			1,709		—		1,709		—
Total financial liabilities	$	8,436		$	9,373	$	—	$	8,422	$	951



	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 (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


(1)	Excluded from the fair value measurement categories in the table above are investment funds of $299 and $296 as of June 30, 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 June 30, 2020:
Balance, beginning of period	$	66	$	3	$	77		$	2,806		$	2,932		$	—		$	5,884
Total gains/(losses) realized and unrealized:
Included in earnings	—		—		11			128			(67		)	—			72
Included in other comprehensive income	—		—		—			(11		)	(11		)	—			(22		)
Purchases	—		—		—			—			—			—			—
Issuances	—		—		—			—			—			—			—
Sales	—		—		—			—			—			—			—
Settlements	—		—		(2		)	(17		)	(67		)	—			(86		)
Balance, end of period	$	66	$	2	$	86		$	2,907		$	2,787		$	—		$	5,848
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		$	128		$	(67	)	$	—		$	71
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	$	—	$	—	$	—		$	(11	)	$	(11	)	$	—		$	(22	)

Three Months Ended June 30, 2019:
Balance, beginning of period	$	72	$	4	$	53		$	2,858		$	4,376		$	(224	)	$	7,139
Total gains/(losses) realized and unrealized:
Included in earnings	—		—		10			109			86			(12		)	193
Included in other comprehensive income	2		—		—			(68		)	(102		)	5			(163		)
Purchases	—		—		—			—			—			—			—
Issuances	—		—		—			—			—			—			—
Sales	—		—		—			—			—			—			—
Settlements	—		—		(1		)	(17		)	(70		)	—			(89		)
Balance, end of period	$	74	$	4	$	62		$	2,882		$	4,289		$	(231	)	$	7,080
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		$	109		$	86		$	(12	)	$	193


(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, 2020:
Balance, beginning of period	$	72		$	3		$	66		$	2,957		$	3,108		$	—		$	6,207
Total gains/(losses) realized and unrealized:
Included in earnings	1			(1		)	23			158			20			—			201
Included in other comprehensive income	(6		)	—			—			(192		)	(201		)	—			(398		)
Purchases	—			—			—			—			—			—			—
Issuances	—			—			—			—			—			—			—
Sales	—			—			—			—			—			—			—
Settlements	(1		)	—			(3		)	(17		)	(141		)	—			(162		)
Balance, end of period	$	66		$	2		$	86		$	2,907		$	2,787		$	—		$	5,848
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	)	$	23		$	158		$	20		$	—		$	201
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	)	$	—		$	—		$	(192	)	$	(201	)	$	—		$	(398	)

Six Months Ended June 30, 2019:
Balance, beginning of period	$	72		$	5		$	46		$	2,737		$	4,288		$	(217	)	$	6,930
Total gains/(losses) realized and unrealized:
Included in earnings	1			(1		)	19			175			174			(15		)	353
Included in other comprehensive income	2			—			—			(14		)	(17		)	1			(28		)
Purchases	—			—			—			—			—			—			—
Issuances	—			—			—			—			—			—			—
Sales	—			—			—			—			—			—			—
Settlements	(1		)	—			(2		)	(17		)	(156		)	—			(176		)
Balance, end of period	$	74		$	4		$	62		$	2,882		$	4,289		$	(231	)	$	7,080
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	)	$	18		$	175		$	174		$	(15	)	$	352

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



Level 3 - Derivatives by Class:
	Three Months Ended June 30, 2020									Three Months Ended June 30, 2019
	Interest Rate Swaps			Credit Derivatives			Total Derivatives			Interest Rate Swaps			Credit Derivatives			Total Derivatives
Balance, beginning of period	$	79		$	(2	)	$	77		$	54		$	(1	)	$	53
Total gains/(losses) realized and unrealized:
Included in earnings	10			1			11			10			—			10
Included in other comprehensive income	—			—			—			—			—			—
Purchases	—			—			—			—			—			—
Issuances	—			—			—			—			—			—
Sales	—			—			—			—			—			—
Settlements	(2		)	—			(2		)	(1		)	—			(1		)
Balance, end of period	$	87		$	(1	)	$	86		$	63		$	(1	)	$	62
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		$	1		$	10		$	10		$	—		$	10




Level 3 - Derivatives by Class:
	Six Months Ended June 30, 2020									Six Months Ended June 30, 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	23			(1		)	23			18			1			19
Included in other comprehensive income	—			—			—			—			—			—
Purchases	—			—			—			—			—			—
Issuances	—			—			—			—			—			—
Sales	—			—			—			—			—			—
Settlements	(3		)	—			(3		)	(2		)	—			(2		)
Balance, end of period	$	87		$	(1	)	$	86		$	63		$	(1	)	$	62
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	$	23		$	(1	)	$	23		$	18		$	1		$	18

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, 2020:
Total gains or losses included in earnings for the period	$	—	$	11	$	61	$	—
Changes in unrealized gains or losses included in earnings relating to the assets and liabilities still held at the reporting date	—		10		61		—

Three Months Ended June 30, 2019:
Total gains or losses included in earnings for the period	$	—	$	10	$	183	$	—
Changes in unrealized gains or losses included in earnings relating to the assets and liabilities still held at the reporting date	—		10		183		—

Six Months Ended June 30, 2020:
Total gains or losses included in earnings for the period	$	1	$	23	$	179	$	(1	)
Changes in unrealized gains or losses relating to the assets and liabilities still held at the reporting date	—		22		179		(1		)

Six Months Ended June 30, 2019:
Total gains or losses included in earnings for the period	1		19		335		(1		)
Changes in unrealized gains or losses relating to the assets and liabilities still held at the reporting date	—		18		335		(1		)