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Investments
 9 Months Ended
Sep. 30, 2020
Investments, Debt and Equity Securities [Abstract]  
Investments
8. INVESTMENTS
Ambac’s non-VIE invested assets are primarily comprised of fixed income securities classified as available-for-sale and interests in pooled investment funds, which are reported within Other investments on the Consolidated Balance Sheets. Interests in pooled investment funds in the form of common stock or in-substance common stock are classified as trading securities, while limited partner interests in such funds are reported using the equity method. Other investments also include equity interests held by AFG, including in an unconsolidated trust created in connection with its sale of Segregated Account junior surplus notes on August 28, 2014.
Disclosures in this Note for the period ended September 30, 2020, are in accordance with the new CECL standard adopted January 1, 2020, which is more fully described in Note 2, Basis of Presentation and Significant Accounting Policies. To the extent disclosures for periods prior to January 1, 2020, made in accordance with prior GAAP rules differ from disclosures under the new CECL standard, such differences are explained below.
Fixed Income Securities:
The amortized cost and estimated fair value of available-for-sale investments, excluding VIE investments, at September 30, 2020 and December 31, 2019, were as follows:
Amortized
Cost		Allowance for Credit LossesGross
Unrealized
Gains in AOCI		Gross
Unrealized
Losses in AOCI		Estimated
Fair Value
September 30, 2020:
Fixed income securities:
Municipal obligations$322 $— $29 $1 $351 
Corporate obligations (1)
1,066 — 28 3 1,091 
Foreign obligations76 — 1 — 77 
U.S. government obligations118 — 4 1 122 
Residential mortgage-backed securities251 — 45 — 296 
Collateralized debt obligations74 — — 1 73 
Other asset-backed securities268 — 33 1 300 
2,176 — 140 6 2,311 
Short-term586 — — — 586 
2,761 — 141 6 2,896 
Fixed income securities pledged as collateral:
Short-term152 — — — 152 
Total collateralized investments152 — — — 152 
Total available-for-sale investments$2,914 $— $141 $6 $3,048 
Amortized
Cost		Gross
Unrealized
Gains		Gross
Unrealized
Losses 		Estimated
Fair Value
Non-credit
Other-than
temporary
Impairments (2)
December 31, 2019:
Fixed income securities:
Municipal obligations$194 $22 $— $215 $— 
Corporate obligations (1)
1,396 36 2 1,430 — 
Foreign obligations44 1 — 44 — 
U.S. government obligations157 2 2 156 — 
Residential mortgage-backed securities200 47 — 248 — 
Commercial mortgage-backed securities49 1 — 50 — 
Collateralized debt obligations147 — 1 146 — 
Other asset-backed securities263 24 — 287 — 
2,450 132 5 2,577 — 
Short-term653 — — 653 — 
3,103 132 5 3,230 — 
Fixed income securities pledged as collateral:
Short-term85 — — 85 — 
Total collateralized investments85 — — 85 — 
Total available-for-sale investments$3,187 $132 $5 $3,314 $— 
(1)Includes Ambac's holdings of the secured notes issued by Ambac LSNI in connection with the Rehabilitation Exit Transactions.
(2)At December 31, 2019, represents the amount of non-credit other-than-temporary impairment losses remaining in accumulated other comprehensive income on securities that also had a credit impairment. These losses are included in gross unrealized losses at December 31, 2019.
The amortized cost and estimated fair value of available-for-sale investments, excluding VIE investments, at September 30, 2020, by contractual maturity, were as follows:
Amortized
Cost		Estimated
Fair Value
Due in one year or less$830 $832 
Due after one year through five years876 888 
Due after five years through ten years432 453 
Due after ten years182 206 
2,320 2,379 
Residential mortgage-backed securities251 296 
Collateralized debt obligations74 73 
Other asset-backed securities268 300 
Total$2,914 $3,048 
Expected maturities will differ from contractual maturities because borrowers may have the right to call or prepay certain obligations with or without call or prepayment penalties.
Unrealized Losses on Fixed Income Securities:
The following table shows gross unrealized losses and fair values of Ambac’s available-for-sale investments, excluding VIE investments, which at September 30, 2020, did not have an allowance for credit losses under the new CECL standard and, at December 31, 2019, did not have other-than-temporary impairments recorded in earnings under prior GAAP. This information is aggregated by investment category and length of time that the individual securities have been in a continuous unrealized loss position, at September 30, 2020 and December 31, 2019:
Less Than 12 Months12 Months or MoreTotal
Fair ValueGross
Unrealized
Loss		Fair ValueGross
Unrealized
Loss		Fair ValueGross
Unrealized
Loss
September 30, 2020:
Fixed income securities:
Municipal obligations$64 $1 $6 $— $70 $1 
Corporate obligations179 3 — — 179 3 
Foreign obligations12 — — — 12 — 
U.S. government obligations11 1 — — 11 1 
Residential mortgage-backed securities
19 — — — 19 — 
Collateralized debt obligations53 1 15 — 67 1 
Other asset-backed securities1 — 4 1 5 1 
338 5 25 1 363 6 
Short-term152 — — — 152 — 
Total securities$490 $5 $25 $1 $515 $6 
Less Than 12 Months12 Months or MoreTotal
Fair ValueGross
Unrealized
Loss		Fair ValueGross
Unrealized
Loss		Fair ValueGross
Unrealized
Loss
December 31, 2019:
Fixed income securities:
Municipal obligations$13 $— $10 $— $23 $— 
Corporate obligations63 2 5 — 68 2 
Foreign obligations20 — — — 20 — 
U.S. government obligations36 2 2 — 38 2 
Residential mortgage-backed securities
5 — — — 5 — 
Commercial mortgage-backed securities7 — — — 7 — 
Collateralized debt obligations53 — 63 1 116 1 
Other asset-backed securities2 — 7 — 10 — 
200 4 88 1 288 5 
Short-term201 — — — 201 — 
Total securities$401 $4 $88 $1 $489 $5 

Management has determined that the securities in the above table do not have credit impairment as of September 30, 2020 and December 31, 2019, based upon various factors, including (i) no actual or expected principal and interest payment defaults on these securities; (ii) analysis of the creditworthiness of the issuer and financial guarantor, as applicable, and (iii) for debt securities that are non-highly rated beneficial interests in securitized financial assets, analysis of whether there was an adverse change in projected cash flows. Management's evaluation as of September 30, 2020, includes the expectation that all principal and interest payments on securities guaranteed by Ambac Assurance or Ambac UK will be made timely and in full.
Ambac’s assessment about whether a decline in value is other-than-temporary reflects management’s current judgment regarding facts and circumstances specific to a security and other factors. If that judgment changes, Ambac may record a charge for credit impairment in future periods.

Realized Gains and Losses including Impairments:
The following table details amounts included in net realized gains (losses) and impairments included in earnings for the affected periods:
Three Months Ended September 30,Nine Months Ended September 30,
2020201920202019
Gross realized gains on securities$5 $12 $32 $46 
Gross realized losses on securities(1)— (12)(5)
Net foreign exchange (losses) gains(2)7 — 30 
Credit impairments (1)
— — — — 
Intent / requirement to sell impairments (2)
— — — — 
Net realized gains (losses)$2 $18 $20 $71 
(1)Includes securities which management does not intend to sell and it is not more likely than not that the Company will be required to sell before recovery of the amortized cost basis.
(2)Includes securities which management either intends sell or it is more likely than not that the Company will be required to sell before recovery of the amortized cost basis.
The following table presents a roll-forward of Ambac’s cumulative credit losses on debt securities for which a portion of an other-than-temporary impairment was recognized in other comprehensive income under prior GAAP for the nine months ended September 30, 2019:
Balance, beginning of period$12 
Reductions for credit impairments previously recognized on:
Securities that matured or were sold during the period(1)
Balance, end of period$12 
Ambac had zero allowance for credit losses at September 30, 2020.
Ambac did not purchase any financial assets with credit deterioration for the nine months ended September 30, 2020.
Counterparty Collateral, Deposits with Regulators and Other Restrictions:
Ambac routinely pledges and receives collateral related to certain transactions. Securities held directly in Ambac’s investment portfolio with a fair value of $152 and $85 at September 30, 2020 and December 31, 2019, respectively, were pledged to derivative counterparties. Ambac’s derivative counterparties have the right to re-pledge the investment securities and as such, these pledged securities are separately classified on the Consolidated Balance Sheets as “Fixed income securities pledged as collateral, at fair value”. Refer to Note 9. Derivative Instruments for further information on cash collateral. There were no securities received from other counterparties that were re-pledged by Ambac.

Securities carried at $7 and $6 at September 30, 2020 and December 31, 2019, respectively, were deposited by Ambac Assurance and Everspan with governmental authorities or designated custodian banks as required by laws affecting insurance companies. Invested assets carried at $1 at September 30, 2020 and December 31, 2019, were deposited as security in connection with a letter of credit issued for an office lease.
Securities with a fair value of $181 and $197 at September 30, 2020 and December 31, 2019, respectively, were pledged as collateral and as sources of funding to repay the Secured Notes issued by Ambac LSNI. The securities may not be transferred or repledged by Ambac LSNI. Collateral may be sold to fund redemptions of the Secured Notes. Ambac Assurance also pledged for the benefit of the holders of Secured Notes (other than Ambac Assurance) the proceeds of interest payments and partial redemptions of the Secured Notes held by Ambac Assurance. The amount of such proceeds held by Ambac Assurance was $10 and $55 at September 30, 2020 and December 31, 2019, respectively, and is included in Restricted cash on the Consolidated Balance Sheet. Ambac Assurance may, from time to time, sell all or a portion of the Secured Notes it owns. In the event that Ambac Assurance sells any of the Secured Notes it owns, the proceeds must be used to redeem a like amount of the Ambac Note at par. The price at which Ambac Assurance sells the Secured Notes may differ from the price at which it redeems the Secured Notes.

Guaranteed Securities:
Ambac’s fixed income portfolio includes securities covered by guarantees issued by Ambac Assurance and other financial guarantors (“insured securities”). The published rating agency ratings on these securities reflect the higher of the financial strength rating of the financial guarantor or the rating of the underlying issuer. Rating agencies do not always publish separate underlying ratings (those ratings excluding the insurance by the financial guarantor). In the event these underlying ratings are not available from the rating agencies, Ambac will assign an internal rating. The following table represents the fair value and weighted-average underlying rating of insured securities in Ambac's investment portfolio at September 30, 2020 and December 31, 2019, respectively: 
Municipal
Obligations
Corporate
Obligations (2)
Mortgage
and Asset-
backed
Securities		Total
Weighted
Average
Underlying
Rating (1)
September 30, 2020:
Ambac Assurance Corporation$310 $470 $473 $1,253 CCC+
National Public Finance Guarantee Corporation6 — — 6 BBB-
Assured Guaranty Municipal Corporation1 — — 1 C
Total$318 $470 $473 $1,260 CCC+
December 31, 2019:
Ambac Assurance Corporation$176 $535 $442 $1,153 B-
National Public Finance Guarantee Corporation11 — — 11 BBB-
Total$186 $535 $442 $1,164 B-
(1)Ratings are based on the lower of Standard & Poor’s or Moody’s rating. If unavailable, Ambac’s internal rating is used.
(2)Represents Ambac's holdings of secured notes issued by Ambac LSNI in connection with the Rehabilitation Exit Transactions. These secured notes are insured by Ambac Assurance.
Other Investments:
Ambac's investment portfolio includes interests in various pooled investment funds. Fair value and additional information about investments in pooled funds, by investment type, is summarized in the table below. Except as noted in the table, fair value as reported is determined using net asset value ("NAV") as a practical expedient. In addition to these investments, Ambac has unfunded commitments of $48 to private credit and private equity funds at September 30, 2020.
Fair Value
Class of FundsSeptember 30,
2020		December 31,
2019		Redemption FrequencyRedemption Notice Period
Real estate properties (1)
$15 $16 quarterly10 business days
Hedge funds (2)
182 65 quarterly90 days
High yields and leveraged loans (3) (10)
53 176 daily0 - 30 days
Private credit (4)
57 51 quarterly180 days if permitted
Insurance-linked investments (5)
2 3 fully redeemednone
Equity market investments (6) (10)
33 55 daily0 days
Investment grade floating rate income (7)
69 66 weekly0 days
Private equity (8)
16 — quarterly90 days if permitted
Emerging markets debt (9) (10)
23 — daily 0 days
Total equity investments in pooled funds$451 $432 
(1)Investments consist of UK property to generate income and capital growth.
(2)This class seeks to generate superior risk-adjusted returns through selective asset sourcing, active trading and hedging strategies across a range of asset types.
(3)This class of funds includes investments in a range of instruments including high-yield bonds, leveraged loans, CLOs, ABS and floating rate notes to generate income and capital appreciation.
(4)This class aims to obtain high long-term return primarily through credit and preferred equity investments with low liquidity and defined term.
(5)This class seeks to generate returns from insurance markets through investments in catastrophe bonds, life insurance and other insurance linked investments.
(6)This class of funds aim to achieve long term growth through diversified exposure to global equity markets.
(7)This class of funds includes investments in high quality floating rate debt securities including ABS and corporate floating rate notes as well as ultra-short term bonds and money market instruments.
(8)This class seeks to generate long-term capital appreciation through investments in private equity, equity-related and other instruments.
(9)This class seeks long-term income and growth through investments in the bonds of issuers in emerging markets.
(10)These categories include fair value amounts totaling $60 and $136 at September 30, 2020 and December 31, 2019, respectively, that are readily determinable and are priced through pricing vendors, including for High yield and leveraged loans products: $3 and $81; for Equity market investments: $33 and $55; and for Emerging markets debt $23 and $0
Ambac also holds direct equity interests, including in an unconsolidated trust created in connection with the 2014 sale of Segregated Account junior surplus notes, which is accounted for under the equity method.
Investment Income (loss):
Net investment income (loss) was comprised of the following for the affected periods:
Three Months Ended September 30,Nine Months Ended September 30,
2020201920202019
Fixed income securities$24 $33 $79 $151 
Short-term investments1 4 4 14 
Loans— — — 1 
Investment expense(1)(1)(4)(4)
Securities available-for-sale and short-term24 36 80 161 
Other investments14 8 (11)25 
Total net investment income (loss)$37 $45 $69 $186 
Net investment income (loss) from Other investments primarily represents changes in fair value on securities classified as trading or accounted for under the fair value option, income from investment limited partnerships accounted for under the equity method and the above noted equity interest in an unconsolidated trust accounted for under the equity method.
The portion of net unrealized gains (losses) related to trading securities still held at the end of each period is as follows:
Three Months Ended September 30,Nine Months Ended September 30,
2020201920202019
Net gains (losses) recognized during the period on trading securities
$3 $6 $(12)$19 
Less: net gains (losses) recognized during the reporting period on trading securities sold during the period
— 2 (19)4 
Unrealized gains (losses) recognized during the reporting period on trading securities still held at the reporting date
$3 $4 $7 $15