Fair Value Measurements (Tables)

9 Months Ended

Sep. 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 September 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:
September 30, 2020:					Level 1		Level 2		Level 3
Financial assets:
Fixed income securities:
Municipal obligations	$	351	$	351	$	—	$	351	$	—
Corporate obligations	1,091		1,091		2		1,089		—
Foreign obligations	77		77		77		—		—
U.S. government obligations	122		122		122		—		—

Residential mortgage-backed securities	296		296		—		296		—

Collateralized debt obligations	73		73		—		73		—
Other asset-backed securities	300		300		—		225		75
Fixed income securities, pledged as collateral:

Short-term	152		152		152		—		—
Short term investments	586		586		509		77		—
Other investments (1)	502		488		62		—		35
Cash, cash equivalents and restricted cash	48		48		39		9		—
Derivative assets:

Interest rate swaps—asset position	95		95		—		9		86


Other assets - equity in sponsored VIE	2		2		—		—		2
Other assets-Loans	3		3		—		—		3
Variable interest entity assets:

Fixed income securities: Corporate obligations	3,029		3,029		—		—		3,029
Fixed income securities: Municipal obligations	131		131		—		131		—
Restricted cash	2		2		2		—		—
Loans	2,783		2,783		—		—		2,783

Derivative assets: Currency swaps-asset position	53		53		—		53		—
Total financial assets	$	9,696	$	9,682	$	965	$	2,312	$	6,013
Financial liabilities:

Long term debt, including accrued interest	$	3,236	$	3,056	$	—	$	2,679	$	377
Derivative liabilities:
Credit derivatives	1		1		—		—		1

Interest rate swaps—liability position	125		125		—		125		—


Liabilities for net financial guarantees written (2)	(744)		436		—		—		436
Variable interest entity liabilities:
Long-term debt (includes $4,002 at fair value)	4,169		4,179		—		4,026		153

Derivative liabilities: Interest rate swaps—liability position	1,771		1,771		—		1,771		—

Total financial liabilities	$	8,558	$	9,569	$	—	$	8,601	$	968


	Carrying Amount		Total Fair Value		Fair Value Measurements Categorized as:
December 31, 2019:					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 $391 and $296 as of September 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 September 30, 2020:
Balance, beginning of period	$	66	$	2	$	86	$	2,907	$	2,787	$	—	$	5,848

Total gains/(losses) realized and unrealized:
Included in earnings	—		—		1		1		(43)		—		(40)
Included in other comprehensive income	9		—		—		121		116		—		246
Purchases	—		—		—		—		—		—		—
Issuances	—		—		—		—		—		—		—
Sales	—		—		—		—		—		—		—
Settlements	—		—		(2)		—		(78)		—		(80)



Balance, end of period	$	75	$	2	$	85	$	3,029	$	2,783	$	—	$	5,974
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	$	1	$	(43)	$	—	$	(41)
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	$	9	$	—	$	—	$	121	$	116	$	—	$	246

Three Months Ended September 30, 2019:
Balance, beginning of period	$	74	$	4	$	62	$	2,882	$	4,289	$	(231)	$	7,080

Total gains/(losses) realized and unrealized:
Included in earnings	1		—		12		206		127		—		345
Included in other comprehensive income	5		—		—		(92)		(133)		7		(213)
Purchases	—		—		—		—		—		—		—
Issuances	—		—		—		—		—		—		—
Sales	—		—		—		—		—		—		—
Settlements	—		—		(1)		—		(466)		—		(467)


Deconsolidation of VIEs	—		—		—		—		(851)		223		(627)
Balance, end of period	$	79	$	3	$	73	$	2,996	$	2,966	$	—	$	6,117
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	$	206	$	115	$	—	$	332

(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
Nine Months Ended September 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)		24		160		(22)		—		161
Included in other comprehensive income	3		—		—		(71)		(85)		—		(152)
Purchases	—		—		—		—		—		—		—
Issuances	—		—		—		—		—		—		—
Sales	—		—		—		—		—		—		—
Settlements	(1)		—		(5)		(17)		(219)		—		(242)



Balance, end of period	$	75	$	2	$	85	$	3,029	$	2,783	$	—	$	5,974
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	$	160	$	(22)	$	—	$	160
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	$	3	$	—	$	—	$	(71)	$	(85)	$	—	$	(152)

Nine Months Ended September 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)		30		382		301		(15)		698
Included in other comprehensive income	7		—		—		(106)		(151)		8		(241)
Purchases	—		—		—		—		—		—		—
Issuances	—		—		—		—		—		—		—
Sales	—		—		—		—		—		—		—
Settlements	(1)		—		(3)		(17)		(621)		—		(643)


Deconsolidation of VIEs	—		—		—		—		(851)		223		(627)
Balance, end of period	$	79	$	3	$	73	$	2,996	$	2,966	$	—	$	6,117
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)	$	30	$	382	$	229	$	—	$	639

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


Level 3 - Derivatives by Class
	Three Months Ended September 30, 2020						Three Months Ended September 30, 2019
	Interest Rate Swaps		Credit Derivatives		Total Derivatives		Interest Rate Swaps		Credit Derivatives		Total Derivatives
Balance, beginning of period	$	87	$	(1)	$	86	$	63	$	(1)	$	62

Total gains/(losses) realized and unrealized:
Included in earnings	1		—		1		11		1		12
Included in other comprehensive income	—		—		—		—		—		—
Purchases	—		—		—		—		—		—
Issuances	—		—		—		—		—		—
Sales	—		—		—		—		—		—
Settlements	(2)		—		(2)		(1)		—		(1)



Balance, end of period	$	86	$	(1)	$	85	$	73	$	—	$	73
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	$	—	$	1	$	11	$	—	$	12



Level 3 - Derivatives by Class
	Nine Months Ended September 30, 2020						Nine Months Ended September 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	24		(1)		24		29		1		30
Included in other comprehensive income	—		—		—		—		—		—
Purchases	—		—		—		—		—		—
Issuances	—		—		—		—		—		—
Sales	—		—		—		—		—		—
Settlements	(5)		—		(5)		(3)		—		(3)



Balance, end of period	$	86	$	(1)	$	85	$	73	$	—	$	73
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)	$	23	$	29	$	1	$	30

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 September 30, 2020:
Total gains or losses included in earnings for the period	$	—	$	1	$	(41)	$	—
Changes in unrealized gains or losses included in earnings relating to the assets and liabilities still held at the reporting date	—		1		(41)		—

Three Months Ended September 30, 2019:
Total gains or losses included in earnings for the period	$	1	$	12	$	333	$	—
Changes in unrealized gains or losses included in earnings relating to the assets and liabilities still held at the reporting date	—		12		321		—

Nine Months Ended September 30, 2020:
Total gains or losses included in earnings for the period	$	1	$	24	$	137	$	(1)
Changes in unrealized gains or losses included in earnings relating to the assets and liabilities still held at the reporting date	—		23		137		(1)

Nine Months Ended September 30, 2019:
Total gains or losses included in earnings for the period	1		30		668		(1)
Changes in unrealized gains or losses included in earnings relating to the assets and liabilities still held at the reporting date	—		30		611		(1)