Fair Value Measurements (Tables)

12 Months Ended

Dec. 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 December 31, 2020 and 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:
					Level 1		Level 2		Level 3
December 31, 2020:
Financial assets:
Fixed maturity securities:
Municipal obligations	$	358	$	358	$	—	$	358	$	—
Corporate obligations	1,077		1,077		4		1,073		—
Foreign obligations	98		98		98		—		—
U.S. government obligations	106		106		106		—		—

Residential mortgage-backed securities	302		302		—		302		—

Collateralized debt obligations	74		74		—		74		—
Other asset-backed securities	303		303		—		225		78
Fixed maturity securities, pledged as collateral:
U.S. government obligations	15		15		15		—		—
Short-term	125		125		125		—		—
Short term investments	492		492		415		76		—
Other investments (1)	595		597		91		—		53
Cash, cash equivalents and restricted cash	33		33		32		2		—

Derivative assets:

Interest rate swaps—asset position	93		93		—		9		85


Other assets - equity in sponsored VIE	1		1		—		—		1
Other assets-Loans	3		3		—		—		3
Variable interest entity assets:
Fixed maturity securities: Corporate obligations	3,215		3,215		—		—		3,215
Fixed maturity securities: Municipal obligations	139		139		—		139		—
Restricted cash	2		2		2		—		—
Loans	2,998		2,998		—		—		2,998
Derivative assets:
Currency swaps-asset position	41		41		—		41		—
Total financial assets	$	10,071	$	10,073	$	888	$	2,299	$	6,433
Financial liabilities:

Long term debt, including accrued interest	$	3,255	$	3,071	$	—	$	2,670	$	401
Derivative liabilities:


Interest rate swaps—liability position	114		114		—		114		—


Liabilities for net financial guarantees written (2)	(740)		539		—		—		539
Variable interest entity liabilities:
Long-term debt (includes $4,324 at fair value)	4,493		4,504		—		4,349		155
Derivative liabilities:
Interest rate swaps—liability position	1,835		1,835		—		1,835		—

Total financial liabilities	$	8,958	$	10,063	$	—	$	8,968	$	1,095


	Carrying Amount		Total Fair Value		Fair Value Measurements Categorized as:
					Level 1		Level 2		Level 3
December 31, 2019:
Financial assets:
Fixed maturity 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 maturity 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 maturity securities: Corporate obligations	2,957		2,957		—		—		2,957
Fixed maturity 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:
Credit derivatives	—		—		—		—		—

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 $453 and $296 as of December 31, 2020 and 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, 2019 and 2018. 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, 2020	Investments		Other Assets (1)		Derivatives		Investments		Loans		Long-term Debt		Total
Balance, beginning of period	$	72	$	3	$	66	$	2,957	$	3,108	$	—	$	6,207

Total gains/(losses) realized and unrealized:
Included in earnings	1		(2)		25		183		98		—		306
Included in other comprehensive income	6		—		—		109		83		—		198
Purchases	—		—		—		—		—		—		—
Issuances	—		—		—		—		—		—		—
Sales	—		—		—		—		—		—		—
Settlements	(1)		—		(7)		(35)		(290)		—		(334)



Balance, end of period	$	78	$	1	$	84	$	3,215	$	2,998	$	—	$	6,376
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	$	183	$	98	$	—	$	304
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	$	—	$	—	$	—	$	109	$	83	$	—	$	192


Level-3 Financial Assets and Liabilities Accounted for at Fair Value
							VIE Assets and Liabilities
Year Ended December 31, 2019	Investments		Other Assets		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)


Deconsolidations 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)
Deconsolidation 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)

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


Level-3 Investments by Class
	2020						2019
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	$	72	$	—	$	72

Total gains/(losses) realized and unrealized:
Included in earnings	1		—		1		2		—		2
Included in other comprehensive income	6		—		6		—		—		—
Purchases	—		—		—		—		—		—
Issuances	—		—		—		—		—		—
Sales	—		—		—		—		—		—
Settlements	(1)		—		(1)		(2)		—		(2)


Balance, end of period	$	78	$	—	$	78	$	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, 2018	Other Asset Backed Securities		Non-Agency RMBS		Total Investments
Balance, beginning of period	$	73	$	736	$	809

Total gains/(losses) realized and unrealized:
Included in earnings	1		35		36
Included in other comprehensive income	(1)		(52)		(53)
Purchases	—		—		—
Issuances	—		—		—
Sales	—		—		—
Settlements	(1)		(713)		(714)

Transfers out of Level 3	—		(5)		(5)
Balance, end of period	$	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 Derivatives by Class
	2020						2019
Year Ended December 31,	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	25		—		25		24		2		25

Purchases	—		—		—		—		—		—
Issuances	—		—		—		—		—		—
Sales	—		—		—		—		—		—
Settlements	(7)		—		(7)		(4)		—		(5)



Balance, end of period	85		—		84		67		—		66
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	25		—		25		24		1		25


Level-3 Derivatives by Class

Year Ended December 31, 2018	Interest Rate Swaps		Credit Derivatives		Total Derivatives
Balance, beginning of period	$	61	$	(1)	$	61

Total gains/(losses) realized and unrealized:
Included in earnings	(9)		(1)		(9)

Purchases	—		—		—
Issuances	—		—		—
Sales	—		—		—
Settlements	(5)		—		(6)



Balance, end of period	$	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	$	(9)	$	(1)	$	(10)

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, 2020
Total gains (losses) included in earnings for the period	$	1	$	25	$	281	$	(2)
Changes in unrealized gains (losses) relating to financial instruments still held at the reporting date	—		25		281		(2)

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)