Ambac’s non-VIE invested assets are primarily comprised of fixed maturity 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 included equity interests held by AFG, including the equity Certificates in Corolla Trust, an unconsolidated trust created in connection with its sale of Segregated Account junior surplus notes on August 28, 2014. As

further described in Note 1. Background and Business Description, on January 22, 2021, AAC completed the Corolla Note Exchange transaction whereby it acquired 100% of the outstanding obligations and the Certificates of, and subsequently dissolved, the Corolla Trust. There are no equity interests held by AFG as of March 31, 2021.

Disclosures in this Note for the periods ended March 31, 2021 and December 31, 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 in the Notes to Consolidated Financial Statements included Part II, Item 8 in the Company’s Annual Report on Form 10-K for the year ended December 31, 2020,

Fixed Maturity Securities:

The amortized cost and estimated fair value of available-for-sale investments, excluding VIE investments, at March 31, 2021 and December 31, 2020, were as follows:


	Amortized Cost		Allowance for Credit Losses		Gross Unrealized Gains		Gross Unrealized Losses		Estimated Fair Value
March 31, 2021:
Fixed maturity securities:
Municipal obligations	$	329	$	—	$	38	$	—	$	366
Corporate obligations (1)	1,106		—		14		13		1,108
Foreign obligations	98		—		—		1		97
U.S. government obligations	109		—		1		2		108

Residential mortgage-backed securities	219		—		50		—		269

Collateralized debt obligations	97		—		—		—		97
Other asset-backed securities (2)	262		—		33		—		295
	2,221		—		136		17		2,341
Short-term	398		—		—		—		397
	2,619		—		136		17		2,738
Fixed maturity securities pledged as collateral:
U.S. government obligations	15		—		—		—		15
Short-term	105		—		—		—		105
	120		—		—		—		120
Total available-for-sale investments	$	2,739	$	—	$	136	$	17	$	2,858


	Amortized Cost		Allowance for Credit Losses		Gross Unrealized Gains		Gross Unrealized Losses		Estimated Fair Value
December 31, 2020:
Fixed maturity securities:
Municipal obligations	$	321	$	—	$	37	$	—	$	358
Corporate obligations (1)	1,059		—		24		6		1,077
Foreign obligations	97		—		1		—		98
U.S. government obligations	105		—		2		1		106

Residential mortgage-backed securities	256		—		46		—		302

Collateralized debt obligations	74		—		—		—		74
Other asset-backed securities (2)	263		—		40		—		303
	2,175		—		149		8		2,317
Short-term	492		—		—		—		492
	2,667		—		149		8		2,809
Fixed maturity securities pledged as collateral:
U.S. government obligations	15		—		—		—		15
Short-term	125		—		—		—		125
	140		—		—		—		140
Total available-for-sale investments	$	2,807	$	—	$	149	$	8	$	2,949

(1)Includes Ambac's holdings of the secured notes issued by Ambac LSNI in connection with the Rehabilitation Exit Transactions.

(2)Consists primarily of Ambac's holdings of the military housing and student loan securities.

The amortized cost and estimated fair value of available-for-sale investments, excluding VIE investments, at March 31, 2021, by contractual maturity, were as follows:


	Amortized Cost		Estimated Fair Value
Due in one year or less	$	617	$	618
Due after one year through five years	906		912
Due after five years through ten years	455		459
Due after ten years	183		209
	2,160		2,197
Residential mortgage-backed securities	219		269

Collateralized debt obligations	97		97
Other asset-backed securities	262		295
Total	$	2,739	$	2,858

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 Maturity Securities:

The following table shows gross unrealized losses and fair values of Ambac’s available-for-sale investments, excluding VIE investments, which at March 31, 2021 and December 31, 2020, did not have an allowance for credit losses under the CECL standard. This information is aggregated by investment category and length of time that the individual securities have been in a continuous unrealized loss position, at March 31, 2021 and December 31, 2020:


	Less Than 12 Months				12 Months or More				Total
	Fair Value		Gross Unrealized Loss		Fair Value		Gross Unrealized Loss		Fair Value		Gross Unrealized Loss
March 31, 2021:
Fixed maturity securities:
Municipal obligations	$	19	$	—	$	16	$	—	$	35	$	—
Corporate obligations	339		13		—		—		339		13
Foreign obligations	70		1		—		—		70		1
U.S. government obligations	25		2		—		—		25		2

Residential mortgage-backed securities	15		—		2		—		17		—

Collateralized debt obligations	13		—		13		—		26		—
Other asset-backed securities	—		—		—		—		—		—
	481		17		31		—		512		17
Short-term	157		—		—		—		157		—




Total securities	$	638	$	17	$	31	$	—	$	669	$	17




December 31, 2020:
Fixed maturity securities:
Municipal obligations	$	25	$	—	$	6	$	—	$	31	$	—
Corporate obligations	543		6		—		—		543		6
Foreign obligations	3		—		—		—		3		—
U.S. government obligations	17		1		—		—		17		1

Residential mortgage-backed securities	14		—		—		—		14		—

Collateralized debt obligations	27		—		15		—		42		—
Other asset-backed securities	—		—		4		—		4		—
	629		7		25		—		654		8
Short-term	187		—		—		—		187		—




Total securities	$	816	$	7	$	25	$	—	$	841	$	8

Management has determined that the securities in the above table do not have credit impairment as of March 31, 2021 and December 31, 2020, based upon (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 March 31, 2021, includes the expectation that all principal and interest payments on securities guaranteed by AAC or Ambac UK will be made timely and in full.

Ambac’s assessment about whether a security is credit impaired reflects management’s current judgment regarding facts and circumstances specific to the 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 March 31,	2021		2020
Gross realized gains on securities	$	7	$	6
Gross realized losses on securities	(1)		—
Foreign exchange (losses) gains	(4)		2
Credit impairments	—		—
Intent / requirement to sell impairments	—		—
Net realized gains (losses)	$	2	$	8

Ambac had zero allowance for credit losses at March 31, 2021 and 2020.

Ambac did not purchase any financial assets with credit deterioration for the three months ended March 31, 2021 and 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 $120 and $140 at March 31, 2021 and December 31, 2020, 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 maturity securities pledged as collateral, at fair value” and "Short-term investments pledged as collateral, at fair value.". Refer to Note 10. Derivative Instruments for further information on cash collateral. There was no cash or securities received from other counterparties that were re-pledged by Ambac.

Securities carried at $8 and $8 at March 31, 2021 and December 31, 2020, respectively, were deposited by Ambac's insurance subsidiaries with governmental authorities or designated custodian banks as required by laws affecting insurance companies. Invested assets carried at $1 and $1 at March 31, 2021 and December 31, 2020, were deposited as security in connection with a letter of credit issued for an office lease.

Securities with a fair value of $163 and $178 at March 31, 2021 and December 31, 2020, 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 re-pledged by Ambac LSNI. Collateral may be sold to fund redemptions of the Secured Notes.

AAC also pledged for the benefit of the holders of Secured Notes (other than AAC) the proceeds of interest payments and partial redemptions of the Secured Notes held by AAC. The amount of such proceeds held by AAC was $12 and $9 at March 31, 2021 and December 31, 2020, respectively, and is included in Restricted cash on the Consolidated Balance Sheet. AAC may, from time to time, sell all or a portion of the Secured Notes it owns. In the event that AAC 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 AAC sells the Secured Notes may differ from the price at which it redeems the Secured Notes.

Guaranteed Securities:

Ambac’s fixed maturity portfolio includes securities covered by guarantees issued by AAC 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 March 31, 2021 and December 31, 2020, respectively:


	Municipal Obligations		Corporate Obligations (2)		Mortgage and Asset- backed Securities		Total		Weighted Average Underlying Rating (1)
March 31, 2021:
Ambac Assurance Corporation	$	323	$	464	$	465	$	1,252	CCC+
National Public Finance Guarantee Corporation	4		—		—		4		BBB-
Assured Guaranty Municipal Corporation	1		—		—		1		C



Total	$	328	$	464	$	465	$	1,257	CCC+

December 31, 2020:
Ambac Assurance Corporation	$	320	$	465	$	481	$	1,266	CCC+
National Public Finance Guarantee Corporation	6		—		—		6		BBB-
Assured Guaranty Municipal Corporation	1		—		—		1		C



Total	$	327	$	465	$	481	$	1,273	CCC+

(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 AAC.

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. Redemption of certain funds valued using NAV may be subject to withdrawal limitations and/or redemption fees which could vary with the timing and notification of withdrawal provided by the investor. In addition to these investments, Ambac has unfunded commitments of $102 to private credit and private equity funds at March 31, 2021.


	Fair Value
Class of Funds	March 31, 2021		December 31, 2020		Redemption Frequency	Redemption Notice Period
Real estate properties (1)	$	16	$	16	quarterly	10 business days
Hedge funds (2)	210		196		quarterly or semi-annually	90 days
High yields and leveraged loans (3) (10)	77		78		daily	0 - 30 days
Private credit (4)	67		65		quarterly if permitted	180 days if permitted
Insurance-linked investments (5)	3		3		see footnote (5)	see footnote (5)
Equity market investments (6) (10)	82		73		daily or quarterly	0 - 90 days
Investment grade floating rate income (7)	98		73		weekly	0 days
Private equity (8)	14		13		quarterly if permitted	90 days if permitted
Emerging markets debt (9) (10)	33		25		daily	0 days
Total equity investments in pooled funds	$	600	$	543

(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 returns 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. This investment is restricted in connection with the unwind of certain insurance linked exposures. Ambac has redeemed its investment to the extent permitted by the fund.

(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.

(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 $99 and $89 at March 31, 2021 and December 31, 2020, respectively, that are readily determinable and are priced through pricing vendors, including for High yield and leveraged loans products: $0 and $3; for Equity market investments: $66 and $60; and for Emerging markets debt $33 and $25.

Ambac held direct equity interests as of December 31, 2020, including in an unconsolidated trust created in connection with the 2014 sale of Segregated Account junior surplus notes, which was 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 March 31,	2021		2020
Fixed maturity securities	$	23	$	30
Short-term investments	—		2

Investment expense	(1)		(2)
Securities available-for-sale and short-term	22		31
Other investments	27		(52)
Total net investment income (loss)	$	49	$	(21)

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 and income from investment limited partnerships 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 March 31,	2021		2020
Net gains (losses) recognized during the period on trading securities	$	7	$	(32)
Less: net gains (losses) recognized during the reporting period on trading securities sold during the period	—		(3)
Unrealized gains (losses) recognized during the reporting period on trading securities still held at the reporting date	$	6	$	(29)