Fair Value Measurements (Tables)

3 Months Ended

Mar. 31, 2021

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 March 31, 2021 and December 31, 2020, 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:
March 31, 2021:					Level 1		Level 2		Level 3
Financial assets:
Fixed maturity securities:
Municipal obligations	$	366	$	366	$	—	$	366	$	—
Corporate obligations	1,108		1,108		2		1,106		—
Foreign obligations	97		97		97		—		—
U.S. government obligations	108		108		108		—		—

Residential mortgage-backed securities	269		269		—		269		—

Collateralized debt obligations	97		97		—		97		—
Other asset-backed securities	295		295		—		219		76
Fixed maturity securities, pledged as collateral:
U.S. government obligations	15		15		15		—		—
Short-term	105		105		105		—		—
Short term investments	397		397		311		86		—
Other investments (1)	600		600		99		—		—
Cash, cash equivalents and restricted cash	39		39		38		2		—
Derivative assets:

Interest rate swaps—asset position	73		73		—		7		66

Futures contracts	1		1		1		—		—
Other assets - equity in sponsored VIE	1		1		—		—		1
Other assets-Loans	3		3		—		—		3
Variable interest entity assets:

Fixed maturity securities: Corporate obligations	3,103		3,103		—		—		3,103
Fixed maturity securities: Municipal obligations	133		133		—		133		—
Restricted cash	2		2		2		—		—
Loans	2,948		2,948		—		—		2,948

Derivative assets: Currency swaps-asset position	38		38		—		38		—
Total financial assets	$	9,799	$	9,799	$	778	$	2,323	$	6,197
Financial liabilities:

Long term debt, including accrued interest	$	3,177	$	3,032	$	—	$	3,011	$	20
Derivative liabilities:

Interest rate swaps—asset position	85		85		—		85		—



Liabilities for net financial guarantees written (2)	(751)		279		—		—		279
Variable interest entity liabilities:
Long-term debt (includes $4,264 at fair value)	4,427		4,451		—		4,290		160

Derivative liabilities: Interest rate swaps—liability position	1,739		1,739		—		1,739		—

Total financial liabilities	$	8,677	$	9,586	$	—	$	9,126	$	460


	Carrying Amount		Total Fair Value		Fair Value Measurements Categorized as:
December 31, 2020:					Level 1		Level 2		Level 3
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

(1)Excluded from the fair value measurement categories in the table above are investment funds of $501 and $453 as of March 31, 2021 and December 31, 2020, 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 2021 and 2020. 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(1)		Other Assets(2)		Derivatives		Investments		Loans		Total
Three Months Ended March 31, 2021:
Balance, beginning of period	$	78	$	1	$	84	$	3,215	$	2,998	$	6,376

Total gains/(losses) realized and unrealized:
Included in earnings	—		—		(17)		(138)		9		(145)
Included in other comprehensive income	(2)		—		—		26		24		49
Purchases	—		—		—		—		—		—
Issuances	—		—		—		—		—		—
Sales	—		—		—		—		—		—
Settlements	—		—		(2)		—		(84)		(86)



Balance, end of period	$	76	$	1	$	65	$	3,103	$	2,948	$	6,194
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	$	—	$	—	$	(17)	$	(138)	$	9	$	(145)
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	$	(2)	$	—	$	—	$	26	$	24	$	49

Three Months Ended March 31, 2020:
Balance, beginning of period	$	72	$	3	$	66	$	2,957	$	3,108	$	6,207

Total gains/(losses) realized and unrealized:
Included in earnings	—		—		12		30		88		130
Included in other comprehensive income	(6)		—		—		(181)		(190)		(377)
Purchases	—		—		—		—		—		—
Issuances	—		—		—		—		—		—
Sales	—		—		—		—		—		—
Settlements	—		—		(1)		—		(74)		(76)



Balance, end of period	$	66	$	3	$	77	$	2,806	$	2,932	$	5,884
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	$	30	$	88	$	130
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)	$	—	$	—	$	(181)	$	(190)	$	(377)

(1) Investments classified as Level 3 consist of a single other asset-backed security.

(2) Other assets carried at fair value and classified as Level 3 relate to an equity interest in an Ambac sponsored VIE.

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


Level 3 - Derivatives by Class
	Three Months Ended March 31, 2021						Three Months Ended March 31, 2020
	Interest Rate Swaps		Credit Derivatives		Total Derivatives		Interest Rate Swaps		Credit Derivatives		Total Derivatives
Balance, beginning of period	$	85	$	—	$	84	$	67	$	—	$	66

Total gains/(losses) realized and unrealized:
Included in earnings	(17)		—		(17)		13		(1)		12
Included in other comprehensive income	—		—		—		—		—		—
Purchases	—		—		—		—		—		—
Issuances	—		—		—		—		—		—
Sales	—		—		—		—		—		—
Settlements	(2)		—		(2)		(1)		—		(1)



Balance, end of period	$	66	$	—	$	65	$	79	$	(2)	$	77
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	$	(17)	$	—	$	(17)	$	13	$	(2)	$	12
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	$	(17)	$	—	$	(17)	$	—	$	—	$	—

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 (Expense)
Three Months Ended March 31, 2021:
Total gains (losses) included in earnings for the period	$	—	$	(17)	$	(129)	$	—
Changes in unrealized gains (losses) relating to financial instruments still held at the reporting date	—		(17)		(129)		—

Three Months Ended March 31, 2020:
Total gains (losses) included in earnings for the period	$	—	$	12	$	118	$	—
Changes in unrealized gains (losses) relating to financial instruments still held at the reporting date	—		12		118		—