Ambac’s non-VIE invested assets are primarily comprised of fixed maturity securities classified as either available-for-sale or trading securities, 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. Fixed maturity securities classified as trading are unrated municipal bond obligations of Puerto Rico issuing entities that are part of the the PROMESA restructuring process as described further in Note 6. Insurance Contracts.

Fixed Maturity Securities:

The amortized cost and estimated fair value of available-for-sale investments, excluding VIE investments, at September 30, 2022 and December 31, 2021, were as follows:


	Amortized Cost		Allowance for Credit Losses		Gross Unrealized Gains		Gross Unrealized Losses		Estimated Fair Value
September 30, 2022:
Fixed maturity securities:
Municipal obligations	$	55	$	—	$	3	$	2	$	56
Corporate obligations	724		—		2		69		658
Foreign obligations	80		—		—		11		69
U.S. government obligations	64		—		1		3		63

Residential mortgage-backed securities	174		—		23		17		180

Collateralized debt obligations	141		—		—		6		135
Other asset-backed securities (1)	229		—		4		8		224
	1,467		—		33		116		1,384
Short-term	523		—		—		—		523
	1,990		—		33		116		1,907
Fixed maturity securities pledged as collateral:
U.S. government obligations	15		—		—		—		15
Short-term	55		—		—		—		55
	70		—		—		—		69
Total available-for-sale investments	$	2,060	$	—	$	33	$	116	$	1,977



December 31, 2021:
Fixed maturity securities:
Municipal obligations	$	315	$	—	$	28	$	3	$	340
Corporate obligations	612		—		10		9		613
Foreign obligations	89		—		—		2		87
U.S. government obligations	45		—		1		1		45

Residential mortgage-backed securities	182		—		70		—		252

Collateralized debt obligations	128		—		—		—		128
Other asset-backed securities (1)	234		—		32		—		265
	1,605		—		141		16		1,730
Short-term	415		—		—		—		414
	2,020		—		141		16		2,145
Fixed maturity securities pledged as collateral:
U.S. government obligations	15		—		—		—		15
Short-term	105		—		—		—		105
	120		—		—		—		120
Total available-for-sale investments	$	2,140	$	—	$	141	$	16	$	2,265

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

The amortized cost and estimated fair value of available-for-sale investments, excluding VIE investments, at September 30, 2022, by contractual maturity, were as follows:


	Amortized Cost		Estimated Fair Value
Due in one year or less	$	622	$	622
Due after one year through five years	537		506
Due after five years through ten years	309		268
Due after ten years	48		41
	1,516		1,437
Residential mortgage-backed securities	174		180

Collateralized debt obligations	141		135
Other asset-backed securities	229		224
Total	$	2,060	$	1,977

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 September 30, 2022 and December 31, 2021, 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 September 30, 2022 and December 31, 2021:


	Less Than 12 Months				12 Months or More				Total
	Fair Value		Gross Unrealized Loss		Fair Value		Gross Unrealized Loss		Fair Value		Gross Unrealized Loss
September 30, 2022:
Fixed maturity securities:
Municipal obligations	$	15	$	1	$	5	$	1	$	20	$	2
Corporate obligations	445		35		169		34		614		69
Foreign obligations	29		4		38		7		67		11
U.S. government obligations	35		2		11		1		47		3

Residential mortgage-backed securities	116		17		—		—		116		17

Collateralized debt obligations	121		5		12		1		133		6
Other asset-backed securities	201		8		—		—		201		8
	962		72		236		43		1,198		116
Short-term	77		—		8		—		85		—
	1,039		72		244		43		1,283		116
Fixed income securities, pledged as collateral:
Short-term	15		—		—		—		15		—
Total collateralized investments	15		—		—		—		15		—
Total temporarily impaired securities	$	1,054	$	72	$	244	$	43	$	1,298	$	116


	Less Than 12 Months				12 Months or More				Total
	Fair Value		Gross Unrealized Loss		Fair Value		Gross Unrealized Loss		Fair Value		Gross Unrealized Loss
December 31, 2021:
Fixed maturity securities:
Municipal obligations	$	117	$	3	$	2	$	—	$	118	$	3
Corporate obligations	363		8		17		1		380		9
Foreign obligations	75		2		3		—		78		2
U.S. government obligations	25		—		2		—		27		1

Residential mortgage-backed securities	—		—		1		—		2		—

Collateralized debt obligations	68		—		3		—		71		—
Other asset-backed securities	6		—		—		—		6		—
	654		14		28		1		682		16
Short-term	114		—		13		—		128		—
	768		14		41		1		810		16
Fixed income securities, pledged as collateral:
U. S. government obligations	15		—		—		—		15		—
Total collateralized investments	15		—		—		—		15		—
Total temporarily impaired securities	$	783	$	14	$	41	$	1	$	825	$	16

Management has determined that the securities in the above table do not have credit impairment as of September 30, 2022 and December 31, 2021, 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 September 30, 2022, 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.

The declines in fair value and resultant unrealized losses across asset classes as of September 30, 2022 included in the above table resulted from the impact of increasing interest rates and market spreads. Management has determined that the securities with unrealized losses are not credit impaired. Further discussion of management's assessment with respect to security categories with larger unrealized loss balances is below.

Corporate obligations

The gross unrealized losses on corporate obligations as of September 30, 2022 resulted from an increase in interest rates and, to a lesser extent, market spreads since the securities were purchased. Unrealized losses of $65 related to investment grade securities with a fair value of $510 at September 30, 2022. Securities that have below investment grade credit ratings or are

unrated comprise $4 of the gross unrealized loss and $104 of the fair value of corporate obligations with unrealized losses. The largest of these positions is Ambac's investment in Sitka Senior Secured Notes which were redeemed in full effective October 29, 2022. Management believes that the full and timely receipt of all principal and interest payment on corporate obligations with unrealized losses as of September 30, 2022 is probable.

Residential mortgage-backed securities and Other asset-backed securities

As of September 30, 2022, all of the $17 unrealized loss on residential mortgage-backed securities and the $8 unrealized loss on other asset backed securities related to Ambac-insured securities or resecuritization instruments collateralized with Ambac-insured securities, most of which have below investment grade credit ratings or are unrated. The unrealized losses on these obligations resulted from adverse market conditions for such assets. As noted above, expected cash flows used in evaluating credit impairment of Ambac-insured securities contemplate full and timely payment of all principal and interest payments on Ambac-insured securities. This assumption is included in the projection of model based cash flows used in evaluating credit impairments on beneficial interests in securitized financial assets, including the residential mortgage backed and student loan asset backed securities included in this group.

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,
	2022		2021		2022		2021
Fixed maturity securities	$	16	$	16	$	45	$	63
Short-term investments	3		—		4		—

Investment expense	(2)		(1)		(4)		(4)
Securities available-for-sale and short-term	17		15		44		59
Fixed maturity securities - trading	(1)		—		(22)		—
Other investments	(5)		6		(28)		53
Total net investment income (loss)	$	11	$	21	$	(6)	$	112

Net investment income (loss) from Other investments primarily represents changes in fair value on equity securities, including certain pooled investment funds, and income from investment limited partnerships and other equity interests accounted for under the equity method.

Net Investments Gains (Losses), including Impairments:

The following table details amounts included in net investment gains (losses) and impairments included in earnings for the affected periods:


	Three Months Ended September 30,				Nine Months Ended September 30,
	2022		2021		2022		2021
Gross realized gains on securities	$	6	$	1	$	29	$	9
Gross realized losses on securities	(1)		—		(17)		(2)
Foreign exchange gains (losses)	9		3		20		(3)
Credit impairments	—		—		—		—
Intent / requirement to sell impairments	—		—		—		—
Net investment gains (losses), including impairments	$	14	$	3	$	31	$	4

Ambac had an allowance for credit losses of $— and $— at September 30, 2022 and 2021, respectively.

Ambac did not purchase any financial assets with credit deterioration for the three and nine months ended September 30, 2022 and 2021.

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 $69 and $120 at September 30, 2022 and December 31, 2021, 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 7. 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 $22 and $17 at September 30, 2022 and December 31, 2021, 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 September 30, 2022 and December 31, 2021, were deposited as security in connection with a letter of credit issued for an office lease.

Securities with a fair value of $550 and $669 at September 30, 2022 and December 31, 2021, respectively, were held by Ambac UK, the capital stock of which was pledged as collateral for the Sitka AAC Note. The Sitka AAC Note was fully redeemed as of October 29, 2022, and therefore the pledge of Ambac UK's capital stock was subsequently released. Refer to Note 12. Long-term Debt in the Notes to the Consolidated Financial Statements included in Part II, Item 8 in the Company’s Annual Report on Form 10-K for the year ended December 31, 2021 for further information about the Sitka AAC Note.

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 September 30, 2022 and December 31, 2021, respectively:


	Municipal Obligations		Corporate Obligations (2)		Mortgage and Asset- backed Securities		Total		Weighted Average Underlying Rating (1)
September 30, 2022:
Ambac Assurance Corporation	$	42	$	87	$	338	$	468	B

Assured Guaranty Municipal Corporation	1		—		—		1		A



Total	$	43	$	87	$	338	$	468	B

December 31, 2021:
Ambac Assurance Corporation	$	316	$	—	$	439	$	754	B
National Public Finance Guarantee Corporation	2		—		—		2		BBB-
Assured Guaranty Municipal Corporation	1		—		—		1		A-



Total	$	318	$	—	$	439	$	757	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 Sitka Senior Secured Notes.

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 vary with the timing and notification of withdrawal provided by the investor. In addition to these investments, Ambac has unfunded commitments of $60 to private credit and private equity funds at September 30, 2022.


	Fair Value
Class of Funds	September 30, 2022		December 31, 2021		Redemption Frequency	Redemption Notice Period
Hedge funds (1)	$	186	$	216	quarterly or semi-annually	90 days
Private credit (2)	81		88		quarterly if permitted	180 days if permitted
High yields and leveraged loans (3)	69		78		daily	0 - 30 days
Equity market investments (4) (11)	67		98		daily or quarterly	0 - 90 days
Investment grade floating rate income (5)	58		107		weekly	0 days
Private equity (6)	43		37		quarterly if permitted	90 days if permitted
Real estate properties (7)	34		33		quarterly	10 business days
Convertible bonds (8)(11)	7		—		daily	0 days
Insurance-linked investments (9)	1		2		see footnote (5)	see footnote (5)
Emerging markets debt (10) (11)	—		24		daily	0 days
Total equity investments in pooled funds	$	547	$	683

(1)This class seeks to generate superior risk-adjusted returns through selective asset sourcing, active trading and hedging strategies across a range of asset types.

(2)This class aims to obtain high long-term returns primarily through credit and preferred equity investments with low liquidity and defined term.

(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 of funds aim to achieve long term growth through diversified exposure to global equity-markets.

(5)This class of funds includes investments in high quality floating rate debt securities including ABS and corporate floating rate notes.

(6)This class seeks to generate long-term capital appreciation through investments in private equity, equity-related and other instruments.

(7)Investments consist of UK property to generate income and capital growth.

(8)This class seeks to generate total returns from portfolios focused primarily on convertible securities.

(9)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.

(10)This class seeks long-term income and growth through investments in the bonds of issuers in emerging markets.

(11)These categories include fair value amounts totaling $64 and $106 at September 30, 2022 and December 31, 2021, respectively, that are readily determinable and are priced through pricing vendors, including for Equity market investments $57 and $82; Convertible

bonds investments $7 and —; and for Emerging markets debt $0 and $24. Other investments also includes preferred equity investments with a carrying value of $12 and $8 as of September 30, 2022 and December 31, 2021, respectively, that do not have readily determinable fair values and are carried at cost, less any impairments as permitted under the Investments — Equity Securities Topic of the ASC. There were no impairments recorded on these investments or adjustments to fair value to reflect observable price changes in identical or similar investments from the same issuer during the periods presented.