Fair Value Measurements

12 Months Ended

Dec. 31, 2024

Fair Value Disclosures [Abstract]

Fair Value Measurements

7.    FAIR VALUE MEASUREMENTS

The Fair Value Measurement Topic of the ASC establishes a framework for measuring fair value and disclosures about fair value measurements.

Fair Value Hierarchy

The Fair Value Measurement Topic of the ASC specifies a fair value hierarchy based on whether the inputs to valuation techniques used to measure fair value are observable or unobservable. Observable inputs reflect market data obtained from independent sources, while unobservable inputs reflect Company-based assumptions. The fair value hierarchy has three broad levels as follows:

l	Level 1	Quoted prices for identical instruments in active markets. Assets and liabilities classified as Level 1 include US Treasury and other foreign government obligations traded in highly liquid and transparent markets, and money market funds.
l	Level 2	Quoted prices for similar instruments in active markets; quoted prices for identical or similar instruments in markets that are not active; and model-derived valuations in which all significant inputs and significant value drivers are observable in active markets. Assets and liabilities classified as Level 2 generally include investments in fixed maturity securities and certain derivatives valued using only market observable data.
l	Level 3	Model derived valuations in which one or more significant inputs or significant value drivers are unobservable. This hierarchy requires the use of observable market data when available. Financial instruments classified as Level 3 include certain investments in fixed maturity securities, loans and derivatives.

The Fair Value Measurement Topic of the ASC permits, as a practical expedient, the estimation of fair value of certain investments in funds using the net asset value per share of the investment or its equivalent (“NAV”). Investments in funds valued using NAV are not categorized as Level 1, 2 or 3 under the fair value hierarchy. The Investments — Equity Securities Topic of the ASC permits the measurement of certain equity securities without a readily determinable fair value at cost, less impairment, and adjusted to fair value when observable price changes in identical or similar investments from the same issuer occur (the "measurement alternative"). The fair values of investments measured under this measurement alternative are not included in the below disclosures of fair value of financial instruments.

The following table sets forth the carrying amount and fair value of Ambac’s financial assets and liabilities as of December 31, 2024 and 2023, 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.

	December 31, 2024:										December 31, 2023:
	Carrying Amount		Total Fair Value		Fair Value Measurements Categorized as:						Carrying Amount		Total Fair Value		Fair Value Measurements Categorized as:
					Level 1		Level 2		Level 3						Level 1		Level 2		Level 3
Financial assets:
Fixed maturity securities:
Municipal obligations	$	14,083	$	14,083	$	—	$	14,083	$	—	$	8,711	$	8,711	$	—	$	8,711
Corporate obligations	89,192		89,192		—		89,192		—		87,991		87,991		—		74,071		13,920
U.S. government obligations	40,995		40,995		40,995		—		—		38,522		38,522		38,522		—		—
Residential mortgage-backed securities	2,446		2,446		—		2,446		—		—		—		—		—		—
Commercial mortgage-backed securities	2,101		2,101		—		2,101		—		—		—		—		—		—
Collateralized debt obligations	3,142		3,142		—		3,142		—		—		—		—		—		—
Other asset-backed securities	5,061		5,061		—		5,061		—		—		—		—		—		—
Short term investments	127,601		127,601		127,601		—		—		200,510		200,510		200,510		—		—
Other investments (1)	28,294		7,499		—		—		—		18,317		5,817		—		—		—
Cash, cash equivalents and restricted cash	47,276		47,276		47,276		—		—		19,223		19,223		19,223		—		—
Other assets-Loans	3,434		3,434		—		—		3,434		—		—		—		—		—
Other assets - Derivatives:
Warrants	—		—		—		—		—		656		656		—		—		656
Total financial assets	$	363,625	$	342,830	$	215,872	$	116,025	$	3,434	$	373,930	$	361,430	$	258,255	$	82,782	$	14,576
Financial liabilities:
Short-term debt, including accrued interest	$	152,560	$	152,560	$	—	$	—	$	152,560	$	—	$	—	$	—	$	—	$	—
Other liabilities - Derivatives:
FX forward contracts	317		317		—		317		—		—		—		—		—		—
Total financial liabilities	$	152,877	$	152,877	$	—	$	317	$	152,560	$	—	$	—	—		—		—

(1)Excluded from the fair value measurement categories in the table above are investment funds of $7,499 and $5,817 as of December 31, 2024 and 2023, respectively, which are measured using NAV as a practical expedient. Also excluded from the fair value measurements in the table above are equity securities with a carrying value of $20,618 and $12,500 as of December 31, 2024 and 2023, respectively, that do not have readily determinable fair values and have carrying amounts determined using the measurement alternative, and an equity method investment of $177 as of December 31, 2024.

Determination of Fair Value

When available, Ambac uses quoted active market prices specific to the financial instrument to determine fair value and classifies such items within Level 1. The determination of fair value for financial instruments categorized in Level 2 or 3 involves judgment due to the complexity of factors contributing to the valuation. Third-party sources from which we obtain independent market quotes also use assumptions, judgments and estimates in determining financial instrument values and different third parties may use different methodologies or provide different values for financial instruments. In addition, the use of internal valuation models may require assumptions about hypothetical or inactive markets. As a result of these factors, the actual trade value of a financial instrument in the market, or exit value of a financial instrument position by Ambac, may be significantly different from its recorded fair value.

Ambac’s financial instruments carried at fair value are mainly comprised of investments in fixed maturity securities, equity interests in pooled investment funds, and derivative instruments. Valuation of financial instruments is performed by Ambac’s finance group using methods approved by senior financial management with consultation from risk management and third-party portfolio managers as appropriate. Preliminary valuation results are discussed internally and with third-party portfolio managers as necessary quarterly to assess consistency with market transactions and trends as applicable. Market

transactions such as trades or negotiated settlements of similar positions, if any, are reviewed to validate fair value model results. However, financial instruments valued using significant unobservable inputs have very little or no observable market activity. Methods and significant inputs and assumptions used to determine fair values across portfolios are reviewed quarterly by senior financial management. Other valuation control procedures specific to particular portfolios are described further below.

Fixed Maturity Securities

The fair values of fixed maturity investment securities are based primarily on market prices received independent pricing sources. Because many fixed maturity securities do not trade on a daily basis, pricing sources apply available market information through processes such as matrix pricing to calculate fair value. Such prices generally consider a variety of factors, including recent trades of the same and similar securities. In those cases, the items are classified within Level 2. For those fixed maturity investments where quotes were not available or cannot be reasonably corroborated, fair values are based on internal valuation models. Key inputs to the internal valuation models generally include maturity date, coupon and yield curves for asset-type and credit rating characteristics that closely match those characteristics of the specific investment securities being valued. Items valued using valuation models are classified according to the lowest level input or value driver that is significant to the valuation. Thus, an item may be classified in

Level 3 even though there may be significant inputs that are readily observable. Longer (shorter) expected maturities or higher (lower) yields used in the valuation model will, in isolation, result in decreases (increases) in fair value. Generally, lower credit ratings or longer expected maturities will be accompanied by higher yields used to value a security.

Ambac performs various review and validation procedures to quoted and modeled prices for fixed maturity securities, including price variance analyses, missing and static price reviews, overall valuation analysis by portfolio managers and finance managers and reviews associated with our ongoing impairment analysis. Unusual prices identified through these procedures will be evaluated further against alternative third-party quotes (if available), internally modeled prices and/or other relevant data, and the pricing source values will be challenged as necessary. Price challenges generally result in the use of the pricing source’s quote as originally provided or as revised by the source following their internal diligence process. A price challenge may result in a determination by either the pricing source or Ambac management that the pricing source cannot provide a reasonable value for a security or cannot adequately support a quote, in which case Ambac would resort to using either other quotes or internal models. Results of price challenges are reviewed by portfolio managers and finance managers.

Information about the valuation inputs for fixed maturity securities classified as Level 3 is included below:

Corporate obligations: This includes certain investments in convertible debt securities. The fair value classified as Level 3 was $0 and $13,920 at December 31, 2024 and 2023, respectively. Fair value was calculated by discounting cash flows to average maturity of 0.75 years and a yield of 9.4% at December 31, 2023. Yields used are consistent with the security type and rating.

Other Investments

Other investments primarily relate to investments in pooled investment funds. The fair value of pooled investment funds is

determined using dealer quotes or alternative pricing sources when such investments have readily determinable fair values. When fair value is not readily determinable, pooled investment funds are valued using NAV as a practical expedient as permitted under the Fair Value Measurement Topic of the ASC. Refer to Note 6. Investments for additional information about such investments in pooled funds that are reported at fair value using NAV as a practical expedient.

Derivative Instruments

As of December 31, 2024, Ambac has foreign currency forward contracts and holds warrants to purchase preferred stock of a development stage company. The fair value of foreign currency forwards are determined using valuation models with observable market inputs. Fair value of the warrants are determined using a standard warrant valuation model with internally developed input assumptions.

Short-term Debt

Short-term debt consists of SOFR indexed borrowing used for the partial funding of the Beat acquisition and is classified as Level 3.

Other Financial Assets

Included in Other assets are loans carried at amortized cost, the fair values of which are estimated based upon internal valuation models and are classified as Level 3.

Additional Fair Value Information for Financial Assets and Liabilities Accounted for at Fair Value

The following tables present the changes in the Level 3 fair value category for the periods presented in 2024, 2023 and 2022. 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
Year ended December 31, 2024	Investments		Derivatives		Total
Balance, beginning of period	$	13,920	$	656	$	14,576
Total gains/(losses) realized and unrealized:
Included in earnings	6,016		(656)		5,360
Included in other comprehensive income	125		—		125
Purchases	—		—		—
Issuances	—		—		—
Sales	—		—		—
Settlements	(20,061)		—		(20,061)
Balance, end of period	$	—	$	—	$	—
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	$	—	$	(656)	$	(656)
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	$	—	$	—	$	—

Level-3 Financial Assets and Liabilities Accounted for at Fair Value
Year Ended December 31, 2023	Investments		Derivatives		Total
Balance, beginning of period	$	12,341	$	935	$	13,276
Total gains/(losses) realized and unrealized:
Included in earnings	—		(279)		(279)
Included in other comprehensive income	784				784
Purchases	795				795
Issuances	—				—
Sales	—				—
Settlements	—				—
Balance, end of period	$	13,920	$	656	$	14,576
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	$	—	$	(279)	$	(279)
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	$	784	$	—	$	784

Level-3 Financial Assets and Liabilities Accounted for at Fair Value
Year Ended December 31, 2022	Investments		Derivatives		Total
Balance, beginning of period	$	12,305	$	—	$	12,305
Total gains/(losses) realized and unrealized:
Included in earnings	—		935		935
Included in other comprehensive income	(714)		—		(714)
Purchases	750		—		750
Issuances	—		—		—
Sales	—		—		—
Settlements	—		—		—
Balance, end of period	$	12,341	$	935	$	13,276
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	$	—	$	935	$	935
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	$	(713)	$	—	$	(713)

Invested assets are transferred into Level 3 when internal valuation models that include significant unobservable inputs are used to estimate fair value. All such securities that have internally modeled fair values have been classified as Level 3. Derivative instruments are transferred into Level 3 when the use of unobservable inputs becomes significant to the overall valuation. There were no transfers of financial instruments into or out of Level 3 in the periods disclosed.

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
Year Ended December 31, 2024
Total gains (losses) included in earnings for the period	$	6,016	$	(656)
Changes in unrealized gains (losses) relating to financial instruments still held at the reporting date	—		(656)
Year Ended December 31, 2023
Total gains (losses) included in earnings for the period	$	—	$	(278)
Changes in unrealized gains (losses) relating to financial instruments still held at the reporting date	—		(278)
Year Ended December 31, 2022
Total gains (losses) included in earnings for the period	$	—	$	935
Changes in unrealized gains (losses) relating to financial instruments still held at the reporting date	—		935