Financial Guarantee Insurance Contracts (Tables)

6 Months Ended

Jun. 30, 2013

Summary of Gross Premium Receivable Roll-Forward (Direct and Assumed Contracts)

Below is the gross premium receivable roll-forward (direct and assumed contracts) for the affected periods:


	Successor Ambac			Predecessor Ambac
	Period from May 1 through June 30, 2013			Period from January 1 through April 30, 2013			Period from January 1 through December 31, 2012
Beginning premium receivable	$	1,531,631		$	1,620,621		$	2,028,479
Premium payments received		(19,352	)		(48,296	)		(155,626	)
Adjustments for changes in expected life of homogeneous pools and actual changes to contractual cash flows		(40,898	)		(28,237	)		(299,906	)
Accretion of premium receivable discount		7,359			14,740			50,407
Uncollectible premiums		(543	)		(634	)		(28,031	)
Other adjustments (including foreign exchange)		(13,299	)		(26,563	)		25,298

Ending premium receivable	$	1,464,898		$	1,531,631		$	1,620,621

Effect of Reinsurance on Premiums Written and Earned

The effect of reinsurance on premiums written and earned was as follows:


	Successor Ambac					Predecessor Ambac
	Period from May 1 through June 30, 2013					Period from April 1 through April 30, 2013					Three Months Ended June 30, 2012
	Written			Earned		Written			Earned		Written			Earned
Direct	($	34,081	)	$	62,033	($	10,595	)	$	31,388	($	27,873	)	$	108,645
Assumed		—			16		—			8		—			68
Ceded		(3,038	)		4,010		(84	)		1,652		881			5,671

Net premiums	($	31,043	)	$	58,039	($	10,511	)	$	29,744	($	28,754	)	$	103,042


	Successor Ambac					Predecessor Ambac
	Period from May 1 through June 30, 2013					Period from January 1 through April 30, 2013					Six Months Ended June 30, 2012
	Written			Earned		Written			Earned		Written			Earned
Direct	($	34,081	)	$	62,033	($	14,125	)	$	138,468	($	120,467	)	$	205,792
Assumed		—			16		—			32		—			93
Ceded		(3,038	)		4,010		(1,098	)		8,500		(15,973	)		7,893

Net premiums	($	31,043	)	$	58,039	($	13,027	)	$	130,000	($	104,494	)	$	197,992

Summarized Future Gross Undiscounted Premiums Expected to be Collected and Future Expected Premiums Earned, Net of Reinsurance

The table below summarizes the future gross undiscounted premiums expected to be collected, and future expected premiums earned, net of reinsurance by Successor Ambac at June 30, 2013:


	Future premiums expected to be collected ⁽¹⁾		Future expected premiums to be earned, net of reinsurance ⁽¹⁾
Three months ended:
September 30, 2013	$	30,861	$	54,293
December 31, 2013		30,424		51,219

Twelve months ended:
December 31, 2014		123,642		186,861
December 31, 2015		123,327		168,317
December 31, 2016		117,119		155,390
December 31, 2017		111,175		144,456

Five years ended:
December 31, 2022		492,046		595,171
December 31, 2027		388,834		415,115
December 31, 2032		278,704		257,389
December 31, 2037		147,485		124,197
December 31, 2042		50,568		41,733
December 31, 2047		15,500		14,512
December 31, 2052		3,639		4,692
December 31, 2057		92		297

Total	$	1,913,416	$	2,213,642

(1)

The future premiums expected to be collected and future premiums expected to be earned, net of reinsurance disclosed in the above table relate to the discounted premium receivable asset and unearned premium liability recorded on Ambac’s balance sheet. The use of contractual lives for many bond types which do not have homogeneous pools of underlying collateral is required in the calculation of the premium receivable as described above, which results in a higher premium receivable balance than if expected lives were considered. If installment paying policies are retired early premiums reflected in the premium receivable asset and amounts reported in the above table for such policies may not be collected in the future.

Summary of Loss Reserve Roll-Forward, Net of Subrogation Recoverable and Reinsurance

Below is the loss reserve roll-forward, net of subrogation recoverable and reinsurance, for the affected periods:


	Successor Ambac			Predecessor Ambac
	Period from May 1 through June 30, 2013			Period from January 1 through April 30, 2013			Period from January 1 through December 31, 2012
Beginning balance of loss and loss expense reserves, net of subrogation recoverable and reinsurance	$	5,434,517		$	5,974,731		$	6,230,780

Changes in the loss and loss expense reserves due to:
Current year:
Establishment of new loss and loss expense reserves, gross of RMBS subrogation and net of reinsurance		2,416			2,748			464,058
Claim and loss expense payments, net of subrogation and reinsurance		(37	)		(58	)		(20,765	)
Establishment of RMBS subrogation recoveries, net of reinsurance		(320	)		(159	)		—

Total current year		2,059			2,531			443,293


Prior years:
Change in previously established loss and loss expense reserves, gross of RMBS subrogation and net of reinsurance		(128,680	)		(52,642	)		72,700
Claim and loss recoveries (payments), net of subrogation and reinsurance		3,793			20,902			(944,860	)
Change in previously established RMBS subrogation recoveries, net of reinsurance		87,361			(12,596	)		172,818

Total prior years		(37,526	)		(44,336	)		(699,342	)

Net change in loss and loss expense reserves		(35,467	)		(41,805	)		(256,049	)
Net consolidation of certain VIE’s		—			(498,409	)		—

Ending loss and loss expense reserves, net of subrogation recoverable and reinsurance	$	5,399,050		$	5,434,517		$	5,974,731

Summary of Information Related to Policies Currently Included in Ambac's Loss Reserves or Subrogation Recoverable

The tables below summarize information related to policies currently included in Ambac’s loss reserves or subrogation recoverable at June 30, 2013 and December 31, 2012. The weighted average risk-free rate used to discount loss reserves at June 30, 2013 and December 31, 2012 was 2.7% and 1.6%, respectively.

Successor Ambac – Surveillance Categories (at June 30, 2013)


	I/SL			IA			II			III			IV			V			Total
Number of policies		16			20			23			91			162			1			313
Remaining weighted-average contract period (in years)		13			18			18			18			10			6			13
Gross insured contractual payments outstanding:
Principal	$	844,620		$	1,292,048		$	1,054,829		$	6,783,686		$	11,656,771		$	47		$	21,632,001
Interest		527,402			905,512			521,253			2,669,245			2,391,017			18			7,014,447

Total	$	1,372,022		$	2,197,560		$	1,576,082		$	9,452,931		$	14,047,788		$	65		$	28,646,448

Gross undiscounted claim liability	$	8,084		$	51,660		$	45,137		$	3,254,914		$	7,902,091		$	65		$	11,261,951
Discount, gross claim liability		(1,136	)		(5,955	)		(13,405	)		(1,220,168	)		(994,459	)		(4	)		(2,235,127	)

Gross claim liability before all subrogation and before reinsurance	$	6,948		$	45,705		$	31,732		$	2,034,746		$	6,907,632		$	61		$	9,026,824

Less:
Gross RMBS subrogation⁽¹⁾		—			(407	)		—			(4,867	)		(2,402,002	)		—			(2,407,276	)
Discount, RMBS subrogation		—			2			—			18			12,323			—			12,343

Discounted RMBS subrogation, before reinsurance		—			(405	)		—			(4,849	)		(2,389,679	)		—			(2,394,933	)

Less:
Gross other subrogation⁽²⁾		—			—			(18,826	)		(115,254	)		(722,222	)		—			(856,302	)
Discount, other subrogation		—			—			8,043			24,666			39,360			—			72,069

Discounted other subrogation, before reinsurance		—			—			(10,783	)		(90,588	)		(682,862	)		—			(784,233	)

Gross claim liability, net of all subrogation and discounts, before reinsurance	$	6,948		$	45,300		$	20,949		$	1,939,309		$	3,835,091		$	61		$	5,847,658

Less: Unearned premium reserves		(4,627	)		(25,561	)		(6,436	)		(286,503	)		(97,302	)		—			(420,429	)
Plus: Loss adjustment expenses reserves		—			23			2,438			6,631			105,241			—			114,333

Claim liability reported on Balance Sheet, before reinsurance⁽³⁾	$	2,321		$	19,762		$	16,951		$	1,659,437		$	3,843,030		$	61		$	5,541,562

Reinsurance recoverable reported on Balance Sheet	$	177		$	2,620		$	4,328		$	133,114		$	14,725		$	—		$	154,964

(1)	RMBS subrogation represents Ambac’s estimate of subrogation recoveries from RMBS transaction sponsors for representation and warranty breaches.

(2)	Other subrogation represents subrogation, including subrogation from RMBS transactions, other than subrogation as defined in (1) above.

(3)	Claim liability reported on the Balance Sheet, before reinsurance is included in the Consolidated Balance Sheets as follows:


Losses and loss expense reserve (net of potential subrogation recoveries of $2,313,452)	$	6,042,649
Subrogation recoverable (includes gross potential recovery of $865,714)		(501,087	)

	$	5,541,562

Predecessor Ambac – Surveillance Categories (at December 31, 2012)


	I/SL			IA			II			III			IV			V			Total
Number of policies		14			12			28			114			147			1			316
Remaining weighted-average contract period (in years)		15			21			18			20			8			6			13
Gross insured contractual payments outstanding:
Principal	$	311,157		$	786,998		$	1,245,793		$	9,161,747		$	12,554,628		$	47		$	24,060,370
Interest		166,276			715,129			379,237			4,905,775			3,076,746			20			9,243,183

Total	$	477,433		$	1,502,127		$	1,625,030		$	14,067,522		$	15,631,374		$	67		$	33,303,553

Gross undiscounted claim liability	$	2,135		$	40,898		$	49,521		$	4,051,076		$	7,976,765		$	67		$	12,120,462
Discount, gross claim liability		(219	)		(3,532	)		(3,247	)		(1,342,910	)		(788,720	)		(3	)		(2,138,631	)

Gross claim liability before all subrogation and before reinsurance	$	1,916		$	37,366		$	46,274		$	2,708,166		$	7,188,045		$	64		$	9,981,831

Less:
Gross RMBS subrogation⁽¹⁾		—			—			—			(16,170	)		(2,544,993	)		—			(2,561,163	)
Discount, RMBS subrogation		—			—			—			312			37,626			—			37,938

Discounted RMBS subrogation, before reinsurance		—			—			—			(15,858	)		(2,507,367	)		—			(2,523,225	)

Less:
Gross other subrogation⁽²⁾		—			—			—			(141,012	)		(766,717	)		—			(907,729	)
Discount, other subrogation		—			—			—			21,238			15,711			—			36,949

Discounted other subrogation, before reinsurance		—			—			—			(119,774	)		(751,006	)		—			(870,780	)

Gross claim liability, net of all subrogation and discounts, before reinsurance	$	1,916		$	37,366		$	46,274		$	2,572,534		$	3,929,672		$	64		$	6,587,826

Less: Unearned premium reserves		(1,179	)		(21,626	)		(17,120	)		(450,247	)		(113,622	)		—			(603,794	)
Plus: Loss adjustment expenses reserves	$	—		$	—		$	—		$	—		$	138,108		$	—		$	138,108

Claim liability reported on Balance Sheet, before reinsurance⁽³⁾	$	737		$	15,740		$	29,154		$	2,122,287		$	3,954,158		$	64		$	6,122,140

Reinsurance recoverable reported on Balance Sheet	$	—		$	1,078		$	7,085		$	128,333		$	22,590		$	—		$	159,086

(1)	RMBS subrogation represents Ambac’s estimate of subrogation recoveries from RMBS transaction sponsors for representation and warranty breaches.

(2)	Other subrogation represents subrogation, including subrogation from RMBS transactions, other than subrogation as defined in (1) above.

(3)	Claim liability reported on the Balance Sheet, before reinsurance is included in the Consolidated Balance Sheets as follows:


Losses and loss expense reserve (net of potential subrogation recoveries of $2,611,430)	$	6,619,486
Subrogation recoverable (includes gross potential recovery of $782,575)		(497,346	)

	$	6,122,140

Summary of Balance of Subrogation Recoveries and Related Claim Liabilities, by Estimation Approach

The balance of RMBS subrogation recoveries and the related claim liabilities, by estimation approach, at June 30, 2013 and December 31, 2012, are as follows:


	Successor Ambac – June 30, 2013
Approach	Count		Gross loss reserve before subrogation recoveries		Subrogation recoveries^(1) (2)			Gross loss reserve after subrogation recoveries
Adverse samples		29	$	2,323,908	$	(1,436,328	)	$	887,580
Random samples		21		1,084,740		(958,605	)		126,135

Totals		50	$	3,408,648	$	(2,394,933	)	$	1,013,715


	Predecessor Ambac – December 31, 2012
Approach	Count		Gross loss reserve before subrogation recoveries		Subrogation recoveries ^(1) (2)			Gross loss reserve after subrogation recoveries
Adverse samples		27	$	2,331,878	$	(1,442,817	)	$	889,061
Random samples		22		1,231,466		(1,080,408	)		151,058

Totals		49	$	3,563,344	$	(2,523,225	)	$	1,040,119

(1)

The amount of recorded subrogation recoveries related to each securitization is limited to ever-to-date paid losses plus projected paid losses for each policy. To the extent significant losses have been paid but not yet recovered, the recorded amount of RMBS subrogation recoveries may exceed the expected future claims for a given policy. The net cash inflow for these policies is recorded as a “Subrogation recoverable” asset. For those transactions where the subrogation recovery is less than expected future claims, the net cash outflow for these policies is recorded as a “Losses and loss expense reserve” liability.

(2)

The sponsor’s repurchase obligation may differ depending on the terms of the particular transaction and the status of the specific loan, such as whether it is performing or has been liquidated or charged off. The estimated subrogation recovery for these transactions is based primarily on loan level data provided through trustee reports received in the normal course of our surveillance activities or provided by the sponsor. While this data may not include all the components of the sponsor’s contractual repurchase obligation we believe it is the best information available to estimate the subrogation recovery.

Summary of Rollforward of RMBS Subrogation, by Estimation Approach

Below is the rollforward of RMBS subrogation, by estimation approach, for the affected periods:


	Random sample			Number of transactions			Adverse sample			Number of transactions		Total
Successor Ambac:
Discounted RMBS subrogation (gross of reinsurance) at May 1, 2013	$	1,004,252			20		$	1,478,666			29		2,482,918

Changes recognized through June 30, 2013:
Additional transactions reviewed		—			n/a			—			n/a		—
Additional adverse sample loans reviewed		—			n/a			—			n/a		—
Impact of sponsor actions ⁽¹⁾		(2,489	)		1			—			n/a		(2,489	)
All other changes ⁽²⁾		(43,158	)		n/a			(42,338	)		n/a		(85,496	)

Discounted RMBS subrogation (gross of reinsurance) at June 30, 2013	$	958,605			21		$	1,436,328			29	$	2,394,933


Predecessor Ambac:
Discounted RMBS subrogation (gross of reinsurance) at December 31, 2012	$	1,080,408			22		$	1,442,817			27	$	2,523,225

Changes recognized through April 30, 2013:
Additional transactions reviewed		—			n/a			—			n/a		—
Additional adverse sample loans reviewed		—			n/a			—			n/a		—
Impact of sponsor actions ⁽¹⁾		(54,195	)		n/a			—			n/a		(54,195	)
All other changes ⁽²⁾		(21,961	)		(2	)		35,849			2		13,888

Discounted RMBS subrogation (gross of reinsurance) at April 30, 2013	$	1,004,252			20		$	1,478,666			29	$	2,482,918

(1)	Sponsor actions include loan repurchases, direct payments to Ambac, and other contributions from sponsors.

(2)

Other changes which may impact RMBS subrogation recoveries include changes in actual or projected collateral performance, changes in the creditworthiness of a sponsor, and/or the projected timing of recoveries. For the two months ended June 30, 2013, Successor Ambac added 1 transaction to the Random Sample subrogation population; however, the impacts on RMBS subrogation disclosed in the Random Sample column relate to that, as well as other transactions. For the four months ended April 30, 2013, Predecessor Ambac transferred 2 transactions from the Random Sample population to the Adverse Sample population; however, the impacts on RMBS subrogation disclosed in the Adverse Sample column relate to those, as well as other transactions.

Estimated Future Amortization Expense for Insurance Intangible Asset

The estimated future amortization expense for the insurance intangible asset is as follows:


2013	$	71,958
2014		127,898
2015		114,572
2016		105,052
2017		97,306
Thereafter		1,104,826

- Definition

Tabular disclosure of insured financial obligations with credit deterioration related to the claim liability on financial guarantee insurance contracts as of the end of each annual and interim reporting period detailing, at a minimum, the following for each surveillance category or grouping used to track and monitor the entity's insured financial obligations: (1) number of issued and outstanding financial guarantee insurance contracts; (2) remaining weighted average contract period; (3) insured contractual payments outstanding, segregating principal and interest; (4) gross claim liability; (5) gross potential recoveries; (6) net discount of both the claim liability and potential recoveries; (7) net claim liability; (8) reinsurance recoverable; and (9) unearned premium revenue.

+ References+ Details

- Definition

Tabular disclosure of the activity in the reserve for settling insured claims and expenses incurred in the claims settlement process for the period. The estimated liability includes the amount of money that will be required for future payments of (a) claims that have been reported to the insurer, (b) claims related to insured events that have occurred but that have not been reported to the insurer as of the date the liability is estimated, and (c) claim adjustment expenses. Claim adjustment expenses include costs incurred in the claim settlement process such as legal fees; outside adjuster fees; and costs to record, process, and adjust claims.

+ References+ Details