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Financial Guarantee Insurance Contracts | 12 Months Ended
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Dec. 31, 2013
Insurance [Abstract] |
Financial Guarantee Insurance Contracts | 8. FINANCIAL GUARANTEE INSURANCE CONTRACTS The portfolio of financial guarantees discussed in Note 7, Financial Guarantees in Force, includes financial guarantee contracts that meet the definition of insurance contracts as well as those that meet the definition of derivative contracts. Amounts presented in this Note relate only to Ambac’s non-derivative insurance business for insurance policies issued to beneficiaries, including VIEs, for which we do not consolidate the VIE. Net Premiums Earned: 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 December 31, 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 receipts |  |  | (82,071 | ) |  |  | (48,296 | ) |  |  | (155,626 | )
Adjustments for changes in expected and contractual cash flows |  |  | (91,241 | ) |  |  | (28,237 | ) |  |  | (299,906 | )
Accretion of premium receivable discount |  |  | 26,184 |  |  |  | 14,740 |  |  |  | 50,407 |
Deconsolidation of certain VIEs |  |  | 45,883 |  |  |  | — |  |  |  | — |
Uncollectible premiums |  |  | (15,262 | ) |  |  | (634 | ) |  |  | (28,031 | )
Other adjustments (including foreign exchange) |  |  | 37,897 |  |  |  | (26,563 | ) |  |  | 25,298 |
Ending premium receivable |  | $ | 1,453,021 |  |  | $ | 1,531,631 |  |  | $ | 1,620,621 |
The effect of reinsurance on premiums written and earned was as follows:
|  | Successor Ambac |  |  | Predecessor Ambac |
|  | Eight Months Ended December 31, 2013 |  |  | Four Months Ended April 30, 2013 |  |  | Year Ended December 31, 2012 |
|  | Written |  |  | Earned |  |  | Written |  |  | Earned |  |  | Written |  |  | Earned |
Direct |  | ($ | 80,309 | ) |  | $ | 226,326 |  |  | ($ | 14,125 | ) |  | $ | 138,468 |  |  | ($ | 277,508 | ) |  | $ | 434,488 |
Assumed |  |  | — |  |  |  | 65 |  |  |  | — |  |  |  | 32 |  |  |  | — |  |  |  | 155 |
Ceded |  |  | (7,810 | ) |  |  | 12,873 |  |  |  | (1,098 | ) |  |  | 8,500 |  |  |  | (23,371 | ) |  |  | 20,039 |
Net premiums |  | ($ | 72,499 | ) |  | $ | 213,518 |  |  | ($ | 13,027 | ) |  | $ | 130,000 |  |  | ($ | 254,137 | ) |  | $ | 414,604 |
The table below summarizes the future gross undiscounted premiums to be collected, and future premiums earned, net of reinsurance by Successor Ambac at December 31, 2013:
|  | Future premiums to be collected(1) |  |  | Future premiums to be earned, net of reinsurance(1) |
Three months ended: |  |  |  |  |  |  |  |
March 31, 2014 |  | $ | 32,497 |  |  | $ | 48,819 |
June 30, 2014 |  |  | 29,709 |  |  |  | 47,354 |
September 30, 2014 |  |  | 34,248 |  |  |  | 46,028 |
December 31, 2014 |  |  | 32,031 |  |  |  | 44,685 |
Twelve months ended: |  |  |  |  |  |  |  |
December 31, 2015 |  |  | 127,948 |  |  |  | 166,741 |
December 31, 2016 |  |  | 121,354 |  |  |  | 153,672 |
December 31, 2017 |  |  | 115,043 |  |  |  | 142,822 |
December 31, 2018 |  |  | 109,917 |  |  |  | 133,616 |
Five years ended: |  |  |  |  |  |  |  |
December 31, 2023 |  |  | 491,505 |  |  |  | 555,669 |
December 31, 2028 |  |  | 387,017 |  |  |  | 387,961 |
December 31, 2033 |  |  | 258,517 |  |  |  | 230,672 |
December 31, 2038 |  |  | 108,379 |  |  |  | 101,894 |
December 31, 2043 |  |  | 40,269 |  |  |  | 34,711 |
December 31, 2048 |  |  | 12,028 |  |  |  | 12,090 |
December 31, 2053 |  |  | 2,262 |  |  |  | 3,334 |
December 31, 2058 |  |  | 31 |  |  |  | 83 |
Total |  | $ | 1,902,755 |  |  | $ | 2,110,151 |
(1) | Future premiums to be collected relates to the discounted premium receivable asset recorded on Ambac’s balance sheet. Future premiums to be earned, net of reinsurance relate to the unearned premiums liability and deferred ceded premium asset 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.
Loss and Loss Expense Reserves: A loss reserve is recorded on the balance sheet on a policy-by-policy basis for the excess of: (a) unpaid claims plus the present value of expected net cash flows required to be paid under an insurance contract, over (b) the UPR for that contract. 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 December 31, 2013 |  |  |  |  | Period from January 1 through April 30, 2013 |  |  | Period from January 1 through December 31, 2012 |
Beginning loss and loss expense reserves, net of subrogation recoverable, gross of reinsurance |  | $ | 5,572,672 |  |  |  |  | $ | 6,122,140 |  |  | $ | 6,384,260 |
Less reinsurance on loss and loss expense reserves |  |  | 138,155 |  |  |  |  |  | 147,409 |  |  |  | 153,480 |
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 |  |  | 97,342 |  |  |  |  |  | 2,748 |  |  |  | 464,058 |
Claim and loss expense payments, net of subrogation and reinsurance |  |  | (442 | ) |  |  |  |  | (58 | ) |  |  | (20,765 | )
Establishment of RMBS subrogation recoveries, net of reinsurance |  |  | (315 | ) |  |  |  |  | (159 | ) |  |  | — |
Total current year |  |  | 96,585 |  |  |  |  |  | 2,531 |  |  |  | 443,293 |
Prior years: |  |  |  |  |  |  |  |  |  |  |  |  |  |
Change in previously established loss and loss expense reserves, gross of RMBS subrogation and net of reinsurance |  |  | (514,728 | ) |  |  |  |  | (52,642 | ) |  |  | 72,700 |
Claim and loss expense recoveries (payments), net of subrogation and reinsurance |  |  | 59,184 |  |  |  |  |  | 20,902 |  |  |  | (944,860 | )
Change in previously established RMBS subrogation recoveries, net of reinsurance |  |  | 272,319 |  |  |  |  |  | (12,596 | ) |  |  | 172,818 |
Total prior years |  |  | (183,225 | ) |  |  |  |  | (44,336 | ) |  |  | (699,342 | )
Net change in loss and loss expense reserves |  |  | (86,640 | ) |  |  |  |  | (41,805 | ) |  |  | (256,049 | )
Net consolidation of certain VIE’s |  |  | — |  |  |  |  |  | (498,409 | ) |  |  | — |
Ending loss and loss expense reserves, net of subrogation recoverable and reinsurance |  | $ | 5,347,877 |  |  |  |  | $ | 5,434,517 |  |  | $ | 5,974,731 |
Add reinsurance on loss and loss expense reserves |  |  | 122,357 |  |  |  |  |  | 138,155 |  |  |  | 147,409 |
Ending loss and loss expense reserves, net of subrogation recoverable, gross of reinsurance |  | $ | 5,470,234 |  |  |  |  | $ | 5,572,672 |  |  | $ | 6,122,140 |
For the eight months ended December 31, 2013, the positive development in loss reserves established in prior years was primarily due to improved performance of the student loan and RMBS portfolios. For the year ended December 31, 2012, the adverse development in loss reserves established in prior years was primarily due to projected deterioration of collateral supporting structured finance policies, including RMBS and student loan exposures, which resulted in greater expected ultimate losses and lower expected subrogation recoveries related to representation and warranty breaches on insured RMBS securitizations. The net change in net loss and loss expense reserves are included in losses and loss expenses in the Consolidated Statement of Total Comprehensive Income. Loss expense reserves are established for surveillance, legal and other mitigation expenses associated with adversely classified credits. Total net loss expense reserves, included in the above table, were $110,551 and $136,790 at December 31, 2013 and December 31, 2012, respectively. For Successor Ambac, reinsurance recoveries of losses included in losses and loss expenses in the Consolidated Statements of Total Comprehensive Income were ($14,106) for the eight months ended December 31, 2013. For Predecessor Ambac, reinsurance recoveries of losses included in losses and loss expenses in the Consolidated Statements of Total Comprehensive Income were $3,889 for the four months ended April 30, 2013, and $6,996 for the year ended December 31, 2012, respectively. The tables below summarize information related to policies currently included in Ambac’s loss reserves or subrogation recoverable at December 31, 2013 and December 31, 2012. The weighted average risk-free rate used to discount loss reserves at December 31, 2013 and December 31, 2012 was 3.2% and 1.6%, respectively. Successor Ambac – Surveillance Categories (at December 31, 2013)
|  | I/SL |  |  | IA |  |  | II |  |  | III |  |  | IV |  |  | V |  |  | Total |
Number of policies |  |  | 18 |  |  |  | 23 |  |  |  | 52 |  |  |  | 76 |  |  |  | 169 |  |  |  | 1 |  |  |  | 339 |
Remaining weighted-average contract period (in years) |  |  | 13 |  |  |  | 19 |  |  |  | 17 |  |  |  | 19 |  |  |  | 11 |  |  |  | 6 |  |  |  | 14 |
Gross insured contractual payments outstanding: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Principal |  | $ | 834,708 |  |  | $ | 1,125,284 |  |  | $ | 3,464,420 |  |  | $ | 5,597,387 |  |  | $ | 11,184,943 |  |  | $ | 47 |  |  | $ | 22,206,789 |
Interest |  |  | 506,903 |  |  |  | 871,751 |  |  |  | 2,130,271 |  |  |  | 2,331,222 |  |  |  | 2,556,968 |  |  |  | 18 |  |  |  | 8,397,133 |
Total |  | $ | 1,341,611 |  |  | $ | 1,997,035 |  |  | $ | 5,594,691 |  |  | $ | 7,928,609 |  |  | $ | 13,741,911 |  |  | $ | 65 |  |  | $ | 30,603,922 |
Gross undiscounted claim liability |  | $ | 7,447 |  |  | $ | 54,398 |  |  | $ | 221,321 |  |  | $ | 3,029,891 |  |  | $ | 7,963,137 |  |  | $ | 65 |  |  | $ | 11,276,259 |
Discount, gross claim liability |  |  | (1,225 | ) |  |  | (6,726 | ) |  |  | (32,630 | ) |  |  | (1,299,032 | ) |  |  | (1,112,829 | ) |  |  | (6 | ) |  |  | (2,452,448 | )
Gross claim liability before all subrogation and before reinsurance |  | $ | 6,222 |  |  | $ | 47,672 |  |  | $ | 188,691 |  |  | $ | 1,730,859 |  |  | $ | 6,850,308 |  |  | $ | 59 |  |  | $ | 8,823,811 |
Less: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Gross RMBS subrogation(1) |  |  | — |  |  |  | — |  |  |  | — |  |  |  | (4,516 | ) |  |  | (2,211,333 | ) |  |  | — |  |  |  | (2,215,849 | )
Discount, RMBS subrogation |  |  | — |  |  |  | — |  |  |  | — |  |  |  | 15 |  |  |  | 9,236 |  |  |  | — |  |  |  | 9,251 |
Discounted RMBS subrogation, before reinsurance |  |  | — |  |  |  | — |  |  |  | — |  |  |  | (4,501 | ) |  |  | (2,202,097 | ) |  |  | — |  |  |  | (2,206,598 | )
Less: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Gross other subrogation(2) |  |  | — |  |  |  | — |  |  |  | (20,367 | ) |  |  | (116,145 | ) |  |  | (710,187 | ) |  |  | — |  |  |  | (846,699 | )
Discount, other subrogation |  |  | — |  |  |  | — |  |  |  | 9,522 |  |  |  | 36,125 |  |  |  | 45,666 |  |  |  | — |  |  |  | 91,313 |
Discounted other subrogation, before reinsurance |  |  | — |  |  |  | — |  |  |  | (10,845 | ) |  |  | (80,020 | ) |  |  | (664,521 | ) |  |  | — |  |  |  | (755,386 | )
Gross claim liability, net of all subrogation and discounts, before reinsurance |  | $ | 6,222 |  |  | $ | 47,672 |  |  | $ | 177,846 |  |  | $ | 1,646,338 |  |  | $ | 3,983,690 |  |  | $ | 59 |  |  | $ | 5,861,827 |
Less: Unearned premium reserves |  |  | (4,060 | ) |  |  | (22,901 | ) |  |  | (95,550 | ) |  |  | (280,245 | ) |  |  | (100,228 | ) |  |  | — |  |  |  | (502,984 | )
Plus: Loss adjustment expenses reserves |  |  | — |  |  |  | 11 |  |  |  | 2,257 |  |  |  | 1,658 |  |  |  | 107,465 |  |  |  | — |  |  |  | 111,391 |
Claim liability reported on Balance Sheet, before reinsurance(3)(4) |  | $ | 2,162 |  |  | $ | 24,782 |  |  | $ | 84,553 |  |  | $ | 1,367,751 |  |  | $ | 3,990,927 |  |  | $ | 59 |  |  | $ | 5,470,234 |
Reinsurance recoverable reported on Balance Sheet |  | $ | 146 |  |  | $ | 2,271 |  |  | $ | 2,351 |  |  | $ | 120,871 |  |  | $ | 10,072 |  |  | $ | — |  |  | $ | 135,711 |
(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 $1,797,805) |  | $ | 5,968,712 |
Subrogation recoverable (includes gross potential recovery of $1,164,179) |  |  | (498,478 | )
|  | $ | 5,470,234 |
(4) | Claim liability reported on the Balance Sheet, before reinsurance includes unpaid claims of $3,904,315.
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)(4) |  | $ | 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 |
(4) | Claim liability reported on the Balance Sheet, before reinsurance includes unpaid claims of $3,388,133.
Losses and loss expense reserves ceded to reinsurers at December 31, 2013 and December 31, 2012 were $122,357 and $147,409, respectively. Amounts were included in reinsurance recoverable on paid and unpaid losses on the Consolidated Balance Sheets. Ambac records estimated subrogation recoveries for breaches of representations and warranties by sponsors of certain RMBS transactions utilizing Adverse and Random Sample approaches. Ambac has recorded RMBS subrogation recoveries of $2,206,598 ($2,183,652 net of reinsurance) and $2,523,225 ($2,497,233 net of reinsurance) at December 31, 2013 and December 31, 2012, respectively. The balance of RMBS subrogation recoveries and the related claim liabilities, by estimation approach, at December 31, 2013 and December 31, 2012, are as follows:
|  | Successor Ambac – December 31, 2013 |
Approach |  | Count |  |  | Gross loss reserve before subrogation recoveries(1) |  |  | Subrogation recoveries(2) (3) |  |  | Gross loss reserve after subrogation recoveries |
Adverse samples |  |  | 27 |  |  | $ | 2,084,911 |  |  | $ | (1,252,773 | ) |  | $ | 832,138 |
Random samples |  |  | 21 |  |  |  | 1,078,861 |  |  |  | (953,825 | ) |  |  | 125,036 |
Totals |  |  | 48 |  |  | $ | 3,163,772 |  |  | $ | (2,206,598 | ) |  | $ | 957,174 |
|  | Predecessor Ambac – December 31, 2012 |
Approach |  | Count |  |  | Gross loss reserve before subrogation recoveries(1) |  |  | Subrogation recoveries(2) (3) |  |  | 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) | Includes unpaid claims on policies allocated to the Segregated Account of $3,904,315 and $3,388,133 at December 31, 2013 and 2012, respectively.
(2) | 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 unpaid claims in addition to 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 the sum of unpaid claims and the expected future claims, the net cash outflow for these policies is recorded as a “Losses and loss expense reserve” liability.
(3) | 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.
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 December 31, 2013: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Additional transactions reviewed |  |  | 2,451 |  |  |  | 1 |  |  |  | — |  |  |  | n/a |  |  |  | 2,451 |
Additional adverse sample loans reviewed |  |  | — |  |  |  | n/a |  |  |  | — |  |  |  | n/a |  |  |  | — |
Adverse loans repurchased by the sponsor |  |  | — |  |  |  | n/a |  |  |  | — |  |  |  | — |  |  |  | — |
Impact of sponsor actions(1) |  |  | — |  |  |  | n/a |  |  |  | 98 |  |  |  | n/a |  |  |  | 98 |
All other changes(2) |  |  | (52,878 | ) |  |  | n/a |  |  |  | (225,991 | ) |  |  | (2 | ) |  |  | (278,869 | )
Discounted RMBS subrogation (gross of reinsurance) at December 31, 2013 |  | $ | 953,825 |  |  |  | 21 |  |  | $ | 1,252,773 |  |  |  | 27 |  |  | $ | 2,206,598 |
Predecessor Ambac |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Discounted RMBS subrogation (gross of reinsurance) at January 1, 2013 |  | $ | 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 |  |  |  | — |
Adverse loans repurchased by the sponsor |  |  | — |  |  |  | n/a |  |  |  | — |  |  |  | — |  |  |  | — |
Impact of sponsor actions(1) |  |  | (54,195 | ) |  |  | (2 | ) |  |  | — |  |  |  | n/a |  |  |  | (54,195 | )
All other changes(2) |  |  | (21,961 | ) |  |  | n/a |  |  |  | 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 |
|  | Random sample |  |  | Number of transactions |  |  | Adverse sample |  |  | Number of transactions |  |  | Total |
Predecessor Ambac: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Rollforward: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Discounted RMBS subrogation (gross of reinsurance) at January 1, 2012 |  | $ | 1,262,794 |  |  |  | 16 |  |  | $ | 1,457,472 |  |  |  | 30 |  |  | $ | 2,720,266 |
Changes recognized in 2012: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Additional transactions reviewed |  |  | 54,467 |  |  |  | 6 |  |  |  | (35,486 | ) |  |  | (1 | ) |  |  | 18,981 |
Additional adverse sample loans reviewed |  |  | — |  |  |  | n/a |  |  |  | — |  |  |  | — |  |  |  | — |
Adverse loans repurchased by the sponsor |  |  | — |  |  |  | n/a |  |  |  | 35 |  |  |  | — |  |  |  | 35 |
Impact of sponsor actions(1) |  |  | — |  |  |  | n/a |  |  |  | — |  |  |  | — |  |  |  | — |
All other changes(2) |  |  | (236,853 | ) |  |  | n/a |  |  |  | 20,796 |  |  |  | (2 | ) |  |  | (216,057 | )
Discounted RMBS subrogation (gross of reinsurance) at December 31, 2012 |  | $ | 1,080,408 |  |  |  | 22 |  |  | $ | 1,442,817 |  |  |  | 27 |  |  | $ | 2,523,225 |
(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 eight months ended December 31, 2013, Successor Ambac removed 2 transactions from the Adverse Sample subrogation population; however, the impacts on RMBS subrogation disclosed in the Adverse Sample column relate to that, as well as other transactions. For the four months ended April 30, 2013, Predecessor Ambac added 2 transactions to the Adverse Sample population; however, the impacts on RMBS subrogation disclosed relate to those, as well as other transactions. For the year ended December 31, 2012, two transactions were removed from the Adverse Sample subrogation population; however, the impacts on RMBS subrogation disclosed in the Adverse Sample column relate to multiple transactions.
Assumed Reinsurance: Assumed par outstanding was $248,225 at December 31, 2013. On March 24, 2010, all assumed reinsurance agreements with third parties were allocated to the Segregated Account, which will not allow for cancellations without the approval of the Rehabilitator. Ceded Reinsurance: Ambac Assurance has reinsurance in place pursuant to surplus share treaty and facultative reinsurance agreements. The reinsurance of risk does not relieve Ambac Assurance of its original liability to its policyholders. In the event that any of Ambac Assurance’s reinsurers are unable to meet their obligations under reinsurance contracts, Ambac Assurance would, nonetheless, be liable to its policyholders for the full amount of its policy. Ambac Assurance’s reinsurance assets, including deferred ceded premiums and reinsurance recoverables on losses amounted to $266,278 at December 31, 2013. Credit exposure existed at December 31, 2013 with respect to reinsurance recoverables to the extent that any reinsurer may not be able to reimburse Ambac Assurance under the terms of these reinsurance arrangements. At December 31, 2013, there were ceded reinsurance balances payable of $85,424 offsetting this credit exposure. To minimize its credit exposure to losses from reinsurer insolvencies, Ambac Assurance (i) is entitled to receive collateral from its reinsurance counterparties in certain reinsurance contracts; and (ii) has certain cancellation rights that can be exercised by Ambac Assurance in the event of rating agency downgrades of a reinsurer (among other events and circumstances). Ambac Assurance held letters of credit and collateral amounting to approximately $153,129 from its reinsurers at December 31, 2013. As of December 31, 2013, the aggregate amount of insured par ceded by Ambac Assurance to reinsurers under reinsurance agreements was $18,598,367 with the largest reinsurer accounting for $16,617,069 or 8.4% of gross par outstanding at December 31, 2013. The following table represents the percentage ceded to reinsurers and reinsurance recoverable at December 31, 2013 and its rating levels as of February 24, 2014:
Reinsurers |  | Moody’s Rating |  |  | Moody’s Outlook |  |  | Percentage ceded Par |  |  | Net unsecured reinsurance recoverable(1) |
Assured Guaranty Re Ltd(2) |  |  | Baa1 |  |  |  | Stable |  |  |  | 89.35 | % |  | $ | 58,066 |
Sompo Japan Insurance Inc |  |  | A1 |  |  |  | Stable |  |  |  | 6.24 |  |  |  | — |
Assured Guaranty Corporation(2) |  |  | A3 |  |  |  | Stable |  |  |  | 4.41 |  |  |  | 5,187 |
Total |  |  |  |  |  |  |  |  |  |  | 100.0 | % |  | $ | 63,253 |
(1) | Represents reinsurance recoverables on paid and unpaid losses and deferred ceded premiums, net of ceded premium payables due to reinsurers, letters of credit, and collateral posted for the benefit of the Company.
(2) | In January 2013, Moody’s downgraded Assured Guaranty Corporation to A3 from Aa3 and Assured Guaranty Re Ltd to Baa1 from A1. The downgrade provides Ambac Assurance with termination rights on certain reinsurance contracts and required an increase to the collateral provided by Assured Guaranty Re Ltd.
Insurance intangible asset: The insurance intangible amortization expense for the eight months ended December 31, 2013 was $99,658, and is included in insurance intangible amortization on the Consolidated Statements of Total Comprehensive Income. As of December 31, 2013, the insurance intangible asset of $1,597,965 is net of accumulated amortization of $100,767. The estimated future amortization expense for the insurance intangible asset is as follows:
2014 |  | $ | 132,532 |
2015 |  |  | 117,116 |
2016 |  |  | 107,308 |
2017 |  |  | 99,460 |
2018 |  |  | 93,185 |
Thereafter |  |  | 1,048,364 |

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