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Financial Guarantee Insurance Contracts (Tables)

12 Months Ended

Dec. 31, 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 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

Effect of Reinsurance on Premiums Written and Earned

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

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 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.

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 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

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 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.

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 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.

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 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.

Summary of Percentage Ceded to Reinsurers and Reinsurance Recoverable and Rating Levels

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 [Member]

Estimated Future Amortization Expense

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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Tabular disclosure of the amount of amortization expense expected to be recorded in succeeding fiscal years for finite-lived intangible assets.

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-Publisher FASB

-Name Accounting Standards Codification

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-SubTopic 30

-Section 50

-Paragraph 2

-Subparagraph (a)

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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

Reference 1: http://www.xbrl.org/2003/role/presentationRef

-Publisher FASB

-Name Accounting Standards Codification

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-URI http://asc.fasb.org/extlink&oid=6933462&loc=SL5751140-161288



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X

- 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

Reference 1: http://www.xbrl.org/2003/role/presentationRef

-Publisher FASB

-Name Accounting Standards Codification

-Topic 944

-SubTopic 40

-Section 50

-Paragraph 3

-Subparagraph (b)

-URI http://asc.fasb.org/extlink&oid=6482485&loc=d3e14764-158437

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