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Financial Guarantee Insurance Contracts | 12 Months Ended
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Dec. 31, 2014
Insurance [Abstract] |
Financial Guarantee Insurance Contracts | FINANCIAL GUARANTEE INSURANCE 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 |  |  | Period from January 1 |  |
| Year Ended |  | through |  |  | through |  | Year Ended
| December 31, 2014 |  | December 31, 2013 |  |  | April 30, 2013 |  | December 31, 2012
Beginning premium receivable | $ | 1,453,021 |  |  | $ | 1,531,631 |  |  |  | $ | 1,620,621 |  |  | $ | 2,028,479 |
Premium receipts | (126,497 | ) |  | (82,071 | ) |  |  | (48,296 | ) |  | (155,626 | )
Adjustments for changes in expected and contractual cash flows | (322,443 | ) |  | (91,241 | ) |  |  | (28,237 | ) |  | (299,906 | )
Accretion of premium receivable discount | 36,651 |  |  | 26,184 |  |  |  | 14,740 |  |  | 50,407 |
Deconsolidation of certain VIEs | — |  |  | 45,883 |  |  |  | — |  |  | — |
Uncollectable premiums | (2,518 | ) |  | (15,262 | ) |  |  | (634 | ) |  | (28,031 | )
Other adjustments (including foreign exchange) | (37,607 | ) |  | 37,897 |  |  |  | (26,563 | ) |  | 25,298 |
Ending premium receivable | $ | 1,000,607 |  |  | $ | 1,453,021 |  |  |  | $ | 1,531,631 |  |  | $ | 1,620,621 |
Generally, the priority for the payment of financial guarantee premiums to Ambac, as required by the bond indentures of the insured obligations, is very senior in the waterfall. Additionally, in connection with the allocation of certain liabilities to the Segregated Account, trustees are required under the Segregated Account Rehabilitation Plan and related court orders to continue to pay installment premiums, notwithstanding the Segregated Account Rehabilitation Proceedings. In evaluating the credit quality of the premium receivables, management evaluates the transaction waterfall structures and the internal ratings of the transactions underlying the premium receivables. As of December 31, 2014 and 2013, approximately 32% and 44% of the premium receivables related to transactions with non-investment grade internal ratings, comprised mainly of non-investment grade RMBS, student loan transactions and a certain asset-backed transaction, which comprised 7%, 8%, and 0% of the total premium receivables at December 31, 2014 and 7%, 7% and 17% of the total premium receivables at December 31, 2013, respectively. At December 31, 2014 and 2013, $17,780 and $15,262 respectively, of premium receivables were deemed uncollectable. Past due premiums on policies insuring non-investment grade obligations amounted to less than $500 at December 31, 2014. The effect of reinsurance on premiums written and earned was as follows:
| Successor Ambac
| Year Ended |  |  | Period from May 1 through
| December 31, 2014 |  |  | December 31, 2013
| Written |  | Earned |  |  | Written |  | Earned
Direct | $ | (288,310 | ) |  | $ | 261,634 |  |  |  | $ | (80,309 | ) |  | $ | 226,326 |
Assumed | — |  |  | 137 |  |  |  | — |  |  | 65 |
Ceded | (6,842 | ) |  | 15,411 |  |  |  | (7,810 | ) |  | 12,873 |
Net premiums | $ | (281,468 | ) |  | $ | 246,360 |  |  |  | $ | (72,499 | ) |  | $ | 213,518 |
| Predecessor Ambac
| Period from January 1 through |  |  | Year Ended
| April 30, 2013 |  |  | December 31, 2012
| Written |  | Earned |  |  | Written |  | Earned
Direct | $ | (14,125 | ) |  | $ | 138,468 |  |  |  | $ | (277,508 | ) |  | $ | 434,488 |
Assumed | — |  |  | 32 |  |  |  | — |  |  | 155 |
Ceded | (1,098 | ) |  | 8,500 |  |  |  | (23,371 | ) |  | 20,039 |
Net premiums | $ | (13,027 | ) |  | $ | 130,000 |  |  |  | $ | (254,137 | ) |  | $ | 414,604 |
Successor Ambac’s accelerated premium revenue for retired obligations for the year ended December 31, 2014 and the eight months ended December 31, 2013 were $29,964 and $56,541, respectively. Predecessor Ambac’s accelerated premium revenue for retired obligations for the four months ended April 30, 2013 and for the year ended December 31, 2012 were $36,433 and $127,628, respectively. The table below summarizes the future gross undiscounted premiums to be collected and future premiums earned, net of reinsurance at December 31, 2014:
| Future premiums to be collected (1) |  | Future premiums to be earned net of reinsurance (1)
Three months ended: |  |  |
March 31, 2015 | $ | 25,413 |  |  | $ | 38,161 |
June 30, 2015 | 22,681 |  |  | 37,272 |
September 30, 2015 | 23,415 |  |  | 35,279 |
December 31, 2015 | 22,739 |  |  | 33,840 |
Twelve months ended: |  |  |
December 31, 2016 | 87,454 |  |  | 125,754 |
December 31, 2017 | 81,156 |  |  | 113,937 |
December 31, 2018 | 76,245 |  |  | 105,115 |
December 31, 2019 | 72,404 |  |  | 97,864 |
Five years ended: |  |  |
December 31, 2024 | 320,870 |  |  | 401,094 |
December 31, 2029 | 267,513 |  |  | 282,294 |
December 31, 2034 | 194,711 |  |  | 175,689 |
December 31, 2039 | 76,970 |  |  | 69,030 |
December 31, 2044 | 24,577 |  |  | 23,197 |
December 31, 2049 | 9,570 |  |  | 9,797 |
December 31, 2054 | 1,244 |  |  | 2,184 |
December 31, 2059 | 5 |  |  | 2 |
Total | $ | 1,306,967 |  |  | $ | 1,550,509 |
(1) | Future premiums to be collected is undiscounted and 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 premium 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 Note 2. Basis of Presentation and Significant Accounting Principles, results in a different premium receivable balance than if expected lives were considered. If installment paying policies are retired or prepay 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. Future premiums to be earned also considers the use of contractual lives for many bond types which do not have homogeneous pools of underlying collateral, which results in higher unearned premium than if expected lives were considered. If those bonds types are retired early, premium earnings may be negative in the period of call or refinancing.
Loss and Loss Expense Reserves: A loss reserve is recorded on the balance sheet on a policy-by-policy basis as further described in Note 2. Basis of Presentation and Significant Accounting Policies. Below are the components of the Loss and loss expense reserves liability and the Subrogation recoverable asset at December 31, 2014 and 2013:
| Unpaid Claims |  | Present Value of Expected Net Cash Flows |  |  |  |
Balance Sheet Line Item | Claims |  | Accrued Interest |  | Claims and Loss Expenses |  | Recoveries |  | Unearned Premium Revenue |  | Gross Loss and Loss Expense Reserves
December 31, 2014: |  |  |  |  |  |  |  |  |  |  |
Loss and loss expense reserves | $ | 2,172,041 |  |  | $ | 234,802 |  |  | $ | 3,792,133 |  |  | $ | (1,205,621 | ) |  | $ | (241,348 | ) |  | $ | 4,752,007 |
Subrogation recoverable | 772,948 |  |  | 94,425 |  |  | 197,751 |  |  | (2,018,398 | ) |  | — |  |  | (953,274 | )
Totals | $ | 2,944,989 |  |  | $ | 329,227 |  |  | $ | 3,989,884 |  |  | $ | (3,224,019 | ) |  | $ | (241,348 | ) |  | $ | 3,798,733 |
December 31, 2013: |  |  |  |  |  |  |  |  |  |  |
Loss and loss expense reserves | $ | 3,374,224 |  |  | $ | — |  |  | $ | 4,895,277 |  |  | $ | (1,797,805 | ) |  | $ | (502,984 | ) |  | $ | 5,968,712 |
Subrogation recoverable | 530,091 |  |  | — |  |  | 135,610 |  |  | (1,164,179 | ) |  | — |  |  | (498,478 | )
Totals | $ | 3,904,315 |  |  | $ | — |  |  | $ | 5,030,887 |  |  | $ | (2,961,984 | ) |  | $ | (502,984 | ) |  | $ | 5,470,234 |
Below is the loss and loss expense reserve roll-forward, net of subrogation recoverable and reinsurance, for the affected periods:
| Successor Ambac |  |  | Predecessor Ambac
|  |  | Period from May 1 |  |  | Period from January 1 |  |
| Year Ended |  | through |  |  | through |  | Year Ended
| December 31, 2014 |  | December 31, 2013 |  |  | April 30, 2013 |  | December 31, 2012
Beginning gross loss and loss expense reserves | $ | 5,470,234 |  |  | $ | 5,572,672 |  |  |  | $ | 6,122,140 |  |  | $ | 6,384,260 |
Less reinsurance on loss and loss expense reserves | 122,357 |  |  | 138,155 |  |  |  | $ | 147,409 |  |  | $ | 153,480 |
Beginning balance of net loss and loss expense reserves | $ | 5,347,877 |  |  | $ | 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 | 309 |  |  | 97,342 |  |  |  | 2,748 |  |  | 464,058 |
Claim and loss expense payments, net of subrogation and reinsurance | (17 | ) |  | (442 | ) |  |  | (58 | ) |  | (20,765 | )
Establishment of RMBS subrogation recoveries, net of reinsurance | — |  |  | (315 | ) |  |  | (159 | ) |  | — |
Total current year | 292 |  |  | 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 | (269,606 | ) |  | (514,728 | ) |  |  | (52,642 | ) |  | 72,700 |
Claim and loss expense (payments) recoveries, net of subrogation and reinsurance | (1,067,321 | ) |  | 59,184 |  |  |  | 20,902 |  |  | (944,860 | )
(Increase) decrease in previously established RMBS subrogation recoveries, net of reinsurance | (312,864 | ) |  | 272,319 |  |  |  | (12,596 | ) |  | 172,818 |
Total prior years | (1,649,791 | ) |  | (183,225 | ) |  |  | (44,336 | ) |  | (699,342 | )
Net change in net loss and loss expense reserves | (1,649,499 | ) |  | (86,640 | ) |  |  | (41,805 | ) |  | (256,049 | )
Net consolidation of certain VIEs | — |  |  | — |  |  |  | (498,409 | ) |  | — |
Ending net loss and loss expense reserves | $ | 3,698,378 |  |  | $ | 5,347,877 |  |  |  | $ | 5,434,517 |  |  | $ | 5,974,731 |
Add reinsurance on loss and loss expense reserves (1) | 100,355 |  |  | 122,357 |  |  |  | 138,155 |  |  | 147,409 |
Ending gross loss and loss expense reserves | $ | 3,798,733 |  |  | $ | 5,470,234 |  |  |  | $ | 5,572,672 |  |  | $ | 6,122,140 |
(1) | Reinsurance recoverable reported on the Balance Sheet also includes reinsurance recoverables of previously presented loss and loss expenses of $(517), $(1,108), $1,879, and, $675 as of December 31, 2014, December 31, 2013, April 30, 2013 and December 31, 2012, respectively.
The positive development in loss and loss expense reserves for Successor Ambac established in prior years for the year ended December 31, 2014 was primarily due to improved performance in all sectors, including RMBS, Student Loans, international, municipal and other structured finance, partially offset by the addition of accrued interest on Deferred Amounts pursuant to the amended Segregated Account Rehabilitation Plan. The positive development in loss and loss expense reserves for Successor Ambac established in prior years for the eight months ended December 31, 2013 was primarily due to improved performance of the Student Loan and RMBS portfolios. The positive development in loss and loss expense reserves for Predecessor Ambac established in prior years for the four months ended April 30, 2013 was primarily due to improved performance of the RMBS portfolio offset by deterioration in certain Public Finance and Ambac UK credits. 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. For Successor Ambac, reinsurance recoveries of losses included in losses and loss expenses in the Consolidated Statements of Total Comprehensive Income (Loss) were an expense of $21,164 and $14,106 for the year ended December 31, 2014 and the eight months ended December 31, 2013, respectively. For Predecessor Ambac, reinsurance recoveries of losses included in losses and loss expenses in the Consolidated Statements of Total Comprehensive Income (Loss) were a benefit of $3,889 for the four months ended April 30, 2013 and a benefit of $6,996 for the year ended December 31, 2012. The tables below summarize information related to policies currently included in Ambac’s loss and loss expense reserves or subrogation recoverable at December 31, 2014 and 2013. Net par exposures include capital appreciation bonds which are reported at the par amount at the time of issuance of the insurance policy. The weighted average risk-free rate used to discount loss reserves at December 31, 2014 and 2013 was 2.3% and 3.2%, respectively.
Surveillance Categories as of December 31, 2014
| I/SL |  | IA |  | II |  | III |  | IV |  | V |  | Total
Number of policies | 36 |  |  | 26 |  |  | 33 |  |  | 69 |  |  | 160 |  |  | 1 |  |  | 325 |
Remaining weighted-average contract period (in years) | 8 |  |  | 12 |  |  | 15 |  |  | 21 |  |  | 12 |  |  | 6 |  |  | 16 |
Gross insured contractual payments outstanding: |  |  |  |  |  |  |  |  |  |  |  |  |
Principal | $ | 1,026,513 |  |  | $ | 519,291 |  |  | $ | 3,091,744 |  |  | $ | 3,792,559 |  |  | $ | 9,892,760 |  |  | $ | 47 |  |  | $ | 18,322,914 |
Interest | 418,746 |  |  | 212,296 |  |  | 1,878,770 |  |  | 2,765,537 |  |  | 1,979,627 |  |  | 19 |  |  | 7,254,995 |
Total | $ | 1,445,259 |  |  | $ | 731,587 |  |  | $ | 4,970,514 |  |  | $ | 6,558,096 |  |  | $ | 11,872,387 |  |  | $ | 66 |  |  | $ | 25,577,909 |
Gross undiscounted claim liability (1) | $ | 16,360 |  |  | $ | 11,525 |  |  | $ | 155,488 |  |  | $ | 2,040,402 |  |  | $ | 6,456,139 |  |  | $ | 60 |  |  | $ | 8,679,974 |
Discount, gross claim liability | (1,147 | ) |  | (937 | ) |  | (16,438 | ) |  | (716,812 | ) |  | (774,611 | ) |  | (3 | ) |  | (1,509,948 | )
Gross claim liability before all subrogation and before reinsurance | $ | 15,213 |  |  | $ | 10,588 |  |  | $ | 139,050 |  |  | $ | 1,323,590 |  |  | $ | 5,681,528 |  |  | $ | 57 |  |  | $ | 7,170,026 |
Less: |  |  |  |  |  |  |  |  |  |  |  |  |
Gross RMBS subrogation (2) | — |  |  | — |  |  | — |  |  | — |  |  | (2,541,219 | ) |  | — |  |  | (2,541,219 | )
Discount, RMBS subrogation | — |  |  | — |  |  | — |  |  | — |  |  | 17,679 |  |  | — |  |  | 17,679 |
Discounted RMBS subrogation, before reinsurance | — |  |  | — |  |  | — |  |  | — |  |  | (2,523,540 | ) |  | — |  |  | (2,523,540 | )
Less: |  |  |  |  |  |  |  |  |  |  |  |  |
Gross other subrogation (3) | — |  |  | — |  |  | (18,034 | ) |  | (127,143 | ) |  | (647,110 | ) |  | — |  |  | (792,287 | )
Discount, other subrogation | — |  |  | — |  |  | 6,069 |  |  | 36,779 |  |  | 48,960 |  |  | — |  |  | 91,808 |
Discounted other subrogation, before reinsurance | — |  |  | — |  |  | (11,965 | ) |  | (90,364 | ) |  | (598,150 | ) |  | — |  |  | (700,479 | )
Gross claim liability, net of all subrogation and discounts, before reinsurance | $ | 15,213 |  |  | $ | 10,588 |  |  | $ | 127,085 |  |  | $ | 1,233,226 |  |  | $ | 2,559,838 |  |  | $ | 57 |  |  | $ | 3,946,007 |
Less: Unearned premium revenue | (10,945 | ) |  | (3,432 | ) |  | (73,749 | ) |  | (88,332 | ) |  | (64,890 | ) |  | — |  |  | (241,348 | )
Plus: Loss expense reserves | 3 |  |  | 1,303 |  |  | 1,968 |  |  | 6,470 |  |  | 84,330 |  |  | — |  |  | 94,074 |
Gross loss and loss expense reserves | $ | 4,271 |  |  | $ | 8,459 |  |  | $ | 55,304 |  |  | $ | 1,151,364 |  |  | $ | 2,579,278 |  |  | $ | 57 |  |  | $ | 3,798,733 |
Reinsurance recoverable reported on Balance Sheet (4) | $ | 73 |  |  | $ | 890 |  |  | $ | 1,355 |  |  | $ | 110,957 |  |  | $ | (13,437 | ) |  | $ | — |  |  | $ | 99,838 |
(1) | Gross undiscounted claim liability includes unpaid claims, including accrued interest on Deferred Amounts, on policies allocated to the Segregated Account and Ambac's estimate of expected future claims.
(2) | RMBS subrogation represents Ambac’s probability-weighted estimate of subrogation recoveries from RMBS transaction sponsors for representation and warranty ("R&W") breaches.
(3) | Other subrogation primarily represents subrogation-related to excess spread or other contractual cash flows on structured finance transactions including RMBS.
(4) | Reinsurance recoverable reported on Balance Sheet includes reinsurance recoverables of $100,355 related to future loss and loss expenses and $(517) related to previously presented loss and loss expenses.
Surveillance Categories as of 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 (1) | $ | 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 (2) | — |  |  | — |  |  | — |  |  | (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 (3) | — |  |  | — |  |  | (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 revenue | (4,060 | ) |  | (22,901 | ) |  | (95,550 | ) |  | (280,245 | ) |  | (100,228 | ) |  | — |  |  | (502,984 | )
Plus: Loss expense reserves | — |  |  | 11 |  |  | 2,257 |  |  | 1,658 |  |  | 107,465 |  |  | — |  |  | 111,391 |
Gross loss and loss expense reserves | $ | 2,162 |  |  | $ | 24,782 |  |  | $ | 84,553 |  |  | $ | 1,367,751 |  |  | $ | 3,990,927 |  |  | $ | 59 |  |  | $ | 5,470,234 |
Reinsurance recoverable reported on Balance Sheet (4) | $ | 146 |  |  | $ | 2,271 |  |  | $ | 2,273 |  |  | $ | 119,795 |  |  | $ | (3,236 | ) |  | $ | — |  |  | $ | 121,249 |
(1) | Gross undiscounted claim liability includes unpaid claims, including accrued interest on Deferred Amounts, on policies allocated to the Segregated Account and Ambac's estimate of expected future claims.
(2) | RMBS subrogation represents Ambac’s probability-weighted estimate of subrogation recoveries from RMBS transaction sponsors for R&W breaches.
(3) | Other subrogation primarily represents subrogation related to excess spread or other contractual cash flows on structure finance transactions, including RMBS.
(4) | Reinsurance recoverable reported on Balance Sheet includes reinsurance recoverables of $122,357 related to future loss and loss expenses and $(1,108) related to previously presented loss and loss expenses.
Ambac records estimated subrogation recoveries for breaches of representations and warranties (R&W) by sponsors of certain RMBS transactions. Prior to the June 30, 2014 reporting period, Ambac utilized the Adverse and Random Sample approaches to estimate R&W subrogation recoveries for certain RMBS transactions. For a discussion of these subrogation recovery approaches, see Note 2 - Basis Of Presentation And Significant Accounting Policies. Beginning with the June 30, 2014 reporting period, as a result of gaining further access to loan files, the Random Sample approach has been utilized for all transactions which were previously evaluated using the Adverse Sample approach. Ambac has recorded RMBS subrogation recoveries of $2,523,540, ($2,496,515 net of reinsurance) and $2,206,598, ($2,183,652 net of reinsurance) at December 31, 2014 and 2013, respectively. The balance of RMBS subrogation recoveries and the related claim liabilities, by estimation approach, at December 31, 2014 and 2013, are as follows:
Approach | Gross loss reserves before subrogation recoveries (1) |  | Subrogation recoveries (2)(3) |  | Gross loss reserves after subrogation recoveries
December 31, 2014: |  |  |  |  |
Random samples (4) | $ | 1,897,426 |  |  | $ | (2,523,540 | ) |  | $ | (626,114 | )
Totals | $ | 1,897,426 |  |  | (2,523,540 | ) |  | $ | (626,114 | )
December 31, 2013: |  |  |  |  |
Adverse samples | $ | 2,084,911 |  |  | (1,252,773 | ) |  | $ | 832,138 |
Random samples (4) | 1,078,861 |  |  | (953,825 | ) |  | 125,036 |
Totals | $ | 3,163,772 |  |  | (2,206,598 | ) |  | $ | 957,174 |
(1) | Includes unpaid RMBS claims, including accrued interest on Deferred Amounts, on policies allocated to the Segregated Account.
(2) | The amount of recorded subrogation recoveries related to each securitization is limited to ever-to-date paid and unpaid losses plus the present value of expected cash flows for each policy. To the extent losses have been paid but not yet fully recovered, the recorded amount of RMBS subrogation recoveries may exceed the sum of the unpaid claims and the present value of expected cash flows 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 present value of expected cash flows, the net cash outflow for these policies is recorded as a “Loss and loss expense reserves” 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.
(4) | From time to time R&W subrogation may include estimates of potential sponsor settlements that are currently in negotiation, but have not been subject to a sampling approach. However, such estimates are not material to Ambac’s financial results and therefore are included in the Random Sample section of this table.
Below is the rollforward of RMBS subrogation, by estimation approach, for the affected periods:
| Random sample |  | Adverse sample |  | Total
Successor Ambac: |  |  |  |  |
Discounted RMBS subrogation (gross of reinsurance) at January 1, 2014 | $ | 953,825 |  |  | $ | 1,252,773 |  |  | $ | 2,206,598 |
Changes recognized in 2014: |  |  |  |  |
Additional transactions reviewed | 24,565 |  |  | — |  |  | 24,565 |
Changes in estimation approach (1) | 1,417,556 |  |  | (1,218,681 | ) |  | 198,875 |
Impact of sponsor actions (2) | (146,270 | ) |  | — |  |  | (146,270 | )
All other changes (3) | 273,864 |  |  | (34,092 | ) |  | 239,772 |
Discounted RMBS subrogation (gross of reinsurance) at December 31, 2014 | $ | 2,523,540 |  |  | $ | — |  |  | $ | 2,523,540 |
Successor Ambac: |  |  |  |  |
Discounted RMBS subrogation (gross of reinsurance) at May 1, 2013 | $ | 1,004,252 |  |  | $ | 1,478,666 |  |  | $ | 2,482,918 |
Changes recognized through December 31, 2013: |  |  |  |  |
Additional transactions reviewed | 2,451 |  |  | — |  |  | 2,451 |
Changes in estimation approach (1) | — |  |  | — |  |  | — |
Adverse loans repurchased by the sponsor | — |  |  | — |  |  | — |
Impact of sponsor actions (2) | — |  |  | 98 |  |  | 98 |
All other changes (3) | (52,878 | ) |  | (225,991 | ) |  | (278,869 | )
Discounted RMBS subrogation (gross of reinsurance) at December 31, 2013 | $ | 953,825 |  |  | $ | 1,252,773 |  |  | $ | 2,206,598 |
Predecessor Ambac |  |  |  |  |
Discounted RMBS subrogation (gross of reinsurance) at January 1, 2013 | $ | 1,080,408 |  |  | $ | 1,442,817 |  |  | $ | 2,523,225 |
Changes recognized through April 30, 2013: |  |  |  |  |
Additional transactions reviewed | — |  |  | — |  |  | — |
Changes in estimation approach (1) | — |  |  | — |  |  | — |
Adverse loans repurchased by the sponsor | — |  |  | — |  |  | — |
Impact of sponsor actions (2) | (54,195 | ) |  | — |  |  | (54,195 | )
All other changes (3) | (21,961 | ) |  | 35,849 |  |  | 13,888 |
Discounted RMBS subrogation (gross of reinsurance) at April 30, 2013 | $ | 1,004,252 |  |  | $ | 1,478,666 |  |  | $ | 2,482,918 |
Predecessor Ambac: |  |  |  |  |
Discounted RMBS subrogation (gross of reinsurance) at January 1, 2012 | $ | 1,262,794 |  |  | $ | 1,457,472 |  |  | $ | 2,720,266 |
Changes recognized in 2012: |  |  |  |  |
Additional transactions reviewed | 54,467 |  |  | (35,486 | ) |  | 18,981 |
Changes in estimation approach (1) | — |  |  | — |  |  | — |
Adverse loans repurchased by the sponsor | — |  |  | 35 |  |  | 35 |
Impact of sponsor actions (2) | — |  |  | — |  |  | — |
All other changes (3) | (236,853 | ) |  | 20,796 |  |  | (216,057 | )
Discounted RMBS subrogation (gross of reinsurance) at December 31, 2012 | $ | 1,080,408 |  |  | $ | 1,442,817 |  |  | $ | 2,523,225 |
(1) | Represents estimated subrogation for those transactions previously evaluated using the Adverse Sample approach, which are evaluated using a Random Sample approach beginning June 30, 2014. The amounts shown in the Random and Adverse Sample columns are different as a result of the differences in estimation approaches.
(2) | Sponsor actions include loan repurchases, direct payments to Ambac and other contributions from sponsors.
(3) | All 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. All other changes may also include estimates of potential sponsor settlements that are currently in negotiation but have not been subject to a sampling approach. However, such estimates are not material to Ambac’s financial results and therefore are included in the Random Sample column of this table.
Assumed Reinsurance: Assumed par outstanding was $245,900 and $248,225 at December 31, 2014 and 2013, respectively. 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 $223,114 at December 31, 2014. Credit exposure existed at December 31, 2014 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, 2014, there were ceded reinsurance balances payable of $60,436 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 $141,337 from its reinsurers at December 31, 2014. As of December 31, 2014, the aggregate amount of insured par ceded by Ambac Assurance to reinsurers under reinsurance agreements was $14,954,444 with the largest reinsurer accounting for $13,365,743 or 8.4% of gross par outstanding at December 31, 2014. The following table represents the percentage ceded to reinsurers and reinsurance recoverable at December 31, 2014 and its rating levels as of February 25, 2015:
Reinsurers | Moody’s Rating |  | Moody’s Outlook |  | Percentage ceded Par |  | Net unsecured reinsurance recoverable(1)
Assured Guaranty Re Ltd | Baa1 |  | Negative |  | 89.4% |  | $ | 37,553 |
Sompo Japan Nipponkoa Holdings, Inc. | A1 |  | Stable |  | 6.1 |  | — |
Assured Guaranty Corporation | A3 |  | Negative |  | 4.5 |  | 4,388 |
Total |  |  |  |  | 100% |  | $ | 41,941 |
(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 Ambac Assurance.
Insurance intangible asset: The insurance intangible amortization expense is included in insurance intangible amortization on the Consolidated Statements of Total Comprehensive Income (Loss) for Successor Ambac. For the year ended December 31, 2014 and the eight months ending December 31, 2013, the insurance intangible amortization expense was $151,830 and $99,658, respectively. As of December 31, 2014 and 2013, the gross carrying value of the insurance intangible asset was $1,660,125 and $1,698,732, respectively. Accumulated amortization of the insurance intangible asset was $249,205 and $100,767, as of December 31, 2014 and 2013, respectively, resulting in a net insurance intangible asset of $1,410,920 and $1,597,965, respectively. The estimated future amortization expense for the net insurance intangible asset is as follows:
2015 | $ | 122,675 |
2016 | 108,582 |
2017 | 99,446 |
2018 | 92,078 |
2019 | 85,356 |
Thereafter | 902,783 |

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