Fair Value Measurements (Tables)

12 Months Ended

Dec. 31, 2017

Summary of Carrying Amount and Fair Value of Ambac's Financial Assets and Liabilities

The following table sets forth the carrying amount and fair value of Ambac’s financial assets and liabilities as of December 31, 2017 and 2016, including the level within the fair value hierarchy at which fair value measurements are categorized. As required by the Fair Value Measurement Topic of the ASC financial assets and liabilities are classified in their entirety based on the lowest level of input that is significant to the fair value measurement.



	Carrying Amount			Total Fair Value			Fair Value Measurements Categorized as:
							Level 1		Level 2			Level 3
December 31, 2017:
Financial assets:
Fixed income securities:
Municipal obligations	$	779,834		$	779,834		$	—	$	779,834		$	—
Corporate obligations	860,075			860,075			450		859,625			—
Foreign obligations	26,543			26,543			25,615		928			—
U.S. government obligations	85,408			85,408			85,408		—			—
Residential mortgage-backed securities	2,251,333			2,251,333			—		1,515,316			736,017
Collateralized debt obligations	51,037			51,037			—		51,037			—
Other asset-backed securities	597,942			597,942			—		525,402			72,540
Fixed income securities, pledged as collateral:
U.S. government obligations	99,719			99,719			99,719		—			—
Short term investments	557,270			557,270			389,299		167,971			—
Other investments ⁽¹⁾	431,630			413,977			56,498		29,750			17,288
Cash and cash equivalents	623,703			623,703			615,073		8,630			—
Loans	10,358			10,284			—		—			10,284
Derivative assets:
Interest rate swaps—asset position	73,199			73,199			—		11,825			61,374
Other assets	5,979			5,979			—		—			5,979
Variable interest entity assets:
Fixed income securities:
Corporate obligations	2,914,145			2,914,145			—		—			2,914,145
Restricted cash	978			978			978		—			—
Loans	11,529,384			11,529,384			—		—			11,529,384
Derivative assets:
Currency swaps-asset position	54,877			54,877			—		54,877			—
Total financial assets	$	20,853,695		$	20,835,968		$	1,173,321	$	4,005,195		$	15,347,011
Financial liabilities:
Long term debt, including accrued interest	1,428,680			1,369,499			—		1,046,511			322,988
Derivative liabilities:
Credit derivatives	566			566			—		—			566
Interest rate swaps—asset position	(627		)	(627		)	—		(627		)	—
Interest rate swaps—liability position	81,495			81,495			—		81,495			—
Futures contracts	1,348			1,348			1,348		—			—
Liabilities for net financial guarantees written ⁽²⁾	3,435,438			4,842,402			—		—			4,842,402
Variable interest entity liabilities:
Long-term debt	12,160,544			12,160,544			—		9,402,856			2,757,688
Derivative liabilities:
Interest rate swaps—liability position	2,205,264			2,205,264			—		2,205,264			—
Total financial liabilities	$	19,312,708		$	20,660,491		$	1,348	$	12,735,499		$	7,923,644



	Carrying Amount			Total Fair Value			Fair Value Measurements Categorized as:
							Level 1		Level 2			Level 3
December 31, 2016:
Financial assets:
Fixed income securities:
Municipal obligations	$	374,368		$	374,368		$	—	$	374,368		$	—
Corporate obligations	1,802,165			1,802,165			—		1,802,165			—
Foreign obligations	43,135			43,135			42,212		923			—
U.S. government obligations	36,186			36,186			36,186		—			—
U.S. agency obligations	4,060			4,060			—		4,060			—
Residential mortgage-backed securities	2,351,595			2,351,595			—		1,654,882			696,713
Collateralized debt obligations	113,923			113,923			—		113,923			—
Other asset-backed securities	828,783			828,783			—		762,793			65,990
Fixed income securities, pledged as collateral:
U.S. government obligations	64,905			64,905			64,905		—			—
Short term investments	430,788			430,788			371,367		59,421			—
Other investments ⁽¹⁾	450,307			435,237			83,791		—			14,934
Cash and cash equivalents	91,025			91,025			46,587		44,438			—
Loans	4,160			4,066			—		—			4,066
Derivative assets:
Interest rate swaps—asset position	77,206			77,206			—		16,950			60,256
Interest rate swaps—liability position	—			—			—		—			—
Futures contracts	536			536			536		—			—
Other assets	7,382			7,382			—		—			7,382
Variable interest entity assets:
Fixed income securities:
Corporate obligations	2,622,566			2,622,566			—		—			2,622,566
Restricted cash	4,873			4,873			4,873		—			—
Derivative assets:
Currency swaps-asset position	80,407			80,407			—		80,407			—
Loans	10,658,963			10,658,963			—		—			10,658,963
Total financial assets	$	20,047,333		$	20,032,169		$	650,457	$	4,914,330		$	14,130,870
Financial liabilities:
Obligations under investment agreements	$	82,358		$	82,333		$	—	$	—		$	82,333
Long term debt, including accrued interest	1,536,352			1,494,340			—		1,147,728			346,612
Derivative liabilities:
Credit derivatives	15,349			15,349			—		—			15,349
Interest rate swaps—asset position	(61,839		)	(61,839		)	—		(61,839		)	—
Interest rate swaps—liability position	365,776			365,776			—		220,587			145,189
Liabilities for net financial guarantees written ⁽²⁾	3,009,943			4,490,070			—		—			4,490,070
Variable interest entity liabilities:
Long-term debt	11,155,936			11,155,936			—		8,573,716			2,582,220
Derivative liabilities:
Interest rate swaps—liability position	2,078,601			2,078,601			—		2,078,601			—
Currency swaps—liability position	—			—			—		—			—
Total financial liabilities	$	18,182,476		$	19,620,566		$	—	$	11,958,793		$	7,661,773


(1)	Excluded from the fair value measurement categories in the table above are investment funds of $310,441 and $336,513 as of December 31, 2017 and 2016, respectively, which are measured using NAV per share as a practical expedient.

(2)

The carrying value of net financial guarantees written includes the following balance sheet items: Premium receivables; Reinsurance recoverable on paid and unpaid losses; Deferred ceded premium; Subrogation recoverable; Insurance intangible asset; Unearned premiums; Loss and loss expense reserves; Ceded premiums payable, premiums taxes payable and other deferred fees recorded in Other liabilities.

Information about Valuation Inputs for Variable Interest Entity Assets and Liabilities Classified as Level 3



December 31,	2017			2016
Number of CDS transactions	2			8
Notional outstanding	$	325,890		$	737,380
Weighted average reference obligation price	99.3			93.5
Weighted average life (WAL) in years	6.5			5.2
Weighted average credit rating	A			A-
Weighted average relative change ratio	23.6		%	31.6		%
CVA percentage	9.64		%	11.14		%
Fair value of derivative liabilities	$	566		$	15,349

Summary of Changes in Level 3 Fair Value Category

The following tables present the changes in the Level 3 fair value category for the periods presented in 2017, 2016 and 2015. Ambac classifies financial instruments in Level 3 of the fair value hierarchy when there is reliance on at least one significant unobservable input to the valuation model. In addition to these unobservable inputs, the valuation models for Level 3 financial instruments typically also rely on a number of inputs that are readily observable either directly or indirectly. Thus, the gains and losses presented below include changes in the fair value related to both observable and unobservable inputs.



Level-3 Financial Assets and Liabilities Accounted for at Fair Value
										VIE Assets and Liabilities
Year Ended December 31, 2017	Investments			Other Assets			Derivatives			Investments			Loans			Long-term Debt			Total
Balance, beginning of period	$	762,703		$	7,382		$	(100,282	)	$	2,622,566		$	10,658,963		$	(2,582,220	)	$	11,369,112
Total gains/(losses) realized and unrealized:
Included in earnings	65,195			(1,403		)	62,847			70,928			550,021			35,009			782,597
Included in other comprehensive income	6,392			—			—			253,429			1,004,284			(254,093		)	1,010,012
Purchases	35,781			—			—			—			—			—			35,781
Sales	(79,319		)	—			—			—			—			—			(79,319		)
Settlements	(29,963		)	—			98,243			(32,778		)	(683,884		)	43,616			(604,766		)
Transfers into Level 3	47,768			—			—			—			—			—			47,768
Transfers out of Level 3	—			—			—			—			—			—			—
Deconsolidation of VIEs	—			—			—			—			—			—			—
Balance, end of period	$	808,557		$	5,979		$	60,808		$	2,914,145		$	11,529,384		$	(2,757,688	)	$	12,561,185
The amount of total gains/(losses) included in earnings attributable to the change in unrealized gains or losses relating to assets and liabilities still held at the reporting date	$	—		$	(1,403	)	$	8,913		$	70,928		$	547,004		$	36,851		$	662,293



Level-3 Financial Assets and Liabilities Accounted for at Fair Value
										VIE Assets and Liabilities
Year Ended December 31, 2016	Investments			Other Assets			Derivatives			Investments			Loans			Long-term Debt			Total
Balance, beginning of period	$	488,884		$	8,696		$	(99,192	)	$	2,588,556		$	11,690,324		$	(3,180,170	)	$	11,497,098
Total gains/(losses) realized and unrealized:
Included in earnings	54,600			(1,314		)	(15,374		)	508,873			1,166,898			(842,748		)	870,935
Included in other comprehensive income	40,518			—			—			(474,863		)	(1,944,821		)	486,218			(1,892,948		)
Purchases	99,018			—			—			—			—			—			99,018
Sales	—			—			—			—			—			—			—
Settlements	(28,682		)	—			14,284			—			(253,438		)	216,582			(51,254		)
Transfers into Level 3	108,365			—			—			—			—			—			108,365
Transfers out of Level 3	—			—			—			—			—			737,898			737,898
Deconsolidations of VIEs	—			—			—			—			—			—			—
Balance, end of period	$	762,703		$	7,382		$	(100,282	)	$	2,622,566		$	10,658,963		$	(2,582,220	)	$	11,369,112
The amount of total gains/(losses) included in earnings attributable to the change in unrealized gains or losses relating to assets and liabilities still held at the reporting date	$	—		$	(1,314	)	$	(16,351	)	$	508,873		$	1,166,898		$	(842,748	)	$	815,358



Level-3 Financial Assets and Liabilities Accounted for at Fair Value
										VIE Assets and Liabilities
Year Ended December 31, 2015	Investments			Other Assets			Derivatives			Investments			Loans			Long-term Debt			Total
Balance, beginning of period	$	198,201		$	12,036		$	(215,346	)	$	2,743,050		$	12,371,177		$	(1,263,664	)	$	13,845,454
Total gains/(losses) realized and unrealized:
Included in earnings	30,083			(1,635		)	16,571			(7,263		)	569,617			(1,152,681		)	(545,308		)
Included in other comprehensive income	(73,559		)	—			—			(147,231		)	(612,941		)	93,812			(739,919		)
Purchases	359,193			—			—			—			—			—			359,193
Sales	—			—			—			—			—			—			—
Settlements	(25,034		)	(1,705		)	11,365			—			(312,406		)	(17,085		)	(344,865		)
Transfers into Level 3	—			—			88,218			—			—			(840,552		)	(752,334		)
Transfers out of Level 3	—			—			—			—			—			—			—
Deconsolidation of VIEs	—			—			—			—			(325,123		)	—			(325,123		)
Balance, end of period	$	488,884		$	8,696		$	(99,192	)	$	2,588,556		$	11,690,324		$	(3,180,170	)	$	11,497,098
The amount of total gains/(losses) included in earnings attributable to the change in unrealized gains or losses relating to assets and liabilities still held at the reporting date	$	—		$	(1,635	)	$	(25,980	)	$	(7,263	)	$	589,634		$	(1,161,991	)	$	(607,235	)

The tables below provide roll-forward information by class of investments and derivatives measured using significant unobservable inputs.



Level-3 Investments by Class
	2017									2016
Year Ended December 31,	Other asset backed securities			Non-Agency RMBS			Total investments			Other asset backed securities			Non-Agency RMBS			Total investments
Balance, beginning of period	$	65,990		$	696,713		$	762,703		$	—		$	488,884		$	488,884
Total gains/(losses) realized and unrealized:
Included in earnings	1,433			63,762			65,195			1,908			52,692			54,600
Included in other comprehensive income	6,130			262			6,392			(5,597		)	46,115			40,518
Purchases	—			35,781			35,781			—			99,018			99,018
Sales	—			(79,319		)	(79,319		)	—			—			—
Settlements	(1,013		)	(28,950		)	(29,963		)	(1,028		)	(27,654		)	(28,682		)
Transfers into Level 3	—			47,768			47,768			70,707			37,658			108,365
Transfers out of Level 3	—			—			—			—			—			—
Balance, end of period	$	72,540		$	736,017		$	808,557		$	65,990		$	696,713		$	762,703
The amount of total gains/(losses) included in earnings attributable to the change in unrealized gains or losses relating to assets and liabilities still held at the reporting date	$	—		$	—		$	—		$	—		$	—		$	—



Level-3 Investments by Class
	2015
Year Ended December 31, 2015	Other asset backed securities		Corporate obligations			Non-Agency RMBS			Total investments
Balance, beginning of period	$	—	$	3,808		$	194,393		$	198,201
Total gains/(losses) realized and unrealized:
Included in earnings	—		(19		)	30,102			30,083
Included in other comprehensive income	—		(286		)	(73,273		)	(73,559		)
Purchases	—		—			359,193			359,193
Sales	—		—			—			—
Settlements	—		(3,503		)	(21,531		)	(25,034		)
Transfers into Level 3	—		—			—			—
Transfers out of Level 3	—		—			—			—
Balance, end of period	$	—	$	—		$	488,884		$	488,884
The amount of total gains/(losses) included in earnings attributable to the change in unrealized gains or losses relating to assets and liabilities still held at the reporting date	$	—	$	—		$	—		$	—



Level-3 Derivatives by Class
	2017									2016
Year Ended December 31,	Interest rate swaps			Credit derivatives			Total derivatives			Interest rate swaps			Credit derivatives			Total derivatives
Balance, beginning of period	$	(84,933	)	$	(15,349	)	$	(100,282	)	$	(64,649	)	$	(34,543	)	$	(99,192	)
Total gains/(losses) realized and unrealized:
Included in earnings	46,475			16,372			62,847			(35,480		)	20,106			(15,374		)
Included in other comprehensive income	—			—			—			—			—			—
Purchases	—			—			—			—			—			—
Sales	—			—			—			—			—			—
Settlements	99,832			(1,589		)	98,243			15,196			(912		)	14,284
Transfers into Level 3	—			—			—			—			—			—
Transfers out of Level 3	—			—			—			—			—			—
Balance, end of period	$	61,374		$	(566	)	$	60,808		$	(84,933	)	$	(15,349	)	$	(100,282	)
The amount of total gains/(losses) included in earnings attributable to the change in unrealized gains or losses relating to assets and liabilities still held at the reporting date	$	6,716		$	2,197		$	8,913		$	(35,480	)	$	19,129		$	(16,351	)



Level-3 Derivatives by Class
	2015
Year Ended December 31,	Interest rate swaps			Credit derivatives			Total derivatives
Balance, beginning of period	$	(141,887	)	$	(73,459	)	$	(215,346	)
Total gains/(losses) realized and unrealized:
Included in earnings	(25,130		)	41,701			16,571
Included in other comprehensive income	—			—			—
Purchases	—			—			—
Sales	—			—			—
Settlements	14,150			(2,785		)	11,365
Transfers into Level 3	88,218			—			88,218
Transfers out of Level 3	—			—			—
Balance, end of period	$	(64,649	)	$	(34,543	)	$	(99,192	)
The amount of total gains/(losses) included in earnings attributable to the change in unrealized gains or losses relating to assets and liabilities still held at the reporting date	$	(25,130	)	$	(850	)	$	(25,980	)

Summary of Gains and Losses (Realized and Unrealized) Relating to Level 3 Assets and Liabilities Included in Earnings

Gains and losses (realized and unrealized) relating to Level 3 assets and liabilities included in earnings for the affected periods are reported as follows:



	Net investment income		Realized gains or (losses) and other settlements on credit derivative contracts		Unrealized gains or (losses) on credit derivative contracts			Interest rate swaps			Income (loss) on variable interest entities			Other income or (loss)
Year Ended December 31, 2017
Total gains or losses included in earnings for the period	65,195		1,589		14,783			46,475			655,956			(1,403		)
Changes in unrealized gains or losses relating to the assets and liabilities still held at the reporting date	—		—		2,197			6,716			654,783			(1,403		)

Year Ended December 31, 2016
Total gains or losses included in earnings for the period	$	54,600	$	912	$	19,194		$	(35,480	)	$	833,023		$	(1,314	)
Changes in unrealized gains or losses relating to the assets and liabilities still held at the reporting date	—		—		19,129			(35,480		)	833,023			(1,314		)

Year Ended December 31, 2015
Total gains or losses included in earnings for the period	$	30,083	$	2,785	$	38,916		$	(25,130	)	$	(590,327	)	$	(1,635	)
Changes in unrealized gains or losses relating to the assets and liabilities still held at the reporting date	—		—		(850		)	(25,130		)	(579,620		)	(1,635		)