Fair Value Measurements (Tables)

12 Months Ended

Dec. 31, 2018

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, 2018 and 2017, 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:
	Carrying Amount			Total Fair Value		Level 1		Level 2		Level 3
December 31, 2018:
Financial assets:
Fixed income securities:
Municipal obligations	$	879,919		$	879,919	$	—	$	879,919	$	—
Corporate obligations	1,278,122			1,278,122		—		1,278,122		—
Foreign obligations	30,834			30,834		29,922		912		—
U.S. government obligations	94,394			94,394		94,394		—		—
Residential mortgage-backed securities	258,607			258,607		—		258,607		—
Collateralized debt obligations	131,356			131,356		—		131,356		—
Other asset-backed securities	442,443			442,443		—		370,372		72,071
Short term investments	430,331			430,331		304,880		125,451		—
Other investments ⁽¹⁾	391,217			367,315		71,108		—		16,266
Cash, cash equivalents and restricted cash	82,494			82,494		52,661		29,833		—
Loans	9,913			11,620		—		—		11,620
Derivative assets:
Interest rate swaps—asset position	59,468			59,468		—		12,008		47,460
Other assets	4,516			4,516		—		—		4,516
Variable interest entity assets:
Fixed income securities:
Corporate obligations	2,737,286			2,737,286		—		—		2,737,286
Restricted cash	999			999		999		—		—
Loans	4,287,664			4,287,664		—		—		4,287,664
Derivative assets:
Currency swaps-asset position	66,302			66,302		—		66,302		—
Total financial assets	$	11,185,865		$	11,163,670	$	553,964	$	3,152,882	$	7,176,883
Financial liabilities:
Long term debt, including accrued interest	$	3,304,737		$	3,259,966	$	—	$	2,909,272	$	350,694
Derivative liabilities:
Credit derivatives	1,459			1,459		—		—		1,459
Interest rate swaps—liability position	71,861			71,861		—		71,861		—
Futures contracts	3,379			3,379		3,379		—
Other contracts	—			—		—		—		—
Liabilities for net financial guarantees written ⁽²⁾	(718,388		)	558,824		—		—		558,824
Variable interest entity liabilities:
Long-term debt	5,268,596			5,268,596		—		5,051,504		217,092
Derivative liabilities:
Interest rate swaps—liability position	1,712,062			1,712,062		—		1,712,062		—
Total financial liabilities	$	9,643,706		$	10,876,147	$	3,379	$	9,744,699	$	1,128,069



	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	$	20,953,414		$	20,935,687		$	1,273,040	$	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		—			—
Other contracts	—			—			—		—			—
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


(1)	Excluded from the fair value measurement categories in the table above are investment funds of $279,941 and $310,441 as of December 31, 2018 and 2017, 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.

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 2018, 2017 and 2016. 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, 2018	Investments			Other Assets			Derivatives			Investments			Loans			Long-term Debt			Total
Balance, beginning of period	$	808,557		$	5,979		$	60,808		$	2,914,145		$	11,529,384		$	(2,757,688	)	$	12,561,185
Total gains/(losses) realized and unrealized:
Included in earnings	36,222			(1,463		)	(9,142		)	16,010			(201,482		)	189,438			29,583
Included in other comprehensive income	(52,908		)	—			—			(158,333		)	(469,665		)	90,901			(590,005		)
Purchases	—			—			—			—			—			—			—
Issuances	—			—			—			—			—			—			—
Sales	—			—			—			—			—			—			—
Settlements	(714,491		)	—			(5,665		)	(34,536		)	(624,108		)	22,905			(1,355,895		)
Transfers into Level 3	—			—			—			—			—			—			—
Transfers out of Level 3	(5,309		)	—			—			—			—			—			(5,309		)
Deconsolidation of VIEs	—			—			—			—			(5,946,465		)	2,237,352			(3,709,113		)
Balance, end of period	$	72,071		$	4,516		$	46,001		$	2,737,286		$	4,287,664		$	(217,092	)	$	6,930,446
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	$	—		$	(1,463	)	$	(9,530	)	$	16,010		$	(62,653	)	$	46,761		$	(10,875	)



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
Issuances	—			—			—			—			—			—			—
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	—			—			—			—			—			—			—
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
Issuances	—			—			—			—			—			—			—
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
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

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



Level-3 Investments by Class
	2018									2017
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	$	72,540		$	736,017		$	808,557		$	65,990		$	696,713		$	762,703
Total gains/(losses) realized and unrealized:
Included in earnings	1,495			34,727			36,222			1,433			63,762			65,195
Included in other comprehensive income	(770		)	(52,138		)	(52,908		)	6,130			262			6,392
Purchases	—			—			—			—			35,781			35,781
Issuances	—			—			—			—			—			—
Sales	—			—			—			—			(79,319		)	(79,319		)
Settlements	(1,194		)	(713,297		)	(714,491		)	(1,013		)	(28,950		)	(29,963		)
Transfers into Level 3	—			—			—			—			47,768			47,768
Transfers out of Level 3	—			(5,309		)	(5,309		)	—			—			—
Balance, end of period	$	72,071		$	—		$	72,071		$	72,540		$	736,017		$	808,557
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
Year Ended December 31, 2016	Other Asset Backed Securities			Non-Agency RMBS			Total Investments
Balance, beginning of period	$	—		$	488,884		$	488,884
Total gains/(losses) realized and unrealized:
Included in earnings	1,908			52,692			54,600
Included in other comprehensive income	(5,597		)	46,115			40,518
Purchases	—			99,018			99,018
Issuances	—			—			—
Sales	—			—			—
Settlements	(1,028		)	(27,654		)	(28,682		)
Transfers into Level 3	70,707			37,658			108,365
Transfers out of Level 3	—			—			—
Balance, end of period	$	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 Derivatives by Class
	2018									2017
Year Ended December 31,	Interest Rate Swaps			Credit Derivatives			Total Derivatives			Interest Rate Swaps			Credit Derivatives			Total Derivatives
Balance, beginning of period	$	61,374		$	(566	)	$	60,808		$	(84,933	)	$	(15,349	)	$	(100,282	)
Total gains/(losses) realized and unrealized:
Included in earnings	(8,637		)	(505		)	(9,142		)	46,475			16,372			62,847
Included in other comprehensive income	—			—			—			—			—			—
Purchases	—			—			—			—			—			—
Issuances	—			—			—			—			—			—
Sales	—			—			—			—			—			—
Settlements	(5,277		)	(388		)	(5,665		)	99,832			(1,589		)	98,243
Transfers into Level 3	—			—			—			—			—			—
Transfers out of Level 3	—			—			—			—			—			—
Balance, end of period	$	47,460		$	(1,459	)	$	46,001		$	61,374		$	(566	)	$	60,808
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	$	(8,637	)	$	(893	)	$	(9,530	)	$	6,716		$	2,197		$	8,913



Level-3 Derivatives by Class
Year Ended December 31, 2016	Interest Rate Swaps			Credit Derivatives			Total Derivatives
Balance, beginning of period	$	(64,649	)	$	(34,543	)	$	(99,192	)
Total gains/(losses) realized and unrealized:
Included in earnings	(35,480		)	20,106			(15,374		)
Included in other comprehensive income	—			—			—
Purchases	—			—			—
Issuances	—			—			—
Sales	—			—			—
Settlements	15,196			(912		)	14,284
Transfers into Level 3	—			—			—
Transfers out of Level 3	—			—			—
Balance, end of period	$	(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	$	(35,480	)	$	19,129		$	(16,351	)

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		Net Gains (Losses) on Derivative Contracts			Income (Loss) on Variable Interest Entities		Other Income (Expense)
Year Ended December 31, 2018
Total gains (losses) included in earnings for the period	$	36,222	$	(9,142	)	$	3,966	$	(1,463	)
Changes in unrealized gains (losses) relating to financial instruments still held at the reporting date	—		(9,530		)	118		(1,463		)

Year Ended December 31, 2017
Total gains (losses) included in earnings for the period	$	65,195	$	62,847		$	655,956	$	(1,403	)
Changes in unrealized gains (losses) relating to financial instruments still held at the reporting date	—		8,913			654,753		(1,403		)

Year Ended December 31, 2016
Total gains (losses) included in earnings for the period	$	54,600	$	(15,374	)	$	833,023	$	(1,314	)
Changes in unrealized gains (losses) relating to financial instruments still held at the reporting date	—		(16,351		)	833,023		(1,314		)