Fair Value Measurements (Tables)

3 Months Ended

Mar. 31, 2019

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 March 31, 2019 and December 31, 2018, 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:
March 31, 2019:	Carrying Amount			Total Fair Value		Level 1		Level 2		Level 3
Financial assets:
Fixed income securities:
Municipal obligations	$	424,884		$	424,884	$	—	$	424,884	$	—
Corporate obligations	1,233,544			1,233,544		—		1,233,544		—
Foreign obligations	31,292			31,292		30,379		913		—
U.S. government obligations	100,429			100,429		100,429		—		—
Residential mortgage-backed securities	256,285			256,285		—		256,285		—
Collateralized debt obligations	132,977			132,977		—		132,977		—
Other asset-backed securities	440,400			440,400		—		368,545		71,855
Fixed income securities, pledged as collateral:
U.S. government obligations	83,901			83,901		83,901		—		—
Short term investments	908,235			908,235		864,065		44,170		—
Other investments ⁽¹⁾	428,556			404,775		102,257		—		17,730
Cash, cash equivalents and restricted cash	21,840			21,840		15,891		5,949		—
Derivative assets:
Interest rate swaps—asset position	73,218			73,218		—		19,107		54,111
Futures contracts	3,182			3,182		3,182		—		—
Other assets - equity in sponsored VIE	4,148			4,148		—		—		4,148
Other assets-Loans	10,124			12,187		—		—		12,187
Variable interest entity assets:
Fixed income securities: Corporate obligations	2,858,404			2,858,404		—		—		2,858,404
Fixed income securities: Municipal obligations	270,591			270,591		—		270,591		—
Restricted cash	3,254			3,254		3,254		—		—
Loans	4,375,761			4,375,761		—		—		4,375,761
Derivative assets: Currency swaps-asset position	59,228			59,228		—		59,228		—
Total financial assets	$	11,720,253		$	11,698,535	$	1,203,358	$	2,816,193	$	7,394,196
Financial liabilities:
Long term debt, including accrued interest	$	3,320,562		$	3,324,313	$	—	$	2,942,229	$	382,084
Derivative liabilities:
Credit derivatives	1,077			1,077		—		—		1,077
Interest rate swaps—asset position	—			—		—				—
Interest rate swaps—liability position	85,457			85,457		—		85,457		—
Futures contracts	—			—		—		—
Liabilities for net financial guarantees written⁽²⁾	(839,056		)	509,830		—		—		509,830
Variable interest entity liabilities:
Long-term debt (includes $5,401,992 carried at fair value)	5,737,263			5,785,582		—		5,561,135		224,447
Derivative liabilities: Interest rate swaps—liability position	1,781,903			1,781,903		—		1,781,903		—
Total financial liabilities	$	10,087,206		$	11,488,162	$	—	$	10,370,724	$	1,117,438



	Carrying Amount			Total Fair Value		Fair Value Measurements Categorized as:
December 31, 2018:	Carrying Amount			Total Fair Value		Level 1		Level 2		Level 3
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 and cash equivalents	82,494			82,494		52,661		29,833		—
Derivative assets:
Interest rate swaps—asset position	59,468			59,468		—		12,008		47,460
Other assets - equity in sponsored VIE	4,516			4,516		—		—		4,516
Other assets-Loans	9,913			11,620		—		—		11,620
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		—
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


(1)	Excluded from the fair value measurement categories in the table above are investment funds of $284,788 and $279,941 as of March 31, 2019 and December 31, 2018, 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 2019 and 2018. 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
	Investments			Other Assets⁽¹⁾			Derivatives			Investments			Loans			Long-term Debt			Total
Three Months Ended March 31, 2019:
Balance, beginning of period	$	72,071		$	4,516		$	46,001		$	2,737,286		$	4,287,664		$	(217,092	)	$	6,930,446
Total gains/(losses) realized and unrealized:
Included in earnings	383			(368		)	8,187			66,919			88,281			(3,053		)	160,349
Included in other comprehensive income	(270		)	—			—			54,199			85,061			(4,302		)	134,688
Purchases	—			—			—			—			—			—			—
Issuances	—			—			—			—			—			—			—
Sales	—			—			—			—			—			—			—
Settlements	(329		)	—			(1,154		)	—			(85,245		)	—			(86,728		)
Balance, end of period	$	71,855		$	4,148		$	53,034		$	2,858,404		$	4,375,761		$	(224,447	)	$	7,138,755
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	$	—		$	(368	)	$	8,096		$	66,919		$	88,281		$	(3,053	)	$	159,875

Three Months Ended March 31, 2018:
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	35,184			(358		)	(9,375		)	(69,026		)	(202,588		)	159,985			(86,178		)
Included in other comprehensive income	(52,508		)	—			—			110,644			423,892			(103,877		)	378,151
Purchases	—			—			—			—			—			—			—
Issuances	—			—			—			—			—			—			—
Sales	—			—			—			—			—			—			—
Settlements	(713,603		)	—			(1,525		)	—			(192,357		)	5,064			(902,421		)
Balance, end of period	$	77,630		$	5,621		$	49,908		$	2,955,763		$	11,558,331		$	(2,696,516	)	$	11,950,737
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	$	—		$	(358	)	$	(9,481	)	$	(69,026	)	$	(202,588	)	$	159,985		$	(121,468	)


(1)	Other assets carried at fair value and classified as Level 3 relate to an equity interest in an Ambac sponsored VIE.

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



Level 3 - Investments by Class:
	Three Months Ended March 31, 2019								Three Months Ended March 31, 2018
	Other Asset Backed Securities			Non-Agency RMBS		Total Investments			Other Asset Backed Securities			Non-Agency RMBS			Total Investments
Balance, beginning of period	$	72,071		$	—	$	72,071		$	72,540		$	736,017		$	808,557
Total gains/(losses) realized and unrealized:
Included in earnings	383			—		383			457			34,727			35,184
Included in other comprehensive income	(270		)	—		(270		)	(370		)	(52,138		)	(52,508		)
Purchases	—			—		—			—			—			—
Issuances	—			—		—			—			—			—
Sales	—			—		—			—			—			—
Settlements	(329		)	—		(329		)	(306		)	(713,297		)	(713,603		)
Balance, end of period	$	71,855		$	—	$	71,855		$	72,321		$	5,309		$	77,630
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:
	Three Months Ended March 31, 2019									Three Months Ended March 31, 2018
	Interest Rate Swaps			Credit Derivatives			Total Derivatives			Interest Rate Swaps			Credit Derivatives			Total Derivatives
Balance, beginning of period	$	47,460		$	(1,459	)	$	46,001		$	61,374		$	(566	)	$	60,808
Total gains/(losses) realized and unrealized:
Included in earnings	7,714			473			8,187			(9,029		)	(346		)	(9,375		)
Included in other comprehensive income	—			—			—			—			—			—
Purchases	—			—			—			—			—			—
Issuances	—			—			—			—			—			—
Sales	—			—			—			—			—			—
Settlements	(1,063		)	(91		)	(1,154		)	(1,419		)	(106		)	(1,525		)
Balance, end of period	$	54,111		$	(1,077	)	$	53,034		$	50,926		$	(1,018	)	$	49,908
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	$	7,714		$	382		$	8,096		$	(9,029	)	$	(452	)	$	(9,481	)

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 or (Loss)
Three Months Ended March 31, 2019:
Total gains or losses included in earnings for the period	$	383	$	8,187		$	152,147		$	(368	)
Changes in unrealized gains or losses relating to the assets and liabilities still held at the reporting date	—		8,096			152,147			(368		)

Three Months Ended March 31, 2018:
Total gains or losses included in earnings for the period	$	35,184	$	(9,375	)	$	(111,629	)	$	(358	)
Changes in unrealized gains or losses relating to the assets and liabilities still held at the reporting date	—		(9,481		)	(111,629		)	(358		)