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Financial Guarantee Insurance Contracts | 12 Months Ended
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Dec. 31, 2019
Insurance [Abstract] |
Financial Guarantee Insurance Contracts | 7. 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:
Year Ended December 31, | 2019 |  | 2018 |  | 2017
Beginning premium receivable | $ | 495 |  |  | $ | 586 |  |  | $ | 661 |
Premium receipts | (48 | ) |  | (56 | ) |  | (82 | )
Adjustments for changes in expected and contractual cash flows (1) | (38 | ) |  | (42 | ) |  | (30 | )
Accretion of premium receivable discount | 11 |  |  | 15 |  |  | 16 |
Deconsolidation of certain VIEs | 3 |  |  | — |  |  | — |
Changes to uncollectable premiums | (2 | ) |  | 2 |  |  | — |
Other adjustments (including foreign exchange) | (6 | ) |  | (10 | ) |  | 21 |
Ending premium receivable (2) | $ | 416 |  |  | $ | 495 |  |  | $ | 586 |
(1) | Adjustments for changes in expected and contractual cash flows primarily due to reductions in insured exposure as a result of early policy terminations and unscheduled principal paydowns.
(2) | Premium receivable includes premiums to be received in foreign denominated currencies most notably in British Pounds and Euros. At December 31, 2019, 2018 and 2017 premium receivables include British Pounds of $129 (£97), $131 (£103) and $152 (£112), respectively, and Euros of $26 (€23), $31 (€27) and $36 (€30), respectively.
In evaluating the credit quality of the premium receivables, management evaluates the obligor's ability to pay. For structured finance transactions, this evaluation will include a review of the priority for the payment of financial guarantee premiums to Ambac, as required by bond indentures, in the transaction's waterfall structure. The financial guarantee premium is generally senior in the waterfall. An allowance for uncollectable premiums are determined on a policy basis and utilize a combination of historical premium collection data in addition to cash flow analysis to determine if an impairment in the related policy's premium receivables exist. At December 31, 2019 and 2018, $9 and $7 respectively, of premium receivables were deemed uncollectable. The effect of reinsurance on premiums written and earned was as follows:
Year Ended December 31, | Direct |  | Assumed |  | Ceded (1) |  | Net Premiums
2019: |  |  |  |  |  |  |
Written | $ | (28 | ) |  | $ | — |  |  | $ | 31 |  |  | $ | (60 | )
Earned | 75 |  |  | — |  |  | 10 |  |  | 66 |
2018: |  |  |  |  |  |  |
Written | $ | (24 | ) |  | $ | — |  |  | $ | 17 |  |  | $ | (41 | )
Earned | 119 |  |  | — |  |  | 8 |  |  | 111 |
2017: |  |  |  |  |  |  |
Written | $ | (14 | ) |  | $ | — |  |  | $ | (2 | ) |  | $ | (12 | )
Earned | 190 |  |  | — |  |  | 15 |  |  | 175 |
(1) | Includes ceded premium activity related to the execution of reinsurance transactions in the years ended December 31, 2019 and 2018.
Ambac’s accelerated premium revenue for retired obligations for the years ended December 31, 2019, 2018 and 2017, was $10, $32 and $64, respectively. The following table summarizes net premiums earned by location of risk:
Year Ended December 31, |  | 2019 |  | 2018 |  | 2017
United States |  | $ | 55 |  |  | $ | 88 |  |  | $ | 134 |
United Kingdom |  | 17 |  |  | 19 |  |  | 33 |
Other international |  | (6 | ) |  | 5 |  |  | 8 |
Total |  | $ | 66 |  |  | $ | 111 |  |  | $ | 175 |
The table below summarizes the future gross undiscounted premiums to be collected and future premiums earned, net of reinsurance at December 31, 2019:
| Future Premiums to be Collected (1) |  | Future Premiums to be Earned Net of Reinsurance (2)
Three months ended: |  |  |
March 31, 2020 | $ | 14 |  |  | $ | 10 |
June 30, 2020 | 11 |  |  | 10 |
September 30, 2020 | 10 |  |  | 10 |
December 31, 2020 | 9 |  |  | 10 |
Twelve months ended: |  |  |
December 31, 2021 | 37 |  |  | 36 |
December 31, 2022 | 36 |  |  | 34 |
December 31, 2023 | 34 |  |  | 32 |
December 31, 2024 | 33 |  |  | 30 |
Five years ended: |  |  |
December 31, 2029 | 143 |  |  | 124 |
December 31, 2034 | 102 |  |  | 82 |
December 31, 2039 | 47 |  |  | 38 |
December 31, 2044 | 22 |  |  | 14 |
December 31, 2049 | 9 |  |  | 5 |
December 31, 2054 | 1 |  |  | 1 |
Total | $ | 508 |  |  | $ | 436 |
(1) | Future premiums to be collected are undiscounted and are used to derive the discounted premium receivable asset recorded on Ambac's balance sheet.
(2) | 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 further described in Note 2. Basis of Presentation and Significant Accounting Policies. This 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. 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 may result in different 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, 2019 and 2018:
| Present Value of Expected Net Cash Flows |  | Unearned Premium Revenue |  | Gross Loss and Loss Expense Reserves
Balance Sheet Line Item | Claims and Loss Expenses |  | Recoveries |  |
December 31, 2019: |  |  |  |  |  |  |
Loss and loss expense reserves | $ | 1,835 |  |  | $ | (233 | ) |  | $ | (54 | ) |  | $ | 1,548 |
Subrogation recoverable | 131 |  |  | (2,160 | ) |  | — |  |  | (2,029 | )
Totals | $ | 1,966 |  |  | $ | (2,394 | ) |  | $ | (54 | ) |  | $ | (482 | )
December 31, 2018: |  |  |  |  |  |  |
Loss and loss expense reserves | $ | 2,246 |  |  | $ | (314 | ) |  | $ | (107 | ) |  | $ | 1,826 |
Subrogation recoverable | 176 |  |  | (2,109 | ) |  | — |  |  | (1,933 | )
Totals | $ | 2,422 |  |  | $ | (2,422 | ) |  | $ | (107 | ) |  | $ | (107 | )
Below is the loss and loss expense reserve roll-forward, net of subrogation recoverable and reinsurance, for the affected periods.
Year Ended December 31, | 2019 |  | 2018 |  | 2017
Beginning gross loss and loss expense reserves | $ | (107 | ) |  | $ | 4,114 |  |  | $ | 3,696 |
Reinsurance recoverable | 23 |  |  | 41 |  |  | 31 |
Beginning balance of net loss and loss expense reserves | (130 | ) |  | 4,073 |  |  | 3,665 |
Losses and loss expenses (benefit) incurred: |  |  |  |  |
Current year | 1 |  |  | 5 |  |  | 6 |
Prior years (1) | 12 |  |  | (228 | ) |  | 507 |
Total (2)(3) | 13 |  |  | (224 | ) |  | 513 |
Loss and loss expenses (recovered) paid: |  |  |  |  |
Current year | — |  |  | — |  |  | 1 |
Prior years (1) | 318 |  |  | 3,963 |  |  | 133 |
Total | 318 |  |  | 3,964 |  |  | 134 |
Foreign exchange effect | (1 | ) |  | (15 | ) |  | 29 |
Ending net loss and loss expense reserves | (436 | ) |  | (130 | ) |  | 4,073 |
Impact of VIE consolidation | (72 | ) |  | — |  |  | — |
Reinsurance recoverable (4) | 26 |  |  | 23 |  |  | 41 |
Ending gross loss and loss expense reserves | (482 | ) |  | (107 | ) |  | 4,114 |
(1) | 2018 loss and loss expenses (recovered) paid includes the settlement of Deferred Amounts and Interest Accrued on Deferred Amounts in the amount of $3,000 and $857, respectively in connection with the Rehabilitation Exit Transactions through a combination of cash, surplus notes and secured notes. 2018 loss and loss expenses incurred includes a $288 loss and loss expense benefit on these settled Deferred Amounts.
(2) | Total losses and loss expenses (benefit) includes $(7), $(2) and $20 for the years ended December 31, 2019, 2018 and 2017, respectively, related to ceded reinsurance.
(3) | Ambac records the impact of estimated recoveries related to securitized loans in RMBS transactions that breached certain representations and warranties within losses and loss expenses (benefit). The losses and loss expense (benefit) incurred associated with changes in estimated representation and warranty recoveries for the year ended December 31, 2019, 2018 and 2017 was $42, $62 and $72, respectively.
(4) | Represents reinsurance recoverable on future loss and loss expenses. Additionally, the Balance Sheet line "Reinsurance recoverable on paid and unpaid losses" includes reinsurance recoverables (payables) of $0, $1 and $0 as of December 31, 2019, 2018 and 2017, respectively, related to previously presented loss and loss expenses and subrogation.
For 2019, the adverse development in prior years was primarily a result of deterioration in Public Finance credits, primarily Puerto Rico, partially offset by the benefit for (i) the Ballantyne Re plc ("Ballantyne") and Puerto Rico COFINA commutations, and (ii) positive development in the RMBS and Student Loan portfolios. For 2018, the net positive development in prior years was primarily a result of the discount recorded on the Rehabilitation Exit Transactions partially offset by negative development in the Public Finance portfolio and interest accrued on Deferred Amounts prior to the Rehabilitation Exit Transactions. For 2017, the net adverse development in prior years was primarily the result of negative development in certain public finance transactions, including Puerto Rico, and interest accrued on Deferred Amounts partially offset by positive developments in certain Ambac UK transactions, including a benefit of $145 related to a confidential settlement of litigation brought by Ambac UK in the name of Ballantyne that reduced the ultimate Ballantyne claims Ambac UK was expecting to pay. The tables below summarize information related to policies currently included in Ambac’s loss and loss expense reserves or subrogation recoverable at December 31, 2019 and 2018. Gross par exposures include capital appreciation bonds which are reported at the par amount at the time of issuance of the insurance policy as opposed to the current accreted value of the bond. The weighted average risk-free rate used to discount loss reserves at December 31, 2019 and 2018 was 2.1% and 2.8%, respectively.
|  | Surveillance Categories as of December 31, 2019
|  | I |  | IA |  | II |  | III |  | IV |  | V |  | Total
Number of policies |  | 34 |  |  | 18 |  |  | 11 |  |  | 16 |  |  | 139 |  |  | 3 |  |  | 221 |
Remaining weighted-average contract period (in years) (1) |  | 8 |  |  | 21 |  |  | 9 |  |  | 17 |  |  | 14 |  |  | 3 |  |  | 15 |
Gross insured contractual payments outstanding: |  |  |  |  |  |  |  |  |  |  |  |  |  |
Principal |  | $ | 668 |  |  | $ | 510 |  |  | $ | 277 |  |  | $ | 857 |  |  | $ | 3,819 |  |  | $ | 37 |  |  | $ | 6,168 |
Interest |  | 340 |  |  | 507 |  |  | 128 |  |  | 366 |  |  | 1,678 |  |  | 11 |  |  | 3,029 |
Total |  | $ | 1,007 |  |  | $ | 1,016 |  |  | $ | 404 |  |  | $ | 1,223 |  |  | $ | 5,498 |  |  | $ | 48 |  |  | $ | 9,197 |
Gross undiscounted claim liability |  | $ | 2 |  |  | $ | 44 |  |  | $ | 21 |  |  | $ | 541 |  |  | $ | 1,778 |  |  | $ | 48 |  |  | $ | 2,434 |
Discount, gross claim liability |  | — |  |  | (5 | ) |  | (1 | ) |  | (152 | ) |  | (381 | ) |  | (2 | ) |  | (541 | )
Gross claim liability before all subrogation and before reinsurance |  | $ | 2 |  |  | $ | 39 |  |  | $ | 20 |  |  | $ | 389 |  |  | $ | 1,397 |  |  | $ | 46 |  |  | $ | 1,893 |
Less: |  |  |  |  |  |  |  |  |  |  |  |  |  |
Gross RMBS subrogation (2) |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | (1,777 | ) |  | $ | — |  |  | $ | (1,777 | )
Discount, RMBS subrogation |  | — |  |  | — |  |  | — |  |  | — |  |  | 49 |  |  | — |  |  | 49 |
Discounted RMBS subrogation, before reinsurance |  | — |  |  | — |  |  | — |  |  | — |  |  | (1,727 | ) |  | — |  |  | (1,727 | )
Less: |  |  |  |  |  |  |  |  |  |  |  |  |  |
Gross other subrogation (3) |  | — |  |  | — |  |  | — |  |  | (41 | ) |  | (666 | ) |  | (13 | ) |  | (720 | )
Discount, other subrogation |  | — |  |  | — |  |  | — |  |  | 4 |  |  | 47 |  |  | 3 |  |  | 53 |
Discounted other subrogation, before reinsurance |  | — |  |  | — |  |  | — |  |  | (37 | ) |  | (620 | ) |  | (10 | ) |  | (666 | )
Gross claim liability, net of all subrogation and discounts, before reinsurance |  | $ | 2 |  |  | $ | 39 |  |  | $ | 20 |  |  | $ | 353 |  |  | $ | (950 | ) |  | $ | 36 |  |  | $ | (501 | )
Less: Unearned premium revenue |  | $ | (1 | ) |  | $ | (9 | ) |  | $ | (1 | ) |  | $ | (7 | ) |  | $ | (35 | ) |  | $ | — |  |  | $ | (54 | )
Plus: Loss expense reserves |  | 1 |  |  | 1 |  |  | 1 |  |  | 4 |  |  | 67 |  |  | — |  |  | 73 |
Gross loss and loss expense reserves |  | $ | 1 |  |  | $ | 30 |  |  | $ | 20 |  |  | $ | 349 |  |  | $ | (918 | ) |  | $ | 36 |  |  | $ | (482 | )
Reinsurance recoverable reported on Balance Sheet (4) |  | $ | — |  |  | $ | 6 |  |  | $ | 7 |  |  | $ | 24 |  |  | $ | (10 | ) |  | $ | — |  |  | $ | 26 |
(1) | Remaining weighted-average contract period is weighted based on projected gross claims over the lives of the respective policies.
(2) | RMBS subrogation represents Ambac’s estimate of subrogation recoveries from RMBS transaction sponsors for representation and warranty ("R&W") breaches.
(3) | Other subrogation represents subrogation related to excess spread and other contractual cash flows on public finance and structured finance transactions including RMBS.
(4) | Reinsurance recoverable reported on Balance Sheet includes reinsurance recoverables of $26 related to future loss and loss expenses and $0 related to presented loss and loss expenses and subrogation.
|  | Surveillance Categories as of December 31, 2018
|  | I |  | IA |  | II |  | III |  | IV |  | V |  | Total
Number of policies |  | 21 |  |  | 28 |  |  | 18 |  |  | 16 |  |  | 145 |  |  | 3 |  |  | 231 |
Remaining weighted-average contract period (in years) (1) |  | 9 |  |  | 19 |  |  | 9 |  |  | 22 |  |  | 14 |  |  | 3 |  |  | 16 |
Gross insured contractual payments outstanding: |  |  |  |  |  |  |  |  |  |  |  |  |  |
Principal |  | $ | 917 |  |  | $ | 708 |  |  | $ | 623 |  |  | $ | 1,705 |  |  | $ | 5,407 |  |  | $ | 43 |  |  | $ | 9,403 |
Interest |  | 488 |  |  | 632 |  |  | 293 |  |  | 6,979 |  |  | 2,178 |  |  | 13 |  |  | 10,583 |
Total |  | $ | 1,404 |  |  | $ | 1,340 |  |  | $ | 916 |  |  | $ | 8,685 |  |  | $ | 7,585 |  |  | $ | 57 |  |  | $ | 19,986 |
Gross undiscounted claim liability |  | $ | 4 |  |  | $ | 64 |  |  | $ | 36 |  |  | $ | 992 |  |  | $ | 2,296 |  |  | $ | 57 |  |  | $ | 3,448 |
Discount, gross claim liability |  | — |  |  | (13 | ) |  | (3 | ) |  | (434 | ) |  | (638 | ) |  | (4 | ) |  | (1,092 | )
Gross claim liability before all subrogation and before reinsurance |  | $ | 4 |  |  | $ | 51 |  |  | $ | 33 |  |  | $ | 558 |  |  | $ | 1,658 |  |  | $ | 52 |  |  | $ | 2,356 |
Less: |  |  |  |  |  |  |  |  |  |  |  |  |  |
Gross RMBS subrogation (2) |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | (1,810 | ) |  | $ | — |  |  | $ | (1,810 | )
Discount, RMBS subrogation |  | — |  |  | — |  |  | — |  |  | — |  |  | 39 |  |  | — |  |  | 39 |
Discounted RMBS subrogation, before reinsurance |  | — |  |  | — |  |  | — |  |  | — |  |  | (1,771 | ) |  | — |  |  | (1,771 | )
Less: |  |  |  |  |  |  |  |  |  |  |  |  |  |
Gross other subrogation (3) |  | — |  |  | (11 | ) |  | — |  |  | (137 | ) |  | (625 | ) |  | (13 | ) |  | (785 | )
Discount, other subrogation |  | — |  |  | 7 |  |  | — |  |  | 67 |  |  | 55 |  |  | 4 |  |  | 133 |
Discounted other subrogation, before reinsurance |  | — |  |  | (3 | ) |  | — |  |  | (70 | ) |  | (570 | ) |  | (9 | ) |  | (652 | )
Gross claim liability, net of all subrogation and discounts, before reinsurance |  | $ | 4 |  |  | $ | 47 |  |  | $ | 33 |  |  | $ | 489 |  |  | $ | (682 | ) |  | $ | 43 |  |  | $ | (66 | )
Less: Unearned premium revenue |  | $ | (1 | ) |  | $ | (10 | ) |  | $ | (5 | ) |  | $ | (36 | ) |  | $ | (54 | ) |  | $ | — |  |  | $ | (107 | )
Plus: Loss expense reserves |  | 1 |  |  | 4 |  |  | 3 |  |  | (6 | ) |  | 63 |  |  | — |  |  | 66 |
Gross loss and loss expense reserves |  | $ | 4 |  |  | $ | 41 |  |  | $ | 30 |  |  | $ | 446 |  |  | $ | (672 | ) |  | $ | 43 |  |  | $ | (107 | )
Reinsurance recoverable reported on Balance Sheet (4) |  | $ | — |  |  | $ | 7 |  |  | $ | 4 |  |  | $ | 26 |  |  | $ | (15 | ) |  | $ | — |  |  | $ | 23 |
(1) | Remaining weighted-average contract period is weighted based on projected gross claims over the lives of the respective policies.
(2) | RMBS subrogation represents Ambac's estimate of subrogation recoveries from RMBS transaction sponsors for R&W breaches.
(3) | Other subrogation represents subrogation related to excess spread and other contractual cash flows on public finance and structured finance transactions, including RMBS.
(4) | Reinsurance recoverable reported on Balance Sheet includes reinsurance recoverables of $23 related to future loss and loss expenses and $1 related to presented loss and loss expenses and subrogation.
Puerto Rico Ambac has exposure to the Commonwealth of Puerto Rico (the "Commonwealth") and its instrumentalities across several different issuing entities with total net par exposure of $1,123. Components of Puerto Rico net par outstanding include capital appreciation bonds which are reported at the par amount at the time of issuance of the related insurance policy as opposed to the current accreted value of the bonds. Each issuing entity has its own credit risk profile attributable to discrete revenue sources, direct general obligation pledges or general obligation guarantees. The Commonwealth of Puerto Rico and certain of its instrumentalities have defaulted and may continue to default on debt service payments, including payments owed on bonds insured by Ambac Assurance. Ambac Assurance may be required to make significant amounts of policy payments over the next several years, the recoverability of which is subject to great uncertainty, which may lead to a material increase in permanent losses causing a material adverse impact on our results of operations and financial condition. Our exposure to Puerto Rico is impacted by the amount of monies available for debt service, which is in turn affected by a number of factors including demographic trends, economic growth, tax policy and revenues, impact of reforms, fiscal plans, government actions, political instability, budgetary performance and flexibility, weather events, restructuring and litigation outcomes, willingness to pay, as well as federal funding of Commonwealth needs. In the near term, the financial and economic outlook for Puerto Rico is dependent upon a still fragile infrastructure, heightening its vulnerability to additional weather events. The longer term recovery of the Commonwealth economy and its essential infrastructure will likely be dependent on, among other factors, the management, usage and efficacy of federal resources. Also important to Puerto Rico's economic growth, government reform and creditor outcomes is the Commonwealth Revised Fiscal Plan, certified by the Financial Oversight and Management Board for Puerto Rico ("Oversight Board") on May 9, 2019. The Commonwealth Revised Fiscal Plan outlines a series of reforms, projects the fiscal and economic impact of those reforms, and provides forecasts of resulting budgetary surpluses over a fiscal year series. However, as was the case with prior Commonwealth fiscal plans, the Commonwealth Revised Fiscal Plan lacks a high degree of transparency regarding the underlying data, assumptions and rationales supporting those assumptions, making reconciliation and due diligence difficult. As a result, it is difficult to predict the long-term capacity and willingness of the Puerto Rico government and its instrumentalities to pay debt service on bonded debt and how their debt burden and financial flexibility might affect Ambac Assurance's claim development potential, risk profile and long-term financial strength. Substantial uncertainty exists with respect to the ultimate outcome for creditors in Puerto Rico, such as Ambac Assurance, due to, amongst other matters, the Commonwealth Plan of Adjustment or changes thereto; political uncertainty and leadership turnover; legislation enacted by the Commonwealth and the federal government, including PROMESA; and actions taken pursuant to such laws, including Title III filings. Ambac Assurance is involved in multiple litigations relating to such actions and other issues and may not be successful in pursuing claims or protecting its interests. As a result of litigation or other aspects of the restructuring processes, including the Amended POA, the differences among the credits insured by Ambac Assurance may not be respected. Ambac Assurance has participated and may continue to participate in mediation related to potential debt restructurings, which could include debt restructurings as contemplated by the Amended POA. Mediation may not be productive or may not resolve Ambac Assurance's claims in a manner that avoids significant losses. No assurances can be given that negotiations will be successfully concluded, that Commonwealth, Oversight Board and creditor parties will reach definitive agreements on additional debt restructurings, that any additional negotiated transaction debt restructuring, definitive agreement or plans of adjustment will be approved by the court and completed, or that any transaction or plans of adjustment will not have an adverse impact on Ambac's financial condition or results. It is possible that certain restructuring process solutions, together with associated legislation, budgetary, and/or public policy proposals could be adopted and could further impair our exposures, causing losses that could have a material adverse impact on our results of operations and financial condition. While our reserving scenarios account for a wide range of possible outcomes, reflecting the significant uncertainty regarding future developments and outcomes, given our exposure to Puerto Rico and the economic, fiscal, legal and political uncertainties associated therewith as well as the residual effects emanating from the damage caused by hurricanes Maria and Irma in 2017 and earthquakes that began in late December 2019, our loss reserves may ultimately prove to be insufficient to cover our losses, potentially having a material adverse effect on our results of operations and financial position, and may be subject to material volatility. Ambac has considered these developments and other factors in evaluating its Puerto Rico loss reserves. During the year ended December 31, 2019, Ambac had incurred losses associated with its Domestic Public Finance insured portfolio of $250, which was primarily impacted by the continued uncertainty and volatility of the situation in Puerto Rico. While management believes its reserves are adequate to cover losses in its Public Finance insured portfolio, there can be no assurance that Ambac may not incur additional losses in the future, given the circumstances described herein. Such additional losses may have a material adverse effect on Ambac’s results of operations and financial condition and may result in adverse consequences such as impairing the ability of Ambac Assurance to honor its financial obligations; the initiation of rehabilitation proceedings against Ambac Assurance; decreased likelihood of Ambac Assurance delivering value to Ambac, through dividends or otherwise; and a significant drop in the value of securities issued or insured by Ambac or Ambac Assurance. For public finance credits, including Puerto Rico, as well as other issuers, for which Ambac has an estimate of expected loss at December 31, 2019, the possible increase in loss reserves under stress or other adverse conditions and circumstances was estimated to be approximately $1,000. This possible increase in loss reserves under stress or other adverse conditions is very significant and if we were to experience such incremental losses, our stockholders’ equity as of December 31, 2019 would decrease from $1,536 to $536. However, there can be no assurance that losses may not exceed such amount. COFINA Debt Restructuring On January 16-17, 2019, the hearings for the confirmation of the COFINA Plan of Adjustment ("COFINA POA") and the Commonwealth 9019 motion were held. On February 4, 2019, the COFINA POA was confirmed and the Commonwealth 9019 motion was approved by the U.S. District Court for the District of Puerto Rico. On February 12, 2019, the COFINA POA went effective. Pursuant to the POA, all existing COFINA senior and subordinate bonds were discharged and exchanged for cash and new COFINA current interest and capital appreciation bonds ("new COFINA bonds"). The cash and new COFINA bonds allocated to COFINA senior bondholders equaled approximately 93% (considering the new COFINA bonds at par) of such senior bondholders’ allowed claim, in the amount of the COFINA senior bond accreted value, as of, but not including, May 5, 2017 (the COFINA Title III Petition Date). As a result of the COFINA POA, and subsequent commutations, amendments, and redemptions of obligations of the COFINA Class 2 Trust, Ambac Assurance's net par outstanding was reduced to $101 as of December 31, 2019. Ambac Assurance's remaining policy obligation of $101 net par is an asset of the COFINA Class 2 Trust, which holds a ratable distribution of new COFINA bonds, the interest and principal from which can be used to partially offset Ambac’s remaining insurance liability. As further discussed in Note 3. Variable Interest Entities, Ambac Assurance consolidates the COFINA Class 2 Trust. At this time, it is unclear what impact the COFINA restructuring will have on the prospective recoveries of Ambac Assurance's other insured Puerto Rico instrumentalities. Representation and Warranty Recoveries Ambac records estimated RMBS R&W subrogation recoveries for breaches of R&W by sponsors of certain RMBS transactions. For a discussion of the approach utilized to estimate RMBS R&W subrogation recoveries, see Note 2. Basis of Presentation and Significant Accounting Policies. Ambac has recorded RMBS R&W subrogation recoveries of $1,727, ($1,702 net of reinsurance) and $1,771, ($1,744 net of reinsurance) at December 31, 2019 and 2018, respectively. Below is the rollforward of RMBS R&W subrogation for the affected periods:
Year ended December 31, | 2019 |  | 2018 |  | 2017
Discounted RMBS subrogation recovery (gross of reinsurance) at beginning of year | $ | 1,771 |  |  | $ | 1,834 |  |  | $ | 1,907 |
All other changes (1) | (43 | ) |  | (64 | ) |  | (73 | )
Discounted RMBS subrogation recovery (gross of reinsurance) at end of year | $ | 1,727 |  |  | $ | 1,771 |  |  | $ | 1,834 |
(1) | All other changes which may impact RMBS R&W subrogation recoveries include changes in actual or projected collateral performance, changes in the creditworthiness of a sponsor and the projected timing of recoveries. All other changes may also include estimates of potential sponsor settlements that may not have been subject to a sampling approach or have been executed, but the settlement amounts have not yet been received. Those that have not been subject to a sampling approach are not material to Ambac’s financial results and therefore are included in this table.
Assumed Reinsurance Assumed par outstanding was $219 and $219 at December 31, 2019 and 2018, respectively. 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 $109 at December 31, 2019. Credit exposure existed at December 31, 2019, 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, 2019, there were ceded reinsurance balances payable of $29 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 $124 from its reinsurers at December 31, 2019. As of December 31, 2019, the aggregate amount of insured par ceded by Ambac Assurance to reinsurers under reinsurance agreements was $5,890 with the largest reinsurer accounting for $2,746 or 6.3% of gross par outstanding at December 31, 2019. The following table represents the percentage ceded to reinsurers and unsecured reinsurance recoverable at December 31, 2019.
Reinsurers |  | Percentage Ceded Par |  | Net Unsecured Reinsurance Recoverable (1)
Assured Guaranty Re Ltd |  | 47% |  | $ | — |
Build America Mutual Assurance Company (2) |  | 42 |  | 36 |
Assured Guaranty Corporation |  | 8 |  | 5 |
Sompo Japan Nipponkoa Insurance, Inc. |  | 3 |  | — |
Total |  | 100% |  | $ | 41 |
(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.
(2) | Build America Mutual Assurance Company has an S&P rating of AA.
Insurance Intangible Asset The insurance intangible amortization expense is included in insurance intangible amortization on the Consolidated Statements of Total Comprehensive Income (Loss). For the years ended December 31, 2019, 2018 and 2017, the insurance intangible amortization expense was $295, $107 and $151, respectively. As of December 31, 2019 and 2018, the gross carrying value of the insurance intangible asset was $1,273 and $1,552, respectively. Accumulated amortization of the insurance intangible asset was $847 and $833, as of December 31, 2019 and 2018, respectively, resulting in a net insurance intangible asset of $427 and $719, respectively. The estimated future amortization expense for the net insurance intangible asset is as follows:
Amortization expense (1) (2) |
2020 | $ | 45 |
2021 | 39 |
2022 | 36 |
2023 | 33 |
2024 | 30 |
Thereafter | 244 |
(1) | The insurance intangible asset will be amortized using a level-yield method based on par exposure of the related financial guarantee insurance or reinsurance contracts as described in Note 2. Basis of Presentation and Significant Accounting Policies. Future amortization considers the use of contractual lives for many bond types which do not have homogeneous pools of underlying collateral. Actual maturities will differ from contractual maturities because borrowers may have the right to call or prepay certain obligations. If those bonds types are retired early, amortization expense may differ in the period of call or refinancing from the amounts provided in the table above.
(2) The weighted-average amortizations period is 7.6 years.

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- Definition The entire disclosure for financial guarantee insurance contracts (as defined) issued by the entity. Such disclosure is intended to enable users of the financial information to understand the factors affecting the present and future recognition and measurement of the entity's financial guarantee insurance contracts. + References Reference 1: http://fasb.org/us-gaap/role/ref/legacyRef -Publisher FASB -Name Accounting Standards Codification -Topic 944 -URI http://asc.fasb.org/topic&trid=2303980 + Details
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