XML 39 R15.htm IDEA: XBRL DOCUMENT
v3.20.1

Investments | 3 Months Ended
--- | ---
Mar. 31, 2020
Investments, Debt and Equity Securities [Abstract] |
Investments | 8. INVESTMENTS Ambac’s non-VIE invested assets are primarily comprised of fixed income securities classified as available-for-sale and interests in pooled investment funds which are reported within Other investments on the Consolidated Balance Sheets. Interests in pooled investment funds in the form of common stock or in-substance common stock are classified as trading securities, while limited partner interests in such funds are reported using the equity method. Other investments also include equity interests held by AFG including in an unconsolidated trust created in connection with its sale of Segregated Account junior surplus notes on August 28, 2014. Disclosures in this Note for the period ended March 31, 2020, are in accordance with the new CECL standard adopted January 1, 2020, which is more fully described in Note 2, Basis of Presentation and Significant Accounting Policies. To the extent disclosures for periods prior to January 1, 2020, made in accordance with prior GAAP rules differ from disclosures under the new CECL standard, such differences are explained below. Fixed Income Securities: The amortized cost and estimated fair value of available-for-sale investments, excluding VIE investments, at March 31, 2020 and December 31, 2019 were as follows:
|  | Amortized Cost |  | Allowance for Credit Losses |  | Gross Unrealized Gains in AOCI |  | Gross Unrealized Losses in AOCI |  | Estimated Fair Value
March 31, 2020: |  |  |  |  |  |  |  |  |  |
Fixed income securities: |  |  |  |  |  |  |  |  |  |
Municipal obligations |  | $ | 196 |  |  | $ | — |  |  | $ | 23 |  |  | $ | 1 |  |  | $ | 218 |
Corporate obligations (1) |  | 1,284 |  |  | — |  |  | 18 |  |  | 42 |  |  | 1,261 |
Foreign obligations |  | 41 |  |  | — |  |  | 1 |  |  | — |  |  | 42 |
U.S. government obligations |  | 168 |  |  | — |  |  | 10 |  |  | — |  |  | 177 |
Residential mortgage-backed securities |  | 207 |  |  | — |  |  | 14 |  |  | 19 |  |  | 203 |
Commercial mortgage-backed securities |  | 51 |  |  | — |  |  | 1 |  |  | 1 |  |  | 51 |
Collateralized debt obligations |  | 144 |  |  | — |  |  | — |  |  | 11 |  |  | 132 |
Other asset-backed securities |  | 277 |  |  | — |  |  | 14 |  |  | 8 |  |  | 283 |
|  | 2,367 |  |  | — |  |  | 81 |  |  | 81 |  |  | 2,367 |
Short-term |  | 586 |  |  | — |  |  | — |  |  | — |  |  | 586 |
|  | 2,953 |  |  | — |  |  | 81 |  |  | 81 |  |  | 2,952 |
Fixed income securities pledged as collateral: |  |  |  |  |  |  |  |  |  |
Short-term |  | 85 |  |  | — |  |  | — |  |  | — |  |  | 85 |
Total collateralized investments |  | 85 |  |  | — |  |  | — |  |  | — |  |  | 85 |
Total available-for-sale investments |  | $ | 3,038 |  |  | $ | — |  |  | $ | 81 |  |  | $ | 81 |  |  | $ | 3,037 |
|  | Amortized Cost |  | Gross Unrealized Gains |  | Gross Unrealized Losses |  | Estimated Fair Value |  | Non-credit Other-than temporary Impairments (2)
December 31, 2019: |  |  |  |  |  |  |  |  |  |
Fixed income securities: |  |  |  |  |  |  |  |  |  |
Municipal obligations |  | $ | 194 |  |  | $ | 22 |  |  | $ | — |  |  | $ | 215 |  |  | $ | — |
Corporate obligations (1) |  | 1,396 |  |  | 36 |  |  | 2 |  |  | 1,430 |  |  | — |
Foreign obligations |  | 44 |  |  | 1 |  |  | — |  |  | 44 |  |  | — |
U.S. government obligations |  | 157 |  |  | 2 |  |  | 2 |  |  | 156 |  |  | — |
Residential mortgage-backed securities |  | 200 |  |  | 47 |  |  | — |  |  | 248 |  |  | — |
Commercial mortgage-backed securities |  | 49 |  |  | 1 |  |  | — |  |  | 50 |  |  | — |
Collateralized debt obligations |  | 147 |  |  | — |  |  | 1 |  |  | 146 |  |  | — |
Other asset-backed securities |  | 263 |  |  | 24 |  |  | — |  |  | 287 |  |  | — |
|  | 2,450 |  |  | 132 |  |  | 5 |  |  | 2,577 |  |  | — |
Short-term |  | 653 |  |  | — |  |  | — |  |  | 653 |  |  | — |
|  | 3,103 |  |  | 132 |  |  | 5 |  |  | 3,230 |  |  | — |
Fixed income securities pledged as collateral: |  |  |  |  |  |  |  |  |  |
Short-term |  | 85 |  |  | — |  |  | — |  |  | 85 |  |  | — |
Total collateralized investments |  | 85 |  |  | — |  |  | — |  |  | 85 |  |  | — |
Total available-for-sale investments |  | $ | 3,187 |  |  | $ | 132 |  |  | $ | 5 |  |  | $ | 3,314 |  |  | $ | — |
(1) | Includes Ambac's holdings of the secured notes issued by Ambac LSNI in connection with the Rehabilitation Exit Transactions.
(2) | At December 31, 2019, represents the amount of non-credit other-than-temporary impairment losses remaining in accumulated other comprehensive income on securities that also had a credit impairment. These losses are included in gross unrealized losses at December 31, 2019.
The amortized cost and estimated fair value of available-for-sale investments, excluding VIE investments, at March 31, 2020, by contractual maturity, were as follows:
|  | Amortized Cost |  | Estimated Fair Value
Due in one year or less |  | $ | 683 |  |  | $ | 683 |
Due after one year through five years |  | 1,083 |  |  | 1,062 |
Due after five years through ten years |  | 447 |  |  | 462 |
Due after ten years |  | 145 |  |  | 161 |
|  | 2,359 |  |  | 2,368 |
Residential mortgage-backed securities |  | 207 |  |  | 203 |
Commercial mortgage-backed securities |  | 51 |  |  | 51 |
Collateralized debt obligations |  | 144 |  |  | 132 |
Other asset-backed securities |  | 277 |  |  | 283 |
Total |  | $ | 3,038 |  |  | $ | 3,037 |
Expected maturities will differ from contractual maturities because borrowers may have the right to call or prepay certain obligations with or without call or prepayment penalties. Unrealized Losses on Fixed Income Securities: The following table shows gross unrealized losses and fair values of Ambac’s available-for-sale investments, excluding VIE investments, which at March 31, 2020, did not have an allowance for credit losses under the new CECL standard and, at December 31, 2019 did not have other-than-temporary impairments recorded in earnings under prior GAAP. This information is aggregated by investment category and length of time that the individual securities have been in a continuous unrealized loss position, at March 31, 2020 and December 31, 2019:
|  | Less Than 12 Months |  | 12 Months or More |  | Total
|  | Fair Value |  | Gross Unrealized Loss |  | Fair Value |  | Gross Unrealized Loss |  | Fair Value |  | Gross Unrealized Loss
March 31, 2020: |  |  |  |  |  |  |  |  |  |  |  |
Fixed income securities: |  |  |  |  |  |  |  |  |  |  |  |
Municipal obligations |  | $ | 15 |  |  | $ | 1 |  |  | $ | 8 |  |  | $ | — |  |  | $ | 23 |  |  | $ | 1 |
Corporate obligations |  | 769 |  |  | 42 |  |  | — |  |  | — |  |  | 769 |  |  | 42 |
Foreign obligations |  | 1 |  |  | — |  |  | — |  |  | — |  |  | 1 |  |  | — |
U.S. government obligations |  | 3 |  |  | — |  |  | — |  |  | — |  |  | 3 |  |  | — |
Residential mortgage-backed securities |  | 125 |  |  | 19 |  |  | — |  |  | — |  |  | 125 |  |  | 19 |
Commercial mortgage-backed securities |  | 24 |  |  | 1 |  |  | — |  |  | — |  |  | 24 |  |  | 1 |
Collateralized debt obligations |  | 99 |  |  | 8 |  |  | 33 |  |  | 3 |  |  | 132 |  |  | 11 |
Other asset-backed securities |  | 83 |  |  | 7 |  |  | 7 |  |  | 1 |  |  | 90 |  |  | 8 |
|  | 1,119 |  |  | 77 |  |  | 48 |  |  | 4 |  |  | 1,167 |  |  | 81 |
Short-term |  | 50 |  |  | — |  |  | — |  |  | — |  |  | 50 |  |  | — |
Total securities |  | $ | 1,169 |  |  | $ | 77 |  |  | $ | 48 |  |  | $ | 4 |  |  | $ | 1,217 |  |  | $ | 81 |
|  | Less Than 12 Months |  | 12 Months or More |  | Total
|  | Fair Value |  | Gross Unrealized Loss |  | Fair Value |  | Gross Unrealized Loss |  | Fair Value |  | Gross Unrealized Loss
December 31, 2019: |  |  |  |  |  |  |  |  |  |  |  |
Fixed income securities: |  |  |  |  |  |  |  |  |  |  |  |
Municipal obligations |  | $ | 13 |  |  | $ | — |  |  | $ | 10 |  |  | $ | — |  |  | $ | 23 |  |  | $ | — |
Corporate obligations |  | 63 |  |  | 2 |  |  | 5 |  |  | — |  |  | 68 |  |  | 2 |
Foreign obligations |  | 20 |  |  | — |  |  | — |  |  | — |  |  | 20 |  |  | — |
U.S. government obligations |  | 36 |  |  | 2 |  |  | 2 |  |  | — |  |  | 38 |  |  | 2 |
Residential mortgage-backed securities |  | 5 |  |  | — |  |  | — |  |  | — |  |  | 5 |  |  | — |
Commercial mortgage-backed securities |  | 7 |  |  | — |  |  | — |  |  | — |  |  | 7 |  |  | — |
Collateralized debt obligations |  | 53 |  |  | — |  |  | 63 |  |  | 1 |  |  | 116 |  |  | 1 |
Other asset-backed securities |  | 2 |  |  | — |  |  | 7 |  |  | — |  |  | 10 |  |  | — |
|  | 200 |  |  | 4 |  |  | 88 |  |  | 1 |  |  | 288 |  |  | 5 |
Short-term |  | 201 |  |  | — |  |  | — |  |  | — |  |  | 201 |  |  | — |
Total securities |  | $ | 401 |  |  | $ | 4 |  |  | $ | 88 |  |  | $ | 1 |  |  | $ | 489 |  |  | $ | 5 |
Management has determined that the securities in the above table do not have credit impairment as of March 31, 2020 and December 31, 2019, based upon various factors, including (i) no actual or expected principal and interest payment defaults on these securities; (ii) analysis of the creditworthiness of the issuer and financial guarantor, as applicable, and (iii) for debt securities that are non-highly rated beneficial interests in securitized financial assets, analysis of whether there was an adverse change in projected cash flows. Management's evaluation as of March 31, 2020 includes the expectation that all principal and interest payments on securities guaranteed by Ambac Assurance or Ambac UK will be made timely and in full. As of March 31, 2020, corporate securities in an unrealized loss position included $456 of Secured Notes issued by Ambac LSNI with an unrealized loss $24. The Secured Notes are insured under a financial guarantee policy issued by Ambac Assurance. Corporate securities also included $12 million of other non-investment grade securities with an aggregate gross unrealized loss of $4. The determination that these securities were not credit impaired was based on a security level assessment of default probability derived from historical data for the applicable asset class and credit rating. This assessment also considered the potential increased risk under a stressed macroeconomic environment. The remaining corporate securities carry investment grade credit ratings and suffered temporary price declines consistent with the broader bond market. There are no expected defaults among these securities. Residential mortgage backed securities ("RMBS") and other asset backed securities in an unrealized loss position at March 31, 2020, are primarily RMBS and student loan securities guaranteed by Ambac Assurance. For these securities, management compared the present value of cash flows expected to be collected to the amortized cost basis of the securities to assess whether the amortized cost will be recovered. Cash flows considered full payment of interest and principal through Ambac's financial guarantee. For floating rate securities, future cash flows were adjusted to reflect changes in the index rate applicable to each security as of the evaluation date. Cash flows were discounted at the effective interest rate. Adverse changes in cash flows attributable solely to changes in the index rate of securities are not considered impaired. Collateralized debt obligations in an unrealized loss position at March 31, 2020, are highly rated collateralized loan obligations ("CLOs"). The CLO market experienced indiscriminate price declines as certain market participants sought to generate excess liquidity. Management determined that these price declines are temporary and that the CLOs are not credit impaired as of March 31, 2020. Ambac’s assessment about whether a decline in value is other-than-temporary reflects management’s current judgment regarding facts and circumstances specific to a security and other factors. If that judgment changes, Ambac may record a charge for credit impairment in future periods. Realized Gains and Losses including Impairments: The following table details amounts included in net realized gains (losses) and impairments included in earnings for the affected periods:
|  | Three Months Ended March 31,
|  | 2020 |  | 2019
Gross realized gains on securities |  | $ | 6 |  |  | $ | 24 |
Gross realized losses on securities |  | — |  |  | (4 | )
Net foreign exchange (losses) gains |  | 2 |  |  | (3 | )
Credit impairments (1) |  | — |  |  | — |
Intent / requirement to sell impairments (2) |  | — |  |  | — |
Net realized gains (losses) |  | $ | 8 |  |  | $ | 17 |
(1) | Includes securities which management does not intend to sell and it is not more likely than not that the company will be required to sell before recovery of the amortized cost basis.
(2) | Includes securities which management either intends sell or it is more likely than not that the company will be required to sell before recovery of the amortized cost basis.
The following table presents a roll-forward of Ambac’s cumulative credit losses on debt securities for which a portion of an other-than-temporary impairment was recognized in other comprehensive income under prior GAAP for the period ended December 31, 2019:
Three Months Ended March 31, 2019 |  |
Balance, beginning of period |  | $ | 12 |
Additions for credit impairments recognized on: |  |
Securities not previously impaired |  | — |
Securities previously impaired |  | — |
Reductions for credit impairments previously recognized on: |  |
Securities that matured or were sold during the period |  | — |
Balance, end of period |  | $ | 12 |
Ambac had zero allowance for credit losses at March 31, 2020. Ambac did not purchase any financial assets with credit deterioration for the three month period ended March 31, 2020. Counterparty Collateral, Deposits with Regulators and Other Restrictions: Ambac routinely pledges and receives collateral related to certain transactions. Securities held directly in Ambac’s investment portfolio with a fair value of $85 and $85 at March 31, 2020 and December 31, 2019, respectively, were pledged to derivative counterparties. Ambac’s derivative counterparties have the right to re-pledge the investment securities and as such, these pledged securities are separately classified on the Consolidated Balance Sheets as “Fixed income securities pledged as collateral, at fair value”. Refer to Note 9. Derivative Instruments for further information on cash collateral. There were no securities received from other counterparties that were re-pledged by Ambac. Securities carried at $7 and $6 at March 31, 2020 and December 31, 2019, respectively, were deposited by Ambac and Everspan with governmental authorities or designated custodian banks as required by laws affecting insurance companies. Invested assets carried at $1 at March 31, 2020 and December 31, 2019 were deposited as security in connection with a letter of credit issued for an office lease. Securities with a fair value of $174 and $197 at March 31, 2020 and December 31, 2019, respectively, were pledged as collateral and as sources of funding to repay the Secured Notes issued by Ambac LSNI. The securities may not be transferred or repledged by Ambac LSNI. Collateral may be sold to fund redemptions of the Secured Notes. Ambac Assurance also pledged for the benefit of the holders of Secured Notes (other than Ambac Assurance) the proceeds of interest payments and partial redemptions of the Secured Notes held by Ambac Assurance. The amount of such proceeds held by Ambac Assurance was $31 and $55 at March 31, 2020 and December 31, 2019, respectively, and is included in Restricted cash on the Consolidated Balance Sheet. Ambac Assurance may, from time to time, sell all or a portion of the Secured Notes it owns. In the event that Ambac Assurance sells any of the Secured Notes it owns, the proceeds must be used to redeem a like amount of the Ambac Note at par. The price at which Ambac Assurance sells the Secured Notes may differ from the price at which it redeems the Secured Notes. Guaranteed Securities: Ambac’s fixed income portfolio includes securities covered by guarantees issued by Ambac Assurance and other financial guarantors (“insured securities”). The published rating agency ratings on these securities reflect the higher of the financial strength rating of the financial guarantor or the rating of the underlying issuer. Rating agencies do not always publish separate underlying ratings (those ratings excluding the insurance by the financial guarantor). In the event these underlying ratings are not available from the rating agencies, Ambac will assign an internal rating. The following table represents the fair value, including the value of the financial guarantee, and weighted-average underlying rating, excluding the financial guarantee, of the insured securities at March 31, 2020 and December 31, 2019, respectively:
|  | Municipal Obligations |  | Corporate Obligations (2) |  | Mortgage and Asset- backed Securities |  | Total |  | Weighted Average Underlying Rating (1)
March 31, 2020: |  |  |  |  |  |  |  |  |  |
Ambac Assurance Corporation |  | $ | 181 |  |  | $ | 495 |  |  | $ | 396 |  |  | $ | 1,072 |  |  | B
National Public Finance Guarantee Corporation |  | 9 |  |  | — |  |  | — |  |  | 9 |  |  | BBB-
Total |  | $ | 189 |  |  | $ | 495 |  |  | $ | 396 |  |  | $ | 1,081 |  |  | B
December 31, 2019: |  |  |  |  |  |  |  |  |  |
Ambac Assurance Corporation |  | $ | 176 |  |  | $ | 535 |  |  | $ | 442 |  |  | $ | 1,153 |  |  | B-
National Public Finance Guarantee Corporation |  | 11 |  |  | — |  |  | — |  |  | 11 |  |  | BBB-
Total |  | $ | 187 |  |  | $ | 535 |  |  | $ | 442 |  |  | $ | 1,164 |  |  | B-
(1) | Ratings are based on the lower of Standard & Poor’s or Moody’s rating. If unavailable, Ambac’s internal rating is used.
(2) | Represents Ambac's holdings of secured notes issued by Ambac LSNI in connection with the Rehabilitation Exit Transactions. These secured notes are insured by Ambac Assurance.
Other Investments: Ambac's investment portfolio includes interests in various pooled investment funds. Fair value and additional information about investments in pooled funds, by investment type, is summarized in the table below. Except as noted in the table, fair value as reported is determined using net asset value ("NAV") as a practical expedient. In addition to these investments, Ambac has unfunded commitments at March 31, 2020 of $76 to private credit, private equity and hedge funds.
|  | Fair Value |  |  |  |
Class of Funds |  | March 31, 2020 |  | December 31, 2019 |  | Redemption Frequency |  | Redemption Notice Period
Real estate properties (1) |  | $ | 15 |  |  | $ | 16 |  |  | quarterly |  | 10 business days
Hedge funds (2) |  | 60 |  |  | 65 |  |  | quarterly |  | 90 days
High yields and leveraged loans (3) (10) |  | 57 |  |  | 176 |  |  | daily |  | 0 - 30 days
Private credit (4) |  | 47 |  |  | 51 |  |  | quarterly |  | 180 days if permitted
Insurance-linked investments (5) |  | 3 |  |  | 3 |  |  | fully redeemed |  | none
Equity market investments (6) (10) |  | 58 |  |  | 55 |  |  | daily |  | 0 days
Investment grade floating rate income (7) |  | 52 |  |  | 66 |  |  | weekly |  | 0 days
Private equity (8) |  | 4 |  |  | — |  |  | quarterly |  | 90 days if permitted
Emerging markets debt (9) (10) |  | 16 |  |  | — |  |  | daily |  | 0 days
Total equity investments in pooled funds |  | $ | 312 |  |  | $ | 432 |  |  |  |  |
(1) | Investments consist of UK property to generate income and capital growth.
(2) | This class seeks to generate superior risk-adjusted returns through selective asset sourcing, active trading and hedging strategies within structured credit markets, including mortgage-backed securities, commercial real estate securities and loans, CLOs, REITs and asset backed securities.
(3) | This class of funds includes investments in a range of instruments including high-yield bonds, leveraged loans, CLOs, ABS and floating rate notes to generate income and capital appreciation.
(4) | This class aims to obtain high long-term return primarily through credit and preferred equity investments with low liquidity and defined term.
(5) | This class seeks to generate returns from insurance markets through investments in catastrophe bonds, life insurance and other insurance linked investments.
(6) | This class of funds aim to achieve long term growth through diversified exposure to global equity markets.
(7) | This class of funds includes investments in high quality floating rate debt securities including ABS and corporate floating rate notes as well as ultra-short term bonds and money market instruments.
(8) | This class seeks to generate long-term capital appreciation through investments in private equity, equity-related and other instruments.
(9) | This class seeks long-term income and growth through investments in the bonds of issuers in emerging markets.
(10) | These categories include fair value amounts totaling $81 and $136 at March 31, 2020 and December 31, 2019, respectively that are readily determinable and are priced through pricing vendors, including for High yield and leveraged loans products: $17 and $81; for Equity market investments: $48 and $55; and for Emerging markets debt $16 and $0
Ambac also holds an direct equity interests including in an unconsolidated trust created in connection with the 2014 sale of Segregated Account junior surplus notes, which is accounted for under the equity method. Investment Income (loss): Net investment income (loss) was comprised of the following for the affected periods:
|  | Three Months Ended March 31,
|  | 2020 |  | 2019
Fixed income securities |  | $ | 30 |  |  | $ | 44 |
Short-term investments |  | 2 |  |  | 4 |
Loans |  | — |  |  | — |
Investment expense |  | (2 | ) |  | (1 | )
Securities available-for-sale and short-term |  | 31 |  |  | 47 |
Other investments |  | (52 | ) |  | 8 |
Total net investment income (loss) |  | $ | (21 | ) |  | $ | 55 |
Net investment income (loss) from Other investments primarily represents changes in fair value on securities classified as trading or under the fair value option, income from investment limited partnerships accounted for under the equity method and the above noted equity interest in an unconsolidated trust accounted for under the equity method. The portion of net unrealized gains (losses) related to trading securities still held at the end of each period is as follows:
|  | Three Months Ended March 31,
|  | 2020 |  | 2019
Net gains (losses) recognized during the period on trading securities |  | $ | (32 | ) |  | $ | 7 |
Less: net gains (losses) recognized during the reporting period on trading securities sold during the period |  | (3 | ) |  | 1 |
Unrealized gains (losses) recognized during the reporting period on trading securities still held at the reporting date |  | $ | (29 | ) |  | $ | 6 |

X
- References No definition available. + Details
Name: | us-gaap_InvestmentsDebtAndEquitySecuritiesAbstract
Namespace Prefix: | us-gaap_
Data Type: | xbrli:stringItemType
Balance Type: | na
Period Type: | duration

X
- Definition The entire disclosure for investments in certain debt and equity securities. + References Reference 1: http://fasb.org/us-gaap/role/ref/legacyRef -Publisher FASB -Name Accounting Standards Codification -Topic 942 -SubTopic 320 -URI http://asc.fasb.org/subtopic&trid=2209399 Reference 2: http://fasb.org/us-gaap/role/ref/legacyRef -Publisher FASB -Name Accounting Standards Codification -Topic 946 -SubTopic 320 -URI http://asc.fasb.org/subtopic&trid=2324412 Reference 3: http://fasb.org/us-gaap/role/ref/legacyRef -Publisher FASB -Name Accounting Standards Codification -Topic 320 -URI http://asc.fasb.org/topic&trid=2196928 Reference 4: http://fasb.org/us-gaap/role/ref/legacyRef -Publisher FASB -Name Accounting Standards Codification -Topic 940 -SubTopic 320 -URI http://asc.fasb.org/subtopic&trid=2176304 + Details
Name: | us-gaap_InvestmentsInDebtAndMarketableEquitySecuritiesAndCertainTradingAssetsDisclosureTextBlock
Namespace Prefix: | us-gaap_
Data Type: | nonnum:textBlockItemType
Balance Type: | na
Period Type: | duration