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Financial Guarantee Insurance Contracts | 9 Months Ended
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Sep. 30, 2021
Insurance [Abstract] |
Fair Value Measurements | 8. FAIR VALUE MEASUREMENTS The Fair Value Measurement Topic of the ASC establishes a framework for measuring fair value and disclosures about fair value measurements. Fair Value Hierarchy: The Fair Value Measurement Topic of the ASC specifies a fair value hierarchy based on whether the inputs to valuation techniques used to measure fair value are observable or unobservable. Observable inputs reflect market data obtained from independent sources, while unobservable inputs reflect Company-based assumptions. The fair value hierarchy has three broad levels as follows:
l | Level 1 |  | Quoted prices for identical instruments in active markets. Assets and liabilities classified as Level 1 include US Treasury and other foreign government obligations traded in highly liquid and transparent markets, certain highly liquid pooled fund investments, exchange traded futures contracts, variable rate demand obligations and money market funds.
l | Level 2 |  | Quoted prices for similar instruments in active markets; quoted prices for identical or similar instruments in markets that are not active; and model-derived valuations in which all significant inputs and significant value drivers are observable in active markets. Assets and liabilities classified as Level 2 generally include investments in fixed maturity securities representing municipal, asset-backed and corporate obligations, certain interest rate swap contracts and most long-term debt of variable interest entities consolidated under the Consolidation Topic of the ASC.
l | Level 3 |  | Model derived valuations in which one or more significant inputs or significant value drivers are unobservable. This hierarchy requires the use of observable market data when available. Assets and liabilities classified as Level 3 include credit derivative contracts, certain uncollateralized interest rate swap contracts, certain equity investments and certain investments in fixed maturity securities. Additionally, Level 3 assets and liabilities generally include loan receivables, and certain long-term debt of variable interest entities consolidated under the Consolidation Topic of the ASC.
The Fair Value Measurement Topic of the ASC permits, as a practical expedient, the estimation of fair value of certain investments in funds using the net asset value per share of the investment or its equivalent (“NAV”). Investments in funds valued using NAV are not categorized as Level 1, 2 or 3 under the fair value hierarchy. The Investments — Equity Securities Topic of the ASC permits the measurement of certain equity securities without a readily determinable fair value at cost, less impairment, and adjusted to fair value when observable price changes in identical or similar investments from the same issuer occur (the "measurement alternative"). The fair values of investments measured under this measurement alternative are not included in the below disclosures of fair value of financial instruments. The following table sets forth the carrying amount and fair value of Ambac’s financial assets and liabilities as of September 30, 2021 and December 31, 2020, 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:
September 30, 2021: |  | Level 1 |  | Level 2 |  | Level 3
Financial assets: |  |  |  |  |  |  |  |  |  |
Fixed maturity securities: |  |  |  |  |  |  |  |  |  |
Municipal obligations |  | $ | 352 |  |  | $ | 352 |  |  | $ | — |  |  | $ | 352 |  |  | $ | — |
Corporate obligations |  | 659 |  |  | 659 |  |  | 3 |  |  | 644 |  |  | 13 |
Foreign obligations |  | 87 |  |  | 87 |  |  | 87 |  |  | — |  |  | — |
U.S. government obligations |  | 40 |  |  | 40 |  |  | 40 |  |  | — |  |  | — |
Residential mortgage-backed securities |  | 247 |  |  | 247 |  |  | — |  |  | 247 |  |  | — |
Collateralized debt obligations |  | 116 |  |  | 116 |  |  | — |  |  | 116 |  |  | — |
Other asset-backed securities |  | 298 |  |  | 298 |  |  | — |  |  | 219 |  |  | 78 |
Fixed maturity securities, pledged as collateral: |  |  |  |  |  |  |  |  |  |
U.S. government obligations |  | 15 |  |  | 15 |  |  | 15 |  |  | — |  |  | — |
Short-term |  | 105 |  |  | 105 |  |  | 105 |  |  | — |  |  | — |
Short term investments |  | 368 |  |  | 368 |  |  | 299 |  |  | 68 |  |  | — |
Other investments (1) |  | 663 |  |  | 656 |  |  | 115 |  |  | — |  |  | — |
Cash, cash equivalents and restricted cash |  | 20 |  |  | 20 |  |  | 20 |  |  | — |  |  | — |
Derivative assets: |  |  |  |  |  |  |  |  |  |
Interest rate swaps—asset position |  | 78 |  |  | 78 |  |  | — |  |  | 5 |  |  | 72 |
Other assets - equity in sponsored VIE |  | — |  |  | — |  |  | — |  |  | — |  |  | — |
Other assets-Loans |  | 3 |  |  | 3 |  |  | — |  |  | — |  |  | 3 |
Variable interest entity assets: |  |  |  |  |  |  |  |  |  |
Fixed maturity securities: Corporate obligations |  | 3,184 |  |  | 3,184 |  |  | — |  |  | — |  |  | 3,184 |
Fixed maturity securities: Municipal obligations |  | 133 |  |  | 133 |  |  | — |  |  | 133 |  |  | — |
Restricted cash |  | 2 |  |  | 2 |  |  | 2 |  |  | — |  |  | — |
Loans |  | 2,784 |  |  | 2,784 |  |  | — |  |  | — |  |  | 2,784 |
Derivative assets: Currency swaps-asset position |  | 40 |  |  | 40 |  |  | — |  |  | 40 |  |  | — |
Total financial assets |  | $ | 9,192 |  |  | $ | 9,185 |  |  | $ | 685 |  |  | $ | 1,824 |  |  | $ | 6,135 |
Financial liabilities: |  |  |  |  |  |  |  |  |  |
Long term debt, including accrued interest |  | $ | 2,770 |  |  | $ | 2,627 |  |  | $ | — |  |  | $ | 2,604 |  |  | $ | 23 |
Derivative liabilities: |  |  |  |  |  |  |  |  |  |
Interest rate swaps—liability position |  | 94 |  |  | 94 |  |  | — |  |  | 94 |  |  | — |
Liabilities for net financial guarantees written (2) |  | (873) |  |  | 8 |  |  | — |  |  | — |  |  | 8 |
Variable interest entity liabilities: |  |  |  |  |  |  |  |  |  |
Long-term debt (includes $4,097 at fair value) |  | 4,255 |  |  | 4,292 |  |  | — |  |  | 4,126 |  |  | 165 |
Derivative liabilities: Interest rate swaps—liability position |  | 1,830 |  |  | 1,830 |  |  | — |  |  | 1,830 |  |  | — |
Total financial liabilities |  | $ | 8,077 |  |  | $ | 8,851 |  |  | $ | — |  |  | $ | 8,654 |  |  | $ | 197 |
|  | Carrying Amount |  | Total Fair Value |  | Fair Value Measurements Categorized as:
December 31, 2020: |  | Level 1 |  | Level 2 |  | Level 3
Financial assets: |  |  |  |  |  |  |  |  |  |
Fixed maturity securities: |  |  |  |  |  |  |  |  |  |
Municipal obligations |  | $ | 358 |  |  | $ | 358 |  |  | $ | — |  |  | $ | 358 |  |  | $ | — |
Corporate obligations |  | 1,077 |  |  | 1,077 |  |  | 4 |  |  | 1,073 |  |  | — |
Foreign obligations |  | 98 |  |  | 98 |  |  | 98 |  |  | — |  |  | — |
U.S. government obligations |  | 106 |  |  | 106 |  |  | 106 |  |  | — |  |  | — |
Residential mortgage-backed securities |  | 302 |  |  | 302 |  |  | — |  |  | 302 |  |  | — |
Collateralized debt obligations |  | 74 |  |  | 74 |  |  | — |  |  | 74 |  |  | — |
Other asset-backed securities |  | 303 |  |  | 303 |  |  | — |  |  | 225 |  |  | 78 |
Fixed maturity securities, pledged as collateral: |  |  |  |  |  |  |  |  |  |
U.S. government obligations |  | 15 |  |  | 15 |  |  | 15 |  |  | — |  |  | — |
Short-term |  | 125 |  |  | 125 |  |  | 125 |  |  | — |  |  | — |
Short term investments |  | 492 |  |  | 492 |  |  | 415 |  |  | 76 |  |  | — |
Other investments (1) |  | 595 |  |  | 597 |  |  | 91 |  |  | — |  |  | 53 |
Cash, cash equivalents and restricted cash |  | 33 |  |  | 33 |  |  | 32 |  |  | 2 |  |  | — |
Derivative assets: |  |  |  |  |  |  |  |  |  |
Interest rate swaps—asset position |  | 93 |  |  | 93 |  |  | — |  |  | 9 |  |  | 85 |
Other assets - equity in sponsored VIE |  | 1 |  |  | 1 |  |  | — |  |  | — |  |  | 1 |
Other assets-loans |  | 3 |  |  | 3 |  |  | — |  |  | — |  |  | 3 |
Variable interest entity assets: |  |  |  |  |  |  |  |  |  |
Fixed maturity securities: Corporate obligations |  | 3,215 |  |  | 3,215 |  |  | — |  |  | — |  |  | 3,215 |
Fixed maturity securities: Municipal obligations |  | 139 |  |  | 139 |  |  | — |  |  | 139 |  |  | — |
Restricted cash |  | 2 |  |  | 2 |  |  | 2 |  |  | — |  |  | — |
Loans |  | 2,998 |  |  | 2,998 |  |  | — |  |  | — |  |  | 2,998 |
Derivative assets: Currency swaps—asset position |  | 41 |  |  | 41 |  |  | — |  |  | 41 |  |  | — |
Total financial assets |  | $ | 10,071 |  |  | $ | 10,073 |  |  | $ | 888 |  |  | $ | 2,299 |  |  | $ | 6,433 |
Financial liabilities: |  |  |  |  |  |  |  |  |  |
Long term debt, including accrued interest |  | $ | 3,255 |  |  | $ | 3,071 |  |  | $ | — |  |  | $ | 2,670 |  |  | $ | 401 |
Derivative liabilities: |  |  |  |  |  |  |  |  |  |
Interest rate swaps—liability position |  | 114 |  |  | 114 |  |  | — |  |  | 114 |  |  | — |
Liabilities for net financial guarantees written (2) |  | (740) |  |  | 539 |  |  | — |  |  | — |  |  | 539 |
Variable interest entity liabilities: |  |  |  |  |  |  |  |  |  |
Long-term debt (includes $4,324 at fair value) |  | 4,493 |  |  | 4,504 |  |  | — |  |  | 4,349 |  |  | 155 |
Derivative liabilities: Interest rate swaps—liability position |  | 1,835 |  |  | 1,835 |  |  | — |  |  | 1,835 |  |  | — |
Total financial liabilities |  | $ | 8,958 |  |  | $ | 10,063 |  |  | $ | — |  |  | $ | 8,968 |  |  | $ | 1,095 |
(1)Excluded from the fair value measurement categories in the table above are investment funds of $541 and $453 as of September 30, 2021 and December 31, 2020, respectively, which are measured using NAV as a practical expedient. Also excluded from the fair value measurements in the table above are equity securities with a carrying value of $8 and $— as of September 30, 2021 and December 31, 2020, respectively, that do not have readily determinable fair values and have carrying amounts determined using the measurement alternative. (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. Determination of Fair Value: When available, Ambac uses quoted active market prices specific to the financial instrument to determine fair value, and classifies such items within Level 1. The determination of fair value for financial instruments categorized in Level 2 or 3 involves judgment due to the complexity of factors contributing to the valuation. Third-party sources from which we obtain independent market quotes also use assumptions, judgments and estimates in determining financial instrument values and different third parties may use different methodologies or provide different values for financial instruments. In addition, the use of internal valuation models may require assumptions about hypothetical or inactive markets. As a result of these factors, the actual trade value of a financial instrument in the market, or exit value of a financial instrument position by Ambac, may be significantly different from its recorded fair value. Ambac’s financial instruments carried at fair value are mainly comprised of investments in fixed maturity securities, equity interests in pooled investment funds, derivative instruments and certain variable interest entity assets and liabilities. Valuation of financial instruments is performed by Ambac’s finance group using methods approved by senior financial management with consultation from risk management and portfolio managers as appropriate. Preliminary valuation results are discussed with portfolio managers quarterly to assess consistency with market transactions and trends as applicable. Market transactions such as trades or negotiated settlements of similar positions, if any, are reviewed to validate fair value model results. However, many of the financial instruments valued using significant unobservable inputs have very little or no observable market activity. Methods and significant inputs and assumptions used to determine fair values across portfolios are reviewed quarterly by senior financial management. Other valuation control procedures specific to particular portfolios are described further below. Fixed Maturity Securities: The fair values of fixed maturity investment securities are based primarily on market prices received from broker quotes or alternative pricing sources. Because many fixed maturity securities do not trade on a daily basis, pricing sources apply available market information through processes such as matrix pricing to calculate fair value. Such prices generally consider a variety of factors, including recent trades of the same and similar securities. In those cases, the items are classified within Level 2. For those fixed maturity investments where quotes were not available or cannot be reasonably corroborated, fair values are based on internal valuation models. Key inputs to the internal valuation models generally include maturity date, coupon and yield curves for asset-type and credit rating characteristics that closely match those characteristics of the specific investment securities being valued. Items valued using valuation models are classified according to the lowest level input or value driver that is significant to the valuation. Thus, an item may be classified in Level 3 even though there may be significant inputs that are readily observable. Longer (shorter) expected maturities or higher (lower) yields used in the valuation model will, in isolation, result in decreases (increases) in fair value. Generally, lower credit ratings or longer expected maturities will be accompanied by higher yields used to value a security. At September 30, 2021, approximately 5%, 92% and 3% of the fixed maturity investment portfolio (excluding variable interest entity investments) was valued using broker quotes, alternative pricing sources and internal valuation models, respectively. At December 31, 2020, approximately 2%, 95% and 3% of the fixed maturity investment portfolio (excluding variable interest entity investments) was valued using broker quotes, alternative pricing sources and internal valuation models, respectively. Ambac performs various review and validation procedures to quoted and modeled prices for fixed maturity securities, including price variance analyses, missing and static price reviews, overall valuation analysis by portfolio managers and finance managers and reviews associated with our ongoing impairment analysis. Unusual prices identified through these procedures will be evaluated further against alternative third party quotes (if available), internally modeled prices and/or other relevant data, and the pricing source values will be challenged as necessary. Price challenges generally result in the use of the pricing source’s quote as originally provided or as revised by the source following their internal diligence process. A price challenge may result in a determination by either the pricing source or Ambac management that the pricing source cannot provide a reasonable value for a security or cannot adequately support a quote, in which case Ambac would resort to using either other quotes or internal models. Results of price challenges are reviewed by portfolio managers and finance managers. Information about the valuation inputs for fixed maturity securities classified as Level 3 is included below: Other asset-backed securities: This security is a subordinated tranche of a securitization collateralized by Ambac-insured military housing bonds. The fair value classified as Level 3 was $78 and $78 at September 30, 2021 and December 31, 2020, respectively. Fair value was calculated using a discounted cash flow approach with expected future cash flows discounted using a yield consistent with the security type and rating. Significant inputs for the valuation at September 30, 2021 and December 31, 2020 include the following:
September 30, 2021:
a. Coupon rate: | 5.98%
b. Average Life: | 14.31 years
c. Yield: | 10.25%
December 31, 2020:
a. Coupon rate: | 5.97%
b. Average Life: | 14.83 years
c. Yield: | 10.50%
Corporate obligations: This includes certain investments in convertible debt securities. The fair value classified as Level 3 was $13 at September 30, 2021. Fair value was calculated by discounting cash flows to average maturity of 3 years, at a yield of 6.00% which is consistent with the security type and rating. Other Investments: Other investments primarily relate to investments in pooled investment funds. The fair value of pooled investment funds is determined using dealer quotes or alternative pricing sources when such investments have readily determinable fair values. When fair value is not readily determinable, pooled investment funds are valued using NAV as a practical expedient as permitted under the Fair Value Measurement Topic of the ASC. Refer to Note 9. Investments for additional information about such investments in pooled funds that are reported at fair value using NAV as a practical expedient. At December 31, 2020, other investments also included Ambac's equity interest in the Corolla Trust, a non-consolidated VIE created in connection with Ambac's monetization of AAC junior surplus notes. This equity interest was carried under the equity method and its fair value was internally calculated using a market approach classified as Level 3. As further described in Note 1. Background and Business Description, on January 22, 2021, AAC completed the Corolla Note Exchange transaction whereby it acquired 100% of the outstanding obligations and the owner trust certificate of, and subsequently dissolved, the Corolla Trust. Derivative Instruments: Ambac’s derivative instruments primarily comprise interest rate swaps, credit default swaps and exchange traded futures contracts. Fair value is determined based upon market quotes from independent sources, when available. When independent quotes are not available, fair value is determined using valuation models. These valuation models require market-driven inputs, including contractual terms, credit spreads and ratings on underlying referenced obligations, yield curves and tax-exempt interest ratios. The valuation of certain derivative contracts also require the use of data inputs and assumptions that are determined by management and are not readily observable in the market. Under the Fair Value Measurement Topic of the ASC, Ambac is required to consider its own credit risk when measuring the fair value of derivatives and other liabilities. Factors considered in estimating the amount of any Ambac credit valuation adjustment ("CVA") on such contracts include collateral posting provisions, right of set-off with the counterparty, the period of time remaining on the derivative and the pricing of recent terminations. The aggregate Ambac CVA impact reduced the fair value of derivative liabilities by less than a million dollars at both September 30, 2021 and December 31, 2020, respectively Interest rate swaps that are not centrally cleared are valued using vendor-developed models that incorporate interest rates and yield curves that are observable and regularly quoted. These models provide the net present value of the derivatives based on contractual terms and observable market data. Generally, the need for counterparty (or Ambac) CVAs on interest rate derivatives is mitigated by the existence of collateral posting agreements under which adequate collateral has been posted. Certain of these derivative contracts entered into with financial guarantee customers are not subject to collateral posting agreements. Counterparty credit risk related to such customer derivative assets is included in our determination of their fair value. Ambac's credit derivatives ("CDS") are valued using an internal model that uses traditional financial guarantee CDS pricing to calculate the fair value of the derivative contract based on the reference obligation's current pricing, remaining life and credit rating and Ambac's own credit risk. The model calculates the difference between the present value of the projected fees receivable under the CDS and our estimate of the fees a financial guarantor of comparable credit quality would charge to provide the same protection at the balance sheet date. Unobservable inputs used include Ambac's internal reference obligation credit ratings and remaining life, estimates of fees that would be charged to assume the credit derivative obligation and Ambac's CVA. Ambac is party to only one remaining credit derivative with an internal credit rating of AA at September 30, 2021. Ambac has not made any significant changes to its modeling techniques or related model inputs for the periods presented. Financial Guarantees: Fair value of net financial guarantees written represents our estimate of the cost to Ambac to completely transfer its insurance obligation to another market participant of comparable credit worthiness. In theory, this amount should be the same amount that another market participant of comparable credit worthiness would hypothetically charge in the marketplace, on a present value basis, to provide the same protection as of the balance sheet date. This fair value estimate of financial guarantees is presented on a net basis and includes direct and assumed contracts written, net of ceded reinsurance contracts. Long-term Debt: Long-term debt includes AAC surplus notes and junior surplus notes (cancelled in January 2021 as part of the Corolla Note Exchange as described in Note 1. Background and Business Description), the Sitka AAC Note, the LSNI Ambac Note (fully redeemed on July 6, 2021 as described in Note 1. Background and Business Description), Tier 2 Notes issued in connection with the Rehabilitation Exit Transactions and the Ambac UK debt issued in connection with the Ballantyne commutation. The fair values of surplus notes, Sitka AAC Note, LSNI Ambac Note and Tier 2 Notes are classified as Level 2. The fair value of junior surplus notes and Ambac UK debt are classified as Level 3. Other Financial Assets and Liabilities: Included in Other assets are Loans and Ambac’s equity interest in an Ambac sponsored VIE established to provide certain financial guarantee clients with funding for their debt obligations. The fair values of these financial assets are estimated based upon internal valuation models and are classified as Level 3. Variable Interest Entity Assets and Liabilities: The financial assets and liabilities of FG VIEs consolidated under the Consolidation Topic of the ASC consist primarily of fixed maturity securities and loans held by the VIEs, derivative instruments and notes issued by the VIEs which are reported as long-term debt. As described in Note 3. Variable Interest Entities, these FG VIEs are securitization entities which have liabilities and/or assets guaranteed by AAC or Ambac UK. The fair values of FG VIE long-term debt are based on price quotes received from independent market sources when available. Such quotes are considered Level 2 and generally consider a variety of factors, including recent trades of the same and similar securities. For those instruments where quotes were not available or cannot be reasonably corroborated, fair values are based on internal valuation models. Comparable to the sensitivities of investments in fixed maturity securities described above, longer (shorter) expected maturities or higher (lower) yields used in the valuation model will, in isolation, result in decreases (increases) in fair value liability measurement for FG VIE long-term debt. FG VIE derivative asset and liability fair values are determined using vendor-developed valuation models, which incorporated observable market data related to specific derivative contractual terms including interest rates, foreign exchange rates and yield curves. The fair value of FG VIE fixed maturity securities and loan assets are generally based on Level 2 market price quotes received from independent market sources when available. Typically, FG VIE asset fair values are not readily available from market quotes and are estimated internally. Internal valuation of each FG VIE’s fixed maturity securities or loan assets are derived from the fair values of the notes issued by the respective VIE and the VIE’s derivatives, determined as described above, adjusted for the fair values of Ambac’s financial guarantees associated with the VIE. The fair value of financial guarantees consist of: (i) estimated future premium cash flows discounted at a rate consistent with that implicit in the fair value of the VIE’s liabilities and (ii) estimates of future claim payments discounted at a rate that includes Ambac’s own credit risk. Estimated future premium payments to be paid by the VIEs were discounted at a weighted average rate of 2.8% and 2.4% at September 30, 2021 and December 31, 2020, respectively. At September 30, 2021, the range of these discount rates was between 2.3% and 3.6%. Additional Fair Value Information for Financial Assets and Liabilities Accounted for at Fair Value: The following tables present the changes in the Level 3 fair value category for the periods presented in 2021 and 2020. 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 |  |
|  | Investments(1) |  | Other Assets(2) |  | Derivatives |  | Investments |  | Loans |  |  |  | Total
Three Months Ended September 30, 2021: |  |  |  |  |  |  |  |  |  |  |  |
Balance, beginning of period |  | $ | 80 |  |  | $ | — |  |  | $ | 74 |  |  | $ | 3,175 |  |  | $ | 2,943 |  |  |  |  | $ | 6,273 |
Total gains/(losses) realized and unrealized: |  |  |  |  |  |  |  |  |  |  |  |  |  |
Included in earnings |  | — |  |  | — |  |  | — |  |  | 85 |  |  | (10) |  |  |  |  | 76 |
Included in other comprehensive income |  | (2) |  |  | — |  |  | — |  |  | (77) |  |  | (67) |  |  |  |  | (146) |
Purchases |  | 13 |  |  | — |  |  | — |  |  | — |  |  | — |  |  |  |  | 13 |
Settlements |  | — |  |  | — |  |  | (2) |  |  | — |  |  | (81) |  |  |  |  | (83) |
Balance, end of period |  | $ | 91 |  |  | $ | — |  |  | $ | 72 |  |  | $ | 3,184 |  |  | $ | 2,784 |  |  |  |  | $ | 6,132 |
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 |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | 85 |  |  | $ | (10) |  |  |  |  | $ | 75 |
The amount of total gains/(losses) included in other comprehensive income attributable to the change in unrealized gains or losses relating to assets and liabilities still held at the reporting date |  | $ | (2) |  |  | $ | — |  |  | $ | — |  |  | $ | (77) |  |  | $ | (67) |  |  |  |  | $ | (146) |
Three Months Ended September 30, 2020: |  |  |  |  |  |  |  |  |  |  |  |
Balance, beginning of period |  | $ | 66 |  |  | $ | 2 |  |  | $ | 86 |  |  | $ | 2,907 |  |  | $ | 2,787 |  |  |  |  | $ | 5,848 |
Total gains/(losses) realized and unrealized: |  |  |  |  |  |  |  |  |  |  |  |  |  |
Included in earnings |  | — |  |  | — |  |  | 1 |  |  | 1 |  |  | (43) |  |  |  |  | (40) |
Included in other comprehensive income |  | 9 |  |  | — |  |  | — |  |  | 121 |  |  | 116 |  |  |  |  | 246 |
Purchases |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  |  |  | — |
Settlements |  | — |  |  | — |  |  | (2) |  |  | — |  |  | (78) |  |  |  |  | (80) |
Balance, end of period |  | $ | 75 |  |  | $ | 2 |  |  | $ | 85 |  |  | $ | 3,029 |  |  | $ | 2,783 |  |  |  |  | $ | 5,974 |
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 |  |  | $ | 1 |  |  | $ | (43) |  |  |  |  | $ | (41) |
The amount of total gains/(losses) included in other comprehensive income attributable to the change in unrealized gains or losses relating to assets and liabilities still held at the reporting date |  | $ | 9 |  | $ | — |  | $ | — |  | $ | 121 |  | $ | 116 |  |  |  | $ | 246
(1) Investments classified as Level 3 consist of a single other asset-backed security. (2) Other assets carried at fair value and classified as Level 3 relate to an equity interest in an Ambac sponsored VIE.
Level 3 - Financial Assets and Liabilities Accounted for at Fair Value |  |  |  |  |  |  |  |
|  |  |  |  |  |  |  | VIE Assets |  |
|  | Investments |  | Other Assets |  | Derivatives |  | Investments |  | Loans |  |  |  | Total
Nine Months Ended September 30, 2021: |  |  |  |  |  |  |  |  |  |  |  |  |  |
Balance, beginning of period |  | $ | 78 |  |  | $ | 1 |  |  | $ | 84 |  |  | $ | 3,215 |  |  | $ | 2,998 |  |  |  |  | $ | 6,376 |
Total gains/(losses) realized and unrealized: |  |  |  |  |  |  |  |  |  |  |  |  |  |
Included in earnings |  | 1 |  |  | — |  |  | (6) |  |  | 35 |  |  | 65 |  |  |  |  | 94 |
Included in other comprehensive income |  | 1 |  |  | — |  |  | — |  |  | (46) |  |  | (38) |  |  |  |  | (83) |
Purchases |  | 13 |  |  | — |  |  | — |  |  | — |  |  | — |  |  |  |  | 13 |
Settlements |  | (1) |  |  | (1) |  |  | (6) |  |  | (19) |  |  | (241) |  |  |  |  | (269) |
Balance, end of period |  | $ | 91 |  |  | $ | — |  |  | $ | 72 |  |  | $ | 3,184 |  |  | $ | 2,784 |  |  |  |  | $ | 6,132 |
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 |  |  | $ | — |  |  | $ | (6) |  |  | $ | 35 |  |  | $ | 65 |  |  |  |  | $ | 94 |
The amount of total gains/(losses) included in other comprehensive income attributable to the change in unrealized gains or losses relating to assets and liabilities still held at the reporting date |  | $ | 1 |  |  | $ | — |  |  | $ | — |  |  | $ | (46) |  |  | $ | (38) |  |  |  |  | $ | (83) |
Nine Months Ended September 30, 2020: |  |  |  |  |  |  |  |  |  |  |  |  |  |
Balance, beginning of period |  | $ | 72 |  |  | $ | 3 |  |  | $ | 66 |  |  | $ | 2,957 |  |  | $ | 3,108 |  |  |  |  | $ | 6,207 |
Total gains/(losses) realized and unrealized: |  |  |  |  |  |  |  |  |  |  |  |  |  |
Included in earnings |  | 1 |  |  | (1) |  |  | 24 |  |  | 160 |  |  | (22) |  |  |  |  | 161 |
Included in other comprehensive income |  | 3 |  |  | — |  |  | — |  |  | (71) |  |  | (85) |  |  |  |  | (152) |
Purchases |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  |  |  | — |
Settlements |  | (1) |  |  | — |  |  | (5) |  |  | (17) |  |  | (219) |  |  |  |  | (242) |
Balance, end of period |  | $ | 75 |  |  | $ | 2 |  |  | $ | 85 |  |  | $ | 3,029 |  |  | $ | 2,783 |  |  |  |  | $ | 5,974 |
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) |  |  | $ | 23 |  |  | $ | 160 |  |  | $ | (22) |  |  |  |  | $ | 160 |
The amount of total gains/(losses) included in other comprehensive income attributable to the change in unrealized gains or losses relating to assets and liabilities still held at the reporting date |  | $ | 3 |  |  | $ | — |  |  | $ | — |  |  | $ | (71) |  |  | $ | (85) |  |  |  |  | (152) |
The table below provides roll-forward information by class of derivatives measured using significant unobservable inputs.
Level 3 - Derivatives by Class |  |  |  |
|  | Three Months Ended September 30, 2021 |  | Three Months Ended September 30, 2020
|  | Interest Rate Swaps |  | Credit Derivatives |  | Total Derivatives |  | Interest Rate Swaps |  | Credit Derivatives |  | Total Derivatives
Balance, beginning of period |  | $ | 75 |  |  | $ | — |  |  | $ | 74 |  |  | $ | 87 |  |  | $ | (1) |  |  | $ | 86 |
Total gains/(losses) realized and unrealized: |  |  |  |  |  |  |  |  |  |  |  |
Included in earnings |  | (1) |  |  | — |  |  | — |  |  | 1 |  |  | — |  |  | 1 |
Included in other comprehensive income |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |
Purchases |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |
Settlements |  | (2) |  |  | — |  |  | (2) |  |  | (2) |  |  | — |  |  | (2) |
Balance, end of period |  | $ | 72 |  |  | $ | — |  |  | $ | 72 |  |  | $ | 86 |  |  | $ | (1) |  |  | $ | 85 |
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) |  |  | $ | — |  |  | $ | — |  |  | $ | 1 |  |  | $ | — |  |  | $ | 1 |
The amount of total gains/(losses) included in other comprehensive income 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 |  |  |  |
|  | Nine Months Ended September 30, 2021 |  | Nine Months Ended September 30, 2020
|  | Interest Rate Swaps |  | Credit Derivatives |  | Total Derivatives |  | Interest Rate Swaps |  | Credit Derivatives |  | Total Derivatives
Balance, beginning of period |  | $ | 85 |  |  | $ | — |  |  | $ | 84 |  |  | $ | 67 |  |  | $ | — |  |  | $ | 66 |
Total gains/(losses) realized and unrealized: |  |  |  |  |  |  |  |  |  |  |  |
Included in earnings |  | (7) |  |  | — |  |  | (6) |  |  | 24 |  |  | (1) |  |  | 24 |
Included in other comprehensive income |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |
Purchases |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |
Settlements |  | (6) |  |  | — |  |  | (6) |  |  | (5) |  |  | — |  |  | (5) |
Balance, end of period |  | $ | 72 |  |  | $ | — |  |  | $ | 72 |  |  | $ | 86 |  |  | $ | (1) |  |  | $ | 85 |
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) |  |  | $ | — |  |  | $ | (6) |  |  | $ | 24 |  |  | $ | (1) |  |  | $ | 23 |
The amount of total gains/(losses) included in other comprehensive income attributable to the change in unrealized gains or losses relating to assets and liabilities still held at the reporting date |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |
Invested assets and VIE long-term debt are transferred into Level 3 when internal valuation models that include significant unobservable inputs are used to estimate fair value. All such securities that have internally modeled fair values have been classified as Level 3. Derivative instruments are transferred into Level 3 when the use of unobservable inputs becomes significant to the overall valuation. There were no transfers of financial instruments into or out of Level 3 in the periods disclosed. 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 (Expense)
Three Months Ended September 30, 2021: |  |  |  |  |  |  |  |
Total gains (losses) included in earnings for the period |  | $ | — |  |  | $ | — |  |  | $ | 76 |  |  | $ | — |
Changes in unrealized gains (losses) relating to financial instruments still held at the reporting date |  | — |  |  | — |  |  | 76 |  |  | — |
Three Months Ended September 30, 2020: |  |  |  |  |  |  |  |
Total gains (losses) included in earnings for the period |  | $ | — |  |  | $ | 1 |  |  | $ | (41) |  |  | $ | — |
Changes in unrealized gains (losses) relating to financial instruments still held at the reporting date |  | — |  |  | 1 |  |  | (41) |  |  | — |
Nine Months Ended September 30, 2021: |  |  |  |  |  |  |  |
Total gains or losses included in earnings for the period |  | $ | 1 |  |  | $ | (6) |  |  | $ | 100 |  |  | $ | — |
Changes in unrealized gains or losses included in earnings relating to the assets and liabilities still held at the reporting date |  | — |  |  | (6) |  |  | 100 |  |  | — |
Nine Months Ended September 30, 2020: |  |  |  |  |  |  |  |
Total gains or losses included in earnings for the period |  | 1 |  |  | 24 |  |  | 137 |  |  | (1) |
Changes in unrealized gains or losses included in earnings relating to the assets and liabilities still held at the reporting date |  | — |  |  | 23 |  |  | 137 |  |  | (1) |
Financial Guarantees In Force | Amounts presented in this Note relate only to Ambac’s non-derivative insurance business for insurance policies issued to beneficiaries, excluding consolidated VIEs. Premiums: The effect of reinsurance on premiums written and earned was as follows:
| Three Months Ended September 30,
| 2021 |  | 2020
| Written |  | Earned |  | Written |  | Earned
Direct | $ | (1) |  |  | $ | 15 |  |  | $ | (13) |  |  | $ | 18 |
Assumed | — |  |  | — |  |  | — |  |  | — |
Ceded | 14 |  |  | 4 |  |  | — |  |  | 3 |
Net premiums | $ | (15) |  |  | $ | 11 |  |  | $ | (13) |  |  | $ | 15 |
| Nine Months Ended September 30,
| 2021 |  | 2020
| Written |  | Earned |  | Written |  | Earned
Direct | $ | (6) |  |  | $ | 46 |  |  | $ | (2) |  |  | $ | 45 |
Assumed | — |  |  | — |  |  | — |  |  | 1 |
Ceded | 29 |  |  | 10 |  |  | (1) |  |  | 9 |
Net premiums | $ | (36) |  |  | $ | 36 |  |  | $ | (2) |  |  | $ | 36 |
The following table summarizes net premiums earned by location of risk:
| Three Months Ended September 30, |  | Nine Months Ended September 30,
| 2021 |  | 2020 |  | 2021 |  | 2020
United States | $ | 7 |  |  | $ | 9 |  |  | $ | 21 |  |  | $ | 24 |
United Kingdom | 3 |  |  | 7 |  |  | 10 |  |  | 15 |
Other international | 1 |  |  | (1) |  |  | 5 |  |  | (2) |
Total | $ | 11 |  |  | $ | 15 |  |  | $ | 36 |  |  | $ | 36 |
Premium Receivables, including credit impairments: Premium receivables at September 30, 2021 and December 31, 2020 were $327 and $370, respectively. Financial guarantee premium receivables are discounted using an appropriate risk-free rate corresponding to the weighted average life of each policy and currency to discount the future premiums contractually due or expected to be collected. For example, U.S. dollar exposures are discounted using U.S. Treasury rates. The weighted average risk-free rate at September 30, 2021 and December 31, 2020, was 2.2% and 2.2%, respectively, and the weighted average period of future premiums used to estimate the premium receivable at September 30, 2021 and December 31, 2020, was 8.1 years and 8.3 years, respectively. Specialty property and casualty premiums are not discounted. Management evaluates premium receivables for expected credit losses ("credit impairment") in accordance with the CECL standard adopted January 1, 2020, which is further described in Note 2. Basis of Presentation and Significant Accounting Policies in the Notes to Consolidated Financial Statements included in Ambac's Annual Report on Form 10-K for the year ended December 31, 2020. Management's evaluation of credit impairment under prior GAAP rules was not materially different. As further discussed in Note 2. Basis of Presentation and Significant Accounting Policies in the Notes to Consolidated Financial Statements included in Ambac's Annual Report on Form 10-K for the year ended December 31, 2020, the key indicator management uses to assess the credit quality of financial guarantee premium receivables is Ambac's internal risk classifications for the insured obligation determined by the Risk Management Group. Below is the amortized cost basis of financial guarantee premium receivables by risk classification code and asset class as of September 30, 2021 and December 31, 2020:
Surveillance Categories as of September 30, 2021
Type of Guaranteed Bond | I |  | IA |  | II |  | III |  | IV |  |  |  | Total
Public Finance: |  |  |  |  |  |  |  |  |  |  |  |  |
Housing revenue | $ | 152 |  |  | $ | 3 |  |  | $ | 5 |  |  | $ | — |  |  | $ | — |  |  |  |  | $ | 160 |
Other | 2 |  |  | — |  |  | — |  |  | — |  |  | — |  |  |  |  | 2 |
Total Public Finance | 153 |  |  | 3 |  |  | 5 |  |  | — |  |  | — |  |  |  |  | 162 |
Structured Finance: |  |  |  |  |  |  |  |  |  |  |  |  |
Mortgage-backed and home equity | 2 |  |  | — |  |  | 1 |  |  | 3 |  |  | 13 |  |  |  |  | 18 |
Structured insurance | 11 |  |  | — |  |  | — |  |  | — |  |  | — |  |  |  |  | 11 |
Student loan | 2 |  |  | — |  |  | 1 |  |  | 9 |  |  | — |  |  |  |  | 12 |
Other | 7 |  |  | — |  |  | — |  |  | — |  |  | — |  |  |  |  | 7 |
Total Structured Finance | 21 |  |  | — |  |  | 2 |  |  | 12 |  |  | 13 |  |  |  |  | 47 |
International: |  |  |  |  |  |  |  |  |  |  |  |  |
Sovereign/sub-sovereign | 73 |  |  | 8 |  |  | — |  |  | 12 |  |  | — |  |  |  |  | 93 |
Investor-owned and public utilities | 29 |  |  | — |  |  | — |  |  | — |  |  | — |  |  |  |  | 29 |
Other | 5 |  |  | — |  |  | — |  |  | — |  |  | — |  |  |  |  | 5 |
Total International | 106 |  |  | 8 |  |  | — |  |  | 12 |  |  | — |  |  |  |  | 126 |
Total (1) (2) | $ | 281 |  |  | $ | 12 |  |  | $ | 7 |  |  | $ | 23 |  |  | $ | 13 |  |  |  |  | $ | 335 |
Surveillance Categories as of December 31, 2020
Type of Guaranteed Bond | I |  | IA |  | II |  | III |  | IV |  |  |  | Total
Public Finance: |  |  |  |  |  |  |  |  |  |  |  |  |
Housing revenue | $ | 155 |  |  | $ | 13 |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  |  |  | $ | 168 |
Other | 2 |  |  | 15 |  |  | — |  |  | — |  |  | — |  |  |  |  | 17 |
Total Public Finance | 157 |  |  | 27 |  |  | — |  |  | — |  |  | — |  |  |  |  | 185 |
Structured Finance: |  |  |  |  |  |  |  |  |  |  |  |  |
Mortgage-backed and home equity | 3 |  |  | — |  |  | 1 |  |  | 3 |  |  | 15 |  |  |  |  | 22 |
Structured insurance | 14 |  |  | — |  |  | — |  |  | — |  |  | — |  |  |  |  | 14 |
Student loan | 3 |  |  | — |  |  | 2 |  |  | 11 |  |  | — |  |  |  |  | 16 |
Other | 7 |  |  | — |  |  | — |  |  | — |  |  | — |  |  |  |  | 7 |
Total Structured Finance | 27 |  |  | — |  |  | 3 |  |  | 14 |  |  | 15 |  |  |  |  | 59 |
International: |  |  |  |  |  |  |  |  |  |  |  |  |
Sovereign/sub-sovereign | 82 |  |  | 13 |  |  | — |  |  | 13 |  |  | — |  |  |  |  | 108 |
Investor-owned and public utilities | 31 |  |  | — |  |  | — |  |  | — |  |  | — |  |  |  |  | 31 |
Other | 5 |  |  | — |  |  | — |  |  | — |  |  | — |  |  |  |  | 5 |
Total International | 118 |  |  | 13 |  |  | — |  |  | 13 |  |  | — |  |  |  |  | 144 |
Total (2) | $ | 302 |  |  | $ | 40 |  |  | $ | 3 |  |  | $ | 27 |  |  | $ | 15 |  |  |  |  | $ | 387 |
(1) Excludes specialty property and casualty premium receivables of $2. (2) The underwriting origination dates for all policies included are greater than five years prior to the current reporting date. Below is a rollforward of the premium receivable allowance for credit losses as of September 30, 2021 and 2020:
|  | Three Months Ended September 30, |  | Nine Months Ended September 30,
|  | 2021 |  | 2020 |  | 2021 |  | 2020
Beginning balance (1) |  | $ | 11 |  |  | $ | 16 |  |  | $ | 17 |  |  | $ | 9 |
Current period provision (benefit)(2) |  | (1) |  |  | 2 |  |  | (6) |  |  | 9 |
Write-offs of the allowance |  | — |  |  | — |  |  | (1) |  |  | — |
Recoveries of previously written-off amounts |  | — |  |  | — |  |  | — |  |  | — |
Ending balance |  | $ | 10 |  |  | $ | 18 |  |  | $ | 10 |  |  | $ | 18 |
(1)At December 31, 2019, $9 of premiums receivable were deemed uncollectible as determined under prior GAAP rules. (2)The three and nine months ended September 30, 2020, includes $3 from the adoption of CECL. At September 30, 2021 and December 31, 2020, a deminimis amount of premiums were past due. Financial Guarantee Premium Receivables: Gross premiums are received either upfront or in installments. For premiums received upfront, an unearned premium revenue (“UPR”) liability is established, which is initially recorded as the cash amount received. For financial guarantee installment premium policies, a premium receivable asset and offsetting UPR liability is initially established in an amount equal to: (i) the present value of future contractual premiums due (the “contractual” method) or (ii) if the assets underlying the insured obligation are homogenous pools which are contractually prepayable, the present value of premiums to be collected over the expected life of the transaction (the “expected” method). Below is the gross premium receivable roll-forward (direct and assumed contracts) for the affected periods:
Nine Months Ended September 30, |  | 2021 |  | 2020
Beginning premium receivable |  | $ | 370 |  |  | $ | 416 |
Adjustment to initially apply ASU 2016-13 |  | — |  |  | (3) |
Premium receipts |  | (28) |  |  | (36) |
Adjustments for changes in expected and contractual cash flows for contracts (1) |  | (25) |  |  | (4) |
Accretion of premium receivable discount for contracts |  | 6 |  |  | 7 |
Changes to allowance for credit losses |  | 7 |  |  | (5) |
Other adjustments (including foreign exchange) |  | (4) |  |  | (2) |
Ending premium receivable (2) |  | $ | 325 |  |  | $ | 372 |
(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 September 30, 2021 and 2020, premium receivables include British Pounds of $108 (£80) and $112 (£87), respectively, and Euros of $16 (€14) and $21 (€18), respectively. The table below summarizes the future gross undiscounted financial guarantee premiums to be collected and future premiums earned, net of reinsurance at September 30, 2021:
| Future Premiums to be Collected (1) |  | Future Premiums to be Earned Net of Reinsurance (2)
Three months ended: |  |  |
December 31, 2021 | 8 |  |  | 7 |
Twelve months ended: |  |  |
December 31, 2022 | 33 |  |  | 27 |
December 31, 2023 | 32 |  |  | 26 |
December 31, 2024 | 30 |  |  | 25 |
December 31, 2025 | 29 |  |  | 23 |
Five years ended: |  |  |
December 31, 2030 | 122 |  |  | 98 |
December 31, 2035 | 84 |  |  | 62 |
December 31, 2040 | 39 |  |  | 27 |
December 31, 2045 | 18 |  |  | 11 |
December 31, 2050 | 7 |  |  | 4 |
December 31, 2055 | 1 |  |  | — |
Total | $ | 401 |  |  | $ | 310 |
(1)Future premiums to be collected are undiscounted, gross of allowance for credit losses, 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 in the Notes to Consolidated Financial Statements included in Ambac's Annual Report on Form 10-K for the year ended December 31, 2020. 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: Ambac’s loss and loss expense reserves (“loss reserves”) are based on management’s on-going review of the insured portfolio. Financial guarantee loss reserves are recorded based on the present value of expected net claim cash outflows or expected net recovery cash inflows, discounted at risk-free rates. Below are the components of the loss reserves liability and the Subrogation recoverable asset at September 30, 2021 and December 31, 2020:
|  | September 30, 2021: |  | December 31, 2020:
Balance Sheet Line Item |  | Claims and Loss Expenses (1) |  | Recoveries |  | Unearned Premium Revenue |  | Gross Loss and Loss Expense Reserves |  | Claims and Loss Expenses |  | Recoveries |  | Unearned Premium Revenue |  | Gross Loss and Loss Expense Reserves
Loss and loss expense reserves |  | $ | 1,778 |  |  | $ | (156) |  |  | $ | (58) |  |  | $ | 1,565 |  |  | $ | 2,060 |  |  | $ | (229) |  |  | $ | (72) |  |  | $ | 1,759 |
Subrogation recoverable |  | 87 |  |  | (2,200) |  |  | — |  |  | (2,113) |  |  | 100 |  |  | (2,256) |  |  | — |  |  | (2,156) |
Totals |  | $ | 1,865 |  |  | $ | (2,355) |  |  | $ | (58) |  |  | $ | (549) |  |  | $ | 2,160 |  |  | $ | (2,486) |  |  | $ | (72) |  |  | $ | (397) |
(1)Includes case basis, incurred but not reported and loss expense reserves for the specialty property and casualty business. Below is the loss and loss reserve expense roll-forward, net of subrogation recoverable and reinsurance, for the affected periods:
Nine Months Ended September 30, | 2021 |  | 2020
Beginning gross loss and loss expense reserves | $ | (397) |  |  | $ | (482) |
Reinsurance recoverable | 33 |  |  | 26 |
Beginning balance of net loss and loss expense reserves | (430) |  |  | (508) |
Losses and loss expenses (benefit): |  |  |
Current year | — |  |  | 18 |
Prior years | (73) |  |  | 198 |
Total (1) (2) | (73) |  |  | 216 |
Loss and loss expenses paid (recovered): |  |  |
Current year | — |  |  | 1 |
Prior years | 74 |  |  | 137 |
Total | 74 |  |  | 138 |
Foreign exchange effect | — |  |  | 1 |
Ending net loss and loss expense reserves | (577) |  |  | (429) |
Reinsurance recoverable (3) | 29 |  |  | 36 |
Ending gross loss and loss expense reserves | $ | (549) |  |  | $ | (393) |
(1)Total losses and loss expenses (benefit) includes $2 and $(14) for the nine months ended September 30, 2021 and 2020, respectively, related to ceded reinsurance. (2)Ambac records the impact of estimated recoveries related to securitized loans in RMBS transactions that breached certain representations and warranties ("R&W's) by transaction sponsors within losses and loss expenses (benefit). The losses and loss expense (benefit) incurred associated with changes in estimated R&W's for the nine months ended September 30, 2021 and 2020, was $19 and $(29), respectively. (3)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 $1 and $1 as of September 30, 2021 and 2020, respectively, related to previously presented loss and loss expenses and subrogation. For 2021, the positive development in prior years was primarily due the RMBS portfolio and favorable development in Public Finance credits, largely Puerto Rico. For 2020, the adverse development in prior years was primarily a result of deterioration in Public Finance credits, largely Puerto Rico, partially offset by favorable development in the RMBS portfolio. Financial Guarantee Loss Reserves: The tables below summarize information related to policies currently included in Ambac’s loss and loss expense reserves or subrogation recoverable at September 30, 2021 and December 31, 2020. 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 September 30, 2021 and December 31, 2020,was 1.6% and 1.1%, respectively.
Surveillance Categories as of September 30, 2021
| I |  | IA |  | II |  | III |  | IV |  | V |  | Total
Number of policies | 33 |  |  | 15 |  |  | 13 |  |  | 15 |  |  | 132 |  |  | 5 |  |  | 213 |
Remaining weighted-average contract period (in years) (1) | 11 |  | 12 |  | 14 |  | 15 |  | 13 |  | 7 |  | 14
Gross insured contractual payments outstanding: |  |  |  |  |  |  |  |  |  |  |  |  |
Principal | $ | 823 |  |  | $ | 764 |  |  | $ | 694 |  |  | $ | 1,349 |  |  | $ | 2,868 |  |  | $ | 40 |  |  | $ | 6,538 |
Interest | 328 |  |  | 800 |  |  | 417 |  |  | 177 |  |  | 1,311 |  |  | 24 |  |  | 3,057 |
Total | $ | 1,151 |  |  | $ | 1,564 |  |  | $ | 1,111 |  |  | $ | 1,525 |  |  | $ | 4,178 |  |  | $ | 64 |  |  | $ | 9,595 |
Gross undiscounted claim liability | $ | 4 |  |  | $ | 13 |  |  | $ | 56 |  |  | $ | 550 |  |  | $ | 1,450 |  |  | $ | 64 |  |  | $ | 2,136 |
Discount, gross claim liability | — |  |  | — |  |  | (3) |  |  | (115) |  |  | (194) |  |  | (4) |  |  | (317) |
Gross claim liability before all subrogation and before reinsurance | 4 |  |  | 12 |  |  | 53 |  |  | 435 |  |  | 1,255 |  |  | 60 |  |  | 1,819 |
Less: |  |  |  |  |  |  |  |  |  |  |  |  |
Gross RMBS subrogation (2) | — |  |  | — |  |  | — |  |  | — |  |  | (1,733) |  |  | — |  |  | (1,733) |
Discount, RMBS subrogation | — |  |  | — |  |  | — |  |  | — |  |  | 2 |  |  | — |  |  | 2 |
Discounted RMBS subrogation, before reinsurance | — |  |  | — |  |  | — |  |  | — |  |  | (1,731) |  |  | — |  |  | (1,731) |
Less: |  |  |  |  |  |  |  |  |  |  |  |  |
Gross other subrogation (3) | — |  |  | (6) |  |  | — |  |  | (34) |  |  | (599) |  |  | (12) |  |  | (651) |
Discount, other subrogation | — |  |  | — |  |  | — |  |  | 2 |  |  | 23 |  |  | 2 |  |  | 27 |
Discounted other subrogation, before reinsurance | — |  |  | (6) |  |  | — |  |  | (32) |  |  | (576) |  |  | (10) |  |  | (624) |
Gross claim liability, net of all subrogation and discounts, before reinsurance | 4 |  |  | 7 |  |  | 53 |  |  | 403 |  |  | (1,052) |  |  | 50 |  |  | (537) |
Less: Unearned premium revenue | (2) |  |  | (7) |  |  | (9) |  |  | (14) |  |  | (25) |  |  | (1) |  |  | (58) |
Plus: Loss expense reserves | 1 |  |  | — |  |  | 1 |  |  | 5 |  |  | 38 |  |  | — |  |  | 46 |
Gross loss and loss expense reserves | $ | 2 |  |  | $ | — |  |  | $ | 45 |  |  | $ | 393 |  |  | $ | (1,039) |  |  | $ | 49 |  |  | $ | (549) |
Reinsurance recoverable reported on Balance Sheet (4) | $ | 1 |  |  | $ | 1 |  |  | $ | 12 |  |  | $ | 24 |  |  | $ | (9) |  |  | $ | — |  |  | $ | 29 |
(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 the Balance Sheet includes reinsurance recoverables of $28 related to future loss and loss expenses and $1 related to presented loss and loss expenses and subrogation.
Surveillance Categories as of December 31, 2020
| I |  | IA |  | II |  | III |  | IV |  | V |  | Total
Number of policies | 40 |  |  | 25 |  |  | 15 |  |  | 15 |  |  | 132 |  |  | 5 |  |  | 232 |
Remaining weighted-average contract period (in years) (1) | 10 |  | 18 |  | 8 |  | 16 |  | 14 |  | 7 |  | 14
Gross insured contractual payments outstanding: |  |  |  |  |  |  |  |  |  |  |  |  |
Principal | $ | 842 |  |  | $ | 1,375 |  |  | $ | 595 |  |  | $ | 1,469 |  |  | $ | 3,246 |  |  | $ | 47 |  |  | $ | 7,573 |
Interest | 279 |  |  | 1,011 |  |  | 484 |  |  | 215 |  |  | 1,427 |  |  | 26 |  |  | 3,443 |
Total | $ | 1,121 |  |  | $ | 2,386 |  |  | $ | 1,079 |  |  | $ | 1,685 |  |  | $ | 4,673 |  |  | $ | 72 |  |  | $ | 11,016 |
Gross undiscounted claim liability | $ | 3 |  |  | $ | 49 |  |  | $ | 40 |  |  | $ | 541 |  |  | $ | 1,690 |  |  | $ | 72 |  |  | $ | 2,395 |
Discount, gross claim liability | — |  |  | (2) |  |  | (1) |  |  | (85) |  |  | (213) |  |  | (3) |  |  | (303) |
Gross claim liability before all subrogation and before reinsurance | 3 |  |  | 47 |  |  | 40 |  |  | 456 |  |  | 1,477 |  |  | 69 |  |  | 2,092 |
Less: |  |  |  |  |  |  |  |  |  |  |  |  |
Gross RMBS subrogation (2) | — |  |  | — |  |  | — |  |  | — |  |  | (1,753) |  |  | — |  |  | (1,753) |
Discount, RMBS subrogation | — |  |  | — |  |  | — |  |  | — |  |  | 3 |  |  | — |  |  | 3 |
Discounted RMBS subrogation, before reinsurance | — |  |  | — |  |  | — |  |  | — |  |  | (1,751) |  |  | — |  |  | (1,751) |
Less: |  |  |  |  |  |  |  |  |  |  |  |  |
Gross other subrogation (3) | — |  |  | — |  |  | — |  |  | (36) |  |  | (706) |  |  | (12) |  |  | (755) |
Discount, other subrogation | — |  |  | — |  |  | — |  |  | 1 |  |  | 18 |  |  | 1 |  |  | 20 |
Discounted other subrogation, before reinsurance | — |  |  | — |  |  | — |  |  | (35) |  |  | (689) |  |  | (11) |  |  | (735) |
Gross claim liability, net of all subrogation and discounts, before reinsurance | 3 |  |  | 47 |  |  | 39 |  |  | 421 |  |  | (963) |  |  | 58 |  |  | (394) |
Less: Unearned premium revenue | (2) |  |  | (16) |  |  | (5) |  |  | (17) |  |  | (30) |  |  | (1) |  |  | (72) |
Plus: Loss expense reserves | 1 |  |  | 2 |  |  | 1 |  |  | 5 |  |  | 59 |  |  | — |  |  | 68 |
Gross loss and loss expense reserves | $ | 2 |  |  | $ | 32 |  |  | $ | 35 |  |  | $ | 409 |  |  | $ | (933) |  |  | $ | 57 |  |  | $ | (397) |
Reinsurance recoverable reported on Balance Sheet (4) | $ | — |  |  | $ | 6 |  |  | $ | 9 |  |  | $ | 24 |  |  | $ | (6) |  |  | $ | — |  |  | $ | 33 |
(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 the Balance Sheet includes reinsurance recoverables of $33 related to future loss and loss expenses and $1 related to presented loss and loss expenses and subrogation. COVID-19: In March 2020, the outbreak of COVID-19 pandemic, caused by a novel strain of the coronavirus, was recognized as a pandemic by the World Health Organization, and the outbreak is widespread globally, including in the markets in which we operate. The COVID-19 outbreak had, and continues to have, an adverse impact on general economic conditions, including but not limited to higher unemployment; volatility in the capital markets; closure or severe curtailment of the operations and, hence, revenues, of many businesses and public and private enterprises to which we are directly or indirectly exposed, such as hotels, restaurants, sports and entertainment facilities, airports and other transportation facilities, and retail establishments. COVID-19 has adversely impacted Ambac's financial position and results of operations as credit risk in the insured and investment portfolios has increased. In the insured portfolio, municipal, mortgage-backed, student loan and other asset securitization exposures could be materially adversely impacted. In the U.S., significant fiscal stimulus measures, monetary policy actions and other relief measures have helped to moderate the negative economic impacts of COVID-19, and have supported the economic recovery which began in the second half of 2020 and continues into 2021. These measures include the March 2021, $1.9 trillion American Rescue Plan Act or ARPA, which together with other fiscal stimulus measures put in place in 2020, provide for, among other things, funding to state and local governments, direct payments to households, support for small businesses, renter assistance and funding for transport, airlines, healthcare and education. Monetary policy decisions have included quantitative easing and the provision of liquidity to financial institutions and credit markets. In addition, housing measures, such as forbearance on mortgages and suspension of foreclosures and evictions, and various executive orders have helped to provide relief. Outside of the US, and in the United Kingdom and Italy in particular, where Ambac has insured portfolio exposure, various monetary policy, fiscal stimulus measures and other actions have also helped to moderate the negative economic impact and support recovery. We are continuously evaluating and updating our view of the macro economic environment as well as our specific credit view of each of our insured exposures considering the significant uncertainties brought upon us by the COVID-19 pandemic. Accordingly, despite the current economic recovery, our loss reserves may be under-estimated as a result of the ultimate scope, duration and magnitude of the effects of COVID-19 pandemic. 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 $1,054. 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 on their debt service payments, including payments owed on bonds insured by AAC. AAC will 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 variability in economic growth and demographic trends, tax revenues, changes in law or the effects thereof, essential services expense, federal funding of Commonwealth needs, as well as interpretation of legal documents, legislation, updated financial information (when available), and, overall, outcomes related to the debt restructuring process. 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; and the trajectory of recovery from the COVID-19 pandemic. 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 Fiscal Plan, the most recent of which was certified by the Financial Oversight and Management Board for Puerto Rico ("Oversight Board") on April 23, 2021. The most recent Commonwealth Fiscal Plan purports to incorporate the impact of the federal recovery money stemming from the 2017 hurricanes, 2019-2020 earthquakes, and the COVID-19 pandemic, including ARPA. As with previous fiscal plans, the current certified Commonwealth Fiscal Plan significantly informs the Commonwealth Plan of Adjustment in the Commonwealth's Title III proceeding. However, as was the case with previous versions of the Commonwealth Fiscal Plan, the current version of the Commonwealth 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 AAC's claims development potential, risk profile and long-term financial strength. On November 3, 2021, the Oversight Board, as representative of the Commonwealth of Puerto Rico, the Puerto Rico Public Buildings Authority ("PBA"), and the Employees Retirement System of the Government of the Commonwealth of Puerto Rico ("ERS") filed the Eighth Amended Title III Joint Plan of Adjustment of the Commonwealth of Puerto Rico (“Eighth Amended POA”) that proposes to restructure approximately $35,000 of debt and $50,000 in pension obligations. The Eighth Amended POA, among other things, reflects the settlement in the PRIFA Related Plan Support Agreement (“PRIFA PSA”) that was signed on July 27, 2021, by the Oversight Board, as representative of the Commonwealth of Puerto Rico, AAC, FGIC and other holders of Puerto Rico Infrastructure Financing Authority ("PRIFA") Special Tax Revenues ("Rum Tax") bonds. In July 2021, AAC also joined other existing plan support agreements ("PSAs") covering its remaining unrestructured Puerto Rico exposures, including bonds issued by the Puerto Rico Highways and Transportation Authority ("PRHTA"), the Convention Center District Authority ("CCDA"), and Puerto Rico Public Buildings Authority ("PBA"), and general obligation ("GO") bonds. The PRIFA PSA provides consideration for PRIFA bondholders in the form of a combination of cash and a Contingent Value Instrument (the "Rum Tax CVI") that will be deposited into a master trust (the "CVI Master Trust") and into a sub trust (the "PRIFA CVI Sub Trust") within the CVI Master Trust and held for the benefit of PRIFA bondholders (the “PRIFA Trust”). The Rum Tax CVI comprises potential cash payments related to outperformance of general fund rum tax collections relative to the certified 2021 Commonwealth Fiscal Plan's projections. The PRIFA CVI Sub Trust will also be funded with an approximately 27% share of the Clawback CVI (described below), which is tied to potential cash payments related to the outperformance of the Commonwealth's sales and use tax ("SUT") against the certified 2020 Commonwealth Fiscal Plan's projections. The rum tax and SUT outperformance measures are subject to a joint lifetime nominal cap of 75% of the allowed PRIFA claim under the Eighth Amended POA. The PRHTA/CCDA Related Plan Support Agreement ("PRHTA/CCDA PSA"), dated May 5, 2021, between the Oversight Board, as representative of the Commonwealth of Puerto Rico and PRHTA, Assured Guaranty Corp. and Assured Guaranty Municipal Corp. ("Assured"), National Public Finance Guarantee Corp. ("National"), and certain holders of PRHTA and CCDA bonds, which AAC joined on July 15, 2021, provides consideration for holders of PRHTA and CCDA bonds on account of their claims against the Commonwealth that consists of interests of approximately 69% and 4%, respectively, of a contingent value instrument tied to the outperformance of the SUT against the certified 2020 Commonwealth Fiscal Plan's projections (the "Clawback CVI"). The Clawback CVI outperformance measures are subject to a lifetime nominal cap of 75% of the allowed PRHTA and CCDA claims under the Eighth Amended POA. Under the PRHTA/CCDA PSA, the PRHTA and CCDA creditors would also receive consideration in the form of new PRHTA bonds and cash for PRHTA creditors, and cash for CCDA creditors. The Amended and Restated Plan Support Agreement ("Amended and Restated GO/PBA PSA"), dated July 12, 2021, between the Oversight Board, as representative of the Commonwealth of Puerto Rico, PBA, and ERS, Assured, National, Syncora Guarantee Inc., and certain holders of GO and PBA bonds, which AAC joined on July 27, 2021, provides consideration for holders of GO and PBA bonds comprised of a combination of cash, new GO bonds and a contingent value instrument intended to provide creditors with additional returns tied to the outperformance of the SUT against the certified 2020 Commonwealth Fiscal Plan's projections. Substantial uncertainty still exists with respect to the ultimate outcome for creditors in Puerto Rico, such as AAC, due to, among other matters, whether or not the Eighth Amended POA, the PRIFA Qualifying Modification (the "PRIFA QM"), the CCDA Qualifying Modification (the "CCDA QM") and a prospective PRHTA plan of adjustment (collectively, the “Plans”) ultimately will be confirmed or approved; uncertainty related to the value of the proposed CVI instruments and other consideration to be provided by the debtors as contemplated in the plan support agreements; actual performance of the CVI instruments; the extent to which exposure management strategies, such as commutation and acceleration, that are available in the Plans will be executed; the outcome of related litigation, some of which may not be resolved even if the Plans are confirmed and approved; the timing of the consummation of the Plans, if confirmed and approved; the tax treatment of the consideration provided by or on behalf of the debtors under the Plans, if confirmed and approved; and other factors, including market conditions such as interest rate movements and expected movements over time. There is no assurance that should one or more of these uncertainties negatively develop that it would not have a material adverse impact on Ambac's financial condition and results of operations. While our reserving scenarios account for a wide range of possible outcomes, reflecting the significant uncertainty regarding future developments and outcomes, given our significant exposure to Puerto Rico and the economic, fiscal, legal and political uncertainties associated therewith, 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. Conversely, Ambac’s loss reserves may prove to be overstated, possibly materially, due to favorable developments or results with respect to the factors described in the preceding paragraph. Ambac has considered these developments and other factors in evaluating its Puerto Rico loss reserves. 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 AAC to honor its financial obligations; the initiation of rehabilitation proceedings against AAC; decreased likelihood of AAC delivering value to Ambac, through dividends or otherwise; and a significant drop in the value of securities issued or insured by Ambac or AAC. For public finance credits, including Puerto Rico, as well as other issuers, for which Ambac has an estimate of expected loss at September 30, 2021, the possible increase in loss reserves under stress or other adverse conditions and circumstances was estimated to be approximately $470. This possible increase in loss reserves under stress or other adverse conditions is significant and if we were to experience such incremental losses, our stockholders’ equity as of September 30, 2021, would decrease from $1,121 to $651. However, there can be no assurance that losses may not exceed such amount. 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 in the Notes to Consolidated Financial Statements included Part II, Item 8 in the Company’s Annual Report on Form 10-K for the year ended December 31, 2020. Ambac has recorded RMBS R&W subrogation recoveries of $1,731 ($1,705 net of reinsurance) and $1,751 ($1,725 net of reinsurance) at September 30, 2021 and December 31, 2020, respectively. Our ability to realize R&W subrogation recoveries is subject to significant uncertainty, including risks inherent in litigation, including adverse rulings or decisions in our cases or in litigations to which AAC is not a party that set precedents or resolve questions of law that impact our own claims; collectability of such amounts from counterparties (and/or their respective parents and affiliates); timing of receipt of any such recoveries; intervention by OCI, which could impede our ability to take actions required to realize such recoveries; and uncertainty inherent in the assumptions used in estimating such recoveries. Failure to realize R&W subrogation recoveries for any reason or the realization of R&W subrogation recoveries materially below the amount recorded on Ambac's consolidated balance sheet would have a material adverse effect on our results of operations and financial condition. If we were unable to realize R&W subrogation recoveries recorded on Ambac's consolidated balance sheet, our stockholders’ equity as of September 30, 2021, would decrease from $1,121 to $(585). Additionally, failure to realize R&W subrogation recoveries, or the realization of recoveries significantly below those recorded on the balance sheet, may result in adverse consequences such as impairing the ability of AAC to honor its financial obligations; the initiation of rehabilitation proceedings against AAC; AAC not being able to deliver value to Ambac, through dividends or otherwise; and a significant drop in the value of securities issued or insured by Ambac or AAC. Reinsurance Recoverables, Including Credit Impairments: Amounts recoverable from reinsurers are estimated in a manner consistent with the associated loss and loss expense reserves. The Company reports its reinsurance recoverables net of an allowance for amounts that are estimated to be uncollectible. The allowance is based upon Ambac's ongoing review of amounts outstanding, changes in reinsurer credit standing, the value of any pledged collateral, disputes and other relevant factors. The Company evaluates and monitors the financial condition of its reinsurers to minimize its exposure to significant losses from reinsurer insolvencies. The key indicators management uses to assess the credit quality of reinsurance recoverables are collateral posted by the reinsurers and independent rating agency credit ratings. The evaluation begins with a comparison of the fair value of collateral posted by the reinsurer to the recoverable, net of ceded premiums payable. Any shortfall of collateral posted is evaluated against the credit rating of the reinsurer to determine whether an allowance is considered necessary. Ambac has uncollateralized credit exposure of $2 and $1 and has recorded an allowance for credit losses of $— and $— at September 30, 2021 and December 31, 2020

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- Definition The entire disclosure for the fair value of financial instruments (as defined), including financial assets and financial liabilities (collectively, as defined), and the measurements of those instruments as well as disclosures related to the fair value of non-financial assets and liabilities. Such disclosures about the financial instruments, assets, and liabilities would include: (1) the fair value of the required items together with their carrying amounts (as appropriate); (2) for items for which it is not practicable to estimate fair value, disclosure would include: (a) information pertinent to estimating fair value (including, carrying amount, effective interest rate, and maturity, and (b) the reasons why it is not practicable to estimate fair value; (3) significant concentrations of credit risk including: (a) information about the activity, region, or economic characteristics identifying a concentration, (b) the maximum amount of loss the entity is exposed to based on the gross fair value of the related item, (c) policy for requiring collateral or other security and information as to accessing such collateral or security, and (d) the nature and brief description of such collateral or security; (4) quantitative information about market risks and how such risks are managed; (5) for items measured on both a recurring and nonrecurring basis information regarding the inputs used to develop the fair value measurement; and (6) for items presented in the financial statement for which fair value measurement is elected: (a) information necessary to understand the reasons for the election, (b) discussion of the effect of fair value changes on earnings, (c) a description of [similar groups] items for which the election is made and the relation thereof to the balance sheet, the aggregate carrying value of items included in the balance sheet that are not eligible for the election; (7) all other required (as defined) and desired information. + References Reference 1: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 820 -SubTopic 10 -Section 50 -Paragraph 2 -URI http://asc.fasb.org/extlink&oid=117815213&loc=d3e19207-110258 + Details
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