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Fair Value Measurements (Tables)

9 Months Ended

Sep. 30, 2021

Fair Value Disclosures [Abstract]

Summary of Carrying Amount and Fair Value of Ambac's Financial Assets and Liabilities

The following table sets forth the carrying amount and fair value of Ambac’s financial assets and liabilities as of 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.

Summary of Changes in Level 3 Fair Value Category

The following tables present the changes in the Level 3 fair value category for the periods presented in 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						$	—					$	—					$	—					$	—					$	—					$	—

Summary of Gains and Losses (Realized and Unrealized) Relating to Level 3 Assets and Liabilities Included in Earnings

Gains and losses (realized and unrealized) relating to Level 3 assets and liabilities included in earnings for the affected periods are reported as follows:

						Net Investment Income						Net Gains (Losses) on Derivative Contracts						Income (Loss) on Variable Interest Entities						Other Income or (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)

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Tabular presentation of Fair value assets and liabilities measured on recurring basis unobservable input reconciliation.

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Tabular disclosure of the amount of gains or losses for the period included in earnings or resulted in a change to net assets, have arisen from the use of significant unobservable inputs (level 3) to measure the fair value of assets, liabilities, and financial instruments classified in shareholders' equity.

+ References

Reference 1: http://fasb.org/us-gaap/role/ref/legacyRef
-Publisher FASB
-Name Accounting Standards Codification
-Topic 820
-SubTopic 10
-Section 50
-Paragraph 2
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Tabular disclosure of the fair value of financial instruments, including financial assets and financial liabilities, and the measurements of those instruments, assets, and liabilities.

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-Publisher FASB
-Name Accounting Standards Codification
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-Publisher FASB
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