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Variable Interest Entities | 12 Months Ended
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Dec. 31, 2021
Accounting Policies [Abstract] |
Variable Interest Entity Disclosure | 11. VARIABLE INTEREST ENTITIES Ambac, with its subsidiaries, has engaged in transactions with variable interest entities ("VIEs") in various capacities. •Ambac provides financial guarantees for various debt obligations issued by special purpose entities, including VIEs ("FG VIEs"); •Ambac sponsors special purpose entities that issued notes to investors for various purposes; and •Ambac is an investor in collateralized debt obligations, mortgage-backed and other asset-backed securities issued by VIEs and its ownership interest is generally insignificant to the VIE and/or Ambac does not have rights that direct the activities that are most significant to such VIE. FG VIEs Ambac’s subsidiaries provide financial guarantees in respect of assets held or debt obligations of VIEs. Ambac’s primary variable interest exists through this financial guarantee insurance or credit derivative contract. The transaction structures provide certain financial protection to Ambac. Generally, upon deterioration in the performance of a transaction or upon an event of default as specified in the transaction legal documents, Ambac will obtain certain control rights that enable Ambac to remediate losses. These rights may enable Ambac to direct the activities of the entity that most significantly impact the entity’s economic performance. Under the 2018 Stipulation and Order, AAC is required to obtain OCI approval with respect to the exercise of certain significant control rights in connection with policies that had previously been allocated to the Segregated Account. Accordingly, AAC does not have the right to direct the most significant activities of those FG VIEs. •We determined that AAC and Ambac UK generally have the obligation to absorb a FG VIE's expected losses given that they have issued financial guarantees supporting certain liabilities (and in some cases certain assets). As further described below, Ambac consolidates certain FG VIEs in cases where we also have the power to direct the activities that most significantly impact the VIE’s economic performance due to one or more of the following: (i) the transaction is experiencing deterioration and breaching performance triggers, giving Ambac the ability to exercise certain control rights, (ii) Ambac being involved in the design of the VIE and receiving control rights from its inception, such as may occur from loss remediation activities, or (iii) the transaction is not experiencing deterioration, however due to the passive nature of the VIE, Ambac's contingent control rights upon a future breach of performance triggers is considered to be the power over the most significant activity. •A VIE is deconsolidated in the period that Ambac no longer has such control rights, which could occur in connection with the execution of remediation activities on the transaction or amortization of insured exposure, either of which may reduce the degree of Ambac’s control over a VIE. •Assets and liabilities of FG VIEs that are consolidated are reported within Variable interest entity assets or Variable interest entity liabilities on the Consolidated Balance Sheets. •The election to use the fair value option is made on an instrument by instrument basis. Ambac has elected the fair value option for consolidated FG VIE financial assets and financial liabilities, except in cases where Ambac was involved in the design of the VIE and was granted control rights at its inception. ◦When the fair value option is elected, changes in the fair value of the FG VIE's financial assets and liabilities are reported within Income (loss) on variable interest entities in the Consolidated Statements of Total Comprehensive Income (Loss), except for the portion of the total change in fair value of financial liabilities caused by changes in the instrument-specific credit risk which is presented separately in Other comprehensive income (loss). ◦In cases where the fair value option has not been elected, the FG VIE's invested assets are fixed maturity securities and are considered available-for-sale as defined by the Investments - Debt Securities Topic of the ASC. These assets are reported in the financial statements at fair value with unrealized gains and losses reflected in Accumulated Other Comprehensive Income (loss) in Stockholders' Equity. The financial liabilities of these FG VIEs consist of long term debt obligations and are carried at par less unamortized discount. Income from the FG VIE's available-for-sale securities (including investment income, realized gains and losses and credit impairments as applicable) and interest expense on long term debt are reported within Income (loss) on variable interest entities in the Consolidated Statements of Total Comprehensive Income (Loss). •Upon initial consolidation of a FG VIE, Ambac recognizes a gain or loss in earnings for the difference between: (i) the fair value of the consideration paid, the fair value of any non-controlling interests and the reported amount of any previously held interests and (ii) the net amount, as measured on a fair value basis, of the assets and liabilities consolidated. Upon deconsolidation of a FG VIE, Ambac recognizes a gain or loss for the difference between: (i) the fair value of any consideration received, the fair value of any retained non-controlling investment in the VIE and the carrying amount of any non-controlling interest in the VIE and (ii) the carrying amount of the VIE’s assets and liabilities. Gains or losses from consolidation and deconsolidation that are reported in earnings are reported within Income (loss) on variable interest entities on the Consolidated Statements of Total Comprehensive Income (Loss). •The impact of consolidating such FG VIEs on Ambac’s balance sheet is the elimination of transactions between the consolidated FG VIEs and Ambac’s operating subsidiaries and the inclusion of the FG VIE’s third party assets and liabilities. For a financial guarantee insurance policy issued to a consolidated VIE, Ambac does not reflect the financial guarantee insurance policy in accordance with the related insurance accounting rules under the Financial Services — Insurance Topic of the ASC. Consequently, upon consolidation, Ambac eliminates the insurance assets and liabilities associated with the policy from the Consolidated Balance Sheets. Such insurance assets and liabilities may include premium receivables, reinsurance recoverable, deferred ceded premium, subrogation recoverable, unearned premiums, loss and loss expense reserves, ceded premiums payable and insurance intangible assets. For investment securities owned by Ambac that are debt instruments issued by the VIE, the associated debt and investment balances are eliminated upon consolidation. FG VIEs which are consolidated may include recourse and non-recourse liabilities. FG VIEs' liabilities that are insured by AAC or Ambac UK are with recourse, because the Company guarantees the payment of principal and interest in the event the issuer defaults. FG VIEs' liabilities that are not insured by the AAC or Ambac UK are without recourse, because AAC or Ambac UK have not issued a financial guarantee and is under no obligation for the payment of principal and interest of these instruments. AAC or Ambac UK’s economic exposure to consolidated FG VIEs is limited to the financial guarantees issued for recourse liabilities and any additional variable interests held by them. Additionally, AAC or Ambac UK’s general creditors, other than those specific policy holders which own the VIE debt obligations, do not have rights with regard to the assets of the VIEs. Ambac evaluates the net income effects and earnings per share effects to determine attributions between Ambac and non-controlling interests as a result of consolidating a VIE. Ambac has determined that the net income and earnings per share effect of consolidated FG VIEs are attributable to Ambac’s interests through financial guarantee premium and loss payments with the VIE. The following table summarizes the carrying values of assets and liabilities, along with other supplemental information related to VIEs that are consolidated as a result of financial guarantees of Ambac UK and AAC:
December 31, |  | 2021 |  | 2020
|  | Ambac UK |  | Ambac Assurance |  | Total VIEs |  | Ambac UK |  | Ambac Assurance |  | Total VIEs
ASSETS: |  |  |  |  |  |  |  |  |  |  |  |
Fixed maturity securities, at fair value: |  |  |  |  |  |  |  |  |  |  |  |
Corporate obligations, fair value option |  | $ | 3,320 |  |  | $ | — |  |  | $ | 3,320 |  |  | $ | 3,215 |  |  | $ | — |  |  | $ | 3,215 |
Municipal obligations, available-for-sale (1) |  | — |  |  | 136 |  |  | 136 |  |  | — |  |  | 139 |  |  | 139 |
Total FG VIE fixed maturity securities, at fair value |  | 3,320 |  |  | 136 |  |  | 3,455 |  |  | 3,215 |  |  | 139 |  |  | 3,354 |
Restricted cash |  | 1 |  |  | 1 |  |  | 2 |  |  | 1 |  |  | 1 |  |  | 2 |
Loans, at fair value (2) |  | 2,718 |  |  | — |  |  | 2,718 |  |  | 2,998 |  |  | — |  |  | 2,998 |
Derivative assets |  | 38 |  |  | — |  |  | 38 |  |  | 41 |  |  | — |  |  | 41 |
Other assets |  | — |  |  | 2 |  |  | 2 |  |  | — |  |  | 2 |  |  | 2 |
Total FG VIE assets |  | $ | 6,077 |  |  | $ | 139 |  |  | $ | 6,216 |  |  | $ | 6,255 |  |  | $ | 143 |  |  | $ | 6,398 |
LIABILITIES: |  |  |  |  |  |  |  |  |  |  |  |
Long-term debt: |  |  |  |  |  |  |  |  |  |  |  |
Long-term debt, at fair value (3) |  | $ | 4,056 |  |  | $ | — |  |  | $ | 4,056 |  |  | $ | 4,324 |  |  | $ | — |  |  | $ | 4,324 |
Long-term debt, at par less unamortized discount |  | — |  |  | 160 |  |  | 160 |  |  | — |  |  | 169 |  |  | 169 |
Total long-term debt |  | 4,056 |  |  | 160 |  |  | 4,216 |  |  | 4,324 |  |  | 169 |  |  | 4,493 |
Derivative liabilities |  | 1,940 |  |  | — |  |  | 1,940 |  |  | 1,835 |  |  | — |  |  | 1,835 |
Total FG VIE liabilities |  | $ | 5,996 |  |  | $ | 160 |  |  | $ | 6,156 |  |  | $ | 6,159 |  |  | $ | 169 |  |  | $ | 6,328 |
Number of FG VIEs consolidated |  | 5 |  |  | 1 |  |  | 6 |  |  | 5 |  |  | 1 |  |  | 6 |
(1)Available-for-sale FG VIE fixed-maturity securities consist of municipal obligations with an amortized cost basis of $106 and $113, and aggregate gross unrealized gains of $29 and $27 at December 31, 2021 and 2020, respectively. All such securities had contractual maturities due after ten years as of December 31, 2021. (2)The unpaid principal balances of loan assets carried at fair value were $2,363 and $2,546 as of December 31, 2021 and 2020, respectively. (3)The unpaid principal balances of long-term debt carried at fair value were $3,579 and $3,769 as of December 31, 2021 and 2020, respectively. The following schedule details the components of Income (loss) on variable interest entities for the affected periods:
Year ended December 31, |  | 2021 |  | 2020 |  | 2019
Net change in fair value of VIE assets and liabilities reported under the fair value option |  | $ | 4 |  |  | $ | (1) |  |  | $ | 13 |
Less: Credit risk changes of fair value option long-term debt reported through other comprehensive income (loss) |  | 1 |  |  | (1) |  |  | — |
Net change in fair value of VIE assets and liabilities reported in earnings |  | 5 |  |  | (3) |  |  | 14 |
Investment income on available-for-sale securities |  | 6 |  |  | 7 |  |  | 10 |
Net realized investment gains (losses) on available-for-sale securities |  | 2 |  |  | 8 |  |  | 13 |
Interest expense on long-term debt carried at par less unamortized cost |  | (6) |  |  | (6) |  |  | (11) |
Other expenses |  | (1) |  |  | — |  |  | (1) |
Gain (loss) from consolidating FG VIEs |  | — |  |  | — |  |  | 15 |
Gain (loss) from de-consolidating FG VIEs |  | — |  |  | — |  |  | (2) |
Income (loss) on variable interest entities |  | $ | 7 |  |  | $ | 5 |  |  | $ | 38 |
As further discussed in Note 7. Insurance Contracts, on February 12, 2019, in connection with the COFINA POA, the COFINA Class 2 Trust was established. Ambac was required to consolidate the COFINA Class 2 Trust, which resulted in a gain of $15. Ambac deconsolidated zero, one and one VIEs for the years ended December 31, 2021, 2020 and 2019, respectively. These VIEs were deconsolidated as a result of guaranteed bond retirements or loss mitigation activities that eliminated or reduced Ambac's control rights that previously required Ambac to consolidate these entities, and resulted in the gain (loss) on deconsolidation noted in the above table. There was no impact to consolidated assets and liabilities for the 2020 deconsolidation. The following table displays the carrying amount of the assets, liabilities and maximum exposure to loss of Ambac’s variable interests in non-consolidated VIEs resulting from financial guarantee and derivative contracts by major underlying asset classes, as of December 31, 2021 and 2020:
| Carrying Value of Assets and Liabilities
| Maximum Exposure To Loss (1) |  | Insurance Assets (2) |  | Insurance Liabilities (3) |  | Net Derivative Assets (Liabilities) (4)
December 31, 2021: |  |  |  |  |  |  |
Global structured finance: |  |  |  |  |  |  |
Mortgage-backed—residential | $ | 3,265 |  |  | $ | 1,929 |  |  | $ | 521 |  |  | $ | — |
Other consumer asset-backed | 788 |  |  | 17 |  |  | 234 |  |  | — |
Other | 826 |  |  | 3 |  |  | 10 |  |  | 5 |
Total global structured finance | 4,879 |  |  | 1,949 |  |  | 765 |  |  | 5 |
Global public finance | 20,233 |  |  | 246 |  |  | 257 |  |  | — |
Total | $ | 25,112 |  |  | $ | 2,195 |  |  | $ | 1,023 |  |  | $ | 5 |
December 31, 2020: |  |  |  |  |  |  |
Global structured finance: |  |  |  |  |  |  |
Mortgage-backed—residential | $ | 4,308 |  |  | $ | 2,024 |  |  | $ | 580 |  |  | $ | — |
Other consumer asset-backed | 1,050 |  |  | 24 |  |  | 239 |  |  | — |
Other | 994 |  |  | 3 |  |  | 15 |  |  | 8 |
Total global structured finance | 6,352 |  |  | 2,051 |  |  | 834 |  |  | 8 |
Global public finance | 21,646 |  |  | 263 |  |  | 287 |  |  | — |
Total | $ | 27,998 |  |  | $ | 2,314 |  |  | $ | 1,122 |  |  | $ | 8 |
(1)Maximum exposure to loss represents the maximum future payments of principal and interest on insured obligations and derivative contracts. Ambac’s maximum exposure to loss does not include the benefit of any financial instruments (such as reinsurance or hedge contracts) that Ambac may utilize to mitigate the risks associated with these variable interests. (2)Insurance assets represent the amount included in “Premium receivables” and “Subrogation recoverable” for financial guarantee insurance contracts on Ambac’s Consolidated Balance Sheets. (3)Insurance liabilities represent the amount included in “Loss and loss expense reserves” and “Unearned premiums” for financial guarantee insurance contracts on Ambac’s Consolidated Balance Sheets. (4)Net derivative assets (liabilities) represent the fair value recognized on credit derivative contracts and interest rate swaps on Ambac’s Consolidated Balance Sheets. Ambac Sponsored Non-consolidated VIEs On August 28, 2014, Ambac monetized its ownership of the junior surplus note issued to it by AAC by depositing the junior surplus note into the Corolla Trust, a VIE, in exchange for cash and the Corolla Certificate, which represented Ambac's right to residual cash flows from the junior surplus note. Ambac did not consolidate the VIE since it did not have a variable interest in the trust. Ambac reported the Corolla Certificate as an equity investment within Other investments on the Consolidated Balance Sheets with associated results from operations included within Net investment income (loss): Other investments on the Consolidated Statements of Total Comprehensive Income (Loss). The equity investment had a carrying value of $51 at December 31, 2020. 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 Notes of the Corolla Trust and the Corolla Certificates for AAC surplus notes and subsequently dissolved the Corolla Trust. On February 12, 2018, Ambac formed a VIE, Ambac LSNI, LLC ("Ambac LSNI"). Ambac LSNI issued LSNI Secured Notes in connection with the Rehabilitation Exit Transactions. Ambac does not consolidate Ambac LSNI since it does not have a variable interest in the VIE. Ambac reported its holdings of LSNI Secured Notes within Fixed Maturity Securities in the Consolidated Balance Sheets. The carrying value of LSNI Secured Notes held by Ambac was $465 at December 31, 2020. Ambac's debt obligation to the VIE had a carrying value of $1,641 at December 31, 2020, and was reported within Long-term debt on the Consolidated Balance Sheets. As further described in Note 1. Background and Business Description, on July 6, 2021, Sitka, Ambac's newly formed VIE, issued the Sitka Senior Secured Notes that were used to fund a portion of the full redemption of the LSNI Secured Notes issued by LSNI, with the remaining balance redeemed utilizing other available sources of liquidity. Ambac does not consolidate Sitka since it does not have a variable interest in the VIE. Ambac's debt obligation to Sitka had a carrying value of $1,154 at December 31, 2021, and is reported within Long-term debt on the Consolidated Balance Sheets.

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- Definition The entire disclosure for a variable interest entity (VIE), including but not limited to, judgments and assumptions in determining whether to consolidate and in identifying the primary beneficiary, gain (loss) recognized on the initial consolidation of the VIE, terms of arrangements, amounts and classification of the VIE's assets and liabilities, and the entity's maximum exposure to loss. + References Reference 1: http://fasb.org/us-gaap/role/ref/legacyRef -Publisher FASB -Name Accounting Standards Codification -Topic 810 -URI http://asc.fasb.org/topic&trid=2197479 + Details
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