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Financial Guarantee Insurance Contracts | 12 Months Ended
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Dec. 31, 2021
Insurance [Abstract] |
Summary of Rollforward of RMBS Subrogation, by Estimation Approach |
Insurance Disclosure | 7. INSURANCE CONTRACTS 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:
Year Ended December 31, | Direct |  | Assumed |  | Ceded |  | Net Premiums
2021: |  |  |  |  |  |  |
Written | $ | 2 |  |  | $ | — |  |  | $ | 35 |  |  | $ | (33) |
Earned | 62 |  |  | — |  |  | 15 |  |  | 47 |
2020: |  |  |  |  |  |  |
Written | $ | (1) |  |  | $ | — |  |  | $ | (1) |  |  | $ | — |
Earned | 65 |  |  | 1 |  |  | 12 |  |  | 54 |
2019: |  |  |  |  |  |  |
Written | $ | (28) |  |  | $ | — |  |  | $ | 31 |  |  | $ | (60) |
Earned | 75 |  |  | — |  |  | 10 |  |  | 66 |
Ambac’s accelerated financial guarantee premium revenue for retired obligations for the years ended December 31, 2021, 2020 and 2019, was $1, $12 and $10, respectively. The following table summarizes net premiums earned by location of risk:
Year Ended December 31, |  | 2021 |  | 2020 |  | 2019
United States |  | 27 |  |  | $ | 32 |  |  | $ | 55 |
United Kingdom |  | 14 |  |  | 24 |  |  | 17 |
Other international |  | 6 |  |  | (2) |  |  | (6) |
Total |  | 47 |  |  | $ | 54 |  |  | $ | 66 |
Premium Receivables, including credit impairments Premium receivables at December 31, 2021 and 2020 were $323 and $370, respectively. 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. Management's evaluation of credit impairment under prior GAAP rules was not materially different. Most credit impairment disclosures below were only made prospectively from the CECL adoption date as they were not required previously under GAAP. As further discussed in Note 2. Basis of Presentation and Significant Accounting Policies, 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 December 31, 2021 and 2020:
Surveillance Categories as of December 31, 2021
Type of Guaranteed Bond | I |  | IA |  | II |  | III |  | IV |  |  |  | Total
Public Finance: |  |  |  |  |  |  |  |  |  |  |  |  |
Housing revenue | $ | 149 |  |  | $ | 3 |  |  | $ | 5 |  |  | $ | — |  |  | $ | — |  |  |  |  | $ | 157 |
Other | 2 |  |  | — |  |  | — |  |  | — |  |  | — |  |  |  |  | 2 |
Total Public Finance | 151 |  |  | 3 |  |  | 5 |  |  | — |  |  | — |  |  |  |  | 159 |
Structured Finance: |  |  |  |  |  |  |  |  |  |  |  |  |
Mortgage-backed and home equity | 1 |  |  | — |  |  | 1 |  |  | 2 |  |  | 12 |  |  |  |  | 16 |
Student loan | 1 |  |  | 1 |  |  | — |  |  | 9 |  |  | — |  |  |  |  | 12 |
Structured insurance | 10 |  |  | — |  |  | — |  |  | — |  |  | — |  |  |  |  | 10 |
Other | 7 |  |  | — |  |  | — |  |  | — |  |  | — |  |  |  |  | 7 |
Total Structured Finance | 19 |  |  | 1 |  |  | 1 |  |  | 12 |  |  | 12 |  |  |  |  | 45 |
International: |  |  |  |  |  |  |  |  |  |  |  |  |
Sovereign/sub-sovereign | 74 |  |  | 8 |  |  | — |  |  | 11 |  |  | — |  |  |  |  | 93 |
Investor-owned and public utilities | 28 |  |  | — |  |  | — |  |  | — |  |  | — |  |  |  |  | 28 |
Other | 5 |  |  | — |  |  | — |  |  | — |  |  | — |  |  |  |  | 5 |
Total International | 107 |  |  | 8 |  |  | — |  |  | 11 |  |  | — |  |  |  |  | 125 |
Total (1) (2) | $ | 277 |  |  | $ | 12 |  |  | $ | 6 |  |  | $ | 22 |  |  | $ | 12 |  |  |  |  | $ | 329 |
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 |
Student loan | 3 |  |  | — |  |  | 2 |  |  | 11 |  |  | — |  |  |  |  | 16 |
Structured insurance | 14 |  |  | — |  |  | — |  |  | — |  |  | — |  |  |  |  | 14 |
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 December 31, 2021 and 2020:
Year Ended December 31, |  | 2021 |  | 2020
Beginning balance (1) |  | $ | 17 |  |  | $ | 9 |
Current period provision (2) |  | (6) |  |  | 9 |
Write-offs of the allowance |  | (2) |  |  | (2) |
Ending balance |  | $ | 9 |  |  | $ | 17 |
(1)At January 1, 2020, $9 of premiums receivable were deemed uncollectible as determined under prior GAAP rules. (2)The year ended December 31, 2020, includes $3 from the adoption of CECL. At December 31, 2021 and 2020, a deminimis amount of premiums were past due. Financial Guarantee Premium Receivables Below is the gross premium receivable roll-forward (direct and assumed contracts) for the affected periods:
Year Ended December 31, | 2021 |  | 2020 |  | 2019
Beginning premium receivable | $ | 370 |  |  | $ | 416 |  |  | $ | 495 |
Adjustment to initially apply ASU 2016-13 | — |  |  | (3) |  |  | — |
Premium receipts | (35) |  |  | (46) |  |  | (48) |
Adjustments for changes in expected and contractual cash flows (1) | (27) |  |  | (6) |  |  | (38) |
Accretion of premium receivable discount | 8 |  |  | 9 |  |  | 11 |
Deconsolidation of certain VIEs | — |  |  | — |  |  | 3 |
Changes to allowance for credit losses | 8 |  |  | (4) |  |  | (2) |
Other adjustments (including foreign exchange) | (4) |  |  | 5 |  |  | (6) |
Ending premium receivable (2) | $ | 320 |  |  | $ | 370 |  |  | $ | 416 |
(1)Adjustments for changes in expected and contractual cash flows are primarily due to reductions in insured exposure as a result of early policy terminations and unscheduled principal paydowns. (2)Premium receivable includes premiums to be received in foreign denominated currencies most notably in British Pounds and Euros. At December 31, 2021, 2020 and 2019 premium receivables include British Pounds of $108 (£80), $117 (£86) and $129 (£97), respectively, and Euros of $16 (€14), $19 (€16) and $26 (€23), respectively. The table below summarizes the future gross undiscounted financial guarantee premiums to be collected and future premiums earned, net of reinsurance at December 31, 2021:
| Future Premiums to be Collected (1) |  | Future Premiums to be Earned Net of Reinsurance (2)
Three months ended: |  |  |
March 31, 2022 | $ | 10 |  |  | $ | 7 |
June 30, 2022 | 7 |  |  | 7 |
September 30, 2022 | 9 |  |  | 7 |
December 31, 2022 | 7 |  |  | 7 |
Twelve months ended: |  |  |
December 31, 2023 | 32 |  |  | 25 |
December 31, 2024 | 30 |  |  | 24 |
December 31, 2025 | 29 |  |  | 23 |
December 31, 2026 | 28 |  |  | 22 |
Five years ended: |  |  |
December 31, 2031 | 113 |  |  | 91 |
December 31, 2036 | 75 |  |  | 57 |
December 31, 2041 | 32 |  |  | 22 |
December 31, 2046 | 15 |  |  | 9 |
December 31, 2051 | 5 |  |  | 3 |
December 31, 2056 | — |  |  | — |
Total | $ | 393 |  |  | $ | 303 |
(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. 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. Below are the components of the loss and loss expense reserves and the subrogation recoverable asset at December 31, 2021 and 2020:
| December 31, 2021: |  | December 31, 2020:
Balance Sheet Line Item | Claims and Loss Expenses |  | Recoveries |  | Unearned Premium Revenue |  | Loss and Loss Expense Reserves (1) |  | Claims and Loss Expenses |  | Recoveries |  | Unearned Premium Revenue |  | Loss and Loss Expense Reserves (1)
Loss and loss expense reserves | $ | 1,781 |  |  | $ | (155) |  |  | $ | (56) |  |  | $ | 1,570 |  |  | $ | 2,060 |  |  | $ | (229) |  |  | $ | (72) |  |  | $ | 1,759 |
Subrogation recoverable | 88 |  |  | (2,180) |  |  | — |  |  | (2,092) |  |  | 100 |  |  | (2,256) |  |  | — |  |  | (2,156) |
Totals | $ | 1,869 |  |  | $ | (2,335) |  |  | $ | (56) |  |  | $ | (522) |  |  | $ | 2,160 |  |  | $ | (2,486) |  |  | $ | (72) |  |  | $ | (397) |
(1)Loss and loss expense reserves at December 31, 2021 includes financial guarantee and specialty P&C of $1,538 and $32, respectively. Subrogation recoverable includes financial guarantee and specialty P&C of $(2,092) and $—, respectively. All balances at December 31, 2020 relate to the financial guarantee business. Below is the loss and loss reserve expense roll-forward, net of subrogation recoverable and reinsurance, for the affected periods.
Year Ended December 31, | 2021 |  | 2020 |  | 2019
Beginning gross loss and loss expense reserves | $ | (397) |  |  | $ | (482) |  |  | $ | (107) |
Reinsurance recoverable | 33 |  |  | 26 |  |  | 23 |
Beginning balance of net loss and loss expense reserves | (430) |  |  | (508) |  |  | (130) |
Losses and loss expenses (benefit) incurred: |  |  |  |  |
Current year | — |  |  | 15 |  |  | 1 |
Prior years | (89) |  |  | 210 |  |  | 12 |
Total (1)(2) | (88) |  |  | 225 |  |  | 13 |
Loss and loss expenses (recovered) paid: |  |  |  |  |
Current year | — |  |  | 1 |  |  | — |
Prior years | 59 |  |  | 148 |  |  | 318 |
Total | 59 |  |  | 149 |  |  | 318 |
Foreign exchange effect | — |  |  | 2 |  |  | (1) |
Ending net loss and loss expense reserves | (577) |  |  | (430) |  |  | (436) |
Impact of VIE consolidation | — |  |  | — |  |  | (72) |
Reinsurance recoverable (3) | 55 |  |  | 33 |  |  | 26 |
Ending gross loss and loss expense reserves | (522) |  |  | (397) |  |  | (482) |
(1)Total losses and loss expenses (benefit) includes $5, $(11) and $(7) for the years ended December 31, 2021, 2020 and 2019, respectively, related to ceded reinsurance. (2)Ambac records the impact of estimated recoveries related to securitized loans in RMBS transactions that breached certain 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 recoveries for the year ended December 31, 2021, 2020 and 2019 was $20, $(23) and $42, 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 $0, $1 and $0 as of December 31, 2021, 2020 and 2019, respectively, related to previously presented loss and loss expenses and subrogation. For 2021, the positive development in prior years was primarily due to favorable development in Public Finance credits (largely Puerto Rico) and the RMBS portfolio. 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 December 31, 2021 and 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 December 31, 2021 and 2020 was 1.2% and 1.1%, respectively.
|  | Surveillance Categories as of December 31, 2021
|  | I |  | IA |  | II |  | III |  | IV |  | V |  | Total
Number of policies |  | 34 |  |  | 15 |  |  | 7 |  |  | 14 |  |  | 130 |  |  | 5 |  |  | 205 |
Remaining weighted-average contract period (in years) (1) |  | 9 |  | 12 |  | 14 |  | 15 |  | 13 |  | 7 |  | 14
Gross insured contractual payments outstanding: |  |  |  |  |  |  |  |  |  |  |  |  |  |
Principal |  | $ | 904 |  |  | $ | 840 |  |  | $ | 459 |  |  | $ | 1,300 |  |  | $ | 2,759 |  |  | $ | 40 |  |  | $ | 6,302 |
Interest |  | 589 |  |  | 612 |  |  | 308 |  |  | 169 |  |  | 1,284 |  |  | 22 |  |  | 2,984 |
Total |  | $ | 1,493 |  |  | $ | 1,452 |  |  | $ | 767 |  |  | $ | 1,469 |  |  | $ | 4,043 |  |  | $ | 62 |  |  | $ | 9,286 |
Gross undiscounted claim liability |  | $ | 5 |  |  | $ | 16 |  |  | $ | 45 |  |  | $ | 544 |  |  | $ | 1,423 |  |  | $ | 62 |  |  | $ | 2,095 |
Discount, gross claim liability |  | — |  |  | (1) |  |  | (3) |  |  | (109) |  |  | (185) |  |  | (4) |  |  | (303) |
Gross claim liability before all subrogation and before reinsurance |  | $ | 5 |  |  | $ | 15 |  |  | $ | 42 |  |  | $ | 435 |  |  | $ | 1,238 |  |  | $ | 57 |  |  | $ | 1,792 |
Less: |  |  |  |  |  |  |  |  |  |  |  |  |  |
Gross RMBS subrogation (2) |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | (1,737) |  |  | $ | — |  |  | $ | (1,737) |
Discount, RMBS subrogation |  | — |  |  | — |  |  | — |  |  | — |  |  | 7 |  |  | — |  |  | 7 |
Discounted RMBS subrogation, before reinsurance |  | — |  |  | — |  |  | — |  |  | — |  |  | (1,730) |  |  | — |  |  | (1,730) |
Less: |  |  |  |  |  |  |  |  |  |  |  |  |  |
Gross other subrogation (3) |  | — |  |  | (5) |  |  | — |  |  | (33) |  |  | (583) |  |  | (12) |  |  | (633) |
Discount, other subrogation |  | — |  |  | — |  |  | — |  |  | 2 |  |  | 24 |  |  | 2 |  |  | 28 |
Discounted other subrogation, before reinsurance |  | — |  |  | (5) |  |  | — |  |  | (31) |  |  | (559) |  |  | (10) |  |  | (605) |
Gross claim liability, net of all subrogation and discounts, before reinsurance |  | $ | 5 |  |  | $ | 10 |  |  | $ | 42 |  |  | $ | 404 |  |  | $ | (1,051) |  |  | $ | 47 |  |  | $ | (543) |
Less: Unearned premium revenue |  | $ | (3) |  |  | $ | (10) |  |  | $ | (5) |  |  | $ | (14) |  |  | $ | (24) |  |  | $ | (1) |  |  | $ | (56) |
Plus: Loss expense reserves |  | 1 |  |  | — |  |  | — |  |  | 4 |  |  | 40 |  |  | — |  |  | 45 |
Gross loss and loss expense reserves |  | $ | 3 |  |  | $ | 1 |  |  | $ | 38 |  |  | $ | 394 |  |  | $ | (1,036) |  |  | $ | 46 |  |  | $ | (554) |
Reinsurance recoverable reported on Balance Sheet (4) |  | $ | 1 |  |  | $ | 1 |  |  | $ | 10 |  |  | $ | 22 |  |  | $ | (11) |  |  | $ | — |  |  | $ | 23 |
(1)Remaining weighted-average contract period is weighted based on projected gross claims over the lives of the respective policies. (2)RMBS subrogation represents Ambac’s estimate of subrogation recoveries from RMBS transaction sponsors for R&W breaches. (3)Other subrogation represents subrogation related to excess spread and other contractual cash flows on public finance and structured finance transactions, including RMBS. (4)Reinsurance recoverable reported on the Balance Sheet includes reinsurance recoverables of $24 related to future loss and loss expenses and $0 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: The COVID-19 pandemic had, and to a lesser degree, continues to have, an 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. COVID-19 and the public health responses by the US federal and state governments at the onset of the pandemic resulted in a shut down for several months of significant portions of the US economy, including areas that AAC's insured obligors rely upon to generate the revenues and cash flows necessary to service debts we insure. In the U.S. and Europe, where most of Ambac's financial guaranty exposure is located, significant fiscal stimulus measures, monetary policy actions and other relief measures helped to moderate the negative economic impacts of COVID-19 and supported the economic recovery which began in the second half of 2020 and continues into 2022. As of December 31, 2021, there have been no defaults of Ambac-insured obligations as a result of the COVID-19 pandemic. Despite the significant overall benefit of the above relief measures, which were designed to help mitigate the economic impact of the COVID-19 pandemic generally, certain of these measures may still adversely affect Ambac's FG insured portfolio. In particular, this includes the U.S. government's temporary relief measures that required mortgage loan servicers to offer relief to borrowers who suffer hardship as a result of COVID-19. These relief measures included moratoriums on foreclosures and evictions as well as the expansion of forbearance and subsequent repayment options. While these relief measures have largely since expired, the resulting delays in starting mortgage foreclosure processes and the impact of potential post-forbearance related mortgage loan modifications may have an adverse impact on our insured RMBS transactions. Consequently, we have anticipated that we will experience a modest increase in claim payments for certain of our insured RMBS obligations following the resumption of foreclosure activity and the implementation of post-forbearance mortgage loan modifications. However, since the onset of the COVID-19 pandemic, much of the potential increase in claim experience has been offset by the benefit to excess spread within the securitization structures as a result of the reduction in interest rates, which is expected to result in higher excess spread recoveries to Ambac. 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, and/or general obligation guarantees. The Commonwealth of Puerto Rico and certain of its instrumentalities are or were subject to Title III or Title VI proceedings under the Puerto Rico Oversight, Management and Stability Act ("PROMESA") and have suspended debt service payments, including payments owed on bonds insured by AAC. AAC has made and will continue to be required to make significant amounts of policy payments over the next several years leading to material permanent losses. The recoverability of a portion of these policy payments is still subject to some uncertainty as well as variability in terms of the value of certain components of the plan consideration to be made available under the various PROMESA plans of adjustment and qualifying modifications for the obligations AAC insures, which may lead to a material increase in permanent losses and cause a material adverse impact on our results of operations and financial condition. Our exposure to Puerto Rico will be impacted by the pending consummation of the Eighth Amended Title III Joint Plan of Adjustment of the Commonwealth of Puerto Rico ("Eighth Amended POA"), the PRIFA Qualifying Modification ("PRIFA QM") and the CCDA Qualifying Modification ("CCDA QM") as well as the potential confirmation and implementation of the PRHTA plan of adjustment ("PRHTA POA"). On November 3, 2021, the Financial Oversight & Management Board for Puerto Rico ("Oversight Board"), as representative of the Commonwealth of Puerto Rico, the Puerto Rico Public Buildings Authority, and the Employees Retirement System of the Government of the Commonwealth of Puerto Rico, filed the Eighth Amended POA. The Eighth Amended POA proposed to restructure approximately $33,000 of debt across various Commonwealth instrumentalities, including obligations insured by AAC, and approximately $50,000 in pension obligations. The Eighth Amended POA, among other things, also incorporated settlements reflected in various plan support agreements negotiated by and between creditors and the Oversight Board, as further described below. A hearing to confirm the Commonwealth’s plan of adjustment was held over several days between November 8, 2021, and November 23, 2021. The Eighth Amended POA was modified several times. On January 10, 2022, Judge Laura Taylor Swain, District of Puerto Rico, entered an order requesting certain changes to the Eighth Amended POA and related materials. None of the requested changes would substantively impact the contemplated recovery to Ambac and holders of AAC-insured bonds under the Eighth Amended POA. The Oversight Board filed a revised version of the plan and corresponding materials shortly thereafter. On January 18, 2022, Judge Swain confirmed the Eighth Amended POA. On January 20, 2022, Judge Swain also approved the PRIFA QM and the CCDA QM. Unless the Teachers' Unions', APJ's and the Credit Unions' requests for stay pending appeal are granted, the plan of adjustment together with the PRIFA QM and CCDA QM are expected to have an effective date on or before March 15, 2022. The successful consummation of the Eighth Amended POA and Qualifying Modifications on the effective date will represent a significant step towards resolution of AAC's remaining Puerto Rico exposure. The plan support agreements of the various instrumentalities of the Commonwealth of Puerto Rico provide the basis for the plan consideration to be made available to creditors, including Ambac, under the Eighth Amended POA, the PRIFA QM, the CCDA QM and the PRHTA POA. The PRIFA Related Plan Support Agreement (“PRIFA PSA”), signed on July 27, 2021, 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 approximately a 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. Ambac executed its joinder to the PRHTA/CCDA PSA on July 15, 2021. The PRHTA/CCDA Related Plan Support Agreement ("PRHTA/CCDA PSA"), dated May 5, 2021, provides consideration for holders of PRHTA and CCDA bonds on account of their claims against the Commonwealth. This consideration consists of interests of approximately 69% and 4%, respectively, in 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. Additionally, the PRHTA bondholders will receive consideration in the form of new PRHTA bonds and cash, and CCDA bondholders, will receive cash. Ambac executed its joinder to the Amended and Restated Plan Support Agreement ("Amended and Restated GO/PBA PSA") on July 21, 2021. Under the Amended and Restated GO/PBA PSA, dated as of July 12, 2021, 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 AAC and other creditors in Puerto Rico due to, among other matters, (i) whether the effective date will be stayed pending the appeal of the order confirming Eighth Amended POA; (ii) the result of the pending First Circuit appeal of the order confirming the Eighth Amended POA; (iii) the value or perceived value of the consideration provided by or on behalf of the debtors under the Eighth Amended POA, PRIFA QM, and CCDA QM; (iv) the extent to which exposure management strategies, such as commutation and acceleration, will be executed; (v) the tax treatment of the consideration provided by or on behalf of the debtors under the Eighth Amended POA, PRIFA QM, and CCDA QM; (vi) whether and when the PRHTA POA will be confirmed; and (vii) other factors, including market conditions such as interest rate movements, credit spread changes on the new GO and CVI instruments, and liquidity for the new GO and CVI instruments. 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 material 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, due to favorable developments or results with respect to the factors described in the preceding paragraphs. 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; eliminating or decreasing the 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 as of December 31, 2021, the possible increase in loss reserves under stress or other adverse conditions and circumstances was estimated to be approximately $355. This possible increase in loss reserves under stress or other adverse conditions is very significant and if we were to experience such incremental losses, our stockholders’ equity as of December 31, 2021, would decrease from $1,098 to $743. 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. Ambac has recorded RMBS R&W subrogation recoveries of $1,730, ($1,704 net of reinsurance) and $1,751, ($1,725 net of reinsurance) at December 31, 2021 and 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 December 31, 2021, would decrease from $1,098 to $(607). 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, particularly its outstanding debt and preferred stock 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 Impairment: 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. Ambac’s reinsurance assets, including deferred ceded premiums and reinsurance recoverables on losses amounted to $145 at December 31, 2021. Credit exposure existed at December 31, 2021, with respect to reinsurance recoverables to the extent that any reinsurer may not be able to reimburse Ambac under the terms of these reinsurance arrangements. At December 31, 2021, there were ceded reinsurance balances payable of $33 offsetting this credit exposure. Contractually ceded reinsurance payables can only be offset against amounts owed from the same reinsurer in the event that such reinsurer is unable to meet its obligations to reimburse Ambac. To minimize its credit exposure to losses from reinsurer insolvencies, Ambac (i) is entitled to receive collateral from its reinsurance counterparties in certain reinsurance contracts and (ii) has certain cancellation rights that can be exercised by Ambac in the event of rating agency downgrades of a reinsurer (among other events and circumstances). Ambac held letters of credit and collateral amounting to $111 from its reinsurers at December 31, 2021. For those reinsurance counterparties that do not currently post collateral, Ambac's reinsurers are well capitalized, highly rated, authorized capacity providers. Additionally, while legacy liabilities from the PWIC acquisition were fully ceded to certain reinsurers, Everspan also benefits from an unlimited, uncapped indemnity from the Enstar Holdings (US) to mitigate any residual risk to these reinsurers. The allowance for credit losses is based upon Ambac's ongoing review of amounts outstanding and 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. For 2021, our top three reinsurers represented 98% of our total ceded reinsurance recoverables, and reinsurance recoverables were primarily from reinsurers with applicable ratings of A or better. The following table sets forth our three most significant reinsurers by amount of reinsurance recoverable as of December 31, 2021.
Reinsurers | Type of Insurance |  | Rating (1) |  | Reinsurance Recoverable (2) |  | Unsecured Recoverable (3)
QBE Insurance Corporation | Specialty P&C |  | A |  | $ | 27 |  |  | $ | 27 |
Assured Guaranty Re Ltd. | Financial Guarantee |  | AA |  | 18 |  |  | — |
Sompo Japan Nipponkoa Insurance, Inc. | Financial Guarantee |  | A+ |  | 9 |  |  | — |
All other reinsurers |  |  |  |  | 1 |  |  | 5 |
Total recoverables |  |  |  |  | $ | 55 |  |  | $ | 31 |
(1)Represents financial strength ratings from S&P for financial guarantee reinsurers and AM Best for specialty P&C reinsurers. (2)Represents reinsurance recoverables on paid and unpaid losses. Unsecured amounts from QBE Insurance Corporation is also supported by an unlimited, uncapped indemnity from Enstar Holdings (US). (3)Reinsurance recoverables reduced by ceded premiums payables due to reinsurers, letters of credit, and collateral posted for the benefit of Ambac. Ambac has a credit allowance related to reinsurance recoverables of less than $1 at December 31, 2021 and 2020, respectively.

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