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Variable Interest Entities | 12 Months Ended
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Dec. 31, 2022
Accounting Policies [Abstract] |
Variable Interest Entity Disclosure | 12. VARIABLE INTEREST ENTITIES Ambac, with its subsidiaries, has engaged in transactions with variable interest entities ("VIEs") in various capacities. •AAC and Ambac UK provide 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 •AAC and Ambac UK invest in collateralized debt obligations, mortgage-backed and other asset-backed securities issued by VIEs and their 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 AAC and Ambac UK provide financial guarantees in respect of assets held or debt obligations of VIEs. AAC and Ambac UK’s primary variable interest exists through this financial guarantee insurance. 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, AAC or Ambac UK will obtain certain control rights that enable them to remediate losses. These rights may enable them to direct the activities of the entity that most significantly impact the entity’s economic performance. Under the 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, which was established in 2010 to segregate certain segments of AAC’s liabilities for purposes of the rehabilitation proceeding overseen by the Wisconsin Insurance Commissioner in order to facilitate an orderly run-off and/or settlement of the liabilities allocated to the Segregated Account (which ceased to exist in 2018). Accordingly, AAC does not have the right to direct the most significant activities of those FG VIEs. •We determined that AAC or 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 experiencing deterioration and breaching performance triggers, giving AAC or Ambac UK the ability to exercise certain control rights, (ii) AAC or Ambac UK 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 not experiencing deterioration, however due to the passive nature of the VIE, AAC or Ambac UK'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 generally deconsolidated in the period that AAC or Ambac UK 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 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. Generally, Ambac has elected the fair value option for consolidated FG VIE financial assets and financial liabilities, except in cases where AAC or Ambac UK 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 classified as either available-for-sale or trading as defined by the Investments - Debt Securities Topic of the ASC. Available-for-sale 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. Trading assets are reported at fair value with unrealized gains and losses reflected within net income. 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 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 AAC or Ambac UK 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 adjustment expense reserves, ceded premiums payable and insurance intangible assets. For investment securities owned by AAC or Ambac UK 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 AAC or Ambac UK 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 has 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 AAC or Ambac UK 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 AAC or Ambac UK’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, |  | 2022 |  | 2021
|  | Ambac UK |  | Ambac Assurance |  | Total VIEs |  | Ambac UK |  | Ambac Assurance |  | Total VIEs
ASSETS: |  |  |  |  |  |  |  |  |  |  |  |
Fixed maturity securities, at fair value: |  |  |  |  |  |  |  |  |  |  |  |
Corporate obligations, fair value option |  | $ | 1,828 |  |  | $ | — |  |  | $ | 1,828 |  |  | $ | 3,320 |  |  | $ | — |  |  | $ | 3,320 |
Municipal obligations, trading |  | — |  |  | 43 |  |  | 43 |  |  | — |  |  | — |  |  | — |
Municipal obligations, available-for-sale (1) |  | — |  |  | 96 |  |  | 96 |  |  | — |  |  | 136 |  |  | 136 |
Total FG VIE fixed maturity securities, at fair value |  | 1,828 |  |  | 139 |  |  | 1,967 |  |  | 3,320 |  |  | 136 |  |  | 3,455 |
Restricted cash |  | 1 |  |  | 16 |  |  | 17 |  |  | 1 |  |  | 1 |  |  | 2 |
Loans, at fair value (2) |  | 1,829 |  |  | — |  |  | 1,829 |  |  | 2,718 |  |  | — |  |  | 2,718 |
Derivative assets |  | 239 |  |  | — |  |  | 239 |  |  | 38 |  |  | — |  |  | 38 |
Other assets |  | — |  |  | 2 |  |  | 2 |  |  | — |  |  | 2 |  |  | 2 |
Total FG VIE assets |  | $ | 3,896 |  |  | $ | 157 |  |  | $ | 4,054 |  |  | $ | 6,077 |  |  | $ | 139 |  |  | $ | 6,216 |
LIABILITIES: |  |  |  |  |  |  |  |  |  |  |  |
Long-term debt: |  |  |  |  |  |  |  |  |  |  |  |
Long-term debt, at fair value (3) |  | $ | 2,788 |  |  | $ | — |  |  | $ | 2,788 |  |  | $ | 4,056 |  |  | $ | — |  |  | $ | 4,056 |
Long-term debt, at par less unamortized discount |  | — |  |  | 319 |  |  | 319 |  |  | — |  |  | 160 |  |  | 160 |
Total long-term debt |  | 2,788 |  |  | 319 |  |  | 3,107 |  |  | 4,056 |  |  | 160 |  |  | 4,216 |
Derivative liabilities |  | 1,048 |  |  | — |  |  | 1,048 |  |  | 1,940 |  |  | — |  |  | 1,940 |
Other liabilities |  | — |  |  | 5 |  |  | 5 |  |  | — |  |  | — |  |  | — |
Total FG VIE liabilities |  | $ | 3,836 |  |  | $ | 324 |  |  | $ | 4,160 |  |  | $ | 5,996 |  |  | $ | 160 |  |  | $ | 6,156 |
Number of FG VIEs consolidated |  | 5 |  |  | 4 |  |  | 9 |  |  | 5 |  |  | 1 |  |  | 6 |
(1)Available-for-sale FG VIE fixed maturity securities consist of municipal obligations with an amortized cost basis of $99 and $106 at December 31, 2022 and December 31, 2021, respectively. At December 31, 2022, there were $1 aggregate gross gains and $(4) aggregated gross losses. At December 31, 2021, there were aggregate gross unrealized gains of $29. All such securities had contractual maturities due after ten years as of December 31, 2022. (2)The unpaid principal balances of loan assets carried at fair value were $1,977 and $2,363 as of December 31, 2022 and 2021, respectively. (3)The unpaid principal balances of long-term debt carried at fair value were $3,064 and $3,579 as of December 31, 2022 and 2021, respectively. The following schedule details the components of Income (loss) on variable interest entities for the affected periods:
Year ended December 31, |  | 2022 |  | 2021 |  | 2020
Net change in fair value of VIE assets and liabilities reported under the fair value option |  | $ | — |  |  | $ | 4 |  |  | $ | (1) |
Less: Credit risk changes of fair value option long-term debt reported through other comprehensive income (loss) |  | (1) |  |  | 1 |  |  | (1) |
Net change in fair value of VIE assets and liabilities reported in earnings under the fair value option |  | (1) |  |  | 5 |  |  | (3) |
Investment income (loss) |  | (4) |  |  | 6 |  |  | 7 |
Net realized investment gains (losses) on available-for-sale securities |  | 2 |  |  | 2 |  |  | 8 |
Interest expense on long-term debt carried at par less unamortized cost |  | (12) |  |  | (6) |  |  | (6) |
Other expenses |  | (1) |  |  | (1) |  |  | — |
Gain (loss) from consolidating VIEs |  | 37 |  |  | — |  |  | — |
Income (loss) on variable interest entities |  | $ | 21 |  |  | $ | 7 |  |  | $ | 5 |
As further discussed in Note 8. Insurance Contracts, in connection with the Puerto Rico restructuring, three new trusts were established for the year ended December 31, 2022. Ambac was required to consolidate these trusts which resulted in a combined gain of $37. Including these new trusts, Ambac consolidated three and zero FG VIEs for the years ended December 31, 2022 and 2021, respectively. Ambac did not deconsolidate any FG VIEs for the years ended December 31, 2022 and 2021. 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, 2022 and 2021:
| Carrying Value of Assets and Liabilities
| Maximum Exposure To Loss (1) |  | Insurance Assets (2) |  | Insurance Liabilities (3) |  | Net Derivative Assets (Liabilities) (4)
December 31, 2022: |  |  |  |  |  |  |
Global structured finance: |  |  |  |  |  |  |
Mortgage-backed—residential | $ | 2,559 |  |  | $ | 266 |  |  | $ | 400 |  |  | $ | — |
Other consumer asset-backed | 652 |  |  | 6 |  |  | 225 |  |  | — |
Other | 430 |  |  | 2 |  |  | 2 |  |  | 1 |
Total global structured finance | 3,642 |  |  | 274 |  |  | 628 |  |  | 1 |
Global public finance | 17,997 |  |  | 216 |  |  | 212 |  |  | — |
Total | $ | 21,639 |  |  | $ | 490 |  |  | $ | 840 |  |  | $ | 1 |
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 |
(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 adjustment 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

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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 https://asc.fasb.org/topic&trid=2197479 + Details
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