Ambac’s non-VIE invested assets are primarily comprised of fixed maturity securities classified as either available-for-sale or trading securities, and interests in pooled investment funds, which are reported within Other investments on the Consolidated Balance Sheets. Interests in pooled investment funds in the form of common stock or in-substance common stock are classified as trading securities, while limited partner interests in such funds are

reported using the equity method. Fixed maturity securities classified as trading are unrated municipal bond obligations of Puerto Rico issuing entities that are part of the the PROMESA restructuring process as described further in Note 6. Insurance Contracts.

Fixed Maturity Securities:

The amortized cost and estimated fair value of available-for-sale investments, excluding VIE investments, at March 31, 2023 and December 31, 2022, were as follows:


	March 31, 2023:										December 31, 2022:
	Amortized Cost		Allowance for Credit Losses (2)		Gross Unrealized				Estimated Fair Value		Amortized Cost		Allowance for Credit Losses		Gross Unrealized				Estimated Fair Value
					Gains		Losses								Gains		Losses
Fixed maturity securities:
Municipal obligations	$	58	$	—	$	1	$	2	$	57	$	44	$	—	$	—	$	2	$	43
Corporate obligations	732		—		1		54		679		659		—		1		63		598
Foreign obligations	86		—		—		8		79		85		—		—		9		76
U.S. government obligations	66		—		—		3		63		68		—		—		4		65

Residential mortgage-backed securities	231		1		26		16		240		230		—		28		19		238
Commercial mortgage-backed securities	15		—		—		—		15		15		—		—		—		15
Collateralized debt obligations	140		—		—		3		137		141		—		—		4		137
Other asset-backed securities (1)	226		—		3		5		223		227		—		2		5		224
	1,554		1		31		90		1,494		1,469		—		31		106		1,395
Short-term	367		—		—		—		367		507		—		—		—		507
	1,922		1		31		90		1,862		1,977		—		31		106		1,902
Fixed maturity securities pledged as collateral:

Short-term	61		—		—		—		61		64		—		—		—		64
	61		—		—		—		61		64		—		—		—		64
Total available-for-sale investments	$	1,983	$	1	$	31	$	90	$	1,923	$	2,041	$	—	$	31	$	106	$	1,966

(1)Consists primarily of Ambac's holdings of military housing and student loan securities.

(2)For the three months ended March 31, 2023, the allowance for credit losses increased $1 on residential mortgage-backed securities on which credit losses were not previously recorded.

The amortized cost and estimated fair value of available-for-sale investments, excluding VIE investments, at March 31, 2023, by contractual maturity, were as follows:


	Amortized Cost		Estimated Fair Value
Due in one year or less	$	486	$	485
Due after one year through five years	536		508
Due after five years through ten years	297		268
Due after ten years	53		47
	1,371		1,307
Residential mortgage-backed securities	231		240
Commercial mortgage-backed securities	15		15
Collateralized debt obligations	140		137
Other asset-backed securities	226		223
Total	$	1,983	$	1,923

Expected maturities will differ from contractual maturities because borrowers may have the right to call or prepay certain obligations with or without call or prepayment penalties.

Unrealized Losses on Fixed Maturity Securities:

The following table shows gross unrealized losses and fair values of Ambac’s available-for-sale investments, excluding VIE investments, which at March 31, 2023 and December 31, 2022, did not have an allowance for credit losses under the CECL standard. This information is aggregated by investment category and length of time that the individual securities have been in a continuous unrealized loss position, at March 31, 2023 and December 31, 2022:


	March 31, 2023												December 31, 2022
	Less Than 12 Months				12 Months or More				Total				Less Than 12 Months				12 Months or More				Total
	Fair Value		Gross Unrealized Loss		Fair Value		Gross Unrealized Loss		Fair Value		Gross Unrealized Loss		Fair Value		Gross Unrealized Loss		Fair Value		Gross Unrealized Loss		Fair Value		Gross Unrealized Loss
Fixed maturity securities:
Municipal obligations	$	1	$	—	$	17	$	2	$	17	$	2	$	21	$	1	$	7	$	1	$	28	$	2
Corporate obligations	237		7		393		47		630		54		280		21		279		42		559		63
Foreign obligations	19		1		53		7		72		8		27		2		47		7		73		9
U.S. government obligations	19		1		38		2		57		3		40		3		19		1		58		4

Residential mortgage-backed securities	120		14		12		2		132		16		132		19		—		—		132		19
Commercial mortgage-backed securities	3		—		—		—		3		—		3		—		—		—		3		—
Collateralized debt obligations	10		—		115		3		125		3		90		3		36		1		126		4
Other asset-backed securities	105		4		6		1		111		5		198		4		5		1		203		5
	513		27		634		63		1,147		90		791		53		392		53		1,183		106
Short-term	12		—		2		—		14		—		78		—		8		—		86		—





Total temporarily impaired securities	$	525	$	27	$	636	$	63	$	1,161	$	90	$	869	$	53	$	400	$	53	$	1,269	$	106

Management has determined that the securities in the above table do not have credit impairment as of March 31, 2023 and December 31, 2022, based upon (i) no actual or expected principal and interest payment defaults on these securities; (ii) analysis of the creditworthiness of the issuer and financial guarantor, as applicable, and (iii) for debt securities that are non-highly rated beneficial interests in securitized financial assets, analysis of whether there was an adverse change in projected cash flows. Management's evaluation as of March 31, 2023, includes the expectation that all principal and interest payments on securities guaranteed by AAC or Ambac UK will be made timely and in full.

Ambac’s assessment about whether a security is credit impaired reflects management’s current judgment regarding facts and circumstances specific to the security and other factors. If that judgment changes, Ambac may record a charge for credit impairment in future periods.

The declines in fair value and resultant unrealized losses across asset classes as of March 31, 2023, included in the above table resulted from the impact of increasing interest rates and market spreads. Management has determined that the securities with unrealized losses are not credit impaired. Further discussion of management's assessment with respect to security categories with larger unrealized loss balances is below.

Corporate obligations

The gross unrealized losses on corporate obligations as of March 31, 2023, resulted from an increase in interest rates and, to a lesser extent, market spreads since the securities were purchased. Unrealized losses of $53 related to 738 investment grade securities with an average unrealized loss equal to 8% of amortized cost at March 31, 2023. Securities that have below investment grade credit ratings or are unrated comprise $1 of the gross unrealized loss and have an average unrealized loss equal to 6% of amortized cost at March 31, 2023. Management believes that the full and timely receipt of all principal and interest payment on corporate obligations with unrealized losses as of March 31, 2022, is probable.

Residential mortgage-backed securities and Other asset-backed securities

As of March 31, 2023, $16 of the unrealized loss on residential mortgage-backed securities related to 12 Ambac insured securities. Five of these account for $15 of the unrealized loss and have an average unrealized loss equal to 13% of amortized cost. The $5 unrealized loss on other asset backed securities related to 11 Ambac-insured securities that have an average unrealized loss equal to 4% of amortized cost. The majority of these unrealized losses for both residential mortgage-backed and other asset-backed securities relate to securities with long dated weighted average lives making their fair values more sensitive to interest rate changes. Also, most of these securities have below investment grade credit ratings or are unrated. The unrealized losses on these obligations resulted from adverse market conditions for long dated credit assets. As noted above, expected cash flows used in evaluating credit impairment of Ambac-insured securities contemplate full and timely payment of all

principal and interest payments. This assumption is included in the projection of model based cash flows used in evaluating credit impairments on beneficial interests in securitized financial assets, including the residential mortgage backed and student loan asset backed securities included in this group.

Investment Income (Loss)

Net investment income (loss) was comprised of the following for the affected periods:



Three Months Ended March 31,	2023		2022
Fixed maturity securities	$	17	$	15
Short-term investments	6		—

Investment expense	(2)		(1)
Securities available-for-sale and short-term	21		14
Fixed maturity securities - trading	—		(9)
Other investments	13		—
Total net investment income (loss)	$	34	$	5

Net investment income (loss) from Other investments primarily represents changes in fair value on equity securities, including certain pooled investment funds, and income from investment limited partnerships and other equity interests accounted for under the equity method.

Net Investments Gains (Losses), including Impairments:

The following table details amounts included in net investment gains (losses) and impairments included in earnings for the affected periods:



Three Months Ended March 31,	2023		2022
Gross realized gains on securities	$	—	$	23
Gross realized losses on securities	(2)		(15)
Foreign exchange gains (losses)	(2)		3
Credit impairments	(1)		(1)
Intent / requirement to sell impairments	—		—
Net investment gains (losses), including impairments	$	(4)	$	10

Ambac had an allowance for credit losses of $1 and $1 at March 31, 2023 and 2022, respectively.

Ambac did not purchase any financial assets with credit deterioration for the three months ended March 31, 2023 and 2022.

Counterparty Collateral, Deposits with Regulators and Other Restrictions:

Ambac routinely pledges and receives collateral related to certain transactions. Securities held directly in Ambac’s investment portfolio with a fair value of $61 and $64 at March 31, 2023 and December 31, 2022, respectively, were pledged to derivative counterparties. Ambac’s derivative counterparties have the right to re-pledge the investment securities and as such, these pledged securities are separately classified on the Consolidated Balance Sheets as “Fixed maturity securities pledged as collateral, at fair value” and "Short-term investments pledged as collateral, at fair value." Refer to Note 7. Derivative Instruments for further

information on cash collateral. There was no cash or securities received from other counterparties that were re-pledged by Ambac.

Securities carried at $23 and $23 at March 31, 2023 and December 31, 2022, respectively, were deposited by Ambac's insurance subsidiaries with governmental authorities or designated custodian banks as required by laws affecting insurance companies. Invested assets carried at $1 and $1 at March 31, 2023 and December 31, 2022, were deposited as security in connection with a letter of credit issued for an office lease.

Guaranteed Securities:

Ambac’s fixed maturity portfolio includes securities covered by guarantees issued by AAC and other financial guarantors

(“insured securities”). The published rating agency ratings on these securities reflect the higher of the financial strength rating of the financial guarantor or the rating of the underlying issuer. Rating agencies do not always publish separate underlying ratings (those ratings excluding the insurance by the financial guarantor). In the event these underlying ratings are not available from the rating agencies, Ambac will assign an internal rating. The following table represents the fair value and weighted-average underlying rating of insured securities in Ambac's investment portfolio at March 31, 2023 and December 31, 2022, respectively:


	March 31, 2023:				December 31, 2022:
	Municipal Obligations		Mortgage and Asset- backed Securities		Total		Weighted Average Underlying Rating (1)	Municipal Obligations		Mortgage and Asset- backed Securities		Total		Weighted Average Underlying Rating (1)
Ambac Assurance Corporation	$	10	$	392	$	401	B-	$	10	$	394	$	403	B





Total	$	10	$	392	$	401	B-	$	10	$	394	$	403	B

(1)Ratings are based on the lower of Standard & Poor’s or Moody’s rating. If unavailable, Ambac’s internal rating is used.

Other Investments:

Ambac's investment portfolio includes interests in various pooled investment funds. Fair value and additional information about investments in pooled funds, by investment type, is summarized in the table below. Except as noted in the table, fair value as reported is determined using net asset value ("NAV") as a practical expedient. Redemption of certain funds valued using NAV may be subject to withdrawal limitations and/or redemption fees which vary with the timing and notification of withdrawal provided by the investor. In addition to these investments, Ambac has unfunded commitments of $57 to private credit and private equity funds at March 31, 2023.


	Fair Value
Class of Funds	March 31, 2023		December 31, 2022		Redemption Frequency	Redemption Notice Period
Hedge funds (1)	$	178	$	186	quarterly or semi-annually	90 days
Private credit (2)	87		84		quarterly if permitted	180 days if permitted
High yields and leveraged loans (3)	84		80		daily	0 - 30 days
Equity market investments (4) (10)	68		64		daily or quarterly	0 - 90 days
Investment grade floating rate income (5)	47		63		weekly	0 days
Private equity (6)	49		47		quarterly if permitted	90 days if permitted
Real estate properties (7)	22		22		quarterly	10 business days
Convertible bonds (8)(10)	9		8		daily	0 days
Insurance-linked investments (9)	1		1		see footnote (9)	see footnote (9)

Total equity investments in pooled funds	$	545	$	556

(1)This class seeks to generate superior risk-adjusted returns through selective asset sourcing, active trading and hedging strategies across a range of asset types.

(2)This class aims to obtain high long-term returns primarily through credit and preferred equity investments with low liquidity and defined term.

(3)This class of funds includes investments in a range of instruments including high-yield bonds, leveraged loans, CLOs, ABS and floating rate notes to generate income and capital appreciation.

(4)This class of funds aim to achieve long term growth through diversified exposure to global equity-markets.

(5)This class of funds includes investments in high quality floating rate debt securities including ABS and corporate floating rate notes.

(6)This class seeks to generate long-term capital appreciation through investments in private equity, equity-related and other instruments.

(7)Investments consist of UK property to generate income and capital growth.

(8)This class seeks to generate total returns from portfolios focused primarily on convertible securities.

(9)This class seeks to generate returns from insurance markets through investments in catastrophe bonds, life insurance and other insurance linked investments. This investment is restricted in connection with the unwind of certain insurance linked exposures. Ambac has redeemed its investment to the extent permitted by the fund.

(10)These categories include fair value amounts totaling $65 and $61 at March 31, 2023 and December 31, 2022, respectively, that are readily determinable and are priced through pricing vendors, including for Equity market investments $57 and $53 and Convertible bonds investments $9 and 8.

Other investments also include preferred equity investments with a carrying value of $12 and $12 as of March 31, 2023 and December 31, 2022, respectively, that do not have readily determinable fair values and are carried at cost, less any impairments as permitted under the Investments — Equity Securities Topic of the ASC. There were no impairments recorded on these investments or adjustments to fair value to reflect observable price changes in identical or similar investments from the same issuer during the periods presented.