| Segment Information |
12. SEGMENT INFORMATION Ambac has two reportable business segments, as follows: (i) Financial Guarantee, which provides financial guarantees (including credit derivatives) for public finance, structured finance and international obligations; and (ii) Financial Services, which provides investment agreements, funding conduits, interest rate swaps, principally to clients of the financial guarantee business. Ambac’s reportable business segments are strategic business units that offer different products and services. They are managed separately because each business required different marketing strategies, personnel skill sets and technology. Ambac Assurance guarantees the swap and investment agreement obligations of its Financial Services subsidiaries. Additionally, Ambac Assurance provides loans to the Financial Services businesses. Inter-segment revenues include the premiums and investment income earned under those agreements. Information provided below for unaffiliated “Corporate and Other” primarily relates to investment income on Ambac's investment portfolio. Equity in net income of investees accounted for by the equity method relates to the Owner Trust Certificate received when Ambac deposited its Segregated Account junior surplus note into a Trust (see Note 1. Background and Business Description in the Notes to Consolidated Financial Statements included Part II, Item 8 in the Company’s Annual Report on Form 10-K for the year ended December 31, 2014 for further information relating to the sale by Ambac of a junior surplus note issued to it by the Segregated Account). Inter-segment for "Corporate and Other" relates to amounts received by Ambac under the Mediation Agreement dated September 21, 2011 (as more fully described in Note 1. Background and Business Description in the Notes to Consolidated Financial Statements included Part II, Item 8 in the Company’s Annual Report on Form 10-K for the year ended December 31, 2014), including accrual of interest on the junior surplus note issued by the Segregated Account prior to Ambac's sale of the note. The following table is a summary of financial information by reportable business segment for the affected periods: | | | | | | | | | | | | | | | | | | | | | | | | Financial
Guarantee | | Financial
Services | | Corporate
and Other | | Inter-segment
Eliminations | | Consolidated | Three Months Ended September 30, 2015: | | | | | | | | | | | Revenues: | | | | | | | | | | | Unaffiliated customers (1) | | $ | 152,024 |
| | $ | (66,997 | ) | | $ | 1,538 |
| | $ | — |
| | $ | 86,565 |
| Equity in net income of investees accounted for by equity method | | — |
| | — |
| | 1,125 |
| | — |
| | 1,125 |
| Inter-segment | | 24 |
| | (204 | ) | | 252 |
| | (72 | ) | | — |
| Total revenues before expenses and reorganization items | | 152,048 |
| | (67,201 | ) | | 2,915 |
| | (72 | ) | | 87,690 |
| Pre-tax income (loss): | | | | | | | | | | | Unaffiliated customers (1)(2)(3) | | (320,414 | ) | | (67,655 | ) | | (1,249 | ) | | — |
| | (389,318 | ) | Equity in net income of investees accounted for by equity method | | — |
| | — |
| | 1,125 |
| | — |
| | 1,125 |
| Inter-segment | | (763 | ) | | 425 |
| | 1,302 |
| | (964 | ) | | — |
| Pre-tax income (loss) | | (321,177 | ) | | (67,230 | ) | | 1,178 |
| | (964 | ) | | (388,193 | ) | Total assets as of September 30, 2015 | | 23,610,582 |
| | 363,118 |
| | 289,238 |
| | 3,981 |
| | 24,266,919 |
| Net investment income | | 61,292 |
| | 139 |
| | 2,764 |
| | — |
| | 64,195 |
| Insurance intangible amortization | | 39,680 |
| | — |
| | — |
| | — |
| | 39,680 |
| Interest expense | | 29,738 |
| | 161 |
| | — |
| | — |
| | 29,899 |
| Goodwill impairment | | 514,511 |
| | — |
| | — |
| | — |
| | 514,511 |
| | | | | | | | | | | | Three Months Ended September 30, 2014: | | | | | | | | | | | Revenues: | | | | | | | | | | | Unaffiliated customers (1) | | $ | 170,335 |
| | $ | (15,445 | ) | | $ | 78 |
| | $ | — |
| | $ | 154,968 |
| Equity in net income of investees accounted for by equity method | | — |
| | — |
| | 371 |
| | — |
| | 371 |
| Inter-segment | | 237 |
| | (219 | ) | | 5,838 |
| | (5,856 | ) | | — |
| Total revenues before expenses and reorganization items | | 170,572 |
| | (15,664 | ) | | 6,287 |
| | (5,856 | ) | | 155,339 |
| Pre-tax income (loss): | | | | | | | Unaffiliated customers (1) (2) (3) | | 101,975 |
| | (16,304 | ) | | (1,269 | ) | | — |
| | 84,402 |
| Equity in net income of investees accounted for by equity method | | — |
| | — |
| | 371 |
| | — |
| | 371 |
| Inter-segment | | (6,441 | ) | | (281 | ) | | 6,722 |
| | — |
| | — |
| Pre-tax income (loss) | | 95,534 |
| | (16,585 | ) | | 5,824 |
| | — |
| | 84,773 |
| Total assets as of September 30, 2014 | | 25,926,306 |
| | 349,411 |
| | 298,873 |
| | 16,195 |
| | 26,590,785 |
| Net investment income | | 82,978 |
| | 154 |
| | 449 |
| | — |
| | 83,581 |
| Insurance intangible amortization | | 41,908 |
| | — |
| | — |
| | — |
| | 41,908 |
| Interest expense | | 31,491 |
| | 350 |
| | — |
| | — |
| | 31,841 |
|
| | (1) | Included in both revenues from unaffiliated customers and in pre-tax income (loss) from unaffiliated customers is net investment income. |
| | (2) | Included in pre-tax income (loss) from unaffiliated customers is interest expense. |
| | (3) | Included in pre-tax income (loss) from unaffiliated customers is amortization of intangible asset and impairment of goodwill. Such assets were established upon the adoption of Fresh Start on April 30, 2013. |
| | | | | | | | | | | | | | | | | | | | | | | | Financial
Guarantee | | Financial
Services | | Corporate
and Other | | Inter-segment
Eliminations | | Consolidated | Nine Months Ended September 30, 2015: | | | | | | | | | | | Revenues: | | | | | | | | | | | Unaffiliated customers (1) | | $ | 521,340 |
| | $ | (53,566 | ) | | $ | 2,951 |
| | $ | — |
| | $ | 470,725 |
| Equity in net income of investees accounted for by equity method | | — |
| | — |
| | 3,208 |
| | — |
| | 3,208 |
| Inter-segment | | 286 |
| | (565 | ) | | 388 |
| | (109 | ) | | — |
| Total revenues before expenses and reorganization items | | 521,626 |
| | (54,131 | ) | | 6,547 |
| | (109 | ) | | 473,933 |
| Pre-tax income (loss): | | | | | | | | | | | Unaffiliated customers (1)(2)(3) | | 172,271 |
| | (55,861 | ) | | (5,136 | ) | | — |
| | 111,274 |
| Equity in net income of investees accounted for by equity method | | — |
| | — |
| | 3,208 |
| | — |
| | 3,208 |
| Inter-segment | | (2,087 | ) | | (139 | ) | | 3,027 |
| | (801 | ) | | — |
| Pre-tax income (loss) | | 170,184 |
| | (56,000 | ) | | 1,099 |
| | (801 | ) | | 114,482 |
| Total assets as of September 30, 2015 | | 23,610,582 |
| | 363,118 |
| | 289,238 |
| | 3,981 |
| | 24,266,919 |
| Net investment income | | 195,270 |
| | 401 |
| | 6,260 |
| | — |
| | 201,931 |
| Insurance intangible amortization | | 115,200 |
| | — |
| | — |
| | — |
| | 115,200 |
| Interest expense | | 85,165 |
| | 815 |
| | — |
| | — |
| | 85,980 |
| Goodwill impairment | | 514,511 |
| | — |
| | — |
| | — |
| | 514,511 |
| | | | | | | | | | | | Nine Months Ended September 30, 2014: | | | | | | | | | | | Revenues: | | | | | | | | | | | Unaffiliated customers (1) | | $ | 437,591 |
| | $ | (116,294 | ) | | $ | 142 |
| | $ | — |
| | $ | 321,439 |
| Equity in net income of investees accounted for by equity method | | — |
| | — |
| | 371 |
| | — |
| | 371 |
| Inter-segment | | 937 |
| | (901 | ) | | 23,309 |
| | (23,345 | ) | | — |
| Total revenues before expenses and reorganization items | | 438,528 |
| | (117,195 | ) | | 23,822 |
| | (23,345 | ) | | 321,810 |
| Pre-tax income (loss): | | | | | | | Unaffiliated customers (1) (2) (3) | | 157,551 |
| | (119,287 | ) | | (4,976 | ) | | — |
| | 33,288 |
| Equity in net income of investees accounted for by equity method | | — |
| | — |
| | 371 |
| | — |
| | 371 |
| Inter-segment | | (24,995 | ) | | (1,150 | ) | | 26,145 |
| | — |
| | — |
| Pre-tax income (loss) | | 132,556 |
| | (120,437 | ) | | 21,540 |
| | — |
| | 33,659 |
| Total assets as of September 30, 2014 | | 25,926,306 |
| | 349,411 |
| | 298,873 |
| | 16,195 |
| | 26,590,785 |
| Net investment income | | 232,995 |
| | 967 |
| | 513 |
| | — |
| | 234,475 |
| Insurance intangible amortization | | 109,878 |
| | — |
| | — |
| | — |
| | 109,878 |
| Interest expense | | 94,886 |
| | 1,236 |
| | — |
| | — |
| | 96,122 |
|
| | (1) | Included in both revenues from unaffiliated customers and in pre-tax income (loss) from unaffiliated customers is net investment income. |
| | (2) | Included in pre-tax income (loss) from unaffiliated customers is interest expense. |
| | (3) | Included in pre-tax income (loss) from unaffiliated customers is amortization of intangible asset and impairment of goodwill. Such assets were established upon the adoption of Fresh Start on April 30, 2013. |
The following table summarizes gross premiums written, net premiums earned and the net change in fair value of credit derivatives included in the Financial Guarantee segment by location of risk for the affected periods: | | | | | | | | | | | | | | | | | | | | | | | | | | | | Three Months Ended September 30, 2015 | | Three Months Ended September 30, 2014 | | | Gross
Premiums
Written | | Net
Premiums
Earned | | Net Change in
Fair Value of
Credit
Derivatives | | Gross
Premiums
Written | | Net
Premiums
Earned | | Net Change in
Fair Value of
Credit
Derivatives | United States | | $ | (2,386 | ) | | $ | 60,402 |
| | $ | 30,604 |
| | $ | (15,355 | ) | | $ | 44,882 |
| | $ | 262 |
| United Kingdom | | 260 |
| | 8,081 |
| | — |
| | 1,482 |
| | 14,309 |
| | — |
| Other international | | (6,584 | ) | | 3,052 |
| | 6,348 |
| | 173 |
| | 5,640 |
| | 7,154 |
| Total | | $ | (8,710 | ) | | $ | 71,535 |
| | $ | 36,952 |
| | $ | (13,700 | ) | | $ | 64,831 |
| | $ | 7,416 |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | Nine Months Ended September 30, 2015 | | Nine Months Ended September 30, 2014 | | | Gross
Premiums
Written | | Net
Premiums
Earned | | Net Change in
Fair Value of
Credit
Derivatives | | Gross
Premiums
Written | | Net
Premiums
Earned | | Net Change in
Fair Value of
Credit
Derivatives | United States | | $ | (5,172 | ) | | $ | 163,094 |
| | $ | 39,286 |
| | $ | (44,266 | ) | | $ | 141,472 |
| | $ | 6,283 |
| United Kingdom | | 7,295 |
| | 23,659 |
| | — |
| | (1,681 | ) | | 55,752 |
| | — |
| Other international | | (20,963 | ) | | 11,379 |
| | 5,460 |
| | (19,005 | ) | | 15,167 |
| | 7,296 |
| Total | | $ | (18,840 | ) | | $ | 198,132 |
| | $ | 44,746 |
| | $ | (64,952 | ) | | $ | 212,391 |
| | $ | 13,579 |
|
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