| Financial Guarantee Insurance Contracts |
7. FINANCIAL GUARANTEE INSURANCE CONTRACTS Amounts presented in this Note relate only to Ambac’s non-derivative insurance business for insurance policies issued to beneficiaries, including VIEs, for which we do not consolidate the VIE. Net Premiums Earned: Below is the gross premium receivable roll-forward (direct and assumed contracts) for the affected periods: | | | | | | | | | | | | | Year Ended December 31, | 2016 | | 2015 | | 2014 | Beginning premium receivable | $ | 831,575 |
| | $ | 1,000,607 |
| | $ | 1,453,021 |
| Premium receipts | (77,038 | ) | | (108,029 | ) | | (126,497 | ) | Adjustments for changes in expected and contractual cash flows | (78,528 | ) | | (64,740 | ) | | (322,443 | ) | Accretion of premium receivable discount | 18,637 |
| | 24,628 |
| | 36,651 |
| Changes to uncollectable premiums | 6,054 |
| | 2,540 |
| | (2,518 | ) | Other adjustments (including foreign exchange) | (39,363 | ) | | (23,431 | ) | | (37,607 | ) | Ending premium receivable (1) | $ | 661,337 |
| | $ | 831,575 |
| | $ | 1,000,607 |
|
(1) Gross premium receivable includes premiums to be received in foreign denominated currencies most notably in British Pounds and Euros. At December 31, 2016, 2015 and 2014 premium receivables include British Pounds of $177,878 (£144,393), $226,994 (£154,135) and $275,374 (£176,703), respectively, and Euros of $34,866 (€33,108), $43,451 (€40,014) and $74,413 (€61,494), respectively. In structured finance transactions, the priority for the payment of financial guarantee premiums to Ambac, as required by the bond indentures of the insured obligations, is generally very senior in the waterfall. Additionally, in connection with the allocation of certain liabilities to the Segregated Account, trustees are required under the Segregated Account Rehabilitation Plan and related court orders to continue to pay installment premiums, notwithstanding the Segregated Account Rehabilitation Proceedings. In evaluating the credit quality of the premium receivables, management evaluates the transaction waterfall structures and the internal ratings of the transactions underlying the premium receivables. As of December 31, 2016 and 2015, approximately 25% and 27% of the premium receivables related to transactions with non-investment grade internal ratings, comprised mainly of non-investment grade RMBS, student loan transactions and lease securitizations, which comprised 8%, 3%, and 4% of the total premium receivables at December 31, 2016 and 8%, 5% and 5% of the total premium receivables at December 31, 2015, respectively. At December 31, 2016 and 2015, $9,186 and $15,240 respectively, of premium receivables were deemed uncollectable. Past due premiums on policies insuring non-investment grade obligations amounted to less than $500 at December 31, 2016. The effect of reinsurance on premiums written and earned was as follows: | | | | | | | | | | | | | | | | | | | | | | | | | | 2016 | | 2015 | | 2014 | Year Ended December 31, | Written | | Earned | | Written | | Earned | | Written | | Earned | Direct | $ | (53,837 | ) | | $ | 215,564 |
| | $ | (37,572 | ) | | $ | 336,025 |
| | $ | (288,310 | ) | | $ | 261,634 |
| Assumed | — |
| | 85 |
| | — |
| | 87 |
| | — |
| | 137 |
| Ceded | (8,772 | ) | | 18,362 |
| | (3,001 | ) | | 23,517 |
| | (6,842 | ) | | 15,411 |
| Net premiums | $ | (45,065 | ) | | $ | 197,287 |
| | $ | (34,571 | ) | | $ | 312,595 |
| | $ | (281,468 | ) | | $ | 246,360 |
|
Ambac’s accelerated premium revenue for retired obligations for the years ended December 31, 2016, 2015 and 2014, was $52,416, $137,400 and $29,964, respectively. The table below summarizes the future gross undiscounted premiums to be collected and future premiums earned, net of reinsurance at December 31, 2016: | | | | | | | | | | Future Premiums
to be Collected (1) | | Future
Premiums to
be Earned Net of
Reinsurance (1) | Three months ended: | | | | March 31, 2017 | $ | 17,868 |
| | $ | 27,058 |
| June 30, 2017 | 16,383 |
| | 25,473 |
| September 30, 2017 | 16,410 |
| | 23,070 |
| December 31, 2017 | 15,317 |
| | 20,118 |
| Twelve months ended: | | | | December 31, 2018 | 61,442 |
| | 73,572 |
| December 31, 2019 | 57,915 |
| | 67,643 |
| December 31, 2020 | 55,019 |
| | 63,473 |
| December 31, 2021 | 48,935 |
| | 58,214 |
| Five years ended: | | | | December 31, 2026 | 216,216 |
| | 237,998 |
| December 31, 2031 | 172,442 |
| | 159,638 |
| December 31, 2036 | 101,161 |
| | 89,051 |
| December 31, 2041 | 33,640 |
| | 30,619 |
| December 31, 2046 | 16,053 |
| | 14,847 |
| December 31, 2051 | 5,293 |
| | 6,174 |
| December 31, 2056 | 243 |
| | 686 |
| Total | $ | 834,337 |
| | $ | 897,634 |
|
| | (1) | Future premiums to be collected is undiscounted and relates to the discounted premium receivable asset recorded on Ambac's balance sheet. Future premiums to be earned, net of reinsurance relate to the unearned premium 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 described in Note 2. Basis of Presentation and Significant Accounting Policies, 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 results 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: A loss reserve is recorded on the balance sheet on a policy-by-policy basis as further described in Note 2. Basis of Presentation and Significant Accounting Policies. Below are the components of the Loss and loss expense reserves liability and the Subrogation recoverable asset at December 31, 2016 and 2015: | | | | | | | | | | | | | | | | | | | | | | | | | | Unpaid Claims | | Present Value of Expected
Net Cash Flows | | | | | Balance Sheet Line Item | Claims | | Accrued
Interest | | Claims and
Loss Expenses | | Recoveries | | Unearned
Premium
Revenue | | Gross Loss and
Loss Expense
Reserves | December 31, 2016: | | | | | | | | | | | | Loss and loss expense reserves | $ | 2,411,105 |
| | $ | 529,703 |
| | $ | 2,681,198 |
| | $ | (1,098,096 | ) | | $ | (143,141 | ) | | $ | 4,380,769 |
| Subrogation recoverable | 583,042 |
| | 132,139 |
| | 68,419 |
| | (1,468,331 | ) | | — |
| | (684,731 | ) | Totals | $ | 2,994,147 |
| | $ | 661,842 |
| | $ | 2,749,617 |
| | $ | (2,566,427 | ) | | $ | (143,141 | ) | | $ | 3,696,038 |
| | | | | | | | | | | | | December 31, 2015: | | | | | | | | | | | | Loss and loss expense reserves | $ | 2,138,952 |
| | $ | 349,668 |
| | $ | 3,265,349 |
| | $ | (1,476,276 | ) | | $ | (189,587 | ) | | $ | 4,088,106 |
| Subrogation recoverable | 828,802 |
| | 141,349 |
| | 207,674 |
| | (2,407,118 | ) | | — |
| | (1,229,293 | ) | Totals | $ | 2,967,754 |
| | $ | 491,017 |
| | $ | 3,473,023 |
| | $ | (3,883,394 | ) | | $ | (189,587 | ) | | $ | 2,858,813 |
|
Below is the loss and loss expense reserve roll-forward, net of subrogation recoverable and reinsurance, for the affected periods. Current year represents activity related to policies with newly established loss and loss expense reserves. Prior years represents activity related to policies with loss and loss expense reserves established in prior years. | | | | | | | | | | | | | Year Ended December 31, | 2016 | | 2015 | | 2014 | Beginning gross loss and loss expense reserves | $ | 2,858,813 |
| | $ | 3,798,733 |
| | $ | 5,470,234 |
| Reinsurance recoverable | 44,059 |
| | 100,355 |
| | 122,357 |
| Beginning balance of net loss and loss expense reserves | $ | 2,814,754 |
| | $ | 3,698,378 |
| | $ | 5,347,877 |
| Losses and loss expenses (benefit) incurred: | | | | | | Current year | 6,675 |
| | 1,183 |
| | 309 |
| Prior years | (18,164 | ) | | (769,890 | ) | | (545,883 | ) | Total (1)(2) | (11,489 | ) | | (768,707 | ) | | (545,574 | ) | Loss and loss expenses (recovered) paid: | | | | | | Current year | 5,371 |
| | — |
| | 17 |
| Prior years | (944,955 | ) | | 90,086 |
| | 1,067,321 |
| Total | (939,584 | ) | | 90,086 |
| | 1,067,338 |
| Foreign exchange effect | (77,578 | ) | | (24,831 | ) | | (36,587 | ) | Ending net loss and loss expense reserves | $ | 3,665,271 |
| | $ | 2,814,754 |
| | $ | 3,698,378 |
| Reinsurance recoverable (3) | 30,767 |
| | 44,059 |
| | 100,355 |
| Ending gross loss and loss expense reserves (4) | $ | 3,696,038 |
| | $ | 2,858,813 |
| | $ | 3,798,733 |
|
| | (1) | Total losses and loss expenses (benefit) incurred includes $5,421, $47,085 and $21,164 or the years ended December 31, 2016, 2015 and 2014, respectively, related to ceded reinsurance. |
| | (2) | Ambac records the impact of estimated recoveries related to securitized loans in RMBS transactions that breached certain representations and warranties within losses and loss expenses (benefit). The losses and loss expense (benefit) incurred associated with changes in estimated representation and warranties for the year ended December 31, 2016, 2015, and 2014 was $(71,369), $(303,633) and $(481,669), 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 $(349), $(60) and $(517) as of December 31, 2016, 2015 and 2014, respectively, related to previously presented loss and loss expenses and subrogation. |
| | (4) | Includes Euro denominated gross loss and loss expense reserves of $21,375 (€20,297), $19,019 (€17,515) and $16,094 (€13,300) at December 31, 2016, 2015 and 2014, respectively. |
For 2016, the net positive development in prior years was primarily the result of lower projected losses in the RMBS portfolio due to improved deal performance and higher representation and warranty subrogation recoveries, and the impact of executed commutations in the student loan portfolio. This is partially offset by negative development in Puerto Rico, the adverse impact of foreign currency rate movements on the Ambac UK portfolio and interest accrued on Deferred Amounts. For 2015, the net positive development in prior years was primarily due to increases in our estimate of RMBS R&W recoveries as a result of continuous efforts and ongoing assessments of the value of our claims, as well as declines in interest rates on RMBS, student loans and Ambac UK credits, reduced claims expectations for an Ambac UK transaction resulting from proactive remediation efforts and the impact of executed commutations in the student loan portfolio. This was partially offset by negative development in Puerto Rico, the adverse impact of foreign currency rate movements on the Ambac UK portfolio and interest accrued on Deferred Amounts. For 2014, the net positive development in prior years was due to improved performance in all sectors, including RMBS, Student Loans, international, municipal and other structured finance, partially offset by the addition of accrued interest on Deferred Amounts pursuant to the amended Segregated Account Rehabilitation Plan. The tables below summarize information related to policies currently included in Ambac’s loss and loss expense reserves or subrogation recoverable at December 31, 2016 and 2015. Gross par exposures include capital appreciation bonds which are reported at the par amount at the time of issuance of the insurance policy. The weighted average risk-free rate used to discount loss reserves at December 31, 2016 and 2015 was 2.7% and 2.4%, respectively. | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Surveillance Categories as of December 31, 2016 | | | I/SL | | IA | | II | | III | | IV | | V | | Total | Number of policies | | 19 |
| | 22 |
| | 26 |
| | 43 |
| | 169 |
| | 3 |
| | 282 |
| Remaining weighted-average contract period (in years) | | 9 |
| | 8 |
| | 30 |
| | 17 |
| | 14 |
| | 5 |
| | 16 |
| Gross insured contractual payments outstanding: | | | | | | | | | | | | | | | Principal | | $ | 918,456 |
| | $ | 733,036 |
| | $ | 1,992,543 |
| | $ | 1,779,889 |
| | $ | 7,926,991 |
| | $ | 49,247 |
| | $ | 13,400,162 |
| Interest | | 345,802 |
| | 199,631 |
| | 7,080,969 |
| | 1,110,051 |
| | 2,275,421 |
| | 14,185 |
| | 11,026,059 |
| Total | | $ | 1,264,258 |
| | $ | 932,667 |
| | $ | 9,073,512 |
| | $ | 2,889,940 |
| | $ | 10,202,412 |
| | $ | 63,432 |
| | $ | 24,426,221 |
| Gross undiscounted claim liability (1) | | $ | 3,439 |
| | $ | 21,175 |
| | $ | 547,550 |
| | $ | 861,455 |
| | $ | 6,139,060 |
| | $ | 63,431 |
| | $ | 7,636,110 |
| Discount, gross claim liability | | (314 | ) | | (1,243 | ) | | (331,234 | ) | | (256,108 | ) | | (710,608 | ) | | (5,859 | ) | | (1,305,366 | ) | Gross claim liability before all subrogation and before reinsurance | | $ | 3,125 |
| | $ | 19,932 |
| | $ | 216,316 |
| | $ | 605,347 |
| | $ | 5,428,452 |
| | $ | 57,572 |
| | $ | 6,330,744 |
| Less: | | | | | | | | | | | | | | | Gross RMBS subrogation (2) | | — |
| | — |
| | — |
| | — |
| | (1,926,165 | ) | | — |
| | (1,926,165 | ) | Discount, RMBS subrogation | | — |
| | — |
| | — |
| | — |
| | 19,130 |
| | — |
| | 19,130 |
| Discounted RMBS subrogation, before reinsurance | | — |
| | — |
| | — |
| | — |
| | (1,907,035 | ) | | — |
| | (1,907,035 | ) | Less: | | | | | | | | | | | | | | | Gross other subrogation (3) | | — |
| | — |
| | (14,529 | ) | | (118,272 | ) | | (593,919 | ) | | (12,751 | ) | | (739,471 | ) | Discount, other subrogation | | — |
| | — |
| | 6,526 |
| | 13,426 |
| | 56,273 |
| | 3,854 |
| | 80,079 |
| Discounted other subrogation, before reinsurance | | — |
| | — |
| | (8,003 | ) | | (104,846 | ) | | (537,646 | ) | | (8,897 | ) | | (659,392 | ) | Gross claim liability, net of all subrogation and discounts, before reinsurance | | $ | 3,125 |
| | $ | 19,932 |
| | $ | 208,313 |
| | $ | 500,501 |
| | $ | 2,983,771 |
| | $ | 48,675 |
| | $ | 3,764,317 |
| Less: Unearned premium revenue | | (2,394 | ) | | (1,807 | ) | | (49,578 | ) | | (31,785 | ) | | (57,194 | ) | | (383 | ) | | (143,141 | ) | Plus: Loss expense reserves | | 6,621 |
| | 339 |
| | 777 |
| | 11,036 |
| | 56,089 |
| | — |
| | 74,862 |
| Gross loss and loss expense reserves | | $ | 7,352 |
| | $ | 18,464 |
| | $ | 159,512 |
| | $ | 479,752 |
| | $ | 2,982,666 |
| | $ | 48,292 |
| | $ | 3,696,038 |
| Reinsurance recoverable reported on Balance Sheet (4) | | $ | 120 |
| | $ | 6,063 |
| | $ | 2,737 |
| | $ | 39,352 |
| | $ | (17,854 | ) | | $ | — |
| | $ | 30,418 |
|
| | (1) | Gross undiscounted claim liability includes unpaid claims, including accrued interest on Deferred Amounts, on policies allocated to the Segregated Account and Ambac's estimate of expected future claims. |
| | (2) | RMBS subrogation represents Ambac’s estimate of subrogation recoveries from RMBS transaction sponsors for representation and warranty ("R&W") breaches. |
| | (3) | Other subrogation primarily represents subrogation related to excess spread or other contractual cash flows on public finance and structured finance transactions including RMBS. |
| | (4) | Reinsurance recoverable reported on Balance Sheet includes reinsurance recoverables of $30,767 related to future loss and loss expenses and $(349) related to presented loss and loss expenses and subrogation. |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Surveillance Categories as of December 31, 2015 | | | I/SL | | IA | | II | | III | | IV | | V | | Total | Number of policies | | 33 |
| | 14 |
| | 23 |
| | 63 |
| | 157 |
| | 3 |
| | 293 |
| Remaining weighted-average contract period (in years) | | 9 |
| | 17 |
| | 26 |
| | 19 |
| | 13 |
| | 6 |
| | 15 |
| Gross insured contractual payments outstanding: | | | | | | | | | | | | | | | Principal | | $ | 1,830,549 |
| | $ | 263,288 |
| | $ | 1,912,237 |
| | $ | 2,972,615 |
| | $ | 8,942,730 |
| | $ | 54,590 |
| | $ | 15,976,009 |
| Interest | | 724,940 |
| | 107,624 |
| | 6,834,538 |
| | 1,792,525 |
| | 2,391,523 |
| | 16,791 |
| | 11,867,941 |
| Total | | $ | 2,555,489 |
| | $ | 370,912 |
| | $ | 8,746,775 |
| | $ | 4,765,140 |
| | $ | 11,334,253 |
| | $ | 71,381 |
| | $ | 27,843,950 |
| Gross undiscounted claim liability (1) | | $ | 6,188 |
| | $ | 5,632 |
| | $ | 173,930 |
| | $ | 1,595,525 |
| | $ | 6,339,537 |
| | $ | 71,381 |
| | $ | 8,192,193 |
| Discount, gross claim liability | | (515 | ) | | (652 | ) | | (96,218 | ) | | (458,805 | ) | | (770,694 | ) | | (6,779 | ) | | (1,333,663 | ) | Gross claim liability before all subrogation and before reinsurance | | $ | 5,673 |
| | $ | 4,980 |
| | $ | 77,712 |
| | $ | 1,136,720 |
| | $ | 5,568,843 |
| | $ | 64,602 |
| | $ | 6,858,530 |
| Less: | | | | | | | | | | | | | | | Gross RMBS subrogation (2) | | — |
| | — |
| | — |
| | — |
| | (2,841,291 | ) | | — |
| | (2,841,291 | ) | Discount, RMBS subrogation | | — |
| | — |
| | — |
| | — |
| | 11,716 |
| | — |
| | 11,716 |
| Discounted RMBS subrogation, before reinsurance | | — |
| | — |
| | — |
| | — |
| | (2,829,575 | ) | | — |
| | (2,829,575 | ) | Less: | | | | | | | | | | | | | | | Gross other subrogation (3) | | — |
| | — |
| | (12,937 | ) | | (526,957 | ) | | (835,078 | ) | | (13,098 | ) | | (1,388,070 | ) | Discount, other subrogation | | — |
| | — |
| | 3,961 |
| | 198,643 |
| | 127,669 |
| | 3,978 |
| | 334,251 |
| Discounted other subrogation, before reinsurance | | — |
| | — |
| | (8,976 | ) | | (328,314 | ) | | (707,409 | ) | | (9,120 | ) | | (1,053,819 | ) | Gross claim liability, net of all subrogation and discounts, before reinsurance | | $ | 5,673 |
| | $ | 4,980 |
| | $ | 68,736 |
| | $ | 808,406 |
| | $ | 2,031,859 |
| | $ | 55,482 |
| | $ | 2,975,136 |
| Less: Unearned premium revenue | | (3,360 | ) | | (1,796 | ) | | (48,871 | ) | | (63,257 | ) | | (71,848 | ) | | (455 | ) | | (189,587 | ) | Plus: Loss expense reserves | | — |
| | 66 |
| | 629 |
| | 15,090 |
| | 57,479 |
| | — |
| | 73,264 |
| Gross loss and loss expense reserves | | $ | 2,313 |
| | $ | 3,250 |
| | $ | 20,494 |
| | $ | 760,239 |
| | $ | 2,017,490 |
| | $ | 55,027 |
| | $ | 2,858,813 |
| Reinsurance recoverable reported on Balance Sheet (4) | | $ | 642 |
| | $ | 880 |
| | $ | 85 |
| | $ | 59,503 |
| | $ | (17,111 | ) | | $ | — |
| | $ | 43,999 |
|
| | (1) | Gross undiscounted claim liability includes unpaid claims, including accrued interest on Deferred Amounts, on policies allocated to the Segregated Account and Ambac's estimate of expected future claims. |
| | (2) | RMBS subrogation represents Ambac’s estimate of subrogation recoveries from RMBS transaction sponsors for R&W breaches. |
| | (3) | Other subrogation primarily represents subrogation related to excess spread or other contractual cash flows on public finance and structured finance transactions, including RMBS. |
| | (4) | Reinsurance recoverable reported on Balance Sheet includes reinsurance recoverables of $44,059 related to future loss and loss expenses and $(60) related to presented loss and loss expenses and subrogation. |
Ambac records estimated subrogation recoveries for breaches of representations and warranties (R&W) by sponsors of certain RMBS transactions. Prior to the June 30, 2014 reporting period, Ambac utilized the Adverse and Random Sample approaches to estimate R&W subrogation recoveries for certain RMBS transactions. For a discussion of these subrogation recovery approaches, see Note 2. Basis of Presentation and Significant Accounting Policies. Beginning with the June 30, 2014 reporting period, as a result of gaining further access to loan files, the Random Sample approach has been utilized for all transactions which were previously evaluated using the Adverse Sample approach. R&W subrogation may include estimates of potential sponsor settlements, but have not been subject to a sampling approach. However, such estimates are not material to Ambac’s financial results and therefore are included in the Random Sample section of this table. Ambac has recorded RMBS subrogation recoveries of $1,907,035, ($1,878,740 net of reinsurance) and $2,829,575, ($2,800,149 net of reinsurance) at December 31, 2016 and 2015, respectively. The balance of RMBS subrogation recoveries and the related loss reserves, using Random Samples as the estimation approach, at December 31, 2016 and 2015, are as follows: | | | | | | | | | | | | | Random Samples Approach | Gross Loss
Reserves Before
Subrogation
Recoveries (1) | | Subrogation
Recoveries (2)(3) | | Gross Loss
Reserves After
Subrogation
Recoveries | At December 31, 2016 | $ | 1,351,640 |
| | $ | (1,907,035 | ) | | $ | (555,395 | ) | | | | | | | At December 31, 2015 | $ | 1,850,804 |
| | $ | (2,829,575 | ) | | $ | (978,771 | ) |
| | (1) | Includes unpaid RMBS claims, including accrued interest on Deferred Amounts, on policies allocated to the Segregated Account. |
| | (2) | The amount of recorded subrogation recoveries related to each securitization is limited to ever-to-date paid and unpaid losses plus the present value of expected cash flows for each policy. To the extent losses have been paid but not yet fully recovered, the recorded amount of RMBS subrogation recoveries may exceed the sum of the unpaid claims and the present value of expected cash flows for a given policy. The net cash inflow for these policies is recorded as a “Subrogation recoverable” asset. For those transactions where the subrogation recovery is less than the sum of unpaid claims and the present value of expected cash flows, the net cash outflow for these policies is recorded as a “Loss and loss expense reserves” liability. |
| | (3) | The sponsor’s repurchase obligation may differ depending on the terms of the particular transaction and the status of the specific loan, such as whether it is performing or has been liquidated or charged off. The estimated subrogation recovery for these transactions is based primarily on loan level data provided through trustee reports received in the normal course of our surveillance activities or provided by the sponsor. While this data may not include all the components of the sponsor’s contractual repurchase obligation we believe it is the best information available to estimate the subrogation recovery. |
Below is the rollforward of RMBS subrogation, by estimation approach, for the affected periods: | | | | | | | | | | | | | | Random
Sample | | Adverse
Sample | | Total | Discounted RMBS subrogation (gross of reinsurance) at January 1, 2016 | $ | 2,829,575 |
| | $ | — |
| | $ | 2,829,575 |
| Changes recognized in 2016: | | | | | | Impact of sponsor actions (1) | (995,000 | ) | | — |
| | (995,000 | ) | All other changes (2) | 72,460 |
| | — |
| | 72,460 |
| Discounted RMBS subrogation (gross of reinsurance) at December 31, 2016 | $ | 1,907,035 |
| | $ | — |
| | $ | 1,907,035 |
| | | | | | | Discounted RMBS subrogation (gross of reinsurance) at January 1, 2015 | $ | 2,523,540 |
| | $ | — |
| | $ | 2,523,540 |
| Changes recognized in 2015: | | | | | | All other changes (2) | 306,035 |
| | — |
| | 306,035 |
| Discounted RMBS subrogation (gross of reinsurance) at December 31, 2015 | $ | 2,829,575 |
| | $ | — |
| | $ | 2,829,575 |
| | | | | | | Discounted RMBS subrogation (gross of reinsurance) at January 1, 2014 | $ | 953,825 |
| | $ | 1,252,773 |
| | $ | 2,206,598 |
| Changes recognized in 2014: | | | | | | Additional transactions reviewed | 24,565 |
| | — |
| | 24,565 |
| Changes in estimation approach (3) | 1,417,556 |
| | (1,218,681 | ) | | 198,875 |
| Impact of sponsor actions (1) | (146,270 | ) | | — |
| | (146,270 | ) | All other changes (2) | 273,864 |
| | (34,092 | ) | | 239,772 |
| Discounted RMBS subrogation (gross of reinsurance) at December 31, 2014 | $ | 2,523,540 |
| | $ | — |
| | $ | 2,523,540 |
|
| | (1) | Sponsor actions include loan repurchases, direct payments to Ambac and other contributions from sponsors. In January 2016, Ambac Assurance settled its RMBS-related disputes and litigation against JP Morgan Chase & Co. and certain of its affiliates (collectively "JP Morgan"). Pursuant to the settlement, JP Morgan paid Ambac Assurance $995,000 in cash in return for releases of all of Ambac Assurance's claims against JP Morgan arising from certain RMBS transactions insured by Ambac Assurance. Ambac Assurance also agreed to withdraw its objections to JP Morgan's global RMBS settlement with RMBS trustees. |
| | (2) | All other changes which may impact R&W subrogation recoveries include changes in actual or projected collateral performance, changes in the creditworthiness of a sponsor and/or the projected timing of recoveries. All other changes may also include estimates of potential sponsor settlements that may not have been subject to a sampling approach or have been executed but the settlement amounts have not yet been received. Those that have not been subject to a sampling approach are not material to Ambac’s financial results and therefore are included in the Random Sample column of this table. |
| | (3) | Represents estimated subrogation for those transactions previously evaluated using the Adverse Sample approach, which are evaluated using a Random Sample approach beginning June 30, 2014. The amounts shown in the Random and Adverse Sample columns are different as a result of the differences in estimation approaches. |
Assumed Reinsurance: Assumed par outstanding was $243,700 and $245,900 at December 31, 2016 and 2015, respectively. On March 24, 2010, all assumed reinsurance agreements with third parties were allocated to the Segregated Account, which will not allow for cancellations without the approval of the Rehabilitator. Ceded Reinsurance: Ambac Assurance has reinsurance in place pursuant to surplus share treaty and facultative reinsurance agreements. The reinsurance of risk does not relieve Ambac Assurance of its original liability to its policyholders. In the event that any of Ambac Assurance’s reinsurers are unable to meet their obligations under reinsurance contracts, Ambac Assurance would, nonetheless, be liable to its policyholders for the full amount of its policy. Ambac Assurance’s reinsurance assets, including deferred ceded premiums and reinsurance recoverables on losses amounted to $100,042 at December 31, 2016. Credit exposure existed at December 31, 2016 with respect to reinsurance recoverables to the extent that any reinsurer may not be able to reimburse Ambac Assurance under the terms of these reinsurance arrangements. At December 31, 2016, there were ceded reinsurance balances payable of $42,529 offsetting this credit exposure. To minimize its credit exposure to losses from reinsurer insolvencies, Ambac Assurance (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 Assurance in the event of rating agency downgrades of a reinsurer (among other events and circumstances). Ambac Assurance held letters of credit and collateral amounting to $122,912 from its reinsurers at December 31, 2016. As of December 31, 2016, the aggregate amount of insured par ceded by Ambac Assurance to reinsurers under reinsurance agreements was $7,027,000 with the largest reinsurer accounting for $6,086,000 or 7.0% of gross par outstanding at December 31, 2016. The following table represents the percentage ceded to reinsurers and reinsurance recoverable at December 31, 2016 and its rating levels obtained from each reinsurers website as of February 24, 2017: | | | | | | | | | Reinsurers | Moody’s Rating | | Percentage Ceded Par | | Net Unsecured Reinsurance Recoverable(1) | Assured Guaranty Re Ltd | NR | | 86.6% | | $ | — |
| Sompo Japan Nipponkoa Insurance, Inc. | A1 | | 6.6 | | — |
| Assured Guaranty Corporation | A3 | | 6.8 | | 3,879 |
| Total | | | 100% | | $ | 3,879 |
|
| | (1) | Represents reinsurance recoverables on paid and unpaid losses and deferred ceded premiums, net of ceded premium payables due to reinsurers, letters of credit, and collateral posted for the benefit of Ambac Assurance. |
Insurance intangible asset: The insurance intangible amortization expense is included in insurance intangible amortization on the Consolidated Statements of Total Comprehensive Income. For the years ended December 31, 2016, 2015 and 2014, the insurance intangible amortization expense was $174,608, $169,557 and $151,830, respectively. As of December 31, 2016 and 2015, the gross carrying value of the insurance intangible asset was $1,534,419 and $1,626,566, respectively. Accumulated amortization of the insurance intangible asset was $572,339 and $414,454, as of December 31, 2016 and 2015, respectively, resulting in a net insurance intangible asset of $962,080 and $1,212,112, respectively. The estimated future amortization expense for the net insurance intangible asset is as follows: | | | | | | | | | | | | | | | | | | | | | | | | Future Insurance Intangible Amortization (1) | 2017 | | 2018 | | 2019 | | 2020 | | 2021 | | Thereafter | $ | 94,815 |
| | $ | 81,469 |
| | $ | 72,967 |
| | $ | 67,115 |
| | $ | 60,621 |
| | $ | 585,093 |
|
| | (1) | The insurance intangible asset will be amortized using a level yield method based on par exposure of the related financial guarantee insurance or reinsurance contracts as described in Note 2. Basis of Presentation and Significant Accounting Policies. As exposures are called or prepay, amortization of the insurance intangible asset will be recognized earlier and the timing will differ from the amounts provided in the table above. |
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