Fair Value Measurements (Tables)

9 Months Ended

Sep. 30, 2019

Fair Value Disclosures [Abstract]

Summary of Carrying Amount and Fair Value of Ambac's Financial Assets and Liabilities

The following table sets forth the carrying amount and fair value of Ambac’s financial assets and liabilities as of September 30, 2019 and December 31, 2018, including the level within the fair value hierarchy at which fair value measurements are categorized. As required by the Fair Value Measurement Topic of the ASC, financial assets and liabilities are classified in their entirety based on the lowest level of input that is significant to the fair value measurement.

	Carrying Amount			Total Fair Value			Fair Value Measurements Categorized as:
September 30, 2019:							Level 1		Level 2			Level 3
Financial assets:
Fixed income securities:
Municipal obligations	$	305,128		$	305,128		$	—	$	305,128		$	—
Corporate obligations	1,469,250			1,469,250			800		1,468,450			—
Foreign obligations	42,488			42,488			42,488		—			—
U.S. government obligations	156,060			156,060			156,060		—			—
Residential mortgage-backed securities	257,340			257,340			—		257,340			—
Collateralized debt obligations	147,835			147,835			—		147,835			—
Other asset-backed securities	349,204			349,204			—		269,783			79,421
Fixed income securities, pledged as collateral:
U.S. government obligations	84,948			84,948			84,948		—			—
Short term investments	664,441			664,441			603,435		61,006			—
Other investments (1)	462,427			435,820			130,393		—			17,680
Cash, cash equivalents and restricted cash	64,512			64,512			30,596		33,916			—
Derivative assets:
Interest rate swaps—asset position	81,769			81,769			—		8,617			73,152
Futures contracts	393			393			393		—			—
Other assets - equity in sponsored VIE	3,388			3,388			—		—			3,388
Other assets-Loans	9,770			13,032			—		—			13,032
Variable interest entity assets:
Fixed income securities: Corporate obligations	2,995,894			2,995,894			—		—			2,995,894
Fixed income securities: Municipal obligations	162,714			162,714			—		162,714			—
Restricted cash	3,168			3,168			3,168		—			—
Loans	2,965,539			2,965,539			—		—			2,965,539
Derivative assets: Currency swaps-asset position	67,921			67,921			—		67,921			—
Total financial assets	$	10,294,189		$	10,270,844		$	1,052,281	$	2,782,710		$	6,148,106
Financial liabilities:
Long term debt, including accrued interest	$	3,378,744		$	3,364,780		$	—	$	2,965,844		$	398,936
Derivative liabilities:
Credit derivatives	422			422			—		—			422
Interest rate swaps—asset position	(68		)	(68		)	—		(68		)	—
Interest rate swaps—liability position	102,960			102,960			—		102,960			—
Liabilities for net financial guarantees written (2)	(932,517		)	179,352			—		—			179,352
Variable interest entity liabilities:
Long-term debt (includes $4,151,433 at fair value)	4,353,171			4,366,312			—		4,208,107			158,205
Derivative liabilities: Interest rate swaps—liability position	1,779,077			1,779,077			—		1,779,077			—
Total financial liabilities	$	8,681,789		$	9,792,835		$	—	$	9,055,920		$	736,915

	Carrying Amount			Total Fair Value		Fair Value Measurements Categorized as:
December 31, 2018:						Level 1		Level 2		Level 3
Financial assets:
Fixed income securities:
Municipal obligations	$	879,919		$	879,919	$	—	$	879,919	$	—
Corporate obligations	1,278,122			1,278,122		—		1,278,122		—
Foreign obligations	30,834			30,834		29,922		912		—
U.S. government obligations	94,394			94,394		94,394		—		—
Residential mortgage-backed securities	258,607			258,607		—		258,607		—
Collateralized debt obligations	131,356			131,356		—		131,356		—
Other asset-backed securities	442,443			442,443		—		370,372		72,071
Short term investments	430,331			430,331		304,880		125,451		—
Other investments (1)	391,217			367,315		71,108		—		16,266
Cash and cash equivalents and restricted cash	82,494			82,494		52,661		29,833		—
Derivative assets:
Interest rate swaps—asset position	59,468			59,468		—		12,008		47,460
Other assets - equity in sponsored VIE	4,516			4,516		—		—		4,516
Other assets-loans	9,913			11,620		—		—		11,620
Variable interest entity assets:
Fixed income securities: Corporate obligations	2,737,286			2,737,286		—		—		2,737,286
Restricted cash	999			999		999		—		—
Loans	4,287,664			4,287,664		—		—		4,287,664
Derivative assets: Currency swaps—asset position	66,302			66,302		—		66,302		—
Total financial assets	$	11,185,865		$	11,163,670	$	553,964	$	3,152,882	$	7,176,883
Financial liabilities:
Long term debt, including accrued interest	$	3,304,737		$	3,259,966	$	—	$	2,909,272	$	350,694
Derivative liabilities:
Credit derivatives	1,459			1,459		—		—		1,459
Interest rate swaps—liability position	71,861			71,861		—		71,861		—
Futures contracts	3,379			3,379		3,379		—
Liabilities for net financial guarantees written (2)	(718,388		)	558,824		—		—		558,824
Variable interest entity liabilities:
Long-term debt	5,268,596			5,268,596		—		5,051,504		217,092
Derivative liabilities: Interest rate swaps—liability position	1,712,062			1,712,062		—		1,712,062		—
Total financial liabilities	$	9,643,706		$	10,876,147	$	3,379	$	9,744,699	$	1,128,069

(1) Excluded from the fair value measurement categories in the table above are investment funds of $287,748 and $279,941 as of September 30, 2019 and December 31, 2018, respectively, which are measured using NAV as a practical expedient.

(2)

The carrying value of net financial guarantees written includes the following balance sheet items: Premium receivables; Reinsurance recoverable on paid and unpaid losses; Deferred ceded premium; Subrogation recoverable; Insurance intangible asset; Unearned premiums; Loss and loss expense reserves; Ceded premiums payable, premiums taxes payable and other deferred fees recorded in Other liabilities.

Summary of Changes in Level 3 Fair Value Category

The following tables present the changes in the Level 3 fair value category for the periods presented in 2019 and 2018. Ambac classifies financial instruments in Level 3 of the fair value hierarchy when there is reliance on at least one significant unobservable input to the valuation model. In addition to these unobservable inputs, the valuation models for Level 3 financial instruments typically also rely on a number of inputs that are readily observable either directly or indirectly. Thus, the gains and losses presented below include changes in the fair value related to both observable and unobservable inputs.

Level 3 - Financial Assets and Liabilities Accounted for at Fair Value
										VIE Assets and Liabilities
	Investments			Other Assets(1)			Derivatives			Investments			Loans			Long-term Debt			Total
Three Months Ended September 30, 2019:
Balance, beginning of period	$	74,318		$	3,771		$	62,270		$	2,881,889		$	4,288,572		$	(230,615	)	$	7,080,205
Total gains/(losses) realized and unrealized:
Included in earnings	530			(383		)	11,634			206,241			126,541			—			344,563
Included in other comprehensive income	4,926			—			—			(92,236		)	(133,131		)	7,336			(213,105		)
Purchases	—			—			—			—			—			—			—
Issuances	—			—			—			—			—			—			—
Sales	—			—			—			—			—			—			—
Settlements	(353		)	—			(1,174		)	—			(465,838		)	—			(467,365		)
Deconsolidation of VIEs	—			—			—			—			(850,605		)	223,279			(627,326		)
Balance, end of period	$	79,421		$	3,388		$	72,730		$	2,995,894		$	2,965,539		$	—		$	6,116,972
The amount of total gains/(losses) included in earnings attributable to the change in unrealized gains or losses relating to assets and liabilities still held at the reporting date	$	—		$	(383	)	$	11,543		$	206,241		$	114,825		$	—		$	332,226
Three Months Ended September 30, 2018:
Balance, beginning of period	$	68,802		$	5,255		$	45,613		$	2,756,924		$	10,751,199		$	(2,517,638	)	$	11,110,155
Total gains/(losses) realized and unrealized:
Included in earnings	376			(368		)	(2,080		)	(7,811		)	(29,439		)	3,101			(36,221		)
Included in other comprehensive income	3,218			—			—			(30,736		)	(122,908		)	28,064			(122,362		)
Purchases	—			—			—			—			—			—			—
Issuances	—			—			—			—			—			—			—
Sales	—			—			—			—			—			—			—
Settlements	(302		)	—			(1,296		)	—			(89,296		)	17,841			(73,053		)
Deconsolidation of VIEs	—			—			—			—			(5,946,465		)	2,237,352			(3,709,113		)
Balance, end of period	$	72,094		$	4,887		$	42,237		$	2,718,377		$	4,563,091		$	(231,280	)	$	7,169,406
The amount of total gains/(losses) included in earnings attributable to the change in unrealized gains or losses relating to assets and liabilities still held at the reporting date	$	—		$	(368	)	$	(2,179	)	$	(7,811	)	$	(29,439	)	$	3,101		$	(36,696	)

(1) Other assets carried at fair value and classified as Level 3 relate to an equity interest in an Ambac sponsored VIE.

Level 3 - Financial Assets and Liabilities Accounted for at Fair Value
										VIE Assets and Liabilities
	Investments			Other Assets			Derivatives			Investments			Loans			Long-term Debt			Total
Nine Months Ended September 30, 2019:
Balance, beginning of period	$	72,071		$	4,516		$	46,001		$	2,737,286		$	4,287,664		$	(217,092	)	$	6,930,446
Total gains/(losses) realized and unrealized:
Included in earnings	1,301			(1,128		)	30,187			381,716			300,503			(14,603		)	697,976
Included in other comprehensive income	7,040			—			—			(105,924		)	(150,535		)	8,416			(241,003		)
Purchases	—			—			—			—			—			—			—
Issuances	—			—			—			—			—			—			—
Sales	—			—			—			—			—			—			—
Settlements	(991		)	—			(3,458		)	(17,184		)	(621,488		)	—			(643,121		)
Deconsolidation of VIEs	—			—			—			—			(850,605		)	223,279			(627,326		)
Balance, end of period	$	79,421		$	3,388		$	72,730		$	2,995,894		$	2,965,539		$	—		$	6,116,972
The amount of total gains/(losses) included in earnings attributable to the change in unrealized gains or losses relating to assets and liabilities still held at the reporting date	$	—		$	(1,128	)	$	29,911		$	381,716		$	228,788		$	—		$	639,287
Nine Months Ended September 30, 2018:
Balance, beginning of period	$	808,557		$	5,979		$	60,808		$	2,914,145		$	11,529,384		$	(2,757,688	)	$	12,561,185
Total gains/(losses) realized and unrealized:
Included in earnings	35,842			(1,092		)	(14,137		)	(80,974		)	(204,561		)	180,314			(84,608		)
Included in other comprehensive income	(52,804		)	—			—			(97,199		)	(371,610		)	85,837			(435,776		)
Purchases	—			—			—			—			—			—			—
Sales	—			—			—			—			—			—			—
Settlements	(714,192		)	—			(4,434		)	(17,595		)	(443,657		)	22,905			(1,156,973		)
Transfers out of Level 3	(5,309		)	—			—			—			—			—			(5,309		)
Deconsolidation of VIEs	—			—			—			—			(5,946,465		)	2,237,352			(3,709,113		)
Balance, end of period	$	72,094		$	4,887		$	42,237		$	2,718,377		$	4,563,091		$	(231,280	)	$	7,169,406
The amount of total gains/(losses) included in earnings attributable to the change in unrealized gains or losses relating to assets and liabilities still held at the reporting date	$	—		$	(1,092	)	$	(14,433	)	$	(80,974	)	$	(70,659	)	$	37,637		$	(129,521	)

The tables below provide roll-forward information by class of investments and derivatives measured using significant unobservable inputs.

Level 3 - Investments by Class:
	Three Months Ended September 30, 2019								Three Months Ended September 30, 2018
	Other Asset Backed Securities			Non-Agency RMBS		Total Investments			Other Asset Backed Securities			Non-Agency RMBS		Total Investments
Balance, beginning of period	$	74,318		$	—	$	74,318		$	68,802		$	—	$	68,802
Total gains/(losses) realized and unrealized:
Included in earnings	530			—		530			376			—		376
Included in other comprehensive income	4,926			—		4,926			3,218			—		3,218
Purchases	—			—		—			—			—		—
Issuances	—			—		—			—			—		—
Sales	—			—		—			—			—		—
Settlements	(353		)	—		(353		)	(302		)	—		(302		)
Balance, end of period	$	79,421		$	—	$	79,421		$	72,094		$	—	$	72,094
The amount of total gains/(losses) included in earnings attributable to the change in unrealized gains or losses relating to assets and liabilities still held at the reporting date	$	—		$	—	$	—		$	—		$	—	$	—

Level 3 - Investments by Class:
	Nine Months Ended September 30, 2019								Nine Months Ended September 30, 2018
	Other Asset Backed Securities			Non-Agency RMBS		Total Investments			Other Asset Backed Securities			Non-Agency RMBS			Total Investments
Balance, beginning of period	$	72,071		$	—	$	72,071		$	72,540		$	736,017		$	808,557
Total gains/(losses) realized and unrealized:
Included in earnings	1,301			—		1,301			1,115			34,727			35,842
Included in other comprehensive income	7,040			—		7,040			(666		)	(52,138		)	(52,804		)
Purchases	—			—		—			—			—			—
Issuances	—			—		—			—			—			—
Sales	—			—		—			—			—			—
Settlements	(991		)	—		(991		)	(895		)	(713,297		)	(714,192		)
Transfers out of Level 3	—			—		—			—			(5,309		)	(5,309		)
Balance, end of period	$	79,421		$	—	$	79,421		$	72,094		$	—		$	72,094
The amount of total gains/(losses) included in earnings attributable to the change in unrealized gains or losses relating to assets and liabilities still held at the reporting date	$	—		$	—	$	—		$	—		$	—		$	—

Level 3 - Derivatives by Class:
	Three Months Ended September 30, 2019									Three Months Ended September 30, 2018
	Interest Rate Swaps			Credit Derivatives			Total Derivatives			Interest Rate Swaps			Credit Derivatives			Total Derivatives
Balance, beginning of period	$	63,131		$	(861	)	$	62,270		$	46,939		$	(1,326	)	$	45,613
Total gains/(losses) realized and unrealized:
Included in earnings	11,106			528			11,634			(2,330		)	250			(2,080		)
Included in other comprehensive income	—			—			—			—			—			—
Purchases	—			—			—			—			—			—
Issuances	—			—			—			—			—			—
Sales	—			—			—			—			—			—
Settlements	(1,085		)	(89		)	(1,174		)	(1,197		)	(99		)	(1,296		)
Balance, end of period	$	73,152		$	(422	)	$	72,730		$	43,412		$	(1,175	)	$	42,237
The amount of total gains/(losses) included in earnings attributable to the change in unrealized gains or losses relating to assets and liabilities still held at the reporting date	$	11,106		$	437		$	11,543		$	(2,330	)	$	151		$	(2,179	)

Level 3 - Derivatives by Class:
	Nine Months Ended September 30, 2019									Nine Months Ended September 30, 2018
	Interest Rate Swaps			Credit Derivatives			Total Derivatives			Interest Rate Swaps			Credit Derivatives			Total Derivatives
Balance, beginning of period	$	47,460		$	(1,459	)	$	46,001		$	61,374		$	(566	)	$	60,808
Total gains/(losses) realized and unrealized:
Included in earnings	28,876			1,311			30,187			(13,824		)	(313		)	(14,137		)
Included in other comprehensive income	—			—			—			—			—			—
Purchases	—			—			—			—			—			—
Issuances	—			—			—			—			—			—
Sales	—			—			—			—			—			—
Settlements	(3,184		)	(274		)	(3,458		)	(4,138		)	(296		)	(4,434		)
Balance, end of period	$	73,152		$	(422	)	$	72,730		$	43,412		$	(1,175	)	$	42,237
The amount of total gains/(losses) included in earnings attributable to the change in unrealized gains or losses relating to assets and liabilities still held at the reporting date	$	28,876		$	1,035		$	29,911		$	(13,824	)	$	(609	)	$	(14,433	)

Summary of Gains and Losses (Realized and Unrealized) Relating to Level 3 Assets and Liabilities Included in Earnings

Gains and losses (realized and unrealized) relating to Level 3 assets and liabilities included in earnings for the affected periods are reported as follows:

	Net Investment Income		Net Gains (Losses) on Derivative Contracts			Income (Loss) on Variable Interest Entities			Other Income or (Loss)
Three Months Ended September 30, 2019:
Total gains or losses included in earnings for the period	$	530	$	11,634		$	332,782		$	(383	)
Changes in unrealized gains or losses relating to the assets and liabilities still held at the reporting date	—		11,543			321,066			(383		)
Three Months Ended September 30, 2018:
Total gains or losses included in earnings for the period	$	376	$	(2,080	)	$	(34,149	)	$	(368	)
Changes in unrealized gains or losses relating to the assets and liabilities still held at the reporting date	—		(2,179		)	(34,149		)	(368		)
Nine Months Ended September 30, 2019:
Total gains or losses included in earnings for the period	$	1,301	$	30,187		$	667,616		$	(1,128	)
Changes in unrealized gains or losses relating to the assets and liabilities still held at the reporting date	—		29,911			610,504			(1,128		)
Nine Months Ended September 30, 2018:
Total gains or losses included in earnings for the period	$	35,842	$	(14,137	)	$	(105,221	)	$	(1,092	)
Changes in unrealized gains or losses relating to the assets and liabilities still held at the reporting date	—		(14,433		)	(113,996		)	(1,092		)