Fair Value Measurements (Tables)

6 Months Ended

Jun. 30, 2021

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 June 30, 2021 and December 31, 2020, 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:
June 30, 2021:					Level 1		Level 2		Level 3
Financial assets:
Fixed maturity securities:
Municipal obligations	$	358	$	358	$	—	$	358	$	—
Corporate obligations	1,106		1,106		3		1,103		—
Foreign obligations	89		89		89		—		—
U.S. government obligations	43		43		43		—		—

Residential mortgage-backed securities	245		245		—		245		—

Collateralized debt obligations	111		111		—		111		—
Other asset-backed securities	301		301		—		221		80
Fixed maturity securities, pledged as collateral:
U.S. government obligations	15		15		15		—		—
Short-term	105		105		105		—		—
Short term investments	416		416		329		87		—
Other investments (1)	657		650		110		—		—
Cash, cash equivalents and restricted cash	30		30		24		7		—
Derivative assets:

Interest rate swaps—asset position	82		82		—		7		75
Interest rate swaps—liability position	(1)		(1)		—		(1)		—

Other assets - equity in sponsored VIE	—		—		—		—		—
Other assets-Loans	3		3		—		—		3
Variable interest entity assets:

Fixed maturity securities: Corporate obligations	3,175		3,175		—		—		3,175
Fixed maturity securities: Municipal obligations	140		140		—		140		—
Restricted cash	2		2		2		—		—
Loans	2,943		2,943		—		—		2,943

Derivative assets: Currency swaps-asset position	37		37		—		37		—
Total financial assets	$	9,858	$	9,851	$	720	$	2,314	$	6,276
Financial liabilities:

Long term debt, including accrued interest	$	3,203	$	3,040	$	—	$	3,018	$	22
Derivative liabilities:

Interest rate swaps—asset position	(1)		(1)		—		(1)		—
Interest rate swaps—liability position	98		98		—		98		—


Liabilities for net financial guarantees written (2)	(781)		186		—		—		186
Variable interest entity liabilities:
Long-term debt (includes $4,270 at fair value)	4,434		4,472		—		4,299		173

Derivative liabilities: Interest rate swaps—liability position	1,800		1,800		—		1,800		—

Total financial liabilities	$	8,754	$	9,597	$	—	$	9,215	$	382


	Carrying Amount		Total Fair Value		Fair Value Measurements Categorized as:
December 31, 2020:					Level 1		Level 2		Level 3
Financial assets:
Fixed maturity securities:
Municipal obligations	$	358	$	358	$	—	$	358	$	—
Corporate obligations	1,077		1,077		4		1,073		—
Foreign obligations	98		98		98		—		—
U.S. government obligations	106		106		106		—		—

Residential mortgage-backed securities	302		302		—		302		—

Collateralized debt obligations	74		74		—		74		—
Other asset-backed securities	303		303		—		225		78
Fixed maturity securities, pledged as collateral:
U.S. government obligations	15		15		15		—		—
Short-term	125		125		125		—		—
Short term investments	492		492		415		76		—
Other investments (1)	595		597		91		—		53
Cash, cash equivalents and restricted cash	33		33		32		2		—
Derivative assets:

Interest rate swaps—asset position	93		93		—		9		85


Other assets - equity in sponsored VIE	1		1		—		—		1
Other assets-loans	3		3		—		—		3
Variable interest entity assets:

Fixed maturity securities: Corporate obligations	3,215		3,215		—		—		3,215
Fixed maturity securities: Municipal obligations	139		139		—		139		—
Restricted cash	2		2		2		—		—
Loans	2,998		2,998		—		—		2,998

Derivative assets: Currency swaps—asset position	41		41		—		41		—
Total financial assets	$	10,071	$	10,073	$	888	$	2,299	$	6,433
Financial liabilities:
Long term debt, including accrued interest	$	3,255	$	3,071	$	—	$	2,670	$	401
Derivative liabilities:


Interest rate swaps—liability position	114		114		—		114		—


Liabilities for net financial guarantees written (2)	(740)		539		—		—		539
Variable interest entity liabilities:
Long-term debt (includes $4,324 at fair value)	4,493		4,504		—		4,349		155

Derivative liabilities: Interest rate swaps—liability position	1,835		1,835		—		1,835		—

Total financial liabilities	$	8,958	$	10,063	$	—	$	8,968	$	1,095

(1)Excluded from the fair value measurement categories in the table above are investment funds of $540 and $453 as of June 30, 2021 and December 31, 2020, respectively, which are measured using NAV as a practical expedient. Also excluded from the fair value measurements in the table above are equity securities with a carrying value of $8 and $— as of June 30, 2021 and December 31, 2020, respectively, that do not have readily determinable fair values and have carrying amounts determined using the measurement alternative.

(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 2021 and 2020. 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
	Investments(1)		Other Assets(2)		Derivatives		Investments		Loans		Total
Three Months Ended June 30, 2021:
Balance, beginning of period	$	76	$	1	$	65	$	3,103	$	2,948	$	6,194

Total gains/(losses) realized and unrealized:
Included in earnings	—		—		11		87		65		164
Included in other comprehensive income	4		—		—		5		5		14
Purchases	—		—		—		—		—		—
Issuances	—		—		—		—		—		—
Sales	—		—		—		—		—		—
Settlements	—		(1)		(2)		(19)		(76)		(98)



Balance, end of period	$	80	$	—	$	74	$	3,175	$	2,943	$	6,273
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	$	87	$	65	$	164
The amount of total gains/(losses) included in other comprehensive income attributable to the change in unrealized gains or losses relating to assets and liabilities still held at the reporting date	$	4	$	—	$	—	$	5	$	5	$	14

Three Months Ended June 30, 2020:
Balance, beginning of period	$	66	$	3	$	77	$	2,806	$	2,932	$	5,884

Total gains/(losses) realized and unrealized:
Included in earnings	—		—		11		128		(67)		72
Included in other comprehensive income	—		—		—		(11)		(11)		(22)
Purchases	—		—		—		—		—		—
Issuances	—		—		—		—		—		—
Sales	—		—		—		—		—		—
Settlements	—		—		(2)		(17)		(67)		(86)



Balance, end of period	$	66	$	2	$	86	$	2,907	$	2,787	$	5,848
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	$	—	$	—	$	10	$	128	$	(67)	$	71
The amount of total gains/(losses) included in other comprehensive income attributable to the change in unrealized gains or losses relating to assets and liabilities still held at the reporting date	$	—	$	—	$	—	$	(11)	$	(11)	$	(22)

(1) Investments classified as Level 3 consist of a single other asset-backed security.

(2) 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
	Investments		Other Assets		Derivatives		Investments		Loans		Total
Six Months Ended June 30, 2021:
Balance, beginning of period	$	78	$	1	$	84	$	3,215	$	2,998	$	6,376

Total gains/(losses) realized and unrealized:
Included in earnings	1		—		(6)		(50)		74		18
Included in other comprehensive income	3		—		—		31		30		63
Purchases	—		—		—		—		—		—
Issuances	—		—		—		—		—		—
Sales	—		—		—		—		—		—
Settlements	(1)		(1)		(4)		(19)		(160)		(185)



Balance, end of period	$	80	$	—	$	74	$	3,175	$	2,943	$	6,273
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	$	—	$	(6)	$	(50)	$	74	$	18
The amount of total gains/(losses) included in other comprehensive income attributable to the change in unrealized gains or losses relating to assets and liabilities still held at the reporting date	$	3	$	—	$	—	$	31	$	30	$	63

Six Months Ended June 30, 2020:
Balance, beginning of period	$	72	$	3	$	66	$	2,957	$	3,108	$	6,207

Total gains/(losses) realized and unrealized:
Included in earnings	1		(1)		23		158		20		201
Included in other comprehensive income	(6)		—		—		(192)		(201)		(398)
Purchases	—		—		—		—		—		—
Issuances	—		—		—		—		—		—
Sales	—		—		—		—		—		—
Settlements	(1)		—		(3)		(17)		(141)		(162)



Balance, end of period	$	66	$	2	$	86	$	2,907	$	2,787	$	5,848
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)	$	23	$	158	$	20	$	201
The amount of total gains/(losses) included in other comprehensive income attributable to the change in unrealized gains or losses relating to assets and liabilities still held at the reporting date	$	(6)	$	—	$	—	$	(192)	$	(201)	(398)

The table below provides roll-forward information by class of derivatives measured using significant unobservable inputs.


Level 3 - Derivatives by Class
	Three Months Ended June 30, 2021						Three Months Ended June 30, 2020
	Interest Rate Swaps		Credit Derivatives		Total Derivatives		Interest Rate Swaps		Credit Derivatives		Total Derivatives
Balance, beginning of period	$	66	$	—	$	65	$	79	$	(2)	$	77

Total gains/(losses) realized and unrealized:
Included in earnings	11		—		11		10		1		11
Included in other comprehensive income	—		—		—		—		—		—
Purchases	—		—		—		—		—		—
Issuances	—		—		—		—		—		—
Sales	—		—		—		—		—		—
Settlements	(2)		—		(2)		(2)		—		(2)



Balance, end of period	$	75	$	—	$	74	$	87	$	(1)	$	86
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	$	—	$	11	$	10	$	1	$	10
The amount of total gains/(losses) included in other comprehensive income 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
	Six Months Ended June 30, 2021						Six Months Ended June 30, 2020
	Interest Rate Swaps		Credit Derivatives		Total Derivatives		Interest Rate Swaps		Credit Derivatives		Total Derivatives
Balance, beginning of period	$	85	$	—	$	84	$	67	$	—	$	66

Total gains/(losses) realized and unrealized:
Included in earnings	(6)		—		(6)		23		(1)		23
Included in other comprehensive income	—		—		—		—		—		—
Purchases	—		—		—		—		—		—
Issuances	—		—		—		—		—		—
Sales	—		—		—		—		—		—
Settlements	(4)		—		(4)		(3)		—		(3)



Balance, end of period	$	75	$	—	$	74	$	87	$	(1)	$	86
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	$	(6)	$	—	$	(6)	$	23	$	(1)	$	23
The amount of total gains/(losses) included in other comprehensive income attributable to the change in unrealized gains or losses relating to assets and liabilities still held at the reporting date	$	—	$	—	$	—	$	—	$	—	$	—

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 (Expense)
Three Months Ended June 30, 2021:
Total gains (losses) included in earnings for the period	$	—	$	11	$	152	$	—
Changes in unrealized gains (losses) relating to financial instruments still held at the reporting date	—		11		152		—

Three Months Ended June 30, 2020:
Total gains (losses) included in earnings for the period	$	—	$	11	$	61	$	—
Changes in unrealized gains (losses) relating to financial instruments still held at the reporting date	—		10		61		—

Six Months Ended June 30, 2021:
Total gains or losses included in earnings for the period	$	1	$	(6)	$	24	$	—
Changes in unrealized gains or losses included in earnings relating to the assets and liabilities still held at the reporting date	—		(6)		24		—

Six Months Ended June 30, 2020:
Total gains or losses included in earnings for the period	1		23		179		(1)
Changes in unrealized gains or losses included in earnings relating to the assets and liabilities still held at the reporting date	—		22		179		(1)