Financial Guarantee Insurance Contracts

12 Months Ended

Dec. 31, 2022

Reinsurance Recoverables, Including Credit Impairments:

The Company uses ceded reinsurance to transfer certain insurance risk, along with premiums written and earned, to other insurance carriers that agree to share in such risks. The primary purpose of the reinsurance is to (i) protect the Company, at a cost, from losses in excess of amounts it is willing to accept, (ii) protect the Company's capital, and (iii) within the Specialty Property and Casualty Insurance operations, to manage the Company's net retention on individual risks and overall exposure to losses while providing the Company the ability to offer policies with sufficient limits to meet policyholder needs.

•Within its Specialty Property and Casualty Insurance segment, the Company generally enters into quota share reinsurance agreements whereby the Company cedes to the capacity providers (reinsurers) a substantial amount (generally 70% or more) of its gross liability under all policies issued by and on behalf of the Company by the MGA/U.

Ambac is exposed to the credit risk of the reinsurer, or the risk that one of its reinsurers becomes insolvent or otherwise unable or unwilling to pay policyholder claims. This credit risk is generally mitigated by either selecting well capitalized, highly rated authorized capacity providers or requiring that the capacity provider post collateral to secure the reinsured risks, which in some instances, exceeds the related reinsurance recoverable.

Amounts recoverable from reinsurers are estimated in a manner consistent with the associated loss and loss adjustment expense reserves. The Company reports its reinsurance recoverables net of an allowance for amounts that are estimated to be uncollectible.

Ambac’s reinsurance assets, including deferred ceded premiums and reinsurance recoverables on losses amounted to $239 at December 31, 2022. Credit exposure existed at December 31, 2022, with respect to reinsurance recoverables to the extent that any reinsurer may not be able to reimburse Ambac under the terms of these reinsurance arrangements. At December 31, 2022, there were ceded reinsurance balances payable of $39 offsetting this credit exposure. Contractually ceded reinsurance payables can only be offset against amounts owed from the same reinsurer in the event that such reinsurer is unable to meet its obligations to reimburse Ambac.

To minimize its credit exposure to losses from reinsurer insolvencies, Ambac (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 in the event of rating agency downgrades of a reinsurer (among other events and circumstances). Ambac held letters of credit and collateral amounting to $116 from its reinsurers at December 31, 2022. For those reinsurance counterparties that do not currently post collateral, Ambac's reinsurers are well capitalized, highly rated, authorized capacity providers. Additionally, while legacy liabilities from the PWIC acquisition and the three admitted carriers acquired by Everspan on January 3, 2022(the "21st Century Companies") were fully ceded to certain reinsurers, Everspan also benefits from an unlimited, uncapped indemnity from Enstar Holdings (US) and 21st Century Premier Insurance Company, respectively, to mitigate any residual risk to these reinsurers.

The allowance for credit losses is based upon Ambac's ongoing review of amounts outstanding and the key indicators management uses to assess the credit quality of reinsurance recoverables are collateral posted by the reinsurers and independent rating agency credit ratings. The evaluation begins with a comparison of the fair value of collateral posted by the reinsurer to the recoverable, net of ceded premiums payable. Any shortfall of collateral posted is evaluated against the credit rating of the reinsurer to determine whether an allowance is considered necessary.

For 2022, our top three reinsurers represented 84.2% of our total ceded reinsurance recoverables, and reinsurance recoverables were primarily from reinsurers with applicable ratings of A or better. The following table sets forth our three most significant reinsurers by amount of reinsurance recoverable as of December 31, 2022.


Reinsurers	Type of Insurance	Rating (1)	Reinsurance Recoverable (2)		Unsecured Recoverable (3)
QBE Insurance Corporation	Specialty P&C	A	$	41	$	41
Assured Guaranty Re Ltd.	Financial Guarantee	AA	30		—
General Reinsurance Company	Specialty P&C	A++	25		11
All other reinsurers			18		7
Total recoverables			$	115	$	60

(1)Represents financial strength ratings from S&P for financial guarantee reinsurers and AM Best for specialty P&C reinsurers.

(2)Represents reinsurance recoverables on paid and unpaid losses. Unsecured amounts from QBE Insurance Corporation is also supported by an unlimited, uncapped indemnity from Enstar Holdings (US).

(3)Reinsurance recoverables reduced by ceded premiums payables due to reinsurers, letters of credit, and collateral posted for the benefit of Ambac.

The allowance for credit losses is based upon Ambac's ongoing review of amounts outstanding. Key indicators management uses to assess the credit quality of reinsurance recoverables are financial performance of the reinsurers, collateral posted by the reinsurers and independent rating agency credit ratings. The evaluation begins with a comparison of the fair value of collateral posted by the reinsurer to the recoverable, net of ceded premiums payable. Any shortfall of collateral posted is evaluated against our assessment of the reinsurer's financial strength, including its credit rating to determine whether an allowance is considered necessary.

Ambac has uncollateralized credit exposure of $60 and $32 and has recorded an allowance for credit losses of less than a million at December 31, 2022 and December 31, 2021, respectively. The uncollateralized credit exposure includes legacy liabilities obtained from the acquisitions of PWIC and the 21st Century Companies of $45 and $30 at December 31, 2022 and December 31, 2021, respectively. Legacy liabilities are also supported by an unlimited, uncapped indemnity from Enstar Holdings (US) and 21st Century Premier Insurance Company, respectively.

Puerto Rico Disclosure

8. INSURANCE CONTRACTS

Amounts presented in this Note relate only to Ambac’s non-derivative insurance business for insurance policies issued to beneficiaries, excluding consolidated VIEs.

Premiums

The effect of reinsurance on premiums written and earned was as follows:


Year Ended December 31,	Direct		Assumed		Ceded		Net Premiums
2022:
Written	$	127	$	—	$	104	$	23
Earned	126		—		69		56
2021:
Written	$	2	$	—	$	35	$	(33)
Earned	62		—		15		47
2020:
Written	$	(1)	$	—	$	(1)	$	—
Earned	65		1		12		54

Included in net earned premiums are accelerated financial guarantee premium revenues for retired obligations for the years ended December 31, 2022, 2021 and 2020, of $8, $1 and $12, respectively.

The following table summarizes net premiums earned by location of risk:


Year Ended December 31,	2022	2021		2020
United States	41	$	27	$	32
United Kingdom	13	14		24
Other international	3	6		(2)
Total	56	$	47	$	54

Premium Receivables, including credit impairments

Premium receivables at December 31, 2022 and 2021 were $269 and $323, respectively.

Management evaluates premium receivables for expected credit losses ("credit impairment") in accordance with the CECL standard adopted January 1, 2020, which is further described in Note 2. Basis of Presentation and Significant Accounting Policies. The key indicator management uses to assess the credit quality of legacy financial guarantee premium receivables is Ambac's internal risk classifications for the insured obligation determined by the Risk Management Group.

Below is the amortized cost basis of financial guarantee premium receivables by risk classification code and asset class as of December 31, 2022 and 2021:


Surveillance Categories as of December 31, 2022
Type of Guaranteed Bond	I		IA		II		III		IV		Total
Public Finance:
Housing revenue	$	140	$	3	$	5	$	—	$	—	$	148
Other	2		—		—		—		—		2
Total Public Finance	142		3		5		—		—		150

Structured Finance:
Mortgage-backed and home equity	—		—		—		—		11		11
Student loan	1		1		—		7		—		8
Structured insurance	—		—		—		—		—		—
Other	4		—		—		—		—		4
Total Structured Finance	5		1		—		7		11		24

International:
Sovereign/sub-sovereign	49		7		—		9		—		64
Investor-owned and public utilities	18		—		—		—		—		18
Other	2		—		—		—		—		2
Total International	70		7		—		9		—		85
Total (1) (2)	$	217	$	10	$	5	$	16	$	11	$	259

Surveillance Categories as of December 31, 2021
Type of Guaranteed Bond	I		IA		II		III		IV		Total
Public Finance:
Housing revenue	$	149	$	3	$	5	$	—	$	—	$	157
Other	2		—		—		—		—		2
Total Public Finance	151		3		5		—		—		159

Structured Finance:
Mortgage-backed and home equity	1		—		1		2		12		16
Student loan	1		1		—		9		—		12
Structured insurance	10		—		—		—		—		10
Other	7		—		—		—		—		7
Total Structured Finance	19		1		1		12		12		45

International:
Sovereign/sub-sovereign	74		8		—		11		—		93
Investor-owned and public utilities	28		—		—		—		—		28
Other	5		—		—		—		—		5
Total International	107		8		—		11		—		125
Total (2)	$	277	$	12	$	6	$	22	$	12	$	329

(1) Excludes specialty property and casualty premium receivables of $16 and $2 at December 31, 2022 and 2021, respectively.

(2) The underwriting origination dates for all policies included are greater than five years prior to the current reporting date.

Below is a rollforward of the premium receivable allowance for credit losses as of December 31, 2022 and 2021:


Year Ended December 31,	2022		2021
Beginning balance	$	9	$	17
Current period provision (benefit)	(4)		(6)
Write-offs of the allowance	—		(2)
Recoveries of previously written-off amounts	—		—
Ending balance	$	5	$	9

At December 31, 2022 and 2021, $— and $— of premiums were past due.

Legacy Financial Guarantee Premium Receivables

Gross premiums are received either upfront or in installments. For premiums received upfront, an unearned premium revenue (“UPR”) liability is established, which is initially recorded as the cash amount received. For installment premium policies, a premium receivable asset and offsetting UPR liability is initially established in an amount equal to: (i) the present value of future contractual premiums due (the “contractual” method) or (ii) if the assets underlying the insured obligation are homogenous pools which are contractually prepayable, the present value of premiums to be collected over the expected life of the transaction (the “expected” method).

Below is the gross premium receivable roll-forward (direct contracts), net of the allowance for credit losses, for the affected periods:


Year Ended December 31,	2022		2021		2020
Beginning premium receivable	$	320	$	370	$	416
Adjustment to initially apply ASU 2016-13	—		—		(3)
Premium receipts	(36)		(35)		(46)
Adjustments for changes in expected and contractual cash flows for contracts (1)	(31)		(27)		(6)
Accretion of premium receivable discount for contracts	8		8		9

Changes to allowance for credit losses	4		8		(4)
Other adjustments (including foreign exchange) (2)	(12)		(4)		5
Ending premium receivable (3)	$	254	$	320	$	370

(1)Adjustments for changes in expected and contractual cash flows are primarily due to higher discount rates and reductions in insured exposure as a result of early policy terminations and unscheduled principal paydowns .

(2)Includes foreign exchange gains/(losses) of ($13), ($2) and $4 for 2022, 2021,and 2020 respectively.

(3)Premium receivable includes premiums to be received in foreign denominated currencies most notably in British Pounds and Euros.

At December 31, 2022, 2021 and 2020 premium receivables include British Pounds of $71 (£59), $108 (£80) and $117 (£86), respectively, and Euros of $14 (€13), $16 (€14) and $19 (€16), respectively.

The following table summarizes the future gross undiscounted premiums to be collected and future premiums earned, net of reinsurance at December 31, 2022:


	Future Premiums to be Collected (1)		Future Premiums to be Earned Net of Reinsurance (2)
Three months ended:
March 31, 2023	$	8	$	5
June 30, 2023	7		5
September 30, 2023	7		5
December 31, 2023	5		5
Twelve months ended:
December 31, 2024	26		19
December 31, 2025	25		18
December 31, 2026	24		18
December 31, 2027	23		17
Five years ended:
December 31, 2032	95		70
December 31, 2037	59		42
December 31, 2042	27		17
December 31, 2047	13		8
December 31, 2052	4		2
December 31, 2057	—		—

Total	$	322	$	231

(1)Future premiums to be collected are undiscounted, gross of allowance for credit losses, and are used to derive the discounted premium receivable asset recorded on Ambac's balance sheet.

(2)Future premiums to be earned, net of reinsurance relate to the unearned premiums 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 further described in Note 2. Basis of Presentation and Significant Accounting Policies. This 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 may result 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 Adjustment Expense Reserves

Ambac's loss and loss adjustment expense reserves ("loss reserves") are based on management's on-going review of the insured portfolio. Below are the components of the loss and loss adjustment expense reserves and the subrogation recoverable asset at December 31, 2022 and 2021:


			Legacy Financial Guarantee
	Specialty Property and Casualty		Present Value of Expected Net Cash Flow
Balance Sheet Line Item	Gross Loss and Loss Expense Reserves		Claims and Loss Expenses		Recoveries		Unearned Premium Revenue		Gross Loss and Loss Expense Reserves
December 31, 2022:
Loss and loss adjustment expense reserves	$	90	$	787	$	(44)	$	(28)	$	805
Subrogation recoverable	—		5		(276)		—		(271)
Totals	$	90	$	791	$	(319)	$	(28)	$	534

December 31, 2021:
Loss and loss adjustment expense reserves	$	32	$	1,749	$	(155)	$	(56)	$	1,570
Subrogation recoverable	—		88		(2,180)		—		(2,092)
Totals	$	32	$	1,837	$	(2,335)	$	(56)	$	(522)

Below is the loss and loss reserve expense roll-forward, net of subrogation recoverable and reinsurance, for the affected periods.


Year Ended December 31,	2022		2021		2020
Beginning gross loss and loss adjustment expense reserves	$	(522)	$	(397)	$	(482)
Reinsurance recoverable	55		33		26
Beginning balance of net loss and loss adjustment expense reserves	(578)		(430)		(508)
Losses and loss expenses (benefit) incurred:
Current year	4		—		15
Prior years	(401)		(89)		210
Total (1)(2)	(397)		(88)		225
Loss and loss adjustment expenses (recovered) paid:
Current year	7		—		1
Prior years	(1,867)		59		148
Total	(1,860)		59		149
Foreign exchange effect	(2)		—		2
Ending net loss and loss adjustment expense reserves	883		(578)		(430)
Impact of VIE consolidation (3)	(464)		—		—
Reinsurance recoverable (4)	115		55		33
Ending gross loss and loss adjustment expense reserves	534		(522)		(397)

(1)Total losses and loss expenses (benefit) includes $(41), $5 and $(7) for the years ended December 31, 2022, 2021 and 2020, 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 ("R&W's") by transaction sponsors within losses and loss expenses (benefit) for the Legacy Financial Guarantee segment. The losses and loss expense (benefit) incurred associated with changes in estimated R&W's for the year ended December 31, 2022, 2021 and 2020 was $(123), $20 and $(23),

respectively. Refer to Note 1. Background and Business Description to the Consolidated Financial Statements in this Annual Report on Form 10-K for details of the RMBS litigation settlements reached in October and December 2022.

(3)In connection with the Puerto Rico restructuring, three new trusts were established for the year ended December 31, 2022. These trusts were consolidated by Ambac as further discussed in Note 12. Variable Interest Entities.

(4)Represents reinsurance recoverable on future loss and loss adjustment expenses. Additionally, the Balance Sheet line "Reinsurance recoverable on paid and unpaid losses" includes reinsurance recoverables (payables) of $0, $0 and $0 as of December 31, 2022, 2021 and 2020, respectively, related to previously presented loss and loss adjustment expenses and subrogation.

For 2022, the positive development in prior years was primarily attributable to the Puerto Rico restructuring and favorable RMBS development due to the positive impact of discount rates and the impact of the litigation settlements with Bank of America Corporation and certain affiliates thereof and Nomura Credit & Capital, Inc. as described in Note 1. Background and Business Description to the Consolidated Financial Statements in this Annual Report on Form 10-K; both in the legacy financial guarantee segment. For 2022, prior years' loss and loss expenses recovered includes $1,687 related the litigation settlement with Bank of America Corporation and certain affiliates.

For 2021, the positive development in prior years was primarily due to favorable development in Public Finance credits (largely Puerto Rico) and the RMBS portfolio.

For 2020, the adverse development in prior years was primarily a result of deterioration in Public Finance credits, largely Puerto Rico, partially offset by favorable development in the RMBS portfolio.

Legacy Financial Guarantee Loss Reserves:

The tables below summarize information related to policies currently included in Ambac’s loss and loss adjustment expense reserves or subrogation recoverable at December 31, 2022 and 2021, excluding consolidated VIEs. Gross par exposures include capital appreciation bonds which are reported at the par amount at the time of issuance of the insurance policy as opposed to the current accreted value of the bond. The weighted average risk-free rate used to discount loss reserves at December 31, 2022 and 2021 was 3.9% and 1.2%, respectively.


	Surveillance Categories as of December 31, 2022
	I		IA		II		III		IV		V		Total
Number of policies	37		6		9		12		93		5		162
Remaining weighted-average contract period (in years) (1)	7		19		14		14		12		7		13
Gross insured contractual payments outstanding:
Principal	$	709	$	200	$	459	$	1,000	$	1,646	$	34	$	4,047
Interest	526		198		286		156		565		19		1,750
Total	$	1,235	$	399	$	745	$	1,156	$	2,210	$	53	$	5,797
Gross undiscounted claim liability	$	4	$	4	$	43	$	446	$	729	$	53	$	1,279
Discount, gross claim liability	(1)		(1)		(7)		(162)		(316)		(9)		(496)
Gross claim liability before all subrogation and before reinsurance	$	3	$	3	$	36	$	284	$	413	$	43	$	783
Less:
Gross RMBS subrogation (2)	$	—	$	—	$	—	$	—	$	(140)	$	—	$	(140)
Discount, RMBS subrogation	—		—		—		—		—		—		—
Discounted RMBS subrogation, before reinsurance	—		—		—		—		(140)		—		(140)
Less:
Gross other subrogation (3)	(14)		(4)		—		(31)		(172)		(12)		(233)
Discount, other subrogation	2		—		—		5		42		4		54
Discounted other subrogation, before reinsurance	(12)		(3)		—		(26)		(130)		(8)		(179)
Gross claim liability, net of all subrogation and discounts, before reinsurance	$	(9)	$	—	$	36	$	258	$	143	$	35	$	464
Less: Unearned premium revenue	$	(2)	$	(2)	$	(5)	$	(8)	$	(10)	$	(1)	$	(28)
Plus: Loss expense reserves	1		1		—		2		4		—		8
Gross loss and loss adjustment expense reserves	$	(10)	$	(2)	$	32	$	252	$	137	$	34	$	444
Reinsurance recoverable reported on Balance Sheet (4)	$	1	$	—	$	8	$	21	$	3	$	—	$	33

(1)Remaining weighted-average contract period is weighted based on projected gross claims over the lives of the respective policies.

(2)RMBS subrogation represents Ambac’s estimate of subrogation recoveries from RMBS transaction sponsors for R&W breaches.

(3)Other subrogation represents subrogation related to excess spread and other contractual cash flows on public finance and structured finance transactions, including RMBS.

(4)Reinsurance recoverable reported on the Balance Sheet includes reinsurance recoverables of $33 related to future loss and loss adjustment expenses and $0 related to presented loss and loss adjustment expenses and subrogation.


	Surveillance Categories as of December 31, 2021
	I		IA		II		III		IV		V		Total
Number of policies	34		15		7		14		130		5		205
Remaining weighted-average contract period (in years) (1)	9		12		14		15		13		7		14
Gross insured contractual payments outstanding:
Principal	$	904	$	840	$	459	$	1,300	$	2,759	$	40	$	6,302
Interest	589		612		308		169		1,284		22		2,984
Total	$	1,493	$	1,452	$	767	$	1,469	$	4,043	$	62	$	9,286
Gross undiscounted claim liability	$	5	$	16	$	45	$	544	$	1,423	$	62	$	2,095
Discount, gross claim liability	—		(1)		(3)		(109)		(185)		(4)		(303)
Gross claim liability before all subrogation and before reinsurance	$	5	$	15	$	42	$	435	$	1,238	$	57	$	1,792
Less:
Gross RMBS subrogation (2)	$	—	$	—	$	—	$	—	$	(1,737)	$	—	$	(1,737)
Discount, RMBS subrogation	—		—		—		—		7		—		7
Discounted RMBS subrogation, before reinsurance	—		—		—		—		(1,730)		—		(1,730)
Less:
Gross other subrogation (3)	—		(5)		—		(33)		(583)		(12)		(633)
Discount, other subrogation	—		—		—		2		24		2		28
Discounted other subrogation, before reinsurance	—		(5)		—		(31)		(559)		(10)		(605)
Gross claim liability, net of all subrogation and discounts, before reinsurance	$	5	$	10	$	42	$	404	$	(1,051)	$	47	$	(543)
Less: Unearned premium revenue	$	(3)	$	(10)	$	(5)	$	(14)	$	(24)	$	(1)	$	(56)
Plus: Loss expense reserves	1		—		—		4		40		—		45
Gross loss and loss adjustment expense reserves	$	3	$	1	$	38	$	394	$	(1,036)	$	46	$	(554)
Reinsurance recoverable reported on Balance Sheet (4)	$	1	$	1	$	10	$	22	$	(11)	$	—	$	23

(1)Remaining weighted-average contract period is weighted based on projected gross claims over the lives of the respective policies.

(2)RMBS subrogation represents Ambac's estimate of subrogation recoveries from RMBS transaction sponsors for R&W breaches.

(3)Other subrogation represents subrogation related to excess spread and other contractual cash flows on public finance and structured finance transactions, including RMBS.

(4) Reinsurance recoverable reported on the Balance Sheet includes reinsurance recoverables of $24 related to future loss and loss adjustment expenses and $0 related to presented loss and loss adjustment expenses and subrogation.

Puerto Rico

Ambac has remaining exposure to the Commonwealth of Puerto Rico (the "Commonwealth") and its instrumentalities on two different issuing entities with total net par exposure of $244. Components of the remaining Puerto Rico net par outstanding include capital appreciation bonds which are reported at the par amount at the time of issuance of the related insurance policy as opposed to the current accreted value of the bonds.

We have been paying claims for several years on most of our exposure to Puerto Rico, which had consisted of several different issuing entities. These issuing entities had been part of the PROMESA restructuring process that began in 2016. On December 6, 2022, the Fifth Amended Title III Plan of Adjustment of The Puerto Rico Highways and Transportation Authority ("PRHTA POA") became effective and concluded the debt restructuring of all AAC-insured Puerto Rico obligations under PROMESA. The consummation of the PRHTA POA followed previous plans of adjustment and qualifying modifications related to AAC's insured Puerto Rico exposure, including the Eighth Amended Plan Title III Joint Plan of Adjustment for the Commonwealth of Puerto Rico, et al.

("Eighth Amended POA") together with the Qualifying Modifications for PRIFA and CCDA ("PRIFA QM" and "CCDA QM"), respectively, in March 2022, which resolved the PROMESA restructuring process for the GO, PBA, PRIFA and CCDA issuing entities that had portions of their bonds insured by AAC; and COFINA Plan of Adjustment in February 2019, which resolved the restructuring process for the COFINA issuing entity that had portions of their bonds insured by AAC.

PRHTA / CCDA PSA

Creditor recoveries under the PRHTA POA were based upon the PRHTA/CCDA PSA, which was originally executed on May 5, 2021, and provides for certain consideration for holders of bonds issued by certain Commonwealth instrumentalities, PRHTA, and CCDA on account of their claims against the Commonwealth arising from such bonds ("Clawback" claims). Under the PRHTA/CCDA PSA, PRHTA creditors shared $389 of cash proceeds that was paid on July 8, 2022, once the PRHTA distribution condition was met pursuant to the Eighth Amended POA (the “Interim Distribution”). In addition, PRHTA creditors received an approximately 69% share, subject to a lifetime nominal cap of $3,698, of the Clawback Creditors' portion of the

outperformance of the Commonwealth's sales and use tax ("SUT") relative to the certified 2020 Commonwealth Fiscal Plan's projections (the "Clawback CVI"). The Clawback CVI instrument was also distributed as part of the Interim Distribution on July 8, 2022. PRHTA bondholder also received new PRHTA bonds with a face amount of $1,245. Of the $1,245 in new bonds, approximately $646.4 was allocated to holders of PRHTA '68 bonds and approximately $598.6 was allocated to holders of PRHTA '98 bonds. The new PRHTA bonds were distributed to creditors on December 6, 2022, upon the effective date of the PRHTA POA. AAC and other PRHTA creditors also received restriction fees and consummation costs on the effective date of the PRHTA POA.

PRHTA Interim Distribution

On July 8, 2022, following satisfaction of the PRHTA distribution condition, AAC received its share of the Interim Distribution of cash and Clawback CVI related to the Ambac-insured PRHTA ’68 and ’98 bonds in satisfaction of the Clawback claims against the Commonwealth under the Eighth Amended POA. On the PRHTA POA effective date, a portion of the cash and Clawback CVI, or the proceeds thereof, were: (i) distributed to PRHTA ’98 commuting bondholders together with the new PRHTA bonds in connection with the PRHTA POA and a commutation payment from AAC in full satisfaction of in full and final discharge of Ambac’s obligations under the Ambac insurance policies or (ii) deposited into a trust, as described below, together with the new PRHTA bonds in connection with the PRHTA POA.

PRHTA Effective Date Transactions

On December 6, 2022, 1) all remaining outstanding AAC-insured PRHTA '68 bonds or about $4 of net par exposure were fully satisfied and eliminated via acceleration, and 2), pursuant to bondholder election, about 21% or $83 of net par exposure of AAC-insured PRHTA '98 bonds were fully satisfied and eliminated via commutation. The AAC-insured PRHTA '98 bondholders who failed to elect commutation had their bondholders’ share of plan consideration under the PRHTA POA and the interim distribution under the Eighth Amended POA deposited into a newly formed trust. These trusts with initial net par exposure of about $312 were consolidated by Ambac as further discussed in Note 12. Variable Interest Entities. Following the effective date, trust units were redeemed, reducing the PRHTA '98 net par exposure to about $178 at December 31, 2022. Since year-end, AAC-insured PRHTA exposure has been further reduced through redemptions of trusts units.

Eighth Amended POA Effective Date Transactions

On March 15, 2022, and pursuant to bondholder elections: (i) all of the remaining outstanding AAC-insured GO and PBA bonds or about $94 in insured par were satisfied and eliminated via commutation or acceleration and (ii) about 39% and 19% of the par of AAC's outstanding AAC-insured PRIFA and CCDA bonds, respectively, or about $172, were eliminated via commutation. The AAC-insured PRIFA and CCDA bondholders who failed to elect commutation had their respective shares of consideration available under the Commonwealth Plan and the PRIFA QM, or CCDA QM, as applicable, deposited into newly

formed trusts. These trusts were consolidated by Ambac as further discussed in Note 12. Variable Interest Entities. Since the effective date, the remainder of those PRIFA and CCDA bonds belonging to bondholders who elected not to commute their AAC insurance policies and that were deposited into trusts together with the related AAC policies have all been accelerated, satisfying and eliminating all of the Ambac-insured PRIFA and CCDA bonds.

Representation and Warranty Recoverable

Ambac records estimated RMBS R&W subrogation recoverables for breaches of R&W by sponsors of certain RMBS transactions. For a discussion of the approach utilized to estimate RMBS R&W subrogation recoverables, see Note 2. Basis of Presentation and Significant Accounting Policies.

Ambac has recorded RMBS R&W subrogation recoverables of $140, ($140 net of reinsurance) and $1,730, ($1,704 net of reinsurance) at December 31, 2022 and 2021, respectively. On December 29, 2022, AAC entered into a Settlement Agreement and Release with Nomura Credit & Capital, Inc. whereby the parties settled all RMBS litigation brought by AAC against Nomura and AAC received $140 on January 3, 2023 bringing to a close all of AAC's legacy litigation against RMBS sponsor.

Reinsurance Recoverables, Including Credit Impairments:


Reinsurers	Type of Insurance	Rating (1)	Reinsurance Recoverable (2)		Unsecured Recoverable (3)
QBE Insurance Corporation	Specialty P&C	A	$	41	$	41
Assured Guaranty Re Ltd.	Financial Guarantee	AA	30		—
General Reinsurance Company	Specialty P&C	A++	25		11
All other reinsurers			18		7
Total recoverables			$	115	$	60

(1)Represents financial strength ratings from S&P for financial guarantee reinsurers and AM Best for specialty P&C reinsurers.

(2)Represents reinsurance recoverables on paid and unpaid losses. Unsecured amounts from QBE Insurance Corporation is also supported by an unlimited, uncapped indemnity from Enstar Holdings (US).

(3)Reinsurance recoverables reduced by ceded premiums payables due to reinsurers, letters of credit, and collateral posted for the benefit of Ambac.