FORM 10-K
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ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
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¨
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
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Ambac Financial Group, Inc.
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(Exact name of Registrant as specified in its charter)
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Delaware
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13-3621676
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(State of incorporation)
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(I.R.S. employer identification no.)
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One State Street Plaza, New York, New York
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10004
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(Address of principal executive offices)
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(Zip code)
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212-658-7470
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(Registrant’s telephone number, including area code)
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Large accelerated filer
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x
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Accelerated filer
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Non-accelerated filer
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¨
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Smaller reporting company
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¨
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Emerging growth company
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¨
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Item 1A
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•
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Active runoff of Ambac Assurance and its subsidiaries through transaction terminations, policy commutations, settlements and restructurings, with a focus on our watch list credits and known and potential future adversely classified credits, that we believe will improve our risk profile, and maximizing the risk-adjusted return on invested assets;
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•
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Ongoing rationalization of Ambac's and its subsidiaries' capital and liability structures;
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•
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Loss recovery through active litigation management and exercise of contractual and legal rights;
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•
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Ongoing review of organizational effectiveness and efficiency of the operating platform; and
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•
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Evaluation of opportunities in certain business sectors that meet acceptable criteria that will generate long-term stockholder value with attractive risk-adjusted returns.
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•
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The
Audit Committee
oversees the management of risks associated with the integrity of Ambac’s financial statements and its compliance with legal and regulatory requirements. In addition, the Audit Committee discusses policies with respect to risk assessment and risk management, including major financial risk exposures and the steps management has taken to monitor and control such exposures. The Audit Committee reviews with management, internal auditors, and external auditors Ambac's accounting policies, Ambac's system of internal controls over financial reporting and the quality and appropriateness of disclosure and content in the financial statements and other external financial communications.
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•
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The
Compensation Committee
oversees the management of risk primarily associated with our ability to attract, motivate and retain quality talent, particularly executive talent, compensation structures that might lead to undue risk taking, and disclosure of our executive compensation philosophies, strategies and activities.
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•
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The
Governance and Nominating Committee
oversees the management of risk primarily associated with Ambac’s ability to attract and retain quality directors, Ambac’s corporate governance programs and practices and our compliance therewith. Additionally, the Governance and Nominating Committee oversees the processes for evaluation of the performance of the Board, its committees and management each year and considers risk management effectiveness as part of its evaluation. The Governance and Nominating Committee also performs oversight of the business ethics and compliance program, and reviews compliance with Ambac’s Code of Business Conduct.
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•
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The
Strategy and Risk Policy Committee
oversees the management of risk and risk appetite primarily with respect to strategic plans and initiatives, oversight of Ambac’s capital
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•
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The Asset Liability Management Committee's (“ALCO”) objective is to foster an enterprise wide culture and approach to liquidity management, asset management, asset valuation and hedging. Members of ALCO include the Chief Executive Officer, Chief Financial Officer and senior managers from investment management and the Risk Management Group.
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•
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The Risk Committee's objective is establish an interdisciplinary team of professionals from different parts of the company to provide oversight of the key risk remediation issues impacting Ambac. The purview of the committee is to review and approve risk remediation activities for the financial guarantee insured portfolio as well as review changes to Ambac's adversely classified, survey and watch list credits (as defined in
Note 2. Basis of Presentation and Significant Accounting Policies
). This committee was established in the fourth quarter of 2017. Previously, most risk remediation activities were approved by ALCO. Members of the Risk Committee include the Chief Executive Officer, Head of Risk Management, Chief Financial Officer and senior managers from throughout risk, corporate services group, operations, investment management, legal and finance.
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2017
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2016
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Investment Category
($ in millions)
December 31,
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Carrying
Value
(2)
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Weighted
Average
Yield
(1)
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Carrying
Value
(2)
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Weighted
Average
Yield
(1)
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Municipal obligations
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$
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780
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5.5
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%
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$
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374
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3.9
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%
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Corporate securities
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860
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3.2
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%
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1,802
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2.8
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%
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Foreign obligations
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27
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1.0
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%
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43
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1.2
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%
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U.S. government obligations
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85
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1.6
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%
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101
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1.2
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%
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U.S. agency obligations
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—
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—
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%
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4
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0.6
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%
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Residential mortgage-backed securities
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2,251
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14.1
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%
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2,352
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9.1
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%
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Asset-backed securities
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649
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7.3
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%
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943
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4.5
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%
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Total long-term investments
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4,652
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9.3
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%
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5,619
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5.7
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%
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Short-term investments
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657
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1.3
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%
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431
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0.6
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%
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Other investments
(3)
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432
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—
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%
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450
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—
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%
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Total
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$
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5,741
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8.3
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%
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$
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6,500
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5.4
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%
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(1)
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Yields are stated on a pre-tax basis, based on average amortized cost for both long and short term investments.
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(2)
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Includes investments guaranteed by Ambac Assurance and Ambac UK. Refer to
Note 10. Investments
of the Consolidated Financial Statements included in Part II, Item 8 in this Form 10-K for further discussion of Ambac insured securities held in the investment portfolio.
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(3)
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Other investments include equity interests in pooled investment funds which are classified as trading securities and Ambac's interests in an unconsolidated trust created in connection with its sale of Segregated Account junior surplus notes on August 28, 2014.
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Risks Related to Ambac Common Shares
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Risks Related to Insured Portfolio Losses
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Risks Related to Indebtedness
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Risks Related to Capital, Liquidity and Markets
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Risks Related to the Company's Business
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Risks Related to International Business
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Risks Related to Taxation
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Changes in Political or Economic Conditions
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Risks Related to Strategic Plan
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•
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adverse developments in our financial condition or results of operations;
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•
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changes in the actual or perceived risk within our insured portfolio, particularly with regards to concentrations of credit risk, such as to Puerto Rico;
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changes to regulatory status;
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changes in investors’ or analysts’ valuation measures for our stock;
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market trends unrelated to our stock;
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market and industry perception of our success, or lack thereof, in pursuing our business strategy; and
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results and actions of other participants in our industry.
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Ambac Assurance was insolvent or rendered insolvent by reason of the issuance of the Ambac Note;
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the issuance of the Ambac Note left Ambac Assurance with an unreasonably small amount of capital or assets to carry on its business; or
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Ambac Assurance intended to, or believed that it would, incur debts beyond its ability to pay as they mature.
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the sum of its debts, including contingent and unliquidated liabilities, was greater than the fair saleable value of all of its assets;
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the present fair saleable value of its assets was less than the amount that would be required to pay its probable liability on its existing debts, including contingent liabilities, as they become absolute and mature; or
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it could not pay its debts as they became due.
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increase our vulnerability to general adverse economic, competitive and industry conditions;
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limit our ability to obtain additional financing in the future for working capital, capital expenditures, payment of policyholder claims, debt service requirements, acquisitions, general corporate purposes or other purposes on satisfactory terms or at all;
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require us to dedicate a substantial portion of our cash flow from operations to the payment of our indebtedness, thereby reducing the funds available to us for operations and to fund the execution of our key strategies;
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limit or restrict us from making strategic acquisitions or cause us to make non-strategic divestitures;
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limit our ability or increase the costs to refinance indebtedness or repay such indebtedness due to ongoing interest accretion;
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limit our ability to attract and retain key employees; and
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limit our ability to enter into hedging transactions by reducing the number of counterparties with whom we can enter into such transactions, as well as the volume of those transactions.
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Internal Fraud-misappropriation of assets, intentional mismarking of positions
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External Fraud-theft of information, third-party theft and forgery
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Clients, Products, & Business Practice-improper trade, fiduciary breaches
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Damage to Physical Assets
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•
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Business Disruption & System Failures-software failures, hardware failures; and
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Execution, Delivery, & Process Management-data entry errors, accounting errors, failed mandatory reporting, settlement errors, and negligence.
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2017
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2016
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High
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Low
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High
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Low
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Fourth quarter
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$
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17.79
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$
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13.17
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$
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27.25
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$
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17.75
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Third quarter
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22.02
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16.75
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19.35
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15.42
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Second quarter
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20.28
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15.67
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17.77
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14.42
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First quarter
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23.55
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17.39
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17.32
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11.92
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December 31,
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||||||||
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5/1/13
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2013
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2014
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2015
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2016
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2017
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Ambac Financial Group, Inc.
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$100
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$123
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$123
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$70
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$113
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$80
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Russell 2000 Index
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$100
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$127
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$134
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$127
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$148
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$167
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S&P Completion Index
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$100
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$123
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$130
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$124
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$142
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$165
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Successor Ambac
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Predecessor Ambac
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Period from
May 1
through
December 31,
2013
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Period from
Jan 1
through
April 30,
2013
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||||||||||||
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Year Ended December 31,
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($ in millions, except per share data)
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2017
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2016
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2015
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2014
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Total Comprehensive Income Highlights:
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Gross premiums written
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$
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(14.3
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)
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$
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(53.8
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)
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$
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(37.6
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)
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$
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(288.3
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)
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$
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(80.3
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)
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$
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(14.1
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)
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Net premiums earned
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175.3
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197.3
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|
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312.6
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246.4
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213.5
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|
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130.0
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||||||
Net investment income
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361.0
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|
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313.4
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|
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266.3
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|
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300.9
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146.4
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|
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116.7
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||||||
Other than temporary impairment losses
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(20.2
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)
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(21.8
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)
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(25.7
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)
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(25.8
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)
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(46.8
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)
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(0.5
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)
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||||||
Net realized investment gains
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5.4
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39.3
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53.5
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58.8
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4.5
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53.3
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Net change in fair value of credit derivatives
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16.4
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20.1
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|
|
41.7
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23.9
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192.9
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(60.4
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)
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||||||
Net gains (losses) on interest rate derivatives
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59.6
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(50.3
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)
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(42.5
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)
|
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(181.1
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)
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114.8
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(33.7
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)
|
||||||
Net realized (losses) gains on extinguishment of debt
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4.9
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4.8
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0.1
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|
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(74.7
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)
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—
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—
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Income (loss) on Variable Interest Entities ("VIEs")
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19.7
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(14.1
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)
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31.6
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(32.2
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)
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(48.6
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)
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426.6
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Losses and loss expenses (benefit)
(1)
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513.2
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(11.5
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)
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(768.7
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)
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(545.6
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)
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(185.1
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)
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(38.1
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)
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Interest and underwriting and operating expenses
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241.5
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238.0
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219.2
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229.0
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153.7
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75.6
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Insurance intangible amortization
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150.9
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|
174.6
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169.6
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151.8
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|
99.7
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|
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—
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Goodwill impairment
|
—
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|
—
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514.5
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—
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—
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—
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Reorganization items
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—
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—
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—
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0.2
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0.5
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(2,745.2
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)
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Pre-tax income (loss)
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(284.3
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)
|
|
105.0
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510.1
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493.3
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512.3
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3,348.0
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||||||
Net income (loss) attributable to Common Shareholders
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(328.7
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)
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74.8
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493.4
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484.1
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505.2
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3,349.0
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Total comprehensive income attributable to Ambac Financial Group, Inc.
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(335.4
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)
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20.6
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|
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288.3
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692.7
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516.9
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3,523.9
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Net income (loss) per share:
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Basic
|
$
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(7.25
|
)
|
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$
|
1.66
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|
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$
|
10.92
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|
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$
|
10.73
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|
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$
|
11.23
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|
|
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$
|
11.07
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Diluted
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$
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(7.25
|
)
|
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$
|
1.64
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|
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$
|
10.72
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|
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$
|
10.31
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|
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$
|
10.91
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|
|
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$
|
11.07
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(1)
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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 expense (benefit) associated with changes to our estimated recoveries for the years ended
December 31, 2017
,
2016
,
2015
and
2014
, the eight months ended December 31, 2013 and the four months ended April 30, 2013 were
$72.0 million
,
$(71.4) million
,
$(303.6) million
,
$(481.7) million
,
$199.4 million
, and
$(61.6) million
, respectively.
|
($ in millions) December 31
|
2017
|
|
2016
|
|
2015
|
|
2014
|
|
2013
|
||||||||||
Balance Sheet Highlights:
|
|
|
|
|
|
|
|
|
|
||||||||||
Total non-variable interest entity investments
|
$
|
5,740.8
|
|
|
$
|
6,500.2
|
|
|
$
|
5,644.7
|
|
|
$
|
5,507.0
|
|
|
$
|
6,523.7
|
|
Cash and cash equivalents
|
623.7
|
|
|
91.0
|
|
|
35.7
|
|
|
73.9
|
|
|
77.4
|
|
|||||
Premium receivable
|
586.3
|
|
|
661.3
|
|
|
831.6
|
|
|
1,000.6
|
|
|
1,453.0
|
|
|||||
Insurance intangible asset
|
847.0
|
|
|
962.1
|
|
|
1,212.1
|
|
|
1,410.9
|
|
|
1,598.0
|
|
|||||
Goodwill
|
—
|
|
|
—
|
|
|
—
|
|
|
514.5
|
|
|
514.5
|
|
|||||
Subrogation recoverable
(1)
|
631.2
|
|
|
684.7
|
|
|
1,229.3
|
|
|
953.3
|
|
|
498.5
|
|
|||||
Deferred ceded premium
|
52.2
|
|
|
69.6
|
|
|
96.8
|
|
|
123.3
|
|
|
145.5
|
|
|||||
Total VIE assets
|
14,500.5
|
|
|
13,367.8
|
|
|
14,288.5
|
|
|
15,126.1
|
|
|
15,988.7
|
|
|||||
Total assets
|
23,192.4
|
|
|
22,635.7
|
|
|
23,728.1
|
|
|
25,159.9
|
|
|
27,092.5
|
|
|||||
Unearned premiums
|
783.2
|
|
|
967.3
|
|
|
1,280.3
|
|
|
1,673.8
|
|
|
2,255.7
|
|
|||||
Losses and loss expense reserve
(1)
|
4,745.0
|
|
|
4,380.8
|
|
|
4,088.1
|
|
|
4,752.0
|
|
|
5,968.7
|
|
|||||
Obligations under investment agreements
|
—
|
|
|
82.4
|
|
|
100.4
|
|
|
160.1
|
|
|
359.1
|
|
|||||
Long-term debt
(2)
|
991.7
|
|
|
1,114.4
|
|
|
1,125.0
|
|
|
971.1
|
|
|
963.2
|
|
|||||
Derivative liabilities
|
82.8
|
|
|
319.3
|
|
|
353.4
|
|
|
406.9
|
|
|
253.9
|
|
|||||
Total VIE liabilities
|
14,366.4
|
|
|
13,235.4
|
|
|
14,259.8
|
|
|
15,085.7
|
|
|
15,872.8
|
|
|||||
Total liabilities
|
21,547.1
|
|
|
20,657.7
|
|
|
21,769.7
|
|
|
23,486.1
|
|
|
26,114.1
|
|
|||||
Total stockholders’ equity
|
1,645.3
|
|
|
1,978.0
|
|
|
1,958.3
|
|
|
1,673.7
|
|
|
978.4
|
|
|||||
Total liabilities and stockholders' equity
|
$
|
23,192.4
|
|
|
$
|
22,635.7
|
|
|
$
|
23,728.1
|
|
|
$
|
25,159.9
|
|
|
$
|
27,092.5
|
|
(1)
|
Ambac records as a component of its loss reserves and subrogation recoverable, estimated recoveries related to securitized loans in RMBS transactions that breached certain representations and warranties. Ambac has recorded gross estimated recoveries of
$1,834.4 million
,
$1,907.0 million
, $2,829.6 million, $2,523.5 million and $2,206.6 million at
December 31, 2017
,
2016
,
2015
,
2014
and
2013
, respectively.
|
(2)
|
Long-term debt represents surplus notes issued to third parties by Ambac Assurance and the Segregated Account and secured borrowing obligations. In 2014, Ambac sold a $350.0 million junior surplus note issued to it by the Segregated Account to a newly formed Trust in exchange for cash of $224.3 million and a subordinated owner trust certificate issued by the Trust. Long-term debt for all years excludes the portion of long-term debt associated with variable interest entities. In 2015, Ambac entered into a $146.0 million secured borrowing transaction.
|
•
|
On March 25, 2017, Ambac UK agreed in principle to a confidential settlement of litigation brought by Ambac UK in the name of Ballantyne Re plc (“Ballantyne”) against J.P. Morgan Investment Management Inc. (“JPMIM”) relating to the management of Ballantyne’s investment accounts, which were funded with the proceeds of notes issued in 2006 in connection with a structured reinsurance transaction and guaranteed in part by Ambac UK. On April 11, 2017, Ambac UK, Ballantyne and JPMIM signed a settlement agreement. Pursuant to the settlement, Ballantyne received a payment in return for releases of all claims by Ballantyne and Ambac UK. Ambac realized a US GAAP benefit through losses and loss expenses of approximately $91.6 million in 2017 as a result of the settlement, which resulted from the reduction of loss and loss expense reserves previously established in relation to Ballantyne, and not from a direct cash payment to Ambac UK.
|
•
|
On June 27, 2017, Ambac Assurance entered into a termination agreement with various parties, including a special purpose entity Augusta Funding Limited IV ("Augusta"), in connection with the commutation of an interest rate swap between Augusta and Ambac Assurance's wholly-owned subsidiary, Ambac Financial Services ("AFS"). During the second quarter, AFS made net settlement payments of approximately $103.6 million, including $94.4 million under the termination agreement. At March 31, 2017, Ambac had recorded a mark-to-market liability under this swap transaction of $147.0 million (net of an Ambac Assurance CVA of $42.9 million), resulting in a gain of
|
•
|
Ambac U.K. worked to facilitate an international asset-backed issuer's refinancing of £188.1 million of insured debt and which paid Ambac UK a termination premium of £12.6 million, resulting in accelerated premiums earned of $11.2 million in 2017;
|
•
|
Ambac worked closely with servicers and owners of Master Servicing Rights to exercise clean-up calls on 20 RMBS transactions, resulting in a benefit in losses and loss expenses of $21.8 million and reducing adversely classified net par exposure by $422.5 million;
|
•
|
Ambac Assurance commuted its policy on a long time distressed municipality ($44.6 million of net par exposure); aided in the refinancing of more than 50% ($144.7 million of net par exposure) of its exposure to Chicago, IL Board of Education general obligation bonds, resulting in an aggregate losses and loss expenses benefit of $4.1 million; and negotiated with a distressed domestic asset-backed VIE that was previously consolidated by Ambac to settle all of their assets and refinance its Ambac-insured debt ($30.8 million of net par exposure).
|
($ in billions)
December 31,
|
2017
|
|
2016
|
|
$ Variance
|
|
% Variance
|
|||||||
Total
|
$
|
62.7
|
|
|
$
|
79.3
|
|
|
$
|
(16.6
|
)
|
|
(21
|
)%
|
ACC
|
$
|
14.1
|
|
|
$
|
17.0
|
|
|
$
|
(2.9
|
)
|
|
(17
|
)%
|
•
|
Asset backed and short-term securities of
$96.3 million
|
•
|
Ambac-insured securities with a fair value of
$5.9 million
|
•
|
Ambac Assurance surplus notes with a fair value of
$201.3 million
, which are eliminated in consolidation
|
•
|
Residual equity interest in the Corolla Trust that was created in 2014 to monetize Ambac's ownership interest in junior surplus notes issued by the Segregated Account. Ambac carries this interest using the equity method.
Additionally, at December 31, 2017 Ambac held $35.0 million par amount of the debt issued by this VIE.
The total carrying value of Ambac's equity and debt interests in Corolla Trust was
$64.7 million
at
December 31, 2017
.
Refer to
Note 3. Special Purpose Entities, Including Variable Interest Entities
to the Consolidated Financial Statements included in Part II, Item 8 in this Form 10-K, for more information on the Corolla Trust
.
|
(1)
|
A portion of Ambac UK's, and to a lesser extent Ambac Assurance's, assets and liabilities are denominated in currencies other than its functional currency and accordingly, we recognized net foreign currency transaction gains/(losses) as a result of changes to foreign currency rates through our Consolidated Statement of Total Comprehensive Income (Loss). Refer to
Note 2. Basis of Presentation and Significant Accounting Policies
to the Consolidated Financial Statements included in Part II, Item 8 in this Form 10-K for further details on transaction gains and losses.
|
|
|
2017
|
|
2016
|
||||||||||||
($ in millions) December 31
|
|
Gross Par
Outstanding
(1)(2)
|
|
Gross Loss and Loss Expense
Reserves
(1)(3)(4)(5)
|
|
Gross Par
Outstanding
(1)(2)
|
|
Gross Loss and Loss Expense
Reserves (1)(3)(4)(5) |
||||||||
RMBS
|
|
$
|
5,243
|
|
|
$
|
2,598
|
|
|
$
|
6,756
|
|
|
$
|
2,394
|
|
Domestic Public Finance
|
|
4,265
|
|
|
816
|
|
|
4,410
|
|
|
547
|
|
||||
Student Loans
|
|
701
|
|
|
308
|
|
|
728
|
|
|
279
|
|
||||
Ambac UK
|
|
941
|
|
|
286
|
|
|
939
|
|
|
388
|
|
||||
All other credits
|
|
537
|
|
|
17
|
|
|
567
|
|
|
13
|
|
||||
Loss expenses
|
|
—
|
|
|
89
|
|
|
—
|
|
|
75
|
|
||||
Totals
|
|
$
|
11,687
|
|
|
$
|
4,114
|
|
|
$
|
13,400
|
|
|
$
|
3,696
|
|
(1)
|
Ceded par outstanding on policies with loss reserves and ceded loss and loss expense reserves are $590 and $41, respectively, at
December 31, 2017
and $607 and $31, respectively at
December 31, 2016
. Ceded loss and loss expense reserves are included in Reinsurance recoverable on paid and unpaid losses.
|
(2)
|
Gross Par Outstanding includes 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.
|
(3)
|
Loss and Loss Expense reserves at
December 31, 2017
of
$4,114
are included in the balance sheet in the following line items: Loss and loss expense reserves:
$4,745
and Subrogation recoverable:
$631
. Loss and Loss Expense reserves at
December 31, 2016
of
$3,696
are included in the balance sheet in the following line items: Loss and loss expense reserves:
$4,381
and Subrogation recoverable:
$685
.
|
(4)
|
Included in Gross Loss and Loss Expense Reserves are unpaid claims of
$3,867
and
$3,656
at
December 31, 2017 and 2016
, respectively, related to policies allocated to the Segregated Account
, inclusive of accrued interest payable on Deferred Amounts of
$840
and
$662
, respectively.
|
(5)
|
Ambac records as a component of its loss and loss expense reserves, estimated recoveries related to securitized loans in RMBS transactions that breached certain representations an
d warranties. Ambac has recorded gross estimated recoveries of
$1,834
and
$1,907
at
December 31, 2017 and 2016
, respectively.
|
($ in millions) December 31,
|
2017
|
|
2016
|
||||
Public Finance
|
$
|
32,088
|
|
|
$
|
45,062
|
|
Structured Finance
|
13,816
|
|
|
16,951
|
|
||
International Finance
|
16,812
|
|
|
17,333
|
|
||
Total net par outstanding
|
$
|
62,716
|
|
|
$
|
79,346
|
|
($ in millions)
|
|
Range of Maturity
|
|
Ambac
Ratings (1) |
|
Net Par
Outstanding (2) |
|
Net Par and Interest Outstanding
(3)(8)
|
|
Ever-to-Date Net Claims Paid
(4)
|
||||||
Exposures Subject to Priority Debt Provision
(5)
|
|
|
|
|
|
|
|
|
|
|
||||||
PR Highways and Transportation Authority (1968 Resolution - Highway Revenue)
(6)
|
|
2018-2027
|
|
BIG
|
|
$
|
14
|
|
|
$
|
20
|
|
|
$
|
13
|
|
PR Highways and Transportation Authority (1998 Resolution - Senior Lien Transportation Revenue)
(6)
|
|
2018-2042
|
|
BIG
|
|
419
|
|
|
746
|
|
|
35
|
|
|||
PR Infrastructure Financing Authority (Special Tax Revenue)
(7)
|
|
2018-2044
|
|
BIG
|
|
439
|
|
|
970
|
|
|
104
|
|
|||
PR Convention Center District Authority (Hotel Occupancy Tax)
|
|
2018-2031
|
|
BIG
|
|
125
|
|
|
184
|
|
|
12
|
|
|||
Total
|
|
|
|
|
|
997
|
|
|
1,920
|
|
|
164
|
|
|||
Exposures Not Subject to Priority Debt Provision
|
|
|
|
|
|
|
|
|
|
|
||||||
Commonwealth of Puerto Rico - General Obligation Bonds
|
|
2019-2023
|
|
BIG
|
|
56
|
|
|
64
|
|
|
4
|
|
|||
PR Public Buildings Authority - Guaranteed by the Commonwealth of Puerto Rico
|
|
2018-2035
|
|
BIG
|
|
110
|
|
|
187
|
|
|
37
|
|
|||
PR Sales Tax Financing Corporation - Senior Sales Tax Revenue (COFINA)
|
|
2047-2054
|
|
BIG
|
|
805
|
|
|
7,321
|
|
|
—
|
|
|||
Total
|
|
|
|
|
|
971
|
|
|
7,572
|
|
|
41
|
|
|||
Total Net Exposure to The Commonwealth of Puerto Rico and Related Entities
|
|
|
|
|
|
$
|
1,968
|
|
|
$
|
9,492
|
|
|
$
|
205
|
|
(1)
|
Internal credit ratings are provided solely to indicate the underlying credit quality of guaranteed obligations based on the view of Ambac Assurance. In cases where Ambac Assurance has insured multiple tranches of an issue with varying internal ratings, or more than one obligation of an issuer with varying internal ratings, a weighted average rating is used. Ambac Assurance credit ratings are subject to revision at any time and do not constitute investment advice. BIG denotes credits deemed below investment grade.
|
(2)
|
Net Par includes 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 bonds. Accretion of the capital appreciation bonds would increase the related net par by $683 million at
December 31, 2017
.
|
(3)
|
Net Par and Interest Outstanding ("P&I") represents the total insured future debt service remaining over the lifetime of the bonds. P&I for capital appreciation bonds does not represent the accreted amount as noted in footnote (2) but rather the amount due at respective maturity dates.
|
(4)
|
In addition to ever-to-date net claims paid, Ambac made net claim payments of $26 million during January 2018.
|
(5)
|
Commonly known as "clawback" provision pursuant to Section 8 of Article VI of the Constitution of the Commonwealth of Puerto Rico. Under this provision, in case the available revenues (the Spanish version uses the term “resources”) including surplus for any fiscal year are insufficient to meet the appropriations made for that year, interest on the public debt and amortization thereof shall first be paid, and other disbursements shall thereafter be made in accordance with the order of priorities established by law. These exposures are also subject to Act No. 5-2017, as amended, also known as the Financial Emergency and Fiscal Responsibility Act of 2017, which declares an emergency period that has been subsequently extended until June 30, 2018. Pursuant to Act 5-2017, all executive orders issued under Act No. 21-2016 (as amended, known as the Puerto Rico Emergency Moratorium and Financial Rehabilitation Act), shall continue in full force and effect until amended, rescinded or superseded.
|
(6)
|
Certain Pledged Revenues for Highways and Transportation Revenue Bonds such as Toll Revenues and Investment Earnings are not subject to the Priority Debt Provision.
|
(7)
|
Payable from and secured by proceeds from a federal excise tax imposed on all items produced in Puerto Rico and sold on the mainland of the United States. Currently, rum is the only product from Puerto Rico subject to this federal excise tax.
|
(8)
|
Net Par and Interest Outstanding excludes the effects of a 10% current interest rate on $60 million net par of PR Public Building Authority ("PBA") bonds with a maturity date of July 1, 2035, resulting from the absence of a remarketing. Should a remarketing not occur before the maturity of the bonds, the Net Par and Interest Outstanding for PBA exposure would increase by $47.4 million.
|
($ in millions)
|
|
Ambac
Ratings
(1)
|
|
Net Par
Outstanding
(2)
|
|
% of Total
Net Par
Outstanding
|
|||
New Jersey Transportation Trust Fund Authority - Transportation System
|
|
BBB+
|
|
$
|
1,642
|
|
|
2.6
|
%
|
Puerto Rico Sales Tax Financing Corporation - Senior Sales Tax Revenue (COFINA)
|
|
BIG
|
|
805
|
|
|
1.3
|
%
|
|
Massachusetts Commonwealth - GO
|
|
AA
|
|
802
|
|
|
1.3
|
%
|
|
Mets Queens Baseball Stadium Project, NY, Lease Revenue
|
|
BBB
|
|
564
|
|
|
0.9
|
%
|
|
Hickam Community Housing LLC
|
|
BBB
|
|
473
|
|
|
0.8
|
%
|
|
Chicago, IL - GO
|
|
BBB-
|
|
439
|
|
|
0.7
|
%
|
|
Puerto Rico Infrastructure Financing Authority, Special Tax Revenue
|
|
BIG
|
|
438
|
|
|
0.7
|
%
|
|
Puerto Rico Highways & Transportation Authority, Transportation Revenue
|
|
BIG
|
|
433
|
|
|
0.7
|
%
|
|
Bragg Communities, LLC
|
|
A-
|
|
430
|
|
|
0.7
|
%
|
|
New Jersey Economic Development Authority - School Facilities Construction
|
|
BBB+
|
|
400
|
|
|
0.6
|
%
|
|
Total
|
|
|
|
$
|
6,426
|
|
|
10.2
|
%
|
(1)
|
Internal credit ratings are provided solely to indicate the underlying credit quality of guaranteed obligations based on the view of Ambac Assurance. In cases where Ambac Assurance has insured multiple tranches of an issue with varying internal ratings, or more than one obligation of an issuer with varying internal ratings, a weighted average rating is used. Ambac Assurance credit ratings are subject to revision at any time and do not constitute investment advice. BIG denotes credits deemed below investment grade.
|
(2)
|
Net Par includes 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 bonds.
|
Servicer
($ in millions)
|
|
Bond Type
|
|
Net Par
Outstanding
|
|
% of Total
Net Par
Outstanding
|
|||
Specialized Loan Servicing, LLC
|
|
Mortgage-backed
|
|
$
|
1,636
|
|
|
2.6
|
%
|
Bank of America N.A.
|
|
Mortgage-backed
|
|
1,555
|
|
|
2.5
|
%
|
|
Wells Fargo Bank
|
|
Mortgage-backed
|
|
997
|
|
|
1.6
|
%
|
|
Pennsylvania Higher Education Assistance Agency
|
|
Student Loan
|
|
994
|
|
|
1.6
|
%
|
|
Ocwen Loan Servicing, LLC
|
|
Mortgage-backed
|
|
971
|
|
|
1.5
|
%
|
($ in millions)
|
|
Bond Type
|
|
Ambac
Rating
(1)
|
|
Net Par
Outstanding
|
|
% of Total
Net Par
Outstanding
|
|||
Ballantyne Re Plc
(2)
|
|
Structured Insurance
|
|
BIG
|
|
$
|
900
|
|
|
1.4
|
%
|
Progress Energy Carolinas, Inc.
|
|
Investor Owned Utility
|
|
A-
|
|
558
|
|
|
0.9
|
%
|
|
Wachovia Asset Securitization Issuance II, LLC 2007-HE2
|
|
Mortgage Backed Securities
|
|
BIG
|
|
547
|
|
|
0.9
|
%
|
|
Timberlake Financial, LLC
|
|
Structured Insurance
|
|
BBB
|
|
520
|
|
|
0.8
|
%
|
|
Wachovia Asset Securitization Issuance II, LLC 2007-HE1
|
|
Mortgage Backed Securities
|
|
BIG
|
|
381
|
|
|
0.6
|
%
|
|
Consolidated Edison Company of New York
|
|
Investor Owned Utility
|
|
A
|
|
347
|
|
|
0.6
|
%
|
|
Option One Mortgage Loan Trust 2007-FXD1
|
|
Mortgage Backed Securities
|
|
BIG
|
|
289
|
|
|
0.5
|
%
|
|
CenterPoint Energy Inc.
|
|
Investor Owned Utility
|
|
BBB+
|
|
276
|
|
|
0.4
|
%
|
|
Niagara Mohawk Power Corporation
|
|
Investor Owned Utility
|
|
A
|
|
257
|
|
|
0.4
|
%
|
|
Duke Energy Ohio, Inc.
|
|
Investor Owned Utility
|
|
BBB+
|
|
255
|
|
|
0.4
|
%
|
|
Total
|
|
|
|
|
|
$
|
4,330
|
|
|
6.9
|
%
|
(1)
|
Internal credit ratings are provided solely to indicate the underlying credit quality of guaranteed obligations based on the view of Ambac Assurance, and for Ambac UK related transactions, based on the view of Ambac UK. In cases where Ambac Assurance or Ambac UK has insured multiple tranches of an issue with varying internal ratings, or more than one obligation of an issuer with varying internal ratings, a weighted average rating is used. Ambac Assurance and Ambac UK credit ratings are subject to revision at any time and do not constitute investment advice. BIG denotes credits deemed below investment grade.
|
(2)
|
Insurance policy issued by Ambac UK.
|
($ in millions)
|
|
Austria
|
|
France
|
|
Germany
|
|
Italy
|
|
Spain
|
|
Total
|
||||||||||||
Sub-sovereign
|
|
$
|
—
|
|
|
$
|
29
|
|
|
$
|
—
|
|
|
$
|
817
|
|
|
$
|
—
|
|
|
$
|
846
|
|
Infrastructure / operating asset backed
|
|
770
|
|
|
300
|
|
|
—
|
|
|
60
|
|
|
—
|
|
|
1,130
|
|
||||||
Investor-owned utility
|
|
—
|
|
|
—
|
|
|
39
|
|
|
—
|
|
|
41
|
|
|
80
|
|
||||||
Total
|
|
$
|
770
|
|
|
$
|
329
|
|
|
$
|
39
|
|
|
$
|
877
|
|
|
$
|
41
|
|
|
$
|
2,056
|
|
Total below investment grade
|
|
$
|
770
|
|
|
$
|
—
|
|
|
$
|
39
|
|
|
$
|
—
|
|
|
$
|
41
|
|
|
$
|
850
|
|
($ in millions)
|
|
Country-Bond Type
|
|
Ambac
Rating
(1)
|
|
Net Par
Outstanding
|
|
% of Total
Net Par
Outstanding
|
|||
Mitchells & Butlers Finance plc-UK Pub Securitisation
|
|
UK-Asset Securitizations
|
|
A+
|
|
$
|
1,475
|
|
|
2.4
|
%
|
National Grid Electricity Transmission
|
|
UK-Utility
|
|
A-
|
|
1,135
|
|
|
1.8
|
%
|
|
Aspire Defence Finance plc
|
|
UK-Infrastructure
|
|
BBB+
|
|
928
|
|
|
1.5
|
%
|
|
Capital Hospitals plc
(2)
|
|
UK-Infrastructure
|
|
A-
|
|
922
|
|
|
1.5
|
%
|
|
Posillipo Finance II S.r.l
|
|
Italy-Sub-Sovereign
|
|
BBB-
|
|
817
|
|
|
1.3
|
%
|
|
Anglian Water
|
|
UK-Utility
|
|
A-
|
|
793
|
|
|
1.3
|
%
|
|
Ostregion Investmentgesellschaft NR 1 SA
(2)
|
|
Austria-Infrastructure
|
|
BIG
|
|
770
|
|
|
1.2
|
%
|
|
Telereal Securitisation plc
|
|
UK-Asset Securitizations
|
|
AA
|
|
766
|
|
|
1.2
|
%
|
|
National Grid Gas
|
|
UK-Utility
|
|
A-
|
|
732
|
|
|
1.2
|
%
|
|
RMPA Services plc
|
|
UK-Infrastructure
|
|
BBB+
|
|
621
|
|
|
1.0
|
%
|
|
Total
|
|
|
|
|
|
$
|
8,959
|
|
|
14.3
|
%
|
(1)
|
Internal credit ratings are provided solely to indicate the underlying credit quality of guaranteed obligations based on the view of Ambac Assurance, and for Ambac UK related transactions, based on the view of Ambac UK. In cases where Ambac Assurance or Ambac UK has insured multiple tranches of
|
(2)
|
A portion of this transaction is insured by an insurance policy issued by Ambac Assurance.
|
Net Par Outstanding Amortization
(1)
($ in millions)
|
|
Estimated Net
Amortization
|
||
2018
|
|
$
|
5,352
|
|
2019
|
|
4,117
|
|
|
2020
|
|
4,074
|
|
|
2021
|
|
4,001
|
|
|
2022
|
|
3,742
|
|
|
|
|
|
||
2018-2022
|
|
$
|
21,286
|
|
2023-2027
|
|
12,952
|
|
|
2028-2032
|
|
10,298
|
|
|
2033-2037
|
|
11,615
|
|
|
After 2037
|
|
6,565
|
|
|
Total
|
|
$
|
62,716
|
|
(1)
|
Depicts amortization of existing guaranteed portfolio, assuming no advance refundings, as of
December 31, 2017
. Expected maturities will differ from contractual maturities because borrowers may have the right to call or prepay guaranteed obligations.
|
Geographic Area
($ in millions)
|
Net Par
Amount
Outstanding
|
|
% of Total
Net Par Amount
Outstanding
|
|||
Domestic:
|
|
|
|
|||
Mortgage and asset-backed
(1)
|
$
|
7,710
|
|
|
12.3
|
%
|
California
|
6,351
|
|
|
10.1
|
%
|
|
New York
|
3,658
|
|
|
5.8
|
%
|
|
New Jersey
|
3,237
|
|
|
5.2
|
%
|
|
Colorado
|
2,537
|
|
|
4.0
|
%
|
|
Florida
|
1,992
|
|
|
3.2
|
%
|
|
Puerto Rico
|
1,968
|
|
|
3.1
|
%
|
|
Texas
|
1,890
|
|
|
3.0
|
%
|
|
Illinois
|
1,668
|
|
|
2.7
|
%
|
|
Massachusetts
|
1,412
|
|
|
2.3
|
%
|
|
Pennsylvania
|
1,316
|
|
|
2.1
|
%
|
|
Other domestic
|
12,165
|
|
|
19.4
|
%
|
|
Total Domestic
|
45,904
|
|
|
73.2
|
%
|
|
International:
|
|
|
|
|||
United Kingdom
|
13,554
|
|
|
21.6
|
%
|
|
Italy
|
877
|
|
|
1.4
|
%
|
|
Austria
|
770
|
|
|
1.2
|
%
|
|
Australia
|
608
|
|
|
1.0
|
%
|
|
France
|
329
|
|
|
0.5
|
%
|
|
Internationally diversified
(2)
|
368
|
|
|
0.6
|
%
|
|
Other international
|
306
|
|
|
0.5
|
%
|
|
Total International Finance
|
16,812
|
|
|
26.8
|
%
|
|
Total
|
$
|
62,716
|
|
|
100.0
|
%
|
(1)
|
Mortgage and asset-backed obligations includes guarantees with multiple locations of risk within the United States and is primarily comprised of residential mortgage and commercial asset-backed securitizations.
|
(2)
|
Internationally diversified may include components of U.S. exposure.
|
Currency
($ in millions)
|
Net Par
Amount
Outstanding
in Base
Currency
|
|
Net Par
Amount
Outstanding
in U.S.
Dollars
|
|
Percentage of Net Par Amount Outstanding
|
|||||
U.S. Dollars
|
$
|
46,640
|
|
|
$
|
46,640
|
|
|
74.4
|
%
|
British Pounds
|
£
|
9,811
|
|
|
13,262
|
|
|
21.1
|
%
|
|
Euros
|
€
|
1,688
|
|
|
2,027
|
|
|
3.2
|
%
|
|
Australian Dollars
|
A$
|
779
|
|
|
608
|
|
|
1.0
|
%
|
|
New Zealand Dollars
|
NZ$
|
252
|
|
|
179
|
|
|
0.3
|
%
|
|
Total
|
|
|
$
|
62,716
|
|
|
100.0
|
%
|
December 31,
|
2017
|
|
2016
|
||
Ambac Rating
(1)
|
|
|
|
||
AAA
|
<1%
|
|
|
<1%
|
|
AA
|
10
|
|
|
13
|
|
A
|
37
|
|
|
39
|
|
BBB
|
31
|
|
|
27
|
|
BIG
|
22
|
|
|
21
|
|
Total
|
100
|
%
|
|
100
|
%
|
(1)
|
Internal credit ratings are provided solely to indicate the underlying credit quality of guaranteed obligations based on the view of Ambac Assurance, and for Ambac UK related transactions, based on the view of Ambac UK. In cases where Ambac Assurance or Ambac UK has insured multiple tranches of an issue with varying internal ratings, or more than one obligation of an issuer with varying internal ratings, a weighted average rating is used. Ambac Assurance and Ambac UK credit ratings are subject to revision at any time and do not constitute investment advice.
|
|
Net Par Outstanding - December 31,
|
||||||
Bond Type ($ in millions)
|
2017
|
|
2016
|
||||
Public Finance:
|
|
|
|
||||
Lease and tax-backed
(1)
|
$
|
2,144
|
|
|
$
|
2,145
|
|
General obligation
(1)
|
491
|
|
|
681
|
|
||
Transportation
|
397
|
|
|
415
|
|
||
Housing
(2)
|
317
|
|
|
125
|
|
||
Health care
|
24
|
|
|
29
|
|
||
Other
|
189
|
|
|
775
|
|
||
Total Public Finance
|
3,562
|
|
|
4,170
|
|
||
Structured Finance:
|
|
|
|
||||
Residential mortgage-backed and home equity—first lien
|
3,947
|
|
|
5,163
|
|
||
Residential mortgage-backed and home equity—second lien
|
2,803
|
|
|
3,483
|
|
||
Student loans
|
922
|
|
|
991
|
|
||
Structured Insurance
|
900
|
|
|
900
|
|
||
Mortgage-backed and home equity—other
|
166
|
|
|
251
|
|
||
Other
|
9
|
|
|
304
|
|
||
Total Structured Finance
|
8,747
|
|
|
11,092
|
|
||
International Finance:
|
|
|
|
||||
Other
|
1,200
|
|
|
1,562
|
|
||
Total International Finance
|
1,200
|
|
|
1,562
|
|
||
Total
|
$
|
13,509
|
|
|
$
|
16,824
|
|
(1)
|
Tax-backed includes $1,802 and $1,871 of Puerto Rico net par at
December 31, 2017 and 2016
, respectively. General obligation includes $166 and $187 of Puerto Rico net par at
December 31, 2017 and 2016
, respectively. Puerto Rico net par outstanding includes
|
(2)
|
Includes $317 and $125 of military housing net par at
December 31, 2017 and 2016
, respectively.
|
|
December 31, 2017
|
|
December 31, 2016
|
||||||||||||||||||||||||||||||||||||
Year of Issue
($ in millions)
|
Second
Lien
|
|
First-lien
Sub-prime
|
|
First-lien
Mid-prime
|
|
Other
(1)
|
|
Total
|
|
Second
Lien
|
|
First-lien
Sub-prime |
|
First-lien
Mid-prime |
|
Other
(1)
|
|
Total
|
||||||||||||||||||||
1998-2001
|
$
|
2
|
|
|
$
|
300
|
|
|
$
|
—
|
|
|
$
|
126
|
|
|
$
|
428
|
|
|
$
|
5
|
|
|
$
|
344
|
|
|
$
|
1
|
|
|
$
|
169
|
|
|
$
|
519
|
|
2002
|
1
|
|
|
107
|
|
|
21
|
|
|
—
|
|
|
129
|
|
|
2
|
|
|
291
|
|
|
26
|
|
|
3
|
|
|
322
|
|
||||||||||
2003
|
3
|
|
|
151
|
|
|
119
|
|
|
—
|
|
|
273
|
|
|
6
|
|
|
411
|
|
|
154
|
|
|
80
|
|
|
651
|
|
||||||||||
2004
|
223
|
|
|
130
|
|
|
217
|
|
|
—
|
|
|
570
|
|
|
321
|
|
|
245
|
|
|
271
|
|
|
1
|
|
|
838
|
|
||||||||||
2005
|
305
|
|
|
493
|
|
|
872
|
|
|
32
|
|
|
1,702
|
|
|
402
|
|
|
572
|
|
|
1,028
|
|
|
38
|
|
|
2,040
|
|
||||||||||
2006
|
1,124
|
|
|
325
|
|
|
434
|
|
|
46
|
|
|
1,929
|
|
|
1,340
|
|
|
379
|
|
|
523
|
|
|
55
|
|
|
2,297
|
|
||||||||||
2007
|
1,149
|
|
|
289
|
|
|
694
|
|
|
104
|
|
|
2,236
|
|
|
1,415
|
|
|
311
|
|
|
868
|
|
|
122
|
|
|
2,716
|
|
||||||||||
Total
|
$
|
2,807
|
|
|
$
|
1,795
|
|
|
$
|
2,357
|
|
|
$
|
308
|
|
|
$
|
7,267
|
|
|
$
|
3,491
|
|
|
$
|
2,553
|
|
|
$
|
2,871
|
|
|
$
|
468
|
|
|
$
|
9,383
|
|
% of Total RMBS Portfolio
|
38.6
|
%
|
|
24.7
|
%
|
|
32.4
|
%
|
|
4.3
|
%
|
|
100.0
|
%
|
|
37.2
|
%
|
|
27.2
|
%
|
|
30.6
|
%
|
|
5.0
|
%
|
|
100.0
|
%
|
||||||||||
% of Related Par Outstanding rated below investment grade
(2)
|
99.9
|
%
|
|
92.7
|
%
|
|
96.3
|
%
|
|
57.7
|
%
|
|
95.2
|
%
|
|
99.8
|
%
|
|
93.4
|
%
|
|
96.2
|
%
|
|
57.2
|
%
|
|
94.8
|
%
|
(1)
|
Other primarily includes manufactured housing and lot loan exposures
|
(2)
|
Ambac’s below investment grade internal ratings reflect bonds which are of speculative grade credit quality with the adequacy of future margin levels for payment of interest and repayment of principal potentially adversely affected by major ongoing uncertainties or exposure to adverse conditions. Ambac Assurance’s below investment grade category includes transactions on which claims have been submitted.
|
($ in millions) December 31,
|
2017
|
|
2016
|
||||
Investor-owned utilities
|
$
|
1,549
|
|
|
$
|
1,780
|
|
Healthcare
|
423
|
|
|
449
|
|
||
Student loans
|
316
|
|
|
361
|
|
||
Lease and tax-backed
|
262
|
|
|
305
|
|
||
Utility
|
251
|
|
|
293
|
|
||
Transportation
|
205
|
|
|
207
|
|
||
General Obligation
|
43
|
|
|
46
|
|
||
Other
|
251
|
|
|
274
|
|
||
Total
|
$
|
3,300
|
|
|
$
|
3,715
|
|
Bond Type ($ in millions)
|
Ceded Par
Amount
Outstanding
|
|
% of Gross
Par Ceded
|
|||
Public Finance:
|
|
|
|
|||
Housing revenue
|
$
|
968
|
|
|
13
|
%
|
General obligation
|
837
|
|
|
12
|
%
|
|
Lease and tax-backed revenue
|
719
|
|
|
6
|
%
|
|
Transportation revenue
|
221
|
|
|
10
|
%
|
|
Higher education
|
131
|
|
|
7
|
%
|
|
Utility revenue
|
86
|
|
|
4
|
%
|
|
Health care revenue
|
46
|
|
|
5
|
%
|
|
Other
|
104
|
|
|
12
|
%
|
|
Total Public Finance
|
3,112
|
|
|
9
|
%
|
|
Structured Finance:
|
|
|
|
|||
Student loan
|
438
|
|
|
26
|
%
|
|
Investor-owned utilities
|
414
|
|
|
11
|
%
|
|
Mortgage-backed and home equity
|
87
|
|
|
1
|
%
|
|
Asset-backed
|
42
|
|
|
9
|
%
|
|
Other
|
192
|
|
|
12
|
%
|
|
Total Structured Finance
|
1,173
|
|
|
8
|
%
|
|
Total Domestic
|
4,285
|
|
|
9
|
%
|
|
International Finance:
|
|
|
|
|||
Investor-owned and public utilities
|
98
|
|
|
2
|
%
|
|
Transportation
|
25
|
|
|
2
|
%
|
|
Asset-backed
|
16
|
|
|
1
|
%
|
|
Total International Finance
|
139
|
|
|
1
|
%
|
|
Total
|
$
|
4,424
|
|
|
7
|
%
|
($ in millions) Year Ended December 31,
|
2017
|
|
2016
|
|
2015
|
||||||
Revenues:
|
|
|
|
|
|
||||||
Net premiums earned
|
$
|
175.3
|
|
|
$
|
197.3
|
|
|
$
|
312.6
|
|
Net investment income
|
361.0
|
|
|
313.4
|
|
|
266.3
|
|
|||
Net other-than-temporary impairment losses
|
(20.2
|
)
|
|
(21.8
|
)
|
|
(25.7
|
)
|
|||
Net realized investment gains
|
5.4
|
|
|
39.3
|
|
|
53.5
|
|
|||
Change in fair value of credit derivatives
|
16.4
|
|
|
20.1
|
|
|
41.7
|
|
|||
Net gains (losses) on interest rate derivatives
|
59.6
|
|
|
(50.3
|
)
|
|
(42.5
|
)
|
|||
Other income (expense)
|
(0.7
|
)
|
|
17.4
|
|
|
7.2
|
|
|||
Income (loss) on variable interest entities
|
19.7
|
|
|
(14.1
|
)
|
|
31.6
|
|
|||
Expenses:
|
|
|
|
|
|
||||||
Losses and loss expenses (benefit)
|
513.2
|
|
|
(11.5
|
)
|
|
(768.7
|
)
|
|||
Insurance intangible amortization
|
150.9
|
|
|
174.6
|
|
|
169.6
|
|
|||
Operating expenses
|
121.5
|
|
|
113.7
|
|
|
102.7
|
|
|||
Interest expense
|
119.9
|
|
|
124.3
|
|
|
116.5
|
|
|||
Goodwill impairment
|
—
|
|
|
—
|
|
|
514.5
|
|
|||
Provision for income taxes
|
44.5
|
|
|
30.7
|
|
|
17.4
|
|
|||
Less: Net income attributable to the noncontrolling interest
|
—
|
|
|
(0.5
|
)
|
|
(0.7
|
)
|
|||
Net income (attributable to common shareholders)
|
$
|
(328.7
|
)
|
|
$
|
74.8
|
|
|
$
|
493.4
|
|
•
|
The runoff of the insured portfolio occurring through transaction terminations, calls and scheduled maturities, which had a negative impact.
|
•
|
Changes in the collectability of certain Structured Finance premium receivables resulted in an increase in net premiums earned of $0.3 million, $0.8 million and $0.5 million for the
|
•
|
Pre-refundings of insured securities, primarily Public Finance transactions. Since the maturity date of pre-refunded securities is shortened (to a specified call date from its previous legal maturity), normal net premiums earned will increase over the remaining period of the related policy.
|
•
|
The strengthening or weakening of the U.S. dollar relative to the British Pound since Ambac's wholly-owned UK subsidiary, Ambac UK, operates in the United Kingdom and the British Pound is its functional currency.
|
($ in millions) December 31,
|
2017
|
|
2016
|
||||
Mark-to-market liability of credit derivatives, excluding CVA
|
$
|
0.7
|
|
|
$
|
17.2
|
|
CVA on credit derivatives
|
(0.1
|
)
|
|
(1.9
|
)
|
||
Credit derivative liability at fair value
|
$
|
0.6
|
|
|
$
|
15.3
|
|
($ in millions) December 31,
|
2017
|
|
2016
|
||||
Interest rate derivatives mark-to-market liability, excluding CVA
|
$
|
82.2
|
|
|
$
|
348.8
|
|
CVA on interest rate derivatives portfolio
|
—
|
|
|
(44.9
|
)
|
||
Interest rate derivatives portfolio liability at fair value
|
$
|
82.2
|
|
|
$
|
303.9
|
|
($ in millions)
Year Ended December 31,
|
2017
|
|
2016
|
|
2015
|
||||||
Foreign exchange gain/(loss)
|
$
|
(2.6
|
)
|
|
$
|
7.8
|
|
|
$
|
(2.0
|
)
|
Other
|
1.9
|
|
|
9.7
|
|
|
9.2
|
|
|||
Total other income (loss)
|
$
|
(0.7
|
)
|
|
$
|
17.4
|
|
|
$
|
7.2
|
|
(1)
|
The loss and loss expense (benefit) associated with changes in estimated representation and warranties for the year ended
December 31, 2017, 2016 and 2015
was $72.0, $(71.4), and $(303.6), respectively.
|
(2)
|
Includes loss expenses incurred of $81.6 million, $51.9 million and $32.8 million for the year ended
December 31, 2017, 2016 and 2015
, respectively.
|
•
|
Higher projected losses in domestic public finance largely driven by adverse development on Puerto Rico and the Military Housing sector;
|
•
|
Interest on deferred amounts; partially offset by;
|
•
|
Lower projected losses in the Ambac UK portfolio primarily due to the confidential settlement of litigation brought by Ambac UK in the name of Ballantyne against JPMIM and from activities executed by the Ballantyne trust that indirectly reduced future expected claims on the Ambac insured notes;
|
•
|
Foreign exchange gains of $28.9 million. A portion of Ambac UK's loss reserves are denominated in currencies other than its functional currency of British Pounds resulting in incurred losses (gains) when the British Pound depreciates (appreciates);
|
•
|
A $49.7 million benefit due to reimbursements of claims paid with respect to two transactions that benefited from a mortgage insurance settlement.
|
•
|
Lower projected losses in the RMBS portfolio due to improved deal performance, higher representation and warranty subrogation recoveries and a settlement of a non-representation and warranty dispute with regards to an Ambac insured RMBS transaction;
|
•
|
The positive impact of executed commutations and an improved outlook with regards to our risk remediation efforts on student loan policies primarily associated with student loan bonds acquired during 2016; partially offset by;
|
•
|
Higher projected losses in domestic public finance for the year ended December 31, 2016 largely driven by adverse development in Puerto Rico;
|
•
|
Interest on deferred amounts;
|
•
|
Increased projected losses in the Ambac UK portfolio for the year ended December 31, 2016 primarily due to foreign exchange losses of $77.6 million partially offset by lower interest rates.
|
•
|
Lower projected losses in the RMBS portfolio due to improved deal performance, lower interest rates and
increases in our estimate of RMBS subrogation recoveries as a result of continuous efforts and ongoing assessments of the value of our claims
;
|
•
|
The positive impact of executed commutations, an improved outlook with regards to our risk remediation efforts and lower interest rates on student loan policies;
|
•
|
Decrease in projected losses for the year ended December 31, 2015 due to reduced claim expectations for an Ambac UK
|
•
|
Higher projected losses in domestic public finance for the year ended December 31, 2015 largely driven by adverse development in Puerto Rico;
|
•
|
Interest on deferred amounts.
|
(1)
|
Claims recorded include (i) claims paid, including commutation payments and (ii) changes to claims presented and not yet presented through the balance sheet date for policies which were allocated to the Segregated Account. Item (ii) includes permitted policy claims for policies allocated to the Segregated Account that were presented and approved by the Rehabilitator of the Segregated Account but not paid through to the balance sheet date in accordance with the Segregated Account Rehabilitation Plan and associated rules and guidelines. Amounts recorded for claims not yet presented and/or permitted are based on management’s judgment. Claims recorded exclude interest accrued on Deferred Amounts.
|
(2)
|
Claims recorded includes claims paid (including commutation payments) of $310.8, $365.5, and $345.0 for the year ended December 31, 2017, 2016 and 2015, respectively.
|
(3)
|
Claims recorded includes claims paid on Puerto Rico policies of $142.5, $63.3 and $0 for the year ended December 31, 2017, 2016 and 2015, respectively.
|
(4)
|
Subrogation received for the year ended December 31, 2017 includes $49.7 ($49.8 gross of reinsurance) related to a reimbursement of claims due to a mortgage insurance settlement. Subrogation received for the year ended December 31, 2016 includes $992.8 ($995 gross of reinsurance) received from the settlement of representation and warranty related litigation with JP Morgan and $99.1 ($100.3 gross of reinsurance) related to the Countrywide Investor Settlement.
|
•
|
Higher non-compensation costs primarily due to (i) $21.7 million incremental legal, consulting and advisory costs related to the Rehabilitation Exit Transactions, (ii) $5.3 million incremental OCI legal and consulting costs primarily
|
•
|
Lower compensation costs related to salaries, post employment costs, including severance, partially offset by increased long term incentive compensation costs due to an improvement in performance factors. Although post-employment costs have decreased from 2016, the Company reduced headcount in 2017 resulting in severance charges. These charges are lower than prior year due to 2016 including severance costs related to the former CEO.
|
•
|
Higher compensation costs related to severance and post employment costs, due to changes in CEO and reductions in staff partially offset by reduced salary and bonus expense.
|
•
|
Higher non-compensation costs related to stockholder activism, the establishment of $10.0 million of litigation contingencies, higher audit fees, increased outside services and higher regulatory costs. The increase in non-compensation costs were partially offset by reductions in premises costs and premium taxes. Costs associated with stockholder activism amounted to $5.9 million and include legal, consulting and outside services fees.
|
|
Payments Due by Period
|
||||||||||||||||||
($ in millions)
|
Total
|
|
Less Than 1 Year
|
|
1 - 3 Years
|
|
3 - 5 Years
|
|
More Than 5 Years
|
||||||||||
Surplus note obligations
(1)
|
$
|
4,054.2
|
|
|
$
|
368.9
|
|
|
$
|
831.8
|
|
|
$
|
—
|
|
|
$
|
2,853.5
|
|
Operating lease obligations
(2)
|
29.3
|
|
|
6.8
|
|
|
7.5
|
|
|
3.2
|
|
|
11.8
|
|
|||||
Purchase obligations
(3)
|
23.8
|
|
|
21.4
|
|
|
2.4
|
|
|
—
|
|
|
—
|
|
|||||
Postretirement benefits
(4)
|
4.2
|
|
|
0.3
|
|
|
0.6
|
|
|
0.8
|
|
|
2.5
|
|
|||||
Loss and loss expenses
(5)
|
8,025.6
|
|
|
4,196.2
|
|
|
386.7
|
|
|
207.8
|
|
|
3,234.9
|
|
|||||
Income taxes
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|||||
Total
|
$
|
12,137.1
|
|
|
$
|
4,593.6
|
|
|
$
|
1,229.0
|
|
|
$
|
211.8
|
|
|
$
|
6,102.7
|
|
(1)
|
Includes principal of and interest on surplus notes (excluding junior surplus notes) on their scheduled maturity date. Also includes all principal and interest on junior surplus notes on the date all future and existing senior indebtedness of Ambac Assurance, policy and other priority claims against Ambac Assurance have been paid in full (included in the more than 5 years column). All payments of principal and interest on surplus notes are subject to the prior approval of the OCI. If the OCI does not approve the payment of interest on the surplus notes, such interest will accrue and compound annually until paid. Annually from 2011 through 2017, OCI disapproved scheduled interest payments. Amounts in the table assume future approval by OCI for surplus notes (excluding junior surplus notes) for all principal and interest payments, including payment of previously deferred interest totaling $314.4 on the next scheduled payment date of June 7, 2018.
|
(2)
|
Amount represents future lease payments on lease agreements existing as of
December 31, 2017
. Ambac Assurance's lease with One State Street Plaza has a provision where Ambac Assurance can extend the lease of certain floors past the termination date of September 2019 to December 2029. The above table does not reflect payments on those certain floors after the related lease expiry date of September 2019.
|
(3)
|
Purchase obligations represent future expenditures for contractually scheduled fixed terms and amounts due for various technology-related maintenance agreements and other outside services. Includes $18.3 million of success fees to various advisors in connection with the Rehabilitation Exit Transactions.
|
(4)
|
Amount represents future payments relating to Ambac Assurance's postretirement medical reimbursement benefits for current retirees over the next 10 years.
|
(5)
|
The timing of expected claim payments is based on deal specific cash flows, excluding expected recoveries. These deal specific cash flows are based on the expected cash flows of the underlying transactions (e.g. for RMBS credits we model estimated future claim payments). The timing of expected claim payments for credits with reserves that were established using our statistical loss reserve method is determined based on the weighted average expected life of the exposure. Refer to the Loss Reserves section in
Note 2. Basis of Presentation and Significant Accounting Policies
to the Consolidated Financial Statements included in Part II, Item 8 in this Form 10-K for further discussion of our statistical loss reserve method. The timing of these payments may vary significantly from the amounts shown above, especially for credits that are based on our statistical loss reserve method. Included in as an obligation due in less than 1 year, are obligations related to the Segregated Account's unpaid claims of
$3,027.0
and interest accrued on Deferred Amounts of
$839.7
as of
December 31, 2017
. These obligations of the Segregated Account were subject to the Rehabilitation Exit Transactions, which were executed on February 12, 2018. Refer to the Rehabilitation Exit Transactions section in
Note 1. Background and Business Description
to the Consolidated Financial Statements included in Part II, Item 8 in this Form 10-K for further discussion.
|
•
|
Pursuant to the Settlement Agreement, Ambac Assurance may not make any “Restricted Payment” (which includes dividends from Ambac Assurance to Ambac) in excess of $5 million in the aggregate per annum, other than Restricted Payments from Ambac Assurance to Ambac in an amount up to $7.5 million per annum solely to pay operating expenses of Ambac. Concurrent with making any such Restricted Payment, a pro rata amount of surplus notes (other than junior surplus notes) would also need to be redeemed at par.
|
•
|
The Stipulation and Order requires OCI approval for the payment of any dividend or distribution on the common stock of Ambac Assurance.
|
•
|
The year ended December 31, 2017 includes $49.7 million ($49.8 million gross of reinsurance) of subrogation recoveries related to a reimbursement of claims due to a mortgage insurance settlement.
|
•
|
The year ended December 31, 2016 includes the representation and warranty receipt from JP Morgan of $992.8 million ($995.0 million gross of reinsurance) and $99.1 million ($100.3 million gross of reinsurance) of subrogation recoveries related to the Countrywide Investor Settlement.
|
•
|
During the year ended
December 31, 2017
, Ambac made payments of $94.4 million to commute interest rate swaps with a special purpose entity, Augusta Funding Limited IV;
|
•
|
During the year ended
December 31, 2017
, Ambac made payments of $104.7 million to extinguish (on a consolidated basis) principal and interest of surplus notes of Ambac Assurance and the Segregated Account of Ambac Assurance and settled certain residual obligations related to previously called surplus notes ($69.5 million principal and $35.2 million interest). The interest amount reduces operating cash flows and the principal reduced financing cash flows; and
|
•
|
During the years ended
December 31, 2017, 2016 and 2015
, Ambac had net loss and loss expenses paid (recovered) of
$134.3 million
,
$(939.6) million
and $1.1 million, respectively. Included in the recoveries for the year ended December 31, 2017 were the subrogation recoveries related to a mortgage insurance settlement of $49.7 million ($49.8 million gross of reinsurance). Included in the recoveries for the year ended December 31, 2016 were the representation and warranty receipt from JP Morgan of $992.8 million and $99.1 million of subrogation recoveries related to the Countrywide Investor Settlement. Excluding subrogation receipts, loss and loss expenses paid, including commutation payments, were $378.3 million, $415.8 million, and $398.3 million for the years ended
December 31, 2017, 2016 and 2015
, respectively. Losses paid on Puerto Rico polices were $142.5 million, $63.3 million and $0.0 million for the years ended December 31, 2017, 2016 and 2015, respectively.
|
•
|
During the year ended
December 31, 2017 and 2016
tax payments amounted to
$40.3 million
and
$21 million
, respectively.
|
(1)
|
Includes investments denominated in non-US dollar currencies with a fair value of
£209.8
(
$283.6
) and
€40.9
(
$49.1
) as of
December 31, 2017
and
£167.8
(
$206.7
) and
€23.5
(
$24.7
) as of
December 31, 2016
.
|
(1)
|
Includes investments guaranteed by Ambac Assurance and Ambac UK for both years presented. Refer to
Note 10. Investments
in this 10-K located in Part II. Item 8 for further details of Ambac-insured securities held in the investment portfolio.
|
(1)
|
Ratings are based on the lower of Moody’s or S&P ratings. If ratings are unavailable from Moody's or S&P, Fitch ratings are used. If guaranteed, rating represents the higher of the underlying or guarantor’s financial strength rating.
|
(2)
|
Below investment grade and not rated bonds insured by Ambac represent
64%
and
45%
of the
2017
and
2016
combined portfolio, respectively. The increase in the percentage of not rated and below investment grade holdings since
December 31, 2016
is driven by additional purchases of Ambac insured bonds.
|
Currency
(Amounts in millions)
|
|
Premium Receivable in Payment Currency
|
|
Premium Receivable in U.S. dollars
|
||||
U.S. Dollars
|
|
$
|
397.6
|
|
|
$
|
397.6
|
|
British Pounds
|
|
£
|
112.3
|
|
|
151.9
|
|
|
Euros
|
|
€
|
30.0
|
|
|
36.0
|
|
|
Australian Dollars
|
|
A$
|
1.0
|
|
|
0.8
|
|
|
Total
|
|
|
|
$
|
586.3
|
|
|
Unpaid Claims
|
|
Present Value of Expected
Net Cash Flows |
|
Unearned
Premium Revenue |
|
Gross Loss
and Loss Expense Reserves (2) |
||||||||||||||||
($ in millions)
Balance Sheet Line Item |
Claims
|
|
Accrued Interest
|
|
Claims and
Loss Expenses |
|
Recoveries
(1)
|
|
|||||||||||||||
December 31, 2017:
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||
Loss and loss expense reserves
|
$
|
2,412
|
|
|
$
|
668
|
|
|
$
|
2,855
|
|
|
$
|
(1,054
|
)
|
|
$
|
(136
|
)
|
|
$
|
4,745
|
|
Subrogation recoverable
|
615
|
|
|
172
|
|
|
102
|
|
|
(1,520
|
)
|
|
—
|
|
|
(631
|
)
|
||||||
Totals
|
$
|
3,027
|
|
|
$
|
840
|
|
|
$
|
2,957
|
|
|
$
|
(2,574
|
)
|
|
$
|
(136
|
)
|
|
$
|
4,114
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||
December 31, 2016:
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||
Loss and loss expense reserves
|
$
|
2,411
|
|
|
$
|
530
|
|
|
$
|
2,681
|
|
|
$
|
(1,098
|
)
|
|
$
|
(143
|
)
|
|
$
|
4,381
|
|
Subrogation recoverable
|
583
|
|
|
132
|
|
|
68
|
|
|
(1,468
|
)
|
|
—
|
|
|
(685
|
)
|
||||||
Totals
|
$
|
2,994
|
|
|
$
|
662
|
|
|
$
|
2,749
|
|
|
$
|
(2,566
|
)
|
|
$
|
(143
|
)
|
|
$
|
3,696
|
|
(1)
|
Includes the present value of future recoveries include R&W subrogation recoveries of
$1,834
and
$1,907
at
December 31, 2017 and 2016
, respectively.
|
(2)
|
Includes Euro denominated gross loss and loss expense reserves. US dollar equivalents of such reserves were
$21
(
€18
) and
$21
(
€20
) at
December 31, 2017 and 2016
, respectively.
|
|
|
|
Unpaid Claims
|
|
Present Value of Expected
Net Cash Flows |
|
Unearned
Premium Revenue |
|
Gross Loss
and Loss Expense Reserves (1)(3) |
||||||||||||||||||
($ in millions)
|
Gross Par
Outstanding (1)(2) |
|
Claims
|
|
Accrued
Interest |
|
Claims and
Loss Expenses |
|
Recoveries
|
|
|||||||||||||||||
December 31, 2017:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||||
RMBS
|
$
|
5,243
|
|
|
$
|
3,014
|
|
|
$
|
837
|
|
|
$
|
888
|
|
|
$
|
(2,120
|
)
|
|
$
|
(21
|
)
|
|
$
|
2,598
|
|
Domestic Public Finance
|
4,265
|
|
|
13
|
|
|
3
|
|
|
1,278
|
|
|
(403
|
)
|
|
(75
|
)
|
|
816
|
|
|||||||
Student Loans
|
701
|
|
|
—
|
|
|
—
|
|
|
361
|
|
|
(40
|
)
|
|
(13
|
)
|
|
308
|
|
|||||||
Ambac UK
|
941
|
|
|
—
|
|
|
—
|
|
|
315
|
|
|
(11
|
)
|
|
(18
|
)
|
|
286
|
|
|||||||
All other credits
|
537
|
|
|
—
|
|
|
—
|
|
|
26
|
|
|
—
|
|
|
(9
|
)
|
|
17
|
|
|||||||
Loss expenses
|
—
|
|
|
—
|
|
|
—
|
|
|
89
|
|
|
—
|
|
|
—
|
|
|
89
|
|
|||||||
Totals
|
$
|
11,687
|
|
|
$
|
3,027
|
|
|
$
|
840
|
|
|
$
|
2,957
|
|
|
$
|
(2,574
|
)
|
|
$
|
(136
|
)
|
|
$
|
4,114
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||||
December 31, 2016:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||||
RMBS
|
$
|
6,756
|
|
|
$
|
2,982
|
|
|
$
|
660
|
|
|
$
|
1,073
|
|
|
$
|
(2,295
|
)
|
|
$
|
(26
|
)
|
|
$
|
2,394
|
|
Domestic Public Finance
|
4,410
|
|
|
12
|
|
|
2
|
|
|
822
|
|
|
(216
|
)
|
|
(73
|
)
|
|
547
|
|
|||||||
Student Loans
|
728
|
|
|
—
|
|
|
—
|
|
|
337
|
|
|
(45
|
)
|
|
(13
|
)
|
|
279
|
|
|||||||
Ambac UK
(4)
|
939
|
|
|
—
|
|
|
—
|
|
|
416
|
|
|
(10
|
)
|
|
(18
|
)
|
|
388
|
|
|||||||
All other credits
|
567
|
|
|
—
|
|
|
—
|
|
|
26
|
|
|
—
|
|
|
(13
|
)
|
|
13
|
|
|||||||
Loss expenses
|
—
|
|
|
—
|
|
|
—
|
|
|
75
|
|
|
—
|
|
|
—
|
|
|
75
|
|
|||||||
Totals
|
$
|
13,400
|
|
|
$
|
2,994
|
|
|
$
|
662
|
|
|
$
|
2,749
|
|
|
$
|
(2,566
|
)
|
|
$
|
(143
|
)
|
|
$
|
3,696
|
|
(1)
|
Ceded par outstanding on policies with loss reserves and ceded loss and loss expense reserves are $590 and $41, respectively, at
December 31, 2017
and $607 and $31, respectively at
December 31, 2016
. Ceded loss and loss expense reserves are included in Reinsurance recoverable on paid and unpaid losses.
|
(2)
|
Gross Par Outstanding includes capital appreciation bonds, which are reported at the par amount at the time of issuance of the insurance policy as opposed to the current accreted value of the bond.
|
(3)
|
Loss reserves are included in the balance sheet as Loss and loss expense reserves or Subrogation recoverable dependent on if a policy is in a net liability or net recoverable position.
|
(4)
|
Present value of Expected Net Cash Flows is reduced by estimated recoveries from the Ambac UK v. J.P. Morgan Investmen
t Management litigation, which was settled in 2017.
Please refer to
Note 7. Financial Guarantee Insurance Contracts
of the Consolidated Financial Statements in Part II, Item 8 of this Form 10-K for additional information relating to this settlement.
|
($ in millions)
|
|
Gross Par
Outstanding |
|
Gross Loss
Reserves Before Representation and Warranty Subrogation Recoveries |
|
Representation
and Warranty Subrogation Recoveries |
|
Gross Loss
Reserves Net of Representation and Warranty Subrogation Recoveries |
||||||||
December 31, 2017:
|
|
|
|
|
|
|
|
|
||||||||
Second-lien
|
|
$
|
1,065
|
|
|
$
|
735
|
|
|
$
|
—
|
|
|
$
|
735
|
|
First-lien Mid-prime
|
|
1,849
|
|
|
1,997
|
|
|
—
|
|
|
1,997
|
|
||||
First-lien Sub-prime
|
|
667
|
|
|
190
|
|
|
—
|
|
|
190
|
|
||||
Other
|
|
137
|
|
|
144
|
|
|
—
|
|
|
144
|
|
||||
Total Credits Without Subrogation
|
|
3,718
|
|
|
3,066
|
|
|
—
|
|
|
3,066
|
|
||||
Second-lien
|
|
735
|
|
|
719
|
|
|
(1,272
|
)
|
|
(553
|
)
|
||||
First-lien Mid-prime
|
|
59
|
|
|
104
|
|
|
(79
|
)
|
|
25
|
|
||||
First-lien Sub-prime
|
|
731
|
|
|
543
|
|
|
(483
|
)
|
|
60
|
|
||||
Total Credits With Subrogation
|
|
1,525
|
|
|
1,366
|
|
|
(1,834
|
)
|
|
(468
|
)
|
||||
Total
|
|
$
|
5,243
|
|
|
$
|
4,432
|
|
|
$
|
(1,834
|
)
|
|
$
|
2,598
|
|
|
|
|
|
|
|
|
|
|
||||||||
December 31, 2016:
|
|
|
|
|
|
|
|
|
||||||||
Second-lien
|
|
$
|
1,169
|
|
|
$
|
679
|
|
|
$
|
—
|
|
|
$
|
679
|
|
First-lien-Mid-prime
|
|
2,226
|
|
|
1,901
|
|
|
—
|
|
|
1,901
|
|
||||
First-lien-Sub-prime
|
|
1,194
|
|
|
231
|
|
|
—
|
|
|
231
|
|
||||
Other
|
|
201
|
|
|
138
|
|
|
—
|
|
|
138
|
|
||||
Total Credits Without Subrogation
|
|
4,790
|
|
|
2,949
|
|
|
—
|
|
|
2,949
|
|
||||
Second-lien
|
|
1,045
|
|
|
705
|
|
|
(1,333
|
)
|
|
(628
|
)
|
||||
First-lien Mid-prime
|
|
72
|
|
|
97
|
|
|
(79
|
)
|
|
18
|
|
||||
First-lien Sub-prime
|
|
849
|
|
|
550
|
|
|
(495
|
)
|
|
55
|
|
||||
Total Credits With Subrogation
|
|
1,966
|
|
|
1,352
|
|
|
(1,907
|
)
|
|
(555
|
)
|
||||
Total
|
|
$
|
6,756
|
|
|
$
|
4,301
|
|
|
$
|
(1,907
|
)
|
|
$
|
2,394
|
|
($ in millions)
Issuer Type
December 31,
|
2017
|
|
2016
|
||||||||||||
Gross Par
Outstanding (1) |
|
Gross Loss
Reserves |
|
Gross Par
Outstanding (1) |
|
Gross Loss
Reserves |
|||||||||
Lease and tax-backed
|
$
|
2,201
|
|
|
$
|
650
|
|
|
$
|
2,114
|
|
|
$
|
395
|
|
General obligation
|
1,053
|
|
|
60
|
|
|
1,422
|
|
|
78
|
|
||||
Transportation revenue
|
495
|
|
|
64
|
|
|
516
|
|
|
62
|
|
||||
Housing
|
449
|
|
|
31
|
|
|
179
|
|
|
9
|
|
||||
Other
|
67
|
|
|
11
|
|
|
179
|
|
|
3
|
|
||||
Total
|
$
|
4,265
|
|
|
$
|
816
|
|
|
$
|
4,410
|
|
|
$
|
547
|
|
•
|
Loss reserves are only established for losses on guaranteed obligations that have defaulted in an amount that is sufficient to cover the present value of the anticipated defaulted debt service payments over the expected period of default, less estimated recoveries under subrogation rights (5.1% as prescribed by OCI). Loss reserves are established for non-defaulted policies on the date when a binding commutation contract is signed by the counterparty. Under GAAP, in addition to the establishment of loss reserves for defaulted obligations, loss reserves are established (net of GAAP basis unearned premium revenue) for obligations that have experienced credit deterioration, but have not yet defaulted using a weighted-average risk-free discount rate, currently at
2.5%.
|
•
|
Mandatory contingency reserves are required based upon the type of obligation insured, whereas GAAP does not require such a reserve. Releases of the contingency reserves are generally subject to OCI approval and relate to a determination that the held reserves are deemed excessive.
|
•
|
Investment grade fixed income investments are stated at amortized cost and certain below investment grade fixed income investments are reported at the lower of amortized cost or fair value. Under GAAP, all fixed income investments are reported at fair value.
|
•
|
Wholly owned subsidiaries are not consolidated; rather, the equity basis of accounting is utilized and the carrying values of these investments are subject to admissibility tests. When Ambac Assurance’s share of the subsidiaries’ losses exceeds
|
•
|
Variable interest entities are not required to be assessed for consolidation. Under GAAP, a reporting entity that has both the following characteristics is required to consolidate the VIE: a) the power to direct the activities of the VIE that most significantly impact the VIE’s economic performance; and b) the obligation to absorb losses of the VIE or the right to receive benefits from the VIE that could potentially be significant to the VIE. Ambac generally has the obligation to absorb losses of VIEs that could potentially be significant to the VIE as the result of its guarantee of insured obligations issued by VIEs. For certain VIEs Ambac Assurance has the power to direct the most significant activities of the VIE and accordingly consolidates the related VIEs under GAAP.
|
•
|
All payments of principal and interest on the surplus notes are subject to the approval of the OCI. Unpaid interest due on the surplus notes is expensed when the approval for payment of interest has been granted by the OCI. Under GAAP, interest on surplus notes is accrued regardless of OCI approval.
|
•
|
Upfront premiums written are earned on a basis proportionate to the remaining scheduled debt service to the original total principal and interest insured. Installment premiums are reflected in income pro-rata over the period covered by the premium payment. When an insurance policy has been legally defeased, the related portion of unearned premium revenue is accelerated and recognized as premiums earned. Under GAAP, premium revenues for both upfront and installment premiums are earned over the life of the financial guarantee contract in proportion to the insured principal amount outstanding at each reporting date. When an insured bond has been retired, any remaining UPR is recognized at that time to the extent the financial guarantee contract is legally extinguished, causing accelerated premium revenue. For installment premium paying transactions, we offset the recognition of any remaining UPR by the reduction of the related premium receivable to zero, which may cause negative accelerated premium revenue. For bonds that are legally defeased, generally through a refunding or a pre-refunding, the remaining unearned premium revenue is not accelerated but is recognized over the remaining life of the defeasance period.
|
•
|
Fresh start financial statement reporting is not a concept within SAP. Under GAAP, Ambac determined that fresh start financial statement reporting was to be applied upon our emergence from Chapter 11. Fresh start financial reporting required Ambac to adjust the historical carrying of its assets and liabilities to fair value, including an insurance intangible asset which represented the difference between the fair value and aggregate carrying value of the financial guarantee insurance and reinsurance assets and liabilities. This
|
•
|
Loss reserves are only established for losses on guaranteed obligations when, in the judgment of management, a monetary default in the timely payment of debt service is likely to occur, which would result in Ambac UK incurring a loss. A loss provision is established in an amount that is sufficient to cover the present value (currently using a discount rate of 4.42%) of the anticipated defaulted debt service payments over the expected period of default, less estimated recoveries under subrogation rights. The discount rate is equal to the lower of the rate of return on invested assets for either the current year or the period covering the current year plus the four previous years. Under U.S. GAAP, loss reserves are established (net of U.S. GAAP basis unearned premium revenue) for obligations that have experienced credit deterioration, but have not yet defaulted using a weighted-average risk-free discount rate, currently at 1.6% for Ambac UK related transactions.
|
•
|
Investments in fixed income securities are stated at amortized cost, subject to an other-than-temporary impairment evaluation. Under U.S. GAAP, all bonds are reported at fair value.
|
•
|
Purchases of Ambac UK insured securities are bifurcated into an intrinsic and an Ambac UK claim based value. The intrinsic value is recorded as an investment whereas the Ambac UK claim based value is recorded as a claim payment with an accompanying reduction in Ambac UK loss reserves. Under U.S. GAAP, purchases of Ambac UK insured securities are reported as investments and do not reduce loss reserves.
|
•
|
Variable interest entities (“VIE”) are not required to be assessed for consolidation. Under U.S. GAAP, a reporting entity that has both the following characteristics is required to consolidate the VIE: a) the power to direct the activities of
|
•
|
Upfront premiums written are earned on a basis proportionate to the remaining scheduled debt service to the total principal and interest insured. Installment premiums are reflected in income pro-rata over the period covered by the premium payment. Under U.S. GAAP, premium revenues for both upfront and installment premiums are earned over the life of the financial guarantee contract in proportion to the insured principal amount outstanding at each reporting date.
|
•
|
Non-credit impairment fair value (gain) loss on credit derivatives:
Elimination of the non-credit impairment fair value gains (losses) on credit derivatives, which is the amount in excess of the present value of the expected estimated credit losses. Such fair value adjustments are affected by, and in part fluctuate with, changes in market factors such as interest rates and credit spreads, including the market’s perception of Ambac’s credit risk (“Ambac CVA”), and are not expected to result in an economic gain or loss. These adjustments allow for all financial guarantee contracts to be accounted for consistent with the Financial Services – Insurance Topic of ASC, whether or not they are subject to derivative accounting rules.
|
•
|
Insurance intangible amortization and impairment of goodwill:
Elimination of the amortization of the financial guarantee insurance intangible asset and impairment of goodwill that arose as a result of the implementation of Fresh Start reporting. These adjustments ensure that all financial guarantee contracts are accounted for consistent with the provisions of the Financial Services – Insurance Topic of the ASC.
|
•
|
Foreign exchange (gains) losses:
Elimination of the foreign exchange gains (losses) on the re-measurement of assets, liabilities and transactions in non-functional currencies. This adjustment eliminates the foreign exchange gains (losses) on all assets, liabilities and transactions in non-functional currencies, which enables users of our financial statements to better view the business results without the impact of fluctuations in foreign currency exchange rates, particularly as assets held in non-functional currencies have grown, and facilitates period-to-period comparisons of Ambac's operating performance.
|
•
|
Fair value (gain) loss on interest rate derivative from Ambac CVA:
Elimination of the gains (losses) relating to Ambac’s CVA on interest rate derivative contracts. Similar to credit derivatives, fair values include the market’s perception of Ambac’s credit risk and this adjustment only allows for such gain or loss when realized.
|
|
2017
|
|
2016
|
|
2015
|
||||||||||||||||||
($ in millions, except per share data)
Year Ended December 31, |
$ Amount
|
|
Per Diluted Share
|
|
$ Amount
|
|
Per Diluted Share
|
|
$ Amount
|
|
Per Diluted Share
|
||||||||||||
Net income (loss) attributable to common shareholders
|
$
|
(328.7
|
)
|
|
$
|
(7.25
|
)
|
|
$
|
74.8
|
|
|
$
|
1.64
|
|
|
$
|
493.4
|
|
|
$
|
10.72
|
|
Adjustments:
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||
Non-credit impairment fair value (gain) loss on credit derivatives
|
(10.9
|
)
|
|
(0.24
|
)
|
|
(7.5
|
)
|
|
(0.16
|
)
|
|
(36.7
|
)
|
|
(0.80
|
)
|
||||||
Insurance intangible amortization
|
150.9
|
|
|
3.33
|
|
|
174.6
|
|
|
3.82
|
|
|
169.6
|
|
|
3.69
|
|
||||||
Impairment of goodwill
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
514.5
|
|
|
11.18
|
|
||||||
Foreign exchange (gains) losses
(1)
|
(21.3
|
)
|
|
(0.47
|
)
|
|
39.1
|
|
|
0.86
|
|
|
27.4
|
|
|
0.60
|
|
||||||
Fair value (gain) loss on interest rate derivatives from Ambac CVA
|
44.9
|
|
|
0.99
|
|
|
33.8
|
|
|
0.73
|
|
|
(14.2
|
)
|
|
(0.31
|
)
|
||||||
Adjusted Earnings (Loss)
|
$
|
(165.1
|
)
|
|
$
|
(3.64
|
)
|
|
$
|
314.8
|
|
|
$
|
6.89
|
|
|
$
|
1,154.0
|
|
|
$
|
25.08
|
|
•
|
Non-credit impairment fair value losses on credit derivatives:
Elimination of the non-credit impairment fair value loss on credit derivatives, which is the amount in excess of the present value of the expected estimated economic credit loss. GAAP
|
•
|
Insurance intangible asset:
Elimination of the financial guarantee insurance intangible asset that arose as a result of Ambac’s emergence from bankruptcy and the implementation of Fresh Start reporting. This adjustment ensures that all financial guarantee contracts are accounted for within Adjusted Book Value consistent with the provisions of the Financial Services—Insurance Topic of the ASC.
|
•
|
Ambac CVA on interest rate derivative liabilities:
Elimination of the gain relating to Ambac’s CVA on interest rate derivative contracts. Similar to credit derivatives, fair values include the market’s perception of Ambac’s credit risk and this adjustment only allows for such gain when realized.
|
•
|
Net unearned premiums and fees in excess of expected losses:
Addition of the value of the unearned premium revenue
|
•
|
Net unrealized investment (gains) losses in Accumulated Other Comprehensive Income:
Elimination of the unrealized gains and losses on the Company’s investments that are recorded as a component of accumulated other comprehensive income (“AOCI”). The AOCI component of the fair value adjustment on the investment portfolio may differ from realized gains and losses ultimately recognized by the Company based on the Company’s investment strategy. This adjustment only allows for such gains and losses in Adjusted Book Value when realized.
|
|
2017
|
|
2016
|
||||||||||||
($ in millions, except per share data) December 31,
|
$ Amount
|
|
Per Share
|
|
$ Amount
|
|
Per Share
|
||||||||
Total Ambac Financial Group, Inc. stockholders’ equity
|
$
|
1,381.1
|
|
|
$
|
30.52
|
|
|
$
|
1,713.9
|
|
|
$
|
37.94
|
|
Adjustments:
|
|
|
|
|
|
|
|
||||||||
Non-credit impairment fair value losses on credit derivatives
|
0.6
|
|
|
0.01
|
|
|
11.4
|
|
|
0.25
|
|
||||
Insurance intangible asset
|
(847.0
|
)
|
|
(18.71
|
)
|
|
(962.1
|
)
|
|
(21.30
|
)
|
||||
Ambac CVA on interest rate derivative liabilities
|
—
|
|
|
—
|
|
|
(44.9
|
)
|
|
(0.99
|
)
|
||||
Net unearned premiums and fees in excess of expected losses
|
597.3
|
|
|
13.20
|
|
|
732.2
|
|
|
16.21
|
|
||||
Net unrealized investment (gains) losses in Accumulated Other Comprehensive Income
|
(30.8
|
)
|
|
(0.68
|
)
|
|
(118.9
|
)
|
|
(2.63
|
)
|
||||
Adjusted Book Value
|
$
|
1,101.3
|
|
|
$
|
24.34
|
|
|
$
|
1,331.7
|
|
|
$
|
29.48
|
|
(dollars in millions)
|
|
December 31, 2017
|
|
Adjustments
|
|
|
|
Pro forma December 31, 2017
|
||||||
Assets:
|
|
|
|
|
|
|
|
|
||||||
Total non-variable interest entity investments, cash and cash equivalents
|
|
$
|
6,364
|
|
|
$
|
(1,786
|
)
|
|
(1)
|
|
$
|
4,578
|
|
Subrogation recoverable
|
|
631
|
|
|
1,312
|
|
|
(2)
|
|
1,943
|
|
|||
Other assets
|
|
1,696
|
|
|
(9
|
)
|
|
(3)
|
|
1,687
|
|
|||
Total VIE assets
|
|
14,501
|
|
|
—
|
|
|
|
|
14,501
|
|
|||
Total assets
|
|
$
|
23,192
|
|
|
$
|
(483
|
)
|
|
|
|
$
|
22,710
|
|
Liabilities and Stockholders' Equity:
|
|
|
|
|
|
|
|
|
||||||
Liabilities:
|
|
|
|
|
|
|
|
|
||||||
Loss and loss expense reserve
|
|
$
|
4,745
|
|
|
$
|
(2,555
|
)
|
|
(2)
|
|
$
|
2,190
|
|
Long-term debt
|
|
992
|
|
|
1,952
|
|
|
(4)
|
|
2,944
|
|
|||
Accrued interest payable
|
|
437
|
|
|
(224
|
)
|
|
(4)
|
|
213
|
|
|||
Other liabilities
|
|
1,007
|
|
|
—
|
|
|
|
|
1,007
|
|
|||
Total VIE liabilities
|
|
14,366
|
|
|
—
|
|
|
|
|
14,366
|
|
|||
Total liabilities
|
|
21,547
|
|
|
(827
|
)
|
|
|
|
20,720
|
|
|||
Stockholders' equity
|
|
1,645
|
|
|
344
|
|
|
(2)(5)(6)
|
|
1,989
|
|
|||
Total liabilities and stockholders' equity
|
|
$
|
23,192
|
|
|
$
|
(483
|
)
|
|
|
|
$
|
22,710
|
|
(1)
|
The net cash and investment outflows reflects the distributions under the Rehabilitation Exit Transactions as follows:
|
(2)
|
The transactions pursuant to the Second Amended Plan of Rehabilitation where Ambac is settling its unpaid claims at a discount is being accounted for as an extinguishment, where the discount of approximately $287 is reflected in the pro forma consolidated balance sheet as an increase to Retained Earnings. As a result of the settlement, future net cash flows on certain policies will become an asset and are reclassified to Subrogation recoverable.
|
(3)
|
Reflects the reclass of previously capitalized costs directly associated with the issuance of the Ambac Notes or Tier 2 Notes to Long-term debt that will be amortized as part of the effective yield calculation.
|
(4)
|
The discount received in the other Rehabilitation Exit Transactions are being accounted for as a debt modification since the creditors before and after the discount remain the same and the change in the terms is not considered substantial. A substantial change is considered to be a change in cash flows of equal to or greater than 10% as a result of the modification of terms. As the change in cash flows is less than 10%, debt modification accounting is appropriate. Under debt modification accounting, no gain or loss is recorded, and a new effective interest rate is established based on the Ambac Note cash flows. Additionally, any consideration paid that is directly related to the issuance of the Ambac Note is capitalized and amortized as part of the effective yield calculation. The net long-term debt increase reflects the impact of the Rehabilitation Exit Transactions as follows:
|
(dollars in millions)
|
|
Long-term Debt
|
|
Accrued Interest Payable
|
||||
Tier 2 Notes issuance
|
|
$
|
240
|
|
|
$
|
—
|
|
Ambac Note issuance
|
|
2,145
|
|
|
—
|
|
||
Cash payment for on-time current interest payment on remaining surplus notes
|
|
—
|
|
|
(11
|
)
|
||
Deferred loss on Rehabilitation Exit Transactions and debt issuance costs
|
|
(20
|
)
|
|
—
|
|
||
Reduction in carrying value of Surplus Notes
|
|
(413
|
)
|
|
(213
|
)
|
||
|
|
$
|
1,952
|
|
|
$
|
(224
|
)
|
(5)
|
As a result of the Rehabilitation Exit Transactions, Ambac will receive settlement of its ownership in Deferred Amounts and would realize a gain of $57 over the carrying value of the associated Ambac-insured RMBS as of December 31, 2017.
|
(6)
|
This pro forma information does not incorporate any assumptions regardin
g taxes.
|
|
|
|
|
|
|
Pro Forma
|
|
|
|
|
||||||||||||||
|
|
Reported
|
|
Post Restructuring
(1)
|
|
|
|
|
||||||||||||||||
|
|
December 31, 2017
|
|
December 31, 2017
|
|
Change
|
||||||||||||||||||
($ in millions, except per share data)
|
|
$ Amount
|
|
Per Share
|
|
$ Amount
|
|
Per Share
|
|
$ Amount
|
|
Per Share
|
||||||||||||
Total AFGI Shareholders' Equity
|
|
$
|
1,381.1
|
|
|
$
|
30.52
|
|
|
$
|
1,725.2
|
|
|
38.08
|
|
|
$
|
344.0
|
|
|
$
|
7.56
|
|
|
Adjustments:
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||
Non-credit impairment unrealized fair value losses on credit derivatives
|
|
0.6
|
|
|
0.01
|
|
|
0.6
|
|
|
0.01
|
|
|
—
|
|
|
—
|
|
||||||
Insurance intangible asset
|
|
(847.0
|
)
|
|
(18.71
|
)
|
|
(847.0
|
)
|
|
(18.71
|
)
|
|
—
|
|
|
—
|
|
||||||
Net unearned premiums and fees in excess of expected losses
|
|
597.3
|
|
|
13.20
|
|
|
597.3
|
|
|
13.20
|
|
|
—
|
|
|
—
|
|
||||||
Net unrealized investment (gains) losses in AOCI
|
|
(30.8
|
)
|
|
(0.68
|
)
|
|
(30.8
|
)
|
|
(0.68
|
)
|
|
—
|
|
|
—
|
|
||||||
Adjusted book value
|
|
$
|
1,101.3
|
|
|
$
|
24.34
|
|
|
$
|
1,445.3
|
|
|
$
|
31.90
|
|
|
$
|
344.0
|
|
|
$
|
7.56
|
|
Shares Outstanding (in millions)
|
|
|
|
45.3
|
|
|
|
|
45.3
|
|
|
|
|
|
(1)
|
Pro forma amounts are estimates, subject to revisions and are not reflective of actual or future operating results.
|
|
|
Change in Interest Rates
|
|||||||||||||||||
($ in millions)
|
|
300 basis point rise
|
|
200 basis point rise
|
|
100 basis point rise
|
|
Base scenario
|
|
100 basis point decline
(1)
|
|
200 basis point decline
(1)
|
|||||||
Estimated change in net fair value
|
|
$
|
181
|
|
|
121
|
|
|
60
|
|
|
—
|
|
|
(61
|
)
|
|
(123
|
)
|
Estimated net fair value
|
|
$
|
871
|
|
|
811
|
|
|
750
|
|
|
690
|
|
|
629
|
|
|
567
|
|
(1)
|
Incorporates an interest rate floor of 0%
|
|
|
Change in Obligor Spreads
|
||||||||||||||
($ in millions)
|
|
250 basis point widening
|
|
50 basis point widening
|
|
Base scenario
|
|
50 basis point narrowing
|
|
250 basis point narrowing
|
||||||
Estimated change in fair value
|
|
$
|
(23
|
)
|
|
(5
|
)
|
|
—
|
|
|
4
|
|
|
7
|
|
Estimated fair value
|
|
$
|
(33
|
)
|
|
(15
|
)
|
|
(10
|
)
|
|
(6
|
)
|
|
(3
|
)
|
|
|
Change in Spreads
|
||||||||||||||
($ in millions)
|
|
250 basis point widening
|
|
50 basis point widening
|
|
Base scenario
|
|
50 basis point narrowing
|
|
250 basis point narrowing
|
||||||
Estimated change in fair value
|
|
$
|
(149
|
)
|
|
(30
|
)
|
|
—
|
|
|
31
|
|
|
84
|
|
Estimated fair value
|
|
$
|
2,596
|
|
|
2,715
|
|
|
2,745
|
|
|
2,776
|
|
|
2,829
|
|
|
Change in Foreign Exchange Rates Against U.S. Dollar
|
||||||||||||||
($ in millions)
|
20% Decrease
|
|
10% Decrease
|
|
10% Increase
|
|
20% Increase
|
||||||||
Estimated change in fair value
|
$
|
(67
|
)
|
|
$
|
(34
|
)
|
|
$
|
34
|
|
|
$
|
67
|
|
(Dollars in thousands, except share data) December 31,
|
2017
|
|
2016
|
||||
Assets:
|
|
|
|
||||
Investments:
|
|
|
|
||||
Fixed income securities, at fair value (amortized cost of $4,614,623 and $5,435,385)
|
$
|
4,652,172
|
|
|
$
|
5,554,215
|
|
Fixed income securities pledged as collateral, at fair value (amortized cost of $99,719 and $64,833)
|
99,719
|
|
|
64,905
|
|
||
Short-term investments, at fair value (amortized cost of $557,476 and $430,827)
|
557,270
|
|
|
430,788
|
|
||
Other investments (includes $396,689 and $420,304 at fair value)
|
431,630
|
|
|
450,307
|
|
||
Total investments
|
5,740,791
|
|
|
6,500,215
|
|
||
Cash and cash equivalents
|
623,703
|
|
|
91,025
|
|
||
Receivable for securities
|
11,177
|
|
|
2,090
|
|
||
Investment income due and accrued
|
16,532
|
|
|
26,023
|
|
||
Premium receivables
|
586,312
|
|
|
661,337
|
|
||
Reinsurance recoverable on paid and unpaid losses
|
40,997
|
|
|
30,418
|
|
||
Deferred ceded premium
|
52,195
|
|
|
69,624
|
|
||
Subrogation recoverable
|
631,213
|
|
|
684,731
|
|
||
Loans
|
10,358
|
|
|
4,160
|
|
||
Derivative assets
|
73,199
|
|
|
77,742
|
|
||
Current taxes
|
11,803
|
|
|
—
|
|
||
Insurance intangible asset
|
846,973
|
|
|
962,080
|
|
||
Other assets
|
46,614
|
|
|
158,423
|
|
||
Variable interest entity assets:
|
|
|
|
||||
Fixed income securities, at fair value
|
2,914,145
|
|
|
2,622,566
|
|
||
Restricted cash
|
978
|
|
|
4,873
|
|
||
Loans, at fair value
|
11,529,384
|
|
|
10,658,963
|
|
||
Derivative assets
|
54,877
|
|
|
80,407
|
|
||
Other assets
|
1,123
|
|
|
1,025
|
|
||
Total assets
|
$
|
23,192,374
|
|
|
$
|
22,635,702
|
|
Liabilities and Stockholders’ Equity:
|
|
|
|
||||
Liabilities:
|
|
|
|
||||
Unearned premiums
|
$
|
783,155
|
|
|
$
|
967,258
|
|
Loss and loss expense reserves
|
4,745,015
|
|
|
4,380,769
|
|
||
Ceded premiums payable
|
37,876
|
|
|
42,529
|
|
||
Obligations under investment agreements
|
—
|
|
|
82,358
|
|
||
Deferred taxes
|
33,659
|
|
|
1,720
|
|
||
Current taxes
|
—
|
|
|
14,280
|
|
||
Long-term debt
|
991,696
|
|
|
1,114,405
|
|
||
Accrued interest payable
|
436,984
|
|
|
421,975
|
|
||
Derivative liabilities
|
82,782
|
|
|
319,286
|
|
||
Other liabilities
|
67,583
|
|
|
76,589
|
|
||
Payable for securities purchased
|
1,932
|
|
|
1,084
|
|
||
Variable interest entity liabilities:
|
|
|
|
||||
Accrued interest payable
|
589
|
|
|
859
|
|
||
Long-term debt, at fair value
|
12,160,544
|
|
|
11,155,936
|
|
||
Derivative liabilities
|
2,205,264
|
|
|
2,078,601
|
|
||
Other liabilities
|
37
|
|
|
29
|
|
||
Total liabilities
|
21,547,116
|
|
|
20,657,678
|
|
||
Commitments and contingencies (See Note 16)
|
|
|
|
||||
Stockholders’ equity:
|
|
|
|
||||
Preferred stock, par value $0.01 per share; 20,000,000 shares authorized shares; issued and outstanding shares—none
|
—
|
|
|
—
|
|
||
Common stock, par value $0.01 per share; 130,000,000 shares authorized; issued and outstanding shares: 45,275,982 and 45,194,954
|
453
|
|
|
452
|
|
||
Additional paid-in capital
|
199,560
|
|
|
195,267
|
|
||
Accumulated other comprehensive income (loss)
|
(52,239
|
)
|
|
(38,990
|
)
|
||
Retained earnings
|
1,233,845
|
|
|
1,557,681
|
|
||
Treasury stock, shares at cost: 24,816 and
22,458
|
(471
|
)
|
|
(496
|
)
|
||
Total Ambac Financial Group, Inc. stockholders’ equity
|
1,381,148
|
|
|
1,713,914
|
|
||
Noncontrolling interest
|
264,110
|
|
|
264,110
|
|
||
Total stockholders’ equity
|
1,645,258
|
|
|
1,978,024
|
|
||
Total liabilities and stockholders’ equity
|
$
|
23,192,374
|
|
|
$
|
22,635,702
|
|
(Dollars in thousands, except share data) Year Ended December 31,
|
2017
|
|
2016
|
|
2015
|
||||||
Revenues:
|
|
|
|
|
|
||||||
Net premiums earned
|
$
|
175,277
|
|
|
$
|
197,287
|
|
|
$
|
312,595
|
|
Net investment income:
|
|
|
|
|
|
||||||
Securities available-for-sale and short-term
|
337,774
|
|
|
281,049
|
|
|
249,337
|
|
|||
Other investments
|
23,179
|
|
|
32,318
|
|
|
16,952
|
|
|||
Total net investment income
|
360,953
|
|
|
313,367
|
|
|
266,289
|
|
|||
Other-than-temporary impairment losses:
|
|
|
|
|
|
||||||
Total other-than-temporary impairment losses
|
(54,625
|
)
|
|
(89,700
|
)
|
|
(66,692
|
)
|
|||
Portion of other-than-temporary impairment recognized in other comprehensive income
|
34,454
|
|
|
67,881
|
|
|
41,033
|
|
|||
Net other-than-temporary impairment losses recognized in earnings
|
(20,171
|
)
|
|
(21,819
|
)
|
|
(25,659
|
)
|
|||
Net realized investment gains (losses)
|
5,366
|
|
|
39,284
|
|
|
53,476
|
|
|||
Change in fair value of credit derivatives:
|
|
|
|
|
|
||||||
Realized gains and other settlements
|
1,589
|
|
|
912
|
|
|
2,785
|
|
|||
Unrealized gains (losses)
|
14,783
|
|
|
19,194
|
|
|
38,916
|
|
|||
Net change in fair value of credit derivatives
|
16,372
|
|
|
20,106
|
|
|
41,701
|
|
|||
Net gains (losses) on interest rate derivatives
|
59,565
|
|
|
(50,273
|
)
|
|
(42,544
|
)
|
|||
Net realized gains (losses) on extinguishment of debt
|
4,920
|
|
|
4,845
|
|
|
81
|
|
|||
Other income (expense)
|
(706
|
)
|
|
17,445
|
|
|
7,150
|
|
|||
Income (loss) on variable interest entities
|
19,670
|
|
|
(14,093
|
)
|
|
31,569
|
|
|||
Total revenues
|
621,246
|
|
|
506,149
|
|
|
644,658
|
|
|||
Expenses:
|
|
|
|
|
|
||||||
Losses and loss expenses (benefit)
|
513,186
|
|
|
(11,489
|
)
|
|
(768,707
|
)
|
|||
Insurance intangible amortization
|
150,854
|
|
|
174,608
|
|
|
169,557
|
|
|||
Operating expenses
|
121,516
|
|
|
113,660
|
|
|
102,702
|
|
|||
Interest expense
|
119,941
|
|
|
124,344
|
|
|
116,537
|
|
|||
Goodwill impairment
|
—
|
|
|
—
|
|
|
514,511
|
|
|||
Total expenses
|
905,497
|
|
|
401,123
|
|
|
134,600
|
|
|||
Pre-tax income (loss)
|
(284,251
|
)
|
|
105,026
|
|
|
510,058
|
|
|||
Provision for income taxes
|
44,464
|
|
|
30,709
|
|
|
17,364
|
|
|||
Net income (loss)
|
(328,715
|
)
|
|
74,317
|
|
|
492,694
|
|
|||
Less: net gain (loss) attributable to noncontrolling interest
|
—
|
|
|
(526
|
)
|
|
(709
|
)
|
|||
Net income (loss) attributable to common shareholders
|
$
|
(328,715
|
)
|
|
$
|
74,843
|
|
|
$
|
493,403
|
|
Other comprehensive income (loss), after tax:
|
|
|
|
|
|
||||||
Net income (loss)
|
$
|
(328,715
|
)
|
|
$
|
74,317
|
|
|
$
|
492,694
|
|
Unrealized gains (losses) on securities, net of deferred income taxes of $0
|
(81,520
|
)
|
|
67,900
|
|
|
(159,730
|
)
|
|||
Gains (losses) on foreign currency translation, net of deferred income taxes of $0
|
73,586
|
|
|
(122,128
|
)
|
|
(45,025
|
)
|
|||
Changes to postretirement benefit, net of tax of $0
|
1,273
|
|
|
23
|
|
|
(687
|
)
|
|||
Total other comprehensive income (loss), net of tax
|
(6,661
|
)
|
|
(54,205
|
)
|
|
(205,442
|
)
|
|||
Total comprehensive income (loss)
|
(335,376
|
)
|
|
20,112
|
|
|
287,252
|
|
|||
Less: comprehensive (loss) gain attributable to the noncontrolling interest:
|
|
|
|
|
|
||||||
Net gain (loss)
|
—
|
|
|
(526
|
)
|
|
(709
|
)
|
|||
Currency translation adjustments
|
—
|
|
|
—
|
|
|
(374
|
)
|
|||
Total comprehensive income (loss) attributable to Ambac Financial Group, Inc.
|
$
|
(335,376
|
)
|
|
$
|
20,638
|
|
|
$
|
288,335
|
|
Net income (loss) attributable to Ambac Financial Group, Inc. common shareholders
|
|
|
|
|
|
||||||
Basic
|
$
|
(7.25
|
)
|
|
$
|
1.66
|
|
|
$
|
10.92
|
|
Diluted
|
$
|
(7.25
|
)
|
|
$
|
1.64
|
|
|
$
|
10.72
|
|
|
|
|
Ambac Financial Group, Inc.
|
|
|
||||||||||||||||||||||||||
(Dollars in thousands)
|
Total
|
|
Retained
Earnings |
|
Accumulated
Other Comprehensive Income (Loss) |
|
Preferred
Stock |
|
Common
Stock |
|
Additional Paid-in
Capital |
|
Common
Stock Held in Treasury, at Cost |
|
Noncontrolling
Interest |
||||||||||||||||
Balance at January 1, 2017
|
$
|
1,978,024
|
|
|
$
|
1,557,681
|
|
|
$
|
(38,990
|
)
|
|
$
|
—
|
|
|
$
|
452
|
|
|
$
|
195,267
|
|
|
$
|
(496
|
)
|
|
$
|
264,110
|
|
Total comprehensive income
|
(335,376
|
)
|
|
(328,715
|
)
|
|
(6,661
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
||||||||
Adjustment to initially apply ASU 2018-02
|
—
|
|
|
6,588
|
|
|
(6,588
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
||||||||
Adjustment to initially apply ASU 2016-09
|
(137
|
)
|
|
(137
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
||||||||
Stock-based compensation
|
4,293
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
4,293
|
|
|
—
|
|
|
—
|
|
||||||||
Cost of shares (acquired) issued under equity plan
|
(1,547
|
)
|
|
(1,572
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
25
|
|
|
—
|
|
||||||||
Cost of warrants acquired
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
||||||||
Issuance of common stock
|
1
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
1
|
|
|
—
|
|
|
—
|
|
|
—
|
|
||||||||
Balance at December 31, 2017
|
$
|
1,645,258
|
|
|
$
|
1,233,845
|
|
|
$
|
(52,239
|
)
|
|
$
|
—
|
|
|
$
|
453
|
|
|
$
|
199,560
|
|
|
$
|
(471
|
)
|
|
$
|
264,110
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||||||
Balance at January 1, 2016
|
$
|
1,958,346
|
|
|
$
|
1,478,439
|
|
|
$
|
15,215
|
|
|
$
|
—
|
|
|
$
|
450
|
|
|
$
|
190,813
|
|
|
$
|
(118
|
)
|
|
$
|
273,547
|
|
Total comprehensive income
|
20,112
|
|
|
74,843
|
|
|
(54,205
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(526
|
)
|
||||||||
Adjustment to initially apply ASU 2014-13
|
—
|
|
|
6,442
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(6,442
|
)
|
||||||||
Stock-based compensation
|
5,253
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
5,253
|
|
|
—
|
|
|
—
|
|
||||||||
Cost of shares (acquired) issued under equity plan
|
(505
|
)
|
|
(127
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(378
|
)
|
|
—
|
|
||||||||
Cost of warrants acquired
|
(2,717
|
)
|
|
(1,916
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(801
|
)
|
|
—
|
|
|
—
|
|
||||||||
Issuance of common stock
|
2
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
2
|
|
|
—
|
|
|
—
|
|
|
—
|
|
||||||||
Deconsolidation of a variable interest entity
|
(2,469
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(2,469
|
)
|
||||||||
Warrants exercised
|
2
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
2
|
|
|
—
|
|
|
—
|
|
||||||||
Balance at December 31, 2016
|
$
|
1,978,024
|
|
|
$
|
1,557,681
|
|
|
$
|
(38,990
|
)
|
|
$
|
—
|
|
|
$
|
452
|
|
|
$
|
195,267
|
|
|
$
|
(496
|
)
|
|
$
|
264,110
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||||||
Balance at January 1, 2015
|
$
|
1,673,735
|
|
|
$
|
989,290
|
|
|
$
|
220,283
|
|
|
$
|
—
|
|
|
$
|
450
|
|
|
$
|
189,138
|
|
|
$
|
(56
|
)
|
|
$
|
274,630
|
|
Total comprehensive income
|
287,252
|
|
|
493,403
|
|
|
(205,068
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(1,083
|
)
|
||||||||
Stock-based compensation
|
3,105
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
3,105
|
|
|
—
|
|
|
—
|
|
||||||||
Cost of shares (acquired) issued under equity plan
|
(374
|
)
|
|
(312
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(62
|
)
|
|
—
|
|
||||||||
Cost of warrants acquired
|
(5,375
|
)
|
|
(3,942
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(1,433
|
)
|
|
—
|
|
|
—
|
|
||||||||
Warrants exercised
|
3
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
3
|
|
|
—
|
|
|
—
|
|
||||||||
Balance at December 31, 2015
|
$
|
1,958,346
|
|
|
$
|
1,478,439
|
|
|
$
|
15,215
|
|
|
$
|
—
|
|
|
$
|
450
|
|
|
$
|
190,813
|
|
|
$
|
(118
|
)
|
|
$
|
273,547
|
|
(Dollars in thousands) Year Ended December 31,
|
2017
|
|
2016
|
|
2015
|
||||||
Cash flows from operating activities:
|
|
|
|
|
|
||||||
Net income (loss) attributable to common shareholders
|
$
|
(328,715
|
)
|
|
$
|
74,843
|
|
|
$
|
493,403
|
|
Noncontrolling interest in subsidiaries’ earnings
|
—
|
|
|
(526
|
)
|
|
(709
|
)
|
|||
Net income (loss)
|
(328,715
|
)
|
|
74,317
|
|
|
492,694
|
|
|||
Adjustments to reconcile net income to net cash used in operating activities:
|
|
|
|
|
|
||||||
Depreciation and amortization
|
992
|
|
|
1,220
|
|
|
3,215
|
|
|||
Impairment of goodwill
|
—
|
|
|
—
|
|
|
514,511
|
|
|||
Amortization of bond premium and discount
|
(182,997
|
)
|
|
(150,061
|
)
|
|
(129,584
|
)
|
|||
Share-based compensation
|
4,293
|
|
|
5,253
|
|
|
3,104
|
|
|||
Deferred income taxes
|
31,939
|
|
|
(485
|
)
|
|
126
|
|
|||
Current income taxes
|
(26,272
|
)
|
|
9,727
|
|
|
134
|
|
|||
Unearned premiums, net
|
(168,208
|
)
|
|
(289,140
|
)
|
|
(372,907
|
)
|
|||
Losses and loss expenses, net
|
399,982
|
|
|
853,978
|
|
|
(799,399
|
)
|
|||
Ceded premiums payable
|
(4,653
|
)
|
|
(10,965
|
)
|
|
(6,942
|
)
|
|||
Investment income due and accrued
|
9,425
|
|
|
(750
|
)
|
|
(280
|
)
|
|||
Premium receivables
|
76,900
|
|
|
172,331
|
|
|
174,918
|
|
|||
Accrued interest payable
|
49,969
|
|
|
66,439
|
|
|
51,397
|
|
|||
Amortization of insurance intangible assets
|
150,854
|
|
|
174,608
|
|
|
169,557
|
|
|||
Net mark-to-market (gains) losses
|
(14,783
|
)
|
|
(19,194
|
)
|
|
(38,916
|
)
|
|||
Net realized investment gains
|
(5,366
|
)
|
|
(39,284
|
)
|
|
(53,476
|
)
|
|||
Other-than-temporary impairment charges
|
20,171
|
|
|
21,819
|
|
|
25,659
|
|
|||
(Gain) loss on extinguishment of debt
|
(4,920
|
)
|
|
(4,845
|
)
|
|
(81
|
)
|
|||
Variable interest entity activities
|
(19,670
|
)
|
|
14,093
|
|
|
(31,569
|
)
|
|||
Derivative assets and liabilities
|
(223,247
|
)
|
|
(7,625
|
)
|
|
9,352
|
|
|||
Other, net
|
21,538
|
|
|
(27,896
|
)
|
|
80,296
|
|
|||
Net cash provided by (used in) operating activities
|
(212,768
|
)
|
|
843,540
|
|
|
91,809
|
|
|||
Cash flows from investing activities:
|
|
|
|
|
|
||||||
Proceeds from sales of bonds
|
2,138,936
|
|
|
867,882
|
|
|
996,427
|
|
|||
Proceeds from matured bonds
|
813,990
|
|
|
1,317,215
|
|
|
1,029,026
|
|
|||
Purchases of bonds
|
(2,053,693
|
)
|
|
(2,574,285
|
)
|
|
(2,374,441
|
)
|
|||
Proceeds from sales of other invested assets
|
349,799
|
|
|
131,703
|
|
|
178,474
|
|
|||
Purchases of other invested assets
|
(299,424
|
)
|
|
(281,570
|
)
|
|
(128,186
|
)
|
|||
Change in short-term investments
|
(126,891
|
)
|
|
(206,002
|
)
|
|
134,423
|
|
|||
Loans, net
|
(6,198
|
)
|
|
1,046
|
|
|
508
|
|
|||
Change in cash collateral receivable
|
122,844
|
|
|
27,372
|
|
|
(6,833
|
)
|
|||
Other, net
|
(10,594
|
)
|
|
1,996
|
|
|
(5,143
|
)
|
|||
Net cash provided by (used in) investing activities
|
928,769
|
|
|
(714,643
|
)
|
|
(175,745
|
)
|
|||
Cash flows from financing activities:
|
|
|
|
|
|
||||||
Net proceeds received from a secured borrowing
|
—
|
|
|
—
|
|
|
143,430
|
|
|||
Paydowns of a secured borrowing
|
(28,992
|
)
|
|
(29,482
|
)
|
|
(13,533
|
)
|
|||
Payments for investment agreement draws
|
(82,358
|
)
|
|
(17,964
|
)
|
|
(63,872
|
)
|
|||
Payments for extinguishment of long-term debt
|
(69,499
|
)
|
|
(19,550
|
)
|
|
(13,752
|
)
|
|||
Tax payments related to shares withheld for share-based compensation plans
|
(1,268
|
)
|
|
—
|
|
|
—
|
|
|||
Proceeds from warrant exercises
|
—
|
|
|
2
|
|
|
3
|
|
|||
Cost of warrants acquired
|
—
|
|
|
(2,717
|
)
|
|
(5,375
|
)
|
|||
Net cash used in financing activities
|
(182,117
|
)
|
|
(69,711
|
)
|
|
46,901
|
|
|||
Effect of foreign exchange on cash and cash equivalents
|
(1,206
|
)
|
|
(3,905
|
)
|
|
(1,124
|
)
|
|||
Net cash flow
|
532,678
|
|
|
55,281
|
|
|
(38,159
|
)
|
|||
Cash and cash equivalents at beginning of period
|
91,025
|
|
|
35,744
|
|
|
73,903
|
|
|||
Cash and cash equivalents end of period
|
$
|
623,703
|
|
|
$
|
91,025
|
|
|
$
|
35,744
|
|
•
|
Active runoff of Ambac Assurance and its subsidiaries through transaction terminations, policy commutations, settlements and restructurings, with a focus on our watch list credits and known and potential future adversely classified credits, that we believe will improve our risk profile, and maximizing the risk-adjusted return on invested assets;
|
•
|
Ongoing rationalization of Ambac's and its subsidiaries' capital and liability structures;
|
•
|
Loss recovery through active litigation management and exercise of contractual and legal rights;
|
•
|
Ongoing review of organizational effectiveness and efficiency of the operating platform; and
|
•
|
Evaluation of opportunities in certain business sectors that meet acceptable criteria that will generate long-term stockholder value with attractive risk-adjusted returns.
|
•
|
Ambac Assurance shall maintain a level of surplus and contingency reserves as regards policyholders which provides reasonable security against contingencies affecting its financial position that are not otherwise fully covered by reserves or reinsurance, such that the Commissioner may continue to determine that Ambac Assurance’s surplus and contingency reserves are reasonably in excess of a level that would constitute a financially hazardous condition.
|
•
|
Statutory surplus may not reflect the benefit of any reserve discounting, except to the extent approved by the Commissioner.
|
•
|
Ambac Assurance may not enter any transactions with affiliates, including the payment of a dividend or other distribution, without the approval of the Commissioner, subject to limited exceptions.
|
•
|
Ambac Assurance may not change its business plan or that of Everspan, including but not limited to the writing of new business, unless approved by the Commissioner.
|
•
|
Ambac Assurance must obtain OCI approval with respect to the exercise of certain control rights in connection with policies that had been allocated to the Segregated Account.
|
•
|
Ambac Assurance must obtain OCI approval with respect to any transaction Ambac Assurance proposes to enter into other than in ordinary course of business with non-affiliated counterparties where the aggregate consideration to be paid by Ambac Assurance is equal to or greater than
$100,000
.
|
•
|
Ambac Assurance must obtain OCI approval for any change to its Investment Policy or Derivative Use Plan.
|
•
|
Ambac Assurance must provide OCI with a monthly report of financial information, the scope of which is to be determined.
|
•
|
Ambac Assurance shall provide, and Ambac shall also provide, notice to the Commissioner within ten (10) days of receipt of any communication from any governmental authority, government-sponsored enterprise, or lender to Ambac Assurance, Ambac, or any affiliates which pertains to a circumstance, event or issue which would be reasonably likely to have a material adverse effect on the financial condition or operations of Ambac Assurance and its subsidiaries taken as whole.
|
•
|
Ambac Assurance shall provide notice as soon as practicable of any development in any litigation, including any delay in RMBS litigation, involving Ambac Assurance or any affiliate of Ambac Assurance which would or would be reasonably likely to have a material adverse effect on Ambac Assurance.
|
•
|
Ambac Assurance shall provide notice to the Commissioner of the occurrence, or failure to occur, of any event which would or would be reasonably likely to cause a material adverse effect to the business, assets, properties, operations, or condition, financial or otherwise, or, insofar as can reasonably be foreseen, prospects, financial or otherwise, of Ambac Assurance, an affiliate of Ambac Assurance, or Ambac Assurance and all affiliates taken as a whole. A material adverse effect shall be conclusively presumed if the effect results, or reasonably could result, in a reduction of more than
10%
in Ambac Assurance’s surplus as regards policyholders.
|
•
|
Ambac Assurance shall disclose, and Ambac shall disclose, to the Commissioner any instance of fraud or any significant change to the internal control environment incurred by Ambac Assurance, any of its subsidiaries, or Ambac.
|
•
|
If Ambac Assurance proposes to make any changes in the assumptions or vendors utilized in determining statutory loss reserves from the prior year’s statutory loss reserves which would cause the difference (whether positive or negative) between (a) Ambac Assurance’s statutory reserves determined with such proposed changes and (b) Ambac Assurance’s statutory reserves determined without such proposed changes to exceed the lesser of (i)
$200,000
or (ii)
10%
of Ambac Assurance’s statutory loss reserves without such proposed changes, Ambac Assurance shall notify the Commissioner.
|
•
|
Ambac shall use its best efforts to preserve use of net operating loss carry-forwards for the benefit of Ambac Assurance and its subsidiaries, including but not limited to, refraining from taking any action that would result in, and taking such affirmative steps as are appropriate to avoid, any deconsolidation event.
|
•
|
Ambac shall provide the Commissioner and Ambac Assurance its full cooperation in relation to any issues that Ambac Assurance or its subsidiaries may have relative to the United States Internal Revenue Service, including efforts to obtain a private letter ruling, pre-filing agreement, or other form of guidance or clarification.
|
•
|
Unpaid claims represent the sum of (i) claims not yet paid for policies allocated to the Segregated Account, including Deferred Amounts (as defined in
Note 1. Background and Business Description
) and (ii) accrued interest on Deferred Amounts (generally at an effective rate of
5.1%
.) as required by the Segregated Account Rehabilitation Plan. Refer to
Note 1. Background and Business Description
for further discussion of the Segregated Account Rehabilitation Plan. Unpaid claims are measured based on the cost of settling the claims, which is principal plus accrued interest.
|
•
|
The PV of expected net cash flows represents the PV of expected cash outflows less the PV of expected cash inflows. The PV of expected net cash flows are impacted by: (i) expected future claims to be paid under an insurance contract, including the impact of potential settlement outcomes upon future installment premiums, (ii) expected recoveries from contractual breaches of RMBS representations and warranties by transaction sponsors, which is discussed further in the “RMBS Representation and Warranty Subrogation Recoveries” section below, (iii) excess spread within the underlying transaction's cash flow structure, and (iv) other subrogation recoveries, including expected receipts from third parties within the underlying transaction's cash flow structure. Ambac’s approach to resolving disputes involving contractual breaches by transaction sponsors or other third parties has included negotiations and/or pursuing litigation. Ambac does not include potential recoveries attributed solely to fraudulent inducement claims in our estimate of subrogation recoveries, since any remedies under such claims would be non-contractual.
|
•
|
Survey list - credits that may lack information or demonstrate a weakness but further deterioration is not expected.
|
•
|
Watch list - credits that demonstrate the potential for future material adverse development due to such factors as long-term uncertainty about a particular sector, a certain structural element related to the issuer or transaction or overall financial and economic sustainability.
|
•
|
Deferred stock units granted vest upon grant and will settle and convert to Ambac common stock annually over a two-year period (
50%
on the first anniversary of the grant date and
50%
on the second anniversary of the grant date). The fair value of these grants is recognized as compensation expense on the date of grant since no future service is required.
|
•
|
Restricted stock units granted only require future service and accordingly the respective fair value is amortized into compensation expense over the relevant service period.
|
•
|
Performance stock units granted and performance cash awards require both future service and achieving specified performance targets to vest and accordingly compensation costs are only recognized when the achievement of the performance conditions are considered probable. Once deemed probable, such compensation costs are amortized over the relevant service period. Compensation costs are initially based on the probable outcome of the performance conditions and adjusted for subsequent changes in the estimated or actual outcome each reporting period as necessary. Changes in the estimated or actual outcome of a performance condition are recognized by reflecting a retrospective adjustment to compensation cost in the current period.
|
•
|
Remeasurement of loss reserves, classified in Loss and loss expenses, in the amount of
$28,939
,
$(77,578)
and
$(24,838)
for the years ended
December 31, 2017, 2016 and 2015
, respectively;
|
•
|
Realized gain (loss) from the sale of investment securities and the unrealized gains (losses) of trading and short-term investment securities, classified in Net realized investment gains, in the amount of
$(4,769)
,
$30,179
and
$5,816
for the years ended
December 31, 2017, 2016 and 2015
, respectively;
|
•
|
Remeasurement of premium receivables, classified in Other income, in the amount of
$(1,904)
,
$8,003
and
$(2,555)
for the years ended
December 31, 2017, 2016 and 2015
, respectively; and
|
•
|
Remeasurement of credit derivative liabilities, classified in Net change in fair value of credit derivative, in the amount of
$(1,150)
,
$32
and
$3,981
for the years ended
December 31, 2017, 2016 and 2015
, respectively.
|
(Dollars in thousands) Year Ended December 31,
|
|
2017
|
|
2016
|
|
2015
|
||||||
Cash paid during the period for:
|
|
|
|
|
|
|
||||||
Income taxes
|
|
$
|
40,334
|
|
|
$
|
21,437
|
|
|
$
|
16,969
|
|
Interest on long-term debt and investment agreements
|
|
39,112
|
|
|
4,537
|
|
|
1,847
|
|
|||
|
|
|
|
|
|
|
||||||
Non-cash financing activities:
|
|
|
|
|
|
|
||||||
Decrease in long-term debt as a result of an exchange for investment securities
|
|
55,426
|
|
|
—
|
|
|
—
|
|
•
|
Debt prepayment or debt extinguishment costs
- Such payments will be classified as a financing cash outflow.
|
•
|
Settlement of zero-coupon debt or other debt with coupon rates that are insignificant in relation to the effective interest rate of the borrowing
- The portion of the cash payment attributable to accreted interest will be classified as an operating cash outflow and the portion attributable to the principal will be classified as a financing cash outflow.
|
•
|
Distributions from equity-method investees
- An entity will elect one of the two following approaches. Under the "cumulative earnings approach": i) distributions received up to the amount of cumulative earnings recognized will be treated as returns
on
investments and classified as cash inflows from operating activities and ii) distributions received in excess of earnings recognized will be treated as returns
of
investments and classified as cash inflows from investing activities. Under the "nature of the distribution" approach, distributions received will be classified based on the nature of the activity that generated the distribution (i.e. classified as a return on investment or return of investment), when such information is available to the investor.
|
•
|
Beneficial interests in securitization transactions -
Any beneficial interests obtained in financial assets transferred to an unconsolidated securitization entity will be disclosed as a non-cash investing activity. Subsequent cash receipts from the beneficial interests in previously transferred trade receivables will be classified as cash inflows from investing activities.
|
•
|
Ambac most commonly provides financial guarantees, including credit derivative contracts, for various debt obligations issued by special purpose entities, including VIEs ("FG VIEs").
|
•
|
Ambac sponsors special purpose entities that issued notes to fund the purchase of certain financial assets.
|
•
|
Ambac monetized its ownership of the junior surplus note issued to it by the Segregated Account by depositing the junior surplus note into a newly formed VIE trust in exchange for cash and an owner trust certificate, which represents Ambac's right to residual cash flows from the junior surplus note.
|
•
|
Ambac is an investor in collateralized debt obligations, mortgage-backed and other asset-backed securities issued by VIEs and its ownership interest is generally insignificant to the VIE and/or Ambac does not have rights that direct the activities that are most significant to such VIE.
|
Year Ended December 31,
|
|
2017
|
|
2016
|
|
2015
|
||||||
Income (loss) on changes related to:
|
|
|
|
|
|
|
||||||
Net fair value of VIE assets and liabilities
|
|
$
|
19,670
|
|
|
$
|
(14,093
|
)
|
|
$
|
30,997
|
|
Deconsolidation
|
|
—
|
|
|
—
|
|
|
572
|
|
|||
Income (loss) on Variable Interest Entities
|
|
$
|
19,670
|
|
|
$
|
(14,093
|
)
|
|
$
|
31,569
|
|
December 31,
|
2017
|
|
2016
|
||||
Investments:
|
|
|
|
||||
Corporate obligations
|
$
|
2,914,145
|
|
|
$
|
2,622,566
|
|
Total variable interest entity assets: fixed income securities
|
$
|
2,914,145
|
|
|
$
|
2,622,566
|
|
|
Estimated fair value
|
|
Unpaid principal balance
|
||||
December 31, 2017:
|
|
|
|
||||
Loans
|
$
|
11,529,384
|
|
|
$
|
8,168,651
|
|
Long-term debt
|
12,160,544
|
|
|
9,387,884
|
|
||
December 31, 2016:
|
|
|
|
||||
Loans
|
10,658,963
|
|
|
7,641,756
|
|
||
Long-term debt
|
$
|
11,155,936
|
|
|
$
|
8,854,530
|
|
•
|
Total principal amount of debt outstanding was
$420,600
and
$388,950
at
December 31, 2017 and 2016
, respectively. In each case, Ambac sold assets to this entity. The assets are composed of utility obligations with a weighted average rating of
BBB+
at
December 31, 2017
and weighted average life of
3.1 years
. The purchase by this entity of financial assets was financed through the issuance of MTNs, which are cross-collateralized by the purchased assets. The MTNs have the same expected weighted average life as the purchased assets. Derivative contracts (interest rate swaps) are used within the entity for economic hedging purposes only. Derivative positions were established at the time MTNs were issued to purchase financial assets. As of
December 31, 2017
, all fixed-income securities owned, MTNs outstanding and payments due under derivative contracts were guaranteed under financial guarantee insurance policies issued by Ambac Assurance or Ambac UK.
|
•
|
Insurance premiums paid to Ambac Assurance and Ambac UK by this entity are earned in a manner consistent with other insurance policies, over the risk period. Additionally, any losses incurred on such insurance policies are included in Ambac’s
Consolidated Statements of Total Comprehensive Income (Loss)
. Under the terms of an Administrative Agency Agreement, Ambac provides certain administrative duties, primarily collecting amounts due on the obligations and making interest payments on the MTNs.
|
|
Carrying Value of Assets and Liabilities
|
||||||||||||||
|
Maximum
Exposure To Loss (1) |
|
Insurance
Assets (2) |
|
Insurance
Liabilities (3) |
|
Net Derivative
Assets (Liabilities) (4) |
||||||||
December 31, 2017:
|
|
|
|
|
|
|
|
||||||||
Global structured finance:
|
|
|
|
|
|
|
|
||||||||
Collateralized debt obligations
|
$
|
35,555
|
|
|
$
|
169
|
|
|
$
|
1
|
|
|
$
|
(15
|
)
|
Mortgage-backed—residential
|
12,766,685
|
|
|
619,848
|
|
|
3,218,356
|
|
|
—
|
|
||||
Other consumer asset-backed
|
2,266,610
|
|
|
23,405
|
|
|
328,732
|
|
|
—
|
|
||||
Other commercial asset-backed
|
987,797
|
|
|
30,413
|
|
|
35,976
|
|
|
—
|
|
||||
Other
|
2,513,304
|
|
|
60,086
|
|
|
306,457
|
|
|
10,311
|
|
||||
Total global structured finance
|
18,569,951
|
|
|
733,921
|
|
|
3,889,522
|
|
|
10,296
|
|
||||
Global public finance
|
25,629,816
|
|
|
335,347
|
|
|
371,056
|
|
|
(551
|
)
|
||||
Total
|
$
|
44,199,767
|
|
|
$
|
1,069,268
|
|
|
$
|
4,260,578
|
|
|
$
|
9,745
|
|
|
|
|
|
|
|
|
|
||||||||
December 31, 2016:
|
|
|
|
|
|
|
|
||||||||
Global structured finance:
|
|
|
|
|
|
|
|
||||||||
Collateralized debt obligations
|
$
|
761,451
|
|
|
$
|
218
|
|
|
$
|
3,319
|
|
|
$
|
(145,402
|
)
|
Mortgage-backed—residential
|
14,859,909
|
|
|
725,106
|
|
|
3,118,892
|
|
|
—
|
|
||||
Other consumer asset-backed
|
2,391,604
|
|
|
26,758
|
|
|
302,335
|
|
|
—
|
|
||||
Other commercial asset-backed
|
1,686,256
|
|
|
66,277
|
|
|
64,961
|
|
|
—
|
|
||||
Other
|
2,963,521
|
|
|
66,091
|
|
|
412,929
|
|
|
13,347
|
|
||||
Total global structured finance
|
22,662,741
|
|
|
884,450
|
|
|
3,902,436
|
|
|
(132,055
|
)
|
||||
Global public finance
|
25,608,471
|
|
|
338,587
|
|
|
359,142
|
|
|
(8,827
|
)
|
||||
Total
|
$
|
48,271,212
|
|
|
$
|
1,223,037
|
|
|
$
|
4,261,578
|
|
|
$
|
(140,882
|
)
|
(1)
|
Maximum exposure to loss represents the maximum future payments of principal and interest on insured obligations and derivative contracts plus Deferred Amounts and accrued and unpaid interest thereon. Ambac’s maximum exposure to loss does not include the benefit of any financial instruments (such as reinsurance or hedge contracts) that Ambac may utilize to mitigate the risks associated with these variable interests.
|
(2)
|
Insurance assets represent the amount recorded in “Premium receivables” and “Subrogation recoverable” for financial guarantee contracts on Ambac’s Consolidated Balance Sheets.
|
(3)
|
Insurance liabilities represent the amount recorded in “Loss and loss expense reserves” and “Unearned premiums” for financial guarantee contracts on Ambac’s Consolidated Balance Sheets.
|
(4)
|
Net derivative assets (liabilities) represent the fair value recognized on credit derivative contracts and interest rate swaps on Ambac’s Consolidated Balance Sheets.
|
|
Unrealized Gains
(Losses) on Available- for Sale Securities (1) |
|
Amortization of
Postretirement Benefit (1) |
|
Gain (Loss) on
Foreign Currency Translation (1) |
|
Total
|
||||||||
Year Ended December 31, 2017:
|
|
|
|
|
|
|
|
||||||||
Beginning Balance
|
$
|
118,863
|
|
|
$
|
9,367
|
|
|
$
|
(167,220
|
)
|
|
$
|
(38,990
|
)
|
Other comprehensive income before reclassifications
|
(96,325
|
)
|
|
2,625
|
|
|
73,586
|
|
|
(20,114
|
)
|
||||
Amounts reclassified from accumulated other comprehensive income
|
14,805
|
|
|
(1,352
|
)
|
|
—
|
|
|
13,453
|
|
||||
Adjustment to initially adopt ASU 2018-02
|
(6,588
|
)
|
|
—
|
|
|
—
|
|
|
(6,588
|
)
|
||||
Net current period other comprehensive income
|
(88,108
|
)
|
|
1,273
|
|
|
73,586
|
|
|
(13,249
|
)
|
||||
Balance at December 31, 2017
|
$
|
30,755
|
|
|
$
|
10,640
|
|
|
$
|
(93,634
|
)
|
|
$
|
(52,239
|
)
|
|
|
|
|
|
|
|
|
||||||||
Year ended December 31, 2016:
|
|
|
|
|
|
|
|
||||||||
Beginning Balance
|
$
|
50,963
|
|
|
$
|
9,344
|
|
|
$
|
(45,092
|
)
|
|
$
|
15,215
|
|
Other comprehensive income before reclassifications
|
85,378
|
|
|
1,041
|
|
|
(122,128
|
)
|
|
(35,709
|
)
|
||||
Amounts reclassified from accumulated other comprehensive income
|
(17,478
|
)
|
|
(1,018
|
)
|
|
—
|
|
|
(18,496
|
)
|
||||
Net current period other comprehensive income (loss)
|
67,900
|
|
|
23
|
|
|
(122,128
|
)
|
|
(54,205
|
)
|
||||
Balance at December 31, 2016
|
$
|
118,863
|
|
|
$
|
9,367
|
|
|
$
|
(167,220
|
)
|
|
$
|
(38,990
|
)
|
(1)
|
All amounts are net of tax and noncontrolling interest. Amounts in parentheses indicate debits
.
|
Details about Accumulated Other
Comprehensive Income Components
|
Amount Reclassified from Accumulated
Other Comprehensive Income (1) |
|
Affected Line Item in the
Consolidated Statement of
Total Comprehensive Income
|
||||||
Year Ended December 31,
|
|
||||||||
2017
|
|
2016
|
|
||||||
Unrealized Gains (Losses) on Available-for-Sale Securities
|
|
|
|
|
|
||||
|
$
|
14,805
|
|
|
$
|
(17,478
|
)
|
|
Net realized investment gains
|
|
—
|
|
|
—
|
|
|
Tax (expense) benefit
|
||
|
$
|
14,805
|
|
|
$
|
(17,478
|
)
|
|
Net of tax and noncontrolling interest
(3)
|
Amortization of Postretirement Benefit
|
|
|
|
|
|
||||
Prior service cost
|
$
|
(963
|
)
|
|
$
|
(666
|
)
|
|
Underwriting and operating expenses
(2)
|
Actuarial gains (losses)
|
(389
|
)
|
|
(352
|
)
|
|
Underwriting and operating expenses
(2)
|
||
|
(1,352
|
)
|
|
(1,018
|
)
|
|
Total before tax
|
||
|
—
|
|
|
—
|
|
|
Tax (expense) benefit
|
||
|
(1,352
|
)
|
|
(1,018
|
)
|
|
Net of tax and noncontrolling interest
(3)
|
||
Total reclassifications for the period
|
$
|
13,453
|
|
|
$
|
(18,496
|
)
|
|
Net of tax and noncontrolling interest
(3)
|
(1)
|
Amounts in parentheses indicate debits to the Consolidated Statement of Comprehensive Income.
|
(2)
|
These accumulated other comprehensive income components are included in the computation of net periodic benefit cost.
|
(3)
|
Amount agrees with amount reported as reclassifications from AOCI in the disclosure about changes in AOCI balances.
|
Year Ended December 31,
|
2017
|
|
2016
|
|
2015
|
|||
Basic weighted average shares outstanding
|
45,367,932
|
|
|
45,212,414
|
|
|
45,173,542
|
|
Effect of potential dilutive shares
(1)
:
|
|
|
|
|
|
|||
Warrants
|
—
|
|
|
312,619
|
|
|
809,834
|
|
Stock options
|
—
|
|
|
447
|
|
|
5,313
|
|
Restricted stock units
|
—
|
|
|
116,105
|
|
|
14,221
|
|
Performance stock units
|
—
|
|
|
81,939
|
|
|
3,117
|
|
Diluted weighted average shares outstanding
|
45,367,932
|
|
|
45,723,524
|
|
|
46,006,027
|
|
Anti-dilutive shares excluded from the above reconciliation
|
|
|
|
|
|
|||
Stock options
|
126,667
|
|
|
110,000
|
|
|
110,000
|
|
Warrants
|
4,053,670
|
|
|
—
|
|
|
—
|
|
Restricted stock units
|
68,654
|
|
|
—
|
|
|
—
|
|
Performance stock units
(2)
|
322,943
|
|
|
—
|
|
|
—
|
|
(1)
|
For the year ended
December 31, 2017
, Ambac has a net loss and accordingly excluded all potentially dilutive securities from the determination of diluted loss per share as their impact was anti-dilutive.
|
(2)
|
Performance stock units are reflected herein at their target issuance amounts. Vesting of these units is contingent upon meeting certain performance metrics. Although a portion of these performance metrics have been achieved as of the respective period end, it is possible that awards may no longer meet the metric at the end of the performance period.
|
Net Par Outstanding December 31,
|
2017
|
|
2016
|
||||
Public Finance:
|
|
|
|
||||
Lease and tax-backed revenue
|
$
|
11,893,000
|
|
|
$
|
15,688,000
|
|
Housing revenue
|
6,312,000
|
|
|
6,508,000
|
|
||
General obligation
|
6,257,000
|
|
|
9,867,000
|
|
||
Utility revenue
|
2,212,000
|
|
|
4,298,000
|
|
||
Transportation revenue
|
2,002,000
|
|
|
3,860,000
|
|
||
Higher education
|
1,642,000
|
|
|
2,339,000
|
|
||
Health care revenue
|
807,000
|
|
|
1,484,000
|
|
||
Other
|
963,000
|
|
|
1,018,000
|
|
||
Total Public Finance
|
32,088,000
|
|
|
45,062,000
|
|
||
Structured Finance:
|
|
|
|
||||
Mortgage-backed and home equity
|
7,267,000
|
|
|
9,383,000
|
|
||
Investor-owned utilities
|
3,274,000
|
|
|
3,833,000
|
|
||
Student loan
|
1,238,000
|
|
|
1,388,000
|
|
||
Asset-backed
(1)
|
443,000
|
|
|
565,000
|
|
||
CDOs
|
33,000
|
|
|
132,000
|
|
||
Other
|
1,561,000
|
|
|
1,650,000
|
|
||
Total Structured Finance
|
13,816,000
|
|
|
16,951,000
|
|
||
International Finance:
|
|
|
|
||||
Investor-owned and public utilities
|
5,696,000
|
|
|
6,168,000
|
|
||
Sovereign/sub-sovereign
|
5,664,000
|
|
|
5,211,000
|
|
||
Asset-backed
(1)
|
2,609,000
|
|
|
2,951,000
|
|
||
Transportation
|
1,777,000
|
|
|
1,700,000
|
|
||
Mortgage-backed and home equity
|
246,000
|
|
|
254,000
|
|
||
CDOs
|
—
|
|
|
186,000
|
|
||
Other
|
820,000
|
|
|
863,000
|
|
||
Total International Finance
|
16,812,000
|
|
|
17,333,000
|
|
||
Total
|
$
|
62,716,000
|
|
|
$
|
79,346,000
|
|
(1)
|
At
December 31, 2017 and 2016
, all asset-backed net par amounts outstanding relate to commercial asset-based transactions.
|
Net Par Outstanding December 31,
|
2017
|
|
2016
|
||||
United Kingdom
|
$
|
13,554,000
|
|
|
$
|
12,798,000
|
|
Italy
|
877,000
|
|
|
898,000
|
|
||
Austria
|
770,000
|
|
|
696,000
|
|
||
Australia
|
608,000
|
|
|
1,393,000
|
|
||
France
|
329,000
|
|
|
286,000
|
|
||
Internationally diversified
(1)
|
368,000
|
|
|
648,000
|
|
||
Other international
|
306,000
|
|
|
614,000
|
|
||
Total International Finance
|
$
|
16,812,000
|
|
|
$
|
17,333,000
|
|
(1)
|
Internationally diversified obligations represent pools of geographically diversified exposures which may include components of U.S. exposure.
|
Year Ended December 31,
|
2017
|
|
2016
|
|
2015
|
||||||
Beginning premium receivable
|
$
|
661,337
|
|
|
$
|
831,575
|
|
|
$
|
1,000,607
|
|
Premium receipts
|
(81,597
|
)
|
|
(77,038
|
)
|
|
(108,029
|
)
|
|||
Adjustments for changes in expected and contractual cash flows
|
(30,334
|
)
|
|
(78,528
|
)
|
|
(64,740
|
)
|
|||
Accretion of premium receivable discount
|
16,162
|
|
|
18,637
|
|
|
24,628
|
|
|||
Changes to uncollectable premiums
|
(141
|
)
|
|
6,054
|
|
|
2,540
|
|
|||
Other adjustments (including foreign exchange)
|
20,885
|
|
|
(39,363
|
)
|
|
(23,431
|
)
|
|||
Ending premium receivable
(1)
|
$
|
586,312
|
|
|
$
|
661,337
|
|
|
$
|
831,575
|
|
(1)
|
Gross premium receivable includes premiums to be received in foreign denominated currencies most notably in British Pounds and Euros. At
December 31, 2017, 2016 and 2015
premium receivables include British Pounds of
$151,852
(
£112,342
),
$177,878
(
£144,393
) and
$226,994
(
£154,135
), respectively, and Euros of
$36,001
(
£29,976
),
$34,866
(
€33,108
) and
$43,451
(
€40,014
), respectively.
|
|
2017
|
|
2016
|
|
2015
|
||||||||||||||||||
Year Ended December 31,
|
Written
|
|
Earned
|
|
Written
|
|
Earned
|
|
Written
|
|
Earned
|
||||||||||||
Direct
|
$
|
(14,313
|
)
|
|
$
|
190,496
|
|
|
$
|
(53,837
|
)
|
|
$
|
215,564
|
|
|
$
|
(37,572
|
)
|
|
$
|
336,025
|
|
Assumed
|
—
|
|
|
106
|
|
|
—
|
|
|
85
|
|
|
—
|
|
|
87
|
|
||||||
Ceded
|
(2,104
|
)
|
|
15,325
|
|
|
(8,772
|
)
|
|
18,362
|
|
|
(3,001
|
)
|
|
23,517
|
|
||||||
Net premiums
|
$
|
(12,209
|
)
|
|
$
|
175,277
|
|
|
$
|
(45,065
|
)
|
|
$
|
197,287
|
|
|
$
|
(34,571
|
)
|
|
$
|
312,595
|
|
Year Ended December 31,
|
|
2017
|
|
2016
|
|
2015
|
||||||
United States
|
|
$
|
134,099
|
|
|
$
|
168,646
|
|
|
$
|
229,658
|
|
United Kingdom
|
|
32,928
|
|
|
24,470
|
|
|
68,799
|
|
|||
Other international
|
|
8,250
|
|
|
4,171
|
|
|
14,138
|
|
|||
Total
|
|
$
|
175,277
|
|
|
$
|
197,287
|
|
|
$
|
312,595
|
|
|
Future Premiums
to be
Collected
(1)
|
|
Future
Premiums
to be
Earned Net of
Reinsurance (1) |
||||
Three months ended:
|
|
|
|
||||
March 31, 2018
|
$
|
16,923
|
|
|
$
|
17,561
|
|
June 30, 2018
|
13,801
|
|
|
17,294
|
|
||
September 30, 2018
|
14,779
|
|
|
16,604
|
|
||
December 31, 2018
|
13,282
|
|
|
16,150
|
|
||
Twelve months ended:
|
|
|
|
||||
December 31, 2019
|
55,203
|
|
|
61,368
|
|
||
December 31, 2020
|
52,282
|
|
|
57,263
|
|
||
December 31, 2021
|
45,848
|
|
|
52,149
|
|
||
December 31, 2022
|
43,678
|
|
|
48,447
|
|
||
Five years ended:
|
|
|
|
||||
December 31, 2027
|
193,190
|
|
|
197,446
|
|
||
December 31, 2032
|
150,385
|
|
|
131,682
|
|
||
December 31, 2037
|
82,597
|
|
|
72,520
|
|
||
December 31, 2042
|
29,169
|
|
|
24,833
|
|
||
December 31, 2047
|
13,599
|
|
|
12,694
|
|
||
December 31, 2052
|
3,586
|
|
|
4,651
|
|
||
December 31, 2057
|
92
|
|
|
298
|
|
||
Total
|
$
|
728,414
|
|
|
$
|
730,960
|
|
(1)
|
Future premiums to be collected are undiscounted and are used to derive the discounted premium receivable asset recorded on Ambac's balance sheet. 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.
|
|
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, 2017:
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||
Loss and loss expense reserves
|
$
|
2,411,632
|
|
|
$
|
667,988
|
|
|
$
|
2,855,010
|
|
|
$
|
(1,054,113
|
)
|
|
$
|
(135,502
|
)
|
|
$
|
4,745,015
|
|
Subrogation recoverable
|
615,391
|
|
|
171,755
|
|
|
102,171
|
|
|
(1,520,530
|
)
|
|
—
|
|
|
(631,213
|
)
|
||||||
Totals
|
$
|
3,027,023
|
|
|
$
|
839,743
|
|
|
$
|
2,957,181
|
|
|
$
|
(2,574,643
|
)
|
|
$
|
(135,502
|
)
|
|
$
|
4,113,802
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||
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
|
|
Year Ended December 31,
|
2017
|
|
2016
|
|
2015
|
||||||
Beginning gross loss and loss expense reserves
|
$
|
3,696,038
|
|
|
$
|
2,858,813
|
|
|
$
|
3,798,733
|
|
Reinsurance recoverable
|
30,767
|
|
|
44,059
|
|
|
100,355
|
|
|||
Beginning balance of net loss and loss expense reserves
|
$
|
3,665,271
|
|
|
$
|
2,814,754
|
|
|
$
|
3,698,378
|
|
Losses and loss expenses (benefit) incurred:
|
|
|
|
|
|
||||||
Current year
|
5,691
|
|
|
6,675
|
|
|
1,183
|
|
|||
Prior years
|
507,495
|
|
|
(18,164
|
)
|
|
(769,890
|
)
|
|||
Total
(1)(2)
|
513,186
|
|
|
(11,489
|
)
|
|
(768,707
|
)
|
|||
Loss and loss expenses (recovered) paid:
|
|
|
|
|
|
||||||
Current year
|
825
|
|
|
5,371
|
|
|
—
|
|
|||
Prior years
|
133,427
|
|
|
(944,955
|
)
|
|
90,086
|
|
|||
Total
|
134,252
|
|
|
(939,584
|
)
|
|
90,086
|
|
|||
Foreign exchange effect
|
28,939
|
|
|
(77,578
|
)
|
|
(24,831
|
)
|
|||
Ending net loss and loss expense reserves
|
$
|
4,073,144
|
|
|
$
|
3,665,271
|
|
|
$
|
2,814,754
|
|
Reinsurance recoverable
(3)
|
40,658
|
|
|
30,767
|
|
|
44,059
|
|
|||
Ending gross loss and loss expense reserves
(4)
|
$
|
4,113,802
|
|
|
$
|
3,696,038
|
|
|
$
|
2,858,813
|
|
(1)
|
Total losses and loss expenses (benefit) includes
$(20,348)
,
$5,421
and
$47,085
for the years ended
December 31, 2017, 2016 and 2015
, respectively, related to ceded reinsurance.
|
(2)
|
Ambac records the impact of estimated recoveries related to securitized loans in RMBS transactions that breached certain R&Ws 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, 2017, 2016 and 2015
was
$72,003
,
$(71,369)
and
$(303,633)
, 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
$339
,
$(349)
and
$(60)
as of
December 31, 2017, 2016 and 2015
, respectively, related to previously presented loss and loss expenses and subrogation.
|
(4)
|
Includes Euro denominated gross loss and loss expense reserves of
$21,116
(
€17,582
),
$21,375
(
€20,297
) and
$19,019
(
€17,515
) at
December 31, 2017, 2016 and 2015
, respectively.
|
•
|
Puerto Rico
|
•
|
Ballantyne Litigation
|
|
|
Surveillance Categories as of December 31, 2017
|
||||||||||||||||||||||||||
|
|
I
|
|
IA
|
|
II
|
|
III
|
|
IV
|
|
V
|
|
Total
|
||||||||||||||
Number of policies
|
|
26
|
|
|
20
|
|
|
26
|
|
|
22
|
|
|
179
|
|
|
4
|
|
|
277
|
|
|||||||
Remaining weighted-average contract period (in years)
(1)
|
|
10
|
|
|
23
|
|
|
10
|
|
|
24
|
|
|
13
|
|
|
4
|
|
|
17
|
|
|||||||
Gross insured contractual payments outstanding:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||||
Principal
|
|
$
|
1,046,267
|
|
|
$
|
531,190
|
|
|
$
|
1,199,909
|
|
|
$
|
1,998,861
|
|
|
$
|
6,862,281
|
|
|
$
|
48,562
|
|
|
$
|
11,687,070
|
|
Interest
|
|
531,657
|
|
|
584,098
|
|
|
413,045
|
|
|
7,182,715
|
|
|
2,469,765
|
|
|
16,332
|
|
|
11,197,612
|
|
|||||||
Total
|
|
$
|
1,577,924
|
|
|
$
|
1,115,288
|
|
|
$
|
1,612,954
|
|
|
$
|
9,181,576
|
|
|
$
|
9,332,046
|
|
|
$
|
64,894
|
|
|
$
|
22,884,682
|
|
Gross undiscounted claim liability
(2)
|
|
$
|
4,434
|
|
|
$
|
56,659
|
|
|
$
|
77,289
|
|
|
$
|
1,412,976
|
|
|
$
|
6,409,340
|
|
|
$
|
64,863
|
|
|
$
|
8,025,561
|
|
Discount, gross claim liability
|
|
(465
|
)
|
|
(13,095
|
)
|
|
(12,250
|
)
|
|
(643,897
|
)
|
|
(616,559
|
)
|
|
(4,739
|
)
|
|
(1,291,005
|
)
|
|||||||
Gross claim liability before all subrogation and before reinsurance
|
|
$
|
3,969
|
|
|
$
|
43,564
|
|
|
$
|
65,039
|
|
|
$
|
769,079
|
|
|
$
|
5,792,781
|
|
|
$
|
60,124
|
|
|
$
|
6,734,556
|
|
Less:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||||
Gross RMBS subrogation
(3)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(1,857,502
|
)
|
|
—
|
|
|
(1,857,502
|
)
|
|||||||
Discount, RMBS subrogation
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
23,115
|
|
|
—
|
|
|
23,115
|
|
|||||||
Discounted RMBS subrogation, before reinsurance
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(1,834,387
|
)
|
|
—
|
|
|
(1,834,387
|
)
|
|||||||
Less:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||||
Gross other subrogation
(4)
|
|
—
|
|
|
(7,990
|
)
|
|
(9,371
|
)
|
|
(53,070
|
)
|
|
(743,456
|
)
|
|
(13,191
|
)
|
|
(827,078
|
)
|
|||||||
Discount, other subrogation
|
|
—
|
|
|
5,169
|
|
|
2,550
|
|
|
8,349
|
|
|
67,045
|
|
|
3,709
|
|
|
86,822
|
|
|||||||
Discounted other subrogation, before reinsurance
|
|
—
|
|
|
(2,821
|
)
|
|
(6,821
|
)
|
|
(44,721
|
)
|
|
(676,411
|
)
|
|
(9,482
|
)
|
|
(740,256
|
)
|
|||||||
Gross claim liability, net of all subrogation and discounts, before reinsurance
|
|
$
|
3,969
|
|
|
$
|
40,743
|
|
|
$
|
58,218
|
|
|
$
|
724,358
|
|
|
$
|
3,281,983
|
|
|
$
|
50,642
|
|
|
$
|
4,159,913
|
|
Less: Unearned premium revenue
|
|
(2,126
|
)
|
|
(9,990
|
)
|
|
(12,238
|
)
|
|
(46,086
|
)
|
|
(64,786
|
)
|
|
(276
|
)
|
|
(135,502
|
)
|
|||||||
Plus: Loss expense reserves
|
|
16,116
|
|
|
3,242
|
|
|
665
|
|
|
13,331
|
|
|
56,037
|
|
|
—
|
|
|
89,391
|
|
|||||||
Gross loss and loss expense reserves
|
|
$
|
17,959
|
|
|
$
|
33,995
|
|
|
$
|
46,645
|
|
|
$
|
691,603
|
|
|
$
|
3,273,234
|
|
|
$
|
50,366
|
|
|
$
|
4,113,802
|
|
Reinsurance recoverable reported on Balance Sheet
(5)
|
|
$
|
202
|
|
|
$
|
4,894
|
|
|
$
|
9,424
|
|
|
$
|
38,465
|
|
|
$
|
(11,988
|
)
|
|
$
|
—
|
|
|
$
|
40,997
|
|
(1)
|
Remaining weighted-average contract period is weighted based on projected gross claims over the lives of the respective policies.
|
(2)
|
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.
|
(3)
|
RMBS subrogation represents Ambac’s estimate of subrogation recoveries from RMBS transaction sponsors for representation and warranty ("R&W") breaches.
|
(4)
|
Other subrogation represents subrogation related to excess spread and other contractual cash flows on public finance and structured finance transactions including RMBS.
|
(5)
|
Reinsurance recoverable reported on Balance Sheet includes reinsurance recoverables of
$40,658
related to future loss and loss expenses and
$339
related to presented loss and loss expenses and subrogation.
|
|
|
Surveillance Categories as of December 31, 2016
|
||||||||||||||||||||||||||
|
|
I
|
|
IA
|
|
II
|
|
III
|
|
IV
|
|
V
|
|
Total
|
||||||||||||||
Number of policies
|
|
19
|
|
|
22
|
|
|
26
|
|
|
43
|
|
|
169
|
|
|
3
|
|
|
282
|
|
|||||||
Remaining weighted-average contract period (in years)
(1)
|
|
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
(2)
|
|
$
|
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
(3)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(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
(4)
|
|
—
|
|
|
—
|
|
|
(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
(5)
|
|
$
|
120
|
|
|
$
|
6,063
|
|
|
$
|
2,737
|
|
|
$
|
39,352
|
|
|
$
|
(17,854
|
)
|
|
$
|
—
|
|
|
$
|
30,418
|
|
(1)
|
Remaining weighted-average contract period is weighted based on projected gross claims over the lives of the respective policies.
|
(2)
|
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.
|
(3)
|
RMBS subrogation represents Ambac’s estimate of subrogation recoveries from RMBS transaction sponsors for R&W breaches.
|
(4)
|
Other subrogation represents subrogation related to excess spread and other contractual cash flows on public finance and structured finance transactions, including RMBS.
|
(5)
|
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.
|
|
Gross loss
reserves before subrogation recoveries (1) |
|
Subrogation
recoveries (2)(3) |
|
Gross loss
reserves after subrogation recoveries |
||||||
At December 31, 2017
|
$
|
1,366,483
|
|
|
$
|
(1,834,387
|
)
|
|
$
|
(467,904
|
)
|
|
|
|
|
|
|
||||||
At December 31, 2016
|
$
|
1,351,640
|
|
|
$
|
(1,907,035
|
)
|
|
$
|
(555,395
|
)
|
(1)
|
Amount represents gross loss reserves
for
policies that have established a representation and warranty subrogation recovery.
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 future cash flows for each policy. To the extent losses have been paid but not yet fully recovered, the recorded amount of R&W 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.
|
Year ended December 31,
|
2017
|
|
2016
|
|
2015
|
||||||
Discounted RMBS subrogation (gross of reinsurance) at beginning of year
|
$
|
1,907,035
|
|
|
$
|
2,829,575
|
|
|
$
|
2,523,540
|
|
Impact of sponsor actions
(1)
|
—
|
|
|
(995,000
|
)
|
|
—
|
|
|||
All other changes
(2)
|
(72,648
|
)
|
|
72,460
|
|
|
306,035
|
|
|||
Discounted RMBS subrogation (gross of reinsurance) at end of year
|
$
|
1,834,387
|
|
|
$
|
1,907,035
|
|
|
$
|
2,829,575
|
|
(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 this table.
|
Reinsurers
|
Moody’s
Rating
|
|
Percentage
Ceded Par
|
|
Net Unsecured
Reinsurance
Recoverable
(1)
|
||
Assured Guaranty Re Ltd
|
NR
|
|
82.9%
|
|
$
|
—
|
|
Assured Guaranty Corporation
|
A3
|
|
9.2
|
|
—
|
|
|
Sompo Japan Nipponkoa Insurance, Inc.
|
A1
|
|
7.9
|
|
—
|
|
|
Total
|
|
|
100%
|
|
$
|
—
|
|
(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.
|
Future Insurance Intangible Amortization
(1)
|
||||||||||||||||||||||
2018
|
|
2019
|
|
2020
|
|
2021
|
|
2022
|
|
Thereafter
|
||||||||||||
$
|
76,638
|
|
|
$
|
69,082
|
|
|
$
|
63,892
|
|
|
$
|
58,207
|
|
|
$
|
53,908
|
|
|
$
|
525,246
|
|
(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.
|
•
|
OCI has prescribed an accounting practice that differs from NAIC SAP. Paragraph 8 of Statement of Statutory Accounting Principles No. 60 “Financial Guaranty Insurance” (“SSAP 60”) allows for a deduction from loss reserves for the time value of money by application of a discount rate equal to the average rate of return on the admitted assets of the financial guaranty insurer as of the date of the computation of the reserve. The discount rate shall be adjusted at the end of each calendar year. Additionally, in accordance with paragraph 13.e of Statutory Accounting Principles No. 97 "Investments in Subsidiary, Controlled and Affiliated Entities" and paragraph 8 of Statutory Accounting Principles No. 5R “Liabilities, Contingencies and Impairments of Assets - Revised”, Ambac Assurance records probable losses on its subsidiaries for which it guarantees their obligations. Ambac also discounts probable losses on guarantees of subsidiary obligations using a discount rate equal to the average rate of return on its admitted assets. Ambac Assurance’s average rates of return on its admitted assets at
December 31, 2017 and 2016
were
9.52%
and
7.63%
, respectively. OCI has directed Ambac Assurance to utilize a prescribed discount rate of
5.10%
for the purpose of discounting both its loss reserves and its estimated impairment losses on subsidiary guarantees.
|
•
|
OCI has prescribed an additional accounting practice that differs from NAIC SAP. Paragraph 4 of Statement of Statutory Accounting Principles No. 41 “Surplus Notes” (“SSAP 41”) states that proceeds received by the issuer of surplus notes must be in the form of cash or other admitted assets having readily determinable values and liquidity satisfactory to the commissioner of the state of domicile. Under the statutory accounting principles as generally applied, surplus notes issued in conjunction with commutations or the settlement of claims would be valued at zero upon issuance pursuant to paragraph 4, SSAP 41. OCI has directed Ambac Assurance to record surplus notes issued in connection with commutations or the settlement of claims at full par value upon issuance as in these instances the surplus notes did not represent a contribution of capital, but rather a distribution of value from the common and preferred shareholders of Ambac Assurance. The surplus notes issued in connection with commutations or settlement of claims has a claim against surplus senior to the preferred and common shareholders.
|
•
|
OCI had extended the preceding prescribed practice related to surplus notes to the evaluation of other-than-temporary impairments for Ambac Assurance guaranteed securities held in the investment portfolio. Paragraph 35 of Statement of Statutory Accounting Principles No. 43R ”Loan-backed and Structured Securities” states that when an other-than-temporary impairment has occurred, the amount of the other-than-temporary impairment recognized as a realized loss shall equal the difference between the investment’s amortized cost basis and the present value of cash flows expected to be collected, discounted at the loan-backed or structured security’s effective interest rate. Under NAIC SAP, the present value of cash flows expected to be collected should include the fair value of surplus notes received from the Segregated Account, as required under the originally confirmed Segregated Account Rehabilitation Plan. OCI had prescribed an accounting practice that differed from NAIC SAP and has directed Ambac Assurance to utilize par value rather than fair value of these surplus notes in this computation. As a result of the amended Segregated Account Rehabilitation Plan becoming effective on June 12, 2014, this prescribed
|
•
|
OCI has prescribed an accounting practice related to the total liabilities and total surplus of the Segregated Account that are reported as discrete components of Ambac Assurance’s liabilities and surplus reported in Ambac Assurance’s statutory basis financial statements. Pursuant to this prescribed practice, the results of the Segregated Account are not included in Ambac Assurance’s financial statements if Ambac Assurance’s surplus is (or would be) less than the Minimum Surplus Amount (i.e.,
$100,000
. As long as the surplus as regards to policyholders is not less than the Minimum Surplus Amount, payments by Ambac Assurance to the Segregated Account under the Aggregate Excess of Loss Reinsurance Agreement between Ambac Assurance (as reinsurer) and the Segregated Account were not capped. As a result of the exit of the Segregated Account from rehabilitation on February 12, 2018, this prescribed practice will no longer be applicable.
|
•
|
Wisconsin accounting practices for changes to contingency reserves differ from NAIC SAP. Under NAIC SAP, contributions to and releases from the contingency reserve are recorded via a direct charge or credit to surplus. Under the Wisconsin Administrative Code, contributions to and releases from the contingency reserve are to be recorded through underwriting income. Ambac Assurance received permission from OCI to record contributions to and releases from the contingency reserve and the related tax and loss bond impact, in accordance with NAIC SAP.
|
•
|
Ambac Assurance received permission from OCI to report investment holdings of Ambac Assurance insured securities as a separate invested asset on the balance sheet rather than combined with other bond investments. This permitted practice only impacts the balance sheet classification and has no impact on the valuation of the securities to which it applies or to statutory surplus.
|
•
|
Effective upon the exit of the Segregated Account from Rehabilitation and the merger of the Segregated Account with Ambac Assurance, Ambac Assurance received permission from OCI to restate its unassigned funds (surplus) balance to
$100,000
with an offsetting reduction to gross paid-in and contributed surplus such that total surplus remains unchanged.
|
l
|
Level 1
|
|
Quoted prices for identical instruments in active markets. Assets and liabilities classified as Level 1 include US Treasury and other foreign government obligations traded in highly liquid and transparent markets, exchange traded futures contracts, variable rate demand obligations and money market funds.
|
|
|
|
|
l
|
Level 2
|
|
Quoted prices for similar instruments in active markets; quoted prices for identical or similar instruments in markets that are not active; and model-derived valuations in which all significant inputs and significant value drivers are observable in active markets. Assets and liabilities classified as Level 2 generally include investments in fixed income securities representing municipal, asset-backed and corporate obligations, certain interest rate swap contracts, and most long-term debt of variable interest entities consolidated under the Consolidation Topic of the ASC.
|
|
|
|
|
l
|
Level 3
|
|
Model derived valuations in which one or more significant inputs or significant value drivers are unobservable. This hierarchy requires the use of observable market data when available. Assets and liabilities classified as Level 3 include credit derivative contracts, certain uncollateralized interest rate swap contracts, equity interests in Ambac sponsored special purpose entities and certain investments in fixed income securities. Additionally, Level 3 assets and liabilities generally include fixed income securities, loan receivables, and certain long-term debt of variable interest entities consolidated under the Consolidation Topic of the ASC.
|
|
|
Carrying
Amount |
|
Total Fair
Value |
|
Fair Value Measurements Categorized as:
|
||||||||||||||
Level 1
|
|
Level 2
|
|
Level 3
|
||||||||||||||||
December 31, 2017:
|
|
|
|
|
|
|
|
|
|
|
||||||||||
Financial assets:
|
|
|
|
|
|
|
|
|
|
|
||||||||||
Fixed income securities:
|
|
|
|
|
|
|
|
|
|
|
||||||||||
Municipal obligations
|
|
$
|
779,834
|
|
|
$
|
779,834
|
|
|
$
|
—
|
|
|
$
|
779,834
|
|
|
$
|
—
|
|
Corporate obligations
|
|
860,075
|
|
|
860,075
|
|
|
450
|
|
|
859,625
|
|
|
—
|
|
|||||
Foreign obligations
|
|
26,543
|
|
|
26,543
|
|
|
25,615
|
|
|
928
|
|
|
—
|
|
|||||
U.S. government obligations
|
|
85,408
|
|
|
85,408
|
|
|
85,408
|
|
|
—
|
|
|
—
|
|
|||||
Residential mortgage-backed securities
|
|
2,251,333
|
|
|
2,251,333
|
|
|
—
|
|
|
1,515,316
|
|
|
736,017
|
|
|||||
Collateralized debt obligations
|
|
51,037
|
|
|
51,037
|
|
|
—
|
|
|
51,037
|
|
|
—
|
|
|||||
Other asset-backed securities
|
|
597,942
|
|
|
597,942
|
|
|
—
|
|
|
525,402
|
|
|
72,540
|
|
|||||
Fixed income securities, pledged as collateral:
|
|
|
|
|
|
|
|
|
|
|
||||||||||
U.S. government obligations
|
|
99,719
|
|
|
99,719
|
|
|
99,719
|
|
|
—
|
|
|
—
|
|
|||||
Short term investments
|
|
557,270
|
|
|
557,270
|
|
|
389,299
|
|
|
167,971
|
|
|
—
|
|
|||||
Other investments
(1)
|
|
431,630
|
|
|
413,977
|
|
|
56,498
|
|
|
29,750
|
|
|
17,288
|
|
|||||
Cash and cash equivalents
|
|
623,703
|
|
|
623,703
|
|
|
615,073
|
|
|
8,630
|
|
|
—
|
|
|||||
Loans
|
|
10,358
|
|
|
10,284
|
|
|
—
|
|
|
—
|
|
|
10,284
|
|
|||||
Derivative assets:
|
|
|
|
|
|
|
|
|
|
|
||||||||||
Interest rate swaps—asset position
|
|
73,199
|
|
|
73,199
|
|
|
—
|
|
|
11,825
|
|
|
61,374
|
|
|||||
Other assets
|
|
5,979
|
|
|
5,979
|
|
|
—
|
|
|
—
|
|
|
5,979
|
|
|||||
Variable interest entity assets:
|
|
|
|
|
|
|
|
|
|
|
||||||||||
Fixed income securities:
|
|
|
|
|
|
|
|
|
|
|
||||||||||
Corporate obligations
|
|
2,914,145
|
|
|
2,914,145
|
|
|
—
|
|
|
—
|
|
|
2,914,145
|
|
|||||
Restricted cash
|
|
978
|
|
|
978
|
|
|
978
|
|
|
—
|
|
|
—
|
|
|||||
Loans
|
|
11,529,384
|
|
|
11,529,384
|
|
|
—
|
|
|
—
|
|
|
11,529,384
|
|
|||||
Derivative assets:
|
|
|
|
|
|
|
|
|
|
|
||||||||||
Currency swaps-asset position
|
|
54,877
|
|
|
54,877
|
|
|
—
|
|
|
54,877
|
|
|
—
|
|
|||||
Total financial assets
|
|
$
|
20,853,695
|
|
|
$
|
20,835,968
|
|
|
$
|
1,173,321
|
|
|
$
|
4,005,195
|
|
|
$
|
15,347,011
|
|
Financial liabilities:
|
|
|
|
|
|
|
|
|
|
|
||||||||||
Long term debt, including accrued interest
|
|
1,428,680
|
|
|
1,369,499
|
|
|
—
|
|
|
1,046,511
|
|
|
322,988
|
|
|||||
Derivative liabilities:
|
|
|
|
|
|
|
|
|
|
|
||||||||||
Credit derivatives
|
|
566
|
|
|
566
|
|
|
—
|
|
|
—
|
|
|
566
|
|
|||||
Interest rate swaps—asset position
|
|
(627
|
)
|
|
(627
|
)
|
|
—
|
|
|
(627
|
)
|
|
—
|
|
|||||
Interest rate swaps—liability position
|
|
81,495
|
|
|
81,495
|
|
|
—
|
|
|
81,495
|
|
|
—
|
|
|||||
Futures contracts
|
|
1,348
|
|
|
1,348
|
|
|
1,348
|
|
|
—
|
|
|
—
|
|
|||||
Liabilities for net financial guarantees written
(2)
|
|
3,435,438
|
|
|
4,842,402
|
|
|
—
|
|
|
—
|
|
|
4,842,402
|
|
|||||
Variable interest entity liabilities:
|
|
|
|
|
|
|
|
|
|
|
||||||||||
Long-term debt
|
|
12,160,544
|
|
|
12,160,544
|
|
|
—
|
|
|
9,402,856
|
|
|
2,757,688
|
|
|||||
Derivative liabilities:
|
|
|
|
|
|
|
|
|
|
|
||||||||||
Interest rate swaps—liability position
|
|
2,205,264
|
|
|
2,205,264
|
|
|
—
|
|
|
2,205,264
|
|
|
—
|
|
|||||
Total financial liabilities
|
|
$
|
19,312,708
|
|
|
$
|
20,660,491
|
|
|
$
|
1,348
|
|
|
$
|
12,735,499
|
|
|
$
|
7,923,644
|
|
|
|
Carrying
Amount |
|
Total Fair
Value |
|
Fair Value Measurements Categorized as:
|
||||||||||||||
Level 1
|
|
Level 2
|
|
Level 3
|
||||||||||||||||
December 31, 2016:
|
|
|
|
|
|
|
|
|
|
|
||||||||||
Financial assets:
|
|
|
|
|
|
|
|
|
|
|
||||||||||
Fixed income securities:
|
|
|
|
|
|
|
|
|
|
|
||||||||||
Municipal obligations
|
|
$
|
374,368
|
|
|
$
|
374,368
|
|
|
$
|
—
|
|
|
$
|
374,368
|
|
|
$
|
—
|
|
Corporate obligations
|
|
1,802,165
|
|
|
1,802,165
|
|
|
—
|
|
|
1,802,165
|
|
|
—
|
|
|||||
Foreign obligations
|
|
43,135
|
|
|
43,135
|
|
|
42,212
|
|
|
923
|
|
|
—
|
|
|||||
U.S. government obligations
|
|
36,186
|
|
|
36,186
|
|
|
36,186
|
|
|
—
|
|
|
—
|
|
|||||
U.S. agency obligations
|
|
4,060
|
|
|
4,060
|
|
|
—
|
|
|
4,060
|
|
|
—
|
|
|||||
Residential mortgage-backed securities
|
|
2,351,595
|
|
|
2,351,595
|
|
|
—
|
|
|
1,654,882
|
|
|
696,713
|
|
|||||
Collateralized debt obligations
|
|
113,923
|
|
|
113,923
|
|
|
—
|
|
|
113,923
|
|
|
—
|
|
|||||
Other asset-backed securities
|
|
828,783
|
|
|
828,783
|
|
|
—
|
|
|
762,793
|
|
|
65,990
|
|
|||||
Fixed income securities, pledged as collateral:
|
|
|
|
|
|
|
|
|
|
|
||||||||||
U.S. government obligations
|
|
64,905
|
|
|
64,905
|
|
|
64,905
|
|
|
—
|
|
|
—
|
|
|||||
Short term investments
|
|
430,788
|
|
|
430,788
|
|
|
371,367
|
|
|
59,421
|
|
|
—
|
|
|||||
Other investments
(1)
|
|
450,307
|
|
|
435,237
|
|
|
83,791
|
|
|
—
|
|
|
14,934
|
|
|||||
Cash and cash equivalents
|
|
91,025
|
|
|
91,025
|
|
|
46,587
|
|
|
44,438
|
|
|
—
|
|
|||||
Loans
|
|
4,160
|
|
|
4,066
|
|
|
—
|
|
|
—
|
|
|
4,066
|
|
|||||
Derivative assets:
|
|
|
|
|
|
|
|
|
|
|
||||||||||
Interest rate swaps—asset position
|
|
77,206
|
|
|
77,206
|
|
|
—
|
|
|
16,950
|
|
|
60,256
|
|
|||||
Interest rate swaps—liability position
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|||||
Futures contracts
|
|
536
|
|
|
536
|
|
|
536
|
|
|
—
|
|
|
—
|
|
|||||
Other assets
|
|
7,382
|
|
|
7,382
|
|
|
—
|
|
|
—
|
|
|
7,382
|
|
|||||
Variable interest entity assets:
|
|
|
|
|
|
|
|
|
|
|
||||||||||
Fixed income securities:
|
|
|
|
|
|
|
|
|
|
|
||||||||||
Corporate obligations
|
|
2,622,566
|
|
|
2,622,566
|
|
|
—
|
|
|
—
|
|
|
2,622,566
|
|
|||||
Restricted cash
|
|
4,873
|
|
|
4,873
|
|
|
4,873
|
|
|
—
|
|
|
—
|
|
|||||
Derivative assets:
|
|
|
|
|
|
|
|
|
|
|
||||||||||
Currency swaps-asset position
|
|
80,407
|
|
|
80,407
|
|
|
—
|
|
|
80,407
|
|
|
—
|
|
|||||
Loans
|
|
10,658,963
|
|
|
10,658,963
|
|
|
—
|
|
|
—
|
|
|
10,658,963
|
|
|||||
Total financial assets
|
|
$
|
20,047,333
|
|
|
$
|
20,032,169
|
|
|
$
|
650,457
|
|
|
$
|
4,914,330
|
|
|
$
|
14,130,870
|
|
Financial liabilities:
|
|
|
|
|
|
|
|
|
|
|
||||||||||
Obligations under investment agreements
|
|
$
|
82,358
|
|
|
$
|
82,333
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
82,333
|
|
Long term debt, including accrued interest
|
|
1,536,352
|
|
|
1,494,340
|
|
|
—
|
|
|
1,147,728
|
|
|
346,612
|
|
|||||
Derivative liabilities:
|
|
|
|
|
|
|
|
|
|
|
||||||||||
Credit derivatives
|
|
15,349
|
|
|
15,349
|
|
|
—
|
|
|
—
|
|
|
15,349
|
|
|||||
Interest rate swaps—asset position
|
|
(61,839
|
)
|
|
(61,839
|
)
|
|
—
|
|
|
(61,839
|
)
|
|
—
|
|
|||||
Interest rate swaps—liability position
|
|
365,776
|
|
|
365,776
|
|
|
—
|
|
|
220,587
|
|
|
145,189
|
|
|||||
Liabilities for net financial guarantees written
(2)
|
|
3,009,943
|
|
|
4,490,070
|
|
|
—
|
|
|
—
|
|
|
4,490,070
|
|
|||||
Variable interest entity liabilities:
|
|
|
|
|
|
|
|
|
|
|
||||||||||
Long-term debt
|
|
11,155,936
|
|
|
11,155,936
|
|
|
—
|
|
|
8,573,716
|
|
|
2,582,220
|
|
|||||
Derivative liabilities:
|
|
|
|
|
|
|
|
|
|
|
||||||||||
Interest rate swaps—liability position
|
|
2,078,601
|
|
|
2,078,601
|
|
|
—
|
|
|
2,078,601
|
|
|
—
|
|
|||||
Currency swaps—liability position
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|||||
Total financial liabilities
|
|
$
|
18,182,476
|
|
|
$
|
19,620,566
|
|
|
$
|
—
|
|
|
$
|
11,958,793
|
|
|
$
|
7,661,773
|
|
(1)
|
Excluded from the fair value measurement categories in the table above are investment funds of
$310,441
and
$336,513
as of
December 31, 2017 and 2016
, respectively, which are measured using NAV per share 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.
|
December 31, 2017:
|
|
|
|
|
a. Coupon rate:
|
2.05%
|
|
|
|
b. Average Life:
|
0.65 years
|
|
|
|
c. Yield:
|
10.00%
|
|
|
|
December 31, 2017:
|
|
December 31, 2016:
|
||
a. Coupon rate:
|
5.97%
|
|
a. Coupon rate:
|
5.93%
|
b. Average Life:
|
17.02 years
|
|
b. Average Life:
|
17.74 years
|
c. Yield:
|
12.00%
|
|
c. Yield:
|
13.50%
|
December 31,
|
|
2017
|
|
2016
|
||||
Number of CDS transactions
|
|
2
|
|
|
8
|
|
||
Notional outstanding
|
|
$
|
325,890
|
|
|
$
|
737,380
|
|
Weighted average reference obligation price
|
|
99.3
|
|
|
93.5
|
|
||
Weighted average life (WAL) in years
|
|
6.5
|
|
|
5.2
|
|
||
Weighted average credit rating
|
|
A
|
|
|
A-
|
|
||
Weighted average relative change ratio
|
|
23.6
|
%
|
|
31.6
|
%
|
||
CVA percentage
|
|
9.64
|
%
|
|
11.14
|
%
|
||
Fair value of derivative liabilities
|
|
$
|
566
|
|
|
$
|
15,349
|
|
December 31, 2017
|
|
December 31, 2016
|
||
a. Coupon rate:
|
0.40%
|
|
a. Coupon rate:
|
0.46%
|
b. Maturity:
|
15.28 years
|
|
b. Maturity:
|
16.16 years
|
c. Yield:
|
4.82%
|
|
c. Yield:
|
4.95%
|
December 31, 2016
|
|
|
||
a. Coupon rate:
|
5.88%
|
|
|
|
b. Maturity:
|
20.85 years
|
|
|
|
c. Yield:
|
5.86%
|
|
|
|
Level-3 Financial Assets and Liabilities Accounted for at Fair Value
|
|
|
|
|
|
|
|
|
||||||||||||||||||||
|
|
|
|
|
|
|
|
VIE Assets and Liabilities
|
|
|
||||||||||||||||||
Year Ended December 31, 2017
|
|
Investments
|
|
Other
Assets |
|
Derivatives
|
|
Investments
|
|
Loans
|
|
Long-term
Debt |
|
Total
|
||||||||||||||
Balance, beginning of period
|
|
$
|
762,703
|
|
|
$
|
7,382
|
|
|
$
|
(100,282
|
)
|
|
$
|
2,622,566
|
|
|
$
|
10,658,963
|
|
|
$
|
(2,582,220
|
)
|
|
$
|
11,369,112
|
|
Total gains/(losses) realized and unrealized:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||||
Included in earnings
|
|
65,195
|
|
|
(1,403
|
)
|
|
62,847
|
|
|
70,928
|
|
|
550,021
|
|
|
35,009
|
|
|
782,597
|
|
|||||||
Included in other comprehensive income
|
|
6,392
|
|
|
—
|
|
|
—
|
|
|
253,429
|
|
|
1,004,284
|
|
|
(254,093
|
)
|
|
1,010,012
|
|
|||||||
Purchases
|
|
35,781
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
35,781
|
|
|||||||
Sales
|
|
(79,319
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(79,319
|
)
|
|||||||
Settlements
|
|
(29,963
|
)
|
|
—
|
|
|
98,243
|
|
|
(32,778
|
)
|
|
(683,884
|
)
|
|
43,616
|
|
|
(604,766
|
)
|
|||||||
Transfers into Level 3
|
|
47,768
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
47,768
|
|
|||||||
Transfers out of Level 3
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|||||||
Deconsolidation of VIEs
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|||||||
Balance, end of period
|
|
$
|
808,557
|
|
|
$
|
5,979
|
|
|
$
|
60,808
|
|
|
$
|
2,914,145
|
|
|
$
|
11,529,384
|
|
|
$
|
(2,757,688
|
)
|
|
$
|
12,561,185
|
|
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
|
|
$
|
—
|
|
|
$
|
(1,403
|
)
|
|
$
|
8,913
|
|
|
$
|
70,928
|
|
|
$
|
547,004
|
|
|
$
|
36,851
|
|
|
$
|
662,293
|
|
Level-3 Financial Assets and Liabilities Accounted for at Fair Value
|
|
|
|
|
|
|
|
|
||||||||||||||||||||
|
|
|
|
|
|
|
|
VIE Assets and Liabilities
|
|
|
||||||||||||||||||
Year Ended December 31, 2015
|
|
Investments
|
|
Other
Assets |
|
Derivatives
|
|
Investments
|
|
Loans
|
|
Long-term
Debt |
|
Total
|
||||||||||||||
Balance, beginning of period
|
|
$
|
198,201
|
|
|
$
|
12,036
|
|
|
$
|
(215,346
|
)
|
|
$
|
2,743,050
|
|
|
$
|
12,371,177
|
|
|
$
|
(1,263,664
|
)
|
|
$
|
13,845,454
|
|
Total gains/(losses) realized and unrealized:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||||
Included in earnings
|
|
30,083
|
|
|
(1,635
|
)
|
|
16,571
|
|
|
(7,263
|
)
|
|
569,617
|
|
|
(1,152,681
|
)
|
|
(545,308
|
)
|
|||||||
Included in other comprehensive income
|
|
(73,559
|
)
|
|
—
|
|
|
—
|
|
|
(147,231
|
)
|
|
(612,941
|
)
|
|
93,812
|
|
|
(739,919
|
)
|
|||||||
Purchases
|
|
359,193
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
359,193
|
|
|||||||
Sales
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|||||||
Settlements
|
|
(25,034
|
)
|
|
(1,705
|
)
|
|
11,365
|
|
|
—
|
|
|
(312,406
|
)
|
|
(17,085
|
)
|
|
(344,865
|
)
|
|||||||
Transfers into Level 3
|
|
—
|
|
|
—
|
|
|
88,218
|
|
|
—
|
|
|
—
|
|
|
(840,552
|
)
|
|
(752,334
|
)
|
|||||||
Transfers out of Level 3
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|||||||
Deconsolidation of VIEs
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(325,123
|
)
|
|
—
|
|
|
(325,123
|
)
|
|||||||
Balance, end of period
|
|
$
|
488,884
|
|
|
$
|
8,696
|
|
|
$
|
(99,192
|
)
|
|
$
|
2,588,556
|
|
|
$
|
11,690,324
|
|
|
$
|
(3,180,170
|
)
|
|
$
|
11,497,098
|
|
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
|
|
$
|
—
|
|
|
$
|
(1,635
|
)
|
|
$
|
(25,980
|
)
|
|
$
|
(7,263
|
)
|
|
$
|
589,634
|
|
|
$
|
(1,161,991
|
)
|
|
$
|
(607,235
|
)
|
Level-3 Investments by Class
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||
|
|
2017
|
|
2016
|
||||||||||||||||||||
Year Ended December 31,
|
|
Other asset
backed securities |
|
Non-Agency RMBS
|
|
Total
investments |
|
Other asset
backed securities |
|
Non-Agency RMBS
|
|
Total
investments |
||||||||||||
Balance, beginning of period
|
|
$
|
65,990
|
|
|
$
|
696,713
|
|
|
$
|
762,703
|
|
|
$
|
—
|
|
|
$
|
488,884
|
|
|
$
|
488,884
|
|
Total gains/(losses) realized and unrealized:
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||
Included in earnings
|
|
1,433
|
|
|
63,762
|
|
|
65,195
|
|
|
1,908
|
|
|
52,692
|
|
|
54,600
|
|
||||||
Included in other comprehensive income
|
|
6,130
|
|
|
262
|
|
|
6,392
|
|
|
(5,597
|
)
|
|
46,115
|
|
|
40,518
|
|
||||||
Purchases
|
|
—
|
|
|
35,781
|
|
|
35,781
|
|
|
—
|
|
|
99,018
|
|
|
99,018
|
|
||||||
Sales
|
|
—
|
|
|
(79,319
|
)
|
|
(79,319
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
||||||
Settlements
|
|
(1,013
|
)
|
|
(28,950
|
)
|
|
(29,963
|
)
|
|
(1,028
|
)
|
|
(27,654
|
)
|
|
(28,682
|
)
|
||||||
Transfers into Level 3
|
|
—
|
|
|
47,768
|
|
|
47,768
|
|
|
70,707
|
|
|
37,658
|
|
|
108,365
|
|
||||||
Transfers out of Level 3
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
||||||
Balance, end of period
|
|
$
|
72,540
|
|
|
$
|
736,017
|
|
|
$
|
808,557
|
|
|
$
|
65,990
|
|
|
$
|
696,713
|
|
|
$
|
762,703
|
|
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
|
|
|
|
|
|
|
|
|
||||||||
|
|
2015
|
||||||||||||||
Year Ended December 31, 2015
|
|
Other asset
backed securities |
|
Corporate
obligations |
|
Non-Agency RMBS
|
|
Total
investments |
||||||||
Balance, beginning of period
|
|
$
|
—
|
|
|
$
|
3,808
|
|
|
$
|
194,393
|
|
|
$
|
198,201
|
|
Total gains/(losses) realized and unrealized:
|
|
|
|
|
|
|
|
|
||||||||
Included in earnings
|
|
—
|
|
|
(19
|
)
|
|
30,102
|
|
|
30,083
|
|
||||
Included in other comprehensive income
|
|
—
|
|
|
(286
|
)
|
|
(73,273
|
)
|
|
(73,559
|
)
|
||||
Purchases
|
|
—
|
|
|
—
|
|
|
359,193
|
|
|
359,193
|
|
||||
Sales
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
||||
Settlements
|
|
—
|
|
|
(3,503
|
)
|
|
(21,531
|
)
|
|
(25,034
|
)
|
||||
Transfers into Level 3
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
||||
Transfers out of Level 3
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
||||
Balance, end of period
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
488,884
|
|
|
$
|
488,884
|
|
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
|
|
|
|
|
|
|
|
|
|
|
||||||||||||||
|
|
2017
|
|
2016
|
||||||||||||||||||||
Year Ended December 31,
|
|
Interest
rate swaps |
|
Credit
derivatives |
|
Total
derivatives |
|
Interest
rate swaps |
|
Credit
derivatives |
|
Total
derivatives |
||||||||||||
Balance, beginning of period
|
|
$
|
(84,933
|
)
|
|
$
|
(15,349
|
)
|
|
$
|
(100,282
|
)
|
|
$
|
(64,649
|
)
|
|
$
|
(34,543
|
)
|
|
$
|
(99,192
|
)
|
Total gains/(losses) realized and unrealized:
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||
Included in earnings
|
|
46,475
|
|
|
16,372
|
|
|
62,847
|
|
|
(35,480
|
)
|
|
20,106
|
|
|
(15,374
|
)
|
||||||
Included in other comprehensive income
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
||||||
Purchases
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
||||||
Sales
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
||||||
Settlements
|
|
99,832
|
|
|
(1,589
|
)
|
|
98,243
|
|
|
15,196
|
|
|
(912
|
)
|
|
14,284
|
|
||||||
Transfers into Level 3
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
||||||
Transfers out of Level 3
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
||||||
Balance, end of period
|
|
$
|
61,374
|
|
|
$
|
(566
|
)
|
|
$
|
60,808
|
|
|
$
|
(84,933
|
)
|
|
$
|
(15,349
|
)
|
|
$
|
(100,282
|
)
|
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
|
|
$
|
6,716
|
|
|
$
|
2,197
|
|
|
$
|
8,913
|
|
|
$
|
(35,480
|
)
|
|
$
|
19,129
|
|
|
$
|
(16,351
|
)
|
Level-3 Derivatives by Class
|
|
|
|
|
|
|
||||||
|
|
2015
|
||||||||||
Year Ended December 31,
|
|
Interest
rate swaps |
|
Credit
derivatives |
|
Total
derivatives |
||||||
Balance, beginning of period
|
|
$
|
(141,887
|
)
|
|
$
|
(73,459
|
)
|
|
$
|
(215,346
|
)
|
Total gains/(losses) realized and unrealized:
|
|
|
|
|
|
|
||||||
Included in earnings
|
|
(25,130
|
)
|
|
41,701
|
|
|
16,571
|
|
|||
Included in other comprehensive income
|
|
—
|
|
|
—
|
|
|
—
|
|
|||
Purchases
|
|
—
|
|
|
—
|
|
|
—
|
|
|||
Sales
|
|
—
|
|
|
—
|
|
|
—
|
|
|||
Settlements
|
|
14,150
|
|
|
(2,785
|
)
|
|
11,365
|
|
|||
Transfers into Level 3
|
|
88,218
|
|
|
—
|
|
|
88,218
|
|
|||
Transfers out of Level 3
|
|
—
|
|
|
—
|
|
|
—
|
|
|||
Balance, end of period
|
|
$
|
(64,649
|
)
|
|
$
|
(34,543
|
)
|
|
$
|
(99,192
|
)
|
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
|
|
$
|
(25,130
|
)
|
|
$
|
(850
|
)
|
|
$
|
(25,980
|
)
|
|
|
Net
investment income |
|
Realized
gains or (losses) and other settlements on credit derivative contracts |
|
Unrealized
gains or (losses) on credit derivative contracts |
|
Interest
rate swaps |
|
Income
(loss) on variable interest entities |
|
Other
income or (loss) |
||||||||||||
Year Ended December 31, 2017
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||
Total gains or losses included in earnings for the period
|
|
65,195
|
|
|
1,589
|
|
|
14,783
|
|
|
46,475
|
|
|
655,956
|
|
|
(1,403
|
)
|
||||||
Changes in unrealized gains or losses relating to the assets and liabilities still held at the reporting date
|
|
—
|
|
|
—
|
|
|
2,197
|
|
|
6,716
|
|
|
654,783
|
|
|
(1,403
|
)
|
||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||
Year Ended December 31, 2016
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||
Total gains or losses included in earnings for the period
|
|
$
|
54,600
|
|
|
$
|
912
|
|
|
$
|
19,194
|
|
|
$
|
(35,480
|
)
|
|
$
|
833,023
|
|
|
$
|
(1,314
|
)
|
Changes in unrealized gains or losses relating to the assets and liabilities still held at the reporting date
|
|
—
|
|
|
—
|
|
|
19,129
|
|
|
(35,480
|
)
|
|
833,023
|
|
|
(1,314
|
)
|
||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||
Year Ended December 31, 2015
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||
Total gains or losses included in earnings for the period
|
|
$
|
30,083
|
|
|
$
|
2,785
|
|
|
$
|
38,916
|
|
|
$
|
(25,130
|
)
|
|
$
|
(590,327
|
)
|
|
$
|
(1,635
|
)
|
Changes in unrealized gains or losses relating to the assets and liabilities still held at the reporting date
|
|
—
|
|
|
—
|
|
|
(850
|
)
|
|
(25,130
|
)
|
|
(579,620
|
)
|
|
(1,635
|
)
|
|
|
Amortized
cost |
|
Gross
unrealized gains |
|
Gross
unrealized losses |
|
Estimated
fair value |
|
Non-Credit Other-
than-temporary Impairments (1) |
||||||||||
December 31, 2017
|
|
|
|
|
|
|
|
|
|
|
||||||||||
Fixed income securities:
|
|
|
|
|
|
|
|
|
|
|
||||||||||
Municipal obligations
|
|
$
|
845,778
|
|
|
$
|
3,456
|
|
|
$
|
69,400
|
|
|
$
|
779,834
|
|
|
$
|
—
|
|
Corporate obligations
|
|
858,774
|
|
|
6,772
|
|
|
5,471
|
|
|
860,075
|
|
|
—
|
|
|||||
Foreign obligations
|
|
26,245
|
|
|
409
|
|
|
111
|
|
|
26,543
|
|
|
—
|
|
|||||
U.S. government obligations
|
|
86,900
|
|
|
261
|
|
|
1,753
|
|
|
85,408
|
|
|
—
|
|
|||||
Residential mortgage-backed securities
|
|
2,214,512
|
|
|
67,303
|
|
|
30,482
|
|
|
2,251,333
|
|
|
23,832
|
|
|||||
Collateralized debt obligations
|
|
50,754
|
|
|
283
|
|
|
—
|
|
|
51,037
|
|
|
—
|
|
|||||
Other asset-backed securities
|
|
531,660
|
|
|
66,899
|
|
|
617
|
|
|
597,942
|
|
|
—
|
|
|||||
|
|
4,614,623
|
|
|
145,383
|
|
|
107,834
|
|
|
4,652,172
|
|
|
23,832
|
|
|||||
Short-term
|
|
557,476
|
|
|
3
|
|
|
209
|
|
|
557,270
|
|
|
—
|
|
|||||
|
|
5,172,099
|
|
|
145,386
|
|
|
108,043
|
|
|
5,209,442
|
|
|
23,832
|
|
|||||
Fixed income securities pledged as collateral:
|
|
|
|
|
|
|
|
|
|
|
||||||||||
U.S. government obligations
|
|
99,719
|
|
|
—
|
|
|
—
|
|
|
99,719
|
|
|
—
|
|
|||||
Total collateralized investments
|
|
99,719
|
|
|
—
|
|
|
—
|
|
|
99,719
|
|
|
—
|
|
|||||
Total available-for-sale investments
|
|
$
|
5,271,818
|
|
|
$
|
145,386
|
|
|
$
|
108,043
|
|
|
$
|
5,309,161
|
|
|
$
|
23,832
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||
December 31, 2016
|
|
|
|
|
|
|
|
|
|
|
||||||||||
Fixed income securities:
|
|
|
|
|
|
|
|
|
|
|
||||||||||
Municipal obligations
|
|
$
|
376,064
|
|
|
$
|
5,509
|
|
|
$
|
7,205
|
|
|
$
|
374,368
|
|
|
$
|
—
|
|
Corporate obligations
|
|
1,803,136
|
|
|
19,589
|
|
|
20,560
|
|
|
1,802,165
|
|
|
—
|
|
|||||
Foreign obligations
|
|
41,932
|
|
|
1,303
|
|
|
100
|
|
|
43,135
|
|
|
—
|
|
|||||
U.S. government obligations
|
|
33,732
|
|
|
2,551
|
|
|
97
|
|
|
36,186
|
|
|
—
|
|
|||||
U.S. agency obligations
|
|
4,063
|
|
|
—
|
|
|
3
|
|
|
4,060
|
|
|
—
|
|
|||||
Residential mortgage-backed securities
|
|
2,284,425
|
|
|
110,955
|
|
|
43,785
|
|
|
2,351,595
|
|
|
35,232
|
|
|||||
Collateralized debt obligations
|
|
113,650
|
|
|
493
|
|
|
220
|
|
|
113,923
|
|
|
—
|
|
|||||
Other asset-backed securities
|
|
778,383
|
|
|
58,028
|
|
|
7,628
|
|
|
828,783
|
|
|
—
|
|
|||||
|
|
5,435,385
|
|
|
198,428
|
|
|
79,598
|
|
|
5,554,215
|
|
|
35,232
|
|
|||||
Short-term
|
|
430,827
|
|
|
5
|
|
|
44
|
|
|
430,788
|
|
|
—
|
|
|||||
|
|
5,866,212
|
|
|
198,433
|
|
|
79,642
|
|
|
5,985,003
|
|
|
35,232
|
|
|||||
Fixed income securities pledged as collateral:
|
|
|
|
|
|
|
|
|
|
|
||||||||||
U.S. government obligations
|
|
64,833
|
|
|
72
|
|
|
—
|
|
|
64,905
|
|
|
—
|
|
|||||
Total collateralized investments
|
|
64,833
|
|
|
72
|
|
|
—
|
|
|
64,905
|
|
|
—
|
|
|||||
Total available-for-sale investments
|
|
$
|
5,931,045
|
|
|
$
|
198,505
|
|
|
$
|
79,642
|
|
|
$
|
6,049,908
|
|
|
$
|
35,232
|
|
(1)
|
Represents the amount of non-credit other-than-temporary impairment losses remaining in accumulated other comprehensive income on securities that also had a credit impairment. These losses are included in gross unrealized losses as of
December 31, 2017 and 2016
.
|
|
|
Amortized
Cost |
|
Estimated
Fair Value |
||||
Due in one year or less
|
|
$
|
714,761
|
|
|
$
|
714,507
|
|
Due after one year through five years
|
|
556,370
|
|
|
556,387
|
|
||
Due after five years through ten years
|
|
376,420
|
|
|
376,686
|
|
||
Due after ten years
|
|
827,341
|
|
|
761,269
|
|
||
|
|
2,474,892
|
|
|
2,408,849
|
|
||
Residential mortgage-backed securities
|
|
2,214,512
|
|
|
2,251,333
|
|
||
Collateralized debt obligations
|
|
50,754
|
|
|
51,037
|
|
||
Other asset-backed securities
|
|
531,660
|
|
|
597,942
|
|
||
Total
|
|
$
|
5,271,818
|
|
|
$
|
5,309,161
|
|
|
|
Less Than 12 Months
|
|
12 Months or More
|
|
Total
|
||||||||||||||||||
|
|
Fair Value
|
|
Gross
Unrealized Loss |
|
Fair Value
|
|
Gross
Unrealized Loss |
|
Fair Value
|
|
Gross
Unrealized Loss |
||||||||||||
December 31, 2017
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||
Fixed income securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||
Municipal obligations
|
|
$
|
667,335
|
|
|
$
|
68,578
|
|
|
$
|
32,525
|
|
|
$
|
822
|
|
|
$
|
699,860
|
|
|
$
|
69,400
|
|
Corporate obligations
|
|
292,028
|
|
|
3,377
|
|
|
87,272
|
|
|
2,094
|
|
|
379,300
|
|
|
5,471
|
|
||||||
Foreign obligations
|
|
8,122
|
|
|
81
|
|
|
1,700
|
|
|
30
|
|
|
9,822
|
|
|
111
|
|
||||||
U.S. government obligations
|
|
74,188
|
|
|
1,653
|
|
|
5,525
|
|
|
100
|
|
|
79,713
|
|
|
1,753
|
|
||||||
Residential mortgage-backed securities
|
|
668,524
|
|
|
12,524
|
|
|
418,617
|
|
|
17,958
|
|
|
1,087,141
|
|
|
30,482
|
|
||||||
Other asset-backed securities
|
|
26,655
|
|
|
58
|
|
|
88,023
|
|
|
559
|
|
|
114,678
|
|
|
617
|
|
||||||
|
|
1,736,852
|
|
|
86,271
|
|
|
633,662
|
|
|
21,563
|
|
|
2,370,514
|
|
|
107,834
|
|
||||||
Short-term
|
|
251,926
|
|
|
209
|
|
|
—
|
|
|
—
|
|
|
251,926
|
|
|
209
|
|
||||||
Total temporarily impaired securities
|
|
$
|
1,988,778
|
|
|
$
|
86,480
|
|
|
$
|
633,662
|
|
|
$
|
21,563
|
|
|
$
|
2,622,440
|
|
|
$
|
108,043
|
|
|
|
Less Than 12 Months
|
|
12 Months or More
|
|
Total
|
||||||||||||||||||
|
|
Fair Value
|
|
Gross
Unrealized Loss |
|
Fair Value
|
|
Gross
Unrealized Loss |
|
Fair Value
|
|
Gross
Unrealized Loss |
||||||||||||
December 31, 2016
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||
Fixed income securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||
Municipal obligations
|
|
$
|
98,147
|
|
|
$
|
2,045
|
|
|
$
|
122,928
|
|
|
$
|
5,160
|
|
|
$
|
221,075
|
|
|
$
|
7,205
|
|
Corporate obligations
|
|
963,513
|
|
|
20,232
|
|
|
6,492
|
|
|
328
|
|
|
970,005
|
|
|
20,560
|
|
||||||
Foreign obligations
|
|
5,063
|
|
|
100
|
|
|
—
|
|
|
—
|
|
|
5,063
|
|
|
100
|
|
||||||
U.S. government obligations
|
|
6,037
|
|
|
93
|
|
|
5,045
|
|
|
4
|
|
|
11,082
|
|
|
97
|
|
||||||
U.S. agency obligations
|
|
4,060
|
|
|
3
|
|
|
—
|
|
|
—
|
|
|
4,060
|
|
|
3
|
|
||||||
Residential mortgage-backed securities
|
|
226,889
|
|
|
7,201
|
|
|
550,807
|
|
|
36,584
|
|
|
777,696
|
|
|
43,785
|
|
||||||
Collateralized debt obligations
|
|
6,986
|
|
|
23
|
|
|
25,780
|
|
|
197
|
|
|
32,766
|
|
|
220
|
|
||||||
Other asset-backed securities
|
|
115,622
|
|
|
203
|
|
|
77,712
|
|
|
7,425
|
|
|
193,334
|
|
|
7,628
|
|
||||||
|
|
1,426,317
|
|
|
29,900
|
|
|
788,764
|
|
|
49,698
|
|
|
2,215,081
|
|
|
79,598
|
|
||||||
Short-term
|
|
65,176
|
|
|
44
|
|
|
—
|
|
|
—
|
|
|
65,176
|
|
|
44
|
|
||||||
Total temporarily impaired securities
|
|
$
|
1,491,493
|
|
|
$
|
29,944
|
|
|
$
|
788,764
|
|
|
$
|
49,698
|
|
|
$
|
2,280,257
|
|
|
$
|
79,642
|
|
Year Ended December 31,
|
|
2017
|
|
2016
|
|
2015
|
||||||
Gross realized gains on securities
|
|
$
|
29,080
|
|
|
$
|
17,344
|
|
|
$
|
58,218
|
|
Gross realized losses on securities
|
|
(18,945
|
)
|
|
(8,239
|
)
|
|
(10,558
|
)
|
|||
Foreign exchange (losses) gains
|
|
(4,769
|
)
|
|
30,179
|
|
|
5,816
|
|
|||
Net realized gains
|
|
$
|
5,366
|
|
|
$
|
39,284
|
|
|
$
|
53,476
|
|
Net other-than-temporary impairments
(1)
|
|
$
|
(20,171
|
)
|
|
$
|
(21,819
|
)
|
|
$
|
(25,659
|
)
|
(1)
|
Other-than-temporary impairments exclude impairment amounts recorded in other comprehensive income under ASC Paragraph 320-10-65-1, which comprise non-credit related amounts on securities that are credit impaired but which management does not intend to sell and it is not more likely than not that the company will be required to sell before recovery of the amortized cost basis.
|
Year Ended December 31,
|
|
2017
|
|
2016
|
|
2015
|
||||||
Balance, beginning of period
|
|
$
|
52,070
|
|
|
$
|
31,176
|
|
|
$
|
14,062
|
|
Additions for credit impairments recognized on:
|
|
|
|
|
|
|
||||||
Securities not previously impaired
|
|
3,310
|
|
|
3,572
|
|
|
10,900
|
|
|||
Securities previously impaired
|
|
11,705
|
|
|
17,322
|
|
|
6,214
|
|
|||
Balance, end of period
|
|
$
|
67,085
|
|
|
$
|
52,070
|
|
|
$
|
31,176
|
|
|
|
Fair value of
cash and underlying securities |
|
Fair value of
cash and securities pledged to investment agreement counterparties |
|
Fair value of
cash and securities pledged to derivative counterparties |
||||||
December 31, 2017:
|
|
|
|
|
|
|
||||||
Pledged cash and securities owned by Ambac
|
|
$
|
120,645
|
|
|
$
|
—
|
|
|
$
|
120,645
|
|
|
|
|
|
|
|
|
||||||
December 31, 2016:
|
|
|
|
|
|
|
||||||
Pledged cash and securities owned by Ambac
|
|
$
|
291,545
|
|
|
$
|
88,940
|
|
|
$
|
202,605
|
|
|
|
Municipal
obligations |
|
Corporate
obligations |
|
Mortgage
and asset- backed securities |
|
Total
|
|
Weighted
Average Underlying Rating (1) |
||||||||
December 31, 2017:
|
|
|
|
|
|
|
|
|
|
|
||||||||
Ambac Assurance Corporation
(2)
|
|
$
|
706,715
|
|
|
$
|
32,660
|
|
|
$
|
2,702,887
|
|
|
$
|
3,442,262
|
|
|
CC
|
National Public Finance Guarantee Corporation
|
|
20,733
|
|
|
—
|
|
|
—
|
|
|
20,733
|
|
|
BBB-
|
||||
Assured Guaranty Municipal Corporation
|
|
5,998
|
|
|
—
|
|
|
—
|
|
|
5,998
|
|
|
BBB+
|
||||
Total
|
|
$
|
733,446
|
|
|
$
|
32,660
|
|
|
$
|
2,702,887
|
|
|
$
|
3,468,993
|
|
|
CC
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
December 31, 2016:
|
|
|
|
|
|
|
|
|
|
|
||||||||
Ambac Assurance Corporation
(2)
|
|
$
|
81,651
|
|
|
$
|
—
|
|
|
$
|
2,739,073
|
|
|
$
|
2,820,724
|
|
|
CC
|
National Public Finance Guarantee Corporation
|
|
38,687
|
|
|
—
|
|
|
—
|
|
|
38,687
|
|
|
A-
|
||||
Assured Guaranty Municipal Corporation
|
|
25,660
|
|
|
—
|
|
|
—
|
|
|
25,660
|
|
|
AA
|
||||
MBIA Insurance Corporation
|
|
—
|
|
|
2,630
|
|
|
—
|
|
|
2,630
|
|
|
BBB+
|
||||
Total
|
|
$
|
145,998
|
|
|
$
|
2,630
|
|
|
$
|
2,739,073
|
|
|
$
|
2,887,701
|
|
|
CC
|
(1)
|
Ratings are based on the lower of Standard & Poor’s or Moody’s rating. If unavailable, Ambac’s internal rating is used.
|
(2)
|
Includes corporate obligations and asset-backed securities with a fair value of
$170,280
and
$118,813
at
December 31, 2017 and 2016
, respectively, insured by Ambac UK
.
|
Class of Funds
|
|
December 31, 2017
|
|
December 31, 2016
|
|
Redemption frequency
|
|
Redemption notice period
|
||||
Real estate properties
(1)
|
|
$
|
33,154
|
|
|
$
|
33,303
|
|
|
quarterly
|
|
10 business days
|
Diversified hedge fund strategies
(2)
|
|
53,054
|
|
|
53,985
|
|
|
semi-monthly
|
|
15 - 30 days
|
||
Interest rate products
(3) (7)
|
|
136,603
|
|
|
261,315
|
|
|
daily, weekly or monthly
|
|
0 - 30 days
|
||
Illiquid investments
(4)
|
|
67,787
|
|
|
39,068
|
|
|
quarterly
|
|
180 days
|
||
Insurance-linked investments
(5)
|
|
22,666
|
|
|
—
|
|
|
quarterly
|
|
90-120 days
|
||
Equity market investments
(6) (7)
|
|
53,675
|
|
|
32,633
|
|
|
daily
|
|
0 days
|
||
Total equity investments in pooled funds
|
|
$
|
366,939
|
|
|
$
|
420,304
|
|
|
|
|
|
(1)
|
Investments consist of UK property to generate income and capital growth.
|
(2)
|
Investments seek diversified exposure to hedge fund core strategies to produce high risk-adjusted returns, with low long-term correlation to traditional markets and with targeted volatility levels. Funds may have the right to defer redemptions under certain circumstances.
|
(3)
|
This class of funds includes investments in a range of instruments including leveraged loans, CLOs, asset-backed securities and floating rate notes to generate income and capital appreciation. Funds with less frequent redemption periods limit redemptions to as little as 15% per period. Funds with a same day redemption notice period are redeemable only weekly, while funds that may be redeemed any business day have notice periods of 15-30 days.
|
(4)
|
This class seeks to obtain high long-term total return through investments with low liquidity and defined term, resulting in expected capital distributions to subscribers between 2020 and 2023. Redemptions cannot occur prior to the expiration of the investment lock-up period in May 2018.
|
(5)
|
This class aims to provide returns from the insurance and reinsurance markets through investments in catastrophe bonds, life insurance and other insurance linked investments. Redemption periods are quarterly, subject to 90-day notice for January/July redemption dates and 120-day notice for April/October redemption dates with redemptions greater than 3.5% during the first five years following share issuance subject to redemption fees.
|
(6)
|
Investments represent a diversified exposure to global equity market returns through holdings of various regional market index funds.
|
(7)
|
Interest rate products include
$2,823
at
December 31, 2017
and
$51,158
at
December 31, 2016
and equity market investments include
$53,675
at
December 31, 2017
and
$32,633
at
December 31, 2016
that have readily determinable fair.
|
Year Ended December 31,
|
|
2017
|
|
2016
|
|
2015
|
||||||
Fixed income securities
|
|
$
|
337,454
|
|
|
$
|
288,554
|
|
|
$
|
257,404
|
|
Short-term investments
|
|
7,898
|
|
|
1,505
|
|
|
299
|
|
|||
Loans
|
|
520
|
|
|
337
|
|
|
420
|
|
|||
Investment expense
|
|
(8,098
|
)
|
|
(9,347
|
)
|
|
(8,786
|
)
|
|||
Securities available-for-sale and short-term
|
|
337,774
|
|
|
281,049
|
|
|
249,337
|
|
|||
Other investments
|
|
23,179
|
|
|
32,318
|
|
|
16,952
|
|
|||
Total net investment income
|
|
$
|
360,953
|
|
|
$
|
313,367
|
|
|
$
|
266,289
|
|
Year Ended December 31,
|
|
2017
|
|
2016
|
|
2015
|
||||||
Net gains (losses) recognized during the period on trading securities
|
|
$
|
18,242
|
|
|
$
|
27,654
|
|
|
$
|
12,615
|
|
Less: net gains (losses) recognized during the reporting period on trading securities sold during the period
|
|
4,854
|
|
|
7,474
|
|
|
4,966
|
|
|||
Unrealized gains (losses) recognized during the reporting period on trading securities still held at the reporting date
|
|
$
|
13,388
|
|
|
$
|
20,180
|
|
|
$
|
7,649
|
|
|
Gross
amounts of recognized assets / liabilities |
|
Gross
amounts offset in the consolidated balance sheet |
|
Net amounts
of assets/ liabilities presented in the consolidated balance sheet |
|
Gross amount
of collateral received / pledged not offset in the consolidated balance sheet |
|
Net amount
|
||||||||||
December 31, 2017:
|
|
|
|
|
|
|
|
|
|
||||||||||
Derivative Assets:
|
|
|
|
|
|
|
|
|
|
||||||||||
Interest rate swaps
|
73,826
|
|
|
627
|
|
|
73,199
|
|
|
—
|
|
|
73,199
|
|
|||||
Total non-VIE derivative assets
|
$
|
73,826
|
|
|
$
|
627
|
|
|
$
|
73,199
|
|
|
$
|
—
|
|
|
$
|
73,199
|
|
Derivative Liabilities:
|
|
|
|
|
|
|
|
|
|
||||||||||
Credit derivatives
|
$
|
566
|
|
|
$
|
—
|
|
|
$
|
566
|
|
|
$
|
—
|
|
|
$
|
566
|
|
Interest rate swaps
|
81,495
|
|
|
627
|
|
|
80,868
|
|
|
79,912
|
|
|
956
|
|
|||||
Futures contracts
|
1,348
|
|
|
—
|
|
|
1,348
|
|
|
1,348
|
|
|
—
|
|
|||||
Total non-VIE derivative liabilities
|
$
|
83,409
|
|
|
$
|
627
|
|
|
$
|
82,782
|
|
|
$
|
81,260
|
|
|
$
|
1,522
|
|
Variable Interest Entities Derivative Assets:
|
|
|
|
|
|
|
|
|
|
||||||||||
Currency swaps
|
54,877
|
|
|
—
|
|
|
54,877
|
|
|
—
|
|
|
54,877
|
|
|||||
Total VIE derivative assets
|
$
|
54,877
|
|
|
$
|
—
|
|
|
$
|
54,877
|
|
|
$
|
—
|
|
|
$
|
54,877
|
|
Variable Interest Entities Derivative Liabilities:
|
|
|
|
|
|
|
|
|
|
||||||||||
Interest rate swaps
|
$
|
2,205,264
|
|
|
$
|
—
|
|
|
$
|
2,205,264
|
|
|
$
|
—
|
|
|
$
|
2,205,264
|
|
Total VIE derivative liabilities
|
$
|
2,205,264
|
|
|
$
|
—
|
|
|
$
|
2,205,264
|
|
|
$
|
—
|
|
|
$
|
2,205,264
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||
December 31, 2016:
|
|
|
|
|
|
|
|
|
|
||||||||||
Derivative Assets:
|
|
|
|
|
|
|
|
|
|
||||||||||
Interest rate swaps
|
$
|
139,045
|
|
|
$
|
61,839
|
|
|
$
|
77,206
|
|
|
$
|
—
|
|
|
$
|
77,206
|
|
Futures contracts
|
536
|
|
|
—
|
|
|
536
|
|
|
—
|
|
|
536
|
|
|||||
Total non-VIE derivative assets
|
$
|
139,581
|
|
|
$
|
61,839
|
|
|
$
|
77,742
|
|
|
$
|
—
|
|
|
$
|
77,742
|
|
Derivative Liabilities:
|
|
|
|
|
|
|
|
|
|
||||||||||
Credit derivatives
|
$
|
15,349
|
|
|
$
|
—
|
|
|
$
|
15,349
|
|
|
$
|
—
|
|
|
$
|
15,349
|
|
Interest rate swaps
|
365,776
|
|
|
61,839
|
|
|
303,937
|
|
|
156,925
|
|
|
147,012
|
|
|||||
Total non-VIE derivative liabilities
|
$
|
381,125
|
|
|
$
|
61,839
|
|
|
$
|
319,286
|
|
|
$
|
156,925
|
|
|
$
|
162,361
|
|
Variable Interest Entities Derivative Assets:
|
|
|
|
|
|
|
|
|
|
||||||||||
Currency swaps
|
$
|
80,407
|
|
|
$
|
—
|
|
|
$
|
80,407
|
|
|
$
|
—
|
|
|
$
|
80,407
|
|
Total VIE derivative assets
|
$
|
80,407
|
|
|
$
|
—
|
|
|
$
|
80,407
|
|
|
$
|
—
|
|
|
$
|
80,407
|
|
Variable Interest Entities Derivative Liabilities:
|
|
|
|
|
|
|
|
|
|
||||||||||
Interest rate swaps
|
$
|
2,078,601
|
|
|
$
|
—
|
|
|
$
|
2,078,601
|
|
|
$
|
—
|
|
|
$
|
2,078,601
|
|
Total VIE derivative liabilities
|
$
|
2,078,601
|
|
|
$
|
—
|
|
|
$
|
2,078,601
|
|
|
$
|
—
|
|
|
$
|
2,078,601
|
|
|
Location of gain (loss) recognized
in Consolidated Statements of Total Comprehensive Income (Loss) |
|
Amount of gain (loss) recognized in Consolidated Statement of Total Comprehensive Income (Loss) –
Year Ended December 31, |
||||||||||||
|
|
2017
|
|
2016
|
|
2015
|
|||||||||
Non-VIEs:
|
|
|
|
|
|
|
|
|
|
||||||
Credit derivatives
|
Net change in fair value of credit derivatives
|
|
$
|
16,372
|
|
|
$
|
20,106
|
|
|
$
|
41,701
|
|
||
Non VIE derivatives:
|
|
|
|
|
|
|
|
|
|
||||||
Interest rate swaps
|
Net gains (losses) on interest rate derivatives
|
|
48,870
|
|
|
(50,082
|
)
|
|
(41,177
|
)
|
|||||
Futures contracts
|
Net gains (losses) on interest rate derivatives
|
|
10,695
|
|
|
(191
|
)
|
|
(1,367
|
)
|
|||||
Total non-VIE derivatives
|
|
|
|
|
59,565
|
|
|
(50,273
|
)
|
|
(42,544
|
)
|
|||
Variable Interest Entities:
|
|
|
|
|
|
|
|
|
|
||||||
Currency swaps
|
Income (loss) on variable interest entities
|
|
(25,530
|
)
|
|
58,990
|
|
|
103,757
|
|
|||||
Interest rate swaps
|
Income (loss) on variable interest entities
|
|
(126,664
|
)
|
|
(574,554
|
)
|
|
168,003
|
|
|||||
Total Variable Interest Entities
|
|
|
|
|
(152,194
|
)
|
|
(515,564
|
)
|
|
271,760
|
|
|||
Total derivative contracts
|
|
|
|
|
$
|
(76,257
|
)
|
|
$
|
(545,731
|
)
|
|
$
|
270,917
|
|
Ambac Rating
|
|
|
|
|
||||
December 31,
|
|
2017
|
|
2016
|
||||
AAA
|
|
$
|
—
|
|
|
$
|
—
|
|
AA
|
|
175,765
|
|
|
315,201
|
|
||
A
|
|
—
|
|
|
227,146
|
|
||
BBB
(1)
|
|
150,125
|
|
|
127,250
|
|
||
Below investment grade
(2)
|
|
—
|
|
|
67,783
|
|
||
Total
|
|
$
|
325,890
|
|
|
$
|
737,380
|
|
(1)
|
BBB internal ratings reflect bonds which are of medium grade credit quality with adequate capacity to pay interest and repay principal. Certain protective elements and margins may weaken under adverse economic conditions and changing circumstances. These bonds are more likely than higher rated bonds to exhibit unreliable protection levels over all cycles.
|
(2)
|
Below investment grade internal ratings reflect bonds which are of speculative grade credit quality with the adequacy of future margin levels for payment of interest and repayment of principal potentially adversely affected by major ongoing uncertainties or exposure to adverse conditions.
|
|
Notional - December 31,
|
||||||
Type of derivative
|
2017
|
|
2016
|
||||
Interest rate swaps—receive-fixed/pay-variable
|
$
|
379,497
|
|
|
$
|
973,130
|
|
Interest rate swaps—pay-fixed/receive-variable
|
1,428,264
|
|
|
1,874,678
|
|
||
US Treasury futures contracts—short
|
1,655,000
|
|
|
195,000
|
|
|
Notional - December 31,
|
||||||
Type of VIE derivative
|
2017
|
|
2016
|
||||
Interest rate swaps—receive-fixed/pay-variable
|
$
|
1,483,491
|
|
|
$
|
1,352,010
|
|
Interest rate swaps—pay-fixed/receive-variable
|
2,479,244
|
|
|
2,300,584
|
|
||
Currency swaps
|
394,541
|
|
|
312,357
|
|
||
Credit derivatives
|
12,100
|
|
|
12,059
|
|
December 31,
|
|
2017
|
|
2016
|
||||
Ambac Assurance:
|
|
|
|
|
||||
5.1% surplus notes, general account, due 2020
|
|
$
|
668,667
|
|
|
$
|
730,648
|
|
5.1% surplus notes, segregated account, due 2020
|
|
—
|
|
|
33,107
|
|
||
5.1% junior surplus notes, segregated account, due 2020
|
|
249,036
|
|
|
248,247
|
|
||
Secured borrowing
|
|
73,993
|
|
|
102,403
|
|
||
Ambac Assurance long-term debt
|
|
$
|
991,696
|
|
|
$
|
1,114,405
|
|
|
|
|
|
|
||||
Variable Interest Entities long-term debt
|
|
$
|
12,160,544
|
|
|
$
|
11,155,936
|
|
•
|
Par value at
December 31, 2017 and 2016
includes
$20,237
and
$24,037
, respectively, of junior surplus notes issued in connection with a settlement agreement (the “OSS Settlement Agreement”) entered into among Ambac, Ambac Assurance, the Segregated Account and One State Street, LLC (“OSS”) with respect to the termination of Ambac’s office lease with OSS. Part of these junior surplus notes (
$13,056
par value) will be reduced periodically as rent payments are made by Ambac Assurance beginning in January 2016. Par value of these junior surplus notes have been reduced by
$3,799
and
$4,002
during 2017 and 2016, respectively, as rent payments were made by Ambac Assurance. These junior surplus notes were recorded at their fair value at the dates of issuance. The discount on these notes are currently being accreted into income using the effective interest method at an imputed interest rate of
19.5%
.
|
•
|
Par value at
December 31, 2017 and 2016
includes
$350,000
face amount of a junior surplus note originally issued to Ambac pursuant to Ambac's Reorganization Plan in accordance with the Mediation Agreement dated September 21, 2011 among Ambac, Ambac Assurance, the Segregated Account, the Rehabilitator, the OCI and the Official Committee of Unsecured Creditors of Ambac, and that Ambac sold to a Trust on August 28, 2014. This junior surplus note was recorded at a discount to par based on its fair value on August 28, 2014. Ambac is accreting the discount on this junior surplus note into earnings using the effective interest method, based on an imputed interest rate of
8.4%
.
|
Jurisdiction
|
Tax Year
|
United States
|
2010
|
New York State
|
2013
|
New York City
|
2014
|
United Kingdom
|
2014
|
Italy
|
2013
|
December 31,
|
2017
|
|
2016
|
||||
Deferred tax liabilities:
|
|
|
|
||||
Insurance intangible
|
$
|
177,864
|
|
|
$
|
336,728
|
|
Variable interest entities
|
22,817
|
|
|
46,343
|
|
||
Investments
|
28,798
|
|
|
38,656
|
|
||
Unearned premiums and credit fees
|
51,485
|
|
|
68,682
|
|
||
Unremitted foreign earnings
|
—
|
|
|
30,699
|
|
||
Other
|
9,402
|
|
|
4,276
|
|
||
Total deferred tax liabilities
|
290,366
|
|
|
525,384
|
|
||
Deferred tax assets:
|
|
|
|
||||
Net operating loss and capital carryforward
|
775,917
|
|
|
1,409,565
|
|
||
Loss reserves
|
236,237
|
|
|
224,553
|
|
||
Compensation
|
5,585
|
|
|
4,759
|
|
||
AMT Credits
|
—
|
|
|
31,532
|
|
||
Other
|
2,140
|
|
|
11,967
|
|
||
Subtotal deferred tax assets
|
1,019,879
|
|
|
1,682,376
|
|
||
Valuation allowance
|
763,172
|
|
|
1,158,712
|
|
||
Total deferred tax assets
|
256,707
|
|
|
523,664
|
|
||
Net deferred tax (liability)
|
(33,659
|
)
|
|
(1,720
|
)
|
Year Ended December 31,
|
2017
|
|
2016
|
|
2015
|
||||||
U.S.
|
$
|
(450,978
|
)
|
|
$
|
77,161
|
|
|
$
|
337,753
|
|
Foreign
|
166,727
|
|
|
27,865
|
|
|
172,305
|
|
|||
Total
|
$
|
(284,251
|
)
|
|
$
|
105,026
|
|
|
$
|
510,058
|
|
Year Ended December 31,
|
2017
|
|
2016
|
|
2015
|
||||||
Current taxes
|
|
|
|
|
|
||||||
U. S. federal
|
$
|
(29,581
|
)
|
|
$
|
3,934
|
|
|
$
|
16,893
|
|
U.S. state and local
|
2,013
|
|
|
707
|
|
|
182
|
|
|||
Foreign
|
40,613
|
|
|
26,088
|
|
|
2
|
|
|||
Current taxes
|
13,045
|
|
|
30,729
|
|
|
17,077
|
|
|||
Deferred taxes
|
|
|
|
|
|
||||||
Deferred taxes - foreign
|
31,419
|
|
|
(20
|
)
|
|
287
|
|
|||
Provision for income taxes
|
$
|
44,464
|
|
|
$
|
30,709
|
|
|
$
|
17,364
|
|
Year Ended December 31,
|
2017
|
|
2016
|
|
2015
|
||||||
Total income taxes charged to net income
|
$
|
44,464
|
|
|
$
|
30,709
|
|
|
$
|
17,364
|
|
Income taxes charged (credited) to stockholders’ equity:
|
|
|
|
|
|
||||||
Unrealized gains (losses) on investment securities
|
(30,838
|
)
|
|
41,602
|
|
|
(55,906
|
)
|
|||
Unrealized gains (losses) on foreign currency translations
|
25,776
|
|
|
(58,527
|
)
|
|
(15,628
|
)
|
|||
Change in retirement benefits
|
446
|
|
|
3,278
|
|
|
(240
|
)
|
|||
Valuation allowance to equity
|
4,616
|
|
|
13,647
|
|
|
71,774
|
|
|||
Total effect of income taxes
|
$
|
44,464
|
|
|
$
|
30,709
|
|
|
$
|
17,364
|
|
|
2017
|
|
2016
|
|
2015
|
|||||||||||||||
Year Ended December 31,
|
Amount
|
|
%
|
|
Amount
|
|
%
|
|
Amount
|
|
%
|
|||||||||
Tax on income from continuing operations at statutory rate
|
$
|
(99,488
|
)
|
|
35.0
|
%
|
|
$
|
36,759
|
|
|
35.0
|
%
|
|
$
|
178,521
|
|
|
35.0
|
%
|
Changes in expected tax resulting from:
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||
Tax-exempt interest
|
(6,004
|
)
|
|
2.1
|
%
|
|
(1,561
|
)
|
|
(1.5
|
)%
|
|
(1,454
|
)
|
|
(0.3
|
)%
|
|||
Goodwill impairment
|
—
|
|
|
—
|
%
|
|
—
|
|
|
—
|
%
|
|
180,079
|
|
|
35.3
|
%
|
|||
Foreign taxes
|
(17,742
|
)
|
|
6.2
|
%
|
|
26,183
|
|
|
24.9
|
%
|
|
288
|
|
|
0.1
|
%
|
|||
Substantiation adjustment
|
36,124
|
|
|
(12.7
|
)%
|
|
(171,687
|
)
|
|
(163.5
|
)%
|
|
—
|
|
|
—
|
%
|
|||
Valuation allowance
|
127,675
|
|
|
(44.9
|
)%
|
|
139,584
|
|
|
132.9
|
%
|
|
(340,133
|
)
|
|
(66.7
|
)%
|
|||
Change in Tax Law
|
1,886
|
|
|
(0.7
|
)%
|
|
—
|
|
|
—
|
%
|
|
—
|
|
|
—
|
%
|
|||
Other, net
|
2,013
|
|
|
(0.7
|
)%
|
|
1,431
|
|
|
1.4
|
%
|
|
63
|
|
|
—
|
%
|
|||
Tax expense on income from continuing operations
|
$
|
44,464
|
|
|
(15.6
|
)%
|
|
$
|
30,709
|
|
|
29.2
|
%
|
|
$
|
17,364
|
|
|
3.4
|
%
|
Year Ended December 31,
|
2017
|
|
2016
|
|
2015
|
||||||
Balance, beginning of period
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Increases related to prior year tax positions
|
—
|
|
|
—
|
|
|
—
|
|
|||
Decreases related to prior year tax positions
|
—
|
|
|
—
|
|
|
—
|
|
|||
Balance, end of period
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
NOL Usage
Tier
|
Allocated NOLs
|
|
Applicable
Percentage
|
|
A
|
The first
|
$479,000
|
|
15%
|
B
|
The next
|
$1,057,000
|
after Tier A
|
40%
|
C
|
The next
|
$1,057,000
|
after Tier B
|
10%
|
D
|
The next
|
$1,057,000
|
after Tier C
|
15%
|
2018
|
|
2019
|
|
2020
|
|
2021
|
|
2022
|
|
2023-2027
|
|
Total
|
||||||||||||||
$
|
282
|
|
|
$
|
311
|
|
|
$
|
327
|
|
|
$
|
353
|
|
|
$
|
387
|
|
|
$
|
2,452
|
|
|
$
|
4,112
|
|
Year Ended December 31,
|
2017
(1)
|
|
2016
|
|
2015
|
||||||
Stock options
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
956
|
|
Restricted stock units
|
1,640
|
|
|
3,463
|
|
|
1,257
|
|
|||
Performance awards
(2) (3)
|
2,653
|
|
|
1,790
|
|
|
892
|
|
|||
Total stock-based compensation
|
$
|
4,293
|
|
|
$
|
5,253
|
|
|
$
|
3,105
|
|
Total stock-based compensation (after-tax)
|
$
|
4,293
|
|
|
$
|
5,194
|
|
|
$
|
3,105
|
|
(1)
|
As discussed in
Note 2. Basis of Presentation and Significant Accounting Policies
, we adopted ASU 2016-09 as of January 1, 2017. One of the provisions of this ASU requires entities to make an accounting policy election with respect to forfeitures of share-based payment awards. We elected to account for forfeitures as they occur and adopted this provision of ASU 2016-09 using a modified retrospective approach resulting in recording a cumulative-effect adjustment to equity of
$137
.
|
(2)
|
Represents expense related to performance stock units portion of performance awards. Certain performance awards are split evenly between performance stock units and cash. Cash based compensation expense related to performance awards granted to US employees was
$1,565
,
$1,790
and
$892
for the years ended
December 31, 2017, 2016 and 2015
, respectively.
|
(3)
|
A performance award issued to Ambac's former Chief Executive Officer in the form of performance stock units has yet to be expensed given the performance conditions have not been met.
|
Year Ended December 31,
|
2015
|
|
|
Risk-free interest rate
|
1.283
|
%
|
|
Expected volatility
|
42.8
|
%
|
|
Dividend yield
|
0.0
|
%
|
|
Expected life
|
4.13 years
|
|
|
Weighted-average grant-date fair value per share
|
$
|
8.69
|
|
|
Shares
|
|
Weighted Average
Exercise Price
|
|
Aggregate
Intrinsic Value
|
|
Weighted Average
Remaining
Contractual
Life ( in years)
|
|||||
Year Ended December 31, 2017
|
|
|
|
|
|
|
|
|||||
Outstanding at beginning of period
|
143,334
|
|
|
$
|
23.64
|
|
|
|
|
|
||
Granted
|
—
|
|
|
—
|
|
|
|
|
|
|||
Exercised
|
—
|
|
|
—
|
|
|
|
|
|
|||
Forfeited or expired
|
(16,667
|
)
|
|
20.63
|
|
|
|
|
|
|||
Outstanding at end of period
|
126,667
|
|
|
$
|
24.03
|
|
|
$
|
—
|
|
|
1.23
|
Exercisable
|
126,667
|
|
|
$
|
24.03
|
|
|
$
|
—
|
|
|
1.23
|
|
Shares
|
|
Weighted Average
Grant Date
Fair Value
|
|||
Outstanding at beginning of period
|
264,230
|
|
|
$
|
16.47
|
|
Granted
|
70,432
|
|
|
20.22
|
|
|
Delivered or returned to plan
(1)
|
(112,859
|
)
|
|
13.96
|
|
|
Forfeited
|
—
|
|
|
—
|
|
|
Outstanding at end of period
|
221,803
|
|
|
$
|
18.93
|
|
(1)
|
When restricted stock unit awards issued by Ambac become taxable compensation to employees, shares may be withheld to cover the employee’s withholding taxes. For the
year ended December 31, 2017
, Ambac purchased
56,410
of shares from employees that settled restricted stock units to meet the required tax withholdings.
|
|
Shares
|
|
Weighted Average
Grant Date
Fair Value
|
|||
Outstanding at beginning of period
|
227,073
|
|
|
$
|
21.29
|
|
Granted
(1)
|
153,317
|
|
|
22.35
|
|
|
Delivered
(2)
|
(38,464
|
)
|
|
29.78
|
|
|
Forfeited
(1)
|
(26,378
|
)
|
|
20.26
|
|
|
Performance adjustment
(3)
|
7,395
|
|
|
29.78
|
|
|
Outstanding at end of period
|
322,943
|
|
|
$
|
21.06
|
|
(1)
|
Represents performance share units at
100%
of units granted for LTIP Awards.
|
(2)
|
Reflects the number of performance shares attributable to the performance goals attained over the completed performance period and for which service conditions have been met.
|
(3)
|
Represents the increase (decrease) in shares issued for awards
granted in 2014 based upon the attainment of performance metrics at the end of the performance period.
|
2018
|
|
2019
|
|
2020
|
|
2021
|
|
2022
|
|
Thereafter
|
|
Total
|
||||||||||||||
$
|
6,794
|
|
|
$
|
5,563
|
|
|
$
|
1,929
|
|
|
$
|
1,566
|
|
|
$
|
1,569
|
|
|
$
|
11,765
|
|
|
$
|
29,186
|
|
•
|
Meade Communities LLC v. Ambac Assurance Corporation (Circuit Court, Anne Arundel County, Maryland, Case No. C-02-CV-15-003745)
. Plaintiff filed this action on December 2, 2015. Ambac Assurance’s answer was served on February 16, 2016. On April 26, 2017, the court granted a motion by Meade to amend its complaint to add a new count that Ambac had allegedly "unreasonably withheld" consent to a proposed Out-Year Development plan submitted by Meade to Ambac for approval. On April 28, 2017, Ambac Assurance filed a motion for summary judgment on all counts of the original Meade complaint. On April 28, 2017, Meade filed a motion for partial summary judgment on two counts of the complaint and certain Ambac Assurance affirmative defenses. On June 2, 2017, the parties filed oppositions to the summary judgment motions. The parties filed reply briefs in support of their motions on June 16, 2017. On July 14, 2017, the parties cross-moved for summary judgment on the additional count added to the amended complaint on April 26, 2017. The court heard oral argument on all motions for summary judgment on September 1, 2017. On October 20, 2017, the court granted Meade's motion for summary judgment that the statute of limitations had run on Ambac Assurance's counterclaim for specific performance and that this ruling was sufficient to fully resolve Meade's claims and Ambac's counterclaims concerning the debt service reserve surety bond. On November 27, 2017, Ambac Assurance filed a notice of appeal of the circuit court’s decision. On January 22, 2018, the court granted Meade's motion for summary judgment finding that Ambac Assurance lacked standing on the basis that there had been an "Ambac Default" by virtue of certain orders of the Rehabilitation Court. On January 26, 2018, Ambac Assurance filed a Motion to Alter or Amend Judgment with the Maryland Court arguing that the Rehabilitation Court's January 22 Confirmation Order constituted grounds for altering the judgment to award summary judgment on the "Ambac Default" issue for Ambac Assurance. On February 7, 2018, the Rehabilitation Court entered a further order enjoining Meade from continuing to argue that an Ambac Default occurred by virtue of the Rehabilitation Court's prior orders and requiring Meade to file that order with the Maryland Court. On February 8, 2018, Meade complied and filed the January 22nd and February 7th Rehabilitation Court orders with the Maryland court. On February 12, 2018, the Maryland Court granted Ambac's motion to stay enforcement of the Court's January 22nd amended order concerning "Ambac Default" and granting Meade an extension until March 14, 2018 to oppose Ambac's Motion to Alter or Amend Judgment.
|
•
|
Monterey Bay Military Housing LLC and Monterey Bay Land LLC v. Ambac Assurance Corporation (Superior Court, Monterey County, California, Case No. 15CV000599)
. Plaintiff filed this action on December 4, 2015. Ambac Assurance filed an answer on January 19, 2016. On March 30, 2017, Ambac Assurance filed a motion for summary judgment on all counts of the Monterey Bay complaint. On March 30, 2017, Monterey Bay filed a motion for partial summary judgment on two counts of the complaint and certain Ambac Assurance affirmative defenses. The parties filed their opposition briefs on June 2, 2017 and reply briefs on June 9, 2017. On June 19, 2017, the court issued a preliminary order that partially granted Monterey Bay's motion for summary judgment and ruled that the California statute of limitations had run on Ambac Assurance's claim for specific performance, subject to Ambac Assurance's defense of equitable tolling. The court also partially granted Ambac Assurance's motion for summary judgment on certain of Monterey Bay's declaratory judgment claims. On June 23, 2017, Ambac Assurance withdrew its defense of equitable tolling. The parties agreed that the court's summary judgment ruling on the statute of limitations was sufficient to end the case at the trial court level and submitted final orders to the court for approval. The court signed the final orders on July 13, 2017. On September 14, 2017, Ambac Assurance filed a notice of appeal.
|
•
|
Ambac Assurance Corporation v. Riley Communities, LLC (District Court, Shawnee County Kansas, No. 2016-CV-00026)
. Ambac Assurance filed this action on January 8, 2016. On February 2, 2016, defendant served its answer. On September 29, 2017, Ambac Assurance filed a motion for summary judgment on all counts of the Complaint and most of Riley's affirmative defenses. On September 29, 2017, Riley filed a motion for partial summary judgment on two of its affirmative defenses, including statute of limitations and "Credit Enhancer Default" by virtue of certain orders of the Rehabilitation Court. The parties filed their oppositions to the summary judgment motions on October 27 and replies November 10, 2017. Due to the Rehabilitation Court’s January 22 Order, on January 24, 2018, Ambac Assurance filed a Notice of Events Subsequent and Supplemental Brief in support of its Motion for Summary Judgment arguing that the Rehabilitation Court's January 22 order constituted further grounds for entering summary judgment for Ambac Assurance on the "Credit Enhancer Default" argument.
|
•
|
Ambac Assurance Corporation v. Fort Leavenworth Frontier Heritage Communities, II, LLC (U.S. District Court, District of Kansas, Index No. 15-CV-9596)
. Ambac Assurance filed this action on November 19, 2015. On January 4, 2016, defendant moved to dismiss for failure to join an indispensable party, which Ambac Assurance opposed on January 25, 2016. On June 29, 2016, the court denied defendant’s motion to dismiss and granted Ambac Assurance leave to file an amended complaint, which was filed on July 13, 2016. On August 1, 2016, Defendant filed a motion to dismiss the amended complaint for lack of subject matter jurisdiction. Ambac Assurance opposed the motion. On March 17, 2017, the court granted Fort Leavenworth's motion to dismiss for lack of subject matter jurisdiction. On March 28, 2017, Ambac re-filed the case in state court in Shawnee County, Kansas. The re-filed case is styled Ambac Assurance Corporation v. Fort Leavenworth Frontier Heritage Communities II, LLC (District Court, Shawnee County, Kansas, No. 2017-cv-000216).
|
•
|
Ambac Assurance Corporation v. Carlisle/ Picatinny Family Housing Limited Partnership (Court of Common Pleas, Cumberland County, Pennsylvania, No. 2015-6348)
. Ambac Assurance filed a summons on December 15, 2015 and a complaint on January 11, 2016. On February 1, 2016, defendant served its answer.
|
•
|
Ambac Assurance Corporation v. Fort Lee Commonwealth Communities, LLC (Circuit Court, Roanoke City, Virginia, No. CL16000072-00)
. Ambac Assurance filed this action on January 7, 2016. Defendant served its answer on February 9, 2016.
|
•
|
Ambac Assurance Corporation v. Fort Bliss/White Sands Missile Range Housing LP (District Court, El Paso County, Texas, Cause No. 2016DCV0094)
. Ambac Assurance filed this action on January 8, 2016. Defendant served its answer on February 11, 2016. Defendant filed a motion for summary judgment on November 16, 2017 on two of its affirmative defenses, including statute of limitations and "Credit Enhancer Default" by virtue of certain orders of the Rehabilitation Court. Ambac Assurance filed a consolidated (i) opposition to Fort Bliss/White Sands’ motion for summary judgment and (ii) counter-motion for partial summary judgment on December 13, 2017. Defendant filed its opposition on January 22, 2018. Ambac Assurance filed its reply brief on January 30, 2018 arguing, among other things, that the Rehabilitation Court’s January 22 Order constituted further grounds for entering summary judgment for Ambac Assurance on the "Credit Enhancer Default" argument. Oral argument on the summary judgment motions has been scheduled for April 27, 2018. On February 7, 2018, the Rehabilitation Court entered a further order enjoining Bliss (among others) from continuing to argue that an Ambac Default occurred by virtue of the Rehabilitation Court's prior orders and requiring Bliss to file that order with the Texas Court. On February 8, 2018, Bliss filed the Rehabilitation Court's January 22 and February 7 orders with the Texas court.
|
•
|
Ambac Assurance Corporation and The Segregated Account of Ambac Assurance Corporation v. First Franklin Financial Corporation, Bank of America, N.A., Merrill Lynch, Pierce, Fenner & Smith Inc., Merrill Lynch Mortgage Lending, Inc., and Merrill Lynch Mortgage Investors, Inc. (Supreme Court of the State of New York, County of New York, Case No. 651217/2012,
filed April 16, 2012)
. Ambac Assurance alleges breach of contract, fraudulent inducement, indemnification, reimbursement and requested the repurchase of loans that breach representations and warranties as required under the contracts, as well as damages. Defendants filed a motion to dismiss on July 13, 2012, which Ambac opposed on September 21, 2012. Oral argument was held on May 6, 2013. On July 18, 2013 the court dismissed Ambac Assurance’s claims for indemnification and limited Ambac Assurance’s claim for breach of loan-level warranties to the repurchase protocol, but did not dismiss Ambac Assurance’s other contractual claims or fraudulent inducement claim. On August 21, 2013, defendants filed a notice of appeal, and on August 30, 2013, Ambac Assurance filed a notice of cross-appeal. On April 22, 2014, the parties filed a stipulation withdrawing defendants’ appeal and Ambac Assurance’s cross-appeal of the court’s July 18, 2013 decision. Discovery is ongoing.
|
•
|
Ambac Assurance Corporation and The Segregated Account of Ambac Assurance Corporation v. Countrywide Securities Corp., Countrywide Financial Corp. (a.k.a. Bank of America Home Loans) and Bank of America Corp. (Supreme Court of the State of New York, County of New York, Case No. 651612/2010, filed on September 28, 2010)
. Ambac Assurance filed an Amended Complaint on September 8, 2011. Ambac Assurance alleged breach of contract, fraudulent inducement, indemnification and reimbursement, and breach of representations and warranties, requested the repurchase of loans that breach representations and warranties as required under the contracts, as well as damages, and asserted a successor liability claim against Bank of America. On May 28, 2013, Ambac Assurance filed a Second Amended Complaint adding an alter ego claim against Bank of America alleging that, because Bank of America and Countrywide are alter egos of one another, Bank of America is responsible for Countrywide’s liabilities to Ambac. The defendants served their answers on July 31, 2013. Fact and expert discovery has ended. On May 1, 2015, Ambac Assurance filed motions for partial summary judgment, which defendants opposed. Defendants also each filed motions for summary judgment, which Ambac Assurance opposed. The court heard oral argument on July 15, 2015. On October 27, 2015, the court issued a decision dated October 22, 2015 granting in part and denying in part the parties’ respective summary judgment motions regarding Ambac Assurance’s claims against Countrywide (primary-liability claims), and issued a second decision granting Ambac Assurance’s partial motion for summary judgment and denying Bank of America’s motion for summary judgment regarding Ambac Assurance’s secondary-liability claims against Bank of America. Ambac Assurance and Countrywide filed notices of appeal of the October 22, 2015 decision relating to primary liability and Bank of America filed a notice of appeal of the October 27, 2015 decision relating to its secondary-liability to the New York Appellate Division, First Department. On May 16, 2017, the First Department issued rulings in both appeals, reversing a number of rulings that the trial court had made and affirming other rulings. On June 15, 2017, Ambac Assurance filed a motion with the First Department for leave to appeal certain rulings in the May 16, 2017 decision to the Court of Appeals, which Countrywide opposed. On July 25, 2017 the First Department granted Ambac Assurance’s motion. The briefing for the appeal has been completed and oral argument is expected in 2018.
|
•
|
Ambac Assurance Corporation and The Segregated Account of Ambac Assurance Corporation v. Nomura Credit & Capital, Inc. and Nomura Holding America Inc. (Supreme Court of the State of New York, County of New York, Case No. 651359/2013, filed on April 15, 2013)
. Ambac Assurance alleges claims for material breach of contract and for the repurchase of loans that breach representations and warranties under the contracts, as well as damages. Ambac Assurance has also asserted alter ego claims against Nomura Holding America, Inc. Defendants filed a motion to dismiss on July 12, 2013, which Ambac Assurance opposed. The court held oral argument on November 13, 2013. On September 22, 2014, plaintiffs filed an amended complaint alleging claims for fraudulent inducement, material breach of contract and for the repurchase of loans that breach representations and warranties under the contracts, as well as damages. On October 31, 2014 defendants filed a motion to strike the amended complaint. Ambac Assurance opposed that motion and at the court’s recommendation also filed a cross motion for leave to amend the complaint on November 14, 2014, which the defendants opposed. Defendants filed a motion to dismiss the fraudulent inducement claim, which Ambac Assurance opposed. The court heard oral argument on the defendants’ motion to dismiss the fraudulent inducement claim on April 14, 2015. On June 3, 2015, the court denied defendants’ July 2013 motion to dismiss Ambac’s claim for breaches of representations and warranties, but granted the defendants’ motion to dismiss Ambac’s claims for breach of the repurchase protocol and for alter ego liability against Nomura Holding. On December 29, 2016, the court issued a decision denying Nomura’s motion to strike Ambac’s amended complaint and its motion to dismiss the fraudulent inducement claim. On January 31, 2017, Nomura filed a notice of appeal from that decision. On March 27, 2017, Nomura appealed the June 2015 decision to the extent it denied its motion to dismiss and filed its opening appellate brief. Ambac Assurance opposed that appeal. On December 7, 2017, the First Department affirmed the trial court’s June 3, 2015 decision. Discovery is ongoing.
|
•
|
The Segregated Account of Ambac Assurance Corporation and Ambac Assurance Corporation v. Countrywide Home Loans, Inc. (Wisconsin Circuit Court for Dane County, Case No 14 CV 3511, filed on December 30, 2014)
. Ambac Assurance alleges a claim for fraudulent inducement in connection with Ambac Assurance’s issuance of insurance policies relating to five residential mortgage-backed securitizations that are not the subject of Ambac Assurance’s previously filed lawsuit against the same defendant. Defendant filed a motion
|
•
|
Ambac Assurance Corporation and the Segregated Account of Ambac Assurance Corporation v. Countrywide Home Loans, Inc., Countrywide Securities Corp., Countrywide Financial Corp., and Bank of America Corp. (Supreme Court of the State of New York, County of New York, Case No. 653979/2014,
filed on December 30, 2014)
. Ambac Assurance alleges a claim for fraudulent inducement in connection with Ambac Assurance’s issuance of insurance policies relating to eight residential mortgage-backed securitizations that are not the subject of Ambac Assurance’s previously filed lawsuits against the same defendants. On February 20, 2015, the Countrywide defendants filed a motion to dismiss the complaint, which Bank of America joined on February 23, 2015. Ambac Assurance opposed the motion. On December 20, 2016, the court issued a decision denying the defendants’ motion to dismiss. Discovery is ongoing.
|
•
|
Ambac Assurance Corporation and The Segregated Account of Ambac Assurance Corporation v. U.S. Bank National Association
(United States District Court, Southern District of New York, Docket No. 17-cv-02614, filed April 11, 2017)
. Ambac Assurance alleges claims for breach of contract, breach of fiduciary duty, declaratory judgment, and violation of the Streit Act in connection with defendant’s failure to enforce rights and remedies and defendant’s treatment of trust recoveries, as trustee of five residential mortgage-backed securitizations for which Ambac Assurance issued insurance policies. On September 15, 2017, U.S. Bank filed a motion to dismiss, which Ambac Assurance opposed on October 13, 2017. Oral argument on that motion was held on November 17, 2017. The motion remains pending.
|
•
|
the Second Amended Plan of Rehabilitation became effective and a series of transactions were consummated which provided holders of beneficial interests in Deferred Amounts (other than Ambac, but including Ambac Assurance) a total effective consideration package, in full satisfaction and discharge of each
$1.00
of Deferred Amounts (including accretion), of (i)
$0.40
in cash, (ii)
$0.41
in principal amount of new Secured Notes and (iii) from certain holders of surplus notes,
$0.125
currently outstanding surplus notes. Such consideration package provided a discount of
$0.065
(set first against accretion of Deferred Amounts). Ambac received
$0.91
in principal amount of Secured Notes for each
$1.00
of Deferred Amounts (including accretion) that it held, and provided a
$0.09
discount in full satisfaction and discharge of its Deferred Amount claims. This transaction is being accounted for as an extinguishment of Deferred Amounts and the discount of approximately
$288,000
from the settlement will be reflected as a benefit to loss and loss expenses in the Consolidated Statements of Comprehensive Income (Loss) in the quarter ended March 31, 2018.
|
•
|
the Exchange Offers were consummated, pursuant to which holders of surplus notes received the same effective package as holders of beneficial interests in Deferred Amounts, including the discount of
$0.065
in principal amount and accrued and unpaid interest on the surplus notes tendered; resulting in Ambac Assurance's cancellation of
$809,520
of principal and accrued and unpaid interest of general account surplus notes. The Exchange Offers will be accounted for as a debt modification since the creditors before and after the discount remain the same and the change in the terms is not considered substantial. A substantial change is considered to be a change in cash flows of equal to or greater than
10%
as a result of the modification of terms. As the change in cash flows is less than
10%
, debt modification accounting is appropriate. Under debt modification accounting, no gain or loss is recorded, and a new effective interest rate is established based on the cash flows of the Ambac Note, which secures the Secured Notes issued as part of the Exchange Offers. Additionally, any consideration paid that is directly related to the issuance of the Ambac Note is capitalized and amortized as part of the effective yield calculation.
|
•
|
in connection with the Rehabilitation Exit Transactions, Ambac Assurance is making a one-time current interest payment on remaining surplus notes (other than junior surplus notes) of
$13,501
, of which
$2,618
will be received by Ambac.
|
•
|
Ambac Assurance issued
$240,000
of new debt secured by certain of Ambac Assurance’s rights to representation and warranty subrogation recoveries above
$1,600,000
("Tier 2 Notes"). The proceeds received from this issuance were used to fund the cash portion of the consideration paid pursuant to the Second Amended Plan of Rehabilitation and Exchange Offers.
|
•
|
Ambac will incur operating expenses in the first quarter of 2018 for its and the OCI's financial advisors that is approximately
$14,000
.
|
•
|
The Ambac Note (and Secured Notes) will accrue interest at a per annum rate of 3-month U.S. Dollar LIBOR plus
5.00%
, subject to a
1.00%
LIBOR floor. Accrued and unpaid interest will be paid in cash on each payment date (quarterly on the last day of each quarter beginning with June 30, 2018) until the maturity date. The maturity date for the Secured Notes and the Ambac Note will be the earlier of (x)
February 12, 2023
, and (y) if the Secured Notes are then outstanding, the date that is five business days prior to the date for which OCI has approved the repayment of the outstanding principal amount of the surplus notes (other than junior surplus notes) issued by Ambac Assurance. Promptly, and in any event within four business days after the receipt (whether directly or indirectly) of any representation and warranty subrogation recoveries, Ambac Assurance shall (i) apply an amount (the “Mandatory Redemption Amount”) equal to the lesser of (a) the amount of such RMBS proceeds and (b) all outstanding principal and accrued and unpaid interest on the Ambac Note to redeem the Ambac Note, in whole or in part, as applicable; provided, that any non-cash RMBS proceeds shall be deemed to be received upon the receipt of the applicable appraisal. Redemptions or prepayments of the Ambac Note will result in corresponding redemptions or prepayments of the Secured Notes.
|
•
|
The Tier 2 Notes will mature in
2055
and shall bear interest at a rate of
8.50%
per annum, calculated on a 30/360 basis. Interest payments will not be made in cash on interest payment dates and shall be paid-in-kind and compounded on the last day of each calendar quarter, unless (i) funds are available to make such payments in cash as a result of receiving recoveries in respect of the representation and warranty subrogation recoveries in excess of
$1,600,000
or (ii) interest is paid in cash on surplus notes (other than in connection with the Exchange Offers and Second Amended Plan of Rehabilitation). The Tier 2 Notes may not be redeemed or repaid prior to
December 17, 2020
, unless Ambac Assurance pays a make-whole premium. Thereafter, the Tier 2 Notes may be redeemed, in whole or in part, at the option of Ambac Assurance, at a price equal to
100%
of the aggregate principal amount redeemed, plus accrued and unpaid interest, if any.
|
|
|
2017
|
|
2016
|
||||||||||||||||||||||||||||
($ in thousands)
|
|
First
Quarter |
|
Second
Quarter |
|
Third
Quarter |
|
Fourth
Quarter |
|
First
Quarter |
|
Second
Quarter |
|
Third
Quarter |
|
Fourth
Quarter |
||||||||||||||||
Gross premiums written
|
|
$
|
5,584
|
|
|
$
|
6,928
|
|
|
$
|
(24,696
|
)
|
|
$
|
(2,129
|
)
|
|
$
|
(24,780
|
)
|
|
$
|
(4,041
|
)
|
|
$
|
(10,543
|
)
|
|
$
|
(14,473
|
)
|
Net premiums earned
|
|
47,613
|
|
|
43,152
|
|
|
52,989
|
|
|
31,523
|
|
|
52,800
|
|
|
41,402
|
|
|
53,218
|
|
|
49,867
|
|
||||||||
Net investment income
|
|
81,559
|
|
|
85,160
|
|
|
87,177
|
|
|
107,057
|
|
|
60,821
|
|
|
70,758
|
|
|
90,917
|
|
|
90,871
|
|
||||||||
Net other than temporary impairment losses
|
|
(3,942
|
)
|
|
(1,763
|
)
|
|
(13,510
|
)
|
|
(956
|
)
|
|
(9,334
|
)
|
|
(7,441
|
)
|
|
(2,853
|
)
|
|
(2,191
|
)
|
||||||||
Net realized investment gains (losses)
|
|
(4,896
|
)
|
|
4,180
|
|
|
6,150
|
|
|
(68
|
)
|
|
1,102
|
|
|
14,897
|
|
|
11,749
|
|
|
11,536
|
|
||||||||
Net change in fair value of credit derivatives
|
|
1,052
|
|
|
6,624
|
|
|
179
|
|
|
8,517
|
|
|
12,866
|
|
|
3,955
|
|
|
1,733
|
|
|
1,552
|
|
||||||||
Net gains (losses) on interest rate derivatives
|
|
(1,514
|
)
|
|
34,068
|
|
|
3,984
|
|
|
23,027
|
|
|
(83,424
|
)
|
|
(36,331
|
)
|
|
(14,510
|
)
|
|
83,992
|
|
||||||||
Net realized gains (losses) on extinguishment of debt
|
|
2,741
|
|
|
2,179
|
|
|
—
|
|
|
—
|
|
|
1,235
|
|
|
3,586
|
|
|
24
|
|
|
—
|
|
||||||||
Income (loss) on Variable Interest Entities
|
|
3,701
|
|
|
(1,219
|
)
|
|
(4,049
|
)
|
|
21,237
|
|
|
(27,163
|
)
|
|
8,987
|
|
|
2,057
|
|
|
2,026
|
|
||||||||
Losses and loss expenses (benefit)
|
|
135,011
|
|
|
66,100
|
|
|
209,806
|
|
|
102,269
|
|
|
(105,281
|
)
|
|
(52,496
|
)
|
|
(69,204
|
)
|
|
215,492
|
|
||||||||
Insurance intangible amortization
|
|
37,525
|
|
|
33,471
|
|
|
45,690
|
|
|
34,168
|
|
|
50,890
|
|
|
39,013
|
|
|
44,553
|
|
|
40,152
|
|
||||||||
Operating expenses
|
|
27,980
|
|
|
31,051
|
|
|
33,791
|
|
|
28,694
|
|
|
28,009
|
|
|
27,995
|
|
|
21,466
|
|
|
36,190
|
|
||||||||
Interest expense
|
|
31,572
|
|
|
28,234
|
|
|
29,145
|
|
|
30,990
|
|
|
30,430
|
|
|
30,709
|
|
|
31,493
|
|
|
31,712
|
|
||||||||
Pre-tax income (loss)
|
|
(105,860
|
)
|
|
13,992
|
|
|
(185,466
|
)
|
|
(6,917
|
)
|
|
12,854
|
|
|
61,511
|
|
|
116,720
|
|
|
(86,059
|
)
|
||||||||
Net income (loss) attributable to Common Shareholders
|
|
$
|
(125,441
|
)
|
|
$
|
7,110
|
|
|
$
|
(190,905
|
)
|
|
$
|
(19,479
|
)
|
|
$
|
9,415
|
|
|
$
|
58,647
|
|
|
$
|
101,474
|
|
|
$
|
(94,693
|
)
|
Net income (loss) per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||||||
Basic
|
|
$
|
(2.77
|
)
|
|
$
|
0.16
|
|
|
$
|
(4.20
|
)
|
|
$
|
(0.43
|
)
|
|
$
|
0.21
|
|
|
$
|
1.30
|
|
|
$
|
2.24
|
|
|
$
|
(2.09
|
)
|
Diluted
|
|
$
|
(2.77
|
)
|
|
$
|
0.16
|
|
|
$
|
(4.20
|
)
|
|
$
|
(0.43
|
)
|
|
$
|
0.21
|
|
|
$
|
1.29
|
|
|
$
|
2.22
|
|
|
$
|
(2.09
|
)
|
|
|
Plan
Category
|
|
Number of Securities
to be Issued
Upon
Exercise of
Outstanding Options,
Warrants and Rights
|
|
Weighted-Average
Exercise Price of
Outstanding
Options,
Warrants and Rights
|
|
Number of Securities
Remaining Available
for Future Issuance
Under Equity
Compensation Plans
(Excluding Securities
Reflected in the
Third Column)
|
Equity compensation plans approved by security holders
|
|
2013 Incentive
Compensation Plan
(1)
|
|
959,356
(2) (3)
|
|
$24.03
(4)
|
|
2,793,323
|
Equity compensation plans not approved by security holders
|
|
None
|
|
---
|
|
---
|
|
---
|
Total
|
|
|
|
959,356
(2) (3)
|
|
$24.03
(4)
|
|
2,793.323
|
(1)
|
Our 2013 Incentive Compensation Plan was approved by the stockholders of Ambac on December 18, 2013. The total number of shares of Ambac common stock available for issuance under the 2013 Incentive Compensation Plan is 4,000,000.
|
(2)
|
Represents, as of
December 31, 2017
, the number of
outstanding restricted stock unit awards, stock options and the maximum number of performance stock units that may be issued if certain performance goals are achieved. Refer to
Note 15. Employment Benefit Plans
to the Consolidated Financial Statements included in Part II, Item 8 in this Form 10-K for a description of the grants made under the 2013 Incentive Compensation Plan. This amount includes 221,803 restricted stock units, 126,667 options and 610,886 performance stock units which are based on the maximum number of shares potentially payable under the awards.
|
(3)
|
Each restricted stock unit, stock option and performance stock unit awarded under our 2013 Incentive Compensation Plan was granted at no cost to the persons receiving them. Restricted stock units represent the contingent right to receive the equivalent number of shares of Ambac common stock and may vest after the passage of time, or the achievement of a corporate goal, or both. Stock options represent the right to acquire an equivalent number of shares of Ambac common stock at a specified exercise price. Performance stock units granted pursuant to the Company's Long Term Incentive Plan represent the contingent right to receive a number of shares of Ambac common stock ranging from 0% to 200% of the number of units granted depending upon the achievement of certain company-wide performance goals.
|
(4)
|
Reflects the weighted-average price of all outstanding options that had been granted but not forfeited, expired or exercised. Performance shares and restricted stock units are not included in determining the weighted-average price as they have no exercise price.
|
1.
|
Financial Statements
|
2.
|
Financial Statement Schedules
|
(b)
|
Exhibits
|
||
|
|
|
|
(3)
Articles of Incorporation and bylaws:
|
|||
|
3.1
|
|
|
|
3.2
|
|
|
(4)
Instruments defining the rights of security holders, including indentures:
|
|||
|
4.1
|
|
|
|
4.2
|
|
|
|
4.3
|
|
|
|
4.4
|
|
|
|
4.5
|
|
|
|
4.6
|
|
|
|
4.7
|
|
|
|
4.8
|
|
|
|
4.9
|
|
|
|
4.10
|
|
|
|
4.11
|
|
|
|
4.12
|
|
|
|
4.13
|
|
|
|
4.14
|
|
|
|
4.15
|
|
|
|
4.16
|
|
|
(10)
Material contract and management compensation plans and arrangements:
|
|||
|
10.1
|
|
|
|
10.2
|
|
|
|
10.3
|
|
(b)
|
Exhibits
|
||
|
|
|
|
|
10.4
|
|
|
|
10.5
|
|
|
|
10.6
|
|
|
|
10.7
|
|
|
|
10.8
|
|
|
|
10.9
|
|
|
|
10.10
|
|
|
|
10.11
|
|
|
|
10.12
|
|
|
|
10.13
|
|
|
|
10.14
|
|
|
|
10.15
|
|
|
|
10.16
|
|
|
|
10.17
|
|
|
|
10.18
|
|
|
|
10.19
|
|
|
|
10.20
|
|
|
|
10.21
|
|
|
|
10.22
|
|
|
|
10.23
|
|
|
|
10.24
|
|
|
|
10.25+
|
|
|
|
10.26
|
|
(b)
|
Exhibits
|
||
|
|
|
|
|
32.1++
|
|
|
|
101.INS
|
|
XBRL Instance Document.
|
|
101.SCH
|
|
XBRL Taxonomy Extension Schema Document.
|
|
101.CAL
|
|
XBRL Taxonomy Extension Calculation Linkbase Document.
|
|
101.LAB
|
|
XBRL Taxonomy Extension Label Linkbase Document.
|
|
101.PRE
|
|
XBRL Taxonomy Extension Presentation Linkbase Document.
|
|
101.DEF
|
|
XBRL Taxonomy Extension Definition Linkbase Document.
|
|
|
|
|
|
|
|
+ Filed herewith. ++ Furnished herewith.
|
Type of Investment
($ in Thousands)
|
|
Amortized
Cost
|
|
Estimated
Fair Value
|
|
Amount at Which
Shown in the
Balance Sheet
|
||||||
Municipal obligations
|
|
$
|
845,778
|
|
|
$
|
779,834
|
|
|
$
|
779,834
|
|
Corporate obligations
|
|
858,774
|
|
|
860,075
|
|
|
860,075
|
|
|||
Foreign obligations
|
|
26,245
|
|
|
26,543
|
|
|
26,543
|
|
|||
U.S. government obligations
|
|
186,619
|
|
|
185,127
|
|
|
185,127
|
|
|||
Residential mortgage-backed securities
|
|
2,214,512
|
|
|
2,251,333
|
|
|
2,251,333
|
|
|||
Collateralized debt obligations
|
|
50,754
|
|
|
51,037
|
|
|
51,037
|
|
|||
Other asset-backed securities
|
|
531,660
|
|
|
597,942
|
|
|
597,942
|
|
|||
Short-term
|
|
557,476
|
|
|
557,270
|
|
|
557,270
|
|
|||
Other
|
|
396,689
|
|
|
431,630
|
|
|
431,630
|
|
|||
Total
|
|
$
|
5,668,507
|
|
|
$
|
5,740,791
|
|
|
$
|
5,740,791
|
|
($ in thousands, except share data) December 31,
|
2017
|
|
2016
|
||||
Assets:
|
|
|
|
||||
Fixed income securities, at fair value (amortized cost: 2017—$239,476 and 2016—$220,749)
|
$
|
230,055
|
|
|
$
|
214,023
|
|
Short-term investments, at cost (approximates fair value)
|
69,531
|
|
|
66,570
|
|
||
Other investments
|
64,691
|
|
|
30,003
|
|
||
Total investments
|
364,277
|
|
|
310,596
|
|
||
Cash
|
3,949
|
|
|
32,251
|
|
||
Investment in subsidiaries
|
968,392
|
|
|
1,340,442
|
|
||
Investment income due and accrued
|
329
|
|
|
272
|
|
||
Current taxes receivable
(1)
|
29,576
|
|
|
28,722
|
|
||
Other assets
|
14,946
|
|
|
4,132
|
|
||
Total assets
|
$
|
1,381,469
|
|
|
$
|
1,716,415
|
|
Liabilities and Stockholders' Equity:
|
|
|
|
||||
Liabilities:
|
|
|
|
||||
Accounts payable and other liabilities
|
321
|
|
|
2,501
|
|
||
Total liabilities
|
321
|
|
|
2,501
|
|
||
Stockholders’ equity:
|
|
|
|
||||
Preferred stock, par value $0.01 per share; 20,000,000 shares authorized shares; issued and outstanding shares—none
|
—
|
|
|
—
|
|
||
Common stock, par value $0.01 per share; 130,000,000 shares authorized; issued and outstanding shares: 45,275,982 and 45,194,954
|
453
|
|
|
452
|
|
||
Additional paid-in capital
|
199,560
|
|
|
195,267
|
|
||
Accumulated other comprehensive income (loss)
|
(52,239
|
)
|
|
(38,990
|
)
|
||
Retained earnings
|
1,233,845
|
|
|
1,557,681
|
|
||
Treasury stock, shares at cost: 24,816 and
22,458
|
(471
|
)
|
|
(496
|
)
|
||
Total Ambac Financial Group, Inc. stockholders’ equity
|
1,381,148
|
|
|
1,713,914
|
|
||
Total liabilities and stockholders’ equity
|
$
|
1,381,469
|
|
|
$
|
1,716,415
|
|
(1)
|
Of these amounts,
$30,496
and
$28,691
receivable from the Registrant's wholly-owned subsidiary, Ambac Assurance Corporation, pursuant to the Amended TSA.
|
($ in thousands) Year Ended December 31,
|
2017
|
|
2016
|
|
2015
|
||||||
Revenues:
|
|
|
|
|
|
||||||
Investment income
|
$
|
24,411
|
|
|
$
|
13,493
|
|
|
$
|
9,826
|
|
Other than temporary impairments
|
(550
|
)
|
|
(289
|
)
|
|
(155
|
)
|
|||
Net realized gains (losses)
|
(6,575
|
)
|
|
(7
|
)
|
|
(27
|
)
|
|||
Total revenues
|
17,286
|
|
|
13,197
|
|
|
9,644
|
|
|||
Expenses:
|
|
|
|
|
|
||||||
Operating expenses
|
3,913
|
|
|
11,486
|
|
|
8,922
|
|
|||
Total expenses
|
3,913
|
|
|
11,486
|
|
|
8,922
|
|
|||
Income (loss) before income taxes and equity in undistributed net loss of subsidiaries
|
13,373
|
|
|
1,711
|
|
|
722
|
|
|||
Federal income tax provision (benefit)
|
(29,398
|
)
|
|
(28,739
|
)
|
|
(70,811
|
)
|
|||
Income before equity in undistributed net income of subsidiaries
|
42,771
|
|
|
30,450
|
|
|
71,533
|
|
|||
Equity in undistributed net income (loss) of subsidiaries
|
(371,486
|
)
|
|
44,393
|
|
|
421,870
|
|
|||
Net income (loss)
|
$
|
(328,715
|
)
|
|
$
|
74,843
|
|
|
$
|
493,403
|
|
|
|
|
|
|
|
||||||
Other comprehensive income (loss), after tax:
|
|
|
|
|
|
||||||
Net income (loss)
|
$
|
(328,715
|
)
|
|
$
|
74,843
|
|
|
$
|
493,403
|
|
Unrealized gains (losses) on securities, net of deferred income taxes of $0
|
(81,520
|
)
|
|
67,900
|
|
|
(159,730
|
)
|
|||
Gain (loss) on foreign currency translation, net of deferred income taxes of $0.
|
73,586
|
|
|
(122,128
|
)
|
|
(44,651
|
)
|
|||
Changes to postretirement benefit, net of tax
|
1,273
|
|
|
23
|
|
|
(687
|
)
|
|||
Total other comprehensive income (loss)
|
(6,661
|
)
|
|
(54,205
|
)
|
|
(205,068
|
)
|
|||
Total comprehensive income (loss) attributable to Ambac Financial Group, Inc.
|
$
|
(335,376
|
)
|
|
$
|
20,638
|
|
|
$
|
288,335
|
|
($ in thousands)
|
Total
|
|
Retained
Earnings
|
|
Accumulated
Other
Comprehensive
Income
|
|
Preferred
Stock
|
|
Common
Stock
|
|
Additional Paid-in
Capital
|
|
Common
Stock Held
in Treasury,
at Cost
|
||||||||||||||
Balance at January 1, 2017
|
$
|
1,713,914
|
|
|
$
|
1,557,681
|
|
|
$
|
(38,990
|
)
|
|
$
|
—
|
|
|
$
|
452
|
|
|
$
|
195,267
|
|
|
$
|
(496
|
)
|
Total comprehensive income
(loss)
|
(335,376
|
)
|
|
(328,715
|
)
|
|
(6,661
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|||||||
Adjustment to initially apply ASU 2018-02
|
—
|
|
|
6,588
|
|
|
(6,588
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|||||||
Adjustment to initially apply ASU 2016-09
|
(137
|
)
|
|
(137
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|||||||
Stock-based compensation
|
4,293
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
4,293
|
|
|
—
|
|
|||||||
Cost of shares (acquired) issued under equity plan
|
(1,547
|
)
|
|
(1,572
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
25
|
|
|||||||
Issuance of common stock
|
1
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
1
|
|
|
—
|
|
|
—
|
|
|||||||
Balance at December 31, 2017
|
$
|
1,381,148
|
|
|
$
|
1,233,845
|
|
|
$
|
(52,239
|
)
|
|
$
|
—
|
|
|
$
|
453
|
|
|
$
|
199,560
|
|
|
$
|
(471
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||||
Balance at Balance at January 1, 2016
|
$
|
1,684,799
|
|
|
$
|
1,478,439
|
|
|
$
|
15,215
|
|
|
$
|
—
|
|
|
$
|
450
|
|
|
$
|
190,813
|
|
|
$
|
(118
|
)
|
Total comprehensive income
|
20,638
|
|
|
74,843
|
|
|
(54,205
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|||||||
Adjustment to initially apply ASU 2014-13
|
6,442
|
|
|
6,442
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|||||||
Stock-based compensation
|
5,253
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
5,253
|
|
|
—
|
|
|||||||
Cost of shares (acquired) issued under equity plan
|
(505
|
)
|
|
(127
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(378
|
)
|
|||||||
Cost of warrants acquired
|
(2,717
|
)
|
|
(1,916
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(801
|
)
|
|
—
|
|
|||||||
Issuance of common stock
|
2
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
2
|
|
|
—
|
|
|
—
|
|
|||||||
Warrants exercised
|
2
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
2
|
|
|
—
|
|
|||||||
Balance at December 31, 2016
|
$
|
1,713,914
|
|
|
$
|
1,557,681
|
|
|
$
|
(38,990
|
)
|
|
$
|
—
|
|
|
$
|
452
|
|
|
$
|
195,267
|
|
|
$
|
(496
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||||
Balance at January 1, 2015
|
$
|
1,399,105
|
|
|
$
|
989,290
|
|
|
$
|
220,283
|
|
|
$
|
—
|
|
|
$
|
450
|
|
|
$
|
189,138
|
|
|
$
|
(56
|
)
|
Total comprehensive income
|
288,335
|
|
|
493,403
|
|
|
(205,068
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|||||||
Stock-based compensation
|
3,105
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
3,105
|
|
|
—
|
|
|||||||
Cost of shares (acquired) issued under equity plan
|
(374
|
)
|
|
(312
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(62
|
)
|
|||||||
Cost of warrants acquired
|
(5,375
|
)
|
|
(3,942
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(1,433
|
)
|
|
—
|
|
|||||||
Warrants exercised
|
3
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
3
|
|
|
—
|
|
|||||||
Balance at December 31, 2015
|
$
|
1,684,799
|
|
|
$
|
1,478,439
|
|
|
$
|
15,215
|
|
|
$
|
—
|
|
|
$
|
450
|
|
|
$
|
190,813
|
|
|
$
|
(118
|
)
|
($ in thousands) Year Ended December 31,
|
2017
|
|
2016
|
|
2015
|
||||||
Cash flows from operating activities:
|
|
|
|
|
|
||||||
Net income (loss)
|
$
|
(328,715
|
)
|
|
$
|
74,843
|
|
|
$
|
493,403
|
|
Adjustments to reconcile net income loss to net cash used in operating activities:
|
|
|
|
|
|
||||||
Equity in undistributed net (income) loss of non-debtor subsidiaries
|
371,486
|
|
|
(44,393
|
)
|
|
(421,870
|
)
|
|||
Amortization of bond premium and discount
|
(16,724
|
)
|
|
(7,208
|
)
|
|
(4,690
|
)
|
|||
Other-than-temporary impairment charges
|
550
|
|
|
289
|
|
|
155
|
|
|||
Net realized gains (losses)
|
6,575
|
|
|
7
|
|
|
27
|
|
|||
Increase (decrease) in current income taxes payable
|
(854
|
)
|
|
42,126
|
|
|
(71,069
|
)
|
|||
Share-based compensation
|
4,293
|
|
|
5,253
|
|
|
3,105
|
|
|||
Investment income due and accrued
|
(57
|
)
|
|
(149
|
)
|
|
(69
|
)
|
|||
(Increase) decrease in other assets
|
(10,814
|
)
|
|
646
|
|
|
991
|
|
|||
Other, net
|
(9,960
|
)
|
|
5,814
|
|
|
549
|
|
|||
Net cash provided by (used in) operating activities
|
15,780
|
|
|
77,228
|
|
|
532
|
|
|||
Cash flows from investing activities:
|
|
|
|
|
|
||||||
Proceeds from matured bonds
|
186,747
|
|
|
269,459
|
|
|
347,539
|
|
|||
Purchases of bonds
|
(195,853
|
)
|
|
(279,582
|
)
|
|
(312,419
|
)
|
|||
Change in short-term investments
|
(2,961
|
)
|
|
(18,491
|
)
|
|
(25,143
|
)
|
|||
Change in other investments
|
(34,688
|
)
|
|
(4,664
|
)
|
|
(5,253
|
)
|
|||
Other, net
|
2,673
|
|
|
(9,009
|
)
|
|
—
|
|
|||
Net cash provided by (used in) investing activities
|
(44,082
|
)
|
|
(42,287
|
)
|
|
4,724
|
|
|||
Cash flows from financing activities:
|
|
|
|
|
|
||||||
Cost of warrants acquired
|
—
|
|
|
(2,717
|
)
|
|
(5,375
|
)
|
|||
Proceeds from warrant exercise
|
—
|
|
|
2
|
|
|
3
|
|
|||
Net cash (used in) financing activities
|
—
|
|
|
(2,715
|
)
|
|
(5,372
|
)
|
|||
Net cash flow
|
(28,302
|
)
|
|
32,226
|
|
|
(116
|
)
|
|||
Cash at beginning of period
|
32,251
|
|
|
25
|
|
|
141
|
|
|||
Cash at end of period
|
$
|
3,949
|
|
|
$
|
32,251
|
|
|
$
|
25
|
|
|
|
|
|
|
|
||||||
Supplemental disclosure of cash flow information:
|
|
|
|
|
|
||||||
Cash paid during the period for:
|
|
|
|
|
|
||||||
Income taxes
|
$
|
784
|
|
|
$
|
635
|
|
|
$
|
394
|
|
Insurance Premiums Written
($ in Thousands)
|
Gross
Amount
|
|
Ceded to Other
Companies
|
|
Assumed from
Other
Companies
|
|
Net
Amount
|
|
Percentage of
Amount
Assumed to
Net
|
||||||||
Year Ended December 31, 2017
|
$
|
(14,313
|
)
|
|
$
|
(2,104
|
)
|
|
$
|
—
|
|
|
$
|
(12,209
|
)
|
|
—%
|
|
|
|
|
|
|
|
|
|
|
||||||||
Year Ended December 31, 2016
|
(53,837
|
)
|
|
(8,772
|
)
|
|
$
|
—
|
|
|
(45,065
|
)
|
|
—%
|
|||
|
|
|
|
|
|
|
|
|
|
||||||||
Year Ended December 31, 2015
|
(37,572
|
)
|
|
(3,001
|
)
|
|
—
|
|
|
(34,571
|
)
|
|
—%
|
|
|
AMBAC FINANCIAL GROUP, INC.
|
|
|
|
|
|
Dated:
|
February 28, 2018
|
By:
|
/S/ DAVID TRICK
|
|
|
|
David Trick
|
|
|
|
Executive Vice President and Chief Financial Officer
|
Signature
|
|
Title
|
|
Date
|
|
|
|
|
|
/S/ JEFFREY S. STEIN*
|
|
Chairman of the Board and Director
|
|
February 28, 2018
|
Jeffrey S. Stein
|
|
|
|
|
|
|
|
|
|
/S/ CLAUDE LEBLANC
|
|
President, Chief Executive Officer and Director
|
|
February 28, 2018
|
Claude LeBlanc
|
|
(Principal Executive Officer)
|
|
|
|
|
|
|
|
/S/ DAVID TRICK
|
|
Executive Vice President and Chief Financial Officer
|
|
February 28, 2018
|
David Trick
|
|
(Principal Financial Officer)
|
|
|
|
|
|
|
|
/S/ ROBERT B. EISMAN
|
|
Senior Managing Director and Chief Accounting Officer
|
|
February 28, 2018
|
Robert B. Eisman
|
|
(Principal Accounting Officer)
|
|
|
|
|
|
|
|
/S/ ALEXANDER D. GREENE*
|
|
Director
|
|
February 28, 2018
|
Alexander D. Greene
|
|
|
|
|
|
|
|
|
|
/S/ IAN D. HAFT*
|
|
Director
|
|
February 28, 2018
|
Ian D. Haft
|
|
|
|
|
|
|
|
|
|
/S/ DAVID L. HERZOG*
|
|
Director
|
|
February 28, 2018
|
David L. Herzog
|
|
|
|
|
|
|
|
|
|
/S/ C. JAMES PRIEUR*
|
|
Director
|
|
February 28, 2018
|
C. James Prieur
|
|
|
|
|
|
|
|
|
|
/S/ STEPHEN M. KSENAK
|
|
|
|
|
*By: Stephen M. Ksenak
|
|
Attorney-in-fact
|
|
February 28, 2018
|
|
|
|
|
EXHIBIT 10.38
|
|
|
|
|
|
STATE OF WISCONSIN
|
:
|
CIRCUIT COURT
|
:
|
DANE COUNTY
|
September 22, 2017
|
MICHAEL BEST & FRIEDRICH LLP
Ann Ustad Smith, Bar No. 1003243
John D. Finerty, Jr., Bar No. 1018183
Justin M. Mertz, Bar No. 1056938
Kimberly A. Streff, Bar No. 1106358
100 East Wisconsin Ave. Suite 3300
Milwaukee, Wisconsin 53202
Telephone: (414) 271-6560
Facsimile: (414) 277-0656
Email: jdfinerty@michaelbest.com
Attorneys for the Commissioner of Insurance of the State of Wisconsin, as the Court Appointed Rehabilitator of the Segregated Account of Ambac Assurance Corporation
|
ticle 4
|
PROCEDURES GOVERNING DISTRIBUTIONS AND CLAIM RESOLUTION 40
|
•
|
commencing or continuing in any manner any action or other proceeding, including the assertion of any counterclaims or defenses, on account of Policy Claims that arose prior to the Effective Date, whether such Claims, counterclaims, or defenses were predicated on the Proceeding Circumstances or otherwise, or the property to be distributed under the terms of this Plan, other than (i) to enforce any right to the Pre-Record Date Deferred Amount Consideration and the Final Post-Record Date Payment and (ii) to administer or otherwise resolve any Disputed Claims pursuant to the Amended Payment Guidelines;
|
•
|
enforcing, attaching, collecting, or recovering in any manner any judgment, award, decree, or order against the Ambac Parties with respect to Claims that arose before the Effective Date, other than to enforce any right to the Pre-Record Date Deferred Amount Consideration and the Final Post-Record Date Payment;
|
•
|
creating, perfecting, or enforcing any Lien or other encumbrance against property of the Ambac Parties, or any property to be distributed under the terms of this Plan or the First Amended Plan;
|
•
|
with respect to Claims that arose before the Effective Date, asserting any right of setoff, subrogation, or recoupment of any kind, directly or indirectly, against any obligation due to the Ambac Parties or any direct or indirect transferee of any property of, or successor in interest to, the Ambac Parties as prohibited by Wis. Stat. § 645.56; and
|
•
|
acting or proceeding in any manner, in any place whatsoever, that does not comply with, the provisions of this Plan.
|
STATE OF WISCONSIN
|
:
|
CIRCUIT COURT
|
:
|
DANE COUNTY
|
1
|
Capitalized terms used in this Order that are not otherwise defined shall have the meanings ascribed to them in the Second Amended Plan, Payment Guidelines, and Motion, as the case may be.
|
|
|
Successor Ambac
|
|
|
Predecessor
|
||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
Period from May 1
|
|
|
Period from Jan 1
|
||||||||||
|
|
Year Ended December 31,
|
|
through
|
|
|
through
|
||||||||||||||||
($ in thousands, except ratios)
|
|
2017
|
|
2016
|
|
2015
|
|
2015
|
|
December 31,
2013 |
|
|
April 30,
2013 |
||||||||||
Earnings:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||
Pre-tax income (loss)
|
|
$
|
(284,251
|
)
|
|
$
|
105,026
|
|
|
510,058
|
|
|
493,253
|
|
|
$
|
512,316
|
|
|
|
$
|
3,348,033
|
|
Fixed Charges
|
|
114,306
|
|
|
119,503
|
|
|
115,016
|
|
|
127,754
|
|
|
84,736
|
|
|
|
30,342
|
|
||||
Earnings
|
|
$
|
(169,945
|
)
|
|
$
|
224,529
|
|
|
625,074
|
|
|
621,007
|
|
|
$
|
597,052
|
|
|
|
$
|
3,378,375
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||
Fixed charges:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||
Interest expense
|
|
$
|
113,400
|
|
|
$
|
118,500
|
|
|
113,100
|
|
|
125,891
|
|
|
$
|
83,595
|
|
|
|
$
|
29,718
|
|
Portion of rental expense deemed to be interest
|
|
906
|
|
|
1,003
|
|
|
1,916
|
|
|
1,863
|
|
|
1,141
|
|
|
|
624
|
|
||||
Fixed charges
|
|
$
|
114,306
|
|
|
$
|
119,503
|
|
|
115,016
|
|
|
127,754
|
|
|
$
|
84,736
|
|
|
|
$
|
30,342
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||
Ratio of earnings to fixed charges
|
|
*
|
|
|
1.9
|
x
|
|
5.4
|
x
|
|
4.9
|
x
|
|
7.0
|
x
|
|
|
111.3
|
x
|
*
|
Earning for the year ended
December 31, 2017
were inadequate to cover fixed charges by
$284,251
.
|
Name
|
|
State of Incorporation
|
Ambac Asset Management, Inc.
|
|
(Delaware)
|
Ambac Assurance Corporation
|
|
(Wisconsin)
|
Ambac Assurance UK Limited
|
|
(United Kingdom Insurance Company)
|
Ambac Capital Corporation
|
|
(Delaware)
|
Ambac Capital Funding, Inc.
|
|
(Delaware)
|
Ambac Credit Products, LLC
|
|
(Delaware)
|
Ambac Financial Services, LLC
|
|
(Delaware)
|
Ambac Investments, Inc.
|
|
(Delaware)
|
Archer Holdings Portfolio I, LLC
|
|
(Delaware)
|
Everspan Financial Guarantee Corp.
|
|
(Wisconsin)
|
Ortley Investments LLC
|
|
(Delaware)
|
Osprey Holdings I, LLC
|
|
(Delaware)
|
AE Global Holdings, LLC
|
|
(Delaware)
|
AE Global Asset Funding, LLC
|
|
(Delaware)
|
AE Global Investments, LLC
|
|
(Delaware)
|
Ambac Conduit Funding LLC
|
|
(Delaware)
|
Juneau Investments LLC
|
|
(Delaware)
|
Phoenix Holdings Fund LLC
|
|
(Delaware)
|
Triton Real Estate Holding I, LLC
|
|
(Delaware)
|
Signature
|
|
Title
|
|
Date
|
|
|
|
|
|
/S/ JEFFREY S. STEIN
|
|
Chairman of the Board and Director
|
|
February 28, 2018
|
Jeffrey S. Stein
|
|
|
|
|
|
|
|
|
|
/S/ CLAUDE LeBLANC
|
|
President, Chief Executive Officer and Director
|
|
February 28, 2018
|
Claude LeBlanc
|
|
(Principal Executive Officer)
|
|
|
|
|
|
|
|
/S/ DAVID TRICK
|
|
Executive Vice President and Chief Financial Officer
|
|
February 28, 2018
|
David Trick
|
|
(Principal Financial Officer)
|
|
|
|
|
|
|
|
/S/ ROBERT B. EISMAN
|
|
Senior Managing Director and Chief Accounting Officer
|
|
February 28, 2018
|
Robert B. Eisman
|
|
(Principal Accounting Officer)
|
|
|
|
|
|
|
|
/S/ ALEXANDER D. GREENE
|
|
Director
|
|
February 28, 2018
|
Alexander D. Greene
|
|
|
|
|
|
|
|
|
|
/S/ IAN D. HAFT
|
|
Director
|
|
February 28, 2018
|
Ian D. Haft
|
|
|
|
|
|
|
|
|
|
/S/ DAVID L. HERZOG
|
|
Director
|
|
February 28, 2018
|
David L. Herzog
|
|
|
|
|
|
|
|
|
|
/S/ C. JAMES PRIEUR
|
|
Director
|
|
February 28, 2018
|
C. James Prieur
|
|
|
|
|
1.
|
I have reviewed this
Annual
Report on Form
10-K
for the year ended
December 31, 2017
of Ambac Financial Group, Inc. (the "registrant");
|
2.
|
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
|
3.
|
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
|
4.
|
The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a—15(e) and 15d—15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
|
a.
|
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
|
b.
|
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
|
c.
|
Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
|
d.
|
Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
|
5.
|
The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors:
|
a.
|
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
|
b.
|
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
|
Dated:
|
February 28, 2018
|
By:
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/s/ Claude LeBlanc
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Claude LeBlanc
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President and Chief Executive Officer
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1.
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I have reviewed this
Annual
Report on Form
10-K
for the year ended
December 31, 2017
of Ambac Financial Group, Inc (the "registrant");
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2.
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Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
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3.
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Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
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4.
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The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a—15(e) and 15d—15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
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a.
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Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
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b.
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Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
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c.
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Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
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d.
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Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
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5.
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The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors:
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a.
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All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
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b.
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Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
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Dated:
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February 28, 2018
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By:
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/s/ David Trick
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David Trick
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Executive Vice President and Chief Financial Officer
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(1)
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The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
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(2)
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The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
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By:
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/s/ Claude LeBlanc
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Name:
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Claude LeBlanc
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Title:
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President and Chief Executive Officer
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By:
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/s/ David Trick
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Name:
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David Trick
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Title:
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Executive Vice President and Chief Financial Officer
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Dated:
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February 28, 2018
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